Republic of the Philippines Wala siyang tanggap ng utos mula sa superbisor at wala siyang experiensa kung papaano gamitin
SUPREME COURT and "TOOL" sa pagbuhat ng salamin, sarili niyang desisyon ang paggamit ng tool at may
Manila
FIRST DIVISION
G.R. No. 114337 September 29, 1995
NITTO ENTERPRISES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and ROBERTO CAPILI, respondents.
KAPUNAN, J.:
This petition for certiorari under Rule 65 of the Rules of Court seeking to annul the
decision1 rendered by public respondent National Labor Relations Commission, which reversed
the decision of the Labor Arbiter.
Briefly, the facts of the case are as follows:
Petitioner Nitto Enterprises, a company engaged in the sale of glass and aluminum products, hired
Roberto Capili sometime in May 1990 as an apprentice machinist, molder and core maker as
evidenced by an apprenticeship agreement2 for a period of six (6) months from May 28, 1990 to
November 28, 1990 with a daily wage rate of P66.75 which was 75% of the applicable minimum
wage.
At around 1:00 p.m. of August 2, 1990, Roberto Capili who was handling a piece of glass which he
was working on, accidentally hit and injured the leg of an office secretary who was treated at a
nearby hospital.
Later that same day, after office hours, private respondent entered a workshop within the office
premises which was not his work station. There, he operated one of the power press machines
without authority and in the process injured his left thumb. Petitioner spent the amount of
P1,023.04 to cover the medication of private respondent.
The following day, Roberto Capili was asked to resign in a letter3 which reads:
August 2, 1990
disgrasya at nadamay pa ang isang sekretarya ng kompanya.
Sa araw ding ito limang (5) minute ang nakakalipas mula alas-singko ng hapon
siya ay pumasok sa shop na hindi naman sakop ng kanyang trabaho.
Pinakialaman at kinalikot ang makina at nadisgrasya niya ang kanyang sariling
kamay.
Nakagastos ang kompanya ng mga sumusunod:
Emergency and doctor fee P715.00
Medecines (sic) and others 317.04
Bibigyan siya ng kompanya ng Siyam na araw na libreng sahod hanggang
matanggal ang tahi ng kanyang kamay.
Tatanggapin niya ang sahod niyang anim na araw, mula ika-30 ng Hulyo at ika-4
ng Agosto, 1990.
Ang kompanya ang magbabayad ng lahat ng gastos pagtanggal ng tahi ng
kanyang kamay, pagkatapos ng siyam na araw mula ika-2 ng Agosto.
Sa lahat ng nakasulat sa itaas, hinihingi ng kompanya ang kanyang resignasyon,
kasama ng kanyang comfirmasyon at pag-ayon na ang lahat sa itaas ay totoo.
Naiintindihan ko ang lahat ng nakasulat sa itaas, at ang lahat ng ito ay aking pagkakasala sa hindi
pagsunod sa alintuntunin ng kompanya.
(Sgd.) Roberto Capili
Roberto Capili
On August 3, 1990 private respondent executed a Quitclaim and Release in favor of petitioner for
and in consideration of the sum of P1,912.79.4
Three days after, or on August 6, 1990, private respondent formally filed before the NLRC
Arbitration Branch, National Capital Region a complaint for illegal dismissal and payment of other
monetary benefits.
On October 9, 1991, the Labor Arbiter rendered his decision finding the termination of private
respondent as valid and dismissing the money claim for lack of merit. The dispositive portion of the
ruling reads:
 WHEREFORE, premises considered, the termination is valid and for cause, and
the money claims dismissed for lack of merit.
The respondent however is ordered to pay the complainant the amount of
P500.00 as financial assistance.
SO ORDERED.5
Labor Arbiter Patricio P. Libo-on gave two reasons for ruling that the dismissal of Roberto Capilian
was valid. First, private respondent who was hired as an apprentice violated the terms of their
agreement when he acted with gross negligence resulting in the injury not only to himself but also
to his fellow worker. Second, private respondent had shown that "he does not have the proper
attitude in employment particularly the handling of machines without authority and proper training. 6
On July 26, 1993, the National Labor Relations Commission issued an order reversing the
decision of the Labor Arbiter, the dispositive portion of which reads:
WHEREFORE, the appealed decision is hereby set aside. The respondent is
hereby directed to reinstate complainant to his work last performed with
backwages computed from the time his wages were withheld up to the time he is
actually reinstated. The Arbiter of origin is hereby directed to further hear
complainant's money claims and to dispose them on the basis of law and
evidence obtaining.
SO ORDERED.7
The NLRC declared that private respondent was a regular employee of petitioner
by ruling thus:
As correctly pointed out by the complainant, we cannot understand how an
apprenticeship agreement filed with the Department of Labor only on June 7,
1990 could be validly used by the Labor Arbiter as basis to conclude that the
complainant was hired by respondent as a plain "apprentice" on May 28, 1990.
Clearly, therefore, the complainant was respondent's regular employee under
Article 280 of the Labor Code, as early as May 28,1990, who thus enjoyed the
security of tenure guaranteed in Section 3, Article XIII of our 1987 Constitution.
The complainant being for illegal dismissal (among others) it then behooves upon
respondent, pursuant to Art. 227(b) and as ruled in Edwin Gesulgon vs. NLRC, et
al. (G.R. No. 90349, March 5, 1993, 3rd Div., Feliciano, J.) to prove that the
dismissal of complainant was for a valid cause. Absent such proof, we cannot but
rule that the complainant was illegally dismissed.8
On January 28, 1994, Labor Arbiter Libo-on called for a conference at which only private
respondent's representative was present.
On April 22, 1994, a Writ of Execution was issued, which reads:
NOW, THEREFORE, finding merit in [private respondent's] Motion for Issuance
of the Writ, you are hereby commanded to proceed to the premises of [petitioner]
Nitto Enterprises and Jovy Foster located at No. l 74 Araneta Avenue, Portero,
Malabon, Metro Manila or at any other places where their properties are located
and effect the reinstatement of herein [private respondent] to his work last
performed or at the option of the respondent by payroll reinstatement.
You are also to collect the amount of P122,690.85 representing his backwages
as called for in the dispositive portion, and turn over such amount to this Office
for proper disposition.
Petitioner filed a motion for reconsideration but the same was denied.
Hence, the instant petition — for certiorari.
The issues raised before us are the following:
I
WHETHER OR NOT PUBLIC RESPONDENT NLRC COMMITTED GRAVE
ABUSE OF DISCRETION IN HOLDING THAT PRIVATE RESPONDENT WAS
NOT AN APPRENTICE.
II
WHETHER OR NOT PUBLIC RESPONDENT NLRC COMMITTED GRAVE
ABUSE OF DISCRETION IN HOLDING THAT PETITIONER HAD NOT
ADEQUATELY PROVEN THE EXISTENCE OF A VALID CAUSE IN
TERMINATING THE SERVICE OF PRIVATE RESPONDENT.
We find no merit in the petition.
Petitioner assails the NLRC's finding that private respondent Roberto Capili cannot plainly be
considered an apprentice since no apprenticeship program had yet been filed and approved at the
time the agreement was executed.
Petitioner further insists that the mere signing of the apprenticeship agreement already
established an employer-apprentice relationship.
Petitioner's argument is erroneous.
The law is clear on this matter. Article 61 of the Labor Code provides:
 Contents of apprenticeship agreement. — Apprenticeship agreements, including
the main rates of apprentices, shall conform to the rules issued by the Minister of
Labor and Employment. The period of apprenticeship shall not exceed six
months. Apprenticeship agreements providing for wage rates below the legal
minimum wage, which in no case shall start below 75% per cent of the applicable
minimum wage, may be entered into only in accordance with apprenticeship
program duly approved by the Minister of Labor and Employment. The Ministry
shall develop standard model programs of apprenticeship. (emphasis supplied)
In the case at bench, the apprenticeship agreement between petitioner and private respondent
was executed on May 28, 1990 allegedly employing the latter as an apprentice in the trade of
"care maker/molder." On the same date, an apprenticeship program was prepared by petitioner
and submitted to the Department of Labor and Employment. However, the apprenticeship
Agreement was filed only on June 7, 1990. Notwithstanding the absence of approval by the
Department of Labor and Employment, the apprenticeship agreement was enforced the day it was
signed.
Based on the evidence before us, petitioner did not comply with the requirements of the law. It is
mandated that apprenticeship agreements entered into by the employer and apprentice shall be
entered only in accordance with the apprenticeship program duly approved by the Minister of
Labor and Employment.
Prior approval by the Department of Labor and Employment of the proposed apprenticeship
program is, therefore, a condition sine quo non before an apprenticeship agreement can be validly
entered into.
The act of filing the proposed apprenticeship program with the Department of Labor and
Employment is a preliminary step towards its final approval and does not instantaneously give rise
to an employer-apprentice relationship.
Article 57 of the Labor Code provides that the State aims to "establish a national apprenticeship
program through the participation of employers, workers and government and non-government
agencies" and "to establish apprenticeship standards for the protection of apprentices." To
translate such objectives into existence, prior approval of the DOLE to any apprenticeship
program has to be secured as a condition sine qua non before any such apprenticeship
agreement can be fully enforced. The role of the DOLE in apprenticeship programs and
agreements cannot be debased.
Hence, since the apprenticeship agreement between petitioner and private respondent has no
force and effect in the absence of a valid apprenticeship program duly approved by the DOLE,
private respondent's assertion that he was hired not as an apprentice but as a delivery boy
("kargador" or "pahinante") deserves credence. He should rightly be considered as a regular
employee of petitioner as defined by Article 280 of the Labor Code:
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. (Emphasis supplied)
and pursuant to the constitutional mandate to "protect the rights of workers and promote
their welfare."9
Petitioner further argues that, there is a valid cause for the dismissal of private respondent.
There is an abundance of cases wherein the Court ruled that the twin requirements of due
process, substantive and procedural, must be complied with, before valid dismissal
exists. 10 Without which, the dismissal becomes void.
The twin requirements of notice and hearing constitute the essential elements of due process.
This simply means that the employer shall afford the worker ample opportunity to be heard and to
defend himself with the assistance of his representative, if he so desires.
Ample opportunity connotes every kind of assistance that management must accord the employee
to enable him to prepare adequately for his defense including legal representation. 11
As held in the case of Pepsi-Cola Bottling Co., Inc. v. NLRC: 12
The law requires that the employer must furnish the worker sought to be
dismissed with two (2) written notices before termination of employee can be
legally effected: (1) notice which apprises the employee of the particular acts or
omissions for which his dismissal is sought; and (2) the subsequent notice which
informs the employee of the employer's decision to dismiss him (Sec. 13, BP
130; Sec. 2-6 Rule XIV, Book V, Rules and Regulations Implementing the Labor
Code as amended). Failure to comply with the requirements taints the dismissal
with illegality. This procedure is mandatory, in the absence of which, any
judgment reached by management is void and in existent (Tingson, Jr. vs. NLRC,
185 SCRA 498 [1990]; National Service Corp. vs. NLRC, 168 SCRA 122; Ruffy
vs. NLRC. 182 SCRA 365 [1990]).
The fact is private respondent filed a case of illegal dismissal with the Labor Arbiter only three
days after he was made to sign a Quitclaim, a clear indication that such resignation was not
voluntary and deliberate.
Private respondent averred that he was actually employed by petitioner as a delivery boy
("kargador" or "pahinante").

He further asserted that petitioner "strong-armed" him into signing the aforementioned resignation
letter and quitclaim without explaining to him the contents thereof. Petitioner made it clear to him
that anyway, he did not have a choice. 13

Petitioner cannot disguise the summary dismissal of private respondent by orchestrating the
latter's alleged resignation and subsequent execution of a Quitclaim and Release. A judicious
examination of both events belies any spontaneity on private respondent's part.

WHEREFORE, finding no abuse of discretion committed by public respondent National Labor

Relations Commission, the appealed decision is hereby AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 75112 August 17, 1992
FILAMER CHRISTIAN INSTITUTE, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, HON. ENRIQUE P. SUPLICO, in his capacity as
Judge of the Regional Trial Court, Branch XIV, Roxas City and POTENCIANO KAPUNAN,
SR., respondents.
Bedona & Bedona Law Office for petitioner.
Rhodora G. Kapunan for private respondents.
GUTIERREZ, JR., J.:
The private respondents, heirs of the late Potenciano Kapunan, seek reconsideration of the
decision rendered by this Court on October 16, 1990 (Filamer Christian Institute v. Court of
Appeals, 190 SCRA 477) reviewing the appellate court's conclusion that there exists an employer-
employee relationship between the petitioner and its co-defendant Funtecha. The Court ruled that
the petitioner is not liable for the injuries caused by Funtecha on the grounds that the latter was
not an authorized driver for whose acts the petitioner shall be directly and primarily answerable,
and that Funtecha was merely a working scholar who, under Section 14, Rule X, Book III of the
Rules and Regulations Implementing the Labor Code is not considered an employee of the
petitioner.
The private respondents assert that the circumstances obtaining in the present case call for the
application of Article 2180 of the Civil Code since Funtecha is no doubt an employee of the
petitioner. The private respondents maintain that under Article 2180 an injured party shall have
recourse against the servant as well as the petitioner for whom, at the time of the incident, the
servant was performing an act in furtherance of the interest and for the benefit of the petitioner.
Funtecha allegedly did not steal the school jeep nor use it for a joy ride without the knowledge of
the school authorities.
After a re-examination of the laws relevant to the facts found by the trial court and the appellate
court, the Court reconsiders its decision. We reinstate the Court of Appeals' decision penned by
the late Justice Desiderio Jurado and concurred in by Justices Jose C. Campos, Jr. and Serafin E.
Camilon. Applying Civil Code provisions, the appellate court affirmed the trial court decision which
ordered the payment of the P20,000.00 liability in the Zenith Insurance Corporation policy,
P10,000.00 moral damages, P4,000.00 litigation and actual expenses, and P3,000.00 attorney's
fees.
It is undisputed that Funtecha was a working student, being a part-time janitor and a scholar of
petitioner Filamer. He was, in relation to the school, an employee even if he was assigned to clean
the school premises for only two (2) hours in the morning of each school day.
Having a student driver's license, Funtecha requested the driver, Allan Masa, and was allowed, to
take over the vehicle while the latter was on his way home one late afternoon. It is significant to
note that the place where Allan lives is also the house of his father, the school president, Agustin
Masa. Moreover, it is also the house where Funtecha was allowed free board while he was a
student of Filamer Christian Institute.
Allan Masa turned over the vehicle to Funtecha only after driving down a road, negotiating a sharp
dangerous curb, and viewing that the road was clear. (TSN, April 4, 1983, pp. 78-79) According to
Allan's testimony, a fast moving truck with glaring lights nearly hit them so that they had to swerve
to the right to avoid a collision. Upon swerving, they heard a sound as if something had bumped
against the vehicle, but they did not stop to check. Actually, the Pinoy jeep swerved towards the
pedestrian, Potenciano Kapunan who was walking in his lane in the direction against vehicular
traffic, and hit him. Allan affirmed that Funtecha followed his advise to swerve to the right. (Ibid., p.
79) At the time of the incident (6:30 P.M.) in Roxas City, the jeep had only one functioning
headlight.
Allan testified that he was the driver and at the same time a security guard of the petitioner-school.
He further said that there was no specific time for him to be off-duty and that after driving the
students home at 5:00 in the afternoon, he still had to go back to school and then drive home
using the same vehicle.
Driving the vehicle to and from the house of the school president where both Allan and Funtecha
reside is an act in furtherance of the interest of the petitioner-school. Allan's job demands that he
drive home the school jeep so he can use it to fetch students in the morning of the next school
day.
It is indubitable under the circumstances that the school president had knowledge that the jeep
was routinely driven home for the said purpose. Moreover, it is not improbable that the school
president also had knowledge of Funtecha's possession of a student driver's license and his
desire to undergo driving lessons during the time that he was not in his classrooms.
In learning how to drive while taking the vehicle home in the direction of Allan's house, Funtecha
definitely was not having a joy ride. Funtecha was not driving for the purpose of his enjoyment or
for a "frolic of his own" but ultimately, for the service for which the jeep was intended by the
petitioner school. (See L. Battistoni v. Thomas, Can SC 144, 1 D.L.R. 577, 80 ALR 722 [1932];
See also Association of Baptists for World Evangelism, Inc. v. Fieldmen's Insurance Co., Inc. 124
SCRA 618 [1983]). Therefore, the Court is constrained to conclude that the act of Funtecha in
taking over the steering wheel was one done for and in behalf of his employer for which act the
petitioner-school cannot deny any responsibility by arguing that it was done beyond the scope of
his janitorial duties. The clause "within the scope of their assigned tasks" for purposes of raising
the presumption of liability of an employer, includes any act done by an employee, in furtherance
of the interests of the employer or for the account of the employer at the time of the infliction of the
injury or damage. (Manuel Casada, 190 Va 906, 59 SE 2d 47 [1950]) Even if somehow, the
employee driving the vehicle derived some benefit from the act, the existence of a presumptive
liability of the employer is determined by answering the question of whether or not the servant was
at the time of the accident performing any act in furtherance of his master's business. (Kohlman v.
Hyland, 210 NW 643, 50 ALR 1437 [1926]; Jameson v. Gavett, 71 P 2d 937 [1937])
Section 14, Rule X, Book III of the Rules implementing the Labor Code, on which the petitioner
anchors its defense, was promulgated by the Secretary of Labor and Employment only for the
purpose of administering and enforcing the provisions of the Labor Code on conditions of
employment. Particularly, Rule X of Book III provides guidelines on the manner by which the
powers of the Labor Secretary shall be exercised; on what records should be kept; maintained and
preserved; on payroll; and on the exclusion of working scholars from, and inclusion of resident
physicians in the employment coverage as far as compliance with the substantive labor provisions
on working conditions, rest periods, and wages, is concerned.
In other words, Rule X is merely a guide to the enforcement of the substantive law on labor. The
Court, thus, makes the distinction and so holds that Section 14, Rule X, Book III of the Rules is not
the decisive law in a civil suit for damages instituted by an injured person during a vehicular
accident against a working student of a school and against the school itself.
The present case does not deal with a labor dispute on conditions of employment between an
alleged employee and an alleged employer. It invokes a claim brought by one for damages for
injury caused by the patently negligent acts of a person, against both doer-employee and his
employer. Hence, the reliance on the implementing rule on labor to disregard the primary liability
of an employer under Article 2180 of the Civil Code is misplaced. An implementing rule on labor
cannot be used by an employer as a shield to avoid liability under the substantive provisions of the
Civil Code.
There is evidence to show that there exists in the present case an extra-contractual obligation
arising from the negligence or reckless imprudence of a person "whose acts or omissions are
imputable, by a legal fiction, to other(s) who are in a position to exercise an absolute or limited
control over (him)." (Bahia v. Litonjua and Leynes, 30 Phil. 624 [1915])
Funtecha is an employee of petitioner Filamer. He need not have an official appointment for a
driver's position in order that the petitioner may be held responsible for his grossly negligent act, it
being sufficient that the act of driving at the time of the incident was for the benefit of the
petitioner. Hence, the fact that Funtecha was not the school driver or was not acting within the
scope of his janitorial duties does not relieve the petitioner of the burden of rebutting the
presumption juris tantum that there was negligence on its part either in the selection of a servant
or employee, or in the supervision over him. The petitioner has failed to show proof of its having
exercised the required diligence of a good father of a family over its employees Funtecha and
Allan.
The Court reiterates that supervision includes the formulation of suitable rules and regulations for
the guidance of its employees and the issuance of proper instructions intended for the protection
of the public and persons with whom the employer has relations through his employees. (Bahia v.
Litonjua and Leynes, supra, at p. 628; Phoenix Construction, v. Intermediate Appellate Court, 148
SCRA 353 [1987])
An employer is expected to impose upon its employees the necessary discipline called for in the
performance of any act indispensable to the business and beneficial to their employer.
In the present case, the petitioner has not shown that it has set forth such rules and guidelines as
would prohibit any one of its employees from taking control over its vehicles if one is not the official
driver or prohibiting the driver and son of the Filamer president from authorizing another employee
to drive the school vehicle. Furthermore, the petitioner has failed to prove that it had imposed
sanctions or warned its employees against the use of its vehicles by persons other than the driver.
The petitioner, thus, has an obligation to pay damages for injury arising from the unskilled manner
by which Funtecha drove the vehicle. (Cangco v. Manila Railroad Co., 38 Phil. 768, 772 [1918]). In
the absence of evidence that the petitioner had exercised the diligence of a good father of a family
in the supervision of its employees, the law imposes upon it the vicarious liability for acts or
omissions of its employees. (Umali v. Bacani, 69 SCRA 263 [1976]; Poblete v. Fabros, 93 SCRA
200 [1979]; Kapalaran Bus Liner v. Coronado, 176 SCRA 792 [1989]; Franco v. Intermediate
Appellate Court, 178 SCRA 331 [1989]; Pantranco North Express, Inc. v. Baesa, 179 SCRA 384
[1989]) The liability of the employer is, under Article 2180, primary and solidary. However, the
employer shall have recourse against the negligent employee for whatever damages are paid to
the heirs of the plaintiff.
It is an admitted fact that the actual driver of the school jeep, Allan Masa, was not made a party
defendant in the civil case for damages. This is quite understandable considering that as far as the
injured pedestrian, plaintiff Potenciano Kapunan, was concerned, it was Funtecha who was the
one driving the vehicle and presumably was one authorized by the school to drive. The plaintiff
and his heirs should not now be left to suffer without simultaneous recourse against the petitioner
for the consequent injury caused by a janitor doing a driving chore for the petitioner even for a
short while. For the purpose of recovering damages under the prevailing circumstances, it is
enough that the plaintiff and the private respondent heirs were able to establish the existence of
employer-employee relationship between Funtecha and petitioner Filamer and the fact that
Funtecha was engaged in an act not for an independent purpose of his own but in furtherance of
the business of his employer. A position of responsibility on the part of the petitioner has thus
been satisfactorily demonstrated.
WHEREFORE, the motion for reconsideration of the decision dated October 16, 1990 is hereby
GRANTED. The decision of the respondent appellate court affirming the trial court decision is
REINSTATED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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.7 The 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 List 25 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 agreement 34 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;49 January 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 rules 60 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 admitted 62 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.1âwphi1 The
assailed decision and resolution of the Court of Appeals are AFFIRMED. Costs against the
petitioner Atlanta Industries, Inc.
SO ORDERED.
 Republic of the Philippines Also assailed is the August 4, 1995 Resolution 5 of the NLRC, which denied the Motion for
SUPREME COURT Reconsideration.
Manila
The Facts
THIRD DIVISION
The facts were summarized by the NLRC in this wise: 6

Complainants numbering 43 (p. 176, Records) are deaf-mutes who were hired on
G.R. No. 122917 July 12, 1999 various periods from 1988 to 1993 by respondent Far East Bank and Trust Co.
as Money Sorters and Counters through a uniformly worded agreement called
MARITES BERNARDO, ELVIRA GO DIAMANTE, REBECCA E. DAVID, DAVID P. PASCUAL, "Employment Contract for Handicapped Workers". (pp. 68 & 69, Records) The
RAQUEL ESTILLER, ALBERT HALLARE, EDMUND M. CORTEZ, JOSELITO O. AGDON full text of said agreement is quoted below:
GEORGE P. LIGUTAN JR., CELSO M. YAZAR, ALEX G. CORPUZ, RONALD M. DELFIN,
ROWENA M. TABAQUERO, CORAZON C. DELOS REYES, ROBERT G. NOORA, MILAGROS EMPLOYMENT CONTRACT FOR
O. LEQUIGAN, ADRIANA F. TATLONGHARI, IKE CABANDUCOS, COCOY NOBELLO,
DORENDA CANTIMBUHAN, ROBERT MARCELO, LILIBETH Q. MARMOLEJO, JOSE E. HANDICAPPED WORKERS
SALES, ISABEL MAMAUAG, VIOLETA G. MONTES, ALBINO TECSON, MELODY V.
GRUELA, BERNADETH D. AGERO, CYNTHIA DE VERA, LANI R. CORTEZ, MA. ISABEL B.
This Contract, entered into by and between:
CONCEPCION, DINDO VALERIO, ZENAIDA MATA, ARIEL DEL PILAR, MARGARET CECILIA
CANOZA, THELMA SEBASTIAN, MA. JEANETTE CERVANTES, JEANNIE RAMIL, ROZAIDA
PASCUAL, PINKY BALOLOA, ELIZABETH VENTURA, GRACE S. PARDO and FAR EAST BANK AND TRUST COMPANY, a universal banking
TIMOSA, petitioners, corporation duly organized and existing under and by virtue of
vs. the laws of the Philippines, with business address at FEBTC
NATIONAL LABOR RELATIONS COMMISSION and FAR EAST BANK AND TRUST Building, Muralla, Intramuros, Manila, represented herein by its
COMPANY, respondents. Assistant Vice President, MR. FLORENDO G. MARANAN,
(hereinafter referred to as the "BANK");

-and-
PANGANIBAN, J.:
—————, ————— years old, of legal age, ————, and
residing at (hereinafter referred to as the ("EMPLOYEE").
The Magna Carta for Disabled Persons mandates that qualified disabled persons be granted the
same terms and conditions of employment as qualified able-bodied employees. Once they have
attained the status of regular workers, they should be accorded all the benefits granted by law, WITNESSETH : That
notwithstanding written or verbal contracts to the contrary. This treatments is rooted not merely on
charity or accomodation, but on justice for all. WHEREAS, the BANK, cognizant of its social responsibility,
realizes that there is a need to provide disabled and
The Case handicapped persons gainful employment and opportunities to
realize their potentials, uplift their socio-economic well being
and welfare and make them productive, self-reliant and useful
Challenged in the Petition for Certiorari 1 before us is the June 20, 1995 Decision2 of the National
citizens to enable them to fully integrate in the mainstream of
Labor Relations Commission (NLRC), 3 which affirmed the August, 22 1994 ruling of Labor Arbiter
society;
Cornelio L. Linsangan. The labor arbiter's Decision disposed as follows: 4

WHEREAS, there are certain positions in the BANK which may

WHEREFORE, judgment is hereby rendered dismissing the above-mentioned
complaint for lack of merit. be filled-up by disabled and handicapped persons, particularly
deaf-mutes, and the BANK ha[s] been approached by some
civic-minded citizens and authorized government agencies
[regarding] the possibility of hiring handicapped workers for 5. The regular work schedule of the EMPLOYEE shall be five
these positions; (5) days per week, from Mondays thru Fridays, at eight (8)
hours a day. The EMPLOYEE may be required to perform
WHEREAS, the EMPLOYEE is one of those handicapped overtime work as circumstance may warrant, for which overtime
workers who [were] recommended for possible employment work he/she [shall] be paid an additional compensation of 125%
with the BANK; of his daily rate if performed during ordinary days and 130% if
performed during Saturday or [a] rest day.
NOW, THEREFORE, for and in consideration of the foregoing
premises and in compliance with Article 80 of the Labor Code of 6. The EMPLOYEE shall likewise be entitled to the following
the Philippines as amended, the BANK and the EMPLOYEE benefits:
have entered into this Employment Contract as follows:
i. Proportionate 13th month
1. The BANK agrees to employ and train the EMPLOYEE, and pay based on his basic daily
the EMPLOYEE agrees to diligently and faithfully work with the wage.
BANK, as Money Sorter and Counter.
ii. Five (5) days incentive
2. The EMPLOYEE shall perform among others, the following leave.
duties and responsibilities:
iii. SSS premium payment.
i. Sort out bills according to
color; 7. The EMPLOYEE binds himself/herself to abide [by] and
comply with all the BANK Rules and Regulations and Policies,
ii. Count each denomination and to conduct himself/herself in a manner expected of all
per hundred, either manually employees of the BANK.
or with the aid of a counting
machine; 8. The EMPLOYEE acknowledges the fact that he/she had
been employed under a special employment program of the
iii. Wrap and label bills per BANK, for which reason the standard hiring requirements of the
hundred; BANK were not applied in his/her case. Consequently, the
EMPLOYEE acknowledges and accepts the fact that the terms
and conditions of the employment generally observed by the
iv. Put the wrapped bills into
BANK with respect to the BANK's regular employee are not
bundles; and
applicable to the EMPLOYEE, and that therefore, the terms and
conditions of the EMPLOYEE's employment with the BANK
v. Submit bundled bills to the shall be governed solely and exclusively by this Contract and by
bank teller for verification. the applicable rules and regulations that the Department of
Labor and Employment may issue in connection with the
3. The EMPLOYEE shall undergo a training period of one (1) employment of disabled and handicapped workers. More
month, after which the BANK shall determine whether or not specifically, the EMPLOYEE hereby acknowledges that the
he/she should be allowed to finish the remaining term of this provisions of Book Six of the Labor Code of the Philippines as
Contract. amended, particularly on regulation of employment and
separation pay are not applicable to him/her.
4. The EMPLOYEE shall be entitled to an initial compensation
of P118.00 per day, subject to adjustment in the sole judgment 9. The Employment Contract shall be for a period of six (6)
of the BANK, payable every 15th and end of the months or from —— to —— unless earlier terminated by the
month.1âwphi1.nêt BANK for any just or reasonable cause. Any continuation or
extension of this Contract shall be in writing and therefore this
 Contract will automatically expire at the end of its terms unless 1. MARITES BERNARDO Intramuros 12-Nov-90 17-Nov-93
renewed in writing by the BANK.
2. ELVIRA GO DIAMANTE Intramuros 24-Jan-90 11-Jan-94

IN WITNESS WHEREOF, the parties, have hereunto affixed 3. REBECCA E. DAVID Intramuros 16-Apr-90 23-Oct-93
their signature[s] this —— day of ———, ——— at Intramuros, 4. DAVID P. PASCUAL Bel-Air 15-Oct-88 21-Nov-94
Manila, Philippines. 5. RAQUEL ESTILLER Intramuros 2-Jul-92 4-Jan-94
6. ALBERT HALLARE West 4-Jan-91 9-Jan-94
In 1988, two (2) deaf-mutes were hired under this Agreement; in 1989 another
two (2); in 1990, nineteen (19); in 1991 six (6); in 1992, six (6) and in 1993, 7. EDMUND M. CORTEZ Bel-Air 15-Jan-91 3-Dec-93
twenty-one (21). Their employment[s] were renewed every six months such that 8. JOSELITO O. AGDON Intramuros 5-Nov-90 17-Nov-93
by the time this case arose, there were fifty-six (56) deaf-mutes who were
9. GEORGE P. LIGUTAN JR. Intramuros 6-Sep-89 19-Jan-94
employed by respondent under the said employment agreement. The last one
was Thelma Malindoy who was employed in 1992 and whose contract expired on 10. CELSO M. YAZAR Intramuros 8-Feb-93 8-Aug-93
July 1993. 11. ALEX G. CORPUZ Intramuros 15-Feb-93 15-Aug-93
12. RONALD M. DELFIN Intramuros 22-Feb-93 22-Aug-93
xxx xxx xxx
13. ROWENA M. TABAQUERO Intramuros 22-Feb-93 22-Aug-93
Disclaiming that complainants were regular employees, respondent Far East 14. CORAZON C. DELOS REYES Intramuros 8-Feb-93 8-Aug-93
Bank and Trust Company maintained that complainants who are a special class 15. ROBERT G. NOORA Intramuros 15-Feb-93 15-Aug-93
of workers — the hearing impaired employees were hired temporarily under [a]
special employment arrangement which was a result of overtures made by some 16. MILAGROS O. LEQUIGAN Intramuros 1-Feb-93 1-Aug-93
civic and political personalities to the respondent Bank; that complainant[s] were 17. ADRIANA F. TATLONGHARI Intramuros 22-Jan-93 22-Jul-93
hired due to "pakiusap" which must be considered in the light of the context 18. IKE CABUNDUCOS Intramuros 24-Feb-93 24-Aug-93
career and working environment which is to maintain and strengthen a corps of
professionals trained and qualified officers and regular employees who are 19. COCOY NOBELLO Intramuros 22-Feb-93 22-Aug-93
baccalaureate degree holders from excellent schools which is an unbending 20. DORENDA CATIMBUHAN Intramuros 15-Feb-93 15-Aug-93
policy in the hiring of regular employees; that in addition to this, training
21. ROBERT MARCELO West 31 JUL 93 8 1-Aug-93
continues so that the regular employee grows in the corporate ladder; that the
idea of hiring handicapped workers was acceptable to them only on a special 22. LILIBETH Q. MARMOLEJO West 15-Jun-90 21-Nov-93
arrangement basis; that it was adopted the special program to help tide over a 23. JOSE E. SALES West 6-Aug-92 12-Oct-93
group of workers such as deaf-mutes like the complainants who could do manual
work for the respondent Bank; that the task of counting and sorting of bills which 24. ISABEL MAMAUAG West 8-May-92 10-Nov-93
was being performed by tellers could be assigned to deaf-mutes that the 25. VIOLETA G. MONTES Intramuros 2-Feb-90 15-Jan-94
counting and sorting of money are tellering works which were always logically 26. ALBINO TECSON Intramuros 7-Nov-91 10-Nov-93
and naturally part and parcel of the tellers' normal functions; that from the
beginning there have been no separate items in the respondent Bank plantilla for 27. MELODY B. GRUELA West 28-Oct-91 3-Nov-93
sortes or counters; that the tellers themselves already did the sorting and 28. BERNADETH D. AGERO West 19-Dec-90 27-Dec-93
counting chore as a regular feature and integral part of their duties (p. 97,
29. CYNTHIA DE VERA Bel-Air 26-Jun-90 3-Dec-93
Records); that through the "pakiusap" of Arturo Borjal, the tellers were relieved of
this task of counting and sorting bills in favor of deaf-mutes without creating new 30. LANI R. CORTEZ Bel-Air 15-Oct-88 10-Dec-93
positions as there is no position either in the respondent or in any other bank in 31. MARIA ISABEL B.CONCEPCION West 6-Sep-90 6-Feb-94
the Philippines which deals with purely counting and sorting of bills in banking
operations. 32. DINDO VALERIO Intramuros 30-May-93 30-Nov-93
33. ZENAIDA MATA Intramuros 10-Feb-93 10-Aug-93
7
Petitioners specified when each of them was hired and dimissed, viz: 34. ARIEL DEL PILAR Intramuros 24-Feb-93 24-Aug-93
35. MARGARET CECILIA CANOZA Intramuros 27-Jul-90 4-Feb-94
NAME OF PETITIONER WORKPLACE Date Hired Date Dismissed 36. THELMA SEBASTIAN Intramuros 12-Nov-90 17-Nov-93
37. MA. JEANETTE CERVANTES West 6-Jun-92 7-Dec-93 In the main, the Court will resolve whether petitioners have become regular employees.
38. JEANNIE RAMIL Intramuros 23-Apr-90 12-Oct-93
This Court's Ruling
39. ROZAIDA PASCUAL Bel-Air 20-Apr-89 29-Oct-93
40. PINKY BALOLOA West 3-Jun-91 2-Dec-93 The petition is meritorious. However, only the employees, who worked for more than six months
41. ELIZABETH VENTURA West 12-Mar-90 FEB 94 [sic] and whose contracts were renewed are deemed regular. Hence, their dismissal from
employement was illegal.
42. GRACE S. PARDO West 4-Apr-90 13-Mar-94
43. RICO TIMOSA Intramuros 28-Apr-93 28-Oct-93
Preliminary Matter:

As earlier noted, the labor arbiter and, on appeal, the NLRC ruled against herein petitioners.
Hence, this recourse to this Court. 9
The Ruling of the NLRC
In affirming the ruling of the labor arbiter that herein petitioners could not be deemed regular
employees under Article 280 of the Labor Code, as amended, Respondent Commission
ratiocinated as follows:
We agree that Art. 280 is not controlling herein. We give due credence to the
conclusion that complainants were hired as an accommodation to [the]
recommendation of civic oriented personalities whose employment[s] were
covered by . . . Employment Contract[s] with special provisions on duration of
contract as specified under Art. 80. Hence, as correctly held by the Labor
Arbiter a quo, the terms of the contract shall be the law between the parties. 10
Propriety of Certiorari
Respondent Far East Bank and Trust Company argues that a review of the findings of facts of the
NLRC is not allowed in a petition for certiorari. Specifically, it maintains that the Court cannot pass
upon the findings of public respondent that petitioners were not regular employees.
True, the Court, as a rule, does not review the factual findings of public respondents in
a certiorari proceeding. In resolving whether the petitioners have become regular employees, we
shall not change the facts found by the public respondent. Our task is merely to determine
whether the NLRC committed grave abuse of discretion in applying the law to the established
facts, as above-quoted from the assailed Decision.
Main Issue
Are Petitioners Regular Employee?

The NLRC also declared that the Magna Carta for Disabled Persons was not applicable,
"considering the prevailing circumstances/milieu of the case."
Issues
Petitioners maintain that they should be considered regular employees, because their task as
money sorters and counters was necessary and desirable to the business of respondent bank.
They further allege that their contracts served merely to preclude the application of Article 280 and
to bar them from becoming regular employees.

In their Memorandum, petitioners cite the following grounds in support of their cause:
I. The Honorable Commission committed grave abuse of discretion in holding
that the petitioners — money sorters and counters working in a bank — were not
regular employees.
II. The Honorable Commission committed grave abuse of discretion in holding
that the employment contracts signed and renewed by the petitioners — which
provide for a period of six (6) months — were valid.
III. The Honorable Commission committed grave abuse of discretion in not
applying the provisions of the Magna Carta for the Disabled (Republic Act No.
7277), on proscription against discrimination against disabled persons. 11
Private respondent, on the other hand, submits that petitioners were hired only as "special workers
and should not in any way be considered as part of the regular complement of the
Bank." 12 Rather, they were "special" workers under Article 80 of the Labor Code. Private
respondent contends that it never solicited the services of petitioners, whose employment was
merely an "accommodation" in response to the requests of government officials and civic-minded
citizens. They were told from the start, "with the assistance of government representatives," that
they could not become regular employees because there were no plantilla positions for "money
sorters," whose task used to be performed by tellers. Their contracts were renewed several times,
not because of need "but merely for humanitarian reasons." Respondent submits that "as of the
present, the "special position" that was created for the petitioners no longer exist[s] in private
respondent [bank], after the latter had decided not to renew anymore their special employment
contracts."
At the outset, let it be known that this Court appreciates the nobility of private respondent's effort
to provide employment to physically impaired individuals and to make them more productive
members of society. However, we cannot allow it to elude the legal consequences of that effort,
simply because it now deems their employment irrelevant. The facts, viewed in light of the Labor
Code and the Magna Carta for Disabled Persons, indubitably show that the petitioners, except
sixteen of them, should be deemed regular employees. As such, they have acquired legal rights
that this Court is duty-bound to protect and uphold, not as a matter of compassion but as a
consequence of law and justice.
The uniform employment contracts of the petitioners stipulated that they shall be trained for a
period of one month, after which the employer shall determine whether or not they should be
allowed to finish the 6-month term of the contract. Furthermore, the employer may terminate the
contract at any time for a just and reasonable cause. Unless renewed in writing by the employer,
the contract shall automatically expire at the end of the term.1âwphi1.nêt
According to private respondent, the employment contracts were prepared in accordance with
Article 80 of the Labor code, which provides;
Art. 80. Employment agreement. — Any employer who employs handicapped
workers shall enter into an employment agreement with them, which agreement
shall include:
(a) The names and addresses of the handicapped workers to be
employed;
(b) The rate to be paid the handicapped workers which shall be
not less than seventy five (75%) per cent of the applicable legal
minimum wage;
(c) The duration of employment period; and
(d) The work to be performed by handicapped workers.
The employment agreement shall be subject to inspection by the Secretary of
Labor or his duly authorized representatives.
The stipulations in the employment contracts indubitably conform with the aforecited provision.
Succeeding events and the enactment of RA No. 7277 (the Magna Carta for Disabled
Persons), 13 however, justify the application of Article 280 of the Labor Code.
Respondent bank entered into the aforesaid contract with a total of 56 handicapped workers and
renewed the contracts of 37 of them. In fact, two of them worked from 1988 to 1993. Verily, the
renewal of the contracts of the handicapped workers and the hiring of others lead to the
conclusion that their tasks were beneficial and necessary to the bank. More important, these facts
show that they were qualified to perform the responsibilities of their positions. In other words, their
disability did not render them unqualified or unfit for the tasks assigned to them.
In this light, the Magna Carta for Disabled Persons mandates that a qualified disabled employee
should be given the same terms and conditions of employment as a qualified able-bodied person.
Section 5 of the Magna Carta provides:
Sec. 5. Equal Opportunity for Employment. — No disabled person shall be
denied access to opportunities for suitable employment. A qualified disabled
employee shall be subject to the same terms and conditions of employment and
the same compensation, privileges, benefits, fringe benefits, incentives or
allowances as a qualified able bodied person.
The fact that the employees were qualified disabled persons necessarily removes the employment
contracts from the ambit of Article 80. Since the Magna Carta accords them the rights of qualified
able-bodied persons, they are thus covered by 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 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 as
regular employee with respect to the activity in which he is employed and his
employment shall continue while such activity exists.
The test of whether an employee is regular was laid down in De Leon v. NLRC, 14 in which this
Court held:
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 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 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 indispensibility of that activity to the business. Hence, the
employment is considered regular, but only with respect to such activity, and
while such activity exist.
Without a doubt, the task of counting and sorting bills is necessary and desirable to the business
of respondent bank. With the exception of sixteen of them, petitioners performed these tasks for
more than six months. Thus, the following twenty-seven petitioners should be deemed regular
employees: Marites Bernardo, Elvira Go Diamante, Rebecca E. David, David P. Pascual, Raquel
Estiller, Albert Hallare, Edmund M. Cortez, Joselito O. Agdon, George P. Ligutan Jr., Lilibeth Q.
Marmolejo, Jose E. Sales, Isabel Mamauag, Violeta G. Montes, Albino Tecson, Melody V. Gruela,
Bernadeth D. Agero, Cynthia de Vera, Lani R. Cortez, Ma. Isabel B. Concepcion, Margaret Cecilia
Canoza, Thelma Sebastian, Ma. Jeanette Cervantes, Jeannie Ramil, Rozaida Pascual, Pinky
Baloloa, Elizabeth Ventura and Grace S. Pardo.
As held by the Court, "Articles 280 and 281 of the Labor Code put an end to the pernicious
practice of making permanent casuals of our lowly employees by the simple expedient of
extending to them probationary appointments, ad infinitum."15 The contract signed by petitioners is
akin to a probationary employment, during which the bank determined the employees' fitness for
the job. When the bank renewed the contract after the lapse of the six-month probationary period,
the employees thereby became regular employees. 16 No employer is allowed to determine
indefinitely the fitness of its employees.
As regular employees, the twenty-seven petitioners are entitled to security of tenure; that is, their
services may be terminated only for a just or authorized cause. Because respondent failed to
show such cause, 17 these twenty-seven petitioners are deemed illegally dismissed and therefore
entitled to back wages and reinstatement without loss of seniority rights and other
privileges. 18 Considering the allegation of respondent that the job of money sorting is no longer
available because it has been assigned back to the tellers to whom it originally
belonged, 18 petitioners are hereby awarded separation pay in lieu of reinstatement. 20
Because the other sixteen worked only for six months, they are not deemed regular employees
and hence not entitled to the same benefits.
Applicability of the
Brent Ruling
Respondent bank, citing Brent School v. Zamora 21 in which the Court upheld the validity of an
employment contract with a fixed term, argues that the parties entered into the contract on equal
footing. It adds that the petitioners had in fact an advantage, because they were backed by then
DSWD Secretary Mita Pardo de Tavera and Representative Arturo Borjal.
We are not persuaded. The term limit in the contract was premised on the fact that the petitioners
were disabled, and that the bank had to determine their fitness for the position. Indeed, its validity
is based on Article 80 of the Labor Code. But as noted earlier, petitioners proved themselves to
be qualified disabled persons who, under the Magna Carta for Disabled Persons, are entitled to
terms and conditions of employment enjoyed by qualified able-bodied individuals; hence, Article
80 does not apply because petitioners are qualified for their positions. The validation of the limit
imposed on their contracts, imposed by reason of their disability, was a glaring instance of the very
mischief sought to be addressed by the new law.
Moreover, it must be emphasized that a contract of employment is impressed with public
interest. 22 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." 23 Clearly, the agreement of the parties
regarding the period of employment cannot prevail over the provisions of the Magna Carta for
Disabled Persons, which mandate that petitioners must be treated as qualified able-bodied
employees.
Respondent's reason for terminating the employment of petitioners is instructive. Because the
Bangko Sentral ng Pilipinas (BSP) required that cash in the bank be turned over to the BSP during
business hours from 8:00 a.m. to 5:00 p.m., respondent resorted to nighttime sorting and counting
of money. Thus, it reasons that this task "could not be done by deaf mutes because of their
physical limitations as it is very risky for them to travel at night." 24 We find no basis for this
argument. Travelling at night involves risks to handicapped and able-bodied persons alike. This
excuse cannot justify the termination of their employment.
Other Grounds Cited by Respondent
Respondent argues that petitioners were merely "accommodated" employees. This fact does not
change the nature of their employment. As earlier noted, 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.
Equally unavailing are private respondent's arguments that it did not go out of its way to recruit
petitioners, and that its plantilla did not contain their positions. In L. T. Datu v. NLRC, 25 the Court
held that "the determination of whether employment is casual or regular does not depend on the
will or word of the employer, and the procedure of hiring . . . but on the nature of the activities
performed by the employee, and to some extent, the length of performance and its continued
existence."
Private respondent argues that the petitioners were informed from the start that they could not
become regular employees. In fact, the bank adds, they agreed with the stipulation in the contract
regarding this point. Still, we are not persuaded. The well-settled rule is that the character of
employment is determined not by stipulations in the contract, but by the nature of the work
performed. 26 Otherwise, no employee can become regular by the simple expedient of
incorporating this condition in the contract of employment.
In this light, we iterate our ruling in Romares v. NLRC: 27
Art. 280 was emplaced in our statute books to prevent the circumvention of the
employee's right to be secure in his tenure by indiscriminately and completely
ruling out all written and oral agreements inconsistent with the concept of regular
employment defined therein. Where an employee has been engaged to perform
activities which are usually necessary or desirable in the usual business of the
employer, such employee is deemed a regular employee and is entitled to
security of tenure notwithstanding the contrary provisions of his contract of
employment.
 xxx xxx xxx

At this juncture, the leading case of Brent School, Inc. v. Zamora proves
instructive. As reaffirmed in subsequent cases, this Court has upheld the legality
of fixed-term employment. It ruled that the decisive determinant in "term
employment" should not be the activities that the employee is called upon to
perform but the day certain agreed upon the parties for the commencement and
termination of their employment relationship. But this Court went on to say that
where from the circumstances it is apparent that the periods have been imposed
to preclude acquisition of tenurial security by the employee, they should be struck
down or disregarded as contrary to public policy and morals.

In rendering this Decision, the Court emphasizes not only the constitutional bias in favor of the
working class, but also the concern of the State for the plight of the disabled. The noble objectives
of Magna Carta for Disabled Persons are not based merely on charity or accommodation, but on
justice and the equal treatment of qualified persons, disabled or not. In the present case, the
handicap of petitioners (deaf-mutes) is not a hindrance to their work. The eloquent proof of this
statement is the repeated renewal of their employment contracts. Why then should they be
dismissed, simply because they are physically impaired? The Court believes, that, after showing
their fitness for the work assigned to them, they should be treated and granted the same rights like
any other regular employees.

28
In this light, we note the Office of the Solicitor General's prayer joining the petitioners' cause.

WHEREFORE, premises considered, the Petition is hereby GRANTED. The June 20, 1995
Decision and the August 4, 1995 Resolution of the NLRC are REVERSED and SET ASIDE.
Respondent Far East Bank and Trust Company is hereby ORDERED to pay back wages and
separation pay to each of the following twenty-seven (27) petitioners, namely, Marites Bernardo,
Elvira Go Diamante, Rebecca E. David, David P. Pascual, Raquel Estiller, Albert Hallare, Edmund
M. Cortez, Joselito O. Agdon, George P. Ligutan Jr., Liliberh Q. Marmolejo, Jose E. Sales, Isabel
Mamauag, Violeta G. Montes, Albino Tecson, Melody V. Gruela, Bernadeth D. Agero, Cynthia de
Vera, Lani R. Cortez, Ma. Isabel B. Concepcion, Margaret Cecilia Canoza, Thelma Sebastian, Ma.
Jeanette Cervantes, Jeannie Ramil, Rozaida Pascual, Pinky Baloloa, Elizabeth Ventura and
Grace S. Pardo. The NLRC is hereby directed to compute the exact amount due each of said
employees, pursuant to existing laws and regulations, within fifteen days from the finality of this
Decision. No costs.1âwphi1.nêt

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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 Decision 8 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 Resolution 10 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.24 Aside 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
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.

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.
 Republic of the Philippines On the other hand, complainant Guevarra alleges that he was invited to join the PBA pool of
SUPREME COURT referees in February 2001. On March 1, 2001, he signed a contract as trainee. Beginning 2002, he
Manila 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
SECOND DIVISION referees officiating out-of-town games. Beginning February 2004, he was no longer made to sign a
contract.
G.R. No. 192084 September 14, 2011
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;
JOSE MEL BERNARTE, Petitioner,
and the second was for September 1 to December 2003. After the lapse of the latter period, PBA
vs. decided not to renew their contracts.
PHILIPPINE BASKETBALL ASSOCIATION (PBA), JOSE EMMANUEL M. EALA, and PERRY
MARTINEZ, Respondents.
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
DECISION
not to renew their contracts, which they knew were fixed.4

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
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 1, 2004 up to the ₱536,250.00 ₱211,250.00

The facts, as summarized by the NLRC and quoted by the Court of Appeals, are as follows: finality of this Decision, which to date is

Complainants (Jose Mel Bernarte and Renato Guevarra) aver that they were invited to join the 2. moral damages 100,000.00 50,000.00
PBA as referees. During the leadership of Commissioner Emilio Bernardino, they were made to
3. exemplary damages 100,000.00 50,000.00
sign contracts on a year-to-year basis. During the term of Commissioner Eala, however, changes
were made on the terms of their employment. 4. 10% attorney's fees 68,625.00 36,125.00

Complainant Bernarte, for instance, was not made to sign a contract during the first conference of TOTAL ₱754,875.00 ₱397,375.00
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. or a total of ₱1,152,250.00

On January 15, 2004, Bernarte received a letter from the Office of the Commissioner advising him The rest of the claims are hereby dismissed for lack of merit or basis.
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 SO ORDERED.7
dismissal was caused by his refusal to fix a game upon order of Ernie De Leon.
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 Resolution dated 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.1âwphi1 He
had full 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.
xxx
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.
 Republic of the Philippines
SUPREME COURT
FIRST DIVISION
G.R. No. 145443. March 18, 2005
RAQUEL P. CONSULTA, Petitioner,
vs.
COURT OF APPEALS, PAMANA PHILIPPINES, INC., RAZUL Z. REQUESTO, and ALETA
TOLENTINO, Respondents.
DECISION
CARPIO, J.:
The Case
1
This is a petition for review assailing the Decision of 28 April 2000 and Resolution of 9 October
2000 promulgated by the Court of Appeals ("appellate court")2 in CA-G.R. SP No. 50462. The
appellate court reversed the Resolution of the National Labor Relations Commission ("NLRC")
which in turn affirmed the Labor Arbiter’s Decision.
The Antecedent Facts
Pamana Philippines, Inc. ("Pamana") is engaged in health care business. Raquel P. Consulta
("Consulta") was a Managing Associate of Pamana. Consulta’s appointment dated 1 December
1987 states:
We are pleased to formally confirm your appointment and confer upon you the authority as
MANAGING ASSOCIATE (MA) effective on December 1, 1987 up to January 2, 1988. Your area
of operation shall be within Metro Manila.
In this capacity, your principal responsibility is to organize, develop, manage, and maintain a sales
division and a full complement of agencies and Health Consultants (HealthCons) and to submit
such number of enrollments and revenue attainments as may be required of your position in
accordance with pertinent Company policies and guidelines. In pursuit of this objective, you are
hereby tasked with the responsibilities of recruiting, training and directing your Supervising
Associates (SAs) and the Health Consultants under their respective agencies, for the purpose of
promoting our corporate Love Mission.
In the performance of such duties, you are expected to uphold and promote the Company’s
interests and good image and to abide by its principles and established norms of conduct
necessary and appropriate in the discharge of your functions. The authority as MA likewise vests
upon you command responsibility for the actions of your SAs and HealthCons; the Company
therefore reserves the right to debit your account for any accountabilities/financial obligations
arising therefrom.
By your acceptance of this appointment, it is understood that you must represent the Company on
an exclusive basis, and must not engage directly or indirectly in activities, nor become affiliated in
official or unofficial capacity with companies or organizations which compete or have the same
business as Pamana. It is further understood that his [sic] self-inhibition shall be effective for a
period of one year from date of official termination with the Company arising from any cause
whatsoever.
In consideration of your undertaking the assignment and the accompanying duties and
responsibilities, you shall be entitled to compensation computed as follows:
On Initial Membership Fee Entrance Fee 5%
Medical Fee 6%
On Subsequent Membership Fee 6%
You are likewise entitled to participate in sales contests and such other incentives that may be
implemented by the Company.
This appointment is on a non-employer-employee relationship basis, and shall be in accordance
with the Company Guidelines on Appointment, Reclassification and Transfer of Sales Associates. 3
Sometime in 1987, Consulta negotiated with the Federation of Filipino Civilian Employees
Association ("FFCEA") working at the United States Subic Naval Base for a Health Care Plan for
the FFCEA members. Pamana issued Consulta a Certification4 dated 23 November 1987, as
follows:
This certifies that the Emerald Group under Ms. Raquel P. Consulta, as Managing Consultant, is
duly authorized to negotiate for and in behalf of PAMANA with the Federation of Filipino Civilian
Employees Association covering all U.S. facilities in the Philippines, the coverage of FFCEA
members under the Pamana Golden Care Health Plans.
Upon such negotiation and eventual execution of the contract agreements, entitlements of all
benefits due the Emerald Group in it’s [sic] entirely including it’s [sic] Supervising Consultants and
Health Consultants, by of commissions, over-rides and other package of benefits is hereby
affirmed, obligated and confirmed as long as the contracts negotiated and executed are in full
force and effect, including any and all renewals made. And provided further that the herein
authorized consultants remain in active status with the Pamana Golden Care sales group.5
On 4 March 1988, Pamana and the U.S. Naval Supply Depot signed the FFCEA account.
Consulta, claiming that Pamana did not pay her commission for the FFCEA account, filed a
complaint for unpaid wages or commission against Pamana, its President Razul Z. Requesto
("Requesto"), and its Executive Vice-President Aleta Tolentino ("Tolentino").
The Rulings of the Labor Arbiter and the NLRC
In a Decision promulgated on 23 June 1993, Labor Arbiter Alex Arcadio Lopez ruled, as follows:
ACCORDINGLY, respondent is hereby ordered to pay complainant her unpaid commission to be
computed as against actual transactions between respondent PAMANA and the contracting
Department of U.S. Naval Supply Depot upon presentation of pertinent document.
Respondent is further ordered to pay ten (10%) percent attorney’s fees.
SO ORDERED.6
Pamana, Requesto and Tolentino ("Pamana et al.") appealed the Decision of the Labor Arbiter.
In a Resolution7 promulgated on 22 July 1994, the NLRC dismissed the appeal and affirmed the
Decision of the Labor Arbiter. In its Order promulgated on 3 October 1994, the NLRC denied the
motion for reconsideration of Pamana et al.
Pamana et al. filed a petition for certiorari before this Court. In compliance with this Court’s
resolution dated 6 February 1995, the Office of the Solicitor General submitted a Manifestation in
Lieu of Comment praying to grant the petition on the ground that Consulta was not an employee of
Pamana. On 23 November 1998, this Court referred the case to the appellate court pursuant to St.
Martin Funeral Home v. NLRC.8
The Decision of the Appellate Court
In its Decision promulgated on 28 April 2000, the appellate court reversed the NLRC Decision.
The appellate court ruled that Consulta was a commission agent, not an employee of Pamana.
The appellate court also ruled that Consulta should have litigated her claim for unpaid commission
in an ordinary civil action.
Hence, Consulta’s recourse to this Court.
The Issues
The issues are:
1. Whether Consulta was an employee of Pamana.
2. Whether the Labor Arbiter had jurisdiction over Consulta’s claim for unpaid commission.
The Ruling of the Court
We affirm the Decision of the appellate court. Consulta was an independent agent and not an
employee of Pamana.
The Four-Fold Test
In Viaña v. Al-Lagadan,9 the Court first laid down the four-fold test to determine the existence of
an employer-employee relationship. The four elements of an employer-employee relationship,
which have since been adopted in subsequent jurisprudence,10 are (1) the power to hire; (2) the
payment of wages; (3) the power to dismiss; and (4) the power to control. The power to control is
the most important of the four elements.
In Insular Life Assurance Co., Ltd. v. NLRC,11 the Court explained the scope of the power to
control, thus:
x x x 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. A line must be drawn somewhere, if the recognized distinction
between an employee and an individual contractor is not to vanish altogether. Realistically, it
would be a rare contract of service that gives untrammelled freedom to the party hired and
eschews any intervention whatsoever in his performance of the engagement.
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.
In the present case, the power to control is missing. Pamana tasked Consulta to organize,
develop, manage, and maintain a sales division, submit a number of enrollments and revenue
attainments in accordance with company policies and guidelines, and to recruit, train and direct
her Supervising Associates and Health Consultants.12 However, the manner in which Consulta
was to pursue these activities was not subject to the control of Pamana. Consulta failed to show
that she had to report for work at definite hours. The amount of time she devoted to soliciting
clients was left entirely to her discretion. The means and methods of recruiting and training her
sales associates, as well as the development, management and maintenance of her sales
division, were left to her sound judgment.
Consulta claims that the documents she submitted show that Pamana had control on the conduct
of her work and the means and methods to accomplish the work. However, the documents only
prove the absence of the power to control. The Minutes of the meeting on 31 May 1988 of the
Managing Associates with Fely Whitfield, Vice-President for Sales of Pamana, reflect the
following:
At this point Mrs. Whitfield gave some pointers on recruitment and selling techniques and
reminded the group that the success of an agency is still people. The more recruits you have the
better is your chance to achieve your quota.
She also announced June be made a recruitment month, and told the MAs to remind their
associates that if you cannot sell to a prospect then recruit him or her.
She also discussed extensively the survey method of selling and recruitment and that the sales
associates should be more aggressive in their day to day sales activity. She reminded the MAs
to fill up their recruitment requirements to be able to participate in the monthly and
quarterly contest.
xxx
Further, the Managing Associates had to ask the Management of Pamana to shoulder half of the
advertisement cost for their recruitment campaign. They shelled out their own resources to bolster
their recruitment. They shared in the payment of the salaries of their secretaries. They gave cash
incentives to their sales associates from their own pocket. These circumstances show that the
Managing Associates were independent contractors, not employees, of Pamana.
Finally, Pamana paid Consulta not for labor she performed but only for the results of her
labor.16 Without results, Consulta’s labor was her own burden and loss. Her right to compensation,
or to commission, depended on the tangible results of her work 17 - whether she brought in paying
recruits. Consulta’s appointment paper provides:
In consideration of your undertaking the assignment and the accompanying duties and
responsibilities, you shall be entitled to compensation computed as follows:

4. Recruitment Campaign On Initial Membership Fee Entrance Fee 5%

In connection with the Recruitment Campaign for June, Mr. R. Canon13 requested for Management Medical Fee 6%
support. He suggested that a recruitment Advertisement be placed in a leading Metropolitan daily
Newspaper. The cost of which was unanimously suggested by MAs that Management On Subsequent Membership Fee 6%
should share at least 50%.
You are likewise entitled to participation in sales contests and such other incentives that may be
5. MAs agreed to pay in advance their share for the salary of the MAs Secretary.14 (Emphasis implemented by the Company.18
supplied)
The Guidelines on Appointment of Associates show that a Managing Associate received the
The Minutes of the 7 June 1988 meeting reflect the following: following commissions and bonuses:

III. PRODUCTION & RECRUITMENT INCENTIVES 3. Compensation Package of Regular MAs

To help the MAs in their recruitment drive Mrs. Whitfield suggested some incentives to be Regular MAs shall be entitled to the following compensation and benefits:
undertaken by the MAs like (1) cash incentives for associates that bring in a recruit, (2) cash
incentives based on production brought in by these new recruits. 3.1 Compensation

She said that MAs, as businessm[e]n should invest time, effort & money to their work, because it a) Personal Production
will redown [sic] to their own good anyway, that the success of their agency should not depend
solely on what management could give as incentives but also on incentives of MAs within their
Individual/Family Institutional Acct.
agencies. It should be a concerted effort.

commission 30% 30%

After a thorough discussion on the pros & cons of the suggestions it was agreed that a ₱10.00 per
recruit be given to the associate that will recruit and an additional cash prize based on production
of these new recruits.15 bonus 40% -

Clearly, the Managing Associates only received suggestions from Pamana on how to go about b) Group Production
their recruitment and sales activities. They could adopt the suggestions but the suggestions were
not binding on them. They could adopt other methods that they deemed more effective. overriding commission 6% 6%
bonus 5% - 1. Unfair labor practice cases;

3.2 Benefits 2. Termination disputes;

Participation in all sales contests corresponding to the MA position plus any such other benefits as 3. If accompanied with a claim for reinstatement, those cases that workers may file involving
may be provided for the MA on regular status.19 wages, rates of pay, hours of work and other terms and conditions of employment;

Aside from commissions, bonuses and other benefits that depended solely on actual sales,
Pamana did not pay Consulta any compensation for managing her sales division, or for recruiting
and training her sales consultants. As a Managing Associate, she was only entitled to
commissions, bonuses and other benefits, which depended solely on her sales and on the sales of
her group.
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

The Exclusivity Provision 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
Consulta’s appointment had an exclusivity provision. The appointment provided that Consulta or household service, involving an amount exceeding five thousand pesos (₱5,000.00) regardless
must represent Pamana on an exclusive basis. She must not engage directly or indirectly in of whether accompanied with a claim for reinstatement.
activities of other companies that compete with the business of Pamana. However, the fact that
the appointment required Consulta to solicit business exclusively for Pamana did not mean that (b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor
Pamana exercised control over the means and methods of Consulta’s work as the term control is Arbiters.
understood in labor jurisprudence.20 Neither did it make Consulta an employee of Pamana.
Pamana did not prohibit Consulta from engaging in any other business, or from being connected
(c) Cases arising from the interpretation or implementation of collective bargaining agreements
with any other company, for as long as the business or company did not compete with Pamana’s
business. 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.
The prohibition applied for one year after the termination of the contract with Pamana. In one of
their meetings, one of the Managing Associates reported that he was transferring his sales force
Consulta filed her action under Article 217(a)(6) of the Labor Code. However, since there was no
and account from another company to Pamana.21 The exclusivity provision was a reasonable
employer-employee relationship between Pamana and Consulta, the Labor Arbiter should have
restriction designed to prevent similar acts prejudicial to Pamana’s business interest. Article 1306
dismissed Consulta’s claim for unpaid commission. Consulta’s remedy is to file an ordinary civil
of the Civil Code provides that "[t]he contracting parties may establish such stipulations, clauses,
action to litigate her claim.
terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy."
WHEREFORE, the petition is DISMISSED and the Decision of the Court of Appeals in CA-G.R.
SP No. 50462 is AFFIRMED in toto.
Jurisdiction over Claim for Unpaid Commission

SO ORDERED.
There being no employer-employee relationship between Pamana and Consulta, the Labor Arbiter
and the NLRC had no jurisdiction to entertain and rule on Consulta’s money claim.

Article 217 of the Labor Code provides:

ART. 217. Jurisdiction of 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:
 FIRST DIVISION
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 Decision1 and 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
I
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 Resolution 27 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.52 Such 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?1avvphil.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.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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 2004,4 respectively, thereby dismissing the
petition-complaint dated 12 June 2003 filed by herein petitioner Social Security System (SSS)
against herein respondent.
Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial body
authorized by law to resolve disputes arising under Republic Act No. 1161, as amended by
Republic Act No. 8282.5 Petitioner SSS is a government corporation created by virtue of Republic
Act No. 1161, as amended. On the other hand, herein respondent Asiapro Cooperative (Asiapro)
is a multi-purpose cooperative created pursuant to Republic Act No. 6938 6 and duly registered
with the Cooperative Development Authority (CDA) on 23 November 1999 with Registration
Certificate No. 0-623-2460.7
The antecedents of this case are as follows:
Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws,
owners-members are of two categories, to wit: (1) regular member, who is entitled to all the rights
and privileges of membership; and (2) associate member, who has no right to vote and be voted
upon and shall be entitled only to such rights and privileges provided in its by-laws.8 Its primary
objectives are to provide savings and credit facilities and to develop other livelihood services for its
owners-members. In the discharge of the aforesaid primary objectives, respondent cooperative
entered into several Service 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 Petition 14 before petitioner SSC against the
respondent cooperative and Stanfilco praying that the respondent cooperative or, in the
alternative, Stanfilco be directed to register as an employer and to report respondent 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 exceptions 24 in which
factual issues may be resolved by this Court. One of these exceptions finds application in this
present case which is, when the findings of fact are conflicting. There are, indeed, conflicting
findings espoused by the petitioner SSC and the appellate court relative to the existence of
employer-employee relationship between the respondent cooperative and its owners-members,
which necessitates a departure from the oft-repeated rule that factual issues may not be the
subject of appeals to this Court.
In determining the existence of an employer-employee relationship, the following elements are
considered: (1) the selection and engagement of the workers; (2) the payment of wages by
whatever means; (3) the power of dismissal; and (4) the power to control the worker’s conduct,
with the latter assuming primacy in the overall consideration.25 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.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.1awp++i1
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.

However, in so far as it involves cooperatives with employees who are not members or co-owners SO ORDERED.
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.
 THIRD DIVISION
G.R. No. 157214 June 7, 2005
PHILIPPINE GLOBAL COMMUNICATIONS, INC., petitioner,
vs.
RICARDO DE VERA, respondent.
DECISION
GARCIA, J.:
Before us is this appeal by way of a petition for review on certiorari from the 12 September 2002
Decision1 and the 13 February 2003 Resolution2 of the Court of Appeals in CA-G.R. SP No.
65178, upholding the finding of illegal dismissal by the National Labor Relations Commission
against petitioner.
As culled from the records, the pertinent facts are:
Petitioner Philippine Global Communications, Inc. (PhilCom), is a corporation engaged in the
business of communication services and allied activities, while respondent Ricardo De Vera is a
physician by profession whom petitioner enlisted to attend to the medical needs of its employees.
At the crux of the controversy is Dr. De Vera’s status vis a vis petitioner when the latter terminated
his engagement.
It appears that on 15 May 1981, De Vera, via a letter dated 15 May 1981,3 offered his services to
the petitioner, therein proposing his plan of works required of a practitioner in industrial medicine,
to include the following:
1. Application of preventive medicine including periodic check-up of employees;
2. Holding of clinic hours in the morning and afternoon for a total of five (5) hours daily for
consultation services to employees;
3. Management and treatment of employees that may necessitate hospitalization
including emergency cases and accidents;
4. Conduct pre-employment physical check-up of prospective employees with no
additional medical fee;
5. Conduct home visits whenever necessary;
6. Attend to certain medical administrative function such as accomplishing medical forms,
evaluating conditions of employees applying for sick leave of absence and subsequently
issuing proper certification, and all matters referred which are medical in nature.
The parties agreed and formalized respondent’s proposal in a document denominated
as RETAINERSHIP CONTRACT4 which will be for a period of one year subject to renewal, it
being made clear therein that respondent will cover "the retainership the Company previously had
with Dr. K. Eulau" and that respondent’s "retainer fee" will be at P4,000.00 a month. Said contract
was renewed yearly.5 The retainership arrangement went on from 1981 to 1994 with changes in
the retainer’s fee. However, for the years 1995 and 1996, renewal of the contract was only made
verbally.
The turning point in the parties’ relationship surfaced in December 1996 when Philcom, thru a
letter6 bearing on the subject boldly written as "TERMINATION – RETAINERSHIP CONTRACT",
informed De Vera of its decision to discontinue the latter’s "retainer’s contract with the Company
effective at the close of business hours of December 31, 1996" because management has
decided that it would be more practical to provide medical services to its employees through
accredited hospitals near the company premises.
On 22 January 1997, De Vera filed a complaint for illegal dismissal before the National Labor
Relations Commission (NLRC), alleging that that he had been actually employed by Philcom as its
company physician since 1981 and was dismissed without due process. He averred that he was
designated as a "company physician on retainer basis" for reasons allegedly known only to
Philcom. He likewise professed that since he was not conversant with labor laws, he did not give
much attention to the designation as anyway he worked on a full-time basis and was paid a basic
monthly salary plus fringe benefits, like any other regular employees of Philcom.
On 21 December 1998, Labor Arbiter Ramon Valentin C. Reyes came out with a
decision7 dismissing De Vera’s complaint for lack of merit, on the rationale that as a "retained
physician" under a valid contract mutually agreed upon by the parties, De Vera was an
"independent contractor" and that he "was not dismissed but rather his contract with [PHILCOM]
ended when said contract was not renewed after December 31, 1996".
On De Vera’s appeal to the NLRC, the latter, in a decision8 dated 23 October 2000, reversed (the
word used is "modified") that of the Labor Arbiter, on a finding that De Vera is Philcom’s "regular
employee" and accordingly directed the company to reinstate him to his former position without
loss of seniority rights and privileges and with full backwages from the date of his dismissal until
actual reinstatement. We quote the dispositive portion of the decision:
WHEREFORE, the assailed decision is modified in that respondent is ordered to reinstate
complainant to his former position without loss of seniority rights and privileges with full
backwages from the date of his dismissal until his actual reinstatement computed as follows:
Backwages:
a) Basic Salary
From Dec. 31, 1996 to Apr. 10, 2000 = 39.33 mos.
P44,400.00 x 39.33 mos. P1,750,185.00
13th Month Pay:
b) 145,848.75
1/12 of P1,750,185.00
 Travelling allowance:
c) 39,330.00
P1,000.00 x 39.33 mos.
GRAND TOTAL P1,935,363.75
The decision stands in other aspects.
SO ORDERED.
With its motion for reconsideration having been denied by the NLRC in its order of 27 February
2001,9 Philcom then went to the Court of Appeals on a petition for certiorari, thereat docketed
as CA-G.R. SP No. 65178, imputing grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the NLRC when it reversed the findings of the labor arbiter and awarded
thirteenth month pay and traveling allowance to De Vera even as such award had no basis in fact
and in law.
On 12 September 2002, the Court of Appeals rendered a decision, 10 modifying that of the NLRC
by deleting the award of traveling allowance, and ordering payment of separation pay to De Vera
in lieu of reinstatement, thus:
WHEREFORE, premises considered, the assailed judgment of public respondent, dated 23
October 2000, is MODIFIED. The award of traveling allowance is deleted as the same is hereby
DELETED. Instead of reinstatement, private respondent shall be paid separation pay computed at
one (1) month salary for every year of service computed from the time private respondent
commenced his employment in 1981 up to the actual payment of the backwages and separation
pay. The awards of backwages and 13th month pay STAND.
SO ORDERED.
In time, Philcom filed a motion for reconsideration but was denied by the appellate court in its
resolution of 13 February 2003.11
Hence, Philcom’s present recourse on its main submission that -
THE COURT OF APPEALS ERRED IN SUSTAINING THE DECISION OF THE NATIONAL
LABOR RELATIONS COMMISSION AND RENDERING THE QUESTIONED DECISION AND
RESOLUTION IN A WAY THAT IS NOT IN ACCORD WITH THE FACTS AND APPLICABLE
LAWS AND JURISPRUDENCE WHICH DISTINGUISH LEGITIMATE JOB CONTRACTING
AGREEMENTS FROM THE EMPLOYER-EMPLOYEE RELATIONSHIP.
We GRANT.
Under Rule 45 of the Rules of Court, only questions of law may be reviewed by this Court in
decisions rendered by the Court of Appeals. There are instances, however, where the Court
departs from this rule and reviews findings of fact so that substantial justice may be served. The
exceptional instances are where:
"xxx xxx xxx (1) the conclusion is a finding grounded entirely on speculation, surmise and
conjecture; (2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion;
(4) the judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6)
the Court of Appeals went beyond the issues of the case and its findings are contrary to the
admissions of both appellant and appellees; (7) the findings of fact of the Court of Appeals are
contrary to those of the trial court; (8) said findings of facts are conclusions without citation of
specific evidence on which they are based; (9) the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the respondents; and (10) the findings of fact
of the Court of Appeals are premised on the supposed absence of evidence and contradicted by
the evidence on record."12
As we see it, the parties’ respective submissions revolve on the primordial issue of whether an
employer-employee relationship exists between petitioner and respondent, the existence of which
is, in itself, a question of fact13 well within the province of the NLRC. Nonetheless, given the reality
that the NLRC’s findings are at odds with those of the labor arbiter, the Court, consistent with its
ruling in Jimenez vs. National Labor Relations Commission,14 is constrained to look deeper into
the attendant circumstances obtaining in this case, as appearing on record.
In a long line of decisions,15 the Court, in determining the existence of an employer-employee
relationship, has invariably adhered to 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 power to control
the employee’s conduct, or the so-called "control test", considered to be the most important
element.
Applying the four-fold test to this case, we initially find that it was respondent himself who sets the
parameters of what his duties would be in offering his services to petitioner. This is borne by no
less than his 15 May 1981 letter16 which, in full, reads:
"May 15, 1981
Mrs. Adela L. Vicente
Vice President, Industrial Relations
PhilCom, Paseo de Roxas
Makati, Metro Manila
Madam:
I shall have the time and effort for the position of Company physician with your corporation if you
deemed it necessary. I have the necessary qualifications, training and experience required by
such position and I am confident that I can serve the best interests of your employees, medically.
My plan of works and targets shall cover the duties and responsibilities required of a practitioner in
industrial medicine which includes the following:
 1. Application of preventive medicine including periodic check-up of employees;
2. Holding of clinic hours in the morning and afternoon for a total of five (5) hours
daily for consultation services to employees;
3. Management and treatment of employees that may necessitate hospitalization
including emergency cases and accidents;
4. Conduct pre-employment physical check-up of prospective employees with no
additional medical fee;
5. Conduct home visits whenever necessary;
6. Attend to certain medical administrative functions such as accomplishing
medical forms, evaluating conditions of employees applying for sick leave of
absence and subsequently issuing proper certification, and all matters referred
which are medical in nature.
On the subject of compensation for the services that I propose to render to the corporation, you
may state an offer based on your belief that I can very well qualify for the job having worked with
your organization for sometime now.
I shall be very grateful for whatever kind attention you may extend on this matter and hoping that it
will merit acceptance, I remain
Very truly yours,
(signed)
RICARDO V. DE VERA, M.D."
Significantly, the foregoing letter was substantially the basis of the labor arbiter’s finding that there
existed no employer-employee relationship between petitioner and respondent, in addition to the
following factual settings:
The fact that the complainant was not considered an employee was recognized by the
complainant himself in a signed letter to the respondent dated April 21, 1982 attached as Annex G
to the respondent’s Reply and Rejoinder. Quoting the pertinent portion of said letter:
‘To carry out your memo effectively and to provide a systematic and workable time schedule which
will serve the best interests of both the present and absent employee, may I propose an extended
two-hour service (1:00-3:00 P.M.) during which period I can devote ample time to both groups
depending upon the urgency of the situation. I shall readjust my private schedule to be available
for the herein proposed extended hours, should you consider this proposal.
As regards compensation for the additional time and services that I shall render to the employees,
it is dependent on your evaluation of the merit of my proposal and your confidence on my ability to
carry out efficiently said proposal.’
The tenor of this letter indicates that the complainant was proposing to extend his time with the
respondent and seeking additional compensation for said extension. This shows that the
respondent PHILCOM did not have control over the schedule of the complainant as it [is] the
complainant who is proposing his own schedule and asking to be paid for the same. This is proof
that the complainant understood that his relationship with the respondent PHILCOM was a
retained physician and not as an employee. If he were an employee he could not negotiate as to
his hours of work.
The complainant is a Doctor of Medicine, and presumably, a well-educated person. Yet, the
complainant, in his position paper, is claiming that he is not conversant with the law and did not
give much attention to his job title- on a ‘retainer basis’. But the same complainant admits in his
affidavit that his service for the respondent was covered by a retainership contract [which] was
renewed every year from 1982 to 1994. Upon reading the contract dated September 6, 1982,
signed by the complainant himself (Annex ‘C’ of Respondent’s Position Paper), it clearly states
that is a retainership contract. The retainer fee is indicated thereon and the duration of the contract
for one year is also clearly indicated in paragraph 5 of the Retainership Contract. The complainant
cannot claim that he was unaware that the ‘contract’ was good only for one year, as he signed the
same without any objections. The complainant also accepted its renewal every year thereafter
until 1994. As a literate person and educated person, the complainant cannot claim that he does
not know what contract he signed and that it was renewed on a year to year basis.17
The labor arbiter added the indicia, not disputed by respondent, that from the time he started to
work with petitioner, he never was included in its payroll; was never deducted any contribution for
remittance to the Social Security System (SSS); and was in fact subjected by petitioner to the ten
(10%) percent withholding tax for his professional fee, in accordance with the National Internal
Revenue Code, matters which are simply inconsistent with an employer-employee relationship. In
the precise words of the labor arbiter:
"xxx xxx xxx After more than ten years of services to PHILCOM, the complainant would have
noticed that no SSS deductions were made on his remuneration or that the respondent was
deducting the 10% tax for his fees and he surely would have complained about them if he had
considered himself an employee of PHILCOM. But he never raised those issues. An ordinary
employee would consider the SSS payments important and thus make sure they would be paid.
The complainant never bothered to ask the respondent to remit his SSS contributions. This clearly
shows that the complainant never considered himself an employee of PHILCOM and thus,
respondent need not remit anything to the SSS in favor of the complainant."18
Clearly, the elements of an employer-employee relationship are wanting in this case. We may add
that the records are replete with evidence showing that respondent had to bill petitioner for his
monthly professional fees.19 It simply runs against the grain of common experience to imagine that
an ordinary employee has yet to bill his employer to receive his salary.
We note, too, that the power to terminate the parties’ relationship was mutually vested on both.
Either may terminate the arrangement at will, with or without cause.20
Finally, remarkably absent from the parties’ arrangement is the element of control, whereby the
employer has reserved the right to control the employee not only as to the result of the work done
but also as to the means and methods by which the same is to be accomplished. 21
Here, petitioner had no control over the means and methods by which respondent went about
performing his work at the company premises. He could even embark in the private practice of his
profession, not to mention the fact that respondent’s work hours and the additional compensation
therefor were negotiated upon by the parties.22 In fine, the parties themselves practically agreed
on every terms and conditions of respondent’s engagement, which thereby negates the element of
control in their relationship. For sure, respondent has never cited even a single instance when
petitioner interfered with his work.
Yet, despite the foregoing, all of which are extant on record, both the NLRC and the Court of
Appeals ruled that respondent is petitioner’s regular employee at the time of his separation.
Partly says the appellate court in its assailed decision:
Be that as it may, it is admitted that private respondent’s written ‘retainer contract’ was renewed
annually from 1981 to 1994 and the alleged ‘renewal’ for 1995 and 1996, when it was allegedly
terminated, was verbal.
Article 280 of the Labor code (sic) provides:
‘The provisions of written agreement to the contrary notwithstanding and regardless of the oral
agreements of the parties, an employment shall be deemed to be regular where the employee
has been engaged to perform 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 (1) year of service,
whether such is continuous or broken, shall be considered a regular with respect to the
activity in which he is employed and his employment shall continue while such activity exists.’
Parenthetically, the position of company physician, in the case of petitioner, is usually necessary
and desirable because the need for medical attention of employees cannot be foreseen, hence, it
is necessary to have a physician at hand. In fact, the importance and desirability of a physician in
a company premises is recognized by Art. 157 of the Labor Code, which requires the presence of
a physician depending on the number of employees and in the case at bench, in petitioner’s case,
as found by public respondent, petitioner employs more than 500 employees.
Going back to Art. 280 of the Labor Code, it was made therein clear that the provisions of a written
agreement to the contrary notwithstanding or the existence of a mere oral agreement, if the
employee is engaged in the usual business or trade of the employer, more so, that he rendered
service for at least one year, such employee shall be considered as a regular employee. Private
respondent herein has been with petitioner since 1981 and his employment was not for a specific
project or undertaking, the period of which was pre-determined and neither the work or service of
private respondent seasonal. (Emphasis by the CA itself).
We disagree to the foregoing ratiocination.
The appellate court’s premise that regular employees are those who perform activities which are
desirable and necessary for the business of the employer is not determinative in this case. For, we
take it that any agreement may provide that one party shall render services for and in behalf of
another, no matter how necessary for the latter’s business, even without being hired as an
employee. This set-up is precisely true in the case of an independent contractorship as well as in
an agency agreement. Indeed, Article 280 of the Labor Code, quoted by the appellate court, is not
the yardstick for determining the existence of an employment relationship. As it is, the provision
merely distinguishes between two (2) kinds of employees, i.e., regular and casual. It does not
apply where, as here, the very existence of an employment relationship is in dispute.23
Buttressing his contention that he is a regular employee of petitioner, respondent invokes Article
157 of the Labor Code, and argues that he satisfies all the requirements thereunder. The provision
relied upon reads:
ART. 157. Emergency medical and dental services. – It shall be the duty of every employer to
furnish his employees in any locality with free medical and dental attendance and facilities
consisting of:
(a) The services of a full-time registered nurse when the number of employees exceeds
fifty (50) but not more than two hundred (200) except when the employer does not
maintain hazardous workplaces, in which case the services of a graduate first-aider shall
be provided for the protection of the workers, where no registered nurse is available. The
Secretary of Labor shall provide by appropriate regulations the services that shall be
required where the number of employees does not exceed fifty (50) and shall determine
by appropriate order hazardous workplaces for purposes of this Article;
(b) The services of a full-time registered nurse, a part-time physician and dentist, and an
emergency clinic, when the number of employees exceeds two hundred (200) but not
more than three hundred (300); and
(c) The services of a full-time physician, dentist and full-time registered nurse as well as a
dental clinic, and an infirmary or emergency hospital with one bed capacity for every one
hundred (100) employees when the number of employees exceeds three hundred (300).
In cases of hazardous workplaces, no employer shall engage the services of a physician or dentist
who cannot stay in the premises of the establishment for at least two (2) hours, in the case of
those engaged on part-time basis, and not less than eight (8) hours in the case of those employed
on full-time basis. Where the undertaking is nonhazardous in nature, the physician and dentist WHEREFORE, the petition is GRANTED and the challenged decision of the Court of Appeals
may be engaged on retained basis, subject to such regulations as the Secretary of Labor may REVERSED and SET ASIDE. The 21 December 1998 decision of the labor arbiter is
prescribe to insure immediate availability of medical and dental treatment and attendance in case REINSTATED.
of emergency.
No pronouncement as to costs.
Had only respondent read carefully the very statutory provision invoked by him, he would have
noticed that in non-hazardous workplaces, the employer may engage the services of a physician SO ORDERED.
"on retained basis." As correctly observed by the petitioner, while it is true that the provision
requires employers to engage the services of medical practitioners in certain establishments
depending on the number of their employees, nothing is there in the law which says that medical
practitioners so engaged be actually hired as employees,24 adding that the law, as written, only
requires the employer "to retain", not employ, a part-time physician who needed to stay in the
premises of the non-hazardous workplace for two (2) hours.25

Respondent takes no issue on the fact that petitioner’s business of telecommunications is not
hazardous in nature. As such, what applies here is the last paragraph of Article 157 which, to
stress, provides that the employer may engage the services of a physician and dentist "on
retained basis", subject to such regulations as the Secretary of Labor may prescribe. The
successive "retainership" agreements of the parties definitely hue to the very statutory provision
relied upon by respondent.

Deeply embedded in our jurisprudence is the rule that courts may not construe a statute that is
free from doubt. Where the law is clear and unambiguous, it must be taken to mean exactly what it
says, and courts have no choice but to see to it that the mandate is obeyed. 26 As it is, Article 157
of the Labor Code clearly and unequivocally allows employers in non-hazardous establishments to
engage "on retained basis" the service of a dentist or physician. Nowhere does the law provide
that the physician or dentist so engaged thereby becomes a regular employee. The very phrase
that they may be engaged "on retained basis", revolts against the idea that this engagement gives
rise to an employer-employee relationship.

With the recognition of the fact that petitioner consistently engaged the services of respondent on
a retainer basis, as shown by their various "retainership contracts", so can petitioner put an end,
with or without cause, to their retainership agreement as therein provided.27

We note, however, that even as the contracts entered into by the parties invariably provide for a
60-day notice requirement prior to termination, the same was not complied with by petitioner when
it terminated on 17 December 1996 the verbally-renewed retainership agreement, effective at the
close of business hours of 31 December 1996.

Be that as it may, the record shows, and this is admitted by both parties, 28 that execution of the
NLRC decision had already been made at the NLRC despite the pendency of the present
recourse. For sure, accounts of petitioner had already been garnished and released to respondent
despite the previous Status Quo Order29 issued by this Court. To all intents and purposes,
therefore, the 60-day notice requirement has become moot and academic if not waived by the
respondent himself.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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 Appeals 1 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
12
In a Decision 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 Resolution 14 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 billing. More often than not, an employee is required to stay in the employer’s workplace or
between the parties. The resolution of the main issue will determine whether the termination of proximately close thereto that he cannot utilize his time effectively and gainfully for his own
respondent’s employment is illegal. purpose. Such is not the prevailing situation here.1awphi1.net

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 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.

In the case of petitioner Neri, it is admitted that FEBTC issued a job description which detailed her Considering that there is no employer-employee relationship between the parties, the termination
functions as a radio/telex operator. However, a cursory reading of the job description shows that of the Retainership Agreement, which is in accordance with the provisions of the Agreement, does
what was sought to be controlled by FEBTC was actually the end result of the task, e.g., that the not constitute illegal dismissal of respondent. Consequently, there is no basis for the moral and
daily incoming and outgoing telegraphic transfer of funds received and relayed by her, exemplary damages granted by the Court of Appeals to respondent due to his alleged illegal
respectively, tallies with that of the register. The guidelines were laid down merely to ensure that dismissal.
the desired end result was achieved. It did not, however, tell Neri how the radio/telex machine
should be operated.
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
In effect, the Labor Arbiter held that petitioner company, through the Comprehensive Medical August 7, 1998, respectively, of the National Labor Relations Commission are REINSTATED.
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.
No costs.
The NLRC affirmed the findings of the Labor Arbiter and stated that it is precisely because the
SO ORDERED.
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
 SECOND DIVISION
G.R. No. 146530 January 17, 2005
PEDRO CHAVEZ, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING, INC. and ALVIN
LEE, Plant Manager, respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari of the Resolution1 dated December 15,
2000 of the Court of Appeals (CA) reversing its Decision dated April 28, 2000 in CA-G.R. SP No.
52485. The assailed resolution reinstated the Decision dated July 10, 1998 of the National Labor
Relations Commission (NLRC), dismissing the complaint for illegal dismissal filed by herein
petitioner Pedro Chavez. The said NLRC decision similarly reversed its earlier Decision dated
January 27, 1998 which, affirming that of the Labor Arbiter, ruled that the petitioner had been
illegally dismissed by respondents Supreme Packaging, Inc. and Mr. Alvin Lee.
The case stemmed from the following facts:
The respondent company, Supreme Packaging, Inc., is in the business of manufacturing cartons
and other packaging materials for export and distribution. It engaged the services of the petitioner,
Pedro Chavez, as truck driver on October 25, 1984. As such, the petitioner was tasked to deliver
the respondent company’s products from its factory in Mariveles, Bataan, to its various customers,
mostly in Metro Manila. The respondent company furnished the petitioner with a truck. Most of the
petitioner’s delivery trips were made at nighttime, commencing at 6:00 p.m. from Mariveles, and
returning thereto in the afternoon two or three days after. The deliveries were made in accordance
with the routing slips issued by respondent company indicating the order, time and urgency of
delivery. Initially, the petitioner was paid the sum of ₱350.00 per trip. This was later adjusted to
₱480.00 per trip and, at the time of his alleged dismissal, the petitioner was receiving ₱900.00 per
trip.
Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent company’s plant
manager, his (the petitioner’s) desire to avail himself of the benefits that the regular employees
were receiving such as overtime pay, nightshift differential pay, and 13th month pay, among
others. Although he promised to extend these benefits to the petitioner, respondent Lee failed to
actually do so.
On February 20, 1995, the petitioner filed a complaint for regularization with the Regional
Arbitration Branch No. III of the NLRC in San Fernando, Pampanga. Before the case could be
heard, respondent company terminated the services of the petitioner. Consequently, on May 25,
1995, the petitioner filed an amended complaint against the respondents for illegal dismissal,
unfair labor practice and non-payment of overtime pay, nightshift differential pay, 13th month pay,
among others. The case was docketed as NLRC Case No. RAB-III-02-6181-95.
The respondents, for their part, denied the existence of an employer-employee relationship
between the respondent company and the petitioner. They averred that the petitioner was an
independent contractor as evidenced by the contract of service which he and the respondent
company entered into. The said contract provided as follows:
That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to hire and
the Contractor [referring to Pedro Chavez], by nature of their specialized line or service jobs,
accepts the services to be rendered to the Principal, under the following terms and covenants
heretofore mentioned:
1. That the inland transport delivery/hauling activities to be performed by the contractor to
the principal, shall only cover travel route from Mariveles to Metro Manila. Otherwise, any
change to this travel route shall be subject to further agreement by the parties concerned.
2. That the payment to be made by the Principal for any hauling or delivery transport
services fully rendered by the Contractor shall be on a per trip basis depending on the
size or classification of the truck being used in the transport service, to wit:
a) If the hauling or delivery service shall require a truck of six wheeler, the
payment on a per trip basis from Mariveles to Metro Manila shall be THREE
HUNDRED PESOS (₱300.00) and EFFECTIVE December 15, 1984.
b) If the hauling or delivery service require a truck of ten wheeler, the payment on
a per trip basis, following the same route mentioned, shall be THREE HUNDRED
FIFTY (₱350.00) Pesos and Effective December 15, 1984.
3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at least two
(2) helpers;
4. The Contractor shall exercise direct control and shall be responsible to the Principal for
the cost of any damage to, loss of any goods, cargoes, finished products or the like, while
the same are in transit, or due to reckless [sic] of its men utilized for the purpose above
mentioned;
5. That the Contractor shall have absolute control and disciplinary power over its men
working for him subject to this agreement, and that the Contractor shall hold the Principal
free and harmless from any liability or claim that may arise by virtue of the Contractor’s
non-compliance to the existing provisions of the Minimum Wage Law, the Employees
Compensation Act, the Social Security System Act, or any other such law or decree that
may hereafter be enacted, it being clearly understood that any truck drivers, helpers or
men working with and for the Contractor, are not employees who will be indemnified by
the Principal for any such claim, including damages incurred in connection therewith;
 6. This contract shall take effect immediately upon the signing by the parties, subject to
renewal on a year-to-year basis.2
This contract of service was dated December 12, 1984. It was subsequently renewed twice, on
July 10, 1989 and September 28, 1992. Except for the rates to be paid to the petitioner, the terms
of the contracts were substantially the same. The relationship of the respondent company and the
petitioner was allegedly governed by this contract of service.
The respondents insisted that the petitioner had the sole control over the means and methods by
which his work was accomplished. He paid the wages of his helpers and exercised control over
them. As such, the petitioner was not entitled to regularization because he was not an employee
of the respondent company. The respondents, likewise, maintained that they did not dismiss the
petitioner. Rather, the severance of his contractual relation with the respondent company was due
to his violation of the terms and conditions of their contract. The petitioner allegedly failed to
observe the minimum degree of diligence in the proper maintenance of the truck he was using,
thereby exposing respondent company to unnecessary significant expenses of overhauling the
said truck.
After the parties had filed their respective pleadings, the Labor Arbiter rendered the Decision
dated February 3, 1997, finding the respondents guilty of illegal dismissal. The Labor Arbiter
declared that the petitioner was a regular employee of the respondent company as he was
performing a service that was necessary and desirable to the latter’s business. Moreover, it was
noted that the petitioner had discharged his duties as truck driver for the respondent company for
a continuous and uninterrupted period of more than ten years.
The contract of service invoked by the respondents was declared null and void as it constituted a
circumvention of the constitutional provision affording full protection to labor and security of tenure.
The Labor Arbiter found that the petitioner’s dismissal was anchored on his insistent demand to be
regularized. Hence, for lack of a valid and just cause therefor and for their failure to observe the
due process requirements, the respondents were found guilty of illegal dismissal. The dispositive
portion of the Labor Arbiter’s decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent
SUPREME PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with business address at
BEPZ, Mariveles, Bataan guilty of illegal dismissal, ordering said respondent to pay complainant
his separation pay equivalent to one (1) month pay per year of service based on the average
monthly pay of ₱10,800.00 in lieu of reinstatement as his reinstatement back to work will not do
any good between the parties as the employment relationship has already become strained and
full backwages from the time his compensation was withheld on February 23, 1995 up to January
31, 1997 (cut-off date) until compliance, otherwise, his backwages shall continue to run. Also to
pay complainant his 13th month pay, night shift differential pay and service incentive leave pay
hereunder computed as follows:
a) Backwages ………………….. ₱248,400.00
b) Separation Pay ………….…... ₱140,400.00
c) 13th month pay ………….……₱ 10,800.00
d) Service Incentive Leave Pay .. 2,040.00
TOTAL ₱401,640.00
Respondent is also ordered to pay ten (10%) of the amount due the complainant as attorney’s
fees.
SO ORDERED.3
The respondents seasonably interposed an appeal with the NLRC. However, the appeal was
dismissed by the NLRC in its Decision4 dated January 27, 1998, as it affirmed in toto the decision
of the Labor Arbiter. In the said decision, the NLRC characterized the contract of service between
the respondent company and the petitioner as a "scheme" that was resorted to by the respondents
who, taking advantage of the petitioner’s unfamiliarity with the English language and/or legal
niceties, wanted to evade the effects and implications of his becoming a regularized employee. 5
The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC. Acting
thereon, the NLRC rendered another Decision6 dated July 10, 1998, reversing its earlier decision
and, this time, holding that no employer-employee relationship existed between the respondent
company and the petitioner. In reconsidering its earlier decision, the NLRC stated that the
respondents did not exercise control over the means and methods by which the petitioner
accomplished his delivery services. It upheld the validity of the contract of service as it pointed out
that said contract was silent as to the time by which the petitioner was to make the deliveries and
that the petitioner could hire his own helpers whose wages would be paid from his own account.
These factors indicated that the petitioner was an independent contractor, not an employee of the
respondent company.
The NLRC ruled that the contract of service was not intended to circumvent Article 280 of the
Labor Code on the regularization of employees. Said contract, including the fixed period of
employment contained therein, having been knowingly and voluntarily entered into by the parties
thereto was declared valid citing Brent School, Inc. v. Zamora.7 The NLRC, thus, dismissed the
petitioner’s complaint for illegal dismissal.
The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied by the NLRC
in its Resolution dated September 7, 1998. He then filed with this Court a petition for certiorari,
which was referred to the CA following the ruling in St. Martin Funeral Home v. NLRC .8
The appellate court rendered the Decision dated April 28, 2000, reversing the July 10, 1998
Decision of the NLRC and reinstating the decision of the Labor Arbiter. In the said decision, the
CA ruled that the petitioner was a regular employee of the respondent company because as its
truck driver, he performed a service that was indispensable to the latter’s business. Further, he
had been the respondent company’s truck driver for ten continuous years. The CA also reasoned
that the petitioner could not be considered an independent contractor since he had no substantial
capital in the form of tools and machinery. In fact, the truck that he drove belonged to the
respondent company. The CA also observed that the routing slips that the respondent company
issued to the petitioner showed that it exercised control over the latter. The routing slips indicated
the chronological order and priority of delivery, the urgency of certain deliveries and the time when
the goods were to be delivered to the customers.
The CA, likewise, disbelieved the respondents’ claim that the petitioner abandoned his job noting
that he just filed a complaint for regularization. This actuation of the petitioner negated the
respondents’ allegation that he abandoned his job. The CA held that the respondents failed to
discharge their burden to show that the petitioner’s dismissal was for a valid and just cause.
Accordingly, the respondents were declared guilty of illegal dismissal and the decision of the
Labor Arbiter was reinstated.
In its April 28, 2000 Decision, the CA denounced the contract of service between the respondent
company and the petitioner in this wise:
In summation, we rule that with the proliferation of contracts seeking to prevent workers from
attaining the status of regular employment, it is but necessary for the courts to scrutinize with
extreme caution their legality and justness. Where from the circumstances it is apparent that a
contract has been entered into to preclude acquisition of tenurial security by the employee, they
should be struck down and disregarded as contrary to public policy and morals. In this case, the
"contract of service" is just another attempt to exploit the unwitting employee and deprive him of
the protection of the Labor Code by making it appear that the stipulations of the parties were
governed by the Civil Code as in ordinary transactions.9
However, on motion for reconsideration by the respondents, the CA made a complete turn around
as it rendered the assailed Resolution dated December 15, 2000 upholding the contract of service
between the petitioner and the respondent company. In reconsidering its decision, the CA
explained that the extent of control exercised by the respondents over the petitioner was only with
respect to the result but not to the means and methods used by him. The CA cited the following
circumstances: (1) the respondents had no say on how the goods were to be delivered to the
customers; (2) the petitioner had the right to employ workers who would be under his direct
control; and (3) the petitioner had no working time.
The fact that the petitioner had been with the respondent company for more than ten years was,
according to the CA, of no moment because his status was determined not by the length of
service but by the contract of service. This contract, not being contrary to morals, good customs,
public order or public policy, should be given the force and effect of law as between the
respondent company and the petitioner. Consequently, the CA reinstated the July 10, 1998
Decision of the NLRC dismissing the petitioner’s complaint for illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000 Resolution
of the appellate court alleging that:
(A)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
EXCESS OF JURISDICTION IN GIVING MORE CONSIDERATION TO THE "CONTRACT OF
SERVICE" ENTERED INTO BY PETITIONER AND PRIVATE RESPONDENT THAN ARTICLE
280 OF THE LABOR CODE OF THE PHILIPPINES WHICH CATEGORICALLY DEFINES A
REGULAR EMPLOYMENT NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE
CONTRARY AND REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;
(B)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
EXCESS OF JURISDICTION IN REVERSING ITS OWN FINDINGS THAT PETITIONER IS A
REGULAR EMPLOYEE AND IN HOLDING THAT THERE EXISTED NO EMPLOYER-
EMPLOYEE RELATIONSHIP BETWEEN PRIVATE RESPONDENT AND PETITIONER IN AS
MUCH AS THE "CONTROL TEST" WHICH IS CONSIDERED THE MOST ESSENTIAL
CRITERION IN DETERMINING THE EXISTENCE OF SAID RELATIONSHIP IS NOT
PRESENT.10
The threshold issue that needs to be resolved is whether there existed an employer-employee
relationship between the respondent company and the petitioner. We rule in the affirmative.
The elements to determine the existence of an employment relationship are: (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.11 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. 12 All the four elements are present in this
case.
First. Undeniably, it was the respondents who engaged the services of the petitioner without the
intervention of a third party.
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."13 That the petitioner was paid on a per trip basis is not significant.
This is merely a method of computing compensation and not a basis for determining the existence
or absence of employer-employee relationship. One may be paid on the basis of results or time
expended on the work, and may or may not acquire an employment status, depending on whether
the elements of an employer-employee relationship are present or not.14 In this case, it cannot be
gainsaid that the petitioner received compensation from the respondent company for the services
that he rendered to the latter.
Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his
employees by means of payroll.15 The payroll should show, among other things, the employee’s
rate of pay, deductions made, and the amount actually paid to the employee. Interestingly, the
respondents did not present the payroll to support their claim that the petitioner was not their
employee, raising speculations whether this omission proves that its presentation would be
adverse to their case.16
Third. The respondents’ power to dismiss the petitioner was inherent in the fact that they engaged
the services of the petitioner as truck driver. They exercised this power by terminating the
petitioner’s services albeit in the guise of "severance of contractual relation" due allegedly to the
latter’s breach of his contractual obligation.
Fourth. As earlier opined, of the four elements of the employer-employee relationship, the "control
test" is the most important. Compared to an employee, an independent contractor is one who
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, 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.17 Hence, while an independent contractor enjoys
independence and freedom from the control and supervision of his principal, an employee is
subject to the employer’s power to control the means and methods by which the employee’s work
is to be performed and accomplished.18
Although the respondents denied that they exercised control over the manner and methods by
which the petitioner accomplished his work, a careful review of the records shows that the latter
performed his work as truck driver under the respondents’ supervision and control. Their right of
control was manifested by the following attendant circumstances:
1. The truck driven by the petitioner belonged to respondent company;
2. There was an express instruction from the respondents that the truck shall be used
exclusively to deliver respondent company’s goods; 19
3. Respondents directed the petitioner, after completion of each delivery, to park the truck
in either of two specific places only, to wit: at its office in Metro Manila at 2320 Osmeña
Street, Makati City or at BEPZ, Mariveles, Bataan;20 and
4. Respondents determined how, where and when the petitioner would perform his task
by issuing to him gate passes and routing slips. 21
a. The routing slips indicated on the column REMARKS, the chronological order
and priority of delivery such as 1st drop, 2nd drop, 3rd drop, etc. This meant that
the petitioner had to deliver the same according to the order of priority indicated
therein.
b. The routing slips, likewise, showed whether the goods were to be delivered
urgently or not by the word RUSH printed thereon.
c. The routing slips also indicated the exact time as to when the goods were to
be delivered to the customers as, for example, the words "tomorrow morning"
was written on slip no. 2776.
These circumstances, to the Court’s mind, prove that the respondents exercised control over the
means and methods by which the petitioner accomplished his work as truck driver of the
respondent company. On the other hand, the Court is hard put to believe the respondents’
allegation that the petitioner was an independent contractor engaged in providing delivery or
hauling services when he did not even own the truck used for such services. Evidently, he did not
possess substantial capitalization or investment in the form of tools, machinery and work
premises. Moreover, the petitioner performed the delivery services exclusively for the respondent
company for a continuous and uninterrupted period of ten years.
The contract of service to the contrary notwithstanding, the factual circumstances earlier
discussed indubitably establish the existence of an employer-employee relationship between the
respondent company and the petitioner. It bears stressing that the existence of an employer-
employee relationship cannot be negated by expressly repudiating it in a contract and providing
therein that the employee is an independent contractor when, as in this case, the facts clearly
show otherwise. Indeed, the employment status of a person is defined and prescribed by law and
not by what the parties say it should be.22
Having established that there existed an employer-employee relationship between the respondent
company and the petitioner, the Court shall now determine whether the respondents validly
dismissed the petitioner.
As a rule, the employer bears the burden to prove that the dismissal was for a valid and just
cause.23 In this case, the respondents failed to prove any such cause for the petitioner’s dismissal.
They insinuated that the petitioner abandoned his job. To constitute abandonment, these two
factors must concur: (1) the failure to report for work or absence without valid or justifiable reason;
and (2) a clear intention to sever employer-employee relationship.24 Obviously, the petitioner did
not intend to sever his relationship with the respondent company for at the time that he allegedly
abandoned his job, the petitioner just filed a complaint for regularization, which was forthwith
amended to one for illegal dismissal. A charge of abandonment is totally inconsistent with the
immediate filing of a complaint for illegal dismissal, more so when it includes a prayer for
reinstatement.25
Neither can the respondents’ claim that the petitioner was guilty of gross negligence in the proper
maintenance of the truck constitute a valid and just cause for his dismissal. Gross negligence
implies a want or absence of or failure to exercise slight care or diligence, or the entire absence of
care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid
them.26 The negligence, to warrant removal from service, should not merely be gross but
also habitual.27 The single and isolated act of the petitioner’s negligence in the proper
maintenance of the truck alleged by the respondents does not amount to "gross and habitual
neglect" warranting his dismissal.
The Court agrees with the following findings and conclusion of the Labor Arbiter:
… As against the gratuitous allegation of the respondent that complainant was not dismissed from
the service but due to complainant’s breach of their contractual relation, i.e., his violation of the
terms and conditions of the contract, we are very much inclined to believe complainant’s story that
his dismissal from the service was anchored on his insistent demand that he be considered a
regular employee. Because complainant in his right senses will not just abandon for that reason
alone his work especially so that it is only his job where he depends chiefly his existence and
support for his family if he was not aggrieved by the respondent when he was told that his services
as driver will be terminated on February 23, 1995.28

Thus, the lack of a valid and just cause in terminating the services of the petitioner renders his
dismissal illegal. Under Article 279 of the Labor Code, an employee who is unjustly dismissed is
entitled to reinstatement, without loss of seniority rights and other privileges, and to the payment of
full backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed
from the time his compensation was withheld from him up to the time of his actual
reinstatement.29 However, as found by the Labor Arbiter, the circumstances obtaining in this case
do not warrant the petitioner’s reinstatement. A more equitable disposition, as held by the Labor
Arbiter, would be an award of separation pay equivalent to one month for every year of service
from the time of his illegal dismissal up to the finality of this judgment in addition to his full
backwages, allowances and other benefits.

WHEREFORE, the instant petition is GRANTED. The Resolution dated December 15, 2000 of the
Court of Appeals reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is
REVERSED and SET ASIDE. The Decision dated February 3, 1997 of the Labor Arbiter in NLRC
Case No. RAB-III-02-6181-5, finding the respondents guilty of illegally terminating the employment
of petitioner Pedro Chavez, is REINSTATED.

SO ORDERED.
 FIRST DIVISION
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) The award of 10% attorney’s fees shall be based on salary differential award only;

3. ordering respondents to reinstate complainant to her former position without loss of seniority 4) The awards representing salary differentials, housing allowance, mid year bonus and 13th
rights and jointly and severally pay complainant her money claims in accordance with the following month pay are AFFIRMED.
computation:
SO ORDERED. 15
a. Backwages 10/2001 – 07/2002 275,000.00
On appeal, the Court of Appeals reversed the NLRC decision, thus:
(27,500 x 10 mos.)
WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor
b. Salary Differentials (01/2001 – 09/2001) 22,500.00 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
c. Housing Allowance (01/2001 – 07/2002) 57,000.00 Corporation, et al. for constructive dismissal.

d. Midyear Bonus 2001 27,500.00 SO ORDERED. 16

e. 13th Month Pay 27,500.00 The appellate court denied petitioner’s motion for reconsideration, hence, the present recourse.

f. 10% share in the profits of Kasei 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.
Corp. from 1996-2001 361,175.00
Considering the conflicting findings by the Labor Arbiter and the National Labor Relations
g. Moral and exemplary damages 100,000.00
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
h. 10% Attorney’s fees 87,076.50 by substantial evidence. 17

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;
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.

2) The awards representing moral and exemplary damages and 10% share in profit in the The better approach would therefore be to adopt a two-tiered test involving: (1) the putative
respective accounts of P100,000.00 and P361,175.00 are deleted; 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.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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.1awph!1 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. 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 Managers/Supervisors
- to render or recommend prospective agents to - train understudies for the position of
be licensed, trained and contracted to sell manager
Manulife products and who will be part of my Unit
- to coordinate activities of the agents under [the - properly account, record and documen
managers’] Unit in [the agents’] daily, weekly and company’s funds, spot-check and audit the w
monthly selling activities, making sure that their the zone supervisors, x x x follow up the subm
respective sales targets are met; of weekly remittance reports of the debit agen
zone supervisors
- to conduct periodic training sessions for [the]
agents to further enhance their sales skill; and - direct and supervise the sales activities of the
agents under him, x x x undertake and dischar
- to assist [the] agents with their sales activities functions of absentee debit agents, spot-che
by way of joint fieldwork, consultations and one- record of debit agents, and insure
on-one evaluation and analysis of particular documentation of sales and collections of
accounts 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.34 This 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, GRANT Manulife’s motion for reconsideration and, accordingly, DISMISS Tongko’s petition.
No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 167622 January 25, 2011
GREGORIO V. TONGKO, Petitioner,
vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE
DIOS, Respondents.
RESOLUTION
BRION, J.:
We resolve petitioner Gregorio V. Tongko’s bid, through his Motion for Reconsideration, 1 to set
aside our June 29, 2010 Resolution that reversed our Decision of November 7, 2008.2 With the
reversal, the assailed June 29, 2010 Resolution effectively affirmed the Court of Appeals’ ruling3 in
CA-G.R. SP No. 88253 that the petitioner was an insurance agent, not the employee, of the
respondent The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife).
In his Motion for Reconsideration, petitioner reiterates the arguments he had belabored in his
petition and various other submissions. He argues that for 19 years, he performed administrative
functions and exercised supervisory authority over employees and agents of Manulife, in addition
to his insurance agent functions.4 In these 19 years, he was designated as a Unit Manager, a
Branch Manager and a Regional Sales Manager, and now posits that he was not only an
insurance agent for Manulife but was its employee as well.
We find no basis or any error to merit the reconsideration of our June 29, 2010 Resolution.
A. Labor Law Control = Employment Relationship
Control over the performance of the task of one providing service – both with respect to the means
and manner, and the results of the service – is the primary element in determining whether an
employment relationship exists. We resolve the petitioner’s Motion against his favor since he failed
to show that the control Manulife exercised over him was the control required to exist in an
employer-employee relationship; Manulife’s control fell short of this norm and carried only the
characteristic of the relationship between an insurance company and its agents, as defined by the
Insurance Code and by the law of agency under the Civil Code.
The petitioner asserts in his Motion that Manulife’s labor law control over him was demonstrated
(1) when it set the objectives and sales targets regarding production, recruitment and training
programs; and (2) when it prescribed the Code of Conduct for Agents and the Manulife Financial
Code of Conduct to govern his activities.5 We find no merit in these contentions.
In our June 29, 2010 Resolution, we noted that there are built-in elements of control specific to an
insurance agency, which do not amount to the elements of control that characterize an
employment relationship governed by the Labor Code. The Insurance Code provides definite
parameters in the way an agent negotiates for the sale of the company’s insurance products, his
collection activities and his delivery of the insurance contract or policy.6 In addition, the Civil Code
defines an agent as a person who binds himself to do something in behalf of another, with the
consent or authority of the latter.7 Article 1887 of the Civil Code also provides that in the execution
of the agency, the agent shall act in accordance with the instructions of the principal.
All these, read without any clear understanding of fine legal distinctions, appear to speak of control
by the insurance company over its agents. They are, however, controls aimed only at specific
results in undertaking an insurance agency, and are, in fact, parameters set by law in defining an
insurance agency and the attendant duties and responsibilities an insurance agent must observe
and undertake. They do not reach the level of control into the means and manner of doing an
assigned task that invariably characterizes an employment relationship as defined by labor law.
From this perspective, the petitioner’s contentions cannot prevail.
To reiterate, guidelines indicative of labor law "control" do not merely relate to the mutually
desirable result intended by the contractual relationship; they must have the nature of dictating the
means and methods to be employed in attaining the result.8 Tested by this norm, Manulife’s
instructions regarding the objectives and sales targets, in connection with the training and
engagement of other agents, are among the directives that the principal may impose on the agent
to achieve the assigned tasks. They are targeted results that Manulife wishes to attain through its
agents. Manulife’s codes of conduct, likewise, do not necessarily intrude into the insurance
agents’ means and manner of conducting their sales. Codes of conduct are norms or standards of
behavior rather than employer directives into how specific tasks are to be done. These codes, as
well as insurance industry rules and regulations, are not per se indicative of labor law control
under our jurisprudence.9
The duties10 that the petitioner enumerated in his Motion are not supported by evidence and,
therefore, deserve scant consideration. Even assuming their existence, however, they mostly
pertain to the duties of an insurance agent such as remitting insurance fees to Manulife, delivering
policies to the insured, and after-sale services. For agents leading other agents, these include the
task of overseeing other insurance agents, the recruitment of other insurance agents engaged by
Manulife as principal, and ensuring that these other agents comply with the paperwork necessary
in selling insurance. That Manulife exercises the power to assign and remove agents under the
petitioner’s supervision is in keeping with its role as a principal in an agency relationship; they are
Manulife agents in the same manner that the petitioner had all along been a Manulife agent.
The petitioner also questions Manulife’s act of investing him with different titles and positions in
the course of their relationship, given the respondents’ position that he simply functioned as an
insurance agent.11 He also considers it an unjust and inequitable situation that he would be
unrewarded for the years he spent as a unit manager, a branch manager, and a regional sales
manager.12
Based on the evidence on record, the petitioner’s occupation was to sell Manulife’s insurance
policies and products from 1977 until the termination of the Career Agent’s Agreement
(Agreement). The evidence also shows that through the years, Manulife permitted him to exercise
guiding authority over other agents who operate under their own agency agreements with Manulife
and whose commissions he shared.13 Under this scheme – an arrangement that pervades the
insurance industry – petitioner in effect became a "lead agent" and his own commissions
increased as they included his share in the commissions of the other agents; 14 he also received
greater reimbursements for expenses and was allowed to use Manulife’s facilities. His designation
also changed from unit manager to branch manager and then to regional sales manager, to reflect
the increase in the number of agents he recruited and guided, as well as the increase in the area
where these agents operated.
As our assailed Resolution concluded and as we now similarly conclude, these arrangements, and
the titles and positions the petitioner was invested with, did not change his status from the
insurance agent that he had always been (as evidenced by the Agreement that governed his
relationship with Manulife from the start to its disagreeable end). The petitioner simply progressed
from his individual agency to being a lead agent who could use other agents in selling insurance
and share in the earnings of these other agents.
In sum, we find absolutely no evidence of labor law control, as extensively discussed in our
Resolution of June 29, 2010, granting Manulife’s motion for reconsideration. The Dissent,
unfortunately, misses this point.
B. No Resulting Inequity
We also do not agree that our assailed Resolution has the effect of fostering an inequitable or
unjust situation. The records show that the petitioner was very amply paid for his services as an
insurance agent, who also shared in the commissions of the other agents under his guidance. In
1997, his income was ₱2,822,620; in 1998, ₱4,805,166.34; in 1999, ₱6,797,814.05; in 2001,
₱6,214,737.11; and in 2002, ₱8,003,180.38. All these he earned as an insurance agent, as he
failed to ever prove that he earned these sums as an employee. In technical terms, he could not
have earned all these as an employee because he failed to provide the substantial evidence
required in administrative cases to support the finding that he was a Manulife employee. No
inequity results under this legal situation; what would be unjust is an award of backwages and
separation pay – amounts that are not due him because he was never an employee.
The Dissent’s discussion on this aspect of the case begins with the wide disparity in the status of
the parties – that Manulife is a big Canadian insurance company while Tongko is but a single
agent of Manulife. The Dissent then went on to say that "[i]f is but just, it is but right, that the Court
interprets the relationship between Tongko and Manulife as one of employment under labor laws
and to uphold his constitutionally protected right, as an employee, to security of tenure and
entitlement to monetary award should such right be infringed."15 We cannot simply invoke the
magical formula by creating an employment relationship even when there is none because of the
unavoidable and inherently weak position of an individual over a giant corporation.
The Dissent likewise alluded to an ambiguity in the true relationship of the parties after Tongko’s
successive appointments. We already pointed out that the legal significance of these
appointments had not been sufficiently explained and that it did not help that Tongko never
bothered to present evidence on this point. The Dissent recognized this but tried to excuse
Tongko from this failure in the subsequent discussion, as follows:
[o]ther evidence was adduced to show such duties and responsibilities. For one, in his letter of
November 6, 2001, respondent De Dios addressed petitioner as sales manager. And as I wrote in
my Dissent to the June 29, 2010 Resolution, it is difficult to imagine that Manulife did not issue
promotional appointments to petitioner as unit manager, branch manager, and, eventually,
regional sales manager. Sound management practice simply requires an appointment for any
upward personnel movement, particularly when additional functions and the corresponding
increase in compensation are involved. Then, too, the adverted affidavits of the managers of
Manulife as to the duties and responsibilities of a unit manager, such as petitioner, point to the
conclusion that these managers were employees of Manulife, applying the "four-fold" test.16
This Court (and all adjudicators for that matter) cannot and should not fill in the evidentiary gaps in
a party’s case that the party failed to support; we cannot and should not take the cudgels for any
party. Tongko failed to support his cause and we should simply view him and his case as they are;
our duty is to sit as a judge in the case that he and the respondent presented.
To support its arguments on equity, the Dissent uses the Constitution and the Civil Code, using
provisions and principles that are all motherhood statements. The mandate of the Court, of
course, is to decide cases based on the facts and the law, and not to base its conclusions on
fundamental precepts that are far removed from the particular case presented before it. When
there is no room for their application, of capacity of principles, reliance on the application of these
fundamental principles is misplaced.
C. Earnings were Commissions
That his earnings were agent’s commissions arising from his work as an insurance agent is a
matter that the petitioner cannot deny, as these are the declarations and representations he stated
in his income tax returns through the years. It would be doubly unjust, particularly to the
government, if he would be allowed at this late point to turn around and successfully claim that he
was merely an employee after he declared himself, through the years, as an independent self-
employed insurance agent with the privilege of deducting business expenses. This aspect of the
case alone – considered together with the probative value of income tax declarations and returns
filed prior to the present controversy — should be enough to clinch the present case against the
petitioner’s favor.
D. The Dissent’s Solution:
Unwieldy and Legally Infirm
The Dissent proposes that Tongko should be considered as part employee (as manager) and part
insurance agent; hence, the original decision should be modified to pertain only to the termination
of his employment as a manager and not as an insurance agent. Accordingly, the backwages
component of the original award to him should not include the insurance sales commissions. This
solution, according to the line taken by the Dissent then, was justified on the view that this was
made on a case-to-case basis.
Decisions of the Supreme Court, as the Civil Code provides, form part of the law of the land. When
the Court states that the determination of the existence of an employment relationship should be
on a case-to-case basis, this does not mean that there will be as many laws on the issue as there
are cases. In the context of this case, the four-fold test is the established standard for determining
employer-employee relationship and the existence of these elements, most notably control, is the
basis upon which a conclusion on the absence of employment relationship was anchored. This
simply means that a conclusion on whether employment relationship exists in a particular case
largely depends on the facts and, in no small measure, on the parties’ evidence vis-à-vis the
clearly defined jurisprudential standards. Given that the parties control what and how the facts will
be established in a particular case and/or how a particular suit is to be litigated, deciding the
issues on a case-to-case basis becomes an imperative.
Another legal reality, a more important one, is that the duty of a court is to say what the law
is.17 This is the same duty of the Supreme Court that underlies the stare decisis principle. This is
how the public, in general and the insurance industry in particular, views the role of this Court and
courts in general in deciding cases. The lower courts and the bar, most specially, look up to the
rulings of this Court for guidance. Unless extremely unavoidable, the Court must, as a matter of
sound judicial policy, resist the temptation of branding its ruling pro hac vice.
The compromise solution of declaring Tongko both an employee and an agent is legally
unrealistic, unwieldy and is, in fact, legally infirm, as it goes against the above basic principles of
judicial operation. Likewise, it does not and cannot realistically solve the problem/issue in this
case; it actually leaves more questions than answers.
As already pointed out, there is no legal basis (be it statutory or jurisprudential) for the part-
employee/part-insurance agent status under an essentially principal-agent contractual relation
which the Dissent proposes to accord to Tongko. If the Dissent intends to establish one, this is
highly objectionable for this would amount to judicial legislation. A legal relationship, be it one of
employment or one based on a contract other than employment, exists as a matter of law pursuant
to the facts, incidents and legal consequences of the relationship; it cannot exist devoid of these
legally defined underlying facts and legal consequences unless the law itself creates the
relationship – an act that is beyond the authority of this Court to do.
Additionally, the Dissent’s conclusion completely ignores an unavoidable legal reality – that the
parties are bound by a contract of agency that clearly subsists notwithstanding the successive
designation of Tongko as a unit manager, a branch manager and a regional sales manager. (As
already explained in our Resolution granting Manulife’s motion for reconsideration, no evidence on
record exists to provide the Court with clues as to the precise impact of all these designations on
the contractual agency relationship.) The Dissent, it must be pointed out, concludes that Tongko’s
employment as manager was illegally terminated; thus, he should be accordingly afforded relief
therefor. But, can Tongko be given the remedies incidental to his dismissal as manager separately
from his status as an insurance agent? In other words, since the respondents terminated all
relationships with Tongko through the termination letter, can we simply rule that his role as a
manager was illegally terminated without touching on the consequences of this ruling on his status
as an insurance agent? Expressed in these terms, the inseparability of his contract as agent with
any other relationship that springs therefrom can thus be seen as an insurmountable legal
obstacle.
The Dissent’s compromise approach would also sanction split jurisdiction. The labor tribunals shall
have jurisdiction over Tongko’s employment as manager while another entity shall decide the
issues/cases arising from the agency relationship. If the managerial employment is anchored on
the agency, how will the labor tribunals decide an issue that is inextricably linked with a
relationship that is outside the loop of their jurisdiction? As already mentioned in the Resolution
granting Manulife’s reconsideration, the DOMINANT relationship in this case is agency and no
other.
E. The Dissent’s Cited Cases
The Dissent cites the cases of Great Pacific Life Assurance Corporation v. National Labor
Relations Commission18 and Insular Life Assurance Co., Ltd. v. National Labor Relations
Commission19 to support the allegation that Manulife exercised control over the petitioner as an
employer.
In considering these rulings, a reality that cannot but be recognized is that cases turn and are
decided on the basis of their own unique facts; the ruling in one case cannot simply be bodily lifted
and applied to another, particularly when notable differences exist between the cited cases and
the case under consideration; their respective facts must be strictly examined to ensure that the
ruling in one applies to another. This is particularly true in a comparison of the cited cases with the
present case. Specifically, care should be taken in reading the cited cases and applying their
rulings to the present case as the cited cases all dealt with the proper legal characterization of
subsequent management contracts that superseded the original agency contract between the
insurance company and the agent.
In Great Pacific Life, the Ruiz brothers were appointed to positions different from their original
positions as insurance agents, whose duties were clearly defined in a subsequent contract.
Similarly, in Insular, de los Reyes, a former insurance agent, was appointed as acting unit
manager based on a subsequent contract. In both cases, the Court anchored its findings of labor
control on the stipulations of these subsequent contracts.
In contrast, the present case is remarkable for the absence of evidence of any change in the
nature of the petitioner’s employment with Manulife. As previously stated above and in our
assailed Resolution, the petitioner had always been governed by the Agreement from the start
until the end of his relationship with Manulife. His agency status never changed except to the
extent of being a lead agent. Thus, the cited cases – where changes in company-agent
relationship expressly changed and where the subsequent contracts were the ones passed upon
by the Court – cannot be totally relied upon as authoritative.
We cannot give credit as well to the petitioner’s claim of employment based on the affidavits
executed by other Manulife agents describing their duties, because these same affidavits only
affirm their status as independent agents, not as employees. To quote these various claims:20
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 soliciting 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 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.
The petitioner cannot also rely on the letter written by respondent Renato Vergel de Dios to prove
that Manulife exercised control over him. As we already explained in the assailed Resolution:
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.21
Lastly, in assailing the Agreement between him and Manulife, the petitioner cites Paguio v.
National Labor Relations Commission22 on the claim that the agreement that the parties signed did
not conclusively indicate the legal relationship between them.
The evidentiary situation in the present case, however, shows that despite the petitioner’s
insistence that the Agreement was no longer binding between him and Manulife, no evidence was
ever adduced to show that their relationship changed so that Manulife at some point controlled the
means and method of the petitioner’s work. In fact, his evidence only further supports the
conclusion that he remained an independent insurance agent – a status he admits, subject only to
the qualification that he is at the same time an employee. Thus, we can only conclude that the
Agreement governed his relations with Manulife.
Additionally, it is not lost on us that Paguio is a ruling based on a different factual setting; it
involves a publishing firm and an account executive, whose repeated engagement was considered
as an indication of employment. Our ruling in the present case is specific to the insurance industry,
where the law permits an insurance company to exercise control over its agents within the limits
prescribed by law, and to engage independent agents for several transactions and within an
unlimited period of time without the relationship amounting to employment. In light of these
realities, the petitioner’s arguments on his last argument must also fail.
The dissent also erroneously cites eight other cases — Social Security System v. Court of
Appeals,23 Cosmopolitan Funeral Homes, Inc. v. Maalat,24 Algon Engineering Construction
Corporation v. National Labor Relations Commission,25 Equitable Banking Corporation v. National
Labor Relations Commission,26 Lazaro v. Social Security Commission,27 Dealco Farms, Inc. v.
National Labor Relations Commission,28 South Davao Development Company, Inc. v.
Gamo,29 and Abante, Jr. v. Lamadrid Bearing & Parts Corporation.30 The dissent cited these cases
to support its allegation that labor laws and jurisprudence should be applied in cases, to the
exclusion of other laws such as the Civil Code or the Insurance Code, even when the latter are
also applicable.
In Social Security System, Cosmopolitan Funeral Homes, Dealco Farms, and South Davao
Development, the issue that repeats itself is whether complainants were employees or
independent contractors; the legal relationships involved are both labor law concepts and make no
reference to the Civil Code (or even the Insurance Code). The provisions cited in the Dissent —
Articles 1458-1637 of the Civil Code31 and Articles 1713-1720 of the Civil Code 32 — do not even
appear in the decisions cited.
In Algon, the issue was whether the lease contract should dictate the legal relationship between
the parties, when there was proof of an employer-employee relationship. In the cited case, the
lease provisions on termination were thus considered irrelevant because of a substantial evidence
of an employment relationship. The cited case lacks the complexity of the present case; Civil Code
provisions on lease do not prescribe that lessees exercise control over their lessors in the way that
the Insurance Code and the Civil provide that insurance companies and principals exercised
control over their agents.
The issue in Equitable, on the other hand, is whether a lawyer-client relationship or an
employment relationship governs the legal relation between parties. Again, this case is
inapplicable as it does not illustrate the predominance of labor laws and jurisprudence over other
laws, in general, and the Insurance Code and Civil Code, in particular. It merely weighed the
evidence in favor of an employment relationship over that of a lawyer-client relationship. Similarly
in Lazaro, the Court found ample proof of control determinative of an employer-employee
relationship.1âwphi1 Both cases are not applicable to the present case, which is attended by
totally different factual considerations as the petitioner had not offered any evidence of the
company’s control in the means and manner of the performance of his work.
On the other hand, we find it strange that the dissent cites Abante as a precedent, since the Court,
in this case, held that an employee-employer relationship is notably absent in this case as the
complainant was a sales agent. This case better supports the majority’s position that a sales
agent, who fails to show control in the concept of labor law, cannot be considered an employee,
even if the company exercised control in the concept of a sales agent.33
It bears stressing that our ruling in this case is not about which law has primacy over the other, but
that we should be able to reconcile these laws. We are merely saying that where the law makes it
mandatory for a company to exercise control over its agents, the complainant in an illegal
dismissal case cannot rely on these legally prescribed control devices as indicators of an
employer-employee relationship. As shown in our discussion, our consideration of the Insurance
Code and Civil Code provisions does not negate the application of labor laws and jurisprudence;
ultimately, we dismissed the petition because of its failure to comply with the control test.

WHEREFORE, premises considered, we hereby DENY the Motion for Reconsideration WITH
FINALITY for lack of merit. No further pleadings shall be entertained. Let entry of judgment
proceed in due course.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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, 20021 and 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:
I
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
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.

1973 – Assistant Treasurer WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of
Appeals.
1978 – Special Assistant for Finance
Costs of suit to be paid by the petitioners.
1980 – Assistant Comptroller
SO ORDERED.
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.1avvphi1

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
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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 letter9 dated 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 Decision 19 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."23 The 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.25 They 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 Sheets 41, 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.47 While 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. Mamac 54 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 memo 56 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.’"57 Cosare’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.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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 Resolution 5 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 Dismissal 9 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.1âwphi1 A person who
performs 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
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.

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