STOLT-NIELSEN TRANSPORTATION GROUP, INC. AND CHUNG GAI SHIP MANAGEMENT vs SULPECIO MEDEQUILLO, JR PEREZ, J.

: FACTS: On 6 March 1995, Sulpecio Madequillo filed a complaint before the Adjudication Office of POEA Stolt-Nielsen for illegal dismissal under a first contract and for failure to deploy under a second contract. Sulpecio alleged that:
1.

On 6 November 1991(First Contract), he was hired by Stolt-Nielsen Marine Services, Inc on behalf of its principal Chung-Gai Ship Management of Panama as Third Assistant Engineer on board the vessel Stolt Aspiration for a period of nine (9) months; He would be paid with a monthly basic salary of $808.00 and a fixed overtime pay of $404.00 or a total of $1,212.00 per month during the employment period commencing on 6 November 1991; On 8 November 1991, he joined the vessel MV Stolt Aspiration; On February 1992 or for nearly three (3) months of rendering service and while the vessel was at Batangas, he was ordered by the ships master to disembark the vessel and repatriated back to Manila for no reason or explanation; Upon his return to Manila, he immediately proceeded to the petitioners office where he was transferred employment with another vessel named MV Stolt Pride under the same terms and conditions of the First Contract; On 23 April 1992, the Second Contract was noted and approved by the POEA; The POEA, without knowledge that he was not deployed with the vessel, certified the Second Employment Contract on 18 September 1992.

2.

3. 4.

5.

6.

7.

Despite the commencement of the Second Contract on 21 April 1992, petitioners failed to deploy him with the vessel MV Stolt Pride; 9. He made a follow-up with the petitioner but the same refused to comply with the Second Employment Contract.
8.

10.

On 22 December 1994, he demanded for his passport, seamans book and other employment documents. However, he was only allowed to claim the said documents in exchange of his signing a document; He was constrained to sign the document involuntarily because without these documents, he could not seek employment from other agencies.

11.

Stolts contentions: (1) the first employment contract between them and Sulpecio is different from and independent of the second contract subsequently executed upon repatriation of respondent to Manila. (2) under the POEA Contract, actual deployment of the seafarer is a suspensive condition for the commencement of the employment
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ISSUE: (1) W/N the 1st employment contract is different from and independent from the 2 nd? NO. there was novation of the 1st contract when Sulpecio entered the 2nd. (2) W/N the action for recovery of damages prescribed? YES (3) W/N employment commences upon the actual deployment of seafearers? YES (4) How will the seafarer be compensated by reason of the unreasonable

non-deployment of the petitioners?

HELD:

(1) Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order foer novation to take place, the concurrence of the following requisites is indispensable:
1. There must be a previous valid obligation, 2. There must be an agreement of the parties concerned to a new contract, 3. There must be the extinguishment of the old contract, and 4. There must be the validity of the new contract.
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There was a novation of the first employment contract.

With the finding that respondent was still employed under the first contract when he negotiatedwith petitioners on the second contract, novation became an unavoidable conclusion.
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(2) The recovery of damages under the first contract was already time-barred.
Accordingly, the prescriptive period of three (3) years within which Medequillo Jr. may initiate money claims under the 1st contract commenced on the date of his repatriation. xxx The start of the three (3) year prescriptive period must therefore be reckoned on February 1992, which by Medequillo Jr.s own admission was the date of his repatriation to Manila. It was at this point in time that Medequillo Jr.s cause of action already accrued under the first contract. He had until February 1995 to pursue a case for illegal dismissal and damages arising from the 1st contract. With the filing of his Complaint-Affidavit on March 6, 1995, which was clearly beyond the prescriptive period, the cause of action under the 1st contract was already time-barred.
(3)

Actual deployment of the seafarer is a suspensive condition for the commencement of the employment. However, even without actual deployment, the perfected contract gives rise to obligations on the part of petitioners. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
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The POEA Standard Employment Contract provides that employment shall commence upon the actual departure of the seafarer from the airport or seaport in the port of hire. We adhere to the terms and conditions of the contract so as to credit the valid prior stipulations of the parties before the controversy started. Else, the obligatory force of every contract will be useless. Parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.
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Thus, even if by the standard contract employment commences only upon actual departure of the seafarer, this does not mean that the seafarer has no remedy in case of non-deployment without any valid reason. Parenthetically, the contention of the petitioners of the alleged poor performance of respondent while on board the first ship MV Stolt Aspiration cannot be sustained to justify the non-deployment, for no evidence to prove the same was presented.
33

We rule that distinction must be made between the perfection of the employment contract and the commencement of the employer-employee relationship. The perfection of the contract, which in this case coincided with the date of execution thereof, occurred when petitioner and respondent agreed on the object and the cause, as well as the rest of the terms and conditions therein. The commencement of the employer-employee relationship, as earlier discussed, would have taken place had petitioner been actually deployed from the point of hire. Thus, even before the start of any employer-employee relationship, contemporaneous with the perfection of the employment contract was the birth of certain rights and obligations, the breach of which may give rise to a cause of action against the erring party. Thus, if the reverse had happened, that is the seafarer failed or refused to be deployed as agreed upon, he would be liable for damages.
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(4) Now, the question to be dealt with is how will the seafarer be compensated by reason of the unreasonable non-deployment of the petitioners?

The POEA Rules Governing the Recruitment and Employment of Seafarers do not provide for the award of damages to be given in favor of the employees. The claim provided by the same law refers to a valid contractual claim for compensation or benefits arising from employer-employee relationship or for any personal injury, illness or death at levels provided for within the terms and conditions of employment of seafarers. However, the absence of the POEA Rules with regard to the payment of damages to the affected seafarer does not mean that the seafarer is precluded from claiming the same. The sanctions provided for non-deployment do not end with the suspension or cancellation of license or fine and the return of all documents at no cost to the worker. As earlier discussed, they do not forfend a seafarer from

instituting an action for damages against the employer or agency which has failed to deploy him.
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We thus decree the application of Section 10 of Republic Act No. 8042 (Migrant Workers Act) which provides for money claims by reason of a contract involving Filipino workers for overseas deployment. The law provides:

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

Following the law, the claim is still cognizable by the labor arbiters of the NLRC under the second phrase of the provision.

Applying the rules on actual damages, Article 2199 of the New Civil Code provides that one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Respondent is thus liable to pay petitioner actual damages in the form of the loss of nine (9) months worth of salary as provided in the contract. This is but proper because of the non-deployment of respondent without just cause.
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JOEB M. ALIVIADO vs.PROCTER & GAMBLE PHILS., INC., and PROMM-GEM INC.

FACTS:
Petitioners worked as merchandisers of P&G from various dates. They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a time.5 They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS.6 SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.7 P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on a wholesale basis to various supermarkets and distributors.8 To enhance consumer awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products.9 In December 1991, petitioners filed a complaint10 against P&G for regularization, service incentive leave pay and other benefits with damages. The complaint was later amended11 to include the matter of their subsequent dismissal. Petitioners Arguments Petitioners insist that they are employees of P&G. They claim that they were recruited by the salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-alignment program, petitioners were instructed to fill up application forms and report to the agencies which P&G created.18 Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter19 to SAPS dated February 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed. Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their client. They insist that since they had been engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then they are its regular employees.20 P&Gs Arguments: 1)P&G further argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that (selected petitioners and engaged their services; paid their salaries; wielded the power of dismissal; and had the power of control over their conduct of work. 2)P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is peripheral or core in nature. It insists that the determination of whether to engage the services of a job contractor or to engage in direct hiring is within the ambit of management prerogative.

ISSUES: (1) whether P&G is the employer of petitioners? Some petitioners , having been recruited and supplied by SAPS41 -- which engaged in labor-only contracting -- are considered as the employees of P&G. Other petitioners having worked under, and been dismissed by Promm-Gem, are considered the employees of Promm-Gem, not of P&G. a) whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors? Promm-Gem cannot be considered as a labor-only contractor. We find that it is a legitimate independent contractor. (2) whether petitioners were illegally dismissed? YES, Illegally dismissed. (3) whether petitioners are entitled for payment of actual, moral and exemplary damages as well as litigation costs and attorneys fees. HELD: 1) a) 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. Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18-02,24 distinguishes between legitimate and labor-only contracting: xxxx Section 3. Trilateral Relationship in Contracting Arrangements. Section 5. Prohibition against labor-only contracting (Art 248 LC) " x x x x (Underscoring supplied.) Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current labor rules expressly prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal25 and any of the following elements are present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii) The contractor does not exercise the right to control over the performance of the work of the contractualemployee. (Underscoring supplied) In the instant case, we find that Promm-Gem has substantial investment which relates to the work to be performed. These factors negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02. The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project, employees.32 This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates on the part of Promm-Gem bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs or public order.33 On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only P31,250.00. There is no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets. ---Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to the manufacturing business,38 which is the principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in "labor-only contracting". "Where labor-only contracting exists, the Labor Code itself establishes an employeremployee relationship between the employer and the employees of the labor-only contractor."39 The statute establishes this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.40 2) In cases of regular employment, the employer shall not terminate the services of an employee except for a just43 or authorized44 cause.

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of dismissal as grave misconduct and breach of trust. Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment. The misconduct to be serious must be of such grave and aggravated character and not merely trivial and unimportant.46 To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c) must show that the employee has become unfit to continue working for the employer.47 In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of has violated some established rules or policies. It is equally important and required that the act or conduct must have been performed with wrongful intent.48 In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee. Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.49 Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee concerned holds a position of responsibility or of trust and confidence. As such, he must be invested with confidence on delicate matters, such as custody, handling or care and protection of the property and assets of the employer. And, in order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the employee is unfit to continue to work for the employer.50 In the instant case, the petitioners-employees of Promm-Gem have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to continue to work as merchandisers for Promm-Gem. All told, we find no valid cause for the dismissal of petitioners-employees of PrommGem. While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitioners-employees, it failed to comply with the substantive aspect of due process as the acts complained of neither constitute serious misconduct nor breach of trust. Hence, the dismissal is illegal. With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show that upon receipt by SAPS of P&Gs letter terminating their "Merchandising Services Contact" effective March 11, 1993, they in turn verbally informed the concerned petitioners not to report for work anymore. The concerned petitioners related their

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does not carry on its own business because the termination of its contract with P&G automatically meant for it also the termination of its employees services. It is obvious from its act that SAPS had no other clients and had no intention of seeking other clients in order to further its merchandising business. From all indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latters merchandising concerns only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as an independent contractor. Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the lawfulness of the dismissal rests with the employer.53 In termination cases, the burden of proof rests upon the employer to show that the dismissal is for just and valid cause.54 In the instant case, P&G failed to discharge the burden of proving the legality and validity of the dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were not justified and are therefore illegal. 3) Moral and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or public policy.55 With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the part of the latter, we find no support for the award of damages. As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day verbal notice, and for no valid cause bellows oppression and utter disregard of the right to due process of the concerned petitioners. Hence, an award of moral damages is called for. Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the time the compensation was withheld up to the time of actual reinstatement.57Hence, all the petitioners, having been illegally dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.
1avvphi1

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