1

G.R. No. L-12582

January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-appellees.
x---------------------------------------------------------x
G.R. No. L-12598

January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL RELATIONS, respondents-appellees.
Nicanor S. Sison for petitioner-appellant.
Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.
CONCEPCION, J.:
Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review by certiorari of an order of the
Court of Industrial Relations in Case No. 306-MC thereof, certifying the Philippine Musicians Guild (FFW), petitioner
therein and respondent herein, as the sole and exclusive bargaining agency of all musicians working with said
companies, as well as with the Premiere Productions, Inc., which has not appealed. The appeal of LVN Pictures,
Inc., has been docketed as G.R. No. L-12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc.
Involving as they do the same order, the two cases have been jointly heard in this Court, and will similarly be
disposed of.
In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as the Guild, averred
that it is a duly registered legitimate labor organization; that LVN Pictures, Inc., Sampaguita Pictures, Inc., and
Premiere Productions, Inc. are corporations, duly organized under the Philippine laws, engaged in the making of
motion pictures and in the processing and distribution thereof; that said companies employ musicians for the
purpose of making music recordings for title music, background music, musical numbers, finale music and other
incidental music, without which a motion picture is incomplete; that ninety-five (95%) percent of all the musicians
playing for the musical recordings of said companies are members of the Guild; and that the same has no
knowledge of the existence of any other legitimate labor organization representing musicians in said companies.
Premised upon these allegations, the Guild prayed that it be certified as the sole and exclusive bargaining agency
for all musicians working in the aforementioned companies. In their respective answers, the latter denied that they
have any musicians as employees, and alleged that the musical numbers in the filing of the companies are
furnished by independent contractors. The lower court, however, rejected this pretense and sustained the theory of
the Guild, with the result already adverted to. A reconsideration of the order complained of having been denied by
the Court en banc, LVN Pictures, inc., and Sampaguita Pictures, Inc., filed these petitions for review forcertiorari.
Apart from impugning the conclusion of the lower court on the status of the Guild members as alleged employees of
the film companies, the LVN Pictures, Inc., maintains that a petition for certification cannot be entertained when the
existence of employer-employee relationship between the parties is contested. However, this claim is neither borne
out by any legal provision nor supported by any authority. So long as, after due hearing, the parties are found to
bear said relationship, as in the case at bar, it is proper to pass upon the merits of the petition for certification.
It is next urged that a certification is improper in the present case, because, "(a) the petition does not allege and no
evidence was presented that the alleged musicians-employees of the respondents constitute a proper bargaining
unit, and (b) said alleged musicians-employees represent a majority of the other numerous employees of the film
companies constituting a proper bargaining unit under section 12 (a) of Republic Act No. 875."

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The absence of an express allegation that the members of the Guild constitute a proper bargaining unit is fatal
proceeding, for the same is not a "litigation" in the sense in which this term is commonly understood, but a mere
investigation of a non-adversary, fact finding character, in which the investigating agency plays the part of a
disinterested investigator seeking merely to ascertain the desires of employees as to the matter of their
representation. In connection therewith, the court enjoys a wide discretion in determining the procedure necessary
to insure the fair and free choice of bargaining representatives by employees. 1 Moreover, it is alleged in the petition
that the Guild it a duly registered legitimate labor organization and that ninety-five (95%) percent of the musicians
playing for all the musical recordings of the film companies involved in these cases are members of the Guild.
Although, in its answer, the LVN Pictures, Inc. denied both allegations, it appears that, at the hearing in the lower
court it was merely the status of the musicians as its employees that the film companies really contested. Besides,
the substantial difference between the work performed by said musicians and that of other persons who participate
in the production of a film, and the peculiar circumstances under which the services of that former are engaged and
rendered, suffice to show that they constitute a proper bargaining unit. At this juncture, it should be noted that the
action of the lower court in deciding upon an appropriate unit for collective bargaining purposes is discretionary
(N.L.R.B. v. May Dept. Store Co., 66 Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this respect is entitled to
almost complete finality, unless its action is arbitrary or capricious (Marshall Field & Co. v. N.L.R.B. [C.C.A. 19431,
135 F. 2d. 891), which is far from being so in the cases at bar.
Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for the musicians
working in the aforesaid film companies. It does not intend to represent the other employees therein. Hence, it was
not necessary for the Guild to allege that its members constitute a majority of all the employees of said film
companies, including those who are not musicians. The real issue in these cases, is whether or not the musicians in
question are employees of the film companies. In this connection the lower court had the following to say:
As a normal and usual course of procedure employed by the companies when a picture is to be made, the
producer invariably chooses, from the musical directors, one who will furnish the musical background for a
film. A price is agreed upon verbally between the producer and musical director for the cost of furnishing
such musical background. Thus, the musical director may compose his own music specially written for or
adapted to the picture. He engages his own men and pays the corresponding compensation of the
musicians under him.
When the music is ready for recording, the musicians are summoned through 'call slips' in the name of the
film company (Exh 'D'), which show the name of the musician, his musical instrument, and the date, time
and place where he will be picked up by the truck of the film company. The film company provides the studio
for the use of the musicians for that particular recording. The musicians are also provided transportation to
and from the studio by the company. Similarly, the company furnishes them meals at dinner time.
During the recording sessions, the motion picture director, who is an employee of the company, supervises
the recording of the musicians and tells what to do in every detail. He solely directs the performance of the
musicians before the camera as director, he supervises the performance of all the action, including the
musicians who appear in the scenes so that in the actual performance to be shown on the screen, the
musical director's intervention has stopped.
And even in the recording sessions and during the actual shooting of a scene, the technicians, soundmen
and other employees of the company assist in the operation. Hence, the work of the musicians is an integral
part of the entire motion picture since they not only furnish the music but are also called upon to appear in
the finished picture.
The question to be determined next is what legal relationship exits between the musicians and the company
in the light of the foregoing facts.

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We are thus called upon to apply R.A. Act 875. which is substantially the same as and patterned after the
Wagner Act substantially the same as a Act and the Taft-Hartley Law of the United States. Hence, reference
to decisions of American Courts on these laws on the point-at-issue is called for.
Statutes are to be construed in the light of purposes achieved and the evils sought to be remedied. (U.S. vs.
American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .
In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the United States
Supreme Court said the Wagner Act was designed to avert the 'substantial obstruction to the free flow of
commerce which results from strikes and other forms of industrial unrest by eliminating the causes of the
unrest. Strikes and industrial unrest result from the refusal of employers' to bargain collectively and the
inability of workers to bargain successfully for improvement in their working conditions. Hence, the purposes
of the Act are to encourage collective bargaining and to remedy the workers' inability to bargaining power, by
protecting the exercise of full freedom of association and designation of representatives of their own
choosing, for the purpose of negotiating the terms and conditions of their employment.'
The mischief at which the Act is aimed and the remedies it offers are not confined exclusively to 'employees'
within the traditional legal distinctions, separating them from 'independent contractor'. Myriad forms of
service relationship, with infinite and subtle variations in the term of employment, blanket the nation's
economy. Some are within this Act, others beyond its coverage. Large numbers will fall clearly on one side
or on the other, by whatever test may be applied. Inequality of bargaining power in controversies of their
wages, hours and working conditions may characterize the status of one group as of the other. The former,
when acting alone may be as helpless in dealing with the employer as dependent on his daily wage and as
unable to resist arbitrary and unfair treatment as the latter.'
To eliminate the causes of labor dispute and industrial strike, Congress thought it necessary to create a
balance of forces in certain types of economic relationship. Congress recognized those economic
relationships cannot be fitted neatly into the containers designated as 'employee' and 'employer'. Employers
and employees not in proximate relationship may be drawn into common controversies by economic forces
and that the very dispute sought to be avoided might involve 'employees' who are at times brought into an
economic relationship with 'employers', who are not their 'employers'. In this light, the language of the Act's
definition of 'employee' or 'employer' should be determined broadly in doubtful situations, by underlying
economic facts rather than technically and exclusively established legal classifications. (NLRB vs. Blount,
131 F [2d] 585.)
In other words, the scope of the term 'employee' must be understood with reference to the purposes of the
Act and the facts involved in the economic relationship. Where all the conditions of relation require
protection, protection ought to be given .
By declaring a worker an employee of the person for whom he works and by recognizing and protecting his
rights as such, we eliminate the cause of industrial unrest and consequently we promote industrial peace,
because we enable him to negotiate an agreement which will settle disputes regarding conditions of
employment, through the process of collective bargaining.
The statutory definition of the word 'employee' is of wide scope. As used in the Act, the term embraces 'any
employee' that is all employees in the conventional as well in the legal sense expect those excluded by
express provision. (Connor Lumber Co., 11 NLRB 776.).
It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of industrial unrest by
protecting the exercise of their right to self-organization for the purpose of collective bargaining. (b) To
promote sound stable industrial peace and the advancement of the general welfare, and the best interests of
employers and employees by the settlement of issues respecting terms and conditions of employment
through the process of collective bargaining between employers and representatives of their employees.

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The primary consideration is whether the declared policy and purpose of the Act can be effectuated by
securing for the individual worker the rights and protection guaranteed by the Act. The matter is not
conclusively determined by a contract which purports to establish the status of the worker, not as an
employee.
The work of the musical director and musicians is a functional and integral part of the enterprise performed
at the same studio substantially under the direction and control of the company.
In other words, to determine whether a person who performs work for another is the latter's employee or an
independent contractor, the National Labor Relations relies on 'the right to control' test. Under this test an
employer-employee relationship exist where the person for whom the services are performed reserves the
right to control not only the end to be achieved, but also the manner and means to be used in reaching the
end. (United Insurance Company, 108, NLRB No. 115.).
Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.
'We find that the independent contractors and persons working under them are employees' within the
meaning of Section 2 (3) of its Act. However, we are of the opinion that the independent contractors
have sufficient authority over the persons working under their immediate supervision to warrant their
exclusion from the unit. We shall include in the unit the employees working under the supervision of
the independent contractors, but exclude the contractors.'
'Notwithstanding that the employees are called independent contractors', the Board will hold them to be
employees under the Act where the extent of the employer's control over them indicates that the relationship
is in reality one of employment. (John Hancock Insurance Co., 2375-D, 1940, Teller, Labor Dispute
Collective Bargaining, Vol.).
The right of control of the film company over the musicians is shown (1) by calling the musicians through
'call slips' in 'the name of the company; (2) by arranging schedules in its studio for recording sessions; (3) by
furnishing transportation and meals to musicians; and (4) by supervising and directing in detail, through the
motion picture director, the performance of the musicians before the camera, in order to suit the music they
are playing to the picture which is being flashed on the screen.
Thus, in the application of Philippine statutes and pertinent decisions of the United States Courts on the
matter to the facts established in this case, we cannot but conclude that to effectuate the policies of the Act
and by virtue of the 'right of control' test, the members of the Philippine Musicians Guild are employees of
the three film companies and, therefore, entitled to right of collective bargaining under Republic Act No. 875.
In view of the fact that the three (3) film companies did not question the union's majority, the Philippine
Musicians Guild is hereby declared as the sole collective bargaining representative for all the musicians
employed by the film companies."
We are fully in agreement with the foregoing conclusion and the reasons given in support thereof. Both are
substantially in line with the spirit of our decision in Maligaya Ship Watchmen Agency vs. Associated Watchmen and
Security Union, L-12214-17 (May 28, 1958). In fact, the contention of the employers in the Maligaya cases, to the
effect that they had dealt with independent contractors, was stronger than that of the film companies in these cases.
The third parties with whom the management and the workers contracted in the Maligaya cases were
agencies registered with the Bureau of Commerce and duly licensed by the City of Manila to engage in the business
of supplying watchmen to steamship companies, with permits to engage in said business issued by theCity
Mayor and the Collector of Customs. In the cases at bar, the musical directors with whom the film companies claim
to have dealt with had nothing comparable to the business standing of said watchmen agencies. In this respect, the
status of said musical directors is analogous to that of the alleged independent contractor in Caro vs. Rilloraza, L9569 (September 30, 1957), with the particularity that the Caro case involved the enforcement of the liability of an

5
employer under the Workmen's Compensation Act, whereas the cases before us are merely concerned with the
right of the Guild to represent the musicians as a collective bargaining unit. Hence, there is less reason to be
legalistic and technical in these cases, than in the Caro case.
Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut Product Co., Inc vs.
CIR (46 Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos Vda. de Geronimo, L-6968 (November 29,
1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa Vda. de Cruz vs. The Manila Hotel Co. (53 Off.
Gaz., 8540). Instead of favoring the theory of said petitioners-appellants, the case of the Sunripe Coconut Product
Co., Inc. is authority for herein respondents-appellees. It was held that, although engaged as piece-workers, under
the "pakiao" system, the "parers" and "shellers" in the case were, not independent contractor, butemployees of said
company, because "the requirement imposed on the 'parers' to the effect that 'the nuts are pared whole or that there
is not much meat wasted,' in effect limits or controls the means or details by which said workers are to accomplish
their services" as in the cases before us.
The nature of the relation between the parties was not settled in the Viana case, the same having been remanded to
the Workmen's Compensation Commission for further evidence.
The case of the Philippine Manufacturing Co. involved a contract between said company and Eliano Garcia, who
undertook to paint a tank of the former. Garcia, in turn engaged the services of Arcadio Geronimo, a laborer, who fell
while painting the tank and died in consequence of the injuries thus sustained by him. Inasmuch as the company
was engaged in the manufacture of soap, vegetable lard, cooking oil and margarine, it was held that the connection
between its business and the painting aforementioned was purely casual; that Eliano Garcia was an independent
contractor; that Geronimo was not an employee of the company; and that the latter was not bound, therefore, to pay
the compensation provided in the Workmen's Compensation Act. Unlike the Philippine Manufacturing case, the
relation between the business of herein petitioners-appellants and the work of the musicians is not casual. As held
in the order appealed from which, in this respect, is not contested by herein petitioners-appellants "the work of
the musicians is an integral part of the entire motion picture." Indeed, one can hardly find modern films without
music therein. Hence, in the Caro case (supra), the owner and operator of buildings for rent was held bound to pay
the indemnity prescribed in the Workmen's Compensation Act for the injury suffered by a carpenter while working as
such in one of said buildings even though his services had been allegedly engaged by a third party who had directly
contracted with said owner. In other words, the repair work had not merely a casual connection with the business of
said owner. It was a necessary incident thereof, just as music is in the production of motion pictures.
The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs materially from the
present cases. It involved the interpretation of Republic Act No. 660, which amends the law creating and
establishing the Government Service Insurance System. No labor law was sought to be construed in that case. In
act, the same was originally heard in the Court of First Instance of Manila, the decision of which was, on appeal,
affirmed by the Supreme Court. The meaning or scope if the term "employee," as used in the Industrial Peace Act
(Republic Act No. 875), was not touched therein. Moreover, the subject matter of said case was a contract between
the management of the Manila Hotel, on the one hand, and Tirso Cruz, on the other, whereby the latter greed to
furnish the former the services of his orchestra, consisting of 15 musicians, including Tirso Cruz, "from 7:30 p.m. to
closing time daily." In the language of this court in that case, "what pieces the orchestra shall play, and how the
music shall be arranged or directed, the intervals and other details such are left to the leader'sdiscretion."
This is not situation obtaining in the case at bar. The musical directors above referred to have no such control over
the musicians involved in the present case. Said musical directors control neither the music to be played, nor the
musicians playing it. The film companies summon the musicians to work, through the musical directors. The film
companies, through the musical directors, fix the date, the time and the place of work. The film companies, not the
musical directors, provide the transportation to and from the studio. The film companies furnish meal at dinner time.
What is more in the language of the order appealed from "during the recording sessions, the motion picture
director who is an employee of the company" not the musical director "supervises the recording of the
musicians and tells them what to do in every detail". The motion picture director not the musical director

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"solely directs and performance of the musicians before the camera". The motion picture director "supervises the
performance of all the actors, including the musicians who appear in the scenes, so that in the actual performance
to be shown in the screen, the musical director's intervention has stopped." Or, as testified to in the lower court, "the
movie director tells the musical director what to do; tells the music to be cut or tells additional music in this part or he
eliminates the entire music he does not (want) or he may want more drums or move violin or piano, as the case may
be". The movie director "directly controls the activities of the musicians." He "says he wants more drums and the
drummer plays more" or "if he wants more violin or he does not like that.".
It is well settled that "an employer-employee relationship exists . . .where the person for whom the services are
performed reserves a right to control not only the end to be achieved but also the means to be used in reaching
such end . . . ." (Alabama Highway Express Co., Express Co., v. Local 612, 108S. 2d. 350.) The decisive nature of
said control over the "means to be used", is illustrated in the case of Gilchrist Timber Co., et al., Local No. 2530 (73
NLRB No. 210, pp. 1197, 1199-1201), in which, by reason of said control, the employer-employee relationship was
held to exist between the management and the workers, notwithstanding the intervention of an alleged independent
contractor, who had, and exercise, the power to hire and fire said workers. The aforementioned control over the
means to be used" in reading the desired end is possessed and exercised by the film companies over the musicians
in the cases before us.
WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners herein. It is so ordered.

G.R. No. L-53590 July 31, 1984

ROSARIO BROTHERS INC. (MANILA COD DEPARTMENT STORE), petitioner,
vs.
HON. BLAS F. OPLE, THE NATIONAL LABOR RELATIONS COMMISSION, and LEONARDO LOVERIA,
MARIETTA GALUT, LINDA TAPICERIA, JESUS S. OLIVER, CLARITA SANGLE, RICARDO ROXAS, ANTONIO
MABUTOL, LUZ BAYNO, NESTOR SANCHEZ, TITO CASTALEDA, EDDIE RODRIGUEZ, MANUEL MEJES,
FRANCISCA TAPICERIA, EDITHA BAYNO, ET AL., respondents.
Bueno & Primicias Law Office for petitioner.
The Solicitor General for respondents.

RELOVA, J.:
The issue raised in this case is whether an employer-employee 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)

7
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.

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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 Socio-Economic 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.

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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.
SO ORDERED.

10
G.R. No. 64948 September 27, 1994
MANILA GOLF & COUNTRY CLUB, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and FERMIN LLAMAR, respondents.
Bito, Misa & Lozada for petitioner.
Remberto Z. Evio for private respondent.

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

11
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 employer-employee 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

12
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 socalled "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-M-10504-78), 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

13
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 non-adversary, 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-4-771-79, 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.

14
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.
SO ORDERED.

15
G.R. No. L-55674 July 25, 1983
LA SUERTE CIGAR AND CIGARETTE FACTORY, petitioner,
vs.
DIRECTOR OF THE BUREAU OF LABOR RELATIONS, THE LA SUERTE CIGAR AND CIGARETTE FACTORY
PROVINCIAL (Luzon) AND METRO MANILA SALES FORCE ASSOCIATION-NATU, and THE NATIONAL
ASSOCIATION OF TRADE UNIONS, respondents.
Angara, Abello, Concepcion, Regala & Cruz Law Office for petitioner.
The Solicitor General for respondents.
Marcelino Lontok, Jr. for respondent NATU.

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

16
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 employer-employee 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 Med-Arbiter.
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).

17
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

18
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 ByLaws; 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.

19
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.

20
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

21
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 authorized Manager, Mr. ROBERT UY, hereinafter referred to as
COMPANY;

22
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;

23
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

24
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:

25
(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."

26
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 AB3-4960-80 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

27
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.

28
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);

29
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.
SO ORDERED.

30

G.R. No. L-80680 January 26, 1989

DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE, JOEL MADRIAGA,
ARTHUR M. ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER
ARMADA, EDUARDO UDOG, PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN
and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL LABOR
RELATIONS COMMISSION, and HON. EMERSON C. TUMANON, respondents.
V.E. Del Rosario & Associates for respondent CMC.
The Solicitor General for public respondent.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.
Mildred A. Ramos for respondent Lily Victoria A. Azarcon.

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

31
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 employer-employee
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 sub-contractor
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.

32
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of
labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he
may make appropriate distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the parties involved shall
be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any 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 employer-employee 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 selfserving 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 Communicationscase:
xxx xxx xxx

33
... 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 visa-vis 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

34
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.
IT IS SO ORDERED.

35
G.R. No. 138051

June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari 1 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.

36
Very truly yours,
(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4
On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and Employment,
National Capital Region in Quezon City. SONZA complained that ABS-CBN did not pay his salaries, separation pay,
service incentive leave pay, 13th month pay, signing bonus, travel allowance and amounts due under the
Employees Stock Option Plan ("ESOP").
On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee relationship existed
between the parties. SONZA filed an Opposition to the motion on 19 July 1996.
Meanwhile, ABS-CBN continued to remit 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 Arbiter 5 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 employer-employee relationship may be pleaded only as a
matter of defense. It behooves upon it the duty to prove that there really is no employer-employee
relationship between it and the complainant.
The Labor Arbiter then considered the case submitted for resolution. The parties submitted their position papers on
24 February 1997.
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,

37
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.

38
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 respondentappellee 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 complainant-appellants 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. Complainantappellants claims being anchored on the alleged breach of contract on the part of respondent-appellee, the
same can be resolved by reference to civil law and not to labor law. Consequently, they are within the realm
of civil law and, thus, lie with the regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs.
Villarama, 238 SCRA 267, 21 November 1994, an action for breach of contractual obligation is
intrinsically a civil dispute.9 (Emphasis supplied)
The Court of Appeals ruled that the existence of an employer-employee relationship between SONZA and ABS-CBN
is a factual question that is within the jurisdiction of the NLRC to resolve. 10 A special civil action for certiorari extends
only to issues of want or excess of jurisdiction of the NLRC.11 Such action cannot cover an inquiry into the
correctness of the evaluation of the evidence 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-

39
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 socalled "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, ABSCBN would not have entered into the Agreement with SONZA but would have hired him through its personnel
department just like any other employee.

40
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

41
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, ABS-CBN 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,
ABS-CBN 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-

42
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 ABSCBNs 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 ABS-CBN provided SONZA with the place of work and the necessary equipment, SONZA was still an
independent contractor since ABS-CBN did not supervise and control his work. ABS-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

43
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 ABS-CBN and
SONZA.
As SONZA admits, MJMDC is a management company devoted exclusively to managing the careers of SONZA
and his broadcast partner, TIANGCO. MJMDC is not engaged in any other business, not even job contracting.
MJMDC does not have any other function apart from acting as agent of SONZA or TIANGCO to promote their
careers in the broadcast and television industry.49
Policy Instruction No. 40

44
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 non-litigious 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.

45
The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an employeremployee relationship under labor laws. Not every performance of services for a fee creates an employer-employee
relationship. To hold that every person who renders services to another for a fee is an employee - to give meaning to
the security of tenure clause - will lead to absurd results.
Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent
contractors. The right to life and livelihood guarantees this freedom to contract as independent contractors. The right
of labor to security of tenure cannot operate to deprive an individual, possessed with special skills, expertise and
talent, of his right to contract as an independent contractor. An individual like an artist or talent has a right to render
his services without any one controlling the means and methods by which he performs his art or craft. This Court will
not interpret the right of labor to security of tenure to compel artists and talents to render their services only as
employees. If radio and television program hosts can render their services only as employees, the station owners
and managers can dictate to the radio and television hosts what they say in their shows. This is not conducive to
freedom of the press.
Different Tax Treatment of Talents and Broadcasters
The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as amended by Republic Act
No. 8241,56 treats talents, television and radio broadcasters differently. Under the NIRC, these professionals are
subject to the 10% value-added tax ("VAT") on services they render. Exempted from the VAT are those under an
employer-employee relationship.57 This different tax treatment accorded to talents and broadcasters bolters our
conclusion that they are independent contractors, provided all the basic elements of a contractual relationship are
present as in this case.
Nature of 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 CAG.R. SP No. 49190 is AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. L-48645 January 7, 1987

46
"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO CASBADILLO, PROSPERO
TABLADA, ERNESTO BENGSON, PATRICIO SERRANO, ANTONIO B. BOBIAS, VIRGILIO ECHAS, DOMINGO
PARINAS, NORBERTO GALANG, JUANITO NAVARRO, NESTORIO MARCELLANA, TEOFILO B. CACATIAN,
RUFO L. EGUIA, CARLOS SUMOYAN, LAMBERTO RONQUILLO, ANGELITO AMANCIO, DANILO B. MATIAR,
ET AL., petitioners,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, OFFICE OF THE
PRESIDENT, HON. AMADO G. INCIONG, UNDERSECRETARY OF LABOR, SAN MIGUEL CORPORATION,
GENARO OLIVES, ENRIQUE CAMAHORT, FEDERICO OATE, ERNESTO VILLANUEVA, ANTONIO
BOCALING and GODOFREDO CUETO, respondents.
Armando V. Ampil for petitioners.
Siguion Reyna, Montecillo and Ongsiako Law Office for private respondents.

GUTIERREZ, JR., J.:

The elemental question in labor law of whether or not an employer-employee relationship exists between
petitioners-members 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. ...

47
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-in-Charge 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-in-charge 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

48
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

49
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 in Social
Security System v. Court of Appeals (39 SCRA 629, 635).

50
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.

51
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.
SO ORDERED.

52
G.R. No. 167622

June 29, 2010

GREGORIO V. TONGKO, Petitioner,

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE
DIOS,Respondents.
RESOLUTION
BRION, J.:
This resolves the Motion for Reconsideration1 dated December 3, 2008 filed by respondent The Manufacturers Life
Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November 7, 2008. In the assailed decision, we
found that an employer-employee relationship existed between Manulife and petitioner Gregorio Tongko and
ordered Manulife to pay Tongko backwages and separation pay for illegal dismissal.
The following facts have been stated in our Decision of November 7, 2008, now under reconsideration, but are
repeated, simply for purposes of clarity.
The contractual relationship between Tongko and Manulife had two basic phases. The first or initial phase began on
July 1, 1977, under a Career Agents Agreement (Agreement) that provided:
It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be
construed or interpreted as creating an employer-employee relationship between the Company and the Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products offered
by the Company, and collect, in exchange for provisional receipts issued by the Agent, money due to or become due
to the Company in respect of applications or policies obtained by or through the Agent or from policyholders allotted
by the Company to the Agent for servicing, subject to subsequent confirmation of receipt of payment by the
Company as evidenced by an Official Receipt issued by the Company directly to the policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent
by giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver,
extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company
shall be construed for any previous failure to exercise its right under any provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other
party fifteen (15) days notice in writing.2
Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to maintain a
standard of knowledge and competency in the sale of Manulifes products, satisfactory to Manulife and sufficient to
meet the volume of the new business, required by his Production Club membership. 3
The second phase started in 1983 when Tongko was named Unit Manager in Manulifes Sales Agency Organization.
In 1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a Regional Sales Manager.4
Tongkos gross earnings consisted of commissions, persistency income, and management overrides. Since the
beginning, Tongko consistently declared himself self-employed in his income tax returns. Thus, under oath, he

53
declared his gross business income and deducted his business expenses to arrive at his taxable business income.
Manulife withheld the corresponding 10% tax on Tongkos earnings.5
In 2001, Manulife instituted manpower development programs at the regional sales management level. Respondent
Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on concerns that were brought up during the
October 18, 2001 Metro North Sales Managers Meeting. De Dios wrote:
The first step to transforming Manulife into a big league player has been very clear to increase the number of
agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was run when
you first joined the organization. Since then, however, substantial changes have taken place in the organization, as
these have been influenced by developments both from within and without the company.
xxxx
The issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers
meeting earlier last month when Kevin OConnor, SVP-Agency, took to the floor to determine from our senior agency
leaders what more could be done to bolster manpower development. At earlier meetings, Kevin had presented
information where evidently, your Region was the lowest performer (on a per Manager basis) in terms of recruiting in
2000 and, as of today, continues to remain one of the laggards in this area.
While discussions, in general, were positive other than for certain comments from your end which were perceived to
be uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and
management, were on the same plane. As gleaned from some of your previous comments in prior meetings (both in
group and one-on-one), it was not clear that we were proceeding in the same direction.
Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent
meetings you reiterated certain views, the validity of which we challenged and subsequently found as having no
basis.
With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit
confused as to the directions the company was taking. For this reason, I sought a meeting with everyone in your
management team, including you, to clear the air, so to speak.
This note is intended to confirm the items that were discussed at the said Metro North Regions Sales Managers
meeting held at the 7/F Conference room last 18 October.
xxxx
Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of agents."
This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the
table before the rest of your Regions Sales Managers to verify its validity. As you must have noted, no Sales
Manager came forward on their own to confirm your statement and it took you to name Malou Samson as a source
of the same, an allegation that Malou herself denied at our meeting and in your very presence.
This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all
along, that these allegations were simply meant to muddle the issues surrounding the inability of your Region to
meet its agency development objectives!
Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn less."
xxxx
All the above notwithstanding, we had your own records checked and we found that you made a lot more money in
the Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you

54
probably will make more money in the Year 2001 compared to Year 2000. Obviously, your above statement about
making "less money" did not refer to you but the way you argued this point had us almost believing that you were
spouting the gospel of truth when you were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new
direction that we have been discussing these past few weeks, i.e., Manulifes goal to become a major agency-led
distribution company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have
never heard you proactively push for greater agency recruiting. You have not been proactive all these years when it
comes to agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making the
following changes in the interim:
1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can
be easily delegated. This assistant should be so chosen as to complement your skills and help you in the areas
where you feel "may not be your cup of tea."
You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your health.
The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB) in
autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully on
overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in Metro
North. I will hold you solely responsible for meeting the objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any further. This, however, is entirely dependent
upon you. But you have to understand that meeting corporate objectives by everyone is primary and will not be
compromised. We are meeting tough challenges next year, and I would want everybody on board. Any resistance or
holding back by anyone will be dealt with accordingly.6
Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongkos services:
It would appear, however, that despite the series of meetings and communications, both one-on-one meetings
between yourself and SVP Kevin OConnor, some of them with me, as well as group meetings with your Sales
Managers, all these efforts have failed in helping you align your directions with Managements avowed agency
growth policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we are
now issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of this
letter.7

55
Tongko responded by filing an illegal dismissal complaint with the National Labor Relations Commission (NLRC)
Arbitration Branch. He essentially alleged despite the clear terms of the letter terminating his Agency Agreement
that he was Manulifes employee before he was illegally dismissed. 8
Thus, the threshold issue is the existence of an employment relationship. A finding that none exists renders the
question of illegal dismissal moot; a finding that an employment relationship exists, on the other hand, necessarily
leads to the need to determine the validity of the termination of the relationship.
A. Tongkos Case for Employment Relationship
Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding P50,000.00, regardless of
production levels attained and exclusive of commissions and bonuses. He also claimed that as Regional Sales
Manager, he was given a travel and entertainment allowance of P36,000.00 per year in addition to his overriding
commissions; he was tasked with numerous administrative functions and supervisory authority over Manulifes
employees, aside from merely selling policies and recruiting agents for Manulife; and he recommended and
recruited insurance agents subject to vetting and approval by Manulife. He further alleges that he was assigned a
definite place in the Manulife offices when he was not in the field at the 3rd Floor, Manulife Center, 108 Tordesillas
corner Gallardo Sts., Salcedo Village, Makati City for which he never paid any rental. Manulife provided the office
equipment he used, including tables, chairs, computers and printers (and even office stationery), and paid for the
electricity, water and telephone bills. As Regional Sales Manager, Tongko additionally asserts that he was required
to follow at least three codes of conduct.9
B. Manulifes Case Agency Relationship with Tongko
Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid commissions of
varying amounts, computed based on the premium paid in full and actually received by Manulife on policies
obtained through an agent. As sales manager, Tongko was paid overriding sales commission derived from sales
made by agents under his unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10%
tax from all commissions Tongko received; Tongko even declared himself to be self-employed and consistently paid
taxes as suchi.e., he availed of tax deductions such as ordinary and necessary trade, business and professional
expenses to which a business is entitled.
Manulife asserts that the labor tribunals have no jurisdiction over Tongkos claim as he was not its employee as
characterized in the four-fold test and our ruling in Carungcong v. National Labor Relations Commission.10
The Conflicting Rulings of the Lower Tribunals
The labor arbiter decreed that no employer-employee relationship existed between the parties. However, the NLRC
reversed the labor arbiters decision on appeal; it found the existence of an employer-employee relationship and
concluded that Tongko had been illegally dismissed. In the petition for certiorari with the Court of Appeals (CA), the
appellate court found that the NLRC gravely abused its discretion in its ruling and reverted to the labor arbiters
decision that no employer-employee relationship existed between Tongko and Manulife.
Our Decision of November 7, 2008
In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment relationship existed
between Tongko and Manulife. We concluded that Tongko is Manulifes employee for the following reasons:
1. Our ruling in the first Insular11 case did not foreclose the possibility of an insurance agent becoming an
employee of an insurance company; if evidence exists showing that the company promulgated rules or
regulations that effectively controlled or restricted an insurance agents choice of methods or the methods
themselves in selling insurance, an employer-employee relationship would be present. The determination of
the existence of an employer-employee relationship is thus on a case-to-case basis depending on the
evidence on record.

56
2. Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown
by the following indicators:
2.1 Tongko undertook to comply with Manulifes rules, regulations and other requirements, i.e., the
different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of
Conduct, and the Financial Code of Conduct Agreement;
2.2 The various affidavits of Manulifes insurance agents and managers, who occupied similar
positions as Tongko, showed that they performed administrative duties that established employment
with Manulife;12 and
2.3 Tongko was tasked to recruit some agents in addition to his other administrative functions. De
Dios letter harped on the direction Manulife intended to take, viz., greater agency recruitment as the
primary means to sell more policies; Tongkos alleged failure to follow this directive led to the
termination of his employment with Manulife.
The Motion for Reconsideration
Manulife disagreed with our Decision and filed the present motion for reconsideration on the following GROUNDS:
1. The November 7[, 2008] Decision violates Manulifes right to due process by: (a) confining the review only
to the issue of "control" and utterly disregarding all the other issues that had been joined in this case; (b)
mischaracterizing the divergence of conclusions between the CA and the NLRC decisions as confined only
to that on "control"; (c) grossly failing to consider the findings and conclusions of the CA on the majority of
the material evidence, especially [Tongkos] declaration in his income tax returns that he was a "business
person" or "self-employed"; and (d) allowing [Tongko] to repudiate his sworn statement in a public document.
2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency, distorts not only
the legal relationships of agencies to sell but also distributorship and franchising, and ignores the
constitutional and policy context of contract law vis--vis labor law.
3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the four-fold test
other than the "control" test, reverses well-settled doctrines of law on employer-employee relationships, and
grossly misapplies the "control test," by selecting, without basis, a few items of evidence to the exclusion of
more material evidence to support its conclusion that there is "control."
4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and 9
of the Civil Code, beyond the powers granted to this Court under Article VIII, Section 1 of the Constitution
and contravenes through judicial legislation, the constitutional prohibition against impairment of contracts
under Article III, Section 10 of the Constitution.
5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and reversible errors,
which should be corrected, in concluding that Respondent Manulife and Petitioner had an employeremployee relationship, that Respondent Manulife illegally dismissed Petitioner, and for consequently
ordering Respondent Manulife to pay Petitioner backwages, separation pay, nominal damages and
attorneys fees.13
THE COURTS RULING
A. The Insurance and the Civil Codes;
the Parties Intent and Established
Industry Practices
We cannot consider the present case purely from a labor law perspective, oblivious that the factual antecedents
were set in the insurance industry so that the Insurance Code primarily governs. Chapter IV, Title 1 of this Code is

57
wholly devoted to "Insurance Agents and Brokers" and specifically defines the agents and brokers relationship with
the insurance company and how they are governed by the Code and regulated by the Insurance Commission.
The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as agency is a civil law
matter governed by the Civil Code. Thus, at the very least, three sets of laws namely, the Insurance Code, the
Labor Code and the Civil Code have to be considered in looking at the present case. Not to be forgotten, too, is
the Agreement (partly reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted to
govern their relationship for purposes of selling the insurance the company offers. To forget these other laws is to
take a myopic view of the present case and to add to the uncertainties that now exist in considering the legal
relationship between the insurance company and its "agents."
The main issue of whether an agency or an employment relationship exists depends on the incidents of the
relationship. The Labor Code concept of "control" has to be compared and distinguished with the "control" that must
necessarily exist in a principal-agent relationship. The principal cannot but also have his or her say in directing the
course of the principal-agent relationship, especially in cases where the company-representative relationship in the
insurance industry is an agency.
a. The laws on insurance and agency
The business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can
be in the insurance business, who can act for and in behalf of an insurer, and how these parties shall conduct
themselves in the insurance business. Section 186 of the Insurance Code provides that "No person, partnership, or
association of persons shall transact any insurance business in the Philippines except as agent of a person or
corporation authorized to do the business of insurance in the Philippines." Sections 299 and 300 of the Insurance
Code on Insurance Agents and Brokers, among other provisions, provide:
Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any
commission or other compensation to any person for services in obtaining insurance, unless such person shall have
first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance
broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other compensation
from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license
so to act from the Commissioner x x x The Commissioner shall satisfy himself as to the competence and
trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any
such license in his discretion.
1avvphi1.net

Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or
transmits for a person other than himself an application for a policy or contract of insurance to or from such
company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the
intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which
an insurance agent is subject.
The application for an insurance agents license requires a written examination, and the applicant must be of good
moral character and must not have been convicted of a crime involving moral turpitude. 14 The insurance agent who
collects premiums from an insured person for remittance to the insurance company does so in a fiduciary capacity,
and an insurance company which delivers an insurance policy or contract to an authorized agent is deemed to have
authorized the agent to receive payment on the companys behalf. 15 Section 361 further prohibits the offer,
negotiation, or collection of any amount other than that specified in the policy and this covers any rebate from the
premium or any special favor or advantage in the dividends or benefit accruing from the policy.
Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must also act within
the parameters of the authority granted under the license and under the contract with the principal. Other than the
need for a license, the agent is limited in the way he offers and negotiates for the sale of the companys insurance

58
products, in his collection activities, and in the delivery of the insurance contract or policy. Rules regarding the
desired results (e.g., the required volume to continue to qualify as a company agent, rules to check on the
parameters on the authority given to the agent, and rules to ensure that industry, legal and ethical rules are
followed) are built-in elements of control specific to an insurance agency and should not and cannot be read as
elements of control that attend an employment relationship governed by the Labor Code.
On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter." 16 While this is a very
broad definition that on its face may even encompass an employment relationship, the distinctions between agency
and employment are sufficiently established by law and jurisprudence.
Generally, the determinative element is the control exercised over the one rendering service. The employer controls
the employee both in the results and in the means and manner of achieving this result. The principal in an agency
relationship, on the other hand, also has the prerogative to exercise control over the agent in undertaking the
assigned task based on the parameters outlined in the pertinent laws.
Under the general law on agency as applied to insurance, an agency must be express in light of the need for a
license and for the designation by the insurance company. In the present case, the Agreement fully serves as grant
of authority to Tongko as Manulifes insurance agent.17 This agreement is supplemented by the companys agency
practices and usages, duly accepted by the agent in carrying out the agency.18 By authority of the Insurance Code,
an insurance agency is for compensation,19 a matter the Civil Code Rules on Agency presumes in the absence of
proof to the contrary.20 Other than the compensation, the principal is bound to advance to, or to reimburse, the agent
the agreed sums necessary for the execution of the agency.21 By implication at least under Article 1994 of the Civil
Code, the principal can appoint two or more agents to carry out the same assigned tasks, 22 based necessarily on the
specific instructions and directives given to them.
With particular relevance to the present case is the provision that "In the execution of the agency, the agent shall act
in accordance with the instructions of the principal."23 This provision is pertinent for purposes of the necessary
control that the principal exercises over the agent in undertaking the assigned task, and is an area where the
instructions can intrude into the labor law concept of control so that minute consideration of the facts is necessary. A
related article is Article 1891 of the Civil Code which binds the agent to render an account of his transactions to the
principal.
B. The Cited Case
The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the company rules
and regulations that an agent has to comply with are indicative of an employer-employee relationship. 24 The
Dissenting Opinions of Justice Presbitero Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular Life
Assurance Co. v. National Labor Relations Commission (second Insular case) 25 to support the view that Tongko is
Manulifes employee. On the other hand, Manulife cites the Carungcong case and AFP Mutual Benefit Association,
Inc. v. National Labor Relations Commission (AFPMBAI case)26 to support its allegation that Tongko was not its
employee.
A caveat has been given above with respect to the use of the rulings in the cited cases because none of them is on
all fours with the present case; the uniqueness of the factual situation of the present case prevents it from being
directly and readily cast in the mold of the cited cases. These cited cases are themselves different from one another;
this difference underscores the need to read and quote them in the context of their own factual situations.
The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and the second
Insular Life cases. A critical difference, however, exists as these cited cases dealt with the proper legal
characterization of a subsequent management contract that superseded the original agency contract between the
insurance company and its agent. Carungcong dealt with a subsequent Agreement making Carungcong a New
Business Manager that clearly superseded the Agreement designating Carungcong as an agent empowered to
solicit applications for insurance. The Grepalife case, on the other hand, dealt with the proper legal characterization
of the appointment of the Ruiz brothers to positions higher than their original position as insurance agents. Thus,
after analyzing the duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we

59
concluded that the company practically dictated the manner by which the Ruiz brothers were to carry out their jobs.
Finally, the second Insular Life case dealt with the implications of de los Reyes appointment as acting unit manager
which, like the subsequent contracts in the Carungcong and the Grepalife cases, was clearly defined under a
subsequent contract. In all these cited cases, a determination of the presence of the Labor Code element of control
was made on the basis of the stipulations of the subsequent contracts.
In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only contract or
document extant and submitted as evidence in the present case is the Agreement a pure agency agreement in the
Civil Code context similar to the original contract in the first Insular Life case and the contract in the AFPMBAI case.
And while Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional Sales
Manager in 1996, no formal contract regarding these undertakings appears in the records of the case. Any such
contract or agreement, had there been any, could have at the very least provided the bases for properly ascertaining
the juridical relationship established between the parties.
These critical differences, particularly between the present case and the Grepalife and the second Insular Life
cases, should therefore immediately drive us to be more prudent and cautious in applying the rulings in these cases.
C. Analysis of the Evidence
c.1. The Agreement
The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined the parties
relations until the Agreements termination in 2001. This Agreement stood for more than two decades and, based on
the records of the case, was never modified or novated. It assumes primacy because it directly dealt with the nature
of the parties relationship up to the very end; moreover, both parties never disputed its authenticity or the accuracy
of its terms.
By the Agreements express terms, Tongko served as an "insurance agent" for Manulife, not as an employee. To be
sure, the Agreements legal characterization of the nature of the relationship cannot be conclusive and binding on
the courts; as the dissent clearly stated, the characterization of the juridical relationship the Agreement embodied is
a matter of law that is for the courts to determine. At the same time, though, the characterization the parties gave to
their relationship in the Agreement cannot simply be brushed aside because it embodies their intent at the time they
entered the Agreement, and they were governed by this understanding throughout their relationship. At the very
least, the provision on the absence of employer-employee relationship between the parties can be an aid in
considering the Agreement and its implementation, and in appreciating the other evidence on record.
The parties legal characterization of their intent, although not conclusive, is critical in this case because this intent is
not illegal or outside the contemplation of law, particularly of the Insurance and the Civil Codes. From this
perspective, the provisions of the Insurance Code cannot be disregarded as this Code (as heretofore already noted)
expressly envisions a principal-agent relationship between the insurance company and the insurance agent in the
sale of insurance to the public. For this reason, we can take judicial notice that as a matter of Insurance Codebased business practice, an agency relationship prevails in the insurance industry for the purpose of selling
insurance. The Agreement, by its express terms, is in accordance with the Insurance Code model when it provided
for a principal-agent relationship, and thus cannot lightly be set aside nor simply be considered as an agreement
that does not reflect the parties true intent. This intent, incidentally, is reinforced by the system of compensation the
Agreement provides, which likewise is in accordance with the production-based sales commissions the Insurance
Code provides.
1awph!1

Significantly, evidence shows that Tongkos role as an insurance agent never changed during his relationship with
Manulife. If changes occurred at all, the changes did not appear to be in the nature of their core relationship. Tongko
essentially remained an agent, but moved up in this role through Manulifes recognition that he could use other
agents approved by Manulife, but operating under his guidance and in whose commissions he had a share. For
want of a better term, Tongko perhaps could be labeled as a "lead agent" who guided under his wing other Manulife
agents similarly tasked with the selling of Manulife insurance.

60
Like Tongko, the evidence suggests that these other agents operated under their own agency agreements. Thus, if
Tongkos compensation scheme changed at all during his relationship with Manulife, the change was solely for
purposes of crediting him with his share in the commissions the agents under his wing generated. As an agent who
was recruiting and guiding other insurance agents, Tongko likewise moved up in terms of the reimbursement of
expenses he incurred in the course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil
Code. Thus, Tongko received greater reimbursements for his expenses and was even allowed to use Manulife
facilities in his interactions with the agents, all of whom were, in the strict sense, Manulife agents approved and
certified as such by Manulife with the Insurance Commission.
That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable conclusion that
results from the reading of the Agreement (the only agreement on record in this case) and his continuing role
thereunder as sales agent, from the perspective of the Insurance and the Civil Codes and in light of what Tongko
himself attested to as his role as Regional Sales Manager. To be sure, this interpretation could have been
contradicted if other agreements had been submitted as evidence of the relationship between Manulife and Tongko
on the latters expanded undertakings. In the absence of any such evidence, however, this reading based on the
available evidence and the applicable insurance and civil law provisions must stand, subject only to objective and
evidentiary Labor Code tests on the existence of an employer-employee relationship.
In applying such Labor Code tests, however, the enforcement of the Agreement during the course of the parties
relationship should be noted. From 1977 until the termination of the Agreement, Tongkos occupation was to sell
Manulifes insurance policies and products. Both parties acquiesced with the terms and conditions of the Agreement.
Tongko, for his part, accepted all the benefits flowing from the Agreement, particularly the generous commissions.
Evidence indicates that Tongko consistently clung to the view that he was an independent agent selling Manulife
insurance products since he invariably declared himself a business or self-employed person in his income tax
returns. This consistency with, and action made pursuant to the Agreement were pieces of evidence that
were never mentioned nor considered in our Decision of November 7, 2008. Had they been considered, they
could, at the very least, serve as Tongkos admissions against his interest. Strictly speaking, Tongkos tax returns
cannot but be legally significant because he certified under oath the amount he earned as gross business income,
claimed business deductions, leading to his net taxable income. This should be evidence of the first order that
cannot be brushed aside by a mere denial. Even on a laymans view that is devoid of legal considerations, the
extent of his annual income alone renders his claimed employment status doubtful. 27
Hand in hand with the concept of admission against interest in considering the tax returns, the concept of estoppel
a legal and equitable concept28 necessarily must come into play. Tongkos previous admissions in several years of
tax returns as an independent agent, as against his belated claim that he was all along an employee, are too
diametrically opposed to be simply dismissed or ignored. Interestingly, Justice Velascos dissenting opinion states
that Tongko was forced to declare himself a business or self-employed person by Manulifes persistent refusal to
recognize him as its employee.29 Regrettably, the dissent has shown no basis for this conclusion, an
understandable omission since no evidence in fact exists on this point in the records of the case. In fact,
what the evidence shows is Tongkos full conformity with, and action as, an independent agent until his relationship
with Manulife took a bad turn.
Another interesting point the dissent raised with respect to the Agreement is its conclusion that the Agreement
negated any employment relationship between Tongko and Manulife so that the commissions he earned as a sales
agent should not be considered in the determination of the backwages and separation pay that should be given to
him. This part of the dissent is correct although it went on to twist this conclusion by asserting that Tongko had dual
roles in his relationship with Manulife; he was an agent, not an employee, in so far as he sold insurance for
Manulife, but was an employee in his capacity as a manager. Thus, the dissent concluded that Tongkos backwages
should only be with respect to his role as Manulifes manager.
The conclusion with respect to Tongkos employment as a manager is, of course, unacceptable for the legal, factual
and practical reasons discussed in this Resolution. In brief, the factual reason is grounded on the lack of
evidentiary support of the conclusion that Manulife exercised control over Tongko in the sense understood in the
Labor Code. The legal reason, partly based on the lack of factual basis, is the erroneous legal conclusion that
Manulife controlled Tongko and was thus its employee. The practical reason, on the other hand, is the havoc that

61
the dissents unwarranted conclusion would cause the insurance industry that, by the laws own design, operated
along the lines of principal-agent relationship in the sale of insurance.
c.2. Other Evidence of Alleged Control
A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that Manulife ever
exercised means-and-manner control, even to a limited extent, over Tongko during his ascent in Manulifes sales
ladder. In 1983, Tongko was appointed unit manager. Inexplicably, Tongko never bothered to present any evidence
at all on what this designation meant. This also holds true for Tongkos appointment as branch manager in 1990,
and as Regional Sales Manager in 1996. The best evidence of control the agreement or directive relating to
Tongkos duties and responsibilities was never introduced as part of the records of the case. The reality is, prior to
de Dios letter, Manulife had practically left Tongko alone not only in doing the business of selling insurance, but also
in guiding the agents under his wing. As discussed below, the alleged directives covered by de Dios letter,
heretofore quoted in full, were policy directions and targeted results that the company wanted Tongko and the other
sales groups to realign with in their own selling activities. This is the reality that the parties presented evidence
consistently tells us.
What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes on its
agents in the sale of insurance. The mere presentation of codes or of rules and regulations, however, is not per se
indicative of labor law control as the law and jurisprudence teach us.
As already recited above, the Insurance Code imposes obligations on both the insurance company and its agents in
the performance of their respective obligations under the Code, particularly on licenses and their renewals, on the
representations to be made to potential customers, the collection of premiums, on the delivery of insurance policies,
on the matter of compensation, and on measures to ensure ethical business practice in the industry.
The general law on agency, on the other hand, expressly allows the principal an element of control over the agent in
a manner consistent with an agency relationship. In this sense, these control measures cannot be read as indicative
of labor law control. Foremost among these are the directives that the principal may impose on the agent to achieve
the assigned tasks, to the extent that they do not involve the means and manner of undertaking these tasks. The
law likewise obligates the agent to render an account; in this sense, the principal may impose on the agent specific
instructions on how an account shall be made, particularly on the matter of expenses and reimbursements. To these
extents, control can be imposed through rules and regulations without intruding into the labor law concept of control
for purposes of employment.
From jurisprudence, an important lesson that the first Insular Life case teaches us is that a commitment to abide by
the rules and regulations of an insurance company does not ipso facto make the insurance agent an employee.
Neither do guidelines somehow restrictive of the insurance agents conduct necessarily indicate "control" as this
term is defined in jurisprudence. Guidelines indicative of labor law "control," as the first Insular Life case tells
us, should not merely relate to the mutually desirable result intended by the contractual relationship; they
must have the nature of dictating the means or methods to be employed in attaining the result, or of fixing the
methodology and of binding or restricting the party hired to the use of these means. In fact, results-wise, the
principal can impose production quotas and can determine how many agents, with specific territories, ought to be
employed to achieve the companys objectives. These are management policy decisions that the labor law element
of control cannot reach. Our ruling in these respects in the first Insular Life case was practically reiterated in
Carungcong. Thus, as will be shown more fully below, Manulifes codes of conduct, 30 all of which do not intrude into
the insurance agents means and manner of conducting their sales and only control them as to the desired results
and Insurance Code norms, cannot be used as basis for a finding that the labor law concept of control existed
between Manulife and Tongko.
The dissent considers the imposition of administrative and managerial functions on Tongko as indicative of labor law
control; thus, Tongko as manager, but not as insurance agent, became Manulifes employee. It drew this conclusion
from what the other Manulife managers disclosed in their affidavits (i.e., their enumerated administrative and
managerial functions) and after comparing these statements with the managers in Grepalife. The dissent compared
the control exercised by Manulife over its managers in the present case with the control the managers in the
Grepalife case exercised over their employees by presenting the following matrix: 31

62
Duties of Manulifes Manager

Duties of Grepalifes Managers/Supervisors

- to render or recommend prospective

- train understudies for the position of district
agents to be licensed, trained and
manager
contracted to sell Manulife products and who
will be part of my Unit

- to coordinate activities of the agents under

[the managers] Unit in [the agents] daily,
weekly and monthly selling activities, making
sure that their respective sales targets are
met;

- properly account, record and document the

companys funds, spot-check and audit the work
of the zone supervisors, x x x follow up the
submission of weekly remittance reports of the
debit agents and zone supervisors

- to conduct periodic training sessions for

[the] agents to further enhance their sales
skill; and

- direct and supervise the sales activities of the

debit agents under him, x x x undertake and
discharge the functions of absentee debit
agents, spot-check the record of debit agents,
and insure proper documentation of sales and
collections of debit agents.

- to assist [the] agents with their sales

activities by way of joint fieldwork,
consultations and one-on-one evaluation
and analysis of particular accounts

Aside from these affidavits however, no other evidence exists regarding the effects of Tongkos additional roles in
Manulifes sales operations on the contractual relationship between them.
To the dissent, Tongkos administrative functions as recruiter, trainer, or supervisor of other sales agents constituted
a substantive alteration of Manulifes authority over Tongko and the performance of his end of the relationship with
Manulife. We could not deny though that Tongko remained, first and foremost, an insurance agent, and that his
additional role as Branch Manager did not lessen his main and dominant role as insurance agent; this role continued
to dominate the relations between Tongko and Manulife even after Tongko assumed his leadership role among
agents. This conclusion cannot be denied because it proceeds from the undisputed fact that Tongko and Manulife
never altered their July 1, 1977 Agreement, a distinction the present case has with the contractual changes made in
the second Insular Life case. Tongkos results-based commissions, too, attest to the primacy he gave to his role as
insurance sales agent.
The dissent apparently did not also properly analyze and appreciate the great qualitative difference that exists
between:

the Manulife managers role is to coordinate activities of the agents under the managers Unit in the agents
daily, weekly, and monthly selling activities, making sure that their respective sales targets are met.

the District Managers duty in Grepalife is to properly account, record, and document the company's funds,
spot-check and audit the work of the zone supervisors, conserve the company's business in the district
through "reinstatements," follow up the submission of weekly remittance reports of the debit agents and
zone supervisors, preserve company property in good condition, train understudies for the position of district
managers, and maintain his quota of sales (the failure of which is a ground for termination).

the Zone Supervisors (also in Grepalife) has the duty to direct and supervise the sales activities of the
debit agents under him, conserve company property through "reinstatements," undertake and discharge the
functions of absentee debit agents, spot-check the records of debit agents, and insure proper
documentation of sales and collections by the debit agents.

63
These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the job are specified
and pre-determined; in the present case, the operative words are the "sales target," the methodology being left
undefined except to the extent of being "coordinative." To be sure, a "coordinative" standard for a manager cannot
be indicative of control; the standard only essentially describes what a Branch Manager is the person in the lead
who orchestrates activities within the group. To "coordinate," and thereby to lead and to orchestrate, is not so much
a matter of control by Manulife; it is simply a statement of a branch managers role in relation with his agents from
the point of view of Manulife whose business Tongkos sales group carries.
A disturbing note, with respect to the presented affidavits and Tongkos alleged administrative functions, is the
selective citation of the portions supportive of an employment relationship and the consequent omission of portions
leading to the contrary conclusion. For example, the following portions of the affidavit of Regional Sales Manager
John Chua, with counterparts in the other affidavits, were not brought out in the Decision of November 7, 2008,
while the other portions suggesting labor law control were highlighted. Specifically, the following portions of the
affidavits were not brought out:32
1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on
the computed premiums paid in full on the policies obtained thereat;
1.b. I have no fixed working hours and employ my own method in soliticing insurance at a time and place I
see fit;
1.c. I have my own assistant and messenger who handle my daily work load;
1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance;
xxxx
6. I have my own staff that handles the day to day operations of my office;
7. My staff are my own employees and received salaries from me;
xxxx
9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a
self-employed individual or professional with a ten (10) percent creditable withholding tax. I also remit
monthly for professionals.
These statements, read with the above comparative analysis of the Manulife and the Grepalife cases, would have
readily yielded the conclusion that no employer-employee relationship existed between Manulife and Tongko.
Even de Dios letter is not determinative of control as it indicates the least amount of intrusion into Tongkos exercise
of his role as manager in guiding the sales agents. Strictly viewed, de Dios directives are merely operational
guidelines on how Tongko could align his operations with Manulifes re-directed goal of being a "big league player."
The method is to expand coverage through the use of more agents. This requirement for the recruitment of more
agents is not a means-and-method control as it relates, more than anything else, and is directly relevant, to
Manulifes objective of expanded business operations through the use of a bigger sales force whose members are
all on a principal-agent relationship. An important point to note here is that Tongko was not supervising regular fulltime employees of Manulife engaged in the running of the insurance business; Tongko was effectively guiding his
corps of sales agents, who are bound to Manulife through the same Agreement that he had with Manulife, all the
while sharing in these agents commissions through his overrides. This is the lead agent concept mentioned above
for want of a more appropriate term, since the title of Branch Manager used by the parties is really a misnomer
given that what is involved is not a specific regular branch of the company but a corps of non-employed agents,
defined in terms of covered territory, through which the company sells insurance. Still another point to consider is
that Tongko was not even setting policies in the way a regular company manager does; company aims and

64
objectives were simply relayed to him with suggestions on how these objectives can be reached through the
expansion of a non-employee sales force.
Interestingly, a large part of de Dios letter focused on income, which Manulife demonstrated, in Tongkos case, to be
unaffected by the new goal and direction the company had set. Income in insurance agency, of course, is dependent
on results, not on the means and manner of selling a matter for Tongko and his agents to determine and an area
into which Manulife had not waded. Undeniably, de Dios letter contained a directive to secure a competent assistant
at Tongkos own expense. While couched in terms of a directive, it cannot strictly be understood as an intrusion into
Tongkos method of operating and supervising the group of agents within his delineated territory. More than anything
else, the "directive" was a signal to Tongko that his results were unsatisfactory, and was a suggestion on how
Tongkos perceived weakness in delivering results could be remedied. It was a solution, with an eye on results, for a
consistently underperforming group; its obvious intent was to save Tongko from the result that he then failed to
grasp that he could lose even his own status as an agent, as he in fact eventually did.
The present case must be distinguished from the second Insular Life case that showed the hallmarks of an
employer-employee relationship in the management system established. These were: exclusivity of service, control
of assignments and removal of agents under the private respondents unit, and furnishing of company facilities and
materials as well as capital described as Unit Development Fund. All these are obviously absent in the present
case. If there is a commonality in these cases, it is in the collection of premiums which is a basic authority that can
be delegated to agents under the Insurance Code.
As previously discussed, what simply happened in Tongkos case was the grant of an expanded sales agency role
that recognized him as leader amongst agents in an area that Manulife defined. Whether this consequently
resulted in the establishment of an employment relationship can be answered by concrete evidence that
corresponds to the following questions:

as lead agent, what were Tongkos specific functions and the terms of his additional engagement;

was he paid additional compensation as a so-called Area Sales Manager, apart from the commissions he
received from the insurance sales he generated;

what can be Manulifes basis to terminate his status as lead agent;

can Manulife terminate his role as lead agent separately from his agency contract; and

to what extent does Manulife control the means and methods of Tongkos role as lead agent?

The answers to these questions may, to some extent, be deduced from the evidence at hand, as partly discussed
above. But strictly speaking, the questions cannot definitively and concretely be answered through the evidence on
record. The concrete evidence required to settle these questions is simply not there, since only the Agreement and
the anecdotal affidavits have been marked and submitted as evidence.
Given this anemic state of the evidence, particularly on the requisite confluence of the factors determinative of the
existence of employer-employee relationship, the Court cannot conclusively find that the relationship exists in the
present case, even if such relationship only refers to Tongkos additional functions. While a rough deduction can be
made, the answer will not be fully supported by the substantial evidence needed.
Under this legal situation, the only conclusion that can be made is that the absence of evidence showing Manulifes
control over Tongkos contractual duties points to the absence of any employer-employee relationship between
Tongko and Manulife. In the context of the established evidence, Tongko remained an agent all along; although his
subsequent duties made him a lead agent with leadership role, he was nevertheless only an agent whose basic
contract yields no evidence of means-and-manner control.

65
This conclusion renders unnecessary any further discussion of the question of whether an agent may
simultaneously assume conflicting dual personalities. But to set the record straight, the concept of a single person
having the dual role of agent and employee while doing the same task is a novel one in our jurisprudence, which
must be viewed with caution especially when it is devoid of any jurisprudential support or precedent. The quoted
portions in Justice Carpio-Morales dissent,33 borrowed from both the Grepalife and the second Insular Life cases, to
support the duality approach of the Decision of November 7, 2008, are regrettably far removed from their context
i.e., the cases factual situations, the issues they decided and the totality of the rulings in these cases and cannot
yield the conclusions that the dissenting opinions drew.
The Grepalife case dealt with the sole issue of whether the Ruiz brothers appointment as zone supervisor and
district manager made them employees of Grepalife. Indeed, because of the presence of the element of control in
their contract of engagements, they were considered Grepalifes employees. This did not mean, however, that they
were simultaneously considered agents as well as employees of Grepalife; the Courts ruling never implied that this
situation existed insofar as the Ruiz brothers were concerned. The Courts statement the Insurance Code may
govern the licensing requirements and other particular duties of insurance agents, but it does not bar the application
of the Labor Code with regard to labor standards and labor relations simply means that when an insurance
company has exercised control over its agents so as to make them their employees, the relationship between the
parties, which was otherwise one for agency governed by the Civil Code and the Insurance Code, will now be
governed by the Labor Code. The reason for this is simple the contract of agency has been transformed into an
employer-employee relationship.
The second Insular Life case, on the other hand, involved the issue of whether the labor bodies have jurisdiction
over an illegal termination dispute involving parties who had two contracts first, an original contract (agency
contract), which was undoubtedly one for agency, and another subsequent contract that in turn designated the agent
acting unit manager (a management contract). Both the Insular Life and the labor arbiter were one in the position
that both were agency contracts. The Court disagreed with this conclusion and held that insofar as the management
contract is concerned, the labor arbiter has jurisdiction. It is in this light that we remanded the case to the labor
arbiter for further proceedings. We never said in this case though that the insurance agent had effectively assumed
dual personalities for the simple reason that the agency contract has been effectively superseded by the
management contract. The management contract provided that if the appointment was terminated for any reason
other than for cause, the acting unit manager would be reverted to agent status and assigned to any unit.
The dissent pointed out, as an argument to support its employment relationship conclusion, that any doubt in the
existence of an employer-employee relationship should be resolved in favor of the existence of the
relationship.34This observation, apparently drawn from Article 4 of the Labor Code, is misplaced, as Article 4 applies
only when a doubt exists in the "implementation and application" of the Labor Code and its implementing rules; it
does not apply where no doubt exists as in a situation where the claimant clearly failed to substantiate his claim of
employment relationship by the quantum of evidence the Labor Code requires.
On the dissents last point regarding the lack of jurisprudential value of our November 7, 2008 Decision, suffice it to
state that, as discussed above, the Decision was not supported by the evidence adduced and was not in
accordance with controlling jurisprudence. It should, therefore, be reconsidered and abandoned, but not in the
manner the dissent suggests as the dissenting opinions are as factually and as legally erroneous as the Decision
under reconsideration.
In light of these conclusions, the sufficiency of Tongkos failure to comply with the guidelines of de Dios letter, as a
ground for termination of Tongkos agency, is a matter that the labor tribunals cannot rule upon in the absence of an
employer-employee relationship. Jurisdiction over the matter belongs to the courts applying the laws of insurance,
agency and contracts.
WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7,
2008, GRANTManulifes motion for reconsideration and, accordingly, DISMISS Tongkos petition. No costs.
SO ORDERED.

66
G.R. No. 80774 May 31, 1988
SAN MIGUEL CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and RUSTICO VEGA, respondents.
Siguion Reyna, Montecillo & Ongsiako Law Offices for petitioner.
The Solicitor General for public respondent.

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
Complaint 2 (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

67
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)

68
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). 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 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," 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.
<re||an1w>

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 employer-employee 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 non-payment 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 employeremployee 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:

69
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.

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.

70
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.
SO ORDERED.
Fernan, Gutierrez, Jr., Bidin and Cortes, JJ., concur.

71
G.R. No. 157010

June 21, 2005

PHILIPPINE NATIONAL BANK, petitioner,

vs.
FLORENCE O. CABANSAG, respondent.
DECISION
PANGANIBAN, J.:
The Court reiterates the basic policy that all Filipino workers, whether employed locally or overseas, enjoy the
protective mantle of Philippine labor and social legislations. Our labor statutes may not be rendered ineffective by
laws or judgments promulgated, or stipulations agreed upon, in a foreign country.
The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to reverse and set
aside the July 16, 2002 Decision2 and the January 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP
No. 68403. The assailed Decision dismissed the CA Petition (filed by herein petitioner), which had sought to reverse
the National Labor Relations Commission (NLRC)s June 29, 2001 Resolution, 4 affirming Labor Arbiter Joel S.
Lustrias January 18, 2000 Decision.5
The assailed CA Resolution denied herein petitioners Motion for Reconsideration.
The Facts
The facts are narrated by the Court of Appeals as follows:
"In late 1998, [herein Respondent Florence Cabansag] arrived in Singapore as a tourist. She applied for
employment, with the Singapore Branch of the Philippine National Bank, a private banking corporation organized
and existing under the laws of the Philippines, with principal offices at the PNB Financial Center, Roxas Boulevard,
Manila. At the time, the Singapore PNB Branch was under the helm of Ruben C. Tobias, a lawyer, as General
Manager, with the rank of Vice-President of the Bank. At the time, too, the Branch Office had two (2) types of
employees: (a) expatriates or the regular employees, hired in Manila and assigned abroad including Singapore, and
(b) locally (direct) hired. She applied for employment as Branch Credit Officer, at a total monthly package of
$SG4,500.00, effective upon assumption of duties after approval. Ruben C. Tobias found her eminently qualified
and wrote on October 26, 1998, a letter to the President of the Bank in Manila, recommending the appointment of
Florence O. Cabansag, for the position.
xxxxxxxxx
"The President of the Bank was impressed with the credentials of Florence O. Cabansag that he approved the
recommendation of Ruben C. Tobias. She then filed an Application, with the Ministry of Manpower of the
Government of Singapore, for the issuance of an Employment Pass as an employee of the Singapore PNB Branch.
Her application was approved for a period of two (2) years.
"On December 7, 1998, Ruben C. Tobias wrote a letter to Florence O. Cabansag offering her a temporary
appointment, as Credit Officer, at a basic salary of Singapore Dollars 4,500.00, a month and, upon her successful
completion of her probation to be determined solely, by the Bank, she may be extended at the discretion of the
Bank, a permanent appointment and that her temporary appointment was subject to the following terms and
conditions:

72
1. You will be on probation for a period of three (3) consecutive months from the date of your assumption of
duty.
2. You will observe the Banks rules and regulations and those that may be adopted from time to time.
3. You will keep in strictest confidence all matters related to transactions between the Bank and its clients.
4. You will devote your full time during business hours in promoting the business and interest of the Bank.
5. You will not, without prior written consent of the Bank, be employed in anyway for any purpose
whatsoever outside business hours by any person, firm or company.
6. Termination of your employment with the Bank may be made by either party after notice of one (1) day in
writing during probation, one month notice upon confirmation or the equivalent of one (1) days or months
salary in lieu of notice.
"Florence O. Cabansag accepted the position and assumed office. In the meantime, the Philippine Embassy in
Singapore processed the employment contract of Florence O. Cabansag and, on March 8, 1999, she was issued by
the Philippine Overseas Employment Administration, an Overseas Employment Certificate, certifying that she was
a bona fide contract worker for Singapore.
xxxxxxxxx
"Barely three (3) months in office, Florence O. Cabansag submitted to Ruben C. Tobias, on March 9, 1999, her initial
Performance Report. Ruben C. Tobias was so impressed with the Report that he made a notation and, on said
Report: GOOD WORK. However, in the evening of April 14, 1999, while Florence O. Cabansag was in the flat,
which she and Cecilia Aquino, the Assistant Vice-President and Deputy General Manager of the Branch and
Rosanna Sarmiento, the Chief Dealer of the said Branch, rented, she was told by the two (2) that Ruben C. Tobias
has asked them to tell Florence O. Cabansag to resign from her job. Florence O. Cabansag was perplexed at the
sudden turn of events and the runabout way Ruben C. Tobias procured her resignation from the Bank. The next day,
Florence O. Cabansag talked to Ruben C. Tobias and inquired if what Cecilia Aquino and Rosanna Sarmiento had
told her was true. Ruben C. Tobias confirmed the veracity of the information, with the explanation that her
resignation was imperative as a cost-cutting measure of the Bank. Ruben C. Tobias, likewise, told Florence O.
Cabansag that the PNB Singapore Branch will be sold or transformed into a remittance office and that, in either way,
Florence O. Cabansag had to resign from her employment. The more Florence O. Cabansag was perplexed. She
then asked Ruben C. Tobias that she be furnished with a Formal Advice from the PNB Head Office in Manila.
However, Ruben C. Tobias flatly refused. Florence O. Cabansag did not submit any letter of resignation.
"On April 16, 1999, Ruben C. Tobias again summoned Florence O. Cabansag to his office and demanded that she
submit her letter of resignation, with the pretext that he needed a Chinese-speaking Credit Officer to penetrate the
local market, with the information that a Chinese-speaking Credit Officer had already been hired and will be
reporting for work soon. She was warned that, unless she submitted her letter of resignation, her employment
record will be blemished with the notation DISMISSED spread thereon. Without giving any definitive answer,
Florence O. Cabansag asked Ruben C. Tobias that she be given sufficient time to look for another job. Ruben C.
Tobias told her that she should be out of her employment by May 15, 1999.
"However, on April 19, 1999, Ruben C. Tobias again summoned Florence O. Cabansag and adamantly ordered her
to submit her letter of resignation. She refused. On April 20, 1999, she received a letter from Ruben C. Tobias
terminating her employment with the Bank.
xxxxxxxxx

73
"On January 18, 2000, the Labor Arbiter rendered judgment in favor of the Complainant and against the
Respondents, the decretal portion of which reads as follows:
WHEREFORE, considering the foregoing premises, judgment is hereby rendered finding respondents guilty of
Illegal dismissal and devoid of due process, and are hereby ordered:
1. To reinstate complainant to her former or substantially equivalent position without loss of seniority rights,
benefits and privileges;
2. Solidarily liable to pay complainant as follows:
a) To pay complainant her backwages from 16 April 1999 up to her actual reinstatement. Her
backwages as of the date of the promulgation of this decision amounted to SGD 40,500.00 or its
equivalent in Philippine Currency at the time of payment;
b) Mid-year bonus in the amount of SGD 2,250.00 or its equivalent in Philippine Currency at the time
of payment;
c) Allowance for Sunday banking in the amount of SGD 120.00 or its equivalent in Philippine
Currency at the time of payment;
d) Monetary equivalent of leave credits earned on Sunday banking in the amount of SGD 1,557.67
or its equivalent in Philippine Currency at the time of payment;
e) Monetary equivalent of unused sick leave benefits in the amount of SGD 1,150.60 or its
equivalent in Philippine Currency at the time of payment.
f) Monetary equivalent of unused vacation leave benefits in the amount of SGD 319.85 or its
equivalent in Philippine Currency at the time of payment.
g) 13th month pay in the amount of SGD 4,500.00 or its equivalent in Philippine Currency at the time
of payment;
3. Solidarily to pay complainant actual damages in the amount of SGD 1,978.00 or its equivalent in
Philippine Currency at the time of payment, and moral damages in the amount of PhP 200,000.00,
exemplary damages in the amount of PhP 100,000.00;
4. To pay complainant the amount of SGD 5,039.81 or its equivalent in Philippine Currency at the time of
payment, representing attorneys fees.
SO ORDERED." 6 [Emphasis in the original.]
PNB appealed the labor arbiters Decision to the NLRC. In a Resolution dated June 29, 2001, the Commission
affirmed that Decision, but reduced the moral damages to P100,000 and the exemplary damages to P50,000. In a
subsequent Resolution, the NLRC denied PNBs Motion for Reconsideration.
Ruling of the Court of Appeals
In disposing of the Petition for Certiorari, the CA noted that petitioner bank had failed to adduce in evidence the
Singaporean law supposedly governing the latters employment Contract with respondent. The appellate court found
that the Contract had actually been processed by the Philippine Embassy in Singapore and approved by the

74
Philippine Overseas Employment Administration (POEA), which then used that Contract as a basis for issuing an
Overseas Employment Certificate in favor of respondent.
According to the CA, even though respondent secured an employment pass from the Singapore Ministry of
Employment, she did not thereby waive Philippine labor laws, or the jurisdiction of the labor arbiter or the NLRC
over her Complaint for illegal dismissal. In so doing, neither did she submit herself solely to the Ministry of
Manpower of Singapores jurisdiction over disputes arising from her employment. The appellate court further noted
that a cursory reading of the Ministrys letter will readily show that no such waiver or submission is stated or implied.
Finally, the CA held that petitioner had failed to establish a just cause for the dismissal of respondent. The bank had
also failed to give her sufficient notice and an opportunity to be heard and to defend herself. The CA ruled that she
was consequently entitled to reinstatement and back wages, computed from the time of her dismissal up to the time
of her reinstatement.
Hence, this Petition.7
Issues
Petitioner submits the following issues for our consideration:
"1. Whether or not the arbitration branch of the NLRC in the National Capital Region has jurisdiction over the
instant controversy;
"2. Whether or not the arbitration of the NLRC in the National Capital Region is the most convenient venue
or forum to hear and decide the instant controversy; and
"3. Whether or not the respondent was illegally dismissed, and therefore, entitled to recover moral and
exemplary damages and attorneys fees."8
In addition, respondent assails, in her Comment,9 the propriety of Rule 45 as the procedural mode for seeking a
review of the CA Decision affirming the NLRC Resolution. Such issue deserves scant consideration. Respondent
miscomprehends the Courts discourse in St. Martin Funeral Home v. NLRC,10 which has indeed affirmed that the
proper mode of review of NLRC decisions, resolutions or orders is by a special civil action for certiorari under Rule
65 of the Rules of Court. The Supreme Court and the Court of Appeals have concurrent original jurisdiction over
such petitions for certiorari. Thus, in observance of the doctrine on the hierarchy of courts, these petitions should be
initially filed with the CA.11
Rightly, the bank elevated the NLRC Resolution to the CA by way of a Petition for Certiorari. In seeking a review by
this Court of the CA Decision -- on questions of jurisdiction, venue and validity of employment termination -petitioner is likewise correct in invoking Rule 45.12
It is true, however, that in a petition for review on certiorari, the scope of the Supreme Courts judicial review of
decisions of the Court of Appeals is generally confined only to errors of law. It does not extend to questions of fact.
This doctrine applies with greater force in labor cases. Factual questions are for the labor tribunals to resolve. 13 In
the present case, the labor arbiter and the NLRC have already determined the factual issues. Their findings, which
are supported by substantial evidence, were affirmed by the CA. Thus, they are entitled to great respect and are
rendered conclusive upon this Court, absent a clear showing of palpable error or arbitrary disregard of evidence. 14
The Courts Ruling
The Petition has no merit.

75
First Issue:
Jurisdiction
The jurisdiction of labor arbiters and the NLRC is specified in Article 217 of the Labor Code as follows:
"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:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file involving wage, rates of
pay, hours of work and other terms and conditions of employment
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee
relations;
5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of
strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other
claims, arising from employer-employee relations, including those of persons in domestic or household
service, involving an amount of exceeding five thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement.
(b) The commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.
x x x x x x x x x."
More specifically, Section 10 of RA 8042 reads in part:
"SECTION 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 x x x x x x"
Based on the foregoing provisions, labor arbiters clearly have original and exclusive jurisdiction over claims arising
from employer-employee relations, including termination disputes involving all workers, among whom are overseas
Filipino workers (OFW).15
We are not unmindful of the fact that respondent was directly hired, while on a tourist status in Singapore, by the
PNB branch in that city state. Prior to employing respondent, petitioner had to obtain an employment pass for her
from the Singapore Ministry of Manpower. Securing the pass was a regulatory requirement pursuant to the
immigration regulations of that country.16

76
Similarly, the Philippine government requires non-Filipinos working in the country to first obtain a local work permit in
order to be legally employed here. That permit, however, does not automatically mean that the non-citizen is thereby
bound by local laws only, as averred by petitioner. It does not at all imply a waiver of ones national laws on labor.
Absent any clear and convincing evidence to the contrary, such permit simply means that its holder has a legal
status as a worker in the issuing country.
1avvphil.zw+

Noteworthy is the fact that respondent likewise applied for and secured an Overseas Employment Certificate from
the POEA through the Philippine Embassy in Singapore. The Certificate, issued on March 8, 1999, declared her a
bona fide contract worker for Singapore. Under Philippine law, this document authorized her working status in a
foreign country and entitled her to all benefits and processes under our statutes. Thus, even assuming arguendothat
she was considered at the start of her employment as a "direct hire" governed by and subject to the laws, common
practices and customs prevailing in Singapore17 she subsequently became a contract worker or an OFW who was
covered by Philippine labor laws and policies upon certification by the POEA. At the time her employment was
illegally terminated, she already possessed the POEA employment Certificate.
Moreover, petitioner admits that it is a Philippine corporation doing business through a branch office in
Singapore.18 Significantly, respondents employment by the Singapore branch office had to be approved by
Benjamin P. Palma Gil,19 the president of the bank whose principal offices were in Manila. This circumstance
militates against petitioners contention that respondent was "locally hired"; and totally "governed by and subject to
the laws, common practices and customs" of Singapore, not of the Philippines. Instead, with more reason does this
fact reinforce the presumption that respondent falls under the legal definition of migrant worker, in this case one
deployed in Singapore. Hence, petitioner cannot escape the application of Philippine laws or the jurisdiction of the
NLRC and the labor arbiter.
In any event, we recall the following policy pronouncement of the Court in Royal Crown Internationale v. NLRC:20
"x x x. Whether employed locally or overseas, all Filipino workers enjoy the protective mantle of Philippine labor and
social legislation, contract stipulations to the contrary notwithstanding. This pronouncement is in keeping with the
basic public policy of the State to afford protection to labor, promote full employment, ensure equal work
opportunities regardless of sex, race or creed, and regulate the relations between workers and employers. For the
State assures the basic rights of all workers to self-organization, collective bargaining, security of tenure, and just
and humane conditions of work [Article 3 of the Labor Code of the Philippines; See also Section 18, Article II and
Section 3, Article XIII, 1987 Constitution]. This ruling is likewise rendered imperative by Article 17 of the Civil Code
which states that laws which have for their object public order, public policy and good customs shall not be
rendered ineffective by laws or judgments promulgated, or by determination or conventions agreed upon in a foreign
country."
1awphi1.net

Second Issue:
Proper Venue
Section 1(a) of Rule IV of the NLRC Rules of Procedure reads:
"Section 1. Venue (a) All cases which Labor Arbiters have authority to hear and decide may be filed in the
Regional Arbitration Branch having jurisdiction over the workplace of the complainant/petitioner; Provided, however
that cases of Overseas Filipino Worker (OFW) shall be filed before the Regional Arbitration Branch where the
complainant resides or where the principal office of the respondent/employer is situated, at the option of the
complainant.
"For purposes of venue, workplace shall be understood as the place or locality where the employee is regularly
assigned when the cause of action arose. It shall include the place where the employee is supposed to report back
after a temporary detail, assignment or travel. In the case of field employees, as well as ambulant or itinerant

77
workers, their workplace is where they are regularly assigned, or where they are supposed to regularly receive their
salaries/wages or work instructions from, and report the results of their assignment to their employers."
Under the "Migrant Workers and Overseas Filipinos Act of 1995" (RA 8042), a migrant worker "refers to a person
who is to be engaged, is engaged or has been engaged in a remunerated activity in a state of which he or she is not
a legal resident; to be used interchangeably with overseas Filipino worker." 21 Undeniably, respondent was employed
by petitioner in its branch office in Singapore. Admittedly, she is a Filipino and not a legal resident of that state. She
thus falls within the category of "migrant worker" or "overseas Filipino worker."
As such, it is her option to choose the venue of her Complaint against petitioner for illegal dismissal. The law gives
her two choices: (1) at the Regional Arbitration Branch (RAB) where she resides or (2) at the RAB where the
principal office of her employer is situated. Since her dismissal by petitioner, respondent has returned to the
Philippines -- specifically to her residence at Filinvest II, Quezon City. Thus, in filing her Complaint before the RAB
office in Quezon City, she has made a valid choice of proper venue.
Third Issue:
Illegal Dismissal
The appellate court was correct in holding that respondent was already a regular employee at the time of her
dismissal, because her three-month probationary period of employment had already ended. This ruling is in
accordance with Article 281 of the Labor Code: "An employee who is allowed to work after a probationary period
shall be considered a regular employee." Indeed, petitioner recognized respondent as such at the time it dismissed
her, by giving her one months salary in lieu of a one-month notice, consistent with provision No. 6 of her
employment Contract.
Notice and Hearing Not Complied With
As a regular employee, respondent was entitled to all rights, benefits and privileges provided under our labor laws.
One of her fundamental rights is that she may not be dismissed without due process of law. The twin requirements
of notice and hearing constitute the essential elements of procedural due process, and neither of these elements
can be eliminated without running afoul of the constitutional guarantee. 22
In dismissing employees, the employer must furnish them two written notices: 1) one to apprise them of the
particular acts or omissions for which their dismissal is sought; and 2) the other to inform them of the decision to
dismiss them. As to the requirement of a hearing, its essence lies simply in the opportunity to be heard. 23
The evidence in this case is crystal-clear. Respondent was not notified of the specific act or omission for which her
dismissal was being sought. Neither was she given any chance to be heard, as required by law. At any rate, even if
she were given the opportunity to be heard, she could not have defended herself effectively, for she knew no cause
to answer to.
All that petitioner tendered to respondent was a notice of her employment termination effective the very same day,
together with the equivalent of a one-month pay. This Court has already held that nothing in the law gives an
employer the option to substitute the required prior notice and opportunity to be heard with the mere payment of 30
days salary.24
Well-settled is the rule that the employer shall be sanctioned for noncompliance with the requirements of, or for
failure to observe, due process that must be observed in dismissing an employee. 25
No Valid Cause for Dismissal

78
Moreover, Articles 282,26 28327 and 28428 of the Labor Code provide the valid grounds or causes for an employees
dismissal. The employer has the burden of proving that it was done for any of those just or authorized causes. The
failure to discharge this burden means that the dismissal was not justified, and that the employee is entitled to
reinstatement and back wages.29
Notably, petitioner has not asserted any of the grounds provided by law as a valid reason for terminating the
employment of respondent. It merely insists that her dismissal was validly effected pursuant to the provisions of her
employment Contract, which she had voluntarily agreed to be bound to.
Truly, the contracting parties may establish such stipulations, clauses, terms and conditions as they want, and their
agreement would have the force of law between them. However, petitioner overlooks the qualification that those
terms and conditions agreed upon must not be contrary to law, morals, customs, public policy or public order.30 As
explained earlier, the employment Contract between petitioner and respondent is governed by Philippine labor laws.
Hence, the stipulations, clauses, and terms and conditions of the Contract must not contravene our labor law
provisions.
Moreover, a contract of employment is imbued with public interest. The Court has time and time again reminded
parties that they "are not at liberty to insulate themselves and their relationships from the impact of labor laws and
regulations by simply contracting with each other."31 Also, while a contract is the law between the parties, the
provisions of positive law that regulate such contracts are deemed included and shall limit and govern the relations
between the parties.32
Basic in our jurisprudence is the principle that when there is no showing of any clear, valid, and legal cause for the
termination of employment, the law considers the matter a case of illegal dismissal. 33
Awards for Damages Justified
Finally, moral damages are recoverable when the dismissal of an employee is attended by bad faith or constitutes
an act oppressive to labor or is done in a manner contrary to morals, good customs or public policy.34 Awards for
moral and exemplary damages would be proper if the employee was harassed and arbitrarily dismissed by the
employer.35
In affirming the awards of moral and exemplary damages, we quote with approval the following ratiocination of the
labor arbiter:
"The records also show that [respondents] dismissal was effected by [petitioners] capricious and high-handed
manner, anti-social and oppressive, fraudulent and in bad faith, and contrary to morals, good customs and public
policy. Bad faith and fraud are shown in the acts committed by [petitioners] before, during and after [respondents]
dismissal in addition to the manner by which she was dismissed. First, [respondent] was pressured to resign for two
different and contradictory reasons, namely, cost-cutting and the need for a Chinese[-]speaking credit officer, for
which no written advice was given despite complainants request. Such wavering stance or vacillating position
indicates bad faith and a dishonest purpose. Second, she was employed on account of her qualifications,
experience and readiness for the position of credit officer and pressured to resign a month after she was
commended for her good work. Third, the demand for [respondents] instant resignation on 19 April 1999 to give way
to her replacement who was allegedly reporting soonest, is whimsical, fraudulent and in bad faith, because on 16
April 1999 she was given a period of [sic] until 15 May 1999 within which to leave. Fourth, the pressures made on
her to resign were highly oppressive, anti-social and caused her absolute torture, as [petitioners] disregarded her
situation as an overseas worker away from home and family, with no prospect for another job. She was not even
provided with a return trip fare. Fifth, the notice of termination is an utter manifestation of bad faith and whim as it
totally disregards [respondents] right to security of tenure and due process. Such notice together with the demands
for [respondents] resignation contravenes the fundamental guarantee and public policy of the Philippine
government on security of tenure.

79
"[Respondent] likewise established that as a proximate result of her dismissal and prior demands for resignation,
she suffered and continues to suffer mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock and social humiliation. Her standing in the social and business community as well as
prospects for employment with other entities have been adversely affected by her dismissal. [Petitioners] are thus
liable for moral damages under Article 2217 of the Civil Code.
xxxxxxxxx
"[Petitioners] likewise acted in a wanton, oppressive or malevolent manner in terminating [respondents]
employment and are therefore liable for exemplary damages. This should served [sic] as protection to other
employees of [petitioner] company, and by way of example or correction for the public good so that persons similarly
minded as [petitioners] would be deterred from committing the same acts." 36
The Court also affirms the award of attorneys fees. It is settled that when an action is instituted for the recovery of
wages, or when employees are forced to litigate and consequently incur expenses to protect their rights and
interests, the grant of attorneys fees is legally justifiable.37
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution AFFIRMED. Costs against
petitioner.
SO ORDERED.

80
G.R. No. 122791

February 19, 2003

PLACIDO O. URBANES, JR., doing business under the name & style of CATALINA SECURITY
AGENCY,petitioner,
vs.
THE HONORABLE SECRETARY OF LABOR AND EMPLOYMENT and SOCIAL SECURITY
SYSTEM,respondents.
DECISION
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 clients of 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 DOLE-NCR issued an Order 10 of September 16, 1994, the
dispositive portion of which reads, quoted verbatim:

81
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;

82
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 Code 18 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
employer-employee 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

83
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 employer-employee
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:

84
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. NCR-03.
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.

85
SO ORDERED.

86
G.R. No. 154060 August 16, 2005
YUSEN AIR AND SEA SERVICE PHILIPPINES, INCORPORATED, Petitioners,
vs.
ISAGANI A. VILLAMOR, Respondent.
DECISION
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).

87
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
anotherP300,000 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. 02-0063, 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.

88
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 employeremployee 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 employer-employee 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

89
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 quasi-delict 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.
SO ORDERED.

90
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, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL MILLING CORPORATION and/or
FELICIANO LUPO, respondents.
Public Attorney's Office for petitioners.
Joseph M. Baduel & Steve R. Siclot for private respondents.

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

91
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
"labor-only" contracting, which is not the set-up between GMC and LUPO.
Article 106 provides:
Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another
person for the performance of the former's work, the employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work performed under the contract, in the same
manner and extent that he is liable to employees directly employed by him.
xxx xxx xxx
There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing activities which are
directly related to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed by him (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).

92
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 employer-employee relationship exists between the owner and the employees of his contractor. The
owner of the project is not the direct employer but merely an indirect employer, by operation of law, of his
contractor's employees.

93
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.
SO ORDERED.
Paras, Sarmiento and Regalado, JJ., concur.

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

94
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 nonprofit 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 labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the parties involved shall
be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing activities which are

95
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 employercontractor-employee. It does not deal solely with "labor-only" contracting.
The first situation in Article 106 is where the employer (project owner) enters into a contract with a contractor for the
performance of some job or work; the employees recruited by such contractor shall be paid, according 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 workers to
the extent of the work performed by them, meaning that the EMPLOYER shall solidarily answer for the payment of
wages corresponding to the amount of work undertaken by the contractor's employees in the project. This is
the second situation contemplated by Article 106.
The third and final situation treated in Article 106 is contained in the fourth paragraph thereof. It pertains to what the
majority perceives (erroneously, in my view) as the sole coverage of Article 106-that of a "labor-only" contracting and
the extent of the rights and liabilities of the parties involved in such a relationship. As explained in the ponencia, for
this scheme or situation to exist, two (2) circumstances must concur: one, the contractor who recruits the workers
must have 'no substantial capital or investment in the form of tools, equipment, machineries and work premises,'
and two, 'such workers are so engaged to perform activities directly related to the employer's principal business.'
Should there be a finding of 'labor-only' contracting, the law expressly provides that the EMPLOYER (or project
owner) shall be considered the direct employer of such workers. Such juridical relationship would then spawn a
whole gamut of employer's obligations, including obligations under the workmen's compensation, social security,
medicare, minimum wage, termination pay and unionism. 1
From the facts of this case as presented, the second paragraph of article 106 finds clear application. Because of
contractor Lupo's default in the payment of petitioners' wages, owing to his insolvency, the employer (company)
must comply with its joint and several obligation to answer for Lupo's accountability to his employees for their unpaid
wages. Thereafter, should the company be inclined to do so, it may seek reimbursement from Lupo.
In sum, it is my submission that the company's solidary liability to the petitioners ought to be predicated on the
basis, not of Article 107 of the Labor Code (which applies only to non-employers while the company in this case is
an employer) but rather, upon the express declaration of paragraph 2, Article 106 of the Labor Code, which
covers employers (not non-employers) as the company in the case at bar.

# Separate Opinions
PADILLA, J.,

96
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 nonprofit 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

97
subcontractor to such employees to the extent of the work performed under the contract, in the same
manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of
labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he
may make appropriate distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the parties involved shall
be considered the employer for purposes of this Code, to prevent any violation or circumvention of
any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing activities which are
directly related to the principal business of such employer. In such 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 employercontractor-employee. It does not deal solely with "labor-only" contracting.
The first situation in Article 106 is where the employer (project owner) enters into a contract with a contractor for the
performance of some job or work; the employees recruited by such contractor shall be paid, according 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 workers to
the extent of the work performed by them, meaning that the EMPLOYER shall solidarily answer for the payment of
wages corresponding to the amount of work undertaken by the contractor's employees in the project. This is
the second situation contemplated by Article 106.
The third and final situation treated in Article 106 is contained in the fourth paragraph thereof. It pertains to what the
majority perceives (erroneously, in my view) as the sole coverage of Article 106-that of a "labor-only" contracting and
the extent of the rights and liabilities of the parties involved in such a relationship. As explained in the ponencia, for
this scheme or situation to exist, two (2) circumstances must concur: one, the contractor who recruits the workers
must have 'no substantial capital or investment in the form of tools, equipment, machineries and work premises,'
and two, 'such workers are so engaged to perform activities directly related to the employer's principal business.'
Should there be a finding of 'labor-only' contracting, the law expressly provides that the EMPLOYER (or project
owner) shall be considered the direct employer of such workers. Such juridical relationship would then spawn a
whole gamut of employer's obligations, including obligations under the workmen's compensation, social security,
medicare, minimum wage, termination pay and unionism. 1
From the facts of this case as presented, the second paragraph of article 106 finds clear application. Because of
contractor Lupo's default in the payment of petitioners' wages, owing to his insolvency, the employer (company)
must comply with its joint and several obligation to answer for Lupo's accountability to his employees for their unpaid
wages. Thereafter, should the company be inclined to do so, it may seek reimbursement from Lupo.

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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.
# Footnotes
1 Art. 97. Definitions. ... (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, subdivisions and instrumentalities, all government-owned or controlled corporations and
institutions, as well as non-profit private institutions, or organizations.

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G.R. No. 68786 July 21, 1989
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HONORABLE NATIONAL LABOR RELATIONS COMMISSION, EDILBERTO SALAYON, RICARDO
ARINDUQUE, GLORIA AUREA, MANUEL DIZON, RODOLFO ENCARNACION, ROMEO ESPINO, JOSE
NARANON, ROLANDO MARTINEZ, DANILO MEJIA, NICOLAS MERINO, EDUARDO MUOZ, EVANGELINE
NOCON, MODESTO ORDONEZ, MANUEL PELAYO, IRENEO QUIJANO, PONCIANO ULEP, CONSOLITA
VILLAVERT, PACIFICO E. MARCOS, MARIANITO L. SANTOS, LIONG CIO CHANG, JOSE OSIAS, NAPOLEON
M. GAMO, SALOME L. SANTOS, ENRIQUE BAKING, ZACARIAS DACLISON, EDUARDO DOBLE, WILSON
DULLAS, TEODORO LOPEZ, MARILYN LUSUNG, TEOFILO MARINGAS, ANDRES MICLAT, MARCIAL PALMA,
CLEMENTE REGALA, JR., ERNESTO ROQUE, and CONSOLIDATED SUGAR CORPORATION OF THE
PHILIPPINES, respondents.

PARAS, J.:
Challenged in this petition for certiorari is the validity of the decision of the National Labor Relations Commission
(NLRC for brevity) dated September 25,1984 in NLRC Case No. RAB-III-2-492-82 entitled "Edilberto Salayon et al.
vs. Development Bank of the Philippines (DBP for brevity) and Consolidated Sugar Corporation of the Philippines"
which affirmed the decision of the labor arbiter Andres B. Palumbarit sustaining the complaint for unpaid salaries
and wages, allowances and separation pay against petitioner DBP.
The facts as narrated by the Solicitor General are as follows:
In 1967, CAREBI secured a loan from petitioner DBP, constituting a mortgage on its sugar millrefinery in Botolan, Zambales. On July 22, 1977, and upon failure of CAREBI to pay, DBP instituted
a foreclosure sale of the property in which DBP itself was the highest bidder (Records, Motion for
Reconsideration, Annex A; Certificate of Sale, pp. 000113-23).
After the sale, CAREBI continued to manage and operate the business until it finally ceased
operation on April 30, 1978. On the same day, CAREBI laid off respondent-employees then working
in the sugar mill-refinery Without, however, paying their separation benefits.
Meantime, Dr. Pacifico E. Marcos, then President of CAREBI, along with four (4) others, namely:
Marianito Santos, Jose Z. Osias, Cesar N. Barretto, and Liong Cio Chang, formed another
corporation, the Consolidated Sugar Corporation (CSC for brevity), which in turn proposed a
management contract with DBP respecting the same sugar mill-refinery (Letters dated June 1978
and August 8,1978).
On August 8, 1978, DBP agreed to continue the business under the management and operation of
the newly-organized CSC. In view thereof, respondent-employees who were previously laid off were
recalled to work (Management Contract, August 8,1978).
The management contract provided among others, that:
1. DBP shall undertake to pay the cost of rehabilitation and repair of the mill and
refinery equipment based on CSC's prepared estimates to be reviewed by DBP;

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2. DBP shall designate a comptroller and an assistant comptroller to motor the
management and operations of the sugar mill-refinery and to draw checks covering
the operational expenses, respectively;
3. DBP shall approve all monthly budgets and projections on operations of the sugarmill refinery;
4. CSC shall handle all operational revenues and income. All expenses relating to
operations shall be deducted therefrom;
5. Salaries and compensation of the CSC management group plus a management
fee to CSC of P25,000.00 a month shall be funded out of CAREBI's operations so
that should the net cash balance from CAREBI's operations be less than
P200,000.00 (equivalent to the management fee for eight month's milling period at
P25,000.00 per month), then such smaller balance is all that shall be paid to CSC as
management fee. Only cash balance in excess of the foregoing shall accrue to DBP;
6. CSC agrees and binds itself to hold DBP free and unharmed from any costs,
expenses, accountabilities and other liabilities of any form, kind or character which
may arise from the use, management and operation of the sugar mill-refinery. (id).
During the operation, DBP, in addition to the foregoing, actually held and controlled six (6) out of eleven (11) seats in
the CSC Board of Directors,
On September 23,1981, or after two years and one month, DBP Board of Governors, through Resolution No. 3035,
resolved and approved the:
1. Termination of the management contract with CSC;
2. Assumption by DBP of the payment of back salaries and allowances including
separation pay of CAREBI employees entitled thereto. (Resolution No. 3035).
Consequently, in its letter of September 29, 1981 (received by CSC and respondent employees on
September 5 and 7, respectively), DBP terminated the contract effective on the following day,
September 30, 1981 (Letter dated September 29, 1981).
In November 1981 some 77 employees filed a case against petitioner DBP and respondent CSC,
docketed as NLRC Case No. RB-111-10-238-81 for backwages, ECOLA (July 1,-Oct. 8, 1981) and
separation pay computed from their original employment with CAREBI.
While the case was pending, DBP, by way of compromise, paid claimants the collective amount of
P164,597.53, entitling each to an average amount of P2,137.63. In turn, claimants withdrew the case
and executed the corresponding quitclaim in favor of DBP and CSC.
On February 4, 1982, other 18 employees, different from the previous claimants, filed similar claims
against DBP and CSC (Complaint, February 4, 1982).
CSC and the 18 complainants plus 16 additional claimants (including the 4 CSC corporate officers
not previously included in the complaint, filed their respective position papers imputing liability to
DBP, all claiming to have become DBP's employees upon its acquisition of the sugar mill-refinery
and subsequent continuation of the business under the management of CSC.

101
On the other hand DBP did not file its position paper." (Rollo, pp. 152-155).
On April 19, 1982, Labor Arbiter Andres B. Palumbarit rendered a decision the decretal portion of which reads:
WHEREFORE, premises considered, the complaint is hereby sustained and respondent DBP is
ordered to pay the following:
1. The amount of P 35,198.68 as allowance from July 1 to October 8,1981 of herein
complainants;
2. P170,211.01 as unpaid salaries and wages of herein complainants from July 1 to
October 8, 1981;
3. P507,260.00 as separation or termination pay of herein complainants for the
length of services rendered by them as indicated in Annex "N" of the complainants
position paper;
4. The amount corresponding to the 10% of the allowances and wages combined,
constituting as Attorney's fee pursuant to Section II of Rule VII Book II of the
Implementing Rules and Regulations of the Labor Code or P20,540.96. (lbid., p. 20).
On appeal to the NLRC, aforecited decision was affirmed and the appeal dismissed for lack of merit.
Hence the instant petition.
Petitioner raised the following assignments of error:
1. RESPONDENT COMMISSION ERRED IN FINDING THAT DBP IS DEEMED TO HAVE
STEPPED INTO THE SHOES OF CAREBI AND ASSUMED ITS LIABILITIES INSOFAR AS THE
EMPLOYEES ARE CONCERNED.
2. RESPONDENT COMMISSION ERRED IN FINDING THAT THE EMPLOYEES OF CAREBI
BECAME EMPLOYEES OF DBP.
3. RESPONDENT COMMISSION ERRED IN FINDING THAT THE OPERATIONS OF CAREBI
SUGAR MILL REFINERY COMPLEX BELONGED TO AND WERE FOR THE ACCOUNT OF DBP.
4. RESPONDENT COMMISSION ERRED IN NOT SUSTAINING DBP'S STAND THAT AS PER
MANAGEMENT CONTRACT CSC AGREED TO USE, MANAGE AND OPERATE THE SUGAR MILL
REFINERY COMPLEX AND AGREE TO ABSOLVE DBP FROM ANY COSTS, EXPENSES,
ACCOUNTABILITIES AND OTHER LIABILITIES AND THAT CSC OPERATED THE SUGAR MILL
FOR ITS ACCOUNT.
5. RESPONDENT COMMISSION ERRED IN FINDING THAT CSC ACTIVITIES WERE LIMITED TO
THE OPERATION/MANAGEMENT OF THE SUGAR MILL REFINERY COMPLEX OR THAT THERE
IS UTTERLY WANT OF PROOF THAT CSC WAS ENGAGED IN ANY OTHER BUSINESS.
6. RESPONDENT COMMISSION ERRED IN CONSIDERING IN THE COMPUTATION OF THE
AWARD SERVICES RENDERED BY THE AWARDEES TO CAREBI (PHIL.) INC.
7. ASSUMING WITHOUT ADMITTING THAT THE PRIVATE RESPONDENTS BECAME THE
EMPLOYEES OF DBP, THEN IN THIS CASE THE PROVISIONS OF THE LABOR CODE ARE NOT

102
APPLICABLE IN THIS INSTANT CASE AND THE LABOR ARBITER AND THE RESPONDENT
NLRC HAS NO JURISDICTION OVER THE PERSONS OF THE PRIVATE RESPONDENTS AND
DBP. (pp. 290-291, Rollo).
The crux of the matter is whether or not the NLRC misappreciated the facts and proceeded with erroneous
conclusions of law.
There is no question that private respondents have not received benefits legally due them. The question is who
between petitioner DBP and respondent CSC is liable to pay the private respondents.
The Labor Arbiter and the NLRC found as fact that petitioner DBP and not respondent CSC was the employer of
private respondents.
Petitioner, however, insists that respondent CSC is private respondents' employer as they have been under the
direct control and supervision of the said corporation and that the payment of their salaries were funded out of the
CSC's operations as embodied in the management contract. Moreover, private respondents are the former
employees of the defunct CAREBI (Phil.). Their subsequent re-hiring undertaken by respondent CSC does not in
any way bind the petitioner, much less makes it liable for the money claims.
It is well-settled that the question of whether or not an employer-employee relationship exists between the parties is
a question of fact and that findings of fact of the NLRC are accorded by this Court not only respect but finality, if
supported by substantial evidence (Asim et al. v. Castro, G.R. Nos. 7506364, June 30, 1988). (Italics supplied).
Contrary to the findings of the labor arbiter and the NLRC, the following circumstances belie the existence of an
employer-employee relationship between the private respondents and petitioner DBP:
1. Upon petitioner DBP's foreclosure of CAREBI's assets and the consequent expiration of their
management contract, private respondent employees' services were terminated by Carebi President
Pacifico E. Marcos by virtue of a memorandum dated April 29, 1978 (Rollo, p. 90);
2. Respondent CSC conformably agreed to use, manage, and operate the sugar mill-refinery
complex at Botolan, Zambales belonging to petitioner DBP (Annex "3", supplemental petition, p. 95,
Rollo);
3. CAREBI (Phil.) Inc. president Pacifico E. Marcos, who later became president of respondent CSC
personally undertook to obtain the re-employment of private respondents after cessation of operation
of CAREBI (Phil.) Inc. (Annex "l-A", lbid., p. 90);
4. Respondent CSC is an independent contractor which has an authorized capital of P
20,000,000.00 and already has an initial paid up capital of P l,000,000.00; (Annex "2", Ibid., p. 91);
5. Respondent CSC admittedly provided the manning requirements of the sugar mill-refinery
complex 'limited to only 446 personnel instead of Carebi's usual force of 691 or a reduction of 245
men' (lbid., P. 93);
6. The management contract between petitioner DBP and respondent CSC specifically provided that
the 'salaries and compensation of the CSC management group plus a management fee to CSC of
P25,000.00 a month shall be funded out of CAREBI's operations so that should the net cash balance
from CAREBI's operations be less than P200,000.00 (equivalent to the management fee for eight
month's milling period at P25,000.00 per month), then such smaller balance is all that shall be paid
to CSC as management fee. Only cash balance in excess of the foregoing shall accrue to DBP'
(Rollo pp. 153-154);

103
7. The projected Expenses/Fund Requirements for the months of September & October 1978 of
respondent CSC shows that the latter shall be responsible for the funding of operating expenses of
the sugar mill-refinery complex such as salaries and wages, SSS, medicare, Employee
compensation, and Maternity Contribution, Emergency Allowance (PD 525 & 1123), Miscellaneous &
Indirect Expenses, General & Administrative Expenses and Light and Power (Zambales) (Rollo, p.
104).
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;
(4) the power to control the employee's conduct although the latter is the most important element (Brotherhood
Labor Unity Movement of the Philippines v. Zamora, 147 SCRA 49 [1987]; Social Security System v. Court of
Appeals, 156 SCRA 383 [1987]; Broadway Motors Inc. v. NLRC, 156 SCRA 522 [1987]; Bautista v. Inciong, 158
SCRA 668 [1988] and (Asim et al. v. Castro, supra).
Respondent CSC is an independent contractor which employed the private respondents for the specific purpose of
managing and operating the said sugar mill-refinery complex. It was respondent CSC which exercised the right of
control over the conduct of private respondents in the performance of their functions and petitioner DBP never had a
hand over their supervision. The right of control test "where the person for whom the services are performed
reserves a right to control not only the end to be achieved but also the means to be used in reaching such end"
belonging to respondent CSC is determinative of the existence of an employer-employee relationship (Sevilla vs.
Court of Appeals, 160 SCRA 179-180 [1988]).
Absent the power to control the employees with respect to the means and methods by which their work was to be
accomplished, there was no employer-employee relationship between the petitioner DBP and private respondents.
Hence, there is no basis for an award of unpaid allowances, salaries and wages and separation pay against
petitioner DBP. (Continental Marble Corp., et al., vs. NLRC, G.R. No. L-43825, May 9,1988).
But respondent CSC which is apparently private respondents' employer is obliged to pay the same.
Anent the finding of NLRC that petitioner DBP stepped into the shoes of Carebi and assumed its liabilities insofar as
the employees are concerned, the said ruling appears implausible since the liabilities incurred by the old owner of
the establishment to his employees prior to the sale will not be enforceable against the transferee unless the latter
expressly assumed the same, or the sale was made in bad faith (Fernando vs. Angat Labor Union 5 SCRA 251
[1962]; Cruz vs. Philippine Association of Free Labor Unions (PAFLU) 42 SCRA 77 [1971]), which circumstances are
not obtaining in the case at bar.
PREMISES CONSIDERED, (a) The petition is GRANTED; (b) the appealed decision of the NLRC is REVERSED
and SET ASIDE and (c) the complaint against the petitioner DBP is DISMISSED.
SO ORDERED.

104
G.R. No. 126586

February 2, 2000

ALEXANDER VINOYA, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD CORPORATION AND/OR RICKY SEE
(PRESIDENT), respondents.
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 decision 2 of the, Labor Arbiter, rendered
on 15 June 1994, ordering Regent Food Corporation ("RFC") to reinstate Alexander Vinoya to his former position
and pay him backwages.
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.

105
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 laboronly 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

106
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 selforganization, 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.

107
The Court further clarified the import of the Neri decision in the subsequent case of Philippine Fuji Xerox
Corporation vs. NLRC.23 In the said case, petitioner Fuji Xerox implored the Court to apply the Neri doctrine to its
alleged job-contractor, Skillpower, Inc., and declare the same as an independent contractor. Fuji Xerox alleged that
Skillpower, Inc. was a highly capitalized venture registered with the Securities and Exchange Commission, the
Department of Labor and Employment, and the Social Security System with assets exceeding P5,000,000.00
possessing at least 29 typewriters, office equipment and service vehicles, and its own pool of employees with 25
clerks assigned to its clients on a temporary basis.24 Despite the evidence presented by Fuji Xerox the Court refused
to apply the Neri case and explained:
Petitioners cite the case of Neri v. NLRC, in which it was held that the Building Care Corporation (BCC) was
an independent contractor on the basis of finding that it had substantial capital, although there was no
evidence that it had investments in the form of tools, equipment, machineries and work premises. But the
Court in that case considered not only the capitalization of the BCC but also the fact that BCC was providing
specific special services (radio/telex operator and janitor) to the employer; that in another case, the Court
had already found that BCC was an independent contractor; that BCC retained control over the employees
and the employer was actually just concerned with the end-result; that BCC had the power to reassign the
employees and their deployment was not subject to the approval of the employer; and that BCC was paid in
lump sum for the services it rendered. These features of that case make it distinguishable from the present
one.25
Not having shown the above circumstances present in Neri, the Court declared Skillpower, Inc. to be engaged in
labor-only contracting and was considered as a mere agent of the employer.
From the two aforementioned decisions, it may be inferred that it is not enough to show substantial capitalization or
investment in the form of tools, equipment, machineries and work premises, among others, to be considered as an
independent contractor. In fact, jurisprudential holdings are to the effect that in determining the existence of an
independent contractor relationship, several factors might be considered such as, but not necessarily confined to,
whether the contractor is carrying on an independent business; the nature and extent of the work; the skill required;
the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control
and supervision of the workers; the power of the employer with respect to the hiring, firing and payment of the
workers of the contractor; the control of the premises; the duty to supply premises, tools, appliances, materials and
labor; and the mode, manner and terms of payment.26
Given the above standards and the factual milieu of the case, the Court has to agree with the conclusion of the
Labor Arbiter that PMCI is engaged in labor-only contracting.
First of all, PMCI does not have substantial capitalization or investment in the form of tools, equipment, machineries,
work premises, among others, to qualify as an independent contractor. While it has an authorized capital stock of
P1,000,000.00, only P75,000.00 is actually paid-in, which, to our mind, cannot be considered as substantial
capitalization. In the case of Neri, which was promulgated in 1993, BCC had a capital stock of P1,000,000.00 which
was fully subscribed and paid-for. Moreover, when the Neri case was decided in 1993, the rate of exchange
between the dollar and the peso was only P27.30 to $1 27 while presently it is at P40.390 to $1.28 The Court takes
judicial notice of the fact that in 1993, the economic situation in the country was not as adverse as the present, as
shown by the devaluation of our peso. With the current economic atmosphere in the country, the paid-in
capitalization of PMCI amounting to P75,000,00 cannot be considered as substantial capital and, as such, PMCI
cannot qualify as an independent contractor.
Second, PMCI did not carry on an independent business nor did it undertake the performance of its contract
according to its own manner and method, free from the control and supervision of its principal, RFC. The evidence
at hand shows that the workers assigned by PMCI to RFC were under the control and supervision of the latter. The
Contract of Service itself provides that RFC can require the workers assigned by PMCI to render services even
beyond the regular eight hour working day when deemed necessary.29 Furthermore, RFC undertook to assist PMCI
in making sure that the daily time records of its alleged employees faithfully reflect the actual working hours. 30 With

108
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. Driver33
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 employer-employee relationship the following elements of the "four-fold
test" are generally considered, namely: (1) the selection and engagement of the employee or the power to hire; (2)
the payment of wages; (3) the power to dismiss; and (4) the power to control the employee. 34 Of these four, the
"control test" is the most important.35 A careful study of the evidence at hand shows that RFC possesses the
earmarks of being the employer of petitioner.

109
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

110
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 hearing 49 must, likewise, be
observed before an employee may be dismissed. Without the concurrence of the two, the termination would, in the
eyes of the law, be illegal.50
As the employer, RFC has the burden of proving that the dismissal of petitioner was for a cause allowed under the
law and that petitioner was afforded procedural due process. Sad to say, RFC failed to discharge this burden.
Indeed, RFC never pointed to any valid or authorized cause under the Labor Code which allowed it to terminate the
services of petitioner. Its lone allegation that the dismissal was due to the expiration or completion of contract is not
even one of the grounds for termination allowed by law. Neither did RFC show that petitioner was given ample
opportunity to contest the legality of his dismissal. In fact, no notice of such impending termination was ever given
him. Petitioner was, thus, surprised that he was already terminated from employment without any inkling as to how
and why it came about. Petitioner was definitely denied due process. Having failed to establish compliance with the
requirements on termination of employment under the Labor Code, the dismissal of petitioner is tainted with
illegality.
An employee who has been illegally dismissed is entitled to reinstatement to his former position without loss of
seniority rights and to payment of full backwages corresponding to the period from his illegal dismissal up to actual
reinstatement.51 Petitioner is entitled to no less.
WHEREFORE, the petition is GRANTED. The decision of the NLRC, dated 21 June 1996, as well as its resolution,
promulgated on 20 August 1996, are ANNULLED and SET ASIDE. The decision of the Labor Arbiter, rendered on 15
June 1994, is hereby REINSTATED and AFFIRMED.
1wphi1.nt

SO ORDERED.

111
G.R. Nos. 97008-09 July 23, 1993
VIRGINIA G. NERI and JOSE CABELIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and
BUILDING CARE CORPORATION, respondents.
R.L. Salcedo & Improso Law Office for petitioners.
Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for Bldg. Care Corp.
Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.

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. 2 On 22 October 1990, NLRC denied reconsideration of its affirmance, 3 prompting petitioners to seek redress
from this Court.
Petitioners vehemently contend that BCC 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 4 is to be read in conjunction with job contracting, 5 then the only logical conclusion is that BCC is a "labor only"
contractor. Consequently, they must be deemed employees of respondent bank by operation of law since BCC is merely
an agent of FEBTC following the doctrine laid down in Philippine Bank of Communications v. National Labor Relations
Commission 6 where we ruled that where "labor-only" contracting exists, the Labor Code itself establishes an employer-

112
employee relationship between the employer and the employees of the "labor-only" contractor; hence, FEBTC should be
considered the employer of petitioners who are deemed its employees through its agent, "labor-only" contractor BCC.

We cannot sustain the petition.

Respondent BCC need not prove that it made investments in the form of tools, equipment, machineries, work
premises, among others, because it has established that it has sufficient capitalization. The Labor Arbiter and the
NLRC both determined that BCC had a capital stock of P1 million fully subscribed and paid for. 7 BCC is therefore a
highly capitalized venture and cannot be deemed engaged in "labor-only" contracting.
It is well-settled that there is "labor-only" contracting where: (a) the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others; and, (b) the workers recruited and placed by such person are performing activities which are directly related
to the principal business of the employer. 8
Article 106 of the Labor Code defines "labor-only" contracting thus
Art. 106. Contractor or subcontractor. . . . . There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the workers recruited by such
persons are performing activities which are directly related to the principal business of such
employer . . . . (emphasis supplied).
Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it has substantial capital.
While there may be no evidence that it has investment in the form of tools, equipment, machineries, work premises,
among others, it is enough that it has substantial capital, as was established before the Labor Arbiter as well as the
NLRC. In other words, the law does not require both substantial capital and investment in the form of tools,
equipment, machineries, etc. This is clear from the use of the conjunction "or". If the intention was to require the
contractor to prove that he has both capital and the requisite investment, then the conjunction "and" should have
been used. But, having established that it has substantial capital, it was no longer necessary for BCC to further
adduce evidence to prove that it does not fall within the purview of "labor-only" contracting. There is even no need
for it to refute petitioners' contention that the activities they perform are directly related to the principal business of
respondent bank.
Be that as it may, the Court has already taken judicial notice of the general practice adopted in several government
and private institutions and industries of hiring independent contractors to perform special services. 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, 12 nevertheless, they are not necessary in the conduct of the principal business of the employer.
In fact, the status of BCC as an independent contractor was previously confirmed by this Court in Associated Labor
Unions-TUCP v. National Labor Relations Commission, 13 where we held thus
The public respondent ruled that the complainants are not employees of the bank but of the
company contracted to serve the bank. Building Care Corporation is a big firm which services,
among others, a university, an international bank, a big local bank, a hospital center, government
agencies, etc. It is a qualified independent contractor. The public respondent correctly ruled against
petitioner's contentions . . . . (Emphasis supplied).
Even assuming ex argumenti that petitioners were performing activities directly related to the principal business of
the bank, under the "right of control" test they must still be considered employees of BCC. In the case of petitioner
Neri, it is admitted that FEBTC issued a job description which detailed her functions as a radio/telex operator.
However, a cursory reading of the job description shows that what was sought to be controlled by FEBTC was

113
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.
SO ORDERED.

114

115
G.R. No. 144672

July 10, 2003

SAN MIGUEL CORPORATION, petitioner,

vs.
MAERC INTEGRATED SERVICES, INC.; and EMERBERTO ORQUE, ROGELIO PRADO, JR., EDDIE SELLE,
ALEJANDRO ANNABIEZA, ANNIAS JUAMO-AS, CONSORCIO MANLOLOYO, ANANIAS ALCONTIN, REY
GESTOPA, EDGARDO NUEZ, JUNEL CABATINGAN, PAUL DUMAQUETA, FELIMON ECHAVEZ, VITO
SEALANA, DENECIA PALAO, ROBERTO LAPIZ, BALTAZAR LABIO, LEONARDO BONGO, EL CID ICALINA,
JOSE DIOCAMPO, ADELO CANTILLAS, ISAIAS BRANZUELA, RAMON ROSALES, GAUDENCIO PESON,
HECTOR CABAOG, EDGARDO DAGMAYAN, ROGELIO CRUZ, ROLANDO ESPINA, BERNARDINO
REGIDOR, ARNELIO SUMALINOG, GUMERSINDO ALCONTIN, LORETO NUEZ, JOEBE BOY DAYON,
CONRADO MESANQUE, MARCELO PESCADOR, MARCELINO JABAGAT, VICENTE DEVILLERES, VICENTE
ALIN, RODOLFO PAHUGOT, RUEL NAVARES, DANILO ANABIEZA, ALEX JUEN, JUANITO GARCES, SILVINO
LIMBAGA, AURELIO JURPACIO, JOVITO LOON, VICTOR TENEDERO, SASING MORENO, WILFREDO
HORTEZUELA, JOSELITO MELENDEZ, ALFREDO GESTOPA, REGINO GABUYA, JORGE GAMUZARNO,
LOLITO COCIDO, EFRAIM YUBAL, VENERANDO ROAMAR, GERARDO BUTALID, HIPOLITO VIDAS,
VENGELITO FRIAS, VICENTE CELACIO, CORLITO PESTAAS, ERVIN HYROSA, ROMMEL GUERERO,
RODRIGO ENERLAS, FRANCISCO CARBONILLA, NICANOR CUIZON, PEDRO BRIONES, RODOLFO
CABALHUG, TEOFILO RICARDO, DANILO R. DIZON, ALBERTO EMBONG, ALFONSO ECHAVEZ, GONZALO
RORACEA, MARCELO CARACINA, RAUL BORRES, LINO TONGALAMOS, ARTEMIO BONGO, JR., ROY
AVILA, MELCHOR FREGLO, RAUL CABILLADA, EDDIE CATAB, MELENCIO DURANO, ALLAN RAGO,
DOMINADOR CAPARIDA, JOVITO CATAB, ALBERT LASPIAS, ALEX ANABIEZA, NESTOR REYNANTE,
EULOGIO GESTOPA, MARIO BOLO, EDERLITO A. BALOCANO, JOEL PEPITO, REYNALDO LUDIA, MANUEL
CINCO, ALLAN AGUSTIN, PABLITO POLEGRATES, CLYDE PRADO, DINDO MISA, ROGER SASING, RAMON
ARCALLANA, GABRIEL SALAS, EDWIN SASAN, DIOSDADO BARRIGA, MOISES SASAN, SINFORIANO
CANTAGO, LEONARDO MARTURILLAS, MARIO RANIS, ALEXANDRO RANIDO, JEROME PRADO, RAUL
OYAO, VICTOR CELACIO, GERALDO ROQUE, ZOSIMO CARARATON, VIRGILIO ZANORIA, JOSE ZANORIA,
ALLAN ZANORIA, VICTORINO SENO, TEODULO JUMAO-AS, ALEXANDER HERA, ANTHONY ARANETA,
ALDRIN SUSON, VICTOR VERANO, RUEL SUFRERENCIA, ALFRED NAPARATE, WENCESLAO BACLOHON,
EDUARDO LANGITA, FELIX ORDENEZA, ARSENIO LOGARTA, EDUARDO DELA VEGA, JOVENTINO
CANOOG, ROGELIO ABAPO, RICARDO RAMAS, JOSE BANDIALAN, ANTONIO BASALAN, LYNDON
BASALAN, WILFREDO ALIVIANO, BIENVENIDO ROSARIO, JESUS CAPANGPANGAN, RENATO MENDOZA,
ALEJANDRO CATANDEJAN, RUBEN TALABA, FILEMON ECHAVEZ, MARCELINO CARACENA, IGNACIO
MISA, FELICIANO AGBAY, VICTOR MAGLASANG, ARTURO HEYROSA, ALIPIO TIROL, ROSENDO
MONDARES, ANICETO LUDIA, REYNALDO LAVANDERO, REUYAN HERCULANO, TEODULO NIQUE,
EMERBERTO ORQUE, ZOSIMO BAOBAO, MEDARDO SINGSON, ANTONIO PATALINGHUG, ERNESTO
SINGSON, ROBERTO TORRES, CESAR ESCARIO, LEODEGARIO DOLLECIN, ALBERTO ANOBA, RODRIGO
BISNAR, ZOSIMO BINGAS, ROSALIO DURAN, SR., ROSALIO DURAN, JR., ROMEO DURAN, ANTONIO
ABELLA, MARIANO REPOLLO, POLEGARPO DEGAMO, MARIO CEREZA, ANTONIO LAOROMILLA,
PROCTUSO MAGALLANES, ELADIO TORRES, WARLITO DEMANA, HENRY GEDARO, DOISEDERIO
GEMPERAO, ANICETO GEMPERAO, JERRY CAPAROSO, SERLITO NOYNAY, LUCIANO RECOPELACION,
JUANITO GARCES, FELICIANO TORRES, RANILO VILLAREAL, FERMIN ALIVIANO, JUNJIE LAVISTE,
TOMACITO DE CASTRO, JOSELITO CAPILINA, SAMUEL CASQUEJO, LEONARDO NATAD, BENJAMIN
SAYSON, PEDRO INOC, EDWARD FLORES, EDWIN SASAN, JOSE REY INOT, EDGAR CORTES, ROMEO
LOMBOG, NICOLAS RIBO, JAIME RUBIN, ORLANDO REGIS, RICKY ALCONZA, RUDY TAGALOG,
VICTORINO TAGALOG, EDWARD COLINA, RONIE GONZAGA, PAUL CABILLADA, WILFREDO MAGALONA,
JOEL PEPITO, PROSPERO MAGLASANG, ALLAN AGUSTIN, FAUSTO BARGAYO, NOMER SANCHEZ,
JOLITO ALIN, BIRNING REGIDOR, GARRY DIGNOS, EDWIN DIGNOS, DARIO DIGNOS, ROGELIO DIGNOS,
JIMMY CABIGAS, FERNANDO ANAJAO, ALEX FLORES, FERNANDO REMEDIO, TOTO MOSQUIDA,
ALBERTO YAGONIA, VICTOR BARIQUIT, IGNACIO MISA, ELISEO VILLARENO, MANUEL LAVANDERO,
VIRCEDE, MARIO RANIS, JAIME RESPONSO, MARIANITO AGUIRRE, MARCIAL HERUELA, GODOFREDO
TUACAO, PERFECTO REGIS, ROEL DEMANA, ELMER CASTILLO, WINEFREDO CALAMOHOY, RUDY
LUCERNAS, ANTONIO CAETE, EFRAIM YUBAL, JESUS CAPANGPANGAN, DAMIAN CAPANGPANGAN,
TEOFILO CAPANGPANGAN, NILO CAPANGPANGAN, CORORENO CAPANGPANGAN, EMILIO MONDARES,
PONCIANO AGANA, VICENTE DEVILLERES, MARIO ALIPAN, ROMANITO ALIPAN, ALDEON ROBINSON,
FORTUNATO SOCO, CELSO COMPUESTO, WILLIAM ITORALDE, ANTONIO PESCADOR, JEREMIAS

116
RONDERO, ESTROPIO PUNAY, LEOVIJILDO PUNAY, ROMEO QUILONGQUILONG, WILFREDO GESTOPA,
ELISEO SANTOS, HENRY ORIO, JOSE YAP, NICANOR MANAYAGA, TEODORO SALINAS, ANICETO
MONTERO, RAFAELITO VERZOSA, ALEJANDRO RANIDO, HENRY TALABA, ROMULO TALABA, DIOSDADO
BESABELA, SYLVESTRE TORING, EDILBERTO PADILLA, ALLAN HEROSA, ERNESTO SUMALINOG,
ARISTON VELASCO, JR., FERNANDO LOPEZ, ALFONSO ECHAVEZ, NICANOR CUIZON, DOMINADOR
CAPARIDA, ZOSIMO CORORATION, ARTEMIO LOVERANES, DIONISIO YAGONIA, VICTOR CELOCIA,
HIPOLITO VIDAS, TEODORO ARCILLAS, MARCELINO HABAGAT, GAUDIOSO LABASAN, LEOPOLDO
REGIS, AQUILLO DAMOLE, WILLY ROBLE and NIEL ZANORIA,respondents.
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.

117
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 laboronly 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 resolution 7 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

118
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
Operations12 as well as a director of SMC13 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. 14 SMC also
paid the employer's share of the SSS and Medicare contributions, the 13th month pay, incentive leave pay and
maternity benefits.15 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."16
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. 17
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 letters 19written
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.

119
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.24
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. 25
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.26
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. 27
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.28 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 contracting29 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,30 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.31
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

120
own manner and method, free from the control and supervision of its principal in all matters except as to the results
thereof.32 The Court likewise mentioned that the employees of BCC were engaged to perform specific special
services for their principal.33 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.34 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.35 The fines imposed for violations of the notice requirement have varied. 36 The measure of this
award depends on the facts of each case and the gravity of the omission committed by the employer.37 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.

SUMMARY
NAME
SALARY

SEPARATION

TOTAL

121

DIFFERENTIAL

PAY

Case No. 06-1165-9

1 Rogelio Prado, Jr.

P3,056.00

P8,190.00

P11,246.00

2 Eddie Selle

3,056.00

8,190.00

11,246.00

3 Alejandro Annabieza

3,056.00

8,190.00

11,246.00

4 Ananias Jumao-as

3,056.00

8,190.00

11,246.00

5 Consorcio Manloloyo

3,056.00

8,190.00

11,246.00

6 Anananias Alcotin

3,056.00

8,190.00

11,246.00

7 Rey Gestopa

2,865.00

8,190.00

11,055.00

8 Edgardo Nuez

2,865.00

8,190.00

11,055.00

9 Junel Cabatingan

2,865.00

8,190.00

11,055.00

10 Paul Dumaqueta

2,865.00

8,190.00

11,055.00

11 Felimon Echavez

2,843.00

8,190.00

10,673.00

12 Vito Sealana

2,843.00

8,190.00

10,673.00

13 Denecia Palao

2,843.00

8,190.00

10,673.00

14 Roberto Lapiz

3,056.00

8,190.00

11,246.00

15 Baltazar Labio

3,056.00

8,190.00

11,246.00

122

16 Leonardo Bongo

3,056.00

8,190.00

11,246.00

17 El Cid Icalina

3,056.00

8,190.00

11,246.00

18 Jose Diocampo

3,056.00

8,190.00

11,246.00

19 Adelo Cantillas

3,056.00

8,190.00

11,246.00

20 Isaias Branzuela

3,056.00

8,190.00

11,246.00

21 Ramon Rosales

3,056.00

8,190.00

11,246.00

22 Gaudencio Peson

3,056.00

8,190.00

11,246.00

23 Hector Cabaog

3,056.00

8,190.00

11,246.00

24 Edgardo Dagmayan

3,056.00

8,190.00

11,246.00

25 Rogelio Cruz

3,056.00

8,190.00

11,246.00

26 Rolando Espina

3,056.00

8,190.00

11,246.00

27 Bernardino Regidor

3,056.00

8,190.00

11,246.00

28 Arnelio Sumalinog

3,056.00

8,190.00

11,246.00

29 Gumersindo Alcontin

3,056.00

8,190.00

11,246.00

30 Loreto Nuez

3,056.00

8,190.00

11,246.00

123

31 Joebe Boy Dayon

3,056.00

8,190.00

11,246.00

32 Conrado Mesanque

3,056.00

8,190.00

11,246.00

33 Marcelo Pescador

3,056.00

8,190.00

11,246.00

34 Marcelino Jabagat

3,056.00

8,190.00

11,246.00

35 Vicente Devilleres

3,056.00

8,190.00

11,246.00

36 Vicente Alin

3,056.00

8,190.00

11,246.00

37 Rodolfo Pahugot

3,056.00

8,190.00

11,246.00

38 Ruel Navares

3,056.00

8,190.00

11,246.00

39 Danilo Anabieza

3,056.00

8,190.00

11,246.00

40 Alex Juen

3,056.00

8,190.00

11,246.00

41 Juanito Garces

3,056.00

8,190.00

11,246.00

42 Silvino Limbaga

3,056.00

8,190.00

11,246.00

43 Aurelio Jurpacio

3,056.00

8,190.00

11,246.00

44 Jovito Loon

3,056.00

8,190.00

11,246.00

45 Victor Tenedero

3,056.00

8,190.00

11,246.00

46 Sasing Moreno

3,056.00

8,190.00

11,246.00

124

47 Wilfredo Hortezuela

3,056.00

8,190.00

11,246.00

48 Joselito Melendez

3,056.00

8,190.00

11,246.00

49 Alfredo Gestopa

3,056.00

8,190.00

11,246.00

50 Regino Gabuya

3,056.00

8,190.00

11,246.00

51 Jorge Gamuzarno

3,056.00

8,190.00

11,246.00

52 Lolito Cocido

3,056.00

8,190.00

11,246.00

53 Efraim Yubal

3,056.00

8,190.00

11,246.00

54 Venerando Roamar

3,056.00

8,190.00

11,246.00

55 Gerardo Butalid

3,056.00

8,190.00

11,246.00

56 Hipolito Vidas

3,056.00

8,190.00

11,246.00

57 Vengelito Frias

3,056.00

8,190.00

11,246.00

58 Vicente Celacio

3,056.00

8,190.00

11,246.00

59 Corlito Pestaas

3,056.00

8,190.00

11,246.00

60 Ervin Hyrosa

3,056.00

8,190.00

11,246.00

61 Rommel Guerero

3,056.00

8,190.00

11,246.00

62 Rodrigo Enerlas

3,056.00

8,190.00

11,246.00

125

63 Francisco Carbonilla

3,056.00

8,190.00

11,246.00

64 Nicanor Cuizon

3,056.00

8,190.00

11,246.00

65 Pedro Briones

3,056.00

8,190.00

11,246.00

66 Rodolfo Cabalhug

3,056.00

8,190.00

11,246.00

67 Teofilo Ricardo

3,056.00

8,190.00

11,246.00

68 Danilo R. Dizon

3,056.00

8,190.00

11,246.00

69 Alberto Embong

3,056.00

8,190.00

11,246.00

70 Alfonso Echavez

3,056.00

8,190.00

11,246.00

71 Gonzalo Roracea

3,056.00

8,190.00

11,246.00

72 Marcelo Caracina

3,056.00

8,190.00

11,246.00

73 Raul Borres

3,056.00

8,190.00

11,246.00

74 Lino Tongalamos

3,056.00

8,190.00

11,246.00

75 Artemio Bongo, Jr.

3,056.00

8,190.00

11,246.00

76 Roy Avila

3,056.00

8,190.00

11,246.00

77 Melchor Freglo

3,056.00

8,190.00

11,246.00

78 Raul Cabillada

3,056.00

8,190.00

11,246.00

126

79 Eddie Catab

3,056.00

8,190.00

11,246.00

80 Melencio Durano

3,056.00

8,190.00

11,246.00

81 Allan Rago

3,056.00

8,190.00

11,246.00

82 Dominador Caparida

3,056.00

8,190.00

11,246.00

83 Jovito Catab

3,056.00

8,190.00

11,246.00

84 Albert Laspias

3,056.00

8,190.00

11,246.00

85 Alex Anabieza

3,056.00

8,190.00

11,246.00

86 Nestor Reynante

3,056.00

8,190.00

11,246.00

87 Eulogio Estopa

3,056.00

8,190.00

11,246.00

88 Mario Bolo

3,056.00

8,190.00

11,246.00

89 Ederlito A. Balocano

3,056.00

8,190.00

11,246.00

90 Joel Pepito

3,056.00

8,190.00

11,246.00

91 Reynaldo Ludia

3,056.00

5,460.00

8,516.00

92 Manuel Cinco

3,056.00

5,460.00

8,516.00

93 Allan Agustin

3,056.00

8,190.00

11,246.00

94 Pablito Polegrates

3,056.00

8,190.00

11,246.00

127

95 Clyde Prado

3,056.00

8,190.00

11,246.00

96 Dindo Misa

3,056.00

8,190.00

11,246.00

97 Roger Sasing

3,056.00

8,190.00

11,246.00

98 Ramon Arcallana

3,056.00

8,190.00

11,246.00

99 Gabriel Salas

3,056.00

8,190.00

11,246.00

100 Edwin Sasan

3,056.00

8,190.00

11,246.00

101 Diosdado Barriga

3,056.00

8,190.00

11,246.00

102 Moises Sasan

3,056.00

8,190.00

11,246.00

103 Sinforiano Cantago

3,056.00

8,190.00

11,246.00

104 Leonardo Marturillas

3,056.00

8,190.00

11,246.00

105 Mario Ranis

3,056.00

8,190.00

11,246.00

106 Alejandro Ranido

3,056.00

8,190.00

11,246.00

107 Jerome Prado

3,056.00

8,190.00

11,246.00

108 Raul Oyao

3,056.00

8,190.00

11,246.00

109 Victor Celacio

3,056.00

5,460.00

8,516.00

P330,621.00

P884,520.00

P1,215,141.00

TOTAL

128
Case No. 07-1177-91
110 Gerardo Roque

P3,056.00

P5,460.00

P8,516.00

P3,056.00

P8,192.00

P11,246.00

P3,056.00

P5,460.00

P8,516.00

113 Jose Zanoria

3,056.00

5,460.00

8,516.00

114 Allan Zanoria

3,056.00

5,460.00

8,516.00

115 Victorino Seno

3,056.00

5,460.00

8,516.00

116 Teodulo Jumao-as

3,056.00

5,460.00

8,516.00

117 Alexander Hera

3,056.00

5,460.00

8,516.00

118 Anthony Araneta

3,056.00

5,460.00

8,516.00

119 Aldrin Suson

3,056.00

5,460.00

8,516.00

120 Victor Verano

3,056.00

5,460.00

8,516.00

121 Ruel Sufrerencia

3,056.00

5,460.00

8,516.00

122 Alfred Naparate

3,056.00

5,460.00

8,516.00

123 Wenceslao Baclohon

3,056.00

8,190.00

11,246.00

124 Eduardo Langita

3,056.00

8,190.00

11,246.00

Case No. 07-1176-91

111 Zosimo Cararaton
Case No. 07-1219-91
112 Virgilio Zanoria

129
TOTAL
P39,728.00

P76,440.00

P116,168.00

125 Feliz Ordeneza

P2,816.00

P8,190.00

P11,006.00

126 Arsenio Logarta

3,056.00

8,190.00

11,246.00

127 Eduardo dela Vega

3,056.00

8,190.00

11,246.00

128 Joventino Canoog

3,056.00

8,190.00

11,246.00

P11,984.00

P32,760.00

P44,744.00

P3,056.00

P8,190.00

P11,246.00

P3,056.00

P8,190.00

P11,246.00

P2,816.00

P8,190.00

P11,006.00

132 Antonio Basalan

2,816.00

8,190.00

11,006.00

133 Lyndon Basalan

2,816.00

8,190.00

11,006.00

134 Wilfredo Aliviano

2,816.00

8,190.00

11,006.00

135 Bienvenido Rosario

2,816.00

8,190.00

11,006.00

136 Jesus Capangpangan

2,816.00

8,190.00

11,006.00

137 Renato Mendoza

2,816.00

8,190.00

11,006.00

Case No. 07-1283-91

TOTAL

Case No. 10-1584-91

129 Regelio Abapo
Case No. 08-1321-91
130 Ricardo Ramas
Case No. 09-1507-91
131 Jose Bandialan

130

138 Alejandro Catandejan

2,816.00

8,190.00

11,006.00

139 Ruben Talaba

2,816.00

8,190.00

11,006.00

140 Filemon Echavez

2,816.00

8,190.00

11,006.00

141 Marcelino Caracena

2,816.00

8,190.00

11,006.00

142 Ignacio Misa

2,816.00

8,190.00

11,006.00

143 Feliciano Agbay

2,816.00

8,190.00

11,006.00

144 Victor Maglasang

2,816.00

8,190.00

11,006.00

145 Arturo Heyrosa

2,816.00

8,190.00

11,006.00

146 Alipio Tirol

2,816.00

8,190.00

11,006.00

147 Rosendo Mondares

2,816.00

8,190.00

11,006.00

148 Aniceto Ludia

2,816.00

8,190.00

11,006.00

149 Reynaldo Lavandero

2,816.00

8,190.00

11,006.00

150 Reuyan Herculano

2,816.00

8,190.00

11,006.00

151 Teodula Nique

2,816.00

8,190.00

11,006.00

P59,136.00

P171,990.00

P231,126.00

TOTAL

131
Case No. 06-1145-91
152 Emerberto Orque

P2,816.00

P8,190.00

P11,006.00

153 Zosimo Baobao

2,816.00

8,190.00

11,006.00

154 Medardo Singson

2,816.00

8,190.00

11,006.00

155 Antonio Patalinghug

2,816.00

8,190.00

11,006.00

156 Ernesto Singson

2,816.00

8,190.00

11,006.00

157 Roberto Torres

2,816.00

8,190.00

11,006.00

158 Cesar Escario

2,816.00

8,190.00

11,006.00

159 Leodegario Dollecin

2,816.00

8,190.00

11,006.00

160 Alberto Anoba

2,816.00

8,190.00

11,006.00

161 Rodrigo Bisnar

2,816.00

8,190.00

11,006.00

162 Zosimo Bingas

2,816.00

8,190.00

11,006.00

163 Rosalio Duran, Sr.

2,816.00

8,190.00

11,006.00

164 Rosalio Duran, Jr.

2,816.00

8,190.00

11,006.00

165 Romeo Duran

2,816.00

8,190.00

11,006.00

166 Antonio Abella

2,816.00

8,190.00

11,006.00

167 Mariano Repollo

2,816.00

8,190.00

11,006.00

132

168 Polegarpo Degamo

2,816.00

8,190.00

11,006.00

169 Mario Cereza

2,816.00

8,190.00

11,006.00

170 Antonio Laoronilla

2,816.00

8,190.00

11,006.00

171 Proctuso Magallanes

2,816.00

8,190.00

11,006.00

172 Eladio Torres

2,816.00

8,190.00

11,006.00

173 Warlito Demana

2,816.00

8,190.00

11,006.00

174 Henry Gedaro

2,816.00

8,190.00

11,006.00

175 Doisederio Gemperao

2,816.00

8,190.00

11,006.00

176 Aniceto Gemperao

2,816.00

8,190.00

11,006.00

177 Jerry Caparoso

2,816.00

8,190.00

11,006.00

178 Serlito Noynay

2,816.00

8,190.00

11,006.00

179 Luciano Recopelacion

2,816.00

8,190.00

11,006.00

180 Juanito Garces

2,816.00

8,190.00

11,006.00

181 Feliciano Torres

2,816.00

8,190.00

11,006.00

182 Ranilo Villareal

2,816.00

8,190.00

11,006.00

133

183 Fermin Aliviano

2,816.00

8,190.00

11,006.00

184 Junjie Laviste

2,816.00

8,190.00

11,006.00

185 Tomacito de Castro

2,816.00

8,190.00

11,006.00

186 Joselito Capilina

2,816.00

8,190.00

11,006.00

187 Samuel Casquejo

2,816.00

8,190.00

11,006.00

188 Leonardo Natad

2,816.00

8,190.00

11,006.00

189 Benjamin Sayson

2,816.00

8,190.00

11,006.00

190 Pedro Inoc

2,816.00

8,190.00

11,006.00

191 Edward Flores

2,816.00

8,190.00

11,006.00

192 Edwin Sasan

2,816.00

8,190.00

11,006.00

193 Jose Rey Inot

2,816.00

8,190.00

11,006.00

194 Edgar Cortes

2,816.00

8,190.00

11,006.00

195 Romeo Lombog

2,816.00

8,190.00

11,006.00

196 Nicolas Ribo

2,816.00

8,190.00

11,006.00

197 Jaime Rubin

2,816.00

8,190.00

11,006.00

198 Orlando Regis

2,816.00

8,190.00

11,006.00

134

199 Ricky Alconza

2,816.00

8,190.00

11,006.00

200 Rudy Tagalog

2,816.00

8,190.00

11,006.00

201 Victorino Tagalog

2,816.00

8,190.00

11,006.00

202 Edward Colina

2,816.00

8,190.00

11,006.00

203 Ronie Gonzaga

2,816.00

8,190.00

11,006.00

204 Paul Cabillada

2,816.00

8,190.00

11,006.00

205 Wilfredo Magalona

2,816.00

8,190.00

11,006.00

206 Joel Pepito

2,816.00

8,190.00

11,006.00

207 Prospero Maglasang

2,816.00

8,190.00

11,006.00

208 Allan Agustin

2,816.00

8,190.00

11,006.00

209 Fausto Bargayo

2,816.00

8,190.00

11,006.00

210 Nomer Sanchez

2,816.00

8,190.00

11,006.00

211 Jolito Alin

2,816.00

8,190.00

11,006.00

212 Birning Regidor

2,816.00

8,190.00

11,006.00

213 Garry Dignos

2,816.00

8,190.00

11,006.00

214 Edwin Dignos

2,816.00

8,190.00

11,006.00

135

215 Dario Dignos

2,816.00

8,190.00

11,006.00

216 Rogelio Dignos

2,816.00

8,190.00

11,006.00

217 Jimmy Cabigas

2,816.00

8,190.00

11,006.00

218 Fernando Anajao

2,816.00

8,190.00

11,006.00

219 Alex Flores

2,816.00

8,190.00

11,006.00

220 Fernando Remedio

2,816.00

8,190.00

11,006.00

221 Toto Mosquido

2,816.00

8,190.00

11,006.00

222 Alberto Yagonia

2,816.00

8,190.00

11,006.00

223 Victor Bariquit

2,816.00

8,190.00

11,006.00

224 Ignacio Misa

2,816.00

8,190.00

11,006.00

225 Eliseo Villareno

2,816.00

8,190.00

11,006.00

226 Manuel Lavandero

2,816.00

8,190.00

11,006.00

227 Vircede

2,816.00

8,190.00

11,006.00

228 Mario Ranis

2,816.00

8,190.00

11,006.00

229 Jaime Responso

2,816.00

8,190.00

11,006.00

230 Marianito Aguirre

2,816.00

8,190.00

11,006.00

136

231 Marcial Heruela

2,816.00

8,190.00

11,006.00

232 Godofredo Tuacao

2,816.00

8,190.00

11,006.00

233 Perfecto Regis

2,816.00

8,190.00

11,006.00

234 Roel Demana

2,816.00

8,190.00

11,006.00

235 Elmer Castillo

2,816.00

8,190.00

11,006.00

236 Wilfredo Calamohoy

2,816.00

8,190.00

11,006.00

237 Rudy Lucernas

2,816.00

8,190.00

11,006.00

238 Antonio Caete

2,816.00

8,190.00

11,006.00

239 Efraim Yubal

2,816.00

8,190.00

11,006.00

240 Jesus Capangpangan

2,816.00

8,190.00

11,006.00

241 Damian Capangpangan

2,816.00

8,190.00

11,006.00

242 Teofilo Capangpangan

2,816.00

8,190.00

11,006.00

243 Nilo Capangpangan

2,816.00

8,190.00

11,006.00

244 Cororeno
Capangpangan

2,816.00

8,190.00

11,006.00

245 Emilio Mondares

2,816.00

8,190.00

11,006.00

246 Ponciano Agana

2,816.00

8,190.00

11,006.00

137

247 Vicente Devilleres

2,816.00

8,190.00

11,006.00

248 Mario Alipan

2,816.00

8,190.00

11,006.00

249 Romanito Alipan

2,816.00

8,190.00

11,006.00

250 Aldeon Robinson

2,816.00

8,190.00

11,006.00

251 Fortunato Soco

2,816.00

8,190.00

11,006.00

252 Celso Compuesto

2,816.00

8,190.00

11,006.00

253 William Itoralde

2,816.00

8,190.00

11,006.00

254 Antonio Pescador

2,816.00

8,190.00

11,006.00

255 Jeremias Rondero

2,816.00

8,190.00

11,006.00

256 Estropio Punay

2,816.00

8,190.00

11,006.00

257 Leovijildo Punay

2,816.00

8,190.00

11,006.00

258 Romeo Quilongquilong

2,816.00

8,190.00

11,006.00

259 Wilfredo Gestopa

2,816.00

8,190.00

11,006.00

260 Eliseo Santos

2,816.00

8,190.00

11,006.00

261 Henry Orio

2,816.00

8,190.00

11,006.00

138

262 Jose Yap

2,816.00

8,190.00

11,006.00

263 Nicanor Manayaga

2,816.00

8,190.00

11,006.00

264 Teodoro Salinas

2,816.00

8,190.00

11,006.00

265 Aniceto Montero

2,816.00

8,190.00

11,006.00

266 Rafaelito Versoza

2,816.00

8,190.00

11,006.00

267 Alejandro Ranido

2,816.00

8,190.00

11,006.00

268 Henry Talaba

2,816.00

8,190.00

11,006.00

269 Romulo Talaba

2,816.00

8,190.00

11,006.00

270 Diosdado Besabela

2,816.00

8,190.00

11,006.00

271 Sylvestre Toring

2,816.00

8,190.00

11,006.00

272 Edilberto Padilla

2,816.00

8,190.00

11,006.00

273 Allan Herosa

2,816.00

8,190.00

11,006.00

274 Ernesto Sumalinog

2,816.00

8,190.00

11,006.00

275 Ariston Velasco, Jr.

2,816.00

8,190.00

11,006.00

276 Fernando Lopez

2,816.00

8,190.00

11,006.00

277 Alfonso Echavez

2,816.00

8,190.00

11,006.00

139

278 Nicanor Cuizon

2,816.00

8,190.00

11,006.00

279 Dominador Caparida

2,816.00

8,190.00

11,006.00

280 Zosimo Cororation

2,816.00

8,190.00

11,006.00

281 Artemio Loveranes

2,816.00

8,190.00

11,006.00

282 Dionisio Yagonia

2,816.00

8,190.00

11,006.00

283 Victor Celocia

2,816.00

8,190.00

11,006.00

284 Hipolito Vidas

2,816.00

8,190.00

11,006.00

285 Teodoro Arcillas

2,816.00

8,190.00

11,006.00

286 Marcelino Habagat

2,816.00

8,190.00

11,006.00

287 Gaudioso Labasan

2,816.00

8,190.00

11,006.00

288 Leopoldo Regis

2,816.00

8,190.00

11,006.00

289 Aquillo Damole

2,816.00

8,190.00

11,006.00

290 Willy Roble

2,816.00

8,190.00

11,006.00

P391,424.00 P1,138,410.00

P1,529,834.00

TOTAL

RECAP

140
CASE NO.
SALARY
SEPARATION
DIFFERENTIAL
PAY

TOTAL

06-1165-91

P330,621.00

P884,520.00

P1,215,141.00

07-1177-91

3,056.00

5,460.00

8,516.00

06-1176-91

3,056.00

8,190.00

11,246.00

07-1219-91

39,728.00

76,440.00

116,168.00

07-1283-91

11,984.00

32,760.00

44,744.00

10-1584-91

3,056.00

8,190.00

11,246.00

08-1321-91

3,056.00

8,190.00

11,246.00

09-1507-91

59,136.00

171,990.00

231,126.00

06-1145-91

391,424.00

1,138,410.00

1,529,834.00

P845,117.00 P2,334,150.00

P3,179,267.00

GRAND TOTAL

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 38 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.39 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.

141
Furthermore, one of the original complainants40 was inadvertently omitted by the Labor Arbiter from his
computations.41 The counsel for the complainants promptly filed a motion for inclusion/correction 42 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.43 The NLRC for its part acknowledged the omission44but 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.
SO ORDERED.