LABOR LAW FULL TEXT CASES

Selected Cases from LA Metmug

Compiled by: Teodoro R. Llanes II

Contents
1. Osias I. Corporal, Sr et al vs. NLRC, Lao Enteng Company, Inc and/or Trinidad Lao Ong; GR No.
129315; October 2, 2000 ............................................................................................................. 3
2. Nelson V. Begino, et al vs. ABS-CBN & Villafuerte; GR No. 199166; April 20, 2015 ................... 9
3. Wilhelmina S. Orozco vs. The Fifth Division of The Honorable Court of Appeals, Philippine
Daily Inquirer, And Leticia Jimenez Magsanoc; G.R. No. 155207; August 13, 2008 .................. 18
4. Jose Y. Sonza vs. ABS-CBN Broadcasting Corporation; Gr No. 138051; June 10, 2004 ............. 30
5. Bernard A. Tenazas, et al vs. R. Villegas Taxi Transport and Romualdo Villegas; GR No. 192998;
April 2, 2014 ............................................................................................................................... 45
6. Villamaria vs. CA; G.R. No. 165881; April 19, 2006 .................................................................... 55
7. People vs. Teresita Laoga; GR No. 176264; January 10, 2011 (Illegal Recruitment) ................. 71
8. Sameer Overseas Placement Agency Inc. vs. Cabiles; GR No 170139; August 5, 2014 (Illegal
Recruitment) .............................................................................................................................. 76
9. Lorenzo T. Tangga-an vs. Philippine Transmarine Carriers, Inc., Universe Tankship Delware, LLC
& Carlos C. Salinas; GR No. 180636; March 13, 2013 (Illegal Recruitment) .............................. 94
10. SLL International Cables Specialist & Sonny L. Lagon vs. NLRC 4th Division, Roldan Lopez,
Edgardo Zuniga & Danilo Canete; GR No. 172161; March 2, 2011
(Wages/Supplements/Covered by Minimum/Deductability) .................................................. 103
11. Our Haus Realty Development Corporation vs. Alexander Parian, Jay C. Erinco, Alexander
Canlas, Bernard Tenedero & Jerry Sabulao; GR No. 204651; Agust 6, 2014
(Wages/Supplements/Covered by Minimum/Deductability) .................................................. 109
12. RFM Corporation - Flour Division & SFI Feeds Division vs. Kasapian ng Manggagawang
Pinagkaisa (KSMPI-NAFLU-KMU) and Sandigan at Ugnayan ng Manggagawang Pinagkaisa-SFI
(SUMAPI-NAFLU-KMU); GR No. 162324; Febuary 4, 2009 (Holiday work cannot be insisted)119
13. National Union of Workers in Hotel Restaurant and Allied Industries (NUWHRAIN-APL-IUF),
Philippine Plaza Chapter vs. Philippine Plaza Holdings, Inc.; GR No. 177524; July 23, 2014
(Article 96)................................................................................................................................ 122
14. Pedro Chavez vs. NLRC, Supreme Packaging, Inc. & Alvin Lee, Plant Manag; GR No. 46530;
January 17, 2005 (Wages and Payrol Proof Control Test) ....................................................... 133
15. Norkis free and Independent Workers Union vs. Norkis Trading Company, Inc.; GR No.
157098. June 30, 2005 (Wage Distortion) ............................................................................... 141
16. Abduljuahid R. Pigcaulan vs. Security and Credit Nvestigation, Inc. and/or Rene Amby Reyes;
GR No. 173648; January 16, 2012 (SIL) .................................................................................... 148
17. Niña Jewelry Manufacturing of Metal Arts, Inc. (Otherwise known as Niña Manufacturing and
Metal Arts, Inc.) and Elisea B. Abella Vs. Madeline C. Montecillo and Liza M. Trinidad;
November 28, 2011; GR No. 188169 (Illegal deductions) ....................................................... 155
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18. Zayber John B. Protacio vs. Laya Mananghaya & Co. and/or Mario T. Mananghaya; March 25,
2009; GR No. 168654 (Bonus) .................................................................................................. 167
19. JPL Marketing Promotions vs. CA, NLRC, Noel Gonzales, Ramon Abesa III and Faustino
Aninipot; July 8, 2005; GR No. 151966 (13th Month).............................................................. 175
20. Petroleum Shipping Limited (formerly ESSO International Shipping (Bahamas) Co., Ltd.) and
TRANS-GLOBAL MARITIME AGENCY, INC. vs. NLRC and Florello W. Tanchico; June 16, 2006; GR
No. 148130 (13th Month) ........................................................................................................ 181
21. King of Kings Transport Inc., Claire Dela Fuente and Melissa Lim vs. Santiago O. Mamac; GR
No. 166208; June 29, 2007 (Conductor 13th) .......................................................................... 189
22. Letran Calamba Faculty and EMPLOYEES ASSOCIATION vs. NLRC and Colegio De Sanjuan De
Letran Calamba, Inc.; GR No. 156225; January 29, 2008 (Conductor 13th) ............................ 196
23. Century Canning Corporation vs. CA and Gloria C. Palad; GR No. 152894; August 17, 2007
(Conductor 13th)...................................................................................................................... 207

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Osias I. Corporal, Sr et al vs. NLRC, Lao Enteng Company, Inc and/or Trinidad Lao Ong; GR No.
129315; October 2, 2000

G.R. No. 129315 October 2, 2000

OSIAS I. CORPORAL, SR., PEDRO TOLENTINO, MANUEL CAPARAS, ELPIDIO LACAP, SIMPLICIO
PEDELOS, PATRICIA NAS, and TERESITA FLORES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LAO ENTENG COMPANY, INC. and/or TRINIDAD LAO
ONG, respondents.

DECISION

QUISUMBING, J.:

This special civil action for certiorari seeks the review of the Resolution dated October 17, 1996 of
public respondent National Labor Relations Commission (First Division),1 in NLRC NCR Case No. 00-
04-03163-95, and the Resolution dated March 5, 1997 denying the motion for reconsideration.
The aforecited October 17th Resolution affirmed the Decision dated September 28, 1996 of Labor
Arbiter Potenciano S. Cañizares dismissing the petitioners' complaint for illegal dismissal and
declaring that petitioners are not regular employees of private respondent Lao Enteng Company,
Inc..

The records of the case show that the five male petitioners, namely, Osias I. Corporal, Sr., Pedro
Tolentino, Manuel Caparas, Elpidio Lacap, and Simplicio Pedelos worked as barbers, while the two
female petitioners, Teresita Flores and Patricia Nas worked as manicurists in New Look Barber
Shop located at 651 P. Paterno Street, Quiapo, Manila owned by private respondent Lao Enteng
Co. Inc.. Petitioner Nas alleged that she also worked as watcher and marketer of private
respondent.

Petitioners claim that at the start of their employment with the New Look Barber Shop, it was a
single proprietorship owned and managed by Mr. Vicente Lao. In or about January 1982, the
children of Vicente Lao organized a corporation which was registered with the Securities and
Exchange Commission as Lao Enteng Co. Inc. with Trinidad Ong as President of the said
corporation. Upon its incorporation, the respondent company took over the assets, equipment,
and properties of the New Look Barber Shop and continued the business. All the petitioners were
allowed to continue working with the new company until April 15, 1995 when respondent Trinidad
Ong informed them that the building wherein the New Look Barber Shop was located had been
sold and that their services were no longer needed.2

On April 28, 1995, petitioners filed with the Arbitration Branch of the NLRC, a complaint for illegal
dismissal, illegal deduction, separation pay, non-payment of 13th month pay, and salary
differentials. Only petitioner Nas asked for payment of salary differentials as she alleged that she
was paid a daily wage of P25.00 throughout her period of employment. The petitioners also sought

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the refund of the P1.00 that the respondent company collected from each of them daily as salary
of the sweeper of the barber shop.

Private respondent in its position paper averred that the petitioners were joint venture partners
and were receiving fifty percent commission of the amount charged to customers. Thus, there was
no employer-employee relationship between them and petitioners. And assuming arguendo, that
there was an employer-employee relationship, still petitioners are not entitled to separation pay
because the cessation of operations of the barber shop was due to serious business losses.

Respondent Trinidad Lao Ong, President of respondent Lao Enteng Co. Inc., specifically stated in
her affidavit dated September 06, 1995 that Lao Enteng Company, Inc. did not take over the
management of the New Look Barber Shop, that after the death Lao Enteng petitioner were
verbally informed time and again that the partnership may fold up anytime because nobody in the
family had the time to be at the barber shop to look after their interest; that New Look Barber
Shop had always been a joint venture partnership and the operation and management of the
barber shop was left entirely to petitioners; that her father's contribution to the joint venture
included the place of business, payment for utilities including electricity, water, etc. while
petitioners as industrial partners, supplied the labor; and that the barber shop was allowed to
remain open up to April 1995 by the children because they wanted to give the partners a chance
at making it work. Eventually, they were forced to close the barber shop because they continued
to lose money while petitioners earned from it. Trinidad also added that private respondents had
no control over petitioners who were free to come and go as they wished. Admittedly too by
petitioners they received fifty percent to sixty percent of the gross paid by customers. Trinidad
explained that some of the petitioners were allowed to register with the Social Security System as
employees of Lao Enteng Company, Inc. only as an act of accommodation. All the SSS contributions
were made by petitioners. Moreover, Osias Corporal, Elpidio Lacap and Teresita Flores were not
among those registered with the Social Security System. Lastly, Trinidad avers that without any
employee-employer relationship petitioners claim for 13th month pay and separation pay have no
basis in fact and in law.3

In a Decision dated September 28, 1995, Labor Arbiter Potenciano S. Cañizares, Jr. ordered the
dismissal of the complaint on the basis of his findings that the complainants and the respondents
were engaged in a joint venture and that there existed no employer-employee relation between
them. The Labor Arbiter also found that the barber shop was closed due to serious business losses
or financial reverses and consequently declared that the law does not compel the establishment
to pay separation pay to whoever were its employees.4

On appeal, NLRC affirmed the said findings of the Labor Arbiter and dismissed the complaint for
want of merit, ratiocinating thus:

Indeed, complainants failed to show the existence of employer-employee relationship under the
fourway test established by the Supreme Court. It is a common practice in the Barber Shop
industry that barbers supply their own scissors and razors and they split their earnings with the
owner of the barber shop. The only capital of the owner is the place of work whereas the barbers

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provide the skill and expertise in servicing customers. The only control exercised by the owner of
the barber shop is to ascertain the number of customers serviced by the barber in order to
determine the sharing of profits. The barbers maybe characterized as independent contractors
because they are under the control of the barber shop owner only with respect to the result of
the work, but not with respect to the details or manner of performance. The barbers are engaged
in an independent calling requiring special skills available to the public at large.5

Its motion for reconsideration denied in the Resolution6 dated March 5, 1997, petitioners filed the
instant petition assigning that the NLRC committed grave abuse of discretion in:

I. ARBITRARILY DISREGARDING SUBSTANTIAL EVIDENCE PROVING THAT PETITIONERS

WERE EMPLOYEES OF RESPONDENT COMPANY IN RULING THAT PETITIONERS WERE
INDEPENDENT CONTRACTORS.

II. NOT HOLDING THAT PETITIONERS WERE ILLEGALLY DISMISSED AND IN NOT AWARDING
THEIR MONEY CLAIMS.7

Petitioners principally argue that public respondent NLRC gravely erred in declaring that the
petitioners were independent contractors. They contend that they were employees of the
respondent company and cannot be considered as independent contractors because they did not
carry on an independent business. They did not cut hair, manicure, and do their work in their own
manner and method. They insist they were not free from the control and direction of private
respondents in all matters, and their services were engaged by the respondent company to attend
to its customers in its barber shop. Petitioners also stated that, individually or collectively, they do
not have substantial capital nor investments in tools, equipments, work premises and other
materials necessary in the conduct of the barber shop. What the barbers owned were merely
combs, scissors, and razors, while the manicurists owned only nail cutters, nail polishes, nippers
and cuticle removers. By no standard can these be considered "substantial capital" necessary to
operate a barbers shop.

Finally, petitioners fault the NLRC for arbitrarily disregarding substantial evidence on record
showing that petitioners Pedro Tolentino, Manuel Caparas, Simplicio Pedelos, and Patricia Nas
were registered with the Social Security System as regular employees of the respondent company.
The SSS employment records in common show that the employer's ID No. of Vicente Lao/Barber
and Pawn Shop was 03-0606200-1 and that of the respondent company was 03-8740074-7. All
the foregoing entries in the SSS employment records were painstakingly detailed by the
petitioners in their position paper and in their memorandum appeal but were arbitrarily ignored
first by the Labor Arbiter and then by the respondent NLRC which did not even mention said
employment records in its questioned decision.

We found petition is impressed with merit.

In our view, this case is an exception to the general rule that findings of facts of the NLRC are to
be accorded respect and finality on appeal. We have long settled that this Court will not uphold

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erroneous conclusions unsupported by substantial evidence.8 We must also stress that where the
findings of the NLRC contradict those of the labor arbiter, the Court, in the exercise of its equity
jurisdiction, may look into the records of the case and reexamine the questioned findings. 9

The issues raised by petitioners boil down to whether or not an employer-employee relationship
existed between petitioners and private respondent Lao Enteng Company, Inc. The Labor Arbiter
has concluded that the petitioners and respondent company were engaged in a joint venture. The
NLRC concluded that the petitioners were independent contractors.

The Labor Arbiter's findings that the parties were engaged in a joint venture is unsupported by any
documentary evidence. It should be noted that aside from the self-serving affidavit of Trinidad Lao
Ong, there were no other evidentiary documents, nor written partnership agreements presented.
We have ruled that even the sharing of proceeds for every job of petitioners in the barber shop
does not mean they were not employees of the respondent company.10

Petitioner aver that NLRC was wrong when it concluded that petitioners were independent
contractors simply because they supplied their own working implements, shared in the earnings
of the barber shop with the owner and chose the manner of performing their work. They stressed
that as far as the result of their work was concerned the barber shop owner controlled them.

An independent contractor is one who undertakes "job contracting", i.e., a person who (a) carries
on an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the
results thereof, and (b) has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of the
business.11

Juxtaposing this provision vis-à-vis the facts of this case, we are convinced that petitioners are not
"independent contractors". They did not carry on an independent business. Neither did they
undertake cutting hair and manicuring nails, on their own as their responsibility, and in their own
manner and method. The services of the petitioners were engaged by the respondent company
to attend to the needs of its customers in its barber shop. More importantly, the petitioners,
individually or collectively, did not have a substantial capital or investment in the form of tools,
equipment, work premises and other materials which are necessary in the conduct of the business
of the respondent company. What the petitioners owned were only combs, scissors, razors, nail
cutters, nail polishes, the nippers - nothing else. By no standard can these be considered
substantial capital necessary to operate a barber shop. From the records, it can be gleaned that
petitioners were not given work assignments in any place other than at the work premises of the
New Look Barber Shop owned by the respondent company. Also, petitioners were required to
observe rules and regulations of the respondent company pertaining, among other things,
observance of daily attendance, job performance, and regularity of job output. The nature of work
performed by were clearly directly related to private respondent's business of operating barber

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shops. Respondent company did not dispute that it owned and operated three (3) barber shops.
Hence, petitioners were not independent contractors.

Did an employee-employer relationship exist between petitioners and private respondent? The
following elements must be present for an employer-employee relationship to exist: (1) the
selection and engagement of the workers; (2) power of dismissal; (3) the payment of wages by
whatever means; and (4) the power to control the worker's conduct, with the latter assuming
primacy in the overall consideration. Records of the case show that the late Vicente Lao engaged
the services of the petitioners to work as barbers and manicurists in the New Look Barber Shop,
then a single proprietorship owned by him; that in January 1982, his children organized a
corporation which they registered with the Securities and Exchange Commission as Lao Enteng
Company, Inc.; that upon its incorporation, it took over the assets, equipment, and properties of
the New Look Barber Shop and continued the business; that the respondent company retained
the services of all the petitioners and continuously paid their wages. Clearly, all three elements
exist in petitioners' and private respondent's working arrangements.

Private respondent claims it had no control over petitioners.1âwphi1 The power to control refers
to the existence of the power and not necessarily to the actual exercise thereof, nor is it essential
for the employer to actually supervise the performance of duties of the employee. It is enough
that the employer has the right to wield that power.12 As to the "control test", the following facts
indubitably reveal that respondent company wielded control over the work performance of
petitioners, in that: (1) they worked in the barber shop owned and operated by the respondents;
(2) they were required to report daily and observe definite hours of work; (3) they were not free
to accept other employment elsewhere but devoted their full time working in the New Look Barber
Shop for all the fifteen (15) years they have worked until April 15, 1995; (4) that some have worked
with respondents as early as in the 1960's; (5) that petitioner Patricia Nas was instructed by the
respondents to watch the other six (6) petitioners in their daily task. Certainly, respondent
company was clothed with the power to dismiss any or all of them for just and valid cause.
Petitioners were unarguably performing work necessary and desirable in the business of the
respondent company.

While it is no longer true that membership to SSS is predicated on the existence of an employee-
employer relationship since the policy is now to encourage even the self-employed dressmakers,
manicurists and jeepney drivers to become SSS members, we could not agree with private
respondents that petitioners were registered with the Social Security System as their employees
only as an accommodation. As we have earlier mentioned private respondent showed no proof to
their claim that petitioners were the ones who solely paid all SSS contributions. It is unlikely that
respondents would report certain persons as their workers, pay their SSS premium as well as their
wages if it were not true that they were indeed their employees.13

Finally, we agree with the labor arbiter that there was sufficient evidence that the barber shop
was closed due to serious business losses and respondent company closed its barber shop because
the building where the barber shop was located was sold. An employer may adopt policies or
changes or adjustments in its operations to insure profit to itself or protect investment of its

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stockholders. In the exercise of such management prerogative, the employer may merge or
consolidate its business with another, or sell or dispose all or substantially all of its assets and
properties which may bring about the dismissal or termination of its employees in the process.14

Prescinding from the above, we hold that the seven petitioners are employees of the private
respondent company; as such, they are to be accorded the benefits provided under the Labor
Code, specifically Article 283 which mandates the grant of separation pay in case of closure or
cessation of employer's business which is equivalent to one (1) month pay for every year of
service.15 Likewise, they are entitled to the protection of minimum wage statutes. Hence, the
separation pay due them may be computed on the basis of the minimum wage prevailing at the
time their services were terminated by the respondent company. The same is true with respect to
the 13th month pay. The Revised Guidelines on the Implementation of the 13th Month Pay Law
states that "all rank and file employees are now entitled to a 13th month pay regardless of the
amount of basic salary that they receive in a month. Such employees are entitled to the benefit
regardless of their designation or employment status, and irrespective of the method by which
their wages are paid, provided that they have worked for at least one (1) month during a calendar
year" and so all the seven (7) petitioners who were not paid their 13th month pay must be paid
accordingly.16

Anent the other claims of the petitioners, such as the P10,000.00 as penalty for non-compliance
with procedural process; P10,000.00 as moral damages; refund of P1.00 per day paid to the
sweeper; salary differentials for petitioner Nas; attorney's fees), we find them without basis.

IN VIEW WHEREOF, the petition is GRANTED. The public respondent's Decision dated October 17,
1996 and Resolution dated March 05, 1997 are SET ASIDE. Private respondents are hereby ordered
to pay, severally and jointly, the seven (7) petitioners their (1) 13th month pay and (2) separation
pay equivalent to one month pay for every year of service, to be computed at the then prevailing
minimum wage at the time of their actual termination which was April 15, 1995.

Costs against private respondents.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

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Nelson V. Begino, et al vs. ABS-CBN & Villafuerte; GR No. 199166; April 20, 2015

[GR No. 199166, Apr 20, 2015]

NELSON V. BEGINO v. ABS-CBN CORPORATION
DECISION
PEREZ, J.:
The existence of an employer-employee relationship is at the heart of this Petition for Review on
Certiorari filed pursuant to Rule 45 of the Rules of Court, primarily assailing the 29 June 2011
Decision rendered by the Fourth Division of the Court of Appeals (CA) in CA-G.R. SP No. 116928
which ruled out said relationship between the parties.
The Facts
Respondent ABS-CBN Corporation (formerly ABS-CBN Broadcasting Corporation) is a television
and radio broadcasting corporation which, for its Regional Network Group in Naga City, employed
respondent Amalia Villafuerte (Villafuerte) as Manager. There is no dispute regarding the fact that,
thru Villafuerte, ABS-CBN engaged the services of petitioners Nelson Begino (Begino) and Gener
Del Valle (Del Valle) sometime in 1996 as Cameramen/Editors for TV Broadcasting. Petitioners Ma.
Cristina Sumayao (Sumayao) and Monina Avila-Llorin (Llorin) were likewise similarly engaged as
reporters sometime in 1996 and 2002, respectively. With their services engaged by respondents
thru Talent Contracts which, though regularly renewed over the years, provided terms ranging
from three (3) months to one (1) year, petitioners were given Project Assignment Forms which
detailed, among other matters, the duration of a particular project as well as the budget and the
daily technical requirements thereof. In the aforesaid capacities, petitioners were tasked with
coverage of news items for subsequent daily airings in respondents’ TV Patrol Bicol Program.
While specifically providing that nothing therein shall be deemed or construed to establish an
employer-employee relationship between the parties, the aforesaid Talent Contracts included,
among other matters, provisions on the following matters: (a) the Talent’s creation and
performance of work in accordance with the ABS-CBN’s professional standards and compliance
with its policies and guidelines covering intellectual property creators, industry codes as well as
the rules and regulations of the Kapisanan ng mga Broadcasters sa Pilipinas (KBP) and other
regulatory agencies; (b) the Talent’s non-engagement in similar work for a person or entity directly
or indirectly in competition with or adverse to the interests of ABS-CBN and non-promotion of any
product or service without prior written consent; and (c) the results-oriented nature of the talent’s
work which did not require them to observe normal or fixed working hours. Subjected to
contractor’s tax, petitioners’ remunerations were denominated as Talent Fees which, as of last
renewal, were admitted to be pegged per airing day at P273.35 for Begino, P302.92 for Del Valle,
P323.08 for Sumayao and P315.39 for Llorin

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Claiming that they were regular employees of ABS-CBN, petitioners filed against respondents the
complaint docketed as Sub-RAB 05-04-00041-07 before the National Labor Relations
Commission’s (NLRC) Sub- Regional Arbitration Branch No. 5, Naga City. In support of their claims
for regularization, underpayment of overtime pay, holiday pay, 13th month pay, service incentive
leave pay, damages and attorney's fees, petitioners alleged that they performed functions
necessary and desirable in ABS-CBN's business. Mandated to wear company IDs and provided all
the equipment they needed, petitioners averred that they worked under the direct control and
supervision of Villafuerte and, at the end of each day, were informed about the news to be covered
the following day, the routes they were to take and, whenever the subject of their news coverage
is quite distant, even the start of their workday. Due to the importance of the news items they
covered and the necessity of their completion for the success of the program, petitioners claimed
that, under pain of immediate termination, they were bound by the company’s policy on, among
others, attendance and punctuality.
Aside from the constant evaluation of their actions, petitioners were reportedly subjected to an
annual competency assessment alongside other ABS-CBN employees, as condition for their
continued employment. Although their work involved dealing with emergency situations at any
time of the day or night, petitioners claimed that they were not paid the labor standard benefits
the law extends to regular employees. To avoid paying what is due them, however, respondents
purportedly resorted to the simple expedient of using said Talent Contracts and/or Project
Assignment Forms which denominated petitioners as talents, despite the fact that they are not
actors or TV hosts of special skills. As a result of this iniquitous situation, petitioners asseverated
that they merely earned an average of P7,000.00 to P8,000.00 per month, or decidedly lower than
the P21,773.00 monthly salary ABS-CBN paid its regular rank-and-file employees. Considering their
repeated re-hiring by respondents for ostensible fixed periods, this situation had gone on for years
since TV Patrol Bicol has continuously aired from 1996 onwards.
In refutation of the foregoing assertions, on the other hand, respondents argued that, although it
occasionally engages in production and generates programs thru various means, ABS-CBN is
primarily engaged in the business of broadcasting television and radio content. Not having the full
manpower complement to produce its own program, the company had allegedly resorted to
engaging independent contractors like actors, directors, artists, anchormen, reporters,
scriptwriters and various production and technical staff, who offered their services in relation to a
particular program. Known in the industry as talents, such independent contractors inform ABS-
CBN of their availability and were required to accomplish Talent Information Forms to facilitate
their engagement for and appearance on designated project days. Given the unpredictability of
viewer preferences, respondents argued that the company cannot afford to provide regular work
for talents with whom it negotiates specific or determinable professional fees on a per project,
weekly or daily basis, usually depending on the budget allocation for a project.

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Respondents insisted that, pursuant to their Talent Contracts and/or Project Assignment Forms,
petitioners were hired as talents, to act as reporters and/or cameramen for TV Patrol Bicol for
designated periods and rates. Fully aware that they were not considered or to consider themselves
as employees of a particular production or film outfit, petitioners were supposedly engaged on
the basis of the skills, knowledge or expertise they already possessed and, for said reason, required
no further training from ABS-CBN. Although petitioners were inevitably subjected to some degree
of control, the same was allegedly limited to the imposition of general guidelines on conduct and
performance, simply for the purpose of upholding the standards of the company and the strictures
of the industry. Never subjected to any control or restrictions over the means and methods by
which they performed or discharged the tasks for which their services were engaged, petitioners
were, at most, briefed whenever necessary regarding the general requirements of the project to
be executed.

Having been terminated during the pendency of the case, Petitioners filed on 10 July 2007 a
second complaint against respondents, for regularization, payment of labor standard benefits,
illegal dismissal and unfair labor practice, which was docketed as Sub-RAB 05-08-00107-07. Upon
respondents’ motion, this complaint was dismissed for violation of the rules against forum
shopping in view of the fact that the determination of the issues in the second case hinged on the
resolution of those raised in the first. On 19 December 2007, however, Labor Arbiter Jesus Orlando
Quiñones (Labor Arbiter Quiñones) resolved Sub-RAB 05-04-00041-07 in favor of petitioners who,
having rendered services necessary and related to ABS-CBN’s business for more than a year, were
determined to be its regular employees. With said conclusion found to be buttressed by, among
others, the exclusivity clause and prohibitions under petitioners’ Talent Contracts and/or Project
Assignment Forms which evinced respondents’ control over them, Labor Arbiter Quiñones
disposed of the case in the following wise:

WHEREFORE, finding merit in the causes of action set forth by the complainants, judgment is
hereby rendered declaring complainants MONINA AVILA-LLORIN, GENER L. DEL VALLE, NELSON V.
BEGINO and MA. CRISTINA V. SUMAYAO, as regular employees of respondent company, ABS-CBN
BROADCASTING CORPORATION.

Accordingly, respondent ABS-CBN Broadcasting Corporation is hereby ORDERED to pay

complainants, subject to the prescriptive period provided under Article 291 of the Labor Code,
however applicable, the total amount of Php2,440,908.36, representing salaries/wage
differentials, holiday pay, service incentive leave pay and 13th month pay, to include 10% of the
judgment award as attorney’s fees of the judgment award (computation of the monetary awards
are attached hereto as integral part of this decision).

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Moreover, respondents are directed to admit back complainants to work under the same terms
and conditions prevailing prior to their separation or, at respondents' option, merely reinstated in
the payroll.

Other than the above, all other claims and charges are ordered DISMISSED for lack of merit.
Aggrieved by the foregoing decision, respondents elevated the case on appeal before the NLRC,
during the pendency of which petitioners filed a third complaint against the former, for illegal
dismissal, regularization, non- payment of salaries and 13th month pay, unfair labor practice,
damages and attorney’s fees. In turn docketed as NLRC Case No. Sub-RAB-V-05-03-00039-08, the
complaint was raffled to Labor Arbiter Quiñones who issued an Order dated 30 April 2008,
inhibiting himself from the case and denying respondents’ motion to dismiss on the grounds of res
judicata and forum shopping. Finding that respondents’ control over petitioners was indeed
manifest from the exclusivity clause and prohibitions in the Talent Contracts and/or Project
Assignment Forms, on the other hand, the NLRC rendered a Decision dated 31 March 2010,
affirming said Labor Arbiter’s appealed decision. Undeterred by the NLRC’s 31 August 2010 denial
of their motion for reconsideration, respondents filed the Rule 65 petition for certiorari docketed
before the CA as CA-G.R. SP No. 116928 which, in addition to taking exceptions to the findings of
the assailed decision, faulted petitioners for violating the rule against forum shopping.
On 29 June 2011, the CA rendered the herein assailed decision, reversing the findings of the Labor
Arbiter and the NLRC. Ruling out the existence of forum shopping on the ground that petitioners'
second and third complaints were primarily anchored on their termination from employment after
the filing of their first complaint, the CA nevertheless discounted the existence of an employer-
employee relation between the parties upon the following findings and conclusions: (a)
petitioners, were engaged by respondents as talents for periods, work and the program specified
in the Talent Contracts and/or Project Assignment Forms concluded between them; (b) instead of
fixed salaries, petitioners were paid talent fees depending on the budget allocated for the program
to which they were assigned; (c) being mainly concerned with the result, respondents did not
exercise control over the manner and method by which petitioner accomplished their work and,
at most, ensured that they complied with the standards of the company, the KBP and the industry;
and, (d) the existence of an employer-employee relationship is not necessarily established by the
exclusivity clause and prohibitions which are but terms and conditions on which the parties are
allowed to freely stipulate.
Petitioners’ motion for reconsideration of the foregoing decision was denied in the CA's 3 October
2011 Resolution, hence, this petition.

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The Issues
Petitioners seek the reversal of the CA’s assailed Decision and
Resolution on the affirmative of the following issues:
1. Whether or not the CA seriously and reversibly erred in not dismissing respondents’
petition for certiorari in view of the fact that they did file a Notice of Appeal at the NLRC
level and did not, by themselves or through their duly authorized representative, verify
and certify the Memorandum of Appeal they filed thereat, in accordance with the NLRC
Rules of Procedure; and
2. Whether or not the CA seriously and reversibly erred in brushing aside the determination
made by both the Labor Arbiter and the NLRC of the existence of an employer-employee
relationship between the parties, despite established jurisprudence supporting the same.
The Court's Ruling
The Court finds the petition impressed with merit.
Petitioners preliminarily fault the CA for not dismissing respondents’ Rule 65 petition for certiorari
in view of the fact that the latter failed to file a Notice of Appeal from the Labor Arbiter’s decision
and to verify and certify the Memorandum of Appeal they filed before the NLRC. While concededly
required under the NLRC Rules of Procedure, however, these matters should have been properly
raised during and addressed at the appellate stage before the NLRC. Instead, the record shows
that the NLRC took cognizance of respondents’ appeal and proceeded to resolve the same in favor
of petitioners by affirming the Labor Arbiter’s decision. Not having filed their own petition for
certiorari to take exception to the liberal attitude the NLRC appears to have adopted towards its
own rules of procedure, petitioners were hardly in the proper position to raise the same before
the CA or, for that matter, before this Court at this late stage. Aside from the settled rule that a
party who has not appealed is not entitled to affirmative relief other than the ones granted in the
decision rendered, liberal interpretation of procedural rules on appeal had, on occasion, been
favored in the interest of substantive justice.
Although the existence of an employer-employee relationship is, on the other hand, a question of
fact which is ordinarily not the proper subject of a Rule 45 petition for review on certiorari like the
one at bar, the conflicting findings between the labor tribunals and the CA justify a further
consideration of the matter. To determine the existence of said relation, 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. Of these criteria, the
so-called “control test” is generally regarded as the most crucial and determinative indicator of
the presence or absence of an employer-employee relationship. Under this test, an employer-
employee relationship is said to exist where the person for whom the services are performed

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reserves the right to control not only the end result but also the manner and means utilized to
achieve the same.
In discounting the existence of said relationship between the parties, the CA ruled that Petitioners'
services were, first and foremost, engaged thru their Talent Contracts and/or Project Assignment
Forms which specified the work to be performed by them, the project to which they were
assigned, the duration thereof and their rates of pay according to the budget therefor allocated.
Because they are imbued with public interest, it cannot be gainsaid, however, that labor contracts
are subject to the police power of the state and are placed on a higher plane than ordinary
contracts. The recognized supremacy of the law over the nomenclature of the contract and the
stipulations contained therein is aimed at bringing life to the policy enshrined in the Constitution
to afford protection to labor. Insofar as the nature of one’s employment is concerned, Article 280
of the Labor Code of the Philippines also provides as follows:
ART. 280. Regular and Casual Employment. — The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be
deemed to be regular where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer, except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or where the work or
service 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 actually exists.
It has been ruled that the foregoing provision contemplates four kinds of employees, namely: (a)
regular employees or those who have been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer; (b) project employees or
those whose 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; (c)
seasonal employees or those who work or perform services which are seasonal in nature, and the
employment is for the duration of the season; and (d) casual employees or those who are not
regular, project, or seasonal employees.[26] To the foregoing classification of employee,
jurisprudence has added that of contractual or fixed term employee which, if not for the fixed
term, would fall under the category of regular employment in view of the nature of the employee’s
engagement, which is to perform activity usually necessary or desirable in the employer’s
business.
The Court finds that, notwithstanding the nomenclature of their Talent Contracts and/or Project
Assignment Forms and the terms and condition embodied therein, petitioners are regular

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employees of ABS-CBN. Time and again, it has been ruled that the test to determine whether
employment is regular or not is the reasonable connection between the activity performed by the
employee in relation to the business or trade of the employer. As cameramen/editors and
reporters, petitioners were undoubtedly performing functions necessary and essential to ABS-
CBN’s business of broadcasting television and radio content. It matters little that petitioners’
services were engaged for specified periods for TV Patrol Bicol and that they were paid according
to the budget allocated therefor. Aside from the fact that said program is a regular weekday fare
of the ABS-CBN’s Regional Network Group in Naga City, the record shows that, from their initial
engagement in the aforesaid capacities, petitioners were continuously re-hired by respondents
over the years. To the mind of the Court, respondents’ repeated hiring of petitioners for its long-
running news program positively indicates that the latter were ABS-CBN’s regular employees.
If the employee has been performing the job for at least one year, even if the performance is not
continuous or merely intermittent, the law deems the repeated or continuing performance as
sufficient evidence of the necessity, if not indispensability of that activity in the business. Indeed,
an employment stops being co-terminous with specific projects where the employee is
continuously re-hired due to the demands of the employer’s business.[30] When circumstances
show, moreover, that contractually stipulated periods of employment have been imposed to
preclude the acquisition of tenurial security by the employee, this Court has not hesitated in
striking down such arrangements as contrary to public policy, morals, good customs or public
order. The nature of the employment depends, after all, on the nature of the activities to be
performed by the employee, considering the nature of the employer’s business, the duration and
scope to be done, and, in some cases, even the length of time of the performance and its
continued existence. In the same manner that the practice of having fixed-term contracts in the
industry does not automatically make all talent contracts valid and compliant with labor law, it
has, consequently, been ruled that the assertion that a talent contract exists does not necessarily
prevent a regular employment status.
As cameramen/editors and reporters, it also appears that petitioners were subject to the control
and supervision of respondents which, first and foremost, provided them with the equipments
essential for the discharge of their functions. Prepared at the instance of respondents, petitioners’
Talent Contracts tellingly provided that ABS-CBN retained “all creative, administrative, financial
and legal control” of the program to which they were assigned. Aside from having the right to
require petitioners “to attend and participate in all promotional or merchandising campaigns,
activities or events for the Program,” ABS-CBN required the former to perform their functions “at
such locations and Performance/Exhibition Schedules” it provided or, subject to prior notice, as it
chose determine, modify or change. Even if they were unable to comply with said schedule,
petitioners were required to give advance notice, subject to respondents’ approval. However
obliquely worded, the Court finds the foregoing terms and conditions demonstrative of the control
respondents exercised not only over the results of petitioners’ work but also the means employed
to achieve the same.

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In finding that petitioners were regular employees, the NLRC further ruled that the exclusivity
clause and prohibitions in their Talent Contracts and/or Project Assignment Forms were likewise
indicative of respondents’ control over them. Brushing aside said finding, however, the CA applied
the ruling in Sonza v. ABS-CBN Broadcasting Corporation where similar restrictions were
considered not necessarily determinative of the existence of an employer-employee relationship.
Recognizing that independent contractors can validly provide his exclusive services to the hiring
party, said case enunciated that guidelines for the achievement of mutually desired results are not
tantamount to control. As correctly pointed out by petitioners, however, parallels cannot be
expediently drawn between this case and that of Sonza case which involved a well-known
television and radio personality who was legitimately considered a talent and amply compensated
as such. While possessed of skills for which they were modestly recompensed by respondents,
petitioners lay no claim to fame and/or unique talents for which talents like actors and
personalities are hired and generally compensated in the broadcast industry.
Later echoed in Dumpit-Murillo v. Court of Appeals, this Court has rejected the application of the
ruling in the Sonza case to employees similarly situated as petitioners in ABS-CBN Broadcasting
Corporation v. Nazareno.[37] The following distinctions were significantly observed between
employees like petitioners and television or radio personalities like Sonza, to wit:
First. In the selection and engagement of respondents, no peculiar or unique skill, talent or
celebrity status was required from them because they were merely hired through petitioner’s
personnel department just like any ordinary employee.
Second. The so-called "talent fees" of respondents correspond to wages given as a result of an
employer-employee relationship. Respondents did not have the power to bargain for huge talent
fees, a circumstance negating independent contractual relationship.
Third. Petitioner could always discharge respondents should it find their work unsatisfactory, and
respondents are highly dependent on the petitioner for continued work.
Fourth. The degree of control and supervision exercised by petitioner over respondents through
its supervisors negates the allegation that respondents are independent contractors.
The presumption is that when the work done is an integral part of the regular business of the
employer and when the worker, relative to the employer, does not furnish an independent
business or professional service, such work is a regular employment of such employee and not an
independent contractor. The Court will peruse beyond any such agreement to examine the facts
that typify the parties’ actual relationship. (Emphasis omitted)
Rather than the project and/or independent contractors respondents claim them to be, it is
evident from the foregoing disquisition that petitioners are regular employees of ABS-CBN. This
conclusion is borne out by the ineluctable showing that petitioners perform functions necessary
and essential to the business of ABS-CBN which repeatedly employed them for a long-running
news program of its Regional Network Group in Naga City. In the course of said employment,

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petitioners were provided the equipments they needed, were required to comply with the
Company's policies which entailed prior approval and evaluation of their performance. Viewed
from the prism of these considerations, we find and so hold that the CA reversibly erred when it
overturned the NLRC's affirmance of the Labor Arbiter's finding that an employer-employee
relationship existed between the parties. Given the fact, however, that Sub-RAB-V-05-03-00039-
08 had not been consolidated with this case and appears, for all intents and purposes, to be
pending still, the Court finds that the reinstatement of petitioners ordered by said labor officer
and tribunal should, as a relief provided in case of illegal dismissal, be left for determination in said
case.
WHEREFORE, the Court of Appeals' assailed Decision dated 29 June 2011 and Resolution dated 3
October 2011 in CA-G.R. SP No. 116928 are REVERSED and SET ASIDE. Except for the reinstatement
of Nelson V. Begino, Gener Del Valle, Monina Avila-Llorin and Ma. Cristina Sumayao, the National
Labor and Relations· Commission's 31 March 2010 Decision is, accordingly, REINSTATED.
SO ORDERED.
Sereno, C. J., (Chairperson), Leonardo-De Castro, Bersamin, and Perlas-Bernabe, JJ., concur.

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Wilhelmina S. Orozco vs. The Fifth Division of The Honorable Court of Appeals, Philippine Daily
Inquirer, And Leticia Jimenez Magsanoc; G.R. No. 155207; August 13, 2008

G.R. No. 155207 August 13, 2008

WILHELMINA S. OROZCO, petitioner,

vs.
THE FIFTH DIVISION OF THE HONORABLE COURT OF APPEALS, PHILIPPINE DAILY INQUIRER, and
LETICIA JIMENEZ MAGSANOC, respondents.

DECISION

NACHURA, J.:

The case before this Court raises a novel question never before decided in our jurisdiction –
whether a newspaper columnist is an employee of the newspaper which publishes the column.

In this Petition for Review under Rule 45 of the Revised Rules on Civil Procedure, petitioner
Wilhelmina S. Orozco assails the Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 50970
dated June 11, 2002 and its Resolution2 dated September 11, 2002 denying her Motion for
Reconsideration. The CA reversed and set aside the Decision3 of the National Labor Relations
Commission (NLRC), which in turn had affirmed the Decision4 of the Labor Arbiter finding that
Orozco was an employee of private respondent Philippine Daily Inquirer (PDI) and was illegally
dismissed as columnist of said newspaper.

In March 1990, PDI engaged the services of petitioner to write a weekly column for its Lifestyle
section. She religiously submitted her articles every week, except for a six-month stint in New York
City when she, nonetheless, sent several articles through mail. She received compensation
of P250.00 – later increased to P300.00 – for every column published.5

On November 7, 1992, petitioner’s column appeared in the PDI for the last time. Petitioner claims
that her then editor, Ms. Lita T. Logarta,6 told her that respondent Leticia Jimenez Magsanoc, PDI
Editor in Chief, wanted to stop publishing her column for no reason at all and advised petitioner
to talk to Magsanoc herself. Petitioner narrates that when she talked to Magsanoc, the latter
informed her that it was PDI Chairperson Eugenia Apostol who had asked to stop publication of
her column, but that in a telephone conversation with Apostol, the latter said that Magsanoc
informed her (Apostol) that the Lifestyle section already had many columnists.7

On the other hand, PDI claims that in June 1991, Magsanoc met with the Lifestyle section editor
to discuss how to improve said section. They agreed to cut down the number of columnists by
keeping only those whose columns were well-written, with regular feedback and following. In their
judgment, petitioner’s column failed to improve, continued to be superficially and poorly written,

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and failed to meet the high standards of the newspaper. Hence, they decided to terminate
petitioner’s column.8

Aggrieved by the newspaper’s action, petitioner filed a complaint for illegal dismissal, backwages,
moral and exemplary damages, and other money claims before the NLRC.

On October 29, 1993, Labor Arbiter Arthur Amansec rendered a Decision in favor of
petitioner, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered, finding complainant to be an employee of

respondent company; ordering respondent company to reinstate her to her former or
equivalent position, with backwages.

Respondent company is also ordered to pay her 13th month pay and service incentive leave
pay.

Other claims are hereby dismissed for lack of merit.

SO ORDERED.9

The Labor Arbiter found that:

[R]espondent company exercised full and complete control over the means and method
by which complainant’s work – that of a regular columnist – had to be accomplished. This
control might not be found in an instruction, verbal or oral, given to complainant defining
the means and method she should write her column. Rather, this control is manifested and
certained (sic) in respondents’ admitted prerogative to reject any article submitted by
complainant for publication.

By virtue of this power, complainant was helplessly constrained to adopt her subjects and
style of writing to suit the editorial taste of her editor. Otherwise, off to the trash can went
her articles.

Moreover, this control is already manifested in column title, "Feminist Reflection" allotted
complainant. Under this title, complainant’s writing was controlled and limited to a
woman’s perspective on matters of feminine interests. That respondent had no control
over the subject matter written by complainant is strongly belied by this observation. Even
the length of complainant’s articles were set by respondents.

Inevitably, respondents would have no control over when or where complainant wrote her
articles as she was a columnist who could produce an article in thirty (3) (sic) months or
three (3) days, depending on her mood or the amount of research required for an article
but her actions were controlled by her obligation to produce an article a week. If
complainant did not have to report for work eight (8) hours a day, six (6) days a week, it is

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because her task was mainly mental. Lastly, the fact that her articles were (sic) published
weekly for three (3) years show that she was respondents’ regular employee, not a once-
in-a-blue-moon contributor who was not under any pressure or obligation to produce
regular articles and who wrote at his own whim and leisure.10

PDI appealed the Decision to the NLRC. In a Decision dated August 23, 1994, the NLRC Second
Division dismissed the appeal thereby affirming the Labor Arbiter’s Decision. The NLRC initially
noted that PDI failed to perfect its appeal, under Article 223 of the Labor Code, due to non-filing
of a cash or surety bond. The NLRC said that the reason proffered by PDI for not filing the bond –
that it was difficult or impossible to determine the amount of the bond since the Labor Arbiter did
not specify the amount of the judgment award – was not persuasive. It said that all PDI had to do
was compute based on the amount it was paying petitioner, counting the number of weeks from
November 7, 1992 up to promulgation of the Labor Arbiter’s decision.11

The NLRC also resolved the appeal on its merits. It found no error in the Labor Arbiter’s findings of
fact and law. It sustained the Labor Arbiter’s reasoning that respondent PDI exercised control over
petitioner’s work.

PDI then filed a Petition for Review12 before this Court seeking the reversal of the NLRC Decision.
However, in a Resolution13 dated December 2, 1998, this Court referred the case to the Court of
Appeals, pursuant to our ruling in St. Martin Funeral Homes v. National Labor Relations
Commission.14

The CA rendered its assailed Decision on June 11, 2002. It set aside the NLRC Decision and
dismissed petitioner’s Complaint. It held that the NLRC misappreciated the facts and rendered a
ruling wanting in substantial evidence. The CA said:

The Court does not agree with public respondent NLRC’s conclusion. First, private
respondent admitted that she was and [had] never been considered by petitioner PDI as
its employee. Second, it is not disputed that private respondent had no employment
contract with petitioner PDI. In fact, her engagement to contribute articles for publication
was based on a verbal agreement between her and the petitioner’s Lifestyle Section Editor.
Moreover, it was evident that private respondent was not required to report to the office
eight (8) hours a day. Further, it is not disputed that she stayed in New York for six (6)
months without petitioner’s permission as to her leave of absence nor was she given any
disciplinary action for the same. These undisputed facts negate private respondent’s claim
that she is an employee of petitioner.

Moreover, with regards (sic) to the control test, the public respondent NLRC’s ruling that
the guidelines given by petitioner PDI for private respondent to follow, e.g. in terms of
space allocation and length of article, is not the form of control envisioned by the
guidelines set by the Supreme Court. The length of the article is obviously limited so that
all the articles to be featured in the paper can be accommodated. As to the topic of the
article to be published, it is but logical that private respondent should not write morbid

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topics such as death because she is contributing to the lifestyle section. Other than said
given limitations, if the same could be considered limitations, the topics of the articles
submitted by private respondent were all her choices. Thus, the petitioner PDI in deciding
to publish private respondent’s articles only controls the result of the work and not the
means by which said articles were written.

As such, the above facts failed to measure up to the control test necessary for an employer-
employee relationship to exist.15

Petitioner’s Motion for Reconsideration was denied in a Resolution dated September 11, 2002.
She then filed the present Petition for Review.

In a Resolution dated April 29, 2005, the Court, without giving due course to the petition, ordered
the Labor Arbiter to clarify the amount of the award due petitioner and, thereafter, ordered PDI
to post the requisite bond. Upon compliance therewith, the petition would be given due course.
Labor Arbiter Amansec clarified that the award under the Decision amounted to P15,350.00. Thus,
PDI posted the requisite bond on January 25, 2007.16

We shall initially dispose of the procedural issue raised in the Petition.

Petitioner argues that the CA erred in not dismissing outright PDI’s Petition for Certiorari for PDI’s
failure to post a cash or surety bond in violation of Article 223 of the Labor Code.

This issue was settled by this Court in its Resolution dated April 29, 2005.17 There, the Court held:

But while the posting of a cash or surety bond is jurisdictional and is a condition sine qua
non to the perfection of an appeal, there is a plethora of jurisprudence recognizing
exceptional instances wherein the Court relaxed the bond requirement as a condition for
posting the appeal.

xxxx

In the case of Taberrah v. NLRC, the Court made note of the fact that the assailed decision
of the Labor Arbiter concerned did not contain a computation of the monetary award due
the employees, a circumstance which is likewise present in this case. In said case, the Court
stated,

As a rule, compliance with the requirements for the perfection of an appeal within
the reglamentary (sic) period is mandatory and jurisdictional. However, in National
Federation of Labor Unions v. Ladrido as well as in several other cases, this Court
relaxed the requirement of the posting of an appeal bond within the reglementary
period as a condition for perfecting the appeal. This is in line with the principle that
substantial justice is better served by allowing the appeal to be resolved on the
merits rather than dismissing it based on a technicality.

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The judgment of the Labor Arbiter in this case merely stated that petitioner was entitled
to backwages, 13th month pay and service incentive leave pay without however including
a computation of the alleged amounts.

xxxx

In the case of NFLU v. Ladrido III, this Court postulated that "private respondents cannot
be expected to post such appeal bond equivalent to the amount of the monetary award
when the amount thereof was not included in the decision of the labor arbiter." The
computation of the amount awarded to petitioner not having been clearly stated in the
decision of the labor arbiter, private respondents had no basis for determining the amount
of the bond to be posted.

Thus, while the requirements for perfecting an appeal must be strictly followed as they are
considered indispensable interdictions against needless delays and for orderly discharge
of judicial business, the law does admit of exceptions when warranted by the
circumstances. Technicality should not be allowed to stand in the way of equitably and
completely resolving the rights and obligations of the parties. But while this Court may
relax the observance of reglementary periods and technical rules to achieve substantial
justice, it is not prepared to give due course to this petition and make a pronouncement
on the weighty issue obtaining in this case until the law has been duly complied with and
the requisite appeal bond duly paid by private respondents.18

Records show that PDI has complied with the Court’s directive for the posting of the bond;19 thus,
that issue has been laid to rest.

We now proceed to rule on the merits of this case.

The main issue we must resolve is whether petitioner is an employee of PDI, and if the answer be
in the affirmative, whether she was illegally dismissed.

We rule for the respondents.

The existence of an employer-employee relationship is essentially a question of fact.20 Factual

findings of quasi-judicial agencies like the NLRC are generally accorded respect and finality if
supported by substantial evidence.21

Considering, however, that the CA’s findings are in direct conflict with those of the Labor Arbiter
and NLRC, this Court must now make its own examination and evaluation of the facts of this case.

It is true that petitioner herself admitted that she "was not, and [had] never been considered
respondent’s employee because the terms of works were arbitrarily decided upon by the
respondent."22 However, the employment status of a person is defined and prescribed by law and
not by what the parties say it should be.23

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This Court has constantly adhered to the "four-fold test" to determine whether there exists an
employer-employee relationship between parties.24 The four elements of an employment
relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer’s power to control the employee’s conduct.25

Of these four elements, it is the power of control which is the most crucial26 and most
determinative factor,27 so important, in fact, that the other elements may even be
disregarded.28 As this Court has previously held:

the significant factor in determining the relationship of the parties is the presence or
absence of supervisory authority to control the method and the details of performance of
the service being rendered, and the degree to which the principal may intervene to
exercise such control.29

In other words, the test is whether the employer controls or has reserved the right to control the
employee, not only as to the work done, but also as to the means and methods by which the same
is accomplished.30

Petitioner argues that several factors exist to prove that respondents exercised control over her
and her work, namely:

a. As to the Contents of her Column – The PETITIONER had to insure that the contents of
her column hewed closely to the objectives of its Lifestyle Section and the over-all
principles that the newspaper projects itself to stand for. As admitted, she wanted to write
about death in relation to All Souls Day but was advised not to.

b. As to Time Control – The PETITIONER, as a columnist, had to observe the deadlines of

the newspaper for her articles to be published. These deadlines were usually that time
period when the Section Editor has to "close the pages" of the Lifestyle Section where the
column in located. "To close the pages" means to prepare them for printing and
publication.

As a columnist, the PETITIONER’s writings had a definite day on which it was going to
appear. So she submitted her articles two days before the designated day on which the
column would come out.

This is the usual routine of newspaper work. Deadlines are set to fulfill the newspapers’
obligations to the readers with regard to timeliness and freshness of ideas.

c. As to Control of Space – The PETITIONER was told to submit only two or three pages of
article for the column, (sic) "Feminist Reflections" per week. To go beyond that, the
Lifestyle editor would already chop off the article and publish the rest for the next week.
This shows that PRIVATE RESPONDENTS had control over the space that the PETITIONER
was assigned to fill.

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d. As to Discipline – Over time, the newspaper readers’ eyes are trained or habituated to
look for and read the works of their favorite regular writers and columnists. They are
conditioned, based on their daily purchase of the newspaper, to look for specific spaces in
the newspapers for their favorite write-ups/or opinions on matters relevant and significant
issues aside from not being late or amiss in the responsibility of timely submission of their
articles.

The PETITIONER was disciplined to submit her articles on highly relevant and significant
issues on time by the PRIVATE RESPONDENTS who have a say on whether the topics belong
to those considered as highly relevant and significant, through the Lifestyle Section Editor.
The PETITIONER had to discuss the topics first and submit the articles two days before
publication date to keep her column in the newspaper space regularly as expected or
without miss by its readers.31

Given this discussion by petitioner, we then ask the question: Is this the form of control that our
labor laws contemplate such as to establish an employer-employee relationship between petitioner
and respondent PDI?

It is not.

Petitioner has misconstrued the "control test," as did the Labor Arbiter and the NLRC.

Not all rules imposed by the hiring party on the hired party indicate that the latter is an employee
of the former. Rules which serve as general guidelines towards the achievement of the mutually
desired result are not indicative of the power of control.32 Thus, this Court has explained:

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. x x x.33

The main determinant therefore is whether the rules set by the employer are meant to control
not just the results of the work but also the means and method to be used by the hired party in

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order to achieve such results. Thus, in this case, we are to examine the factors enumerated by
petitioner to see if these are merely guidelines or if they indeed fulfill the requirements of the
control test.

Petitioner believes that respondents’ acts are meant to control how she executes her work. We
do not agree. A careful examination reveals that the factors enumerated by the petitioner are
inherent conditions in running a newspaper. In other words, the so-called control as to time, space,
and discipline are dictated by the very nature of the newspaper business itself.

We agree with the observations of the Office of the Solicitor General that:

The Inquirer is the publisher of a newspaper of general circulation which is widely read
throughout the country. As such, public interest dictates that every article appearing in the
newspaper should subscribe to the standards set by the Inquirer, with its thousands of
readers in mind. It is not, therefore, unusual for the Inquirer to control what would be
published in the newspaper. What is important is the fact that such control pertains only
to the end result, i.e., the submitted articles. The Inquirer has no control over [petitioner]
as to the means or method used by her in the preparation of her articles. The articles are
done by [petitioner] herself without any intervention from the Inquirer.34

Petitioner has not shown that PDI, acting through its editors, dictated how she was to write or
produce her articles each week. Aside from the constraints presented by the space allocation of
her column, there were no restraints on her creativity; petitioner was free to write her column in
the manner and style she was accustomed to and to use whatever research method she deemed
suitable for her purpose. The apparent limitation that she had to write only on subjects that
befitted the Lifestyle section did not translate to control, but was simply a logical consequence of
the fact that her column appeared in that section and therefore had to cater to the preference of
the readers of that section.

The perceived constraint on petitioner’s column was dictated by her own choice of her column’s
perspective. The column title "Feminist Reflections" was of her own choosing, as she herself
admitted, since she had been known as a feminist writer.35 Thus, respondent PDI, as well as her
readers, could reasonably expect her columns to speak from such perspective.

Contrary to petitioner’s protestations, it does not appear that there was any actual restraint or
limitation on the subject matter – within the Lifestyle section – that she could write about.
Respondent PDI did not dictate how she wrote or what she wrote in her column. Neither did PDI’s
guidelines dictate the kind of research, time, and effort she put into each column. In fact,
petitioner herself said that she received "no comments on her articles…except for her to shorten
them to fit into the box allotted to her column." Therefore, the control that PDI exercised over
petitioner was only as to the finished product of her efforts, i.e., the column itself, by way of either
shortening or outright rejection of the column.

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The newspaper’s power to approve or reject publication of any specific article she wrote for her
column cannot be the control contemplated in the "control test," as it is but logical that one who
commissions another to do a piece of work should have the right to accept or reject the product.
The important factor to consider in the "control test" is still the element of control over how the
work itself is done, not just the end result thereof.

In contrast, a regular reporter is not as independent in doing his or her work for the newspaper.
We note the common practice in the newspaper business of assigning its regular reporters to
cover specific subjects, geographical locations, government agencies, or areas of concern, more
commonly referred to as "beats." A reporter must produce stories within his or her particular beat
and cannot switch to another beat without permission from the editor. In most newspapers also,
a reporter must inform the editor about the story that he or she is working on for the day. The
story or article must also be submitted to the editor at a specified time. Moreover, the editor can
easily pull out a reporter from one beat and ask him or her to cover another beat, if the need
arises.

This is not the case for petitioner. Although petitioner had a weekly deadline to meet, she was not
precluded from submitting her column ahead of time or from submitting columns to be published
at a later time. More importantly, respondents did not dictate upon petitioner the subject matter
of her columns, but only imposed the general guideline that the article should conform to the
standards of the newspaper and the general tone of the particular section.

Where a person who works for another performs his job more or less at his own pleasure, in the
manner he sees fit, not subject to definite hours or conditions of work, and is compensated
according to the result of his efforts and not the amount thereof, no employer-employee
relationship exists.36

Aside from the control test, this Court has also used the economic reality test. The economic
realities prevailing within the activity or between the parties are examined, taking into
consideration the totality of circumstances surrounding the true nature of the relationship
between the parties.37 This is especially appropriate when, as in this case, there is no written
agreement or contract on which to base the relationship. In our jurisdiction, the benchmark of
economic reality in analyzing possible employment relationships for purposes of applying the
Labor Code ought to be the economic dependence of the worker on his employer.38

Petitioner’s main occupation is not as a columnist for respondent but as a women’s rights advocate
working in various women’s organizations.39 Likewise, she herself admits that she also contributes
articles to other publications.40 Thus, it cannot be said that petitioner was dependent on
respondent PDI for her continued employment in respondent’s line of business.41

The inevitable conclusion is that petitioner was not respondent PDI’s employee but an
independent contractor, engaged to do independent work.

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There is no inflexible rule to determine if a person is an employee or an independent contractor;

thus, the characterization of the relationship must be made based on the particular circumstances
of each case.42 There are several factors43 that may be considered by the courts, but as we already
said, the right to control is the dominant factor in determining whether one is an employee or an
independent contractor.44

In our jurisdiction, the Court has held that an independent contractor is one who carries on a
distinct and independent business and undertakes to perform the job, work, or service on one’s
own account and under one’s own responsibility according to one’s own manner and method, free
from the control and direction of the principal in all matters connected with the performance of
the work except as to the results thereof.45

On this point, Sonza v. ABS-CBN Broadcasting Corporation46 is enlightening. In that case, the Court
found, using the four-fold test, that petitioner, Jose Y. Sonza, was not an employee of ABS-CBN,
but an independent contractor. Sonza was hired by ABS-CBN due to his "unique skills, talent and
celebrity status not possessed by ordinary employees," a circumstance that, the Court said, was
indicative, though not conclusive, of an independent contractual relationship. Independent
contractors often present themselves to possess unique skills, expertise or talent to distinguish
them from ordinary employees.47 The Court also found that, as to payment of wages, Sonza’s
talent fees were the result of negotiations between him and ABS-CBN.48 As to the power of
dismissal, the Court found that the terms of Sonza’s engagement were dictated by the contract he
entered into with ABS-CBN, and the same contract provided that either party may terminate the
contract in case of breach by the other of the terms thereof.49 However, the Court held that the
foregoing are not determinative of an employer-employee relationship. Instead, it is still the
power of control that is most important.

On the power of control, the Court found that in performing his work, Sonza only needed his skills
and talent – how he delivered his lines, appeared on television, and sounded on radio were outside
ABS-CBN’s control.50 Thus:

We find that ABS-CBN was not involved in the actual performance that produced the
finished product of SONZA’s work. ABS-CBN did not instruct SONZA how to perform his job.
ABS-CBN merely reserved the right to modify the program format and airtime schedule
"for more effective programming." ABS-CBN’s sole concern was the quality of the shows
and their standing in the ratings. Clearly, ABS-CBN did not exercise control over the means
and methods of performance of SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power
over the means and methods of the performance of his work. Although ABS-CBN did have
the option not to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s
talent fees... Thus, even if ABS-CBN was completely dissatisfied with the means and
methods of SONZA’s performance of his work, or even with the quality or product of his
work, ABS-CBN could not dismiss or even discipline SONZA. All that ABS-CBN could do is
not to broadcast SONZA’s show but ABS-CBN must still pay his talent fees in full.

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Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the
obligation to continue paying in full SONZA’s talent fees, did not amount to control over
the means and methods of the performance of SONZA’s work. ABS-CBN could not
terminate or discipline SONZA even if the means and methods of performance of his work
- how he delivered his lines and appeared on television - did not meet ABS-CBN’s approval.
This proves that ABS-CBN’s control was limited only to the result of SONZA’s work, whether
to broadcast the final product or not. In either case, ABS-CBN must still pay SONZA’s talent
fees in full until the expiry of the Agreement.

In Vaughan, et al. v. Warner, et al., the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved
the right to delete objectionable features in their shows. Since the management did not
have control over the manner of performance of the skills of the artists, it could only
control the result of the work by deleting objectionable features.

SONZA further contends that ABS-CBN exercised control over his work by supplying all
equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime
needed to broadcast the "Mel & Jay" programs. However, the equipment, crew and airtime
are not the "tools and instrumentalities" SONZA needed to perform his job. What SONZA
principally needed were his talent or skills and the costumes necessary for his appearance.
Even though ABS-CBN provided SONZA with the place of work and the necessary
equipment, SONZA was still an independent contractor since ABS-CBN did not supervise
and control his work. ABS-CBN’s sole concern was for SONZA to display his talent during
the airing of the programs.

A radio broadcast specialist who works under minimal supervision is an independent

contractor. SONZA’s work as television and radio program host required special skills and
talent, which SONZA admittedly possesses. The records do not show that ABS-CBN
exercised any supervision and control over how SONZA utilized his skills and talent in his
shows.51

The instant case presents a parallel to Sonza. Petitioner was engaged as a columnist for her talent,
skill, experience, and her unique viewpoint as a feminist advocate. How she utilized all these in
writing her column was not subject to dictation by respondent. As in Sonza, respondent PDI was
not involved in the actual performance that produced the finished product. It only reserved the
right to shorten petitioner’s articles based on the newspaper’s capacity to accommodate the
same. This fact, we note, was not unique to petitioner’s column. It is a reality in the newspaper
business that space constraints often dictate the length of articles and columns, even those that
regularly appear therein.

Furthermore, respondent PDI did not supply petitioner with the tools and instrumentalities she
needed to perform her work. Petitioner only needed her talent and skill to come up with a column
every week. As such, she had all the tools she needed to perform her work.

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Considering that respondent PDI was not petitioner’s employer, it cannot be held guilty of illegal
dismissal.

WHEREFORE, the foregoing premises considered, the Petition is DISMISSED. The Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 50970 are hereby AFFIRMED.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

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Jose Y. Sonza vs. ABS-CBN Broadcasting Corporation; Gr No. 138051; June 10, 2004

G.R. No. 138051 June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of
the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza
("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations Commission
("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement

("Agreement") with the Mel and Jay Management and Development Corporation ("MJMDC"). ABS-
CBN was represented by its corporate officers while MJMDC was represented by SONZA, as
President and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer.
Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZA’s services exclusively
to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would
render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first year
and ₱317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees
on the 10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by
your goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.

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As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning
his programs and career. We consider these acts of the station violative of the Agreement
and the station as in breach thereof. In this connection, we hereby serve notice of
rescission of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining
amount stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery
of the other benefits under said Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and
Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did not
pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel
allowance and amounts due under the Employees Stock Option Plan ("ESOP").

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at
PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with
the same bank where ABS-CBN deposited SONZA’s talent fees and other payments due him under
the Agreement.

In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and directed
the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is
sufficient enough as to confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon the causes of action
asserted is a matter to be resolved only after and as a result of a hearing. Thus, the
respondent’s plea of lack of employer-employee relationship may be pleaded only as a
matter of defense. It behooves upon it the duty to prove that there really is no employer-
employee relationship between it and the complainant.

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.

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On 11 March 1997, SONZA filed a Reply to Respondent’s Position Paper with Motion to Expunge
Respondent’s Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBN’s
witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the
prevailing practice in the television and broadcast industry is to treat talents like SONZA as
independent contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:

xxx

While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of
the contract of a talent," it stands to reason that a "talent" as above-described cannot be
considered as an employee by reason of the peculiar circumstances surrounding the
engagement of his services.

It must be noted that complainant was engaged by respondent by reason of his peculiar
skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee, he was
free to perform the services he undertook to render in accordance with his own style. The
benefits conferred to complainant under the May 1994 Agreement are certainly very much
higher than those generally given to employees. For one, complainant Sonza’s monthly
talent fees amount to a staggering ₱317,000. Moreover, his engagement as a talent was
covered by a specific contract. Likewise, he was not bound to render eight (8) hours of
work per day as he worked only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits
normally given to an employee is inconsequential. Whatever benefits complainant enjoyed
arose from specific agreement by the parties and not by reason of employer-employee
relationship. As correctly put by the respondent, "All these benefits are merely talent fees
and other contractual benefits and should not be deemed as ‘salaries, wages and/or other
remuneration’ accorded to an employee, notwithstanding the nomenclature appended to
these benefits. Apropos to this is the rule that the term or nomenclature given to a
stipulated benefit is not controlling, but the intent of the parties to the Agreement
conferring such benefit."

The fact that complainant was made subject to respondent’s Rules and Regulations,
likewise, does not detract from the absence of employer-employee relationship. As held
by the Supreme Court, "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 to achieve it." (Insular Life Assurance
Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989).

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x x x (Emphasis supplied)7

SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the
Labor Arbiter’s decision. SONZA filed a motion for reconsideration, which the NLRC denied in its
Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals
rendered a Decision dismissing the case.8

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship existed
between SONZA and ABS-CBN. Adopting the NLRC’s decision, the appellate court quoted the
following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract
merely as an agent of complainant Sonza, the principal. By all indication and as the law
puts it, the act of the agent is the act of the principal itself. This fact is made particularly
true in this case, as admittedly MJMDC ‘is a management company devoted exclusively to
managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco.’
(Opposition to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and
MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the
May 1994 Agreement which specifically referred to MJMDC as the ‘AGENT’. As a matter of
fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was
MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed
the same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that
historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only
in the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN
and Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere ‘labor-only’ contractor of ABS-CBN

such that there exist[s] employer-employee relationship between the latter and Mr. Sonza.
On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of
the talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the
May 1994 Agreement.

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It may not be amiss to state that jurisdiction over the instant controversy indeed belongs
to the regular courts, the same being in the nature of an action for alleged breach of
contractual obligation on the part of respondent-appellee. As squarely apparent from
complainant-appellant’s Position Paper, his claims for compensation for services, ‘13th
month pay’, signing bonus and travel allowance against respondent-appellee are not based
on the Labor Code but rather on the provisions of the May 1994 Agreement, while his
claims for proceeds under Stock Purchase Agreement are based on the latter. A portion of
the Position Paper of complainant-appellant bears perusal:

‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter
contractually bound itself to pay complainant a signing bonus consisting of shares
of stocks…with FIVE HUNDRED THOUSAND PESOS (₱500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an

amount not lower than the amount he was receiving prior to effectivity of (the)
Agreement’.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a

commutable travel benefit amounting to at least One Hundred Fifty Thousand
Pesos (₱150,000.00) per year.’

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that his
contractual relations with ABS-CBN are founded on the New Civil Code, rather than the
Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served
upon the latter a ‘notice of rescission’ of Agreement with the station, per his letter dated
April 1, 1996, which asserted that instead of referring to unpaid employee benefits, ‘he is
waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the
Agreement but reserves the right to such recovery of the other benefits under said
Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement
and/or the Stock Purchase Agreement by respondent-appellee that complainant-appellant
filed his complaint. Complainant-appellant’s claims being anchored on the alleged breach
of contract on the part of respondent-appellee, the same can be resolved by reference to
civil law and not to labor law. Consequently, they are within the realm of civil law and, thus,
lie with the regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs.
Villarama, 238 SCRA 267, 21 November 1994, an action for breach of contractual
obligation is intrinsically a civil dispute.9 (Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between
SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve.10 A
special civil action for certiorari extends only to issues of want or excess of jurisdiction of the
NLRC.11 Such action cannot cover an inquiry into the correctness of the evaluation of the evidence

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which served as basis of the NLRC’s conclusion.12 The Court of Appeals added that it could not re-
examine the parties’ evidence and substitute the factual findings of the NLRC with its own.13

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S DECISION AND
REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN
SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND
EVIDENCE TO SUPPORT SUCH A FINDING.14

The Court’s Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming
the NLRC ruling which upheld the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression. Although Philippine labor laws and
jurisprudence define clearly the elements of an employer-employee relationship, this is the first
time that the Court will resolve the nature of the relationship between a television and radio
station and one of its "talents." There is no case law stating that a radio and television program
host is an employee of the broadcast station.

The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known
television and radio personality, and ABS-CBN, one of the biggest television and radio networks in
the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee
of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because
SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord

the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when
supported by substantial evidence.15 Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.16 A party cannot prove the
absence of substantial evidence by simply pointing out that there is contrary evidence on record,
direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in
determining where the weight of evidence lies or what evidence is credible.17

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SONZA maintains that all essential elements of an employer-employee relationship are present in
this case. Case law has consistently held that the elements of an employer-employee relationship
are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power
of dismissal; and (d) the employer’s power to control the employee on the means and methods
by which the work is accomplished.18 The last element, the so-called "control test", is the most
important element.19

A. Selection and Engagement of Employee

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

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance
indicative, but not conclusive, of an independent contractual relationship. If SONZA did not
possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the
Agreement with SONZA but would have hired him through its personnel department just like any
other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.

B. Payment of Wages

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

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBN’s employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay"20 which the law
automatically incorporates into every employer-employee contract.21 Whatever benefits SONZA
enjoyed arose from contract and not because of an employer-employee relationship.22

SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge
and out of the ordinary that they indicate more an independent contractual relationship rather
than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees
precisely because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary

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employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and
receive such huge talent fees for his services. The power to bargain talent fees way above the
salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an
independent contractual relationship.

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

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship.
SONZA failed to show that ABS-CBN could terminate his services on grounds other than breach of
contract, such as retrenchment to prevent losses as provided under labor laws.23

During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as "AGENT
and Jay Sonza shall faithfully and completely perform each condition of this Agreement."24 Even if
it suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained
obligated to pay SONZA’s talent fees during the life of the Agreement. This circumstance indicates
an independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him
his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying
SONZA’s talent fees during the remaining life of the Agreement even if ABS-CBN cancelled SONZA’s
programs through no fault of SONZA.25

SONZA assails the Labor Arbiter’s interpretation of his rescission of the Agreement as an admission
that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true that
complainant was really an employee, he would merely resign, instead." SONZA did actually resign
from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZA’s letter
clearly bears this out.26 However, the manner by which SONZA terminated his relationship with
ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not
determine his status as employee or independent contractor.

D. Power of Control

Since there is no local precedent on whether a radio and television program host is an employee
or an independent contractor, we refer to foreign case law in analyzing the present case. The
United States Court of Appeals, First Circuit, recently held in Alberty-Vélez v. Corporación De
Puerto Rico Para La Difusión Pública ("WIPR")27 that a television program host is an independent
contractor. We quote the following findings of the U.S. court:

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Several factors favor classifying Alberty as an independent contractor. First, a television

actress is a skilled position requiring talent and training not available on-the-job. x x x In
this regard, Alberty possesses a master’s degree in public communications and journalism;
is trained in dance, singing, and modeling; taught with the drama department at the
University of Puerto Rico; and acted in several theater and television productions prior to
her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and
instrumentalities" necessary for her to perform. Specifically, she provided, or obtained
sponsors to provide, the costumes, jewelry, and other image-related supplies and services
necessary for her appearance. Alberty disputes that this factor favors independent
contractor status because WIPR provided the "equipment necessary to tape the show."
Alberty’s argument is misplaced. The equipment necessary for Alberty to conduct her job
as host of "Desde Mi Pueblo" related to her appearance on the show. Others provided
equipment for filming and producing the show, but these were not the primary tools that
Alberty used to perform her particular function. If we accepted this argument,
independent contractors could never work on collaborative projects because other
individuals often provide the equipment required for different aspects of the collaboration.
xxx

Third, WIPR could not assign Alberty work in addition to filming "Desde Mi
Pueblo." Alberty’s contracts with WIPR specifically provided that WIPR hired her
"professional services as Hostess for the Program Desde Mi Pueblo." There is no evidence
that WIPR assigned Alberty tasks in addition to work related to these tapings. x x
x28 (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in
distinguishing an employee from an independent contractor.29 This test is based on the extent of
control the hirer exercises over a worker. The greater the supervision and control the hirer
exercises, the more likely the worker is deemed an employee. The converse holds true as well –
the less control the hirer exercises, the more likely the worker is considered an independent
contractor.30

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.

SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host the
"Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work,
SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television,
and sounded on radio were outside ABS-CBN’s control. SONZA did not have to render eight hours
of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the
shows, as well as pre- and post-production staff meetings.31 ABS-CBN could not dictate the
contents of SONZA’s script. However, the Agreement prohibited SONZA from criticizing in his
shows ABS-CBN or its interests.32 The clear implication is that SONZA had a free hand on what to
say or discuss in his shows provided he did not attack ABS-CBN or its interests.

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We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN
merely reserved the right to modify the program format and airtime schedule "for more effective
programming."34 ABS-CBN’s sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of
SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over the
means and methods of the performance of his work. Although ABS-CBN did have the option not
to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s talent fees... Thus, even
if ABS-CBN was completely dissatisfied with the means and methods of SONZA’s performance of
his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even
discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show but ABS-CBN must
still pay his talent fees in full.35

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation to
continue paying in full SONZA’s talent fees, did not amount to control over the means and methods
of the performance of SONZA’s work. ABS-CBN could not terminate or discipline SONZA even if
the means and methods of performance of his work - how he delivered his lines and appeared on
television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s control was limited only
to the result of SONZA’s work, whether to broadcast the final product or not. In either case, ABS-
CBN must still pay SONZA’s talent fees in full until the expiry of the Agreement.

In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved the
right to delete objectionable features in their shows. Since the management did not have control
over the manner of performance of the skills of the artists, it could only control the result of the
work by deleting objectionable features.37

SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment
and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the
"Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools and
instrumentalities" SONZA needed to perform his job. What SONZA principally needed were his
talent or skills and the costumes necessary for his appearance.38 Even though ABS-CBN provided
SONZA with the place of work and the necessary equipment, SONZA was still an independent
contractor since ABS-CBN did not supervise and control his work. ABS-CBN’s sole concern was for
SONZA to display his talent during the airing of the programs.39

A radio broadcast specialist who works under minimal supervision is an independent

contractor.40 SONZA’s work as television and radio program host required special skills and talent,
which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any
supervision and control over how SONZA utilized his skills and talent in his shows.

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Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN subjected him
to its rules and standards of performance. SONZA claims that this indicates ABS-CBN’s control "not
only [over] his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance
"covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules
and standards of performance prescribed for employees of ABS-CBN. The code of conduct
imposed on SONZA under the Agreement refers to the "Television and Radio Code of the
Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-
CBN) as its Code of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and
television stations. Broadcasters are not necessarily employees of radio and television stations.
Clearly, the rules and standards of performance referred to in the Agreement are those applicable
to talents and not to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is
an employee of the former.43 In this case, SONZA failed to show that these rules controlled his
performance. We find that these general rules are merely guidelines towards the achievement of
the mutually desired result, which are top-rating television and radio programs that comply with
standards of the industry. 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. vs. 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.44

The Vaughan case also held that one could still be an independent contractor although the hirer
reserved certain supervision to insure the attainment of the desired result. The hirer, however,
must not deprive the one hired from performing his services according to his own initiative. 45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of
control which ABS-CBN exercised over him.

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

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The hiring of exclusive talents is a widespread and accepted practice in the entertainment
industry.46 This practice is not designed to control the means and methods of work of the talent,
but simply to protect the investment of the broadcast station. The broadcast station normally
spends substantial amounts of money, time and effort "in building up its talents as well as the
programs they appear in and thus expects that said talents remain exclusive with the station for a
commensurate period of time."47 Normally, a much higher fee is paid to talents who agree to work
exclusively for a particular radio or television station. In short, the huge talent fees partially
compensates for exclusivity, as in the present case.

MJMDC as Agent of SONZA

SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which contracted out his
services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employee
of ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN is his employer.

In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the
employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal
who is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent of
the principal. The law makes the principal responsible to the employees of the "labor-only
contractor" as if the principal itself directly hired or employed the employees. 48 These
circumstances are not present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-
CBN. MJMDC merely acted as SONZA’s agent. The Agreement expressly states that MJMDC acted
as the "AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBN’s agent.
MJMDC, which stands for Mel and Jay Management and Development Corporation, is a
corporation organized and owned by SONZA and TIANGCO. The President and General Manager
of MJMDC is SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed
and managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA,
who himself is represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and
SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the careers
of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other business, not
even job contracting. MJMDC does not have any other function apart from acting as agent of
SONZA or TIANGCO to promote their careers in the broadcast and television industry. 49

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8
January 1979 finally settled the status of workers in the broadcast industry. Under this policy, the
types of employees in the broadcast industry are the station and program employees.

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Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of
law. There is no legal presumption that Policy Instruction No. 40 determines SONZA’s status. A
mere executive issuance cannot exclude independent contractors from the class of service
providers to the broadcast industry. The classification of workers in the broadcast industry into
only two groups under Policy Instruction No. 40 is not binding on this Court, especially when the
classification has no basis either in law or in fact.

Affidavits of ABS-CBN’s Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando
Cruz without giving his counsel the

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to

attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of
these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from denying
or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to
conduct a formal (trial-type) hearing after the submission of the position papers of the parties,
thus:

Section 3. Submission of Position Papers/Memorandum

xxx

These verified position papers shall cover only those claims and causes of action raised in
the complaint excluding those that may have been amicably settled, and shall be
accompanied by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latter’s direct testimony. x x x

Section 4. Determination of Necessity of Hearing. – Immediately after the submission of

the parties of their position papers/memorandum, the Labor Arbiter shall motu propio
determine whether there is need for a formal trial or hearing. At this stage, he may, at his
discretion and for the purpose of making such determination, ask clarificatory questions
to further elicit facts or information, including but not limited to the subpoena of relevant
documentary evidence, if any from any party or witness.50

The Labor Arbiter can decide a case based solely on the position papers and the supporting
documents without a formal trial.51 The holding of a formal hearing or trial is something that the
parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on
the documents before him, he cannot be faulted for not conducting a formal trial, unless under
the particular circumstances of the case, the documents alone are insufficient. The proceedings
before a Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the

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technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings
before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment
industries to treat talents like SONZA as independent contractors. SONZA argues that if such
practice exists, it is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee
creates an employer-employee relationship. To hold that every person who renders services to
another for a fee is an employee - to give meaning to the security of tenure clause - will lead to
absurd results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
independent contractors. The right to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to render his services
without any one controlling the means and methods by which he performs his art or craft. This
Court will not interpret the right of labor to security of tenure to compel artists and talents to
render their services only as employees. If radio and television program hosts can render their
services only as employees, the station owners and managers can dictate to the radio and
television hosts what they say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters

The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as amended
by Republic Act No. 8241,56 treats talents, television and radio broadcasters differently. Under the
NIRC, these professionals are subject to the 10% value-added tax ("VAT") on services they render.
Exempted from the VAT are those under an employer-employee relationship.57 This different tax
treatment accorded to talents and broadcasters bolters our conclusion that they are independent
contractors, provided all the basic elements of a contractual relationship are present as in this
case.

Nature of SONZA’s Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service
incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock
Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZA’s
claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor
Code. Clearly, the present case does not call for an application of the Labor Code provisions but
an interpretation and implementation of the May 1994 Agreement. In effect, SONZA’s cause of

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action is for breach of contract which is intrinsically a civil dispute cognizable by the regular
courts.58

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26 March
1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

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Bernard A. Tenazas, et al vs. R. Villegas Taxi Transport and Romualdo Villegas; GR No. 192998;
April 2, 2014

G.R. No. 192998 April 2, 2014

BERNARD A. TENAZAS, JAIME M. FRANCISCO and ISIDRO G. ENDRACA, Petitioners,

vs.
R. VILLEGAS TAXI TRANSPORT and ROMUALDO VILLEGAS, Respondents.

DECISION

REYES, J.:

This is a petition for review on certiorari1 filed under Rule 45 of the Rules of Court, assailing the
Decision2 dated March 11, 2010 and Resolution3 dated June 28, 2010 of the Court of Appeals (CA)
in CA-G.R. SP No. 111150, which affirmed with modification the Decision4 dated June 23, 2009 of
the National Labor Relations Commission (NLRC) in NLRC LAC Case No. 07-002648-08.

The Antecedent Facts

On July 4, 2007, Bernard A. Tenazas (Tenazas) and Jaime M. Francisco (Francisco) filed a complaint
for illegal dismissal against R. Villegas Taxi Transport and/or Romualdo Villegas (Romualdo) and
Andy Villegas (Andy) (respondents). At that time, a similar case had already been filed by Isidro G.
Endraca (Endraca) against the same respondents. The two (2) cases were subsequently
consolidated.5

In their position paper,6 Tenazas, Francisco and Endraca (petitioners) alleged that they were
hired and dismissed by the respondents on the following dates:

Name Date of Hiring Date of Dismissal Salary

Bernard A. Tenazas 10/1997 07/03/07 Boundary System
Jaime M. Francisco 04/10/04 06/04/07 Boundary System
Isidro G. Endraca 04/2000 03/06/06 Boundary System7

Relaying the circumstances of his dismissal, Tenazas alleged that on July 1, 2007, the taxi unit
assigned to him was sideswiped by another vehicle, causing a dent on the left fender near the
driver seat. The cost of repair for the damage was estimated at ₱500.00. Upon reporting the
incident to the company, he was scolded by respondents Romualdo and Andy and was told to
leave the garage for he is already fired. He was even threatened with physical harm should he ever
be seen in the company’s premises again. Despite the warning, Tenazas reported for work on the

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following day but was told that he can no longer drive any of the company’s units as he is already
fired.8

Francisco, on the other hand, averred that his dismissal was brought about by the company’s
unfounded suspicion that he was organizing a labor union. He was instantaneously terminated,
without the benefit of procedural due process, on June 4, 2007.9

Endraca, for his part, alleged that his dismissal was instigated by an occasion when he fell short of
the required boundary for his taxi unit. He related that before he was dismissed, he brought his
taxi unit to an auto shop for an urgent repair. He was charged the amount of ₱700.00 for the repair
services and the replacement parts. As a result, he was not able to meet his boundary for the day.
Upon returning to the company garage and informing the management of the incident, his driver’s
license was confiscated and was told to settle the deficiency in his boundary first before his license
will be returned to him. He was no longer allowed to drive a taxi unit despite his persistent pleas.10

For their part, the respondents admitted that Tenazas and Endraca were employees of the
company, the former being a regular driver and the latter a spare driver. The respondents,
however, denied that Francisco was an employee of the company or that he was able to drive one
of the company’s units at any point in time.11

The respondents further alleged that Tenazas was never terminated by the company. They
claimed that on July 3, 2007, Tenazas went to the company garage to get his taxi unit but was
informed that it is due for overhaul because of some mechanical defects reported by the other
driver who takes turns with him in using the same. He was thus advised to wait for further notice
from the company if his unit has already been fixed. On July 8, 2007, however, upon being
informed that his unit is ready for release, Tenazas failed to report back to work for no apparent
reason.12

As regards Endraca, the respondents alleged that they hired him as a spare driver in February
2001. They allow him to drive a taxi unit whenever their regular driver will not be able to report
for work. In July 2003, however, Endraca stopped reporting for work without informing the
company of his reason. Subsequently, the respondents learned that a complaint for illegal
dismissal was filed by Endraca against them. They strongly maintained, however, that they could
never have terminated Endraca in March 2006 since he already stopped reporting for work as
early as July 2003. Even then, they expressed willingness to accommodate Endraca should he wish
to work as a spare driver for the company again since he was never really dismissed from
employment anyway.13

On May 29, 2008, the petitioners, by registered mail, filed a Motion to Admit Additional
Evidence.14 They alleged that after diligent efforts, they were able to discover new pieces of
evidence that will substantiate the allegations in their position paper. Attached with the motion
are the following: (a) Joint Affidavit of the petitioners;15 (2) Affidavit of Good Faith of Aloney Rivera,
a co-driver;16 (3) pictures of the petitioners wearing company shirts;17 and (4) Tenazas’
Certification/Record of Social Security System (SSS) contributions.18

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The Ruling of the Labor Arbiter

On May 30, 2008, the Labor Arbiter (LA) rendered a Decision,19 which pertinently states, thus:

In the case of complainant Jaime Francisco, respondents categorically denied the existence of an
employer-employee relationship. In this situation, the burden of proof shifts to the complainant
to prove the existence of a regular employment. Complainant Francisco failed to present evidence
of regular employment available to all regular employees, such as an employment contract,
company ID, SSS, withholding tax certificates, SSS membership and the like.

In the case of complainant Isidro Endraca, respondents claim that he was only an extra driver who
stopped reporting to queue for available taxi units which he could drive. In fact, respondents
offered him in their Position Paper on record, immediate reinstatement as extra taxi driver which
offer he refused.

In case of Bernard Tenazas, he was told to wait while his taxi was under repair but he did not report
for work after the taxi was repaired. Respondents[,] in their Position Paper, on record likewise,
offered him immediate reinstatement, which offer he refused.

We must bear in mind that the complaint herein is one of actual dismissal. But there was no formal
investigations, no show cause memos, suspension memos or termination memos were never
issued. Otherwise stated, there is no proof of overt act of dismissal committed by herein
respondents.

We are therefore constrained to rule that there was no illegal dismissal in the case at bar.

The situations contemplated by law for entitlement to separation pay does [sic] not apply.

WHEREFORE, premises considered, instant consolidated complaints are hereby dismissed for lack
of merit.

SO ORDERED.20

The Ruling of the NLRC

Unyielding, the petitioners appealed the decision of the LA to the NLRC. Subsequently, on June 23,
2009, the NLRC rendered a Decision,21 reversing the appealed decision of the LA, holding that the
additional pieces of evidence belatedly submitted by the petitioners sufficed to establish the
existence of employer-employee relationship and their illegal dismissal. It held, thus:

In the challenged decision, the Labor Arbiter found that it cannot be said that the complainants
were illegally dismissed, there being no showing, in the first place, that the respondent [sic]
terminated their services. A portion thereof reads:

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 48

"We must bear in mind that the complaint herein is one of actual dismissal. But there were no
formal investigations, no show cause memos, suspension memos or termination memos were
never issued. Otherwise stated, there is no proof of overt act of dismissal committed by herein
respondents.

We are therefore constrained to rule that there was no illegal dismissal in the case at bar."

Issue: [W]hether or not the complainants were illegally dismissed from employment.

It is possible that the complainants’ Motion to Admit Additional Evidence did not reach the Labor
Arbiter’s attention because he had drafted the challenged decision even before they submitted it,
and thereafter, his staff attended only to clerical matters, and failed to bring the motion in
question to his attention. It is now up to this Commission to consider the complainants’ additional
evidence. Anyway, if this Commission must consider evidence submitted for the first time on
appeal (Andaya vs. NLRC, G.R. No. 157371, July 15, 2005), much more so must it consider evidence
that was simply overlooked by the Labor Arbiter.

Among the additional pieces of evidence submitted by the complainants are the following: (1) joint
affidavit (records, p. 51-52) of the three (3) complainants; (2) affidavit (records, p. 53) of Aloney
Rivera y Aldo; and (3) three (3) pictures (records, p. 54) referred to by the complainant in their
joint affidavit showing them wearing t-shirts bearing the name and logo of the respondent’s
company.

xxxx

WHEREFORE, the decision appealed from is hereby REVERSED. Respondent Rom[u]aldo Villegas
doing business under the name and style Villegas Taxi Transport is hereby ordered to pay the
complainants the following (1) full backwages from the date of their dismissal (July 3, 2007 for
Tena[z]as, June 4, 2004 for Francisco, and March 6, 2006 for Endraca[)] up to the date of the
finality of this decision[;] (2) separation pay equivalent to one month for every year of service; and
(3) attorney’s fees equivalent to ten percent (10%) of the total judgment awards.

SO ORDERED.22

On July 24, 2009, the respondents filed a motion for reconsideration but the NLRC denied the
same in its Resolution23 dated September 23, 2009.

The Ruling of the CA

Unperturbed, the respondents filed a petition for certiorari with the CA. On March 11, 2010, the
CA rendered a Decision,24 affirming with modification the Decision dated June 23, 2009 of the
NLRC. The CA agreed with the NLRC’s finding that Tenazas and Endraca were employees of the
company, but ruled otherwise in the case of Francisco for failing to establish his relationship with

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the company. It also deleted the award of separation pay and ordered for reinstatement of
Tenazas and Endraca. The pertinent portions of the decision read as follows:

At the outset, We declare that respondent Francisco failed to prove that an employer-employee
relationship exists between him and R. Transport. If there is no employer-employee relationship
in the first place, the duty of R. Transport to adhere to the labor standards provisions of the Labor
Code with respect to Francisco is questionable.

xxxx

Although substantial evidence is not a function of quantity but rather of quality, the peculiar
environmental circumstances of the instant case demand that something more should have been
proffered. Had there been other proofs of employment, such as Francisco’s inclusion in R.R.

Transport’s payroll, this Court would have affirmed the finding of employer-employee
relationship.1âwphi1 The NLRC, therefore, committed grievous error in ordering R. Transport to
answer for Francisco’s claims.

We now tackle R. Transport’s petition with respect to Tenazas and Endraca, who are both admitted
to be R. Transport’s employees. In its petition, R. Transport puts forth the theory that it did not
terminate the services of respondents but that the latter deliberately abandoned their work. We
cannot subscribe to this theory.

xxxx

Considering that the complaints for illegal dismissal were filed soon after the alleged dates of
dismissal, it cannot be inferred that respondents Tenazas and Endraca intended to abandon their
employment. The complainants for dismissal are, in themselves, pleas for the continuance of
employment. They are incompatible with the allegation of abandonment. x x x.

For R. Transport’s failure to discharge the burden of proving that the dismissal of respondents
Tenazas and Endraca was for a just cause, We are constrained to uphold the NLRC’s conclusion
that their dismissal was not justified and that they are entitled to back wages. Because they were
illegally dismissed, private respondents Tenazas and Endraca are entitled to reinstatement and
back wages x x x.

xxxx

However, R. Transport is correct in its contention that separation pay should not be awarded
because reinstatement is still possible and has been offered. It is well[-]settled that separation
pay is granted only in instances where reinstatement is no longer feasible or appropriate, which
is not the case here.

xxxx

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WHEREFORE, the Decision of the National Labor Relations Commission dated 23 June 2009, in
NLRC LAC Case No. 07-002648-08, and its Resolution dated 23 September 2009 denying
reconsideration thereof are AFFIRMED with MODIFICATION in that the award of Jaime Francisco’s
claims is DELETED. The separation pay granted in favor of Bernard Tenazas and Isidro Endraca is,
likewise, DELETED and their reinstatement is ordered instead.

SO ORDERED.25 (Citations omitted)

On March 19, 2010, the petitioners filed a motion for reconsideration but the same was denied by
the CA in its Resolution26 dated June 28, 2010.

Undeterred, the petitioners filed the instant petition for review on certiorari before this Court on
July 15, 2010.

The Ruling of this Court

The petition lacks merit.

Pivotal to the resolution of the instant case is the determination of the existence of employer-
employee relationship and whether there was an illegal dismissal. Remarkably, the LA, NLRC and
the CA had varying assessment on the matters at hand. The LA believed that, with the admission
of the respondents, there is no longer any question regarding the status of both Tenazas and
Endraca being employees of the company. However, he ruled that the same conclusion does not
hold with respect to Francisco whom the respondents denied to have ever employed or known.
With the respondents’ denial, the burden of proof shifts to Francisco to establish his regular
employment. Unfortunately, the LA found that Francisco failed to present sufficient evidence to
prove regular employment such as company ID, SSS membership, withholding tax certificates or
similar articles. Thus, he was not considered an employee of the company. Even then, the LA held
that Tenazas and Endraca could not have been illegally dismissed since there was no overt act of
dismissal committed by the respondents.27

On appeal, the NLRC reversed the ruling of the LA and ruled that the petitioners were all
employees of the company. The NLRC premised its conclusion on the additional pieces of evidence
belatedly submitted by the petitioners, which it supposed, have been overlooked by the LA owing
to the time when it was received by the said office. It opined that the said pieces of evidence are
sufficient to establish the circumstances of their illegal termination. In particular, it noted that in
the affidavit of the petitioners, there were allegations about the company’s practice of not issuing
employment records and this was not rebutted by the respondents. It underscored that in a
situation where doubt exists between evidence presented by the employer and the employee, the
scales of justice must be tilted in favor of the employee. It awarded the petitioners with: (1) full
backwages from the date of their dismissal up to the finality of the decision; (2) separation pay
equivalent to one month of salary for every year of service; and (3) attorney’s fees.

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On petition for certiorari, the CA affirmed with modification the decision of the NLRC, holding that
there was indeed an illegal dismissal on the part of Tenazas and Endraca but not with respect to
Francisco who failed to present substantial evidence, proving that he was an employee of the
respondents. The CA likewise dismissed the respondents’ claim that Tenazas and Endraca
abandoned their work, asseverating that immediate filing of a complaint for illegal dismissal and
persistent pleas for continuance of employment are incompatible with abandonment. It also
deleted the NLRC’s award of separation pay and instead ordered that Tenazas and Endraca be
reinstated.28

"Well-settled is the rule that the jurisdiction of this Court in a petition for review on certiorari
under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact,
unless the factual findings complained of are completely devoid of support from the evidence on
record, or the assailed judgment is based on a gross misapprehension of facts."29 The Court finds
that none of the mentioned circumstances is present in this case.

In reviewing the decision of the NLRC, the CA found that no substantial evidence was presented
to support the conclusion that Francisco was an employee of the respondents and accordingly
modified the NLRC decision. It stressed that with the respondents’ denial of employer-employee
relationship, it behooved Francisco to present substantial evidence to prove that he is an
employee before any question on the legality of his supposed dismissal becomes appropriate for
discussion. Francisco, however, did not offer evidence to substantiate his claim of employment
with the respondents. Short of the required quantum of proof, the CA correctly ruled that the
NLRC’s finding of illegal dismissal and the monetary awards which necessarily follow such ruling
lacked factual and legal basis and must therefore be deleted.

The action of the CA finds support in Anonas Construction and Industrial Supply Corp., et al. v.
NLRC, et al.,30 where the Court reiterated:

[J]udicial review of decisions of the NLRC via petition for certiorari under Rule 65, as a general rule,
is confined only to issues of lack or excess of jurisdiction and grave abuse of discretion on the part
of the NLRC. The CA does not assess and weigh the sufficiency of evidence upon which the LA and
the NLRC based their conclusions. The issue is limited to the determination of whether or not the
NLRC acted without or in excess of its jurisdiction, or with grave abuse of discretion in rendering
the resolution, except if the findings of the NLRC are not supported by substantial
evidence.31 (Citation omitted and emphasis ours)

It is an oft-repeated rule that in labor cases, as in other administrative and quasi-judicial

proceedings, "the quantum of proof necessary is substantial evidence, or such amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion."32 "[T]he
burden of proof rests upon the party who asserts the affirmative of an issue."33 Corollarily, as
Francisco was claiming to be an employee of the respondents, it is incumbent upon him to proffer
evidence to prove the existence of said relationship.

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"[I]n determining the presence or absence of an employer-employee relationship, the Court has
consistently looked for the following incidents, 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 last
element, the so-called control test, is the most important element."34

There is no hard and fast rule designed to establish the aforesaid elements. Any competent and
relevant evidence to prove the relationship may be admitted. Identification cards, cash vouchers,
social security registration, appointment letters or employment contracts, payrolls, organization
charts, and personnel lists, serve as evidence of employee status.35

In this case, however, Francisco failed to present any proof substantial enough to establish his
relationship with the respondents. He failed to present documentary evidence like attendance
logbook, payroll, SSS record or any personnel file that could somehow depict his status as an
employee. Anent his claim that he was not issued with employment records, he could have, at
least, produced his social security records which state his contributions, name and address of his
employer, as his co-petitioner Tenazas did. He could have also presented testimonial evidence
showing the respondents’ exercise of control over the means and methods by which he
undertakes his work. This is imperative in light of the respondents’ denial of his employment and
the claim of another taxi operator, Emmanuel Villegas (Emmanuel), that he was his employer.
Specifically, in his Affidavit,36 Emmanuel alleged that Francisco was employed as a spare driver in
his taxi garage from January 2006 to December 2006, a fact that the latter failed to deny or
question in any of the pleadings attached to the records of this case. The utter lack of evidence is
fatal to Francisco’s case especially in cases like his present predicament when the law has been
very lenient in not requiring any particular form of evidence or manner of proving the presence of
employer-employee relationship.

In Opulencia Ice Plant and Storage v. NLRC,37 this Court emphasized, thus:

No particular form of evidence is required to prove the existence of an employer-employee

relationship. Any competent and relevant evidence to prove the relationship may be admitted.
For, if only documentary evidence would be required to show that relationship, no scheming
employer would ever be brought before the bar of justice, as no employer would wish to come
out with any trace of the illegality he has authored considering that it should take much weightier
proof to invalidate a written instrument.38

Here, Francisco simply relied on his allegation that he was an employee of the company without
any other evidence supporting his claim. Unfortunately for him, a mere allegation in the position
paper is not tantamount to evidence.39 Bereft of any evidence, the CA correctly ruled that
Francisco could not be considered an employee of the respondents.

The CA’s order of reinstatement of Tenazas and Endraca, instead of the payment of separation
pay, is also well in accordance with prevailing jurisprudence. In Macasero v. Southern Industrial
Gases Philippines,40 the Court reiterated, thus:

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[A]n illegally dismissed employee is entitled to two reliefs: backwages and

reinstatement.1âwphi1 The two reliefs provided are separate and distinct. In instances where
reinstatement is no longer feasible because of strained relations between the employee and the
employer, separation pay is granted. In effect, an illegally dismissed employee is entitled to either
reinstatement, if viable, or separation pay if reinstatement is no longer viable, and backwages.

The normal consequences of respondents’ illegal dismissal, then, are reinstatement without loss
of seniority rights, and payment of backwages computed from the time compensation was
withheld up to the date of actual reinstatement. Where reinstatement is no longer viable as an
option, separation pay equivalent to one (1) month salary for every year of service should be
awarded as an alternative. The payment of separation pay is in addition to payment of
backwages.41 (Emphasis supplied)

Clearly, it is only when reinstatement is no longer feasible that the payment of separation pay is
ordered in lieu thereof. For instance, if reinstatement would only exacerbate the tension and
strained relations between the parties, or where the relationship between the employer and the
employee has been unduly strained by reason of their irreconcilable differences, it would be more
prudent to order payment of separation pay instead of reinstatement.42

This doctrine of strained relations, however, should not be used recklessly or applied loosely43 nor
be based on impression alone. "It bears to stress that reinstatement is the rule and, for the
exception of strained relations to apply, it should be proved that it is likely that if reinstated, an
atmosphere of antipathy and antagonism would be generated as to adversely affect the efficiency
and productivity of the employee concerned."44

Moreover, the existence of strained relations, it must be emphasized, is a question of fact. In

Golden Ace Builders v. Talde,45 the Court underscored:

Strained relations must be demonstrated as a fact, however, to be adequately supported by

evidence—substantial evidence to show that the relationship between the employer and the
employee is indeed strained as a necessary consequence of the judicial controversy. 46 (Citations
omitted and emphasis ours)

After a perusal of the NLRC decision, this Court failed to find the factual basis of the award of
separation pay to the petitioners. The NLRC decision did not state the facts which demonstrate
that reinstatement is no longer a feasible option that could have justified the alternative relief of
granting separation pay instead.

The petitioners themselves likewise overlooked to allege circumstances which may have rendered
their reinstatement unlikely or unwise and even prayed for reinstatement alongside the payment
of separation pay in their position paper.47 A bare claim of strained relations by reason of
termination is insufficient to warrant the granting of separation pay. Likewise, the filing of the
complaint by the petitioners does not necessarily translate to strained relations between the
parties. As a rule, no strained relations should arise from a valid and legal act asserting one’s

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right.48 Although litigation may also engender a certain degree of hostility, the understandable
strain in the parties’ relation would not necessarily rule out reinstatement which would, otherwise,
become the rule rather the exception in illegal dismissal cases.49 Thus, it was a prudent call for the
CA to delete the award of separation pay and order for reinstatement instead, in accordance with
the general rule stated in Article 27950 of the Labor Code.

Finally, the Court finds the computation of the petitioners' backwages at the rate of ₱800.00
daily reasonable and just under the circumstances. The said rate is consistent with the ruling of
this Court in Hyatt Taxi Services, Inc. v. Catinoy,51 which dealt with the same matter.

WHEREFORE, in view of the foregoing disquisition, the petition for review on certiorari is DENIED.
The Decision dated March 11, 2010 and Resolution dated June 28, 2010 of the Court of Appeals
in CA-G.R. SP No. 111150 are AFFIRMED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

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Villamaria vs. CA; G.R. No. 165881; April 19, 2006

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

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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:

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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,

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as he, together with other drivers, was made to affix his signature on a blank piece of paper
purporting to be an "attendance sheet."

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

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

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

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

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

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

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

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

IN DISMISSING PETITIONER’S APPEAL "FOR REASON NOT STATED IN THE LABOR ARBITER’S
DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE;"

II

IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED THAT THE
RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE RESPONDENT
WAS DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE MANTLE OF OUR LABOR LAWS.23

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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

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The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamante’s complaint.
Under the Kasunduan, the relationship between him and Villamaria was dual: that of vendor-
vendee and employer-employee. The CA ratiocinated that Villamaria’s exercise of control over
Bustamante’s conduct in operating the jeepney is inconsistent with the former’s claim that he was
not engaged in the transportation business. There was no evidence that petitioner was allowed to
let some other person drive the jeepney.

The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did
not mean that Villamaria could not exercise it. It explained that the existence of an employment
relationship did not depend on how the worker was paid but on the presence or absence of control
over the means and method of the employee’s work. In this case, Villamaria’s directives (to drive
carefully, wear an identification card, don decent attire, park the vehicle in his garage, and to
inform him about provincial trips, etc.) was a means to control the way in which Bustamante was
to go about his work. In view of Villamaria’s supervision and control as employer, the fact that the
"boundary" represented installment payments of the purchase price on the jeepney did not
remove the parties’ employer-employee relationship.

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

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

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

In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was
an appeal via a petition for review on certiorari under Rule 45 of the Rules of Court and not a
special civil action of certiorari under Rule 65. He argues that petitioner failed to establish that the

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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

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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;

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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

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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.

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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.

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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

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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

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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.

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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.

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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.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in
the above decision were reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Chief Justice

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People vs. Teresita Laoga; GR No. 176264; January 10, 2011 (Illegal Recruitment)

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 176264 January 10, 2011

PEOPLE OF THE PHILIPPINES, Appellee,

vs.
TERESITA "TESSIE" LAOGO, Appellant.

DECISION

VILLARAMA, JR., J.:

This petition assails the July 31, 2006 Decision1 of the Court of Appeals (CA) in CA-G.R. CR.-H.C. No.
01664, which affirmed the Decision2 of the Regional Trial Court (RTC), Branch 12, of Malolos, Bulacan
in Criminal Case No. 693-M-2001. The RTC found appellant Teresita "Tessie" Laogo guilty beyond
reasonable doubt of the crime of illegal recruitment in large scale.

Appellant Teresita "Tessie" Laogo was the proprietor and manager of Laogo Travel Consultancy, a
travel agency firm located along Padre Faura Street in Manila. On March 7, 2001, an Information3 was
filed against appellant and a certain Susan Navarro (Susan) in Malolos, Bulacan charging them of the
crime of Illegal Recruitment (Large Scale). The information reads:

INFORMATION

The undersigned Asst. Provincial Prosecutor accuses Susan Navarro and Tessie [Teresita] Laogo of
the crime of illegal recruitment, penalized under Art. 38 in relation to Art[s]. 34 and 39 of the Labor
Code of the Philippines, as amended by Presidential Decree No. 1412, committed as follows:

That in or about and during the months of May and June 2000, in the municipality of Bulacan, province
of Bulacan, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused,
knowing that they are non-licensee or non-holder of authority from the Department of Labor to recruit
and/or place workers in employment either locally or overseas, conspiring, confederating together and
helping each other, did then and there wi[l]lfully, unlawfully and feloniously engage in illegal
recruitment, placement or deployment activities for a fee, which they received from complainants Edith
Bonifacio-Ulanday, Rogelio Enriquez y Buenavidez, Billy dela Cruz, Jr. y Fernandez, Dante Lopez y
Enriquez, Teodulo dela Cruz y Mendoza, Edwin Enriquez y Panganiban and Gary Bustillos y de
Guzman by recruiting and promising them job placement abroad, more particularly in Guam, which
did not materialize, without first having secured the required license or authority from the Department
of Labor and Employment.

That the crime is committed in a large scale tantamount to economic sabotage as the aforementioned
seven persons were [recruited] individually or as a group.

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Contrary to law.

The charge stemmed from the following set of facts.

Sometime during the second week of March 2000, Susan invited several individuals including six of
the seven complainants – namely, Teodulo dela Cruz, Billy dela Cruz, Jr., Dante Lopez, Edwin
Enriquez, Rogelio Enriquez, and Gary Bustillos – to her house in Bulacan, Bulacan to celebrate the
town fiesta. Appellant was among the several guests in Susan’s house during the said occasion.

According to Teodulo dela Cruz, during the fiesta, Gary Bustillos introduced him to Susan as
somebody who could help him find work abroad. Since Susan was Gary’s aunt, Teodulo immediately
trusted Susan. Susan told him he can apply as assistant cook and can work in Guam, USA. Upon
Susan’s instruction, Teodulo filled up an application form4 and gave her ₱3,000.00 after the latter
promised to process his application to work abroad.5 On May 22, 2000, Susan accompanied Teodulo
to appellant’s travel agency office in Ermita where he paid an additional ₱15,000.00 for his placement
fee.6 A receipt bearing the logo and name of Laogo Travel Consultancy was issued to him signed by
Susan.7 Months later, when Susan’s promise to send him abroad remained unfulfilled, Teodulo, along
with several other applicants, went to appellant’s office and to Susan’s house to follow up their
application, but the two always told them that their visas have yet to be released.8

Similarly, Billy dela Cruz, Jr. also met Susan through Gary, who himself was seeking help from Susan
to work in Guam. At Susan’s house, Billy saw Dante Lopez, Edwin Enriquez, and Rogelio Enriquez.
Like him, the three were also seeking Susan’s help to work abroad.9 Susan introduced Billy to
appellant, who promised him that she will send them abroad within three months.10 After the meeting,
Billy issued to Susan two Metrobank checks, dated March 11 and May 10, 2000, bearing the amounts
₱23,000.00 and ₱44,000.00, respectively, as partial payment for his placement fee.11 On May 19,
2000, Billy also went to appellant’s travel agency in Ermita and personally handed an additional cash
of ₱6,000.00 to Susan, who thereafter gave the money to appellant. Appellant issued a corresponding
receipt12 for the ₱6,000.00 cash bearing her signature and the name and logo of Laogo Travel
Consultancy. After several months, no word was heard from either Susan or appellant. Sensing that
something was wrong, Billy decided to report the matter to the authorities in Bulacan, Bulacan and
filed the complaint against Susan and appellant.13

Dante Lopez testified that he was also introduced by Gary Bustillos to appellant and Susan. Susan
identified herself as an employee of appellant’s travel agency. The two told him that they can send
him and his companions to Guam within the span of three months.14 Lopez paid both accused
₱6,000.00 to process his papers, covered by a receipt dated May 19, 2000 showing appellant’s
signature.15 Appellant’s promise, however, turned sour after three months. When he confronted
appellant, the latter told him that he would be sent to a different country. Left without a choice, Lopez
waited. Again, the promise remained unfulfilled.16

According to Rogelio Enriquez, he also met appellant during the town fiesta when Susan invited him
to cook for her guests. Susan introduced appellant as someone who could send him to work abroad.
Eager about the prospect, Rogelio immediately gave his ₱3,000.00 cash to Susan for the processing
of his visa and employment documents.17 He saw Susan hand the money to appellant.18 A week later,
Rogelio gave an additional ₱900.00 to Susan.19 No receipts were issued on both payments since
Rogelio failed to complete the required ₱6,000.00 placement fee.20 Months passed but Rogelio heard
nothing from either Susan or appellant. Apprehensive, Rogelio verified the status of the Laogo Travel
Consultancy with the Philippine Overseas Employment Administration (POEA). From the POEA,
Rogelio learned that neither of the accused nor Laogo Travel was licensed to recruit workers for
employment abroad. Aggrieved, Rogelio, together with his six companions, filed the complaint against
Susan and appellant.

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Edwin Enriquez also paid ₱12,000.00 to Susan as processing fee for his application to work in Guam.
According to him, Susan’s husband and appellant were present when he gave the money to Susan
during the town fiesta.21 Susan issued a receipt dated May 16, 2000 to Edwin. The receipt contained
the logo of Laogo Travel Consultancy and was signed by Susan with a description which says
"Payment was for Placement Fee."22

Two other persons, namely Edith Bonifacio-Ulanday and Gary Bustillos, Susan’s nephew, were among
the seven who filed the complaint against Susan and appellant. The two, however, later decided to
withdraw their complaints after executing their respective affidavits of desistance.23

On March 15, 2001, warrants of arrest24 were issued against Susan and appellant. When arraigned,
appellant pleaded not guilty.25 Susan, meanwhile, remained at large. An alias warrant of arrest26 was
issued by the trial court against her but to no avail.

During the trial, appellant denied any participation in the illegal activities undertaken by Susan. She
insisted that Susan was not in any way connected with her travel agency and that she confronted the
latter when she came to know of Susan’s recruitment activities. Appellant claimed that she even had
to rename her travel agency to Renz Consultancy and Employment Services to avoid being associated
with Susan’s recruitment activities.27

Appellant admitted having met Rogelio at Susan’s house during the town fiesta, but denied knowing
the other complainants. According to appellant, she came to know Rogelio when Susan specifically
identified him as the one who cooked the dishes after some guests prodded Susan.28

Unsatisfied with appellant’s explanation, the trial court promulgated a Decision29 finding her guilty of
large scale illegal recruitment. The fallo of the trial court’s July 16, 2002 Decision reads:

WHEREFORE, finding herein accused Teresita (Tessie) Laogo y Villamor guilty as principal beyond
reasonable doubt of the crime of illegal recruitment in large scale, she is hereby sentenced to suffer
the penalty of life imprisonment and pay a fine of ₱500,000.00 as imposed by law[;] to indemnify the
private offended parties x x x actual damages, as follows: Teodulo dela Cruz – ₱15,000.00, Billy dela
Cruz – ₱73,000.00, Dante Lopez – ₱6,000.00, Rogelio Enriquez – ₱3,000.00, and Edwin Enriquez –
₱12,000.00[;] and to pay the costs of the proceedings.

In the service of her sentence the said accused, a detention prisoner, shall be credited with the full
time during which she had undergone preventive imprisonment, pursuant to the provisions of Art. 29
of the Revised Penal Code.

Pending the actual apprehension of the other accused Susan Navarro, [who is] still at-large, on the
strength of the warrant of arrest earlier issued, let the record be committed to the archives subject to
recall and reinstatement, should circumstances so warrant for due prosecution against her of this case.

SO ORDERED.30

Appellant filed an appeal before this Court, but said appeal was transferred to the CA following our
pronouncement in People v. Mateo.31

In her Appellant’s Brief32 before the CA, appellant insisted that she had no hand in the recruitment of
the complainants and maintains that the recruitment activities were made solely upon the initiative of
accused Susan Navarro.33 Appellant anchored her defense on the testimonies of the complainants
who declared that the transactions and the payments were made not with her but with

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Susan.34 Appellant admitted that her consultancy firm was merely engaged in the business of assisting
clients in the procurement of passports and visas, and denied that her agency was involved in any
recruitment activity as defined under the Labor Code, as amended.35

On July 31, 2006, the appellate court rendered the assailed decision affirming appellant’s
conviction.36 The CA noted that although at times, it was Susan with whom the complainants
transacted, the records nevertheless bear that appellant had a hand in the recruitment of the
complainants. The CA pointed out that appellant, together with Susan, repeatedly assured the private
complainants that her consultancy firm could deploy them for overseas employment,37 leading the
appellate court to conclude that appellant consciously and actively participated in the recruitment of
the complainants.38

Aggrieved, appellant brought the case to us on appeal, raising the same arguments she had raised at
the CA.

We affirm appellant’s conviction.

Recruitment and placement refers to the act of canvassing, enlisting, contracting, transporting,
utilizing, hiring or procuring workers, and includes referrals, contract services, promising or advertising
for employment, locally or abroad, whether for profit or not. When a person or entity, in any manner,
offers or promises for a fee employment to two or more persons, that person or entity shall be deemed
engaged in recruitment and placement.39

Article 38(a) of the Labor Code, as amended, specifies that recruitment activities undertaken by non-
licensees or non-holders of authority are deemed illegal and punishable by law. And when the illegal
recruitment is committed against three or more persons, individually or as a group, then it is deemed
committed in large scale and carries with it stiffer penalties as the same is deemed a form of economic
sabotage.40 1avvphi1

But to prove illegal recruitment, it must be shown that the accused, without being duly authorized by
law, gave complainants the distinct impression that he had the power or ability to send them abroad
for work, such that the latter were convinced to part with their money in order to be employed.41 It is
important that there must at least be a promise or offer of an employment from the person posing as
a recruiter, whether locally or abroad.42

Here, both the trial court and the CA found that all the five complainants were promised to be sent
abroad by Susan and herein appellant43 as cooks and assistant cooks. The follow up transactions
between appellant and her victims were done inside the said travel agency. Moreover, all four receipts
issued to the victims bear the name and logo of Laogo Travel Consultancy,44 with two of the said
receipts personally signed by appellant herself.45 Indubitably, appellant and her co-accused acting
together made complainants believe that they were transacting with a legitimate recruitment agency
and that Laogo Travel Consultancy had the authority to recruit them and send them abroad for work
when in truth and in fact it had none as certified by the POEA.46 Absent any showing that the trial court
and the CA overlooked or misappreciated certain significant facts and circumstances, which if properly
considered, would change the result, we are bound by said findings.47

Appellant’s contention that she had to change the name of her travel agency to disassociate herself
with Susan’s recruitment activities is too lame to deserve serious consideration. In light of the
testimonies of the complainants that appellant with her co-accused promised them employment
abroad, we find appellant’s act of closing Laogo Travel Consultancy and establishing a new one under
her husband’s name48 as just an afterthought, a belated decision which cannot undo the damage
suffered by the private offended parties. It could indeed hardly be construed as a simple reaction of

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an innocent person, as it in fact smacks of a desperate attempt of a guilty individual to escape liability
or to confuse and dishearten her victims.

WHEREFORE, the appeal is DENIED. The Decision dated July 31, 2006 of the Court of Appeals in
CA-G.R. CR.-H.C. No. 01664 is AFFIRMED in toto.

With costs against the accused-appellant.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

ARTURO D. BRION LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

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Sameer Overseas Placement Agency Inc. vs. Cabiles; GR No 170139; August 5, 2014
(Illegal Recruitment)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 170139 August 5, 2014

SAMEER OVERSEAS PLACEMENT AGENCY, INC., Petitioner,

vs.
JOY C. CABILES, Respondent.

DECISION

LEONEN, J.:

This case involves an overseas Filipino worker with shattered dreams. It is our duty, given the facts
and the law, to approximate justice for her.

We are asked to decide a petition for review1 on certiorari assailing the Court of Appeals’
decision2 dated June 27, 2005. This decision partially affirmed the National Labor
RelationsCommission’s resolution dated March 31, 2004,3 declaring respondent’s dismissal illegal,
directing petitioner to pay respondent’s three-month salary equivalent to New Taiwan Dollar (NT$)
46,080.00, and ordering it to reimburse the NT$3,000.00 withheld from respondent, and pay her
NT$300.00 attorney’s fees.4

Petitioner, Sameer Overseas Placement Agency, Inc., is a recruitment and placement

agency.5 Responding to an ad it published, respondent, Joy C. Cabiles, submitted her application for
a quality control job in Taiwan.6

Joy’s application was accepted.7 Joy was later asked to sign a oneyear employment contract for a
monthly salary of NT$15,360.00.8 She alleged that Sameer Overseas Agency required her to pay a
placement fee of ₱70,000.00 when she signed the employment contract.9

Joy was deployed to work for TaiwanWacoal, Co. Ltd. (Wacoal) on June 26, 1997.10 She alleged that
in her employment contract, she agreed to work as quality control for one year.11 In Taiwan, she was
asked to work as a cutter.12

Sameer Overseas Placement Agencyclaims that on July 14, 1997, a certain Mr. Huwang from Wacoal
informedJoy, without prior notice, that she was terminated and that "she should immediately report to
their office to get her salary and passport."13 She was asked to "prepare for immediate repatriation."14

Joy claims that she was told that from June 26 to July 14, 1997, she only earned a total of
NT$9,000.15 According to her, Wacoal deducted NT$3,000 to cover her plane ticket to Manila.16

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On October 15, 1997, Joy filed a complaint17 with the National Labor Relations Commission against
petitioner and Wacoal. She claimed that she was illegally dismissed.18 She asked for the return of her
placement fee, the withheld amount for repatriation costs, payment of her salary for 23 months as well
as moral and exemplary damages.19 She identified Wacoal as Sameer Overseas Placement Agency’s
foreign principal.20

Sameer Overseas Placement Agency alleged that respondent's termination was due to her
inefficiency, negligence in her duties, and her "failure to comply with the work requirements [of] her
foreign [employer]."21 The agency also claimed that it did not ask for a placement fee of
₱70,000.00.22 As evidence, it showedOfficial Receipt No. 14860 dated June 10, 1997, bearing the
amount of ₱20,360.00.23 Petitioner added that Wacoal's accreditation with petitioner had already been
transferred to the Pacific Manpower & Management Services, Inc. (Pacific) as of August 6,
1997.24 Thus, petitioner asserts that it was already substituted by Pacific Manpower.25

Pacific Manpower moved for the dismissal of petitioner’s claims against it.26 It alleged that there was
no employer-employee relationship between them.27 Therefore, the claims against it were outside the
jurisdiction of the Labor Arbiter.28 Pacific Manpower argued that the employment contract should first
be presented so that the employer’s contractual obligations might be identified.29 It further denied that
it assumed liability for petitioner’s illegal acts.30

On July 29, 1998, the Labor Arbiter dismissed Joy’s complaint.31 Acting Executive Labor Arbiter Pedro
C.Ramos ruled that her complaint was based on mereallegations.32 The Labor Arbiter found that there
was no excess payment of placement fees, based on the official receipt presented by petitioner.33 The
Labor Arbiter found unnecessary a discussion on petitioner’s transfer of obligations to Pacific 34 and
considered the matter immaterial in view of the dismissal of respondent’s complaint.35

Joy appealed36 to the National Labor Relations Commission.

In a resolution37 dated March 31, 2004, the National Labor Relations Commission declared that Joy
was illegally dismissed.38 It reiterated the doctrine that the burden of proof to show that the dismissal
was based on a just or valid cause belongs to the employer.39 It found that Sameer Overseas
Placement Agency failed to prove that there were just causes for termination.40 There was no sufficient
proofto show that respondent was inefficient in her work and that she failed to comply with company
requirements.41 Furthermore, procedural dueprocess was not observed in terminating respondent.42

The National Labor Relations Commission did not rule on the issue of reimbursement of placement
fees for lack of jurisdiction.43 It refused to entertain the issue of the alleged transfer of obligations to
Pacific.44 It did not acquire jurisdiction over that issue because Sameer Overseas Placement Agency
failed to appeal the Labor Arbiter’s decision not to rule on the matter.45

The National Labor Relations Commission awarded respondent only three (3) months worth of salaryin
the amount of NT$46,080, the reimbursement of the NT$3,000 withheld from her, and attorney’s fees
of NT$300.46

The Commission denied the agency’s motion for reconsideration47 dated May 12, 2004 through a
resolution48 dated July 2, 2004.

Aggrieved by the ruling, Sameer Overseas Placement Agency caused the filing of a petition 49 for
certiorari with the Court of Appeals assailing the National Labor Relations Commission’s resolutions
dated March 31, 2004 and July 2, 2004.

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The Court of Appeals50 affirmed the decision of the National Labor Relations Commission with respect
to the finding of illegal dismissal, Joy’s entitlement to the equivalent of three months worth of salary,
reimbursement of withheld repatriation expense, and attorney’s fees.51 The Court of Appeals remanded
the case to the National Labor Relations Commission to address the validity of petitioner's allegations
against Pacific.52 The Court of Appeals held, thus: Although the public respondent found the dismissal
of the complainant-respondent illegal, we should point out that the NLRC merely awarded her three
(3) months backwages or the amount of NT$46,080.00, which was based upon its finding that she
was dismissed without due process, a finding that we uphold, given petitioner’s lack of worthwhile
discussion upon the same in the proceedings below or before us. Likewise we sustain NLRC’s finding
in regard to the reimbursement of her fare, which is squarely based on the law; as well as the award
of attorney’s fees.

But we do find it necessary to remand the instant case to the public respondent for further proceedings,
for the purpose of addressing the validity or propriety of petitioner’s third-party complaint against the
transferee agent or the Pacific Manpower & Management Services, Inc. and Lea G. Manabat. We
should emphasize that as far as the decision of the NLRC on the claims of Joy Cabiles, is concerned,
the same is hereby affirmed with finality, and we hold petitioner liable thereon, but without prejudice
to further hearings on its third party complaint against Pacific for reimbursement.

WHEREFORE, premises considered, the assailed Resolutions are hereby partly AFFIRMED in
accordance with the foregoing discussion, but subject to the caveat embodied inthe last sentence. No
costs.

SO ORDERED.53

Dissatisfied, Sameer Overseas Placement Agency filed this petition.54

We are asked to determine whether the Court of Appeals erred when it affirmed the ruling of the
National Labor Relations Commission finding respondent illegally dismissed and awarding her three
months’ worth of salary, the reimbursement of the cost ofher repatriation, and attorney’s fees despite
the alleged existence of just causes of termination.

Petitioner reiterates that there was just cause for termination because there was a finding of Wacoal
that respondent was inefficient in her work.55

Therefore, it claims that respondent’s dismissal was valid.56

Petitioner also reiterates that since Wacoal’s accreditation was validly transferred to Pacific at the time
respondent filed her complaint, it should be Pacific that should now assume responsibility for Wacoal’s
contractual obligations to the workers originally recruited by petitioner.57

Sameer Overseas Placement Agency’spetition is without merit. We find for respondent.

Sameer Overseas Placement Agency failed to show that there was just cause for causing Joy’s
dismissal. The employer, Wacoal, also failed to accord her due process of law.

Indeed, employers have the prerogative to impose productivity and quality standards at work.58 They
may also impose reasonable rules to ensure that the employees comply with these standards.59 Failure
to comply may be a just cause for their dismissal.60 Certainly, employers cannot be compelled to retain

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the services of anemployee who is guilty of acts that are inimical to the interest of the employer.61 While
the law acknowledges the plight and vulnerability of workers, it does not "authorize the oppression or
self-destruction of the employer."62 Management prerogative is recognized in law and in our
jurisprudence.

This prerogative, however, should not be abused. It is "tempered with the employee’s right to security
of tenure."63 Workers are entitled to substantive and procedural due process before termination. They
may not be removed from employment without a validor just cause as determined by law and without
going through the proper procedure.

Security of tenure for labor is guaranteed by our Constitution.64

Employees are not stripped of their security of tenure when they move to work in a different jurisdiction.
With respect to the rights of overseas Filipino workers, we follow the principle of lex loci
contractus.Thus, in Triple Eight Integrated Services, Inc. v. NLRC,65 this court noted:

Petitioner likewise attempts to sidestep the medical certificate requirement by contending that since
Osdana was working in Saudi Arabia, her employment was subject to the laws of the host country.
Apparently, petitioner hopes tomake it appear that the labor laws of Saudi Arabia do not require any
certification by a competent public health authority in the dismissal of employees due to illness.

Again, petitioner’s argument is without merit.

First, established is the rule that lex loci contractus (the law of the place where the contract is made)
governs in this jurisdiction. There is no question that the contract of employment in this case was
perfected here in the Philippines. Therefore, the Labor Code, its implementing rules and regulations,
and other laws affecting labor apply in this case.Furthermore, settled is the rule that the courts of the
forum will not enforce any foreign claim obnoxious to the forum’s public policy. Herein the Philippines,
employment agreements are more than contractual in nature. The Constitution itself, in Article XIII,
Section 3, guarantees the special protection of workers, to wit:

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

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

....

This public policy should be borne in mind in this case because to allow foreign employers to determine
for and by themselves whether an overseas contract worker may be dismissed on the ground of illness
would encourage illegal or arbitrary pretermination of employment contracts.66 (Emphasis supplied,
citation omitted)

Even with respect to fundamental procedural rights, this court emphasized in PCL Shipping
Philippines, Inc. v. NLRC,67 to wit:

Petitioners admit that they did notinform private respondent in writing of the charges against him and
that they failed to conduct a formal investigation to give him opportunity to air his side. However,

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petitioners contend that the twin requirements ofnotice and hearing applies strictly only when the
employment is within the Philippines and that these need not be strictly observed in cases of
international maritime or overseas employment.

The Court does not agree. The provisions of the Constitution as well as the Labor Code which afford
protection to labor apply to Filipino employees whether working within the Philippines or abroad.
Moreover, the principle of lex loci contractus (the law of the place where the contract is made) governs
in this jurisdiction. In the present case, it is not disputed that the Contract of Employment entered into
by and between petitioners and private respondent was executed here in the Philippines with the
approval of the Philippine Overseas Employment Administration (POEA). Hence, the Labor Code
together with its implementing rules and regulations and other laws affecting labor apply in this
case.68 (Emphasis supplied, citations omitted)

By our laws, overseas Filipino workers (OFWs) may only be terminated for a just or authorized cause
and after compliance with procedural due process requirements.

Article 282 of the Labor Code enumerates the just causes of termination by the employer. Thus:

Art. 282. Termination by employer. An employer may terminate an employment for any of the following
causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly
authorized representative;

(d) Commission of a crime or offense by the employee against the person of his employer or
any immediate member of his family or his duly authorized representatives; and

(e) Other causes analogous to the foregoing.

Petitioner’s allegation that respondentwas inefficient in her work and negligent in her duties69 may,
therefore, constitute a just cause for termination under Article 282(b), but only if petitioner was able to
prove it.

The burden of proving that there is just cause for termination is on the employer. "The employer must
affirmatively show rationally adequate evidence that the dismissal was for a justifiable cause."70 Failure
to show that there was valid or just cause for termination would necessarily mean that the dismissal
was illegal.71

To show that dismissal resulting from inefficiency in work is valid, it must be shown that: 1) the
employer has set standards of conduct and workmanship against which the employee will be judged;
2) the standards of conduct and workmanship must have been communicated tothe employee; and 3)
the communication was made at a reasonable time prior to the employee’s performance assessment.

This is similar to the law and jurisprudence on probationary employees, which allow termination ofthe
employee only when there is "just cause or when [the probationary employee] fails to qualify as a

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regular employee in accordance with reasonable standards made known by the employer to the
employee at the time of his [or her] engagement."72

However, we do not see why the application of that ruling should be limited to probationary
employment. That rule is basic to the idea of security of tenure and due process, which are guaranteed
to all employees, whether their employment is probationary or regular.

The pre-determined standards that the employer sets are the bases for determining the probationary
employee’s fitness, propriety, efficiency, and qualifications as a regular employee. Due process
requires that the probationary employee be informed of such standards at the time of his or her
engagement so he or she can adjusthis or her character or workmanship accordingly. Proper
adjustment to fit the standards upon which the employee’s qualifications will be evaluated will increase
one’s chances of being positively assessed for regularization by his or her employer.

Assessing an employee’s work performance does not stop after regularization. The employer, on a
regular basis, determines if an employee is still qualified and efficient, based on work standards. Based
on that determination, and after complying with the due process requirements of notice and hearing,
the employer may exercise its management prerogative of terminating the employee found
unqualified.

The regular employee must constantlyattempt to prove to his or her employer that he or she meets all
the standards for employment. This time, however, the standards to be met are set for the purpose of
retaining employment or promotion. The employee cannot be expected to meet any standard of
character or workmanship if such standards were not communicated to him or her. Courts should
remain vigilant on allegations of the employer’s failure to communicatework standards that would
govern one’s employment "if [these are] to discharge in good faith [their] duty to adjudicate."73

In this case, petitioner merely alleged that respondent failed to comply with her foreign employer’s
work requirements and was inefficient in her work.74 No evidence was shown to support such
allegations. Petitioner did not even bother to specify what requirements were not met, what efficiency
standards were violated, or what particular acts of respondent constituted inefficiency.

There was also no showing that respondent was sufficiently informed of the standards against which
her work efficiency and performance were judged. The parties’ conflict as to the position held by
respondent showed that even the matter as basic as the job title was not clear.

The bare allegations of petitioner are not sufficient to support a claim that there is just cause for
termination. There is no proof that respondent was legally terminated.

Petitioner failed to comply with

the due process requirements

Respondent’s dismissal less than one year from hiring and her repatriation on the same day show not
onlyfailure on the partof petitioner to comply with the requirement of the existence of just cause for
termination. They patently show that the employersdid not comply with the due process requirement.

A valid dismissal requires both a valid cause and adherence to the valid procedure of dismissal.75 The
employer is required to give the charged employee at least two written notices before
termination.76 One of the written notices must inform the employee of the particular acts that may cause
his or her dismissal.77 The other notice must "[inform] the employee of the employer’s decision."78 Aside
from the notice requirement, the employee must also be given "an opportunity to be heard."79

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Petitioner failed to comply with the twin notices and hearing requirements. Respondent started working
on June 26, 1997. She was told that she was terminated on July 14, 1997 effective on the same day
and barely a month from her first workday. She was also repatriated on the same day that she was
informed of her termination. The abruptness of the termination negated any finding that she was
properly notified and given the opportunity to be heard. Her constitutional right to due process of law
was violated.

II

Respondent Joy Cabiles, having been illegally dismissed, is entitled to her salary for the unexpired
portion ofthe employment contract that was violated together with attorney’s fees and reimbursement
of amounts withheld from her salary.

Section 10 of Republic Act No. 8042,otherwise known as the Migrant Workers and Overseas Filipinos
Act of1995, states thatoverseas workers who were terminated without just, valid, or authorized cause
"shall be entitled to the full reimbursement of his placement fee with interest of twelve (12%) per
annum, plus his salaries for the unexpired portion of his employment contract or for three (3) months
for every year of the unexpired term, whichever is less."

Sec. 10. MONEY CLAIMS. – Notwithstanding any provision of law to the contrary, the Labor Arbiters
of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction
to hear and decide, within ninety (90) calendar days after filing of the complaint, the claims arising out
of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for
overseas deployment including claims for actual, moral, exemplary and other forms of damages.

The liability of the principal/employer and the recruitment/placement agency for any and all claims
under this section shall be joint and several. This provisions [sic] shall be incorporated in the contract
for overseas employment and shall be a condition precedent for its approval. The performance bond
to be filed by the recruitment/placementagency, as provided by law, shall be answerable for all money
claims or damages that may be awarded to the workers. If the recruitment/placement agency is a
juridical being, the corporate officers and directors and partners as the case may be, shall themselves
be jointly and solidarily liable with the corporation orpartnership for the aforesaid claims and damages.

Such liabilities shall continue during the entire period or duration of the employment contract and shall
not be affected by any substitution, amendment or modification made locally or in a foreign country of
the said contract.

Any compromise/amicable settlement or voluntary agreement on money claims inclusive of damages

under this section shall be paid within four (4) months from the approval of the settlement by the
appropriate authority.

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

....

(Emphasis supplied)

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Section 15 of Republic Act No. 8042 states that "repatriation of the worker and the transport of his [or
her] personal belongings shall be the primary responsibility of the agency which recruited or deployed
the worker overseas." The exception is when "termination of employment is due solely to the fault of
the worker,"80 which as we have established, is not the case. It reads: SEC. 15. REPATRIATION OF
WORKERS; EMERGENCY REPATRIATION FUND. – The repatriation of the worker and the transport
of his personal belongings shall be the primary responsibility of the agency which recruited or deployed
the worker overseas. All costs attendant to repatriation shall be borne by or charged to the agency
concerned and/or its principal. Likewise, the repatriation of remains and transport of the personal
belongings of a deceased worker and all costs attendant thereto shall be borne by the principal and/or
local agency. However, in cases where the termination of employment is due solely to the fault of the
worker, the principal/employer or agency shall not in any manner be responsible for the repatriation of
the former and/or his belongings.

....

The Labor Code81 also entitles the employee to 10% of the amount of withheld wages as attorney’s
feeswhen the withholding is unlawful.

The Court of Appeals affirmedthe National Labor Relations Commission’s decision to award
respondent NT$46,080.00 or the threemonth equivalent of her salary, attorney’s fees of NT$300.00,
and the reimbursement of the withheld NT$3,000.00 salary, which answered for her repatriation.

We uphold the finding that respondent is entitled to all of these awards. The award of the three-month
equivalent of respondent’s salary should, however, be increased to the amount equivalent to the
unexpired term of the employment contract.

In Serrano v. Gallant Maritime Services, Inc. and Marlow Navigation Co., Inc.,82 this court ruled that
the clause "or for three (3) months for every year of the unexpired term, whichever is less" 83 is
unconstitutional for violating the equal protection clause and substantive due process.84

A statute or provision which was declared unconstitutional is not a law. It "confers no rights; it imposes
no duties; it affords no protection; it creates no office; it is inoperative as if it has not been passed at
all."85

We are aware that the clause "or for three (3) months for every year of the unexpired term, whichever
is less"was reinstated in Republic Act No. 8042 upon promulgation of Republic Act No. 10022 in 2010.
Section 7 of Republic Act No. 10022 provides:

Section 7.Section 10 of Republic Act No. 8042, as amended, is hereby amended to read as follows:

SEC. 10. Money Claims.– Notwithstanding any provision of law to the contrary, the Labor Arbiters of
the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to
hear and decide, within ninety (90) calendar days after the filing of the complaint, the claims arising
out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers
for overseas deployment including claims for actual, moral, exemplary and other forms of damage.
Consistent with this mandate, the NLRC shall endeavor to update and keep abreast with the
developments in the global services industry.

The liability of the principal/employer and the recruitment/placement agency for any and all claims
under this section shall be joint and several. This provision shall be incorporated in the contract for
overseas employment and shall be a condition precedent for its approval. The performance bond to
de [sic] filed by the recruitment/placement agency, as provided by law, shall be answerable for all

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money claims or damages that may be awarded to the workers. If the recruitment/placement agency
is a juridical being, the corporate officers and directors and partners as the case may be, shall
themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid claims
and damages.

Such liabilities shall continue during the entire period or duration of the employment contract and shall
not be affected by any substitution, amendment or modification made locally or in a foreign country of
the said contract.

Any compromise/amicable settlement or voluntary agreement on money claims inclusive of damages

under this section shall be paid within thirty (30) days from approval of the settlement by the
appropriate authority.

In case of termination of overseas employment without just, valid or authorized cause as defined by
law or contract, or any unauthorized deductions from the migrant worker’s salary, the worker shall be
entitled to the full reimbursement if [sic] his placement fee and the deductions made with interest at
twelve percent (12%) per annum, plus his salaries for the unexpired portion of his employment contract
or for three (3) months for every year of the unexpired term, whichever is less.

In case of a final and executory judgement against a foreign employer/principal, it shall be

automatically disqualified, without further proceedings, from participating in the Philippine Overseas
Employment Program and from recruiting and hiring Filipino workers until and unless it fully satisfies
the judgement award.

Noncompliance with the mandatory periods for resolutions of case providedunder this section shall
subject the responsible officials to any or all of the following penalties:

(a) The salary of any such official who fails to render his decision or resolution within the
prescribed period shall be, or caused to be, withheld until the said official complies therewith;

(b) Suspension for not more than ninety (90) days; or

(c) Dismissal from the service with disqualification to hold any appointive public office for five
(5) years.

Provided, however,That the penalties herein provided shall be without prejudice to any liability which
any such official may have incured [sic] under other existing laws or rules and regulations as a
consequence of violating the provisions of this paragraph. (Emphasis supplied)

Republic Act No. 10022 was promulgated on March 8, 2010. This means that the reinstatement of the
clause in Republic Act No. 8042 was not yet in effect at the time of respondent’s termination from work
in 1997.86 Republic Act No. 8042 before it was amended byRepublic Act No. 10022 governs this case.

When a law is passed, this court awaits an actual case that clearly raises adversarial positions in their
proper context before considering a prayer to declare it as unconstitutional.

However, we are confronted with a unique situation. The law passed incorporates the exact clause
already declared as unconstitutional, without any perceived substantial change in the circumstances.

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This may cause confusion on the part of the National Labor Relations Commission and the Court of
Appeals.At minimum, the existence of Republic Act No. 10022 may delay the execution of the
judgment in this case, further frustrating remedies to assuage the wrong done to petitioner.

Hence, there is a necessity to decide this constitutional issue.

Moreover, this court is possessed with the constitutional duty to "[p]romulgate rules concerning the
protection and enforcement of constitutional rights."87 When cases become mootand academic, we do
not hesitate to provide for guidance to bench and bar in situations where the same violations are
capable of repetition but will evade review. This is analogous to cases where there are millions of
Filipinos working abroad who are bound to suffer from the lack of protection because of the restoration
of an identical clause in a provision previously declared as unconstitutional.

In the hierarchy of laws, the Constitution is supreme. No branch or office of the government may
exercise its powers in any manner inconsistent with the Constitution, regardless of the existence of
any law that supports such exercise. The Constitution cannot be trumped by any other law. All laws
must be read in light of the Constitution. Any law that is inconsistent with it is a nullity.

Thus, when a law or a provision of law is null because it is inconsistent with the Constitution,the nullity
cannot be cured by reincorporation or reenactment of the same or a similar law or provision. A law or
provision of law that was already declared unconstitutional remains as such unless circumstances
have sochanged as to warrant a reverse conclusion.

We are not convinced by the pleadings submitted by the parties that the situation has so changed so
as to cause us to reverse binding precedent.

Likewise, there are special reasons of judicial efficiency and economy that attend to these cases. The
new law puts our overseas workers in the same vulnerable position as they were prior to Serrano.
Failure to reiterate the very ratio decidendi of that case will result in the same untold economic
hardships that our reading of the Constitution intended to avoid. Obviously, we cannot countenance
added expenses for further litigation thatwill reduce their hardearned wages as well as add to the
indignity of having been deprived of the protection of our laws simply because our precedents have
not been followed. There is no constitutional doctrine that causes injustice in the face of empty
procedural niceties. Constitutional interpretation is complex, but it is never unreasonable.

Thus, in a resolution88 dated October 22, 2013, we ordered the parties and the Office of the Solicitor
General to comment on the constitutionality of the reinstated clause in Republic Act No. 10022.

In its comment,89 petitioner argued that the clause was constitutional.90 The legislators intended a
balance between the employers’ and the employees’ rights by not unduly burdening the local
recruitment agency.91 Petitioner is also of the view that the clause was already declared as
constitutional in Serrano.92

The Office of the Solicitor General also argued that the clause was valid and constitutional.93 However,
since the parties never raised the issue of the constitutionality of the clause asreinstated in Republic
Act No. 10022, its contention is that it is beyond judicial review.94

On the other hand, respondentargued that the clause was unconstitutional because it infringed on
workers’ right to contract.95

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We observe that the reinstated clause, this time as provided in Republic Act. No. 10022, violates the
constitutional rights to equal protection and due process.96 Petitioner as well as the Solicitor General
have failed to show any compelling changein the circumstances that would warrant us to revisit the
precedent.

We reiterate our finding in Serrano v. Gallant Maritime that limiting wages that should be recovered by
anillegally dismissed overseas worker to three months is both a violation of due process and the equal
protection clauses of the Constitution.

Equal protection of the law is a guarantee that persons under like circumstances and falling within the
same class are treated alike, in terms of "privileges conferred and liabilities enforced."97 It is a
guarantee against "undue favor and individual or class privilege, as well as hostile discrimination or
the oppression of inequality."98

In creating laws, the legislature has the power "to make distinctions and classifications."99

In exercising such power, it has a wide discretion.100

The equal protection clause does not infringe on this legislative power.101 A law is void on this basis,
only if classifications are made arbitrarily.102 There is no violation of the equal protection clause if the
law applies equally to persons within the same class and if there are reasonable grounds for
distinguishing between those falling within the class and those who do not fall within the class.103 A law
that does not violate the equal protection clause prescribesa reasonable classification.104

A reasonable classification "(1) must rest on substantial distinctions; (2) must be germane to the
purposes of the law; (3) must not be limited to existing conditions only; and (4) must apply equally to
all members of the same class."105

The reinstated clause does not satisfy the requirement of reasonable classification.

In Serrano, we identified the classifications made by the reinstated clause. It distinguished between
fixed-period overseas workers and fixedperiod local workers.106 It also distinguished between overseas
workers with employment contracts of less than one year and overseas workers with employment
contracts of at least one year.107 Within the class of overseas workers with at least one-year
employment contracts, there was a distinction between those with at least a year left in their contracts
and those with less than a year left in their contracts when they were illegally dismissed.108

The Congress’ classification may be subjected to judicial review. In Serrano, there is a "legislative
classification which impermissibly interferes with the exercise of a fundamental right or operates to the
peculiar disadvantage of a suspect class."109

Under the Constitution, labor is afforded special protection.110 Thus, this court in Serrano, "[i]mbued
with the same sense of ‘obligation to afford protection to labor,’ . . . employ[ed] the standard of strict
judicial scrutiny, for it perceive[d] in the subject clause a suspect classification prejudicial to OFWs."111

We also noted in Serranothat before the passage of Republic Act No. 8042, the money claims of
illegally terminated overseas and local workers with fixed-term employment werecomputed in the
same manner.112 Their money claims were computed based onthe "unexpired portions of their
contracts."113 The adoption of the reinstated clause in Republic Act No. 8042 subjected the money
claims of illegally dismissed overseas workers with an unexpired term of at least a year to a cap of

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three months worth of their salary.114 There was no such limitation on the money claims of illegally
terminated local workers with fixed-term employment.115

We observed that illegally dismissed overseas workers whose employment contracts had a term of
less than one year were granted the amount equivalent to the unexpired portion of their employment
contracts.116 Meanwhile, illegally dismissed overseas workers with employment terms of at least a year
were granted a cap equivalent to three months of their salary for the unexpired portions of their
contracts.117

Observing the terminologies used inthe clause, we also found that "the subject clause creates a sub-
layer of discrimination among OFWs whose contract periods are for more than one year: those who
are illegally dismissed with less than one year left in their contracts shall be entitled to their salaries
for the entire unexpired portion thereof, while those who are illegally dismissed with one year or more
remaining in their contracts shall be covered by the reinstated clause, and their monetary benefits
limited to their salaries for three months only."118

We do not need strict scrutiny to conclude that these classifications do not rest on any real or
substantial distinctions that would justify different treatments in terms of the computation of money
claims resulting from illegal termination.

Overseas workers regardless of their classifications are entitled to security of tenure, at least for the
period agreed upon in their contracts. This means that they cannot be dismissed before the end of
their contract terms without due process. If they were illegally dismissed, the workers’ right to security
of tenure is violated.

The rights violated when, say, a fixed-period local worker is illegally terminated are neither greater
than norless than the rights violated when a fixed-period overseas worker is illegally terminated. It is
state policy to protect the rights of workers withoutqualification as to the place of employment.119 In
both cases, the workers are deprived of their expected salary, which they could have earned had they
not been illegally dismissed. For both workers, this deprivation translates to economic insecurity and
disparity.120 The same is true for the distinctions between overseas workers with an employment
contract of less than one year and overseas workers with at least one year of employment contract,
and between overseas workers with at least a year left in their contracts and overseas workers with
less than a year left in their contracts when they were illegally dismissed.

For this reason, we cannot subscribe to the argument that "[overseas workers] are contractual
employeeswho can never acquire regular employment status, unlike local workers"121 because it
already justifies differentiated treatment in terms ofthe computation of money claims.122

Likewise, the jurisdictional and enforcement issues on overseas workers’ money claims do not justify
a differentiated treatment in the computation of their money claims.123 If anything, these issues justify
an equal, if not greater protection and assistance to overseas workers who generally are more prone
to exploitation given their physical distance from our government.

We also find that the classificationsare not relevant to the purpose of the law, which is to "establish a
higher standard of protection and promotion of the welfare of migrant workers, their families and
overseas Filipinos in distress, and for other purposes."124 Further, we find specious the argument that
reducing the liability of placement agencies "redounds to the benefit of the [overseas] workers."125

Putting a cap on the money claims of certain overseas workers does not increase the standard of
protection afforded to them. On the other hand, foreign employers are more incentivizedby the
reinstated clause to enter into contracts of at least a year because it gives them more flexibility to

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violate our overseas workers’ rights. Their liability for arbitrarily terminating overseas workers is
decreased at the expense of the workers whose rights they violated. Meanwhile, these overseas
workers who are impressed with an expectation of a stable job overseas for the longer contract period
disregard other opportunities only to be terminated earlier. They are left with claims that are less than
what others in the same situation would receive. The reinstated clause, therefore, creates a situation
where the law meant to protect them makes violation of rights easier and simply benign to the violator.

As Justice Brion said in his concurring opinion in Serrano:

Section 10 of R.A. No. 8042 affects these well-laid rules and measures, and in fact provides a hidden
twist affecting the principal/employer’s liability. While intended as an incentive accruing to
recruitment/manning agencies, the law, as worded, simply limits the OFWs’ recovery in
wrongfuldismissal situations. Thus, it redounds to the benefit of whoever may be liable, including the
principal/employer – the direct employer primarily liable for the wrongful dismissal. In this sense,
Section 10 – read as a grant of incentives to recruitment/manning agencies – oversteps what it aims
to do by effectively limiting what is otherwise the full liability of the foreign principals/employers. Section
10, in short, really operates to benefit the wrong party and allows that party, without justifiable reason,
to mitigate its liability for wrongful dismissals. Because of this hidden twist, the limitation ofliability
under Section 10 cannot be an "appropriate" incentive, to borrow the term that R.A. No. 8042 itself
uses to describe the incentive it envisions under its purpose clause.

What worsens the situation is the chosen mode of granting the incentive: instead of a grant that, to
encourage greater efforts at recruitment, is directly related to extra efforts undertaken, the law simply
limits their liability for the wrongful dismissals of already deployed OFWs. This is effectively a legally-
imposed partial condonation of their liability to OFWs, justified solely by the law’s intent to encourage
greater deployment efforts. Thus, the incentive,from a more practical and realistic view, is really part
of a scheme to sell Filipino overseas labor at a bargain for purposes solely of attracting the market. . .
.

The so-called incentive is rendered particularly odious by its effect on the OFWs — the benefits
accruing to the recruitment/manning agencies and their principals are takenfrom the pockets of the
OFWs to whom the full salaries for the unexpired portion of the contract rightfully belong. Thus, the
principals/employers and the recruitment/manning agencies even profit from their violation of the
security of tenure that an employment contract embodies. Conversely, lesser protection is afforded
the OFW, not only because of the lessened recovery afforded him or her by operation of law, but also
because this same lessened recovery renders a wrongful dismissal easier and less onerous to
undertake; the lesser cost of dismissing a Filipino will always bea consideration a foreign employer
will take into account in termination of employment decisions. . . .126

Further, "[t]here can never be a justification for any form of government action that alleviates the
burden of one sector, but imposes the same burden on another sector, especially when the favored
sector is composed of private businesses suchas placement agencies, while the disadvantaged sector
is composed ofOFWs whose protection no less than the Constitution commands. The idea thatprivate
business interest can be elevated to the level of a compelling state interest is odious."127

Along the same line, we held that the reinstated clause violates due process rights. It is arbitrary as it
deprives overseas workers of their monetary claims without any discernable valid purpose.128

Respondent Joy Cabiles is entitled to her salary for the unexpired portion of her contract, in
accordance with Section 10 of Republic Act No. 8042. The award of the three-month equivalence of
respondent’s salary must be modified accordingly. Since she started working on June 26, 1997 and
was terminated on July 14, 1997, respondent is entitled to her salary from July 15, 1997 to June 25,

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1998. "To rule otherwise would be iniquitous to petitioner and other OFWs, and would,in effect, send
a wrong signal that principals/employers and recruitment/manning agencies may violate an OFW’s
security of tenure which an employment contract embodies and actually profit from such violation
based on an unconstitutional provision of law."129

III

On the interest rate, the Bangko Sentral ng Pilipinas Circular No. 799 of June 21, 2013, which revised
the interest rate for loan or forbearance from 12% to 6% in the absence of stipulation,applies in this
case. The pertinent portions of Circular No. 799, Series of 2013, read: The Monetary Board, in its
Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest
in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series
of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to such rateof interest, shall be six
percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.

Through the able ponencia of Justice Diosdado Peralta, we laid down the guidelines in computing
legal interest in Nacar v. Gallery Frames:130

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall
be 6% per annum from such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.

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And, in addition to the above, judgments that have become final and executory prior to July 1, 2013,
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.131

Circular No. 799 is applicable only in loans and forbearance of money, goods, or credits, and in
judgments when there is no stipulation on the applicable interest rate. Further, it is only applicable if
the judgment did not become final and executory before July 1, 2013.132

We add that Circular No. 799 is not applicable when there is a law that states otherwise. While the
Bangko Sentral ng Pilipinas has the power to set or limit interest rates,133 these interest rates do not
apply when the law provides that a different interest rate shall be applied. "[A] Central Bank Circular
cannot repeal a law. Only a law can repeal another law."134

For example, Section 10 of Republic Act No. 8042 provides that unlawfully terminated overseas
workers are entitled to the reimbursement of his or her placement fee with an interest of 12% per
annum. Since Bangko Sentral ng Pilipinas circulars cannotrepeal Republic Act No. 8042, the issuance
of Circular No. 799 does not have the effect of changing the interest on awards for reimbursement of
placement fees from 12% to 6%. This is despite Section 1 of Circular No. 799, which provides that the
6% interest rate applies even to judgments.

Moreover, laws are deemed incorporated in contracts. "The contracting parties need not repeat them.
They do not even have to be referred to. Every contract, thus, contains not only what has been
explicitly stipulated, but the statutory provisions that have any bearing on the matter."135 There is,
therefore, an implied stipulation in contracts between the placement agency and the overseasworker
that in case the overseas worker is adjudged as entitled to reimbursement of his or her placement
fees, the amount shall be subject to a 12% interest per annum. This implied stipulation has the effect
of removing awards for reimbursement of placement fees from Circular No. 799’s coverage.

The same cannot be said for awardsof salary for the unexpired portion of the employment contract
under Republic Act No. 8042. These awards are covered by Circular No. 799 because the law does
not provide for a specific interest rate that should apply.

In sum, if judgment did not become final and executory before July 1, 2013 and there was no stipulation
in the contract providing for a different interest rate, other money claims under Section 10 of Republic
Act No. 8042 shall be subject to the 6% interest per annum in accordance with Circular No. 799.

This means that respondent is also entitled to an interest of 6% per annum on her money claims from
the finality of this judgment.

IV

Finally, we clarify the liabilities ofWacoal as principal and petitioner as the employment agency that
facilitated respondent’s overseas employment.

Section 10 of the Migrant Workers and Overseas Filipinos Act of 1995 provides that the foreign
employer and the local employment agency are jointly and severally liable for money claims including
claims arising out of an employer-employee relationship and/or damages. This section also provides
that the performance bond filed by the local agency shall be answerable for such money claims or
damages if they were awarded to the employee.

This provision is in line with the state’s policy of affording protection to labor and alleviating workers’
plight.136

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In overseas employment, the filing of money claims against the foreign employer is attended by
practical and legal complications. The distance of the foreign employer alonemakes it difficult for an
1âwphi 1

overseas worker to reach it and make it liable for violations of the Labor Code. There are also possible
conflict of laws, jurisdictional issues, and procedural rules that may be raised to frustrate an overseas
worker’sattempt to advance his or her claims.

It may be argued, for instance, that the foreign employer must be impleaded in the complaint as an
indispensable party without which no final determination can be had of an action.137

The provision on joint and several liability in the Migrant Workers and Overseas Filipinos Act of 1995
assures overseas workers that their rights will not be frustrated with these complications. The
fundamental effect of joint and several liability is that "each of the debtors is liable for the entire
obligation."138 A final determination may, therefore, be achieved even if only oneof the joint and several
debtors are impleaded in an action. Hence, in the case of overseas employment, either the local
agency or the foreign employer may be sued for all claims arising from the foreign employer’s labor
law violations. This way, the overseas workers are assured that someone — the foreign employer’s
local agent — may be made to answer for violationsthat the foreign employer may have committed.

The Migrant Workers and Overseas Filipinos Act of 1995 ensures that overseas workers have
recourse in law despite the circumstances of their employment. By providing that the liability of the
foreign employer may be "enforced to the full extent"139 against the local agent,the overseas worker is
assured of immediate and sufficientpayment of what is due them.140

Corollary to the assurance of immediate recourse in law, the provision on joint and several liability in
the Migrant Workers and Overseas Filipinos Act of 1995 shifts the burden of going after the foreign
employer from the overseas worker to the local employment agency. However, it must be emphasized
that the local agency that is held to answer for the overseas worker’s money claims is not leftwithout
remedy. The law does not preclude it from going after the foreign employer for reimbursement of
whatever payment it has made to the employee to answer for the money claims against the foreign
employer.

A further implication of making localagencies jointly and severally liable with the foreign employer is
thatan additional layer of protection is afforded to overseas workers. Local agencies, which are
businesses by nature, are inoculated with interest in being always on the lookout against foreign
employers that tend to violate labor law. Lest they risk their reputation or finances, local agenciesmust
already have mechanisms for guarding against unscrupulous foreign employers even at the level prior
to overseas employment applications.

With the present state of the pleadings, it is not possible to determine whether there was indeed a
transfer of obligations from petitioner to Pacific. This should not be an obstacle for the respondent
overseas worker to proceed with the enforcement of this judgment. Petitioner is possessed with the
resources to determine the proper legal remedies to enforce its rights against Pacific, if any.

Many times, this court has spoken on what Filipinos may encounter as they travel into the farthest and
mostdifficult reaches of our planet to provide for their families. In Prieto v. NLRC:141

The Court is not unaware of the many abuses suffered by our overseas workers in the foreign land
where they have ventured, usually with heavy hearts, in pursuit of a more fulfilling future. Breach of
contract, maltreatment, rape, insufficient nourishment, sub-human lodgings, insults and other forms of
debasement, are only a few of the inhumane acts towhich they are subjected by their foreign

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employers, who probably feel they can do as they please in their own country. Whilethese workers
may indeed have relatively little defense against exploitation while they are abroad, that disadvantage
must not continue to burden them when they return to their own territory to voice their muted complaint.
There is no reason why, in their very own land, the protection of our own laws cannot be extended to
them in full measure for the redress of their grievances.142

But it seems that we have not said enough.

We face a diaspora of Filipinos. Their travails and their heroism can be told a million times over; each
of their stories as real as any other. Overseas Filipino workers brave alien cultures and the heartbreak
of families left behind daily. They would count the minutes, hours, days, months, and years yearning
to see their sons and daughters. We all know of the joy and sadness when they come home to see
them all grown up and, being so, they remember what their work has cost them. Twitter accounts,
Facetime, and many other gadgets and online applications will never substitute for their lost physical
presence.

Unknown to them, they keep our economy afloat through the ebb and flow of political and economic
crises. They are our true diplomats, they who show the world the resilience, patience, and creativity
of our people. Indeed, we are a people who contribute much to the provision of material creations of
this world.

This government loses its soul if we fail to ensure decent treatment for all Filipinos. We default by
limiting the contractual wages that should be paid to our workers when their contracts are breached
by the foreign employers. While we sit, this court will ensure that our laws will reward our overseas
workers with what they deserve: their dignity.

Inevitably, their dignity is ours as weil.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals is AFFIRMED with
modification. Petitioner Sameer Overseas Placement Agency is ORDERED to pay respondent Joy C.
Cabiles the amount equivalent to her salary for the unexpired portion of her employment contract at
an interest of 6% per annum from the finality of this judgment. Petitioner is also ORDERED to
reimburse respondent the withheld NT$3,000.00 salary and pay respondent attorney's fees of
NT$300.00 at an interest of 6% per annum from the finality of this judgment.

The clause, "or for three (3) months for every year of the unexpired term, whichever is less" in Section
7 of Republic Act No. 10022 amending Section 10 of Republic Act No. 8042 is declared
unconstitutional and, therefore, null and void.

SO ORDERED.

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

WE CONCUR:

(On Leave)
MARIA LOURDES P. A. SERENO*
Chief Justice

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ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

Acting Chief Justice Associate Justice

See: Concur/Dissenting Opn.

TERESITA J. LEONARDO-DE CASTRO
ARTURO D. BRION
Associate Justice
Associate Justice

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARIANO C. DEL CASTILLO MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

BIENVENIDO L. REYES ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice

CERTIFICATION

I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the court.

ANTONIO T. CARPIO
Acting Chief Justice

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Lorenzo T. Tangga-an vs. Philippine Transmarine Carriers, Inc., Universe Tankship

Delware, LLC & Carlos C. Salinas; GR No. 180636; March 13, 2013 (Illegal Recruitment)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 180636 March 13, 2013

LORENZO T. TANGGA-AN,* Petitioner,

vs.
PIDLIPPINE TRANSMARINE CARRIERS, INC., UNIVERSE TANKSHIP DELAWARE LLC, and
CARLOS C. SALINAS, Respondents.

DECISION

DEL CASTILLO, J.:

This Court's labor pronouncements must be read and applied with utmost care and caution, taking to
mind that in the very heart of the judicial system, labor cases occupy a special place. More than the
State guarantees of protection of labor and security of tenure, labor disputes involve the fundamental
survival of the employees and their families, who depend -upon the former for all the basic necessities
in life.

This Petition for Review on Certiorari1 seeks a modification of the November 30, 2006 Decision2 of the
Court of Appeals (CA) in CA-G.R. SP No. 00806. Also assailed is the November 15, 2007
Resolution3 denying petitioner's Motion for Reconsideration.

Factual Antecedents

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

This is a case for illegal dismissal with a claim for the payment of salaries corresponding to the
unexpired term of the contract, damages and attorney’s fees filed by private respondent Lorenzo T.
Tangga-an against the petitioners Philippine Transmarine Carriers, Inc., Universe Tankship Delaware
LLC, and Carlos C. Salinas4 or herein respondents.

In his position paper, Tangga-an alleged that on January 31, 2002, he entered into an overseas
employment contract with Philippine Transmarine Carriers, Inc. (PTC) for and in behalf of its foreign
employer, Universe Tankship Delaware, LLC. Under the employment contract, he was to be employed
for a period of six months as chief engineer of the vessel the S.S. "Kure". He was to be paid a basic
salary of US$5,000.00; vacation leave pay equivalent to 15 days a months [sic] or US$2,500.00 per
month and tonnage bonus in the amount of US$700.00 a month.

On February 11, 2002, Tangga-an was deployed. While performing his assigned task, he noticed that
while they were loading liquid cargo at Cedros, Mexico, the vessel suddenly listed too much at the
bow. At that particular time both the master and the chief mate went on shore leave together, which

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under maritime standard was prohibited. To avoid any conflict, he chose to ignore the unbecoming
conduct of the senior officers of the vessel.

On or about March 13, 2002, the vessel berthed at a port in Japan to discharge its cargo. Thereafter,
it sailed to the U.S.A. While the vessel was still at sea, the master required Tangga-an and the rest of
the Filipino Engineer Officers to report to his office where they were informed that they would be
repatriated on account of the delay in the cargo discharging in Japan, which was principally a duty
belonging to the deck officers. He imputed the delay to the non-readiness of the turbo generator and
the inoperation of the boom, since the turbo generator had been prepared and synchronized for 3.5
hours or even before the vessel arrived in Japan. Moreover, upon checking the boom, they found the
same [sic] operational. Upon verification, they found out that when the vessel berthed in Japan, the
cargo hold was not immediately opened and the deck officers concerned did not prepare the stock.
Moreover, while cargo discharging was ongoing, both the master and the chief mate again went on
shore leave together at 4:00 in the afternoon and returned to the vessel only after midnight. To save
face, they harped on the Engine Department for their mistake. Tangga-an and the other Engineering
Officers were ordered to disembark from the vessel on April 2, 2002 and thereafter repatriated.
Thence, the complaint.

Philippine Transmarine Carriers, Inc., Universe Tankship Delaware LLC, and Carlos C. Salinas on the
other hand, contended that sometime on [sic] March 2002, during a test of the cargo discharging
conveyor system, Tangga-an and his assistant engineers failed to start the generator that supplied
power to the conveyor. They spent 3 hours trying to start the generator but failed. It was only the third
assistant engineer who previously served in the same vessel who was able to turn on the generator.
When the master tried to call the engine room to find out the problem, Tangga-an did not answer and
merely hang [sic] up. The master proceeded to the engine room to find out the problem by [sic] Tangga-
an and his assistant engineers were running around trying to appear busy.

At another time, during a cargo discharging operation requiring the use of a generator system and the
conveyor boom, Tangga-an was nowhere to be found. Apparently, he went on shore leave resulting
in a delay of 2 hours because the machine could not be operated well. Both incidents were recorded
in the official logbook. Due to the delay, protests were filed by the charter [sic].

The master required Tangga-an to submit a written explanation to which he did but blamed the captain
and the chief officer. He failed to explain why he did not personally supervise the operation of the
generator system and the conveyor boom during the cargo discharging operations. His explanation
not having been found satisfactory, respondents decided to terminate Tangga-an’s services. Thus, a
notice of dismissal was issued against Tangga-an. He arrived in the Philippines on April 4, 2002.5

Tangga-an filed a Complaint6 for illegal dismissal with prayer for payment of salaries for the unexpired
portion of his contract, leave pay, exemplary and moral damages, attorney’s fees and interest.

On January 27, 2004, Labor Arbiter Jose G. Gutierrez rendered a Decision7 finding petitioner to have
been illegally dismissed. The Labor Arbiter noted that in petitioner’s letter to respondent Universe
Tankship Delaware, LLC dated April 1, 20028 he categorically denied any negligence on his part
relative to the delay in the discharge of the cargo while the vessel was berthed in Japan. In view
thereof, the Labor Arbiter opined that an investigation should have been conducted in order to ferret
out the truth instead of dismissing petitioner outright. Consequently, petitioner’s dismissal was illegal
for lack of just cause and for failure to comply with the twin requirements of notice and hearing.9

As regards petitioner’s claim for back salaries, the Labor Arbiter found petitioner entitled not to four
months which is equivalent to the unexpired portion of his contract, but only to three months, inclusive

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of vacation leave pay and tonnage bonus (or US$8,200 x 3 months = US$24,600) pursuant to Section
10 of Republic Act (RA) No. 8042 or The Migrant Workers and Overseas Filipinos Act of 2005.

Regarding petitioner’s claim for damages, the same was denied for failure to prove bad faith on the
part of the respondents. However, attorney’s fees equivalent to 10% of the total back salaries was
awarded because petitioner was constrained to litigate.

The dispositive portion of the Labor Arbiter’s Decision, reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered finding Tangga-an
illegally dismissed from his employment and directing the respondent Phil. Transmarine Carriers, Inc.
to pay Tangga-an the amount of US$24,600.00 PLUS US$2,460.00 attorney’s fees or a total
aggregate amount of US Dollars: TWENTY SEVEN THOUSAND SIXTY (US$27,060.00) or its peso
equivalent at the exchange rate prevailing at the time of payment.

SO ORDERED.10

Ruling of the National Labor Relations Commission

Respondents appealed to the National Labor Relations Commission (NLRC). They claimed that the
Labor Arbiter committed grave abuse of discretion in finding that petitioner was illegally dismissed; in
awarding unearned vacation leave pay and tonnage bonus when the law and jurisprudence limit
recovery to the employee’s basic salary; and in awarding attorney’s fees despite the absence of proof
of bad faith on their part.

On August 25, 2004, the NLRC issued its Decision,11 the dispositive portion of which reads:

WHEREFORE, the Decision dated January 27, 2004 of the Labor Arbiter is AFFIRMED.

Respondents-appellants’ Memorandum of Appeal, dated 23 March 2004 is DISMISSED for lack of

merit.

SO ORDERED.12

The NLRC affirmed the finding of illegal dismissal. It held that no notice of hearing was served upon
petitioner, and no hearing whatsoever was conducted on the charges against him. It ruled that
respondents could not dispense with the twin requirements of notice and hearing, which are essential
elements of procedural due process. For this reason, no valid cause for termination has been shown.
The NLRC likewise found respondents guilty of bad faith in illegally dismissing petitioner’s services.

On the issue covering the award of unearned vacation leave pay and tonnage bonus, the NLRC struck
down respondents’ arguments and held that in illegal dismissal cases, the employee is entitled to all
the salaries, allowances and other benefits or their monetary equivalents from the time his
compensation is withheld from him until he is actually reinstated, in effect citing Article 279 13 of the
Labor Code. It held that vacation leave pay and tonnage bonus are provided in petitioner’s employment
contract, which thus entitles the latter to the same in the event of illegal dismissal.

Finally, on the issue of attorney’s fees, the NLRC held that since respondents were found to be in bad
faith for the illegal dismissal and petitioner was constrained to litigate with counsel, the award of
attorney’s fees is proper.

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Respondents moved for reconsideration which was denied by the NLRC in its March 18, 2005
Resolution.14

Ruling of the Court of Appeals

Respondents went up to the CA by Petition for Certiorari,15 seeking to annul the Decision of the NLRC,
raising essentially the same issues taken up in the NLRC.

On November 30, 2006, the CA rendered the assailed Decision, the dispositive portion of which reads,
as follows:

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The Decision of
public respondent is MODIFIED in the following manner:

a. Tangga-an is entitled to three (3) months salary representing the unexpired portion of his
contract in the total amount of US$15,000.00 or its peso equivalent at the exchange rate
prevailing at the time of payment;

b. Tangga-an’s placement fee should be reimbursed with 12% interest per annum;

c. The award of attorney’s fees is deleted.

SO ORDERED.16

The CA adhered to the finding of illegal dismissal. But on the subject of monetary awards, the CA
considered only petitioner’s monthly US$5,000.00 basic salary and disregarded his monthly
US$2,500.00 vacation leave pay and US$700.00 tonnage bonus. It likewise held that petitioner’s
"unexpired portion of contract" for which he is entitled to back salaries should only be three months
pursuant to Section 1017 of RA 8042. In addition, petitioner should be paid back his placement fee with
interest at the rate of twelve per cent (12%) per annum.

As to attorney’s fees, the CA did not agree with the NLRC’s finding that bad faith on the part of
respondents was present to justify the award of attorney’s fees. It held that there is nothing from the
facts and proceedings to suggest that respondents acted with dishonesty, moral obliquity or conscious
doing of wrong in terminating petitioner’s services.

Petitioner filed a Motion for (Partial) Reconsideration,18 which was denied in the assailed November
15, 2007 Resolution. Thus, he filed the instant Petition.

Issues

In this Petition, Tangga-an seeks a modification of the CA Decision and the reinstatement of the
monetary awards as decreed in the Labor Arbiter’s January 27, 2004 Decision, or in the alternative,
the grant of back salaries equivalent to four months which corresponds to the unexpired portion of the
contract, inclusive of vacation leave pay and tonnage bonus, plus 10% thereof as attorney’s fees.19

Petitioner submits the following issues for resolution:

I. Whether x x x the CA’s issuance of the writ of certiorari reversing the NLRC decision is in
accordance with law;

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II. Whether x x x the indemnity provided in Section 10, R. A. 8042 x x x be limited only to the
seafarer’s basic monthly salary or x x x include, based on civil law concept of damages as well
as Labor Code concept of backwages, allowances/benefits or their monetary equivalent as a
further relief to restore the seafarer’s income that was lost by reason of his unlawful dismissal;

III. Whether x x x the indemnity awarded by the CA in petitioner’s favor consisting only of 3
months’ basic salaries conform with the proper interpretation of Section 10 R. A. 8042 and with
the ruling in Skippers Pacific, Inc. v. Mira, et al., G.R. No. 144314, November 21, 2002 and
related cases or is petitioner entitled to at least 4 months salaries being the unexpired portion
of his contract; and

IV. Whether x x x the CA’s disallowance of the award of attorney’s fees, based on the alleged
absence of bad faith on the part of respondent, is in accordance with law or is the attorney’s
fees awarded by the NLRC to petitioner, who was forced to litigate to enforce his rights, justified
x x x.20

Petitioner’s Arguments

Petitioner essentially contends that respondents’ resort to an original Petition for Certiorari in the CA
is erroneous because the issues they raised did not involve questions of jurisdiction but of fact and
law. He adds that the CA Decision went against the factual findings of the labor tribunals which ought
to be binding, given their expertise in matters falling within their jurisdiction.

Petitioner likewise contends that the CA erred in excluding his vacation leave pay and tonnage bonus
in the computation of his back salaries as they form part of his salaries and benefits under his
employment contract with the respondents, a covenant which is deemed to be the law governing their
relations. He adds that under Article 279 of the Labor Code, he is entitled to full backwages inclusive
of allowances and other benefits or their monetary equivalent from the time his compensation was
withheld up to the time he is actually reinstated.

Petitioner accuses the CA of misapplying the doctrine laid down in Skippers Pacific, Inc. v. Skippers
Maritime Services, Ltd.21 He points out that the CA wrongly interpreted and applied what the Court
said in the case, and that the pronouncement therein should have benefited him rather than the
respondents.

Petitioner would have the Court reinstate the award of attorney’s fees, on the argument that the
presence of bad faith is not necessary to justify such award. He maintains that the grant of attorney’s
fees in labor cases constitutes an exception to the general requirement that bad faith or malice on the
part of the adverse party must first be proved.

Finally, petitioner prays that this Court reinstate the Labor Arbiter’s monetary awards in his January
27, 2004 Decision or, in the alternative, to grant him full back salaries equivalent to the unexpired
portion of his contract, or four months, plus 10% thereof as attorney’s fees.

Respondents’ Arguments

In seeking affirmance of the assailed CA issuances, respondents basically submit that the CA
committed no reversible error in excluding petitioner’s claims for vacation leave pay, tonnage bonus,
and attorney’s fees. They support and agree with the CA’s reliance upon Skippers Pacific, Inc. v.
Skippers Maritime Services, Ltd.,22 and emphasize that in the absence of bad faith on their part,
petitioner may not recover attorney’s fees.

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Our Ruling

The Court grants the Petition.

There remains no issue regarding illegal dismissal. In spite of the consistent finding below that
petitioner was illegally dismissed, respondents did not take issue, which thus renders all
pronouncements on the matter final.

In resolving petitioner’s monetary claims, the CA utterly misinterpreted the Court’s ruling in Skippers
Pacific, Inc. v. Skippers Maritime Services, Ltd.,23 using it to support a view which the latter case
precisely ventured to strike down. In that case, the employee was hired as the vessel’s Master on a
six-months employment contract, but was able to work for only two months, as he was later on illegally
dismissed. The Labor Arbiter, NLRC, and the CA all took the view that the complaining employee was
entitled to his salary for the unexpired portion of his contract, but limited to only three months pursuant
to Section 1024 of RA 8042. The Court did not agree and hence modified the judgment in said case. It
held that, following the wording of Section 10 and its ruling in Marsaman Manning Agency, Inc. v.
National Labor Relations Commission,25 when the illegally dismissed employee’s employment contract
has a term of less than one year, he/she shall be entitled to recovery of salaries representing the
unexpired portion of his/her employment contract. Indeed, there was nothing even vaguely confusing
in the Court’s citation therein of Marsaman:

In Marsaman Manning Agency, Inc. vs. NLRC, involving Section 10 of Republic Act No. 8042, we held:

We cannot subscribe to the view that private respondent is entitled to three (3) months salary only. A 1âwphi1

plain reading of Sec. 10 clearly reveals that the choice of which amount to award an illegally dismissed
overseas contract worker, i.e., whether his salaries for the unexpired portion of his employment
contract or three (3) months salary for every year of the unexpired term, whichever is less, comes into
play only when the employment contract concerned has a term of at least one (1) year or more. This
is evident from the wording "for every year of the unexpired term" which follows the wording "salaries
x x x for three months." To follow petitioners’ thinking that private respondent is entitled to three (3)
months salary only simply because it is the lesser amount is to completely disregard and overlook
some words used in the statute while giving effect to some. This is contrary to the well-established
rule in legal hermeneutics that in interpreting a statute, care should be taken that every part or word
thereof be given effect since the lawmaking body is presumed to know the meaning of the words
employed in the statute and to have used them advisedly. Ut res magis valeat quam pereat.

It is not disputed that private respondent’s employment contract in the instant case was for six (6)
months. Hence, we see no reason to disregard the ruling in Marsaman that private respondent should
be paid his salaries for the unexpired portion of his employment contract.26 (Emphases supplied)

At this juncture, the courts, especially the CA, should be reminded to read and apply this Court’s labor
pronouncements with utmost care and caution, taking to mind that in the very heart of the judicial
system, labor cases occupy a special place. More than the State guarantees of protection of labor and
security of tenure, labor disputes involve the fundamental survival of the employees and their families,
who depend upon the former for all the basic necessities in life.

Thus, petitioner must be awarded his salaries corresponding to the unexpired portion of his six-months
employment contract, or equivalent to four months. This includes all his corresponding monthly
vacation leave pay and tonnage bonuses which are expressly provided and guaranteed in his
employment contract as part of his monthly salary and benefit package. These benefits were
guaranteed to be paid on a monthly basis, and were not made contingent. In fact, their monetary
equivalent was fixed under the contract: US$2,500.00 for vacation leave pay and US$700.00 for

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tonnage bonus each month. Thus, petitioner is entitled to back salaries of US$32,800 (or US$5,000 +
US$2,500 + US$700 = US$8,200 x 4 months). "Article 279 of the Labor Code mandates that an
employee’s full backwages shall be inclusive of allowances and other benefits or their monetary
equivalent."27 As we have time and again held, "it is the obligation of the employer to pay an illegally
dismissed employee or worker the whole amount of the salaries or wages, plus all other benefits and
bonuses and general increases, to which he would have been normally entitled had he not been
dismissed and had not stopped working."28 This well-defined principle has likewise been lost on the
CA in the consideration of the case.

The CA likewise erred in deleting the award of attorney’s fees on the ground that bad faith may not
readily be attributed to the respondents given the circumstances. The Court’s discussion on the award
of attorney’s fees in Kaisahan at Kapatiran ng mga Manggagawa at Kawani sa MWC-East Zone Union
v. Manila Water Company, Inc.,29 speaking through Justice Brion, is instructive, viz:

Article 111 of the Labor Code, as amended, governs the grant of attorney’s fees in labor cases:

‘Art. 111. Attorney’s fees. – (a) In cases of unlawful withholding of wages, the culpable party may be
assessed attorney’s fees equivalent to ten percent of the amount of wages recovered.

(b) It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings
for the recovery of wages, attorney’s fees which exceed ten percent of the amount of wages
recovered.’

Section 8, Rule VIII, Book III of its Implementing Rules also provides, viz.:

‘Section 8. Attorney’s fees. – Attorney’s fees in any judicial or administrative proceedings for the
recovery of wages shall not exceed 10% of the amount awarded. The fees may be deducted from the
total amount due the winning party.’

We explained in PCL Shipping Philippines, Inc. v. National Labor Relations Commission that there are
two commonly accepted concepts of attorney’s fees – the ordinary and extraordinary. In its ordinary
concept, an attorney’s fee is the reasonable compensation paid to a lawyer by his client for the legal
services the former renders; compensation is paid for the cost and/or results of legal services per
agreement or as may be assessed. In its extraordinary concept, attorney’s fees are deemed indemnity
for damages ordered by the court to be paid by the losing party to the winning party. The instances
when these may be awarded are enumerated in Article 2208 of the Civil Code, specifically in its
paragraph 7 on actions for recovery of wages, and is payable not to the lawyer but to the client, unless
the client and his lawyer have agreed that the award shall accrue to the lawyer as additional or part of
compensation.

We also held in PCL Shipping that Article 111 of the Labor Code, as amended, contemplates the
extraordinary concept of attorney’s fees and that Article 111 is an exception to the declared policy of
strict construction in the award of attorney’s fees. Although an express finding of facts and law is still
necessary to prove the merit of the award, there need not be any showing that the employer acted
maliciously or in bad faith when it withheld the wages. x x x

We similarly so ruled in RTG Construction, Inc. v. Facto and in Ortiz v. San Miguel Corporation. In
RTG Construction, we specifically stated:

'Settled is the rule that in actions for recovery of wages, or where an employee was forced to litigate
and, thus, incur expenses to protect his rights and interests, a monetary award by way of attorney's
fees is justifiable under Article Ill of the Labor Code; Section 8, Rule VIII, Book III of its Implementing

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Rules; and paragraph 7, Article 208 of the Civil Code. The award of attorney's fees is proper, and there
need not be any showing that the employer acted maliciously or in bad faith when it withheld the
wages. There need only be a showing that the lawful wages were not paid accordingly.'

In PCL Shipping, we found the award of attorney's fees due and appropriate since the respondent
therein incurred legal expenses after he was forced to file an action for recovery of his lawful wages
and other benefits to protect his rights. From this perspective and the above precedents, we conclude
that the CA erred in ruling that a finding of the employer's malice or bad faith in withholding wages
must precede an award of attorney's fees under Article Ill of the Labor Code. To reiterate, a plain
showing that the lawful wages were not paid without justification is sufficient.30

In this case, it is already settled that petitioner's employment was illegally terminated. As a result, his
wages as well as allowances were withheld without valid and legal basis. Otherwise stated, he was
not paid his lawful wages without any valid justification. Consequently, he was impelled to litigate to
protect his interests. Thus, pursuant to the above ruling, he is entitled to receive attorney’s fees. An
award of attorney's fees in petitioner’s favor is in order in the amount of US$3, 280 (or US$32, 800 x
10%).

WHEREFORE, the Petition is GRANTED. Petitioner Lorenzo T. Tangga-an is hereby declared

ENTITLED to back salaries for the unexpired portion of his contract, inclusive of vacation leave pay
and tonnage bonus which is equivalent to US$32,800 plus US$3,280 as attorney's fees or a total of
US$36,080 or its peso equivalent at the exchange rate prevailing at the time of payment.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION MARTIN S. VILLARAMA, JR.**

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

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Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

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SLL International Cables Specialist & Sonny L. Lagon vs. NLRC 4th Division, Roldan
Lopez, Edgardo Zuniga & Danilo Canete; GR No. 172161; March 2, 2011
(Wages/Supplements/Covered by Minimum/Deductability)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172161 March 2, 2011

SLL INTERNATIONAL CABLES SPECIALIST and SONNY L. LAGON, Petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, 4th DIVISION, ROLDAN LOPEZ, EDGARDO
ZUÑIGA and DANILO CAÑETE, Respondents.

DECISION

MENDOZA, J.:

Assailed in this petition for review on certiorari are the January 11, 2006 Decision1 and the March 31,
2006 Resolution2 of the Court of Appeals (CA), in CA-G.R. SP No. 00598 which affirmed with
modification the March 31, 2004 Decision3 and December 15, 2004 Resolution4 of the National Labor
Relations Commission (NLRC). The NLRC Decision found the petitioners, SLL International Cables
Specialist (SLL) and its manager, Sonny L. Lagon (petitioners), not liable for the illegal dismissal of
Roldan Lopez, Danilo Cañete and Edgardo Zuñiga (private respondents) but held them jointly and
severally liable for payment of certain monetary claims to said respondents.

A chronicle of the factual antecedents has been succinctly summarized by the CA as follows:

Sometime in 1996, and January 1997, private respondents Roldan Lopez (Lopez for brevity) and
Danilo Cañete (Cañete for brevity), and Edgardo Zuñiga (Zuñiga for brevity) respectively, were hired
by petitioner Lagon as apprentice or trainee cable/lineman. The three were paid the full minimum wage
and other benefits but since they were only trainees, they did not report for work regularly but came in
as substitutes to the regular workers or in undertakings that needed extra workers to expedite
completion of work. After their training, Zuñiga, Cañete and Lopez were engaged as project employees
by the petitioners in their Islacom project in Bohol. Private respondents started on March 15, 1997 until
December 1997. Upon the completion of their project, their employment was also terminated. Private
respondents received the amount of ₱145.00, the minimum prescribed daily wage for Region VII. In
July 1997, the amount of ₱145 was increased to ₱150.00 by the Regional Wage Board (RWB) and in
October of the same year, the latter was increased to ₱155.00. Sometime in March 1998, Zuñiga and
Cañete were engaged again by Lagon as project employees for its PLDT Antipolo, Rizal project, which
ended sometime in (sic) the late September 1998. As a consequence, Zuñiga and Cañete’s
employment was terminated. For this project, Zuñiga and Cañete received only the wage of ₱145.00
daily. The minimum prescribed wage for Rizal at that time was ₱160.00.

Sometime in late November 1998, private respondents re-applied in the Racitelcom project of Lagon
in Bulacan. Zuñiga and Cañete were re-employed. Lopez was also hired for the said specific project.

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For this, private respondents received the wage of ₱145.00. Again, after the completion of their project
in March 1999, private respondents went home to Cebu City.

On May 21, 1999, private respondents for the 4th time worked with Lagon’s project in Camarin,
Caloocan City with Furukawa Corporation as the general contractor. Their contract would expire on
February 28, 2000, the period of completion of the project. From May 21, 1997-December 1999,
private respondents received the wage of ₱145.00. At this time, the minimum prescribed rate for
Manila was ₱198.00. In January to February 28, the three received the wage of ₱165.00. The existing
rate at that time was ₱213.00.

For reasons of delay on the delivery of imported materials from Furukawa Corporation, the Camarin
project was not completed on the scheduled date of completion. Face[d] with economic problem[s],
Lagon was constrained to cut down the overtime work of its worker[s][,] including private respondents.
Thus, when requested by private respondents on February 28, 2000 to work overtime, Lagon refused
and told private respondents that if they insist, they would have to go home at their own expense and
that they would not be given anymore time nor allowed to stay in the quarters. This prompted private
respondents to leave their work and went home to Cebu. On March 3, 2000, private respondents filed
a complaint for illegal dismissal, non-payment of wages, holiday pay, 13th month pay for 1997 and
1998 and service incentive leave pay as well as damages and attorney’s fees.

In their answers, petitioners admit employment of private respondents but claimed that the latter were
only project employees[,] for their services were merely engaged for a specific project or undertaking
and the same were covered by contracts duly signed by private respondents. Petitioners further
alleged that the food allowance of ₱63.00 per day as well as private respondents allowance for lodging
house, transportation, electricity, water and snacks allowance should be added to their basic pay. With
these, petitioners claimed that private respondents received higher wage rate than that prescribed in
Rizal and Manila.

Lastly, petitioners alleged that since the workplaces of private respondents were all in Manila, the
complaint should be filed there. Thus, petitioners prayed for the dismissal of the complaint for lack of
jurisdiction and utter lack of merit. (Citations omitted.)

On January 18, 2001, Labor Arbiter Reynoso Belarmino (LA) rendered his decision5 declaring that his
office had jurisdiction to hear and decide the complaint filed by private respondents. Referring to Rule
IV, Sec. 1 (a) of the NLRC Rules of Procedure prevailing at that time,6 the LA ruled that it had
jurisdiction because the "workplace," as defined in the said rule, included the place where the
employee was supposed to report back after a temporary detail, assignment or travel, which in this
case was Cebu.

As to the status of their employment, the LA opined that private respondents were regular employees
because they were repeatedly hired by petitioners and they performed activities which were usual,
necessary and desirable in the business or trade of the employer.

With regard to the underpayment of wages, the LA found that private respondents were underpaid. It
ruled that the free board and lodging, electricity, water, and food enjoyed by them could not be included
in the computation of their wages because these were given without their written consent.

The LA, however, found that petitioners were not liable for illegal dismissal. The LA viewed private
respondents’ act of going home as an act of indifference when petitioners decided to prohibit overtime
work.7

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In its March 31, 2004 Decision, the NLRC affirmed the findings of the LA. In addition, the NLRC noted
that not a single report of project completion was filed with the nearest Public Employment Office as
required
by the Department of Labor and Employment (DOLE) Department Order No. 19, Series of 1993.8 The
NLRC later denied9 the motion for reconsideration10 subsequently filed by petitioners.

When the matter was elevated to the CA on a petition for certiorari, it affirmed the findings that the
private respondents were regular employees. It considered the fact that they performed functions
which were the regular and usual business of petitioners. According to the CA, they were clearly
members of a work pool from which petitioners drew their project employees.

The CA also stated that the failure of petitioners to comply with the simple but compulsory requirement
to submit a report of termination to the nearest Public Employment Office every time private
respondents’ employment was terminated was proof that the latter were not project employees but
regular employees.

The CA likewise found that the private respondents were underpaid. It ruled that the board and lodging,
electricity, water, and food enjoyed by the private respondents could not be included in the
computation of their wages because these were given without their written consent. The CA added
that the private respondents were entitled to 13th month pay.

The CA also agreed with the NLRC that there was no illegal dismissal. The CA opined that it was the
petitioners’ prerogative to grant or deny any request for overtime work and that the private
respondents’ act of leaving the workplace after their request was denied was an act of abandonment.

In modifying the decision of the labor tribunal, however, the CA noted that respondent Roldan Lopez
did not work in the Antipolo project and, thus, was not entitled to wage differentials. Also, in computing
the differentials for the period January and February 2000, the CA disagreed in the award of
differentials based on the minimum daily wage of ₱223.00, as the prevailing minimum daily wage then
was only ₱213.00. Petitioners sought reconsideration but the CA denied it in its March 31, 2006
Resolution.11

In this petition for review on certiorari,12 petitioners seek the reversal and setting aside of the CA
decision anchored on this lone:

GROUND/ASSIGNMENT OF ERROR

THE PUBLIC RESPONDENT NLRC COMMITTED A SERIOUS ERROR IN LAW IN AWARDING

WAGE DIFFERENTIALS TO THE PRIVATE COMPLAINANTS ON THE BASES OF MERE
TECHNICALITIES, THAT IS, FOR LACK OF WRITTEN CONFORMITY x x x AND LACK OF NOTICE
TO THE DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE)[,] AND THUS, THE COURT OF
APPEALS GRAVELY ERRED IN AFFIRMING WITH MODIFICATION THE NLRC DECISION IN THE
LIGHT OF THE RULING IN THE CASE OF JENNY M. AGABON and VIRGILIO AGABON vs, NLRC,
ET AL., GR NO. 158963, NOVEMBER 17, 2004, 442 SCRA 573, [AND SUBSEQUENTLY IN THE
CASE OF GLAXO WELLCOME PHILIPPINES, INC. VS. NAGAKAKAISANG EMPLEYADO NG
WELLCOME-DFA (NEW –DFA), ET AL., GR NO. 149349, 11 MARCH 2005], WHICH FINDS
APPLICATION IN THE INSTANT CASE BY ANALOGY.13

Petitioners reiterated their position that the value of the facilities that the private respondents enjoyed
should be included in the computation of the "wages" received by them. They argued that the rulings
in Agabon v. NLRC14and Glaxo Wellcome Philippines, Inc. v. Nagkakaisang Empleyado Ng Wellcome-
DFA15 should be applied by analogy, in the sense that the lack of written acceptance of the employees

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of the facilities enjoyed by them should not mean that the value of the facilities could not be included
in the computation of the private respondents’ "wages."

On November 29, 2006, the Court resolved to issue a Temporary Restraining Order (TRO) enjoining
the public respondent from enforcing the NLRC and CA decisions until further orders from the Court.

After a thorough review of the records, however, the Court finds no merit in the petition.

This petition generally involves factual issues, such as, whether or not there is evidence on record to
support the findings of the LA, the NLRC and the CA that private respondents were project or regular
employees and that their salary differentials had been paid. This calls for a re-examination of the
evidence, which the Court cannot entertain. Settled is the rule that factual findings of labor officials,
who are deemed to have acquired expertise in matters within their respective jurisdiction, are generally
accorded not only respect but even finality, and bind the Court when supported by substantial
evidence. It is not the Court’s function to assess and evaluate the evidence

all over again, particularly where the findings of both the Labor tribunals and the CA concur. 16

As a general rule, on payment of wages, a party who alleges payment as a defense has the burden
of proving it.17 Specifically with respect to labor cases, the burden of proving payment of monetary
claims rests on the employer, the rationale being that the pertinent personnel files, payrolls, records,
remittances and other similar documents — which will show that overtime, differentials, service
incentive leave and other claims of workers have been paid — are not in the possession of the worker
but in the custody and absolute control of the employer.18

In this case, petitioners, aside from bare allegations that private respondents received wages higher
than the prescribed minimum, failed to present any evidence, such as payroll or payslips, to support
their defense of payment. Thus, petitioners utterly failed to discharge the onus probandi.

Private respondents, on the other hand, are entitled to be paid the minimum wage, whether they are
regular or non-regular employees.

Section 3, Rule VII of the Rules to Implement the Labor Code19 specifically enumerates those who are
not covered by the payment of minimum wage. Project employees are not among them.

On whether the value of the facilities should be included in the computation of the "wages" received
by private respondents, Section 1 of DOLE Memorandum Circular No. 2 provides that an employer
may provide subsidized meals and snacks to his employees provided that the subsidy shall not be
less that 30% of the fair and reasonable value of such facilities. In such cases, the employer may
deduct from the wages of the employees not more than 70% of the value of the meals and snacks
enjoyed by the latter, provided that such deduction is with the written authorization of the employees
concerned.

Moreover, before the value of facilities can be deducted from the employees’ wages, the following
requisites must all be attendant: first, proof must be shown that such facilities are customarily furnished
by the trade; second, the provision of deductible facilities must be voluntarily accepted in writing by
the employee; and finally, facilities must be charged at reasonable value.20 Mere availment is not
sufficient to allow deductions from employees’ wages.21

These requirements, however, have not been met in this case. SLL failed to present any company
policy or guideline showing that provisions for meals and lodging were part of the employee’s salaries.

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It also failed to provide proof of the employees’ written authorization, much less show how they arrived
at their valuations. At any rate, it is not even clear whether private respondents actually enjoyed said
facilities.

The Court, at this point, makes a distinction between "facilities" and "supplements." It is of the view
that the food and lodging, or the electricity and water allegedly consumed by private respondents in
this case were not facilities but supplements. In the case of Atok-Big Wedge Assn. v. Atok-Big Wedge
Co.,22 the two terms were distinguished from one another in this wise:

"Supplements," therefore, constitute extra remuneration or special privileges or benefits given to or

received by the laborers over and above their ordinary earnings or wages. "Facilities," on the other
hand, are items of expense necessary for the laborer's and his family's existence and subsistence so
that by express provision of law (Sec. 2[g]), they form part of the wage and when furnished by the
employer are deductible therefrom, since if they are not so furnished, the laborer would spend and
pay for them just the same.

In short, the benefit or privilege given to the employee which constitutes an extra remuneration above
and over his basic or ordinary earning or wage is supplement; and when said benefit or privilege is
part of the laborers' basic wages, it is a facility. The distinction lies not so much in the kind of benefit
or item (food, lodging, bonus or sick leave) given, but in the purpose for which it is given.23 In the case
at bench, the items provided were given freely by SLL for the purpose of maintaining the efficiency
and health of its workers while they were working at their respective projects. 1avvphi1

For said reason, the cases of Agabon and Glaxo are inapplicable in this case. At any rate, these were
cases of dismissal with just and authorized causes. The present case involves the matter of the failure
of the petitioners to comply with the payment of the prescribed minimum wage.

The Court sustains the deletion of the award of differentials with respect to respondent Roldan Lopez.
As correctly pointed out by the CA, he did not work for the project in Antipolo.

WHEREFORE, the petition is DENIED. The temporary restraining order issued by the Court on
November 29, 2006 is deemed, as it is hereby ordered, DISSOLVED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR.* MARIANO C. DEL CASTILLO**

Associate Justice Associate Justice

ROBERTO A. ABAD
Associate Justice

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ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

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Our Haus Realty Development Corporation vs. Alexander Parian, Jay C. Erinco,
Alexander Canlas, Bernard Tenedero & Jerry Sabulao; GR No. 204651; Agust 6, 2014
(Wages/Supplements/Covered by Minimum/Deductability)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 204651 August 6, 2014

OUR HAUS REALTY DEVELOPMENT CORPORATION, Petitioner,

vs.
ALEXANDER PARIAN, JAY C. ERINCO, ALEXANDER CANLAS, BERNARD TENEDERO and
JERRY SABULAO, Respondents.

DECISION

BRION, J.:

We resolve in this petition for review on certiorari1 the challenge to the May 7, 2012 decision2 and the
November 27, 2012 resolution3 (assailed CA rulings) of the Court of Appeals (CA) in CA-G.R. SP No.
123273. These assailed CA rulings affirmed the July 20, 2011 decision4 and the December 2, 2011
resolution5 (NLRC rulings) of the National Labor Relations Commission (NLRC) in NLRC LAC No. 02-
000489-11 (NLRC NCR Case No. 06-08544-10). The NLRC rulings in turn reversed and set aside the
December 10, 2010 decision6 of the labor arbiter (LA).

Factual Antecedents

Respondents Alexander Parian, Jay Erinco, Alexander Canlas, Jerry Sabulao and Bernardo
Tenederowere all laborers working for petitioner Our Haus Realty Development Corporation (Our
Haus), a company engaged in the construction business.The respondents’ respective employment
records and daily wage rates from 2007 to 2010 are summarized in the table7 below:

Years of Daily
Name Date Hired Year and Place of Assignment
Service Rate

Alexander M. October
10 years 2007-2010- Quezon City ₱353.50
Parian 1999

January 2008- Quezon City 2009- Antipolo

Jay C. Erinco 10 years ₱342.00
2000 2010- Quezon City

Alexander R.
2005 5 years 2007-2010- Quezon City ₱312.00
Canlas

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August 2008- Quezon City 2009- Antipolo

Jerry Q. Sabulao 10 years ₱342.00
1999 2010- Quezon City

Bernardo N.
1994 16 years 2007-2010- Quezon City ₱383.50
Tenedero

Sometime in May 2010, Our Haus experienced financial distress. To alleviate its condition, Our Haus
suspended some of its construction projects and asked the affected workers, including the
respondents, to take vacation leaves.8

Eventually, the respondents were asked to report back to work but instead of doing so, they filed with
the LA a complaint for underpayment of their daily wages. They claimed that except for respondent
Bernardo N. Tenedero, their wages were below the minimum rates prescribed in the following wage
orders from 2007 to 2010:

1. Wage Order No. NCR-13, which provides for a daily minimum wage rate of ₱362.00for the
non-agriculture sector (effective from August 28, 2007 until June 13, 2008); and

2. Wage Order No. NCR-14, which provides for a daily minimum wage rate of ₱382.00for the
non-agriculture sector (effective from June 14, 2008 until June 30, 2010).

The respondents also alleged thatOur Haus failed to pay them their holiday, service incentive leave
(SIL), 13th month and overtime pays.9

The Labor Arbitration Rulings

Before the LA, Our Haus primarily argued that the respondents’ wages complied with the law’s
minimum requirement. Aside from paying the monetary amount of the respondents’ wages, Our Haus
also subsidized their meals (3 times a day), and gave them free lodging near the construction project
they were assigned to.10 In determining the total amount of the respondents’ daily wages, the value of
these benefits should be considered, in line with Article 97(f)11 of the Labor Code.

Our Haus also rejected the respondents’ other monetary claims for lack of proof that they were entitled
to it.12

On the other hand, the respondents argued that the value of their meals should not be considered in
determining their wages’ total amount since the requirements set under Section 413 of
DOLE14 Memorandum Circular No. 215 were not complied with.

The respondents pointed out that Our Haus never presented any proof that they agreed in writing to
the inclusion of their meals’ value in their wages.16 Also, Our Haus failed to prove that the value of the
facilities it furnished was fair and reasonable.17 Finally, instead of deducting the maximum amount of
70% of the value of the meals, Our Haus actually withheld its full value (which was Php290.00 per
week for each employee).18

The LA ruled in favor of Our Haus. He held that if the reasonable values of the board and lodging
would be taken into account, the respondents’ daily wages would meet the minimum wage rate. 19 As
to the other benefits, the LA found that the respondents were not able to substantiate their claims for
it.20

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The respondents appealed the LA’s decision to the NLRC, which in turn, reversed it. Citing the case
of Mayon Hotel & Restaurant v. Adana,21 the NLRC noted that the respondents did not authorize Our
Haus in writing to charge the values of their board and lodging to their wages. Thus, the samecannot
be credited.

The NLRC also ruled that the respondents are entitled to their respective proportionate 13th month
payments for the year 2010 and SIL payments for at least three years,immediately preceding May 31,
2010, the date when the respondents leftOur Haus. However, the NLRC sustained the LA’s ruling that
the respondents were not entitled to overtime pay since the exact dates and times when they rendered
overtime work had not been proven.22

Our Haus moved for the reconsideration23 of the NLRC’s decision and submitted new evidence (the
five kasunduans) to show that the respondents authorized Our Haus in writing to charge the values of
their meals and lodging to their wages.

The NLRC denied Our Haus’ motion, thus it filed a Rule 65 petition24 with the CA. In its petition, Our
Haus propounded a new theory. It made a distinction between deduction and charging. A written
authorization is only necessary if the facility’s value will be deducted and will not be needed if it will
merely be charged or included in the computation of wages.25 Our Haus claimed that it did not actually
deduct the values of the meals and housing benefits. It only considered these in computing the total
amount of wages paid to the respondents for purposes of compliance with the minimum wage law.
Hence, the written authorization requirement should not apply.

Our Haus also asserted that the respondents’ claim for SIL pay should be denied as this was not
included in their pro formacomplaint. Lastly, it questioned the respondents’entitlement to attorney’s
fees because they were not represented by a private lawyer but by the Public Attorney’s Office (PAO).

The CA’s Ruling

The CA dismissed Our Haus’ certiorari petition and affirmed the NLRC rulings in toto. It found no real
distinction between deduction and charging,26 and ruled that the legal requirements before any
deduction or charging can be made, apply to both. Our Haus, however, failed to prove that it complied
with any of the requirements laid down in Mabeza v. National Labor Relations
Commission.27 Accordingly, it cannot consider the values of its meal and housing facilities in the
computation of the respondents’ total wages.

Also, the CA ruled that since the respondents were able to allege non-payment of SIL in their position
paper, and Our Haus, in fact, opposed it in its various pleadings,28 then the NLRC properly considered
it as part of the respondents’ causes of action. Lastly, the CA affirmed the respondent’s entitlement to
attorney’s fees.29

Our Haus filed a motion for reconsideration but the CA denied its motion, prompting it to file the present
petition for review on certiorari under Rule 45.

The Petition

Our Haus submits that the CA erred in ruling that the legal requirements apply without distinction
―whether the facility’s value will be deducted or merely included in the computation of the wages. At
any rate, it complied with the requirements for deductibility of the value of the facilities. First, the five
kasunduans executed by the respondents constitute the written authorization for the inclusion of the
board and lodging’s values to their wages. Second, Our Haus only withheld the amount of ₱290.00
which represents the food’s raw value; the weekly cooking cost (cook’s wage, LPG, water) at ₱239.40

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per person is a separate expense that Our Haus did not withhold from the respondents’ wages.30 This
disproves the respondents’claim that it deducted the full amount of the meals’ value.

Lastly, the CA erred in ruling that the claim for SIL pay may still be granted though not raised in the
complaint; and that the respondents are entitled to an award of attorney’s fees.31

The Case for the Respondents

The respondents prayed for the denial of the petition.32 They maintained that the CA did not err
inruling that the values of the board and lodging cannot be deducted from their wages for failure to
comply with the requirements set by law.33 And though the claim for SIL pay was not included in their
pro forma complaint, they raised their claims in their position paper and Our Haus had the
opportunity to contradict it in its pleadings.34

Finally, under the PAO law, the availment of the PAO’s legal services does not exempt its clients
from an award of attorney’s fees.35

The Court’s Ruling

We resolve to DENY the petition.

The nature of a Rule 45 petition ― only questions of law

Basic is the rule that only questions of lawmay be raised in a Rule 45 petition.36 However, in this case,
weare confronted with mixed questions of fact and law that are subsumed under the issue of whether
Our Haus complied with the legal requirements on the deductibility of the value of facilities. Strictly,
factual issues cannot be considered under Rule 45 except in the course of resolving if the CA correctly
determined whether or not the NLRC committed grave abuse of discretion in considering and
appreciating the factual issues before it.37

In ruling for legal correctness, we have to view the CA decision in the same context that the petition
for certiorariit ruled upon was presented to it; we have to examine the CA decision from the prism of
whether it correctly determined the presence or absence of grave abuse of discretion in the NLRC
decision before it, not on the basis of whether the NLRC decision, on the merits of the case, was
correct. In other words, we have to be keenly aware that the CA undertook a Rule 65 review, not a
review on appeal, of the NLRC decision challenged before it. This is the approach that should bebasic
in a Rule 45 review of a CA ruling in a labor case. In question form, the question to ask in the present
case is: did the CA correctly determine that the NLRC did not commit grave abuse of discretion in
ruling on the case?38 We rule that the CA correctly did.

No substantial distinction between deducting and charging a facility’s value from the employee’s wage;
the legal requirements for creditability apply to both

To justify its non-compliance with the requirements for the deductibility of a facility, Our Haus asks us
to believe that there is a substantial distinction between the deduction and the charging of a facility’s
value to the wages. Our Haus explains that in deduction, the amount of the wage (which may already
be below the minimum) would still be lessened by the facility’s value, thus needing the employee’s
consent. On the other hand, in charging, there is no reduction of the employee’s wage since the
facility’s value will just be theoretically added to the wage for purposes of complying with the minimum
wage requirement.39

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Our Haus’ argument is a vain attempt to circumvent the minimum wage law by trying to create a
distinction where none exists.

In reality, deduction and charging both operate to lessen the actual take-home pay of an employee;
they are two sides of the same coin. In both, the employee receives a lessened amount because
supposedly, the facility’s value, which is part of his wage, had already been paid to him in kind. As
there is no substantial distinction between the two, the requirements set by law must apply to both.

As the CA correctly ruled, these requirements, as summarized in Mabeza, are the following:

a. proof must be shown thatsuch facilities are customarily furnished by the trade;

b. the provision of deductiblefacilities must be voluntarily accepted in writingby the employee;

and

c. The facilities must be charged at fair and reasonable value.40

We examine Our Haus’ compliance with each of these requirements in seriatim.

a. The facility must be customarily furnished by the trade

In a string of cases, we have concluded that one of the badges to show that a facility is customarily
furnished by the trade is the existence of a company policy or guideline showing that provisions for a
facility were designated as part of the employees’ salaries.41 To comply with this, Our Haus presented
in its motion for reconsideration with the NLRC the joint sinumpaang salaysayof four of its alleged
employees. These employees averred that they were recipients of free lodging, electricity and water,
as well as subsidized meals from Our Haus.42

We agree with the NLRC’s finding that the sinumpaang salaysay statements submitted by Our Haus
are self-serving. For one, Our Haus only produced the documents when the NLRC had already earlier
1âw phi 1

determined that Our Haus failed to prove that it was traditionally giving the respondents their board
and lodging. This document did not state whether these benefits had been consistently enjoyed by the
rest of Our Haus’ employees. Moreover, the records reveal that the board and lodging were given on
a per project basis. Our Haus did not show if these benefits were also provided inits other construction
projects, thus negating its claimed customary nature. Even assuming the sinumpaang salaysay to be
true, this document would still work against Our Haus’ case. If Our Haus really had the practice of
freely giving lodging, electricity and water provisions to its employees, then Our Haus should not
deduct its values from the respondents’ wages. Otherwise, this will run contrary to the affiants’ claim
that these benefits were traditionally given free of charge.

Apart from company policy, the employer may also prove compliance with the first requirement by
showing the existence of an industry-wide practice of furnishingthe benefits in question among
enterprises engaged in the same line of business. If it were customary among construction companies
to provide board and lodging to their workers and treat their values as part of their wages, we would
have more reason to conclude that these benefits were really facilities.

However, Our Haus could not really be expected to prove compliance with the first requirement since
the living accommodation of workers in the construction industry is not simply a matter of business
practice. Peculiar to the construction business are the occupational safety and health (OSH) services
which the law itself mandates employers to provide to their workers. This isto ensure the humane
working conditions of construction employees despite their constant exposure to hazardous working

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environments. Under Section 16 of DOLE Department Order (DO) No. 13, series of 1998,43 employers
engaged in the construction business are required to providethe following welfare amenities:

16.1 Adequate supply of safe drinking water

16.2 Adequate sanitaryand washing facilities

16.3 Suitable living accommodation for workers, and as may be applicable, for their families

16.4 Separate sanitary, washing and sleeping facilitiesfor men and women workers. [emphasis
ours]

Moreover, DOLE DO No. 56, series of 2005, which sets out the guidelines for the implementation
ofDOLE DO No. 13, mandates that the cost of the implementation of the requirements for the
construction safety and health of workers, shall be integrated to the overall project cost.44 The rationale
behind this isto ensure that the living accommodation of the workers is not substandard and is strictly
compliant with the DOLE’s OSH criteria.

As part of the project cost that construction companies already charge to their clients, the value of the
housing of their workers cannot be charged again to their employees’ salaries. Our Haus cannot pass
the burden of the OSH costs of its construction projects to its employees by deducting it as facilities.
This is Our Haus’ obligation under the law.

Lastly, even if a benefit is customarily provided by the trade, it must still pass the purpose testset by
jurisprudence. Under this test, if a benefit or privilege granted to the employee is clearly for the
employer’s convenience, it will not be considered as a facility but a supplement.45 Here, careful
consideration is given to the nature of the employer’s business in relation to the work performed by
the employee. This test is used to address inequitable situations wherein employers consider a benefit
deductible from the wages even if the factual circumstances show that it clearly redounds to the
employers’ greater advantage.

While the rules serve as the initial test in characterizing a benefit as a facility, the purpose test
additionally recognizes that the employer and the employee do not stand at the same bargaining
positions on benefits that must or must not formpart of an employee’s wage. In the ultimate analysis,
the purpose test seeks to prevent a circumvention of the minimum wage law.

a1. The purpose test in jurisprudence

Under the law,46 only the value of the facilities may be deducted from the employees’ wages but not
the value of supplements. Facilities include articles or services for the benefit of the employee or his
family but exclude tools of the trade or articles or services primarily for the benefit of the employer or
necessary to the conduct of the employer’s business.47

The law also prescribes that the computation of wages shall exclude whatever benefits, supplementsor
allowances given to employees. Supplements are paid to employees on top of their basic pay and are
free of charge.48 Since it does not form part of the wage, a supplement’s value may not be includedin
the determination of whether an employer complied with the prescribed minimum wage rates.

In the present case, the board and lodging provided by Our Haus cannot be categorized asfacilities
but as supplements. In SLL International Cables Specialist v. National Labor Relations

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Commission,49 this Court was confronted with the issue on the proper characterization of the free board
and lodging provided by the employer. We explained:

The Court, at this point, makes a distinction between "facilities" and "supplements". It is of the view
that the food and lodging, or the electricity and water allegedly consumed by private respondents in
this case were not facilities but supplements. In the case of Atok-Big Wedge Assn. v. Atok-Big Wedge
Co., the two terms were distinguished from one another in this wise:

"Supplements", therefore, constitute extra remuneration or special privileges or benefits given to or

received by the laborers overand above their ordinary earnings or wages. "Facilities", on the other
hand, are items of expense necessary for the laborer's and his family's existence and subsistence so
thatby express provision of law (Sec. 2[g]), they form part of the wage and when furnished by the
employer are deductible therefrom, since if they are not so furnished, the laborer would spend and
pay for them just the same.

In short, the benefit or privilege given to the employee which constitutes an extra remuneration above
and over his basic or ordinary earning or wage is supplement; and when said benefit or privilege is
part of the laborers' basic wages, it is a facility. The distinction lies not so much in the kind of benefit
or item (food, lodging, bonus or sick leave) given, but in the purpose for which it is given.In the case
at bench, the items provided were given freely by SLLfor the purpose of maintaining the efficiency and
health of its workers while they were working attheir respective projects.50

Ultimately, the real difference lies not on the kind of the benefit but on the purpose why it was given
by the employer. If it is primarily for the employee’s gain, then the benefit is a facility; if its provision is
mainly for the employer’s advantage, then it is a supplement. Again, this is to ensure that employees
are protected in circumstances where the employer designates a benefit as deductible from the wages
even though it clearly works to the employer’s greater convenience or advantage.

Under the purpose test, substantial consideration must be given to the nature of the employer’s
business inrelation to the character or type of work performed by the employees involved.

Our Haus is engaged in the construction business, a laborintensive enterprise. The success of its
projects is largely a function of the physical strength, vitality and efficiency of its laborers. Its business
will be jeopardized if its workers are weak, sickly, and lack the required energy to perform strenuous
physical activities. Thus, by ensuring that the workers are adequately and well fed, the employer is
actually investing on its business.

Unlike in office enterprises where the work is focused on desk jobs, the construction industry relies
heavily and directly on the physical capacity and endurance of its workers. This is not to say that desk
jobs do not require muscle strength; wesimply emphasize that in the construction business, bulk of the
work performed are strenuous physical activities.

Moreover, in the construction business, contractors are usually faced with the problem ofmeeting
target deadlines. More often than not, work is performed continuously, day and night, in order to finish
the project on the designated turn-over date. Thus, it will be more convenient to the employer if
itsworkers are housed near the construction site to ensure their ready availability during urgent or
emergency circumstances. Also, productivity issues like tardiness and unexpected absences would
be minimized. This observation strongly bears in the present case since three of the respondents are
not residents of the National Capital Region. The board and lodging provision might have been a
substantial consideration in their acceptance of employment in a place distant from their provincial
residences.

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Based on these considerations, we conclude that even under the purpose test, the subsidized meals
and free lodging provided by Our Haus are actually supplements. Although they also work to benefit
the respondents, an analysis of the nature of these benefits in relation to Our Haus’ business shows
that they were given primarily for Our Haus’ greater convenience and advantage. If weighed on a
scale, the balance tilts more towards Our Haus’ side. Accordingly, their values cannot be considered
in computing the total amount of the respondents’ wages. Under the circumstances, the dailywages
paid to the respondents are clearly below the prescribed minimum wage rates in the years 2007-2010.

b. The provision of deductible facilities must be voluntarily accepted in writing by the employee

In Mayon Hotel, we reiterated that a facility may only be deducted from the wage if the employer was
authorized in writingby the concerned employee.51 As it diminishes the take-home pay of an employee,
the deduction must be with his express consent.

Again, in the motion for reconsideration with the NLRC, Our Haus belatedly submitted five
kasunduans, supposedly executed by the respondents, containing their conformity to the inclusion of
the values of the meals and housing to their total wages. Oddly, Our Haus only offered these
documents when the NLRC had already ruled that respondents did not accomplish any written
authorization, to allow deduction from their wages. These five kasunduans were also undated, making
us wonder if they had reallybeen executed when respondents first assumed their jobs.

Moreover, in the earlier sinumpaang salaysay by Our Haus’ four employees, it was not mentioned that
they also executed a kasunduanfor their board and lodging benefits. Because of these surrounding
circumstances and the suspicious timing when the five kasunduanswere submitted as evidence, we
agree withthe CA that the NLRC committed no grave abuse of discretion in disregarding these
documents for being self serving.

c. The facility must be charged at a fair and reasonable value

Our Haus admitted that it deducted the amount of ₱290.00 per week from each of the respondents for
their meals. But it now submits that it did not actually withhold the entire amount as it did not figure in
the computation the money it expended for the salary of the cook, the water, and the LPG used for
cooking, which amounts to ₱249.40 per week per person. From these, it appears that the total meal
expense per week for each person is ₱529.40,making Our Haus’ ₱290.00 deduction within the 70%
ceiling prescribed by the rules.

However, Our Haus’ valuation cannotbe plucked out of thin air. The valuation of a facility must
besupported by relevant documents such as receipts and company records for it to be considered as
fair and reasonable. In Mabeza, we noted:

Curiously, in the case at bench, the only valuations relied upon by the labor arbiter in his decision were
figures furnished by the private respondent's own accountant, without corroborative evidence.On the
pretext that records prior to the July 16, 1990 earthquake were lost or destroyed, respondent failed to
produce payroll records, receipts and other relevant documents, where he could have, as has been
pointedout in the Solicitor General's manifestation, "secured certified copies thereof from the nearest
regional office of the Department of Labor, the SSS or the BIR".52 [emphasis ours]

In the present case, Our Haus never explained how it came up with the valuesit assigned for the
benefits it provided; it merely listed its supposed expenses without any supporting document. Since
Our Haus is using these additional expenses (cook’s salary, water and LPG) to support its claim that
it did not withhold the full amount of the meals’ value, Our Haus is burdened to present evidence to
corroborate its claim. The records however, are bereft of any evidence to support Our Haus’ meal

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expense computation. Eventhe value it assigned for the respondents’ living accommodations was not
supported by any documentary evidence. Without any corroborative evidence, it cannot be said that
Our Haus complied withthis third requisite.

A claim not raised in the pro forma complaint may still beraised in the position paper.

Our Haus questions the respondents’ entitlement to SIL pay by pointing out that this claim was not
included in the pro forma complaint filed with the NLRC. However, we agree with the CA that such
omission does not bar the labor tribunals from touching upon this cause of action since this was raised
and discussed inthe respondents’ position paper. In Samar-Med Distribution v. National Labor
Relations Commission,53 we held:

Firstly, petitioner’s contention that the validity of Gutang’s dismissal should not be determined because
it had not been included in his complaint before the NLRC is bereft of merit. The complaint of Gutang
was a mere checklist of possible causes of action that he might have against Roleda. Such manner of
preparing the complaint was obviously designed to facilitate the filing of complaints by employees and
laborers who are thereby enabled to expediently set forth their grievances in a general manner. But
the non-inclusion in the complaint of the issue on the dismissal did not necessarily mean that the
validity of the dismissal could not be an issue.The rules of the NLRC require the submission of verified
position papers by the parties should they fail to agree upon an amicable settlement, and bar the
inclusion of any cause of action not mentioned in the complaint or position paper from the time of their
submission by the parties. In view of this, Gutang’s cause of action should be ascertained not from a
reading of his complaint alone but also from a consideration and evaluation of both his complaint and
position paper.54

The respondents’ entitlement to the other monetary benefits

Generally a party who alleges payment as a defense has the burden of proving it.Particularly in labor
cases, the burden of proving payment of monetary claims rests on the employeron the reasoning that
the pertinent personnel files, payrolls, records, remittances and other similar documents — which will
show that overtime, differentials, service incentive leave and other claims of workers have been paid
— are not in the possession of the worker but in the custody and absolute control of the employer.55

Unfortunately, records will disclose the absence of any credible document which will show that
respondents had been paid their 13th month pay, holiday and SIL pays. Our Haus merely presented
a handwritten certification from its administrative officer that its employees automatically become
entitled to five days of service incentive leave as soon as they pass probation. This certification was
not even subscribed under oath. Our Haus could have at least submitted its payroll or copies of the
pay slips of respondents to show payment of these benefits. However, it failed to do so.

Respondents are entitled to attorney’s fees.

Finally, we affirm that respondents are entitled to attorney’s fees. Our Haus’ asserts that respondents’
availment of free legal services from the PAO disqualifies them from such award. We find this
untenable.

It is settled that in actions for recovery of wages or where an employee was forced to litigate and, thus,
incur expenses to protect his rights and interest, the award of attorney's fees is legally and morally
justifiable.56 Moreover, under the PAO Law or Republic Act No. 9406, the costs of the suit, attorney's
fees and contingent fees imposed upon the adversary of the PAO clients after a successful litigation
shall be deposited in the National Treasury as trust fund and shall be disbursed for special allowances
of authorized officials and lawyers of the PAO.57

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Thus, the respondents are still entitled to attorney's fees. The attorney's fees awarded to them shall
be paid to the PAO. It serves as a token recompense to the PAO for its provision of free legal services
to litigants who have no means of hiring a private lawyer.

WHEREFORE, in light of these considerations, we conclude that the Court of Appeals correctly found
that the National Labor Relations Commission did not abuse its discretion in its decision of July 20,
2011 and Resolution of December 2, 2011. Consequently we DENY the petition and AFFIRM the
1âwphi 1

Court of Appeals' decision dated May 7, 2012 and resolution dated November 27, 2012 in CA-G.R.
SP No. 123273. No costs.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

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RFM Corporation - Flour Division & SFI Feeds Division vs. Kasapian ng Manggagawang
Pinagkaisa (KSMPI-NAFLU-KMU) and Sandigan at Ugnayan ng Manggagawang
Pinagkaisa-SFI (SUMAPI-NAFLU-KMU); GR No. 162324; Febuary 4, 2009 (Holiday work
cannot be insisted)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 162324 February 4, 2009

RFM CORPORATION-FLOUR DIVISION and SFI FEEDS DIVISION, Petitioner,

vs.
KASAPIAN NG MANGGA-GAWANG PINAGKAISA-RFM (KAMPI-NAFLU-KMU) and SANDIGAN
AT UGNAYAN NG MANGGAGAWANG PINAGKAISA-SFI (SUMAPI-NAFLU-KMU) Respondents.

DECISION

CARPIO MORALES, J.:

Petitioner RFM Corporation (RFM) is a domestic corporation engaged in flour-milling and animal feeds
manufacturing. Sometime in 2000, its Flour Division and SFI Feeds Division entered into collective
bargaining agreements (CBAs) with their respective labor unions, the Kasapian ng Manggagawang
Pinagkaisa-RFM (KAMPI-NAFLU-KMU) for the Flour Division, and Sandigan at Ugnayan ng
Manggagawang Pinagkaisa-SFI (SUMAPI-NAFLU-KMU) for the Feeds Division (respondents). The
CBAs, which contained similar provisions, were effective for five years, from July 1, 2000 up to June
30, 2005.

Sec. 3, Art. XVI of each of the CBAs reads:

Section. 3. Special Holidays with Pay – The COMPANY agrees to make payment to all daily paid
employees, in respect of any of the days enumerated hereunto if declared as special holidays by
the national government:

a) Black Saturday

b) November 1

c) December 31

The compensation rate shall be the regular rate. Any work beyond eight (8) hours shall be paid the
standard ordinary premium. (Emphasis and underscoring supplied)

During the first year of the effectivity of the CBAs in 2000, December 31 which fell on a Sunday was
declared by the national government as a special holiday. Respondents thus claimed payment of their
members’ salaries, invoking the above-stated CBA provision. Petitioner refused the claims for

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payment, averring that December 31, 2000 was not compensable as it was a rest day. The controversy
resulted in a deadlock, drawing the parties to submit the same for voluntary arbitration.

Following the submission by the parties of their respective position papers, Voluntary Arbitrator (VA)
Bernardino M. Volante, by Decision1 of October 11, 2001, declared that the above-quoted provision of
the CBA is clear. It accordingly ruled in favor of respondents and ordered petitioner to pay the salaries
of respondents’ members for December 31, 2000, and to pay attorney’s fees to respondents equivalent
to 10% of the monetary award.

Its motion for reconsideration of the VA ruling having been denied,2 petitioner appealed to the Court
of Appeals which affirmed the same by Decision3 dated October 30, 2003.

The appellate court held that if it was indeed petitioner’s intent to pay the salaries of daily-paid
employees during a special holiday, even if unworked, only if such special holiday fell on weekdays,
then it should have been clearly and expressly stipulated in the CBAs. And it held inapplicable Kimberly
Clark Philippines v. Lorredo4 cited by petitioner which case held that whenever there is a conflict
between the words in the CBA and the evident intention of the parties, the latter prevails. For, so the
appellate court explained, there were no words or provisions in the CBAs which would result in an
absurd interpretation vis a vis the parties’ true intention.
1avv phi1

In sustaining the award of attorney’s fees, the appellate court ruled that respondents were entitled
thereto as they were compelled to engage a lawyer to pursue their claims.

Petitioner’s motion for reconsideration having been denied, the present petition was filed.

Petitioner insists that the CBA provision in question was intended to protect the employees from
reduction of their take-home pay, hence, it was not meant to remunerate them on Sundays, which are
rest days, nor to increase their salaries.

On the award of attorney’s fees, petitioner argues that it is not warranted as it did not arbitrarily refuse
to pay respondents’ demands.

The petition is bereft of merit.

If the terms of a CBA are clear and have no doubt upon the intention of the contracting parties, as in
the herein questioned provision, the literal meaning thereof shall prevail. That is settled.5 As such, the
daily-paid employees must be paid their regular salaries on the holidays which are so declared by the
national government, regardless of whether they fall on rest days.

Holiday pay is a legislated benefit enacted as part of the Constitutional imperative that the State shall
afford protection to labor. Its purpose is not merely "to prevent diminution of the monthly income of the
workers on account of work interruptions. In other words, although the worker is forced to take a rest,
he earns what he should earn, that is, his holiday pay."6 (Emphasis and underscoring supplied) 1avvphi1.z w+

The CBA is the law between the parties, hence, they are obliged to comply with its provisions.7 Indeed,
if petitioner and respondents intended the provision in question to cover payment only during holidays
falling on work or weekdays, it should have been so incorporated therein.

Petitioner maintains, however, that the parties failed to foresee a situation where the special holiday
would fall on a rest day. The Court is not persuaded. The Labor Code specifically enjoins that in case

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of doubt in the interpretation of any law or provision affecting labor, it should be interpreted in favor of
labor.8

Respondents having been compelled to litigate as a result of petitioner’s failure to satisfy their valid
claim, the Court deems it just and equitable to sustain the award of attorney’s fees.

WHEREFORE, the petition is DENIED.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING DANTE O. TINGA

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR. ARTURO D. BRION

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I
certify that the conclusions in the above decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

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National Union of Workers in Hotel Restaurant and Allied Industries (NUWHRAIN-APL-

IUF), Philippine Plaza Chapter vs. Philippine Plaza Holdings, Inc.; GR No. 177524; July
23, 2014 (Article 96)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 177524 July 23, 2014

NATIONAL UNION OF WORKERS IN HOTEL RESTAURANT AND ALLIED INDUSTRIES

(NUWHRAIN-APL-IUF), PHILIPPINE PLAZA CHAPTER, Petitioner,
vs.
PHILIPPINE PLAZA HOLDINGS, INC., Respondent.

DECISION

BRION, J.:

We resolve the petition for review on certiorari,1 challenging the January 31, 2007 decision2 and the
April 20, 2007 resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 93698.

This CA decision reversed the July 4, 2005 decision4 of the National Labor Relations Commission
(NLRC) in NLRC NCR CA No. 031977-02 (NLRC NCR-30-05-02011-01) that in tum, reversed and set
aside the April 30, 2002 decision5 of the Labor Arbiter (LA).

The LA dismissed the complaint for non-payment of service charges filed by petitioner National Union
of Workers in Hotel Restaurant and Allied Industries (NUWHRAIN-APL-IUF), Philippine Plaza Chapter
(Union).

The Factual Antecedents

The Union is the collective bargaining agent of the rank-and-file employees of respondent Philippine
Plaza Holdings, Inc. (PPHI).

On November 24, 1998, the PPHI and the Union executed the "Third Rank-and-File Collective
Bargaining Agreement as Amended"6 (CBA). The CBA provided, among others, for the collection, by
the PPHI, of a ten percent (10%) service charge on the saleof food, beverage, transportation, laundry
and rooms. The pertinent CBA provisions read:

SECTION 68. COLLECTION. The HOTEL shall continue to collect ten percent (10%) service charge
on the sale of food, beverage, transportation, laundry and rooms except on negotiated contracts and
special rates. [Emphasis supplied]

SECTION 69. DISTRIBUTION. The service charge to be distributed shall consist of the following:

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Effective Food & Beverage Room, Transportation & valet

1998 95% 100%

1997 95% 100%

The distributable amount will beshared equally by all HOTEL employees, including managerial
employees but excluding expatriates, with three shares to be given to PPHI Staff and three shares to
the UNION (one for the national and two for the local funds) that may be utilized by them for purposes
for which the UNION may decide.

These provisions merely reiterated similar provisions found in the PPHIUnion’s earlier collective
bargaining agreement executed on August 29, 1995.7

On February 25, 1999, the Union’s Service Charge Committee informed the Union President, through
an audit report (1st audit report),8 of uncollected service charges for the last quarter of 1998 amounting
to ₱2,952,467.61. Specifically, the audit report referred to the service charges from the following items:
(1) "Journal Vouchers;" (2) "Banquet Other Revenue;" and (3) "Staff and Promo." The Union presented
this audit report to the PPHI’s management during the February 26, 1999 Labor Management
Cooperation Meeting (LMCM).9 The PPHI’s management responded that the Hotel Financial Controller
would need to verify the audit report.

Through a letter dated June 9, 1999,10 the PPHI admitted liability for ₱80,063.88 out of the
₱2,952,467.61 thatthe Union claimed as uncollected service charges. The PPHI denied the rest of the
Union’s claims because: (1) they were exempted from the service charge being revenues from "special
promotions" (revenue from the Westin Gold Card sales) or "negotiated contracts" (alleged revenue
from the Maxi-Media contract); (2) the revenues did not belong to the PPHI but to third-party suppliers;
and (3) no revenue was realized from these transactions as they were actually expenses incurred for
the benefit of executives or by way of good-will to clients and government officials.

During the July 12, 1999 LMCM,11 the Union maintained its position on uncollected service charges so
that a deadlock on the issue ensued. The parties agreed to refer the matter to a third party for the
solution. They considered two options – voluntary arbitration or court action – and promised to get
back to each other on their chosen option.

In its formal reply (to the PPHI’sJune 9, 1999 letter) dated July 21, 1999 (2nd audit report),12 the Union
modified its claims. It claimed uncollected service charges from: (1) "Journal Vouchers - Westin Gold
Revenue and Maxi-Media" (F&B and Rooms Barter); (2) "Banquet and Other Revenue;" and (3) "Staff
and Promo."

On August 10, 2000, the Union’s Service Charge Committee made another service charge audit report
for the years 1997, 1998 and 1999 (3rd audit report).13 This 3rd audit report reflected total uncollected
service charges of ₱5,566,007.62 from the following entries: (1) "Journal Vouchers;" (2) "Guaranteed
No Show;" (3) "Promotions;" and (4) "F & B Revenue." The Union President presented the 3rd audit
report to the PPHI on August 29, 2000.

When the parties failed to reachan agreement, the Union, on May 3, 2001, filed before the LA
(Regional Arbitration Branch of the NLRC) a complaint14 for non-payment of specified service charges.
The Union additionally charged the PPHI with unfair labor practice (ULP) under Article 248 of the Labor
Code, i.e., for violation of their collective bargaining agreement.

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In its decision15 dated April 30, 2002, the LA dismissed the Union’s complaint for lack of merit. The LA
declared that the Union failed to show, by law, contract and practice, its entitlement to the payment of
service charges from the entries specified in its audit reports (specified entries/transactions).

The LA pointed out that Section 68 of the CBA explicitly requires, as a precondition for the distribution
of service charges in favor of the covered employees, the collection of the 10% service charge on the
"sale of food, beverage, transportation, laundry and rooms;" at the same time, the provision exempts
from its coverage "negotiated contracts" and "special rates" that the LA deemed as non-revenue
generating transactions involving "food, beverage, transportation, laundry and rooms." The Union
failed to prove that the PPHI collected 10% service charges on the specified entries/transactions that
could have triggered the PPHI’s obligation under this provision.

Particularly, the LA pointed out that, first, the only evidence on record that could have formed the basis
of the Union’s claim for service charges was the PPHI’s admission that, as a matter of policy, it has
been charging, collecting and distributing to the covered employees 10% service charge on the fifty
percent (50%) of the total selling price of the "Maxi-Media F & B" and on the "Average House" rate of
the "Maxi-Media Rooms." And it did so, notwithstanding the fact that the "Maxi-Media F & B and Rooms
Barter" is a "negotiated contract" and/or "special rate" that Section 68 explicitly excludes from the
service charge coverage.

Second,while the PPHI derived revenues from the sale of the Westin Gold Cards (Westin Gold
Revenue), the PPHI did not and could not have collected a 10% service charge as these transactions
could not be considered as sale of food, beverage, transportation, laundry and rooms that Section 68
contemplates.

Third, the "Staff and Business Promotion and Banquet" entry refers to the expenses incurred by the
PPHI’s Marketing Department and Department Heads and Hotel executives either as part of their
perks or the PPHI’s marketing tool/public relations. These are special rates that are essentially non-
revenue generating items.

Fourth, the "Backdrop" entry refers to services undertaken by third parties payment for which were
made of course to them; hence, this entry/transaction could not likewise be considered as sale of
services by PPHI for which collection of the 10% service charge was warranted.

Lastly, the LA equally brushed aside the Union’s claim of ULP declaring that the PPHI was well within
its legal and contractual right to refuse payment of service charges for entries from which it did not
collect any service charge pursuant tothe provision of their CBA.

The NLRC’s ruling

In its decision16 of July 4, 2005, the NLRC reversed the LA’s decision and considered the specified
entries/transactions as "service chargeable." As the PPHI failed to prove that it paid or remitted the
required service charges, the NLRC held the PPHI liable to pay the Union ₱5,566,007.62 representing
the claimed uncollected service charges for the years 1997, 1998 and 1999 per the 3rd audit report.

The PHHI went to the CA on a petition for certiorari17 after the NLRC denied its motion for
reconsideration.18

The CA’s ruling

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The CA granted the PPHI’s petition in its January 31, 2007 decision.19 It affirmed the LA’s decision but
ordered the PPHI to pay the Union the amount of ₱80,063.88 as service charges that it found was due
under the circumstances. The CA declared that no service charges were due from the specified
entries/transactions; either these constituted "negotiated contracts" and "special rates" that Section 68
of the CBA explicitly excludes from the coverage of service charges, or they were cited bases that the
Union failed to sufficiently prove.

The CA pointed out that: one, the "Westin Gold Card Revenues" entry involved the sale, not of food,
beverage, transportation, laundry and rooms, but of a "contractual right" to be charged a lesser rate
for the products and services that the Hotel and the stores within it provide. At any rate, the PPHI
charges, collects and distributes to the covered employees the CBAagreed service charges whenever
any Westin Gold Card member purchases food, beverage, etc. Two, the "Maxi-Media F & B and
Rooms and Barter" entry did not involve any sale transaction that Section 68 contemplates. The CA
pointed out that the arrangement20 between the PPHI and Maxi-Media International, Inc. was not one
of sale but an innominate contract of facio ut des, i.e., in exchange for the professional entertainment
services provided by Maxi-Media, the Hotel agreed to give the former ₱2,800,000.00 worth of products
and services.The CA added that this agreement falls under "negotiated contracts" that Section 68
explicitly exempts. Three, the sale of "Gift Certificates" does not involve the CBA-contemplated "sale
of food, beverage, etc." Four, the Union failed to show the source of its computations for its
"Guaranteed No Show" and "F & B Revenue" claims. Five, the "Business Promotions" entry likewise
did not involve any sale; these were part of the PPHI’s business expenses in the form of either signing
benefits for the PPHI’s executives or asmarketing tool used by the PPHI’s marketing personnel to
generate goodwill. And six, the Union’s claims for service charges that the PPHI allegedly collected
prior to May 3, 1998 or three years before the Union filed itscomplaint on May 3, 2001 had already
prescribed per Article 291 of the Labor Code.

The Union filed the present petition after the CA denied its motion for Reconsideration21

in the CA’s April 20, 2007 resolution.22

The Petition

The Union argues that the CA clearly misapprehended and misappreciated, with grave abuse of
discretion, the facts and evidence on record. It maintains that the specified entries/transactions are
revenue based transactions which, per Section 68 and 69 of the CBA, clearly called for the collection
and distribution of a 10% service charge in favor of the covered employees. Particularly, the Union
argues that: (1) the "Westin Gold Cards" serve not only as a discount card but also as a "pre-paid"
card that provide its purchasing members complimentary amenities for which the Hotel employees
rendered services and should, therefore, had been subjected to the 10% service charge; (2) the PPHI
failed to prove that it had paid and distributed to the covered employees the service charge due on the
actual discounted sales of food, beverage, etc., generated by the "Westin Gold Cards;" (3) the Hotel
employees likewise rendered services whenever the Maxi-Media International, Inc. consumed or
availed part of the 2,800,000.00 worth of goods and services pursuant to its agreement with the PPHI;
(4) the "Maxi-Media" discounts should be charged to the PPHI as part of its expenses and not the
Union’s share in the service charges; (5) the PPHI has a separate budget for promotions, hence the
"Business Promotions" entry should likewise had been subjected to the 10% service charge; (6) the
sale of "Gift Certificates," recorded in the PPHI’s "Journal Vouchers" as "other revenue/income,"
constituted a revenue transaction for which service charges were due; (7) the PPHI admitted that
service charges from "Guaranteed No Show" were due; and (8) it properly identified through reference
numbers the uncollected service charges from "Food and Beverage Revenue."

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The Union contends that inrefusing to collect and remit the CBA-mandated service charges that the
PPHI insists were non-revenue transactions falling under "Negotiated Contracts" and/or "Special
Rates," the PPHI, in effect, contravened the employees’ rights to service charges under the law and
the CBA. The Union also contends that the term "Negotiated Contracts" should be applied to "airline
contracts" only that they (the Union and the PPHI) intended when they executed the CBA. It points out
that at the time the CBA was executed, the PPHI had an existing agreement with Northwest Airlines
to which the term "Negotiated Contracts" clearly referred to. Further, the Union argues that its claim
for unpaid services charges for the year 1997 and part of 1998 had not yet prescribed. Applying Article
1155 of the Civil Code in relation toArticle 291 of the Labor Code, the Union points out that the running
of the prescriptive period for the filing of its claim was interrupted when it presented to the PPHI its 1st
audit report during the February 26, 1999 LMCMand when the PPHI admitted the service charges due
to the Union inthe PPHI’s June 9, 1999 letter.

The Union additionally argues that the PPHI failed to conform to the generally accepted accounting
standards when it reclassified the revenue items as expense items.

Finally, the Union contends that the PPHI’s refusal, despite repeated demands, to distribute the
unremitted service charges and recognize its right to service charges on the specified entries; the
PPHI’s deliberate failure to disclose its financial transactions and audit reports; and the PPHI’s
reclassification of the revenues into expense items constitute gross violation of the CBA that amounts
to whatthe law considers as ULP.

The Case for the Respondent

The PPHI primarily counters, in its comment,23 that the Union’s call for the Court to thoroughly re-
examinethe records violates the Rule 45 proscription against questions of facts.The PPHI points out
that Rule 45 of the Rules of Court under which the petition is filed requires that only questions of law
be raised. In addition, the factual findings of the LA that had been affirmed by the CA deserve not only
respect but even finality.

On the petition’s merits, the PPHI argues that the specified entries/transactions for which the Union
claims service charges: (1) were not revenue generating transactions; (2) that did not involve a sale
of food, beverage, rooms, transportation or laundry; and/or (3) were in the nature of negotiated
contracts and special rates that Section 68 of the CBA specifically excepts from the collection of
service charges. Correlatively, Article 96 of the Labor Code requires the collection of service charges
as a condition precedent to its distribution or payment. Thus, as no service charges were collected on
the specified entries/transactions that the CBA expressly excepts, the Union’s claim for unpaid service
charges clearly had no basis.

To be precise, the PPHI points out that, first, the sale per se of the "Westin Gold Cards" did not involve
a sale of food, beverage, etc. that Section 68 of the CBA contemplates. The discounted sales of food,
beverage, etc. to Westin Gold Card holders, on the other hand, had already been subjected to service
charges inclusive of the discount, i.e., computed on the gross sales of food, beverage, etc. to the card
holders, and which service charges it had already distributed to the covered employees. Second, its
agreement with Maxi-Media involved an exchange or barter transaction, i.e., its food and Hotel
services in exchange for Maxi-Media’s entertainment services that did not generate income. This
agreement likewise falls under "Negotiated Contracts" that Section 68 clearly excepts. And, in any
case, it had already collected, and distributed to the covered employees, the service charges on the
food, beverage, etc. that Maxi-Media consumed based on the monthly average rate of the rooms and
on the 50% rate of the price of the consumed food and beverage. Third, the Union failed to prove its
claims for uncollected service charges from "Guaranteed No Show" and "Business Promotions."
Fourth, the "Food and Beverage other Revenue" entry refers to the PPHI’s transactions with external

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service providers the payment for whose services could not be considered as the PPHI’s revenue.
Fifth, the sale per se of the "Gift Certificates" also did not involve the Section 68-contemplated sale of
food, beverage, etc. and the Union failed to prove that the presented Gift Certificateshad actually been
consumed, i.e., used within the Hotel premises for food, beverage, etc. And sixth, it had never been
its practice to collect service charges on the specified entries/transactions that could have otherwise
resulted in what the Union considers as "partial abolition of service charges" when it refused to collect
service charges from them.

The PPHI also disputes what it considers as the Union’s strained interpretation of the CBA exception
of "Negotiated Contracts" as applicable to airline contracts only. It points out that the clear wordings
of Section 68 of the CBA plainly show the intent to except, in a general and broad sense, "Negotiated
Contracts" and "Special Rates" as to include the "Westin Gold Cards" and "Maxi-Media" barter
agreement. The PPHI additionally argues that the CBA’s exception of "Negotiated Contracts" and
"Special Rates" from the collection of service charges does not violate Article 96 of the Labor Code. It
points out that Article 96 merely provides for the minimum percentage distribution, between it (the
PPHI) as the employer and the Hotel’s covered employees, of the collected service charges which
their CBA more than satisfied. It also points out that Article 96 does not prohibit the exception of certain
transactions from the coverage and/or collection of service charges that it (as the employer) and the
Union (in behalf of the covered Hotel employees) had voluntarily and mutually agreed on in their
CBA. And in fact, the Union’s refusal to recognize these clear and express exceptions constituted a
1âwphi1

violation of their agreement.

Further, the PPHI maintains that the Union’s claim for the alleged uncollected service charges for the
year 1997 and the early months of 1998 had already prescribed per Article 291 of the Labor Code.

Finally, the PPHI points out that the issue in this case is not whether service charges had been paid.
Rather, the clear issue is whether or not service charges should have been collected (and distributed
to the covered employees) for the specified entries/transactions that the LA and the CA correctly
addressed and which the NLRC clearly missed as it rendered a decision without any factual or legal
basis.

The Court's Ruling

We find the petition unmeritorious.

Preliminary considerations: jurisdictional limitations of the Court’s Rule 45 review of the CA’s Rule 65
decision in labor cases; the Montoya ruling and factual-issue-bar-rule

In a petition for review on certiorari under Rule 45 of the Rules of Court, we review the legal errors
that the CA may have committed in the assailed decision, in contrastwith the review for jurisdictional
errors that we undertake in an original certiorari action. In reviewing the legal correctness of the CA
decision in a labor case taken under Rule 65 of the Rules of Court, we examine the CA decision in the
context that it determined the presence or the absence of grave abuse of discretion in the NLRC
decision before it and not on the basis of whether the NLRC decision, on the merits of the case, was
correct. In other words, we proceed from the premise that the CA undertook a Rule 65 review, not a
review on appeal, of the NLRC decision challenged before it. Within this limited scope of our Rule 45
review, the question that we ask is: Did the CA correctly determine whether the NLRC committed
grave abuse of discretion in ruling on the case?24

In addition, the Court’s jurisdiction in a Rule 45 petition for review on certiorari is limited to resolving
only questions of law. A question of law arises when the doubt or controversy exists as to what law

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pertains to a particular set of facts; and a question of fact arises when the doubt or controversy pertains
to the truth or falsity of the alleged facts.25

The present petition essentially raises the question – whether the Union may collect from the PPHI,
under the terms of the CBA, its share of the service charges. This is a clear question of law that falls
well within the Court’s power in a Rule 45 petition.

Resolution of this question of law, however, is inextricably linked with the largely factual issue of
whether the specified entries/transactions fall within the generally covered sale of food, beverage,
transportation, etc. from which service charges are due or within the CBA excepted "Negotiated
Contracts" and "Special Rates." It also unavoidably requires resolution of another factual issue, i.e.,
whether the Union’s claim for service charges collected for the year 1997 and the early months of
1998 had already prescribed. As questions of fact, they are proscribed by our Rule 45 jurisdiction; we
generally cannot address these factual issues except to the extent necessary to determine whether
the CA correctly found the NLRC in grave abuse of discretion in granting the Union’s claim for service
charges from the specified entries/transactions.

The jurisdictional limitations of our Rule 45 review of the CA’s Rule 65 decision in labor cases constrain
us to deny the present petition for clear lack of legal error in the CA’s decision.Our consideration of
the facts taken within this limited scope of our factual review power, convinces us that grave abuse of
discretion attended the NLRC’s decision. At what point and to what extent the NLRC gravely abusedits
discretion is the matter we shall discuss below.

The NLRC’s patently erroneous appreciation of the real issue in the present controversy, along with
the facts and the evidence, amounted to grave abuse of discretion

In granting the Union’s claim, the NLRC simply declared that the PPHI "has not shown any proof that
it paid or remitted what is due to the Union and its members" and concluded that the specified
entries/transactions were "service chargeable." This NLRC conclusion plainly failed to appreciate that
it involved only the alleged uncollected service charges from the specified entries/transactions. The
NLRC likewise, in the course of its ruling, did not point to any evidence supporting its conclusion.

In deciding as it did, the NLRC patently proceeded from the wrong premise, i.e., that the PPHI did not
at all distribute to the Hotel’s covered employees their share in the collected service charges. It likewise
erroneously assumed that all the specified entries/transactions were subject to service charges and
that the PPHI collected service charges from them as its ruling was patently silent on this point. The
NLRC also erroneously assumed that each and every transaction that the PPHI entered into was
subject to a service charge.

What the NLRC clearly and conveniently overlooked was the underlying issue of whether service
charges are due from the specified entries/transactions, i.e., whether the specified entries/transactions
are covered by the CBA’s general-rule provisions on the collection of service charges or whether they
are excepted because they fall within the excepted "Negotiated Contracts" and "Special Rates" or
simply did not involve a "sale of food, beverage, etc." from which service charges are due. This
understanding of this case’s real issue is an indispensable requisite in the proper resolution of the
controversy and a task that the NLRC, as a tribunal exercising quasi-judicial power, mustperform with
circumspection and utmost diligence. The patent failure led to its manifestly flawed conclusions that
were belied by the underlying facts. By so doing, the NLRC acted outside the clear contemplation of
the law.26

Accordingly, we affirm the CA’s decision to be legally correct as it correctly reversed the NLRC
decision for grave abuse of discretion.

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Nature of a CBA; rules inthe interpretation of CBA provisions

A collective bargaining agreement, as used in Article 252 (now Article 262)27 of the Labor Code, is a
contract executed at the request of either the employer or the employees’ exclusive bargaining
representative with respect to wages, hours of work and all other terms and conditions of employment,
including proposals for adjusting any grievances or questions under such agreement.28 Jurisprudence
settles that a CBA is the law between the contracting parties who are obliged under the law to comply
with its provisions.29

As a contract and the governing law between the parties, the general rules of statutory construction
apply in the interpretation of its provisions. Thus, if the terms of the CBA are plain, clear and leave no
doubt on the intention of the contracting parties, the literal meaning of its stipulations, as they appear
on the face of the contract, shall prevail.30 Only when the words used are ambiguous and doubtful or
leading to several interpretations of the parties’ agreement that a resort to interpretation and
construction is called for.31

No service charges were due from the specified entries/transactions; they either fall within the CBA-
excepted "Negotiated Contracts" and "Special Rates" or did not involve "a sale of food, beverage, etc."

The Union anchors its claim for services charges on Sections 68 and 69 of the CBA, in relation with
Article96 of the Labor Code. Section 68 states that the sale of food, beverage, transportation, laundry
and rooms are subject to service charge at the rate often percent (10%). Excepted from the coverage
of the 10% service charge are the so-called "negotiated contracts" and "special rates."

Following the wordings of Section 68 of the CBA, three requisites must be present for the provisions
on service charges to operate: (1) the transaction from which service charge is sought to be collected
is a sale; (2) the sale transaction covers food, beverage, transportation, laundry and rooms; and (3)
the sale does not result from negotiated contracts and/or at special rates.

In plain terms, all transactions involving a "sale of food, beverage, transportation, laundry and rooms"
are generally covered. Excepted from the coverage are, first, non-sale transactions or transactions
that do not involve any sale even though they involve "food, beverage, etc." Second, transactions that
involve a sale but do not involve "food, beverage, etc." And third, transactions involving "negotiated
contracts" and "special rates" i.e., a "sale of food, beverage, etc." resulting from "negotiated contracts"
or at "special rates;" non-sale transactions involving "food, beverage, etc." resulting from "negotiated
contracts" and/or "special rates;" and sale transactions, but not involving "food, beverage, etc.,"
resulting from "negotiated contracts" and "special rates." Notably, the CBA does not specifically define
the terms "negotiated contracts" and "special rates." Nonetheless, the CBA likewise does not explicitly
limit the use of these terms to specified transactions. With particular reference to "negotiated
contracts," the CBA does not confine its application to "airline contracts" as argued by the Union. Thus,
as correctly declared by the CA, the term "negotiated contracts" should be read as applying to all types
of negotiated contracts and not to "airlines contracts" only. This is in line with the basic rule of
construction that when the terms are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall prevail. A constricted interpretation of this term, i.e.,
as applicable to "airlines contracts" only, must be positively shown either by the wordings of the CBA
or by sufficient evidence of the parties’ intention to limit its application. The Union completely failed to
provide support for its constricted reading of the term "negotiated contracts," either from the wordings
of the CBA or from the evidence.

In reversing the NLRC’s ruling and denying the Union’s claim, the CA found the specified
entries/transactions as either falling under the excepted negotiated contracts and/or special rates or
not involving a sale of food, beverage, etc. Specifically, it considered the entries "Westin Gold

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Cards Revenue" and "Maxi Media Barter" to be negotiated contracts or contracts under special rates,
and the entries "Business Promotions" and "Gift Certificates" as contracts that did not involve a sale
of food, beverage, etc. The CA also found no factual and evidentiary basis to support the Union’s claim
for service charges on the entries "Guaranteed No show" and "F & B Revenue."

Our consideration of the records taken under our limited factual review power convinces us that these
specified entries/transactions are indeed not subject to a 10% service charge. We thus see no reason
to disturb the CA’s findings on these points.

The PPHI did not violate Article 96 of the Labor Code when they refused the Union’s claim for service
charges on the specified entries/transactions

Article 96 of the Labor Code provides for the minimum percentage distribution between the employer
and the employees of the collected service charges, and its integration inthe covered employees’
wages in the event the employer terminates its policy of providing for its collection. It pertinently reads:

Art. 96. Service Charges.

x x x In case the service charge is abolished, the share of the covered employees shall be considered
integrated in their wages.

This last paragraph of Article 96 of the Labor Code presumes the practice of collecting service charges
and the employer’s termination of this practice. When this happens, Article 96 requires the employer
to incorporate the amount that the employees had been receiving as share of the collected service
charges into their wages. Incases where no service charges had previously been collected (as where
the employer never had any policy providing for collection of service charges or had never imposed
the collection of service charges on certain specified transactions), Article 96 will not operate.

In this case, the CA found that the PPHI had not in fact been collecting services charges on the
specified entries/transactions that we pointed out as either falling under "negotiated contracts" and/or
"special rates" or did not involve a "sale of food, beverage, etc." Accordingly, Article 96 of the Labor
Code finds no application in this case; the PPHI did not abolish or terminate the implementation of any
company policy providing for the collection of service charges on specified

entries/transactions that could have otherwise rendered it liable to pay an amount representing the
covered employees’ share in the alleged abolished service charges.

The Union’s claim for service charges for the year 1997 and the early months of 1998 could not have
yet prescribed at the time it filed its complaint on May 3, 2001; Article 1155 of the Civil Code applies
suppletorily to Article 291 of the Labor Code

Article 291 (now Article 305)32 of the Labor Code states that "all money claims arising from employer-
employee relations x x x shall be filed within three (3) years from the time the cause of action accrued;
otherwise, they shall forever be barred." [Emphasis supplied]

Like other causes of action, the prescriptive period for money claims under Article 291 of the Labor
Code is subject to interruption. And, in the absence of an equivalent Labor Codeprovision for
determining whether Article 291’s three-year prescriptive period may be interrupted, Article 1155 of
the Civil Code33 may be applied. Thus, the period of prescription of money claims under Article 291 is
interrupted by: (1) the filing of an action; (2) a written extrajudicial demand by the creditor; and (3) a
written acknowledgment of the debt by the debtor.

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In the present petition, the facts indisputably showed that as early as 1998, the Union demanded, via
the 1st audit report, from the PPHI the payment and/or distribution of the alleged uncollected service
charges for the year 1997. From thereon, the parties went through negotiations (LCMC) to settle and
reconcile on their respective positions and claims.

Under these facts – the Union’s written extrajudicial demand through its 1st audit report and the
successive negotiation meetings between the Union and the PPHI – the running of the three-year
prescriptive period under Article 291 of the Labor Code could have effectively been interrupted.
Consequently, the Union’s claims for the alleged uncollected service charges for the year 1997 could
not have yet prescribed at the time it filed its complaint on May 3, 2001.

This non-barring effect of prescription, notwithstanding (i.e., that the running of the three-year
prescriptive period had effectively been interrupted – by the Union's written extrajudicial demand on
the PPHI), the CA, as it affirmed the LA, still correctly denied the Union's claims for the alleged
uncollected and/or undistributed service charges on the specified entries/transactions for the year
1997 and the early part of 1998. As the CA found and discussed in its decision, and with which we
agree as amply supported by factual and legal bases, the nature of these specified entries/transactions
as either excepted from the collection of service charges or not constituting a "sale of food, beverage,
etc.," and the Union's failure to support its claims by sufficient evidence warranted, without doubt, the
denial of the Union's action.

In sum, we find the CA's denial of the Union's claim for service charges from the specified
entries/transactions legally correct and to be well supported by the facts and the law. The CA correctly
reversed for grave abuse of discretion the NLRC's decision.

WHEREFORE, in light of these considerations, we hereby DENY the petition. We AFFIRM the
decision dated January 31, 2007 and resolution dated April 20, 2007 of the Court of Appeals in CA-
G.R. Sp No. 93698.

SO ORDERED.

ARTURO D. BRION
Associate Justice
Chairperson

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

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I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice

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Pedro Chavez vs. NLRC, Supreme Packaging, Inc. & Alvin Lee, Plant Manag; GR No.
46530; January 17, 2005 (Wages and Payrol Proof Control Test)

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.

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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.

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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,

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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

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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

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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.

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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

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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.

Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

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Norkis free and Independent Workers Union vs. Norkis Trading Company, Inc.; GR No.
157098. June 30, 2005 (Wage Distortion)

THIRD DIVISION

G.R. No. 157098 June 30, 2005

NORKIS FREE AND INDEPENDENT WORKERS UNION, Petitioner,

vs.
NORKIS TRADING COMPANY, INC. Respondent.

DECISION

PANGANIBAN, J.:

Wage Order No. ROVII-06, issued by the Regional Tripartite Wages and Productivity Board (RTWPB),
merely fixed a new minimum wage rate for private sector employees in Region VII; hence, respondent
cannot be compelled to grant an across-the-board increase to its employees who, at the time of the
promulgation of the Wage Order, were already being paid more than the existing minimum wage.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the July
30, 2002 Decision2 and the January 16, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP
No. 54611. The disposition of the assailed Decision reads as follows:

"ACCORDINGLY, We GRANT the instant petition for certiorari. The Decision of public respondent
Voluntary Arbitrator in VA Case No. 374-VII-09-014-98E dated July 8, 1999, and Order dated August
13, 1999, denying petitioner’s ‘Motion for Reconsideration’, are hereby SET ASIDE. Petitioner is
hereby declared to have lawfully complied with Wage Order No. ROVII-06. No pronouncement as to
costs."4

The Decision5 of Voluntary Arbitrator Perfecto R. de los Reyes III,6 reversed by the CA, disposed as
follows:

"WHEREFORE, premises considered, this Office hereby decides in favor of Complainant. Respondent
is hereby ordered to grant its employees the amount of increases granted under RTWPB Wage Order
ROVII-06 in an across-the-board manner retroactive to the dates provided for under the said Wage
Order."7

The January 16, 2003 Resolution denied petitioner’s Motion for Reconsideration.

The Facts

The CA summarized the undisputed factual antecedents as follows:

"The instant case arose as a result of the issuance of Wage Order No. ROVII-06 by the Regional
Tripartite Wages and Productivity Board (RTWPB) increasing the minimum daily wage by ₱10.00,
effective October 1, 1998.

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"Prior to said issuance, herein parties entered into a Collective Bargaining Agreement (CBA) effective
from August 1, 1994 to July 31, 1999.

‘Sec. 1. Salary Increase. The Company shall grant a FIFTEEN (₱15.00) PESOS per day increase to
all its regular or permanent employees effective August 1, 1994.’

‘Sec. 2. Minimum Wage Law Amendment. In the event that a law is enacted increasing minimum
wage, an across-the-board increase shall be granted by the company according to the provisions of
the law.’

"On January 27, 1998, a re-negotiation of the CBA was terminated and pursuant to which a
Memorandum of Agreement was forged between the parties. It was therein stated that petitioner shall
grant a salary increase to all regular and permanent employees as follows:

‘Ten (10) pesos per day increase effective August 1, 1997; Ten (10) pesos per day increase
effective August 1, 1998.’

"Pursuant to said Memorandum of Agreement, the employees received wage increases of ₱10.00 per
day effective August 1, 1997 and ₱10.00 per day effective August 1, 1998. As a result, the agreed
₱10.00 re-negotiated salary increase effectively raised the daily wage of the employees to ₱165.00
retroactive August 1, 1997; and another increase of ₱10.00, effective August 1, 1998, raising the
employees[’] daily wage to ₱175.00.

"On March 10, 1998, the Regional Tripartite Wage Productivity Board (RTWPB) of Region VII issued
Wage Order ROVII-06 which established the minimum wage of ₱165.00, by mandating a wage
increase of five (₱5.00) pesos per day beginning April 1, 1998, thereby raising the daily minimum wage
to ₱160.00 and another increase of five (₱5.00) pesos per day beginning October 1, 1998, thereby
raising the daily minimum wage to ₱165.00 per day.

"In accordance with the Wage Order and Section 2, Article XII of the CBA, [petitioner] demanded an
across-the-board increase. [Respondent], however, refused to implement the Wage Order, insisting
that since it has been paying its workers the new minimum wage of ₱165.00 even before the
issuance of the Wage Order, it cannot be made to comply with said Wage Order.

"Thus, [respondent] argued that long before the passage of Wage Order ROVII-06 on March 10, 1998,
and by virtue of the Memorandum of Agreement it entered with herein [petitioner], [respondent] was
already paying its employees a daily wage of ₱165.00 per day retroactive on August 1, 1997, while
the minimum wage at that time was still ₱155.00 per day. On August 1, 1998, [respondent] again
granted an increase from ₱165.00 per day to ₱175.00, so that at the time of the effectivity of Wage
Order No. 06 on October 1, 1998 prescribing the new minimum wage of ₱165.00 per day,
[respondent’s] employees were already receiving ₱175.00 per day.

"For failure of the parties to settle this controversy, a preventive mediation complaint was filed by
herein [petitioner] before the National Conciliation and Mediation Board, pursuant to which the parties
selected public respondent Voluntary Arbitrator to decide said controversy.

"Submitted for arbitral resolution is the sole issue of whether or not [respondent] has complied with
Wage Order No. ROVII-06, in relation to the CBA provision mandating an across-the-board increase
in case of the issuance of a Wage Order.

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"In his decision, public respondent arbitrator found herein [respondent] not to have complied with the
wage order, through the following dispositions:

‘The CBA provision in question (providing for an across-the-board increase in case of a wage order)
is worded and couched in a vague and unclear manner.

‘x x x In order to judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered (Art. 1371, New Civil Code). Thus, this Office x x x required the
parties to submit additional evidence in order to be able to know and interpret the parties working
intent and application of Wage Order No. 06 issued by the Regional Tripartite Wages and Productivity
Board, Regional Office VII in relation to Section 2, Article XII provided for in the parties[’] existing CBA.

‘x x x Viewed from the foregoing facts and evidence, the working intent and application of RTWPB
Wage Order ROVII-06 in relation to Section 2, Article XII of the parties[’] existing CBA is clearly
established. The evidence submitted by the parties, all point to the fact that their true intention on how
to implement existing wage orders is to grant such wage orders in an across-the-board manner in
relation to the provisions of Section 2, Article XII of their existing CBA. Respondent in this case [has]
failed to comply with its contractual obligation of implementing the increase under RTWPB Wage Order
ROVII-06 in an across-the-board manner as provided in Section 2, Article XII of its CBA with
[petitioner].

‘x x x x x x x x x’"8

Respondent elevated the case to the CA via a Petition for Certiorari and Prohibition under Rule 65 of
the Rules of Court.

Ruling of the Court of Appeals

The CA noted that the grant of an across-the-board increase, provided under Section 2 of Article XII
of the CBA, was qualified by the phrase "according to the provisions of the law." It thus stressed the
necessity of determining the import of Wage Order No. ROVII-06, the law involved in the present
controversy. Taking into consideration the opinion of the RTWPB, Region VII, the appellate court held
that respondent had sufficiently complied with Wage Order No. ROVII-06. The Board had opined that
"since adjustments granted are only to raise the minimum wage or the floor wage as a matter of policy,
x x x wages granted over the above amount set by this Board is deemed a compliance."

The CA added that the policy and intent of the Wage Order was to cushion the impact of the regional
economic crisis upon both the workers and the employers, not to enrich the employees at the expense
of the employers. Further, it held that to compel respondent to grant an across-the-board wage
increase, notwithstanding that it was already paying salaries to its employees above the minimum
wage, would be to penalize generous employers and effectively make them "wait for the passage of a
new wage order before granting any increase. This would be counter-productive [insofar] as securing
the interests of labor is concerned."9

The appellate court said that the Wage Order exempted from compliance those enterprises already
paying salaries equal to or more than the prescribed minimum wage; thus, the Order effectively made
the previous voluntary increases given by respondent to its employees creditable against the law-
mandated increase. Consequently, there was no need for the Collective Bargaining Agreement (CBA)
to provide expressly for such creditability.

Finally, the CA sustained respondent’s explanation that the across-the-board increases provided in
the CBA was required only when a minimum wage law caused a distortion in the wage structure.

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Hence, this Petition.10

Issues

In its Memorandum, petitioner submits the following issues for our consideration:

"I. Whether or not the Honorable Court of Appeals gravely abused its discretion in setting aside
the decision and resolution of the honorable voluntary arbitrator[.]

II. Whether or not the Honorable Court of Appeals gravely abused its discretion in considering
the Supplemental Memorandum of respondent and giving merit to evidence presented for the
first time on appeal and filed after the lapse of the non[-]extendible period of time to file
memorandum and despite an extension granted to respondent[.]

III. Whether or not the Honorable Court of Appeals gravely abused its discretion in disregarding
established jurisprudence on statutory construction."11

The main issue is whether respondent violated the CBA in its refusal to grant its employees an across-
the-board increase as a result of the passage of Wage Order No. ROVII-06. Also raised is the
procedural issue relating to the propriety of the admission by the CA of RTWPB’s letter-opinion, which
was attached to respondent’s Supplemental Memorandum submitted to that court on August 30, 2000,
beyond the July 17, 2000 extended deadline.

The Court’s Ruling

The Petition lacks merit.

Main Issue:

Effect of Wage Order No. ROVII-06 on the Parties’ CBA

Petitioner insists that respondent should have granted to the employees the increase stated in Wage
Order No. ROVII-06. In addition to the increases both parties had mutually agreed upon, the CBA
supposedly imposed upon respondent the obligation to implement the increases mandated by law
without any condition or qualification. To support its claim, petitioner repeatedly invokes Section 2 of
Article XII of the CBA, which reads:

"SECTION 2. Minimum Wage Law Amendment. In the event that a law is enacted increasing
minimum wage, an across-the-board increase shall be granted by the Company according to the
provisions of the law."

Interestingly, petitioner disregards altogether in its argument the qualifying phrase "according to the
provisions of the law" and merely focuses its attention on the "across-the-board increase" clause.
Given the entire sentence, it is clear that the above-quoted CBA provision does not support the
unyielding view of petitioner that the issuance of Wage Order No. ROVII-06 entitles its members to an
across-the-board increase, absolutely and without any condition.

Stipulations in a contract must be read together,12 not in isolation from one another. When the terms
of its clauses are clear and leave no room for doubt as to the intention of the contracting parties, it
would not be necessary to interpret those terms, whose literal meanings should prevail.13

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The CA correctly observed that the import of Wage Order No. ROVII-06 should be considered in the
implementation of the government-decreed increase. The present Petition makes no denial or
refutation of this finding, but merely an averment of the silence of the CBA on the creditability of
increases provided under the Agreement against those in the minimum wage under a wage order. It
insists that the parties intended no such creditability; otherwise, they would have expressly stated such
intent in the CBA.

We hold that the issue here is not about creditability, but the applicability of Wage Order No. ROVII-
06 to respondent’s employees. The Wage Order was intended to fix a new minimum wage only, not
to grant across-the-board wage increases to all employees in Region VII. The intent of the Order is
indicated in its title, "Establishing New Minimum Wage Rates," as well as in its preamble: the purpose,
reason or justification for its enactment was "to adjust the minimum wage of workers to cushion the
impact brought about by the latest economic crisis not only in the Philippines but also in the Asian
region."

In Cagayan Sugar Milling Company v. Secretary of Labor and Employment 14 and Manila Mandarin
Employees Union v. NLRC,15 the Wage Orders that were the subjects of those cases were
substantially and similarly worded as Wage Order No. ROVII-06. In those cases, this Court construed
the Orders along the same line that it follows now: as providing for an increase in the prevailing
statutory minimum wage rates of workers. No across-the-board increases were granted.

Parenthetically, there are two methods of adjusting the minimum wage. In Employers Confederation
of the Phils. v. National Wages and Productivity Commission,16 these were identified as the "floor
wage" and the "salary-ceiling" methods. The "floor wage" method involves the fixing of a determinate
amount to be added to the prevailing statutory minimum wage rates. On the other hand, in the "salary-
ceiling" method, the wage adjustment was to be applied to employees receiving a certain denominated
salary ceiling. In other words, workers already being paid more than the existing minimum wage (up
to a certain amount stated in the Wage Order) are also to be given a wage increase.

A cursory reading of the subject Wage Order convinces us that the intention of the Regional Board of
Region VII was to prescribe a minimum or "floor wage"; not to determine a "salary ceiling." Had the
latter been its intention, the Board would have expressly provided accordingly. The text of Sections 2
and 3 of the Order states:

"Section 2. AMOUNT AND MANNER OF INCREASE. Upon the effectivity of this Order, the daily
minimum wage rates for all the workers and employees in the private sector shall be increased by Ten
Pesos (₱10.00) per day to be given in the following manner:

i. Five Pesos (₱5.00) per day effective April 1, 1998, and

ii. Additional Five Pesos (₱5.00) per day effective October 1, 1998.

"Section 3. UNIFORM WAGE RATE PER AREA CLASSIFICATION. To effect a uniform wage rate
pursuant to Section 1 hereof, the prescribed minimum wage after full implementation of this Order for
each area classification shall be as follows:

Area Classification Non-Agriculture Sector Agriculture Sector

Class A 165.00 150.00

Class B 155.00 140.00

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Class C 145.00 130.00

Class D 135.00 120.00"

These provisions show that the prescribed minimum wage after full implementation of the ₱10 increase
in the Wage Order is ₱165 for Class A private non-agriculture sectors. It would be reasonable and
logical, therefore, to infer that those employers already paying their employees more than ₱165 at the
time of the issuance of the Order are sufficiently complying with the Order.

Further supporting this construction of Wage Order No. ROVII-06 is the opinion of its drafter, the
RTWPB Region VII. In its letter-opinion17 answering respondent’s queries, the Board gave a similar
interpretation of the essence of the Wage Order: to fix a new floor wage or to upgrade the wages of
the employees receiving lower than the minimum wage set by the Order.

Notably, the RTWPB was interpreting only its own issuance, not a statutory provision. The best
authority to construe a rule or an issuance is its very source,18 in this case the RTWPB. Without a
doubt, the Board, like any other executive agency, has the authority to interpret its own rules and
issuances; any phrase contained in its interpretation becomes a part of those rules or issuances
themselves.19 Therefore, it was proper for the CA to consider the letter dated June 13, 2000, written
by the RTWPB to explain the scope and import of the latter’s own Order, as such interpretation is
deemed a part of the Order itself. That the letter was belatedly submitted to that Court is not fatal in
the determination of this particular case.

We cannot sustain petitioner, even if we assume that its contention is right and that the implementation
of any government-decreed increase under the CBA is absolute. The CBA is no ordinary contract, but
one impressed with public interest.20 Therefore, it is subject to special orders on wages,21 such as
those issued by the RTWPB. Capitol Wireless v. Bate22 is squarely in point. The union in that case
claimed that all government-mandated increases in salaries should be granted to all employees
across-the-board without any qualification whatsoever, pursuant to the CBA provision that any
government-mandated wage increases should be over and above the benefits granted in the CBA.
The Court denied such claim and held that the provisions of the Agreement should be read in harmony
with the Wage Orders. Applying that ruling to the present case, we hold that the implementation of a
wage increase for respondent’s employees should be controlled by the stipulations of Wage Order No.
ROVII-06.

At the risk of being repetitive, we stress that the employees are not entitled to the claimed salary
increase, simply because they are not within the coverage of the Wage Order, as they were already
receiving salaries greater than the minimum wage fixed by the Order. Concededly, there is an increase
necessarily resulting from raising the minimum wage level, but not across-the-board. Indeed, a "double
burden" cannot be imposed upon an employer except by clear provision of law.23 It would be unjust,
therefore, to interpret Wage Order No. ROVII-06 to mean that respondent should grant an across-the-
board increase. Such interpretation of the Order is not sustained by its text.24

In the resolution of labor cases, this Court has always been guided by the State policy enshrined in
the Constitution: social justice25 and the protection of the working class.26 Social justice does not,
however, mandate that every dispute should be automatically decided in favor of labor. In every case,
justice is to be granted to the deserving and dispensed in the light of the established facts and the
applicable law and doctrine.27

WHEREFORE, the Petition is DENIED, and the assailed Decision and

Resolution AFFIRMED. Costs against petitioner.

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SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

WE CONCUR:

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES CANCIO C. GARCIA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairman’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

HILARIO G. DAVIDE, JR.

Chief Justice

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Abduljuahid R. Pigcaulan vs. Security and Credit Nvestigation, Inc. and/or Rene Amby
Reyes; GR No. 173648; January 16, 2012 (SIL)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 173648 January 16, 2012

ABDULJUAHID R. PIGCAULAN,* Petitioner,

vs.
SECURITY and CREDIT NVESTIGATION, INC. and/or RENE AMBY REYES, Respondents.

DECISION

DEL CASTILLO, J.:

It is not for an employee to prove non-payment of benefits to which he is entitled by law. Rather, it is
on the employer that the burden of proving payment of these claims rests.

This Petition for Review on Certiorari1 assails the February 24, 2006 Decision2 of the Court of Appeals
(CA) in CA-G.R. SP No. 85515, which granted the petition for certiorari filed therewith, set aside the
March 23, 20043 and June 14, 20044 Resolutions of the National Labor Relations Commission (NLRC),
and dismissed the complaint filed by Oliver R. Canoy (Canoy) and petitioner Abduljuahid R. Pigcaulan
(Pigcaulan) against respondent Security and Credit Investigation, Inc. (SCII) and its General Manager,
respondent Rene Amby Reyes. Likewise assailed is the June 28, 2006 Resolution5 denying Canoy’s
and Pigcaulan’s Motion for Reconsideration.6

Factual Antecedents

Canoy and Pigcaulan were both employed by SCII as security guards and were assigned to SCII’s
different clients. Subsequently, however, Canoy and Pigcaulan filed with the Labor Arbiter separate
complaints7 for underpayment of salaries and non-payment of overtime, holiday, rest day, service
incentive leave and 13th month pays. These complaints were later on consolidated as they involved
the same causes of action.

Canoy and Pigcaulan, in support of their claim, submitted their respective daily time records reflecting
the number of hours served and their wages for the same. They likewise presented itemized lists of
their claims for the corresponding periods served.

Respondents, however, maintained that Canoy and Pigcaulan were paid their just salaries and other
benefits under the law; that the salaries they received were above the statutory minimum wage and
the rates provided by the Philippine Association of Detective and Protective Agency Operators
(PADPAO) for security guards; that their holiday pay were already included in the computation of their
monthly salaries; that they were paid additional premium of 30% in addition to their basic salary
whenever they were required to work on Sundays and 200% of their salary for work done on holidays;
and, that Canoy and Pigcaulan were paid the corresponding 13th month pay for the years 1998 and

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1999. In support thereof, copies of payroll listings8 and lists of employees who received their 13th
month pay for the periods December 1997 to November 1998 and December 1998 to November
19999 were presented. In addition, respondents contended that Canoy’s and Pigcaulan’s monetary
claims should only be limited to the past three years of employment pursuant to the rule on prescription
of claims.

Ruling of the Labor Arbiter

Giving credence to the itemized computations and representative daily time records submitted by
Canoy and Pigcaulan, Labor Arbiter Manuel P. Asuncion awarded them their monetary claims in his
Decision10 dated June 6, 2002. The Labor Arbiter held that the payroll listings presented by the
respondents did not prove that Canoy and Pigcaulan were duly paid as same were not signed by the
latter or by any SCII officer. The 13th month payroll was, however, acknowledged as sufficient proof
of payment, for it bears Canoy’s and Pigcaulan’s signatures. Thus, without indicating any detailed
computation of the judgment award, the Labor Arbiter ordered the payment of overtime pay, holiday
pay, service incentive leave pay and proportionate 13th month pay for the year 2000 in favor of Canoy
and Pigcaulan, viz:

WHEREFORE, the respondents are hereby ordered to pay the complainants: 1) their salary
differentials in the amount of ₱166,849.60 for Oliver Canoy and ₱121,765.44 for Abduljuahid
Pigcaulan; 2) the sum of ₱3,075.20 for Canoy and ₱2,449.71 for Pigcaulan for service incentive leave
pay and; [3]) the sum of ₱1,481.85 for Canoy and ₱1,065.35 for Pigcaulan as proportionate 13th
month pay for the year 2000. The rest of the claims are dismissed for lack of sufficient basis to make
an award.

SO ORDERED.11

Ruling of the National Labor Relations Commission

Respondents appealed to the NLRC. They alleged that there was no basis

for the awards made because aside from the self-serving itemized computations, no representative
daily time record was presented by Canoy and Pigcaulan. On the contrary, respondents asserted that
the payroll listings they submitted should have been given more probative value. To strengthen their
cause, they attached to their Memorandum on Appeal payrolls12 bearing the individual signatures of
Canoy and Pigcaulan to show that the latter have received their salaries, as well as copies of
transmittal letters13 to the bank to show that the salaries reflected in the payrolls were directly deposited
to the ATM accounts of SCII’s employees.

The NLRC, however, in a Resolution14 dated March 23, 2004, dismissed the appeal and held that the
evidence show underpayment of salaries as well as non-payment of service incentive leave benefit.
Accordingly, the Labor Arbiter’s Decision was sustained. The motion for reconsideration thereto was
likewise dismissed by the NLRC in a Resolution15 dated June 14, 2004.

Ruling of the Court of Appeals

In respondents’ petition for certiorari with prayer for the issuance of a temporary restraining order and
preliminary injunction16 before the CA, they attributed grave abuse of discretion on the part of the NLRC
in finding that Canoy and Pigcaulan are entitled to salary differentials, service incentive leave pay and
proportionate 13th month pay and in arriving at amounts without providing sufficient bases therefor.

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The CA, in its Decision17 dated February 24, 2006, set aside the rulings of

both the Labor Arbiter and the NLRC after noting that there were no factual and legal bases mentioned
in the questioned rulings to support the conclusions made. Consequently, it dismissed all the monetary
claims of Canoy and Pigcaulan on the following rationale:

First. The Labor Arbiter disregarded the NLRC rule that, in cases involving money awards and at all
events, as far as practicable, the decision shall embody the detailed and full amount awarded.

Second. The Labor Arbiter found that the payrolls submitted by SCII have no probative value for being
unsigned by Canoy, when, in fact, said payrolls, particularly the payrolls from 1998 to 1999 indicate
the individual signatures of Canoy.

Third. The Labor Arbiter did not state in his decision the substance of the evidence adduced by
Pigcaulan and Canoy as well as the laws or jurisprudence that would show that the two are indeed
entitled to the salary differential and incentive leave pays.

Fourth. The Labor Arbiter held Reyes liable together with SCII for the payment of the claimed salaries
and benefits despite the absence of proof that Reyes deliberately or maliciously designed to evade
SCII’s alleged financial obligation; hence the Labor Arbiter ignored that SCII has a corporate
personality separate and distinct from Reyes. To justify solidary liability, there must be an allegation
and showing that the officers of the corporation deliberately or maliciously designed to evade the
financial obligation of the corporation.18

Canoy and Pigcaulan filed a Motion for Reconsideration, but same was denied by the CA in a
Resolution19 dated June 28, 2006.

Hence, the present Petition for Review on Certiorari.

Issues

The petition ascribes upon the CA the following errors:

I. The Honorable Court of Appeals erred when it dismissed the complaint on mere alleged
failure of the Labor Arbiter and the NLRC to observe the prescribed form of decision, instead
of remanding the case for reformation of the decision to include the desired detailed
computation.

II. The Honorable Court of Appeals erred when it [made] complainants suffer the
consequences of the alleged non-observance by the Labor Arbiter and NLRC of the prescribed
forms of decisions considering that they have complied with all needful acts required to support
their claims.

III. The Honorable Court of Appeals erred when it dismissed the complaint allegedly due to
absence of legal and factual [bases] despite attendance of substantial evidence in the
records.20

It is well to note that while the caption of the petition reflects both the names of Canoy and Pigcaulan
as petitioners, it appears from its body that it is being filed solely by Pigcaulan. In fact, the Verification
and Certification of Non-Forum Shopping was executed by Pigcaulan alone.

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In his Petition, Pigcaulan submits that the Labor Arbiter and the NLRC are not strictly bound by the
rules. And even so, the rules do not mandate that a detailed computation of how the amount awarded
was arrived at should be embodied in the decision. Instead, a statement of the nature or a description
of the amount awarded and the specific figure of the same will suffice. Besides, his and Canoy’s claims
were supported by substantial evidence in the form of the handwritten detailed computations which
the Labor Arbiter termed as "representative daily time records," showing that they were not properly
compensated for work rendered. Thus, the CA should have remanded the case instead of outrightly
dismissing it.

In their Comment,21 respondents point out that since it was only Pigcaulan who filed the petition, the
CA Decision has already become final and binding upon Canoy. As to Pigcaulan’s arguments,
respondents submit that they were able to present sufficient evidence to prove payment of just salaries
and benefits, which bits of evidence were unfortunately ignored by the Labor Arbiter and the NLRC.
Fittingly, the CA reconsidered these pieces of evidence and properly appreciated them. Hence, it was
correct in dismissing the claims for failure of Canoy and Pigcaulan to discharge their burden to
disprove payment.

Pigcaulan, this time joined by Canoy, asserts in his Reply22 that his filing of the present petition
redounds likewise to Canoy’s benefit since their complaints were consolidated below. As such, they
maintain that any kind of disposition made in favor or against either of them would inevitably apply to
the other. Hence, the institution of the petition solely by Pigcaulan does not render the assailed
Decision final as to Canoy. Nonetheless, in said reply they appended Canoy’s affidavit23 where he
verified under oath the contents and allegations of the petition filed by Pigcaulan and also attested to
the authenticity of its annexes. Canoy, however, failed to certify that he had not filed any action or
claim in another court or tribunal involving the same issues. He likewise explains in said affidavit that
his absence during the preparation and filing of the petition was caused by severe financial distress
and his failure to inform anyone of his whereabouts.

Our Ruling

The assailed CA Decision is considered final as to Canoy.

We have examined the petition and find that same was filed by Pigcaulan solely on his own behalf.
This is very clear from the petition’s prefatory which is phrased as follows:

COMES NOW Petitioner Abduljuahid R. Pigcaulan, by counsel, unto this Honorable Court x x x.
(Emphasis supplied.)

Also, under the heading "Parties", only Pigcaulan is mentioned as petitioner and consistent with this,
the body of the petition refers only to a "petitioner" and never in its plural form "petitioners". Aside from
the fact that the Verification and Certification of Non-Forum Shopping attached to the petition was
executed by Pigcaulan alone, it was plainly and particularly indicated under the name of the lawyer
who prepared the same, Atty. Josefel P. Grageda, that he is the "Counsel for Petitioner Adbuljuahid
Pigcaulan" only. In view of these, there is therefore, no doubt, that the petition was brought only on
behalf of Pigcaulan. Since no appeal from the CA Decision was brought by Canoy, same has already
become final and executory as to him.

Canoy cannot now simply incorporate in his affidavit a verification of the contents and allegations of
the petition as he is not one of the petitioners therein. Suffice it to state that it would have been different
had the said petition been filed in behalf of both Canoy and Pigcaulan. In such a case, subsequent
submission of a verification may be allowed as non-compliance therewith or a defect therein does not
necessarily render the pleading, or the petition as in this case, fatally defective.24 "The court may order

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its submission or correction, or act on the pleading if the attending circumstances are such that strict
compliance with the Rule may be dispensed with in order that the ends of justice may be served
thereby. Further, a verification is deemed substantially complied with when one who has ample
knowledge to swear to the truth of the allegations in the complaint or petition signs the verification,
and when matters alleged in the petition have been made in good faith or are true and
correct."25 However, even if it were so, we note that Canoy still failed to submit or at least incorporate
in his affidavit a certificate of non-forum shopping.

The filing of a certificate of non-forum shopping is mandatory so much so that non-compliance could
only be tolerated by special circumstances and compelling reasons.26 This Court has held that when
there are several petitioners, all of them must execute and sign the certification against forum
shopping; otherwise, those who did not sign will be dropped as parties to the case.27 True, we held that
in some cases, execution by only one of the petitioners on behalf of the other petitioners constitutes
substantial compliance with the rule on the filing of a certificate of non-forum shopping on the ground
of common interest or common cause of action or defense.28 We, however, find that common interest
is not present in the instant petition. To recall, Canoy’s and Pigcaulan’s complaints were consolidated
because they both sought the same reliefs against the same respondents. This does not, however,
mean that they share a common interest or defense. The evidence required to substantiate their claims
may not be the same. A particular evidence which could sustain Canoy’s action may not effectively
serve as sufficient to support Pigcaulan’s claim.

Besides, assuming that the petition is also filed on his behalf, Canoy failed to show any reasonable
cause for his failure to join Pigcaulan to personally sign the Certification of Non-Forum Shopping. It is
his duty, as a litigant, to be prudent in pursuing his claims against SCII, especially so, if he was indeed
suffering from financial distress. However, Canoy failed to advance any justifiable reason why he did
not inform anyone of his whereabouts when he knows that he has a pending case against his former
employer. Sadly, his lack of prudence and diligence cannot merit the court’s consideration or
sympathy. It must be emphasized at this point that procedural rules should not be ignored simply
because their non-observance may result in prejudice to a party’s substantial rights. The Rules of
Court should be followed except only for the most persuasive of reasons.29

Having declared the present petition as solely filed by Pigcaulan, this Court shall consider the
subsequent pleadings, although apparently filed under his and Canoy’s name, as solely filed by the
former.

There was no substantial evidence to support the grant of overtime pay.

The Labor Arbiter ordered reimbursement of overtime pay, holiday pay, service incentive leave pay
and 13th month pay for the year 2000 in favor of Canoy and Pigcaulan. The Labor Arbiter relied heavily
on the itemized computations they submitted which he considered as representative daily time records
to substantiate the award of salary differentials. The NLRC then sustained the award on the ground
that there was substantial evidence of underpayment of salaries and benefits.

We find that both the Labor Arbiter and the NLRC erred in this regard. The handwritten itemized
computations are self-serving, unreliable and unsubstantial evidence to sustain the grant of salary
differentials, particularly overtime pay. Unsigned and unauthenticated as they are, there is no way of
verifying the truth of the handwritten entries stated therein. Written only in pieces of paper and solely
prepared by Canoy and Pigcaulan, these representative daily time records, as termed by the Labor
Arbiter, can hardly be considered as competent evidence to be used as basis to prove that the two
were underpaid of their salaries. We find nothing in the records which could substantially support
Pigcaulan’s contention that he had rendered service beyond eight hours to entitle him to overtime pay
and during Sundays to entitle him to restday pay. Hence, in the absence of any concrete proof that

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additional service beyond the normal working hours and days had indeed been rendered, we cannot
affirm the grant of overtime pay to Pigcaulan.

Pigcaulan is entitled to holiday pay, service incentive leave pay and proportionate 13th month pay for
year 2000.

However, with respect to the award for holiday pay, service incentive leave

pay and 13th month pay, we affirm and rule that Pigcaulan is entitled to these benefits.

Article 94 of the Labor Code provides that:

ART. 94. RIGHT TO HOLIDAY PAY. – (a) Every worker shall be paid his regular daily wage during
regular holidays, except in retail and service establishments regularly employing less than ten (10)
workers;

xxxx

While Article 95 of the Labor Code provides:

ART. 95. RIGHT TO SERVICE INCENTIVE LEAVE. – (a) Every employee who has rendered at least
one year of service shall be entitled to a yearly service incentive of five days with pay.

xxxx

Under the Labor Code, Pigcaulan is entitled to his regular rate on holidays even if he does not
work.30 Likewise, express provision of the law entitles him to service incentive leave benefit for he
rendered service for more than a year already. Furthermore, under Presidential Decree No. 851,31 he
should be paid his 13th month pay. As employer, SCII has the burden of proving that it has paid these
benefits to its employees.32

SCII presented payroll listings and transmittal letters to the bank to show that Canoy and Pigcaulan
received their salaries as well as benefits which it claimed are already integrated in the employees’
monthly salaries. However, the documents presented do not prove SCII’s allegation. SCII failed to
show any other concrete proof by means of records, pertinent files or similar documents reflecting that
the specific claims have been paid. With respect to 13th month pay, SCII presented proof that this
benefit was paid but only for the years 1998 and 1999. To repeat, the burden of proving payment of
these monetary claims rests on SCII, being the employer. It is a rule that one who pleads payment
has the burden of proving it. "Even when the plaintiff alleges non-payment, still the general rule is that
the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-
payment."33 Since SCII failed to provide convincing proof that it has already settled the claims,
Pigcaulan should be paid his holiday pay, service incentive leave benefits and proportionate 13th
month pay for the year 2000.

The CA erred in dismissing the claims instead of remanding the case to the Labor Arbiter for a detailed
computation of the judgment award.

Indeed, the Labor Arbiter failed to provide sufficient basis for the monetary awards granted. Such lawphi 1

failure, however, should not result in prejudice to the substantial rights of the party. While we disallow
1avvphi 1

the grant of overtime pay and restday pay in favor of Pigcaulan, he is nevertheless entitled, as a matter

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of right, to his holiday pay, service incentive leave pay and 13th month pay for year 2000. Hence, the
CA is not correct in dismissing Pigcaulan’s claims in its entirety.

Consistent with the rule that all money claims arising from an employer-employee relationship shall
be filed within three years from the time the cause of action accrued,34 Pigcaulan can only demand the
amounts due him for the period within three years preceding the filing of the complaint in 2000.
Furthermore, since the records are insufficient to use as bases to properly compute Pigcaulan’s
claims, the case should be remanded to the Labor Arbiter for a detailed computation of the monetary
benefits due to him.

WHEREFORE, the petition is GRANTED. The Decision dated February 24, 2006 and Resolution
dated June 28, 2006 of the Court of Appeals in CA-G.R. SP No. 85515 are REVERSED and SET
ASIDE. Petitioner Abduljuahid R. Pigcaulan is hereby declared entitled to holiday pay and service
incentive leave pay for the years 1997-2000 and proportionate 13th month pay for the year 2000.

The case is REMANDED to the Labor Arbiter for further proceedings to determine the exact amount
and to make a detailed computation of the monetary benefits due Abduljuahid R. Pigcaulan which
Security and Credit Investigation Inc. should pay without delay.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO ROBERTO A. ABAD**

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

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Niña Jewelry Manufacturing of Metal Arts, Inc. (Otherwise known as Niña

Manufacturing and Metal Arts, Inc.) and Elisea B. Abella Vs. Madeline C. Montecillo and
Liza M. Trinidad; November 28, 2011; GR No. 188169 (Illegal deductions)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 188169 November 28, 2011

NIÑA JEWELRY MANUFACTURING OF METAL ARTS, INC. (otherwise known as NIÑA

MANUFACTURING AND METAL ARTS, INC.) and ELISEA B. ABELLA, Petitioners,
vs.
MADELINE C. MONTECILLO and LIZA M. TRINIDAD, Respondents.

DECISION

REYES, J.:

The Case

Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assailing the
January 9, 2009 Decision2 and the May 26, 2009 Resolution3 of the Court of Appeals (CA) in CA-G.R.
SP No. 01755. The dispositive portion of the assailed Decision reads:

WHEREFORE, the Decision dated August 31, 2005 and Resolution dated October 28, 2005 of the
National Labor Relations Commission (NLRC), Fourth Division, Cebu City, in NLRC Case No. V-
000363-2005 are REVERSED and SET ASIDE, and a new one rendered ordering Niña Jewelry
Manufacturing:

(1) to reinstate petitioners to their respective positions as goldsmiths without loss of seniority
rights and other privileges; and

(2) to pay petitioners their full backwages inclusive of allowances and other benefits or their
monetary equivalent computed from the time their compensation was withheld up to their
actual reinstatement.

The case is REMANDED to the Labor Arbiter for the RECOMPUTATION of the total monetary award
due to petitioners in accord with this decision. The Labor Arbiter is ORDERED to submit his
compliance within thirty (30) days from notice of this decision, with copies furnished to the
parties.4 (citations omitted)

The assailed Resolution denied the petitioners' Motion for Reconsideration.5

The Factual Antecedents

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Madeline Montecillo (Madeline) and Liza Trinidad (Liza), hereinafter referred to collectively as the
respondents, were first employed as goldsmiths by the petitioner Niña Jewelry Manufacturing of Metal
Arts, Inc. (Niña Jewelry) in 1996 and 1994, respectively. Madeline's weekly rate was ₱1,500.00 while
Liza's was ₱2,500.00. Petitioner Elisea Abella (Elisea) is Niña Jewelry's president and general
manager.

There were incidents of theft involving goldsmiths in Niña Jewelry's employ.

On August 13, 2004, Niña Jewelry imposed a policy for goldsmiths requiring them to post cash bonds
or deposits in varying amounts but in no case exceeding 15% of the latter's salaries per week. The
deposits were intended to answer for any loss or damage which Niña Jewelry may sustain by reason
of the goldsmiths' fault or negligence in handling the gold entrusted to them. The deposits shall be
returned upon completion of the goldsmiths' work and after an accounting of the gold received.

Niña Jewelry alleged that the goldsmiths were given the option not to post deposits, but to sign
authorizations allowing the former to deduct from the latter's salaries amounts not exceeding 15% of
their take home pay should it be found that they lost the gold entrusted to them. The respondents
claimed otherwise insisting that Niña Jewelry left the goldsmiths with no option but to post the deposits.
The respondents alleged that they were constructively dismissed by Niña Jewelry as their continued
employments were made dependent on their readiness to post the required deposits.

Niña Jewelry averred that on August 14, 2004, the respondents no longer reported for work and
signified their defiance against the new policy which at that point had not even been implemented yet.

On September 7, 2004, the respondents filed against Niña Jewelry complaints6 for illegal dismissal
and for the award of separation pay.

On September 20, 2004, the respondents filed their amended complaints7 which excluded their earlier
prayer for separation pay but sought reinstatement and payment of backwages, attorney's fees and
13th month pay.

Labor Arbiter Jose Gutierrez (LA Gutierrez) dismissed the respondents' complaints for lack of merit
but ordered Niña Jewelry to pay Madeline the sum of ₱3,750.00, and Liza, ₱6,250.00, representing
their proportionate entitlements to 13th month pay for the year 2004. LA Gutierrez ratiocinated that:

Their [respondents] claim is self-serving. As evidence to (sic) their claims that they were made to sign
blank trust receipts, complainants presented Annexes 'A'[,] 'B' and 'C'. Our examination, however,
shows that they are not blank trust receipts but rather they are filled up trust receipts.

The undisputed facts show that complainants were piece workers of the respondent who are engaged
in the processing of gold into various jewelry pieces. Because of the nature of its business, respondent
was plagued with too many incidents of theft from its piece workers. x x x This deposit [not exceeding
15% of the salary for the week of the piece worker] is released back upon completion of work and after
accounting of the gold received by him or her. There is an alternative, however, the piece worker may
opt not to give a deposit, instead sign an authorization to allow the respondent to deduct from the
salary an amount not to exceed 15% of his take home pay, should it be found out that he lost the gold
[entrusted] to him or her due to his or her fault or negligence. The complainants did not like to post a
deposit, or sign an authorization. They instead told their fellow goldsmiths that they will bring the matter
to the Labor Commission. Complainants did not anymore report for work and did not anymore perform
their tasks. The fact of complainants not being dismissed from employment was duly attested to by
his co-workers who executed their Joint Affidavit under oath, Annex '4'.

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As further evidence to prove that they were dismissed, complainants presented the minutes of [the]
Sept. 7, 2004 conference.

We examined the statements therein, we find that there is no admission on the part of the respondents
that they terminate[d] the complainants from employment. Respondents only inform[ed] the
complainants to put up the appropriate cash bond before they could be allowed to return back to work
which they previously refused to perform, as a sign of their protest to the requirement to post cash
bond or to sign an authorization.

xxxx

x x x It is clearly shown that complainants were paid with their 13th month pay for the year 2001, 2002
and 2003. However, for the year 2004, considering that complainants have worked until the month of
August, we rule to grant them the proportionate 13th month pay as there is no showing that they were
already paid. The other money claims are denied for lack of merit. x x x.8

The respondents filed an appeal before the NLRC which affirmed LA Gutierrez's dismissal of the
amended complaints but deleted the award of 13th month pay based on findings that the former had
contracted unpaid individual loans from Niña Jewelry. The NLRC found that:

x x x [I]t was complainants who refused to work with the respondents when they were required to post
cash bond or sign an authorization for deduction for the gold material they received and to be
manufactured into various jewelries. x x x We find it logically sound for the latter [Niña Jewelry] to
innovate certain policy or rule to protect its own business. To deprive them of such prerogative
[management prerogative] will be likened to 'killing the goose that lays the golden eggs.'

x x x [C]omplainants failed to prove their affirmative allegations in the respective complaints that they
were indeed dismissed. On the contrary, respondents have convincingly shown that if (sic) were
complainants who voluntarily abandoned from (sic) their work by refusing to abide with the newly
adopted company policy of putting up a cash bond or signing an authorization for deduction for the
gold materials entrusted to them in case of loss or pilferage.

x x x [B]oth complainants are still indebted with (sic) the respondents in the amounts of ₱5,118.63 in
the case of Madeline Montecillo and ₱7,963.11 in the case of Liza Montecillo. Such being the case[,]
Madeline Montecillo has still on account payable of ₱1,368.63 while Liza Montecillo is still indebted of
₱1,713.71. This principle of offsetting of credit should be allowed to preclude unjust enrichment at the
expense of the respondents.9

The respondents filed a Petition for Certiorari10 before the CA ascribing patent errors in the
appreciation of facts and application of jurisprudence on the part of the NLRC when it ruled that what
occurred was not a case of illegal dismissal but of abandonment of work.

On January 9, 2009, the CA rendered the now assailed Decision11 reversing the findings of the LA and
the NLRC. The CA ruled:

According to [the] private respondents, they required a deposit or cash bond from [the] petitioners in
order to secure their interest against gold thefts committed by some of their employees. If the
employee fails to make the required deposit, he will not be given gold to work on. Further, [the] private
respondents admitted during the conciliation proceedings before Executive Labor Arbiter Violeta Ortiz-
Bantug that [the] petitioners would only be allowed back to work after they had posted the
proportionate cash bond.

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The Labor Code of the Philippines provides:

ART. 113. Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make
any deduction from the wages of his employees, except:

(a) In cases where the worker is insured with his consent by the employer, and the deduction
is to recompense the employer for the amount paid by him as premium on the insurance;

(b) For union dues, in cases where the right of the worker or his union to check-off has been
recognized by the employer or authorized in writing by the individual worker concerned; and

(c) In cases where the employer is authorized by law or regulations issued by the Secretary of
Labor.

Article 114. Deposits for loss or damage. – No employer shall require his worker to make deposits
from which deductions shall be made for the reimbursement of loss of or damage to tools, materials,
or equipment supplied by the employer, except when the employer is engaged in such trades,
occupations or business where the practice of making deposits is a recognized one, or is necessary
or desirable as determined by the Secretary of Labor in appropriate rules and regulations.

Applying these provisions to the case at bar, before [the] petitioners may be required to deposit cash
or agree to a salary deduction proportionate to the value of gold delivered to them, the employer must
comply with the relevant conditions imposed by law. Hence, the latter must prove that there is an
existing law or regulation authorizing it to impose such burden on its employees. And, in case of
deposit, that it is engaged in a trade, occupation or business where such requirement is a recognized
practice. Niña Jewelry obviously failed in this respect. Surely, mere invocation of management
1âwphi 1

prerogative cannot exempt it from compliance with the strict requirements of law. Accordingly, [w]e
hold that Niña Jewelry's unilateral imposition of cash deposit or salary deduction on [the] petitioners is
illegal. For that matter, when Ni[ñ]a Jewelry refused to give assignment to [the] petitioners or to admit
them back to work because they failed to give cash deposit or agree to a salary deduction, it was
deemed to have constructively dismissed [the] petitioners. Obviously, such deposit or salary deduction
was imposed as a condition for [the] petitioners' continuing employment. Non-compliance indubitably
meant termination of [the] petitioners' employment. Suldao vs. Cimech System Construction,
Inc.12 enunciated:

Constructive dismissal or a constructive discharge has been defined as quitting because continued
employment is rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank
and a diminution in pay. There is constructive dismissal when the continued employment is rendered
impossible so as to foreclose any choice on the employee's part except to resign from such
employment.

The fact that [the] petitioners lost no time in filing the complaint for illegal dismissal lucidly negates
[the] private respondents' claim that the former had abandoned their work. A contrary notion would not
only be illogical but also absurd.13 Indeed, prompt filing of a case for illegal dismissal, on one hand, is
anathema to the concept of abandonment, on the other.

Finally, under Article 279 of the Labor Code, an illegally dismissed employee is entitled to
reinstatement without loss of seniority rights and other privileges; 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.14 x x x.

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As for damages, it is a rule that moral damages may be recovered where the dismissal of the employee
was attended by bad faith or fraud or constituted an act oppressive to labor, or was done in a manner
contrary to morals, good customs or public policy. x x x [w]e find that private respondents did not act
with oppression, bad faith or fraud. They imposed a cash bond or deposit on herein petitioners in the
honest belief that it was the best way to protect their interest against gold theft in the company. x x
x.15 (some citations omitted)

The Issues

The following are to be resolved in the instant Petition for Review:16

I.

WHETHER OR NOT THE COURT OF APPEALS GROSSLY ERRED IN GIVING DUE

COURSE TO THE PETITION [under Rule 65 of the Rules of Court], IN EFFECT, FINDING
GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OR EXCESS OF JURISDICTION
ON THE PART OF THE NLRC, DESPITE THE FACT THAT THE SUBJECT DECISION AND
RESOLUTION THEREIN ARE IN PERFECT ACCORD WITH THE EVIDENCE ON RECORD
AND APPLICABLE LAWS.

II.

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

THERE WAS CONSTRUCTIVE DISMISSAL IN THE PRESENT CASE AND ORDERING
RESPONDENTS' REINSTATEMENT AS WELL AS THE PAYMENT OF THEIR
BACKWAGES AND OTHER MONETARY BENEFITS WITHOUT FACTUAL OR LEGAL
BASES.17

The petitioners now argue that the CA should have outrightly dismissed the petition filed before it as
the respondents had resorted to an erroneous mode of appeal. The arguments raised in the petition
were the same ones already passed upon by the LA and the NLRC. What the respondents sought
was the CA's re-evaluation of the facts and evidence. The petition was thus based on purported errors
of judgment which are beyond the province of a petition for certiorari.

The petitioners likewise insist that the respondents abandoned their work without due notice and to
the prejudice of the former. The respondents' co-workers attested to the foregoing circumstance.18 The
respondents are goldsmiths whose skills are indispensable to a jewelry manufacturing business, thus,
it is not in accord with both logic and experience for the petitioners to just fire them only to train new
workers. Moreover, in the complaints and amended complaints, the respondents did not claim for
reinstatement, hence, implying their admission that they were not terminated.

Further, under Articles 114 and 11519 of the Labor Code, an employer may require a worker to post a
deposit even before a loss or damage has occurred, provided that deductions from the deposit can be
made only upon proof that the worker is liable for the loss or damage. In case no loss or damage is
incurred, the deposit shall be returned to the worker after the conduct of an accounting which was
what happened in the case at bar. This is a valid exercise of management prerogative the scope of
which includes the setting of policies relative to working methods, procedures to be followed and
working regulations.20

The petitioners stress that they did not transgress the respondents' rights. The respondents, who
expressed to their co-workers their lack of fear to have their employment severed, are motivated by
their greed to extract money from the petitioners.

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The petitioners conclude that the CA should have accorded respect to the findings of the LA and the
NLRC especially since they were not arrived at arbitrarily or in disregard of the evidence on record.

In the respondents' Comment,21 they reiterate the arguments they had presented in the proceedings
below. The respondents emphasize that when they pleaded for reinstatement during the conference
with the petitioners on September 7, 2004, the latter openly admitted without reservation that the
former will only be allowed to return to work if they will post the required cash bond.

Further, the respondents claim that there was no plausible reason for them to abandon their
employment considering the length of their service and the fact that they were being paid rates above
the minimum wage. Citing Hantex Trading Co. Inc. v. Court of Appeals,22 the respondents argue that
no employee in his right mind would recklessly abandon his job to join the ranks of the unemployed
and choose to unduly expose his family to hunger and untold hardship.

Besides, in Anflo Management & Investment Corp. v. Rodolfo Bolanio,23 this Court had the occasion
to state that the filing of a complaint for illegal dismissal is inconsistent with a charge of abandonment,
for an employee who takes steps to protest his lay off cannot by any logic be said to have abandoned
his work.

The respondents also claim that the petitioners misrepresented to this Court that the former did not
pray for reinstatement as the dorsal portions of the amended complaints indicate otherwise.

Moreover, the petitioners failed to prove their authority granted by either the law, or regulations issued
by the Secretary of Labor, allowing them to require their workers to post deposits. The petitioners also
failed to establish that Niña Jewelry is engaged in a trade, occupation or business where the practice
of making deposits is a recognized one or is considered as necessary or desirable by the Secretary
of Labor.

Citing Sections 12,24 1325 and 14,26 Book III, Rule VIII of the Omnibus Rules Implementing the Labor
Code (Omnibus Rules), the respondents posit that salary deductions made prior to the occurrence of
loss or damage are illegal and constitute as undue interferences in the workers' disposal of their
wages. Further, the workers must first be given the opportunity to show cause why deductions should
not be made. If to be made, deductions should be fair, reasonable and should not exceed the actual
loss or damage. In the case at bar, the respondents were required to post cash bonds even when
there is no proof yet of their fault or negligence.

In the petitioners' Reply,27 they averred that the day after Niña Jewelry required from its employees
the posting of deposits and even before the policy was actually implemented, the respondents
promptly stopped reporting for work despite Elisea's attempt to get in touch with them. The petitioners
convened the employees to discuss the propriety of imposing the new policy and to afford them ample
opportunity to air their concerns. The respondents' acts contravene Article 19 of the New Civil Code
(NCC) which requires every person to act with justice, give everyone his due and observe honesty
and good faith.

Further, it is clear in the Minutes of the Conciliation Proceedings28 before the LA that the respondents
were not willing to be reinstated and preferred instead the payment of separation pay. Hence, no
prayer for reinstatement was indicated in the original complaints filed by them. As an afterthought,
however, they amended their complaints to reflect that they were likewise seeking for reinstatement.

The petitioners also point out that the doctrines in Hantex29 and Anflo Management30 cited by the
respondents find no application in the case at bar. In Hantex, the employer presented mere cash
vouchers to prove abandonment by the employee. In the case before us, sufficient evidence show that

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the respondents abandoned their work. In Anflo Management, the employer expressly uttered words
terminating the employee who in turn filed a complaint the day right after the incident. In the case now
under our consideration, the respondents merely made a bare claim of illegal dismissal. Rightly so
in Abad v. Roselle Cinema,31 it was ruled that an employer's claim of not having terminated an
employee, when supported by substantial evidence, should not be outrightly overcome by the
argument that an employee would not have filed a complaint for illegal dismissal if he were not really
dismissed. The circumstances surrounding the separation from employment should be taken into
account.

Under Article 114 of the Labor Code, the Secretary of Labor is conferred the authority to promulgate
rules determining the circumstances when the making of deposits is deemed recognized, necessary
or desirable. However, Section 14,32 Book III, Rule VIII of the Omnibus Rules does not define those
circumstances. What is defined is the circumstances when deductions can be made. It can thus be
inferred that the intention is for the courts to determine on a case to case basis what should be
considered as recognized, necessary or desirable especially in the light of the existence of myriads of
businesses which are practically impossible to enumerate in modern society. The petitioners hence
argue that the validity of requiring cash deposits should be scrutinized with due consideration of
its reasonableness and necessity. Further, Article 1306 of the NCC allows contracting parties to
establish stipulations, clauses, terms and conditions which they may deem convenient provided they
do not contravene the law, morals, good customs, public order or public policy. In the case at bar, the
policy adopted by the petitioners was neither unreasonable nor oppressive. It was intended to benefit
all the contracting parties.

Lastly, while the respondents raise the issue of the illegality of deductions, the petitioners stress that
it is academic because no deduction was actually made yet.

The Court's Ruling

The instant petition is partially meritorious.

The petitioners raise the procedural issue of whether or not the CA validly gave due course to the
petition for certiorari filed before it under Rule 65 of the Rules of Court. As the substantive issue of
whether or not the petitioners constructively dismissed the respondents is closely-intertwined with the
procedural question raised, they will be resolved jointly.

Yolanda Mercado, et al. v. AMA Computer College-Parañaque City, Inc.33 is instructive as to the nature
of a petition for review on certiorari under Rule 45, and a petition for certiorari under Rule 65, viz:

x x x [R]ule 45 limits us to the review of questions of law raised against the assailed CA decision. In
ruling for legal correctness, we have to view the CA decision in the same context that the petition for
certiorari it ruled upon was presented to it; we have to examine the CA decision from the prism of
whether it correctly determined the presence or absence of grave abuse of discretion in the NLRC
decision before it, not on the basis of whether the NLRC decision on the merits of the case was correct.
In other words, we have to be keenly aware that the CA undertook a Rule 65 review, not a review on
appeal, of the NLRC decision challenged before it. This is the approach that should be basic in a Rule
45 review of a CA ruling in a labor case. In question form, the question to ask is: Did the CA correctly
determine whether the NLRC committed grave abuse of discretion in ruling on the case?34

It is thus settled that this Court is bound by the CA's factual findings. The rule, however, admits of
exceptions, among which is when the CA's findings are contrary to those of the trial court or
administrative body exercising quasi-judicial functions from which the action originated.35 The case
before us falls under the aforementioned exception.

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The petitioners argue that the respondents resorted to an erroneous mode of appeal as the issues
raised in the petition lodged before the CA essentially sought a re-evaluation of facts and evidence,
hence, based on purported errors of judgment which are outside the ambit of actions which can be
aptly filed under Rule 65.

We agree.

Again in Mercado,36 we ruled that:

x x x [I]n certiorari proceedings under Rule 65 of the Rules of Court, the appellate court does not
assess and weigh the sufficiency of evidence upon which the Labor Arbiter and the NLRC based their
conclusion. The query in this proceeding is limited to the determination of whether or not the NLRC
acted without or in excess of its jurisdiction or with grave abuse of discretion in rendering its decision.
However, as an exception, the appellate court may examine and measure the factual findings of the
NLRC if the same are not supported by substantial evidence. x x x.37

In the case at bench, in the petition for certiorari under Rule 65 filed by the respondents before the
CA, the following issues were presented for resolution:

I.

WHETHER OR NOT PUBLIC RESPONDENT [NLRC] committed patent errors in the

appreciation of facts and application of pertinent jurisprudence amounting to grave abuse of
discretion or lack or in excess of jurisdiction WHEN IT HELD THAT PRIVATE RESPONDENTS
[herein petitioners] ARE NOT GUILTY OF ILLEGAL DISMISSAL BECAUSE IT WAS THE
PETITIONERS [herein private respondents] WHO ABANDONED THEIR JOB AND REFUSED
TO WORK WITH RESPONDENTS WHEN THEY WERE REQUIRED TO PUT UP CASH
BOND OR SIGN AN AUTHORIZATION FOR DEDUCTION.

II.

WHETHER OR NOT PUBLIC RESPONDENT committed patent errors in the appreciation of

facts and application of pertinent jurisprudence amounting to grave abuse of discretion or lack
or in excess of jurisdiction WHEN IT DID NOT ORDER THE REINSTATEMENT OF HEREIN
PETITIONERS AND DELETED THE AWARD OF 13th MONTH PAY AND DENIED THE
CLAIMS OF ATTORNEY'S FEES, DAMAGES AND FULL BACKWAGES.38

Essentially, the issues raised by the respondents for resolution by the CA were anchored on an alleged
misappreciation of facts and evidence by the NLRC and the LA when they both ruled that
abandonment of work and not constructive dismissal occurred.

We agree with the petitioners that what the respondents sought was a re-evaluation of evidence, which
as a general rule cannot be properly done in a petition for certiorari under Rule 65, save in cases
where substantial evidence to support the NLRC's findings are wanting.

In Honorable Ombudsman Simeon Marcelo v. Leopoldo Bungubung,39 the Court defined substantial
evidence and laid down guidelines relative to the conduct of judicial review of decisions rendered by
administrative agencies in the exercise of their quasi-judicial power, viz:

x x x Substantial evidence is more than a mere scintilla of evidence. It means such relevant evidence
as a reasonable mind might accept as adequate to support a conclusion, even if other minds equally

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reasonable might conceivably opine otherwise. Second, in reviewing administrative decisions of the
executive branch of the government, the findings of facts made therein are to be respected so long as
they are supported by substantial evidence. Hence, it is not for the reviewing court to weigh the
conflicting evidence, determine the credibility of witnesses, or otherwise substitute its judgment for that
of the administrative agency with respect to the sufficiency of evidence. Third, administrative decisions
in matters within the executive jurisdiction can only be set aside on proof of gross abuse of discretion,
fraud, or error of law. These principles negate the power of the reviewing court to re-examine the
sufficiency of the evidence in an administrative case as if originally instituted therein, and do not
authorize the court to receive additional evidence that was not submitted to the administrative agency
concerned.40 (citations omitted)

We find the factual findings of the LA and the NLRC that the respondents were not dismissed are
supported by substantial evidence.

In the Joint Affidavit41 executed by Generoso Fortunaba, Erdie Pilares and Crisanto Ignacio, all
goldsmiths under Niña Jewelry's employ, they expressly stated that they have personal knowledge of
the fact that the respondents were not terminated from employment. Crisanto Ignacio likewise
expressed that after Elisea returned from the United States in the first week of September of 2004, the
latter even called to inquire from him why the respondents were not reporting for work. We observe
that the respondents had neither ascribed any ill-motive on the part of their fellow goldsmiths nor
offered any explanation as to why the latter made declarations adverse to their cause. Hence, the
statements of the respondents' fellow goldsmiths deserve credence. This is especially true in the light
of the respondents' failure to present any notice of termination issued by the petitioners. It is settled
that there can be dismissal even in the absence of a termination notice.42 However, in the case at
bench, we find that the acts of the petitioners towards the respondents do not at all amount to
constructive dismissal.

Constructive dismissal occurs when there is cessation of work because continued employment is
rendered impossible, unreasonable or unlikely; when there is a demotion in rank or diminution in pay
or both; or when a clear discrimination, insensibility, or disdain by an employer becomes unbearable
to the employee.43

In the case now under our consideration, the petitioners did not whimsically or arbitrarily impose the
policy to post cash bonds or make deductions from the workers' salaries. As attested to by the
respondents' fellow goldsmiths in their Joint Affidavit, the workers were convened and informed of the
reason behind the implementation of the new policy. Instead of airing their concerns, the respondents
just promptly stopped reporting for work.

Although the propriety of requiring cash bonds seems doubtful for reasons to be discussed hereunder,
we find no grounds to hold that the respondents were dismissed expressly or even constructively by
the petitioners. It was the respondents who merely stopped reporting for work. While it is conceded
that the new policy will impose an additional burden on the part of the respondents, it was not intended
to result in their demotion. Neither is a diminution in pay intended because as long as the workers
observe due diligence in the performance of their tasks, no loss or damage shall result from their
handling of the gold entrusted to them, hence, all the amounts due to the goldsmiths shall still be paid
in full. Further, the imposition of the new policy cannot be viewed as an act tantamount to
discrimination, insensibility or disdain against the respondents. For one, the policy was intended to be
implemented upon all the goldsmiths in Niña Jewelry's employ and not solely upon the respondents.
Besides, as stressed by the petitioners, the new policy was intended to merely curb the incidences of
gold theft in the work place. The new policy can hardly be said to be disdainful or insensible to the
workers as to render their continued employment unreasonable, unlikely or impossible.

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On September 7, 2004, or more or less three weeks after the imposition of the new policy, the
respondents filed their complaints for illegal dismissal which include their prayer for the payment of
separation pay. On September 20, 2004, they filed amended complaints seeking for reinstatement
instead.

The CA favored the respondents' argument that the latter could not have abandoned their work as it
can be presumed that they would not have filed complaints for illegal dismissal had they not been
really terminated and had they not intended themselves to be reinstated. We find that the presumption
relied upon by the CA pales in comparison to the substantial evidence offered by the petitioners that
it was the respondents who stopped reporting for work and were not dismissed at all.

In sum, we agree with the petitioners that substantial evidence support the LA's and the NLRC's
findings that no dismissal occurred. Hence, the CA should not have given due course to and granted
the petition for certiorari under Rule 65 filed by the respondents before it.

In view of our disquisition above that the findings of the LA and the NLRC that no constructive dismissal
occurred are supported by substantial evidence, the CA thus erred in giving due course to and granting
the petition filed before it. Hence, it is not even necessary anymore to resolve the issue of whether or
not the policy of posting cash bonds or making deductions from the goldsmiths' salaries is proper.
However, considering that there are other goldsmiths in Niña Jewelry's employ upon whom the policy
challenged by the respondents remain to be enforced, in the interest of justice and to put things to
rest, we shall resolve the issue.

Article 113 of the Labor Code is clear that there are only three exceptions to the general rule that no
deductions from the employees' salaries can be made. The exception which finds application in the
instant petition is in cases where the employer is authorized by law or regulations issued by the
Secretary of Labor to effect the deductions. On the other hand, Article 114 states that generally,
deposits for loss or damages are not allowed except in cases where the employer is engaged in such
trades, occupations or business where the practice of making deposits is a recognized one, or is
necessary or desirable as determined by the Secretary of Labor in appropriate rules or regulations.

While employers should generally be given leeways in their exercise of management prerogatives, we
agree with the respondents and the CA that in the case at bar, the petitioners had failed to prove that
their imposition of the new policy upon the goldsmiths under Niña Jewelry's employ falls under the
exceptions specified in Articles 113 and 114 of the Labor Code.

The petitioners point out that Section 14, Book III, Rule VIII of the Omnibus Rules does not define the
circumstances when the making of deposits is deemed recognized, necessary or desirable. The
petitioners then argue that the intention of the law is for the courts to determine on a case to case
basis what should be regarded as recognized, necessary or desirable and to test an employer's policy
of requiring deposits on the bases of its reasonableness and necessity.

We are not persuaded.

Articles 113 and 114 of the Labor Code are clear as to what are the exceptions to the general
prohibition against requiring deposits and effecting deductions from the employees' salaries. Hence,
a statutory construction of the aforecited provisions is not called for. Even if we were however called
upon to interpret the provisions, our inclination would still be to strictly construe the same against the
employer because evidently, the posting of cash bonds and the making of deductions from the wages
would inarguably impose an additional burden upon the employees.

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While the petitioners are not absolutely precluded from imposing the new policy, they can only do so
upon compliance with the requirements of the law.44 In other words, the petitioners should first
establish that the making of deductions from the salaries is authorized by law, or regulations issued
by the Secretary of Labor. Further, the posting of cash bonds should be proven as a recognized
practice in the jewelry manufacturing business, or alternatively, the petitioners should seek for the
determination by the Secretary of Labor through the issuance of appropriate rules and regulations that
the policy the former seeks to implement is necessary or desirable in the conduct of business. The
petitioners failed in this respect. It bears stressing that without proofs that requiring deposits and
effecting deductions are recognized practices, or without securing the Secretary of Labor's
determination of the necessity or desirability of the same, the imposition of new policies relative to
deductions and deposits can be made subject to abuse by the employers. This is not what the law
intends.

In view of the foregoing, we hold that no dismissal, constructive or otherwise, occurred. The findings
of the NLRC and the LA that it was the respondents who stopped reporting for work are supported by
substantial evidence. Hence, the CA erred when it re-evaluated the parties' respective evidence and
granted the petition filed before it. However, we agree with the CA that it is baseless for Niña Jewelry
to impose its new policy upon the goldsmiths under its employ without first complying with the strict
requirements of the law.

WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution
of the CA dated January 9, 2009 and May 26, 2009, respectively, are REVERSED only in so far as
they declared that the respondents were constructively dismissed and entitled to reinstatement and
payment of backwages, allowances and benefits. However, the CA's ruling that the petitioners'
imposition of its new policy upon the respondents lacks legal basis, stands.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

ARTURO D. BRION JOSE P. PEREZ

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

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CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

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Zayber John B. Protacio vs. Laya Mananghaya & Co. and/or Mario T. Mananghaya;
March 25, 2009; GR No. 168654 (Bonus)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 168654 March 25, 2009

ZAYBER JOHN B. PROTACIO, Petitioner,

vs.
LAYA MANANGHAYA & CO. and/or MARIO T. MANANGHAYA, Respondents.

DECISION

TINGA, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure, assailing the decision2 and resolution3 of the Court of Appeals in CA-G.R. SP No. 85038.
The Court of Appeals’ decision reduced the monetary award granted to petitioner by the National
Labor Relations Commission (NLRC) while the resolution denied petitioner’s motion for
reconsideration for lack of merit.

The following factual antecedents are matters of record.

Respondent KPMG Laya Mananghaya & Co. (respondent firm) is a general professional partnership
duly organized under the laws of the Philippines. Respondent firm hired petitioner Zayber John B.
Protacio as Tax Manager on 01 April 1996. He was subsequently promoted to the position of Senior
Tax Manager. On 01 October 1997, petitioner was again promoted to the position of Tax Principal.4

However, on 30 August 1999, petitioner tendered his resignation effective 30 September 1999. Then,
on 01 December 1999, petitioner sent a letter to respondent firm demanding the immediate payment
of his 13th month pay, the cash commutation of his leave credits and the issuance of his 1999
Certificate of Income Tax Withheld on Compensation. Petitioner sent to respondent firm two more
demand letters for the payment of his reimbursement claims under pain of the legal action.5

Respondent firm failed to act upon the demand letters. Thus, on 15 December 1999, petitioner filed
before the NLRC a complaint for the non-issuance of petitioner’s W-2 tax form for 1999 and the non-
payment of the following benefits: (1) cash equivalent of petitioner’s leave credits in the amount of
₱55,467.60; (2) proportionate 13th month pay for the year 1999; (3) reimbursement claims in the
amount of ₱19,012.00; and (4) lump sum pay for the fiscal year 1999 in the amount of ₱674,756.70.
Petitioner also sought moral and exemplary damages and attorney’s fees. Respondent Mario T.
Managhaya was also impleaded in his official capacity as respondent firm’s managing partner.6

In his complaint,7 petitioner averred, inter alia, that when he was promoted to the position of Tax
Principal in October 1997, his compensation package had consisted of a monthly gross compensation

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of ₱60,000.00, a 13th month pay and a lump sum payment for the year 1997 in the amount of
₱240,000.00 that was paid to him on 08 February 1998.

According to petitioner, beginning 01 October 1998, his compensation package was revised as follows:
(a) monthly gross compensation of ₱95,000.00, inclusive of nontaxable allowance; (b) 13th month
pay; and (c) a lump sum amount in addition to the aggregate monthly gross compensation. On 12 April
1999, petitioner received the lump sum amount of ₱573,000.00 for the fiscal year ending 1998.8

Respondent firm denied it had intentionally delayed the processing of petitioner’s claims but alleged
that the abrupt departure of petitioner and three other members of the firm’s Tax Division had created
problems in the determination of petitioner’s various accountabilities, which could be finished only by
going over voluminous documents. Respondents further averred that they had been taken aback upon
learning about the labor case filed by petitioner when all along they had done their best to facilitate the
processing of his claims.9

During the pendency of the case before the Labor Arbiter, respondent firm on three occasions sent
check payments to petitioner in the following amounts: (1) ₱71,250.00, representing petitioner’s 13th
month pay; (2) ₱54,824.18, as payments for the cash equivalent of petitioner’s leave credits and
reimbursement claims; and (3) ₱10,762.57, for the refund of petitioner’s taxes withheld on his vacation
leave credits. Petitioner’s copies of his withholding tax certificates were sent to him along with the
check payments.10 Petitioner acknowledged the receipt of the 13th month pay but disputed the
computation of the cash value of his vacation leave credits and reimbursement claims.11

On 07 June 2002, Labor Arbiter Eduardo J. Carpio rendered a decision,12 the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered ordering respondents to jointly and solidarily pay
complainant the following:

₱12,681.00 - representing the reimbursement claims of complainant;

₱28,407.08 - representing the underpayment of the cash equivalent of the unused leave
credits of complainant;

₱573,000.00 - representing complainant’s 1999 year-end lump sum payment; and

10% of the total judgment awards way of attorney’s fees.

SO ORDERED.13

The Labor Arbiter awarded petitioner’s reimbursement claims on the ground that respondent firm’s
refusal to grant the same was not so much because the claim was baseless but because petitioner
had failed to file the requisite reimbursement forms. He held that the formal defect was cured when
petitioner filed several demand letters as well as the case before him.14

The Labor Arbiter held that petitioner was not fully paid of the cash equivalent of the leave credits due
him because respondent firm had erroneously based the computation on a basic pay of ₱61,000.00.
He held that the evidence showed that petitioner’s monthly basic salary was ₱95,000.00 inclusive of
the other benefits that were deemed included and integrated in the basic salary and that respondent
firm had computed petitioner’s 13th month pay based on a monthly basic pay of ₱95,000.00; thus, the
cash commutation of the leave credits should also be based on this figure.15

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The Labor Arbiter also ruled that petitioner was entitled to a year-end payment of ₱573,000.00 on the
basis of the company policy of granting yearly lump sum payments to petitioner during all the years of
service and that respondent firm had failed to give petitioner the same benefit for the year 1999 without
any explanation.16

Aggrieved, respondent firm appealed to the NLRC. On 21 August 2003, the NLRC rendered a modified
judgment,17 the dispositive portion of which states:

WHEREFORE, the Decision dated June 7, 2002 is hereby Affirmed with the modification that the
complainant is only entitled to receive ₱2,301.00 as reimbursement claims. The award of ₱12,681.00
representing the reimbursement claims of complainant is set aside for lack of basis.

SO ORDERED.18

From the amount of ₱12,681.00 awarded by the Labor Arbiter as payment for the reimbursement
claims, the NLRC lowered the same to ₱2,301.00 representing the amount which remained
unpaid.19 As regards the issues on the lump sum payments and cash equivalent of the leave credits,
the NLRC affirmed the findings of the Labor Arbiter.

Respondents filed a motion for reconsideration20 but the NLRC denied the motion for lack of
merit.21 Hence, respondents elevated the matter to the Court of Appeals via a petition for certiorari.22

In the assailed Decision dated 19 April 2005, the Court of Appeals further reduced the total money
award to petitioner, to wit:

WHEREFORE, in the light of the foregoing, the assailed resolution of public respondent NLRC dated
August 21, 2003 in NLRC NCR Case No. 30-12-00927-99 (CA No. 032304-02) is hereby MODIFIED,
ordering petitioner firm to pay private respondent the following:

(1) ₱2,301.00 representing private respondent’s reimbursement claims;

(2) ₱9,802.83 representing the underpayment of the cash equivalent of private respondent’s
unused leave credits;

(3) ₱10,000.00 attorney’s fees.

SO ORDERED.23

Petitioner sought reconsideration. In the assailed Resolution dated 27 June 2005, the Court of Appeals
denied petitioner’s motion for reconsideration for lack of merit.

Hence, the instant petition, raising the following issues:

I.

WHETHER PUBLIC RESPONDENT COURT OF APPEALS’ SUMMARY DENIAL OF PETITIONER’S

MOTION FOR RECONSIDERATION VIOLATES THE CONSTITUTIONAL REQUIREMENT THAT
COURT DECISIONS MUST STATE THE LEGAL AND FACTUAL BASIS [THEREOF].

II

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WHETHER PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION AND ACTED IN WANTON EXCESS OF JURISDICTION IN TAKING COGNIZANCE
OF [RESPONDENTS] PETITION FOR CERTIORARI WHEN THE RESOLUTION THEREOF HINGES
ON MERE EVALUATION OF EVIDENCE.

III.

WHETHER PUBLIC RESPONDENT COURT OF APPEALS WANTONLY ABUSED ITS DISCRETION

IN EMPLOYING A LARGER DIVISOR TO COMPUTE PETITIONER’S DAILY SALARY RATE
THEREBY DIMINISHING HIS BENEFITS, IN [VIOLATION] OF THE LABOR CODE.

IV.

WHETHER PUBLIC RESPONDENT COURT OF APPEALS CAPRICIOUSLY ABUSED ITS

DISCRETION IN REVERSING THE [CONCURRING] FINDINGS OF BOTH LABOR ARBITER AND
NLRC ON THE COMPENSABLE NATURE OF PETITIONER’S YEAR END [LUMP] SUM PLAY [sic]
CLAIM.24

Before delving into the merits of the petition, the issues raised by petitioner adverting to the
Constitution must be addressed. Petitioner contends that the Court of Appeals’ resolution which denied
his motion for reconsideration violated Article VIII, Section 14 of the Constitution, which states:

Section 14. No decision shall be rendered by any court without expressing therein clearly and distinctly
the facts and the law on which it is based.

No petition for review or motion for reconsideration of a decision of the court shall be refused due
course or denied without stating the legal basis therefor.

Obviously, the assailed resolution is not a "decision" within the meaning of the Constitutional
requirement. This mandate is applicable only in cases "submitted for decision," i.e., given due course
and after filing of briefs or memoranda and/or other pleadings, as the case may be.25 The requirement
is not applicable to a resolution denying a motion for reconsideration of the decision. What is applicable
is the second paragraph of the above-quoted Constitutional provision referring to "motion for
reconsideration of a decision of the court." The assailed resolution complied with the requirement
therein that a resolution denying a motion for reconsideration should state the legal basis of the denial.
It sufficiently explained that after reading the pleadings filed by the parties, the appellate court did not
find any cogent reason to reverse itself.

Next, petitioner argues that the Court of Appeals erred in giving due course to the petition for certiorari
when the resolution thereof hinged on mere evaluation of evidence. Petitioner opines that respondents
failed to make its case in showing that the Labor Arbiter and the NLRC had exercised their discretion
in an arbitrary and despotic manner.

As a general rule, in certiorari proceedings under Rule 65 of the Rules of Court, the appellate court
does not assess and weigh the sufficiency of evidence upon which the Labor Arbiter and the NLRC
based their conclusion. The query in this proceeding is limited to the determination of whether or not
the NLRC acted without or in excess of its jurisdiction or with grave abuse of discretion in rendering
its decision. However, as an exception, the appellate court may examine and measure the factual
findings of the NLRC if the same are not supported by substantial evidence.26 The Court has not
hesitated to affirm the appellate court’s reversals of the decisions of labor tribunals if they are not
supported by substantial evidence.27

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The Court is not unaware that the appellate court had reexamined and weighed the evidence on record
in modifying the monetary award of the NLRC. The Court of Appeals held that the amount of the year-
end lump sum compensation was not fully justified and supported by the evidence on record. The
Court fully agrees that the lump sum award of ₱573,000.00 to petitioner seemed to have been plucked
out of thin air. Noteworthy is the fact that in his position paper, petitioner claimed that he was entitled
to the amount of ₱674,756.70.28 The variance between the claim and the amount awarded, with the
record bereft of any proof to support either amount only shows that the appellate court was correct in
holding that the award was a mere speculation devoid of any factual basis. In the exceptional
circumstance as in the instant case, the Court finds no error in the appellate court’s review of the
evidence on record.

After an assessment of the evidence on record, the Court of Appeals reversed the findings of the
NLRC and the Labor Arbiter with respect to the award of the year-end lump sum pay and the cash
value of petitioner’s leave credits. The appellate court held that while the lump sum payment was in
the nature of a proportionate share in the firm’s annual income to which petitioner was entitled, the
payment thereof was contingent upon the financial position of the firm. According to the Court of
Appeals, since no evidence was adduced showing the net income of the firm for fiscal year ending
1999 as well as petitioner’s corresponding share therein, the amount awarded by the labor tribunals
was a baseless speculation and as such must be deleted.29

On the other hand, the NLRC affirmed the Labor Arbiter’s award of the lump sum payment in the
amount of ₱573,000.00 on the basis that the payment thereof had become a company policy which
could not be withdrawn arbitrarily. Furthermore, the NLRC held that respondent firm had failed to
controvert petitioner’s claim that he was responsible for generating some ₱7,365,044.47 in cash
revenue during the fiscal year ending 1999.

The evidence on record establishes that aside from the basic monthly compensation,30 petitioner
received a yearly lump sum amount during the first two years31 of his employment, with the payments
made to him after the annual net incomes of the firm had been determined. Thus, the amounts thereof
varied and were dependent on the firm’s cash position and financial performance.32 In one of the letters
of respondent Mananghaya to petitioner, the amount was referred to as petitioner’s "share in the
incentive compensation program."33

While the amount was drawn from the annual net income of the firm, the distribution thereof to non-
partners or employees of the firm was not, strictly speaking, a profit-sharing arrangement between
petitioner and respondent firm contrary to the Court of Appeals’ finding. The payment thereof to non-
partners of the firm like herein petitioner was discretionary on the part of the chairman and managing
partner coming from their authority to fix the compensation of any employee based on a share in the
partnership’s net income.34 The distribution being merely discretionary, the year-end lump sum
payment may properly be considered as a year-end bonus or incentive. Contrary to petitioner’s claim,
the granting of the year-end lump sum amount was precisely dependent on the firm’s net income;
hence, the same was payable only after the firm’s annual net income and cash position were
determined.

By definition, a "bonus" is a gratuity or act of liberality of the giver. It is something given in addition to
what is ordinarily received by or strictly due the recipient.35 A bonus is granted and paid to an employee
for his industry and loyalty which contributed to the success of the employer’s business and made
possible the realization of profits.36 Generally, a bonus is not a demandable and enforceable obligation.
It is so only when it is made part of the wage or salary or compensation. When considered as part of
the compensation and therefore demandable and enforceable, the amount is usually fixed. If the
amount would be a contingent one dependent upon the realization of the profits, the bonus is also not
demandable and enforceable.37

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In the instant case, petitioner’s claim that the year-end lump sum represented the balance of his total
compensation package is incorrect. The fact remains that the amounts paid to petitioner on the two
occasions varied and were always dependent upon the firm’s financial position.

Moreover, in Philippine Duplicators, Inc. v. NLRC,38 the Court held that if the bonus is paid only if profits
are realized or a certain amount of productivity achieved, it cannot be considered part of wages. If the
desired goal of production is not obtained, of the amount of actual work accomplished, the bonus does
not accrue.39 Only when the employer promises and agrees to give without any conditions imposed
for its payment, such as success of business or greater production or output, does the bonus become
part of the wage.40

Petitioner’s assertion that he was responsible for generating revenues amounting to more than ₱7
million remains a mere allegation in his pleadings. The records are absolutely bereft of any supporting
evidence to substantiate the allegation.

The granting of a bonus is basically a management prerogative which cannot be forced upon the
employer who may not be obliged to assume the onerous burden of granting bonuses or other benefits
aside from the employees’ basic salaries or wages.41 Respondents had consistently maintained from
the start that petitioner was not entitled to the bonus as a matter of right. The payment of the year-end
lump sum bonus based upon the firm’s productivity or the individual performance of its employees was
well within respondent firm’s prerogative. Thus, respondent firm was also justified in declining to give
the bonus to petitioner on account of the latter’s unsatisfactory performance.

Petitioner failed to present evidence refuting respondents’ allegation and proof that they received a
number of complaints from clients about petitioner’s "poor services." For purposes of determining
whether or not petitioner was entitled to the year-end lump sum bonus, respondents were not legally
obliged to raise the issue of substandard performance with petitioner, unlike what the Labor Arbiter
had suggested. Of course, if what was in question was petitioner’s continued employment vis-à-vis
the allegations of unsatisfactory performance, then respondent firm was required under the law to give
petitioner due process to explain his side before instituting any disciplinary measure. However, in the
instant case, the granting of the year-end lump sum bonus was discretionary and conditional, thus,
petitioner may not question the basis for the granting of a mere privilege. 1avvph!1

With regard to the computation of the cash equivalent of petitioner’s leave credits, the Court of Appeals
used a base figure of ₱71,250.00 representing petitioner’s monthly salary as opposed to ₱95,000.00
used by the Labor Arbiter and NLRC. Meanwhile, respondents insist on a base figure of only
₱61,000.00, which excludes the advance incentive pay of ₱15,000.00, transportation allowance of
₱15,000.00 and representation allowance of ₱4,000.00, which petitioner regularly received every
month. Because of a lower base figure (representing the monthly salary) used by the appellate court,
the cash equivalent of petitioner’s leave credits was lowered from ₱28,407.08 to ₱9,802.83. lawphil.net

The monthly compensation of ₱71,250.00 used as base figure by the Court of Appeals is totally without
basis. As correctly held by the Labor Arbiter and the NLRC, the evidence on record reveals that
petitioner was receiving a monthly compensation of ₱95,000.00 consisting of a basic salary of
₱61,000.00, advance incentive pay of ₱15,000.00, transportation allowance of ₱15,000.00 and
representation allowance of ₱4,000.00. These amounts totaling ₱95,000.00 are all deemed part of
petitioner’s monthly compensation package and, therefore, should be the basis in the cash
commutation of the petitioner’s leave credits. These allowances were customarily furnished by
respondent firm and regularly received by petitioner on top of the basic monthly pay of ₱61,000.00.
Moreover, the Labor Arbiter noted that respondent firm’s act of paying petitioner a 13th month-pay at
the rate of ₱95,000.00 was an admission on its part that petitioner’s basic monthly salary was
₱95,000.00

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The Court of Appeals, Labor Arbiter and NLRC used a 30-working day divisor instead of 26 days which
petitioner insists. The Court of Appeals relied on Section 2, Rule IV, Book III42 of the implementing
rules of the Labor Code in using the 30-working day divisor. The provision essentially states that
monthly-paid employees are presumed to be paid for all days in the month whether worked or not.

The provision has long been nullified in Insular Bank of Asia and American Employees’ Union
(IBAAEU) v. Hon. Inciong, etc., et al.,43 where the Court ruled that the provision amended the Labor
Code’s provisions on holiday pay by enlarging the scope of their exclusion.44 In any case, the provision
is inapplicable to the instant case because it referred to the computation of holiday pay for monthly-
paid employees.

Petitioner’s claim that respondent firm used a 26-working day divisor is supported by the evidence on
record. In a letter addressed to

petitioner,45 respondents’ counsel expressly admitted that respondent used a 26-working day divisor.
The Court is perplexed why the tribunals below used a 30-day divisor when there was an express
admission on respondents’ part that they used a 26-day divisor in the cash commutation of leave
credits. Thus, with a monthly compensation of ₱95,000.00 and using a 26-working day divisor,
petitioner’s daily rate is ₱3,653.85.46 Based on this rate, petitioner’s cash equivalent of his leave credits
of 23.5 is ₱85,865.48.47 Since petitioner has already received the amount ₱46,009.67, a balance of
₱39,855.80 remains payable to petitioner.

WHEREFORE, the instant petition for review on certiorari is PARTLY GRANTED. The Decision of the
Court of Appeals in CA-G.R. SP No. 85038 is AFFIRMED with the MODIFICATION that respondents
are liable for the underpayment of the cash equivalent of petitioner’s leave credits in the amount of
₱39,855.80.

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

On Official Leave
LEONARDO A. QUISUMBING
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ* RENATO C. CORONA**

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR. ARTURO D. BRION

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

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DANTE O. TINGA
Associate Justice
Acting Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s
Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

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JPL Marketing Promotions vs. CA, NLRC, Noel Gonzales, Ramon Abesa III and Faustino
Aninipot; July 8, 2005; GR No. 151966 (13th Month)

Republic of the Philippines

SUPREME COURT

SECOND DIVISION

G.R. No. 151966 July 8, 2005

JPL MARKETING PROMOTIONS, Petitioner,

vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, NOEL GONZALES,
RAMON ABESA III and FAUSTINO ANINIPOT, Respondents.

DECISION

Tinga, J.:

This is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. SP No. 62631 dated
03 October 2001 and its Resolution2 dated 25 January 2002 denying petitioner’s Motion for
Reconsideration, affirming the Resolution of the National Labor Relations Commission (NLRC),
Second Division, dated 27 July 2000, awarding separation pay, service incentive leave pay, and 13th
month pay to private respondents.

JPL Marketing and Promotions (hereinafter referred to as "JPL") is a domestic corporation engaged
in the business of recruitment and placement of workers. On the other hand, private respondents Noel
Gonzales, Ramon Abesa III and Faustino Aninipot were employed by JPL as merchandisers on
separate dates and assigned at different establishments in Naga City and Daet, Camarines Norte as
attendants to the display of California Marketing Corporation (CMC), one of petitioner’s clients.

On 13 August 1996, JPL notified private respondents that CMC would stop its direct merchandising
activity in the Bicol Region, Isabela, and Cagayan Valley effective 15 August 1996.3 They were advised
to wait for further notice as they would be transferred to other clients. However, on 17 October
1996,4 private respondents Abesa and Gonzales filed before the National Labor Relations
Commission Regional Arbitration Branch (NLRC) Sub V complaints for illegal dismissal, praying for
separation pay, 13th month pay, service incentive leave pay and payment for moral
damages.5 Aninipot filed a similar case thereafter.

After the submission of pertinent pleadings by all of the parties and after some clarificatory hearings,
the complaints were consolidated and submitted for resolution. Executive Labor Arbiter Gelacio L.
Rivera, Jr. dismissed the complaints for lack of merit.6 The Labor Arbiter found that Gonzales and
Abesa applied with and were employed by the store where they were originally assigned by JPL even
before the lapse of the six (6)-month period given by law to JPL to provide private respondents a new
assignment. Thus, they may be considered to have unilaterally severed their relation with JPL, and
cannot charge JPL with illegal dismissal.7 The Labor Arbiter held that it was incumbent upon private
respondents to wait until they were reassigned by JPL, and if after six months they were not
reassigned, they can file an action for separation pay but not for illegal dismissal.8 The claims for 13th

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month pay and service incentive leave pay was also denied since private respondents were paid way
above the applicable minimum wage during their employment.9

Private respondents appealed to the NLRC. In its Resolution,10 the Second Division of the NLRC
agreed with the Labor Arbiter’s finding that when private respondents filed their complaints, the six-
month period had not yet expired, and that CMC’s decision to stop its operations in the areas was
beyond the control of JPL, thus, they were not illegally dismissed. However, it found that despite JPL’s
effort to look for clients to which private respondents may be reassigned it was unable to do so, and
hence they are entitled to separation pay.11 Setting aside the Labor Arbiter’s decision, the NLRC
ordered the payment of:

1. Separation pay, based on their last salary rate and counted from the first day of their employment
with the respondent JPL up to the finality of this judgment;

2. Service Incentive Leave pay, and 13th month pay, computed as in No.1 hereof.12

Aggrieved, JPL filed a petition for certiorari under Rule 65 of the Rules of Court with the Court of
Appeals, imputing grave abuse of discretion on the part of the NLRC. It claimed that private
respondents are not by law entitled to separation pay, service incentive leave pay and 13th month
pay.

The Court of Appeals dismissed the petition and affirmed in toto the NLRC resolution. While conceding
that there was no illegal dismissal, it justified the award of separation pay on the grounds of equity and
social justice.13 The Court of Appeals rejected JPL’s argument that the difference in the amounts of
private respondents’ salaries and the minimum wage in the region should be considered as payment
for their service incentive leave and 13th month pay.14 Notwithstanding the absence of a contractual
agreement on the grant of 13th month pay, compliance with the same is mandatory under the law.
Moreover, JPL failed to show that it was exempt from paying service incentive leave pay. JPL filed a
motion for reconsideration of the said resolution, but the same was denied on 25 January 2002.15

In the instant petition for review, JPL claims that the Court of Appeals committed reversible error in
rendering the assailed Decision and Resolution.16 The instant case does not fall under any of the
instances where separation pay is due, to wit: installation of labor-saving devices, redundancy,
retrenchment or closing or cessation of business operation,17 or disease of an employee whose
continued employment is prejudicial to him or co-employees,18 or illegal dismissal of an employee but
reinstatement is no longer feasible.19 Meanwhile, an employee who voluntarily resigns is not entitled
to separation unless stipulated in the employment contract, or the collective bargaining agreement, or
is sanctioned by established practice or policy of the employer.20 It argues that private respondents’
good record and length of service, as well as the social justice precept, are not enough to warrant the
award of separation pay. Gonzales and Aninipot were employed by JPL for more than four (4) years,
while Abesa rendered his services for more than two (2) years, hence, JPL claims that such short
period could not have shown their worth to JPL so as to reward them with payment of separation pay.21

In addition, even assuming arguendo that private respondents are entitled to the benefits awarded,
the computation thereof should only be from their first day of employment with JPL up to 15 August
1996, the date of termination of CMC’s contract, and not up to the finality of the 27 July 2000 resolution
of the NLRC.22 To compute separation pay, 13th month pay, and service incentive leave pay up to 27
July 2000 would negate the findings of both the Court of Appeals and the NLRC that private
respondents were not unlawfully terminated.23 Additionally, it would be erroneous to compute service
incentive leave pay from the first day of their employment up to the finality of the NLRC resolution
since an employee has to render at least one (1) year of service before he is entitled to the same.
Thus, service incentive leave pay should be counted from the second year of service.24

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On the other hand, private respondents maintain that they are entitled to the benefits being claimed
as per the ruling of this Court in Serrano v. NLRC, et al.25 They claim that their dismissal, while not
illegal, was tainted with bad faith.26 They allege that they were deprived of due process because the
notice of termination was sent to them only two (2) days before the actual termination.27 Likewise, the
most that JPL offered to them by way of settlement was the payment of separation pay of seven (7)
days for every year of service.28

Replying to private respondents’ allegations, JPL disagrees that the notice it sent to them was a notice
of actual termination. The said memo merely notified them of the end of merchandising for CMC, and
that they will be transferred to other clients.29 Moreover, JPL is not bound to observe the thirty (30)-
day notice rule as there was no dismissal to speak of. JPL counters that it was private respondents
who acted in bad faith when they sought employment with another establishment, without even the
courtesy of informing JPL that they were leaving for good, much less tender their resignation.30 In
addition, the offer of seven (7) days per year of service as separation pay was merely an act of
magnanimity on its part, even if private respondents are not entitled to a single centavo of separation
pay.31

The case thus presents two major issues, to wit: whether or not private respondents are entitled to
separation pay, 13th month pay and service incentive leave pay, and granting that they are so entitled,
what should be the reckoning point for computing said awards.

Under Arts. 283 and 284 of the Labor Code, separation pay is authorized only in cases of dismissals
due to any of these reasons: (a) installation of labor saving devices; (b) redundancy; (c) retrenchment;
(d) cessation of the employer's business; and (e) when the employee is suffering from a disease and
his continued employment is prohibited by law or is prejudicial to his health and to the health of his co-
employees. However, separation pay shall be allowed as a measure of social justice in those cases
where the employee is validly dismissed for causes other than serious misconduct or those reflecting
on his moral character, but only when he was illegally dismissed.32 In addition, Sec. 4(b), Rule I, Book
VI of the Implementing Rules to Implement the Labor Code provides for the payment of separation
pay to an employee entitled to reinstatement but the establishment where he is to be reinstated has
closed or has ceased operations or his present position no longer exists at the time of reinstatement
for reasons not attributable to the employer.

The common denominator of the instances where payment of separation pay is warranted is that the
employee was dismissed by the employer.33 In the instant case, there was no dismissal to speak of.
Private respondents were simply not dismissed at all, whether legally or illegally. What they received
from JPL was not a notice of termination of employment, but a memo informing them of the termination
of CMC’s contract with JPL. More importantly, they were advised that they were to be reassigned. At
that time, there was no severance of employment to speak of.

Furthermore, Art. 286 of the Labor Code allows the bona fide suspension of the operation of a business
or undertaking for a period not exceeding six (6) months, wherein an employee/employees are placed
on the so-called "floating status." When that "floating status" of an employee lasts for more than six
months, he may be considered to have been illegally dismissed from the service. Thus, he is entitled
to the corresponding benefits for his separation, and this would apply to suspension either of the entire
business or of a specific component thereof.34

As clearly borne out by the records of this case, private respondents sought employment from other
establishments even before the expiration of the six (6)-month period provided by law. As they
admitted in their comment, all three of them applied for and were employed by another establishment
after they received the notice from JPL.35 JPL did not terminate their employment; they themselves
severed their relations with JPL. Thus, they are not entitled to separation pay.

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The Court is not inclined in this case to award separation pay even on the ground of compassionate
justice. The Court of Appeals relied on the cases36 wherein the Court awarded separation pay to legally
dismissed employees on the grounds of equity and social consideration. Said cases involved
employees who were actually dismissed by their employers, whether for cause or not. Clearly, the
principle applies only when the employee is dismissed by the employer, which is not the case in this
instance. In seeking and obtaining employment elsewhere, private respondents effectively terminated
their employment with JPL.

In addition, the doctrine enunciated in the case of Serrano37 cited by private respondents has already
been abandoned by our ruling in Agabon v. National Labor Relations Commission.38 There we ruled
that an employer is liable to pay indemnity in the form of nominal damages to a dismissed employee
if, in effecting such dismissal, the employer failed to comply with the requirements of due process.
However, private respondents are not entitled to the payment of damages considering that there was
no violation of due process in this case. JPL’s memo dated 13 August 1996 to private respondents is
not a notice of termination, but a mere note informing private respondents of the termination of CMC’s
contract and their re-assignment to other clients. The thirty (30)-day notice rule does not apply.

Nonetheless, JPL cannot escape the payment of 13th month pay and service incentive leave pay to
private respondents. Said benefits are mandated by law and should be given to employees as a matter
of right.

Presidential Decree No. 851, as amended, requires an employer to pay its rank and file employees a
13th month pay not later than 24 December of every year. However, employers not paying their
employees a 13th month pay or its equivalent are not covered by said law.39 The term "its equivalent"
was defined by the law’s implementing guidelines as including Christmas bonus, mid-year bonus, cash
bonuses and other payment amounting to not less than 1/12 of the basic salary but shall not include
cash and stock dividends, cost-of-living-allowances and all other allowances regularly enjoyed by the
employee, as well as non-monetary benefits.40

On the other hand, service incentive leave, as provided in Art. 95 of the Labor Code, is a yearly leave
benefit of five (5) days with pay, enjoyed by an employee who has rendered at least one year of
service. Unless specifically excepted, all establishments are required to grant service incentive leave
to their employees. The term "at least one year of service" shall mean service within twelve (12)
months, whether continuous or broken reckoned from the date the employee started working.41 The
Court has held in several instances that "service incentive leave is clearly demandable after one year
of service."42

Admittedly, private respondents were not given their 13th month pay and service incentive leave pay
while they were under the employ of JPL. Instead, JPL provided salaries which were over and above
the minimum wage. The Court rules that the difference between the minimum wage and the actual
salary received by private respondents cannot be deemed as their 13th month pay and service
incentive leave pay as such difference is not equivalent to or of the same import as the said benefits
contemplated by law. Thus, as properly held by the Court of Appeals and by the NLRC, private
respondents are entitled to the 13th month pay and service incentive leave pay.

However, the Court disagrees with the Court of Appeals’ ruling that the 13th month pay and service
incentive leave pay should be computed from the start of employment up to the finality of the NLRC
resolution. While computation for the 13th month pay should properly begin from the first day of
employment, the service incentive leave pay should start a year after commencement of service, for
it is only then that the employee is entitled to said benefit. On the other hand, the computation for both
benefits should only be up to 15 August 1996, or the last day that private respondents worked for JPL.
To extend the period to the date of finality of the NLRC resolution would negate the absence of illegal

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dismissal, or to be more precise, the want of dismissal in this case. Besides, it would be unfair to
require JPL to pay private respondents the said benefits beyond 15 August 1996 when they did not
render any service to JPL beyond that date. These benefits are given by law on the basis of the service
actually rendered by the employee, and in the particular case of the service incentive leave, is granted
as a motivation for the employee to stay longer with the employer. There is no cause for granting said
incentive to one who has already terminated his relationship with the employer.

The law in protecting the rights of the employees authorizes neither oppression nor self-destruction of
the employer. It should be made clear that when the law tilts the scale of justice in favor of labor, it is
but recognition of the inherent economic inequality between labor and management. The intent is to
balance the scale of justice; to put the two parties on relatively equal positions. There may be cases
where the circumstances warrant favoring labor over the interests of management but never should
the scale be so tilted if the result is an injustice to the employer. Justitia nemini neganda est (Justice
is to be denied to none).43

WHEREFORE, the petition is GRANTED IN PART. The Decision and Resolution of the Court of
Appeals in CA-G.R. SP No. 62631 are hereby MODIFIED. The award of separation pay is deleted.
Petitioner is ordered to pay private respondents their 13th month pay commencing from the date of
employment up to 15 August 1996, as well as service incentive leave pay from the second year of
employment up to 15 August 1996. No pronouncement as to costs.

SO ORDERED.

DANTE O. TINGA Associate Justice

WE CONCUR:

REYNATO S. PUNO

Associate Justice

Chairman

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Associate Justice
Chairman, Second Division

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CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairman’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

HILARIO G. DAVIDE, JR.

Chief Justice

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Petroleum Shipping Limited (formerly ESSO International Shipping (Bahamas) Co., Ltd.)
and TRANS-GLOBAL MARITIME AGENCY, INC. vs. NLRC and Florello W. Tanchico; June
16, 2006; GR No. 148130 (13th Month)

THIRD DIVISION

G.R. No. 148130 June 16, 2006

PETROLEUM SHIPPING LIMITED (formerly ESSO INTERNATIONAL SHIPPING (BAHAMAS)

CO., LTD.) and TRANS-GLOBAL MARITIME AGENCY, INC., Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FLORELLO W. TANCHICO, Respondents.

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review1 assailing the 25 January 2001 Decision2 and 7 May 2001
Resolution3 of the Court of Appeals in CA-G.R. SP No. 54756.

The Antecedent Facts

On 6 March 1978, Esso International Shipping (Bahamas) Co., Ltd., ("Esso") through Trans-Global
Maritime Agency, Inc. ("Trans-Global") hired Florello W. Tanchico ("Tanchico") as First Assistant
Engineer. In 1981, Tanchico became Chief Engineer. On 13 October 1992, Tanchico returned to the
Philippines for a two-month vacation after completing his eight-month deployment.

On 8 December 1992, Tanchico underwent the required standard medical examination prior to
boarding the vessel. The medical examination revealed that Tanchico was suffering from "Ischemic
Heart Disease, Hypertensive Cardio-Muscular Disease and Diabetes Mellitus." Tanchico took
medications for two months and a subsequent stress test showed a negative result. However, Esso
no longer deployed Tanchico. Instead, Esso offered to pay him benefits under the Career Employment
Incentive Plan. Tanchico accepted the offer.

On 26 April 1993, Tanchico filed a complaint against Esso, Trans-Global and Malayan Insurance Co.,
Inc. ("Malayan") before the Philippine Overseas Employment Administration (POEA) for illegal
dismissal with claims for backwages, separation pay, disability and medical benefits and 13th month
pay. In view of the enactment of Republic Act No. 8042 ("RA 8042")4 transferring to the National Labor
Relations Commission (NLRC) the jurisdiction over money claims of overseas workers, the case was
indorsed to the Arbitration Branch of the National Capital Region. In a Decision5 dated 16 October
1996, Labor Arbiter Jose G. De Vera ("Labor Arbiter De Vera") dismissed the complaint for lack of
merit. Tanchico appealed to the NLRC.

The Ruling of the NLRC

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In its Resolution6 of 3 September 1998, the NLRC affirmed the Decision of Labor Arbiter De Vera.
Tanchico filed a motion for reconsideration. In a Resolution7 promulgated on 29 March 1999, the NLRC
reconsidered its 3 September 1998 Resolution, as follows:

On the claim of illegal dismissal, the same is unavailing as complainant had been declared as one
with partial permanent disability. Thus, he should be entitled to disability benefit of 18 days for every
year of credited service of fourteen (14) years less the amount he already received under the
Company’s Disability Plan.

On the claim of 13th month pay, the respondent Agency not falling under the enumerated exempted
employers under P.D. 851 and in the absence of any proof that respondent is already paying its
employees a 13th month pay or more in a calendar year, perforce, respondent agency should pay
complainant his monthly pay computed at [sic] the actual month [sic] worked, which is 8 months.

Since complainant was forced to litigate his case, he is hereby awarded 10% of the total award as
attorney’s fees.

SO ORDERED.8

Esso and Trans-Global moved for the reconsideration of the 29 March 1999 Resolution.9 In its 27 July
1999 Resolution,10 the NLRC denied their motion.

Esso, now using the name Petroleum Shipping Limited ("Petroleum Shipping"), and Trans-Global
(collectively referred to as "petitioners") filed a petition for certiorari before the Court of Appeals
assailing the 29 March 1999 and 27 July 1999 Resolutions of the NLRC.

The Ruling of the Court of Appeals

In its Decision promulgated on 25 January 2001, the Court of Appeals affirmed in toto the 29 March
1999 Resolution of the NLRC.

The Court of Appeals ruled that Tanchico was a regular employee of Petroleum Shipping. The Court
of Appeals held that petitioners are not exempt from the coverage of Presidential Decree No. 851, as
amended ("PD 851")11 which mandates the payment of 13th month pay to all employees. The Court
of Appeals further ruled that Tanchico is entitled to disability benefits based on his 14 years of tenure
with petitioners. The Court of Appeals stated that the employer-employee relationship subsisted even
during the period of Tanchico’s vacation. The Court of Appeals noted that petitioners were aware of
Tanchico’s medical history yet they still deployed him for 14 years. Finally, the Court of Appeals
sustained the award of attorney’s fees.

Petitioners moved for the reconsideration of the Decision. In its 7 May 2001 Resolution, the Court of
Appeals modified its Decision by deducting Tanchico’s vacation from his length of service. Thus:

WHEREFORE, our decision is hereby MODIFIED. The petitioners are ordered to pay to the private
respondent the following: (1) disability wages equivalent to 18 days per year multiplied by 10 years
less any amount already received under the company’s disability plan; prorated 13th month pay
corresponding to eight (8) months of actual work; and attorney’s fee equivalent to 10% of the total
award.

SO ORDERED.12

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Petitioners went to this Court for relief on the following grounds:

I. The Court of Appeals decided a question of substance not in accord with law, applicable
decision of this Court and International Maritime Law when it ruled that private respondent, a
seafarer, was a regular employee;

II. The Court of Appeals decided a question of substance not in accord with law when it held
that the private respondent was entitled to greater disability benefit than he was [sic];

III. The Court of Appeals decided a question of substance not heretofore determined by this
Court when it ruled that private respondent was entitled to 13th month pay although it was not
provided for in the contract of employment between petitioners and private respondent; and

IV. The Court of Appeals decided a question of substance not in accord with law when it
awarded private respondent attorney’s fees despite the Labor Arbiter’s and the public
respondent’s, albeit initially, dismissal of the complaint.13

The Issues

The issues are as follows:

1. Whether Tanchico is a regular employee of petitioners; and

2. Whether Tanchico is entitled to 13th month pay, disability benefits and attorney’s fees.

The Ruling of This Court

The petition is partly meritorious.

Seafarers are Contractual Employees

The issue on whether seafarers are regular employees is already a settled matter.

In Ravago v. Esso Eastern Marine, Ltd.,14 the Court traced its ruling in a number of cases that
seafarers are contractual, not regular, employees. Thus, in Brent School, Inc. v. Zamora,15 the Court
cited overseas employment contract as an example of contracts where the concept of regular
employment does not apply, whatever the nature of the engagement and despite the provisions of
Article 280 of the Labor Code. In Coyoca v. NLRC,16 the Court held that the agency is liable for
payment of a seaman’s medical and disability benefits in the event that the principal fails or refuses to
pay the benefits or wages due the seaman although the seaman may not be a regular employee of
the agency.

The Court squarely passed upon the issue in Millares v. NLRC17 where one of the issues raised was
whether seafarers are regular or contractual employees whose employment are terminated everytime
their contracts of employment expire. The Court explained:

[I]t is clear that seafarers are considered contractual employees. They can not be considered as
regular employees under Article 280 of the Labor Code. Their employment is governed by the
contracts they sign everytime they are rehired and their employment is terminated when the contract
expires. Their employment is contractually fixed for a certain period of time. They fall under the
exception of Article 280 whose employment has been fixed for a specific project or undertaking the

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completion or termination of which has been determined at the time of engagement of the employee
or where the work or services to be performed is seasonal in nature and the employment is for the
duration of the season. We need not depart from the rulings of the Court in the two aforementioned
cases which indeed constitute stare decisis with respect to the employment status of seafarers.

Petitioners insist that they should be considered regular employees, since they have rendered services
which are usually necessary and desirable to the business of their employer, and that they have
rendered more than twenty (20) years of service. While this may be true, the Brent case has, however,
held that there are certain forms of employment which also require the performance of usual and
desirable functions and which exceed one year but do not necessarily attain regular employment
status under Article 280. Overseas workers including seafarers fall under this type of employment
which are governed by the mutual agreements of the parties.

In this jurisdiction and as clearly stated in the Coyoca case, Filipino seamen are governed by the Rules
and Regulations of the POEA. The Standard Employment Contract governing the employment of All
Filipino Seamen on Board Ocean-Going Vessels of the POEA, particularly in Part I, Sec. C specifically
provides that the contract of seamen shall be for a fixed period. And in no case should the contract of
seamen be longer than 12 months. It reads:

Section C. Duration of Contract

The period of employment shall be for a fixed period but in no case to exceed 12 months and shall be
stated in the Crew Contract. Any extension of the Contract period shall be subject to the mutual
consent of the parties.

Moreover, it is an accepted maritime industry practice that employment of seafarers are for a fixed
period only. Constrained by the nature of their employment which is quite peculiar and unique in itself,
it is for the mutual interest of both the seafarer and the employer why the employment status must be
contractual only or for a certain period of time. Seafarers spend most of their time at sea and
understandably, they can not stay for a long and an indefinite period of time at sea. Limited access to
shore society during the employment will have an adverse impact on the seafarer. The national,
cultural and lingual diversity among the crew during the COE is a reality that necessitates the limitation
of its period.

Petitioners make much of the fact that they have been continually re-hired or their contracts renewed
before the contracts expired (which has admittedly been going on for twenty (20) years). By such
circumstance they claim to have acquired regular status with all the rights and benefits appurtenant to
it.

Such contention is untenable. Undeniably, this circumstance of continuous re-hiring was dictated by
practical considerations that experienced crew members are more preferred. Petitioners were only
given priority or preference because of their experience and qualifications but this does not detract the
fact that herein petitioners are contractual employees. They can not be considered regular employees.
x x x18

The Court reiterated the Millares ruling in Gu-Miro v. Adorable19 where it held that a radio officer on
board a vessel cannot be considered as a regular employee notwithstanding that the work he performs
is necessary and desirable in the business of the company.

Thus, in the present case, the Court of Appeals erred in ruling that Tanchico was a regular employee
of Petroleum Shipping.

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On 13th Month Pay

The Court of Appeals premised its grant of 13th month pay on its ruling that Tanchico was a regular
employee. The Court of Appeals also ruled that petitioners are not exempt from the coverage of PD
851 which requires all employers to pay their employees a 13th month pay.

We do not agree with the Court of Appeals. Again, Tanchico was a contractual, not a regular,
employee. Further, PD 851 does not apply to seafarers. The WHEREAS clauses of PD 851 provides:

WHEREAS, it is necessary to further protect the level of real wages from ravages of world-wide
inflation;

WHEREAS, there has been no increase in the legal minimum wage rates since 1970;

WHEREAS, the Christmas season is an opportune time for society to show its concern for the plight
of the working masses so they may properly celebrate Christmas and New Year.

PD 851 contemplates the situation of land-based workers, and not of seafarers who generally earn
more than domestic land-based workers.

Tanchico’s employment is governed by his Contract of Enlistment ("Contract").20 The Contract has
been approved by the POEA in accordance with Title I, Book One of the Labor Code and the POEA
Rules Governing Employment.21 The coverage of the Contract includes Compensation, Overtime,
Sundays and Holidays, Vacations, Living Allowance, Sickness, Injury and Death, Transportation and
Travel Expense, Subsistence and Living Quarters. It does not provide for the payment of 13th month
pay. The Contract of Employment,22 which is the standard employment contract of the POEA, likewise
does not provide for the payment of 13th month pay.

In Coyoca v. NLRC which involves a claim for separation pay, this Court held:

Furthermore, petitioner’s contract did not provide for separation benefits. In this connection, it is
important to note that neither does POEA standard employment contract for Filipino seamen provide
for such benefits.

As a Filipino seaman, petitioner is governed by the Rules and Regulations Governing Overseas
Employment and the said Rules do not provide for separation or termination pay. x x x23

Hence, in the absence of any provision in his Contract governing the payment of 13th month pay,
Tanchico is not entitled to the benefit.

On Disability Benefits

Petitioners allege that Tanchico’s Contract ended on 13 October 1992 when he returned to Manila.
They allege that the vacation period is not part of the period of employment.

We cannot accept petitioners’ contention.

The duration of the Contract was for eight months. The Contract also provides:

Article V
VACATIONS

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Vacation days shall be earned at the rate of seven and one-half days (7.5) days for each thirty (30)
days of continuous service, calculated from date of departure from Manila and until date of return to
Manila. Vacation begins on the day following arrival in Manila.

Every effort will be made to grant earned vacations promptly after eight (8) months of service; however,
the COMPANY shall have the right to advance or delay vacations to coincide with vessel repairs, for
operational reasons or due to personal requirements. SEAFARER shall receive vacation
compensation for each thirty (30) days of continuous service in accordance with the rates listed in
Addendum No. 1, Column (12), to be paid in Manila. Amounts shall be pro-rated according to the
ranks/ratings and period of time in which the SEAFARER served. For period of less than thirty (30)
days service, vacations and compensation shall be reduced proportionately.

Time off for illness, injury, vacation, leave of absence or stand-by shall not be considered service
under the provisions of this Article.

It is the COMPANY’s intention that each SEAFARER enjoy his full vacation period. Because of urgent
fleet needs, however, it occasionally may be necessary to recall a SEAFARER early from vacation.24

Since Tanchico received compensation during his vacation, the Contract did not terminate on the day
he returned to Manila. The Contract remained in force during Tanchico’s vacation period.

However, the Court of Appeals erred when it ruled that Tanchico is entitled to disability benefits of 18
days for every year of service. The Court of Appeals ruled that Tanchico’s employment was continuous
and that his tenure with petitioners was for 14 years. Again, the Court of Appeals assumed that
Tanchico was a regular employee. The Court of Appeals failed to consider that Tanchico’s employment
terminated with the end of each contract.

The Contract provides:

Article VIII
SICKNESS-INJURY/DEATH

A. The COMPANY shall provide, during the period of the Contract, Insurance coverage for the
SEAFARER against loss of life, permanent disability, temporary disability, injury, occupational
illness, hospital and medical expense in such amounts as the COMPANY shall determine but
not lower than what the COMPANY would have to pay under the Philippine Overseas
Employment Administration’s requirements or the vessel’s flag state requirements (whichever
is higher).

B. If SEAFARER is removed from a vessel for medical treatment he shall be entitled to receive
a disability benefit equal to his monthly wage rate (or pro-rata thereof) from date of
disembarkation until date of rejoining his vessel, assignment to another vessel or until date of
repatriation to Manila if still disabled. Medical, surgical, hospital, or clinical treatment shall be
recommended by a doctor approved by the COMPANY and SEAFARER must follow all
medical advices. SEAFARER will not be entitled to disability benefit payments for disability
resulting from his own misconduct, negligence, unlawful acts, altercations, vice, etc.

C. After disembarkation from a vessel, the SEAFARER is entitled to one hundred percent
(100%) of his wages until he is declared fit or the degree of permanent disability has been
assessed by the COMPANY’s physician for a maximum period of 120 days commencing on
date of such disembarkation. Upon the expiration of such 120 days and if the SEAFARER is

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still disabled, the SEAFARER shall be paid his wages equivalent to 18 days for every year of
credited service.

In special instances and at the discretion of the COMPANY, the maximum number of days of
COMPANY benefits may be extended beyond 120 days for a SEAFARER with over 80 months
credited COMPANY service, or in such other case as may be determined by the COMPANY.

Upon expiration of COMPANY benefits and if still disabled, the following amounts shall be paid
up to maximum of 365 days, inclusive of the period of the above benefits.

All Ranks ................................................ US $10 per day

D. If disability should occur while SEAFARER is on vacation, he must, within 3 days

from date thereof, notify the COMPANY’s Agent in the Philippines in order that the latter
shall be able to certify as to his condition. Certification of disability required for
payment of any disability benefits must be approved by a doctor appointed by the
COMPANY and SEAFARER must be disabled seven (7) days or more to be eligible to
benefits and sick leave status, COMPANY benefits shall be limited to a maximum of 18
days.

Benefits under the COMPANY Disability Plan shall be made only to the extent and in such
amounts as are equal to the differential between any payments which may be due SEAFARER
under COMPANY’s obligation as set forth in the 1st paragraph of this Article VIII and 90
percent of SEAFARER’s last wage rate.

E. In case of death at sea or at a foreign port, the tradition of the sea and requirements of the
laws of such foreign port will be observed. If practical, every effort will be made on the part of
the COMPANY to return the remains of a deceased SEAFARER to Manila at COMPANY
expense.

F. The SEAFARER acknowledges that even without signed receipts, any wage payments
made to him for a period during which he is entitled to benefits under any law by reason of
death, temporary or permanent disability, shall be deemed an advance payment of
compensation benefits due to him under such law, but only to the extent of benefits due for
the period of disability during which wages are paid.

Wages, as set forth in Addendum No. 1, Column (1), shall be the basis for any calculation of benefits
due SEAFARER under this Article VIII.25 (Emphasis supplied)

Indications that Tanchico was suffering from ischemia were detected on 8 December 1992 during
Tanchico’s vacation period. Thus, petitioners paid him disability benefits for 18 days in accordance
with the Contract. Tanchico cannot claim that he only acquired the illness during his last deployment
since the Medical Report26 he submitted to the NLRC showed that he has been hypertensive since
1983 and diabetic since 1987. In the absence of concrete proof that Tanchico acquired his disability
during

his last deployment and not during his vacation, he is only entitled to disability benefits for 18 days.

Petitioners claim that they already paid Tanchico his disability benefits for 18 days but he refused to
sign the receipt.27 Tanchico alleged that he was only paid under the Career Employment Incentive

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Plan.28 This is a factual matter which this Court cannot resolve. This matter has to be remanded to the
Labor Arbiter for resolution.

WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 25 January 2001
Decision and 7 May 2001 Resolution of the Court of Appeals in CA-G.R. SP No. 54756.
We REINSTATE the 16 October 1996 Decision of Labor Arbiter Jose G. De Vera dismissing the
complaint for illegal dismissal and the claims for backwages, separation pay and 13th month pay.
We REMAND the case to the Labor Arbiter to determine if Florello Tanchico has been paid his
disability benefits for 18 days in accordance with his Contract of Enlistment. If no payment has been
made, the Labor Arbiter is DIRECTED to determine the amount Tanchico is entitled.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Asscociate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Chief Justice

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King of Kings Transport Inc., Claire Dela Fuente and Melissa Lim vs. Santiago O. Mamac;
GR No. 166208; June 29, 2007 (Conductor 13th)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 166208 June 29, 2007

KING OF KINGS TRANSPORT INC., CLAIRE DELA FUENTE and MELISSA LIM, petitioners,
vs.
SANTIAGO O. MAMAC, respondent.

DECISION

VELASCO, JR., J.:

Is a verbal appraisal of the charges against the employee a breach of the procedural due process?
This is the main issue to be resolved in this plea for review under Rule 45 of the September 16, 2004
Decision1 of the Court of Appeals (CA) in CA-GR SP No. 81961. Said judgment affirmed the dismissal
of bus conductor Santiago O. Mamac from petitioner King of Kings Transport, Inc. (KKTI), but ordered
the bus company to pay full backwages for violation of the twin-notice requirement and 13th-month
pay. Likewise assailed is the December 2, 2004 CA Resolution2 rejecting KKTI’s Motion for
Reconsideration.

The Facts

Petitioner KKTI is a corporation engaged in public transportation and managed by Claire Dela Fuente
and Melissa Lim.

Respondent Mamac was hired as bus conductor of Don Mariano Transit Corporation (DMTC) on April
29, 1999. The DMTC employees including respondent formed the Damayan ng mga Manggagawa,
Tsuper at Conductor-Transport Workers Union and registered it with the Department of Labor and
Employment. Pending the holding of a certification election in DMTC, petitioner KKTI was incorporated
with the Securities and Exchange Commission which acquired new buses. Many DMTC employees
were subsequently transferred to KKTI and excluded from the election.

The KKTI employees later organized the Kaisahan ng mga Kawani sa King of Kings (KKKK) which
was registered with DOLE. Respondent was elected KKKK president.

Respondent was required to accomplish a "Conductor’s Trip Report" and submit it to the company
after each trip. As a background, this report indicates the ticket opening and closing for the particular
day of duty. After submission, the company audits the reports. Once an irregularity is discovered, the
company issues an "Irregularity Report" against the employee, indicating the nature and details of the
irregularity. Thereafter, the concerned employee is asked to explain the incident by making a written
statement or counter-affidavit at the back of the same Irregularity Report. After considering the
explanation of the employee, the company then makes a determination of whether to accept the

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explanation or impose upon the employee a penalty for committing an infraction. That decision shall
be stated on said Irregularity Report and will be furnished to the employee.

Upon audit of the October 28, 2001 Conductor’s Report of respondent, KKTI noted an irregularity. It
discovered that respondent declared several sold tickets as returned tickets causing KKTI to lose an
income of eight hundred and ninety pesos. While no irregularity report was prepared on the October
28, 2001 incident, KKTI nevertheless asked respondent to explain the discrepancy. In his
letter,3 respondent said that the erroneous declaration in his October 28, 2001 Trip Report was
unintentional. He explained that during that day’s trip, the windshield of the bus assigned to them was
smashed; and they had to cut short the trip in order to immediately report the matter to the police. As
a result of the incident, he got confused in making the trip report.

On November 26, 2001, respondent received a letter4 terminating his employment effective November
29, 2001. The dismissal letter alleged that the October 28, 2001 irregularity was an act of fraud against
the company. KKTI also cited as basis for respondent’s dismissal the other offenses he allegedly
committed since 1999.

On December 11, 2001, respondent filed a Complaint for illegal dismissal, illegal deductions,
nonpayment of 13th-month pay, service incentive leave, and separation pay. He denied committing
any infraction and alleged that his dismissal was intended to bust union activities. Moreover, he
claimed that his dismissal was effected without due process.

In its April 3, 2002 Position Paper,5 KKTI contended that respondent was legally dismissed after his
commission of a series of misconducts and misdeeds. It claimed that respondent had violated the trust
and confidence reposed upon him by KKTI. Also, it averred that it had observed due process in
dismissing respondent and maintained that respondent was not entitled to his money claims such as
service incentive leave and 13th-month pay because he was paid on commission or percentage basis.

On September 16, 2002, Labor Arbiter Ramon Valentin C. Reyes rendered judgment dismissing
respondent’s Complaint for lack of merit.6

Aggrieved, respondent appealed to the National Labor Relations Commission (NLRC). On August 29,
2003, the NLRC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, the decision dated 16 September 2002 is MODIFIED in that respondent King of Kings
Transport Inc. is hereby ordered to indemnify complainant in the amount of ten thousand pesos
(P10,000) for failure to comply with due process prior to termination.

The other findings are AFFIRMED.

SO ORDERED.7

Respondent moved for reconsideration but it was denied through the November 14, 2003
Resolution8 of the NLRC.

Thereafter, respondent filed a Petition for Certiorari before the CA urging the nullification of the NLRC
Decision and Resolution.

The Ruling of the Court of Appeals

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Affirming the NLRC, the CA held that there was just cause for respondent’s dismissal. It ruled that
respondent’s act in "declaring sold tickets as returned tickets x x x constituted fraud or acts of
dishonesty justifying his dismissal."9

Also, the appellate court sustained the finding that petitioners failed to comply with the required
procedural due process prior to respondent’s termination. However, following the doctrine in Serrano
v. NLRC,10 it modified the award of PhP 10,000 as indemnification by awarding full backwages from
the time respondent’s employment was terminated until finality of the decision.

Moreover, the CA held that respondent is entitled to the 13th-month pay benefit.

Hence, we have this petition.

The Issues

Petitioner raises the following assignment of errors for our consideration:

Whether the Honorable Court of Appeals erred in awarding in favor of the complainant/private
respondent, full back wages, despite the denial of his petition for certiorari.

Whether the Honorable Court of Appeals erred in ruling that KKTI did not comply with the requirements
of procedural due process before dismissing the services of the complainant/private respondent.

Whether the Honorable Court of Appeals rendered an incorrect decision in that [sic] it awarded in favor
of the complaint/private respondent, 13th month pay benefits contrary to PD 851.11

The Court’s Ruling

The petition is partly meritorious.

The disposition of the first assigned error depends on whether petitioner KKTI complied with the due
process requirements in terminating respondent’s employment; thus, it shall be discussed secondly.

Non-compliance with the Due Process Requirements

Due process under the Labor Code involves two aspects: first, substantive––the valid and authorized
causes of termination of employment under the Labor Code; and second, procedural––the manner of
dismissal.12 In the present case, the CA affirmed the findings of the labor arbiter and the NLRC that
the termination of employment of respondent was based on a "just cause." This ruling is not at issue
in this case. The question to be determined is whether the procedural requirements were complied
with.

Art. 277 of the Labor Code provides the manner of termination of employment, thus:

Art. 277. Miscellaneous Provisions.––x x x

(b) Subject to the constitutional right of workers to security of tenure and their right to be protected
against dismissal except for a just and authorized cause without prejudice to the requirement of notice
under Article 283 of this Code, the employer shall furnish the worker whose employment is sought to
be terminated a written notice containing a statement of the causes for termination and shall afford the
latter ample opportunity to be heard and to defend himself with the assistance of his representative if

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he so desires in accordance with company rules and regulations promulgated pursuant to guidelines
set by the Department of Labor and Employment. Any decision taken by the employer shall be without
prejudice to the right of the worker to contest the validity or legality of his dismissal by filing a complaint
with the regional branch of the National Labor Relations Commission. The burden of proving that the
termination was for a valid or authorized cause shall rest on the employer.

Accordingly, the implementing rule of the aforesaid provision states:

SEC. 2. Standards of due process; requirements of notice.––In all cases of termination of employment,
the following standards of due process shall be substantially observed:

I. For termination of employment based on just causes as defined in Article 282 of the Code:

(a) A written notice served on the employee specifying the ground or grounds for termination, and
giving said employee reasonable opportunity within which to explain his side.

(b) A hearing or conference during which the employee concerned, with the assistance of counsel if
he so desires is given opportunity to respond to the charge, present his evidence, or rebut the evidence
presented against him.

(c) A written notice of termination served on the employee, indicating that upon due consideration of
all the circumstances, grounds have been established to justify his termination. 13

In case of termination, the foregoing notices shall be served on the employee’s last known address.14

To clarify, the following should be considered in terminating the services of employees:

(1) The 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.15 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.

(2) After serving the first notice, the employers should schedule and conduct a hearing or conference
wherein the employees will be given the opportunity to: (1) explain and clarify their defenses to the
charge against them; (2) present evidence in support of their defenses; and (3) rebut the evidence
presented against them by the management. During the hearing or conference, the employees are
given the chance to defend themselves personally, with the assistance of a representative or counsel
of their choice. Moreover, this conference or hearing could be used by the parties as an opportunity
to come to an amicable settlement.

(3) After determining that termination of employment is justified, the employers shall serve the
employees a written notice of termination indicating that: (1) all circumstances involving the charge

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against the employees have been considered; and (2) grounds have been established to justify the
severance of their employment.

In the instant case, KKTI admits that it had failed to provide respondent with a "charge
sheet."16 However, it maintains that it had substantially complied with the rules, claiming that
"respondent would not have issued a written explanation had he not been informed of the charges
against him."17

We are not convinced.

First, respondent was not issued a written notice charging him of committing an infraction. The law is
clear on the matter. A verbal appraisal of the charges against an employee does not comply with the
first notice requirement. In Pepsi Cola Bottling Co. v. NLRC,18 the Court held that consultations or
conferences are not a substitute for the actual observance of notice and hearing. Also, in Loadstar
Shipping Co., Inc. v. Mesano,19 the Court, sanctioning the employer for disregarding the due process
requirements, held that the employee’s written explanation did not excuse the fact that there was a
complete absence of the first notice.

Second, even assuming that petitioner KKTI was able to furnish respondent an Irregularity Report
notifying him of his offense, such would not comply with the requirements of the law. We observe from
the irregularity reports against respondent for his other offenses that such contained merely a general
description of the charges against him. The reports did not even state a company rule or policy that
the employee had allegedly violated. Likewise, there is no mention of any of the grounds for
termination of employment under Art. 282 of the Labor Code. Thus, KKTI’s "standard" charge sheet is
not sufficient notice to the employee.

Third, no hearing was conducted. Regardless of respondent’s written explanation, a hearing was still
necessary in order for him to clarify and present evidence in support of his defense. Moreover,
respondent made the letter merely to explain the circumstances relating to the irregularity in his
October 28, 2001 Conductor’s Trip Report. He was unaware that a dismissal proceeding was already
being effected. Thus, he was surprised to receive the November 26, 2001 termination letter indicating
as grounds, not only his October 28, 2001 infraction, but also his previous infractions.

Sanction for Non-compliance with Due Process Requirements

As stated earlier, after a finding that petitioners failed to comply with the due process requirements,
the CA awarded full backwages in favor of respondent in accordance with the doctrine in Serrano v.
NLRC.20 However, the doctrine in Serrano had already been abandoned in Agabon v. NLRC by ruling
that if the dismissal is done without due process, the employer should indemnify the employee with
nominal damages.21

Thus, for non-compliance with the due process requirements in the termination of respondent’s
employment, petitioner KKTI is sanctioned to pay respondent the amount of thirty thousand pesos
(PhP 30,000) as damages.

Thirteenth (13th)-Month Pay

Section 3 of the Rules Implementing Presidential Decree No. 85122 provides the exceptions in the
coverage of the payment of the 13th-month benefit. The provision states:

SEC. 3. Employers covered.––The Decree shall apply to all employers except to:

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xxxx

e) Employers of those who are paid on purely commission, boundary, or task basis, and those who
are paid a fixed amount for performing a specific work, irrespective of the time consumed in the
performance thereof, except where the workers are paid on piece-rate basis in which case the
employer shall be covered by this issuance insofar as such workers are concerned.

Petitioner KKTI maintains that respondent was paid on purely commission basis; thus, the latter is not
entitled to receive the 13th-month pay benefit. However, applying the ruling in Philippine Agricultural
Commercial and Industrial Workers Union v. NLRC,23 the CA held that respondent is entitled to the
said benefit.

It was erroneous for the CA to apply the case of Philippine Agricultural Commercial and Industrial
Workers Union. Notably in the said case, it was established that the drivers and conductors praying
for 13th- month pay were not paid purely on commission. Instead, they were receiving a commission
in addition to a fixed or guaranteed wage or salary. Thus, the Court held that bus drivers and
conductors who are paid a fixed or guaranteed minimum wage in case their commission be less than
the statutory minimum, and commissions only in case where they are over and above the statutory
minimum, are entitled to a 13th-month pay equivalent to one-twelfth of their total earnings during the
calendar year.

On the other hand, in his Complaint,24 respondent admitted that he was paid on commission only.
Moreover, this fact is supported by his pay slips25 which indicated the varying amount of commissions
he was receiving each trip. Thus, he was excluded from receiving the 13th-month pay benefit.

WHEREFORE, the petition is PARTLY GRANTED and the September 16, 2004 Decision of the CA is
MODIFIED by deleting the award of backwages and 13th-month pay. Instead, petitioner KKTI is
ordered to indemnify respondent the amount of thirty thousand pesos (PhP 30,000) as nominal
damages for failure to comply with the due process requirements in terminating the employment of
respondent.

No costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

Associate Justice Associate Justice

DANTE O. TINGA
Associate Justice

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ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

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Letran Calamba Faculty and EMPLOYEES ASSOCIATION vs. NLRC and Colegio De
Sanjuan De Letran Calamba, Inc.; GR No. 156225; January 29, 2008 (Conductor 13th)

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. NO. 156225 January 29, 2008

LETRAN CALAMBA FACULTY and EMPLOYEES ASSOCIATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and COLEGIO DE SANJUAN DE LETRAN
CALAMBA, INC., respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Assailed in the present Petition for Review on Certiorari under Rule 45 of the Rules of Court is the
Decision1 of the Court of Appeals (CA) promulgated on May 14, 2002 in CA-G.R. SP No. 61552
dismissing the special civil action for certiorari filed before it; and the Resolution2 dated November 28,
2002, denying petitioner's Motion for Reconsideration.

The facts of the case are as follows:

On October 8, 1992, the Letran Calamba Faculty and Employees Association (petitioner) filed with
Regional Arbitration Branch No. IV of the National Labor Relations Commission (NLRC) a
Complaint3 against Colegio de San Juan de Letran, Calamba, Inc. (respondent) for collection of
various monetary claims due its members. Petitioner alleged in its Position Paper that:

xxxx

2) [It] has filed this complaint in behalf of its members whose names and positions appear in
the list hereto attached as Annex "A".

3) In the computation of the thirteenth month pay of its academic personnel, respondent does
not include as basis therefor their compensation for overloads. It only takes into account the
pay the faculty members receive for their teaching loads not exceeding eighteen (18) units.
The teaching overloads are rendered within eight (8) hours a day.

4) Respondent has not paid the wage increases required by Wage Order No. 5 to its
employees who qualify thereunder.

5) Respondent has not followed the formula prescribed by DECS Memorandum Circular No.
2 dated March 10, 1989 in the computation of the compensation per unit of excess load or
overload of faculty members. This has resulted in the diminution of the compensation of faculty
members.

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6) The salary increases due the non-academic personnel as a result of job grading has not
been given. Job grading has been an annual practice of the school since 1980; the same is
done for the purpose of increasing the salaries of non-academic personnel and as the
counterpart of the ranking systems of faculty members.

7) Respondent has not paid to its employees the balances of seventy (70%) percent of the
tuition fee increases for the years 1990, 1991 and 1992.

8) Respondent has not also paid its employees the holiday pay for the ten (10) regular holidays
as provided for in Article 94 of the Labor Code.

9) Respondent has refused without justifiable reasons and despite repeated demands to pay
its obligations mentioned in paragraphs 3 to 7 hereof.

x x x x4

The complaint was docketed as NLRC Case No. RAB-IV-10-4560-92-L.

On January 29, 1993, respondent filed its Position Paper denying all the allegations of petitioner.

On March 10, 1993, petitioner filed its Reply.

Prior to the filing of the above-mentioned complaint, petitioner filed a separate complaint against the
respondent for money claims with Regional Office No. IV of the Department of Labor and Employment
(DOLE).

On the other hand, pending resolution of NLRC Case No. RAB-IV-10-4560-92-L, respondent filed with
Regional Arbitration Branch No. IV of the NLRC a petition to declare as illegal a strike staged by
petitioner in January 1994.

Subsequently, these three cases were consolidated. The case for money claims originally filed by
petitioner with the DOLE was later docketed as NLRC Case No. RAB-IV-11-4624-92-L, while the
petition to declare the subject strike illegal filed by respondent was docketed as NLRC Case No. RAB-
IV-3-6555-94-L.

On September 28, 1998, the Labor Arbiter (LA) handling the consolidated cases rendered a Decision
with the following dispositive portion:

WHEREFORE, premises considered, judgment is hereby rendered, as follows:

1. The money claims cases (RAB-IV-10-4560-92-L and RAB-IV-11-4624-92-L) are hereby

dismissed for lack of merit;

2. The petition to declare strike illegal (NLRC Case No. RAB-IV-3-6555-94-L) is hereby
dismissed, but the officers of the Union, particularly its President, Mr. Edmundo F. Marifosque,
Sr., are hereby reprimanded and sternly warned that future conduct similar to what was
displayed in this case will warrant a more severe sanction from this Office.

SO ORDERED.5

Both parties appealed to the NLRC.

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On July 28, 1999, the NLRC promulgated its Decision6 dismissing both appeals. Petitioner filed a
Motion for Reconsideration7 but the same was denied by the NLRC in its Resolution8 dated June 21,
2000.

Petitioner then filed a special civil action for certiorari with the CA assailing the above-mentioned
NLRC Decision and Resolution.

On May 14, 2002, the CA rendered the presently assailed judgment dismissing the petition.

Petitioner filed a Motion for Reconsideration but the CA denied it in its Resolution promulgated on
November 28, 2002.

Hence, herein petition for review based on the following assignment of errors:

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE FACTUAL

FINDINGS OF THE NATIONAL LABOR RELATIONS COMMISSION CANNOT BE
REVIEWED IN CERTIORARI PROCEEDINGS.

II

THE COURT OF APPEALS GRAVELY ERRED IN REFUSING TO RULE SQUARELY ON

THE ISSUE OF WHETHER OR NOT THE PAY OF FACULTY MEMBERS FOR TEACHING
OVERLOADS SHOULD BE INCLUDED AS BASIS IN THE COMPUTATION OF THEIR
THIRTEENTH MONTH PAY.

III

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE DECISION OF THE
NATIONAL LABOR RELATIONS COMMISSION IS SUPPORTED BY SUBSTANTIAL
EVIDENCE AND IN NOT GRANTING PETITIONER'S MONETARY CLAIMS.9

Citing Agustilo v. Court of Appeals,10 petitioner contends that in a special civil action
for certiorari brought before the CA, the appellate court can review the factual findings and the legal
conclusions of the NLRC.

As to the inclusion of the overloads of respondent's faculty members in the computation of their 13th-
month pay, petitioner argues that under the Revised Guidelines on the Implementation of the 13th-
Month Pay Law, promulgated by the Secretary of Labor on November 16, 1987, the basic pay of an
employee includes remunerations or earnings paid by his employer for services rendered, and that
excluded therefrom are the cash equivalents of unused vacation and sick leave credits, overtime,
premium, night differential, holiday pay and cost-of-living allowances. Petitioner claims that since the
pay for excess loads or overloads does not fall under any of the enumerated exclusions and
considering that the said overloads are being performed within the normal working period of eight
hours a day, it only follows that the overloads should be included in the computation of the faculty
members' 13th-month pay.

To support its argument, petitioner cites the opinion of the Bureau of Working Conditions of the DOLE
that payment of teaching overload performed within eight hours of work a day shall be considered in
the computation of the 13th-month pay.11

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Petitioner further contends that DOLE-DECS-CHED-TESDA Order No. 02, Series of 1996 (DOLE
Order) which was relied upon by the LA and the NLRC in their respective Decisions cannot be applied
to the instant case because the DOLE Order was issued long after the commencement of petitioner's
complaints for monetary claims; that the prevailing rule at the time of the commencement of petitioner's
complaints was to include compensations for overloads in determining a faculty member's 13th-month
pay; that to give retroactive application to the DOLE Order issued in 1996 is to deprive workers of
benefits which have become vested and is a clear violation of the constitutional mandate on protection
of labor; and that, in any case, all doubts in the implementation and interpretation of labor laws,
including implementing rules and regulations, should be resolved in favor of labor.

Lastly, petitioner avers that the CA, in concluding that the NLRC Decision was supported by substantial
evidence, failed to specify what constituted said evidence. Thus, petitioner asserts that the CA acted
arbitrarily in affirming the Decision of the NLRC.

In its Comment, respondent contends that the ruling in Agustilo is an exception rather than the general
rule; that the general rule is that in a petition for certiorari, judicial review by this Court or by the CA in
labor cases does not go so far as to evaluate the sufficiency of the evidence upon which the proper
labor officer or office based his or its determination but is limited only to issues of jurisdiction or grave
abuse of discretion amounting to lack of jurisdiction; that before a party may ask that the CA or this
Court review the factual findings of the NLRC, there must first be a convincing argument that the NLRC
acted in a capricious, whimsical, arbitrary or despotic manner; and that in its petition for certiorari filed
with the CA, herein petitioner failed to prove that the NLRC acted without or in excess of jurisdiction
or with grave abuse of discretion.

Respondent argues that Agustilo is not applicable to the present case because in the former case, the
findings of fact of the LA and the NLRC are at variance with each other; while in the present case, the
findings of fact and conclusions of law of the LA and the NLRC are the same.

Respondent also avers that in a special civil action for certiorari, the discretionary power to review
factual findings of the NLRC rests upon the CA; and that absent any findings by the CA of the need to
resolve any unclear or ambiguous factual findings of the NLRC, the grant of the writ of certiorari is not
warranted.

Further, respondent contends that even granting that the factual findings of the CA, NLRC and the LA
may be reviewed in the present case, petitioner failed to present valid arguments to warrant the
reversal of the assailed decision.

Respondent avers that the DOLE Order is an administrative regulation which interprets the 13th-Month
Pay Law (P.D. No. 851) and, as such, it is mandatory for the LA to apply the same to the present case.

Moreover, respondent contends that the Legal Services Office of the DOLE issued an opinion dated
March 4, 1992,12 that remunerations for teaching in excess of the regular load, which includes overload
pay for work performed within an eight-hour work day, may not be included as part of the basic salary
in the computation of the 13th-month pay unless this has been included by company practice or policy;
that petitioner intentionally omitted any reference to the above-mentioned opinion of the Legal Services
Office of the DOLE because it is fatal to its cause; and that the DOLE Order is an affirmation of the
opinion rendered by the said Office of the DOLE.

Furthermore, respondent claims that, contrary to the asseveration of petitioner, prior to the issuance
of the DOLE Order, the prevailing rule is to exclude excess teaching load, which is akin to overtime,
in the computation of a teacher's basic salary and, ultimately, in the computation of his 13th-month
pay.

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As to respondent's alleged non-payment of petitioner's consolidated money claims, respondent

contends that the findings of the LA regarding these matters, which were affirmed by the NLRC and
the CA, have clear and convincing factual and legal bases to stand on.

The Court’s Ruling

The Court finds the petition bereft of merit.

As to the first and third assigned errors, petitioner would have this Court review the factual findings of
the LA as affirmed by the NLRC and the CA, to wit.

With respect to the alleged non-payment of benefits under Wage Order No. 5, this Office is
convinced that after the lapse of the one-year period of exemption from compliance with Wage
Order No. 5 (Exhibit "1-B), which exemption was granted by then Labor Minister Blas Ople,
the School settled its obligations to its employees, conformably with the agreement reached
during the management-employees meeting of June 26, 1985 (Exhibits "4-B" up to "4-D", also
Exhibit "6-x-1"). The Union has presented no evidence that the settlement reached during the
June 26, 1985 meeting was the result of coercion. Indeed, what is significant is that the
agreement of June 26, 1985 was signed by Mr. Porferio Ferrer, then Faculty President and an
officer of the complaining Union. Moreover, the samples from the payroll journal of the School,
identified and offered in evidence in these cases (Exhibits "1-C" and 1-D"), shows that the
School paid its employees the benefits under Wage Order No. 5 (and even Wage Order No.
6) beginning June 16, 1985.

Under the circumstances, therefore, the claim of the Union on this point must likewise fail.

The claim of the Union for salary differentials due to the improper computation of compensation
per unit of excess load cannot hold water for the simple reason that during the Schoolyears in
point there were no classes from June 1-14 and October 17-31. This fact was not refuted by
the Union. Since extra load should be paid only when actually performed by the employees,
no salary differentials are due the Union members.

The non-academic members of the Union cannot legally insist on wage increases due to "Job
Grading". From the records it appears that "Job Grading" is a system adopted by the School
by which positions are classified and evaluated according to the prescribed qualifications
therefor. It is akin to a merit system whereby salary increases are made dependent upon the
classification, evaluation and grading of the position held by an employee.

The system of Job Grading was initiated by the School in Schoolyear 1989-1990. In 1992, just
before the first of the two money claims was filed, a new Job Grading process was initiated by
the School.

Under the circumstances obtaining, it cannot be argued that there were repeated grants of
salary increases due to Job Grading to warrant the conclusion that some benefit was granted
in favor of the non-academic personnel that could no longer be eliminated or banished under
Article 100 of the Labor Code. Since the Job Grading exercises of the School were neither
consistent nor for a considerable period of time, the monetary claims attendant to an increase
in job grade are non-existent.

The claim of the Union that its members were not given their full share in the tuition fee
increases for the Schoolyears 1989-1990, 1990-1991 and 1991-1992 is belied by the evidence
presented by the School which consists of the unrefuted testimony of its Accounting

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Coordinator, Ms. Rosario Manlapaz, and the reports extrapolated from the journals and
general ledgers of the School (Exhibits "2", "2-A" up to "2-G"). The evidence indubitably shows
that in Schoolyear 1989-1990, the School incurred a deficit of P445,942.25, while in
Schoolyears 1990-1991 and 1991-1992, the School paid out, 91% and 77%, respectively, of
the increments in the tuition fees collected.

As regards the issue of non-payment of holiday pay, the individual pay records of the School's
employees, a sample of which was identified and explained by Ms. Rosario Manlapaz (Exhibit
"3"), shows that said School employees are paid for all days worked in the year. Stated
differently, the factor used in computing the salaries of the employees is 365, which indicates
that their regular monthly salary includes payment of wages during all legal holidays.13

This Court held in Odango v. National Labor Relations Commission14 that:

The appellate court’s jurisdiction to review a decision of the NLRC in a petition for certiorari is
confined to issues of jurisdiction or grave abuse of discretion. An extraordinary remedy, a
petition for certiorari is available only and restrictively in truly exceptional cases. The sole office
of the writ of certiorari is the correction of errors of jurisdiction including the commission of
grave abuse of discretion amounting to lack or excess of jurisdiction. It does not include
correction of the NLRC’s evaluation of the evidence or of its factual findings. Such findings are
generally accorded not only respect but also finality. A party assailing such findings bears the
burden of showing that the tribunal acted capriciously and whimsically or in total disregard of
evidence material to the controversy, in order that the extraordinary writ of certiorari will lie.15

In the instant case, the Court finds no error in the ruling of the CA that since nowhere in the petition is
there any acceptable demonstration that the LA or the NLRC acted either with grave abuse of
discretion or without or in excess of its jurisdiction, the appellate court has no reason to look into the
correctness of the evaluation of evidence which supports the labor tribunals' findings of fact.

Settled is the rule that the findings of the LA, when affirmed by the NLRC and the CA, are binding on
the Supreme Court, unless patently erroneous.16 It is not the function of the Supreme Court to analyze
or weigh all over again the evidence already considered in the proceedings below.17 In a petition for
review on certiorari, this Court’s jurisdiction is limited to reviewing errors of law in the absence of any
showing that the factual findings complained of are devoid of support in the records or are glaringly
erroneous.18 Firm is the doctrine that this Court is not a trier of facts, and this applies with greater force
in labor cases.19 Findings of fact of administrative agencies and quasi-judicial bodies, which have
acquired expertise because their jurisdiction is confined to specific matters, are generally accorded
not only great respect but even finality.20 They are binding upon this Court unless there is a showing
of grave abuse of discretion or where it is clearly shown that they were arrived at arbitrarily or in utter
disregard of the evidence on record.21 We find none of these exceptions in the present case.

In petitions for review on certiorari like the instant case, the Court invariably sustains the unanimous
factual findings of the LA, the NLRC and the CA, specially when such findings are supported by
substantial evidence and there is no cogent basis to reverse the same, as in this case.22

The second assigned error properly raises a question of law as it involves the determination of whether
or not a teacher's overload pay should be considered in the computation of his or her 13th-month pay.
In resolving this issue, the Court is confronted with conflicting interpretations by different government
agencies.

On one hand is the opinion of the Bureau of Working Conditions of the DOLE dated December 9,
1991, February 28, 1992 and November 19, 1992 to the effect that if overload is performed within a

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teacher's normal eight-hour work per day, the remuneration that the teacher will get from the additional
teaching load will form part of the basic wage.23

This opinion is affirmed by the Explanatory Bulletin on the Inclusion of Teachers' Overload Pay in the
13th-Month Pay Determination issued by the DOLE on December 3, 1993 under then Acting DOLE
Secretary Cresenciano B. Trajano. Pertinent portions of the said Bulletin read as follows:

1. Basis of the 13th-month pay computation

The Revised Implementing Guidelines of the 13th-Month Pay Law (P.D. 851, as amended)
provides that an employee shall be entitled to not less than 1/12 of the total basic salary earned
within a calendar year for the purpose of computing such entitlement. The basic wage of an
employee shall include:

"x x x all remunerations or earnings paid by his employer for services rendered but do not
include allowances or monetary benefits which are not considered or integrated as part of the
regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits,
overtime, premium, night differential and holiday pay, and cost-of-living allowances. However,
these salary-related benefits should be included as part of the basic salary in the computation
of the 13th month pay if by individual or collective agreement, company practice or policy, the
same are treated as part of the basic salary of the employees."

Basic wage is defined by the Implementing Rules of RA 6727 as follows:

"Basic Wage" means all remuneration or earnings paid by an employer to a worker for services
rendered on normal working days and hours but does not include cost of living allowances,
13th-month pay or other monetary benefits which are not considered as part of or integrated
into the regular salary of the workers xxx.

The foregoing definition was based on Article 83 of the Labor Code which provides that
"the normal hours of work of any employee shall not exceed eight (8) hours a day." This means
that the basic salary of an employee for the purpose of computing the 13th-month pay shall
include all remunerations or earnings paid by an employer for services rendered during normal
working hours.

2. Overload work/pay

Overload on the other hand means "the load in excess of the normal load of private school
teachers as prescribed by the Department of Education, Culture and Sports (DECS) or the
policies, rules and standards of particular private schools." In recognition of the peculiarities of
the teaching profession, existing DECS and School Policies and Regulations for different
levels of instructions prescribe a regular teaching load, the total actual teaching or classroom
hours of which a teacher can generally perform in less than eight (8) hours per working day.
This is because teaching may also require the teacher to do additional work such as handling
an advisory class, preparation of lesson plans and teaching aids, evaluation of students and
other related activities. Where, however a teacher is engaged to undertake actual additional
teaching work after completing his/her regular teaching load, such additional work is generally
referred to as overload. In short, additional work in excess of the regular teaching load is
overload work. Regular teaching load and overload work, if any, may constitute a
teacher's working day.

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Where a teacher is required to perform such overload within the eight (8) hours normal
working day, such overload compensation shall be considered part of the basic pay for
the purpose of computing the teacher's 13th-month pay. "Overload work" is sometimes
misunderstood as synonymous to "overtime work" as this term is used and understood in the
Labor Code. These two terms are not the same because overtime work is work rendered in
excess of normal working hours of eight in a day (Art. 87, Labor Code). Considering that
overload work may be performed either within or outside eight hours in a day, overload work
may or may not be overtime work.

3. Concluding Statement

In the light of the foregoing discussions, it is the position of this Department that all basic
salary/wage representing payments earned for actual work performed during or within the eight
hours in a day, including payments for overload work within eight hours, form part of basic
wage and therefore are to be included in the computation of 13th-month pay mandated by PD
851, as amended.24 (Underscoring supplied)

On the other hand, the Legal Services Department of the DOLE holds in its opinion of March 4, 1992
that remunerations for teaching in excess of the regular load shall be excluded in the computation of
the 13th-month pay unless, by school policy, the same are considered as part of the basic salary of
the qualified teachers.25

This opinion is later affirmed by the DOLE Order, pertinent portions of which are quoted below:

xxxx

2. In accordance with Article 83 of the Labor Code of the Philippines, as amended, the normal
hours of work of school academic personnel shall not exceed eight (8) hours a day. Any work
done in addition to the eight (8) hours daily work shall constitute overtime work.

3. The normal hours of work of teaching or academic personnel shall be based on their normal
or regular teaching loads. Such normal or regular teaching loads shall be in accordance with
the policies, rules and standards prescribed by the Department of Education, Culture and
Sports, the Commission on Higher Education and the Technical Education and Skills
Development Authority. Any teaching load in excess of the normal or regular teaching
load shall be considered as overload. Overload partakes of the nature of temporary extra
assignment and compensation therefore shall be considered as an overload honorarium if
performed within the 8-hour work period and does not form part of the regular or basic pay.
Overload performed beyond the eight-hour daily work is overtime work.26 (Emphasis supplied)

It was the above-quoted DOLE Order which was used by the LA as basis for ruling against herein
petitioner.

The petitioner’s claim that the DOLE Order should not be made to apply to the present case because
said Order was issued only in 1996, approximately four years after the present case was initiated
before the Regional Arbitration Branch of the NLRC, is not without basis. The general rule is that
administrative rulings and circulars shall not be given retroactive effect.27

Nevertheless, it is a settled rule that when an administrative or executive agency renders an

opinion or issues a statement of policy, it merely interprets a pre-existing law and the
administrative interpretation is at best advisory for it is the courts that finally determine what
the law means.28

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In the present case, while the DOLE Order may not be applicable, the Court finds that overload pay
should be excluded from the computation of the 13th-month pay of petitioner's members.

In resolving the issue of the inclusion or exclusion of overload pay in the computation of a teacher's
13th-month pay, it is decisive to determine what "basic salary" includes and excludes.

In this respect, the Court's disquisition in San Miguel Corporation v. Inciong29 is instructive, to wit:

Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is
used as the basis in the determination of his 13th month pay. Any compensations or
remunerations which are deemed not part of the basic pay is excluded as basis in the
computation of the mandatory bonus.

Under the Rules and Regulations Implementing Presidential Decree 851, the following
compensations are deemed not part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of

Instruction No. 174;

b) Profit sharing payments;

c) All allowances and monetary benefits which are not considered or integrated as part of the
regular basic salary of the employee at the time of the promulgation of the Decree on
December 16, 1975.

Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree
851 issued by the then Labor Secretary Blas Ople, overtime pay, earnings and other
remunerations are excluded as part of the basic salary and in the computation of the 13th-
month pay.

The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of
Instruction No. 174 and profit sharing payments indicate the intention to strip basic salary of
other payments which are properly considered as "fringe" benefits. Likewise, the catch-all
exclusionary phrase "all allowances and monetary benefits which are not considered or
integrated as part of the basic salary" shows also the intention to strip basic salary of any and
all additions which may be in the form of allowances or "fringe" benefits.

Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851
is even more emphatic in declaring that earnings and other remunerations which are not part
of the basic salary shall not be included in the computation of the 13th-month pay.

While doubt may have been created by the prior Rules and Regulations Implementing
Presidential Decree 851 which defines basic salary to include all remunerations or earnings
paid by an employer to an employee, this cloud is dissipated in the later and more controlling
Supplementary Rules and Regulations which categorically, exclude from the definition of basic
salary earnings and other remunerations paid by employer to an employee. A cursory perusal
of the two sets of Rules indicates that what has hitherto been the subject of a broad inclusion
is now a subject of broad exclusion. The Supplementary Rules and Regulations cure the
seeming tendency of the former rules to include all remunerations and earnings within the
definition of basic salary.

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The all-embracing phrase "earnings and other remunerations" which are deemed not part of
the basic salary includes within its meaning payments for sick, vacation, or maternity leaves,
premium for works performed on rest days and special holidays, pay for regular holidays and
night differentials. As such they are deemed not part of the basic salary and shall not be
considered in the computation of the 13th-month pay. If they were not so excluded, it is hard to
find any "earnings and other remunerations" expressly excluded in the computation of the 13th-
month pay. Then the exclusionary provision would prove to be idle and with no purpose.

This conclusion finds strong support under the Labor Code of the Philippines. To cite a few
provisions:

"Art. 87 – Overtime work. Work may be performed beyond eight (8) hours a day provided that
the employee is paid for the overtime work, additional compensation equivalent to his regular
wage plus at least twenty-five (25%) percent thereof."

It is clear that overtime pay is an additional compensation other than and added to the regular
wage or basic salary, for reason of which such is categorically excluded from the definition of
basic salary under the Supplementary Rules and Regulations Implementing Presidential
Decree 851.

In Article 93 of the same Code, paragraph

"c.) work performed on any special holiday shall be paid an additional compensation of at least
thirty percent (30%) of the regular wage of the employee."

It is likewise clear that premium for special holiday which is at least 30% of the regular wage
is an additional compensation other than and added to the regular wage or basic salary. For
similar reason it shall not be considered in the computation of the 13th -month pay.30

In the same manner that payment for overtime work and work performed during special holidays is
considered as additional compensation apart and distinct from an employee's regular wage or basic
salary, an overload pay, owing to its very nature and definition, may not be considered as part of a
teacher's regular or basic salary, because it is being paid for additional work performed in excess of
the regular teaching load.

The peculiarity of an overload lies in the fact that it may be performed within the normal eight-hour
working day. This is the only reason why the DOLE, in its explanatory bulletin, finds it proper to include
a teacher's overload pay in the determination of his or her 13th-month pay. However, the DOLE loses
sight of the fact that even if it is performed within the normal eight-hour working day, an overload is
still an additional or extra teaching work which is performed after the regular teaching load has been
completed. Hence, any pay given as compensation for such additional work should be considered as
extra and not deemed as part of the regular or basic salary.

Moreover, petitioner failed to refute private respondent's contention that excess teaching load is paid
by the hour, while the regular teaching load is being paid on a monthly basis; and that the assignment
of overload is subject to the availability of teaching loads. This only goes to show that overload pay is
not integrated with a teacher's basic salary for his or her regular teaching load. In addition, overload
varies from one semester to another, as it is dependent upon the availability of extra teaching loads.
As such, it is not legally feasible to consider payments for such overload as part of a teacher's regular
or basic salary. Verily, overload pay may not be included as basis for determining a teacher's 13th-
month pay.

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WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

*RENATO C. CORONA ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

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Century Canning Corporation vs. CA and Gloria C. Palad; GR No. 152894; August 17,
2007 (Conductor 13th)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 152894 August 17, 2007

CENTURY CANNING CORPORATION, Petitioner,

vs.
COURT OF APPEALS and GLORIA C. PALAD, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the Decision2 dated 12 November 2001 and the Resolution dated 5
April 2002 of the Court of Appeals in CA-G.R. SP No. 60379.

The Facts

On 15 July 1997, Century Canning Corporation (petitioner) hired Gloria C. Palad (Palad) as "fish
cleaner" at petitioner’s tuna and sardines factory. Palad signed on 17 July 1997 an apprenticeship
agreement3 with petitioner. Palad received an apprentice allowance of ₱138.75 daily. On 25 July 1997,
petitioner submitted its apprenticeship program for approval to the Technical Education and Skills
Development Authority (TESDA) of the Department of Labor and Employment (DOLE). On 26
September 1997, the TESDA approved petitioner’s apprenticeship program.4

According to petitioner, a performance evaluation was conducted on 15 November 1997, where

petitioner gave Palad a rating of N.I. or "needs improvement" since she scored only 27.75% based on
a 100% performance indicator. Furthermore, according to the performance evaluation, Palad incurred
numerous tardiness and absences. As a consequence, petitioner issued a termination notice 5 dated
22 November 1997 to Palad, informing her of her termination effective at the close of business hours
of 28 November 1997.

Palad then filed a complaint for illegal dismissal, underpayment of wages, and non-payment of pro-
rated 13th month pay for the year 1997.

On 25 February 1999, the Labor Arbiter dismissed the complaint for lack of merit but ordered petitioner
to pay Palad her last salary and her pro-rated 13th month pay. The dispositive portion of the Labor
Arbiter’s decision reads:

WHEREFORE, premises considered, judgment is hereby rendered declaring that the complaint for
illegal dismissal filed by the complainant against the respondents in the above-entitled case should
be, as it is hereby DISMISSED for lack of merit. However, the respondents are hereby ordered to pay

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the complainant the amount of ONE THOUSAND SIX HUNDRED THIRTY-TWO PESOS (₱1,632.00),
representing her last salary and the amount of SEVEN THOUSAND TWO HUNDRED TWENTY
EIGHT (₱7,228.00) PESOS representing her prorated 13th month pay.

All other issues are likewise dismissed.

SO ORDERED.6

On appeal, the National Labor Relations Commission (NLRC) affirmed with modification the Labor
Arbiter’s decision, thus:

WHEREFORE, premises considered, the decision of the Arbiter dated 25 February 1999 is hereby
MODIFIED in that, in addition, respondents are ordered to pay complainant’s backwages for two (2)
months in the amount of ₱7,176.00 (₱138.75 x 26 x 2 mos.). All other dispositions of the Arbiter as
appearing in the dispositive portion of his decision are AFFIRMED.

SO ORDERED.7

Upon denial of Palad’s motion for reconsideration, Palad filed a special civil action for certiorari with
the Court of Appeals. On 12 November 2001, the Court of Appeals rendered a decision, the dispositive
portion of which reads:

WHEREFORE, in view of the foregoing, the questioned decision of the NLRC is hereby SET ASIDE
and a new one entered, to wit:

(a) finding the dismissal of petitioner to be illegal;

(b) ordering private respondent to pay petitioner her underpayment in wages;

(c) ordering private respondent to reinstate petitioner to her former position without loss of
seniority rights and to pay her full backwages computed from the time compensation was
withheld from her up to the time of her reinstatement;

(d) ordering private respondent to pay petitioner attorney’s fees equivalent to ten (10%) per
cent of the monetary award herein; and

(e) ordering private respondent to pay the costs of the suit.

SO ORDERED.8

The Ruling of the Court of Appeals

The Court of Appeals held that the apprenticeship agreement which Palad signed was not valid and
binding because it was executed more than two months before the TESDA approved petitioner’s
apprenticeship program. The Court of Appeals cited Nitto Enterprises v. National Labor Relations
Commission,9 where it was held that prior approval by the DOLE of the proposed apprenticeship
program is a condition sine qua non before an apprenticeship agreement can be validly entered into.

The Court of Appeals also held that petitioner illegally dismissed Palad. The Court of Appeals ruled
that petitioner failed to show that Palad was properly apprised of the required standard of performance.

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The Court of Appeals likewise held that Palad was not afforded due process because petitioner did
not comply with the twin requirements of notice and hearing.

The Issues

Petitioner raises the following issues:

1. WHETHER THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING

THAT PRIVATE RESPONDENT WAS NOT AN APPRENTICE; and

2. WHETHER THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING

THAT PETITIONER HAD NOT ADEQUATELY PROVEN THE EXISTENCE OF A VALID
CAUSE IN TERMINATING THE SERVICE OF PRIVATE RESPONDENT.10

The Ruling of the Court

The petition is without merit.

Registration and Approval by the TESDA of Apprenticeship Program Required Before Hiring
of Apprentices

The Labor Code defines an apprentice as a worker who is covered by a written apprenticeship
agreement with an employer.11 One of the objectives of Title II (Training and Employment of Special
Workers) of the Labor Code is to establish apprenticeship standards for the protection of
apprentices.12 In line with this objective, Articles 60 and 61 of the Labor Code provide:

ART. 60. Employment of apprentices. — Only employers in the highly technical industries may
employ apprentices and only in apprenticeable occupations approved by the Minister of Labor
and Employment. (Emphasis supplied)

ART. 61. Contents of apprenticeship agreements. — Apprenticeship agreements, including the wage
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 percent of the
applicable minimum wage, may be entered into only in accordance with apprenticeship
programs duly approved by the Minister of Labor and Employment. The Ministry shall develop
standard model programs of apprenticeship. (Emphasis supplied)

In Nitto Enterprises v. National Labor Relations Commission,13 the Court cited Article 61 of the Labor
Code and held that an apprenticeship program should first be approved by the DOLE before an
apprentice may be hired, otherwise the person hired will be considered a regular employee. The Court
held:

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.

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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 qua 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 x x x. (Emphasis supplied)14

Republic Act No. 779615 (RA 7796), which created the TESDA, has transferred the authority over
apprenticeship programs from the Bureau of Local Employment of the DOLE to the TESDA.16 RA 7796
emphasizes TESDA’s approval of the apprenticeship program as a pre-requisite for the hiring of
apprentices. Such intent is clear under Section 4 of RA 7796:

SEC. 4. Definition of Terms. — As used in this Act:

xxx

j) "Apprenticeship" training within employment with compulsory related theoretical

instructions involving a contract between an apprentice and an employer on an approved
apprenticeable occupation;

k) "Apprentice" is a person undergoing training for an approved apprenticeable

occupation during an established period assured by an apprenticeship agreement;

l) "Apprentice Agreement" is a contract wherein a prospective employer binds himself to

train the apprentice who in turn accepts the terms of training for a recognized
apprenticeable occupation emphasizing the rights, duties and responsibilities of each
party;

m) "Apprenticeable Occupation" is an occupation officially endorsed by a tripartite body

and approved for apprenticeship by the Authority [TESDA]; (Emphasis supplied)

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In this case, the apprenticeship agreement was entered into between the parties before petitioner filed
its apprenticeship program with the TESDA for approval. Petitioner and Palad executed the
apprenticeship agreement on 17 July 1997 wherein it was stated that the training would start on 17
July 1997 and would end approximately in December 1997.17 On 25 July 1997, petitioner submitted
for approval its apprenticeship program, which the TESDA subsequently approved on 26 September
1997.18 Clearly, the apprenticeship agreement was enforced even before the TESDA approved
petitioner’s apprenticeship program. Thus, the apprenticeship agreement is void because it lacked
prior approval from the TESDA.

The TESDA’s approval of the employer’s apprenticeship program is required before the employer is
allowed to hire apprentices. Prior approval from the TESDA is necessary to ensure that only employers
in the highly technical industries may employ apprentices and only in apprenticeable
occupations.19 Thus, under RA 7796, employers can only hire apprentices for apprenticeable
occupations which must be officially endorsed by a tripartite body and approved for apprenticeship by
the TESDA. This is to ensure the protection of apprentices and to obviate possible abuses by
1avv phil

prospective employers who may want to take advantage of the lower wage rates for apprentices and
circumvent the right of the employees to be secure in their employment.

The requisite TESDA approval of the apprenticeship program prior to the hiring of apprentices was
further emphasized by the DOLE with the issuance of Department Order No. 68-04 on 18 August
2004. Department Order No. 68-04, which provides the guidelines in the implementation of the
Apprenticeship and Employment Program of the government, specifically states that no enterprise
shall be allowed to hire apprentices unless its apprenticeship program is registered and
approved by TESDA.20

Since Palad is not considered an apprentice because the apprenticeship agreement was enforced
before the TESDA’s approval of petitioner’s apprenticeship program, Palad is deemed a regular
employee performing the job of a "fish cleaner." Clearly, the job of a "fish cleaner" is necessary in
petitioner’s business as a tuna and sardines factory. Under Article 28021 of the Labor Code, an
employment is deemed 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.

Illegal Termination of Palad

We shall now resolve whether petitioner illegally dismissed Palad.

Under Article 27922 of the Labor Code, an employer may terminate the services of an employee for
just causes23 or for authorized causes.24 Furthermore, under Article 277(b)25 of the Labor Code, the
employer must send the employee who is about to be terminated, a written notice stating the causes
for termination and must give the employee the opportunity to be heard and to defend himself. Thus,
to constitute valid dismissal from employment, two requisites must concur: (1) the dismissal must be
for a just or authorized cause; and (2) the employee must be afforded an opportunity to be heard and
to defend himself.26

In this case, the Labor Arbiter held that petitioner terminated Palad for habitual absenteeism and poor
efficiency of performance. Under Section 25, Rule VI, Book II of the Implementing Rules of the Labor
Code, habitual absenteeism and poor efficiency of performance are among the valid causes for which
the employer may terminate the apprenticeship agreement after the probationary period.

However, the NLRC reversed the finding of the Labor Arbiter on the issue of the legality of Palad’s
termination:

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As to the validity of complainant’s dismissal in her status as an apprentice, suffice to state that the
findings of the Arbiter that complainant was dismissed due to failure to meet the standards is nebulous.
What clearly appears is that complainant already passed the probationary status of the apprenticeship
agreement of 200 hours at the time she was terminated on 28 November 1997 which was already the
fourth month of the apprenticeship period of 1000 hours. As such, under the Code, she can only be
dismissed for cause, in this case, for poor efficiency of performance on the job or in the classroom for
a prolonged period despite warnings duly given to the apprentice.

We noted that no clear and sufficient evidence exist to warrant her dismissal as an apprentice
during the agreed period. Besides the absence of any written warnings given to complainant
reminding her of "poor performance," respondents’ evidence in this respect consisted of an
indecipherable or unauthenticated xerox of the performance evaluation allegedly conducted
on complainant. This is of doubtful authenticity and/or credibility, being not only incomplete in
the sense that appearing thereon is a signature (not that of complainant) side by side with a
date indicated as "1/16/98". From the looks of it, this signature is close to and appertains to the
typewritten position of "Division/Department Head", which is below the signature of
complainant’s immediate superior who made the evaluation indicated as "11-15-97."

The only conclusion We can infer is that this evaluation was made belatedly, specifically, after
the filing of the case and during the progress thereof in the Arbitral level, as shown that nothing
thereon indicate that complainant was notified of the results. Its authenticity therefor, is a big
question mark, and hence lacks any credibility. Evidence, to be admissible in administrative
proceedings, must at least have a modicum of authenticity. This, respondents failed to comply
with. As such, complainant is entitled to the payment of her wages for the remaining two (2) months
of her apprenticeship agreement.27 (Emphasis supplied)

Indeed, it appears that the Labor Arbiter’s conclusion that petitioner validly terminated Palad was
based mainly on the performance evaluation allegedly conducted by petitioner. However, Palad
alleges that she had no knowledge of the performance evaluation conducted and that she was not
even informed of the result of the alleged performance evaluation. Palad also claims she did not
receive a notice of dismissal, nor was she given the chance to explain. According to petitioner, Palad
did not receive the termination notice because Palad allegedly stopped reporting for work after being
informed of the result of the evaluation.

Under Article 227 of the Labor Code, the employer has the burden of proving that the termination was
for a valid or authorized cause.28 Petitioner failed to substantiate its claim that Palad was terminated
for valid reasons. In fact, the NLRC found that petitioner failed to prove the authenticity of the
performance evaluation which petitioner claims to have conducted on Palad, where Palad received a
performance rating of only 27.75%. Petitioner merely relies on the performance evaluation to prove
Palad’s inefficiency. It was likewise not shown that petitioner ever apprised Palad of the performance
standards set by the company. When the alleged valid cause for the termination of employment is not
clearly proven, as in this case, the law considers the matter a case of illegal dismissal.29

Furthermore, Palad was not accorded due process. Even if petitioner did conduct a performance
evaluation on Palad, petitioner failed to warn Palad of her alleged poor performance. In fact, Palad
denies any knowledge of the performance evaluation conducted and of the result thereof. Petitioner
likewise admits that Palad did not receive the notice of termination30 because Palad allegedly stopped
reporting for work. The records are bereft of evidence to show that petitioner ever gave Palad the
opportunity to explain and defend herself. Clearly, the two requisites for a valid dismissal are lacking
in this case.

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WHEREFORE, we AFFIRM the Decision dated 12 November 2001 and the Resolution dated 5 April
2002 of the Court of Appeals in CA-G.R. SP No. 60379.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

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