G.R. No. L-53590 July 31, 1984 ROSARIO BROTHERS INC. (MANILA COD DEPARTMENT STORE) vs. HON.

BLAS F. OPLE, NLRC, et al. RELOVA, J.: The issue raised in this case is whether an employeremployee relationship exists between the petitioner and the private respondents. It is the submission of petitioner that no such relationship exists or has been created because the "series of memoranda" issued by petitioner to the private respondents from 1973 to 1977 would reveal that it had no control and/or supervision over the work of the private respondents. Private respondents are tailors, pressers, stitchers and similar workers hired by the petitioner in its tailoring department (Modes Suburbia). Some had worked there since 1969 until their separation on January 2, 1978. For their services, they were paid weekly wages on piece-work basis, minus the withholding tax per Bureau of Internal Revenue (BIR) rules. Further, they were registered with the Social Security System (SSS) as employees of petitioner and premiums were deducted from their wages; they were also members of the Avenida-Cubao Manila COD Department Store Labor Union which has a Collective Bargaining Agreement with the company and; they were required to report for work from Monday through Saturday and to stay in the tailoring shop for no less than eight (8) hours a day, unless no job order was given them after waiting for two to three hours, in which case, they may leave and may come back in the afternoon. Their attendance was recorded through a bundy clock just like the other employees of petitioner. A master cutter distributes job orders equally, supervises the work and sees to it that they were finished as soon as possible. Quoting from the comment of the Solicitor General, petitioner, in its memorandum, said Once the job orders and the corresponding materials were distributed to them, private respondents were on their own. They were free to do their jobs either in the petitioner's shop or elsewhere at their option, without observing the regular working time of the company provided that they finished their work on time and in accordance with the specifications. As a matter of fact, they were allowed to contract other persons to do the job for them; and also to accept tailoring jobs from other establishments. (p. 202, Rollo) On September 7, 1977, the private respondents filed with the Regional Office of the Department (now Ministry) of Labor a complaint for violation of Presidential Decree 851 (13th month pay) and Presidential Decree 525, as amended by Presidential Decree 1123 (Emergency Living Allowance) against herein petitioner. After petitioner had filed its answer, the case was certified for compulsory arbitration to the Labor Arbiter who, after due hearing, rendered a decision on December 29, 1977 dismissing "private respondents" claims for unpaid emergency living allowance and 13th month pay, for lack of merit, upon finding that the complainants (herein private respondents) are not employees of the respondent (herein petitioner) within the meaning of Article 267(b)of the Labor Code. As a consequence, the private respondents were dismissed on January 2, 1978 and this prompted them to file a complaint for illegal dismissal with the Ministry of Labor. Meanwhile, the National Labor Relations Commission (NLRC) affirmed the decision of the Labor Arbiter and dismissed private respondents' appeal for lack of merit. However, upon appeal to the Minister of Labor, the latter reversed the resolution of the NLRC in a decision, dated March 27, 1979, holding that The decision appealed from must be reversed. It is clearly erronious. Ccmplainants and respondent are correct (sic) in considering their relationship as one between employees and employer. The labor arbiter should not have made a different finding.

Complainants were employed as tailors, pressers, stitchers and coatmakers in the tailoring department of the respondent. They are hired through a master cutter and the department head and upon the approval of the personnel department and the management. They report to the shop from Monday to Saturday and record their attendance with a bundy clock. They are required to stay in the shop premises "for no less than 8 hours a day" unless no job is given them "after waiting for two or three hours" in which case, they are "allowed to leave." The employees (tailors, pressers and stitchers) are paid by piece per week according to the rates established by the company. They are registered as employees with the Social Security System for which premiums are deducted from their wages. Taxes are also witheld from their wages pursuant to BIR rules. Moreover, they enjoy the benefits due to employees under their collective agreement with the company. The tailors are given deadlines on their assigned jobs. They are required to work on job orders as soon as these are given to them. The master cutter is ordered "to watch out for tailors who postponed their assigned job up to the last few days of the deadline" and to report violators "for proper action." Tailors are also required to follow the company code of discipline and the rules and regulations of the tailoring department. Outright dismissal is meted on anyone who brings out company patterns. Under these facts, the existence of the employment relations can not be disputed. The respondent itself, in its very first position papers, accepts this fact. The labor arbiter certainly erred in making a different finding. However, respondent contends that the employees are excluded from the coverage of PD 525, 851 and 1123 because of the nature of their employment, there being 'no fixed number with regards to entry and exit and no fixed number of days of work, with respect to said employees. We have, however, examined carefully the decrees and find absolutely no indication therein that the employees are indeed excluded. Nor are the rules implementing the decrees supportive of the respondent's contention. On the contrary, the rules argue for the contrary view. Section 2 of the rules implementing PD 525 provides: "The Decree shall apply to all employees of covered employers, regardless of their position, designation or employment status, and irrespective of the method by which their wages are paid, including temporary, casual, probationary, and seasonal employees and workers." And Section 3, of the rules implementing PD 851 provides that "all employees of covered employers shall be entitled to benefits provided under the Decree ... regardless of their position, designation or employment status, and irrespective of the method by which their wages are paid." Section 2 of the same rules explicitly provides that the rules apply to "workers paid on piece-rate basis" or "those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same." WHEREFORE, respondent is hereby ordered to pay the emergency allowances under PD 525 and 1123 and the 13th month pay under PD 851 from the date of the effectivity of said decrees but not earlier than September 7, 1974 to the following complainants: Leonardo Loveria, Editha Bayno, Fe Bonita, Ricardo Roxas, Marietta Galut, Mercedes

Oliver, Antonio Mabutol, Clarita Sangle and Jesus Oliver; and the emergency allowances and 13th month pay under said decrees from the date of the effectivity of said decrees but not earlier than the date of the date of the start of their employment, as indicated in the parenthesis after their names, to the following complainants: Linda Tapiceria (July 14, 1975), Luz Bayno, (September 22, 1975), Tito Castaeda (October 20, 1976), Francisco Tapiceria (February 14, 1977), Manuel Mejes (February 20, 1977), Eddie Rodriguez (July 4, 1977) and Nestor Sanchez (July 22, 1977). The Socio-Economic Analyst of the National Labor Relations Commission is hereby directed to compute the amount of the awards stated in this order and to submit a report thereon within 20 calendar days from receipt of this order. (pp. 37-40, Rollo) Thereafter, private respondents filed a motion for issuance of a writ of execution of the aforesaid decision of the Minister of Labor which was granted and, partially implemented. On February 28, 1980, the Labor Arbiter, issued an order directing the Chief of the Research and Information Department of the Commission to designate a SocioEconomic Analyst to compute the balance of private respondents' claims for the 13th month pay and emergency living allowance in accordance with respondent Minister's decision of March 27, 1979. Pursuant thereto, a report, dated March 4, 1980, was submitted computing the balance of private respondents' claims for emergency living allowance and 13th month pay up to February 29,1980 in the total amount of P71,131.14. A writ of execution was issued for the satisfaction of said amount. Hence, the filing of this petition for certiorari, praying, among others, to annul and set aside the decision of public respondent Minister of Labor and to dismiss the claims of private respondents. We cannot sustain the petition. It was filed on April 1, 1980 which was too late because the Labor Minister's decision of March 27, 1979, subject of this judicial review, had already become final. And, not only that. The questioned decision has already been partially implemented by the sheriff as shown by his return, dated July 17, 1979 (p. 96, Rollo). What is left for execution is the balance of private respondents' claim. Further, the petition is devoid of merit. As held in Mafinco Trading Corporation vs. Ople, 70 SCRA 139, the existence of employer-employee relationship is determined by the following elements, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control employees' conduct although the latter is the most important element. On the other hand, an independent contractor is one who exercises independent employment and contracts to do a piece of work according to his own methods and without being subjected to control of his employer except as to the result of his work. 1. In the case at bar, as found by the public respondent, the selection and hiring of private respondents were done by the petitioner, through the master cutter of its tailoring department who was a regular employee. The procedure was modified when the employment of personnel in the tailoring department was made by the management itself after the applicants' qualifications had been passed upon by a committee of four. Later, further approval by the Personnel Department was required. 2. Private respondents received their weekly wages from petitioner on piece-work basis which is within the scope and meaning of the term "wage" as defined under Article 97(f) of the New Labor Code (PD 442), thus (f) "Wage" paid to any employee shag mean the 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 services rendered or to be rendered, and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging or other facilities customarily furnished by the employer to the employee. ... 3. Petitioner had the power to dismiss private respondents, as shown by the various memoranda issued for strict compliance by private respondents, violations of which, in extreme cases, are grounds for outright dismissal. In fact, they were dismissed on January 2, 1978, although, the dismissal was declared illegal by the Labor Arbiter. The case is pending appeal with the National Labor Relations Commission. 4. Private respondents' conduct in the performance of their work was controlled by petitioner, such as: (1) they were required to work from Monday through Saturday; (2) they worked on job orders without waiting for the deadline; (3) they were to observe cleanliness in their place of work and were not allowed to bring out tailoring shop patterns; and (4) they were subject to quality control by petitioner. 5. Private respondents were allowed to register with the Social Security System (SSS) as employees of petitioner and premiums were deducted from their wages just like its other employees. And, withholding taxes were also deducted from their wages for transmittal to the Bureau of Internal Revenue (BIR). 6. Well-established is the principle that "findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but even finality. Judicial review by this Court on labor cases do not go so far as to evaluate the sufficiency of the evidence upon which the Deputy Minister and the Regional Director based their determinations but are limited to issues of jurisdiction or grave abuse of discretion (Special Events & Central Shipping Office Workers Union vs. San Miguel Corporation, 122 SCRA 557)." In the case at bar, the questioned decision and order of execution of public respondents are not tainted with unfairness or arbitrariness that would amount to abuse of discretion or lack of jurisdiction and, therefore, this Court finds no necessity to disturb, much less, reverse the same. WHEREFORE, premises considered, the petition is dismissed for lack of merit. G.R. No. 64948 September 27, 1994 MANILA GOLF & COUNTRY CLUB, INC. vs. IAC and FERMIN LLAMAR NARVASA, C.J.: The question before the Court here is whether or not persons rendering caddying services for members of golf clubs and their guests in said clubs' courses or premises are the employees of such clubs and therefore within the compulsory coverage of the Social Security System (SSS). That question appears to have been involved, either directly or peripherally, in three separate proceedings, all initiated by or on behalf of herein private respondent and his fellow caddies. That which gave rise to the present petition for review was originally filed with the Social Security Commission (SSC) via petition of seventeen (17) persons who styled themselves "Caddies of Manila Golf and Country Club-PTCCEA" for coverage and availment of benefits under the Social Security Act as amended, "PTCCEA" being the acronym of a labor organization, the "Philippine Technical, Clerical, Commercial Employees Association," with which the petitioners claimed to be affiliated. The petition, docketed as SSC Case No. 5443, alleged in essence that although the petitioners were employees of the Manila

Golf and Country Club, a domestic corporation, the latter had not registered them as such with the SSS. At about the same time, two other proceedings bearing on the same question were filed or were pending; these were: (1) a certification election case filed with the Labor Relations Division of the Ministry of Labor by the PTCCEA on behalf of the same caddies of the Manila Golf and Country Club, the case being titled "Philippine Technical, Clerical, Commercial Association vs. Manila Golf and Country Club" and docketed as Case No. R4-LRDX-M-10-504-78; it appears to have been resolved in favor of the petitioners therein by Med-Arbiter Orlando S. Rojo who was thereafter upheld by Director Carmelo S. Noriel, denying the Club's motion for reconsideration; 1 (2) a compulsory arbitration case initiated before the Arbitration Branch of the Ministry of Labor by the same labor organization, titled "Philippine Technical, Clerical, Commercial Employees Association (PTCCEA), Fermin Lamar and Raymundo Jomok vs. Manila Golf and Country Club, Inc., Miguel Celdran, Henry Lim and Geronimo Alejo;" it was dismissed for lack of merit by Labor Arbiter Cornelio T. Linsangan, a decision later affirmed on appeal by the National Labor Relations Commission on the ground that there was no employer-employee relationship between the petitioning caddies and the respondent Club. 2 In the case before the SSC, the respondent Club filed answer praying for the dismissal of the petition, alleging in substance that the petitioners, caddies by occupation, were allowed into the Club premises to render services as such to the individual members and guests playing the Club's golf course and who themselves paid for such services; that as such caddies, the petitioners were not subject to the direction and control of the Club as regards the manner in which they performed their work; and hence, they were not the Club's employees. Subsequently, all but two of the seventeen petitioners of their own accord withdrew their claim for social security coverage, avowedly coming to realize that indeed there was no employment relationship between them and the Club. The case continued, and was eventually adjudicated by the SSC after protracted proceedings only as regards the two holdouts, Fermin Llamar and Raymundo Jomok. The Commission dismissed the petition for lack of merit, 3 ruling: . . . that the caddy's fees were paid by the golf players themselves and not by respondent club. For instance, petitioner Raymundo Jomok averred that for their services as caddies a caddy's Claim Stub (Exh. "1-A") is issued by a player who will in turn hand over to management the other portion of the stub known as Caddy Ticket (Exh. "1") so that by this arrangement management will know how much a caddy will be paid (TSN, p. 80, July 23, 1980). Likewise, petitioner Fermin Llamar admitted that caddy works on his own in accordance with the rules and regulations (TSN, p. 24, February 26, 1980) but petitioner Jomok could not state any policy of respondent that directs the manner of caddying (TSN, pp. 76-77, July 23, 1980). While respondent club promulgates rules and regulations on the assignment, deportment and conduct of caddies (Exh. "C") the same are designed to impose personal discipline among the caddies but not to direct or conduct their actual work. In fact, a golf player is at liberty to choose a caddy of his preference regardless of the respondent club's group rotation system and has the discretion on whether or not to pay a caddy. As testified to by petitioner Llamar that their income depends on the number of players engaging their services and liberality of the latter (TSN, pp. 10-11, Feb. 26, 1980). This lends credence to respondent's

assertion that the caddies are never their employees in the absence of two elements, namely, (1) payment of wages and (2) control or supervision over them. In this connection, our Supreme Court ruled that in the determination of the existence of an employer-employee relationship, the "control test" shall be considered decisive (Philippine Manufacturing Co. vs. Geronimo and Garcia, 96 Phil. 276; Mansal vs. P.P. Coheco Lumber Co., 96 Phil. 941; Viana vs. Al-lagadan, et al., 99 Phil. 408; Vda, de Ang, et al. vs. The Manila Hotel Co., 101 Phil. 358, LVN Pictures Inc. vs. Phil. Musicians Guild, et al., L-12582, January 28, 1961, 1 SCRA 132. . . . (reference being made also to Investment Planning Corporation Phil. vs. SSS 21 SCRA 925). Records show the respondent club had reported for SS coverage Graciano Awit and Daniel Quijano, as bat unloader and helper, respectively, including their ground men, house and administrative personnel, a situation indicative of the latter's concern with the rights and welfare of its employees under the SS law, as amended. The unrebutted testimony of Col. Generoso A. Alejo (Ret.) that the ID cards issued to the caddies merely intended to identify the holders as accredited caddies of the club and privilege(d) to ply their trade or occupation within its premises which could be withdrawn anytime for loss of confidence. This gives us a reasonable ground to state that the defense posture of respondent that petitioners were never its employees is well taken. 4 From this Resolution appeal was taken to the Intermediate appellate Court by the union representing Llamar and Jomok. After the appeal was docketed 5 and some months before decision thereon was reached and promulgated, Raymundo Jomok's appeal was dismissed at his instance, leaving Fermin Llamar the lone appellant. 6 The appeal ascribed two errors to the SSC: (1) refusing to suspend the proceedings to await judgment by the Labor Relations Division of National Capital Regional Office in the certification election case (R-4-LRD-M-10-504-78) supra, on the precise issue of the existence of employeremployee relationship between the respondent club and the appellants, it being contended that said issue was "a function of the proper labor office"; and (2) adjudicating that self same issue a manner contrary to the ruling of the Director of the Bureau of Labor Relations, which "has not only become final but (has been) executed or (become) res adjudicata." 7 The Intermediate Appellate Court gave short shirt to the first assigned error, dismissing it as of the least importance. Nor, it would appear, did it find any greater merit in the second alleged error. Although said Court reserved the appealed SSC decision and declared Fermin Llamar an employee of the Manila Gold and Country Club, ordering that he be reported as such for social security coverage and paid any corresponding benefits, 8 it conspicuously ignored the issue of res adjudicata raised in said second assignment. Instead, it drew basis for the reversal from this Court's ruling in Investment Planning Corporation of the Philippines vs. Social Security System,supra 9 and declared that upon the evidence, the questioned employer-employee relationship between the Club and Fermin Llamar passed the so-called "control test," establishment in the case i.e., "whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is to be accomplished," the Club's control over the caddies encompassing:

(a) the promulgation of no less than twenty-four (24) rules and regulations just about every aspect of the conduct that the caddy must observe, or avoid, when serving as such, any violation of any which could subject him to disciplinary action, which may include suspending or cutting off his access to the club premises; (b) the devising and enforcement of a group rotation system whereby a caddy is assigned a number which designates his turn to serve a player; (c) the club's "suggesting" the rate of fees payable to the caddies. Deemed of title or no moment by the Appellate Court was the fact that the caddies were paid by the players, not by the Club, that they observed no definite working hours and earned no fixed income. It quoted with approval from an American decision 10 to the effect that: "whether the club paid the caddies and afterward collected in the first instance, the caddies were still employees of the club." This, no matter that the case which produced this ruling had a slightly different factual cast, apparently having involved a claim for workmen's compensation made by a caddy who, about to leave the premises of the club where he worked, was hit and injured by an automobile then negotiating the club's private driveway. That same issue of res adjudicata, ignored by the IAC beyond bare mention thereof, as already pointed out, is now among the mainways of the private respondent's defenses to the petition for review. Considered in the perspective of the incidents just recounted, it illustrates as well as anything can, why the practice of forum-shopping justly merits censure and punitive sanction. Because the same question of employer-employee relationship has been dragged into three different fora, willy-nilly and in quick succession, it has birthed controversy as to which of the resulting adjudications must now be recognized as decisive. On the one hand, there is the certification case [R4-LRDX-M10-504-78), where the decision of the Med-Arbiter found for the existence of employer-employee relationship between the parties, was affirmed by Director Carmelo S. Noriel, who ordered a certification election held, a disposition never thereafter appealed according to the private respondent; on the other, the compulsory arbitration case (NCR Case No. AB-4-1771-79), instituted by or for the same respondent at about the same time, which was dismissed for lack of merit by the Labor Arbiter, which was afterwards affirmed by the NLRC itself on the ground that there existed no such relationship between the Club and the private respondent. And, as if matters were not already complicated enough, the same respondent, with the support and assistance of the PTCCEA, saw fit, also contemporaneously, to initiate still a third proceeding for compulsory social security coverage with the Social Security Commission (SSC Case No. 5443), with the result already mentioned. Before this Court, the petitioner Club now contends that the decision of the Med-Arbiter in the certification case had never become final, being in fact the subject of three pending and unresolved motions for reconsideration, as well as of a later motion for early resolution. 11 Unfortunately, none of these motions is incorporated or reproduced in the record before the Court. And, for his part, the private respondent contends, not only that said decision had been appealed to and been affirmed by the Director of the BLR, but that a certification election had in fact been held, which resulted in the PTCCEA being recognized as the sole bargaining agent of the caddies of the Manila Golf and Country Club with respect to wages, hours of work, terms of employment, etc. 12 Whatever the truth about these opposing contentions, which the record before the Court does not adequately disclose, the more controlling consideration would seem to be that, however, final it may become, the decision in a certification case, by the very nature of that proceedings, is not such as to foreclose all further dispute between the parties as to the existence,

or non-existence, of employer-employee relationship between them. It is well settled that for res adjudicata, or the principle of bar by prior judgment, to apply, the following essential requisites must concur: (1) there must be a final judgment or order; (2) said judgment or order must be on the merits; (3) the court rendering the same must have jurisdiction over the subject matter and the parties; and (4) there must be between the two cases identity of parties, identity of subject matter and identity of cause of action.13 Clearly implicit in these requisites is that the action or proceedings in which is issued the "prior Judgment" that would operate in bar of a subsequent action between the same parties for the same cause, be adversarial, or contentious, "one having opposing parties; (is) contested, as distinguished from an ex parte hearing or proceeding. . . . of which the party seeking relief has given legal notice to the other party and afforded the latter an opportunity to contest it" 14 and a certification case is not such a proceeding, as this Court already ruled: A certification proceedings is not a "litigation" in the sense in which the term is commonly understood, but mere investigation of a nonadversary, fact-finding character, in which the investigating agency plays the part of a disinterested investigator seeking merely to ascertain the desires of the employees as to the matter of their representation. The court enjoys a wide discretion in determining the procedure necessary to insure the fair and free choice of bargaining representatives by the employees. 15 Indeed, if any ruling or judgment can be said to operate as res adjudicata on the contested issue of employeremployee relationship between present petitioner and the private respondent, it would logically be that rendered in the compulsory arbitration case (NCR Case No. AB-4-77179, supra), petitioner having asserted, without dispute from the private respondent, that said issue was there squarely raised and litigated, resulting in a ruling of the Arbitration Branch (of the same Ministry of Labor) that such relationship did not exist, and which ruling was thereafter affirmed by the National Labor Relations Commission in an appeal taken by said respondent. 16 In any case, this Court is not inclined to allow private respondent the benefit of any doubt as to which of the conflicting ruling just adverted to should be accorded primacy, given the fact that it was he who actively sought them simultaneously, as it were, from separate fora, and even if the graver sanctions more lately imposed by the Court for forum-shopping may not be applied to him retroactively. Accordingly, the IAC is not to be faulted for ignoring private respondent's invocation of res adjudicata; on contrary, it acted correctly in doing so. Said Courts holding that upon the facts, there exists (or existed) a relationship of employer and employee between petitioner and private respondent is, however, another matter. The Court does not agree that said facts necessarily or logically point to such a relationship, and to the exclusion of any form of arrangements, other than of employment, that would make the respondent's services available to the members and guest of the petitioner. As long as it is, the list made in the appealed decision detailing the various matters of conduct, dress, language, etc. covered by the petitioner's regulations, does not, in the mind of the Court, so circumscribe the actions or judgment of the caddies concerned as to leave them little or no freedom of choice whatsoever in the manner of carrying out their services. In the very nature of things, caddies must submit to some supervision of their conduct while enjoying the privilege of pursuing their occupation within the premises and grounds of whatever club they do their work

in. For all that is made to appear, they work for the club to which they attach themselves on sufference but, on the other hand, also without having to observe any working hours, free to leave anytime they please, to stay away for as long they like. It is not pretended that if found remiss in the observance of said rules, any discipline may be meted them beyond barring them from the premises which, it may be supposed, the Club may do in any case even absent any breach of the rules, and without violating any right to work on their part. All these considerations clash frontally with the concept of employment. The IAC would point to the fact that the Club suggests the rate of fees payable by the players to the caddies as still another indication of the latter's status as employees. It seems to the Court, however, that the intendment of such fact is to the contrary, showing that the Club has not the measure of control over the incidents of the caddies' work and compensation that an employer would possess. The Court agrees with petitioner that the group rotation system so-called, is less a measure of employer control than an assurance that the work is fairly distributed, a caddy who is absent when his turn number is called simply losing his turn to serve and being assigned instead the last number for the day. 17 By and large, there appears nothing in the record to refute the petitioner's claim that: (Petitioner) has no means of compelling the presence of a caddy. A caddy is not required to exercise his occupation in the premises of petitioner. He may work with any other golf club or he may seek employment a caddy or otherwise with any entity or individual without restriction by petitioner. . . . . . . In the final analysis, petitioner has no was of compelling the presence of the caddies as they are not required to render a definite number of hours of work on a single day. Even the group rotation of caddies is not absolute because a player is at liberty to choose a caddy of his preference regardless of the caddy's order in the rotation. It can happen that a caddy who has rendered services to a player on one day may still find sufficient time to work elsewhere. Under such circumstances, he may then leave the premises of petitioner and go to such other place of work that he wishes (sic). Or a caddy who is on call for a particular day may deliberately absent himself if he has more profitable caddying, or another, engagement in some other place. These are things beyond petitioner's control and for which it imposes no direct sanctions on the caddies. . . . 18 WHEREFORE, the Decision of the Intermediate Appellant Court, review of which is sought, is reversed and set aside, it being hereby declared that the private respondent, Fermin Llamar, is not an employee of petitioner Manila Golf and Country Club and that petitioner is under no obligation to report him for compulsory coverage to the Social Security System. No pronouncement as to costs. G.R. No. L-55674 July 25, 1983 LA SUERTE CIGAR AND CIGARETTE FACTORY vs. DIRECTOR OF THE BUREAU OF LABOR RELATIONS, et al. GUERRERO, J.: In the determination of the basic issue raised in the case at bar involving the status of some 14 members of private respondent local union whether they are employees of petitioner company in which case they should be included in the 30% jurisdictional requirement necessary to support the petition for certification election, or independent contractors and hence, excluded therefrom, Our rulings in Mafinco Trading Corp. vs. Ople, 70 SCRA 139, where We reiterated

the "control test" earlier laid down in Investment Planning Corp. vs. Social Security System, 21 SCRA 924, and in Social Security System vs. Hon. Court of Appeals and Shriro (Phils.) Inc., 37 SCRA 579 are authoritative and controlling. In the Mafinco case, the Court, through Justice Aquino, said: In a petition for certiorari, the issue of whether respondents are employees or independent contractors should be resolved mainly in the light of their peddling contracts. Pro hac vice the issue of whether Repomanta and Moralde were employees of Mafinco or were independent contractors should be resolved mainly in the light of their peddling contracts. A different approach would lead this Court astray into the field of factual controversy where its legal pronouncements would not rest on solid grounds. A contract whereby one engages to purchase and sell soft drinks on trucks supplied by the manufacturer but providing that other party (peddler) shall have the right to employ his own workers, shall post a bond to protect the manufacturer against losses, shall be responsible for damages caused to third persons, shall obtain the necessary licenses and permits and bear the expenses incurred in the sale of the soft drinks is not a contract of employment.-We hold that under their peddling contracts Repomanta and Moralde were not employees of Mafinco but were independent contractors as found by the NLRC and its factfinder and by the committee appointed by the Secretary of Labor to look into the status of Cosmos and Mafinco peddlers. They were distributors of Cosmos soft drinks with their own capital and employees. Ordinarily, an employee or a mere peddler does not execute a formal contract of employment. He is simply hired and he works under the direction and control of the employer. Repomanta and Moralde voluntarily executed with Mafinco formal peddling contracts which indicate the manner in - which they would se Cosmos soft drinks. That circumstance signifies that they were acting as independent businessmen. They were free to sign or not to sign that contract. If they did not want to sell Cosmos products under the conditions defined in that contract, they were free to reject it. But having signed it, they were bound by its stipulations and the consequences thereof under existing labor laws. One such stipulation is the right of the parties to terminate the contract upon 5 days' prior notice. Whether the termination in this case was an unwarranted dismissal of an employee, as contended by Repomanta and Moralde, is a point that cannot be resolved without submission of evidence. Using the contract itself as the sole criterion, the termination should perforce be characterized as simply the exercise of a right freely stipulated upon by the parties. Tests for determining the existence of employeremployee relationship.-In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employees' conduct-although the latter is the most important element. Factors to determine existence of independent contract relationship. An independent contractor is 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 the result of the work. 'Among the factors to be considered are whether the contractor is carrying on an independent business; whether the work is part of the

employer's general 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 the work to another; the power to terminate the relationship; the existence of a contract for the performance of a specified piece of work; the control and supervision of the work; the employer's powers and duties with respect to the hiring, firing, and payment of the contractor's servants; the control of the premises; the duty to supply the premises, tools, appliances, material and labor, and the mode, manner, and terms of payment.' In the Shriro case, We held that the common law rule of determining the existence of employer-employee relationship, principally the "control test", applies in its jurisdiction. Where the element of control is absent; where a person who works for another does so more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to the result of his efforts and not the amount thereof, relationship of employer and employee does not exist. And supplementing the above jurisprudence is Our ruling in Social Security System vs. The Hon. Court of Appeals, Manila Jockey Club, Inc., Phil. Racing Club, 30 SCRA 210 wherein the Supreme Court, speaking through then Associate Justice, now Chief Justice Fernando, held: The question of when there is employer-employee relationship for purposes of the Social Security Act has been settled in this jurisdiction in the case of Investment Planning Corp. vs. Social Security System, 21 SCRA 924 which applied the so-called control test, that is, whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is to be accomplished. In other words, where the element of control is absent; whether a person who works for another does so more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to the result of his efforts and not the amount thereof, we should not find that the relationship of employer and employee exists. This decision rejected the economic facts of the relation test. The instant petition for certiorari seeks to reverse the resolution of the Director of the Bureau of Labor Relations dated January 15, 1980 ordering that a certification election be conducted among the sales personnel of La Suerte Cigar and Cigarette Factory, as well as his resolution dated November 18, 1980 denying the motion for reconsideration and directing that a certification election be conducted immediately. The said resolutions reversed and set aside the order of dismissal dated August 29, 1979 of the MedArbiter. The antecedent facts show that on April 7, 1979, the La Suerte Cigar and Cigarette Factory Provincial (Luzon) and Metro Manila Sales Force Association (herein referred to as the local union) applied for and was granted chapter status by the National Association of Trade Unions (hereinafter referred to as NATU). On April 16, 1979, some thirty-one (31) local union members signed a joint letter withdrawing their membership from NATU. Nonetheless, on April 18, 1979, the local union and NATU filed a petition for direct certification or certification election which alleged among others, that forty-eight of the sixty sales personnel of the Company were members of the local union; that the petition is supported by no less than 75% of the sales force; that there is no existing recognized labor union in the Company representing the said sales personnel; that there is likewise no existing collecting

bargaining agreement; and that there had been no certification election in the last twelve months preceding the filing of the petition. The Company then filed a motion to dismiss the petition on June 13, 1979 on the ground that it is not supported by at least 30% of the members of the proposed bargaining unit because (a) of the alleged forty-eight (48) members of the local union, thirty-one (31) had withdrawn prior to the filing of the petition; and (b) fourteen (14) of the alleged members of the union were not employees of the Company but were independent contractors. NATU and the local union opposed the Company's motion to dismiss alleging that the fourteen dealers are actually employees of the Company because they are subject to its control and supervision. On August 29, 1979, the Med-Arbiter issued an order dismissing the petition for lack of merit as the fourteen dealers who joined the union should not be counted in determining the 30% consent requirement because they are not employees but independent contractors and the withdrawal of the 31 salesmen from the union prior to the filing of the petition for certification election was uncontroverted by the parties. Thereafter, on September 24, 1979, the local union on its own signed only by the local union President, filed a motion for reconsideration and/or appeal from the order of dismissal on the following grounds: (a) the findings of facts of the med-arbiter as it appears on the order are contrary to facts and (b) in finding that no employer-employee relationship exists between the alleged dealers and respondent firm, the med-arbiter decided in a manner not in accord with the factual circumstances attendant to the relationship. Acting on the motion for reconsideration/appeal, the Director of the Bureau of Labor Relations, in the Resolution dated January 15, 1980, reversed and set aside the order of dismissal, holding that the withdrawal of the 31 signatories to the petition two days prior to the filing of the instant petition did not establish the fact that the same was executed freely and voluntarily and that the records are replete with company documents showing that the alleged dealers are in fact employees of the company. The Company then filed a motion to set aside the resolution dated January 15, 1980 of the Director of the Bureau of Labor Relations, contending that the appeal was never perfected or is jurisdictionally defective, copy of the motion for reconsideration/appeal not having been served upon the Company, and that the Resolution was based solely on the distorted and self-serving allegations of the union. The local union opposed the Company's motion for reconsideration and submitted a memorandum on April 22, 1980 in amplification of its opposition. At this juncture, the legal counsel of NATU filed a manifestation on May 15, 1980 stating that the act of the local union of engaging another lawyer to handle the case amounts to disaffiliation, for which reason said legal counsel was withdrawing from the case. The local union counter manifested that the local union had not been officially notified of its expulsion from the NATU; that there was no valid ground for its expulsion; that the National Executive Council of NATU had not approved such expulsion; and that it had no objection to the withdrawal of Atty. Marcelino Lontok, Jr. as its counsel. Then came a motion of NATU through its President and legal counsel withdrawing as petitioner and contending that since the local union was no longer affiliated with it, it was no longer interested in the case. Twelve members of the National Executive Council then came in and manifested that they constitute a majority of the Executive Board of NATU and affirmed that the local union was still an affiliate of NATU.

There followed a counter-manifestation of Atty. Marcelino Lontok, Jr. on August 27, 1980 stating that six signatories to the aforesaid manifestation had no authority to make the said foregoing statement as they had resigned from the Executive Board en masse; that the acts of the President may not be reversed by the Executive Council; and that the twelve signatories did not constitute a majority of the sixty (60) members of the Executive Council. The local union made its reply to the counter-manifestation stating that the power to expel an affiliate exclusively belonged to the National Executive Council of NATU, under Section 2, Article V of the NATU Constitution and By-Laws; that such power could only be wielded after due investigation and hearing; that disaffiliation is effected only by voluntary act of the local union, which is not the case here, because it is the President and legal counsel who are trying to expel the union. Simultaneously with said reply, the local union filed an opposition to Atty. Lontok's motion to dismiss-withdraw petition, stating that Atty. Lontok had no more personality to file the same inasmuch as he had previously withdrawn as counsel in his manifestation dated May 7, 1980, and the local union has accepted the same in its countermanifestation dated May 16, 1980; that expulsion requires two-thirds vote of the members of the National Executive Council, as well as investigation and hearing; that engaging another lawyer is not a ground for expulsion of an affiliate; and that the local union was compelled to hire another lawyer because up to the last day of the reglementary period, Atty. Lontok still had not filed an appeal from the decision of the Med-Arbiter. On November 18, 1980, the Director of the Bureau of Labor Relations promulgated a resolution denying the Company's motion for reconsideration and directing that the certification election be conducted immediately. Hence, this petition. In the apparently simple task of determining whether the Director of the Bureau of Labor Relations committed grave abuse of discretion amounting to lack of jurisdiction in ordering the direct certification election, three difficult issues must be resolved, namely: I. Whether or not the 14 dealers are employees or independent contractors. II. Whether or not the withdrawal of 31 union members from the NATU affected the petition for certification election insofar as the thirty per cent requirement is concerned. III. Whether or not the withdrawal of the petition for certification election by the NATU, through its President and legal counsel, was valid and effective. A basic factor underlying the exercise of rights under the Labor Code is status of employment. The question of whether employer-employee relationship exists is a primordial consideration before extending labor benefits under the workmen's compensation, social security, medicare, termination pay and labor relations law. It is important in the determination of who shall be included in a proposed bargaining unit because it is the sine qua non, the fundamental and essential condition that a bargaining unit be composed of employees. Failure to establish this juridical relationship between the union members and the employer affects the legality of the union itself. It means the ineligibility of the union members to present a petition for certification election as well as to vote therein. Corollarily, when a petition for certification election is supported by 48 signatories in a bargaining unit composed of 60 salesmen, but 14 of the 48 lacks employee status, the petition is vitiated thereby. Herein lies the importance of resolving the status of the dealers in this case. It is the contention of the company that the dealers in the sale of its tobacco products are independent contractors. On the other hand, the Union contends that such dealers

are actually employees entitled to the coverage and benefits of labor relations laws. According to the petitioner, to effectively market its products, the Company maintains a network of dealers all over the country. These arrangements are covered by a dealership agreement signed between the Company and a dealer in a particular area or territory. And attached to the petition is a representative copy of the said dealership agreement which We quote below: DEALERSHIP AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This DEALERSHIP AGREEMENT, executed at Pasay City, Philippines, this 8 day of March 1977, entered into by JOSE TEN SIU KEE, JR., of legal age, married and a resident of 178-E San Ramon Street, Iloilo City, hereinafter referred to as DEALER, and TELENGTAN BROTHERS & SONS, INC., doing business under the style of "LA SUERTE CIGAR & CIGARETTE FACTORY", hereinafter referred to as FACTORY, bears witness that: WHEREAS, JOSE TAN SIU KEE, JR. of 178-E San Ramon Street, Iloilo City, had applied to be a DEALER of the FACTORY for the territories of ILOILO and/or such other territories that the FACTORY may designate from time to time; and WHEREAS, the FACTORY had accepted the application of JOSE TAN SIU KEE, JR., and therefore, appointed him as one of its dealers in ILOILO and/or such other territories that the FACTORY may designate from time to time, who is willing and able to do so as such for the main purpose of extensively selling the products of the FACTORY in the said territories, under the following express terms and conditions, to wit: 1. That the DEALER shall handle for sale and distribution of cigarette products of the factory covering the territories of ILOILO and/or such other territories that the FACTORY may designate from time to time, in accordance with existing laws and regulations of the government, without however, incurring any expenses in doing so, without the previous written consent of the FACTORY being first had and obtained; 2. That for the purpose of selling the cigarettes or products of the FACTORY, the DEALER shall send his orders to the FACTORY plant in Paraaque, Metro Manila, either in cash or on credit; Provided, however, that in cases of credit order the DEALER can only get or order the supply of cigarettes up to the amount of not more than FIFTY THOUSAND PESOS (P50,000.00) only at any given time during the existence of this Contract, unless allowed by the FACTORY to get more; 3. That the FACTORY shall supply the DEALER with a truck or panel delivery and all expenses shall be borne by the FACTORY; driver shall be borne by the DEALER; 4. That the DEALER shall not receive any commission from the FACTORY but the latter shall give the DEALER a discount for all sales either on consignment or in cash, and said discount shall be decided by the FACTORY from time to time; 5. That the FACTORY shall not be liable for any violation of any law, which the DEALER may commit, and that the DEALER alone shall be responsible for any violation;

6. The geographical area (hereinafter referred to as "Territory") covered by this Agreement in which the DEALER shall undertake the responsibilities provided herein is ILOILO. It is, however, agreed and understood that the FACTORY may from time to time, upon written notice thereof THE DEALER, change or subdivide the Territory as the business exigencies, and the policy of the FACTORY with respect thereto will dictate. 7. The DEALER agrees that during the term of this Agreement: (a) He will diligently, loyally and faithfully serve the FACTORY as its DEALER and diligently canvass for buyers of the FACTORY's Products in the Territory; (b) He shall not sell or distribute goods of a similar nature or such as would compete and interfere with the sale of the Products of the FACTORY in the Territory, either on his account or on behalf of any other person whatsoever; (c) Furnish to the FACTORY every three (3) months a list of the buyers/customers in the Territory, specifying the names and address of such customers as well as their individual daily supply/stock requirements; (d) He will faithfully and religiously abide by the FACTORY policy, rules and regulations, particularly with respect to the pricing of all Products to be sold and distributed by him; (e) He will keep account of all his dealings hereunder and promptly liquidate his account with the FACTORY with respect to the Products sold by him in the Territory; (f) He will not engage in any activity which will in any manner prejudice either the business or name of the FACTORY, such as, but not limited to, "black- marketing" operations; (g) He will not withdraw cigarettes if the maximum volume allotted to him by the FACTORY has been exceeded; (8) That the DEALER shall sell the Products of the FACTORY at a price to be agreed upon between both parties; (9) That the DEALER shall hereby bind and obligate himself to furnish the FACTORY, within a week from the date of this Contract with Surety or Cash Bond in the amount of not less than FIFTY THOUSAND PESOS (P 50,000.00). The surety bond should be issued by one or several bonding companies acceptable to and approved by the FACTORY to guarantee and secure complete and faithful performance of the DEALER and his obligations herein enumerated, particularly the payment of his financial obligations with the FACTORY. The bond may be increased as required by the FACTORY; 10. In the event that the DEALER should become incapacitated to discharge his undertakings and responsibilities under this Agreement, for any reason whatsoever, the FACTORY may designated, for the duration of such incapacity, a substitute to handle the sale and distribution of the Products in the Territory;

11. The FACTORY reserves its right to determine, from time to time, the amount of credit granted or to be granted to the DEALER with respect to the Products to be sold and distributed in the Territory; 12. This Agreement may be cancelled and/or terminated by the FACTORY should the DEALER violate its undertaking under this Agreement especially with respect to Paragraph 7(f) hereof. It is understood, however, that the failure of the FACTORY to enforce at any time or for any period of time, any right, power or remedy accruing to the FACTORY upon default by the DEALER of his undertakings under this Agreement shall not impair any such right, power or remedy or to be construed to be a waver or an acquiescence in such default; nor shall the action of the FACTORY in respect of any default, or any acquiescence by it in any default, affect or impair any right, power or remedy of the FACTORY in respect of any other default. 13. That either party may terminate this Contract without cause by giving to the other party fifteen (15) days notice in writing but without prejudice to any right or claim which as of that date may have accrued to either of the parties hereunder, however, in the event of breach of this Contract, the FACTORY may terminate this Contract without notice to the DEALER. 14. That it is hereby finally stipulated and agreed that in case of litigation arising out of or in connection with this Contract, the Municipal Court of Paraaque or the Court of First Instance cf Rizal, as the case may be, shall be the competent court wherein to file such action or actions. 15. That this Contract shall supersede any Contract which the DEALER may have with the FACTORY. IN WITNESS WHEREOF, these presents are signed at Pasay City, Philippines on this 8 day of March 1977. TELENGTAN BROTHERS & SONS, INC. (La Suerte Cigar & Cigarette Factory) FACTORY By: (SGD.) LIM HAN ENG (SGD.) JOSE TAN SIU KEE, JR. Assistant Manager Dealer Sales Department TAN 5976-397-9 SIGNED IN THE PRESENCE OF: (SGD.) ILLEGIBLE (SGD.) ILLEGIBLE" (Acknowledgment omitted) The records embody standard copies of the Dealership Supplementary Agreement which We also quote hereunder: DEALERSHIP SUPPLEMENTARY AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Supplementary Agreement, made and entered into this 14th day of February, 1975 in Pasay City, Philippines, by and between: TELENGTAN BROTHERS & SONS, INC., a corporation duly organized and existing under the laws of the Philippines and doing business under the business name and style of "LA SUERTE CIGAR & CIGARETTE FACTORY", with principal place of business at Km. 14 South Super Highway, Paranaque, Rizal, represented in this act by its duly authorizedManager, Mr. ROBERT UY, hereinafter referred to as COMPANY; and

MR. PURISIMO EMBING of legal age, married, Filipino and with postal address at 3047 Lawaan, UP II, Paranaque, Rizal hereinafter referred to as DEALER, WITNESSETH: That For and in consideration of the mutual covenants and agreements made herein, by one to the other, the COMPANY and the DEALER, by these presents, enter into this Supplementary Agreement whereby the COMPANY will avail of the services of the DEALER to handle the sale and distribution of its cigarette products, consisting of MARLBORO REGULAR, MARLBORO KING SIZE, MARLBORO 100'S; PHILIP MORRIS REGULAR, PHILIP MORRIS FILTER KING, PHILIP MORRIS 100'S MENTHOL, PHILIP MORRIS 100'S REGULAR; ALPINE 100'S; MR. SLIM 100'S REGULAR, MR. SLIM 100'S MENTHOL, subject to the following terms and conditions: 1. The COMPANY hereby constitutes and appoints the DEALER as its authorized dealer for the sale and distribution of the COMPANY's products as enumerated above, (hereinafter referred to as "Products") and the DEALER hereby accepts such appointment, all upon the terms and conditions herein contained. 2. The geographical area (hereinafter referred to as "Territory") covered by this Agreement in which the DEALER shall undertake the responsibilities provided herein is GREATER MANILA AND SUBURBS. It is, however, agreed and understood that the COMPANY may from time to time, upon written notice thereof to the DEALER, change or subdivide the Territory as the business exigencies, and the policy of the COMPANY with respect thereto will dictate. 3. The DEALER agrees that during the term of this Agreement: (a) He will diligently, loyally and faithfully serve the COMPANY as its DEALER and diligently canvass for buyers of the COMPANY's Products in the Territory; (b) He shall not sell or distribute goods of a similar nature or such as would compete and interfere with the sale or the Products of the COMPANY in the Territory, either on this account or on behalf of any other person whatsoever; (c) Furnish to the COMPANY every three (3) months a list of the buyers/customers in the Territory, specifying the names and address of such customers as well as their individual daily supply/stock requirements; (d) He will faithfully and religiously abide by the COMPANY policy, rules and regulations, particularly with respect to the pricing of all Products to be sold and distributed by him; (e) He will keep account of all his dealings hereunder and promptly liquidate his account with the COMPANY with respect to the Products sold by him in the Territory; (f) He will not engage in any activity which will in any manner prejudice either the business or name of the COMPANY, such as, but not limited to, "Black marketing" operations; (g) He will not withdraw cigarettes if the maximum volume allotted to him by the COMPANY has been exceeded;

5. The DEALER shall put up a bond, or additional bond, with the COMPANY in such amount or amounts, as in the judgment of the COMPANY, will be satisfactory. It is agreed that the COMPANY can apply against said bond or additional bond, such damages as may be suffered by the COMPANY by reason of breach on the part of the DEALER of any of the latter's undertakings under this Agreement. 6. In the event that the DEALER should become incapacitated to discharge his undertakings and responsibilities under this Agreement, for any reason whatsoever, the COMPANY may designate for the duration of such incapacity, a substitute to handle the sale and distribution of the Products in the Territory; 7. The COMPANY reserves its right to determine, from time to time, the amount of credit granted or to be granted to the DEALER with respect to the Products to be sold and distributed in the Territory. 8. This Agreement may be cancelled and/or terminated by the COMPANY should the DEALER violate its undertaking under this Agreement especially with respect to Paragraph 4(f) hereof. It is understood. however, that the failure of the COMPANY to enforce at any time or for any period of time, any right, power or remedy accruing to the COMPANY upon default by the DEALER of his undertakings under this Agreement shall not impair any such right, power or remedy or be construed to be a waiver or an acquiescence in such default; nor shall the action of the COMPANY in respect of any default, or any acquiescence by it in any default, affect or impair any right, power or remedy of the COMPANY in respect of any other default. (9) In the appropriate cases, this Agreement shall constitute as a supplement, revision or modification of any agreement between the company and the DEALER now existing. However, should there be a conflict between the provisions of this Agreement and any such existing agreement between the COMPANY and the DEALER, this Agreement shall prevail. IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed at the place and on the date hereinabove written. TELENGTAN BROTHERS & SONS, INC. (La Suerte Cigar & Cigarette Factory) By: (SGD.) ROBERT UY (SGD.) PURISIMO EMBING Manager DEALER (Signature of Witnesses & Acknowledgment Omitted) Following the rule in the Mafinco case that in a petition for certiorari, the issue of whether respondents are employees or independent contractors should be resolved mainly in the light of their peddling contracts, so must We likewise resolve the status of the 14 members of the local union involved herein mainly on their dealership agreements for verily, "a different approach would lead this Court astray into the field of factual controversy where its legal pronouncements would not rest on solid grounds." We must stress the Supreme Court is not a trier of facts. Accordingly, after considering the terms and stipulations of the Dealership Contracts which are clear and leave no doubt upon the intention of the contracting parties in establishing the relationship between the dealers on one hand and the

company on the other as that of buyer and seller, We find that the status thereby created is one of independent contractorship, pursuant to the first rule in the interpretation of contracts that the literal meaning of the stipulations shall control. (Article 1370, New Civil Code) From the plain language of the Dealership Agreement, We find that the same is premised with the prefatory statement "the factory has accepted the application of (name of applicant) and therefore has appointed him as one of its dealers." Its terms and conditions include the following: that the dealer shall handle the products in accordance with existing laws and regulations of the government (par. ); that the dealer shall send his orders to the factory plant in cash in any amount or on credit up to the amount of not more than P10,000.00 only at any given time (par. 2); that the factory shall supply the dealer with a truck or a panel delivery and all expenses for repairs shall be borne by the factory (par. 3); and that the dealer shall not receive any commission but shall be given a discount for all sales and said discount shall be decided by the factory from time to time (par. 4). It also provides that the dealer alone shall be responsible for any violation of any law (par. 5); that the dealer shall be assigned to a particular territory which the factory may decide from time to time (par. 6); that the dealer shall sell the products at the price to be agreed upon between the parties (par. 7); and that the dealer shall post a surety bond of not less than P10,000.00 to guarantee and secure complete and faithful performance (par. 8). Either party may terminate the contract without cause by giving 15 days notice in writing; however, in the event of breach or failure to comply with any of the conditions, the factory may terminate or rescind the contract immediately (par. 9 and 10). The Dealership Supplementary Agreement reiterates that the Company "hereby constitute and appoints the DEALER as its authorized dealer for the sale and distribution of the COMPANY products" and "the DEALER hereby accepts such appointment" (par. 1). It also provides that the geographical area in which the dealer shall undertake his responsibilities is Greater Manila and Suburbs. However, the Company may change or subdivide the territory as the business exigencies and the policy of the Company will dictate (par. 2). Under said supplementary agreement, the dealer undertakes to: (a) diligently canvass for buyers of the Company's products; (b) refrain from selling or distributing goods of similar nature; (c) furnish the Company every 3 months a list of buyers/customers, specifying their addresses and individual daily supply; (d) abide by the Company policy, particularly with respect to pricing; (e) keep account of all his dealings and promptly liquidate his accounts; (f) refrain from engaging in any activity which will prejudice the Company from withdrawing cigarettes beyond the maximum volume allotted to him (par. 3.) In case of incapacity of the dealer, the Company may designate a substitute (par. 6). The Company also reserves the right to determine, from time to time, the amount of credit granted or to be granted to the dealer (par. 7). It is likewise immediately noticeable that no such words as "to hire and employ" are present. The Dealership Agreement uses the words "the factory has accepted the application of (name of applicant) and therefore has appointed him as one of its dealers"; whereas the Dealership Supplementary Agreement is prefaced with the statement: "For and in consideration of the mutual covenants and agreements made herein, by one to the other, the COMPANY and the DEALER by these presents, enter into this Supplementary Agreement whereby the COMPANY will avail of the services of the DEALER to handle the sale and distribution of the cigarette products". Nothing in the terms and conditions likewise reveals that the dealers were engaged as employees.

Again, on the basis of the clear terms of the dealership agreements, no mention is made of the wages of the dealers. In fact, it specifies that the dealer shall not receive any commission from the factory but the latter shall give the dealer a discount for all sales either on consignment or in cash (par. 4). Considering the matter of wages, the term "wages" as defined in Section 2 of the Minimum Wage Law (Rep. Act No. 602) as amended, is as follows: (g) 'Wage' paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, commission basis, or other method of calculating the same, which is payable by an employer under a written or unwritten contract of employment for work done or to be done or for services rendered or to be rendered, and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee ... Section 10(k) of the same law also provides: (k) Notification of wage conditions. It shall be the duty of every employer to notify his employees at the time of hiring of the wage conditions under which they are employed, which shall include the following(1) The rate of wages payable; (2) The method of calculation of wages; (3) The periodicity of wage payment; the day, the hour and place of payment; and (4) Any change with respect to any of the foregoing items." then, par. (h) of Sec. 10 of said law provides that such "wages" must be paid to them periodically at least once every two weeks or twice a month. Considering the foregoing, the dealer's discount lacks the foregoing characteristics of the term "wage". Since it varies from month to month depending on the volume of the sales, it lacks the characteristic of periodicity in the manner and procedure contemplated in the Minimum Wage Law. Respondents, in effect, admit the clarity of the terms and conditions of the agreements which covenant that the relationship between the dealers and the Company is one of buyer and seller of La Suerte products, and therefore, one of an independent contractorship when they claimed that the dealership arrangement as established under the Dealership Agreement and the Dealership Supplementary Agreement is essentially a legal cover, cloak or disguise to hide the continuing Employer-Employee relationship established prior to 1964. (Respondents' Joint Memorandum, p. 34). Precisely, there was need to change the contract of employment because of the change of relationship, from an employee to that of an independent dealer or contractor. The employees were free to enter into the new status, to sign or not to sign the new agreement. As in the Mafinco case, the respondents therein as in the instant case, were free to reject the terms of the dealership but having signed it, they were bound by its stipulations and the consequences thereof under existing labor laws. The fact that the 14 local union members voluntarily executed with La Suerte formal dealership agreements which indicate the distribution and sale of La Suerte cigarettes signifies that they were acting as independent businessmen.

We ruled earlier that the terms and stipulations of the dealership agreement leave no room for doubt that the parties entered into a transaction for the distribution and sale of La Suerte products whereby the distributor/sever or dealer assumes the status of an independent contractor. We note that the applicant who is appointed dealer "is willing and able to do as such for the main purpose of extensively selling the products of the FACTORY in the said territories under certain expressed terms and conditions" among them: "1. That the DEALER shall handle for saleand distribution cigarette products of the factory ..."; "2. That for the purpose of selling cigarettes or products of the factory, the dealer shall send his order to the factory plant in Paraaque, Metro Manila either in cash or on credit ..."; "4. That the dealer shall not receive any commission from the factory but the latter shall give the dealer a discount for all sales either on consignment or in cash ..."; "7. (b) He shall not sell or distribute goods of a similar nature or such as would compete and interfere with the sale of the products of the factory in the territory, either on his account or on behalf of any other person whatsoever ..."; "8. That the dealer shall sell the products of the factory at a price to be agreed upon between both parties." It is not disputed that under the dealership agreement, the dealer purchases and sells the cigarettes manufactured by the company under and for his own account. The dealer places his order for the purchase of cigarettes to be sold by him in a particular territory by filling up an Issuance Slip. The Issuance Slip is approved by the Sales Manager and after the sale is approved, a Sales Invoice is then issued to the dealer. On the basis of the approved Issuance Slip and the Sales Invoice, the dealer secures the delivery of his order from the warehouse of the company and upon delivery of the cigarettes from the warehouse, the dealer has the 'obligation to pay whether the cigarettes are disposed or not. The dealer on his own account sells the cigarettes in any manner he deems best without constraint as to time. The dealers do not devote their full time in selling company products. They are likewise engaged in other livelihood and businesses while selling cigarettes manufactured by the company. The sales to the dealers are either on cash or credit basis. Where it is on cash basis, the amount is paid immediately upon the delivery of the products from the company's warehouse. If it is on credit, the dealer would usually settle his account within one week from the time the credit is extended to him. Upon payment of the purchase price, a company official receipt is issued to him. Private respondents contend that there are essential differences between the dealership agreement and that in actual practice and operation, then proceeded to point them in the attempt to prove the control of La Suerte over the sales effort of the dealers. They also contend that the dealership agreement, as stated earlier, is essentially a legal cover, a cloak or disguise to hide the continuing employer-employee relationship established prior to 1964. We reject both contentions as being without merit. In the first place, We cannot accept nor consider evidence varying the terms of the agreement other than the contents of the writing itself pursuant to Section 7, Rule 130 of the Revised Rules of Court, which provides that: Section 7. Evidence of written agreements. When the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing except in the following cases: (a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings.

(b) When there is an intrinsic ambiguity in the writing. The term 'agreement' includes wills. If there are changes by reason of actual practice and operation, certiorari is not the proper proceeding or remedy therefor. In the second place, petitioner's claim that respondent local union relies heavily on evidence dehors the record or extraneous evidence found in cases other than the one at bar, as the testimony in the Limarez case, NCR Case AB-34960-80 cited extensively (pp. 63, 64, 65-66, 66-67, 68-69, 70-72, 73-76, 77-83, 84-85, 86-87, 89, 90-94, 97-98, 107, Comment of Local Union) and that practically all the appendages to the Comment of Local Union constituting the main bulk thereof (Annexes 1 to 52) were evidence introduced in other cases and not in the case at bar, is meritorious. We reject said evidence dehors the record and the appendages raised for the first time on appeal as extrinsic, beyond the scope of this review. Private respondents contend that under the dealership agreement, the totality of the powers expressly reserved to the company, respecting essential aspects or facets of the sales operation of the dealers, clearly establish company control over the manner and details of performance. And they cite the following: "(1) The dealer shall be assigned to a particular territory which the factory shall decide from time to time (par. 6); (2) The dealer shall handle for sale and distribution cigarette products of the company. . . without however incurring any expense in doing so, without previous written consent of the factory being first had and obtained (par. 1); (3) In cases of credit order, the dealer can only get or order the supply of cigarettes up to the amount of not more than P 10,000.00 only at any given time during the existence of this contract, unless allowed by the factory to get more (par. 2); (4) The company shall give the dealer a discount for all sales . . . and said discount shall be decided by the factory from time to time (par. 4); (5) It is however agreed and understood that the company may, from time to time, upon written notice thereof to the dealer, change or divide the territory as the business exigencies and policy of the factory with respect thereto will dictate (par. 2, Annex 10); (6) Each dealer will faithfully and religiously abide by the company policy, rules and regulations, particularly with respect to pricing of all products to be sold and distributed by him (par. 3, sub-par. (d), Annex 10); (7) The dealer shall put up a bond or additional bond with the company in such amounts as in the judgment of the company may be satisfactory (par. 5, Annex 10); (8) In the event that the dealer should become incapacitated for any reason whatsoever, the factory may designate for the duration of said incapacity a substitute to handle the sale and distribution of the products in the territory (par. 6, Annex 10); (9) The company reserves the right to determine, from time to time, the amount of credit granted or to be granted the dealer (par. 7, Annex 10); (10) This agreement may be cancelled and/or terminated by the company should the dealer violate its undertaking under this Agreement, especially par. 7(f) hereof (par. 8, Annex 10); (11) That either party may terminate this contract without cause by giving to the other party 15 days notice in writing (par. 9, Annex 9); and (12) In the event of breach of this contract, the company may terminate this contract without notice to the dealer (proviso in par. 9, Annex 9). " 1 Disputing private respondents' above contention that the company exercises company control over the manner and details of the sales operation of the dealers and not merely over the result of the work of each dealer, petitioner maintains that: 1. The allocation of a definite territory to be assigned to a dealer or distributor is standard practice in dealership agreements, whether international or domestic. Allocation of area responsibility and territorial and customer restrictions are common features of dealership agreements. Thus, a company may be appointed exclusive distributor or dealer of a product in the Philippines, the Asian region or in

the Far East in the same way that some Philippine manufacturers appoint exclusive dealers for the United States or Canada; 2. In the Shriro case, the expenses for handling and delivery of the goods to the customers are all for the account of the company (See Social Security System vs. Hon. Court of Appeals & Shriro (Phil.) Inc., 37 SCRA 579) and there, the Supreme Court did not consider the facts as indicia of an employment relation; 3. In limiting a credit order for cigarettes up to the amount of P 10,000.00 only at any given time during the existence of the contract, unless allowed by the factory to get more, the company merely controls the result of the work of the dealer. The credit order is limited because in a dealership contract, the transaction is one of buy and sell and once an order is made, specially a credit order, the risk of loss is passed on to the dealer; 4. In the Mafinco case, the peddlers are given also a discount and the Supreme Court held that the peddling contract is not a contract of employment but signifies an independent contractor relationship. 5. The change or division of the territory to which a dealer is assigned as the business exigencies and policy of the factory with respect thereto will dictate from time to time is no indicia of company control over the means and methods for in the Mafinco case the peddlers are also assigned definite area routes or zones. 6. That the dealers shall abide with the company policies and rules, particularly in pricing of products is a standard practice in dealership agreements and more so in franchising agreements. The fact that a person has to conform with standards of conduct set by the company does not declassify such a person as an independent contractor so long as he can determine his own day to day activities. In independent contracts, there is always the element of control as to what shall be done as distinguished from how it should be done. 7. The posting of a surety bond under par. 8 of the Dealers Agreement is similar to the giving of a cash bond under par. 7, Peddlers Contract in the Mafinco case wherein it is ruled that the Peddlers Contract involved therein is not an employment agreement. 8. The right to designate a substitute dealer in the event of the incapacity of the regular dealer is no indication of an employer-employee relationship. It is just business prudence to provide for substitute dealers in case of the regular dealer's incapacity. 9. That the company may determine from time to time the amount of credit granted or to be granted the dealer is more a control over the result rather than the means as in Shriro case where the company even reserves the right to approve or reject a sales order, whether on cash or on credit basis. 10. The power to cancel or terminate should the dealer violate its undertaking under the agreement on the basis of the company's opinion that the dealer must engage in any activity which will in any manner prejudice either the business or name of the factory is a standard practice in dealership agreements. We agree with the petitioner. We hold further that the terms and conditions for the termination of the contract are the usual and common stipulations in independent contractorship agreements. In any event, the contention that the totality of the powers expressly reserved to the company establish company control over the manner and details of performance is merely speculative and conjectural.

There are indeed striking similarities between the Peddler's Contract in the Mafinco case and the Dealer's Agreement and Supplementary Dealer's Agreement in the case at bar. Thus: 1. Use of company facilities La Suerte provides dealers with truck or panel delivery (par. 3, Dealer's Agreement) whereas in Mafinco, the company also provides peddler with delivery truck (par. 1, Peddling Contract); 2. Salary of drivers Dealer in this La Suerte case pays salary of driver (par. 3, Dealer's Agreement). In Mafinco, the salary of drivers is for peddler's account (par. 2, Peddling Contract); 3. Expenses of operation and maintenance La Suerte pays for expenses and repair pertaining to the truck or panel delivery (par. 3, Dealership Agreement). In Mafinco, the company furnishes gasoline and oil to run trucks and bear costs of maintenance and repair (par. 4, Peddling Contract); 4. Profit Margin In instant La Suerte case, no commission given. Company gives a sales discount (par. 4, Dealership Agreement). In Mafinco, no commission is also given. Peddler given a sales discount (par. 6, Peddler's Contract); 5. Collateral Dealer in La Suerte gives a surety bond (par. 8, Dealer's Agreement). In Mafinco, peddler gives a cash bond (par. 7), Peddler's Contract); 6. Payment Dealer required to promptly liquidate account (par. 3, (e), Supplementary Dealer's Contract). In Mafinco, peddler liquidates everyday at the end of each day, otherwise his cash bond shall answer for unliquidated account (par. 8, Peddler's Contract); 7. Termination In La Suerte case, no fixed period but either party may terminate after 15 days written notice (par. 9, Dealer's Contract). In Mafinco, the contract is for one year but either party may terminate earlier upon 5-day written notice (par. 9, Peddler's Contract); 8. Government licenses Dealers secure own municipal license and Mayor's permit (Annexes 23 to 24, Comment of Local Union). In Mafinco, peddler secure own licenses to peddle (Committee Report, 70 SCRA 157); 9. Working hours Dealers have to get quotas daily but no fixed time. In Mafinco, peddlers get their trucks in the morning and have to report daily (Report of Committee, 70 SCRA 154-156). No fixed time; 10. Territory Dealer assigned a particular territory (par. 6, Dealer's Agreement). In Mafinco, peddlers have a fixed territory in Manila, see whereas clause of Peddler's Contract, subject to prearranged routes, areas and zones agreed upon by Peddler's Association (Committee Report, 70 SCRA 156); 11. Supervision Supervisors also for market analysis in La Suerte case. In Mafinco, Liaison Officer or Supervisors for market analysis (Committee Report, 70 SCRA 156); 12. Basic Agreement In the instant La Suerte case, the dealer is "appointed" (not hired as in employment contract) "to handle" products without commission but with sales discount through sales invoices which state "sold to" dealer (Annex B, Petition; Annex D, Petition). Payments duly receipted (Annex E, Petition). In Mafinco, the peddler is "desirous of buying and selling" (70 SCRA 143). On the second issue-whether or not the withdrawal of 31 union members from NATU affected the petition for certification election insofar as the 30% requirement is concerned, We reserve the Order of the respondent Director of the Bureau of Labor Relations, it appearing undisputably that the 31 union members had withdrawn their support to the petition before the filing of said petition. It would be otherwise if the withdrawal was made after the filing of the

petition for it would then be presumed that the withdrawal was not free and voluntary. The presumption would arise that the withdrawal was procured through duress, coercion or for valuable consideration. In other words, the distinction must be that withdrawals made before the filing of the petition are presumed voluntary unless there is convincing proof to the contrary, whereas withdrawals made after the filing of the petition are deemed involuntary. The reason for such distinction is that if the withdrawal or retraction is made before the filing of the petition, the names of employees supporting the petition are supposed to be held secret to the opposite party. Logically, any such withdrawal or retraction shows voluntariness in the absence of proof to the contrary. Moreover, it becomes apparent that such employees had not given consent to the filing of the petition, hence the subscription requirement has not been met. When the withdrawal or retraction is made after the petition is filed, the employees who are supporting the petition become known to the opposite party since their names are attached to the petition at the time of filing. Therefore, it would not be unexpected that the opposite party would use foul means for the subject employees to withdrawal their support. In recapitulation, We hold and rule that the 14 members of respondent local union are dealers or independent contractors. They are not employees of petitioner company. With the withdrawal by 31 members of their support to the petition prior to or before the filing thereof, making a total of 45, the remainder of 3 out of the 48 alleged to have supported the petition can hardly be said to represent the union. Hence, the dismissal of the petition by the MedArbiter was correct and justified. Respondent Director committed grave abuse of discretion in reversing the order of the Med- Arbiter. With the above pronouncements, the resolution of the third issue raised herein is unnecessary. WHEREFORE, IN VIEW OF ALL THE FOREGOING, the Resolution dated January 15, 1980 of respondent Director of the Bureau of Labor Relations and the Resolution dated November 18,1980 are hereby REVERSED and SET ASIDE, and the petition for certification election is ordered dismissed. No costs. G.R. No. L-80680 January 26, 1989 DANILO B. TABAS, et al. vs. CALIFORNIA MANUFACTURING COMPANY, INC., et al. SARMIENTO, J.: On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor Relations Commission for reinstatement and payment of various benefits, including minimum wage, overtime pay, holiday pay, thirteen-month pay, and emergency cost of living allowance pay, against the respondent, the California Manufacturing Company. 1 On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company (California) filed a motion to dismiss as well as a position paper denying the existence of an employer-employee relation between the petitioners and the company and, consequently, any liability for payment of money claims. 2 On motion of the petitioners, Livi Manpower Services, Inc. was impleaded as a party-respondent. It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower Services, Inc. (Livi), which subsequently assigned them to work as "promotional merchandisers" 3 for the former firm pursuant to a manpower supply agreement. Among other things, the agreement provided that California "has no control or

supervisions whatsoever over [Livi's] workers with respect to how they accomplish their work or perform [Californias] obligation"; 4 the Livi "is an independent contractor and nothing herein contained shall be construed as creating between [California] and [Livi] . . . the relationship of principal[-]agent or employer[-]employee'; 5 that "it is hereby agreed that it is the sole responsibility of [Livi] to comply with all existing as well as future laws, rules and regulations pertinent to employment of labor" 6 and that "[California] is free and harmless from any liability arising from such laws or from any accident that may befall workers and employees of [Livi] while in the performance of their duties for [California]. 7 It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal and contractual basis"; that "[c]ost of living allowance and the 10 legal holidays will be charged directly to [California] at cost "; and that "[p]ayroll for the preceeding [sic] week [shall] be delivered by [Livi] at [California's] premises." 8 The petitioners were then made to sign employment contracts with durations of six months, upon the expiration of which they signed new agreements with the same period, and so on. Unlike regular California employees, who received not less than P2,823.00 a month in addition to a host of fringe benefits and bonuses, they received P38.56 plus P15.00 in allowance daily. The petitioners now allege that they had become regular California employees and demand, as a consequence whereof, similar benefits. They likewise claim that pending further proceedings below, they were notified by California that they would not be rehired. As a result, they filed an amended complaint charging California with illegal dismissal. California admits having refused to accept the petitioners back to work but deny liability therefor for the reason that it is not, to begin with, the petitioners' employer and that the "retrenchment" had been forced by business losses as well as expiration of contracts. 9 It appears that thereafter, Livi re-absorbed them into its labor pool on a "wait-in or standby" status. 10 Amid these factual antecedents, the Court finds the single most important issue to be: Whether the petitioners are California's or Livi's employees. The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any employeremployee relation between the petitioners and California ostensibly in the light of the manpower supply contract,supra, and consequently, against the latter's liability as and for the money claims demanded. In the same breath, however, the labor arbiter absolved Livi from any obligation because the "retrenchment" in question was allegedly "beyond its control ." 13 He assessed against the firm, nevertheless, separation pay and attorney's fees. We reverse. 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. At any rate, since the agreement was between Livi and California, they alone are bound by it, and the petitioners cannot be made to suffer from its adverse consequences. This Court has consistently ruled that the determination of whether or not there is an employer-employee relation depends upon four standards: (1) the manner of selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power

of dismissal; and (4) the presence or absence of a power to control the putative employee's conduct. 14 Of the four, the right-of-control test has been held to be the decisive factor. 15 On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow reproduced: ART. 106. Contractor or sub-contractor. Whenever an employee 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 sub-contractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or sub-contractor fails to pay 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 laboronly 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 provisions 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. that notwithstanding the absence of a direct employeremployee relationship between the employer in whose favor work had been contracted out by a "labor-only" contractor, and the employees, the former has the responsibility, together with the "labor-only" contractor, for any valid labor claims, 16 by operation of law. The reason, so we held, is that the "labor-only" contractor is considered "merely an agent of the employer," 17 and liability must be shouldered by either one or shared by both. 18 There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it contracts out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to the contrary, and notwithstanding the provision of the contract that it is "an independent contractor." 20 The nature of one's business is not determined by self-serving appellations one attaches thereto but by the tests provided by statute and prevailing case law. 21 The bare fact that Livi maintains a separate line of business does not extinguish the equal fact that it has provided California with workers to pursue the latter's own business. In this connection, we do not agree that the petitioners had been made to perform activities 'which are not directly related to the general business of manufacturing," 22 California's purported "principal operation activity. " 23 The petitioner's had been charged with "merchandizing [sic] promotion or sale of the products of [California] in the different sales outlets in Metro Manila including task and occational [sic] price tagging," 24 an activity that is doubtless, an integral part of the manufacturing business. It is not, then, as if Livi had served

as its (California's) promotions or sales arm or agent, or otherwise, rendered a piece of work it (California) could not have itself done; Livi, as a placement agency, had simply supplied it with the manpower necessary to carry out its (California's) merchandising activities, using its (California's) premises and equipment. 25 Neither Livi nor California can therefore escape liability, that is, assuming one exists. The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their complaints is nothing conclusive. For one thing, the fact that the petitioners were (are), will not absolve California since liability has been imposed by legal operation. For another, and as we indicated, the relations of parties must be judged from case to case and the decree of law, and not by declarations of parties. The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no argument either. As we held in Philippine Bank of Communications v. NLRC, 27 a temporary or casual employee, under Article 218 of the Labor Code, becomes regular after service of one year, unless he has been contracted for a specific project. And we cannot say that merchandising is a specific project for the obvious reason that it is an activity related to the day-to-day operations of California. It would have been different, we believe, had Livi been discretely a promotions firm, and that California had hired it to perform the latter's merchandising activities. For then, Livi would have been truly the employer of its employees, and California, its client. The client, in that case, would have been a mere patron, and not an employer. The employees would not in that event be unlike waiters, who, although at the service of customers, are not the latter's employees, but of the restaurant. As we pointed out in the Philippine Bank of Communications case: xxx xxx xxx ... The undertaking given by CESI in favor of the bank was not the performance of a specific job for instance, the carriage and delivery of documents and parcels to the addresses thereof. There appear to be many companies today which perform this discrete service, companies with their own personnel who pick up documents and packages from the offices of a client or customer, and who deliver such materials utilizing their own delivery vans or motorcycles to the addressees. In the present case, the undertaking of CESI was to provide its client the bank with a certain number of persons able to carry out the work of messengers. Such undertaking of CESI was complied with when the requisite number of persons were assigned or seconded to the petitioner bank. Orpiada utilized the premises and office equipment of the bank and not those of CESI. Messengerial work the delivery of documents to designated persons whether within or without the bank premises-is of course directly related to the day-to-day operations of the bank. Section 9(2) quoted above does not require for its applicability that the petitioner must be engaged in the delivery of items as a distinct and separate line of business. Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement corporation placing bodies, as it were, in different client companies for longer or shorter periods of time, ... 28 In the case at bar, Livi is admittedly an "independent contractor providing temporary services of manpower to its client. " 29 When it thus provided California with manpower, it supplied California with personnel, as if such personnel had been directly hired by California. Hence, Article 106 of the Code applies.

The Court need not therefore consider whether it is Livi or California which exercises control over the petitioner vis-avis the four barometers referred to earlier, since by fiction of law, either or both shoulder responsibility. It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence, considered it illegal. Under the Labor Code, genuine job contracts are permissible, provided they are genuine job contracts. But, as we held in Philippine Bank of Communications, supra, when such arrangements are resorted to "in anticipation of, and for the very purpose of making possible, the secondment" 30 of the employees from the true employer, the Court will be justified in expressing its concern. For then that would compromise the rights of the workers, especially their right to security of tenure. This brings us to the question: What is the liability of either Livi or California? The records show that the petitioners bad been given an initial six-month contract, renewed for another six months. Accordingly, under Article 281 of the Code, they had become regular employees-of-California-and had acquired a secure tenure. Hence, they cannot be separated without due process of law. California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its employees, and second, by reason of financial distress brought about by "unfavorable political and economic atmosphere" 31"coupled by the February Revolution." 32 As to the first objection, we reiterate that the petitioners are its employees and who, by virtue of the required one-year length-of-service, have acquired a regular status. As to the second, we are not convinced that California has shown enough evidence, other than its bare say so, that it had in fact suffered serious business reverses as a result alone of the prevailing political and economic climate. We further find the attribution to the February Revolution as a cause for its alleged losses to be gratuitous and without basis in fact. California should be warned that retrenchment of workers, unless clearly warranted, has serious consequences not only on the State's initiatives to maintain a stable employment record for the country, but more so, on the workingman himself, amid an environment that is desperately scarce in jobs. And, the National Labor Relations Commission should have known better than to fall for such unwarranted excuses and nebulous claims. WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING ASIDE the decision, dated March 20, 1987, and the resolution, dated August 19, 1987; (2) ORDERING the respondent, the California Manufacturing Company, to REINSTATE the petitioners with full status and rights of regular employees; and (3) ORDERING the respondent, the California Manufacturing Company, and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to PAY, jointly and severally, unto the petitioners: (a) backwages and differential pays effective as and from the time they had acquired a regular status under the second paragraph, of Section 281, of the Labor Code, but not to exceed three (3) years, and (b) all such other and further benefits as may be provided by existing collective bargaining agreement(s) or other relations, or by law, beginning such time; and (4) ORDERING the private respondents to PAY unto the petitioners attorney's fees equivalent to ten (10%) percent of all money claims hereby awarded, in addition to those money claims. The private respondents are likewise ORDERED to PAY the costs of this suit. G.R. No. 84484 November 15, 1989 INSULAR LIFE ASSURANCE CO., LTD vs. NLRC and MELECIO BASIAO NARVASA, J.:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio T. Basiao entered into a contract 1 by which: 1. Basiao was "authorized to solicit within the Philippines applications for insurance policies and annuities in accordance with the existing rules and regulations" of the Company; 2. he would receive "compensation, in the form of commissions ... as provided in the Schedule of Commissions" of the contract to "constitute a part of the consideration of ... (said) agreement;" and 3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all its circulars ... and those which may from time to time be promulgated by it, ..." were made part of said contract. The contract also contained, among others, provisions governing the relations of the parties, the duties of the Agent, the acts prohibited to him, and the modes of termination of the agreement, viz.: RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to time, place and means of soliciting insurance. Nothing herein contained shall therefore be construed to create the relationship of employee and employer between the Agent and the Company. However, the Agent shall observe and conform to all rules and regulations which the Company may from time to time prescribe. ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or indirectly, rebates in any form, or from making any misrepresentation or over-selling, and, in general, from doing or committing acts prohibited in the Agent's Manual and in circulars of the Office of the Insurance Commissioner. TERMINATION. The Company may terminate the contract at will, without any previous notice to the Agent, for or on account of ... (explicitly specified causes). ... Either party may terminate this contract by giving to the other notice in writing to that effect. It shall become ipso facto cancelled if the Insurance Commissioner should revoke a Certificate of Authority previously issued or should the Agent fail to renew his existing Certificate of Authority upon its expiration. The Agent shall not have any right to any commission on renewal of premiums that may be paid after the termination of this agreement for any cause whatsoever, except when the termination is due to disability or death in line of service. As to commission corresponding to any balance of the first year's premiums remaining unpaid at the termination of this agreement, the Agent shall be entitled to it if the balance of the first year premium is paid, less actual cost of collection, unless the termination is due to a violation of this contract, involving criminal liability or breach of trust. ASSIGNMENT. No Assignment of the Agency herein created or of commissions or other compensations shall be valid without the prior consent in writing of the Company. ... Some four years later, in April 1972, the parties entered into another contract an Agency Manager's Contract and to implement his end of it Basiao organized an agency or office to which he gave the name M. Basiao and Associates, while concurrently fulfilling his commitments under the first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted the latter to terminate also his engagement under the first contract and to stop payment of his commissions starting April 1, 1980. 3 Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its president. Without contesting the termination of the first contract, the complaint sought to recover commissions allegedly unpaid thereunder, plus attorney's fees. The respondents disputed the Ministry's jurisdiction over Basiao's claim, asserting that he was not the Company's employee, but an independent contractor and that the Company had no obligation to him for unpaid commissions under the terms and conditions of his contract. 5 The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting agreement had established an employer-employee relationship between him and the Company, and this conferred jurisdiction on the Ministry of Labor to adjudicate his claim. Said official's decision directed payment of his unpaid commissions "... equivalent to the balance of the first year's premium remaining unpaid, at the time of his termination, of all the insurance policies solicited by ... (him) in favor of the respondent company ..." plus 10% attorney's fees. 6 This decision was, on appeal by the Company, affirmed by the National Labor Relations Commission. 7 Hence, the present petition for certiorari and prohibition. The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company's employee by virtue of the contract invoked by him, thereby placing his claim for unpaid commissions within the original and exclusive jurisdiction of the Labor Arbiter under the provisions of Section 217 of the Labor Code, 8 or, contrarily, as the Company would have it, that under said contract Basiao's status was that of an independent contractor whose claim was thus cognizable, not by the Labor Arbiter in a labor case, but by the regular courts in an ordinary civil action. The Company's thesis, that no employer-employee relation in the legal and generally accepted sense existed between it and Basiao, is drawn from the terms of the contract they had entered into, which, either expressly or by necessary implication, made Basiao the master of his own time and selling methods, left to his judgment the time, place and means of soliciting insurance, set no accomplishment quotas and compensated him on the basis of results obtained. He was not bound to observe any schedule of working hours or report to any regular station; he could seek and work on his prospects anywhere and at anytime he chose to, and was free to adopt the selling methods he deemed most effective. Without denying that the above were indeed the expressed implicit conditions of Basiao's contract with the Company, the respondents contend that they do not constitute the decisive determinant of the nature of his engagement, invoking precedents to the effect that the critical feature distinguishing the status of an employee from that of an independent contractor is control, that is, whether or not the party who engages the services of another has the power to control the latter's conduct in rendering such services. Pursuing the argument, the respondents draw attention to the provisions of Basiao's contract obliging him to "... observe and conform to all rules and regulations which the Company may from time to time prescribe ...," as well as to the fact that the Company prescribed the qualifications of applicants for insurance, processed their applications and determined the amounts of insurance cover to be issued as indicative of the control, which made Basiao, in legal contemplation, an employee of the Company. 9

It is true that the "control test" expressed in the following pronouncement of the Court in the 1956 case of Viana vs. Alejo Al-Lagadan 10 ... In determining the existence of employeremployee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employees' conduct although the latter is the most important element (35 Am. Jur. 445). ... has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a valid test of the character of a contract or agreement to render service. It should, however, be obvious that not every form of control that the hiring party reserves to himself over the conduct of the party hired in relation to the services rendered may be accorded the effect of establishing an employer-employee relationship between them in the legal or technical sense of the term. A line must be drawn somewhere, if the recognized distinction between an employee and an individual contractor is not to vanish altogether. Realistically, it would be a rare contract of service that gives untrammelled freedom to the party hired and eschews any intervention whatsoever in his performance of the engagement. Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means used to achieve it. The distinction acquires particular relevance in the case of an enterprise affected with public interest, as is the business of insurance, and is on that account subject to regulation by the State with respect, not only to the relations between insurer and insured but also to the internal affairs of the insurance company. 12 Rules and regulations governing the conduct of the business are provided for in the Insurance Code and enforced by the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of rules to guide its commission agents in selling its policies that they may not run afoul of the law and what it requires or prohibits. Of such a character are the rules which prescribe the qualifications of persons who may be insured, subject insurance applications to processing and approval by the Company, and also reserve to the Company the determination of the premiums to be paid and the schedules of payment. None of these really invades the agent's contractual prerogative to adopt his own selling methods or to sell insurance at his own time and convenience, hence cannot justifiably be said to establish an employer-employee relationship between him and the company. There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent contractors, instead of employees of the parties for whom they worked. In Mafinco Trading Corporation vs. Ople,13 the Court ruled that a person engaged to sell soft drinks for another, using a truck supplied by the latter, but with the right to employ his own workers, sell according to his own methods subject only to prearranged routes, observing no working hours fixed by the other party and obliged to secure his own licenses and defray his own selling expenses, all in consideration of a peddler's discount given by the other party for at least 250 cases of soft drinks sold daily, was not an employee but an independent contractor. In Investment Planning Corporation of the Philippines us. Social Security System 14 a case almost on all fours with the present one, this Court held that there was no employeremployee relationship between a commission agent and an investment company, but that the former was an independent contractor where said agent and others

similarly placed were: (a) paid compensation in the form of commissions based on percentages of their sales, any balance of commissions earned being payable to their legal representatives in the event of death or registration; (b) required to put up performance bonds; (c) subject to a set of rules and regulations governing the performance of their duties under the agreement with the company and termination of their services for certain causes; (d) not required to report for work at any time, nor to devote their time exclusively to working for the company nor to submit a record of their activities, and who, finally, shouldered their own selling and transportation expenses. More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to buy and sell rice and palay without compensation except a certain percentage of what he was able to buy or sell, did work at his own pleasure without any supervision or control on the part of his principal and relied on his own resources in the performance of his work, was a plain commission agent, an independent contractor and not an employee. The respondents limit themselves to pointing out that Basiao's contract with the Company bound him to observe and conform to such rules and regulations as the latter might from time to time prescribe. No showing has been made that any such rules or regulations were in fact promulgated, much less that any rules existed or were issued which effectively controlled or restricted his choice of methods or the methods themselves of selling insurance. Absent such showing, the Court will not speculate that any exceptions or qualifications were imposed on the express provision of the contract leaving Basiao "... free to exercise his own judgment as to the time, place and means of soliciting insurance." The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the Company for twenty-five years. Whatever this is meant to imply, the obvious reply would be that what is germane here is Basiao's status under the contract of July 2, 1968, not the length of his relationship with the Company. The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the petitioner, but a commission agent, an independent contractor whose claim for unpaid commissions should have been litigated in an ordinary civil action. The Labor Arbiter erred in taking cognizance of, and adjudicating, said claim, being without jurisdiction to do so, as did the respondent NLRC in affirming the Arbiter's decision. This conclusion renders it unnecessary and premature to consider Basiao's claim for commissions on its merits. WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and that complaint of private respondent Melecio T. Basiao in RAB Case No. VI0010-83 is dismissed. No pronouncement as to costs. G.R. No. 138051 June 10, 2004 JOSE Y. SONZA vs. ABS-CBN BROADCASTING CORPORATION. CARPIO, J.: The Case Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza ("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations Commission ("NLRC"), which affirmed the Labor Arbiters dismissal of the case for lack of jurisdiction. The Facts In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement ("Agreement") with the Mel and Jay Management and Development Corporation

("MJMDC"). ABS-CBN was represented by its corporate officers while MJMDC was represented by SONZA, as President and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer. Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZAs services exclusively to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would render to ABS-CBN, as follows: a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays; b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3 ABS-CBN agreed to pay for SONZAs services a monthly talent fee of P310,000 for the first year and P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on the 10th and 25th days of the month. On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio Lopez III, which reads: Dear Mr. Lopez, We would like to call your attention to the Agreement dated May 1994 entered into by your goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA. As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs and career. We consider these acts of the station violative of the Agreement and the station as in breach thereof. In this connection, we hereby serve notice of rescission of said Agreement at our instance effective as of date. Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under said Agreement. Thank you for your attention. Very truly yours, (Sgd.) JOSE Y. SONZA President and Gen. Manager4 On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and Employment, National Capital Region in Quezon City. SONZA complained that ABSCBN did not pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel allowance and amounts due under the Employees Stock Option Plan ("ESOP"). On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996. Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees through his account at PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with the same bank where ABS-CBN deposited SONZAs talent fees and other payments due him under the Agreement. In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and directed the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of respondent company until April 15, 1996 and that he was not paid certain claims, it is sufficient enough as to confer jurisdiction over the instant case in this Office. And as to whether or not such claim would entitle complainant to recover upon the causes of action asserted is a matter to be resolved only after and as a result of a hearing. Thus, the respondents plea of lack of employeremployee relationship may be pleaded only as a matter of defense. It behooves upon it the duty to prove that there really is no employer-employee relationship between it and the complainant. The Labor Arbiter then considered the case submitted for resolution. The parties submitted their position papers on 24 February 1997. On 11 March 1997, SONZA filed a Reply to Respondents Position Paper with Motion to Expunge Respondents Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBNs witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the prevailing practice in the television and broadcast industry is to treat talents like SONZA as independent contractors. The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of jurisdiction.6 The pertinent parts of the decision read as follows: xxx While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of the contract of a talent," it stands to reason that a "talent" as above-described cannot be considered as an employee by reason of the peculiar circumstances surrounding the engagement of his services. It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee, he was free to perform the services he undertook to render in accordance with his own style. The benefits conferred to complainant under the May 1994 Agreement are certainly very much higher than those generally given to employees. For one, complainant Sonzas monthly talent fees amount to a staggering P317,000. Moreover, his engagement as a talent was covered by a specific contract. Likewise, he was not bound to render eight (8) hours of work per day as he worked only for such number of hours as may be necessary. The fact that per the May 1994 Agreement complainant was accorded some benefits normally given to an employee is inconsequential. Whatever benefits complainant enjoyed arose from specific agreement by the parties and not by reason of employer-employee relationship. As correctly put by the respondent, "All these benefits are merely talent fees and other contractual benefits and should not be deemed as salaries, wages and/or other remuneration accorded to an employee, notwithstanding the nomenclature appended to these benefits. Apropos to this is the rule that the term or nomenclature given to a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring such benefit." The fact that complainant was made subject to respondents Rules and Regulations, likewise, does not detract from the absence

of employer-employee relationship. As held by the Supreme Court, "The line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means to achieve it." (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989). x x x (Emphasis supplied)7 SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the Labor Arbiters decision. SONZA filed a motion for reconsideration, which the NLRC denied in its Resolution dated 3 July 1998. On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals rendered a Decision dismissing the case.8 Hence, this petition. The Rulings of the NLRC and Court of Appeals The Court of Appeals affirmed the NLRCs finding that no employer-employee relationship existed between SONZA and ABS-CBN. Adopting the NLRCs decision, the appellate court quoted the following findings of the NLRC: x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract merely as an agent of complainant Sonza, the principal. By all indication and as the law puts it, the act of the agent is the act of the principal itself. This fact is made particularly true in this case, as admittedly MJMDC is a management company devoted exclusively to managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco. (Opposition to Motion to Dismiss) Clearly, the relations of principal and agent only accrues between complainant Sonza and MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the May 1994 Agreement which specifically referred to MJMDC as the AGENT. As a matter of fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the same in his capacity as President. Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza. We find it erroneous to assert that MJMDC is a mere labor-only contractor of ABS-CBN such that there exist[s] employer-employee relationship between the latter and Mr. Sonza. On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of the talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994 Agreement. It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to the regular courts, the same being in the nature of an action for alleged breach of contractual obligation

on the part of respondent-appellee. As squarely apparent from complainant-appellants Position Paper, his claims for compensation for services, 13th month pay, signing bonus and travel allowance against respondent-appellee are not based on the Labor Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of complainant-appellant bears perusal: Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually bound itself to pay complainant a signing bonus consisting of shares of stockswith FIVE HUNDRED THOUSAND PESOS (P500,000.00). Similarly, complainant is also entitled to be paid 13th month pay based on an amount not lower than the amount he was receiving prior to effectivity of (the) Agreement. Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos (P150,000.00) per year. Thus, it is precisely because of complainantappellants own recognition of the fact that his contractual relations with ABS-CBN are founded on the New Civil Code, rather than the Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served upon the latter a notice of rescission of Agreement with the station, per his letter dated April 1, 1996, which asserted that instead of referring to unpaid employee benefits, he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but reserves the right to such recovery of the other benefits under said Agreement. (Annex 3 of the respondent ABS-CBNs Motion to Dismiss dated July 10, 1996). Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his complaint. Complainant-appellants claims being anchored on the alleged breach of contract on the part of respondent-appellee, the same can be resolved by reference to civil law and not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238 SCRA 267, 21 November 1994, an action for breach of contractual obligation is intrinsically a civil dispute.9 (Emphasis supplied) The Court of Appeals ruled that the existence of an employer-employee relationship between SONZA and ABSCBN is a factual question that is within the jurisdiction of the NLRC to resolve.10 A special civil action for certiorari extends only to issues of want or excess of jurisdiction of the NLRC.11 Such action cannot cover an inquiry into the correctness of the evaluation of the evidence which served as basis of the NLRCs conclusion.12 The Court of Appeals added that it could not re-examine the parties evidence and substitute the factual findings of the NLRC with its own.13 The Issue In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.14 The Courts Ruling We affirm the assailed decision. No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming the NLRC ruling which upheld the Labor Arbiters dismissal of the case for lack of jurisdiction. The present controversy is one of first impression. Although Philippine labor laws and jurisprudence define clearly the elements of an employer-employee relationship, this is the first time that the Court will resolve the nature of the relationship between a television and radio station and one of its "talents." There is no case law stating that a radio and television program host is an employee of the broadcast station. The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known television and radio personality, and ABS-CBN, one of the biggest television and radio networks in the country. SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because SONZA was an independent contractor. Employee or Independent Contractor? The existence of an employer-employee relationship is a question of fact. Appellate courts accord the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when supported by substantial evidence.15 Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.16 A party cannot prove the absence of substantial evidence by simply pointing out that there is contrary evidence on record, direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in determining where the weight of evidence lies or what evidence is credible.17 SONZA maintains that all essential elements of an employer-employee relationship are present in this case. Case law has consistently held that the elements of an employer-employee relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employee on the means and methods by which the work is accomplished.18 The last element, the so-called "control test", is the most important element.19 A. Selection and Engagement of Employee ABS-CBN engaged SONZAs services to co-host its television and radio programs because of SONZAs peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by respondent in specifically selecting and hiring complainant over other broadcasters of possibly similar experience and qualification as complainant belies respondents claim of independent contractorship." Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of his unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess such unique skills, talent and

celebrity status, ABS-CBN would not have entered into the Agreement with SONZA but would have hired him through its personnel department just like any other employee. In any event, the method of selecting and engaging SONZA does not conclusively determine his status. We must consider all the circumstances of the relationship, with the control test being the most important element. B. Payment of Wages ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC. SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN. SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have enjoyed if he were truly the subject of a valid job contract." All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement. If SONZA were ABS-CBNs employee, there would be no need for the parties to stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay"20 which the law automatically incorporates into every employer-employee contract.21 Whatever benefits SONZA enjoyed arose from contract and not because of an employer-employee relationship.22 SONZAs talent fees, amounting to P317,000 monthly in the second and third year, are so huge and out of the ordinary that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely because of SONZAs unique skills, talent and celebrity status not possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual relationship. The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA as an independent contractor. The parties expressly agreed on such mode of payment. Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over any talent fee accruing under the Agreement. C. Power of Dismissal For violation of any provision of the Agreement, either party may terminate their relationship. SONZA failed to show that ABS-CBN could terminate his services on grounds other than breach of contract, such as retrenchment to prevent losses as provided under labor laws.23 During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent fees as long as "AGENT and Jay Sonza shall faithfully and completely perform each condition of this Agreement."24 Even if it suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained obligated to pay SONZAs talent fees during the life of the Agreement. This circumstance indicates an independent contractual relationship between SONZA and ABS-CBN. SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying SONZAs talent fees during the remaining life of the Agreement even if ABS-CBN cancelled SONZAs programs through no fault of SONZA.25 SONZA assails the Labor Arbiters interpretation of his rescission of the Agreement as an admission that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true that complainant was really an employee, he would merely resign, instead." SONZA did actually resign

from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZAs letter clearly bears this out.26 However, the manner by which SONZA terminated his relationship with ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not determine his status as employee or independent contractor. D. Power of Control Since there is no local precedent on whether a radio and television program host is an employee or an independent contractor, we refer to foreign case law in analyzing the present case. The United States Court of Appeals, First Circuit, recently held in Alberty-Vlez v. Corporacin De Puerto Rico Para La Difusin Pblica ("WIPR")27 that a television program host is an independent contractor. We quote the following findings of the U.S. court: Several factors favor classifying Alberty as an independent contractor. First, a television actress is a skilled position requiring talent and training not available on-the-job. x x x In this regard, Alberty possesses a masters degree in public communications and journalism; is trained in dance, singing, and modeling; taught with the drama department at the University of Puerto Rico; and acted in several theater and television productions prior to her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and instrumentalities" necessary for her to perform. Specifically, she provided, or obtained sponsors to provide, the costumes, jewelry, and other image-related supplies and services necessary for her appearance. Alberty disputes that this factor favors independent contractor status because WIPR provided the "equipment necessary to tape the show." Albertys argument is misplaced. The equipment necessary for Alberty to conduct her job as host of "Desde Mi Pueblo" related to her appearance on the show. Others provided equipment for filming and producing the show, but these were not the primary tools that Alberty used to perform her particular function. If we accepted this argument, independent contractors could never work on collaborative projects because other individuals often provide the equipment required for different aspects of the collaboration. x x x Third, WIPR could not assign Alberty work in addition to filming "Desde Mi Pueblo." Albertys contracts with WIPR specifically provided that WIPR hired her "professional services as Hostess for the Program Desde Mi Pueblo." There is no evidence that WIPR assigned Alberty tasks in addition to work related to these tapings. x x x28 (Emphasis supplied) Applying the control test to the present case, we find that SONZA is not an employee but an independent contractor. The control test is the most important test our courts apply in distinguishing an employee from an independent contractor.29 This test is based on the extent of control the hirer exercises over a worker. The greater the supervision and control the hirer exercises, the more likely the worker is deemed an employee. The converse holds true as well the less control the hirer exercises, the more likely the worker is considered an independent contractor.30 First, SONZA contends that ABS-CBN exercised control over the means and methods of his work. SONZAs argument is misplaced. ABS-CBN engaged SONZAs services specifically to co-host the "Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television, and sounded on radio were outside ABS-CBNs control. SONZA did not have to render eight hours of work

per day. The Agreement required SONZA to attend only rehearsals and tapings of the shows, as well as pre- and post-production staff meetings.31 ABS-CBN could not dictate the contents of SONZAs script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-CBN or its interests.32 The clear implication is that SONZA had a free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its interests. We find that ABS-CBN was not involved in the actual performance that produced the finished product of SONZAs work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN merely reserved the right to modify the program format and airtime schedule "for more effective programming."34 ABS-CBNs sole concern was the quality of the shows and their standing in the ratings. Clearly, ABSCBN did not exercise control over the means and methods of performance of SONZAs work. SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs power over the means and methods of the performance of his work. Although ABS-CBN did have the option not to broadcast SONZAs show, ABSCBN was still obligated to pay SONZAs talent fees... Thus, even if ABS-CBN was completely dissatisfied with the means and methods of SONZAs performance of his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even discipline SONZA. All that ABS-CBN could do is not to broadcast SONZAs show but ABS-CBN must still pay his talent fees in full.35 Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by the obligation to continue paying in full SONZAs talent fees, did not amount to control over the means and methods of the performance of SONZAs work. ABS-CBN could not terminate or discipline SONZA even if the means and methods of performance of his work - how he delivered his lines and appeared on television - did not meet ABS-CBNs approval. This proves that ABS-CBNs control was limited only to the result of SONZAs work, whether to broadcast the final product or not. In either case, ABS-CBN must still pay SONZAs talent fees in full until the expiry of the Agreement. In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that vaudeville performers were independent contractors although the management reserved the right to delete objectionable features in their shows. Since the management did not have control over the manner of performance of the skills of the artists, it could only control the result of the work by deleting objectionable features.37 SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the "Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools and instrumentalities" SONZA needed to perform his job. What SONZA principally needed were his talent or skills and the costumes necessary for his appearance.38Even though ABSCBN provided SONZA with the place of work and the necessary equipment, SONZA was still an independent contractor since ABS-CBN did not supervise and control his work. ABS-CBNs sole concern was for SONZA to display his talent during the airing of the programs.39 A radio broadcast specialist who works under minimal supervision is an independent contractor.40 SONZAs work as television and radio program host required special skills and talent, which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any supervision and control over how SONZA utilized his skills and talent in his shows. Second, SONZA urges us to rule that he was ABS-CBNs employee because ABS-CBN subjected him to its rules and standards of performance. SONZA claims that this indicates ABS-CBNs control "not only [over] his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance "covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed on SONZA under the Agreement refers to the "Television and Radio Code of the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television stations. Broadcasters are not necessarily employees of radio and television stations. Clearly, the rules and standards of performance referred to in the Agreement are those applicable to talents and not to employees of ABS-CBN. In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an employee of the former.43 In this case, SONZA failed to show that these rules controlled his performance. We find that these general rules are merely guidelines towards the achievement of the mutually desired result, which are top-rating television and radio programs that comply with standards of the industry. We have ruled that: Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to the services being rendered may be accorded the effect of establishing an employer-employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held that: Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means used to achieve it.44 The Vaughan case also held that one could still be an independent contractor although the hirer reserved certain supervision to insure the attainment of the desired result. The hirer, however, must not deprive the one hired from performing his services according to his own initiative.45 Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of control which ABSCBN exercised over him. This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an employee of ABS-CBN. Even an independent contractor can validly provide his services exclusively to the hiring party. In the broadcast industry, exclusivity is not necessarily the same as control. The hiring of exclusive talents is a widespread and accepted practice in the entertainment industry.46 This practice is not designed to control the means and methods of work of the talent, but simply to protect the investment of the broadcast station. The broadcast station normally spends substantial amounts of money, time and effort "in building up its talents as well as the programs they appear in and thus expects that said talents remain exclusive with the station for a commensurate period of time."47 Normally, a much higher fee is paid to talents who agree to work exclusively for a particular radio or television station. In short, the huge talent fees partially compensates for exclusivity, as in the present case. MJMDC as Agent of SONZA SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which contracted out his services to ABSCBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employee of ABS-CBN. SONZA insists that

MJMDC is a "labor-only" contractor and ABS-CBN is his employer. In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal who is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent of the principal. The law makes the principal responsible to the employees of the "labor-only contractor" as if the principal itself directly hired or employed the employees.48 These circumstances are not present in this case. There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-CBN. MJMDC merely acted as SONZAs agent. The Agreement expressly states that MJMDC acted as the "AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBNs agent. MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation organized and owned by SONZA and TIANGCO. The President and General Manager of MJMDC is SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is represented by MJMDC. That would make MJMDC the agent of both ABSCBN and SONZA. As SONZA admits, MJMDC is a management company devoted exclusively to managing the careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other business, not even job contracting. MJMDC does not have any other function apart from acting as agent of SONZA or TIANGCO to promote their careers in the broadcast and television industry.49 Policy Instruction No. 40 SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8 January 1979 finally settled the status of workers in the broadcast industry. Under this policy, the types of employees in the broadcast industry are the station and program employees. Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of law. There is no legal presumption that Policy Instruction No. 40 determines SONZAs status. A mere executive issuance cannot exclude independent contractors from the class of service providers to the broadcast industry. The classification of workers in the broadcast industry into only two groups under Policy Instruction No. 40 is not binding on this Court, especially when the classification has no basis either in law or in fact. Affidavits of ABS-CBNs Witnesses SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando Cruz without giving his counsel the opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of these witnesses as misleading and irrelevant. While SONZA failed to cross-examine ABS-CBNs witnesses, he was never prevented from denying or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a formal (trial-type) hearing after the submission of the position papers of the parties, thus: Section 3. Submission of Position Papers/Memorandum xxx

These verified position papers shall cover only those claims and causes of action raised in the complaint excluding those that may have been amicably settled, and shall be accompanied by all supporting documents including the affidavits of their respective witnesses which shall take the place of the latters direct testimony. x x x Section 4. Determination of Necessity of Hearing. Immediately after the submission of the parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and for the purpose of making such determination, ask clarificatory questions to further elicit facts or information, including but not limited to the subpoena of relevant documentary evidence, if any from any party or witness.50 The Labor Arbiter can decide a case based solely on the position papers and the supporting documents without a formal trial.51 The holding of a formal hearing or trial is something that the parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on the documents before him, he cannot be faulted for not conducting a formal trial, unless under the particular circumstances of the case, the documents alone are insufficient. The proceedings before a Labor Arbiter are nonlitigious in nature. Subject to the requirements of due process, the technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings before a Labor Arbiter. Talents as Independent Contractors ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it is void for violating the right of labor to security of tenure. The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an employer-employee relationship under labor laws. Not every performance of services for a fee creates an employer-employee relationship. To hold that every person who renders services to another for a fee is an employee - to give meaning to the security of tenure clause - will lead to absurd results. Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors. The right to life and livelihood guarantees this freedom to contract as independent contractors. The right of labor to security of tenure cannot operate to deprive an individual, possessed with special skills, expertise and talent, of his right to contract as an independent contractor. An individual like an artist or talent has a right to render his services without any one controlling the means and methods by which he performs his art or craft. This Court will not interpret the right of labor to security of tenure to compel artists and talents to render their services only as employees. If radio and television program hosts can render their services only as employees, the station owners and managers can dictate to the radio and television hosts what they say in their shows. This is not conducive to freedom of the press. Different Tax Treatment of Talents and Broadcasters The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as amended by Republic Act No. 8241,56 treats talents, television and radio broadcasters differently. Under the NIRC, these professionals are subject to the 10% value-added tax ("VAT") on services they render. Exempted from the VAT are those under an employeremployee relationship.57 This different tax treatment accorded to talents and broadcasters bolters our conclusion that they are independent contractors, provided all the

basic elements of a contractual relationship are present as in this case. Nature of SONZAs Claims SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZAs claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor Code. Clearly, the present case does not call for an application of the Labor Code provisions but an interpretation and implementation of the May 1994 Agreement. In effect, SONZAs cause of action is for breach of contract which is intrinsically a civil dispute cognizable by the regular courts.58 WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26 March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner. G.R. No. L-48645 January 7, 1987 "BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, et al. vs. HON. RONALDO B. ZAMORA, et al. GUTIERREZ, JR., J.: The elemental question in labor law of whether or not an employer-employee relationship exists between petitionersmembers of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM) and respondent San Miguel Corporation, is the main issue in this petition. The disputed decision of public respondent Ronaldo Zamora, Presidential Assistant for legal Affairs, contains a brief summary of the facts involved: 1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now defunct Court of Industrial Relations, charging San Miguel Corporation, and the following officers: Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio Eugenia Jr., Ernesto Villanueva, Antonio Bocaling and Godofredo Cueto of unfair labor practice as set forth in Section 4 (a), sub-sections (1) and (4) of Republic Act No. 875 and of Legal dismissal. It was alleged that respondents ordered the individual complainants to disaffiliate from the complainant union; and that management dismissed the individual complainants when they insisted on their union membership. On their part, respondents moved for the dismissal of the complaint on the grounds that the complainants are not and have never been employees of respondent company but employees of the independent contractor; that respondent company has never had control over the means and methods followed by the independent contractor who enjoyed full authority to hire and control said employees; and that the individual complainants are barred by estoppel from asserting that they are employees of respondent company. While pending with the Court of Industrial Relations CIR pleadings and testimonial and documentary evidences were duly presented, although the actual hearing was delayed by several postponements. The dispute was taken over by the National Labor Relations Commission (NLRC) with the decreed abolition of the CIR and the hearing of the case intransferably commenced on September 8, 1975. On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was concurred in by the NLRC in a decision dated June 28, 1976. The amount of backwages awarded, however, was

reduced by NLRC to the equivalent of one (1) year salary. On appeal, the Secretary in a decision dated June 1, 1977, set aside the NLRC ruling, stressing the absence of an employer-mployee relationship as borne out by the records of the case. ... The petitioners strongly argue that there exists an employer-employee relationship between them and the respondent company and that they were dismissed for unionism, an act constituting unfair labor practice "for which respondents must be made to answer." Unrebutted evidence and testimony on record establish that the petitioners are workers who have been employed at the San Miguel Parola Glass Factory since 1961, averaging about seven (7) years of service at the time of their termination. They worked as "cargadores" or "pahinante" at the SMC Plant loading, unloading, piling or palleting empty bottles and woosen shells to and from company trucks and warehouses. At times, they accompanied the company trucks on their delivery routes. The petitioners first reported for work to Superintendent-inCharge Camahort. They were issued gate passes signed by Camahort and were provided by the respondent company with the tools, equipment and paraphernalia used in the loading, unloading, piling and hauling operation. Job orders emanated from Camahort. The orders are then transmitted to an assistant-officer-in-charge. In turn, the assistant informs the warehousemen and checkers regarding the same. The latter, thereafter, relays said orders to the capatazes or group leaders who then give orders to the workers as to where, when and what to load, unload, pile, pallet or clean. Work in the glass factory was neither regular nor continuous, depending wholly on the volume of bottles manufactured to be loaded and unloaded, as well as the business activity of the company. Work did not necessarily mean a full eight (8) hour day for the petitioners. However, work,at times, exceeded the eight (8) hour day and necessitated work on Sundays and holidays. For this, they were neither paid overtime nor compensation for work on Sundays and holidays. Petitioners were paid every ten (10) days on a piece rate basis, that is, according to the number of cartons and wooden shells they were able to load, unload, or pile. The group leader notes down the number or volume of work that each individual worker has accomplished. This is then made the basis of a report or statement which is compared with the notes of the checker and warehousemen as to whether or not they tally. Final approval of report is by officer-incharge Camahort. The pay check is given to the group leaders for encashment, distribution, and payment to the petitioners in accordance with payrolls prepared by said leaders. From the total earnings of the group, the group leader gets a participation or share of ten (10%) percent plus an additional amount from the earnings of each individual. The petitioners worked exclusive at the SMC plant, never having been assigned to other companies or departments of SMC plant, even when the volume of work was at its minimum. When any of the glass furnaces suffered a breakdown, making a shutdown necessary, the petitioners work was temporarily suspended. Thereafter, the petitioners would return to work at the glass plant. Sometime in January, 1969, the petitioner workers numbering one hundred and forty (140) organized and affiliated themselves with the petitioner union and engaged in union activities. Believing themselves entitled to overtime and holiday pay, the petitioners pressed management, airing other grievances such as being paid below the minimum wage law, inhuman treatment, being forced to borrow at usurious rates of interest and to buy raffle tickets,

coerced by withholding their salaries, and salary deductions made without their consent. However, their gripes and grievances were not heeded by the respondents. On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of Labor Relations in connection with the dismissal of some of its members who were allegedly castigated for their union membership and warned that should they persist in continuing with their union activities they would be dismissed from their jobs. Several conciliation conferences were scheduled in order to thresh out their differences, On February 12, 1969, union member Rogelio Dipad was dismissed from work. At the scheduled conference on February 19, 1969, the complainant union through its officers headed by National President Artemio Portugal Sr., presented a letter to the respondent company containing proposals and/or labor demands together with a request for recognition and collective bargaining. San Miguel refused to bargain with the petitioner union alleging that the workers are not their employees. On February 20, 1969, all the petitioners were dismissed from their jobs and, thereafter, denied entrance to respondent company's glass factory despite their regularly reporting for work. A complaint for illegal dismissal and unfair labor practice was filed by the petitioners. The case reaches us now with the same issues to be resolved as when it had begun. The question of whether an employer-employee relationship exists in a certain situation continues to bedevil the courts. Some businessmen try to avoid the bringing about of an employer-employee relationship in their enterprises because that judicial relation spawns obligations connected with workmen's compensation, social security, medicare, minimum wage, termination pay, and unionism. (Mafinco Trading Corporation v. Ople, 70 SCRA 139). In determining the existence of an employer-employee relationship, the elements that are generally considered are the following: (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. It. is the called "control test" that is the most important element (Investment Planning Corp. of the Phils. v. The Social Security System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra,and Rosario Brothers, Inc. v. Ople, 131 SCRA 72). Applying the above criteria, the evidence strongly indicates the existence of an employer-employee relationship between petitioner workers and respondent San Miguel Corporation. The respondent asserts that the petitioners are employees of the Guaranteed Labor Contractor, an independent labor contracting firm. The facts and evidence on record negate respondent SMC's claim. The existence of an independent 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" (56 CJS Master and Servant, Sec. 3(2), 46; See also 27 AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75 ALR 7260727) None of the above criteria exists in the case at bar.

Highly unusual and suspect is the absence of a written contract to specify the performance of a specified piece of work, the nature and extent of the work and the term and duration of the relationship. The records fail to show that a large commercial outfit, such as the San Miguel Corporation, entered into mere oral agreements of employment or labor contracting where the same would involve considerable expenses and dealings with a large number of workers over a long period of time. Despite respondent company's allegations not an iota of evidence was offered to prove the same or its particulars. Such failure makes respondent SMC's stand subject to serious doubts. Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked continuously and exclusively for the respondent company's shipping and warehousing department. Considering the length of time that the petitioners have worked with the respondent company, there is justification to conclude that they were engaged to perform activities necessary or desirable in the usual business or trade of the respondent, and the petitioners are, therefore regular employees (Phil. Fishing Boat Officers and Engineers Union v. Court of Industrial Relations, 112 SCRA 159 and RJL Martinez Fishing Corporation v. National Labor Relations Commission, 127 SCRA 454). As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission (supra): ... [T]he employer-employee relationship between the parties herein is not coterminous with each loading and unloading job. As earlier shown, respondents are engaged in the business of fishing. For this purpose, they have a fleet of fishing vessels. Under this situation, respondents' activity of catching fish is a continuous process and could hardly be considered as seasonal in nature. So that the activities performed by herein complainants, i.e. unloading the catch of tuna fish from respondents' vessels and then loading the same to refrigerated vans, are necessary or desirable in the business of respondents. This circumstance makes the employment of complainants a regular one, in the sense that it does not depend on any specific project or seasonable activity. (NLRC Decision, p. 94, Rollo).lwphl@it so as it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for repairs, the petitioners, thereafter, promptly returned to their jobs, never having been replaced, or assigned elsewhere until the present controversy arose. The term of the petitioners' employment appears indefinite. The continuity and habituality of petitioners' work bolsters their claim of employee status vis-a-vis respondent company, Even under the assumption that a contract of employment had indeed been executed between respondent SMC and the alleged labor contractor, respondent's case will, nevertheless, fail. Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides: 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. We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor investment to qualify as an independent contractor under the law. The premises, tools, equipment and paraphernalia used by the petitioners in their jobs are admittedly all supplied by respondent company. It is only the manpower or labor force which the alleged contractors supply, suggesting the existence of a "labor only" contracting scheme prohibited by law (Article 106, 109 of the Labor Code; Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor Code). In fact, even the alleged contractor's office, which consists of a space at respondent company's warehouse, table, chair, typewriter and cabinet, are provided for by respondent SMC. It is therefore clear that the alleged contractors have no capital outlay involved in the conduct of its business, in the maintenance thereof or in the payment of its workers' salaries. The payment of the workers' wages is a critical factor in determining the actuality of an employer-employee relationship whether between respondent company and petitioners or between the alleged independent contractor and petitioners. It is important to emphasize that in a truly independent contractor-contractee relationship, the fees are paid directly to the manpower agency in lump sum without indicating or implying that the basis of such lump sum is the salary per worker multiplied by the number of workers assigned to the company. This is the rule inSocial Security System v. Court of Appeals (39 SCRA 629, 635). The alleged independent contractors in the case at bar were paid a lump sum representing only the salaries the workers were entitled to, arrived at by adding the salaries of each worker which depend on the volume of work they. had accomplished individually. These are based on payrolls, reports or statements prepared by the workers' group leader, warehousemen and checkers, where they note down the number of cartons, wooden shells and bottles each worker was able to load, unload, pile or pallet and see whether they tally. The amount paid by respondent company to the alleged independent contractor considers no business expenses or capital outlay of the latter. Nor is the profit or gain of the alleged contractor in the conduct of its business provided for as an amount over and above the workers' wages. Instead, the alleged contractor receives a percentage from the total earnings of all the workers plus an additional amount corresponding to a percentage of the earnings of each individual worker, which, perhaps, accounts for the petitioners' charge of unauthorized deductions from their salaries by the respondents. Anent the argument that the petitioners are not employees as they worked on piece basis, we merely have to cite our rulings in Dy Keh Beng v. International Labor and Marine Union of the Philippines (90 SCRA 161), as follows: "[C]ircumstances must be construed to determine indeed if payment by the piece is just a method of compensation and does not define the essence of the relation. Units of time . . . and units of work are in establishments like respondent (sic) just yardsticks whereby to determine rate of compensation, to be applied whenever agreed upon. We cannot construe payment by the piece where work is done in such an establishment so as to put the worker completely at liberty to turn him out and take in another at pleasure." Article 106 of the Labor Code provides the legal effect of a labor only contracting scheme, to wit: ... 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. Firmly establishing respondent SMC's role as employer is the control exercised by it over the petitioners that is, control in the means and methods/manner by which petitioners are to go about their work, as well as in disciplinary measures imposed by it. Because of the nature of the petitioners' work as cargadores or pahinantes, supervision as to the means and manner of performing the same is practically nil. For, how many ways are there to load and unload bottles and wooden shells? The mere concern of both respondent SMC and the alleged contractor is that the job of having the bottles and wooden shells brought to and from the warehouse be done. More evident and pronounced is respondent company's right to control in the discipline of petitioners. Documentary evidence presented by the petitioners establish respondent SMC's right to impose disciplinary measures for violations or infractions of its rules and regulations as well as its right to recommend transfers and dismissals of the piece workers. The inter-office memoranda submitted in evidence prove the company's control over the petitioners. That respondent SMC has the power to recommend penalties or dismissal of the piece workers, even as to Abner Bungay who is alleged by SMC to be a representative of the alleged labor contractor, is the strongest indication of respondent company's right of control over the petitioners as direct employer. There is no evidence to show that the alleged labor contractor had such right of control or much less had been there to supervise or deal with the petitioners. The petitioners were dismissed allegedly because of the shutdown of the glass manufacturing plant. Respondent company would have us believe that this was a case of retrenchment due to the closure or cessation of operations of the establishment or undertaking. But such is not the case here. The respondent's shutdown was merely temporary, one of its furnaces needing repair. Operations continued after such repairs, but the petitioners had already been refused entry to the premises and dismissed from respondent's service. New workers manned their positions. It is apparent that the closure of respondent's warehouse was merely a ploy to get rid of the petitioners, who were then agitating the respondent company for benefits, reforms and collective bargaining as a union. There is no showing that petitioners had been remiss in their obligations and inefficient in their jobs to warrant their separation. As to the charge of unfair labor practice because of SMC's refusal to bargain with the petitioners, it is clear that the respondent company had an existing collective bargaining agreement with the IBM union which is the recognized collective bargaining representative at the respondent's glass plant. There being a recognized bargaining representative of all employees at the company's glass plant, the petitioners cannot merely form a union and demand bargaining. The Labor Code provides the proper procedure for the recognition of unions as sole bargaining representatives. This must be followed. WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel Corporation is hereby ordered to REINSTATE petitioners, with three (3) years backwages. However, where reinstatement is no longer possible, the respondent SMC is ordered to pay the petitioners separation pay equivalent to one (1) month pay for every year of service. G.R. No. 80774 May 31, 1988 SAN MIGUEL CORPORATION vs. NLRC and RUSTICO VEGA FELICIANO, J.: In line with an Innovation Program sponsored by petitioner San Miguel Corporation ("Corporation;" "SMC") and under

which management undertook to grant cash awards to "all SMC employees ... except [ED-HO staff, Division Managers and higher-ranked personnel" who submit to the Corporation Ideas and suggestions found to be beneficial to the Corporation, private respondent Rustico Vega submitted on 23 September 1980 an innovation proposal. Mr. Vega's proposal was entitled "Modified Grande Pasteurization Process," and was supposed to eliminate certain alleged defects in the quality and taste of the product "San Miguel Beer Grande:" Title of Proposal Modified Grande Pasteurization Process Present Condition or Procedure At the early stage of beer grande production, several cases of beer grande full goods were received by MB as returned beer fulls (RBF). The RBF's were found to have sediments and their contents were hazy. These effects are usually caused by underpasteurization time and the pasteurzation units for beer grande were almost similar to those of the steinie. Proposed lnnovation (Attach necessary information) In order to minimize if not elienate underpasteurization of beer grande, reduce the speed of the beer grande pasteurizer thereby, increasing the pasteurization time and the pasteurization acts for grande beer. In this way, the self-life (sic) of beer grande will also be increased. 1 Mr. Vega at that time had been in the employ of petitioner Corporation for thirteen (1 3) years and was then holding the position of "mechanic in the Bottling Department of the SMC Plant Brewery situated in Tipolo, Mandaue City. Petitioner Corporation, however, did not find the aforequoted proposal acceptable and consequently refused Mr. Vega's subsequent demands for a cash award under the Innovation Program. On 22 February 1983., a Complaint2 (docketed as Case No. RAB-VII-0170-83) was filed against petitioner Corporation with Regional Arbitration Branch No. VII (Cebu City) of the then.", Ministry of Labor and Employment. Frivate respondent Vega alleged there that his proposal "[had] been accepted by the methods analyst and implemented by the Corporation [in] October 1980," and that the same "ultimately and finally solved the problem of the Corporation in the production of Beer Grande." Private respondent thus claimed entitlement to a cash prize of P60,000.00 (the maximum award per proposal offered under the Innovation Program) and attorney's fees. In an Answer With Counterclaim and Position Paper, 3 petitioner Corporation alleged that private respondent had no cause of action. It denied ever having approved or adopted Mr. Vega's proposal as part of the Corporation's brewing procedure in the production of San Miguel Beer Grande. Among other things, petitioner stated that Mr. Vega's proposal was tumed down by the company "for lack of originality" and that the same, "even if implemented [could not] achieve the desired result." Petitioner further alleged that the Labor Arbiter had no jurisdiction, Mr. Vega having improperly bypassed the grievance machinery procedure prescribed under a then existing collective bargaining agreement between management and employees, and available administrative remedies provided under the rules of the Innovation Program. A counterclaim for moral and exemplary damages, attorney's fees, and litigation expenses closed out petitioner's pleading. In an Order 4 dated 30 April 1986, the Labor Arbiter, noting that the money claim of complainant Vega in this case is "not a necessary incident of his employment" and that said

claim is not among those mentioned in Article 217 of the Labor Code, dismissed the complaint for lack of jurisdiction. However, in a gesture of "compassion and to show the government's concern for the workingman," the Labor Arbiter also directed petitioner to pay Mr. Vega the sum of P2,000.00 as "financial assistance." The Labor Arbiter's order was subsequently appealed by both parties, private respondent Vega assailing the dismissal of his complaint for lack of jurisdiction and petitioner Corporation questioning the propriety of the award of "financial assistance" to Mr. Vega. Acting on the appeals, the public respondent National Labor Relations Commission, on 4 September 1987, rendered a Decision, 5 the dispositive portion of which reads: WHEREFORE, the appealed Order is hereby set aside and another udgment entered, order the respondent to pay the complainant the amount of P60,000.00 as explained above. SO ORDERED. In the present Petition for certiorari filed on 4 December 1987, petitioner Corporation, invoking Article 217 of the Labor Code, seeks to annul the Decision of public respondent Commission in Case No. RAB-VII-01 70-83 upon the ground that the Labor Arbiter and the Commission have no jurisdiction over the subject matter of the case. The jurisdiction of Labor Arbiters and the National Labor Relations Commission is outlined in Article 217 of the Labor Code, as last amended by Batas Pambansa Blg. 227 which took effect on 1 June 1982: ART. 217. Jurisdiction of Labor Arbiters and the commission. (a) The Labor Arbiters shall have theoriginal and exclusive jurisdiction to hear and decide within thirty (30) working days after submission of the case by the parties for decision, the following cases involving are workers, whether agricultural or non-agricultural: 1. Unfair labor practice cases; 2. Those that workers may file involving wages, hours of work and other terms and conditions of employment; 3. All money claims of workers, including those based on non-payment or underpayment of wages, overtime compensation, separation pay and other benefits provided by law or appropriate agreement, except claims for employees' compensation, social security, medicare and maternity benefits; 4. Cases involving household services; and 5. Cases arising from any violation of Article 265 of this; Code, including questions involving the legality of strikes and lockouts. (b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. (Emphasis supplied) While paragraph 3 above refers to "all money claims of workers," it is not necessary to suppose that the entire universe of money claims that might be asserted by workers against their employers has been absorbed into the original and exclusive jurisdiction of Labor Arbiters. In the first place, paragraph 3 should be read not in isolation from but rather within the context formed by paragraph 1 related to unfair labor practices), paragraph 2 (relating to claims concerning terms and conditions of employment), paragraph 4 (claims relating to household services, a particular species of employer-employee relations), and paragraph 5 (relating to certain activities prohibited to

employees or to employers).<re||an1w> It is evident that there is a unifying element which runs through paragraphs 1 to 5 and that is, that they all refer to cases or disputes arising out of or in connection with an employeremployee relationship. This is, in other words, a situation where the rule of noscitur a sociis may be usefully invoked in clarifying the scope of paragraph 3, and any other paragraph of Article 217 of the Labor Code, as amended. We reach the above conclusion from an examination of the terms themselves of Article 217, as last amended by B.P. Blg. 227, and even though earlier versions of Article 217 of the Labor Code expressly brought within the jurisdiction of the Labor Arbiters and the NLRC "cases arising from employer employee relations," 6 which clause was not expressly carried over, in printer's ink, in Article 217 as it exists today. For it cannot be presumed that money claims of workers which do not arise out of or in connection with their employer-employee relationship, and which would therefore fall within the general jurisdiction of the regular courts of justice, were intended by the legislative authority to be taken away from the jurisdiction of the courts and lodged with Labor Arbiters on an exclusive basis. The Court, therefore, believes and so holds that the money claims of workers" referred to in paragraph 3 of Article 217 embraces money claims which arise out of or in connection with the employer-employee relationship, or some aspect or incident of such relationship. Put a little differently, that money claims of workers which now fall within the original and exclusive jurisdiction of Labor Arbiters are those money claims which have some reasonable causal connection with the employer-employee relationship. Applying the foregoing reading to the present case, we note that petitioner's Innovation Program is an employee incentive scheme offered and open only to employees of petitioner Corporation, more specifically to employees below the rank of manager. Without the existing employeremployee relationship between the parties here, there would have been no occasion to consider the petitioner's Innovation Program or the submission by Mr. Vega of his proposal concerning beer grande; without that relationship, private respondent Vega's suit against petitioner Corporation would never have arisen. The money claim of private respondent Vega in this case, therefore, arose out of or in connection with his employment relationship with petitioner. The next issue that must logically be confronted is whether the fact that the money claim of private respondent Vega arose out of or in connection with his employment relation" with petitioner Corporation, is enough to bring such money claim within the original and exclusive jurisdiction of Labor Arbiters. In Molave Motor Sales, Inc. v. Laron, 7 the petitioner was a corporation engaged in the sale and repair of motor vehicles, while private respondent was the sales Manager of petitioner. Petitioner had sued private respondent for nonpayment of accounts which had arisen from private respondent's own purchases of vehicles and parts, repair jobs on cars personally owned by him, and cash advances from the corporation. At the pre-trial in the lower court, private respondent raised the question of lack of jurisdiction of the court, stating that because petitioner's complaint arose out of the employer-employee relationship, it fell outside the jurisdiction of the court and consequently should be dismissed. Respondent Judge did dismiss the case, holding that the sum of money and damages sued for by the employer arose from the employer-employee relationship and, hence, fell within the jurisdiction of the Labor Arbiter and the NLRC. In reversing the order of dismissal and requiring respondent Judge to take cognizance of the case below, this Court, speaking through Mme. Justice Melencio-Herrera, said: Before the enactment of BP Blg. 227 on June 1, 1982, Labor Arbiters, under paragraph 5 of Article 217 of the Labor Code had jurisdiction over" all other cases arising from employer-employee relation, unless, expressly excluded by this Code." Even then, the principle followed by this

Court was that, although a controversy is between an employer and an employee, the Labor Arbiters have no jurisdiction if the Labor Code is not involved. In Medina vs. Castro-Bartolome, 11 SCRA 597, 604, in negating jurisdiction of the Labor Arbiter, although the parties were an employer and two employees, Mr. Justice Abad Santos stated: The pivotal question to Our mind is whether or not the Labor Code has any relevance to the reliefs sought by the plaintiffs. For if the Labor Code has no relevance, any discussion concerning the statutes amending it and whether or not they have retroactive effect is unnecessary. It is obvious from the complaint that the plaintiffs have not alleged any unfair labor practice. Theirs is a simple action for damages for tortious acts allegedly committed by the defendants. Such being the case, the governing statute is the Civil Code and not the Labor Code. It results that the orders under review are based on a wrong premise. And in Singapore Airlines Limited v. Pao, 122 SCRA 671, 677, the following was said: Stated differently, petitioner seeks protection under the civil laws and claims no benefits under the Labor Code. The primary relief sought is for liquidated damages for breach of a contractual obligation. The other items demanded are not labor benefits demanded by workers generally taken cognizance of in labor disputes, such as payment of wages, overtime compensation or separation pay. The items claimed are the natural consequences flowing from breach of an obligation, intrinsically a civil dispute. In the case below, PLAINTIFF had sued for monies loaned to DEFENDANT, the cost of repair jobs made on his personal cars, and for the purchase price of vehicles and parts sold to him. Those accounts have no relevance to the Labor Code. The cause of action was one under the civil laws, and it does not breach any provision of the Labor Code or the contract of employment of DEFENDANT. Hence the civil courts, not the Labor Arbiters and the NLRC should have jurisdiction. 8 It seems worth noting that Medina v. Castro-Bartolome, referred to in the above excerpt, involved a claim for damages by two (2) employees against the employer company and the General Manager thereof, arising from the use of slanderous language on the occasion when the General Manager fired the two (2) employees (the Plant General Manager and the Plant Comptroller). The Court treated the claim for damages as "a simple action for damages for tortious acts" allegedly committed by private respondents, clearly if impliedly suggesting that the claim for damages did not necessarily arise out of or in connection with the employer-employee relationship.Singapore Airlines Limited v. Pao, also cited in Molave, involved a claim for liquidated damages not by a worker but by the employer company, unlike Medina. The important principle that runs through these three (3) cases is that where the claim to the principal relief sought 9 is to be resolved not by reference to the Labor Code or other labor relations statute or a collective bargaining agreement but by the general civil law, the jurisdiction over the dispute belongs to the regular courts of justice and not to the Labor Arbiter and the NLRC. In such situations, resolution of the dispute requires expertise, not in labor management relations nor in wage structures and other terms and conditions of employment, but rather in the application of the general civil law. Clearly, such claims fall outside the area of competence or expertise ordinarily ascribed to Labor Arbiters and the NLRC and the rationale for granting jurisdiction over such claims to these agencies disappears.

Applying the foregoing to the instant case, the Court notes that the SMC Innovation Program was essentially an invitation from petitioner Corporation to its employees to submit innovation proposals, and that petitioner Corporation undertook to grant cash awards to employees who accept such invitation and whose innovation suggestions, in the judgment of the Corporation's officials, satisfied the standards and requirements of the Innovation Program 10 and which, therefore, could be translated into some substantial benefit to the Corporation. Such undertaking, though unilateral in origin, could nonetheless ripen into an enforceable contractual (facio ut des) 11 obligation on the part of petitioner Corporation under certain circumstances. Thus, whether or not an enforceable contract, albeit implied arid innominate, had arisen between petitioner Corporation and private respondent Vega in the circumstances of this case, and if so, whether or not it had been breached, are preeminently legal questions, questions not to be resolved by referring to labor legislation and having nothing to do with wages or other terms and conditions of employment, but rather having recourse to our law on contracts. WEREFORE, the Petition for certiorari is GRANTED. The decision dated 4 September 1987 of public respondent National Labor Relations Commission is SET ASIDE and the complaint in Case No. RAB-VII-0170-83 is hereby DISMISSED, without prejudice to the right of private respondent Vega to file a suit before the proper court, if he so desires. No pronouncement as to costs. G.R. No. 89621 September 24, 1991 PEPSI COLA DISTRIBUTORS OF THE PHILIPPINES, INC. vs. HON. LOLITA O. GAL-LANG, et al. CRUZ, J.:p The question now before us has been categorically resolved in earlier decisions of the Court that a little more diligent research would have disclosed to the petitioners. On the basis of those cases and the facts now before us, the petition must be denied. The private respondents were employees of the petitioner who were suspected of complicity in the irregular disposition of empty Pepsi Cola bottles. On July 16, 1987, the petitioners filed a criminal complaint for theft against them but this was later withdrawn and substituted with a criminal complaint for falsification of private documents. On November 26, 1987, after a preliminary investigation conducted by the Municipal Trial Court of Tanauan, Leyte, the complaint was dismissed. The dismissal was affirmed on April 8, 1988, by the Office of the Provincial Prosecutor. Meantime, allegedly after an administrative investigation, the private respondents were dismissed by the petitioner company on November 23, 1987. As a result, they lodged a complaint for illegal dismissal with the Regional Arbitration Branch of the NLRC in Tacloban City on December 1, 1987, and decisions manded reinstatement with damages. In addition, they instituted in the Regional Trial Court of Leyte, on April 4, 1988, a separate civil complaint against the petitioners for damages arising from what they claimed to be their malicious prosecution. The petitioners moved to dismiss the civil complaint on the ground that the trial court had no jurisdiction over the case because it involved employee-employer relations that were exclusively cognizable by the labor arbiter. The motion was granted on February 6, 1989. On July 6, 1989, however, the respondent judge, acting on the motion for reconsideration, reinstated the complaint, saying it was "distinct from the labor case for damages now pending before the labor courts." The petitioners then came to this Court for relief. The petitioners invoke Article 217 of the Labor Code and a number of decisions of this Court to support their position that the private respondents civil complaint for damages falls under the jurisdiction of the labor arbiter. They particularly cite the case of Getz Corporation v. Court of Appeals, 1 where it was held that a court of first instance had no jurisdiction over the complaint filed by a dismissed

employee "for unpaid salary and other employment benefits, termination pay and moral and exemplary damages." We hold at the outset that the case is not in point because what was involved there was a claim arising from the alleged illegal dismissal of an employee, who chose to complain to the regular court and not to the labor arbiter. Obviously, the claim arose from employee-employer relations and so came under Article 217 of the Labor Code which then provided as follows: ART. 217. Jurisdiction of Labor Arbiters and the Commission. (a) The Labor Arbiters shall have the original and exclusive jurisdiction to hear and decide within thirty (30) working days after submission of the case by the parties for decision, the following cases involving all workers, whether agricultural or non-agricultural: 1. Unfair labor practice cases; 2. Those that workers may file involving wages, hours of work and other terms and conditions of employment; 3. All money claims of workers, including those based on non-payment or underpayment of wages, overtime compensation, separation pay and other benefits provided by law or appropriate agreement, except claims for employees' compensation, social security, medicare and maternity benefits; 4. Cases involving household services; and 5. Cases arising from any violation of Article 265 of this Code, including questions involving the legality of strikes and lockouts. (b) The Commission shall have exclusive appellate jurisdiction over all cases decided by labor Arbiters. 2 It must be stressed that not every controversy involving workers and their employers can be resolved only by the labor arbiters. This will be so only if there is a "reasonable causal connection" between the claim asserted and employee-employer relations to put the case under the provisions of Article 217. Absent such a link, the complaint will be cognizable by the regular courts of justice in the exercise of their civil and criminal jurisdiction. In Medina v. Castro-Bartolome, 3 two employees filed in the Court of First Instance of Rizal a civil complaint for damages against their employer for slanderous remarks made against them by the company president. On the order dismissing the case because it came under the jurisdiction of the labor arbiters, Justice Vicente Abad Santos said for the Court: It is obvious from the complaint that the plaintiffs have not alleged any unfair labor practice. Theirs is a simple action for damages for tortious acts allegedly committed by the defendants. Such being the case, the governing statute is the Civil Code and not the Labor Code. It results that the orders under review are based on a wrong premise. In Singapore Airlines Ltd. v. Pao, 4 where the plaintiff was suing for damages for alleged violation by the defendant of an "Agreement for a Course of Conversion Training at the Expense of Singapore Airlines Limited," the jurisdiction of the Court of First Instance of Rizal over the case was questioned. The Court, citing the earlier case of Quisaba v. Sta. Ines Melale Veneer and Plywood, Inc., 5 declared through Justice Herrera:

Stated differently, petitioner seeks protection under the civil laws and claims no benefits under the Labor Code. The primary relief sought is for liquidated damages for breach of a contractual obligation. The other items demanded are not labor benefits demanded by workers generally taken cognizance of in labor disputes, such as payment of wages, overtime compensation or separation pay. The items claimed are the natural consequences flowing from breach of an obligation, intrinsically a civil dispute. In Molave Sales, Inc. v. Laron, 6 the same Justice held for the Court that the claim of the plaintiff against its sales manager for payment of certain accounts pertaining to his purchase of vehicles and automotive parts, repairs of such vehicles, and cash advances from the corporation was properly cognizable by the Regional Trial Court of Dagupan City and not the labor arbiter, because "although a controversy is between an employer and an employee, the Labor Arbiters have nojurisdiction if the Labor Code is not involved." The latest ruling on this issue is found in San Miguel Corporation v. NLRC, 7 where the above cases are cited and the changes in Article 217 are recounted. That case involved a claim of an employee for a P60,000.00 prize for a proposal made by him which he alleged had been accepted and implemented by the defendant corporation in the processing of one of its beer products. The claim was filed with the labor arbiter, who dismissed it for lack of jurisdiction but was reversed by the NLRC on appeal. In setting aside the appealed decision and dismissing the complaint, the Court observed through Justice Feliciano: It is the character of the principal relief sought that appears essential, in this connection. Where such principal relief is to be granted under labor legislation or a collective bargaining agreement, the case should fall within the jurisdiction of the Labor Arbiter and the NLRC, even though a claim for damages might be asserted as an incident to such claim. xxx xxx xxx Where the claim to the principal relief sought is to be resolved not by reference to the Labor Code or other labor relations statute or a collective bargaining agreement but by the general civil law, the jurisdiction over the dispute belongs to the regular courts of justice and not to the Labor Arbiter and the NLRC. In such situations, resolution of the dispute requires expertise, not in labor management relations nor in wage structures and other terms and conditions of employment, but rather in the application of the general civil law. Clearly, such claims fall outside the area of competence or expertise ordinarily ascribed to Labor Arbiters and the NLRC and the rationale for granting jurisdiction over such claims to these agencies disappears. xxx xxx xxx While paragraph 3 above refers to "all money claims of workers," it is not necessary to suppose that the entire universe of money claims that might be asserted by workers against their employers has been absorbed into the original and exclusive jurisdiction of Labor Arbiters. xxx xxx xxx For it cannot be presumed that money claims of workers which do not arise out of or in connection with their employer-employee relationship, and which would therefore fall within the general jurisdiction of the regular courts of justice, were intended by the legislative authority to be taken

away from the jurisdiction of the courts and lodged with Labor Arbiters on an exclusive basis. The Court, therefore, believes and so holds that the 'money claims of workers" referred to in paragraph 3 of Article 217 embraces money claims which arise out of or in connection with the employeremployee relationship, or some aspect or incident of such relationship. Put a little differently, that money claims of workers which now fall within the original and exclusive jurisdiction of Labor Arbiters are those money claims which have some reasonable causal connection with the employeremployee relationship (Ibid.). The case now before the Court involves a complaint for damages for malicious prosecution which was filed with the Regional Trial Court of Leyte by the employees of the defendant company. It does not appear that there is a "reasonable causal connection" between the complaint and the relations of the parties as employer and employees. The complaint did not arise from such relations and in fact could have arisen independently of an employment relationship between the parties. No such relationship or any unfair labor practice is asserted. What the employees are alleging is that the petitioners acted with bad faith when they filed the criminal complaint which the Municipal Trial Court said was intended "to harass the poor employees" and the dismissal of which was affirmed by the Provincial Prosecutor "for lack of evidence to establish even a slightest probability that all the respondents herein have committed the crime imputed against them." This is a matter which the labor arbiter has no competence to resolve as the applicable law is not the Labor Code but the Revised Penal Code. "Talents differ, all is well and wisely put," so observed the philosopher-poet. 8 So it must be in the case we here decide. WHEREFORE, the order dated July 6, 1989, is AFFIRMED and the petition DENIED, with costs against the petitioner. G.R. No. L-59825 September 11, 1982 ERNESTO MEDINA and JOSE G. ONG vs.HON. FLORELIANA CASTRO-BARTOLOME , et al. ABAD SANTOS, J.: Civil Case No. 33150 of the Court of First Instance of Rizal Branch XV, was filed in May, 1979, by Ernesto Medina and Jose G. Ong against Cosme de Aboitiz and Pepsi-Cola Bottling Co. of the Philippines, Inc. Medina was the former Plant General Manager and Ong was the former Plant Comptroller of the company. Among the averments in the complaint are the following: 3. That on or about 1:00 o'clock in the afternoon of December 20, 1977, defendant Cosme de Aboitiz, acting in his capacity as President and Chief Executive Officer of the defendant Pepsi-Cola Bottling Company of the Philippines, Inc., went to the Pepsi-Cola Plant in Muntinlupa, Metro Manila, and without any provocation, shouted and maliciously humiliated the plaintiffs with the use of the following slanderous language and other words of similar import uttered in the presence of the plaintiffs' subordinate employees, thusGOD DAMN IT. YOU FUCKED ME UP ... YOU SHUT UP! FUCK YOU! YOU ARE BOTH SHIT TO ME! YOU ARE FIRED (referring to Ernesto Medina). YOU TOO ARE FIRED! '(referring to Jose Ong ) 4. That on January 9, 1978, the herein plaintiffs filed a joint criminal complaint for oral defamation against the defendant Cosme de Aboitiz duly supported with respective affidavits and corroborated by the affidavits of two (2) witnesses: Isagani Hernandez and Jose Ganseco II, but after conducting a preliminary investigation, Hon. Jose B. Castillo, dismissed the complaint allegedly because the expression "Fuck you and "You are both shit to

me" were uttered not to slander but to express anger and displeasure; 5. That on February 8, 1978, plaintiffs filed a Petition for Review with the office of the Secretary of Justice (now Ministry of Justice) and on June 13, 1978, the Deputy Minister of Justice, Catalino Macaraig, Jr., issued a resolution sustaining the plaintiff's complaint, reversing the resolution of the Provincial Fiscal and directing him to file against defendant Cosme de Aboitiz an information for Grave Slander. ... ; 6. That the employment records of plaintiffs show their track performance and impeccable qualifications, not to mention their long years of service to the Company which undoubtedly caused their promotion to the two highest positions in Muntinlupa Plant having about 700 employees under them with Ernesto Medina as the Plant General Manager receiving a monthly salary of P6,600.00 excluding other perquisites accorded only to top executives and having under his direct supervision other professionals like himself, including the plaintiff Jose G. Ong, who was the Plant Comptroller with a basic monthly salary of P4,855.00; 7. That far from taking these matters into consideration, the defendant corporation, acting through its President, Cosme de Aboitiz, dismissed and slandered the plaintiffs in the presence of their subordinate employees although this could have been done in private; 8. That the defendants have evidently enjoyed the act of dismissing the plaintiffs and such dismissal was planned to make it as humiliating as possible because instead of allowing a lesser official like the Regional Vice President to take whatever action was necessary under the circumstances, Cosme de Aboitiz himself went to the Muntinlupa Plant in order to publicly upbraid and dismiss the plaintiffs; 9. That the defendants dismissed the plaintiffs because of an alleged delay in the use of promotional crowns when such delay was true with respect to the other Plants, which is therefore demonstrative of the fact that Cosme de Aboitiz did not really have a strong reason for publicly humiliating the plaintiffs by dismissing them on the spot; 10. That the defendants were moved by evil motives and an anti-social attitude in dismissing the plaintiffs because the dismissal was effected on the very day that plaintiffs were awarded rings of loyalty to the Company, five days before Christmas and on the day when the employees' Christmas party was held in the Muntinlupa Plant, so that when plaintiffs went home that day and found their wives and children already dressed up for the party, they didn't know what to do and so they cried unashamedly; xxx xxx xxx 20. That because of the anti-social manner by which the plaintiffs were dismissed from their employment and the embarrassment and degradation they experience in the hands of the defendants, the plaintiffs have suffered and will continue to suffer wounded feelings, sleepless nights, mental torture, besmirched reputation and other similar injuries, for which the sum of P150,000.00 for each plaintiff, or the total amount. of P300,000.00 should be awarded as moral damages;

21. That the defendants have demonstrated their lack of concern for the rights and dignity of the Filipino worker and their callous disregard of Philippine labor and social legislation, and to prevent other persons from following the footsteps of defendants, the amount of P50,000.00 for each plaintiff, or the total sum of P100,000.00, should be awarded as exemplary damages; 22. That plaintiffs likewise expect to spend no less than P5,000.00 as litigation expenses and were constrained to secure the services of counsel for the protection and enforcement of their rights for which they agreed to pay the sum of P10,000.00 and P200.00 per appearance as and for attorney's fees. The complaint contains the following: PRAYER WHEREFORE, in view of all the foregoing. it is most respectfully that after proper notice and hearing, judgment be rendered for the plaintiffs and against the defendants ordering them, jointly and solidarily, to pay the plaintiffs the sums of: 1. Unrealized income in such sum as will be established during the trial; 2. P300,000.00 as moral damages; 3. P100,000.00 by way of exemplary damages: 4. P5,000.00 as litigation expenses; 5. P10,000.00 and P200.00 per appearance as and for attorney's fees; and 6. Costs of this suit. Plaintiffs also pray for such further reliefs and remedies as may be in keeping with justice and equity. On June 4, 1979, a motion to dismiss the complaint on the ground of lack of jurisdiction was filed by the defendants. The trial court denied the motion on September 6, 1979, in an order which reads as follows: Up for resolution by the Court is the defendants' Motion to Dismiss dated June 4, 1979, which is basically anchored on whether or not this Court has jurisdiction over the instant petition. The complaint alleges that the plaintiffs' dismissal was without any provocation and that defendant Aboitiz shouted and maliciously humiliated plaintiffs and used the words quoted in paragraph 3 thereof. The plaintiffs further allege that they were receiving salaries of P6,600.00 and P4,855.00 a month. So the complaint for civil damages is clearly not based on an employer-employee relationship but on the manner of plaintiffs' dismissal and the effects flowing therefrom. (Jovito N. Quisaba vs, Sta. Ines-Melale Veneer & Plywood Co., Inc., et al., No. L-38088, Aug. 30,1974.) This case was filed on May 10, 1979. The amendatory decree, P.D. 1367, which took effect on May 1, 1978 and which provides that Regional Directors shall not indorse and Labor Arbiters shall not entertain claims for moral or other forms of damages, now expressly confers jurisdiction on the courts in these cases, specifically under the plaintiff's causes of action.

Because of the letter dated January 4, 1978 and the statement of plaintiff Medina that his receipt of the amount from defendant company was done "under strong protest," it cannot be said that the demands set forth in the complaint have been paid, waived or other extinguished. In fact, in defendants' Motion to Dismiss, it is stated that 'in the absence of a showing that there was fraud, duress or violence attending said transactions, such Release and Quitclaim Deeds are valid and binding contracts between them, which in effect admits that plaintiffs can prove fraud, violence, duress or violence. Hence a cause of action for plaintiffs exist. It is noticed that the defamatory remarks standing alone per se had been made the sole cause under the first cause of action, but it is alleged in connection with the manner in which the plaintiffs had been dismissed, and whether the statute of limitations would apply or not would be a matter of evidence. IT has been alreadly settled by jurisprudence that mere asking for reinstatement does not remove from the CFI jurisdiction over the damages. The case must involve unfair labor practices to bring it within the jurisdiction of the CIR (now NLRC). WHEREFORE, the defendants' Motion to Dismiss dated June 4, 1979 is hereby denied. The defendants are hereby directed to interpose their answer within ten (10) days from receipt hereof. While the trial was underway, the defendants filed a second motion to dismiss the complaint dated January 23, 1981, because of amendments to the Labor Code immediately prior thereto. Acting on the motion, the trial court issued on May 23, 1981, the following order: Up for resolution by the Court is the defendants' Motion to Dismiss dated January 23, 1981, on grounds not existing when the first Motion to Dismiss dated June 4, 1979 was interposed. The ground relied upon is the promulgation of P.D. No. 1691 amending Art. 217 of the Labor Code of the Philippines and Batasan Pambansa Bldg. 70 which took effect on May 1, 1980, amending Art. 248 of the Labor Code. The Court agrees with defendants that the complaint alleges unfair labor practices which under Art. 217 of the Labor Code, as amended by P.D. 1691, has vested original and exclusive jurisdiction to Labor Arbiters, and Art. 248, thereof ... "which may include claims for damages and other affirmative reliefs." Under the amendment, therefore, jurisdiction over employeeemployer relations and claims of workers have been removed from the Courts of First Instance. If it is argued that this case did not arise from employer-employee relation, but it cannot be denied that this case would not have arisen if the plaintiffs had not been employees of defendant Pepsi-Cola. Even the alleged defamatory remarks made by defendant Cosme de Aboitiz were said to plaintiffs in the course of their employment, and the latter were dismissed from such employment. Hence, the case arose from such employeremployee relationship which under the new Presidential Decree 1691 are under the exclusive, original jurisdiction of the labor arbiters. The ruling of this Court with respect to the defendants' first motion to dismiss, therefore, no longer holds as the positive law has been subsequently issued and being a curative law, can be applied retroactively (Garcia v. Martinez, et al., L-47629, May 28, 1979; 90 SCRA 331-333).

It will also logically follow that plaintiffs can reinterpose the same complaint with the Ministry of Labor. WHEREFORE, let this case be, as it is hereby ordered, dismissed, without pronouncement as to costs. A motion to reconsider the above order was filed on July 7, 1981, but it was only on February 8, 1982, or after a lapse of around seven (7) months when the motion was denied. Plaintiffs have filed the instant petition pursuant to R. A. No. 5440 alleging that the respondent court committed the following errors: IN DIVESTING ITSELF OF ITS JURISDICTION TO HEAR AND DECIDE CIVIL CASE NO. 33150 DESPITE THE FACT THAT JURISDICTION HAD ALREADY ATTACHED WHICH WAS NOT OUSTED BY THE SUBSEQUENT ENACTMENT OF PRESIDENTIAL DECREE 1691; IN HOLDING THAT PRESIDENTIAL DECREE 1691 SHOULD BE GIVEN A RETROSPECTIVE EFFECT WHEN PRESIDENTIAL DECREE 1367 WHICH WAS IN FORCE WHEN CIVIL CASE NO. 33150 WAS FILED AND TRIAL THEREOF HAD COMMENCED, WAS NEVER EXPRESSLY REPEALED BY PRESIDENTIAL DECREE 1691, AND IF EVER THERE WAS AN IMPLIED REPEAL, THE SAME IS NOT FAVORED UNDER PREVAILED JURISPRUDENCE; IN HOLDING THAT WITH THE REMOVAL BY PRESIDENTIAL DECREE 1691 OF THE PROVISO INSERTED IN ARTICLE 217 OF THE LABOR CODE BY PRESIDENTIAL DECREE 1367, THE LABOR ARBITERS HAVE ACQUIRED JURISDICTION OVER CLAIMS FOR DAMAGES ARISING FROM EMPLOYEREMPLOYEE RELATIONS TO THE EXCLUSION OF THE REGULAR COURTS, WHEN A READING OF ARTICLE 217 WITHOUT THE PROVISO IN QUESTION READILY REVEALS THAT JURISDICTION OVER DAMAGE CLAIMS IS STILL VESTED WITH THE REGULAR COURTS; IN DISMISSING FOR LACK OF JURISDICTION CIVIL CASE NO. 33150 THEREBY VIOLATING THE CONSTITUTIONAL RIGHTS OF THE PETITIONERS NOTABLY THEIR RIGHT TO DUE PROCESS. The pivotal question to Our mind is whether or not the Labor Code has any relevance to the reliefs sought by the plaintiffs. For if the Labor Code has no relevance, any discussion concerning the statutes amending it and whether or not they have retroactive effect is unnecessary. It is obvious from the complaint that the plaintiffs have not alleged any unfair labor practice. Theirs is a simple action for damages for tortious acts allegedly committed by the defendants. Such being the case, the governing statute is the Civil Code and not the Labor Code. It results that the orders under review are based on a wrong premise. WHEREFORE, the petition is granted; the respondent judge is hereby ordered to reinstate Civil Case No. 33150 and render a decision on the merits. Costs against the private respondents. G.R. No. 122791 February 19, 2003 PLACIDO O. URBANES, JR. vs. THE HONORABLE SECRETARY OF LABOR AND EMPLOYMENT and SOCIAL SECURITY SYSTEM CARPIO-MORALES, J.: Before this Court is a Petition for Certiorari under Rule 65 of the Revised Rules of Court assailing the June 22, 1995 Order of the Department of Labor and Employment (DOLE) Secretary which set aside the September 16, 1994 Order of the Regional Director, National Capital Region (NCR).

The antecedent facts of the case are as follows: Petitioner Placido O. Urbanes, Jr., doing business under the name and style of Catalina Security Agency, entered into an agreement1 to provide security services to respondent Social Security System (SSS). During the effectivity of the agreement, petitioner, by letter of May 16, 1994,2 requested the SSS for the upward adjustment of their contract rate in view of Wage Order No. NCR-03 which was issued by the Regional Tripartite Wages and Productivity Board-NCR pursuant to Republic Act 6727 otherwise known as the Wage Rationalization Act, the pertinent provision of which wage order reads: Section 9. In the case of contracts for construction projects and for security, janitorial and similar services, the prescribed amount set forth herein for covered workers shall be borne by the principals or the clientsof the construction/service contractors and the contract shall be deemed amended accordingly. In the event, however, that the principal or client failed to pay the prescribed increase, the construction/service contractors shall be jointly and severally liable with the principal or client.(Emphasis and underscoring supplied.) As his May 16, 1994 letter to the SSS remained unheeded, petitioner sent another letter,3 dated June 7, 1994, reiterating the request, which was followed by still another letter,4 dated June 8, 1994. On June 24, 1994, petitioner pulled out his agencys services from the premises of the SSS and another security agency, Jaguar, took over.5 On June 29, 1994, petitioner filed a complaint6 with the DOLE-NCR against the SSS seeking the implementation of Wage Order No. NCR-03. In its position paper,7 the SSS prayed for the dismissal of the complaint on the ground that petitioner is not the real party in interest and has no legal capacity to file the same. In any event, it argued that if it had any obligation, it was to the security guards. On the other hand, petitioner in his position paper,8 citing Eagle Security Agency, Inc. v. NLRC,9 contended that the security guards assigned to the SSS do not have any legal basis to file a complaint against it for lack of contractual privity. Finding for petitioner, the Regional Director of the DOLENCR issued an Order10 of September 16, 1994, the dispositive portion of which reads, quoted verbatim: WHEREFORE, premises considered, the respondent Social Security System (SSS) is hereby Ordered to pay Complainant the total sum of ONE MILLION SIX HUNDRED THOUSAND EIGHT HUNDRED FIFTY EIGHT AND 46/100 (P 1,600,858.46) representing the wage differentials under Wage Order No. NCR-03 of the ONE HUNDRED SIXTY EIGHT (168) Security Guards of Catalina Security Agency covering the period from December 16, 1993 to June 24, 1994, inclusive within ten (10) days from receipt hereof, otherwise a writ of execution shall be issued to enforce this Order. The claims for the payment of interest and Attorneys fees are hereby ordered dismissed for want of jurisdiction. SO ORDERED. The SSS moved to reconsider the September 16, 1994 Order of the Regional Director, praying that the computation be revised.11 By Order12 of December 9, 1994, the Regional Director modified his September 16, 1994 Order by reducing the

amount payable by the SSS to petitioner. The dispositive portion of the Regional Directors Order of December 9, 1994 reads: WHEREFORE, premises considered, the Order of this Office dated September 16, 1994 is hereby modified. Respondent Social Security System is hereby ordered to pay complainant the amount of ONE MILLION TWO HUNDRED THIRTY SEVEN THOUSAND SEVEN HUNDRED FORTY PESOS (P 1,237,740.00) representing the wage differentials under Wage Order No. NCR-03 of the one hundred sixty-eight (168) security guards of Catalina Security Agency covering the period from December 16, 1993 to June 20, 1994, inclusive, within ten (10) days from receipt of this Order, otherwise, execution shall issue. The SSS appealed13 to the Secretary of Labor upon the following assigned errors, quoted verbatim: A. THE REGIONAL DIRECTOR HAS NO JURISDICTION OF THE CASE AT BAR. B. THE HONORABLE REGIONAL DIRECTOR ERRED IN FINDING THAT COMPLAINANT IS THE REAL PARTY IN INTEREST AND HAS LEGAL CAPACITY TO FILE THE CASE. C. THE HONORABLE REGIONAL DIRECTOR ERRED IN ADOPTING COMPLAINANTS COMPUTATION FOR WAGE ADJUSTMENT UNDER WAGE ORDER NO. NCR-03 AS BASIS OF RESPONDENTS LIABILITY.14 The Secretary of Labor, by Order15 of June 22, 1995, set aside the order of the Regional Director and remanded the records of the case "for recomputation of the wage differentials using P 5,281.00 as the basis of the wage adjustment." And the Secretary held petitioners security agency "JOINTLY AND SEVERALLY liable for wage differentials, the amount of which should be paid DIRECTLY to the security guards concerned." Petitioners Motion for Reconsideration of the DOLE Secretarys Order of June 22, 1995 having been denied by Order16 of October 10, 1995, the present petition was filed, petitioner contending that the DOLE Secretary committed grave abuse of discretion when he: 1. . . . TOTALLY IGNORED THE PROVISION OF ARTICLE 129 OF THE LABOR CODE FOR PERFECTING AN APPEAL FROM THE DECISION OF THE REGIONAL DIRECTOR UNDER ARTICLE 129 INVOKED BY RESPONDENT SSS; 2. . . . DISREGARDED THE PROVISION ON APPEALS FROM THE DECISIONS OR RESOLUTIONS OF THE REGIONAL DIRECTOR, DOLE, UNDER ARTICLE 129 OF THE LABOR CODE, AS AMENDED BY REPUBLIC ACT NO. 6715; 3. . . . TOTALLY OVERLOOKED THE LAW AND PREVAILING JURISPRUDENCE WHEN IT ACTED ON THE APPEAL OF RESPONDENT SSS.17 Petitioner asserts that the Secretary of Labor does not have jurisdiction to review appeals from decisions of the Regional Directors in complaints filed under Article 129 of the Labor Code18 which provides: ART. 129. RECOVERY OF WAGES, SIMPLE MONEY CLAIMS AND OTHER BENEFITS. Upon complaint of any interested party, the regional director of the Department of Labor and Employment or any duly authorized hearing officers of the Department is empowered, through summary proceeding and after due notice, to hear and decide any matter involving the recovery of wages and other monetary claims and benefits, including legal interest, owing to an employee or person employed in domestic or household service or househelper under this Code, arising from employeremployee relations: Provided, That such complaint does not include a claim for reinstatement; Provided, further, That the aggregate money claim of each employee or

househelper does not exceed Five Thousand pesos (P5,000.00). The regional director or hearing officer shall decide or resolve the complaint within thirty (30) calendar days from the date of the filing of the same. Any sum thus recovered on behalf of any employee or househelper pursuant to this Article shall be held in a special deposit account by, and shall be paid on order of, the Secretary of Labor and Employment or the regional director directly to the employee or househelper concerned. Any such sum not paid to the employee or househelper, because he cannot be located after diligent and reasonable effort to locate him within a period of three (3) years, shall be held as a special fund of the Department of Labor and Employment to be used exclusively for the amelioration and benefit of workers. Any decision or resolution of the regional director or officer pursuant to this provision may be appealed on the same grounds provided in Article 223 of this Code, within five (5) calendar days from receipt of a copy of said decision or resolution, to the National Labor Relations Commission which shall resolve the appeal within ten (10) calendar days from submission of the last pleading required or allowed under its rules. x x x (Emphasis supplied). Petitioner thus contends that as the appeal of SSS was filed with the wrong forum, it should have been dismissed.19 The SSS, on the other hand, contends that Article 128, not Article 129, is applicable to the case. Article 128 provides: ART. 128. VISITORIAL AND ENFORCEMENT POWERS xxx (b) Notwithstanding the provisions of Article 129 and 217 of this Code to the contrary, and in cases where the relationship of employer-employee still exists, the Secretary of Labor and Employment or his duly authorized representatives shall have the power to issue compliance orders to give effect to labor legislation based on the findings of labor employment and enforcement officers or industrial safety engineers made in the course of inspection. xxx An order issued by the duly authorized representative of the Secretary of Labor and Employment under this article may be appealed to the latter. x x x (Emphasis supplied). Neither the petitioners contention nor the SSSs is impressed with merit. Lapanday Agricultural Development Corporation v. Court of Appeals20 instructs so. In that case, the security agency filed a complaint before the Regional Trial Court (RTC) against the principal or client Lapanday for the upward adjustment of the contract rate in accordance with Wage Order Nos. 5 and 6. Lapanday argued that it is the National Labor Relations Commission, not the civil courts, which has jurisdiction to resolve the issue in the case, it involving the enforcement of wage adjustment and other benefits due the agencys security guards as mandated by several wage orders. Holding that the RTC has jurisdiction over the controversy, this Court ruled: 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 employeremployee relation exists.21 x x x (Emphasis and underscoring supplied). In the case at bar, even if petitioner filed the complaint on his and also on behalf of the security guards,22 the relief sought has to do with the enforcement of the contract between him and the SSS which was deemed amended by virtue of Wage Order No. NCR-03. The controversy subject of the case at bar is thus a civil dispute, the proper forum for the resolution of which is the civil courts. But even assuming arguendo that petitioners complaint were filed with the proper forum, for lack of cause of action it must be dismissed.1awphi1.nt Articles 106, 107 and 109 of the Labor Code provide: ART. 106. CONTRACTOR OR SUBCONTRACTOR. Whenever an employer enters into contract with another person for the performance of the formers work, the employees of the contractor and of the latters 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 wage 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 (Emphasis and underscoring supplied) 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. ART. 109. SOLIDARY LIABILTY. The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.(Emphasis supplied.) In the case of Eagle Security Agency, Inc. v. NLRC,23 this Court held: The Wage Orders are explicit that payment of the increases are "to be borne" by the principal or client. "To be borne", however, does not mean that the principal, PTSI in this case, would directly pay the security guards the wage and allowance increases because there is no privity of contract between them. The security guards' contractual relationship is with their immediate employer, EAGLE. As an employer, EAGLE is tasked, among others, with the payment of their wages [See Article VII Sec. 3 of the Contract for Security Services, supra and Bautista v. Inciong, G.R. No. 52824, March 16, 1988, 158 SCRA 665]. On the other hand, there existed a contractual agreement between PTSI and EAGLE wherein the former availed of the security services provided by the latter. In return, the security agency collects from its client payment for its security services. This payment covers the wages for the security guards and also expenses for their supervision and training, the guards' bonds, firearms with ammunitions,

uniforms and other equipments, accessories, tools, materials and supplies necessary for the maintenance of a security force. Premises considered, the security guards' immediate recourse for the payment of the increases is with their direct employer, EAGLE. However, in order for the security agency to comply with the new wage and allowance rates it has to pay the security guards, the Wage Orders made specific provision to amend existing contracts for security services by allowing the adjustment of the consideration paid by the principal to the security agency concerned. What the Wage Orders require, therefore, is the amendment of the contract as to the consideration to cover the service contractor's payment of the increases mandated. In the end, therefore, ultimate liability for the payment of the increases rests with the principal. In view of the foregoing, the security guards should claim the amount of the increases from EAGLE. Under the Labor Code, in case the agency fails to pay them the amounts claimed, PTSI should be held solidarily liable with EAGLE [Articles 106, 107 and 109]. Should EAGLE pay, it can claim an adjustment from PTSI for an increase in consideration to cover the increases payable to the security guards. x x x (Emphasis and underscoring supplied). Passing on the foregoing disquisition in Eagle, this Court, in Lapanday,24 held: It is clear also from the foregoing that it is only when [the] contractor pays the increases mandated that it can claim an adjustment from the principal to cover the increases payable to the security guards. The conclusion that the right of the contractor (as principal debtor) to recover from the principal (as solidary co-debtor) arises only if he has paid the amounts for which both of them are jointly and severally liable is in line with Article 1217 of the Civil Code which provides: "Art. 1217. Payment made by one 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 payment make claim from his co-debtors only the share which corresponds to each, with 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. x x x"25 (Emphasis and underscoring supplied). In fine, the liability of the SSS to reimburse petitioner arises only if and when petitioner pays his employee-security guards "the increases" mandated by Wage Order No. NCR03.1awphi1.nt The records do not show that petitioner has paid the mandated increases to the security guards. The security guards in fact have filed a complaint26 with the NLRC against petitioner relative to, among other things, underpayment of wages. WHEREFORE, the present petition is hereby DISMISSED, and petitioners complaint before the Regional Director is dismissed for lack of jurisdiction and cause of action. G.R. No. 154060 August 16, 2005 YUSEN AIR AND SEA SERVICE PHILIPPINES, INCORPORATED vs. ISAGANI A. VILLAMOR GARCIA, J.: Via this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Yusen Air and Sea Service Philippines, Incorporated, urges us to annul and set aside the following orders of the Regional Trial Court at Paraaque City, Branch 258, in its Civil Case No. 02-0063, to wit:

1. Order dated March 20, 2002,1 dismissing, on ground of lack of jurisdiction, petitioners complaint for injunction and damages with prayer for a temporary restraining order filed by it against herein respondent, Isagani A. Villamor; and 2. Order dated June 21, 2002,2 denying petitioners motion for reconsideration. The facts: Petitioner, a corporation organized and existing under Philippines laws, is engaged in the business of freight forwarding. As such, it is contracted by clients to pick-up, unpack, consolidate, deliver, transport and distribute all kinds of cargoes, acts as cargo or freight accommodation and enters into charter parties for the carriage of all kinds of cargoes or freight. On August 16, 1993, petitioner hired respondent as branch manager in its Cebu Office. Later, petitioner reclassified respondents position to that of Division Manager, which position respondent held until his resignation on February 1, 2002. Immediately after his resignation, respondent started working for Aspac International, a corporation engaged in the same line of business as that of petitioner. On February 11, 2002, in the Regional Trial Court at Paraaque City, petitioner filed against respondent a complaint3 for injunction and damages with prayer for a temporary restraining order. Thereat docketed as Civil Case No. 02-0063 which was raffled to Branch 258 of the court, the complaint alleged, inter alia, as follows: 7. That [respondent] duly signed an undertaking to abide by the policies of the [Petitioner] which includes the provision on the employees responsibility and obligation in cases of conflict of interest, which reads: No employee may engage in any business or undertaking that is directly or indirectly in competition with that of the company and its affiliates or engage directly or indirectly in any undertaking or activity prejudicial to the interests of the company or to the performance of his/her job or work assignments. The same provision will be implemented for a period of two (2) years from the date of an employees resignation, termination or separation from the company. 8. That in clear violation and breach of his undertaking and agreement with the policies of [petitioner], [respondent] joined Aspac International, within two years from [his] date of resignation, whose business is directly in conflict with that of [petitioner]. (Underscoring supplied; words in bracket ours). Petitioner thus prayed for a judgment enjoining respondent from "further pursuing his work at Aspac International",and awarding it P2,000,000 as actual damages; P300,000 as exemplary damages; and another P300,000 as attorneys fees. On March 4, 2002, apparently not to be outdone, respondent filed against petitioner a case for illegal dismissal before the National Labor Relations Commission. Meanwhile, instead of filing his answer in Civil Case No. 020063, respondent filed a Motion to Dismiss,4 arguing that the RTC has no jurisdiction over the subject matter of said case because an employer-employee relationship is involved. On March 20, 2002, the trial court issued the herein first assailed order dismissing petitioners complaint for lack of jurisdiction over the subject matter thereof on the ground that the action was for damages arising from employeremployee relations. Citing Article 217 of the Labor Code, the

trial court ruled that it is the labor arbiter which had jurisdiction over petitioners complaint: xxx the Court, after going over all the assertions, averments and arguments of the parties and after carefully evaluating the same, is of the firm and honest opinion that the arguments raised by [respondent] movant are more in conformity with the rules and jurisprudence as this case involves an employer-employee relationship and is within the exclusive original jurisdiction of the NLRC pursuant to Art. 217 of the Labor Code of the Philippines. Not only that, there is even a pending case for illegal dismissal against herein [petitioner] filed by [respondent] before the Regional Arbitration Branch VII in Cebu City. WHEREFORE, this case is hereby ordered DISMISSED for lack of jurisdiction. SO ORDERED. (Words in bracket ours). In time, petitioner moved for a reconsideration but its motion was denied by the trial court in its subsequent order of June 21, 2002. Hence, petitioners present recourse, maintaining that its cause of action did not arise from employer-employee relations even if the claim therein is based on a provision in its handbook, and praying that Civil Case No. 02-0063 be remanded to the court a quo for further proceedings. The petition is impressed with merit. At the outset, we take note of the fact that the 2-year prohibition against employment in a competing company which petitioner seeks to enforce thru injunction, had already expired sometime in February 2004. Necessarily, upon the expiration of said period, a suit seeking the issuance of a writ of injunction becomes functus oficio and therefore moot. As things go, however, it was not possible for us, due to the great number of cases awaiting disposition, to have decided the instant case earlier. However, the issue of damages remains unresolved. InPhilippine National Bank v. CA,5 we declared: In the instant case, aside from the principal action for damages, private respondent sought the issuance of a temporary restraining order and writ of preliminary injunction to enjoin the foreclosure sale in order to prevent an alleged irreparable injury to private respondent. It is settled that these injunctive reliefs are preservative remedies for the protection of substantive rights and interests. Injunction is not a cause of action in itself but merely a provisional remedy, an adjunct to a main suit. When the act sought to be enjoined ha[s] become fait accompli, only the prayer for provisional remedy should be denied. However, the trial court should still proceed with the determination of the principal action so that an adjudication of the rights of the parties can be had. Along similar vein, the damage aspect of the present suit was never rendered moot by the lapse of the 2-year prohibitive period against employment in a competing company. This brings us to the sole issue of whether petitioner's claim for damages arose from employer-employee relations between the parties. We rule in the negative. Actually, the present case is not one of first impression. In a kindred case, Dai-Chi Electronics Manufacturing vs. Villarama,6 with a substantially similar factual backdrop, we held that an action for breach of contractual obligation is intrinsically a civil dispute. There, a complaint for damages was filed with the regular court by an employer against a former employee who allegedly violated the non-compete provision of their

employment contract when, within two years from the date of the employees resignation, he applied with, and was hired by a corporation engaged in the same line of business as that of his former employer. The employer sought to recover liquidated damages. The trial court ruled that it had no jurisdiction over the subject matter of the controversy because the complaint was for damages arising from employer-employee relations, citing Article 217 (4) of the Labor Code, as amended by R.A. No. 6715, which stated that it is the Labor Arbiter who had original and exclusive jurisdiction over the subject matter of the case. When the case was elevated to this Court, we held that the claim for damages did not arise from employer-employee relations, to wit: Petitioner does not ask for any relief under the Labor Code of the Philippines. It seeks to recover damages agreed upon in the contract as redress for private respondents breach of his contractual obligation to its "damage and prejudice". Such cause of action is within the realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts. More so when we consider that the stipulation refers to the post-employment relations of the parties. [W]hile seemingly the cause of action arose from employeremployee relations, the employers claim for damages is grounded on wanton failure and refusal without just cause to report to duty coupled with the averment that the employee maliciously and with bad faith violated the terms and conditions of the contract to the damage of the employer. Such averments removed the controversy from the coverage of the Labor Code of the Philippines and brought it within the purview of Civil Law. Indeed, jurisprudence has evolved the rule that claims for damages under paragraph 4 of Article 217, to be cognizable by the Labor Arbiter, must have a reasonable causal connection with any of the claims provided for in that article. Only if there is such a connection with the other claims can a claim for damages be considered as arising from employer-employee relations. Article 217, as amended by Section 9 of RA 6715, provides: Art. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural: xxx xxx xxx 4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;" xxx xxx xxx In San Miguel Corporation vs. National Labor Relations Commission,7 we had occasion to construe Article 217, as amended by B.P. Blg. 227. Article 217 then provided that the Labor Arbiter had jurisdiction over all money claims of workers, but the phrase arising from employer-employee relation was deleted. We ruled thus: While paragraph 3 above refers to "all money claims of workers," it is not necessary to suppose that the entire universe of money claims that might be asserted by workers against their employers has been absorbed into the original and exclusive jurisdiction of Labor Arbiters. In the first place, paragraph 3 should be read not in isolation from but rather within the context formed by paragraph 1 (relating to unfair labor practices), paragraph 2 (relating to claims concerning terms and conditions of employment), paragraph 4 (claims relating to household services, a particular species of employer-employee relations), and

paragraph 5 (relating to certain activities prohibited to employees or employers). It is evident that there is a unifying element which runs through paragraph 1 to 5 and that is, that they all refer to cases or disputes arising out of or in connection with an employer-employee relationship. This is, in other words, a situation where the rule of noscitur a sociis may be usefully invoked in clarifying the scope of paragraph 3, and any other paragraph of Article 217 of the Labor Code, as amended. We reach the above conclusion from an examination of the terms themselves of Article 217, as last amended by B.P. Blg 227, and even though earlier versions of Article 217 of the Labor Code expressly brought within the jurisdiction of the Labor Arbiters and the NLRC "cases arising from employer-employee relations," which clause was not expressly carried over, in printers ink, in Article 217 as it exists today. For it cannot be presumed that money claims of workers which do not arise out of or in connection with their employer-employee relationship, and which would therefore fall within the general jurisdiction of regular courts of justice, were intended by the legislative authority to be taken away from the jurisdiction of the courts and lodged with Labor Arbiters on an exclusive basis. The Court, therefore, believes and so holds that the "money claims of workers" referred to in paragraph 3 of Article 217 embraces money claims which arise out of or in connection with the employer-employee relationship, or some aspect or incident of such relationship. Put a little differently, that money claims of workers which now fall within the original and exclusive jurisdiction of Labor Arbiters are those money claims which have some reasonable causal connection with the employer-employee relationship. When, as here, the cause of action is based on a quasidelict or tort, which has no reasonable causal connection with any of the claims provided for in Article 217, jurisdiction over the action is with the regular courts.8 As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to recover damages based on the parties contract of employment as redress for respondent's breach thereof. Such cause of action is within the realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts. More so must this be in the present case, what with the reality that the stipulation refers to the post-employment relations of the parties. For sure, a plain and cursory reading of the complaint will readily reveal that the subject matter is one of claim for damages arising from a breach of contract, which is within the ambit of the regular courts jurisdiction.9 It is basic that jurisdiction over the subject matter is determined upon the allegations made in the complaint, irrespective of whether or not the plaintiff is entitled to recover upon the claim asserted therein, which is a matter resolved only after and as a result of a trial. Neither can jurisdiction of a court be made to depend upon the defenses made by a defendant in his answer or motion to dismiss. If such were the rule, the question of jurisdiction would depend almost entirely upon the defendant.10 ACCORDINGLY, the assailed orders of the lower court are SET ASIDE and Civil Case No. 02-0063 REMANDEDto it for trial on the merits of the main claim for damages. G.R. No. 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 vs. NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL MILLING CORPORATION and/or FELICIANO LUPO MELENCIO-HERRERA, J.: 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. 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 them 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. Recovery, however, should not be based on Article 106 of the Labor Code. This provision treats specifically of "laboronly" 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 (Emphasis supplied). 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 supplied). 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 a 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 o 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 "laboronly" 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 was in the fact that Article 106 deals with "labor-only" contracting. Here, by operation of law, the contractor is merely considered as an agent of the employer, who is deemed "responsible to the workers to the same extent as if the latter were directly employed by him." On the other hand, Article 107 deals with "job contracting." In the latter situation, while the contractor himself is the direct employer of the employees, the employer is deemed, by operation of law, as an indirect employer. In 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 employeremployee relationship exists between the owner and the employees of his contractor. The owner of the project is not the direct employer but merely an indirect employer, by operation of law, of his contractor's employees. As an indirect employer, and for purposes of determining the extent of its civil liability, GMC is deemed a "direct employee" of his contractor's 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 showed 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. Separate Opinions PADILLA, J.,: 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 anindirect 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 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 the 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 the 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 laboronly 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 case, 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-contractoremployee. 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 toArticle 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 workersto 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 thesecond 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. Nos. 100376-77 June 17, 1994 DEVELOPMENT BANK OF THE PHILIPPINES vs. NLRC, et al. PADILLA, J.: This petition for review on certiorari (here treated as a petition for certiorari under Rule 65, Rules of Court) seeks to reverse and set aside the Resolution dated 11 June 1991 of respondent National Labor Relations Commission ("NLRC") in NLRC NCR Case Nos. 00-09-03383-87 and 00-10-0356287, denying petitioners motion for reconsideration, the dispositive part of which reads: Accordingly, the Banks motion for reconsideration is hereby denied. The responsible officers of the Bank and its counsel are hereby warned, under pain of contempt, that we shall not tolerate their further delaying the execution of the subject award. 1 Private respondents Godofredo Morillo, Sunday Bacea, Alfredo Cos and Rogelio Villanueva were hired as security guards by Confidential Investigation and Security Corporation ("CISCOR") on 19 May 1981, 21 August 1984, 22 January 1985, and 27 November 1985, respectively. In the course of their employment, private respondents were assigned to secure the premises of CISCORs clients, among them, the herein petitioner, Development Bank of the Philippines ("DBP") which, in turn, assigned private

respondents to secure one of its properties or assets, the Riverside Mills Corporation. On 11 August 1987, private respondent Villanueva resigned from CISCOR. On 15 August 1987, private respondents Morillo, Bacea and Cos followed suit in resigning from CISCOR. Thereafter, private respondents claimed from CISCOR the return of their cash bond and payment of their 13th month pay and service incentive leave pay. For failure of CISCOR to grant their claims, private respondents Villanueva and Cos filed against CISCOR and its President/Manager Ernesto Medina NLRC NCR Case No. 0010-3562-87 on 13 October 1987, while private respondents Morillo and Bacea filed NLRC NCR Case No. 00-09-3383-87 on 29 September 1987. In said two (2) cases, private respondents sought recovery of their cash bond, payment of 13th month pay, and their five-day service incentive leave pay. The two (2) cases were consolidated and assigned to Labor Arbiter Crescencio Iniego. In their position paper filed on 23 November 1987, private respondents (as complainants) alleged that they tendered their resignations in August 1987 upon the assurance of CISCOR that they would be paid the cash benefits due them. For failure of CISCOR to comply, private respondents claimed violations committed by CISCOR and Medina, specifically, the non-payment of their 13th month pay, five (5) day service incentive leave pay from the date of employment to the time of their separation, non-refund of their cash bond, non-payment of legal holiday pay and rest day pay. On the other hand, CISCOR and Medina in their position paper filed on 3 March 1988 admitted that private respondents were former security guards of CISCOR. They added, however, that sometime in 1987, petitioner allegedly formed its own security agency and pirated private respondents who tendered their voluntary resignations from CISCOR. Thereafter, when private respondents sought from CISCOR the return of their cash bond deposit, payment of 13th month pay and service incentive leave pay, CISCOR explained to private respondents that in view of the claim of petitioner that it incurred losses when private respondents and their other co-security guards secured the premises of Riverside Mills Corporation, private respondents, prior to the payment of their claims, were asked to first secure an individual/agency clearance from petitioner to show that no losses were incurred while they were guarding Riverside Mills Corporation. Instead of getting such clearance from the petitioner, private respondents secured their clearance from CISCORs detachment commander. Hence, for failure to secure the required clearance, private respondents cash bond deposit, their proportionate 13th month pay and service incentive leave pay were withheld to answer for liabilities incurred while private respondents were guarding Riverside Mills Corporation. On 10 March 1988, CISCOR filed a motion with leave to implead petitioner bank and averred therein that in view of its contract with the petitioner whereby, for a certain service fee, CISCOR undertook to guard petitioners premises, both CISCOR and petitioner, under the Labor Code, are jointly and severally liable to pay the salaries and other statutory benefits due the private respondents, petitioner being an indispensable party to the case. On 11 March 1988, Labor Arbiter Iniego issued an order granting the aforesaid motion and including petitioner as one of the respondents therein. To this, private respondents filed their opposition and alleged, among others, that petitioner, not being an employer of the private respondents, was not a proper, necessary or indispensable party to the case. In answer, petitioner filed its position paper alleging therein that it was not made a respondent by the herein private respondents in their complaint, and that none of the original parties to the case (private respondents and CISCOR/Medina) interposed any claim against the petitioner. It further stated that it cannot be held liable to the claim of private respondents because there was no failure on the part of CISCOR and Medina to pay said claims.

If CISCOR had apparently failed to pay private respondents claims, it was only due to the failure of private respondents to secure their individual clearance of accountability or agency clearance that there were no losses incurred while they were guarding Riverside Mills Corporation. On 12 July 1988, the Labor Arbiter rendered a decision, the dispositive part of which reads: WHEREFORE, judgment is hereby rendered ordering the respondents Confidential Investigation and Security Corporation, Mr. Ernesto Medina and Development Bank of the Philippines to pay the complainants the corresponding salary differential due them to be computed for the last three (3) years from the time they stopped working with the respondents sometime in August 1987. Confidential Investigation and Security Corporation is further ordered to return to the complainants their respective cash bond cited in this decision within a period of ten (10) days from receipt hereof. 2 From the above decision, CISCOR and Medina appealed to the NLRC. Petitioner likewise filed its Motion for Reconsideration/Appeal and prayed for the Labor Arbiter to modify his decision and make CISCOR and Medinasolely liable for the claims of private respondents, and to declare the award for salary differentials as null and void. In its Resolution of 24 January 1991, the NLRC held the petitioner DBP, CISCOR and Medina, as jointly and severally liable, the pertinent part of which reads: WHEREFORE, the decision appealed from is hereby modified. All the respondents (Confidential Investigation and Security Corporation, Ernesto Medina and the Development Bank of the Philippines) are hereby adjudged jointly and severally liable to the admitted claims for 13th month pay, 5 days incentive leave, and refund of cash bond, and accordingly, immediate execution is hereby directed against any of the aforesaid respondents without prejudice to their having lawful recourse against each other. Anent the award of wage differential and the claim for rest day and legal holiday pay, the same are hereby remanded to the Arbitration Branch of origin for further hearing with the directive that it be completed in 20 days from the Arbitration Branchs receipt of this Order. 3 Hence, this petition for review on certiorari, with petitioner DBP raising the following issues: 1. Whether or not the DBP is really liable for any of the claims of private respondents; 2. Whether or not the NLRC (or the Labor Arbiter) correctly applied Article 106 of the Labor Code; and 3. Whether or not the wage differential, rest day and legal holiday pay could and should be adjudicated in this case. The threshold and, in the ultimate analysis, the decisive issue raised by the present petition is whether petitioner was correctly held jointly and severally liable, alongside CISCOR and Medina, for the payment of the private respondents salary differentials, 13th month pay, service incentive leave pay, rest day pay, legal holiday pay, and the refund of their cash deposit. Petitioner posits that it is not the employer of private respondents and should thus not be held liable for the latters claims. In addition, it avers that it was not properly impleaded as it was CISCOR and Medina who filed the

motion to implead petitioner, and not the private respondents, as complainants therein. Petitioner even goes further by countering that, assuming arguendo, it was the indirect employer of private respondents, Article 106 of the Labor Code 4 cannot be applied to the present case as there was no failure on the part of CISCOR and Medina, as direct employer, to pay the claims of private respondents, but only a failure on the part of the latter to present the proper clearance to pave the way for the payment of the claims. It emphasizes that the term "fails" in Article 106 of the Labor Code implies insolvency or unwillingness of the direct employer to pay, which cannot be said of CISCOR and Medina as they have manifested their willingness to pay private respondents claims after they have presented proper clearance from accountability. We are not persuaded by petitioners arguments. Petitioners interpretation of Article 106 of the Labor Code is quite misplaced. Nothing in said Article 106 indicates that insolvency or unwillingness to pay by the contractor or direct employer is a prerequisite for the joint and several liability of the principal or indirect employer. In fact, the rule is that in job contracting, the principal is jointly and severally liable with the contractor. The statutory basis for this joint and several liability is set forth in Articles 107 5 and 109 6 in relation to Article 106 of the Labor Code. 7 There is no doubt that private respondents are entitled to the cash benefits due them. The petitioner is also, no doubt, liable to pay such benefits because the law mandates the joint and several liability of the principal and the contractor for the protection of labor. In Eagle Security Agency, Inc. vs. NLRC, this Court, explaining the aforesaid liability, held: This joint and several liability of the contractor and the principal is mandated by the Labor Code to assure compliance of the provisions therein including the statutory minimum wage [Article 99, Labor Code]. The contractor is made liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the contractors 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 [See Article II Sec. 18 and Article XIII Sec. 3]. 8 Neither may petitioner argue that it was not properly impleaded and hence, should not be made liable to the claims of private respondents. On this matter, petitioner cannot be absolved from responsibility. We sustain respondent Commissions holding that: Anent the Banks first issue, what we actually have here is a "Third-Party Complaint", defined by Section 12, Rule 6 of the Rules of Court as "a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third-party defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponents claim" (emphasis ours). Since Rule I, Section 3 of our 1986 Revised NLRC Rules adopts suppletorily the Rules of Court "in the interest of expeditious labor justice and whenever practicable and convenient" with the Security Agencys impleading the Bank for indemnity and subrogation considering that the complainants worked with the Bank "to safeguard their premises, properties and their person" (Record, p. 76), such a third-party complaint would therefore be proper. That the bank has not disputed liability on the admitted claims, but professes merely subsidiary, instead of solidary liability, we find its position here all the more, untenable. 9

Finally, petitioner submits that wage differential, rest day and legal holiday pay should not be adjudicated in this case. The respondent Commission, however, observed: Regarding the question of wage differential, we note that the complaint (Record, p. 1), as well as the complainants Position Paper (Record, pp. 5-10) do not mention about any wage differential claim. We do not therefore see any basis with which we may, on sight, affirm the said award. We note though that complainants position paper save technical arguments (that after all are not binding to us in this jurisdiction), sufficiently claims rest day and legal holiday pay, claims that were not strongly refuted by respondents. Impressed, although not convincingly, that the award on wage differential could have referred to the complainants claim for rest day and legal holiday pay, we therefore see the need to have the said claims subjected to further hearing but for a limited period of 20 days. 10 We note that in the present case, there is no claim for wage differentials either in the complaints or in the position paper filed by private respondents before the labor arbiter. Accordingly, no relief may be granted on such matter. We, however, agree with the respondent Commission in its stand that private respondents are entitled to rest day and holiday pay (aside from the refund of their cash bond and the payment of their 13th month pay and service incentive leave pay for 1989). Private respondents position paper submitted before the labor arbiter properly raised the two (2) issues (rest and holiday pay) and included the same in their prayer for relief. The computation of the amount due each individual security guard can be made during the additional hearings ordered by the Commission. WHEREFORE, premises considered, the questioned resolution of the respondent NLRC is hereby AFFIRMED with the modification that the additional hearing ordered by the NLRC shall not include wage differentials but shall be confined to legal holiday and rest day pay. Execution shall forthwith proceed as to the NLRC awards of 13th month pay, service incentive leave pay and return of private respondents cash bond. Petitioner and CISCOR/Medina are ORDERED to pay jointly and severally the claims of private respondents, as finally awarded by the NLRC, without prejudice to the right of reimbursement which petitioner or CISCOR/Medina may have against each other. G.R. No. 126586 February 2, 2000 ALEXANDER VINOYA vs. NLRC, REGENT FOOD CORPORATION AND/OR RICKY SEE (PRESIDENT) KAPUNAN, J.: 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 decision2 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. 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 card3 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 Service6 with RFC. To prove this fact, RFC presents an Employment Contract7 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: 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,12dated 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 Affidavit13 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; (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 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 jobcontractor, 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: 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 laboronly 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 $127 while presently it is at P40.390 to $1.28The 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 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. Even if we use the "four-fold test" to ascertain whether RFC is the true employer of petitioner that same result would be achieved. In determining the existence of employeremployee relationship the following elements of the "fourfold 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 bar of justice.38 In the case at bar, petitioner presented the identification card issue 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 petitioner and PMCI was ever presented by RFC. In fact, despite the demand made by the counsel of petitioner for 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 end 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 invoices39 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. 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 hearing49 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.1wphi1.nt G.R. Nos. 97008-09 July 23, 1993 VIRGINIA G. NERI and JOSE CABELIN vs. NLRC, et al. BELLOSILLO, J.: Respondents are sued by two employees of Building Care Corporation, which provides janitorial and other specific services to various firms, to compel Far Bast 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 an 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. On 22 October 1990, NLRC denied reconsideration of its affirmance, prompting petitioners to seek redress from this Court. Petitioners vehemently contend that BCC in engaged in "labor-only" contracting because it failed to adduce evidence purporting to show that it invested in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of its business. 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 is to be read in conjunction with job contracting, 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 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 "laboronly" 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. 9These 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, 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, 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 FFBTC. 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 16against 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 special services. Consequently, petitioners cannot be held to be employees of FEBTC as BCC "carries an independent business" and undertaken the performance of its contract with various clients according to its "own manner and method, free from the control and supervision" of its principals in all matters "except as to the results thereof." 20 Indeed, the facts in Philippine Bank of Communications do not square with those of the instant case. Therein, the Court ruled that CESI was a "labor-only" contractor because upholding the contract between the contractor and the bank would in effect permit employers to avoid the necessity of hiring regular or permanent employees and would enable them to keep their employees indefinitely on a temporary or casual basis, thus denying them security of tenure in their jobs. This of course violates 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 in 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. G.R. No. 144672 July 10, 2003 SAN MIGUEL CORPORATION vs. MAERC INTEGRATED SERVICES, INC., et al. BELLOSILLO, J.: TWO HUNDRED NINETY-ONE (291) workers filed their complaints (nine [9] complaints in all) against San Miguel Corporation (petitioner herein) and Maerc Integrated Services, Inc. (respondent herein), for illegal dismissal, underpayment of wages, non-payment of service incentive leave pays and other labor standards benefits, and for separation pays from 25 June to 24 October 1991. The complainants alleged that they were hired by San Miguel Corporation (SMC) through its agent or intermediary Maerc Integrated Services, Inc. (MAERC) to work in two (2) designated workplaces in Mandaue City: one, inside the SMC premises at the Mandaue Container Services, and another, in the Philphos Warehouse owned by MAERC. They washed and segregated various kinds of empty bottles used by SMC to sell and distribute its beer beverages to the consuming public. They were paid on a per piece or pakiao basis except for a few who worked as checkers and were paid on daily wage basis. Complainants alleged that long before SMC contracted the services of MAERC a majority of them had already been working for SMC under the guise of being employees of another contractor, Jopard Services, until the services of the latter were terminated on 31 January 1988. SMC denied liability for the claims and averred that the complainants were not its employees but of MAERC, an independent contractor whose primary corporate purpose was to engage in the business of cleaning, receiving, sorting, classifying, etc., glass and metal containers. It appears that SMC entered into a Contract of Services with MAERC engaging its services on a non-exclusive basis for one (1) year beginning 1 February 1988. The contract was renewed for two (2) more years in March 1989. It also provided for its automatic renewal on a month-to-month basis after the two (2)-year period and required that a written notice to the other party be given thirty (30) days prior to the intended date of termination, should a party decide to discontinue with the contract. In a letter dated 15 May 1991, SMC informed MAERC of the termination of their service contract by the end of June 1991. SMC cited its plans to phase out its segregation activities starting 1 June 1991 due to the installation of labor and cost-saving devices. When the service contract was terminated, complainants claimed that SMC stopped them from performing their jobs; that this was tantamount to their being illegally dismissed by SMC who was their real employer as their activities were directly related, necessary and desirable to the main business of SMC; and, that MAERC was merely made a tool or a shield by SMC to avoid its liability under the Labor Code. MAERC for its part admitted that it recruited the complainants and placed them in the bottle segregation project of SMC but maintained that it was only conveniently used by SMC as an intermediary in operating the project or work directly related to the primary business concern of the latter with the end in view of avoiding its obligations and responsibilities towards the complaining workers.

The nine (9) cases1 were consolidated. On 31 January 1995 the Labor Arbiter rendered a decision holding that MAERC was an independent contractor.2 He dismissed the complaints for illegal dismissal but ordered MAERC to pay complainants' separation benefits in the total amount of P2,334,150.00. MAERC and SMC were also ordered to jointly and severally pay complainants their wage differentials in the amount of P845,117.00 and to pay attorney's fees in the amount of P317,926.70. The complainants appealed the Labor Arbiter's finding that MAERC was an independent contractor and solely liable to pay the amount representing the separation benefits to the exclusion of SMC, as well as the Labor Arbiter's failure to grant the Temporary Living Allowance of the complainants. SMC appealed the award of attorney's fees. The National Labor Relations Commission (NLRC) ruled in its 7 January 1997 decision that MAERC was a labor-only contractor and that complainants were employees of SMC.3 The NLRC also held that whether MAERC was a job contractor or a labor-only contractor, SMC was still solidarily liable with MAERC for the latter's unpaid obligations, citing Art. 1094 of the Labor Code. Thus, the NLRC modified the judgment of the Labor Arbiter and held SMC jointly and severally liable with MAERC for complainants' separation benefits. In addition, both respondents were ordered to pay jointly and severally an indemnity fee of P2,000.00 to each complainant. SMC moved for a reconsideration which resulted in the reduction of the award of attorney's fees from P317,926.70 to P84,511.70. The rest of the assailed decision was unchanged.5 On 12 March 1998, SMC filed a petition for certiorari with prayer for the issuance of a temporary restraining order and/or injunction with this Court which then referred the petition to the Court of Appeals. On 28 April 2000 the Court of Appeals denied the petition and affirmed the decision of the NLRC.6 The appellate court also denied SMC's motion for reconsideration in a resolution7 dated 26 July 2000. Hence, petitioner seeks a review of the Court of Appeals' judgment before this Court. Petitioner poses the same issues brought up in the appeals court and the pivotal question is whether the complainants are employees of petitioner SMC or of respondent MAERC. Relying heavily on the factual findings of the Labor Arbiter, petitioner maintained that MAERC was a legitimate job contractor. It directed this Court's attention to the undisputed evidence it claimed to establish this assertion: MAERC is a duly organized stock corporation whose primary purpose is to engage in the business of cleaning, receiving, sorting, classifying, grouping, sanitizing, packing, delivering, warehousing, trucking and shipping any glass and/or metal containers and that it had listed in its general information sheet two hundred seventy-eight (278) workers, twenty-two (22) supervisors, seven (7) managers/officers and a board of directors; it also voluntarily entered into a service contract on a non-exclusive basis with petitioner from which it earned a gross income of P42,110,568.24 from 17 October 1988 to 27 November 1991; the service contract specified that MAERC had the selection, engagement and discharge of its personnel, employees or agents or otherwise in the direction and control thereof; MAERC admitted that it had machinery, equipment and fixed assets used in its business valued at P4,608,080.00; and, it failed to appeal the Labor Arbiter's decision which declared it to be an independent contractor and ordered it to solely pay the separation benefits of the complaining workers. We find no basis to overturn the Court of Appeals and the NLRC. Well-established is the principle that findings of fact of quasi-judicial bodies, like the NLRC, are accorded with respect, even finality, if supported by substantial evidence.8 Particularly when passed upon and upheld by the

Court of Appeals, they are binding and conclusive upon the Supreme Court and will not normally be disturbed.9 This Court has invariably held that in ascertaining an employer-employee relationship, the following factors are considered: (a) the selection and engagement of employee; (b) the payment of wages; (c) the power of dismissal; and, (d) the power to control an employee's conduct, the last being the most important.10 Application of the aforesaid criteria clearly indicates an employer-employee relationship between petitioner and the complainants. Evidence discloses that petitioner played a large and indispensable part in the hiring of MAERC's workers. It also appears that majority of the complainants had already been working for SMC long before the signing of the service contract between SMC and MAERC in 1988. The incorporators of MAERC admitted having supplied and recruited workers for SMC even before MAERC was created.11 The NLRC also found that when MAERC was organized into a corporation in February 1988, the complainants who were then already working for SMC were made to go through the motion of applying for work with Ms. Olga Ouano, President and General Manager of MAERC, upon the instruction of SMC through its supervisors to make it appear that complainants were hired by MAERC. This was testified to by two (2) of the workers who were segregator and forklift operator assigned to the Beer Marketing Division at the SMC compound and who had been working with SMC under a purported contractor Jopard Services since March 1979 and March 1981, respectively. Both witnesses also testified that together with other complainants they continued working for SMC without break from Jopard Services to MAERC. As for the payment of workers' wages, it is conceded that MAERC was paid in lump sum but records suggest that the remuneration was not computed merely according to the result or the volume of work performed. The memoranda of the labor rates bearing the signature of a Vice-President and General Manager for the Vismin Beer Operations as well as a director of SMC appended to the contract of service reveal that SMC assumed the responsibility of paying for the mandated overtime, holiday and rest day pays of the MAERC workers. SMC also paid the employer's share of the SSS and Medicare contributions, the 13th month pay, incentive leave pay and maternity benefits. In the lump sum received, MAERC earned a marginal amount representing the contractor's share. These lend credence to the complaining workers' assertion that while MAERC paid the wages of the complainants, it merely acted as an agent of SMC. Petitioner insists that the most significant determinant of an employer-employee relationship, i.e., the right to control, is absent. The contract of services between MAERC and SMC provided that MAERC was an independent contractor and that the workers hired by it "shall not, in any manner and under any circumstances, be considered employees of the Company, and that the Company has no control or supervision whatsoever over the conduct of the Contractor or any of its workers in respect to how they accomplish their work or perform the Contractor's obligations under the Contract." In deciding the question of control, the language of the contract is not determinative of the parties' relationship; rather, it is the totality of the facts and surrounding circumstances of each case. Despite SMCs disclaimer, there are indicia that it actively supervised the complainants. SMC maintained a constant presence in the workplace through its own checkers. Its asseveration that the checkers were there only to check the end result was belied by the testimony of Carlito R. Singson, head of the Mandaue Container Service of SMC, that the checkers were also tasked to report on the identity of the workers whose performance or quality of work was not according to the rules and standards set by SMC. According

to Singson, "it (was) necessary to identify the names of those concerned so that the management [referring to MAERC] could call the attention to make these people improve the quality of work."18 Viewed alongside the findings of the Labor Arbiter that the MAERC organizational set-up in the bottle segregation project was such that the segregators/cleaners were supervised by checkers and each checker was also under a supervisor who was in turn under a field supervisor, the responsibility of watching over the MAERC workers by MAERC personnel became superfluous with the presence of additional checkers from SMC. Reinforcing the belief that the SMC exerted control over the work performed by the segregators or cleaners, albeit through the instrumentality of MAERC, were letters by SMC to the MAERC management. These were letters19written by a certain Mr. W. Padin20 addressed to the President and General Manager of MAERC as well as to its head of operations,21 and a third letter22 from Carlito R. Singson also addressed to the President and General Manager of MAERC. More than just a mere written report of the number of bottles improperly cleaned and/or segregated, the letters named three (3) workers who were responsible for the rejection of several bottles, specified the infraction committed in the segregation and cleaning, then recommended the penalty to be imposed. Evidently, these workers were reported by the SMC checkers to the SMC inspector. While the Labor Arbiter dismissed these letters as merely indicative of the concern in the end-result of the job contracted by MAERC, we find more credible the contention of the complainants that these were manifestations of the right of petitioner to recommend disciplinary measures over MAERC employees. Although calling the attention of its contractors as to the quality of their services may reasonably be done by SMC, there appears to be no need to instruct MAERC as to what disciplinary measures should be imposed on the specific workers who were responsible for rejections of bottles. This conduct by SMC representatives went beyond a mere reminder with respect to the improperly cleaned/segregated bottles or a genuine concern in the outcome of the job contracted by MAERC. Control of the premises in which the contractor's work was performed was also viewed as another phase of control over the work, and this strongly tended to disprove the independence of the contractor. 23 In the case at bar, the bulk of the MAERC segregation activities was accomplished at the MAERC-owned PHILPHOS warehouse but the building along with the machinery and equipment in the facility was actually being rented by SMC. This is evident from the memoranda of labor rates which included rates for the use of forklifts and the warehouse at the PHILPHOS area, hence, the NLRC's conclusion that the payment for the rent was cleverly disguised since MAERC was not in the business of renting warehouses and forklifts. Other instances attesting to SMC's supervision of the workers are found in the minutes of the meeting held by the SMC officers on 5 December 1988. Among those matters discussed were the calling of SMC contractors to have workers assigned to segregation to undergo and pass eye examination to be done by SMC EENT company doctor and a review of compensation/incentive system for segregators to improve the segregation activities. But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of MAERC dated 27 May 1991 addressed to Francisco Eizmendi, SMC President and Chief Executive Officer, asking the latter to reconsider the phasing out of SMC's segregation activities in Mandaue City. The letter was not denied but in fact used by SMC to advance its own arguments. Briefly, the letter exposed the actual state of affairs under which MAERC was formed and engaged to handle the segregation project of SMC. It provided an account of how in

1987 Eizmendi approached the would-be incorporators of MAERC and offered them the business of servicing the SMC bottle-washing and segregation department in order to avert an impending labor strike. After initial reservations, MAERC incorporators accepted the offer and before long trial segregation was conducted by SMC at the PHILPHOS warehouse. The letter also set out the circumstances under which MAERC entered into the Contract of Services in 1988 with the assurances of the SMC President and CEO that the employment of MAERC's services would be long term to enable it to recover its investments. It was with this understanding that MAERC undertook borrowings from banking institutions and from affiliate corporations so that it could comply with the demands of SMC to invest in machinery and facilities. In sum, the letter attested to an arrangement entered into by the two (2) parties which was not reflected in the Contract of Services. A peculiar relationship mutually beneficial for a time but nonetheless ended in dispute when SMC decided to prematurely end the contract leaving MAERC to shoulder all the obligations to the workers. 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. 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 (BBC) had substantial capitalization but noted that BCC 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. In comparison, MAERC, as earlier discussed, displayed the characteristics of a labor-only contractor. Moreover, while

MAERC's investments in the form of buildings, tools and equipment amounted to more than P4 Million, we cannot disregard the fact that it was the SMC which required MAERC to undertake such investments under the understanding that the business relationship between petitioner and MAERC would be on a long term basis. Nor do we believe MAERC to have an independent business. Not only was it set up to specifically meet the pressing needs of SMC which was then having labor problems in its segregation division, none of its workers was also ever assigned to any other establishment, thus convincing us that it was created solely to service the needs of SMC. Naturally, with the severance of relationship between MAERC and SMC followed MAERC's cessation of operations, the loss of jobs for the whole MAERC workforce and the resulting actions instituted by the workers. Petitioner also alleged that the Court of Appeals erred in ruling that "whether MAERC is an independent contractor or a labor-only contractor, SMC is liable with MAERC for the latter's unpaid obligations to MAERC's workers." On this point, we agree with petitioner as distinctions must be made. In legitimate job contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes jointly and severally liable with the job contractor only for the payment of the employees' wages whenever the contractor fails to pay the same. Other than that, the principal employer is not responsible for any claim made by the employees. On the other hand, in labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. The principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful claims of the employees. This distinction between job contractor and labor-only contractor, however, will not discharge SMC from paying the separation benefits of the workers, inasmuch as MAERC was shown to be a labor-only contractor; in which case, petitioner's liability is that of a direct employer and thus solidarily liable with MAERC. SMC also failed to comply with the requirement of written notice to both the employees concerned and the Department of Labor and Employment (DOLE) which must be given at least one (1) month before the intended date of retrenchment. The fines imposed for violations of the notice requirement have varied. The measure of this award depends on the facts of each case and the gravity of the omission committed by the employer. For its failure, petitioner was justly ordered to indemnify each displaced worker P2,000.00. The NLRC and the Court of Appeals affirmed the Labor Arbiter's award of separation pay to the complainants in the total amount of P2,334,150.00 and of wage differentials in the total amount of P845,117.00. These amounts are the aggregate of the awards due the two hundred ninety-one (291) complainants as computed by the Labor Arbiter. The following is a summary of the computation of the benefits due the complainants which is part of the Decision of the Labor Arbiter. However, certain matters have cropped up which require a review of the awards to some complainants and a recomputation by the Labor Arbiter of the total amounts. A scrutiny of the enumeration of all the complainants shows that some names appear twice by virtue of their being included in two (2) of the nine (9) consolidated cases. A check of the Labor Arbiter's computation discloses that most of these names were awarded different amounts of

separation pay or wage differential in each separate case where they were impleaded as parties because the allegations of the length and period of their employment for the separate cases, though overlapping, were also different. The records before us are incomplete and do not aid in verifying whether these names belong to the same persons but at least three (3) of those names were found to have identical signatures in the complaint forms they filed in the separate cases. It is likely therefore that the Labor Arbiter erroneously granted some complainants separation benefits and wage differentials twice. Apart from this, we also discovered some names that are almost identical. It is possible that the minor variance in the spelling of some names may have been a typographical error and refer to the same persons although the records seem to be inconclusive. Furthermore, one of the original complainants was inadvertently omitted by the Labor Arbiter from his computations. The counsel for the complainants promptly filed a motion for inclusion/correction which motion was treated as an appeal of the Decision as the Labor Arbiter was prohibited by the rules of the NLRC from entertaining any motion at that stage of the proceedings. The NLRC for its part acknowledged the omission but both the Commission and subsequently the Court of Appeals failed to rectify the oversight in their decisions. Finally, the NLRC ordered both MAERC and SMC to pay P84,511.70 in attorneys fees which is ten percent (10%) of the salary differentials awarded to the complainants in accordance with Art. 111 of the Labor Code. The Court of Appeals also affirmed the award. Consequently, with the recomputation of the salary differentials, the award of attorney's fees must also be modified. WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated 28 April 2000 and the Resolution dated 26 July 2000 are AFFIRMED with MODIFICATION. Respondent Maerc Integrated Services, Inc. is declared to be a labor-only contractor. Accordingly, both petitioner San Miguel Corporation and respondent Maerc Integrated Services, Inc., are ordered to jointly and severally pay complainants (private respondents herein) separation benefits and wage differentials as may be finally recomputed by the Labor Arbiter as herein directed, plus attorney's fees to be computed on the basis of ten percent (10%) of the amounts which complainants may recover pursuant to Art. 111 of the Labor Code, as well as an indemnity fee of P2,000.00 to each complainant. The Labor Arbiter is directed to review and recompute the award of separation pays and wage differentials due complainants whose names appear twice or are notably similar, compute the monetary award due to complainant Niel Zanoria whose name was omitted in the Labor Arbiter's Decision and immediately execute the monetary awards as found in the Labor Arbiter's computations insofar as those complainants whose entitlement to separation pay and wage differentials and the amounts thereof are no longer in question. Costs against petitioner G.R. No. 87700 June 13, 1990 SAN MIGUEL CORPORATION EMPLOYEES UNIONPTGWO, DANIEL S.L. BORBON II, HERMINIA REYES, MARCELA PURIFICACION, ET AL. vs. HON. JESUS G. BERSAMIRA, IN HIS CAPACITY AS PRESIDING JUDGE OF BRANCH 166, RTC, PASIG, and SAN MIGUEL CORPORATION MELENCIO-HERRERA, J.: Respondent Judge of the Regional Trial Court of Pasig, Branch 166, is taken to task by petitioners in this special civil action for certiorari and Prohibition for having issued the challenged Writ of Preliminary Injunction on 29 March 1989 in Civil Case No. 57055 of his Court entitled "San Miguel Corporation vs. SMCEU-PTGWO, et als."

Petitioners' plea is that said Writ was issued without or in excess of jurisdiction and with grave abuse of discretion, a labor dispute being involved. Private respondent San Miguel Corporation (SanMig. for short), for its part, defends the Writ on the ground of absence of any employer-employee relationship between it and the contractual workers employed by the companies Lipercon Services, Inc. (Lipercon) and D'Rite Service Enterprises (D'Rite), besides the fact that the Union is bereft of personality to represent said workers for purposes of collective bargaining. The Solicitor General agrees with the position of SanMig. The antecedents of the controversy reveal that: Sometime in 1983 and 1984, SanMig entered into contracts for merchandising services with Lipercon and D'Rite (Annexes K and I, SanMig's Comment, respectively). These companies are independent contractors duly licensed by the Department of Labor and Employment (DOLE). SanMig entered into those contracts to maintain its competitive position and in keeping with the imperatives of efficiency, business expansion and diversity of its operation. In said contracts, it was expressly understood and agreed that the workers employed by the contractors were to be paid by the latter and that none of them were to be deemed employees or agents of SanMig. There was to be no employeremployee relation between the contractors and/or its workers, on the one hand, and SanMig on the other. Petitioner San Miguel Corporation Employees Union-PTWGO (the Union, for brevity) is the duly authorized representative of the monthly paid rank-and-file employees of SanMig with whom the latter executed a Collective Bargaining Agreement (CBA) effective 1 July 1986 to 30 June 1989 (Annex A, SanMig's Comment). Section 1 of their CBA specifically provides that "temporary, probationary, or contract employees and workers are excluded from the bargaining unit and, therefore, outside the scope of this Agreement." In a letter, dated 20 November 1988 (Annex C, Petition), the Union advised SanMig that some Lipercon and D'Rite workers had signed up for union membership and sought the regularization of their employment with SMC. The Union alleged that this group of employees, while appearing to be contractual workers supposedly independent contractors, have been continuously working for SanMig for a period ranging from six (6) months to fifteen (15) years and that their work is neither casual nor seasonal as they are performing work or activities necessary or desirable in the usual business or trade of SanMig. Thus, it was contended that there exists a "labor-only" contracting situation. It was then demanded that the employment status of these workers be regularized. On 12 January 1989 on the ground that it had failed to receive any favorable response from SanMig, the Union filed a notice of strike for unfair labor practice, CBA violations, and union busting (Annex D, Petition). On 30 January 1989, the Union again filed a second notice of strike for unfair labor practice (Annex F, Petition). As in the first notice of strike. Conciliatory meetings were held on the second notice. Subsequently, the two (2) notices of strike were consolidated and several conciliation conferences were held to settle the dispute before the National Conciliation and Mediation Board (NCMB) of DOLE (Annex G, Petition). Beginning 14 February 1989 until 2 March 1989, series of pickets were staged by Lipercon and D'Rite workers in various SMC plants and offices. On 6 March 1989, SMC filed a verified Complaint for Injunction and Damages before respondent Court to enjoin the Union from:

a. representing and/or acting for and in behalf of the employees of LIPERCON and/or D'RITE for the purposes of collective bargaining; b. calling for and holding a strike vote, to compel plaintiff to hire the employees or workers of LIPERCON and D'RITE; c. inciting, instigating and/or inducing the employees or workers of LIPERCON and D'RITE to demonstrate and/or picket at the plants and offices of plaintiff within the bargaining unit referred to in the CBA,...; d. staging a strike to compel plaintiff to hire the employees or workers of LIPERCON and D'RITE; e. using the employees or workers of LIPERCON AND D'RITE to man the strike area and/or picket lines and/or barricades which the defendants may set up at the plants and offices of plaintiff within the bargaining unit referred to in the CBA ...; f. intimidating, threatening with bodily harm and/or molesting the other employees and/or contract workers of plaintiff, as well as those persons lawfully transacting business with plaintiff at the work places within the bargaining unit referred to in the CBA, ..., to compel plaintiff to hire the employees or workers of LIPERCON and D'RITE; g. blocking, preventing, prohibiting, obstructing and/or impeding the free ingress to, and egress from, the work places within the bargaining unit referred to in the CBA .., to compel plaintiff to hire the employees or workers of LIPERCON and D'RITE; h. preventing and/or disrupting the peaceful and normal operation of plaintiff at the work places within the bargaining unit referred to in the CBA, Annex 'C' hereof, to compel plaintiff to hire the employees or workers of LIPERCON and D'RITE. (Annex H, Petition) Respondent Court found the Complaint sufficient in form and substance and issued a Temporary Restraining Order for the purpose of maintaining the status quo, and set the application for Injunction for hearing. In the meantime, on 13 March 1989, the Union filed a Motion to Dismiss SanMig's Complaint on the ground of lack of jurisdiction over the case/nature of the action, which motion was opposed by SanMig. That Motion was denied by respondent Judge in an Order dated 11 April 1989. After several hearings on SanMig's application for injunctive relief, where the parties presented both testimonial and documentary evidence on 25 March 1989, respondent Court issued the questioned Order (Annex A, Petition) granting the application and enjoining the Union from Committing the acts complained of, supra. Accordingly, on 29 March 1989, respondent Court issued the corresponding Writ of Preliminary Injunction after SanMig had posted the required bond of P100,000.00 to answer for whatever damages petitioners may sustain by reason thereof. In issuing the Injunction, respondent Court rationalized: The absence of employer-employee relationship negates the existence of labor dispute. Verily, this court has jurisdiction to take cognizance of plaintiff's grievance. The evidence so far presented indicates that plaintiff has contracts for services with Lipercon and D'Rite. The application and contract for employment of the defendants' witnesses are either with Lipercon or D'Rite. What could be discerned is that there is no employer-employee relationship

between plaintiff and the contractual workers employed by Lipercon and D'Rite. This, however, does not mean that a final determination regarding the question of the existence of employer-employee relationship has already been made. To finally resolve this dispute, the court must extensively consider and delve into the manner of selection and engagement of the putative employee; the mode of payment of wages; the presence or absence of a power of dismissal; and the Presence or absence of a power to control the putative employee's conduct. This necessitates a full-blown trial. If the acts complained of are not restrained, plaintiff would, undoubtedly, suffer irreparable damages. Upon the other hand, a writ of injunction does not necessarily expose defendants to irreparable damages. Evidently, plaintiff has established its right to the relief demanded. (p. 21, Rollo) Anchored on grave abuse of discretion, petitioners are now before us seeking nullification of the challenged Writ. On 24 April 1989, we issued a Temporary Restraining Order enjoining the implementation of the Injunction issued by respondent Court. The Union construed this to mean that "we can now strike," which it superimposed on the Order and widely circulated to entice the Union membership to go on strike. Upon being apprised thereof, in a Resolution of 24 May 1989, we required the parties to "RESTORE the status quo ante declaration of strike" (p. 2,62 Rollo). In the meantime, however, or on 2 May 1989, the Union went on strike. Apparently, some of the contractual workers of Lipercon and D'Rite had been laid off. The strike adversely affected thirteen (13) of the latter's plants and offices. On 3 May 1989, the National Conciliation and Mediation Board (NCMB) called the parties to conciliation. The Union stated that it would lift the strike if the thirty (30) Lipercon and D'Rite employees were recalled, and discussion on their other demands, such as wage distortion and appointment of coordinators, were made. Effected eventually was a Memorandum of Agreement between SanMig and the Union that "without prejudice to the outcome of G.R. No. 87700 (this case) and Civil Case No. 57055 (the case below), the laid-off individuals ... shall be recalled effective 8 May 1989 to their former jobs or equivalent positions under the same terms and conditions prior to "lay-off" (Annex 15, SanMig Comment). In turn, the Union would immediately lift the pickets and return to work. After an exchange of pleadings, this Court, on 12 October 1989, gave due course to the Petition and required the parties to submit their memoranda simultaneously, the last of which was filed on 9 January 1990. The focal issue for determination is whether or not respondent Court correctly assumed jurisdiction over the present controversy and properly issued the Writ of Preliminary Injunction to the resolution of that question, is the matter of whether, or not the case at bar involves, or is in connection with, or relates to a labor dispute. An affirmative answer would bring the case within the original and exclusive jurisdiction of labor tribunals to the exclusion of the regular Courts. Petitioners take the position that 'it is beyond dispute that the controversy in the court a quo involves or arose out of a labor dispute and is directly connected or interwoven with the cases pending with the NCMB-DOLE, and is thus beyond the ambit of the public respondent's jurisdiction. That the acts complained of (i.e., the mass concerted action of picketing and the reliefs prayed for by the private respondent) are within the competence of labor tribunals, is beyond question" (pp. 6-7, Petitioners' Memo). On the other hand, SanMig denies the existence of any employer-employee relationship and consequently of any labor dispute between itself and the Union. SanMig submits,

in particular, that "respondent Court is vested with jurisdiction and judicial competence to enjoin the specific type of strike staged by petitioner union and its officers herein complained of," for the reasons that: A. The exclusive bargaining representative of an employer unit cannot strike to compel the employer to hire and thereby create an employment relationship with contractual workers, especially were the contractual workers were recognized by the union, under the governing collective bargaining agreement, as excluded from, and therefore strangers to, the bargaining unit. B. A strike is a coercive economic weapon granted the bargaining representative only in the event of a deadlock in a labor dispute over 'wages, hours of work and all other and of the employment' of the employees in the unit. The union leaders cannot instigate a strike to compel the employer, especially on the eve of certification elections, to hire strangers or workers outside the unit, in the hope the latter will help re-elect them. C. Civil courts have the jurisdiction to enjoin the above because this specie of strike does not arise out of a labor dispute, is an abuse of right, and violates the employer's constitutional liberty to hire or not to hire. (SanMig's Memorandum, pp. 475476, Rollo). We find the Petition of a meritorious character. A "labor dispute" as defined in Article 212 (1) of the Labor Code includes "any controversy or matter concerning terms and conditions of employment or the association or representation of persons in negotiating, fixing, maintaining, changing, or arranging the terms and conditions of employment, regardless of whether the disputants stand in the proximate relation of employer and employee." While it is SanMig's submission that no employer-employee relationship exists between itself, on the one hand, and the contractual workers of Lipercon and D'Rite on the other, a labor dispute can nevertheless exist "regardless of whether the disputants stand in the proximate relationship of employer and employee" (Article 212 [1], Labor Code, supra) provided the controversy concerns, among others, the terms and conditions of employment or a "change" or "arrangement" thereof (ibid). Put differently, and as defined by law, the existence of a labor dispute is not negative by the fact that the plaintiffs and defendants do not stand in the proximate relation of employer and employee. That a labor dispute, as defined by the law, does exist herein is evident. At bottom, what the Union seeks is to regularize the status of the employees contracted by Lipercon and D'Rite in effect, that they be absorbed into the working unit of SanMig. This matter definitely dwells on the working relationship between said employees vis-a-vis SanMig. Terms, tenure and conditions of their employment and the arrangement of those terms are thus involved bringing the matter within the purview of a labor dispute. Further, the Union also seeks to represent those workers, who have signed up for Union membership, for the purpose of collective bargaining. SanMig, for its part, resists that Union demand on the ground that there is no employeremployee relationship between it and those workers and because the demand violates the terms of their CBA. Obvious then is that representation and association, for the purpose of negotiating the conditions of employment are also involved. In fact, the injunction sought by SanMig was precisely also to prevent such representation. Again, the matter of representation falls within the scope of a labor dispute. Neither can it be denied that the controversy below is directly connected with the labor dispute already taken cognizance of by the NCMB-DOLE (NCMB-NCR- NS-01- 02189; NCMB NCR NS-01-093-83).

Whether or not the Union demands are valid; whether or not SanMig's contracts with Lipercon and D'Rite constitute "labor-only" contracting and, therefore, a regular employeremployee relationship may, in fact, be said to exist; whether or not the Union can lawfully represent the workers of Lipercon and D'Rite in their demands against SanMig in the light of the existing CBA; whether or not the notice of strike was valid and the strike itself legal when it was allegedly instigated to compel the employer to hire strangers outside the working unit; those are issues the resolution of which call for the application of labor laws, and SanMig's cause's of action in the Court below are inextricably linked with those issues. The precedent in Layno vs. de la Cruz (G.R. No. L-29636, 30 April 1965, 13 SCRA 738) relied upon by SanMig is not controlling as in that case there was no controversy over terms, tenure or conditions, of employment or the representation of employees that called for the application of labor laws. In that case, what the petitioning union demanded was not a change in working terms and conditions, or the representation of the employees, but that its members be hired as stevedores in the place of the members of a rival union, which petitioners wanted discharged notwithstanding the existing contract of the arrastre company with the latter union. Hence, the ruling therein, on the basis of those facts unique to that case, that such a demand could hardly be considered a labor dispute. As the case is indisputably linked with a labor dispute, jurisdiction belongs to the labor tribunals. As explicitly provided for in Article 217 of the Labor Code, prior to its amendment by R.A. No. 6715 on 21 March 1989, since the suit below was instituted on 6 March 1989, Labor Arbiters have original and exclusive jurisdiction to hear and decide the following cases involving all workers including "1. unfair labor practice cases; 2. those that workers may file involving wages, hours of work and other terms and conditions of employment; ... and 5. cases arising from any violation of Article 265 of this Code, including questions involving the legality of striker and lockouts. ..." Article 217 lays down the plain command of the law. The claim of SanMig that the action below is for damages under Articles 19, 20 and 21 of the Civil Code would not suffice to keep the case within the jurisdictional boundaries of regular Courts. That claim for damages is interwoven with a labor dispute existing between the parties and would have to be ventilated before the administrative machinery established for the expeditious settlement of those disputes. To allow the action filed below to prosper would bring about "split jurisdiction" which is obnoxious to the orderly administration of justice (Philippine Communications, Electronics and Electricity Workers Federation vs. Hon. Nolasco, L-24984, 29 July 1968, 24 SCRA 321). We recognize the proprietary right of SanMig to exercise an inherent management prerogative and its best business judgment to determine whether it should contract out the performance of some of its work to independent contractors. However, the rights of all workers to selforganization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law (Section 3, Article XIII, 1987 Constitution) equally call for recognition and protection. Those contending interests must be placed in proper perspective and equilibrium. WHEREFORE, the Writ of certiorari is GRANTED and the Orders of respondent Judge of 25 March 1989 and 29 March 1989 are SET ASIDE. The Writ of Prohibition is GRANTED and respondent Judge is enjoined from taking any further action in Civil Case No. 57055 except for the purpose of dismissing it. The status quo ante declaration of strike ordered by the Court on 24 May 1989 shall be observed pending the proceedings in the National Conciliation Mediation BoardDepartment of Labor and Employment, docketed as NCMBNCR-NS-01-02189 and NCMB-NCR-NS-01-093-83. No costs.