A.

Elements of the Relationship

Labor Code: Articles 97 (a) ,(b) ,(c); 173 (f) ,(g); 219 (e) & (f)

1)

G.R. No. 167648 January 28, 2008

TELEVISION AND PRODUCTION EXPONENTS, INC. and/or ANTONIO P. TUVIERA, petitioners,

vs.
ROBERTO C. SERVAÑA, respondent.

DECISION

TINGA, J.:

This petition for review under Rule 45 assails the 21 December 2004 Decision1 and 8 April 2005
Resolution2 of the Court of Appeals declaring Roberto Servaña (respondent) a regular employee of
petitioner Television and Production Exponents, Inc. (TAPE). The appellate court likewise ordered
TAPE to pay nominal damages for its failure to observe statutory due process in the termination of
respondent’s employment for authorized cause.

TAPE is a domestic corporation engaged in the production of television programs, such as the long-
running variety program, "Eat Bulaga!". Its president is Antonio P. Tuviera (Tuviera). Respondent
Roberto C. Servaña had served as a security guard for TAPE from March 1987 until he was
terminated on 3 March 2000.

Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE. He
alleged that he was first connected with Agro-Commercial Security Agency but was later on
absorbed by TAPE as a regular company guard. He was detailed at Broadway Centrum in Quezon
City where "Eat Bulaga!" regularly staged its productions. On 2 March 2000, respondent received a
memorandum informing him of his impending dismissal on account of TAPE’s decision to contract
the services of a professional security agency. At the time of his termination, respondent was
receiving a monthly salary of P6,000.00. He claimed that the holiday pay, unpaid vacation and sick
leave benefits and other monetary considerations were withheld from him. He further contended that
his dismissal was undertaken without due process and violative of existing labor laws, aggravated by
nonpayment of separation pay.3

In a motion to dismiss which was treated as its position paper, TAPE countered that the labor arbiter
had no jurisdiction over the case in the absence of an employer-employee relationship between the
parties. TAPE made the following assertions: (1) that respondent was initially employed as a security
guard for Radio Philippines Network (RPN-9); (2) that he was tasked to assist TAPE during its live
productions, specifically, to control the crowd; (3) that when RPN-9 severed its relationship with the
security agency, TAPE engaged respondent’s services, as part of the support group and thus a
talent, to provide security service to production staff, stars and guests of "Eat Bulaga!" as well as to
control the audience during the one-and-a-half hour noontime program; (4) that it was agreed that
complainant would render his services until such time that respondent company shall have engaged
the services of a professional security agency; (5) that in 1995, when his contract with RPN-9
expired, respondent was retained as a talent and a member of the support group, until such time that
TAPE shall have engaged the services of a professional security agency; (6) that respondent was
not prevented from seeking other employment, whether or not related to security services, before or
after attending to his "Eat Bulaga!" functions; (7) that sometime in late 1999, TAPE started
negotiations for the engagement of a professional security agency, the Sun Shield Security Agency;
and (8) that on 2 March 2000, TAPE issued memoranda to all talents, whose functions would be
rendered redundant by the engagement of the security agency, informing them of the management’s
decision to terminate their services.4

TAPE averred that respondent was an independent contractor falling under the talent group category
and was working under a special arrangement which is recognized in the industry.5

Respondent for his part insisted that he was a regular employee having been engaged to perform an
activity that is necessary and desirable to TAPE’s business for thirteen (13) years.6

On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared respondent to be a regular

employee of TAPE. The Labor Arbiter relied on the nature of the work of respondent, which is
securing and maintaining order in the studio, as necessary and desirable in the usual business
activity of TAPE. The Labor Arbiter also ruled that the termination was valid on the ground of
redundancy, and ordered the payment of respondent’s separation pay equivalent to one (1)-month
pay for every year of service. The dispositive portion of the decision reads:

WHEREFORE, complainant’s position is hereby declared redundant. Accordingly,

respondents are hereby ordered to pay complainant his separation pay computed at the rate
of one (1) month pay for every year of service or in the total amount of P78,000.00.7

On appeal, the National Labor Relations Commission (NLRC) in a Decision8 dated 22 April 2002
reversed the Labor Arbiter and considered respondent a mere program employee, thus:

We have scoured the records of this case and we find nothing to support the Labor Arbiter’s
conclusion that complainant was a regular employee.

xxxx

The primary standard to determine regularity of employment is the reasonable connection

between the particular activity performed by the employee in relation to the usual business or
trade of the employer. This connection can be determined by considering the nature and
work performed and its relation to the scheme of the particular business or trade in its
entirety. x x x Respondent company is engaged in the business of production of television
shows. The records of this case also show that complainant was employed by respondent
company beginning 1995 after respondent company transferred from RPN-9 to GMA-7, a
fact which complainant does not dispute. His last salary was P5,444.44 per month. In such
industry, security services may not be deemed necessary and desirable in the usual
business of the employer. Even without the performance of such services on a regular basis,
respondent’s company’s business will not grind to a halt.

xxxx

Complainant was indubitably a program employee of respondent company. Unlike [a] regular
employee, he did not observe working hours x x x. He worked for other companies, such as
M-Zet TV Production, Inc. at the same time that he was working for respondent company.
The foregoing indubitably shows that complainant-appellee was a program employee.
Otherwise, he would have two (2) employers at the same time.9
Respondent filed a motion for reconsideration but it was denied in a Resolution10 dated 28 June
2002.

Respondent filed a petition for certiorari with the Court of Appeals contending that the NLRC acted
with grave abuse of discretion amounting to lack or excess of jurisdiction when it reversed the
decision of the Labor Arbiter. Respondent asserted that he was a regular employee considering the
nature and length of service rendered.11

Reversing the decision of the NLRC, the Court of Appeals found respondent to be a regular
employee. We quote the dispositive portion of the decision:

IN LIGHT OF THE FOREGOING, the petition is hereby GRANTED. The Decision dated 22
April 2002 of the public respondent NLRC reversing the Decision of the Labor Arbiter and its
Resolution dated 28 June 2002 denying petitioner’s motion for reconsideration
are REVERSED and SET ASIDE. The Decision dated 29 June 2001 of the Labor Arbiter
is REINSTATED with MODIFICATION in that private respondents are ordered to pay jointly
and severally petitioner the amount of P10,000.00 as nominal damages for non-compliance
with the statutory due process.

SO ORDERED.12

Finding TAPE’s motion for reconsideration without merit, the Court of Appeals issued a
Resolution13 dated 8 April 2005 denying said motion.

TAPE filed the instant petition for review raising substantially the same grounds as those in its
petition for certiorari before the Court of Appeals. These matters may be summed up into one main
issue: whether an employer-employee relationship exists between TAPE and respondent.

On 27 September 2006, the Court gave due course to the petition and considered the case
submitted for decision.14

At the outset, it bears emphasis that the existence of employer-employee relationship is ultimately a
question of fact. Generally, only questions of law are entertained in appeals by certiorari to the
Supreme Court. This rule, however, is not absolute. Among the several recognized exceptions is
when the findings of the Court of Appeals and Labor Arbiters, on one hand, and that of the NLRC, on
the other, are conflicting,15 as obtaining in the case at bar.

Jurisprudence is abound with cases that recite the factors to be considered in determining the
existence of employer-employee relationship, namely: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to
control the employee with respect to the means and method by which the work is to be
accomplished.16 The most important factor involves the control test. Under the control test, there is
an employer-employee relationship when the person for whom the services are performed reserves
the right to control not only the end achieved but also the manner and means used to achieve that
end.17

In concluding that respondent was an employee of TAPE, the Court of Appeals applied the "four-fold
test" in this wise:
 First. The selection and hiring of petitioner was done by private respondents. In fact, private
respondents themselves admitted having engaged the services of petitioner only in 1995
after TAPE severed its relations with RPN Channel 9.

By informing petitioner through the Memorandum dated 2 March 2000, that his services will
be terminated as soon as the services of the newly hired security agency begins, private
respondents in effect acknowledged petitioner to be their employee. For the right to hire and
fire is another important element of the employer-employee relationship.

Second. Payment of wages is one of the four factors to be considered in determining the
existence of employer-employee relation. . . Payment as admitted by private respondents
was given by them on a monthly basis at a rate of P5,444.44.

Third. Of the four elements of the employer-employee relationship, the "control test" is the
most important. x x x

The bundy cards representing the time petitioner had reported for work are evident proofs of
private respondents’ control over petitioner more particularly with the time he is required to
report for work during the noontime program of "Eat Bulaga!" If it were not so, petitioner
would be free to report for work anytime even not during the noontime program of "Eat
Bulaga!" from 11:30 a.m. to 1:00 p.m. and still gets his compensation for being a "talent."
Precisely, he is being paid for being the security of "Eat Bulaga!" during the above-
mentioned period. The daily time cards of petitioner are not just for mere record purposes as
claimed by private respondents. It is a form of control by the management of private
respondent TAPE.18

TAPE asseverates that the Court of Appeals erred in applying the "four-fold test" in determining the
existence of employer-employee relationship between it and respondent. With respect to the
elements of selection, wages and dismissal, TAPE proffers the following arguments: that it never
hired respondent, instead it was the latter who offered his services as a talent to TAPE; that the
Memorandum dated 2 March 2000 served on respondent was for the discontinuance of the contract
for security services and not a termination letter; and that the talent fees given to respondent were
the pre-agreed consideration for the services rendered and should not be construed as wages.
Anent the element of control, TAPE insists that it had no control over respondent in that he was free
to employ means and methods by which he is to control and manage the live audiences, as well as
the safety of TAPE’s stars and guests.19

The position of TAPE is untenable. Respondent was first connected with Agro-Commercial Security
Agency, which assigned him to assist TAPE in its live productions. When the security agency’s
contract with RPN-9 expired in 1995, respondent was absorbed by TAPE or, in the latter’s language,
"retained as talent."20 Clearly, respondent was hired by TAPE. Respondent presented his
identification card21 to prove that he is indeed an employee of TAPE. It has been in held that in a
business establishment, an identification card is usually provided not just as a security measure but
to mainly identify the holder thereof as a bona fide employee of the firm who issues it.22

Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE prefers to
designate such amount as talent fees. Wages, as defined in the Labor Code, are remuneration or
earnings, however designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered. It is beyond
dispute that respondent received a fixed amount as monthly compensation for the services he
rendered to TAPE.

The Memorandum informing respondent of the discontinuance of his service proves that TAPE had
the power to dismiss respondent.

Control is manifested in the bundy cards submitted by respondent in evidence. He was required to
report daily and observe definite work hours. To negate the element of control, TAPE presented a
certification from M-Zet Productions to prove that respondent also worked as a studio security guard
for said company. Notably, the said certificate categorically stated that respondent reported for work
on Thursdays from 1992 to 1995. It can be recalled that during said period, respondent was still
working for RPN-9. As admitted by TAPE, it absorbed respondent in late 1995.23

TAPE further denies exercising control over respondent and maintains that the latter is an
independent contractor.24Aside from possessing substantial capital or investment, a legitimate job
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.25 TAPE failed to
establish that respondent is an independent contractor. As found by the Court of Appeals:

We find the annexes submitted by the private respondents insufficient to prove that herein
petitioner is indeed an independent contractor. None of the above conditions exist in the
case at bar. Private respondents failed to show that petitioner has substantial capital or
investment to be qualified as an independent contractor. They likewise failed to present a
written contract which specifies the performance of a specified piece of work, the nature and
extent of the work and the term and duration of the relationship between herein petitioner
and private respondent TAPE.26

TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in classifying
respondent as a program employee and equating him to be an independent contractor.

Policy Instruction No. 40 defines program employees as—

x x x those whose skills, talents or services are engaged by the station for a particular or
specific program or undertaking and who are not required to observe normal working hours
such that on some days they work for less than eight (8) hours and on other days beyond the
normal work hours observed by station employees and are allowed to enter into employment
contracts with other persons, stations, advertising agencies or sponsoring companies. The
engagement of program employees, including those hired by advertising or sponsoring
companies, shall be under a written contract specifying, among other things, the nature of
the work to be performed, rates of pay and the programs in which they will work. The
contract shall be duly registered by the station with the Broadcast Media Council within three
(3) days from its consummation.27

TAPE failed to adduce any evidence to prove that it complied with the requirements laid down in the
policy instruction. It did not even present its contract with respondent. Neither did it comply with the
contract-registration requirement.

Even granting arguendo that respondent is a program employee, stills, classifying him as an
independent contractor is misplaced. The Court of Appeals had this to say:
 We cannot subscribe to private respondents’ conflicting theories. The theory of private
respondents that petitioner is an independent contractor runs counter to their very own
allegation that petitioner is a talent or a program employee. An independent contractor is not
an employee of the employer, while a talent or program employee is an employee. The only
difference between a talent or program employee and a regular employee is the fact that a
regular employee is entitled to all the benefits that are being prayed for. This is the reason
why private respondents try to seek refuge under the concept of an independent contractor
theory. For if petitioner were indeed an independent contractor, private respondents will not
be liable to pay the benefits prayed for in petitioner’s complaint.28

More importantly, respondent had been continuously under the employ of TAPE from 1995 until his
termination in March 2000, or for a span of 5 years. Regardless of whether or not respondent had
been performing work that is necessary or desirable to the usual business of TAPE, respondent is
still considered a regular employee under Article 280 of the Labor Code which provides:

Art. 280. Regular and Casual Employment.—The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment
shall be deemed to be regular where the employee has been engaged to perform activities
which are usually necessary or desirable in the usual business or trade of the employer,
except where the employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of engagement of the
employee or where the work or service to be performed is seasonal in nature and
employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph.

Provided, that, any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered a regular employee with respect to the
activity in which he is employed and his employment shall continue while such activity exists.

As a regular employee, respondent cannot be terminated except for just cause or when authorized
by law.29 It is clear from the tenor of the 2 March 2000 Memorandum that respondent’s termination
was due to redundancy. Thus, the Court of Appeals correctly disposed of this issue, viz:

Article 283 of the Labor Code provides that the employer may also terminate the
employment of any employee due to the installation of labor saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment
or undertaking unless the closing is for the purpose of circumventing the provisions of this
Title, by serving a written notice on the workers and the Ministry of Labor and Employment at
least one (1) month before the intended date thereof. In case of termination due to the
installation of labor saving devices or redundancy, the worker affected thereby shall be
entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1)
month pay for every year or service, whichever is higher.

xxxx

We uphold the finding of the Labor Arbiter that "complainant [herein petitioner] was
terminated upon [the] management’s option to professionalize the security services in its
operations. x x x" However, [we] find that although petitioner’s services [sic] was for an
authorized cause, i.e., redundancy, private respondents failed to prove that it complied with
service of written notice to the Department of Labor and Employment at least one month
prior to the intended date of retrenchment. It bears stressing that although notice was served
upon petitioner through a Memorandum dated 2 March 2000, the effectivity of his dismissal
 is fifteen days from the start of the agency’s take over which was on 3 March 2000.
Petitioner’s services with private respondents were severed less than the month requirement
by the law.

Under prevailing jurisprudence the termination for an authorized cause requires payment of
separation pay. Procedurally, if the dismissal is based on authorized causes under Articles
283 and 284, the employer must give the employee and the Deparment of Labor and
Employment written notice 30 days prior to the effectivity of his separation. Where the
dismissal is for an authorized cause but due process was not observed, the dismissal should
be upheld. While the procedural infirmity cannot be cured, it should not invalidate the
dismissal. However, the employer should be liable for non-compliance with procedural
requirements of due process.

xxxx

Under recent jurisprudence, the Supreme Court fixed the amount of P30,000.00 as nominal
damages. The basis of the violation of petitioners’ right to statutory due process by the
private respondents warrants the payment of indemnity in the form of nominal damages. The
amount of such damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances. We believe this form of damages would serve to deter
employer from future violations of the statutory due process rights of the employees. At the
very least, it provides a vindication or recognition of this fundamental right granted to the
latter under the Labor Code and its Implementing Rules. Considering the circumstances in
the case at bench, we deem it proper to fix it at P10,000.00.30

In sum, we find no reversible error committed by the Court of Appeals in its assailed decision.

However, with respect to the liability of petitioner Tuviera, president of TAPE, absent any showing
that he acted with malice or bad faith in terminating respondent, he cannot be held solidarily liable
with TAPE.31 Thus, the Court of Appeals ruling on this point has to be modified.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with
MODIFICATION in that only petitioner Television and Production Exponents, Inc. is liable to pay
respondent the amount of P10,000.00 as nominal damages for non-compliance with the statutory
due process and petitioner Antonio P. Tuviera is accordingly absolved from liability.

SO ORDERED.

2)

G.R. No. 164156 September 26, 2006

ABS-CBN BROADCASTING CORPORATION, petitioner,

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

DECISION

CALLEJO, SR., J.:

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

The Antecedents

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

and owns a network of television and radio stations, whose operations revolve around the broadcast,
transmission, and relay of telecommunication signals. It sells and deals in or otherwise utilizes the
airtime it generates from its radio and television operations. It has a franchise as a broadcasting
company, and was likewise issued a license and authority to operate by the National
Telecommunications Commission.

Petitioner employed respondents Nazareno, Gerzon, Deiparine, and Lerasan as production

assistants (PAs) on different dates. They were assigned at the news and public affairs, for various
radio programs in the Cebu Broadcasting Station, with a monthly compensation of P4,000. They
were issued ABS-CBN employees’ identification cards and were required to work for a minimum of
eight hours a day, including Sundays and holidays. They were made to perform the following tasks
and duties:

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

b) Coordinate, arrange personalities for air interviews;

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

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

e) Assist, anchor program interview, etc; and

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

Their respective working hours were as follows:

Name Time No. of Hours

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

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

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

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

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

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

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

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

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

Monday – Saturday

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

Miss Nazareno will then be assigned at the Research Dept.

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

4:30 P.M. – 12:00 MN – Jennifer Deiparine

Sunday

5:00 A.M. – 1:00 P.M. – Jennifer Deiparine

1:00 P.M. – 10:00 P.M. – Joy Sanchez

Respondent Gerzon was assigned as the full-time PA of the TV News Department reporting directly
to Leo Lastimosa.

On October 12, 2000, respondents filed a Complaint for Recognition of Regular Employment Status,
Underpayment of Overtime Pay, Holiday Pay, Premium Pay, Service Incentive Pay, Sick Leave Pay,
and 13th Month Pay with Damages against the petitioner before the NLRC. The Labor Arbiter
directed the parties to submit their respective position papers. Upon respondents’ failure to file their
position papers within the reglementary period, Labor Arbiter Jose G. Gutierrez issued an Order
dated April 30, 2001, dismissing the complaint without prejudice for lack of interest to pursue the
case. Respondents received a copy of the Order on May 16, 2001.7 Instead of re-filing their
complaint with the NLRC within 10 days from May 16, 2001, they filed, on June 11, 2001, an Earnest
Motion to Refile Complaint with Motion to Admit Position Paper and Motion to Submit Case For
Resolution.8 The Labor Arbiter granted this motion in an Order dated June 18, 2001, and forthwith
admitted the position paper of the complainants. Respondents made the following allegations:

1. Complainants were engaged by respondent ABS-CBN as regular and full-time employees for a
continuous period of more than five (5) years with a monthly salary rate of Four Thousand
(P4,000.00) pesos beginning 1995 up until the filing of this complaint on November 20, 2000.
Machine copies of complainants’ ABS-CBN Employee’s Identification Card and salary vouchers are
hereto attached as follows, thus:

I. Jennifer Deiparine:

Exhibit "A" - ABS-CBN Employee’s Identification Card

Exhibit "B", - ABS-CBN Salary Voucher from Nov.

Exhibit "B-1" & 1999 to July 2000 at P4,000.00

Exhibit "B-2"

Date employed: September 15, 1995

Length of service: 5 years & nine (9) months

II. Merlou Gerzon - ABS-CBN Employee’s Identification Card

Exhibit "C"

Exhibit "D"

Exhibit "D-1" &

Exhibit "D-2" - ABS-CBN Salary Voucher from March

1999 to January 2001 at P4,000.00

Date employed: September 1, 1995

Length of service: 5 years & 10 months

III. Marlene Nazareno

Exhibit "E" - ABS-CBN Employee’s Identification Card

Exhibit "E" - ABS-CBN Salary Voucher from Nov.

Exhibit "E-1" & 1999 to December 2000

Exhibit :E-2"

Date employed: April 17, 1996

Length of service: 5 years and one (1) month

IV. Joy Sanchez Lerasan

Exhibit "F" - ABS-CBN Employee’s Identification Card

Exhibit "F-1" - ABS-CBN Salary Voucher from Aug.

Exhibit "F-2" & 2000 to Jan. 2001

Exhibit "F-3"

Exhibit "F-4" - Certification dated July 6, 2000

Acknowledging regular status of

Complainant Joy Sanchez Lerasan

Signed by ABS-CBN Administrative

Officer May Kima Hife

Date employed: April 15, 1998

Length of service: 3 yrs. and one (1) month9

Respondents insisted that they belonged to a "work pool" from which petitioner chose persons to be
given specific assignments at its discretion, and were thus under its direct supervision and control
regardless of nomenclature. They prayed that judgment be rendered in their favor, thus:

WHEREFORE, premises considered, this Honorable Arbiter is most respectfully prayed, to issue an
order compelling defendants to pay complainants the following:

1. One Hundred Thousand Pesos (P100,000.00) each

and by way of moral damages;

2. Minimum wage differential;

3. Thirteenth month pay differential;

4. Unpaid service incentive leave benefits;

5. Sick leave;

6. Holiday pay;

7. Premium pay;

8. Overtime pay;

9. Night shift differential.

Complainants further pray of this Arbiter to declare them regular and permanent employees of
respondent ABS-CBN as a condition precedent for their admission into the existing union and
collective bargaining unit of respondent company where they may as such acquire or otherwise
perform their obligations thereto or enjoy the benefits due therefrom.

Complainants pray for such other reliefs as are just and equitable under the premises.10

For its part, petitioner alleged in its position paper that the respondents were PAs who basically
assist in the conduct of a particular program ran by an anchor or talent. Among their duties include
monitoring and receiving incoming calls from listeners and field reporters and calls of news sources;
generally, they perform leg work for the anchors during a program or a particular production. They
are considered in the industry as "program employees" in that, as distinguished from regular or
station employees, they are basically engaged by the station for a particular or specific program
broadcasted by the radio station. Petitioner asserted that as PAs, the complainants were issued
talent information sheets which are updated from time to time, and are thus made the basis to
determine the programs to which they shall later be called on to assist. The program assignments of
complainants were as follows:

a. Complainant Nazareno assists in the programs:

1) Nagbagang Balita (early morning edition)

2) Infor Hayupan

3) Arangkada (morning edition)

4) Nagbagang Balita (mid-day edition)

b. Complainant Deiparine assists in the programs:

1) Unzanith

2) Serbisyo de Arevalo

3) Arangkada (evening edition)

4) Balitang K (local version)

5) Abante Subu

6) Pangutana Lang

c. Complainant Gerzon assists in the program:

1) On Mondays and Tuesdays:

(a) Unzanith

(b) Serbisyo de Arevalo

(c) Arangkada (evening edition)

(d) Balitang K (local version)

(e) Abante Sugbu

(f) Pangutana Lang

2) On Thursdays

Nagbagang Balita

3) On Saturdays

(a) Nagbagang Balita

(b) Info Hayupan

(c) Arangkada (morning edition)

(d) Nagbagang Balita (mid-day edition)

4) On Sundays:

(a) Siesta Serenata

(b) Sunday Chismisan

(c) Timbangan sa Hustisya

(d) Sayri ang Lungsod

(e) Haranahan11

Petitioner maintained that PAs, reporters, anchors and talents occasionally "sideline" for other
programs they produce, such as drama talents in other productions. As program employees, a PA’s
engagement is coterminous with the completion of the program, and may be extended/renewed
provided that the program is on-going; a PA may also be assigned to new programs upon the
cancellation of one program and the commencement of another. As such program employees, their
compensation is computed on a program basis, a fixed amount for performance services irrespective
of the time consumed. At any rate, petitioner claimed, as the payroll will show, respondents were
paid all salaries and benefits due them under the law.12

Petitioner also alleged that the Labor Arbiter had no jurisdiction to involve the CBA and interpret the
same, especially since respondents were not covered by the bargaining unit.

On July 30, 2001, the Labor Arbiter rendered judgment in favor of the respondents, and declared
that they were regular employees of petitioner; as such, they were awarded monetary benefits. The
fallo of the decision reads:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered declaring the
complainants regular employees of the respondent ABS-CBN Broadcasting Corporation and
directing the same respondent to pay complainants as follows:

I - Merlou A. Gerzon P12,025.00

II - Marlyn Nazareno 12,025.00

III - Jennifer Deiparine 12,025.00

IV - Josephine Sanchez Lerazan 12,025.00

_________

P48,100.00

plus ten (10%) percent Attorney’s Fees or a TOTAL aggregate amount of PESOS: FIFTY TWO
THOUSAND NINE HUNDRED TEN (P52,910.00).

Respondent Veneranda C. Sy is absolved from any liability.

SO ORDERED.13

However, the Labor Arbiter did not award money benefits as provided in the CBA on his belief that
he had no jurisdiction to interpret and apply the agreement, as the same was within the jurisdiction of
the Voluntary Arbitrator as provided in Article 261 of the Labor Code.

Respondents’ counsel received a copy of the decision on August 29, 2001. Respondent Nazareno
received her copy on August 27, 2001, while the other respondents received theirs on September 8,
2001. Respondents signed and filed their Appeal Memorandum on September 18, 2001.

For its part, petitioner filed a motion for reconsideration, which the Labor Arbiter denied and
considered as an appeal, conformably with Section 5, Rule V, of the NLRC Rules of Procedure.
Petitioner forthwith appealed the decision to the NLRC, while respondents filed a partial appeal.

In its appeal, petitioner alleged the following:

1. That the Labor Arbiter erred in reviving or re-opening this case which had long been dismissed
without prejudice for more than thirty (30) calendar days;

2. That the Labor Arbiter erred in depriving the respondent of its Constitutional right to due process
of law;

3. That the Labor Arbiter erred in denying respondent’s Motion for Reconsideration on an
interlocutory order on the ground that the same is a prohibited pleading;

4. That the Labor Arbiter erred when he ruled that the complainants are regular employees of the
respondent;
5. That the Labor Arbiter erred when he ruled that the complainants are entitled to 13th month pay,
service incentive leave pay and salary differential; and

6. That the Labor Arbiter erred when he ruled that complainants are entitled to attorney’s fees.14

On November 14, 2002, the NLRC rendered judgment modifying the decision of the Labor Arbiter.
The fallo of the decision reads:

WHEREFORE, premises considered, the decision of Labor Arbiter Jose G. Gutierrez dated 30 July
2001 is SET ASIDE and VACATED and a new one is entered ORDERING respondent ABS-CBN
Broadcasting Corporation, as follows:

1. To pay complainants of their wage differentials and other benefits arising from the CBA as of 30
September 2002 in the aggregate amount of Two Million Five Hundred, Sixty-One Thousand Nine
Hundred Forty-Eight Pesos and 22/100 (P2,561,948.22), broken down as follows:

a. Deiparine, Jennifer - P 716,113.49

b. Gerzon, Merlou - 716,113.49

c. Nazareno, Marlyn - 716,113.49

d. Lerazan, Josephine Sanchez - 413,607.75

Total - P 2,561,948.22

2. To deliver to the complainants Two Hundred Thirty-Three (233) sacks of rice as of 30 September
2002 representing their rice subsidy in the CBA, broken down as follows:

a. Deiparine, Jennifer - 60 Sacks

b. Gerzon, Merlou - 60 Sacks

c. Nazareno, Marlyn - 60 Sacks

d. Lerazan, Josephine Sanchez - 53 Sacks

Total 233 Sacks; and

3. To grant to the complainants all the benefits of the CBA after 30 September 2002.

SO ORDERED.15

The NLRC declared that the Labor Arbiter acted conformably with the Labor Code when it granted
respondents’ motion to refile the complaint and admit their position paper. Although respondents
were not parties to the CBA between petitioner and the ABS-CBN Rank-and-File Employees Union,
the NLRC nevertheless granted and computed respondents’ monetary benefits based on the 1999
CBA, which was effective until September 2002. The NLRC also ruled that the Labor Arbiter had
jurisdiction over the complaint of respondents because they acted in their individual capacities and
not as members of the union. Their claim for monetary benefits was within the context of Article
217(6) of the Labor Code. The validity of respondents’ claim does not depend upon the interpretation
of the CBA.

The NLRC ruled that respondents were entitled to the benefits under the CBA because they were
regular employees who contributed to the profits of petitioner through their labor. The NLRC cited
the ruling of this Court in New Pacific Timber & Supply Company v. National Labor Relations
Commission.16

Petitioner filed a motion for reconsideration, which the NLRC denied.

Petitioner thus filed a petition for certiorari under Rule 65 of the Rules of Court before the CA, raising
both procedural and substantive issues, as follows: (a) whether the NLRC acted without jurisdiction
in admitting the appeal of respondents; (b) whether the NLRC committed palpable error in
scrutinizing the reopening and revival of the complaint of respondents with the Labor Arbiter upon
due notice despite the lapse of 10 days from their receipt of the July 30, 2001 Order of the Labor
Arbiter; (c) whether respondents were regular employees; (d) whether the NLRC acted without
jurisdiction in entertaining and resolving the claim of the respondents under the CBA instead of
referring the same to the Voluntary Arbitrators as provided in the CBA; and (e) whether the NLRC
acted with grave abuse of discretion when it awarded monetary benefits to respondents under the
CBA although they are not members of the appropriate bargaining unit.

On February 10, 2004, the CA rendered judgment dismissing the petition. It held that the perfection
of an appeal shall be upon the expiration of the last day to appeal by all parties, should there be
several parties to a case. Since respondents received their copies of the decision on September 8,
2001 (except respondent Nazareno who received her copy of the decision on August 27, 2001), they
had until September 18, 2001 within which to file their Appeal Memorandum. Moreover, the CA
declared that respondents’ failure to submit their position paper on time is not a ground to strike out
the paper from the records, much less dismiss a complaint.

Anent the substantive issues, the appellate court stated that respondents are not mere project
employees, but regular employees who perform tasks necessary and desirable in the usual trade
and business of petitioner and not just its project employees. Moreover, the CA added, the award of
benefits accorded to rank-and-file employees under the 1996-1999 CBA is a necessary
consequence of the NLRC ruling that respondents, as PAs, are regular employees.

Finding no merit in petitioner’s motion for reconsideration, the CA denied the same in a
Resolution17 dated June 16, 2004.

Petitioner thus filed the instant petition for review on certiorari and raises the following assignments
of error:

1. THE HONORABLE COURT OF APPEALS ACTED WITHOUT JURISDICTION AND GRAVELY

ERRED IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION
NOTWITHSTANDING THE PATENT NULLITY OF THE LATTER’S DECISION AND RESOLUTION.

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE NLRC FINDING RESPONDENTS REGULAR EMPLOYEES.

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF

THE NLRC AWARDING CBA BENEFITS TO RESPONDENTS.18
Considering that the assignments of error are interrelated, the Court shall resolve them
simultaneously.

Petitioner asserts that the appellate court committed palpable and serious error of law when it
affirmed the rulings of the NLRC, and entertained respondents’ appeal from the decision of the
Labor Arbiter despite the admitted lapse of the reglementary period within which to perfect the same.
Petitioner likewise maintains that the 10-day period to appeal must be reckoned from receipt of a
party’s counsel, not from the time the party learns of the decision, that is, notice to counsel is notice
to party and not the other way around. Finally, petitioner argues that the reopening of a complaint
which the Labor Arbiter has dismissed without prejudice is a clear violation of Section 1, Rule V of
the NLRC Rules; such order of dismissal had already attained finality and can no longer be set
aside.

Respondents, on the other hand, allege that their late appeal is a non-issue because it was
petitioner’s own timely appeal that empowered the NLRC to reopen the case. They assert that
although the appeal was filed 10 days late, it may still be given due course in the interest of
substantial justice as an exception to the general rule that the negligence of a counsel binds the
client. On the issue of the late filing of their position paper, they maintain that this is not a ground to
strike it out from the records or dismiss the complaint.

We find no merit in the petition.

We agree with petitioner’s contention that the perfection of an appeal within the statutory or
reglementary period is not only mandatory, but also jurisdictional; failure to do so renders the
assailed decision final and executory and deprives the appellate court or body of the legal authority
to alter the final judgment, much less entertain the appeal. However, this Court has time and again
ruled that in exceptional cases, a belated appeal may be given due course if greater injustice may
occur if an appeal is not given due course than if the reglementary period to appeal were strictly
followed.19 The Court resorted to this extraordinary measure even at the expense of sacrificing order
and efficiency if only to serve the greater principles of substantial justice and equity.20

In the case at bar, the NLRC did not commit a grave abuse of its discretion in giving Article 22321 of
the Labor Code a liberal application to prevent the miscarriage of justice. Technicality should not be
allowed to stand in the way of equitably and completely resolving the rights and obligations of the
parties.22 We have held in a catena of cases that technical rules are not binding in labor cases and
are not to be applied strictly if the result would be detrimental to the workingman.23

Admittedly, respondents failed to perfect their appeal from the decision of the Labor Arbiter within
the reglementary period therefor. However, petitioner perfected its appeal within the period, and
since petitioner had filed a timely appeal, the NLRC acquired jurisdiction over the case to give due
course to its appeal and render the decision of November 14, 2002. Case law is that the party who
failed to appeal from the decision of the Labor Arbiter to the NLRC can still participate in a separate
appeal timely filed by the adverse party as the situation is considered to be of greater benefit to both
parties.24

We find no merit in petitioner’s contention that the Labor Arbiter abused his discretion when he
admitted respondents’ position paper which had been belatedly filed. It bears stressing that the
Labor Arbiter is mandated by law to use every reasonable means to ascertain the facts in each case
speedily and objectively, without technicalities of law or procedure, all in the interest of due
process.25 Indeed, as stressed by the appellate court, respondents’ failure to submit a position paper
on time is not a ground for striking out the paper from the records, much less for dismissing a
complaint.26 Likewise, there is simply no truth to petitioner’s assertion that it was denied due process
when the Labor Arbiter admitted respondents’ position paper without requiring it to file a comment
before admitting said position paper. The essence of due process in administrative proceedings is
simply an opportunity to explain one’s side or an opportunity to seek reconsideration of the action or
ruling complained of. Obviously, there is nothing in the records that would suggest that petitioner had
absolute lack of opportunity to be heard.27 Petitioner had the right to file a motion for reconsideration
of the Labor Arbiter’s admission of respondents’ position paper, and even file a Reply thereto. In
fact, petitioner filed its position paper on April 2, 2001. It must be stressed that Article 280 of the
Labor Code was encoded in our statute books to hinder the circumvention by unscrupulous
employers of the employees’ right to security of tenure by indiscriminately and absolutely ruling out
all written and oral agreements inharmonious with the concept of regular employment defined
therein.28

We quote with approval the following pronouncement of the NLRC:

The complainants, on the other hand, contend that respondents assailed the Labor Arbiter’s order
dated 18 June 2001 as violative of the NLRC Rules of Procedure and as such is violative of their
right to procedural due process. That while suggesting that an Order be instead issued by the Labor
Arbiter for complainants to refile this case, respondents impliedly submit that there is not any
substantial damage or prejudice upon the refiling, even so, respondents’ suggestion acknowledges
complainants right to prosecute this case, albeit with the burden of repeating the same procedure,
thus, entailing additional time, efforts, litigation cost and precious time for the Arbiter to repeat the
same process twice. Respondent’s suggestion, betrays its notion of prolonging, rather than
promoting the early resolution of the case.

Although the Labor Arbiter in his Order dated 18 June 2001 which revived and re-opened the
dismissed case without prejudice beyond the ten (10) day reglementary period had inadvertently
failed to follow Section 16, Rule V, Rules Procedure of the NLRC which states:

"A party may file a motion to revive or re-open a case dismissed without prejudice within ten (10)
calendar days from receipt of notice of the order dismissing the same; otherwise, his only remedy
shall be to re-file the case in the arbitration branch of origin."

the same is not a serious flaw that had prejudiced the respondents’ right to due process. The case
can still be refiled because it has not yet prescribed. Anyway, Article 221 of the Labor Code
provides:

"In any proceedings before the Commission or any of the Labor Arbiters, the rules of evidence
prevailing in courts of law or equity shall not be controlling and it is the spirit and intention of this
Code that the Commission and its members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process."

The admission by the Labor Arbiter of the complainants’ Position Paper and Supplemental
Manifestation which were belatedly filed just only shows that he acted within his discretion as he is
enjoined by law to use every reasonable means to ascertain the facts in each case speedily and
objectively, without regard to technicalities of law or procedure, all in the interest of due process.
Indeed, the failure to submit a position paper on time is not a ground for striking out the paper from
the records, much less for dismissing a complaint in the case of the complainant. (University of
Immaculate Conception vs. UIC Teaching and Non-Teaching Personnel Employees, G.R. No.
144702, July 31, 2001).
"In admitting the respondents’ position paper albeit late, the Labor Arbiter acted within her discretion.
In fact, she is enjoined by law to use every reasonable means to ascertain the facts in each case
speedily and objectively, without technicalities of law or procedure, all in the interest of due process".
(Panlilio vs. NLRC, 281 SCRA 53).

The respondents were given by the Labor Arbiter the opportunity to submit position paper. In fact,
the respondents had filed their position paper on 2 April 2001. What is material in the compliance of
due process is the fact that the parties are given the opportunities to submit position papers.

"Due process requirements are satisfied where the parties are given the opportunities to submit
position papers". (Laurence vs. NLRC, 205 SCRA 737).

Thus, the respondent was not deprived of its Constitutional right to due process of law.29

We reject, as barren of factual basis, petitioner’s contention that respondents are considered as its
talents, hence, not regular employees of the broadcasting company. Petitioner’s claim that the
functions performed by the respondents are not at all necessary, desirable, or even vital to its trade
or business is belied by the evidence on record.

Case law is that this Court has always accorded respect and finality to the findings of fact of the CA,
particularly if they coincide with those of the Labor Arbiter and the National Labor Relations
Commission, when supported by substantial evidence.30 The question of whether respondents are
regular or project employees or independent contractors is essentially factual in nature; nonetheless,
the Court is constrained to resolve it due to its tremendous effects to the legions of production
assistants working in the Philippine broadcasting industry.

We agree with respondents’ contention that where a person has rendered at least one year of
service, regardless of the nature of the activity performed, or where the work is continuous or
intermittent, the employment is considered regular as long as the activity exists, the reason being
that a customary appointment is not indispensable before one may be formally declared as having
attained regular status. Article 280 of the Labor Code provides:

ART. 280. REGULAR AND CASUAL EMPLOYMENT.—The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall
be deemed to be regular where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for the duration of the season.

In Universal Robina Corporation v. Catapang,31 the Court reiterated the test in determining whether
one is a regular employee:

The primary standard, therefore, of determining regular employment is the reasonable connection
between the particular activity performed by the employee in relation to the usual trade or business
of the employer. The test is whether the former is usually necessary or desirable in the usual
business or trade of the employer. The connection can be determined by considering the nature of
work performed and its relation to the scheme of the particular business or trade in its entirety. Also,
if the employee has been performing the job for at least a year, even if the performance is not
continuous and merely intermittent, the law deems repeated and continuing need for its performance
as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence,
the employment is considered regular, but only with respect to such activity and while such activity
exists.32

As elaborated by this Court in Magsalin v. National Organization of Working Men:33

Even while the language of law might have been more definitive, the clarity of its spirit and intent,
i.e., to ensure a "regular" worker’s security of tenure, however, can hardly be doubted. In
determining whether an employment should be considered regular or non-regular, the applicable test
is the reasonable connection between the particular activity performed by the employee in relation to
the usual business or trade of the employer. The standard, supplied by the law itself, is whether the
work undertaken is necessary or desirable in the usual business or trade of the employer, a fact that
can be assessed by looking into the nature of the services rendered and its relation to the general
scheme under which the business or trade is pursued in the usual course. It is distinguished from a
specific undertaking that is divorced from the normal activities required in carrying on the particular
business or trade. But, although the work to be performed is only for a specific project or seasonal,
where a person thus engaged has been performing the job for at least one year, even if the
performance is not continuous or is merely intermittent, the law deems the repeated and continuing
need for its performance as being sufficient to indicate the necessity or desirability of that activity to
the business or trade of the employer. The employment of such person is also then deemed to be
regular with respect to such activity and while such activity exists.34

Not considered regular employees are "project employees," the completion or termination of which is
more or less determinable at the time of employment, such as those employed in connection with a
particular construction project, and "seasonal employees" whose employment by its nature is only
desirable for a limited period of time. Even then, any employee who has rendered at least one year
of service, whether continuous or intermittent, is deemed regular with respect to the activity
performed and while such activity actually exists.

It is of no moment that petitioner hired respondents as "talents." The fact that respondents received
pre-agreed "talent fees" instead of salaries, that they did not observe the required office hours, and
that they were permitted to join other productions during their free time are not conclusive of the
nature of their employment. Respondents cannot be considered "talents" because they are not
actors or actresses or radio specialists or mere clerks or utility employees. They are regular
employees who perform several different duties under the control and direction of ABS-CBN
executives and supervisors.

Thus, there are two kinds of regular employees under the law: (1) those engaged to perform
activities which are necessary or desirable in the usual business or trade of the employer; and (2)
those casual employees who have rendered at least one year of service, whether continuous or
broken, with respect to the activities in which they are employed.35

The law overrides such conditions which are prejudicial to the interest of the worker whose weak
bargaining situation necessitates the succor of the State. What determines whether a certain
employment is regular or otherwise is not the will or word of the employer, to which the worker
oftentimes acquiesces, much less the procedure of hiring the employee or the manner of paying the
salary or the actual time spent at work. It is the character of the activities performed in relation to the
particular trade or business taking into account all the circumstances, and in some cases the length
of time of its performance and its continued existence.36 It is obvious that one year after they were
employed by petitioner, respondents became regular employees by operation of law.37

Additionally, respondents cannot be considered as project or program employees because no

evidence was presented to show that the duration and scope of the project were determined or
specified at the time of their engagement. Under existing jurisprudence, project could refer to two
distinguishable types of activities. First, a project may refer to a particular job or undertaking that is
within the regular or usual business of the employer, but which is distinct and separate, and
identifiable as such, from the other undertakings of the company. Such job or undertaking begins
and ends at determined or determinable times. Second, the term project may also refer to a
particular job or undertaking that is not within the regular business of the employer. Such a job or
undertaking must also be identifiably separate and distinct from the ordinary or regular business
operations of the employer. The job or undertaking also begins and ends at determined or
determinable times.38

The principal test is whether or not the project employees were assigned to carry out a specific
project or undertaking, the duration and scope of which were specified at the time the employees
were engaged for that project.39

In this case, it is undisputed that respondents had continuously performed the same activities for an
average of five years. Their assigned tasks are necessary or desirable in the usual business or trade
of the petitioner. The persisting need for their services is sufficient evidence of the necessity and
indispensability of such services to petitioner’s business or trade.40 While length of time may not be a
sole controlling test for project employment, it can be a strong factor to determine whether the
employee was hired for a specific undertaking or in fact tasked to perform functions which are vital,
necessary and indispensable to the usual trade or business of the employer.41 We note further that
petitioner did not report the termination of respondents’ employment in the particular "project" to the
Department of Labor and Employment Regional Office having jurisdiction over the workplace within
30 days following the date of their separation from work, using the prescribed form on employees’
termination/ dismissals/suspensions.42

As gleaned from the records of this case, petitioner itself is not certain how to categorize
respondents. In its earlier pleadings, petitioner classified respondents as program employees, and in
later pleadings, independent contractors. Program employees, or project employees, are different
from independent contractors because in the case of the latter, no employer-employee relationship
exists.

Petitioner’s reliance on the ruling of this Court in Sonza v. ABS-CBN Broadcasting Corporation43 is
misplaced. In that case, the Court explained why Jose Sonza, a well-known television and radio
personality, was an independent contractor and not a regular employee:

A. Selection and Engagement of Employee

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

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance
indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess
such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement
with SONZA but would have hired him through its personnel department just like any other
employee.
In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.

B. Payment of Wages

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

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

SONZA’s talent fees, amounting to P317,000 monthly in the second and third year, are so huge and
out of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZA’S unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such
huge talent fees for his services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over
any talent fee accruing under the Agreement.44

In the case at bar, however, the employer-employee relationship between petitioner and
respondents has been proven.

First. In the selection and engagement of respondents, no peculiar or unique skill, talent or celebrity
status was required from them because they were merely hired through petitioner’s personnel
department just like any ordinary employee.

Second. The so-called "talent fees" of respondents correspond to wages given as a result of an
employer-employee relationship. Respondents did not have the power to bargain for huge talent
fees, a circumstance negating independent contractual relationship.

Third. Petitioner could always discharge respondents should it find their work unsatisfactory, and
respondents are highly dependent on the petitioner for continued work.

Fourth. The degree of control and supervision exercised by petitioner over respondents through its
supervisors negates the allegation that respondents are independent contractors.

The presumption is that when the work done is an integral part of the regular business of the
employer and when the worker, relative to the employer, does not furnish an independent business
or professional service, such work is a regular employment of such employee and not an
independent contractor.45 The Court will peruse beyond any such agreement to examine the facts
that typify the parties’ actual relationship.46

It follows then that respondents are entitled to the benefits provided for in the existing CBA between
petitioner and its rank-and-file employees. As regular employees, respondents are entitled to the
benefits granted to all other regular employees of petitioner under the CBA.47 We quote with
approval the ruling of the appellate court, that the reason why production assistants were excluded
from the CBA is precisely because they were erroneously classified and treated as project
employees by petitioner:

x x x The award in favor of private respondents of the benefits accorded to rank-and-file employees
of ABS-CBN under the 1996-1999 CBA is a necessary consequence of public respondent’s ruling
that private respondents as production assistants of petitioner are regular employees. The monetary
award is not considered as claims involving the interpretation or implementation of the collective
bargaining agreement. The reason why production assistants were excluded from the said
agreement is precisely because they were classified and treated as project employees by petitioner.

As earlier stated, it is not the will or word of the employer which determines the nature of
employment of an employee but the nature of the activities performed by such employee in relation
to the particular business or trade of the employer. Considering that We have clearly found that
private respondents are regular employees of petitioner, their exclusion from the said CBA on the
misplaced belief of the parties to the said agreement that they are project employees, is therefore
not proper. Finding said private respondents as regular employees and not as mere project
employees, they must be accorded the benefits due under the said Collective Bargaining
Agreement.

A collective bargaining agreement is a contract entered into by the union representing the
employees and the employer. However, even the non-member employees are entitled to the
benefits of the contract. To accord its benefits only to members of the union without any valid reason
would constitute undue discrimination against non-members. A collective bargaining agreement is
binding on all employees of the company. Therefore, whatever benefits are given to the other
employees of ABS-CBN must likewise be accorded to private respondents who were regular
employees of petitioner.48

Besides, only talent-artists were excluded from the CBA and not production assistants who are
regular employees of the respondents. Moreover, under Article 1702 of the New Civil Code: "In case
of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and
decent living of the laborer."

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. SP No. 76582 are AFFIRMED. Costs against
petitioner.

SO ORDERED.

3)

G.R. No. 183810 January 21, 2010

FARLEY FULACHE, MANOLO JABONERO, DAVID CASTILLO, JEFFREY LAGUNZAD,

MAGDALENA MALIG-ON BIGNO, FRANCISCO CABAS, JR., HARVEY PONCE and ALAN C.
ALMENDRAS, Petitioners,
vs.
ABS-CBN BROADCASTING CORPORATION, Respondent.

DECISION

BRION, J.:

The petition for review on certiorari1 now before us seeks to set aside the decision2 and resolution3 of
the Court of Appeals, Nineteenth Division (CA) promulgated on March 25, 2008 and July 8, 2008,
respectively, in CA- G.R. SP No. 01838.4

The Antecedents

The Regularization Case.

In June 2001, petitioners Farley Fulache, Manolo Jabonero, David Castillo, Jeffrey Lagunzad,
Magdalena Malig-on Bigno, Francisco Cabas, Jr., Harvey Ponce and Alan C. Almendras
(petitioners) and Cresente Atinen (Atinen) filed two separate complaints for regularization, unfair
labor practice and several money claims (regularization case) against ABS-CBN Broadcasting
Corporation-Cebu (ABS-CBN). Fulache and Castillo were drivers/cameramen; Atinen, Lagunzad and
Jabonero were drivers; Ponce and Almendras were cameramen/editors; Bigno was a
PA/Teleprompter Operator-Editing, and Cabas was a VTR man/editor. The complaints (RAB VII
Case Nos. 06-1100-01 and 06-1176-01) were consolidated and were assigned to Labor Arbiter Julie
C. Rendoque.

The petitioners alleged that on December 17, 1999, ABS-CBN and the ABS-CBN Rank-and-File
Employees Union (Union) executed a collective bargaining agreement (CBA) effective December 11,
1999 to December 10, 2002; they only became aware of the CBA when they obtained copies of the
agreement; they learned that they had been excluded from its coverage as ABS-CBN considered
them temporary and not regular employees, in violation of the Labor Code. They claimed they had
already rendered more than a year of service in the company and, therefore, should have been
recognized as regular employees entitled to security of tenure and to the privileges and benefits
enjoyed by regular employees. They asked that they be paid overtime, night shift differential,
holiday, rest day and service incentive leave pay. They also prayed for an award of moral damages
and attorney’s fees.

ABS-CBN explained the nature of the petitioners’ employment within the framework of its operations.
It claimed that: it operates in several divisions, one of which is the Regional Network Group (RNG).
The RNG exercises control and supervision over all the ABS-CBN local stations to ensure that ABS-
CBN programs are extended to the provinces. A local station, like the Cebu station, can resort to
cost-effective and cost-saving measures to remain viable; local stations produced shows and
programs that were constantly changing because of the competitive nature of the industry, the
changing public demand or preference, and the seasonal nature of media broadcasting programs.
ABS-CBN claimed, too, that the production of programs per se is not necessary or desirable in its
business because it could generate profits by selling airtime to block-timers or through advertising.

ABS-CBN further claimed that to cope with fluctuating business conditions, it contracts on a case-to-
case basis the services of persons who possess the necessary talent, skills, training, expertise or
qualifications to meet the requirements of its programs and productions. These contracted persons
are called "talents" and are considered independent contractors who offer their services to
broadcasting companies.
Instead of salaries, ABS-CBN pointed out that talents are paid a pre-arranged consideration called
"talent fee" taken from the budget of a particular program and subject to a ten percent (10%)
withholding tax. Talents do not undergo probation. Their services are engaged for a specific program
or production, or a segment thereof. Their contracts are terminated once the program, production or
segment is completed.

ABS-CBN alleged that the petitioners’ services were contracted on various dates by its Cebu station
as independent contractors/off camera talents, and they were not entitled to regularization in these
capacities.

On January 17, 2002, Labor Arbiter Rendoque rendered his decision5 holding that the petitioners
were regular employees of ABS-CBN, not independent contractors, and are entitled to the benefits
and privileges of regular employees.

ABS-CBN appealed the ruling to the National Labor Relations Commission (NLRC) Fourth Division,
mainly contending that the petitioners were independent contractors, not regular employees.6

The Illegal Dismissal Case.

While the appeal of the regularization case was pending, ABS-CBN dismissed Fulache, Jabonero,
Castillo, Lagunzad and Atinen (all drivers) for their refusal to sign up contracts of employment with
service contractor Able Services. The four drivers and Atinen responded by filing a complaint for
illegal dismissal (illegal dismissal case). The case (RAB VII Case No. 07-1300-2002) was likewise
handled by Labor Arbiter Rendoque.

In defense, ABS-CBN alleged that even before the labor arbiter rendered his decision of January 17,
2002 in the regularization case, it had already undertaken a comprehensive review of its existing
organizational structure to address its operational requirements. It then decided to course through
legitimate service contractors all driving, messengerial, janitorial, utility, make-up, wardrobe and
security services for both the Metro Manila and provincial stations, to improve its operations and to
make them more economically viable. Fulache, Jabonero, Castillo, Lagunzad and Atinen were not
singled out for dismissal; as drivers, they were dismissed because they belonged to a job category
that had already been contracted out. It argued that even if the petitioners had been found to have
been illegally dismissed, their reinstatement had become a physical impossibility because their
employer-employee relationships had been strained and that Atinen had executed a quitclaim and
release.

In her April 21, 2003 decision in the illegal dismissal case,7 Labor Arbiter Rendoque upheld the
validity of ABS-CBN's contracting out of certain work or services in its operations. The labor arbiter
found that petitioners Fulache, Jabonero, Castillo, Lagunzad and Atinen had been dismissed due to
redundancy, an authorized cause under the law.8 He awarded them separation pay of one (1)
month’s salary for every year of service.

Again, ABS-CBN appealed to the NLRC which rendered on December 15, 2004 a joint decision on
the regularization and illegal dismissal cases.9 The NLRC ruled that there was an employer-
employee relationship between the petitioners and ABS-CBN as the company exercised control over
the petitioners in the performance of their work; the petitioners were regular employees because
they were engaged to perform activities usually necessary or desirable in ABS-CBN's trade or
business; they cannot be considered contractual employees since they were not paid for the result of
their work, but on a monthly basis and were required to do their work in accordance with the
company’s schedule. The NLRC thus affirmed with modification the labor arbiter's regularization
decision of January 17, 2002, additionally granting the petitioners CBA benefits and privileges.
The NLRC reversed the labor arbiter’s ruling in the illegal dismissal case; it found that petitioners
Fulache, Jabonero, Castillo, Lagunzad and Atinen had been illegally dismissed and awarded them
backwages and separation pay in lieu of reinstatement. Under both cases, the petitioners were
awarded CBA benefits and privileges from the time they became regular employees up to the time of
their dismissal.

The petitioners moved for reconsideration, contending that Fulache, Jabonero, Castillo and
Lagunzad are entitled to reinstatement and full backwages, salary increases and other CBA benefits
as well as 13th month pay, cash conversion of sick and vacation leaves, medical and dental
allowances, educational benefits and service awards. Atinen appeared to have been excluded from
the motion and there was no showing that he sought reconsideration on his own.

ABS-CBN likewise moved for the reconsideration of the decision, reiterating that Fulache, Jabonero,
Castillo and Lagunzad were independent contractors, whose services had been terminated due to
redundancy; thus, no backwages should have been awarded. It further argued that the petitioners
were not entitled to the CBA benefits because they never claimed these benefits in their position
paper before the labor arbiter while the NLRC failed to make a clear and positive finding that that
they were part of the bargaining unit; neither was there evidence to support this finding.

The NLRC resolved the motions for reconsideration on March 24, 200610 by reinstating the two
separate decisions of the labor arbiter dated January 17, 2002,11 and April 21, 2003,12 respectively.
Thus, on the regularization issue, the NLRC stood by the ruling that the petitioners were regular
employees entitled to the benefits and privileges of regular employees. On the illegal dismissal case,
the petitioners, while recognized as regular employees, were declared dismissed due to redundancy.
The NLRC denied the petitioners’ second motion for reconsideration in its order of May 31, 2006 for
being a prohibited pleading. 13

The CA Petition and Decision

The petitioners went to the CA through a petition for certiorari under Rule 65 of the Rules of
Court.14 They charged the NLRC with grave abuse of discretion in: (1) denying them the benefits
under the CBA; (2) finding no evidence that they are part of the company’s bargaining unit; (3) not
reinstating and awarding backwages to Fulache, Jabonero, Castillo and Lagunzad; and (4) ruling
that they are not entitled to damages and attorney’s fees.

ABS-CBN, on the other hand, questioned the propriety of the petitioners’ use of a certiorari petition.
It argued that the proper remedy for the petitioners was an appeal from the reinstated decisions of
the labor arbiter.

In its decision of March 25, 2008,15 the appellate court brushed aside ABS-CBN’s procedural
question, holding that the petition was justified because there is no plain, speedy or adequate
remedy from a final decision, order or resolution of the NLRC; the reinstatement of the labor arbiter’s
decisions did not mean that the proceedings reverted back to the level of the arbiter. It likewise
affirmed the NLRC ruling that the petitioners’ second motion for reconsideration is a prohibited
pleading under the NLRC rules.16

On the merits of the case, the CA ruled that the petitioners failed to prove their claim to CBA benefits
since they never raised the issue in the compulsory arbitration proceedings, and did not appeal the
labor arbiter’s decision which was silent on their entitlement to CBA benefits. The CA found that the
petitioners failed to show with specificity how Section 1 (Appropriate Bargaining Unit) and the other
provisions of the CBA applied to them.
On the illegal dismissal issue, the CA upheld the NLRC decision reinstating the labor arbiter’s April
21, 2003 ruling.17 Thus, the drivers – Fulache, Jabonero, Castillo and Lagunzad – were not illegally
dismissed as their separation from the service was due to redundancy; they had not presented any
evidence that ABS-CBN abused its prerogative in contracting out the services of drivers. Except for
separation pay, the CA denied the petitioners’ claim for backwages, moral and exemplary damages,
and attorney’s fees.

The petitioners moved for reconsideration, but the CA denied the motion in a resolution promulgated
on July 8, 2008.18 Hence, the present petition.

The Petition

The petitioners challenge the CA ruling on both procedural and substantive grounds. As procedural
questions, they submit that the CA erred in: (1) affirming the NLRC resolution which reversed its own
decision; (2) sustaining the NLRC ruling that their second motion for reconsideration is a prohibited
pleading; (3) not ruling that ABS-CBN admitted in its position paper before the labor arbiter that they
were members of the bargaining unit as the matter was not raised in its appeal to the NLRC; and, (4)
not ruling that notwithstanding their failure to appeal from the first decision of the Labor Arbiter, they
can still participate in the appeal filed by ABS-CBN regarding their employment status.

On the substantive aspect, the petitioners contend that the CA gravely erred in: (1) not considering
the evidence submitted to the NLRC on appeal to bolster their claim that they were members of the
bargaining unit and therefore entitled to the CBA benefits; (2) not ordering ABS-CBN to pay the
petitioners’ salaries, allowances and CBA benefits after the NLRC has declared that they were
regular employees of ABS-CBN; (3) not ruling that under existing jurisprudence, the position of driver
cannot be declared redundant, and that the petitioners-drivers were illegally dismissed; and, (4) not
ruling that the petitioners were entitled to damages and attorney’s fees.

The petitioners argue that the NLRC resolution of March 24, 200619 which set aside its joint decision
of December 15, 200420 and reinstated the twin decisions of the labor arbiter,21 had the effect of
promulgating a new decision based on issues that were not raised in ABS-CBN’s partial appeal to
the NLRC. They submit that the NLRC should have allowed their second motion for reconsideration
so that it may be able to equitably evaluate the parties’ "conflicting versions of the facts" instead of
denying the motion on a mere technicality.

On the question of their CBA coverage, the petitioners contend that the CA erred in not considering
that ABS-CBN admitted their membership in the bargaining unit, for nowhere in its partial appeal
from the labor arbiter’s decision in the regularization case did it allege that the petitioners failed to
prove that they are members of the bargaining unit; instead, the company stood by its position that
the petitioners were not entitled to the CBA benefits since they were independent
contractors/program employees.

The petitioners submit that while they did not appeal the labor arbiter’s decision in the regularization
case, ABS-CBN raised the employment status issue in its own appeal to the NLRC; this appeal laid
this issue open for review. They argue that they could still participate in the appeal proceedings at
the NLRC; pursue their position on the issue; and introduce evidence as they did in their reply to the
company’s appeal.22 They bewail the appellate court’s failure to consider the evidence they
presented to the NLRC (consisting of documents and sworn statements enumerating the activities
they are performing) clearly indicating that they are part of the rank-and-file bargaining unit at ABS-
CBN.
The petitioners then proceeded to describe the work they render for the company. Collectively, they
claim that they work as assistants in the production of the Cebuano news program broadcast daily
over ABS-CBN Channel 3, as follows: Fulache, Jabonero, Castillo and Lagunzad as production
assistants to drive the news team; Ponce and Almendras, to shoot scenes and events with the use
of cameras owned by ABS-CBN; Malig-on Bigno, as studio production assistant and assistant
editor/teleprompter operator; and Cabas, Jr., as production assistant for video editing and operating
the VTR machine recorder. As production assistants, the petitioners submit that they are rank-and-
file employees (citing in support of their position the Court’s ruling in ABS-CBN Broadcasting Corp.
v. Nazareno23) who are entitled to salary increases and other benefits under the CBA. Relying on the
Court’s ruling in New Pacific Timber and Supply Company, Inc. v. NLRC,24 they posit that to exclude
them from the CBA "would constitute undue discrimination and would deprive them of monetary
benefits they would otherwise be entitled to."

As their final point, the petitioners argue that even if they were not able to prove that they were
members of the bargaining unit, the CA should not have dismissed their petition. When the CA
affirmed the rulings of both the labor arbiter and the NLRC that they are regular employees, the CA
should have ordered ABS-CBN to recognize their regular employee status and to give them the
salaries, allowances and other benefits and privileges under the CBA. 1avvphi1

On the dismissal of Fulache, Jabonero, Castillo and Lagunzad, the petitioners impute bad faith on
ABS-CBN when it abolished the positions of drivers claiming that the company failed to comply with
the requisites of a valid redundancy action. They maintain that ABS-CBN did not present any
evidence on the new staffing pattern as approved by the management of the company, and did not
even bother to show why it considered the positions of drivers superfluous and unnecessary; it is not
true that the positions of drivers no longer existed because these positions were contracted out to an
agency that, in turn, recruited four drivers to take the place of Fulache, Jabonero, Castillo and
Lagunzad. As further indication that the redundancy action against the four drivers was done in bad
faith, the petitioners call attention to ABS-CBN’s abolition of the position of drivers after the labor
arbiter rendered her decision declaring Fulache, Jabonero, Castillo and Lagunzad regular company
employees. The petitioners object to the dismissal of the four drivers when they refused to sign
resignation letters and join Able Services, a contracting agency, contending that the four had no
reason to resign after the labor arbiter declared them regular company employees.

Since their dismissal was illegal and attended by bad faith, the petitioners insist that they should be
reinstated with backwages, and should likewise be awarded moral and exemplary damages, and
attorney's fees.

The Case for ABS-CBN

In its Comment filed on January 28, 2009,25 ABS-CBN presents several grounds which may be
synthesized as follows:

1. The petition raises questions of fact and not of law.

2. The CA committed no error in affirming the resolution of the NLRC reinstating the
decisions of the labor arbiter.

ABS-CBN submits that the petition should be dismissed for having raised questions of fact and not
of law in violation of Rule 45 of the Rules of Court. It argues that the question of whether the
petitioners were covered by the CBA (and therefore entitled to the CBA benefits) and whether the
petitioners were illegally dismissed because of redundancy, are factual questions that cannot be
reviewed on certiorari because the Court is not a trier of facts.
ABS-CBN dismisses the petitioners’ issues and arguments as mere rehash of what they raised in
their pleadings with the CA and as grounds that do not warrant further consideration. It further
contends that because the petitioners did not appeal the labor arbiter decisions, these decisions had
lapsed to finality and could no longer be the subject of a petition for certiorari; the petitioners cannot
obtain from the appellate court affirmative relief other than those granted in the appealed decision. It
also argues that the NLRC did not commit any grave abuse of discretion in reinstating the twin
decisions of the labor arbiter, thereby affirming that no CBA benefits can be awarded to the
petitioners; in the absence of any illegal dismissal, the petitioners were not entitled to reinstatement,
backwages, damages, and attorney's fees.

The Court's Ruling

We first resolve the parties’ procedural questions.

ABS-CBN wants the petition to be dismissed outright for its alleged failure to comply with the
requirement of Rule 45 of the Rules of Court that the petition raises only questions of law.26

We find no impropriety in the petition from the standpoint of Rule 45. The petitioners do not question
the findings of facts of the assailed decisions. They question the misapplication of the law and
jurisprudence on the facts recognized by the decisions. For example, they question as contrary to
law their exclusion from the CBA after they were recognized as regular rank-and-file employees of
ABS-CBN. They also question the basis in law of the dismissal of the four drivers and the legal
propriety of the redundancy action taken against. To reiterate the established distinctions between
questions of law and questions of fact, we quote hereunder our ruling in New Rural Bank of Guimba
(N.E.) Inc. v. Fermina S. Abad and Rafael Susan:27

We reiterate the distinction between a question of law and a question of fact. A question of
law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for an examination of
the probative value of the evidence presented, the truth or falsehood of the facts being
admitted. A question of fact exists when a doubt or difference arises as to the truth or
falsehood of facts or when the query invites calibration of the whole evidence considering
mainly the credibility of the witnesses, the existence and relevancy of specific surrounding
circumstances, as well as their relation to each other and to the whole, and the probability of
the situation.

We also find no error in the CA’s affirmation of the denial of the petitioners’ second motion for
reconsideration of the March 24, 2006 resolution of the NLRC reinstating the labor arbiter’s twin
decisions. The petitioners’ second motion for reconsideration was a prohibited pleading under the
NLRC rules of procedure.28

The parties’ other procedural questions directly bear on the merits of their positions and are
discussed and resolved below, together with the core substantive issues of: (1) whether the
petitioners, as regular employees, are members of the bargaining unit entitled to CBA benefits; and
(2) whether petitioners Fulache, Jabonero, Castillo and Lagunzad were illegally dismissed.

The Claim for CBA Benefits

We find merit in the petitioners’ positions.

As regular employees, the petitioners fall within the coverage of the bargaining unit and are therefore
entitled to CBA benefits as a matter of law and contract. In the root decision (the labor arbiter’s
decision of January 17, 2002) that the NLRC and CA affirmed, the labor arbiter declared:

WHEREFORE, IN THE LIGHT OF THE FOREGOING, taking into account the factual scenario and
the evidence adduced by both parties, it is declared that complainants in these cases are REGULAR
EMPLOYEES of respondent ABS-CBN and not INDEPENDENT CONTRACTORS and thus
henceforth they are entitled to the benefits and privileges attached to regular status of their
employment.

This declaration unequivocally settled the petitioners’ employment status: they are ABS-CBN’s
regular employees entitled to the benefits and privileges of regular employees. These benefits and
privileges arise from entitlements under the law (specifically, the Labor Code and its related laws),
and from their employment contract as regular ABS-CBN employees, part of which is the CBA if they
fall within the coverage of this agreement. Thus, what only needs to be resolved as an issue for
purposes of implementation of the decision is whether the petitioners fall within CBA coverage.

The parties’ 1999-2002 CBA provided in its Article I (Scope of the Agreement) that:29

Section 1. APPROPRIATE BARGAINING UNIT. – The parties agree that the appropriate bargaining
unit shall be regular rank-and-file employees of ABS-CBN BROADCASTING CORPORATION but
shall not include:

a) Personnel classified as Supervisor and Confidential employees;

b) Personnel who are on "casual" or "probationary" status as defined in Section 2 hereof;

c) Personnel who are on "contract" status or who are paid for specified units of work such as
writer-producers, talent-artists, and singers.

The inclusion or exclusion of new job classifications into the bargaining unit shall be subject of
discussion between the COMPANY and the UNION. [emphasis supplied]

Under these terms, the petitioners are members of the appropriate bargaining unit because they are
regular rank-and-file employees and do not belong to any of the excluded categories. Specifically,
nothing in the records shows that they are supervisory or confidential employees; neither are they
casual nor probationary employees. Most importantly, the labor arbiter’s decision of January 17,
2002 – affirmed all the way up to the CA level – ruled against ABS-CBN’s submission that they are
independent contractors. Thus, as regular rank-and-file employees, they fall within CBA coverage
under the CBA’s express terms and are entitled to its benefits.

We see no merit in ABS-CBN’s arguments that the petitioners are not entitled to CBA benefits
because: (1) they did not claim these benefits in their position paper; (2) the NLRC did not
categorically rule that the petitioners were members of the bargaining unit; and (3) there was no
evidence of this membership. To further clarify what we stated above, CBA coverage is not only a
question of fact, but of law and contract. The factual issue is whether the petitioners are regular
rank-and-file employees of ABS-CBN. The tribunals below uniformly answered this question in the
affirmative. From this factual finding flows legal effects touching on the terms and conditions of the
petitioners’ regular employment. This was what the labor arbiter meant when he stated in his
decision that "henceforth they are entitled to the benefits and privileges attached to regular status of
their employment." Significantly, ABS-CBN itself posited before this Court that "the Court of Appeals
did not gravely err nor gravely abuse its discretion when it affirmed the resolution of the NLRC dated
March 24, 2006 reinstating and adopting in toto the decision of the Labor Arbiter dated January 17,
2002 x x x."30 This representation alone fully resolves all the objections – procedural or otherwise –
ABS-CBN raised on the regularization issue.

The Dismissal of Fulache, Jabonero,

Castillo and Lagunzad

The termination of employment of the four drivers occurred under highly questionable circumstances
and with plain and unadulterated bad faith.

The records show that the regularization case was in fact the root of the resulting bad faith as this
case gave rise and led to the dismissal case. First, the regularization case was filed leading to the
labor arbiter’s decision31declaring the petitioners, including Fulache, Jabonero, Castillo and
Lagunzad, to be regular employees. ABS-CBN appealed the decision and maintained its position
that the petitioners were independent contractors.

In the course of this appeal, ABS-CBN took matters into its own hands and terminated the
petitioners’ services, clearly disregarding its own appeal then pending with the NLRC. Notably, this
appeal posited that the petitioners were not employees (whose services therefore could be
terminated through dismissal under the Labor Code); they were independent contractors whose
services could be terminated at will, subject only to the terms of their contracts. To justify the
termination of service, the company cited redundancy as its authorized cause but offered no
justificatory supporting evidence. It merely claimed that it was contracting out the petitioners’
activities in the exercise of its management prerogative.

ABS-CBN’s intent, of course, based on the records, was to transfer the petitioners and their activities
to a service contractor without paying any attention to the requirements of our labor laws; hence,
ABS-CBN dismissed the petitioners when they refused to sign up with the service contractor.32 In this
manner, ABS-CBN fell into a downward spiral of irreconcilable legal positions, all undertaken in the
hope of saving itself from the decision declaring its "talents" to be regular employees.

By doing all these, ABS-CBN forgot labor law and its realities.

It forgot that by claiming redundancy as authorized cause for dismissal, it impliedly admitted that the
petitioners were regular employees whose services, by law, can only be terminated for the just and
authorized causes defined under the Labor Code.

Likewise ABS-CBN forgot that it had an existing CBA with a union, which agreement must be
respected in any move affecting the security of tenure of affected employees; otherwise, it ran the
risk of committing unfair labor practice – both a criminal and an administrative offense.33 It similarly
forgot that an exercise of management prerogative can be valid only if it is undertaken in good faith
and with no intent to defeat or circumvent the rights of its employees under the laws or under valid
agreements.34

Lastly, it forgot that there was a standing labor arbiter’s decision that, while not yet final because of
its own pending appeal, cannot simply be disregarded. By implementing the dismissal action at the
time the labor arbiter’s ruling was under review, the company unilaterally negated the effects of the
labor arbiter’s ruling while at the same time appealling the same ruling to the NLRC. This unilateral
move is a direct affront to the NLRC’s authority and an abuse of the appeal process.

All these go to show that ABS-CBN acted with patent bad faith. A close parallel we can draw to
characterize this bad faith is the prohibition against forum-shopping under the Rules of Court. In
forum-shopping, the Rules characterize as bad faith the act of filing similar and repetitive actions for
the same cause with the intent of somehow finding a favorable ruling in one of the actions
filed.35 ABS-CBN’s actions in the two cases, as described above, are of the same character, since its
obvious intent was to defeat and render useless, in a roundabout way and other than through the
appeal it had taken, the labor arbiter’s decision in the regularization case. Forum-shopping is
penalized by the dismissal of the actions involved. The penalty against ABS-CBN for its bad faith in
the present case should be no less.

The errors and omissions do not belong to ABS-CBN alone. The labor arbiter himself who handled
both cases did not see the totality of the company’s actions for what they were. He appeared to have
blindly allowed what he granted the petitioners with his left hand, to be taken away with his right
hand, unmindful that the company already exhibited a badge of bad faith in seeking to terminate the
services of the petitioners whose regular status had just been recognized. He should have
recognized the bad faith from the timing alone of ABS-CBN’s conscious and purposeful moves to
secure the ultimate aim of avoiding the regularization of its so-called "talents."

The NLRC, for its part, initially recognized the presence of bad faith when it originally ruled that:

While notice has been made to the employees whose positions were declared redundant, the
element of good faith in abolishing the positions of the complainants appear to be wanting. In fact, it
remains undisputed that herein complainants were terminated when they refused to sign an
employment contract with Able Services which would make them appear as employees of the
agency and not of ABS-CBN. Such act by itself clearly demonstrates bad faith on the part of the
respondent in carrying out the company’s redundancy program x x x.36

On motion for reconsideration by both parties, the NLRC reiterated its "pronouncement that
complainants were illegally terminated as extensively discussed in our Joint Decision dated
December 15, 2004."37 Yet, in an inexplicable turnaround, it reconsidered its joint decision and
reinstated not only the labor arbiter’s decision of January 17, 2002 in the regularization case, but
also his illegal dismissal decision of April 21, 2003.38 Thus, the NLRC joined the labor arbiter in his
error that we cannot but characterize as grave abuse of discretion.

The Court cannot leave unchecked the labor tribunals’ patent grave abuse of discretion that resulted,
without doubt, in a grave injustice to the petitioners who were claiming regular employment status
and were unceremoniously deprived of their employment soon after their regular status was
recognized. Unfortunately, the CA failed to detect the labor tribunals’ gross errors in the disposition
of the dismissal issue. Thus, the CA itself joined the same errors the labor tribunals committed.

The injustice committed on the petitioners/drivers requires rectification. Their dismissal was not only
unjust and in bad faith as the above discussions abundantly show. The bad faith in ABS-CBN’s
move toward its illegitimate goal was not even hidden; it dismissed the petitioners – already
recognized as regular employees – for refusing to sign up with its service contractor. Thus, from
every perspective, the petitioners were illegally dismissed.

By law,39 illegally dismissed employees are entitled to reinstatement without loss of seniority rights
and other privileges and to full backwages, inclusive of allowances, and to other benefits or their
monetary equivalent from the time their compensation was withheld from them up to the time of their
actual reinstatement. The four dismissed drivers deserve no less.

Moreover, they are also entitled to moral damages since their dismissal was attended by bad
faith.40 For having been compelled to litigate and to incur expenses to protect their rights and
interest, the petitioners are likewise entitled to attorney’s fees.41
WHEREFORE, premises considered, we hereby GRANT the petition. The decision dated March 25,
2008 and the resolution dated July 8, 2008 of the Court of Appeals in CA-G.R. SP No. 01838 are
hereby REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered as follows:

1. Confirming that petitioners FARLEY FULACHE, MANOLO JABONERO, DAVID

CASTILLO, JEFFREY LAGUNZAD, MAGDALENA MALIG-ON BIGNO, FRANCISCO
CABAS, JR., HARVEY PONCE and ALAN C. ALMENDRAS are regular employees of ABS-
CBN BROADCASTING CORPORATION, and declaring them entitled to all the rights,
benefits and privileges, including CBA benefits, from the time they became regular
employees in accordance with existing company practice and the Labor Code;

2. Declaring illegal the dismissal of Fulache, Jabonero, Castillo and Lagunzad, and ordering
ABS-CBN to immediately reinstate them to their former positions without loss of seniority
rights with full backwages and all other monetary benefits, from the time they were dismissed
up to the date of their actual reinstatement;

3. Awarding moral damages of ₱100,000.00 each to Fulache, Jabonero, Castillo and

Lagunzad; and,

4. Awarding attorney’s fees of 10% of the total monetary award decreed in this Decision.

Costs against the respondent.

SO ORDERED.

4)

G.R. No. 164652 June 8, 2007

THELMA DUMPIT-MURILLO, petitioner,

vs.
COURT OF APPEALS, ASSOCIATED BROADCASTING COMPANY, JOSE JAVIER AND
EDWARD TAN,respondents.

DECISION

QUISUMBING, J.:

This petition seeks to reverse and set aside both the Decision1 dated January 30, 2004 of the Court
of Appeals in CA-G.R. SP No. 63125 and its Resolution2 dated June 23, 2004 denying the motion for
reconsideration. The Court of Appeals had overturned the Resolution3 dated August 30, 2000 of the
National Labor Relations Commission (NLRC) ruling that petitioner was illegally dismissed.

The facts of the case are as follows:

On October 2, 1995, under Talent Contract No. NT95-1805,4 private respondent Associated
Broadcasting Company (ABC) hired petitioner Thelma Dumpit-Murillo as a newscaster and co-
anchor for Balitang-Balita, an early evening news program. The contract was for a period of three
months. It was renewed under Talent Contracts Nos. NT95-1915, NT96-3002, NT98-4984 and
NT99-5649.5 In addition, petitioner’s services were engaged for the program "Live on Five." On
September 30, 1999, after four years of repeated renewals, petitioner’s talent contract expired. Two
weeks after the expiration of the last contract, petitioner sent a letter to Mr. Jose Javier, Vice
President for News and Public Affairs of ABC, informing the latter that she was still interested in
renewing her contract subject to a salary increase. Thereafter, petitioner stopped reporting for work.
On November 5, 1999, she wrote Mr. Javier another letter,6 which we quote verbatim:

xxxx

Dear Mr. Javier:

On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal note "what
terms and conditions" in response to my first letter dated October 13, 1999. To date, or for more than
fifteen (15) days since then, I have not received any formal written reply. xxx

In view hereof, should I not receive any formal response from you until Monday, November 8, 1999, I
will deem it as a constructive dismissal of my services.

xxxx

A month later, petitioner sent a demand letter7 to ABC, demanding: (a) reinstatement to her former
position; (b) payment of unpaid wages for services rendered from September 1 to October 20, 1999
and full backwages; (c) payment of 13th month pay, vacation/sick/service incentive leaves and other
monetary benefits due to a regular employee starting March 31, 1996. ABC replied that a check
covering petitioner’s talent fees for September 16 to October 20, 1999 had been processed and
prepared, but that the other claims of petitioner had no basis in fact or in law.

On December 20, 1999, petitioner filed a complaint8 against ABC, Mr. Javier and Mr. Edward Tan,
for illegal constructive dismissal, nonpayment of salaries, overtime pay, premium pay, separation
pay, holiday pay, service incentive leave pay, vacation/sick leaves and 13th month pay in NLRC-
NCR Case No. 30-12-00985-99. She likewise demanded payment for moral, exemplary and actual
damages, as well as for attorney’s fees.

The parties agreed to submit the case for resolution after settlement failed during the mandatory
conference/conciliation. On March 29, 2000, the Labor Arbiter dismissed the complaint.9

On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30, 2000. The NLRC
held that an employer-employee relationship existed between petitioner and ABC; that the subject
talent contract was void; that the petitioner was a regular employee illegally dismissed; and that she
was entitled to reinstatement and backwages or separation pay, aside from 13th month pay and
service incentive leave pay, moral and exemplary damages and attorney’s fees. It held as follows:

WHEREFORE, the Decision of the Arbiter dated 29 March 2000 is hereby REVERSED/SET
ASIDE and a NEW ONE promulgated:

1) declaring respondents to have illegally dismissed complainant from her regular work therein and
thus, ordering them to reinstate her in her former position without loss of seniority right[s] and other
privileges and to pay her full backwages, inclusive of allowances and other benefits, including 13th
month pay based on her said latest rate of ₱28,000.00/mo. from the date of her illegal dismissal on
21 October 1999 up to finality hereof, or at complainant’s option, to pay her separation pay of one (1)
month pay per year of service based on said latest monthly rate, reckoned from date of hire on 30
September 1995 until finality hereof;

2) to pay complainant’s accrued SILP [Service Incentive Leave Pay] of 5 days pay per year and 13th
month pay for the years 1999, 1998 and 1997 of ₱19,236.00 and ₱84,000.00, respectively and her
accrued salary from 16 September 1999 to 20 October 1999 of ₱32,760.00 plus legal interest at
12% from date of judicial demand on 20 December 1999 until finality hereof;

3) to pay complainant moral damages of ₱500,000.00, exemplary damages of ₱350,000.00 and

10% of the total of the adjudged monetary awards as attorney’s fees.

Other monetary claims of complainant are dismissed for lack of merit.

SO ORDERED.10

After its motion for reconsideration was denied, ABC elevated the case to the Court of Appeals in a
petition for certiorari under Rule 65. The petition was first dismissed for failure to attach particular
documents,11 but was reinstated on grounds of the higher interest of justice.12

Thereafter, the appellate court ruled that the NLRC committed grave abuse of discretion, and
reversed the decision of the NLRC.13 The appellate court reasoned that petitioner should not be
allowed to renege from the stipulations she had voluntarily and knowingly executed by invoking the
security of tenure under the Labor Code. According to the appellate court, petitioner was a fixed-
term employee and not a regular employee within the ambit of Article 28014 of the Labor Code
because her job, as anticipated and agreed upon, was only for a specified time.15

Aggrieved, petitioner now comes to this Court on a petition for review, raising issues as follows:

I.

THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE COURT OF
APPEALS, THE DECISION OF WHICH IS NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT[;]

II.

THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC – FIRST

DIVISION, ARE "ANTI-REGULARIZATION DEVICES" WHICH MUST BE STRUCK DOWN FOR
REASONS OF PUBLIC POLICY[;]

III.

BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE THREE-MONTH

TALENT CONTRACTS, AN EMPLOYER-EMPLOYEE RELATIONSHIP WAS CREATED AS
PROVIDED FOR UNDER ARTICLE 280 OF THE LABOR CODE[;]

IV.

BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR EMPLOYEE,

THERE WAS A DENIAL OF PETITIONER’S RIGHT TO DUE PROCESS THUS ENTITLING HER
TO THE MONEY CLAIMS AS STATED IN THE COMPLAINT[.]16
The issues for our disposition are: (1) whether or not this Court can review the findings of the Court
of Appeals; and (2) whether or not under Rule 45 of the Rules of Court the Court of Appeals
committed a reversible error in its Decision.

On the first issue, private respondents contend that the issues raised in the instant petition are
mainly factual and that there is no showing that the said issues have been resolved arbitrarily and
without basis. They add that the findings of the Court of Appeals are supported by overwhelming
wealth of evidence on record as well as prevailing jurisprudence on the matter.17

Petitioner however contends that this Court can review the findings of the Court of Appeals, since
the appellate court erred in deciding a question of substance in a way which is not in accord with law
or with applicable decisions of this Court.18

We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in any case
— regardless of the nature of the action or proceeding involved — may be appealed to this Court
through a petition for review. This remedy is a continuation of the appellate process over the original
case,19 and considering there is no congruence in the findings of the NLRC and the Court of Appeals
regarding the status of employment of petitioner, an exception to the general rule that this Court is
bound by the findings of facts of the appellate court,20 we can review such findings.

On the second issue, private respondents contend that the Court of Appeals did not err when it
upheld the validity of the talent contracts voluntarily entered into by petitioner. It further stated that
prevailing jurisprudence has recognized and sustained the absence of employer-employee
relationship between a talent and the media entity which engaged the talent’s services on a per
talent contract basis, citing the case of Sonza v. ABS-CBN Broadcasting Corporation.21

Petitioner avers however that an employer-employee relationship was created when the private
respondents started to merely renew the contracts repeatedly fifteen times or for four consecutive
years.22

Again, we agree with petitioner. The Court of Appeals committed reversible error when it held that
petitioner was a fixed-term employee. Petitioner was a regular employee under contemplation of law.
The practice of having fixed-term contracts in the industry does not automatically make all talent
contracts valid and compliant with labor law. The assertion that a talent contract exists does not
necessarily prevent a regular employment status.23

Further, the Sonza case is not applicable. In Sonza, the television station did not instruct Sonza how
to perform his job. How Sonza delivered his lines, appeared on television, and sounded on radio
were outside the television station’s control. Sonza had a free hand on what to say or discuss in his
shows provided he did not attack the television station or its interests. Clearly, the television station
did not exercise control over the means and methods of the performance of Sonza’s work.24 In the
case at bar, ABC had control over the performance of petitioner’s work. Noteworthy too, is the
comparatively low ₱28,000 monthly pay of petitioner25 vis the ₱300,000 a month salary of
Sonza,26 that all the more bolsters the conclusion that petitioner was not in the same situation as
Sonza.

The contract of employment of petitioner with ABC had the following stipulations:

xxxx
1. SCOPE OF SERVICES – TALENT agrees to devote his/her talent, time, attention and best efforts
in the performance of his/her duties and responsibilities as Anchor/Program Host/Newscaster of the
Program, in accordance with the direction of ABC and/or its authorized representatives.

1.1. DUTIES AND RESPONSIBILITIES – TALENT shall:

a. Render his/her services as a newscaster on the Program;

b. Be involved in news-gathering operations by conducting interviews on- and off-the-air;

c. Participate in live remote coverages when called upon;

d. Be available for any other news assignment, such as writing, research or camera work;

e. Attend production meetings;

f. On assigned days, be at the studios at least one (1) hour before the live telecasts;

g. Be present promptly at the studios and/or other place of assignment at the time designated by
ABC;

h. Keep abreast of the news;

i. Give his/her full cooperation to ABC and its duly authorized representatives in the production and
promotion of the Program; and

j. Perform such other functions as may be assigned to him/her from time to time.

xxxx

1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND

REGULATIONS – TALENT agrees that he/she will promptly and faithfully comply with the requests
and instructions, as well as the program standards, policies, rules and regulations of ABC, the KBP
and the government or any of its agencies and instrumentalities.27

xxxx

In Manila Water Company, Inc. v. Pena,28 we said that the elements to determine the existence of an
employment relationship are: (a) the selection and engagement of the employee, (b) the payment of
wages, (c) the power of dismissal, and (d) the employer’s power to control. The most important
element is the employer’s control of the employee’s conduct, not only as to the result of the work to
be done, but also as to the means and methods to accomplish it.29

The duties of petitioner as enumerated in her employment contract indicate that ABC had control
over the work of petitioner. Aside from control, ABC also dictated the work assignments and
payment of petitioner’s wages. ABC also had power to dismiss her. All these being present, clearly,
there existed an employment relationship between petitioner and ABC.

Concerning regular employment, the law provides for two kinds of employees, namely: (1) those who
are engaged to perform activities which are usually necessary or desirable in the usual business or
trade of the employer; and (2) those who have rendered at least one year of service, whether
continuous or broken, with respect to the activity in which they are employed.30 In other words,
regular status arises from either the nature of work of the employee or the duration of his
employment.31 In Benares v. Pancho,32 we very succinctly said:

…[T]he primary standard for determining regular employment is the reasonable connection between
the particular activity performed by the employee vis-à-vis the usual trade or business of the
employer. This connection can be determined by considering the nature of the work performed and
its relation to the scheme of the particular business or trade in its entirety. If the employee has been
performing the job for at least a year, even if the performance is not continuous and merely
intermittent, the law deems repeated and continuing need for its performance as sufficient evidence
of the necessity if not indispensability of that activity to the business. Hence, the employment is
considered regular, but only with respect to such activity and while such activity exists.33

In our view, the requisites for regularity of employment have been met in the instant case. Gleaned
from the description of the scope of services aforementioned, petitioner’s work was necessary or
desirable in the usual business or trade of the employer which includes, as a pre-condition for its
enfranchisement, its participation in the government’s news and public information dissemination. In
addition, her work was continuous for a period of four years. This repeated engagement under
contract of hire is indicative of the necessity and desirability of the petitioner’s work in private
respondent ABC’s business.34

The contention of the appellate court that the contract was characterized by a valid fixed-period
employment is untenable. For such contract to be valid, it should be shown that the fixed period was
knowingly and voluntarily agreed upon by the parties. There should have been no force, duress or
improper pressure brought to bear upon the employee; neither should there be any other
circumstance that vitiates the employee’s consent.35 It should satisfactorily appear that the employer
and the employee dealt with each other on more or less equal terms with no moral dominance being
exercised by the employer over the employee.36 Moreover, fixed-term employment will not be
considered valid where, from the circumstances, it is apparent that periods have been imposed to
preclude acquisition of tenurial security by the employee.37

In the case at bar, it does not appear that the employer and employee dealt with each other on equal
terms. Understandably, the petitioner could not object to the terms of her employment contract
because she did not want to lose the job that she loved and the workplace that she had grown
accustomed to,38 which is exactly what happened when she finally manifested her intention to
negotiate. Being one of the numerous newscasters/broadcasters of ABC and desiring to keep her
job as a broadcasting practitioner, petitioner was left with no choice but to affix her signature of
conformity on each renewal of her contract as already prepared by private respondents; otherwise,
private respondents would have simply refused to renew her contract. Patently, the petitioner
occupied a position of weakness vis-à-vis the employer. Moreover, private respondents’ practice of
repeatedly extending petitioner’s 3-month contract for four years is a circumvention of the acquisition
of regular status. Hence, there was no valid fixed-term employment between petitioner and private
respondents.

While this Court has recognized the validity of fixed-term employment contracts in a number of
cases, it has consistently emphasized that when the circumstances of a case show that the periods
were imposed to block the acquisition of security of tenure, they should be struck down for being
contrary to law, morals, good customs, public order or public policy.39

As a regular employee, petitioner is entitled to security of tenure and can be dismissed only for just
cause and after due compliance with procedural due process. Since private respondents did not
observe due process in constructively dismissing the petitioner, we hold that there was an illegal
dismissal.

WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution dated June 23,
2004 of the Court of Appeals in CA-G.R. SP No. 63125, which held that the petitioner was a fixed-
term employee, are REVERSED and SET ASIDE. The NLRC decision is AFFIRMED.

Costs against private respondents.

SO ORDERED.

5)

G.R. No. 204944-45 December 3, 2014

FUJI TELEVISION NETWORK, INC., Petitioner,

vs.
ARLENE S. ESPIRITU, Respondent.

DECISION

LEONEN, J.:

It is the burden of the employer to prove that a person whose services it pays for is an independent
contractor rather than a regular employee with or without a fixed term. That a person has a disease
does not per se entitle the employer to terminate his or her services. Termination is the last resort. At
the very least, a competent public health authority must certify that the disease cannot be cured
within six ( 6) months, even with appropriate treatment.

We decide this petition for review1 on certiorari filed by Fuji Television Network, Inc., seeking the
reversal of the Court of Appeals’ Decision2 dated June 25, 2012, affirming with modification the
decision3 of the National Labor Relations Commission.

In 2005, Arlene S. Espiritu ("Arlene") was engaged by Fuji Television Network, Inc. ("Fuji") asa news
correspondent/producer4 "tasked to report Philippine news to Fuji through its Manila Bureau field
office."5 Arlene’s employment contract initially provided for a term of one (1) year but was
successively renewed on a yearly basis with salary adjustment upon every renewal.6 Sometime in
January 2009, Arlenewas diagnosed with lung cancer.7She informed Fuji about her condition. In turn,
the Chief of News Agency of Fuji, Yoshiki Aoki, informed Arlene "that the company will have a
problem renewing her contract"8 since it would be difficult for her to perform her job.9 She "insisted
that she was still fit to work as certified by her attending physician."10

After several verbal and written communications,11 Arlene and Fuji signed a non-renewal contract on
May 5, 2009 where it was stipulated that her contract would no longer be renewed after its expiration
on May 31, 2009. The contract also provided that the parties release each other from liabilities and
responsibilities under the employment contract.12

In consideration of the non-renewal contract, Arlene "acknowledged receipt of the total amount of
US$18,050.00 representing her monthly salary from March 2009 to May 2009, year-end bonus, mid-
year bonus, and separation pay."13 However, Arlene affixed her signature on the nonrenewal contract
with the initials "U.P." for "under protest."14

On May 6, 2009, the day after Arlene signed the non-renewal contract, she filed a complaint for
illegal dismissal and attorney’s fees with the National Capital Region Arbitration Branch of the
National Labor Relations Commission. She alleged that she was forced to sign the nonrenewal
contract when Fuji came to know of her illness and that Fuji withheld her salaries and other benefits
for March and April 2009 when she refused to sign.15

Arlene claimed that she was left with no other recourse but to sign the non-renewal contract, and it
was only upon signing that she was given her salaries and bonuses, in addition to separation pay
equivalent to four (4) years.16

In the decision17 dated September 10, 2009, Labor Arbiter Corazon C. Borbolla dismissed Arlene’s
complaint.18Citing Sonza v. ABS-CBN19 and applying the four-fold test, the Labor Arbiter held that
Arlene was not Fuji’s employee but an independent contractor.20

Arlene appealed before the National Labor Relations Commission. In its decision dated March 5,
2010, the National Labor Relations Commission reversed the Labor Arbiter’s decision.21 It held that
Arlene was a regular employee with respect to the activities for which she was employed since she
continuously rendered services that were deemednecessary and desirable to Fuji’s business.22 The
National Labor Relations Commission ordered Fuji to pay Arlene backwages, computed from the
date of her illegal dismissal.23 The dispositive portion of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered GRANTING the instant appeal.
The Decision of the Labor Arbiter dated 19 September 2009 is hereby REVERSED and SET ASIDE,
and a new one is issued ordering respondents-appellees to pay complainant-appellant backwages
computed from the date of her illegal dismissal until finality of this Decision.

SO ORDERED.24

Arlene and Fuji filed separat emotions for reconsideration.25 Both motions were denied by the
National Labor Relations Commission for lack of merit in the resolution dated April 26, 2010.26 From
the decision of the National Labor Relations Commission, both parties filed separate petitions for
certiorari27 before the Court of Appeals. The Court of Appeals consolidated the petitions and
considered the following issues for resolution:

1) Whether or not Espirituis a regular employee or a fixed-term contractual employee;

2) Whether or not Espiritu was illegally dismissed; and

3) Whether or not Espirituis entitled to damages and attorney’s fees.28

In the assailed decision, the Court of Appeals affirmed the National Labor Relations
Commission with the modification that Fuji immediately reinstate Arlene to her position as
News Producer without loss of seniority rights, and pay her backwages, 13th-month pay,
mid-year and year-end bonuses, sick leave and vacation leave with pay until reinstated,
moral damages, exemplary damages, attorney’sfees, and legal interest of 12% per annum of
the total monetary awards.29 The Court of Appeals ruled that:
WHEREFORE, for lack of merit, the petition of Fuji Television Network, Inc. and Yoshiki Aoki is
DENIED and the petition of Arlene S. Espiritu is GRANTED. Accordingly, the Decision dated March
5, 2010 of the National Labor Relations Commission, 6th Division in NLRC NCR Case No. 05-
06811-09 and its subsequent Resolution dated April 26, 2010 are hereby AFFIRMED with
MODIFICATIONS, as follows:

Fuji Television, Inc. is hereby ORDERED to immediately REINSTATE Arlene S. Espiritu to her
position as News Producer without loss of seniority rights and privileges and to pay her the following:

1. Backwages at the rate of $1,900.00 per month computed from May 5, 2009 (the date of
dismissal), until reinstated;

2. 13th Month Pay at the rate of $1,900.00 per annum from the date of dismissal, until
reinstated;

3. One and a half (1 1/2) months pay or $2,850.00 as midyear bonus per year from the date
of dismissal, until reinstated;

4. One and a half (1 1/2) months pay or $2,850.00 as year-end bonus per year from the date
of dismissal, until reinstated;

5. Sick leave of 30 days with pay or $1,900.00 per year from the date of dismissal, until
reinstated; and

6. Vacation leave with pay equivalent to 14 days or $1,425.00 per annum from date of
dismissal, until reinstated.

7. The amount of ₱100,000.00 as moral damages;

8. The amount of ₱50,000.00 as exemplary damages;

9. Attorney’s fees equivalent to 10% of the total monetary awards herein stated; and

10. Legal interest of twelve percent (12%) per annum of the total monetary awards computed
from May 5, 2009, until their full satisfaction.

The Labor Arbiter is hereby DIRECTED to make another recomputation of the above monetary
awards consistent with the above directives.

SO ORDERED.30

In arriving at the decision, the Court of Appeals held that Arlene was a regular employee because
she was engaged to perform work that was necessary or desirable in the business of Fuji,31 and the
successive renewals of her fixed-term contract resulted in regular employment.32

According to the Court of Appeals, Sonzadoes not apply in order to establish that Arlene was an
independent contractor because she was not contracted on account of any peculiar ability, special
talent, or skill.33 The fact that everything used by Arlene in her work was owned by Fuji negated the
idea of job contracting.34
The Court of Appeals also held that Arlene was illegally dismissed because Fuji failed to comply with
the requirements of substantive and procedural due process necessary for her dismissal since she
was a regular employee.35

The Court of Appeals found that Arlene did not sign the non-renewal contract voluntarily and that the
contract was a mere subterfuge by Fuji to secure its position that it was her choice not to renew her
contract. She was left with no choice since Fuji was decided on severing her employment.36

Fuji filed a motion for reconsideration that was denied in the resolution37 dated December 7, 2012 for
failure to raise new matters.38

Aggrieved, Fuji filed this petition for review and argued that the Court of Appeals erred in affirming
with modification the National Labor Relations Commission’s decision, holding that Arlene was a
regular employee and that she was illegally dismissed. Fuji also questioned the award of monetary
claims, benefits, and damages.39

Fuji points out that Arlene was hired as a stringer, and it informed her that she would remain
one.40 She was hired as an independent contractor as defined in Sonza.41 Fuji had no control over her
work.42 The employment contracts were executed and renewed annually upon Arlene’s insistence to
which Fuji relented because she had skills that distinguished her from ordinary employees.43 Arlene
and Fuji dealt on equal terms when they negotiated and entered into the employment
contracts.44 There was no illegal dismissal because she freely agreed not to renew her fixed-term
contract as evidenced by her e-mail correspondences with Yoshiki Aoki.45 In fact, the signing of the
non-renewal contract was not necessary to terminate her employment since "such employment
terminated upon expiration of her contract."46 Finally, Fuji had dealt with Arlene in good faith, thus,
she should not have been awarded damages.47

Fuji alleges that it did not need a permanent reporter since the news reported by Arlene could easily
be secured from other entities or from the internet.48 Fuji "never controlled the manner by which she
performed her functions."49It was Arlene who insisted that Fuji execute yearly fixed-term contracts so
that she could negotiate for annual increases in her pay.50

Fuji points out that Arlene reported for work for only five (5) days in February 2009, three (3) days in
March 2009, and one (1) day in April 2009.51 Despite the provision in her employment contract that
sick leaves in excess of 30 days shall not be paid, Fuji paid Arlene her entire salary for the months of
March, April, and May; four(4) months of separation pay; and a bonus for two and a half months for
a total of US$18,050.00.52 Despite having received the amount of US$18,050.00, Arlene still filed a
case for illegal dismissal.53

Fuji further argues that the circumstances would show that Arlene was not illegally dismissed. The
decision tonot renew her contract was mutually agreed upon by the parties as indicated in Arlene’s
e-mail54 dated March 11, 2009 where she consented to the non-renewal of her contract but refused
to sign anything.55 Aoki informed Arlene in an e-mail56 dated March 12, 2009 that she did not need to
sign a resignation letter and that Fuji would pay Arlene’s salary and bonus until May 2009 as well as
separation pay.57

Arlene sent an e-mail dated March 18, 2009 with her version of the non-renewal agreement that she
agreed to sign this time.58 This attached version contained a provision that Fuji shall re-hire her if she
was still interested to work for Fuji.59 For Fuji, Arlene’s e-mail showed that she had the power to
bargain.60
Fuji then posits that the Court of Appeals erred when it held that the elements of an employer-
employee relationship are present, particularly that of control;61 that Arlene’s separation from
employment upon the expiration of her contract constitutes illegal dismissal;62 that Arlene is entitled
to reinstatement;63 and that Fuji is liable to Arlene for damages and attorney’s fees.64

This petition for review on certiorari under Rule 45 was filed on February 8, 2013.65 On February 27,
2013, Arlene filed a manifestation66 stating that this court may not take jurisdiction over the case
since Fuji failed to authorize Corazon E. Acerden to sign the verification.67 Fuji filed a comment on
the manifestation68 on March 9, 2013.

Based on the arguments of the parties, there are procedural and substantive issues for resolution:

I. Whether the petition for review should be dismissed as Corazon E. Acerden, the signatory
of the verification and certification of non forum shopping of the petition, had no authority to
sign the verification and certification on behalf of Fuji;

II. Whether the Court of Appeals correctly determined that no grave abuse of discretion was
committed by the National Labor Relations Commission when it ruled that Arlene was a
regular employee, not an independent contractor, and that she was illegally dismissed; and

III. Whether the Court of Appeals properly modified the National Labor Relations
Commission’s decision by awarding reinstatement, damages, and attorney’s fees.

The petition should be dismissed.

Validity of the verification and certification against forum shopping

In its comment on Arlene’s manifestation, Fuji alleges that Corazon was authorized to sign the
verification and certification of non-forum shopping because Mr. Shuji Yano was empowered under
the secretary’s certificate to delegate his authority to sign the necessary pleadings, including the
verification and certification against forum shopping.69

On the other hand, Arlene points outthat the authority given to Mr. Shuji Yano and Mr. Jin Eto in the
secretary’s certificate is only for the petition for certiorari before the Court of Appeals.70 Fuji did not
attach any board resolution authorizing Corazon orany other person tofile a petition for review on
certiorari with this court.71 Shuji Yano and Jin Eto could not re-delegate the power thatwas delegated
to them.72 In addition, the special power of attorney executed by Shuji Yano in favor of Corazon
indicated that she was empowered to sign on behalf of Shuji Yano, and not on behalf of Fuji.73

The Rules of Court requires the

submission of verification and
certification against forum shopping

Rule 7, Section 4 of the 1997 Rules of Civil Procedure provides the requirement of verification, while
Section 5 of the same rule provides the requirement of certification against forum shopping. These
sections state:

SEC. 4. Ver if ica tio n. — Except when otherwise specifically required by law or rule, pleadings need
not be under oath, verified or accompanied by affidavit.
A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations
therein are true and correct of his knowledge and belief.

A pleading required to be verifiedwhich containsa verification based on "information and belief," or

upon "knowledge, information and belief," or lacks a proper verification, shall be treated as an
unsigned pleading.

SEC. 5. Certification against forum shopping.— The plaintiff or principal party shall certify under oath
in the complaint orother initiatory pleading asserting a claim for relief or in a sworn certification
annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and,
to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such
other pending action or claim, a complete statement of the present status thereof; and (c) if he
should thereafter learn that the same or similar action or claim has been filed or is pending, he shall
report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory
pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing. The submission of a false
certification or non-compliance with any of the undertakings therein shall constitute indirect contempt
ofcourt, without prejudice to the corresponding administrative and criminalactions. If the acts of the
party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be
ground for summary dismissal with prejudice and shall constitute direct contempt, as well as a cause
for administrative sanctions.

Section 4(e) of Rule 4574 requires that petitions for review should "contain a sworn certification
against forum shopping as provided in the last paragraph of section 2, Rule 42." Section 5 of the
same rule provides that failure to comply with any requirement in Section 4 is sufficient ground to
dismiss the petition.

Effects of non-compliance

Uy v. Landbank75 discussed the effect of non-compliance with regard to verification and stated that:

[t]he requirement regarding verification of a pleading is formal, not jurisdictional. Such requirement is
simply a condition affecting the form of pleading, the non-compliance of which does not necessarily
render the pleading fatally defective. Verification is simply intended to secure an assurance that the
allegations in the pleading are true and correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith. The court may order the correction of the
pleading if the verification is lacking or act on the pleading although it is not verified, if the attending
circumstances are such that strict compliance with the rules may be dispensed with inorder that the
ends of justice may thereby be served.76 (Citations omitted)

Shipside Incorporated v. Court of Appeals77 cited the discussion in Uy and differentiated its effect
from non-compliance with the requirement of certification against forum shopping:

On the other hand, the lack of certification against forum shopping is generally not curable by the
submission thereof after the filing of the petition. Section 5, Rule 45 of the 1997 Rules of Civil
Procedure provides that the failure of the petitioner tosubmit the required documents that should
accompany the petition, including the certification against forum shopping, shall be sufficient ground
for the dismissal thereof. The same rule applies to certifications against forum shopping signed by a
person on behalf of a corporation which are unaccompanied by proof that said signatory is
authorized to file a petition on behalf of the corporation.78 (Emphasis supplied) Effects of substantial
compliance with the requirement of verification and certification against forum shopping

Although the general rule is that failure to attach a verification and certification against forum
shopping isa ground for dismissal, there are cases where this court allowed substantial compliance.

In Loyola v. Court of Appeals,79 petitioner Alan Loyola submitted the required certification one day
after filing his electoral protest.80 This court considered the subsequent filing as substantial
compliance since the purpose of filing the certification is to curtail forum shopping.81

In LDP Marketing, Inc. v. Monter,82 Ma. Lourdes Dela Peña signed the verification and certification
against forum shopping but failed to attach the board resolution indicating her authority to sign.83 In a
motion for reconsideration, LDP Marketing attached the secretary’s certificate quoting the board
resolution that authorized Dela Peña.84 Citing Shipside, this court deemed the belated submission as
substantial compliance since LDP Marketing complied with the requirement; what it failed to do was
to attach proof of Dela Peña’s authority to sign.85 Havtor Management Phils., Inc. v. National Labor
Relations Commission86 and General Milling Corporation v. National Labor Relations
Commission87 involved petitions that were dismissed for failure to attach any document showing that
the signatory on the verification and certification against forum-shopping was authorized.88 In both
cases, the secretary’s certificate was attached to the motion for reconsideration.89 This court
considered the subsequent submission of proof indicating authority to sign as substantial
compliance.90 Altres v. Empleo91 summarized the rules on verification and certification against forum
shopping in this manner:

For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential
pronouncements . . . respecting non-compliance with the requirement on, or submission of defective,
verification and certification against forum shopping:

1) A distinction must be made between non-compliance with the requirement on or

submission of defective verification, and noncompliance with the requirement on or
submission of defective certification against forum shopping.

2) As to verification, non-compliance therewith or a defect therein does not necessarily

render the pleading fatally defective. The court may order its submission or correction or act
on the pleading if the attending circumstances are such that strict compliance with the Rule
may be dispensed with in order that the ends of justice may be served thereby.

3) Verification is deemed substantially complied with when one who has ample knowledge to
swear to the truth of the allegations in the complaint or petition signs the verification, and
when matters alleged in the petition have been made in good faith or are true and correct.

4) As to certification against forum shopping, non-compliance therewith or a defect therein,

unlike in verification, is generally not curable by its subsequent submission or correction
thereof, unless there is a need to relax the Rule on the ground of "substantial compliance" or
presence of "special circumstances or compelling reasons."

5) The certification against forum shopping must be signed by all the plaintiffs or petitioners
in a case; otherwise, those who did not sign will be dropped as parties to the case. Under
reasonable or justifiable circumstances, however, as when all the plaintiffs or petitioners
share a common interest and invoke a common cause of action or defense, the signature of
 only one of them inthe certification against forum shopping substantially complies with the
Rule.

6) Finally, the certification against forum shopping must be executed by the party-pleader,
not by his counsel. If, however, for reasonable or justifiable reasons, the party-pleader is
unable to sign, he must execute a Special Power of Attorney designating his counsel of
record to sign on his behalf.92

There was substantial compliance

by Fuji Television Network, Inc.

Being a corporation, Fuji exercises its power to sue and be sued through its board of directors or
duly authorized officers and agents. Thus, the physical act of signing the verification and certification
against forum shopping can only be done by natural persons duly authorized either by the corporate
by-laws or a board resolution.93

In its petition for review on certiorari, Fuji attached Hideaki Ota’s secretary’s certificate,94 authorizing
Shuji Yano and Jin Eto to represent and sign for and on behalf of Fuji.95 The secretary’s certificate
was duly authenticated96 by Sulpicio Confiado, Consul-General of the Philippines in Japan. Likewise
attached to the petition is the special power of attorney executed by Shuji Yano, authorizing Corazon
to sign on his behalf.97 The verification and certification against forum shopping was signed by
Corazon.98

Arlene filed the manifestation dated February 27, 2013, arguing that the petition for review should be
dismissed because Corazon was not duly authorized to sign the verification and certification against
forum shopping.

Fuji filed a comment on Arlene’s manifestation, stating that Corazon was properly authorized to sign.
On the basis of the secretary’s certificate, Shuji Yano was empowered to delegate his authority.

Quoting the board resolution dated May 13, 2010, the secretary's certificate states:

(a) The Corporation shall file a Petition for Certiorari with the Court of Appeals, against
Philippines’ National Labor Relations Commission ("NLRC") and Arlene S. Espiritu,
pertaining to NLRC-NCR Case No. LAC 00-002697-09, RAB No. 05-06811-00 and entitled
"Arlene S. Espiritu v. Fuji Television Network, Inc./Yoshiki Aoki", and participate in any other
subsequent proceeding that may necessarily arise therefrom, including but not limited to the
filing of appeals in the appropriate venue;

(b) Mr. Shuji Yano and Mr. Jin Etobe authorized, as they are hereby authorized, to verify and
execute the certification against nonforum shopping which may be necessary or required to
be attached to any pleading to [sic] submitted to the Court of Appeals; and the authority to so
verify and certify for the Corporation in favor of the said persons shall subsist and remain
effective until the termination of the said case;

....

(d) Mr. Shuji Yano and Mr. Jin Etobe authorized, as they are hereby authorized, to represent
and appear on behalf the [sic] Corporation in all stages of the [sic] this case and in any other
proceeding that may necessarily arise thereform [sic], and to act in the Corporation’s name,
 place and stead to determine, propose, agree, decide, do, and perform any and all of the
following:

1. The possibility of amicable settlement or of submission to alternative mode of

dispute resolution;

2. The simplification of the issue;

3. The necessity or desirability of amendments to the pleadings;

4. The possibility of obtaining stipulation or admission of facts and documents; and

5. Such other matters as may aid in the prompt disposition of the action.99 (Emphasis
in the original; Italics omitted)

Shuji Yano executed a special power of attorney appointing Ms. Ma. Corazon E. Acerden and Mr.
Moises A. Rollera as his attorneys-in-fact.100 The special power of attorney states:

That I, SHUJI YANO, of legal age, Japanese national, with office address at 2-4-8 Daiba, Minato-Ku,
Tokyo, 137-8088 Japan, and being the representative of Fuji TV, INc., [sic] (evidenced by the
attached Secretary’s Certificate) one of the respondents in NLRC-NCR Case No. 05-06811-00
entitled "Arlene S. Espiritu v. Fuji Television Network, Inc./Yoshiki Aoki", and subsequently docketed
before the Court of Appeals asC.A. G.R. S.P. No. 114867 (Consolidated with SP No. 114889) do
hereby make, constitute and appoint Ms. Ma. Corazon E. Acerden and Mr. Moises A. Rolleraas my
true and lawful attorneys-infact for me and my name, place and stead to act and represent me in the
above-mentioned case, with special power to make admission/s and stipulations and/or to make and
submit as well as to accept and approve compromise proposals upon such terms and conditions and
under such covenants as my attorney-in-fact may deem fit, and to engage the services of Villa Judan
and Cruz Law Officesas the legal counsel to represent the Company in the Supreme Court;

The said Attorneys-in-Fact are hereby further authorized to make, sign, execute and deliver such
papers ordocuments as may be necessary in furtherance of the power thus granted, particularly to
sign and execute the verification and certification of non-forum shopping needed to be
filed.101 (Emphasis in the original)

In its comment102 on Arlene’s manifestation, Fuji argues that Shuji Yano could further delegate his
authority because the board resolution empowered him to "act in the Corporation’s name, place and
stead to determine, propose, agree, decided [sic], do and perform any and all of the following: . . .
such other matters as may aid in the prompt disposition of the action."103 To clarify, Fuji attached a
verification and certification against forum shopping, but Arlene questions Corazon’s authority to
sign. Arlene argues that the secretary’s certificate empowered Shuji Yano to file a petition for
certiorari before the Court of Appeals, and not a petition for review before this court, and that since
Shuji Yano’s authority was delegated to him, he could not further delegate such power. Moreover,
Corazon was representing Shuji Yano in his personal capacity, and not in his capacity as
representative of Fuji.

A review of the board resolution quoted in the secretary’s certificate shows that Fuji shall "file a
Petition for Certiorari with the Court of Appeals"104 and "participate in any other subsequent
proceeding that may necessarily arise therefrom, including but not limited to the filing of appeals in
the appropriate venue,"105 and that Shuji Yano and Jin Eto are authorized to represent Fuji "in any
other proceeding that may necessarily arise thereform [sic]."106 As pointed out by Fuji, Shuji Yano and
Jin Eto were also authorized to "act in the Corporation’s name, place and stead to determine,
propose, agree, decide, do, and perform anyand all of the following: . . . 5. Such other matters as
may aid in the prompt disposition of the action."107

Considering that the subsequent proceeding that may arise from the petition for certiorari with the
Court of Appeals is the filing of a petition for review with this court, Fuji substantially complied with
the procedural requirement.

On the issue of whether Shuji Yano validly delegated his authority to Corazon, Article 1892 of the
Civil Code of the Philippines states:

ART. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so;
but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power, but without designating the person, and the person
appointed was notoriously incompetent or insolvent. All acts of the substitute appointed
against the prohibition of the principal shall be void.

The secretary’s certificate does not state that Shuji Yano is prohibited from appointing a substitute.
In fact, heis empowered to do acts that will aid in the resolution of this case.

This court has recognized that there are instances when officials or employees of a corporation can
sign the verification and certification against forum shopping without a board resolution. In Cagayan
Valley Drug Corporation v. CIR,108 it was held that:

In sum, we have held that the following officials or employees of the company can sign the
verification and certification without need of a board resolution: (1) the Chairperson of the Board of
Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager,
(4) Personnel Officer, and (5) an Employment Specialist in a labor case.

While the above cases109 do not provide a complete listing of authorized signatories to the verification
and certification required by the rules, the determination of the sufficiency of the authority was done
on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of
corporate officers or representatives of the corporation to sign the verification or certificate against
forum shopping, being ‘in a position to verify the truthfulness and correctness of the allegations in
the petition.’110

Corazon’s affidavit111 states that she is the "office manager and resident interpreter of the Manila
Bureau of Fuji Television Network, Inc."112 and that she has "held the position for the last twenty-three
years."113

As the office manager for 23 years,Corazon can be considered as having knowledge of all matters in
Fuji’s Manila Bureau Office and is in a position to verify "the truthfulness and the correctness of the
allegations in the Petition."114

Thus, Fuji substantially complied with the requirements of verification and certification against forum
shopping.

Before resolving the substantive issues in this case, this court will discuss the procedural parameters
of a Rule 45 petition for review in labor cases.
 II

Procedural parameters of petitions for review in labor cases

Article 223 of the Labor Code115 does not provide any mode of appeal for decisions of the National
Labor Relations Commission. It merely states that "[t]he decision of the Commission shall be final
and executory after ten (10) calendar days from receipt thereof by the parties." Being final, it is no
longer appealable. However, the finality of the National Labor Relations Commission’s decisions
does not mean that there is no more recourse for the parties.

In St. Martin Funeral Home v. National Labor Relations Commission,116 this court cited several
cases117 and rejected the notion that this court had no jurisdiction to review decisions of the National
Labor Relations Commission. It stated that this court had the power to review the acts of the
National Labor Relations Commission to see if it kept within its jurisdiction in deciding cases and
alsoas a form of check and balance.118 This court then clarified that judicial review of National Labor
Relations Commission decisions shall be by way of a petition for certiorari under Rule 65. Citing the
doctrine of hierarchy of courts, it further ruled that such petitions shall be filed before the Court of
Appeals. From the Court of Appeals, an aggrieved party may file a petition for review on certiorari
under Rule 45.

A petition for certiorari under Rule 65 is an original action where the issue is limited to grave abuse
of discretion. As an original action, it cannot be considered as a continuation of the proceedings of
the labor tribunals.

On the other hand, a petition for review on certiorari under Rule 45 is a mode of appeal where the
issue is limited to questions of law. In labor cases, a Rule 45 petition is limited toreviewing whether
the Court of Appeals correctly determined the presence or absence of grave abuse of discretion and
deciding other jurisdictional errors of the National Labor Relations Commission.119

In Odango v. National Labor Relations Commission,120 this court explained that a petition for certiorari
is an extraordinary remedy that is "available only and restrictively in truly exceptional cases"121 and
that its sole office "is the correction of errors of jurisdiction including commission of grave abuse of
discretion amounting to lack or excess of jurisdiction."122 A petition for certiorari does not include a
review of findings of fact since the findings of the National Labor Relations Commission are
accorded finality.123 In cases where the aggrieved party assails the National Labor Relations
Commission’s findings, he or she must be able to show that the Commission "acted capriciously and
whimsically or in total disregard of evidence material to the controversy."124

When a decision of the Court of Appeals under a Rule 65 petition is brought to this court by way of a
petition for review under Rule 45, only questions of law may be decided upon. As held in Meralco
Industrial v. National Labor Relations Commission:125

This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of this Court ina petition
for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are completely devoid of support
from the evidence on record, or the assailed judgment is based on a gross misapprehension of facts.
Besides, factual findings of quasi-judicial agencies like the NLRC, when affirmed by the Court of
Appeals, are conclusive upon the parties and binding on this Court.126

Career Philippines v. Serna,127 citing Montoya v. Transmed,128 is instructive on the parameters of

judicial review under Rule 45:
As a rule, only questions of law may be raised in a Rule 45 petition. In one case, we discussed the
particular parameters of a Rule 45 appeal from the CA’s Rule 65 decision on a labor case, as
follows:

In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with the
review for jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45 limits us to the
review of questions of law raised against the assailed CA decision. In ruling for legal correctness, we
have to view the CA decision in the same context that the petition for certiorari it ruled upon was
presented to it; we have to examine the CA decision from the prism of whether it correctly
determined the presence or absence of grave abuse of discretion in the NLRC decision before it, not
on the basis of whether the NLRC decision on the merits of the case was correct. In other words, we
have to be keenly aware that the CA undertook a Rule 65 review, not a review on appeal, of the
NLRC decision challenged before it.129 (Emphasis in the original)

Justice Brion’s dissenting opinion in Abott Laboratories, PhiIippines v. Aicaraz130 discussed that in
petitions for review under Rule 45, "the Court simply determines whether the legal correctness of the
CA’s finding that the NLRC ruling . . . had basis in fact and in Iaw."131 In this kind of petition, the
proper question to be raised is, "Did the CA correctly determine whether the NLRC committed grave
abuse of discretion in ruling on the case?"132

Justice Brion’s dissenting opinion also laid down the following guidelines:

If the NLRC ruling has basis in the evidence and the applicable law and jurisprudence, then no grave
abuse of discretion exists and the CA should so declare and, accordingly, dismiss the petition. If
grave abuse of discretion exists, then the CA must grant the petition and nullify the NLRC ruling,
entering at the same time the ruling that isjustified under the evidence and the governing law, rules
and jurisprudence. In our Rule 45 review, this Court must denythe petition if it finds that the CA
correctly acted.133 (Emphasis in the original)

These parameters shall be used in resolving the substantive issues in this petition.

III

Determination of employment status; burden of proof

In this case, there is no question thatArlene rendered services to Fuji. However, Fuji alleges that
Arlene was an independent contractor, while Arlene alleges that she was a regular employee. To
resolve this issue, we ascertain whether an employer-employee relationship existed between Fuji
and Arlene.

This court has often used the four-fold test to determine the existence of an employer-employee
relationship. Under the four-fold test, the "control test" is the most important.134 As to how the
elements in the four-fold test are proven, this court has discussed that:

[t]here is no hard and fast rule designed to establish the aforesaid elements. Any competent and
relevant evidence to prove the relationship may be admitted. Identification cards, cash vouchers,
social security registration, appointment letters or employment contracts, payrolls, organization
charts, and personnel lists, serve as evidence of employee status.135

If the facts of this case vis-à-vis the four-fold test show that an employer-employee relationship
existed, we then determine the status of Arlene’s employment, i.e., whether she was a regular
employee. Relative to this, we shall analyze Arlene’s fixed-term contract and determine whether it
supports her argument that she was a regular employee, or the argument of Fuji that she was an
independent contractor. We shall scrutinize whether the nature of Arlene’s work was necessary and
desirable to Fuji’s business or whether Fuji only needed the output of her work. If the circumstances
show that Arlene’s work was necessary and desirable to Fuji, then she is presumed to be a regular
employee. The burden of proving that she was an independent contractor lies with Fuji.

In labor cases, the quantum of proof required is substantial evidence.136 "Substantial evidence" has
been defined as "such amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion."137

If Arlene was a regular employee, we then determine whether she was illegally dismissed. In
complaints for illegal dismissal, the burden of proof is on the employee to prove the fact of
dismissal.138 Once the employee establishes the fact of dismissal, supported by substantial evidence,
the burden of proof shifts tothe employer to show that there was a just or authorized cause for the
dismissal and that due process was observed.139

IV

Whether the Court of Appeals correctly affirmed the National Labor

Relations Commission’s finding that Arlene was a regular employee

Fuji alleges that Arlene was anindependent contractor, citing Sonza v. ABS-CBN and relying on the
following facts: (1) she was hired because of her skills; (2) her salary was US$1,900.00, which is
higher than the normal rate; (3) she had the power to bargain with her employer; and (4) her contract
was for a fixed term. According to Fuji, the Court of Appeals erred when it ruled that Arlene was
forcedto sign the non-renewal agreement, considering that she sent an email with another version of
the non-renewal agreement.140 Further, she is not entitled tomoral damages and attorney’s fees
because she acted in bad faith when she filed a labor complaint against Fuji after receiving
US$18,050.00 representing her salary and other benefits.141 Arlene argues that she was a regular
employee because Fuji had control and supervision over her work. The news events that she
covered were all based on the instructions of Fuji.142 She maintains that the successive renewal of
her employment contracts for four (4) years indicates that her work was necessary and
desirable.143 In addition, Fuji’s payment of separation pay equivalent to one (1) month’s pay per year
of service indicates that she was a regular employee.144 To further support her argument that she was
not an independent contractor, she states that Fuji owns the laptop computer and mini-camera that
she used for work.145 Arlene also argues that Sonza is not applicable because she was a plain
reporter for Fuji, unlike Jay Sonza who was a news anchor, talk show host, and who enjoyed a
celebrity status.146 On her illness, Arlene points outthat it was not a ground for her dismissal because
her attending physician certified that she was fit to work.147

Arlene admits that she signed the non-renewal agreement with quitclaim, not because she agreed to
itsterms, but because she was not in a position to reject the non-renewal agreement. Further, she
badly needed the salary withheld for her sustenance and medication.148 She posits that her
acceptance of separation pay does not bar filing of a complaint for illegal dismissal.149

Article 280 of the Labor Code provides that:

Art. 280. Regular and casual employment.The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be
deemed to be regular where the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except where the employment
has been fixed for a specific project or undertaking the completion or termination of which has been
determined at the time of the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph;

Provided, That, any employee who has rendered at least one year of service, whether such service
is continuous or broken, shall be considered a regular employee with respect to the activity in which
heis employed and his employment shall continue while such activity exist.

This provision classifies employees into regular, project, seasonal, and casual. It further classifies
regular employees into two kinds: (1) those "engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer"; and (2) casual employees
who have "rendered at least one year of service, whether such service is continuous or broken."

Another classification of employees, i.e., employees with fixed-term contracts, was recognized in
Brent School, Inc. v. Zamora150 where this court discussed that:

Logically, the decisive determinant in the term employment should not be the activities that the
employee is called upon to perform, but the day certain agreed upon by the parties for the
commencement and termination of their employment relationship, a day certainbeing understood to
be "that which must necessarily come, although it may not be known when."151 (Emphasis in the
original)

This court further discussed that there are employment contracts where "a fixed term is an essential
and natural appurtenance"152 such as overseas employment contracts and officers in educational
institutions.153

Distinctions among fixed-term

employees, independent contractors,
and regular employees

GMA Network, Inc. v. Pabriga154 expounded the doctrine on fixed term contracts laid down in Brentin
the following manner:

Cognizant of the possibility of abuse in the utilization of fixed term employment contracts, we
emphasized in Brentthat where from the circumstances it is apparent that the periods have been
imposed to preclude acquisition of tenurial security by the employee, they should be struck down as
contrary to public policy or morals. We thus laid down indications or criteria under which "term
employment" cannot be said to be in circumvention of the law on security of tenure, namely:

1) The fixed period of employment was knowingly and voluntarily agreed upon by the parties without
any force, duress, or improper pressure being brought to bear upon the employee and absent any
other circumstances vitiating his consent; or

2) It satisfactorily appears that the employer and the employee dealt with each other on more or less
equal terms with no moral dominance exercised by the former or the latter.

These indications, which must be read together, make the Brent doctrine applicable only in a few
special cases wherein the employer and employee are on more or less in equal footing in entering
into the contract. The reason for this is evident: whena prospective employee, on account of special
skills or market forces, is in a position to make demands upon the prospective employer, such
prospective employee needs less protection than the ordinary worker. Lesser limitations on the
parties’ freedom of contract are thus required for the protection of the employee.155(Citations omitted)

For as long as the guidelines laid down in Brentare satisfied, this court will recognize the validity of
the fixed-term contract.

In Labayog v. M.Y. San Biscuits, Inc.,156 this court upheld the fixedterm employment of petitioners
because from the time they were hired, they were informed that their engagement was for a specific
period. This court stated that:

[s]imply put, petitioners were notregular employees. While their employment as mixers, packers and
machine operators was necessary and desirable in the usual business ofrespondent company, they
were employed temporarily only, during periods when there was heightened demand for production.
Consequently, there could have been no illegal dismissal when their services were terminated on
expiration of their contracts. There was even no need for notice of termination because they knew
exactly when their contracts would end. Contracts of employment for a fixed period terminate on
their own at the end of such period.

Contracts of employment for a fixed period are not unlawful. What is objectionable is the practice of
some scrupulous employers who try to circumvent the law protecting workers from the capricious
termination of employment.157 (Citation omitted)

Caparoso v. Court of Appeals158 upheld the validity of the fixed-term contract of employment.
Caparoso and Quindipan were hired as delivery men for three (3) months. At the end of the third
month, they were hired on a monthly basis. In total, they were hired for five (5) months. They filed a
complaint for illegal dismissal.159 This court ruled that there was no evidence indicating that they were
pressured into signing the fixed-term contracts. There was likewise no proof that their employer was
engaged in hiring workers for five (5) months onlyto prevent regularization. In the absence of these
facts, the fixed-term contracts were upheld as valid.160 On the other hand, an independent contractor
is defined as:

. . . one who carries on a distinct and independent business and undertakes to perform the job, work,
or service on its own account and under one’s own responsibility according to one’s own manner
and method, 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.161

In view of the "distinct and independent business" of independent contractors, no employer-

employee relationship exists between independent contractors and their principals. Independent
contractors are recognized under Article 106 of the Labor Code:

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

....

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

In Department Order No. 18-A, Seriesof 2011, of the Department of Labor and Employment, a
contractor is defined as having:

Section 3. . . .

....

(c) . . . an arrangement whereby a principal agrees to put out or farm out with a contractor the
performance or completion of a specific job, work or service within a definite or predetermined
period, regardless of whether such job, work or service is to be performed or completed within
oroutside the premises of the principal.

This department order also states that there is a trilateral relationship in legitimate job contracting
and subcontracting arrangements among the principal, contractor, and employees of the contractor.
There is no employer-employee relationship between the contractor and principal who engages the
contractor’s services, but there is an employer-employee relationship between the contractor and
workers hired to accomplish the work for the principal.162

Jurisprudence has recognized another kind of independent contractor: individuals with unique skills
and talents that set them apart from ordinary employees. There is no trilateral relationship in this
case because the independent contractor himself or herself performs the work for the principal. In
other words, the relationship is bilateral.

In Orozco v. Court of Appeals,163 Wilhelmina Orozco was a columnist for the Philippine Daily Inquirer.
This court ruled that she was an independent contractor because of her "talent, skill, experience, and
her unique viewpoint as a feminist advocate."164 In addition, the Philippine Daily Inquirer did not have
the power of control over Orozco, and she worked at her own pleasure.165

Semblante v. Court of Appeals166 involved a masiador167 and a sentenciador.168 This court ruled that
"petitioners performed their functions as masiadorand sentenciador free from the direction and
control of respondents"169 and that the masiador and sentenciador "relied mainly on their ‘expertise
that is characteristic of the cockfight gambling.’"170 Hence, no employer-employee relationship
existed.

Bernarte v. Philippine Basketball Association171 involved a basketball referee. This court ruled that "a
referee is an independent contractor, whose special skills and independent judgment are required
specifically for such position and cannot possibly be controlled by the hiring party."172

In these cases, the workers were found to be independent contractors because of their unique skills
and talents and the lack of control over the means and methods in the performance of their work.

In other words, there are different kinds of independent contractors: those engaged in legitimate job
contracting and those who have unique skills and talents that set them apart from ordinary
employees.
Since no employer-employee relationship exists between independent contractors and their
principals, their contracts are governed by the Civil Code provisions on contracts and other
applicable laws.173

A contract is defined as "a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service."174 Parties are free to stipulate on
terms and conditions in contracts as long as these "are not contrary to law, morals, good customs,
public order, or public policy."175 This presupposes that the parties to a contract are on equal footing.
Theycan bargain on terms and conditions until they are able to reach an agreement.

On the other hand, contracts of employment are different and have a higher level of regulation
because they are impressed with public interest. Article XIII, Section 3 of the 1987 Constitution
provides full protection to labor:

ARTICLE XIII. SOCIAL JUSTICE AND HUMAN RIGHTS

....

LABOR

Section 3. The State shall afford full protection to labor, local and overseas, organized and
unorganized, and promote full employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations,
and peaceful concerted activities, including the right to strike in accordance with law. They shall be
entitled to security of tenure, humane conditions of work, and a living wage. They shall also
participate in policy and decision-making processes affecting their rights and benefits as may be
provided by law.

The State shall promote the principle of shared responsibility between workers and employers and
the preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce
their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of labor
to its just share in the fruits of production and the right of enterprises to reasonable returns on
investments, and to expansion and growth.

Apart from the constitutional guarantee of protection to labor, Article 1700 of the Civil Code states:

ART. 1700. The relations between capital and labor are not merely contractual. They are so
impressed with public interest that labor contracts must yield to the common good. Therefore, such
contracts are subject to the special laws on labor unions, collective bargaining, strikes and lockouts,
closed shop, wages, working conditions, hours of labor and similar subjects.

In contracts of employment, the employer and the employee are not on equal footing. Thus, it is
subject to regulatory review by the labor tribunals and courts of law. The law serves to equalize the
unequal. The labor force is a special class that is constitutionally protected because of the inequality
between capital and labor.176 This presupposes that the labor force is weak. However, the level of
protection to labor should vary from case to case; otherwise, the state might appear to be too
paternalistic in affording protection to labor. As stated in GMA Network, Inc. v. Pabriga, the ruling in
Brent applies in cases where it appears that the employer and employee are on equal footing.177 This
recognizes the fact that not all workers are weak. To reiterate the discussion in GMA Network v.
Pabriga:

The reason for this is evident: when a prospective employee, on account of special skills or market
forces, is in a position to make demands upon the prospective employer, such prospective employee
needs less protection than the ordinary worker. Lesser limitations on the parties’ freedom of contract
are thus required for the protection of the employee.178

The level of protection to labor mustbe determined on the basis of the nature of the work,
qualifications of the employee, and other relevant circumstances.

For example, a prospective employee with a bachelor’s degree cannot be said to be on equal footing
witha grocery bagger with a high school diploma. Employees who qualify for jobs requiring special
qualifications such as "[having] a Master’s degree" or "[having] passed the licensure exam" are
different from employees who qualify for jobs that require "[being a] high school graduate;
withpleasing personality." In these situations, it is clear that those with special qualifications can
bargain with the employer on equal footing. Thus, the level of protection afforded to these
employees should be different.

Fuji’s argument that Arlene was an independent contractor under a fixed-term contract is
contradictory. Employees under fixed-term contracts cannot be independent contractors because in
fixed-term contracts, an employer-employee relationship exists. The test in this kind of contract is not
the necessity and desirability of the employee’s activities, "but the day certain agreed upon by the
parties for the commencement and termination of the employment relationship."179 For regular
employees, the necessity and desirability of their work in the usual course of the employer’s
business are the determining factors. On the other hand, independent contractors do not have
employer-employee relationships with their principals. Hence, before the status of employment can
be determined, the existence of an employer-employee relationship must be established.

The four-fold test180 can be used in determining whether an employeremployee relationship exists.
The elements of the four-fold test are the following: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power of control, which
is the most important element.181

The "power of control" was explained by this court in Corporal, Sr. v. National Labor Relations
Commission:182

The power to control refers to the existence of the power and not necessarily to the actual exercise
thereof, nor is it essential for the employer to actually supervise the performance of duties of the
employee. It is enough that the employer has the right to wield that power.183 (Citation omitted)

Orozco v. Court of Appeals further elucidated the meaning of "power of control" and stated the
following:

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed
in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the
use of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it. . .
.184 (Citation omitted)
In Locsin, et al. v. Philippine Long Distance Telephone Company,185 the "power of control" was
defined as "[the] right to control not only the end to be achieved but also the means to be used in
reaching such end."186

Here, the Court of Appeals applied Sonza v. ABS-CBN and Dumpit Murillo v. Court of Appeals187 in
determining whether Arlene was an independent contractor or a regular employee.

In deciding Sonza and Dumpit-Murillo, this court used the four-fold test. Both cases involved
newscasters and anchors. However, Sonza was held to be an independent contractor, while Dumpit-
Murillo was held to be a regular employee.

Comparison of the Sonza and

Dumpit-Murillo cases using
the four-fold test

Sonza was engaged by ABS-CBN in view of his "unique skills, talent and celebrity status not
possessed by ordinary employees."188 His work was for radio and television programs.189 On the other
hand, Dumpit-Murillo was hired by ABC as a newscaster and co-anchor.190 Sonza’s talent fee
amounted to ₱317,000.00 per month, which this court found to be a substantial amount that
indicatedhe was an independent contractor rather than a regular employee.191Meanwhile, Dumpit-
Murillo’s monthly salary was ₱28,000.00, a very low amount compared to what Sonza received.192

Sonza was unable to prove that ABS-CBN could terminate his services apart from breach of
contract. There was no indication that he could be terminated based on just or authorized causes
under the Labor Code. In addition, ABS-CBN continued to pay his talent fee under their agreement,
even though his programs were no longer broadcasted.193 Dumpit-Murillo was found to have
beenillegally dismissed by her employer when they did not renew her contract on her fourth year
with ABC.194

In Sonza, this court ruled that ABS-CBN did not control how Sonza delivered his lines, how he
appeared on television, or how he sounded on radio.195 All that Sonza needed was his
talent.196 Further, "ABS-CBN could not terminate or discipline SONZA even if the means and
methods of performance of his work . . . did not meet ABS-CBN’s approval."197 In Dumpit-Murillo, the
duties and responsibilities enumerated in her contract was a clear indication that ABC had control
over her work.198

Application of the four-fold test

The Court of Appeals did not err when it relied on the ruling in Dumpit-Murillo and affirmed the ruling
of the National Labor Relations Commission finding that Arlene was a regular employee. Arlene was
hired by Fuji as a news producer, but there was no showing that she was hired because of unique
skills that would distinguish her from ordinary employees. Neither was there any showing that she
had a celebrity status. Her monthly salary amounting to US$1,900.00 appears tobe a substantial
sum, especially if compared to her salary whenshe was still connected with GMA.199 Indeed, wages
may indicate whether oneis an independent contractor. Wages may also indicate that an employee
is able to bargain with the employer for better pay. However, wages should not be the conclusive
factor in determining whether one is an employee or an independent contractor.

Fuji had the power to dismiss Arlene, as provided for in paragraph 5 of her professional employment
contract.200 Her contract also indicated that Fuji had control over her work because she was required
to work for eight (8) hours from Monday to Friday, although on flexible time.201 Sonza was not
required to work for eight (8) hours, while Dumpit-Murillo had to be in ABC to do both on-air and off-
air tasks.

On the power to control, Arlene alleged that Fuji gave her instructions on what to report.202 Even the
mode of transportation in carrying out her functions was controlled by Fuji. Paragraph 6 of her
contract states:

6. During the travel to carry out work, if there is change of place or change of place of work, the train,
bus, or public transport shall be used for the trip. If the Employee uses the private car during the
work and there is an accident the Employer shall not be responsible for the damage, which may be
caused to the Employee.203

Thus, the Court of Appeals did not err when it upheld the findings of the National Labor Relations
Commission that Arlene was not an independent contractor.

Having established that an employer-employee relationship existed between Fuji and Arlene, the
next questions for resolution are the following: Did the Court of Appeals correctly affirm the National
Labor Relations Commission that Arlene had become a regular employee? Was the nature of
Arlene’s work necessary and desirable for Fuji’s usual course of business?

Arlene was a regular employee

with a fixed-term contract

The test for determining regular employment is whether there is a reasonable connection between
the employee’s activities and the usual business of the employer. Article 280 provides that the
nature of work must be "necessary or desirable in the usual business or trade of the employer" as
the test for determining regular employment. As stated in ABS-CBN Broadcasting Corporation v.
Nazareno:204

In determining whether an employment should be considered regular or non-regular, the applicable

test is the reasonable connection between the particular activity performed by the employee in
relation to the usual business or trade of the employer. The standard, supplied by the law itself, is
whether the work undertaken is necessary or desirable in the usual business or trade of the
employer, a fact that can be assessed by looking into the nature of the services rendered and its
relation to the general scheme under which the business or trade is pursued in the usual course. It is
distinguished from a specific undertaking that is divorced from the normal activities required
incarrying on the particular business or trade.205

However, there may be a situation where an employee’s work is necessary but is not always
desirable inthe usual course of business of the employer. In this situation, there is no regular
employment.

In San Miguel Corporation v. National Labor Relations Commission,206 Francisco de Guzman was
hired to repair furnaces at San Miguel Corporation’s Manila glass plant. He had a separate contract
for every furnace that he repaired. He filed a complaint for illegal dismissal three (3) years after the
end of his last contract.207 In ruling that de Guzman did not attain the status of a regular employee,
this court explained:

Note that the plant where private respondent was employed for only seven months is engaged in the
manufacture of glass, an integral component of the packaging and manufacturing business of
petitioner. The process of manufacturing glass requires a furnace, which has a limited operating life.
Petitioner resorted to hiring project or fixed term employees in having said furnaces repaired since
said activity is not regularly performed. Said furnaces are to be repaired or overhauled only in case
of need and after being used continuously for a varying period of five (5) to ten (10) years. In 1990,
one of the furnaces of petitioner required repair and upgrading. This was an undertaking distinct and
separate from petitioner's business of manufacturing glass. For this purpose, petitioner must hire
workers to undertake the said repair and upgrading. . . .

....

Clearly, private respondent was hired for a specific project that was not within the regular business
of the corporation. For petitioner is not engaged in the business of repairing furnaces. Although the
activity was necessary to enable petitioner to continue manufacturing glass, the necessity therefor
arose only when a particular furnace reached the end of its life or operating cycle. Or, as in the
second undertaking, when a particular furnace required an emergency repair. In other words, the
undertakings where private respondent was hired primarily as helper/bricklayer have specified goals
and purposes which are fulfilled once the designated work was completed. Moreover, such
undertakings were also identifiably separate and distinct from the usual, ordinary or regular business
operations of petitioner, which is glass manufacturing. These undertakings, the duration and scope
of which had been determined and made known to private respondent at the time of his
employment, clearly indicated the nature of his employment as a project employee.208

Fuji is engaged in the business of broadcasting,209 including news programming.210 It is based in

Japan211 and has overseas offices to cover international news.212

Based on the record, Fuji’s Manila Bureau Office is a small unit213 and has a few employees.214 As
such, Arlene had to do all activities related to news gathering. Although Fuji insists that Arlene was a
stringer, it alleges that her designation was "News Talent/Reporter/Producer."215

A news producer "plans and supervises newscast . . . [and] work[s] with reporters in the field
planning and gathering information. . . ."216 Arlene’s tasks included "[m]onitoring and [g]etting [n]ews
[s]tories, [r]eporting interviewing subjects in front of a video camera,"217 "the timely submission of
news and current events reports pertaining to the Philippines[,] and traveling [sic] to [Fuji’s] regional
office in Thailand."218 She also had to report for work in Fuji’s office in Manila from Mondays to
Fridays, eight (8) hours per day.219 She had no equipment and had to use the facilities of Fuji to
accomplish her tasks.

The Court of Appeals affirmed the finding of the National Labor Relations Commission that the
successive renewals of Arlene’s contract indicated the necessity and desirability of her work in the
usual course of Fuji’s business. Because of this, Arlene had become a regular employee with the
right to security of tenure.220 The Court of Appeals ruled that:

Here, Espiritu was engaged by Fuji as a stinger [sic] or news producer for its Manila Bureau. She
was hired for the primary purpose of news gathering and reporting to the television network’s
headquarters. Espiritu was not contracted on account of any peculiar ability or special talent and skill
that she may possess which the network desires to make use of. Parenthetically, ifit were true that
Espiritu is an independent contractor, as claimed by Fuji, the factthat everything that she uses to
perform her job is owned by the company including the laptop computer and mini camera discounts
the idea of job contracting.221

Moreover, the Court of Appeals explained that Fuji’s argument that no employer-employee
relationship existed in view of the fixed-term contract does not persuade because fixed-term
contracts of employment are strictly construed.222 Further, the pieces of equipment Arlene used were
all owned by Fuji, showing that she was a regular employee and not an independent contractor.223
The Court of Appeals likewise cited Dumpit-Murillo, which involved fixed-term contracts that were
successively renewed for four (4) years.224 This court held that "[t]his repeated engagement under
contract of hire is indicative of the necessity and desirability of the petitioner’s work in private
respondent ABC’s business."225

With regard to Fuji’s argument that Arlene’s contract was for a fixed term, the Court of Appeals cited
Philips Semiconductors, Inc. v. Fadriquela226 and held that where an employee’s contract "had been
continuously extended or renewed to the same position, with the same duties and remained in the
employ without any interruption,"227 then such employee is a regular employee. The continuous
renewal is a scheme to prevent regularization. On this basis, the Court of Appeals ruled in favor of
Arlene.

As stated in Price, et al. v. Innodata Corp., et al.:228

The employment status of a person is defined and prescribed by law and not by what the parties say
it should be. Equally important to consider is that a contract of employment is impressed with public
interest such that labor contracts must yield to the common good. Thus, provisions of applicable
statutes are deemed written into the contract, and the parties are not at liberty to insulate themselves
and their relationships from the impact of labor laws and regulations by simply contracting with each
other.229 (Citations omitted)

Arlene’s contract indicating a fixed term did not automatically mean that she could never be a regular
employee. This is precisely what Article 280 seeks to avoid. The ruling in Brent remains as the
exception rather than the general rule.

Further, an employee can be a regular employee with a fixed-term contract. The law does not
preclude the possibility that a regular employee may opt to have a fixed-term contract for valid
reasons. This was recognized in Brent: For as long as it was the employee who requested, or
bargained, that the contract have a "definite date of termination," or that the fixed-term contract be
freely entered into by the employer and the employee, then the validity of the fixed-term contract will
be upheld.230

Whether the Court of Appeals correctly affirmed

the National Labor Relations Commission’s finding of illegal dismissal

Fuji argues that the Court of Appeals erred when it held that Arlene was illegally dismissed, in view
of the non-renewal contract voluntarily executed by the parties. Fuji also argues that Arlene’s
contract merely expired; hence, she was not illegally dismissed.231

Arlene alleges that she had no choice but to sign the non-renewal contract because Fuji withheldher
salary and benefits.

With regard to this issue, the Court of Appeals held:

We cannot subscribe to Fuji’s assertion that Espiritu’s contract merely expired and that she
voluntarily agreed not to renew the same. Even a cursory perusal of the subject Non-Renewal
Contract readily shows that the same was signed by Espiritu under protest. What is apparent is that
the Non-Renewal Contract was crafted merely as a subterfuge to secure Fuji’s position that it was
Espiritu’s choice not to renew her contract.232

As a regular employee, Arlene was entitled to security of tenure and could be dismissed only for just
or authorized causes and after the observance of due process.

The right to security of tenureis guaranteed under Article XIII, Section 3 of the 1987 Constitution:
ARTICLE XIII. SOCIAL JUSTICE AND HUMAN RIGHTS

....

LABOR

....

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations,
and peaceful concerted activities, including the right to strike in accordance with law. They shall be
entitled to security of tenure, humane conditions of work, and a living wage. They shall also
participate in policy and decision-making processes affecting their rights and benefits as may be
provided by law.

Article 279 of the Labor Code also provides for the right to security of tenure and states the
following:

Art. 279. Security of tenure.In cases of regular employment, the employer shall not terminate the
services of an employee except for a just cause of when authorized by this Title. An employee who
is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and
other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their
monetary equivalent computed from the time his compensation was withheld from him up to the time
of his actual reinstatement.

Thus, on the right to security of tenure, no employee shall be dismissed, unless there are just
orauthorized causes and only after compliance with procedural and substantive due process is
conducted.

Even probationary employees are entitled to the right to security of tenure. This was explained in
Philippine Daily Inquirer, Inc. v. Magtibay, Jr.:233

Within the limited legal six-month probationary period, probationary employees are still entitled to
security of tenure. It is expressly provided in the afore-quoted Article 281 that a probationary
employee may be terminated only on two grounds: (a) for just cause, or (b) when he fails to qualify
as a regular employee in accordance with reasonable standards made known by the employer to the
employee at the time of his engagement.234 (Citation omitted)

The expiration of Arlene’s contract does not negate the finding of illegal dismissal by Fuji. The
manner by which Fuji informed Arlene that her contract would no longer be renewed is tantamount to
constructive dismissal. To make matters worse, Arlene was asked to sign a letter of resignation
prepared by Fuji.235 The existence of a fixed-term contract should not mean that there can be no
illegal dismissal. Due process must still be observed in the pre-termination of fixed-term contracts of
employment.
In addition, the Court of Appeals and the National Labor Relations Commission found that Arlene
was dismissed because of her health condition. In the non-renewal agreement executed by Fuji and
Arlene, it is stated that:

WHEREAS, the SECOND PARTY is undergoing chemotherapy which prevents her from continuing
to effectively perform her functions under the said Contract such as the timely submission of news
and current events reports pertaining to the Philippines and travelling [sic] to the FIRST PARTY’s
regional office in Thailand.236 (Emphasis supplied)

Disease as a ground for termination is recognized under Article 284 of the Labor Code:

Art. 284. Disease as ground for termination. An employer may terminate the services of an
employee who has been found to be suffering from any disease and whose continued employment
is prohibited by law or is prejudicial to his health as well as to the health of his co-employees:
Provided, That he is paid separation pay equivalent to at least one (1) month salary or to one-half
(1/2) month salary for every year of service, whichever is greater, a fraction of at least six (6) months
being considered as one (1) whole year.

Book VI, Rule 1, Section 8 of the Omnibus Rules Implementing the Labor Code provides:

Sec. 8. Disease as a ground for dismissal.– Where the employee suffers from a disease and his
continued employment is prohibited by law or prejudicial to his healthor to the health of his
coemployees, the employer shall not terminate his employment unless there is a certification by a
competent public health authority that the disease is of such nature or at such a stage that it cannot
be cured within a period of six (6) months even with proper medical treatment. If the disease or
ailment can be cured within the period, the employer shall not terminate the employee but shall ask
the employee to take a leave. The employer shall reinstate such employee to his former position
immediately upon the restoration of his normal health.

For dismissal under Article 284 to bevalid, two requirements must be complied with: (1) the
employee’s disease cannot be cured within six (6) months and his "continued employment is
prohibited by law or prejudicial to his health as well as to the health of his co-employees"; and (2)
certification issued by a competent public health authority that even with proper medical treatment,
the disease cannot be cured within six (6) months.237 The burden of proving compliance with these
requisites is on the employer.238 Noncompliance leads to the conclusion that the dismissal was
illegal.239

There is no evidence showing that Arlene was accorded due process. After informing her employer
of her lung cancer, she was not given the chance to present medical certificates. Fuji immediately
concluded that Arlene could no longer perform her duties because of chemotherapy. It did not ask
her how her condition would affect her work. Neither did it suggest for her to take a leave, even
though she was entitled to sick leaves. Worse, it did not present any certificate from a competent
public health authority. What Fuji did was to inform her thather contract would no longer be renewed,
and when she did not agree, her salary was withheld. Thus, the Court of Appeals correctly upheld
the finding of the National Labor Relations Commission that for failure of Fuji to comply with due
process, Arlene was illegally dismissed.240

VI

Whether the Court of Appeals properly modified

the National Labor Relations Commission’s decision
when it awarded reinstatement, damages, and attorney’s fees
The National Labor Relations Commission awarded separation pay in lieu of reinstatement, on the
ground that the filing of the complaint for illegal dismissal may have seriously strained relations
between the parties. Backwages were also awarded, to be computed from date of dismissal until the
finality of the National Labor Relations Commission’s decision. However, only backwages were
included in the dispositive portion because the National Labor Relations Commission recognized
that Arlene had received separation pay in the amount of US$7,600.00. The Court of Appeals
affirmed the National Labor Relations Commission’s decision but modified it by awarding moral and
exemplary damages and attorney’s fees, and all other benefits Arlene was entitled to under her
contract with Fuji. The Court of Appeals also ordered reinstatement, reasoning that the grounds
when separation pay was awarded in lieu of reinstatement were not proven.241

Article 279 of the Labor Code provides:

Art. 279. Security of tenure. In cases of regular employment, the employer shall not terminate the
services of an employee except for a just cause or when authorized by this Title. An employee who
is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and
other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their
monetary equivalent computed from the time his compensation was withheld from him up to the time
of his actual reinstatement. (Emphasis supplied)

The Court of Appeals’ modification of the National Labor Relations Commission’s decision was
proper because the law itself provides that illegally dismissed employees are entitled to
reinstatement, backwages including allowances, and all other benefits.

On reinstatement, the National Labor Relations Commission ordered payment of separation pay in
lieu of reinstatement, reasoning "that the filing of the instant suit may have seriously abraded the
relationship of the parties so as to render reinstatement impractical."242 The Court of Appeals
reversed this and ordered reinstatement on the ground that separation pay in lieu of reinstatement is
allowed only in several instances such as (1) when the employer has ceased operations; (2) when
the employee’s position is no longer available; (3) strained relations; and (4) a substantial period has
lapsed from date of filing to date of finality.243

On this matter, Quijano v. Mercury Drug Corp.244 is instructive:

Well-entrenched is the rule that an illegally dismissed employee is entitled to reinstatement as a

matter of right. . . .

To protect labor’s security of tenure, we emphasize that the doctrine of "strained relations" should be
strictly applied so as not to deprive an illegally dismissed employee of his right to reinstatement.
Every labor dispute almost always results in "strained relations" and the phrase cannot be given an
overarching interpretation, otherwise, an unjustly dismissed employee can never be
reinstated.245 (Citations omitted)

The Court of Appeals reasoned that strained relations are a question of fact that must be supported
by evidence.246No evidence was presented by Fuji to prove that reinstatement was no longer
feasible. Fuji did not allege that it ceased operations or that Arlene’s position was no longer
available. Nothing in the records shows that Arlene’s reinstatement would cause an atmosphere of
antagonism in the workplace. Arlene filed her complaint in 2009. Five (5) years are not yet a
substantial period247 to bar reinstatement.

On the award of damages, Fuji argues that Arlene is notentitled to the award of damages and
attorney’s fees because the non-renewal agreement contained a quitclaim, which Arlene signed.
Quitclaims in labor cases do not bar illegally dismissed employees from filing labor complaints and
money claim. As explained by Arlene, she signed the non-renewal agreement out of necessity. In
Land and Housing Development Corporation v. Esquillo,248 this court explained: We have heretofore
explained that the reason why quitclaims are commonly frowned upon as contrary to public policy,
and why they are held to be ineffective to bar claims for the full measure of the workers’ legal rights,
is the fact that the employer and the employee obviously do not stand on the same footing. The
employer drove the employee to the wall. The latter must have to get holdof money. Because, out of
a job, he had to face the harsh necessities of life. He thus found himself in no position to resist
money proffered. His, then, is a case of adherence, not of choice.249

With regard to the Court of Appeals’ award of moral and exemplary damages and attorney’s fees,
this court has recognized in several cases that moral damages are awarded "when the dismissal is
attended by bad faith or fraud or constitutes an act oppressive to labor, or is done in a manner
contrary to good morals, good customs or public policy."250 On the other hand, exemplary damages
may be awarded when the dismissal was effected "in a wanton, oppressive or malevolent manner."251

The Court of Appeals and National Labor Relations Commission found that after Arlene had
informed Fuji of her cancer, she was informed that there would be problems in renewing her contract
on account of her condition. This information caused Arlene mental anguish, serious anxiety, and
wounded feelings that can be gleaned from the tenor of her email dated March 11, 2009. A portion of
her email reads:

I WAS SO SURPRISED . . . that at a time when I am at my lowest, being sick and very weak, you
suddenly came to deliver to me the NEWS that you will no longer renew my contract. I knew this will
1aw p++i1

come but I never thought that you will be so ‘heartless’ and insensitive to deliver that news just a
month after I informed you that I am sick. I was asking for patience and understanding and your
response was not to RENEW my contract.252

Apart from Arlene’s illegal dismissal, the manner of her dismissal was effected in an oppressive
approach withher salary and other benefits being withheld until May 5, 2009, when she had no other
choice but to sign the non-renewal contract. Thus, there was legal basis for the Court of Appeals to
modify the National Labor Relations Commission’s decision.

However, Arlene receivedher salary for May 2009.253 Considering that the date of her illegal dismissal
was May 5, 2009,254 this amount may be subtracted from the total monetary award. With regard to the
award of attorney’s fees, Article 111 of the Labor Code states that "[i]n cases of unlawful withholding
of wages, the culpable party may be assessed attorney’s fees equivalent to ten percent of the
amount of wages recovered." Likewise, this court has recognized that "in actions for recovery of
wages or where an employee was forced to litigate and, thus, incur expenses to protect his rights
and interest, the award of attorney’s fees is legallyand morally justifiable."255 Due to her illegal
dismissal, Arlene was forced to litigate.

In the dispositive portion of its decision, the Court of Appeals awarded legal interest at the rate of
12% per annum.256 In view of this court’s ruling in Nacar v. Gallery Frames,257 the legal interest shall
be reducd to a rate of 6% per annum from July 1, 2013 until full satisfaction.

WHEREFORE, the petition is DENIED. The assailed Court of Appeals decision dated June 25, 2012
is AFFIRMED with the modification that backwages shall be computed from June 2009. Legal
interest shall be computed at the rate of 6% per annum of the total monetary award from date of
finality of this decision until full satisfaction.

SO ORDERED.
6)

G.R. No. 211141, June 29, 2016

HILARIO DASCO, REYMIR PARAFINA, RICHARD PARAFINA, EDILBERTO ANIA, MICHAEL ADANO,
JAIME BOLO, RUBEN E. GULA, ANTONIO CUADERNO AND JOVITO
CATANGUI, Petitioners, v. PHILTRANCO SERVICE ENTERPRISES INC/CENTURION SOLANO,
MANAGER, Respondents.

DECISION

REYES, J.:

This appeal by petition for review on certiorari1 seeks to annul and set aside the Decision2 dated August 30,
2013 and Resolution3 dated January 28, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 126210, which
nullified and set aside the Decision4 dated February 22, 2012 and Resolution5 dated May 30, 2012 of the
National Labor Relations Commission (NLRC) in NLRC-NCR Case No. 07-10173-11, and reinstated the
Decision6 dated October 17, 2011 of the Labor Arbiter (LA), dismissing the monetary claims of Hilario Dasco,
Reymir Parafina, Richard Parafina, Edilberto Ania, Michael Adano, Jaime Bolo, Ruben E. Gula, Antonio
Cuaderno and Jovito Catangui (petitioners).

The Facts

This case stemmed from a complaint7 for regularization, underpayment of wages, non-payment of service
incentive leave (SIL) pay, and attorney's fees, filed by the petitioners against Philtranco Service Enterprises
Inc., (PSEI), a domestic corporation engaged in providing public utility transportation, and its Manager,
Centurion Solano (respondents).

On various dates from 2006 to 2010, the petitioners were employed by the respondents as bus drivers
and/or conductors with travel routes of Manila (Pasay) to Bicol, Visayas and Mindanao, and vice versa.8 chanrob leslaw

On July 4, 2011, the petitioners filed a case against the respondents alleging that: (1) they were already
qualified for regular employment status since they have been working with the respondents for several
years; (2) they were paid only P404.00 per round trip, which lasts from two to five days, without overtime
pay and below the minimum wage rate; (3) they cannot be considered as field personnel because their
working hours are controlled by the respondents from dispatching to end point and their travel time is
monitored and measured by the distance because they are in the business of servicing passengers where
time is of the essence; and (4) they had not been given their yearly five-day SIL since the time they were
hired by the respondents.9 cha nrob leslaw

In response, the respondents asserted that: (1) the petitioners were paid on a fixed salary rate of P0.49
centavos per kilometer run, or minimum wage, whichever is higher; (2) the petitioners are seasonal
employees since their contracts are for a fixed period and their employment was dependent on the exigency
of the extraordinary public demand for more buses during peak months of the year; and (3) the petitioners
are not entitled to overtime pay and SIL pay because they are field personnel whose time outside the
company premises cannot be determined with reasonable certainty since they ply provincial routes and are
left alone in the field unsupervised.10 ch anro bleslaw

Ruling of the LA

On October 17, 2011, the LA rendered a Decision11 in favor of the respondents but declared the petitioners
as regular employees of the respondents.12 The LA held that the respondents were able to prove that the
petitioners were paid on a fixed salary of P0.49 per kilometer run, or minimum wage, whichever is higher.
The LA also found that the petitioners are not entitled to holiday pay and SIL pay because they are
considered as field personnel.13 chan roble slaw

Dissatisfied with the LA's decision, the petitioners interposed a Partial Appeal14 filed on December 8, 2011
before the NLRC.
 Ruling of the NLRC

In a Decision15 dated February 22, 2012, the NLRC granted the petitioners' appeal and modified the LA's
decision, the dispositive part of which reads:
chanRoble svirtual Lawlib ra ry

WHEREFORE, premises considered, the Partial Appeal is GRANTED. The Decision of the [LA] dated October
17, 2011 is hereby MODIFIED in that [PSEI] is directed to pay [the petitioners] wage differentials covering a
period of three (3) years counted backwards from the time they filed their complaint against respondents
but taking into consideration the respective dates of employment and the prevailing minimum wage rate
applicable. [PSEI] is likewise directed to pay [the petitioners SIL] and overtime benefits limited also for a
period of three (3) years counted backwards from the time they filed their complaint against respondents.

SO ORDERED.16 chanroblesv irtuallawl ib rary

The NLRC held that the petitioners are not field personnel considering that they ply specific routes with fixed
time schedules determined by the respondents; thus, they are entitled to minimum wage, SIL pay, and
overtime benefits.17 With regard to the respondents' claim that the petitioners have a fixed term contract,
the NLRC concurred with the findings of the LA that the respondents failed to show any document, such as
employment contracts and employment records, that would show the dates of hiring, as well as the fixed
period agreed upon.18 chan roble slaw

The respondents filed a Motion for Reconsideration19 on March 12, 2012 but it was denied in a
Resolution20 dated May 30, 2012; hence, they filed a Petition for Certiorari21 before the CA.

Meanwhile, during the pendency of this case before the CA, the petitioners filed a motion for issuance of writ
of execution to enforce the NLRC decision. Accordingly, a Writ of Execution dated November 6, 2012 was
issued. By virtue of such writ, two units of buses owned by PSEI were levied and sold in a public auction, for
the amount of P600,000.00. Thereafter, a corresponding Sheriffs Certificate of Sale was issued.22 chanrob leslaw

Ruling of the CA

The CA, in its Decision23 dated August 30, 2013, reversed and set aside the NLRC rulings and reinstated the
LA's decision. Consequently, the writ of execution, levy, auction sale and certificate of sale of PSEI's
properties were declared null and void. The petitioners and the NLRC Sheriff were directed to return the
subject properties or turn over the monetary value thereof to the respondents.24 chanrob leslaw

In overturning the NLRC's decision, the CA considered the petitioners as field workers and, on that basis,
denied their claim for benefits, such as overtime pay and SIL pay. According to the CA, there was no way for
the respondents to supervise the petitioners on their job. The petitioners are practically on their own in
plying the routes in the field, as in fact, they can deviate from the fixed routes, take short cuts, make
detours, and take breaks, among others. The petitioners work time and performance are not constantly
supervised by the respondents, thus making them field personnel.25 c ralawre dchan rob leslaw

Aggrieved by the foregoing disquisition, the petitioners moved for reconsideration26 but it was denied by the
CA in its Resolution27 dated January 28, 2014. Hence, the present petition for review on certiorari.

The Issue

The main issue in this case is whether the petitioners as bus drivers and/or conductors are field personnel,
and thus entitled to overtime pay and SIL pay.28 chanroble slaw

Ruling of the Court

The petition is impressed with merit.

Again, the Court reiterates that as a rule, it is not a trier of facts and this applies with greater force in labor
cases. Hence, factual findings of quasi-judicial bodies like the NLRC, particularly when they coincide with
those of the LA and if supported by substantial evidence, are accorded respect and even finality by this
Court. But where the findings of the NLRC and the LA are contradictory, as in the present case, this Court
may delve into the records and examine for itself the questioned findings.29 c hanrobles law
Nevertheless, the facts and the issues surrounding this petition are no longer novel for this Court. The
determination of whether bus drivers and/or conductors are considered as field personnel was already
threshed out in the case of Auto Bus Transport Systems, Inc. v. Bautista,30 where the Court explained that:
chanRoble svirtual Lawlib ra ry

As a general rule, [field personnel] are those whose performance of their job/service is not supervised by
the employer or his representative, the workplace being away from the principal office and whose hours and
days of work cannot be determined with reasonable certainty; hence, they are paid specific amount for
rendering specific service or performing specific work. If required to be at specific places at specific times,
employees including drivers cannot be said to be field personnel despite the fact that they are performing
work away from the principal office of the employee, x x x
xxxx
x x x At this point, it is necessary to stress that the definition of a "field personnel" is not merely concerned
with the location where the employee regularly performs his duties but also with the fact that the
employee's performance is unsupervised by the employer. As discussed above, field personnel are those
who regularly perform their duties away from the principal place of business of the employer and whose
actual hours of work in the field cannot be determined with reasonable certainty. Thus, in order to conclude
whether an employee is a field employee, it is also necessary to ascertain if actual hours of work in the field
can be determined with reasonable certainty by the employer. In so doing, an inquiry must be made as to
whether or not the employee's time and performance are constantly supervised by the employer.31

Guided by the foregoing norms, the NLRC properly concluded that the petitioners are not field personnel but
regular employees who perform tasks usually necessary and desirable to the respondents' business.
Evidently, the petitioners are not field personnel as defined above and the NLRC's finding in this regard is
supported by the established facts of this case: (1) the petitioners, as bus drivers and/or conductors, are
directed to transport their passengers at a specified time and place; (2) they are not given the discretion to
select and contract with prospective passengers; (3) their actual work hours could be determined with
reasonable certainty, as well as their average trips per month; and (4) the respondents supervised their
time and performance of duties.

In order to monitor their drivers and/or conductors, as well as the passengers and the bus itself, the bus
companies put checkers, who are assigned at tactical places along the travel routes that are plied by their
buses. The drivers and/or conductors are required to be at the specific bus terminals at a specified time. In
addition, there are always dispatchers in each and every bus terminal, who supervise and ensure prompt
departure at specified times and arrival at the estimated proper time. Obviously, these drivers and/or
conductors cannot be considered as field personnel because they are under the control and constant
supervision of the bus companies while in the performance of their work.

As correctly observed by the NLRC:

chanRoble svirtual Lawlib ra ry

[I]t is undisputed that [the petitioners] as bus drivers/conductors ply specific routes of [PSEI], x x x
averaging 2 to 5 days per round trip. They follow fixed time schedules of travel and follow the designated
route of [PSEI]. Thus, in carrying out their functions as bus drivers/conductors, they are not at liberty to
deviate from the fixed time schedules for departure or arrival or change the routes other than those
specifically designated for [PSEI], in accordance with the franchise granted to the [PSEI] as a public utility
provider. In other words, [the petitioners] are clearly under the strict supervision and control of [PSEI] in
the performance of their functions otherwise the latter will not be able to carry out its business as public
utility service provider in accordance with its franchise.32

The Court agrees with the above-quoted findings of the NLRC. Clearly, the petitioners, as bus drivers and/or
conductors, are left alone in the field with the duty to comply with the conditions of the respondents'
franchise, as well as to take proper care and custody of the bus they are using. Since the respondents are
engaged in the public utility business, the petitioners, as bus drivers and/or conductors, should be
considered as regular employees of the respondents because they perform tasks which are directly and
necessarily connected with the respondents' business. Thus, they are consequently entitled to the benefits
accorded to regular employees of the respondents, including overtime pay and SIL pay.

WHEREFORE, the petition is GRANTED. The Decision dated August 30, 2013 and Resolution dated January
28, 2014 of the Court of Appeals in CA-G.R. SP No. 126210 are REVERSED and SET ASIDE. The Decision
dated February 22, 2012 and Resolution dated May 30, 2012 of the National Labor Relations Commission in
NLRC-NCR Case No. 07-10173-11 are REINSTATED.
SO ORDERED.

7)

G.R. No. 192084 September 14, 2011

JOSE MEL BERNARTE, Petitioner,

vs.
PHILIPPINE BASKETBALL ASSOCIATION (PBA), JOSE EMMANUEL M. EALA, and PERRY
MARTINEZ,Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 17 December 2009 Decision2 and 5 April 2010 Resolution3 of the
Court of Appeals in CA-G.R. SP No. 105406. The Court of Appeals set aside the decision of the
National Labor Relations Commission (NLRC), which affirmed the decision of the Labor Arbiter, and
held that petitioner Jose Mel Bernarte is an independent contractor, and not an employee of
respondents Philippine Basketball Association (PBA), Jose Emmanuel M. Eala, and Perry Martinez.
The Court of Appeals denied the motion for reconsideration.

The Facts

The facts, as summarized by the NLRC and quoted by the Court of Appeals, are as follows:

Complainants (Jose Mel Bernarte and Renato Guevarra) aver that they were invited to join the PBA
as referees. During the leadership of Commissioner Emilio Bernardino, they were made to sign
contracts on a year-to-year basis. During the term of Commissioner Eala, however, changes were
made on the terms of their employment.

Complainant Bernarte, for instance, was not made to sign a contract during the first conference of
the All-Filipino Cup which was from February 23, 2003 to June 2003. It was only during the second
conference when he was made to sign a one and a half month contract for the period July 1 to
August 5, 2003.

On January 15, 2004, Bernarte received a letter from the Office of the Commissioner advising him
that his contract would not be renewed citing his unsatisfactory performance on and off the court. It
was a total shock for Bernarte who was awarded Referee of the year in 2003. He felt that the
dismissal was caused by his refusal to fix a game upon order of Ernie De Leon.

On the other hand, complainant Guevarra alleges that he was invited to join the PBA pool of
referees in February 2001. On March 1, 2001, he signed a contract as trainee. Beginning 2002, he
signed a yearly contract as Regular Class C referee. On May 6, 2003, respondent Martinez issued a
memorandum to Guevarra expressing dissatisfaction over his questioning on the assignment of
referees officiating out-of-town games. Beginning February 2004, he was no longer made to sign a
contract.
Respondents aver, on the other hand, that complainants entered into two contracts of retainer with
the PBA in the year 2003. The first contract was for the period January 1, 2003 to July 15, 2003; and
the second was for September 1 to December 2003. After the lapse of the latter period, PBA
decided not to renew their contracts.

Complainants were not illegally dismissed because they were not employees of the PBA. Their
respective contracts of retainer were simply not renewed. PBA had the prerogative of whether or not
to renew their contracts, which they knew were fixed.4

In her 31 March 2005 Decision,5 the Labor Arbiter6 declared petitioner an employee whose dismissal
by respondents was illegal. Accordingly, the Labor Arbiter ordered the reinstatement of petitioner
and the payment of backwages, moral and exemplary damages and attorney’s fees, to wit:

WHEREFORE, premises considered all respondents who are here found to have illegally dismissed
complainants are hereby ordered to (a) reinstate complainants within thirty (30) days from the date
of receipt of this decision and to solidarily pay complainants:

JOSE MEL RENATO

BERNARTE GUEVARRA
1. backwages from January ₱536,250.00 ₱211,250.00
1, 2004 up to the finality of
this Decision, which to date
is
2. moral damages 100,000.00 50,000.00
3. exemplary damages 100,000.00 50,000.00
4. 10% attorney's fees 68,625.00 36,125.00
TOTAL ₱754,875.00 ₱397,375.00

or a total of ₱1,152,250.00

The rest of the claims are hereby dismissed for lack of merit or basis.

SO ORDERED.7

In its 28 January 2008 Decision,8 the NLRC affirmed the Labor Arbiter’s judgment. The dispositive
portion of the NLRC’s decision reads:

WHEREFORE, the appeal is hereby DISMISSED. The Decision of Labor Arbiter Teresita D.
Castillon-Lora dated March 31, 2005 is AFFIRMED.

SO ORDERED.9

Respondents filed a petition for certiorari with the Court of Appeals, which overturned the decisions
of the NLRC and Labor Arbiter. The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated January 28, 2008
and Resolutiondated August 26, 2008 of the National Labor Relations Commission
are ANNULLED and SET ASIDE. Private respondents’ complaint before the Labor Arbiter
is DISMISSED.

SO ORDERED.10

The Court of Appeals’ Ruling

The Court of Appeals found petitioner an independent contractor since respondents did not exercise
any form of control over the means and methods by which petitioner performed his work as a
basketball referee. The Court of Appeals held:

While the NLRC agreed that the PBA has no control over the referees’ acts of blowing the whistle
and making calls during basketball games, it, nevertheless, theorized that the said acts refer to the
means and methods employed by the referees in officiating basketball games for the illogical reason
that said acts refer only to the referees’ skills. How could a skilled referee perform his job without
blowing a whistle and making calls? Worse, how can the PBA control the performance of work of a
referee without controlling his acts of blowing the whistle and making calls?

Moreover, this Court disagrees with the Labor Arbiter’s finding (as affirmed by the NLRC) that the
Contracts of Retainer show that petitioners have control over private respondents.

xxxx

Neither do We agree with the NLRC’s affirmance of the Labor Arbiter’s conclusion that private
respondents’ repeated hiring made them regular employees by operation of law.11

The Issues

The main issue in this case is whether petitioner is an employee of respondents, which in turn
determines whether petitioner was illegally dismissed.

Petitioner raises the procedural issue of whether the Labor Arbiter’s decision has become final and
executory for failure of respondents to appeal with the NLRC within the reglementary period.

The Ruling of the Court

The petition is bereft of merit.

The Court shall first resolve the procedural issue posed by petitioner.

Petitioner contends that the Labor Arbiter’s Decision of 31 March 2005 became final and executory
for failure of respondents to appeal with the NLRC within the prescribed period. Petitioner claims that
the Labor Arbiter’s decision was constructively served on respondents as early as August 2005 while
respondents appealed the Arbiter’s decision only on 31 March 2006, way beyond the reglementary
period to appeal. Petitioner points out that service of an unclaimed registered mail is deemed
complete five days from the date of first notice of the post master. In this case three notices were
issued by the post office, the last being on 1 August 2005. The unclaimed registered mail was
consequently returned to sender. Petitioner presents the Postmaster’s Certification to prove
constructive service of the Labor Arbiter’s decision on respondents. The Postmaster certified:

xxx
That upon receipt of said registered mail matter, our registry in charge, Vicente Asis, Jr., immediately
issued the first registry notice to claim on July 12, 2005 by the addressee. The second and third
notices were issued on July 21 and August 1, 2005, respectively.

That the subject registered letter was returned to the sender (RTS) because the addressee failed to
claim it after our one month retention period elapsed. Said registered letter was dispatched from this
office to Manila CPO (RTS) under bill #6, line 7, page1, column 1, on September 8, 2005.12

Section 10, Rule 13 of the Rules of Court provides:

SEC. 10. Completeness of service. – Personal service is complete upon actual delivery. Service by
ordinary mail is complete upon the expiration of ten (10) days after mailing, unless the court
otherwise provides. Service by registered mail is complete upon actual receipt by the addressee, or
after five (5) days from the date he received the first notice of the postmaster, whichever date is
earlier.

The rule on service by registered mail contemplates two situations: (1) actual service the
completeness of which is determined upon receipt by the addressee of the registered mail; and (2)
constructive service the completeness of which is determined upon expiration of five days from the
date the addressee received the first notice of the postmaster.13

Insofar as constructive service is concerned, there must be conclusive proof that a first notice was
duly sent by the postmaster to the addressee.14 Not only is it required that notice of the registered
mail be issued but that it should also be delivered to and received by the addressee.15 Notably, the
presumption that official duty has been regularly performed is not applicable in this situation. It is
incumbent upon a party who relies on constructive service to prove that the notice was sent to, and
received by, the addressee.16

The best evidence to prove that notice was sent would be a certification from the postmaster, who
should certify not only that the notice was issued or sent but also as to how, when and to whom the
delivery and receipt was made. The mailman may also testify that the notice was actually delivered.17

In this case, petitioner failed to present any concrete proof as to how, when and to whom the
delivery and receipt of the three notices issued by the post office was made. There is no conclusive
evidence showing that the post office notices were actually received by respondents, negating
petitioner’s claim of constructive service of the Labor Arbiter’s decision on respondents. The
Postmaster’s Certification does not sufficiently prove that the three notices were delivered to and
received by respondents; it only indicates that the post office issued the three notices. Simply put,
the issuance of the notices by the post office is not equivalent to delivery to and receipt by the
addressee of the registered mail. Thus, there is no proof of completed constructive service of the
Labor Arbiter’s decision on respondents.

At any rate, the NLRC declared the issue on the finality of the Labor Arbiter’s decision moot as
respondents’ appeal was considered in the interest of substantial justice. We agree with the NLRC.
The ends of justice will be better served if we resolve the instant case on the merits rather than
allowing the substantial issue of whether petitioner is an independent contractor or an employee
linger and remain unsettled due to procedural technicalities.

The existence of an employer-employee relationship is ultimately a question of fact. As a general

rule, factual issues are beyond the province of this Court. However, this rule admits of exceptions,
one of which is where there are conflicting findings of fact between the Court of Appeals, on one
hand, and the NLRC and Labor Arbiter, on the other, such as in the present case.18
To determine the existence of an employer-employee relationship, case law has consistently applied
the four-fold test, to wit: (a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employer’s power to control the employee on the
means and methods by which the work is accomplished. The so-called "control test" is the most
important indicator of the presence or absence of an employer-employee relationship.19

In this case, PBA admits repeatedly engaging petitioner’s services, as shown in the retainer
contracts. PBA pays petitioner a retainer fee, exclusive of per diem or allowances, as stipulated in
the retainer contract. PBA can terminate the retainer contract for petitioner’s violation of its terms
and conditions.

However, respondents argue that the all-important element of control is lacking in this case, making
petitioner an independent contractor and not an employee of respondents.

Petitioner contends otherwise. Petitioner asserts that he is an employee of respondents since the
latter exercise control over the performance of his work. Petitioner cites the following stipulations in
the retainer contract which evidence control: (1) respondents classify or rate a referee; (2)
respondents require referees to attend all basketball games organized or authorized by the PBA, at
least one hour before the start of the first game of each day; (3) respondents assign petitioner to
officiate ballgames, or to act as alternate referee or substitute; (4) referee agrees to observe and
comply with all the requirements of the PBA governing the conduct of the referees whether on or off
the court; (5) referee agrees (a) to keep himself in good physical, mental, and emotional condition
during the life of the contract; (b) to give always his best effort and service, and loyalty to the PBA,
and not to officiate as referee in any basketball game outside of the PBA, without written prior
consent of the Commissioner; (c) always to conduct himself on and off the court according to the
highest standards of honesty or morality; and (6) imposition of various sanctions for violation of the
terms and conditions of the contract.

The foregoing stipulations hardly demonstrate control over the means and methods by which
petitioner performs his work as a referee officiating a PBA basketball game. The contractual
stipulations do not pertain to, much less dictate, how and when petitioner will blow the whistle and
make calls. On the contrary, they merely serve as rules of conduct or guidelines in order to maintain
the integrity of the professional basketball league. As correctly observed by the Court of Appeals,
"how could a skilled referee perform his job without blowing a whistle and making calls? x x x [H]ow
can the PBA control the performance of work of a referee without controlling his acts of blowing the
whistle and making calls?"20

In Sonza v. ABS-CBN Broadcasting Corporation,21 which determined the relationship between a

television and radio station and one of its talents, the Court held that not all rules imposed by the
hiring party on the hired party indicate that the latter is an employee of the former. The Court held:

We find that these general rules are merely guidelines towards the achievement of the mutually
desired result, which are top-rating television and radio programs that comply with standards of the
industry. We have ruled that:

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

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed
in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the
use of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it.22

We agree with respondents that once in the playing court, the referees exercise their own
independent judgment, based on the rules of the game, as to when and how a call or decision is to
be made. The referees decide whether an infraction was committed, and the PBA cannot overrule
them once the decision is made on the playing court. The referees are the only, absolute, and final
authority on the playing court. Respondents or any of the PBA officers cannot and do not determine
which calls to make or not to make and cannot control the referee when he blows the whistle
because such authority exclusively belongs to the referees. The very nature of petitioner’s job of
officiating a professional basketball game undoubtedly calls for freedom of control by respondents.

Moreover, the following circumstances indicate that petitioner is an independent contractor: (1) the
referees are required to report for work only when PBA games are scheduled, which is three times a
week spread over an average of only 105 playing days a year, and they officiate games at an
average of two hours per game; and (2) the only deductions from the fees received by the referees
are withholding taxes.

In other words, unlike regular employees who ordinarily report for work eight hours per day for five
days a week, petitioner is required to report for work only when PBA games are scheduled or three
times a week at two hours per game. In addition, there are no deductions for contributions to the
Social Security System, Philhealth or Pag-Ibig, which are the usual deductions from employees’
salaries. These undisputed circumstances buttress the fact that petitioner is an independent
contractor, and not an employee of respondents.

Furthermore, the applicable foreign case law declares that a referee is an independent contractor,
whose special skills and independent judgment are required specifically for such position and cannot
possibly be controlled by the hiring party.

In Yonan v. United States Soccer Federation, Inc.,23 the United States District Court of Illinois held
that plaintiff, a soccer referee, is an independent contractor, and not an employee of defendant
which is the statutory body that governs soccer in the United States. As such, plaintiff was not
entitled to protection by the Age Discrimination in Employment Act. The U.S. District Court ruled:

Generally, "if an employer has the right to control and direct the work of an individual, not only as to
the result to be achieved, but also as to details by which the result is achieved, an
employer/employee relationship is likely to exist." The Court must be careful to distinguish between
"control[ling] the conduct of another party contracting party by setting out in detail his obligations"
consistent with the freedom of contract, on the one hand, and "the discretionary control an employer
daily exercises over its employee’s conduct" on the other.

Yonan asserts that the Federation "closely supervised" his performance at each soccer game he
officiated by giving him an assessor, discussing his performance, and controlling what clothes he
wore while on the field and traveling. Putting aside that the Federation did not, for the most part,
control what clothes he wore, the Federation did not supervise Yonan, but rather evaluated his
performance after matches. That the Federation evaluated Yonan as a referee does not mean that
he was an employee. There is no question that parties retaining independent contractors may judge
the performance of those contractors to determine if the contractual relationship should continue. x x
x
It is undisputed that the Federation did not control the way Yonan refereed his games. He had full
1âwphi1

discretion and authority, under the Laws of the Game, to call the game as he saw fit. x x x In a
similar vein, subjecting Yonan to qualification standards and procedures like the Federation’s
registration and training requirements does not create an employer/employee relationship. x x x

A position that requires special skills and independent judgment weights in favor of independent
contractor status. x x x Unskilled work, on the other hand, suggests an employment relationship. x x
x Here, it is undisputed that soccer refereeing, especially at the professional and international level,
requires "a great deal of skill and natural ability." Yonan asserts that it was the Federation’s training
that made him a top referee, and that suggests he was an employee. Though substantial training
supports an employment inference, that inference is dulled significantly or negated when the putative
employer’s activity is the result of a statutory requirement, not the employer’s choice. x x x

In McInturff v. Battle Ground Academy of Franklin,24 it was held that the umpire was not an agent of
the Tennessee Secondary School Athletic Association (TSSAA), so the player’s vicarious liability
claim against the association should be dismissed. In finding that the umpire is an independent
contractor, the Court of Appeals of Tennesse ruled:

The TSSAA deals with umpires to achieve a result-uniform rules for all baseball games played
between TSSAA member schools. The TSSAA does not supervise regular season games. It does
not tell an official how to conduct the game beyond the framework established by the rules. The
TSSAA does not, in the vernacular of the case law, control the means and method by which the
umpires work.

In addition, the fact that PBA repeatedly hired petitioner does not by itself prove that petitioner is an
employee of the former. For a hired party to be considered an employee, the hiring party must have
control over the means and methods by which the hired party is to perform his work, which is absent
in this case. The continuous rehiring by PBA of petitioner simply signifies the renewal of the contract
between PBA and petitioner, and highlights the satisfactory services rendered by petitioner
warranting such contract renewal. Conversely, if PBA decides to discontinue petitioner’s services at
the end of the term fixed in the contract, whether for unsatisfactory services, or violation of the terms
and conditions of the contract, or for whatever other reason, the same merely results in the non-
renewal of the contract, as in the present case. The non-renewal of the contract between the parties
does not constitute illegal dismissal of petitioner by respondents.

WHEREFORE, we DENY the petition and AFFIRM the assailed decision of the Court of Appeals.

SO ORDERED.

8)

G.R. No. 159469 June 8, 2005

ZALDY G. ABELLA and the Members of the PLDT SECURITY PERSONNEL unioN LISTED IN
ANNEX "D" OF THIS PETITION, Petitioners,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT CO.) and PEOPLE'S SECURITY
INC. (PSI),Respondents.
 RESOLUTION

CHICO-NAZARIO, J.:

This case stemmed from a complaint for regularization filed by petitioners1 against respondents
before the Arbitration Branch of the National Labor Relations Commission (NLRC). The petition for
review at bar assails the decision2 of the Court of Appeals, affirming the decision3 of the NLRC,
sustaining the earlier decision4 of the Labor Arbiter dismissing petitioners’ complaint against the
Philippine Long Distance Telephone Company (PLDT) and herein respondent People’s Security
Incorporated (PSI).

The dispute arose from the following factual milieu:

Respondent PSI entered into an agreement with the PLDT to provide the latter with such number of
qualified uniformed and properly armed security guards for the purpose of guarding and protecting
PLDT’s installations and properties from theft, pilferage, intentional damage, trespass or other
unlawful acts. Under the agreement, it was expressly provided that there shall be no employer-
employee relationship between the PLDT and the security guards, which may be supplied to it by
PSI, and that the latter shall have the entire charge, control and supervision over the work and
services of the supplied security guards. It was likewise stipulated therein that PSI shall also have
the exclusive authority to select, engage, and discharge its security guards, with full control over
their wages, salaries or compensation. lawphil .net

Consequently, respondent PSI deployed security guards to the PLDT. PLDT’s Security Division
interviewed these security guards and asked them to fill out personal data sheets. Those who did not
meet the height requirements were sent back by PLDT to PSI.

On 05 June 1995, sixty-five (65) security guards supplied by respondent PSI filed a Complaint5 for
regularization against the PLDT with the Labor Arbiter. The Complaint alleged inter alia that
petitioner security guards have been employed by the company through the years commencing from
1982 and that all of them served PLDT directly for more than 1 year. It was further alleged that PSI
or other agencies supply security to PLDT, which entity controls and supervises the complainants’
work through its Security Department. Petitioners likewise alleged that PSI acted as the middleman
in the payment of the minimum pay to the security guards, but no premium for work rendered
beyond eight hours was paid to them nor were they paid their 13th month pay. In sum, the Complaint
states that inasmuch as the complainants are under the direct control and supervision of PLDT, they
should be considered as regular employees by the latter with compensation and benefits equivalent
to ordinary rank-and-file employees of the same job grade.

Forthwith, after filing the complaint, the security guards formed the PLDT Company Security
Personnel Union with petitioner Zaldy Abella as union president. A month later, PLDT allegedly
ordered PSI to terminate about 25 members of said union who participated in a protest picket in front
of the PLDT Office at the Ramon Cojuangco Building in Makati City. 1avv phi 1

The Labor Arbiter dismissed the complaint for lack of merit. On appeal, the NLRC affirmed in toto the
Labor Arbiter’s decision.

The Court of Appeals, in turn, affirmed the NLRC’s disquisition.6 According to the Court of Appeals,
evidence demonstrates that it is respondent PSI which is petitioners’ employer, not the PLDT
inasmuch as the power of selection over the guards lies with the former. The Court of Appeals also
took cognizance of the fact that petitioners have collected their wages from PSI.7
On 29 September 2003, this Court denied the petition for review filed by petitioners assailing the
Court of Appeals’ Decision for lack of verified statement of material date of receipt of the assailed
judgment. On 16 March 2005, the Court resolved to deny the motion for reconsideration for lack of
merit and sufficient showing that the Court of Appeals had committed any reversible error in the
questioned judgment to warrant the exercise by this Court of its discretionary appellate jurisdiction.

Undaunted, petitioners moved for reconsideration of our Resolution dated 16 March 2005.
Petitioners now urge this Court to ignore technicalities and brush aside the procedural requirements
so this case may be decided "on the merits."

On the postulate that dismissal of appeals based on mere technicalities is frowned upon, we take
another look at this petition for review to quell all doubts that the Court is impervious to petitioners’
cause. Cautious as we are against rendering a decision that may well be a "blow on the breadbasket
of our lowly employees,"8 we are hence rendering a complete adjudication of this case at bar.

Crucial to the resolution of this case is a determination whether or not an employer-employee

relationship exists between petitioners and respondent PLDT.

Philippine Airlines, Inc. v. National Labor Relations Commission9 provides the legal yardstick in
addressing this issue. In that case, Unicorn Security Services, Inc. (USSI) and Philippine Airlines,
Inc. (PAL) executed a security service agreement where USSI was designated therein as the
contractor. In determining which between PAL and USSI is the employer of the security guards, we
considered the following factors in considering the existence of an employer-employee relationship:
(1) the selection and engagement of the employee; (2) the payment of wages; (3) the power to
dismiss; and (4) the power to control the employee’s conduct. Considering these elements, we held
in the said case that the security guards of PAL were the employees of the security agency, not PAL.
We explained why-

In the instant case, the security service agreement between PAL and USSI provides the key to such
consideration. A careful perusal thereof, especially the terms and conditions embodied in
paragraphs 4, 6, 7, 8, 9, 10, 13 and 20 quoted earlier in this ponencia, demonstrates beyond doubt
that USSI - and not PAL – was the employer of the security guards. It was USSI which (a) selected,
engaged or hired and discharged the security guards; (b) assigned them to PAL according to the
number agreed upon; (c) provided, at its own expense, the security guards with firearms and
ammunitions; (d) disciplined and supervised them or controlled their conduct; (e) determined their
wages, salaries, and compensation; and (f) paid them salaries or wages. Even if we disregard the
explicit covenant in said agreement that "there exists no employer-employee relationship between
CONTRACTOR and/or his guards on the one hand, and PAL on the other" all other considerations
confirm the fact that PAL was not the security guards’ employer. (Emphasis supplied)

On the first factor, applying PAL v. NLRC as our guidepost in the case before us, the Labor Arbiter,
the NLRC and the Court of Appeals rendered a consistent finding based on the evidence adduced
that it was the PSI, the security provider of the PLDT, which selected, engaged or hired and
discharged the security guards. The Labor Arbiter was no less emphatic –

It is not disputed that complainants applied for work with PSI, submitted the necessary employment
documentary requirement with PSI and executed employment contracts with PSI. Complainants,
however, contend that their referral by the PSI to PLDT for further interview and evaluation falls
under the context of "selection and engagement" thereby making them employees of PLDT.

We are not convinced.

Testimonies during the trial reveal that interviews and evaluation were conducted by PLDT to ensure
that the standards it set are met by the security guards. In fact, PLDT rarely failed to accept security
guards referred to by PSI but on account of height deficiency. The referral is nothing but for possible
assignment in a designated client which has the inherent prerogative to accept and reject the
assignee for justifiable grounds or even arbitrarily. We are thus convinced that the employer-
employee relationship is deemed perfected even before the posting of the complainants with the
PLDT, as assignment only comes after employment.10

We hasten to add on this score that the Labor Arbiter as well as the NLRC and the Court of Appeals
found that PSI is a legitimate job contractor pursuant to Section 8, Rule VII, Book II of the Omnibus
Rules Implementing the Labor Code. It is a registered corporation duly licensed by the Philippine
National Police to engage in security business. It has substantial capital and investment in the form
of guns, ammunitions, communication equipments, vehicles, office equipments like computer,
typewriters, photocopying machines, etc., and above all, it is servicing clients other than PLDT like
PCIBank, Crown Triumph, and Philippine Cable, among others.11 Here, the security guards which
PSI had assigned to PLDT are already the former’s employees prior to assignment and if the
assigned guards to PLDT are rejected by PLDT for reasons germane to the security agreement,
then the rejected or terminated guard may still be assigned to other clients of PSI as in the case of
Jonathan Daguno who was posted at PLDT on 21 February 1996 but was subsequently relieved
therefrom and assigned at PCIBank Makati Square effective 10 May 1996.12 Therefore, the evidence
as it stands is at odds with petitioners’ assertion that PSI is an "in-house" agency of PLDT so as to
call for a piercing of veil of corporate identity as what the Court has done in De leon, et al. vs. NLRC
and Fortune Tobacco Corporation, et al.13

On the second factor, the Labor Arbiter as well as the NLRC and the Court of Appeals are all in
agreement that it is PSI that determined and paid the petitioners’ wages, salaries, and
compensation. As elucidated by the Labor Arbiter, petitioners’ witness testified that his wages were
collected and withdrawn at the office of PSI and PLDT pays PSI for the security services on a lump-
sum basis and that the wages of complainants are only a portion of the total sum. The signature of
the PLDT supervisor in the Daily Time Records does not ipso facto make PLDT the employer of
complainants inasmuch as the Labor Arbiter had found that the record is replete with evidence
showing that some of the Daily Time Records do not bear the signature of a PLDT supervisor yet no
complaint was lodged for nonpayment of the guard’s wages evidencing that the signature of the
PLDT’s supervisor is not a condition precedent for the payment of wages of the guards. Notably, it
was not disputed that complainants enjoy the benefits and incentives of employees of PSI and that
they are reported as employees of PSI with the SSS.14

Anent the third and fourth factors, petitioners capitalize on the delinquency reports prepared by
PLDT personnel against some of the security guards as well as certificates of participation in civil
disturbance course, certificates of attendance in first aid training, certificate of completion in fire
brigade training seminar and certificate of completion on restricted land mobile radio telephone
operation to show that the petitioners are under the direct control and supervision of PLDT and that
the latter has, in fact, the power to dismiss them.

The Labor Arbiter found from the evidence that the delinquency reports were nothing but reminders
of the infractions committed by the petitioners while on duty which serve as basis for PLDT to
recommend the termination of the concerned security guard from PLDT. As already adverted to
earlier, termination of services from PLDT did not ipso facto mean dismissal from PSI inasmuch as
some of those pulled out from PLDT were merely detailed at the other clients of PSI as in the case of
Jonathan Daguno, who was merely transferred to PCIBank Makati.
We are likewise in agreement with the Labor Arbiter’s reasoning that said delinquency reports
merely served as justifiable, not arbitrary, basis for PLDT to demand replacement of guards found to
have committed infractions while on their tours of duty at PLDT’s premises. In Citytrust Banking
Corporation v. NLRC,15 we upheld the validity of the contract between ADAMS and ESSI to provide
security guards to Citytrust and held that the security guards were the employees of the security
agencies, not Citytrust. Specifically we held as valid and controlling the stipulation that the bank has
the option to ask for replacement of the guards or personnel assigned to the bank who, in its
judgment, are unsatisfactory, wanting in the performance of their duties or for any reason at the
discretion of the bank. Thus-

In substantially identical language, the contracts between CITYTRUST, on the one hand, and
ADAMS and ESSI, on the other, unequivocally declare that any person that may be assigned by the
"CARRIER" (agency) to carry out its obligation under the Agreement should in no sense be
considered an employee of the bank and shall always remain an employee of the CARRIER. The
contracts moreover require the CARRIER to give the bank a list of personnel assigned to render
security services to the bank, and make clear that:

1) the CARRIER shall maintain efficient and effective discipline, control and supervision over
any and all guards or personnel it may utilize in performing its obligations under the
Agreement;

2) the BANK has the option to ask for the replacement of the CARRIER’s guards or
personnel assigned to the BANK who, in its judgment, are unsatisfactory, wanting in the
performance of their duties or for any reason at the discretion of the Bank;. . .
.[16] (Emphasis supplied)

As regards the seminars, we defer to the findings of the Labor Arbiter as affirmed by the NLRC and
the Court of Appeals that while said seminars were conducted at the premises of PLDT, it also
remains uncontroverted that complainants’ participation was done with the approval and at the
expense of PSI.17 To be sure, it is not uncommon, specially for big aggressive corporations like
PLDT, to align or integrate their corporate visions and policies externally or with that of other entities
they deal with such as their suppliers, consultants, or contractors, for that matter. As a case in point,
manufacturing companies usually hold suppliers’ conferences to integrate their suppliers’ corporate
goals and visions with their own so that the manufacturing companies are ensured of the quality and
timing of their supplies of materials or services, as the case may be. It is therefore not surprising that
PLDT would demand that security guards assigned to its premises undergo seminars and trainings
on certain areas of concern which are unique to PLDT.

In the same way, it is in the ordinary course of things for big companies such as PLDT to assign their
own security personnel and supervisors to monitor the performance of the security guards as part of
the company’s internal check, monitoring and control system in order to rate whether the security
agency it hired is performing at par with PLDT’s set standards.

Furthermore, petitioners’ logic that the certificates of appreciation and/or commendations for good
performance issued by PLDT to select security guards are proof that the latter are under the control
and supervision of PLDT is indeed non sequitur. As the Labor Arbiter has found, similar certificates
are also issued as a matter of practice to non-PLDT personnel like members of the Philippine
National Police (PNP) and military officers who have rendered exemplary support and assistance to
PLDT.18

The Labor Arbiter likewise rendered the distinct finding as regards petitioner Zaldy Abella that
documentary evidence belies his claim that PLDT directs and supervises him. These documents
include his application for employment with PSI, employment contract with PSI, Special Orders of
assignment at the different detachments of PLDT issued by a certain Joreim Aguilar of PSI, his
request to PSI for sick leaves and/or vacation leaves, authority to deduct from his salary death
contributions pursuant to the policy of PSI and Order of Relief from PLDT Marikina for AWOL issued
by said Joreim Aguilar of PSI per Special Order dated 12 June 1995.19 Similarly, as found by the
Labor Arbiter in the case of petitioner Roberto Basilides, his 201 file reflects PSI Orders on his
assignment to PLDT installations and subsequent reassignment to another PCIB client.20

All told, there being no showing that neither the Labor Arbiter nor the NLRC nor the Court of Appeals
gravely abused its discretion or otherwise acted without jurisdiction or in excess of the same,21 this
Court is bound by their findings of facts. Indeed, the records reveal that the questioned decision is
duly supported by evidence.22

In fine, while the Constitution is committed to the policy of social justice and the protection of the
working class, it should not be supposed that every labor dispute will be automatically decided in
favor of labor. The partiality for labor has not in any way diminished our belief that justice is in every
case for the deserving, to be dispensed in the light of the established facts and the applicable law
and doctrine.23

WHEREFORE, petitioners’ motion for reconsideration of our Resolution dated 16 March 2005 is
hereby DENIEDwith Finality no compelling reason having been adduced by petitioners to warrant
the reversal thereof. Accordingly, the Decision dated 31 January 2003 and the

Resolution dated 06 August 2003 of the Court of Appeals are hereby AFFIRMED. Costs against
petitioners.

SO ORDERED.

9)

G.R. No. 165881 April 19, 2006

OSCAR VILLAMARIA, JR. Petitioner,

vs.
COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court
assailing the Decision1and Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which
set aside the Resolution3 of the National Labor Relations Commission (NLRC) in NCR-30-08-03247-
00, which in turn affirmed the Decision4 of the Labor Arbiter dismissing the complaint filed by
respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged in
assembling passenger jeepneys with a public utility franchise to operate along the Baclaran-Sucat
route. By 1995, Villamaria stopped assembling jeepneys and retained only nine, four of which he
operated by employing drivers on a "boundary basis." One of those drivers was respondent
Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante remitted P450.00 a day to
Villamaria as boundary and kept the residue of his daily earnings as compensation for driving the
vehicle. In August 1997, Villamaria verbally agreed to sell the jeepney to Bustamante under the
"boundary-hulog scheme," where Bustamante would remit to Villarama P550.00 a day for a period of
four years; Bustamante would then become the owner of the vehicle and continue to drive the same
under 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"5 over the passenger jeepney with Plate No. PVU-660, Chassis
No. EVER95-38168-C and Motor No. SL-26647. The parties agreed that if Bustamante failed to pay
the boundary-hulog for three days, Villamaria Motors would hold on to the vehicle until Bustamante
paid his arrears, including a penalty of P50.00 a day; in case Bustamante failed to remit the daily
boundary-hulog for a period of one week, the Kasunduan would cease to have legal effect and
Bustamante would have to return the vehicle to Villamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior authority
from Villamaria Motors. Thus, Bustamante was authorized to operate the vehicle to transport
passengers only and not for other purposes. He was also required to display an identification card in
front of the windshield of the vehicle; in case of failure to do so, any fine that may be imposed by
government authorities would be charged against his account. Bustamante further obliged himself to
pay for the cost of replacing any parts of the vehicle that would be lost or damaged due to his
negligence. In case the vehicle sustained serious damage, Bustamante was obliged to notify
Villamaria Motors before commencing repairs. Bustamante was not allowed to wear slippers, short
pants or undershirts while driving. He was required to be polite and respectful towards the
passengers. He was also obliged to notify Villamaria Motors in case the vehicle was leased for two
or more days and was required to attend any meetings which may be called from time to time. Aside
from the boundary-hulog, Bustamante was also obliged to pay for the annual registration fees of the
vehicle and the premium for the vehicle’s comprehensive insurance. Bustamante promised to strictly
comply with the rules and regulations imposed by Villamaria for the upkeep and maintenance of the
jeepney.

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

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

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

On August 15, 2000, Bustamante filed a Complaint7 for Illegal Dismissal against Villamaria and his
wife Teresita. In his Position Paper,8 Bustamante alleged that he was employed by Villamaria in July
1996 under the boundary system, where he was required to remit P450.00 a day. After one year of
continuously working for them, the spouses Villamaria presented the Kasunduan for his signature,
with the assurance that he (Bustamante) would own the jeepney by March 2001 after paying
P550.00 in daily installments and that he would thereafter continue driving the vehicle along the
same route under the same franchise. He further narrated that in July 2000, he informed the
Villamaria spouses that the surplus engine of the jeepney needed to be replaced, and was assured
that it would be done. However, he was later arrested and his driver’s license was confiscated
because apparently, the replacement engine that was installed was taken from a stolen vehicle. Due
to negotiations with the apprehending authorities, the jeepney was not impounded. The Villamaria
spouses took the jeepney from him on July 24, 2000, and he was no longer allowed to drive the
vehicle since then unless he paid them P70,000.00.

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

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

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

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

3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the
expenses incurred by the complainant in the repair and maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day
counted from August 7, 1997 up to June 2000 or a total of P91,200.00;

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

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

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

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

Citing the cases of Cathedral School of Technology v. NLRC11 and Canlubang Security Agency
Corporation v. NLRC,12 the spouses Villamaria argued that Bustamante was not illegally dismissed
since the Kasunduan executed on August 7, 1997 transformed the employer-employee relationship
into that of vendor-vendee. Hence, the spouses concluded, there was no legal basis to hold them
liable for illegal dismissal. They prayed that the case be dismissed for lack of jurisdiction and patent
lack of merit.
In his Reply,13 Bustamante claimed that Villamaria exercised control and supervision over the
conduct of his employment. He maintained that the rulings of the Court in National Labor Union v.
Dinglasan,14 Magboo v. Bernardo,15 and Citizen's League of Free Workers v. Abbas16 are germane to
the issue as they define the nature of the owner/operator-driver relationship under the boundary
system. He further reiterated that it was the Villamaria spouses who presented the Kasunduan to
him and that he conformed thereto only upon their representation that he would own the vehicle after
four years. Moreover, it appeared that the Paalala was duly received by him, as he, together with
other drivers, was made to affix his signature on a blank piece of paper purporting to be an
"attendance sheet."

On March 15, 2002, the Labor Arbiter rendered judgment17 in favor of the spouses Villamaria and
ordered the complaint dismissed on the following ratiocination:

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

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

Bustamante appealed the decision to the NLRC,19 insisting that the Kasunduan did not extinguish
the employer-employee relationship between him and Villamaria. While he did not receive fixed
wages, he kept only the excess of the boundary-hulog which he was required to remit daily to
Villamaria under the agreement. Bustamante maintained that he remained an employee because he
was engaged to perform activities which were necessary or desirable to Villamaria’s trade or
business.

The NLRC rendered judgment20 dismissing the appeal for lack of merit, thus:

WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons not
stated in the Labor Arbiter's decision but mainly on a jurisdictional issue, there being none over the
subject matter of the controversy.21

The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and
Villamaria was that of vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the
complaint. Bustamante filed a Motion for Reconsideration, which the NLRC resolved to deny on May
30, 2003.22

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

IN DISMISSING PETITIONER’S APPEAL "FOR REASON NOT STATED IN THE LABOR

ARBITER’S DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE;"

II

IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED THAT

THE RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE MANTLE
OF OUR LABOR LAWS.23
Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria
continued to be that of employer-employee and as such, the Labor Arbiter had jurisdiction over his
complaint. He further alleged that it is common knowledge that operators of passenger jeepneys
(including taxis) pay their drivers not on a regular monthly basis but on commission or boundary
basis, or even the boundary-hulog system. Bustamante asserted that he was dismissed from
employment without any lawful or just cause and without due notice.

For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-employee
relationship. He further pointed out that the Dinglasan case pertains to the boundary system and not
the boundary-hulog system, hence inapplicable in the instant case. He argued that upon the
execution of the Kasunduan, the juridical tie between him and Bustamante was transformed into a
vendor-vendee relationship. Noting that he was engaged in the manufacture and sale of jeepneys
and not in the business of transporting passengers for consideration, Villamaria contended that the
daily fees which Bustmante paid were actually periodic installments for the the vehicle and were not
the same fees as understood in the boundary system. He added that the boundary-hulog plan was
basically a scheme to help the driver-buyer earn money and eventually pay for the unit in full, and for
the owner to profit not from the daily earnings of the driver-buyer but from the purchase price of the
unit sold. Villamaria further asserted that the apparently restrictive conditions in the Kasunduan did
not mean that the means and method of driver-buyer’s conduct was controlled, but were mere ways
to preserve the vehicle for the benefit of both parties: Villamaria would be able to collect the agreed
purchase price, while Bustamante would be assured that the vehicle would still be in good running
condition even after four years. Moreover, the right of vendor to impose certain conditions on the
buyer should be respected until full ownership of the property is vested on the latter. Villamaria
insisted that the parallel circumstances obtaining in Singer Sewing Machine Company v. Drilon24 has
analogous application to the instant issue.

In its Decision25 dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo
of the decision reads:

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

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

2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante
back wages computed from the time of his dismissal up to March 2001 based on the
prevailing minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.26

The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamante’s complaint. Under
the Kasunduan, the relationship between him and Villamaria was dual: that of vendor-vendee and
employer-employee. The CA ratiocinated that Villamaria’s exercise of control over Bustamante’s
conduct in operating the jeepney is inconsistent with the former’s claim that he was not engaged in
the transportation business. There was no evidence that petitioner was allowed to let some other
person drive the jeepney.
The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did not
mean that Villamaria could not exercise it. It explained that the existence of an employment
relationship did not depend on how the worker was paid but on the presence or absence of control
over the means and method of the employee’s work. In this case, Villamaria’s directives (to drive
carefully, wear an identification card, don decent attire, park the vehicle in his garage, and to inform
him about provincial trips, etc.) was a means to control the way in which Bustamante was to go
about his work. In view of Villamaria’s supervision and control as employer, the fact that the
"boundary" represented installment payments of the purchase price on the jeepney did not remove
the parties’ employer-employee relationship.

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

Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17, 2004,
a motion for reconsideration thereof. The CA denied the motion in a Resolution27 dated November 2,
2004, and Villamaria received a copy thereof on November 8, 2004.

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

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

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

In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in his favor;
hence, it behooves the Court to resolve the merits of his petition.

We agree with respondent’s contention that the remedy of petitioner from the CA decision was to file
a petition for review on certiorari under Rule 45 of the Rules of Court and not the independent action
of certiorari under Rule 65. Petitioner had 15 days from receipt of the CA resolution denying his
motion for the reconsideration within which to file the petition under Rule 45.28 But instead of doing
so, he filed a petition for certiorari under Rule 65 on November 22, 2004, which did not, however,
suspend the running of the 15-day reglementary period; consequently, the CA decision became final
and executory upon the lapse of the reglementary period for appeal. Thus, on this procedural lapse,
the instant petition stands to be dismissed.29

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

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

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

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

We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as well as, which court or
agency of the government has jurisdiction over the same, are determined by the material allegations
of the complaint in relation to the law involved and the character of the reliefs prayed for, whether or
not the complainant/plaintiff is entitled to any or all of such reliefs.33 A prayer or demand for relief is
not part of the petition of the cause of action; nor does it enlarge the cause of action stated or
change the legal effect of what is alleged.34 In determining which body has jurisdiction over a case,
the better policy is to consider not only the status or relationship of the parties but also the nature of
the action that is the subject of their controversy.35
Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction
only over the following:

x x x (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the
case by the parties for decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wage, rates of pay, hours of work, and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from violation of Article 264 of this Code, including questions involving the
legality of strikes and lockouts; and

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

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

(c) Cases arising from the interpretation or implementation of collective bargaining

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

In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional

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

We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the
Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of
employer-employee and vendor-vendee. The Kasunduan did not extinguish the employer-employee
relationship of the parties extant before the execution of said deed.
As early as 1956, the Court ruled in National Labor Union v. Dinglasan40 that the jeepney
owner/operator-driver relationship under the boundary system is that of employer-employee and not
lessor-lessee. This doctrine was affirmed, under similar factual settings, in Magboo v.
Bernardo41 and Lantaco, Sr. v. Llamas,42 and was analogously applied to govern the relationships
between auto-calesa owner/operator and driver,43 bus owner/operator and conductor,44 and taxi
owner/operator and driver.45

The boundary system is a scheme by an owner/operator engaged in transporting passengers as a

common carrier to primarily govern the compensation of the driver, that is, the 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.46

Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount
which represented the boundary of petitioner as well as respondent’s partial payment (hulog) of the
purchase price of the jeepney.

Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the daily
remittances also had a dual purpose: that of petitioner’s boundary and respondent’s partial payment
(hulog) for the vehicle. This dual purpose was expressly stated in the Kasunduan. The well-settled
rule is that an obligation is not novated by an instrument that expressly recognizes the old one,
changes only the terms of payment, and adds other obligations not incompatible with the old
provisions or where the new contract merely supplements the previous one. 47 The two obligations of
the respondent to remit to petitioner the boundary-hulog can stand together.

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

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

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

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

ipinagkatiwala sa kanya ng TAUHAN NG UNANG PANIG.
2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG
sa paghahanapbuhay bilang pampasada o pangangalakal sa malinis at maayos na
pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa

mga bagay na makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG
UNANG PANIG.

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

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

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

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

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

papalitan ng nasira o nawala ito dahil sa kanyang kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng

TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan.

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

NG UNANG PANIG, ang TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito muna
sa VILLAMARIA MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng
VILLAMARIA MOTORS.

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng

pamamasada na ang nagmamaneho ay naka-tsinelas, naka short pants at nakasando
lamang. Dapat ang nagmamaneho ay laging nasa maayos ang kasuotan upang igalang ng
mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay

magpapakita ng magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama
kung sakali man may pasaherong pilosopo upang maiwasan ang anumang kaguluhan na
maaaring kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG

IKALAWANG PANIG sa loob ng tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS
ang may karapatang mangasiwa ng nasabing sasakyan hanggang matugunan ang lahat ng
responsibilidad. Ang halagang dapat bayaran sa opisina ay may karagdagang multa ng
P50.00 sa araw-araw na ito ay nasa pangangasiwa ng VILLAMARIA MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY

HULOG sa loob ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng
bisa at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa
TAUHAN NG UNANG PANIG.
 14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive
insurance taon-taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa
TAUHAN NG UNANG PANIG.

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

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

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na

magkakaroon ng pagbabago o karagdagan sa mga darating na panahon at hindi magiging
hadlang sa lahat ng mga balakin ng VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at
ikakatibay ng Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero

upang hindi kainisan ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.

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

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

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

kaninumang sasakyan upang maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA

MOTORS mabuti man or masama ay iparating agad ito sa kinauukulan at iwasan na
iparating ito kung [kani-kanino] lamang upang maiwasan ang anumang usapin. Magsadya
agad sa opisina ng VILLAMARIA MOTORS.

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

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into a
contract to sell the jeepney on a daily installment basis of P550.00 payable in four years and that
petitioner would thereafter become its owner. A contract is one of conditional sale, oftentimes
referred to as contract to sell, if the ownership or title over the

property sold is retained by the vendor, and is not passed to the vendee unless and until there is full
payment of the purchase price and/or upon faithful compliance with the other terms and conditions
that may lawfully be stipulated.52Such payment or satisfaction of other preconditions, as the case
may be, is a positive suspensive condition, the failure of which is not a breach of contract, casual or
serious, but simply an event that would prevent the obligation of the vendor to convey title from
acquiring binding force.53 Stated differently, the efficacy or obligatory force of the vendor's obligation
to transfer title is subordinated to the happening of a future and uncertain event so that if the
suspensive condition does not take place, the parties would stand as if the conditional obligation had
never existed.54 The vendor may extrajudicially terminate the operation of the contract, refuse
conveyance, and retain the sums or installments already received, where such rights are expressly
provided for.55
Under the boundary-hulog scheme, petitioner retained ownership of the jeepney although its
material possession was vested in respondent as its driver. In case respondent failed to make his
P550.00 daily installment payment for a week, the agreement would be of no force and effect and
respondent would have to return the jeepney to petitioner; the employer-employee relationship
would likewise be terminated unless petitioner would allow respondent to continue driving the
jeepney on a boundary basis of P550.00 daily despite the termination of their vendor-vendee
relationship.

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

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

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

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

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

As 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 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."

If it were true that petitioner did not remit the boundary hulog for one week or more, why did private
respondent not forthwith take steps to recover the unit, and why did he have to wait for petitioner to
abandon it? 1avv phil.net

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

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

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

SO ORDERED.

10)

G.R. No. 172101 November 23, 2007

REPUBLIC OF THE PHILIPPINES, represented by the SOCIAL SECURITY COMMISSION and

SOCIAL SECURITY SYSTEM, Petitioners,
vs.
ASIAPRO COOPERATIVE, Respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure seeking to annul and set aside the Decision1 and Resolution2 of the Court of Appeals
in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006, respectively, which annulled
and set aside the Orders of the Social Security Commission (SSC) in SSC Case No. 6-15507-03,
dated 17 February 20043 and 16 September 2004,4respectively, thereby dismissing the petition-
complaint dated 12 June 2003 filed by herein petitioner Social Security System (SSS) against herein
respondent.

Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial body
authorized by law to resolve disputes arising under Republic Act No. 1161, as amended by Republic
Act No. 8282.5 Petitioner SSS is a government corporation created by virtue of Republic Act No.
1161, as amended. On the other hand, herein respondent Asiapro Cooperative (Asiapro) is a multi-
purpose cooperative created pursuant to Republic Act No. 69386 and duly registered with the
Cooperative Development Authority (CDA) on 23 November 1999 with Registration Certificate No. 0-
623-2460.7

The antecedents of this case are as follows:

Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws,
owners-members are of two categories, to wit: (1) regular member, who is entitled to all the rights
and privileges of membership; and (2) associate member, who has no right to vote and be voted
upon and shall be entitled only to such rights and privileges provided in its by-laws.8 Its primary
objectives are to provide savings and credit facilities and to develop other livelihood services for its
owners-members. In the discharge of the aforesaid primary objectives, respondent cooperative
entered into several Service Contracts9 with Stanfilco - a division of DOLE Philippines, Inc. and a
company based in Bukidnon. The owners-members do not receive compensation or wages from the
respondent cooperative. Instead, they receive a share in the service surplus10 which the respondent
cooperative earns from different areas of trade it engages in, such as the income derived from the
said Service Contracts with Stanfilco. The owners-members get their income from the service
surplus generated by the quality and amount of services they rendered, which is determined by the
Board of Directors of the respondent cooperative.

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

On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao Division,
Atty. Eddie A. Jara, sent a letter11 to the respondent cooperative, addressed to its Chief Executive
Officer (CEO) and General Manager Leo G. Parma, informing the latter that based on the Service
Contracts it executed with Stanfilco, respondent cooperative is actually a manpower contractor
supplying employees to Stanfilco and for that reason, it is an employer of its owners-members
working with Stanfilco. Thus, respondent cooperative should register itself with petitioner SSS as an
employer and make the corresponding report and remittance of premium contributions in
accordance with the Social Security Law of 1997. On 9 October 2002,12 respondent cooperative,
through its counsel, sent a reply to petitioner SSS’s letter asserting that it is not an employer
because its owners-members are the cooperative itself; hence, it cannot be its own employer. Again,
on 21 October 2002,13 petitioner SSS sent a letter to respondent cooperative ordering the latter to
register as an employer and report its owners-members as employees for compulsory coverage with
the petitioner SSS. Respondent cooperative continuously ignored the demand of petitioner SSS.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition14 before petitioner SSC against the
respondent cooperative and Stanfilco praying that the respondent cooperative or, in the alternative,
Stanfilco be directed to register as an employer and to report respondent cooperative’s owners-
members as covered employees under the compulsory coverage of SSS and to remit the necessary
contributions in accordance with the Social Security Law of 1997. The same was docketed as SSC
Case No. 6-15507-03. Respondent cooperative filed its Answer with Motion to Dismiss alleging that
no employer-employee relationship exists between it and its owners-members, thus, petitioner SSC
has no jurisdiction over the respondent cooperative. Stanfilco, on the other hand, filed an Answer
with Cross-claim against the respondent cooperative.

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

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

I. The Orders dated 17 February 2004 and 16 September 2004 of [herein petitioner] SSC were
issued with grave abuse of discretion amounting to a (sic) lack or excess of jurisdiction in that:

A. [Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction over the petition
a quo, considering that it failed to first resolve the issue of the existence of an employer-
employee relationship between [respondent] cooperative and its owners-members.

B. While indeed, the [petitioner] SSC has jurisdiction over all disputes arising under the SSS
Law with respect to coverage, benefits, contributions, and related matters, it is respectfully
submitted that [petitioner] SSC may only assume jurisdiction in cases where there is no
dispute as to the existence of an employer-employee relationship.

C. Contrary to the holding of the [petitioner] SSC, the legal issue of employer-employee
relationship raised in [respondent’s] Motion to Dismiss can be preliminarily resolved through
summary hearings prior to the hearing on the merits. However, any inquiry beyond a
preliminary determination, as what [petitioner SSC] wants to accomplish, would be to
encroach on the jurisdiction of the National Labor Relations Commission [NLRC], which is
the more competent body clothed with power to resolve issues relating to the existence of an
employment relationship.

II. At any rate, the [petitioner] SSC has no jurisdiction to take cognizance of the petition a quo.

A. [Respondent] is not an employer within the contemplation of the Labor Law but is a multi-
purpose cooperative created pursuant to Republic Act No. 6938 and composed of owners-
members, not employees.

B. The rights and obligations of the owners-members of [respondent] cooperative are derived
from their Membership Agreements, the Cooperatives By-Laws, and Republic Act No. 6938,
and not from any contract of employment or from the Labor Laws. Moreover, said owners-
members enjoy rights that are not consistent with being mere employees of a company, such
as the right to participate and vote in decision-making for the cooperative.

C. As found by the Bureau of Internal Revenue [BIR], the owners-members of [respondent]

cooperative are not paid any compensation income.15 (Emphasis supplied.)

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

WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004] and [16
September 2004], are ANNULLED and SET ASIDE and a new one is entered DISMISSING the
petition-complaint dated [12 June 2003] of [herein petitioner] Social Security System.16

Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it was denied
by the appellate court in its Resolution dated 20 March 2006.

Hence, this Petition.

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

I. The [petitioner SSC] has jurisdiction over the petition-complaint filed before it by the
[petitioner SSS] under R.A. No. 8282.

II. Respondent [cooperative] is estopped from questioning the jurisdiction of petitioner SSC
after invoking its jurisdiction by filing an [A]nswer with [M]otion to [D]ismiss before it.

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

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

presentation of evidence is necessary.

V. There is an employer-employee relationship between [respondent cooperative] and its

[owners-members].

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

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

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

Finally, petitioners contend that there is an employer-employee relationship between the respondent
cooperative and its owners-members. The respondent cooperative is the employer of its owners-
members considering that it undertook to provide services to Stanfilco, the performance of which is
under the full and sole control of the respondent cooperative.
On the other hand, respondent cooperative alleges that its owners-members own the cooperative,
thus, no employer-employee relationship can arise between them. The persons of the employer and
the employee are merged in the owners-members themselves. Likewise, respondent cooperative’s
owners-members even requested the respondent cooperative to register them with the petitioner
SSS as self-employed individuals. Hence, petitioner SSC has no jurisdiction over the petition-
complaint filed before it by petitioner SSS.

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

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

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

I. Whether the petitioner SSC has jurisdiction over the petition-complaint filed before it by
petitioner SSS against the respondent cooperative.

II. Whether the respondent cooperative is estopped from assailing the jurisdiction of
petitioner SSC since it had already filed an Answer with Motion to Dismiss before the said
body.

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

Section 5 of Republic Act No. 8282 provides:

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

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

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

It is clear then from the aforesaid provisions that any issue regarding the compulsory coverage of the
SSS is well within the exclusive domain of the petitioner SSC. It is important to note, though, that the
mandatory coverage under the SSS Law is premised on the existence of an employer-employee
relationship17 except in cases of compulsory coverage of the self-employed.
It is axiomatic that the allegations in the complaint, not the defenses set up in the Answer or in the
Motion to Dismiss, determine which court has jurisdiction over an action; otherwise, the question of
jurisdiction would depend almost entirely upon the defendant.18 Moreover, it is well-settled that once
jurisdiction is acquired by the court, it remains with it until the full termination of the case.19 The said
principle may be applied even to quasi-judicial bodies.

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

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

cooperative and its owners-members was put in issue and considering that the compulsory coverage
of the SSS Law is predicated on the existence of such relationship, it behooves the petitioner SSC to
determine if there is really an employer-employee relationship that exists between the respondent
cooperative and its owners-members.

The question on the existence of an employer-employee relationship is not within the exclusive
jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of the Labor Code
enumerating the jurisdiction of the Labor Arbiters and the NLRC provides that:

ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.

xxxx

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all
other claims, arising from employer-employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos (₱5,000.00) regardless of
whether accompanied with a claim for reinstatement.20

Although the aforesaid provision speaks merely of claims for Social Security, it would necessarily
include issues on the coverage thereof, because claims are undeniably rooted in the coverage by
the system. Hence, the question on the existence of an employer-employee relationship for the
purpose of determining the coverage of the Social Security System is explicitly excluded from the
jurisdiction of the NLRC and falls within the jurisdiction of the SSC which is primarily charged with
the duty of settling disputes arising under the Social Security Law of 1997.

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

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

Although as a rule, in the exercise of the Supreme Court’s power of review, the Court is not a trier of
facts and the findings of fact of the Court of Appeals are conclusive and binding on the Court,23 said
rule is not without exceptions. There are several recognized exceptions24 in which factual issues may
be resolved by this Court. One of these exceptions finds application in this present case which is,
when the findings of fact are conflicting. There are, indeed, conflicting findings espoused by the
petitioner SSC and the appellate court relative to the existence of employer-employee relationship
between the respondent cooperative and its owners-members, which necessitates a departure from
the oft-repeated rule that factual issues may not be the subject of appeals to this Court.

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

considered: (1) the selection and engagement of the workers; (2) the payment of wages by whatever
means; (3) the power of dismissal; and (4) the power to control the worker’s conduct, with the latter
assuming primacy in the overall consideration.25The most important element is the employer’s
control of the employee’s conduct, not only as to the result of the work to be done, but also as to the
means and methods to accomplish.26 The power of control refers to the existence of the power and
not necessarily to the actual exercise thereof. It is not essential for the employer to actually
supervise the performance of duties of the employee; it is enough that the employer has the right to
wield that power.27 All the aforesaid elements are present in this case.

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

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

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

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

This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of Davao City,
Inc. v. Ferrer-Calleja37 wherein it held that:

A cooperative, therefore, is by its nature different from an ordinary business concern, being run
either by persons, partnerships, or corporations. Its owners and/or members are the ones who run
and operate the business while the others are its employees x x x.

An employee therefore of such a cooperative who is a member and co-owner thereof cannot invoke
the right to collective bargaining for certainly an owner cannot bargain with himself or his co-owners.
In the opinion of August 14, 1981 of the Solicitor General he correctly opined that employees of
cooperatives who are themselves members of the cooperative have no right to form or join labor
organizations for purposes of collective bargaining for being themselves co-owners of the
cooperative.1aw p++i1

However, in so far as it involves cooperatives with employees who are not members or co-owners
thereof, certainly such employees are entitled to exercise the rights of all workers to organization,
collective bargaining, negotiations and others as are enshrined in the Constitution and existing laws
of the country.

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

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

In the present case, it is not disputed that the respondent cooperative had registered itself with the
Cooperative Development Authority, as evidenced by its Certificate of Registration No. 0-623-
2460.40 In its by-laws,41 its Board of Directors directs, controls, and supervises the business and
manages the property of the respondent cooperative. Clearly then, the management of the affairs of
the respondent cooperative is vested in its Board of Directors and not in its owners-members as a
whole. Therefore, it is completely logical that the respondent cooperative, as a juridical person
represented by its Board of Directors, can enter into an employment with its owners-members.

In sum, having declared that there is an employer-employee relationship between the respondent
cooperative and its owners-member, we conclude that the petitioner SSC has jurisdiction over the
petition-complaint filed before it by the petitioner SSS. This being our conclusion, it is no longer
necessary to discuss the issue of whether the respondent cooperative was estopped from assailing
the jurisdiction of the petitioner SSC when it filed its Answer with Motion to Dismiss.

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

SO ORDERED.

11)

G.R. No. 146881 February 5, 2007

COCA COLA BOTTLERS (PHILS.), INC./ERIC MONTINOLA, Manager, Petitioners,

vs.
DR. DEAN N. CLIMACO, Respondent.

DECISION

AZCUNA, J.:
This is a petition for review on certiorari of the Decision of the Court of Appeals1 promulgated on July
7, 2000, and its Resolution promulgated on January 30, 2001, denying petitioner’s motion for
reconsideration. The Court of Appeals ruled that an employer-employee relationship exists between
respondent Dr. Dean N. Climaco and petitioner Coca-Cola Bottlers Phils., Inc. (Coca-Cola), and that
respondent was illegally dismissed.

Respondent Dr. Dean N. Climaco is a medical doctor who was hired by petitioner Coca-Cola Bottlers
Phils., Inc. by virtue of a Retainer Agreement that stated:

WHEREAS, the COMPANY desires to engage on a retainer basis the services of a physician and
the said DOCTOR is accepting such engagement upon terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the mutual agreement hereinafter
contained, the parties agree as follows:

1. This Agreement shall only be for a period of one (1) year beginning January 1, 1988 up
to December 31, 1988. The said term notwithstanding, either party may terminate the
contract upon giving a thirty (30)-day written notice to the other.

2. The compensation to be paid by the company for the services of the DOCTOR is hereby
fixed at PESOS: Three Thousand Eight Hundred (₱3,800.00) per month. The DOCTOR may
charge professional fee for hospital services rendered in line with his specialization. All
payments in connection with the Retainer Agreement shall be subject to a withholding tax of
ten percent (10%) to be withheld by the COMPANY under the Expanded Withholding Tax
System. In the event the withholding tax rate shall be increased or decreased by appropriate
laws, then the rate herein stipulated shall accordingly be increased or decreased pursuant to
such laws.

3. That in consideration of the above mentioned retainer’s fee, the DOCTOR agrees to
perform the duties and obligations enumerated in the COMPREHENSIVE MEDICAL PLAN,
hereto attached as Annex "A" and made an integral part of this Retainer Agreement.

4. That the applicable provisions in the Occupational Safety and Health Standards, Ministry
of Labor and Employment shall be followed.

5. That the DOCTOR shall be directly responsible to the employee concerned and their
dependents for any injury inflicted on, harm done against or damage caused upon the
employee of the COMPANY or their dependents during the course of his examination,
treatment or consultation, if such injury, harm or damage was committed through
professional negligence or incompetence or due to the other valid causes for action.

6. That the DOCTOR shall observe clinic hours at the COMPANY’S premises from Monday
to Saturday of a minimum of two (2) hours each day or a maximum of TWO (2) hours each
day or treatment from 7:30 a.m. to 8:30 a.m. and 3:00 p.m. to 4:00 p.m., respectively unless
such schedule is otherwise changed by the COMPANY as [the] situation so warrants, subject
to the Labor Code provisions on Occupational Safety and Health Standards as the
COMPANY may determine. It is understood that the DOCTOR shall stay at least two (2)
hours a day in the COMPANY clinic and that such two (2) hours be devoted to the workshift
with the most number of employees. It is further understood that the DOCTOR shall be on
call at all times during the other workshifts to attend to emergency case[s];
 7. That no employee-employer relationship shall exist between the COMPANY and the
DOCTOR whilst this contract is in effect, and in case of its termination, the DOCTOR shall be
entitled only to such retainer fee as may be due him at the time of termination.2

The Comprehensive Medical Plan,3 which contains the duties and responsibilities of respondent,
adverted to in the Retainer Agreement, provided:

A. OBJECTIVE

These objectives have been set to give full consideration to [the] employees’ and dependents’
health:

1. Prompt and adequate treatment of occupational and non-occupational injuries and

diseases.

2. To protect employees from any occupational health hazard by evaluating health factors
related to working conditions.

3. To encourage employees [to] maintain good personal health by setting up employee

orientation and education on health, hygiene and sanitation, nutrition, physical fitness, first
aid training, accident prevention and personnel safety.

4. To evaluate other matters relating to health such as absenteeism, leaves and termination.

5. To give family planning motivations.

B. COVERAGE

1. All employees and their dependents are embraced by this program.

2. The health program shall cover pre-employment and annual p.e., hygiene and sanitation,
immunizations, family planning, physical fitness and athletic programs and other activities
such as group health education program, safety and first aid classes, organization of health
and safety committees.

3. Periodically, this program will be reviewed and adjusted based on employees’ needs.

C. ACTIVITIES

1. Annual Physical Examination.

2. Consultations, diagnosis and treatment of occupational and non-occupational illnesses

and injuries.

3. Immunizations necessary for job conditions.

4. Periodic inspections for food services and rest rooms.

5. Conduct health education programs and present education materials.

 6. Coordinate with Safety Committee in developing specific studies and program to minimize
environmental health hazards.

7. Give family planning motivations.

8. Coordinate with Personnel Department regarding physical fitness and athletic programs.

9. Visiting and follow-up treatment of Company employees and their dependents confined in
the hospital.

The Retainer Agreement, which began on January 1, 1988, was renewed annually. The last one
expired on December 31, 1993. Despite the non-renewal of the Retainer Agreement, respondent
continued to perform his functions as company doctor to Coca-Cola until he received a letter4 dated
March 9, 1995 from petitioner company concluding their retainership agreement effective 30 days
from receipt thereof.

It is noted that as early as September 1992, petitioner was already making inquiries regarding his
status with petitioner company. First, he wrote a letter addressed to Dr. Willie Sy, the Acting
President and Chairperson of the Committee on Membership, Philippine College of Occupational
Medicine. In response, Dr. Sy wrote a letter5 to the Personnel Officer of Coca-Cola Bottlers Phils.,
Bacolod City, stating that respondent should be considered as a regular part-time physician, having
served the company continuously for four (4) years. He likewise stated that respondent must receive
all the benefits and privileges of an employee under Article 157 (b)6 of the Labor Code.

Petitioner company, however, did not take any action. Hence, respondent made another inquiry
directed to the Assistant Regional Director, Bacolod City District Office of the Department of Labor
and Employment (DOLE), who referred the inquiry to the Legal Service of the DOLE, Manila. In his
letter7 dated May 18, 1993, Director Dennis P. Ancheta, Legal Service, DOLE, stated that he
believed that an employer-employee relationship existed between petitioner and respondent based
on the Retainer Agreement and the Comprehensive Medical Plan, and the application of the "four-
fold" test. However, Director Ancheta emphasized that the existence of employer-employee
relationship is a question of fact. Hence, termination disputes or money claims arising from
employer-employee relations exceeding ₱5,000 may be filed with the National Labor Relations
Commission (NLRC). He stated that their opinion is strictly advisory.

An inquiry was likewise addressed to the Social Security System (SSS). Thereafter, Mr. Romeo R.
Tupas, OIC-FID of SSS-Bacolod City, wrote a letter8 to the Personnel Officer of Coca-Cola Bottlers
Phils., Inc. informing the latter that the legal staff of his office was of the opinion that the services of
respondent partake of the nature of work of a regular company doctor and that he was, therefore,
subject to social security coverage.

Respondent inquired from the management of petitioner company whether it was agreeable to
recognizing him as a regular employee. The management refused to do so.

On February 24, 1994, respondent filed a Complaint9 before the NLRC, Bacolod City, seeking
recognition as a regular employee of petitioner company and prayed for the payment of all benefits
of a regular employee, including 13th Month Pay, Cost of Living Allowance, Holiday Pay, Service
Incentive Leave Pay, and Christmas Bonus. The case was docketed as RAB Case No. 06-02-
10138-94.

While the complaint was pending before the Labor Arbiter, respondent received a letter dated March
9, 1995 from petitioner company concluding their retainership agreement effective thirty (30) days
from receipt thereof. This prompted respondent to file a complaint for illegal dismissal against
petitioner company with the NLRC, Bacolod City. The case was docketed as RAB Case No. 06-04-
10177-95.

In a Decision10 dated November 28, 1996, Labor Arbiter Jesus N. Rodriguez, Jr. found that petitioner
company lacked the power of control over respondent’s performance of his duties, and recognized
as valid the Retainer Agreement between the parties. Thus, the Labor Arbiter dismissed
respondent’s complaint in the first case, RAB Case No. 06-02-10138-94. The dispositive portion of
the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the instant complaint
seeking recognition as a regular employee.

SO ORDERED.11

In a Decision12 dated February 24, 1997, Labor Arbiter Benjamin Pelaez dismissed the case for
illegal dismissal (RAB Case No. 06-04-10177-95) in view of the previous finding of Labor Arbiter
Jesus N. Rodriguez, Jr. in RAB Case No. 06-02-10138-94 that complainant therein, Dr. Dean
Climaco, is not an employee of Coca-Cola Bottlers Phils., Inc.

Respondent appealed both decisions to the NLRC, Fourth Division, Cebu City.

In a Decision13 promulgated on November 28, 1997, the NLRC dismissed the appeal in both cases
for lack of merit. It declared that no employer-employee relationship existed between petitioner
company and respondent based on the provisions of the Retainer Agreement which contract
governed respondent’s employment.

Respondent’s motion for reconsideration was denied by the NLRC in a Resolution14 promulgated on
August 7, 1998.

Respondent filed a petition for review with the Court of Appeals.

In a Decision promulgated on July 7, 2000, the Court of Appeals ruled that an employer-employee
relationship existed between petitioner company and respondent after applying the four-fold test: (1)
the power to hire 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.

The Court of Appeals held:

The Retainer Agreement executed by and between the parties, when read together with the
Comprehensive Medical Plan which was made an integral part of the retainer agreements, coupled
with the actual services rendered by the petitioner, would show that all the elements of the above
test are present.

First, the agreements provide that "the COMPANY desires to engage on a retainer basis the
services of a physician and the said DOCTOR is accepting such engagement x x x" (Rollo, page
25). This clearly shows that Coca-Cola exercised its power to hire the services of petitioner.

Secondly, paragraph (2) of the agreements showed that petitioner would be entitled to a final
compensation of Three Thousand Eight Hundred Pesos per month, which amount was later raised
to Seven Thousand Five Hundred on the latest contract. This would represent the element of
payment of wages.

Thirdly, it was provided in paragraph (1) of the agreements that the same shall be valid for a period
of one year. "The said term notwithstanding, either party may terminate the contract upon giving a
thirty (30) day written notice to the other." (Rollo, page 25). This would show that Coca-Cola had the
power of dismissing the petitioner, as it later on did, and this could be done for no particular reason,
the sole requirement being the former’s compliance with the 30-day notice requirement.

Lastly, paragraphs (3) and (6) of the agreements reveal that Coca-Cola exercised the most
important element of all, that is, control, over the conduct of petitioner in the latter’s performance of
his duties as a doctor for the company.

It was stated in paragraph (3) that the doctor agrees to perform the duties and obligations
enumerated in the Comprehensive Medical Plan referred to above. In paragraph (6), the fixed and
definite hours during which the petitioner must render service to the company is laid down.

We say that there exists Coca-Cola’s power to control petitioner because the particular objectives
and activities to be observed and accomplished by the latter are fixed and set under the
Comprehensive Medical Plan which was made an integral part of the retainer agreement. Moreover,
the times for accomplishing these objectives and activities are likewise controlled and determined by
the company. Petitioner is subject to definite hours of work, and due to this, he performs his duties to
Coca-Cola not at his own pleasure but according to the schedule dictated by the company.

In addition, petitioner was designated by Coca-Cola to be a member of its Bacolod Plant’s Safety
Committee. The minutes of the meeting of the said committee dated February 16, 1994 included the
name of petitioner, as plant physician, as among those comprising the committee.

It was averred by Coca-Cola in its comment that they exercised no control over petitioner for the
reason that the latter was not directed as to the procedure and manner of performing his assigned
tasks. It went as far as saying that "petitioner was not told how to immunize, inject, treat or diagnose
the employees of the respondent (Rollo, page 228). We believe that if the "control test" would be
interpreted this strictly, it would result in an absurd and ridiculous situation wherein we could declare
that an entity exercises control over another’s activities only in instances where the latter is directed
by the former on each and every stage of performance of the particular activity. Anything less than
that would be tantamount to no control at all.

To our minds, it is sufficient if the task or activity, as well as the means of accomplishing it, is
dictated, as in this case where the objectives and activities were laid out, and the specific time for
performing them was fixed by the controlling party.15

Moreover, the Court of Appeals declared that respondent should be classified as a regular employee
having rendered six years of service as plant physician by virtue of several renewed retainer
agreements. It underscored the provision in Article 28016 of the Labor Code stating that "any
employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the activity in which he is employed,
and his employment shall continue while such activity exists." Further, it held that the termination of
respondent’s services without any just or authorized cause constituted illegal dismissal.

In addition, the Court of Appeals found that respondent’s dismissal was an act oppressive to labor
and was effected in a wanton, oppressive or malevolent manner which entitled respondent to moral
and exemplary damages.
The dispositive portion of the Decision reads:

WHEREFORE, in view of the foregoing, the Decision of the National Labor Relations Commission
dated November 28, 1997 and its Resolution dated August 7, 1998 are found to have been issued
with grave abuse of discretion in applying the law to the established facts, and are hereby
REVERSED and SET ASIDE, and private respondent Coca-Cola Bottlers, Phils.. Inc. is hereby
ordered to:

1. Reinstate the petitioner with full backwages without loss of seniority rights from the time
his compensation was withheld up to the time he is actually reinstated; however, if
reinstatement is no longer possible, to pay the petitioner separation pay equivalent to one (1)
month’s salary for every year of service rendered, computed at the rate of his salary at the
time he was dismissed, plus backwages.

2. Pay petitioner moral damages in the amount of ₱50,000.00.

3. Pay petitioner exemplary damages in the amount of ₱50,000.00.

4. Give to petitioner all other benefits to which a regular employee of Coca-Cola is entitled
from the time petitioner became a regular employee (one year from effectivity date of
employment) until the time of actual payment.

SO ORDERED.17

Petitioner company filed a motion for reconsideration of the Decision of the Court of Appeals.

In a Resolution promulgated on January 30, 2001, the Court of Appeals stated that petitioner
company noted that its Decision failed to mention whether respondent was a full-time or part-time
regular employee. It also questioned how the benefits under their Collective Bargaining Agreement
which the Court awarded to respondent could be given to him considering that such benefits were
given only to regular employees who render a full day’s work of not less that eight hours. It was
admitted that respondent is only required to work for two hours per day.

The Court of Appeals clarified that respondent was a "regular part-time employee and should be
accorded all the proportionate benefits due to this category of employees of [petitioner] Corporation
under the CBA." It sustained its decision on all other matters sought to be reconsidered.

Hence, this petition filed by Coca-Cola Bottlers Phils., Inc.

The issues are:

1. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR,

BASED ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF
THE LABOR ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION,
CONTRARY TO THE DECISIONS OF THE HONORABLE SUPREME COURT ON THE
MATTER.

2. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR,

BASED ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF
THE LABOR ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND
HOLDING INSTEAD THAT THE WORK OF A PHYSICIAN IS NECESSARY AND
 DESIRABLE TO THE BUSINESS OF SOFTDRINKS MANUFACTURING, CONTRARY TO
THE RULINGS OF THE SUPREME COURT IN ANALOGOUS CASES.

3. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR,

BASED ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF
THE LABOR ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND
HOLDING INSTEAD THAT THE PETITIONERS EXERCISED CONTROL OVER THE
WORK OF THE RESPONDENT.

4. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR,

BASED ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF
THE LABOR ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND
FINDING THAT THERE IS EMPLOYER-EMPLOYEE RELATIONSHIP PURSUANT TO
ARTICLE 280 OF THE LABOR CODE.

5. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR,

BASED ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF
THE LABOR ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND
FINDING THAT THERE EXISTED ILLEGAL DISMISSAL WHEN THE EMPLOYENT OF
THE RESPONDENT WAS TERMINATED WITHOUT JUST CAUSE.

6. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR,

BASED ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF
THE LABOR ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND
FINDING THAT THE RESPONDENT IS A REGULAR PART TIME EMPLOYEE WHO IS
ENTITLED TO PROPORTIONATE BENEFITS AS A REGULAR PART TIME EMPLOYEE
ACCORDING TO THE PETITIONERS’ CBA.

7. THAT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR,

BASED ON A SUBSTANTIAL QUESTION OF LAW, IN REVERSING THE FINDINGS OF
THE LABOR ARBITERS AND THE NATIONAL LABOR RELATIONS COMMISSION, AND
FINDING THAT THE RESPONDENT IS ENTITLED TO MORAL AND EXEMPLARY
DAMAGES.

The main issue in this case is whether or not there exists an employer-employee relationship
between the parties. The resolution of the main issue will determine whether the termination of
respondent’s employment is illegal.

The Court, in determining the existence of an employer-employee relationship, has invariably

adhered to the four-fold test: (1) the selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct, or the so-
called "control test," considered to be the most important element.18

The Court agrees with the finding of the Labor Arbiter and the NLRC that the circumstances of this
case show that no employer-employee relationship exists between the parties. The Labor Arbiter
and the NLRC correctly found that petitioner company lacked the power of control over the
performance by respondent of his duties. The Labor Arbiter reasoned that the Comprehensive
Medical Plan, which contains the respondent’s objectives, duties and obligations, does not tell
respondent "how to conduct his physical examination, how to immunize, or how to diagnose and
treat his patients, employees of [petitioner] company, in each case." He likened this case to that
of Neri v. National Labor Relations Commission,19 which held:
In the case of petitioner Neri, it is admitted that FEBTC issued a job description which detailed her
functions as a radio/telex operator. However, a cursory reading of the job description shows that
what was sought to be controlled by FEBTC was actually the end result of the task, e.g., that the
daily incoming and outgoing telegraphic transfer of funds received and relayed by her, respectively,
tallies with that of the register. The guidelines were laid down merely to ensure that the desired end
result was achieved. It did not, however, tell Neri how the radio/telex machine should be operated.

In effect, the Labor Arbiter held that petitioner company, through the Comprehensive Medical Plan,
provided guidelines merely to ensure that the end result was achieved, but did not control the means
and methods by which respondent performed his assigned tasks.

The NLRC affirmed the findings of the Labor Arbiter and stated that it is precisely because the
company lacks the power of control that the contract provides that respondent shall be directly
responsible to the employee concerned and their dependents for any injury, harm or damage caused
through professional negligence, incompetence or other valid causes of action.

The Labor Arbiter also correctly found that the provision in the Retainer Agreement that respondent
was on call during emergency cases did not make him a regular employee. He explained, thus:

Likewise, the allegation of complainant that since he is on call at anytime of the day and night makes
him a regular employee is off-tangent. Complainant does not dispute the fact that outside of the two
(2) hours that he is required to be at respondent company’s premises, he is not at all further required
to just sit around in the premises and wait for an emergency to occur so as to enable him from using
such hours for his own benefit and advantage. In fact, complainant maintains his own private clinic
attending to his private practice in the city, where he services his patients, bills them accordingly --
and if it is an employee of respondent company who is attended to by him for special treatment that
needs hospitalization or operation, this is subject to a special billing. More often than not, an
employee is required to stay in the employer’s workplace or proximately close thereto that he cannot
utilize his time effectively and gainfully for his own purpose. Such is not the prevailing situation
here.1awphi1.net

In addition, the Court finds that the schedule of work and the requirement to be on call for
emergency cases do not amount to such control, but are necessary incidents to the Retainership
Agreement.

The Court also notes that the Retainership Agreement granted to both parties the power to terminate
their relationship upon giving a 30-day notice. Hence, petitioner company did not wield the sole
power of dismissal or termination.

The Court agrees with the Labor Arbiter and the NLRC that there is nothing wrong with the
employment of respondent as a retained physician of petitioner company and upholds the validity of
the Retainership Agreement which clearly stated that no employer-employee relationship existed
between the parties. The Agreement also stated that it was only for a period of 1 year beginning
January 1, 1988 to December 31, 1998, but it was renewed on a yearly basis.

Considering that there is no employer-employee relationship between the parties, the termination of
the Retainership Agreement, which is in accordance with the provisions of the Agreement, does not
constitute illegal dismissal of respondent. Consequently, there is no basis for the moral and
exemplary damages granted by the Court of Appeals to respondent due to his alleged illegal
dismissal.
WHEREFORE, the petition is GRANTED and the Decision and Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The Decision and Resolution dated November 28, 1997 and
August 7, 1998, respectively, of the National Labor Relations Commission are REINSTATED.

No costs.

SO ORDERED.

12)

G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO
TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA and
RAMON ESCUETA, Respondents.

DECISION

YNARES-SANTIAGO, J.:

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

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

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

In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as
accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle recruitment of
all employees and perform management administration functions; represent the company in all
dealings with government agencies, especially with the Bureau of Internal Revenue (BIR), Social
Security System (SSS) and in the city government of Makati; and to administer all other matters
pertaining to the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. 7
For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her
salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of Kasei
Corporation. 8

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

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

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she
was informed that she is no longer connected with the company. 11

Since she was no longer paid her salary, petitioner did not report for work and filed an action for
constructive dismissal before the labor arbiter.

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

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

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

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

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

1. finding complainant an employee of respondent corporation;

2. declaring complainant’s dismissal as illegal;

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

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

(27,500 x 10 mos.)

b. Salary Differentials (01/2001 – 09/2001) 22,500.00

c. Housing Allowance (01/2001 – 07/2002) 57,000.00

d. Midyear Bonus 2001 27,500.00

e. 13th Month Pay 27,500.00

f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00

g. Moral and exemplary damages 100,000.00

h. 10% Attorney’s fees 87,076.50

P957,742.50

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

SO ORDERED. 14

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the
dispositive portion of which reads:

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

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

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

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

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

SO ORDERED. 15
On appeal, the Court of Appeals reversed the NLRC decision, thus:

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

SO ORDERED. 16

The appellate court denied petitioner’s motion for reconsideration, hence, the present recourse.

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

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

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

However, in certain cases the control test is not sufficient to give a complete picture of the
relationship between the parties, owing to the complexity of such a relationship where several
positions have been held by the worker. There are instances when, aside from the employer’s power
to control the employee with respect to the means and methods by which the work is to be
accomplished, economic realities of the employment relations help provide a comprehensive
analysis of the true classification of the individual, whether as employee, independent contractor,
corporate officer or some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative
employer’s power to control the employee with respect to the means and methods by which the work
is to be accomplished; and (2) the underlying economic realities of the activity or relationship.

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

The control test initially found application in the case of Viaña v. Al-Lagadan and Piga, 19 and lately
in Leonardo v. Court of Appeals, 20 where we held that there is an employer-employee relationship
when the person for whom the services are performed reserves the right to control not only the end
achieved but also the manner and means used to achieve that end.
In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic conditions
prevailing between the parties, in addition to the standard of right-of-control like the inclusion of the
employee in the payrolls, to give a clearer picture in determining the existence of an employer-
employee relationship based on an analysis of the totality of economic circumstances of the worker.

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

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

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation
because she was under the direct control and supervision of Seiji Kamura, the corporation’s
Technical Consultant. She reported for work regularly and served in various capacities as
Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate Secretary, with
substantially the same job functions, that is, rendering accounting and tax services to the company
and performing functions necessary and desirable for the proper operation of the corporation such
as securing business permits and other licenses over an indefinite period of engagement.

Under the broader economic reality test, the petitioner can likewise be said to be an employee of
respondent corporation because she had served the company for six years before her dismissal,
receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and
allowances, as well as deductions and Social Security contributions from August 1, 1999 to
December 18, 2000. 26 When petitioner was designated General Manager, respondent corporation
made a report to the SSS signed by Irene Ballesteros. Petitioner’s membership in the SSS as
manifested by a copy of the SSS specimen signature card which was signed by the President of
Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the
existence of an employer-employee relationship between petitioner and respondent corporation. 27

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

In Domasig v. National Labor Relations Commission, 28 we held that in a business establishment, an

identification card is provided not only as a security measure but mainly to identify the holder thereof
as a bona fide employee of the firm that issues it. Together with the cash vouchers covering
petitioner’s salaries for the months stated therein, these matters constitute substantial evidence
adequate to support a conclusion that petitioner was an employee of private respondent.

We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the SSS is
proof that the latter were the former’s employees. The coverage of Social Security Law is predicated
on the existence of an employer-employee relationship.
Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that
petitioner never acted as Corporate Secretary and that her designation as such was only for
convenience. The actual nature of petitioner’s job was as Kamura’s direct assistant with the duty of
acting as Liaison Officer in representing the company to secure construction permits, license to
operate and other requirements imposed by government agencies. Petitioner was never entrusted
with corporate documents of the company, nor required to attend the meeting of the corporation.
She was never privy to the preparation of any document for the corporation, although once in a while
she was required to sign prepared documentation for the company. 30

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

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

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

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month
from January to September 2001. This amounts to an illegal termination of employment, where the
petitioner is entitled to full backwages. Since the position of petitioner as accountant is one of trust
and confidence, and under the principle of strained relations, petitioner is further entitled to
separation pay, in lieu of reinstatement. 34

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal.

Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to when
continued employment becomes impossible, unreasonable or unlikely; when there is a demotion in
rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer
becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. Florendo-Flores, 36 we ruled that
where an employee ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment rendering it impossible
for such employee to continue working for her employer. Hence, her severance from the company
was not of her own making and therefore amounted to an illegal termination of employment.

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

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

SO ORDERED.

13)

G.R. No. 167622 June 29, 2010

GREGORIO V. TONGKO, Petitioner,

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

RESOLUTION

BRION, J.:

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

The following facts have been stated in our Decision of November 7, 2008, now under
reconsideration, but are repeated, simply for purposes of clarity.

The contractual relationship between Tongko and Manulife had two basic phases. The first or initial
phase began on July 1, 1977, under a Career Agent’s Agreement (Agreement) that provided:

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

xxxx

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

xxxx

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

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

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

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

Tongko’s gross earnings consisted of commissions, persistency income, and management

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

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

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

xxxx

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

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

Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those
subsequent meetings you reiterated certain views, the validity of which we challenged and
subsequently found as having no basis.

With such views coming from you, I was a bit concerned that the rest of the Metro North Managers
may be a bit confused as to the directions the company was taking. For this reason, I sought a
meeting with everyone in your management team, including you, to clear the air, so to speak.

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

xxxx

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

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

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

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

xxxx

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

xxxx

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

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

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

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

xxxx

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

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

xxxx

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

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

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

xxxx

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

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

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

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

B. Manulife’s Case – Agency Relationship with Tongko

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

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

The Conflicting Rulings of the Lower Tribunals

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

Our Decision of November 7, 2008

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

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

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

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

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

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

The Motion for Reconsideration

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

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

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

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

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by
Articles 8 and 9 of the Civil Code, beyond the powers granted to this Court under Article VIII,
Section 1 of the Constitution and contravenes through judicial legislation, the constitutional
prohibition against impairment of contracts under Article III, Section 10 of the Constitution.
 5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and
reversible errors, which should be corrected, in concluding that Respondent Manulife and
Petitioner had an employer-employee relationship, that Respondent Manulife illegally
dismissed Petitioner, and for consequently ordering Respondent Manulife to pay Petitioner
backwages, separation pay, nominal damages and attorney’s fees.13

THE COURT’S RULING

A. The Insurance and the Civil Codes;

the Parties’ Intent and Established
Industry Practices

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

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

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

a. The laws on insurance and agency

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

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

No person shall act as an insurance agent or as an insurance broker in the solicitation or

procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the Philippines
or any agent thereof, without first procuring a license so to act from the Commissioner x x x The
Commissioner shall satisfy himself as to the competence and trustworthiness of the applicant and
shall have the right to refuse to issue or renew and to suspend or revoke any such license in his
discretion.
1avvphi1.net

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

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

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

On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some
service or to do something in representation or on behalf of another, with the consent or authority of
the latter."16 While this is a very broad definition that on its face may even encompass an
employment relationship, the distinctions between agency and employment are sufficiently
established by law and jurisprudence.

Generally, the determinative element is the control exercised over the one rendering service. The
employer controls the employee both in the results and in the means and manner of achieving this
result. The principal in an agency relationship, on the other hand, also has the prerogative to
exercise control over the agent in undertaking the assigned task based on the parameters outlined in
the pertinent laws.

Under the general law on agency as applied to insurance, an agency must be express in light of the
need for a license and for the designation by the insurance company. In the present case, the
Agreement fully serves as grant of authority to Tongko as Manulife’s insurance agent.17 This
agreement is supplemented by the company’s agency practices and usages, duly accepted by the
agent in carrying out the agency.18 By authority of the Insurance Code, an insurance agency is for
compensation,19 a matter the Civil Code Rules on Agency presumes in the absence of proof to the
contrary.20 Other than the compensation, the principal is bound to advance to, or to reimburse, the
agent the agreed sums necessary for the execution of the agency.21 By implication at least under
Article 1994 of the Civil Code, the principal can appoint two or more agents to carry out the same
assigned tasks,22 based necessarily on the specific instructions and directives given to them.
With particular relevance to the present case is the provision that "In the execution of the agency,
the agent shall act in accordance with the instructions of the principal."23 This provision is pertinent
for purposes of the necessary control that the principal exercises over the agent in undertaking the
assigned task, and is an area where the instructions can intrude into the labor law concept of control
so that minute consideration of the facts is necessary. A related article is Article 1891 of the Civil
Code which binds the agent to render an account of his transactions to the principal.

B. The Cited Case

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

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

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

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

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

c.1. The Agreement

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

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

The parties’ legal characterization of their intent, although not conclusive, is critical in this case
because this intent is not illegal or outside the contemplation of law, particularly of the Insurance and
the Civil Codes. From this perspective, the provisions of the Insurance Code cannot be disregarded
as this Code (as heretofore already noted) expressly envisions a principal-agent relationship
between the insurance company and the insurance agent in the sale of insurance to the public. For 1aw ph!1

this reason, we can take judicial notice that as a matter of Insurance Code-based business practice,
an agency relationship prevails in the insurance industry for the purpose of selling insurance. The
Agreement, by its express terms, is in accordance with the Insurance Code model when it provided
for a principal-agent relationship, and thus cannot lightly be set aside nor simply be considered as an
agreement that does not reflect the parties’ true intent. This intent, incidentally, is reinforced by the
system of compensation the Agreement provides, which likewise is in accordance with the
production-based sales commissions the Insurance Code provides.

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

Like Tongko, the evidence suggests that these other agents operated under their own agency
agreements. Thus, if Tongko’s compensation scheme changed at all during his relationship with
Manulife, the change was solely for purposes of crediting him with his share in the commissions the
agents under his wing generated. As an agent who was recruiting and guiding other insurance
agents, Tongko likewise moved up in terms of the reimbursement of expenses he incurred in the
course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code. Thus,
Tongko received greater reimbursements for his expenses and was even allowed to use Manulife
facilities in his interactions with the agents, all of whom were, in the strict sense, Manulife agents
approved and certified as such by Manulife with the Insurance Commission.
That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable
conclusion that results from the reading of the Agreement (the only agreement on record in this
case) and his continuing role thereunder as sales agent, from the perspective of the Insurance and
the Civil Codes and in light of what Tongko himself attested to as his role as Regional Sales
Manager. To be sure, this interpretation could have been contradicted if other agreements had been
submitted as evidence of the relationship between Manulife and Tongko on the latter’s expanded
undertakings. In the absence of any such evidence, however, this reading – based on the available
evidence and the applicable insurance and civil law provisions – must stand, subject only to
objective and evidentiary Labor Code tests on the existence of an employer-employee relationship.

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

Evidence indicates that Tongko consistently clung to the view that he was an independent agent
selling Manulife insurance products since he invariably declared himself a business or self-employed
person in his income tax returns. This consistency with, and action made pursuant to the
Agreement were pieces of evidence that were never mentioned nor considered in our
Decision of November 7, 2008. Had they been considered, they could, at the very least, serve as
Tongko’s admissions against his interest. Strictly speaking, Tongko’s tax returns cannot but be
legally significant because he certified under oath the amount he earned as gross business income,
claimed business deductions, leading to his net taxable income. This should be evidence of the first
order that cannot be brushed aside by a mere denial. Even on a layman’s view that is devoid of legal
considerations, the extent of his annual income alone renders his claimed employment status
doubtful.27

Hand in hand with the concept of admission against interest in considering the tax returns, the
concept of estoppel – a legal and equitable concept28 – necessarily must come into play. Tongko’s
previous admissions in several years of tax returns as an independent agent, as against his belated
claim that he was all along an employee, are too diametrically opposed to be simply dismissed or
ignored. Interestingly, Justice Velasco’s dissenting opinion states that Tongko was forced to declare
himself a business or self-employed person by Manulife’s persistent refusal to recognize him as its
employee.29 Regrettably, the dissent has shown no basis for this conclusion, an
understandable omission since no evidence in fact exists on this point in the records of the
case. In fact, what the evidence shows is Tongko’s full conformity with, and action as, an
independent agent until his relationship with Manulife took a bad turn.

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

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

c.2. Other Evidence of Alleged Control

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

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

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

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

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

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

Duties of Manulife’s Manager Duties of Grepalife’s

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

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

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

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

These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the
job are specified and pre-determined; in the present case, the operative words are the "sales target,"
the methodology being left undefined except to the extent of being "coordinative." To be sure, a
"coordinative" standard for a manager cannot be indicative of control; the standard only essentially
describes what a Branch Manager is – the person in the lead who orchestrates activities within the
group. To "coordinate," and thereby to lead and to orchestrate, is not so much a matter of control by
Manulife; it is simply a statement of a branch manager’s role in relation with his agents from the point
of view of Manulife whose business Tongko’s sales group carries.

A disturbing note, with respect to the presented affidavits and Tongko’s alleged administrative
functions, is the selective citation of the portions supportive of an employment relationship and the
consequent omission of portions leading to the contrary conclusion. For example, the following
portions of the affidavit of Regional Sales Manager John Chua, with counterparts in the other
affidavits, were not brought out in the Decision of November 7, 2008, while the other portions
suggesting labor law control were highlighted. Specifically, the following portions of the affidavits
were not brought out:32

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

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

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

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

xxxx

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

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

 xxxx

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

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

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

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

The present case must be distinguished from the second Insular Life case that showed the
hallmarks of an employer-employee relationship in the management system established. These
were: exclusivity of service, control of assignments and removal of agents under the private
respondent’s unit, and furnishing of company facilities and materials as well as capital described as
Unit Development Fund. All these are obviously absent in the present case. If there is a commonality
in these cases, it is in the collection of premiums which is a basic authority that can be delegated to
agents under the Insurance Code.

As previously discussed, what simply happened in Tongko’s case was the grant of an expanded
sales agency role that recognized him as leader amongst agents in an area that Manulife
defined. Whether this consequently resulted in the establishment of an employment
relationship can be answered by concrete evidence that corresponds to the following
questions:

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

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

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

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

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

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

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

The dissent pointed out, as an argument to support its employment relationship conclusion, that any
doubt in the existence of an employer-employee relationship should be resolved in favor of the
existence of the relationship.34This observation, apparently drawn from Article 4 of the Labor Code,
is misplaced, as Article 4 applies only when a doubt exists in the "implementation and application" of
the Labor Code and its implementing rules; it does not apply where no doubt exists as in a situation
where the claimant clearly failed to substantiate his claim of employment relationship by the
quantum of evidence the Labor Code requires.

On the dissent’s last point regarding the lack of jurisprudential value of our November 7, 2008
Decision, suffice it to state that, as discussed above, the Decision was not supported by the
evidence adduced and was not in accordance with controlling jurisprudence. It should, therefore, be
reconsidered and abandoned, but not in the manner the dissent suggests as the dissenting opinions
are as factually and as legally erroneous as the Decision under reconsideration.

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

WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7,

2008, GRANTManulife’s motion for reconsideration and, accordingly, DISMISS Tongko’s petition.
No costs.

SO ORDERED.

14)

G.R. No. 157802 October 13, 2010

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER,

CATHERINE SPENCER, AND ALEX MANCILLA, Petitioners,
vs.
RICARDO R. COROS, Respondent.

DECISION

BERSAMIN, J.:

This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is
cognizable by the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of
whether the dismissed officer was a regular employee or a corporate officer unravels the
conundrum. In the case of the regular employee, the LA has jurisdiction; otherwise, the RTC
exercises the legal authority to adjudicate.

In this appeal via petition for review on certiorari, the petitioners challenge the decision dated
September 13, 20021and the resolution dated April 2, 2003,2 both promulgated in C.A.-G.R. SP No.
65714 entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and
National Labor Relations Commission, whereby by the Court of Appeals (CA) sustained the ruling of
the National Labor Relations Commission (NLRC) to the effect that the LA had jurisdiction because
the respondent was not a corporate officer of petitioner Matling Industrial and Commercial
Corporation (Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration, the respondent
filed on August 10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and
some of its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan
City.3

The petitioners moved to dismiss the complaint,4 raising the ground, among others, that the
complaint pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the
controversy being intra-corporate inasmuch as the respondent was a member of Matling’s Board of
Directors aside from being its Vice-President for Finance and Administration prior to his termination.

The respondent opposed the petitioners’ motion to dismiss,5 insisting that his status as a member of
Matling’s Board of Directors was doubtful, considering that he had not been formally elected as
such; that he did not own a single share of stock in Matling, considering that he had been made to
sign in blank an undated indorsement of the certificate of stock he had been given in 1992; that
Matling had taken back and retained the certificate of stock in its custody; and that even assuming
that he had been a Director of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000
showed.

On October 16, 2000, the LA granted the petitioners’ motion to dismiss,6 ruling that the respondent
was a corporate officer because he was occupying the position of Vice President for Finance and
Administration and at the same time was a Member of the Board of Directors of Matling; and that,
consequently, his removal was a corporate act of Matling and the controversy resulting from such
removal was under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of Presidential
Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,7 urging that:

THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING

APPELLEE’S MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO
FILE HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE
PROCESS.

II

THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR
LACK OF JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondent’s complaint
for illegal dismissal was properly cognizable by the LA, not by the SEC, because he was not a
corporate officer by virtue of his position in Matling, albeit high ranking and managerial, not being
among the positions listed in Matling’s Constitution and By-Laws.8 The NLRC disposed thuswise:

WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding
that the case at bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act
on said case is vested with the Labor Arbiter, not the SEC, considering that the position of Vice-
President for Finance and Administration being held by complainant-appellant is not listed as among
respondent's corporate officers.

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order
that the Labor Arbiter below could act on the case at bench, hear both parties, receive their
respective evidence and position papers fully observing the requirements of due process, and
resolve the same with reasonable dispatch.

SO ORDERED.

The petitioners sought reconsideration,9 reiterating that the respondent, being a member of the
Board of Directors, was a corporate officer whose removal was not within the LA’s jurisdiction.

The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified
machine copies of Matling’s Amended Articles of Incorporation and By Laws to prove that the
President of Matling was thereby granted "full power to create new offices and appoint the officers
thereto, and the minutes of special meeting held on June 7, 1999 by Matling’s Board of Directors to
prove that the respondent was, indeed, a Member of the Board of Directors.10

Nonetheless, on April 30, 2001, the NLRC denied the petitioners’ motion for reconsideration.11

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP
65714, contending that the NLRC committed grave abuse of discretion amounting to lack of
jurisdiction in reversing the correct decision of the LA.

In its assailed decision promulgated on September 13, 2002,12 the CA dismissed the petition for
certiorari, explaining:
For a position to be considered as a corporate office, or, for that matter, for one to be considered as
a corporate officer, the position must, if not listed in the by-laws, have been created by the
corporation's board of directors, and the occupant thereof appointed or elected by the same board of
directors or stockholders. This is the implication of the ruling in Tabang v. National Labor Relations
Commission, which reads:

"The president, vice president, secretary and treasurer are commonly regarded as the principal or
executive officers of a corporation, and modern corporation statutes usually designate them as the
officers of the corporation. However, other offices are sometimes created by the charter or by-laws
of a corporation, or the board of directors may be empowered under the by-laws of a corporation to
create additional offices as may be necessary.

It has been held that an 'office' is created by the charter of the corporation and the officer is elected
by the directors or stockholders. On the other hand, an 'employee' usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to such employee."

This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations
Commission and De Rossi v. National Labor Relations Commission.

The position of vice-president for administration and finance, which Coros used to hold in the
corporation, was not created by the corporation’s board of directors but only by its president or
executive vice-president pursuant to the by-laws of the corporation. Moreover, Coros’ appointment to
said position was not made through any act of the board of directors or stockholders of the
corporation. Consequently, the position to which Coros was appointed and later on removed from, is
not a corporate office despite its nomenclature, but an ordinary office in the corporation.

Coros’ alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.

WHEREFORE, the petition for certiorari is hereby DISMISSED.

SO ORDERED.

The CA denied the petitioners’ motion for reconsideration on April 2, 2003.13

Issue

Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent
was a stockholder/member of the Matling’s Board of Directors as well as its Vice President for
Finance and Administration; and that the CA consequently erred in holding that the LA had
jurisdiction.

The decisive issue is whether the respondent was a corporate officer of Matling or not. The
resolution of the issue determines whether the LA or the RTC had jurisdiction over his complaint for
illegal dismissal.

Ruling

The appeal fails.

I
The Law on Jurisdiction in Dismissal Cases

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly
cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which
provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise
provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear
and decide, within thirty (30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes, the following cases involving
all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions
involving the legality of strikes and lockouts; and

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

maternity benefits, all other claims arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (₱5,000.00) regardless of whether accompanied with
a claim for reinstatement.

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

(c) Cases arising from the interpretation or implementation of collective bargaining

agreements and those arising from the interpretation or enforcement of company personnel
policies shall be disposed of by the Labor Arbiter by referring the same to the grievance
machinery and voluntary arbitration as may be provided in said agreements. (As amended
by Section 9, Republic Act No. 6715, March 21, 1989).

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls
under the jurisdiction of the Securities and Exchange Commission (SEC), because the controversy
arises out of intra-corporate or partnership relations between and among stockholders, members, or
associates, or between any or all of them and the corporation, partnership, or association of which
they are stockholders, members, or associates, respectively; and between such corporation,
partnership, or association and the State insofar as the controversy concerns their individual
franchise or right to exist as such entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such corporation, partnership, or
association.14 Such controversy, among others, is known as an intra-corporate dispute.
Effective on August 8, 2000, upon the passage of Republic Act No. 8799,15 otherwise known as The
Securities Regulation Code, the SEC’s jurisdiction over all intra-corporate disputes was transferred
to the RTC, pursuant to Section 5.2 of RA No. 8799, to wit:

5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate
the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission
shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed
as of 30 June 2000 until finally disposed.

Considering that the respondent’s complaint for illegal dismissal was commenced on August 10,
2000, it might come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that
the respondent was a corporate, not a regular, officer of Matling.

II

Was the Respondent’s Position of Vice President

for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondent’s position as Vice President for Finance and
Administration was a corporate office. If it was, his dismissal by the Board of Directors rendered the
matter an intra-corporate dispute cognizable by the RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and Administration was a
corporate office, having been created by Matling’s President pursuant to By-Law No. V, as
amended,16 to wit:

BY LAW NO. V
Officers

The President shall be the executive head of the corporation; shall preside over the meetings of the
stockholders and directors; shall countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall have full power to hire and discharge any
or all employees of the corporation; shall have full power to create new offices and to appoint the
officers thereto as he may deem proper and necessary in the operations of the corporation and as
the progress of the business and welfare of the corporation may demand; shall make reports to the
directors and stockholders and perform all such other duties and functions as are incident to his
office or are properly required of him by the Board of Directors. In case of the absence or disability of
the President, the Executive Vice President shall have the power to exercise his functions.

The petitioners argue that the power to create corporate offices and to appoint the individuals to
assume the offices was delegated by Matling’s Board of Directors to its President through By-Law
No. V, as amended; and that any office the President created, like the position of the respondent,
was as valid and effective a creation as that made by the Board of Directors, making the office a
corporate office. In justification, they cite Tabang v. National Labor Relations Commission,17 which
held that "other offices are sometimes created by the charter or by-laws of a corporation, or the
board of directors may be empowered under the by-laws of a corporation to create additional officers
as may be necessary."
The respondent counters that Matling’s By-Laws did not list his position as Vice President for
Finance and Administration as one of the corporate offices; that Matling’s By-Law No. III listed only
four corporate officers, namely: President, Executive Vice President, Secretary, and
Treasurer; 18 that the corporate offices contemplated in the phrase "and such other officers as may
be provided for in the by-laws" found in Section 25 of the Corporation Code should be clearly and
expressly stated in the By-Laws; that the fact that Matling’s By-Law No. III dealt with Directors &
Officers while its By-Law No. V dealt with Officers proved that there was a differentiation between
the officers mentioned in the two provisions, with those classified under By-Law No. V being ordinary
or non-corporate officers; and that the officer, to be considered as a corporate officer, must be
elected by the Board of Directors or the stockholders, for the President could only appoint an
employee to a position pursuant to By-Law No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a treasurer
who may or may not be a director, a secretary who shall be a resident and citizen of the
Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more
positions may be held concurrently by the same person, except that no one shall act as president
and secretary or as president and treasurer at the same time.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law
and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a
greater majority, a majority of the number of directors or trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate business, and every decision
of at least a majority of the directors or trustees present at a meeting at which there is a quorum
shall be valid as a corporate act, except for the election of officers which shall require the vote of a
majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law
enabling provision is not enough to make a position a corporate office. Guerrea v. Lezama,19 the first
ruling on the matter, held that the only officers of a corporation were those given that character either
by the Corporation Code or by the By-Laws; the rest of the corporate officers could be considered
only as employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc.
v. King:20

An "office" is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by
the action of the directors or stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee.

In this case, respondent was appointed vice president for nationwide expansion by Malonzo,
petitioner’'s general manager, not by the board of directors of petitioner. It was also Malonzo who
determined the compensation package of respondent. Thus, respondent was an employee, not a
"corporate officer." The CA was therefore correct in ruling that jurisdiction over the case was properly
with the NLRC, not the SEC (now the RTC).
This interpretation is the correct application of Section 25 of the Corporation Code, which plainly
states that the corporate officers are the President, Secretary, Treasurer and such other officers as
may be provided for in the By-Laws. Accordingly, the corporate officers in the context of PD No. 902-
A are exclusively those who are given that character either by the Corporation Code or by the
corporation’s By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-
Laws of an enabling clause on the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency administering the
Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in its
Opinion dated November 25, 1993,21 to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the
Board has no power to create other Offices without amending first the corporate By-laws. However,
the Board may create appointive positions other than the positions of corporate Officers, but
the persons occupying such positions are not considered as corporate officers within the
meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions
of the corporate Officers, except those functions lawfully delegated to them. Their functions and
duties are to be determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create a
corporate office to the President, in light of Section 25 of the Corporation Code requiring the Board
of Directors itself to elect the corporate officers. Verily, the power to elect the corporate officers was
a discretionary power that the law exclusively vested in the Board of Directors, and could not be
delegated to subordinate officers or agents.22 The office of Vice President for Finance and
Administration created by Matling’s President pursuant to By Law No. V was an ordinary, not a
corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers to occupy them
vested by By-Law No. V merely allowed Matling’s President to create non-corporate offices to be
occupied by ordinary employees of Matling. Such powers were incidental to the President’s duties as
the executive head of Matling to assist him in the daily operations of the business.

The petitioners’ reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that
offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling
provision were also considered corporate offices, was plainly obiter dictum due to the position
subject of the controversy being mentioned in the By-Laws. Thus, the Court held therein that the
position was a corporate office, and that the determination of the rights and liabilities arising from the
ouster from the position was an intra-corporate controversy within the SEC’s jurisdiction.

In Nacpil v. Intercontinental Broadcasting Corporation,23 which may be the more appropriate ruling,
the position subject of the controversy was not expressly mentioned in the By-Laws, but was created
pursuant to a By-Law enabling provision authorizing the Board of Directors to create other offices
that the Board of Directors might see fit to create. The Court held there that the position was a
corporate office, relying on the obiter dictum in Tabang.

Considering that the observations earlier made herein show that the soundness of their dicta is not
unassailable, Tabang and Nacpil should no longer be controlling.
 III

Did Respondent’s Status as Director and

Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and
relying on Paguio v. National Labor Relations Commission24 and Ongkingko v. National Labor
Relations Commission,25 the NLRC had no jurisdiction over his complaint, considering that any case
for illegal dismissal brought by a stockholder/officer against the corporation was an intra-corporate
matter that must fall under the jurisdiction of the SEC conformably with the context of PD No. 902-A.

The petitioners’ insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants
were undeniably corporate officers due to their positions being expressly mentioned in the By-Laws,
aside from the fact that both of them had been duly elected by the respective Boards of Directors.
But the herein respondent’s position of Vice President for Finance and Administration was not
expressly mentioned in the By-Laws; neither was the position of Vice President for Finance and
Administration created by Matling’s Board of Directors. Lastly, the President, not the Board of
Directors, appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a stockholder and the corporation.
There is no distinction, qualification or any exemption whatsoever. The provision is broad and covers
all kinds of controversies between stockholders and corporations.26

However, the Tabang pronouncement is not controlling because it is too sweeping and does not
accord with reason, justice, and fair play. In order to determine whether a dispute constitutes an
intra-corporate controversy or not, the Court considers two elements instead, namely: (a) the status
or relationship of the parties; and (b) the nature of the question that is the subject of their
controversy. This was our thrust in Viray v. Court of Appeals:27

The establishment of any of the relationships mentioned above will not necessarily always confer
jurisdiction over the dispute on the SEC to the exclusion of regular courts. The statement made in
one case that the rule admits of no exceptions or distinctions is not that absolute. The better policy in
determining which body has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject of their controversy.

Not every conflict between a corporation and its stockholders involves corporate matters that only
the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a
person leases an apartment owned by a corporation of which he is a stockholder, there should be no
question that a complaint for his ejectment for non-payment of rentals would still come under the
jurisdiction of the regular courts and not of the SEC. By the same token, if one person injures
another in a vehicular accident, the complaint for damages filed by the victim will not come under the
jurisdiction of the SEC simply because of the happenstance that both parties are stockholders of the
same corporation. A contrary interpretation would dissipate the powers of the regular courts and
distort the meaning and intent of PD No. 902-A.

In another case, Mainland Construction Co., Inc. v. Movilla,28 the Court reiterated these determinants
thuswise:
In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must
pertain to any of the following relationships:

a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders, partners,

members or officers;

c) between the corporation, partnership or association and the State as far as its franchise,
permit or license to operate is concerned; and

d) among the stockholders, partners or associates themselves.

The fact that the parties involved in the controversy are all stockholders or that the parties involved
are the stockholders and the corporation does not necessarily place the dispute within the ambit of
the jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a case should
be to consider concurrent factors such as the status or relationship of the parties or the nature of the
question that is the subject of their controversy. In the absence of any one of these factors, the SEC
will not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between the
corporation and its stockholders would involve such corporate matters as only the SEC can resolve
in the exercise of its adjudicatory or quasi-judicial powers.29

The criteria for distinguishing between corporate officers who may be ousted from office at will, on
one hand, and ordinary corporate employees who may only be terminated for just cause, on the
other hand, do not depend on the nature of the services performed, but on the manner of creation of
the office. In the respondent’s case, he was supposedly at once an employee, a stockholder, and a
Director of Matling. The circumstances surrounding his appointment to office must be fully
considered to determine whether the dismissal constituted an intra-corporate controversy or a labor
termination dispute. We must also consider whether his status as Director and stockholder had any
relation at all to his appointment and subsequent dismissal as Vice President for Finance and
Administration.

Obviously enough, the respondent was not appointed as Vice President for Finance and
Administration because of his being a stockholder or Director of Matling. He had started working for
Matling on September 8, 1966, and had been employed continuously for 33 years until his
termination on April 17, 2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice
President for Finance and Administration had been gradual but steady, as the following sequence
indicates:

1966 – Bookkeeper

1968 – Senior Accountant

1969 – Chief Accountant

1972 – Office Supervisor

1973 – Assistant Treasurer

1978 – Special Assistant for Finance

 1980 – Assistant Comptroller

1983 – Finance and Administrative Manager

1985 – Asst. Vice President for Finance and Administration

1987 to April 17, 2000 – Vice President for Finance and Administration

Even though he might have become a stockholder of Matling in 1992, his promotion to the position
of Vice President for Finance and Administration in 1987 was by virtue of the length of quality
service he had rendered as an employee of Matling. His subsequent acquisition of the status of
Director/stockholder had no relation to his promotion. Besides, his status of Director/stockholder was
unaffected by his dismissal from employment as Vice President for Finance and Administration. 1avv phi 1

In Prudential Bank and Trust Company v. Reyes,30 a case involving a lady bank manager who had
risen from the ranks but was dismissed, the Court held that her complaint for illegal dismissal was
correctly brought to the NLRC, because she was deemed a regular employee of the bank. The Court
observed thus:

It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963.
From that position she rose to become supervisor. Then in 1982, she was appointed Assistant Vice-
President which she occupied until her illegal dismissal on July 19, 1991. The bank’s contention
that she merely holds an elective position and that in effect she is not a regular employee is
belied by the nature of her work and her length of service with the Bank. As earlier stated, she
rose from the ranks and has been employed with the Bank since 1963 until the termination of her
employment in 1991. As Assistant Vice President of the Foreign Department of the Bank, she is
tasked, among others, to collect checks drawn against overseas banks payable in foreign currency
and to ensure the collection of foreign bills or checks purchased, including the signing of transmittal
letters covering the same. It has been stated that "the primary standard of determining regular
employment is the reasonable connection between the particular activity performed by the employee
in relation to the usual trade or business of the employer. Additionally, "an employee is regular
because of the nature of work and the length of service, not because of the mode or even the reason
for hiring them." As Assistant Vice-President of the Foreign Department of the Bank she performs
tasks integral to the operations of the bank and her length of service with the bank totaling 28 years
speaks volumes of her status as a regular employee of the bank. In fine, as a regular employee, she
is entitled to security of tenure; that is, her services may be terminated only for a just or authorized
cause. This being in truth a case of illegal dismissal, it is no wonder then that the Bank endeavored
to the very end to establish loss of trust and confidence and serious misconduct on the part of
private respondent but, as will be discussed later, to no avail.

WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of
Appeals.

Costs of suit to be paid by the petitioners.

SO ORDERED.
15)

G.R. No. 201298 February 5, 2014

RAUL C. COSARE, Petitioner,

vs.
BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.

DECISION

REYES, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which
assails the Decision2 dated November 24, 2011 and Resolution3 dated March 26, 2012 of the Court
of Appeals (CA) in CA-G.R. SP. No. 117356, wherein the CA ruled that the Regional Trial Court
(RTC), and not the Labor Arbiter (LA), had the jurisdiction over petitioner Raul C. Cosare's (Cosare)
complaint for illegal dismissal against Broadcom Asia, Inc. (Broadcom) and Dante Arevalo (Arevalo),
the President of Broadcom (respondents).

The Antecedents

The case stems from a complaint4 for constructive dismissal, illegal suspension and monetary claims
filed with the National Capital Region Arbitration Branch of the National Labor Relations Commission
(NLRC) by Cosare against the respondents.

Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo, who was
then in the business of selling broadcast equipment needed by television networks and production
houses. In December 2000, Arevalo set up the company Broadcom, still to continue the business of
trading communication and broadcast equipment. Cosare was named an incorporator of Broadcom,
having been assigned 100 shares of stock with par value of ₱1.00 per share.5 In October 2001,
Cosare was promoted to the position of Assistant Vice President for Sales (AVP for Sales) and Head
of the Technical Coordination, having a monthly basic net salary and average commissions of
₱18,000.00 and ₱37,000.00, respectively.6

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President for Sales
and thus, became Cosare’s immediate superior. On March 23, 2009, Cosare sent a confidential
memo7 to Arevalo to inform him of the following anomalies which were allegedly being committed by
Abiog against the company: (a) he failed to report to work on time, and would immediately leave the
office on the pretext of client visits; (b) he advised the clients of Broadcom to purchase camera units
from its competitors, and received commissions therefor; (c) he shared in the "under the-table
dealings" or "confidential commissions" which Broadcom extended to its clients’ personnel and
engineers; and (d) he expressed his complaints and disgust over Broadcom’s uncompetitive salaries
and wages and delay in the payment of other benefits, even in the presence of office staff. Cosare
ended his memo by clarifying that he was not interested in Abiog’s position, but only wanted Arevalo
to know of the irregularities for the corporation’s sake.

Apparently, Arevalo failed to act on Cosare’s accusations. Cosare claimed that he was instead
called for a meeting by Arevalo on March 25, 2009, wherein he was asked to tender his resignation
in exchange for "financial assistance" in the amount of ₱300,000.00.8 Cosare refused to comply with
the directive, as signified in a letter9dated March 26, 2009 which he sent to Arevalo.
On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcom’s Manager for
Finance and Administration, a memo10 signed by Arevalo, charging him of serious misconduct and
willful breach of trust, and providing in part:

1. A confidential memo was received from the VP for Sales informing me that you had
directed, or at the very least tried to persuade, a customer to purchase a camera from
another supplier. Clearly, this action is a gross and willful violation of the trust and confidence
this company has given to you being its AVP for Sales and is an attempt to deprive the
company of income from which you, along with the other employees of this company, derive
your salaries and other benefits. x x x.

2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned in
another place outside of the office without proper turnover from you to this office which had
assigned said vehicle to you. The vehicle was found to be inoperable and in very bad
condition, which required that the vehicle be towed to a nearby auto repair shop for extensive
repairs.

3. You have repeatedly failed to submit regular sales reports informing the company of your
activities within and outside of company premises despite repeated reminders. However, it
has been observed that you have been both frequently absent and/or tardy without proper
information to this office or your direct supervisor, the VP for Sales Mr. Alex Abiog, of your
whereabouts.

4. You have been remiss in the performance of your duties as a Sales officer as evidenced
by the fact that you have not recorded any sales for the past immediate twelve (12) months.
This was inspite of the fact that my office decided to relieve you of your duties as technical
coordinator between Engineering and Sales since June last year so that you could focus and
concentrate [on] your activities in sales.11

Cosare was given forty-eight (48) hours from the date of the memo within which to present his
explanation on the charges. He was also "suspended from having access to any and all company
files/records and use of company assets effective immediately."12 Thus, Cosare claimed that he was
precluded from reporting for work on March 31, 2009, and was instead instructed to wait at the
office’s receiving section. Upon the specific instructions of Arevalo, he was also prevented by
Villareal from retrieving even his personal belongings from the office.

On April 1, 2009, Cosare was totally barred from entering the company premises, and was told to
merely wait outside the office building for further instructions. When no such instructions were given
by 8:00 p.m., Cosare was impelled to seek the assistance of the officials of Barangay San Antonio,
Pasig City, and had the incident reported in the barangay blotter.13

On April 2, 2009, Cosare attempted to furnish the company with a Memo14 by which he addressed
and denied the accusations cited in Arevalo’s memo dated March 30, 2009. The respondents
refused to receive the memo on the ground of late filing, prompting Cosare to serve a copy thereof
by registered mail. The following day, April 3, 2009, Cosare filed the subject labor complaint,
claiming that he was constructively dismissed from employment by the respondents. He further
argued that he was illegally suspended, as he placed no serious and imminent threat to the life or
property of his employer and co-employees.15

In refuting Cosare’s complaint, the respondents argued that Cosare was neither illegally suspended
nor dismissed from employment. They also contended that Cosare committed the following acts
inimical to the interests of Broadcom: (a) he failed to sell any broadcast equipment since the year
2007; (b) he attempted to sell a Panasonic HMC 150 Camera which was to be sourced from a
competitor; and (c) he made an unauthorized request in Broadcom’s name for its principal,
Panasonic USA, to issue an invitation for Cosare’s friend, one Alex Paredes, to attend the National
Association of Broadcasters’ Conference in Las Vegas, USA.16 Furthermore, they contended that
Cosare abandoned his job17 by continually failing to report for work beginning April 1, 2009,
prompting them to issue on April 14, 2009 a memorandum18 accusing Cosare of absence without
leave beginning April 1, 2009.

The Ruling of the LA

On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his Decision19 dismissing the
complaint on the ground of Cosare’s failure to establish that he was dismissed, constructively or
otherwise, from his employment. For the LA, what transpired on March 30, 2009 was merely the
respondents’ issuance to Cosare of a show-cause memo, giving him a chance to present his side on
the charges against him. He explained:

It is obvious that [Cosare] DID NOT wait for respondents’ action regarding the charges leveled
against him in the show-cause memo. What he did was to pre-empt that action by filing this
complaint just a day after he submitted his written explanation. Moreover, by specifically seeking
payment of "Separation Pay" instead of reinstatement, [Cosare’s] motive for filing this case becomes
more evident.20

It was also held that Cosare failed to substantiate by documentary evidence his allegations of illegal
suspension and non-payment of allowances and commissions.

Unyielding, Cosare appealed the LA decision to the NLRC.

The Ruling of the NLRC

On August 24, 2010, the NLRC rendered its Decision21 reversing the Decision of LA Menese. The
dispositive portion of the NLRC Decision reads:

WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are found
guilty of Illegal Constructive Dismissal. Respondents BROADCOM ASIA, INC. and Dante Arevalo
are ordered to pay [Cosare’s] backwages, and separation pay, as well as damages, in the total
amount of ₱1,915,458.33, per attached Computation.

SO ORDERED.22

In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded to
[Cosare’s] contention that he was constructively dismissed by Respondent Arevalo when he was
asked to resign from his employment."23The fact that Cosare was suspended from using the assets
of Broadcom was also inconsistent with the respondents’ claim that Cosare opted to abandon his
employment.

Exemplary damages in the amount of ₱100,000.00 was awarded, given the NLRC’s finding that the
termination of Cosare’s employment was effected by the respondents in bad faith and in a wanton,
oppressive and malevolent manner. The claim for unpaid commissions was denied on the ground of
the failure to include it in the prayer of pleadings filed with the LA and in the appeal.
The respondents’ motion for reconsideration was denied.24 Dissatisfied, they filed a petition for
certiorari with the CA founded on the following arguments: (1) the respondents did not have to prove
just cause for terminating the employment of Cosare because the latter’s complaint was based on an
alleged constructive dismissal; (2) Cosare resigned and was thus not dismissed from employment;
(3) the respondents should not be declared liable for the payment of Cosare’s monetary claims; and
(4) Arevalo should not be held solidarily liable for the judgment award.

In a manifestation filed by the respondents during the pendency of the CA appeal, they raised a new
argument, i.e., the case involved an intra-corporate controversy which was within the jurisdiction of
the RTC, instead of the LA.25They argued that the case involved a complaint against a corporation
filed by a stockholder, who, at the same time, was a corporate officer.

The Ruling of the CA

On November 24, 2011, the CA rendered the assailed Decision26 granting the respondents’ petition.
It agreed with the respondents’ contention that the case involved an intra-corporate controversy
which, pursuant to Presidential Decree No. 902-A, as amended, was within the exclusive jurisdiction
of the RTC. It reasoned:

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed as one
of its directors. Moreover, he held the position of [AVP] for Sales which is listed as a corporate office.
Generally, the president, vice-president, secretary or treasurer are commonly regarded as the
principal or executive officers of a corporation, and modern corporation statutes usually designate
them as the officers of the corporation. However, it bears mentioning that under Section 25 of the
Corporation Code, the Board of Directors of [Broadcom] is allowed to appoint such other officers as
it may deem necessary. Indeed, [Broadcom’s] By-Laws provides:

Article IV
Officer

Section 1. Election / Appointment – Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary at
said meeting.

The Board, may, from time to time, appoint such other officers as it may determine to be necessary
or proper. x x x

We hold that [the respondents] were able to present substantial evidence that [Cosare] indeed held
a corporate office, as evidenced by the General Information Sheet which was submitted to the
Securities and Exchange Commission (SEC) on October 22, 2009.27 (Citations omitted and emphasis
supplied)

Thus, the CA reversed the NLRC decision and resolution, and then entered a new one dismissing
the labor complaint on the ground of lack of jurisdiction, finding it unnecessary to resolve the main
issues that were raised in the petition. Cosare filed a motion for reconsideration, but this was denied
by the CA via the Resolution28 dated March 26, 2012. Hence, this petition.

The Present Petition

The pivotal issues for the petition’s full resolution are as follows: (1) whether or not the case
instituted by Cosare was an intra-corporate dispute that was within the original jurisdiction of the
RTC, and not of the LAs; and (2) whether or not Cosare was constructively and illegally dismissed
from employment by the respondents.

The Court’s Ruling

The petition is impressed with merit.

Jurisdiction over the controversy

As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the CA, it
is the LA, and not the regular courts, which has the original jurisdiction over the subject controversy.
An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been
regarded in its broad sense to pertain to disputes that involve any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the corporation,
partnership or association and the state in so far as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates, themselves.29 Settled
jurisprudence, however, qualifies that when the dispute involves a charge of illegal dismissal, the
action may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination
disputes and claims for damages arising from employer-employee relations as provided in Article
217 of the Labor Code. Consistent with this jurisprudence, the mere fact that Cosare was a
stockholder and an officer of Broadcom at the time the subject controversy developed failed to
necessarily make the case an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros,30 the Court distinguished between a
"regular employee" and a "corporate officer" for purposes of establishing the true nature of a dispute
or complaint for illegal dismissal and determining which body has jurisdiction over it. Succinctly, it
was explained that "[t]he determination of whether the dismissed officer was a regular employee or
corporate officer unravels the conundrum" of whether a complaint for illegal dismissal is cognizable
by the LA or by the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the
RTC exercises the legal authority to adjudicate.31

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for
illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was
not a "corporate officer" as the term is defined by law. We emphasized in Real v. Sangu Philippines,
Inc.32 the definition of corporate officers for the purpose of identifying an intra-corporate controversy.
Citing Garcia v. Eastern Telecommunications Philippines, Inc.,33 we held:

" ‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporation’s by-laws.
There are three specific officers whom a corporation must have under Section 25 of the Corporation
Code. These are the president, secretary and the treasurer. The number of officers is not limited to
these three. A corporation may have such other officers as may be provided for by its by-laws like,
but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate
officers is thus limited by law and by the corporation’s by-laws."34 (Emphasis ours)

In Tabang v. NLRC,35 the Court also made the following pronouncement on the nature of corporate
offices:

It has been held that an "office" is created by the charter of the corporation and the officer is elected
by the directors and stockholders. On the other hand, an "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to such employee.36 (Citations
omitted)

As may be deduced from the foregoing, there are two circumstances which must concur in order for
an individual to be considered a corporate officer, as against an ordinary employee or officer,
namely: (1) the creation of the position is under the corporation’s charter or by-laws; and (2) the
election of the officer is by the directors or stockholders. It is only when the officer claiming to have
been illegally dismissed is classified as such corporate officer that the issue is deemed an intra-
corporate dispute which falls within the jurisdiction of the trial courts.

To support their argument that Cosare was a corporate officer, the respondents referred to Section
1, Article IV of Broadcom’s by-laws, which reads:

ARTICLE IV
OFFICER

Section 1. Election / Appointment – Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary at
said meeting.

The Board may, from time to time, appoint such other officers as it may determine to be necessary
or proper. Any two (2) or more compatible positions may be held concurrently by the same person,
except that no one shall act as President and Treasurer or Secretary at the same time.37 (Emphasis
ours)

This was also the CA’s main basis in ruling that the matter was an intra-corporate dispute that was
within the trial courts’ jurisdiction.

The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted
provision, the only officers who are specifically listed, and thus with offices that are created under
Broadcom’s by-laws are the following: the President, Vice-President, Treasurer and Secretary.
Although a blanket authority provides for the Board’s appointment of such other officers as it may
deem necessary and proper, the respondents failed to sufficiently establish that the position of AVP
for Sales was created by virtue of an act of Broadcom’s board, and that Cosare was specifically
elected or appointed to such position by the directors. No board resolutions to establish such facts
form part of the case records. Further, it was held in Marc II Marketing, Inc. v. Joson38 that an
enabling clause in a corporation’s by-laws empowering its board of directors to create additional
officers, even with the subsequent passage of a board resolution to that effect, cannot make such
position a corporate office. The board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly created corporate
office.39 "To allow the creation of a corporate officer position by a simple inclusion in the corporate
by-laws of an enabling clause empowering the board of directors to do so can result in the
circumvention of that constitutionally well-protected right [of every employee to security of tenure]."40

The CA’s heavy reliance on the contents of the General Information Sheets41, which were submitted
by the respondents during the appeal proceedings and which plainly provided that Cosare was an
"officer" of Broadcom, was clearly misplaced. The said documents could neither govern nor establish
the nature of the office held by Cosare and his appointment thereto. Furthermore, although Cosare
could indeed be classified as an officer as provided in the General Information Sheets, his position
could only be deemed a regular office, and not a corporate office as it is defined under the
Corporation Code. Incidentally, the Court noticed that although the Corporate Secretary of
Broadcom, Atty. Efren L. Cordero, declared under oath the truth of the matters set forth in the
General Information Sheets, the respondents failed to explain why the General Information Sheet
officially filed with the Securities and Exchange Commission in 2011 and submitted to the CA by the
respondents still indicated Cosare as an AVP for Sales, when among their defenses in the charge of
illegal dismissal, they asserted that Cosare had severed his relationship with the corporation since
the year 2009.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the case’s filing did
not necessarily make the action an intra- corporate controversy. "Not all conflicts between the
stockholders and the corporation are classified as intra-corporate. There are other facts to consider
in determining whether the dispute involves corporate matters as to consider them as intra-corporate
controversies."42 Time and again, the Court has ruled that in determining the existence of an intra-
corporate dispute, the status or relationship of the parties and the nature of the question that is the
subject of the controversy must be taken into account.43 Considering that the pending dispute
particularly relates to Cosare’s rights and obligations as a regular officer of Broadcom, instead of as
a stockholder of the corporation, the controversy cannot be deemed intra-corporate. This is
consistent with the "controversy test" explained by the Court in Reyes v. Hon. RTC, Br. 142,44 to wit:

Under the nature of the controversy test, the incidents of that relationship must also be considered
for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy
must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to
the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents
are merely incidental to the controversy or if there will still be conflict even if the relationship does not
exist, then no intra-corporate controversy exists.45 (Citation omitted)

It bears mentioning that even the CA’s finding46 that Cosare was a director of Broadcom when the
dispute commenced was unsupported by the case records, as even the General Information Sheet
of 2009 referred to in the CA decision to support such finding failed to provide such detail.

All told, it is then evident that the CA erred in reversing the NLRC’s ruling that favored Cosare solely
on the ground that the dispute was an intra-corporate controversy within the jurisdiction of the
regular courts.

The charge of constructive dismissal

Towards a full resolution of the instant case, the Court finds it appropriate to rule on the correctness
of the NLRC’s ruling finding Cosare to have been illegally dismissed from employment.

In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing among
other circumstances the charges that were hurled and the suspension that was imposed against him
via Arevalo’s memo dated March 30, 2009. Even prior to such charge, he claimed to have been
subjected to mental torture, having been locked out of his files and records and disallowed use of his
office computer and access to personal belongings.47While Cosare attempted to furnish the
respondents with his reply to the charges, the latter refused to accept the same on the ground that it
was filed beyond the 48-hour period which they provided in the memo.

Cosare further referred to the circumstances that allegedly transpired subsequent to the service of
the memo, particularly the continued refusal of the respondents to allow Cosare’s entry into the
company’s premises. These incidents were cited in the CA decision as follows:

On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could retrieve his
personal belongings, but the latter said that x x x Arevalo directed her to deny his request, so
[Cosare] again waited at the receiving section of the office. On April 1, 2009, [Cosare] was not
allowed to enter the office premises. He was asked to just wait outside of the Tektite (PSE) Towers,
where [Broadcom] had its offices, for further instructions on how and when he could get his personal
belongings. [Cosare] waited until 8 p.m. for instructions but none were given. Thus, [Cosare] sought
the assistance of the officials of Barangay San Antonio, Pasig who advised him to file a labor or
replevin case to recover his personal belongings. x x x.48 (Citation omitted)

It is also worth mentioning that a few days before the issuance of the memo dated March 30, 2009,
Cosare was allegedly summoned to Arevalo’s office and was asked to tender his immediate
resignation from the company, in exchange for a financial assistance of ₱300,000.00.49 The directive
was said to be founded on Arevalo’s choice to retain Abiog’s employment with the company.50 The
respondents failed to refute these claims.

Given the circumstances, the Court agrees with Cosare’s claim of constructive and illegal dismissal.
"[C]onstructive dismissal occurs when there is cessation of work because continued employment is
rendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in
pay or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable to
the employee leaving the latter with no other option but to quit."51 In Dimagan v. Dacworks United,
Incorporated,52 it was explained:

The test of constructive dismissal is whether a reasonable person in the employee’s position would
have felt compelled to give up his position under the circumstances. It is an act amounting to
dismissal but is made to appear as if it were not. Constructive dismissal is therefore a dismissal in
disguise. The law recognizes and resolves this situation in favor of employees in order to protect
their rights and interests from the coercive acts of the employer.53(Citation omitted)

It is clear from the cited circumstances that the respondents already rejected Cosare’s continued
involvement with the company. Even their refusal to accept the explanation which Cosare tried to
tender on April 2, 2009 further evidenced the resolve to deny Cosare of the opportunity to be heard
prior to any decision on the termination of his employment. The respondents allegedly refused
acceptance of the explanation as it was filed beyond the mere 48-hour period which they granted to
Cosare under the memo dated March 30, 2009. However, even this limitation was a flaw in the
memo or notice to explain which only further signified the respondents’ discrimination, disdain and
insensibility towards Cosare, apparently resorted to by the respondents in order to deny their
employee of the opportunity to fully explain his defenses and ultimately, retain his employment. The
Court emphasized in King of Kings Transport, Inc. v. Mamac54 the standards to be observed by
employers in complying with the service of notices prior to termination:

[T]he first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the opportunity to
submit their written explanation within a reasonable period. "Reasonable opportunity" under the
Omnibus Rules means every kind of assistance that management must accord to the employees to
enable them to prepare adequately for their defense. This should be construed as a period of at
least five (5) calendar days from receipt of the notice to give the employees an opportunity to study
the accusation against them, consult a union official or lawyer, gather data and evidence, and decide
on the defenses they will raise against the complaint. Moreover, in order to enable the employees to
intelligently prepare their explanation and defenses, the notice should contain a detailed narration of
the facts and circumstances that will serve as basis for the charge against the employees. A general
description of the charge will not suffice. Lastly, the notice should specifically mention which
company rules, if any, are violated and/or which among the grounds under Art. 282 is being charged
against the employees.55 (Citation omitted, underscoring ours, and emphasis supplied)
In sum, the respondents were already resolute on a severance of their working relationship with
Cosare, notwithstanding the facts which could have been established by his explanations and the
respondents’ full investigation on the matter. In addition to this, the fact that no further investigation
and final disposition appeared to have been made by the respondents on Cosare’s case only
negated the claim that they actually intended to first look into the matter before making a final
determination as to the guilt or innocence of their employee. This also manifested from the fact that
even before Cosare was required to present his side on the charges of serious misconduct and
willful breach of trust, he was summoned to Arevalo’s office and was asked to tender his immediate
resignation in exchange for financial assistance.

The clear intent of the respondents to find fault in Cosare was also manifested by their persistent
accusation that Cosare abandoned his post, allegedly signified by his failure to report to work or file
a leave of absence beginning April 1, 2009. This was even the subject of a memo56 issued by
Arevalo to Cosare on April 14, 2009, asking him to explain his absence within 48 hours from the date
of the memo. As the records clearly indicated, however, Arevalo placed Cosare under suspension
beginning March 30, 2009. The suspension covered access to any and all company files/records
and the use of the assets of the company, with warning that his failure to comply with the memo
would be dealt with drastic management action. The charge of abandonment was inconsistent with
this imposed suspension. "Abandonment is the deliberate and unjustified refusal of an employee to
resume his employment. To constitute abandonment of work, two elements must concur: ‘(1) the
employee must have failed to report for work or must have been absent without valid or justifiable
reason; and (2) there must have been a clear intention on the part of the employee to sever the
employer- employee relationship manifested by some overt act.’"57Cosare’s failure to report to work
beginning April 1, 2009 was neither voluntary nor indicative of an intention to sever his employment
with Broadcom. It was illogical to be requiring him to report for work, and imputing fault when he
failed to do so after he was specifically denied access to all of the company’s assets. As correctly
observed by the NLRC:

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April 1,
2009. However[,] the show-cause letter dated March 3[0], 2009 (Annex "F", ibid) suspended
[Cosare] from using not only the equipment but the "assets" of Respondent [Broadcom]. This insults
rational thinking because the Respondents tried to mislead us and make [it appear] that [Cosare]
failed to report for work when they had in fact had [sic] placed him on suspension. x x x.58

Following a finding of constructive dismissal, the Court finds no cogent reason to modify the NLRC's
monetary awards in Cosare's favor. In Robinsons Galleria/Robinsons Supermarket Corporation v.
Ranchez,59 the Court reiterated that an illegally or constructively dismissed employee is entitled to:
(1) either reinstatement, if viable, or separation pay, if reinstatement is no longer viable; and (2)
backwages.60 The award of exemplary damages was also justified given the NLRC's finding that the
respondents acted in bad faith and in a wanton, oppressive and malevolent manner when they
dismissed Cosare. It is also by reason of such bad faith that Arevalo was correctly declared solidarily
liable for the monetary awards.

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and Resolution
dated March 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are SET ASIDE. The
Decision dated August 24, 2010 of the National Labor Relations Commission in favor of petitioner
Raul C. Cosare is AFFIRMED.

SO ORDERED.
16)

G.R. No. 187320 January 26, 2011

ATLANTA INDUSTRIES, INC. and/or ROBERT CHAN, Petitioners,

vs.
APRILITO R. SEBOLINO, KHIM V. COSTALES, ALVIN V. ALMOITE, and JOSEPH S.
SAGUN, Respondents.

DECISION

BRION, J.:

For resolution is the petition for review on certiorari1 assailing the decision2 and the resolution3 of the
Court of Appeals (CA) rendered on November 4, 2008 and March 25, 2009, respectively, in CA-G.R.
SP. No. 99340.4

The Antecedents

The facts are summarized below.

In the months of February and March 2005, complainants Aprilito R. Sebolino, Khim V. Costales,
Alvin V. Almoite, Joseph S. Sagun, Agosto D. Zaño, Domingo S. Alegria, Jr., Ronie Ramos, Edgar
Villagomez, Melvin Pedregoza, Teofanes B. Chiong, Jr., Leonardo L. dela Cruz, Arnold A.
Magalang, and Saturnino M. Mabanag filed several complaints for illegal dismissal, regularization,
underpayment, nonpayment of wages and other money claims, as well as claims for moral and
exemplary damages and attorney’s fees against the petitioners Atlanta Industries, Inc. (Atlanta) and
its President and Chief Operating Officer Robert Chan. Atlanta is a domestic corporation engaged in
the manufacture of steel pipes.

The complaints were consolidated and were raffled to Labor Arbiter Daniel Cajilig, but were later
transferred to Labor Arbiter Dominador B. Medroso, Jr.

The complainants alleged that they had attained regular status as they were allowed to work with
Atlanta for more than six (6) months from the start of a purported apprenticeship agreement between
them and the company. They claimed that they were illegally dismissed when the apprenticeship
agreement expired.

In defense, Atlanta and Chan argued that the workers were not entitled to regularization and to their
money claims because they were engaged as apprentices under a government-approved
apprenticeship program. The company offered to hire them as regular employees in the event
vacancies for regular positions occur in the section of the plant where they had trained. They also
claimed that their names did not appear in the list of employees (Master List)5 prior to their
engagement as apprentices.

On May 24, 2005, dela Cruz, Magalang, Zaño and Chiong executed a Pagtalikod at Pagwawalang
Saysay before Labor Arbiter Cajilig.

The Compulsory Arbitration Rulings

On April 24, 2006, Labor Arbiter Medroso dismissed the complaint with respect to dela Cruz,
Magalang, Zaño and Chiong, but found the termination of service of the remaining nine to be
illegal.6 Consequently, the arbiter awarded the dismissed workers backwages, wage differentials,
holiday pay and service incentive leave pay amounting to ₱1,389,044.57 in the aggregate.

Atlanta appealed to the National Labor Relations Commission (NLRC). In the meantime, or on
October 10, 2006, Ramos, Alegria, Villagomez, Costales and Almoite allegedly entered into a
compromise agreement with Atlanta.7The agreement provided that except for Ramos, Atlanta agreed
to pay the workers a specified amount as settlement, and to acknowledge them at the same time as
regular employees.

On December 29, 2006,8 the NLRC rendered a decision, on appeal, modifying the ruling of the labor
arbiter, as follows: (1) withdrawing the illegal dismissal finding with respect to Sagun, Mabanag,
Sebolino and Pedregoza; (2) affirming the dismissal of the complaints of dela Cruz, Zaño, Magalang
and Chiong; (3) approving the compromise agreement entered into by Costales, Ramos, Villagomez,
Almoite and Alegria, and (4) denying all other claims.

Sebolino, Costales, Almoite and Sagun moved for the reconsideration of the decision, but the NLRC
denied the motion in its March 30, 20079 resolution. The four then sought relief from the CA through
a petition for certiorari under Rule 65 of the Rules of Court. They charged that the NLRC committed
grave abuse of discretion in: (1) failing to recognize their prior employment with Atlanta; (2) declaring
the second apprenticeship agreement valid; (3) holding that the dismissal of Sagun, Mabanag,
Sebolino and Melvin Pedregoza is legal; and (4) upholding the compromise agreement involving
Costales, Ramos, Villagomez, Almoite and Alegria.

The CA Decision

The CA granted the petition based on the following findings:10

1. The respondents were already employees of the company before they entered into the
first and second apprenticeship agreements – Almoite and Costales were employed as early
as December 2003 and, subsequently, entered into a first apprenticeship agreement from
May 13, 2004 to October 12, 2004; before this first agreement expired, a second
apprenticeship agreement, from October 9, 2004 to March 8, 2005 was executed. The same
is true with Sebolino and Sagun, who were employed by Atlanta as early as March 3, 2004.
Sebolino entered into his first apprenticeship agreement with the company from March 20,
2004 to August 19, 2004, and his second apprenticeship agreement from August 20, 2004 to
January 19, 2005. Sagun, on the other hand, entered into his first agreement from May 28,
2004 to October 8, 2004, and the second agreement from October 9, 2004 to March 8, 2005.

2. The first and second apprenticeship agreements were defective as they were executed in
violation of the law and the rules.11 The agreements did not indicate the trade or occupation
in which the apprentice would be trained; neither was the apprenticeship program approved
by the Technical Education and Skills Development Authority (TESDA).

3. The positions occupied by the respondents – machine operator, extruder operator and
scaleman – are usually necessary and desirable in the manufacture of plastic building
materials, the company’s main business. Costales, Almoite, Sebolino and Sagun were,
therefore, regular employees whose dismissals were illegal for lack of a just or authorized
cause and notice.
 4. The compromise agreement entered into by Costales and Almoite, together with Ramos,
Villagomez and Alegria, was not binding on Costales and Almoite because they did not sign
the agreement.

The petitioners themselves admitted that Costales and Almoite were initially planned to be a part of
the compromise agreement, but their employment has been regularized as early as January 11,
2006; hence, the company did not pursue their inclusion in the compromise agreement.12

The CA faulted the NLRC for failing to appreciate the evidence regarding the respondents’ prior
employment with Atlanta. The NLRC recognized the prior employment of Costales and Almoite on
Atlanta’s monthly report for December 2003 for the CPS Department/Section dated January 6,
2004.13 This record shows that Costales and Almoite were assigned to the company’s first shift from
7:00 a.m. to 3:00 p.m. The NLRC ignored Sebolino and Sagun’s prior employment under the
company’s Production and Work Schedule for March 7 to 12, 2005 dated March 3, 2004,14 as they
had been Atlanta’s employees as early as March 3, 2004, with Sebolino scheduled to work on March
7-12, 2005 at 7:00 a.m. to 7:00 p.m., while Sagun was scheduled to work for the same period but
from 7:00 p.m. to 7:00 a.m. The CA noted that Atlanta failed to challenge the authenticity of the two
documents before it and the labor authorities.

Atlanta and Chan moved for reconsideration, but the CA denied the motion in a resolution rendered
on March 25, 2009.15 Hence, the present petition.

The Petition

Atlanta seeks a reversal of the CA decision, contending that the appellate court erred in (1)
concluding that Costales, Almoite, Sebolino and Sagun were employed by Atlanta before they were
engaged as apprentices; (2) ruling that a second apprenticeship agreement is invalid; (3) declaring
that the respondents were illegally dismissed; and (4) disregarding the compromise agreement
executed by Costales and Almoite. It submits the following arguments:

First. The CA’s conclusion that the respondent workers were company employees before they were
engaged as apprentices was primarily based on the Monthly Report16 and the Production and Work
Schedule for March 7-12, 2005,17 in total disregard of the Master List18 prepared by the company
accountant, Emelita M. Bernardo. The names of Costales, Almoite, Sebolino and Sagun do not
appear as employees in the Master List which "contained the names of all the persons who were
employed by and at petitioner."19

Atlanta faults the CA for relying on the Production and Work Schedule and the Monthly Report which
were not sworn to, and in disregarding the Master List whose veracity was sworn to by Bernardo and
by Alex Go who headed the company’s accounting division. It maintains that the CA should have
given more credence to the Master List.

Second. In declaring invalid the apprenticeship agreements it entered into with the respondent
workers, the CA failed to recognize the rationale behind the law on apprenticeship. It submits that
under the law,20 apprenticeship agreements are valid, provided they do not exceed six (6) months
and the apprentices are paid the appropriate wages of at least 75% of the applicable minimum
wage.

The respondents initially executed a five-month apprenticeship program with Atlanta, at the end of
which, they "voluntarily and willingly entered into another apprenticeship agreement with the
petitioner for the training of a second skill"21 for five months; thus, the petitioners committed no
violation of the apprenticeship period laid down by the law.
Further, the apprenticeship agreements, entered into by the parties, complied with the requisites
under Article 62 of the Labor Code; the company’s authorized representative and the respondents
signed the agreements and these were ratified by the company’s apprenticeship committee. The
apprenticeship program itself was approved and certified by the TESDA.22 The CA, thus, erred in
overturning the NLRC’s finding that the apprenticeship agreements were valid.

Third. There was no illegal dismissal as the respondent workers’ tenure ended with the expiration of
the apprenticeship agreement they entered into. There was, therefore, no regular employer-
employee relationship between Atlanta and the respondent workers.

The Case for Costales, Almoite, Sebolino and Sagun

In a Comment filed on August 6, 2009,23 Costales, Almoite, Sebolino and Sagun pray for a denial of
the petition for being procedurally defective and for lack of merit.

The respondent workers contend that the petition failed to comply with Section 4, Rule 45 of the
Rules of Court which requires that the petition be accompanied by supporting material portions of
the records. The petitioners failed to attach to the petition a copy of the Production and Work
Schedule despite their submission that the CA relied heavily on the document in finding the
respondent workers’ prior employment with Atlanta. They also did not attach a copy of the
compromise agreement purportedly executed by Costales and Almoite. For this reason, the
respondent workers submit that the petition should be dismissed.

The respondents posit that the CA committed no error in holding that they were already Atlanta’s
employees before they were engaged as apprentices, as confirmed by the company’s Production
and Work Schedule.24 They maintain that the Production and Work Schedule meets the requirement
of substantial evidence as the petitioners failed to question its authenticity. They point out that the
schedule was prepared by Rose A. Quirit and approved by Adolfo R. Lope, head of the company’s
PE/Spiral Section. They argue that it was highly unlikely that the head of a production section of the
company would prepare and assign work to the complainants if the latter had not been company
employees.

The respondent workers reiterate their mistrust of the Master List25 as evidence that they were not
employees of the company at the time they became apprentices. They label the Master List as "self-
serving, dubious and even if considered as authentic, its content contradicts a lot of petitioner’s claim
and allegations,"26 thus -

1. Aside from the fact that the Master List is not legible, it contains only the names of inactive
employees. Even those found by the NLRC to have been employed in the company (such as
Almoite, Costales and Sagun) do not appear in the list. If Costales and Almoite had been
employed with Atlanta since January 11, 2006, as the company claimed,27 their names would
have been in the list, considering that the Master List accounts for all employees "as of May
2006" – the notation carried on top of each page of the document.

2. There were no entries of employees hired or resigned in the years 2005 and 2006 despite
the "as of May 2006" notation; several pages making up the Master List contain names of
employees for the years 1999 - 2004.

3. The fact that Atlanta presented the purported Master List instead of the payroll raised
serious doubts on the authenticity of the list.
In sum, the respondent workers posit that the presentation of the Master List revealed the "intention
of the herein petitioner[s] to perpetually hide the fact of [their] prior employment."28

On the supposed apprenticeship agreements they entered into, Costales, Almoite, Sebolino and
Sagun refuse to accept the agreements’ validity, contending that the company’s apprenticeship
program is merely a ploy "to continually deprive [them] of their rightful wages and benefits which are
due them as regular employees."29 They submit the following "indubitable facts and ratiocinations:"30

1. The apprenticeship agreements were submitted to TESDA only in 2005 (with dates of
receipt on "1/4/05" & "2/22/05"31 ), when the agreements were supposed to have been
executed in April or May 2004. Thus, the submission was made long after the starting date of
the workers’ apprenticeship or even beyond the agreement’s completion/termination date, in
violation of Section 23, Rule VI, Book II of the Labor Code.

2. The respondent workers were made to undergo apprenticeship for occupations different
from those allegedly approved by TESDA. TESDA approved Atlanta’s apprenticeship
program on "Plastic Molder"32 and not for extrusion molding process, engineering, pelletizing
process and mixing process.

3. The respondents were already skilled workers prior to the apprenticeship program as they
had been employed and made to work in the different job positions where they had
undergone training. Sagun and Sebolino, together with Mabanag, Pedregoza, dela Cruz,
Chiong, Magalang and Alegria were even given production assignments and work schedule
at the PE/Spiral Section from May 11, 2004 to March 23, 2005, and some of them were even
assigned to the 3:00 p.m. – 11:00 p.m. and graveyard shifts (11:00 p.m. – 7:00 a.m.) during
the period.33

4. The respondent workers were required to continue as apprentices beyond six months. The
TESDA certificate of completion indicates that the workers’ apprenticeship had been
completed after six months. Yet, they were suffered to work as apprentices beyond that
period.

Costales, Almoite, Sebolino and Sagun resolutely maintain that they were illegally dismissed, as the
reason for the termination of their employment – notice of the completion of the second
apprenticeship agreement – did not constitute either a just or authorized cause under Articles 282
and 283 of the Labor Code.

Finally, Costales and Almoite refuse to be bound by the compromise agreement34 that Atlanta
presented to defeat the two workers’ cause of action. They claim that the supposed agreement is
invalid as against them, principally because they did not sign it.

The Court’s Ruling

The procedural issue

The respondent workers ask that the petition be dismissed outright for the petitioners’ failure to
attach to the petition a copy of the Production and Work Schedule and a copy of the compromise
agreement Costales and Almoite allegedly entered into — material portions of the record that should
accompany and support the petition, pursuant to Section 4, Rule 45 of the Rules of Court.
In Mariners Polytechnic Colleges Foundation, Inc. v. Arturo J. Garchitorena35 where the Court
addressed essentially the same issue arising from Section 2(d), Rule 42 of the Rules of Court,36 we
held that the phrase "of the pleadings and other material portions of the record xxx as would support
the allegation of the petition clearly contemplates the exercise of discretion on the part of the
petitioner in the selection of documents that are deemed to be relevant to the petition. The crucial
issue to consider then is whether or not the documents accompanying the petition sufficiently
supported the allegations therein."37

As in Mariners, we find that the documents attached to the petition sufficiently support the
petitioners’ allegations. The accompanying CA decision38 and resolution,39 as well as those of the
labor arbiter40 and the NLRC,41 referred to the parties’ position papers and even to their replies and
rejoinders. Significantly, the CA decision narrates the factual antecedents, defines the complainants’
cause of action, and cites the arguments, including the evidence the parties adduced. If any, the
defect in the petition lies in the petitioners’ failure to provide legible copies of some of the material
documents mentioned, especially several pages in the decisions of the labor arbiter and of the
NLRC. This defect, however, is not fatal as the challenged CA decision clearly summarized the labor
tribunal’s rulings. We, thus, find no procedural obstacle in resolving the petition on the merits.

The merits of the case

We find no merit in the petition. The CA committed no reversible error in nullifying the NLRC
decision42 and in affirming the labor arbiter’s ruling,43 as it applies to Costales, Almoite, Sebolino and
Sagun. Specifically, the CA correctly ruled that the four were illegally dismissed because (1) they
were already employees when they were required to undergo apprenticeship and (2) apprenticeship
agreements were invalid.

The following considerations support the CA ruling.

First. Based on company operations at the time material to the case, Costales, Almoite, Sebolino
and Sagun were already rendering service to the company as employees before they were made to
undergo apprenticeship. The company itself recognized the respondents’ status through relevant
operational records – in the case of Costales and Almoite, the CPS monthly report for December
200344 which the NLRC relied upon and, for Sebolino and Sagun, the production and work schedule
for March 7 to 12, 200545 cited by the CA.

Under the CPS monthly report, Atlanta assigned Costales and Almoite to the first shift (7:00 a.m. to
3:00 p.m.) of the Section’s work. The Production and Work Schedules, in addition to the one noted
by the CA, showed that Sebolino and Sagun were scheduled on different shifts vis-à-vis the
production and work of the company’s PE/Spiral Section for the periods July 5-10, 2004;46 October
25-31, 2004;47 November 8-14, 2004;48 November 16-22, 2004;49January 3-9, 2005;50 January 10-15,
2005;51 March 7-12, 200552 and March 17-23, 2005.53

We stress that the CA correctly recognized the authenticity of the operational documents, for the
failure of Atlanta to raise a challenge against these documents before the labor arbiter, the NLRC
and the CA itself. The appellate court, thus, found the said documents sufficient to establish the
employment of the respondents before their engagement as apprentices.

Second. The Master List54 (of employees) that the petitioners heavily rely upon as proof of their
position that the respondents were not Atlanta’s employees, at the time they were engaged as
apprentices, is unreliable and does not inspire belief.
The list, consisting of several pages, is hardly legible. It requires extreme effort to sort out the names
of the employees listed, as well as the other data contained in the list. For this reason alone, the list
deserves little or no consideration. As the respondents also pointed out, the list itself contradicts a lot
of Atlanta’s claims and allegations, thus: it lists only the names of inactive employees; even the
names of those the NLRC found to have been employed by Atlanta, like Costales and Almoite, and
those who even Atlanta claims attained regular status on January 11, 2006,55 do not appear in the
list when it was supposed to account for all employees "as of May 6, 2006." Despite the "May 6,
2006" cut off date, the list contains no entries of employees who were hired or who resigned in 2005
and 2006. We note that the list contains the names of employees from 1999 to 2004.

We cannot fault the CA for ignoring the Master List even if Bernardo, its head office accountant,
swore to its correctness and authenticity.56 Its substantive unreliability gives it very minimal probative
value. Atlanta would have been better served, in terms of reliable evidence, if true copies of the
payroll (on which the list was based, among others, as Bernardo claimed in her affidavit) were
presented instead. 1âwphi1

Third. The fact that Costales, Almoite, Sebolino and Sagun were already rendering service to the
company when they were made to undergo apprenticeship (as established by the evidence) renders
the apprenticeship agreements irrelevant as far as the four are concerned. This reality is highlighted
by the CA finding that the respondents occupied positions such as machine operator, scaleman and
extruder operator - tasks that are usually necessary and desirable in Atlanta’s usual business or
trade as manufacturer of plastic building materials.57 These tasks and their nature characterized the
four as regular employees under Article 280 of the Labor Code. Thus, when they were dismissed
without just or authorized cause, without notice, and without the opportunity to be heard, their
dismissal was illegal under the law.58

Even if we recognize the company’s need to train its employees through apprenticeship, we can only
consider the first apprenticeship agreement for the purpose. With the expiration of the first
agreement and the retention of the employees, Atlanta had, to all intents and purposes, recognized
the completion of their training and their acquisition of a regular employee status. To foist upon them
the second apprenticeship agreement for a second skill which was not even mentioned in the
agreement itself,59 is a violation of the Labor Code’s implementing rules60 and is an act manifestly
unfair to the employees, to say the least. This we cannot allow.

Fourth. The compromise agreement61 allegedly entered into by Costales and Almoite, together with
Ramos, Villagomez and Alegria, purportedly in settlement of the case before the NLRC, is not
binding on Costales and Almoite because they did not sign it. The company itself admitted62 that
while Costales and Almoite were initially intended to be a part of the agreement, it did not pursue
their inclusion "due to their regularization as early as January 11, 2006."63

WHEREFORE, premises considered, we hereby DENY the petition for lack of merit. The assailed
1âwphi1

decision and resolution of the Court of Appeals are AFFIRMED. Costs against the petitioner Atlanta
Industries, Inc.

SO ORDERED.

17)

G.R. No. 200575 February 5, 2014

INTEL TECHNOLOGY PHILIPPINES, INC., Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND JEREMIAS CABILES, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner Intel
Technology Philippines, Inc. (Intel Phil.). It assails the October 28, 20111 and February 3,
20122 Resolutions of the Court of Appeals (CA) in CA-G.R. SP No.118880, which dismissed the
petition for certiorari filed by Intel Phil. thereby affirming the September 2, 2010 Decision3 of the
National Labor Relations Commission (NLRC) and its February 9, 2011 Resolution. The NLRC
decision modified the March 18, 2010 Decision4 of the Labor Arbiter (LA), and held Intel Phil. solely
liable for the retirement benefits of respondent Jeremias Cabiles (Cabiles).

The Facts

This case concerns the eligibility of Cabiles to receive retirement benefits from Intel Phil. granted to
employees who had complied with the ten (10)-year service period requirement of the company.

Cabiles was initially hired by Intel Phil. on April 16, 1997 as an Inventory Analyst. He was
subsequently promoted several times over the years and was also assigned at Intel Arizona and
Intel Chengdu. He later applied for a position at Intel Semiconductor Limited Hong Kong (Intel HK).

In a letter,5 dated December 12, 2006, Cabiles was offered the position of Finance Manager by Intel
HK. Before accepting the offer, he inquired from Intel Phil., through an email, the consequences of
accepting the newly presented opportunity in Hong Kong, to wit:

Are there any clearance requirements I need to fulfil as I move as a local hire to Hong Kong starting
February 1?? I am still on my expat assignment in Chengdu till it ends January 31. Then immediately
I become a HK local employee so I don’t technically repatriate and work back to my home site
Philippines at all. Nevertheless, I still need to close I think my employment there and so that all my
ES benefits and clearance will be closed like conversion of my vacation leaves to cash, carry over of
my service tenure in CV to HK etc. Please do let me know what process I need to go through or
would an email notification be enough?

Another issue I would like to clarify is with regard to my retirement benefits. I will celebrate my 10th
year of service with Intel on April 16, 2007. However, because I will be moving to Hong Kong as a
local hire starting February 1, would I still be entitled to retirement benefits?? Do we roundup the
years of service if its close enough to 10 years?? If not, what other alternatives I have or do I just
lose my years of service at Intel Philippines? Any possibility that I keep my 9.5 years and start from
there when I work in the Philippines again in the future??6

On January 23, 2007, Intel Phil., through Penny Gabronino (Gabronino), replied as follows:

Jerry – you are not eligible to receive your retirement benefit given that you have not reached 10
years of service at the time you moved to Hong Kong. We do not round up the years of service.
There will [be] no gap in your years of service. So in case that you move back to the Philippines your
total tenure of service will be computed less on the period that you are out of Intel
Philippines.7 [Emphasis supplied]

On January 31, 2007, Cabiles signed the job offer.8

On March 8, 2007, Intel Phil. issued Cabiles his "Intel Final Pay Separation Voucher" indicating a net
payout of ₱165,857.62. On March 26, 2007, Cabiles executed a Release, Waiver and Quitclaim
(Waiver)9 in favor of Intel Phil. acknowledging receipt of ₱165,857.62 as full and complete settlement
of all benefits due him by reason of his separation from Intel Phil.

On September 8, 2007, after seven (7) months of employment, Cabiles resigned from Intel HK.

About two years thereafter, or on August 18, 2009, Cabiles filed a complaint for non-payment of
retirement benefits and for moral and exemplary damages with the NLRC Regional Arbitration
Branch-IV. He insisted that he was employed by Intel for 10 years and 5 months from April 1997 to
September 2007 – a period which included his seven (7) month stint with Intel HK. Thus, he believed
he was qualified to avail of the benefits under the company’s retirement policy allowing an employee
who served for 10 years or more to receive retirement benefits.

The Labor Arbiter’s Decision

On March 18, 2010, the LA ordered Intel Phil. together with Grace Ong, Nida delos Santos,
Gabronino, and Pia Viloria, to pay Cabiles the amount of HKD 419,868.77 or its peso equivalent as
retirement pay with legal interest and attorney’s fees. The LA held that Cabiles did not sever his
employment with Intel Phil. when he moved to Intel HK, similar to the instances when he was
assigned at Intel Arizona and Intel Chengdu. Despite the clarification made by Intel Phil. regarding
his ineligibility to receive retirement benefits, the LA stated that Cabiles could not be faulted if he was
made to believe his non-entitlement to retirement benefits. Thus, it should not prevent him from
asserting his right to receive them. Finally, the Waiver executed by Cabiles when he left Intel Phil.,
was treated by the LA as no bar for claiming his retirement pay because it merely covered the last
salary and commutation of sick leaves and vacation leaves to the exclusion of retirement benefits.
The dispositive portion of the LA decision reads:

WHEREFORE, premises considered, Respondents are hereby ordered to pay complainant the
amount of Four Hundred Nineteen Thousand Eight Hundred Sixty-Eight and 77/100 Hong Kong
Dollars (HKD419,868.77) or its Peso equivalent as retirement pay with legal interest until satisfied,
and to pay attorney’s fees equivalent to ten percent (10%) of the judgment award.

SO ORDERED.10

The NLRC Ruling

On appeal, the NLRC affirmed with modification the LA decision. In its September 2, 2010 Decision,
the NLRC held Intel Phil. solely liable to pay Cabiles his retirement benefits. It determined that his
decision to move to Intel HK was not definitive proof of permanent severance of his ties with Intel
Phil. It treated his transfer to Hong Kong as akin to his overseas assignments in Arizona and
Chengdu. As to the email exchange between Cabiles and Intel Phil., the NLRC considered the same
as insufficient to diminish his right over retirement benefits under the law. Meanwhile, the NLRC
disregarded the Waiver because at the time it was signed, the retirement pay due him had not yet
accrued. Hence:
WHEREFORE, the appealed Decision is MODIFIED. Respondent-appellant Intel Technology Phil.,
Inc. is ordered to pay complainant-appellee Jeremias Cabiles the sum [xx] of Four Hundred
Nineteen Thousand Eight Hundred Sixty Eight and 77/100 Hong Kong Dollars (HKD419,868.77) or
its equivalent in Philippine peso as retirement pay together with legal interest thereon and attorney’s
fees computed at ten percent (10%) of the award.

The individual respondents-appellants Grace Ong, Nida delos Santos, Penny Gabronino and Pia
Viloria are RELIEVED from any personal liability resulting from the foregoing.

SO ORDERED.11

Intel Phil. moved for reconsideration but its motion was denied in the NLRC Resolution,12 dated
February 9, 2011.

The CA Decision

Aggrieved, Intel Phil. elevated the case to the CA via a petition for certiorari with application for a
Temporary Restraining Order (TRO) on April 5, 2011. The application for TRO was denied in a
Resolution, dated July 5, 2011. A motion for reconsideration, dated July 27, 2011, was filed, but it
was denied in a Resolution, dated October 28, 2011, which also dismissed the petition for certiorari.13

On December 1, 2011, Intel Phil. filed a motion for reconsideration.

Earlier, on September 19, 2011, pending disposition of the petition before the CA, the NLRC issued
a writ of execution14 against Intel Phil.:

NOW, THEREFORE, you are commanded to proceed to the premises of respondent INTEL
TECHNOLOGY PHILIPPINES, INCORPORATED located at Gateway Business Park, Javalera,
General Trias, Cavite or anywhere in the Philippines where it could be located to collect the amount
of Three Million Two Hundred One Thousand Three Hundred Ninety Eight Pesos and Sixty
Centavos (₱3,201,398.60) and turn over the same to this Office for appropriate disposition.

You are likewise directed to collect from the respondents the amount of Thirty One Thousand Five
Hundred Ten Pesos (₱31,510.00) representing the execution fees pursuant to the provisions of the
NLRC Manual of Execution of Judgment.

In case you fail to collect the said amount in cash, you are directed to cause the satisfaction of the
same out of the respondents’ chattels or movable goods or in the absence thereof, out of the
immovable properties not exempt from execution and return this Writ of Execution to the
undersigned not more than five (5) years from receipt hereof together with the report not later than
thirty (30) days from receipt and every thirty (30) days thereafter pursuant to Section 12, Rule XI of
the 2001 NLRC Rules of Procedures.15

As ordered by the NLRC, Intel Phil. satisfied the judgment on December 13, 2011 by paying the
amount of ₱3,201,398.60 which included the applicable withholding taxes due and paid to the
Bureau of InternalRevenue. Cabiles received a net amount of ₱2,485,337.35, covered by the Bank
of the Philippine Islands Manager’s Check No. 0000000806.16

By reason thereof, Intel Phil. filed on December 21, 2011 a Supplement to the Petition for
Certiorari17 praying, in addition to the reliefs sought in the main, that the CA order the restitution of all
the amounts paid by them pursuant to the NLRC’s writ of execution, dated September 19, 2011.
In its February 3, 2012 Resolution,18 the CA noted without action the supplement to the petition for
certiorari of Intel Phil. and denied the December 21, 2011 motion for reconsideration.

Hence, this petition.

ISSUES

The Court of Appeals committed serious error in dismissing the Petition for Certiorari without
expressing clearly and distinctly the facts and the law on which its decision was based.

II

The Court of appeals committed serious and reversible error in not finding that respondent NLRC
gravely abused its discretion when it ruled that private respondent was entitled to retire under Intel
Philippines’ retirement plan.

III

The Court of Appeals committed serious and reversible error in not finding that respondent NLRC
gravely abused its discretion in annulling private respondent’s quitclaim.

IV

The Court of Appeals committed serious and reversible error in not finding that Cabiles has the legal
obligation to return all the amounts paid by Intel pursuant to the writ of execution.19

Intel Phil. insists as serious error the CA’s affirmation of the NLRC decision holding it liable for the
retirement benefits claimed by Cabiles. It contends that he is disqualified to receive the benefits for
his failure to complete the required minimum ten (10) years of service as he resigned to assume new
responsibilities with Intel HK effective February 1, 2007.

Respondent’s Position

In his Comment,20 Cabiles submits (1) that the petition presents questions of fact which cannot be
reviewed via Rule 45; and (2) that the CA did not err when it affirmed the NLRC ruling:

(a) for his entitlement to retirement pay as he was under the employ of Intel Phil. for more
than ten (10) years in accordance with the prevailing retirement policy;

(b) for the nullity of the quitclaim as he was misled to believe that he was disqualified to
receive retirement benefits; and

(c) for his right to receive legal interest, damages and attorney’s fees.

Cabiles views his employment with Intel HK as a continuation of his service with Intel Phil. alleging
that it was but an assignment by his principal employer, similar to his assignments to Intel Arizona
and Intel Chengdu. Having rendered 9.5 years of service with Intel Phil. and an additional seven
months with Intel HK, he claims that he had completed the required 10 year continuous service21 with
Intel Phil., thus, qualifying him for retirement benefits.

In its Reply, Intel Phil. reiterates the arguments contained in its petition.

The Court’s Ruling

Review of Factual Findings

As a general rule, this Court is not a trier of facts and a petition for review on certiorari under Rule 45
of the Rules of Court must exclusively raise questions of law.22 Nevertheless, this Court will not
hesitate to deviate from what are clearly procedural guidelines and disturb and strike down the
findings of the CA and those of the labor tribunals if there is a showing that they are unsupported by
the evidence on record or there was a patent misappreciation of facts. Indeed, that the impugned
decision of the CA is consistent with the findings of the labor tribunals does not per se conclusively
demonstrate its correctness. By way of exception to the general rule, this Court will scrutinize the
facts if only to rectify the prejudice and injustice resulting from an incorrect assessment of the
evidence presented.23

It is in this wise that the Court agrees with Intel Phil. that the CA seriously erred in affirming the
findings of the NLRC on the face of substantial evidence showing Cabiles’ disqualification to receive
the retirement benefits. The Court, therefore, reverses the ruling of the CA for the reasons
hereinafter discussed.

Cabiles Resigned from Intel Philippines

Cabiles calls the attention of the Court to the lack of evidence proving his resignation. On the
contrary, he states that no severance of relationship was made upon his transfer to Intel HK.

The Court is not convinced.

Resignation is the formal relinquishment of an office,24 the overt act of which is coupled with an intent
to renounce. This intent could be inferred from the acts of the employee before and after the alleged
resignation.25

In this case, Cabiles, while still on a temporary assignment in Intel Chengdu, was offered by Intel HK
the job of a Finance Manager.

In contemplating whether to accept the offer, Cabiles wrote Intel Phil. providing details and asking as
follows:

Are there any clearance requirements I need to fulfil as I move as a local hire to Hong Kong starting
February 1?? I am still on my expat assignment in Chengdu till it ends January 31. Then immediately
I become a HK local employee so I don’t technically repatriate and work back to my home site
Philippines at all.

Nevertheless, I still need to close I think my employment there and so that all my ES benefits and
clearance will be closed like conversion of my vacation leaves to cash, carry over of my service
tenure in CV to HK etc. Please do let me know what process I need to go through or would an email
notification be enough?
Another issue I would like to clarify is with regard to my retirement benefits. Will celebrate my 10th
year of service with Intel on April 16, 2007. However, because I will be moving to Hong Kong as a
local hire starting February 1, would I still be entitled to retirement benefits?? Do we roundup the
years of service if its close enough to 10 years?? If not, what other alternatives I have or do I just
lose my years of service at Intel Philippines? Any possibility that I keep my 9.5 years and start it from
there when I work in the Philippines again in the future??26 [Emphases supplied]

This communication manifested two of his main concerns: a) clearance procedures; and b) the
probability of getting his retirement pay despite the non-completion of the required 10 years of
employment service. Beyond these concerns, however, was his acceptance of the fact that he would
be ending his relationship with Intel Phil. as his employer. The words he used - local hire, close,
clearance – denote nothing but his firm resolve to voluntarily disassociate himself from Intel Phil. and
take on new responsibilities with Intel HK.

Despite a non-favorable reply as to his retirement concerns, Cabiles still accepted the offer of Intel
HK.

His acceptance of the offer meant letting go of the retirement benefits he now claims as he was
informed through email correspondence that his 9.5 years of service with Intel Phil. would not be
rounded off in his favor. He, thus, placed himself in this position, as he chose to be employed in a
company that would pay him more than what he could earn in Chengdu or in the Philippines.

The choice of staying with Intel Phil. vis-à-vis a very attractive opportunity with Intel HK put him in a
dilemma. If he would wait to complete ten (10) years of service with Intel Phil. (in about 4 months) he
would enjoy the fruits of his retirement but at the same time it would mean forfeiture of Intel HK’s
compensation offer in the amount of HK $ 942,500.00, an amount a lot bigger than what he would
receive under the plan. He decided to forfeit and became Intel HK’s newest hire.

All these are indicative of the clearest intent of Cabiles to sever ties with Intel Phil. He chose to
forego his tenure with Intel Phil., with all its associated benefits, in favor of a more lucrative job for
him and his family with Intel HK.

The position of Cabiles that he was being merely assigned leads the Court to its next point.

No Secondment Contract Exists

Cabiles views his employment in Hong Kong as an assignment or an extension of his employment
with Intel Phil. He cited as evidence the offer made to him as well as the letter, dated January 8,
2007,27 both of which used the word "assignment" in reference to his engagement in Hong Kong as a
clear indication of the alleged continuation of his ties with Intel Phil.

The foregoing arguments of Cabiles, in essence, speak of the "theory of secondment."

The Court, however, is again not convinced.

The continuity, existence or termination of an employer-employee relationship in a typical

secondment contract or any employment contract for that matter is measured by the following
yardsticks:

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’s conduct.28

As applied, all of the above benchmarks ceased upon Cabiles’ assumption of duties with Intel HK on
February 1, 2007. Intel HK became the new employer. It provided Cabiles his compensation. Cabiles
then became subject to Hong Kong labor laws, and necessarily, the rights appurtenant thereto,
including the right of Intel HK to fire him on available grounds. Lastly, Intel HK had control and
supervision over him as its new Finance Manager. Evidently, Intel Phil. no longer had any control
over him.

Although in various instances, his move to Hong Kong was referred to as an "assignment," it bears
stressing that it was categorized as a "permanent transfer." In Sta. Maria v. Lopez,29 the Court held
that "no permanent transfer can take place unless the officer or employee is first removed from the
position held, and then appointed to another position." Undoubtedly, Cabiles’ decision to move to
Hong Kong required the abandonment of his permanent position with Intel Phil. in order for him to
assume a position in an entirely different company. Clearly, the "transfer" was more than just an
assignment. It constituted a severance of Cabiles’ relationship with Intel Phil., for the assumption of
a position with a different employer, rank, compensation and benefits.

Hence, Cabiles’ theory of secondment must fail.

The NLRC, however, was of the view that the transfer of Cabiles to Intel HK was similar to his
assignments in Intel Chengdu and Intel Arizona.

The Court finds this conclusion baseless.

What distinguishes Intel Chengdu and Intel Arizona from Intel HK is the lack of intervention of Intel
Phil. on the matter. In the two previous transfers, Intel Phil. remained as the principal employer while
Cabiles was on a temporary assignment. By virtue of which, it still assumed responsibility for the
payment of compensation and benefits due him. The assignment to Intel HK, on the other hand, was
a permanent transfer and Intel Phil. never participated in any way in the process of his employment
there. It was Cabiles himself who took the opportunity and the risk. If it were indeed similar to Intel
Arizona and Intel Chengdu assignments, Intel Philippines would have had a say in it.

Release, Waiver and Quitclaim Valid Terms Are Clear

Contrary to the conclusion affirmed by the CA, the Waiver executed by Cabiles was valid.

In Goodrich Manufacturing Corporation, v. Ativo,30 the Court reiterated the standards that must be
observed in determining whether a waiver and quitclaim had been validly executed:

Not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily
entered into and represents a reasonable settlement, it is binding on the parties and may not later be
disowned simply because of a change of mind. It is only where there is clear proof that the waiver
was wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable
on its face, that the law will step in to annul the questionable transaction. But where it is shown that
the person making the waiver did so voluntarily, with full understanding of what he was doing, and
the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as
a valid and binding undertaking.

In Callanta v. National Labor Relations Commission,31 this Court ruled that:

It is highly unlikely and incredible for a man of petitioner’s position and educational attainment to so
easily succumb to private respondent company’s alleged pressures without even defending himself
nor demanding a final audit report before signing any resignation letter. Assuming that pressure was
indeed exerted against him, there was no urgency for petitioner to sign the resignation letter. He
knew the nature of the letter that he was signing, for as argued by respondent company, petitioner
being "a man of high educational attainment and qualification, x x x he is expected to know the
import of everything that he executes, whether written or oral.32

Here, the NLRC concluded in its February 9, 2011 Resolution33 that the Waiver was executed merely
to allow Intel Phil. to escape its obligation to pay the retirement benefits, thus, violative of law,
morals, and public policy. The Court, however, sees no clear evidence in the records showing that
Cabiles was constrained into signing the document. Also, it cannot be said that Cabiles did not fully
understand the consequences of signing the Waiver. Being a person well-versed in matters of
finance, it would have been impossible for him not to have comprehended the consequences of
signing a waiver. Failing to see any evidence to warrant the disregard of the Waiver, the Court is
unable to affirm the CA and, hence, declares it as valid and binding between Cabiles and Intel Phil..

Assuming the Waiver was valid, the NLRC contended that it could not be construed to cover the
claims for the retirement pay because it had not yet accrued at the time the document was signed by
Cabiles.

The Court finds Itself unable to agree.

The terms of the Waiver are clear:

I, Jeremias P. Cabiles, Filipino, of legal age and a resident of xxx hereby acknowledge receipt from
Intel Technology Philippines, Inc. (the Company) the amount of xxx, in full and complete settlement
of all benefits due me by reason of my lawful separation from the Company effective February 1,
2007.

In consideration of the foregoing:

1. I release, remise and forever discharge the Company, its successors-in-interest, its stockholders,
its officers, directors, agents or employees from any action, sum of money, damages, claims and
demands whatsoever, which in law or in equity I ever had, now have, or which I, my heirs,
successors and assigns hereafter may have by reason of any matter, cause or thing whatsoever, up
to the time of these presents, the intention thereof being to completely and absolutely release the
Company, its successors-in-interest, xxx from all liabilities arising wholly, partially, or directly from my
employment with the Company.

xxx xxx xxx

5. I acknowledge that I have received all amounts that are now or in the future may be due me from
the Company. I also acknowledge that during the entire period of my employment with the Company,
I received or was paid all compensation, benefits and privileges, to which I am entitled under all laws
and policies of the Company by reason of my past employment and/or engagement therewith, and if
I hereafter be found in any manner to be entitled to any amount, the aforementioned monetary
amount is a full and final satisfaction of any and all such undisclosed claims. (Emphasis supplied)34

Suffice it to state that nothing is clearer than the words used in the Waiver duly signed by Cabiles -
that all claims, in the present and in the future, were waived in consideration of his receipt of the
amount of ₱165,857.62. Because the waiver included all present and future claims, the non-accrual
of benefits cannot be used as a basis in awarding retirement benefits to him.

Lastly, even if the Court assumes that the Waiver was invalid, Cabiles nonetheless remains
disqualified as a recipient of retirement benefits because, as previously discussed, the ten-year
minimum requirement was not satisfied on account of his early resignation.

Cabiles is not entitled to the Retirement Benefits

Having effectively resigned before completing his 10th year anniversary with Intel Phil. and after
having validly waived all the benefits due him, if any, Cabiles is hereby declared ineligible to receive
the retirement pay pursuant to the retirement policy of Intel Phil.

For that reason, Cabiles must return all the amounts he received from Intel Phil. pursuant to the Writ
of Execution issued by the NLRC, dated September 19, 2011.

WHEREFORE, the petition is GRANTED. The assailed October 28, 2011 and February 3, 2012
Resolutions of the Court of Appeals are hereby REVERSED and SET ASIDE.

Respondent Jeremias P. Cabiles is ordered to make restitution to petitioner Intel Technology

Philippines Inc. for whatever amounts he received pursuant to the Writ of Execution issued by the
National Labor Relations Commission, dated September 19, 2011.

SO ORDERED.

18)

G.R. No. 195190 July 28, 2014

ROYALE HOMES MARKETING CORPORATION, Petitioner,

vs.
FIDEL P. ALCANTARA [deceased], substituted by his heirs, Respondent.

DECISION

DEL CASTILLO, J.:

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.1
This Petition for Review on Certiorari2 assails the June 23, 2010 Decision3 of the Court of Appeals
(CA) in CA-G.R. SP No. 109998 which (i) reversed and set aside the February 23, 2009 Decision4 of
the National Labor Relations Commission (NLRC), (ii) ordered petitioner Royale Homes Marketing
Corporation (Royale Homes) to pay respondent Fidel P. Alcantara (Alcantara) backwages and
separation pay, and (iii) remanded the case to the Labor Arbiter for the proper determination and
computation of said monetary awards.

Also assailed in this Petition isthe January 18, 2011 Resolution5 of the CA denying Royale Homes’
Motion for Reconsideration,6 as well as its Supplemental7 thereto.

Factual Antecedents

In 1994, Royale Homes, a corporation engaged in marketing real estates, appointed Alcantara asits
Marketing Director for a fixed period of one year. His work consisted mainly of marketing Royale
Homes’ realestate 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 where he
held the position of Division 5 Vice-President-Sales.8

Proceedings before the Labor Arbiter

On December 17, 2003, Alcantara filed a Complaint for Illegal Dismissal9 against Royale Homes and
its President Matilde Robles, Executive Vice-President for Administration and Finance Ma. Melinda
Bernardino, and Executive Vice- President for Sales Carmina Sotto. Alcantara alleged that he is a
regular employee of Royale Homes since he is performing tasks that are necessary and desirable to
its business; that in 2003 the company gave him ₱1.2 million for the services he rendered to it; that
in the first week of November 2003, however, the executive officers of Royale Homes told him that
they were wondering why he still had the gall to come to office and sit at his table;10 and that the
actsof 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. Thus, he
alsoimpleaded the corporate officers who, he averred, effected his dismissal in bad faith and in an
oppressive manner.

Alcantara prayed to be reinstated tohis former position without loss of seniority rights and other
privileges, as well as to be paid backwages, moral and exemplary damages, and attorney’s fees. He
further sought that the ownership of the Mitsubishi Adventure with Plate No. WHD-945 be
transferred to his name.

Royale Homes, on the other hand, vehemently denied that Alcantara is its employee. It argued that
the appointment paper of Alcantara isclear that it engaged his services as an independent sales
contractorfor a fixed term of one year only. He never received any salary, 13th month pay, overtime
pay or holiday pay from Royale Homes as hewas paid purely on commission basis. In addition,
Royale Homes had no control on how Alcantara would accomplish his tasks and responsibilities as
he was free to solicit sales at any time and by any manner which he may deem appropriateand
necessary. He is even free to recruit his own sales personnel to assist him in pursuance of his sales
target.

According to Royale Homes, Alcantara decided to leave the company after his wife, who was once
connectedwith it as a sales agent, had formed a brokerage company that directly competed with its
business, and even recruited some of its sales agents. Although this was against the exclusivity
clause of the contract, Royale Homes still offered to accept Alcantara’s wife back so she could
continue to engage in real estate brokerage, albeit exclusively for Royale Homes. In a special
management committee meeting on October 8,2003, however, Alcantara announced publicly and
openly that he would leave the company by the end of October 2003 and that he would no longer
finish the unexpired term of his contract. He has decided to join his wifeand pursue their own
brokerage business. Royale Homes accepted Alcantara’s decision. It then threw a despedidaparty in
his honor and, subsequently, appointed a new independent contractor. Two months after
herelinquished his post, however, Alcantara appeared in Royale Homes and submitted a letter
claiming that he was illegally dismissed.

Ruling of the Labor Arbiter

On September 7, 2005,the Labor Arbiter rendered a Decision11 holding that Alcantara is an employee
of Royale Homes with a fixed-term employment period from January 1 to December 31, 2003 and
that the pre-termination of his contract was against the law.Hence, Alcantara is entitled to an amount
which he may have earned on the average for the unexpired portion of the contract. With regard to
the impleaded corporate officers, the Labor Arbiter absolved them from any liability.

The dispositive portion of the Labor Arbiter’s Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering the respondent Royale
Homes Marketing Corp. to pay the complainant the total amount of TWO HUNDRED SEVENTY
SEVEN THOUSAND PESOS (₱277,000.00) representing his compensation/commission for the
unexpired term of his contract.

All other claims are dismissed for lack of merit.

SO ORDERED.12

Both parties appealed the Labor Arbiter’s Decision to the NLRC. Royale Homes claimed that the
Labor Arbiter grievously erred inruling that there exists an employer-employee relationship between
the parties. It insisted that the contract between them expressly statesthat Alcantara is an
independent contractor and not an ordinary employee. Ithad no control over the means and methods
by which he performed his work. RoyaleHomes likewise assailed the award of ₱277,000.00 for lack
of basis as it did not pre-terminate the contract. It was Alcantara who chose not to finish the contract.

Alcantara, for his part, argued that the Labor Arbiter erred in ruling that his employment was for a
fixed-term and that he is not entitled to backwages, reinstatement, unpaid commissions, and
damages.

Ruling of the National LaborRelations Commission

On February 23, 2009, the NLRC rendered its Decision,13 ruling that Alcantara is not an employee
but a mere independent contractor of Royale Homes. It based its ruling mainly on the contract which
does not require Alcantara to observe regular working hours. He was also free to adopt the selling
methods he deemed most effective and can even recruit sales agents to assist him in marketing the
inventories of Royale Homes. The NLRC also considered the fact that Alcantara was not receiving
monthly salary, but was being paid on commission basis as stipulated in the contract. Being an
independent contractor, the NLRC concluded that Alcantara’s Complaint iscognizable by the regular
courts.

The falloof the NLRC Decision reads:

WHEREFORE, premises considered, the Decision of Labor Arbiter Dolores Peralta-Beley dated
September 5, 2005 is REVERSED and SET ASIDE and a NEW ONE rendered dismissing the
complaint for lack of jurisdiction.

SO ORDERED.14

Alcantara moved for reconsideration.15 In a Resolution16 dated May 29, 2009, however, the NLRC
denied his motion.

Alcantara thus filed a Petition for Certiorari17 with the CA imputing grave abuse of discretion on the
partof the NLRC in ruling that he is not an employee of Royale Homes and that it is the regular
courts which have jurisdiction over the issue of whether the pre-termination of the contract is valid.

Ruling of the Court of Appeals

On June 23, 2010, the CA promulgated its Decision18 granting Alcantara’s Petition and reversing the
NLRC’s Decision. Applying the four-fold and economic reality tests, it held thatAlcantara is an
employee of Royale Homes. Royale Homes exercised some degree of control over Alcantara since
his job, as observed by the CA, is subject to company rules, regulations, and periodic evaluations.
He was also bound by the company code of ethics. Moreover, the exclusivity clause of the contract
has made Alcantara economically dependent on Royale Homes, supporting the theory that he is
anemployee of said company.

The CA further held that Alcantara’s termination from employment was without any valid or just
cause, and it was carried out in violation of his right to procedural due process. Thus, the CA ruled
that he isentitled to backwages and separation pay, in lieu of reinstatement. Considering,however,
that the CA was not satisfied with the proofadduced to establish the amount of Alcantara’s annual
salary, it remanded the caseto the Labor Arbiter to determine the same and the monetary award he
is entitled to. With regard to the corporate officers, the CA absolved them from any liability for want
of clear proof that they assented to the patently unlawful acts or that they are guilty of bad faith
orgross negligence. Thus:

WHEREFORE, in view of the foregoing, the instant PETITION is GRANTED. The assailed decision
of the National Labor Relations Commission in NLRC NCR CASE NO. 00-12-14311-03 NLRC CA
NO. 046104-05 dated February 23, 2009 as well as the Resolution dated May 29, 2009 are hereby
SET ASIDE and a new one is entered ordering the respondent company to pay petitioner
backwages which shall be computed from the time of his illegal termination in October 2003 up to
the finality of this decision, plus separation pay equivalent to one month salary for every year of
service. This case is REMANDED to the Labor Arbiter for the proper determination and computation
of back wages, separation pay and other monetary benefits that petitioner is entitled to.

SO ORDERED.19

Royale Homes filed a Motion for Reconsideration20 and a Supplemental Motion for
Reconsideration.21 In a Resolution22 dated January 18, 2011, however, the CA denied said motions.

Issues

Hence, this Petition where Royale Homes submits before this Court the following issues for
resolution:
 A.

WHETHER THE COURT OF APPEALS HAS DECIDED THE INSTANT CASE NOT IN
ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT WHEN
IT REVERSED THE RULING OF THE NLRC DISMISSING THE COMPLAINT OF
RESPONDENT FOR LACK OF JURISDICTION AND CONSEQUENTLY, IN FINDING THAT
RESPONDENT WAS ILLEGALLY DISMISSED[.]

B.

WHETHER THE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN

DISREGARDING THE EN BANCRULING OF THIS HONORABLE COURT IN THE CASEOF
TONGKO VS. MANULIFE, AND IN BRUSHING ASIDE THE APPLICABLE RULINGS OF
SONZA VS. ABS CBN AND CONSULTA V. CA[.]

C.

WHETHER THE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN

DENYING THE MOTION FOR RECONSIDERATION OF PETITIONER AND IN REFUSING
TO CORRECT ITSELF[.]23

Royale Homes contends that its contract with Alcantara is clear and unambiguous −it engaged his
services as an independent contractor. This can be readily seen from the contract stating that no
employer-employee relationship exists between the parties; that Alcantara was free to solicit sales at
any time and by any manner he may deem appropriate; that he may recruit sales personnel to assist
him in marketing Royale Homes’ inventories; and, thathis remunerations are dependent on his sales
performance.

Royale Homes likewise argues that the CA grievously erred in ruling that it exercised control over
Alcantara based on a shallow ground that his performance is subject to company rules and
regulations, code of ethics, periodic evaluation, and exclusivity clause of contract. RoyaleHomes
maintains that it is expected to exercise some degree of control over its independent contractors,but
that does not automatically result in the existence ofemployer-employee relationship. For control to
be consideredas a proof tending to establish employer-employee relationship, the same mustpertain
to the means and method of performing the work; not on the relationship of the independent
contractors among themselves or their persons or their source of living.

Royale Homes further asserts that it neither hired nor wielded the power to dismiss Alcantara. It was
Alcantara who openly and publicly declared that he was pre-terminating his fixed-term contract.

The pivotal issue to be resolved in this case is whether Alcantara was an independent contractor or
anemployee of Royale Homes.

Our Ruling

The Petition is impressed with merit.

The determination of whether a party who renders services to another is an employee or an

independent contractor involves an evaluation of factual matters which, ordinarily, is not within the
province of this Court. In view of the conflicting findings of the tribunals below, however, this Court is
constrained to go over the factual matters involved in this case.24
The juridical relationship of the parties based on their written contract

The primary evidence of the nature of the parties’ relationship in this case is the written contract that
they signed and executed in pursuanceof 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 contractunequivocally states their intention at the time they entered into it. In
Tongko v. The Manufacturers LifeInsurance Co. (Phils.), Inc.,25 it was held that:

To be sure, the Agreement’s legal characterization of the nature of the relationship cannot be
conclusive and binding on the courts; x x x 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 embodiestheir intent at the time they entered the Agreement, and they were
governed by this understanding throughout their relationship. At the very least, the provision on the
absence of employer- employee relationship between the parties can be an aid in considering the
Agreement and its implementation, and in appreciating the other evidence on record.26

In this case, the contract,27 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 is clear that they did not want to be bound by employer-employee relationship atthe
time ofthe signing of the contract. Thus:

January 24, 2003

MR. FIDEL P. ALCANTARA

13 Rancho I

Marikina City

Dear Mr. Alcantara,

This will confirm yourappointment as Division 5 VICE[-]PRESIDENTSALES of ROYALE HOMES

MARKETING CORPORATION effective January 1, 2003 to December 31, 2003.

Your appointment entails marketing our real estate inventories on an EXCLUSIVE BASIS under
such price, terms and condition to be provided to you from time to time.

As such, you can solicit sales at any time and by any manner which you deem appropriate and
necessary to market our real estate inventories subject to rules, regulations and code of ethics
promulgated by the company. Further, you are free to recruit sales personnel/agents to assist you in
marketing of our inventories provided that your personnel/agents shall first attend the required
seminars and briefing to be conducted by us from time to time for the purpose of familiarizing them
of terms and conditionsof sale, the natureof property sold, etc., attendance of which shall be a
condition precedent for their accreditation by us.

That as such Division 5 VICE[-]PRESIDENT-SALES you shall be entitled to:

1. Commission override of 0.5% for all option sales beginning January 1, 2003 booked by
your sales agents.
 2. Budget allocation depending on your division’s sale performance as per our budget
guidelines.

3. Sales incentive and other forms of company support which may be granted from time to
time. It is understood, however, that no employer-employee relationship exists between us,
that of your sales personnel/agents, and that you shall hold our company x x x, its officers
and directors, free and harmless from any and all claims of liability and damages arising from
and/or incident to the marketing of our real estate inventories.

We reserve, however, our right to terminate this agreement in case of violation of any company rules
and regulations, policies and code of ethics upon notice for justifiable reason.

Your performance shall be subject toperiodic evaluation based on factors which shall be determined
by the management.

If you are amenable to the foregoing terms and conditions, please indicate your conformity by
signing on the space provided below and return [to] us a duplicate copy of this letter, duly
accomplished, to constitute as our agreement on the matter.(Emphasis ours)

Since "the terms of the contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of itsstipulations should control."28 No construction is even needed asthey
already expressly state their intention. Also, this Court adopts the observation of the NLRC that it is
rather strange on the part of Alcantara, an educated man and a veteran sales broker who claimed to
be receiving ₱1.2 million as his annual salary, not to have contested the portion of the contract
expressly indicating that he is not an employee of Royale Homes if their true intention were
otherwise.

The juridical relationship of the parties based on Control Test

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.29 Among the four, the
most determinative factor in ascertaining the existence of employeremployee relationship is the
"right of control test".30 "It is deemed to be such an important factor that the other requisites may
even be disregarded."31 This holds true where the issues to be resolved iswhether a person who
performs work for another is the latter’s employee or is an independent contractor,32 as in this case.
For where the person for whom the services are performed reserves the right to control not only the
end to beachieved, but also the means by which such end is reached, employer-employee
relationship is deemed to exist.33

In concluding that Alcantara is an employee of RoyaleHomes, the CA ratiocinated that since the
performance of his tasks is subject to company rules, regulations, code of ethics, and periodic
evaluation, the element of control is present.

The Court disagrees.

Not every form of control is indicative of employer-employee relationship. A person who performs
1âwphi 1

work for another and is subjected to its rules, regulations, and code of ethics does not necessarily
become an employee.34 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. In Insular Life Assurance Co., Ltd. v. National Labor Relations Commission35 it was
pronounced that:

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed
in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the
use of such means. The first, which aim only to promote the result, create no employeremployee
relationship unlike the second, which address both the result and the means used to achieve it. x x
x36

In this case, the Court agrees with Royale Homes that the rules, regulations, code of ethics, and
periodic evaluation alluded to byAlcantara do not involve control over the means and methods by
which he was to performhis job. Understandably, Royale Homes has to fix the price, impose
requirements on prospective buyers, and lay down the terms and conditionsof the sale, including the
mode of payment, which the independent contractors must follow. It is also necessary for Royale
Homes to allocateits inventories among its independent contractors, determine who has priority in
selling the same, grant commission or allowance based on predetermined criteria, and regularly
monitor the result of their marketing and sales efforts. But tothe mind of this Court, these do not
pertain to the means and methods of how Alcantara was to perform and accomplish his task of
soliciting sales. They do not dictate upon him the details of how he would solicit sales or the manner
as to how he would transact business with prospective clients. In Tongko, this Court held that
guidelines or rules and regulations that do notpertain to the means or methodsto be employed in
attaining the result are not indicative of control as understood inlabor law. Thus:

From jurisprudence, an important lesson that the first Insular Lifecase teaches us is that a
commitment to abide by the rules and regulations of an insurance company does not ipso factomake
the insurance agent an employee. Neither do guidelines somehow restrictive of the insurance
agent’s conduct necessarily indicate "control" as this term is defined in jurisprudence. Guidelines
indicative of labor law "control," as the first Insular Lifecase tells us, should not merely relate to the
mutually desirable result intended by the contractual relationship; they must have the nature of
dictating the means or methods to beemployed in attaining the result, or of fixing the methodology
and of binding or restricting the party hired to the use of these means.In fact, results-wise, the
principal can impose production quotas and can determine how many agents, with specific
territories, ought to be employed to achieve the company’s objectives. These are management
policy decisions that the labor law element of control cannot reach. Our ruling in these respects in
the first Insular Lifecase was practically reiterated in Carungcong. Thus, as will be shown more fully
below, 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.37 (Emphases in the original)

As the party claiming the existence of employer-employee relationship, it behoved upon Alcantara to
prove the elements thereof, particularly Royale Homes’ power of control over the means and
methods of accomplishing the work.38 He, however, failed to cite specificrules, regulations or codes
of ethics that supposedly imposed control on his means and methods of soliciting sales and dealing
with prospective clients. On the other hand, this case is replete with instances that negate the
element of control and the existence of employer-employee relationship. Notably, Alcantara was not
required to observe definite working hours.39 Except for soliciting sales, RoyaleHomes 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.40
Neither does the repeated hiring of Alcantara prove the existence of employer-employee
relationship.41 As discussed above, the absence of control over the means and methodsdisproves
employer-employee relationship. The continuous rehiring of Alcantara simply signifies the renewal of
his contract with Royale Homes, and highlights his satisfactory services warranting the renewal of
such contract. Nor does the exclusivity clause of contract establish the existence of the labor law
concept of control. In Consulta v. Court of Appeals,42 it was held that exclusivity of contract does not
necessarily result in employer-employee relationship, viz:

x x x However, the fact that the appointment required Consulta to solicit business exclusively for
Pamana did not mean that Pamana exercised control over the means and methods of Consulta’s
work as the term control is understood in labor jurisprudence. Neither did it make Consulta an
employee of Pamana. Pamana did not prohibit Consulta from engaging in any other business, or
from being connected with any other company, for aslong as the business [of the] company did not
compete with Pamana’s business.43

The same scenario obtains in this case. Alcantara was not prohibited from engaging in any other
business as long as he does not sell projects of Royale Homes’ competitors. He can engage in
selling various other products or engage in unrelated businesses.

Payment of Wages

The element of payment of wages is also absent in thiscase. As provided in the contract, Alcantara’s
remunerations consist only of commission override of 0.5%, budget allocation, sales incentive and
other forms of company support. There is no proof that he received fixed monthly salary. No payslip
or payroll was ever presented and there is no proof that Royale Homes deducted from his supposed
salary withholding tax or that it registered him with the Social Security System, Philippine Health
Insurance Corporation, or Pag-Ibig Fund. In fact, his Complaint merely states a ballpark figure of his
alleged salary of ₱100,000.00, more or less. All of these indicate an independent contractual
relationship.44 Besides, if Alcantara indeed consideredhimself an employee of Royale Homes, then
he, an experienced and professional broker, would have complained that he was being denied
statutorily mandated benefits. But for nine consecutive years, he kept mum about it, signifying that
he has agreed, consented, and accepted the fact that he is not entitled tothose employee benefits
because he is an independent contractor.

This Court is, therefore,convinced that Alcantara is not an employee of Royale Homes, but a mere
independent contractor. The NLRC is, therefore, correct in concluding that the Labor Arbiter has no
jurisdiction over the case and that the same is cognizable by the regular courts.

WHEREFORE, the instant Petition is hereby GRANTED. The June 23, 2010 Decision of the Court of
Appeals in CA-G.R. SP No. 109998 is REVERSED and SET ASIDE. The February 23, 2009
Decision of the National Labor Relations Commission is REINSTATED and AFFIRMED. SO
ORDERED.

19)

G.R. No.187691

OLYMPIA HOUSING, INC., Petitioner,

vs.
ALLAN LAPASTORA and IRENE UBALUBAO, Respondents.
 DECISION

REYES, J.:

This is a Petition for Review on Certiorari1 filed under Rule 45 of the Rules of Court, assailing the
Decision2 dated April 28, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 103699, which
affirmed the Decision dated December 28, 2007 and Resolution3 dated February 29, 2008 of the
National Labor Relations Commission (NLRC) in NLRC NCR Case No. 30-03-00976-00.

The instant case stemmed from a complaint for illegal dismissal, payment of backwages and other
benefits, and regularization of employment filed by Allan Lapastora (Lapastora) and Irene Ubalubao
(Ubalubao) against Olympic Housing, Inc. (OHI), the entity engaged in the management of the
Olympia Executive Residences (OER), a condominium hotel building situated in Makati City, owned
by a Philippine-registered corporation known as the Olympia Condominium Corporation (OCC). The
complaint, which was docketed as NLRC NCR Case No. 30-03-00976-00 (NLRC NCR CA No.
032043-02), likewise impleaded as defendants the part owner of OHI, Felix Limcaoco (Limcaoco),
and Fast Manpower and Allied Services Company, Inc. (Fast Manpower). Lapastora and Ubalubao
alleged that they worked as room attendants of OHI from March 1995 and June 1997, respectively,
until they were placed on floating status on February 24, 2000, through a memorandum sent by Fast
Manpower.4

To establish employer-employee relationship with OHI, Lapastora and Ubalubao alleged that they
were directly hired by the company and received salaries directly from its operations clerk, Myrna
Jaylo (Jaylo). They also claimed that OHI exercised control over them as they were issued time
cards, disciplinary action reports and checklists of room assignments. It was also OHI which
terminated their employment after they petitioned for regularization. Prior to their dismissal, they
were subjected to investigations for their alleged involvement in the theft of personal items and cash
belonging to hotel guests and were summarily dismissed by OHI despite lack of evidence.5

For their part, OHI and Limcaoco alleged that Lapastora and Ubalubao were not employees of the
company but of Fast Manpower, with which it had a contract of services, particularly, for the
provision of room attendants. They claimed that Fast Manpower is an independent contractor as it
(1) renders janitorial services to various establishments in Metro Manila, with 500 janitors under its
employ; (2) maintains an office where janitors assemble before they are dispatched to their
assignments; (3) exercises the right to select, refuse or change personnel assigned to OHI; and (4)
supervises and pays the wages of its employees.6

Reinforcing OHI’s claims, Fast Manpower reiterated that it is a legitimate manpower agency and that
it had a valid contract of services with OHI, pursuant to which Lapastora and Ubalubao were
deployed as room attendants. Lapastora and Ubalubao were, however, found to have violated house
rules and regulations and were reprimanded accordingly. It denied the employees’ claim that they
were dismissed and maintained they were only placed on floating status for lack of available work
assignments.7

Subsequently, on August 22, 2000, a memorandum of agreement was executed, stipulating the
transfer of management of the OER from OHI to HSAI-Raintree, Inc. (HSAI-Raintree). Thereafter,
OHI informed the Department of Labor and Employment (DOLE) of its cessation of operations due to
the said change of management and issued notices of termination to all its employees. This
occurrence prompted some union officers and members to file a separate complaint for illegal
dismissal and unfair labor practice against OHI, OCC and HSAI-Raintree, docketed as NLRC NCR
CN 30-11-04400-00 (CA No. 032193-02), entitled Malonie D. Ocampo, et al. v. Olympia Housing,
Inc., et al. (Ocampo v. OHI). This complaint was, however, dismissed for lack of merit. The
complainants therein appealed the said ruling to the NLRC.8

Meanwhile, on May 10, 2002, the Labor Arbiter (LA) rendered a Decision9 in the instant case, holding
that Lapastora and Ubalubao were regular employees of OHI and that they were illegally dismissed.
The dispositive portion of the decision reads as follows:

WHEREFORE, finding complainants to have been illegally dismissed and as regular employees of
[OHI] the latter is ordered to reinstate complainants to their former position or substantially equal
position without loss of seniority rights and benefits. [OHI] is further ordered to pay complainants
backwages, service incentive leave pay and attorney’s fees as follows:

1. Backwages:

[Lapastora] - P171,616.60 and

[Ubalubao] - P170,573.44 from February 24, 2000 to date of decision which shall
further be adjusted until their actual reinstatement.

2. P3,305.05 - ILP for Lapastora

3. P3,426.04 - SILP for Ubalubao

4. 10% of the money awards as attorney’s fees.

Other claims are dismissed for lack of merit.

The claim against [Limcaoco] is hereby dismissed for lack of merit.

SO ORDERED.10

In ruling for the existence of employer-employee relationship, the LA held that OHI exercised control
and supervision over Lapastora and Ubalubao through its supervisor, Anamie Lat. The LA likewise
noted that documentary evidence consisting of time cards, medical cards and medical examination
reports all indicated OHI as employer of the said employees.

Moreover, the affidavit of OHI’s housekeeping coordinator, Jaylo, attested to the fact that OHI is the
one responsible for the selection of employees for its housekeeping department. OHI also paid the
salaries of the housekeeping staff by depositing them to their respective ATM accounts. That there is
a contract of services between OHI and Fast Manpower did not rule out the existence of employer-
employee relationship between the former and Lapastora and Ubalubao as it appears that the said
contract was a mere ploy to circumvent the application of pertinent labor laws particularly those
relating to security of tenure. The LA pointed out that the business of OHI necessarily requires the
services of housekeeping aides, room boys, chambermaids, janitors and gardeners in its daily
operations, which is precisely the line of work being rendered by Lapastora and Ubalubao.11

Both parties appealed to the NLRC. OHI asseverated that the reinstatement of Lapastora and
Ubalubao was no longer possible in view of the transfer of the management of the OER to HSAI-
Raintree.12
On December 28, 2007, the NLRC rendered a decision, dismissing the appeal for lack of merit, the
dispositive portion of which reads as follows:

WHEREFORE, premises considered, the appeals of both the respondents and the complainants are
DISMISSED, and the Decision of the [LA] is hereby AFFIRMED. All other claims are dismissed for
lack of merit.13

The NLRC held that OHI is the employer of Lapastora and Ubalubao since Fast Manpower failed to
establish the fact that it is an independent contractor. Further, it ruled that the memorandum of
agreement between OCC and HSAI-Raintree did not render the reinstatement of Lapastora and
Ubalubao impossible since a change in the management does not automatically result in a change
of personnel especially when the memorandum itself did not include a provision on that matter.14

Unyielding, OHI filed its Motion for Reconsideration15 but the NLRC denied the same in a
Resolution16 dated February 29, 2008.

In the meantime, in Ocampo v. OHI, the NLRC rendered a Decision17 dated November 22, 2002,
upholding the validity of the cessation of OHI’s operations and the consequent termination of all its
employees. It stressed that the cessation of business springs from the management’s prerogative to
do what is necessary for the protection of its investment, notwithstanding adverse effect on the
employees. The discharge of employees for economic reasons does not amount to unfair labor
practice.18 The said ruling of the NLRC was elevated on petition for certiorari to the CA, which
dismissed the same in Resolutions dated November 28, 200319 and June 23, 2004.20 The mentioned
resolutions were appealed to this Court and were docketed as G.R. No. 164160, which was,
however, denied in the Resolution21 dated July 26, 2004 for failure to comply with procedural rules
and lack of reversible error on the part of the CA.

Ruling of the CA

OHI, upon receipt of the adverse decision in NLRC NCR Case No. 30-03-00976-00, filed a Petition
for Certiorari22with the CA, praying that the Decision dated December 28, 2007 and Resolution dated
February 29, 2008 of the NLRC be set aside. It pointed out that in the related case of Ocampo v.
OHI, the NLRC took into consideration the supervening events which transpired after the supposed
termination of Lapastora and Ubalubao, particularly OHI’s closure of business on October 1, 2000.
The NLRC then likewise upheld the validity of the closure of business and the consequent
termination of employees in favor of OHI, holding that the measures taken by the company were
proper exercises of management prerogative. OHI argued that since the said disposition of the
NLRC in Ocampo v. OHI was affirmed by both the CA and the Supreme Court, the principle of stare
decisis becomes applicable and the issues that had already been resolved in the said case may no
longer be relitigated.23 At any rate, OHI argued that it could not be held liable for illegal dismissal
since Lapastora and Ubalubao were not its employees.24

On April 28, 2009, the CA rendered a Decision25 dismissing the petition, the dispositive portion of
which reads as follows:

WHEREFORE, the petition for certiorari is DISMISSED. The NLRC’s Decision dated December 28,
2007 and Resolution dated February 29, 2008 in NLRC NCR Case No. 30-03-00976-00 (NLRC NCR
CA No. 032043-02) are AFFIRMED.

SO ORDERED.26
The CA ruled that OHI’s cessation of operations on October 1, 2000 is not a supervening event
because it transpired long before the promulgation of the LA’s Decision dated May 10, 2002 in the
instant case. In the same manner, the ruling of the NLRC in Ocampo v. OHI does not
constitute stare decisis to the present petition because of the apparent dissimilarities in the attendant
circumstances. For instance, Ocampo v. OHI was founded on the union members’ allegation that
OHI’s claim of substantial financial losses to support closure of business lacked evidence, while in
the instant case, Lapastora and Ubalubao claimed illegal dismissal on account of their being placed
on floating status after they were implicated in a theft case. The differences in the facts and issues in
the two cases rule out the invocation of the doctrine. The CA added that the prevailing jurisprudence
is that the NLRC decision upholding the validity of the closure of business and retrenchment of
employees resulting therefrom will not preclude it from decreeing the illegality of an employee’s
dismissal. Considering that OHI failed to prove that the memorandum of agreement between OCC
and HSAI-Raintree had any effect on the employment of Lapastora and Ubalubao or that there is
any other valid or authorized cause for their termination from employment, the CA concluded that
they were unlawfully dismissed.27

Unyielding, OHI filed the instant petition, reiterating its arguments before the CA. It added that, even
assuming that the facts warrant a finding of illegal dismissal, the cessation of operations of the
company is a supervening event that should limit the award of backwages to Lapastora and
Ubalubao until October 1, 2000 only and justify the deletion of the order of reinstatement. After all, it
complied with the notice requirements of the DOLE for a valid closure of business.28

On April 4, 2011, Ubalubao, on her own behalf, filed a Motion to Dismiss/Withdraw Complaint and
Waiver,29 stating that she has decided to accept the financial assistance in the amount of
₱50,000.00 offered by OHI, in lieu of all the monetary claims she has against the company, as full
and complete satisfaction of any judgment that may be subsequently rendered in her favor. She
likewise informed the Court that she had willingly and knowingly executed a quitclaim and waiver
agreement, releasing OHI from any liability. She thus prayed for the dismissal of the complaint she
filed against OHI.

In a Resolution30 dated January 16, 2012, the Court granted Ubalubao’s motion and considered the
case closed and terminated as to her part, leaving Lapastora as the lone respondent in the present
petition.

Ruling of the Court

Lapastora was illegally dismissed

Indisputably, Lapastora was a regular employee of OHI. As found by the LA, he has been under the
continuous employ of OHI since March 3, 1995 until he was placed on floating status in February
2000. His uninterrupted employment by OHI, lasting for more than a year, manifests the continuing
need and desirability of his services, which characterize regular employment. Article 280 of the
Labor Code provides as follows:

Art. 280. Regular and casual employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be
deemed to be regular where the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except where the employment
has been fixed for a specific project or undertaking, the completion or termination of which has been
determined at the time of the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: Provided, That, any employee who has rendered at least one year of service, whether
such service is continuous or broken, shall be considered a regular employee with respect to the
activity in which he is employed and his employment shall continue while such activity exists.

Based on records, OHI is engaged in the business of managing residential and commercial
condominium units at the OER. By the nature of its business, it is imperative that it maintains a pool
of housekeeping staff to ensure that the premises remain an uncluttered place of comfort for the
occupants. It is no wonder why Lapastora, among several others, was continuously employed by
OHI precisely because of the indispensability of their services to its business. The fact alone that
Lapastora was allowed to work for an unbroken period of almost five years is all the same a reason
to consider him a regular employee.

The attainment of a regular status of employment guarantees the employee’s security of tenure that
he cannot be unceremoniously terminated from employment. "To justify fully the dismissal of an
employee, the employer must, as a rule, prove that the dismissal was for a just cause and that the
employee was afforded due process prior to dismissal. As a complementary principle, the employer
has the onus of proving with clear, accurate, consistent, and convincing evidence the validity of the
dismissal."31

OHI miserably failed to discharge its burdens thus making Lapastora’s termination illegal.

On the substantive aspect, it appears that OHI failed to prove that Lapastora’s dismissal was
grounded on a just or authorized cause. While it claims that it had called Lapastora’s attention
several times for tardiness, unexplained absences and loitering, it does not appear from the records
that the latter had been notified of the company’s dissatisfaction over his performance and that he
was made to explain his supposed infractions. It does not even show from the records that
Lapastora was ever disciplined because of his alleged tardiness. In the same manner, allegations
regarding Lapastora’s involvement in the theft of personal items and cash belonging to hotel guests
remained unfounded suspicions as they were not proven despite OHI’s probe into the incidents.

On the procedural aspect, OHI admittedly failed to observe the twin notice rule in termination cases.
As a rule, the employer is required to furnish the concerned employee two written notices: (1) a
written notice served on the employee specifying the ground or grounds for termination, and giving
to said employee reasonable opportunity within which to explain his side; and (2) a written notice of
termination served on the employee indicating that upon due consideration of all the circumstances,
grounds have been established to justify his termination.32 In the present case, Lapastora was not
informed of the charges against him and was denied the opportunity to disprove the same. He was
summarily terminated from employment.

OHI argues that no formal notices of investigation, notice of charges or termination was issued to
Lapastora since he was not an employee of the company but of Fast Manpower.

The issue of employer-employee relationship between OHI and Lapastora had been deliberated and
ruled upon by the LA and the NLRC in the affirmative on the basis of the evidence presented by the
parties. The LA ruled that Lapastora was under the effective control and supervision of OHI through
the company supervisor. She gave credence to the pertinent records of Lapastora’s
employment, i.e., timecards, medical records and medical examinations, which all indicated OHI as
his employer. She likewise noted Fast Manpower’s failure to establish its capacity as independent
contractor based on the standards provided by law.
That there is an existing contract of services between OHI and Fast Manpower where both parties
acknowledged the latter as the employer of the housekeeping staff, including Lapastora, did not alter
established facts proving the contrary. The parties cannot evade the application of labor laws by
mere expedient of a contract considering that labor and employment are matters imbued with public
interest. It cannot be subjected to the agreement of the parties but rather on existing laws designed
specifically for the protection of labor. Thus, it had been repeatedly stressed in a number of
jurisprudence that "[a] party cannot dictate, by the mere expedient of a unilateral declaration in a
contract, the character of its business, i.e., whether as labor-only contractor or as job contractor, it
being crucial that its character be measured in terms of and determined by the criteria set by
statute."33

The Court finds no compelling reason to deviate from the findings of the LA and NLRC, especially in
this case when the same was affirmed by the CA. It is settled that findings of fact made by LAs,
when affirmed by the NLRC, are entitled not only to great respect but even finality and are binding
on this Court especially when they are supported by substantial evidence.34

The principle of stare decisis is not applicable

Still, OHI argues that the legality of the closure of its business had been the subject of the separate
case of Ocampo v. OHI, where the NLRC upheld the validity of the termination of all the employees
of OHI due to cessation of operations. It asserts that since the ruling was affirmed by the CA and,
eventually by this Court, the principle of stare decisis becomes applicable. Considering the closure
of its business, Lapastora can no longer be reinstated and should instead be awarded backwages
up to the last day of operations of the company only, specifically on October 1, 2000.35

In Ting v. Velez-Ting,36 the Court elaborated on the principle of stare decisis, thus:

The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by this
Court in its final decisions. It is based on the principle that once a question of law has been
examined and decided, it should be deemed settled and closed to further argument. Basically, it is a
bar to any attempt to relitigate the same issues, necessary for two simple reasons: economy and
stability. In our jurisdiction, the principle is entrenched in Article 8 of the Civil Code.37 (Citations
omitted)

Verily, the import of the principle is that questions of law that have been decided by this Court and
applied in resolving earlier cases shall be deemed the prevailing rule which shall be binding on
future cases dealing on the same intricacies. Apart from saving the precious time of the Court, the
application of this principle is essential to the consistency of the rulings of the Court which is
significant in its role as the final arbiter of judicial controversies.

The CA correctly ruled that the principle of stare decisis finds no relevance in the present case. To
begin with, there is no doctrine of law that is similarly applicable in both the present case and
in Ocampo v. OHI. While both are illegal dismissal cases, they are based on completely different
sets of facts and involved distinct issues. In the instant case, Lapastora cries illegal dismissal after
he was arbitrarily placed on a floating status on mere suspicion that he was involved in theft
incidents within the company premises without being given the opportunity to explain his side or any
formal investigation of his participation. On the other hand, in Ocampo v. OHI, the petitioners therein
questioned the validity of OHI’s closure of business and the eventual termination of all the
employees. Thus, the NLRC ruled upon both cases differently.

Nonetheless, the Court finds the recognition of the validity of OHI’s cessation of business in the
Decision dated November 22, 2002 of the NLRC, which was affirmed by the CA and this Court, a
supervening event which inevitably alters the judgment award in favor of Lapastora. The NLRC
noted that OHI complied with all the statutory requirements, including the filing of a notice of closure
with the DOLE and furnishing written notices of termination to all employees effective 30 days from
receipt.38 OHI likewise presented financial statements substantiating its claim that it is operating at a
loss and that the closure of business is necessary to avert further losses.39 The action of the OHI, the
NLRC held, is a valid exercise of management prerogative.

Thus, while the finding of illegal dismissal in favor of Lapastora subsists, his reinstatement was
rendered a legal impossibility with OHI’s closure of business. In Galindez v. Rural Bank of Llanera,
1âwphi1

Inc.,40 the Court noted:

Reinstatement presupposes that the previous position from which one had been removed still exists
or there is an unfilled position more or less of similar nature as the one previously occupied by the
employee. Admittedly, no such position is available. Reinstatement therefore becomes a legal
impossibility. The law cannot exact compliance with what is impossible.41

Considering the impossibility of Lapastora’s reinstatement, the payment of separation pay, in lieu
thereof, is proper. The amount of separation pay to be given to Lapastora must be computed from
March 1995, the time he commenced employment with OHI, until the time when the company
ceased operations in October 2000.42 As a twin relief, Lapastora is likewise entitled to the payment of
backwages, computed from the time he was unjustly dismissed, or from February 24, 2000 until
October 1, 2000 when his reinstatement was rendered impossible without fault on his part.43

Finally, for OHI’s failure to prove the fact of payment, the Court sustains the award for the payment
of service incentive leave pay and 13th month pay. The rule, as stated in Mantle Trading Services,
Inc. and/or Del Rosario v. NLRC, et al.,44 is that "the burden rests on the employer to prove payment,
rather than on the employee to prove nonpayment. The reason for the rule is that the pertinent
personnel files, payrolls, records, remittances and other similar documents — which will show that
overtime, differentials, service incentive leave and other claims of workers have been paid — are not
in the possession of the employee but in the custody and absolute control of the
employer."45 Considering that OHI did not dispute Lapastora’s claim for nonpayment of the
mentioned benefits and opted to disclaim employer-employee relationship, the presumption is that
the said claims were not paid.

The award for attorney’s fees of 10% of the monetary awards is likewise sustained considering that
Lapastora was forced to litigate and, thus, incurred expenses to protect his rights and interests.46

WHEREFORE, the Decision dated April 28, 2009 of the Court of Appeals in CA-G.R. SP No. 103699
is AFFIRMED with MODIFICATION in that OHI is hereby ORDERED to pay Allan Lapastora the
following: (1) separation pay, in lieu of reinstatement, computed from the time of his employment
until the time of its closure of business, or from March 1995 to October 2000; (2) backwages,
computed from the time of illegal dismissal until cessation of business, or from February 24, 2000 to
October 1, 2000; (3) service incentive leave pay and 13th month pay; and (4) attorney's fees.

SO ORDERED.

20)

January 30, 2017

G.R. No. 206390

JACK C. VALENCIA, Petitioner,

vs.
CLASSIQUE VINYL PRODUCTS CORPORATION, JOHNNY CHANG (Owner) and/or
CANTINGAS MANPOWER SERVICES, Respondents.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari assails the December 5, 2012 Decision1 and March 18, 2013
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 120999, which respectively denied the
Petition for Certiorari filed therewith by petitioner Jack C. Valencia (Valencia) and the motion for
reconsideration thereto.

Factual Antecedents

On March 24, 2010, Valencia filed with the Labor Arbiter a Complaint3 for Underpayment of Salary
and Overtime Pay; Non-Payment of Holiday Pay, Service Incentive Leave Pay, 13th Month Pay;
Regularization; Moral and Exemplary Damages; and, Attorney's Fees against respondents
Classique Vinyl Products Corporation (Classique Vinyl) and its owner Johnny Chang (Chang) and/or
respondent Cantingas Manpower Services (CMS). When Valencia, however, asked permission from
Chang to attend the hearing in connection the said complaint on April 17, 2010, the latter allegedly
scolded him and told him not to report for work anymore. Hence, Valencia amended his complaint to
include illegal dismissal.4

In his Sinumpaang Salaysay, 5 Valencia alleged that he applied for work with Classique Vinyl but
was told by the latter's personnel office to proceed to CMS, a local manpower agency, and therein
submit the requirements for employment. Upon submission thereof, CMS made him sign a contract
of employment6 but no copy of the same was given to him. He then proceeded to Classique Vinyl for
interview and thereafter started working for the company in June 2005 as felitizer operator. Valencia
claimed that he worked 12 hours a day from Monday to Saturday and was receiving ₱187.52 for the
first eight hours and an overtime pay of ₱117.20 for the next four hours, or beyond the then
minimum wage mandated by law. Five months later, he was made to serve as extruder operator but
without the corresponding increase in sa1aiy. He was neither paid his holiday pay, service incentive
leave pay, and 13th month pay. Worse, premiums for Philhealth and Pag-IBIG Fund were not paid
and his monthly deductions for Social Security System (SSS) premiums were not properly remitted.
He was also being deducted the amounts of ₱100.00 and ₱60.00 a week for Cash Bond and Agency
Fee, respectively. Valencia averred that his salary was paid on a weekly basis but his pay slips
neither bore the name of Classique Vinyl nor of CMS; that all the machineries that he was
using/operating in connection with his work were all owned by Classique Vinyl; and that his work
was regularly supervised by Classique Vinyl. He further averred that he worked for Classique Vinyl
for four years until his dismissal. Hence, by operation of law, he had already attained the status of a
regular employee of his true employer, Classique Vinyl, since according to him, CMS is a mere
labor-only contractor. Valencia, therefore, argued that Classique Vinyl should be held guilty of illegal
dismissal for failing to comply with the twin-notice requirement when it dismissed him from the
service and be made to pay for his monetary claims.

Classique Vinyl, for its part, denied having hired Valencia and instead pointed to CMS as the one
who actually selected, engaged, and contracted out Valencia's services. It averred that CMS would
only deploy Valencia to Classique Vinyl whenever there was an urgent specific task or temporary
work and these occasions took place sometime in the years 2005, 2007, 2009 and 2010. It stressed
that Valencia's deployment to Classique Vinyl was intermittent and limited to three to four months
only in each specific year. Classique Vinyl further contended that Valencia's performance was
exclusively and directly supervised by CMS and that his wages and other benefits were also paid by
the said agency. It likewise denied dismissing Valencia from work and instead averred that on April
16, 2010, while deployed with Classique Vinyl, Valencia went on a prolonged absence from work for
reasons only known to him. In sum, Classique Vinyl asserted that there was no employer-employee
relationship between it and Valencia, hence, it could not have illegally dismissed the latter nor can it
be held liable for Valencia's monetary claims. Even assuming that Valencia is entitled to monetary
benefits, Classique Vinyl averred that it cannot be made to pay the same since it is an establishment
regularly employing less than 10 workers. As such, it is exempted from paying the prescribed wage
orders in its area and other benefits under the Labor Code. At any rate, Classique Vinyl insisted that
Valencia's true employer was CMS, the latter being an independent contractor as shown by the fact
that it was duly incorporated and registered not only with the Securities and Exhange Commission
but also with the Department of Labor and Employment; and, that it has substantial capital or
investment in connection with the work performed and services rendered by its employees to clients.

CMS, on the other hand, denied any employer-employee relationship between it and Valencia. It
contended that after it deployed Valencia to Classique Vinyl, it was already the latter which
exercised full control and supervision over him. Also, Valencia's wages were paid by Classique Vinyl
only that it was CMS which physically handed the same to Valencia.

Ruling of the Labor Arbiter

On September 13, 2010, the Labor Arbiter issued a Decision,7 the pertinent portions of which read:

Is [Valencia] a regular employee of respondent (Classique Vinyl]?

The Certificate of Business Name Registration issued by the Department of Trade and Industry
dated 17 August 2007 and the Renewal of PRP A License No. M-08-03-269 for the period 29 August
2008 to 28 August 2010 issued by the Regional Director of the National Capital Region of the
Department of Labor and Employment [on the] 1st day of September 2008 are pieces of evidence to
prove that respondent [CMS] is a legitimate Private Recruitment and Placement Agency.

Pursuant to its business objective, respondent CMS entered into several Employment Contracts with
complainant Valencia as Contractual Employee for deployment to respondent [Classique Vinyl], the
last of which was signed by [Valencia] on 06 February 2010.

The foregoing Employment Contract for a definite period supports respondent [Classique Vinyl's]
assertion that [Valencia] was not hired continuously but intermittently ranging from 3 months to 4
months for the years 2005, 2007, 2009 and 2010. Notably, no controverting evidence was offered to
dispute respondent [Classique Vinyl's] assertion.

Obviously, [Valencia] was deployed by CMS to [Classique Vinyl] for a fixed period.

In Pangilinan v. General Milling Corporation, G.R. No. 149329, July 12, 2004, the Supreme Court
ruled that it does not necessarily follow that where the duties of the employee consist of activities
usually necessary or desirable in the usual business of the employer, the parties are forbidden from
agreeing on a period of time for the performance of such activities. There is thus nothing essentially
contradictory between a definite period of employment and the nature of the employee's duties.
Thus, even if respondent [Classique Vinyl] exercises full control and supervision over the activities
perfom1ed by [Valencia], the latter's employment cannot be considered as regular.

Likewise, even if [Valencia] is considered the regular employee of respondent CMS, the complaint
for illegal dismissal cannot prosper as [the] employment was not terminated by respondent CMS.

On the other hand, there is no substantial evidence to support

[Valencia's] view that he was actually dismissed from his employment by respondent [Classique
Vinyl]. After all, it is elementary that he who makes an affirmative allegation has the burden of proof.
On this score, [Valencia] failed to establish that he was actually dismissed from his job by
respondent [Classique Vinyl], aside from his bare allegation.

With regard to underpayment of salary, respondent CMS admitted that it received from respondent
[Classique Vinyl] the salary for [Valencia's] deployment. Respondent CMS never contested that the
amount received was sufficient for the payment of [Valencia's] salary.

Furthermore, respondent [Classique Vinyl] cannot be obliged to pay [Valencia's] overtime pay,
holiday pay, service incentive leave and 13th month pay as well as the alleged illegal deduction on
the following grounds:

a) [Valencia] is not a rank-and-file employee of [Classique Vinyl];

b) No proof was offered to establish that [Valencia] actually rendered overtime services;

c) [Valencia had] not [worked] continuously or even intermittently for [one whole] (1) year[-]period
during the specific year of his deployment with respondent [Classique Vinyl] to be entitled to service
incentive leave pay.

d) [Valencia] failed to offer substantial evidence to prove that respondent [Classique Vinyl] illegally
deducted from his sala.7 the alleged agency and cash bond.

Moreover, as against respondent CMS[,] the record is bereft of factual basis for the exact
computation of [Valencia's] money claims as it has remained uncontroverted that [Valencia] was not
deployed continuously neither with respondent [Classique Vinyl] and/or to such other clientele.

WHEREFORE, premises considered, judgment is hereby rendered [d]ismissing the above-entitled

case for lack of merit and/or factual basis

SO ORDERED,8

Ruling of the National Labor Relations Commission

Valencia promptly appealed to the National Labor Relations Commission (NLRC). Applying the four-
fold test, the NLRC, however, declared CMS as Valencia's employer in its Resolution9 dated April 14,
2011, viz.:

In Order to determine the existence of an employer-employee relationship, the following yardstick

had been consistently applied: (l) the selection and engagement; (2) payment of wages; (3) power of
dismissal and; (4) the power to control the employee[']s conduct.
In this case, [Valencia] admitted that he applied for work with respondent [CMS] x x x. Upon the
acceptance of his application, he was made to sign an employment contract x x x. [Valencia] also
admitted that he received his wages from respondent [CMS] x x x. As a matter of fact, respondent
[CMS] argued that [Valencia] was given a non-cash wage in the approximate amount of
Php3,000.00 x x x.

Notably, it is explicitly stated in the employment contract of [Valencia] that he is required to observe
all the rules and regulations of the company as well as [the] lawful instructions of the management
during his employment. That failure to do so would cause the termination of his employment
contract. The pertinent provision of the contract reads:

2. The employee shall observe all the rules and regulations of the company during the period of
employment and [the] lawful instructions of the management or its representatives. Failure to do so
or if performance is below company standards, management [has] the right to immediatelycancel
this contract. x x x

The fact that [Vale1icia] was subjected to such restriction is an evident exercise of the power of
control over [Valencia].

The power of control of respondent [CMS] over Valencia was further bolstered by the declaration of
the former that they will not take against [Valencia] his numerous tardiness and absences at work
and[;] his nonobservance of the company rules,· The statement of [CMS] reads:

Needless to say that [Valencia] in the course of his employment has incurred many infractions like
tardiness and absences, non-observance of company rules, but respondent [CMS], in reiteration will
not take this up as leverage against [Valencia]. x x x

Though [Valencia] worked in the premises of Classique Vinyl x x x and that the [equipment] he used
in the performance of his work was provided by the between [Valencia] and Classique Vinyl x x x in
view of the foregoing circumstances earlier reflected. Besides, as articulated by jurisprudence, the
power of control does not require actual exercise of the power but the power to wield that power x x
x.

With the foregoing chain of events, it is evident that [Valencia] is an employee of respondent [CMS].

x x x x10

Accordingly, the NLRC held that there is no basis for Valencia to hold Classique Vinyl liable for his
alleged illegal dismissal as well as for his money claims. Hence, the NLRC dismissed Valencia's
appeal and affirmed the decision of the Labor Arbiter.

Valencia's motion for reconsideration thereto was likewise denied for lack of merit in the
Resolution11 dated June 8, 2011.

Ruling of the Court of Appeals

When Valencia sought recourse from the CA, the said court rendered a Decision12 dated December
5, 2012 denying his Petition for Certiorari and affirming the ruling of the NLRC.

Valencia's motion for reconsideration was likewise denied in a Resolution 13 dated March 18, 2013.
Hence, this Petition for Review on Certiorari imputing upon the CA the following errors:

WITH DUE RESPECT, IT IS A SERIOUS ERROR WHICH CONSTITUTE[S] GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION ON THE PART OF THE
HONORABLE COURT OF APPEALS TO HAVE RULED THAT PETITIONER IS AN EMPLOYEE OF
CMS AND FURTHER RULED THAT HE IS NOT ENTITLED TO HIS MONETARY CLAIMS.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS['] DECISION AND RESOLUTION
ARE CONTRARY TO LAW AND WELL-SETTLED RULE.14

Valencia points out that the CA, in ruling that he was an employee of CMS, relied heavily on the
employment contract which the latter caused him to sign. He argues, however, that the said contract
deserves scant consideration since aside from being improperly filled up (there were many portions
without entries), the same was not notarized. Valencia likewise stresses that ti.11e burden of proving
that CMS is a legitimate job contractor lies with respondents. Here, neither Classique Vinyl nor CMS
was able to present proof that the latter has substantial capital to do business as to be considered a
legitimate independent contractor. Hence, CMS is presumed to be a mere labor-only contractor and
Classique Vinyl, as CMS' principal, was Valencia's true employer. As to his alleged dismissal,
Valencia argues that respondents failed to establish just or authorized cause, thus, his dismissal was
illegal. Anent his monetary claims, Valencia invokes the principle that he who pleads payment has
the burden of proving it. Since respondents failed to present even a single piece of evidence that he
has been paid his labor standards benefits, he believes that he is entitled to recover them from
respondents who must be held jointly and severally liable for the same. Further, Valencia contends
that respondents should be assessed moral and exemplary damages for circumventing pertinent
labor laws by preventing him from attaining regular employment status. Lastly, for having been
compelled to engage the services of counsel, Valencia claims that he is likewise entitled to attorney's
fees.

For their part, respondents Classique Vinyl and Chang point out that the issues raised by Valencia
involve questions of fact which are not within the ambit of a petition for review on certiorari. Besides,
findings of facts of the labor tribunals when affirmed by the CA are generally binding on this Court. At
any rate, the said respondents reiterate the argun1ents they raised before the labor tribunals and the
CA.

With respect to respondent CMS, the Court dispensed with the filing of its comment15 when the
resolution requiring it to file one was returned to the Court unserved 16 and after Valencia informed
the Court that per Certification 17 of the Office of the Treasurer of Valenzuela City where CMS's office
was located, the latter had already closed down its business on March 21, 2012.

Our Ruling

There is no merit in the Petition.

The core issue here is whether there exists an employer-employee relationship between Classique
Vinyl and Valencia. Needless to state, it is from the said detennination that the other issues
raised, i.e., whether Valencia was illegally dismissed by Classique Vinyl and whether the latter is
liable for his monetary claims, hinge. However, as correctly pointed out by Classique Vinyl, "[t]he
issue of whether or not an employer-employee relationship existed between [Valencia] and
[Classique Vinyl] is essentially a question of fact." 18 "The Court is not a trier of facts and will not
review the factual findings of the lower tribunals as these are generally binding and
conclusive."'19 While there are recognized exceptions,20 none of them applies in this case.
Even if otherwise, the Court is not inclined to depart from the uniform findings of the Labor Arbiter,
the NLRC and the CA.

"It is an oft-repeated rule that in labor cases, as in other administrative and quasi-judicial
proceedings, 'the quantum of proof necessary is substantial evidence, or such amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion.’ ‘The burden of
proof rests upon the party who asserts the affirmative of an issue’."21 Since it is Valencia here who is
claiming to be an employee of Classique Vinyl, it is thus incumbent upon him to proffer evidence to
prove the existence of employer-employee relationship between them. He "needs to show by
substantial evidence that he was indeed an employee of the company against which he claims illegal
dismissal."22 Corollary, the burden to prove the elements of an employer-employee
relationship, viz.: (1) the selection and engagement of the employee; (2) the payment of wages; (3)
the power of dismissal; and (4) the power of control, lies upon Valencia.

Indeed, there is no hard and fast rule designed to establish the aforementioned elements of
employer-employee relationship.23 "Any competent and relevant evidence to prove the relationship
may be admitted."24 In this case, however, Valencia failed to present competent evidence,
documentary or otherwise, to support his claimed employer-employee relationship between him and
Classique Vinyl. All he advanced were mere factual assertions unsupported by proof.

In fact, most of Valencia's allegations even militate against his claim that Classique Vinyl was his
true employer. For one, Valencia stated in his Sinumpaang Salaysay that his application was
actually received and processed by CMS which required him to submit the necessary requirements
for employment. Upon submission thereof, it was CMS that caused him to sign an employment
contract, which upon perusal, is actually a contract between him and CMS. It was only after he was
engaged as a contractual employee of CMS that he was deployed to Classique Vinyl. Clearly,
Valencia's selection and engagement was undertaken by CMS and conversely, this negates the
existence of such element insofar as Classique Vinyl is concerned. It bears to state, in addition, that
as opposed to Valencia's argument, the lack of notarization of the said employment contract did not
adversely affect its veracity and effectiveness since significantly, Valencia does not deny having
signed the same.25 The CA, therefore, did not err in relying on the said employment contract in its
determination of the merits of this case. For another, Valencia himself acknowledged that the pay
slips26 he submitted do not bear the name of Classique Vinyl. While the Court in Vinoya v. National
Labor Relations Commission27took judicial notice of the practice of employer to course through the
purported contractor the act of paying wages to evade liabilities under the Labor Code, hence, the
non-appearance of employer's name in the pay slip, the Court is not inclined to rule that such is the
case here. This is conside1ing that although CMS claimed in its supplemental Position
Paper/Comment that the money it used to pay Valencia's wages came from Classique Vinyl,28 the
same is a mere allegation without proof Moreover, such allegation is inconsistent with CMS's earlier
assertion in its Position Paper29 that Valencia received from it non-cash wages in an approximate
amount of ₱3,000.00. A clear showing of the element of payment of wages by Classique Vinyl is
therefore absent.

Aside from the afore-mentioned inconsistent allegations of Valencia, his claim that his work was
supervised by Classique Vinyl does not hold water. Again, the Court finds the same as a self-serving
assertion unworthy of credence. On the other hand, the employment contract which Valencia signed
with CMS categorically states that the latter possessed not only the power of control but also of
dismissal over him, viz.:

xxxx
2. That the employee shall observe all rules and regulations of the company during the period of
employment and [the] lawful instructions of the management or its representatives. Failure to do so
or if performance is below company standards, management [has] the right to immediately cancel
this contract.

x x x x30

Clearly, therefore, no error can be attributed on the part of the labor tribunals and the CA in ruling
out the existence of employer-employee relationship between Valencia and Classique Vinyl.

Further, the Court finds untenable Valencia's argument that neither Classique Vinyl nor CMS was
able to present proof that the latter is a legitimate independent contractor and therefore, unable to
rebut the presumption that a contractor is presumed to be a labor-only contractor. "Genera1ly, the
presumption is that the contractor is a labor-only [contractor] unless such contractor overcomes the
burden of proving that it has the substantial capital, investment, tools and the lik.e."31 Here, to prove
that CMS was a legitimate contractor, Classique Vinyl presented the former's Certificate of
Registration32 with the Department of Trade and Industry and, License33 as private recruitment and
placement agency from the Department of Labor and Employment. Indeed, these documents are not
conclusive evidence of the status of CMS as a contractor. However, such fact of registration of CMS
prevented the legal presumption of it being a mere labor-only contractor from arising.34 In any event,
it must be stressed that "in labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is
considered merely an agent of the principal employer and the latter is responsible to the employees
of the labor-only contractor as if such employees had been directly employed by the principal
employer. The principal employer therefore becomes solidarily liable with the labor-only contractor
for all the rightful claims of the employees."35 The facts of this case, however, failed to establish that
there is any circumvention of labor laws as to call for the creation by the statute of an employer-
employee relationship between Classique Vinyl and Valencia. In fact, even as against CMS,
Valencia's money claims has been debunked by the labor tribunals and the CA. Again, the Court is
not inclined to disturb the same.

In view of the above disquisition, the Court finds no necessity to dwell on the issue of whether
Valencia was illegally dismissed by Classique Vinyl and whether the latter is liable for Valencia's
money claims.

WHEREFORE, the Petition for Review on Certiorari is DENIED. 'The assailed December 5, 2012
Decision and March 18, 2013 Resolution of the Court of Appeals in CA-G.R. SP No. 120999
are AFFIRMED.

SO ORDERED.

B. Independent Contractors and Labor-Only Contractors

Labor Code: Articles 106-109
Department Order No. 174,series of 2017
Department Circular No. 01 series of 2017
CASES:
1)

G.R. No. 146408 February 29, 2008

PHILIPPINE AIRLINES, INC., petitioner,

vs.
ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER,
NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P.
CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON
CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R.
LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO
AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE, and ALLAN
BENTUZAL, respondents.

DECISION

CARPIO MORALES, J.:

Petitioner Philippine Airlines as Owner, and Synergy Services Corporation (Synergy) as Contractor,
entered into an Agreement1 on July 15, 1991 whereby Synergy undertook to "provide loading,
unloading, delivery of baggage and cargo and other related services to and from [petitioner]'s aircraft
at the Mactan Station."2

The Agreement specified the following "Scope of Services" of Contractor Synergy:

1.2 CONTRACTOR shall furnish all the necessary capital, workers, loading, unloading and
delivery materials, facilities, supplies, equipment and tools for the satisfactory performance
and execution of the following services (the Work):

a. Loading and unloading of baggage and cargo to and from the aircraft;

b. Delivering of baggage from the ramp to the baggage claim area;

c. Picking up of baggage from the baggage sorting area to the designated parked aircraft;

d. Delivering of cargo unloaded from the flight to cargo terminal;

e. Other related jobs (but not janitorial functions) as may be required and necessary;

CONTRACTOR shall perform and execute the aforementioned Work at the following
areas located at Mactan Station, to wit:

a. Ramp Area

b. Baggage Claim Area

c. Cargo Terminal Area, and

d. Baggage Sorting Area3 (Underscoring supplied)

And it expressly provided that Synergy was "an independent contractor and . . . that there w[ould] be
no employer-employee relationship between CONTRACTOR and/or its employees on the one hand,
and OWNER, on the other."4

On the duration of the Agreement, Section 10 thereof provided:

10. 1 Should at any time OWNER find the services herein undertaken by CONTRACTOR to
be unsatisfactory, it shall notify CONTRACTOR who shall have fifteen (15) days from such
notice within which to improve the services. If CONTRACTOR fails to improve the services
under this Agreement according to OWNER'S specifications and standards, OWNER shall
have the right to terminate this Agreement immediately and without advance notice.

10.2 Should CONTRACTOR fail to improve the services within the period stated above or
should CONTRACTOR breach the terms of this Agreement and fail or refuse to perform the
Work in such a manner as will be consistent with the achievement of the result therein
contracted for or in any other way fail to comply strictly with any terms of this
Agreement, OWNER at its option, shall have the right to terminate this Agreement and to
make other arrangements for having said Work performed and pursuant thereto shall retain
so much of the money held on the Agreement as is necessary to cover the OWNER's costs
and damages, without prejudice to the right of OWNER to seek resort to the bond furnished
by CONTRACTOR should the money in OWNER's possession be insufficient.

x x x x (Underscoring supplied)

Except for respondent Benedicto Auxtero (Auxtero), the rest of the respondents, who appear to have
been assigned by Synergy to petitioner following the execution of the July 15, 1991 Agreement, filed
on March 3, 1992 complaints before the NLRC Regional Office VII at Cebu City against petitioner,
Synergy and their respective officials for underpayment, non-payment of premium pay for
holidays, premium pay for rest days, service incentive leave pay, 13th month pay and allowances,
and for regularization of employment status with petitioner, they claiming to be "performing duties for
the benefit of [petitioner] since their job is directly connected with [its] business x x x."5

Respondent Auxtero had initially filed a complaint against petitioner and Synergy and their
respective officials for regularization of his employment status. Later alleging that he was, without
valid ground, verbally dismissed, he filed a complaint against petitioner and Synergy and their
respective officials for illegal dismissal and reinstatement with full backwages.6

The complaints of respondents were consolidated.

By Decision7 of August 29, 1994, Labor Arbiter Dominador Almirante found Synergy an independent
contractor and dismissed respondents' complaint for regularization against petitioner, but granted
their money claims. The fallo of the decision reads:

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

(1) Ordering respondents PAL and Synergy jointly and severally to pay all the complainants
herein their 13thmonth pay and service incentive leave benefits;

xxxx
 (3) Ordering respondent Synergy to pay complainant Benedicto Auxtero a financial
assistance in the amount of P5,000.00.

The awards hereinabove enumerated in the aggregate total amount of THREE HUNDRED
TWENTY-TWO THOUSAND THREE HUNDRED FIFTY NINE PESOS AND EIGHTY
SEVEN CENTAVOS (P322,359.87) are computed in detail by our Fiscal Examiner which
computation is hereto attached to form part of this decision.

The rest of the claims are hereby ordered dismissed for lack of merit.8 (Underscoring
supplied)

On appeal by respondents, the NLRC, Fourth Division, Cebu City, vacated and set aside the
decision of the Labor Arbiter by Decision9 of January 5, 1996, the fallo of which reads:

WHEREFORE, the Decision of the Labor Arbiter Dominador A. Almirante, dated August 29,
1994, is hereby VACATED and SET ASIDE and judgment is hereby rendered:

1. Declaring respondent Synergy Services Corporation to be a 'labor-only' contractor;

2. Ordering respondent Philippine Airlines to accept, as its regular employees, all the
complainants, . . . and to give each of them the salaries, allowances and other employment
benefits and privileges of a regular employee under the Collective Bargaining Agreement
subsisting during the period of their employment;

xxxx

4. Declaring the dismissal of complainant Benedicto Auxtero to be illegal and ordering his
reinstatement as helper or utility man with respondent Philippine Airlines, with full
backwages, allowances and other benefits and privileges from the time of his dismissal up to
his actual reinstatement; and

5. Dismissing the appeal of respondent Synergy Services Corporation, for lack of

merit.10 (Emphasis and underscoring supplied)

Only petitioner assailed the NLRC decision via petition for certiorari before this Court.

By Resolution11 of January 25, 1999, this Court referred the case to the Court of Appeals for
appropriate action and disposition, conformably with St. Martin Funeral Homes v. National Labor
Relations Commission which was promulgated on September 16, 1998.

The appellate court, by Decision of September 29, 2000, affirmed the Decision of the
NLRC.12 Petitioner's motion for reconsideration having been denied by Resolution of December 21,
2000,13 the present petition was filed, faulting the appellate court

I.

. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION DECISION

WHICH IMPOSED THE RELATIONSHIP OF EMPLOYER-EMPLOYEE BETWEEN
PETITIONER AND THE RESPONDENTS HEREIN.

II.
 . . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR RELATIONS
COMMISSION ORDERING THE REINSTATEMENT OF RESPONDENT AUXTERO
DESPITE THE ABSENCE [OF] ANY FACTUAL FINDINGIN THE DECISION THAT
PETITIONER ILLEGALLY TERMINATED HIS EMPLOYMENT.

III.

. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE ERROR IN UPHOLDING
THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION WHICH
COMPELLED THE PETITIONER TO EMPLOY THE RESPONDENTS AS REGULAR
EMPLOYEES DESPITE THE FACT THAT THEIR SERVICES ARE IN EXCESS OF
PETITIONER COMPANY'S OPERATIONAL REQUIREMENTS.14(Underscoring supplied)

Petitioner argues that the law does not prohibit an employer from engaging an independent
contractor, like Synergy, which has substantial capital in carrying on an independent business of
contracting, to perform specific jobs.

Petitioner further argues that its contracting out to Synergy various services like janitorial, aircraft
cleaning, baggage-handling, etc., which are directly related to its business, does not make
respondents its employees.

Petitioner furthermore argues that none of the four (4) elements of an employer-employee
relationship between petitioner and respondents, viz: selection and engagement of an employee,
payment of wages, power of dismissal, and the power to control employee's conduct, is present in
the case.15

Finally, petitioner avers that reinstatement of respondents had been rendered impossible because it
had reduced its personnel due to heavy losses as it had in fact terminated its service agreement with
Synergy effective June 30, 199816 as a cost-saving measure.

The decision of the case hinges on a determination of whether Synergy is a mere job-only contractor
or a legitimate contractor. If Synergy is found to be a mere job-only contractor, respondents could be
considered as regular employees of petitioner as Synergy would then be a mere agent of petitioner
in which case respondents would be entitled to all the benefits granted to petitioner's regular
employees; otherwise, if Synergy is found to be a legitimate contractor, respondents' claims against
petitioner must fail as they would then be considered employees of Synergy.

The statutory basis of legitimate contracting or subcontracting is provided in Article 106 of the Labor
Code which reads:

ART. 106. CONTRACTOR OR SUBCONTRACTOR. - Whenever an employer enters into a

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

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

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

Legitimate contracting and labor-only contracting are defined in Department Order (D.O.) No. 18-02,
Series of 2002 (Rules Implementing Articles 106 to 109 of the Labor Code, as amended) as follows:

Section 3. Trilateral relationship in contracting arrangements. In legitimate contracting,

there exists a trilateral relationship under which there is a contract for a specific job, work or
service between the principal and the contractor or subcontractor, and a contract of
employment between the contractor or subcontractor and its workers. Hence, there are three
parties involved in these arrangements, the principal which decides to farm out a job or
service to a contractor or subcontractor, the contractor or subcontractor which has the
capacity to independently undertake the performance of the job, work or service, and the
contractual workersengaged by the contractor or subcontractor to accomplish the job, work
or service. (Emphasis and underscoring supplied)

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

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

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

(ii) The contractor does not exercise the right to control over the performance of the
work of the contractual employee. (Emphasis, underscoring and capitalization supplied)

"Substantial capital or investment" and the "right to control" are defined in the same Section 5 of the
Department Order as follows:

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in

the case of corporations, tools, equipment, implements, machineries and work premises,
actually and directly used by the contractor or subcontractor in the performance or
completion of the job, work or service contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of
the contractual workers are performed, to determine not only the end to be achieved, but
 also the manner and means to be used in reaching that end. (Emphasis and underscoring
supplied)

From the records of the case, it is gathered that the work performed by almost all of the respondents
- loading and unloading of baggage and cargo of passengers - is directly related to the main
business of petitioner. And the equipment used by respondents as station loaders, such as trailers
and conveyors, are owned by petitioner.17

Petitioner asserts, however, that mere compliance with substantial capital requirement suffices for
Synergy to be considered a legitimate contractor, citing Neri v. National Labor Relations
Commission.18 Petitioner's reliance on said case is misplaced.

In Neri, the Labor Arbiter and the NLRC both determined that Building Care Corporation had a
capital stock of P1 million fully subscribed and paid for.19 The corporation's status as independent
contractor had in fact been previously confirmed in an earlier case20 by this Court which found it to
be serving, among others, a university, an international bank, a big local bank, a hospital center,
government agencies, etc."

In stark contrast to the case at bar, while petitioner steadfastly asserted before the Labor Arbiter and
the NLRC that Synergy has a substantial capital to engage in legitimate contracting, it failed to
present evidence thereon. As the NLRC held:

The decision of the Labor Arbiter merely mentioned on page 5 of his decision that
respondent SYNERGY has substantial capital, but there is no showing in the records as to
how much is that capital. Neither had respondents shown that SYNERGY has such
substantial capital. x x x21 (Underscoring supplied)

It was only after the appellate court rendered its challenged Decision of September 29, 2002 when
petitioner, in its Motion for Reconsideration of the decision, sought to prove, for the first time,
Synergy's substantial capitalization by attaching photocopies of Synergy's financial statements, e.g.,
balance sheets, statements of income and retained earnings, marked as "Annexes 'A' - 'A-4.'"22

More significantly, however, is that respondents worked alongside petitioner's regular employees
who were performing identical work.23 As San Miguel Corporation v. Aballa24 and Dole Philippines,
Inc. v. Esteva, et al.25teach, such is an indicium of labor-only contracting.

For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which requires any of two elements
to be present is, for convenience, re-quoted:

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

(ii) The contractor does not exercise the right to control over the performance of the work of
the contractual employee. (Emphasis and CAPITALIZATION supplied)

Even if only one of the two elements is present then, there is labor-only contracting.

The control test element under the immediately-quoted paragraph (ii), which was not present in the
old Implementing Rules (Department Order No. 10, Series of 1997),26 echoes the prevailing
jurisprudential trend27elevating such element as a primary determinant of employer-employee
relationship in job contracting agreements.

One who claims to be an independent contractor has to prove that he contracted to do the work
according to his own methods and without being subject to the employer's control except only as to
the results.28

While petitioner claimed that it was Synergy's supervisors who actually supervised respondents, it
failed to present evidence thereon. It did not even identify who were the Synergy supervisors
assigned at the workplace.

Even the parties' Agreement does not lend support to petitioner's claim, thus:

Section 6. Qualified and Experienced Worker: Owner's Right to Dismiss Workers.

CONTRACTOR shall employ capable and experienced workers and foremen to carry out the
loading, unloading and delivery Work as well as provide all equipment, loading, unloading
and delivery equipment, materials, supplies and tools necessary for the performance of the
Work. CONTRACTOR shall upon OWNER'S request furnish the latter with information
regarding the qualifications of the former's workers, to prove their capability and
experience. Contractor shall require all its workers, employees, suppliers and
visitors to comply with OWNER'S rules, regulations, procedures and directives
relative to the safety and security of OWNER'S premises, properties and
operations. For this purpose, CONTRACTOR shall furnish its employees and
workers identification cards to be countersigned by OWNER and uniforms to be
approved by OWNER. OWNER may require CONTRACTOR to dismiss immediately and
prohibit entry into OWNER'S premises of any person employed therein by
CONTRACTOR who in OWNER'S opinion is incompetent or misconducts himself
or does not comply with OWNER'S reasonable instructions and requests regarding
security, safety and other matters and such person shall not again be employed to perform
the services hereunder without OWNER'S permission.29 (Underscoring partly in the original
and partly supplied; emphasis supplied)

Petitioner in fact admitted that it fixes the work schedule of respondents as their work was
dependent on the frequency of plane arrivals.30 And as the NLRC found, petitioner's managers and
supervisors approved respondents' weekly work assignments and respondents and other regular
PAL employees were all referred to as "station attendants" of the cargo operation and airfreight
services of petitioner.31

Respondents having performed tasks which are usually necessary and desirable in the air
transportation business of petitioner, they should be deemed its regular employees and Synergy as
a labor-only contractor.32

The express provision in the Agreement that Synergy was an independent contractor and there
would be "no employer-employee relationship between [Synergy] and/or its employees on one hand,
and [petitioner] on the other hand" is not legally binding and conclusive as contractual provisions are
not valid determinants of the existence of such relationship. For it is the totality of the facts and
surrounding circumstances of the case33 which is determinative of the parties' relationship.

Respecting the dismissal on November 15, 199234 of Auxtero, a regular employee of petitioner who
had been working as utility man/helper since November 1988, it is not legally justified for want of just
or authorized cause therefor and for non-compliance with procedural due process. Petitioner's claim
that he abandoned his work does not persuade.35 The elements of abandonment being (1) the failure
to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the
employer-employee relationship manifested by some overt acts,36 the onus probandi lies with
petitioner which, however, failed to discharge the same.

Auxtero, having been declared to be a regular employee of petitioner, and found to be illegally
dismissed from employment, should be entitled to salary differential37 from the time he rendered one
year of service until his dismissal, reinstatement plus backwages until the finality of this decision.38 In
view, however, of the long period of time39 that had elapsed since his dismissal on November 15,
1992, it would be appropriate to award separation pay of one (1) month salary for each year of
service, in lieu of reinstatement.40

As regards the remaining respondents, the Court affirms the ruling of both the NLRC and the
appellate court, ordering petitioner to accept them as its regular employees and to give each of them
the salaries, allowances and other employment benefits and privileges of a regular employee under
the pertinent Collective Bargaining Agreement.

Petitioner claims, however, that it has become impossible for it to comply with the orders of the
NLRC and the Court of Appeals, for during the pendency of this case, it was forced to reduce its
personnel due to heavy losses caused by economic crisis and the pilots' strike of June 5,
1998.41 Hence, there are no available positions where respondents could be placed.

And petitioner informs that "the employment contracts of all if not most of the respondents . . . were
terminated by Synergy effective 30 June 1998 when petitioner terminated its contract with
Synergy."42

Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of
compliance. In fact, petitioner waived this defense by failing to raise it in its Memorandum filed on
June 14, 1999 before the Court of Appeals.43 Further, the notice of termination in 1998 was in
disregard of a subsisting temporary restraining order44to preserve the status quo, issued by this
Court in 1996 before it referred the case to the Court of Appeals in January 1999. So as to thwart the
attempt to subvert the implementation of the assailed decision, respondents are deemed to be
continuously employed by petitioner, for purposes of computing the wages and benefits due
respondents.

Finally, it must be stressed that respondents, having been declared to be regular employees of
petitioner, Synergy being a mere agent of the latter, had acquired security of tenure. As such, they
could only be dismissed by petitioner, the real employer, on the basis of just or authorized cause,
and with observance of procedural due process.

WHEREFORE, the Court of Appeals Decision of September 29, 2000

is AFFIRMED with MODIFICATION.

Petitioner PHILIPPINE AIRLINES, INC. is ordered to:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS,
RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL
GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO
BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA,
CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES,
EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular
employees in their same or substantially equivalent positions, and pay the wages and benefits
due them as regular employees plus salary differential corresponding to the difference between
the wages and benefits given them and those granted to petitioner's other regular employees of the
same rank; and

(b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time of his
dismissal until the finality of this decision; and separation pay, in lieu of reinstatement, equivalent to
one (1) month pay for every year of service until the finality of this decision.

There being no data from which this Court may determine the monetary liabilities of petitioner, the
case is REMANDED to the Labor Arbiter solely for that purpose.

SO ORDERED.

2)

SAN MIGUEL CORPORATION, petitioner

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

DECISION

CARPIO-MORALES, J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas
Area Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose
Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong,
entered into a one-year Contract of Services1 commencing on January 1, 1993, to be renewed on a
month to month basis until terminated by either party. The pertinent provisions of the contract read:

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

A. Messengerial/Janitorial

B. Shrimp Harvesting/Receiving

C. Sanitation/Washing/Cold Storage2

2. To carry out the undertaking specified in the immediately preceding paragraph, the
cooperative shall employ the necessary personnel and provide adequate equipment,
materials, tools and apparatus, to efficiently, fully and speedily accomplish the work and
services undertaken by the cooperative. xxx

3. In consideration of the above undertaking the company expressly agrees to pay the
cooperative the following rates per activity:

A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five

Hundred Pesos Only (P19,500.00)

B. Harvesting/Shrimp Receiving. – Piece rate of P0.34/kg. Or P100.00 minimum per

person/activity whichever is higher, with provisions as follows:

P25.00 Fixed Fee per person

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

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

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

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

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

4. There is no employer-employee relationship between the company and the cooperative, or

the cooperative and any of its members, or the company and any members of the
cooperative. The cooperative is an association of self-employed members, an independent
contractor, and an entrepreneur. It is subject to the control and direction of the company only
as to the result to be accomplished by the work or services herein specified, and not as to
the work herein contracted. The cooperative and its members recognize that it is taking a
 business risk in accepting a fixed service fee to provide the services contracted for and its
realization of profit or loss from its undertaking, in relation to all its other undertakings, will
depend on how efficiently it deploys and fields its members and how they perform the work
and manage its operations.

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

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

xxx

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

The cooperative further undertakes to submit to the company within the first ten (10) days of
every month, a statement made, signed and sworn to by its duly authorized representative
before a notary public or other officer authorized by law to administer oaths, to the effect that
the cooperative has paid all wages or salaries due to its employees or personnel for services
rendered by them during the month immediately preceding, including overtime, if any, and
that such payments were all in accordance with the requirements of law.

xxx

12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for
a period of one (1) year commencing on January 1, 1993. Thereafter, this Contract will be
deemed renewed on a month-to-month basis until terminated by either party by sending a
written notice to the other at least thirty (30) days prior to the intended date of termination.

xxx3 (Underscoring supplied)

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

In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch
No. VI, Bacolod City, praying to be declared as regular employees of SMC, with claims for recovery
of all benefits and privileges enjoyed by SMC rank and file employees.
Private respondents subsequently filed on September 25, 1995 an Amended Complaint4 to include
illegal dismissal as additional cause of action following SMC’s closure of its Bacolod Shrimp
Processing Plant on September 15, 19955 which resulted in the termination of their services.

SMC filed a Motion for Leave to File Attached Third Party Complaint6 dated November 27, 1995 to
implead Sunflower as Third Party Defendant which was, by Order7 of December 11, 1995, granted
by Labor Arbiter Ray Alan T. Drilon.

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the
Department of Labor and Employment (DOLE) a Notice of Closure8 of its aquaculture operations
effective on even date, citing serious business losses.

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

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

xxx

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

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

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

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

xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant, who
were accordingly terminated following the legal requisites prescribed by law. The closure, however,
in so far as the complainants are concerned, resulted in the termination of SMC’s service contract
with their cooperative xxx9(Underscoring supplied)
Private respondents appealed to the NLRC.

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

Private respondents’ Motion for Reconsideration11 having been denied by the NLRC for lack of merit
by Resolution of September 10, 1999, they filed a petition for certiorari12 before the Court of Appeals
(CA).

Before the CA, SMC filed a Motion to Dismiss13 private respondents’ petition for non-compliance with
the Rules on Civil Procedure and failure to show grave abuse of discretion on the part of the NLRC.

SMC subsequently filed its Comment14 to the petition on March 30, 2000.

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

WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1)

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

No pronouncement as to costs.

SO ORDERED.15 (Underscoring supplied)

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

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

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

Even without these instances indicative of control by SMC over the petitioners, it is safe to assume
that SMC would never have allowed the petitioners to work within its premises, using its own
facilities, equipment and tools, alongside SMC employees discharging similar or identical activities
unless it exercised a substantial degree of control and supervision over the petitioners not only as to
the manner they performed their functions but also as to the end results of such functions.

xxx

xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent
contractors. [Sunflower] and the petitioners did not have substantial capital or investment in the form
of tools, equipment, implements, work premises, et cetera necessary to actually perform the service
under their own account, responsibility, and method. The only "work premises" maintained by
[Sunflower] was a small office within the confines of a small "carinderia" or refreshment parlor owned
by the mother of its chair, Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-
525) and, the only assets it provided SMC were the bare bodies of its members, the petitioners
herein (rollo, p. 523).

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

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

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

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

xxx

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

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

Furthermore, since the closure of the aquaculture operations of SMC appears to be valid,
reinstatement is no longer feasible. Consistent with the pronouncement in Bustamante, et al., vs.
NLRC, G.R. No. 111651, 28 November 1996, petitioners are thus entitled to separation pay (in the
computation similar to those given to regular SMC employees at its Bacolod Shrimp Processing
Plant) "with full backwages, inclusive of allowances and other benefits or their monetary equivalent,
from the time their actual compensation was withheld from them" up to the time of the finality of this
decision. This is without prejudice to differentials pays (sic) effective as of and from the time
petitioners acquired regular employment status pursuant to the discussion mentioned above, and all
such other and further benefits as provided by applicable collective bargaining agreement(s) or other
relations, or by law, beginning such time up to their termination from employment on 11 September
1995.16 (Emphasis and underscoring supplied)

SMC’s Motion for Reconsideration17 having been denied for lack of merit by Resolution of July 11,
2001, it comes before this Court via the present petition for review on certiorari assigning to the CA
the following errors:

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

II

THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS

COMPLAINANTS IN THE CASE BEFORE THE LABOR ARBITER. IN DOING SO, THE COURT OF
APPEALS DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT.

III

THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE

EMPLOYEES OF SMC.

IV

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

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

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

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

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

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

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

This Court is not persuaded. The records show that private respondents appended the following
documents to their petition before the appellate court: the September 23, 1997 Decision of the Labor
Arbiter,29 their Notice of Appeal with Appeal Memorandum dated October 16, 1997 filed before the
NLRC,30 the December 29, 1998 NLRC D E C I S I O N,31 their Motion for Reconsideration dated
March 26, 1999 filed with the NLRC32 and the September 10, 1999 NLRC Resolution.33

It bears stressing at any rate that it is the appellate court which ultimately determines if the
supporting documents are sufficient to make out a prima facie case.34 It discerns whether on the
basis of what have been submitted it could already judiciously determine the merits of the
petition.35 In the case at bar, the CA found that the petition was adequately supported by relevant
and pertinent documents.
At all events, this Court has allowed a liberal construction of the rule on the accomplishment of a
certificate of non-forum shopping in the following cases: (1) where a rigid application will result in
manifest failure or miscarriage of justice; (2) where the interest of substantial justice will be served;
(3) where the resolution of the motion is addressed solely to the sound and judicious discretion of
the court; and (4) where the injustice to the adverse party is not commensurate with the degree of
his thoughtlessness in not complying with the procedure prescribed.36

Rules of procedure should indeed be viewed as mere tools designed to facilitate the attainment of
justice. Their strict and rigid application, which would result in technicalities that tend to frustrate
rather than promote substantial justice, must always be eschewed.37

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

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

SMC further faults the appellate court in giving due course to private respondents’ petition despite
the fact that the complaint filed before the labor arbiter was signed and verified only by private
respondent Winifredo Talite; that private respondents’ position paper40 was verified by only six41 out
of the ninety seven complainants; and that their Joint-Affidavit42 was executed only by twelve43 of the
complainants.

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

SMC’s position does not lie.

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

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

Section 7. Authority to bind party. – Attorneys and other representatives of parties shall have
authority to bind their clients in all matters of procedure; but they cannot, without a special power of
attorney or express consent, enter into a compromise agreement with the opposing party in full or
partial discharge of a client’s claim. (Underscoring supplied)
As regards private respondents’ position paper which bore the signatures of only six of them,
appended to it was an Authority/Confirmation of Authority45 signed by the ninety one others
conferring authority to their counsel "to file RAB Case No. 06-07-10316-95, entitled Winifredo
Talite et al. v. San Miguel Corporation presently pending before the sala of Labor Arbiter Ray Alan
Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City" and appointing him as their
retained counsel to represent them in the said case.

That there has been substantial compliance with the requirement on verification of position papers
under Section 3, Rule V of the 1990 NLRC Rules of Procedure46 is not difficult to appreciate in light
of the provision of Section 7, Rule V of the 1990 NLRC Rules, now Section 9, Rule V of the 1999
NLRC Rules which reads:

Section 7. Nature of Proceedings. – The proceedings before a Labor Arbiter shall be non-litigious in
nature. Subject to the requirements of due process, the technicalities of law and procedure and the
rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter may avail
himself of all reasonable means to ascertain the facts of the controversy speedily, including ocular
inspection and examination of well-informed persons. (underscoring supplied)

As regards private respondents’ Joint-Affidavit which is being assailed in view of the failure of some
complainants to affix their signatures thereon, this Court quotes with approval the appellate court’s
ratiocinations:

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

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

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

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

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

ART. 221. Technical rules not binding and prior resort to amicable settlement. – In any
proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in
courts of law or equity shall not be controlling and it is the spirit and intention of this Code that the
Commission and its members and the Labor Arbiters shall use every and all reasonable means to
ascertain the facts in each case speedily and objectively and without regard to technicalities of law
or procedure, all in the interest of due process. xxx

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

On the merits, the petition just the same fails.

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

Article 106 of the Labor Code provides:

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

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

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

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

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

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there

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

Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis hereby declared
prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or
service for a principal, and any of the following elements are present:

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

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

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

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case
of corporations, tools, equipment, implements, machineries and work premises, actually and directly
used by the contractor or subcontractor in the performance or completion of the job, work or service
contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.

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

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

In labor-only contracting, the statute creates an employer-employee relationship for a

comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered
merely an agent of the principal employer and the latter is responsible to the employees of the labor-
only contractor as if such employees had been directly employed by the principal employer.51

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

SMC argues that Sunflower could not have been issued a certificate of registration as a cooperative
if it had no substantial capital.54
While indeed Sunflower was issued Certificate of Registration No. IL0-87555 on February 10, 1992 by
the Cooperative Development Authority, this merely shows that it had at least ₱2,000.00 in paid-up
share capital as mandated by Section 5 of Article 1456 of Republic Act No. 6938, otherwise known as
the Cooperative Code, which amount cannot be considered substantial capitalization.

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

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

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

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

xxx

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

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

And from the job description provided by SMC itself, the work assigned to private respondents
was directly relatedto the aquaculture operations of SMC. Undoubtedly, the nature of the work
performed by private respondents in shrimp harvesting, receiving and packing formed an integral
part of the shrimp processing operations of SMC. As for janitorial and messengerial services, that
they are considered directly related to the principal business of the employer58 has been
jurisprudentially recognized.

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

Thus, it is gathered from the evidence adduced by private respondents before the labor arbiter that
their daily time records were signed by SMC supervisors Ike Puentebella, Joemel Haro, Joemari
Raca, Erwin Tumonong, Edison Arguello, and Stephen Palabrica, which fact shows that SMC
exercised the power of control and supervision over its employees.59 And control of the premises in
which private respondents worked was by SMC. These tend to disprove the independence of the
contractor.60
More. Private respondents had been working in the aqua processing plant inside the SMC
compound alongside regular SMC shrimp processing workers performing identical jobs under the
same SMC supervisors.61 This circumstance is another indicium of the existence of a labor-only
contractorship.62

And as private respondents alleged in their Joint Affidavit which did not escape the observation of
the CA, no showing to the contrary having been proffered by SMC, Sunflower did not cater to clients
other than SMC,63 and with the closure of SMC’s Bacolod Shrimp Processing Plant, Sunflower
likewise ceased to exist. This Court’s ruling in San Miguel Corporation v. MAERC Integrated
Services, Inc.64 is thus instructive.

xxx Nor do we believe MAERC to have an independent business. Not only was it set up to
specifically meet the pressing needs of SMC which was then having labor problems in its
segregation division, none of its workers was also ever assigned to any other establishment, thus
convincing us that it was created solely to service the needs of SMC. Naturally, with the severance
of relationship between MAERC and SMC followed MAERC’s cessation of operations, the loss of
jobs for the whole MAERC workforce and the resulting actions instituted by the
workers.65(Underscoring supplied)

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

Since private respondents who were engaged in shrimp processing performed tasks usually
necessary or desirable in the aquaculture business of SMC, they should be deemed regular
employees of the latter66 and as such are entitled to all the benefits and rights appurtenant to regular
employment.67 They should thus be awarded differential pay corresponding to the difference
between the wages and benefits given them and those accorded SMC’s other regular employees. 1aw phi 1.zw+

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

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

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

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

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

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

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

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

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

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

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

In the case at bar, company losses were duly established by financial documents audited by Joaquin
Cunanan & Co. showing that the aquaculture operations of SMC’s Agribusiness Division
accumulated losses amounting to ₱145,848,172.00 in 1992 resulting in the closure of its Calatrava
Aquaculture Center in Negros Occidental, ₱11,393,071.00 in 1993 and ₱80,325,608.00 in 1994
which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and the Bacolod
Shrimp Processing Plant in 1995.

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

For termination due to retrenchment to be valid, however, the law requires that written notices of the
intended retrenchment be served by the employer on the worker and on the DOLE at least one (1)
month before the actual date of the retrenchment,76 in order to give employees some time to prepare
for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of
the alleged cause of termination.77
Private respondents, however, were merely verbally informed on September 10, 1995 by SMC
Prawn Manager Ponciano Capay that effective the following day or on September 11, 1995, they
were no longer to report for work as SMC would be closing its operations.78

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

In light of the factual circumstances of the case at bar, this Court awards ₱50,000.00 to each private
respondent as nominal damages.

The grant of separation pay as an incidence of termination of employment due to retrenchment to

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

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

With respect to attorney’s fees, in actions for recovery of wages or where an employee was forced to
litigate and thus incurred expenses to protect his rights and interests,82 a maximum of ten percent
(10%) of the total monetary award83 by way of attorney’s fees is justifiable under Article 111 of the
Labor Code,84 Section 8, Rule VIII, Book III of its Implementing Rules,85 and paragraph 7, Article
2208 of the Civil Code.86 Although an express finding of facts and law is still necessary to prove the
merit of the award, there need not be any showing that the employer acted maliciously or in bad faith
when it withheld the wages. There need only be a showing that the lawful wages were not paid
accordingly, as in this case.87

Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant
to Rule VIII-A, Section 1988 of the Omnibus Rules Implementing the Labor Code, Sunflower is held
solidarily liable with SMC for all the rightful claims of private respondents.

WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and
Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED
to jointly and severally pay each private respondent differential pay from the time they became
regular employees up to the date of their termination; separation pay equivalent to at least one (1)
month pay or to at least one-half month pay for every year of service, whichever is higher, as
mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular
SMC employees that were terminated as a result of the retrenchment, depending on which is most
beneficial to private respondents; and ten percent (10%) attorney’s fees based on the herein
modified award.
Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount
of ₱50,000.00, representing nominal damages for non-compliance with statutory due process.

The award of backwages is DELETED.

SO ORDERED.

3)

G.R. No. 145402 March 14, 2008

MERALCO INDUSTRIAL ENGINEERING SERVICES CORPORATION, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, OFELIA P. LANDRITO GENERAL SERVICES
and/or OFELIA P. LANDRITO, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure seeking to reverse and set aside (1) the Decision1 of the Court of Appeals in CA-
G.R. SP No. 50806, dated 24 April 2000, which modified the Decision2 of the National Labor
Relations Commission (NLRC), dated 30 January 1996 in NLRC NCR CA No. 001737-91 (NLRC
NCR Case No. 00-09-04432-89), and thereby held the petitioner solidarily liable with the private
respondents for the satisfaction of the separation pay of the latter’s employees; and (2) the
Resolution3 of the appellate court, dated 27 September 2000, in the same case which denied the
petitioner’s Motion for Reconsideration.

Petitioner Meralco Industrial Engineering Services Corporation (MIESCOR) is a corporation duly

organized and existing under the laws of the Republic of the Philippines and a client of private
respondents. Private respondent Ofelia P. Landrito General Services (OPLGS) is a business firm
engaged in providing and rendering general services, such as janitorial and maintenance work to its
clients, while private respondent Ofelia P. Landrito is the Proprietor and General Manager of
OPLGS.

The factual milieu of the present case is as follows:

On 7 November 1984, petitioner and private respondents executed Contract Order No. 166-
84,4 whereby the latter would supply the petitioner janitorial services, which include labor, materials,
tools and equipment, as well as supervision of its assigned employees, at petitioner’s Rockwell
Thermal Plant in Makati City. Pursuant thereto, private respondents assigned their 49 employees as
janitors to petitioner’s Rockwell Thermal Plant with a daily wage of ₱51.50 per employee.

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

for illegal deduction, underpayment, non-payment of overtime pay, legal holiday pay, premium pay
for holiday and rest day and night differentials5 against the private respondents before the Labor
Arbiter. The case was docketed as NLRC NCR Case No. 00-09-04432-89.
In view of the enactment of Republic Act No. 6727,6 the contract between the petitioner and the
private respondents was amended7 for the 10th time on 3 November 1989 to increase the minimum
daily wage per employee from ₱63.55 to ₱89.00 or ₱2,670.00 per month. Two months thereafter, or
on 2 January 1990,8 petitioner sent a letter to private respondents informing them that effective at the
close of business hours on 31 January 1990, petitioner was terminating Contract Order No. 166-84.
Accordingly, at the end of the business hours on 31 January 1990, the complainants were pulled out
from their work at the petitioner’s Rockwell Thermal Plant. Thus, on 27 February 1990, complainants
amended their Complaint to include the charge of illegal dismissal and to implead the petitioner as a
party respondent therein.

Since the parties failed to settle amicably before the Labor Arbiter, they submitted their respective
position papers and other pleadings together with their documentary evidence. Thereafter, a
Decision was rendered by the Labor Arbiter on 26 March 1991, dismissing the Complaint against the
petitioner for lack of merit, but ordering the private respondents to pay the complainants the total
amount of ₱487,287.07 representing unpaid wages, separation pay and overtime pay; as well as
attorney’s fees in an amount equivalent to 10% of the award or ₱48,728.70. All other claims of the
complainants against the private respondents were dismissed. 9

Feeling aggrieved, private respondents appealed the aforesaid Decision to the NLRC. Private
respondents alleged, among other things, that: (1) 48 of the 49 complainants had executed affidavits
of desistance and they had never attended any hearing nor given any authority to anyone to file a
case on their behalf; (2) the Labor Arbiter erred in not conducting a full-blown hearing on the case;
(3) there is only one complainant in that case who submitted a position paper on his own; (4) the
complainants were not constructively dismissed when they were not given assignments within a
period of six months, but had abandoned their jobs when they failed to report to another place of
assignment; and (5) the petitioner, being the principal, was solidarily liable with the private
respondents for failure to make an adjustment on the wages of the complainants.10 On 28 May 1993,
the NLRC issued a Resolution11affirming the Decision of the Labor Arbiter dated 26 March 1991 with
the modification that the petitioner was solidarily liable with the private respondents, ratiocinating
thus:

We, however, disagree with the dismissal of the case against [herein petitioner]. Under Art. 10712 of
the Labor Code of the Philippines, [herein petitioner] is considered an indirect employer and can be
held solidarily liable with [private respondents] as an independent contractor. Under Art. 109,13 for
purposes of determining the extent of its liability, [herein petitioner] is considered a direct employer,
hence, it is solidarily liable for complainant’s (sic) wage differentials and unpaid overtime. We find
this situation obtaining in this case in view of the failure of [private respondents] to pay in full the
labor standard benefits of complainants, in which case liability is limited thereto and does not extend
to the establishment of employer-employee relations.14 [Emphasis supplied].

Both private respondents and petitioner separately moved for reconsideration of the aforesaid
Resolution of the NLRC. In their Motion for Reconsideration, private respondents reiterated that the
complainants abandoned their work, so that private respondents should not be liable for separation
pay; and that petitioner, not private respondents, should be liable for complainants’ other monetary
claims, i.e., for wage differentials and unpaid overtime. The petitioner, in its own Motion for
Reconsideration, asked that it be excluded from liability. It averred that private respondents should
be solely responsible for their acts as it sufficiently paid private respondents all the benefits due the
complainants.

On 30 July 1993, the NLRC issued an Order15 noting that based on the records of the case, the
judgment award in the amount of ₱487,287.07 was secured by a surety bond posted by the private
respondents;16 hence, there was no longer any impediment to the satisfaction of the complainants’
claims. Resultantly, the NLRC denied the private respondents’ Motion for Reconsideration. The
NLRC likewise directed the Labor Arbiter to enforce the monetary award against the private
respondents’ surety bond and to determine who should finally shoulder the liability therefor.17

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

On 23 May 1994, however, this Court issued a Resolution18 dismissing G.R. No. 111506 for failure of
private respondents to sufficiently show that the NLRC had committed grave abuse of discretion in
rendering its questioned judgment. This Court’s Resolution in G.R. No. 111506 became final and
executory on 25 July 1994.19

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

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

As can be gleaned from the Resolution dated [28 May 1993], there is that necessity of clarifying the
respective liabilities of [herein petitioner] and [herein private respondents] insofar as the judgment
award in the total sum of ₱487,287.07 is concerned.

The judgment award in the total sum of ₱487,287.07 as contained in the Decision dated [26 March
1991] consists of three (3) parts, as follows: First, the judgment award on the underpayment;
Second, the judgment award on separation pay; and Third, the judgment award on the overtime pay.

The question now is: Which of these awards is [petitioner] solidarily liable with [private respondents]?

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

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

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

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

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

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

Again, both the private respondents and the petitioner appealed the afore-quoted Order of the Labor
Arbiter to the NLRC. On 25 April 1995, the NLRC issued a Resolution22 affirming the Order dated 5
October 1994 of the Labor Arbiter and dismissing both appeals for non-posting of the appeal or
surety bond and/or for utter lack of merit.23When the private respondents and the petitioner moved
for reconsideration, however, it was granted by the NLRC in its Order24 dated 27 July 1995. The
NLRC thus set aside its Resolution dated 25 April 1995, and directed the private respondents and
the petitioner to each post an appeal bond in the amount of ₱487,287.62 to perfect their respective
appeals.25 Both parties complied.26

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

WHEREFORE, the [21 November 1994] appeal of [herein petitioner] is hereby granted. The [5
October 1994] Order of Labor Arbiter Donato G. Quinto, Jr., is modified to the extent that it still
held [petitioner] as "jointly and severally liable with [herein private respondents] in the judgment
award on underpayment and on the non-payment of overtime pay," our directive being that the
Arbiter should now satisfy said labor-standards award, as well as that of the separation
pay, exclusively through the surety bond posted by [private respondents].27 [Emphasis supplied].

Dissatisfied, private respondents moved for the reconsideration of the foregoing Decision, but it was
denied by the NLRC in an Order28 dated 30 October 1996. This NLRC Order dated 30 October 1996
became final and executory on 29 November 1996.

On 4 December 1996, private respondents filed a Petition for Certiorari29 before this Court assailing
the Decision and the Order of the NLRC dated 30 January 1996 and 30 October 1996, respectively.
On 9 December 1998, this Court issued a Resolution30 referring the case to the Court of Appeals
conformably with its ruling in St. Martin Funeral Home v. National Labor Relations
Commission.31 The case was docketed before the appellate court as CA-G.R. SP No. 50806.

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

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

After due proceedings, the Court of Appeals rendered the assailed Decision on 24 April 2000,
modifying the Decision of the NLRC dated 30 January 1996 and holding the petitioner solidarily
liable with the private respondents for the satisfaction of the laborers’ separation pay. According to
the Court of Appeals:

The [NLRC] adjudged the payment of separation pay to be the sole responsibility of [herein private
respondents] because (1) there is no employer-employee relationship between [herein petitioner]
and the forty-nine (49) [therein complainants]; (2) the payment of separation pay is not a labor
standard benefit. We disagree.

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

"The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer
shall be held responsible with his contractor or subcontractor for any violation of any provision of this
Code…"

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

WHEREFORE, premises studiedly considered, the assailed 30 January 1996 decision of [the NLRC]
is hereby modified insofar as [petitioner] should be held solidarily liable with [the private
respondents] for the satisfaction of the laborers’ separation pay. No pronouncement as to
costs.33 [Emphasis supplied].

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

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

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

According to petitioner, the NLRC, in its Resolution dated 28 May 1993, already found that petitioner
had fully complied with its salary obligations to the complainants. Petitioner invokes the same NLRC
Resolution to support its claim that it was not liable to share with the private respondents in the
payment of separation pay to complainants. When private respondents questioned the said NLRC
Resolution in a Petition for Certiorari with this Court, docketed as G.R. No. 111506, this Court found
that the NLRC did not commit grave abuse of discretion in the issuance thereof and accordingly
dismissed private respondents’ Petition. Said NLRC Resolution, therefore, has since become final
and executory and can no longer be disturbed for it now constitutes the law of the case.
Assuming for the sake of argument that the Court of Appeals can still take cognizance of the issue of
petitioner’s liability for complainants’ separation pay, petitioner asserts that the appellate court
seriously erred in concluding that it is jointly and solidarily liable with private respondents for the
payment thereof. The payment of separation pay should be the sole responsibility of the private
respondents because there was no employer-employee relationship between the petitioner and the
complainants, and the payment of separation pay is not a labor standards benefit.

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

Petitioner’s application of the law of the case principle to the case at bar as regards its liability for
payment of separation pay is misplaced.

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

Nonetheless, this Court finds the present Petition meritorious.

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

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

ART. 109. Solidary Liability. - The provisions of existing laws to the contrary notwithstanding, every
employer or indirect employer shall be held responsible with his contractor or subcontractor for any
violation of any provision of this Code. For purposes of determining the extent of their civil liability
under this Chapter, they shall be considered as direct employers. [Emphasis supplied]. 1avv phi1

However, the afore-quoted provision must be read in conjunction with Articles 106 and 107 of the
Labor Code, as amended.
Article 107 of the Labor Code, as amended, defines an indirect employer as "any person,
partnership, association or corporation which, not being an employer, contracts with an independent
contractor for the performance of any work, task, job or project." To ensure that the contractor’s
employees are paid their appropriate wages, Article 106 of the Labor Code, as amended, provides:

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

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

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

Hence, while it is true that the petitioner was the indirect employer of the complainants, it cannot be
held liable in the same way as the employer in every respect. The petitioner may be considered an
indirect employer only for purposes of unpaid wages. As this Court succinctly explained in Philippine
Airlines, Inc. v. National Labor Relations Commission37:

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

Further, there is no question that private respondents are operating as an independent contractor
and that the complainants were their employees. There was no employer-employee relationship that
existed between the petitioner and the complainants and, thus, the former could not have dismissed
the latter from employment. Only private respondents, as the complainants’ employer, can terminate
their services, and should it be done illegally, be held liable therefor. The only instance when the
principal can also be held liable with the independent contractor or subcontractor for the backwages
and separation pay of the latter’s employees is when there is proof that the principal conspired with
the independent contractor or subcontractor in the illegal dismissal of the employees, thus:

The liability arising from an illegal dismissal is unlike an order to pay the statutory minimum wage,
because the workers’ right to such wage is derived from law. The proposition that payment of back
wages and separation pay should be covered by Article 109, which holds an indirect employer
solidarily responsible with his contractor or subcontractor for "any violation of any provision of this
Code," would have been tenable if there were proof - there was none in this case - that the
principal/employer had conspired with the contractor in the acts giving rise to the illegal dismissal. 38
It is the established fact of conspiracy that will tie the principal or indirect employer to the illegal
dismissal of the contractor or subcontractor’s employees. In the present case, there is no allegation,
much less proof presented, that the petitioner conspired with private respondents in the illegal
dismissal of the latter’s employees; hence, it cannot be held liable for the same.

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

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

Although petitioner is not liable for complainants’ separation pay, the Court conforms to the
consistent findings in the proceedings below that the petitioner is solidarily liable with the private
respondents for the judgment awards for underpayment of wages and non-payment of overtime pay.

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

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

Private respondents have nothing more to recover from petitioner.

Petitioner had already handed over to private respondent the wages and other benefits of the
complainants. Records reveal that it had complied with complainants’ salary increases in
accordance with the minimum wage set by Republic Act No. 6727 by faithfully adjusting the contract
price for the janitorial services it contracted with private respondents. 43 This is a finding of fact made
by the Labor Arbiter,44 untouched by the NLRC45 and explicitly affirmed by the Court of
Appeals,46 and which should already bind this Court.
This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of this Court in a petition
for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are completely devoid of support
from the evidence on record, or the assailed judgment is based on a gross misapprehension of facts.
Besides, factual findings of quasi-judicial agencies like the NLRC, when affirmed by the Court of
Appeals, are conclusive upon the parties and binding on this Court.47

Having already received from petitioner the correct amount of wages and benefits, but having failed
to turn them over to the complainants, private respondents should now solely bear the liability for the
underpayment of wages and non-payment of the overtime pay.

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

SO ORDERED.

4)

G.R. No. 145271 July 14, 2005

MANILA ELECTRIC COMPANY, Petitioner,

vs.
ROGELIO BENAMIRA, ERNIE DE SAGUN1, DIOSDADO YOGARE, FRANCISCO MORO2,
OSCAR LAGONOY3, Rolando Beni, Alex Beni, Raul4 Guia, Armed Security & Detective
Agency, Inc., (ASDAI) and Advance FORCES Security & INVESTIGATION Services, Inc.,
(AFSISI), Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
Decision,5 dated September 27, 2000, of the Court of Appeals (CA) in CA-G.R. SP No. 50520 which
declared petitioner Manila Electric Company (MERALCO) as the direct employer of individual
respondents Rogelio Benamira, Ernie De Sagun, Diosdado Yogare, Francisco Moro, Oscar
Lagonoy, Rolando Beni, Alex Beni and Raul De Guia (individual respondents for brevity).

The factual background of the case is as follows:

The individual respondents are licensed security guards formerly employed by People’s Security,
Inc. (PSI) and deployed as such at MERALCO’s head office in Ortigas Avenue, Pasig, Metro Manila.

On November 30, 1990, the security service agreement between PSI and MERALCO was
terminated.
Immediately thereafter, fifty-six of PSI’s security guards, including herein eight individual
respondents, filed a complaint for unpaid monetary benefits against PSI and MERALCO, docketed
as NLRC-NCR Case No. 05-02746-90.

Meanwhile, the security service agreement between respondent Armed Security & Detective
Agency, Inc., (ASDAI) and MERALCO took effect on December 1, 1990. In the agreement, ASDAI
was designated as the AGENCY while MERALCO was designated as the COMPANY. The pertinent
terms and conditions of the agreement are as follows:

1. The AGENCY shall initially provide the COMPANY with TWO HUNDRED TWENTY (220)
licensed, uniformed, bonded and armed security guards to be assigned at the COMPANY’s
"MERALCO CENTER," complete with nightsticks, flashlights, raincoats, and other paraphernalias to
work on eight (8) hours duty. The COMPANY shall determine the number of security guards in
accordance with its needs and the areas of responsibility assigned to each, and shall have the
option to increase or decrease the number of guards at any time provided the AGENCY is notified
within twenty four (24) hours of the contemplated reduction or increase of the guards in which case
the cost or consideration shall be adjusted accordingly.

2. The COMPANY shall furnish the AGENCY copies of written specific instruction to be followed or
implemented by the latter’s personnel in the discharge of their duties and responsibilities and the
AGENCY shall be responsible for the faithful compliance therewith by its personnel together with
such general and specific orders which shall be issued from time to time.

3. For and in consideration of the services to be rendered by the AGENCY to the COMPANY, the
COMPANY during the term of this contract shall pay the AGENCY the amount of THREE
THOUSAND EIGHT HUNDRED PESOS (₱3,800.00) a month per guard, FOUR THOUSAND
PESOS (₱4,000.00) for the Shift Leader and FOUR THOUSAND TWO HUNDRED PESOS
(₱4,200.00) for the Detachment Commander for eight (8) hours work/day, Saturdays, Sundays and
Holidays included, payable semi-monthly.

xxx

5. The AGENCY shall assume the responsibility for the proper and efficient performance of duties by
the security guards employed by it and it shall be solely responsible for any act of said security
guards during their watch hours, the COMPANY being specifically released from any and all liability
to third parties arising from the acts or omission of the security guards of the AGENCY.

6. The AGENCY also agrees to hold the COMPANY entirely free from any liability, cause or causes
of action or claims which may be filed by said security guards by reason of their employment with the
AGENCY pursuant to this Agreement or under the provisions of the Labor Code, the Social Security
Act, and other laws, decrees or social legislations now enacted or which hereafter may be enacted.

7. Discipline and Administration of the security guards shall conform with the rules and regulations of
the AGENCY, and the COMPANY reserves the right to require without explanation the replacement
of any guard whose behavior, conduct or appearance is not satisfactory to the COMPANY and that
the AGENCY cannot pull-out any security guard from the COMPANY without the consent of the
latter.

8. The AGENCY shall conduct inspections through its duly authorized inspector at least two (2)
times a week of guards assigned to all COMPANY installations secured by the AGENCY located in
the Metropolitan Manila area and at least once a week of the COMPANY’s installations located
outside of the Metropolitan Manila area and to further submit its inspection reports to the
COMPANY. Likewise, the COMPANY shall have the right at all times to inspect the guards of the
AGENCY assigned to the COMPANY.

9. The said security guards shall be hired by the AGENCY and this contract shall not be deemed in
any way to constitute a contract of employment between the COMPANY and any of the security
guards hired by the AGENCY but merely as a contract specifying the conditions and manner under
which the AGENCY shall render services to the COMPANY.

10. Nothing herein contained shall be understood to make the security guards under this Agreement,
employees of the COMPANY, it being clearly understood that such security guards shall be
considered as they are, employees of the AGENCY alone, so that the AGENCY shall be responsible
for compliance with all pertinent labor laws and regulations included but not limited to the Labor
Code, Social Security Act, and all other applicable laws and regulations including that providing for a
withholding tax on income.

xxx

13. This contract shall take effect on the 1st day of December, 1990 and shall continue from year to
year unless sooner terminated by the COMPANY for cause or otherwise terminated by either party
without cause upon thirty (30) days written notice by one party to the other.6

Subsequently, the individual respondents were absorbed by ASDAI and retained at MERALCO’s
head office.

On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered a decision in NLRC-NCR Case No.
05-02746-90 in favor of the former PSI security guards, including the individual respondents.

Less than a month later, or on July 21, 1992, the individual respondents filed another complaint for
unpaid monetary benefits, this time against ASDAI and MERALCO, docketed as NLRC-NCR Case
No. 00-07-03953-92.

On July 25, 1992, the security service agreement between respondent Advance Forces Security &
Investigation Services, Inc. (AFSISI) and MERALCO took effect, terminating the previous security
service agreement with ASDAI.7 Except as to the number of security guards,8 the amount to be paid
the agency,9 and the effectivity of the agreement,10 the terms and conditions were substantially
identical with the security service agreement with ASDAI.

On July 29, 1992, the individual respondents amended their complaint to implead AFSISI as party
respondent. On August 11, 1992 they again amended their complaint to allege that AFSISI
terminated their services on August 6, 1992 without notice and just cause and therefore guilty of
illegal dismissal.

The individual respondents alleged that: MERALCO and ASDAI never paid their overtime pay,
service incentive leave pay, premium pay for Sundays and Holidays, ₱50.00 monthly uniform
allowance and underpaid their 13th month pay; on July 24, 1992, when the security service
agreement of ASDAI was terminated and AFSISI took over the security functions of the former on
July 25, 1992, respondent security guard Benamira was no longer given any work assignment when
AFSISI learned that the former has a pending case against PSI, in effect, dismissing him from the
service without just cause; and, the rest of the individual respondents were absorbed by AFSISI but
were not given any assignments, thereby dismissing them from the service without just cause.
ASDAI denied in general terms any liability for the claims of the individual respondents, claiming that
there is nothing due them in connection with their services.

On the other hand, MERALCO denied liability on the ground of lack of employer-employee
relationship with individual respondents. It averred that the individual respondents are the employees
of the security agencies it contracted for security services; and that it has no existing liability for the
individual respondents’ claims since said security agencies have been fully paid for their services per
their respective security service agreement.

For its part, AFSISI asserted that: it is not liable for illegal dismissal since it did not absorb or hire the
individual respondents, the latter were merely hold-over guards from ASDAI; it is not obliged to
employ or absorb the security guards of the agency it replaced since there is no provision in its
security service agreement with MERALCO or in law requiring it to absorb and hire the guards of
ASDAI as it has its own guards duly trained to service its various clients.

On January 3, 1994, after the submission of their respective evidence and position papers, Labor
Arbiter Pablo C. Espiritu, Jr. rendered a Decision holding ASDAI and MERALCO jointly and solidarily
liable to the monetary claims of individual respondents and dismissing the complaint against AFSISI.
The dispositive portion of the decision reads as follows:

WHEREFORE, conformably with the above premises, judgment is hereby rendered:

1. Declaring ASDAI as the employer of the complainants and as such complainants should be
reinstated as regular security guards of ASDAI without loss of seniority rights, privileges and benefits
and for ASDAI to immediately post the complainants as security guards with their clients. The
complaint against AFSISI is Dismissed for lack of merit.

2. Ordering both respondents, ASDAI and MERALCO to jointly and solidarily pay complainants
monetary claims (underpayment of actual regular hours and overtime hours rendered, and premium
pay for holiday and rest day) in the following amounts:

NAME OVERTIME DIFFERENTIALS AND PREMIUM PAY FOR HOLIDAY & REST DAY

1. Rogelio Benamira P14,615.75

2. Ernie De Sagun 21,164.31
3. Diosdado Yogare 7,108.77
4. Francisco Maro 26,567.11
5. Oscar Lagonay 18,863.36
6. Rolando Beni 21,834.12
7. Alex Beni 21,648.80
8. Ruel De Guia 14,200.33

3. Ordering Respondents ASDAI and MERALCO to jointly and solidarily pay complainants 10%
attorney’s fees in the amount of ₱14,600.25 based on the total monetary award due to the
complainants in the amount of ₱146,002.55.

All other claims of the complainants are hereby DISMISSED for lack of merit.

The counter-claim of respondent AFSISI for damages is hereby dismissed for want of substantial
evidence to justify the grant of damages.
SO ORDERED.11

All the parties, except AFSISI, appealed to the National Labor Relations Commission (NLRC).

Individual respondents’ partial appeal assailed solely the Labor Arbiter’s declaration that ASDAI is
their employer. They insisted that AFSISI is the party liable for their illegal dismissal and should be
the party directed to reinstate them.

For its part, MERALCO attributed grave abuse of discretion on the part of the Labor Arbiter in failing
to consider the absence of employer-employee relationship between MERALCO and individual
respondents.

On the other hand, ASDAI took exception from the Labor Arbiter’s finding that it is the employer of
the individual respondents and therefore liable for the latter’s unpaid monetary benefits.

On April 10, 1995, the NLRC affirmed in toto the decision of the Labor Arbiter.12 On April 19, 1995,
the individual respondents filed a motion for partial reconsideration but it was denied by the NLRC in
a Resolution dated May 23, 1995.13

On August 11, 1995, the individual respondents filed a petition for certiorari before us, docketed as
G.R. No. 121232.14 They insisted that they were absorbed by AFSISI and the latter effected their
termination without notice and just cause.

After the submission of the responsive pleadings and memoranda, we referred the petition, in
accordance with St. Martin Funeral Homes vs. NLRC,15 to the CA which, on September 27, 2000,
modified the decision of the NLRC by declaring MERALCO as the direct employer of the individual
respondents.

The CA held that: MERALCO changed the security agency manning its premises three times while
engaging the services of the same people, the individual respondents; MERALCO employed a
scheme of hiring guards through an agency and periodically entering into service contract with one
agency after another in order to evade the security of tenure of individual respondents; individual
respondents are regular employees of MERALCO since their services as security guards are usually
necessary or desirable in the usual business or trade of MERALCO and they have been in the
service of MERALCO for no less than six years; an employer-employee relationship exists between
MERALCO and the individual respondents because: (a) MERALCO had the final say in the selection
and hiring of the guards, as when its advice was proved to have carried weight in AFSISI’s decision
not to absorb the individual respondents into its workforce; (b) MERALCO paid the wages of
individual respondents through ASDAI and AFSISI; (c) MERALCO’s discretion on matters of
dismissal of guards was given great weight and even finality since the record shows that the
individual respondents were replaced upon the advice of MERALCO; and, (d) MERALCO has the
right, at any time, to inspect the guards, to require without explanation the replacement of any guard
whose behavior, conduct or appearance is not satisfactory and ASDAI and AFSISI cannot pull out
any security guard from MERALCO without the latter’s consent; and, a labor-only contract existed
between ASDAI and AFSISI and MERALCO, such that MERALCO is guilty of illegal dismissal
without just cause and liable for reinstatement of individual respondents to its workforce.

The dispositive portion of the CA’s Decision reads as follows:

WHEREFORE, in view of the foregoing premises, the Resolution subject of this petition is hereby
AFFIRMED with MODIFICATION in the sense that MERALCO is declared the employer of the
petitioners. Accordingly, private respondent MERALCO is hereby ordered as follows:
1. To reinstate petitioners into MERALCO’s work force as regular security guards without loss of
seniority rights and other privileges; and

2. To pay the petitioners’ full backwages, inclusive of allowances, and other benefits or their
monetary equivalent computed from the time their compensation was withheld from them up to the
time of their actual reinstatement, for which the Labor Arbiter Pablo C. Espiritu, Jr. is hereby directed
to undertake the necessary computation and enforcement thereof.

With respect to the rest of the dispositive portion of the assailed Resolution which affirmed the
decision of the Labor Arbiter Pablo C. Espiritu, Jr., particularly the joint and solidary liabilities of both
ASDAI and MERALCO to the petitioners, the same are hereby AFFIRMED.

SO ORDERED.16

Hence, the present petition for review on certiorari, filed by MERALCO, anchored on the following
grounds:

A. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR AND GRAVE

ABUSE OF DISCRETION IN HOLDING THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP
EXISTS BETWEEN PETITIONER MERALCO AND INDIVIDUAL RESPONDENTS.

B. THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT

INDIVIDUAL RESPONDENTS ARE REGULAR EMPLOYEES OF PETITIONER MERALCO.

C. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN ALLOWING

INDIVIDUAL RESPONDENTS TO RAISE FOR THE FIRST TIME ON APPEAL, THE ISSUE THAT
PETITIONER WAS THEIR DIRECT EMPLOYER.

D. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN FINDING THAT PETITIONER

MERALCO IS GUILTY OF ILLEGAL DISMISSAL.

E. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT INDIVIDUAL

RESPONDENTS ARE ENTITLED TO REINSTATEMENT INTO PETITIONER’S WORKFORCE.

F. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT PETITIONER

MERALCO IS ENTITLED TO REIMBURSEMENT FROM RESPONDENT ASDAI FOR THE
MONETARY CLAIMS PETITIONER PAID TO INDIVIDUAL RESPONDENTS PURSUANT TO THE
SECURITY SERVICE AGREEMENT.17

Anent the first ground, MERALCO submits that the elements of "four-fold" test to determine the
existence of an employer-employee relation, namely: (1) the power to hire, (2) the payment of
wages, (3) the power to dismiss, and (4) the power to control, are not present in the instant case.

Regarding the power to hire, MERALCO contends that the records are bereft of any evidence that
shows that it participated in or influenced the decision of PSI and ASDAI to hire or absorb the
individual respondents.

As to the payment of wages, MERALCO maintains that the individual respondents received their
wages from their agency.
With regard to the power to dismiss, MERALCO argues that the security service agreement clearly
provided that the discipline and administration of the security guards shall conform to the rules and
regulations of the agency.

Concerning the power of control, MERALCO asserts that there is no evidence that individual
respondents were subjected to its control as to the manner or method by which they conduct or
perform their work of guarding of MERALCO’s premises.

Furthermore, MERALCO insists that ASDAI and AFSISI are not labor-only contractors since they
have their own equipment, machineries and work premises which are necessary in the conduct of
their business and the duties performed by the security guards are not necessary in the conduct of
MERALCO’s principal business.

With respect to the second ground, MERALCO argues that the individual respondents cannot be
considered as regular employees as the duties performed by them as security guards are not
necessary in the conduct of MERALCO’s principal business which is the distribution of electricity.

As regards the third ground, MERALCO argues that it was denied due process when the individual
respondents raised for the first time in the CA the issue that MERALCO is their direct employer since
the individual respondents have always considered themselves as employees of AFSISI and
nowhere in the Labor Arbiter or the NLRC did they raise the argument that MERALCO is their direct
employer.

Regarding the fourth ground, MERALCO asserts that it is not guilty of illegal dismissal because it
had no direct hand or participation in the termination of the employment of individual respondents,
who even insisted in their petition for certiorari in the CA that it was AFSISI which terminated their
employment.

As to the fifth ground, MERALCO maintains that the individual respondents are not entitled to
reinstatement into its workforce because no employer-employee relationship exists between it and
the individual respondents.

With regard to the sixth ground, MERALCO asserts that since it is not the direct employer of the
individual respondents, it has a right of reimbursement from ASDAI for the full amount it may pay to
the individual respondents under Articles 106 and 107 of the Labor Code.

In contrast, the individual respondents maintain that the CA aptly found that all the elements in
employer-employee relationship exist between them and MERALCO and there is no cogent reason
to deviate from such factual findings.

For its part, ASDAI contends that the instant petition raises factual matters beyond the jurisdiction of
this Court to resolve since only questions of law may be raised in a petition for review on certiorari. It
submits that while the rule admits of exceptions, MERALCO failed to establish that the present case
falls under any of the exceptions.

On the other hand, AFSISI avers that there is no employer-employee relationship between
MERALCO and the security guards of any of the security agencies under contract with MERALCO.

It is a settled rule that in the exercise of the Supreme Court’s power of review, the Court is not a trier
of facts and does not normally undertake the re-examination of the evidence presented by the
contending parties during the trial of the case considering that the findings of facts of the CA are
conclusive and binding on the Court. However, jurisprudence has recognized several exceptions in
which factual issues may be resolved by this Court, to wit:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of
the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the findings are conclusions without citation
of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of
fact are premised on the supposed absence of evidence and contradicted by the evidence on
record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would justify a different conclusion.18

In the present case, the existence of an employer-employee relationship is a question of fact which
is well within the province of the CA. Nonetheless, given the reality that the CA’s findings are at odds
to those of the NLRC, the Court is constrained to look deeper into the attendant circumstances
obtaining in the present case, as appearing on record.

At the outset, we note that the individual respondents never alleged in their complaint in the Labor
Arbiter, in their appeal in the NLRC and even in their petition for certiorari in the CA that MERALCO
was their employer. They have always advanced the theory that AFSISI is their employer. A perusal
of the records shows it was only in their Memorandum in the CA that this thesis was presented and
discussed for the first time. We cannot ignore the fact that this position of individual respondents
runs contrary to their earlier submission in their pleadings filed in the Labor Arbiter, NLRC and even
in the petition for certiorari in the CA that AFSISI is their employer and liable for their termination. As
the object of the pleadings is to draw the lines of battle, so to speak, between the litigants and to
indicate fairly the nature of the claims or defenses of both parties, a party cannot subsequently take
a position contrary to, or inconsistent, with his pleadings.19

Moreover, it is a fundamental rule of procedure that higher courts are precluded from entertaining
matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated for
the first time only in a motion for reconsideration or on appeal.20 The individual respondents are
bound by their submissions that AFSISI is their employer and they should not be permitted to
change their theory. Such a change of theory cannot be tolerated on appeal, not due to the strict
application of procedural rules but as a matter of fairness. A change of theory on appeal is
objectionable because it is contrary to the rules of fair play, justice and due process.21

Thus, the CA should not have considered the new theory offered by the individual respondents in
their memorandum.

The present petition for review on certiorari is far from novel and, in fact, not without precedence. We
have ruled in Social Security System vs. Court of Appeals22 that:

...The guards or watchmen render their services to private respondent by allowing themselves to be
assigned by said respondent, which furnishes them arms and ammunition, to guard and protect the
properties and interests of private respondent's clients, thus enabling that respondent to fulfill its
contractual obligations. Who the clients will be, and under what terms and conditions the services
will be rendered, are matters determined not by the guards or watchmen, but by private respondent.
On the other hand, the client companies have no hand in selecting who among the guards or
watchmen shall be assigned to them. It is private respondent that issues assignment orders and
instructions and exercises control and supervision over the guards or watchmen, so much so that if,
for one reason or another, the client is dissatisfied with the services of a particular guard, the client
cannot himself terminate the services of such guard, but has to notify private respondent, which
either substitutes him with another or metes out to him disciplinary measures. That in the course of a
watchman's assignment the client conceivably issues instructions to him, does not in the least
detract from the fact that private respondent is the employer of said watchman, for in legal
contemplation such instructions carry no more weight than mere requests, the privity of contract
being between the client and private respondent, not between the client and the guard or watchman.
Corollarily, such giving out of instructions inevitably spring from the client's right predicated on the
contract for services entered into by it with private respondent.

In the matter of compensation, there can be no question at all that the guards or watchmen receive
compensation from private respondent and not from the companies or establishments whose
premises they are guarding. The fee contracted for to be paid by the client is admittedly not equal to
the salary of a guard or watchman; such fee is arrived at independently of the salary to which the
guard or watchman is entitled under his arrangements with private respondent.23

and reiterated in American President Lines vs. Clave,24 thus:

In the light of the foregoing standards, We fail to see how the complaining watchmen of the Marine
Security Agency can be considered as employees of the petitioner. It is the agency that recruits,
hires, and assigns the work of its watchmen. Hence, a watchman can not perform any security
service for the petitioner's vessels unless the agency first accepts him as its watchman. With respect
to his wages, the amount to be paid to a security guard is beyond the power of the petitioner to
determine. Certainly, the lump sum amount paid by the petitioner to the agency in consideration of
the latter's service is much more than the wages of any one watchman. In point of fact, it is the
agency that quantifies and pays the wages to which a watchman is entitled.

Neither does the petitioner have any power to dismiss the security guards. In fact, We fail to see any
evidence in the record that it wielded such a power. It is true that it may request the agency to
change a particular guard. But this, precisely, is proof that the power lies in the hands of the agency.

Since the petitioner has to deal with the agency, and not the individual watchmen, on matters
pertaining to the contracted task, it stands to reason that the petitioner does not exercise any power
over the watchmen's conduct. Always, the agency stands between the petitioner and the watchmen;
and it is the agency that is answerable to the petitioner for the conduct of its guards.25

In this case, the terms and conditions embodied in the security service agreement between
MERALCO and ASDAI expressly recognized ASDAI as the employer of individual respondents.

Under the security service agreement, it was ASDAI which (a) selected, engaged or hired and
discharged the security guards; (b) assigned them to MERALCO according to the number agreed
upon; (c) provided the uniform, firearms and ammunition, nightsticks, flashlights, raincoats and other
paraphernalia of the security guards; (d) paid them salaries or wages; and, (e) disciplined and
supervised them or principally controlled their conduct. The agreement even explicitly provided that
"[n]othing herein contained shall be understood to make the security guards under this Agreement,
employees of the COMPANY, it being clearly understood that such security guards shall be
considered as they are, employees of the AGENCY alone." Clearly, the individual respondents are
the employees of ASDAI.

As to the provision in the agreement that MERALCO reserved the right to seek replacement of any
guard whose behavior, conduct or appearance is not satisfactory, such merely confirms that the
power to discipline lies with the agency. It is a standard stipulation in security service agreements
that the client may request the replacement of the guards to it. Service-oriented enterprises, such as
the business of providing security services, generally adhere to the business adage that "the
customer or client is always right" and, thus, must satisfy the interests, conform to the needs, and
cater to the reasonable impositions of its clients.

Neither is the stipulation that the agency cannot pull out any security guard from MERALCO without
its consent an indication of control. It is simply a security clause designed to prevent the agency from
unilaterally removing its security guards from their assigned posts at MERALCO’s premises to the
latter’s detriment.

The clause that MERALCO has the right at all times to inspect the guards of the agency detailed in
its premises is likewise not indicative of control as it is not a unilateral right. The agreement provides
that the agency is principally mandated to conduct inspections, without prejudice to MERALCO’s
right to conduct its own inspections.

Needless to stress, for the power of control to be present, the person for whom the services are
rendered must reserve the right to direct not only the end to be achieved but also the means for
reaching such end.26 Not all rules imposed by the hiring party on the hired party indicate that the
latter is an employee of the former.27 Rules which serve as general guidelines towards the
achievement of the mutually desired result are not indicative of the power of control.28

Verily, the security service agreements in the present case provided that all specific instructions by
MERALCO relating to the discharge by the security guards of their duties shall be directed to the
agency and not directly to the individual respondents. The individual respondents failed to show that
the rules of MERALCO controlled their performance.

Moreover, ASDAI and AFSISI are not "labor-only" contractors. There is "labor only" contract when
the person acting as contractor is considered merely as an agent or intermediary of the principal who
is responsible to the workers in the same manner and to the same extent as if they had been directly
employed by him. On the other hand, "job (independent) contracting" is present if the following
conditions are met: (a) the contractor carries on an independent business and undertakes the
contract work on his own account under his own responsibility according to his own manner and
method, free from the control and direction of his employer or principal in all matters connected with
the performance of the work except to the result thereof; and (b) the contractor has substantial
capital or investments in the form of tools, equipment, machineries, work premises and other
materials which are necessary in the conduct of his business.29 Given the above distinction and the
provisions of the security service agreements entered into by petitioner with ASDAI and AFSISI, we
are convinced that ASDAI and AFSISI were engaged in job contracting.

The individual respondents can not be considered as regular employees of the MERALCO for,
although security services are necessary and desirable to the business of MERALCO, it is not
directly related to its principal business and may even be considered unnecessary in the conduct of
MERALCO’s principal business, which is the distribution of electricity.

Furthermore, the fact that the individual respondents filed their claim for unpaid monetary benefits
against ASDAI is a clear indication that the individual respondents acknowledge that ASDAI is their
employer.

We cannot give credence to individual respondents’ insistence that they were absorbed by AFSISI
when MERALCO’s security service agreement with ASDAI was terminated. The individual
respondents failed to present any evidence to confirm that AFSISI absorbed them into its workforce.
Thus, respondent Benamira was not retained in his post at MERALCO since July 25, 1992 due to
the termination of the security service agreement of MERALCO with ASDAI. As for the rest of the
individual respondents, they retained their post only as "hold-over" guards until the security guards of
AFSISI took over their post on August 6, 1992.30

In the present case, respondent Benamira has been "off-detail" for seventeen days while the rest of
the individual respondents have only been "off- detail" for five days when they amended their
complaint on August 11, 1992 to include the charge of illegal dismissal. The inclusion of the charge
of illegal dismissal then was premature. Nonetheless, bearing in mind that ASDAI simply stopped
giving the individual respondents any assignment and their inactivity clearly persisted beyond the
six-month period allowed by Article 28631 of the Labor Code, the individual respondents were, in
effect, constructively dismissed by ASDAI from employment, hence, they should be reinstated.

The fact that there is no actual and direct employer-employee relationship between MERALCO and
the individual respondents does not exonerate MERALCO from liability as to the monetary claims of
the individual respondents. When MERALCO contracted for security services with ASDAI as the
security agency that hired individual respondents to work as guards for it, MERALCO became an
indirect employer of individual respondents pursuant to Article 107 of the Labor Code, which reads:

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

When ASDAI as contractor failed to pay the individual respondents, MERALCO as principal
becomes jointly and severally liable for the individual respondents’ wages, under Articles 106 and
109 of the Labor Code, which provide:

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

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

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

ASDAI is held liable by virtue of its status as direct employer, while MERALCO is deemed the
indirect employer of the individual respondents for the purpose of paying their wages in the event of
failure of ASDAI to pay them. This statutory scheme gives the workers the ample protection

consonant with labor and social justice provisions of the 1987 Constitution.32

However, as held in Mariveles Shipyard Corp. vs. Court of Appeals,33 the solidary liability of
MERALCO with that of ASDAI does not preclude the application of Article 1217 of the Civil Code on
the right of reimbursement from his co-debtor by the one who paid,34 which provides:
ART. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to
each, with the interest for the payment already made. If the payment is made before the debt is due,
no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the
debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the
debt of each.

ASDAI may not seek exculpation by claiming that MERALCO’s payments to it were inadequate for
the individual respondents’ lawful compensation. As an employer, ASDAI is charged with knowledge
of labor laws and the adequacy of the compensation that it demands for contractual services is its
principal concern and not any other’s.35

WHEREFORE, the present petition is GRANTED. The assailed Decision, dated September 27,
2000, of the CA is REVERSED and SET ASIDE. The Decision of the Labor Arbiter dated January 3,
1994 and the Resolution of the NLRC dated April 10, 1995 are AFFIRMED with the MODIFICATION
that the joint and solidary liability of ASDAI and MERALCO to pay individual respondents’ monetary
claims for underpayment of actual regular hours and overtime hours rendered, and premium pay for
holiday and rest day, as well as attorney’s fees, shall be without prejudice to MERALCO’s right of
reimbursement from ASDAI.

SO ORDERED.

5)

G.R. No. 161115 November 30, 2006

DOLE PHILIPPINES, INC., Petitioner,

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

DECISION

CHICO-NAZARIO, J.:

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

The antecedent facts of the case are recounted as follows:

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

Respondents are members of the Cannery Multi-Purpose Cooperative (CAMPCO). CAMPCO was
organized in accordance with Republic Act No. 6938, otherwise known as the Cooperative Code of
the Philippines, and duly-registered with the Cooperative Development Authority (CDA) on 6 January
1993.5 Members of CAMPCO live in communities surrounding petitioner’s plantation and are
relatives of petitioner’s employees.

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

1. That the amount of this contract shall be or shall not exceed TWO HUNDRED TWENTY
THOUSAND ONLY (₱220,000.00) PESOS, terms and conditions of payment shall be on a per job
basis as specified in the attached schedule of rates; the CONTRACTOR shall perform the following
services for the COMPANY;

1.1 Assist the COMPANY in its daily operations;

1.2 Perform odd jobs as may be assigned.

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

2.1 CONTRACTOR must carry on an independent legitimate business, and must comply
with all the pertinent laws of the government both local and national;

2.2 CONTRACTOR must provide all hand tools and equipment necessary in the
performance of their work.

However, the COMPANY may allow the use of its fixed equipment as a casual facility in the
performance of the contract;
 2.3 CONTRACTOR must comply with the attached scope of work, specifications, and GMP
and safety practices of the company;

2.4 CONTRACTOR must undertake the contract work under the following manner:

a. on his own account;

b. under his own responsibility;

c. according to his manner and method, free from the control and direction of the
company in all matters connected with the performance of the work except as to the
result thereof;

3. CONTRACTOR must pay the prescribed minimum wage, remit SSS/MEDICARE premiums to
proper government agencies, and submit copies of payroll and proof of SSS/MEDICARE
remittances to the COMPANY;

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

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

Investigation by DOLE

Concomitantly, the Sangguniang Bayan of Polomolok, South Cotabato, passed Resolution No. 64,
on 5 May 1993, addressed to then Secretary Ma. Nieves R. Confessor of the Department of Labor
and Employment (DOLE), calling her attention to the worsening working conditions of the petitioner’s
workers and the organization of contractual workers into several cooperatives to replace the
individual labor-only contractors that used to supply workers to the petitioner. Acting on the said
Resolution, the DOLE Regional Office No. XI in Davao City organized a Task Force that conducted
an investigation into the alleged labor-only contracting activities of the cooperatives in Polomolok.7

On 24 May 1993, the Senior Legal Officer of petitioner wrote a letter addressed to Director Henry M.
Parel of DOLE Regional Office No. XI, supposedly to correct the misinformation that petitioner was
involved in labor-only contracting, whether with a cooperative or any private contractor. He further
stated in the letter that petitioner was not hiring cooperative members to replace the regular workers
who were separated from service due to redundancy; that the cooperatives were formed by the
immediate dependents and relatives of the permanent workers of petitioner; that these cooperatives
were registered with the CDA; and that these cooperatives were authorized by their respective
constitutions and by-laws to engage in the job contracting business.8

The Task Force submitted a report on 3 June 1993 identifying six cooperatives that were engaged in
labor-only contracting, one of which was CAMPCO. The DOLE Regional Office No. XI held a
conference on 18 August 1993 wherein the representatives of the cooperatives named by the Task
Force were given the opportunity to explain the nature of their activities in relation to petitioner.
Subsequently, the cooperatives were required to submit their position papers and other supporting
documents, which they did on 30 August 1993. Petitioner likewise submitted its position paper on 15
September 1993.9

On 19 October 1993, Director Parel of DOLE Regional Office No. XI issued an Order10 in which he
made the following findings –

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

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

"Section 9 Labor Only Contracting – a) Any person who undertakes to supply workers to an
employer shall be deemed to be engaged in labor-only contracting where such person:

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

2) The workers recruited and placed by such person are performing activities which are
directly related to the principal business or operation of the employer to which workers are
habitually employed.

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

WHEREFORE, premises considered, ADVENTURER’S MULTI PURPOSE COOPERATIVE,

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

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

All the six cooperatives involved appealed the afore-quoted Order to the Office of the DOLE
Secretary, raising the sole issue that DOLE Regional Director Director Parel committed serious error
of law in directing the cooperatives to cease and desist from engaging in labor-only contracting. On
15 September 1994, DOLE Undersecretary Cresencio B. Trajano, by the authority of the DOLE
Secretary, issued an Order11 dismissing the appeal on the basis of the following ratiocination –
The appeal is devoid of merit.

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

"Art. 106. Contractor or subcontractor. x x x

xxxx

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

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

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

"Art. 128. Visitorial and Enforcement Power.

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

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

The records reveal that in the course of the inspection of the premises of Dolefil, it was found out
that the activities of the members of the [cooperatives] are necessary and desirable in the principal
business of the former; and that they do not have the necessary investment in the form of tools and
equipments. It is worthy to note that the cooperatives did not deny that they do not have enough
capital in the form of tools and equipment. Under the circumstances, it could not be denied that the
[cooperatives] are considered as labor-only contractors in relation to the business operation of
DOLEFIL, INC.
Thus, Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code, provides
that:

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

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

(2) The workers recruited and placed by such person are performing activities which are
directly related to the principal business or operations of the employer in which workers are
habitually employed.

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

x x x x"

Violation of the afore-quoted provision is considered a labor standards violation and thus, within the
visitorial and enforcement powers of the Secretary of Labor and Employment (Art. 128).

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

"Section 3. Authorized representative of the Secretary of Labor and Employment. – The Regional
Directors shall be the duly authorized representatives of the Secretary of Labor and Employment in
the administration and enforcement of the labor standards within their respective territorial
jurisdiction."

The power granted under Article 106 of the Labor Code to the Secretary of Labor and Employment
to restrict or prohibit the contracting out of labor to protect the rights of workers established under the
Code is delegated to the Regional Directors by virtue of the above-quoted provision.

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

WHEREFORE, the respondents’ Appeal is hereby DISMISSED for lack of merit. The Order of the
Regional Director, Regional Office No. XI, Davao City, is AFFIRMED.

After the motion for reconsideration of the foregoing Order was denied, no further motion was filed
by the parties, and the Order, dated 15 September 1994, of DOLE Undersecretary Trajano became
final and executory. A Writ of Execution12 was issued by DOLE Regional Office No. XI only on 27
July 1999, years after the issuance of the order subject of the writ. The DOLE Regional Office No. XI
was informed that CAMPCO and two other cooperatives "continued to operate at DOLE Philippines,
Inc. despite the cease and desist Order" it had issued. It therefore commanded the Sheriff to
proceed to the premises of CAMPCO and the two other cooperatives and implement its Order dated
19 October 1993.
Respondent’s Complaint before the NLRC

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

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

Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged the services of the [herein
respondents] through Cannery Multi-purpose Cooperative. A cooperative which was organized
through the initiative of Dolefil in order to fill in the vacuum created as a result of the dismissal of the
regular employees of Dolefil sometime in 1990 to 1993.

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

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

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

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

Some of the [respondents] were deprived of their employment under the scheme of "stay home
status" where they were advised to literally stay home and wait for further instruction to report anew
for work. However, they remained in this condition for more than six months. Hence, they were
constructively or illegally dismissed.

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

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

Petitioner, in its Position Paper16 filed before the NLRC, denied that respondents were its employees.

Petitioner explained that it found the need to engage external services to augment its regular
workforce, which was affected by peaks in operation, work backlogs, absenteeism, and excessive
leaves. It used to engage the services of individual workers for definite periods specified in their
employment contracts and never exceeding one year. However, such an arrangement became the
subject of a labor case,17 in which petitioner was accused of preventing the regularization of such
workers. The Labor Arbiter who heard the case, rendered his Decision18 on 24 June 1994 declaring
that these workers fell squarely within the concept of seasonal workers as envisaged by Article 280
of the Labor Code, as amended, who were hired by petitioner in good faith and in consonance with
sound business practice; and consequently, dismissing the complaint against petitioner. The NLRC,
in its Resolution,19 dated 14 March 1995, affirmed in toto the Labor Arbiter’s Decision and further
found that the workers were validly and legally engaged by petitioner for "term employment," wherein
the parties agreed to a fixed period of employment, knowingly and voluntarily, without any force,
duress or improper pressure being brought to bear upon the employees and absent any other
circumstance vitiating their consent. The said NLRC Resolution became final and executory on 18
June 1996. Despite the favorable ruling of both the Labor Arbiter and the NLRC, petitioner decided
to discontinue such employment arrangement. Yet, the problem of petitioner as to shortage of
workforce due to the peaks in operation, work backlogs, absenteeism, and excessive leaves,
persisted. Petitioner then found a solution in the engagement of cooperatives such as CAMPCO to
provide the necessary additional services.

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

Petitioner further averred that Department Order No. 10, amending the rules implementing Books III
and VI of the Labor Code, as amended, promulgated by the DOLE on 30 May 1997, explicitly
recognized the arrangement between petitioner and CAMPCO as permissible contracting and
subcontracting, to wit –

Section 6. Permissible contracting and subcontracting. – Subject to the conditions set forth in
Section 3(d) and (e) and Section 5 hereof, the principal may engage the services of a contractor or
subcontractor for the performance of any of the following;
 (a) Works or services temporarily or occasionally needed to meet abnormal increase in the
demand of products or services, provided that the normal production capacity or regular
workforce of the principal cannot reasonably cope with such demands;

(b) Works or services temporarily or occasionally needed by the principal for undertakings
requiring expert or highly technical personnel to improve the management or operations of
an enterprise;

(c) Services temporarily needed for the introduction or promotion of new products, only for
the duration of the introductory or promotional period;

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

(e) Services involving the public display of manufacturer’s products which does not involve
the act of selling or issuance of receipts or invoices;

(f) Specialized works involving the use of some particular, unusual, or peculiar skills,
expertise, tools or equipment the performance of which is beyond the competence of the
regular workforce or production capacity of the principal; and

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

According to petitioner, the services rendered by CAMPCO constituted permissible job contracting
under the afore-quoted paragraphs (a), (c), and (g), Section 6 of DOLE Department Order No. 10,
series of 1997.

After the parties had submitted their respective Position Papers, the Labor Arbiter promulgated its
Decision20 on 11 June 1999, ruling entirely in favor of petitioner, ratiocinating thus –

After judicious review of the facts, narrated and supporting documents adduced by both parties, the
undersigned finds [and] holds that CAMPCO is not engaged in labor-only contracting.

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

Labor-only contracting as amended by Department [O]rder No. 10 is defined in this wise:

"Labor-only contracting is prohibited under this Rule is an arrangement where the contractor or
subcontractor merely recruits, supplied [sic] or places workers to perform a job, work or service for a
principal, and the following elements are present:

i) The contractor or sub-contractor does not have substantial capital or investment to actually
perform the job, work, or service under its own account & responsibility, and

ii) The employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal."

Verification of the records reveals that per Annexes "J" and "K" of [herein petitioner DolePhil’s]
position paper, which are the yearly audited Financial Statement and Balance Sheet of CAMPCO
shows [sic] that it has more than substantial capital or investment in order to qualify as a legitimate
job contractor.

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

CAMPCO being engaged in legitimate contracting, cannot therefore declared [sic] as guilty of labor-
only contracting which [herein respondents] want us to believe.

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

"Section 12. Employee-employer relationship. Except in cases provided for in Section 13, 14, 15 &
17, the contractor or subcontractor shall be considered the employer of the contractual employee for
purposes of enforcing the provisions of the Code."

The Resolution of NLRC 5th division, promulgated on March 14, 1 1995 [sic] categorically declares:

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

The validity of fixed-period employment has been consistently upheld by the Supreme [C]ourt in a
long line of cases, the leading case of which is Brent School, Inc. vs. Zamora & Alegre, GR No.
48494, February 5, 1990. Thus at the end of the contract the employer-employee relationship is
terminated. It behooves upon us to rule that herein complainants cannot be declared regular rank
and file employees of the [petitioner] company.
Anent the third issue, [respondents] dismally failed to provide us the exact figures needed for the
computation of their wage differentials. To simply alleged [sic] that one is underpaid of his wages is
not enough. No bill of particulars was submitted. Moreover, the Order of RTWPB Region XI, Davao
City dated February 21, 1996 exempts [petitioner] company from complying Wage Order No. 04 [sic]
in so far as such exemption applies only to workers who are not covered by the Collective
Bargaining Agreement, for the period January 1 to December 31, 1995,. [sic] In so far as
[respondents] were not privies to the CBA, they were the workers referred to by RTWPB’s Order.
[H]ence, [respondents’] claims for wage differentials are hereby dismissed for lack of factual basis.

We find no further necessity in delving into the issues raised by [respondents] regarding moral
damages and attorney’s fees for being moot and academic because of the findings that CAMPCO
does not engaged [sic] in labor-only contracting and that [respondents] cannot be declared as
regular employees of [petitioner].

WHEREFORE, premises considered, judgment is hereby rendered in the above-entitled case,

dismissing the complaint for lack of merit.

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

We find no merit in the appeal.

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

It is not correct, however, to say, as the Labor Arbiter did, that the afore-said ruling of the
Department of Labor and Employment has been overturned by Department Order No. 10. It is a
basic principle that "once a judgment becomes final it cannot be disturbed, except for clerical errors
or when supervening events render its execution impossible or unjust" (Sampaguita
Garmens [sic] Corp. vs. NLRC, G. R. No. 102406, June 7, 1994). Verily, the subsequent issuance
of Department Order No. 10 cannot be construed as supervening event that would render the
execution of said judgment impossible or unjust. Department Order No. 10 refers to the ramification
of some provisions of the Rules Implementing Articles 106 and 109 of the Labor Code, without
substantially changing the definition of "labor-only" or "job’ contracting.
Well-settled is the rule that to qualify as an independent job contractor, one has either substantial
capital "or" investment in the form of tools, equipment and machineries necessary to carry out his
business (see Virginia Neri, et al. vs. NLRC, et al., G.R. Nos. 97008-89, July 23, 1993). CAMPCO
has admittedly a paid-up capital of P4,562,470.25 and this is more than enough to qualify it as an
independent job contractor, as aptly held by the Labor Arbiter.

WHEREFORE, the appeal is DISMISSED for lack of merit and the appealed decision is AFFIRMED.

Petition for Certiorari with the Court of Appeals

Refusing to concede defeat, respondents filed with the Court of Appeals a Petition
for Certiorari under Rule 65 of the revised Rules of Civil Procedure, asserting that the NLRC acted
without or in excess of its jurisdiction and with grave abuse of discretion amounting to lack of
jurisdiction when, in its Resolution, dated 29 February 2000, it (1) ruled that CAMPCO was a bona
fide independent job contractor with substantial capital, notwithstanding the fact that at the time of its
organization and registration with CDA, it only had a paid-up capital of ₱6,600.00; and (2) refused to
apply the doctrine of res judicata against petitioner. The Court of Appeals, in its Decision,22 dated 20
May 2002, granted due course to respondents’ Petition, and set aside the assailed NLRC Decision.
Pertinent portions of the Court of Appeals Decision are reproduced below –

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

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

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

"WHEREFORE, premises considered, ADVENTURER’S MULTI PURPOSE COOPERATIVE,

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

xxxx

SO ORDERED."

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

xxxx

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

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

[Petitioner] invokes Section 6 of Department Order No. 10, series of 1997, issued by the Department
of Labor and Employment which took effect on 22 June 1997. The said section identified the
circumstances which are permissible job contracting, to wit:

xxxx

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

However, on 8 May 2001, the Department of Labor and Employment issued Department Order No.
3, series of 2001, revoking Department Order No. 10, series of 1997. The said department order
took effect on 29 May 2001.
xxxx

Under Department Order No. 3, series of 2001, some contracting and outsourcing arrangements are
no longer legitimate modes of employment relation. Having revoked Department Order No. 10,
series of 1997, [petitioner] can no longer support its argument by relying on the revoked department
order.

Considering that [CAMPCO] is not a job contractor, but one engaged in labor-only contracting,
CAMPCO serves only as an agent of [petitioner] pursuant to par. (b) of Sec. 9, Rule VIII, Book III of
the Implementing Rules and Regulations of the Labor Code, stating,

xxxx

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

xxxx

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

xxxx

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

ACCORDINGLY, in view of the foregoing, the instant petition for certiorari is hereby GRANTED DUE
COURSE. The decision dated 29 February 2000 and Resolution dated 19 December 2000 rendered
by [NLRC] are hereby SET ASIDE. In place thereof, it is hereby rendered that:

1. Cannery Multi-Purpose Cooperative is a labor-only contractor as defined under the Labor

Code of the Philippines and its implementing rules and regulations; and that

2. DOLE Philippines Incorporated is merely an agent or intermediary of Cannery Multi-

Purpose Cooperative.

All other claims of [respondents] are hereby DENIED for lack of basis.
Both petitioner and respondents filed their respective Motions for Reconsideration of the foregoing
Decision, dated 20 May 2002, prompting the Court of Appeals to promulgate an Amended Decision
on 27 November 2003, in which it ruled in this wise:

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

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

In view of the above ruling, we find it unnecessary to discuss whether the Order of Undersecretary
Trajano finding that CAMPCO is a "labor-only" contractor is a determining factor or constitutes res
judicata in the case at bench. Our findings that CAMPCO is a "labor-only" contractor is based on the
evidence presented vis-à-vis the rulings of the Supreme Court on the matter.

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

xxxx

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

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

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

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

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

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

3) The claims for damages and attorney’s fees are hereby denied for lack of merit.

No costs.23

The Petition at Bar

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

I.

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

II.

THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT

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

III.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN

ACCORD WITH LAW AND JURISPRUDENCE IN GIVING WEIGHT TO THE ORDER
 DATED 19 OCTOBER 1993 ISSUED BY THE OFFICE OF SECRETARY OF LABOR,
WHICH AFFIRMED THE FINDINGS OF THE DOLE REGIONAL OFFICE (REGION XI,
DAVAO CITY) THAT CAMPCO IS ONE OF THE COOPERATIVES ENGAGED IN LABOR-
ONLY CONTRACTING ACTIVITIES.

IV.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN

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

V.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN

ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT CAMPCO IS ENGAGED
IN THE PROHIBITED ACT OF "LABOR-ONLY CONTRACTING" DESPITE THERE BEING
SUBSTANTIAL EVIDENCE TO THE CONTRARY.

VI.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN

ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT PETITIONER IS THE
EMPLOYER OF RESPONDENTS AND THAT PETITIONER IS GUILTY OF ILLEGAL
DISMISSAL.24

This Court’s Ruling

Anent the first assignment of error, petitioner argues that judicial review under Rule 65 of the revised
Rules of Civil Procedure is limited only to issues concerning want or excess or jurisdiction or grave
abuse of discretion. The special civil action for certiorari is a remedy designed to correct errors of
jurisdiction and not mere errors of judgment. It is the contention of petitioner that the NLRC properly
assumed jurisdiction over the parties and subject matter of the instant case. The errors assigned by
the respondents in their Petition for Certiorari before the Court of Appeals do not pertain to the
jurisdiction of the NLRC; they are rather errors of judgment supposedly committed by the the NLRC,
in its Resolution, dated 29 February 2000, and are thus not the proper subject of a petition
for certiorari. Petitioner also posits that the Petition for Certiorari filed by respondents with the Court
of Appeals raised questions of fact that would necessitate a review by the appellate court of the
evidence presented by the parties before the Labor Arbiter and the NLRC, and that questions of fact
are not a fit subject for a special civil action for certiorari.

It has long been settled in the landmark case of St. Martin Funeral Home v. NLRC,25 that the mode
for judicial review over decisions of the NLRC is by a petition for certiorari under Rule 65 of the
revised Rules of Civil Procedure. The different modes of appeal, namely, writ of error (Rule 41),
petition for review (Rules 42 and 43), and petition for review on certiorari (Rule 45), cannot be
availed of because there is no provision on appellate review of NLRC decisions in the Labor Code,
as amended.26 Although the same case recognizes that both the Court of Appeals and the Supreme
Court have original jurisdiction over such petitions, it has chosen to impose the strict observance of
the hierarchy of courts. Hence, a petition for certiorari of a decision or resolution of the NLRC should
first be filed with the Court of Appeals; direct resort to the Supreme Court shall not be allowed unless
the redress desired cannot be obtained in the appropriate courts or where exceptional and
compelling circumstances justify an availment of a remedy within and calling for the exercise by the
Supreme Court of its primary jurisdiction.

The extent of judicial review by certiorari of decisions or resolutions of the NLRC, as exercised
previously by the Supreme Court and, now, by the Court of Appeals, is described in Zarate v.
Olegario,27 thus –

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

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

As this Court elucidated in Garcia v. National Labor Relations Commission28 --

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

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

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

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

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

II

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(2) The workers recruited and placed by such persons are performing activities which are
directly related to the principal business or operations of the employer in which workers are
habitually employed.

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

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

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

III

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

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

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

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

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

Petitioner avers that the foregoing Orders of the authorized representatives of the DOLE Secretary
do not constitute res judicata in the case filed before the NLRC. This Court, however, believes
otherwise and finds that the final and executory Orders of the DOLE Secretary or his authorized
representatives should bind the NLRC.
It is obvious that the visitorial and enforcement power granted to the DOLE Secretary is in the nature
of a quasi-judicial power. Quasi-judicial power has been described by this Court in the following
manner –

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

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

ART. 128. Visitorial and enforcement power. –

xxxx

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

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

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

Res judicata has dual aspects, "bar by prior judgment" and "conclusiveness of judgment." This Court
has previously clarified the difference between the two –
Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in
actions in personam. to wit:

"Effect of judgment. - The effect of a judgment or final order rendered by a court or judge of the
Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:

xxxx

(b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to any
other matter that could have been raised in relation thereto, conclusive between the parties and their
successors in interest by title subsequent to the commencement of the action or special proceeding,
litigating for the same thing and under the same title and in the same capacity;

(c) In any other litigation between the same parties or their successors in interest, that only is
deemed to have been adjudged in a former judgment which appears upon its face to have been so
adjudged, or which was actually and necessarily included therein or necessary thereto."

Section 49(b) enunciates the first concept of res judicata known as "bar by prior judgment," whereas,
Section 49(c) is referred to as "conclusiveness of judgment."

There is "bar by former judgment" when, between the first case where the judgment was rendered,
and the second case where such judgment is invoked, there is identity of parties, subject matter and
cause of action. When the three identities are present, the judgment on the merits rendered in the
first constitutes an absolute bar to the subsequent action. But where between the first case wherein
Judgment is rendered and the second case wherein such judgment is invoked, there is only identity
of parties but there is no identity of cause of action, the judgment is conclusive in the second case,
only as to those matters actually and directly controverted and determined, and not as to matters
merely involved therein. This is what is termed "conclusiveness of judgment."

The second concept of res judicata, conclusiveness of judgment, is the one applicable to the case at
bar.

The same parties who participated in the proceedings before the DOLE Regional Office are the
same parties involved in the case filed before the NLRC. CAMPCO, on behalf of its members,
attended the conference before the DOLE Regional Office; submitted its position paper; filed an
appeal with the DOLE Secretary of the Order of DOLE Regional Director Parel; and moved for
reconsideration of the subsequent Order of DOLE Undersecretary Trajano. Petitioner, although not
expressly named as a respondent in the DOLE investigation, was a necessary party thereto,
considering that CAMPCO was rendering services to petitioner solely. Moreover, petitioner
participated in the proceedings before the DOLE Regional Office, intervening in the matter through a
letter sent by its Senior Legal Officer, dated 24 May 1993, and submitting its own position paper.

While the causes of action in the proceedings before the DOLE and the NLRC differ, they are, in
fact, very closely related. The DOLE Regional Office conducted an investigation to determine
whether CAMPCO was violating labor laws, particularly, those on labor-only contracting.
Subsequently, it ruled that CAMPCO was indeed engaging in labor-only contracting activities, and
thereafter ordered to cease and desist from doing so. Respondents came before the NLRC alleging
illegal dismissal by the petitioner of those respondents who were put on "stay home status," and
seeking regularization of respondents who were still working for petitioner. The basis of their claims
against petitioner rests on the argument that CAMPCO was a labor-only contractor and, thus, merely
an agent or intermediary of petitioner, who should be considered as respondents’ real employer. The
matter of whether CAMPCO was a labor-only contractor was already settled and determined in the
DOLE proceedings, which should be conclusive and binding upon the NLRC. What were left for the
determination of the NLRC were the issues on whether there was illegal dismissal and whether
respondents should be regularized.

This Court also notes that CAMPCO and DOLE still continued with their Service Contract despite the
explicit cease and desist orders rendered by authorized DOLE officials. There is no other way to look
at it except that CAMPCO and DOLE acted in complete defiance and disregard of the visitorial and
enforcement power of the DOLE Secretary and his authorized representatives under Article 128 of
the Labor Code, as amended. For the NLRC to ignore the findings of DOLE Regional Director Parel
and DOLE Undersecretary Trajano is an unmistakable and serious undermining of the DOLE
officials’ authority.

IV

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

This Court cannot sustain petitioner’s argument.

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

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

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an
equitable remedy, and maybe awarded only in cases when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere
alter ego or business conduit of a person.

Piercing the veil of corporate entity requires the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one
corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do
this, the court must be sure that the corporate fiction was misused, to such an extent that injustice,
fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the
corporate entity which the law aims to protect by this doctrine.

Using the above-mentioned guidelines, is petitioner entitled to a piercing of the "cooperative identity"
of CAMPCO? This Court thinks not.

It bears to emphasize that the piercing of the corporate veil is an equitable remedy, and among the
maxims of equity are: (1) he who seeks equity must do equity, and (2) he who comes into equity
must come with clean hands. Hence, a litigant may be denied relief by a court of equity on the
ground that his conduct has been inequitable, unfair, dishonest, fraudulent, or deceitful as to the
controversy in issue.34

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

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

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

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

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

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

First, although petitioner touts the multi-million pesos assets of CAMPCO, it does well to
remember that such were amassed in the years following its establishment. In 1993, when
CAMPCO was established and the Service Contract between petitioner and CAMPCO was
entered into, CAMPCO only had ₱6,600.00 paid-up capital, which could hardly be
considered substantial.37 It only managed to increase its capitalization and assets in the
succeeding years by continually and defiantly engaging in what had been declared by
authorized DOLE officials as labor-only contracting.

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

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

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

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

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

VI

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

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

Article 280 of the Labor Code, as amended, reads –

ART. 280. Regular and Casual Employment. – The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be
deemed to be regular where the employee has been engaged to perform activities which are usually
necessary and desirable in the usual business or trade of the employer, except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for the duration of the season.

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

This Court expounded on the afore-quoted provision, thus –

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

In the instant Petition, petitioner is engaged in the manufacture and production of pineapple products
for export. Respondents rendered services as processing attendant, feeder of canned pineapple and
1âw phi1

pineapple processing, nata de coco processing attendant, fruit cocktail processing attendant, and
etc., functions they performed alongside regular employees of the petitioner. There is no doubt that
the activities performed by respondents are necessary or desirable to the usual business of
petitioner.

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

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

Respondents, as regular employees of petitioner, are entitled to security of tenure. They could only
be removed based on just and authorized causes as provided for in the Labor Code, as amended,
and after they are accorded procedural due process. Therefore, petitioner’s acts of placing some of
the respondents on "stay home status" and not giving them work assignments for more than six
months were already tantamount to constructive and illegal dismissal.42

In summary, this Court finds that CAMPCO was a labor-only contractor and, thus, petitioner is the
real employer of the respondents, with CAMPCO acting only as the agent or intermediary of
petitioner. Due to the nature of their work and length of their service, respondents should be
considered as regular employees of petitioner. Petitioner constructively dismissed a number of the
respondents by placing them on "stay home status" for over six months, and was therefore guilty of
illegal dismissal. Petitioner must accord respondents the status of regular employees, and reinstate
the respondents who it constructively and illegally dismissed, to their previous positions, without loss
of seniority rights and other benefits, and pay these respondents’ backwages from the date of filing
of the Complaint with the NLRC on 19 December 1996 up to actual reinstatement.

WHEREFORE, in view of the foregoing, the instant Petition is DENIED and the Amended Decision,
dated 27 November 2003, rendered by the Court of Appeals in CA-G.R. SP No. 63405
is AFFIRMED.

Costs against the petitioner.

SO ORDERED.

6)

G.R. No. 160506 March 9, 2010

JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO AMPELOQUIO,

ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO PLATON, JOSE FERNANDO
GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR
IGNACIO, JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO CALANAO,
ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR.,
ARNEL ENDAYA, ROBERTO ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO,
SANTOS BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA,
ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA, FERNANDO
MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO
MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY, LEONARDO P. TALLEDO,
ENRIQUE F. TALLEDO, WILLIE ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL
BILLONES, ALLAN BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT,
RAUL DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO DACUNA,
RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO, WILFREDO TORRES,
MELCHOR CARDANO, MARIANO NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES,
GERRY C. GATPO, GERMAN N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C. TOLEDO,
ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ,
FRED P. JIMENEZ, RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ
BUSTENERA, ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, ALEJANDRINO
ABATON, and ORLANDO S. BALANGUE, Petitioners,
vs.
PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC., Respondents.

DECISION

DEL CASTILLO, J.:

Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor Code
establishes an employer-employee relationship between the employer and the employees of the
‘labor-only’ contractor.

The instant petition for review assails the March 21, 2003 Decision1 of the Court of Appeals (CA) in
CA-G.R. SP No. 52082 and its October 20, 2003 Resolution2 denying the motions for
reconsideration separately filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G).
The appellate court affirmed the July 27, 1998 Decision of the National Labor Relations Commission
(NLRC), which in turn affirmed the November 29, 1996 Decision3 of the Labor Arbiter. All these
decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be
legitimate independent contractors and the employers of the petitioners.

Factual Antecedents

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982
or as late as June 1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:
1av vphi1

Name Date Employed Date Dismissed

1. Joeb M. Aliviado November, 1985 May 5, 1992
2. Arthur Corpuz 1988 March 11, 1993
3. Eric Aliviado 1985 March 11, 1993
4. Monchito Ampeloquio September, 1988 March 11, 1993
5. Abraham Basmayor[, Jr.] 1987 March 11, 1993
6. Jonathan Mateo May, 1988 March 11, 1993
7. Lorenzo Platon 1985 March 11, 1993
8. Jose Fernando Gutierrez 1988 May 5, 1992
9. Estanislao Buenaventura June, 1988 March 11, 1993
10. Lope Salonga 1982 March 11, 1993
11. Franz David 1989 March 11, 1993
12. Nestor Ignacio 1982 March 11, 1993
13. Julio Rey 1989 May 5, 1992
14. Ruben [Vasquez], Jr. 1985 May 5, 1992
15. Maximino Pascual 1990 May 5, 1992
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
17. Rolando Romasanta 1983 March 11, 1993
18. [Roehl] Agoo 1988 March 11, 1993
19. Bonifacio Ortega 1988 March 11, 1993
20. Arsenio Soriano, Jr. 1985 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993
22. Roberto Enriquez December, 1988 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992
24. Ed[g]ardo Quiambao 1989 March 11, 1993
25. Santos Bacalso 1990 March 11, 1993
26. Samson Basco 1984 March 11, 1993
27. Aladino Gregor[e], Jr. 1980 May 5, 1992
28. Edwin Garcia 1987 May 5, 1992
29. Armando Villar 1990 May 5, 1992
30. Emil Tawat 1988 March 11, 1993
31. Mario P. Liongson 1991 May 5, 1992
32. Cresente J. Garcia 1984 March 11, 1993
33. Fernando Macabent[a] 1990 May 5, 1992
34. Melecio Casapao 1987 March 11, 1993
35. Reynaldo Jacaban 1990 May 5, 1992
36. Ferdinand Salvo 1985 May 5, 1992
37. Alstando Montos 1984 March 11, 1993
38. Rainer N. Salvador 1984 May 5, 1992
39. Ramil Reyes 1984 March 11, 1993
40. Pedro G. Roy 1987
41. Leonardo [F]. Talledo 1985 March 11, 1993
42. Enrique [F]. Talledo 1988 March 11, 1993
43. Willie Ortiz 1987 May 5, 1992
44. Ernesto Soyosa 1988 May 5, 1992
45. Romeo Vasquez 1985 March 11, 1993
46. Joel Billones 1987 March 11, 1993
47. Allan Baltazar 1989 March 11, 1993
48. Noli Gabuyo 1991 March 11, 1993
49. Emmanuel E. Laban 1987 May 5, 1992
50. Ramir[o] E. [Pita] 1990 May 5, 1992
51. Raul Dulay 1988 May 5, 1992
52. Tadeo Duran[o] 1988 May 5, 1992
53. Joseph Banico 1988 March 11, 1993
54. Albert Leynes 1990 May 5, 1992
55. Antonio Dacu[m]a 1990 May 5, 1992
56. Renato dela Cruz 1982
57. Romeo Viernes, Jr. 1986
58. El[ia]s Bas[c]o 1989
59. Wilfredo Torres 1986 May 5, 1992
60. Melchor Carda[ñ]o 1991 May 5, 1992
61. [Marino] [Maranion] 1989 May 5, 1992
62. John Sumergido 1987 May 5, 1992
63. Roberto Rosales May, 1987 May 5, 1992
64. Gerry [G]. Gatpo November, 1990 March 11, 1993
65. German N. Guevara May, 1990 March 11, 1993
66. Gilbert Y. Miranda June, 1991 March 11, 1993
67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
68. Arnold D. [Laspoña] June 1991 March 11, 1993
69. Philip M. Loza March 5, 1992 March 11, 1993
70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993
71. Orlando P. Jimenez November 6, 1992 March 11, 1993
72. Fred P. Jimenez September, 1991 March 11, 1993
73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993
74. Rolando J. de Andres June, 1991 March 11, 1993
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993
76. Roberto B. Cruz May 4, 1990 March 11, 1993
77. Rosedy O. Yordan June, 1991 May 5, 1992
78. Dennis Dacasin May. 1990 May 5, 1992
79. Alejandrino Abaton 1988 May 5, 1992
80. Orlando S. Balangue March, 1989 March 11, 19934
They all individually signed employment contracts with either Promm-Gem or SAPS for periods of
more or less five months at a time.5 They were assigned at different outlets, supermarkets and
stores where they handled all the products of P&G. They received their wages from Promm-Gem or
SAPS.6

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such
as habitual absenteeism, dishonesty or changing day-off without prior notice.7

P&G is principally engaged in the manufacture and production of different consumer and health
products, which it sells on a wholesale basis to various supermarkets and distributors.8 To enhance
consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem
and SAPS for the promotion and merchandising of its products.9

In December 1991, petitioners filed a complaint10 against P&G for regularization, service incentive
leave pay and other benefits with damages. The complaint was later amended11 to include the matter
of their subsequent dismissal.

Ruling of the Labor Arbiter

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that
there was no employer-employee relationship between petitioners and P&G. He found that the
selection and engagement of the petitioners, the payment of their wages, the power of dismissal and
control with respect to the means and methods by which their work was accomplished, were all done
and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate
independent job contractors. The dispositive portion of his Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled

cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit.

SO ORDERED.12

Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings. On July 27, 1998, the
NLRC rendered a Decision13 disposing as follows:

WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the
decision appealed from AFFIRMED.

SO ORDERED.14

Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998
Resolution.15

Ruling of the Court of Appeals

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC. However,
said petition was also denied by the CA which disposed as follows:
WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is
AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered to pay
service incentive leave pay to petitioners.

SO ORDERED.16

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition.

Issues

Petitioners now come before us raising the following issues:

I.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE

ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN
RENDERING THE QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE
ABLE TO PROVE AND ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS
THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY DISMISSED BY THE FORMER.

II.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE

ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH
GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE
RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND
EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND ATTORNEY’S FEES.17

Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether petitioners
were illegally dismissed; and (3) whether petitioners are entitled for payment of actual, moral and
exemplary damages as well as litigation costs and attorney’s fees.

Petitioners’ Arguments

Petitioners insist that they are employees of P&G. They claim that they were recruited by the
salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the
existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-
alignment program, petitioners were instructed to fill up application forms and report to the agencies
which P&G created.18

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its
letter19 to SAPS dated February 24, 1993, informing the latter that their Merchandising Services
Contract will no longer be renewed.

Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services
of manpower to their client. They claim that the contractors have neither substantial capital nor tools
and equipment to undertake independent labor contracting. Petitioners insist that since they had
been engaged to perform activities which are necessary or desirable in the usual business or trade
of P&G, then they are its regular employees.20
Respondents’ Arguments

On the other hand, P&G points out that the instant petition raises only questions of fact and should
thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the NLRC,
particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and
conclusive on the Supreme Court.

P&G further argues that there is no employment relationship between it and petitioners. It was
Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their
salaries; (3) wielded the power of dismissal; and (4) had the power of control over their conduct of
work.

P&G also contends that the Labor Code neither defines nor limits which services or activities may be
validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor,
regardless of whether such activity is peripheral or core in nature. It insists that the determination of
whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of
management prerogative.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of
the Comment of Promm-Gem on the petition.21 Also, although SAPS was impleaded as a party in the
proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a party in the
proceedings before the CA.22 Hence, our pronouncements with regard to SAPS are only for the
purpose of determining the obligations of P&G, if any.

Our Ruling

The petition has merit.

As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies
exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is
constrained to wade into factual matters when there is insufficient or insubstantial evidence on
record to support those factual findings; or when too much is concluded, inferred or deduced from
the bare or incomplete facts appearing on record.23 In the present case, we find the need to review
the records to ascertain the facts.

Labor-only contracting and job contracting

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first
determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors.

The pertinent Labor Code provision on the matter states:

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

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

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

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18-02,24 distinguishes between legitimate and labor-only contracting:

xxxx

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists

a trilateral relationship under which there is a contract for a specific job, work or service between the
principal and the contractor or subcontractor, and a contract of employment between the contractor
or subcontractor and its workers. Hence, there are three parties involved in these arrangements, the
principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or
subcontractor which has the capacity to independently undertake the performance of the job, work or
service, and the contractual workers engaged by the contractor or subcontractor to accomplish the
job[,] work or service.

xxxx

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

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

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

ii) [T]he contractor does not exercise the right to control over the performance of the work of the
contractual employee.

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

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

x x x x (Underscoring supplied.)

Clearly, the law and its implementing rules allow contracting arrangements for the performance of
specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities,
regardless of whether such activity is peripheral or core in nature. However, in order for such
outsourcing to be valid, it must be made to anindependent contractor because the current labor rules
expressly prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or service for a principal25 and any of the following
elements are present:

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

ii) The contractor does not exercise the right to control over the performance of the work of
the contractualemployee. (Underscoring supplied)

In the instant case, the financial statements26 of Promm-Gem show that it

has authorized capital stock of ₱1 million and a paid-in capital, or capital available for operations, of
₱500,000.00 as of 1990.27 It also has long term assets worth ₱432,895.28 and current assets of
₱719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space
with a floor area of 870 square meters.28 It also had under its name three registered vehicles which
were used for its promotional/merchandising business.29Promm-Gem also has other clients30 aside
from P&G.31 Under the circumstances, we find that Promm-Gem has substantial investment which
relates to the work to be performed. These factors negate the existence of the element specified in
Section 5(i) of DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant
materials, such as markers, tapes, liners and cutters, necessary for them to perform their work.
Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already
considered the complainants working under it as its regular, not merely contractual or project,
employees.32 This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE
Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates –
on the part of Promm-Gem – bad faith and intent to circumvent labor laws which factors have often
been tipping points that lead the Court to strike down the employment practice or agreement
concerned as contrary to public policy, morals, good customs or public order.33

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find

that it is a legitimate independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only
₱31,250.00. There is no other evidence presented to show how much its working capital and assets
are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets.
In Vinoya v. National Labor Relations Commission,34 the Court held that "[w]ith the current economic
atmosphere in the country, the paid-in capitalization of PMCI amounting to ₱75,000.00 cannot be
considered as substantial capital and, as such, PMCI cannot qualify as an independent
contractor."35 Applying the same rationale to the present case, it is clear that SAPS – having a paid-
in capital of only ₱31,250 - has no substantial capital. SAPS’ lack of substantial capital is underlined
by the records36 which show that its payroll for its merchandisers alone for one month would already
total ₱44,561.00. It had 6-month contracts with P&G.37 Yet SAPS failed to show that it could
complete the 6-month contracts using its own capital and investment. Its capital is not even sufficient
for one month’s payroll. SAPS failed to show that its paid-in capital of ₱31,250.00 is sufficient for the
period required for it to generate its needed revenue to sustain its operations independently.
Substantial capital refers to capitalization used in the performance or completion of the job, work or
service contracted out. In the present case, SAPS has failed to show substantial capital.

Furthermore, the petitioners have been charged with the merchandising and promotion of the
products of P&G, an activity that has already been considered by the Court as doubtlessly directly
related to the manufacturing business,38 which is the principal business of P&G. Considering that
SAPS has no substantial capital or investment and the workers it recruited are performing activities
which are directly related to the principal business of P&G, we find that the former is engaged in
"labor-only contracting".

"Where ‘labor-only’ contracting exists, the Labor Code itself establishes an employer-employee
relationship between the employer and the employees of the ‘labor-only’ contractor."39 The statute
establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws.
The contractor is considered merely an agent of the principal employer and the latter is responsible
to the employees of the labor-only contractor as if such employees had been directly employed by
the principal employer.40

Consequently, the following petitioners, having been recruited and supplied by SAPS41 -- which
engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz, Eric
Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta,
Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo
Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy,
Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo,
German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza,
Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J.
De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil
Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes,
Jr., Elias Basco and Dennis Dacasin.

The following petitioners, having worked under, and been dismissed by Promm-Gem, are
considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin
Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto
Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz,
Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio
Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul
Dulay, Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado.42

Termination of services
We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular
employment, the employer shall not terminate the services of an employee except for a just43 or
authorized44 cause.

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified
the cause of dismissal as grave misconduct and breach of trust, as follows:

xxxx

This informs you that effective May 5, 1992, your employment with our company, Promm-Gem, Inc.
has been terminated. We find your expressed admission, that you considered yourself as an
employee of Procter & Gamble Phils., Inc…. and assailing the integrity of the Company as legitimate
and independent promotion firm, is deemed as an act of disloyalty prejudicial to the interests of our
Company: serious misconduct and breach of trust reposed upon you as employee of our Company
which [co]nstitute just cause for the termination of your employment.

x x x x45

Misconduct has been defined as improper or wrong conduct; the transgression of some established
and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying
wrongful intent and not mere error of judgment. The misconduct to be serious must be of such grave
and aggravated character and not merely trivial and unimportant.46 To be a just cause for dismissal,
such misconduct (a) must be serious; (b) must relate to the performance of the employee’s duties;
and (c) must show that the employee has become unfit to continue working for the employer.47

In other words, in order to constitute serious misconduct which will warrant the dismissal of an
employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or
conduct complained of has violated some established rules or policies. It is equally important and
required that the act or conduct must have been performed with wrongful intent.48 In the instant case,
petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be
employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so.
As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a
legitimate and independent promotion firm. A misconduct which is not serious or grave, as that
existing in the instant case, cannot be a valid basis for dismissing an employee.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful
breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A
breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse,
as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.49

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that
the employee concerned holds a position of responsibility or of trust and confidence. As such, he
must be invested with confidence on delicate matters, such as custody, handling or care and
protection of the property and assets of the employer. And, in order to constitute a just cause for
dismissal, the act complained of must be work-related and must show that the employee is unfit to
continue to work for the employer.50 In the instant case, the petitioners-employees of Promm-Gem
have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is
there any evidence to show that they are unfit to continue to work as merchandisers for Promm-
Gem.

All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.
While Promm-Gem had complied with the procedural aspect of due process in terminating the
employment of petitioners-employees, i.e., giving two notices and in between such notices, an
opportunity for the employees to answer and rebut the charges against them, it failed to comply with
the substantive aspect of due process as the acts complained of neither constitute serious
misconduct nor breach of trust. Hence, the dismissal is illegal.

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of
dismissal. The records show that upon receipt by SAPS of P&G’s letter terminating their
"Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the
concerned petitioners not to report for work anymore. The concerned petitioners related their
dismissal as follows:

xxxx

5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino
A. Ponce that we should already stop working immediately because that was the order of Procter
and Gamble. According to him he could not do otherwise because Procter and Gamble was the one
paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he showed
to us the letter51 dated February 24, 1993, x x x

February 24, 1993

Sales and Promotions Services

Armon’s Bldg., 142 Kamias Road,
Quezon City

Attention: Mr. Saturnino A. Ponce

President & General Manager

Gentlemen:

Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be
renewing our Merchandising Services Contract with your agency.

Please immediately undertake efforts to ensure that your services to the Company will terminate
effective close of business hours of 11 March 1993.

This is without prejudice to whatever obligations you may have to the company under the
abovementioned contract.

Very truly yours,

(Sgd.)
EMMANUEL M. NON
Sales Merchandising III

6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no longer
allowed to work and we were refused entrance by the security guards posted. According to the
security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the
Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x
x x52
1avv phi 1

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike
Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to
disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does
not carry on its own business because the termination of its contract with P&G automatically meant
for it also the termination of its employees’ services. It is obvious from its act that SAPS had no other
clients and had no intention of seeking other clients in order to further its merchandising business.
From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in
the latter’s merchandising concerns only. Under the circumstances prevailing in the instant case, we
cannot consider SAPS as an independent contractor.

Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the
lawfulness of the dismissal rests with the employer.53 In termination cases, the burden of proof rests
upon the employer to show that the dismissal is for just and valid cause.54 In the instant case, P&G
failed to discharge the burden of proving the legality and validity of the dismissals of those
petitioners who are considered its employees. Hence, the dismissals necessarily were not justified
and are therefore illegal.

Damages

We now go to the issue of whether petitioners are entitled to damages. Moral

and exemplary damages are recoverable where the dismissal of an employee was attended by bad
faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to morals,
good customs or public policy.55

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any
oppressive act on the part of the latter, we find no support for the award of damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive
to labor. The sudden and peremptory barring of the concerned petitioners from work, and from
admission to the work place, after just a one-day verbal notice, and for no valid cause bellows
oppression and utter disregard of the right to due process of the concerned petitioners. Hence, an
award of moral damages is called for.

Attorney’s fees may likewise be awarded to the concerned petitioners who were illegally dismissed
in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the
oppressive acts56 of P&G.

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall
be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of
allowances, and other benefits or their monetary equivalent from the time the compensation was
withheld up to the time of actual reinstatement.57 Hence, all the petitioners, having been illegally
dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and
other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of
Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003
are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc.
are ORDERED to reinstate their respective employees immediately without loss of seniority rights
and with full backwages and other benefits from the time of their illegal dismissal up to the time of
their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to pay each of those
petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio,
Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga,
Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano,
Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando
Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones,
Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo,
Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez,
Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy
O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo
Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, ₱25,000.00 as
moral damages plus ten percent of the total sum as and for attorney’s fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from receipt of
this Decision, of petitioners’ backwages and other benefits; and ten percent of the total sum as and
for attorney’s fees as stated above; and for immediate execution.

SO ORDERED.

7)

G.R. No. 186965 December 23, 2009

TEMIC AUTOMOTIVE PHILIPPINES, INC., Petitioner,

vs.
TEMIC AUTOMOTIVE PHILIPPINES, INC. EMPLOYEES UNION-FFW, Respondent.

DECISION

BRION, J.:

We resolve the present petition for review on certiorari[1] filed by Temic Automotive Philippines Inc.
(petitioner) to challenge the decision2 and resolution3 of the Court of Appeals (CA) in CA-G.R. SP
No. 99029.4

The Antecedents

The petitioner is a corporation engaged in the manufacture of electronic brake systems and comfort
body electronics for automotive vehicles. Respondent Temic Automotive Philippines, Inc. Employees
Union-FFW (union) is the exclusive bargaining agent of the petitioner's rank-and-file employees. On
May 6, 2005, the petitioner and the union executed a collective bargaining agreement (CBA) for the
period January 1, 2005 to December 31, 2009.

The petitioner is composed of several departments, one of which is the warehouse department
consisting of two warehouses - the electronic braking system and the comfort body electronics.
These warehouses are further divided into four sections - receiving section, raw materials
warehouse section, indirect warehouse section and finished goods section. The union members are
regular rank-and-file employees working in these sections as clerks, material handlers, system
encoders and general clerks. Their functions are interrelated and include: receiving and recording of
incoming deliveries, raw materials and spare parts; checking and booking-in deliveries, raw
materials and spare parts with the use of the petitioner's system application processing; generating
bar codes and sticking these on boxes and automotive parts; and issuing or releasing spare parts
and materials as may be needed at the production area, and piling them up by means of the
company's equipment (forklift or jacklift).

By practice established since 1998, the petitioner contracts out some of the work in the warehouse
department, specifically those in the receiving and finished goods sections, to three independent
service providers or forwarders (forwarders), namely: Diversified Cargo Services, Inc. (Diversified),
Airfreight 2100 (Airfreight) and Kuehne & Nagel, Inc. (KNI). These forwarders also have their own
employees who hold the positions of clerk, material handler, system encoder and general clerk. The
regular employees of the petitioner and those of the forwarders share the same work area and use
the same equipment, tools and computers all belonging to the petitioner.

This outsourcing arrangement gave rise to a union grievance on the issue of the scope and
coverage of the collective bargaining unit, specifically to the question of "whether or not the functions
of the forwarders’ employees are functions being performed by the regular rank-and-file employees
covered by the bargaining unit."5 The union thus demanded that the forwarders' employees be
absorbed into the petitioner's regular employee force and be given positions within the bargaining
unit. The petitioner, on the other hand, on the premise that the contracting arrangement with the
forwarders is a valid exercise of its management prerogative, posited that the union's position is a
violation of its management prerogative to determine who to hire and what to contract out, and that
the regular rank-and-file employees and their forwarders’ employees serving as its clerks, material
handlers, system encoders and general clerks do not have the same functions as regular company
employees.

The union and the petitioner failed to resolve the dispute at the grievance machinery level, thus
necessitating recourse to voluntary arbitration. The parties chose Atty. Roberto A. Padilla as their
voluntary arbitrator. Their voluntary arbitration submission agreement delineated the issues to be
resolved as follows:

1. Whether or not the company validly contracted out or outsourced the services involving
forwarding, packing, loading and clerical activities related thereto; and

2. Whether or not the functions of the forwarders' employees are functions being performed
by regular rank-and-file employees covered by the bargaining unit.6

To support its position, the union submitted in evidence a copy of the complete manpower
complement of the petitioner's warehouse department as of January 3, 20077 showing that there
were at the time 19 regular company employees and 26 forwarder employees. It also presented the
affidavits8 of Edgardo P. Usog, Antonio A. Muzones, Endrico B. Dumolong, Salvador R. Vargas and
Harley J. Noval, regular employees of the petitioner, who deposed that they and the forwarders’
employees assigned at the warehouse department were performing the same functions. The union
also presented the affidavits of Ramil V. Barit9 (Barit), Jonathan G. Prevendido10 (Prevendido) and
Eduardo H. Enano11 (Enano), employees of forwarder KNI, who described their work at the
warehouse department.

In its submission,12 the petitioner invoked the exercise of its management prerogative and its
authority under this prerogative to contract out to independent service providers the forwarding,
packing, loading of raw materials and/or finished goods and all support and ancillary services (such
as clerical activities) for greater economy and efficiency in its operations. It argued that in Meralco v.
Quisumbing13 this Court explicitly recognized that the contracting out of work is an employer
proprietary right in the exercise of its inherent management prerogative.

The forwarders, the petitioners alleged, are all highly reputable freight forwarding companies
providing total logistics services such as customs brokerage that includes the preparation and
processing of import and export documentation, cargo handling, transport (air, land or sea), delivery
and trucking; and they have substantial capital and are fully equipped with the technical knowledge,
facilities, equipment, materials, tools and manpower to service the company's forwarding, packing
and loading requirements. Additionally, the petitioner argued that the union is not in a position to
question its business judgment, for even their CBA expressly recognizes its prerogative to have
exclusive control of the management of all functions and facilities in the company, including the
exclusive right to plan or control operations and introduce new or improved systems, procedures and
methods.

The petitioner maintained that the services rendered by the forwarders’ employees are not the same
as the functions undertaken by regular rank-and-file employees covered by the bargaining unit;
therefore, the union’s demand that the forwarders’ employees be assimilated as regular company
employees and absorbed by the collective bargaining unit has no basis; what the union asks
constitutes an unlawful interference in the company's prerogative to choose who to hire as
employees. It pointed out that the union could not, and never did, assert that the contracting-out of
work to the service providers was in violation of the CBA or prohibited by law.

The petitioner explained that its regular employees' clerical and material handling tasks are not
identical with those done by the service providers; the clerical work rendered by the contractors are
recording and documentation tasks ancillary to or supportive of the contracted services of
forwarding, packing and loading; on the other hand, the company employees assigned as general
clerks prepare inventory reports relating to its shipments in general to ensure that the recording of
inventory is consistent with the company's general system; company employees assigned as
material handlers essentially assist in counter-checking and reporting activities to ensure that the
contractors' services comply with company standards.

The petitioner submitted in evidence the affidavits of Antonio Gregorio14 (Gregorio), its warehouse
manager, and Ma. Maja Bawar15 (Bawar), its section head.

The Voluntary Arbitration Decision

In his decision of May 1, 2007,16 the voluntary arbitrator defined forwarding as a universally accepted
and normal business practice or activity, and ruled that the company validly contracted out its
forwarding services. The voluntary arbitrator observed that exporters, in utilizing forwarders as travel
agents of cargo, mitigate the confusion and delays associated with international trade logistics; the
company need not deal with many of the details involved in the export of goods; and given the years
of experience and constant attention to detail provided by the forwarders, it may be a good
investment for the company. He found that the outsourcing of forwarding work is expressly allowed
by the rules implementing the Labor Code.17

At the same time, however, the voluntary arbitrator found that the petitioner went beyond the limits of
the legally allowable contracting out because the forwarders' employees encroached upon the
functions of the petitioner's regular rank-and-file workers. He opined that the forwarders' personnel
serving as clerks, material handlers, system encoders and general clerks perform "functions [that]
are being performed by regular rank-and-file employees covered by the bargaining unit." He also
noted that the forwarders' employees perform their jobs in the company warehouse together with the
petitioner's employees, use the same company tools and equipment and work under the same
company supervisors – indicators that the petitioner exercises supervision and control over all the
employees in the warehouse department. For these reasons, he declared the forwarders’ employees
serving as clerks, material handlers, system encoders and general clerks to be "employees of the
company who are entitled to all the rights and privileges of regular employees of the company
including security of tenure."18

The petitioner sought relief from the CA through a petition for review under Rule 43 of the Rules of
Court invoking questions of facts and law.19 It specifically questioned the ruling that the company did
not validly contract out the services performed by the forwarders’ clerks, material handlers, system
encoders and general clerks, and claimed that the voluntary arbitrator acted in excess of his
authority when he ruled that they should be considered regular employees of the company.

The CA Decision

In its decision of October 28, 2008,20 the CA fully affirmed the voluntary arbitrator’s decision and
dismissed the petition for lack of merit. The discussion essentially focused on three points. First, that
decisions of voluntary arbitrators on matters of fact and law, acting within the scope of their authority,
are conclusive and constitute res adjudicata on the theory that the parties agreed that the voluntary
arbitrator’s decision shall be final. Second, that the petitioner has the right to enter into the
forwarding agreements, but these agreements should be limited to forwarding services; the
petitioner failed to present clear and convincing proof of the delineation of functions and duties
between company and forwarder employees engaged as clerks, material handlers, system encoders
and general clerks; thus, they should be considered regular company employees. Third, on the
extent of the voluntary arbitrator's authority, the CA acknowledged that the arbitrator can only decide
questions agreed upon and submitted by the parties, but maintained that the arbitrator also has the
power to rule on consequential issues that would finally settle the dispute. On this basis, the CA
justified the ruling on the employment status of the forwarders' clerks, material handlers, system
encoders and general clerks as a necessary consequence that ties up the loose ends of the
submitted issues for a final settlement of the dispute.

The CA denied the petitioner’s motion for reconsideration, giving way to the present petition.

The Petition

The petition questions as a preliminary issue the CA ruling that decisions of voluntary arbitrators are
conclusive and constitute res adjudicata on the facts and law ruled upon.

Expectedly, it cites as error the voluntary arbitrator’s and the CA’s rulings that: (a) the forwarders’
employees undertaking the functions of clerks, material handlers, system encoders and general
clerks exercise the functions of regular company employees and are subject to the company’s
control; and (b) the functions of the forwarders’ employees are beyond the limits of what the law
allows for a forwarding agreement.

The petitioner reiterates that there are distinctions between the work of the forwarders’ employees
and that of the regular company employees. The receiving, unloading, recording or documenting of
materials the forwarders’ employees undertake form part of the contracted forwarding services. The
similarity of these activities to those performed by the company's regular employees does not
necessarily lead to the conclusion that the forwarders’ employees should be absorbed by the
company as its regular employees. No proof was ever presented by the union that the company
exercised supervision and control over the forwarders' employees. The contracted services and
even the work performed by the regular employees in the warehouse department are also not
usually necessary and desirable in the manufacture of automotive electronics which is the
company’s main business. It adds that as held in Philippine Global Communications, Inc. v. De
Vera,[21] management can contract out even services that are usually necessary or desirable in the
employer's business.

On the issue of jurisdiction, the petitioner argues that the voluntary arbitrator neither had jurisdiction
nor basis to declare the forwarders' personnel as regular employees of the company because the
matter was not among the issues submitted by the parties for arbitration; in voluntary arbitration, it is
the parties’ submission of the issues that confers jurisdiction on the voluntary arbitrator. The
petitioner finally argues that the forwarders and their employees were not parties to the voluntary
arbitration case and thus cannot be bound by the voluntary arbitrator’s decision.

The Case for the Union

In its comment,22 the union takes exception to the petitioner's position that the contracting out of
services involving forwarding and ancillary activities is a valid exercise of management prerogative.
It posits that the exercise of management prerogative is not an absolute right, but is subject to the
limitation provided for by law, contract, existing practice, as well as the general principles of justice
and fair play. It submits that both the law and the parties' CBA prohibit the petitioner from contracting
out to forwarders the functions of regular employees, especially when the contracting out will amount
to a violation of the employees' security of tenure, of the CBA provision on the coverage of the
bargaining unit, or of the law on regular employment.

The union disputes the petitioner's claim that there is a distinction between the work being performed
by the regular employees and that of the forwarders' employees. It insists that the functions being
assigned, delegated to and performed by employees of the forwarders are also those assigned,
delegated to and being performed by the regular rank-and-file employees covered by the bargaining
unit.

On the jurisdictional issue, the union submits that while the submitted issue is "whether or not the
functions of the forwarders' employees are functions being performed by the regular rank-and-file
employees covered by the bargaining unit," the ruling of the voluntary arbitrator was a necessary
consequence of his finding that the forwarders' employees were performing functions similar to those
being performed by the regular employees of the petitioner. It maintains that it is within the power of
the voluntary arbitrator to rule on the issue since it is inherently connected to, or a consequence of,
the main issues resolved in the case.

The Court's Ruling

We find the petition meritorious.

Underlying Jurisdictional Issues

As submitted by the parties, the first issue is "whether or not the company validly contracted out or
outsourced the services involving forwarding, packing, loading and clerical activities related thereto."
However, the forwarders, with whom the petitioner had written contracts for these services, were
never made parties (and could not have been parties to the voluntary arbitration except with their
consent) so that the various forwarders’ agreements could not have been validly impugned through
voluntary arbitration and declared invalid as against the forwarders.

The second submitted issue is "whether or not the functions of the forwarders’ employees are
functions being performed by regular rank-and-file employees covered by the bargaining unit." While
this submission is couched in general terms, the issue as discussed by the parties is limited to the
forwarders’ employees undertaking services as clerks, material handlers, system encoders and
general clerks, which functions are allegedly the same functions undertaken by regular rank-and-file
company employees covered by the bargaining unit. Either way, however, the issue poses
jurisdictional problems as the forwarders’ employees are not parties to the case and the union has
no authority to speak for them.

From this perspective, the voluntary arbitration submission covers matters affecting third parties who
are not parties to the voluntary arbitration and over whom the voluntary arbitrator has no jurisdiction;
thus, the voluntary arbitration ruling cannot bind them.23 While they may voluntarily join the voluntary
arbitration process as parties, no such voluntary submission appears in the record and we cannot
presume that one exists. Thus, the voluntary arbitration process and ruling can only be recognized
as valid between its immediate parties as a case arising from their collective bargaining agreement.
This limited scope, of course, poses no problem as the forwarders and their employees are not
indispensable parties and the case is not mooted by their absence. Our ruling will fully bind the
immediate parties and shall fully apply to, and clarify the terms of, their relationship, particularly the
interpretation and enforcement of the CBA provisions pertinent to the arbitrated issues.

Validity of the Contracting Out

The voluntary arbitration decision itself established, without objection from the parties, the
description of the work of forwarding as a basic premise for its ruling. We similarly find the
description acceptable and thus adopt it as our own starting point in considering the nature of the
service contracted out when the petitioner entered into its forwarding agreements with Diversified,
Airfreight and KNI. To quote the voluntary arbitration decision:

As forwarders they act as travel agents for cargo. They specialize in arranging transport and
completing required shipping documentation of respondent's company's finished products. They
provide custom crating and packing designed for specific needs of respondent company. These
freight forwarders are actually acting as agents for the company in moving cargo to an overseas
destination. These agents are familiar with the import rules and regulations, the methods of shipping,
and the documents related to foreign trade. They recommend the packing methods that will protect
the merchandise during transit. Freight forwarders can also reserve for the company the necessary
space on a vessel, aircraft, train or truck.

They also prepare the bill of lading and any special required documentation. Freight forwarders can
also make arrangement with customs brokers overseas that the goods comply with customs export
documentation regulations. They have the expertise that allows them to prepare and process the
documentation and perform related activities pertaining to international shipments. As an analogy,
freight forwarders have been called travel agents for freight.24

Significantly, both the voluntary arbitrator and the CA recognized that the petitioner was within its
right in entering the forwarding agreements with the forwarders as an exercise of its management
prerogative. The petitioner's declared objective for the arrangement is to achieve greater economy
and efficiency in its operations – a universally accepted business objective and standard that the
union has never questioned. In Meralco v. Quisumbing,25 we joined this universal recognition of
outsourcing as a legitimate activity when we held that a company can determine in its best judgment
whether it should contract out a part of its work for as long as the employer is motivated by good
faith; the contracting is not for purposes of circumventing the law; and does not involve or be
the result of malicious or arbitrary action.

While the voluntary arbitrator and the CA saw nothing irregular in the contracting out as a whole,
they held otherwise for the ancillary or support services involving clerical work, materials handling
and documentation. They held these to be the same as the workplace activities undertaken by
regular company rank-and-file employees covered by the bargaining unit who work under company
control; hence, they concluded that the forwarders’ employees should be considered as regular
company employees.

Our own examination of the agreement shows that the forwarding arrangement complies with the
requirements of Article 10626 of the Labor Code and its implementing rules.27 To reiterate, no
evidence or argument questions the company’s basic objective of achieving "greater economy and
efficiency of operations." This, to our mind, goes a long way to negate the presence of bad faith. The
forwarding arrangement has been in place since 1998 and no evidence has been presented showing
that any regular employee has been dismissed or displaced by the forwarders’ employees since
then. No evidence likewise stands before us showing that the outsourcing has resulted in a reduction
of work hours or the splitting of the bargaining unit – effects that under the implementing rules of
Article 106 of the Labor Code can make a contracting arrangement illegal. The other requirements of
Article 106, on the other hand, are simply not material to the present petition. Thus, on the whole, we
see no evidence or argument effectively showing that the outsourcing of the forwarding activities
violate our labor laws, regulations, and the parties’ CBA, specifically that it interfered with, restrained
or coerced employees in the exercise of their rights to self-organization as provided in Section 6,
par. (f) of the implementing rules. The only exception, of course, is what the union now submits as a
voluntary arbitration issue – i.e., the failure to recognize certain forwarder employees as regular
company employees and the effect of this failure on the CBA’s scope of coverage – which issue we
fully discuss below.

The job of forwarding, as we earlier described, consists not only of a single activity but of several
services that complement one another and can best be viewed as one whole process involving a
package of services. These services include packing, loading, materials handling and support
clerical activities, all of which are directed at the transport of company goods, usually to foreign
destinations.

It is in the appreciation of these forwarder services as one whole package of inter-related services
that we discern a basic misunderstanding that results in the error of equating the functions of the
forwarders’ employees with those of regular rank-and-file employees of the company. A clerical job,
for example, may similarly involve typing and paper pushing activities and may be done on the same
company products that the forwarders’ employees and company employees may work on, but these
similarities do not necessarily mean that all these employees work for the company. The regular
company employees, to be sure, work for the company under its supervision and control, but
forwarder employees work for the forwarder in the forwarder’s own operation that is itself a
contracted work from the company. The company controls its employees in the means, method and
results of their work, in the same manner that the forwarder controls its own employees in the
means, manner and results of their work. Complications and confusion result because the company
at the same time controls the forwarder in the results of the latter’s work, without controlling however
the means and manner of the forwarder employees’ work. This interaction is best exemplified by the
adduced evidence, particularly the affidavits of petitioner’s warehouse manager Gregorio28 and
Section Head Bawar29 discussed below.

From the perspective of the union in the present case, we note that the forwarding agreements were
already in place when the current CBA was signed.30 In this sense, the union accepted the
forwarding arrangement, albeit implicitly, when it signed the CBA with the company. Thereby, the
union agreed, again implicitly by its silence and acceptance, that jobs related to the contracted
forwarding activities are not regular company activities and are not to be undertaken by regular
employees falling within the scope of the bargaining unit but by the forwarders’ employees. Thus, the
skills requirements and job content between forwarders’ jobs and bargaining unit jobs may be the
same, and they may even work on the same company products, but their work for different purposes
and for different entities completely distinguish and separate forwarder and company employees
from one another. A clerical job, therefore, if undertaken by a forwarders’ employee in support of
forwarding activities, is not a CBA-covered undertaking or a regular company activity.

The best evidence supporting this conclusion can be found in the CBA itself, Article 1, Sections 1, 2,
3 and 4 (VII) of which provide:

Section 1. Recognition and Bargaining Unit. – Upon the union’s representation and showing of
continued majority status among the employees covered by the bargaining unit as already
appropriately constituted, the company recognizes the union as the sole and exclusive collective
bargaining representative of all its regular rank-and-file employees, except those excluded from the
bargaining unit as hereinafter enumerated in Sections 2 and 3 of this Article, for purposes of
collective bargaining in respect to their rates of pay and other terms and condition of employment for
the duration of this Agreement.

Section 2. Exclusions. The following employment categories are expressly excluded from the
bargaining unit and from the scope of this Agreement: executives, managers, supervisors and those
employees exercising any of the attributes of a managerial employee; Accounting Department,
Controlling Department, Human Resources Department and IT Department employees, department
secretaries, the drivers and personnel assigned to the Office of the General Manager and the Office
of the Commercial Affairs and Treasury, probationary, temporary and casual employees, security
guards, and other categories of employees declared by law to be eligible for union membership.

Section 3. Additional Exclusions. Employees within the bargaining unit heretofore defined, who are
promoted or transferred to an excluded employment category as herein before enumerated, shall
automatically be considered as resigned and/or disqualified from membership in the UNION and
automatically removed from the bargaining unit.

Section 4. Definitions – x x x

VII. A regular employee is one who having satisfactorily undergone the probationary period of
employment and passed the company’s full requirement for regular employees, such as, but not
limited to physical fitness, proficiency, acceptable conduct and good moral character, received an
appointment as a regular employee duly signed by the authorized official of the COMPANY.

[Emphasis supplied.]

When these CBA provisions were put in place, the forwarding agreements had been in place so that
the forwarders’ employees were never considered as company employees who would be part of the
bargaining unit. To be precise, the forwarders’ employees and their positions were not part of the
appropriate bargaining unit "as already constituted." In fact, even now, the union implicitly recognizes
forwarding as a whole as a legitimate non-company activity by simply claiming as part of their unit
the forwarders’ employees undertaking allied support activities.

At this point, the union cannot simply turn around and claim through voluntary arbitration the contrary
position that some forwarder employees should be regular employees and should be part of its
bargaining unit because they undertake regular company functions. What the union wants is a
function of negotiations, or perhaps an appropriate action before the National Labor Relations
Commission impleading the proper parties, but not a voluntary arbitration that does not implead the
affected parties. The union must not forget, too, that before the inclusion of the forwarders’
employees in the bargaining unit can be considered, these employees must first be proven to be
regular company employees. As already mentioned, the union does not even have the personality to
make this claim for these forwarders’ employees. This is the impenetrable wall that the union cannot,
for now, pass through using the voluntary arbitration proceedings now before us on appeal.

Significantly, the evidence presented does not also prove the union’s point that forwarder employees
undertake company rather than the forwarders' activities. We say this mindful that forwarding
includes a whole range of activities that may duplicate company activities in terms of the exact
character and content of the job done and even of the skills required, but cannot be legitimately
labeled as company activities because they properly pertain to forwarding that the company has
contracted out.

The union’s own evidence, in fact, speaks against the point the union wishes to prove. Specifically,
the affidavits of forwarder KNI employees Barit, Prevendido, and Enano, submitted in evidence by
the union, confirm that the work they were doing was predominantly related to forwarding or the
shipment or transport of the petitioner’s finished goods to overseas destinations, particularly to
Germany and the United States of America (USA). lavvphil

Barit31 deposed that on August 2, 2004 he started working at the petitioner's CBE finished goods
area as an employee of forwarder Emery Transnational Air Cargo Group; on the same date, he was
absorbed by KNI and was assigned the same task of a loader; his actual work involved: making of
inventories of CBE finished products in the warehouse; double checking of the finished products he
inventoried and those received by the other personnel of KNI; securing from his superior the delivery
note and print-out indicating the model and the quantity of products to be exported to Germany; and
preparing the loading form and then referring it to his co-workers from the forwarders who gather the
goods to be transported to Germany based on the model and quantity needed; with the use of the
computer, printing the airway bill which serves as cargo ticket for the airline and posted on every box
of finished products before loading on the van of goods bound for Germany; preparing the gate pass
for the van. He explained that other products to be shipped to the USA, via sea transport, are picked
up by the other forwarders and brought to their warehouse in Parañaque.

Prevendido,32 also a loader, stated that his actual work involved loading into the container van
finished CBE products bound for Germany; when there is a build up for the E.K. Express (Emirates
Airlines), he is sent by the petitioner to the airlines to load the finished products and check if they are
in good condition; although the inspection and checking of loaded finished products should be done
by a company supervisor or clerk, he is asked to do them because he is already there in the area; he
also conducts an inventory of finished goods in the finished goods area, prepares loading form
schedule and generates the airway bill and is asked by his supervisor to call up KNI for the airway
bill number.

Enano,33 for his part, stated that on November 11, 1998, he was absorbed by KNI after initially
working in 1996 for a janitorial service agency which had a contract with the petitioner, he was also a
loader and assigned at the finished goods section in the warehouse department; his actual work
involved preparing the gate pass for finished products of the petitioner to be released; loading the
finished products on the truck and calling up KNI (Air Freight Department) to check on the volume of
the petitioner's products for export; making inventories of the remaining finished products and doing
other tasks related to the export of the petitioner's products, which he claimed are supposed to be
done by the company's finished goods supervisor; and monitoring of KNI's trucking sub-contractor
who handled the transport component of KNI's arrangement with the petitioner.

The essential nature of the outsourced services is not substantially altered by the claim of the three
KNI employees that they occasionally do work that pertains to the company’s finished goods
supervisor or a company employee such as the inspection of goods to be shipped and inventory of
finished goods. This was clarified by petitioner’s warehouse manager Gregorio34 and Section Head
Bawar35 in their respective affidavits. They explained that the three KNI employees do not conduct
inventory of finished goods; rather, as part of the contract, KNI personnel have to count the boxes of
finished products they load into the trucks to ensure that the quantity corresponds with the entries
made in the loading form; included in the contracted service is the preparation of transport
documents like the airway bill; the airway bill is prepared in the office and a KNI employee calls for
the airway bill number, a sticker label is then printed; and that the use of the company forklift is
necessary for the loading of the finished goods into the truck.

Thus, even on the evidentiary side, the union’s case must fail.

In light of these conclusions, we see no need to dwell on the issue of the voluntary arbitrator’s
authority to rule on issues not expressly submitted but which arise as a consequence of the
voluntary arbitrator’s findings on the submitted issues.

WHEREFORE, premises considered, we hereby NULLIFY and SET ASIDE the assailed Court of
Appeals Decision in CA-G.R. SP No. 99029 dated October 28, 2008, together with the Voluntary
Arbitrator’s Decision of May 1, 2007 declaring the employees of forwarders Diversified Cargo
Services, Inc., Airfreight 2100 and Kuehne & Nagel, Inc., presently designated and functioning as
clerks, material handlers, system or data encoders and general clerks, to be regular company
employees. No costs.

SO ORDERED.

8)

G.R. No. 148132 January 28, 2008

SMART COMMUNICATIONS, INC., petitioner,

vs.
REGINA M. ASTORGA, respondent.

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

G.R. No. 151079 January 28, 2008

SMART COMMUNICATIONS, INC., petitioner,

vs.
REGINA M. ASTORGA, respondent.

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

G.R. No. 151372 January 28, 2008

REGINA M. ASTORGA, petitioner,

vs.
SMART COMMUNICATIONS, INC. and ANN MARGARET V. SANTIAGO, respondents.

DECISION
NACHURA, J.:

For the resolution of the Court are three consolidated petitions for review on certiorari under Rule 45
of the Rules of Court. G.R. No. 148132 assails the February 28, 2000 Decision1 and the May 7, 2001
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP. No. 53831. G.R. Nos. 151079 and 151372
question the June 11, 2001 Decision3 and the December 18, 2001 Resolution4 in CA-G.R. SP. No.
57065.

Regina M. Astorga (Astorga) was employed by respondent Smart Communications, Incorporated

(SMART) on May 8, 1997 as District Sales Manager of the Corporate Sales Marketing Group/ Fixed
Services Division (CSMG/FSD). She was receiving a monthly salary of P33,650.00. As District Sales
Manager, Astorga enjoyed additional benefits, namely, annual performance incentive equivalent to
30% of her annual gross salary, a group life and hospitalization insurance coverage, and a car plan
in the amount of P455,000.00.5

In February 1998, SMART launched an organizational realignment to achieve more efficient

operations. This was made known to the employees on February 27, 1998.6 Part of the
reorganization was the outsourcing of the marketing and sales force. Thus, SMART entered into a
joint venture agreement with NTT of Japan, and formed SMART-NTT Multimedia, Incorporated
(SNMI). Since SNMI was formed to do the sales and marketing work, SMART abolished the
CSMG/FSD, Astorga’s division.

To soften the blow of the realignment, SNMI agreed to absorb the CSMG personnel who would be
recommended by SMART. SMART then conducted a performance evaluation of CSMG personnel
and those who garnered the highest ratings were favorably recommended to SNMI. Astorga landed
last in the performance evaluation, thus, she was not recommended by SMART. SMART,
nonetheless, offered her a supervisory position in the Customer Care Department, but she refused
the offer because the position carried lower salary rank and rate.

Despite the abolition of the CSMG/FSD, Astorga continued reporting for work. But on March 3, 1998,
SMART issued a memorandum advising Astorga of the termination of her employment on ground of
redundancy, effective April 3, 1998. Astorga received it on March 16, 1998.7

The termination of her employment prompted Astorga to file a Complaint8 for illegal dismissal, non-
payment of salaries and other benefits with prayer for moral and exemplary damages against
SMART and Ann Margaret V. Santiago (Santiago). She claimed that abolishing CSMG and,
consequently, terminating her employment was illegal for it violated her right to security of tenure.
She also posited that it was illegal for an employer, like SMART, to contract out services which will
displace the employees, especially if the contractor is an in-house agency.9

SMART responded that there was valid termination. It argued that Astorga was dismissed by reason
of redundancy, which is an authorized cause for termination of employment, and the dismissal was
effected in accordance with the requirements of the Labor Code. The redundancy of Astorga’s
position was the result of the abolition of CSMG and the creation of a specialized and more
technically equipped SNMI, which is a valid and legitimate exercise of management prerogative.10

In the meantime, on May 18, 1998, SMART sent a letter to Astorga demanding that she pay the
current market value of the Honda Civic Sedan which was given to her under the company’s car plan
program, or to surrender the same to the company for proper disposition.11 Astorga, however, failed
and refused to do either, thus prompting SMART to file a suit for replevin with the Regional Trial
Court of Makati (RTC) on August 10, 1998. The case was docketed as Civil Case No. 98-1936 and
was raffled to Branch 57.12
Astorga moved to dismiss the complaint on grounds of (i) lack of jurisdiction; (ii) failure to state a
cause of action; (iii) litis pendentia; and (iv) forum-shopping. Astorga posited that the regular courts
have no jurisdiction over the complaint because the subject thereof pertains to a benefit arising from
an employment contract; hence, jurisdiction over the same is vested in the labor tribunal and not in
regular courts.13

Pending resolution of Astorga’s motion to dismiss the replevin case, the Labor Arbiter rendered a
Decision14 dated August 20, 1998, declaring Astorga’s dismissal from employment illegal. While
recognizing SMART’s right to abolish any of its departments, the Labor Arbiter held that such right
should be exercised in good faith and for causes beyond its control. The Arbiter found the abolition
of CSMG done neither in good faith nor for causes beyond the control of SMART, but a ploy to
terminate Astorga’s employment. The Arbiter also ruled that contracting out the functions performed
by Astorga to an in-house agency like SNMI was illegal, citing Section 7(e), Rule VIII-A of the Rules
Implementing the Labor Code.

Accordingly, the Labor Arbiter ordered:

WHEREFORE, judgment is hereby rendered declaring the dismissal of [Astorga] to be illegal

and unjust. [SMART and Santiago] are hereby ordered to:

1. Reinstate [Astorga] to [her] former position or to a substantially equivalent position, without

loss of seniority rights and other privileges, with full backwages, inclusive of allowances and
other benefits from the time of [her] dismissal to the date of reinstatement, which computed
as of this date, are as follows:

(a) Astorga
BACKWAGES; (P33,650.00 x 4 = P134,600.00
months)
UNPAID SALARIES (February 15,
1998-April 3, 1998
February 15-28, 1998 = P 16,823.00
March 1-31, [1998] = P 33,650.00
April 1-3, 1998 = P 3,882.69
CAR MAINTENANCE ALLOWANCE = P 8,000.00
(P2,000.00 x 4)
FUEL ALLOWANCE = P 14,457.83
(300 liters/mo. x 4 mos. at P12.04/liter)
TOTAL = P211,415.52

xxxx

3. Jointly and severally pay moral damages in the amount of P500,000.00 x x x and
exemplary damages in the amount of P300,000.00. x x x

4. Jointly and severally pay 10% of the amount due as attorney’s fees.

SO ORDERED.15
Subsequently, on March 29, 1999, the RTC issued an Order16 denying Astorga’s motion to dismiss
the replevin case. In so ruling, the RTC ratiocinated that:

Assessing the [submission] of the parties, the Court finds no merit in the motion to dismiss.

As correctly pointed out, this case is to enforce a right of possession over a company car
assigned to the defendant under a car plan privilege arrangement. The car is registered in
the name of the plaintiff. Recovery thereof via replevin suit is allowed by Rule 60 of the 1997
Rules of Civil Procedure, which is undoubtedly within the jurisdiction of the Regional Trial
Court.

In the Complaint, plaintiff claims to be the owner of the company car and despite demand,
defendant refused to return said car. This is clearly sufficient statement of plaintiff’s cause of
action.

Neither is there forum shopping. The element of litis penden[t]ia does not appear to exist
because the judgment in the labor dispute will not constitute res judicata to bar the filing of
this case.

WHEREFORE, the Motion to Dismiss is hereby denied for lack of merit.

SO ORDERED.17

Astorga filed a motion for reconsideration, but the RTC denied it on June 18, 1999.18

Astorga elevated the denial of her motion via certiorari to the CA, which, in its February 28, 2000
Decision,19reversed the RTC ruling. Granting the petition and, consequently, dismissing
the replevin case, the CA held that the case is intertwined with Astorga’s complaint for illegal
dismissal; thus, it is the labor tribunal that has rightful jurisdiction over the complaint. SMART’s
motion for reconsideration having been denied,20 it elevated the case to this Court, now docketed as
G.R. No. 148132.

Meanwhile, SMART also appealed the unfavorable ruling of the Labor Arbiter in the illegal dismissal
case to the National Labor Relations Commission (NLRC). In its September 27, 1999 Decision,21 the
NLRC sustained Astorga’s dismissal. Reversing the Labor Arbiter, the NLRC declared the abolition
of CSMG and the creation of SNMI to do the sales and marketing services for SMART a valid
organizational action. It overruled the Labor Arbiter’s ruling that SNMI is an in-house agency, holding
that it lacked legal basis. It also declared that contracting, subcontracting and streamlining of
operations for the purpose of increasing efficiency are allowed under the law. The NLRC further
found erroneous the Labor Arbiter’s disquisition that redundancy to be valid must be impelled by
economic reasons, and upheld the redundancy measures undertaken by SMART.

The NLRC disposed, thus:

WHEREFORE, the Decision of the Labor Arbiter is hereby reversed and set aside. [Astorga]
is further ordered to immediately return the company vehicle assigned to her. [Smart and
Santiago] are hereby ordered to pay the final wages of [Astorga] after [she] had submitted
the required supporting papers therefor.

SO ORDERED.22
Astorga filed a motion for reconsideration, but the NLRC denied it on December 21, 1999.23

Astorga then went to the CA via certiorari. On June 11, 2001, the CA rendered a Decision24 affirming
with modification the resolutions of the NLRC. In gist, the CA agreed with the NLRC that the
reorganization undertaken by SMART resulting in the abolition of CSMG was a legitimate exercise of
management prerogative. It rejected Astorga’s posturing that her non-absorption into SNMI was
tainted with bad faith. However, the CA found that SMART failed to comply with the mandatory one-
month notice prior to the intended termination. Accordingly, the CA imposed a penalty equivalent to
Astorga’s one-month salary for this non-compliance. The CA also set aside the NLRC’s order for the
return of the company vehicle holding that this issue is not essentially a labor concern, but is civil in
nature, and thus, within the competence of the regular court to decide. It added that the matter had
not been fully ventilated before the NLRC, but in the regular court.

Astorga filed a motion for reconsideration, while SMART sought partial reconsideration, of the
Decision. On December 18, 2001, the CA resolved the motions, viz.:

WHEREFORE, [Astorga’s] motion for reconsideration is hereby PARTIALLY GRANTED.

[Smart] is hereby ordered to pay [Astorga] her backwages from 15 February 1998 to 06
November 1998. [Smart’s] motion for reconsideration is outrightly DENIED.

SO ORDERED.25

Astorga and SMART came to us with their respective petitions for review assailing the CA ruling,
docketed as G.R Nos. 151079 and 151372. On February 27, 2002, this Court ordered the
consolidation of these petitions with G.R. No. 148132.26

In her Memorandum, Astorga argues:

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF ASTORGA’S

DISMISSAL DESPITE THE FACT THAT HER DISMISSAL WAS EFFECTED IN CLEAR
VIOLATION OF THE CONSTITUTIONAL RIGHT TO SECURITY OF TENURE,
CONSIDERING THAT THERE WAS NO GENUINE GROUND FOR HER DISMISSAL.

II

SMART’S REFUSAL TO REINSTATE ASTORGA DURING THE PENDENCY OF THE

APPEAL AS REQUIRED BY ARTICLE 223 OF THE LABOR CODE, ENTITLES ASTORGA
TO HER SALARIES DURING THE PENDENCY OF THE APPEAL.

III

THE COURT OF APPEALS WAS CORRECT IN HOLDING THAT THE REGIONAL TRIAL
COURT HAS NO JURISDICTION OVER THE COMPLAINT FOR RECOVERY OF A CAR
WHICH ASTORGA ACQUIRED AS PART OF HER EMPLOYEE (sic) BENEFIT.27

On the other hand, Smart in its Memoranda raises the following issues:

I
 WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF
SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE
DECISION OF THE HONORABLE SUPREME COURT AND HAS SO FAR DEPARTED
FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO
CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION WHEN IT RULED THAT
SMART DID NOT COMPLY WITH THE NOTICE REQUIREMENTS PRIOR TO
TERMINATING ASTORGA ON THE GROUND OF REDUNDANCY.

II

WHETHER THE NOTICES GIVEN BY SMART TO ASTORGA AND THE DEPARTMENT

OF LABOR AND EMPLOYMENT ARE SUBSTANTIAL COMPLIANCE WITH THE NOTICE
REQUIREMENTS BEFORE TERMINATION.

III

WHETHER THE RULE ENUNCIATED IN SERRANO VS. NATIONAL LABOR RELATIONS

COMMISSION FINDS APPLICATION IN THE CASE AT BAR CONSIDERING THAT IN THE
SERRANO CASE THERE WAS ABSOLUTELY NO NOTICE AT ALL.28

IV

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF

SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE
DECISION[S] OF THE HONORABLE SUPREME COURT AND HAS SO FAR DEPARTED
FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO
CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION WHEN IT RULED THAT
THE REGIONAL TRIAL COURT DOES NOT HAVE JURISDICTION OVER THE
COMPLAINT FOR REPLEVIN FILED BY SMART TO RECOVER ITS OWN COMPANY
VEHICLE FROM A FORMER EMPLOYEE WHO WAS LEGALLY DISMISSED.

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO APPRECIATE

THAT THE SUBJECT OF THE REPLEVIN CASE IS NOT THE ENFORCEMENT OF A CAR
PLAN PRIVILEGE BUT SIMPLY THE RECOVERY OF A COMPANY CAR.

VI

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO APPRECIATE

THAT ASTORGA CAN NO LONGER BE CONSIDERED AS AN EMPLOYEE OF SMART
UNDER THE LABOR CODE.29

The Court shall first deal with the propriety of dismissing the replevin case filed with the RTC of
Makati City allegedly for lack of jurisdiction, which is the issue raised in G.R. No. 148132.

Replevin is an action whereby the owner or person entitled to repossession of goods or chattels may
recover those goods or chattels from one who has wrongfully distrained or taken, or who wrongfully
detains such goods or chattels. It is designed to permit one having right to possession to recover
property in specie from one who has wrongfully taken or detained the property.30 The term may refer
either to the action itself, for the recovery of personalty, or to the provisional remedy traditionally
associated with it, by which possession of the property may be obtained by the plaintiff and retained
during the pendency of the action.31

That the action commenced by SMART against Astorga in the RTC of Makati City was one for
replevin hardly admits of doubt.

In reversing the RTC ruling and consequently dismissing the case for lack of jurisdiction, the CA
made the following disquisition, viz.:

[I]t is plain to see that the vehicle was issued to [Astorga] by [Smart] as part of the
employment package. We doubt that [SMART] would extend [to Astorga] the same car plan
privilege were it not for her employment as district sales manager of the company.
Furthermore, there is no civil contract for a loan between [Astorga] and [Smart].
Consequently, We find that the car plan privilege is a benefit arising out of employer-
employee relationship. Thus, the claim for such falls squarely within the original and
exclusive jurisdiction of the labor arbiters and the NLRC.32

We do not agree. Contrary to the CA’s ratiocination, the RTC rightfully assumed jurisdiction over the
suit and acted well within its discretion in denying Astorga’s motion to dismiss. SMART’s demand for
payment of the market value of the car or, in the alternative, the surrender of the car, is not a labor,
but a civil, dispute. It involves the relationship of debtor and creditor rather than employee-employer
relations.33 As such, the dispute falls within the jurisdiction of the regular courts.

In Basaya, Jr. v. Militante,34 this Court, in upholding the jurisdiction of the RTC over the replevin suit,
explained:

Replevin is a possessory action, the gist of which is the right of possession in the plaintiff.
The primary relief sought therein is the return of the property in specie wrongfully detained by
another person. It is an ordinary statutory proceeding to adjudicate rights to the title or
possession of personal property. The question of whether or not a party has the right of
possession over the property involved and if so, whether or not the adverse party has
wrongfully taken and detained said property as to require its return to plaintiff, is outside the
pale of competence of a labor tribunal and beyond the field of specialization of Labor
Arbiters.

xxxx

The labor dispute involved is not intertwined with the issue in the Replevin Case. The
respective issues raised in each forum can be resolved independently on the other. In fact in
18 November 1986, the NLRC in the case before it had issued an Injunctive Writ enjoining
the petitioners from blocking the free ingress and egress to the Vessel and ordering the
petitioners to disembark and vacate. That aspect of the controversy is properly settled under
the Labor Code. So also with petitioners’ right to picket. But the determination of the question
of who has the better right to take possession of the Vessel and whether petitioners can
deprive the Charterer, as the legal possessor of the Vessel, of that right to possess in
addressed to the competence of Civil Courts.

In thus ruling, this Court is not sanctioning split jurisdiction but defining avenues of
jurisdiction as laid down by pertinent laws.

The CA, therefore, committed reversible error when it overturned the RTC ruling and ordered the
dismissal of the replevin case for lack of jurisdiction.
Having resolved that issue, we proceed to rule on the validity of Astorga’s dismissal.

Astorga was terminated due to redundancy, which is one of the authorized causes for the dismissal
of an employee. The nature of redundancy as an authorized cause for dismissal is explained in the
leading case of Wiltshire File Co., Inc. v. National Labor Relations Commission,35 viz:

x x x redundancy in an employer’s personnel force necessarily or even ordinarily refers to

duplication of work. That no other person was holding the same position that private
respondent held prior to termination of his services does not show that his position had not
become redundant. Indeed, in any well organized business enterprise, it would be surprising
to find duplication of work and two (2) or more people doing the work of one person. We
believe that redundancy, for purposes of the Labor Code, exists where the services of an
employee are in excess of what is reasonably demanded by the actual requirements of the
enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity of a
position or positions may be the outcome of a number of factors, such as overhiring of
workers, decreased volume of business, or dropping of a particular product line or service
activity previously manufactured or undertaken by the enterprise.

The characterization of an employee’s services as superfluous or no longer necessary and,

therefore, properly terminable, is an exercise of business judgment on the part of the employer. The
wisdom and soundness of such characterization or decision is not subject to discretionary review
provided, of course, that a violation of law or arbitrary or malicious action is not shown.36

Astorga claims that the termination of her employment was illegal and tainted with bad faith. She
asserts that the reorganization was done in order to get rid of her. But except for her barefaced
allegation, no convincing evidence was offered to prove it. This Court finds it extremely difficult to
believe that SMART would enter into a joint venture agreement with NTT, form SNMI and abolish
CSMG/FSD simply for the sole purpose of easing out a particular employee, such as Astorga.
Moreover, Astorga never denied that SMART offered her a supervisory position in the Customer
Care Department, but she refused the offer because the position carried a lower salary rank and
rate. If indeed SMART simply wanted to get rid of her, it would not have offered her a position in any
department in the enterprise.

Astorga also states that the justification advanced by SMART is not true because there was no
compelling economic reason for redundancy. But contrary to her claim, an employer is not precluded
from adopting a new policy conducive to a more economical and effective management even if it is
not experiencing economic reverses. Neither does the law require that the employer should suffer
financial losses before he can terminate the services of the employee on the ground of
redundancy. 37

We agree with the CA that the organizational realignment introduced by SMART, which culminated
in the abolition of CSMG/FSD and termination of Astorga’s employment was an honest effort to
make SMART’s sales and marketing departments more efficient and competitive. As the CA had
taken pains to elucidate:

x x x a careful and assiduous review of the records will yield no other conclusion than that
the reorganization undertaken by SMART is for no purpose other than its declared objective
– as a labor and cost savings device. Indeed, this Court finds no fault in SMART’s decision to
outsource the corporate sales market to SNMI in order to attain greater productivity.
[Astorga] belonged to the Sales Marketing Group under the Fixed Services Division
(CSMG/FSD), a distinct sales force of SMART in charge of selling SMART’s
telecommunications services to the corporate market. SMART, to ensure it can respond
 quickly, efficiently and flexibly to its customer’s requirement, abolished CSMG/FSD and
shortly thereafter assigned its functions to newly-created SNMI Multimedia Incorporated, a
joint venture company of SMART and NTT of Japan, for the reason that CSMG/FSD does
not have the necessary technical expertise required for the value added services. By
transferring the duties of CSMG/FSD to SNMI, SMART has created a more competent and
specialized organization to perform the work required for corporate accounts. It is also
relieved SMART of all administrative costs – management, time and money-needed in
maintaining the CSMG/FSD. The determination to outsource the duties of the CSMG/FSD to
SNMI was, to Our mind, a sound business judgment based on relevant criteria and is
therefore a legitimate exercise of management prerogative.

Indeed, out of our concern for those lesser circumstanced in life, this Court has inclined towards the
worker and upheld his cause in most of his conflicts with his employer. This favored treatment is
consonant with the social justice policy of the Constitution. But while tilting the scales of justice in
favor of workers, the fundamental law also guarantees the right of the employer to reasonable
returns for his investment.38 In this light, we must acknowledge the prerogative of the employer to
adopt such measures as will promote greater efficiency, reduce overhead costs and enhance
prospects of economic gains, albeit always within the framework of existing laws. Accordingly, we
sustain the reorganization and redundancy program undertaken by SMART.

However, as aptly found by the CA, SMART failed to comply with the mandated one (1) month
notice prior to termination. The record is clear that Astorga received the notice of termination only on
March 16, 199839 or less than a month prior to its effectivity on April 3, 1998. Likewise, the
Department of Labor and Employment was notified of the redundancy program only on March 6,
1998.40

Article 283 of the Labor Code clearly provides:

Art. 283. Closure of establishment and reduction of personnel. — The employer may also
terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry of Labor
and Employment at least one (1) month before the intended date thereof x x x.

SMART’s assertion that Astorga cannot complain of lack of notice because the organizational
realignment was made known to all the employees as early as February 1998 fails to persuade.
Astorga’s actual knowledge of the reorganization cannot replace the formal and written notice
required by the law. In the written notice, the employees are informed of the specific date of the
termination, at least a month prior to the effectivity of such termination, to give them sufficient time to
find other suitable employment or to make whatever arrangements are needed to cushion the impact
of termination. In this case, notwithstanding Astorga’s knowledge of the reorganization, she
remained uncertain about the status of her employment until SMART gave her formal notice of
termination. But such notice was received by Astorga barely two (2) weeks before the effective date
of termination, a period very much shorter than that required by law.

Be that as it may, this procedural infirmity would not render the termination of Astorga’s employment
illegal. The validity of termination can exist independently of the procedural infirmity of the
dismissal.41 In DAP Corporation v. CA,42 we found the dismissal of the employees therein valid and
for authorized cause even if the employer failed to comply with the notice requirement under Article
283 of the Labor Code. This Court upheld the dismissal, but held the employer liable for non-
compliance with the procedural requirements.
The CA, therefore, committed no reversible error in sustaining Astorga’s dismissal and at the same
time, awarding indemnity for violation of Astorga's statutory rights.

However, we find the need to modify, by increasing, the indemnity awarded by the CA to Astorga, as
a sanction on SMART for non-compliance with the one-month mandatory notice requirement, in light
of our ruling in Jaka Food Processing Corporation v. Pacot,43 viz.:

[I]f the dismissal is based on a just cause under Article 282 but the employer failed to comply
with the notice requirement, the sanction to be imposed upon him should
be tempered because the dismissal process was, in effect, initiated by an act imputable to
the employee, and (2) if the dismissal is based on an authorized cause under Article 283 but
the employer failed to comply with the notice requirement, the sanction should
be stiffer because the dismissal process was initiated by the employer’s exercise of his
management prerogative.

We deem it proper to increase the amount of the penalty on SMART to P50,000.00.

As provided in Article 283 of the Labor Code, Astorga is, likewise, entitled to separation pay
equivalent to at least one (1) month salary or to at least one (1) month’s pay for every year of
service, whichever is higher. The records show that Astorga’s length of service is less than a year.
She is, therefore, also entitled to separation pay equivalent to one (1) month pay.

Finally, we note that Astorga claimed non-payment of wages from February 15, 1998. This assertion
was never rebutted by SMART in the proceedings a quo. No proof of payment was presented by
SMART to disprove the allegation. It is settled that in labor cases, the burden of proving payment of
monetary claims rests on the employer.44 SMART failed to discharge the onus probandi. Accordingly,
it must be held liable for Astorga’s salary from February 15, 1998 until the effective date of her
termination, on April 3, 1998.

However, the award of backwages to Astorga by the CA should be deleted for lack of basis.
Backwages is a relief given to an illegally dismissed employee. Thus, before backwages may be
granted, there must be a finding of unjust or illegal dismissal from work.45 The Labor Arbiter ruled
that Astorga was illegally dismissed. But on appeal, the NLRC reversed the Labor Arbiter’s ruling
and categorically declared Astorga’s dismissal valid. This ruling was affirmed by the CA in its
assailed Decision. Since Astorga’s dismissal is for an authorized cause, she is not entitled to
backwages. The CA’s award of backwages is totally inconsistent with its finding of valid dismissal.

WHEREFORE, the petition of SMART docketed as G.R. No. 148132 is GRANTED. The February
28, 2000 Decision and the May 7, 2001 Resolution of the Court of Appeals in CA-G.R. SP. No.
53831 are SET ASIDE. The Regional Trial Court of Makati City, Branch 57 is DIRECTED to proceed
with the trial of Civil Case No. 98-1936 and render its Decision with reasonable dispatch.

On the other hand, the petitions of SMART and Astorga docketed as G.R. Nos. 151079 and 151372
are DENIED. The June 11, 2001 Decision and the December 18, 2001 Resolution in CA-G.R. SP.
No. 57065, are AFFIRMED with MODIFICATION. Astorga is declared validly dismissed. However,
SMART is ordered to pay Astorga P50,000.00 as indemnity for its non-compliance with procedural
due process, her separation pay equivalent to one (1) month pay, and her salary from February 15,
1998 until the effective date of her termination on April 3, 1998. The award of backwages
is DELETED for lack of basis.

SO ORDERED.
9)

G.R. No. 175501 October 4, 2010

MANILA WATER COMPANY, INC., Petitioner,

vs.
JOSE J. DALUMPINES, EMMANUEL CAPIT, ROMEO B. CASTOLONE, MELITANTE CASTRO,
NONITO FERNANDEZ, ARNULFO JAMISON, ARTHUR LAVISTE, ESTEBAN LEGARTO,
SUSANO MIRANDA, RAMON C. REYES, JOSE SIERRA, BENJAMIN TALAVERA, MOISES
ZAPATERO, EDGAR PAMORAGA, BERNARDO S. MEDINA, MELENCIO M. BAONGUIS, JR.,
JOSE AGUILAR, ANGEL C. GARCIA, JOSE TEODY P. VELASCO, AUGUSTUS J. TANDOC,
ROBERTO DAGDAG, MIGUEL LOPEZ, GEORGE CABRERA, ARMAN BORROMEO, RONITO R.
FRIAS, ANTONIO VERGARA, RANDY CORTIGUERRA, and FIRST CLASSIC COURIER
SERVICES, INC., Respondents.

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing
the Decision1dated September 12, 2006 and the Resolution2 dated November 17, 2006 of the Court
of Appeals (CA) in CA-G.R. SP No. 94909.

The facts of the case are as follows:

By virtue of Republic Act No. 8041, otherwise known as the "National Water Crisis Act of 1995," the
Metropolitan Waterworks and Sewerage System (MWSS) was given the authority to enter into
concession agreements allowing the private sector in its operations. Petitioner Manila Water
Company, Inc. (Manila Water) was one of two private concessionaires contracted by the MWSS to
manage the water distribution system in the east zone of Metro Manila. The east service area
included the following towns and cities: Mandaluyong, Marikina, Pasig, Pateros, San Juan, Taguig,
Makati, parts of Quezon City and Manila, Angono, Antipolo, Baras, Binangonan, Cainta, Cardona,
Jala-Jala, Morong, Pililla, Rodriguez, Tanay, Taytay, Teresa, and San Mateo.3

Under the concession agreement, Manila Water undertook to absorb the regular employees of
MWSS listed by the latter effective August 1, 1997. Individual respondents, with the exception of
Moises Zapatero (Zapatero) and Edgar Pamoraga (Pamoraga), were among the one hundred
twenty-one (121) employees not included in the list of employees to be absorbed by Manila Water.
Nevertheless, Manila Water engaged their services without written contract from August 1, 1997 to
August 31, 1997.4

On September 1, 1997, individual respondents signed a three (3)-month contract to perform

collection services on commission basis for Manila Water’s branches in the east zone.5

On November 21, 1997, before the expiration of the contract of services, the 121 bill collectors
formed a corporation duly registered with the Securities and Exchange Commission (SEC) as the
"Association Collector’s Group, Inc." (ACGI). ACGI was one of the entities engaged by Manila Water
for its courier service. However, Manila Water contracted ACGI for collection services only in its
Balara Branch.6
In December 1997, Manila Water entered into a service agreement with respondent First Classic
Courier Services, Inc. (FCCSI) also for its courier needs. The service agreements between Manila
Water and FCCSI covered the periods 1997 to 1999 and 2000 to 2002.7 Earlier, in a memorandum
dated November 28, 1997, FCCSI gave a deadline for the bill collectors who were members of ACGI
to submit applications and letters of intent to transfer to FCCSI. The individual respondents in this
case were among the bill collectors who joined FCCSI and were hired effective December 1, 1997.8

On various dates between May and October 2002, individual respondents were terminated from
employment. Manila Water no longer renewed its contract with FCCSI because it decided to
implement a "collectorless" scheme whereby Manila Water customers would instead remit payments
through "Bayad Centers."9 The aggrieved bill collectors individually filed complaints for illegal
dismissal, unfair labor practice, damages, and attorney’s fees, with prayer for reinstatement and
backwages against petitioner Manila Water and respondent FCCSI. The complaints were
consolidated and jointly heard.10

Respondent bill collectors alleged that their employment under Manila Water had four (4) stages: (a)
from August 1, 1997 to August 31, 1997; (b) from September 1, 1997 to November 30, 1997; (c) in
November 1997 when FCCSI was incorporated; and (d) after November 1977 when FCCSI came in.
While in MWSS, and thereafter in Manila Water and FCCSI, respondent bill collectors were made to
perform the following functions: (1) delivery of bills to customers; (2) collection of payments from
customers; and (3) delivery of disconnection notice to customers. They were also allowed to effect
disconnection and were given tools for this purpose.11

Respondent bill collectors averred that when Manila Water issued their individual contracts of
service for three months in September 1997, there was already an attempt to make it appear that
respondent bill collectors were not its employees but independent contractors. Respondent bill
collectors stressed that they could not qualify as independent contractors because they did not have
an independent business of their own, tools, equipment, and capitalization, but were purely
dependent on the wages they earned from Manila Water, which was termed as "commission."12

Respondent bill collectors alleged that Manila Water had complete supervision over their work and
their collections, which they had to remit daily to the former. They also maintained that the
incorporation of ACGI did not mean that they were not employees of Manila Water. Furthermore,
they alleged that they suffered injustice when Manila Water imposed upon them the work set-up that
caused them to be emotionally depressed because those who were not assigned to the Balara
Branch under Manila Water’s contract with ACGI were forced to join FCCSI to retain their
employment. They argued that the entry of FCCSI did not change the employer-employee
relationship of respondent bill collectors with Manila Water.13

Respondent bill collectors insisted that they remained employees of Manila Water even after the
entry of FCCSI. The latter did not qualify as a legitimate labor contractor since it had no substantial
capital. FCCSI only had a paid-up capital of one hundred thousand pesos (₱100,000.00), out of the
four hundred thousand pesos (₱400,000.00) authorized capital. FCCSI relied mainly on what Manila
Water would pay, from which it deducted an agency fee, and it had no other clients on collection.
They were forced to transfer to FCCSI when their service contracts with Manila Water was about to
expire on November 30, 1997. FCCSI was engaged in labor-only contracting which is prohibited by
law.14

Respondent bill collectors averred that even under the four-fold test of employer-employee
relationship, it appeared that Manila Water was their true employer based on the following
circumstances: (1) it was Manila Water who engaged their services as bill collectors when it took
over the operations of the east zone from MWSS on August 1, 1997; (2) it was Manila Water which
paid their wages in the form of commissions every fifteenth (15th) and thirtieth (30th) day of each
month; (3) Manila Water exercised the power of dismissal over them as bill collectors as evidenced
by the instances surrounding their termination as set forth in their respective affidavits, and by the
individual clearances issued to them not by FCCSI but by Manila Water, stating that the same was
"issued in connection with his termination of contract as Contract Collector of Manila Water
Company"; and (4) their work as bill collectors was clearly related to the principal business of Manila
Water.15

Respondent FCCSI, on the other hand, claimed that it is an independent contractor engaged in the
business of providing messengerial or courier services, and it fulfills the criteria set forth under
Department Order No. 10, Series of 1997.16 It was issued a certificate of registration by the
Department of Labor and Employment (DOLE) as an independent contractor. It was incorporated
and registered with the SEC in November 1995. It was duly registered with the Department of
Transportation and Communication (DOTC) and the Office of the Mayor of Makati City for authority
to operate. It has sufficient capital in the form of tools, equipment, and machinery as attested to by
the Postal Regulation Committee of the DOTC after conducting an ocular inspection. It provides
similar services to Philippine Long Distance Telephone Company, Smart Telecommunications, Inc.,
and Home Cable, Inc. Under the terms and conditions of its service agreement with Manila Water,
FCCSI has the power to hire, assign, discipline, or dismiss its own employees, as well as control the
means and methods of accomplishing the assigned tasks, and it pays the wages of the employees.17

The termination of employment of respondent bill collectors upon the expiration of FCCSI’s contract
with Manila Water did not mean the automatic termination or suspension of the employer-employee
relationship between FCCSI and respondent bill collectors. Their termination after their six (6) month
floating status, which was allowed by law, was due to the non-renewal of FCCSI’s agreement with
Manila Water and its inability to enter into a similar contract requiring the skills of respondent bill
collectors.18

Petitioner Manila Water, for its part, denied that there was an employer-employee relationship
between its company and respondent bill collectors. Based on the agreement between FCCSI and
Manila Water, respondent bill collectors are the employees of the former, as it is the former that has
the right to select/hire, discipline, supervise, and control. FCCSI has a separate and distinct legal
personality from Manila Water, and it was duly registered as an independent contractor before the
DOLE.19

Petitioner further claimed that individual service contracts signed by respondent bill collectors for a
3-month period with Manila Water were valid and legal. The fact that the duration of the engagement
was stated on the face of the contract dispels any bad faith on the part of the company. Fixed term
contracts are allowed by law. Furthermore, respondent bill collectors’ allegation that the
incorporation of ACGI was made as a condition of their continued employment was unfounded. They
transferred to FCCSI on their own volition.20

Petitioner Manila Water also averred that, under its organizational structure, there was no regular
plantilla position of bill collector, which was the main reason why respondent bill collectors were not
included in the list of MWSS employees absorbed by the company. The company’s out-sourcing of
courier needs to an independent contractor was valid and legal.

On September 27, 2004, the Labor Arbiter (LA) rendered a decision,21 the dispositive portion of
which reads:

WHEREFORE, premises considered, the complaints against respondent Manila Water Company,
Inc. is dismissed for lack of jurisdiction due to want of employer-employee relationship. Respondent
First Classic Courier Services is hereby ordered to pay complainants separation pay equivalent to
one (1) month pay for every year of service, to wit:

1. JOSE P. DALUMPINES - - - - - - - - ₱36,400.00

2. SUSANO MIRANDA - - - - - - - - - ₱36,400.00
3. EDGAR PAMORAGA - - - - - - - - - ₱29,120.00
4. ARTHUR G. LAVISTI - - - - - - - - - ₱36,400.00
5. BENJAMIN TALAVERA, JR. - - - - ₱36,400.00
6. JOSE S.A. SIERRA - - - - - - - - - - - ₱36,400.00
7. MELITANTE D. CASTRO - - - - - - ₱36,400.00
8. BERNARDO S. MEDINA - - - - - - - ₱36,400.00
9. MELENCIO BAONGUIS - - - - - - - ₱36,400.00
10. NONITO V. FERNANDEZ - - - - - - ₱36,400.00
11. LEGARTO ESTEBAN - - - - - - - - - ₱36,400.00
12. ROMEO B. CASTALONE - - - - - - ₱36,400.00
13. RAMON C. REYES - - - - - - - - - - - ₱36,400.00
14. MOISES L. ZAPATERO - - - - - - - - ₱29,120.00
15. JOSE T. AGUILAR - - - - - - - - - - - ₱36,400.00
16. ARNULFO T. JAMISON - - - - - - - ₱36,400.00
17. ANGEL C. GARCIA - - - - - - - - - - - ₱36,400.00
18. JOSE TEODY P. VELASCO - - - - - ₱36,400.00
19. AUGUSTUS J. TANDOC - - - - - - - ₱36,400.00
20. EMMANUEL L. CAPIT - - - - - - - - ₱36,400.00
21. WILLIAM AGANON - - - - - - - - - - ₱87,360.00
22. ROBERTO S. DAGDAG - - - - - - - - ₱36,400.00
23 MIGUEL J. LOPEZ - - - - - - - - - - - - ₱36,400.00
24. GEORGE CABRERA - - - - - - - - - - ₱36,400.00
25. BORROMEO ARMAN - - - - - - - - - ₱36,400.00
26. RONITO R. FRIAS - - - - - - - - - - - - ₱36,400.00
27. ANTONIO A. VERGARA - - - - - - - ₱36,400.00
28. RANDY T. CORTIGUERRA - - - - - ₱36,400.00

TOTAL - - - - - - - ₱1,055,600.00

SO ORDERED.22
Respondent bill collectors and FCCSI filed their separate appeals with the National Labor Relations
Commission (NLRC). On March 15, 2006, the NLRC rendered a decision23 affirming in toto the
decision of the LA. Respondent bill collectors filed a motion for reconsideration, but the same was
denied in a resolution24 dated April 28, 2006.

Disgruntled, respondent bill collectors filed a petition for certiorari under Rule 65 of the Rules of
Court before the CA. On September 12, 2006, the CA rendered a Decision, the dispositive portion of
which reads:

WHEREFORE, premises considered, the present petition is hereby GIVEN DUE COURSE and the
writ prayed for accordingly GRANTED. Consequently, the assailed Decision dated March 15, 2006
and Resolution dated April 28, 2006 of the National Labor Relations Commission are hereby
ANNULED and SET ASIDE. A new judgment is hereby entered (a) declaring the petitioners as
employees of private respondent Manila Water Company, Inc., and their termination as bill collectors
as illegal; and (b) ordering private respondent Manila Water Company, Inc. to pay the petitioners
separation pay equivalent to one (1) month for every year of service. In addition, private respondent
Manila Water Company, Inc. is liable to pay ten percent (10%) of the total amount awarded as
attorney’s fees.

No pronouncement as to costs.

SO ORDERED.25

Petitioner Manila Water and respondent bill collectors filed a motion for reconsideration. However,
the CA denied their respective motions for reconsideration in a Resolution dated November 17,
2006.

Hence, this petition.

Petitioner Manila Water presented the following issues for resolution, whether the CA erred (1) in
ruling that an employment relationship exists between respondent bill collectors and petitioner
Manila Water; (2) in its application of Manila Water Company, Inc. v. Peña26 to the instant case; and
(3) in ruling that respondent FCCSI is not a bona fide independent contractor.27

The petition is bereft of merit.

In this case, the LA, the NLRC, and the CA reached different conclusions of law albeit agreeing on
the same set of facts. It was in their interpretation and appreciation of the evidence that they differed.
The CA ruled that respondent FCCSI was a labor-only contractor and that respondent bill collectors
are employees of petitioner Manila Water, while the LA and the NLRC ruled otherwise.

"Contracting" or "subcontracting" refers to an arrangement whereby a principal agrees to put out or

farm out with a contractor or subcontractor the performance or completion of a specific job, work, or
service within a definite or predetermined period, regardless of whether such job, work, or service is
to be performed or completed within or outside the premises of the principal.28

Contracting and subcontracting arrangements are expressly allowed by law but are subject to
regulation for the promotion of employment and the observance of the rights of workers to just and
humane conditions of work, security of tenure, self-organization, and collective bargaining.29 In
legitimate contracting, the trilateral relationship between the parties in these arrangements involves
the principal which decides to farm out a job or service to a contractor or subcontractor, which has
the capacity to independently undertake the performance of the job, work, or service, and the
contractual workers engaged by the contractor or subcontractor to accomplish the job, work, or
service.30

Job contracting is permissible only if the following conditions are met: 1) the contractor carries on an
independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the
results thereof; and 2) the contractor has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials which are necessary in the conduct of
the business.31

On the other hand, the Labor Code expressly prohibits "labor-only" contracting. Article 106 of the
Code provides that there is labor-only contracting where the person supplying workers to an
employer does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by such person
are performing activities which are directly related to the principal business of the employer. In such
cases, the person or intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and to the same extent as if the latter were
directly employed by him.32

Department Order No. 18-02, Series of 2002, enunciates that labor-only contracting refers to an
arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to
perform a job, work, or service for a principal, and any of the following elements are present: (i) the
contractor or subcontractor does not have substantial capital or investment which relates to the job,
work, or service to be performed and the employees recruited, supplied, or placed by such
contractor or subcontractor are performing activities which are directly related to the main business
of the principal; or (ii) the contractor does not exercise the right to control the performance of the
work of the contractual employee.33

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case
of corporations, tools, equipment, implements, machineries, and work premises, actually and directly
used by the contractor or subcontractor in the performance or completion of the job, work, or service
contracted out. The "right to control"refers to the right reserved to the person for whom the services
of the contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.34

In the instant case, the CA found that FCCSI is a labor-only contractor. Based on the factual findings
of the CA, FCCSI does not have substantial capital or investment to qualify as an independent
contractor, viz.:

FCCSI was incorporated on November 14, 1995, with an authorized capital stock of ₱400,000.00, of
which only ₱100,000.00 is actually paid-in. Going by the pronouncement in Peña, such capitalization
can hardly be considered substantial. FCCSI and Manila Water make much of the 17 April 1997
letter of Postal Regulation Committee Chairman Francisco V. Ontalan, Jr. to DOTC Secretary Arturo
T. Enrile recommending the renewal and/or extension of authority to FCCSI to operate private
messengerial delivery services, which states in part:

"Ocular inspection conducted on its office premises and evaluation of the documents submitted, the
firm during the six (6) months operation has generated employment to thirty six (36) messengers,
and four (4) office personnel.
"The office equipt [sic] with modern facilities such as computers, printers, electric typewriter, working
table, telephone lines, airconditioning unit, pigeon holes, working tables and delivery vehicles such
as a Suzuki van and three (3) motorcycles. The firm’s audited financial statement for the period
ending 31 December 1996 [shows] that it earned a net income of ₱253,000.00. x x x."

The above document only proves that FCCSI has no sufficient investment in the form of tools,
equipment and machinery to undertake contract services for Manila Water involving a fleet of around
100 collectors assigned to several branches and covering the service area of Manila Water
customers spread out in several cities/towns of the East Zone. The only rational conclusion is that it
is Manila Water that provides most if not all the logistics and equipment including service vehicles in
the performance of the contracted service, notwithstanding that the contract between FCCSI and
Manila Water states that it is the Contractor which shall furnish at its own expense all materials, tools
and equipment needed to perform the tasks of collectors. Moreover, it must be emphasized that
petitioners who are "trained collectors" performed tasks that cannot be simply categorized as
"messengerial." In fact, these are the very functions they were already discharging even before they
joined FCCSI which "invited" or "solicited" their placement just about the expiration of their three (3)-
month contract with Manila Water on November 28, 1997. The Agreement between FCCSI and
Manila Water provides that FCCSI shall "field the required number of trained collectors to the
following Customer Relations Branch Office": Cubao, España, San Juan-Mandaluyong, Marikina,
Pasig, Taguig-Pateros and Makati.35 1avvphi1

As correctly ruled by the CA, FCCSI’s capitalization may not be considered substantial considering
that it had close to a hundred collectors covering the east zone service area of Manila Water
customers. The allegation in the position paper of FCCSI that it serves other companies’ courier
needs does not "cure" the fact that it has insufficient capitalization to qualify as independent
contractor. Neither did FCCSI prove its allegation by substantial evidence other than by their self-
serving declarations. What is evident is that it was Manila Water that provided the equipment and
service vehicles needed in the performance of the contracted service, even if the contract between
FCCSI and Manila Water stated that it was the Contractor which shall furnish at its own expense all
materials, tools, and equipment needed to perform the tasks of collectors.

Based on the four-fold test of employer-employee relationship, Manila Water emerges as the
employer of respondent collectors. The elements to determine the existence of an employment
relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to control the employee's conduct. The most
important of these elements is the employer's control of the employee's conduct, not only as to the
result of the work to be done, but also as to the means and methods to accomplish it.36

The factual circumstances in the instant case are essentially the same as those cited in Manila
Water Company, Inc. v. Hermiño Peña.37 In that case, 121 bill collectors, headed by Peña, filed a
complaint for illegal dismissal against Manila Water. The bill collectors formed ACGI which was
registered with the SEC. Manila Water, in opposing the claim of the bill collectors, claimed that there
was no employer-employee relationship with the latter. It averred that the bill collectors were
employees of ACGI, a separate entity engaged in collection services, an independent contractor
which entered into a service contract for the collection of Manila Water’s accounts. The Court ruled
that ACGI was not an independent contractor but was engaged in labor-only contracting, and as
such, is considered merely an agent of Manila Water.38

The Court ratiocinated that: First, ACGI does not have substantial capitalization or investment in the
form of tools, equipment, machineries, work premises, and other materials to qualify as an
independent contractor. Second, the work of the bill collectors was directly related to the principal
business or operation of Manila Water. Being in the business of providing water to the consumers in
the east zone, the collection of the charges by the bill collectors for the company can only be
categorized as related to, and in the pursuit of, the latter's business. Lastly, ACGI did not carry on an
independent business or undertake the performance of its service contract in its own manner and
using its own methods, free from the control and supervision of its principal, Manila Water. Since
ACGI is obviously a labor-only contractor, the workers it supplied are considered employees of the
principal. Furthermore, the activities performed by the bill collectors were necessary or desirable to
Manila Water's principal trade or business; thus, they are regular employees of the latter. Since
Manila Water failed to comply with the requirements of termination under the Labor Code, the
dismissal of the bill collectors was tainted with illegality.39

The similarity between the instant case and Peña is very evident. First, the work set-up between the
respondent contractor FCCSI and respondent bill collectors is the same as in Peña. Respondent bill
collectors were individually hired by the contractor, but were under the direct control and supervision
of the concessionaire. Second, they performed the same function of courier and bill collection
services. Third, the element of control exercised by Manila Water over respondent bill collectors is
essentially the same as in Peña, manifested in the following circumstances, viz.: (a) respondent bill
collectors reported daily to the branch offices of Manila Water to remit their collections with the
specified monthly targets and comply with the collection reporting procedures prescribed by the
latter; (b) respondent bill collectors, except for Pamoraga and Zapatero, were among the 121
collectors who incorporated ACGI; (c) Manila Water continued to pay their wages in the form of
commissions even after the employees alleged transfer to FCCSI. Manila Water paid the respondent
bill collectors their individual commissions, and the lump sum paid by Manila Water to FCCSI merely
represented the agency fee; and (d) the certification or individual clearances issued by Manila Water
to respondent bill collectors upon the termination of the service contract with FCCSI. The certification
stated that respondents were contract collectors of Manila Water and not of FCCSI. Thus, this Court
agrees with the findings of the CA that if, indeed, FCCSI was the true employer of the bill collectors,
it should have been the one to issue the certification or individual clearances.

It should be remembered that the control test merely calls for the existence of the right to control,
and not necessarily the exercise thereof. It is not essential that the employer actually supervises the
performance of duties of the employee. It is enough that the former has a right to wield the power.40

Respondent bill collectors are, therefore, employees of petitioner Manila Water. It cannot be denied
that the tasks performed by respondent bill collectors are directly related to the principal business or
trade of Manila Water. Payments made by the subscribers are the lifeblood of the company, and the
respondent bill collectors are the ones who collect these payments.

The primary standard of determining regular employment is the reasonable connection between the
particular activity performed by the employee in relation to the usual business or trade of the
employer. In this case, the connection is obvious when we consider the nature of the work
performed and its relation to the scheme of the particular business or trade in its entirety. Finally, the
repeated and continuing need for the performance of the job is sufficient evidence of the necessity, if
not indispensability of the activity to the business.41

WHEREFORE, in view of the foregoing, the Decision dated September 12, 2006 and the Resolution
dated November 17, 2006 of the Court of Appeals in CA-G.R. SP No. 94909 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.
10)

G.R. No. 186091 December 15, 2010

EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN, SR., EDWIN JAVIER, SANDI
BERMEO, REX ALLESA, MAXIMO SORIANO, JR., ARSENIO ESTORQUE, and FELIXBERTO
ANAJAO, Petitioners,
vs.
LORENZO SHIPPING CORPORATION, Respondent.

DECISION

NACHURA, J.:

Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo,
Rex Allesa, Maximo Soriano, Jr., Arsenio Estorque, and Felixberto Anajao appeal by certiorari under
Rule 45 of the Rules of Court the October 10, 2008 Decision1 of the Court of Appeals (CA) in CA-
G.R. SP. No. 103804, and the January 21, 2009 Resolution,2 denying its reconsideration.

Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic corporation engaged
in the shipping industry; it owns several equipment necessary for its business. On September 29,
1997, LSC entered into a General Equipment Maintenance Repair and Management Services
Agreement3 (Agreement) with Best Manpower Services, Inc. (BMSI). Under the Agreement, BMSI
undertook to provide maintenance and repair services to LSC’s container vans, heavy equipment,
trailer chassis, and generator sets. BMSI further undertook to provide checkers to inspect all
containers received for loading to and/or unloading from its vessels.

Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and tractors to
BMSI.4 The period of lease was coterminous with the Agreement.

BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men,
clerks, forklift operators, motor pool and machine shop workers, technicians, trailer drivers, and
mechanics. Six years later, or on May 1, 2003, LSC entered into another contract with BMSI, this
time, a service contract.5

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for regularization against
LSC and BMSI. On October 1, 2003, LSC terminated the Agreement, effective October 31, 2003.
Consequently, petitioners lost their employment.

BMSI asserted that it is an independent contractor. It averred that it was willing to regularize
petitioners; however, some of them lacked the requisite qualifications for the job. BMSI was willing to
reassign petitioners who were willing to accept reassignment. BMSI denied petitioners’ claim for
underpayment of wages and non-payment of 13th month pay and other benefits.

LSC, on the other hand, averred that petitioners were employees of BMSI and were assigned to LSC
by virtue of the Agreement. BMSI is an independent job contractor with substantial capital or
investment in the form of tools, equipment, and machinery necessary in the conduct of its business.
The Agreement between LSC and BMSI constituted legitimate job contracting. Thus, petitioners
were employees of BMSI and not of LSC.
After due proceedings, the LA rendered a decision6 dismissing petitioners’ complaint. The LA found
that petitioners were employees of BMSI. It was BMSI which hired petitioners, paid their wages, and
exercised control over them.

Petitioners appealed to the National Labor Relations Commission (NLRC), arguing that BMSI was
engaged in labor-only contracting. They insisted that their employer was LSC.

On January 16, 2008, the NLRC promulgated its decision.7 Reversing the LA, the NLRC held:

We find from the records of this case that respondent BMSI is not engaged in legitimate job
contracting.

First, respondent BMSI has no equipment, no office premises, no capital and no investments as
shown in the Agreement itself which states:

xxxx

VI. RENTAL OF EQUIPMENT

[6.01.] That the CLIENT has several forklifts and truck tractor, and has offered to the CONTRACTOR
the use of the same by way of lease, the monthly rental of which shall be deducted from the total
monthly billings of the CONTRACTOR for the services covered by this Agreement.

6.02. That the CONTRACTOR has agreed to rent the CLIENT’s forklifts and truck tractor.

6.03. The parties herein have agreed to execute a Contract of Lease for the forklifts and truck tractor
that will be rented by the CONTRACTOR. (p. 389, Records)

True enough, parties signed a Lease Contract (p. 392, Records) wherein respondent BMSI leased
several excess equipment of LSC to enable it to discharge its obligation under the Agreement. So
without the equipment which respondent BMSI leased from respondent LSC, the former would not
be able to perform its commitments in the Agreement.

In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:

x x x. The phrase "substantial capital and investment in the form of tools, equipment, machineries,
work premises, and other materials which are necessary in the conduct of his business," in the
Implementing Rules clearly contemplates tools, equipment, etc., which are directly related to the
service it is being contracted to render. One who does not have an independent business for
undertaking the job contracted for is just an agent of the employer. (underscoring ours)

Second, respondent BMSI has no independent business or activity or job to perform in respondent
LSC free from the control of respondent LSC except as to the results thereof. In view of the absence
of such independent business or activity or job to be performed by respondent BMSI in respondent
LSC [petitioners] performed work that was necessary and desirable to the main business of
respondent LSC. Respondents were not able to refute the allegations of [petitioners] that they
performed the same work that the regular workers of LSC performed and they stood side by side
with regular employees of respondent LSC performing the same work. Necessarily, the control on
the manner and method of doing the work was exercised by respondent LSC and not by respondent
BMSI since the latter had no business of its own to perform in respondent LSC.
Lastly, respondent BMSI has no other client but respondent LSC. If respondent BMSI were a going
concern, it would have other clients to which to assign [petitioners] after its Agreement with LSC
expired. Since there is only one client, respondent LSC, it is easy to conclude that respondent BMSI
is a mere supplier of labor.

After concluding that respondent BMSI is engaged in prohibited labor-only contracting, respondent
LSC became the employer of [petitioners] pursuant to DO 18-02.

[Petitioners] therefore should be reinstated to their former positions or equivalent positions in

respondent LSC as regular employees with full backwages and other benefits without loss of
seniority rights from October 31, 2003, when they lost their jobs, until actual reinstatement (Vinoya v.
NLRC, 324 SCRA 469). If reinstatement is not feasible, [petitioners] then should be paid separation
pay of one month pay for every year of service or a fraction of six months to be considered as one
year, in addition to full backwages.

Concerning [petitioners’] prayer to be paid wage differentials and benefits under the CBA, We have
no doubt that [petitioners] would be entitled to them if they are covered by the said CBA. For this
purpose, [petitioners] should first enlist themselves as union members if they so desire, or pay
agency fee. Furthermore, only [petitioners] who signed the appeal memorandum are covered by this
Decision. As regards the other complainants who did not sign the appeal, the Decision of the Labor
Arbiter dismissing this case became final and executory.8

The NLRC disposed thus:

WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision of the Labor Arbiter is hereby
REVERSED, and a NEW ONE rendered finding respondent Best Manpower Services, Inc. is
engaged in prohibited labor-only-contracting and finding respondent Lorenzo Shipping Corp. as the
employer of the following [petitioners]:

1. Emmanuel B. Babas

2. Danilo Banag

3. Edwin L. Javier

4. Rex Allesa

5. Arturo Villarin, [Sr.]

6. Felixberto C. Anajao

7. Arsenio Estorque

8. Maximo N. Soriano, Jr.

9. Sandi G. Bermeo

Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] to their former
positions as regular employees and pay their wage differentials and benefits under the CBA.
If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and Best Manpower
Services are adjudged jointly and solidarily to pay [petitioners] separation pay of one month for every
year of service, a fraction of six months to be considered as one year.

In addition, respondent LSC and BMSI are solidarily liable to pay [petitioners’] full backwages from
October 31, 2003 until actual reinstatement or, if reinstatement is not feasible, until finality of this
Decision.

Respondent LSC and respondent BMSI are likewise adjudged to be solidarily liable for attorney’s
fees equivalent to ten (10%) of the total monetary award.

xxxx

SO ORDERED.9

LSC went to the CA via certiorari. On October 10, 2008, the CA rendered the now challenged
Decision,10 reversing the NLRC. In holding that BMSI was an independent contractor, the CA relied
on the provisions of the Agreement, wherein BMSI warranted that it is an independent contractor,
with adequate capital, expertise, knowledge, equipment, and personnel necessary for the services
rendered to LSC. According to the CA, the fact that BMSI entered into a contract of lease with LSC
did not ipso facto make BMSI a labor-only contractor; on the contrary, it proved that BMSI had
substantial capital. The CA was of the view that the law only required substantial
capital orinvestment. Since BMSI had substantial capital, as shown by its ability to pay rents to LSC,
then it qualified as an independent contractor. It added that even under the control test, BMSI would
be the real employer of petitioners, since it had assumed the entire charge and control of petitioners’
services. The CA further held that BMSI’s Certificate of Registration as an independent contractor
was sufficient proof that it was an independent contractor. Hence, the CA absolved LSC from liability
and instead held BMSI as employer of petitioners.

The fallo of the CA Decision reads:

WHEREFORE, premises considered, the instant petition is GRANTED and the assailed decision
and resolution of public respondent NLRC are REVERSED and SET ASIDE. Consequently, the
decision of the Labor Arbiter dated September 29, 2004 is REINSTATED.

SO ORDERED.11

Petitioners filed a motion for reconsideration, but the CA denied it on January 21, 2009.12

Hence, this appeal by petitioners, positing that:

THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE CLEAR EVIDENCE OF

RECORD THAT RESPONDENT WAS ENGAGED IN LABOR-ONLY CONTRACTING TO DEFEAT
PETITIONERS’ RIGHT TO SECURITY OF TENURE.13

Before resolving the petition, we note that only seven (7) of the nine petitioners signed the
Verification and Certification.14 Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao
(Anajao) did not sign the Verification and Certification, because they could no longer be located by
their co-petitioners.15
In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor Relations
Commission,16citing Loquias v. Office of the Ombudsman,17 we stated that the petition satisfies the
formal requirements only with regard to the petitioner who signed the petition, but not his co-
petitioner who did not sign nor authorize the other petitioner to sign it on his behalf. Thus, the petition
can be given due course only as to the parties who signed it. The other petitioners who did not sign
the verification and certificate against forum shopping cannot be recognized as petitioners and have
no legal standing before the Court. The petition should be dismissed outright with respect to the non-
conforming petitioners.

Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are concerned.

Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an independent
contractor, but a labor-only contractor. LSC, on the other hand, maintains that BMSI is an
independent contractor, with adequate capital and investment. LSC capitalizes on the ratiocination
made by the CA.

In declaring BMSI as an independent contractor, the CA, in the challenged Decision, heavily relied
on the provisions of the Agreement, wherein BMSI declared that it was an independent contractor,
with substantial capital and investment.

De Los Santos v. NLRC18 instructed us that the character of the business, i.e., whether as labor-only
contractor or as job contractor, should

be measured in terms of, and determined by, the criteria set by statute. The parties cannot dictate by
the mere expedience of a unilateral declaration in a contract the character of their business.

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan Multi-
Purpose Coop (AMPCO), and Merlyn N. Policarpio,19 this Court explained:

Despite the fact that the service contracts contain stipulations which are earmarks of independent
contractorship, they do not make it legally so. The language of a contract is neither determinative nor
conclusive of the relationship between the parties. Petitioner SMC and AMPCO cannot dictate, by a
declaration in a contract, the character of AMPCO's business, that is, whether as labor-only
contractor, or job contractor. AMPCO's character should be measured in terms of, and determined
by, the criteria set by statute.

Thus, in distinguishing between prohibited labor-only contracting and permissible job contracting, the
totality of the facts and the surrounding circumstances of the case are to be considered.

Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor

merely recruits, supplies, or places workers to perform a job, work, or service for a principal. In labor-
only contracting, the following elements are present: (a) the contractor or subcontractor does not
have substantial capital or investment to actually perform the job, work, or service under its own
account and responsibility; and (b) the employees recruited, supplied, or placed by such contractor
or subcontractor perform activities which are directly related to the main business of the principal.20

On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby
a principal agrees to put out or farm out with the contractor or subcontractor the performance or
completion of a specific job, work, or service within a definite or predetermined period, regardless of
whether such job, work, or service is to be performed or completed within or outside the premises of
the principal. 21
A person is considered engaged in legitimate job contracting or subcontracting if the following
conditions concur:

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

(b) The contractor has substantial capital or investment; and

(c) The agreement between the principal and the 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 welfare benefits.22

Given the above standards, we sustain the petitioners’ contention that BMSI is engaged in labor-only
contracting.

First, petitioners worked at LSC’s premises, and nowhere else. Other than the provisions of the
Agreement, there was no showing that it was BMSI which established petitioners’ working procedure
and methods, which supervised petitioners in their work, or which evaluated the same. There was
absolute lack of evidence that BMSI exercised control over them or their work, except for the fact
that petitioners were hired by BMSI.

Second, LSC was unable to present proof that BMSI had substantial capital. The record before us is
bereft of any proof pertaining to the contractor’s capitalization, nor to its investment in tools,
equipment, or implements actually used in the performance or completion of the job, work, or service
that it was contracted to render. What is clear was that the equipment used by BMSI were owned by,
and merely rented from, LSC.

In Mandaue Galleon Trade, Inc. v. Andales,23 we held:

The law casts the burden on the contractor to prove that it has substantial capital, investment,
tools, etc. Employees, on the other hand, need not prove that the contractor does not have
substantial capital, investment, and tools to engage in job-contracting.

Third, petitioners performed activities which were directly related to the main business of LSC. The
work of petitioners as checkers, welders, utility men, drivers, and mechanics could only be
characterized as part of, or at least clearly related to, and in the pursuit of, LSC’s business. Logically,
when petitioners were assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor LSC
refuted this finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.

The CA erred in considering BMSI’s Certificate of Registration as sufficient proof that it is an

independent contractor. In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito
Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,24 we held that a
Certificate of Registration issued by the Department of Labor and Employment is not conclusive
evidence of such status. The fact of registration simply prevents the legal presumption of being a
mere labor-only contractor from arising.25 1avv phi 1
Indubitably, BMSI can only be classified as a labor-only contractor. The CA, therefore, erred when it
ruled otherwise. Consequently, the workers that BMSI supplied to LSC became regular employees
of the latter.26 Having gained regular status, petitioners were entitled to security of tenure and could
only be dismissed for just or authorized causes and after they had been accorded due process.

Petitioners lost their employment when LSC terminated its Agreement with BMSI. However, the
termination of LSC’s Agreement with BMSI cannot be considered a just or an authorized cause for
petitioners’ dismissal. In Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass Philippines,
Inc.,27 this Court declared:

The sole reason given for the dismissal of petitioners by SSASI was the termination of its service
contract with respondent. But since SSASI was a labor-only contractor, and petitioners were to be
deemed the employees of respondent, then the said reason would not constitute a just or authorized
cause for petitioners’ dismissal. It would then appear that petitioners were summarily dismissed
based on the aforecited reason, without compliance with the procedural due process for notice and
hearing.

Herein petitioners, having been unjustly dismissed from work, are entitled to reinstatement without
loss of seniority rights and other privileges and to full back wages, inclusive of allowances, and to
other benefits or their monetary equivalents computed from the time compensation was withheld up
to the time of actual reinstatement. Their earnings elsewhere during the periods of their illegal
dismissal shall not be deducted therefrom.

Accordingly, we hold that the NLRC committed no grave abuse of discretion in its decision.
Conversely, the CA committed a reversible error when it set aside the NLRC ruling.

WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of Appeals
in CA-G.R. SP. No. 103804 are REVERSED and SET ASIDE. Petitioners Emmanuel Babas, Danilo
T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, and Arsenio Estorque are
declared regular employees of Lorenzo Shipping Corporation. Further, LSC is ordered to reinstate
the seven petitioners to their former position without loss of seniority rights and other privileges, and
to pay full backwages, inclusive of allowances, and other benefits or their monetary equivalent,
computed from the time compensation was withheld up to the time of actual reinstatement.

No pronouncement as to costs.

SO ORDERED.

11)

G.R. No. 169704 November 17, 2010

ALBERT TENG, doing business under the firm name ALBERT TENG FISH TRADING, and
EMILIA TENG-CHUA, Petitioners,
vs.
ALFREDO S. PAHAGAC, EDDIE D. NIPA, ORLANDO P. LAYESE, HERNAN Y. BADILLES and
ROGER S. PAHAGAC, Respondents.

DECISION
BRION, J.:

Before this Court is a Petition for Review on Certiorari1 filed by petitioners Albert Teng Fish Trading,
its owner Albert Teng, and its manager Emilia Teng-Chua, to reverse and set aside the September
21, 2004 decision2 and the September 1, 2005 resolution3 of the Court of Appeals (CA) in CA-G.R.
SP No. 78783. The CA reversed the decision of the Voluntary Arbitrator (VA), National Conciliation
and Mediation Board (NCMB), Region IX, Zamboanga City, and declared that there exists an
employer-employee relationship between Teng and respondents Hernan Badilles, Orlando Layese,
Eddie Nipa, Alfredo Pahagac, and Roger Pahagac (collectively, respondent workers). It also found
that Teng illegally dismissed the respondent workers from their employment.

BACKGROUND FACTS

Albert Teng Fish Trading is engaged in deep sea fishing and, for this purpose, owns boats (basnig),
equipment, and other fishing paraphernalia. As owner of the business, Teng claims that he
customarily enters into joint venture agreements with master fishermen (maestros) who are skilled
and are experts in deep sea fishing; they take charge of the management of each fishing venture,
including the hiring of the members of its complement. He avers that the maestros hired the
respondent workers as checkers to determine the volume of the fish caught in every fishing voyage.4

On February 20, 2003, the respondent workers filed a complaint for illegal dismissal against Albert
Teng Fish Trading, Teng, and Chua before the NCMB, Region Branch No. IX, Zamboanga City.

The respondent workers alleged that Teng hired them, without any written employment contract, to
serve as his "eyes and ears" aboard the fishing boats; to classify the fish caught by bañera; to report
to Teng via radio communication the classes and volume of each catch; to receive instructions from
him as to where and when to unload the catch; to prepare the list of the provisions requested by the
maestro and the mechanic for his approval; and, to procure the items as approved by him.5 They
also claimed that they received regular monthly salaries, 13th month pay, Christmas bonus, and
incentives in the form of shares in the total volume of fish caught.

They asserted that sometime in September 2002, Teng expressed his doubts on the correct volume
of fish caught in every fishing voyage.6 In December 2002, Teng informed them that their services
had been terminated.7

In his defense, Teng maintained that he did not have any hand in hiring the respondent workers; the
maestros, rather than he, invited them to join the venture. According to him, his role was clearly
limited to the provision of the necessary capital, tools and equipment, consisting of basnig, gears,
fuel, food, and other supplies.8

The VA rendered a decision9 in Teng’s favor and declared that no employer-employee relationship
existed between Teng and the respondent workers. The dispositive portion of the VA’s May 30, 2003
decision reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the instant complaint
for lack of merit.

It follows also, that all other claims are likewise dismissed for lack of merit.10

The respondent workers received the VA’s decision on June 12, 2003.11 They filed a motion for
reconsideration, which was denied in an order dated June 27, 2003 and which they received on July
8, 2003.12 The VA reasoned out that Section 6, Rule VII of the 1989 Procedural Guidelines in the
Conduct of Voluntary Arbitration Proceedings (1989 Procedural Guidelines) does not provide the
remedy of a motion for reconsideration to the party adversely affected by the VA’s order or
decision.13 The order states:

Under Executive Order No. 126, as amended by Executive Order No. 251, and in order to implement
Article 260-262 (b) of the Labor Code, as amended by R.A. No. 6715, otherwise known as the
Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings, inter alia:

An award or the Decision of the Voluntary Arbitrators becomes final and executory after ten (10)
calendar days from receipt of copies of the award or decision by the parties (Sec. 6, Rule VII).

Moreover, the above-mentioned guidelines do not provide the remedy of a motion for
reconsideration to the party adversely affected by the order or decision of voluntary arbitrators.14

On July 21, 2003, the respondent-workers elevated the case to the CA. In its decision of September
21, 2004, the CA reversed the VA’s decision after finding sufficient evidence showing the existence
of employer-employee relationship:

WHEREFORE, premises considered, the petition is granted. The questioned decision of the
Voluntary Arbitrator dated May 30, 2003 is hereby REVERSED and SET ASIDE by ordering private
respondent to pay separation pay with backwages and other monetary benefits. For this purpose,
the case is REMANDED to the Voluntary Arbitrator for the computation of petitioner’s backwages
and other monetary benefits. No pronouncement as to costs.

SO ORDERED.15

Teng moved to reconsider the CA’s decision, but the CA denied the motion in its resolution of
September 1, 2005.16He, thereafter, filed the present Petition for Review on Certiorari under Rule 45
of the Rules of Court, claiming that:

a. the VA’s decision is not subject to a motion for reconsideration; and

b. no employer-employee relationship existed between Teng and the respondent workers.

Teng contends that the VA’s decision is not subject to a motion for reconsideration in the absence of
any specific provision allowing this recourse under Article 262-A of the Labor Code.17 He cites the
1989 Procedural Guidelines, which, as the VA declared, does not provide the remedy of a motion for
reconsideration.18 He claims that after the lapse of 10 days from its receipt, the VA’s decision
becomes final and executory unless an appeal is taken.19 He argues that when the respondent
workers received the VA’s decision on June 12, 2003,20 they had 10 days, or until June 22, 2003, to
file an appeal. As the respondent workers opted instead to move for reconsideration, the 10-day
period to appeal continued to run; thus, the VA’s decision had already become final and executory
by the time they assailed it before the CA on July 21, 2003.21

Teng further insists that the VA was correct in ruling that there was no employer-employee
relationship between him and the respondent workers. What he entered into was a joint venture
agreement with the maestros, where Teng’s role was only to provide basnig, gears, nets, and other
tools and equipment for every fishing voyage.22

THE COURT’S RULING

We resolve to deny the petition for lack of merit.

Article 262-A of the Labor Code does not prohibit the filing of a motion for reconsideration.

On March 21, 1989, Republic Act No. 671523 took effect, amending, among others, Article 263 of the
Labor Code which was originally worded as:

Art. 263 x x x Voluntary arbitration awards or decisions shall be final, unappealable, and executory.

As amended, Article 263 is now Article 262-A, which states:

Art. 262-A. x x x [T]he award or decision x x x shall contain the facts and the law on which it is
based. It shall be final and executory after ten (10) calendar days from receipt of the copy of the
award or decision by the parties.

Notably, Article 262-A deleted the word "unappealable" from Article 263. The deliberate selection of
the language in the amendatory act differing from that of the original act indicates that the legislature
intended a change in the law, and the court should endeavor to give effect to such intent.24 We
recognized the intent of the change of phraseology in Imperial Textile Mills, Inc. v. Sampang,25 where
we ruled that:

It is true that the present rule [Art. 262-A] makes the voluntary arbitration award final and executory
after ten calendar days from receipt of the copy of the award or decision by the parties. Presumably,
the decision may still be reconsidered by the Voluntary Arbitrator on the basis of a motion for
reconsideration duly filed during that period.26

In Coca-Cola Bottlers Phil., Inc., Sales Force Union-PTGWO-Balais v. Coca-Cola Bottlers

Philippines, Inc.,27 we likewise ruled that the VA’s decision may still be reconsidered on the basis of
a motion for reconsideration seasonably filed within 10 days from receipt thereof.28 The seasonable
filing of a motion for reconsideration is a mandatory requirement to forestall the finality of such
decision.29 We further cited the 1989 Procedural Guidelines which implemented Article 262-A, viz:30

[U]nder Section 6, Rule VII of the same guidelines implementing Article 262-A of the Labor Code,
this Decision, as a matter of course, would become final and executory after ten (10) calendar days
from receipt of copies of the decision by the parties x x x unless, in the meantime, a motion for
reconsideration or a petition for review to the Court of Appeals under Rule 43 of the Rules of Court is
filed within the same 10-day period. 31

These rulings fully establish that the absence of a categorical language in Article 262-A does not
preclude the filing of a motion for reconsideration of the VA’s decision within the 10-day period.
Teng’s allegation that the VA’s decision had become final and executory by the time the respondent
workers filed an appeal with the CA thus fails. We consequently rule that the respondent workers
seasonably filed a motion for reconsideration of the VA’s judgment, and the VA erred in denying the
motion because no motion for reconsideration is allowed.

The Court notes that despite our interpretation that Article 262-A does not preclude the filing of a
motion for reconsideration of the VA’s decision, a contrary provision can be found in Section 7, Rule
XIX of the Department of Labor’s Department Order (DO) No. 40, series of 2003:32

Rule XIX
Section 7. Finality of Award/Decision. – The decision, order, resolution or award of the voluntary
arbitrator or panel of voluntary arbitrators shall be final and executory after ten (10) calendar days
from receipt of the copy of the award or decision by the parties and it shall not be subject of a motion
for reconsideration.

Presumably on the basis of DO 40-03, the 1989 Procedural Guidelines was revised in 2005 (2005
Procedural Guidelines),33 whose pertinent provisions provide that:

Rule VII – DECISIONS

Section 6. Finality of Decisions. – The decision of the Voluntary Arbitrator shall be final and
executory after ten (10) calendar days from receipt of the copy of the decision by the parties.

Section 7. Motions for Reconsideration. – The decision of the Voluntary Arbitrator is not subject of a
Motion for Reconsideration.

We are surprised that neither the VA nor Teng cited DO 40-03 and the 2005 Procedural Guidelines
as authorities for their cause, considering that these were the governing rules while the case was
pending and these directly and fully supported their theory. Had they done so, their reliance on the
provisions would have nevertheless been unavailing for reasons we shall now discuss.

In the exercise of its power to promulgate implementing rules and regulations, an implementing
agency, such as the Department of Labor,34 is restricted from going beyond the terms of the law it
seeks to implement; it should neither modify nor improve the law. The agency formulating the rules
and guidelines cannot exceed the statutory authority granted to it by the legislature.35

By allowing a 10-day period, the obvious intent of Congress in amending Article 263 to Article 262-A
is to provide an opportunity for the party adversely affected by the VA’s decision to seek recourse via
a motion for reconsideration or a petition for review under Rule 43 of the Rules of Court filed with the
CA. Indeed, a motion for reconsideration is the more appropriate remedy in line with the doctrine of
exhaustion of administrative remedies. For this reason, an appeal from administrative agencies to
the CA via Rule 43 of the Rules of Court requires exhaustion of available remedies36 as a condition
precedent to a petition under that Rule.

The requirement that administrative remedies be exhausted is based on the doctrine that in
providing for a remedy before an administrative agency, every opportunity must be given to the
agency to resolve the matter and to exhaust all opportunities for a resolution under the given remedy
before bringing an action in, or resorting to, the courts of justice.37 Where Congress has not clearly
required exhaustion, sound judicial discretion governs,38 guided by congressional intent.39

By disallowing reconsideration of the VA’s decision, Section 7, Rule XIX of DO 40-03 and Section 7
of the 2005 Procedural Guidelines went directly against the legislative intent behind Article 262-A of
the Labor Code. These rules deny the VA the chance to correct himself40 and compel the courts of
justice to prematurely intervene with the action of an administrative agency entrusted with the
adjudication of controversies coming under its special knowledge, training and specific field of
expertise. In this era of clogged court dockets, the need for specialized administrative agencies with
the special knowledge, experience and capability to hear and determine promptly disputes on
technical matters or intricate questions of facts, subject to judicial review, is indispensable.41 In
Industrial Enterprises, Inc. v. Court of Appeals,42 we ruled that relief must first be obtained in an
administrative proceeding before a remedy will be supplied by the courts even though the matter is
within the proper jurisdiction of a court.43
There exists an employer-employee relationship between Teng and the respondent workers.

We agree with the CA’s finding that sufficient evidence exists indicating the existence of an
employer-employee relationship between Teng and the respondent workers.

While Teng alleged that it was the maestros who hired the respondent workers, it was his company
that issued to the respondent workers identification cards (IDs) bearing their names as employees
and Teng’s signature as the employer. Generally, in a business establishment, IDs are issued to
identify the holder as a bona fide employee of the issuing entity.

For the 13 years that the respondent workers worked for Teng, they received wages on a regular
basis, in addition to their shares in the fish caught.44 The worksheet showed that the respondent
workers received uniform amounts within a given year, which amounts annually increased until the
termination of their employment in 2002.45 Teng’s claim that the amounts received by the respondent
workers are mere commissions is incredulous, as it would mean that the fish caught throughout the
year is uniform and increases in number each year.

More importantly, the element of control – which we have ruled in a number of cases to be a strong
indicator of the existence of an employer-employee relationship – is present in this case. Teng not
only owned the tools and equipment, he directed how the respondent workers were to perform their
job as checkers; they, in fact, acted as Teng’s eyes and ears in every fishing expedition.

Teng cannot hide behind his argument that the respondent workers were hired by the maestros. To
consider the respondent workers as employees of the maestros would mean that Teng committed
impermissible labor-only contracting. As a policy, the Labor Code prohibits labor-only contracting:

ART. 106. Contractor or Subcontractor – x x x The Secretary of Labor and Employment may, by
appropriate regulations, restrict or prohibit the contracting-out of labor.

xxxx

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

Section 5 of the DO No. 18-02,46 which implements Article 106 of the Labor Code, provides:

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

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

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

In the present case, the maestros did not have any substantial capital or investment. Teng admitted
1avv phi1

that he solely provided the capital and equipment, while the maestros supplied the workers. The
power of control over the respondent workers was lodged not with the maestros but with Teng. As
checkers, the respondent workers’ main tasks were to count and classify the fish caught and report
them to Teng. They performed tasks that were necessary and desirable in Teng’s fishing business.
Taken together, these incidents confirm the existence of a labor-only contracting which is prohibited
in our jurisdiction, as it is considered to be the employer’s attempt to evade obligations afforded by
law to employees.

Accordingly, we hold that employer-employee ties exist between Teng and the respondent workers.
A finding that the maestros are labor-only contractors is equivalent to a finding that an employer-
employee relationship exists between Teng and the respondent workers. As regular employees, the
respondent workers are entitled to all the benefits and rights appurtenant to regular employment.

The dismissal of an employee, which the employer must validate, has a twofold requirement: one is
substantive, the other is procedural.47 Not only must the dismissal be for a just or an authorized
cause, as provided by law; the rudimentary requirements of due process – the opportunity to be
heard and to defend oneself – must be observed as well.48 The employer has the burden of proving
that the dismissal was for a just cause; failure to show this, as in the present case, would necessarily
mean that the dismissal was unjustified and, therefore, illegal.49

The respondent worker’s allegation that Teng summarily dismissed them on suspicion that they were
not reporting to him the correct volume of the fish caught in each fishing voyage was never denied
by Teng. Unsubstantiated suspicion is not a just cause to terminate one’s employment under Article
28250 of the Labor Code. To allow an employer to dismiss an employee based on mere allegations
and generalities would place the employee at the mercy of his employer, and would emasculate the
right to security of tenure.51 For his failure to comply with the Labor Code’s substantive requirement
on termination of employment, we declare that Teng illegally dismissed the respondent workers.

WHEREFORE, we DENY the petition and AFFIRM the September 21, 2004 decision and the
September 1, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 78783. Costs against the
petitioners.

SO ORDERED.

12)

January 13, 2016

G.R. Nos. 173254-55 & 173263

DIAMOND FARMS, INC., Petitioner,

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

DECISION

JARDELEZA, J.:

We resolve in this Petition for Review1 under Rule 45 of the Rules of Court, the issue of who among
Diamond Farms, Inc. ("DFI"), Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose
Cooperative ("DARBMUPCO") and the individual contractors2 ("respondent-contractors") is the
employer of the 400 employees ("respondent-workers").

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

The Facts

DFI owns an 800-hectare banana plantation ("original plantation") in Alejal, Carmen,

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

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

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

On March 27, 1996, DARBMUPCO entered into a Banana Production and Purchase Agreement
("BPPA")15 with DFI.16 Under the BPPA, DARBMUPCO and its members as owners of the awarded
plantation, agreed to grow and cultivate only high grade quality exportable bananas to be sold
exclusively to DFI.17 The BPPA is effective for 10 years.18
On April 20, 1996, DARBMUPCO and DFI executed a "Supplemental to Memorandum Agreement"
("SMA").19 The SMA stated that DFI shall take care of the labor cost arising from the packaging
operation, cable maintenance, irrigation pump and irrigation maintenance that the workers of
DARBMUPCO shall conduct for DFI’s account under the BPPA.20

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The former Eleventh Division of the CA consolidated C.A. G.R. SP. No. 59958 and C.A.-G.R. SP No.
53806 in a Resolution dated January 27, 2001.45

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

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

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

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

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

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

The Assailed CA Decision and Resolution

The CA was confronted with two issues:55

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

these petitions; and

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

On the first issue, the CA agreed with the ruling of the SOLE56 that DFI is the statutory employer of
the respondent-workers. It noted that the DFI hired the respondent-contractors, who in turn procured
their own men to work in the land owned by DARBMUPCO. Further, DFI admitted that the
respondent-contractors worked under the direction and supervision of DFI’s managers and
personnel. DFI also paid for the respondent-contractors’ services.57 The CA said that the fact that the
respondent-workers worked in the land owned by DARBMUPCO is immaterial. "Ownership of the
land is not one of the four (4) elements generally considered to establish employer-employee
relationship."58

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

On the second issue, the CA reiterated the ruling of the SOLE61 that absent an injunction from the
CA, the pendency of a petition for certiorari does not stay the holding of the certification
election.62 The challenged Resolution of the SOLE is already final and executory as evidenced by an
Entry of Judgment dated July 14, 1999; hence, the merits of the case can no longer be reviewed.63

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

WHEREFORE, premises considered, this Court hereby ORDERS:

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

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

SO ORDERED.64

DFI filed a Motion for Reconsideration of the CA Decision which was denied in a Resolution dated
May 30, 2006.65

DFI is now before us by way of Petition for Review on Certiorari praying that DARBMUPCO be
declared the true employer of the respondent-workers.
DARBMUPCO filed a Comment66 maintaining that under the control test, DFI is the true employer of
the respondent-workers.

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

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

The Issue

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

Our Ruling

We deny the petition.

This case involves job contracting, a labor arrangement expressly allowed by law. Contracting or
subcontracting is an arrangement whereby a principal (or employer) agrees to put out or farm out
with a contractor or subcontractor the performance or completion of a specific job, work or service
within a definite or predetermined period, regardless of whether such job, work or service is to be
performed or completed within or outside the premises of the principal.69 It involves a trilateral
relationship among the principal or employer, the contractor or subcontractor, and the workers
engaged by the contractor or subcontractor.70

Article 106 of the Labor Code of the Philippines71 (Labor Code) explains the relations which may
arise between an employer, a contractor, and the contractor’s employees,72 thus:

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

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

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

There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such person are performing activities which are
directly related to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed by him.
The Omnibus Rules Implementing the Labor Code73 distinguishes between permissible job
contracting (or independent contractorship) and labor-only contracting. Job contracting is permissible
under the Code if the following conditions are met:

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

(b) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.74

In contrast, job contracting shall be deemed as labor-only contracting, an arrangement prohibited by

law, if a person who undertakes to supply workers to an employer:

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

(2) The workers recruited and placed by such person are performing activities which are
directly related to the principal business or operations of the employer in which workers are
habitually employed.75

As a general rule, a contractor is presumed to be a labor-only contractor, unless such contractor

overcomes the burden of proving that it has the substantial capital, investment, tools and the like.76

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

There is no evidence showing that respondent-contractors are independent contractors. The

respondent-contractors, DFI, and DARBMUPCO did not offer any proof that respondent-contractors
were not engaged in labor-only contracting. In this regard, we cite our ruling in Caro v.
Rilloraza,77 thus:

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

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

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

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

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

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

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

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

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

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

4. Attendance/Time sheets of respondents-SPFL, et. al. were being prepared by herein

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

5. No monies were being paid directly by private respondent DARBMUPCO to respondents-

SPFL, et al., nor to herein respondents Voltaire Lopez, [Jr.], et. al. Nor did respondent
DARBMUPCO directly intervene much less supervise any or all of [the] respondents-SPFL,
et. al. including herein respondents Voltaire Lopez, Jr., et. al.82 (Emphasis supplied.)

The foregoing admissions are legally binding on respondent-contractors.83 Judicial admissions made
by parties in the pleadings, or in the course of the trial or other proceedings in the same case are
conclusive and so does not require further evidence to prove them.84 Here, the respondent-
contractors voluntarily pleaded that they are labor-only contractors; hence, these admissions bind
them.

A finding that a contractor is a labor-only contractor is equivalent to a declaration that there is an

employer-employee relationship between the principal, and the workers of the labor-only contractor;
the labor-only contractor is deemed only as the agent of the principal.85 Thus, in this case,
respondent-contractors are the labor-only contractors and either DFI or DARBMUPCO is their
principal.

We hold that DFI is the principal.

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

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

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

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

That DARBMUPCO owns the awarded plantation where the respondent-contractors and
respondent-workers were working is immaterial. This does not change the situation of the parties. As
correctly found by the CA, DFI, as the principal, hired the respondent-contractors and the latter, in
turn, engaged the services of the respondent-workers.91This was also the unanimous finding of the
SOLE,92 the LA,93 and the NLRC.94 Factual findings of the NLRC, when they coincide with the LA and
affirmed by the CA are accorded with great weight and respect and even finality by this Court.95
Alilin v. Petron Corporation96 is applicable. In that case, this Court ruled that the presence of the
power of control on the part of the principal over the workers of the contractor, under the facts, prove
the employer-employee relationship between the former and the latter, thus:

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

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

This Court has constantly adhered to the "four-fold test" to determine whether there exists an
employer-employee relationship between the parties. The four elements of an employment
1âw phi1

relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the power to control the employee’s conduct.

Of these four elements, it is the power to control which is the most crucial and most
determinative factor, so important, in fact, that, the other elements may even be disregarded.

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

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

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

UNDERTAKING OF THE FIRST PARTY

xxx

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

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

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

The existence of an employer-employees relation is a question of law and being such, it

cannot be made the subject of agreement. Hence, the fact that the manpower supply agreement
1âwphi1

between Livi and California had specifically designated the former as the petitioners' employer and
had absolved the latter from any liability as an employer, will not erase either party's obligations as
an employer, if an employer-employee relation otherwise exists between the workers and either firm.
xxx105 (Emphasis supplied.)

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

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

SO ORDERED.

13)

G.R. No. 208451, February 03, 2016

MANILA MEMORIAL PARK CEMETERY, INC., Petitioner, v. EZARD D. LLUZ, NORMAN CORRAL,
ERWIN FUGABAN, VALDIMAR BALISI, EMILIO FABON, JOHN MARK APLICADOR, MICHAEL
CURIOSO, JUNLIN ESPARES, GAVINO FARINAS, AND WARD TRADING AND
SERVICES, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 assailing the Decision2 dated 21 January 2013 and the
Resolution3 dated 17 July 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 119237. chanRoblesv irt ual Lawlib rary

The Facts
On 23 February 2006, petitioner Manila Memorial Park Cemetery, Inc. (Manila Memorial) entered into a
Contract of Services with respondent Ward Trading and Services (Ward Trading). The Contract of Services
provided that Ward Trading, as an independent contractor, will render interment and exhumation services
and other related work to Manila Memorial in order to supplement operations at Manila Memorial Park,
Paranaque City.

Among those assigned by Ward Trading to perform services at the Manila Memorial Park were respondents
Ezard Lluz, Norman Corral, Erwm Fugaban, Valdimar Balisi, Emilio Fabon, John Mark Aplicador, Michael
Curioso, Junlin Espares, and Gavino Farinas (respondents). They worked six days a week for eight hours
daily and were paid P250 per day.

On 26 June 2007, respondents filed a Complaint4 for regularization and Collective Bargaining Agreement
benefits against Manila Memorial; Enrique B. Lagdameo, Manila Memorial's Executive Vice-President and
Director in Charge for Overall Operations, and Ward Trading. On 6 August 2007, respondents filed an
amended complaint to include illegal dismissal, underpayment of 13th month pay, and payment of attorney's
fees.

Respondents alleged that they asked Manila Memorial to consider them as regular workers within the
appropriate bargaining unit established in the collective bargaining agreement by Manila Memorial and its
union, the Manila Memorial Park Free Workers Union (MMP Union). Manila Memorial refused the request
since respondents were employed by Ward Trading, an independent labor contractor. Thereafter,
respondents joined the MMP Union. The MMP Union, on behalf of respondents, sought their regularization
which Manila Memorial again declined. Respondents then filed the complaint. Subsequently, respondents
were dismissed by Manila Memorial. Thus, respondents amended the complaint to include the prayer for
their reinstatement and payment of back wages.

Meanwhile, Manila Memorial sought the dismissal of the complaint for lack of jurisdiction since there was no
employer-employee relationship. Manila Memorial argued that respondents were the employees of Ward
Trading.

In a Decision5 dated 29 March 2010, the Labor Arbiter dismissed the complaint for failing to prove the
existence of an employer-employee relationship. The dispositive portion of the Decision states: ChanRoblesVirt ualawli bra ry

WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled case for
complainants' lack of employer-employee relationship with respondent Manila Memorial Park Cemetery, Inc.

SO ORDERED.6 chanroblesv irt uallawl ibra ry

Respondents appealed7 to the NLRC. In a Decision8 dated 30 September 2010, the NLRC reversed the Labor
Arbiter's findings. The NLRC ruled that Ward Trading was a labor-only contractor and an agent of Manila
Memorial. The dispositive portion of the Decision states: ChanRobles Virtualawl ibra ry

WHEREFORE, premises considered, complainants' appeal is GRANTED. The assailed Decision of Labor Arbiter
Geobel A. Bartolabac dated March 29, 2010 is MODIFIED. It is hereby declared that complainants were
regular employees of respondent Manila Memorial Park Cemetery, Inc. and entitled to the benefits provided
for under the CBA between the latter and the Manila Memorial Park Free Workers Union.

Respondent Manila Memorial Park Cemetery, Inc. is ordered to pay wage differentials to complainants as
follows:
ChanRob les Virtualawl ibra ry

1. Ezard D.
P43,982.79
Lluz -
2. Norman
P29,765.67
Corral -
3. Erwin
P28,634.67
Fugaban -
 4. Valdimar
P20,310.33
Balisi -
5. Emilio
P43,982.79
Fabon -
6. John Mark
P43,982.79
Aplicador -
7. Michael
P43,982.79
Curioso -
8. Ju[n]lin
P43,982.79
Espares -
9. Gavino
P43,982.79
Farinas -
SO ORDERED.9 chanroblesv irt uallawl ibra ry

Manila Memorial filed a Motion for Reconsideration which was denied in a Resolution10 dated 31 January
2011.

Thereafter, Manila Memorial filed an appeal with the CA. In a Decision dated 21 January 2013, the CA
affirmed the ruling of the NLRC. The CA found the existence of an employer-employee relationship between
Manila Memorial and respondents. The dispositive portion of the Decision states: ChanRoblesVi rtua lawlib rary

WHEREFORE, in view of the foregoing, the instant Petition for Certiorari is DENIED. The Decision, dated
September 30, 2010 and the Resolution, dated January 31, 2011, rendered by the National Labor Relations
Commission (NLRC) in NLRC LAC No. 06-001267-10 are AFFIRMED.

SO ORDERED.11 chanroblesv irtuallawl ib rary

Manila Memorial then filed a Motion for Reconsideration which was denied by the CA in a Resolution dated
17 July 2013.

Hence, the instant petition. chanRobles virtua lLawl ibra ry

The Issue

The main issue for our resolution is whether or not an employer-employee relationship exists between
Manila Memorial and respondents for the latter to be entitled to their claim for wages and other benefits. chanRoblesvi rt ualLaw lib rary

The Court's Ruling

The petition lacks merit.

Manila Memorial contends that Ward Trading has total assets in excess of P1.4 million, according to Ward
Trading's financial statements for the year 2006, proving that it has sufficient capitalization to qualify as a
legitimate independent contractor. Manila Memorial insists that nowhere is it provided in the Contract of
Services that Manila Memorial controls the manner and means by which respondents accomplish the results
of their work. Manila Memorial states that the company only wants its contractors and the latter's employees
to abide by company rules and regulations.

Respondents, on the other hand, assert that they are regular employees of Manila Memorial since Ward
Trading cannot qualify as an independent contractor but should be treated as a mere labor-only contractor.
Respondents state that (1) there is enough proof that Ward Trading does not have substantial capital,
investment, tools and the like; (2) the workers recruited and placed by the alleged contractors performed
activities that were related to Manila Memorial's business; and (3) Ward Trading does not exercise the right
to control the performance of the work of the contractual employees.
As a general rule, factual findings of the CA are binding upon this Court. One exception to this rule is when
the factual findings of the former are contrary to those of the trial court, or the lower administrative body,
as the case may be. This Court is obliged to resolve an issue of fact due to the conflicting findings of the
Labor Arbiter on one hand, and the NLRC and the CA on the other.

In order to determine whether there exists an employer-employee relationship between Manila Memorial
and respondents, relevant provisions of the labor law and rules must first be reviewed. Article 106 of the
Labor Code states: ChanRoblesVi rt ualawlib ra ry

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

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

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

There is "labor-only" contracting where the person supplying workers to an employer does not
have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him. (Emphasis supplied)
Sections 3, 5 and 7 of Department Order No. 18-0212 distinguish between legitimate and labor-only
contracting and assume the existence of an employer-employee relationship if found to be engaged in labor-
only contracting. The provisions state: ChanRoblesVi rtua lawlib rary

xxxx

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a

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

xxxx

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

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

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

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

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as
amended.
"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries and work premises, actually and directly used by
the contractor or subcontractor in the performance or completion of the job, work or service contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the contractual
workers are performed, to determine not only the end to be achieved, but also the manner and means to be
used in reaching that end.

xxxx

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

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

The principal shall be deemed the employer of the contractual employee in any of the following cases as
declared by a competent authority: ChanRoble sVi rt ualawlib ra ry

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

(b) where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions)
hereof. (Emphasis supplied)
It is clear from these provisions that contracting arrangements for the performance of specific jobs or
services under the law and its implementing rules are allowed. However, contracting must be made to a
legitimate and independent job contractor since labor rules expressly prohibit labor-only contracting.

Labor-only contracting exists when the contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal and any of the following elements are present:

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

2) The contractor does not exercise the right to control the performance of
the work of the contractual employee.13
In the present case, Manila Memorial entered into a Contract of Services with Ward Trading, a single
proprietorship owned by Emmanuel Mayor Ward with business address in Las Piñas City on 23 February
2006. In the Contract of Services, it was provided that Ward Trading, as the contractor, had adequate
workers and substantial capital or investment in the form of tools, equipment, machinery, work premises
and other materials which were necessary in the conduct of its business.

However, a closer look at the Contract of Services reveals that Ward Trading does not have substantial
capital or investment in the form of tools, equipment, machinery, work premises and other materials since it
is Manila Memorial which owns the equipment used in the performance of work needed for interment and
exhumation services. The pertinent provision in the Contract of Services which shows that Manila Memorial
owns the equipment states: ChanRoblesVirt ualawli bra ry

The COMPANY shall [sell] to the contractor the COMPANY owned equipment in the amount of ONE MILLION
FOUR HUNDRED THOUSAND PESOS ONLY (Php 1,400,000.00) payable in two (2) years or a monthly
payment of FIFTY EIGHT THOUSAND THREE HUNDRED THIRTY FIVE PESOS ONLY (Php 58,335.00) to be
deducted from the CONTRACTOR'S billing.14 chan roble svirtual lawlib rary

Just by looking at the provision, it seems that the sale was a regular business transaction between two
parties. However, Manila Memorial did not present any evidence to show that the sale actually pushed
through or that payments were made by Ward Trading to prove an ordinary arms length transaction. We
agree with the NLRC in its findings: ChanRobles Vi rt ualawlib ra ry

While the above-cited provision of the Contract of Service implies that respondent MMPCI would sell subject
equipment to Ward at some future time, the former failed to present any contract of sale as proof that,
indeed, it actually sold said equipment to Ward. Likewise, respondent MMPCI failed to present any
"CONTRACTOR'S billing" wherein the purported monthly installment of P58,335.00 had been deducted, to
prove that Ward truly paid the same as they fell due. In a contract to sell, title is retained by the vendor
until full payment of the price.

Moreover, the Contract of Service provides that: ChanRobles Vi rtualaw lib rary

"5. The COMPANY reserves the right to rent all or any of the CONTRACTOR'S equipment in the event the
COMPANY requires the use of said equipment, x x x."
This provision is clear proof that Ward does not have an absolute right to use or enjoy subject equipment,
considering that its right to do so is subject to respondent MMPCI's use thereof at any time the latter
requires it. Such provision is contrary to Article 428 of the Civil Code, which provides that "The owner has
the right to enjoy and dispose of a thing, without other limitation than those established by law." It is plain
to see that Ward is not the owner of the equipment worth P1,400,000.00 that is being actually and directly
used in the performance of the services contracted out.

Further, the Service Contract states that: ChanRoblesVi rt ualawlib ra ry

"For its part, the COMPANY agrees to provide the following:

a) Area to store CONTRACTOR'S equipment and materials

b) Office space for CONTRACTOR'S staff and personnel"
This provision is clear proof that even the work premises actually and directly used by Ward in the
performance of the services contracted out is owned by respondent MMPCI.15 chanroble svi rtual lawlib rary

Also, the difference in the value of the equipment in the total amount of P1,400,000.00 can be glaringly
seen in Ward Trading's financial statements for the year 2006 when compared to its 2005 financial
statements. It is significant to note that these financial statements were submitted by Manila Memorial
without any certification that these financial statements were actually audited by an independent certified
public accountant. Ward Trading's Balance Sheet16 as of 31 December 2005 showed that it had assets in the
amount of P441,178.50 and property and equipment with a net book value of P86,026.50 totaling P534,705.
A year later, Ward Trading's Balance Sheet17 ending in 31 December 2006 showed that it had assets in the
amount of P57,084.70 and property and equipment with a net book value of Pl,426,468 totaling
P1,491,052.70. Ward Trading, in its Income Statements18 for the years 2005 and 2006, only earned a net
income of P53,800 in the year ending 2005 and P68,141.50 in 2006. Obviously, Ward Trading could not
have raised a substantial capital of P1,400,000.00 from its income alone without the inclusion of the
equipment owned and allegedly sold by Manila Memorial to Ward Trading after they signed the Contract of
Services on 23 February 2006.

Further, the records show that Manila Memorial and Enrique B. Lagdameo admitted that respondents
performed various interment services at its Sucat, Paranaque branch which were directly related to Manila
Memorial's business of developing, selling and maintaining memorial parks and interment functions. Manila
Memorial even retained the right to control the performance of the work of the employees concerned. As
correctly observed by the CA: ChanRoblesVirt ualawli bra ry

A perusal of the Service Contract would reveal that respondent Ward is still subject to petitioner's control as
it specifically provides that although Ward shall be in charge of the supervision over individual respondents,
the exercise of its supervisory function is heavily dependent upon the needs of petitioner Memorial Park,
particularly:
ChanRoble sVirtualawl ibra ry

"It is also agreed that:

a) The CONTRACTOR'S supervisor will conduct a regular inspection of grave sites/areas being dug to ensure
compliance with the COMPANY'S interment schedules and other related ceremonies.
b) The CONTRACTOR will provide enough manpower during peak interment days including Sundays and
Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in coordination with the COMPANY'S schedule of
interment operation.
d) The CONTRACTOR shall be responsible for any damage done to lawn/s and/or structure/s resulting from
its operation, which must be restored to its/their original condition without delay and at the expense of
CONTRACTOR."
The contract further provides that petitioner has the option to take over the functions of Ward's personnel if
it finds any part or aspect of the work or service provided to be unsatisfactory, thus: ChanRobles Vi rtua lawlib rary

"6.1 It is hereby expressly agreed and understood that, at any time during the effectivity of this CONTRACT
and its sole determination, the COMPANY may take over the performance of any of the functions mentioned
in Paragraph I above, in any of the following cases: chanRoble svi rtual Lawli bra ry
 xxx

c. If the COMPANY finds the performance of the CONTRACTOR in any part or aspect of the grave digging
works or other services provided by it to be unsatisfactory."
It is obvious that the aforementioned provision leaves respondent Ward at the mercy of petitioner Memorial
Park as the contract states that the latter may take over if it finds any part of the services to be below its
expectations, including the manner of its performance. x x x.19 chanrob lesvi rtua llawlib ra ry

The NLRC also found that Ward Trading's business documents fell short of sound business practices. The
relevant portion in the NLRC's Decision states: ChanRoblesVirt ualawli bra ry

It is also worth noting that while Ward has a Certificate of Business Name Registration issued by the
Department of Trade and Industry on October 24, 2003 and valid up to October 24, 2008, the same
expressly states that it is not a license to engage in any kind of business, and that it is valid only at the
place indicated therein, which is Las Piñas City. Hence, the same is not valid in Paranaque City, where Ward
assigned complainants to perform interment services it contracted with respondent MMPCI. It is also noted
that the Permit, which was issued to Ward by the Office of the Mayor of Las Piñas City on October 28, 2003,
was valid only up to December 31, 2003. Likewise, the Sanitary Permit to Operate, which was issued to
Ward by the Office of the City Health Officer of the Las Piñas City Health Office on October 28, 2003, expired
on December 31, 2003. While respondents MMPCI and Lagdameo were able to present copies of the above-
mentioned documents, they failed to present any proof that Ward is duly registered as [a] contractor with
the Department of Labor and Employment.20 chan roblesv irt uallawl ibra ry

Section 11 of Department Order No. 18-02, which mandates registration of contractors or subcontractors
with the DOLE, states: ChanRoblesVirtualawli bra ry

Section 11. Registration of Contractors or Subcontractors. - Consistent with authority of the Secretary of
Labor and Employment to restrict or prohibit the contracting out of labor through appropriate regulations, a
registration system to govern contracting arrangements and to be implemented by the Regional Office is
hereby established.

The Registration of contractors and subcontractors shall be necessary for purposes of establishing an
effective labor market information and monitoring.

Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting.
For failing to register as a contractor, a presumption arises that one is engaged in labor-only contracting
unless the contractor overcomes the burden of proving that it has substantial capital, investment, tools and
the like.21
c hanro blesvi rt uallawl ibra ry

In this case, however, Manila Memorial failed to adduce evidence to prove that Ward Trading had any
substantial capital, investment or assets to perform the work contracted for. Thus, the presumption that
Ward Trading is a labor-only contractor stands. Consequently, Manila Memorial is deemed the employer of
respondents. As regular employees of Manila Memorial, respondents are entitled to their claims for wages
and other benefits as awarded by the NLRC and affirmed by the CA.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 21 January 2013 and the Resolution
dated 17 July 2013 of the Court of Appeals in CA-G.R. SP No. 119237.

SO ORDERED.

14)

MENDOZA, J.:
At bench is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court assailing the July 11, 2013 Decision[1] and the December 5, 2013
Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 115469, which
reversed and set aside the March 25, 2010 Decision[3] and the May 28, 2010
Resolution[4] of the National Labor Relations Commission (NLRC),
affirming the August 29, 2008 Decision of the Labor Arbiter (LA), in a case
for illegal dismissal, damages and attorney's fees filed by the petitioners
against respondent Coca-Cola Bottlers Philippines, Inc. (Coca-Cola).

The gist of the subject controversy, as narrated by the LA and adopted by

the NLRC and the CA, is as follows:

Complainants allege that they are former employees directly hired by

respondent Coca-Cola on different dates from 1984 up to 2000, assigned as
regular Route Helpers under the direct supervision of the Route Sales
Supervisors. Their duties consist of distributing bottled Coca-Cola products
to the stores and customers in their assigned areas/routes, and they were
paid salaries and commissions at the average of P3,000.00 per month.
After working for quite sometime as directly-hired employees of Coca-Cola,
complainants were allegedly transferred successively as agency workers to
the following manpower agencies, namely, Lipercon Services, Inc., People's
Services, Inc., ROMAC, and the latest being respondent Interserve
Management and Manpower Resources, Inc.

Further, complainants allege that the Department of Labor and

Employment (DOLE) conducted an inspection of Coca-Cola to determine
whether it is complying with the various mandated labor standards, and
relative thereto, they were declared to be regular employees of Coca-Cola,
which was held liable to pay complainants the underpayment of their
13th month pay, emergency cost of living allowance (ECOLA), and other
claims. As soon as respondents learned of the filing of the claims with
DOLE, they were dismissed on various dates in January 2004. Their claims
were later settled by the respondent company, but the settlement allegedly
did not include the issues on reinstatement and payment of CBA benefits.
Thus, on November 10, 2006, they filed their complaint for illegal
dismissal.

In support of their argument that they were regular employees of Coca-

Cola, the complainants relied on the pronouncement of the Supreme Court
in the case of CCBPI vs. NOWM, G.R. No. 176024, June 18, 2007, as
follows:
"In the case at bar, individual complainants were directly hired by
respondent Coca-Cola as Route Helpers. They assist in the loading and
unloading of softdrinks. As such they were paid by respondent Coca-Cola
their respective salaries plus commission. It is of common knowledge in the
sales of softdrinks that salesmen are not alone in making a truckload of
softdrinks for delivery to customers. Salesmen are usually provided with
route helpers or utility men who does the loading and unloading. The
engagement of the individual complainants to such activity is usually
necessary in the usual business of respondent Coca-Cola.

Contrary to the Labor Arbiter's conclusion that respondent Coca-Cola is

engaged solely in the manufacturing is erroneous as it is also engaged in the
sales of the softdrinks it manufactured.

Moreover, having been engaged to perform, such activity for more than a
year all the more bolsters individual complainants' status as regular
employees notwithstanding the contract, oral or written, or even if their
employment was subsequently relegated to a labor contractor."
Respondent Coca-Cola denies employer-employee relationship with the
complainants pointing to respondent Interserve with whom it has a service
agreement as the complainants' employer. As alleged independent service
contractor of respondent Coca-Cola, respondent Interserve "is engaged in
the business of rendering substitute or reliever delivery services to its own
clients and for CCBPI in particular, the delivery of CCBPI's softdrinks and
beverage products." It is allegedly free from the control and direction of
CCBPI in all matters connected with the performance of the work, except as
to the results thereof, pursuant to the service agreement. Moreover,
respondent Interserve is allegedly highly capitalized with a total of
P21,658,220.26 and with total assets of P27,509,716.32.

Further, respondent Coca-Cola argued that all elements of employer-

employee relationship exist between respondent Interserve and the
complainants. It was allegedly Interserve which solely selected and engaged
the services of the complainants, which paid the latter their salaries, which
was responsible with respect to the imposition of appropriate disciplinary
sanctions against its erring employees, including the complainants, without
any participation from Coca-Cola, which personally monitors the route
helpers' performance of their delivery services pointing to Noel Sambilay as
the Interserve Coordinator. Expounding on the power of control,
respondent Coca-Cola vigorously argued that:

"12. According to Mr. Sambilay, he designates who among the route

helpers, such as complainants herein, will be assigned for each of the
delivery trucks. Based on the route helpers' performance and rapport with
the truck driver and the other route helpers, he groups together a team of
three (3) to five (5) route helpers to undertake the loading and unloading of
the softdrink products to the delivery trucks and to their designated
delivery point. It is his exclusive discretion to determine who among the
route helpers will be grouped together to comprise an effective team to
render the most efficient delivery service of CCBPI's products.

"13. Similarly, it is Interserve, through Mr. Sambilay, who takes charge of

monitoring the attendance of the route helpers employed by Interserve. At
the start of the working day, Mr. Sambilay would position himself at the
gate of the CCBPI premises to check the attendance of the route helpers. He
also maintains a logbook to record the time route helpers appear for work.
In case a route helper is unable to report for duty, Mr. Sambilay reassigns
another route helper to take his place."
On its part, respondent Interserve merely filed its position paper,
pertaining only to complainants Quintanar and Cabili totally ignoring all
the other twenty-eight (28) complainants. It maintains that it is a legitimate
job contractor duly registered as such and it undertakes to perform utility,
janitorial, packaging, and assist in transporting services by hiring drivers.
Complainants Quintanar and Cabili were allegedly hired as clerks who were
assigned to CCBPI Mendiola Office, under the supervision of Interserve
supervisors. Respondent Coca-Cola does not allegedly interfere with the
manner and the methods of the complainants' performance at work as long
as the desired results are achieved. While admitting employer-employee
relationship with the complainants, nonetheless, respondent Interserve
avers that complainants are not its regular employees as they were allegedly
mere contractual workers whose employment depends on the service
contracts with the clients and the moment the latter sever said contracts,
respondent has allegedly no choice but to either deploy the complainants to
other principals, and if the latter are unavailable, respondent cannot
allegedly be compelled to retain them.[5]
The Decision of the LA

On August 29, 2008, the LA rendered its decision granting the prayer in the
complaint. In its assessment, the LA explained that the documentary
evidence submitted by both parties confirmed the petitioners' allegation
that they had been working for Coca-Cola for quite some time. It also noted
that Coca-Cola never disputed the petitioners' contention that after working
for Coca-Cola through the years, they were transferred to the various
service contractors engaged by it, namely, Interim Services, Inc. (ISI),
Lipercon Services, Inc. (Lipercon), People Services, Inc. (PSI), ROMAC,
and lastly, Interserve Management and Manpower Resources, Inc.
(Interserve). In view of said facts, the LA concluded that the petitioners
were simply employees of Coca-Cola who were "seconded" to Interserve.[6]

The LA opined that it was highly inconceivable for the petitioners, who
were already enjoying a stable job at a multi-national company, to leave and
become mere agency workers. He dismissed the contention of Coca-Cola
that the petitioners were employees of Interserve, stressing that they
enjoyed the constitutional right to security of tenure which Coca-Cola could
not compromise by entering into a service agreement manpower supply
contractors, make petitioners sign employment contracts with them, and
convert their employment status from regular to contractual.[7]

Ultimately, the LA ordered Coca-Cola to reinstate the petitioners to their

former positions and to pay their full backwages.[8] The dispositive portion
of the decision reads:

WHEREFORE, all the foregoing premises being considered, judgment is

hereby rendered ordering respondent Coca-Cola Bottlers Phils., Inc. to
reinstate complainants to their former or substantially equivalent positions,
and to pay their full backwages which as of August 29, 2008 already
amounts to P15,319,005.00, without prejudice to recomputation upon
subsequent determination of the applicable salary rates and benefits due a
regular route helper or substantially equivalent position on the plantilla of
respondent CCBPI.

SO ORDERED.[9]
The Decision of the NLRC

Similar to the conclusion reached by the LA, the NLRC found that the
petitioners were regular employees of Coca-Cola. In its decision, dated
March 25, 2010, it found that the relationship between the parties in the
controversy bore a striking similarity with the facts in the cases of Coca-
Cola Bottlers Philippines, Inc. v. National Organization of
Workingmen[10] (N.O.W.) and Magsalin v. National Organization of
Workingmen (Magsalin).[11] The NLRC, thus, echoed the rulings of the
Court in the said cases which found the employees involved, like the
petitioners in this case, as regular employees of Coca-Cola. It stated that the
entities ISI, Lipercon, PSI, ROMAC, and Interserve simply "played to feign
that status of an employer so that its alleged principal would be free from
any liabilities and responsibilities to its employees."[12] As far as it is
concerned, Coca-Cola failed to provide evidence that would place the
subject controversy on a different plane from N.O.W and Magsalin as to
warrant a deviation from the rulings made therein.

As for the quitclaims executed by the petitioners, the NLRC held that the
same could not be used by Coca-Cola to shield it from liability. The NLRC
noted the Minutes of the National Conciliation and Mediation Board
(NCMB) which stated that the petitioners agreed to settle their claims with
Coca-Cola only with respect to their claims for violation of labor standards
law, and that their claims for illegal dismissal would be submitted to the
NLRC for arbitration.[13]

Coca-Cola sought reconsideration of the NLRC decision but its motion was
denied.[14]

The Decision of the CA

Reversing the findings of the LA and the NLRC, the CA opined that the
petitioners were not employees of Coca-Cola but of Interserve. In its
decision, the appellate court agreed with the contention of Coca-Cola that it
was Interserve who exercised the power of selection and engagement over
the petitioners considering that the latter applied for their jobs and went
through the pre-employment processes of Interserve. It noted that the
petitioners' contracts of employment and personal data sheets, which were
filed with Interserve, categorically stipulated that Interserve had the sole
power to assign them temporarily as relievers for absent employees of their
clients. The CA also noted that the petitioners had been working for other
agencies before they were hired by Interserve.[15]

The CA also gave credence to the position of Coca-Cola that it was

Interserve who paid the petitioners' salaries. This, coupled with the CA's
finding that Coca-Cola paid Interserve for the services rendered by the
petitioners whenever they substituted for the regular employees of Coca-
Cola, led the CA to conclude that it was Interserve who exercised the power
of paying the petitioners' wages.

The CA then took into consideration Interserve's admission that they had to
sever the petitioners' from their contractual employment because its
contract with Coca-Cola expired and there was no demand for relievers
from its other clients. The CA equated this with Interserve's exercise of its
power to fire the petitioners.[16]

Finally, the CA was of the considered view that it was Interserve which
exercised the power of control. Citing the Affidavit[17] of Noel F. Sambilay
(Sambilay), Coordinator of Interserve, the CA noted that Interserve
exercised the power of control, monitoring the petitioners' attendance,
providing them with their assignments to the delivery trucks of Coca-Cola,
and making sure that they were able to make their deliveries.[18]

The CA then went on to conclude that Interserve was a legitimate

independent contractor. It noted that the said agency was registered with
the Department of Labor and Employment (DOLE) as an independent
contractor which had provided delivery services for other beverage
products of its clients, and had shown that it had substantial capitalization
and owned properties and equipment that were used in the conduct of its
business operations. The CA was, thus, convinced that Interserve ran its
own business, separate and distinct from Coca-Cola.[19]

The petitioners sought reconsideration, but they were rebuffed.[20]

Hence, this petition, raising the following

GROUNDS FOR THE PETITION/ASSIGNMENT OF ERRORS

THE COURT OF APPEALS IS GUILTY OF GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR IN EXCESS OF
JURISDICTION IN:

I.

RENDERING A DECISION THAT IS CONTRARY TO LAW AND

ESTABLISHED JURISPRUDENCE
 II.

MISAPPRECIATING FACTS WHICH GRAVELY PREJUDICED

THE RIGHTS OF THE PETITIONERS.[21]
In their petition for review on certiorari, the petitioners ascribed grave
abuse of discretion on the part of the CA when it reassessed the evidence
and reversed the findings of fact of the LA and the NLRC that ruled in their
favor.[22]

The petitioners also claimed that the CA violated the doctrine of stare
decisis when it ruled that Interserve was a legitimate job contractor.
Citing Coca Cola Bottlers, Philippines, Inc. v. Agito (Agito),[23] the
petitioners argued that because the parties therein were the same parties in
the subject controversy, then the appellate court should have followed
precedent and declared Interserve as a labor-only contractor.[24]

In further support of their claim that Interserve was a labor-only contractor

and that Coca-Cola, as principal, should be made ultimately liable for their
claims, the petitioners asserted that Interserve had no products to
manufacture, sell and distribute to customers and did not perform activities
in its own manner and method other than that dictated by Coca-Cola. They
claimed that it was Coca-Cola that owned the softdrinks, the trucks and the
equipment used by Interserve and that Coca-Cola assigned supervisors to
ensure that the petitioners perform their duties.[25]

Lastly, the petitioners insisted that both Coca-Cola and Interserve should
be made liable for moral and exemplary damages, as well as attorney's fees,
for having transgressed the petitioners' right to security of tenure and due
process.[26]

The Court's Ruling

Essentially, the core issue presented by the foregoing petition is whether

the petitioners were illegally dismissed from their employment with Coca-
Cola. This, in turn, necessitates a determination of the characterization of
the relationship between route-helpers such as the petitioners, and
softdrink manufacturers such as Coca-Cola, notwithstanding the
participation of entities such as ISI, Lipercon, PSI, ROMAC, and Interserve.
The petitioners insist that ISI, Lipercon, PSI, ROMAC, and Interserve are
labor-only contractors, making Coca-Cola still liable for their claims. The
latter, on the other hand, asserts that the said agencies are independent job
contractors and, thus, liable to the petitioners on their own.

Procedural Issues

Before the Court proceeds to resolve the case on its merits, it must first be
pointed out that the petitioners erred in resorting to this petition for review
on certiorari under Rule 45 of the Rules of Court and alleging, at the same
time, that the CA abused its discretion in rendering the assailed decision.

Well-settled is the rule that grave abuse of discretion or errors of

jurisdiction may be corrected only by the special civil action
of certiorari under Rule 65. Such corrective remedies do not avail in a
petition for review on certiorariwhich is confined to correcting errors of
judgment only. Considering that the petitioners have availed of the remedy
under Rule 45, recourse to Rule 65 cannot be allowed either as an add-on
or as a substitute for appeal.[27]

Moreover, it is observed that from a perusal of the petitioners' arguments, it

is quite apparent that the petition raises questions of facts, inasmuch as this
Court is being asked to revisit and assess anew the factual findings of the
CA and the NLRC. The petitioners fundamentally assail the findings of the
CA that the evidence on record did not support their claims for illegal
dismissal against Coca-Cola. In effect, they would have the Court sift
through, calibrate and re-examine the credibility and probative value of the
evidence on record so as to ultimately decide whether or not there is
sufficient basis to hold the respondents accountable for their alleged illegal
dismissal. This clearly involves a factual inquiry, the determination of
which is the statutory function of the NLRC.[28]

Basic is the rule that the Court is not a trier of facts and this doctrine
applies with greater force in labor cases. Questions of fact are for the labor
tribunals to resolve.[29] Only errors of law are generally reviewed in
petitions for review on certiorari under Rule 45 of the Rules of Court.

In exceptional cases, however, the Court may be urged to probe and resolve
factual issues when there is insufficient or insubstantial evidence to support
the findings of the tribunal or the court below, or when too much is
concluded, inferred or deduced from the bare or incomplete facts submitted
by the parties or, where the LA and the NLRC came up with conflicting
positions.[30] In this case, considering the conflicting findings of the LA and
the NLRC on one hand, and the CA on the other, the Court is compelled to
resolve the factual issues along with the legal ones.

Substantial Issues

The Court finds for the petitioners. The reasons are:

First. Contrary to the position taken by Coca-Cola, it cannot be said that

route-helpers, such as the petitioners no longer enjoy the employee-
employer relationship they had with Coca-Cola since they became
employees of Interserve. A cursory review of the jurisprudence regarding
this matter reveals that the controversy regarding the characterization of
the relationship between route-helpers and Coca-Cola is no longer a novel
one.

As early as May 2003, the Court in Magsalin struck down the defense of
Coca-Cola that the complainants therein, who were route-helpers, were its
"temporary" workers. In the said Decision, the Court explained:

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

Art. 280. Regular and Casual Employment. The provisions of written

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

An employment shall be deemed to be casual if it is not covered by the

preceding paragraph: Provided, That, any employee who has rendered at
least one year of service, whether such service is continuous or broken,
shall be considered a regular employee with respect to the activity in which
he is employed and his employment shall continue while such activity
exists.
Coca-Cola Bottlers Phils., Inc. is one of the leading and largest
manufacturers of softdrinks in the country. Respondent workers have long
been in the service of petitioner company. Respondent workers, when
hired, would go with route salesmen on board delivery trucks and
undertake the laborious task of loading and unloading softdrink products of
petitioner company to its various delivery points.

Even while the language of law might have been more definitive, the clarity
of its spirit and intent, i.e., to ensure a "regular" worker's security of tenure,
however, can hardly be doubted. In determining whether an employment
should be considered regular or non-regular, the applicable test is the
reasonable connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer. The
standard, supplied by the law itself, is whether the work undertaken is
necessary or desirable in the usual business or trade of the employer, a fact
that can be assessed by looking into the nature of the services rendered and
its relation to the general scheme under which the business or trade is
pursued in the usual course. It is distinguished from a specific undertaking
that is divorced from the normal activities required in carrying on the
particular business or trade. But, although the work to be performed is only
for a specific project or seasonal, where a person thus engaged has been
performing the job for at least one year, even if the performance is not
continuous or is merely intermittent, the law deems the repeated and
continuing need for its performance as being sufficient to indicate the
necessity or desirability of that activity to the business or trade of the
employer. The employment of such person is also then deemed to be
regular with respect to such activity and while such activity exists.

The argument of petitioner that its usual business or trade is softdrink

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

The repeated rehiring of respondent workers and the continuing need for
their services clearly attest to the necessity or desirability of their services in
the regular conduct of the business or trade of petitioner company. The
Court of Appeals has found each of respondents to have worked for at least
one year with petitioner company. While this Court, in Brent School, Inc.
vs. Zamora, has upheld the legality of a fixed-term employment, it has
done so, however, with a stern admonition that where from the
circumstances it is apparent that the period has been imposed to preclude
the acquisition of tenurial security by the employee, then it should be struck
down as being contrary to law, morals, good customs, public order and
public policy. The pernicious practice of having employees, workers and
laborers, engaged for a fixed period of few months, short of the normal six-
month probationary period of employment, and, thereafter, to be hired on a
day-to-day basis, mocks the law. Any obvious circumvention of the law
cannot be countenanced. The fact that respondent workers have agreed to
be employed on such basis and to forego the protection given to them on
their security of tenure, demonstrate nothing more than the serious
problem of impoverishment of so many of our people and the resulting
unevenness between labor and capital. A contract of employment is
impressed with public interest. The provisions of applicable statutes are
deemed written into the contract, and "the parties are not at liberty to
insulate themselves and their relationships from the impact of labor laws
and regulations by simply contracting with each other."[31]
Shortly thereafter, the Court in Bantolino v. Coca-Cola,[32] among others,
agreed with the unanimous finding of the LA, the NLRC and the CA that the
route-helpers therein were not simply employees of Lipercon, Peoples
Specialist Services, Inc. or ISI, which, as Coca-Cola claimed were
independent job contractors, but rather, those of Coca-Cola itself. In the
said case, the Court sustained the finding of the LA that the testimonies of
the complainants therein were more credible as they sufficiently supplied
every detail of their employment, specifically identifying their
salesmen/drivers were and their places of assignment, aside from the dates
of their engagement and dismissal.

Then in 2008, in Pacquing v. Coca-Cola Philippines, Inc.

(Pacquing),[33] the Court applied the ruling in Magsalin under the principle
of stare decisis et non quieta movere (follow past precedents and do not
disturb what has been settled). It was stressed therein that because the
petitioners, as route helpers, were performing the same functions as the
employees in Magsalin, which were necessary and desirable in the usual
business or trade of Coca- Cola Philippines, Inc., they were considered
regular employees of Coca-Cola entitled to security of tenure.

A year later, the Court in Agito[34] similarly struck down Coca-Cola's

contention that the salesmen therein were employees of Interserve,
notwithstanding the submission by Coca-Cola of their personal data files
from the records of Interserve; their Contract of Temporary Employment
with Interserve; and the payroll records of Interserve. In categorically
declaring Interserve as a labor-only contractor,[35] the Court found that the
work of the respondent salesmen therein, constituting distribution and sale
of Coca-Cola products, was clearly indispensable to the principal business
of petitioner Coca-Cola.[36]

As to the supposed substantial capital and investment required of an

independent job contractor, the Court stated that it "does not set an
absolute figure for what it considers substantial capital for an independent
job contractor, but it measures the same against the type of work which the
contractor is obligated to perform for the principal."[37] The Court reiterated
that the contractor, not the employee, had the burden of proof that it has
the substantial capital, investment and tool to engage in job contracting. As
applied to Interserve, the Court ruled:

The contractor, not the employee, has the burden of proof that it has the
substantial capital, investment, and tool to engage in job contracting.
Although not the contractor itself (since Interserve no longer appealed the
judgment against it by the Labor Arbiter), said burden of proof herein falls
upon petitioner who is invoking the supposed status of Interserve as an
independent job contractor. Noticeably, petitioner failed to submit evidence
to establish that the service vehicles and equipment of Interserve, valued at
P510,000.00 and P200,000.00, respectively, were sufficient to carry out its
service contract with petitioner. Certainly, petitioner could have simply
provided the courts with records showing the deliveries that were
undertaken by Interserve for the Lagro area, the type and number of
equipment necessary for such task, and the valuation of such equipment.
Absent evidence which a legally compliant company could have easily
provided, the Court will not presume that Interserve had sufficient
investment in service vehicles and equipment, especially since respondents'
allegation that they were using equipment, such as forklifts and pallets
belonging to petitioner, to carry out their jobs was uncontroverted.

In sum, Interserve did not have substantial capital or investment in the

form of tools, equipment, machineries, and work premises; and
respondents, its supposed employees, performed work which was directly
related to the principal business of petitioner. It is, thus, evident that
Interserve falls under the definition of a labor-only contractor, under
Article 106 of the Labor Code; as well as Section 5(1) of the Rules
Implementing Articles 106-109 of the Labor Code, as amended.[38]
As for the certification issued by the DOLE stating that Interserve was an
independent job contractor, the Court ruled:

The certification issued by the DOLE stating that Interserve is an

independent job contractor does not sway this Court to take it at face value,
since the primary purpose stated in the Articles of Incorporation of
Interserve is misleading. According to its Articles of Incorporation, the
principal business of Interserve is to provide janitorial and allied services.
The delivery and distribution of Coca-Cola products, the work for which
respondents were employed and assigned to petitioner, were in no way
allied to janitorial services. While the DOLE may have found that the
capital and/or investments in tools and equipment of Interserve were
sufficient for an independent contractor for janitorial services, this does not
mean that such capital and/or investments were likewise sufficient to
maintain an independent contracting business for the delivery and
distribution of Coca-Cola products.[39]
Finally, the Court determined the existence of an employer-employee
relationship between the parties therein considering that the contract of
service between Coca-Cola and Interserve showed that the former indeed
exercised the power of control over the complainants therein.[40]

The Court once more asserted the findings that route-helpers were indeed
employees of Coca-Cola in Coca-Cola Bottlers Philippines, Inc. v. Dela
Cruz[41] and, recently, in Basan v. Coca-Cola Bottlers Philippines,
Inc.[42] and that the complainants therein were illegally dismissed for want
of just or authorized cause. Similar dispositions by the CA were also upheld
by this Court in N.O.W[43] and Ostani,[44] through minute resolutions.

It bears mentioning that the arguments raised by Coca-Cola in the case at

bench even bear a striking similarity with the arguments it raised before the
CA in N.O.W[45] and Ostani.[46]

From all these, a pattern emerges by which Coca-Cola consistently resorts

to various methods in order to deny its route-helpers the benefits of regular
employment. Despite this, the Court, consistent with sound
pronouncements above, adopts the rulings made in Pacquing that
Interserve was a labor-only contractor and that Coca-Cola should be held
liable pursuant to the principle of stare decisis et non quieta movere.

It should be remembered that the doctrine of stare decisis et non quieta

movere is embodied in Article 8 of the Civil Code of the Philippines which
provides:

ART. 8. Judicial decisions applying or interpreting the laws or the

Constitution shall form a part of the legal system of the Philippines.
And, as explained in Fermin v. People:[47]

The doctrine of stare decisis enjoins adherence to judicial precedents. It

requires courts in a country to follow the rule established in a
decision of the Supreme Court thereof. That decision becomes a
judicial precedent to be followed in subsequent cases by all courts in the
land. The doctrine of stare decisis is based on the principle that once a
question of law has been examined and decided, it should be deemed
settled and closed to further argument.[48]

[Emphasis Supplied]
The Court's ruling in Chinese Young Men's Christian Association of the
Philippine Islands v. Remington Steel Corporation is also worth
citing, viz:[49]

Time and again, the court has held that it is a very desirable and
necessary judicial practice that when a court has laid down a principle
of law as applicable to a certain state of facts, it will adhere to that principle
and apply it to all future cases in which the facts are substantially the
same. Stare decisis et non quieta movere. Stand by the decisions and
disturb not what is settled. Stare decisis simply means that for the sake
of certainty, a conclusion reached in one case should be applied
to those that follow if the facts are substantially the same, even
though the parties may be different. It proceeds from the first principle of
justice that, absent any powerful countervailing considerations,
like cases ought to be decided alike. Thus, where the same questions
relating to the same event have been put forward by the parties similarly
situated as in a previous case litigated and decided by a competent
court, the rule of stare decisis is a bar to any attempt to relitigate
the same issue.[50]

[Emphases Supplied]
Verily, the doctrine has assumed such value in our judicial system that the
Court has ruled that "[a]bandonment thereof must be based only on
strong and compelling reasons, otherwise, the becoming virtue of
predictability which is expected from this Court would be immeasurably
affected and the public's confidence in the stability of the solemn
pronouncements diminished."[51] Thus, only upon showing that
circumstances attendant in a particular case override the great benefits
derived by our judicial system from the doctrine of stare decisis, can the
courts be justified in setting it aside.

In this case, Coca-Cola has not shown any strong and compelling reason to
convince the Court that the doctrine of stare decisis should not be applied.
It failed to successfully demonstrate how or why both the LA and the NLRC
committed grave abuse of discretion in sustaining the pleas of the
petitioners that they were its regular employees and not of Interserve.

Second. A reading of the decision of the CA and the pleadings submitted by

Coca-Cola before this Court reveals that they both lean heavily on the
service agreement[52] entered into by Coca-Cola and Interserve; the
admission by Interserve that it paid the petitioners' salaries; and the
affidavit of Sambilay who attested that it was Interserve which exercised the
power of control over the petitioners.

The service agreements entered into by Coca-Cola and Interserve, the

earliest being that dated January 1998,[53](another one dated July 11,
2006)[54] and the most recent one dated March 21, 2007[55] - all reveal
that they were entered into One, after the petitioners were hired by Coca-
Cola (some of whom were hired as early as 1984); Two, after they were
dismissed from their employment sometime in January 2004;
and Three, after the petitioners filed their complaint for illegal dismissal
on November 10, 2006 with the LA.
To quote with approval the observations of the LA:

x x x The most formidable obstacle against the respondent's theory of lack

of employer-employee relationship is that complainants have [been]
performing the tasks of route-helpers for several years and that practically
all of them have been rendering their services as such even before
respondent Interserve entered into a service agreement with
Coca-Cola sometime in 1998. Thus, the complainants in their position
paper categorically stated the record of their service with Coca-Cola as
having started on the following dates: Emmanuel Quintanar - October 15,
1994; Benjamin Durano - November 16, [1987]; Cecilio Delaving - June 10,
1991; Ricardo Gaborni - September 28, 1992; Romel Gerarman - June 20,
1995; Ramilo Gaviola - October 10, 1988; Joel John Aguilar - June 1, 1992;
Restituto Agsalud - September 7, 1989; Martin Celis - August 15, 1995;
Patricio Arios - June 2, 1989; Michael Bello - February 15, 1992; Lorenzo
Quinlog - May 15, 1992; Junne Blaya - September 15, 1997; Santiago
Tolentino, Jr. - May 29, 1989; Nestor Magnaye - February 15, 1996; Arnold
Polvorido - February 8, 1996; Allan Agapito - April 15, 1995; Ariel Baumbad
- January 15, 1995; Jose Lutiya - February 15, 1995; Edgardo Tapalla -
August 15, 1994; Roldan Cadayona - May 14, 1996; Raynaldo Alburo -
September 15, 1996; Rudy Ultra - February 28, 1997; Marcelo Cabili -
November 15, 1995; Arnold Asiaten - May 2, 1992; Raymundo Macaballug -
July 31, 1995; Joel Delena - January 15, 1991; Danilo Oquino - September
15, 1990; Greg Caparas - August 15, 1995; and Romeo Escartin - May 15,
1986.

It should be mentioned that the foregoing allegation of the complainants'

onset of their services with respondent Coca-Cola has been confirmed
by the Bio-Data Sheets submitted in evidence by the said
respondent [Coca-Cola]. Thus, in the Bio-Data Sheet of complainant
Quintanar (Annex "4"), he stated therein that he was in the service of
respondent Coca-Cola continuously from 1993 up to 2002. Likewise,
complainant Quinlog indicated in his Bio-data Sheet submitted to
respondent Interserve that he was already in the employ of respondent
Coca-Cola from 1992 (Annex "12"). Complainant Edgardo Tapalla also
indicated in his Bio-Data Sheet that he was already in the employ of Coca-
Cola since 1995 until he was seconded to Interserve in 2002 (Annex "20").

As a matter of fact, complainants' allegation that they were directly hired by

respondent Coca-Cola and had been working with the latter for quite
sometime when they were subsequently referred to successive agencies
such as Lipercon, ROMAC, People's Services, and most recently,
respondent Interserve, has not been controverted by the
respondents. Even when respondent Coca-Cola filed its reply to the
complainants' position paper, there is nothing therein which disputed
complainant's statements of their services directly with the respondent
even before it entered into service agreement with respondent
Interserve.[56]
As to the payment of salaries, although the CA made mention that it was
Interserve which paid the petitioners' salaries, no reference was made to
any evidence to support such a conclusion. The Court, on the other hand,
gives credence to the petitioners' contention that they were employees of
Coca-Cola. Aside from their collective account that it was Coca-Cola's Route
Supervisors who provided their daily schedules for the distribution of the
company's products, the petitioners' payslips,[57] tax records,[58] SSS[59] and
Pag-Ibig[60] records more than adequately showed that they were being
compensated by Coca-Cola. More convincingly, the petitioners even
presented their employee Identification Cards,[61] which expressly indicated
that they were "[d]irect hire[es]" of Coca-Cola.

As for the affidavit of Sambilay, suffice it to say that the same was bereft of
evidentiary weight, considering that he failed to attest not only that he was
already with Interserve at the time of the petitioners hiring, but also that he
had personal knowledge of the circumstances surrounding the hiring of the
petitioners following their alleged resignation from Coca-Cola.

Third. As to the characterization of Interserve as a contractor, the Court

finds that, contrary to the conclusion reached by the CA, the petitioners
were made to suffer under the prohibited practice of labor-only contracting.
Article 106 of the Labor Code provides the definition of what constitutes
labor-only contracting. Thus:

Article 106. Contractor or subcontractor. - x x x

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

employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such person are performing activities
which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to me workers in the same
manner and extent as if the latter were directly employed by him.
Expounding on the concept, the Court in Agito explained:

The law clearly establishes an employer-employee relationship between the

principal employer and the contractor's employee upon a finding that the
contractor is engaged in "labor-only" contracting. Article 106 of the Labor
Code categorically states: "There is labor-only' contracting where the
person supplying workers to an employer does not have substantial capital
or investment in the form of tools, equipment, machineries, work premises,
among others, and the workers recruited and placed by such persons are
performing activities which are directly related to the principal business of
such employer." Thus, performing activities directly related to the
principal business of the employer is only one of the two
indicators that "labor-only" contracting exists; the other is lack
of substantial capital or investment. The Court finds that both
indicators exist in the case at bar.

[Emphases and Underscoring Supplied]

In this case, the appellate court considered the evidence of Interserve that it
was registered with the DOLE as independent contractor and that it had a
total capitalization of P27,509,716.32 and machineries and equipment
worth P12,538859.55.[62] As stated above, however, the possession of
substantial capital is only one element. Labor-only contracting exists
when any of the two elements is present.[63] Thus, even if the Court would
indulge Coca-Cola and admit that Interserve had more than sufficient
capital or investment in the form of tools, equipment, machineries, work
premises, still, it cannot be denied that the petitioners were performing
activities which were directly related to the principal business of such
employer. Also, it has been ruled that no absolute figure is set for what is
considered 'substantial capital' because the same is measured against the
type of work which the contractor is obligated to perform for the
principal.[64]

More importantly, even if Interserve were to be considered as a legitimate

job contractor, Coca-Cola failed to rebut the allegation that petitioners were
transferred from being its employees to become the employees of ISI,
Lipercon, PSI, and ROMAC, which were labor-only contractors. Well-
settled is the rule that "[t]he contractor, not the employee, has the burden
of proof that it has the substantial capital, investment, and tool to engage in
job contracting."[65] In this case, the said burden of proof lies with Coca-
Cola although it was not the contractor itself, but it was the one invoking
the supposed status of these entities as independent job contractors.

Fourth. In this connection, even granting that the petitioners were last
employed by Interserve, the record is bereft of any evidence that would
show that the petitioners voluntarily resigned from their employment with
Coca-Cola only to be later hired by Interserve. Other than insisting that the
petitioners were last employed by Interserve, Coca-Cola failed not only to
show by convincing evidence how it severed its employer relationship with
the petitioners, but also to prove that the termination of its relationship
with them was made through any of the grounds sanctioned by law.

The rule is long and well-settled that, in illegal dismissal cases such as the
one at bench, the burden of proof is upon the employer to show that the
employees' termination from service is for a just and valid cause.[66] The
employer's case succeeds or fails on the strength of its evidence and not the
weakness of that adduced by the employee,[67] in keeping with the principle
that the scales of justice must be tilted in favor of the latter in case doubts
exist over the evidence presented by the parties.[68]

For failure to overcome this burden, the Court concurs in the observation of
the LA that it was highly inconceivable for the petitioners, who were already
enjoying a stable job at a multi-national company, to leave and become
mere agency workers. Indeed, it is contrary to human experience that one
would leave a stable employment in a company like Coca-Cola, only to
become a worker of an agency like Interserve, and be assigned back to his
original employer — Coca-Cola.

Although it has been said that among the four (4) tests to determine the
existence of any employer-employee relationship, it is the "control test" that
is most persuasive, the courts cannot simply ignore the other circumstances
obtaining in each case in order to determine whether an employer-
employee relationship exists between the parties.

WHEREFORE, the petition is GRANTED. The July 11, 2013 Decision

and the December 5, 2013 Resolution of the Court of Appeals, in CA-G.R.
SP No. 115469 are REVERSED and SET ASIDE and the August 29, 2008
Decision of the Labor Arbiter in NLRC Case Nos. 12-13956-07 and 12-
14277-07, as affirmed in toto by the National Labor Relations Commission,
is hereby REINSTATED.

SO ORDERED.

15)

January 30, 2017

G.R. No. 220617

NESTLE PHILIPPINES, INC., Petitioner,

vs.
BENNY A. PUEDAN, JR., JAYFER D. LIMBO, BRODNEY N. AVILA, ARTHUR C. AQUINO, RYAN
A. MIRANDA, RONALD R. ALAVE, JOHNNY A. DIMAYA, MARLON B. DELOS REYES,
ANGELITO R. CORDOVA, EDGAR S. BARRUGA, CAMILO B. CORDOVA, JR., JEFFRY B.
LANGUISAN, EDISON U. VILLAPANDO, JHEIRNEY S. REMOLIN, MARY LUZ A.
MACATALAD,* JENALYN M. GAMUROT, DENNIS G. BAWAG, RAQUEL A. ABELLERA, and
RICANDRO G. GUATNO, JR., Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1are the Decision2 dated March 26, 2015 and the
Resolution3 dated September 17, 2015 of the Court of Appeals (CA) in CA-G.R. SP No. 132686,
which affirmed the Decision4 dated May 30, 2013 and the Resolution5 dated August 30, 2013 of the
National Labor Relations Commission (NLRC) in LAC No. 02-000699-13/ NCR-03-04761-12,
declaring petitioner Nestle Philippines, Inc. (NPI), jointly and severally liable with Ocho de
Septiembre, Inc. (ODSI) to respondents Benny A. Puedan, Jr., Jayfer D. Limbo, Brodney N. Avila,
Arthur C. Aquino, Ryan A. Miranda, Ronald R. Alave, Johnny A. Dimaya, Marlon B. Delos Reyes,
Angelita R. Cordova, Edgar S. Barruga, Camilo B. Cordova, Jr., Jeffry B. Languisan, Edison U.
Villapando, Jheirney S. Remolin, Mary Luz A. Macatalad, Jenalyn M. Gamurot, Dennis G. Bawag,
Raquel A. Abellera, and Ricandro G. Guatno, Jr. (respondents) for separation pay, nominal
damages, and attorney's fees.

The Facts

The instant case arose from an amended6 complaint7 dated July 6, 2012 for illegal dismissal,
damages, and attorney's fees filed by respondents against, inter alia, ODSI and NPI. Respondents
alleged that on various dates, ODSI and NPI hired them to sell various NPI products in the assigned
covered area. After some time, respondents demanded that they be considered regular employees
of NPI, but they were directed to sign contracts of employment with ODSI instead. When
respondents refused to comply with such directives, NPI and ODSI terminated them from their
position. 8 Thus, they were constrained to file the complaint, claiming that: (a) ODSI is a labor-only
contractor and, thus, they should be deemed regular employees of NPI; and (b) there was no just or
authorized cause for their dismissal.9
For its part, ODSI averred that it is a company engaged in the business of buying, selling,
distributing, and marketing of goods and commodities of every kind and it enters into all kinds of
contracts for the acquisition thereof. ODSI admitted that on various dates, it hired respondents as its
employees and assigned them to execute the Distributorship Agreement10 it entered with NPI, 11 the
relevant portions of which state:

3.1 DISTRIBUTOR (ODSI) shall assign a sales force in his/her regular employ, dedicated solely to
the handling of NPI Grocery Retail Products under this Agreement, and who shall exclusively cover
assigned areas/channels of distribution.

3.2 DISTRIBUTOR shall service the outlets within the Territory by reselling Products obtained
exclusively from Nestle Philippines, Inc. and not from any other source.

3.3 DISTRIBUTOR shall utilize booking and distribution salesmen to

undertake territory development. Booking done by DISTRIBUTOR shall be delivered by its

personnel. Collection of accounts shall be taken cared (sic) of by DISTRIBUTOR, without prejudice
to the provisions of Clause 13 hereof.

3.4 DISTRIBUTOR's route salesmen shall exclusively cover assigned ex-truck areas/channels of
distribution.

3.5 DISTRIBUTOR shall also provide training to its staff or personnel where necessary, to improve
operations in servicing the requirements of DISTRIBUTOR's customers. From time to time, NESTLE
shall offer to DISTRIBUTOR suggestions and recommendations to improve sales and to further
develop the market.

3.6 DISTRIBUTOR shall meet the sales, reach and distribution targets agreed upon by NESTLE and
DISTRIBUTOR. For purposes of this clause, reach targets refer to the number of stores, dealers
and/or outlets which DISTRIBUTOR should cover or service within a particular period. Distribution
targets refer to the number of stock keeping units and/or product lines covered by this Agreement.

In the event of DISTRIBUTOR's failure to meet NESTLE's sales targets, NESTLE has the sole
discretion of assigning another distributor of the Products and/or reducing the Territory covered by
DISTRIBUTOR.

3.7 DISTRIBUTOR agrees to provide at its own cost and expense facilities and other resources
necessary for the distribution and sale of the Products.

3.8 NESTLE's sales personnel may get orders for the Products distributed by DISTRIBUTOR and
pass on the said orders to DISTRIBUTOR.

3.9 NESTLE shall provide the necessary promotional and marketing support for the Products
through promotional materials, product information literature, participation in trade fairs, and other
market development activities.

3.10 Should NESTLE manufacture and/or distribute other products not subject of this Agreement,
which, in NESTLE's opinion, should likewise be extended to DISTRIBUTOR's outlets, such
additional products shall be included among those listed in Annex "A" hereof.
NESTLE shall deliver the Products to DISTRIBUTOR's warehouse(s) at its own expenses.
Immediately upon receipt of the Products, DISTRIBUTOR shall carry out a visual inspection thereof.
In the event any quantity of the Products is found to be defective upon such visual inspection,
NESTLE shall replace such quantity of the Products at no cost to DISTRIBUTOR.

3.11 All costs for transportation and/or shipment of the Products from DISTRIBUTOR's
warehouse(s) to its outlets/customers shall be the account of the DISTRIBUTOR. 12

However, the business relationship between NPI and ODSI turned sour when the former' s sales
department badgered the latter regarding the sales targets. Eventually, NPI downsized its marketing
and promotional support from ODSI which resulted to business reverses and in the latter's filing of a
petition for corporate rehabilitation and, subsequently, the closure of its Nestle unit due to the
termination of the Distributorship Agreement and the failure of rehabilitation. Under the foregoing
circumstances, ODSI argued that respondents were not dismissed but merely put in floating status. 13

On the other hand, NPI did not file any position paper or appear in the scheduled conferences. 14

The Labor Arbiter Ruling

In a Decision15 dated December 28, 2012, the Labor Arbiter (LA) dismissed the complaint for lack of
merit, but nevertheless, ordered, inter alia, ODSI and NPI to pay respondents nominal damages in
the aggregate amount of ₱235,728.00 plus attorney's fees amounting to ten percent (10%) of the
total monetary awards. 16 The LA found that: (a) respondents were unable to prove that they were
NPI employees; and (b) respondents were not illegally dismissed as ODSI had indeed closed down
its operations due to business losses. 17 As to the issue on the failure to give respondents a thirty
(30)-day notice prior to such closure, the LA concluded that all the impleaded respondents
therein (i.e., including NPI) should be held liable for the payment of nominal damages plus attorney's
fees. 18 Aggrieved, respondents appealed to the NLRC.19

The NLRC Ruling

In a Decision20 dated May 30, 2013, the NLRC reversed and set aside the LA ruling and, accordingly,
ordered ODSI and NPI to pay each of the respondents: (a) separation pay amounting to Yi month
pay for every year of service reckoned from the time they were employed until the finality of the
Decision; and (b) nominal damages in the amount of ₱30,000.00. The NLRC likewise ordered NPI
and ODSI to pay respondents attorney's fees amounting to ten percent (10%) of the monetary
awards.21

Contrary to the LA's findings, the NLRC found that while ODSI indeed shut down its operations, it
failed to prove that such closure was due to serious business losses as it did not present
evidence, e.g., financial statements, to corroborate its claims. As such, it ruled that respondents are
entitled to separation pay. In this relation, the NLRC also found that since ODSI failed to notify
respondents of such closure, the latter are likewise entitled to nominal damages.22

Further, the NLRC found ODSI to be a labor-only contractor of NPI, considering that: (a) ODSI had
no substantial capitalization or investment; (b) respondents performed activities directly related to
NPI's principal business; and (c) the fact that respondents' employment depended on the continuous
supply of NPI products shows that ODSI had not been carrying an independent business according
to its own manner and method.23

Consequently, the NLRC deemed NPI to be respondents' true employer, and thus, ordered it jointly
and severally liable with ODSI to pay the monetary claims of respondents. 24
Respondents moved for a partial reconsideration, 25 arguing that since it was only ODSI that closed
down operations and not NPI and, considering the finding that the latter was deemed to be their true
employer, NPI should reinstate them, or if not practicable, to pay them separation pay equivalent to
one (1) month pay for every year of service. NPI also moved for reconsideration,26 contending that:
(a) it was deprived of its right to participate in the proceedings before the LA and the NLRC; and (b)
it had no employer-employee relationship with respondents as ODSI was never its contractor,
whether independent or labor-only.27 However, the NLRC denied both motions in a Resolution28dated
August 30, 2013, holding that: (a) respondents' termination was due to the closure of ODSI's Nestle
unit, an authorized cause and, thus, the monetary awards in their favor were proper; (b) NPI was not
deprived of its right to participate in the proceedings as it was duly served with copies of the parties'
respective pleadings, as well as the rulings of both the LA and the
NLRC; (c) assuming arguendo that NPI was indeed deprived of due process, its subsequent filing of
a motion for reconsideration before the NLRC cured the defect as it was able to argue its position in
the said motion; and (d) the circumstances surrounding the Distributorship Agreement between
ODSI and NPI showed that the former is indeed a labor-only contractor of the latter. 29

Dissatisfied, NPI filed a petition for certiorari30before the CA, essentially insisting that: (a) it was
deprived of due process before the tribunals a quo; and (b) there was no employer-employee
relationship between NPI and respondents. 31 Records reveal that no other party elevated the matter
before the CA.

The CA Ruling

In a Decision32 dated March 26, 2015, the CA affirmed the NLRC ruling. Anent the issue on due
process, the CA held that NPI was not deprived of its opportunity to be heard as it was able to
receive a copy of the complaint and other pleadings, albeit it failed to respond thereto. 33 As regards
the substantive issue, the CA ruled that despite ODSI and NPI's contract being denominated as a
"Distributorship Agreement," it contained provisions demonstrating a labor-only contracting
arrangement between them, as well as NPI' s exercise of control over the business of ODSI.
Moreover, the CA pointed out that: (a) there was nothing in the records which showed that ODSI had
substantial capital to undertake an independent business; and (b) respondents performed tasks
essential to NPI's business.34Undaunted, NPI moved for reconsideration, 35 which was, however,
denied in a Resolution36 dated September 17, 2015; hence, this petition.

The Issues Before the Court

The essential issues for the Court's resolution are whether or not the CA correctly ruled that: (a) NPI
was accorded due process by the tribunals a quo; and (b) ODSI is a labor-only contractor of NPI,
and consequently, NPI is respondents' true employer and, thus, deemed jointly and severally liable
with ODSI for respondents' monetary claims.

The Court's Ruling

To justify the grant of the extraordinary remedy of certiorari, the petitioner must satisfactorily show
that the court or quasi-judicial authority gravely abused the discretion conferred upon it. Grave abuse
of discretion connotes a capricious and whimsical exercise of judgment, done in a despotic manner
by reason of passion or personal hostility, the character of which being so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined by or to act
at all in contemplation of law. 37
In labor disputes, grave abuse of discretion may be ascribed to the NLRC when, inter alia, its
findings and conclusions are not supported by substantial evidence, or that amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion. 38

Guided by the foregoing considerations, the Court finds that the CA was correct in ruling that the
labor tribunals a quo gave NPI an opportunity to be heard. However, it erred in not ascribing grave
abuse of discretion on the NLRC's finding that ODSI is a labor-only contractor of NPI and, thus, the
latter is the respondents' true employer, and jointly and severally liable with ODSI for respondents'
monetary claims. As will be explained hereunder, such finding by the NLRC is not supported by
substantial evidence.

I.

The observance of fairness in the conduct of any investigation is at the very heart of procedural due
process. The essence of due process is to be heard, and, as applied to administrative proceedings,
this means a fair and reasonable opportunity to explain one's side, or an opportunity to seek a
reconsideration of the action or ruling complained of. Administrative due process cannot be fully
equated with due process in its strict judicial sense, for in the former a formal or trial-type hearing is
not always necessary, and technical rules of procedure are not strictly applied.39 The Court's
disquisition in Ledesma v. CA40is instructive on this matter, to wit:

Due process, as a constitutional precept, does not always and in all situations require a trial-type
proceeding. Due process is satisfied when a person is notified of the charge against him and given
an opportunity to explain or defend himself. In administrative proceedings, the filing of charges and
giving reasonable opportunity for the person so charged to answer the accusations against him
constitute the minimum requirements of due process. The essence of due process is simply to be
heard, or as applied to administrative proceedings, an opportunity to explain ones side, or an
opportunity to seek a reconsideration of the action or ruling complained of.41(Emphasis and
underscoring supplied)

In this case, NPI essentially claims that it was deprived of its right to due process when it was not
notified of the proceedings before the LA and did not receive copies and issuances from the other
parties and the LA, respectively.42 However, as correctly pointed out by the CA, NPI was furnished
via courier of a copy of the amended complaint filed by the respondents against it as shown by LBC
Receipt No. 125158910840.43 It is also apparent that NPI was also furnished with the respondents'
Position Paper, Reply, and Rejoinder.44 Verily, NPI was indeed accorded due process, but as the LA
mentioned, the former chose not to file any position paper or appear in the scheduled conferences.45

Assuming arguendo that NPI was somehow deprived of due process

by either of the labor tribunals, such defect was cured by: (a) NPI' s filing of its motion for
reconsideration before the NLRC; (b) the NLRC's subsequent issuance of its Resolution dated
August 30, 2013 wherein the tribunal considered all of NPI's arguments as contained in its motion;
and (c) NPI's subsequent elevation of the case to the CA. In Gonzales v. Civil Service
Commission, 46 the Court reiterated the rule that "[a]ny seeming defect in [the] observance [of due
process] is cured by the filing of a motion for reconsideration," and that "denial of due process
cannot be successfully invoked by a party who [was] afforded the opportunity to be heard x x
x."47 Similarly, in Autencio v. Mañara,48it was held that defects in procedural due process may be
cured when the party has been afforded the opportunity to appeal or to seek reconsideration of the
action or ruling complained of. 49
Evidently, the foregoing shows that NPI was not denied due process of law as it was afforded the fair
and reasonable opportunity to explain its side.

II.

In holding NPI jointly and severally liable with ODSI for the monetary awards in favor of respondents,
both the NLRC and the CA held that based on the provisions of the Distributorship Agreement
between them, ODSI is merely a labor-only contractor of NPI. 50 In this regard, the CA opined that the
following stipulations of the said Agreement evinces that NPI had control over the business of ODSI,
namely, that: (a) NPI shall offer to ODSI suggestions and recommendations to improve sales and to
further develop the market; (b) NPI prohibits ODSI from exporting its products (the No-Export
provision); (c) NPI provided standard requirements to ODSI for the warehousing and inventory
management of the sold goods; and (d) prohibition imposed on ODSI to sell any other products that
directly compete with those of NPI.51

However, a closer examination of the Distributorship Agreement reveals that the relationship of NPI
and ODSI is not that of a principal and a contractor (regardless of whether labor-only or
independent), but that of a seller and a buyer/re-seller. As stipulated in the Distributorship
Agreement, NPI agreed to sell its products to ODSI at discounted prices,52 which in turn will be re-
sold to identified customers, ensuring in the process the integrity and quality of the said products
based on the standards agreed upon by the parties. 53 As aptly explained by NPI, the goods it
manufactures are distributed to the market through various distributors, e.g., ODSI, that in turn, re-
sell the same to designated outlets through its own employees such as the respondents. Therefore,
the reselling activities allegedly performed by the respondents properly pertain to ODSI, whose
principal business consists of the "buying, selling, distributing, and marketing goods and
commodities of every kind" and "[entering] into all kinds of contracts for the acquisition of such goods
[and commodities]."54

Thus, contrary to the CA's findings, the aforementioned stipulations in the Distributorship Agreement
hardly demonstrate control on the part of NPI over the means and methods by which ODSI performs
its business, nor were they intended to dictate how ODSI shall conduct its business as a distributor.
Otherwise stated, the stipulations in the Distributorship Agreement do not operate to control or fix the
methodology on how ODSI should do its business as a distributor of NPI products, but merely
provide rules of conduct or guidelines towards the achievement of a mutually desired result55 - which
in this case is the sale of NPI products to the end consumer. In Steelcase, Inc. v. Design
International Selections, Inc., 56 the Court held that the imposition of minimum standards concerning
sales, marketing, finance and operations are nothing more than an exercise of sound business
practice to increase sales and maximize profits, to wit:

Finally, both the CA and DISI rely heavily on the Dealer Performance Expectation required by
Steelcase of its distributors to prove that DISI was not functioning independently from Steelcase
because the same imposed certain conditions pertaining to business planning, organizational
structure, operational effectiveness and efficiency, and financial stability. It is actually logical to
expect that Steelcase, being one of the major manufacturers of office systems furniture, would
require its dealers to meet several conditions for the grant and continuation of a distributorship
agreement. The imposition of minimum standards concerning sales, marketing, finance and
operations is nothing more than an exercise of sound business practice to increase sales
and maximize profits for the benefit of both Steelcase and its distributors. For as long as
these requirements do not impinge on a distributor's independence, then there is nothing
wrong with placing reasonable expectations on them. 57 (Emphasis and underscoring supplied)
Verily, it was only reasonable for NPI - it being a local arm of one of the largest manufacturers of
foods and grocery products worldwide - to require its distributors, such as ODSI, to meet various
conditions for the grant and continuation of a distributorship agreement for as long as these
conditions do not control the means and methods on how ODSI does its distributorship business, as
shown in this case. This is to ensure the integrity and quality of the products which will ultimately fall
1âwphi1

into the hands of the end consumer.

Thus, the foregoing circumstances show that ODSI was not a labor-only contractor of NPI; hence,
the latter cannot be deemed the true employer of respondents. As a consequence, NPI cannot be
held jointly and severally liable to ODSI's monetary obligations towards respondents.

WHEREFORE, the petition is GRANTED. The Decision dated March 26, 2015 and the Resolution
dated September 17, 2015 of the Court of Appeals in CA-G.R. SP No. 132686 are
hereby REVERSED and SET ASIDE. Accordingly, the Decision dated May 30, 2013 and the
Resolution dated August 30, 2013 of the National Labor Relations Commission in LAC No. 02-
000699-13/ NCR-03-04761-12 are MODIFIED, DELETING petitioner Nestle Philippines, Inc.'s
solidary liability with Ocho de Septiembre, Inc. (ODSI) for the latter's monetary obligations to
respondents Benny A. Puedan, Jr., Jayfer D. Limbo, Brodney N. Avila, Arthur C. Aquino, Ryan A.
Miranda, Ronald R. Alave, Johnny A. Dimaya, Marlon B. Delos Reyes, Angelito R. Cordova, Edgar
S. Barruga, Camilo B. Cordova, Jr., Jeffry B. Languisan, Edison U. Villapando, Jheimey S. Remolin,
Mary Luz A. Macatalad, Jenalyn M. Gamurot, Dennis G. Bawag, Raquel A. Abellera, and Ricandro
G. Guatno, Jr.

SO ORDERED.