SECOND DIVISION security measure but to mainly identify the holder thereof as a bona fide employee
of the firm who issues it.
[G.R. No. 167648. January 28, 2008.]
TELEVISION AND PRODUCTION EXPONENTS, INC.
and/or ANTONIO P. TUVIERA, petitioners, vs.
ROBERTO C. SERVAÑA, respondent.
Remedial Law; Appeals; Certiorari; The rule that only questions of law are
entertained in appeals by certiorari to the Supreme Court is not absolute.—It bears
emphasis that the existence of employer-employee relationship is ultimately a
question of fact. Generally, only questions of law are entertained in appeals by
certiorari to the Supreme Court. This rule, however, is not absolute. Among the
several recognized exceptions is when the findings of the Court of Appeals and
Labor Arbiters, on one hand, and that of the NLRC, on the other, are conflicting, as
obtaining in the case at bar.
Labor Law; Employer-Employee Relationship; Factors to be Considered in
Determining the Existence of Employer-Employee Relationship; The most important
factor involves the control test.—Jurisprudence is abound with cases that recite the
factors to be considered in determining the existence of employer-employee
relationship, namely: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employer’s power to
control the employee with respect to the means and method by which the work is
to be accomplished. The most important factor involves the control test. Under the
control test, there is an employer-employee relationship when the person for
whom the services are performed reserves the right to control not only the end
achieved but also the manner and means used to achieve that end.
Same; Same; Same; It has been held that in a business establishment, an
identification card is usually provided not just as a security measure but to mainly
identify the holder thereof as a bona fide employee of the firm who issues it.—The
position of TAPE is untenable. Respondent was first connected with Agro-
Commercial Security Agency, which assigned him to assist TAPE in its live
productions. When the security agency’s contract with RPN-9 expired in 1995,
respondent was absorbed by TAPE or, in the latter’s language, “retained as talent.”
Clearly, respondent was hired by TAPE. Respondent presented his identification
card to prove that he is indeed an employee of TAPE. It has been in held that in a
business establishment, an identification card is usually provided not just as a
Same; Same; Wages; Words and Phrases; Definition of Wages in the Labor Code.—
Respondent claims to have been receiving P5,444.44 as his monthly salary while
TAPE prefers to designate such amount as talent fees. Wages, as defined in the
Labor Code, are remuneration or earnings, however designated, capable of being
expressed in terms of money, whether fixed or ascertained on a time, task, piece or
commission basis, or other method of calculating the same, which is payable by an
employer to an employee under a written or unwritten contract of employment for
work done or to be done, or for service rendered or to be rendered. It is beyond
dispute that respondent received a fixed amount as monthly compensation for the
services he rendered to TAPE.
Same; Same; As a regular employee, respondent cannot be terminated except for
just cause or when authorized by law.—As a regular employee, respondent cannot
be terminated except for just cause or when authorized by law. It is clear from the
tenor of the 2 March 2000 Memorandum that respondent’s termination was due to
redundancy.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals. Television and Production Exponents, Inc. vs. Servaña, 542 SCRA 578, G.R.
No. 167648 January 28, 2008
DECISION
TINGA,  J p:
This petition for review under Rule 45 assails the 21 December
2004 Decision 1 and 8 April 2005 Resolution 2 of the Court of Appeals
declaring Roberto Servaña (respondent) a regular employee of petitioner
Television and Production Exponents, Inc. (TAPE). The appellate court
likewise ordered TAPE to pay nominal damages for its failure to observe
statutory due process in the termination of respondent's employment for
authorized cause.
TAPE is a domestic corporation engaged in the production of
television programs, such as the long-running variety program, "Eat
Bulaga!". Its president is Antonio P. Tuviera (Tuviera). Respondent
Roberto C. Servaña had served as a security guard for TAPE from
March 1987 until he was terminated on 3 March 2000.
 Respondent filed a complaint for illegal dismissal and
nonpayment of benefits against TAPE. He alleged that he was first
connected with Agro-Commercial Security Agency but was later on
absorbed by TAPE as a regular company guard. He was detailed at
Broadway Centrum in Quezon City where "Eat Bulaga!" regularly staged
its productions. On 2 March 2000, respondent received a memorandum
informing him of his impending dismissal on account of TAPE's decision
to contract the services of a professional security agency. At the time of
his termination, respondent was receiving a monthly salary of P6,000.00.
He claimed that the holiday pay, unpaid vacation and sick leave benefits
and other monetary considerations were withheld from him. He further
contended that his dismissal was undertaken without due process and
violative of existing labor laws, aggravated by nonpayment of separation
pay. 3
In a motion to dismiss which was treated as its position paper,
TAPE countered that the labor arbiter had no jurisdiction over the case in
the absence of an employer-employee relationship between the parties.
TAPE made the following assertions: (1) that respondent was initially
employed as a security guard for Radio Philippines Network (RPN-9); (2)
that he was tasked to assist TAPE during its live productions, specifically,
to control the crowd; (3) that when RPN-9 severed its relationship with
the security agency, TAPE engaged respondent's services, as part of the
support group and thus a talent, to provide security service to production
staff, stars and guests of "Eat Bulaga!" as well as to control the audience
during the one-and-a-half hour noontime program; (4) that it was agreed
that complainant would render his services until such time that
respondent company shall have engaged the services of a professional
security agency; (5) that in 1995, when his contract with RPN-9 expired,
respondent was retained as a talent and a member of the support group,
until such time that TAPE shall have engaged the services of a
professional security agency; (6) that respondent was not prevented from
seeking other employment, whether or not related to security services,
before or after attending to his "Eat Bulaga!" functions; (7) that sometime
in late 1999, TAPE started negotiations for the engagement of a
professional security agency, the Sun Shield Security Agency; and (8)
that on 2 March 2000, TAPE issued memoranda to all talents, whose
functions would be rendered redundant by the engagement of the
security agency, informing them of the management's decision to
terminate their services. 4 DSIaAE
TAPE averred that respondent was an independent contractor
falling under the talent group category and was working under a special
arrangement which is recognized in the industry. 5
Respondent for his part insisted that he was a regular employee
having been engaged to perform an activity that is necessary and
desirable to TAPE's business for thirteen (13) years. 6
On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona
declared respondent to be a regular employee of TAPE. The Labor
Arbiter relied on the nature of the work of respondent, which is securing
and maintaining order in the studio, as necessary and desirable in the
usual business activity of TAPE. The Labor Arbiter also ruled that the
termination was valid on the ground of redundancy, and ordered the
payment of respondent's separation pay equivalent to one (1)-month pay
for every year of service. The dispositive portion of the decision reads:
WHEREFORE, complainant's position is hereby
declared redundant. Accordingly, respondents are hereby
ordered to pay complainant his separation pay computed at the
rate of one (1) month pay for every year of service or in the
total amount of P78,000.00. 7
On appeal, the National Labor Relations Commission (NLRC) in a
Decision 8 dated 22 April 2002 reversed the Labor Arbiter and considered
respondent a mere program employee, thus:
We have scoured the records of this case and we find
nothing to support the Labor Arbiter's conclusion that
complainant was a regular employee.
xxx xxx xxx
The primary standard to determine regularity of
employment is the reasonable connection between the
particular activity performed by the employee in relation to the
usual business or trade of the employer. This connection can
be determined by considering the nature and work performed
and its relation to the scheme of the particular business or
trade in its entirety. . . . Respondent company is engaged in
the business of production of television shows. The records of
this case also show that complainant was employed by
respondent company beginning 1995 after respondent
company transferred from RPN-9 to GMA-7, a fact which
complainant does not dispute. His last salary was P5,444.44
per month. In such industry, security services may not be
deemed necessary and desirable in the usual business of the
employer. Even without the performance of such services on a
regular basis, respondent's company's business will not grind
to a halt.
xxx xxx xxx
Complainant was indubitably a program employee of
respondent company. Unlike [a] regular employee, he did not
observe working hours . . . . He worked for other companies,
such as M-Zet TV Production, Inc. at the same time that he
was working for respondent company. The foregoing
indubitably shows that complainant-appellee was a program
employee. Otherwise, he would have two (2) employers at the
same time. 9
 Respondent filed a motion for reconsideration but it was denied
in a Resolution 10 dated 28 June 2002. CAScIH
Respondent filed a petition for certiorari with the Court of
Appeals contending that the NLRC acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it reversed the decision
of the Labor Arbiter. Respondent asserted that he was a regular
employee considering the nature and length of service rendered. 11
Reversing the decision of the NLRC, the Court of Appeals found
respondent to be a regular employee. We quote the dispositive portion of
the decision:
IN LIGHT OF THE FOREGOING, the petition is
hereby GRANTED. The Decision dated 22 April 2002 of the
public respondent NLRC reversing the Decision of the Labor
Arbiter and its Resolution dated 28 June 2002 denying
petitioner's motion for reconsideration
are REVERSED and SET ASIDE. The Decision dated 29 June
2001 of the Labor Arbiter
is REINSTATED with MODIFICATION in that private
respondents are ordered to pay jointly and severally petitioner
the amount of P10,000.00 as nominal damages for non-
compliance with the statutory due process.
SO ORDERED. 12
Finding TAPE's motion for reconsideration without merit, the
Court of Appeals issued a Resolution 13 dated 8 April 2005 denying said
motion.
TAPE filed the instant petition for review raising substantially the
same grounds as those in its petition for certiorari before the Court of
Appeals. These matters may be summed up into one main issue:
whether an employer-employee relationship exists between TAPE and
respondent.
On 27 September 2006, the Court gave due course to the
petition and considered the case submitted for decision. 14
At the outset, it bears emphasis that the existence of employer-
employee relationship is ultimately a question of fact. Generally, only
questions of law are entertained in appeals by certiorari to the Supreme
Court. This rule, however, is not absolute. Among the several recognized
exceptions is when the findings of the Court of Appeals and Labor
Arbiters, on one hand, and that of the NLRC, on the other, are
conflicting, 15 as obtaining in the case at bar.
Jurisprudence is abound with cases that recite the factors to be
considered in determining the existence of employer-employee
relationship, namely: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee with respect to the means and
method by which the work is to be accomplished. 16 The most important
factor involves the control test. Under the control test, there is an
employer-employee relationship when the person for whom the services
are performed reserves the right to control not only the end achieved but
also the manner and means used to achieve that end. 17
In concluding that respondent was an employee of TAPE, the
Court of Appeals applied the "four-fold test" in this wise:
First. The selection and hiring of petitioner was done
by private respondents. In fact, private respondents
themselves admitted having engaged the services of petitioner
only in 1995 after TAPE severed its relations with RPN
Channel 9. TAScID
By informing petitioner through the Memorandum
dated 2 March 2000, that his services will be terminated as
soon as the services of the newly hired security agency begins,
private respondents in effect acknowledged petitioner to be
their employee. For the right to hire and fire is another
important element of the employer-employee relationship.
Second. Payment of wages is one of the four factors
to be considered in determining the existence of employer-
employee relation. . . Payment as admitted by private
respondents was given by them on a monthly basis at a rate of
P5,444.44.
Third. Of the four elements of the employer-employee
relationship, the "control test" is the most important. . . .
The bundy cards representing the time petitioner had
reported for work are evident proofs of private respondents'
control over petitioner more particularly with the time he is
required to report for work during the noontime program of "Eat
Bulaga!" If it were not so, petitioner would be free to report for
work anytime even not during the noontime program of "Eat
Bulaga!" from 11:30 a.m. to 1:00 p.m. and still gets his
compensation for being a "talent." Precisely, he is being paid
for being the security of "Eat Bulaga!" during the above-
mentioned period. The daily time cards of petitioner are not just
for mere record purposes as claimed by private respondents. It
is a form of control by the management of private respondent
TAPE. 18
TAPE asseverates that the Court of Appeals erred in applying
the "four-fold test" in determining the existence of employer-employee
relationship between it and respondent. With respect to the elements of
selection, wages and dismissal, TAPE proffers the following arguments:
that it never hired respondent, instead it was the latter who offered his
services as a talent to TAPE; that the Memorandum dated 2 March 2000
served on respondent was for the discontinuance of the contract for
security services and not a termination letter; and that the talent fees
given to respondent were the pre-agreed consideration for the services
rendered and should not be construed as wages. Anent the element of
control, TAPE insists that it had no control over respondent in that he
was free to employ means and methods by which he is to control and
manage the live audiences, as well as the safety of TAPE's stars and
guests. 19
The position of TAPE is untenable. Respondent was first
connected with Agro-Commercial Security Agency, which assigned him
to assist TAPE in its live productions. When the security agency's
contract with RPN-9 expired in 1995, respondent was absorbed by TAPE
or, in the latter's language, "retained as talent." 20 Clearly, respondent
was hired by TAPE. Respondent presented his identification card 21 to
prove that he is indeed an employee of TAPE. It has been in held that in
a business establishment, an identification card is usually provided not
just as a security measure but to mainly identify the holder thereof as
a bona fide employee of the firm who issues it. 22
Respondent claims to have been receiving P5,444.44 as his
monthly salary while TAPE prefers to designate such amount as talent
fees. Wages, as defined in the Labor Code, are remuneration or
earnings, however designated, capable of being expressed in terms of
money, whether fixed or ascertained on a time, task, piece or
commission basis, or other method of calculating the same, which is
payable by an employer to an employee under a written or unwritten
contract of employment for work done or to be done, or for service
rendered or to be rendered. It is beyond dispute that respondent received
a fixed amount as monthly compensation for the services he rendered to
TAPE.
The Memorandum informing respondent of the discontinuance of
his service proves that TAPE had the power to dismiss respondent.
Control is manifested in the bundy cards submitted by
respondent in evidence. He was required to report daily and observe
definite work hours. To negate the element of control, TAPE presented a
certification from M-Zet Productions to prove that respondent also
worked as a studio security guard for said company. Notably, the said
certificate categorically stated that respondent reported for work on
Thursdays from 1992 to 1995. It can be recalled that during said period,
respondent was still working for RPN-9. As admitted by TAPE, it
absorbed respondent in late 1995. 23 AaIDCS
TAPE further denies exercising control over respondent and
maintains that the latter is an independent contractor. 24 Aside from
possessing substantial capital or investment, a legitimate job contractor
or subcontractor carries on a distinct and independent business and
undertakes to perform the job, work or service on its own account and
under its own responsibility according to its own manner and method,
and free from the control and direction of the principal in all matters
connected with the performance of the work except as to the results
thereof. 25 TAPE failed to establish that respondent is an independent
contractor. As found by the Court of Appeals:
We find the annexes submitted by the private
respondents insufficient to prove that herein petitioner is
indeed an independent contractor. None of the above
conditions exist in the case at bar. Private respondents failed
to show that petitioner has substantial capital or investment to
be qualified as an independent contractor. They likewise failed
to present a written contract which specifies the performance
of a specified piece of work, the nature and extent of the work
and the term and duration of the relationship between herein
petitioner and private respondent TAPE. 26
TAPE relies on Policy Instruction No. 40, issued by the
Department of Labor, in classifying respondent as a program employee
and equating him to be an independent contractor.
Policy Instruction No. 40 defines program employees as —
. . . those whose skills, talents or services are
engaged by the station for a particular or specific program or
undertaking and who are not required to observe normal
working hours such that on some days they work for less than
eight (8) hours and on other days beyond the normal work
hours observed by station employees and are allowed to enter
into employment contracts with other persons, stations,
advertising agencies or sponsoring companies. The
engagement of program employees, including those hired by
advertising or sponsoring companies, shall be under a written
contract specifying, among other things, the nature of the work
to be performed, rates of pay and the programs in which they
will work. The contract shall be duly registered by the station
with the Broadcast Media Council within three (3) days from its
consummation. 27
TAPE failed to adduce any evidence to prove that it complied
with the requirements laid down in the policy instruction. It did not even
present its contract with respondent. Neither did it comply with the
contract-registration requirement.
Even granting arguendo that respondent is a program employee,
still, classifying him as an independent contractor is misplaced. The
Court of Appeals had this to say:
We cannot subscribe to private respondents'
conflicting theories. The theory of private respondents that
petitioner is an independent contractor runs counter to their
very own allegation that petitioner is a talent or a program
employee. An independent contractor is not an employee of
 the employer, while a talent or program employee is an
employee. The only difference between a talent or program
employee and a regular employee is the fact that a regular
employee is entitled to all the benefits that are being prayed
for. This is the reason why private respondents try to seek
refuge under the concept of an independent contractor theory.
For if petitioner were indeed an independent contractor, private
respondents will not be liable to pay the benefits prayed for in
petitioner's complaint. 28
More importantly, respondent had been continuously under the
employ of TAPE from 1995 until his termination in March 2000, or for a
span of 5 years. Regardless of whether or not respondent had been
performing work that is necessary or desirable to the usual business of
TAPE, respondent is still considered a regular employee under Article
280 of the Labor Code which provides: CaASIc
Art. 280. Regular and Casual Employment. — The
provisions of written agreement to the contrary notwithstanding
and regardless of the oral agreement of the parties, an
employment shall be deemed to be regular where the
employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of
the employer, except where the employment has been fixed for
a specific project or undertaking the completion or termination
of which has been determined at the time of engagement of
the employee or where the work or service to be performed is
seasonal in nature and employment is for the duration of the
season.
An employment shall be deemed to be casual if it is
not covered by the preceding paragraph. Provided, that, any
employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in
which he is employed and his employment shall continue while
such activity exists.
As a regular employee, respondent cannot be terminated except
for just cause or when authorized by law. 29 It is clear from the tenor of
the 2 March 2000 Memorandum that respondent's termination was due
to redundancy. Thus, the Court of Appeals correctly disposed of this
issue, viz:
Article 283 of the Labor Code provides that the
employer may also terminate the employment of any employee
due to the installation of labor saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of
operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of
this Title, by serving a written notice on the workers and the
Ministry of Labor and Employment at least one (1) month
before the intended date thereof. In case of termination due to
the installation of labor saving devices or redundancy, the
worker affected thereby shall be entitled to a separation pay
equivalent to at least his one (1) month pay or to at least one
(1) month pay for every year or service, whichever is higher.
xxx xxx xxx
We uphold the finding of the Labor Arbiter that
"complainant [herein petitioner] was terminated upon [the]
management's option to professionalize the security services in
its operations. . . ." However, [we] find that although petitioner's
services [sic] was for an authorized cause, i.e., redundancy,
private respondents failed to prove that it complied with service
of written notice to the Department of Labor and Employment
at least one month prior to the intended date of retrenchment.
It bears stressing that although notice was served upon
petitioner through a Memorandum dated 2 March 2000, the
effectivity of his dismissal is fifteen days from the start of the
agency's take over which was on 3 March 2000. Petitioner's
services with private respondents were severed less than the
month requirement by the law.
Under prevailing jurisprudence the termination for an
authorized cause requires payment of separation pay.
Procedurally, if the dismissal is based on authorized causes
under Articles 283 and 284, the employer must give the
employee and the Department of Labor and Employment
written notice 30 days prior to the effectivity of his separation.
Where the dismissal is for an authorized cause but due
process was not observed, the dismissal should be upheld.
While the procedural infirmity cannot be cured, it should not
invalidate the dismissal. However, the employer should be
liable for non-compliance with procedural requirements of due
process.
xxx xxx xxx
Under recent jurisprudence, the Supreme Court fixed
the amount of P30,000.00 as nominal damages. The basis of
the violation of petitioners' right to statutory due process by the
private respondents warrants the payment of indemnity in the
form of nominal damages. The amount of such damages is
addressed to the sound discretion of the court, taking into
account the relevant circumstances. We believe this form of
damages would serve to deter employer from future violations
of the statutory due process rights of the employees. At the
very least, it provides a vindication or recognition of this
fundamental right granted to the latter under the Labor Code
and its Implementing Rules. Considering the circumstances in
the case at bench, we deem it proper to fix it at P10,000.00. 30
In sum, we find no reversible error committed by the Court of
Appeals in its assailed decision.
 However, with respect to the liability of petitioner Tuviera,
president of TAPE, absent any showing that he acted with malice or bad
faith in terminating respondent, he cannot be held solidarily liable with
TAPE. 31 Thus, the Court of Appeals ruling on this point has to be
modified.
WHEREFORE, the assailed Decision and Resolution of the
Court of Appeals are AFFIRMED with MODIFICATION in that only
petitioner Television and Production Exponents, Inc. is liable to pay
respondent the amount of P10,000.00 as nominal damages for non-
compliance with the statutory due process and petitioner Antonio P.
Tuviera is accordingly absolved from liability.SO ORDERED.
[G.R. No. 121143. January 21, 1997.]
PURIFICACION G. TABANG, petitioner, vs. NATIONAL
LABOR RELATIONS COMMISSION and PAMANA
GOLDEN CARE MEDICAL CENTER FOUNDATION,
INC.,  respondents.
Roldan M.  Noynay for petitioner.
Fernandez C.  Fuentes for private respondent.
SYLLABUS
1. COMMERCIAL LAW; P.D. 902-A; EXCLUSIVE JURISDICTION
OF SEC OVER INTRACORPORATE CONTROVERSY;
INTRACORPORATE CONTROVERSIES, EXPLAINED; CASE AT BENCH.
— We agree with the findings of the NLRC that it is the SEC which has
jurisdiction over the case at bar. The charges against herein private
respondent partake of the nature of an intra-corporate controversy. The
determination of the rights of petitioner and the concomitant liability of private
respondent arising from her ouster as a medical director and/or hospital
administrator, which are corporate offices, is an intra-corporate controversy
subject to the jurisdiction of the SEC. A corporate officer's dismissal is always
a corporate act, or an intra-corporate controversy, and the nature is not
altered by the reason or wisdom with which the Board of Directors may have
in taking such action. Also, an intra-corporate controversy is one which arises
between a stockholder and the corporation. There is no distinction,
qualification, nor any exemption whatsoever. The provision is broad and
covers all kinds of controversies between stockholders and corporations. cdll
2. ID.; ID.; ID.; OUSTER OF CORPORATE OFFICER IS AN
INTRACORPORATE CONTROVERSY; CASE AT BAR. — Contrary to the
contention of petitioner, a medical director and a hospital administrator are
considered as corporate officers under the by-laws of respondent
corporation. Section 2(i), Article I thereof states that one of the powers of the
Board of Trustees is "(t)o appoint a Medical Director,
Comptroller/Administrator, Chiefs of Services and such other officers as it
may deem necessary and prescribe their powers and duties." . . .
Considering that petitioner, unlike an ordinary employee, was appointed by
respondent corporation's Board of Trustees in its memorandum of October
30, 1990, she is deemed an officer of the corporation. Perforce, Section 5(c)
of Presidential Decree No. 902-A, which provides that the SEC exercises
exclusive jurisdiction over controversies in the election or appointment of
directors, trustees, officers or managers of corporations, partnerships or
associations, applies in the present dispute. Accordingly, jurisdiction over the
same is vested in the SEC, and not in the Labor Arbiter or the NLRC.
3. ID.; ID.; ID.; ID.; OFFICER DISTINGUISHED FROM AN
EMPLOYEE. — It has been held that an "office" is created by the charter of
the corporation and the officer is elected by the directors or stockholders. On
the other hand, an "employee" usually occupies no office and generally is
employed not by action of the directors or stockholders but by the managing
officer of the corporation who also determines the compensation to be paid to
such employee.
4. ID.; ID.; ID.; ID.; JURISDICTION OF THE SEC NOT REMOVED
BY OTHER CLAIMS INVOLVING CORPORATE OFFICER; CASE AT BAR.
— Even assuming that the monthly payment of P5,000.00 was a valid claim
against respondent corporation, this would not operate to effectively remove
this case from the jurisdiction of the SEC. In the case of Cagayan de Oro
Coliseum, Inc. vs. Office of the Minister of Labor and Employment, etc., et
al., we ruled that "(a)lthough the reliefs sought by Chavez appear to fall
under the jurisdiction of the labor arbiter as they are claims for unpaid
salaries and other remunerations for services rendered, a close scrutiny
thereof shows that said claims are actually part of the perquisites of his
position in, and therefore interlinked with his relations with the corporation. In
Dy, et al. vs. NLRC, et al., the Court said: '(t)he question of remuneration
involving as it does, a person who is not a mere employee but a stockholder
and officer, an integral part, it might be said, of the corporation, is not a
simple labor problem but a matter that comes within the area of corporate
affairs and management and is in fact a corporate controversy in
contemplation of the Corporation Code."' LexLib
DECISION
REGALADO, J  p:
This is a petition for certiorari which seeks to annul the resolution of
the National Labor Relations Commission (NLRC), dated June 26, 1995,
affirming in toto the order of the labor arbiter, dated April 26, 1994, which
dismissed petitioner's complaint for illegal dismissal with money claims for
lack of jurisdiction.
The records show that petitioner Purificacion Tabang was a founding
member, a member of the Board of Trustees, and the corporate secretary of
private respondent Pamana Golden Care Medical Center Foundation, Inc., a
non-stock corporation engaged in extending medical and surgical services.
On October 30, 1990, the Board of Trustees issued a memorandum
appointing petitioner as Medical Director and Hospital Administrator of
private respondent's Pamana Golden Care Medical Center in Calamba,
Laguna.
Although the memorandum was silent as to the amount of
remuneration for the position, petitioner claims that she received a monthly
retainer fee of five thousand pesos (P5,000.00) from private respondent, but
the payment thereof was allegedly stopped in November, 1991.
As medical director and hospital administrator, petitioner was tasked
to run the affairs of the aforesaid medical center and perform all acts of
administration relative to its daily operations.
On May 1, 1993, petitioner was allegedly informed personally by Dr.
Ernesto Naval that in a special meeting held on April 30, 1993, the Board of
Trustees passed a resolution relieving her of her position as Medical Director
and Hospital Administrator, and appointing the latter and Dr. Benjamin
Donasco as acting Medical Director and acting Hospital Administrator,
respectively. Petitioner averred that she thereafter received a copy of said
board resolution.
On June 6, 1993, petitioner filed a complaint for illegal dismissal and
non-payment of wages, allowances and 13th month pay before the labor
arbiter.
Respondent corporation moved for the dismissal of the complaint on
the ground of lack of jurisdiction over the subject matter. It argued that
petitioner's position as Medical Director and Hospital Administrator was
interlinked with her position as member of the Board of Trustees, hence, her
dismissal is an intra-corporate controversy which falls within the exclusive
jurisdiction of the Securities and Exchange Commission (SEC).
Petitioner opposed the motion to dismiss, contending that her
position as Medical Director and Hospital Administrator was separate and
distinct from her position as member of the Board of Trustees. She claimed
that there is no intra-corporate controversy involved since she filed the
complaint in her capacity as Medical Director and Hospital Administrator, or
as an employee of private respondent.
On April 26, 1994, the labor arbiter issued an order dismissing the
complaint for lack of jurisdiction. He ruled that the case falls within the
jurisdiction of the SEC, pursuant to Section 5 of Presidential Decree No. 902-
A. 1
Petitioner's motion for reconsideration was treated as an appeal by
the labor arbiter who consequently ordered the elevation of the entire records
of the case to public respondent NLRC for appellate review. 2
On appeal, respondent NLRC affirmed the dismissal of the case on
the additional ground that "the position of a Medical Director and Hospital
Administrator is akin to that of an executive position in a corporate ladder
structure," hence, petitioner's removal from the said position was an intra-
corporate controversy within the original and exclusive jurisdiction of the
SEC. 3
Aggrieved by the decision, petitioner filed the instant petition which
we find, however, to be without merit.
We agree with the findings of the NLRC that it is the SEC which has
jurisdiction over the case at bar. The charges against herein private
respondent partake of the nature of an intra-corporate controversy. Similarly,
the determination of the rights of petitioner and the concomitant liability of
private respondent arising from her ouster as a medical director and/or
hospital administrator, which are corporate offices, is an intra-corporate
controversy subject to the jurisdiction of the SEC.
Contrary to the contention of petitioner, a medical director and a
hospital administrator are considered as corporate officers under the by-laws
of respondent corporation. Section 2(i), Article I thereof states that one of the
powers of the Board of Trustees is "(t)o appoint a Medical Director,
Comptroller/Administrator, Chiefs of Services and such other officers as it
may deem necessary and prescribe their powers and duties." 4
The president, vice-president, secretary and treasurer are commonly
regarded as the principal or executive officers of a corporation, and modern
corporation statutes usually designate them as the officers of the
corporation. 5 However, other offices are sometimes created by the charter
or by-laws of a corporation, or the board of directors may be empowered
under the by-laws of a corporation to create additional offices as may be
necessary. 6
It has been held that an "office" is created by the charter of the
corporation and the officer is elected by the directors or stockholders. 7 On
the other hand, an "employee" usually occupies no office and generally is
employed not by action of the directors or stockholders but by the managing In fact, in her complaint 15 filed before the Regional Trial Court of Calamba,
officer of the corporation who also determines the compensation to be paid to herein petitioner is asking, among others, for professional fees and/or
such employee. 8 cdasia retainer fees earned for her treatment of Pamana Golden Care card
holders. 16 Thus, at most, said vouchers can only be considered as proof of
In the case at bar, considering that herein petitioner, unlike an payment of retainer fees made by Pamana, Inc. to herein petitioner as a
ordinary employee, was appointed by respondent corporation's Board of retained physician of Pamana Golden Care.
Trustees in its memorandum of October 30, 1990, 9 she is deemed an officer
of the corporation. Perforce, Section 5(c) of Presidential Decree No. 902-A, Moreover, even assuming that the monthly payment of P5,000.00
which provides that the SEC exercises exclusive jurisdiction over was a valid claim against respondent corporation, this would not operate to
controversies in the election or appointment of directors, trustees, officers or effectively remove this case from the jurisdiction of the SEC. In the case
managers of corporations, partnerships or associations, applies in the of Cagayan de Oro Coliseum, Inc.  vs. Office of the Minister of Labor and
present dispute. Accordingly, jurisdiction over the same is vested in the SEC, Employment etc., et al., 17 we ruled that "(a)lthough the reliefs sought by
and not in the Labor Arbiter or the NLRC. Chavez appear to fall under the jurisdiction of the labor arbiter as they are
claims for unpaid salaries and other remuneration for services rendered, a
Moreover, the allegation of petitioner that her being a member of the close scrutiny thereof shows that said claims are actually part of the
Board of Trustees was not one of the considerations for her appointment is perquisites of his position in, and therefore interlinked with, his relations with
belied by the tenor of the memorandum itself. It states: "We hope that you the corporation. In Dy, et al., vs. NLRC, et al., the Court said: '(t)he question
will uphold and promote the mission of our foundation," 10 and this cannot be of remuneration involving as it does, a person who is not a mere employee
construed other than in reference to her position or capacity as a corporate but a stockholder and officer, an integral part, it might be said, of the
trustee. corporation, is not a simple labor problem but a matter that comes within the
A corporate officer's dismissal is always a corporate act, or an intra- area of corporate affairs and management and is in fact a corporate
corporate controversy, and the nature is not altered by the reason or wisdom controversy in contemplation of the Corporation Code.'" cda
with which the Board of Directors may have in taking such action. 11 Also, an WHEREFORE, the questioned resolution of the NLRC is hereby
intra-corporate controversy is one which arises between a stockholder and AFFIRMED, without prejudice to petitioner's taking recourse to and seeking
the corporation. There is no distinction, qualification, nor any exemption relief through the appropriate remedy in the proper forum.
whatsoever. The provision is broad and covers all kinds of controversies
between stockholders and corporations. 12 SO ORDERED.
With regard to the amount of P5,000.00 formerly received by herein Romero, Puno, Mendoza and Torres, Jr., JJ., concur.
petitioner every month, the same cannot be considered as compensation for
her services rendered as Medical Director and Hospital Administrator. The  
vouchers 13 submitted by petitioner show that the said amount was paid to
her by PAMANA, Inc., a stock corporation which is separate and distinct from
herein private respondent. Although the payments were considered
advances to Pamana Golden Care, Calamba branch, there is no evidence to
show that the Pamana Golden Care stated in the vouchers refers to herein
respondent Pamana Golden Care Medical Center Foundation, Inc.
Pamana Golden Care is a division of Pamana, Inc., while respondent
Pamana Golden Care Medical Center Foundation, Inc. is a non-stock, non-
profit corporation. It is stated in the memorandum of petitioner that Pamana,
Inc. is a stock and profit corporation selling pre-need plan for education,
pension and health care. The health care plan is called Pamana Golden Care
Plan and the holders are called Pamana Golden Care Card Holders or,
simply, Pamana Members. 14
It is an admitted fact that herein petitioner is a retained physician of
Pamana, Inc., whose patients are holders of the Pamana Golden Care Card.

FIRST DIVISION
[G.R. No. 170087. August 31, 2006.]
ANGELINA FRANCISCO, petitioner, vs. NATIONAL
LABOR RELATIONS COMMISSION, KASEI
CORPORATION, SEIICHIRO TAKAHASHI, TIMOTEO
ACEDO, DELFIN LIZA, IRENE BALLESTEROS,
TRINIDAD LIZA and RAMON ESCUETA, respondents.
Labor Law; Employment; Control Test; The better approach would therefore be to
adopt a two-tiered test.—The better approach would therefore be to adopt a two-
tiered test involving: (1) the putative employer’s power to control the employee
with respect to the means and methods by which the work is to be accomplished;
and (2) the underlying economic realities of the activity or relationship. This two-
tiered test would provide us with a framework of analysis, which would take into
consideration the totality of circumstances surrounding the true nature of the
relationship between the parties. This is especially appropriate in this case where
there is no written agreement or terms of reference to base the relationship on;
and due to the complexity of the relationship based on the various positions and
responsibilities given to the worker over the period of the latter’s employment.
Same; Same; Same; Economic Activity; The determination of the relationship
between employer and employee depends upon the circumstances of the whole
economic activity.—The determination of the relationship between employer and
employee depends upon the circumstances of the whole economic activity, such as:
(1) the extent to which the services performed are an integral part of the
employer’s business; (2) the extent of the worker’s investment in equipment and
facilities; (3) the nature and degree of control exercised by the employer; (4) the
worker’s opportunity for profit and loss; (5) the amount of initiative, skill, judgment
or foresight required for the success of the claimed independent enterprise; (6) the
permanency and duration of the relationship between the worker and the
employer; and (7) the degree of dependency of the worker upon the employer for
his continued employment in that line of business.
Dismissals; Constructive Dismissals; A diminution of pay is prejudicial to the
employee and amounts to constructive dismissal.—A diminution of pay is
prejudicial to the employee and amounts to constructive dismissal. Constructive
dismissal is an involuntary resignation resulting in cessation of work resorted to
when continued employment becomes impossible, unreasonable or unlikely; when
there is a demotion in rank or a diminution in pay; or when a clear discrimination,
insensibility or disdain by an employer becomes unbearable to an employee. In
Globe Telecom, Inc. v. Florendo-Flores, 390 SCRA 201 (2002), we ruled that where
an employee ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment
rendering it impossible for such employee to continue working for her employer.
Hence, her severance from the company was not of her own making and therefore
amounted to an illegal termination of employment.
Labor Law; Equal Work Opportunity; In affording full protection to labor, this Court
must ensure equal work opportunities regardless of sex, race or creed.—In
affording full protection to labor, this Court must ensure equal work opportunities
regardless of sex, race or creed. Even as we, in every case, attempt to carefully
balance the fragile relationship between employees and employers, we are mindful
of the fact that the policy of the law is to apply the Labor Code to a greater number
of employees. This would enable employees to avail of the benefits accorded to
them by law, in line with the constitutional mandate giving maximum aid and
protection to labor, promoting their welfare and reaffirming it as a primary social
economic force in furtherance of social justice and national development.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals. Francisco vs. National Labor Relations Commission, 500 SCRA 690, G.R. No.
170087 August 31, 2006
DECISION
YNARES-SANTIAGO,  J p:
This petition for review on certiorari under Rule 45 of the Rules of
Court seeks to annul and set aside the Decision and Resolution of the Court
of Appeals dated October 29, 2004 1 and October 7, 2005, 2 respectively, in
CA-G.R. SP No. 78515 dismissing the complaint for constructive dismissal
filed by herein petitioner Angelina Francisco. The appellate court reversed
and set aside the Decision of the National Labor Relations Commission
(NLRC) dated April 15, 2003, 3 in NLRC NCR CA No. 032766-02 which
affirmed with modification the decision of the Labor Arbiter dated July 31,
2002, 4 in NLRC-NCR Case No. 30-10-0-489-01, finding that private
respondents were liable for constructive dismissal.
In 1995, petitioner was hired by Kasei Corporation during its
incorporation stage. She was designated as Accountant and Corporate
Secretary and was assigned to handle all the accounting needs of the
company. She was also designated as Liaison Officer to the City of Makati to
secure business permits, construction permits and other licenses for the
initial operation of the company. 5
Although she was designated as Corporate Secretary, she was not
entrusted with the corporate documents; neither did she attend any board
meeting nor required to do so. She never prepared any legal document and
never represented the company as its Corporate Secretary. However, on
some occasions, she was prevailed upon to sign documentation for the
company. 6
In 1996, petitioner was designated Acting Manager. The corporation
also hired Gerry Nino as accountant in lieu of petitioner. As Acting Manager,
petitioner was assigned to handle recruitment of all employees and perform
management administration functions; represent the company in all dealings
with government agencies, especially with the Bureau of Internal Revenue
(BIR), Social Security System (SSS) and in the city government of Makati;
and to administer all other matters pertaining to the operation of Kasei
Restaurant which is owned and operated by Kasei Corporation. 7
For five years, petitioner performed the duties of Acting Manager. As
of December 31, 2000 her salary was P27,500.00 plus P3,000.00 housing
allowance and a 10% share in the profit of Kasei Corporation. 8
In January 2001, petitioner was replaced by Liza R. Fuentes as
Manager. Petitioner alleged that she was required to sign a prepared
resolution for her replacement but she was assured that she would still be
connected with Kasei Corporation. Timoteo Acedo, the designated
Treasurer, convened a meeting of all employees of Kasei Corporation and
announced that nothing had changed and that petitioner was still connected
with Kasei Corporation as Technical Assistant to Seiji Kamura and in charge
of all BIR matters. 9
Thereafter, Kasei Corporation reduced her salary by P2,500.00 a
month beginning January up to September 2001 for a total reduction of
P22,500.00 as of September 2001. Petitioner was not paid her mid-year
bonus allegedly because the company was not earning well. On October
2001, petitioner did not receive her salary from the company. She made
repeated follow-ups with the company cashier but she was advised that the
company was not earning well. 10
On October 15, 2001, petitioner asked for her salary from Acedo and
the rest of the officers but she was informed that she is no longer connected
with the company. 11
Since she was no longer paid her salary, petitioner did not report for
work and filed an action for constructive dismissal before the labor
arbiter. EHASaD
Private respondents averred that petitioner is not an employee of
Kasei Corporation. They alleged that petitioner was hired in 1995 as one of
its technical consultants on accounting matters and act concurrently as
Corporate Secretary. As technical consultant, petitioner performed her work
at her own discretion without control and supervision of Kasei Corporation.
Petitioner had no daily time record and she came to the office any time she
wanted. The company never interfered with her work except that from time to
time, the management would ask her opinion on matters relating to her
profession. Petitioner did not go through the usual procedure of selection of
employees, but her services were engaged through a Board Resolution
designating her as technical consultant. The money received by petitioner
from the corporation was her professional fee subject to the 10% expanded
withholding tax on professionals, and that she was not one of those reported
to the BIR or SSS as one of the company's employees. 12
Petitioner's designation as technical consultant depended solely
upon the will of management. As such, her consultancy may be terminated
any time considering that her services were only temporary in nature and
dependent on the needs of the corporation.
To prove that petitioner was not an employee of the corporation,
private respondents submitted a list of employees for the years 1999 and
2000 duly received by the BIR showing that petitioner was not among the
employees reported to the BIR, as well as a list of payees subject to
expanded withholding tax which included petitioner. SSS records were also
submitted showing that petitioner's latest employer was Seiji Corporation. 13
The Labor Arbiter found that petitioner was illegally dismissed, thus:
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
1. finding complainant an employee of respondent
corporation;
2. declaring complainant's dismissal as illegal;
3. ordering respondents to reinstate complainant
to her former position without loss of seniority rights and
 jointly and severally pay complainant her money claims in WHEREFORE, the instant petition is hereby
accordance with the following computation: GRANTED. The decision of the National Labor Relations
Commissions dated April 15, 2003 is hereby REVERSED
a. Backwages 10/2001 — 07/2002 275,000.00 and SET ASIDE and a new one is hereby rendered
  (27,500 x 10 mos.)   dismissing the complaint filed by private respondent
b. Salary Differentials (01/2001 — 09/2001) 22,500.00 against Kasei Corporation, et al. for constructive dismissal.
c. Housing Allowance (01/2001 — 07/2002) 57,000.00 SO ORDERED. 16
d. Midyear Bonus 2001 27,500.00 The appellate court denied petitioner's motion for reconsideration,
e. 13th Month Pay 27,500.00 hence, the present recourse.
f. 10% share in the profits of Kasei  
The core issues to be resolved in this case are (1) whether there was
  Corp. from 1996-2001 361,175.00 an employer-employee relationship between petitioner and private
g. Moral and exemplary damages 100,000.00 respondent Kasei Corporation; and if in the affirmative, (2) whether petitioner
was illegally dismissed.
h. 10% Attorney's fees 87,076.50
  P957,742.50   Considering the conflicting findings by the Labor Arbiter and the
If reinstatement is no longer feasible, respondents National Labor Relations Commission on one hand, and the Court of Appeals
are ordered to pay complainant separation pay with on the other, there is a need to reexamine the records to determine which of
additional backwages that would accrue up to actual the propositions espoused by the contending parties is supported by
payment of separation pay. substantial evidence. 17

SO ORDERED. 14 We held in Sevilla v. Court of Appeals 18 that in this jurisdiction,

On April 15, 2003, the NLRC affirmed with modification the Decision
of the Labor Arbiter, the dispositive portion of which reads:
PREMISES CONSIDERED, the Decision of July
31, 2002 is hereby MODIFIED as follows:
1) Respondents are directed to pay complainant
separation pay computed at one month per year of service
in addition to full backwages from October 2001 to July 31,
2002;
2) The awards representing moral and exemplary
damages and 10% share in profit in the respective
accounts of P100,000.00 and P361,175.00 are deleted;
3) The award of 10% attorney's fees shall be
based on salary differential award only;
4) The awards representing salary differentials,
housing allowance, mid year bonus and 13th month pay
are AFFIRMED.
SO ORDERED. 15
On appeal, the Court of Appeals reversed the NLRC decision, thus:
there has been no uniform test to determine the existence of an employer-
employee relation. Generally, courts have relied on the so-called right of
control test where the person for whom the services are performed reserves
a right to control not only the end to be achieved but also the means to be
used in reaching such end. In addition to the standard of right-of-control, the
existing economic conditions prevailing between the parties, like the inclusion
of the employee in the payrolls, can help in determining the existence of an
employer-employee relationship.
However, in certain cases the control test is not sufficient to give a
complete picture of the relationship between the parties, owing to the
complexity of such a relationship where several positions have been held by
the worker. There are instances when, aside from the employer's power to
control the employee with respect to the means and methods by which the
work is to be accomplished, economic realities of the employment relations
help provide a comprehensive analysis of the true classification of the
individual, whether as employee, independent contractor, corporate officer or
some other capacity. caIEAD
The better approach would therefore be to adopt a two-tiered test
involving: (1) the putative employer's power to control the employee with
respect to the means and methods by which the work is to be accomplished;
and (2) the underlying economic realities of the activity or relationship.
 
 This two-tiered test would provide us with a framework of analysis,
which would take into consideration the totality of circumstances surrounding
the true nature of the relationship between the parties. This is especially
appropriate in this case where there is no written agreement or terms of
reference to base the relationship on; and due to the complexity of the
relationship based on the various positions and responsibilities given to the
worker over the period of the latter's employment.
The control test initially found application in the case of Viaña v. Al-
Lagadan and Piga, 19 and lately in Leonardo v. Court of Appeals, 20 where
we held that there is an employer-employee relationship when the person for
whom the services are performed reserves the right to control not only the
end achieved but also the manner and means used to achieve that end.
In Sevilla v. Court of Appeals, 21 we observed the need to consider
the existing economic conditions prevailing between the parties, in addition to
the standard of right-of-control like the inclusion of the employee in the
payrolls, to give a clearer picture in determining the existence of an
employer-employee relationship based on an analysis of the totality of
economic circumstances of the worker.
Thus, the determination of the relationship between employer and
employee depends upon the circumstances of the whole economic
activity, 22 such as: (1) the extent to which the services performed are an
integral part of the employer's business; (2) the extent of the worker's
investment in equipment and facilities; (3) the nature and degree of control
exercised by the employer; (4) the worker's opportunity for profit and loss; (5)
the amount of initiative, skill, judgment or foresight required for the success
of the claimed independent enterprise; (6) the permanency and duration of
the relationship between the worker and the employer; and (7) the degree of
dependency of the worker upon the employer for his continued employment
in that line of business. 23
The proper standard of economic dependence is whether the worker
is dependent on the alleged employer for his continued employment in that
line of business. 24 In the United States, the touchstone of economic reality
in analyzing possible employment relationships for purposes of the Federal
Labor Standards Act is dependency. 25 By analogy, the benchmark of
economic reality in analyzing possible employment relationships for purposes
of the Labor Code ought to be the economic dependence of the worker on
his employer.
By applying the control test, there is no doubt that petitioner is an
employee of Kasei Corporation because she was under the direct control and
supervision of Seiji Kamura, the corporation's Technical Consultant. She
reported for work regularly and served in various capacities as Accountant,
Liaison Officer, Technical Consultant, Acting Manager and Corporate
Secretary, with substantially the same job functions, that is, rendering
accounting and tax services to the company and performing functions
necessary and desirable for the proper operation of the corporation such as
securing business permits and other licenses over an indefinite period of
engagement.
Under the broader economic reality test, the petitioner can likewise
be said to be an employee of respondent corporation because she had
served the company for six years before her dismissal, receiving check
vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses
and allowances, as well as deductions and Social Security contributions from
August 1, 1999 to December 18, 2000. 26 When petitioner was designated
General Manager, respondent corporation made a report to the SSS signed
by Irene Ballesteros. Petitioner's membership in the SSS as manifested by a
copy of the SSS specimen signature card which was signed by the President
of Kasei Corporation and the inclusion of her name in the on-line inquiry
system of the SSS evinces the existence of an employer-employee
relationship between petitioner and respondent corporation. 27
It is therefore apparent that petitioner is economically dependent on
respondent corporation for her continued employment in the latter's line of
business.
In Domasig v. National Labor Relations Commission, 28 we held that
in a business establishment, an identification card is provided not only as a
security measure but mainly to identify the holder thereof as a bona fide
employee of the firm that issues it. Together with the cash vouchers covering
petitioner's salaries for the months stated therein, these matters constitute
substantial evidence adequate to support a conclusion that petitioner was an
employee of private respondent.
We likewise ruled in Flores v. Nuestro 29 that a corporation who
registers its workers with the SSS is proof that the latter were the former's
employees. The coverage of Social Security Law is predicated on the
existence of an employer-employee relationship.
Furthermore, the affidavit of Seiji Kamura dated December 5, 2001
has clearly established that petitioner never acted as Corporate Secretary
and that her designation as such was only for convenience. The actual
nature of petitioner's job was as Kamura's direct assistant with the duty of
acting as Liaison Officer in representing the company to secure construction
permits, license to operate and other requirements imposed by government
agencies. Petitioner was never entrusted with corporate documents of the
company, nor required to attend the meeting of the corporation. She was
never privy to the preparation of any document for the corporation, although
once in a while she was required to sign prepared documentation for the
company. 30
The second affidavit of Kamura dated March 7, 2002 which
repudiated the December 5, 2001 affidavit has been allegedly withdrawn by
Kamura himself from the records of the case. 31 Regardless of this fact, we the Labor Code to a greater number of employees. This would enable
are convinced that the allegations in the first affidavit are sufficient to employees to avail of the benefits accorded to them by law, in line with the
establish that petitioner is an employee of Kasei Corporation. constitutional mandate giving maximum aid and protection to labor,
promoting their welfare and reaffirming it as a primary social economic force
Granting arguendo, that the second affidavit validly repudiated the in furtherance of social justice and national development.
first one, courts do not generally look with favor on any retraction or recanted
testimony, for it could have been secured by considerations other than to tell WHEREFORE, the petition is GRANTED. The Decision and
the truth and would make solemn trials a mockery and place the investigation Resolution of the Court of Appeals dated October 29, 2004 and October 7,
of the truth at the mercy of unscrupulous witnesses. 32 A recantation does 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET
not necessarily cancel an earlier declaration, but like any other testimony the ASIDE. The Decision of the National Labor Relations Commission dated
same is subject to the test of credibility and should be received with April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case
caution. 33 is REMANDED to the Labor Arbiter for the recomputation of petitioner
Angelina Francisco's full backwages from the time she was illegally
Based on the foregoing, there can be no other conclusion that terminated until the date of finality of this decision, and separation pay
petitioner is an employee of respondent Kasei Corporation. She was selected representing one-half month pay for every year of service, where a fraction of
and engaged by the company for compensation, and is economically at least six months shall be considered as one whole year. SO ORDERED.
dependent upon respondent for her continued employment in that line of
business. Her main job function involved accounting and tax services
rendered to respondent corporation on a regular basis over an indefinite
period of engagement. Respondent corporation hired and engaged petitioner
for compensation, with the power to dismiss her for cause. More importantly,
respondent corporation had the power to control petitioner with the means
and methods by which the work is to be accomplished. aHTEIA
The corporation constructively dismissed petitioner when it reduced
her salary by P2,500 a month from January to September 2001. This
amounts to an illegal termination of employment, where the petitioner is
entitled to full backwages. Since the position of petitioner as accountant is
one of trust and confidence, and under the principle of strained relations,
petitioner is further entitled to separation pay, in lieu of reinstatement. 34
A diminution of pay is prejudicial to the employee and amounts to
constructive dismissal. Constructive dismissal is an involuntary resignation
resulting in cessation of work resorted to when continued employment
becomes impossible, unreasonable or unlikely; when there is a demotion in
rank or a diminution in pay; or when a clear discrimination, insensibility or
disdain by an employer becomes unbearable to an employee. 35 In Globe
Telecom, Inc. v. Florendo-Flores, 36 we ruled that where an employee
ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment
rendering it impossible for such employee to continue working for her
employer. Hence, her severance from the company was not of her own
making and therefore amounted to an illegal termination of employment.
In affording full protection to labor, this Court must ensure equal work
opportunities regardless of sex, race or creed. Even as we, in every case,
attempt to carefully balance the fragile relationship between employees and
employers, we are mindful of the fact that the policy of the law is to apply

[G.R. No. 169207. March 25, 2010.]
WPP MARKETING COMMUNICATIONS, INC., JOHN
STEEDMAN, MARK WEBSTER, and NOMINADA
LANSANG, petitioners, vs. JOCELYN M.
GALERA, respondent.
[G.R. No. 169239. March 25, 2010.]
JOCELYN M. GALERA,  petitioner, vs. WPP
MARKETING COMMUNICATIONS, INC., JOHN
STEEDMAN, MARK WEBSTER, and NOMINADA
LANSANG, respondents.
1. Corporation Law;  Corporate Officers;  Under Section 25 of the
Corporation Code, the corporate officers are the president, secretary,
treasurer and such other officers as may be provided in the by-laws.-
—Corporate officers are given such character either by the Corporation
Code or by the corporation’s by-laws. Under Section 25 of the Corporation
Code, the corporate officers are the president, secretary, treasurer and such
other officers as may be provided in the by-laws. Other officers are
sometimes created by the charter or by-laws of a corporation, or the board of
directors may be empowered under the by-laws of a corporation to create
additional offices as may be necessary.
2. Same;  Labor Code;  Recruitment;  Employment Permit;  The law and
the rules are consistent in stating that the employment permit must be
acquired prior to employment.-
—This is Galera’s dilemma: Galera worked in the Philippines without a
proper work permit but now wants to claim employee’s benefits under
Philippine labor laws. The law and the rules are consistent in stating that the
employment permit must be acquired prior to employment. The Labor Code
states: “Any alien seeking admission to the Philippines for employment
purposes and any domestic or foreign employer who desires to engage an
alien for employment in the Philippines shall obtain an employment permit
from the Department of Labor.”
3. Labor Law;  Termination of Employment;  Employer must furnish the
worker sought to be dismissed with two written notices before
termination of employment can be legally effected;  Failure to comply
with the requirements taints the dismissal with illegality.-
—The law further requires that the employer must furnish the worker sought
to be dismissed with two written notices before termination of employment
can be legally effected: (1) notice which apprises the employee of the
particular acts or omissions for which his dismissal is sought; and (2) the
subsequent notice which informs the employee of the employer’s decision to
dismiss him. Failure to comply with the requirements taints the dismissal with
illegality. WPP’s acts clearly show that Galera’s dismissal did not comply
with the two-notice rule.
DECISION
CARPIO,  Acting C.J  p:
The Case
G.R. Nos. 169207 and 169239 are petitions for
review 1 assailing the Decision 2 promulgated on 14 April 2005 as well
as the Resolution 3 promulgated on 1 August 2005 of the Court of
Appeals (appellate court) in CA-G.R. SP No. 78721. The appellate court
granted and gave due course to the petition filed by Jocelyn M. Galera
(Galera). The appellate court's decision reversed and set aside that of
the National Labor Relations Commission (NLRC), and directed WPP
Marketing Communications, Inc. (WPP) to pay Galera backwages,
separation pay, unpaid housing benefit, unpaid personal and accident
insurance benefits, cash value under the company's pension plan, 30
days paid holiday benefit, moral damages, exemplary damages, 10% of
the total judgment award as attorney's fees, and costs of the suit.
The Facts
The appellate court narrated the facts as follows:
Petitioner is Jocelyn Galera (GALERA),
a [sic] American citizen who was recruited from the United
States of America by private respondent John Steedman,
Chairman-WPP Worldwide and Chief Executive Officer of
Mindshare, Co., a corporation based in Hong Kong, China,
to work in the Philippines for private respondent WPP
Marketing Communications, Inc. (WPP), a corporation
registered and operating under the laws of Philippines.
GALERA accepted the offer and she signed an
Employment Contract entitled "Confirmation of
Appointment and Statement of Terms and Conditions"
(Annex B to Petition for Certiorari). The relevant portions of
the contract entered into between the parties are as
follows:
Particulars:
Name: Jocelyn M. Galera
Address: 163 Mediterranean Avenue
 Hayward, CA 94544
Position: Managing Director
 Mindshare Philippines
Annual Salary: Peso 3,924,000
Start Date: 1 September 1999
Commencement Date: 1 September 1999
(for continuous service)
Office: Mindshare Manila
6. Housing Allowance
The Company will provide suitable
housing in Manila at a maximum cost (including
management fee and other associated costs) of
Peso 576,000 per annum. AIDTHC
7. Other benefits.
The Company will provide you with a fully
maintained company car and a driver.
The Company will continue to provide
medical, health, life and personal accident
insurance plans, to an amount not exceeding Peso
300,000 per annum, in accordance with the terms
of the respective plans, as provided by JWT
Manila.
The Company will reimburse you and your
spouse one way business class air tickets from
USA to Manila and the related shipping and
relocation cost not exceeding US$5,000 supported
by proper documentation. If you leave the
Company within one year, you will reimburse the
Company in full for all costs of the initial relocation
as described therein.
You will participate in the JWT Pension
Plan under the terms of this plan, the Company
reserves the right to transfer this benefit to a
Mindshare Pension Plan in the future, if so
required.
8. Holidays
You are entitled to 20 days paid holiday in
addition to public holidays per calendar year to be
taken at times agreed with the Company. Carry-
over of unused accrued holiday entitlement into a
new holiday year will not normally be
allowed. No payment will be made for holidays not
taken. On termination of your employment, unless
you have been summarily dismissed, you will be
entitled to receive payment for unused accrued
holiday pay. Any holiday taken in excess of your
entitlement shall be deducted from your final
salary payment.
9. Leave Due to Sickness or Injury
The maximum provision for sick leave is
15 working days per calendar year.
12. Invention/Know-How
Any discovery, invention, improvement in
procedure, trademark, trade name, designs,
copyrights or get-ups made, discovered or created
by you during the continuance of your employment
hereunder relating to the business of the Company
shall belong to and shall be the absolute property
of the Company. If required to do so by the
Company (whether during or after the termination
of your employment) you shall at the expense of
the company execute all instruments and do all
things necessary to vest in ownership for all other
rights, title and interests (including any registered
rights therein) in such discovery, invention,
improvement in procedure, trademark, trade
name, design, copyright or get-up in the Company
(or its Nominee) absolutely and as sole beneficial
owner.
 14. Notice
The first three months of your employment
will be a trial period during which either you or the
Company may terminate your employment on one
week's notice. If at the end of that period, the
Company is satisfied with your performance, you
will become a permanent employee. Thereafter
you will give Company and the Company will give
you three months notice of termination of
employment. The above is always subject to the
following: (1) the Company's right to terminate the
contract of employment on no or short notice
where you are in breach of contract; (2) your
employment will at any event cease without notice
on your retirement date when you are 60 years of
age. TSIaAc
SIGNED JOCELYN M. GALERA 8-16-99
Date of Borth [sic] 12-25-55
Employment of GALERA with private respondent
WPP became effective on September 1, 1999 solely on
the instruction of the CEO and upon signing of the
contract, without any further action from the Board of
Directors of private respondent WPP.
Four months had passed when private respondent
WPP filed before the Bureau of Immigration an application
for petitioner GALERA to receive a working visa, wherein
she was designated as Vice President of WPP. Petitioner
alleged that she was constrained to sign the application in
order that she could remain in the Philippines and retain
her employment.
Then, on December 14, 2000, petitioner GALERA
alleged she was verbally notified by private respondent
STEEDMAN that her services had been terminated from
private respondent WPP. A termination letter followed the
next day. 4
On 3 January 2001, Galera filed a complaint for illegal dismissal,
holiday pay, service incentive leave pay, 13th month pay, incentive plan,
actual and moral damages, and attorney's fees against WPP and/or John
Steedman (Steedman), Mark Webster (Webster) and Nominada Lansang
(Lansang). The case was docketed as NLRC NCR Case No. 30-01-
00044-01.
The Labor Arbiter's Ruling
In his Decision dated 31 January 2002, Labor Arbiter Edgardo M.
Madriaga (Arbiter Madriaga) held WPP, Steedman, Webster, and
Lansang liable for illegal dismissal and damages. Arbiter Madriaga stated
that Galera was not only illegally dismissed but was also not accorded
due process. Arbiter Madriaga explained, thus:
[WPP] failed to observe the two-notice rule. [WPP] through
respondent Steedman for a five (5) minute meeting on
December 14, 2000 where she was verbally told that as of
that day, her employment was being terminated. [WPP] did
not give [Galera] an opportunity to defend herself and
explain her side. [Galera] was even prohibited from
reporting for work that day and was told not to report for
work the next day as it would be awkward for her and
respondent Steedman to be in the same premises after
her termination. [WPP] only served [Galera] her written
notice of termination only on 15 December 2001, one day
after she was verbally apprised thereof.
The law mandates that the dismissal must be
properly done otherwise, the termination is gravely
defective and may be declared unlawful as we hereby hold
[Galera's] dismissal to be illegal and unlawful. Where there
is no showing of a clear, valid and legal cause for the
termination of employment, the law considers the matter a
case of illegal dismissal and the burden is on the employer
to prove that the termination was for a valid or authorized
cause. The law mandates that both the substantive and
procedural aspects of due process should be observed.
The facts clearly show that respondents were remiss on
both aspects. Perforce, the dismissal is void and
unlawful. TECcHA
xxx xxx xxx
Considering the work performance and
achievements of [Galera] for the year 2000, we do not find
any basis for the alleged claim of incompetence by herein
respondents. Had [Galera] been really incompetent, she
would not have been able to generate enormous
amounts [sic] of revenues and business for [WPP]. She
also appears to be well liked as a leader by her
subordinates, who have come forth in support of [Galera].
These facts remain undisputed by respondents.
A man's job being a property right duly protected
by our laws, an employer who deprives an employee [of]
 the right to defend himself is liable for damages consistent
with Article 32 of the Civil Code. To allow an employer to
terminate the employment of his worker based merely on
allegations without proof places the [employee] in an
uncertain situation. The unflinching rule in illegal dismissal
cases is that the employer bears the burden of proof.
In the instant case, respondents have not been
able to muster evidence to counter [Galera's] allegations.
[Galera's] allegations remain and stand absent proof from
respondents rebutting them. Hence, our finding of illegal
dismissal against respondents who clearly have conspired
in bad faith to deprive [Galera] of her right to substantive
and procedural due process. 5
The dispositive portion of Arbiter Madriaga's decision reads as
follows:
WHEREFORE, premises considered, we hereby
hold herein respondents liable for illegal dismissal and
damages, and award to [Galera], by virtue of her
expatriate status, the following:
a. Reinstatement without loss of seniority rights.  2000 election as Vice President for Media, under WPP's
b. Backwages amounting to $120,000 per year at
P50.00 to US $1 exchange rate, 13th month pay,
transportation and housing benefits.
c. Remuneration for business acquisitions
amounting to Two Million Eight Hundred Fifty
Thousand Pesos (P2,850,000.00) and Media
Plowback Incentive equivalent to Three Million
Pesos (P3,000,000.00) or a total of not less than
One Hundred Thousand US Dollars
($100,000.00).
d. US Tax Protection of up to 35% coverage
equivalent to Thirty Eight Thousand US Dollars
($38,000).
e. Moral damages including implied defamation
and punitive damages equivalent to Two Million
Dollars (US$2,000,000.00).
f. Exemplary damages equivalent to One Million
Dollars ($1,000,000.00).
g. Attorney's fees of 10% of the total award herein.
SO ORDERED. 6 CAacTH
The Ruling of the NLRC
The First Division of the NLRC reversed the ruling of Arbiter
Madriaga. In its Decision 7 promulgated on 19 February 2003, the NLRC
stressed that Galera was WPP's Vice-President, and therefore, a
corporate officer at the time she was removed by the Board of Directors
on 14 December 2000. The NLRC stated thus:
It matters not that her having been elected by the
Board to an added position of being a member of the
Board of Directors did not take effect as her May 31, 2000
election to such added position was conditioned to be
effective upon approval by SEC of the Amended By-Laws,
an approval which took place only in February 21,
2001, i.e., after her removal on December 14, 2000. What
counts is, at the time of her removal, she continued to be
WPP's Vice-President, a corporate officer, on hold over
capacity.
Ms. Galera's claim that she was not a corporate
officer at the time of her removal because her May 31,
Amended By-Laws, was subject to the approval by the
Securities and Exchange Commission and that the SEC
approved the Amended By-Laws only in February 2001.
Such claim is unavailing. Even if Ms. Galera's subsequent
election as Vice President for Media on May 31, 2000 was
subject to approval by the SEC, she continued to hold her
previous position as Vice President under the December
31, 1999 election until such time that her successor is duly
elected and qualified. It is a basic principle in corporation
law, which principle is also embodied in WPP's by-laws,
that a corporate officer continues to hold his position as
such until his successor has been duly elected and
qualified. When Ms. Galera was elected as Vice President
on December 31, 1999, she was supposed to have held
that position until her successor has been duly elected and
qualified. The record shows that Ms. Galera was not
replaced by anyone. She continued to be Vice President of
WPP with the same operational title of Managing Director
for Mindshare and continued to perform the same
functions she was performing prior to her May 31, 2000
election.
In the recent case of Dily Dany Nacpil v.
International Broadcasting Corp., the definition of
 corporate officer for purposes of intra-corporate
controversy was even broadened to include a
Comptroller/Assistant Manager who was appointed by the
General Manager, and whose appointment was later
approved by the Board of Directors. In this case, the
position of comptroller was not even expressly mentioned
in the By-Laws of the corporation, and yet, the Supreme
Court found him to be a corporate officer. The Court ruled
that —
(since) petitioner's appointment as
comptroller required the approval and formal
action of IBC's Board of Directors to become valid,
it is clear therefore that petitioner is a corporate
officer whose dismissal may be the subject of a
controversy cognizable by the SEC . . . Had the
petitioner been an ordinary employee, such board
action would not have been required.
Such being the case, the imperatives of law
require that we hold that the Arbiter below
had no jurisdiction over Galera's case as, again, she was a
corporate officer at the time of her removal.
WHEREFORE, the appeals of petitioner from the
Decision of Labor Arbiter Edgardo Madriaga dated
January 31, 2002 and his Order dated March 21, 2002,
respectively, are granted. The January 31, 2002 decision
of the Labor Arbiter is set aside for being null and void and
the temporary restraining order we issued on April 24,
2002 is hereby made permanent. The complaint of Jocelyn
Galera is dismissed for lack of jurisdiction. TSCIEa
SO ORDERED. 8
In its Resolution 9 promulgated on 4 June 2003, the NLRC
further stated:
We are fully convinced that this is indeed an intra-
corporate dispute which is beyond the labor arbiter's
jurisdiction. These consolidated cases clearly [involve] the
relationship between a corporation and its officer and is
properly within the definition of an intra-corporate
relationship which, under P.D. No. 902-A, is within the
jurisdiction of the SEC (now the commercial courts). Such
being the case, We are constrained to rule that the Labor
Arbiter below had no jurisdiction over Ms. Galera's
complaint for illegal dismissal.
WHEREFORE, the motion for reconsideration filed
by Ms. Galera is hereby denied for lack of merit. We
reiterate our February 19, 2003 Decision setting aside the
Labor Arbiter's Decision dated January 31, 2002 for being
null and void.
SO ORDERED. 10
Galera assailed the NLRC's decision and resolution before the
appellate court and raised a lone assignment of error.
The National Labor Relations Commission acted
with grave abuse of discretion amounting to lack or excess
of jurisdiction when it reversed the decision of the Labor
Arbiter not on the merits but for alleged lack of
jurisdiction. 11
The Decision of the Appellate Court
The appellate court reversed and set aside the decision of the
NLRC. The appellate court ruled that the NLRC's dismissal of Galera's
appeal is not in accord with jurisprudence. A person could be considered
a "corporate officer" only if appointed as such by a corporation's Board of
Directors, or if pursuant to the power given them by either the Articles of
Incorporation or the By-Laws. 12
The appellate court explained:
A corporation, through its board of directors, could
only act in the manner and within the formalities, if any,
prescribed by its charter or by the general law. If the action
of the Board is ultra vires such is motu proprio void ab
initio and without legal effect whatsoever. The by-laws of a
corporation are its own private laws which substantially
have the same effect as the laws of the corporation. They
are, in effect, written into the charter. In this sense, they
beome part of the fundamental law of the corporation with
which the corporation and its directors and officers must
comply.
Even if petitioner GALERA had been appointed by
the Board of Directors on December 31, 1999, private
respondent WPP's By-Laws provided for only one Vice-
President, a position already occupied by private
respondent Webster. The same defect also stains the
Board of Directors' appointment of petitioner GALERA as a
Director of the corporation, because at that time the By-
Laws provided for only five directors. In addition, the By-
laws only empowered the Board of Directors to appoint a
general manager and/or assistant general manager as
corporate officers in addition to a chairman, president,
vice-president and treasurer. There is no mention of a
corporate officer entitled "Managing Director." STaIHc
Hence, when the Board of Directors enacted the
Resolutions of December 31, 1999 and May 31, 2000, it
exceeded its authority under the By-Laws and are,
therefore, ultra vires. Although private respondent WPP
sought to amend these defects by filing Amended By-Laws
with the Securities and Exchange Commission, they did
not validate the ultra vires resolutions because the
Amended By-Laws did not take effect until February 16,
2001, when it was approved by the SEC. Since by-laws
operate only prospectively, they could not validate
the ultra vires resolutions. 13
The dispositive portion of the appellate court's decision reads:
WHEREFORE, the petition is hereby GRANTED
and GIVEN DUE COURSE. The assailed Decision of the
National Labor Relations Commission is hereby
REVERSED and SET ASIDE and a new one is entered
DIRECTING private respondent WPP MARKETING
COMMUNICATIONS, INC. to:
1. Pay [Galera] backwages at the peso equivalent
of US$120,000.00 per annum plus three
months from her summary December 14,
2000 dismissal up to March 14, 2001
because three months notice is required
under the contract, plus 13th month pay,
bonuses and general increases to which
she would have been normally entitled,
had she not been dismissed and had she
not been forced to stop working, including
US tax protection of up to 35% coverage
which she had been enjoying as an
expatriate;
2. Pay . . . GALERA the peso equivalent of
US$185,000.00 separation pay (1 1/2
years);
3. Pay . . . GALERA any unpaid housing benefit
for the 18 1/2 months of her employment
in the service to the Company as an
expatriate in Manila, Philippines at the rate
of P576,000 per year; unpaid personal
and accident insurance benefits for
premiums at the rate of P300,000.00 per
year; whatever cash value in the JWT
Pension Plan; and thirty days paid holiday
benefit under the contract for the 1 1/2
calendar years with the Company;
4. Pay . . . GALERA the reduced amount of
PhP2,000,000.00 as moral damages;
5. Pay [Galera] the reduced amount of
PhP1,000,000.00 as exemplary damages;
6. Pay [Galera] an amount equivalent to 10% of
the judgment award as attorney's fees;
7. Pay the cost of the suit.
SO ORDERED. 14
Respondents filed a motion for reconsideration on 5 May 2005.
Galera filed a motion for partial reconsideration and/or clarification on the
same date. The appellate court found no reason to revise or reverse its
previous decision and subsequently denied the motions in a Resolution
promulgated on 1 August 2005. 15 DHECac
The Issues
WPP, Steedman, Webster, and Lansang raised the following
grounds in G.R. No. 169207: 
I. The Court of Appeals seriously erred in ruling that the
NLRC has jurisdiction over [Galera's] complaint
because she was not an employee. [Galera] was a
corporate officer of WPP from the beginning of her
term until her removal from office.
II. Assuming arguendo  that the Court of Appeals correctly
ruled that the NLRC has jurisdiction over [Galera's]
complaint, it should have remanded the case to
the Labor Arbiter for reception of evidence on the
merits of the case.
III. [Galera] is an alien, hence, can never attain a regular or
permanent working status in the Philippines.
IV. [Galera] is not entitled to recover backwages, other
benefits and damages from WPP. 16
On the other hand, in G.R. No. 169239, Galera raised the
following grounds in support of her petition:
 The CA decision should be consistent with Article 279 of
the Labor Code and applicable jurisprudence, that full
backwages and separation pay (when in lieu of
reinstatement), should be reckoned from time of dismissal
up to time of reinstatement (or payment of separation pay,
in case separation instead of reinstatement is awarded).
Accordingly, petitioner Galera should be awarded full
backwages and separation pay for the period from 14
December 2000 until the finality of judgment by the
respondents, or, at the very least, up to the promulgation
date of the CA decision.
The individual respondents Steedman, Webster and
Lansang must be held solidarily liable with respondent
WPP for the wanton and summary dismissal of petitioner
Galera, to be consistent with law and jurisprudence as well
as the specific finding of the CA of bad faith on the part of
respondents. 17
This Court ordered the consolidation of G.R. Nos. 169207 and
169239 in a resolution dated 16 January 2006. 18
The Ruling of the Court
In its consolidated comment, the Office of the Solicitor General
(OSG) recommended that (A) the Decision dated 14 April 2005 of the
appellate court finding (1) Galera to be a regular employee of WPP; (2)
the NLRC to have jurisdiction over the present case; and (3) WPP to
have illegally dismissed Galera, be affirmed; and (B) the case remanded
to the Labor Arbiter for the computation of the correct monetary award.
Despite the OSG's recommendations, we see that Galera's failure to
seek an employment permit prior to her employment poses a serious
problem in seeking relief before this Court. Hence, we settle the various
issues raised by the parties for the guidance of the bench and
bar. EaDATc
Whether Galera is an Employee or a Corporate Officer
Galera, on the belief that she is an employee, filed her complaint
before the Labor Arbiter. On the other hand, WPP, Steedman, Webster
and Lansang contend that Galera is a corporate officer; hence, any
controversy regarding her dismissal is under the jurisdiction of the
Regional Trial Court. We agree with Galera.
Corporate officers are given such character either by
the Corporation Code or by the corporation's by-laws. Under Section 25
of the Corporation Code, the corporate officers are the president,
secretary, treasurer and such other officers as may be provided in the
by-laws. 19 Other officers are sometimes created by the charter or by-
laws of a corporation, or the board of directors may be empowered under
the by-laws of a corporation to create additional offices as may be
necessary.
An examination of WPP's by-laws resulted in a finding that
Galera's appointment as a corporate officer (Vice-President with the
operational title of Managing Director of Mindshare) during a special
meeting of WPP's Board of Directors is an appointment to a non-existent
corporate office. WPP's by-laws provided for only one Vice-President. At
the time of Galera's appointment on 31 December 1999, WPP already
had one Vice-President in the person of Webster. Galera cannot be said
to be a director of WPP also because all five directorship positions
provided in the by-laws are already occupied. Finally, WPP cannot rely
on its Amended By-Laws to support its argument that Galera is a
corporate officer. The Amended By-Laws provided for more than one
Vice-President and for two additional directors. Even though WPP's
stockholders voted for the amendment on 31 May 2000, the SEC
approved the amendments only on 16 February 2001. Galera was
dismissed on 14 December 2000. WPP, Steedman, Webster, and
Lansang did not present any evidence that Galera's dismissal took effect
with the action of WPP's Board of Directors.
The appellate court further justified that Galera was an employee
and not a corporate officer by subjecting WPP and Galera's relationship
to the four-fold test: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee with respect to the means and
methods by which the work is to be accomplished. The appellate court
found:
. . . Sections 1 and 4 of the employment contract
mandate where and how often she is to perform her work;
sections 3, 5, 6 and 7 show that wages she receives are
completely controlled by . . . WPP; and sections 10 and 11
clearly state that she is subject to the regular disciplinary
procedures of . . . WPP.
Another indicator that she was a regular employee
and not a corporate officer is Section 14 of the contract,
which clearly states that she is a permanent employee —
not a Vice-President or a member of the Board of
Directors.
xxx xxx xxx
Another indication that the Employment Contract
was one of regular employment is Section 12, which states
that the rights to any invention, discovery, improvement in
procedure, trademark, or copyright created or discovered
 by petitioner GALERA during her employment shall
automatically belong to private respondent WPP.
Under Republic Act 8293, also known as the Intellectual
Property Code, this condition prevails if the creator of the
work subject to the laws of patent or copyright is an
employee of the one entitled to the patent or
copyright. HDacIT
Another convincing indication that she was only a
regular employee and not a corporate officer is the
disciplinary procedure under Sections 10 and 11 of the
Employment Contract, which states that her right of
redress is through Mindshare's Chief Executive Officer for
the Asia-Pacific. This implies that she was not under the
disciplinary control of private respondent WPP's Board of
Directors (BOD), which should have been the case if in
fact she was a corporate officer because only the Board of
Directors could appoint and terminate such a corporate
officer.
Although petitioner GALERA did sign the Alien
Employment Permit from the Department of Labor and
Employment and the application for a 9(g) visa with the
Bureau of Immigration — both of which stated that she
was private respondent's WPP' Vice President — these
should not be considered against her.
Assuming arguendo that her appointment as Vice-
President was a valid act, it must be noted that these
appointments occurred afater she was hired as a regular
employee. After her appointments, there
was no appreciable change in her duties. 20
Whether the Labor Arbiter and the NLRC
have jurisdiction over the present case
the Securities Regulation Code, states:
Galera being an employee, then the Labor Arbiter and the NLRC
have jurisdiction over the present case. Article 217 of the Labor
Code provides:
Jurisdiction of Labor Arbiters and the
Commission. — (a) Except as otherwise provided under
this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide . . . the following
cases involving all workers, whether agricultural or non-
agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement,
those cases that workers may file involving wages,
rates of pay, hours of work and other terms and
conditions of employment;
4. Claims for actual, moral, exemplary and other
forms of damages arising from the employer-
employee relations;
5. Cases arising from any violation of Article 264
of this Code, including questions involving the
legality of strikes and lockouts;
6. Except claims for Employees Compensation,
Social Security, Medicare and other maternity
benefits, all other claims, arising from employer-
employee relations, including those of persons in
domestic or household service, involving an
amount exceeding five thousand pesos
(P5,000.00) regardless of whether accompanied
with a claim for reinstatement. DTAHEC
(b) The Commission shall have exclusive
appellate jurisdiction over all cases decided by
Labor Arbiters.
(c) Cases arising from the interpretation 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 contrast, Section 5.2 of Republic Act No. 8799, or
The Commission's jurisdiction over all cases
enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the courts of general
jurisdiction or the appropriate Regional Trial Court:
Provided, That the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches
that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases
involving intra-corporate disputes submitted for final
resolution which should be resolved within one year from
the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of
 payments/rehabilitation cases filed as of 30 June 2000
until finally disposed.
The pertinent portions of Section 5 of Presidential Decree No. 902-A,
mentioned above, states:
b) Controversies arising out of intra-corporate or
partnership relations, between and among stockholders,
members or associates; between any or all of them and
the corporation, partnership or association of which they
are stockholders, members or associates, respectively;
and between such corporation, partnership or association
and the state insofar as it concerns their individual
franchise or right to exist as such entity; 
c) Controversies in the election or appointments of
directors, trustees, officers or managers of such
corporations, partnerships or associations.
Whether WPP illegally dismissed Galera
WPP's dismissal of Galera lacked both substantive and procedural
due process.
Apart from Steedman's letter dated 15 December 2000 to
Galera, WPP failed to prove any just or authorized cause for Galera's
dismissal. Steedman's letter to Galera reads:
The operations are currently in a shamble. There
is lack of leadership and confidence in your abilities from
within, our agency partners and some clients.
Most of the staff I spoke with felt they got more
guidance and direction from Minda than yourself. In your
role as Managing Director, that is just not
acceptable. SACTIH
I believe your priorities are mismanaged. The
recent situation where you felt an internal strategy meeting
was more important than a new business pitch is a good
example.
You failed to lead and advise on the two new
business pitches. In both cases, those involved
sort (sic) Minda's input. As I discussed with you back in
July, my directive was for you to lead and review all
business pitches. It is obvious [that] confusion existed
internally right up until the day of the pitch.
The quality output is still not to an acceptable
standard, which was also part of my directive that you
needed to focus on back in July.
I do not believe you understand the basic skills
and industry knowledge required to run a media special
operation. 21
WPP, Steedman, Webster, and Lansang, however, failed to
substantiate the allegations in Steedman's letter. Galera, on the other
hand, presented documentary evidence 22 in the form of congratulatory
letters, including one from Steedman, which contents are diametrically
opposed to the 15 December 2000 letter.
The law further requires that the employer must furnish the
worker sought to be dismissed with two written notices before termination
of employment can be legally effected: (1) notice which apprises the
employee of the particular acts or omissions for which his dismissal is
sought; and (2) the subsequent notice which informs the employee of the
employer's decision to dismiss him. Failure to comply with the
requirements taints the dismissal with illegality. 23 WPP's acts clearly
show that Galera's dismissal did not comply with the two-notice rule.
Whether Galera is entitled to the monetary award
WPP, Steedman, Webster, and Lansang argue that Galera is not
entitled to backwages because she is an alien. They further state that
there is no guarantee that the Bureau of Immigration and the Department
of Labor and Employment will continue to grant favorable rulings on the
applications for a 9 (g) visa and an Alien Employment Permit after the
expiry of the validity of Galera's documents on 31 December 2000.
WPP's argument is a circular argument, and assumes what it attempts to
prove. Had WPP not dismissed Galera, there is no doubt in our minds
that WPP would have taken action for the approval of documents
required for Galera's continued employment.
This is Galera's dilemma: Galera worked in the Philippines
without a proper work permit but now wants to claim employee's benefits
under Philippine labor laws.
Employment of GALERA with private respondent
WPP became effective on September 1, 1999 solely on the
instruction of the CEO and upon signing of the contract, without
any further action from the Board of Directors of private
respondent WPP.
Four months had passed when private respondent
WPP filed before the Bureau of Immigration an application
for petitioner GALERA to receive a working visa, wherein she
was designated as Vice President of WPP. Petitioner alleged that
she was constrained to sign the application in order that she
 could remain in the Philippines and retain her
employment. 24 HTDcCE
The law and the rules are consistent in stating that the
employment permit must be acquired prior to employment. The Labor
Code states: "Any alien seeking admission to the Philippines for
employment purposes and any domestic or foreign employer who
desires to engage an alien for employment in the Philippines shall obtain
an employment permit from the Department of Labor." 25 Section 4, Rule
XIV, Book 1 of the Implementing Rules and Regulations provides:
Employment permit required for entry. — No alien
seeking employment, whether as a resident or non-
resident, may enter the Philippines without first securing
an employment permit from the Ministry. If an alien enters
the country under a non-working visa and wishes to be
employed thereafter, he may only be allowed to be
employed upon presentation of a duly approved
employment permit.
Galera cannot come to this Court with unclean hands. To grant
Galera's prayer is to sanction the violation of the Philippine labor laws
requiring aliens to secure work permits before their employment. We
hold that the status quo must prevail in the present case and we leave
the parties where they are. This ruling, however, does not bar Galera
from seeking relief from other jurisdictions.
WHEREFORE, we PARTIALLY GRANT the petitions
in G.R. Nos. 169207 and 169239. We SET ASIDE the Decision of the
Court of Appeals promulgated on 14 April 2005 as well as the Resolution
promulgated on 1 August 2005 in CA-G.R. SP No. 78721.
SO ORDERED.
[G.R. No. 157802. October 13, 2010.]
MATLING INDUSTRIAL AND COMMERCIAL CORPORATION,
RICHARD K. SPENCER, CATHERINE SPENCER, AND ALEX
MANCILLA,  petitioners, vs. RICARDO R. COROS,  respondent.
Syllabi:
1. Labor Law;  Labor Arbiters;  Illegal Dismissals; As a rule, the illegal
dismissal of an officer or other employee of a private employer is properly
cognizable by the Labor Arbiter (LA).-
—As a rule, the illegal dismissal of an officer or other employee of a private
employer is properly cognizable by the LA. This is pursuant to Article 217 (a)
2 of the Labor Code, as amended.
2. Same;  Same;  Same;  Elements in order to determine whether a dispute
constitutes an intra-corporate controversy or not.-
—True it is that the Court pronounced in Tabang as follows: “Also, an intra-
corporate controversy is one which arises between a stockholder and the
corporation. There is no distinction, qualification or any exemption
whatsoever. The provision is broad and covers all kinds of controversies
between stockholders and corporations.” However, the Tabang
pronouncement is not controlling because it is too sweeping and does not
accord with reason, justice, and fair play. In order to determine whether a
dispute constitutes an intra-corporate controversy or not, the Court considers
two elements instead, namely: (a) the status or relationship of the parties;
and (b) the nature of the question that is the subject of their controversy.
3. Same;  Same;  Same;  The statement in Tabang, to the effect that offices
not expressly mentioned in the By-Laws but were created pursuant to a By-
Law enabling provision were also considered corporate offices, was plainly
obiter dictum.-
—The petitioners’ reliance on Tabang, supra, is misplaced. The statement in
Tabang, to the effect that offices not expressly mentioned in the By-Laws but
were created pursuant to a By-Law enabling provision were also considered
corporate offices, was plainly obiter dictum due to the position subject of the
controversy being mentioned in the By-Laws. Thus, the Court held therein
that the position was a corporate office, and that the determination of the
rights and liabilities arising from the ouster from the position was an intra-
corporate controversy within the SEC’s jurisdiction.
4. Same;  Same;  Same;  The power to elect the corporate officers was a
discretionary power that the law exclusively vested in the Board of Directors,
and could not be delegated to subordinate officers or agents.-
—The Board of Directors of Matling could not validly delegate the power to
create a corporate office to the President, in light of Section 25 of the
Corporation Code requiring the Board of Directors itself to elect the corporate
officers. Verily, the power to elect the corporate officers was a discretionary
power that the law exclusively vested in the Board of Directors, and could not
be delegated to subordinate officers or agents. The office of Vice President
for Finance and Administration created by Matling’s President pursuant to
By-Law No. V was an ordinary, not a corporate, office.
5. Same;  Corporation Code;  Corporate Officers; The creation of an office
pursuant to or under a By-Law enabling provision is not enough to make a
position a corporate office.-
—Conformably with Section 25, a position must be expressly mentioned in
the By-Laws in order to be considered as a corporate office. Thus, the
creation of an office pursuant to or under a By-Law enabling provision is not
enough to make a position a corporate office. Guerrea v. Lezama, 103 Phil.
553 (1958), the first ruling on the matter, held that the only officers of a
corporation were those given that character either by the Corporation Code
or by the By-Laws; the rest of the corporate officers could be considered only
as employees or subordinate officials.
6. Same;  Same;  Same;  Upon the passage of Republic Act No. 8799,
otherwise known as The Securities Regulation Code, the Securities and
Exchange Commission’s (SEC’s) jurisdiction over all intra-corporate disputes
was transferred to the Regional Trial Court (RTC).-
—Effective on August 8, 2000, upon the passage of Republic Act No. 8799,
otherwise known as The Securities Regulation Code, the SEC’s jurisdiction
over all intra-corporate disputes was transferred to the RTC, pursuant to
Section 5.2 of RA No. 8799, to wit: “5.2. The Commission’s jurisdiction over
all cases enumerated under Section 5 of Presidential Decree No. 902-A is
hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches that shall
exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes submitted
for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June
2000 until finally disposed.”
7. Same;  Same;  Same;  Where the complaint for illegal dismissal concerns
a corporate officer, however, the controversy falls under the jurisdiction of
the Securities and Exchange Commission (SEC).-
—Where the complaint for illegal dismissal concerns a corporate officer,
however, the controversy falls under the jurisdiction of the Securities and
Exchange Commission (SEC), because the controversy arises out of intra-
corporate or partnership relations between and among stockholders,
members, or associates, or between any or all of them and the corporation,
partnership, or association of which they are stockholders, members, or
associates, respectively; and between such corporation, partnership, or
association and the State insofar as the controversy concerns their individual
franchise or right to exist as such entity; or because the controversy involves
the election or appointment of a director, trustee, officer, or manager of such
corporation, partnership, or association. Such controversy, among others, is
known as an intra-corporate dispute.
DECISION
BERSAMIN, J  p:
This case reprises the jurisdictional conundrum of whether a
complaint for illegal dismissal is cognizable by the Labor Arbiter (LA) or
by the Regional Trial Court (RTC). The determination of whether the
dismissed officer was a regular employee or a corporate officer unravels
the conundrum. In the case of the regular employee, the LA has
jurisdiction; otherwise, the RTC exercises the legal authority to
adjudicate.
In this appeal via  petition for review on certiorari, the petitioners
challenge the decision dated September 13, 2002 1 and the resolution
dated April 2, 2003, 2 both promulgated in C.A.-G.R. SP No. 65714
entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo
R. Coros and National Labor Relations Commission, whereby by the
Court of Appeals (CA) sustained the ruling of the National Labor
Relations Commission (NLRC) to the effect that the LA had jurisdiction
because the respondent was not a corporate officer of petitioner Matling
Industrial and Commercial Corporation (Matling).
Antecedents
After his dismissal by Matling as its Vice President for Finance
and Administration, the respondent filed on August 10, 2000
a complaint for illegal suspension and illegal dismissal against Matling
and some of its corporate officers (petitioners) in the NLRC, Sub-
Regional Arbitration Branch XII, Iligan City. 3
The petitioners moved to dismiss the complaint, 4 raising the
ground, among others, that the complaint pertained to the jurisdiction of
the Securities and Exchange Commission (SEC) due to the controversy
being intra-corporate inasmuch as the respondent was a member of
Matling's Board of Directors aside from being its Vice-President for
Finance and Administration prior to his termination. CaDATc
The respondent opposed the petitioners' motion to
dismiss, 5 insisting that his status as a member of Matling's Board of
Directors was doubtful, considering that he had not been formally elected
as such; that he did not own a single share of stock in Matling,
considering that he had been made to sign in blank an undated
indorsement of the certificate of stock he had been given in 1992; that
Matling had taken back and retained the certificate of stock in its custody;
and that even assuming that he had been a Director of Matling, he had
been removed as the Vice President for Finance and Administration, not
as a Director, a fact that the notice of his termination dated April 10, 2000
showed.
On October 16, 2000, the LA granted the petitioners' motion to
dismiss, 6 ruling that the respondent was a corporate officer because he
was occupying the position of Vice President for Finance and
Administration and at the same time was a Member of the Board of
Directors of Matling; and that, consequently, his removal was a corporate
act of Matling and the controversy resulting from such removal was
under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of
Presidential Decree No. 902.
Ruling of the NLRC
The respondent appealed to the NLRC, 7 urging that:
I
THE HONORABLE LABOR ARBITER COMMITTED
GRAVE ABUSE OF DISCRETION GRANTING
 APPELLEE'S MOTION TO DISMISS WITHOUT GIVING
THE APPELLANT AN OPPORTUNITY TO FILE HIS
OPPOSITION THERETO THEREBY VIOLATING THE
BASIC PRINCIPLE OF DUE PROCESS.
II
THE HONORABLE LABOR ARBITER COMMITTED AN
ERROR IN DISMISSING THE CASE FOR LACK OF
JURISDICTION.
On March 13, 2001, the NLRC set aside the dismissal,
concluding that the respondent's complaint for illegal dismissal was
properly cognizable by the LA, not by the SEC, because he was not a
corporate officer by virtue of his position in Matling, albeit high ranking
and managerial, not being among the positions listed in Matling's
Constitution and By-Laws. 8 The NLRC disposed thuswise:
WHEREFORE, the Order appealed from is SET
ASIDE. A new one is entered declaring and holding that
the case at bench does not involve any intracorporate
matter. Hence, jurisdiction to hear and act on said case is
vested with the Labor Arbiter, not the SEC, considering
that the position of Vice-President for Finance and
Administration being held by complainant-appellant is not
listed as among respondent's corporate officers.
Accordingly, let the records of this case
be REMANDED to the Arbitration Branch of origin in order
that the Labor Arbiter below could act on the case at
bench, hear both parties, receive their respective evidence
and position papers fully observing the requirements of
due process, and resolve the same with reasonable
dispatch. TSacID
SO ORDERED.
The petitioners sought reconsideration, 9 reiterating that the
respondent, being a member of the Board of Directors, was a corporate
officer whose removal was not within the LA's jurisdiction.
The petitioners later submitted to the NLRC in support of
the  motion for reconsideration  the certified machine copies of Matling's
Amended Articles of Incorporation and By Laws to prove that the
President of Matling was thereby granted "full power to create new
offices and appoint the officers thereto, and the minutes of special
meeting held on June 7, 1999 by Matling's Board of Directors to prove
that the respondent was, indeed, a Member of the Board of Directors. 10
Nonetheless, on April 30, 2001, the NLRC denied the
petitioners' motion for reconsideration. 11
Ruling of the CA
The petitioners elevated the issue to the CA by petition
for certiorari, docketed as C.A.-G.R. No. SP 65714, contending that the
NLRC committed grave abuse of discretion amounting to lack of
jurisdiction in reversing the correct decision of the LA.
In its assailed decision promulgated on September 13,
2002, 12 the CA dismissed the petition for  certiorari, explaining:
For a position to be considered as a corporate
office, or, for that matter, for one to be considered as a
corporate officer, the position must, if not listed in the by-
laws, have been created by the corporation's board of
directors, and the occupant thereof appointed or elected
by the same board of directors or stockholders. This is the
implication of the ruling in Tabang v. National Labor
Relations Commission, which reads:
"The president, vice president, secretary
and treasurer are commonly regarded as the
principal or executive officers of a corporation, and
modern corporation statutes usually designate
them as the officers of the corporation.
However, other offices are sometimes created by
the charter or by-laws of a corporation, or the
board of directors may be empowered under the
by-laws of a corporation to create additional
offices as may be necessary.
It has been held that an 'office' is created
by the charter of the corporation and the officer is
elected by the directors or stockholders. On the
other hand, an 'employee' usually occupies no
office and generally is employed not by action of
the directors or stockholders but by the managing
officer of the corporation who also determines the
compensation to be paid to such employee."
This ruling was reiterated in the subsequent cases
of Ongkingco v. National Labor Relations
Commission  and De Rossi v. National Labor Relations
Commission. CSIDTc
The position of vice-president for administration
and finance, which Coros used to hold in the corporation,
was not created by the corporation's board of directors but
 only by its president or executive vice-president pursuant
to the by-laws of the corporation. Moreover, Coros'
appointment to said position was not made through any
act of the board of directors or stockholders of the
corporation. Consequently, the position to which Coros
was appointed and later on removed from, is not a
corporate office despite its nomenclature, but an ordinary
office in the corporation.
Coros' alleged illegal dismissal therefrom is,
therefore, within the jurisdiction of the labor arbiter.
WHEREFORE, the petition for certiorari is hereby
DISMISSED.
SO ORDERED.
The CA denied the petitioners' motion for reconsideration on
April 2, 2003. 13
Issue
Thus, the petitioners are now before the Court for a review
on certiorari, positing that the respondent was a stockholder/member of
the Matling's Board of Directors as well as its Vice President for Finance
and Administration; and that the CA consequently erred in holding that
the LA had jurisdiction.
The decisive issue is whether the respondent was a corporate
officer of Matling or not. The resolution of the issue determines whether
the LA or the RTC had jurisdiction over his complaint  for illegal dismissal.
Ruling
The appeal fails.
I
The Law on Jurisdiction in Dismissal Cases
As a rule, the illegal dismissal of an officer or other employee of
a private employer is properly cognizable by the LA. This is pursuant to
Article 217 (a) 2 of the  Labor Code, as amended, which provides as
follows:
Article 217. Jurisdiction of the Labor Arbiters and
the Commission. — (a) Except as otherwise provided
under this Code, the Labor Arbiters shall have original
and exclusive jurisdiction to hear and decide, within
thirty (30) calendar days after the submission of the case
by the parties for decision without extension, even in the
absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-
agricultural:
1. Unfair labor practice cases; TSacCH
2. Termination disputes;
3. If accompanied with a claim for reinstatement,
those cases that workers may file involving wages, rates of
pay, hours of work and other terms and conditions of
employment;
4. Claims for actual, moral, exemplary and
other forms of damages arising from the employer-
employee relations;
5. Cases arising from any violation of Article 264
of this Code, including questions involving the legality of
strikes and lockouts; and
6. Except claims for Employees Compensation,
Social Security, Medicare and maternity benefits, all other
claims arising from employer-employee relations, including
those of persons in domestic or household service,
involving an amount exceeding five thousand pesos
(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. (As amended by Section 9, Republic Act
No. 6715, March 21, 1989).
Where the complaint  for illegal dismissal concerns a corporate
officer, however, the controversy falls under the jurisdiction of the
Securities and Exchange Commission (SEC), because the controversy
arises out of intra-corporate or partnership relations between and among
stockholders, members, or associates, or between any or all of them and
the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively; and between such
corporation, partnership, or association and the State insofar as the
controversy concerns their individual franchise or right to exist as such
entity; or because the controversy involves the election or appointment of
a director, trustee, officer, or manager of such corporation, partnership,
or association. 14 Such controversy, among others, is known as an intra-
corporate dispute.
Effective on August 8, 2000, upon the passage of Republic Act
No. 8799, 15 otherwise known as The Securities Regulation Code, the
SEC's jurisdiction over all intra-corporate disputes was transferred to the
RTC, pursuant to Section 5.2 of RA No. 8799, to wit:
5.2. The Commission's jurisdiction over all cases
enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial
Court: Provided, that the Supreme Court in the exercise of
its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over these
cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes
submitted for final resolution which should be
resolved within one (1) year from the enactment of this
Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed
as of 30 June 2000 until finally disposed. TSaEcH
Considering that the respondent's complaint  for illegal dismissal
was commenced on August 10, 2000, it might come under the coverage
of Section 5.2 of RA No. 8799, supra, should it turn out that the
respondent was a corporate, not a regular, officer of Matling.
II
Was the Respondent's Position of Vice President
for Administration and Finance a Corporate Office?
We must first resolve whether or not the respondent's position as
Vice President for Finance and Administration was a corporate office. If it
was, his dismissal by the Board of Directors rendered the matter an intra-
corporate dispute cognizable by the RTC pursuant to RA No. 8799.
The petitioners contend that the position of Vice President for
Finance and Administration was a corporate office, having been created
by Matling's President pursuant to By-Law No. V, as amended, 16 to wit:
BY LAW NO. V
Officers
The President shall be the executive head of the
corporation; shall preside over the meetings of the
stockholders and directors; shall countersign all
certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall
have full power to hire and discharge any or all employees
of the corporation; shall have full power to create new
offices and to appoint the officers thereto as he may
deem proper and necessary in the operations of the
corporation and as the progress of the business and
welfare of the corporation may demand; shall make
reports to the directors and stockholders and perform all
such other duties and functions as are incident to his office
or are properly required of him by the Board of Directors.
In case of the absence or disability of the President, the
Executive Vice President shall have the power to exercise
his functions.
The petitioners argue that the power to create corporate offices
and to appoint the individuals to assume the offices was delegated by
Matling's Board of Directors to its President through By-Law No. V, as
amended; and that any office the President created, like the position of
the respondent, was as valid and effective a creation as that made by the
Board of Directors, making the office a corporate office. In justification,
they cite  Tabang v. National Labor Relations Commission, 17 which held
that "other offices are sometimes created by the charter or by-laws of a
corporation, or the board of directors may be empowered under the by-
laws of a corporation to create additional officers as may be necessary."
The respondent counters that Matling's By-Laws did not list his
position as Vice President for Finance and Administration as one of the
corporate offices; that Matling's By-Law No. III listed only four corporate
officers, namely: President, Executive Vice President, Secretary, and
Treasurer; 18 that the corporate offices contemplated in the phrase "and
such other officers as may be provided for in the by-laws"  found in
Section 25 of the Corporation Code should be clearly and expressly
stated in the By-Laws; that the fact that Matling's By-Law No. III dealt
with  Directors & Officers  while its By-Law No. V dealt
with  Officers  proved that there was a differentiation between the officers
mentioned in the two provisions, with those classified under By-Law No.
V being ordinary  or non-corporate officers; and that the officer, to be
considered as a corporate officer, must be elected by the Board of
Directors or the stockholders, for the President could only appoint an
employee to a position pursuant to By-Law No. V. SEcITC
We agree with respondent.
Section 25 of the  Corporation Code provides:
Section 25. Corporate officers, quorum. —
Immediately after their election, the directors of a
corporation must formally organize by the election of a
 president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident
and citizen of the Philippines, and such other officers as
may be provided for in the by-laws. Any two (2) or more
positions may be held concurrently by the same person,
except that no one shall act as president and secretary or
as president and treasurer at the same time.
The directors or trustees and officers to be elected
shall perform the duties enjoined on them by law and the
by-laws of the corporation. Unless the articles of
incorporation or the by-laws provide for a greater majority,
a majority of the number of directors or trustees as fixed in
the articles of incorporation shall constitute a quorum for
the transaction of corporate business, and every decision
of at least a majority of the directors or trustees present at
a meeting at which there is a quorum shall be valid as a
corporate act, except for the election of officers which shall
require the vote of a majority of all the members of the
board.
Directors or trustees cannot attend or vote by
proxy at board meetings.
Conformably with Section 25, a position must be expressly
mentioned in the By-Laws in order to be considered as a corporate
office. Thus, the creation of an office pursuant to or under a By-Law
enabling provision is not enough to make a position a corporate
office. Guerrea v. Lezama, 19 the first ruling on the matter, held that the
only officers of a corporation were those given that character either by
the Corporation Code or by the By-Laws; the rest of the corporate
officers could be considered only as employees or subordinate officials.
Thus, it was held in Easycall Communications Phils., Inc. v. King: 20
An "office" is created by the charter of the
corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies
no office and generally is employed not by the action of the
directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be
paid to such employee.
In this case, respondent was appointed vice
president for nationwide expansion by Malonzo,
petitioner's general manager, not by the board of directors
of petitioner. It was also Malonzo who determined the
compensation package of respondent. Thus, respondent
was  an employee, not a "corporate officer." The CA was
therefore correct in ruling that jurisdiction over the case
was properly with the NLRC, not the SEC (now the
RTC). DTIaCS
This interpretation is the correct application of Section 25 of
the Corporation Code, which plainly states that the corporate officers are
the President, Secretary, Treasurer and  such other officers as may be
provided for in the By-Laws. Accordingly, the corporate officers in the
context of PD No. 902-A are exclusively those who are given that
character either by the Corporation Code or by the corporation's By-
Laws.
A different interpretation can easily leave the way open for the
Board of Directors to circumvent the constitutionally guaranteed security
of tenure of the employee by the expedient inclusion in the By-Laws of
an enabling clause on the creation of just any corporate officer position.
It is relevant to state in this connection that the SEC, the primary
agency administering the  Corporation Code, adopted a similar
interpretation of Section 25 of the Corporation Code  in its Opinion dated
November 25, 1993, 21 to wit:
Thus, pursuant to the above provision (Section 25
of the Corporation Code), whoever are the corporate
officers enumerated in the by-laws are the exclusive
Officers of the corporation and the Board has no
power to create other Offices without amending first
the corporate By-laws. However, the Board may create
appointive positions other than the positions of
corporate Officers, but the persons occupying such
positions are not considered as corporate officers
within the meaning of Section 25 of the Corporation
Code and are not empowered to exercise the functions
of the corporate Officers, except those functions
lawfully delegated to them. Their functions and duties
are to be determined by the Board of
Directors/Trustees.  
Moreover, the Board of Directors of Matling could not validly
delegate the power to create a corporate  office to the President, in light
of Section 25 of the  Corporation Code requiring the Board of Directors
itself to elect the corporate officers. Verily, the power to elect
the corporate officers was a discretionary power that the law exclusively
vested in the Board of Directors, and could not be delegated to
subordinate officers or agents. 22 The office of Vice President for
Finance and Administration created by Matling's President pursuant to
By Law No. V was an ordinary, not a corporate, office.
 To emphasize, the power to create new offices and the power to
appoint the officers to occupy them vested by By-Law No. V merely
allowed Matling's President to create non-corporate offices to be
occupied by ordinary employees of Matling. Such powers were incidental
to the President's duties as the executive head of Matling to assist him in
the daily operations of the business.
The petitioners' reliance on  Tabang, supra, is misplaced. The
statement in Tabang, to the effect that offices not expressly mentioned in
the By-Laws but were created pursuant to a By-Law enabling provision
were also considered corporate offices, was plainly obiter dictum  due to
the position subject of the controversy being mentioned in the By-Laws.
Thus, the Court held therein that the position was a corporate office, and
that the determination of the rights and liabilities arising from the ouster
from the position was an intra-corporate controversy within the SEC's
jurisdiction. cATDIH
In Nacpil v. Intercontinental Broadcasting Corporation, 23 which
may be the more appropriate ruling, the position subject of the
controversy was not expressly mentioned in the By-Laws, but was
created pursuant to a By-Law enabling provision authorizing the Board of
Directors to create other offices that the Board of Directors might see fit
to create. The Court held there that the position was a corporate office,
relying on the  obiter dictum  in Tabang.
Considering that the observations earlier made herein show that
the soundness of their dicta is not
unassailable, Tabang  and Nacpil  should no longer be controlling.
III
Did Respondent's Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?
Yet, the petitioners insist that because the respondent was a
Director/stockholder of Matling, and relying on  Paguio v. National Labor
Relations Commission 24 and Ongkingko v. National Labor Relations
Commission, 25 the NLRC had no jurisdiction over his complaint,
considering that any case for illegal dismissal brought by a
stockholder/officer against the corporation was an intra-corporate matter
that must fall under the jurisdiction of the SEC conformably with the
context of PD No. 902-A.
The petitioners' insistence is bereft of basis.
To begin with, the reliance on Paguio and  Ongkingko is
misplaced. In both rulings, the complainants were undeniably corporate
officers due to their positions being expressly mentioned in the By-Laws,
aside from the fact that both of them had been duly elected by the
respective Boards of Directors. But the herein respondent's position of
Vice President for Finance and Administration was not expressly
mentioned in the By-Laws; neither was the position of Vice President for
Finance and Administration created by Matling's Board of Directors.
Lastly, the President, not the Board of Directors, appointed him.
True it is that the Court pronounced in  Tabang as follows:
Also, an intra-corporate controversy is one which
arises between a stockholder and the corporation. There is
no distinction, qualification or any exemption whatsoever.
The provision is broad and covers all kinds of
controversies between stockholders and corporations. 26
However, the  Tabang pronouncement is not controlling because
it is too sweeping and does not accord with reason, justice, and fair play.
In order to determine whether a dispute constitutes an intra-corporate
controversy or not, the Court considers two elements instead,
namely: (a) the status or relationship of the parties; and (b) the nature of
the question that is the subject of their controversy. This was our thrust
in  Viray v. Court of Appeals: 27 DCTHaS
The establishment of any of the relationships
mentioned above will not necessarily always confer
jurisdiction over the dispute on the SEC to the exclusion of
regular courts. The statement made in one case that the
rule admits of no exceptions or distinctions is not that
absolute. The better policy in determining which body has
jurisdiction over a case would be to consider not only the
status or relationship of the parties but also the nature of
the question that is the subject of their controversy.
Not every conflict between a corporation and its
stockholders involves corporate matters that only the SEC
can resolve in the exercise of its adjudicatory or quasi-
judicial powers. If, for example, a person leases an
apartment owned by a corporation of which he is a
stockholder, there should be no question that a complaint
for his ejectment for non-payment of rentals would still
come under the jurisdiction of the regular courts and not of
the SEC. By the same token, if one person injures another
in a vehicular accident, the complaint for damages filed by
the victim will not come under the jurisdiction of the SEC
simply because of the happenstance that both parties are
stockholders of the same corporation. A contrary
interpretation would dissipate the powers of the regular
courts and distort the meaning and intent of PD No. 902-A.
 In another case, Mainland Construction Co., Inc.
Movilla, 28 the Court reiterated these determinants thuswise:
In order that the SEC (now the regular courts) can
take cognizance of a case, the controversy must pertain to
any of the following relationships:
a) between the corporation, partnership or
association and the public;
b) between the corporation, partnership or
association and its stockholders, partners,
members or officers;
c) between the corporation, partnership or
association and the State as far as its
franchise, permit or license to operate is
concerned; and
d) among the stockholders, partners or associates
themselves.
The fact that the parties involved in the
controversy are all stockholders or that the parties involved
are the stockholders and the corporation does not
necessarily place the dispute within the ambit of the
jurisdiction of SEC. The better policy to be followed in
determining jurisdiction over a case should be to consider
concurrent factors such as the status or relationship of the
parties or the nature of the question that is the subject of
their controversy. In the absence of any one of these
factors, the SEC will not have jurisdiction. Furthermore, it
does not necessarily follow that every conflict between the
corporation and its stockholders would involve such
corporate matters as only the SEC can resolve in the
exercise of its adjudicatory or quasi-judicial
powers. 29 cAaDCE
The criteria for distinguishing between corporate officers who
may be ousted from office at will, on one hand, and ordinary corporate
employees who may only be terminated for just cause, on the other
hand, do not depend on the nature of the services performed, but on the
manner of creation of the office. In the respondent's case, he was
supposedly at once an employee, a stockholder, and a Director of
Matling. The circumstances surrounding his appointment to office must
be fully considered to determine whether the dismissal constituted an
intra-corporate controversy or a labor termination dispute. We must also
consider whether his status as Director and stockholder had any relation
v. at all to his appointment and subsequent dismissal as Vice President for
Finance and Administration.
Obviously enough, the respondent was not appointed as Vice
President for Finance and Administration because of his being a
stockholder or Director of Matling. He had started working for Matling on
September 8, 1966, and had been employed continuously for 33 years
until his termination on April 17, 2000, first as a bookkeeper, and his
climb in 1987 to his last position as Vice President for Finance and
Administration had been gradual but steady, as the following sequence
indicates:
1966 — Bookkeeper
1968 — Senior Accountant
1969 — Chief Accountant
1972 — Office Supervisor
1973 — Assistant Treasurer
1978 — Special Assistant for Finance
1980 — Assistant Comptroller
1983 — Finance and Administrative Manager
1985 — Asst. Vice President for Finance and
Administration
1987 to April 17, 2000 — Vice President for Finance and
Administration
Even though he might have become a stockholder of Matling in
1992, his promotion to the position of Vice President for Finance and
Administration in 1987 was by virtue of the length of quality service he
had rendered as an employee of Matling. His subsequent acquisition of
the status of Director/stockholder had no relation to his promotion.
Besides, his status of Director/stockholder was unaffected by his
dismissal from employment as Vice President for Finance and
Administration. ESCTaA
In Prudential Bank and Trust Company v. Reyes, 30 a case
involving a lady bank manager who had risen from the ranks but was
dismissed, the Court held that her complaint for illegal dismissal was
correctly brought to the NLRC, because she was deemed a regular
employee of the bank. The Court observed thus:
It appears that private respondent was appointed
Accounting Clerk by the Bank on July 14, 1963. From that
position she rose to become supervisor. Then in 1982, she
was appointed Assistant Vice-President which she
occupied until her illegal dismissal on July 19, 1991. The
 bank's contention that she merely holds an elective
position and that in effect she is not a regular
employee is belied by the nature of her work and her
length of service with the Bank. As earlier stated, she
rose from the ranks and has been employed with the Bank
since 1963 until the termination of her employment in
1991. As Assistant Vice President of the Foreign
Department of the Bank, she is tasked, among others, to
collect checks drawn against overseas banks payable in
foreign currency and to ensure the collection of foreign
bills or checks purchased, including the signing of
transmittal letters covering the same. It has been stated
that "the primary standard of determining regular
employment is the reasonable connection between the
particular activity performed by the employee in relation to
the usual trade or business of the employer. Additionally,
"an employee is regular because of the nature of work and
the length of service, not because of the mode or even the
reason for hiring them." As Assistant Vice-President of the
Foreign Department of the Bank she performs tasks
integral to the operations of the bank and her length of
service with the bank totaling 28 years speaks volumes of
her status as a regular employee of the bank. In fine, as a
regular employee, she is entitled to security of tenure; that
is, her services may be terminated only for a just or
authorized cause. This being in truth a case of illegal
dismissal, it is no wonder then that the Bank endeavored
to the very end to establish loss of trust and confidence
and serious misconduct on the part of private respondent
but, as will be discussed later, to no avail.   Third, while this Court recognizes the inherent right of employers
WHEREFORE, we deny the petition for review on certiorari, and
affirm the decision of the Court of Appeals.
Costs of suit to be paid by the petitioners.
SO ORDERED.
Carpio Morales, Brion, Villarama, Jr. and Sereno, JJ., concur.
THIRD DIVISION
[G.R. No. 209085. June 6, 2018.]
NICANOR F. MALCABA, CHRISTIAN C.
NEPOMUCENO, and LAURA MAE FATIMA F. PALIT-
ANG, petitioners, vs. PROHEALTH PHARMA
PHILIPPINES, INC., GENEROSO R. DEL CASTILLO,
JR., AND DANTE M. BUSTO, respondents.
DECISION
LEONEN, J  p:
This case involves fundamental principles in labor
cases. HTcADC
First, in appeals of illegal dismissal cases, employers are strictly
mandated to file an appeal bond to perfect their appeals. Substantial
compliance, however, may merit liberality in its application.
Second, before any labor tribunal takes cognizance of
termination disputes, it must first have jurisdiction over the action. The
Labor Arbiter and the National Labor Relations Commission only
exercise jurisdiction over termination disputes between an employer and
an employee. They do not exercise jurisdiction over termination disputes
between a corporation and a corporate officer.
to discipline their employees, the penalties imposed must be
commensurate to the infractions committed. Dismissal of employees for
minor and negligible offenses may be considered as illegal dismissal.
This is a Petition for Review on Certiorari 1 assailing the Court of
Appeals February 19, 2013 Decision 2 and September 10, 2013
Resolution 3 in CA-G.R. SP No. 119093, which reversed the judgments
of the Labor Arbiter and of the National Labor Relations Commission.
The Court of Appeals found that Nicanor F. Malcaba (Malcaba), a
corporate officer, should have questioned his dismissal before the
Regional Trial Court, not before the Labor Arbiter. It likewise held that
Christian C. Nepomuceno (Nepomuceno) and Laura Mae Fatima F. Palit-
Ang (Palit-Ang) were validly dismissed from service for loss of trust and
confidence, and insubordination, respectively.
ProHealth Pharma Philippines, Inc. (ProHealth) is a corporation
engaged in the sale of pharmaceutical products and health food on a
wholesale and retail basis. Generoso Del Castillo (Del Castillo) is the
Chair of the Board of Directors and Chief Executive Officer while Dante
Busto (Busto) is the Executive Vice President. Malcaba, Tomas Adona,
Jr. (Adona), Nepomuceno, and Palit-Ang were employed as its
President, Marketing Manager, Business Manager, and Finance Officer,
respectively. 4
Malcaba had been employed with ProHealth since it started in
1997. He was one of its incorporators together with Del Castillo and
Busto, and they were all members of the Board of Directors in 2004. He
held 1,000,000 shares in the corporation. He was initially the Vice
President for Sales then became President in 2005. 5
Malcaba alleged that Del Castillo did acts that made his job
difficult. He asked to take a leave on October 23, 2007. When he
attempted to return on November 5, 2007, Del Castillo insisted that he
had already resigned and had his things removed from his office. He
attested that he was paid a lower salary in December 2007 and his
benefits were withheld. 6 On January 7, 2008, Malcaba tendered his
resignation effective February 1, 2008. 7
Nepomuceno, for his part, alleged that he was initially hired as a
medical representative in 1999 but was eventually promoted to District
Business Manager for South Luzon. On March 24, 2008, he applied for
vacation leave for the dates April 24, 25, and 28, 2008, which Busto
approved. When he left for Malaysia on April 23, 2008, ProHealth sent
him a Memorandum dated April 24, 2008 asking him to explain his
absence. He replied through email that he tried to call ProHealth to
inform them that his flight was on April 22, 2008 at 9:00 p.m. and not on
April 23, 2008 but was unable to connect on the phone. He tried to
explain again on May 2, 2008 and requested for a personal dialogue with
Del Castillo. 8
On May 7, 2008, Nepomuceno was given a notice of termination,
which was effective May 5, 2008, on the ground of fraud and willful
breach of trust. 9
Palit-Ang, on the other hand, was hired to join ProHealth's audit
team in 2007. She was later promoted to Finance Officer. 10 On
November 26, 2007, Del Castillo instructed Palit-Ang to give P3,000.00
from the training funds to Johnmer Gamboa (Gamboa), a District
Business Manager, to serve as cash advance. 11
On November 27, 2007, Busto issued a show cause
memorandum for Palit-Ang's failure to release the cash advance. Palit-
Ang was also relieved of her duties and reassigned to the Office of the
Personnel and Administration Manager. 12
In her explanation, Palit-Ang alleged that when Gamboa saw that
she was busy receiving cash sales from another District Business
Manager, he told her that he would just return the next day to collect his
cash advance. 13 When he told her that the cash advance was for car
repairs, Palit-Ang told him to get the cash from his revolving fund, which
she would reimburse after the repairs were done. Del Castillo was
dissatisfied with her explanation and transferred her to another office. 14
On December 3, 2007, Palit-Ang was invited to a fact-finding
investigation, 15 which was held on December 10, 2007, where Palit-Ang
was again asked to explain her actions. 16
On December 17, 2007, she was handed a notice of termination
effective December 31, 2007, for disobeying the order of ProHealth's
highest official. 17
Malcaba, Nepomuceno, Palit-Ang, and Adona separately filed
Complaints 18 before the Labor Arbiter for illegal dismissal, nonpayment
of salaries and 13th month pay, damages, and attorney's fees.
The Labor Arbiter found that Malcaba was constructively
dismissed. He found that ProHealth never controverted the allegation
that Del Castillo made it difficult for Malcaba to effectively fulfill his duties.
He likewise ruled that ProHealth's insistence that Malcaba's leave of
absence in October 2007 was an act of resignation was false since
Malcaba continued to perform his duties as President through December
2007. 19
The Labor Arbiter declared that Nepomuceno's failure to state
the actual date of his flight was an excusable mistake on his part,
considering that this was his first infraction in his nine (9) years of
service. He noted that no administrative proceedings were conducted
before Nepomuceno's dismissal, thereby violating his right to due
process. 20 aScITE
Palit-Ang's dismissal was also found to have been illegal as
delay in complying with a lawful order was not tantamount to
disobedience. The Labor Arbiter further noted that delay in giving a cash
advance for car maintenance would not have affected the company's
operations. He declared that Palit-Ang's dismissal was too harsh of a
penalty. 21
The dispositive portion of the Labor Arbiter's April 5, 2009
Decision 22 read:
WHEREFORE, premises considered, judgment
is hereby rendered declaring that complainants were
illegally dismissed by respondents. Accordingly,
respondents are directed solidarily to pay complainants
the following:
1. Complainant Nicanor F. Malcaba:
a. Separation pay of P1,800,000.00;
 b. Full backwages from the time of his
illegal dismissal [o]n 11 November
2007 until the finality of this
decision, which as of this date
amounts to P2,810,795.40;
c. 13th month pay for the years 2007 and
2008 amounting to P126,625.00;
2. Complainant Christian C. Nepomuceno:
a. Separation pay of P190,000.00;
b. Full backwages from the time of his
illegal dismissal [i]n May 2007
until the finality of this decision,
which as of this date amounts to
P568,827.45;
c. 13th month pay for 2008 amounting to
P6,333.33;
3. Complainant Laura Mae Fatima F. Palit-Ang:
a. Separation pay of P30,000.00;
b. Full backwages from the time of her
illegal dismissal on 1 January
2008 until the finality of this
decision, which as of [t]his date
amounts to P266,694.63;
c. 13th month pay for 2008 of P18,000.00;
and
4. Complainant Tomas C. Adona, Jr.:
a. Separation pay of P75,000.00;
b. Full backwages from time of his illegal
dismissal [i]n June 2007 until the
finality of this decision, which as of
this date amounts to P609,832.37;
c. 13th month pay for 2008 of P10,416.66.
Complainants are further awarded moral
damages of Php100,000.00 each and exemplary
damages of Php100,000.00 each.
Finally, respondents are assessed the sum
equivalent to ten percent (10%) of the total monetary
award as and for attorney's fees.
All other claims are dismissed for lack of merit.
SO ORDERED. 23
ProHealth appealed to the National Labor Relations
Commission. 24 On September 29, 2010, the National Labor Relations
Commission rendered its Decision, 25 affirming the Labor Arbiter's April
5, 2009 Decision with modifications. The dispositive portion of this
Decision read:
WHEREFORE, premises considered, the appeal
is partially granted. The assailed Decision is modified in
that: a) complainant Adona is declared to have
voluntarily resigned and is entitled only to his 13th month
pay; b) the award of moral and, exemplary damages in
favor of complainants Nepomuceno and Palit-Ang are
deleted; and c) respondents del Castillo and Busto are
held jointly and severally liable with ProHealth for the
claims of complainant Malcaba.
All dispositions not affected by the modifications
stay.
SO ORDERED. 26
ProHealth moved for reconsideration 27 but was denied by the
National Labor Relations Commission in its January 31, 2011
Resolution. 28 Thus, ProHealth, Del Castillo, and Busto filed a Petition
for Certiorari 29 before the Court of Appeals.
On February 19, 2013, the Court of Appeals rendered its
Decision 30 reversing and setting aside the National Labor Relations
Commission September 29, 2010 Decision.
On the procedural issues, the Court of Appeals found that
ProHealth substantially complied with the requirement of an appeal bond
despite it not appearing in the records of the surety company since
ProHealth believed in good faith that the bond it secured was
genuine. 31
On the substantive issues, the Court of Appeals held that there
was no employer-employee relationship between Malcaba and ProHealth
since he was a corporate officer. Thus, he should have filed his
complaint with the Regional Trial Court, not with the Labor Arbiter, since
his dismissal from service was an intra-corporate dispute. 32
The Court of Appeals likewise concluded that ProHealth was
justified in dismissing Nepomuceno and Palit-Ang since both were given
opportunities to fully explain their sides. 33 It found that Nepomuceno's
failure to diligently check the true schedule of his flight abroad and his
subsequent lack of effort to inform his superiors were enough for his
employer to lose its trust and confidence in him. 34 It likewise found that
Palit-Ang displayed "arrogance and hostility" when she defied the lawful
orders of the company's highest ranking officer; thus, her insubordination
was just cause to terminate her services. 35
While the Court of Appeals ordered the return of the amounts
given to Malcaba, it allowed Nepomuceno and Palit-Ang to keep the
amounts given considering that even if the finding of illegal dismissal
were reversed on appeal, the employer was still obliged to reinstate and
pay the wages of a dismissed employee during the period of
appeal. 36 The dispositive portion of the Court of Appeals February 19,
2013 Decision read:
WHEREFORE, premises considered, it is hereby ruled:
(a) that the September 29, 2010 Decision and
January 31, 2011 Resolution of the
National Labor Relations Commission are
REVERSED and SET ASIDE for being
issued with grave abuse of discretion;
(b) that Our Decision is without prejudice to Mr.
Nicanor F. Malcaba's available recourse
for relief through the appropriate remedy
in the proper forum; HTcADC
(c) that all the amounts released in favor of Mr.
Nicanor F. Malcaba amounting to Four
Million Nine Hundred Thirty[-]Seven
Thousand Four Hundred Twenty pesos
and 40/100 (P4,937,420.[40]) be
RETURNED to herein petitioners;
(d) that NO REFUND will be ordered by this Court
against Mr. Christian Nepomuceno and
Ms. Laura Mae Fatima Palit-Ang.
SO ORDERED. 37
Malcaba, Nepomuceno, and Palit-Ang moved for reconsideration
but were denied in a Resolution 38 dated September 10, 2013. Hence,
this Petition 39 was filed before this Court.
Petitioners argue that the Court of Appeals should have
dismissed outright the Petition for Certiorari since respondents failed to
post a genuine appeal bond before the National Labor Relations
Commission. They allege that when Sheriff Ramon Nonato P. Dayao
attempted to enforce the judgment award against the appeal bond, he
was informed that the appeal bond procured by respondents did not
appear in the records of Alpha Insurance and Surety Company, Inc.
(Alpha Insurance). They also claim that respondents were notified by the
National Labor Relations Commission four (4) times that their appeal
bond was not genuine, showing that respondents did not comply with the
requirement in good faith. 40
Petitioners contend that petitioner Malcaba properly filed his
Complaint before the Labor Arbiter since he was an employee of
respondent ProHealth, albeit a high-ranking one. They argue that
respondents merely alleged that petitioner Malcaba is a corporate officer
but failed to substantiate this allegation. 41 They maintain that petitioner
Malcaba did not resign on September 24, 2007 considering that the
General Information Sheet for 2007 submitted on October 11, 2007 listed
him as respondent ProHealth's President. They submit that respondent
Del Castillo's action took a toll on petitioner Malcaba's well-being; hence,
the latter merely took a leave of absence and returned to work in
November 2007. They claim that respondents made it difficult for
petitioner Malcaba to continue his work upon his return, resulting in his
resignation in January 2008. Thus, they argue that petitioner Malcaba
was constructively dismissed. 42
Petitioners likewise argue that petitioners Nepomuceno and
Palit-Ang were illegally dismissed. They claim that petitioner
Nepomuceno committed an "honest and negligible mistake" 43 that
should not have warranted dismissal considering his loyal service for
nine (9) years. They contend that petitioner Nepomuceno's absence did
not injure respondent ProHealth's business since he turned over all
pending work to a reliever before he left and even surpassed his sales
quota for the month. 44 They likewise claim that his dismissal was done
in violation of his right to due process since he was not given any
opportunity to explain his side and was only given a notice of termination
two (2) days after he was actually dismissed. 45
Petitioners maintain that petitioner Palit-Ang believed in good
faith that Gamboa would just claim his cash advance the day after he
tried to claim it and that there was nothing in her actions that would prove
that she intended to disobey or defy respondent Del Castillo's
instructions. They insist that delay in complying with orders is not
tantamount to disobedience and would not constitute just cause for
petitioner Palit-Ang's dismissal. They likewise submit that while petitioner
Palit-Ang was subjected to a fact-finding investigation, respondents failed
to inform her of her right to be assisted by counsel. 46
Respondents, on the other hand, counter that a liberal
application of the procedural rules was necessary in their case since they
acted in good faith in posting their appeal bond. 47 They likewise
contend that the issue should have already been considered moot since
petitioners "were able to garnish and collect the amounts allegedly due to
them." 48
 Respondents likewise insist that petitioner Malcaba was a
corporate officer considering that he was not only an incorporator and
stockholder, but also an elected Director and President of respondent
ProHealth. 49 They also point out that he filed his labor complaint seven
(7) months after his resignation and that his voluntary resignation already
disproves his claim of constructive dismissal. 50
Respondents argue that they were justified in dismissing
petitioners Nepomuceno and Palit-Ang. They contend that petitioner
Nepomuceno's abandonment of his duties at a critical sales period and
his failure to immediately advise his superiors of his whereabouts was
ground for respondents to lose their trust and confidence in him. 51 They
likewise maintain that petitioner Palit-Ang was correctly found by the
Court of Appeals to have defied the lawful instructions of respondent Del
Castillo and illustrated her "grave disrespect towards authority." 52
From the arguments and allegations of the parties, it is clear that
this case involves three (3) different illegal dismissal complaints, with
three (3) different complainants in three (3) different factual situations
during three (3) different time periods. The only commonality is that they
involve the same respondents.
While this Court commends the economy by which the National
Labor Relations Commission resolved these cases, the three (3)
complaints should have been resolved separately since the three (3)
petitioners raise vastly different substantive issues. This leaves this Court
with the predicament of having to resolve three (3) different cases of
illegal dismissal in one (1) Petition for Review. Thus, each petitioner's
case will have to be resolved separately within this Decision. This Court's
ruling over one (1) petitioner may not necessarily affect the other co-
petitioners. The National Labor Relations Commission's zeal for
economy and convenience should never prejudice the individual rights of
each party. The National Labor Relations Commission should know the
rule that joinder of parties 53 or causes of action 54 applies suppletorily
in appeals 55 and for good reason. 56
Petitioners raise the common procedural issue of whether or not
respondents failed to perfect their appeal when it was discovered that
their appeal bond was a forged bond, which this Court will address
before proceeding with the substantive issues. The substantive issues
raised, however, are dependent on the factual circumstances applicable
to each petitioner. This Court tackles these substantive issues in order:
First, whether or not the Labor Arbiter and National Labor
Relations Commission had jurisdiction over petitioner Nicanor F.
Malcaba's termination dispute considering the allegation that he was a
corporate officer, and not a mere employee;
Second, whether or not petitioner Christian C. Nepomuceno was
validly dismissed for willful breach of trust when he failed to inform
respondents ProHealth Pharma Philippines, Inc., Generoso R. Del
Castillo, Jr., and Dante M. Busto of the actual dates of his vacation leave;
and
Finally, whether or not petitioner Laura Mae Fatima F. Palit-Ang
was validly dismissed for willful disobedience when she failed to
immediately comply with an order of her superior. ATICcS
I
Appeal is not a matter of right. 57 Courts and tribunals have the
discretion whether to give due course to an appeal or to dismiss it
outright. The perfection of an appeal is, thus, jurisdictional. Non-
compliance with the manner in which to file an appeal renders the
judgment final and executory. 58
In labor cases, an appeal by an employer is perfected only by
filing a bond equivalent to the monetary award. Thus, Article 229
[223] 59 of the Labor Code provides:
Article 229. [223] Appeal. —
xxx xxx xxx
In case of a judgment involving a monetary award, an
appeal by the employer may be perfected only upon the
posting of a cash or surety bond issued by a reputable
bonding company duly accredited by the Commission in
the amount equivalent to the monetary award in the
judgment appealed from.
This requirement is again repeated in the 2011 National Labor
Relations Commission Rules of Procedure:
Section 4. Requisites for Perfection of Appeal. — (a) The
appeal shall be:
xxx xxx xxx
(5) accompanied by:
xxx xxx xxx
(ii) posting of a cash or surety bond as provided in
Section 6 of this Rule[.]
xxx xxx xxx
Section 6. Bond. — In case the decision of the Labor
Arbiter or the Regional Director involves a monetary
award, an appeal by the employer may be perfected only
upon the posting of a bond, which shall either be in the
form of cash deposit or surety bond equivalent in the
amount to the monetary award, exclusive of damages
and attorney's fees.
In case of surety bond, the same shall be issued by a
reputable bonding company duly accredited by the
Commission and shall be accompanied by original or
certified true copies of the following:
(a) a joint declaration under oath by the
employer, his/her counsel, and the
bonding company, attesting that the
bond posted is genuine, and shall be in
effect until final disposition of the case;
(b) an indemnity agreement between the
employer-appellant and bonding
company;
(c) proof of security deposit or collateral
securing the bond: provided, that a
check shall not be considered as an
acceptable security; and,
(d) otarized board resolution or
secretary's certificate from the bonding
company showing its authorized
signatories and their specimen
signatures.
The Commission through the Chairman may on
justifiable grounds blacklist an accredited bonding
company.
A cash or surety bond shall be valid and
effective from the date of deposit or posting, until the
case is finally decided, resolved or terminated, or the
award satisfied. This condition shall be deemed
incorporated in the terms and conditions of the surety
bond, and shall be binding on the appellants and the
bonding company.
The appellant shall furnish the appellee with a
certified true copy of the said surety bond with all the
above-mentioned supporting documents. The appellee
shall verify the regularity and genuineness thereof and
immediately report any irregularity to the Commission.
Upon verification by the Commission that the
bond is irregular or not genuine, the Commission shall
cause the immediate dismissal of the appeal, and
censure the responsible parties and their counsels, or
subject them to reasonable fine or penalty, and the
bonding company may be blacklisted.
No motion to reduce bond shall be entertained
except on meritorious grounds, and only upon the
posting of a bond in a reasonable amount in relation to
the monetary award.
The mere filing of a motion to reduce bond
without complying with the requisites in the preceding
paragraphs shall not stop the running of the period to
perfect an appeal. 60
The purpose of requiring an appeal bond is "to guarantee the
payment of valid and legal claims against the employer." 61 It is a
measure of financial security granted to an illegally dismissed employee
since the resolution of the employer's appeal may take an indeterminable
amount of time. In particular:
The requirement that the employer post a cash
or surety bond to perfect its/his appeal is apparently
intended to assure the workers that if they prevail in the
case, they will receive the money judgment in their favor
upon the dismissal of the employer's appeal. It was
intended to discourage employers from using an appeal
to delay, or even evade, their obligation to satisfy their
employees' just and lawful claims. 62
Procedural rules require that the appeal bond filed be "genuine."
An appeal bond determined by the National Labor Relations Commission
to be "irregular or not genuine" shall cause the immediate dismissal of
the appeal. 63
In this case, petitioners allege that respondents' appeal should
not have been given due course by the National Labor Relations
Commission since the appeal bond they filed "[did] not appear in the
records of [Alpha Insurance]" 64 and was, therefore, not genuine. As
evidence, they presented a certification from Alpha Insurance, which
read:
This is to certify that the bond being presented
by MR. JOSEPH D. DE JESUS is allegedly a Surety
Bond filed with the NATIONAL LABOR RELATIONS
 COMMISSION, identified as Bond No. G(16)00358/2009
on an alleged case NLRC NCR Case No. 08-12090-08,
is a faked and forged bond, and it was not issued by
ALPHA INSURANCE & SURETY COMPANY, INC. 65
This Court in Navarro v. National Labor Relations
Commission 66 found that an employer failed to perfect its appeal as it
submitted an appeal bond that was "bogus[,] having been issued by an
officer no longer connected for a long time with the bonding
company." 67 The mere fictitiousness of the bond, however, was not the
only factor taken into consideration. This Court likewise took note of the
employer's failure to sufficiently explain this irregularity and its failure to
file the bond within the reglementary period. TIADCc
In Quiambao v. National Labor Relations Commission, 68 this
Court held that the mandatory and jurisdictional requirement of the filing
of an appeal bond could be relaxed if there was substantial
compliance. Quiambao proceeded to outline situations that could be
considered as substantial compliance, such as late payment, failure of
the Labor Arbiter to state the exact amount of money judgment due, and
reliance on a notice of judgment that failed to state that a bond must first
be filed in order to appeal. 69 Rosewood Processing v. National Labor
Relations Commission 70 likewise enumerated other instances where
there would be a liberal application of the procedural rules:
Some of these cases include: (a) counsel's reliance on
the footnote of the notice of the decision of the labor
arbiter that the aggrieved party may appeal . . . within
ten (10) working days; (b) fundamental consideration of
substantial justice; (c) prevention of miscarriage of
justice or of unjust enrichment, as where the tardy
appeal is from a decision granting separation pay which
was already granted in an earlier final decision; and (d)
special circumstances of the case combined with its
legal merits or the amount and the issue involved. 71
Thus, while the procedural rules strictly require the employer to
submit a genuine bond, an appeal could still be perfected if there was
substantial compliance with the requirement.
In this instance, the National Labor Relations Commission
certified that respondents filed a security deposit in the amount of
P6,512,524.84 under Security Bank check no. 0000045245, 72 showing
that the premium for the appeal bond was duly paid and that there was
willingness to post it. 73 Respondents likewise attached documents
proving that Alpha Insurance was a legitimate and accredited bonding
company. 74
Despite their failure to collect on the appeal bond, petitioners do
not deny that they were eventually able to garnish the amount from
respondents' bank deposits. 75 This fulfills the purpose of the bond, that
is, "to guarantee the payment of valid and legal claims against the
employer[.]" 76 Respondents are considered to have substantially
complied with the requirements on the posting of an appeal bond.
II
Under the Labor Code, the Labor Arbiter exercises original and
exclusive jurisdiction over termination disputes between an employer and
an employee while the National Labor Relations Commission exercises
exclusive appellate jurisdiction over these cases:
Article 224. [217] Jurisdiction of the Labor Arbiters and
the Commission. — (a) Except as otherwise provided
under this Code, the Labor Arbiters shall have original
and exclusive jurisdiction to hear and decide, within thirty
(30) calendar days after the submission of the case by
the parties for decision without extension, even in the
absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-
agricultural:
xxx xxx xxx
(2) Termination disputes;
xxx xxx xxx
(b) The Commission shall have exclusive appellate
jurisdiction over all cases decided by Labor Arbiters. 77
The presumption under this provision is that the parties have an
employer-employee relationship. Otherwise, the case would be
cognizable in different tribunals even if the action involves a termination
dispute.
Petitioner Malcaba alleges that the Court of Appeals erred in
dismissing his complaint for lack of jurisdiction, insisting that he was an
employee of respondent, not a corporate officer.
At the time of his alleged dismissal, petitioner Malcaba was the
President of respondent corporation. Strangely, this same petitioner
disputes this position as respondents' bare assertion, 78 yet he also
insists that his name appears as President in the corporation's General
Information Sheet for 2007. 79
 Under Section 25 of the Corporation Code, 80 the President of a
corporation is considered a corporate officer. The dismissal of a
corporate officer is considered an intra-corporate dispute, not a labor
dispute. Thus, in Tabang v. National Labor Relations Commission: 81
A corporate officer's dismissal is always a
corporate act, or an intra-corporate controversy, and the
nature is not altered by the reason or wisdom with which
the Board of Directors may have in taking such action.
Also, an intra-corporate controversy is one which arises
between a stockholder and the corporation. There is no
distinction, qualification, nor any exemption whatsoever.
The provision is broad and covers all kinds of
controversies between stockholders and
corporations. 82
Further, in Matling Industrial and Commercial Corporation v.
Coros, 83 this Court stated that jurisdiction over intra-corporate disputes
involving the illegal dismissal of corporate officers was with the Regional
Trial Court, not with the Labor Arbiter:
Where the complaint for illegal dismissal
concerns a corporate officer, however, the controversy
falls under the jurisdiction of the Securities and
Exchange Commission (SEC), because the controversy
arises out of intra-corporate or partnership relations
between and among stockholders, members, or
associates, or between any or all of them and the
corporation, partnership, or association of which they are
stockholders, members, or associates, respectively; and
between such corporation, partnership, or association
and the State insofar as the controversy concerns their
individual franchise or right to exist as such entity; or
because the controversy involves the election or
appointment of a director, trustee, officer, or manager of
such corporation, partnership, or association. Such
controversy, among others, is known as an intra-
corporate dispute.
Effective on August 8, 2000, upon the passage
of Republic Act No. 8799, otherwise known as The
Securities Regulation Code, the SEC's jurisdiction over
all intra-corporate disputes was transferred to the RTC,
pursuant to Section 5.2 of RA No. 8799, to wit:
5.2. The Commission's
jurisdiction over all cases enumerated
under Section 5 of Presidential Decree
No. 902-A is hereby transferred to the
Courts of general jurisdiction or the
appropriate Regional Trial Court:
Provided, that the Supreme Court in the
exercise of its authority may designate
the Regional Trial Court branches that
shall exercise jurisdiction over these
cases. The Commission shall retain
jurisdiction over pending cases involving
intra-corporate disputes submitted for
final resolution which should be resolved
within one (1) year from the enactment
of this Code. The Commission shall
retain jurisdiction over pending
suspension of payments/rehabilitation
cases filed as of 30 June 2000 until
finally disposed. 84 AIDSTE
The mere designation as a high-ranking employee, however, is
not enough to consider one as a corporate officer. In Tabang, this Court
discussed the distinction between an employee and a corporate officer,
regardless of designation:
The president, vice-president, secretary and
treasurer are commonly regarded as the principal or
executive officers of a corporation, and modern
corporation statutes usually designate them as the
officers of the corporation. However, other offices are
sometimes created by the charter or by-laws of a
corporation, or the board of directors may be
empowered under the by-laws of a corporation to create
additional offices as may be necessary.
It has been held that an "office" is created by the
charter of the corporation and the officer is elected by
the directors or stockholders. On the other hand, an
"employee" usually occupies no office and generally is
employed not by action of the directors or stockholders
but by the managing officer of the corporation who also
determines the compensation to be paid to such
employee. 85
The clear weight of jurisprudence clarifies that to be considered
a corporate officer, first, the office must be created by the charter of the
corporation, and second, the officer must be elected by the board of
directors or by the stockholders.
Petitioner Malcaba was an incorporator of the corporation and a
member of the Board of Directors. 86 Respondent corporation's By-Laws
creates the office of the President. That foundational document also
states that the President is elected by the Board of Directors:
ARTICLE IV
OFFICER
Section 1. Election/Appointment. — Immediately after
their election, the Board of Directors shall formally
organize by electing the President, the Vice President,
the Treasurer, and the Secretary at said meeting. 87
This case is similar to Locsin v. Nissan Lease Philippines: 88
Locsin was undeniably Chairman and President,
and was elected to these positions by the Nissan board
pursuant to its By-laws. As such, he was a corporate
officer, not an employee. The CA reached this
conclusion by relying on the submitted facts and
on Presidential Decree 902-A, which defines corporate
officers as "those officers of a corporation who are given
that character either by the Corporation Code or by the
corporation's by-laws." Likewise, Section 25 of Batas
Pambansa Blg. 69, or the Corporation Code of the
Philippines (Corporation Code) provides that corporate
officers are the president, secretary, treasurer and
such other officers as may be provided for in the by-
laws. 89 (Emphasis in the original)
Petitioners cite Prudential Bank and Trust Company v.
Reyes 90 as basis that even high-ranking officers may be considered
regular employees, not corporate officers. 91 Prudential Bank, however,
is not applicable to this case.
In Prudential Bank, an employer was considered estopped from
raising the argument of an intra-corporate dispute since this was only
raised when the case was filed with this Court. This Court also noted that
an employee rose from the ranks and was regularly performing tasks
integral to the business of the employer throughout the length of her
tenure, thus:
It appears that private respondent was
appointed Accounting Clerk by the Bank on July 14,
1963. From that position she rose to become supervisor.
Then in 1982, she was appointed Assistant Vice-
President which she occupied until her illegal dismissal
on July 19, 1991. The bank's contention that she merely
holds an elective position and that in effect she is not a
regular employee is belied by the nature of her work and
her length of service with the Bank. As earlier stated,
she rose from the ranks and has been employed with the
Bank since 1963 until the termination of her employment
in 1991. As Assistant Vice President of the foreign
department of the Bank, she is tasked, among others, to
collect checks drawn against overseas banks payable in
foreign currency and to ensure the collection of foreign
bills or checks purchased, including the signing of
transmittal letters covering the same. It has been stated
that "the primary standard of determining regular
employment is the reasonable connection between the
particular activity performed by the employee in relation
to the usual trade or business of the employer.["]
Additionally, "an employee is regular because of the
nature of work and the length of service, not because of
the mode or even the reason for hiring them." As
Assistant Vice-President of the Foreign Department of
the Bank she performs tasks integral to the operations of
the bank and her length of service with the bank totaling
28 years speaks volumes of her status as a regular
employee of the bank. In fine, as a regular employee,
she is entitled to security of tenure; that is, her services
may be terminated only for a just or authorized cause.
This being in truth a case of illegal dismissal, it is no
wonder then that the Bank endeavored to the very end
to establish loss of trust and confidence and serious
misconduct on the part of private respondent but, as will
be discussed later, to no avail. 92
An "Assistant Vice President" is not among the officers stated in
Section 25 of the Corporation Code. 93 A corporation's President,
however, is explicitly stated as a corporate officer.
Finding that petitioner Malcaba is the President of respondent
corporation and a corporate officer, any issue on his alleged dismissal is
beyond the jurisdiction of the Labor Arbiter or the National Labor
Relations Commission. Their adjudication on his money claims is void for
lack of jurisdiction. As a matter of equity, petitioner Malcaba must,
therefore, return all amounts received as judgment award pending final
adjudication of his claims. This Court's dismissal of petitioner Malcaba's
claims, however, is without prejudice to his filing of the appropriate case
in the proper forum.
III
Article 294 [279] of the Labor Code provides that an employer
may terminate the services of an employee only upon just or authorized
causes. 94 Article 297 [282] enumerates the just causes for termination,
among which is "[f]raud or willful breach by the employee of the trust
reposed in him by his employer or duly authorized representative[.]"
Loss of trust and confidence is a just cause to terminate either
managerial employees or rank-and-file employees who regularly handle
large amounts of money or property in the regular exercise of their
functions. 95
For an act to be considered a loss of trust and confidence, it
must be first, work-related, and second, founded on clearly established
facts: AaCTcI
The complained act must be work related such
as would show the employee concerned to be unfit to
continue working for the employer and it must be based
on a willful breach of trust and founded on clearly
established facts. The basis for the dismissal must be
clearly and convincingly established but proof beyond
reasonable doubt is not necessary. 96
The breach of trust must likewise be willful, that is, "it is done
intentionally, knowingly and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly, heedlessly or
inadvertently." 97
Petitioner Nepomuceno alleges that he was illegally dismissed
merely for his failure to inform his superiors of the actual dates of his
vacation leave. Respondents, however, contend that as District Business
Manager, petitioner Nepomuceno lost the corporation's trust and
confidence by failing to report for work during a crucial sales period.
As found by the National Labor Relations Commission, petitioner
Nepomuceno had filed for leave, which was approved, for April 24, 25,
and 28, 2008 to go on vacation in Malaysia. However, he left for
Malaysia on the evening of April 22, 2008, and thus, failed to report for
work on April 23, 2008.
Petitioner Nepomuceno claims that he only knew that his flight
was for the evening of April 22, 2008 on the day of his flight.
Respondents, however, insist that he "deliberately concealed the actual
date of departure as he knows that he would be out of the country on a
crucial period of sales generation and bookings . . . [and] therefore knew
that his application for leave would be denied." 98 Otherwise stated,
respondents contend that his dismissal was a valid exercise of their
management prerogative to discipline and dismiss managerial
employees unworthy of their trust and confidence.
The concept of a management prerogative was already passed
upon by this Court in San Miguel Brewery Sales Force Union v. Ople: 99
Except as limited by special
laws, an employer is free to regulate,
according to his own discretion and
judgment, all aspects of employment,
including hiring, work assignments,
working methods, time, place and
manner of work, tools to be used,
processes to be followed, supervision of
workers, working regulations, transfer of
employees, work supervision, lay-off of
workers and the discipline, dismissal
and recall of work. . . .
Every business enterprise endeavors to
increase its profits. In the process, it may adopt or
devise means designed towards that goal. In Abott
Laboratories vs. NLRC, . . . We ruled:
. . . Even as the law is solicitous of the
welfare of the employees, it must also
protect the right of an employer to
exercise what are clearly management
prerogatives. The free will of
management to conduct its own
business affairs to achieve its purpose
cannot be denied.
So long as a company's management
prerogatives are exercised in good faith for the
advancement of the employer's interest and not for the
purpose of defeating or circumventing the rights of the
employees under special laws or under valid
agreements, this Court will uphold them. 100
While an employer is free to regulate all aspects of employment,
the exercise of management prerogatives must be in good faith and must
not defeat or circumvent the rights of its employees.
In industries that mainly rely on sales, employers are free to
discipline errant employees who deliberately fail to report for work during
a crucial sales period. It would have been reasonable for respondents to
discipline petitioner Nepomuceno had he been a problematic employee
who unceremoniously refused to do his work.
However, as found by the Labor Arbiter and the National Labor
Relations Commission, petitioner Nepomuceno turned over all of his
pending work to a reliever before he left for Malaysia. He was able to
reach his sales quota and surpass his sales target even before taking his
vacation leave. Respondents did not suffer any financial damage as a
result of his absence. This was also petitioner Nepomuceno's first
infraction in his nine (9) years of service with respondents. 101 None of
these circumstances constitutes a willful breach of trust on his part. The
penalty of dismissal, thus, was too severe for this kind of infraction.
The manner of petitioner Nepomuceno's dismissal was likewise
suspicious. In all cases of employment termination, the employee must
be granted due process. The manner by which this is accomplished is
stated in Book V, Rule XXIII, Section 2 of the Rules Implementing the
Labor Code:
Section 2. Standard 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 to 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
the employee so desires, is given opportunity to respond
to the charge, present his evidence or rebut the
evidence presented against him; and
(c) A written notice of termination served on the
employee indicating that upon due consideration of all
the circumstance, grounds have been established to
justify his termination.
Here, petitioner Nepomuceno received a memorandum on April
23, 2008, asking him to explain why no administrative investigation
should be held against him. He submitted an explanation on the same
day and another explanation on May 2, 2008. On May 7, 2008, he was
given his notice of termination, which had already taken effect two (2)
days earlier, or on May 5, 2008. 102
It is true that "[t]he essence of due process is simply an
opportunity to be heard." 103 Petitioner Nepomuceno had two (2)
opportunities within which to explain his actions. This would have been
sufficient to satisfy the requirement. The delay in handing him his notice
of termination, however, appears to have been an afterthought. While
strictly not a violation of procedural due process, respondents should
have been more circumspect in complying with the due process
requirements under the law. EcTCAD
Considering that petitioner Nepomuceno's dismissal was done
without just cause, he is entitled to reinstatement and full
backwages. 104 If reinstatement is not possible due to strained relations
between the parties, he shall be awarded separation pay at the rate of
one (1) month for every year of service. 105
IV
Under Article 297 [282] of the Labor Code, an employer may
terminate the services of an employee who commits willful disobedience
of the lawful orders of the employer:
Article 297. [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[.]
For disobedience to be considered as just cause for termination,
two (2) requisites must concur: first, "the employee's assailed conduct
must have been wilful or intentional," and second, "the order violated
must have been reasonable, lawful, made known to the employee and
must pertain to the duties which he [or she] had been engaged to
discharge." 106 For disobedience to be willful, it must be "characterized
by a wrongful and perverse mental attitude rendering the employee's act
inconsistent with proper subordination." 107
The conduct complained of must also constitute "harmful
behavior against the business interest or person of his [or her]
employer." 108 Thus, it is implied in every case of willful disobedience
that "the erring employee obtains undue advantage detrimental to the
business interest of the employer." 109
Petitioner Palit-Ang, as Finance Officer, was instructed by
respondent Del Castillo to give a cash advance of P3,000.00 to District
Branch Manager Gamboa on November 26, 2007. This order was
reasonable, lawful, made known to petitioner Palit-Ang, and pertains to
her duties. 110 What is left to be determined, therefore, is whether
petitioner Palit-Ang intentionally and willfully violated it as to amount to
insubordination.
When Gamboa went to collect the money from petitioner Palit-
Ang, he was told to return the next day as she was still busy. When
petitioner Palit-Ang found out that the money was to be used for a car was furnished a notice of termination explaining the grounds for her
tune-up, she suggested to Gamboa to just get the money from his dismissal. 116 She was not denied due process.
mobilization fund and that she just would reimburse it after. 111 The
Petitioner Palit-Ang, nonetheless, is considered to have been
Court of Appeals found that these circumstances characterized petitioner
illegally dismissed, her penalty not having been proportionate to the
Palit-Ang's "arrogance and hostility," 112 in failing to comply with
infraction committed. Thus, she is entitled to reinstatement and full
respondent Del Castillo's order, and thus, warranted her dismissal.
backwages. 117 If reinstatement is not possible due to strained relations
On the contrary, there was no ill will between Gamboa and between the parties, she shall be awarded separation pay at the rate of
petitioner Palit-Ang. Petitioner Palit-Ang's failure to immediately give the one (1) month for every year of service. 118
money to Gamboa was not the result of a perverse mental attitude but
WHEREFORE, the Petition is PARTIALLY GRANTED.
was merely because she was busy at the time. Neither did she profit
Petitioner Christian C. Nepomuceno and petitioner Laura Mae Fatima F.
from her failure to immediately give the cash advance for the car tune-up
Palit-Ang are DECLARED to have been illegally dismissed. They are,
nor did respondents suffer financial damage by her failure to comply. The
therefore, entitled to reinstatement without loss of seniority rights, or in
severe penalty of dismissal was not commensurate to her infraction.
lieu thereof, separation pay; and the payment of backwages from the
In Dongon v. Rapid Movers and Forwarders: 113
filing of their Complaints until finality of this Decision.
To us, dismissal should only be a last resort, a
The Court of Appeals February 19, 2013 Decision and
penalty to be meted only after all the relevant
September 10, 2013 Resolution in CA-G.R. SP No. 119093, finding that
circumstances have been appreciated and evaluated
the National Labor Relations Commission had no jurisdiction to
with the goal of ensuring that the ground for dismissal
adjudicate petitioner Nicanor F. Malcaba's claims is SUSTAINED.
was not only serious but true. The cause of termination,
Petitioner Malcaba is further ordered to RETURN the amount of
to be lawful, must be a serious and grave malfeasance
P4,937,420.40 to respondents for having been erroneously awarded.
to justify the deprivation of a means of livelihood. This
This shall be without prejudice to the filing of petitioner Malcaba's claims
requirement is in keeping with the spirit of our
in the proper forum.
Constitution and laws to lean over backwards in favor of
the working class, and with the mandate that every This case is hereby REMANDED to the Labor Arbiter for the
doubt must be resolved in their favor. proper computation of petitioners Christian C. Nepomuceno's and Laura
Mae Fatima F. Palit-Ang's money claims.
Although we recognize the inherent right of the
employer to discipline its employees, we should still SO ORDERED.
ensure that the employer exercises the prerogative to
|||  (Malcaba v. ProHealth Pharma Philippines, Inc., G.R. No. 209085 , [June
discipline humanely and considerately, and that the
sanction imposed is commensurate to the offense 6, 2018])
involved and to the degree of the infraction. The
discipline exacted by the employer should further
consider the employee's length of service and the Labor Law; Appeals; Appeal Bonds; In labor cases, an appeal by an employer is
number of infractions during his employment. The perfected only by filing a bond equivalent to the monetary award.—Appeal is not a
employer should never forget that always at stake in
matter of right. Courts and tribunals have the discretion whether to give due course
disciplining its employee are not only his position but
also his livelihood, and that he may also have a family to an appeal or to dismiss it outright. The perfection of an appeal is, thus,
entirely dependent on his earnings. 114 jurisdictional. Noncompliance with the manner in which to file an appeal renders
the judgment final and executory. In labor cases, an appeal by an employer is
Petitioner Palit-Ang likewise assails the failure of respondents to
perfected only by filing a bond equivalent to the monetary award.
inform her of her right to counsel when she was being investigated for
her infraction. As previously discussed, "[t]he essence of due process is
simply an opportunity to be heard," 115 not that the employee must be
accompanied by counsel at all times. A hearing was conducted and she Same; Same; Same; The purpose of requiring an appeal bond is “to guarantee the
payment of valid and legal claims against the employer.”—The purpose of requiring
an appeal bond is “to guarantee the payment of valid and legal claims against the
employer.” It is a measure of financial security granted to an illegally dismissed
employee since the resolution of the employer’s appeal may take an
indeterminable amount of time. In particular: The requirement that the employer
post a cash or surety bond to perfect its/his appeal is apparently intended to assure
the workers that if they prevail in the case, they will receive the money judgment in
their favor upon the dismissal of the employer’s appeal. It was intended to
discourage employers from using an appeal to delay, or even evade, their obligation
to satisfy their employees’ just and lawful claims. Procedural rules require that the
appeal bond filed be “genuine.” An appeal bond determined by the National Labor
Relations Commission to be “irregular or not genuine” shall cause the immediate
dismissal of the appeal.
_______________
*  THIRD DIVISION.
 
519
VOL. 864, JUNE 6, 2018
519
Malcaba vs. ProHealth Pharma Philippines, Inc.
Same; Labor Arbiters; National Labor Relations Commission; Jurisdiction; Under the
Labor Code, the Labor Arbiter (LA) exercises original and exclusive jurisdiction over
termination disputes between an employer and an employee while the National
Labor Relations Commission (NLRC) exercises exclusive appellate jurisdiction over
these cases.—Under the Labor Code, the Labor Arbiter exercises original and
exclusive jurisdiction over termination disputes between an employer and an
employee while the National Labor Relations Commission exercises exclusive
appellate jurisdiction over these cases: Article 224. [217] Jurisdiction of the Labor
Arbiters and the Commission.—(a) Except as otherwise provided under this Code,
the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide,
within thirty (30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or nonagricultural: . . . (2)
Termination disputes; . . . (b) The Commission shall have exclusive appellate
jurisdiction over all cases decided by Labor Arbiters. The presumption under this
provision is that the parties have an employer-employee relationship. Otherwise,
the case would be cognizable in different tribunals even if the action involves a
termination dispute.
Same; Corporations; Corporate Officers; Intra-Corporate Disputes; Under Section 25
of the Corporation Code, the President of a corporation is considered a corporate
officer. The dismissal of a corporate officer is considered an intra-corporate dispute,
not a labor dispute.—Under Section 25 of the Corporation Code, the President of a
corporation is considered a corporate officer. The dismissal of a corporate officer is
considered an intra-corporate dispute, not a labor dispute. Thus, in Tabang v.
National Labor Relations Commission, 266 SCRA 462 (1997): A corporate officer’s
dismissal is always a corporate act, or an intra-corporate controversy, and the
nature is not altered by the reason or wisdom with which the Board of Directors
may have in taking such action. Also, an intra-corporate controversy is one which
arises between a stockholder and the corporation. There is no distinction,
qualification, nor any exemption whatsoever. The provision is broad and covers all
kinds of controversies between stockholders and corporations.
 the stockholders. Petitioner Malcaba was an incorporator of the corporation and a
member of the Board of Directors. Respondent corporation’s By-Laws creates the
520
office of the President.

520
Labor Law; Termination of Employment; Loss of Trust and Confidence; Loss of trust
and confidence is a just cause to terminate either managerial employees or rank-
and-file employees who regularly handle large amounts of money or property in the
SUPREME COURT REPORTS ANNOTATED regular exercise of their functions.—Article 294 [279] of the Labor Code provides
that an employer may terminate the services of an employee only upon just or
authorized causes. Article 297 [282] enumerates the just
Malcaba vs. ProHealth Pharma Philippines, Inc.

 
Corporations; Intra-Corporate Disputes; Regional Trial Courts; Jurisdiction;
Corporate Officers; Effective on August 8, 2000, upon the passage of Republic Act
(RA) No. 8799, otherwise known as The Securities Regulation Code, the Securities  
and Exchange Commission’s (SEC’s) jurisdiction over all intra-corporate disputes
was transferred to the Regional Trial Court (RTC), pursuant to Section 5.2 of RA No.
8799.—Effective on August 8, 2000, upon the passage of Republic Act No. 8799,
521
otherwise known as The Securities Regulation Code, the SEC’s jurisdiction over all
intra-corporate disputes was transferred to the RTC, pursuant to Section 5.2 of RA
No. 8799, to wit: 5.2. The Commission’s jurisdiction over all cases enumerated
VOL. 864, JUNE 6, 2018
under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts
of general jurisdiction or the appropriate Regional Trial Court: Provided, that the
Supreme Court in the exercise of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over these cases. The Commission 521
shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over pending Malcaba vs. ProHealth Pharma Philippines, Inc.
suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed.
causes for termination, among which is “[f]raud or willful breach by the employee
of the trust reposed in him by his employer or duly authorized representative[.]”
Same; Same; Corporate Officers; The clear weight of jurisprudence clarifies that to Loss of trust and confidence is a just cause to terminate either managerial
be considered a corporate officer, first, the office must be created by the charter of employees or rank-and-file employees who regularly handle large amounts of
the corporation, and second, the officer must be elected by the board of directors money or property in the regular exercise of their functions. For an act to be
or by the stockholders.—The clear weight of jurisprudence clarifies that to be considered a loss of trust and confidence, it must be first, work-related, and second,
considered a corporate officer, first, the office must be created by the charter of the founded on clearly established facts: The complained act must be work-related such
corporation, and second, the officer must be elected by the board of directors or by as would show the employee concerned to be unfit to continue working for the
employer and it must be based on a willful breach of trust and founded on clearly
established facts. The basis for the dismissal must be clearly and convincingly
established but proof beyond reasonable doubt is not necessary. The breach of
trust must likewise be willful, that is, “it is done intentionally, knowingly and
purposely, without justifiable excuse, as distinguished from an act done carelessly,
thoughtlessly, heedlessly or inadvertently.”
Same; Management Prerogatives; While an employer is free to regulate all aspects
of employment, the exercise of management prerogatives must be in good faith
and must not defeat or circumvent the rights of its employees.—While an employer
is free to regulate all aspects of employment, the exercise of management
prerogatives must be in good faith and must not defeat or circumvent the rights of
its employees. In industries that mainly rely on sales, employers are free to
discipline errant employees who deliberately fail to report for work during a crucial
sales period. It would have been reasonable for respondents to discipline petitioner
Nepomuceno had he been a problematic employee who unceremoniously refused
to do his work. However, as found by the Labor Arbiter and the National Labor
Relations Commission, petitioner Nepomuceno turned over all of his pending work
to a reliever before he left for Malaysia. He was able to reach his sales quota and
surpass his sales target even before taking his vacation leave. Respondents did not
suffer any financial damage as a result of his absence. This was also petitioner
Nepomuceno’s first infraction in his nine (9) years of service with respondents.
None of these circumstances constitutes a willful breach of trust on his part. The
penalty of dismissal, thus, was too severe for this kind of infraction.
 
522
522
SUPREME COURT REPORTS ANNOTATED
Malcaba vs. ProHealth Pharma Philippines, Inc.
Same; Termination of Employment; Illegal Dismissals; Reinstatement; Backwages;
Separation Pay; Strained Relations Doctrine; Considering that petitioner
Nepomuceno’s dismissal was done without just cause, he is entitled to
reinstatement and full backwages. If reinstatement is not possible due to strained
relations between the parties, he shall be awarded separation pay at the rate of one
(1) month for every year of service.—Petitioner Nepomuceno received a
memorandum on April 23, 2008, asking him to explain why no administrative
investigation should be held against him. He submitted an explanation on the same
day and another explanation on May 2, 2008. On May 7, 2008, he was given his
notice of termination, which had already taken effect two (2) days earlier, or on
May 5, 2008. It is true that “[t]he essence of due process is simply an opportunity to
be heard.” Petitioner Nepomuceno had two (2) opportunities within which to
explain his actions. This would have been sufficient to satisfy the requirement. The
delay in handing him his notice of termination, however, appears to have been an
afterthought. While strictly not a violation of procedural due process, respondents
should have been more circumspect in complying with the due process
requirements under the law. Considering that petitioner Nepomuceno’s dismissal
was done without just cause, he is entitled to reinstatement and full backwages. If
reinstatement is not possible due to strained relations between the parties, he shall
be awarded separation pay at the rate of one (1) month for every year of service.
Same; Same; Willful Disobedience; For disobedience to be considered as just cause
for termination, two (2) requisites must concur: first, “the employee’s assailed
conduct must have been wilful or intentional,” and second, “the order violated
must have been reasonable, lawful, made known to the employee and must pertain
to the duties which he [or she] had been engaged to discharge.”—For disobedience
to be considered as just cause for termination, two (2) requisites must concur: first,
“the employee’s assailed conduct must have been wilful or intentional,” and
second, “the order violated must have been reasonable, lawful, made known to the
employee and must pertain to the duties which he [or she] had been engaged to
discharge.” For disobedience to be willful, it must be “characterized by a wrongful
and perverse mental attitude rendering the employee’s act inconsistent with proper
subordination.” The conduct complained of must also constitute “harmful behavior
against the business interest or person of his [or her] employer.” Thus, it is implied
in every case
 
523
VOL. 864, JUNE 6, 2018
523
Malcaba vs. ProHealth Pharma Philippines, Inc.
of willful disobedience that “the erring employee obtains undue advantage
detrimental to the business interest of the employer.” Petitioner Palit-Ang, as
Finance Officer, was instructed by respondent Del Castillo to give a cash advance of
P3,000.00 to District Branch Manager Gamboa on November 26, 2007. This order
was reasonable, lawful, made known to petitioner Palit-Ang, and pertains to her
duties. What is left to be determined, therefore, is whether petitioner Palit-Ang
intentionally and willfully violated it as to amount to insubordination. When
Gamboa went to collect the money from petitioner Palit-Ang, he was told to return
the next day as she was still busy. When petitioner Palit-Ang found out that the
money was to be used for a car tune-up, she suggested to Gamboa to just get the
money from his mobilization fund and that she just would reimburse it after. The
Court of Appeals found that these circumstances characterized petitioner Palit-
Ang’s “arrogance and hostility,” in failing to comply with respondent Del Castillo’s
order, and thus, warranted her dismissal.
Due Process; “The essence of due process is simply an opportunity to be heard,”
not that the employee must be accompanied by counsel at all times.—Petitioner
Palit-Ang likewise assails the failure of respondents to inform her of her right to
counsel when she was being investigated for her infraction. As previously discussed,
“[t]he essence of due process is simply an opportunity to be heard,” not that the
employee must be accompanied by counsel at all times. A hearing was conducted
and she was furnished a notice of termination explaining the grounds for her
dismissal. She was not denied due process. Petitioner Palit-Ang, nonetheless, is
considered to have been illegally dismissed, her penalty not having been
proportionate to the infraction committed. Thus, she is entitled to reinstatement
and full backwages. If reinstatement is not possible due to strained relations
between the parties, she shall be awarded separation pay at the rate of one (1)
month for every year of service.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals. Malcaba vs. ProHealth Pharma Philippines, Inc., 864 SCRA 518, G.R. No.
209085 June 6, 2018
[G.R. NO. 172101. November 23, 2007.]
REPUBLIC OF THE PHILIPPINES, represented by the
SOCIAL SECURITY COMMISSION and SOCIAL
SECURITY SYSTEM, petitioners, vs. ASIAPRO
COOPERATIVE,  respondent.
DECISION
CHICO-NAZARIO,  J p:
Before this Court is a Petition for Review on Certiorari under
Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to annul
and set aside the Decision 1 and Resolution 2 of the Court of Appeals in
CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006,
respectively, which annulled and set aside the Orders of the Social
Security Commission (SSC) in SSC Case No. 6-15507-03, dated 17
February 2004 3 and 16 September 2004, 4 respectively, thereby
dismissing the petition-complaint dated 12 June 2003 filed by herein
petitioner Social Security System (SSS) against herein respondent.
Herein petitioner Republic of the Philippines is represented by
the SSC, a quasi-judicial body authorized by law to resolve disputes
arising under Republic Act No. 1161, as amended by Republic Act No.
8282. 5 Petitioner SSS is a government corporation created by virtue
of Republic Act No. 1161, as amended. On the other hand, herein
respondent Asiapro Cooperative (Asiapro) is a multi-purpose cooperative
created pursuant to Republic Act No. 6938 6 and duly registered with the
Cooperative Development Authority (CDA) on 23 November 1999 with
Registration Certificate No. 0-623-2460. 7
The antecedents of this case are as follows:
Respondent Asiapro, as a cooperative, is composed of owners-
members. Under its by-laws, owners-members are of two categories, to
wit: (1) regular member, who is entitled to all the rights and privileges of
membership; and (2) associate member, who has no right to vote and be
voted upon and shall be entitled only to such rights and privileges
provided in its by-laws. 8 Its primary objectives are to provide savings
and credit facilities and to develop other livelihood services for its
owners-members. In the discharge of the aforesaid primary objectives,
respondent cooperative entered into several Service Contracts 9 with
Stanfilco — a division of DOLE Philippines, Inc. and a company based in
Bukidnon. The owners-members do not receive compensation or wages
from the respondent cooperative. Instead, they receive a share in the
service surplus 10 which the respondent cooperative earns from different
areas of trade it engages in, such as the income derived from the said
Service Contracts with Stanfilco. The owners-members get their income
from the service surplus generated by the quality and amount of services
they rendered, which is determined by the Board of Directors of the
respondent cooperative. DaTHAc
In order to enjoy the benefits under the Social Security Law of
1997, the owners-members of the respondent cooperative, who were
assigned to Stanfilco requested the services of the latter to register them
with petitioner SSS as self-employed and to remit their contributions as
such. Also, to comply with Section 19-A of Republic Act No. 1161, as
amended by Republic Act No. 8282, the SSS contributions of the said
owners-members were equal to the share of both the employer and the
employee.
On 26 September 2002, however, petitioner SSS through its
Vice-President for Mindanao Division, Atty. Eddie A. Jara, sent a
letter 11 to the respondent cooperative, addressed to its Chief Executive
Officer (CEO) and General Manager Leo G. Parma, informing the latter
that based on the Service Contracts it executed with Stanfilco,
respondent cooperative is actually a manpower contractor supplying
employees to Stanfilco and for that reason, it is an employer of its
owners-members working with Stanfilco. Thus, respondent cooperative
should register itself with petitioner SSS as an employer and make the
corresponding report and remittance of premium contributions in
accordance with the Social Security Law of 1997. On 9 October
2002, 12 respondent cooperative, through its counsel, sent a reply to
petitioner SSS's letter asserting that it is not an employer because its
owners-members are the cooperative itself; hence, it cannot be its own
employer. Again, on 21 October 2002, 13 petitioner SSS sent a letter to
respondent cooperative ordering the latter to register as an employer and
report its owners-members as employees for compulsory coverage with
the petitioner SSS. Respondent cooperative continuously ignored the
demand of petitioner SSS. IAETDc
Accordingly, petitioner SSS, on 12 June 2003, filed a
Petition 14 before petitioner SSC against the respondent cooperative and
Stanfilco praying that the respondent cooperative or, in the alternative,
Stanfilco be directed to register as an employer and to report respondent
cooperative's owners-members as covered employees under the
compulsory coverage of SSS and to remit the necessary contributions in
accordance with the Social Security Law of 1997. The same was
docketed as SSC Case No. 6-15507-03. Respondent cooperative filed its
Answer with Motion to Dismiss alleging that no employer-employee
relationship exists between it and its owners-members, thus, petitioner
SSC has no jurisdiction over the respondent cooperative. Stanfilco, on
the other hand, filed an Answer with Cross-claim against the respondent
cooperative.
On 17 February 2004, petitioner SSC issued an Order denying
the Motion to Dismiss filed by the respondent cooperative. The
respondent cooperative moved for the reconsideration of the said Order,
but it was likewise denied in another Order issued by the SSC dated 16
September 2004.
Intending to appeal the above Orders, respondent cooperative
filed a Motion for Extension of Time to File a Petition for Review before
the Court of Appeals. Subsequently, respondent cooperative filed a
Manifestation stating that it was no longer filing a Petition for Review. In
its place, respondent cooperative filed a Petition for Certiorari before the
Court of Appeals, docketed as CA-G.R. SP No. 87236, with the following
assignment of errors:
I. The Orders dated 17 February 2004 and 16 September
2004 of [herein petitioner] SSC were issued with
grave abuse of discretion amounting to a (sic) lack
or excess of jurisdiction in that: SITCEA
A. [Petitioner] SSC arbitrarily proceeded with the
case as if it has jurisdiction over the
 petition a quo, considering that it failed to members enjoy rights that are not
first resolve the issue of the existence of consistent with being mere employees of a
an employer-employee relationship company, such as the right to participate
between [respondent] cooperative and its and vote in decision-making for the
owners-members. cooperative. aCcEHS
B. While indeed, the [petitioner] SSC has C. As found by the Bureau of Internal Revenue
jurisdiction over all disputes arising under [BIR], the owners-members of
the SSS Law with respect to coverage, [respondent] cooperative are not paid any
benefits, contributions, and related compensation income. 15 (Emphasis
matters, it is respectfully submitted that supplied.)
[petitioner] SSC may only assume
jurisdiction in cases where there is no On 5 January 2006, the Court of Appeals rendered a Decision
dispute as to the existence of an granting the petition filed by the respondent cooperative. The decretal
employer-employee relationship. portion of the Decision reads:
WHEREFORE, the petition is GRANTED. The assailed Orders
C. Contrary to the holding of the [petitioner] SSC,
dated [17 February 2004] and [16 September 2004],
the legal issue of employer-employee
are ANNULLED and SET ASIDE and a new one is
relationship raised in [respondent's]
entered DISMISSING the petition-complaint dated [12 June 2003] of
Motion to Dismiss can be preliminarily
[herein petitioner] Social Security System. 16
resolved through summary hearings prior
to the hearing on the merits. However, any Aggrieved by the aforesaid Decision, petitioner SSS moved for a
inquiry beyond a preliminary reconsideration, but it was denied by the appellate court in its Resolution
determination, as what [petitioner SSC] dated 20 March 2006.
wants to accomplish, would be to
Hence, this Petition.
encroach on the jurisdiction of the National
Labor Relations Commission [NLRC], In its Memorandum, petitioners raise the issue of whether or not
which is the more competent body clothed the Court of Appeals erred in not finding that the SSC has
with power to resolve issues relating to the jurisdiction over the subject matter and it has a valid basis in
existence of an employment relationship. denying respondent's Motion to Dismiss. The said issue is supported
by the following arguments:
II. At any rate, the [petitioner] SSC has no jurisdiction to
take cognizance of the petition a quo. I. The [petitioner SSC] has jurisdiction over the
petition-complaint filed before it by the
A. [Respondent] is not an employer within the [petitioner SSS] under R.A. No. 8282.
contemplation of the Labor Law but is a
multi-purpose cooperative created II. Respondent [cooperative] is estopped from
pursuant to Republic Act No. 6938 and questioning the jurisdiction of petitioner SSC
composed of owners-members, not after invoking its jurisdiction by filing an
employees. [A]nswer with [M]otion to [D]ismiss before
it. IEDHAT
B. The rights and obligations of the owners-
members of [respondent] cooperative are III. The [petitioner SSC] did not act with grave abuse of
derived from their Membership discretion in denying respondent
Agreements, the Cooperatives By-Laws, [cooperative's] [M]otion to [D]ismiss.
and Republic Act No. 6938, and not from
any contract of employment or from the IV. The existence of an employer-employee
Labor Laws. Moreover, said owners- relationship is a question of fact where
presentation of evidence is necessary.
 V. There is an employer-employee relationship
between [respondent cooperative] and its
[owners-members].
Petitioners claim that SSC has jurisdiction over the petition-
complaint filed before it by petitioner SSS as it involved an issue of
whether or not a worker is entitled to compulsory coverage under
the SSS Law. Petitioners avow that Section 5 of Republic Act No. 1161,
as amended by Republic Act No. 8282, expressly confers upon petitioner
SSC the power to settle disputes on compulsory coverage, benefits,
contributions and penalties thereon or any other matter related thereto.
Likewise, Section 9 of the same law clearly provides that SSS coverage
is compulsory upon all employees. Thus, when petitioner SSS filed a
petition-complaint against the respondent cooperative and Stanfilco
before the petitioner SSC for the compulsory coverage of respondent
cooperative's owners-members as well as for collection of unpaid SSS
contributions, it was very obvious that the subject matter of the aforesaid
petition-complaint was within the expertise and jurisdiction of the SSC.
Petitioners similarly assert that granting arguendo that there is a
prior need to determine the existence of an employer-employee
relationship between the respondent cooperative and its owners-
members, said issue does not preclude petitioner SSC from taking
cognizance of the aforesaid petition-complaint. Considering that the
principal relief sought in the said petition-complaint has to be resolved by
reference to the Social Security Law and not to the Labor Code or other
labor relations statutes, therefore, jurisdiction over the same solely
belongs to petitioner SSC. DEIHSa
Petitioners further claim that the denial of the respondent
cooperative's Motion to Dismiss grounded on the alleged lack of
employer-employee relationship does not constitute grave abuse of
discretion on the part of petitioner SSC because the latter has the
authority and power to deny the same. Moreover, the existence of an
employer-employee relationship is a question of fact where presentation
of evidence is necessary. Petitioners also maintain that the respondent
cooperative is already estopped from assailing the jurisdiction of the
petitioner SSC because it has already filed its Answer before it, thus,
respondent cooperative has already submitted itself to the jurisdiction of
the petitioner SSC.
Finally, petitioners contend that there is an employer-employee
relationship between the respondent cooperative and its owners-
members. The respondent cooperative is the employer of its owners-
members considering that it undertook to provide services to Stanfilco,
the performance of which is under the full and sole control of the
respondent cooperative.
On the other hand, respondent cooperative alleges that its
owners-members own the cooperative, thus, no employer-employee
relationship can arise between them. The persons of the employer and
the employee are merged in the owners-members themselves. Likewise,
respondent cooperative's owners-members even requested the
respondent cooperative to register them with the petitioner SSS as self-
employed individuals. Hence, petitioner SSC has no jurisdiction over the
petition-complaint filed before it by petitioner SSS.
Respondent cooperative further avers that the Court of Appeals
correctly ruled that petitioner SSC acted with grave abuse of discretion
when it assumed jurisdiction over the petition-complaint without
determining first if there was an employer-employee relationship between
the respondent cooperative and its owners-members. Respondent
cooperative claims that the question of whether an employer-employee
relationship exists between it and its owners-members is a legal and not
a factual issue as the facts are undisputed and need only to be
interpreted by the applicable law and jurisprudence. IDATCE
Lastly, respondent cooperative asserts that it cannot be
considered estopped from assailing the jurisdiction of petitioner SSC
simply because it filed an Answer with Motion to Dismiss, especially
where the issue of jurisdiction is raised at the very first instance and
where the only relief being sought is the dismissal of the petition-
complaint for lack of jurisdiction.
From the foregoing arguments of the parties, the issues may be
summarized into:
I. Whether the petitioner SSC has jurisdiction over the
petition-complaint filed before it by petitioner
SSS against the respondent cooperative.
II. Whether the respondent cooperative is estopped
from assailing the jurisdiction of petitioner
SSC since it had already filed an Answer with
Motion to Dismiss before the said body.
Petitioner SSC's jurisdiction is clearly stated in Section 5
of Republic Act No. 8282 as well as in Section 1, Rule III of the 1997
SSS Revised Rules of Procedure.
Section 5 of Republic Act No. 8282 provides:
SEC. 5. Settlement of Disputes. — (a) Any dispute arising under
this Act with respect to coverage, benefits, contributions and penalties
thereon or any other matter related thereto, shall be cognizable by
the Commission, . . . . (Emphasis supplied.)
Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of
Procedure states:
 Section 1. Jurisdiction. — Any dispute arising under the
Social Security Act with respect to coverage, entitlement of benefits,
collection and settlement of contributions and penalties thereon, or any
other matter related thereto, shall be cognizable by the
Commission after the SSS through its President, Manager or Officer-in-
charge of the Department/Branch/Representative Office concerned had
first taken action thereon in writing. (Emphasis supplied.) cSCADE
It is clear then from the aforesaid provisions that any issue
regarding the compulsory coverage of the SSS is well within the
exclusive domain of the petitioner SSC. It is important to note, though,
that the mandatory coverage under the SSS Law is premised on the
existence of an employer-employee relationship 17 except in cases of
compulsory coverage of the self-employed.
It is axiomatic that the allegations in the complaint, not the
defenses set up in the Answer or in the Motion to Dismiss,
determine which court has jurisdiction over an action; otherwise,
the question of jurisdiction would depend almost entirely upon the
defendant. 18 Moreover, it is well-settled that once jurisdiction is
acquired by the court, it remains with it until the full termination of the
case. 19 The said principle may be applied even to quasi-judicial bodies.
In this case, the petition-complaint filed by the petitioner SSS
before the petitioner SSC against the respondent cooperative and
Stanfilco alleges that the owners-members of the respondent cooperative
are subject to the compulsory coverage of the SSS because they are
employees of the respondent cooperative. Consequently, the respondent
cooperative being the employer of its owners-members must register as
employer and report its owners-members as covered members of the
SSS and remit the necessary premium contributions in accordance with
the Social Security Law of 1997. Accordingly, based on the aforesaid
allegations in the petition-complaint filed before the petitioner SSC, the
case clearly falls within its jurisdiction. Although the Answer with Motion
to Dismiss filed by the respondent cooperative challenged the jurisdiction
of the petitioner SSC on the alleged lack of employer-employee
relationship between itself and its owners-members, the same is not
enough to deprive the petitioner SSC of its jurisdiction over the petition-
complaint filed before it. Thus, the petitioner SSC cannot be faulted for
initially assuming jurisdiction over the petition-complaint of the petitioner
SSS. IaHAcT
Nonetheless, since the existence of an employer-employee
relationship between the respondent cooperative and its owners-
members was put in issue and considering that the compulsory coverage
of the SSS Law is predicated on the existence of such relationship, it
behooves the petitioner SSC to determine if there is really an employer-
employee relationship that exists between the respondent cooperative
and its owners-members.
The question on the existence of an employer-employee
relationship is not within the exclusive jurisdiction of the National Labor
Relations Commission (NLRC). Article 217 of the Labor
Code enumerating the jurisdiction of the Labor Arbiters and the NLRC
provides that:
ART. 217. JURISDICTION OF LABOR ARBITERS AND THE
COMMISSION. — (a) . . . .
xxx xxx xxx
6. Except claims for Employees
Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from
employer-employee relations, including those of
persons in domestic or household service,
involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement. 20
Although the aforesaid provision speaks merely of claims for
Social Security, it would necessarily include issues on the coverage
thereof, because claims are undeniably rooted in the coverage by the
system. Hence, the question on the existence of an employer-employee
relationship for the purpose of determining the coverage of the
Social Security System is explicitly excluded from the jurisdiction of the
NLRC and falls within the jurisdiction of the SSC which is primarily
charged with the duty of settling disputes arising under the Social
Security Law of 1997.
On the basis thereof, considering that the petition-complaint of
the petitioner SSS involved the issue of compulsory coverage of the
owners-members of the respondent cooperative, this Court agrees with
the petitioner SSC when it declared in its Order dated 17 February 2004
that as an incident to the issue of compulsory coverage, it may inquire
into the presence or absence of an employer-employee relationship
without need of waiting for a prior pronouncement or submitting the issue
to the NLRC for prior determination. Since both the petitioner SSC and
the NLRC are independent bodies and their jurisdiction are well-defined
by the separate statutes creating them, petitioner SSC has the authority
to inquire into the relationship existing between the worker and the
person or entity to whom he renders service to determine if the
employment, indeed, is one that is excepted by the Social Security Law
of 1997 from compulsory coverage. 21
Even before the petitioner SSC could make a determination of
the existence of an employer-employee relationship, however, the
respondent cooperative already elevated the Order of the petitioner SSC,
denying its Motion to Dismiss, to the Court of Appeals by filing a Petition
for Certiorari. As a consequence thereof, the petitioner SSC became a
party to the said Petition for Certiorari pursuant to Section 5
(b) 22 of Republic Act No. 8282. The appellate court ruled in favor of the
respondent cooperative by declaring that the petitioner SSC has no
jurisdiction over the petition-complaint filed before it because there was
no employer-employee relationship between the respondent cooperative
and its owners-members. Resultantly, the petitioners SSS and SSC,
representing the Republic of the Philippines, filed a Petition for Review
before this Court.
Although as a rule, in the exercise of the Supreme Court's power
of review, the Court is not a trier of facts and the findings of fact of the
Court of Appeals are conclusive and binding on the Court, 23 said rule is
not without exceptions. There are several recognized exceptions 24 in
which factual issues may be resolved by this Court. One of these
exceptions finds application in this present case which is, when the
findings of fact are conflicting. There are, indeed, conflicting findings
espoused by the petitioner SSC and the appellate court relative to the
existence of employer-employee relationship between the respondent
cooperative and its owners-members, which necessitates a departure
from the oft-repeated rule that factual issues may not be the subject of
appeals to this Court. cECaHA
In determining the existence of an employer-employee
relationship, the following elements are considered: (1) the selection and
engagement of the workers; (2) the payment of wages by whatever
means; (3) the power of dismissal; and (4) the power to control the
worker's conduct, with the latter assuming primacy in the overall
consideration. 25 The most important element is the employer's
control of the employee's conduct, not only as to the result of the
work to be done, but also as to the means and methods to
accomplish. 26 The power of control refers to the existence of the
power and not necessarily to the actual exercise thereof. It is not
essential for the employer to actually supervise the performance of duties
of the employee; it is enough that the employer has the right to wield that
power. 27 All the aforesaid elements are present in this case.
First. It is expressly provided in the Service Contracts that it is
the respondent cooperative which has the exclusive discretion in the
selection and engagement of the owners-members as well as its
team leaders who will be assigned at Stanfilco. 28 Second. Wages
are defined as "remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or
ascertained, on a time, task, piece or commission basis, or other method
of calculating the same, which is payable by an employer to an
employee under a written or unwritten contract of employment for
work done or to be done, or for service rendered or to be
rendered." 29 In this case, the weekly stipends or the so-called shares
in the service surplus given by the respondent cooperative to its owners-
members were in reality wages, as the same were equivalent to an
amount not lower than that prescribed by existing labor laws, rules and
regulations, including the wage order applicable to the area and industry;
or the same shall not be lower than the prevailing rates of wages. 30 It
cannot be doubted then that those stipends or shares in the service
surplus are indeed wages, because these are given to the owners-
members as compensation in rendering services to respondent
cooperative's client, Stanfilco.  Third. It is also stated in the above-
mentioned Service Contracts that it is the respondent cooperative which
has the power to investigate, discipline and remove the owners-
members and its team leaders who were rendering services at
Stanfilco. 31 Fourth. As earlier opined, of the four elements of the
employer-employee relationship, the "control test" is the most important.
In the case at bar, it is the respondent cooperative which has the sole
control over the manner and means of performing the services
under the Service Contracts with Stanfilco as well as the means and
methods of work. 32 Also, the respondent cooperative is solely and
entirely responsible for its owners-members, team leaders and other
representatives at Stanfilco. 33 All these clearly prove that, indeed, there
is an employer-employee relationship between the respondent
cooperative and its owners-members. DIETHS
It is true that the Service Contracts executed between the
respondent cooperative and Stanfilco expressly provide that there shall
be no employer-employee relationship between the respondent
cooperative and its owners-members. 34 This Court, however, cannot
give the said provision force and effect.
As previously pointed out by this Court, an employee-employer
relationship actually exists between the respondent cooperative and its
owners-members. The four elements in the four-fold test for the
existence of an employment relationship have been complied with. The
respondent cooperative must not be allowed to deny its employment
relationship with its owners-members by invoking the questionable
Service Contracts provision, when in actuality, it does exist. The
existence of an employer-employee relationship cannot be negated
by expressly repudiating it in a contract, when the terms and
surrounding circumstances show otherwise. The employment
status of a person is defined and prescribed by law and not by what
the parties say it should be. 35
It is settled that the contracting parties may establish such
stipulations, clauses, terms and conditions as they want, and their
agreement would have the force of law between them. However, the
agreed terms and conditions must not be contrary to law, morals,
customs, public policy or public order. 36 The Service Contract
provision in question must be struck down for being contrary to law and
public policy since it is apparently being used by the respondent
cooperative merely to circumvent the compulsory coverage of its
employees, who are also its owners-members, by the Social Security
Law. AIHTEa
This Court is not unmindful of the pronouncement it made
in Cooperative Rural Bank of Davao City, Inc. v. Ferrer-
Calleja 37 wherein it held that:
A cooperative, therefore, is by its nature different from an
ordinary business concern, being run either by persons, partnerships, or
corporations. Its owners and/or members are the ones who run and
operate the business while the others are its employees . . . .
An employee therefore of such a cooperative who is a
member and co-owner thereof cannot invoke the right to collective
bargaining for certainly an owner cannot bargain with himself or his
co-owners. In the opinion of August 14, 1981 of the Solicitor General he
correctly opined that employees of cooperatives who are themselves
members of the cooperative have no right to form or join labor
organizations for purposes of collective bargaining for being themselves
co-owners of the cooperative.
However, in so far as it involves cooperatives with employees
who are not members or co-owners thereof, certainly such employees
are entitled to exercise the rights of all workers to organization, collective
bargaining, negotiations and others as are enshrined in the Constitution
and existing laws of the country.
The situation in the aforesaid case is very much different from
the present case. The declaration made by the Court in the aforesaid
case was made in the context of whether an employee who is also an
owner-member of a cooperative can exercise the right to bargain
collectively with the employer who is the cooperative wherein he is an
owner-member. Obviously, an owner-member cannot bargain collectively
with the cooperative of which he is also the owner because an owner
cannot bargain with himself. In the instant case, there is no issue
regarding an owner-member's right to bargain collectively with the
cooperative. The question involved here is whether an employer-
employee relationship can exist between the cooperative and an owner-
member. In fact, a closer look at Cooperative Rural Bank of Davao City,
Inc. will show that it actually recognized that an owner-member of a
cooperative can be its own employee. TIHCcA
It bears stressing, too, that a cooperative acquires juridical
personality upon its registration with the Cooperative Development
Authority. 38 It has its Board of Directors, which directs and supervises
its business; meaning, its Board of Directors is the one in charge in the
conduct and management of its affairs. 39 With that, a cooperative can
be likened to a corporation with a personality separate and distinct from
its owners-members. Consequently, an owner-member of a cooperative
can be an employee of the latter and an employer-employee relationship
can exist between them.
In the present case, it is not disputed that the respondent
cooperative had registered itself with the Cooperative Development
Authority, as evidenced by its Certificate of Registration No. 0-623-
2460. 40 In its by-laws, 41 its Board of Directors directs, controls, and
supervises the business and manages the property of the respondent
cooperative. Clearly then, the management of the affairs of the
respondent cooperative is vested in its Board of Directors and not in its
owners-members as a whole. Therefore, it is completely logical that the
respondent cooperative, as a juridical person represented by its Board of
Directors, can enter into an employment with its owners-members.
In sum, having declared that there is an employer-employee
relationship between the respondent cooperative and its owners-
member, we conclude that the petitioner SSC has jurisdiction over the
petition-complaint filed before it by the petitioner SSS. This being our
conclusion, it is no longer necessary to discuss the issue of whether the
respondent cooperative was estopped from assailing the jurisdiction of
the petitioner SSC when it filed its Answer with Motion to Dismiss.
WHEREFORE, premises considered, the instant Petition is
hereby GRANTED. The Decision and the Resolution of the Court of
Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March
2006, respectively, are hereby REVERSED and SET ASIDE. The Orders
of the petitioner SSC dated 17 February 2004 and 16 September 2004
are hereby REINSTATED. The petitioner SSC is hereby DIRECTED to
continue hearing the petition-complaint filed before it by the petitioner
SSS as regards the compulsory coverage of the respondent cooperative
and its owners-members. No costs. IAcTaC
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Azcuna and Reyes,
JJ., concur.
|||  (Republic v. Asiapro Cooperative, G.R. No. 172101, [November 23, 2007],
563 PHIL 979-1003)
Jurisdictions; Appeals; Power of Review of the Supreme Court; Although as a rule, in
the exercise of the Supreme Court’s power of review, the Court is not a trier of facts
and the findings of fact of the Court of Appeals are conclusive and binding on the
Court, said rule is not without exceptions.—Although as a rule, in the exercise of the
Supreme Court’s power of review, the Court is not a trier of facts and the findings of
fact of the Court of Appeals are conclusive and binding on the Court, said rule is not
without exceptions. There are several recognized exceptions in which factual issues
may be resolved by this Court. One of these exceptions finds application in this
present case which is, when the findings of fact are conflicting. There are, indeed,
conflicting findings espoused by the petitioner SSC and the appellate court relative
to the existence of employer-employee relationship between the respondent
cooperative and its ownersmembers, which necessitates a departure from the oft-
repeated rule that factual issues may not be the subject of appeals to this Court.
Labor Law; Labor Relations; Employer-Employee Relationship; Elements; In
determining the existence of an employer-employee relationship, the following
elements are considered: (1) the selection and engagement of the workers; (2) the
payment of wages by whatever means; (3) the power of dismissal; and (4) the
power to control the worker’s conduct, with the latter assuming primacy in the
overall consideration. 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.—In determining the existence of an
employer-employee relationship, the following elements are considered: (1) the
selection and engagement of the workers; (2) the payment of wages by whatever
means; (3) the power of dismissal; and (4) the power to control the worker’s
conduct, with the latter assuming primacy in the overall consideration. The
_______________
* THIRD DIVISION.
660
660
SUPREME COURT REPORTS ANNOTATED
Republic vs. Asiapro Cooperative
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. The power of control refers to the existence of the power and not
necessarily to the actual exercise thereof. It is not essential for the employer to
actually supervise the performance of duties of the employee; it is enough that the
employer has the right to wield that power. All the aforesaid elements are present
in this case.
Same; Same; Same; The existence of an employer-employee relationship cannot be
negated by expressly repudiating it in a contract, when the terms and surrounding
circumstances show otherwise. The employment status of a person is defined and
prescribed by law and not by what the parties say it should be.—As previously
pointed out by this Court, an employee-employer relationship actually exists
between the respondent cooperative and its owners-members. The four elements
in the four-fold test for the existence of an employment relationship have been
complied with. The respondent cooperative must not be allowed to deny its
employment relationship with its owners-members by invoking the questionable
Service Contracts provision, when in actuality, it does exist. The existence of an
employer-employee relationship cannot be negated by expressly repudiating it in a
contract, when the terms and surrounding circumstances show otherwise. The
employment status of a person is defined and prescribed by law and not by what
the parties say it should be.
Cooperatives; A cooperative acquires juridical personality upon its registration with
the Cooperative Development Authority. It has its Board of Directors, which directs
and supervises its business; meaning, its Board of Directors is the one in charge in
the conduct and management of its affairs. With that, a cooperative can be likened
to a corporation with a personality separate and distinct from its owners-members.
—It bears stressing, too, that a cooperative acquires juridical personality upon its
registration with the Cooperative Development Authority. It has its Board of
Directors, which directs and supervises its business; meaning, its Board of Directors
is the one in charge in the conduct and management of its affairs. With that, a
cooperative can be likened to a corporation with a personality separate and distinct
from its owners-members. Consequently, an
661
VOL. 538, NOVEMBER 23, 2007
661
Republic vs. Asiapro Cooperative
owner-member of a cooperative can be an employee of the latter and an employer-
employee relationship can exist between them.
Same; The management of the affairs of the respondent cooperative is vested in its
Board of Directors and not in its ownersmembers as a whole. Therefore, it is
completely logical that the respondent cooperative, as a juridical person
represented by its Board of Directors, can enter into an employment with its
ownersmembers.—In the present case, it is not disputed that the respondent
cooperative had registered itself with the Cooperative Development Authority, as
evidenced by its Certificate of Registration No. 0-623-2460. In its by-laws, its Board
of Directors directs, controls, and supervises the business and manages the
property of the respondent cooperative. Clearly then, the management of the
affairs of the respondent cooperative is vested in its Board of Directors and not in
its owners-members as a whole. Therefore, it is completely logical that the
respondent cooperative, as a juridical person represented by its Board of Directors,
can enter into an employment with its owners-members.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals. Republic vs. Asiapro Cooperative, 538 SCRA 659, G.R. No. 172101
November 23, 2007
[G.R. No. 184977. December 7, 2009.]
COCA-COLA BOTTLERS PHILIPPINES,
INC.,  petitioner, vs. RICKY E. DELA CRUZ, ROLANDO
M. GUASIS, MANNY C. PUGAL, RONNIE L. HERMO,
ROLANDO C. SOMERO, JR., DIBSON D. DIOCARES,
and IAN B. ICHAPARE, respondents.
1. Actions;  Pleadings and Practice;  Procedural Rules and
Technicalities; A party’s belated attention to the imputed defect indicates to
us that it did not consider this defect worth raising when things were going its
way, but considered it a serious one when things turned the other way-
—this opportunistic stance is not the Court’s idea of how technical
deficiencies should be viewed.—After due consideration, we deem the
respondents to have substantially complied with the verification and
certification requirements in their petition for certiorari before the CA. We find
from our examination of the records that the fact situation that gave rise to
the notarial issue before the CA was not a new one; the same situation
obtained before the NLRC where the verification and certification of the
respondents’ appeal were also notarized before the same notary public—
Diosdado V. Macapagal—and where the respondents presented the same
evidence of identity (their community tax certificates). The petitioner’s
belated attention to the imputed defect indicates to us that the petitioner did
not consider this defect worth raising when things were going its way, but
considered it a serious one when things turned the other way. This
opportunistic stance is not our idea of how technical deficiencies should be
viewed. We are aware, too, that under the circumstances of this case, the
defect is a technical and minor one; the respondents did file the required
verification and certification of non-forum shopping with all the respondents
properly participating, marred only by a glitch in the evidence of their identity.
In the interest of justice, this minor defect should not defeat their petition and
is one that we can overlook in the interest of substantial justice, taking into
account the merits of the case as discussed below.
2. Same;  Same;  Same;  Where the contractors were merely suppliers of
labor, the contracted personnel, engaged in component functions in the main
business of the company under the latter’s supervision and control, cannot
but be regular company employees.-
—Following the lead we gave in Magsalin, 403 SCRA 199 (2003), the CA
concluded that the contracted personnel who served as route helpers were
really engaged in functions directly related to the overall business of the
petitioner. This led to the further CA conclusion that the contracted personnel
were under the company’s supervision and control since sales and
distribution were in fact not the purported contractors’ independent, discrete
and separable activities, but were component parts of sales and distribution
operations that the company controlled in its softdrinks business. Based on
these considerations, we fully agree with the CA that Peerless and Excellent
were mere suppliers of labor who had no sufficient capitalization and
equipment to undertake sales and distribution of softdrinks as independent
activities separate from the manufacture of softdrinks, and who had no
control and supervision over the contracted personnel. They are therefore
labor-only contractors. Consequently, the contracted personnel, engaged in
component functions in the main business of the company under the latter’s
supervision and control, cannot but be regular company employees. In these
lights, the petition is totally without merit and hence must be denied.
3. Same;  Same;  Sales Route Helpers;  In strictly layman’s terms, a
manufacturer can sell its products on its own, or allow contractors,
independently operating on their own, to sell and distribute these products in
a manner that does not violate the regulations.-
—In strictly layman’s terms, a manufacturer can sell its products on its own,
or allow contractors, independently operating on their own, to sell and
distribute these products in a manner that does not violate the regulations.
From the terms of the above-quoted D.O. 18-02, the legitimate job contractor
must have the capitalization and equipment to undertake the sale and
distribution of the manufacturer’s products, and must do it on its own using
its own means and selling methods.
4. Same;  Same;  Contracting and sub-contracting are “hot” labor issues for
two reasons-
—the first is that job contracting and labor-only contracting are technical
Labor Code concepts that are easily misunderstood, and, the second,
echoing the cry from the labor sector, is that the Labor Code provisions on
contracting are blatantly and pervasively violated, effectively defeating
workers’ right to security of tenure; The law allows contracting and
subcontracting involving services but closely regulates these activities for the
protection of workers.—Contracting and sub-contracting are “hot” labor
issues for two reasons. The first is that job contracting and labor-only
contracting are technical Labor Code concepts that are easily
misunderstood. For one, there is a lot of lay misunderstanding of what kind
of contracting the Labor Code prohibits or allows. The second, echoing the
cry from the labor sector, is that the Labor Code provisions on contracting
are blatantly and pervasively violated, effectively defeating workers’ right to
security of tenure. This Court, through its decisions, can directly help
address the problem of misunderstanding. The second problem, however,
largely relates to implementation issues that are outside the Court’s
legitimate scope of activities; the Court can only passively address the
problem through the cases that are brought before us. Either way, however,
the need is for clear decisions that the workers, most especially, will easily
understand and appreciate. We resolve the present case with these thoughts
in mind. The law allows contracting and subcontracting involving services but
closely regulates these activities for the protection of workers. Thus, an
employer can contract out part of its operations, provided it complies with the
limits and standards provided in the Code and in its implementing rules.
5. Labor Law;  Labor-Only Contracting;  Parties; Where the main issue is
labor contracting and a labor-only contracting situation is found to exist, the
question of whether or not the purported contractors are necessary parties is
a non-issue-
—these purported contractors are mere representatives of the
principal/employer whose personality, as against that of the workers, is
merged with that of the principal/employer.—Where, as in this case, the main
issue is labor contracting and a labor-only contracting situation is found to
exist as discussed below, the question of whether or not the purported
contractors are necessary parties is a non-issue; these purported contractors
are mere representatives of the principal/employer whose personality, as
against that of the workers, is merged with that of the principal/employer.
Thus, this issue is rendered academic by our conclusion that labor-only
contracting exists. Our labor-only contracting conclusion, too, answers the
petitioner’s argument that confusion results because the workers will have
two employers.
DECISION
BRION, J  p:
The present petition for review on certiorari  1 challenges the
decision 2 and resolution 3 of the Court of Appeals (CA) rendered on
August 29, 2008 and October 13, 2008, respectively, in CA-G.R. SP No.
102988.
THE ANTECEDENTS
Respondents Ricky E. dela Cruz, Rolando M. Guasis, Manny C.
Pugal, Ronnie L. Hermo, Rolando C. Somero, Jr., Dibson D. Diocares,
and Ian Ichapare (respondents)  filed in July 2000 two separate
complaints 4 for regularization with money claims against Coca-Cola claims of company control and supervision so that these claims cannot
Bottlers Philippines, Inc., (petitioner or the company).  The complaints be considered and given weight. 10
were consolidated and subsequently amended to implead Peerless
THE COMPULSORY ARBITRATION RULINGS
Integrated Service, Inc. (Peerless) as a party-respondent.
Labor Arbiter Joel S. Lustria dismissed the complaint for lack of
Before the Labor Arbiter, the respondents alleged that they are
jurisdiction in his decision of September 28, 2004, 11 after finding that
route helpers assigned to work in the petitioner's trucks. They go from
the respondents were the employees of either Peerless or Excellent and
the Coca-Cola sales offices or plants to customer outlets such as sari-
not of the petitioner. He brushed aside for lack of evidence the
sari stores, restaurants, groceries, supermarkets and similar
respondents' claim that they were directly hired by the petitioner and that
establishments; they were hired either directly by the petitioner or by its
company personnel supervised and controlled their work. The Labor
contractors, but they do not enjoy the full remuneration, benefits and
Arbiter likewise ordered Peerless "to accord to the appropriate
privileges granted to the petitioner's regular sales force. They argued that
complainants all employment benefits and privileges befitting its regular
the services they render are necessary and desirable in the regular
employees." 12 ADETca
business of the petitioner. 5 aSACED
The respondents appealed to the NLRC. 13 On October 31,
In defense, the petitioner contended that it entered into contracts
2007, the NLRC denied the appeal and affirmed the labor arbiter's
of services with Peerless 6 and Excellent Partners Cooperative,
ruling, 14 and subsequently denied the respondents' motion for
Inc. (Excellent) 7 to provide allied services; under these contracts,
reconsideration. 15 The respondents thus sought relief from the CA
Peerless and Excellent retained the right to select, hire, dismiss,
through a petition for certiorari  under Rule 65 of the Rules of Court.
supervise, control and discipline and pay the salaries of all personnel
they assign to the petitioner; in return for these services, Peerless and THE CA DECISION
Excellent were paid a stipulated fee. The petitioner posited that there is
The main substantive issue the parties submitted to the CA was
no employer-employee relationship between the company and the
whether Excellent and Peerless were independent contractors or "labor-
respondents and the complaints should be dismissed for lack of
only" contractors. Procedurally, the petitioner questioned the sufficiency
jurisdiction on the part of the National Labor Relations
of the petition and asked for its dismissal on the following grounds: (1)
Commission (NLRC). Peerless did not file a position paper, although
the petition was filed out of time; (2) failure to implead Peerless and
nothing on record indicates that it was ever notified of the amended
Excellent as necessary parties; (3) absence of the notarized proof of
complaint.
service that Rule 13 of the Rules of Court requires; and (4) defective
In reply, the respondents countered that they worked under the verification and certification.
control and supervision of the company's supervisors who prepared their
The CA examined the circumstances of the contractual
work schedules and assignments. Peerless and Excellent, too, did not
arrangements between Peerless and Excellent, on the one hand, and the
have sufficient capital or investment to provide services to the petitioner.
company, on the other, and found that Peerless and Excellent were
The respondents thus argued that the petitioner's contracts of services
engaged in labor-only contracting, a prohibited undertaking. 16 The
with Peerless and Excellent are in the nature of "labor-only" contracts
appellate court explained that based on the respondents' assertions and
prohibited by law. 8
the petitioner's admissions, the contractors simply supplied the company
In rebuttal, the petitioner belied the respondents' submission that with manpower, and that the sale and distribution of the company's
their jobs are usually necessary and desirable in its main business. It products are the same allied services found by this Court in Magsalin v.
claimed that its main business is softdrinks manufacturing and the National Organization of Workingmen 17 to be necessary and desirable
respondents' tasks of handling, loading and unloading of the functions in the company's business.
manufactured softdrinks are not part of the manufacturing process. It
On the matter of capitalization, the CA invoked our ruling in 7K
stressed that its only interest in the respondents is in the result of their
Corporation v. NLRC 18 presuming a contractor supplying labor to be
work, and left to them the means and the methods of achieving this
engaged in prohibited labor-only contracting, unless the contractor can
result. It thus argued that there is no basis for the respondents' claim that
show that it has substantial capital, investment, and tools to undertake
without them, there would be over-production in the company and its
the contract. The CA found no proof in the records showing the required
operations would come to a halt. 9 The petitioner lastly argued that in
capitalization and tools; thus, the CA concluded that Peerless and
any case, the respondents did not present evidence in support of their
Excellent were engaged in "labor-only" contracting.
 The CA faulted the labor tribunals for relying solely on the
contract of services in determining who the real employer is. Again
invoking our 7K Corporation ruling, it pointed out that the language of a
contract is not wholly determinative of the relationship of the parties;
whether a labor-only or a job contractor relationship exists must be
determined using the criteria established by law. Finding that the Labor
Arbiter's and the NLRC's conclusions were not supported by substantial
evidence, the CA nullified the challenged NLRC decision and ordered the
company "to reinstate the petitioners with the full status and rights of
regular employees and to grant them all benefits as provided by existing
collective bargaining agreement or by law."
The CA generally brushed aside the company's procedural
questions.
It ruled that the petition was filed on time, noting that April 7,
2008, a Monday and the last day for filing the petition, was declared a
holiday in lieu of April 9 (Araw ng Kagitingan), a Wednesday, 19 and that
the petition was filed on April 8, 2008, a Tuesday and a working
day. AIHDcC
That the contractors were not impleaded as necessary parties
was not a fatal infirmity, according to the CA, relying on the ruling of the
Court in Cabutihan v. Landcenter Construction and Development
Corporation. 20  On the other hand, the alleged lack of proof of service
was brushed aside on the finding that there is in the records of the case
(page 35 of the petition) an affidavit of service executed by Rufino San
Antonio indicating compliance with the rule on service. Finally, the CA
ruled that the defect in the verification and certification was a mere formal
requirement that can be excused in the interest of substantial justice,
following the ruling of this Court in Uy v. Landbank of the Philippines.  21
Petitioner moved for reconsideration of the decision, but the CA
denied the motion in its resolution of October 13, 2008. 22
THE PETITION
The company filed the present appeal on November 4, 2008 on
the grounds that the CA erred when it: 23
1. gave due course to the petition despite the failure of the
respondents to comply with the Rules on Notarial
Practice in its verification and certification;
2. excluded the contractors as necessary parties in
violation of Section 8, Rule 3, in relation with
Section 5, Rule 65 of the Rules of Court; and
3. refused to follow established jurisprudence holding that
the findings of fact of the NLRC are accorded
respect, if not finality, when supported by
substantial evidence.
On the notarial issue, the petitioner argues that Rule 65 of
the Rules of Court requires that a petition filed before the CA must be
verified and accompanied with a properly notarized certification of non-
forum shopping. It claims that the verification and certification
accompanying the petition were not notarized as required by Section 12,
Rule II of the 2004 Rules on Notarial Practice (for failure to present
competent evidence of identity) and Section 2, Rule IV (prohibition
against the notarization without appropriate proof of identity); the
verification and certification attached to the petition before the CA do not
indicate that the affiants were personally known to the notary public, nor
did the notary identify the affiants through competent evidence of identity
other than their community tax certificate. These violations, according to
the petitioner, collectively resulted in a petition filed without the proper
verification and certification required by Section 4, Rule 7 of the Rules of
Court. EACIaT 
On the necessary party issue, the petitioner posits that the CA
ruling excluding the contractors as necessary parties "results in the
absurd situation whereby the grant of regularization by the Labor Arbiter
in favor of the respondents and against the contractors, is actually the
same award the CA held in their favor and against the Company thereby
making them regular employees of both the Company and the
contractors," a situation which "is precisely what Section 8, Rule 3, in
relation to Section 5, Rule 65 of the Rules of Court seeks to prevent."
The petitioner also takes exception to the CA's reliance on the
ruling of the Court in Cabutihan v. Landcenter Construction and
Development Corporation. 24 It posits that the ruling in Cabutihan was
taken out of context; in that case, the subject matter was divisible as it
pertained to the conveyance of 36.5% of the property under litigation or,
in the alternative, to the value corresponding to this portion. On this fact
situation, the Court found that the non-joinder of the companions of the
petitioner as party-litigants was not prejudicial to their rights.
In the present case, the petitioner posits that supposed cause of
action (for regularization of the respondents) and the issue of employer-
employee relationship cannot be ruled upon without including the parties
who had already been held liable by the NLRC. It adds that as a result of
the CA ruling, the respondents are now regular employees of both the
petitioner and the contractors.
In their comment of March 4, 2009, 25 the respondents, aside
from the reiteration of their previously expressed positions on necessary
parties and the labor-only contracting issues, argued that the rules of
procedure are not controlling in labor cases and that every and all the
reasonable means shall be used to ascertain the facts for the full
adjudication of the merits of the case. They argue that it is more in
accord with substantial justice and equity to overlook procedural
questions raised.
THE COURT'S RULING
We resolve to deny the petition for lack of merit.
The Notarial Issue.
After due consideration, we deem the respondents to have
substantially complied with the verification and certification requirements
in their petition for certiorari before the CA.
We find from our examination of the records that the fact
situation that gave rise to the notarial issue before the CA was not a new
one; the same situation obtained before the NLRC where the verification
and certification of the respondents' appeal were also notarized before
the same notary public — Diosdado V. Macapagal — and where the
respondents presented the same evidence of identity (their community
tax certificates). 26 ICAcHE
The petitioner's belated attention to the imputed defect indicates
to us that the petitioner did not consider this defect worth raising when
things were going its way, but considered it a serious one when things
turned the other way. This opportunistic stance is not our idea of how
technical deficiencies should be viewed. We are aware, too, that under
the circumstances of this case, the defect is a technical and minor one;
the respondents did file the required verification and certification of non-
forum shopping with all the respondents properly participating, marred
only by a glitch in the evidence of their identity. 27 In the interest of
justice, this minor defect should not defeat their petition and is one that
we can overlook in the interest of substantial justice, taking into account
the merits of the case as discussed below.
The Necessary Party Issue.
In our view, the petitioner's necessary party issue proceeds from
a misapprehension of the relationships in a contracting relationship. As
lucidly pointed out in Azucena's The Labor Code with Comments and
Cases, 28 there are three parties in a legitimate contracting relationship,
namely: the principal, the contractor, and the contractor's employees. In
this trilateral relationship, the principal controls the contractor and his
employees with respect to the ultimate results or output of the contract;
the contractor, on the other hand, controls his employees with respect,
not only to the results to be obtained, but with respect to the means and
manner of achieving this result. This pervasive control by the contractor
over its employees results in an employer-employee relationship
between them.
This trilateral relationship under a legitimate job contracting is
different from the relationship in a labor-only contracting situation
because in the latter, the contractor simply becomes an agent of the
principal; either directly or through the agent, the principal then controls
the results as well as the means and manner of achieving the desired
results. In other words, the party who would have been the principal in a
legitimate job contracting relationship and who has no direct relationship
with the contractor's employees, simply becomes the employer in the
labor-only contracting situation with direct supervision and control over
the contracted employees. As Azucena  astutely observed: in labor-
contracting, there is really no contracting and no contractor; there is only
the employer's representative who gathers and supplies people for the
employer; labor-contracting is therefore a misnomer. 29
Where, as in this case, the main issue is labor contracting and a
labor-only contracting situation is found to exist as discussed below, the
question of whether or not the purported contractors are necessary
parties is a non-issue; these purported contractors are mere
representatives of the principal/employer whose personality, as against
that of the workers, is merged with that of the principal/employer. Thus,
this issue is rendered academic by our conclusion that labor-only
contracting exists. Our labor-only contracting conclusion, too, answers
the petitioner's argument that confusion results because the workers will
have two employers. ISHaTA
The Contracting Out Issue.
Contracting and sub-contracting are "hot" labor issues for two
reasons. The  first is that job contracting and labor-only contracting are
technical Labor Code concepts that are easily misunderstood. For one,
there is a lot of lay misunderstanding of what kind of contracting
the Labor Code prohibits or allows. The second, echoing the cry from the
labor sector, is that the Labor Code provisions on contracting are
blatantly and pervasively violated, effectively defeating workers' right to
security of tenure.
This Court, through its decisions, can directly help address the
problem of misunderstanding. The second problem, however, largely
relates to implementation issues that are outside the Court's legitimate
scope of activities; the Court can only passively address the problem
through the cases that are brought before us. Either way, however, the
need is for clear decisions that the workers, most especially, will easily
understand and appreciate. We resolve the present case with these
thoughts in mind.
The law allows contracting and subcontracting involving
services but closely regulates these activities for the protection of
workers. Thus, an employer can contract out part of its operations,
provided it complies with the limits and standards provided in the Code
and in its implementing rules.
The directly applicable provision of the Labor Code on
contracting and subcontracting is Article 106 which provides:
Whenever, an employer enters into a contract with
another person for the performance of the former's work,
the employees of the contractor and of the latter's
subcontractor shall be paid in accordance with the
provisions of this Code.
The Secretary of Labor may, by appropriate
regulations, restrict or prohibit the contracting out of labor
to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within these
types of contracting and determine who among the parties
involved shall be considered the employer for purposes of
this Code. aCSDIc
There is "labor-only" contracting where the person
supplying workers to an employer does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons are
performing activities which are directly related to the
principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the
workers in the same manner and extent as if the alter were
directly employed by him (underscoring supplied).
The Department of Labor and Employment implements
this Labor Code provision through its Department Order No. 18-02 (D.O.
18-02). 30 On the matter of labor-only contracting, Section 5 thereof
provides:
Prohibition against labor-only contracting. —
Labor-only contracting is hereby declared prohibited . . .
labor-only contracting shall refer to an arrangement where
the contractor or subcontractor merely recruits, supplies or
places workers to perform a job, work or service for a
principal, and any of the following elements are present:
i) The contractor or subcontractor does not have
sufficient capital or investment which
relates to the job, work or service to be
performed and the employees recruited,
supplied or placed by such contractor or
subcontractor are performing activities
which are directly related to the main
business of the principal; or
ii) The contractor does not exercise the right to
control over the performance of the work
of the contractual-employee.
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of
corporations, tools or equipment, implements, machineries
and work premises, actually and directly used by the
contractor or subcontractor in the performance or
completion of the job, work or service contracted out.
[Emphasis supplied] 
The "right to control" refers to the prerogative of a party to determine, not
only the end result sought to be achieved, but also the means and
manner to be used to achieve this end.
In strictly layman's terms, a manufacturer can sell its products on
its own, or allow contractors, independently operating on their own, to
sell and distribute these products in a manner that does not violate the
regulations. From the terms of the above-quoted D.O. 18-02, the
legitimate job contractor must have the capitalization and equipment to
undertake the sale and distribution of the manufacturer's products, and
must do it on its own using its own means and selling methods.
In the present case, both the capitalization of Peerless and
Excellent and their control over the means and manner of their
operations are live sub-issues before us. SDHTEC
A key consideration in resolving these issues is the contract
between the company and the purported contractors. The
contract 31 with Peerless, which is almost identical with the contract with
Excellent, among others, states:
1. The CONTRACTOR agrees and undertakes to
perform and/or provide for the COMPANY, on a non-
exclusive basis, the services of contractual employees for
a temporary period for task or activities that are considered
contractible under DOLE Department Order No. 10, Series
of 1997, such as lead helpers and replacement for
absences as well as other contractible jobs that may be
needed by the Company from time to time. 32
xxx xxx xxx
 5. The CONTRACTOR shall have exclusive
discretion in the selection, engagement and discharge of
its personnel, employees or agents or otherwise in the
direction and control hereunder. The determination of the
wages, salaries and compensation of the personnel,
workers and employees of the CONTRACTOR shall be
within its full control. 33
xxx xxx xxx
. . . Although it is understood and agreed between
the parties hereto that the CONTRACTOR, in the
performance of its obligations hereunder, is subject to the
control and direction of he COMPANY merely as to result
to be accomplished by the work or services herein
specified, and not as to the means and methods of
accomplishing such result, the CONTRACTOR hereby
warrants that it will perform such work or services in such
manner as will be consistent with the achievement of the
result herein contracted for. 34
These provisions — particularly, that Peerless and Excellent
retain the right to select, hire, dismiss, supervise, control, and discipline
all personnel they will assign to the petitioner, as well as pay their
salaries — were cited by the labor arbiter and the NLRC as basis for their
conclusion that no employer-employee relationship existed between the
respondents and the petitioner.
The Court of Appeals viewed matters differently and faulted the
labor tribunals for relying "solely" on the service contracts to prove that
the respondents were employees of Peerless and Excellent. The CA
cited in this regard what we said in 7K Corporation v. NLRC:  35
The fact that the service contract entered into by
petitioner and Universal stipulated that private respondents
shall be the employees of Universal, would not help
petitioner, as the language of a contract is not
determinative of the relationship of the parties. Petitioner
and Universal cannot dictate, by the mere expedient of a
declaration in a contract, the character of Universal
business, i.e., whether as labor-only contractor, or job
contractor, it being crucial that Universal's character be
mentioned in terms of and determined by the criteria set by
the statute. 36
as basis for looking at how the contracted workers really related with the
company in performing their contracted tasks. In other words, the
contract between the principal and the contractor is not the final word on
how the contracted workers relate to the principal and the purported
contractor; the relationships must be tested on the basis of how they
actually operate.
Even before going into the realities of workplace operations, the
CA found that the service contracts 37 themselves provide ample leads
into the relationship between the company, on the one hand, and
Peerless and Excellent, on the other. The CA noted that both the
Peerless and the Excellent contracts show that their obligation was solely
to provide the company with "the services of contractual
employees," 38 and nothing more. These contracted services were for
the handling and delivery of the company's products and allied
services. 39 Following D.O. 18-02 and the contracts that spoke purely of
the supply of labor, the CA concluded that Peerless and Excellent were
labor-only contractors unless they could prove that they had the required
capitalization and the right of control over their contracted
workers. cTEICD
The CA concluded that other than the petitioner's bare
allegation, there is no indication in the records that Peerless and
Excellent had substantial capital, tools or investment used directly in
providing the contracted services to the petitioner. Thus, in the handling
and delivery of company products, the contracted personnel used
company trucks and equipment in an operation where company sales
personnel primarily handled sales and distribution, merely utilizing the
contracted personnel as sales route helpers.
In plainer terms, the contracted personnel (acting as sales route
helpers) were only engaged in the marginal work of helping in the sale
and distribution of company products; they only provided the muscle
work that sale and distribution required and were thus necessarily under
the company's control and supervision in doing these tasks.
Still another way of putting it is that the contractors were not
independently selling and distributing company products, using their own
equipment, means and methods of selling and distribution; they only
supplied the manpower that helped the company in the handling of
products for sale and distribution. In the context of D.O. 18-02, the
contracting for sale and distribution as an independent and self-
contained operation is a legitimate contract, but the pure supply of
manpower with the task of assisting in sales and distribution controlled
by a principal falls within prohibited labor-only contracting.
The role of sales route helpers in company operations is not a
new issue before this Court as we have ruled on this issue in Magsalin v.
National Organization of Workingmen  40 which the CA itself cited in the
assailed decision. We held in this cited case that:
The argument of petitioner that its usual business
or trade is softdrink manufacturing and that the work
 assigned to the respondent workers so involves merely
"postproduction activities," one which is not indispensable
in the manufacture of its products, scarcely can be
persuasive. If, as so argued by petitioner company, only
those whose work are directly involved in the production of
softdrinks may be held performing functions necessary
and desirable in its usual business or trade, there would
have been no need for it to even maintain regular truck
sales route helpers. The nature of the work performed
must be viewed from a perspective of the business or
trade in its entirety and not only in a confined scope. 41
While the respondents were not direct parties to this ruling, the
petitioner was the party involved and Magsalin  described in a very
significant way the manufacture of softdrinks and the company's sales
and distribution activities in relation with one another. Following the lead
we gave in Magsalin,  the CA concluded that the contracted personnel
who served as route helpers were really engaged in functions directly
related to the overall business of the petitioner. This led to the further CA
conclusion that the contracted personnel were under the company's
supervision and control since sales and distribution were in fact not the
purported contractors' independent, discrete and separable activities, but
were component parts of sales and distribution operations that the
company controlled in its softdrinks business.
Based on these considerations, we fully agree with the CA that
Peerless and Excellent were mere suppliers of labor who had no
sufficient capitalization and equipment to undertake sales and distribution
of softdrinks as independent activities separate from the manufacture of
softdrinks, and who had no control and supervision over the contracted
personnel. They are therefore labor-only contractors. Consequently, the SECOND DIVISION
contracted personnel, engaged in component functions in the main [G.R. No. 186965. December 23, 2009.]
business of the company under the latter's supervision and control, TEMIC AUTOMOTIVE PHILIPPINES, INC.,  petitioner, vs.
cannot but be regular company employees. In these lights, the petition is TEMIC AUTOMOTIVE PHILIPPINES, INC. EMPLOYEES
totally without merit and hence must be denied. UNION-FFW,  respondent.
WHEREFORE, premises considered, we hereby DENY the 1. Labor Law;  Employer-Employee Relationship;  Job
petition and accordingly AFFIRM the challenged decision and resolution Contracting;  Outsourcing;  Forwarding Business; Forwarders act as travel agents
for cargo.-
of the Court of Appeals in CA-G.R. SP No. 102988. Costs against the
—The voluntary arbitration decision itself established, without objection from the
petitioner. parties, the description of the work of forwarding as a basic premise for its ruling. We
SO ORDERED. similarly find the description acceptable and thus adopt it as our own starting point in
considering the nature of the service contracted out when the petitioner entered into
its forwarding agreements with Diversified, Airfreight and KNI. To quote the voluntary
arbitration decision: “As forwarders they act as travel agents for cargo. They
specialize in arranging transport and completing required shipping documentation of
respondent’s company’s finished products. They provide custom crating and packing
designed for specific needs of respondent company. These freight forwarders are
actually acting as agents for the company in moving cargo to an overseas
destination. These agents are familiar with the import rules and regulations, the
methods of shipping, and the documents related to foreign trade. They recommend
the packing methods that will protect the merchandise during transit. Freight
forwarders can also reserve for the company the necessary space on a vessel,
aircraft, train or truck. They also prepare the bill of lading and any special required
documentation. Freight forwarders can also make arrangement with customs brokers
overseas that the goods comply with customs export documentation regulations.
They have the expertise that allows them to prepare and process the documentation
and perform related activities pertaining to international shipments. As an analogy,
freight forwarders have been called travel agents for freight.”
2. Same;  Same;  Same;  Same;  Same;  A clerical job, if undertaken by a forwarders’
employee in support of forwarding activities, is not a Collective Bargaining Agreement
(CBA)-covered undertaking or a regular company activity.-
—From the perspective of the union in the present case, we note that the forwarding
agreements were already in place when the current CBA was signed. In this sense,
the union accepted the forwarding arrangement, albeit implicitly, when it signed the
CBA with the company. Thereby, the union agreed, again implicitly by its silence and
acceptance, that jobs related to the contracted forwarding activities are not regular
company activities and are not to be undertaken by regular employees falling within
the scope of the bargaining unit but by the forwarders’ employees. Thus, the skills
requirements and job content between forwarders’ jobs and bargaining unit jobs may
be the same, and they may even work on the same company products, but their work
for different purposes and for different entities completely distinguish and separate
forwarder and company employees from one another. A clerical job, therefore, if
undertaken by a forwarders’ employee in support of forwarding activities, is not a
CBA-covered undertaking or a regular company activity.
3. Same;  Same;  Same;  Same;  Same;  The job of forwarding consists not only
of a single activity but of several services that complement one another and
can best be viewed as one whole process involving a package of services; It is
in the appreciation of these forwarder services as one whole package of inter-related
services that the Court discerns a basic misunderstanding that results in the error of
equating the functions of the forwarders’ employees with those of regular rank-and-
file employees of the company.-
—The job of forwarding, as we earlier described, consists not only of a single activity
but of several services that complement one another and can best be viewed as one
whole process involving a package of services. These services include packing,
loading, materials handling and support clerical activities, all of which are directed at
the transport of company goods, usually to foreign destinations. It is in the
appreciation of these forwarder services as one whole package of inter-related
services that we discern a basic misunderstanding that results in the error of equating
the functions of the forwarders’ employees with those of regular rank-and-file
employees of the company. A clerical job, for example, may similarly involve typing
and paper pushing activities and may be done on the same company products that
the forwarders’ employees and company employees may work on, but these
similarities do not necessarily mean that all these employees work for the company.
The regular company employees, to be sure, work for the company under its
supervision and control, but forwarder employees work for the forwarder in the
forwarder’s own operation that is itself a contracted work from the company. The
company controls its employees in the means, method and results of their work, in
the same manner that the forwarder controls its own employees in the means,
manner and results of their work. Complications and confusion result because the
company at the same time controls the forwarder in the results of the latter’s work,
without controlling however the means and manner of the forwarder employees’
work. This interaction is best exemplified by the adduced evidence, particularly the
affidavits of petitioner’s warehouse manager Gregorio and Section Head Bawar
discussed below.
4. Same;  Same;  Same;  Same;  Same;  There is a universal recognition of
outsourcing as a legitimate activity.-
—Significantly, both the voluntary arbitrator and the CA recognized that the petitioner
was within its right in entering the forwarding agreements with the forwarders as an
exercise of its management prerogative. The petitioner’s declared objective for the
arrangement is to achieve greater economy and efficiency in its operations—a
universally accepted business objective and standard that the union has never
questioned. In Meralco v. Quisumbing, 302 SCRA 173 (1999), we joined this
universal recognition of outsourcing as a legitimate activity when we held that a
company can determine in its best judgment whether it should contract out a part of
its work for as long as the employer is motivated by good faith; the contracting is not
for purposes of circumventing the law; and does not involve or be the result of
malicious or arbitrary action.
DECISION
BRION, J.  p
We resolve the present petition for review on certiorari 1 filed by
Temic Automotive Philippines Inc. (petitioner) to challenge the
decision 2 and resolution 3 of the Court of Appeals (CA) in CA-G.R. SP
No. 99029. 4
The Antecedents
The petitioner is a corporation engaged in the manufacture of
electronic brake systems and comfort body electronics for automotive
vehicles. Respondent Temic Automotive Philippines, Inc. Employees
Union-FFW (union) is the exclusive bargaining agent of the petitioner's
rank-and-file employees. On May 6, 2005, the petitioner and the union
executed a collective bargaining agreement (CBA) for the period January
1, 2005 to December 31, 2009. IASEca
The petitioner is composed of several departments, one of which
is the warehouse department consisting of two warehouses — the
electronic braking system and the comfort body electronics. These
warehouses are further divided into four sections — receiving section,
raw materials warehouse section, indirect warehouse section and
finished goods section. The union members are regular rank-and-file
employees working in these sections as clerks, material handlers,
system encoders and general clerks. Their functions are interrelated and
include: receiving and recording of incoming deliveries, raw materials
and spare parts; checking and booking-in deliveries, raw materials and
spare parts with the use of the petitioner's system application processing;
generating bar codes and sticking these on boxes and automotive parts;
and issuing or releasing spare parts and materials as may be needed at
the production area, and piling them up by means of the company's
equipment (forklift or jacklift).
By practice established since 1998, the petitioner contracts out
some of the work in the warehouse department, specifically those in the
receiving and finished goods sections, to three independent service
providers or forwarders (forwarders), namely: Diversified Cargo
Services, Inc. (Diversified), Airfreight 2100  (Airfreight) and Kuehne &
Nagel, Inc. (KNI). These forwarders also have their own employees who
hold the positions of clerk, material handler, system encoder and general
clerk. The regular employees of the petitioner and those of the
forwarders share the same work area and use the same equipment, tools
and computers all belonging to the petitioner.
This outsourcing arrangement gave rise to a union grievance on
the issue of the scope and coverage of the collective bargaining unit,
specifically to the question of "whether or not the functions of the
forwarders' employees are functions being performed by the regular
rank-and-file employees covered by the bargaining unit." 5 The union
thus demanded that the forwarders' employees be absorbed into the
petitioner's regular employee force and be given positions within the
bargaining unit. The petitioner, on the other hand, on the premise that the
contracting arrangement with the forwarders is a valid exercise of its
management prerogative, posited that the union's position is a violation
of its management prerogative to determine who to hire and what to
contract out, and that the regular rank-and-file employees and their
forwarders' employees serving as its clerks, material handlers, system
encoders and general clerks do not have the same functions as regular
company employees.
The union and the petitioner failed to resolve the dispute at the
grievance machinery level, thus necessitating recourse to voluntary
arbitration. The parties chose Atty. Roberto A. Padilla as their voluntary
arbitrator. Their voluntary arbitration submission agreement delineated
the issues to be resolved as follows:
1. Whether or not the company validly contracted out or
outsourced the services involving forwarding,
packing, loading and clerical activities related
thereto; and
2. Whether or not the functions of the forwarders'
employees are functions being performed by
regular rank-and-file employees covered by the
bargaining unit. 6
To support its position, the union submitted in evidence a copy of
the complete manpower complement of the petitioner's warehouse
department as of January 3, 2007 7 showing that there were at the time
19 regular company employees and 26 forwarder employees. It also
presented the affidavits 8 of Edgardo P. Usog, Antonio A. Muzones,
Endrico B. Dumolong, Salvador R. Vargas and Harley J. Noval, regular
employees of the petitioner, who deposed that they and the forwarders'
employees assigned at the warehouse department were performing the
same functions. The union also presented the affidavits of Ramil V.
Barit 9 (Barit),  Jonathan G. Prevendido 10 (Prevendido) and Eduardo H.
Enano 11 (Enano), employees of forwarder KNI, who described their
work at the warehouse department. EICSTa
In its submission, 12 the petitioner invoked the exercise of its
management prerogative and its authority under this prerogative to
contract out to independent service providers the forwarding, packing,
loading of raw materials and/or finished goods and all support and
ancillary services (such as clerical activities) for greater economy and
efficiency in its operations. It argued that in Meralco v.
Quisumbing 13 this Court explicitly recognized that the contracting out of
work is an employer proprietary right in the exercise of its inherent
management prerogative.
The forwarders, the petitioners alleged, are all highly reputable
freight forwarding companies providing total logistics services such as
customs brokerage that includes the preparation and processing of
import and export documentation, cargo handling, transport (air, land or
sea), delivery and trucking; and they have substantial capital and are
fully equipped with the technical knowledge, facilities, equipment,
materials, tools and manpower to service the company's forwarding,
packing and loading requirements. Additionally, the petitioner argued that
the union is not in a position to question its business judgment, for even
their CBA expressly recognizes its prerogative to have exclusive control
of the management of all functions and facilities in the company,
including the exclusive right to plan or control operations and introduce
new or improved systems, procedures and methods.
The petitioner maintained that the services rendered by the
forwarders' employees are not the same as the functions undertaken by
regular rank-and-file employees covered by the bargaining unit;
therefore, the union's demand that the forwarders' employees be
assimilated as regular company employees and absorbed by the
collective bargaining unit has no basis; what the union asks constitutes
an unlawful interference in the company's prerogative to choose who to
hire as employees. It pointed out that the union could not, and never did,
assert that the contracting-out of work to the service providers was in
violation of the CBA or prohibited by law.
The petitioner explained that its regular employees' clerical and
material handling tasks are not identical with those done by the service
providers; the clerical work rendered by the contractors are recording
and documentation tasks ancillary to or supportive of the contracted
services of forwarding, packing and loading; on the other hand, the
company employees assigned as general clerks prepare inventory
reports relating to its shipments in general to ensure that the recording of
inventory is consistent with the company's general system; company
employees assigned as material handlers essentially assist in counter-
checking and reporting activities to ensure that the contractors' services
comply with company standards.
The petitioner submitted in evidence the affidavits of Antonio
Gregorio 14  (Gregorio),  its warehouse manager, and Ma. Maja
Bawar 15 (Bawar),  its section head.
The Voluntary Arbitration Decision
In his decision of May 1, 2007, 16 the voluntary arbitrator defined
forwarding as a universally accepted and normal business practice or
activity, and ruled that the company validly contracted out its forwarding
services. The voluntary arbitrator observed that exporters, in utilizing
forwarders as travel agents of cargo, mitigate the confusion and delays
associated with international trade logistics; the company need not deal
with many of the details involved in the export of goods; and given the
years of experience and constant attention to detail provided by the
forwarders, it may be a good investment for the company. He found that
the outsourcing of forwarding work is expressly allowed by the rules
implementing the Labor Code. 17 AHcDEI
At the same time, however, the voluntary arbitrator found that the
petitioner went beyond the limits of the legally allowable contracting out
because the forwarders' employees encroached upon the functions of
the petitioner's regular rank-and-file workers. He opined that the
forwarders' personnel serving as clerks, material handlers, system
encoders and general clerks perform "functions [that] are being
performed by regular rank-and-file employees covered by the bargaining
unit." He also noted that the forwarders' employees perform their jobs in
the company warehouse together with the petitioner's employees, use
the same company tools and equipment and work under the same
company supervisors — indicators that the petitioner exercises
supervision and control over all the employees in the warehouse
department. For these reasons, he declared the forwarders' employees
serving as clerks, material handlers, system encoders and general clerks
to be "employees of the company who are entitled to all the rights and
privileges of regular employees of the company including security of
tenure." 18
The petitioner sought relief from the CA through a petition for
review under Rule 43 of the Rules of Court invoking questions of facts
and law. 19 It specifically questioned the ruling that the company did not
validly contract out the services performed by the forwarders' clerks,
material handlers, system encoders and general clerks, and claimed that
the voluntary arbitrator acted in excess of his authority when he ruled
that they should be considered regular employees of the company.  
The CA Decision
In its decision of October 28, 2008, 20 the CA fully affirmed the
voluntary arbitrator's decision and dismissed the petition for lack of merit.
The discussion essentially focused on three points. First, that decisions
of voluntary arbitrators on matters of fact and law, acting within the scope
of their authority, are conclusive and constitute res adjudicata on the
theory that the parties agreed that the voluntary arbitrator's decision shall
be final. Second, that the petitioner has the right to enter into the
forwarding agreements, but these agreements should be limited to
forwarding services; the petitioner failed to present clear and convincing
proof of the delineation of functions and duties between company and
forwarder employees engaged as clerks, material handlers, system
encoders and general clerks; thus, they should be considered regular
company employees. Third, on the extent of the voluntary arbitrator's
authority, the CA acknowledged that the arbitrator can only decide
questions agreed upon and submitted by the parties, but maintained that
the arbitrator also has the power to rule on consequential issues that
would finally settle the dispute. On this basis, the CA justified the ruling
on the employment status of the forwarders' clerks, material handlers,
system encoders and general clerks as a necessary consequence that
ties up the loose ends of the submitted issues for a final settlement of the
dispute.
The CA denied the petitioner's motion for reconsideration, giving
way to the present petition.
The Petition
The petition questions as a preliminary issue the CA ruling that
decisions of voluntary arbitrators are conclusive and constitute res
adjudicata  on the facts and law ruled upon.
Expectedly, it cites as error the voluntary arbitrator's and the
CA's rulings that: (a) the forwarders' employees undertaking the
functions of clerks, material handlers, system encoders and general
clerks exercise the functions of regular company employees and are
subject to the company's control; and (b) the functions of the forwarders'
employees are beyond the limits of what the law allows for a forwarding
agreement.
The petitioner reiterates that there are distinctions between the
work of the forwarders' employees and that of the regular company
employees. The receiving, unloading, recording or documenting of
materials the forwarders' employees undertake form part of the
contracted forwarding services. The similarity of these activities to those
performed by the company's regular employees does not necessarily
lead to the conclusion that the forwarders' employees should be
absorbed by the company as its regular employees. No proof was ever
presented by the union that the company exercised supervision and
control over the forwarders' employees. The contracted services and
even the work performed by the regular employees in the warehouse
department are also not usually necessary and desirable in the
manufacture of automotive electronics which is the company's main
business. It adds that as held in Philippine Global Communications, Inc.
v. De Vera, 21 management can contract out even services that are
usually necessary or desirable in the employer's business. ECSaAc
On the issue of jurisdiction, the petitioner argues that the
voluntary arbitrator neither had jurisdiction nor basis to declare the
forwarders' personnel as regular employees of the company because the
matter was not among the issues submitted by the parties for arbitration;
in voluntary arbitration, it is the parties' submission of the issues that
confers jurisdiction on the voluntary arbitrator. The petitioner finally
argues that the forwarders and their employees were not parties to the
voluntary arbitration case and thus cannot be bound by the voluntary
arbitrator's decision.
The Case for the Union
In its comment, 22 the union takes exception to the petitioner's
position that the contracting out of services involving forwarding and
ancillary activities is a valid exercise of management prerogative. It
posits that the exercise of management prerogative is not an absolute
right, but is subject to the limitation provided for by law, contract, existing
practice, as well as the general principles of justice and fair play. It
submits that both the law and the parties' CBA prohibit the petitioner from
contracting out to forwarders the functions of regular employees,
especially when the contracting out will amount to a violation of the
employees' security of tenure, of the CBA provision on the coverage of
the bargaining unit, or of the law on regular employment.
The union disputes the petitioner's claim that there is a
distinction between the work being performed by the regular employees
and that of the forwarders' employees. It insists that the functions being
assigned, delegated to and performed by employees of the forwarders
are also those assigned, delegated to and being performed by the
regular rank-and-file employees covered by the bargaining unit.
On the jurisdictional issue, the union submits that while the
submitted issue is "whether or not the functions of the forwarders'
employees are functions being performed by the regular rank-and-file
employees covered by the bargaining unit," the ruling of the voluntary
arbitrator was a necessary consequence of his finding that the
forwarders' employees were performing functions similar to those being
performed by the regular employees of the petitioner. It maintains that it
is within the power of the voluntary arbitrator to rule on the issue since it
is inherently connected to, or a consequence of, the main issues
resolved in the case.
The Court's Ruling
We find the petition meritorious.
Underlying Jurisdictional Issues
As submitted by the parties, the first issue is "whether or not the
company validly contracted out or outsourced the services involving
forwarding, packing, loading and clerical activities related
thereto." However, the forwarders, with whom the petitioner had written
contracts for these services, were never made parties (and could not
have been parties to the voluntary arbitration except with their consent)
so that the various forwarders' agreements could not have been
validly impugned through voluntary arbitration and declared invalid
as against the forwarders.
The second submitted issue is "whether or not the functions of
the forwarders' employees are functions being performed by regular
rank-and-file employees covered by the bargaining unit." While this
submission is couched in general terms, the issue as discussed by the
parties is limited to the forwarders' employees undertaking services as
clerks, material handlers, system encoders and general clerks, which
functions are allegedly the same functions undertaken by regular rank-
and-file company employees covered by the bargaining unit. Either way,
however, the issue poses jurisdictional problems as the forwarders'
employees are not parties to the case and the union has no
authority to speak for them.
From this perspective, the voluntary arbitration submission
covers matters affecting third parties who are not parties to the voluntary
arbitration and over whom the voluntary arbitrator has no jurisdiction;
thus, the voluntary arbitration ruling cannot bind them. 23 While they may
voluntarily join the voluntary arbitration process as parties, no such
voluntary submission appears in the record and we cannot presume that
one exists. Thus, the voluntary arbitration process and ruling can only be
recognized as valid between its immediate parties as a case arising from
their collective bargaining agreement. This limited scope, of course,
poses no problem as the forwarders and their employees are not
indispensable parties and the case is not mooted by their absence. Our
ruling will fully bind the immediate parties and shall fully apply to, and
clarify the terms of, their relationship, particularly the interpretation and
enforcement of the CBA provisions pertinent to the arbitrated issues.
Validity of the Contracting Out
 The voluntary arbitration decision itself established, without
objection from the parties, the description of the work of forwarding as a
basic premise for its ruling. We similarly find the description acceptable
and thus adopt it as our own starting point in considering the nature of
the service contracted out when the petitioner entered into its forwarding
agreements with Diversified, Airfreight and KNI. To quote the voluntary
arbitration decision:
As forwarders they act as travel agents for cargo.
They specialize in arranging transport and completing
required shipping documentation of respondent's
company's finished products. They provide custom crating
and packing designed for specific needs of respondent
company. These freight forwarders are actually acting as
agents for the company in moving cargo to an overseas
destination. These agents are familiar with the import rules
and regulations, the methods of shipping, and the
documents related to foreign trade. They recommend the
packing methods that will protect the merchandise during
transit. Freight forwarders can also reserve for the
company the necessary space on a vessel, aircraft, train
or truck.
They also prepare the bill of lading and any
special required documentation. Freight forwarders can
also make arrangement with customs brokers overseas
that the goods comply with customs export documentation
regulations. They have the expertise that allows them to
prepare and process the documentation and perform
related activities pertaining to international shipments. As
an analogy, freight forwarders have been called travel
agents for freight. 24 ASETHC
Significantly, both the voluntary arbitrator and the CA recognized
that the petitioner was within its right in entering the forwarding
agreements with the forwarders as an exercise of its management
prerogative. The petitioner's declared objective for the arrangement is to
achieve greater economy and efficiency in its operations — a universally
accepted business objective and standard that the union has never
questioned. In Meralco v. Quisumbing, 25 we joined this universal
recognition of outsourcing as a legitimate activity when we held that a
company can determine in its best judgment whether it should contract
out a part of its work for as long as the employer is motivated by good
faith; the contracting is not for purposes of circumventing the law; and
does not involve or be the result of malicious or arbitrary action.   paper pushing activities and may be done on the same company
While the voluntary arbitrator and the CA saw nothing irregular in
the contracting out as a whole, they held otherwise for the ancillary or
support services involving clerical work, materials handling and
documentation. They held these to be the same as the workplace
activities undertaken by regular company rank-and-file employees
covered by the bargaining unit who work under company control; hence,
they concluded that the forwarders' employees should be considered as
regular company employees.
Our own examination of the agreement shows that the
forwarding arrangement complies with the requirements of Article
106 26 of the Labor Code and its implementing rules. 27 To reiterate, no
evidence or argument questions the company's basic objective of
achieving "greater economy and efficiency of operations." This, to our
mind, goes a long way to negate the presence of bad faith. The
forwarding arrangement has been in place since 1998 and no evidence
has been presented showing that any regular employee has been
dismissed or displaced by the forwarders' employees since then. No
evidence likewise stands before us showing that the outsourcing has
resulted in a reduction of work hours or the splitting of the bargaining unit
— effects that under the implementing rules of Article 106 of the Labor
Code can make a contracting arrangement illegal. The other
requirements of Article 106, on the other hand, are simply not material to
the present petition. Thus, on the whole, we see no evidence or
argument effectively showing that the outsourcing of the forwarding
activities violate our labor laws, regulations, and the parties' CBA,
specifically that it interfered with, restrained or coerced employees in the
exercise of their rights to self-organization as provided in Section 6, par.
(f) of the implementing rules. The only exception, of course, is what the
union now submits as a voluntary arbitration issue — i.e.,  the failure to
recognize certain forwarder employees as regular company employees
and the effect of this failure on the CBA's scope of coverage — which
issue we fully discuss below.
The job of forwarding, as we earlier described, consists not only
of a single activity but of several services that complement one another
and can best be viewed as one whole process involving a package of
services. These services include packing, loading, materials handling
and support clerical activities, all of which are directed at the transport of
company goods, usually to foreign destinations.
It is in the appreciation of these forwarder services as one whole
package of inter-related services that we discern a basic
misunderstanding that results in the error of equating the functions of the
forwarders' employees with those of regular rank-and-file employees of
the company. A clerical job, for example, may similarly involve typing and
products that the forwarders' employees and company employees may
work on, but these similarities do not necessarily mean that all these
employees work for the company. The regular company employees, to
be sure, work for the company under its supervision and control, but
forwarder employees work for the forwarder in the forwarder's own
operation that is itself a contracted work from the company. The
company controls its employees in the means, method and results of
their work, in the same manner that the forwarder controls its own
employees in the means, manner and results of their work.
Complications and confusion result because the company at the same
time controls the forwarder in the results of the latter's work, without
controlling however the means and manner of the forwarder employees'
work. This interaction is best exemplified by the adduced evidence,
particularly the affidavits of petitioner's warehouse manager
Gregorio 28 and Section Head Bawar 29 discussed below.
From the perspective of the union in the present case, we note
that the forwarding agreements were already in place when the current
CBA was signed. 30 In this sense, the union accepted the forwarding
arrangement, albeit implicitly, when it signed the CBA with the company.
Thereby, the union agreed, again implicitly by its silence and acceptance,
that jobs related to the contracted forwarding activities are not regular
company activities and are not to be undertaken by regular employees
falling within the scope of the bargaining unit but by the forwarders'
employees. Thus, the skills requirements and job content between
forwarders' jobs and bargaining unit jobs may be the same, and they
may even work on the same company products, but their work for
different purposes and for different entities completely distinguish and
separate forwarder and company employees from one another. A clerical
job, therefore, if undertaken by a forwarders' employee in support of
forwarding activities, is not a CBA-covered undertaking or a regular
company activity.
The best evidence supporting this conclusion can be found in the
CBA itself, Article 1, Sections 1, 2, 3 and 4 (VII) of which
provide: TADaCH
Section 1. Recognition and Bargaining Unit.  — Upon
the union's representation and showing of continued
majority status among the employees covered by the
bargaining unit as already appropriately constituted, the
company recognizes the union as the sole and exclusive
collective bargaining representative of all its regular rank-
and-file employees, except those excluded from the bargaining
unit as hereinafter enumerated in Sections 2 and 3 of this Article,
for purposes of collective bargaining in respect to their rates of
pay and other terms and condition of employment for the duration
of this Agreement.
Section 2. Exclusions. —  The following employment
categories are expressly excluded from the bargaining unit and
from the scope of this Agreement: executives, managers,
supervisors and those employees exercising any of the attributes
of a managerial employee; Accounting Department, Controlling
Department, Human Resources Department and IT Department
employees, department secretaries, the drivers and personnel
assigned to the Office of the General Manager and the Office of
the Commercial Affairs and Treasury, probationary, temporary
and casual employees, security guards, and other categories of
employees declared by law to be eligible for union membership.
Section 3. Additional Exclusions. —  Employees within
the bargaining unit heretofore defined, who are promoted or
transferred to an excluded employment category as herein before
enumerated, shall automatically be considered as resigned
and/or disqualified from membership in the UNION and
automatically removed from the bargaining unit.
Section 4. Definitions. — . . .
VII. A regular employee is one who having satisfactorily
undergone the probationary period of employment and passed
the company's full requirement for regular employees, such as,
but not limited to physical fitness, proficiency, acceptable conduct
and good moral character, received an appointment as a regular
employee duly signed by the authorized official of the
COMPANY.
[Emphasis supplied.]
When these CBA provisions were put in place, the forwarding
agreements had been in place so that the forwarders' employees were
never considered as company employees who would be part of the
bargaining unit. To be precise, the forwarders' employees and their
positions were not part of the appropriate bargaining unit "as already
constituted." In fact, even now, the union implicitly recognizes
forwarding as a whole as a legitimate non-company activity by simply
claiming as part of their unit the forwarders' employees undertaking allied
support activities.
At this point, the union cannot simply turn around and claim
through voluntary arbitration the contrary position that some forwarder
employees should be regular employees and should be part of its
bargaining unit because they undertake regular company functions. What
the union wants is a function of negotiations, or perhaps an appropriate
action before the National Labor Relations Commission impleading the
proper parties, but not a voluntary arbitration that does not implead the
affected parties. The union must not forget, too, that before the inclusion
of the forwarders' employees in the bargaining unit can be considered,
these employees must first be proven to be regular company employees.
As already mentioned, the union does not even have the personality to
make this claim for these forwarders' employees. This is the
impenetrable wall that the union cannot, for now, pass through using the
voluntary arbitration proceedings now before us on appeal.
 Significantly, the evidence presented does not also prove the
union's point that forwarder employees undertake company rather than
the forwarders' activities. We say this mindful that forwarding includes a
whole range of activities that may duplicate company activities in terms
of the exact character and content of the job done and even of the skills
required, but cannot be legitimately labeled as company activities
because they properly pertain to forwarding that the company has
contracted out.
The union's own evidence, in fact, speaks against the point the
union wishes to prove. Specifically, the affidavits of forwarder KNI
employees Barit, Prevendido, and Enano, submitted in evidence by the
union, confirm that the work they were doing was predominantly related
to forwarding or the shipment or transport of the petitioner's finished
goods to overseas destinations, particularly to Germany and the United
States of America (USA).
Barit 31 deposed that on August 2, 2004 he started working at
the petitioner's CBE finished goods area as an employee of forwarder
Emery Transnational Air Cargo Group; on the same date, he was
absorbed by KNI and was assigned the same task of a loader; his actual
work involved: making of inventories of CBE finished products in the
warehouse; double checking of the finished products he inventoried and
those received by the other personnel of KNI; securing from his superior
the delivery note and print-out indicating the model and the quantity of
products to be exported to Germany; and preparing the loading form and
then referring it to his co-workers from the forwarders who gather the
goods to be transported to Germany based on the model and quantity
needed; with the use of the computer, printing the airway bill which
serves as cargo ticket for the airline and posted on every box of finished
products before loading on the van of goods bound for Germany;
preparing the gate pass for the van. He explained that other products to
be shipped to the USA, via sea transport, are picked up by the other
forwarders and brought to their warehouse in Parañaque.  
Prevendido, 32 also a loader, stated that his actual work involved
loading into the container van finished CBE products bound for Germany;
when there is a build up for the E.K. Express (Emirates Airlines), he is
sent by the petitioner to the airlines to load the finished products and
check if they are in good condition; although the inspection and checking
of loaded finished products should be done by a company supervisor or
clerk, he is asked to do them because he is already there in the area; he
also conducts an inventory of finished goods in the finished goods area,
prepares loading form schedule and generates the airway bill and is
asked by his supervisor to call up KNI for the airway bill number.
Enano, 33 for his part, stated that on November 11, 1998, he
was absorbed by KNI after initially working in 1996 for a janitorial service
agency which had a contract with the petitioner, he was also a loader
and assigned at the finished goods section in the warehouse department;
his actual work involved preparing the gate pass for finished products of
the petitioner to be released; loading the finished products on the truck
and calling up KNI (Air Freight Department) to check on the volume of
the petitioner's products for export; making inventories of the remaining
finished products and doing other tasks related to the export of the
petitioner's products, which he claimed are supposed to be done by the
company's finished goods supervisor; and monitoring of KNI's trucking
sub-contractor who handled the transport component of KNI's
arrangement with the petitioner. cEaCTS
The essential nature of the outsourced services is not
substantially altered by the claim of the three KNI employees that they
occasionally do work that pertains to the company's finished goods
supervisor or a company employee such as the inspection of goods to be
shipped and inventory of finished goods. This was clarified by petitioner's
warehouse manager Gregorio 34 and Section Head Bawar 35 in their
respective affidavits. They explained that the three KNI employees do not
conduct inventory of finished goods; rather, as part of the contract, KNI
personnel have to count the boxes of finished products they load into the
trucks to ensure that the quantity corresponds with the entries made in
the loading form; included in the contracted service is the preparation of
transport documents like the airway bill; the airway bill is prepared in the
office and a KNI employee calls for the airway bill number, a sticker label
is then printed; and that the use of the company forklift is necessary for
the loading of the finished goods into the truck.
Thus, even on the evidentiary side, the union's case must fail.
In light of these conclusions, we see no need to dwell on the
issue of the voluntary arbitrator's authority to rule on issues not expressly
submitted but which arise as a consequence of the voluntary arbitrator's
findings on the submitted issues.
WHEREFORE, premises considered, we hereby NULLIFY and SET
ASIDE the assailed Court of Appeals Decision in CA-G.R. SP No. 99029 dated
October 28, 2008, together with the Voluntary Arbitrator's Decision of May 1,
2007 declaring the employees of forwarders Diversified Cargo Services, Inc.,
Airfreight 2100 and Kuehne & Nagel, Inc., presently designated and functioning
as clerks, material handlers, system or data encoders and general clerks, to be
regular company employees. No costs. SO ORDERED.
[G.R. No. 160506. March 9, 2010.]
JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO
AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO,
LORENZO PLATON, JOSE FERNANDO GUTIERREZ, ESTANISLAO
BUENAVENTURA, LOPE SALONGA, FRANZ DAVID, NESTOR IGNACIO,
JULIO REY, RUBEN MARQUEZ, JR., MAXIMINO PASCUAL, ERNESTO
CALANAO, ROLANDO ROMASANTA, RHUEL AGOO, BONIFACIO
ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA, ROBERTO
ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS
BACALSO, SAMSON BASCO, ALADINO GREGORO * , JR., EDWIN
GARCIA, ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON,
CRESENTE J. GARCIA, FERNANDO MACABENTE, MELECIO
CASAPAO, REYNALDO JACABAN, FERDINAND SALVO, ALSTANDO
MONTOS, RAINER N. SALVADOR, RAMIL REYES, PEDRO G. ROY,
LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, WILLIE ORTIZ,
ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL BILLONES, ALLAN
BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT,
RAUL DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES,
ANTONIO DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR.,
ELAIS BASEO, WILFREDO TORRES, MELCHOR CARDANO, MARIANO
NARANIAN, JOHN SUMERGIDO, ROBERTO ROSALES, GERRY C.
GATPO, GERMAN N. GUEVARRA, GILBERT Y. MIRANDA, RODOLFO C.
TOLEDO, ARNOLD D. LASTONA, PHILIP M. LOZA, MARIO N.
CULDAYON, ORLANDO P. JIMENEZ, FRED P. JIMENEZ, RESTITUTO C.
PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA,
ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN,
ALEJANDRINO ABATON, and ORLANDO S. BALANGUE,  petitioners, vs.
PROCTER & GAMBLE PHILS., INC., and PROMM-GEM,
INC.,  respondents.
Syllabi:
1. Labor Law;  Labor-Only Contracting;  The Law and its implementing
rules allow contracting arrangements for the performance of specific
jobs, works of services;  The current labor rules expressly prohibit
labor-only contracting;  Where there is labor-only contracting;  Elements
of Labor-Only Contracting.-
—The law and its implementing rules allow contracting arrangements for the
performance of specific jobs, works or services. Indeed, it is management
prerogative to farm out any of its activities, regardless of whether such
activity is peripheral or core in nature. However, in order for such outsourcing
to be valid, it must be made to an independent contractor because the
current labor rules expressly prohibit labor-only contracting. To emphasize,
there is labor-only contracting when the contractor or sub-contractor merely
recruits, supplies or places workers to perform a job, work or service for a
principal and any of the following elements are present: i) The contractor or
subcontractor does not have substantial capital or investment which relates
to the job, work or service to be performed and the employees recruited,
supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal; or ii)
The contractor does not exercise the right to control over the performance of
the work of the contractual employee.
2. Same;  Same;  In termination cases, the burden of proof rests upon the
employer to show that the dismissal is for just and valid cause.-
—Going back to the matter of dismissal, it must be emphasized that the onus
probandi to prove the lawfulness of the dismissal rests with the employer. In
termination cases, the burden of proof rests upon the employer to show that
the dismissal is for just and valid cause. In the instant case, P&G failed to
discharge the burden of proving the legality and validity of the dismissals of
those petitioners who are considered its employees. Hence, the dismissals
necessarily were not justified and are therefore illegal.
3. Same;  Same;  Same;  In order to constitute a just cause for dismissal, the
act complained of must be work-related and must show that the employee is
unfit to continue to work for the employer.-
—Loss of trust and confidence, as a cause for termination of employment, is
premised on the fact that the employee concerned holds a position of
responsibility or of trust and confidence. As such, he must be invested with
confidence on delicate matters, such as custody, handling or care and
protection of the property and assets of the employer. And, in order to
constitute a just cause for dismissal, the act complained of must be work-
related and must show that the employee is unfit to continue to work for the
employer. In the instant case, the petitioners-employees of Promm-Gem
have not been shown to be occupying positions of responsibility or of trust
and confidence. Neither is there any evidence to show that they are unfit to
continue to work as merchandisers for Promm-Gem.
4. Same;  Same;  Loss of Trust and Confidence;  Loss of trust and
confidence, as a ground for dismissal, must be based on the willful breach of
the trust reposed in the employee by his employer.-
—Loss of trust and confidence, as a ground for dismissal, must be based on
the willful breach of the trust reposed in the employee by his employer.
Ordinary breach will not suffice. A breach of trust is willful if it is done
intentionally, knowingly and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly, heedlessly or
inadvertently.
5. Same;  Same;  Same;  Same;  A misconduct which is not serious or grave,
as that existing in the instant case, cannot be a valid basis for dismissing an
employee.-
—In the instant case, petitioners-employees of Promm-Gem may have
committed an error of judgment in claiming to be employees of P&G, but it
cannot be said that they were motivated by any wrongful intent in doing so.
As such, we find them guilty of only simple misconduct for assailing the
integrity of Promm-Gem as a legitimate and independent promotion firm. A
misconduct which is not serious or grave, as that existing in the instant case,
cannot be a valid basis for dismissing an employee.
6. Same;  Termination of Employment;  Misconduct;  Grave
Misconduct;  Definition of Misconduct; Elements for Misconduct to be a
Just Cause for Dismissal.-
—Misconduct has been defined as improper or wrong conduct; the Petitioners worked as merchandisers of P&G from various dates,
transgression of some established and definite rule of action, a forbidden act, allegedly starting as early as 1982 or as late as June 1991, to either May
a dereliction of duty, unlawful in character implying wrongful intent and not 5, 1992 or March 11, 1993, more specifically as follows:
mere error of judgment. The misconduct to be serious must be of such grave Name Date Employed Date Dismissed
and aggravated character and not merely trivial and unimportant. To be a      
just cause for dismissal, such misconduct (a) must be serious; (b) must Joeb M. Aliviado November, 1985 May 5, 1992
relate to the performance of the employee’s duties; and (c) must show that Arthur Corpuz 1988 March 11, 1993
Eric Aliviado 1985 March 11, 1993
the employee has become unfit to continue working for the employer. Monchito Ampeloquio September, 1988 March 11, 1993
7. Same;  Same;  Where “labor-only” contracting exists, the Labor Code Abraham Basmayor[, Jr.] 1987 March 11, 1993
itself establishes an employer-employee relationship between the Jonathan Mateo May, 1988 March 11, 1993
employer and the employees of the “labor-only” contractor;  The Lorenzo Platon 1985 March 11, 1993
Jose Fernando Gutierrez cCDAHE Â Â  1988 May 5, 1992
contractor is considered merely an agent of the principal employer and the Estanislao Buenaventura June, 1988 March 11, 1993
latter is responsible to the employees of the labor-only contractor as if such Lope Salonga 1982 March 11, 1993
employees had been directly employed by the principal employer.- Franz David 1989 March 11, 1993
—“Where ‘labor-only’ contracting exists, the Labor Code itself establishes an Nestor Ignacio 1982 March 11, 1993
Julio Rey 1989 May 5, 1992
employer-employee relationship between the employer and the employees Ruben [Vasquez], Jr. 1985 May 5, 1992
of the ‘labor-only’ contractor.” The statute establishes this relationship for a Maximino Pascual 1990 May 5, 1992
comprehensive purpose: to prevent a circumvention of labor laws. The Ernesto Calanao[, Jr.] 1987 May 5, 1992
contractor is considered merely an agent of the principal employer and the Rolando Romasanta 1983 March 11, 1993
[Roehl] Agoo 1988 March 11, 1993
latter is responsible to the employees of the labor-only contractor as if such Bonifacio Ortega 1988 March 11, 1993
employees had been directly employed by the principal employer. Arsenio Soriano, Jr. 1985 March 11, 1993
8. Same;  Same;  Independent Contractors;  Promm-Gem cannot be Arnel Endaya 1983 March 11, 1993
considered as a labor-only contractor; It is a legitimate independent Roberto Enriquez December, 1988 March 11, 1993
Nestor [Es]quila 1983 May 5, 1992
contractor.- Ed[g]ardo Quiambao 1989 March 11, 1993
—Under the circumstances, Promm-Gem cannot be considered as a labor- Santos Bacalso 1990 March 11, 1993
only contractor. We find that it is a legitimate independent contractor. Samson Basco 1984 March 11, 1993
DECISION Aladino Gregor[e], Jr. 1980 May 5, 1992
Edwin Garcia 1987 May 5, 1992
DEL CASTILLO, J  p: Armando Villar 1990 May 5, 1992
Emil Tawat 1988 March 11, 1993
Labor laws expressly prohibit "labor-only" contracting. To prevent Mario P. Liongson 1991 May 5, 1992
its circumvention, the Labor Code establishes an employer-employee Cresente J. Garcia 1984 March 11, 1993
Fernando Macabent[a] 1990 May 5, 1992
relationship between the employer and the employees of the 'labor-only' Melecio Casapao 1987 March 11, 1993
contractor. Reynaldo Jacaban 1990 May 5, 1992
Ferdinand Salvo 1985 May 5, 1992
The instant petition for review assails the March 21, 2003 Alstando Montos 1984 March 11, 1993
Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 52082 and its Rainer N. Salvador 1984 May 5, 1992
October 20, 2003 Resolution 2 denying the motions for reconsideration Ramil Reyes 1984 March 11, 1993
Pedro G. Roy 1987  
separately filed by petitioners and respondent Procter & Gamble Phils. Leonardo [F]. Talledo 1985 March 11, 1993
Inc. (P&G). The appellate court affirmed the July 27, 1998 Decision of Enrique [F]. Talledo 1988 March 11, 1993
the National Labor Relations Commission (NLRC), which in turn affirmed Willie Ortiz 1987 May 5, 1992
the November 29, 1996 Decision 3 of the Labor Arbiter. All these Ernesto Soyosa   HTSAEa  1988 May 5, 1992
Romeo Vasquez 1985 March 11, 1993
decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Joel Billones 1987 March 11, 1993
Promotions Services (SAPS) to be legitimate independent contractors Allan Baltazar 1989 March 11, 1993
and the employers of the petitioners. Noli Gabuyo 1991 March 11, 1993
Emmanuel E. Laban 1987 May 5, 1992
Factual Antecedents Ramir[o] E. [Pita] 1990 May 5, 1992
Raul Dulay 1988 May 5, 1992
Tadeo Duran[o] 1988 May 5, 1992
53. Joseph Banico 1988 March 11, 1993 On November 29, 1996, the Labor Arbiter dismissed the
54. Albert Leynes 1990 May 5, 1992
complaint for lack of merit and ruled that there was no employer-
55. Antonio Dacu[m]a 1990 May 5, 1992
56. Renato dela Cruz 1982   employee relationship between petitioners and P&G. He found that the
57. Romeo Viernes, Jr. 1986   selection and engagement of the petitioners, the payment of their wages,
58. El[ia]s Bas[c]o 1989   the power of dismissal and control with respect to the means and
59. Wilfredo Torres 1986 May 5, 1992
methods by which their work was accomplished, were all done and
60. Melchor Carda[ñ]o 1991 May 5, 1992
61. [Marino] [Maranion] 1989 May 5, 1992 exercised by Promm-Gem/SAPS. He further found that Promm-Gem and
62. John Sumergido 1987 May 5, 1992 SAPS were legitimate independent job contractors. The dispositive
63. Roberto Rosales May, 1987 May 5, 1992 portion of his Decision reads: HDCAaS
64. Gerry [G]. Gatpo November, 1990 March 11, 1993
65. German N. Guevara May, 1990 March 11, 1993 WHEREFORE, premises considered, judgment is
66. Gilbert Y. Miranda June, 1991 March 11, 1993 hereby rendered Dismissing the above-entitled cases
67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
68. Arnold D. [Laspoña] June 1991 March 11, 1993 against respondent Procter & Gamble (Phils.), Inc. for lack
69. Philip M. Loza March 5, 1992 March 11, 1993 of merit.
70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993
71. Orlando P. Jimenez November 6, 1992 March 11, 1993 SO ORDERED. 12
72. Fred P. Jimenez September, 1991 March 11, 1993
73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993 Ruling of the NLRC
74. Rolando J. de Andres June, 1991 March 11, 1993
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993 Appealing to the NLRC, petitioners disputed the Labor Arbiter's
76. Roberto B. Cruz May 4, 1990 March 11, 1993 findings. On July 27, 1998, the NLRC rendered a Decision 13 disposing
77. Rosedy O. Yordan June, 1991 May 5, 1992 as follows:
78. Dennis Dacasin May, 1990 May 5, 1992
79. Alejandrino Abaton 1988 May 5, 1992 WHEREFORE, premises considered, the appeal
80. Orlando S. Balangue March, 1989 March 11, 1993 4
of complainants is hereby DISMISSED and the decision
appealed from AFFIRMED.
They all individually signed employment contracts with either
SO ORDERED. 14
Promm-Gem or SAPS for periods of more or less five months at a
time. 5 They were assigned at different outlets, supermarkets and stores Petitioners filed a motion for reconsideration but the motion was
where they handled all the products of P&G. They received their wages denied in the November 19, 1998 Resolution. 15
from Promm-Gem or SAPS. 6
Ruling of the Court of Appeals
SAPS and Promm-Gem imposed disciplinary measures on erring
merchandisers for reasons such as habitual absenteeism, dishonesty or Petitioners then filed a petition for certiorari with the CA, alleging
changing day-off without prior notice. 7 grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of the Labor Arbiter and the NLRC. However, said petition was
P&G is principally engaged in the manufacture and production of also denied by the CA which disposed as follows:
different consumer and health products, which it sells on a wholesale
basis to various supermarkets and distributors. 8 To enhance consumer WHEREFORE, the decision of the National Labor
awareness and acceptance of the products, P&G entered into contracts Relations Commission dated July 27, 1998 is AFFIRMED
with Promm-Gem and SAPS for the promotion and merchandising of its with the MODIFICATION that respondent Procter &
products. 9 Gamble Phils., Inc. is ordered to pay service incentive
leave pay to petitioners.
In December 1991, petitioners filed a complaint 10 against P&G
for regularization, service incentive leave pay and other benefits with SO ORDERED. 16
damages. The complaint was later amended 11 to include the matter of
Petitioners filed a motion for reconsideration but the motion was also
their subsequent dismissal.
denied. Hence, this petition.
Ruling of the Labor Arbiter
Issues
 Petitioners now come before us raising the following issues:
I.
WHETHER . . . THE HONORABLE COURT OF APPEALS
HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT
DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE
ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION IN RENDERING THE QUESTIONED
JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS
WERE ABLE TO PROVE AND ESTABLISH THAT
RESPONDENT PROCTER & GAMBLE PHILS., INC. IS
THEIR EMPLOYER AND THAT THEY WERE ILLEGALLY
DISMISSED BY THE FORMER.
II.
WHETHER . . . THE HONORABLE COURT OF APPEALS
HAS COMMITTED [A] REVERSIBLE ERROR WHEN IT
DID NOT DECLARE THAT THE PUBLIC RESPONDENTS
HAD ACTED WITH GRAVE ABUSE OF DISCRETION
WHEN THE LATTER DID NOT FIND THE PRIVATE
RESPONDENTS LIABLE TO THE PETITIONERS FOR
PAYMENT OF ACTUAL, MORAL AND EXEMPLARY
DAMAGES AS WELL AS LITIGATION COSTS AND
ATTORNEY'S FEES. 17
Simply stated, the issues are: (1) whether P&G is the employer
of petitioners; (2) whether petitioners were illegally dismissed; and (3)
whether petitioners are entitled for payment of actual, moral and
exemplary damages as well as litigation costs and attorney's fees.  pronouncements with regard to SAPS are only for the purpose of
Petitioners' Arguments
Petitioners insist that they are employees of P&G. They claim
that they were recruited by the salesmen of P&G and were engaged to
undertake merchandising chores for P&G long before the existence of
Promm-Gem and/or SAPS. They further claim that when the latter had its
so-called re-alignment program, petitioners were instructed to fill up
application forms and report to the agencies which P&G created. 18
Petitioners further claim that P&G instigated their dismissal from
work as can be gleaned from its letter 19 to SAPS dated February 24,
1993, informing the latter that their Merchandising Services Contract will
no longer be renewed.
Petitioners further assert that Promm-Gem and SAPS are labor-
only contractors providing services of manpower to their client. They
claim that the contractors have neither substantial capital nor tools and
equipment to undertake independent labor contracting. Petitioners insist
that since they had been engaged to perform activities which are
necessary or desirable in the usual business or trade of P&G, then they
are its regular employees. 20
Respondents' Arguments
On the other hand, P&G points out that the instant petition raises
only questions of fact and should thus be thrown out as the Court is not a
trier of facts. It argues that findings of facts of the NLRC, particularly
where the NLRC and the Labor Arbiter are in agreement, are deemed
binding and conclusive on the Supreme Court. aCTcDS
P&G further argues that there is no employment relationship
between it and petitioners. It was Promm-Gem or SAPS that (1) selected
petitioners and engaged their services; (2) paid their salaries; (3) wielded
the power of dismissal; and (4) had the power of control over their
conduct of work.
P&G also contends that the Labor Code neither defines nor limits
which services or activities may be validly outsourced. Thus, an
employer can farm out any of its activities to an independent contractor,
regardless of whether such activity is peripheral or core in nature. It
insists that the determination of whether to engage the services of a job
contractor or to engage in direct hiring is within the ambit of management
prerogative.
At this juncture, it is worth mentioning that on January 29, 2007,
we deemed as waived the filing of the Comment of Promm-Gem on the
petition. 21 Also, although SAPS was impleaded as a party in the
proceedings before the Labor Arbiter and the NLRC, it was no longer
impleaded as a party in the proceedings before the CA. 22 Hence, our
determining the obligations of P&G, if any.
Our Ruling
The petition has merit.
As a rule, the Court refrains from reviewing factual assessments
of lower courts and agencies exercising adjudicative functions, such as
the NLRC. Occasionally, however, the Court is constrained to wade into
factual matters when there is insufficient or insubstantial evidence on
record to support those factual findings; or when too much is concluded,
inferred or deduced from the bare or incomplete facts appearing on
record. 23 In the present case, we find the need to review the records to
ascertain the facts.
Labor-only contracting and job contracting
 In order to resolve the issue of whether P&G is the employer of
petitioners, it is necessary to first determine whether Promm-Gem and
SAPS are labor-only contractors or legitimate job contractors.
The pertinent Labor Code provision on the matter states:
ART. 106. Contractor or subcontractor. —
Whenever an employer enters into a contract with another
person for the performance of the former's work, the
employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance with the
provisions of this Code.
In the event that the contractor or subcontractor
fails to pay the wages of his employees in accordance with
this Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees
directly employed by him.
The Secretary of Labor may, by appropriate
regulations, restrict or prohibit the contracting out of labor
to protect the rights of workers established under this
Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within these
types of contracting and determine who among the parties
involved shall be considered the employer for purposes of
this Code, to prevent any violation or circumvention of any
provision of this Code.
There is "labor-only" contracting where the person
supplying workers to an employer does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others,
and the workers recruited and placed by such person are
performing activities which are directly related to the
principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter
were directly employed by him. (Emphasis and
underscoring supplied.)
Rule VIII-A, Book III of the Omnibus Rules Implementing the
Labor Code, as amended by Department Order No. 18-
02, 24 distinguishes between legitimate and labor-only contracting:
xxx xxx xxx
Section 3. Trilateral Relationship in Contracting
Arrangements. — In legitimate contracting, there exists a
trilateral relationship under which there is a contract for a
specific job, work or service between the principal and the
contractor or subcontractor, and a contract of employment
between the contractor or subcontractor and its workers.
Hence, there are three parties involved in these
arrangements, the principal which decides to farm out a
job or service to a contractor or subcontractor, the
contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work
or service, and the contractual workers engaged by the
contractor or subcontractor to accomplish the job[,] work or
service.
xxx xxx xxx
Section 5. Prohibition against labor-only
contracting. — Labor-only contracting is hereby declared
prohibited. For this purpose, labor-only contracting shall
refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers
to perform a job, work or service for a principal, and any of
the following elements are present:
i) The contractor or subcontractor does not have
substantial capital or investment which relates to the job,
work or service to be performed and the employees
recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly
related to the main business of the principal; or
ii) [T]he contractor does not exercise the right to
control over the performance of the work of the contractual
employee. cCaSHA
The foregoing provisions shall be without prejudice
to the application of Article 248 (c) of the Labor Code, as
amended.
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries
and work premises, actually and directly used by the
contractor or subcontractor in the performance or
completion of the job, work or service contracted out.
 The "right to control" shall refer to the right
reserved to the person for whom the services of the
contractual workers are performed, to determine not only
the end to be achieved, but also the manner and means to
be used in reaching that end.
xxx xxx xxx (Underscoring supplied.)
Clearly, the law and its implementing rules allow contracting
arrangements for the performance of specific jobs, works or services.
Indeed, it is management prerogative to farm out any of its activities,
regardless of whether such activity is peripheral or core in nature.
However, in order for such outsourcing to be valid, it must be made to
an independent contractor because the current labor rules expressly
prohibit labor-only contracting.
To emphasize, there is labor-only contracting when the
contractor or sub-contractor merely recruits, supplies or places workers
to perform a job, work or service for a principal 25 and any of the
following elements are present:
i) The contractor or subcontractor does not have
substantial capital or investment which relates to the job,
work or service to be performed and the employees
recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly
related to the main business of the principal; or
ii) The contractor does not exercise the right to
control over the performance of the work of
the contractual employee. (Underscoring supplied)
In the instant case, the financial statements 26 of Promm-Gem
show that it has authorized capital stock of P1 million and a paid-in
capital, or capital available for operations, of P500,000.00 as of
1990. 27 It also has long term assets worth P432,895.28 and current
assets of P719,042.32. Promm-Gem has also proven that it maintained
its own warehouse and office space with a floor area of 870 square
meters. 28 It also had under its name three registered vehicles which
were used for its promotional/merchandising business. 29 Promm-Gem
also has other clients 30 aside from P&G. 31 Under the circumstances,
we find that Promm-Gem has substantial investment which relates to the
work to be performed. These factors negate the existence of the element
specified in Section 5 (i) of DOLE Department Order No. 18-02.
The records also show that Promm-Gem supplied its
complainant-workers with the relevant materials, such as markers, tapes,
liners and cutters, necessary for them to perform their work. Promm-Gem
also issued uniforms to them. It is also relevant to mention that Promm-
Gem already considered the complainants working under it as its regular,
not merely contractual or project, employees. 32 This circumstance
negates the existence of element (ii) as stated in Section 5 of DOLE
Department Order No. 18-02, which speaks of contractual employees.
This, furthermore, negates — on the part of Promm-Gem — bad faith
and intent to circumvent labor laws which factors have often been tipping
points that lead the Court to strike down the employment practice or
agreement concerned as contrary to public policy, morals, good customs
or public order. 33  
Under the circumstances, Promm-Gem cannot be considered as
a labor-only contractor. We find that it is a legitimate independent
contractor.
On the other hand, the Articles of Incorporation of SAPS shows
that it has a paid-in capital of only P31,250.00. There is no other
evidence presented to show how much its working capital and assets
are. Furthermore, there is no showing of substantial investment in tools,
equipment or other assets.
In Vinoya v. National Labor Relations Commission,  34 the Court
held that "[w]ith the current economic atmosphere in the country, the
paid-in capitalization of PMCI amounting to P75,000.00 cannot be
considered as substantial capital and, as such, PMCI cannot qualify as
an independent contractor." 35 Applying the same rationale to the
present case, it is clear that SAPS — having a paid-in capital of only
P31,250 — has no substantial capital. SAPS' lack of substantial capital is
underlined by the records 36 which show that its payroll for its
merchandisers alone for one month would already total P44,561.00. It
had 6-month contracts with P&G. 37 Yet SAPS failed to show that it
could complete the 6-month contracts using its own capital and
investment. Its capital is not even sufficient for one month's payroll.
SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for
the period required for it to generate its needed revenue to sustain its
operations independently. Substantial capital refers to capitalization used
in the  performance or completion  of the job, work or service contracted
out. In the present case, SAPS has failed to show substantial capital.
Furthermore, the petitioners have been charged with the
merchandising and promotion of the products of P&G, an activity that has
already been considered by the Court as doubtlessly directly related to
the manufacturing business, 38 which is the principal business of P&G.
Considering that SAPS has no substantial capital or investment and the
workers it recruited are performing activities which are directly related to
the principal business of P&G, we find that the former is engaged in
"labor-only contracting".
"Where 'labor-only' contracting exists, the Labor Code itself
establishes an employer-employee relationship between the employer
and the employees of the 'labor-only' contractor." 39 The statute
establishes this relationship for a comprehensive purpose: to prevent a
circumvention of labor laws. The contractor is considered merely an
agent of the principal employer and the latter is responsible to the
employees of the labor-only contractor as if such employees had been
directly employed by the principal employer. 40 AIaHES
Consequently, the following petitioners, having been recruited
and supplied by SAPS 41 — which engaged in labor-only contracting —
are considered as the employees of P&G: Arthur Corpuz, Eric Aliviado,
Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo,
Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David,
Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega,
Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo
Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N.
Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel
Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara,
Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M.
Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez,
Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr.,
Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat,
Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela
Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.
The following petitioners, having worked under, and been
dismissed by Promm-Gem, are considered the employees of Promm-
Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia, Mario
P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A.
Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben
Vasquez, Jr., Maximino Pascual, Willie Ortiz, Armando Villar, Jose
Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila,
Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio
Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico,
Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado. 42
Termination of services
We now discuss the issue of whether petitioners were illegally
dismissed. In cases of regular employment, the employer shall not
terminate the services of an employee except for a just 43 or
authorized 44 cause.
In the instant case, the termination letters given by Promm-Gem
to its employees uniformly specified the cause of dismissal as grave
misconduct and breach of trust, as follows:
xxx xxx xxx
This informs you that effective May 5, 1992, your
employment with our company, Promm-Gem, Inc. has
been terminated. We find your expressed admission, that
you considered yourself as an employee of Procter &
Gamble Phils., Inc. . . . and assailing the integrity of the
Company as legitimate and independent promotion firm, is
deemed as an act of disloyalty prejudicial to the interests
of our Company: serious misconduct and breach of trust
reposed upon you as employee of our Company which
[co]nstitute just cause for the termination of your
employment.
xxx xxx xxx 45
Misconduct has been defined as improper or wrong conduct; the
transgression of some established and definite rule of action, a forbidden act,
a dereliction of duty, unlawful in character implying wrongful intent and not
mere error of judgment. The misconduct to be serious must be of such grave
and aggravated character and not merely trivial and unimportant. 46 To be a
just cause for dismissal, such misconduct (a) must be serious; (b) must relate
to the performance of the employee's duties; and (c) must show that the
employee has become unfit to continue working for the employer. 47
In other words, in order to constitute serious misconduct which will
warrant the dismissal of an employee under paragraph (a) of Article 282 of
the Labor Code, it is not sufficient that the act or conduct complained of has
violated some established rules or policies. It is equally important and
required that the act or conduct must have been performed with wrongful
intent. 48 In the instant case, petitioners-employees of Promm-Gem may
have committed an error of judgment in claiming to be employees of P&G,
but it cannot be said that they were motivated by any wrongful intent in doing
so. As such, we find them guilty of only simple misconduct for assailing the
integrity of Promm-Gem as a legitimate and independent promotion firm. A
misconduct which is not serious or grave, as that existing in the instant case,
cannot be a valid basis for dismissing an employee.
Meanwhile, loss of trust and confidence, as a ground for dismissal,
must be based on the willful breach of the trust reposed in the employee by
his employer. Ordinary breach will not suffice. A breach of trust is willful if it is
done intentionally, knowingly and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly, heedlessly or
inadvertently. 49
Loss of trust and confidence, as a cause for termination of
employment, is premised on the fact that the employee concerned holds a
position of responsibility or of trust and confidence. As such, he must be
invested with confidence on delicate matters, such as custody, handling or
care and protection of the property and assets of the employer. And, in order
to constitute a just cause for dismissal, the act complained of must be work-
related and must show that the employee is unfit to continue to work for the
employer. 50 In the instant case, the petitioners-employees of Promm-Gem
have not been shown to be occupying positions of responsibility or of trust
and confidence. Neither is there any evidence to show that they are unfit to
continue to work as merchandisers for Promm-Gem.
All told, we find no valid cause for the dismissal of petitioners-
employees of Promm-Gem.
While Promm-Gem had complied with the procedural aspect of due
process in terminating the employment of petitioners-employees, i.e.,  giving
two notices and in between such notices, an opportunity for the employees to
answer and rebut the charges against them, it failed to comply with the
substantive aspect of due process as the acts complained of neither
constitute serious misconduct nor breach of trust. Hence, the dismissal is
illegal. AHSaTI
With regard to the petitioners placed with P&G by SAPS, they were
given no written notice of dismissal. The records show that upon receipt by
SAPS of P&G's letter terminating their "Merchandising Services Contact * "
effective March 11, 1993, they in turn verbally informed the concerned
petitioners not to report for work anymore. The concerned petitioners related
their dismissal as follows:
xxx xxx xxx
5. On March 11, 1993, we were called to a
meeting at SAPS office. We were told by Mr. Saturnino A.
Ponce that we should already stop working immediately
because that was the order of Procter and Gamble.
According to him he could not do otherwise because
Procter and Gamble was the one paying us. To prove that
Procter and Gamble was the one responsible in our
dismissal, he showed to us the letter 51 dated February
24, 1993, . . .
February 24, 1993
Sales and Promotions Services
Armon's Bldg., 142 Kamias Road,
Quezon City
Attention: Mr. Saturnino A. Ponce
President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February
1993, this formally informs you that we will not be
renewing our Merchandising Services Contract
with your agency.
Please immediately undertake efforts to ensure
that your services to the Company will terminate
effective close of business hours of 11 March
1993.  
This is without prejudice to whatever obligations
you may have to the company under the
abovementioned contract.
Very truly
yours,
(Sgd.)
EMMANUEL
M. NON
Sales
Merchandisin
g III
6. On March 12, 1993, we reported to our
respective outlet assignments. But, we were no longer
allowed to work and we were refused entrance by the
security guards posted. According to the security guards,
all merchandisers of Procter and Gamble under S[APS]
who filed a case in the Dept. of Labor are already
dismissed as per letter of Procter and Gamble dated
February 25, 1993. . . . 52
Neither SAPS nor P&G dispute the existence of these
circumstances. Parenthetically, unlike Promm-Gem which dismissed its
employees for grave misconduct and breach of trust due to disloyalty,
SAPS dismissed its employees upon the initiation of P&G. It is evident
that SAPS does not carry on its own business because the termination of
its contract with P&G automatically meant for it also the termination of its
employees' services. It is obvious from its act that SAPS had no other
clients and had no intention of seeking other clients in order to further its
merchandising business. From all indications SAPS, existed to cater
solely to the need of P&G for the supply of employees in the latter's
merchandising concerns only. Under the circumstances prevailing in the
instant case, we cannot consider SAPS as an independent contractor.
Going back to the matter of dismissal, it must be emphasized
that the onus probandi to prove the lawfulness of the dismissal rests with
the employer. 53 In termination cases, the burden of proof rests upon the
employer to show that the dismissal is for just and valid cause. 54 In the
instant case, P&G failed to discharge the burden of proving the legality
and validity of the dismissals of those petitioners who are considered its
employees. Hence, the dismissals necessarily were not justified and are
therefore illegal.
Damages Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F.
Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo,
We now go to the issue of whether petitioners are entitled to
German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D.
damages. Moral and exemplary damages are recoverable where the
Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred
dismissal of an employee was attended by bad faith or fraud or
P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz
constituted an act oppressive to labor or was done in a manner contrary
Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S.
to morals, good customs or public policy. 55
Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo
With regard to the employees of Promm-Gem, there being no Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and
evidence of bad faith, fraud or any oppressive act on the part of the Dennis Dacasin, P25,000.00 as moral damages plus ten percent of the
latter, we find no support for the award of damages. TcDIaA total sum as and for attorney's fees.
As for P&G, the records show that it dismissed its employees Let this case be REMANDED to the Labor Arbiter for the
through SAPS in a manner oppressive to labor. The sudden and computation, within 30 days from receipt of this Decision, of petitioners'
peremptory barring of the concerned petitioners from work, and from backwages and other benefits; and ten percent of the total sum as and
admission to the work place, after just a one-day verbal notice, and for for attorney's fees as stated above; and for immediate execution.
no valid cause bellows oppression and utter disregard of the right to due
SO ORDERED.
process of the concerned petitioners. Hence, an award of moral
damages is called for. Carpio, Brion, Abad and Perez, JJ., concur.
Attorney's fees may likewise be awarded to the concerned |||  (Aliviado v. Procter & Gamble Phils., Inc., G.R. No. 160506,
petitioners who were illegally dismissed in bad faith and were compelled [March 9, 2010], 628 PHIL 469-494)
to litigate or incur expenses to protect their rights by reason of the
oppressive acts 56 of P&G.
Lastly, under Article 279 of the Labor Code,an employee who is
unjustly dismissed from work shall be entitled to reinstatement without
loss of seniority rights and other privileges, inclusive of allowances, and
other benefits or their monetary equivalent from the time the
compensation was withheld up to the time of actual
reinstatement. 57 Hence, all the petitioners, having been illegally
dismissed are entitled to reinstatement without loss of seniority rights and
with full back wages and other benefits from the time of their illegal
dismissal up to the time of their actual reinstatement.
WHEREFORE, the petition is GRANTED. The Decision dated
March 21, 2003 of the Court of Appeals in CA-G.R. SP No. 52082 and
the Resolution dated October 20, 2003 are REVERSED and SET
ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc.
are ORDERED to reinstate their respective employees immediately
without loss of seniority rights and with full backwages and other benefits
from the time of their illegal dismissal up to the time of their actual
reinstatement. Procter & Gamble Phils., Inc. is further ORDERED to pay
each of those petitioners considered as its employees, namely Arthur
Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr.,
Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope
Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo,
Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez,
Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos,

[G.R. Nos. 97008-09. July 23, 1993.]
VIRGINIA G. NERI and JOSE
CABELIN, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, FAR EAST BANK & TRUST
COMPANY (FEBTC) and BUILDING CARE
CORPORATION,  respondents.
R. L. Salcedo & Improso Law Office for petitioners.
Bengzon, Zarraga, Narciso, Cudala, Pecson, Bengzon &
Jimenez for Bldg. Care Corp.
Bautista, Picazo, Buyco, Tan & Fider for respondent FEBTC.
SYLLABUS
1. LABOR LAWS AND SOCIAL LEGISLATION; "LABOR-ONLY"
CONTRACTING; DEFINED; PROOF OF SUBSTANTIAL
CAPITALIZATION SUFFICIENT TO EXCLUDE CONTRACTOR FROM
PURVIEW THEREOF; RATIONALE THEREFOR; CASE AT BAR. — It is
well-settled that there is "labor-only" contracting where: (a) the person
supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises,
among others; and, (b) the workers recruited and placed by such person
are performing activities which are directly related to the principal
business of the employer. Article 106 of the Labor Code defines "labor-
only" contracting thus — Art. 106. Contractor or subcontractor. — . . .
There is "labor-only" contracting where the person supplying workers to
an employer does not have substantial capital  or investment in the form
of tools, equipment, machineries, work premises, among others, and the
workers recruited by such persons are performing activities which are
directly related to the principal business of such employer . . . Based on
the foregoing, BCC cannot be considered a "labor-only" contractor
because it has substantial capital. While there may be no evidence that it
has investment in the form of tools, equipment, machineries, work
premises, among others, it is enough that it has substantial capital, as
was established before the Labor Arbiter as well as the NLRC. In other
words, the law does not require both substantial capital and investment
in the form of tools, equipment, machineries, etc. This is clear from the
use of the conjunction "or." If the intention was to require the contractor
to prove that he has both capital and the requisite investment, then the
conjunction "and" should have been used. But, having established that it
has substantial capital, it was no longer necessary for BCC to further
adduce evidence to prove that it does not fall within the purview of "labor-
only" contracting. There is even no need for it to refute petitioners
contention that the activities they perform are directly related to the
principal business of respondent bank . . . In fact, the status of BCC as
an independent contractor was previously confirmed by this Court
in  Associated Labor Unions-TUCP v. National Labor Relations
Commission, where we held thus — The public respondent ruled that the
complainants are not employees of the bank but of the company
contracted to serve the bank. Building Care Corporation is a big firm
which services, among others, a university, an international bank, a big
local bank, a hospital center, government agencies, etc. It is a
qualified independent contractor. The public respondent  correctly ruled
against petitioner's contentions . . .
2. ID.; EMPLOYER-EMPLOYEE RELATIONSHIP; "RIGHT OF
CONTROL TEST"; CASE AT BAR. — Even assuming ex argumenti that
petitioners were performing activities directly related to the principal
business of the bank, under the "right of control" test they must still be
considered employees of BCC. In the case of petitioner Neri, it is
admitted that FEBTC issued a job description which detailed her
functions as a radio/telex operator. However, a cursory reading of the job
description shows that what was sought to be controlled by FEBTC was
actually the end-result of the task, e.g., that the daily incoming and
outgoing telegraphic transfer of funds received and relayed by her,
respectively, tallies with that of the register. The guidelines were laid
down merely to ensure that the desired end-result was achieved. It did
not, however, tell Neri how the radio/telex machine should be operated.
In the Shipside case, we ruled — . . . If in the course of private
respondents' work (referring to the workers), SHIPSIDE occasionally
issued instructions to them, that alone does not in the least detract from
the fact that only STEVEDORES is the employer of the private
respondents, for in legal contemplation, such instructions carry no more
weight than mere requests, the privity of contract being between
SHIPSIDE and STEVEDORES . . .
3. REMEDIAL LAW; EVIDENCE; JUDICIAL NOTICE OF
PRACTICE OF GOVERNMENT AND PRIVATE INSTITUTIONS OF
HIRING INDEPENDENT CONTRACTORS TO PERFORM SPECIAL
SERVICES. — Be that as it may, the Court has already taken judicial
notice of the general practice adopted in several government and private
institutions and industries of hiring independent contractors to perform
special services. These services range from janitorial, security and even
technical or other specific services such as those performed by
petitioners Neri and Cabelin. While these services may be considered
directly related to the principal business of the employer, nevertheless,
 they are not necessary in the conduct of the principal business of the
employer.
4. ID.; APPEAL; FACTUAL FINDINGS OF NLRC UNTAINTED
BY GRAVE ABUSE OF DISCRETION BINDING ON SUPREME
COURT. — The determination of employer-employee relationship
involves factual findings. Absent any grave abuse of discretion, and we
find none in the case before us, we are bound by the findings of the
Labor Arbiter as affirmed by respondent NLRC.
DECISION
BELLOSILLO, J p:
Respondents are sued by two employees of Building Care
Corporation, which provides janitorial and other specific services to
various firms, to compel Far East Bank and Trust Company to recognize
them as its regular employees and be paid the same wages which its
employees receive.
Building Care Corporation (BCC, for brevity), in the proceedings
below, established that it had substantial capitalization of P1 Million or a
stockholders equity of P1.5 Million. Thus the Labor Arbiter ruled that
BCC was only job contracting and that consequently its employees were
not employees of Far East Bank and Trust Company (FEBTC, for
brevity). On appeal, this factual finding was affirmed by respondent
National Labor Relations Commission (NLRC, for brevity). Nevertheless,
petitioners insist before us that BCC is engaged in "labor-only"
contracting hence, they conclude, they are employees of respondent
FEBTC.
Petitioners Virginia G. Neri and Jose Cabelin applied for
positions with, and were hired by, respondent BCC, a corporation
engaged in providing technical maintenance, engineering, housekeeping,
security and other specific services to its clientele. They were assigned
to work in the Cagayan De Oro City Branch of respondent FEBTC on 1
May 1979 and 1 August 1980, respectively, Neri as radio/telex operator
and Cabelin as janitor, before being promoted to messenger on 1 April
1989.
On 28 June 1989, petitioners instituted complaints against
FEBTC and BCC before Regional Arbitration Branch No. 10 of the
Department of Labor and Employment to compel the bank to accept
them as regular employees and for it to pay the differential between the
wages being paid them by BCC and those received by FEBTC
employees with similar length of service.
On 16 November 1989, the Labor Arbiter dismissed the
complaint for lack of merit. 1 Respondent BCC was considered an
independent contractor because it proved it had substantial capital. Thus,
petitioners were held to be regular employees of BCC, not FEBTC. The
dismissal was appealed to NLRC which on 28 September 1990 affirmed
the decision on appeal. 2 On 22 October 1990, NLRC denied
reconsideration of its affirmance, 3 prompting petitioners to seek redress
from this Court.
Petitioners vehemently contend that BCC is engaged in "labor-
only" contracting because it failed to adduce evidence purporting to show
that it invested in the form of tools, equipment, machineries, work
premises and other materials which are necessary in the conduct of its
business. Moreover, petitioners argue that they perform duties which are
directly related to the principal business or operation of FEBTC. If the
definition of "labor-only" contracting 4 is to be read in conjunction with job
contracting, 5 then the only logical conclusion is that BCC is a "labor-
only" contractor. Consequently, they must be deemed employees of
respondent bank by operation of law since BCC is merely an agent of
FEBTC following the doctrine laid down in Philippine Bank of
Communications v. National Labor Relations Commission 6 where we
ruled that where "labor-only" contracting exists, the Labor Code itself
establishes an employer-employee relationship between the employer
and the employees of the "labor-only" contractor; hence, FEBTC should
be considered the employer of petitioners who are deemed its
employees through its agent, "labor-only" contractor BCC.
We cannot sustain the petition.
Respondent BCC need not prove that it made investments in the
form of tools, equipment, machineries, work premises, among others,
because it has established that it has sufficient capitalization. The Labor
Arbiter and the NLRC both determined that BCC had a capital stock of
P1 million fully subscribed and paid for. 7 BCC is therefore a highly
capitalized venture and cannot be deemed engaged in "labor-only"
contracting.
It is well-settled that there is "labor-only" contracting where: (a)
the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work
premises, among others; and, (b) the workers recruited and placed by
such person are performing activities which are directly related to the
principal business of the employer. 8
Article 106 of the Labor Code defines "labor-only" contracting
thus —
 Art. 106. Contractor or subcontractor. — . . . There is
"labor-only" contracting where the person supplying
workers to an employer does not have substantial
capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the
workers recruited by such persons are performing
activities which are directly related to the principal
business of such employer . . . (emphasis supplied).
 
Based on the foregoing, BCC cannot be considered a "labor-
only" contractor because it has substantial capital. While there may be
no evidence that it has investment in the form of tools, equipment,
machineries, work premises, among others, it is enough that it has
substantial capital, as was established before the Labor Arbiter as well
as the NLRC. In other words, the law does not require both substantial
capital and investment in the form of tools, equipment, machineries, etc.
This is clear from the use of the conjunction "or". If the intention was to
require the contractor to prove that he has both capital and the requisite
investment, then the conjunction "and" should have been used. But,
having established that it has substantial capital, it was no longer
necessary for BCC to further adduce evidence to prove that it does not
fall within the purview of "labor-only" contracting. There is even no need
for it to refute petitioners' contention that the activities they perform are
directly related to the principal business of respondent bank.
Be that as it may, the Court has already taken judicial notice of
the general practice adopted in several government and private
institutions and industries of hiring independent contractors to perform
special services. 9 These services range from
janitorial, 10 security 11 and even technical or other specific services
such as those performed by petitioners Neri and Cabelin. While these
services may be considered directly related to the principal business of
the employer, 12 nevertheless, they are not necessary in the conduct of
the principal business of the employer.
In fact, the status of BCC as an independent contractor was
previously confirmed by this Court in Associated Labor Unions-TUCP
v. National Labor Relations Commission, 13 where we held thus —
The public respondent ruled that the complainants are not
employees of the bank but of the company contracted to
serve the bank. Building Care Corporation is a big firm
which services, among others, a university, an
international bank, a big local bank, a hospital center,
government agencies, etc. It is a qualified independent
contractor. The public respondent correctly ruled against
petitioner's contentions . . . (emphasis supplied).
Even assuming ex argumenti that petitioners were performing
activities directly related to the principal business of the bank, under the
"right of control" test they must still be considered employees of BCC. In
the case of petitioner Neri, it is admitted that FEBTC issued a job
description which detailed her functions as a radio/telex operator.
However, a cursory reading of the job description shows that what was
sought to be controlled by FEBTC was actually the end-result of the task,
e.g., that the daily incoming and outgoing telegraphic transfer of funds
received and relayed by her, respectively, tallies with that of the register.
The guidelines were laid down merely to ensure that the desired end-
result was achieved. It did not, however, tell Neri how the radio/telex
machine should be operated. In the Shipside case, 14 we ruled —
. . . If in the course of private respondents' work (referring
to the workers), SHIPSIDE occasionally issued instructions
to them, that alone does not in the least detract from the
fact that only STEVEDORES is the employer of the private
respondents, for in legal contemplation, such instructions
carry no more weight than mere requests, the privity of
contract being between SHIPSIDE and STEVEDORES . . .
Besides, petitioners do not deny that they were selected and
hired by BCC before being assigned to work in the Cagayan de Oro
Branch of FEBTC. BCC likewise acknowledges that petitioners are its
employees. The record is replete with evidence disclosing that BCC
maintained supervision and control over petitioners through its
Housekeeping and Special Services Division: petitioners reported for
work wearing the prescribed uniform of BCC; leaves of absence were
filed directly with BCC; and, salaries were drawn only from BCC. 15
As a matter of fact, Neri even secured a certification from BCC
on 16 May 1986 that she was employed by the latter. On the other hand,
on 24 May 1988, Cabelin filed a complaint for underpayment of wages,
non-integration of salary adjustments mandated by Wage Orders Nos. 5
& 6 and R.A. 6640 as well as for illegal deduction 16 against BCC alone
which was provisionally dismissed on 19 August 1988 upon Cabelin's
manifestation that his money claim was negligible. 17
More importantly, under the terms and conditions of the contract,
it was BCC alone which had the power to reassign petitioners. Their
deployment to FEBTC was not subject to the bank's acceptance. Cabelin
was promoted to messenger because the FEBTC branch manager
promised BCC that two (2) additional janitors would be hired from the
company if the promotion was to be effected. 18 Furthermore, BCC was
to be paid in lump sum unlike in the situation in Philippine Bank of
Communications 19 where the contractor, CESI, was to be paid at a daily
rate on a per person basis. And the contract therein stipulated that the
CESI was merely to provide manpower that would render temporary
services. In the case at bar, Neri and Cabelin were to perform specific directly related to the principal business or operations of the
special services. Consequently, petitioners cannot be held to be employer in which the workers are habitually employed (Rule VIII,
employees of FEBTC as BCC "carries an independent business" and Book III, Implementing Rules of the Labor Code).
undertakes the performance of its contract with various clients according
to its "own manner and method, free from the control and supervision" of 5.Sec. 8. Job contracting. — There is job-contracting permissible under the
its principals in all matters "except as to the results thereof." 20 Code if the following conditions are met: (1) The contractor carries
on an independent business and undertakes the contract work on
Indeed, the facts in Philippine Bank of Communications do not his account under his own responsibility according to his own
square with those of the instant case. Therein, the Court ruled that CESI manner and method, free from the control and direction of his
was a "labor-only" contractor because upholding the contract between employer or principal in all matters connected with the
the contractor and the bank would in effect permit employers to avoid the performance of the work except as to the results thereof; and (2)
necessity of hiring regular or permanent employees and would enable The contractor has substantial capital or investment in the form of
them to keep their employees indefinitely on a temporary or casual basis, tools, equipment, machineries, work premises and other materials
thus denying them security of tenure in their jobs. This of course violates which are necessary in the conduct of his business.
the Labor Code. BCC has not committed any violation. Also, the former
case was for illegal dismissal; this case, on the other hand, is for
conversion of employment status so that petitioners can receive the
same salary being given to regular employees of FEBTC. But, as herein
determined, petitioners are not regular employees of FEBTC but of BCC.
At any rate, the finding that BCC is a qualified independent contractor
precludes us from applying the Philippine Bank of
Communications doctrine to the instant petition.
The determination of employer-employee relationship involves
factual findings. 21 Absent any grave abuse of discretion, and we find
none in the case before us, we are bound by the findings of the Labor
Arbiter as affirmed by respondent NLRC.
IN VIEW OF THE FOREGOING, the Petition for Certiorari is
DISMISSED.
SO ORDERED.
Cruz, Griño-Aquino, Davide, Jr., and Quiason, JJ., concur.

Footnotes
1.Annex "7", Petition; Rollo, pp. 38-55.
2.Annex "5", Petition; Rollo, pp. 17-25.
3.Annex "9", Petition; Rollo, pp. 62-64.
4.Sec. 9. Labor-only contracting — Any person who undertakes to supply
workers to an employer shall be deemed to be engaged in labor-
only contracting where such person: (1) Does not have substantial
capital or investment in the form of tools, equipment, machineries,
work premises and other materials; and (2) The workers recruited
and placed by such person are performing activities which are

[G.R. No. 126586. February 2, 2000.]
ALEXANDER VINOYA,  petitioner, vs. NATIONAL
LABOR RELATIONS COMMISSION, REGENT FOOD
CORPORATION AND/OR RICKY SEE
(PRESIDENT),  respondents.
Public Attorney's Office for petitioner.
The Solicitor General  for public respondent.
Manuel P. Roxas, Jr.  for private respondent.
SYNOPSIS
Petitioner filed a complaint for illegal dismissal and non-payment of
13th month pay against private respondent. He alleged that private
respondent employed him as sales representative on 26 May 1990 and a
company identification card was issued to him on the same date. During his
employ, he was assigned to various supermarkets and grocery stores where
he booked sales orders and collected payments for private respondent and
that he was under the direct control and supervision of the personnel of
private respondent. On 1 July 1991, he was transferred by private
respondent to Peninsula Manpower Company, Inc. ("PMCI"), an agency
which provides private respondent with additional contractual workers
pursuant to a contract for the supply of manpower services. After his transfer
to PMCI, petitioner was reassigned to private respondent as sales
representative. Subsequently, on 25 November 1991, private respondent
informed him that his services were terminated due to the expiration of the
Contract of Service between private respondent and PMCI.
Private respondent, on the other hand, filed a third party complaint
against PMCI. It maintained that no employer-employee relationship existed
between petitioner and itself and that petitioner is actually an employee of
PMCI, allegedly an independent contractor. After considering both versions
of the parties, the Labor Arbiter rendered a decision finding private
respondent the true employer of petitioner and that petitioner was illegally
dismissed. On appeal, the NLRC reversed the decision of the Labor Arbiter
holding that PMCI is an independent contractor because it had substantial
capital and, as such, was the true employer of petitioner. Hence, it held PMCI
liable for the dismissal of petitioner. Petitioner and PMCI moved for
reconsideration, but the NLRC denied the same. Hence, petitioner filed the
instant petition.
In affirming the decision of the Labor Arbiter, the Supreme Court held
that PMCI can only be classified as a labor-only contractor and, as such,
cannot be considered as the employer of petitioner. The Court held that
PMCI could not qualify as an independent contractor since its paid-in
capitalization amounting to P75,000.00 cannot be considered as substantial
capital. Moreover, PMCI did not carry a distinct business free from the control
and supervision of private respondent. The workers assigned by PMCI to
private respondent were under the control and supervision of the latter. In
addition, PMCI merely acted as a recruitment agency of private respondent
since its undertaking did not involve the performance of a specific job, but
rather the supply of manpower only.
Since petitioner, due to his length of service, already attained the
status of a regular employee, he is entitled to security of tenure provided
under the labor laws. Hence, he may only be validly terminated from service
upon compliance with the legal requisites for dismissal. The Court found that
private respondent failed to establish compliance with the requirements on
termination of employment under the Labor Code. Hence, the dismissal of
petitioner was tainted with illegality. The petition was granted. SaTAED
SYLLABUS
1. LABOR AND SOCIAL LEGISLATION; LABOR STANDARDS;
LABOR-ONLY CONTRACTING; DISTINGUISHED FROM PERMISSIBLE
JOB CONTRACTING. — Labor-only contracting, a prohibited act, is an
arrangement where the contractor or subcontractor merely recruits, supplies
or places workers to perform a job, work or service for a principal. In labor-
only contracting, the following elements are present: (a) The contractor or
subcontractor does not have substantial capital or investment to actually
perform the job, work or service under its own account and responsibility; (b)
The employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the main
business of the principal. On the other hand, permissible job contracting or
subcontracting refers to an arrangement whereby a principal agrees to put
out or farm out with a contractor or subcontractor the performance or
completion of a specific job, work or service within a definite or
predetermined period, regardless of whether such job, work or service is to
be performed or completed within or outside the premises of the principal. A
person is considered engaged in legitimate job contracting or subcontracting
if the following conditions concur: (a) The contractor or subcontractor carries
on a distinct and independent business and undertakes to perform the job,
work or service on its own account and under its own responsibility according
to its own manner and method, and free from the control and direction of the
principal in all matters connected with the performance of the work except as
to the results thereof; (b) The contractor or subcontractor has substantial
capital or investment; and (c) The agreement between the principal and
contractor or subcontractor assures the contractual employees entitlement to
all labor and occupational safety and health standards, free exercise of the
right to self-organization, security of tenure, and social and welfare benefits.
2. ID.; ID.; ID.; EXISTS IN CASE AT BAR. — PMCI does not have
substantial capitalization or investment in the form of tools, equipment,
machineries, work premises, among others, to qualify as an independent
contractor. While it has an authorized capital stock of P1,000,000.00, only
P75,000.00 is actually paid-in, which, to our mind, cannot be considered as
substantial capitalization. Second, PMCI did not carry on an independent
business nor did it undertake the performance of its contract according to its
own manner and method, free from the control and supervision of its
principal, RFC. The evidence at hand shows that the workers assigned by
PMCI to RFC were under the control and supervision of the latter. The
Contract of Service itself provides that RFC can require the workers assigned
by PMCI to render services even beyond the regular eight hour working day
when deemed necessary. Furthermore, RFC undertook to assist PMCI in
making sure that the daily time records of its alleged employees faithfully
reflect the actual working hours. With regard to petitioner, RFC admitted that
it exercised control and supervision over him. These are telltale indications
that PMCI was not left alone to supervise and control its alleged employees.
Consequently, it can be concluded that PMCI was not an independent
contractor since it did not carry a distinct business free from the control and
supervision of RFC. Third, PMCI was not engaged to perform a specific and
special job or service, which is one of the strong indicators that an entity is an
independent contractor as explained by the Court in the cases
of Neri and Fuji. As stated in the Contract of Service, the sole undertaking of
PMCI was to provide RFC with a temporary workforce able to carry out
whatever service may be required by it. Such venture was complied with by
PMCI when the required personnel were actually assigned to RFC. Apart
from that, no other particular job, work or service was required from PMCI.
Obviously, with such an arrangement, PMCI merely acted as a recruitment
agency for RFC. Since the undertaking of PMCI did not involve the
performance of a specific job, but rather the supply of manpower only, PMCI
clearly conducted itself as labor-only contractor. CcaDHT
3. ID.; ID.; ID.; EMPLOYEES RECRUITED BY CONTRACTOR
PERFORM ACTIVITIES RELATED TO MAIN BUSINESS OF ITS
PRINCIPAL. — In labor-only contracting, the employees recruited, supplied
or placed by the contractor perform activities which are directly related to the
main business of its principal. In this case, the work of petitioner as sales
representative is directly related to the business of RFC. Being in the
business of food manufacturing and sales, it is necessary for RFC to hire a
sales representative like petitioner to take charge of booking its sales orders
and collecting payments for such. Thus, the work of petitioner as sales
representative in RFC can only be categorized as clearly related to, and in
the pursuit of the latter's business. Logically, when petitioner was assigned
by PMCI to RFC, PMCI acted merely as a labor-only contractor.
4. ID.; ID.; INDEPENDENT CONTRACTOR RELATIONSHIP;
FACTORS TO BE CONSIDERED IN DETERMINING EXISTENCE
THEREOF. — It is not enough to show substantial capitalization or
investment in the form of tools, equipment, machineries and work premises,
among others, to be considered as an independent contractor. In fact,
jurisprudential holdings are to the effect that in determining the existence of
an independent contractor relationship, several factors might be considered
such as, but not necessarily confined to, whether the contractor is carrying
on an independent business; the nature and extent of the work; the skill
required; the term and duration of the relationship; the right to assign the
performance of specified pieces of work; the control and supervision of the
workers; the power of the employer with respect to the hiring, firing and
payment of the workers of the contractor; the control of the premises; the
duty to supply premises, tools, appliances, materials and labor; and the
mode, manner and terms of payment. Given the standards and the factual
milieu of the case, the Court has to agree with the conclusion of the Labor
Arbiter that PMCI is engaged in labor-only contracting.
5. ID.; ID.; EMPLOYER-EMPLOYEE RELATIONSHIP; FOUR-FOLD
TEST; ELEMENTS. — In determining the existence of employer-employee
relationship the following elements of the "four-fold test" are generally
considered, namely: (1) the selection and engagement of the employee or
the power to hire; (2) the payment of wages; (3) the power to dismiss; and (4)
the power to control the employee. Of these four, the "control test" is the
most important. A careful study of the evidence at hand shows that RFC
possesses the earmarks of being the employer of petitioner.
6. ID.; ID.; ID.; NO PARTICULAR FORM OF PROOF IS REQUIRED
TO PROVE EXISTENCE THEREOF; IDENTIFICATION CARD ISSUED TO
PETITIONER CONSIDERED SUFFICIENT PROOF THAT HE WAS
PREVIOUSLY HIRED BY RESPONDENT CORPORATION; CASE AT BAR.
— It should be pointed out that no particular form of proof is required to prove
the existence of an employer-employee relationship. Any competent and
relevant evidence may show the relationship. If only documentary evidence
would be required to demonstrate that relationship, no scheming employer
would ever be brought before the bar of justice. In the case at bar, petitioner
presented the identification card issued to him on 26 May 1990 by RFC as
proof that it was the latter who engaged his services. To our mind, the ID
card is enough proof that petitioner was previously hired by RFC prior to his
transfer as agency worker to PMCI. Since, as shown by the ID card,
petitioner was already with RFC on 26 May 1990, prior to the time any
Employment Contract was agreed upon between PMCI and petitioner, it
follows that it was RFC who actually hired and engaged petitioner to be its
employee.
7. ID.; ID.; ID.; EXISTS BETWEEN PETITIONER AND
RESPONDENT CORPORATION; CONTROL TEST; CALLS FOR
EXISTENCE OF RIGHT TO CONTROL MANNER OF DOING WORK NOT
NECESSARILY ACTUAL EXERCISE OF RIGHT. — The power of control
refers to the authority of the employer to control the employee not only with
regard to the result of work to be done but also to the means and methods by
which the work is to be accomplished. It should be borne in mind, that the
"control test" calls merely for the existence of the right to control the manner
of doing the work, and not necessarily to the actual exercise of the right. In
the case at bar, we need not belabor ourselves in discussing whether the
power of control exists. RFC already admitted that it exercised control and
supervision over petitioner. RFC, however, raises the defense that the power
of control was jointly exercised with PMCI. The Labor Arbiter, on the other
hand, found that petitioner was under the direct control and supervision of
the personnel of RFC and not PMCI. We are inclined to believe the findings
of the Labor Arbiter which is supported not only by the admission of RFC but
also by the evidence on record. Besides, to our mind, the admission of RFC
that it exercised control and supervision over petitioner, the same being a
declaration against interest, is sufficient enough to prove that the power of
control truly exists. We, therefore, hold that an employer-employee
relationship exists between petitioner and RFC.
8. ID.; LABOR RELATIONS; DISMISSAL; REQUISITES TO BE
LEGAL. — Since petitioner, due to his length of service, already attained the
status of a regular employee, he is entitled to the security of tenure provided
under the labor laws. Hence, he may only be validly terminated from service
upon compliance with the legal requisites for dismissal. Under the Labor
Code, the requirements for the lawful dismissal of an employee are two-fold,
the substantive and the procedural aspects. Not only must the dismissal be
for a valid or authorized cause, the rudimentary requirements of due process
— notice and hearing — must, likewise, be observed before an employee
may be dismissed. Without the concurrence of the two, the termination
would, in the eyes of the law, be illegal.
9. ID.; ID.; ID.; ID.; EMPLOYER HAS BURDEN OF PROVING
COMPLIANCE THEREWITH; DISMISSAL OF PETITIONER WAS TAINTED
WITH ILLEGALITY. — As the employer, RFC has the burden of proving that
the dismissal of petitioner was for a cause allowed under the law and that
petitioner was afforded procedural due process. Sad to say, RFC failed to
discharge this burden. Indeed, RFC never pointed to any valid or authorized
cause under the Labor Code which allowed it to terminate the services of
petitioner. Its lone allegation that the dismissal was due to the expiration or
completion of contract is not even one of the grounds for termination allowed
by law. Neither did RFC show that petitioner was given ample opportunity to
contest the legality of his dismissal. In fact, no notice of such impending
termination was ever given him. Petitioner was, thus, surprised that he was
already terminated from employment without any inkling as to how and why it
came about. Petitioner was definitely denied due process. Having failed to
establish compliance with the requirements on termination of employment
under the Labor Code, the dismissal of petitioner is tainted with illegality.
10. ID.; ID.; ID.; ILLEGALLY DISMISSED EMPLOYEE IS ENTITLED
TO REINSTATEMENT AND FULL BACKWAGES. — An employee who has
been illegally dismissed is entitled to reinstatement to his former position
without loss of seniority rights and to payment of full backwages
corresponding to the period from his illegal dismissal up to actual
reinstatement. Petitioner is entitled to no less. cCDAHE
DECISION
KAPUNAN,  J p:
This petition for certiorari under Rule 65 seeks to annul and set aside
the decision, 1 promulgated on 21 June 1996, of the National Labor
Relations Commission ("NLRC") which reversed the decision 2 of the Labor
Arbiter, rendered on 15 June 1994, ordering Regent Food Corporation
("RFC") to reinstate Alexander Vinoya to his former position and pay him
backwages. llcd
Private respondent Regent Food Corporation is a domestic
corporation principally engaged in the manufacture and sale of various food
products. Private respondent Ricky See, on the other hand, is the president
of RFC and is being sued in that capacity.
Petitioner Alexander Vinoya, the complainant, worked with RFC as
sales representative until his services were terminated on 25 November
1991.
The parties presented conflicting versions of facts.
Petitioner Alexander Vinoya claims that he applied and was
accepted by RFC as sales representative on 26 May 1990. On the same
date, a company identification card 3 was issued to him by RFC. Petitioner
alleges that he reported daily to the office of RFC, in Pasig City, to take the
latter's van for the delivery of its products. According to petitioner, during his
employ, he was assigned to various supermarkets and grocery stores where
he booked sales orders and collected payments for RFC. For this task, he
was required by RFC to put up a monthly bond of P200.00 as security
deposit to guarantee the performance of his obligation as sales
representative. Petitioner contends that he was under the direct control and
supervision of Mr. Dante So and Mr. Sadi Lim, plant manager and senior
salesman of RFC, respectively. He avers that on 1 July 1991, he was
transferred by RFC to Peninsula Manpower Company, Inc.("PMCI"), an
agency which provides RFC with additional contractual workers pursuant to a
contract for the supply of manpower services (hereinafter referred to as the
"Contract of Service"). 4 After his transfer to PMCI , petitioner was allegedly
reassigned to RFC as sales representative. Subsequently, on 25 November
1991, he was informed by Ms. Susan Chua, personnel manager of RFC, that
his services were terminated and he was asked to surrender his ID card.
Petitioner was told that his dismissal was due to the expiration of the
Contract of Service between RFC and PMCI. Petitioner claims that he was
dismissed from employment despite the absence of any notice or
investigation. Consequently, on 3 December 1991, petitioner filed a case
against RFC before the Labor Arbiter for illegal dismissal and non-payment
of 13th month pay. 5
Private respondent Regent Food Corporation, on the other hand,
maintains that no employer-employee relationship existed between petitioner
and itself. It insists that petitioner is actually an employee of PMCI, allegedly
an independent contractor, which had a Contract of Service 6 with RFC. To
prove this fact, RFC presents an Employment Contract 7 signed by petitioner
on 1 July 1991, wherein PMCI appears as his employer. RFC denies that
petitioner was ever employed by it prior to 1 July 1991. It avers that petitioner
was issued an ID card so that its clients and customers would recognize him
as a duly authorized representative of RFC. With regard to the P200.00
pesos monthly bond posted by petitioner, RFC asserts that it was required in
order to guarantee the turnover of his collection since he handled funds of
RFC. While RFC admits that it had control and supervision over petitioner, it
argues that such was exercised in coordination with PMCI. Finally, RFC
contends that the termination of its relationship with petitioner was brought
about by the expiration of the Contract of Service between itself and PMCI
and not because petitioner was dismissed from employment.
On 3 December 1991, when petitioner filed a complaint for illegal
dismissal before the Labor Arbiter, PMCI was initially impleaded as one of
the respondents. However, petitioner thereafter withdrew his charge against
PMCI and pursued his claim solely against RFC. Subsequently, RFC filed a
third party complaint against PMCI. After considering both versions of the
parties, the Labor Arbiter rendered a decision, 8 dated 15 June 1994, in favor
of petitioner. The Labor Arbiter concluded that RFC was the true employer of
petitioner for the following reasons: (1) Petitioner was originally with RFC and
was merely transferred to PMCI to be deployed as an agency worker and
then subsequently reassigned to RFC as sales representative; (2) RFC had
direct control and supervision over petitioner; (3) RFC actually paid for the
wages of petitioner although coursed through PMCI; and, (4) Petitioner was
terminated per instruction of RFC. Thus, the Labor Arbiter decreed, as
follows: Cdpr
ACCORDINGLY, premises considered respondent
RFC is hereby declared guilty of illegal dismissal and
ordered to immediately reinstate complainant to his former
position without loss of seniority rights and other benefits
and pay him backwages in the amount of P103,974.00.
The claim for 13th month pay is hereby DENIED
for lack of merit.
This case, insofar as respondent PMCI [is
concerned] is DISMISSED, for lack of merit.
SO ORDERED. 9
RFC appealed the adverse decision of the Labor Arbiter to the
NLRC. In a decision, 10 dated 21 June 1996, the NLRC reversed the findings
of the Labor Arbiter. The NLRC opined that PMCI is an independent
contractor because it has substantial capital and, as such, is the true
employer of petitioner. The NLRC, thus, held PMCI liable for the dismissal of
petitioner. The dispositive portion of the NLRC decision states:
WHEREFORE, premises considered, the
appealed decision is modified as follows:
1. Peninsula Manpower Company Inc. is declared as
employer of the complainant;
2. Peninsula is ordered to pay complainant his separation
pay of P3,354.00 and his proportionate 13th
month pay for 1991 in the amount of P2,795.00 or
the total amount of P6,149.00.
SO ORDERED. 11
Separate motions for reconsideration of the NLRC decision were
filed by petitioner and PMCI. In a resolution, 12 dated 20 August 1996, the
NLRC denied both motions. However, it was only petitioner who elevated the
case before this Court.
In his petition for certiorari, petitioner submits that respondent NLRC
committed grave abuse of discretion in reversing the decision of the Labor
Arbiter, and asks for the reinstatement of the latter's decision.
Principally, this petition presents the following issues:
 1. Whether petitioner was an employee of RFC or PMCI.
2. Whether petitioner was lawfully dismissed.
The resolution of the first issue initially boils down to a determination
of the true status of PMCI, whether it is a labor-only contractor or an
independent contractor.
In the case at bar, RFC alleges that PMCI is an independent
contractor on the sole ground that the latter is a highly capitalized venture. To
buttress this allegation, RFC presents a copy of the Articles of Incorporation
and the Treasurer's Affidavit 13 submitted by PMCI to the Securities and
Exchange Commission showing that it has an authorized capital stock of One
Million Pesos (P1,000,000.00), of which Three Hundred Thousand Pesos
(P300,000.00) is subscribed and Seventy-Five Thousand Pesos
(P75,000.00) is paid-in. According to RFC, PMCI is a duly organized
corporation engaged in the business of creating and hiring a pool of
temporary personnel and, thereafter, assigning them to its clients from time
to time for such duration as said clients may require. RFC further contends
that PMCI has a separate office, permit and license and its own organization.
Labor-only contracting, a prohibited act, is an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to
perform a job, work or service for a principal. 14 In labor-only contracting, the
following elements are present:
(a) The contractor or subcontractor does not have
substantial capital or investment to actually
perform the job, work or service under its own
account and responsibility; cdtai
(b) The employees recruited, supplied or placed by such
contractor or subcontractor are performing
activities which are directly related to the main
business of the principal. 15
On the other hand, permissible job contracting or subcontracting
refers to an arrangement whereby a principal agrees to put out or farm out
with a contractor or subcontractor the performance or completion of a
specific job, work or service within a definite or predetermined period,
regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal. 16 A person is
considered engaged in legitimate job contracting or subcontracting if the
following conditions concur:
(a) The contractor or subcontractor carries on a distinct
and independent business and undertakes to
perform the job, work or service on its own
account and under its own responsibility according
to its own manner and method, and free from the
control and direction of the principal in all matters
connected with the performance of the work
except as to the results thereof;
(b) The contractor or subcontractor has substantial capital
or investment; and
(c) The agreement between the principal and contractor or
subcontractor assures the contractual employees
entitlement to all labor and occupational safety
and health standards, free exercise of the right to
self-organization, security of tenure, and social
and welfare benefits. 17
Previously, in the case of Neri vs. NLRC, 18 we held that in order to
be considered as a job contractor it is enough that a contractor has
substantial capital. In other words, once substantial capital is established it is
no longer necessary for the contractor to show evidence that it has
investment in the form of tools, equipment, machineries, work premises,
among others. The rational for this is that Article 106 of the Labor Code does
not require that the contractor possess both substantial capital and
investment in the form of tools, equipment, machineries, work premises,
among others. 19 The decision of the Court in Neri, thus, states:
Respondent BCC need not prove that it made
investments in the form of tools, equipment, machineries,
work premises, among others, because it has established
that it has sufficient capitalization. The Labor Arbiter and
the NLRC both determined that BCC had a capital stock of
P1 million fully subscribed and paid for. BCC is therefore a
highly capitalized venture and cannot be deemed engaged
in "labor-only" contracting. 20
However, in declaring that Building Care Corporation ("BCC") was an
independent contractor, the Court considered not only the fact that it had
substantial capitalization. The Court noted that BCC carried on an
independent business and undertook the performance of its contract
according to its own manner and method, free from the control and
supervision of its principal in all matters except as to the results
thereof. 21 The Court likewise mentioned that the employees of BCC were
engaged to perform specific special services for its principal. 22 Thus, the
Court ruled that BCC was an independent contractor.
The Court further clarified the import of the Neri decision in the
subsequent case of Philippine Fuji Xerox Corporation vs.  NLRC. 23 In the
said case, petitioner Fuji Xerox implored the Court to apply the Neri doctrine
to its alleged job-contractor, Skillpower, Inc., and declare the same as an
independent contractor. Fuji Xerox alleged that Skillpower, Inc. was a highly
capitalized venture registered with the Securities and Exchange Commission,
the Department of Labor and Employment, and the Social Security System
with assets exceeding P5,000,000.00 possessing at least 29 typewriters,
office equipment and service vehicles, and its own pool of employees with 25
clerks assigned to its clients on a temporary basis. 24 Despite the evidence
presented by Fuji Xerox the Court refused to apply the Neri case and
explained: cdll
Petitioners cite the case of Neri v. NLRC, in which
it was held that the Building Care Corporation (BCC) was
an independent contractor on the basis of finding that it
had substantial capital, although there was no evidence
that it had investments in the form of tools, equipment,
machineries and work premises. But the Court in that case
considered not only the capitalization of the BCC but also
the fact that BCC was providing specific special services
(radio/telex operator and janitor) to the employer; that in
another case, the Court had already found that BCC was
an independent contractor; that BCC retained control over
the employees and the employer was actually just
concerned with the end-result; that BCC had the power to
reassign the employees and their deployment was not
subject to the approval of the employer; and that BCC was
paid in lump sum for the services it rendered. These
features of that case make it distinguishable from the
present one. 25
Not having shown the above circumstances present in Neri, the
Court declared Skillpower, Inc. to be engaged in labor-only contracting and
was considered as a mere agent of the employer.
From the two aforementioned decisions, it may be inferred that it is
not enough to show substantial capitalization or investment in the form of
tools, equipment, machineries and work premises, among others, to be
considered as an independent contractor. In fact, jurisprudential holdings are
to the effect that in determining the existence of an independent contractor
relationship, several factors might be considered such as, but not necessarily
confined to, whether the contractor is carrying on an independent business;
the nature and extent of the work; the skill required; the term and duration of
the relationship; the right to assign the performance of specified pieces of
work; the control and supervision of the workers; the power of the employer
with respect to the hiring, firing and payment of the workers of the contractor;
the control of the premises; the duty to supply premises, tools, appliances,
materials and labor; and the mode, manner and terms of payment. 26
Given the above standards and the factual milieu of the case, the
Court has to agree with the conclusion of the Labor Arbiter that PMCI is
engaged in labor-only contracting.
First of all, PMCI does not have substantial capitalization or
investment in the form of tools, equipment, machineries, work premises,
among others, to qualify as an independent contractor. While it has an
authorized capital stock of P1,000,000.00, only P75,000.00 is actually paid-
in, which, to our mind, cannot be considered as substantial capitalization. In
the case of Neri, which was promulgated in 1993, BCC had a capital stock of
P1,000,000.00 which was fully subscribed and paid-for. Moreover, when
the Neri case was decided in 1993, the rate of exchange between the dollar
and the peso was only P27.30 to $1 27 while presently it is at P40.390 to
$1. 28 The Court takes judicial notice of the fact that in 1993, the economic
situation in the country was not as adverse as the present, as shown by the
devaluation of our peso. With the current economic atmosphere in the
country, the paid-in capitalization of PMCI amounting to P75,000.00 cannot
be considered as substantial capital and, as such, PMCI cannot qualify as an
independent contractor.
Second, PMCI did not carry on an independent business nor did it
undertake the performance of its contract according to its own manner and
method, free from the control and supervision of its principal, RFC. The
evidence at hand shows that the workers assigned by PMCI to RFC were
under the control and supervision of the latter. The Contract of Service itself
provides that RFC can require the workers assigned by PMCI to render
services even beyond the regular eight hour working day when deemed
necessary. 29 Furthermore, RFC undertook to assist PMCI in making sure
that the daily time records of its alleged employees faithfully reflect the actual
working hours. 30 With regard to petitioner, RFC admitted that it exercised
control and supervision over him. 31 These are telltale indications that PMCI
was not left alone to supervise and control its alleged employees.
Consequently, it can be concluded that PMCI was not an independent
contractor since it did not carry a distinct business free from the control and
supervision of RFC.
Third, PMCI was not engaged to perform a specific and special job
or service, which is one of the strong indicators that an entity is an
independent contractor as explained by the Court in the cases
of Neri and Fuji. As stated in the Contract of Service, the sole undertaking of
PMCI was to provide RFC with a temporary workforce able to carry out
whatever service may be required by it. 32 Such venture was complied with
by PMCI when the required personnel were actually assigned to RFC. Apart
from that, no other particular job, work or service was required from PMCI.
Obviously, with such an arrangement, PMCI merely acted as a recruitment
agency for RFC. Since the undertaking of PMCI did not involve the
performance of a specific job, but rather the supply of manpower only, PMCI
clearly conducted itself as labor-only contractor.
Lastly, in labor-only contracting, the employees recruited, supplied or
placed by the contractor perform activities which are directly related to the
main business of its principal. In this case, the work of petitioner as sales
representative is directly related to the business of RFC. Being in the
business of food manufacturing and sales, it is necessary for RFC to hire a
sales representative like petitioner to take charge of booking its sales orders
and collecting payments for such. Thus, the work of petitioner as sales
representative in RFC can only be categorized as clearly related to, and in
the pursuit of the latter's business. Logically, when petitioner was assigned
by PMCI to RFC, PMCI acted merely as a labor-only contractor.
Based on the foregoing, PMCI can only be classified as a labor-only
contractor and, as such, cannot be considered as the employer of petitioner.
However, even granting that PMCI is an independent contractor, as
RFC adamantly suggests, still, a finding of the same will not save the day for
RFC. A perusal of the Contract of Service entered into between RFC and
PMCI, reveals that petitioner is actually not included in the enumeration of
the workers to be assigned to RFC. The following are the workers
enumerated in the contract:
1. Merchandiser
2. Promo Girl
3. Factory Worker
4. Driver 33
Obviously, the above enumeration does not include the position of
petitioner as sales representative. This only shows that petitioner was never
intended to be a part of those to be contracted out. However, RFC insists
that despite the absence of his position in the enumeration, petitioner is
deemed included because this has been agreed upon between itself and
PMCI. Such contention deserves scant consideration. Had it really been the
intention of both parties to include the position of petitioner they should have
clearly indicated the same in the contract. However, the contract is totally
silent on this point which can only mean that petitioner was never really
intended to be covered by it. cdrep
Even if we use the "four-fold test" to ascertain whether RFC is the
true employer of petitioner the same result would be achieved. In determining
the existence of employer-employee relationship the following elements of
the "four-fold test" are generally considered, namely: (1) the selection and
engagement of the employee or the power to hire; (2) the payment of wages;
(3) the power to dismiss; and (4) the power to control the employee. 34 Of
these four, the "control test" is the most important. 35 A careful study of the
evidence at hand shows that RFC possesses the earmarks of being the
employer of petitioner.
With regard to the first element, the power to hire, RFC denies any
involvement in the recruitment and selection of petitioner and asserts that
petitioner did not present any proof that he was actually hired and employed
by RFC.
It should be pointed out that no particular form of proof is required to
prove the existence of an employer-employee relationship. 36 Any
competent and relevant evidence may show the relationship. 37 If only
documentary evidence would be required to demonstrate that relationship,
no scheming employer would ever be brought before the bar of justice. 38 In
the case at bar, petitioner presented the identification card issued to him on
26 May 1990 by RFC as proof that it was the latter who engaged his
services. To our mind, the ID card is enough proof that petitioner was
previously hired by RFC prior to his transfer as agency worker to PMCI. It
must be noted that the Employment Contract between petitioner and PMCI
was dated 1 July 1991. On the other hand, the ID card issued by RFC to
petitioner was dated 26 May 1990, or more than one year before the
Employment Contract was signed by petitioner in favor of PMCI. It makes
one wonder why, if petitioner was indeed recruited by PMCI as its own
employee on 1 July 1991, how come he had already been issued an ID card
by RFC a year earlier? While the Employment Contract indicates the word
"renewal," presumably an attempt to show that petitioner had previously
signed a similar contract with PMCI, no evidence of a prior contract entered
into between petitioner and PMCI was ever presented by RFC. In fact,
despite the demand made by the counsel of petitioner for the production of
the contract which purportedly shows that prior to 1 July 1991 petitioner was
already connected with PMCI, RFC never made a move to furnish the
counsel of petitioner a copy of the alleged original Employment Contract. The
only logical conclusion which may be derived from such inaction is that there
was no such contract and that the only Employment Contract entered into
between PMCI and petitioner was the 1 July 1991 contract and no other.
Since, as shown by the ID card, petitioner was already with RFC on 26 May
1990, prior to the time any Employment Contract was agreed upon between
PMCI and petitioner, it follows that it was RFC who actually hired and
engaged petitioner to be its employee.
With respect to the payment of wages, RFC disputes the argument
of petitioner that it paid his wages on the ground that petitioner did not submit
any evidence to prove that his salary was paid by it, or that he was issued
payslip by the company. On the contrary, RFC asserts that the
invoices 39 presented by it, show that it was PMCI who paid petitioner his
wages through its regular- monthly billings charged to RFC.
The Court takes judicial notice of the practice of employers who, in
order to evade the liabilities under the Labor Code, do not issue payslips
directly to their employees. 40 Under the current practice, a third person,
usually the purported contractor (service or manpower placement agency),
assumes the act of paying the wage. 41 For this reason, the lowly worker is
unable to show proof that it was directly paid by the true employer.
Nevertheless, for the workers, it is enough that they actually receive their
pay, oblivious of the need for payslips, unaware of its legal
implications. 42 Applying this principle to the case at bar, even though the
wages were coursed through PMCI, we note that the funds actually came
from the pockets of RFC. Thus, in the end, RFC is still the one who paid the
wages of petitioner albeit indirectly.
As to the third element, the power to dismiss, RFC avers that it was
PMCI who terminated the employment of petitioner. The facts on record,
however, disprove the allegation of RFC. First of all, the Contract of Service
gave RFC the right to terminate the workers assigned to it by PMCI without
the latter's approval. Quoted hereunder is the portion of the contract stating
the power of RFC to dismiss, to wit:
7. The First party ("RFC") reserves the right to
terminate the services of any worker found to be
unsatisfactory without the prior approval of the second
party ("PMCI"). 43
In furtherance of the above provision, RFC requested PMCI to
terminate petitioner from his employment with the company. In response to
the request of RFC, PMCI terminated petitioner from service. As found by the
Labor Arbiter, to which we agree, the dismissal of petitioner was indeed
made under the instruction of RFC to PMCI.
The fourth and most important requirement in ascertaining the
presence of employer-employee relationship is the power of control. The
power of control refers to the authority of the employer to control the
employee not only with regard to the result of work to be done but also to the
means and methods by which the work is to be accomplished. 44 It should
be borne in mind, that the "control test" calls merely for the existence of the
right to control the manner of doing the work, and not necessarily to the
actual exercise of the right. 45 In the case at bar, we need not belabor
ourselves in discussing whether the power of control exists. RFC already
admitted that it exercised control and supervision over petitioner. 46 RFC,
however, raises the defense that the power of control was jointly exercised
with PMCI. The Labor Arbiter, on the other hand , found that petitioner was
under the direct control and supervision of the personnel of RFC and not
PMCI. We are inclined to believe the findings of the Labor Arbiter which is
supported not only by the admission of RFC but also by the evidence on
record. Besides, to our mind, the admission of RFC that it exercised control
and supervision over petitioner, the same being a declaration against
interest, is sufficient enough to prove that the power of control truly exists.
We, therefore, hold that an employer-employee relationship exists
between petitioner and RFC.
Having determined the real employer of petitioner, we now proceed
to ascertain the legality of his dismissal from employment. prLL
Since petitioner, due to his length of service, already attained the
status of a regular employee, 47 he is entitled to the security of tenure
provided under the labor laws. Hence, he may only be validly terminated
from service upon compliance with the legal requisites for dismissal. Under
the Labor Code, the requirements for the lawful dismissal of an employee are
two-fold, the substantive and the procedural aspects. Not only must the
dismissal be for a valid or authorized cause, 48 the rudimentary requirements
of due process — notice and hearing 49 — must, likewise, be observed
before an employee may be dismissed. Without the concurrence of the two,
the termination would, in the eyes of the law, be illegal 50
As the employer, RFC has the burden of proving that the dismissal of
petitioner was for a cause allowed under the law and that petitioner was
afforded procedural due process. Sad to say, RFC failed to discharge this
burden. Indeed, RFC never pointed to any valid or authorized cause under
the Labor Code which allowed it to terminate the services of petitioner. Its
lone allegation that the dismissal was due to the expiration or completion of
contract is not even one of the grounds for termination allowed by law.
Neither did RFC show that petitioner was given ample opportunity to contest
the legality of his dismissal. In fact, no notice of such impending termination
was ever given him. Petitioner was, thus, surprised that he was already
terminated from employment without any inkling as to how and why it came
about. Petitioner was definitely denied due process. Having failed to
establish compliance with the requirements on termination of employment
under the Labor Code, the dismissal of petitioner is tainted with illegality.
An employee who has been illegally dismissed is entitled to
reinstatement to his former position without loss of seniority rights and to
payment of full backwages corresponding to the period from his illegal
dismissal up to actual reinstatement. 51 Petitioner is entitled to no less.
WHEREFORE, the petition is GRANTED., The decision of the
NLRC, dated 21 June 1996, as well as its resolution, promulgated on 20
August 1996, are ANNULLED and SET ASIDE. The decision of the Labor
Arbiter, rendered on 15 June 1994, is hereby REINSTATED and AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno, Pardo  and Ynares-Santiago, JJ., concur.
 

[G.R. No. 164257. July 5, 2010.]
SAN MIGUEL CORPORATION, petitioner, vs. VICENTE
B. SEMILLANO, NELSON MONDEJAR, JOVITO
REMADA, ALILGILAN MULTI-PURPOSE COOP
(AMPCO) and MERLYN V. POLIDARIO,  respondents.
1. Labor Law;  Appeals;  Findings of fact made by the Labor Arbiter and the
National Labor Relations Commission (NLRC), as the specialized agencies
presumed to have the expertise on matters within their respective fields, are
accorded much respect and even finality, when supported by ample
evidence, and the fact that the NLRC, in its subsequent resolution, reversed
its original decision does not render the foregoing inapplicable where the
resolution itself is not supported by substantial evidence.-
—The findings of fact made by the Labor Arbiter and the NLRC, as the
specialized agencies presumed to have the expertise on matters within their
respective fields, are accorded much respect and even finality, when
supported by ample evidence and affirmed by the CA. The fact that the
NLRC, in its subsequent resolution, reversed its original decision does not
render the foregoing inapplicable where the resolution itself is not supported
by substantial evidence
2. Same;  Same;  Same;  In “labor-only” contracting, the law makes the
principal responsible over the employees of the “labor-only” contractor as if
the principal itself directly hired the employees.-
—Petitioner claims that the present case is outside the jurisdiction of the
labor tribunals because respondent Vicente Semillano is a member of
AMPCO, not SMC. Precisely, he has joined the others in filing this complaint
because it is his position that petitioner SMC is his true employer and liable
for all his claims under the Labor Code. Thus, petitioner SMC, as principal
employer, is solidarily liable with AMPCO, the labor-only contractor, for all
the rightful claims of respondents. Under this set-up, AMPCO, as the “labor-
only” contractor, is deemed an agent of the principal (SMC). The law makes
the principal responsible over the employees of the “labor-only” contractor as
if the principal itself directly hired the employees.
3. Same;  Same;  Same;  The work of segregating and cleaning bottles is
unarguably an important part of the manufacturing and marketing process of
an entity primarily engaged in manufacturing and marketing of beer
products.-
—Petitioner also argues that among the permissible contracting
arrangements include “work or services not directly related or not integral to
the main business or operation of the principal including… work related to
manufacturing processes of manufacturing establishments.” The Court is not
persuaded. The evidence is clear that respondents performed activities
which were directly related to petitioner’s main line of business. Petitioner is
primarily engaged in manufacturing and marketing of beer products,and
respondents’ work of segregating and cleaning bottles is unarguably an
important part of its manufacturing and marketing process.
4. Same;  Same;  Same;  The language of a contract is neither determinative
nor conclusive of the relationship between the parties-
—the principal and the contractor cannot dictate, by a declaration in a
contract, the character of the latter’s business, that is, whether as labor-only
contractor, or job contractor.—Despite the fact that the service contracts
contain stipulations which are earmarks of independent contractorship, they
do not make it legally so. The language of a contract is neither determinative
nor conclusive of the relationship between the parties. Petitioner SMC and
AMPCO cannot dictate, by a declaration in a contract, the character of
AMPCO’s business, that is, whether as labor-only contractor, or job
contractor. AMPCO’s character should be measured in terms of, and
determined by, the criteria set by statute. At a closer look, AMPCO’s actual
status and participation regarding respondents’ employment clearly belie the
contents of the written service contract. Petitioner cannot rely either on
AMPCO’s Certificate of Registration as an Independent Contractor issued by
the proper Regional Office of the DOLE to prove its claim. It is not conclusive
evidence of such status. The fact of registration simply prevents the legal
presumption of being a mere labor-only contractor from arising. In
distinguishing between permissible job contracting and prohibited labor-only
contracting, the totality of the facts and the surrounding circumstances of the
case are to be considered.
5. Same;  Labor-only Contracting;  Independent Contractorship; The test
to determine the existence of independent contractorship is whether or not
the one claiming to be an independent contractor has contracted to do the
work according to his own methods and without being subject to the control
of the employer, except only as to the results of the work.-
—The test to determine the existence of independent contractorship is
whether or not the one claiming to be an independent contractor has
contracted to do the work according to his own methods and without being
subject to the control of the employer, except only as to the results of the
work. The existence of an independent and permissible contractor
relationship is generally established by the following criteria: whether or not
the contractor is carrying on an independent business; the nature and extent
of the work; the skill required; the term and duration of the relationship; the
right to assign the performance of a specified piece of work; the control and
supervision of the work to another; the employer’s power with respect to the
hiring, firing and payment of the contractor’s workers; the control of the
premises; the duty to supply the premises, tools, appliances, materials, and
labor; and the mode, manner and terms of payment.
DECISION
MENDOZA, J  p:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing (i) the February 19, 2004 Decision 1 of the Court
of Appeals in CA-G.R. SP. No. 75209 which reversed and set aside the
February 28, 2002 and September 27, 2002 Resolutions of the National
Labor Relations Commission in NLRC Case No. V-000588-98; and (ii) its
May 28, 2004 Resolution 2 denying petitioner's motion for the
reconsideration thereof.
The facts of the case, as found by the Court of Appeals, 3 are as
follows:
". . . It appears that AMPCO hired the services of
Vicente et al., [Vicente Semillano, Nelson Mondejar, Jovito
Remada and Alex Hawod, 4 respondents herein] on different
dates in December [of 1991 and] 1994. All of them were
assigned to work in SMC's Bottling Plant situated at Brgy.
Granada Sta. Fe, Bacolod City, in order to perform the following
tasks: segregating bottles, removing dirt therefrom, filing them in
designated places, loading and unloading the bottles to and from
the delivery trucks, and performing other tasks as may be
ordered by SMC's officers. [They] were required to work inside
the premises of SMC using [SMC's] equipment. [They] rendered
service with SMC for more than 6 months.
Subsequently, SMC entered into a Contract of
Services 5 with AMPCO designating the latter as the employer of
Vicente, et al., As a result, Vicente et al., failed to claim the rights
and benefits ordinarily accorded a regular employee of SMC. In
fact, they were not paid their 13th month pay. On June 6, 1995,
they were not allowed to enter the premises of SMC. The project
manager of AMPCO, Merlyn Polidario, told them to wait for
further instructions from the SMC's supervisor. Vicente et al.,
waited for one month, unfortunately, they never heard a word
from SMC. TCcIaA
Consequently, Vicente et al., as complainants, filed on
July 17, 1995 a COMPLAINT FOR ILLEGAL DISMISSAL with the
Labor Arbiter against AMPCO, Merlyn V. Polidario, SMC and
Rufino I. Yatar [SMC Plant Manager], as respondents. . . .
Complainants alleged that they were fillers of SMC Bottling
Plant . . . assigned to perform activities necessary and desirable
in the usual business of SMC. . . . They claim that they were
under the control and supervision of SMC personnel and have
worked for more than 6 months in the company. As such, they
assert that they are regular employees of SMC.
However, SMC utilized AMPCO making it appear that
the latter was their employer, so that SMC may evade the
responsibility of paying the benefits due them under the law.
Finally, complainants contend that AMPCO and SMC failed to
give their 13th month pay and that they were prevented from
entering the SMC's premises. Hence, complainants contend that
they were illegally dismissed from service.
On the other hand, respondent SMC raised the defense
that it is not the employer of the complainants. According to
SMC, AMPCO is their employer because the latter is an
independent contractor . . . . Also SMC alleged that it was
AMPCO that directly paid their salaries and remitted their
contributions to the SSS. Finally, SMC assails the jurisdiction of
the Labor Arbiter contending that the instant dispute is intra-
cooperative in nature falling within the jurisdiction of the
Arbitration Committee of the Cooperative Development
Authority."
On April 30, 1998, the Labor Arbiter (LA) rendered his
decision. 6 The dispositive portion of which reads:
Wherefore, premises considered, judgment is
hereby rendered declaring herein complainants as regular
employees of San Miguel Corporation and the latter is
ordered:
1. To reinstate complainants to their previous or
equivalent positions without loss of
seniority rights with payment of full
backwages from the time of their illegal
dismissal up to the time of their actual
reinstatement; and
2. To pay complainant's counsel attorney's fees
10% of the total award or P36,625.76.
 Per our computation complainants Vicente
Semillano, Nelson Mondejar and Jovito Remada are
entitled to the amount of P122,085.88 each as full
backwages covering the period June 6, 1995 up to April
30, 1998.
SO ORDERED. 7 CHDAEc
Accordingly, respondents filed a motion for partial execution of
the decision of the Labor Arbiter praying for their immediate
reinstatement. 8 Petitioner San Miguel Corporation (SMC) filed its
Opposition to the motion. 9 The LA, however, rendered no ruling
thereon. 10
Petitioner appealed the LA Decision to the NLRC. Initially, the
NLRC Fourth Division affirmed with modifications the findings of the LA
as follows:
WHEREFORE, premises considered, the appeals of
respondents AMPCO and SMC are denied for lack of merit and
the decision appealed from is affirmed with a modification in the
following:
a. Respondent SMC to pay complainants their
backwages from June 6, 1995 up to and until
July 22, 1998;
b. Respondent SMC to pay complainants their accrued
salaries and allowances from July 23, 1998 up
to the present; and
c. Respondent SMC to pay complainants ten percent
(10%) of the total award as attorney's fees.
Complainants, to restate, are regular employees of
San Miguel Corporation and the latter is ordered to
reinstate complainants to their former position as
pilers/segregators.
Petitioner SMC moved for a reconsideration of the foregoing
decision. In a Resolution dated February 28, 2002, the NLRC acted on
the motion and reversed its earlier ruling. It absolved petitioner from
liability and instead held AMPCO, as employer of respondents, liable to
pay for respondents' backwages, accrued salaries, allowances, and
attorney's fees. In holding that AMPCO was an independent contractor,
NLRC was of the view that the law only required substantial
capital or  investment. Since AMPCO had "substantial capital of nearly
one (1) million" then it qualified as an independent contractor. The NLRC
added that even under the control test, AMPCO would be the real
employer of the respondents, since it had assumed the entire charge and
control of respondents' services. Hence, an employer-employee
relationship existed between AMPCO and the respondents.
Respondents timely filed their motion for reconsideration of the
NLRC resolution but it was denied. 11
Feeling aggrieved over the turnaround by the NLRC, the
respondents filed a petition for review on certiorari under Rule 65 with the
Court of Appeals (CA), which favorably acted on it. AcICHD
In overturning the commission's ruling, the Court of Appeals
ironically applied the same control test that the NLRC used to resolve the
issue of who the actual employer was. The CA, however, found that
petitioner SMC wielded (i) the power of control over respondent, as SMC
personnel supervised respondents' performance of loading and
unloading of beer bottles, and (ii) the power of dismissal, as respondents
were refused entry by SMC to its premises and were instructed by the
AMPCO manager "to wait for further instructions from the SMC's
supervisor." The CA added that AMPCO was a labor-only contractor
since "a capital of nearly one million pesos" was insufficient for it to
qualify as an independent contractor. Thus, the decretal portion reads:
WHEREFORE, premises considered, the instant
petition is GRANTED. The assailed Resolutions dated
February 28, 2002 and September 27, 2002 both issued
by the public respondent National Labor Relations
Commission in the case docketed as RAB CASE NO. 06-
07-10298-95 are hereby SET ASIDE and a new one
entered reinstating its original Decision dated June 30,
2000, which affirmed with modification the decision of the
Labor Arbiter dated April 30, 1998. No pronouncement as
to costs.
SO ORDERED.
SMC filed a motion for reconsideration but it was denied by the
CA in its May 28, 2004 Resolution. 12
Hence, this petition for review on certiorari.
Petitioner SMC argues that the CA wrongly assumed that it
exercised power of control over the respondents just because they
performed their work within SMC's premises. In advocacy of its claim that
AMPCO is an independent contractor, petitioner relies on the provisions
of the service contract between petitioner and AMPCO, wherein the latter
undertook to provide the materials, tools and equipment to accomplish
the services contracted out by petitioner. The same contract provides
that AMPCO shall have exclusive discretion in the selection, engagement
and discharge of its employees/personnel or otherwise in the direction
and control thereof. Petitioner also adds that AMPCO determines the
wages of its employees/personnel who shall be within its full control.
Petitioner further argues that respondents' action is essentially
one for "regularization" (as employees of SMC) which is nowhere
recognized or allowed by law. Lastly, petitioner contends that the case
involves an intra-cooperative dispute, which is within the original and
exclusive jurisdiction of the Arbitration Committee of the Cooperative
and, thereafter, the Cooperative Development Authority.
In its Comment, 13 respondent AMPCO essentially advanced
the same arguments in support of its claim as a legitimate job
contractor. DAEcIS
The only issue that needs to be resolved is whether or not
AMPCO is a legitimate job contractor. A claim that an action for
regularization has no legal basis and is violative of petitioner's
constitutional and statutory rights is, therefore, dependent upon the
resolution of the issue posed above.
The petition fails.
Generally, the findings of fact made by the Labor Arbiter and the
NLRC, as the specialized agencies presumed to have the expertise on
matters within their respective fields, are accorded much respect and
even finality, when supported by ample evidence 14 and affirmed by the
CA. The fact that the NLRC, in its subsequent resolution, reversed its
original decision does not render the foregoing inapplicable where the
resolution itself is not supported by substantial evidence.   provides that:
Department of Labor and Employment (DOLE) Department
Order No. 10, Series of 1997, defines "job contracting" and "labor-only
contracting" as follows:
Sec. 8. Job contracting. — There is job contracting
permissible under the Code if the following conditions are met:
(1) The contractor carries on an independent business
and undertakes the contract work on his own
account under his own responsibility according
to his own manner and method, free from the
control and direction of his employer or
principal in all matters connected with the
performance of the work except as to the
results thereof; and
(2) The contractor has substantial capital or investment
in the form of tools, equipment, machineries,
work premises, and other materials which are
necessary in the conduct of his business.
Sec. 9. Labor-only contracting. — (a) Any person who
undertakes to supply workers to an employer shall be deemed to
be engaged in labor-only contracting where such person: TCSEcI
(1) Does not have substantial capital or investment in
the form of tools, equipment, machineries,
work premises and other materials; and
(2) The workers recruited and placed by such persons
are performing activities which are directly
related to the principal business or operations
of the employer in which workers are habitually
employed.
(b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the employer
who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
(c) For cases not falling under this Article, the Secretary
of Labor shall determine through appropriate orders whether or
not the contracting out of labor is permissible in the light of the
circumstances of each case and after considering the operating
needs of the employer and the rights of the workers involved. In
such case, he may prescribe conditions and restrictions to insure
the protection and welfare of the workers.
Section 5 of Department Order No. 18-02 (Series of 2002) of
the Rules Implementing Articles 106 to 109 of the Labor Code further
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries
and work premises, actually and directly used by the
contractor or subcontractor in the performance or
completion of the job work or service contracted
out. (emphasis supplied)
The "right to control" shall refer to the right
reserved to the person for whom the services of the
contractual workers are performed, to determine not only
the end to be achieved, but also the manner and means to
be used in reaching that end.
The test to determine the existence of independent
contractorship is whether or not the one claiming to be an independent
contractor has contracted to do the work according to his own methods
and without being subject to the control of the employer, except only as
to the results of the work. 15
 The existence of an independent and permissible contractor
relationship is generally established by the following criteria: whether or
not the contractor is carrying on an independent business; the nature and
extent of the work; the skill required; the term and duration of the
relationship; the right to assign the performance of a specified piece of
work; the control and supervision of the work to another; the employer's
power with respect to the hiring, firing and payment of the contractor's
workers; the control of the premises; the duty to supply the premises,
tools, appliances, materials, and labor; and the mode, manner and terms
of payment. 16 cCSTHA
Although there may be indications of an independent contractor
arrangement between petitioner and AMPCO, the most determinant of
factors exists which indicate otherwise.
Petitioner's averment that AMPCO had total assets amounting to
P932,599.22 and income of P2,777,603.46 in 1994 was squarely
debunked by the LA. Thus:
Furthermore, there are no pieces of evidence that
AMPCO has substantial capital or investment. An examination its
"Statement of Income and Changes in Undivided Savings" show
that its income for the year 1994 was P2,777,603.46 while its
operating expenses for said year is P2,718,315.33 or a net
income of P59,288.13 for the year 1994; that its cash on hand for
1994 is P22,154.80.
In fact, the NLRC in its original decision likewise stated as follows:
In contrast, the (sic) AMPCO's main business activity is
trading, maintaining a store catering to members and the public.
Its job contracting with SMC is only a minor activity or sideline.
The component of AMPCO's substantial capital are [sic] in fact
invested and used in the trading business. This is palpably
shown in the sizable amount of its accounts receivables
amounting to more than P.6M out of its members' capital of only
P.47M in 1994.
Neither did petitioner prove that AMPCO had substantial
equipment, tools, machineries, and supplies actually and directly used by
it in the performance or completion of the segregation and piling job. In
fact, as correctly pointed out by the NLRC in its original decision, there is
nothing in AMPCO's list 17 of fixed assets, machineries, tools, and
equipment which it could have used, actually and directly, in the
performance or completion of its contracted job, work or service with
petitioner. For said reason, there can be no other logical conclusion but
that the tools and equipment utilized by respondents are owned by
petitioner SMC. It is likewise noteworthy that neither petitioner nor
AMPCO has shown that the latter had clients other than petitioner.
Therefore, AMPCO has no independent business.
In connection therewith, DOLE Department Order No. 10 also
states that an independent contractor carries on an independent
business and undertakes the contract work on his own account, under
his own responsibility, according to his own manner and method, and
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. This embodies what has long been jurisprudentially
recognized as the control test 18 to determine the existence of employer-
employee relationship.
In the case at bench, petitioner faults the CA for holding that the
respondents were under the control of petitioner whenever they
performed the task of loading in the delivery trucks and unloading from
them. It, however, fails to show how AMPCO took "entire charge, control
and supervision of the work and service agreed upon." AMPCO's
Comment on the Petition is likewise utterly silent on this point. Notably,
both petitioner and AMPCO chose to ignore the uniform finding of the LA,
NLRC (in its original decision) and the CA that one of the assigned jobs
of respondents was to "perform other acts as may be ordered by SMC's
officers." Significantly, AMPCO, opted not to challenge the original
decision of the NLRC that found it a mere labor-only contractor. SCcHIE
Moreover, the Court is not convinced that AMPCO wielded
"exclusive discretion in the discharge" 19 of respondents. As the CA
correctly pointed out, Merlyn Polidario, AMPCO's project manager, even
told respondents to "wait for further instructions from the SMC's
supervisor" after they were prevented from entering petitioner SMC's
premises. Based on the foregoing, no other logical conclusion can be
reached than that it was petitioner, not AMPCO, who wielded power of
control.
Despite the fact that the service contracts 20 contain stipulations
which are earmarks of independent contractorship, they do not make it
legally so. The language of a contract is neither determinative nor
conclusive of the relationship between the parties. Petitioner SMC and
AMPCO cannot dictate, by a declaration in a contract, the character of
AMPCO's business, that is, whether as labor-only contractor, or job
contractor. AMPCO's character should be measured in terms of, and
determined by, the criteria set by statute. 21 At a closer look, AMPCO's
actual status and participation regarding respondents' employment
clearly belie the contents of the written service contract.
Petitioner cannot rely either on AMPCO's Certificate of
Registration as an Independent Contractor issued by the proper Regional
Office of the DOLE to prove its claim. It is not conclusive evidence of
such status. The fact of registration simply prevents the legal
presumption of being a mere labor-only contractor from arising. 22 In
distinguishing between permissible job contracting and prohibited labor-
only contracting, the totality of the facts and the surrounding
circumstances of the case are to be considered. 23
Petitioner also argues that among the permissible contracting
arrangements include "work or services not directly related or not integral
to the main business or operation of the principal including . . . work
related to manufacturing processes of manufacturing
establishments." 24 The Court is not persuaded. The evidence is clear
that respondents performed activities which were directly related to
petitioner's main line of business. Petitioner is primarily engaged in
manufacturing and marketing of beer products, and respondents' work of
segregating and cleaning bottles is unarguably an important part of its
manufacturing and marketing process.
Lastly, petitioner claims that the present case is outside the
jurisdiction of the labor tribunals because respondent Vicente Semillano
is a member of AMPCO, not SMC. Precisely, he has joined the others in
filing this complaint because it is his position that petitioner SMC is his
true employer and liable for all his claims under the Labor
Code. cCaSHA
Thus, petitioner SMC, as principal employer, is solidarily liable
with AMPCO, the labor-only contractor, for all the rightful claims of
respondents. Under this set-up, AMPCO, as the "labor-only" contractor,
is deemed an agent of the principal (SMC). The law makes the principal
responsible over the employees of the "labor-only" contractor as if the
principal itself directly hired the employees. 25   the term is defined, for purposes of the petitioner's cause of action
WHEREFORE, the petition is DENIED. The February 19, 2004
Decision of the Court of Appeals, reversing the decision of the National
Labor Relations Commission and reinstating the decision of the Labor
Arbiter, is AFFIRMED.
SO ORDERED.
[G.R. Nos. 79004-08. October 4, 1991.]
FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO
IGOT AND 6 OTHERS, ROY MAGALLANES AND 4
OTHERS, CLAUDIO BONGO, EDUARDO ANDALES
and 4 OTHERS, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION (3rd DIVISION), GENERAL
MILLING CORPORATION and/or FELICIANO
LUPO,  respondents.
Public Attorney's Office for petitioners.
Joseph M. Baduel & Steve R. Siclot for private respondents.
SYLLABUS
1. LABOR LAW; INDIRECT EMPLOYER; RESPONDENT
COMPANY IN CASE AT BAR CANNOT BE DEEMED AS SUCH. — It is
strongly urged by the majority that the phrase "not being an employer"
found in said Article 107 be given a circumspect appraisal. To my mind,
there is no other interpretation of this provision of the Code than that
an indirect employer, to be categorized as such, must not be an
EMPLOYER as this term is defined under the Code. Article 97 of the
same Title of the Labor Code defines an EMPLOYER as — "ART. 97.
Definition. — As used in this Title: "a) . . . "b) 'Employer' includes any
person acting directly or indirectly in the interest of an employer in
relation to an employee and shall include the Government and all its
branches, subdivision and instrumentalities, all government-owned or
controlled corporations and institutions, as well as non-profit private
institutions, or organizations." From the foregoing basic premises, it is my
submission that the company (General Milling Corporation) is an
employer in every sense of the word. It engages in the primary enterprise
of manufacturing flour and feeds, it definitely employs employees and
workers in its plant and outlets to work in various capacities. Therefore,
the company cannot, in any way, be considered an indirect employer, as
against it.
2. ID.; ID.; PURPOSE OF THE QUALIFICATION CONTAINED
IN ARTICLE 107 OF THE LABOR CODE. — To hold as the majority
does, that Article 107 does apply in this case, would, in my view, render
useless the phrase "not being an employer" contained therein. Evidently,
the framers of the Labor Code had a purpose in mind in providing for
such qualification. Such a qualification, as I see it, gives protection to
those workers hired or recruited by a contractor to work on some job  for
a person who is not himself engaged in any enterprise. An example
easily comes to mind: a person who wishes to have a residential house
built. He engages an architect or engineer to undertake the project who,
in turn, hires laborers, masons and carpenters. Should the architect or
engineer renege on his obligations to the workers he shall have
recruited, to whom will the latter seek relief? By mandate of Article 107,
above-quoted, the owner of the house, who is not himself an employer
as defined by law, shall be held accountable. This is where, in my view,
Article 107 properly applies.
3. ID.; CONTRACTOR OF SUBCONTRACTOR; SOLIDARY
LIABILITY OF COMPANY MUST BE PREDICATED ON THE EXPRESS
DECLARATION OF PAR. 2, ART. 106, OF THE LABOR CODE. — In the
 present case, however, the company's liability to the petitioners properly
comes under Article 106, Chapter III, Title II, Book III of the Code, which,
in its entirety, provides: "In the event that the contractor or subcontractor
fails to pay the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work performed
under the contract, in the same manner and extent that he is liable to
employees directly employed by him.
DECISION
MELENCIO-HERRERA, J p:
The liability of an employer in job contracting, vis-a-vis his
contractor's employees, is the sole issue brought to the fore in this labor
dispute.
This Petition for Certiorari seeks to set aside the Resolution,
dated 27 February 1987, of public respondent National Labor Relations
Commission (NLRC), Third Division, which reversed the Resolution of its
First Division, dated 27 December 1985, and absolved private
respondent General Milling Corporation (GMC) from any and all liability
to petitioners. Cdpr
Sometime in 1983, private respondent Feliciano LUPO, a
building contractor, entered into a contract with GMC, a domestic
corporation engaged in flour and feeds manufacturing, for the
construction of an annex building inside the latter's plant in Cebu City. In
connection with the aforesaid contract, LUPO hired herein petitioners
either as carpenters, masons or laborers.
Subsequently, LUPO terminated petitioners' services, on
different dates. As a result, petitioners filed Complaints against LUPO
and GMC before the NLRC Regional Arbitration Branch No. VII, Cebu
City, for unpaid wages, COLA differentials, bonus and overtime pay.
In a Decision, dated 21 November 1984, the Executive Labor
Arbiter, Branch VII, found LUPO and GMC jointly and severally liable to
petitioners, premised on Article 109 of the Labor Code, infra, and ordered
them to pay the aggregate amount of P95,382.92. Elevated on appeal on
14 December 1984, the NLRC (First Division) denied the same for lack of
merit in a Resolution, dated 27 December 1985.
Upon Motion for Reconsideration, filed on 27 February 1986, the
case was reassigned to the Third Division. In a Resolution of 27
February 1987, that Division absolved GMC from any liability. It opined
that petitioners were only hired by LUPO as workers in his construction
contract with GMC and were never meant to be employed by the latter.
Petitioners now assail that judgment in this Petition for Certiorari.
Petitioners contend that GMC is jointly and severally liable with
LUPO for the latter's obligations to them. They seek recovery from GMC
based on Article 106 of the Labor Code, infra, which holds the employer
jointly and severally liable with his contractor for unpaid wages of
employees of the latter.
In his "Manifestation in lieu of Comment," the Solicitor General
recognizes the solidary liability of GMC and LUPO but bases recovery on
Article 108 of the Labor Code, infra, contending that inasmuch as GMC
failed to require LUPO a bond to answer for the latter's obligations to his
employees, as required by said provision, GMC should, correspondingly,
be deemed solidarily liable.
In their respective Comments, both GMC and the NLRC maintain
that Article 106 finds no application in the instant case because it is
limited to situations where the work being performed by the contractor's
employees are directly related to the principal business of the employer.
The NLRC further opines that Article 109 on "Solidary Liability" finds no
application either because GMC was neither petitioners' employer nor
indirect employer.
Upon the facts and circumstances, we uphold the solidary
liability of GMC and LUPO for the latter's liabilities in favor of employees
whom he had earlier employed and dismissed. LLphil
Recovery, however, should not be based on Article 106 of the
Labor Code. This provision treats specifically of "labor-only" contracting,
which is not the set-up between GMC and LUPO.
Article 106 provides:
"Art. 106. Contractor or subcontractor. — Whenever an
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
"In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees
directly employed by him.
 xxx xxx xxx
"There is "labor-only" contracting where the person
supplying workers to an employer does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons are
performing activities which are directly related to the
principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter
were directly employed by him".
In other words, a person is deemed to be engaged in "labor-only"
contracting where (1) the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others; and (2) the workers recruited
and placed by such person are performing activities which are directly
related to the principal business of such employer (See Section 9, Rule
VIII, Book III of the Omnibus Rules Implementing the Labor Code;
emphasis ours).
Since the construction of an annex building inside the company
plant has no relation whatsoever with the employer's business of flour
and feeds manufacturing, "labor-only" contracting does not exist. Article
106 is thus inapplicable.
Instead, it is "job contracting," covered by Article 107, which is
involved, reading:
"Art. 107. Indirect Employer. — The provisions of the
immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not
being an employer, contracts with an independent
contractor for the performance of any work, task, job or
project." (Emphasis supplied).
Specifically, there is "job contracting" where (1) the contractor
carries on an independent business and undertakes the contract work on
his own account under his own responsibility according to his own
manner and method, free from the control and direction of his employer
or principal in all matters connected with the performance of the work
except as to the results thereof; and (2) the contractor has substantial
capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his
business. It may be that LUPO subsequently ran out of capital and was
unable to satisfy the award to petitioners. That was an after-the-fact
development, however, and does not detract from his status as an
independent contractor.
Based on the foregoing, GMC qualifies as an "indirect employer."
It entered into a contract with an independent contractor, LUPO, for the
construction of an annex building, a work, task, job or project not directly
related to GMC's business of flour and feeds manufacturing. Being an
"indirect employer," GMC is solidarily liable with LUPO for any violation
of the Labor Code pursuant to Article 109 thereof, reading:
"Art. 109. Solidary Liability. — The provisions of existing
laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any
provision of this Code. For purposes of determining the
extent of their civil liability under this Chapter, they shall be
considered as direct employers."
The provision of existing law referred to is Article 1728 of the
Civil Code, which states, among others, that "the contractor is liable for
all the claims of laborers and others employed by him . . ."
The foregoing interpretation finds a precedent in the case
of Deferia v. NLRC (G.R. No. 78713, 27 February 1991) per Sarmiento,
J., where Articles 107 and 109 were applied as the statutory basis for the
joint and several liability of the employer with his contractor, in addition to
Article 106, since the situation in that case was clearly one of "labor-only"
contracting.
The NLRC submission that Article 107 is not applicable in the
instant case for the reason that the coverage thereof is limited to one
"not an employer" whereas GMC is such an employer as defined
in Article 97 (b) of the Labor Code, 1 is not well-taken. Under the peculiar
set-up herein, GMC is, in fact, "not an employer" (in the sense of not
being a direct employer) as understood in Article 106 of the Labor Code,
but qualifies as an "indirect employer" under Article 107 of said Code.
The distinction between Articles 106 and 107 lies in the fact that
Article 106 deals with "labor-only" contracting. Here, by operation of law,
the contractor is merely considered as an agent of the employer, who is
deemed "responsible to the workers to the same extent as if the latter
were directly employed by him." On the other hand, Article 107 deals
with "  job contracting." In the latter situation, while the contractor himself
is the direct employer of the employees, the employer is deemed, by
operation of law, as an indirect employer.
In other words, the phrase "not an employer" found in Article 107
must be read in conjunction with Article 106. A contrary interpretation
would render the provisions of Article 107 meaningless considering that
everytime an employer engages a contractor, the latter is always acting
 in the interest of the former, whether directly or indirectly, in relation to
his employees.
It should be recalled that a finding that a contractor is a "labor-
only" contractor is equivalent to declaring that there is an employer-
employee relationship between the owner of the project and the
employees of the "labor-only" contractor (Associated Anglo-American
Tobacco Corp. v. Clave, G.R. No. 50915, 30 August 1990, 189 SCRA
127; Industrial Timber Corp. v. NLRC, G.R. No. 83616, 20 January 1989,
169 SCRA 341). This is evidently because, as heretofore stated, the
"labor-only" contractor is considered as a mere agent of an employer. In
contrast, in "job contracting," no employer-employee relationship exists
between the owner and the employees of his contractor. The owner of
the project is not the direct employer but merely an indirect employer, by
operation of law, of his contractor's employees. prcd
As an indirect employer, and for purposes of determining the
extent of its civil liability, GMC is deemed a "direct employer" of his
contractor's employees pursuant to the last sentence of Article 109 of the
Labor Code. As a consequence, GMC can not escape its joint and
solidary liability to petitioners.
Further, Article 108 of the Labor Code requires the posting of a
bond to answer for wages that a contractor fails to pay, thus:
"Article 108. Posting of Bond. — An employer or indirect
employer may require the contractor or subcontractor to
furnish a bond equal to the cost of labor under contract, on
condition that the bond will answer for the wages due the
employees should the contractor or subcontractor, as the
case may be, fails to pay the same."
Having failed to require LUPO to post such a bond, GMC must answer
for whatever liabilities LUPO may have incurred to his employees. This is
without prejudice to its seeking reimbursement from LUPO for whatever
amount it will have to pay petitioners.
WHEREFORE, the Petition for Certiorari is GRANTED. The
Resolution of respondent NLRC, Third Division, dated 27 February 1987,
is hereby SET ASIDE, and the Decision of the Labor Arbiter, dated 21
November 1984, is hereby REINSTATED.
SO ORDERED.
Paras, Sarmiento and Regalado, JJ., concur.
Separate Opinion
PADILLA, J., concurring and dissenting:
The present petition seeks to have General Milling Corporation
(the Company) held liable for the unpaid wages of the petitioners in
solidum with the contractor (Lupo) who recruited the petitioners' services.
This majority finds for the petitioners in the total adjudged sum of
P95,382.92, a conclusion with which I am in complete accord. But I am
not quite comfortable, and therefore disagree, with the legal basis on
which the company's liability is determined.
As determined by the majority, such liability of the company is
called for by Article 107, Chapter III, Title II, Book III of the Labor Code,
which is as follows:
"ART. 107. Indirect employer. — The provisions of the
immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not
being an employer, contracts with an independent
contractor for the performance of any work task, job, or
project." (emphasis supplied)
It is strongly urged by the majority that the phrase "not being an
employer" found in said Article 107 be given a circumspect appraisal. To
my mind, there is no other interpretation of this provision of the Code
than that an indirect employer, to be categorized as such, must not be an
EMPLOYER as this term is defined under the Code. Article 97 of the
same Title of the Labor Code defines an EMPLOYER as —
"ART. 97. Definition. — As used in this Title:
"a) . . .
"b) 'Employer' includes any person acting directly or
indirectly in the interest of an employer in relation to an
employee and shall include the Government and all its
branches, subdivision and instrumentalities, all
government-owned or controlled corporations and
institutions, as well as non-profit private institutions, or
organizations."
. . ." (emphasis supplied)
From the foregoing basic premises, it is my submission that the
company (General Milling Corporation) is an employer in every sense of
the word. It engages in the primary enterprise of manufacturing flour and
feeds, it definitely employs employees and workers in its plant and
outlets to work in various capacities. Therefore, the company cannot, in
any way, be considered an indirect employer, as the term is defined, for
purposes of the petitioner's cause of action against it.
To hold as the majority does, that Article 107 does apply in this
case, would, in my view, render useless the phrase "not being an
employer" contained therein. Evidently, the framers of the Labor Code
had a purpose in mind in providing for such qualification. Such a
qualification, as I see it, gives protection to those workers hired or
recruited by a contractor to work on some job  for a person who is not
himself engaged in any enterprise. An example easily comes to mind: a
person who wishes to have a residential house built. He engages an
architect or engineer to undertake the project who, in turn, hires laborers,
masons and carpenters. Should the architect or engineer renege on his
obligations to the workers he shall have recruited, to whom will the latter
seek relief? By mandate of Article 107, above-quoted, the owner of the
house, who is not himself an employer as defined by law, shall be held
accountable. This is where, in my view, Article 107 properly applies.
In the present case, however, the company's liability to the
petitioners properly comes under Article 106, Chapter III, Title II, Book III
of the Code, which, in its entirety, provides:
"ART. 106. Contractor or subcontractor. — Whenever am
employer enters into a contract with another person for the
performance of the former's work, the employees of the
contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
"In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees
directly employed by him.
"The Secretary of Labor may, by appropriate regulations,
restrict or prohibit the contracting out of labor to protect the
rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job
contracting as well as differentiations within these types of
contracting and determine who among the parties involved
shall be considered the employer for purposes of this
Code, to prevent any violation or circumvention of any
provision of this Code.
"There is 'labor-only' contracting where the person
supplying workers to an employer does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons are
performing activities which are directly related to the
principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter
were directly employed by him."
It appears abundantly clear that the juridical relationship
envisioned in Article 106 involves an employer, as defined by the Code.
It thus applies to the juridical situation involved in this case, where the
actors are General Milling Corporation (as the employer), Lupo (as the
contractor) and the petitioners (as the employees or workers). Article
106, upon careful examination, deals with three (3) situations in the
juridical relationship between employer-contractor-employee. It does not
deal solely with "labor-only" contracting.
The first situation in Article 106 is where the employer (project
owner) enters into a contract with a contractor for the performance of
some job or work; the employees recruited by such contractor shall be
paid, according to Article 106, first paragraph, in accordance with the
requirements of the Labor Code. Stated in another way, the first
paragraph of Article 106, provides the manner by which such employees
shall be paid their wages and that is, in compliance with the provisions of
the Labor Code. This, therefore, would include the rules on manner of
payment, minimum wage, place of payment, etc.
In an employer-contractor-employee relationship, it is clear that
the contractor is the real employer and, therefore, responsible to his
workers for their wages. However, should such contractor fail or renege
on his said obligation, to whom will the unpaid worker have recourse?
The second paragraph of Article 106 resolves the seeming dilemma of
the workers by providing that the EMPLOYER, (i.e., the project owner)
shall be solidarily liable to such workers to the extent of the work
performed by them, meaning that the EMPLOYER shall solidarily answer
for the payment of wages corresponding to the amount of work
undertaken by the contractor's employees in the project. This is
the second situation contemplated by Article 106.
The third and final situation treated in Article 106 is contained in
the fourth paragraph thereof. It pertains to what the majority perceives
(erroneously, in my view) as the sole coverage of Article 106 — that of a
"labor-only" contracting and the extent of the rights and liabilities of the
parties involved in such a relationship. As explained in the ponencia, for
this scheme or situation to exist, two (2) circumstances must
concur: one, the contractor who recruits the workers must have 'no
substantial capital or investment in the form of tools, equipment,
machineries and work premises,' and two, 'such workers are so engaged
to perform activities directly related to the employer's principal business.'
Should there be a finding of 'labor-only' contracting, the law expressly
 provides that the EMPLOYER (or project owner) shall be considered the
direct employer of such workers. Such juridical relationship would then
spawn a whole gamut of employer's obligations, including obligations
under the workmen's compensation, social security, medicare, minimum
wage, termination pay and unionism. 1
From the facts of this case as presented, the second paragraph
of Article 106 finds clear application. Because of contractor Lupo's
default in the payment of petitioners' wages, owing to his insolvency, the
employer (company) must comply with its joint and several obligation to
answer for Lupo's accountability to his employees for their unpaid wages.
Thereafter, should the company be inclined to do so, it may seek
reimbursement from Lupo.
In sum, it is my submission that the company's solidary liability to
the petitioners ought to be predicated on the basis, not of Article 107 of
the Labor Code (which applies only to non-employers while the company
in this case is an employer) but rather, upon the express declaration
of paragraph 2, Article 106 of the Labor Code, which
covers employers (not non-employers) as the company in the case at
bar.
[G.R. No. 164257. July 5, 2010.]
SAN MIGUEL CORPORATION,  petitioner, vs. VICENTE B.
SEMILLANO, NELSON MONDEJAR, JOVITO REMADA,
ALILGILAN MULTI-PURPOSE COOP (AMPCO) and MERLYN
V. POLIDARIO,  respondents.
1. Labor Law;  Appeals;  Findings of fact made by the Labor Arbiter and the
National Labor Relations Commission (NLRC), as the specialized agencies
presumed to have the expertise on matters within their respective fields, are
accorded much respect and even finality, when supported by ample evidence,
and the fact that the NLRC, in its subsequent resolution, reversed its original
decision does not render the foregoing inapplicable where the resolution itself is
not supported by substantial evidence.-
—The findings of fact made by the Labor Arbiter and the NLRC, as the
specialized agencies presumed to have the expertise on matters within their
respective fields, are accorded much respect and even finality, when supported
by ample evidence and affirmed by the CA. The fact that the NLRC, in its
subsequent resolution, reversed its original decision does not render the
foregoing inapplicable where the resolution itself is not supported by substantial
evidence
2. Same;  Same;  Same;  In “labor-only” contracting, the law makes the principal
responsible over the employees of the “labor-only” contractor as if the principal
itself directly hired the employees.-
—Petitioner claims that the present case is outside the jurisdiction of the labor
tribunals because respondent Vicente Semillano is a member of AMPCO, not
SMC. Precisely, he has joined the others in filing this complaint because it is his
position that petitioner SMC is his true employer and liable for all his claims
under the Labor Code. Thus, petitioner SMC, as principal employer, is solidarily
liable with AMPCO, the labor-only contractor, for all the rightful claims of
respondents. Under this set-up, AMPCO, as the “labor-only” contractor, is
deemed an agent of the principal (SMC). The law makes the principal
responsible over the employees of the “labor-only” contractor as if the principal
itself directly hired the employees.
3. Same;  Same;  Same;  The work of segregating and cleaning bottles is
unarguably an important part of the manufacturing and marketing process of an
entity primarily engaged in manufacturing and marketing of beer products.-
—Petitioner also argues that among the permissible contracting arrangements
include “work or services not directly related or not integral to the main business
or operation of the principal including… work related to manufacturing processes
of manufacturing establishments.” The Court is not persuaded. The evidence is
clear that respondents performed activities which were directly related to
petitioner’s main line of business. Petitioner is primarily engaged in
manufacturing and marketing of beer products,and respondents’ work of
segregating and cleaning bottles is unarguably an important part of its
manufacturing and marketing process.
4. Same;  Same;  Same;  The language of a contract is neither determinative nor
conclusive of the relationship between the parties-
—the principal and the contractor cannot dictate, by a declaration in a contract,
the character of the latter’s business, that is, whether as labor-only contractor, or
job contractor.—Despite the fact that the service contracts contain stipulations
which are earmarks of independent contractorship, they do not make it legally
so. The language of a contract is neither determinative nor conclusive of the
relationship between the parties. Petitioner SMC and AMPCO cannot dictate, by
a declaration in a contract, the character of AMPCO’s business, that is, whether
as labor-only contractor, or job contractor. AMPCO’s character should be
measured in terms of, and determined by, the criteria set by statute. At a closer
look, AMPCO’s actual status and participation regarding respondents’
employment clearly belie the contents of the written service contract. Petitioner
cannot rely either on AMPCO’s Certificate of Registration as an Independent
Contractor issued by the proper Regional Office of the DOLE to prove its claim. It
is not conclusive evidence of such status. The fact of registration simply prevents
the legal presumption of being a mere labor-only contractor from arising. In
distinguishing between permissible job contracting and prohibited labor-only
contracting, the totality of the facts and the surrounding circumstances of the
case are to be considered.
5. Same;  Labor-only Contracting;  Independent Contractorship;  The test to
determine the existence of independent contractorship is whether or not the one
claiming to be an independent contractor has contracted to do the work
according to his own methods and without being subject to the control of the
employer, except only as to the results of the work.-
—The test to determine the existence of independent contractorship is whether
or not the one claiming to be an independent contractor has contracted to do the
 work according to his own methods and without being subject to the control of
the employer, except only as to the results of the work. The existence of an
independent and permissible contractor relationship is generally established by
the following criteria: whether or not the contractor is carrying on an independent
business; the nature and extent of the work; the skill required; the term and
duration of the relationship; the right to assign the performance of a specified
piece of work; the control and supervision of the work to another; the employer’s
power with respect to the hiring, firing and payment of the contractor’s workers;
the control of the premises; the duty to supply the premises, tools, appliances,
materials, and labor; and the mode, manner and terms of payment.
DECISION
MENDOZA, J  p:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing (i) the February 19, 2004 Decision 1 of the Court
of Appeals in CA-G.R. SP. No. 75209 which reversed and set aside the
February 28, 2002 and September 27, 2002 Resolutions of the National
Labor Relations Commission in NLRC Case No. V-000588-98; and (ii) its
May 28, 2004 Resolution 2 denying petitioner's motion for the
reconsideration thereof.
The facts of the case, as found by the Court of Appeals, 3 are as
follows:
". . . It appears that AMPCO hired the services of
Vicente et al., [Vicente Semillano, Nelson Mondejar, Jovito
Remada and Alex Hawod, 4 respondents herein] on different
dates in December [of 1991 and] 1994. All of them were
assigned to work in SMC's Bottling Plant situated at Brgy.
Granada Sta. Fe, Bacolod City, in order to perform the following
tasks: segregating bottles, removing dirt therefrom, filing them in
designated places, loading and unloading the bottles to and from
the delivery trucks, and performing other tasks as may be
ordered by SMC's officers. [They] were required to work inside
the premises of SMC using [SMC's] equipment. [They] rendered
service with SMC for more than 6 months.
Subsequently, SMC entered into a Contract of
Services 5 with AMPCO designating the latter as the employer of
Vicente, et al., As a result, Vicente et al., failed to claim the rights
and benefits ordinarily accorded a regular employee of SMC. In
fact, they were not paid their 13th month pay. On June 6, 1995,
they were not allowed to enter the premises of SMC. The project
manager of AMPCO, Merlyn Polidario, told them to wait for
further instructions from the SMC's supervisor. Vicente et al.,
waited for one month, unfortunately, they never heard a word
from SMC. TCcIaA
Consequently, Vicente et al., as complainants, filed on
July 17, 1995 a COMPLAINT FOR ILLEGAL DISMISSAL with the
Labor Arbiter against AMPCO, Merlyn V. Polidario, SMC and
Rufino I. Yatar [SMC Plant Manager], as respondents. . . .
Complainants alleged that they were fillers of SMC Bottling
Plant . . . assigned to perform activities necessary and desirable
in the usual business of SMC. . . . They claim that they were
under the control and supervision of SMC personnel and have
worked for more than 6 months in the company. As such, they
assert that they are regular employees of SMC.
However, SMC utilized AMPCO making it appear that
the latter was their employer, so that SMC may evade the
responsibility of paying the benefits due them under the law.
Finally, complainants contend that AMPCO and SMC failed to
give their 13th month pay and that they were prevented from
entering the SMC's premises. Hence, complainants contend that
they were illegally dismissed from service.
On the other hand, respondent SMC raised the defense
that it is not the employer of the complainants. According to
SMC, AMPCO is their employer because the latter is an
independent contractor . . . . Also SMC alleged that it was
AMPCO that directly paid their salaries and remitted their
contributions to the SSS. Finally, SMC assails the jurisdiction of
the Labor Arbiter contending that the instant dispute is intra-
cooperative in nature falling within the jurisdiction of the
Arbitration Committee of the Cooperative Development
Authority."
On April 30, 1998, the Labor Arbiter (LA) rendered his
decision. 6 The dispositive portion of which reads:
Wherefore, premises considered, judgment is
hereby rendered declaring herein complainants as regular
employees of San Miguel Corporation and the latter is
ordered:
1. To reinstate complainants to their previous or
equivalent positions without loss of seniority
rights with payment of full backwages from the
time of their illegal dismissal up to the time of
their actual reinstatement; and
2. To pay complainant's counsel attorney's fees 10% of
the total award or P36,625.76.
Per our computation complainants Vicente Semillano,
Nelson Mondejar and Jovito Remada are entitled to the amount
of P122,085.88 each as full backwages covering the period June
6, 1995 up to April 30, 1998.
SO ORDERED. 7 CHDAEc
Accordingly, respondents filed a motion for partial execution of
the decision of the Labor Arbiter praying for their immediate
reinstatement. 8 Petitioner San Miguel Corporation (SMC) filed its
Opposition to the motion. 9 The LA, however, rendered no ruling
thereon. 10
Petitioner appealed the LA Decision to the NLRC. Initially, the
NLRC Fourth Division affirmed with modifications the findings of the LA
as follows:
WHEREFORE, premises considered, the appeals of
respondents AMPCO and SMC are denied for lack of merit and
the decision appealed from is affirmed with a modification in the
following:
a. Respondent SMC to pay complainants their
backwages from June 6, 1995 up to and until
July 22, 1998;
b. Respondent SMC to pay complainants their accrued
salaries and allowances from July 23, 1998 up
to the present; and
c. Respondent SMC to pay complainants ten percent
(10%) of the total award as attorney's fees.
Complainants, to restate, are regular employees of San
Miguel Corporation and the latter is ordered to reinstate
complainants to their former position as pilers/segregators.
Petitioner SMC moved for a reconsideration of the foregoing
decision. In a Resolution dated February 28, 2002, the NLRC acted on
the motion and reversed its earlier ruling. It absolved petitioner from
liability and instead held AMPCO, as employer of respondents, liable to
pay for respondents' backwages, accrued salaries, allowances, and
attorney's fees. In holding that AMPCO was an independent contractor,
NLRC was of the view that the law only required substantial
capital or  investment. Since AMPCO had "substantial capital of nearly
one (1) million" then it qualified as an independent contractor. The NLRC
added that even under the control test, AMPCO would be the real
employer of the respondents, since it had assumed the entire charge and
control of respondents' services. Hence, an employer-employee
relationship existed between AMPCO and the respondents.
Respondents timely filed their motion for reconsideration of the
NLRC resolution but it was denied. 11
Feeling aggrieved over the turnaround by the NLRC, the
respondents filed a petition for review on certiorari under Rule 65 with the
Court of Appeals (CA), which favorably acted on it. AcICHD
In overturning the commission's ruling, the Court of Appeals
ironically applied the same control test that the NLRC used to resolve the
issue of who the actual employer was. The CA, however, found that
petitioner SMC wielded (i) the power of control over respondent, as SMC
personnel supervised respondents' performance of loading and
unloading of beer bottles, and (ii) the power of dismissal, as respondents
were refused entry by SMC to its premises and were instructed by the
AMPCO manager "to wait for further instructions from the SMC's
supervisor." The CA added that AMPCO was a labor-only contractor
since "a capital of nearly one million pesos" was insufficient for it to
qualify as an independent contractor. Thus, the decretal portion reads:
WHEREFORE, premises considered, the instant
petition is GRANTED. The assailed Resolutions dated
February 28, 2002 and September 27, 2002 both issued
by the public respondent National Labor Relations
Commission in the case docketed as RAB CASE NO. 06-
07-10298-95 are hereby SET ASIDE and a new one
entered reinstating its original Decision dated June 30,
2000, which affirmed with modification the decision of the
Labor Arbiter dated April 30, 1998. No pronouncement as
to costs.
SO ORDERED.
SMC filed a motion for reconsideration but it was denied by the
CA in its May 28, 2004 Resolution. 12
Hence, this petition for review on certiorari.
Petitioner SMC argues that the CA wrongly assumed that it
exercised power of control over the respondents just because they
performed their work within SMC's premises. In advocacy of its claim that
AMPCO is an independent contractor, petitioner relies on the provisions
of the service contract between petitioner and AMPCO, wherein the latter
undertook to provide the materials, tools and equipment to accomplish
the services contracted out by petitioner. The same contract provides
that AMPCO shall have exclusive discretion in the selection, engagement
and discharge of its employees/personnel or otherwise in the direction
and control thereof. Petitioner also adds that AMPCO determines the
wages of its employees/personnel who shall be within its full control.
Petitioner further argues that respondents' action is essentially
one for "regularization" (as employees of SMC) which is nowhere
recognized or allowed by law. Lastly, petitioner contends that the case
involves an intra-cooperative dispute, which is within the original and
exclusive jurisdiction of the Arbitration Committee of the Cooperative
and, thereafter, the Cooperative Development Authority.
In its Comment, 13 respondent AMPCO essentially advanced
the same arguments in support of its claim as a legitimate job
contractor. DAEcIS
 The only issue that needs to be resolved is whether or not
AMPCO is a legitimate job contractor. A claim that an action for
regularization has no legal basis and is violative of petitioner's
constitutional and statutory rights is, therefore, dependent upon the
resolution of the issue posed above.
The petition fails.
Generally, the findings of fact made by the Labor Arbiter and the
NLRC, as the specialized agencies presumed to have the expertise on
matters within their respective fields, are accorded much respect and
even finality, when supported by ample evidence 14 and affirmed by the
CA. The fact that the NLRC, in its subsequent resolution, reversed its
original decision does not render the foregoing inapplicable where the
resolution itself is not supported by substantial evidence.  
Department of Labor and Employment (DOLE) Department
Order No. 10, Series of 1997, defines "job contracting" and "labor-only
contracting" as follows:
Sec. 8. Job contracting. — There is job contracting
permissible under the Code if the following conditions are met:
(1) The contractor carries on an independent business
and undertakes the contract work on his own
account under his own responsibility according
to his own manner and method, free from the
control and direction of his employer or
principal in all matters connected with the
performance of the work except as to the
results thereof; and
(2) The contractor has substantial capital or investment
in the form of tools, equipment, machineries,
work premises, and other materials which are
necessary in the conduct of his business.
Sec. 9. Labor-only contracting. — (a) Any person who
undertakes to supply workers to an employer shall be deemed to
be engaged in labor-only contracting where such person: TCSEcI
(1) Does not have substantial capital or investment in
the form of tools, equipment, machineries,
work premises and other materials; and
(2) The workers recruited and placed by such persons
are performing activities which are directly
related to the principal business or operations
of the employer in which workers are habitually
employed.
(b) Labor-only contracting as defined herein is hereby
prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the employer
who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
(c) For cases not falling under this Article, the Secretary
of Labor shall determine through appropriate orders whether or
not the contracting out of labor is permissible in the light of the
circumstances of each case and after considering the operating
needs of the employer and the rights of the workers involved. In
such case, he may prescribe conditions and restrictions to insure
the protection and welfare of the workers.
Section 5 of Department Order No. 18-02 (Series of 2002) of
the Rules Implementing Articles 106 to 109 of the Labor Code further
provides that:
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of corporations,
tools, equipment, implements, machineries and work
premises, actually and directly used  by the contractor or
subcontractor in the performance or completion of the  job work
or service contracted out. (emphasis supplied)
The "right to control" shall refer to the right reserved to
the person for whom the services of the contractual workers are
performed, to determine not only the end to be achieved, but also
the manner and means to be used in reaching that end.
The test to determine the existence of independent
contractorship is whether or not the one claiming to be an independent
contractor has contracted to do the work according to his own methods
and without being subject to the control of the employer, except only as
to the results of the work. 15
The existence of an independent and permissible contractor
relationship is generally established by the following criteria: whether or
not the contractor is carrying on an independent business; the nature and
extent of the work; the skill required; the term and duration of the
relationship; the right to assign the performance of a specified piece of
work; the control and supervision of the work to another; the employer's
power with respect to the hiring, firing and payment of the contractor's
workers; the control of the premises; the duty to supply the premises,
tools, appliances, materials, and labor; and the mode, manner and terms
of payment. 16 cCSTHA
Although there may be indications of an independent contractor
arrangement between petitioner and AMPCO, the most determinant of
factors exists which indicate otherwise.
Petitioner's averment that AMPCO had total assets amounting to
P932,599.22 and income of P2,777,603.46 in 1994 was squarely
debunked by the LA. Thus:
 Furthermore, there are no pieces of evidence that
AMPCO has substantial capital or investment. An examination its
"Statement of Income and Changes in Undivided Savings" show
that its income for the year 1994 was P2,777,603.46 while its
operating expenses for said year is P2,718,315.33 or a net
income of P59,288.13 for the year 1994; that its cash on hand for
1994 is P22,154.80.
In fact, the NLRC in its original decision likewise stated as follows:
In contrast, the (sic) AMPCO's main business activity is
trading, maintaining a store catering to members and the public.
Its job contracting with SMC is only a minor activity or sideline.
The component of AMPCO's substantial capital are [sic] in fact
invested and used in the trading business. This is palpably
shown in the sizable amount of its accounts receivables
amounting to more than P.6M out of its members' capital of only
P.47M in 1994.
Neither did petitioner prove that AMPCO had substantial
equipment, tools, machineries, and supplies actually and directly used by
it in the performance or completion of the segregation and piling job. In
fact, as correctly pointed out by the NLRC in its original decision, there is
nothing in AMPCO's list 17 of fixed assets, machineries, tools, and
equipment which it could have used, actually and directly, in the
performance or completion of its contracted job, work or service with
petitioner. For said reason, there can be no other logical conclusion but
that the tools and equipment utilized by respondents are owned by
petitioner SMC. It is likewise noteworthy that neither petitioner nor
AMPCO has shown that the latter had clients other than petitioner.
Therefore, AMPCO has no independent business.
In connection therewith, DOLE Department Order No. 10 also
states that an independent contractor carries on an independent
business and undertakes the contract work on his own account, under
his own responsibility, according to his own manner and method, and
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. This embodies what has long been jurisprudentially
recognized as the control test 18 to determine the existence of employer-
employee relationship.
In the case at bench, petitioner faults the CA for holding that the
respondents were under the control of petitioner whenever they
performed the task of loading in the delivery trucks and unloading from
them. It, however, fails to show how AMPCO took "entire charge, control
and supervision of the work and service agreed upon." AMPCO's
Comment on the Petition is likewise utterly silent on this point. Notably,
both petitioner and AMPCO chose to ignore the uniform finding of the LA,
NLRC (in its original decision) and the CA that one of the assigned jobs
of respondents was to "perform other acts as may be ordered by SMC's
officers." Significantly, AMPCO, opted not to challenge the original
decision of the NLRC that found it a mere labor-only contractor. SCcHIE
Moreover, the Court is not convinced that AMPCO wielded
"exclusive discretion in the discharge" 19 of respondents. As the CA
correctly pointed out, Merlyn Polidario, AMPCO's project manager, even
told respondents to "wait for further instructions from the SMC's
supervisor" after they were prevented from entering petitioner SMC's
premises. Based on the foregoing, no other logical conclusion can be
reached than that it was petitioner, not AMPCO, who wielded power of
control.
Despite the fact that the service contracts 20 contain stipulations
which are earmarks of independent contractorship, they do not make it
legally so. The language of a contract is neither determinative nor
conclusive of the relationship between the parties. Petitioner SMC and
AMPCO cannot dictate, by a declaration in a contract, the character of
AMPCO's business, that is, whether as labor-only contractor, or job
contractor. AMPCO's character should be measured in terms of, and
determined by, the criteria set by statute. 21 At a closer look, AMPCO's
actual status and participation regarding respondents' employment
clearly belie the contents of the written service contract.
Petitioner cannot rely either on AMPCO's Certificate of
Registration as an Independent Contractor issued by the proper Regional
Office of the DOLE to prove its claim. It is not conclusive evidence of
such status. The fact of registration simply prevents the legal
presumption of being a mere labor-only contractor from arising. 22 In
distinguishing between permissible job contracting and prohibited labor-
only contracting, the totality of the facts and the surrounding
circumstances of the case are to be considered. 23
Petitioner also argues that among the permissible contracting
arrangements include "work or services not directly related or not integral
to the main business or operation of the principal including . . . work
related to manufacturing processes of manufacturing
establishments." 24 The Court is not persuaded. The evidence is clear
that respondents performed activities which were directly related to
petitioner's main line of business. Petitioner is primarily engaged in
manufacturing and marketing of beer products, and respondents' work of
segregating and cleaning bottles is unarguably an important part of its
manufacturing and marketing process.
Lastly, petitioner claims that the present case is outside the
jurisdiction of the labor tribunals because respondent Vicente Semillano
is a member of AMPCO, not SMC. Precisely, he has joined the others in
filing this complaint because it is his position that petitioner SMC is his
 true employer and liable for all his claims under the Labor
Code. cCaSHA
Thus, petitioner SMC, as principal employer, is solidarily liable
with AMPCO, the labor-only contractor, for all the rightful claims of
respondents. Under this set-up, AMPCO, as the "labor-only" contractor,
is deemed an agent of the principal (SMC). The law makes the principal
responsible over the employees of the "labor-only" contractor as if the
principal itself directly hired the employees. 25  
WHEREFORE, the petition is DENIED. The February 19, 2004
Decision of the Court of Appeals, reversing the decision of the National
Labor Relations Commission and reinstating the decision of the Labor
Arbiter, is AFFIRMED.
SO ORDERED.
[G.R. No. 217301. June 6, 2018.]
CONSOLIDATED BUILDING MAINTENANCE, INC. and
SARAH DELGADO, petitioners, vs. ROLANDO ASPREC,
JR. and JONALEN BATALLER, respondents.
Syllabi:
1. Same;  Lay-Off;  Considering the dire consequences of “lay-off” to an
employee, jurisprudence places upon the employer the burden to prove with
sufficient and convincing evidence the justification therefor, and as well
compliance with the parameters set forth by law.-
— Considering the dire consequences of “lay-off” to an employee,
jurisprudence places upon the employer the burden to prove with sufficient
and convincing evidence the justification therefor, and as well compliance
with the parameters set forth by law. On account of CBMI’s failure to
discharge this burden in this case, the Court views that the extended period
of suspension is illegal, which thus entitles the respondents to their money
claims.
2. Labor Law;  Labor-Only Contracting;  Words and Phrases; Labor-only
contracting is defined by Article 106 of the Labor Code of the Philippines, as
an arrangement where a person, who does not have substantial capital or
investment, supplies workers to an employer to perform activities which are
directly related to the principal business of such employer.-
—Labor-only contracting is defined by Article 106 of the Labor Code of the
Philippines, as an arrangement where a person, who does not have
substantial capital or investment, supplies workers to an employer to perform
activities which are directly related to the principal business of such
employer. Furthermore, jurisprudence instructs that the existence of an
independent contract relationship may be indicated by several factors, viz.:
[S]uch as, but not necessarily confined to, whether the contractor was
carrying on an independent business; the nature and extent of the work; the
skill required; the term and duration of the relationship; the right to assign the
performance of specified pieces of work; the control and supervision of the
workers; the power of the employer with respect to the hiring, firing and
payment of the workers of the contractor; the control of the premises; the
duty to supply premises, tools, appliances, materials and labor; and the
mode, manner and terms of payment.
3. Same;  Job Contracting; Job contracting is deemed legitimate and
permissible when the contractor has substantial capital or investment, and
runs a business that is independent and free from control by the principal.-
—It is clear that job contracting is not absolutely prohibited. Indeed, an
employer is allowed to farm out the performance or completion of a specific
job, work or service, within a definite or specified period, and regardless of
whether the said task is to be performed or completed within or outside its
premises. Job contracting is deemed legitimate and permissible when the
contractor has substantial capital or investment, and runs a business that is
independent and free from control by the principal. Further, in Norkis Trading
Co., Inc. v. Gnilo, 544 SCRA 279 (2008), it is required that “the agreement
between the principal and the contractor or subcontractor assures the
contractual employees’ entitlement to all labor and occupational safety and
health standards, free exercise of the right to self-organization, security of
tenure, and social welfare benefits.” The absence of any of these elements
results in a finding that the contractor is engaged in labor-only contracting.
4. Same;  Employer-Employee Relationship;  Control Test;  The element
of control that is determinative of an employer-employee relationship
“does not merely relate to the mutually desirable result intended by the
contractual relationship;  they must have the nature of dictating the means
and methods to be employed in attaining the result.”-
—The element of control that is determinative of an employer-employee
relationship “does not merely relate to the mutually desirable result intended
by the contractual relationship; they must have the nature of dictating the
means and methods to be employed in attaining the result.” Nonetheless, as
the Court emphasized in Almeda, et al. v. Asahi Glass Philippines, Inc., 564
SCRA 115 (2008), “[t]he power of control refers merely to the existence of
the power and not to the actual exercise thereof. It is not essential for the
employer to actually supervise the performance of duties of the employee; it
is enough that the former has a right to wield the power.”
5. Same;  Preventive Suspension;  Section 4, Rule XIV of the Omnibus
Rules Implementing the Labor Code is explicit in that the period of preventive
suspension should not exceed thirty (30) days, after which, the employee
must be reinstated and paid the wages and other benefits due.-
—Section 4, Rule XIV of the Omnibus Rules Implementing the Labor Code is
explicit in that the period of preventive suspension should not exceed 30
days, after which, the employee must be reinstated and paid the wages and
other benefits due, viz.: SECTION 4. Period of suspension.—No preventive
suspension shall last longer than 30 days. The employer shall thereafter
reinstate the worker in his former or in a substantially equivalent position or
the employer may extend the period of suspension provided that during the
period of extension, he pays the wages and other benefits due to the worker.
In such case, the worker shall not be bound to reimburse the amount paid to
him during the extension if the employer decides, after completion of the
hearing, to dismiss the worker.
6. Same;  Same;  Termination of Employment;  Lay-Off;  When a “lay-off”
is permanent, it amounts to dismissal. However, when the same is
temporary, it is regarded as a mere suspension of the employment status of
the employee.-
—When a “lay-off” is permanent, it amounts to dismissal. However, when the
same is temporary, it is regarded as a mere suspension of the employment
status of the employee. Notably, while the Court recognizes lay-off as an
exercise of management prerogative, jurisprudence requires that the same
must be attended by good faith and that notice must be given to the
employees concerned and the DOLE at least one (1) month prior to the
intended date of lay-off or retrenchment. Article 286 of the Labor Code, as
cited by CBMI, likewise contemplates lay-off, particularly that which is
temporary in nature, and as such must be for a period not exceeding six
months. In which case, apart from causes attributable to the employer, the
temporary suspension of employment may also be on account of the
employee’s performance of military or civic duty.
DECISION
REYES, JR.,  J p:
Before this Court is a petition for review on certiorari 1 under
Rule 45 of the Rules of Court seeking to annul and set aside the
Decision 2 of the Court of Appeals (CA) in CA-G.R. SP No. 123429
dated November 15, 2013, and Resolution 3 dated March 4, 2015,
denying the motion for reconsideration thereof. The assailed decision
denied the petition for certiorari filed by Consolidated Building
Maintenance, Inc. (CBMI) and its Human Resource Manager Sarah
Delgado (collectively referred to as the petitioners) assailing the
Resolution 4 dated September 28, 2011 of the National Labor Relations
Commission (NLRC) and reinstated the Decision 5 dated June 27, 2011
of the Labor Arbiter (LA).
The Antecedent Facts
CBMI is a corporation engaged in the business of providing
janitorial, kitchen, messengerial, elevator maintenance and allied
services to various entities. 6 Among CBMI's clients is Philippine Pizza,
Inc.-Pizza Hut (PPI). For PPI, CBMI provides kitchen, delivery, sanitation
and other related services pursuant to contracts of services, which are
valid for one-year periods. 7 Records reveal that contracts of services
were executed between PPI and CBMI in the years 2000 8 and from
2002 until 2010. 9
Rolando Asprec, Jr. (Asprec) and Jonalen Bataller (Bataller)
(collectively referred to as the respondents) alleged that they are regular
employees of PPI, the former having commenced work as a "Rider" in
January 2001 and the latter as "team member/slice cashier" in March
2008, both assigned at PPI's Pizza Hut, Marcos Highway, Marikina City
Branch.
In his Sinumpaang Salaysay dated February 8, 2011, Asprec
averred that after the expiration of his contract on November 4, 2001,
PPI advised him to go on leave for one (1) month and ten (10) days.
Thereafter, he was called for an interview by PPI's Area Manager,
Rommel Blanco. After passing the same, he was told to proceed to the
office of CBMI where he signed a contract. Asprec stated that except for
the fact that the payslips were then issued by CBMI, work, proceeded as
usual with him being assigned at the same branch and performing his
usual duties as "Rider/Production Person." 10
Bataller had a similar experience as she narrated in
her Sinumpaang Salaysay dated February 8, 2011. She related that
before the expiration of her employment contract, she was informed by
Pizza Hut Restaurant Manager Jun Samar that as a precondition for
continued employment, she had to "submit first a resignation letter, had
to pass through CBMI, and after six months she should go on vacation
for one month." Thereafter, she was interviewed by PPI General
Manager Edilberto Garcia. Bataller advanced that after she passed the
interview, PPI prepared her documents and then forwarded the same to
CBMI. She then resumed employment in December 2008 until July 23,
2010, with her being assigned at the same branch, performing her usual
duties, and receiving the same salary. 11
 On the other hand, CBMI posited that the respondents are its
employees. CBMI claimed that the respondents were investigated based
on an Incident Report by PPI's Store Manager Karl Clemente of an
attempted theft on July 23, 2010. On which date, one Jessie Revilla
(Revilla) supposedly delivered an excess of two boxes to PPI's slice
booth at the Light Rail Train (LRT) Santolan, Pasig Station, which the
respondents failed to report.
Anent the incident, Asprec asserted that he has no knowledge of
such actions by Revilla and claimed that the same is outside his
responsibility as a "production person." Nonetheless, Asprec claimed that
on account of the incident, he has been suspended for eight days and
then was eventually dismissed. 12
On the other hand, Bataller, who was manning the slice booth at
the LRT Santolan, Pasig Station on the day of the incident, claimed that
when Revilla brought the three boxes of pizza which she ordered, she
was busy attending to customers and thus did not notice that there has
been an excess in the delivery. Nonetheless, she posited that
immediately upon discovery, she called Revilla but the latter was already
far from the station and as such could no longer go back. Revilla
allegedly went back to get the two extra pizza boxes later that day.
Bataller likewise submitted that she has informed the area
manager of the incident, but was thereafter asked to proceed to PPI's
Marcos Highway branch. There, she was interviewed along with Asprec
and Revilla, and then told to report to the head office. Starting July 24,
2010, she was allegedly no longer allowed to return to work. 13
On November 12, 2010, the respondents filed their Complaint
against the petitioners for constructive illegal dismissal, illegal
suspension, and non-payment of separation pay. 14
In their Complaint, the respondents argued two points: first, that
their transfer from PPI to CBMI constituted labor-only contracting and
was a mere scheme by PPI to prevent their regularization; and second,
that they were illegally dismissed without cause and due process of
law. 15
On December 20, 2010, the respondents amended their
Complaint by impleading PPI and including a prayer for reinstatement
and payment of moral and exemplary damages and attorney's fees. 16
Ruling of the LA
The LA rendered a Decision 17 on June 27, 2011, granting
respondents' complaint in this wise:
WHEREFORE, premises considered, the
respondent companies are hereby found liable for
having illegally dismissed [the respondents] and are
hereby ordered TO REINSTATE them to their former
positions without loss of seniority rights and TO PAY to
EACH of the [respondents] their backwages from July
26, 2010 up to the date of actual reinstatement, which as
of the date of this decision is P121,000.00 and
P100,000.00 each as moral damages; P50,000.00 each
as exemplary damages plus ten percent (10%) of the
totality of the awards as and for attorney's fees.
All other claims and charges are dismissed for
lack of merit.
SO ORDERED. 18
In its decision, the LA applied the four-fold test and ruled that the
respondents are employees of PPI. Consequently, the LA held that the
arrangement between CBMI and PPI constitutes labor-only contracting
and imposed upon them solidary liability for the respondents' claim. 19
The LA ruled that as the employer, the burden is upon PPI to
prove that the dismissal was based on a just cause and that there has
been compliance with procedural due process, which it failed to do.
Thus, the LA concluded that the respondents have been illegally
dismissed. 20
With this ruling, the petitioners and PPI appealed to the
NLRC. 21
Ruling of the NLRC
On September 28, 2011, the NLRC rendered its
Resolution 22 affirming with modification the LA's Decision dated June
27, 2011. The dispositive portion of the resolution reads:
WHEREFORE, premises considered, the appeal
filed by [PPI] is GRANTED and is hereby DROPPED as
party to the case.
CBMI's appeal is DISMISSED. [The petitioners]
are ordered to pay the [respondents] the following:
1. backwages computed from August
20, 2010 up to the finality of this
decision, and,
 2. separation pay equivalent to one
month's pay for every year of service,
and
3. 10% attorney's fees based on the
total judgment award.
SO ORDERED. 23
In contrast with the finding of the LA, the NLRC held that the
respondents are regular employees of CBMI. In so ruling, the NLRC
relied heavily on the employment contract and CBMI's admission of the
respondents' employment. 24 In this regard, and considering that there is
no allegation of under payment or non-payment of wages, the NLRC
ordered PPI to be dropped from the case.
Both the petitioners and the respondents filed their respective
motions for partial reconsideration 25 but they were denied by the NLRC
in its Resolution 26 dated November 29, 2011.
The parties herein separately filed their appeal via petitions
for certiorari with the CA. 27
In their Petition, 28 the petitioners alleged, among others, that
the NLRC gravely abused its discretion in awarding backwages,
separation pay, and attorney's fees despite the absence of finding that
the respondents have been illegally dismissed.
On the other hand, the respondents in their petition claimed that
the totality of evidence presented proves that they are the regular
employees not of CBMI but of PPI. They asserted that their transfer to
CBMI was a mere ploy to prevent their regularization, this bolstered by
the fact that even after they signed with CBMI, they remained to be under
the direct supervision of PPI. 29
Ruling of the CA
On November 15, 2013, the CA rendered the herein assailed
Decision 30 denying the petition for certiorari, to wit:
IN VIEW OF ALL THESE, the Petition is
DENIED. The assailed Resolutions of [NLRC] are SET
ASIDE. The Decision of the [LA] is REINSTATED.
SO ORDERED. 31
The CA held that the NLRC erred in dropping PPI as a party to
the case, as contrary to its findings, CBMI failed to prove that it was an
independent contractor, or was engaged in permissible job contracting.
According to the CA, the totality of the circumstances
surrounding the case established that it was PPI and not CBMI which
has the discretion and control over the manner and method by which the
respondents' works are to be accomplished.
Furthermore, considering that the respondents performed tasks
which are necessary and desirable to the usual trade or business of PPI,
and use tools and equipment of the latter in their work, the CA concluded
that CBMI falls under the definition of a "labor only contractor," which is
prohibited under Article 106 of the Labor Code.Hence:
Being a labor-only contractor, CBMI was
deemed to be an agent of Pizza Hut, which in turn, was
therefore, the principal of CBMI. Concomitantly, an
employer-employee relationship was created between
Pizza Hut as principal, and private respondents as
employees. Pizza Hut, as a result is solidarily liable with
petitioners for private respondents' claims. x x
x. 32 (Citations omitted)
As agent of PPI, the CA ruled that it is incumbent upon the
petitioners to prove that the dismissal was for a just and valid cause
which it failed to do, accordingly, the CA concluded that the dismissal is
illegal and the respondents are entitled to their money claims. 33
Petitioners sought a reconsideration 34 of the November 15,
2013 Decision but the CA denied it in its Resolution 35 dated March 4,
2015.
Issues
In the instant petition, the petitioners submit the following issues
for this Court's resolution:
I.
WHETHER OR NOT THE HONORABLE CA GRAVELY
AND SERIOUSLY ERRED IN THE APPLICATION OF
LAW AND JURISPRUDENCE WHEN IT HELD THAT
CBMI IS A LABOR-ONLY CONTRACTOR.
II.
WHETHER OR NOT THE HONORABLE CA GRAVELY
AND SERIOUSLY ERRED IN THE APPLICATION OF
LAW AND JURISPRUDENCE WHEN IT HELD THAT
THE RESPONDENTS WERE ILLEGALLY DISMISSED.
III.
 WHETHER OR NOT THE HONORABLE CA GRAVELY
AND SERIOUSLY ERRED IN THE APPLICATION OF
LAW AND JURISPRUDENCE WHEN IT AWARDED
BACKWAGES IN FAVOR OF THE RESPONDENTS.
IV.
WHETHER OR NOT THE HONORABLE CA GRAVELY
AND SERIOUSLY ERRED IN THE APPLICATION OF
LAW AND JURISPRUDENCE WHEN IT AWARDED
MORAL DAMAGES, EXEMPLARY DAMAGES, AND
ATTORNEY'S FEES TO THE RESPONDENTS. 36
In sum, the issues to be resolved by this Court in the instant
case are the following: first, whether or not the respondents are
employees of CBMI; and second, whether or not the respondents have
been illegally dismissed and as such entitled to their monetary claims.
Ruling of the Court
The petition is partly meritorious.
Initially, it must be said that the issues of whether CBMI is an
independent contractor, and the matter of respondents' employment
status are questions of fact that are not the proper subjects of a petition
for review under Rule 45 of the Rules of Court. However, considering the
variance between the factual determination of the LA and the CA on the
one hand, and the NLRC on the other, this case presents an exception
for the Court to re-evaluate the evidence on record. 37
The resolution of the first issue hinges on the determination of
the status of CBMI, i.e., whether or not it is a labor-only contractor or an
independent contractor.
In support of its position that it is engaged in legitimate job
contracting, CBMI attached for the Court's reference, its Certificate of
Registration 38 with the Department of Labor and Employment (DOLE).
Furthermore, it cites that it has been in operation for almost 50 years,
counting various institutions among its clients.
Under the premises and based on the evidence presented by the
parties, the Court is inclined to sustain the position of CBMI that it is an
independent contractor.
Labor-only contracting is defined by Article 106 of the Labor
Code of the Philippines, as an arrangement where a person, who
does not have substantial capital or investment, supplies workers to an
employer to perform activities which are directly related to the principal
business of such employer. Furthermore, jurisprudence instructs that the
existence of an independent contract relationship may be indicated by
several factors, viz.:
[S]uch as, but not necessarily confined to, whether the
contractor was carrying on an independent business; the
nature and extent of the work; the skill required; the term
and duration of the relationship; the right to assign the
performance of specified pieces of work; the control and
supervision of the workers; the power of the employer
with respect to the hiring, firing and payment of the
workers of the contractor; the control of the premises;
the duty to supply premises, tools, appliances, materials
and labor; and the mode, manner and terms of
payment. 39
The issue in this case being the status of the respondents, the
pertinent Department Order (DO) implementing the aforecited provision
of the Labor Code is DOLE DO No. 18-02, Series of 2002, the regulation
in force at the time the respondents were hired and assigned to PPI. 40
DO No. 18-02 reiterates the prohibition against labor-only
contracting, viz.:
Section 5. Prohibition against labor-only
contracting. — Labor-only contracting is hereby declared
prohibited. For this purpose, labor-only contracting shall
refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal,
and any of the following elements are present:
i. The contractor or subcontractor does
not have substantial capital or
investment which relates to the job,
work, or service to be performed and the
employees recruited, supplied or placed
by such contractor or subcontractor are
performing activities which are directly
related to the main business of the
principal; or
ii. The contractor does not exercise the
right to control the performance of the
work of the contractual employee.
xxx xxx xxx
From the foregoing, it is clear that job contracting is not
absolutely prohibited. Indeed, an employer is allowed to farm out the
performance or completion of a specific job, work or service, within a
definite or specified period, and regardless of whether the said task is to
be performed or completed within or outside its premises. Job
contracting is deemed legitimate and permissible when the contractor
has substantial capital or investment, and runs a business that is
independent and free from control by the principal. Further, in Norkis
Trading Co., Inc. v. Gnilo, 41 it is required that "the agreement between
the principal and the contractor or subcontractor assures the contractual
employees' entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization, security of
tenure, and social welfare benefits." 42 The absence of any of these
elements results in a finding that the contractor is engaged in labor-only
contracting.
In addition to the foregoing, DO No. 18-02 requires that
contractors and subcontractors be registered with the DOLE Regional
Offices. The system of registration has been established under the DO to
regulate and monitor contracting arrangements. 43 It is imposed to
ensure that those contractors operate in accordance with law and its
guiding principles. 44
But unlike the elements of substantial capital or investment and
control, the absence of registration merely gives rise to
the presumption that the contractor is engaged in labor-only
contracting. 45 Conversely, in the absence of evidence to the contrary,
flowing from the presumption of regularity in the performance of official
functions, the existence of registration in favor of a contractor is a strong
badge of legitimacy in favor of the contractor.
It is not disputed that CBMI is a duly licensed labor contractor by
the DOLE. 46 As the primary agency tasked to regulate job contracting,
DOLE is presumed to have acted in accordance with its mandate and
after due evaluation of rules and regulations in its registration of
CBMI. 47 The Certificate of Registration issued by DOLE recognizes
CBMI as an independent contractor as of February 13, 2008, and
regards the validity of the latter's registration as such until February 14,
2011, 48 well within the period relevant to this appeal. In this light, it then
becomes incumbent upon the respondents to rebut the presumption of
regularity to prove that CBMI is not a legitimate contractor as determined
by the DOLE, which they failed to do. 49
While the Certificate of Registration offered as evidence pertains
only to a period of three years from February 13, 2008 until February 14,
2011, case law dictates that the status of CBMI may be evaluated on the
basis of the corporation's activities and status prior to their
registration. 50
In this case, the Court finds that CBMI has established
compliance with the requirements of legitimate job contracting previously
cited.
Per documentary evidence attached by CBMI, the company's
total assets at the time of filing of the respondents' complaint before the
NLRC in 2010 amounted to Php84,351,349.00. 51 Based on its attached
Audited Financial Statements for the years 2008 and 2009, its total
assets, which consists of cash, receivables, and property and equipment,
amounted to Php79,203,902.00 52 and
Php76,189,554.00, 53 respectively.
Likewise from the records, as of December 2010, CBMI has an
authorized capital stock of 1,000,000.00 shares, half of which or
500,000.00 have been subscribed. 54 Its retained earnings for the years
2009 and 2010 consists of Php6,433,525.00 and Php10,988,890.00,
respectively. 55 Incidentally, for the years 2005 to 2007 and 2012,
CBMI's paid-up capital amounted to Php3,500,000.00, 56 which is even
beyond by the standard set by the DOLE D.O. No. 18-A, series of 2011,
of what constitutes "substantial capital." 57
Clearly, CBMI has substantial capital to maintain its manpower
business. From the evidence adduced by CBMI, it is also clear that it
runs a business independent from the PPI. Based on its registration with
the Securities and Exchange Commission (SEC), CBMI has been in
existence since 1967; 58 and has since provided a variety of services to
entities in various fields, such as banking, hospitals, and even
government institutions. CBMI counts among its clients, De La Salle
University (DLSU), Philippine National Bank (PNB), Smart
Communications, Inc., SM Supermalls, and the United States (US)
Embassy. In the case of the US Embassy for instance, CBMI has been a
service contractor for seven years. 59
Above all, CBMI maintains the "right of control" over the
respondents. For purposes of determining whether a job contractor is
engaged in legitimate contracting or prohibited labor-only contracting, DO
No. 18-02, defines the "right of control" as:
[T]he right reserved to the person for whom the services
of the contractual workers are performed, to determine
not only the end to be achieved, but also the manner
and means in achieving that end. 60
From these, it can readily be inferred that the element of control
that is determinative of an employer-relationship "does not merely relate
to the mutually desirable result intended by the contractual relationship;
they must have the nature of dictating the means and methods to be
employed in attaining the result." 61 Nonetheless, as the Court
emphasized in Almeda, et al. v. Asahi Glass Philippines, Inc., 62 "[t]he
power of control refers merely to the existence of the power and not to
the actual exercise thereof. It is not essential for the employer to actually
supervise the performance of duties of the employee; it is enough that
the former has a right to wield the power." 63
 The contract of service, while of itself is not determinative of the
relationship between the parties, nonetheless provides useful leads into
the relationship between the principal on the one hand, and the job
contractor on the other. 64 In this case, the "Contract of Services"
between CBMI and PPI for the year 2000, imposes upon the former the
obligation to provide not only the necessary personnel to perform
"kitchen, busing, rider/delivery, and sanitation services" but as well to
provide tools and equipment necessary for the rendition of such
services. 65 Also, it is understood under the agreement that upon
deployment, the personnel are already qualified and possessed of the
necessary skills for their assigned tasks. 66 Pertinently, the said contract
provides for the following:
V. HIRING AND PAYROLL
The INDEPENDENT CONTRACTOR shall be responsible for
the hiring, supervision, discipline, suspension, or termination of
its own employees, including those assigned to the CLIENT.
The employees of the INDEPENDENT CONTRACTOR shall
be under its own payroll. The INDEPENDENT CONTRACTOR
shall ensure the proper and prompt payment of each
employee's wages and contributions to the SSS, Pag-IBIG and
to other agencies as may be required under the law.
VI. SUPERVISION OF THE INDEPENDENT CONTRACTOR'S
PERSONNEL
The INDEPENDENT CONTRACTOR shall provide
coordinators/supervisors, such that there shall be at least one
(1) coordinator/supervisor in each place of business of the
CLIENT as listed in ANNEX A of the CONTRACT. The
coordinator/supervisor shall direct the performance of the
services rendered by the INDEPENDENT CONTRACTOR's
employees. The coordinator/supervisor shall, likewise, ensure
that the agreed number of personnel is on site and that the
qualities of services are maintained at the agreed
standards. 67
The same obligations have been imposed upon CBMI, albeit
differently worded, under its Contract of Services with PPI for the years
2002, 68 2003, 69 2004, 70 2006, 71 2007, 72 and 2008. 73 For the year
2009 74 and 2010, 75 the Contract of Services further detailed these
provisions, in that the contract provided that CBMI has the "sole authority
to control and direct the performance of the details of the work of its
employees." Further, that any complaints or reports regarding the
performance, misconduct, or negligence of the persons so deployed shall
be made in writing and addressed by PPI to CBMI, the latter having the
sole authority to discipline its employees. 76
Without necessarily touching on the respondents' status prior to
their employment with CBMI, in the instant controversy, the petitioners'
control over the respondents is manifested by the fact that they wield and
exercise the following powers over them: "selection and engagement,
payment of wages, dismissal, and control over the employees'
conduct." 77
It is indisputable from the respondents' employment
contracts 78 that they were hired by CBMI. 79 It was also the latter who
assigned respondents at PPI's Marcos Highway Branch after they were
briefed of company policies and their duties. 80 It is also CBMI who pays
the respondents their salaries, and remits premiums to PhilHealth and
Social Security System. 81
The nature of CBMI's agreement with PPI requires the former to
assign employees to perform specific services for the latter. 82 CBMI
deploys employees already equipped of the skills based on the specific
service demanded by PPI to be accomplished. Ultimately, the training
necessary to acquire the skills essential to perform the duties of a rider
for Asprec, and as a team member for Bataller, have been provided for
by CBMI. Simply, the manner in which respondents perform their task
are all dictated by CBMI, the sole concern of PPI being the result, i.e.,
what and how many items are to be produced and where to deliver the
same. Noteworthy, CBMI maintains the sole power to determine
respondents' place of assignment and their transfer from one work
assignment to another. 83 CBMI's manner of deployment and its choice
as to who will be assigned for a specific task or location does not require
the approval or acceptance of PPI. 84
Moreover, it is evident from how this controversy unfolded that
CBMI maintains the power to discipline the respondents. In accordance
with the terms of the 2010 Contract of Services, an Incident
Report 85 was prepared by PPI's Store Manager who then submitted the
same to CBMI. Pursuant to its power of supervision over the
respondents, CBMI initiated the investigation 86 and on the basis thereof
imposed upon the respondents preventive suspension from August 5 to
19, 2010. 87 It may not be amiss to point out that the respondents'
participation in these proceedings is indicative of their recognition of
CBMI's disciplinary authority over them. 88
All these, without doubt indicate that CBMI possesses the power
of control over the respondents; which in turn supports the conclusion
that CBMI carries a business independent of PPI.
With respect to the respondents' dismissal, the Court affirms the
decision of the NLRC.
 CBMI, as the employer has the power to impose discipline upon
the respondents who are its employees, which includes the imposition of
the preventive suspension pending investigation. 89 However, as
correctly noted by the NLRC, the extension of the period of suspension
by the CBMI is unwarranted under the attendant circumstances.
Section 4, Rule XIV of the Omnibus Rules Implementing the
Labor Code is explicit in that the period of preventive suspension should
not exceed 30 days, after which, the employee must be reinstated and
paid the wages and other benefits due, viz.:
SECTION 4. Period of suspension. — No preventive
suspension shall last longer than 30 days. The employer shall
thereafter reinstate the worker in his former or in a substantially
equivalent position or the employer may extend the period of
suspension provided that during the period of extension, he
pays the wages and other benefits due to the worker. In such
case, the worker shall not be bound to reimburse the amount
paid to him during the extension if the employer decides, after
completion of the hearing, to dismiss the worker.
To recall, in this case, after the conduct of administrative
hearing, the respondents have been suspended by CBMI for a period of
15 days or from August 5 to 19, 2010. 90 Thereafter, allegedly due to the
reduced need of PPI and on account of the incident subject of
investigation, respondents have been placed on "temporary-lay-off
status" for a period of six months or from August 20, 2010 until February
20, 2011. 91 Succinctly, respondents have been under preventive
suspension for more than the maximum period allowed by law, without
any word as to the result of the investigation, and without having been
reinstated to their former or to a substantially equivalent position, which
thus renders the period of extended suspension illegal. It bears to stress
albeit at the risk of repetition, the Omnibus Rules Implementing the Labor
Code requires that the employer act within the 30-day period of
preventive suspension by concluding the investigation either by
absolving the respondents of the charges or meting corresponding
penalty if liable. Otherwise, the employer must reinstate the employee, or
extend the period of suspension provided the employee's wages and
benefits are paid in the interim. 92 Failure by the employer to comply with
these, the preventive suspension is deemed illegal as it amounts to a
constructive dismissal. 93
In an attempt to justify its action, CBMI alleged that the
respondents were merely placed under "floating status," due to a decline
in the demand of PPI for respondents' services. According to CBMI, the
placing of respondents in a "floating status" due to unavailability of work
has long been recognized as a valid exercise of management
prerogative. 94 In support thereof, CBMI cites Article 286 95 of the Labor
Code,to wit:
ART. 286. When employment not deemed terminated. —
The bona-fide suspension of the operation of a business or
undertaking for a period not exceeding six (6) months, or the
fulfillment by the employee of a military or civic duty shall not
terminate employment. In all such cases, the employer shall
reinstate the employee to his former position without loss of
seniority rights if he indicates his desire to resume his work not
later than one (1) month from the resumption of operations of
his employer or from his relief from the military or civic duty.
In the case of Sebuguero, et al. v. NLRC, 96 the term "lay-off" or
what is also referred to as retrenchment is defined as:
[T]he termination of employment initiated by the employer
through no fault of the employee's and without prejudice to the
latter, resorted to by management during periods of business
recession, industrial depression, or seasonal fluctuations, or
during lulls occasioned by lack of orders, shortage of materials,
conversion of the plant for a new production program or the
introduction of new methods or more efficient machinery, or of
automation. Simply put, it is an act of the employer of
dismissing employees because of losses in the operation of a
business, lack of work, and considerable reduction on the
volume of his business, a right consistently recognized and
affirmed by this Court. 97 (Citations omitted)
When a "lay-off" is permanent, it amounts to dismissal. However,
when the same is temporary, it is regarded as a mere suspension of the
employment status of the employee. 98 Notably, while the Court
recognizes lay-off as an exercise of management prerogative,
jurisprudence requires that the same must be attended by good faith and
that notice must be given to the employees concerned and the DOLE at
least one (1) month prior to the intended date of lay-off or
retrenchment. 99
Article 286 of the Labor Code,as cited by CBMI, likewise
contemplates lay-off, particularly that which is temporary in nature, and
as such must be for a period not exceeding six months. In which case,
apart from causes attributable to the employer, the temporary
suspension of employment may also be on account of the employee's
performance of military or civic duty.
To the Court, CBMI's claim that the suspension falls under
Article 286 of the Labor Code is a mere afterthought to justify its
extension of respondents' period of preventive suspension. For one, the
equivocal wording of the notice evinces the real reason behind the
extended period of suspension, i.e., the attempted stealing incident. The
notices dated August 23, 2010 to the respondents read:
CBMI would like to inform you that due to the reduced needs of
its client for your services, and because of the incident that
happened last July 23, 2010, your assignment as Team
 Member PH Marcos H-way have been subjected to further
investigation.
Meanwhile, the management has no option but to place you on
temporary — lay off or status effective August 20, 2010 until
February 20, 2011. Further, CBMI will expedite effort to
process your employment as soon as there is available project
that fits your qualification and expertise.
In view thereof, please coordinate with the undersigned for
possible transfer of assignment. 100 (Emphasis Ours)
The said conclusion is bolstered by the fact that other than its
bare allegation, CBMI failed to adduce evidence to prove that there has
indeed been a reduction in the demand of PPI for the services it
provides. Likewise, PPI, despite having all the opportunity to do so, did
not corroborate CBMI's submission. In addition, CBMI also failed to
comply with the mandatory one-month notice requirement. The law
requires that notice be given one month prior to the intended date of lay-
off. In this case, the notice to the respondents dated August 23, 2010 has
been sent via registered mail on August 20, 2010, for an intended period
of lay-off starting August 20, 2010 to February 20, 2011. The records are
bereft of proof that CBMI furnished a copy of the said notice to the
DOLE.
Considering the dire consequences of "lay-off" to an employee,
jurisprudence places upon the employer the burden to prove with
sufficient and convincing evidence the justification therefor, and as well
compliance with the parameters set forth by law. 101 On account of
CBMI's failure to discharge this burden in this case, the Court views that
the extended period of suspension is illegal, which thus entitles the
respondents to their money claims.
WHEREFORE, in consideration of the foregoing disquisitions,
the petition is PARTLY GRANTED. Accordingly, the Decision dated
November 15, 2013 of the Court of Appeals in CA-G.R. SP No. 123429,
is hereby REVERSED and SET ASIDE. The Resolution dated
September 28, 2011 of the National Labor Relations Commission in
NLRC NCR Case No. 11-15889-10 and NLRC NCR Case No. 11-16067-
10 insofar as it holds petitioner Consolidated Building Maintenance, Inc.
liable for the money claims of respondents Rolando Asprec, Jr. and
Jonalen Bataller is hereby REINSTATED.
In addition, respondents Rolando Asprec, Jr. and Jonalen
Bataller are entitled to interest on the monetary awards at the rate of six
percent (6%) per annum from the date of finality of this Decision until
fully paid.
SO ORDERED.
[G.R. No. 210961. January 24, 2018.]
LEO V. MAGO and LEILANIE E.
COLOBONG, petitioners, vs. SUN POWER
MANUFACTURING LIMITED, respondent.
1. Same;  Employer-Employee Relationship;  The four (4)-fold test is the
established standard for determining the existence of an employer-
employee relationship: (a) the selection and engagement of the
employee;  (b) the payment of wages;  (c) the power of dismissal;  and
(d) the power of control over the employee’s conduct.-
—The four-fold test is the established standard for determining the existence
of an employer-employee relationship: (a) the selection and engagement of
the employee; (b) the payment of wages; (c) the power of dismissal; and (d)
the power of control over the employee’s conduct. Of the four elements, the
power of control is the most important. Having found that Jobcrest exercised
control over the petitioners’ work, the Court is constrained to determine
whether the petitioners were regular employees of Jobcrest by virtue of the
three other elements of the four-fold test. The petitioners themselves admit
that they were hired by Jobcrest. In their subsequent engagement to
Sunpower, it was Jobcrest that selected and trained the petitioners. Despite
their assignment to Sunpower, Jobcrest paid the petitioners’ wages,
including their contributions to the Social Security System (SSS), Philippine
Health Insurance Corporation (Philhealth), and Home Development Mutual
Fund (HDMF, also known as Pag-IBIG). The power to discipline the
petitioners was also retained by Jobcrest, as evidenced by the “Notice of
Admin Charge/Explanation Slip” furnished the petitioners through Jobcrest’s
Human Resource department. The Court further notes that on December 27,
2010 and January 25, 2011, Leilanie and Leo were respectively confirmed as
regular employees of Jobcrest. Jobcrest did not even deny that the
petitioners were their regular employees. Consequently, the petitioners
cannot be terminated from employment without just or authorized cause.
2. Labor Law;  Labor-Only Contracting;  Article 106 of the Labor Code
defines labor-only contracting as a situation “where the person supplying
workers to an employer does not have substantial capital or investment in
the form of tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such
employer.”-
—Article 106 of the Labor Code defines labor-only contracting as a situation
“where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and
placed by such person are performing activities which are directly related to
the principal business of such employer.”
3. Same;  Job Contracting; In order to become a legitimate contractor, the
contractor must have substantial capital or investment, and must carry a
distinct and independent business free from the control of the principal.-
—In order to become a legitimate contractor, the contractor must have
substantial capital or investment, and must carry a distinct and independent
business free from the control of the principal. In addition, the Court requires
the agreement between the principal and the contractor or subcontractor to
assure the contractual employees’ entitlement to all labor and occupational
safety and health standards, free exercise of the right to self-organization,
security of tenure, and social welfare benefits. Furthermore, the Court
considers job contracting or subcontracting as permissible when the principal
agrees to farm out the performance of a specific job, work or service to the
contractor, for a definite or predetermined period of time, regardless of
whether such job, work, or service is to be performed or completed within or
outside the premises of the principal. Ordinarily, a contractor is presumed to
be a labor-only contractor, unless the contractor is able to discharge the
burden of overcoming this presumption. In cases when it’s the principal
claiming the legitimacy of the contractor, then the burden is borne by the
principal.
4. Same;  Same;  Substantial Capital or Investment;  Words and
Phrases; Substantial capital or investment was defined in Department of
Labor and Employment Department Order (DOLE DO) No. 18-02 as “capital
stocks and subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises, actually and
directly used by the contractor or subcontractor in the performance or
completion of the job, work or service contracted out.”-
—The law and the relevant regulatory rules require the contractor to have
substantial capital or investment, in order to be considered a legitimate and
independent contractor. Substantial capital or investment was defined in
DOLE DO No. 18-02 as “capital stocks and subscribed capitalization in the
case of corporations, tools, equipment, implements, machineries and work
premises, actually and directly used by the contractor or subcontractor in the
performance or completion of the job, work or service contracted out.” DOLE
initially did not provide a specific amount as to what constitutes substantial
capital. It later on specified in its subsequent issuance, DOLE DO No. 18-A,
Series of 2011, that substantial capital refers to paid-up capital stocks/shares
of at least Php3,000,000.00 in the case of corporations. Despite prescribing
a threshold amount under DO No. 18-A, certificates of registration issued
under DO No. 18-02, such as that of Jobcrest, remained valid until its
expiration.
5. Same;  Labor-Only Contractors;  In most cases, despite proof of
substantial capital, the Supreme Court (SC) declared a contractor as a labor-
only contractor whenever it is established that the principal-
— not the alleged legitimate contractor — actually controls the manner of the
employees’ work.—In most cases, despite proof of substantial capital, the
Court declared a contractor as a labor-only contractor whenever it is
established that the principal — not the alleged legitimate contractor —
actually controls the manner of the employees’ work. The element of control
was defined under DOLE DO No. 18-02 as: The “right to control” shall refer
to the right reserved to the person for whom the services of the contractual
workers are performed, to determine not only the end to be achieved, but
also the manner and means to be used in reaching that end. In other words,
the contractor should undertake the performance of the services under its
contract according to its own manner and method, free from the control and
supervision of the principal. Otherwise, the contractor is deemed an
illegitimate or labor-only contractor. The control over the employees’
performance of the work is, as the Court ruled in some cases, usually
manifested through the power to hire, fire, and pay the contractor’s
employees, the power to discipline the employees and impose the
corresponding penalty, and more importantly, the actual supervision of the
employees’ performance. On this point, the petitioners claim that Sunpower
employees supervised their work while in the premises of Sunpower’s own
plant. They also disclaim the affidavits of Sunpower employees, which
denied exercising any form of supervision over the petitioners, by alleging
that these are self-serving assertions. The petitioners also refute the veracity
of the sworn statements of Jobcrest’s employees.
6. Same;  Job Contracting; Job contracting is permissible “whether such
job, work, or service is to be performed or completed within or outside the
premises of the principal” for as long as the elements of labor-only contractor
are not present.-
—The fact that the petitioners were working within the premises of
Sunpower, by itself, does not negate Jobcrest’s control over the means,
method, and result of the petitioners’ work. Job contracting is permissible
“whether such job, work, or service is to be performed or completed within or
outside the premises of the principal” for as long as the elements of a labor-
only contractor are not present. Since Jobcrest was a provider of business
process services, its employees would necessarily work within the premises
of its client companies in order for Jobcrest to perform its contractual
undertaking. Mere physical presence in Sunpower’s plant does not
necessarily mean that Sunpower controlled the means and method of the
petitioners’ work. The petitioners, despite working in Sunpower’s plant for
most of the time, admit that whenever they file their leave application, or
whenever required by their supervisors in Jobcrest, they report to the
Jobcrest office. Designated on-site supervisors from Jobcrest were the ones
who oversaw the performance of the employees’ work within the premises of
Sunpower.
 DECISION
REYES, JR.,  J p:
This is a petition for review on certiorari 1 under Rule 45 of the
Rules of Court, seeking the review of the Decision 2 dated October 8,
2013 and Resolution 3 dated January 13, 2014 of the Court of Appeals
(CA) in CA-G.R. SP No. 131059. In these assailed issuances, the CA
reversed the decision 4 of the National Labor Relations Commission
(NLRC) declaring Leo V. Mago (Leo) and Leilanie E. Colobong (Leilanie)
(petitioners) as employees of Sunpower Philippines Manufacturing
Limited (Sunpower) and consequently, holding that Jobcrest
Manufacturing, Incorporated (Jobcrest) was a labor-only contractor. The
NLRC in turn reversed the ruling 5 of the labor arbiter (LA) dismissing the
petitioners' complaint for illegal dismissal.
Factual Antecedents
The petitioners are former employees of Jobcrest, a corporation
duly organized under existing laws of the Philippines, engaged in the
business of contracting management consultancy and
services. 6 Jobcrest was licensed by the Department of Labor and
Employment (DOLE) through Certificate of Registration No. NCR-
MUNTA-64209-0910-087-R. 7 During the time material to this case, the
petitioners co-habited together. 8
On October 10, 2008, Jobcrest and Sunpower entered into a
Service Contract Agreement, in which Jobcrest undertook to provide
business process services for Sunpower, a corporation principally
engaged in the business of manufacturing automotive computer and
other electronic parts. 9 Jobcrest then trained its employees, including
the petitioners, for purposes of their engagement in Sunpower. 10 After
the satisfactory completion of this training, the petitioners were assigned
to Sunpower's plant in Laguna Technopark. Leo was tasked as a
Production Operator in the Coinstacking Station on July 25,
2009, 11 while Leilanie was assigned as a Production Operator, tasked
with final visual inspection in the Packaging Station on June 27,
2009. 12 Jobcrest's On-site Supervisor, Allan Dimayuga (Allan),
supervised the petitioners during their assignment with
Sunpower. 13 HESIcT
It was alleged that sometime in October 2011, Sunpower
conducted an operational alignment, which affected some of the services
supplied by Jobcrest. Sunpower decided to terminate the
Coinstacking/Material Handling segment and the Visual Inspection
segment. 14 Meanwhile, Leo and Leilanie were respectively on paternity
and maternity leave because Leilanie was due to give birth to their
common child. 15
When Leo reported for work to formally file his paternity leave,
Allan purportedly informed Leo that his employment was terminated due
to his absences. Leo, however, further alleged that he was asked to
report to Jobcrest on December 14, 2011 for his assignment to
Sunpower. 16 In their defense, both Jobcrest and Allan denied
terminating Leo's employment from Jobcrest. 17
Leo complied with the directive to go to Jobcrest's office on
December 14, 2011. While he was there, Jobcrest's Human Resource
Manager, Noel J. Pagtalunan (Noel), served Leo with a "Notice of Admin
Charge/Explanation Slip." 18 The notice stated that Leo violated the
Jobcrest policy against falsification or tampering because he failed to
disclose his relationship with Leilanie. Leo denied the charges and
explained that he already filed a complaint for illegal dismissal with the
NLRC. 19
Leilanie, on the other hand, alleged that when she reported for
work at Jobcrest on November 29, 2011, she was informed by one of the
Jobcrest personnel that she will be transferred to another client
company. She was likewise provided a referral slip for a medical
examination, pursuant to her new assignment. 20
Instead of complying with Jobcrest's directives, Leo and Leilanie
filed a complaint for illegal dismissal and regularization on December 15,
2011, with the NLRC Regional Arbitration Branch No. IV. Leo alleged
that he was dismissed on October 30, 2011, while Leilanie alleged that
she was dismissed from employment on December 4, 2011. 21 Despite
the filing of the complaint, Leilanie returned to Jobcrest on December 16,
2011, where she was served with a similar "Notice of Admin
Charge/Explanation Slip," requiring her to explain why she failed to
disclose her co-habitation status with Leo. 22
During the mandatory conference, Jobcrest clarified that the
petitioners were not dismissed from employment and offered to accept
them when they report back to work. The petitioners refused and insisted
that they were regular employees of Sunpower, not Jobcrest. 23
There being no amicable settlement of the matter among the
parties, they proceeded to file their respective position papers. 24
Ruling of the LA
In a Decision 25 dated July 3, 2012, the LA held that Jobcrest is
a legitimate independent contractor and the petitioners' statutory
employer:
 WHEREFORE, premises considered, the
complaint for illegal dismissal against [Sunpower] and
Dwight Deato is DISMISSED for lack of employer-
employee relationship. [Jobcrest] is declared as the
statutory employer and is ordered to reinstate
complainants sans backwages to substantially
equivalent positions within ten (10) days from receipt
hereof.
SO ORDERED. 26
The LA found the capital of Jobcrest substantial enough to
comply with the requirements for an independent contractor, and that
Jobcrest exercised control over the petitioners' work. 27 The LA likewise
rejected the petitioners' claim that they were illegally dismissed, ruling
that the petitioners failed to establish the fact of dismissal itself. 28
Jobcrest partially appealed the LA's Decision dated July 3, 2012.
Among its arguments is the assertion that the petitioners refused to be
reinstated. Hence, they were considered constructively resigned from
their employment with Jobcrest, especially because they obtained a job
somewhere else. As an alternative relief, Jobcrest prayed that it be
directed to pay the petitioners' separation pay instead of reinstating them
to their former positions. 29
The petitioners, on the other hand, attributed serious error on the
LA for ruling against their complaint. 30
Ruling of the NLRC
The NLRC reversed the LA's findings in its Decision 31 dated
April 24, 2013 and ruled favorably for the petitioners, viz.:
WHEREFORE, the decision appealed from is
hereby SET ASIDE and a NEW ONE ENTERED
declaring that [the petitioners] are regular employees of
respondent [Sunpower], respondent [Jobcrest] being a
mere labor-only contractor that [petitioners] were illegally
dismissed; hence, respondent [Sunpower] is hereby
ordered to reinstate them to their former position with full
backwages, from the time they were refused to work on
October 31, 2011 until reinstated, within ten (10) days
from notice plus 10% of the total monetary awards as
and for attorney's fees.
SO ORDERED. 32
According to the NLRC, the contract between Jobcrest and
Sunpower was for the sole supply of manpower. The tools and
equipment for the performance of the work were for the account of
Sunpower, which supposedly contradicted the claim that Jobcrest has
the required capital for a legitimate contractor. 33 The NLRC also
disagreed that Jobcrest exercised control over the petitioners and
likewise gave more credence to the petitioners' sworn statements, which
narrate that Sunpower employees allegedly supervised their
work. 34 Lastly, on the basis of the "Notice of Administrative
Charge/Explanation Slip" furnished to the petitioners, the NLRC reversed
the LA's ruling and held that the petitioners were illegally dismissed from
employment. 35
Sunpower moved for the reconsideration of the NLRC's Decision
dated April 24, 2013. 36 Unconvinced, the NLRC denied this motion in its
Resolution 37 dated May 28, 2013 as follows:
WHEREFORE, the instant Motion for
Reconsideration is hereby DENIED for lack of merit.
No further motion of this nature shall be
entertained.
SO ORDERED. 38
As a result of the NLRC's ruling, Sunpower filed a petition
for certiorari with the CA, with a prayer for the issuance of an injunctive
writ. 39 Sunpower attributed grave abuse of discretion, amounting to lack
or excess of jurisdiction, on the NLRC for holding that the petitioners
were regular employees of Sunpower despite evidence to the
contrary. 40 Sunpower also disagreed that Jobcrest is a labor-only
contractor, and further submitted that the NLRC misinterpreted its
Service Contract Agreement with Jobcrest. 41 caITAC
Ruling of the CA
In a Decision 42 dated October 8, 2013, the CA granted
Sunpower's petition for certiorari and enjoined the implementation of the
assailed NLRC ruling:
WHEREFORE, premises considered, the
Petition is GRANTED. The Decision dated 24 April 2013
and Resolution dated 28 May 2013 of the [NLRC]
(Second Division) in NLRC-LAC No. 09-002582-12;
NLRC RAB-IV-12-01978-11-B are NULLIFIED. All the
respondents and/or persons acting for and on their
behalf are ENJOINED from enforcing or implementing
the same. The Decision dated 03 July 2012 of LA Renell
 Joseph R. Dela Cruz is hereby REINSTATED. No
pronouncement as to costs.
SO ORDERED. 43
The CA ruled that Sunpower was able to overcome the
presumption that Jobcrest was a labor-only contractor, especially
considering that the DOLE Certificate of Registration issued in favor of
Jobcrest carries the presumption of regularity. In contrast with the NLRC
ruling, the CA found that the Service Contract Agreement between
Sunpower and Jobcrest specifically stated the job or task contracted out
by stating that it was for the performance of various business process
services. 44 The CA also held that Jobcrest has substantial capital and
as such, it was no longer necessary to prove that it has investment in the
form of tools, equipment, machinery, and work premises. 45
Also, the CA found that there is an employer-employee
relationship between Jobcrest and the petitioners under the four-fold test.
The CA appreciated the affidavits of Jobcrest employees, as well as the
sworn statements of Sunpower employees who the petitioners claim to
supervise their work. In these statements, the Sunpower employees
categorically denied under oath that they supervised the manner of the
petitioners' work. Taken together with other pieces of evidence, the CA
ruled that there was no employer-employee relationship between
Sunpower and the petitioners. Finally, the CA held that any form of
supervision, which Sunpower exercised over the results of the
petitioners' work, was necessary and allowable under the
circumstances. 46
Consequently, the CA rejected the claim that the petitioners were
illegally dismissed from employment, especially in light of Jobcrest's
earlier offer to accept the petitioners' return to work. 47
Following their receipt of the CA's Decision dated October 8,
2013, the petitioners filed their Motions for Reconsideration and to
Investigate the Reviewer Who Recommended the Palpably Erroneous
Decision. 48 The CA firmly denied these motions in its
Resolution 49 dated January 13, 2014 for failure to raise any substantial
argument that would warrant the reconsideration of its decision:
WHEREFORE, premises considered, the
Motions for Reconsideration and to Investigate the
Reviewer Who Recommended the Palpably Erroneous
Decision are DENIED for sheer lack of merit.
SO ORDERED. 50
The petitioners are now before this Court, seeking to reverse and
set aside the CA's issuances, and to reinstate the NLRC's
decision. 51 The petitioners insist that Jobcrest is a labor-only contractor,
and that the DOLE Certificate of Registration is not conclusive of
Jobcrest's legitimate status as a contractor. 52 They further argue that,
aside from lacking substantial capital, Jobcrest only supplied manpower
to Sunpower. 53 These services, the petitioners allege, are directly
related and necessary to Sunpower's business. 54
Furthermore, the petitioners submit that it was Sunpower that
controlled their work. They refute the evidentiary weight and value of the
sworn statements of Jobcrest and Sunpower employees. 55 The
petitioners assert that the NLRC was correct in ruling that Sunpower was
their statutory employer, and in ordering their reinstatement with payment
of full backwages and attorney's fees. 56 The petitioners thus pray that
this Court reverse and set aside the Decision dated October 8, 2013 and
Resolution dated January 13, 2014 of the CA. 57
Ruling of the Court
The Court resolves to deny the petition.
Jobcrest is a legitimate and
independent contractor.
Article 106 of the Labor Code defines labor-only contracting as a
situation "where the person supplying workers to an employer
does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers
recruited and placed by such person are performing activities which are
directly related to the principal business of such employer." 58
DOLE Department Order (DO) No. 18-02, the regulation in force
at the time of the petitioners' assignment to Sunpower, reiterated the
language of the Labor Code:
Section 5. Prohibition against labor-only
contracting. — x x x [L]abor-only contracting shall refer
to an arrangement where the contractor or subcontractor
merely recruits, supplies or places workers to perform a
job, work or service for a principal, and any of the
following elements are present:
 1) The contractor or subcontractor does not have
substantial capital or investment which
relates to the job, work or service to be
performed and the employees recruited,
supplied or placed by such contractor or
subcontractor are performing activities
which are directly related to the main
business of the principal; or
ii) the contractor does not exercise the right to
control over the performance of the work
of the contractual employee.
Thus, in order to become a legitimate contractor, the contractor
must have substantial capital or investment, and must carry a distinct
and independent business free from the control of the principal. In
addition, the Court requires the agreement between the principal and the
contractor or subcontractor to assure the contractual employees'
entitlement to all labor and occupational safety and health standards,
free exercise of the right to self-organization, security of tenure, and
social welfare benefits. 59
Furthermore, the Court considers job contracting or
subcontracting as permissible when the principal agrees to farm out the
performance of a specific job, work or service to the contractor, for a
definite or predetermined period of time, regardless of whether such job,
work, or service is to be performed or completed within or outside the
premises of the principal. 60 Ordinarily, a contractor is presumed to be a
labor-only contractor, unless the contractor is able to discharge the
burden of overcoming this presumption. In cases when it's the principal
claiming the legitimacy of the contractor, then the burden is borne by the
principal. 61
Preliminarily, the Court finds that there is no such burden resting
on either Sunpower or Jobcrest in this case. It is true that Sunpower
maintained its position that Jobcrest is a legitimate and independent
contractor. 62 But since the petitioners do not dispute that Jobcrest was
a duly-registered contractor under Section 11 of DOLE DO No. 18-
02, 63 there is no operative presumption that Jobcrest is a labor-only
contractor. 64
Conversely, the fact of registration with DOLE does not
necessarily create a presumption that Jobcrest is a legitimate and
independent contractor. The Court emphasizes, however, that the
DOLE Certificate of Registration issued in favor of Jobcrest is
presumed to have been issued in the regular performance of official
duty. 65 In other words, the DOLE officer who issued the certificate in
favor of Jobcrest is presumed, unless proven otherwise, to have
evaluated the application for registration in accordance with the
applicable rules and regulations. 66 The petitioners must overcome the
presumption of regularity accorded to the official act of DOLE, which is
no less than the agency primarily tasked with the regulation of job
contracting. 67 ICHDca
For the reasons discussed below, the Court is constrained to
give more weight to the substantiated allegations of Sunpower, as
opposed to the unfounded self-serving accusations of the petitioners.
Jobcrest has substantial capital.
The law and the relevant regulatory rules require the contractor
to have substantial capital or investment, in order to be considered a
legitimate and independent contractor. Substantial capital or
investment was defined in DOLE DO No. 18-02 as "capital stocks and
subscribed capitalization in the case of corporations, tools, equipment,
implements, machineries and work premises, actually and directly used
by the contractor or subcontractor in the performance or completion of
the job, work or service contracted out." DOLE initially did not provide a
specific amount as to what constitutes substantial capital. It later on
specified in its subsequent issuance, DOLE DO No. 18-A, series of 2011,
that substantial capital refers to paid-up capital stocks/shares of at least
Php3,000,000.00 in the case of corporations. 68 Despite prescribing a
threshold amount under DO No. 18-A, certificates of registration issued
under DO No. 18-02, such as that of Jobcrest, remained valid until its
expiration. 69
The records show that as early as the proceedings before the
LA, Jobcrest established that it had an authorized capital stock of
Php8,000,000.00, Php2,000,000.00 of which was subscribed, and a
paid-up capital stock of Php500,000.00, in full compliance with Section
13 of the Corporation Code. 70 For the year ended December 31,
2011, the paid-up capital of Jobcrest increased to
Php8,000,000.00, 71 notably more than the required capital
under DOLE DO No. 18-A. 72
The balance sheet submitted by Jobcrest for the year ending on
December 31, 2010 also reveals that its total assets for the year 2009
amounted to Php11,280,597.94, and Php16,825,271.30 for the year
2010, which were comprised of office furniture, fixtures and
equipment, land, building, and motor vehicles, among others. 73 As
of December 31, 2012, the total assets for the years 2011 and 2012 also
increased to Php35,631,498.58 and Php42,603,167.16, respectively. 74
Evidently, Jobcrest had substantial capital to perform the
business process services it provided Sunpower. It has its own office, to
which the petitioners admittedly reported to, possessed numerous assets
for the conduct of its business, and even continuously earned profit as a
result. 75 The Court can therefore reasonably conclude from Jobcrest's
financial statements that it carried its own business independent from Suncrest does not control the
and distinctly outside the control of its principals. manner by which the petitioners
accomplished their work.
The petitioners argue that the amount of substantial capital is
irrelevant because Sunpower provided the tools and owned the work
In most cases, despite proof of substantial capital, the Court
premises. These supposedly negate the claim that Jobcrest has
declared a contractor as a labor-only contractor whenever it is
substantial capital. 76
established that the principal-not the alleged legitimate contractor-
The Court does not agree with the petitioners. actually controls the manner of the employees' work. 80 The element
of control was defined under DOLE DO No. 18-02 as:
DOLE DO No. 18-02 and DO No. 18-A, as well as Article 106 of
the Labor Code itself, all use the conjunctive term "or" in prescribing that The "right to control" shall refer to the right
the contractor should have substantial capital or investment. Having reserved to the person for whom the services of the
established that Jobcrest had substantial capital, it is unnecessary for contractual workers are performed, to determine not only
this Court to determine whether it had sufficient investment in the form of the end to be achieved, but also the manner and means
tools, equipment, machinery and work premises. to be used in reaching that end. 81
In Neri v. NLRC, 77 the Court rejected the same argument put In other words, the contractor should undertake the performance
forward by the petitioners, and ruled that proof of either substantial of the services under its contract according to its own manner and
capital or investment is sufficient for purposes of determining whether the method, free from the control and supervision of the
first element of labor-only contracting is absent: principal. 82 Otherwise, the contractor is deemed an illegitimate or labor-
only contractor.
Based on the foregoing, BCC cannot be
considered a "labor-only" contractor because it has The control over the employees' performance of the work is, as
substantial capital. While there may be no evidence that the Court ruled in some cases, usually manifested through the power to
it has investment in the form of tools, equipment, hire, fire, and pay the contractor's employees, 83 the power to discipline
machineries, work premises, among others, it is enough the employees and impose the corresponding penalty, 84 and more
that it has substantial capital, as was established before importantly, the actual supervision of the employees' performance. 85 On
the Labor Arbiter as well as the NLRC. In other words, this point, the petitioners claim that Sunpower employees supervised
the law does not require both substantial capital and their work while in the premises of Sunpower's own plant. They also
investment in the form of tools, equipment, machineries, disclaim the affidavits of Sunpower employees, which denied exercising
etc. This is clear from the use of the conjunction "or." If any form of supervision over the petitioners, 86 by alleging that these are
the intention was to require the contractor to prove self-serving assertions. The petitioners also refute the veracity of the
that he has both capital and the requisite sworn statements of Jobcrest's employees. 87
investment, then the conjunction "and" should have
been used. But, having established that it has
substantial capital, it was no longer necessary for BCC
to further adduce evidence to prove that it does not fall
within the purview of "labor-only" contracting. There is
even no need for it to refute petitioners' contention that
the activities they perform are directly related to the
principal business of respondent bank. 78 (Emphasis
Ours)
The agreement between Jobcrest and Sunpower also complied
with the statutory requirement of ensuring the observance of the
contractual employees' rights under the law. Specifically, paragraph 7 of
the Service Contract Agreement obligates Jobcrest to observe all laws,
rules and regulations pertaining to the employment of its employees. 79
 Upon review of the records, the Court finds that the evidence
clearly points to Jobcrest as the entity that exercised control over the
petitioners' work with Sunpower. Upon the petitioners' assignment to
Sunpower, Jobcrest conducted a training and certification program,
during which time, the petitioners reported directly to the designated
Jobcrest trainer. 88 The affidavit of Jobcrest's Operations Manager,
Kathy T. Morales (Kathy), states that operational control over Jobcrest
employees was exercised to make sure that they conform to the quantity
and time specifications of the service agreements with Jobcrest's clients.
She narrated that manager and shift supervisors were assigned to the
premises of Sunpower, with the task to oversee the accomplishment of
the target volume of work. She also mentioned that there is
administrative control over Jobcrest employees because they monitor the
employees' attendance and punctuality, and the employees' observance
of other rules and regulations. 89
The affidavit of Kathy was markedly corroborated by the sworn
statement of Jobcrest's On-site Supervisor, Allan, in which he affirmed
that he directly supervised the petitioners while they were stationed in
Sunpower. He also confirmed that during this period, he issued several
memoranda to the petitioners for violating rules and regulations, and
provided their hourly output performance assessment, which
"determine[s] their fitness to continue their employment with
Jobcrest." 90
The petitioners' very own sworn statements further
establish this point. In his statement, Leo averred that when he
reported for work to file his application for paternity leave, he reported to
Allan, Jobcrest's supervisor, who then approved his leave application. He
likewise narrated that it was Jobcrest's Human Resource Manager, Noel,
who informed Leo about the disciplinary charge against him for allegedly
violating the Jobcrest Code of Conduct. 91
The same conclusion holds for Leilanie. In her statement,
Leilanie narrated that she reported for work to the Jobcrest office on
November 29, 2011 after giving birth to her second child. She also
alleged in her affidavit that similar to Leo, it was Noel who informed her
of the disciplinary action against her, through the service of a copy of the
"Notice of Admin Charge/Explanation Slip." 92 TCAScE
Notably, other documentary evidence plainly show that Leo's
paternity leave application was indeed filed with Jobcrest, 93 and the
respective notices of disciplinary action against the petitioners were
prepared and signed by the Jobcrest Human Resource
Manager. 94 These are clear indications that Jobcrest exercised control
over the petitioners' work.
The fact that the petitioners were working within the premises of
Sunpower, by itself, does not negate Jobcrest's control over the means,
method, and result of the petitioners' work. 95 Job contracting is
permissible "whether such job, work, or service is to be performed or
completed within or outside the premises of the principal" 96 for as long
as the elements of a labor-only contractor are not present. Since
Jobcrest was a provider of business process services, its employees
would necessarily work within the premises of its client companies in
order for Jobcrest to perform its contractual undertaking. Mere physical
presence in Sunpower's plant does not necessarily mean that Sunpower
controlled the means and method of the petitioners' work. The
petitioners, despite working in Sunpower's plant for most of the time,
admit that whenever they file their leave application, or whenever
required by their supervisors in Jobcrest, they report to the Jobcrest
office. Designated on-site supervisors from Jobcrest were the ones who
oversaw the performance of the employees' work within the premises of
Sunpower.
Besides, while the Court repeatedly recognizes that there are
employers who abuse the system of subcontracting, we also
acknowledge that contracts for services does not necessarily
provide "untrammeled freedom" to the contractor in undertaking
the engagement. 97 What is important, as incontrovertibly established in
this case, is that the principal's right to control is limited to the results of
the work of the contractor's employees.
The petitioners were regular
employees of Jobcrest.
The four-fold test is the established standard for determining the
existence of an employer-employee relationship: 98 (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the power of control over the employee's conduct. Of
the four elements, the power of control is the most important. 99 Having
found that Jobcrest exercised control over the petitioners' work, the Court
is constrained to determine whether the petitioners were regular
employees of Jobcrest by virtue of the three other elements of the four-
fold test.
The petitioners themselves admit that they were hired by
Jobcrest. 100 In their subsequent engagement to Sunpower, it was
Jobcrest that selected and trained the petitioners. 101 Despite their
assignment to Sunpower, Jobcrest paid the petitioners' wages, including
their contributions to the Social Security System (SSS), Philippine Health
Insurance Corporation (Philhealth), and Home Development Mutual Fund
(HDMF, also known as Pag-IBIG). 102 The power to discipline the
petitioners was also retained by Jobcrest, as evidenced by the "Notice of
Admin Charge/Explanation Slip" furnished the petitioners through
Jobcrest's Human Resource department. 103
 The Court further notes that on December 27, 2010 and January In MZR Industries, et al. v. Colambot, 110 the employee claimed
25, 2011, Leilanie and Leo were respectively confirmed as regular to have been illegally dismissed through a verbal directive. The employer
employees of Jobcrest. 104 Jobcrest did not even deny that the denied this and alleged waiting for the employee to report for work, only
petitioners were their regular employees. Consequently, the petitioners to later find out that a complaint for illegal dismissal was filed against
cannot be terminated from employment without just or authorized them. The Court recognized that while the employer is generally required
cause. 105 to establish the legality of the employee's termination, the employee
should first establish the fact of dismissal from service. Failing such, as in
A review of the petitioners' repeated submissions reveals that
this case, the Court cannot rule that the employee was illegally
while they claim to have been illegally dismissed from
dismissed.
employment, 106 Jobcrest actually intended to assign Leo again to
Sunpower, and provide Leilanie with another engagement with a different The "Notice of Admin Charge/Explanation Slip" is also
client company. The petitioners all admitted to these facts in their sworn insufficient proof of the petitioners' termination from employment. The
statement, heavily quoted in their position paper filed with the LA: 107 notice merely required the petitioners to explain whether they violated
Jobcrest's Code of Conduct. No penalty was imposed on the petitioners
41. Noong December 14, 2011, ako [Leo Mago] ay
yet when they were furnished with a copy of the notices. 111 In fact,
tinawagan sa aking cellular phone ng
Jobcrest was unable to take the appropriate action on the charge,
nagpakilalang Julie at taga HR ng JOBCREST
considering that the petitioners immediately filed their complaint for illegal
at ang sabi sa akin ay magreport umano ako sa
dismissal with the NLRC the following day, or on December 15,
opisina upang ipadala sa SUNPOWER;
2011. 112
xxx xxx xxx
All things considered, Sunpower is not the statutory employer of
44. Noong November 29, 2011, ako [Leilani Colobong] the petitioners. The circumstances obtaining in this case, as supported
ay nagreport sa JOBCREST at aking nakausap by the evidence on record, establish that Jobcrest was a legitimate and
ang isa sa staff ng JOBCREST na hindi ko independent contractor. There is no reason for this Court to depart from
alam ang pangalan at ang sabi niya sa akin ay the CA's findings.
ililipat umano ako sa kompanyang FIRST
WHEREFORE, premises considered, the present petition is
SUMIDEN dahil hindi na umano ako pwedeng
hereby DENIED for lack of merit. The Court of Appeals' Decision dated
m[a]gtrabaho sa SUNPOWER na hindi niya sinabi
October 8, 2013 and Resolution dated January 13, 2014 in CA-G.R. SP
kung anu ang dahilan;
No. 131059 are AFFIRMED, which nullified the National Labor Relations
45. Noong December 1, 2011, ako ay bumalik sa Commission's Decision dated April 24, 2013 and Resolution dated May
JOBCREST at ako ay binigyan nila ng referral 28, 2013, and reinstated the Labor Arbiter's Decision dated July 3, 2012.
para magpamedical para sa aking bagong No costs. cTDaEH
requirements diumano sa aking bagong trabaho
SO ORDERED.
sa FIRST SUMIDEN dahil hindi na talaga umano
ako tatanggapin sa SUNPOWER sa aking Carpio, Peralta, Perlas-Bernabe  and Caguioa, JJ., concur.
pagbabalik trabaho ng December 4, 2011 na hindi
naman niya sinabi kung anu ang dahilan; Kalakip
nito ang nas[a]bing referral slip bilang Exhibit
"S" 108 (Emphasis Ours)
It was also uncontroverted that Jobcrest offered to accept the
petitioners' return to work, but they refused this offer during the
mandatory conference. 109 Clearly, the petitioners were not illegally
dismissed, much less terminated from their employment. There is
nothing on record that established the dismissal of the petitioners in the
first place.
[G.R. No. 162420. April 22, 2008.]
 JAGUAR SECURITY and INVESTIGATION
AGENCY,  petitioner, vs. RODOLFO A. SALES, JAIME L.
MORON, MELVIN R. TAMAYO, JESUS B. SILVA, JR.,
DIONISIO C. CARANYAGAN, DANETH FETALVERO
and DELTA MILLING INDUSTRIES, INC., respondents.
Labor Law; Indirect Employers; Under Articles 106, 107 and 109
of the Labor Code, the joint and several liability of the contractor and the
principal is mandated to assure compliance with the provisions therein
including the statutory minimum wage.—There is no question as regards
the respective liabilities of petitioner and Delta Milling. Under Articles
106, 107 and 109 of the Labor Code, the joint and several liability of the
contractor and the principal is mandated to assure compliance of the
provisions therein including the statutory minimum wage. The contractor,
petitioner in this case, is made liable by virtue of his status as direct
employer. On the other hand, Delta Milling, as principal, is made the
indirect employer of the contractor’s employees for purposes of paying
the employees their wages should the contractor be unable to pay them.
This joint and several liability facilitates, if not guarantees, payment of the
workers’ performance of any work, task, job or project, thus giving the
workers ample protection as mandated by the 1987 Constitution.
Same; Same; Jurisdictions; The contractor can not claim
reimbursement from the principal through a cross-claim filed with the
labor court—the claim is within the realm of civil law and jurisdiction over
the case belongs to the regular courts.—The question that now arises is
whether petitioner may claim reimbursement from Delta Milling through a
cross-claim filed with the labor court. This question has already been
decisively resolved in Lapanday Agricultural Development Corporation v.
Court of Appeals, 324 SCRA 39 (2000) to wit: We resolve first the issue
of jurisdiction. We agree with the respondent that the RTC has
jurisdiction over the subject matter of the present case. It is well-settled in
law and jurisprudence that where no employer-employee relationship
exists between the parties and no issue is involved which may be
resolved by reference to the Labor Code, other labor statutes or any
collective bargaining agreement, it is the Regional Trial Court that has
jurisdiction. In its complaint, private respondent is not seeking any relief
under the Labor Code but seeks payment of a sum of money and
damages on account of petitioner’s alleged breach of its obligation under
their Guard Service Contract. The action is within the realm of civil law
hence jurisdiction over the case belongs to the regular courts. While the
resolution of the issue involves the application of labor laws, reference to
the labor code was only for the determination of the solidary liability of
the petitioner to the respondent where no employer-employee relation
exists.
Obligations and Contracts; Payment, which means not only the
delivery of money but also the performance, in any other manner, of the
obligation, is the operative fact which will entitle either of the solidary
debtors to seek reimbursement for the share which corresponds to each
of the debtors.—The liability of Delta Milling to reimburse petitioner will
only arise if and when petitioner actually pays its employees the
adjudged liabilities. Payment, which means not only the delivery of
money but also the performance, in any other manner, of the obligation,
is the operative fact which will entitle either of the solidary debtors to
seek reimbursement for the share which corresponds to each of the
debtors.
PETITION for review on certiorari of the decision and resolution
of the Court of Appeals. Jaguar Security and Investigation Agency vs.
Sales, 552 SCRA 295, G.R. No. 162420 April 22, 2008
DECISION
AUSTRIA-MARTINEZ, J  p:
Assailed in the present Petition for Review on  Certiorari  is the
Court of Appeals (CA) Decision 1 dated October 21, 2002 and
Resolution 2 dated February 13, 2004, dismissing the petition filed by
Jaguar Security and Investigation Agency (petitioner) and affirming the
National Labor Relations Commission (NLRC) Resolutions dated
September 19, 2000 and November 9, 2001.
The facts of the case, as narrated by the CA, are undisputed:
Petitioner Jaguar Security and Investigation
Agency ("Jaguar") is a private corporation engaged in the
business of providing security services to its clients, one of
whom is Delta Milling Industries, Inc. ("Delta").
Private respondents Rodolfo Sales, Melvin
Tamayo, Dionisio Caranyagan, Jesus Silva, Jr., Jaime
Moron and Daneth Fetalvero were hired as security guards
by Jaguar. They were assigned at the premises of Delta in
Libis, Quezon City. Caranyagan and Tamayo were
terminated by Jaguar on May 26, 1998 and August 21,
1998, respectively. Allegedly their dismissals were
arbitrary and illegal. Sales, Moron, Fetalvero and Silva
remained with Jaguar. All the guard-employees, claim for
monetary benefits such as underpayment, overtime pay,
rest day and holiday premium pay, underpaid 13th month
pay, night shift differential, five days service and incentive
leave pay. In addition to these money claims, Caranyagan
and Tamayo argue that they were entitled to separation
pay and back wages, for the time they were illegally
dismissed until finality of the decision. Furthermore, all
respondents claim for moral and exemplary damages.
On September 18, 1998, respondent security
guards instituted the instant labor case before the labor
arbiter.
xxx xxx xxx
On May 25, 1999, the labor arbiter rendered a
decision in favor of private respondents Sales, et al., the
dispositive portion of which provides:
"WHEREFORE, judgment is hereby
rendered dismissing the charges of illegal
dismissal on the part of the complainants MELVIN
R. TAMAYO and DIONISIO C. CARANYAGAN for
lack of merit but ordering respondents JAGUAR
SECURITY AND INVESTIGATION AGENCY and
DELTA MILLING INDUSTRIES, INC., to jointly
and severally pay all the six complainants, namely:
RODOLFO A. SALES, MELVIN R. TAMAYO,
JAIME MORON and DANETH FETALVERO the
following money claims for their services rendered
from April 24, 1995 to April 24, 1998:
a) wage differentials
b) overtime pay differentials (4 hours a
day)
c) rest day pay
d) holiday pay
e) holiday premium pay
f) 13th month pay differentials
g) five days service incentive leave pay
per year subject to the exception
earlier cited.
The Research and Information Unit of this
Commission is hereby directed to compute and
quantify the above awards and submit a report
thereon within 15 days from receipt of this
decision.
For purposes of any appeal, the appeal
bond is tentatively set at P100,000.00.
All other claims are DISMISSED for lack of
merit.
SO ORDERED."
On July 1, 1999, petitioner Jaguar filed a partial
appeal questioning the failure of public respondent NLRC
to resolve its cross-claim against Delta as the party
ultimately liable for payment of the monetary award to the
security guards.
In its Resolution dated September 19, 2000, the
NLRC dismissed the appeal, holding that it was not the
proper forum to raise the issue. It went on to say that
Jaguar, being the direct employer of the security guards, is
the one principally liable to the employees. Thus, it
directed petitioner to file a separate civil action for recovery
of the amount before the regular court having jurisdiction
over the subject matter, for the purpose of proving the
liability of Delta.
Jaguar sought reconsideration of the dismissal,
but the Commission denied the same in its Resolution
dated November 9, 2001. 3
Petitioner filed a petition for  certiorari with the CA, which, in the
herein assailed Decision dated October 21, 2002 4 and Resolution dated
February 13, 2004, 5 dismissed the petition for lack of merit.
In the present petition, the following error is set forth as a ground
for the modification of the assailed Decision and Resolution:
WITH ALL DUE RESPECT, THE COURT OF
APPEALS ERRED IN NOT RESOLVING PETITIONER'S
CROSS-CLAIM AGAINST PRIVATE RESPONDENT
DELTA MILLING INDUSTRIES, INC. 6
 Petitioner insists that its cross-claim should have been ruled
upon in the labor case as the filing of a cross-claim is allowed under
Section 3 of the NLRC Rules of Procedure which provides for the
suppletory application of the Rules of Court. Petitioner argues that the
claim arose out of the transaction or occurrence that is the subject matter
of the original action. Petitioner further argues that as principal, Delta
Milling Industries, Inc. (Delta Milling) is liable for the awarded wage
increases, pursuant to Wage Order Nos. NCR-04, NCR-05 and NCR-06;
and in line with the ruling in Eagle Security Agency, Inc. v. National
Labor Relations Commission, 7 petitioner should be reimbursed of any
payments to be made.
There is no question as regards the respective liabilities of
petitioner and Delta Milling. Under Articles 106, 107 and 109 of the Labor
Code, the joint and several liability of the contractor and the principal is
mandated to assure compliance of the provisions therein including the
statutory minimum wage. The contractor, petitioner in this case, is made
liable by virtue of his status as direct employer. On the other hand, Delta
Milling, as principal, is made the indirect employer of the contractor's
employees for purposes of paying the employees their wages should the
contractor be unable to pay them. This joint and several liability
facilitates, if not guarantees, payment of the workers' performance of any
work, task, job or project, thus giving the workers ample protection as
mandated by the 1987 Constitution. 8
However, in the event that petitioner pays his obligation to the
guard employees pursuant to the Decision of the Labor Arbiter, as
affirmed by the NLRC and CA, petitioner has the right of reimbursement
from Delta Milling under Article 1217 of the Civil Code, which provides:
Art. 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which offer to
accept.
He who made the payment may claim from his co-
debtors only the share which corresponds to each, with the
interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening
period may be demanded.
xxx xxx xxx
The question that now arises is whether petitioner may claim
reimbursement from Delta Milling through a cross-claim filed with the
labor court.
This question has already been decisively resolved in  Lapanday
Agricultural Development Corporation v. Court of Appeals, 9 to wit:
We resolve first the issue of jurisdiction. We agree
with the respondent that the RTC has jurisdiction over the
subject matter of the present case. It is well-settled in law
and jurisprudence that where no employer-employee
relationship exists between the parties and no issue is
involved which may be resolved by reference to the Labor
Code, other labor statutes or any collective bargaining
agreement, it is the Regional Trial Court that has
jurisdiction. In its complaint, private respondent is not
seeking any relief under the Labor Code but seeks
payment of a sum of money and damages on account of
petitioner's alleged breach of its obligation under their
Guard Service Contract. The action is within the realm
of civil law hence jurisdiction over the case belongs to
the regular courts. While the resolution of the issue
involves the application of labor laws, reference to the
labor code was only for the determination of the
solidary liability of the petitioner to the respondent
where no employer-employee relation exists. Article
217 of the Labor Code as amended vests upon the labor
arbiters exclusive original jurisdiction only over the
following:
1. Unfair labor practices;
2. Termination disputes;
3. If accompanied with a claim for reinstatement,
those cases that workers may file
involving wages, rates of pay, hours of
work and other terms and conditions of
employment;
4. Claims for actual, moral exemplary and other
forms of damages arising from employer-
employee relations;
5. Cases arising from any violation of Article 264
of this Code, including questions involving
legality of strikes and lockouts; and
6. Except claims for Employees Compensation,
Social Security, Medicare and maternity
benefits, all other claims, arising from
employer-employee relations, including
those of persons in domestic or household
service, involving an amount exceeding
five thousand pesos (P5,000.00)
 regardless of whether accompanied with a WHEREFORE, the petition is DENIED.
claim for reinstatement.
Double costs against petitioner.
In all these cases, an employer-employee SO ORDERED.
relationship is an indispensable jurisdictional requisite; and
there is none in this case. 10 (Emphasis supplied)
The jurisdiction of labor courts extends only to cases where an employer-
employee relationship exists.
In the present case, there exists no employer-employee
relationship between petitioner and Delta Milling. In its cross-claim,
petitioner is not seeking any relief under the Labor Code but merely
reimbursement of the monetary benefits claims awarded and to be paid
to the guard employees. There is no labor dispute involved in the cross-
claim against Delta Milling. Rather, the cross-claim involves a civil
dispute between petitioner and Delta Milling. Petitioner's cross-claim is
within the realm of civil law, and jurisdiction over it belongs to the regular
courts.
Moreover, the liability of Delta Milling to reimburse petitioner will
only arise if and when petitioner actually pays its employees the
adjudged liabilities. 11 Payment, which means not only the delivery of
money but also the performance, in any other manner, of the obligation,
is the operative fact which will entitle either of the solidary debtors to
seek reimbursement for the share which corresponds to each of the
debtors. 12 In this case, it appears that petitioner has yet to pay the
guard employees. As stated in Lapanday:
However, it is not disputed that the private
respondent has not actually paid the security guards the
wage increases granted under the Wage Orders in
question. Neither is it alleged that there is an extant claim
for such wage adjustments from the security guards
concerned, whose services have already been terminated
by the contractor. Accordingly, private respondent has no
cause of action against petitioner to recover the wage
increases. Needless to stress, the increases in wages are
intended for the benefit of the laborers and the contractor
may not assert a claim against the principal for salary
wage adjustments that it has not actually paid. Otherwise,
as correctly put by the respondent, the contractor would be
unduly enriching itself by recovering wage increases, for
its own benefit. 13
Consequently, the CA did not commit any error in dismissing the
petition and in affirming the NLRC Resolutions dated September 19,
2000 and November 9, 2001.

[G.R. No. 179546. February 13, 2009.]
COCA-COLA BOTTLERS PHILS., INC.,  petitioner, vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G.
ALARIAO, JR., ALFONSO PAA, JR., DEMPSTER P.
ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO, and
EDWIN M. GOLEZ, respondents.
Appeals; While factual findings of the Court of Appeals are
generally binding upon the Supreme Court, an exception to this rule is
when the factual findings of the former are contrary to those of the trial
court, or the lower administrative body.—As a general rule, factual
findings of the Court of Appeals are binding upon the Supreme Court.
One exception to this rule is when the factual findings of the former are
contrary to those of the trial court, or the lower administrative body, as
the case may be. This Court is obliged to resolve an issue of fact herein
due to the incongruent findings of the Labor Arbiter and the NLRC and
those of the Court of Appeals.
Labor Law; Job Contracting; Labor-Only Contracting; Words and
Phrases; In a legitimate job contract, an employer enters into a contract
with a job contractor for the performance of the former’s work; In
legitimate job contracting, the law creates an employer-employee
relationship between the employer and the contractor’s employees only
for a limited purpose, i.e., to ensure that the employees are paid their
wages; Labor-only contracting is an arrangement wherein the contractor
merely acts as an agent in recruiting and supplying the principal
employer with workers for the purpose of circumventing labor law
provisions setting down the rights of employees; A finding by appropriate
authorities that a contractor is a “labor-only” contractor establishes an
employer-employee relationship between the principal employer and the
contractor’s employees and the former becomes solidarily liable for all
the rightful claims of the employees.—A legitimate job contract, wherein
an employer enters into a contract with a job contractor for the
performance of the former’s work, is permitted by law. Thus, the
employer-employee relationship between the job contractor and his
employees is maintained. In legitimate job contracting, the law creates an
employer-employee relationship between the employer and the
contractor’s employees only for a limited purpose, i.e., to ensure that the
employees are paid their wages. The employer becomes jointly and
severally liable with the job contractor only for the payment of the
employees’ wages whenever the contractor fails to pay the same. Other
than that, the employer is not responsible for any claim made by the
contractor’s employees. On the other hand, labor-only contracting is an
arrangement wherein the contractor merely acts as an agent in recruiting
and supplying the principal employer with workers for the purpose of
circumventing labor law provisions setting down the rights of employees.
It is not condoned by law. A finding by the appropriate authorities that a
contractor is a “labor-only” contractor establishes an employer-employee
relationship between the principal employer and the contractor’s
employees and the former becomes solidarily liable for all the rightful
claims of the employees.
Same; Same; Same; Performing activities directly related to the
principal business of the employer is only one of the two indicators that
“labor-only” contracting exists—the other is lack of substantial capital or
investment.—The law clearly establishes an employer-employee
relationship between the principal employer and the contractor’s
employee upon a finding that the contractor is engaged in “labor-only”
contracting. Article 106 of the Labor Code categorically states: “There is
‘labor-only’ contracting where the person supplying workers to an
employee does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such persons are performing activities
which are directly related to the principal business of such employer.”
Thus, performing activities directly related to the principal business of the
employer is only one of the two indicators that “labor-only” contracting
exists; the other is lack of substantial capital or investment. The Court
finds that both indicators exist in the case at bar.
Same; Same; Same; The Court does not set an absolute figure
for what it considers substantial capital for an independent job contractor,
but it measures the same against the type of work which the contractor is
obligated to perform for the principal.—The Court clarifies that although
Interserve has an authorized capital stock amounting to P2,000,000.00,
only P625,000.00 thereof was paid up as of 31 December 2001. The
Court does not set an absolute figure for what it considers substantial
capital for an independent job contractor, but it measures the same
against the type of work which the contractor is obligated to perform for
the principal. However, this is rendered impossible in this case since the
Contract between petitioner and Interserve does not even specify the
work or the project that needs to be performed or completed by the
latter’s employees, and uses the dubious phrase “tasks and activities that
are considered contractible under existing laws and regulations.” Even in
its pleadings, petitioner carefully sidesteps identifying or describing the
exact nature of the services that Interserve was obligated to render to
petitioner. The importance of identifying with particularity the work or task
which Interserve was supposed to accomplish for petitioner becomes
even more evident, considering that the Articles of Incorporation of
Interserve states that its primary purpose is to operate, conduct, and
maintain the business of janitorial and allied services. But respondents
were hired as salesmen and leadman for petitioner. The Court cannot,
under such ambiguous circumstances, make a reasonable determination
if Interserve had substantial capital or investment to undertake the job it
was contracting with petitioner.
Same; Same; Same; Burden of Proof; The contractor, not the
employee, has the burden of proof that it has the substantial capital,
investment, and tool to engage in job contracting.—The contractor, not
the employee, has the burden of proof that it has the substantial capital,
investment, and tool to engage in job contracting. Although not the
contractor itself (since Interserve no longer appealed the judgment
against it by the Labor Arbiter), said burden of proof herein falls upon
petitioner who is invoking the supposed status of Interserve as an
independent job contractor. Noticeably, petitioner failed to submit
evidence to establish that the service vehicles and equipment of
Interserve, valued at P510,000.00 and P200,000.00, respectively, were
sufficient to carry out its service contract with petitioner. Certainly,
petitioner could have simply provided the courts with records showing the
deliveries that were undertaken by Interserve for the Lagro area, the type
and number of equipment necessary for such task, and the valuation of
such equipment. Absent evidence which a legally compliant company
could have easily provided, the Court will not presume that Interserve
had sufficient investment in service vehicles and equipment, especially
since respondents’ allegation—that they were using equipment, such as
forklifts and pallets belonging to petitioner, to carry out their jobs—was
uncontroverted.
Same; Same; Same; Power of Control; An employer is a labor-
only contractor where it does not exercise the right to control the
performance of the work of its employees.—It is also apparent that
Interserve is a labor-only contractor under Section 5(ii) of the Rules
CHICO-NAZARIO,  J p:
Implementing Articles 106-109 of the Labor Code, as amended, since it
did not exercise the right to control the performance of the work of
respondents. The lack of control of Interserve over the respondents can
be gleaned from the Contract of Services between Interserve (as the
CONTRACTOR) and petitioner (as the CLIENT).
Same; Same; Same; The power to recommend penalties or
dismiss workers is the strongest indication of a company’s right of control
as direct employer.—Also significant was the right of petitioner under
paragraph 2 of the Contract to “request the replacement of the
CONTRACTOR’S personnel.” True, this right was conveniently qualified
by the phrase “if from its judgment, the jobs or the projects being done
could not be completed within the time specified or that the quality of the
desired result is not being achieved,” but such qualification was rendered
meaningless by the fact that the Contract did not stipulate what work or
job the personnel needed to complete, the time for its completion, or the
results desired. The said provision left a gap which could enable
petitioner to demand the removal or replacement of any employee in the
guise of his or her inability to complete a project in time or to deliver the
desired result. The power to recommend penalties or dismiss workers is
the strongest indication of a company’s right of control as direct
employer.
Same; Same; Same; An independent job contractor, who is
answerable to the principal only for the results of a certain work, job, or
service need not guarantee to said principal the daily attendance of the
workers assigned to the latter.—Paragraph 4 of the same Contract, in
which Interserve warranted to petitioner that the former would provide
relievers and replacements in case of absences of its personnel, raises
another red flag. An independent job contractor, who is answerable to
the principal only for the results of a certain work, job, or service need not
guarantee to said principal the daily attendance of the workers assigned
to the latter. An independent job contractor would surely have the
discretion over the pace at which the work is performed, the number of
employees required to complete the same, and the work schedule which
its employees need to follow.
PETITION for review on certiorari of a decision of the Court of
Appeals. Coca-Cola Bottlers Phils., Inc. vs. Agito, 579 SCRA 445, G.R.
No. 179546 February 13, 2009
DECISION
This is a Petition for Review on Certiorari, under Rule 45 of
the Rules of Court, assailing the Decision 1 dated 19 February 2007,
promulgated by the Court of Appeals in CA-G.R. SP No. 85320,
reversing the Resolution 2 rendered on 30 October 2003 by the National
Labor Relations Commission (NLRC) in NLRC NCR CA No. 036494-03.
The Court of Appeals, in its assailed Decision, declared that respondents
Alan M. Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr.,
Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M.
Golez were regular employees of petitioner Coca-Cola Bottlers Phils.,
Inc.; and that Interserve Management & Manpower Resources, Inc.
(Interserve) was a labor-only contractor, whose presence was intended
merely to preclude respondents from acquiring tenurial security. SECcAI
Petitioner is a domestic corporation duly registered with the
Securities and Exchange Commission (SEC) and engaged in
manufacturing, bottling and distributing soft drink beverages and other
allied products.
On 15 April 2002, respondents filed before the NLRC two
complaints against petitioner, Interserve, Peerless Integrated Services,
Inc., Better Builders, Inc., and Excellent Partners, Inc. for reinstatement
with backwages, regularization, nonpayment of 13th month pay, and
damages. The two cases, docketed as NLRC NCR Case No. 04-02345-
2002 and NLRC NCR Case No. 05-03137-02, were consolidated.
Respondents alleged in their Position Paper that they were
salesmen assigned at the Lagro Sales Office of petitioner. They had
been in the employ of petitioner for years, but were not regularized. Their
employment was terminated on 8 April 2002 without just cause and due
process. However, they failed to state the reason/s for filing a complaint
against Interserve; Peerless Integrated Services, Inc.; Better Builders,
Inc.; and Excellent Partners, Inc. 3
Petitioner filed its Position Paper (with Motion to
Dismiss), 4 where it averred that respondents were employees of
Interserve who were tasked to perform contracted services in
accordance with the provisions of the Contract of Services 5 executed
between petitioner and Interserve on 23 March 2002. Said Contract
between petitioner and Interserve, covering the period of 1 April 2002 to
30 September 2002, constituted legitimate job contracting, given that the
latter was a  bona fide independent contractor with substantial capital or
investment in the form of tools, equipment, and machinery necessary in
the conduct of its business. AcTHCE
To prove the status of Interserve as an independent contractor,
petitioner presented the following pieces of evidence: (1) the Articles of
Incorporation of Interserve; 6 (2) the Certificate of Registration of
Interserve with the Bureau of Internal Revenue; 7 (3) the Income Tax
Return, with Audited Financial Statements, of Interserve for 2001; 8 and
(4) the Certificate of Registration of Interserve as an independent job
contractor, issued by the Department of Labor and Employment
(DOLE). 9
As a result, petitioner asserted that respondents were employees
of Interserve, since it was the latter which hired them, paid their wages,
and supervised their work, as proven by: (1) respondents' Personal Data
Files in the records of Interserve; 10 (2) respondents' Contract of
Temporary Employment with Interserve; 11 and (3) the payroll records of
Interserve. 12
Petitioner, thus, sought the dismissal of respondents' complaint
against it on the ground that the Labor Arbiter did not acquire jurisdiction
over the same in the absence of an employer-employee relationship
between petitioner and the respondents. 13
In a Decision dated 28 May 2003, the Labor Arbiter found that
respondents were employees of Interserve and not of petitioner. She
reasoned that the standard put forth in Article 280 of the Labor Code for
determining regular employment (i.e., that the employee is performing
activities that are necessary and desirable in the usual business of the
employer) was not determinative of the issue of whether an employer-
employee relationship existed between petitioner and respondents. While
respondents performed activities that were necessary and desirable in
the usual business or trade of petitioner, the Labor Arbiter underscored
that respondents' functions were not indispensable to the principal
business of petitioner, which was manufacturing and bottling soft drink
beverages and similar products.
The Labor Arbiter placed considerable weight on the fact that
Interserve was registered with the DOLE as an independent job
contractor, with total assets amounting to P1,439,785.00 as of 31
December 2001. It was Interserve that kept and maintained respondents'
employee records, including their Personal Data Sheets; Contracts of
Employment; and remittances to the Social Security System (SSS),
Medicare and Pag-ibig Fund, thus, further supporting the Labor Arbiter's
finding that respondents were employees of Interserve. She ruled that
the circulars, rules and regulations which petitioner issued from time to
time to respondents were not indicative of control as to make the latter its
employees. ScHAIT
Nevertheless, the Labor Arbiter directed Interserve to pay
respondents their pro-rated 13th month benefits for the period of January
2002 until April 2002. 14
In the end, the Labor Arbiter decreed:
WHEREFORE, judgment is hereby rendered
finding that [herein respondents] are employees of [herein
petitioner] INTERSERVE MANAGEMENT & MANPOWER
RESOURCES, INC. Concomitantly, respondent Interserve
is further ordered to pay [respondents] their pro-rated 13th
month pay.
 The complaints against COCA-COLA BOTTLERS
PHILS., INC. is DISMISSED for lack of merit.
In like manner the complaints against PEERLESS
INTEGRATED SERVICES, INC., BETTER BUILDING
INC. and EXCELLENT PARTNERS COOPERATIVE are
DISMISSED for failure of complainants to pursue against
them.
Other claims are dismissed for lack of merit.
The computation of the Computation and
Examination Unit, this Commission if (sic) made part of
this Decision. 15
Unsatisfied with the foregoing Decision of the Labor Arbiter,
respondents filed an appeal with the NLRC, docketed as NLRC NCR CA
No. 036494-03.
In their Memorandum of Appeal, 16 respondents maintained that
contrary to the finding of the Labor Arbiter, their work was indispensable
to the principal business of petitioner. Respondents supported their claim
with copies of the Delivery Agreement 17 between petitioner and TRMD
Incorporated, stating that petitioner was "engaged in the manufacture,
distribution and sale of soft drinks and other related products with various
plants and sales offices and warehouses located all over the
Philippines." Moreover, petitioner supplied the tools and equipment used
by respondents in their jobs such as forklifts, pallet, etc. Respondents
were also required to work in the warehouses, sales offices, and plants
of petitioner. Respondents pointed out that, in contrast, Interserve did not
own trucks, pallets  cartillas, or any other equipment necessary in the
sale of Coca-Cola products. ASCTac
Respondents further averred in their Memorandum of Appeal
that petitioner exercised control over workers supplied by various
contractors. Respondents cited as an example the case of Raul Arenajo
(Arenajo), who, just like them, worked for petitioner, but was made to
appear as an employee of the contractor Peerless Integrated Services,
Inc. As proof of control by petitioner, respondents submitted copies of:
(1) a Memorandum 18 dated 11 August 1998 issued by Vicente Dy (Dy),
a supervisor of petitioner, addressed to Arenajo, suspending the latter
from work until he explained his disrespectful acts toward the supervisor
who caught him sleeping during work hours; (2) a of petitioner addressed to workers, who, like respondents, were
Memorandum 19 dated 12 August 1998 again issued by Dy to Arenajo,
informing the latter that the company had taken a more lenient and
tolerant position regarding his offense despite having found cause for his
dismissal; (3) Memorandum 20 issued by Dy to the personnel of
Peerless Integrated Services, Inc., requiring the latter to present their
timely request for leave or medical certificates for their absences; (4)
Personnel Workers Schedules, 21 prepared by RB Chua, another
supervisor of petitioner; (5) Daily Sales Monitoring Report prepared by
petitioner; 22 and (6) the Conventional Route System Proposed Set-up
of petitioner. 23
The NLRC, in a Resolution dated 30 October 2003, affirmed the
Labor Arbiter's Decision dated 28 May 2003 and pronounced that no
employer-employee relationship existed between petitioner and
respondents. It reiterated the findings of the Labor Arbiter that Interserve
was an independent contractor as evidenced by its substantial assets
and registration with the DOLE. In addition, it was Interserve which hired
and paid respondents' wages, as well as paid and remitted their SSS,
Medicare, and Pag-ibig contributions. Respondents likewise failed to
convince the NLRC that the instructions issued and trainings conducted
by petitioner proved that petitioner exercised control over respondents as
their employer. 24 The dispositive part of the NLRC Resolution states: 25
WHEREFORE, the instant appeal is hereby
DISMISSED for lack of merit. However, respondent
Interserve Management & Manpower Resources, Inc., is
hereby ordered to pay the [herein respondents] their pro-
rated 13th month pay.
Aggrieved once more, respondents sought recourse with the
Court of Appeals by filing a Petition for Certiorari under Rule 65,
docketed as CA-G.R. SP No. 85320. caDTSE
The Court of Appeals promulgated its Decision on 9 February
2007, reversing the NLRC Resolution dated 30 October 2003. The
appellate court ruled that Interserve was a labor-only contractor, with
insufficient capital and investments for the services which it was
contracted to perform. With only P510,000.00 invested in its service
vehicles and P200,000.00 in its machineries and equipment, Interserve
would be hard-pressed to meet the demands of daily soft drink deliveries
of petitioner in the Lagro area. The Court Appeals concluded that the
respondents used the equipment, tools, and facilities of petitioner in the
day-to-day sales operations.
Additionally, the Court of Appeals determined that petitioner had
effective control over the means and method of respondents' work as
evidenced by the Daily Sales Monitoring Report, the Conventional Route
System Proposed Set-up, and the memoranda issued by the supervisor
supposedly supplied by contractors. The appellate court deemed that the
respondents, who were tasked to deliver, distribute, and sell Coca-Cola
products, carried out functions directly related and necessary to the main
business of petitioner. The appellate court finally noted that certain
provisions of the Contract of Service between petitioner and Interserve
suggested that the latter's undertaking did not involve a specific job, but The Court ascertains that the fundamental issue in this case is
rather the supply of manpower. whether Interserve is a legitimate job contractor. Only by resolving such
issue will the Court be able to determine whether an employer-employee
The decretal portion of the Decision of the Court of Appeals
relationship exists between petitioner and the respondents. To settle the
reads: 26
same issue, however, the Court must necessarily review the factual
WHEREFORE, the petition is GRANTED. The findings of the Court of Appeals and look into the evidence presented by
assailed Resolutions of public respondent NLRC the parties on record.
are REVERSED and SET ASIDE. The case is remanded
As a general rule, factual findings of the Court of Appeals are
to the NLRC for further proceedings.
binding upon the Supreme Court. One exception to this rule is when the
Petitioner filed a Motion for Reconsideration, which the Court of factual findings of the former are contrary to those of the trial court, or the
Appeals denied in a Resolution, dated 31 August 2007. 27 lower administrative body, as the case may be. This Court is obliged to
resolve an issue of fact herein due to the incongruent findings of the
Hence, the present Petition, in which the following issues are Labor Arbiter and the NLRC and those of the Court of Appeals. 29
raised: 28
The relations which may arise in a situation, where there is an
I employer, a contractor, and employees of the contractor, are identified
WHETHER OR NOT THE COURT OF APPEALS ACTED and distinguished under Article 106 of the Labor Code: cHESAD
IN ACCORDANCE WITH EVIDENCE ON RECORD, Article 106. Contractor or subcontractor. —
APPLICABLE LAWS AND ESTABLISHED Whenever an employer enters into a contract with another
JURISPRUDENCE WHEN IT RULED THAT person for the performance of the former's work, the
INTERSERVE IS A LABOR-ONLY employees of the contractor and of the latter's
CONTRACTOR; IHEAcC subcontractor, if any, shall be paid in accordance with the
provisions of this Code.
II
In the event that the contractor or subcontractor
WHETHER OR NOT THE COURT OF APPEALS ACTED
fails to pay the wages of his employees in accordance with
IN ACCORDANCE WITH APPLICABLE LAWS AND
this Code, the employer shall be jointly and severally liable
ESTABLISHED JURISPRUDENCE WHEN IT
with his contractor or subcontractor to such employees to
CONCLUDED THAT RESPONDENTS PERFORMED
the extent of the work performed under the contract, in the
WORK NECESSARY AND DESIRABLE TO THE
same manner and extent that he is liable to employees
BUSINESS OF [PETITIONER];
directly employed by him.
III
The Secretary of Labor may, by appropriate
WHETHER OR NOT THE COURT OF APPEALS regulations, restrict or prohibit the contracting out of labor
COMMITTED SERIOUS ERROR WHEN IT DECLARED to protect the rights of workers established under this
THAT RESPONDENTS WERE EMPLOYEES OF Code. In so prohibiting or restricting, he may make
[PETITIONER], EVEN ABSENT THE FOUR ELEMENTS appropriate distinctions between labor-only contracting
INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; and job contracting as well as differentiations within these
AND types of contracting and determine who among the parties
involved shall be considered the employer for purposes of
IV this Code, to prevent any violation or circumvention of any
provision of this Code.
WHETHER OR NOT THE COURT OF APPEALS
SERIOUSLY ERRED WHEN IT CONCLUDED THAT There is "labor-only" contracting where the person
INTERSERVE WAS ENGAGED BY [PETITIONER] TO supplying workers to an employee does not have
SUPPLY MANPOWER ONLY. substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others,
 and the workers recruited and placed by such persons are
performing activities which are directly related to the
principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter
were directly employed by him.
The afore-quoted provision recognizes two possible relations
among the parties: (1) the permitted legitimate job contract, or (2) the
prohibited labor-only contracting.
A legitimate job contract, wherein an employer enters into a
contract with a job contractor for the performance of the former's work, is
permitted by law. Thus, the employer-employee relationship between the
job contractor and his employees is maintained. In legitimate job
contracting, the law creates an employer-employee relationship between
the employer and the contractor's employees only for a limited
purpose, i.e., to ensure that the employees are paid their wages. The
employer becomes jointly and severally liable with the job contractor only
for the payment of the employees' wages whenever the contractor fails to
pay the same. Other than that, the employer is not responsible for any
claim made by the contractor's employees. 30 TIHDAa
On the other hand, labor-only contracting is an arrangement
wherein the contractor merely acts as an agent in recruiting and
supplying the principal employer with workers for the purpose of
circumventing labor law provisions setting down the rights of employees.
same implementing rules describes the consequences thereof:
It is not condoned by law. A finding by the appropriate authorities that a
contractor is a "labor-only" contractor establishes an employer-employee
relationship between the principal employer and the contractor's
employees and the former becomes solidarily liable for all the rightful
claims of the employees. 31
Section 5 of the Rules Implementing Articles 106-109 of the
Labor Code, as amended, provides the guidelines in determining
whether labor-only contracting exists:
Section 5. Prohibition against labor-only
contracting. — Labor-only contracting is hereby declared
prohibited. For this purpose, labor-only contracting shall
refer to an arrangement where the contractor or
subcontractor merely recruits, supplies, or places workers
to perform a job, work or service for a principal, and any
of the following elements are [is] present:
i) The contractor or subcontractor does not
have substantial capital or investment which
relates to the job, work, or service to be performed
and the employees recruited, supplied or placed
by such contractor or subcontractor are performing
activities which are directly related to the main
business of the principal; or
ii) The contractor does not exercise the
right to control the performance of the work of the
contractual employee.
The foregoing provisions shall be without prejudice
to the application of Article 248(C) of the Labor Code, as
amended.
"Substantial capital or investment" refers to capital
stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries
and work premises, actually and directly used by the
contractor or subcontractor in the performance or
completion of the job, work, or service contracted
out. AIaSTE
The "right to control" shall refer to the right
reversed * to the person for whom the services of the
contractual workers are performed, to determine not only
the end to be achieved, but also the manner and means to
be used in reaching that end. (Emphasis supplied.)
When there is labor-only contracting, Section 7 of the
Section 7. Existence of an employer-employee
relationship. — The contractor or subcontractor shall be
considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor
Code and other social legislation. The principal, however,
shall be solidarily liable with the contractor in the event of
any violation of any provision of the Labor Code, including
the failure to pay wages.
The principal shall be deemed the employer of the
contractual employee in any of the following case, as
declared by a competent authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls
within the prohibitions provided in Section 6
(Prohibitions) hereof.
 According to the foregoing provision, labor-only contracting
would give rise to: (1) the creation of an employer-employee relationship
between the principal and the employees of the contractor or sub-
contractor; and (2) the solidary liability of the principal and the contractor
to the employees in the event of any violation of the Labor Code.
Petitioner argues that there could not have been labor-only
contracting, since respondents did not perform activities that were
indispensable to petitioner's principal business. And, even assuming that
they did, such fact alone does not establish an employer-employee
relationship between petitioner and the respondents, since respondents
were unable to show that petitioner exercised the power to select and
hire them, pay their wages, dismiss them, and control their
conduct. caIEAD
The argument of petitioner is untenable.
The law clearly establishes an employer-employee relationship
between the principal employer and the contractor's employee upon a
finding that the contractor is engaged in "labor-only" contracting. Article
106 of the Labor Code categorically states: "There is 'labor-only'
contracting where the person supplying workers to an employee does not
have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited
and placed by such persons are performing activities which are directly
related to the principal business of such employer." Thus, performing
activities directly related to the principal business of the employer is only
one of the two indicators that "labor-only" contracting exists; the other is
lack of substantial capital or investment. The Court finds that both
indicators exist in the case at bar.
Respondents worked for petitioner as salesmen, with the
exception of respondent Gil Francisco whose job was designated as
leadman. In the Delivery Agreement 32 between petitioner and TRMD
Incorporated, it is stated that petitioner is engaged in the
manufacture, distribution and sale of softdrinks and other related
products. The work of respondents, constituting distribution and sale of
Coca-Cola products, is clearly indispensable to the principal business of
petitioner. The repeated re-hiring of some of the respondents supports
this finding. 33 Petitioner also does not contradict respondents'
allegations that the former has Sales Departments and Sales Offices in
its various offices, plants, and warehouses; and that petitioner hires
Regional Sales Supervisors and District Sales Supervisors who
supervise and control the salesmen and sales route helpers. 34
As to the supposed substantial capital and investment required
of an independent job contractor, petitioner calls the attention of the
Court to the authorized capital stock of Interserve amounting to
P2,000,000.00. 35 It cites as authority  Filipinas Synthetic Fiber Corp. v.
National Labor Relations Commission 36 and  Frondozo v. National
Labor Relations Commission,  37 where the contractors' authorized
capital stock of P1,600,000.00 and P2,000,000.00, respectively, were
considered substantial for the purpose of concluding that they were
legitimate job contractors. Petitioner also refers to  Neri v. National Labor
Relations Commission  38 where it was held that a contractor ceases to
be a labor-only contractor by having substantial capital alone, without
investment in tools and equipment. ICDSca
This Court is unconvinced.
At the outset, the Court clarifies that although Interserve has an
authorized capital stock amounting to P2,000,000.00, only P625,000.00
thereof was paid up as of 31 December 2001. The Court does not set an
absolute figure for what it considers substantial capital for an
independent job contractor, but it measures the same against the type of
work which the contractor is obligated to perform for the principal.
However, this is rendered impossible in this case since the Contract
between petitioner and Interserve does not even specify the work or the
project that needs to be performed or completed by the latter's
employees, and uses the dubious phrase "tasks and activities that are
considered contractible under existing laws and regulations". Even in its
pleadings, petitioner carefully sidesteps identifying or describing the
exact nature of the services that Interserve was obligated to render to
petitioner. The importance of identifying with particularity the work or task
which Interserve was supposed to accomplish for petitioner becomes
even more evident, considering that the Articles of Incorporation of
Interserve states that its primary purpose is to operate, conduct, and
maintain the business of janitorial and allied services. 39 But
respondents were hired as salesmen and leadman for petitioner. The
Court cannot, under such ambiguous circumstances, make a reasonable
determination if Interserve had substantial capital or investment to
undertake the job it was contracting with petitioner.
Petitioner cannot seek refuge in  Neri v. National Labor Relations
Commission. Unlike in  Neri, petitioner was unable to prove in the instant
case that Interserve had substantial capitalization to be an independent
job contractor. In  San Miguel Corporation v. MAERC Integrated
Services, Inc.,  40 therein petitioner San Miguel Corporation similarly
invoked Neri, but was rebuffed by the Court based on the following
ratiocination: 41
Petitioner also ascribes as error the failure of the
Court of Appeals to apply the ruling in  Neri v. NLRC. In
that case, it was held that the law did not require one to
possess both substantial capital and investment in the
form of tools, equipment, machinery, work premises,
among others, to be considered a job contractor. The
second condition to establish permissible job contracting
was sufficiently met if one possessed either attribute.
Accordingly, petitioner alleged that the appellate
court and the NLRC erred when they declared MAERC a
labor-only contractor despite the finding that MAERC had
investments amounting to P4,608,080.00 consisting of
buildings, machinery and equipment. CDAEHS
However, in  Vinoya v. NLRC, we clarified that it
was not enough to show substantial capitalization or
investment in the form of tools, equipment, machinery and
work premises, etc., to be considered an independent
contractor. In fact, jurisprudential holdings were to the
effect that in determining the existence of an independent
contractor relationship, several factors may be considered,
such as, but not necessarily confined to, whether the
contractor was carrying on an independent business; the
nature and extent of the work; the skill required; the term
and duration of the relationship; the right to assign the
performance of specified pieces of work; the control and
supervision of the workers; the power of the employer with
respect to the hiring, firing and payment of the workers of
the contractor; the control of the premises; the duty to
supply premises, tools, appliances, materials and labor;
and the mode, manner and terms of payment.
In Neri, the Court considered not only the fact that
respondent Building Care Corporation (BCC) had
substantial capitalization but noted that BBC carried on an
independent business and performed its contract
according to its own manner and method, free from the
control and supervision of its principal in all matters except
as to the results thereof. The Court likewise mentioned
that the employees of BCC were engaged to perform
specific special services for their principal. The status of
BCC had also been passed upon by the Court in a
previous case where it was found to be a qualified job
contractor because it was a "big firm which services
among others, a university, an international bank, a big
local bank, a hospital center, government agencies, etc."
Furthermore, there were only two (2) complainants in that
case who were not only selected and hired by the
contractor before being assigned to work in the Cagayan
de Oro branch of FEBTC but the Court also found that the
contractor maintained effective supervision and control
over them.
Thus, in San Miguel Corporation, the investment of MAERC, the
contractor therein, in the form of buildings, tools, and equipment of more
than P4,000,000.00 did not impress the Court, which still declared
MAERC to be a labor-only contractor. In another case, Dole Philippines,
Inc. v. Esteva,  42 the Court did not recognize the contractor therein as a
legitimate job contractor, despite its paid-up capital of over
P4,000,000.00, in the absence of substantial investment in tools and
equipment used in the services it was rendering. ATHCDa
Insisting that Interserve had substantial investment, petitioner
assails, for being purely speculative, the finding of the Court of Appeals
that the service vehicles and equipment of Interserve, with the values of
P510,000.00 and P200,000.00, respectively, could not have met the
demands of the Coca-Cola deliveries in the Lagro area.
Yet again, petitioner fails to persuade.
The contractor, not the employee, has the burden of proof that it
has the substantial capital, investment, and tool to engage in job
contracting. 43 Although not the contractor itself (since Interserve no
longer appealed the judgment against it by the Labor Arbiter), said
burden of proof herein falls upon petitioner who is invoking the supposed
status of Interserve as an independent job contractor. Noticeably,
petitioner failed to submit evidence to establish that the service vehicles
and equipment of Interserve, valued at P510,000.00 and P200,000.00,
respectively, were sufficient to carry out its service contract with
petitioner. Certainly, petitioner could have simply provided the courts with
records showing the deliveries that were undertaken by Interserve for the
Lagro area, the type and number of equipment necessary for such task,
and the valuation of such equipment. Absent evidence which a legally
compliant company could have easily provided, the Court will not
presume that Interserve had sufficient investment in service vehicles and
equipment, especially since respondents' allegation — that they were
using equipment, such as forklifts and pallets belonging to petitioner, to
carry out their jobs — was uncontroverted.
In sum, Interserve did not have substantial capital or investment
in the form of tools, equipment, machineries, and work premises; and
respondents, its supposed employees, performed work which was
directly related to the principal business of petitioner. It is, thus, evident
that Interserve falls under the definition of a "labor-only" contractor, under
Article 106 of the Labor Code; as well as Section 5 (i) of the Rules
Implementing Articles 106-109 of the Labor Code, as amended.
The Court, however, does not stop at this finding. It is also
apparent that Interserve is a labor-only contractor under Section 5
(ii) 44 of the Rules Implementing Articles 106-109 of the Labor Code, as
amended, since it did not exercise the right to control the performance of
the work of respondents.
 The lack of control of Interserve over the respondents can be
gleaned from the Contract of Services between Interserve (as the
CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of
which are reproduced below:
WHEREAS, the CONTRACTOR is engaged in the
business, among others, of performing and/or undertaking,
managing for consideration, varied projects, jobs and other
related management-oriented services; DEcTIS
WHEREAS, the CONTRACTOR warrants that it
has the necessary capital, expertise, technical know-how
and a team of professional management group and
personnel to undertake and assume the responsibility to
carry out the above mentioned project and services;
WHEREAS, the CLIENT is desirous of utilizing the
services and facilities of the CONTRACTOR for
emergency needs, rush jobs, peak product loads,
temporary, seasonal and other special project
requirements the extent that the available work of the
CLIENT can properly be done by an independent
CONTRACTOR permissible under existing laws and
regulations;
WHEREAS, the CONTRACTOR has offered to
perform specific jobs/works at the CLIENT as stated
heretofore, under the terms and conditions herein stated,
and the CLIENT has accepted the offer.
NOW THEREFORE, for and in consideration of
the foregoing premises and of the mutual covenants and
stipulations hereinafter set forth, the parties have hereto
have stated and the CLIENT has accepted the offer:
1. The CONTRACTOR agrees and
undertakes to perform and/or provide for the
CLIENT, on a non-exclusive basis for tasks or
activities that are considered contractible under
existing laws and regulations, as may be needed
by the CLIENT from time to time.
2. To carry out the undertakings specified
in the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary
personnel like Route Helpers, Salesmen, Drivers,
Clericals, Encoders & PD who are at least
Technical/Vocational courses graduates provided
with adequate uniforms and appropriate
identification cards, who are warranted by the
CONTRACTOR to be so trained as to efficiently,
fully and speedily accomplish the work and
services undertaken herein by the
CONTRACTOR. The CONTRACTOR represents
that its personnel shall be in such number as will
be sufficient to cope with the requirements of the
services and work herein undertaken and that
such personnel shall be physically fit, of good
moral character and has not been convicted of any
crime. The CLIENT, however, may request for the
replacement of the CONTRACTOR'S personnel if
from its judgment, the jobs or the projects being
done could not be completed within the time
specified or that the quality of the desired result is
not being achieved. DAHSaT
3. It is agreed and understood that the
CONTRACTOR'S personnel will comply with
CLIENT, CLIENT'S policies, rules and regulations
and will be subjected on-the-spot search by
CLIENT, CLIENT'S duly authorized guards or
security men on duty every time the assigned
personnel enter and leave the premises during the
entire duration of this agreement.
4. The CONTRACTOR further warrants to
make available at times relievers and/or
replacements to ensure continuous and
uninterrupted service as in the case of absences
of any personnel above mentioned, and to
exercise the necessary and due supervision over
the work of its personnel. 45
Paragraph 3 of the Contract specified that the personnel of
contractor Interserve, which included the respondents, would comply with
"CLIENT" as well as "CLIENT's policies, rules and regulations". It even
required Interserve personnel to subject themselves to on-the-spot
searches by petitioner or its duly authorized guards or security men on
duty every time the said personnel entered and left the premises of
petitioner. Said paragraph explicitly established the control of petitioner
over the conduct of respondents. Although under paragraph 4 of the
same Contract, Interserve warranted that it would exercise the necessary
and due supervision of the work of its personnel, there is a dearth of
evidence to demonstrate the extent or degree of supervision exercised
by Interserve over respondents or the manner in which it was actually
exercised. There is even no showing that Interserve had representatives
who supervised respondents' work while they were in the premises of The certification issued by the DOLE stating that Interserve is an
petitioner. ScaCEH independent job contractor does not sway this Court to take it at face
value, since the primary purpose stated in the Articles of
Also significant was the right of petitioner under paragraph 2 of
Incorporation 47 of Interserve is misleading. According to its Articles of
the Contract to "request the replacement of the CONTRACTOR'S
Incorporation, the principal business of Interserve is to provide janitorial
personnel". True, this right was conveniently qualified by the phrase "if
and allied services. The delivery and distribution of Coca-Cola products,
from its judgment, the jobs or the projects being done could not be
the work for which respondents were employed and assigned to
completed within the time specified or that the quality of the desired
petitioner, were in no way allied to janitorial services. While the DOLE
result is not being achieved", but such qualification was rendered
may have found that the capital and/or investments in tools and
meaningless by the fact that the Contract did not stipulate what work or
equipment of Interserve were sufficient for an independent contractor for
job the personnel needed to complete, the time for its completion, or the
janitorial services, this does not mean that such capital and/or
results desired. The said provision left a gap which could enable
investments were likewise sufficient to maintain an independent
petitioner to demand the removal or replacement of any employee in the
contracting business for the delivery and distribution of Coca-Cola
guise of his or her inability to complete a project in time or to deliver the
products.
desired result. The power to recommend penalties or dismiss workers is
the strongest indication of a company's right of control as direct With the finding that Interserve was engaged in prohibited labor-
employer. 46 only contracting, petitioner shall be deemed the true employer of
respondents. As regular employees of petitioner, respondents cannot be
Paragraph 4 of the same Contract, in which Interserve warranted
dismissed except for just or authorized causes, none of which were
to petitioner that the former would provide relievers and replacements in
alleged or proven to exist in this case, the only defense of petitioner
case of absences of its personnel, raises another red flag. An
against the charge of illegal dismissal being that respondents were not its
independent job contractor, who is answerable to the principal only for
employees. Records also failed to show that petitioner afforded
the results of a certain work, job, or service need not guarantee to said
respondents the twin requirements of procedural due process, i.e., notice
principal the daily attendance of the workers assigned to the latter. An
and hearing, prior to their dismissal. Respondents were not served
independent job contractor would surely have the discretion over the
notices informing them of the particular acts for which their dismissal was
pace at which the work is performed, the number of employees required
sought. Nor were they required to give their side regarding the charges
to complete the same, and the work schedule which its employees need
made against them. Certainly, the respondents' dismissal was not carried
to follow.
out in accordance with law and, therefore, illegal. 48
As the Court previously observed, the Contract of Services
Given that respondents were illegally dismissed by petitioner,
between Interserve and petitioner did not identify the work needed to be
they are entitled to reinstatement, full backwages, inclusive of
performed and the final result required to be accomplished. Instead, the
allowances, and to their other benefits or the monetary equivalents
Contract specified the type of workers Interserve must provide petitioner
thereof computed from the time their compensations were withheld from
("Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD") and
them up to the time of their actual reinstatement, as mandated under
their qualifications (technical/vocational course graduates, physically fit,
Article 279 of the Labor Code. CaHcET
of good moral character, and have not been convicted of any crime). The
Contract also states that, "to carry out the undertakings specified in the IN VIEW OF THE FOREGOING, the instant Petition is DENIED.
immediately preceding paragraph, the CONTRACTOR shall employ the The Court AFFIRMS WITH MODIFICATION the Decision dated 19
necessary personnel", thus, acknowledging that Interserve did not yet February 2007 of the Court of Appeals in CA-G.R. SP No. 85320. The
have in its employ the personnel needed by petitioner and would still pick Court DECLARES that respondents were illegally dismissed and,
out such personnel based on the criteria provided by petitioner. In other accordingly, ORDERS petitioner to reinstate them without loss of
words, Interserve did not obligate itself to perform an identifiable job, seniority rights, and to pay them full back wages computed from the time
work, or service for petitioner, but merely bound itself to provide the latter their compensation was withheld up to their actual reinstatement. Costs
with specific types of employees. These contractual provisions strongly against the petitioner.
indicated that Interserve was merely a recruiting and manpower agency
SO ORDERED.
providing petitioner with workers performing tasks directly related to the
latter's principal business. aDACcH |||  (Coca-Cola Bottlers Phils., Inc. v. Agito, G.R. No. 179546,
[February 13, 2009], 598 PHIL 909-935)

[G.R. No. 160278. February 8, 2012.]
GARDEN OF MEMORIES PARK and LIFE
PLAN, INC. and PAULINA T.
REQUIÑO, petitioners, vs. NATIONAL
LABOR RELATIONS COMMISSION,
SECOND DIVISION, LABOR ARBITER
FELIPE T. GARDUQUE II and HILARIA
CRUZ, respondents.
DECISION
MENDOZA, J  : p
This is a petition for review under Rule 45 of
the Rules of Court seeking nullification of the June 11,
2003 Decision 1 and October 16, 2003 Resolution 2 of
the Court of Appeals (CA), in CA-G.R. SP No. 64569,
which affirmed the December 29, 2000 Decision 3 of the
National Labor Relations Commission (NLRC). The
NLRC agreed with the Labor Arbiter (L.A.) in finding that
petitioner Garden of Memories Memorial Park and Life
Plan, Inc. (Garden of Memories) was the employer of
respondent Hilaria Cruz (Cruz), and that Garden of
Memories and petitioner Paulina
Requiño (Requiño), were jointly and severally liable for
the money claims of Cruz.
The Facts
Petitioner Garden of Memories is engaged in the
business of operating a memorial park situated at
Calsadang Bago, Pateros, Metro-Manila and selling
memorial plans and services.
Respondent Cruz, on the other hand, worked at
the Garden of Memories Memorial Park as a utility
worker from August 1991 until her termination in
February 1998.
On March 13, 1998, Cruz filed a complaint 4 for
illegal dismissal, underpayment of wages, non-inclusion
in the Social Security Services, and non-payment of
legal/special holiday, premium pay for rest day, 13th
month pay and service incentive leave pay against
Garden of Memories before the Department of Labor
and Employment (DOLE).
Upon motion of Garden of Memories, Requiño
was impleaded as respondent on the alleged ground
that she was its service contractor and the employer of
Cruz.
In her position paper, 5 Cruz averred that she
worked as a utility worker of Garden of Memories with a
salary of P115.00 per day. As a utility worker, she was
in charge, among others, of the cleaning and
maintenance of the ground facilities of the memorial
park. Sometime in February 1998, she had a
misunderstanding with a co-worker named Adoracion
Requiño regarding the use of a garden water hose.
When the misunderstanding came to the knowledge of
Requiño, the latter instructed them to go home and not
to return anymore. After three (3) days, Cruz reported
for work but she was told that she had been replaced by
another worker. She immediately reported the matter of
her replacement to the personnel manager of Garden of
Memories and manifested her protest.  ACETSa
Cruz argued that as a regular employee of the
Garden of Memories, she could not be terminated
without just or valid cause. Also, her dismissal was
violative of due process as she was not afforded the
opportunity to explain her side before her employment
was terminated.
Cruz further claimed that as a result of her illegal
dismissal, she suffered sleepless nights, serious anxiety
and mental anguish.
In its Answer, 6 Garden of Memories denied
liability for the claims of Cruz and asserted that she was
not its employee but that of Requiño, its independent
service contractor, who maintained the park for a
contract price. It insisted that there was no employer-
employee relationship between them because she was
employed by its service contractor, Victoriana
Requiño (Victoriana), who was later succeeded by her
daughter, Paulina, when she (Victoriana) got sick.
Garden of Memories claimed that Requiño was a
service contractor who carried an independent business
and undertook the contract of work on her own account,
under her own responsibility and according to her own
manner and method, except as to the results
thereof. 
ACETSa
In her defense, Requiño prayed for the dismissal
of the complaint stating that it was Victoriana, her
mother, who hired Cruz, and she merely took over the
supervision and management of the workers of the
memorial park when her mother got ill. She claimed that
the ownership of the business was never transferred to
her.
Requiño further stated that Cruz was not
dismissed from her employment but that she
abandoned her work. 7
On October 27, 1999, the LA ruled that Requiño
was not an independent contractor but a labor-only
contractor and that her defense that Cruz abandoned
her work was negated by the filing of the present
case. 8 The LA declared both Garden of Memories and
Requiño, jointly and severally, liable for the monetary
claims of Cruz, the dispositive portion of the decision
reads:
WHEREFORE, premises considered,
respondents Garden of Memories Memorial
[P]ark and Life Plan, Inc. and/or Paulina Requiño
are hereby ordered to jointly and severally pay
within ten (10) days from receipt hereof, the
herein complainant Hilaria Cruz, the sums of
P72,072 (P198 x 26 days x 14 months pay),
representing her eight (8) months separation pay
and six (6) months backwages; P42,138.46, as
salary differential; P2,475.00, as service
incentive leave pay; and P12,870.00 as 13th
month pay, for three (3) years, or a total sum of
P129,555.46, plus ten percent attorney's fee.
Complainant's other claims including her
prayer for damages are hereby denied for lack of
concrete evidence.
SO ORDERED. 9
Garden of Memories and Requiño appealed the
decision to the NLRC. In its December 29, 2000
Decision, the NLRC affirmed the ruling of the LA, stating
that Requiño had no substantial capital or investments CRUZ AND PETITIONER GARDEN OF
in the form of tools, equipment, machineries, and work MEMORIES.
premises, among others, for her to qualify as an III
independent contractor. It declared the dismissal of
Cruz illegal reasoning out that there could be no RESPONDENT HILARIA CRUZ DID NOT
abandonment of work on her part since Garden of ABANDON HER WORK.
Memories and Requiño failed to prove that there was a IV
deliberate and unjustified refusal on the part of the
THERE IS [NO] BASIS IN GRANTING THE
employee to go back to work and resume her MONETARY AWARDS IN FAVOR OF THE
employment. RESPONDENT CRUZ DESPITE THE
Garden of Memories moved for a reconsideration ABSENCE OF A CLEAR PRONOUNCEMENT
of the NLRC decision but it was denied for lack of REGARDING THE LEGALITY OR ILLEGALITY
merit. 10 OF HER DISMISSAL. 11

Consequently, Garden of Memories and Requiño
filed before the CA a petition for certiorari under Rule 65
of the Rules of Court. In its June 11, 2003 Decision, the
CA dismissed the petition and affirmed the NLRC
decision. Hence, this petition, where they asserted that:
The Public Respondents National
Labor Relations Commission and Court of
Appeals committed serious error, gravely
abused their discretion and acted in excess
of jurisdiction when they failed to consider
the provisions of Section 6 (d) of Department
Order No. 10, Series of 1997, by the
Department of Labor and Employment, and
then rendered their respective erroneous
rulings that: 
ACETSa
The petitioners aver that Requiño is the employer
of Cruz as she (Requiño) is a legitimate independent
contractor providing maintenance work in the memorial
park such as sweeping, weeding and watering of the
lawns. They insist that there was no employer-employee
relationship between Garden of Memories and Cruz.
They claim that there was a service contract between
Garden of Memories and Requiño for the latter to
provide maintenance work for the former and that the
"power of control," the most important element in
determining the presence of such a relationship was
missing. Furthermore, Garden of Memories alleges that
it did not participate in the selection or dismissal of
Requiño's employees.
As to the issue of dismissal, the petitioners

I denied the same and insist that Cruz willfully and

PETITIONER PAULINA REQUIÑO IS actually abandoned her work. They argue that Cruz's
ENGAGED IN LABOR-ONLY CONTRACTING. utterances "HINDI KO KAILANGAN ANG
TRABAHO" and "HINDI KO KAILANGAN
II MAGTRABAHO AT HINDI KO KAILANGAN MAKI-
THERE EXISTS AN EMPLOYER-EMPLOYEE USAP KAY PAULINA REQUIÑO," manifested her
RELATIONSHIP BETWEEN RESPONDENT belligerence and disinterest in her work and that her
unexplained absences later only showed that she had
no intention of returning to work.
The Court finds no merit in the petition.
At the outset, it must be stressed that the
jurisdiction of this Court in a petition for review
on certiorari under Rule 45 of the Rules of Court is
limited to reviewing errors of law, not of fact. This is in
line with the well-entrenched doctrine that the Court is
not a trier of facts, and this is strictly adhered to in labor
cases. 12 Factual findings of labor officials, who are
deemed to have acquired expertise in matters within
their respective jurisdictions, are generally accorded not
only respect but even finality, and bind the Court when
supported by substantial evidence. Particularly when
passed upon and upheld by the CA, they are binding
and conclusive upon the Court and will not normally be
disturbed. 13 This is because it is not the function of this
Court to analyze or weigh all over again the evidence
already considered in the proceedings below; or
reevaluate the credibility of witnesses; or substitute the
findings of fact of an administrative tribunal which has
expertise in its special field. 14
In the present case, the LA, the NLRC, and the
CA are one in declaring that petitioner Requiño was not
a legitimate contractor. Echoing the decision of the LA
and the NLRC, the CA reasoned out that Requiño was
not a licensed contractor and had no substantial capital
or investment in the form of tool, equipment and work
premises, among others.
Section 106 of the Labor Code on contracting and
subcontracting provides:  ACETSa
Article 106. Contractor or
subcontractor. — Whenever an employer
enters into a contract with another person for the
performance of the former's work, the employees
of the contractor and of the latter's subcontractor
shall be paid in accordance with the provisions of
this Code.
In the event that the contractor or
subcontractor fails to pay the wages of his
employees in accordance with this Code, the
employer shall be jointly and severally liable with
his contractor or subcontractor to such
employees to the extent of the work performed
under the contract, in the same manner and
extent that he is liable to employees directly
employed by him.
The Secretary of Labor may, by
appropriate regulations, restrict or prohibit the
contracting out of labor to protect the rights of
workers established under this Code. In so
prohibiting or restricting, he may make
appropriate distinctions between labor-only
contracting and job contracting as well as
differentiations within these types of contracting
and determine who among the parties involved
shall be considered the employer for purposes of
this Code, to prevent any violation or
circumvention of any provision of this Code.
There is "labor-only" contracting where
the person supplying workers to an employer
does not have substantial capital or investment
in the form of tools, equipment, machineries,
work premises, among others, and the workers
recruited and placed by such persons are
performing activities which are directly related to
the principal business of such employer. In such
cases, the person or intermediary shall be
considered merely as an agent of the employer
who shall be responsible to the workers in the
same manner and extent as if the latter were
 directly employed by him. [Underscoring
provided]
In the same vein, Sections 8 and 9,
DOLE Department Order No. 10, Series of 1997, state
that: 
ACETSa
"Sec. 8. Job contracting. — There is job
contracting permissible under the Code if the
following conditions are met:
(1) The contractor carries on an
independent business and
undertakes the contract work on
his own account under his own
responsibility according to his own
manner and method, free from the
control and direction of his
employer or principal in all matters
connected with the performance of
the work except as to the results
thereof; and
(2) The contractor has substantial capital
or investment in the form of tools,
equipment, machineries, work
premises, and other materials
which are necessary in the conduct
of his business.
Sec. 9. Labor-only contracting. — (a) Any
person who undertakes to supply workers to an
employer shall be deemed to be engaged in
labor-only contracting where such person:
(1) Does not have substantial capital or
investment in the form of tools,
equipment, machineries, work
premises and other materials; and
(2) The workers recruited and placed by
such persons are performing
activities which are directly related
to the principal business or
operations of the employer in which
workers are habitually employed.
(b) Labor-only contracting as defined
herein is hereby prohibited and the person acting
as contractor shall be considered merely as an
agent or intermediary of the employer who shall
be responsible to the workers in the same
manner and extent as if the latter were directly
employed by him.
(c) For cases not falling under this Article,
the Secretary of Labor shall determine through
appropriate orders whether or not the contracting
out of labor is permissible in the light of the
circumstances of each case and after
considering the operating needs of the employer
and the rights of the workers involved. In such
case, he may prescribe conditions and
restrictions to insure the protection and welfare
of the workers."
On the matter of labor-only contracting, Section 5
of Rule VIII-A of the Omnibus Rules Implementing the
Labor Code, provides:
Section 5. Prohibition against labor-
only contracting. — Labor-only contracting is
hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an
arrangement where the contractor or
subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a
principal, and any of the following elements are
present:
i) The contractor or subcontractor does
not have substantial capital or
investment which relates to the job,
 work or service to be performed
and the employees recruited,
supplied or placed by such
contractor or subcontractor are
performing activities related to the
main business of the principal, or
ii) The contractor does not exercise the
right to control over the
performance of the work of the
contractual employee.
xxx xxx xxx
Thus, in determining the existence of an
independent contractor relationship, several factors may
be considered, such as, but not necessarily confined to,
whether or not the contractor is carrying on an
independent business; the nature and extent of the
work; the skill required; the term and duration of the
relationship; the right to assign the performance of
specified pieces of work; the control and supervision of
the work to another; the employer's power with respect
to the hiring, firing and payment of the contractor's
workers; the control of the premises; the duty to supply
premises, tools, appliances, materials and labor; and
the mode, manner and terms of payment. 15
On the other hand, there is labor-only contracting
where: (a) the person supplying workers to an employer
does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises,
among others; and (b) the workers recruited and placed
by such person are performing activities which are
directly related to the principal business of the
employer. 16
The Court finds no compelling reason to deviate
from the findings of the tribunals below. Both the
capitalization requirement and the power of control on
the part of Requiño are wanting.
Generally, the presumption is that the contractor
is a labor-only contracting unless such contractor
overcomes the burden of proving that it has the
substantial capital, investment, tools and the like. 17 In
the present case, though Garden of Memories is not the
contractor, it has the burden of proving that Requiño
has sufficient capital or investment since it is claiming
the supposed status of Requiño as independent
contractor. 18 Garden of Memories, however, failed to
adduce evidence purporting to show that Requiño had
sufficient capitalization. Neither did it show that she
invested in the form of tools, equipment, machineries,
work premises and other materials which are necessary
in the completion of the service contract.
Furthermore, Requiño was not a licensed
contractor. Her explanation that her business was a
mere livelihood program akin to a cottage industry
provided by Garden of Memories as part of its
contribution to the upliftment of the underprivileged
residing near the memorial park proves that her capital
investment was not substantial. Substantial capital or
investment refers to capital stocks and subscribed
capitalization in the case of corporations, tools,
equipment, implements, machineries, and work
premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the
job, work or service contracted out. 19 Obviously,
Requiño is a labor-only contractor.
Another determinant factor that classifies
petitioner Requiño as a labor-only contractor was her
failure to exercise the right to control the performance of
the work of Cruz. This can be gleaned from the Service
Contract Agreement 20 between Garden of Memories
and Requiño, to wit:
xxx xxx xxx
NOW THEREFORE, premises
considered, the parties hereto have hereunto
agreed on the following terms and conditions:
1. That the Contractor shall undertake the
maintenance of the above-mentioned works in
strict compliance with and subject to all the
requirements and standards of GMMPLPI.
2. Likewise, the Contractor shall perform
all other works that may from time to time be
designated by GMMPLPI thru its authorized
representatives, which work is similar in nature
to the responsibilities of a regular employee with
a similar function.
3. The contract price for the labor to be
furnished or the service to be rendered shall be
THIRTY-FIVE THOUSAND (P35,000.00)
PESOS per calendar month, payable as follows:
(a) Eight Thousand Seven Hundred Fifty
Thousand n (P8,750.00) Pesos
payable on every 7th, 15th, 23rd
and 30th of the month.
4. The period of this Contract shall be for
Three (3) months from Feb. 1-April 30, 1998 and
renewable at the option of the Management.
5. It is expressly recognized that this
contract was forged for the purpose of supplying
the necessary maintenance work and in no way
shall the same be interpreted to have created an
employer-employee relationship.
xxx xxx xxx [Underscoring supplied]
The requirement of the law in determining the
existence of independent contractorship is that the
contractor should undertake the work on his own
account, under his own responsibility, according to his
own manner and method, free from the control and
direction of the employer except as to the results
thereof. 21 In this case, however, the Service Contract
Agreement clearly indicates that Requiño has no
discretion to determine the means and manner by which
the work is performed. Rather, the work should be in
strict compliance with, and subject to, all requirements
and standards of Garden of Memories.
Under these circumstances, there is no doubt that
Requiño is engaged in labor-only contracting, and is
considered merely an agent of Garden of Memories. As
such, the workers she supplies should be considered as
employees of Garden of Memories. Consequently, the
latter, as principal employer, is responsible to the
employees of the labor-only contractor as if such
employees have been directly employed by it. 22
Notably, Cruz was hired as a utility worker tasked
to clean, sweep and water the lawn of the memorial
park. She performed activities which were necessary or
desirable to its principal trade or business. Thus, she
was a regular employee of Garden of Memories and
cannot be dismissed except for just and authorized
causes. 23
Moreover, the Court agrees with the findings of
the tribunals below that respondent Cruz did not
abandon her work but was illegally dismissed.
As the employer, Garden of Memories has the
burden of proof to show the employee's deliberate and
unjustified refusal to resume his employment without
any intention of returning. 24 For abandonment to exist,
two factors must be present: (1) the failure to report for
work or absence without valid or justifiable reason; and
(2) a clear intention to sever employer-employee
relationship, with the second element as the more
determinative factor being manifested by some overt
acts. 25 It has been said that abandonment of position
cannot be lightly inferred, much less legally presumed
from certain equivocal acts. 26 Mere absence is not
sufficient. 27
In this case, no such intention to abandon her
work can be discerned from the actuations of Cruz.
Neither were there overt acts which could be considered
manifestations of her desire to truly abandon her work.
On the contrary, her reporting to the personnel manager
that she had been replaced and the immediate filing of
the complaint before the DOLE demonstrated a desire
on her part to continue her employment with Garden of SECOND DIVISION
Memories. As correctly pointed out by the CA, the filing
of the case for illegal dismissal negated the allegation of [G.R. No. 160506. March 9, 2010.]
abandonment.
WHEREFORE, the petition is DENIED. The June JOEB M. ALIVIADO, ARTHUR CORPUZ,
11, 2003 Decision of the Court of Appeals in CA-G.R. ERIC ALIVIADO, MONCHITO
SP No. 64569 and its October 16, 2003 Resolution are AMPELOQUIO, ABRAHAM BASMAYOR,
hereby AFFIRMED. JONATHAN MATEO, LORENZO PLATON,
SO ORDERED.  HDATSI
JOSE FERNANDO GUTIERREZ,
ESTANISLAO BUENAVENTURA, LOPE
 (Garden of Memories Park and Life Plan, Inc., v.
|||
SALONGA, FRANZ DAVID, NESTOR
National Labor Relations Commission, G.R. No. IGNACIO, JULIO REY, RUBEN MARQUEZ,
160278, [February 8, 2012], 681 PHIL 299-314) JR., MAXIMINO PASCUAL, ERNESTO
CALANAO, ROLANDO ROMASANTA,
RHUEL AGOO, BONIFACIO ORTEGA,
ARSENIO SORIANO, JR., ARNEL
ENDAYA, ROBERTO ENRIQUEZ, NESTOR
BAQUILA, EDGARDO QUIAMBAO,
SANTOS BACALSO, SAMSON BASCO,
ALADINO GREGORO * , JR., EDWIN
GARCIA, ARMANDO VILLAR, EMIL
TAWAT, MARIO P. LIONGSON,
CRESENTE J. GARCIA, FERNANDO
MACABENTE, MELECIO CASAPAO,
REYNALDO JACABAN, FERDINAND
SALVO, ALSTANDO MONTOS, RAINER N.
SALVADOR, RAMIL REYES, PEDRO G.
ROY, LEONARDO P. TALLEDO, ENRIQUE
F. TALLEDO, WILLIE ORTIZ, ERNESTO
SOYOSA, ROMEO VASQUEZ, JOEL
BILLONES, ALLAN BALTAZAR, NOLI
GABUYO, EMMANUEL E. LABAN, RAMIR
E. PIAT, RAUL DULAY, TADEO DURAN,
JOSEPH BANICO, ALBERT LEYNES,
ANTONIO DACUNA, RENATO DELA
CRUZ, ROMEO VIERNES, JR., ELAIS
BASEO, WILFREDO TORRES, MELCHOR
CARDANO, MARIANO NARANIAN, JOHN
SUMERGIDO, ROBERTO ROSALES,
GERRY C. GATPO, GERMAN N.
GUEVARRA, GILBERT Y. MIRANDA,
RODOLFO C. TOLEDO, ARNOLD D.
LASTONA, PHILIP M. LOZA, MARIO N.
CULDAYON, ORLANDO P. JIMENEZ,
FRED P. JIMENEZ, RESTITUTO C.
PAMINTUAN, JR., ROLANDO J. DE
ANDRES, ARTUZ BUSTENERA,
ROBERTO B. CRUZ, ROSEDY O.
YORDAN, DENNIS DACASIN,
ALEJANDRINO ABATON, and ORLANDO
S. BALANGUE, petitioners, vs. PROCTER
& GAMBLE PHILS., INC., and PROMM-
GEM, INC., respondents.
DECISION
DEL CASTILLO, J  : p
Labor laws expressly prohibit "labor-only"
contracting. To prevent its circumvention, the Labor
Code establishes an employer-employee relationship
between the employer and the employees of the 'labor-
only' contractor.
The instant petition for review assails the March
21, 2003 Decision 1 of the Court of Appeals (CA) in CA-
G.R. SP No. 52082 and its October 20, 2003
Resolution 2 denying the motions for reconsideration
separately filed by petitioners and respondent Procter &
Gamble Phils. Inc. (P&G). The appellate court affirmed
the July 27, 1998 Decision of the National Labor
Relations Commission (NLRC), which in turn affirmed
the November 29, 1996 Decision 3 of the Labor Arbiter.
All these decisions found Promm-Gem, Inc. (Promm-
Gem) and Sales and Promotions Services (SAPS) to be
legitimate independent contractors and the employers of
the petitioners.
Factual Antecedents
Petitioners worked as merchandisers of P&G
from various dates, allegedly starting as early as 1982
or as late as June 1991, to either May 5, 1992 or March
11, 1993, more specifically as follows:
Name Date Employed Date Dismissed
     
Joeb M. Aliviado November, 1985 May 5, 1992
Arthur Corpuz 1988 March 11, 1993
 28. Edwin Garcia 1987 May 5, 1992
3. Eric Aliviado 1985 29.
March 11, 1993 Armando Villar 1990 May 5, 1992
4. Monchito Ampeloquio September, 1988 30.
March 11, 1993 Emil Tawat 1988 March 11, 1993
5. Abraham Basmayor[, Jr.] 1987 31.
March 11, 1993 Mario P. Liongson 1991 May 5, 1992
6. Jonathan Mateo May, 1988 32.
March 11, 1993 Cresente J. Garcia 1984 March 11, 1993
7. Lorenzo Platon 1985 33.
March 11, 1993 Fernando Macabent[a] 1990 May 5, 1992
8. Jose Fernando Gutierrez  cCDAHE  Â Â  1988 May 5, 1992 34. Melecio Casapao 1987 March 11, 1993
9. Estanislao Buenaventura June, 1988 35.
March 11, 1993 Reynaldo Jacaban 1990 May 5, 1992
10. Lope Salonga 1982 36.
March 11, 1993 Ferdinand Salvo 1985 May 5, 1992
11. Franz David 1989 37.
March 11, 1993 Alstando Montos 1984 March 11, 1993
12. Nestor Ignacio 1982 38.
March 11, 1993 Rainer N. Salvador 1984 May 5, 1992
13. Julio Rey 1989 May 5, 1992 39. Ramil Reyes 1984 March 11, 1993
14. Ruben [Vasquez], Jr. 1985 May 5, 1992 40. Pedro G. Roy 1987  
15. Maximino Pascual 1990 May 5, 1992 41. Leonardo [F]. Talledo 1985 March 11, 1993
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992 42. Enrique [F]. Talledo 1988 March 11, 1993
17. Rolando Romasanta 1983 43.
March 11, 1993 Willie Ortiz 1987 May 5, 1992
18. [Roehl] Agoo 1988 44.
March 11, 1993 Ernesto Soyosa    HTSAEa  1988 May 5, 1992
19. Bonifacio Ortega 1988 45.
March 11, 1993 Romeo Vasquez 1985 March 11, 1993
20. Arsenio Soriano, Jr. 1985 46.
March 11, 1993 Joel Billones 1987 March 11, 1993
21. Arnel Endaya 1983 47.
March 11, 1993 Allan Baltazar 1989 March 11, 1993
22. Roberto Enriquez December, 1988 48.
March 11, 1993 Noli Gabuyo 1991 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992 49. Emmanuel E. Laban 1987 May 5, 1992
24. Ed[g]ardo Quiambao 1989 50.
March 11, 1993 Ramir[o] E. [Pita] 1990 May 5, 1992
25. Santos Bacalso 1990 51.
March 11, 1993 Raul Dulay 1988 May 5, 1992
26. Samson Basco 1984 52.
March 11, 1993 Tadeo Duran[o] 1988 May 5, 1992
27. Aladino Gregor[e], Jr. 1980 May 5, 1992 53. Joseph Banico 1988 March 11, 1993
54. Albert Leynes 1990 May 5, 1992 80. Orlando S. Balangue March, 1989 March 11, 1993 4
55. Antonio Dacu[m]a 1990 May 5, 1992
56. Renato dela Cruz 1982   They all individually signed employment contracts
57. Romeo Viernes, Jr. 1986  
with either Promm-Gem or SAPS for periods of more or
less five months at a time. 5 They were assigned at
58. El[ia]s Bas[c]o 1989   different outlets, supermarkets and stores where they
59. Wilfredo Torres 1986 May 5, 1992 handled all the products of P&G. They received their
wages from Promm-Gem or SAPS. 6
60. Melchor Carda[ñ]o 1991 May 5, 1992
SAPS and Promm-Gem imposed disciplinary
61. [Marino] [Maranion] 1989 May 5, 1992
measures on erring merchandisers for reasons such as
62. John Sumergido 1987 May 5, 1992 habitual absenteeism, dishonesty or changing day-off
63. Roberto Rosales May, 1987 May 5, 1992 without prior notice. 7
64. Gerry [G]. Gatpo November, 1990 March 11, 1993 P&G is principally engaged in the manufacture
and production of different consumer and health
65. German N. Guevara May, 1990 March 11, 1993 products, which it sells on a wholesale basis to various
66. Gilbert Y. Miranda June, 1991 March 11, 1993 supermarkets and distributors. 8 To enhance consumer
67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
awareness and acceptance of the products, P&G
entered into contracts with Promm-Gem and SAPS for
68. Arnold D. [Laspoña] June 1991 March 11, 1993 the promotion and merchandising of its products. 9
69. Philip M. Loza March 5, 1992 March 11, 1993 In December 1991, petitioners filed a
70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993 complaint 10 against P&G for regularization, service
incentive leave pay and other benefits with damages.
71. Orlando P. Jimenez November 6, 1992 March 11, 1993
The complaint was later amended 11 to include the
72. Fred P. Jimenez September, 1991 March 11, 1993 matter of their subsequent dismissal.
73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993
Ruling of the Labor Arbiter
74. Rolando J. de Andres June, 1991 March 11, 1993
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993 On November 29, 1996, the Labor Arbiter
dismissed the complaint for lack of merit and ruled that
76. Roberto B. Cruz May 4, 1990 March 11, 1993
there was no employer-employee relationship between
77. Rosedy O. Yordan June, 1991 May 5, 1992 petitioners and P&G. He found that the selection and
78. Dennis Dacasin May, 1990 May 5, 1992 engagement of the petitioners, the payment of their
wages, the power of dismissal and control with respect
79. Alejandrino Abaton 1988 May 5, 1992 to the means and methods by which their work was
accomplished, were all done and exercised by Promm- ordered to pay service incentive leave pay to
Gem/SAPS. He further found that Promm-Gem and petitioners.
SAPS were legitimate independent job contractors. The SO ORDERED. 16
dispositive portion of his Decision reads: 
HDCAaS

Petitioners filed a motion for reconsideration but the

WHEREFORE, premises considered,
motion was also denied. Hence, this petition.
judgment is hereby rendered Dismissing the
above-entitled cases against respondent Procter
& Gamble (Phils.), Inc. for lack of merit.
Issues

SO ORDERED. 12 Petitioners now come before us raising the following

issues:
Ruling of the NLRC
I.
Appealing to the NLRC, petitioners disputed the WHETHER . . . THE HONORABLE COURT OF
Labor Arbiter's findings. On July 27, 1998, the NLRC APPEALS HAS COMMITTED [A] REVERSIBLE
rendered a Decision 13 disposing as follows: ERROR WHEN IT DID NOT FIND THE PUBLIC
RESPONDENTS TO HAVE ACTED WITH
WHEREFORE, premises considered, the
GRAVE ABUSE OF DISCRETION AMOUNTING
appeal of complainants is hereby DISMISSED
TO LACK OF OR IN EXCESS OF
and the decision appealed from AFFIRMED.
JURISDICTION IN RENDERING THE
SO ORDERED. 14 QUESTIONED JUDGMENT WHEN,
OBVIOUSLY, THE PETITIONERS WERE ABLE
Petitioners filed a motion for reconsideration but TO PROVE AND ESTABLISH THAT
the motion was denied in the November 19, 1998 RESPONDENT PROCTER & GAMBLE PHILS.,
Resolution. 15 INC. IS THEIR EMPLOYER AND THAT THEY
WERE ILLEGALLY DISMISSED BY THE
Ruling of the Court of Appeals FORMER.
II.
Petitioners then filed a petition for certiorari with
the CA, alleging grave abuse of discretion amounting to WHETHER . . . THE HONORABLE COURT OF
lack or excess of jurisdiction on the part of the Labor APPEALS HAS COMMITTED [A] REVERSIBLE
Arbiter and the NLRC. However, said petition was also ERROR WHEN IT DID NOT DECLARE THAT
denied by the CA which disposed as follows: THE PUBLIC RESPONDENTS HAD ACTED
WITH GRAVE ABUSE OF DISCRETION WHEN
WHEREFORE, the decision of the THE LATTER DID NOT FIND THE PRIVATE
National Labor Relations Commission dated July RESPONDENTS LIABLE TO THE
27, 1998 is AFFIRMED with the MODIFICATION PETITIONERS FOR PAYMENT OF ACTUAL,
that respondent Procter & Gamble Phils., Inc. is MORAL AND EXEMPLARY DAMAGES AS
 WELL AS LITIGATION COSTS AND
ATTORNEY'S FEES. 17
Simply stated, the issues are: (1) whether P&G is
the employer of petitioners; (2) whether petitioners were
illegally dismissed; and (3) whether petitioners are
entitled for payment of actual, moral and exemplary
damages as well as litigation costs and attorney's fees.  Supreme Court.  aCTcDS
Petitioners' Arguments
Petitioners insist that they are employees of P&G.
They claim that they were recruited by the salesmen of
P&G and were engaged to undertake merchandising
chores for P&G long before the existence of Promm-
Gem and/or SAPS. They further claim that when the
latter had its so-called re-alignment program, petitioners
were instructed to fill up application forms and report to
the agencies which P&G created. 18
Petitioners further claim that P&G instigated their
dismissal from work as can be gleaned from its
letter 19 to SAPS dated February 24, 1993, informing the
latter that their Merchandising Services Contract will no
longer be renewed.
Petitioners further assert that Promm-Gem and
SAPS are labor-only contractors providing services of
manpower to their client. They claim that the contractors
have neither substantial capital nor tools and equipment
to undertake independent labor contracting. Petitioners
insist that since they had been engaged to perform
activities which are necessary or desirable in the usual
business or trade of P&G, then they are its regular
employees. 20
Respondents' Arguments
On the other hand, P&G points out that the
instant petition raises only questions of fact and should
thus be thrown out as the Court is not a trier of facts. It
argues that findings of facts of the NLRC, particularly
where the NLRC and the Labor Arbiter are in
agreement, are deemed binding and conclusive on the
P&G further argues that there is no employment
relationship between it and petitioners. It was Promm-
Gem or SAPS that (1) selected petitioners and engaged
their services; (2) paid their salaries; (3) wielded the
power of dismissal; and (4) had the power of control
over their conduct of work.
P&G also contends that the Labor Code neither
defines nor limits which services or activities may be
validly outsourced. Thus, an employer can farm out any
of its activities to an independent contractor, regardless
of whether such activity is peripheral or core in nature. It
insists that the determination of whether to engage the
services of a job contractor or to engage in direct hiring
is within the ambit of management prerogative.
At this juncture, it is worth mentioning that on
January 29, 2007, we deemed as waived the filing of
the Comment of Promm-Gem on the petition. 21 Also,
although SAPS was impleaded as a party in the
proceedings before the Labor Arbiter and the NLRC, it
was no longer impleaded as a party in the proceedings
before the CA. 22 Hence, our pronouncements with
regard to SAPS are only for the purpose of determining
the obligations of P&G, if any.
Our Ruling
The petition has merit.
 As a rule, the Court refrains from reviewing
factual assessments of lower courts and agencies
exercising adjudicative functions, such as the NLRC.
Occasionally, however, the Court is constrained to wade
into factual matters when there is insufficient or
insubstantial evidence on record to support those
factual findings; or when too much is concluded,
inferred or deduced from the bare or incomplete facts
appearing on record. 23 In the present case, we find the
need to review the records to ascertain the facts.
Labor-only contracting and job contracting
In order to resolve the issue of whether P&G is
the employer of petitioners, it is necessary to first
determine whether Promm-Gem and SAPS are labor-
only contractors or legitimate job contractors.
The pertinent Labor Code provision on the matter
states:
ART. 106. Contractor or subcontractor. —
Whenever an employer enters into a contract
with another person for the performance of the
former's work, the employees of the contractor
and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this
Code.
In the event that the contractor or
subcontractor fails to pay the wages of his
employees in accordance with this Code, the
employer shall be jointly and severally liable with
his contractor or subcontractor to such
employees to the extent of the work performed
under the contract, in the same manner and
extent that he is liable to employees directly
employed by him.
The Secretary of Labor may, by
appropriate regulations, restrict or prohibit the
contracting out of labor to protect the rights of
workers established under this Code. In so
prohibiting or restricting, he may make
appropriate distinctions between labor-only
contracting and job contracting as well as
differentiations within these types of contracting
and determine who among the parties involved
shall be considered the employer for purposes of
this Code, to prevent any violation or
circumvention of any provision of this Code.
There is "labor-only" contracting where
the person supplying workers to an employer
does not have substantial capital or investment
in the form of tools, equipment, machineries,
work premises, among others, and the workers
recruited and placed by such person are
performing activities which are directly related to
the principal business of such employer. In such
cases, the person or intermediary shall be
considered merely as an agent of the employer
who shall be responsible to the workers in the
same manner and extent as if the latter were
directly employed by him. (Emphasis and
underscoring supplied.)
Rule VIII-A, Book III of the Omnibus Rules
Implementing the Labor Code, as amended
by Department Order No. 18-02, 24 distinguishes
between legitimate and labor-only contracting:
xxx xxx xxx
Section 3. Trilateral Relationship in
Contracting Arrangements. — In legitimate
contracting, there exists a trilateral relationship
under which there is a contract for a specific job,
work or service between the principal and the
contractor or subcontractor, and a contract of
employment between the contractor or
subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the
principal which decides to farm out a job or
service to a contractor or subcontractor, the
contractor or subcontractor which has the
capacity to independently undertake the
performance of the job, work or service, and the
contractual workers engaged by the contractor or
subcontractor to accomplish the job[,] work or
service.
xxx xxx xxx
Section 5. Prohibition against labor-only
contracting. — Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only
contracting shall refer to an arrangement where
the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work
or service for a principal, and any of the following
elements are present:
i) The contractor or subcontractor does
not have substantial capital or investment which
relates to the job, work or service to be
performed and the employees recruited, supplied
or placed by such contractor or subcontractor
are performing activities which are directly
related to the main business of the principal; or
ii) [T]he contractor does not exercise the
right to control over the performance of the work
of the contractual employee.  cCaSHA
The foregoing provisions shall be without
prejudice to the application of Article 248 (c) of
the Labor Code, as amended.
"Substantial capital or investment" refers
to capital stocks and subscribed capitalization in
the case of corporations, tools, equipment,
implements, machineries and work premises,
actually and directly used by the contractor or
subcontractor in the performance or completion
of the job, work or service contracted out.
The "right to control" shall refer to the right
reserved to the person for whom the services of
the contractual workers are performed, to
determine not only the end to be achieved, but
also the manner and means to be used in
reaching that end.
xxx xxx xxx (Underscoring supplied.)
Clearly, the law and its implementing rules allow
contracting arrangements for the performance of
specific jobs, works or services. Indeed, it is
management prerogative to farm out any of its activities,
regardless of whether such activity is peripheral or core
in nature. However, in order for such outsourcing to be
valid, it must be made to an independent
contractor because the current labor rules expressly
prohibit labor-only contracting.
To emphasize, there is labor-only contracting
when the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or
service for a principal 25 and any of the following
elements are present:
i) The contractor or subcontractor does
not have substantial capital or investment which
relates to the job, work or service to be
performed and the employees recruited, supplied
or placed by such contractor or subcontractor
are performing activities which are directly
related to the main business of the principal; or
 ii) The contractor does not exercise the
right to control over the performance of the work
of the contractual employee. (Underscoring
supplied)
In the instant case, the financial statements 26 of
Promm-Gem show that it has authorized capital stock of
P1 million and a paid-in capital, or capital available for
operations, of P500,000.00 as of 1990. 27 It also has
long term assets worth P432,895.28 and current assets
of P719,042.32. Promm-Gem has also proven that it
maintained its own warehouse and office space with a
floor area of 870 square meters. 28 It also had under its
name three registered vehicles which were used for its
promotional/merchandising business. 29 Promm-Gem
also has other clients 30 aside from P&G. 31 Under the
circumstances, we find that Promm-Gem has
substantial investment which relates to the work to be
performed. These factors negate the existence of the
element specified in Section 5 (i) of DOLE Department
Order No. 18-02.
The records also show that Promm-Gem supplied
its complainant-workers with the relevant materials,
such as markers, tapes, liners and cutters, necessary
for them to perform their work. Promm-Gem also issued
uniforms to them. It is also relevant to mention that
Promm-Gem already considered the complainants
working under it as its regular, not merely contractual or
project, employees. 32 This circumstance negates the
existence of element (ii) as stated in Section 5 of DOLE
Department Order No. 18-02, which speaks
of contractual employees. This, furthermore, negates —
on the part of Promm-Gem — bad faith and intent to
circumvent labor laws which factors have often been
tipping points that lead the Court to strike down the
employment practice or agreement concerned as
contrary to public policy, morals, good customs or public
order. 33  
Under the circumstances, Promm-Gem cannot be
considered as a labor-only contractor. We find that it is
a legitimate independent contractor.
On the other hand, the Articles of Incorporation of
SAPS shows that it has a paid-in capital of only
P31,250.00. There is no other evidence presented to
show how much its working capital and assets are.
Furthermore, there is no showing of substantial
investment in tools, equipment or other assets.
In Vinoya v. National Labor Relations
Commission,  34 the Court held that "[w]ith the current
economic atmosphere in the country, the paid-in
capitalization of PMCI amounting to P75,000.00 cannot
be considered as substantial capital and, as such, PMCI
cannot qualify as an independent
contractor." 35 Applying the same rationale to the
present case, it is clear that SAPS — having a paid-in
capital of only P31,250 — has no substantial capital.
SAPS' lack of substantial capital is underlined by the
records 36 which show that its payroll for its
merchandisers alone for one month would already total
P44,561.00. It had 6-month contracts with P&G. 37 Yet
SAPS failed to show that it could complete the 6-month
contracts using its own capital and investment. Its
capital is not even sufficient for one month's payroll.
SAPS failed to show that its paid-in capital of
P31,250.00 is sufficient for the period required for it to
generate its needed revenue to sustain its operations
independently. Substantial capital refers to capitalization
used in the performance or completion of the job, work
or service contracted out. In the present case, SAPS
has failed to show substantial capital.
 Furthermore, the petitioners have been charged
with the merchandising and promotion of the products of
P&G, an activity that has already been considered by
the Court as doubtlessly directly related to the
manufacturing business, 38 which is the principal
business of P&G. Considering that SAPS has no
substantial capital or investment and the workers it
recruited are performing activities which are directly
related to the principal business of P&G, we find that the
former is engaged in "labor-only contracting".
"Where 'labor-only' contracting exists, the Labor
Code itself establishes an employer-employee
relationship between the employer and the employees
of the 'labor-only' contractor." 39 The statute establishes
this relationship for a comprehensive purpose: to
prevent a circumvention of labor laws. The contractor is
considered merely an agent of the principal employer
and the latter is responsible to the employees of the
labor-only contractor as if such employees had been
directly employed by the principal employer. 40  AIaHES
Consequently, the following petitioners, having
been recruited and supplied by SAPS 41 — which
engaged in labor-only contracting — are considered as
the employees of P&G: Arthur Corpuz, Eric Aliviado,
Monchito Ampeloquio, Abraham Basmayor, Jr.,
Jonathan Mateo, Lorenzo Platon, Estanislao
Buenaventura, Lope Salonga, Franz David, Nestor
Ignacio, Jr., Rolando Romasanta, Roehl Agoo,
Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya,
Roberto Enriquez, Edgardo Quiambao, Santos Bacalso,
Samson Basco, Alstando Montos, Rainer N. Salvador,
Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo,
Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo,
German Guevara, Gilbert V. Miranda, Rodolfo C.
Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N.
Coldayon, Orlando P. Jimenez, Fred P. Jimenez,
Restituto C. Pamintuan, Jr., Rolando J. De Andres,
Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O.
Yordan, Orlando S. Balangue, Emil Tawat, Cresente J.
Garcia, Melencio Casapao, Romeo Vasquez, Renato
dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
Dacasin.
The following petitioners, having worked under,
and been dismissed by Promm-Gem, are considered
the employees of Promm-Gem, not of P&G: Wilfredo
Torres, John Sumergido, Edwin Garcia, Mario P.
Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton,
Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore,
Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino
Pascual, Willie Ortiz, Armando Villar, Jose Fernando
Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor
Esquila, Julio Rey, Albert Leynes, Ernesto Calanao,
Roberto Rosales, Antonio Dacuma, Tadeo Durano,
Raul Dulay, Marino Maranion, Joseph Banico, Melchor
Cardano, Reynaldo Jacaban, and Joeb Aliviado. 42
Termination of services
We now discuss the issue of whether petitioners
were illegally dismissed. In cases of regular
employment, the employer shall not terminate the
services of an employee except for a just 43 or
authorized 44 cause.
In the instant case, the termination letters given
by Promm-Gem to its employees uniformly specified the
cause of dismissal as grave misconduct and breach of
trust, as follows:
xxx xxx xxx
 This informs you that effective May 5,
1992, your employment with our company,
Promm-Gem, Inc. has been terminated. We find
your expressed admission, that you considered
yourself as an employee of Procter & Gamble
Phils., Inc. . . . and assailing the integrity of the
Company as legitimate and independent
promotion firm, is deemed as an act of disloyalty
prejudicial to the interests of our Company:
serious misconduct and breach of trust reposed
upon you as employee of our Company which
[co]nstitute just cause for the termination of your
employment.
xxx xxx xxx 45
Misconduct has been defined as improper or wrong
conduct; the transgression of some established and
definite rule of action, a forbidden act, a dereliction of duty,
unlawful in character implying wrongful intent and not mere
error of judgment. The misconduct to be serious must be of
such grave and aggravated character and not merely trivial
and unimportant. 46 To be a just cause for dismissal, such
misconduct (a) must be serious; (b) must relate to the
performance of the employee's duties; and (c) must show
that the employee has become unfit to continue working for
the employer. 47
In other words, in order to constitute serious
misconduct which will warrant the dismissal of an
employee under paragraph (a) of Article 282 of the Labor
Code, it is not sufficient that the act or conduct complained
of has violated some established rules or policies. It is
equally important and required that the act or conduct must
have been performed with wrongful intent. 48 In the instant
case, petitioners-employees of Promm-Gem may have
committed an error of judgment in claiming to be
employees of P&G, but it cannot be said that they were
motivated by any wrongful intent in doing so. As such, we
find them guilty of only simple misconduct for assailing the
integrity of Promm-Gem as a legitimate and independent
promotion firm. A misconduct which is not serious or grave,
as that existing in the instant case, cannot be a valid basis
for dismissing an employee.
Meanwhile, loss of trust and confidence, as a ground
for dismissal, must be based on the willful breach of the
trust reposed in the employee by his employer. Ordinary
breach will not suffice. A breach of trust is willful if it is done
intentionally, knowingly and purposely, without justifiable
excuse, as distinguished from an act done carelessly,
thoughtlessly, heedlessly or inadvertently. 49
Loss of trust and confidence, as a cause for
termination of employment, is premised on the fact that the
employee concerned holds a position of responsibility or of
trust and confidence. As such, he must be invested with
confidence on delicate matters, such as custody, handling
or care and protection of the property and assets of the
employer. And, in order to constitute a just cause for
dismissal, the act complained of must be work-related and
must show that the employee is unfit to continue to work for
the employer. 50 In the instant case, the petitioners-
employees of Promm-Gem have not been shown to be
occupying positions of responsibility or of trust and
confidence. Neither is there any evidence to show that they
are unfit to continue to work as merchandisers for Promm-
Gem.
All told, we find no valid cause for the dismissal of
petitioners-employees of Promm-Gem.
While Promm-Gem had complied with the procedural
aspect of due process in terminating the employment of
petitioners-employees, i.e., giving two notices and in
between such notices, an opportunity for the employees to
answer and rebut the charges against them, it failed to
comply with the substantive aspect of due process as the
acts complained of neither constitute serious misconduct
nor breach of trust. Hence, the dismissal is illegal. 
AHSaTI
With regard to the petitioners placed with P&G by
SAPS, they were given no written notice of dismissal. The
records show that upon receipt by SAPS of P&G's letter
terminating their "Merchandising Services Contact * "
effective March 11, 1993, they in turn verbally informed the
concerned petitioners not to report for work anymore. The
concerned petitioners related their dismissal as follows:
xxx xxx xxx
5. On March 11, 1993, we were called to
a meeting at SAPS office. We were told by Mr.
Saturnino A. Ponce that we should already stop
working immediately because that was the order
of Procter and Gamble. According to him he
could not do otherwise because Procter and
Gamble was the one paying us. To prove that
Procter and Gamble was the one responsible in
our dismissal, he showed to us the letter 51 dated
February 24, 1993, . . .
February 24, 1993
Sales and Promotions Services
Armon's Bldg., 142 Kamias Road,
Quezon City
Attention: Mr. Saturnino A. Ponce
President & General Manager
Gentlemen:
Based on our discussions last 5 and 19
February 1993, this formally informs you
that we will not be renewing our
Merchandising Services Contract with
your agency.
Please immediately undertake efforts to
ensure that your services to the Company
will terminate effective close of business
hours of 11 March 1993.  
This is without prejudice to whatever
obligations you may have to the company
under the abovementioned contract.
Very truly
yours,
(Sgd.)
EMMANU
EL M.
NON
Sales
Merchand
ising III
6. On March 12, 1993, we reported to our
respective outlet assignments. But, we were no
longer allowed to work and we were refused
entrance by the security guards posted.
According to the security guards, all
merchandisers of Procter and Gamble under
S[APS] who filed a case in the Dept. of Labor are
already dismissed as per letter of Procter and
Gamble dated February 25, 1993. . . . 52
Neither SAPS nor P&G dispute the existence of
these circumstances. Parenthetically, unlike Promm-
Gem which dismissed its employees for grave
misconduct and breach of trust due to disloyalty, SAPS
dismissed its employees upon the initiation of P&G. It is
evident that SAPS does not carry on its own business
because the termination of its contract with P&G
automatically meant for it also the termination of its
employees' services. It is obvious from its act that SAPS
had no other clients and had no intention of seeking
other clients in order to further its merchandising
business. From all indications SAPS, existed to cater
solely to the need of P&G for the supply of employees in
the latter's merchandising concerns only. Under the
circumstances prevailing in the instant case, we cannot
consider SAPS as an independent contractor.
Going back to the matter of dismissal, it must be
emphasized that the onus probandi to prove the
lawfulness of the dismissal rests with the employer. 53 In
termination cases, the burden of proof rests upon the
employer to show that the dismissal is for just and valid
cause. 54 In the instant case, P&G failed to discharge
the burden of proving the legality and validity of the
dismissals of those petitioners who are considered its
employees. Hence, the dismissals necessarily were not
justified and are therefore illegal.
Damages
We now go to the issue of whether petitioners are
entitled to damages. Moral and exemplary damages are
recoverable where the dismissal of an employee was
attended by bad faith or fraud or constituted an act
oppressive to labor or was done in a manner contrary to
morals, good customs or public policy. 55
With regard to the employees of Promm-Gem,
there being no evidence of bad faith, fraud or any
oppressive act on the part of the latter, we find no
support for the award of damages. 
TcDIaA
As for P&G, the records show that it dismissed its
employees through SAPS in a manner oppressive to
labor. The sudden and peremptory barring of the
concerned petitioners from work, and from admission to
the work place, after just a one-day verbal
notice, and for no valid cause bellows oppression and
utter disregard of the right to due process of the
concerned petitioners. Hence, an award of moral
damages is called for.
Attorney's fees may likewise be awarded to the
concerned petitioners who were illegally dismissed in
bad faith and were compelled to litigate or incur
expenses to protect their rights by reason of the
oppressive acts 56 of P&G.
Lastly, under Article 279 of the Labor Code,an
employee who is unjustly dismissed from work shall be
entitled to reinstatement without loss of seniority rights
and other privileges, inclusive of allowances, and other
benefits or their monetary equivalent from the time the
compensation was withheld up to the time of actual
reinstatement. 57 Hence, all the petitioners, having been
illegally dismissed are entitled to reinstatement without
loss of seniority rights and with full back wages and
other benefits from the time of their illegal dismissal up
to the time of their actual reinstatement.
WHEREFORE, the petition is GRANTED. The
Decision dated March 21, 2003 of the Court of Appeals
in CA-G.R. SP No. 52082 and the Resolution dated
October 20, 2003 are REVERSED and SET
ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem,
Inc. are ORDERED to reinstate their respective
employees immediately without loss of seniority rights
and with full backwages and other benefits from the
time of their illegal dismissal up to the time of their
actual reinstatement. Procter & Gamble Phils., Inc. is
further ORDERED to pay each of those petitioners
considered as its employees, namely Arthur Corpuz,
Eric Aliviado, Monchito Ampeloquio, Abraham [G.R. No. 208451. February 3, 2016.]
Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David, MANILA MEMORIAL PARK CEMETERY,
Nestor Ignacio, Rolando Romasanta, Roehl Agoo, INC., petitioner, vs. EZARD D. LLUZ,
Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, NORMAN CORRAL, ERWIN FUGABAN,
Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, VALDIMAR BALISI, EMILIO FABON, JOHN
Samson Basco, Alstando Montos, Rainer N. Salvador, MARK APLICADOR, MICHAEL CURIOSO,
Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, JUNLIN ESPARES, GAVINO FARINAS,
Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, and WARD TRADING AND
German Guevara, Gilbert Y. Miranda, Rodolfo C. SERVICES, respondents.
Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N.
Coldayon, Orlando P. Jimenez, Fred P. Jimenez,
Restituto C. Pamintuan, Jr., Rolando J. De Andres, DECISION
Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O.
Yordan, Orlando S. Balangue, Emil Tawat, Cresente J.
Garcia, Melencio Casapao, Romeo Vasquez, Renato
CARPIO, J  :
dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
p

Dacasin, P25,000.00 as moral damages plus ten The Case

percent of the total sum as and for attorney's fees.
Let this case be REMANDED to the Labor Arbiter
for the computation, within 30 days from receipt of this
Decision, of petitioners' backwages and other benefits;
and ten percent of the total sum as and for attorney's
fees as stated above; and for immediate execution.
SO ORDERED.
 (Aliviado v. Procter & Gamble Phils., Inc., G.R.
|||
No. 160506, [March 9, 2010], 628 PHIL 469-494)
This is a petition for review
on certiorari 1 assailing the Decision 2 dated 21 January
2013 and the Resolution 3 dated 17 July 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 119237.
The Facts
On 23 February 2006, petitioner Manila Memorial
Park Cemetery, Inc. (Manila Memorial) entered into a
Contract of Services with respondent Ward Trading and
Services (Ward Trading). The Contract of Services
provided that Ward Trading, as an independent
contractor, will render interment and exhumation
services and other related work to Manila Memorial in
order to supplement operations at Manila Memorial
Park, Parañaque City.
Among those assigned by Ward Trading to
perform services at the Manila Memorial Park were
respondents Ezard Lluz, Norman Corral, Erwin
Fugaban, Valdimar Balisi, Emilio Fabon, John Mark
Aplicador, Michael Curioso, Junlin Espares, and Gavino
Farinas (respondents). They worked six days a week for
eight hours daily and were paid P250 per day.
On 26 June 2007, respondents filed a
Complaint 4 for regularization and Collective Bargaining
Agreement benefits against Manila Memorial; Enrique
B. Lagdameo, Manila Memorial's Executive Vice-
President and Director in Charge for Overall Operations,
and Ward Trading. On 6 August 2007, respondents filed
an amended complaint to include illegal dismissal,
underpayment of 13th month pay, and payment of
attorney's fees. 
SDHTEC
Respondents alleged that they asked Manila
Memorial to consider them as regular workers within the
appropriate bargaining unit established in the collective
bargaining agreement by Manila Memorial and its union,
the Manila Memorial Park Free Workers Union (MMP
Union). Manila Memorial refused the request since
respondents were employed by Ward Trading, an
independent labor contractor. Thereafter, respondents
joined the MMP Union. The MMP Union, on behalf of
respondents, sought their regularization which Manila
Memorial again declined. Respondents then filed the
complaint. Subsequently, respondents were dismissed
by Manila Memorial. Thus, respondents amended the
complaint to include the prayer for their reinstatement
and payment of back wages.
Meanwhile, Manila Memorial sought the dismissal
of the complaint for lack of jurisdiction since there was
no employer-employee relationship. Manila Memorial
argued that respondents were the employees of Ward
Trading.
In a Decision 5 dated 29 March 2010, the Labor
Arbiter dismissed the complaint for failing to prove the
existence of an employer-employee relationship. The
dispositive portion of the Decision states:
WHEREFORE, premises considered,
judgment is hereby rendered dismissing the
above-entitled case for complainants' lack of
employer-employee relationship with
respondent Manila Memorial Park Cemetery,
Inc.
SO ORDERED. 6
Respondents appealed 7 to the NLRC. In a
Decision 8 dated 30 September 2010, the NLRC
reversed the Labor Arbiter's findings. The NLRC ruled
that Ward Trading was a labor-only contractor and an
agent of Manila Memorial. The dispositive portion of the
Decision states:
WHEREFORE, premises considered,
complainants' appeal is GRANTED. The
assailed Decision of Labor Arbiter Geobel A.
Bartolabac dated March 29, 2010 is
MODIFIED. It is hereby declared that
complainants were regular employees of
respondent Manila Memorial Park Cemetery,
Inc. and entitled to the benefits provided for
under the CBA between the latter and the
Manila Memorial Park Free Workers Union.
Respondent Manila Memorial Park
Cemetery, Inc. is ordered to pay wage
differentials to complainants as follows:
1. Ezard D. Lluz — P43,982.79
2. Norman Corral — P29,765.67
3. Erwin Fugaban — P28,634.67
 4. Valdimar Balisi — P20,310.33
5. Emilio Fabon — P43,982.79
6. John Mark Aplicador — P43,982.79
7. Michael Curioso — P43,982.79
8. Ju[n]lin Espares — P43,982.79
9. Gavino Farinas — P43,982.79
SO ORDERED. 9
Manila Memorial filed a Motion
Reconsideration which was denied in
Resolution 10 dated 31 January 2011.
Thereafter, Manila Memorial filed an appeal with
the CA. In a Decision dated 21 January 2013, the CA
affirmed the ruling of the NLRC. The CA found the
existence of an employer-employee relationship
between Manila Memorial and respondents. The
dispositive portion of the Decision states:
WHEREFORE, in view of the foregoing,
the instant Petition for Certiorari is DENIED.
The Decision, dated September 30, 2010 and
the Resolution, dated January 31, 2011,
rendered by the National Labor Relations
Commission (NLRC) in NLRC LAC No. 06-
001267-10 are AFFIRMED.
SO ORDERED. 11
Manila Memorial then filed a Motion for
Reconsideration which was denied by the CA in a
Resolution dated 17 July 2013.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or
not an employer-employee relationship exists between
Manila Memorial and respondents for the latter to be
entitled to their claim for wages and other benefits.
The Court's Ruling
The petition lacks merit.
Manila Memorial contends that Ward Trading has
total assets in excess of P1.4 million, according to Ward
Trading's financial statements for the year 2006, proving
that it has sufficient capitalization to qualify as a
for legitimate independent contractor. Manila Memorial
a insists that nowhere is it provided in the Contract of
Services that Manila Memorial controls the manner and
means by which respondents accomplish the results of
their work. Manila Memorial states that the company
only wants its contractors and the latter's employees to
abide by company rules and regulations.
Respondents, on the other hand, assert that they
are regular employees of Manila Memorial since Ward
Trading cannot qualify as an independent contractor but
should be treated as a mere labor-only contractor.
Respondents state that (1) there is enough proof that
Ward Trading does not have substantial capital,
investment, tools and the like; (2) the workers recruited
and placed by the alleged contractors performed
activities that were related to Manila Memorial's
business; and (3) Ward Trading does not exercise the
right to control the performance of the work of the
contractual employees.  AScHCD
As a general rule, factual findings of the CA are
binding upon this Court. One exception to this rule is
when the factual findings of the former are contrary to
those of the trial court, or the lower administrative body,
as the case may be. This Court is obliged to resolve an
issue of fact due to the conflicting findings of the Labor
Arbiter on one hand, and the NLRC and the CA on the
other.
In order to determine whether there exists an
employer-employee relationship between Manila
Memorial and respondents, relevant provisions of the
labor law and rules must first be reviewed. Article 106 of
the Labor Code states:
Art. 106. Contractor or subcontractor.
Whenever an employer enters into a contract
with another person for the performance of the
former's work, the employees of the contractor
and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this
Code.
In the event that the contractor or
subcontractor fails to pay the wages of his
employees in accordance with this Code, the
employer shall be jointly and severally liable
with his contractor or subcontractor to such
employees to the extent of the work performed
under the contract, in the same manner and
extent that he is liable to employees directly
employed by him.
The Secretary of Labor and
Employment may, by appropriate regulations,
restrict or prohibit the contracting-out of labor
to protect the rights of workers established
under this Code. In so prohibiting or restricting,
he may make appropriate distinctions between
labor-only contracting and job contracting as
well as differentiations within these types of
contracting and determine who among the
parties involved shall be considered the
employer for purposes of this Code, to prevent
any violation or circumvention of any provision
of this Code.
There is "labor-only" contracting
where the person supplying workers to an
employer does not have substantial capital
or investment in the form of tools,
equipment, machineries, work premises,
among others, and the workers recruited
and placed by such person are performing
activities which are directly related to the
principal business of such employer. In
such cases, the person or intermediary
shall be considered merely as an agent of
the employer who shall be responsible to
the workers in the same manner and extent
as if the latter were directly employed by
him. (Emphasis supplied)
Sections 3, 5 and 7 of Department Order No. 18-
02 12 distinguish between legitimate and labor-only
contracting and assume the existence of an employer-
employee relationship if found to be engaged in labor-
only contracting. The provisions state:
xxx xxx xxx
Section 3. Trilateral Relationship in Contracting
Arrangements. — In legitimate contracting,
there exists a trilateral relationship under which
there is a contract for a specific job, work or
service between the principal and the
contractor or subcontractor, and a contract of
employment between the contractor or
subcontractor and its workers. Hence, there
are three parties involved in these
arrangements, the principal which decides to
farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor
which has the capacity to independently
undertake the performance of the job, work or
service, and the contractual workers engaged
by the contractor or subcontractor to
accomplish the job, work or service.
xxx xxx xxx
Section 5. Prohibition against labor-only
contracting. — Labor-only contracting is
hereby declared prohibited. For this purpose,
labor-only contracting shall refer to an
arrangement where the contractor or
subcontractor merely recruits, supplies or
places workers to perform a job, work or
service for a principal, and any of the following
elements are present:
i) The contractor or subcontractor does not
have substantial capital or investment which
relates to the job, work or service to be
performed and the employees recruited,
supplied or placed by such contractor or
subcontractor are performing activities which
are directly related to the main business of the
principal; or
ii) The contractor does not exercise the right to
control over the performance of the work of the
contractual employee.
The foregoing provisions shall be without
prejudice to the application of Article 248 (c) of
the Labor Code,as amended.
"Substantial capital or investment" refers
to capital stocks and subscribed capitalization
in the case of corporations, tools, equipment,
implements, machineries and work premises,
actually and directly used by the contractor or
subcontractor in the performance or completion
of the job, work or service contracted out.
The "right to control" shall refer to the
right reserved to the person for whom the
services of the contractual workers are
performed, to determine not only the end to be
achieved, but also the manner and means to
be used in reaching that end.
xxx xxx xxx
Section 7. Existence of an employer-employee
relationship. — The contractor or subcontractor
shall be considered the employer of the
contractual employee for purposes of enforcing
the provisions of the Labor Code and other
social legislation. The principal, however, shall
be solidarily liable with the contractor in the
event of any violation of any provision of
the Labor Code,including the failure to pay
wages. 
AcICHD
The principal shall be deemed the
employer of the contractual employee in any of
the following cases as declared by a
competent authority:
(a) where there is labor-only
contracting; or
(b) where the contracting
arrangement falls within the
prohibitions provided in Section 6
(Prohibitions) hereof. (Emphasis
supplied)
It is clear from these provisions that contracting
arrangements for the performance of specific jobs or
services under the law and its implementing rules are
allowed. However, contracting must be made to a
legitimate and independent job contractor since labor
rules expressly prohibit labor-only contracting.
 Labor-only contracting exists when the contractor
or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal
and any of the following elements are present:
1) The contractor or subcontractor does not have
substantial capital or investment which
relates to the job, work or service to be
performed and the employees recruited,
supplied or placed by such contractor or
subcontractor are performing activities
which are directly related to the main
business of the principal; or
2) The contractor does not exercise the right to
control the performance of the work of the
contractual employee. 13
In the present case, Manila Memorial entered into
a Contract of Services with Ward Trading, a single
proprietorship owned by Emmanuel Mayor Ward with
business address in Las Piñas City on 23 February
2006. In the Contract of Services, it was provided that
Ward Trading, as the contractor, had adequate workers
and substantial capital or investment in the form of
tools, equipment, machinery, work premises and other
materials which were necessary in the conduct of its
business.
However, a closer look at the Contract of
Services reveals that Ward Trading does not have
substantial capital or investment in the form of tools,
equipment, machinery, work premises and other
materials since it is Manila Memorial which owns the
equipment used in the performance of work needed for
interment and exhumation services. The pertinent
provision in the Contract of Services which shows that
Manila Memorial owns the equipment states:
The COMPANY shall [sell] to the
contractor the COMPANY owned equipment in
the amount of ONE MILLION FOUR
HUNDRED THOUSAND PESOS ONLY
(Php1,400,000.00) payable in two (2) years or
a monthly payment of FIFTY EIGHT
THOUSAND THREE HUNDRED THIRTY FIVE
PESOS ONLY (Php58,335.00) to be deducted
from the CONTRACTOR's billing. 14
Just by looking at the provision, it seems that the
sale was a regular business transaction between two
parties. However, Manila Memorial did not present any
evidence to show that the sale actually pushed through
or that payments were made by Ward Trading to prove
an ordinary arms length transaction. We agree with the
NLRC in its findings:
While the above-cited provision of the
Contract of Service implies that respondent
MMPCI would sell subject equipment to Ward
at some future time, the former failed to
present any contract of sale as proof that,
indeed, it actually sold said equipment to Ward.
Likewise, respondent MMPCI failed to present
any "CONTRACTOR's billing" wherein the
purported monthly installment of P58,335.00
had been deducted, to prove that Ward truly
paid the same as they fell due. In a contract to
sell, title is retained by the vendor until full
payment of the price.
Moreover, the Contract of Service
provides that:
"5. The COMPANY reserves the
right to rent all or any of the
CONTRACTOR's equipment in
the event the COMPANY
 requires the use of said
equipment. . . . ."
This provision is clear proof that Ward
does not have an absolute right to use or enjoy
subject equipment, considering that its right to
do so is subject to respondent MMPCI's use
thereof at any time the latter requires it. Such
provision is contrary to Article 428 of the Civil
Code, which provides that "The owner has the
right to enjoy and dispose of a thing, without
other limitation than those established by law."
It is plain to see that Ward is not the owner of
the equipment worth P1,400,000.00 that is
being actually and directly used in the
performance of the services contracted out.
Further, the Service Contract states
that:
"For its part, the COMPANY
agrees to provide the following:
a) Area to store CONTRACTOR's
equipment and materials
b) Office space for
CONTRACTOR's staff and
personnel"
This provision is clear proof that even
the work premises actually and directly used by
Ward in the performance of the services
contracted out is owned by respondent
MMPCI. 15
Also, the difference in the value of the equipment
in the total amount of P1,400,000.00 can be glaringly
seen in Ward Trading's financial statements for the year
2006 when compared to its 2005 financial statements. It
is significant to note that these financial statements
were submitted by Manila Memorial without any
certification that these financial statements were
actually audited by an independent certified public
accountant. Ward Trading's Balance Sheet 16 as of 31
December 2005 showed that it had assets in the
amount of P441,178.50 and property and equipment
with a net book value of P86,026.50 totaling P534,705.
A year later, Ward Trading's Balance Sheet 17 ending in
31 December 2006 showed that it had assets in the
amount of P57,084.70 and property and equipment with
a net book value of P1,426,468 totaling P1,491,052.70.
Ward Trading, in its Income Statements 18 for the years
2005 and 2006, only earned a net income of P53,800 in
the year ending 2005 and P68,141.50 in 2006.
Obviously, Ward Trading could not have raised a
substantial capital of P1,400,000.00 from its income
alone without the inclusion of the equipment owned and
allegedly sold by Manila Memorial to Ward Trading after
they signed the Contract of Services on 23 February
2006. TAIaHE
Further, the records show that Manila Memorial
and Enrique B. Lagdameo admitted that respondents
performed various interment services at its Sucat,
Parañaque branch which were directly related to Manila
Memorial's business of developing, selling and
maintaining memorial parks and interment functions.
Manila Memorial even retained the right to control the
performance of the work of the employees concerned.
As correctly observed by the CA:
A perusal of the Service Contract would
reveal that respondent Ward is still subject to
petitioner's control as it specifically provides
that although Ward shall be in charge of the
supervision over individual respondents, the
exercise of its supervisory function is heavily
dependent upon the needs of petitioner determination, the COMPANY
Memorial Park, particularly: may take over the performance of
any of the functions mentioned in
"It is also agreed that:
Paragraph I above, in any of the
a) The CONTRACTOR's following cases:
supervisor will conduct a regular
xxx xxx xxx
inspection of grave sites/areas
being dug to ensure compliance c. If the COMPANY finds the
with the COMPANY's interment performance of the
schedules and other related CONTRACTOR in any part or
ceremonies. aspect of the grave digging works
or other services provided by it to
b) The CONTRACTOR will
be unsatisfactory."
provide enough manpower during
peak interment days including It is obvious that the aforementioned
Sundays and Holidays. provision leaves respondent Ward at the mercy
of petitioner Memorial Park as the contract
c) The CONTRACTOR shall
states that the latter may take over if it finds
schedule off-days for its workers
any part of the services to be below its
in coordination with the
expectations, including the manner of its
COMPANY's schedule of
performance. . . . . 19
interment operation.
d) The CONTRACTOR shall be The NLRC also found that Ward Trading's
responsible for any damage done business documents fell short of sound business
to lawn/s and/or structure/s practices. The relevant portion in the NLRC's Decision
resulting from its operation, which states:
must be restored to its/their It is also worth noting that while Ward
original condition without delay has a Certificate of Business Name
and at the expense of Registration issued by the Department of
CONTRACTOR." Trade and Industry on October 24, 2003 and
The contract further provides that valid up to October 24, 2008, the same
petitioner has the option to take over the expressly states that it is not a license to
functions of Ward's personnel if it finds any part engage in any kind of business, and that it is
or aspect of the work or service provided to be valid only at the place indicated therein, which
unsatisfactory, thus: is Las Piñas City. Hence, the same is not valid
in Parañaque City, where Ward assigned
"6.1 It is hereby expressly agreed
complainants to perform interment services it
and understood that, at any time
contracted with respondent MMPCI. It is also
during the effectivity of this
noted that the Permit, which was issued to
CONTRACT and its sole
 Ward by the Office of the Mayor of Las Piñas
City on October 28, 2003, was valid only up to
December 31, 2003. Likewise, the Sanitary
Permit to Operate, which was issued to Ward
by the Office of the City Health Officer of the
Las Piñas City Health Office on October 28,
2003, expired on December 31, 2003. While
respondents MMPCI and Lagdameo were able
to present copies of the above-mentioned
documents, they failed to present any proof
that Ward is duly registered as [a] contractor
with the Department of Labor and
Employment. 20
Section 11 of Department Order No. 18-02, which
mandates registration of contractors or subcontractors
with the DOLE, states:
Section 11. Registration of Contractors
or Subcontractors. — Consistent with authority
In this case, however, Manila Memorial failed to
adduce evidence to prove that Ward Trading had any
substantial capital, investment or assets to perform the
work contracted for. Thus, the presumption that Ward
Trading is a labor-only contractor stands. Consequently,
Manila Memorial is deemed the employer of
respondents. As regular employees of Manila Memorial,
respondents are entitled to their claims for wages and
other benefits as awarded by the NLRC and affirmed by
the CA.
WHEREFORE, we DENY the petition.
We AFFIRM the Decision dated 21 January 2013 and
the Resolution dated 17 July 2013 of the Court of
Appeals in CA-G.R. SP No. 119237.
SO ORDERED.
 (Manila Memorial Park Cemetery, Inc. v. Lluz,
|||

of the Secretary of Labor and Employment to G.R. No. 208451, [February 3, 2016], 780 PHIL 425-
restrict or prohibit the contracting out of labor 438)
through appropriate regulations, a registration
system to govern contracting arrangements
and to be implemented by the Regional Office
is hereby established.
The Registration of contractors and
subcontractors shall be necessary for purposes
of establishing an effective labor market
information and monitoring.
Failure to register shall give rise to the
presumption that the contractor is engaged in
labor-only contracting.
For failing to register as a contractor, a
presumption arises that one is engaged in labor-only
contracting unless the contractor overcomes the burden [G.R. No. 209418. December 7, 2015.]
of proving that it has substantial capital, investment,
tools and the like. 21 
cDHAES
 W.M. MANUFACTURING,
INC., petitioner, vs. RICHARD R. DALAG
and GOLDEN ROCK MANPOWER
SERVICES, respondents.
DECISION
VELASCO, JR., J  : p
Nature of the Case
For consideration is the amended petition for
review under Rule 45 of the Rules of Court, assailing
the February 21, 2013 Decision 1 and September 17,
2013 Amended Decision 2 of the Court of Appeals (CA)
in CA-G.R. SP No. 122425, 3 which declared petitioner
W.M. Manufacturing, Inc. (WM MFG) and respondent
Golden Rock Manpower Services (Golden Rock)
solidarily liable to respondent Richard R. Dalag (Dalag)
for the latter's alleged illegal dismissal from
employment.
The Facts
On January 3, 2010, petitioner, as client, and
respondent Golden Rock, as contractor, executed a
contract denominated as "Service Agreement," 4 which
pertinently reads: 
HTcADC
SERVICE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS
xxx xxx xxx
The CONTRACTOR shall render,
undertake, perform and employ the necessary
number of workers as the CLIENT may need,
at such dates and times as the CLIENT may
deem necessary.
The CLIENT shall have the right to
request for replacement to relieve such
workers as the need arises for any reason
whatsoever and the CONTRACTOR
undertakes to furnish a replacement
immediately as possible.
xxx xxx xxx
There shall be no employer-employee
relationship between the CLIENT, on the one
hand, and the persons assigned by the
CONTRACTOR to perform the services called
for hereunder, on the other hand.
In view of this, CONTRACTOR agrees
to hold the CLIENT free from any liability,
cause(s) o(f) action and/or claims which may
failed (sic) by said workers including but not
limited to those arising from injury or death of
any kind of nature that may be sustained by
them while in the performance of their
assigned tasks.
The CONTRACTOR hereby warrants
compliance with the provisions of the Labor
Code of the Philippines as well as with all other
presidential decrees, general orders, letters of
instruction, laws rules and regulations
pertaining to the employment of a labor now
existing or which may hereafter be enacted,
including the payment of wages, allowances,
bonuses, and other fringe benefits, and the
CLIENT shall not in any way be responsible for
any claim for personal injury or death, for
wages, allowances, bonuses and other fringe
benefits, made either by the said personnel or
by third parties, whether or not such injury,
 death or claim by third parties, whether or not
such injury, death or claim arises out of, or in
any way connected with, the performance of
personnel's duties.
The CLIENT shall have the right to
report to the CONTRACTOR and protest any
untoward act, negligence, misconduct,
malfeasance or nonfeasance of the said
personnel and the contractor alone shall have
the right to discipline the said personnel.
The CONTRACTOR shall fully and
faithfully comply with the provisions of the
New Labor Code, as well as with other
laws, rules and regulations, pertaining to the
employment of labor which is now existing or
which hereafter be promulgated or enacted.
In relation to the Service Agreement, Golden
Rock, on April 26, 2010, engaged the services of
respondent Dalag as a factory worker to be assigned at
petitioner's factory. For this purpose, respondents inked
a five-month Employment Contract for Contractual
Employees (Employment Contract) 5 that reads:
EMPLOYMENT CONTRACT FOR
CONTRACTUAL EMPLOYEES
Dear Mr./Ms. Richard Dalag,
[Golden Rock] hire(s) you as a
contractual worker/employee to work at WM
MFG under these conditions:
1) You will hold the position as (sic) Factory
Worker.
2) Your employment as a CONTRACTUAL
EMPLOYEE takes effect on April 26, 2010 to
Sept. 26, 2010. You will receive a salary of
P328.00 per day payable weekly/15'h (sic) day
monthly of the calendar month.
xxx xxx xxx
7) Your employment as a CONTRACTUAL
EMPLOYEE may be terminated at any time for
any cause, which may arise due to inability to
learn and undertake duties and responsibilities
of the position you are being employed for,
inefficiency, violation of company rules, policies
and regulations, personnel reduction and
recession business. In either event, you will be
given a notice of termination during your
working hours/day.
The company undertakes to pay your
compensation for the days actually worked and
the company shall not be liable for the period
of the contract not run for any separation
pay. aScITE
Notwithstanding the five-month duration
stipulated in the contract, respondent Dalag would
allege in his complaint for illegal dismissal 6 that on
August 7, 2010, one of WM MFG's security guards
prevented him from going to his work station and,
instead, escorted him to the locker room and limited his
activity to withdrawing his belongings therefrom. Having
been denied entry to his work station without so much
as an explanation from management, Dalag claimed
that he was illegally dismissed, his employment having
been terminated without either notice or cause, in
violation of his right to due process, both substantive
and procedural.
Dalag further claimed that his assignment at WM
MFG as side seal machine operator was necessary and
desirable for the company's plastic manufacturing
business, making him a regular employee entitled to
benefits under such classification. 7 He likewise alleged
that WM MFG and Golden Rock engaged in the illegal
act of labor-only contracting based on the following
circumstances: that all the equipment, machine and
tools that he needed to perform his job were furnished
by WM MFG; that the jobs are to be performed at WM
MFG's workplace; and that he was under the
supervision of WM MFG's team leaders and
supervisors.
The complaint, docketed as LAC No. 03-000673-
11, was lodged against WM MFG, Golden Rock,
Jocelyn Hernando (Hernando), Watson Nakague
(Nakague) and Pablo Ong (Ong), the latter three
individuals as officers of the impleaded companies. In
their joint position paper, therein respondents argued
that Dalag was not dismissed and that, on the contrary,
it was he who abandoned his work. They offered as
proof WM MFG's memos 8 addressed to Dalag, which
ordered him to answer within 24-hours the accusations
relating to the following alleged infractions: gross
negligence, qualified theft, malicious mischief,
incompetence, grave misbehaviour, insubordination,
dishonesty, and machine sabotage. 9 Based on the
memos and the affidavits submitted by his former co-
workers, 10 Dalag repeatedly failed to immediately
report to management the breakdowns of the side-seal
machine he was assigned to operate; that he did not
report that the machine's thermocouple wire and
conveyor belt needed repair, causing the damage on
the belt to worsen and for the wire to eventually break;
and that he pocketed spare parts of petitioner's
machines without company management's consent.
Memo 2010-19 dated August 7, 2010, the final
memo WM MFG attempted to serve Dalag, pertinently
reads: 11
Samakatuwid, matapos ang
isinagawang imbestigasyon tungkol sa mga
insidenteng kinasangkutan mo.
Napagdesisyunan na ng Management na
magbaba ng Final Decision na ikaw ay
patawan ng suspension at pinagrereport sa
Golden Rock Agency, ito ay dahil sa mga
alegasyon na nagpapatunay na ikaw ay
nagkasala at lumabag sa Patakaran ng
kumpanyang ito.
Dalag, however, allegedly refused to receive the
memos, and instead turned his back on his superiors,
informing them that he will no longer return, and then
walked away. And on that very same day, WM MFG,
through a letter addressed to Golden Rock, informed
the manpower company of its intention to exercise its
right to ask for replacement employees under the
Service Agreement. As per the letter, WM MFG no
longer needed Dalag's services. 12
The parties would later file their respective replies
in support of the allegations and arguments raised in
their position papers. 13
Ruling of the Labor Arbiter
On January 24, 2011, Labor Arbiter Eduardo G.
Magno rendered a Decision 14 in LAC No. 03-000673-
11 dismissing Dalag's complaint. The dispositive portion
of the Decision reads:
WHEREFORE, the Complaint is hereby
DISMISSED for lack of merit.
However, respondents are hereby
ordered to pay his unpaid wages for three days
in the amount of P1,212.00. HEITAD
SO ORDERED.
 Citing Machica v. Roosevelt Center Services,
Inc., 15 the Labor Arbiter ratiocinated that the burden of
proving actual dismissal is upon the shoulders of the
party alleging it; and that WM MFG and Golden Rock
can only be burdened to justify a dismissal if it, indeed,
took place. Unfortunately for Dalag, the Labor Arbiter
did not find substantial evidence to sustain a finding that
he was, in the first place, actually dismissed from  
employment. As observed by the Labor Arbiter: 16
Records show that complainant [Dalag]
last reported for work on August 6, 2010 and
filed his complaint for illegal dismissal on
August 9, 2010. However, [Dalag] failed to
establish the fact of his alleged dismissal on
August 07, 2010.
As established by respondents [WM
MFG, Golden Rock, Hernando, Nakague, and
Ong], [Dalag] was hired by [Golden Rock] as
contractual employee on April 26, 2010 until
September 26, 2010 and was assigned at its
client [WM MFG].
[Dalag] failed to present any letter of
termination of his employment by his employer
[Golden Rock].
A party alleging a critical fact must
support his allegation with substantial evidence
for any decision based on unsubstantiated
allegation cannot stand as it will offend due
process.
There is no illegal dismissal to speak of
where the employee was not notified that he
had been dismissed from his employment nor
he was prevented from returning to his work.
(words in brackets added, citations omitted)
Plainly, between WM MFG and Golden Rock, the
Labor Arbiter considered the latter as Dalag's true
employer. Thus, Dalag's termination from employment,
if any, ought to come not from WM MFG but from
Golden Rock. Without such termination, actual or
constructive, Dalag's complaint cannot prosper for there
was no dismissal to begin with, legal or otherwise.
Obviously aggrieved by the Labor Arbiter's ruling,
Dalag interposed an appeal with the National Labor
Relations Commission (NLRC).
Rulings of the NLRC
On May 31, 2011, Dalag obtained a favorable
ruling from the NLRC through its Decision 17 in NLRC
NCR CASE NO. 08-11002-10, which granted his appeal
in the following wise:
WHEREFORE, in view of the foregoing
premises, the appeal of the complainant is
GRANTED. The assailed Decision dated
January 24, 2011 is hereby REVERSED and
SET ASIDE. Judgment is now rendered
declaring complainant to have been illegally
terminated from employment. Respondents
W.M. Manufacturing, Inc., et al., are hereby
ordered to reinstate immediately complainant
to his former position without loss of seniority
rights and privileges computed from the time
he was actually dismissed or his compensation
withheld up to the time of actual reinstatement,
which as of the decision, amounted to a total of
One Hundred Seven Thousand Seven
Hundred Thirty-Nine and 73/100 Pesos
(P107,739.73), as computed by the NLRC
Computation Unit, exclusive of the
complainant's unpaid wages from August 4-6,
 2010, in the amount of P1,212.00 as previously
awarded.
All other claims are hereby dismissed
for lack of merit.
SO ORDERED.
In siding with respondent Dalag, the NLRC
determined that Dalag's true employer was WM MFG,
who merely engaged respondent Golden Rock as a
labor-only contractor. To arrive at this conclusion, the
NLRC utilized the control test, thusly: 18 ATICcS
. . . [T]he employment contract of the
complainant only showed that [Golden Rock]
hired [Dalag] as a factory worker to be
assigned to [WM MFG] and by all indications,
Golden Rock did not provide technical or
special services [WM MFG]. Moreover, [WM
MFG and Golden Rock] did not deny that the
machines or tools used by the complainant,
including the work premises, belonged to
respondent [WM MFG], and not to the agency.
[WM MFG]'s control and supervision
over the work of [Dalag] is indeed explicit, and
as stated by [Dalag] he was supervised not by
Golden Rock but by the team leaders and
supervisors of [WM MFG]. And not only that,
based on the evidence submitted by
respondent [WM MFG], it was the latter who
even took the pains of investigating the alleged
infractions of [Dalag]. By [WM MFG and
Golden Rock]'s own allegation, it was [WM
MFG] who issued memos to [Dalag] directing
him to explain several infractions allegedly
committed. All those notices and memoranda,
which according to [WM MFG] [Dalag] refused
to receive, emanated from [WM MFG], and not
from Golden Rock. This only demonstrates that
the complainant is not an employee of [Golden
Rock] but of [WM MFG].
The so-called "control test" in
determining employer-employee relationship is
applicable in the instant case. In this case,
[WM MFG] reserved the right to control the
complainant not only as to the result of the
work to be done but also to the means and
methods by which the same is to be
accomplished. Hence, clearly, there is an
employer-employee between [WM MFG] and
[Dalag].
Aside from applying the control test, the
Commission likewise gave credence to Dalag's
postulation that several other factors point to Golden
Rock's nature as a labor-only contractor, a mere agent.
The NLRC outlined these considerations as follows: that
Golden Rock supplied WM MFG with employees that
perform functions that are necessary, desirable, and
directly related to the latter's main business; 19 that
there is an absence of proof that Golden Rock is
involved in permissible contracting services 20 and that it
carries on an independent business for undertaking job
contracts other than to WM MFG; 21 and that both WM
MFG and Golden Rock even jointly submitted pleadings
to the NLRC, with the same submission and defenses,
and even under the same representation. 22 On account
of these circumstances, the NLRC deemed the
contractual relation between WM MFG and Golden
Rock as one of labor-only contracting, akin to that of a
principal and his agent. In light of this determination, the
NLRC held that they are, therefore, jointly and severally
liable 23 to WM MFG's illegally dismissed employees
that were supplied by Golden Rock.
 Dalag, having been prevented from reporting to
work without just cause and without being afforded the
opportunity to be heard, is one of such illegally
dismissed employees to whom Golden Rock and
petitioner are solidarily liable, so the NLRC ruled. In its
initial findings, the NLRC held that the attempt to serve
Dalag copies of the memoranda did not constitute
sufficient notice for there was no proof of service or
even of an attempt thereof. The Commission explained
that assuming for the sake of argument that Dalag,
indeed, refused to receive copies of the memos
personally served, WM MFG's remedy was then to
serve them through registered mail in order to be
considered as compliance with the procedural
requirement of notice. 24 WM MFG's failure to comply
with the same then resulted in Dalag being deprived of
his procedural due process right.
Moreover, assuming even further that there was
no deviation from procedure, the NLRC held that the
contents of the memos offered by petitioner in evidence
do not amount to valid cause for they merely constituted
allegations, not proof, of Dalag's infractions. As noted
by the NLRC, no formal investigation followed the
attempt to serve Dalag copies of the memoranda. Thus,
to the mind of the Commission, the veracity of the
allegations in the memoranda were not verified and
cannot, therefore, be taken at face value. 25
Dalag's legal victory, however, would be short-
lived, for eventually, WM MFG and Nakague would
jointly move for reconsideration, which would be granted
by the NLRC.
In its second Decision 26 promulgated on
September 20, 2011, the NLRC absolved Dalag's
alleged employers from liability, as follows:
WHEREFORE, in view of the foregoing
premises, the Motion for Reconsideration is
hereby, GRANTED. The assailed Decision
dated May 31, 2011 is
hereby REVERSED and SET ASIDE. The
Decision of Labor Arbiter Eduardo G. Magno
dated January 24, 2011 is
hereby REINSTATED.  TIADCc
SO ORDERED.
To justify the turnabout, the NLRC took into
consideration Certificate of Registration No. NCR-CFO-
091110-0809-003 27 dated August 27, 2009 and issued
by the Department of Labor and Employment (DOLE) to
Golden Rock pursuant to Department Order No. 18-02,
s. 2002, 28 and Articles 106-109 of the Labor Code, on
job-contracting. 29 The said certificate, along with the
copy of the Service Agreement between WM MFG and
Golden Rock and Dalag's Employment Contract, was
submitted for the first time as attachments to WM MFG
and Nakague's motion for reconsideration, but were,
nevertheless, admitted by the NLRC in the interest of
substantial justice. 30
With the introduction of these new pieces of
evidence, the commission ruled anew that its previous
observation — that there was an absence of proof that
Golden Rock is a legitimate job contractor — has
effectively been refuted. What is more, the NLRC no
longer relied solely on the control test and instead
applied the four-fold test in ascertaining Dalag's true
employer. And in reviewing its earlier Decision, the
NLRC noted that it is Golden Rock who paid Dalag's
salaries and wages; that under the Service Agreement,
it reserved unto itself the power to dismiss Dalag; and
that it has sole control over the exercise of Dalag's
employment. 31
 The NLRC then proceeded to reiterate the Labor
Arbiter's position that for the employer's burden to prove
that its dismissal of an employee was for just cause to
arise, the employee must first demonstrate that he was,
in the first place, actually dismissed — a fact which
Dalag failed to establish. Lastly, the NLRC noted that
Dalag reported for work for only three (3) months and
cannot, therefore, be considered a regular employee. 32
Rulings of the Court of Appeals
Expectedly, the September 20, 2011 NLRC
Decision prompted Dalag to elevate the case to the CA
via a Rule 65 petition for certiorari, docketed as CA-
G.R. SP No. 122425, alleging that the commission
committed grave abuse of discretion when it reversed
its own ruling. Specifically, Dalag argued that it was
highly irregular for the Commission to have admitted the
documents belatedly offered by WM MFG as
evidence, 33 and insisted that the NLRC did not err in its
first Decision finding that he was illegally
dismissed. 34 Meanwhile, WM MFG and Nakague would
counter that the petition to the CA ought to be dismissed
outright since Dalag failed to file a motion for  
reconsideration of the NLRC's second Decision, a
condition sine qua non for filing a petition
for certiorari under Rule 65. They likewise point to the
Entry of Judgment 35 issued by the NLRC, signifying
that the second Decision of the NLRC has already
attained finality. To modify the same would then violate
the doctrine on the immutability of judgments.
On February 21, 2013, the appellate court
rendered a Decision favoring Dalag in the following
wise:
WHEREFORE, the petition
is GRANTED. The Decision Dated September
20, 2011 of the National Labor Arbiter's
Commission, Second Division in NLRC NCR
08-11002-10 (LAC No. 03-000673-11) is
hereby REVERSED and SET ASIDE. The
NLRC's Decision dated May 31, 2011
is REINSTATED.
SO ORDERED. 36
Dispensing with the procedural arguments, the
CA struck down the contentions of both parties relating
to the rigid application of procedural rules. 37 It held
that rules of evidence prevailing in courts of law or
equity are not binding in labor cases, 38 and allow the
admission of additional evidence not presented before
the Labor Arbiter, and submitted before the NLRC for
the first time on appeal, 39 as in WM MFG's case.
As regards the alleged availability of a plain,
speedy, and adequate remedy at Dalag's disposal that
bars the filing of a petition for certiorari, the CA held that
technical rules may be relaxed in this regard in the
interest of substantial justice. 40 To quote the appellate
court: 
AIDSTE
In this case, a liberal construction of
the rules is called for as records show that
petitioner filed the petition as a pauper litigant.
Technical rules of procedure may be relaxed to
serve the demands of substantial justice
particularly in labor cases, where the prevailing
principle is that technical rules shall be liberally
construed in favor of the working class in
accordance with the demands of substantial
justice. Rules of procedure should also not be
applied in a very rigid technical sense in labor
cases in order that technicalities would not
stand in the way of equitably and completely
 resolving the rights and obligations of the
parties. (citations omitted)
On to the merits, the CA discussed that Golden
Rock's Certificate of Registration is not conclusive
evidence that the company is an independent
contractor. 41 More controlling for the CA was the failure
of Golden Rock to prove the concurrence of the
requisites of a legitimate independent job contractor
according to jurisprudence. 42 Absent proof that Golden
Rock has substantial capital and that it exercised control
over Dalag, the CA held that petitioner and Golden
Rock miserably failed to establish the latter's status as a
legitimate independent contractor. 43 Finally,
appellate court did not give credence to petitioner's
claim of abandonment since it failed to discharge the
burden of proving Dalag's unjustified refusal to return to
work. 44
Unfazed, WM MFG and Nakague moved for
reconsideration of the CA's ruling. On September 17,
2013, the CA rendered an Amended Decision partially
granting the motion and modifying the decretal portion
of its earlier ruling in the following wise:
WHEREFORE, the Motion for
Reconsideration is PARTIALLY GRANTED.
The Decision dated February 21, 2013 of this
Court which reads:
WHEREFORE, the petition
is GRANTED. The Decision
Dated September 20, 2011 of the
National Labor Arbiter's
Commission, Second Division in
NLRC NCR 08-11002-10 (LAC
No. 03-000673-11) is hereby
REVERSED and SET ASIDE.
The NLRC's Decision dated May
31, 2011 is REINSTATED.
SO ORDERED.
is hereby AMENDED to read:
WHEREFORE, the petition
is GRANTED. The Decision
Dated September 20, 2011 of the
National Labor Arbiter's
Commission, Second Division in
NLRC NCR 08-11002-10 (LAC
No. 03-000673-11) is hereby
REVERSED and SET ASIDE.
the The NLRC's Decision dated May
31, 2011 is REINSTATED insofar
as the liability of Golden Rock
Manpower Services and W.M.
Manufacturing, Inc. are
concerned. The company
officers, Watson Nakague and
Pablo Ong are absolved of
liability.
SO ORDERED.
SO ORDERED. 45
Citing Delima v. Gois, 46 the CA determined that
the absence of malice or bad faith on the part of
Nakague and Ong negated any possibility of liability for
Dalag's illegal dismissal. 
AaCTcI
Grounds for the Petition
Unsatisfied with the outcome, petitioner WM MFG
interposed a petition for review against respondent
Dalag, anchored on the following assignment of errors:
I
WITH DUE RESPECT, THE HONORABLE
COURT OF APPEALS SERIOUSLY ERRED
IN DECIDING A QUESTION OF SUBSTANCE Petitioner maintains that the filing of a motion for
NOT IN ACCORD WITH THE LAW AND reconsideration prior to resorting to certiorari cannot be
APPLICABLE DECISIONS OF THIS dispensed with merely on account of the filer's status as
HONORABLE COURT WHEN IT GAVE DUE a pauper litigant; that the CA violated the doctrine on
COURSE TO DALAG'S PETITION the immutability of judgments when it reversed the
NOTWITHSTANDING THE FACT THAT HE
NLRC's second final and executory Decision; that
FAILED TO FILE A MOTION FOR
RECONSIDERATION OF THE NLRC'S 20 Golden Rock is Dalag's true employer, not WM MFG;
SEPTEMBER 2011 DECISION, A that Golden Rock is a legitimate independent contractor
CONDITION SINE QUA NON FOR ONE TO with whom WM MFG cannot be held solidarily liable;
AVAIL THE EXTRAORDINARY REMEDY and that Dalag abandoned his work, and was not in any
OF CERTIORARI UNDER RULE 65 OF way dismissed.
THE RULES OF COURT
In his Comment, Dalag, substantially reiterating
II the May 31, 2011 Decision of the NLRC in NLRC NCR
WITH DUE RESPECT, THE HONORABLE CASE NO. 08-11002-10 as affirmed by the appellate
COURT OF APPEALS SERIOUSLY ERRED court, maintained that the non-filing of a motion for
IN DECIDING A QUESTION OF SUBSTANCE reconsideration in this case falls under one of the
NOT IN ACCORD WITH THE LAW AND recognized exceptions in jurisprudence, and is,
APPLICABLE DECISIONS OF THIS therefore, excused; that the CA did not err in finding that
HONORABLE COURT WHEN IT GAVE DUE WM MFG and Golden Rock engaged in labor-only
COURSE TO DALAG'S PETITION contracting and should be considered solidarily liable;
FOR CERTIORARI NOTWITHSTANDING THE and that he was illegally dismissed.
FACT THAT THE NLRC'S 20 SEPTEMBER
2011 DECISION HAD LONG BECOME FINAL By claiming that Golden Rock is an independent
AND EXECUTORY contractor, the Court noted that petitioner's claim could
III potentially shift liability to Golden Rock alone, should
the Court maintain the finding that Dalag was illegally
WITH DUE RESPECT, THE HONORABLE dismissed. Given this circumstance, and the fact that
COURT OF APPEALS SERIOUSLY ERRED
Golden Rock has actively participated in the
IN DECIDING A QUESTION OF SUBSTANCE
NOT IN ACCORD WITH THE LAW AND
proceedings a quo, the Court, by its November 24, 2014
APPLICABLE DECISIONS OF THIS Resolution, 48 directed petitioner to implead Golden
HONORABLE COURT IN FINDING THAT Rock in the instant case. Petitioner, on January 28,
RESPONDENT WAS AN EMPLOYEE OF THE 2015, complied with the directive and impleaded Golden
COMPANY AND THAT HE WAS ILLEGALLY Rock in its Amended Petition for Review on Certiorari.
DISMISSED 47 On June 23, 2015, Golden Rock submitted its
Comment alleging that all the elements of legitimate
contracting are present in this case. Moreover, it joined
petitioner in its claim that Dalag was not terminated,
illegally or otherwise, but abandoned his post.
The Issues
The issues in this case can be summarized,
thusly:
1. Whether or not Dalag is excused from not
moving for reconsideration before filing a
petition for certiorari;
2. Whether or not WM MFG and Golden Rock
engaged in labor-only contracting;
3. Whether or not Dalag was illegally dismissed;
and
4. What monetary award/s is Dalag entitled to, if
any, and at what amount.
The Court's Ruling
The petition is meritorious.
Respondent Dalag was excused from filing a Motion
for Reconsideration before filing a Petition for
Certiorari under Rule 65 with the CA
As a general rule, a motion for reconsideration is
a prerequisite for the availment of a petition
for certiorari under Rule 65. The intention behind the
requirement is to afford the public respondent an
opportunity, the NLRC in this case, to correct any error
attributed to it by way of re-examination of the legal and
factual aspects of the case. 49 The Court, however, has
declined from applying the rule rigidly in certain
scenarios. The well-recognized exceptions are
enumerated in Romy's Freight Service
Castro, 50 viz.: 
EcTCAD
(a) Where the order is a patent nullity, as
where the court a quo has no jurisdiction;
(b) Where the questions raised in
the certiorari proceeding have been duly
raised and passed upon by the lower court,
or are the same as those raised and passed
upon in the lower court;
(c) Where there is an urgent necessity for the
resolution of the question and any further delay
would prejudice the interests of the
Government or of the petitioner or the subject
matter of the action is perishable;
(d) Where, under the circumstances, a motion
for reconsideration would be useless;
(e) Where petitioner was deprived of due
process and there is extreme urgency for relief;
(f) Where, in a criminal case, relief from an
order of arrest is urgent and the granting of
such relief by the trial court is improbable;
(g) Where the proceedings in the lower court
are a nullity for lack of due process;
(h) Where the proceedings were ex parte or in
which the petitioner had no opportunity to
object; and
(i) Where the issue raised is one purely of law
or where public interest is involved. (emphasis
added)
Verily, the CA is mistaken in looking to
respondent Dalag's indigency to exempt the latter from
complying with procedural rules. Under the Rules of
Court, a pauper or indigent litigant is exempted from the
payment of legal fees, 51 but not from filing a motion for
v.
reconsideration before resorting to the extraordinary
remedy of certiorari.
 Be that as it may, the second exception (i.e., that
the questions raised in the certiorari proceeding have
been duly raised and passed upon by the lower court, or
are the same as those raised and passed upon in the
lower court) may still be invoked to achieve the same
result of exempting Dalag from moving for
reconsideration of the September 20, 2011 NLRC
Decision. As extensively discussed, the contractual
relation between WM MFG and Golden Rock, as well as  
the validity of Dalag's dismissal, have consistently been
the main issues in the flip-flopping rulings in the
proceedings below. Moreover, noteworthy is that the
ruling that respondent Dalag assailed by certiorari was
the NLRC's second Decision, petitioner having already
moved for reconsideration of the labor commission's
May 31, 2011 findings. Thus, to settle the issues once
and for all, the CA aptly deemed it prudent, and
rightfully so, to dispense with the procedural
requirement of reconsideration and to address the
substantive issues head on.
WM MFG and Golden Rock engaged in labor-only
contracting
Delving into the core of the controversy, the Court
first determines whether or not petitioner WM MFG and
Golden Rock engaged in labor-only contracting. Both
companies claim that Golden Rock is a legitimate
contractor for manpower services, relying on its
Certificate of Registration and their contractual
stipulation leaving Golden Rock with the power to
discipline its employees.
We are not convinced.
There is "labor-only" contracting where the
person supplying workers to an employer does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others,
and the workers recruited and placed by such person
are performing activities which are directly related to the
principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter
were directly employed by him. 52  HSAcaE
Under Art. 106 of Presidential Decree No. 442,
otherwise known as the Labor Code of the Philippines,
the Secretary of Labor and Employment (SOLE) may
issue pertinent regulations to protect the rights of
workers against the prohibited practice of labor-only
contracting. Pursuant to this delegated authority, the
SOLE, throughout the years, endeavored to provide
clearer guidelines in distinguishing a legitimate
manpower provider from a labor-only contractor,
beginning with Department Order No. 10, 53 series of
1997, issued on May 30, 1997; followed by Department
Order No. 03, 54 series of 2001, issued on May 8,
2001; Department Order 18-02, 55 series of 2002,
issued on February 21, 2002; and by Department Order
No. 18-A, 56 series of 2011, promulgated on November
14, 2011. Of these executive edicts, Department Order
18-02 (DO 18-02) is the applicable issuance at the time
respondent Dalag complained of his alleged illegal
dismissal. 57
Section 5 of DO 18-02 laid down the criteria in
determining whether or not labor-only contracting exists
between two parties, as follows:
Section 5. Prohibition against labor-only
contracting. — Labor-only contracting is hereby
declared prohibited. For this purpose, labor-
 only contracting shall refer to an arrangement
where the contractor or subcontractor merely
recruits, supplies or places workers to perform
a job, work or service for a principal, and any of
the following elements are present:
i) The contractor or subcontractor does not have
substantial capital or investment which
relates to the job, work or service to be
performed and the employees recruited,
supplied or placed by such contractor or
subcontractor are performing activities
which are directly related to the main
business of the principal; or
ii) the contractor does not exercise the right to
control over the performance of the work
of the contractual employee.
xxx xxx xxx
It is clear from the above section that the
essential element in labor-only contracting is that the
contractor merely recruits, supplies or places workers to
perform a job, work or service for a principal. However,
the presence of this essential element is not enough
and must, in fact, be accompanied by any one of the
confirmatory elements to be considered a labor-only
contractor within the contemplation of the rule. 58
The presence of the essential element in the
extant case cannot be gainsaid. This much is clearly
provided in the service agreement between WM MFG
and Golden Rock:
The CONTRACTOR shall render,
undertake, perform and employ the
necessary number of workers as the
CLIENT may need, at such dates and times as
the CLIENT may deem necessary.
As to the presence of the confirmatory elements,
Dalag draws our attention to (1) Golden Rock's lack of
substantial capital, coupled with the necessity and
desirability of the job he performed in WM MFG; and (2)
Golden Rock's lack of control over the employees it
supplied WM MFG.
i. Golden Rock lacked substantial capital
Anent the first confirmatory element, petitioner
and Golden Rock refuted the latter's alleged lack of
substantial capital by presenting its Certificate of
Registration from the DOLE Regional Office in
Valenzuela City. Although not conclusive proof of
legitimacy as a manpower provider, the certification
nevertheless prevented the presumption of labor-only
contracting from arising. 59 In its stead, the certification
gave rise to a disputable presumption that the
contractor's operations are legitimate. As provided
in Gallego v. Bayer Philippines, Inc.: 60
The DOLE certificate having been
issued by a public officer, it carries with it the
presumption that it was issued in the regular
performance of official duty. Petitioners bare
assertions fail to rebut this presumption.
Further, since the DOLE is the agency
primarily responsible for regulating the
business of independent job contractors, the
Court can presume, in the absence of evidence
to the contrary, that it had thoroughly evaluated
the requirements submitted by PRODUCT
IMAGE before issuing the Certificate of
Registration. . . .
Among the requirements for registration is a copy
of the contractor's audited financial statements, if the
applicant is a corporation, partnership, cooperative or a
union, or a copy of the latest income tax return if the
applicant is a sole proprietorship. 61 Upon submission of
the requirements, the DOLE Regional Director
concerned will then have seven (7) days to evaluate the
information supplied and determine whether the
application ought to be approved or denied. Since
Golden Rock's application was approved, both
petitioner and respondent company claimed that the
DOLE Regional Office found Golden Rock's
capitalization to be satisfactory and substantial, contrary
to Dalag's claim.
Petitioner and Golden Rock's claim fails to
convince. HESIcT
It may be that the DOLE Regional Director for the
National Capital Region was satisfied by Golden Rock's
capitalization as reflected on its financial documents,
but the basis for determining the substantiality of a
company's "capital" rests not only thereon but also on
the tools and equipment it owns in relation to the job,
work, or service it provides. DO 18-02 defines
"substantial capital or investment" in the context of
labor-only contracting as referring not only to a
contractor's financial capability, but also encompasses
the tools, equipment, implements, machineries and
work premises, actually and directly used by the
contractor or subcontractor in the performance or
completion of the job, work or service contracted out. 62
Here, the Certificate of Registration may have
prevented the presumption of labor-only contracting
from arising, but the evidence Dalag adduced was
sufficient to overcome the disputable presumption that
Golden Rock is an independent contractor. To be sure,
in performing his tasks, Dalag made use of the raw
materials and equipment that WM MFG supplied. He
also operated the side-seal machine in the workplace of
WM MFG, not of Golden Rock. With these attendant
circumstances, the Court rules that the first confirmatory
element indubitably exists.
ii. WM MFG exercised control over the employees
supplied by Golden Rock
As to the second confirmatory element (i.e.,
control), petitioner argues that the Service Agreement it
forged with Golden Rock specifically provides that the
latter exclusively exercises control over the employees it
assigns to WM MFG. What is more, it is Golden Rock
who paid for Dalag's salaries and wages, a badge of
their employer-employee relation.
Petitioner's claim does not persuade.
The second confirmatory element under DO 18-
02 does not require the application of the economic test
and, even more so, the four-fold test to determine
whether or not the relation between the parties is one of
labor-only contracting: All it requires is that the
contractor does not exercise control over the
employees it supplies, making the control test of
paramount consideration. The fact that Golden Rock
pays for Dalag's wages and salaries then has no
bearing in resolving the issue.
Under the same DO 18-02, the "right to control"
refers to the right to determine not only the end to be
achieved, but also the manner and means to be used in
reaching that end. 63 Here, notwithstanding the contract
stipulation leaving Golden Rock the exclusive right to
control the working warm bodies it provides WM MFG,
evidence irresistibly suggests that it was WM MFG who
actually exercised supervision over Dalag's work
performance. As culled from the records, Dalag was
supervised by WM MFG's employees. Petitioner WM
MFG even went as far as furnishing Dalag with not less
than seven (7) memos directing him to explain within
twenty-four (24) hours his alleged work
infractions. 64 The company likewise took pains in
issuing investigation reports detailing its findings on
Dalag's culpability. 65 Clearly, WM MFG took it upon
itself to discipline Dalag for violation of company rules,
regulations, and policies, validating the presence of the
second confirmatory element.
Having ascertained that the essential element
and at least one confirmatory element obtain in the
extant case, there is then no other result than for the
Court to rule that WM MFG and Golden Rock engaged
in labor-only contracting. As such, they are, by legal
fiction, considered principal and agent, respectively,
jointly and severally liable to their illegally dismissed
employees, in accordance with Art. 109 of the Labor
Code 66 and Sec. 19 of DO 18-02. 67
We stress, however, that this finding of labor-only
contracting does not preclude the Court from re-
examining, in future cases, the nature of the contractual
relationship between WM MFG and Golden Rock
under Department Order No. 18-A, series of 2011,  
which redefined the parameters of legitimate service
contracting, private recruitment and placement services,
and labor-only contracting.
WM MFG dismissed Dalag for just cause, but did
not comply with the procedural requirements
This brings us to the question of whether or not
Dalag was illegally dismissed. caITAC
i. Dalag did not abandon his employment,
but was in fact dismissed
The Court is not unmindful of the rule in labor
cases that the employer has the burden of proving that
the termination was for a valid or authorized cause; but
fair evidentiary rule dictates that before an employer is
burdened to prove that they did not commit illegal
dismissal, it is incumbent upon the employee to first
establish by substantial evidence that he or she was, in
fact, dismissed. 68
A cursory reading of the records of this case
would reveal that the fact of Dalag's dismissal was
sufficiently established by petitioner's own evidence.
Recall that Memo 2010-19 dated August 7, 2010
indefinitely suspended Dalag from work. This is in hew
with Dalag's allegation in his complaint that on even
date, he was prevented by WM MFG's security guard
from proceeding to his work station, and was told to
withdraw his belongings from his locker. Noteworthy,
however, is that while Memo 2010-19 merely imposed
an indefinite period of suspension, WM MFG's true
intention — to sever its ties with Dalag — is brought to
the fore by its letter dated August 9, 2010, informing
Golden Rock that it no longer requires respondent
Dalag's services. 69
We cannot subscribe to petitioner's contrary view
that Dalag was never terminated, legally or otherwise,
and that it was he who abandoned his employment. On
this point, the teaching in MZR Industries v.
Colambot 70 is apropos:  TAIaHE
In a number of cases, this Court
consistently held that to constitute
abandonment of work, two elements must be
present: first, the employee must have failed to
report for work or must have been absent
without valid or justifiable reason; and second,
there must have been a clear intention on
the part of the employee to sever the
employer-employee relationship manifested
by some overt act.
In the instant case, other than
Colambot's failure to report back to work after
suspension, petitioners failed to present any
evidence which tend to show his intent to
abandon his work. It is a settled rule that mere
absence or failure to report for work is not
enough to amount to abandonment of work.
There must be a concurrence of the intention
to abandon and some overt acts from which an
employee may be deduced as having no more
intention to work. On this point, the CA was
correct when it held that:
Mere absence or failure to
report for work, even after notice
to return, is not tantamount to
abandonment. The burden of
proof to show that there was
unjustified refusal to go back to
work rests on the employer.
Abandonment is a matter of
intention and cannot lightly be
presumed from certain equivocal
acts. To constitute abandonment,
there must be clear proof of
deliberate and unjustified intent to
sever the employer-employee
relationship. Clearly, the
operative act is still the
employee's ultimate act of putting
an end to his employment.
Furthermore, it is a settled
doctrine that the filing of a
complaint for illegal dismissal
is inconsistent with
abandonment of employment.
An employee who takes steps
to protest his dismissal cannot
logically be said to have
abandoned his work. The filing
of such complaint is proof enough
of his desire to return to work,
thus negating any suggestion of
abandonment. (emphasis added)
A prayer for reinstatement in a complaint for
illegal dismissal signifies the employee's desire to
continue his working relation with his employer, and
militates against the latter's claim of abandonment.
Pursuant to the age-old adage that he who alleges must
prove, 71 it becomes incumbent upon the employer to
rebut this seeming intention of the employee to resume
his work. Hence, to prove abandonment, the onus rests
on the employer to establish by substantial evidence the
employee's non-interest in the continuance of his
employment, which petitioner herein failed to do. On the
contrary, Dalag's immediate filing of a complaint after
his dismissal, done in a span of only two (2) days,
convinces us of his intent to continue his work with WM
MFG.
With the foregoing discussion, the burden now
shifts to petitioner and Golden Rock to justify the legality
of Dalag's dismissal, by proving that the termination was
for just cause, and that the employee was afforded
ample opportunity to be heard prior to dismissal. 72
ii. Dalag's dismissal was for just cause
The Labor Code mandates that an employee
cannot be terminated except for just or authorized
cause, lest the employer violate the former's
constitutionally guaranteed right to security of
tenure. 73 Relevant hereto, the just causes for
termination of employment are enumerated under Art.
282 of P.D. 442, as follows:
1. Serious misconduct or willful disobedience by
the employee of the lawful orders of his
employer or representative in connection
with his work;
2. Gross and habitual neglect by the employee
of his duties;
3. Fraud or willful breach by the employee of the
trust reposed in him by his employer or duly
authorized representative;
4. 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  cDHAES
5. Other causes analogous to the foregoing.
(emphasis added)
To constitute just cause for an employee's
dismissal, the neglect of duties must not only be gross
but also habitual. Gross neglect means an absence of
that diligence that an ordinarily prudent man would use
in his own affairs. 74 Meanwhile, to be considered
habitual, the negligence must not be a single or isolated
act. 75
Here, WM MFG duly established that Dalag was
terminated for just cause on the second ground. The
litany of Dalag's infractions, as detailed in memos 2010-
13 up to 2010-18 demonstrated how Dalag repeatedly
failed to report to his supervisor the problems he
encountered with the side-seal machine assigned to him
for operation. This failure resulted in repeated machine
breakdowns that caused production and delivery delays,
and lost business opportunities for the company. As
stated in the memos:
MEMO 2010-13 76
Base sa inireport na insidente reference
number CTRL #2010-27. Ikaw ay nakasira [ng]
Conveyor Belt ng Sideseal Machine No. 02
noong ika-20 ng Hulyo 2010 dahil sa iyong
kapabayaan.
Lumalabas na ikaw ay nagkasala ng
Gross Negligence na nagresulta sa
pagkakasira ng mamahaling gamit ng
kompanya.
Ang ganitong pangyayari ay nagdulot
ng malaking abala sa produksyon at
pagkaantala sa delivery. Sa panahong kung
saan mahigpit ang kompetisyon at pabago-
bagong ekonomiya, ang mga ganitong
pangyayari at may lubhang epekto sa
kumpanya.
Ikaw ay binibigyan ng 24-oras para
magsubmite sa Admin office ng written
explanation o depensa sa nangyari. Inaasahan
na itong pangyayari ay hindi na mauulit. Ito rin
ay babala para sa iyo at pag alala na
kailangan mag ingat at umiwas sa paglabag sa
Company Rules and Regulations.
MEMO 2010-14 77
Base sa inireport na insidente reference
number CTRL #2010-28 Ang pagkasira mo ng
Conveyor belt ay hindi mo ginawan ng oral o
written report ang pagkasira mo ng makina sa
team leader o sa maintenance o SING MAN
kahit na alam mo na ito ay dapat mong gawin.
 Lumalabas na ikaw ay nagkasala ng
sadyang pagtatago o paglilihim ng tunay na
kalagayan ng makina na nagdulot ng malaking
negatibong epekto sa produksyon.
Ang ganitong pangyayari ay nagdulot
ng malaking abala sa produksyon at
pagkaantala sa delivery. Sa panahong kung
saan mahigpit ang kompetisyon at pabago-
bagong ekonomiya, ang mga ganitong
pangyayari at may lubhang epekto sa
kumpanya.
Ikaw ay binibigyan ng 24-oras para
magsubmite sa Admin office ng written
explanation o depensa sa nangyari. Inaasahan
na itong pangyayari ay hindi na mauulit. Ito rin
ay babala para sa iyo at pag alala na
kailangan mag ingat at umiwas sa paglabag sa
Company Rules and Regulations.
MEMO 2010-16 78
Base sa inireport na insidente reference
number CTRL #2010-30 Ang pagkasira ng
manual heater ng sideseal machine no. 02 ay
hindi mo nanaman pinaalam o ginawan ng
report.
Lumalabas na ikaw ay nagkasala ng
sadyang pagtatago o paglilihim ng tunay na
kalagayan ng makina na nagdudulot ng
malaking negatibong epekto sa produksyon.
Ang di pagrereport mapa-verbal o
written, pagtatago o pagkukubli sa kundisyon
ng makina ay nagdulot ng malaking abala sa
produksyon. Ang paglilihis ng tunay na
pangyayari ay nagdulot din ng pagkakaroon ng
di pagkakaunawaan ng Maintenance at ni
Melvin Luna. Dahil dito nagkagulo at nadelay
ang produksyon.
Sa panahong kung saan mahigpit ang
kumpetisyon at pabago-bagong ekonomiya,
ang mga ganitong pangyayari ay lubhang
nakakaapekto sa kumpanya.  ASEcHI
Ikaw ay binibigyan ng 24-oras para
magsubmite sa Admin office ng written
explanation o depensa sa nangyari. Inaasahan
na itong pangyayari ay hindi na mauulit. Ito rin
ay babala para sa iyo at pag alala na
kailangan mag ingat at umiwas sa paglabag sa
Company Rules and Regulations.
MEMO 2010-17 79
Base sa inireport na insidente reference
number CTRL #2010-31 Ang naputol na
Thermocouple wire ng sideseal machine no.
02 at ang hindi mo paggawa ng report tungkol
dito ay patunay na walang dahilan para ito ay
masira.
Lumalabas na ikaw ay nagkasala ng
sadyang pagtatago o paglilihim ng tunay na
kalagayan ng makina na nagdulot ng malaking
negatibong epekto sa produksyon.
Ang mga ganitong pangyayari na
kahina-hinala at kaduda-duda ay hindi
maganda at dapat gayahin ng sinuman. Sa
panahong kung saan mahigpit ang
kumpetisyon at pabago-bago ang ekonomiya,
ang mga ganitong pangyayari ay lubhang
nakakaapekto sa kumpanya.
Ikaw ay binibigyan ng 24-oras para
magsubmite sa Admin office ng written
explanation o depensa sa nangyari. Inaasahan
na itong pangyayari ay hindi na mauulit. Ito rin
ay babala para sa iyo at pag alala na
kailangan mag ingat at umiwas sa paglabag sa
Company Rules and Regulations.
 MEMO 2010-18 80
Base sa pangyayaring naganap, ang
hindi pagsasabi o pag amin na nasira ang
makina ay napakalaking responsibilidad ng
isang operator. Sa kabila ng pagbigay ng
memo sa iyo at babala, nauulit pa rin ang
insidente ng hindi mo pagreport sa kahit anong
paraan, mapawritten o verbal na paraan.
Ang paulit-ulit na pangyayari ay lubos
na nakaapekto sa produksyon. Dahil dito,
nagkaroon ng pagkaantala at di pagkadeliver
ng mga produkto sa ating kliyente sa tamang
oras.
Ang ganitong gawain ay isang
maliwanag na isang uri ng kapabayaan,
pananadya at hindi magandang halimbawa
para gayahin ng sinuman.
Ikaw ay binibigyan ng 24-oras para
magsubmite sa Admin office ng written
explanation o depensa sa nangyari. Inaasahan
na itong pangyayari ay hindi na mauulit. Ito rin
ay babala para sa iyo at pag alala na
kailangan mag ingat at umiwas sa paglabag sa
Company Rules and Regulations.
Contrary to the NLRC's May 31, 2011 Decision,
as effectively affirmed by the CA, Dalag's dismissal
rested not on mere suspicion alone as the allegations in
the memos were supported by written statements
executed by Dalag's co-workers and immediate
superiors. 81 As recounted by Melvin Luna, who
operates the same side-seal machine assigned to
Dalag, he frequently encounters problems when starting
up the equipment after Dalag was through with it, and
that Dalag usually leaves the machine unserviceable
after use. This practice was observed by Danilo Acosta,
one of the team leaders of WM MFG, as per his written
statement. Dalag's own team leader, Bonifacio
Dimaano, likewise executed a written statement to the
effect that Dalag never reported any problem with his
side-seal machine.
Moreover, the NLRC's finding that WM MFG took
no further step in the form of administrative investigation
to confirm its suspicion is refuted by the Investigation
Report 82 that served as basis for Dalag's "suspension."
The Court notes that from the dates the memos were
issued, the earliest being July 20, 2010, until the date of
Dalag's dismissal, August 7, 2010, there was
reasonable time for WM MFG to look into the matter,
and that it, in fact, did so. As per the Investigation
Report: ITAaHc
Kinalabasan ng Imbestigasyon ng
Insidente:
1. Noong ika-20 ng Hulyo 2010 nalaman ni
Melvin Luna na nasira ang conveyor belt
at di mapaandar ang Sideseal Machine
No. 2. Ito ay nangyari dahil sa
kapabayaan ng kanyang kapalitan na si
Richard Dalag. Bilang isang operator isa
sa mga binabantayan niya ay ang pag-
ikot ng conveyor belt ngunit hindi niya
napansin ang paghinto nito habang
umaandar ang makina na naging sanhi
ng pagkakaroon ng malaking butas ng
conveyor belt.
2. Nabutas ang conveyor belt sa pamamagitan
ng mainit na sealing bar na siyang
dumidiin dito. Ang hindi pag-ikot ng belt at
madiin na puwersa ng mainit na sealing
 bar sa isang parte ng belt ay mag-iiwan
ng malalim na hiwa sa hindi umiikot na
belt.
3. Dahil sa hindi pagreport ng nakasirang si
RICHARD DALAG, itong insidenteng ito
ay nagdulot ng di pagkakaunawaan sa
pagitan ng Maintenance Staff at ng iyong
kapalitang si Melvin Luna.
4. Dahil rin dito, ito ay nagdulot ng malaking
delays sa ating produksyon at di
pagkakadeliver ng produkto sa tamang
oras sa kliyente.
xxx xxx xxx
8. Napagalaman din ng Maintenance staff,
Team Leader at Production Supervisor
ang mga hindi maipaliwanag na sira ng
makina sa kabila ng maayos na
kondisyon nito bago ito hawakan ni
RICHARD DALAG.
9. Ito ay hindi nangyari ng isang beses lamang
kundi paulit ulit. Ang magkasunod na
insidente ng pagkasira ng manual heater
at ng thermocouple wire at hindi paggawa
ni RICHARD DALAG ng report ay
patunay na walang malinaw na dahilan
upang masira ang mga piyesa.
10. Ang paulit-ulit na hindi pagnereport ni
RICHARD DALAG sa mga nagiging sira
ng makina ay hindi maganda at kahina-
hinala na Gawain ng pananabotahe.
Hence, Dalag's gross and habitual neglect of his
duty to report to his superiors the problems he
encountered with the side-seal machine he was
assigned to operate was well-documented and duly
investigated by WM MFG. The Court, therefore, holds
that there was, indeed, just cause to terminate Dalag's
employment under Art. 282 (2) of the Labor Code.
iii. Procedural requirements were not observed
when Dalag's employment was terminated
Anent the conformity of Dalag's dismissal to
procedural requirements, the cardinal rule in our
jurisdiction is that the employer must furnish the
employee with two written notices before the termination
of his employment can be effected: (1) the first apprises
the employee of the particular acts or omissions for
which his dismissal is sought; and (2) the second
informs the employee of the employer's decision to
dismiss him. The twin notice rule is coupled with the
requirement of a hearing, which is complied with as long
as there was an opportunity to be heard, and not
necessarily that an actual hearing was conducted. 83
In the case at bar, while petitioner submitted as
evidence memos that it supposedly attempted to serve
Dalag, there was no proof that these were, indeed,
received by the latter. 84 By petitioner's own allegation,
Dalag refused to receive the same. Under such
circumstance, the more prudent recourse would have
been to serve the memos through registered mail
instead of directly proceeding with the investigation. As
held in NEECO II v. NLRC: 85
. . . That private respondent refused to
receive the memorandum is to us, too self-
serving a claim on the part of petitioner in the
absence of any showing of the signature or
 initial of the proper serving officer. Moreover,
petitioner could have easily remedied the
situation by the expediency of sending the
memorandum to private respondent by
registered mail at his last known address as
usually contained in the Personal Data Sheet
or any personal file containing his last known
address.
The non-service of notice effectively deprived
Dalag of any, if not ample, opportunity to be informed of
and defend himself against the administrative charges
leveled against him, which element goes into the very
essence of procedural due process. 86  CHTAIc
Dalag is only entitled to nominal damages, not full
backwages
In spite of the failure of WM MFG and Golden
Rock to show that they complied with the procedural
requirements of a valid termination under the Labor
Code and its implementing rules, Dalag's dismissal
cannot be deemed tainted with illegality, contrary to the
CA's ruling, 87 for the circumstance merely renders the
two companies solidarily liable to Dalag for nominal
damages. Instructional on this point is the doctrine
in JAKA Food Processing Corp. v.
Pacot (JAKA). 88 There, the Court expounded that a
dismissal for just cause under Art. 282 of the Labor
Code implies that the employee concerned has
committed, or is guilty of, some violation against the
employer, i.e., the employee has committed some
serious misconduct, is guilty of some fraud against the
employer, or he has neglected his duties. Thus, it can
be said that the employee himself initiated the dismissal
process. However, the employer will still be held liable if
procedural due process was not observed in the
employee's dismissal. In such an event, the employer is
directed to pay, in lieu of backwages, indemnity in the
form of nominal damages. 89
Nominal damages are adjudicated in order that a
right of the plaintiff that has been violated or invaded by
the defendant may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss
suffered by him. 90 In cases such as JAKA, the nominal
damages awarded serves as vindication or recognition
of the employee's fundamental due process right, 91 and
as a deterrent against future violations of such right by
the employer. 92
The amount of nominal damages to be awarded
is addressed to the sound discretion of the court, taking
into account the relevant
circumstances. 93 Nonetheless, JAKA laid down the
following guidelines in determining what amount could
be considered proper: 94
(1) if the dismissal is based on a just cause
under Article 282 but the employer failed to
comply with the notice requirement, the
sanction to be imposed upon him should be
tempered because the dismissal process was,
in effect, initiated by an act imputable to the
employee; and
(2) if the dismissal is based on an authorized
cause under Article 283 but the employer failed
to comply with the notice requirement, the
sanction should be stiffer because the
dismissal process was initiated by the
employer's exercise of his management
prerogative.
In the case at bar, given that there was
substantial attempt on the part of WM MFG to comply
with the procedural requirements, the Court,
nevertheless, deems the amount of P30,000 as
sufficient nominal damages 95 to be awarded to CAPRECHO, REY DIMACALI, ELESIO
respondent Dalag. EMANEL, VICTOR SINGSON, NILDA
WHEREFORE, premises considered, the petition DIMACALI, PREMITIVO * DIAZ, RUDY
is GRANTED. The February 21, 2013 Decision and VISTAL, ROGER MONTERO, JOSISIMO
September 17, 2013 Amended Decision of the Court of GOMEZ and MANUEL
Appeals in CA-G.R. SP No. 122425 are MOSQUERA, respondents.
hereby REVERSED and SET ASIDE. Let a new one be
entered declaring W.M. Manufacturing and Golden
Rock Manpower Services jointly and severally liable to DECISION
Richard R. Dalag in the amount of One Thousand Two
Hundred Twelve Pesos (P1,212) representing Richard
R. Dalag's unpaid wages from August 4-6, 2010 as JARDELEZA, J  : p

determined by the Labor Arbiter; and Thirty Thousand We resolve in this Petition for
Pesos (P30,000) as nominal damages for Dalag's Review 1 under Rule 45 of the Rules of Court, the issue
dismissal with just cause, but without observing proper of who among Diamond Farms, Inc. ("DFI"), Diamond
procedure. Farms Agrarian Reform Beneficiaries Multi-Purpose
SO ORDERED. Cooperative ("DARBMUPCO") and the individual
contractors 2 ("respondent-contractors") is the employer
 (W.M. Manufacturing, Inc. v. Dalag, G.R. No.
of the 400 employees ("respondent-workers").
|||

209418, [December 7, 2015])

DFI challenges the March 31, 2006
Decision 3 and May 30, 2006 Resolution 4 of the Court
Appeals, Special Twenty-Second Division, Cagayan De
Oro City for being contrary to law and jurisprudence.
The Decision dismissed DFI's Petition for Certiorari in
[G.R. Nos. 173254-55 & 173263. January 13, 2016.] C.A.-G.R. SP Nos. 53806 and 61607 and granted
DARBMUPCO's Petition for Certiorari in C.A.-G.R. SP
DIAMOND FARMS, No. 59958. It declared DFI as the statutory employer of
INC., petitioner, vs. SOUTHERN the respondent-workers.
PHILIPPINES FEDERATION OF LABOR
(SPFL)-WORKERS SOLIDARITY OF The Facts
DARBMUPCO/DIAMOND-SPFL, DIAMOND DFI owns an 800-hectare banana plantation
FARMS AGRARIAN REFORM ("original plantation") in Alejal, Carmen,
BENEFICIARIES MULTI-PURPOSE Davao. 5 Pursuant to Republic Act No. 6657 or
COOPERATIVE (DARBMUPCO), VOLTER the Comprehensive Agrarian Reform Law of
LOPEZ, RUEL ROMERO, PATRICIO 1988 ("CARL"), commercial farms shall be subject to
compulsory acquisition and distribution, 6 thus the
original plantation was covered by the law. However,
the Department of Agrarian Reform ("DAR") granted
DFI a deferment privilege to continue agricultural
operations until 1998. 7 Due to adverse marketing
problems and observance of the so-called "lay-follow" or
the resting of a parcel of land for a certain period of time
after exhaustive utilization, DFI closed some areas of
operation in the original plantation and laid off its
employees. 8 These employees petitioned the DAR for
the cancellation of DFI's deferment privilege alleging
that DFI already abandoned its area
operations. 9 The DAR Regional Director recalled DFI's
deferment privilege resulting in the original plantation's
automatic compulsory acquisition and distribution under
the CARL. 10 DFI filed a motion for reconsideration
which was denied. It then appealed to the DAR
Secretary. 11 SaCIDT
In the meantime, to minimize losses, DFI offered
to give up its rights and interest over the original
plantation in favor of the government by way of a
Voluntary Offer to Sell. 12 The DAR accepted DFI's offer
to sell the original plantation. However, out of the total
800 hectares, the DAR only approved the disposition of
689.88 hectares. Hence, the original plantation was split
into two: 689.88 hectares were sold to the government
("awarded plantation") and the remaining 200 hectares,
more or less, were retained by DFI ("managed
area"). 13 The managed area is subject to the outcome
of the appeal on the cancellation of the deferment
privilege before the DAR Secretary.
On January 1, 1996, the awarded plantation was
turned over to qualified agrarian reform beneficiaries
("ARBs") under the CARL. These ARBs are the same
farmers who were working in the original plantation.
They subsequently organized themselves into a multi-
purpose cooperative named "DARBMUPCO," which is
one of the respondents in this case. 14
On March 27, 1996, DARBMUPCO entered into a
Banana Production and Purchase Agreement
("BPPA") 15 with DFI. 16 Under the BPPA,
DARBMUPCO and its members as owners of the
awarded plantation, agreed to grow and cultivate only
high grade quality exportable bananas to be sold
exclusively to DFI. 17 The BPPA is effective for 10
years. 18
of
On April 20, 1996, DARBMUPCO and DFI
executed a "Supplemental to Memorandum Agreement"
("SMA"). 19 The SMA stated that DFI shall take care of
the labor cost arising from the packaging operation,
cable maintenance, irrigation pump and irrigation
maintenance that the workers of DARBMUPCO shall
conduct for DFI's account under the BPPA. 20
From the start, DARBMUPCO was hampered by
lack of manpower to undertake the agricultural
operation under the BPPA because some of its
members were not willing to work. 21 Hence, to assist
DARBMUPCO in meeting its production obligations
under the BPPA, DFI engaged the services of the
respondent-contractors, who in turn recruited the
respondent-workers. 22
The engagement of the respondent-workers, as
will be seen below, started a series of labor disputes
among DARBMUPCO, DFI and the respondent-
contractors.
C.A. G.R. SP No. 53806
On February 10, 1997, respondent Southern
Philippines Federation of Labor ("SPFL") — a legitimate
labor organization with a local chapter in the awarded
plantation — filed a petition for certification election in
the Office of the Med-Arbiter in Davao City. 23 SPFL
filed the petition on behalf of some 400 workers (the
respondent-workers in this petition) "jointly employed by
DFI and DARBMUPCO" working in the awarded
plantation.
DARBMUPCO and DFI denied that they are the
employers of the respondent-workers. They claimed,
instead, that the respondent-workers are the employees
of the respondent-contractors. 24
In an Order dated May 14, 1997, 25 the Med-
Arbiter granted the petition for certification election. It
directed the conduct of certification election and
declared that DARBMUPCO was the employer of the
respondent-workers. The Order stated that "whether the
said workers/employees were hired by independent
contractors is of no moment. What is material is that
they were hired purposely to work on the 689.88
hectares banana plantation [the awarded plantation]
now owned and operated by DARBMUPCO." 26
DARBMUPCO appealed to the Secretary of
Labor and Employment ("SOLE"). In a Resolution dated
February 18, 1999, 27 the SOLE modified the decision of
the Med-Arbiter. The SOLE held that DFI, through its
manager and personnel, supervised and directed the
performance of the work of the respondent-contractors.
The SOLE thus declared DFI as the employer of the
respondent-workers. 28
DFI filed a motion for reconsideration which the
SOLE denied in a Resolution dated May 4, 1999. 29
On June 11, 1999, DFI elevated the case to the
Court of Appeals ("CA") via a Petition
for Certiorari 30 under Rule 65 of the Rules of Court. The
case was raffled to the CA's former Twelfth Division and
was docketed as C.A.-G.R. SP No. 53806.
C.A.-G.R. SP. No. 59958
Meanwhile, on June 20, 1997 31 and September
15, 1997, 32 SPFL, together with more than 300
workers, filed a case for underpayment of wages, non-
payment of 13th month pay and service incentive leave
pay and attorney's fees against DFI, DARBMUPCO and
the respondent-contractors before the National Labor
Relations Commission ("NLRC") in Davao City.
DARBMUPCO averred that it is not the employer of
respondent-workers; neither is DFI. It asserted that the
money claims should be directed against the true
employer — the respondent-contractors. 33
In a Decision dated January 22, 1999, 34 the
Labor Arbiter ("LA") held that the respondent-
contractors are "labor-only contractors." The LA gave
credence to the affidavits of the other contractors 35 of
DFI (who are not party-respondents in this petition)
asserting that DFI engaged their services, and
supervised and paid their laborers. The affidavits also
stated that the contractors had no dealings with
DARBMUPCO, except that their work is done in the
awarded plantation. 36 
cHECAS
The LA held that, under the law, DFI is deemed
as the statutory employer of all the respondent-
workers. 37 The LA dismissed the case against
DARBMUPCO and the respondent-contractors. 38
DFI appealed to the NLRC. In a Resolution dated
May 24, 1999, 39 the NLRC Fifth Division modified the
Decision of the LA and declared that DARBMUPCO and
DFI are the statutory employers of the workers
rendering services in the awarded plantation and the
managed area, respectively. 40 It adjudged DFI and
DARBMUPCO as solidarily liable with the respondent-
contractors for the monetary claims of the workers, in
proportion to their net planted area. 41
DARBMUPCO filed a motion for reconsideration
which was denied. 42 It filed a second motion for
reconsideration in the NLRC, which was also denied for
lack of merit and for being barred under the NLRC
Rules of Procedure. 43 Hence, DARBMUPCO elevated
the case to the CA by way of a Petition
for Certiorari. 44 The case was docketed as C.A.-G.R.
SP. No. 59958.
The former Eleventh Division of the CA
consolidated C.A. G.R. SP. No. 59958 and C.A.-G.R.
SP No. 53806 in a Resolution dated January 27,
2001. 45
C.A.-G.R. SP No. 61607
Pursuant to the May 4, 1999 Resolution of the
SOLE approving the conduct of certification election, the
Department of Labor and Employment ("DOLE")
conducted a certification election on October 1,
1999. 46 On even date, DFI filed an election
protest 47 before the Med-Arbiter arguing that the
certification election was premature due to the
pendency of a petition for certiorari before the CA
assailing the February 18, 1999 and May 4, 1999
Resolutions of the SOLE (previously discussed in C.A.-
G.R. SP No. 53806).
In an Order dated December 15, 1999, 48 the
Med-Arbiter denied DFI's election protest, and certified
SPFL-Workers Solidarity of DARBMUPCO/DIAMOND-
SPFL ("WSD-SPFL") as the exclusive bargaining
representative of the respondent-workers. DFI filed a
Motion for Reconsideration 49 which the Med-Arbiter
treated as an appeal, and which the latter elevated to
the SOLE.
In a Resolution dated July 18, 2000, 50 the SOLE
dismissed the appeal. The Resolution stated that the
May 4, 1999 Resolution directing the conduct of
certification election is already final and executory on
June 4, 1999. It pointed out that the filing of the petition
for certiorari before the CA assailing the February 18,
1999 and May 4, 1999 Resolutions does not stay the
conduct of the certification election because the CA did
not issue a restraining order. 51 DFI filed a Motion for
Reconsideration but the motion was denied. 52
On October 27, 2000, DFI filed a Petition
for Certiorari 53 before the CA, docketed as C.A.-G.R.
SP No. 61607.
In a Resolution dated August 2, 2005, 54 the CA
Twenty-Third Division consolidated C.A.-G.R. SP No.
61607 with C.A.-G.R. SP. No. 59958 and C.A. G.R. SP
No. 53806.
The Assailed CA Decision and Resolution
The CA was confronted with two issues: 55
(1) "Whether DFI or DARBMUPCO is the
statutory employer of the [respondent-
workers] in these petitions; and
(2) Whether or not a certification election may be
conducted pending the resolution of the
petition for certiorari filed before this
Court, the main issue of which is the
identity of the employer of the
[respondent-workers] in these petitions."
 On the first issue, the CA agreed with the ruling of
the SOLE 56 that DFI is the statutory employer of the
respondent-workers. It noted that the DFI hired the
respondent-contractors, who in turn procured their own
men to work in the land owned by DARBMUPCO.
Further, DFI admitted that the respondent-contractors
worked under the direction and supervision of DFI's
managers and personnel. DFI also paid for the
respondent-contractors' services. 57 The CA said that
the fact that the respondent-workers worked in the land
owned by DARBMUPCO is immaterial. "Ownership of
the land is not one of the four (4) elements generally
considered to establish employer-employee
relationship." 58
The CA also ruled that DFI is the true employer of
the respondent-workers because the respondent-
contractors are not independent contractors. 59 The CA
stressed that in its pleadings before the Med-Arbiter, the
SOLE, and the CA, DFI revealed that DARBMUPCO
lacks manpower to fulfill the production requirements
under the BPPA. This impelled DFI to hire contractors to
supply labor enabling DARBMUPCO to meet its quota.
The CA observed that while the various agencies
involved in the consolidated petitions sometimes differ
as to who the statutory employer of the respondent-
workers is, they are uniform in finding that the
respondent-contractors are labor-only contractors. 60
On the second issue, the CA reiterated the ruling
of the SOLE 61 that absent an injunction from the CA,
the pendency of a petition for certiorari does not stay
the holding of the certification election. 62 The
challenged Resolution of the SOLE is already final and
executory as evidenced by an Entry of Judgment dated
July 14, 1999; hence, the merits of the case can no
longer be reviewed. 63
The CA thus held in its Decision dated March 31,
2006:
WHEREFORE, premises considered,
this Court hereby ORDERS:
(1) the DISMISSAL of the petitions in
C.A.-G.R. SP No. 53806 and C.A.-
G.R. SP No. 61607; and
(2) the GRANTING of the petition in C.A.-
G.R. SP No. 59958 and the
SETTING ASIDE of the assailed
resolutions of the NLRC dated 24
May 1999, 30 July 1999 and 26
June 2000, respectively.
SO ORDERED. 64
DFI filed a Motion for Reconsideration of the CA
Decision which was denied in a Resolution dated May
30, 2006. 65
DFI is now before us by way of Petition for
Review on Certiorari praying that DARBMUPCO be
declared the true employer of the respondent-workers.
DARBMUPCO filed a Comment 66 maintaining
that under the control test, DFI is the true employer of
the respondent-workers.
Respondent-contractors filed a Verified
Explanation and Memorandum 67 asserting that they
were labor-only contractors; hence, they are merely
agents of the true employer of the respondent-workers.
SPFL did not file any comment or memorandum
on behalf of the respondent-workers. 68
The Issue
 The issue before this Court is who among DFI,
DARBMUPCO and the respondent-contractors is the
employer of the respondent-workers.
Our Ruling
We deny the petition.
This case involves job contracting, a labor
arrangement expressly allowed by law. Contracting or
subcontracting is an arrangement whereby a principal
(or employer) agrees to put out or farm out with a
contractor or subcontractor the performance or
completion of a specific job, work or service within a
definite or predetermined period, regardless of whether
such job, work or service is to be performed or
completed within or outside the premises of the
principal. 69 It involves a trilateral relationship among the
principal or employer, the contractor or subcontractor,
and the workers engaged by the contractor or
subcontractor. 70
Article 106 of the Labor Code of the
Philippines 71 (Labor Code) explains the relations which
may arise between an employer, a contractor, and the
contractor's employees, 72 thus:
ART. 106. Contractor or subcontracting. —
Whenever an employer enters into a contract
with another person for the performance of the
formers work, the employees of the contractor
and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this
Code.
In the event that the contractor or
subcontractor fails to pay the wages of his
employees in accordance with this Code, the
employer shall be jointly and severally liable
with his contractor or subcontractor to such
employees to the extent of the work performed
under the contract, in the same manner and
extent that he is liable to employees directly
employed by him.  cAaDHT
The Secretary of Labor and Employment may,
by appropriate regulations, restrict or prohibit
the contracting out of labor to protect the rights
of workers established under this Code. In so
prohibiting or restricting, he may make
appropriate distinctions between labor-only
contracting and job contracting as well as
differentiations within these types of
contracting and determine who among the
parties involved shall be considered the
employer for purposes of this Code, to prevent
any violation or circumvention of any provision
of this Code.
There is "labor-only" contracting where the
person supplying workers to an employer does
not have substantial capital or investment in
the form of tools, equipment, machineries,
work premises, among others, and the workers
recruited and placed by such person are
performing activities which are directly related
to the principal business of such employer. In
such cases, the person or intermediary shall be
considered merely as an agent of the employer
who shall be responsible to the workers in the
same manner and extent as if the latter were
directly employed by him.
The Omnibus Rules Implementing the Labor
Code 73 distinguishes between permissible job
contracting (or independent contractorship) and labor-
only contracting. Job contracting is permissible under
the Code if the following conditions are met:
 (a) The contractor carries on an independent
business and undertakes the contract
work on his own account under his own
responsibility according to his own
manner and method, free from the control
and direction of his employer or principal
in all matters connected with the
performance of the work except as to the
results thereof; and
(b) The contractor has substantial capital or
investment in the form of tools,
equipment, machineries, work premises,
and other materials which are necessary
in the conduct of his business. 74
In contrast, job contracting shall be deemed as
labor-only contracting, an arrangement prohibited by
law, if a person who undertakes to supply workers to an
employer:
(1) Does not have substantial capital or
investment in the form of tools,
equipment, machineries, work premises
and other materials; and
(2) The workers recruited and placed by such
person are performing activities which are
directly related to the principal business or
operations of the employer in which
workers are habitually employed. 75
As a general rule, a contractor is presumed to be
a labor-only contractor, unless such contractor
overcomes the burden of proving that it has the
substantial capital, investment, tools and the like. 76
Based on the conditions for permissible job
contracting, we rule that respondent-contractors are
labor-only contractors.
There is no evidence showing that respondent-
contractors are independent contractors. The
respondent-contractors, DFI, and DARBMUPCO did not
offer any proof that respondent-contractors were not
engaged in labor-only contracting. In this regard, we cite
our ruling in Caro v. Rilloraza, 77 thus:
"In regard to the first assignment of
error, the defendant company pretends to
show through Venancio Nasol's own testimony
that he was an independent contractor who
undertook to construct a railway line between
Maropadlusan and Mantalisay, but as far as
the record shows, Nasol did not testify that the
defendant company had no control over him as
to the manner or methods he employed in
pursuing his work. On the contrary, he stated
that he was not bonded, and that he only
depended upon the Manila Railroad for money
to be paid to his laborers. As stated by counsel
for the plaintiffs, the word 'independent
contractor' means 'one who exercises
independent employment and contracts to do a
piece of work according to his own methods
and without being subject to control of his
employer except as to result of the work.'
Furthermore, if the employer claims that the
workmen is an independent contractor, for
whose acts he is not responsible, the burden is
on him to show his independence.
Tested by these definitions and by
the fact that the defendant has presented
practically no evidence to determine
whether Venancio Nasol was in reality an
independent contractor or not, we are
 inclined to think that he is nothing but an
intermediary between the defendant and
certain laborers. It is indeed difficult to find
that Nasol is an independent contractor; a
person who possesses no capital or money of
his own to pay his obligations to them, who
files no bond to answer for any fulfillment of his
contract with his employer and specially
subject to the control and supervision of his
employer, falls short of the requisites or
conditions necessary for the common and
independent contractor." 78 (Citations omitted;
emphasis supplied.)
To support its argument that respondent-
contractors are the employers of respondent-workers,
and not merely labor-only contractors, DFI should have
presented proof showing that respondent-contractors
carry on an independent business and have sufficient
capitalization. The record, however, is bereft of showing
of even an attempt on the part of DFI to substantiate its
argument.
DFI cannot cite the May 24, 1999 Resolution of
the NLRC as basis that respondent-contractors are
independent contractors. Nowhere in the NLRC
Resolution does it say that the respondent-contractors
are independent contractors. On the contrary, the NLRC
declared that "it was not clearly established on record
that said [respondent-]contractors are
independent, . . . ." 79 
HCaDIS
Further, respondent-contractors admit, and even
insist that they are engaged in labor-only contracting. As
will be seen below, respondent-contractors made the
admissions and declarations on two occasions: first was
in their Formal Appearance of Counsel and Motion for
Exclusion of Individual Party-Respondents filed before
the LA; and second was in their Verified Explanation
and Memorandum filed before this Court.
Before the LA, respondent-contractors
categorically stated that they are "labor-only"
contractors who have been engaged by DFI and
DARBMUPCO. 80 They admitted that they do not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises and other
materials, and they recruited workers to perform
activities directly related to the principal operations of
their employer. 81
Before this Court, respondents-
contractors again admitted that they are labor-only
contractors. They narrated that:
1. Herein respondents, Voltaire Lopez, Jr., et
al., were commissioned and contracted
by petitioner, Diamond Farms, Inc.
(DFI) to recruit farm workers, who are
the complaining [respondent-workers]
(as represented by Southern
Philippines Federation of Labor (SPFL)
in this appeal by certiorari), in order to
perform specific farm activities, such as
pruning, deleafing, fertilizer application,
bud inject, stem spray, drainage, bagging,
etc., on banana plantation lands awarded
to private respondent, Diamond Farms
Agrarian Reform Beneficiaries Multi-
Purpose Cooperative (DARBMUPCO)
and on banana planted lands owned and
managed by petitioner, DFI.
2. All farm tools, implements and equipment
necessary to performance of such farm
activities were supplied by petitioner DFI
to respondents Voltaire Lopez, Jr., et al.
 as well as to respondents-SPFL, et
al. Herein respondents Voltaire Lopez,
Jr. et al. had no adequate capital to
acquire or purchase such tools,
implements, equipment, etc.
3. Herein respondents Voltaire Lopez, Jr., et
al. as well as respondents-SPFL, et al.
were being directly supervised,
controlled and managed by petitioner
DFI farm managers and supervisors,
specifically on work assignments and
performance targets. DFI managers and
supervisors, at their sole discretion and
prerogative, could directly hire and
terminate any or all of the respondents-
SPFL, et al., including any or all of the
herein respondents Voltaire Lopez, Jr., et
al.
4. Attendance/Time sheets of respondents-
SPFL, et al. were being prepared by
herein respondents Voltaire Lopez, Jr., et
al., and correspondingly submitted to
petitioner DFI. Payment of wages to
respondents-SPFL, et al. were being paid
for by petitioner DFI thru herein
respondents Voltaire Lopez, [Jr.], et al.
The latter were also receiving their
wages/salaries from petitioner DFI for
monitoring/leading/recruiting the
respondents-SPFL, et al.
5. No monies were being paid directly by private
respondent DARBMUPCO to
respondents-SPFL, et al., nor to herein
respondents Voltaire Lopez, [Jr.], et al.
Nor did respondent DARBMUPCO directly
intervene much less supervise any or all
of [the] respondents-SPFL, et al. including
herein respondents Voltaire Lopez, Jr., et
al. 82 (Emphasis supplied.)
The foregoing admissions are legally binding on
respondent-contractors. 83 Judicial admissions made by
parties in the pleadings, or in the course of the trial or
other proceedings in the same case are conclusive and
so does not require further evidence to prove
them. 84 Here, the respondent-contractors voluntarily
pleaded that they are labor-only contractors; hence,
these admissions bind them.
A finding that a contractor is a labor-only
contractor is equivalent to a declaration that there is an
employer-employee relationship between the principal,
and the workers of the labor-only contractor; the labor-
only contractor is deemed only as the agent of the
principal. 85 Thus, in this case, respondent-contractors
are the labor-only contractors and either DFI or
DARBMUPCO is their principal.
We hold that DFI is the principal.
Under Article 106 of the Labor Code,a principal or
employer refers to the person who enters into an
agreement with a job contractor, either for the
performance of a specified work or for the supply of
manpower. 86 In this regard, we quote with approval the
findings of the CA, to wit:
The records show that it is DFI which
hired the individual [respondent-
contractors] who in turn hired their own
men to work in the 689.88 hectares land of
DARBMUPCO as well as in the managed
area of the plantation. DFI admits [that] these
[respondent-contractors] worked under the
direction and supervision of the DFI managers
 and personnel. DFI paid the [respondent-
contractors] for the services rendered in the
plantation and the [respondent-contractors] in
turn pay their workers after they [respondent-
contractors] received payment from DFI. . . .
DARBMUPCO did not have anything to do with
the hiring, supervision and payment of the
wages of the workers-respondents thru the
contractors-respondents. . . . 87 (Emphasis
supplied.)
DFI does not deny that it engaged the services of
the respondent-contractors. It does not dispute the
claims of respondent-contractors that they sent their
billing to DFI for payment; and that DFI's managers and
personnel are in close consultation with the respondent-
contractors. 88
DFI cannot argue that DARBMUPCO is the
principal of the respondent-contractors because it
(DARBMUPCO) owns the awarded plantation where
respondent-contractors and respondent-workers were
working; 89 and therefore DARBMUPCO is the ultimate
beneficiary of the employment of the respondent-
workers. 90 
AHCETa
That DARBMUPCO owns the awarded plantation
where the respondent-contractors and respondent-
workers were working is immaterial. This does not
change the situation of the parties. As correctly found by
the CA, DFI, as the principal, hired the respondent-
contractors and the latter, in turn, engaged the services
of the respondent-workers. 91 This was also the
unanimous finding of the SOLE, 92 the LA, 93 and the
NLRC. 94 Factual findings of the NLRC, when they
coincide with the LA and affirmed by the CA are
accorded with great weight and respect and even finality
by this Court. 95
Alilin v. Petron Corporation 96 is applicable. In that
case, this Court ruled that the presence of the power of
control on the part of the principal over the workers of
the contractor, under the facts, prove the employer-
employee relationship between the former and the
latter, thus:
[A] finding that a contractor is a 'labor-
only' contractor is equivalent to declaring that
there is an employer-employee relationship
between the principal and the employees of the
supposed contractor. In this case, the
employer-employee relationship between
Petron and petitioners becomes all the
more apparent due to the presence of the
power of control on the part of the former
over the latter.
It was held in Orozco v. The Fifth
Division of the Hon. Court of Appeals that:
This Court has constantly
adhered to the "four-fold test" to
determine whether there exists
an employer-employee
relationship between the parties.
The four elements of an
employment relationship are: (a)
the selection and engagement of
the employee; (b) the payment of
wages; (c) the power of
dismissal; and (d) the power to
control the employee's conduct.
Of these four elements, it is the
power to control which is the most crucial
and most determinative factor, so
important, in fact, that, the other elements
may even be disregarded.
 Hence, the facts that petitioners were
hired by Romeo or his father and that their
salaries were paid by them do not detract from
the conclusion that there exists an employer-
employee relationship between the parties due
to Petron's power of control over the
petitioners. One manifestation of the power of
control is the power to transfer employees from
one work assignment to another. Here, Petron
could order petitioners to do work outside of
their regular "maintenance/utility" job. Also,
petitioners were required to report for work
everyday at the bulk plant, observe an 8:00
a.m. to 5:00 p.m. daily work schedule, and
wear proper uniform and safety helmets as
prescribed by the safety and security measures
being implemented within the bulk plant. All
these imply control. In an industry where safety
is of paramount concern, control and
supervision over sensitive operations, such as
those performed by the petitioners, are
inevitable if not at all necessary. Indeed,
Petron deals with commodities that are highly
volatile and flammable which, if mishandled or
not properly attended to, may cause serious
injuries and damage to property and the
environment. Naturally, supervision by Petron
is essential in every aspect of its product
handling in order not to compromise the
integrity, quality and safety of the products that
it distributes to the consuming
public. 97 (Citations omitted; emphasis
supplied)
That DFI is the employer of the respondent-
workers is bolstered by the CA's finding that DFI
exercises control over the respondent-workers. 98 DFI,
through its manager and supervisors provides for the
work assignments and performance targets of the
respondent-workers. The managers and supervisors
also have the power to directly hire and terminate the
respondent-workers. 99 Evidently, DFI wields control
over the respondent-workers.
Neither can DFI argue that it is only the purchaser
of the bananas produced in the awarded plantation
under the BPPA, 100 and that under the terms of the
BPPA, no employer-employee relationship exists
between DFI and the respondent-workers, 101 to wit:
UNDERTAKING OF THE FIRST PARTY
xxx xxx xxx
3. THE FIRST PARTY [DARBMUPCO] shall be
responsible for the proper conduct, safety,
benefits and general welfare of its members
working in the plantation and specifically
render free and harmless the SECOND
PARTY [DFI] of any expense, liability or claims
arising therefrom. It is clearly recognized by
the FIRST PARTY that its members and
other personnel utilized in the performance
of its function under this agreement are not
employees of the SECOND
PARTY. 102 (Emphasis supplied)
In labor-only contracting, it is the law which
creates an employer-employee relationship between the
principal and the workers of the labor-only
contractor. 103
Inasmuch as it is the law that forms the
employment ties, the stipulation in the BPPA that
respondent-workers are not employees of DFI is not
controlling, as the proven facts show otherwise. The law
prevails over the stipulations of the parties. Thus,
in Tabas v. California Manufacturing Co., Inc., 104 we
held that:
 The existence of an employer-
employees relation is a question of law and
being such, it cannot be made the subject
of agreement. Hence, the fact that the
manpower supply agreement between Livi and
California had specifically designated the
former as the petitioners' employer and had
absolved the latter from any liability as an
employer, will not erase either party's
obligations as an employer, if an employer-
employee relation otherwise exists between
the workers and either firm. . . . 105 (Emphasis
supplied.) 
ScHADI

Clearly, DFI is the true employer of the

respondent-workers; respondent-contractors are only
agents of DFI. Under Article 106 of the Labor Code,DFI
shall be solidarily liable with the respondent-contractors
for the rightful claims of the respondent-workers, to the
same manner and extent as if the latter are directly
employed by DFI. 106
WHEREFORE, the petition is DENIED for lack of
merit. The March 31, 2006 Decision and the May 30,
2006 Resolution of the Court of Appeals in C.A.-G.R.
SP Nos. 53806, 61607 and 59958 are
hereby AFFIRMED.
SO ORDERED.
 (Diamond Farms, Inc. v. Southern Philippines
|||

Federation of Labor-Workers Solidarity of

DARBMUPCO/Diamond-SPFL, G.R. Nos. 173254-55 &
173263, [January 13, 2016], 778 PHIL 72-97)