PASEI VS.

DRILON
[163 SCRA 386; L-81958; 30 JUN 1988]
Facts: Petitioner, Phil association of Service Exporters, Inc., is engaged principally in the recruitment of
Filipino workers, male and female of overseas employment. It challenges the constitutional validity of
Dept. Order No. 1 (1998) of DOLE entitled “Guidelines Governing the Temporary Suspension of
Deployment of Filipino Domestic and Household Workers.” It claims that such order is
a discrimination against males and females. The Order does not apply to all Filipino workers but only to
domestic helpers and females with similar skills, and that it is in violation of the right to travel, it also
being an invalid exercise of the law-making power. Further, PASEI invokes Sec 3 of Art 13 of the
Constitution, providing for worker participation in policy and decision-making processes affecting their
rights and benefits as may be provided by law. Thereafter the Solicitor General on behalf of DOLE
submitting to the validity of the challenged guidelines involving the police power of the State and
informed the court that the respondent have lifted the deployment ban in some states where there
exists bilateral agreement with the Philippines and existing mechanism providing for sufficient
safeguards to ensure the welfare and protection of the Filipino workers.

Issue: 1. Whether the government is justified in temporary suspending deployment of domestic workers
2. Whether there has been a valid classification in the challenged Department Order No. 1.

Held: 1. YES. The Constitution declares that:

Sec. 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.
"Protection to labor" does not signify the promotion of employment alone. What concerns the
Constitution more paramountly is that such an employment be above all, decent, just, and humane. It is
bad enough that the country has to send its sons and daughters to strange lands because it cannot
satisfy their employment needs at home. Under these circumstances, the Government is duty-bound to
insure that our toiling expatriates have adequate protection, personally and economically, while away
from home. In this case, the Government has evidence, an evidence the petitioner cannot seriously
dispute, of the lack or inadequacy of such protection, and as part of its duty, it has precisely ordered an
indefinite ban on deployment.

2. YES. SC in dismissing the petition ruled that there has been valid classification, the Filipino
female domestics working abroad were in a class by themselves, because of the special risk to which
their class was exposed. There is no question that Order No.1 applies only to female contract workers
but it does not thereby make an undue discrimination between sexes. It is well settled
hat equality before the law under the constitution does not import a perfect identity of rights among all
men and women. It admits of classification, provided that:

1. Such classification rests on substantial distinctions

2. That they are germane to the purpose of the law
3. They are not confined to existing conditions
4. They apply equally to al members of the same class

In the case at bar, the classifications made, rest on substantial distinctions.

Dept. Order No. 1 does not impair the right to travel. The consequence of the deployment ban has on
the right to travel does not impair the right, as the right to travel is subjects among other things, to
the requirements of “public safety” as may be provided by law. Deployment ban of female domestic
helper is a valid exercise of police power. Police power as been defined as the state authority to enact
legislation that may interfere with personal liberty or property in order to promote general welfare.
Neither is there merit in the contention that Department Order No. 1 constitutes an invalid exercise of
legislative power as the labor code vest the DOLE with rule making powers.
 BREWMASTER INTERNATIONAL INC. v. NAFLU
Gr. No. 119243
Facts: Private respondent Estrada is a member of the respondent labor union. He did not report for
work for 1 month due to a grave family problem as his wife deserted him and nobody was there to look
after his children. He was required to explain. Finding his reasons to be unjustified, the petitioner
terminated him, since according to company rules, absence for 6 consecutive days is considered
abandonment of work. Labor arbiter ruled in favour of BrewMaster Inc citing the principle
of managerial control, which recognizes the employer’s prerogative to prescribe reasonable rules and
regulations to govern the conduct of his employees., NLRC overturned the LA’s ruling.

Issue: Whether the NLRC committed grave abuse of discretion in modifying the decision of the Labor
Arbiter

Held: No. While the employer is not precluded from prescribing rules and regulations to govern the
conduct of his employees, these rules and their implementation must be fair, just and reasonable. No
less than the Constitution looks with compassion on the workingman and protects his rights not only
under a general statement of a state policy but under the Article on Social Justice and Human Rights,
thus placing labor contracts on a higher plane and with greater safeguards. Verily, relations between
labor and capital are not merely contractual. They are impressed with public interest and labor contracts
must, perforce, yield to the common good.

Petitioner’s finding that complainant was guilty of abandonment is misplaced. Abandonment as a just
and valid ground for dismissal requires the deliberate, unjustified refusal of the employee to resume his
employment. Two elements must then be satisfied: (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. b) Verily, relations between capital and labor are not merely contractual. They
are impressed with public interest and labor contracts must, perforce, yield to the common good. While
the employer is not precluded from prescribing rules and regulations to govern the conduct of
his employees, these rules and their implementation must be fair, just and reasonable
 LVN PICTURES, INC. vs. PHILIPPINE MUSICIANS Guild
G.R. No. L-12582 January 28, 1961
Facts: Respondent Philippine Musicians Guild (FFW) is a duly registered legitimate labor organization.
LVN Pictures, Inc., Sampaguita Pictures, Inc., and Premiere Productions, Inc. are corporations, duly
organized under the Philippine laws, engaged in the making of motion pictures and in the processing
and distribution thereof. Petitioner companies employ musicians for the purpose of making music
recordings for title music, background music, musical numbers, finale music and other incidental music,
without which a motion picture is incomplete. Ninety-five(95%) percent of all the musicians playing for
the musical recordings of said companies are members of the Guild. The Guild has no knowledge of the
existence of any other legitimate labor organization representing musicians in said companies. Premised
upon these allegations, the Guild prayed that it be certified as the sole and exclusive bargaining agency
for all musicians working in the aforementioned companies. In their respective answers, the latter
denied that they have any musicians as employees, and alleged that the musical numbers in the filing of
the companies are furnished by independent contractors. The lower court sustained the Guild’s theory.
Are consideration of the order complained of having been denied by the Court en banc,LVN Pictures,
inc., and Sampaguita Pictures, Inc., filed these petitions for review for certiorari.

Issue: Whether the musicians in question(Guild members) are “employees “of the petitioner film
companies.

Held: YES The Court agreed with the lower court’s decision, to wit: Lower court resorted to apply R.A.
875 and US Laws and jurisprudence from which said Act was patterned after. (Since statutes are to
be construed in the light of purposes achieved and the evils sought to be remedied). It ruled that the
work of the musical director and musicians is a functional and integral part of the enterprise performed
at the same studio substantially under the direction and control of the company. In other words, to
determine whether a person who performs work for another is the latter's employee or an independent
contractor, the National Labor Relations relies on 'the right to control' test . Under this test
an employer-employee-relationship exist where the person for whom the services are performed
reserves the right to control not only the end to be achieved, but also the manner and means to be
used in reaching the end. (United Insurance Company, 108, NLRB No. 115.).Notwithstanding that
the employees are called independent contractors', the Board will hold them to be employees under the
Act where the extent of the employer's control over them indicates that the relationship is in reality one
of employment. The right of control of the film company over the musicians is shown (1) by calling the
musicians through 'call slips' in 'the name of the company; (2) by arranging schedules in its studio for
recording sessions; (3) by furnishing transportation and meals to musicians; and(4) by supervising and
directing in detail, through the motion picture director, the performance of the musicians before the
camera, in order to suit the music they are playing to the picture which is being flashed on the
screen. The “musical directors” have no such control over the musicians involved in the present case.
Said musical directors control neither the music to be played, nor the musicians playing it. The Premier
Production did not appeal the decision of the Court en banc (that’s why it’s not one of the petitioners in
the case) film companies summon the musicians to work, through the musical directors. The
film companies, through the musical directors, fix the date, the time and the place of work. The film
companies, not the musical directors, provide the transportation to and from the studio. The film
companies furnish meal at dinner time. It is well settled that "an employer-employee relationship exists
. . .where the person for whom the services are performed reserves a right to control not only the end
to be achieved but also the means to be used in reaching such end . . . ." The decisive nature of said
control over the "means to be used", is illustrated in the case of Gilchrist Timber Co., et al., in which, by
reason of said control, the employer-employee relationship was held to exist between the management
and the workers, notwithstanding the intervention of an alleged independent contractor, who had, and
exercise, the power to hire and fire said workers. The aforementioned control over the means to be
used" in reading the desired end is possessed and exercised by the film companies over the musicians in
the cases before us. WHEREFORE, the order appealed from is hereby affirmed, with costs against
petitioners herein. It is so ordered
 MANILA GOLF & COUNTRY CLUB, INC v. INTERMEDIATE APPELLATE COURT and FERMIN LLAMAR
[G.R. No. 64948 September 27, 1994]
Facts: A petition for certification was filed with the Labor Relations Division of the Ministry of Labor by
Philippine Technical, Clerical, Commercial Employees Association (PTCCEA) in behalf of the caddies of
petitioners. The petition was resolved in favor of the caddies. The same union later filed for SSS
coverage but the Social Security Commission denied them for absence of employee employer
relationship.

Issue: Whether persons rendering caddying services in golf clubs are considered employees of such.

Held: NO. The caddies are not employees for the following reasons:-rules and regulations are
permissible means to impose order where the caddies are allowed to pursue their profession within the
club’s premises-they do not observe a particular working hour and are not at the call of the club-the club
has no measure of control over the incidents of the caddies’ work and compensation-the group rotation
system is only an assurance that the work is distributed fairly. Without having to observe any working
hours, free to leave anytime they please, to stay away for as long they like. It is not pretended that if
found remiss in the observance of said rules, any discipline may be meted them beyond barring them
from the premises which, it may be supposed, the Club may do in any case even absent any breach of
the rules, and without violating any right to work on their part. All these considerations clash frontally
with the concept of employment. Decision of the CA reversed and set aside.
 Tan v. Lagrama
G.R. No. 151228 August 15, 2002
Facts: Petitioner Rolando Tan is the president of Supreme Theater Corporation and the general manager
of Crown and Empire Theaters in Butuan City. Private respondent Leovigildo Lagrama is a painter,
making ad billboards and murals for the motion pictures shown at the Empress, Supreme, and Crown
Theaters for more than 10 years, from September 1, 1988 to October 17, 1998. On October 17, 1998
Lagrama was summoned by Tan who accused him of urinating inside the work area, when Lagrama
asked what Tan was saying, Tan told him “I don't want you to draw anymore. From now on, no more
drawing. Get out.!”

Lagrama filed a complaint. He alleged that he had been illegally dismissed and sought reinvestigation
and payment of 13th month pay, service incentive leave pay, salary differential, and damages.
Petitioner Tan denied that Lagrama was his employee. He asserted that Lagrama was an independent
contractor who did his work according to his methods, while he (petitioner) was only interested in the
result thereof. Labor Arbiter Rogelio P. Legaspi rendered a decision declaring complainant's [Lagrama's]
dismissal illegal Petitioner Rolando Tan appealed to the NLRC which rendered a decision finding Lagrama
to be an independent contractor
The Court of Appeals found that petitioner exercised control over Lagrama's work.

Issue: Whether Lagrama is Tan’s employee

Held: YES. In determining whether there is an employer-employee relationship, we have applied a

"four-fold test," to wit: (1) whether the alleged employer has the power of selection and engagement of
employees; (2) whether he has control of the employee with respect to the means and... methods by
which work is to be accomplished; (3) whether he has the power to dismiss; and (4) whether the
employee was paid wages.
These elements of the employer-employee relationship are present in this case.
First: It was petitioner who engaged the services of Lagrama, the evidence shows that the latter
performed his work as painter under the supervision and control of petitioner. Lagrama worked in a
designated work area inside the Crown Theater of petitioner, for the use of which petitioner prescribed
rules. The rules included the observance of cleanliness and hygiene and a prohibition against urinating in
the work area and any place other than the toilet or the rest rooms.9 Petitioner's control over Lagrama's
work extended not only to the use of the work area, but also to the result of Lagrama's work, and the
manner and means by which the work was to be accomplished.
Second: That petitioner had the right to hire and fire was admitted by him in his position paper
submitted to the NLRC
Third: Payment of wages is one of the four factors to be considered in determining the existence of
employer-employee relation. That Lagrama worked for Tan on a fixed piece-work basis is of no moment.
Payment by result is a method of compensation and does not define the essence of the relation.
It is a method of computing compensation, not a... basis for determining the existence or absence of
employer-employee relationship.
In this case, by his refusal to give Lagrama work to do and ordering Lagrama to get out of his sight as the
latter tried to explain his side, petitioner made it plain that Lagrama was dismissed. Urinating in a work
place other than the one designated for the purpose by the employer constitutes violation of reasonable
regulations intended to promote a healthy environment under Art. 282(1) of the Labor Code for
purposes of terminating employment, but the same must be shown by evidence. Here there is no
evidence that Lagrama did urinate in a place.
Tongko v. Manufacturer Life Insurance Corporation

Facts: Tongko was, initially an insurance agent of Manulife who was promoted to the role of a manager. The
contractual relationship between Tongko and Manulife had two basic phases. The initial phase began on July 1,
1977under a Career Agent’s Agreement which regarded him as an independent contractor, not an employee. As
an agent, his tasks were to canvass for applications for insurance products and collect money due to the Company.
The second phase started in 1983 when Tongko was named Unit Manager. In 1990, he became a Branch Manager.
In 1996, Tongko became a Regional Sales Manager, where he earned commissions, persistency income and
management overrides. Since the beginning, Tongko consistently declared himself self-employed in his income tax
returns.

However, in 2001, Manulife instituted manpower development programs which directed the managers to increase
the number of agents to at least 1,000 strong for a start. It was found that Tongko’s region was the lowest
performer in terms of recruiting in 2000. Subsequently, Tongko received another letter, dated December 18, 2001,
terminating his services. Tongko then filed an illegal dismissal complaint with the NLRC Arbitration Branch. He
alleged the existence of an employment relationship. In support of this he asserted that as Unit Manager, he was
paid an annual over-rider, a travel and entertainment allowance in addition to his overriding commissions. He was
tasked with numerous administrative functions and supervisory authority over Manulife’s employees. He was
required to follow at least three codes of conduct. On the other hand, Manulife contended that what existed
between them was a mere agency relationship.

Decisions of the Judicial Tribunals

LA: No employer-employee relationship existed between the parties.

NLRC: It found the existence of an employer-employee relationship. There was illegal dismissal.
CA: It reverted to the labor arbiter’s decision that no employer-employee relationship existed between them.
SC: In reversing the CA ruling, it declared that an employment relationship existed between them. First, there
exists the possibility of an insurance agent becoming an employee of an insurance company if evidence shows 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.

Second, Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown
by the fact that he complied with 3 different codes of conduct and that he performed administrative duties. Also,
Tongko was tasked to recruit some agents in addition to his other administrative functions.

Hence, a Motion for Reconsideration was filed by Manulife and was granted by the SC.

Issue: Whether or not there exists an employer-employee relationship.

SC Ruling: Rules regarding the desired results (e.g., the required volume to continue to qualify as a company agent
& legal/ ethical rules to be 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.
Based on decided 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 this case, 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.

For 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. Significantly, evidence shows
that Tongko’s role as an insurance agent never changed during his relationship with Manulife. 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. For want of a better term, Tongko perhaps could be
labeled as a "lead agent" who guided under his wing other Manulife agents.

Evidence indicates that Tongko consistently clung to the view that he was an independent agent since he invariably
declared himself a business or self-employed person in his income tax returns. The concept of estoppel – a legal
and equitable concept – 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. There was, indeed, lack of evidence on record showing
that Manulife ever exercised means-and-manner control, even to a limited extent, over Tongko during his ascent in
Manulife’s sales ladder. The reality is, prior to the directives sent by De Dios, Manulife had practically left Tongko
alone not only in doing the business of selling insurance, but also in guiding the agents under his wing. In addition,
the mere presentation of codes or of rules and regulations is not per se indicative of labor law control. The codes
of conduct do not intrude into the insurance agents’ means and manner of conducting their sales and only control
them as to the desired results.

Guidelines indicative of labor law "control," based on the case of Insular Life, 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. Hence, the failure of Tongko to comply with the guidelines & directives
of Manulife is recruiting more agents, 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.

SC: Tongko is just an AGENT. In effect, the SC is telling us that, first, there must be an evidence of a contract that
shows that the relationship has been converted from contract of agency to that of employment, which is absent in
the case at bar. Secondly, adherence to a code of conduct is not, per se, indicative of control when it merely
controls the desired results and not the means and the manner by which agents are to conduct their sales. The
directive of De Dios to Tongko (in increasing the number of agents) was merely suggestive. Hence, not indicative of
control.

Insular Life Assurance v. NLRC and Melecio Basiao

Facts: Petitioner Insular Life entered into a contract with respondent Basiao where the latter is authorized to solicit
for insurance policies. Sometime later, the parties entered into another contract which caused Basiao to organize
an agency in order to fulfill its terms. The contract being subsequently terminated by petitioner, Basiao sued the
latter which prompted also for the termination of their engagement under the first contract. Basiao thus filed
before the Ministry of Labor seeking to recover alleged unpaid commissions. Petitioner contends that Basiao is not
an employee but an independent contractor for which they have no obligation to pay said commissions. The Labor
Arbiter found for Basiao ruling that there exists employer-employee relationship between him and petitioner.
NLRC affirmed.

Issue: Whether or not employer-employee relationship existed between petitioner and Basiao.

Ruling: NO. In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (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 employees’ conduct — although the latter is the most important
element. It should, however, be obvious that not every form of control that the hiring party reserves to himself
over the conduct of the party hired in relation to the services rendered may be accorded the effect of establishing
an employer-employee relationship between them in the legal or technical sense of the term.

Rules and regulations governing the conduct of the business are provided for in the Insurance Code and enforced
by the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set
of rules to guide its commission agents in selling its policies that they may not run afoul of the law and what it
requires or prohibits. None of these really invades the agent’s contractual prerogative to adopt his own selling
methods or to sell insurance at his own time and convenience, hence cannot justifiably be said to establish an
employer-employee relationship between him and the company.

The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the Company for
twenty-five years. Whatever this is meant to imply, the obvious reply would be that what is germane here is
Basiao's status under the contract of July 2, 1968, not the length of his relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the petitioner,
but a commission agent, an independent contractor whose claim for unpaid commissions should have been
litigated in an ordinary civil action. The Labor Arbiter erred in taking cognizance of, and adjudicating, said claim,
being without jurisdiction to do so, as did the respondent NLRC in affirming the Arbiter's decision. This conclusion
renders it unnecessary and premature to consider Basiao's claim for commissions on its merits.

Brotherhood Labor Unity Movement of the Phil. v. Zamora

Facts: The petitioners are workers who have been employed at the San Miguel Parola Glass Factory as
“pahinantes” or “kargadors” for almost seven years. They worked exclusively at the SMC plant, never having been
assigned to other companies or departments of San Miguel Corp, even when the volume of work was at its
minimum. Their work was neither regular nor continuous, depending on the volume of bottles to be loaded and
unloaded, as well as the business activity of the company. However, work exceeded the eight-hour day and
sometimes, necessitated work on Sundays and holidays. -for this, they were neither paid overtime nor
compensation.

Sometime in 1969, the workers organized and affiliated themselves with Brotherhood Labor Unity Movement
(BLUM). They wanted to be paid to overtime and holiday pay. They pressed the SMC management to hear their
grievances. BLUM filed a notice of strike with the Bureau of Labor Relations in connection with the dismissal of
some of its members. San Miguel refused to bargain with the union alleging that the workers are not their
employees but the employees of an independent labor contracting firm, Guaranteed Labor Contractor.
The workers were then dismissed from their jobs and denied entrance to the glass factory despite their regularly
reporting for work. A complaint was filed for illegal dismissal and unfair labor practices.

Issue: Whether or not there was employer-employee (ER-EE)relationship between the workers and San Miguel
Corp.

Held: YES. In determining if there is an existence of the (ER-EE) relationship, the four-fold test was used by the
Supreme Court. These are: The selection and engagement of the employee, Payment of wages, Power of
dismissal, Control Test- the employer’s power to control the employee with respect to the means and methods by
which work is to be accomplished.

In the case, the records fail to show that San Miguel entered into mere oral agreements of employment with the
workers. Considering the length of time that the petitioners have worked with the company, there is justification
to conclude that they were engaged to perform activities necessary in the usual business or trade. Despite past
shutdowns of the glass plant, the workers promptly returned to their jobs. The term of the petitioner’s
employment appears indefinite and the continuity and habituality of the petitioner’s work bolsters the claim of an
employee status.

As for the payment of the workers’ wages, the contention that the independent contractors were paid a lump sum
representing only the salaries the workers where entitled to have no merit. The amount paid by San Miguel to the
contracting firm is no business expense or capital outlay of the latter. What the contractor receives is a percentage
from the total earnings of all the workers plus an additional amount from the earnings of each individual worker.

The power of dismissal by the employer was evident when the petitioners had already been refused entry to the
premises. It is apparent that the closure of the warehouse was a ploy to get rid of the petitioners, who were then
agitating the company for reforms and benefits. The inter-office memoranda submitted in evidence prove the
company’s control over the workers. That San Miguel has the power to recommend penalties or dismissal is the
strongest indication of the company’s right of control over the workers as direct employer.

*SC ordered San Miguel to reinstate the petitioners with 3 years backwages.

Sonza vs. ABS-CBN,

Facts: In May 1994, ABS-CBN signed an agreement with the Mel and Jay Management and Development
Corporation (MJMDC). ABS-CBN was represented by its corporate officers while MJMDC was represented by
Sonza, as President and general manager, and Tiangco as its EVP and treasurer. Referred to in the agreement as
agent, MJMDC agreed to provide Sonza’s services exclusively to ABS-CBN as talent for radio and television. ABS-
CBN agreed to pay Sonza a monthly talent fee of P310, 000 for the first year and P317, 000 for the second and
third year. On April 1996, Sonza wrote a letter to ABS-CBN where he irrevocably resigned in view of the recent
events concerning his program and career. After the said letter, Sonza filed with the Department of Labor and
Employment a complaint alleging that ABS-CBN did not pay his salaries, separation pay, service incentive pay,13th
month pay, signing bonus, travel allowance and amounts under the Employees Stock Option Plan (ESOP). ABS-CBN
contended that no employee-employer relationship existed between the parties. However, ABS-CBN continued to
remit Sonza’s monthly talent fees but opened another account for the same purpose.

The Labor Arbiter dismissed the complaint and found that there is no employee-employer relationship. NLRC
affirmed the decision of the Labor Arbiter. CA also affirmed the decision of NLRC.
Ruling: No, case law has consistently held that the elements of an employee-employer relationship are selection
and engagement of the employee, the payment of wages, the power of dismissal and the employer’s power to
control the employee on the means and methods by which the work is accomplished. The last element, the so-
called "control test", is the most important element. Sonza’s services to co-host its television and radio programs
are because of his peculiar talents, skills and celebrity status. 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. All the talent fees and
benefits paid to SONZA were the result of negotiations that led to the Agreement. For violation of any provision of
the Agreement, either party may terminate their relationship. Applying the control test to the present case, we
find that SONZA is not an employee but an independent contractor.

The control test is the most important test our courts apply in distinguishing an employee from an independent
contractor. This test is based on the extent of control the hirer exercises over a worker. The greater the supervision
and control the hirer exercises, the more likely the worker is deemed an employee. The converse holds true as well
– the less control the hirer exercises, the more likely the worker is considered an independent contractor. To
perform his work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television,
and sounded on radio were outside ABS-CBN’s control. ABS-CBN did not instruct SONZA how to perform his job.
ABS-CBN merely reserved the right to modify the program format and airtime schedule "for more effective
programming." ABS-CBN’s sole concern was the quality of the shows and their standing in the ratings. Clearly, ABS-
CBN did not exercise control over the means and methods of performance of Sonza’s work. A radio broadcast
specialist who works under minimal supervision is an independent contractor. Sonza’s work as television and radio
program host required special skills and talent, which SONZA admittedly possesses. ABS-CBN claims that there
exists a prevailing practice in the broadcast and entertainment industries to treat talents like Sonza as independent
contractors. The right of labor to security of tenure as guaranteed in the Constitution arises only if there is an
employer-employee relationship under labor laws. Individuals with special skills, expertise or talent enjoy the
freedom to offer their services as independent contractors. The right to life and livelihood guarantees this freedom
to contract as independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an independent contractor.

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

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

FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY MAGALLANES AND 4 OTHERS,
CLAUDIO BONGO, EDUARDO ANDALES and 4 OTHERS, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION (3rd DIVISION), GENERAL MILLING CORPORATION and/or FELICIANO LUPO, respondents.

Facts: In 1983, private respondent Feliciano LUPO, a building contractor, entered into a contract with GMC, a
domestic corporation engaged in flour and feeds manufacturing, for the construction of an annex building inside
the latter's plant in Cebu City. In connection with the aforesaid contract, LUPO hired herein petitioners either as
carpenters, masons or laborers. Subsequently, LUPO terminated petitioners' services, on different dates. As a
result, petitioners filed Complaints against LUPO and GMC before the NLRC Regional Arbitration Branch No. VII,
Cebu City, for unpaid wages, COLA differentials, bonus and overtime pay.

Executive Labor Arbiter found LUPO and GMC jointly and severally liable to petitioners, premised on Article 109 of
the Labor Code. Upon MR the Third Division absolved GMC from any liability. It opined that petitioners were only
hired by LUPO as workers in his construction contract with GMC and were never meant to be employed by the
latter. Petitioners contend that GMC is jointly and severally liable with LUPO for the latter's obligations to them.
They seek recovery from GMC based on Article 106 which holds the employer jointly and severally liable with his
contractor for unpaid wages of employees of the latter. Both GMC and the NLRC maintain that Article 106 finds no
application in the instant case because it is limited to situations where the work being performed by the
contractor's employees are directly related to the principal business of the employer.

Issue: Whether or not GMC is solidarily liable with Lupo’s obligation?

Ruling: Yes, Recovery, however, should not be based on Article 106 of the Labor Code. This provision treats
specifically of "labor-only" contracting, which is not the set-up between GMC and LUPO. Instead, it is "job
contracting” under Article 107. Specifically, there is "job contracting" where (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. It may be that LUPO subsequently ran out of capital and was
unable to satisfy the award to petitioners. That was an after-the-fact development, however, and does not detract
from his status as an independent contractor.

Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a contract with an independent
contractor, LUPO, for the construction of an annex building, a work, task, job or project not directly related to
GMC's business of flour and feeds manufacturing. Being an "indirect employer," GMC is solidarily liable with LUPO
for any violation of the Labor Code pursuant to Article 109. The distinction between Articles 106 and 107 was in
the fact that Article 106 deals with "labor-only" contracting. Here, by operation of law, the contractor is merely
considered as an agent of the employer, who is deemed "responsible to the workers to the same extent as if the
latter were directly employed by him." On the other hand, Article 107 deals with "job contracting." In the latter
situation, while the contractor himself is the direct employer of the employees, the employer is deemed, by
operation of law, as an indirect employer. In "job contracting," no employer-employee relationship exists between
the owner and the employees of his contractor. The owner of the project is not the direct employer but merely an
indirect employer, by operation of law, of his contractor's employees. As an indirect employer, and for purposes of
determining the extent of its civil liability, GMC is deemed a "direct employee" of his contractor's employee
pursuant to the last sentence of Article 109 of the Labor Code. Having failed to require LUPO to post such a bond,
GMC must answer for whatever liabilities LUPO may have incurred to his employees. This is without prejudice to
its seeking reimbursement from LUPO for whatever amount it will have to pay petitioners.
ALEXANDER VINOYA, Petitioner, v. NATIONAL LABOR RELATIONS
COMMISSION, REGENT FOOD CORPORATION AND/OR RICKY SEE (PRESIDENT),
Respondents.

FACTS

Private respondent RFC thru Ricky See, the President, was sued by Vinoya who
worked with them as sales representative until his services were terminated. He was
assigned to various supermarkets where he booked sales orders and collected
payments. Petitioner contends that he was under the direct control and supervision
plant manager and senior salesman of RFC. Thereafter he was transferred by RFC to
PMCI, an agency which provides RFC with additional contractual workers pursuant to
a Contract of Service. After his transfer to PMCI, petitioner was allegedly reassigned to
RFC as sales representative. Subsequently, he was informed by the personnel
manager of RFC that his services were terminated due to the expiration of the
Contract of Service between RFC and PMCI. Petitioner claims that he was dismissed
from employment despite the absence of any notice or investigation.

Private respondent Regent Food Corporation, on the other hand, maintains that no
employer-employee relationship existed between petitioner and itself as he is an
employee of PMCI, which had a Contract of Service with RFC. It avers that petitioner
was issued an ID card so that its clients, and customers would recognize him as a
duly authorized representative of RFC. With regard to the P200 monthly bond posted
by petitioner was required in order to guarantee the turnover of his collection since he
handled funds of RFC. RFC admits that it had control and supervision over petitioner
but was exercised in coordination with PMCI. Finally, RFC contends that the
termination of its relationship with petitioner was brought about by the expiration of
the Contract of Service between itself and PMCI and not because petitioner was
dismissed from employment.

Labor Arbiter rendered a decision, in favor of petitioner reasoning that RFC was the
true employer of petitioner. NLRC reversed the findings of the Labor Arbiter on the
ground that PMCI is an independent contractor because it has substantial capital and,
as such, is the true employer of petitioner.

ISSUE

1. Whether PMCI is a labor-only contractor or an independent contractor.

RULING

NO. PMCI is engaged in labor-only contracting. 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;
 (b) 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.

On the other hand, permissible job 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. A person is
considered engaged in legitimate job contracting or subcontracting if the following
conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent business and
undertakes to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the control and direction of
the principal in all matters connected with the performance of the work except as to the results
thereof;

(b) The contractor or subcontractor has substantial capital or investment; and

(c) The agreement between the principal and contractor or subcontractor assures the
contractual employees entitlement to all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure, and social and welfare benefits.

It is not enough to show substantial capitalization or investment in the form of tools,

equipment, machineries and work premises, among others, to be considered as an
independent contractor. In fact, jurisprudential holdings are to the effect that in
determining the existence of an independent contractor relationship, several factors
might be considered such as, but not necessarily confined to, whether 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, among others.

First of all, PMCI does not have substantial capitalization or investment in the form of
tools, equipment, machineries, and work premises, among others, to qualify as an
independent contractor. While it has an authorized capital stock of P1,000,000.00,
only P75,000.00 is actually paid-in, which, to our mind, cannot be considered as
substantial capitalization. Second, PMCI did not carry on an independent business
nor did it undertake the performance of its contract according to its own manner and
method, free from the control and supervision of its principal, RFC. Third, PMCI was
not engaged to perform a specific and special job or service as the sole undertaking of
PMCI was to provide RFC with a temporary workforce able to carry out whatever
service may be required by it. Lastly, in labor-only contracting, the employees
recruited, supplied or placed by the contractor perform activities which are directly
related to the main business of its principal. Based on the foregoing, PMCI can only be
classified as a labor-only contractor and, as such, cannot be considered as the
employer of petitioner.
VIRGINIA G. NERI and JOSE CABELIN, vs. NATIONAL LABOR RELATIONS
COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and BUILDING CARE
CORPORATION - G.R. Nos. 97008-09 July 23, 1993

FACTS

Petitioners Virginia G. Neri and Jose Cabelin were hired by respondent BCC, a
corporation engaged in providing technical, maintenance, engineering, housekeeping,
security and other specific services to its clientele. They were assigned to work in the
Cagayan de Oro City Branch of FEBTC, Neri a radio/telex operator and Cabelin as
janitor. Then, the petitioners instituted complaints against FEBTC and BCC before
Regional Arbitration Branch of the Department of Labor and Employment to compel
the bank to accept them as regular employees and for it to pay the differential between
the wages being paid them by BCC and those received by FEBTC employees with
similar length of service.

BCC, in the proceedings below, established that it had substantial capitalization of P1

Million or a stockholders equity of P1.5 Million. Thus the Labor Arbiter dismissed the
complaint for lack of merit, reasoning that BCC was only job contracting and that
consequently its employees were not employees of FEBTC. On appeal, this factual
finding was affirmed by respondent National Labor Relations Commission (NLRC, for
brevity). Nevertheless, petitioners insist before us that BCC is engaged in "labor-only"
contracting hence, they conclude, they are employees of respondent FEBTC.

ISSUE

WON BCC in engaged in "labor-only" contracting because it failed to adduce evidence

purporting to show that it invested in the form of tools, equipment, machineries, work
premises and other materials which are necessary in the conduct of its business

RULING

NO. Respondent BCC need not prove that it made investments in the form of tools,
equipment, machineries, work premises, among others, because it has established
that it has sufficient capitalization. The Labor Arbiter and the NLRC both determined
that BCC had a capital stock of P1 million fully subscribed and paid for.7 BCC is
therefore a highly capitalized venture and cannot be deemed engaged in "labor-only"
contracting.

It is well-settled that there is "labor-only" contracting where: (a) the person supplying
workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others; and, (b) the workers
recruited and placed by such person are performing activities which are directly
related to the principal business of the employer.

Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it

has substantial capital. In other words, the law does not require both substantial
capital and investment in the form of tools, equipment, machineries, etc. This is clear
from the use of the conjunction "or". If the intention was to require the contractor to
prove that he has both capital and the requisite investment, then the conjunction
"and" should have been used. But, having established that it has substantial capital, it
was no longer necessary for BCC to further adduce evidence to prove that it does not
fall within the purview of "labor-only" contracting. There is even no need for it to refute
petitioners' contention that the activities they perform are directly related to the
principal business of respondent bank.

In fact, the status of BCC as an independent contractor was previously confirmed by

this Court in Associated Labor Unions-TUCP v. National Labor Relations
Commission, 13 where we held thus —

The public respondent ruled that the complainants are not employees of
the bank but of the company contracted to serve the bank. Building Care
Corporation is a big firm which services, among others, a university, an
international bank, a big local bank, a hospital center, government
agencies, etc. It is a qualified independent contractor. The public
respondent correctly ruled against petitioner's contentions . . . .
(Emphasis supplied).
SAN MIGUEL CORPORATION, petitioner, vs. MAERC INTEGRATED SERVICES, INC
et. al. - G.R. No. 144672 July 10, 2003

FACTS

291 workers filed complaints against SMC and Maerc Integrated Services, Inc., for
illegal dismissal, underpayment of wages, non-payment of service incentive leave pays
and other labor standards benefits, and for separation pays. The complainants alleged
that they were hired by SMC through its agent or intermediary MAERC to work in two
2 plants: one, inside the SMC premises at the Mandaue Container Services, and
another, in the Philphos Warehouse owned by MAERC. They washed and segregated
various kinds of empty bottles used by SMC. Complainants alleged that long before
SMC contracted the services of MAERC a majority of them had already been working
for SMC under the guise of being employees of another contractor, Jopard Services,
until the services of the latter were terminated on 31 January 1988. SMC denied
liability for the claims and averred that the complainants were not its employees but of
MAERC, an independent contractor whose primary corporate purpose was to engage
in the business of cleaning, receiving, sorting, classifying, etc., glass and metal
containers, as SMC entered ONLY into a Contract of Services with MAERC. However,
SMC informed MAERC of the termination of their service contract due to the
installation of labor and cost-saving devices. as such, the complainants claimed that
SMC stopped them from performing their jobs; that this was tantamount to their being
illegally dismissed by SMC who was their real employer as their activities were directly
related, necessary and desirable to the main business of SMC.

Labor Arbiter rendered a decision holding that MAERC was an independent

contractor. He dismissed the complaints for illegal dismissal but ordered MAERC to
pay complainants' separation benefits. The National Labor Relations Commission
(NLRC) ruled that MAERC was a labor-only contractor and that complainants were
employees of SMC.

ISSUE

1. WON the complainants are employees of petitioner SMC or of respondent

MAERC.
2. WON the MAERC are engaged in labor-only contracting, thereby resulting in
SMC’s liability for the employees’ claims.

RULING
1. YES. Evidence discloses that petitioner played a large and indispensable part
in the hiring of MAERC's workers. It also appears that majority of the complainants
had already been working for SMC long before the signing of the service contract
between SMC and MAERC. The incorporators of MAERC admitted having supplied and
recruited workers for SMC even before MAERC was created. As for the payment of
workers' wages, it is conceded that MAERC was paid in lump sum but records suggest
that the remuneration was not computed merely according to the result or the volume
of work performed. The memoranda of the labor rates bearing the signature of a Vice-
President and General Manager for the Vismin Beer Operations 12 as well as a director
of SMC13 appended to the contract of service reveal that SMC assumed the
responsibility of paying for the mandated overtime, holiday and rest day pays of the
MAERC workers.14 SMC also paid the employer's share of the SSS and Medicare
contributions. In deciding the question of control, the language of the contract is not
determinative of the parties' relationship; rather, it is the totality of the facts and
surrounding circumstances of each case. SMC maintained a constant presence in the
workplace through its own checkers. But the most telling evidence is a letter by Vice-
President of MAERC to SMC President and Chief Executive Officer, asking the latter to
reconsider the phasing out of SMC's segregation activities in Mandaue City.

2. YES. In determining the existence of an independent contractor relationship,

several factors may be considered, such as, but not necessarily confined to, whether
the contractor was 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 specified pieces of work; the control and supervision of the
workers; the power of the employer with respect to the hiring, firing and payment of
the workers of the contractor; the control of the premises; the duty to supply premises,
tools, appliances, materials and labor; and the mode, manner and terms of payment.

MAERC displayed the characteristics of a labor-only contractor. Moreover, while

MAERC's investments in the form of buildings, tools and equipment amounted to more
than P4 Million, we cannot disregard the fact that it was the SMC which required
MAERC to undertake such investments under the understanding that the business
relationship between petitioner and MAERC would be on a long term basis. 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.

In legitimate job 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.

On the other hand, 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.

This distinction between job contractor and labor-only contractor, however, will not
discharge SMC from paying the separation benefits of the workers, inasmuch as
MAERC was shown to be a labor-only contractor; in which case, petitioner's liability is
that of a direct employer and thus solidarily liable with MAERC.

ROLANDO SASAN, SR., LEONILO DAYDAY, MODESTO AGUIRRE, ALEJANDRO

ARDIMER, ELEUTERIO SACIL, WILFREDO JUEGOS, PETRONILO CARCEDO and
CESAR PACIENCIA, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION
4TH DIVISION, EQUITABLE-PCI BANK and HELPMATE, INC.,respondents.

G.R. No. 176240 October 17, 2008

FACTS

Equitable-PCI Bank entered into a Contract for Services4 with HI providing janitorial
and messengerial services. Pursuant to their contract, HI shall hire and assign
workers to E-PCIBank to perform janitorial/messengerial and maintenance services.
The contract was impliedly renewed year after year. Petitioners were among those
employed and assigned to E-PCIBank at its branch along Gorordo Avenue, Lahug,
Cebu City, as well as to its other branches in the Visayas. Thereafter, petitioners filed
with the NLRC in Cebu City against E-PCIBank and HI for illegal dismissal, with
claims for separation pay, service incentive leave pay, allowances by reason that they
had become regular employees of E-PCIBank with respect to the activities for which
they were employed, having continuously rendered janitorial and messengerial
services to the bank for more than one year; that E-PCIBank had direct control and
supervision over the means and methods by which they were to perform their jobs;
and that their dismissal by HI was null and void because the latter had no power to do
so since they had become regular employees of E-PCIBank.

HI, on the other hand, asserted that it was an independent job contractor engaged in
the business of providing janitorial and related services to business establishments,
and E-PCIBank was one of its clients ad that the petitioners were assigned to new
work assignments and were not dismissed, but the latter refused to comply with the
same.

LA= HI was not a legitimate job contractor as it did not possess the required
substantial capital or investment to actually perform the job, work, or service under
its own account and responsibility as required under the Labor Code. HI is therefore a
labor-only contractor and the real employer of petitioners is E-PCIBank which is held
liable to petitioners.
NLRC = modified the ruling; The NLRC took into consideration the documentary
evidence presented by HI for the first time on appeal and, on the basis thereof,
declared HI as a highly capitalized venture with sufficient capitalization, which cannot
be considered engaged in "labor-only contracting."

CA = affirmed the findings of the NLRC that HI was a legitimate job contractor and
that it did not illegally dismiss petitioners

ISSUE:

WON HI is a labor-only contactor and E-PCIBank should be deemed petitioners’

principal employer; and whether petitioners were illegally dismissed from their
employment.

RULING

NO. Permissible job contracting or subcontracting refers to an arrangement whereby a

principal agrees to put out or farm out to 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. 35 A person is
considered engaged in legitimate job contracting or subcontracting if the following
conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent

business and undertakes to perform the job, work or service on its own account
and under its own responsibility according to its own manner and method, and
free from the control and direction of the principal in all matters connected with
the performance of the work except as to the results thereof;

(b) The contractor or subcontractor has substantial capital or investment; and

(c) The agreement between the principal and contractor or subcontractor

assures the contractual employees entitlement to all labor and occupational
safety and health standards, free exercise of the right to self-organization,
security of tenure, and social and welfare benefits.

In contrast, 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.37 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 are performing activities which are directly related to the main
business of the principal.
In the case at bar, we find substantial evidence to support the finding of the NLRC,
affirmed by the Court of Appeals, that HI is a legitimate job contractor. HI is carrying
on a distinct and independent business from E-PCIBank. The employees of HI are
assigned to clients to perform janitorial and messengerial services, clearly
distinguishable from the banking services in which E-PCIBank is engaged.

"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. HI has
substantial capital in the amount of ₱20,939,935.72. It has its own building where it
holds office and it has been engaged in business for more than a decade now. 51 As
observed by the Court of Appeals, surely, such a well-established business entity
cannot be considered a labor-only contractor.

CHERRY J. PRICE, vs INNODATA PHILS. INC.,/ INNODATA CORPORATION, LEO

RABANG AND JANE NAVARETTE,

FACTS

INNODATA Corporation employed encoders, indexers, formatters, programmers,

and quality/quantity staff, such as the petitioners for a period of one year. Once they
finished the job for one client, they were immediately assigned to do a new job for
another client. Then, the HRAD Manager of INNODATA wrote petitioners informing
them of their last day of work prompting the petitioners filed a Complaint 6 for illegal
dismissal and damages against respondents. Petitioners claimed that they should be
considered regular employees since their positions as formatters were necessary and
desirable to the usual business of INNODATA as an encoding, conversion and data
processing company. They argued that they could not be considered project employees
considering that their employment was not coterminous with any project or
undertaking, the termination of which was predetermined.

Due to the wide range of services rendered to its clients, INNODATA was
constrained to hire new employees for a fixed period of not more than one year.
Respondents asserted that petitioners were not illegally dismissed, for their
employment was terminated due to the expiration of their terms of employment.

Labor Arbiter = complaint for illegal dismissal and damages is meritorious as

petitioners occupied jobs that were necessary, desirable, and indispensable to the data
processing and encoding business of INNODATA.

NLRC = reversed the LA Decision and absolved INNODATA of the charge of illegal
dismissal as they were fixed-term employees as stipulated in their respective contracts
of employment.

Court of Appeals =sustaining the ruling of the NLRC

ISSUE
WON petitioners were hired by INNODATA under valid fixed-term employment
contracts.

RULING

NO. The employment status of a person is defined and prescribed by law and not by
what the parties say it should be.19 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.

Regular employment has been defined by Article 280 of the Labor Code . Based on the
afore-quoted provision, the following employees are accorded regular status: (1) those
who are engaged to perform activities which are necessary or desirable in the usual
business or trade of the employer, regardless of the length of their employment; and
(2) those who were initially hired as casual employees, but have rendered at least one
year of service, whether continuous or broken, with respect to the activity in which
they are employed.

The applicable test to determine whether an employment should be considered regular

or non-regular is the reasonable connection between the particular activity performed
by the employee in relation to the usual business or trade of the employer. In the case
at bar, petitioners were employed by INNODATA as formatters. The primary business
of INNODATA is data encoding, and the formatting of the data entered into the
computers is an essential part of the process of data encoding.

However, it is also true that while certain forms of employment require the
performance of usual or desirable functions and exceed one year, these do not
necessarily result in regular employment under Article 280 of the Labor Code. While
this Court has recognized the validity of fixed-term employment contracts, it has
consistently held that this is the exception rather than the general rule. More
importantly, a fixed-term employment is valid only under certain circumstances.
In Brent, the very same case invoked by respondents, the Court identified several
circumstances wherein a fixed-term is an essential and natural appurtenance, to
wit:

overseas employment contracts, for one, to which, whatever the nature of the engagement, the concept of
regular employment with all that it implies does not appear ever to have been applied, Article 280 of the
Labor Code notwithstanding; also appointments to the positions of dean, assistant dean, college secretary,
principal, and other administrative offices in educational institutions, which are by practice or tradition
rotated among the faculty members, and where fixed terms are a necessity without which no reasonable
rotation would be possible.

As a matter of fact, the Court, in its oft-quoted decision in Brent, also issued a stern
admonition that where, if it is apparent that the period was 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 employment contract was also altered as to look like the employees started at a
later date so that they would not purport to have actually started at 16 February
1999, as the date of the contract was merely crossed out and replaced with 6
September 1999. Such modification and denial by respondents as to the real
beginning date of petitioners’ employment contracts render the said contracts
ambiguous.