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[G.R. No. 138051.

June 10, 2004]


JOSE

Y.
SONZA, petitioner, vs.
CORPORATION, respondent.

ABS-CBN

BROADCASTING

DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari[1] assailing the 26 March
1999 Decision[2] 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.

We would like to call your attention to the Agreement dated May 1994 entered into by
your goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y.
SONZA.
As you are well aware, Mr. Sonza irrevocably resigned in view of recent events
concerning his programs and career. We consider these acts of the station violative of
the Agreement and the station as in breach thereof. In this connection, we hereby
serve notice of rescission of said Agreement at our instance effective as of date.
Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining
amount stipulated in paragraph 7 of the Agreement but reserves the right to seek
recovery of the other benefits under said Agreement.
Thank you for your attention.
Very truly yours,
(Sgd.)

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. ABSCBN 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,

JOSE Y.
SONZA
President and Gen.
Manager[4]
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.

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 employeremployee 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

It must be noted that complainant was engaged by respondent by reason of


his peculiar skills and talent as a TV host and a radio broadcaster.Unlike
an ordinary employee, he was free to perform the services he undertook
to render in accordance with his own style. The benefits conferred to
complainant under the May 1994 Agreement are certainly very much higher than
those generally given to employees. For one, complainant Sonzas monthly talent fees
amount to a staggering P317,000. Moreover, his engagement as a talent was covered
by a specific contract. Likewise, he was not bound to render eight (8) hours of work
per day as he worked only for such number of hours as may be necessary.
The fact that per the May 1994 Agreement complainant was accorded some benefits
normally given to an employee is inconsequential. Whatever benefits

The Court of Appeals affirmed the NLRCs finding that no employer-employee


relationship existed between SONZA and ABS-CBN. Adopting the NLRCs decision,
the appellate court quoted the following findings of the NLRC:
x x x the May 1994 Agreement will readily reveal that MJMDC entered into the
contract merely as an agent of complainant Sonza, the principal. By all indication and
as the law puts it, the act of the agent is the act of the principal itself. This fact is made
particularly true in this case, as admittedly MJMDC is a management company
devoted exclusively to managing the careers of Mr. Sonza and his broadcast partner,
Mrs. Carmela C. Tiangco. (Opposition to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza
and MJMDC, and not between ABS-CBN and MJMDC. This is clear from the
provisions of the May 1994 Agreement which specifically referred to MJMDC as the
AGENT. As a matter of fact, when complainant herein unilaterally rescinded said May
1994 Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr.
Sonza, who himself signed the same in his capacity as President.
Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that
historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is
only in the May 1994 Agreement, which is the latest Agreement executed between
ABS-CBN and Mr. Sonza, that MJMDC figured in the said Agreement as the agent of
Mr. Sonza.
We find it erroneous to assert that MJMDC is a mere labor-only contractor of ABSCBN 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 13 th 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 ABSCBNs 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 complainantappellant filed his complaint. Complainant-appellants claims being anchored on the
alleged breach of contract on the part of respondent-appellee, the same can be
resolved by reference to civil law and not to labor law. Consequently, they are within
the realm of civil law and, thus, lie with the regular courts. As held in the case of DaiChi 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-CBN, DESPITE THE
WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO
SUPPORT SUCH A FINDING.[14]
The Courts Ruling
We affirm the assailed decision.
No convincing reason exists to warrant a reversal of the decision of the Court of
Appeals affirming the NLRC ruling which upheld the Labor Arbiters dismissal of the
case for lack of jurisdiction.
The present controversy is one of first impression. Although Philippine labor
laws and jurisprudence define clearly the elements of an employer-employee

relationship, this is the first time that the Court will resolve the nature of the
relationship between a television and radio station and one of its talents. There is no
case law stating that a radio and television program host is an employee of the
broadcast station.
The instant case involves big names in the broadcast industry, namely Jose Jay
Sonza, a known television and radio personality, and ABS-CBN, one of the biggest
television and radio networks in the country.
SONZA contends that the Labor Arbiter has jurisdiction over the case because
he was an employee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor
Arbiter has no jurisdiction because SONZA was an independent contractor.
Employee or Independent Contractor?
The existence of an employer-employee relationship is a question of
fact. Appellate courts accord the factual findings of the Labor Arbiter and the NLRC
not only respect but also finality when supported by substantial evidence.
[15]
Substantial evidence means such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion. [16] A party cannot prove the absence of
substantial evidence by simply pointing out that there is contrary evidence on record,
direct or circumstantial. The Court does not substitute its own judgment for that of
the tribunal in determining where the weight of evidence lies or what evidence is
credible.[17]
SONZA maintains that all essential elements of an employer-employee
relationship are present in this case. Case law has consistently held that the elements
of an employer-employee relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers
power to control the employee on the means and methods by which the work is
accomplished.[18] The last element, the so-called control test, is the most important
element.[19]

celebrity status not possessed by ordinary employees, is a circumstance


indicative, but not conclusive, of an independent contractual relationship. If SONZA
did not possess such unique skills, talent and celebrity status, ABS-CBN would not
have entered into the Agreement with SONZA but would have hired him through its
personnel department just like any other employee.
In any event, the method of selecting and engaging SONZA does not conclusively
determine his status. We must consider all the circumstances of the relationship, with
the control test being the most important element.
B. Payment of Wages
ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees
going to MJMDC. SONZA asserts that this mode of fee payment shows that he was an
employee of ABS-CBN. SONZA also points out that ABS-CBN granted him benefits
and privileges which he would not have enjoyed if he were truly the subject of a valid
job contract.
All the talent fees and benefits paid to SONZA were the result of negotiations
that led to the Agreement. If SONZA were ABS-CBNs employee, there would be no
need for the parties to stipulate on benefits such as SSS, Medicare, x x x and
13th month pay[20] which the law automatically incorporates into every employeremployee contract.[21] Whatever benefits SONZA enjoyed arose from contract and not
because of an employer-employee relationship.[22]

A. Selection and Engagement of Employee

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.

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.

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.

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

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.

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 x[28] (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.

D. Power of Control
Since there is no local precedent on whether a radio and television program host
is an employee or an independent contractor, we refer to foreign case law in analyzing
the present case. The United States Court of Appeals, First Circuit, recently held
in Alberty-Vlez v. Corporacin De Puerto Rico Para La Difusin Pblica
(WIPR)[27] that a television program host is an independent contractor. We quote the
following findings of the U.S. court:
Several factors favor classifying Alberty as an independent contractor. First, a
television actress is a skilled position requiring talent and training not
available on-the-job. x x x In this regard, Alberty possesses a masters degree in
public communications and journalism; is trained in dance, singing, and modeling;
taught with the drama department at the University of Puerto Rico; and acted in
several theater and television productions prior to her affiliation with Desde Mi
Pueblo. Second, Alberty provided the tools and instrumentalities necessary
for her to perform. Specifically, she provided, or obtained sponsors to provide, the

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 ABSCBNs 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 ABSCBNs 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-CBN could not dismiss or even discipline
SONZA. All that ABS-CBN could do is not to broadcast SONZAs show but ABS-CBN
must still pay his talent fees in full.[35]
Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by
the obligation to continue paying in full SONZAs talent fees, did not amount to
control over the means and methods of the performance of SONZAs work. ABS-CBN
could not terminate or discipline SONZA even if the means and methods of
performance of his work - how he delivered his lines and appeared on television - did
not meet ABS-CBNs approval. This proves that ABS-CBNs control was limited only to
the result of SONZAs work, whether to broadcast the final product or not. In either
case, ABS-CBN must still pay SONZAs talent fees in full until the expiry of the
Agreement.
In Vaughan, et al. v. Warner, et al.,[36] the United States Circuit Court of
Appeals ruled that vaudeville performers were independent contractors although the
management reserved the right to delete objectionable features in their shows. Since
the management did not have control over the manner of performance of the skills of
the artists, it could only control the result of the work by deleting objectionable
features.[37]
SONZA further contends that ABS-CBN exercised control over his work by
supplying all equipment and crew. No doubt, ABS-CBN supplied the equipment, crew
and airtime needed to broadcast the Mel & Jay programs. However, the equipment,
crew and airtime are not the tools and instrumentalities SONZA needed to perform
his job. What SONZA principally needed were his talent or skills and the costumes
necessary for his appearance. [38] Even though ABS-CBN provided SONZA with the
place of work and the necessary equipment, SONZA was still an independent
contractor since ABS-CBN did not supervise and control his work. ABS-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 ABSCBN 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 (ABSCBN) as its Code of Ethics.[42] The KBP code applies to broadcasters, not to employees
of radio and television stations. Broadcasters are not necessarily employees of radio
and television stations. Clearly, the rules and standards of performance referred to in
the Agreement are those applicable to talents and not to employees of ABS-CBN.
In any event, not all rules imposed by the hiring party on the hired party indicate
that the latter is an employee of the former.[43] In this case, SONZA failed to show that
these rules controlled his performance. We find that these general rules are
merely guidelines towards the achievement of the mutually desired result, which are
top-rating television and radio programs that comply with standards of the
industry. We have ruled that:
Further, not every form of control that a party reserves to himself over the conduct of
the other party in relation to the services being rendered may be accorded the effect of
establishing an employer-employee relationship. The facts of this case fall squarely
with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held that:
Logically, the line should be drawn between rules that merely serve as guidelines
towards the achievement of the mutually desired result without dictating the means
or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The first,
which aim only to promote the result, create no employer-employee relationship
unlike the second, which address both the result and the means used to achieve it. [44]
The Vaughan case also held that one could still be an independent contractor
although the hirer reserved certain supervision to insure the attainment of the desired
result. The hirer, however, must not deprive the one hired from performing his
services according to his own initiative. [45]
Lastly, SONZA insists that the exclusivity clause in the Agreement is the most
extreme form of control which ABS-CBN exercised over him.

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

other function apart from acting as agent of SONZA or TIANGCO to promote their
careers in the broadcast and television industry.[49]

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.

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.

MJMDC as Agent of SONZA


SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which
contracted out his services to ABS-CBN. The Labor Arbiter ruled that as a talent of
MJMDC, SONZA is not an employee of ABS-CBN. SONZA insists that MJMDC is a
labor-only contractor and ABS-CBN is his employer.
In a labor-only contract, there are three parties involved: (1) the labor-only
contractor; (2) the employee who is ostensibly under the employ of the labor-only
contractor; and (3) the principal who is deemed the real employer. Under this
scheme, the labor-only contractor is the agent of the principal. The law
makes the principal responsible to the employees of the labor-only contractor as if the
principal itself directly hired or employed the employees. [48] These circumstances are
not present in this case.
There are essentially only two parties involved under the Agreement, namely,
SONZA and ABS-CBN. MJMDC merely acted as 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

Policy Instruction No. 40

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 crossexamine 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.
The right of labor to security of tenure as guaranteed in the Constitution [53] arises
only if there is an employer-employee relationship under labor laws. Not every
performance of services for a fee creates an employer-employee relationship. To hold
that every person who renders services to another for a fee is an employee - to give
meaning to the security of tenure clause - will lead to absurd results.
Individuals with special skills, expertise or talent enjoy the freedom to offer their
services as independent contractors. The right to life and livelihood guarantees this
freedom to contract as independent contractors. The right of labor to security of
tenure cannot operate to deprive an individual, possessed with special skills, expertise
and talent, of his right to contract as an independent contractor. An individual like an
artist or talent has a right to render his services without any one controlling the
means and methods by which he performs his art or craft. This Court will not
interpret the right of labor to security of tenure to compel artists and talents to render
their services only as employees. If radio and television program hosts can render
their services only as employees, the station owners and managers can dictate to the
radio and television hosts what they say in their shows. This is not conducive to
freedom of the press.
Different Tax Treatment of Talents and Broadcasters
The National Internal Revenue Code (NIRC)[54] in relation to Republic Act No.
7716, as amended by Republic Act No. 8241,[56] treats talents, television and radio
[55]

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, 13 th month pay,
separation pay, service incentive leave, signing bonus, travel allowance, and amounts
due under the Employee Stock Option Plan. We agree with the findings of the Labor
Arbiter and the Court of Appeals that SONZAs claims are all based on the May
1994 Agreement and stock option plan, and not on the Labor Code. Clearly,
the present case does not call for an application of the Labor Code provisions but an
interpretation and implementation of the May 1994 Agreement. In effect, SONZAs
cause of action is for breach of contract which is intrinsically a civil dispute cognizable
by the regular courts.[58]
WHEREFORE, we DENY the petition. The assailed Decision of the Court of
Appeals dated 26 March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against
petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna,
JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

Statement of Billings Adjustment; and when [Credo] was called by Lloren to his office to explain
further the said instructions, [Credo] showed resentment and behaved in a scandalous manner
by shouting and uttering remarks of disrespect in the presence of her co-employees." 2

EN BANC

On 7 November 1983, Credo was called to meet Arturo L. Perez, then Acting General Manager of
NASECO, to explain her side before Perez and NASECO's Committee on Personnel Affairs in
connection with the administrative charges filed against her. After said meeting, on the same
date, Credo was placed on "Forced Leave" status for 1 5 days, effective 8 November 1983. 3

G.R. No. L-69870 November 29, 1988


NATIONAL SERVICE CORPORATION (NASECO) AND ARTURO L.
PEREZ, petitioners,
vs.
THE HONORABLE THIRD DIVISION, NATIONAL LABOR RELATIONS
COMMISSION, MINISTRY OF LABOR AND EMPLOYMENT, MANILA AND
EUGENIA C. CREDO, respondents.

Before the expiration of said 15-day leave, or on 18 November 1983, Credo filed a complaint,
docketed as Case No. 114944-83, with the Arbitration Branch, National Capital Region, Ministry
of Labor and Employment, Manila, against NASECO for placing her on forced leave, without due
process. 4

G.R. No. 70295 November 29,1988

Likewise, while Credo was on forced leave, or on 22 November 1983, NASECO's Committee on
Personnel Affairs deliberated and evaluated a number of past acts of misconduct or infractions
attributed to her. 5 As a result of this deliberation, said committee resolved:

EUGENIA C. CREDO, petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, NATIONAL SERVICES
CORPORATION AND ARTURO L. PEREZ, respondents.

1. That, respondent [Credo] committed the following offenses in the Code of


Discipline, viz:
OFFENSE vs. Company Interest & Policies

The Chief Legal Counsel for respondents NASECO and Arturo L. Perez.
Melchor R. Flores for petitioner Eugenia C. Credo.

No. 3 Any discourteous act to customer, officer and employee of client


company or officer of the Corporation.
OFFENSE vs. Public Moral

PADILLA, J.:
Consolidated special civil actions for certiorari seeking to review the decision * of the Third
Division, National Labor Relations Commission in Case No. 11-4944-83 dated 28 November
1984 and its resolution dated 16 January 1985 denying motions for reconsideration of said
decision.
Eugenia C. Credo was an employee of the National Service Corporation (NASECO), a domestic
corporation which provides security guards as well as messengerial, janitorial and other similar
manpower services to the Philippine National Bank (PNB) and its agencies. She was first
employed with NASECO as a lady guard on 18 July 1975. Through the years, she was promoted
to Clerk Typist, then Personnel Clerk until she became Chief of Property and Records, on 10
March 1980. 1
Sometime before 7 November 1983, Credo was administratively charged by Sisinio S. Lloren,
Manager of Finance and Special Project and Evaluation Department of NASECO, stemming from
her non-compliance with Lloren's memorandum, dated 11 October 1983, regarding certain entry
procedures in the company's Statement of Billings Adjustment. Said charges alleged that Credo
"did not comply with Lloren's instructions to place some corrections/additional remarks in the

No. 7 Exhibit marked discourtesy in the course of official duties or use of


profane or insulting language to any superior officer.
OFFENSE vs. Authority
No. 3 Failure to comply with any lawful order or any instructions of a
superior officer.
2. That, Management has already given due consideration to respondent's
[Credo] scandalous actuations for several times in the past. Records also
show that she was reprimanded for some offense and did not question it.
Management at this juncture, has already met its maximum tolerance point
so it has decided to put an end to respondent's [Credo] being an undesirable
employee. 6
The committee recommended Credo's termination, with forfeiture of benefits. 7
On 1 December 1983, Credo was called age to the office of Perez to be informed that she was
being charged with certain offenses. Notably, these offenses were those which NASECO's

Committee on Personnel Affairs already resolved, on 22 November 1983 to have been committed
by Credo.
In Perez's office, and in the presence of NASECO's Committee on Personnel Affairs, Credo was
made to explain her side in connection with the charges filed against her; however, due to her
failure to do so, 8 she was handed a Notice of Termination, dated 24 November 1983, and made
effective 1 December 1983. 9 Hence, on 6 December 1983, Credo filed a supplemental complaint
for illegal dismissal in Case No. 11-4944-83, alleging absence of just or authorized cause for her
dismissal and lack of opportunity to be heard. 10
After both parties had submitted their respective position papers, affidavits and other
documentary evidence in support of their claims and defenses, on 9 May 1984, the labor arbiter
rendered a decision: 1) dismissing Credo's complaint, and 2) directing NASECO to pay Credo
separation pay equivalent to one half month's pay for every year of service. 11
Both parties appealed to respondent National Labor Relations Commission (NLRC) which, on
28 November 1984, rendered a decision: 1) directing NASECO to reinstate Credo to her former
position, or substantially equivalent position, with six (6) months' backwages and without loss of
seniority rights and other privileges appertaining thereto, and 2) dismissing Credo's claim for
attorney's fees, moral and exemplary damages. As a consequence, both parties filed their
respective motions for reconsideration, 12 which the NLRC denied in a resolution of 16 January
1985. 13
Hence, the present recourse by both parties. In G.R. No. 68970, petitioners challenge as grave
abuse of discretion the dispositive portion of the 28 November 1984 decision which ordered
Credo's reinstatement with backwages. 14 Petitioners contend that in arriving at said questioned
order, the NLRC acted with grave abuse of discretion in finding that: 1) petitioners violated the
requirements mandated by law on termination, 2) petitioners failed in the burden of proving
that the termination of Credo was for a valid or authorized cause, 3) the alleged infractions
committed by Credo were not proven or, even if proved, could be considered to have been
condoned by petitioners, and 4) the termination of Credo was not for a valid or authorized
cause. 15
On the other hand, in G.R. No. 70295, petitioner Credo challenges as grave abuse of discretion
the dispositive portion of the 28 November 1984 decision which dismissed her claim for
attorney's fees, moral and exemplary damages and limited her right to backwages to only six (6)
months. 16
As guidelines for employers in the exercise of their power to dismiss employees for just causes,
the law provides that:
Section 2. Notice of dismissal. Any employer who seeks to dismiss a
worker shall furnish him a written notice stating the particular acts or
omission constituting the grounds for his dismissal.
xxx xxx xxx

Section 5. Answer and Hearing. The worker may answer the allegations
stated against him in the notice of dismissal within a reasonable period from
receipt of such notice. The employer shall afford the worker ample
opportunity to be heard and to defend himself with the assistance of his
representative, if he so desires.
Section 6. Decision to dismiss. The employer shall immediately notify a
worker in writing of a decision to dismiss him stating clearly the reasons
therefor. 17
These guidelines mandate that the employer furnish an employee sought to be dismissed two (2)
written notices of dismissal before a termination of employment can be legally effected. These
are the notice which apprises the employee of the particular acts or omissions for which his
dismissal is sought and the subsequent notice which informs the employee of the employer's
decision to dismiss him.
Likewise, a reading of the guidelines in consonance with the express provisions of law on
protection to labor 18(which encompasses the right to security of tenure) and the broader dictates
of procedural due process necessarily mandate that notice of the employer's decision to dismiss
an employee, with reasons therefor, can only be issued after the employer has afforded the
employee concerned ample opportunity to be heard and to defend himself.
In the case at bar, NASECO did not comply with these guidelines in effecting Credo's dismissal.
Although she was apprised and "given the chance to explain her side" of the charges filed against
her, this chance was given so perfunctorily, thus rendering illusory Credo's right to security of
tenure. That Credo was not given ample opportunity to be heard and to defend herself is evident
from the fact that the compliance with the injunction to apprise her of the charges filed against
her and to afford her a chance to prepare for her defense was dispensed in only a day. This is not
effective compliance with the legal requirements aforementioned.
The fact also that the Notice of Termination of Credo's employment (or the decision to dismiss
her) was dated 24 November 1983 and made effective 1 December 1983 shows that NASECO was
already bent on terminating her services when she was informed on 1 December 1983 of the
charges against her, and that any hearing which NASECO thought of affording her after 24
November 1983 would merely be pro forma or an exercise in futility.
Besides, Credo's mere non-compliance with Lorens memorandum regarding the entry
procedures in the company's Statement of Billings Adjustment did not warrant the severe
penalty of dismissal of the NLRC correctly held that:
... on the charge of gross discourtesy, the CPA found in its Report, dated 22
November 1983 that, "In the process of her testimony/explanations she
again exhibited a conduct unbecoming in front of NASECO Officers and
argued to Mr. S. S. Lloren in a sarcastic and discourteous manner,
notwithstanding, the fact that she was inside the office of the Acctg. General
Manager." Let it be noted, however, that the Report did not even describe
how the so called "conduct unbecoming" or "discourteous manner" was
done by complainant. Anent the "sarcastic" argument of complainant, the
purported transcript 19 of the meeting held on 7 November 1983 does not

indicate any sarcasm on the part of complainant. At the most, complainant


may have sounded insistent or emphatic about her work being more
complete than the work of Ms. de Castro, yet, the complaining officer signed
the work of Ms. de Castro and did not sign hers.
As to the charge of insubordination, it may be conceded, albeit unclear, that
complainant failed to place same corrections/additional remarks in the
Statement of Billings Adjustments as instructed. However, under the
circumstances obtaining, where complainant strongly felt that she was being
discriminated against by her superior in relation to other employees, we are
of the considered view and so hold, that a reprimand would have sufficed for
the infraction, but certainly not termination from services. 20
As this Court has ruled:
... where a penalty less punitive would suffice, whatever missteps may be
committed by labor ought not to be visited with a consequence so severe. It
is not only because of the law's concern for the working man. There is, in
addition, his family to consider. Unemployment brings untold hardships
and sorrows on those dependent on the wage-earner. 21
Of course, in justifying Credo's termination of employment, NASECO claims as additional lawful
causes for dismissal Credo's previous and repeated acts of insubordination, discourtesy and
sarcasm towards her superior officers, alleged to have been committed from 1980 to July 1983. 22
If such acts of misconduct were indeed committed by Credo, they are deemed to have been
condoned by NASECO. For instance, sometime in 1980, when Credo allegedly "reacted in a
scandalous manner and raised her voice" in a discussion with NASECO's Acting head of the
Personnel Administration 23 no disciplinary measure was taken or meted against her. Nor was
she even reprimanded when she allegedly talked 'in a shouting or yelling manner" with the
Acting Manager of NASECO's Building Maintenance and Services Department in 1980 24 or
when she allegedly "shouted" at NASECO's Corporate Auditor "in front of his subordinates
displaying arrogance and unruly behavior" in 1980, or when she allegedly shouted at NASECO's
Internal Control Consultant in 1981. 25 But then, in sharp contrast to NASECO's penchant for
ignoring the aforesaid acts of misconduct, when Credo committed frequent tardiness in August
and September 1983, she was reprimanded. 26

However, while Credo's dismissal was effected without procedural fairness, an award of
exemplary damages in her favor can only be justified if her dismissal was effected in a wanton,
fraudulent, oppressive or malevolent manner. 31 A judicious examination of the record manifests
no such conduct on the part of management. However, in view of the attendant circumstances in
the case, i.e., lack of due process in effecting her dismissal, it is reasonable to award her moral
damages. And, for having been compelled to litigate because of the unlawful actuations of
NASECO, a reasonable award for attorney's fees in her favor is in order.
In NASECO's comment 32 in G.R. No. 70295, it is belatedly argued that the NLRC has no
jurisdiction to order Credo's reinstatement. NASECO claims that, as a government corporation
(by virtue of its being a subsidiary of the National Investment and Development Corporation
(NIDC), a subsidiary wholly owned by the Philippine National Bank (PNB), which in turn is a
government owned corporation), the terms and conditions of employment of its employees are
governed by the Civil Service Law, rules and regulations. In support of this argument, NASECO
cites National Housing Corporation vs. JUCO, 33 where this Court held that "There should no
longer be any question at this time that employees of government-owned or controlled
corporations are governed by the civil service law and civil service rifles and regulations."
It would appear that, in the interest of justice, the holding in said case should not be given
retroactive effect, that is, to cases that arose before its promulgation on 17 January 1985. To do
otherwise would be oppressive to Credo and other employees similarly situated, because under
the same 1973 Constitution ,but prior to the ruling in National Housing Corporation vs. Juco,
this Court had recognized the applicability of the Labor Code to, and the authority of the NLRC
to exercise jurisdiction over, disputes involving terms and conditions of employment in
government owned or controlled corporations, among them, the National Service Corporation
(NASECO).<re||an1w> 34
Furthermore, in the matter of coverage by the civil service of government-owned or controlled
corporations, the 1987 Constitution starkly varies from the 1973 Constitution, upon
which National Housing Corporation vs. Juco is based. Under the 1973 Constitution, it was
provided that:
The civil service embraces every branch, agency, subdivision, and
instrumentality of the Government, including every government-owned or
controlled corporation. ... 35
On the other hand, the 1987 Constitution provides that:

Even if the allegations of improper conduct (discourtesy to superiors) were satisfactorily proven,
NASECO's condonation thereof is gleaned from the fact that on 4 October 1983, Credo was given
a salary adjustment for having performed in the job "at least [satisfactorily]" 27 and she was then
rated "Very Satisfactory" 28as regards job performance, particularly in terms of quality of work,
quantity of work, dependability, cooperation, resourcefulness and attendance.
Considering that the acts or omissions for which Credo's employment was sought to be legally
terminated were insufficiently proved, as to justify dismissal, reinstatement is proper. For
"absent the reason which gave rise to [the employee's] separation from employment, there is no
intention on the part of the employer to dismiss the employee concerned." 29 And, as a result of
having been wrongfully dismissed, Credo is entitled to three (3) years of backwages without
deduction and qualification. 30

The civil service embraces all branches, subdivisions, instrumentalities, and


agencies of the Government, including government-owned or controlled
corporations with original charter. 36(Emphasis supplied)
Thus, the situations sought to be avoided by the 1973 Constitution and expressed by the Court in
the National Housing . Corporation case in the following manner
The infirmity of the respondents' position lies in its permitting a
circumvention or emasculation of Section 1, Article XII-B of the
constitution. It would be possible for a regular ministry of government to
create a host of subsidiary corporations under the Corporation Code funded

by a willing legislature. A government-owned corporation could create


several subsidiary corporations. These subsidiary corporations would enjoy
the best of two worlds. Their officials and employees would be privileged
individuals, free from the strict accountability required by the Civil Service
Decree and the regulations of the Commission on Audit. Their incomes
would not be subject to the competitive restrains of the open market nor to
the terms and conditions of civil service employment. Conceivably, all
government-owned or controlled corporations could be created, no longer
by special charters, but through incorporations under the general law. The
Constitutional amendment including such corporations in the embrace of
the civil service would cease to have application. Certainly, such a situation
cannot be allowed to exist. 37
appear relegated to relative insignificance by the 1987 Constitutional provision that the Civil
Service embraces government-owned or controlled corporations with original charter; and,
therefore, by clear implication, the Civil Service does not include government-owned or
controlled corporations which are organized as subsidiaries of government-owned or controlled
corporations under the general corporation law.
The proceedings in the 1986 Constitutional Commission also shed light on the Constitutional
intent and meaning in the use of the phrase "with original charter." Thus
THE PRESIDING OFFICER (Mr. Trenas)
Commissioner Romulo is recognized.
MR. ROMULO. I beg the indulgence of the Committee.
I was reading the wrong provision.
I refer to Section 1, subparagraph I which reads:
The Civil Service embraces all branches, subdivisions, instrumentalities, and
agencies of the government, including government-owned or controlled
corporations.
My query: Is Philippine Airlines covered by this provision? MR. FOZ. Will
the Commissioner please state his previous question?
MR. ROMULO. The phrase on line 4 of Section 1,
subparagraph 1, under the Civil Service Commission,
says: "including government-owned or controlled
corporations.' Does that include a corporation, like the
Philippine Airlines which is government-owned or
controlled?
MR. FOZ. I would like to throw a question to the
Commissioner. Is the Philippine Airlines controlled by
the government in the sense that the majority of stocks
are owned by the government?

MR. ROMULO. It is owned by the GSIS. So, this is what


we might call a tertiary corporation. The GSIS is owned
by the government. Would this be covered because the
provision says "including government-owned or
controlled corporations."
MR. FOZ. The Philippine Airlines was established as a
private corporation. Later on, the government, through
the GSIS, acquired the controlling stocks. Is that not the
correct situation?
MR. ROMULO. That is true as Commissioner Ople is
about to explain. There was apparently a Supreme
Court decision that destroyed that distinction between a
government-owned corporation created under the
Corporation Law and a government-owned corporation
created by its own charter.
MR. FOZ. Yes, we recall the Supreme Court decision in
the case of NHA vs. Juco to the effect that all
government corporations irrespective of the manner of
creation, whether by special charter or by the private
Corporation Law, are deemed to be covered by the civil
service because of the wide-embracing definition made
in this section of the existing 1973 Constitution. But we
recall the response to the question of Commissioner
Ople that our intendment in this provision is just to give
a general description of the civil service. We are not
here to make any declaration as to whether employees
of government-owned or controlled corporations are
barred from the operation of laws, such as the Labor
Code of the Philippines.
MR. ROMULO. Yes.
MR. OPLE. May I be recognized, Mr. Presiding Officer,
since my name has been mentioned by both sides.
MR. ROMULO. I yield part of my time.
THE PRESIDING OFFICER (Mr.Trenas).
Commissioner Ople is recognized.
MR. OPLE. In connection with the coverage of the Civil
Service Law in Section 1 (1), may I volunteer some
information that may be helpful both to the
interpellator and to the Committee. Following the
proclamation of martial law on September 21, 1972, this
issue of the coverage of the Labor Code of the

Philippines and of the Civil Service Law almost


immediately arose. I am, in particular, referring to the
period following the coming into force and effect of the
Constitution of 1973, where the Article on the Civil
Service was supposed to take immediate force and
effect. In the case of LUZTEVECO, there was a strike at
the time. This was a government-controlled and
government-owned corporation. I think it was owned
by the PNOC with just the minuscule private shares left.
So, the Secretary of Justice at that time, Secretary Abad
Santos, and myself sat down, and the result of that
meeting was an opinion of the Secretary of Justice
which 9 became binding immediately on the
government that government corporations with original
charters, such as the GSIS, were covered by the Civil
Service Law and corporations spun off from the GSIS,
which we called second generation corporations
functioning as private subsidiaries, were covered by the
Labor Code. Samples of such second generation
corporations were the Philippine Airlines, the Manila
Hotel and the Hyatt. And that demarcation worked very well. In fact, all of
these companies I have mentioned as examples, except for the Manila Hotel,
had collective bargaining agreements. In the Philippine Airlines, there were,
in fact, three collective bargaining agreements; one, for the ground people or
the PALIA one, for the flight attendants or the PASAC and one for the pilots
of the ALPAC How then could a corporation like that be covered by the Civil
Service law? But, as the Chairman of the Committee pointed out, the
Supreme Court decision in the case of NHA vs. Juco unrobed the whole
thing. Accordingly, the Philippine Airlines, the Manila Hotel and the Hyatt
are now considered under that decision covered by the Civil Service Law. I
also recall that in the emergency meeting of the Cabinet convened for this
purpose at the initiative of the Chairman of the Reorganization Commission,
Armand Fabella, they agreed to allow the CBA's to lapse before applying the
full force and effect of the Supreme Court decision. So, we were in the
awkward situation when the new government took over. I can agree with
Commissioner Romulo when he said that this is a problem which I am not
exactly sure we should address in the deliberations on the Civil Service Law
or whether we should be content with what the Chairman said that Section 1
(1) of the Article on the Civil Service is just a general description of the
coverage of the Civil Service and no more.
Thank you, Mr. Presiding Officer.
MR. ROMULO. Mr. Presiding Officer, for the moment, I
would be satisfied if the Committee puts on records that
it is not their intent by this provision and the phrase
"including government-owned or controlled
corporations" to cover such companies as the Philippine
Airlines.

MR. FOZ. Personally, that is my view. As a matter of


fact, when this draft was made, my proposal was really
to eliminate, to drop from the provision, the phrase
"including government- owned or controlled
corporations."
MR. ROMULO. Would the Committee indicate that is
the intent of this provision?
MR. MONSOD. Mr. Presiding Officer, I do not think the
Committee can make such a statement in the face of an
absolute exclusion of government-owned or controlled
corporations. However, this does not preclude the Civil
Service Law to prescribe different rules and procedures,
including emoluments for employees of proprietary
corporations, taking into consideration the nature of
their operations. So, it is a general coverage but it does
not preclude a distinction of the rules between the two
types of enterprises.
MR. FOZ. In other words, it is something that should be
left to the legislature to decide. As I said before, this is
just a general description and we are not making any
declaration whatsoever.
MR. MONSOD. Perhaps if Commissioner Romulo
would like a definitive understanding of the coverage
and the Gentleman wants to exclude governmentowned or controlled corporations like Philippine
Airlines, then the recourse is to offer an amendment as
to the coverage, if the Commissioner does not accept
the explanation that there could be a distinction of the
rules, including salaries and emoluments.
MR. ROMULO. So as not to delay the proceedings, I
will reserve my right to submit such an amendment.
xxx xxx xxx
THE PRESIDING OFFICE (Mr. Trenas) Commissioner
Romulo is recognized.
MR. ROMULO. On page 2, line 5, I suggest the
following amendment after "corporations": Add a
comma (,) and the phrase EXCEPT THOSE
EXERCISING PROPRIETARY FUNCTIONS.

THE PRESIDING OFFICER (Mr. Trenas). What does


the Committee say?
SUSPENSION OF SESSION
MR. MONSOD. May we have a suspension of the
session?
THE PRESIDING OFFICER (Mr. Trenas). The session
is suspended.
It was 7:16 p.m.
RESUMPTION OF SESSION
At 7:21 p.m., the session was resumed.
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed
amendment to now read as follows: "including government-owned or
controlled corporations WITH ORIGINAL CHARTERS." The purpose of this
amendment is to indicate that government corporations such as the GSIS
and SSS, which have original charters, fall within the ambit of the civil
service. However, corporations which are subsidiaries of these chartered
agencies such as the Philippine Airlines, Manila Hotel and Hyatt are
excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does
the Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By
the term "original charters," what exactly do we mean?
MR. ROMULO. We mean that they were created by law,
by an act of Congress, or by special law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification,
the Committee accepts the amendment.

MR. NATIVIDAD. Mr. Presiding officer, so those


created by the general corporation law are out.
MR. ROMULO. That is correct: 38
On the premise that it is the 1987 Constitution that governs the instant case because it is the
Constitution in place at the time of decision thereof, the NLRC has jurisdiction to accord relief to
the parties. As an admitted subsidiary of the NIDC, in turn a subsidiary of the PNB, the NASECO
is a government-owned or controlled corporation without original charter.
Dr. Jorge Bocobo, in his Cult of Legalism, cited by Mr. Justice Perfecto in his concurring opinion
in Gomez vs. Government Insurance Board (L-602, March 31, 1947, 44 O.G. No. 8, pp. 2687,
2694; also published in 78 Phil. 221) on the effectivity of the principle of social justice embodied
in the 1935 Constitution, said:
Certainly, this principle of social justice in our Constitution as generously
conceived and so tersely phrased, was not included in the fundamental law
as a mere popular gesture. It was meant to (be) a vital, articulate,
compelling principle of public policy. It should be observed in the
interpretation not only of future legislation, but also of all laws already
existing on November 15, 1935. It was intended to change the spirit of our
laws, present and future. Thus, all the laws which on the great historic event
when the Commonwealth of the Philippines was born, were susceptible of
two interpretations strict or liberal, against or in favor of social justice, now
have to be construed broadly in order to promote and achieve social justice.
This may seem novel to our friends, the advocates of legalism but it is the
only way to give life and significance to the above-quoted principle of the
Constitution. If it was not designed to apply to these existing laws, then it
would be necessary to wait for generations until all our codes and all our
statutes shall have been completely charred by removing every provision
inimical to social justice, before the policy of social justice can become really
effective. That would be an absurd conclusion. It is more reasonable to hold
that this constitutional principle applies to all legislation in force on
November 15, 1935, and all laws thereafter passed.
WHEREFORE, in view of the foregoing, the challenged decision of the NLRC is AFFIRMED with
modifications. Petitioners in G.R. No. 69870, who are the private respondents in G.R. No.
70295, are ordered to: 1) reinstate Eugenia C. Credo to her former position at the time of her
termination, or if such reinstatement is not possible, to place her in a substantially equivalent
position, with three (3) years backwages, from 1 December 1983, without qualification or
deduction, and without loss of seniority rights and other privileges appertaining thereto, and 2)
pay Eugenia C. Credo P5,000.00 for moral damages and P5,000.00 for attorney's fees.
If reinstatement in any event is no longer possible because of supervening events, petitioners in
G.R. No. 69870, who are the private respondents in G.R. No. 70295 are ordered to pay Eugenia
C. Credo, in addition to her backwages and damages as above described, separation pay
equivalent to one-half month's salary for every year of service, to be computed on her monthly
salary at the time of her termination on 1 December 1983.

SO ORDERED.
Fernan, C.J., Melencio-Herrera, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes, GrioAquino, Medialdea and Regalado, JJ., concur.
Narvasa, J., is on leave.
Gutierrez, Jr., J., in the result.

FIRST DIVISION
[G.R. No. 98107. August 18, 1997]
BENJAMIN
C.
JUCO, petitioner, vs.
NATIONAL
LABOR
RELATIONS
COMMISSION and NATIONAL HOUSING CORPORATION, respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition for certiorari to set aside the Decision of the National Labor Relations
Commission (NLRC) dated March 14, 1991, which reversed the Decision dated May 21, 1990 of
Labor Arbiter Manuel R. Caday, on the ground of lack of jurisdiction.
Petitioner Benjamin C. Juco was hired as a project engineer of respondent National
Housing Corporation (NHC) from November 16, 1970 to May 14, 1975. On May 14, 1975, he was
separated from the service for having been implicated in a crime of theft and/or malversation of
public funds.
On March 25, 1977, petitioner filed a complaint for illegal dismissal against the NHC with
the Department of Labor.
On September 17, 1977, the Labor Arbiter rendered a decision dismissing the complaint on
the ground that the NLRC had no jurisdiction over the case. [1]
Petitioner then elevated the case to the NLRC which rendered a decision on December 28,
1982, reversing the decision of the Labor Arbiter. [2]
Dissatisfied with the decision of the NLRC, respondent NHC appealed before this Court
and on January 17, 1985, we rendered a decision, the dispositive portion thereof reads as follows:
WHEREFORE, the petition is hereby GRANTED. The questioned decision of the respondent
National Labor Relations Commission is SET ASIDE. The decision of the Labor Arbiter
dismissing the case before it for lack of jurisdiction is REINSTATED. [3]
On January 6, 1989, petitioner filed with the Civil Service Commission a complaint for
illegal dismissal, with preliminary mandatory injunction. [4]

The Board finds the comment and/or motion to dismiss meritorious. It was not disputed that
NHC is a government corporation without an original charter but organized/created under the
Corporate Code.
Article IX, Section 2 (1) of the 1987 Constitution provides:
The civil service embraces all branches, subdivisions, instrumentalities and agencies of the
government, including government owned and controlled corporations with original charters.
(underscoring supplied)
From the aforequoted constitutional provision, it is clear that respondent NHC is not within the
scope of the civil service and is therefore beyond the jurisdiction of this board. Moreover, it is
pertinent to state that the 1987 Constitution was ratified and became effective on February 2,
1987.
WHEREFORE, for lack of jurisdiction, the instant complaint is hereby dismissed. [6]
On April 28, 1989, petitioner filed with respondent NLRC a complaint for illegal dismissal
with preliminary mandatory injunction against respondent NHC. [7]
On May 21, 1990, respondent NLRC thru Labor Arbiter Manuel R. Caday ruled that
petitioner was illegally dismissed from his employment by respondent as there was evidence in
the record that the criminal case against him was purely fabricated, prompting the trial court to
dismiss the charges against him. Hence, he concluded that the dismissal was illegal as it was
devoid of basis, legal or factual.
He further ruled that the complaint is not barred by prescription considering that the
period from which to reckon the reglementary period of four years should be from the date of the
receipt of the decision of the Civil Service Commission promulgated on April 11, 1989.He also
ratiocinated that:
It appears x x x complainant filed the complaint for illegal dismissal with the Civil Service
Commission on January 6, 1989 and the same was dismissed on April 11, 1989 after which on
April 28, 1989, this case was filed by the complainant. Prior to that, this case was ruled upon by
the Supreme Court on January 17, 1985 which enjoined the complainant to go to the Civil Service
Commission which in fact, complainant did. Under the circumstances, there is merit on the
contention that the running of the reglementary period of four (4) years was suspended with the
filing of the complaint with the said Commission. Verily, it was not the fault of the respondent
for failing to file the complaint as alleged by the respondent but due to, in the words of the
complainant, a legal knot that has to be untangled. [8]

On February 6, 1989, respondent NHC moved for the dismissal of the complaint on the
ground that the Civil Service Commission has no jurisdiction over the case. [5]

Thereafter, the Labor Arbiter rendered a decision, the dispositive portion of which reads:

On April 11, 1989, the Civil Service Commission issued an order dismissing the complaint
for lack of jurisdiction. It ratiocinated that:

"Premises considered, judgment is hereby rendered declaring the dismissal of the complainant
as illegal and ordering the respondent to immediately reinstate him to his former position
without loss of seniority rights with full back wages inclusive of allowance and to his other

benefits or equivalent computed from the time it is withheld from him when he was dismissed
on March 27, 1977, until actually reinstated.[9]
On June 1, 1990, respondent NHC filed its appeal before the NLRC and on March 14, 1991,
the NLRC promulgated a decision which reversed the decision of Labor Arbiter Manuel R. Caday
on the ground of lack of jurisdiction.[10]
The primordial issue that confronts us is whether or not public respondent committed
grave abuse of discretion in holding that petitioner is not governed by the Labor Code.
Under the laws then in force, employees of government-owned and /or controlled
corporations were governed by the Civil Service Law and not by the Labor Code. Hence,
Article 277 of the Labor Code (PD 442) then provided:
"The terms and conditions of employment of all government employees, including employees of
government-owned and controlled corporations shall be governed by the Civil Service Law, rules
and regulations x x x.
The 1973 Constitution, Article II-B, Section 1(1), on the other hand provided:
The Civil Service embraces every branch, agency, subdivision and instrumentality of the
government, including government-owned or controlled corporations.
Although we had earlier ruled in National Housing Corporation v. Juco,[11] that employees
of government-owned and/or controlled corporations, whether created by special law or formed
as subsidiaries under the general Corporation Law, are governed by the Civil Service Law and
not by the Labor Code, this ruling has been supplanted by the 1987 Constitution. Thus, the said
Constitution now provides:
The civil service embraces all branches, subdivision, instrumentalities, and agencies of the
Government, including government owned or controlled corporations with original charter.
(Article IX-B, Section 2[1])
In National Service Corporation (NASECO) v. National Labor Relations Commission, [12] we
had the occasion to apply the present Constitution in deciding whether or not the employees of
NASECO are covered by the Civil Service Law or the Labor Code notwithstanding that the case
arose at the time when the 1973 Constitution was still in effect. We ruled that the NLRC has
jurisdiction over the employees of NASECO on the ground that it is the 1987 Constitution that
governs because it is the Constitution in place at the time of the decision.Furthermore, we ruled
that the new phrase with original charter means that government-owned and controlled
corporations refer to corporations chartered by special law as distinguished from corporations
organized under the Corporation Code. Thus, NASECO which had been organized under the
general incorporation stature and a subsidiary of the National Investment Development
Corporation, which in turn was a subsidiary of the Philippine National Bank, is excluded from
the purview of the Civil Service Commission.
We see no cogent reason to depart from the ruling in the aforesaid case.

In the case at bench, the National Housing Corporation is a government owned


corporation organized in 1959 in accordance with Executive Order No. 399, otherwise known as
the Uniform Charter of Government Corporation, dated January 1, 1959. Its shares of stock are
and have been one hundred percent (100%) owned by the Government from its incorporation
under Act 1459, the former corporation law. The government entities that own its shares of stock
are the Government Service Insurance System, the Social Security System, the Development
Bank of the Philippines, the National Investment and Development Corporation and the Peoples
Homesite and Housing Corporation.[13] Considering the fact that the NHA had been incorporated
under act 1459, the former corporation law, it is but correct to say that it is a government-owned
or controlled corporation whose employees are subject to the provisions of the Labor Code. This
observation is reiterated in recent case of Trade Union of the Philippines and Allied Services
(TUPAS) v. National Housing Corporation, [14] where we held that the NHA is now within the
jurisdiction of the Department of Labor and Employment, it being a government-owned and/or
controlled corporation without an original charter. Furthermore, we also held that the workers
or employees of the NHC (now NHA) undoubtedly have the right to form unions or employees
organization and that there is no impediment to the holding of a certification election among
them as they are covered by the Labor Code.
Thus, the NLRC erred in dismissing petitioners complaint for lack of jurisdiction because
the rule now is that the Civil Service now covers only government-owned or controlled
corporations with original charters.[15] Having been incorporated under the Corporation Law, its
relations with its personnel are governed by the Labor Code and come under the jurisdiction of
the National Labor Relations Commission.
One final point. Petitioners have been tossed from one forum to another for a simple
illegal dismissal case. It is but apt that we put an end to his dilemma in the interest of justice.
WHEREFORE, the decision of the NLRC in NLRC NCR-04-02036089 dated March 14,
1991 is hereby REVERSED and the Decision of the Labor Arbiter dated May 21, 1990 is
REINSTATED.
SO ORDERED.
Padilla, (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

Syllabi\Synopsis
FIRST DIVISION

[G.R. No. 124382. August 16, 1999]

PASTOR DIONISIO V. AUSTRIA, petitioner, vs. HON. NATIONAL LABOR


RELATIONS COMMISSION (Fourth Division), CEBU CITY, CENTRAL
PHILIPPINE UNION MISSION CORPORATION OF THE SEVENTH-DAY
ADVENTIST, ELDER HECTOR V. GAYARES, PASTORS REUBEN
MORALDE, OSCAR L. ALOLOR, WILLIAM U. DONATO, JOEL WALES,
ELY SACAY, GIDEON BUHAT, ISACHAR GARSULA, ELISEO DOBLE,
PROFIRIO BALACY, DAVID RODRIGO, LORETO MAYPA, MR. RUFO
GASAPO, MR. EUFRONIO IBESATE, MRS. TESSIE BALACY, MR. ZOSIMO
KARA-AN, and MR. ELEUTERIO LOBITANA, respondents.
DECISION
KAPUNAN, J.:
Subject to the instant petition for certiorari under Rule 65 of the Rules of Court is the
Resolution[1] of public respondent National Labor Relations Commission (the NLRC), rendered
on 23 January 1996, in NLRC Case No. V-0120-93, entitled Pastor Dionisio V. Austria vs. Central
Philippine Union Mission Corporation of Seventh Day Adventists, et. al., which dismissed the
case for illegal dismissal filed by the petitioner against private respondents for lack of
jurisdiction.
Private Respondent Central Philippine Union Mission Corporation of the Seventh-Day
Adventists (hereinafter referred to as the SDA) is a religious corporation duly organized and
existing under Philippine law and is represented in this case by the other private respondents,
officers of the SDA.Petitioner, on the other hand, was a Pastor of the SDA until 31 October 1991,
when his services were terminated.
The records show that petitioner Pastor Dionisio V. Austria worked with the SDA for
twenty eight (28) years from 1963 to 1991. [2] He began his work with the SDA on 15 July 1963 as
a literature evangelist, selling literature of the SDA over the island of Negros. From then on,
petitioner worked his way up the ladder and got promoted several times. In January, 1968,
petitioner became the Assistant Publishing Director in the West Visayan Mission of the SDA. In
July, 1972, he was elevated to the position of Pastor in the West Visayan Mission covering the
island of Panay, and the provinces of Romblon and Guimaras. Petitioner held the same position
up to 1988. Finally, in 1989, petitioner was promoted as District Pastor of the Negros Mission of
the SDA and was assigned at Sagay, Balintawak and Toboso, Negros Occidental, with twelve (12)
churches under his jurisdiction. In January, 1991, petitioner was transferred to Bacolod City. He
held the position of district pastor until his services were terminated on 31 October 1991.
On various occasions from August up to October, 1991, petitioner received several
communications[3] from Mr. Eufronio Ibesate, the treasurer of the Negros Mission asking him to
admit accountability and responsibility for the church tithes and offerings collected by his wife,
Mrs. Thelma Austria, in his district which amounted to P15,078.10, and to remit the same to the
Negros Mission.
In his written explanation dated 11 October 1991, petitioner reasoned out that he should
not be made accountable for the unremitted collections since it was private respondents Pastor

Gideon Buhat and Mr. Eufronio Ibesate who authorized his wife to collect the tithes and
offerings since he was very sick to do the collecting at that time.
Thereafter, on 16 October 1991, at around 7:30 a.m., petitioner went to the office of Pastor
Buhat, the president of the Negros Mission. During said call, petitioner tried to persuade Pastor
Buhat to convene the Executive Committee for the purpose of settling the dispute between him
and the private respondent, Pastor David Rodrigo. The dispute between Pastor Rodrigo and
petitioner arose from an incident in which petitioner assisted his friend, Danny Diamada, to
collect from Pastor Rodrigo the unpaid balance for the repair of the latters motor vehicle which
he failed to pay to Diamada.[5] Due to the assistance of petitioner in collecting Pastor Rodrigos
debt, the latter harbored ill-feelings against petitioner. When news reached petitioner that
Pastor Rodrigo was about to file a complaint against him with the Negros Mission, he
immediately proceeded to the office of Pastor Buhat on the date abovementioned and asked the
latter to convene the Executive Committee. Pastor Buhat denied the request of petitioner since
some committee members were out of town and there was no quorum. Thereafter, the two
exchanged heated arguments. Petitioner then left the office of Pastor Buhat. While on his way
out, petitioner overheard Pastor Buhat saying, Pastor daw inisog na ina iya (Pastor you are
talking tough).[6] Irked by such remark, petitioner returned to the office of Pastor Buhat, and
tried to overturn the latters table, though unsuccessfully, since it was heavy. Thereafter,
petitioner banged the attache case of Pastor Buhat on the table, scattered the books in his office,
and threw the phone.[7] Fortunately, private respondents Pastors Yonilo Leopoldo and Claudio
Montao were around and they pacified both Pastor Buhat and petitioner.
On 17 October 1991, petitioner received a letter [8] inviting him and his wife to attend the
Executive Committee meeting at the Negros Mission Conference Room on 21 October 1991, at
nine in the morning. To be discussed in the meeting were the non-remittance of church
collection and the events that transpired on 16 October 1991. A fact-finding committee was
created to investigate petitioner. For two (2) days, from October 21 and 22, the fact-finding
committee conducted an investigation of petitioner. Sensing that the result of the investigation
might be one-sided, petitioner immediately wrote Pastor Rueben Moralde, president of the SDA
and chairman of the fact-finding committee, requesting that certain members of the fact-finding
committee be excluded in the investigation and resolution of the case. [9] Out of the six (6)
members requested to inhibit themselves from the investigation and decision-making, only two
(2) were actually excluded, namely: Pastor Buhat and Pastor Rodrigo. Subsequently, on 29
October 1991, petitioner received a letter of dismissal [10] citing misappropriation of
denominational funds, willful breach of trust, serious misconduct, gross and habitual neglect of
duties, and commission of an offense against the person of employers duly authorized
representative, as grounds for the termination of his services.
Reacting against the adverse decision of the SDA, petitioner filed a complaint [11] on 14
November 1991, before the Labor Arbiter for illegal dismissal against the SDA and its officers
and prayed for reinstatement with backwages and benefits, moral and exemplary damages and
other labor law benefits.
On 15 February 1993, Labor Arbiter Cesar D. Sideo rendered a decision in favor of
petitioner, the dispositive portion of which reads thus:
WHEREFORE, PREMISES CONSIDERED, respondents CENTRAL PHILIPPINE UNION
MISSION CORPORATION OF THE SEVENTH-DAY ADVENTISTS (CPUMCSDA) and its
officers, respondents herein, are hereby ordered to immediately reinstate complainant Pastor
Dionisio Austria to his former position as Pastor of Brgy. Taculing, Progreso and Banago,
Bacolod City, without loss of seniority and other rights and backwages in the amount of ONE
HUNDRED FIFTEEN THOUSAND EIGHT HUNDRED THIRTY PESOS (P115,830.00) without
deductions and qualificatioons.
Respondent CPUMCSDA is further ordered to pay complainant the following:

[4]

A. 13th month pay - P21,060.00

B. Allowance - P 4,770.83
C. Service Incentive
Leave Pay - P 3,461.85
D. Moral Damages - P50,000.00
E. Exemplary
Damages - P25,000.00
F. Attorneys Fee - P22,012.27
SO ORDERED.[12]
The SDA, through its officers, appealed the decision of the Labor Arbiter to the National
Labor Relations Commission, Fourth Division, Cebu City.In a decision, dated 26 August 1994,
the NLRC vacated the findings of the Labor Arbiter. The decretal portion of the NLRC decision
states:
WHEREFORE, the Decision appealed from is hereby VACATED and a new one ENTERED
dismissing this case for want of merit.
SO ORDERED.[13]
Petitioner filed a motion for reconsideration of the above-named decision. On 18 July
1995, the NLRC issued a Resolution reversing its original decision. The dispositive portion of the
resolution reads:
WHEREFORE, premises considered, Our decision dated August 26, 1994 is VACATED and the
decision of the Labor Arbiter dated February 15, 1993 is REINSTATED.
SO ORDERED.[14]
In view of the reversal of the original decision of the NLRC, the SDA filed a motion for
reconsideration of the above resolution. Notable in the motion for reconsideration filed by
private respondents is their invocation, for the first time on appeal, that the Labor Arbiter has no
jurisdiction over the complaint filed by petitioner due to the constitutional provision on the
separation of church and state since the case allegedly involved and ecclesiastical affair to which
the State cannot interfere.
The NLRC, without ruling on the merits of the case, reversed itself once again, sustained
the argument posed by private respondents and, accordingly, dismissed the complaint of
petitioner. The dispositive portion of the NLRC resolution dated 23 January 1996, subject of the
present petition, is as follows:
WHEREFORE, in view of all the foregoing, the instant motion for reconsideration is hereby
granted. Accordingly, this case is hereby DISMISSED for lack of jurisdiction.
SO ORDERED.[15]
Hence, the recourse to this Court by petitioner.

After the filing of the petition, the Court ordered the Office of the Solicitor General (the
OSG) to file its comment on behalf of public respondent NLRC. Interestingly, the OSG filed a
manifestation and motion in lieu of comment [16] setting forth its stand that it cannot sustain the
resolution of the NLRC. In its manifestation, the OSG submits that the termination of petitioner
of his employment may be questioned before the NLRC as the same is secular in nature, not
ecclesiastical. After the submission of memoranda of all the parties, the case was submitted for
decision.
The issues to be resolved in this petition are:
1) Whether or not the Labor Arbiter/NLRC has jurisdiction to try and decide the
complaint filed by petitioner against the SDA;
2) Whether or not the termination of the services of petitioner is an ecclesiastical
affair, and, as such, involves the separation of church and state; and
3) Whether or not such termination is valid.
The first two issues shall be resolved jointly, since they are related.
Private respondents contend that by virtue of the doctrine of separation of church and
state, the Labor Arbiter and the NLRC have no jurisdiction to entertain the complaint filed by
petitioner. Since the matter at bar allegedly involves the discipline of a religious minister, it is to
be considered a purely ecclesiastical affair to which the State has no right to interfere.
The contention of private respondents deserves scant consideration. The principle of
separation of church and state finds no application in this case.
The rationale of the principle of the separation of church and state is summed up in the
familiar saying, Strong fences make good neighbors. [17] The idea advocated by this principle is to
delineate the boundaries between the two institutions and thus avoid encroachments by one
against the other because of a misunderstanding of the limits of their respective exclusive
jurisdictions.[18] The demarcation line calls on the entities to render therefore unto Ceasar the
things that are Ceasars and unto God the things that are Gods. [19] While the State is prohibited
from interfering in purely ecclesiastical affairs, the Church is likewise barred from meddling in
purely secular matters.[20]
The case at bar does not concern an ecclesiastical or purely religious affair as to bar the
State from taking cognizance of the same. An ecclesiastical affair is one that concerns doctrine,
creed, or form or worship of the church, or the adoption and enforcement within a religious
association of needful laws and regulations for the government of the membership, and the
power of excluding from such associations those deemed unworthy of membership. [21] Based on
this definition, an ecclesiastical affair involves the relationship between the church and its
members and relate to matters of faith, religious doctrines, worship and governance of the
congregation. To be concrete, examples of this so-called ecclesiastical affairs to which the State
cannot meddle are proceedings for excommunication, ordinations of religious ministers,
administration of sacraments and other activities with which attached religious significance. The
case at bar does not even remotely concern any of the abovecited examples. While the matter at
hand relates to the church and its religious minister it does not ipso facto give the case a
religious significance. Simply stated, what is involved here is the relationship of the church as an
employer and the minister as an employee. It is purely secular and has no relation whatsoever
with the practice of faith, worship or doctrines of the church. In this case, petitioner was not
excommunicated or expelled from the membership of the SDA but was terminated from
employment. Indeed, the matter of terminating an employee, which is purely secular in nature,
is different from the ecclesiastical act of expelling a member from the religious congregation.
As pointed out by the OSG in its memorandum, the grounds invoked for petitioners
dismissal, namely: misappropriation of denominational funds, willful breach of trust, serious
misconduct, gross and habitual neglect of duties and commission of an offense against the
person of his employers duly authorize representative, are all based on Article 282 of the Labor
Code which enumerates the just causes for termination of employment. [22] By this alone, it is

palpable that the reason for petitioners dismissal from the service is not religious in
nature. Coupled with this is the act of the SDA in furnishing NLRC with a copy of petitioners
letter of termination. As aptly stated by the OSG, this again is an eloquent admission by private
respondents that NLRC has jurisdiction over the case. Aside from these, SDA admitted in a
certification[23] issued by its officer, Mr. Ibesate, that petitioner has been its employee for twentyeight (28) years. SDA even registered petitioner with the Social Security System (SSS) as its
employee. As a matter of fact, the workers records of petitioner have been submitted by private
respondents as part of their exhibits. From all of these it is clear that when the SDA terminated
the services of petitioner, it was merely exercising its management prerogative to fire an
employee which it believes to be unfit for the job. As such, the State, through the Labor Arbiter
and the NLRC, has the right to take cognizance of the case and to determine whether the SDA, as
employer, rightfully exercised its management prerogative to dismiss an employee. This is in
consonance with the mandate of the Constitution to afford full protection to labor.

The issue being the legality of petitioners dismissal, the same must be measured against
the requisites for a valid dismissal, namely: (a) the employee must be afforded due process, i.e.,
he must be given an opportunity to be heard and to defend himself, and; (b) the dismissal must
be for a valid cause as provided in Article 282 of the Labor Code. [29] Without the concurrence of
this twin requirements, the termination would, in the eyes of the law, be illegal. [30]

Under the Labor Code, the provision which governs the dismissal of employees, is
comprehensive enough to include religious corporations, such as the SDA, in its coverage. Article
278 of the Labor Code on post-employment states that the provisions of this Title shall apply to
all establishments or undertakings, whether for profit or not. Obviously, the cited article does
not make any exception in favor of a religious corporation. This is made more evident by the fact
that the Rules Implementing the Labor Code, particularly, Section 1, Rule 1, Book VI on the
Termination of Employment and Retirement, categorically includes religious institutions in the
coverage of the law, to wit:

The first notice, which may be considered as the proper charge, serves to apprise the
employee of the particular acts or omissions for which his dismissal is sought. [31] The second
notice on the other hand seeks to inform the employee of the employers decision to dismiss him.
[32]
This decision, however, must come only after the employee is given a reasonable period from
receipt of the first notice within which to answer the charge and ample opportunity to be heard
and defend himself with the assistance of a representative, if he so desires. [33] This is in
consonance with the express provision of the law on the protection to labor and the broader
dictates of procedural due process.[34] Non-compliance therewith is fatal because these
requirements are conditions sine quo non before dismissal may be validly effected.[35]

Section 1. Coverage. This Rule shall apply to all establishments and undertakings, whether
operated for profit or not, including educational, medical, charitable and religious
institutions and organizations, in cases of regular employment with the exception of the
Government and its political subdivisions including government-owned or controlled
corporations.[24]

Private respondent failed to substantially comply with the above requirements. With
regard to the first notice, the letter, [36] dated 17 October 1991, which notified petitioner and his
wife to attend the meeting on 21 October 1991, cannot be construed as the written charge
required by law. A perusal of the said letter reveals that it never categorically stated the
particular acts or omissions on which petitioners impending termination was grounded. In fact,
the letter never even mentioned that petitioner would be subject to investigation. The letter
merely mentioned that petitioner and his wife were invited to a meeting wherein what would be
discussed were the alleged unremitted church tithes and the events that transpired on 16
October 1991. Thus, petitioner was surprised to find out that the alleged meeting turned out to be
an investigation. From the tenor of the letter, it cannot be presumed that petitioner was actually
on the verge of dismissal. The alleged grounds for the dismissal of petitioner from the service
were only revealed to him when the actual letter of dismissal was finally issued. For this reason,
it cannot be said that petitioner was given enough opportunity to properly prepare for his
defense. While admittedly, private respondents complied with the second requirement, the
notice of termination, this does not cure the initial defect of lack of the proper written charge
required by law.

With this clear mandate, the SDA cannot hide behind the mantle of protection of the
doctrine of separation of church and state to avoid its responsibilities as an employer under the
Labor Code.
Finally, as correctly pointed out by petitioner, private respondents are estopped from
raising the issue of lack of jurisdiction for the first time on appeal. It is already too late in the day
for private respondents to question the jurisdiction of the NLRC and the Labor Arbiter since the
SDA had fully participated in the trials and hearings of the case from start to finish. The Court
has already ruled that the active participation of a party against whom the action was brought,
coupled with his failure to object to the jurisdiction of the court or quasi-judicial body where the
action is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide
by the resolution of the case and will bar said party from later on impugning the court or bodys
jurisdiction.[25] Thus, the active participation of private respondents in the proceedings before
the Labor Arbiter and the NLRC mooted the question on jurisdiction.
The jurisdictional question now settled, we shall now proceed to determine whether the
dismissal of petitioner was valid.
At the outset, we note that as a general rule, findings of fact of administrative bodies like
the NLRC are binding upon this Court. A review of such findings is justified, however, in
instances when the findings of the NLRC differ from those of the labor arbiter, as in this case.
[26]
When the findings of NLRC do not agree with those of the Labor Arbiter, this Court must of
necessity review the records to determine which findings should be preferred as more
comformable to the evidentiary facts.[27]
We turn now to the crux of the matter. In termination cases, the settled rule is that the
burden of proving that the termination was for a valid or authorized cause rests on the employer.
[28]
Thus, private respondents must not merely rely on the weaknesses of petitioners evidence but
must stand on the merits of their own defense.

Before the services of an employee can be validly terminated, Article 277 (b) of the Labor
Code and Section 2, Rule XXIII, Book V of the Rules Implementing the Labor Code further
require the employer to furnish the employee with two (2) written notices, to wit: (a) a written
notice served on the employee specifying the ground or grounds for termination, and giving to
said employee reasonable opportunity within which to explain his side; and, (b) a written notice
of termination served on the employee indicating that upon due consideration of all the
circumstances, grounds have been established to justify his termination.

In the letter of termination, [37] dated 29 October 1991, private respondents enumerated the
following as grounds for the dismissal of petitioner, namely: misappropriation of
denominational funds, willful breach of trust, serious misconduct, gross and habitual neglect of
duties, and commission of an offense against the person of employers duly authorized
representative. Breach of trust and misappropriation of denominational funds refer to the
alleged failure of petitioner to remit to the treasurer of the Negros Mission tithes, collections and
offerings amounting to P15,078.10 which were collected by his wife, Mrs. Thelma Austria, in the
churches under his jurisdiction. On the other hand, serious misconduct and commission of an
offense against the person of the employers duly authorized representative pertain to the 16
October 1991 incident wherein petitioner allegedly committed an act of violence in the office of
Pastor Gideon Buhat. The final ground invoked by private respondents is gross and habitual
neglect of duties allegedly committed by petitioner.
We cannot sustain the validity of dismissal based on the ground of breach of trust. Private
respondents allege that they have lost their confidence in petitioner for his failure, despite
demands, to remit the tithes and offerings amounting to P15,078.10, which were collected in his
district. A careful study of the voluminous records of the case reveals that there is simply no
basis for the alleged loss of confidence and breach of trust. Settled is the rule that under Article
282 (c) of the Labor Code, the breach of trust must be willful. A breach is willful if it is done

intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act
done carelessly, thoughtlessly, heedlessly or inadvertently. [38] It must rest on substantial grounds
and not on the employers arbitrariness, whims, caprices or suspicion; otherwise, the employee
would eternally remain at the mercy of the employer. [39] It should be genuine and not simulated.
[40]
This ground has never been intended to afford an occasion for abuse, because of its subjective
nature. The records show that there were only six (6) instances when petitioner personally
collected and received from the church treasurers the tithes, collections, and donations for the
church.[41] The stenographic notes on the testimony of Naomi Geniebla, the Negros Mission
Church Auditor and a witness for private respondents, show that Pastor Austria was able to
remit all his collections to the treasurer of the Negros Mission. [42]
Though private respondents were able to establish that petitioner collected and received
tithes and donations several times, they were not able to establish that petitioner failed to remit
the same to the Negros Mission, and that he pocketed the amount and used it for his personal
purpose. In fact, as admitted by their own witness, Naomi Geniebla, petitioner remitted the
amounts which he collected to the Negros Mission for which corresponding receipts were issued
to him. Thus, the allegations of private respondents that petitioner breached their trust have no
leg to stand on.
In a vain attempt to support their claim of breach of trust, private respondents try to pin
on petitioner the alleged non-remittance of the tithes collected by his wife. This argument
deserves little consideration. First of all, as proven by convincing and substantial evidence
consisting of the testimonies of the witnesses for private respondents who are church treasurers,
it was Mrs. Thelma Austria who actually collected the tithes and donations from them, and, who
failed to remit the same to the treasurer of the Negros Mission. The testimony of these church
treasurers were corroborated and confirmed by Ms. Geniebla and Mr. Ibesate, officers of the
SDA. Hence, in the absence of conspiracy and collusion, which private respondents failed to
demonstrate, between petitioner and his wife, petitioner cannot be made accountable for the
alleged infraction committed by his wife. After all, they still have separate and distinct
personalities. For this reason, the Labor Arbiter found it difficult to see the basis for the alleged
loss of confidence and breach of trust. The Court does not find any cogent reason, therefore, to
digress from the findings of the Labor Arbiter which is fully supported by the evidence on record.
With respect to the grounds of serious misconduct and commission of an offense against
the person of the employers duly authorized representative, we find the same unmeritorious and,
as such, do not warrant petitioners dismissal from the service.
Misconduct has been defined as improper or wrong conduct. It is the transgression of
some established and definite rule of action, a forbidden act, a dereliction of duty, willful in
character, and implies wrongful intent and not mere error in judgment. [43] For misconduct to be
considered serious it must be of such grave and aggravated character and not merely trivial or
unimportant.[44] Based on this standard, we believe that the act of petitioner in banging the
attache case on the table, throwing the telephone and scattering the books in the office of Pastor
Buhat, although improper, cannot be considered as grave enough to be considered as serious
misconduct. After all, as correctly observed by the Labor Arbiter, though petitioner committed
damage to property, he did not physically assault Pastor Buhat or any other pastor present
during the incident of 16 October 1991. In fact, the alleged offense committed upon the person of
the employers representatives was never really established or proven by private
respondents. Hence, there is no basis for the allegation that petitioners act constituted serious
misconduct or that the same was an offense against the person of the employers duly authorized
representative. As such, the cited actuation of petitioner does not justify the ultimate penalty of
dismissal from employment. While the Constitution does not condone wrongdoing by the
employee, it nevertheless urges a moderation of the sanctions that may be applied to him in light
of the many disadvantages that weigh heavily on him like an albatross on his neck. [45] Where a
penalty less punitive would suffice, whatever missteps may have been committed by the worker
ought not be visited with a consequence so severe such as dismissal from employment. [46] For the
foregoing reasons, we believe that the minor infraction committed by petitioner does not merit
the ultimate penalty of dismissal.

The final ground alleged by private respondents in terminating petitioner, gross and
habitual neglect of duties, does not requires an exhaustive discussion. Suffice it to say that all
private respondents had were allegations but not proof. Aside from merely citing the said
ground, private respondents failed to prove culpability on the part of petitioner. In fact, the
evidence on record shows otherwise. Petitioners rise from the ranks disclose that he was actually
a hard-worker. Private respondents evidence,[47] which consisted of petitioners Workers Reports,
revealed how petitioner travelled to different churches to attend to the faithful under his
care. Indeed, he labored hard for the SDA, but, in return, he was rewarded with a dismissal from
the service for a non-existent cause.
In view of the foregoing, we sustain the finding of the Labor Arbiter that petitioner was
terminated from service without just or lawful cause. Having been illegally dismissed, petitioner
is entitled to reinstatement to his former position without loss of seniority right [48] and the
payment of full backwages without any deduction corresponding to the period from his illegal
dismissal up to actual reinstatement.[49]
WHEREFORE, the petition for certiorari is GRANTED. The challenged Resolution of
public respondent National Labor Relations Commission, rendered on 23 January 1996, is
NULLIFIED and SET ASIDE. The Decision of the Labor Arbiter, dated 15 February 1993, is
reinstated and hereby AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. L-72654-61 January 22, 1990


ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON, LAURENTE BAUTU, JAIME
BARBIN, NICANOR FRANCISCO, PHILIP CERVANTES and ELEUTERIO
BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE GUZMAN FISHING
ENTERPRISES and/or ARSENIO DE GUZMAN, respondents.
J.C. Espinas & Associates for petitioners.
Tomas A. Reyes for private respondent.

FERNAN, C.J.:
The issue to be resolved in the instant case is whether or not the fishermen-crew members of the
trawl fishing vessel 7/B Sandyman II are employees of its owner-operator, De Guzman Fishing
Enterprises, and if so, whether or not they were illegally dismissed from their employment.
Records show that the petitioners were the fishermen-crew members of 7/B Sandyman II, one of
several fishing vessels owned and operated by private respondent De Guzman Fishing
Enterprises which is primarily engaged in the fishing business with port and office at Camaligan,
Camarines Sur. Petitioners rendered service aboard said fishing vessel in various capacities, as
follows: Alipio Ruga and Jose Parma patron/pilot; Eladio Calderon, chief engineer; Laurente
Bautu, second engineer; Jaime Barbin, master fisherman; Nicanor Francisco, second fisherman;
Philip Cervantes and Eleuterio Barbin, fishermen.
For services rendered in the conduct of private respondent's regular business of "trawl" fishing,
petitioners were paid on percentage commission basis in cash by one Mrs. Pilar de Guzman,
cashier of private respondent. As agreed upon, they received thirteen percent (13%) of the
proceeds of the sale of the fish-catch if the total proceeds exceeded the cost of crude oil
consumed during the fishing trip, otherwise, they received ten percent (10%) of the total
proceeds of the sale. The patron/pilot, chief engineer and master fisherman received a minimum
income of P350.00 per week while the assistant engineer, second fisherman, and fishermanwinchman received a minimum income of P260.00 per week. 1

On September 11, 1983 upon arrival at the fishing port, petitioners were told by Jorge de
Guzman, president of private respondent, to proceed to the police station at Camaligan,
Camarines Sur, for investigation on the report that they sold some of their fish-catch at midsea
to the prejudice of private respondent. Petitioners denied the charge claiming that the same was
a countermove to their having formed a labor union and becoming members of Defender of
Industrial Agricultural Labor Organizations and General Workers Union (DIALOGWU) on
September 3, 1983.
During the investigation, no witnesses were presented to prove the charge against petitioners,
and no criminal charges were formally filed against them. Notwithstanding, private respondent
refused to allow petitioners to return to the fishing vessel to resume their work on the same day,
September 11, 1983.
On September 22, 1983, petitioners individually filed their complaints for illegal dismissal and
non-payment of 13th month pay, emergency cost of living allowance and service incentive pay,
with the then Ministry (now Department) of Labor and Employment, Regional Arbitration
Branch No. V, Legaspi City, Albay, docketed as Cases Nos. 1449-83 to 1456-83. 2 They uniformly
contended that they were arbitrarily dismissed without being given ample time to look for a new
job.
On October 24, 1983, private respondent, thru its operations manager, Conrado S. de Guzman,
submitted its position paper denying the employer-employee relationship between private
respondent and petitioners on the theory that private respondent and petitioners were engaged
in a joint venture. 3
After the parties failed to reach an amicable settlement, the Labor Arbiter scheduled the case for
joint hearing furnishing the parties with notice and summons. On December 27, 1983, after two
(2) previously scheduled joint hearings were postponed due to the absence of private
respondent, one of the petitioners herein, Alipio Ruga, the pilot/captain of the 7/B Sandyman II,
testified, among others, on the manner the fishing operations were conducted, mode of payment
of compensation for services rendered by the fishermen-crew members, and the circumstances
leading to their dismissal. 4
On March 31, 1984, after the case was submitted for resolution, Labor Arbiter Asisclo S. Coralde
rendered a joint decision 5 dismissing all the complaints of petitioners on a finding that a "joint
fishing venture" and not one of employer-employee relationship existed between private
respondent and petitioners.
From the adverse decision against them, petitioners appealed to the National Labor Relations
Commission.
On May 30, 1985, the National Labor Relations Commission promulgated its
resolution 6 affirming the decision of the labor arbiter that a "joint fishing venture" relationship
existed between private respondent and petitioners.
Hence, the instant petition.

Petitioners assail the ruling of the public respondent NLRC that what exists between private
respondent and petitioners is a joint venture arrangement and not an employer-employee
relationship. To stress that there is an employer-employee relationship between them and
private respondent, petitioners invite attention to the following: that they were directly hired by
private respondent through its general manager, Arsenio de Guzman, and its operations
manager, Conrado de Guzman; that, except for Laurente Bautu, they had been employed by
private respondent from 8 to 15 years in various capacities; that private respondent, through its
operations manager, supervised and controlled the conduct of their fishing operations as to the
fixing of the schedule of the fishing trips, the direction of the fishing vessel, the volume or
number of tubes of the fish-catch the time to return to the fishing port, which were
communicated to the patron/pilot by radio (single side band); that they were not allowed to join
other outfits even the other vessels owned by private respondent without the permission of the
operations manager; that they were compensated on percentage commission basis of the gross
sales of the fish-catch which were delivered to them in cash by private respondent's cashier, Mrs.
Pilar de Guzman; and that they have to follow company policies, rules and regulations imposed
on them by private respondent.
Disputing the finding of public respondent that a "joint fishing venture" exists between private
respondent and petitioners, petitioners claim that public respondent exceeded its jurisdiction
and/or abused its discretion when it added facts not contained in the records when it stated that
the pilot-crew members do not receive compensation from the boat-owners except their share in
the catch produced by their own efforts; that public respondent ignored the evidence of
petitioners that private respondent controlled the fishing operations; that public respondent did
not take into account established jurisprudence that the relationship between the fishing boat
operators and their crew is one of direct employer and employee.
Aside from seeking the dismissal of the petition on the ground that the decision of the labor
arbiter is now final and executory for failure of petitioners to file their appeal with the NLRC
within 10 calendar days from receipt of said decision pursuant to the doctrine laid down in VirJen Shipping and Marine Services, Inc. vs. NLRC, 115 SCRA 347 (1982), the Solicitor General
claims that the ruling of public respondent that a "joint fishing venture" exists between private
respondent and petitioners rests on the resolution of the Social Security System (SSS) in a 1968
case, Case No. 708 (De Guzman Fishing Enterprises vs. SSS), exempting De Guzman Fishing
Enterprises, private respondent herein, from compulsory coverage of the SSS on the ground that
there is no employer-employee relations between the boat-owner and the fishermen-crew
members following the doctrine laid down inPajarillo vs. SSS, 17 SCRA 1014 (1966). In applying
to the case at bar the doctrine in Pajarillo vs. SSS, supra, that there is no employer-employee
relationship between the boat-owner and the pilot and crew members when the boat-owner
supplies the boat and equipment while the pilot and crew members contribute the corresponding
labor and the parties get specific shares in the catch for their respective contribution to the
venture, the Solicitor General pointed out that the boat-owners in the Pajarillo case, as in the
case at bar, did not control the conduct of the fishing operations and the pilot and crew members
shared in the catch.
We rule in favor of petitioners.
Fundamental considerations of substantial justice persuade Us to decide the instant case on the
merits rather than to dismiss it on a mere technicality. In so doing, we exercise the prerogative
accorded to this Court enunciated in Firestone Filipinas Employees Association, et
al. vs. Firestone Tire and Rubber Co. of the Philippines, Inc., 61 SCRA 340 (1974), thus "the

well-settled doctrine is that in labor cases before this Tribunal, no undue sympathy is to be
accorded to any claim of a procedural misstep, the idea being that its power be exercised
according to justice and equity and substantial merits of the controversy."
Circumstances peculiar to some extent to fishermen-crew members of a fishing vessel regularly
engaged in trawl fishing, as in the case of petitioners herein, who spend one (1) whole week or
more 7 in the open sea performing their job to earn a living to support their families, convince Us
to adopt a more liberal attitude in applying to petitioners the 10-calendar day rule in the filing of
appeals with the NLRC from the decision of the labor arbiter.
Records reveal that petitioners were informed of the labor arbiter's decision of March 31, 1984
only on July 3,1984 by their non-lawyer representative during the arbitration proceedings, Jose
Dialogo who received the decision eight (8) days earlier, or on June 25, 1984. As adverted to
earlier, the circumstances peculiar to petitioners' occupation as fishermen-crew members, who
during the pendency of the case understandably have to earn a living by seeking employment
elsewhere, impress upon Us that in the ordinary course of events, the information as to the
adverse decision against them would not reach them within such time frame as would allow
them to faithfully abide by the 10-calendar day appeal period. This peculiar circumstance and
the fact that their representative is a non-lawyer provide equitable justification to conclude that
there is substantial compliance with the ten-calendar day rule of filing of appeals with the NLRC
when petitioners filed on July 10, 1984, or seven (7) days after receipt of the decision, their
appeal with the NLRC through registered mail.
We have consistently ruled that 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. 8 The employment relation arises from contract of hire, express or
implied. 9 In the absence of hiring, no actual employer-employee relation could exist.
From the four (4) elements mentioned, We have generally relied on the so-called right-of-control
test 10 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. The test calls merely
for the existence of the right to control the manner of doing the work, not the actual exercise of
the right. 11
The case of Pajarillo vs. SSS, supra, invoked by the public respondent as authority for the ruling
that a "joint fishing venture" existed between private respondent and petitioners is not
applicable in the instant case. There is neither light of control nor actual exercise of such right on
the part of the boat-owners in the Pajarillo case, where the Court found that the pilots therein
are not under the order of the boat-owners as regards their employment; that they go out to sea
not upon directions of the boat-owners, but upon their own volition as to when, how long and
where to go fishing; that the boat-owners do not in any way control the crew-members with
whom the former have no relationship whatsoever; that they simply join every trip for which the
pilots allow them, without any reference to the owners of the vessel; and that they only share in
their own catch produced by their own efforts.
The aforementioned circumstances obtaining in Pajarillo case do not exist in the instant case.
The conduct of the fishing operations was undisputably shown by the testimony of Alipio Ruga,

the patron/pilot of 7/B Sandyman II, to be under the control and supervision of private
respondent's operations manager. Matters dealing on the fixing of the schedule of the fishing trip
and the time to return to the fishing port were shown to be the prerogative of private
respondent. 12 While performing the fishing operations, petitioners received instructions via a
single-side band radio from private respondent's operations manager who called the
patron/pilot in the morning. They are told to report their activities, their position, and the
number of tubes of fish-catch in one day. 13 Clearly thus, the conduct of the fishing operations
was monitored by private respondent thru the patron/pilot of 7/B Sandyman II who is
responsible for disseminating the instructions to the crew members.
The conclusion of public respondent that there had been no change in the situation of the parties
since 1968 when De Guzman Fishing Enterprises, private respondent herein, obtained a
favorable judgment in Case No. 708 exempting it from compulsory coverage of the SSS law is not
supported by evidence on record. It was erroneous for public respondent to apply the factual
situation of the parties in the 1968 case to the instant case in the light of the changes in the
conditions of employment agreed upon by the private respondent and petitioners as discussed
earlier.
Records show that in the instant case, as distinguished from the Pajarillo case where the crew
members are under no obligation to remain in the outfit for any definite period as one can be the
crew member of an outfit for one day and be the member of the crew of another vessel the next
day, the herein petitioners, on the other hand, were directly hired by private respondent, through
its general manager, Arsenio de Guzman, and its operations manager, Conrado de Guzman and
have been under the employ of private respondent for a period of 8-15 years in various
capacities, except for Laurente Bautu who was hired on August 3, 1983 as assistant engineer.
Petitioner Alipio Ruga was hired on September 29, 1974 as patron/captain of the fishing vessel;
Eladio Calderon started as a mechanic on April 16, 1968 until he was promoted as chief engineer
of the fishing vessel; Jose Parma was employed on September 29, 1974 as assistant engineer;
Jaime Barbin started as a pilot of the motor boat until he was transferred as a master fisherman
to the fishing vessel 7/B Sandyman II; Philip Cervantes was hired as winchman on August 1,
1972 while Eleuterio Barbin was hired as winchman on April 15, 1976.
While tenure or length of employment is not considered as the test of employment, nevertheless
the hiring of petitioners to perform work which is necessary or desirable in the usual business or
trade of private respondent for a period of 8-15 years since 1968 qualify them as regular
employees within the meaning of Article 281 of the Labor Code as they were indeed engaged to
perform activities usually necessary or desirable in the usual fishing business or occupation of
private respondent. 14
Aside from performing activities usually necessary and desirable in the business of private
respondent, it must be noted that petitioners received compensation on a percentage
commission based on the gross sale of the fish-catch i.e. 13% of the proceeds of the sale if the
total proceeds exceeded the cost of the crude oil consumed during the fishing trip, otherwise only
10% of the proceeds of the sale. Such compensation falls within the scope and meaning of the
term "wage" as defined under Article 97(f) of the Labor Code, thus:
(f) "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 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 included
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. . . .
The claim of private respondent, which was given credence by public respondent, that
petitioners get paid in the form of share in the fish-catch which the patron/pilot as head of the
team distributes to his crew members in accordance with their own understanding 15 is not
supported by recorded evidence. Except that such claim appears as an allegation in private
respondent's position paper, there is nothing in the records showing such a sharing scheme as
preferred by private respondent.
Furthermore, the fact that on mere suspicion based on the reports that petitioners allegedly sold
their fish-catch at midsea without the knowledge and consent of private respondent, petitioners
were unjustifiably not allowed to board the fishing vessel on September 11, 1983 to resume their
activities without giving them the opportunity to air their side on the accusation against them
unmistakably reveals the disciplinary power exercised by private respondent over them and the
corresponding sanction imposed in case of violation of any of its rules and regulations. The
virtual dismissal of petitioners from their employment was characterized by undue haste when
less extreme measures consistent with the requirements of due process should have been first
exhausted. In that sense, the dismissal of petitioners was tainted with illegality.
Even on the assumption that petitioners indeed sold the fish-catch at midsea the act of private
respondent virtually resulting in their dismissal evidently contradicts private respondent's
theory of "joint fishing venture" between the parties herein. A joint venture, including
partnership, presupposes generally a parity of standingbetween the joint co-venturers or
partners, in which each party has an equal proprietary interest in the capital or property
contributed 16 and where each party exercises equal lights in the conduct of the business. 17 It
would be inconsistent with the principle of parity of standing between the joint co-venturers as
regards the conduct of business, if private respondent would outrightly exclude petitioners from
the conduct of the business without first resorting to other measures consistent with the nature
of a joint venture undertaking, Instead of arbitrary unilateral action, private respondent should
have discussed with an open mind the advantages and disadvantages of petitioners' action with
its joint co-venturers if indeed there is a "joint fishing venture" between the parties. But this was
not done in the instant case. Petitioners were arbitrarily dismissed notwithstanding that no
criminal complaints were filed against them. The lame excuse of private respondent that the
non-filing of the criminal complaints against petitioners was for humanitarian reasons will not
help its cause either.
We have examined the jurisprudence on the matter and find the same to be supportive of
petitioners' stand. InNegre vs. WCC 135 SCRA 653 (1985), we held that fishermen crew
members who were recruited by one master fisherman locally known as "maestro" in charge of
recruiting others to complete the crew members are considered employees, not industrial
partners, of the boat-owners. In an earlier case of Abong vs. WCC, 54 SCRA 379 (1973) where
petitioner therein, Dr. Agustin Abong, owner of the fishing boat, claimed that he was not the
employer of the fishermen crew members because of an alleged partnership agreement between
him, as financier, and Simplicio Panganiban, as his team leader in charge of recruiting said
fishermen to work for him, we affirmed the finding of the WCC that there existed an employeremployee relationship between the boat-owner and the fishermen crew members not only

because they worked for and in the interest of the business of the boat-owner but also because
they were subject to the control, supervision and dismissal of the boat-owner, thru its agent,
Simplicio Panganiban, the alleged "partner" of Dr. Abong; that while these fishermen crew
members were paid in kind, or by "pakiao basis" still that fact did not alter the character of their
relationship with Dr. Abong as employees of the latter.
In Philippine Fishing Boat Officers and Engineers Union vs. Court of Industrial Relations, 112
SCRA 159 (1982), we held that the employer-employee relationship between the crew members
and the owners of the fishing vessels engaged in deep sea fishing is merely suspended during the
time the vessels are drydocked or undergoing repairs or being loaded with the necessary
provisions for the next fishing trip. The said ruling is premised on the principle that all these
activities i.e., drydock, repairs, loading of necessary provisions, form part of the regular
operation of the company fishing business.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The questioned resolution of
the National Labor Relations Commission dated May 30,1985 is hereby REVERSED and SET
ASIDE. Private respondent is ordered to reinstate petitioners to their former positions or any
equivalent positions with 3-year backwages and other monetary benefits under the law. No
pronouncement as to costs.
SO ORDERED.
Gutierrez, Jr., Bidin and Corts, JJ., concur.
Feliciano, J., concurs in the result.

THIRD DIVISION

On appeal[1], the NLRC affirmed the Labor Arbiter's decision.


Hence, this petition by the PHCCI.

[G.R. No. 121948. October 8, 2001]

The issue for our resolution is whether or not respondent judge committed grave abuse of
discretion in ruling that there is an employer-employee relationship between the parties and that
private respondents were illegally dismissed.
Petitioner PHCCI contends that private respondents are its members and are working for
it as volunteers. Not being regular employees, they cannot sue petitioner.

PERPETUAL HELP CREDIT COOPERATIVE, INC., petitioner, vs. BENEDICTO


FABURADA, SISINITA VILLAR, IMELDA TAMAYO, HAROLD CATIPAY,
and the NATIONAL LABOR RELATIONS COMMISSION, Fourth Division,
Cebu City, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
On January 3, 1990, Benedicto Faburada, Sisinita Vilar, Imelda Tamayo and Harold
Catipay, private respondents, filed a complaint against the Perpetual Help Credit Cooperative,
Inc. (PHCCI), petitioner, with the Arbitration Branch, Department of Labor and Employment
(DOLE), Dumaguete City, for illegal dismissal, premium pay on holidays and rest days,
separation pay, wage differential, moral damages, and attorneys fees.
Forthwith, petitioner PHCCI filed a motion to dismiss the complaint on the ground that
there is no employer-employee relationship between them as private respondents are all
members and co-owners of the cooperative. Furthermore, private respondents have not
exhausted the remedies provided in the cooperative by-laws.
On September 3, 1990, petitioner filed a supplemental motion to dismiss alleging that
Article 121 of R.A. No. 6939, otherwise known as the Cooperative Development Authority Law
which took effect on March 26, 1990, requires conciliation or mediation within the cooperative
before a resort to judicial proceeding.
On the same date, the Labor Arbiter denied petitioner's motion to dismiss, holding that the
case is impressed with employer-employee relationship and that the law on cooperatives is
subservient to the Labor Code.
On November 23, 1993, the Labor Arbiter rendered a decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered declaring complainants
illegally dismissed, thus respondent is directed to pay Complainants backwages computed from
the time they were illegally dismissed up to the actual reinstatement but subject to the three year
backwages rule, separation pay for one month for every year of service since reinstatement is
evidently not feasible anymore, to pay complainants 13th month pay, wage differentials and Ten
Percent (10%) attorneys fees from the aggregate monetary award. However, complainant
Benedicto Faburada shall only be awarded what are due him in proportion to the nine and a half
months that he had served the respondent, he being a part-time employee.
All other claims are hereby dismissed for lack of merit.
The computation of the foregoing awards is hereto attached and forms an integral part of this
decision.

In determining the existence of an employer-employee relationship, the following


elements are considered: (1) the selection and engagement of the worker or the power to hire; (2)
the power to dismiss; (3) the payment of wages by whatever means; and (4) the power to control
the workers conduct, with the latter assuming primacy in the overall consideration. No particular
form of proof is required to prove the existence of an employer-employee relationship. Any
competent and relevant evidence may show the relationship. [2]
The above elements are present here. Petitioner PHCCI, through Mr. Edilberto Lantaca,
Jr., its Manager, hired private respondents to work for it.They worked regularly on regular
working hours, were assigned specific duties, were paid regular wages and made to accomplish
daily time records just like any other regular employee. They worked under the supervision of
the cooperative manager. But unfortunately, they were dismissed.
That an employer-employee exists between the parties is shown by the averments of
private respondents in their respective affidavits, carefully considered by respondent NLRC in
affirming the Labor Arbiter's decision, thus:
Benedicto Faburada -Regular part-time Computer programmer/ operator. Worked
with the Cooperative since June 1, 1988 up to December 29, 1989. Work schedule:
Tuesdays and Thursdays, from 1:00 p.m. to 5:30 p.m. and every Saturday from 8:00 to
11:30 a.m. and 1:00 to 4:00 p.m. and for at least three (3 ) hours during Sundays. Monthly
salary: P1,000.00 -from June to December 1988; P1,350.00 - from January to June 1989;
and P1,500.00 from July to December 1989. Duties: Among others, Enter data into the
computer; compute interests on savings deposits, effect mortuary deductions and
dividends on fixed deposits; maintain the masterlist of the cooperative members; perform
various forms for mimeographing; and perform such other duties as may be assigned from
time to time.
Sisinita Vilar -Clerk. Worked with the Cooperative since December 1, 1987 up to
December 29, 1989. Work schedule: Regular working hours.Monthly salary: P500.00 from December 1, 1987 to December 31, 1988; P1,000.00 - from January 1, 1989 to June
30, 1989; and P1,150.00 - from July 1, 1989 to December 31, 1989. Duties: Among others,
Prepare summary of salary advances, journal vouchers, daily summary of disbursements
to respective classifications; schedule loans; prepare checks and cash vouchers for regular
and emergency loans; reconcile bank statements to the daily summary of disbursements;
post the monthly balance of fixed and savings deposits in preparation for the computation
of interests, dividends, mortuary and patronage funds; disburse checks during regular and
emergency loans; and perform such other bookkeeping and accounting duties as may be
assigned to her from time to time.
Imelda C. Tamayo - Clerk. Worked with the Cooperative since October 19, 1987 up to
December 29, 1989. Work schedule: Monday to Friday - 8:00 to 11:30 a.m and 2:00 to
5:30 p.m.; every Saturday - 8:00 to 11:30 a.m and 1:00 to 4:00 p.m; and for one Sunday
each month - for at least three (3) hours. Monthly salary: P60.00 - from October to
November 1987; P250.00 for December 1987; P500.00 - from January to December 1988;
P950 - from January to June 1989; and P1,000.00 from July to December 1989. Duties:
Among others, pick up balances for the computation of interests on savings deposit,

mortuary, dividends and patronage funds; prepare cash vouchers; check petty cash
vouchers; take charge of the preparation of new passbooks and ledgers for new applicants;
fill up members logbook of regular depositors, junior depositors and special accounts; take
charge of loan releases every Monday morning; assist in the posting and preparation of
deposit slips; receive deposits from members; and perform such other bookkeeping and
accounting duties as may be assigned her from time to time.

member or representative; and, analogous cases. The authorized causes are: (1) the installation
of labor-saving devices; (2) redundancy; (3) retrenchment to prevent losses; and (4) closing or
cessation of operations of the establishment or undertaking, unless the closing is for the purpose
of circumventing the provisions of law. Article 284 provides that an employer would be
authorized to terminate the services of an employee found to be suffering from any disease if the
employees continued employment is prohibited by law or is prejudicial to his health or to the
health of his fellow employees[6]

Harold D. Catipay - Clerk. Worked with the Cooperative since March 3 to December 29,
1989. Work schedule: - Monday to Friday - 8:00 to 11:30 a.m. and 2:00 to 5:30 p.m.;
Saturday - 8:00 to 11:30 a.m. and 1:00 to 4:00 p.m.; and one Sunday each month - for at
least three (3) hours. Monthly salary: P900.00 - from March to June 1989; P1,050.00 from July to December 1989. Duties: Among others, Bookkeeping, accounting and
collecting duties, such as, post daily collections from the two (2) collectors in the market;
reconcile passbooks and ledgers of members in the market; and assist the other clerks in
their duties.

Private respondents were dismissed not for any of the above causes. They were dismissed
because petitioner considered them to be mere voluntary workers, being its members, and as
such work at its pleasure. Petitioner thus vehemently insists that their dismissal is not against
the law.

All of them were given a memorandum of termination on January 2, 1990, effective


December 29, 1989.
We are not prepared to disregard the findings of both the Labor Arbiter and respondent
NLRC, the same being supported by substantial evidence, that quantum of evidence required in
quasi-judicial proceedings, like this one..
Necessarily, this leads us to the issue of whether or not private respondents are regular
employees. Article 280 of the Labor Code provides for three kinds of employees: (1) regular
employees or those who have been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer; (2) project employees or those whose
employment has been fixed for a specific project or undertaking, the completion or termination
of which has been determined at the time of the engagement of the employee or where the work
or service to be performed is seasonal in nature and the employment is for the duration of the
season; and (3) casual employees or those who are neither regular nor project employees. [3] The
employees who are deemed regular are: (a) those who have been engaged to perform activities
which are usually necessary or desirable in the usual trade or business of the employer; and (b)
those casual employees who have rendered at least one (1) year of service, whether such service
is continuous or broken, with respect to the activity in which they are employed. [4] Undeniably,
private respondents were rendering services necessary to the day-to-day operations of petitioner
PHCCI. This fact alone qualified them as regular employees.
All of them, except Harold D. Catipay, worked with petitioner for more than one (1) year:
Benedicto Faburada, for one and a half (1 1/2) years; Sisinita Vilar, for two (2) years; and Imelda
C. Tamayo, for two (2) years and two (2) months. That Benedicto Faburada worked only on a
part-time basis, does not mean that he is not a regular employee. Ones regularity of employment
is not determined by the number of hours one works but by the nature and by the length of time
one has been in that particular job. [5] Petitioner's contention that private respondents are mere
volunteer workers, not regular employees, must necessarily fail. Its invocation of San Jose City
Electric Cooperative vs. Ministry of Labor and Employment (173 SCRA 697, 703 (1989 ) is
misplaced. The issue in this case is whether or not the employees-members of a cooperative can
organize themselves for purposes of collective bargaining, not whether or not the members can
be employees. Petitioner missed the point.
As regular employees or workers, private respondents are entitled to security of tenure.
Thus, their services may be terminated only for a valid cause, with observance of due process.
The valid causes are categorized into two groups: the just causes under Articles 282 of the
Labor Code and the authorized causes under Articles 283 and 284 of the same Code. The just
causes are: (1) serious misconduct or willful disobedience of lawful orders in connection with the
employees work; (2) gross or habitual neglect of duties; (3) fraud or willful breach of trust; (4)
commission of a crime or an offense against the person of the employer or his immediate family

Procedural due process requires that the employer serve the employees to be dismissed
two (2) written notices before the termination of their employment is effected: (a) the first, to
apprise them of the particular acts or omissions for which their dismissal is sought and (b) the
second, to inform them of the decision of the employer that they are being dismissed. [7] In this
case, only one notice was served upon private respondents by petitioner. It was in the form of a
Memorandum signed by the Manager of the Cooperative dated January 2, 1990 terminating
their services effective December 29, 1989. Clearly, petitioner failed to comply with the twin
requisites of a valid notice.
We hold that private respondents have been illegally dismissed.
Petitioner contends that the labor arbiter has no jurisdiction to take cognizance of the
complaint of private respondents considering that they failed to submit their dispute to the
grievance machinery as required by P.D 175 (strengthening the Cooperative Movement) [8] and its
implementing rules and regulations under LOI 23. Likewise, the Cooperative Development
Authority did not issue a Certificate of Non-Resolution pursuant to Section 8 of R.A. 6939 or the
Cooperative Development Authority Law.
As aptly stated by the Solicitor General in his comment, P.D. 175 does not provide for a
grievance machinery where a dispute or claim may first be submitted. LOI 23 refers to
instructions to the Secretary of Public Works and Communications to implement immediately
the recommendation of the Postmaster General for the dismissal of some employees of the
Bureau of Post. Obviously, this LOI has no relevance to the instant case.
Article 121 of Republic Act No. 6938 (Cooperative Code of the Philippines) provides the
procedure how cooperative disputes are to be resolved, thus:
ART. 121. Settlement of Disputes.- Disputes among members, officers, directors, and committee
members, and intra-cooperative disputes shall, as far as practicable, be settled amicably in
accordance with the conciliation or mediation mechanisms embodied in the bylaws of the
cooperative, and in applicable laws.
Should such a conciliation/mediation proceeding fail, the matter shall be settled in a court of
competent jurisdiction.
Complementing this Article is Section 8 of R.A. No. 6939 (Cooperative Development
Authority Law) which reads:
SEC. 8 Mediation and Conciliation.- Upon request of either or both parties, the Authority shall
mediate and conciliate disputes within a cooperative or between cooperatives: Provided, That if
no mediation or conciliation succeeds within three (3) months from request thereof, a certificate
of non-resolution shall be issued by the Commission prior to the filing of appropriate action
before the proper courts.

The above provisions apply to members, officers and directors of the cooperative involved
in disputes within a cooperative or between cooperatives.
There is no evidence that private respondents are members of petitioner PHCCI and even
if they are, the dispute is about payment of wages, overtime pay, rest day and termination of
employment. Under Art. 217 of the Labor Code, these disputes are within the original and
exclusive jurisdiction of the Labor Arbiter.
As illegally dismissed employees, private respondents are therefore entitled to
reinstatement without loss of seniority rights and other privileges and to full backwages,
inclusive of allowances, plus other benefits or their monetary equivalent computed from the time
their compensation was witheld from them up to the time of their actual reinstatement. [9] Since
they were dismissed after March 21, 1989, the effectivity date of R.A. 6715 [10] they are granted full
backwages, meaning, without deducting from their backwages the earnings derived by them
elsewhere during the period of their illegal dismissal. [11]If reinstatement is no longer feasible, as
when the relationship between petitioner and private respondents has become strained, payment
of their separation pay in lieu of reinstatement is in order. [12]
WHEREFORE, the petition is hereby DENIED. The decision of respondent NLRC is
AFFIRMED, with modification in the sense that the backwages due private respondents shall be
paid in full, computed from the time they were illegally dismissed up to the time of the finality of
this Decision.[13]
SO ORDERED.
Melo, (Chairman), Vitug, and Panganiban, JJ., concur.

SECOND DIVISION
[G.R. No. 146530. January 17, 2005]
PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION,
SUPREME
PACKAGING,
INC.
and
ALVIN
LEE,
Plant
Manager, respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari of the Resolution [1] dated December
15, 2000 of the Court of Appeals (CA) reversing its Decision dated April 28, 2000 in CA-G.R. SP
No. 52485. The assailed resolution reinstated the Decision dated July 10, 1998 of the National
Labor Relations Commission (NLRC), dismissing the complaint for illegal dismissal filed by
herein petitioner Pedro Chavez. The said NLRC decision similarly reversed its earlier Decision
dated January 27, 1998 which, affirming that of the Labor Arbiter, ruled that the petitioner had
been illegally dismissed by respondents Supreme Packaging, Inc. and Mr. Alvin Lee.
The case stemmed from the following facts:
The respondent company, Supreme Packaging, Inc., is in the business of manufacturing
cartons and other packaging materials for export and distribution. It engaged the services of the
petitioner, Pedro Chavez, as truck driver on October 25, 1984. As such, the petitioner was tasked
to deliver the respondent companys products from its factory in Mariveles, Bataan, to its various
customers, mostly in Metro Manila. The respondent company furnished the petitioner with a
truck. Most of the petitioners delivery trips were made at nighttime, commencing at 6:00 p.m.
from Mariveles, and returning thereto in the afternoon two or three days after. The deliveries
were made in accordance with the routing slips issued by respondent company indicating the
order, time and urgency of delivery. Initially, the petitioner was paid the sum of P350.00 per
trip. This was later adjusted to P480.00 per trip and, at the time of his alleged dismissal, the
petitioner was receiving P900.00 per trip.
Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent
companys plant manager, his (the petitioners) desire to avail himself of the benefits that the
regular employees were receiving such as overtime pay, nightshift differential pay, and 13th
month pay, among others. Although he promised to extend these benefits to the petitioner,
respondent Lee failed to actually do so.
On February 20, 1995, the petitioner filed a complaint for regularization with the Regional
Arbitration Branch No. III of the NLRC in San Fernando, Pampanga. Before the case could be
heard, respondent company terminated the services of the petitioner. Consequently, on May 25,
1995, the petitioner filed an amended complaint against the respondents for illegal dismissal,
unfair labor practice and non-payment of overtime pay, nightshift differential pay, 13th month
pay, among others. The case was docketed as NLRC Case No. RAB-III-02-6181-95.

The respondents, for their part, denied the existence of an employer-employee


relationship between the respondent company and the petitioner. They averred that the
petitioner was an independent contractor as evidenced by the contract of service which he and
the respondent company entered into. The said contract provided as follows:
That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to hire and
the Contractor [referring to Pedro Chavez], by nature of their specialized line or service jobs,
accepts the services to be rendered to the Principal, under the following terms and covenants
heretofore mentioned:
1. That the inland transport delivery/hauling activities to be performed by the
contractor to the principal, shall only cover travel route from Mariveles to Metro
Manila. Otherwise, any change to this travel route shall be subject to further
agreement by the parties concerned.
2. That the payment to be made by the Principal for any hauling or delivery
transport services fully rendered by the Contractor shall be on a per trip basis
depending on the size or classification of the truck being used in the transport
service, to wit:
a) If the hauling or delivery service shall require a truck of six wheeler, the payment
on a per trip basis from Mariveles to Metro Manila shall be THREE
HUNDRED PESOS (P300.00) and EFFECTIVE December 15, 1984.
b) If the hauling or delivery service require a truck of ten wheeler, the payment on a
per trip basis, following the same route mentioned, shall be THREE
HUNDRED FIFTY (P350.00) Pesos and Effective December 15, 1984.
3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at
least two (2) helpers;
4. The Contractor shall exercise direct control and shall be responsible to the
Principal for the cost of any damage to, loss of any goods, cargoes, finished
products or the like, while the same are in transit, or due to reckless [sic] of its
men utilized for the purpose above mentioned;
5. That the Contractor shall have absolute control and disciplinary power over its
men working for him subject to this agreement, and that the Contractor shall
hold the Principal free and harmless from any liability or claim that may arise by
virtue of the Contractors non-compliance to the existing provisions of the
Minimum Wage Law, the Employees Compensation Act, the Social Security
System Act, or any other such law or decree that may hereafter be enacted, it
being clearly understood that any truck drivers, helpers or men working with
and for the Contractor, are not employees who will be indemnified by the
Principal for any such claim, including damages incurred in connection
therewith;

6. This contract shall take effect immediately upon the signing by the parties, subject
to renewal on a year-to-year basis.[2]

d) Service Incentive Leave Pay .. 2,040.00


TOTAL P401,640.00

This contract of service was dated December 12, 1984. It was subsequently renewed twice,
on July 10, 1989 and September 28, 1992. Except for the rates to be paid to the petitioner, the
terms of the contracts were substantially the same. The relationship of the respondent company
and the petitioner was allegedly governed by this contract of service.
The respondents insisted that the petitioner had the sole control over the means and
methods by which his work was accomplished. He paid the wages of his helpers and exercised
control over them. As such, the petitioner was not entitled to regularization because he was not
an employee of the respondent company. The respondents, likewise, maintained that they did
not dismiss the petitioner. Rather, the severance of his contractual relation with the respondent
company was due to his violation of the terms and conditions of their contract. The petitioner
allegedly failed to observe the minimum degree of diligence in the proper maintenance of the
truck he was using, thereby exposing respondent company to unnecessary significant expenses
of overhauling the said truck.
After the parties had filed their respective pleadings, the Labor Arbiter rendered the
Decision dated February 3, 1997, finding the respondents guilty of illegal dismissal. The Labor
Arbiter declared that the petitioner was a regular employee of the respondent company as he was
performing a service that was necessary and desirable to the latters business. Moreover, it was
noted that the petitioner had discharged his duties as truck driver for the respondent company
for a continuous and uninterrupted period of more than ten years.
The contract of service invoked by the respondents was declared null and void as it
constituted a circumvention of the constitutional provision affording full protection to labor and
security of tenure. The Labor Arbiter found that the petitioners dismissal was anchored on his
insistent demand to be regularized. Hence, for lack of a valid and just cause therefor and for
their failure to observe the due process requirements, the respondents were found guilty of
illegal dismissal. The dispositive portion of the Labor Arbiters decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent
SUPREME PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with business address
at BEPZ, Mariveles, Bataan guilty of illegal dismissal, ordering said respondent to pay
complainant his separation pay equivalent to one (1) month pay per year of service based on the
average monthly pay of P10,800.00 in lieu of reinstatement as his reinstatement back to work
will not do any good between the parties as the employment relationship has already become
strained and full backwages from the time his compensation was withheld on February 23, 1995
up to January 31, 1997 (cut-off date) until compliance, otherwise, his backwages shall continue
to run. Also to pay complainant his 13th month pay, night shift differential pay and service
incentive leave pay hereunder computed as follows:
a) Backwages .. P248,400.00
b) Separation Pay .... P140,400.00
c) 13th month pay .P 10,800.00

Respondent is also ordered to pay ten (10%) of the amount due the complainant as attorneys
fees.
SO ORDERED.[3]
The respondents seasonably interposed an appeal with the NLRC. However, the appeal
was dismissed by the NLRC in its Decision [4]dated January 27, 1998, as it affirmed in toto the
decision of the Labor Arbiter. In the said decision, the NLRC characterized the contract of
service between the respondent company and the petitioner as a scheme that was resorted to by
the respondents who, taking advantage of the petitioners unfamiliarity with the English language
and/or legal niceties, wanted to evade the effects and implications of his becoming a regularized
employee.[5]
The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC.
Acting thereon, the NLRC rendered another Decision [6] dated July 10, 1998, reversing its earlier
decision and, this time, holding that no employer-employee relationship existed between the
respondent company and the petitioner. In reconsidering its earlier decision, the NLRC stated
that the respondents did not exercise control over the means and methods by which the
petitioner accomplished his delivery services. It upheld the validity of the contract of service as it
pointed out that said contract was silent as to the time by which the petitioner was to make the
deliveries and that the petitioner could hire his own helpers whose wages would be paid from his
own account. These factors indicated that the petitioner was an independent contractor, not an
employee of the respondent company.
The NLRC ruled that the contract of service was not intended to circumvent Article 280 of
the Labor Code on the regularization of employees. Said contract, including the fixed period of
employment contained therein, having been knowingly and voluntarily entered into by the
parties thereto was declared valid citing Brent School, Inc. v. Zamora.[7] The NLRC, thus,
dismissed the petitioners complaint for illegal dismissal.
The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied by
the NLRC in its Resolution dated September 7, 1998. He then filed with this Court a petition for
certiorari, which was referred to the CA following the ruling in St. Martin Funeral Home v.
NLRC.[8]
The appellate court rendered the Decision dated April 28, 2000, reversing the July 10,
1998 Decision of the NLRC and reinstating the decision of the Labor Arbiter. In the said
decision, the CA ruled that the petitioner was a regular employee of the respondent company
because as its truck driver, he performed a service that was indispensable to the latters business.
Further, he had been the respondent companys truck driver for ten continuous years. The CA
also reasoned that the petitioner could not be considered an independent contractor since he had
no substantial capital in the form of tools and machinery. In fact, the truck that he drove
belonged to the respondent company. The CA also observed that the routing slips that the
respondent company issued to the petitioner showed that it exercised control over the latter. The

routing slips indicated the chronological order and priority of delivery, the urgency of certain
deliveries and the time when the goods were to be delivered to the customers.

NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE CONTRARY AND


REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;

The CA, likewise, disbelieved the respondents claim that the petitioner abandoned his job
noting that he just filed a complaint for regularization. This actuation of the petitioner negated
the respondents allegation that he abandoned his job. The CA held that the respondents failed to
discharge their burden to show that the petitioners dismissal was for a valid and just cause.
Accordingly, the respondents were declared guilty of illegal dismissal and the decision of the
Labor Arbiter was reinstated.

(B)

In its April 28, 2000 Decision, the CA denounced the contract of service between the
respondent company and the petitioner in this wise:
In summation, we rule that with the proliferation of contracts seeking to prevent workers from
attaining the status of regular employment, it is but necessary for the courts to scrutinize with
extreme caution their legality and justness. Where from the circumstances it is apparent that a
contract has been entered into to preclude acquisition of tenurial security by the employee, they
should be struck down and disregarded as contrary to public policy and morals. In this case, the
contract of service is just another attempt to exploit the unwitting employee and deprive him of
the protection of the Labor Code by making it appear that the stipulations of the parties were
governed by the Civil Code as in ordinary transactions. [9]
However, on motion for reconsideration by the respondents, the CA made a complete turn
around as it rendered the assailed Resolution dated December 15, 2000 upholding the contract
of service between the petitioner and the respondent company. In reconsidering its decision, the
CA explained that the extent of control exercised by the respondents over the petitioner was only
with respect to the result but not to the means and methods used by him. The CA cited the
following circumstances: (1) the respondents had no say on how the goods were to be delivered
to the customers; (2) the petitioner had the right to employ workers who would be under his
direct control; and (3) the petitioner had no working time.
The fact that the petitioner had been with the respondent company for more than ten years
was, according to the CA, of no moment because his status was determined not by the length of
service but by the contract of service. This contract, not being contrary to morals, good customs,
public order or public policy, should be given the force and effect of law as between the
respondent company and the petitioner. Consequently, the CA reinstated the July 10, 1998
Decision of the NLRC dismissing the petitioners complaint for illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000
Resolution of the appellate court alleging that:
(A)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
AMOUNTING TO EXCESS OF JURISDICTION IN GIVING MORE CONSIDERATION TO
THE CONTRACT OF SERVICE ENTERED INTO BY PETITIONER AND PRIVATE
RESPONDENT THAN ARTICLE 280 OF THE LABOR CODE OF THE PHILIPPINES
WHICH
CATEGORICALLY
DEFINES
A
REGULAR
EMPLOYMENT

THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION


AMOUNTING TO EXCESS OF JURISDICTION IN REVERSING ITS OWN FINDINGS
THAT PETITIONER IS A REGULAR EMPLOYEE AND IN HOLDING THAT THERE
EXISTED NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PRIVATE
RESPONDENT AND PETITIONER IN AS MUCH AS THE CONTROL TEST WHICH IS
CONSIDERED THE MOST ESSENTIAL CRITERION IN DETERMINING THE
EXISTENCE OF SAID RELATIONSHIP IS NOT PRESENT. [10]
The threshold issue that needs to be resolved is whether there existed an employeremployee relationship between the respondent company and the petitioner. We rule in the
affirmative.
The elements to determine the existence of an employment relationship are: (1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal;
and (4) the employers power to control the employees conduct. [11] The most important element is
the employers control of the employees conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it. [12] All the four elements are present in
this case.
First. Undeniably, it was the respondents who engaged the services of the petitioner
without the intervention of a third party.
Second. Wages are defined as remuneration or earnings, however designated, capable of
being expressed in terms of money, whether fixed or ascertained on a time, task, piece or
commission basis, or other method of calculating the same, which is payable by an employer to
an employee under a written or unwritten contract of employment for work done or to be done,
or for service rendered or to be rendered. [13] That the petitioner was paid on a per trip basis is not
significant. This is merely a method of computing compensation and not a basis for determining
the existence or absence of employer-employee relationship. One may be paid on the basis of
results or time expended on the work, and may or may not acquire an employment status,
depending on whether the elements of an employer-employee relationship are present or not.
[14]
In this case, it cannot be gainsaid that the petitioner received compensation from the
respondent company for the services that he rendered to the latter.
Moreover, under the Rules Implementing the Labor Code, every employer is required to
pay his employees by means of payroll. [15] The payroll should show, among other things, the
employees rate of pay, deductions made, and the amount actually paid to the employee.
Interestingly, the respondents did not present the payroll to support their claim that the
petitioner was not their employee, raising speculations whether this omission proves that its
presentation would be adverse to their case.[16]
Third. The respondents power to dismiss the petitioner was inherent in the fact that they
engaged the services of the petitioner as truck driver. They exercised this power by terminating

the petitioners services albeit in the guise of severance of contractual relation due allegedly to the
latters breach of his contractual obligation.
Fourth. As earlier opined, of the four elements of the employer-employee relationship, the
control test is the most important. Compared to an employee, an independent contractor is one
who carries on a distinct and independent business and undertakes to perform the job, work, or
service on its own account and under its own responsibility according to its own manner and
method, free from the control and direction of the principal in all matters connected with the
performance of the work except as to the results thereof. [17] Hence, while an independent
contractor enjoys independence and freedom from the control and supervision of his principal,
an employee is subject to the employers power to control the means and methods by which the
employees work is to be performed and accomplished. [18]
Although the respondents denied that they exercised control over the manner and
methods by which the petitioner accomplished his work, a careful review of the records shows
that the latter performed his work as truck driver under the respondents supervision and
control. Their right of control was manifested by the following attendant circumstances:
1. The truck driven by the petitioner belonged to respondent company;
2. There was an express instruction from the respondents that the truck shall be used exclusively
to deliver respondent companys goods; [19]
3. Respondents directed the petitioner, after completion of each delivery, to park the truck in
either of two specific places only, to wit: at its office in Metro Manila at 2320 Osmea Street,
Makati City or at BEPZ, Mariveles, Bataan; [20] and
4. Respondents determined how, where and when the petitioner would perform his task by
issuing to him gate passes and routing slips. [21]
a. The routing slips indicated on the column REMARKS, the chronological order and priority of
delivery such as 1st drop, 2nd drop, 3rd drop, etc. This meant that the petitioner had to deliver the
same according to the order of priority indicated therein.
b. The routing slips, likewise, showed whether the goods were to be delivered urgently or not by
the word RUSH printed thereon.
c. The routing slips also indicated the exact time as to when the goods were to be delivered to the
customers as, for example, the words tomorrow morning was written on slip no. 2776.
These circumstances, to the Courts mind, prove that the respondents exercised control
over the means and methods by which the petitioner accomplished his work as truck driver of
the respondent company. On the other hand, the Court is hard put to believe the respondents
allegation that the petitioner was an independent contractor engaged in providing delivery or
hauling services when he did not even own the truck used for such services. Evidently, he did not
possess substantial capitalization or investment in the form of tools, machinery and work
premises. Moreover, the petitioner performed the delivery services exclusively for the
respondent company for a continuous and uninterrupted period of ten years.

The contract of service to the contrary notwithstanding, the factual circumstances earlier
discussed indubitably establish the existence of an employer-employee relationship between the
respondent company and the petitioner. It bears stressing that the existence of an employeremployee relationship cannot be negated by expressly repudiating it in a contract and providing
therein that the employee is an independent contractor when, as in this case, the facts clearly
show otherwise. Indeed, the employment status of a person is defined and prescribed by law and
not by what the parties say it should be.[22]
Having established that there existed an employer-employee relationship between the
respondent company and the petitioner, the Court shall now determine whether the respondents
validly dismissed the petitioner.
As a rule, the employer bears the burden to prove that the dismissal was for a valid and
just cause.[23] In this case, the respondents failed to prove any such cause for the petitioners
dismissal. They insinuated that the petitioner abandoned his job. To constitute abandonment,
these two factors must concur: (1) the failure to report for work or absence without valid or
justifiable reason; and (2) a clear intention to sever employer-employee relationship.
[24]
Obviously, the petitioner did not intend to sever his relationship with the respondent
company for at the time that he allegedly abandoned his job, the petitioner just filed a complaint
for regularization, which was forthwith amended to one for illegal dismissal. A charge of
abandonment is totally inconsistent with the immediate filing of a complaint for illegal
dismissal, more so when it includes a prayer for reinstatement. [25]
Neither can the respondents claim that the petitioner was guilty of gross negligence in the
proper maintenance of the truck constitute a valid and just cause for his dismissal. Gross
negligence implies a want or absence of or failure to exercise slight care or diligence, or the entire
absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to
avoid them.[26] The negligence, to warrant removal from service, should not merely be gross but
also habitual.[27] The single and isolated act of the petitioners negligence in the proper
maintenance of the truck alleged by the respondents does not amount to gross and habitual
neglect warranting his dismissal.
The Court agrees with the following findings and conclusion of the Labor Arbiter:
As against the gratuitous allegation of the respondent that complainant was not dismissed from
the service but due to complainants breach of their contractual relation, i.e., his violation of the
terms and conditions of the contract, we are very much inclined to believe complainants story
that his dismissal from the service was anchored on his insistent demand that he be considered a
regular employee. Because complainant in his right senses will not just abandon for that reason
alone his work especially so that it is only his job where he depends chiefly his existence and
support for his family if he was not aggrieved by the respondent when he was told that his
services as driver will be terminated on February 23, 1995. [28]
Thus, the lack of a valid and just cause in terminating the services of the petitioner renders
his dismissal illegal. Under Article 279 of the Labor Code, an employee who is unjustly dismissed
is entitled to reinstatement, without loss of seniority rights and other privileges, and to the
payment of full backwages, inclusive of allowances, and other benefits or their monetary
equivalent, computed from the time his compensation was withheld from him up to the time of
his actual reinstatement.[29] However, as found by the Labor Arbiter, the circumstances obtaining

in this case do not warrant the petitioners reinstatement. A more equitable disposition, as held
by the Labor Arbiter, would be an award of separation pay equivalent to one month for every
year of service from the time of his illegal dismissal up to the finality of this judgment in addition
to his full backwages, allowances and other benefits.
WHEREFORE, the instant petition is GRANTED. The Resolution dated December 15,
2000 of the Court of Appeals reversing its Decision dated April 28, 2000 in CA-G.R. SP No.
52485 is REVERSED and SET ASIDE. The Decision dated February 3, 1997 of the Labor Arbiter
in NLRC Case No. RAB-III-02-6181-5, finding the respondents guilty of illegally terminating the
employment of petitioner Pedro Chavez, is REINSTATED.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 170087 August 31, 2006
ANGELINA FRANCISCO, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION,
SEIICHIRO TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE
BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA, Respondents.

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that
she was required to sign a prepared resolution for her replacement but she was assured that she
would still be connected with Kasei Corporation. Timoteo Acedo, the designated Treasurer,
convened a meeting of all employees of Kasei Corporation and announced that nothing had
changed and that petitioner was still connected with Kasei Corporation as Technical Assistant to
Seiji Kamura and in charge of all BIR matters. 9
Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to
September 2001 for a total reduction of P22,500.00 as of September 2001. Petitioner was not
paid her mid-year bonus allegedly because the company was not earning well. On October 2001,
petitioner did not receive her salary from the company. She made repeated follow-ups with the
company cashier but she was advised that the company was not earning well. 10
On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but
she was informed that she is no longer connected with the company. 11

DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set
aside the Decision and Resolution of the Court of Appeals dated October 29, 2004 1 and October
7, 2005, 2 respectively, in CA-G.R. SP No. 78515 dismissing the complaint for constructive
dismissal filed by herein petitioner Angelina Francisco. The appellate court reversed and set
aside the Decision of the National Labor Relations Commission (NLRC) dated April 15,
2003, 3 in NLRC NCR CA No. 032766-02 which affirmed with modification the decision of the
Labor Arbiter dated July 31, 2002, 4 in NLRC-NCR Case No. 30-10-0-489-01, finding that
private respondents were liable for constructive dismissal.
In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was
designated as Accountant and Corporate Secretary and was assigned to handle all the accounting
needs of the company. She was also designated as Liaison Officer to the City of Makati to secure
business permits, construction permits and other licenses for the initial operation of the
company. 5
Although she was designated as Corporate Secretary, she was not entrusted with the corporate
documents; neither did she attend any board meeting nor required to do so. She never prepared
any legal document and never represented the company as its Corporate Secretary. However, on
some occasions, she was prevailed upon to sign documentation for the company. 6
In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as
accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle
recruitment of all employees and perform management administration functions; represent the
company in all dealings with government agencies, especially with the Bureau of Internal
Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to
administer all other matters pertaining to the operation of Kasei Restaurant which is owned and
operated by Kasei Corporation. 7

Since she was no longer paid her salary, petitioner did not report for work and filed an action for
constructive dismissal before the labor arbiter.
Private respondents averred that petitioner is not an employee of Kasei Corporation. They
alleged that petitioner was hired in 1995 as one of its technical consultants on accounting
matters and act concurrently as Corporate Secretary. As technical consultant, petitioner
performed her work at her own discretion without control and supervision of Kasei Corporation.
Petitioner had no daily time record and she came to the office any time she wanted. The
company never interfered with her work except that from time to time, the management would
ask her opinion on matters relating to her profession. Petitioner did not go through the usual
procedure of selection of employees, but her services were engaged through a Board Resolution
designating her as technical consultant. The money received by petitioner from the corporation
was her professional fee subject to the 10% expanded withholding tax on professionals, and that
she was not one of those reported to the BIR or SSS as one of the companys employees. 12
Petitioners designation as technical consultant depended solely upon the will of management.
As such, her consultancy may be terminated any time considering that her services were only
temporary in nature and dependent on the needs of the corporation.
To prove that petitioner was not an employee of the corporation, private respondents submitted
a list of employees for the years 1999 and 2000 duly received by the BIR showing that petitioner
was not among the employees reported to the BIR, as well as a list of payees subject to expanded
withholding tax which included petitioner. SSS records were also submitted showing that
petitioners latest employer was Seiji Corporation. 13
The Labor Arbiter found that petitioner was illegally dismissed, thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. finding complainant an employee of respondent corporation;

For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her
salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of Kasei
Corporation. 8

2. declaring complainants dismissal as illegal;

3. ordering respondents to reinstate complainant to her former position without loss of seniority
rights and jointly and severally pay complainant her money claims in accordance with the
following computation:
a. Backwages 10/2001 07/2002 275,000.00

On appeal, the Court of Appeals reversed the NLRC decision, thus:


WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor
Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a new
one is hereby rendered dismissing the complaint filed by private respondent against Kasei
Corporation, et al. for constructive dismissal.

(27,500 x 10 mos.)
SO ORDERED. 16
b. Salary Differentials (01/2001 09/2001) 22,500.00
The appellate court denied petitioners motion for reconsideration, hence, the present recourse.
c. Housing Allowance (01/2001 07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
g. Moral and exemplary damages 100,000.00
h. 10% Attorneys fees 87,076.50
P957,742.50
If reinstatement is no longer feasible, respondents are ordered to pay complainant separation
pay with additional backwages that would accrue up to actual payment of separation pay.
SO ORDERED. 14
On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the
dispositive portion of which reads:
PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:
1) Respondents are directed to pay complainant separation pay computed at one month per year
of service in addition to full backwages from October 2001 to July 31, 2002;
2) The awards representing moral and exemplary damages and 10% share in profit in the
respective accounts of P100,000.00 and P361,175.00 are deleted;
3) The award of 10% attorneys fees shall be based on salary differential award only;
4) The awards representing salary differentials, housing allowance, mid year bonus and 13th
month pay are AFFIRMED.
SO ORDERED. 15

The core issues to be resolved in this case are (1) whether there was an employer-employee
relationship between petitioner and private respondent Kasei Corporation; and if in the
affirmative, (2) whether petitioner was illegally dismissed.
Considering the conflicting findings by the Labor Arbiter and the National Labor Relations
Commission on one hand, and the Court of Appeals on the other, there is a need to reexamine
the records to determine which of the propositions espoused by the contending parties is
supported by substantial evidence. 17
We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test
to determine the existence of an employer-employee relation. Generally, courts have relied on
the so-called right of control test where the person for whom the services are performed reserves
a right to control not only the end to be achieved but also the means to be used in reaching such
end. In addition to the standard of right-of-control, the existing economic conditions prevailing
between the parties, like the inclusion of the employee in the payrolls, can help in determining
the existence of an employer-employee relationship.
However, in certain cases the control test is not sufficient to give a complete picture of the
relationship between the parties, owing to the complexity of such a relationship where several
positions have been held by the worker. There are instances when, aside from the employers
power to control the employee with respect to the means and methods by which the work is to be
accomplished, economic realities of the employment relations help provide a comprehensive
analysis of the true classification of the individual, whether as employee, independent
contractor, corporate officer or some other capacity.
The better approach would therefore be to adopt a two-tiered test involving: (1) the putative
employers power to control the employee with respect to the means and methods by which the
work is to be accomplished; and (2) the underlying economic realities of the activity or
relationship.
This two-tiered test would provide us with a framework of analysis, which would take into
consideration the totality of circumstances surrounding the true nature of the relationship
between the parties. This is especially appropriate in this case where there is no written
agreement or terms of reference to base the relationship on; and due to the complexity of the
relationship based on the various positions and responsibilities given to the worker over the
period of the latters employment.
The control test initially found application in the case of Viaa v. Al-Lagadan and Piga, 19 and
lately in Leonardo v. Court of Appeals, 20 where we held that there is an employer-employee
relationship when the person for whom the services are performed reserves the right to control
not only the end achieved but also the manner and means used to achieve that end.

In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic
conditions prevailing between the parties, in addition to the standard of right-of-control like the
inclusion of the employee in the payrolls, to give a clearer picture in determining the existence of
an employer-employee relationship based on an analysis of the totality of economic
circumstances of the worker.
Thus, the determination of the relationship between employer and employee depends upon the
circumstances of the whole economic activity, 22 such as: (1) the extent to which the services
performed are an integral part of the employers business; (2) the extent of the workers
investment in equipment and facilities; (3) the nature and degree of control exercised by the
employer; (4) the workers opportunity for profit and loss; (5) the amount of initiative, skill,
judgment or foresight required for the success of the claimed independent enterprise; (6) the
permanency and duration of the relationship between the worker and the employer; and (7) the
degree of dependency of the worker upon the employer for his continued employment in that
line of business. 23
The proper standard of economic dependence is whether the worker is dependent on the alleged
employer for his continued employment in that line of business. 24 In the United States, the
touchstone of economic reality in analyzing possible employment relationships for purposes of
the Federal Labor Standards Act is dependency. 25By analogy, the benchmark of economic reality
in analyzing possible employment relationships for purposes of the Labor Code ought to be the
economic dependence of the worker on his employer.
By applying the control test, there is no doubt that petitioner is an employee of Kasei
Corporation because she was under the direct control and supervision of Seiji Kamura, the
corporations Technical Consultant. She reported for work regularly and served in various
capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate
Secretary, with substantially the same job functions, that is, rendering accounting and tax
services to the company and performing functions necessary and desirable for the proper
operation of the corporation such as securing business permits and other licenses over an
indefinite period of engagement.
Under the broader economic reality test, the petitioner can likewise be said to be an employee of
respondent corporation because she had served the company for six years before her dismissal,
receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and
allowances, as well as deductions and Social Security contributions from August 1, 1999 to
December 18, 2000. 26 When petitioner was designated General Manager, respondent
corporation made a report to the SSS signed by Irene Ballesteros. Petitioners membership in the
SSS as manifested by a copy of the SSS specimen signature card which was signed by the
President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the
SSS evinces the existence of an employer-employee relationship between petitioner and
respondent corporation. 27
It is therefore apparent that petitioner is economically dependent on respondent corporation for
her continued employment in the latters line of business.
In Domasig v. National Labor Relations Commission, 28 we held that in a business
establishment, an identification card is provided not only as a security measure but mainly to
identify the holder thereof as a bona fide employee of the firm that issues it. Together with the
cash vouchers covering petitioners salaries for the months stated therein, these matters
constitute substantial evidence adequate to support a conclusion that petitioner was an
employee of private respondent.

We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the
SSS is proof that the latter were the formers employees. The coverage of Social Security Law is
predicated on the existence of an employer-employee relationship.
Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that
petitioner never acted as Corporate Secretary and that her designation as such was only for
convenience. The actual nature of petitioners job was as Kamuras direct assistant with the duty
of acting as Liaison Officer in representing the company to secure construction permits, license
to operate and other requirements imposed by government agencies. Petitioner was never
entrusted with corporate documents of the company, nor required to attend the meeting of the
corporation. She was never privy to the preparation of any document for the corporation,
although once in a while she was required to sign prepared documentation for the company. 30
The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001
affidavit has been allegedly withdrawn by Kamura himself from the records of the
case. 31 Regardless of this fact, we are convinced that the allegations in the first affidavit are
sufficient to establish that petitioner is an employee of Kasei Corporation.
Granting arguendo, that the second affidavit validly repudiated the first one, courts do not
generally look with favor on any retraction or recanted testimony, for it could have been secured
by considerations other than to tell the truth and would make solemn trials a mockery and place
the investigation of the truth at the mercy of unscrupulous witnesses. 32 A recantation does not
necessarily cancel an earlier declaration, but like any other testimony the same is subject to the
test of credibility and should be received with caution. 33
Based on the foregoing, there can be no other conclusion that petitioner is an employee of
respondent Kasei Corporation. She was selected and engaged by the company for compensation,
and is economically dependent upon respondent for her continued employment in that line of
business. Her main job function involved accounting and tax services rendered to respondent
corporation on a regular basis over an indefinite period of engagement. Respondent corporation
hired and engaged petitioner for compensation, with the power to dismiss her for cause. More
importantly, respondent corporation had the power to control petitioner with the means and
methods by which the work is to be accomplished.
The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a
month from January to September 2001. This amounts to an illegal termination of employment,
where the petitioner is entitled to full backwages. Since the position of petitioner as accountant is
one of trust and confidence, and under the principle of strained relations, petitioner is further
entitled to separation pay, in lieu of reinstatement. 34
A diminution of pay is prejudicial to the employee and amounts to constructive dismissal.
Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to
when continued employment becomes impossible, unreasonable or unlikely; when there is a
demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain
by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. FlorendoFlores, 36 we ruled that where an employee ceases to work due to a demotion of rank or a
diminution of pay, an unreasonable situation arises which creates an adverse working
environment rendering it impossible for such employee to continue working for her employer.
Hence, her severance from the company was not of her own making and therefore amounted to
an illegal termination of employment.
In affording full protection to labor, this Court must ensure equal work opportunities regardless
of sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile
relationship between employees and employers, we are mindful of the fact that the policy of the
law is to apply the Labor Code to a greater number of employees. This would enable employees

to avail of the benefits accorded to them by law, in line with the constitutional mandate giving
maximum aid and protection to labor, promoting their welfare and reaffirming it as a primary
social economic force in furtherance of social justice and national development.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of
Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515
are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission
dated April 15, 2003 in NLRC NCR CA No. 032766-02, isREINSTATED. The case
is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Franciscos
full backwages from the time she was illegally terminated until the date of finality of this
decision, and separation pay representing one-half month pay for every year of service, where a
fraction of at least six months shall be considered as one whole year.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ


Associate Justice

ROMEO J. CALLEJO, SR.


Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice

SECOND DIVISION
TELEVISION AND PRODUCTION G.R. No. 167648
EXPONENTS, INC. and/or ANTONIO
P. TUVIERA, Present:
Petitioners,
QUISUMBING, J.,
Chairperson,
CARPIO,
- versus - CARPIO MORALES,

holiday pay, unpaid vacation and sick leave benefits and other monetary considerations were
withheld from him. He further contended that his dismissal was undertaken without due process
and violative of existing labor laws, aggravated by nonpayment of separation pay. [3]

TINGA, and
VELASCO, JR., JJ.

In a motion to dismiss which was treated as its position paper, TAPE countered that the labor

ROBERTO C. SERVAA,
Respondent. Promulgated:
January 28, 2008

arbiter had no jurisdiction over the case in the absence of an employer-employee relationship

x----------------------------------------------------------------------------x

employed as a security guard for Radio Philippines Network (RPN-9); (2) that he was tasked to

between the parties. TAPE made the following assertions: (1) that respondent was initially

assist TAPE during its live productions, specifically, to control the crowd; (3) that when RPN-9
DECISION
TINGA, J.:

severed its relationship with the security agency, TAPE engaged respondents services, as part of
the support group and thus a talent, to provide security service to production staff, stars and
guests of Eat Bulaga! as well as to control the audience during the one-and-a-half hour noontime

This petition for review under Rule 45 assails the 21 December 2004 Decision[1] and 8
April 2005 Resolution[2] of the Court of Appeals declaring Roberto Servaa (respondent) a regular
employee of petitioner Television and Production Exponents, Inc. (TAPE). The appellate court
likewise ordered TAPE to pay nominal damages for its failure to observe statutory due process in
the termination of respondents employment for authorized cause.

program; (4) that it was agreed that complainant would render his services until such time that
respondent company shall have engaged the services of a professional security agency; (5) that in
1995, when his contract with RPN-9 expired, respondent was retained as a talent and a member
of the support group, until such time that TAPE shall have engaged the services of a professional
security agency; (6) that respondent was not prevented from seeking other employment, whether
or not related to security services, before or after attending to his Eat Bulaga! functions; (7) that

TAPE is a domestic corporation engaged in the production of television programs,


such as the long-running variety program, Eat Bulaga!. Its president is Antonio P. Tuviera
(Tuviera). Respondent Roberto C. Servaa had served as a security guard for TAPE from March
1987 until he was terminated on 3 March 2000.

sometime in late 1999, TAPE started negotiations for the engagement of a professional security
agency, the Sun Shield Security Agency; and (8) that on 2 March 2000, TAPE issued memoranda
to all talents, whose functions would be rendered redundant by the engagement of the security
agency, informing them of the managements decision to terminate their services. [4]

Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE. He
alleged that he was first connected with Agro-Commercial Security Agency but was later on
absorbed by TAPE as a regular company guard. He was detailed at Broadway Centrum
in Quezon City where Eat Bulaga! regularly staged its productions. On 2 March 2000,
respondent received a memorandum informing him of his impending dismissal on account of
TAPEs decision to contract the services of a professional security agency. At the time of his
termination, respondent was receiving a monthly salary of P6,000.00. He claimed that the

TAPE averred that respondent was an independent contractor falling under the talent
group category and was working under a special arrangement which is recognized in the
industry.[5]

Respondent for his part insisted that he was a regular employee having been engaged to perform
an activity that is necessary and desirable to TAPEs business for thirteen (13) years. [6]

On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared respondent to be a regular


employee of TAPE. The Labor Arbiter relied on the nature of the work of respondent, which is
securing and maintaining order in the studio, as necessary and desirable in the usual business
activity of TAPE. The Labor Arbiter also ruled that the termination was valid on the ground of
redundancy, and ordered the payment of respondents separation pay equivalent to one (1)month pay for every year of service. The dispositive portion of the decision reads:
WHEREFORE,
complainants
position
is
hereby
declared
redundant. Accordingly, respondents are hereby ordered to pay
complainant his separation pay computed at the rate of one (1) month pay
for every year of service or in the total amount of P78,000.00.[7]

On appeal, the National Labor Relations Commission (NLRC) in a Decision [8] dated 22
April 2002 reversed the Labor Arbiter and considered respondent a mere program employee,

Reversing the decision of the NLRC, the Court of Appeals found respondent to be a regular
employee. We quote the dispositive portion of the decision:

thus:
We have scoured the records of this case and we find nothing to support the
Labor Arbiters conclusion that complainant was a regular employee.
xxxx
The primary standard to determine regularity of employment is the
reasonable connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer. This
connection can be determined by considering the nature and work
performed and its relation to the scheme of the particular business or trade
in its entirety. x x x Respondent company is engaged in the business of
production of television shows. The records of this case also show that
complainant was employed by respondent company beginning 1995 after
respondent company transferred from RPN-9 to GMA-7, a fact which
complainant does not dispute. His last salary was P5,444.44 per month. In
such industry, security services may not be deemed necessary and desirable
in the usual business of the employer. Even without the performance of
such services on a regular basis, respondents companys business will not
grind to a halt.
xxxx
Complainant was indubitably a program employee of respondent
company. Unlike [a] regular employee, he did not observe working hours x x
x. He worked for other companies, such as M-Zet TV Production, Inc. at the
same time that he was working for respondent company.The foregoing
indubitably shows that complainant-appellee was a program
employee. Otherwise, he would have two (2) employers at the same time. [9]

IN
LIGHT
OF
THE
FOREGOING,
the
petition
is
hereby GRANTED. The Decision dated 22 April 2002 of the public
respondent NLRC reversing the Decision of the Labor Arbiter and its
Resolution dated 28 June 2002 denying petitioners motion for
reconsideration are REVERSED and SET ASIDE. The Decision dated 29
June
2001 of
the
Labor
Arbiter
is REINSTATED with MODIFICATION in that private respondents are
ordered to pay jointly and severally petitioner the amount of P10,000.00 as
nominal damages for non-compliance with the statutory due process.
SO ORDERED.[12]

Finding TAPEs motion for reconsideration without merit, the Court of Appeals issued a
Resolution[13] dated 8 April 2005 denying said motion.

TAPE filed the instant petition for review raising substantially the same grounds as those in its
petition for certiorari before the Court of Appeals. These matters may be summed up into one
main issue: whether an employer-employee relationship exists between TAPE and respondent.

On 27 September 2006, the Court gave due course to the petition and considered the
case submitted for decision. [14]

At the outset, it bears emphasis that the existence of employer-employee relationship is


Respondent filed a motion for reconsideration but it was denied in a Resolution [10] dated 28 June
2002.

ultimately a question of fact. Generally, only questions of law are entertained in appeals by
certiorari to the Supreme Court. This rule, however, is not absolute. Among the several
recognized exceptions is when the findings of the Court of Appeals and Labor Arbiters, on one

Respondent filed a petition for certiorari with the Court of Appeals contending that the NLRC

hand, and that of the NLRC, on the other, are conflicting, [15] as obtaining in the case at bar.

acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it reversed
the decision of the Labor Arbiter. Respondent asserted that he was a regular employee
considering the nature and length of service rendered. [11]

Jurisprudence is abound with cases that recite the factors to be considered in determining the
existence of employer-employee relationship, namely: (a) the selection and engagement of the

employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to

elements of selection, wages and dismissal, TAPE proffers the following arguments: that it never

control the employee with respect to the means and method by which the work is to be

hired respondent, instead it was the latter who offered his services as a talent to TAPE; that the

accomplished.[16] The most important factor involves the control test. Under the control test,

Memorandum dated 2 March 2000 served on respondent was for the discontinuance of the

there is an employer-employee relationship when the person for whom the services are

contract for security services and not a termination letter; and that the talent fees given to

performed reserves the right to control not only the end achieved but also the manner and

respondent were the pre-agreed consideration for the services rendered and should not be

means used to achieve that end.

construed as wages. Anent the element of control, TAPE insists that it had no control over

[17]

respondent in that he was free to employ means and methods by which he is to control and
In concluding that respondent was an employee of TAPE, the Court of Appeals applied
the four-fold test in this wise:
First. The selection and hiring of petitioner was done by private
respondents. In fact, private respondents themselves admitted having
engaged the services of petitioner only in 1995 after TAPE severed its
relations with RPN Channel 9.
By informing petitioner through the Memorandum dated 2 March
2000, that his services will be terminated as soon as the services of the newly
hired security agency begins, private respondents in effect acknowledged
petitioner to be their employee. For the right to hire and fire is another
important element of the employer-employee relationship.
Second. Payment of wages is one of the four factors to be
considered in determining the existence of employer-employee relation. . .
Payment as admitted by private respondents was given by them on a
monthly basis at a rate of P5,444.44.
Third. Of the four elements of the employer-employee
relationship, the control test is the most important. x x x

The bundy cards representing the time petitioner had reported for
work are evident proofs of private respondents control over petitioner more
particularly with the time he is required to report for work during the
noontime program of Eat Bulaga! If it were not so, petitioner would be free
to report for work anytime even not during the noontime program of Eat
Bulaga! from 11:30 a.m. to 1:00 p.m. and still gets his compensation for
being a talent. Precisely, he is being paid for being the security of Eat Bulaga!
during the above-mentioned period. The daily time cards of petitioner are
not just for mere record purposes as claimed by private respondents. It is a
form of control by the management of private respondent TAPE. [18]

TAPE asseverates that the Court of Appeals erred in applying the four-fold test in determining
the existence of employer-employee relationship between it and respondent. With respect to the

manage the live audiences, as well as the safety of TAPEs stars and guests. [19]

said period, respondent was still working for RPN-9. As admitted by TAPE, it absorbed
The position of TAPE is untenable. Respondent was first connected with Agro-Commercial

respondent in late 1995.[23]

Security Agency, which assigned him to assist TAPE in its live productions. When the security
agencys contract with RPN-9 expired in 1995, respondent was absorbed by TAPE or, in the

TAPE further denies exercising control over respondent and maintains that the latter

latters language, retained as talent. [20] Clearly, respondent was hired by TAPE. Respondent

is an independent contractor.[24] Aside from possessing substantial capital or investment, a

presented his identification card [21] to prove that he is indeed an employee of TAPE. It has been

legitimate job contractor or subcontractor carries on a distinct and independent business and

in held that in a business establishment, an identification card is usually provided not just as a

undertakes to perform the job, work or service on its own account and under its own

security measure but to mainly identify the holder thereof as a bona fideemployee of the firm

responsibility according to its own manner and method, and free from the control and direction

who issues it.[22]

of the principal in all matters connected with the performance of the work except as to the
results thereof.[25] TAPE failed to establish that respondent is an independent contractor. As

Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE prefers to

found by the Court of Appeals:

designate such amount as talent fees. Wages, as defined in the Labor Code, are remuneration or
earnings, however designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece or commission basis, or other method of calculating the same,
which is payable by an employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to be rendered. It is beyond
dispute that respondent received a fixed amount as monthly compensation for the services he

We find the annexes submitted by the private respondents


insufficient to prove that herein petitioner is indeed an independent
contractor. None of the above conditions exist in the case at bar. Private
respondents failed to show that petitioner has substantial capital or
investment to be qualified as an independent contractor. They likewise
failed to present a written contract which specifies the performance of a
specified piece of work, the nature and extent of the work and the term and
duration of the relationship between herein petitioner and private
respondent
TAPE.[26]

rendered to TAPE.

TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in
classifying respondent as a program employee and equating him to be an independent
The Memorandum informing respondent of the discontinuance of his service proves that TAPE

contractor.

had the power to dismiss respondent.


Policy Instruction No. 40 defines program employees as
Control is manifested in the bundy cards submitted by respondent in evidence. He was required
to report daily and observe definite work hours. To negate the element of control, TAPE
presented a certification from M-Zet Productions to prove that respondent also worked as a
studio security guard for said company. Notably, the said certificate categorically stated that
respondent reported for work on Thursdays from 1992 to 1995. It can be recalled that during

x x x those whose skills, talents or services are engaged by the


station for a particular or specific program or undertaking and who are not
required to observe normal working hours such that on some days they
work for less than eight (8) hours and on other days beyond the normal
work hours observed by station employees and are allowed to enter into
employment contracts with other persons, stations, advertising agencies or
sponsoring companies. The engagement of program employees, including
those hired by advertising or sponsoring companies, shall be under a
written contract specifying, among other things, the nature of the work to be

performed, rates of pay and the programs in which they will work. The
contract shall be duly registered by the station with the Broadcast Media
Council within three (3) days from its consummation.[27]

TAPE failed to adduce any evidence to prove that it complied with the requirements
laid down in the policy instruction. It did not even present its contract with respondent. Neither

at the time of engagement of the employee or where the work or service to


be performed is seasonal in nature and employment is for the duration of
the season.
An employment shall be deemed to be casual if it is not covered
by the preceding paragraph. Provided, that, any employee who has rendered
at least one year of service, whether such service is continuous or broken,
shall be considered a regular employee with respect to the activity in which
he is employed and his employment shall continue while such activity exists.

did it comply with the contract-registration requirement.


As a regular employee, respondent cannot be terminated except for just cause or when
Even granting arguendo that respondent is a program employee, stills, classifying him
as an independent contractor is misplaced. The Court of Appeals had this to say:

authorized by law.[29] It is clear from the tenor of the 2 March 2000 Memorandum that
respondents termination was due to redundancy. Thus, the Court of Appeals correctly disposed
of this issue, viz:

We cannot subscribe to private respondents conflicting


theories. The theory of private respondents that petitioner is an
independent contractor runs counter to their very own allegation that
petitioner is a talent or a program employee. An independent contractor is
not an employee of the employer, while a talent or program employee is an
employee. The only difference between a talent or program employee and a
regular employee is the fact that a regular employee is entitled to all the
benefits that are being prayed for. This is the reason why private
respondents try to seek refuge under the concept of an independent
contractor theory. For if petitioner were indeed an independent contractor,
private respondents will not be liable to pay the benefits prayed for in
petitioners complaint.[28]

Article 283 of the Labor Code provides that the employer may
also terminate the employment of any employee due to the installation of
labor saving devices, redundancy, retrenchment to prevent losses or the
closing or cessation of operation of the establishment or undertaking unless
the closing is for the purpose of circumventing the provisions of this Title,
by serving a written notice on the workers and the Ministry of Labor and
Employment at least one (1) month before the intended date thereof. In case
of termination due to the installation of labor saving devices or redundancy,
the worker affected thereby shall be entitled to a separation pay equivalent
to at least his one (1) month pay or to at least one (1) month pay for every
year or service, whichever is higher.
xxxx

More importantly, respondent had been continuously under the employ of TAPE from
1995 until his termination in March 2000, or for a span of 5 years. Regardless of whether or not
respondent had been performing work that is necessary or desirable to the usual business of
TAPE, respondent is still considered a regular employee under Article 280 of the Labor Code
which provides:

Art. 280. Regular and Casual Employment.The provisions of


written agreement to the contrary notwithstanding and regardless of the
oral agreement of the parties, an employment shall be deemed to be regular
where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the
employer, except where the employment has been fixed for a specific project
or undertaking the completion or termination of which has been determined

We uphold the finding of the Labor Arbiter that complainant


[herein petitioner] was terminated upon [the] managements option to
professionalize the security services in its operations. x x x However, [we]
find that although petitioners services [sic] was for an authorized cause, i.e.,
redundancy, private respondents failed to prove that it complied with
service of written notice to the Department of Labor and Employment at
least one month prior to the intended date of retrenchment. It bears
stressing that although notice was served upon petitioner through a
Memorandum dated 2 March 2000, the effectivity of his dismissal is fifteen
days from the start of the agencys take over which was on 3 March
2000. Petitioners services with private respondents were severed less than
the month requirement by the law.
Under prevailing jurisprudence the termination for an authorized
cause requires payment of separation pay. Procedurally, if the dismissal is
based on authorized causes under Articles 283 and 284, the employer must
give the employee and the Deparment of Labor and Employment written
notice 30 days prior to the effectivity of his separation. Where the dismissal
is for an authorized cause but due process was not observed, the dismissal
should be upheld. While the procedural infirmity cannot be cured, it should
not invalidate the dismissal.However, the employer should be liable for noncompliance with procedural requirements of due process.

xxxx
Under recent jurisprudence, the Supreme Court fixed the amount
of P30,000.00 as nominal damages. The basis of the violation of petitioners
right to statutory due process by the private respondents warrants the
payment of indemnity in the form of nominal damages.The amount of such
damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances. We believe this form of damages would
serve to deter employer from future violations of the statutory due process
rights of the employees. At the very least, it provides a vindication or
recognition of this fundamental right granted to the latter under the Labor
Code and its Implementing Rules. Considering the circumstances in the
case at bench, we deem it proper to fix it at P10,000.00.[30]

In sum, we find no reversible error committed by the Court of Appeals in its assailed
decision.

However, with respect to the liability of petitioner Tuviera, president of TAPE, absent
any showing that he acted with malice or bad faith in terminating respondent, he cannot be held
solidarily liable with TAPE.[31] Thus, the Court of Appeals ruling on this point has to be modified.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
AFFIRMED with MODIFICATION in that only petitioner Television and Production Exponents,
Inc. is liable to pay respondent the amount of P10,000.00 as nominal damages for noncompliance with the statutory due process and petitioner Antonio P. Tuviera is accordingly
absolved from liability.
SO ORDERED.

charge of illegal dismissal because his services were terminated on 31


October 1990.

SECOND DIVISION
SAN MIGUEL CORPORATION,
Petitioner,

G.R. No. 147566


Present:
PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
*
CORONA,
AZCUNA, and
GARCIA, JJ.

- versus -

Promulgated:
NATIONAL LABOR
RAFAEL MALIKSI,

RELATIONS

COMMISSION

and

December 6, 2006

Respondents.
x------------------------------------------------------------------------------------x

DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner San Miguel
Corporation (SMC) seeks the reversal and setting aside of the Decision [1] dated September 30,
1999 of the Court of Appeals (CA) in CA-G.R. SP No. 50321, as reiterated in its Resolution[2] of
March 20, 2001, affirming in toto an earlier decision of the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 005478-93, entitled Rafael C. Maliksi v. San Miguel
Corporation and/or Philippine Software Services &
Education Center. The affirmed NLRC decision overturned that of the Labor Arbiter and
declared the herein private respondent Rafael Maliksi (Maliksi) a regular employee of the
petitioner and ordered the latter to reinstate him with benefits.

As found by the NLRC and subsequently adopted by the CA, the facts are as follows:
On 16 October 1990, Rafael M. Maliksi filed a complaint against
the San Miguel Corporation-Magnolia Division, herein referred to as SMC
and Philippine Software Services and Education Center herein referred to as
PHILSSEC to compel the said respondents to recognize him as a regular
employee. He amended the complaint on 12 November 1990 to include the

The complainants employment record indicates that he rendered


service with Lipercon Services from 1 April 1981 to February 1982 as budget
head assigned to SMC-Beer Division, then from July 1983 to April 1985 with
Skillpower, Inc., as accounting clerk assigned to SMC-Magnolia Division,
then from October 1988 to 1989 also with Skillpower, Inc. as acting clerk
assigned to SMC-Magnolia Finance, and from October 1989 to 31 October
1990 with PHILSSEC assigned to Magnolia Finance as accounting clerk. The
complainant considered himself as an employee of SMC-Magnolia. Lipercon
Services, Skillpower, Inc. and PHILSSEC are labor-only contractors and any
one of which had never been his employer. His dismissal, according to him,
was in retaliation for his filing of the complaint for regularization in service.
His dismissal was illegal there being no just cause for the action. He was not
accorded due process neither was his dismissal reported to the Department
of Labor and Employment.
PHILSSEC disclaimed liability. As an entity catering (sic)
computer systems and program for business enterprises, it has contracted
with SMC-Magnolia to computerize the latters manual accounting reporting
systems of its provincial sales. PHILSSEC then conducted a three phase
analysis of SMCMagnolia set up: first the computer needs of the firm was
(sic) determined; then, the development of computer systems or program
suitable; and, finally, set up the systems and train the employees to operate
the same. In all these phases, PHILSSEC uses its computer system and
technology and provided the necessary manpower to compliment the
transfer of the technology to SMC-Magnolia. Complainant Maliksi was one
of those employed by PHILSSEC whose principal function was the manual
control of data needed during the computerization. Like all assigned to the
project, the complainants work was controlled by PHILSSEC supervisors,
his salary paid by the agency and he reported directly to PHILSSEC. The
computerization project was completed on 31 October 1990, and so, the
complainant was terminated on the said date.

SMC, on the other hand, submitted its position. In the contract


SMC entered with PHILSSEC, the latter undertook to set up the
computerization of the provincial sales reporting system of Magnolia
Division. To carry out the task, PHILSSEC utilized 3 computer programmers
and the rest were data encoders. The complainant being one of the
compliments (sic) performed the following functions:
xxx xxx xxx
SMC likewise contends that PHILSSEC exercised exclusive
managerial prerogative over the complainant as to hiring, payment of salary,
dismissal and most importantly, the control over his work. SMC was
interested only in the result of the work specified in the contract but not as
to the means and methods of accomplishing the same. Moreover, PHILSSEC
has substantial capital of its own. It has an IBM system, 3 computers, 17
IBM or IBM-compatible computers; it has a building where the computer
training center and main office are located. What it markets to clients are
computer programs and training systems on computer technology and not
the usual labor or manpower supply to establishment concerns. Moreover,
what PHILSSEC set up employing the complainant, among others, has no
relation to the principal business of SMC, which is food and beverage. It was
a single relationship between the people utilized by PHILSSEC and SMC [3]

SMC-Magnolia Division to reinstate complainant as a regular employee


without loss of seniority rights and other privileges and to pay complainant
full backwages, inclusive of allowances and other benefits or their monetary
equivalent, computed from the time his compensation was withheld from
him up to time of his actual reinstatement, plus 10% of the total money
award for and attorneys fees.

SO ORDERED.[5]

From the aforementioned decision of the NLRC, SMC went on certiorari to the CA
in CA-G.R. SP No. 50321.

As stated at the outset, the CA, in the herein assailed Decision [6] dated September 30,
1999, affirmed in toto that of the NLRC. In so doing, the CA found SMC to have utilized
PHILSSEC, Lipercon Services, Inc. (Lipercon) and Skillpower, Inc. (Skillpower) as conduits to
circumvent Article 280 of the Labor Code, employing Maliksi as contractual or project employee

The Labor Arbiter declared Maliksi a regular employee of PHILSSEC and absolved
SMC from liability. Dispositively, the Labor Arbiters decision reads:

through these entities, thereby undermining his right to gain regular employment status under
the law. The appellate court echoed the NLRCs assessment that Maliksis work was necessary or
desirable in the business of SMC in its Magnolia Division, for more than the required one-year

WHEREFORE, the complainant, Rafael Maliksi, is recognized as a


regular
employee
of
Philippine
Software
Services
andEducation Center which respondent is ordered to reinstate him to a job
of the same level as his previous position in any of the projects where there
is a vacancy and without loss of seniority rights. A five months backwages is
awarded because the prolonged suspension from his work was brought
about by his refusal to take any job offered by PHILSSEC earlier in the
proceedings of this case. The respondent, SMC-Magnolia Division, is
exempted from any liability as the complaint against the said corporation is
dismissed for lack of merit.
SO ORDERED.[4]

period. It affirmed the NLRCs finding that the three (3) conduit entities adverted to, Lipercon
and Skillpower, are labor-only contractors such that Maliksis previous employment contracts
with SMC, through these two entities, are deemed to have been entered into in violation of labor
laws. Consequently, Maliksis employment with SMC became permanent and regular after the
statutory period of one year of service through these entities. The CA concluded that on account
of his past employment contracts with SMC under Lipercon and Skillpower, Maliksi was already
a regular employee of SMC when he entered into SMCs computerization project as part of the
PHILSSEC project complement.

Maliksi appealed to the NLRC. In turn, in a decision dated January 26, 1998, the
NLRC reversed that of the Labor Arbiter by declaring Maliksi

With its motion for reconsideration having been denied by the CA in its Resolution

a regular employee of the petitioner and ordering the latter to reinstate him without loss of

of March 20, 2001, SMC is now with this Court via the present recourse on the following

seniority rights and with full benefits, to wit:

assigned errors:

WHEREFORE, as recommended, the decision below is hereby


SET ASIDE. Accordingly, judgment is hereby rendered directing respondent

I
The Court of Appeals gravely erred in declaring private
respondent a regular employee of petitioner SMC despite its findings that
PHILSSEC, the contractor that employed private respondent, is an
independent job contractor.
Corollarily, the declaration of the Honorable Court of Appeals that
private respondent is a regular employee of petitioner SMC proceeds from
the erroneous premise that private respondent was already a regular
employee of SMC when he was hired by the independent contractor
PHILSSEC. Having been placed in petitioner SMC by a supposed labor-only
contractor, for just five months and for a different job, three years after his
last assignment therein, private respondent had not thereby become a
regular employee of petitioner SMC.
II
The Court of Appeals gravely erred in ultimately resolving the case
upon the principle that all doubts must be resolved in favor of labor;
certainly, protection to labor does not imply sanctioning a plain injustice to
the employer, particularly where private respondent was shown to have
stated falsehoods and committed malicious intercalations and
misrepresentations.
III
The Court of Appeals gravely erred in declaring that private
respondent was not part of the of the personnel group in the
computerization program of petitioner SMC under PHILSSEC.

We DENY.

SMC concedes that Maliksi, before his employment with PHILSSEC, worked in
SMC from November 1988 to April 1990, but as employee of Skillpower[7] and that he was
previously assigned to SMC between 1981 up to February 1985, for periods spread apart.
[8]

The Labor Arbiter found, as earlier stated, that Maliksi rendered service with Lipercon from 1

April 1981 to February 1982 as budget head assigned to SMC-Beer Division; from July
1983 to April 1985 with Skillpower as accounting clerk assigned to SMC-Magnolia
Division, then from October 1988 to 1989 [9] also with Skillpower as acting clerk assigned
to SMC-Magnolia Finance, and from October 1989 to 31 October 1990 with PHILSSEC
assigned to Magnolia Finance as accounting clerk. In all, it appears that, while under the

employ of either Lipercon or Skillpower, Maliksi has undisputedly rendered service with SMC
for at least three years and seven months.[10]

The Court takes judicial notice of the fact that Lipercon and Skillpower were declared
to be labor-only contractors,[11]providing as they do manpower services to the public for a fee.
The existence of an employer-employee relationship is factual and we give due deference to the
factual findings of both the NLRC and the CA that an employer-employee relationship existed
between SMC (or its subsidiaries) and Maliksi. Indeed, having served SMC for an aggregate
period of more than three (3) years through employment contracts with these two labor
contractors, Maliksi should be considered as SMCs regular employee. The hard fact is that he
was hired and re-hired by SMC to perform administrative and clerical work that was necessary to
SMCs business on a daily basis. In Bustamante v. National Labor Relations Commission, [12] we
ruled:
In the case at bar, petitioners were employed at various
periods from 1985 to 1989 for the same kind of work they were
hired to perform in September 1989. Both the labor arbiter and
the respondent NLRC agree that petitioners were employees
engaged to perform activities necessary in the usual business of
the employer. As laborers, harvesters or sprayers in an agricultural
establishment which produces high grade bananas, petitioners tasks are
indispensable to the year-round operations of respondent company. This
belies the theory of respondent company that the employment of petitioners
was terminated due to the expiration of their probationary period in June
1990. If at all significant, the contract for probationary employment was
utilized by respondent company as a chicanery to deny petitioners their
status as regular employees and to evade paying them the benefits attached
to such status. Some of the petitioners were hired as far back as 1985,
although the hiring was not continuous. They were hired and re-hired
in a span of from two to four years to do the same type of work
which conclusively shows the necessity of petitioners service to
the respondent companys business. Petitioners have, therefore,
become regular employees after performing activities which are necessary in
the usual business of their employer. But, even assuming that the activities
of petitioners in respondent companys plantation were not necessary or
desirable to its business, we affirm the public respondents finding that all of
the complainants (petitioners) have rendered non-continuous or broken
service for more than one (1) year and are consequently considered regular
employees.
We do not sustain public respondents theory that private
respondent should not be made to compensate petitioners for backwages
because its termination of their employment was not made in bad faith. The
act of hiring and re-hiring the petitioners over a period of time
without considering them as regular employees evidences bad
faith on the part of private respondent. The public respondent made a
finding to this effect when it stated that the subsequent re-hiring of

petitioners on a probationary status clearly appears to be a convenient


subterfuge on the part of management to prevent complainants (petitioners)
from becoming regular employees. (Emphasis supplied)

It is worth noting that, except for the computerization project of PHILSSEC, petitioner
did not make any insinuation at all that the services of Maliksi with SMC was project-related
such that an employment contract with Lipercon and Skillpower was necessary.

In Madriaga v. Court of Appeals, [13] the Court, confronted with the same issue now
being addressed, declared that regularization of employment

which include those still working and those already


terminated. Hence, this petition for certiorari with
injunction.

in SMC should extend to those whose situation is similar to the complainants in said case. We
wrote:

Petitioners
contend
that
prior
to
reinstatement, individual private respondents should
first comply with certain requirements, like submission
of NBI and police clearances and submission to physical
and medical examinations, since petitioners are deemed
to be direct employers and have the right to ascertain
the physical fitness and moral uprightness of its
employees by requiring the latter to undergo periodic
examinations, and that petitioners may not be
ordered to employ on regular basis the other
workers rendering services to petitioners by
virtue of a similar contract of services between
petitioners and Skillpower Corporation and
Lipercon Services, Inc. because such other
workers were not parties to or were not
impleaded in the voluntary arbitration case.

This is the third time that the parties have invoked the power of
this Court to decide the labor dispute involved in this case. The generative
facts of the case are as follows:
On 04 March 1988, the NOWM and a
number of workers-complainants filed with the
Arbitration Branch of the NCR, NLRC, Manila, against
San Miguel Corporation, Philippine Dairy Products
Corporation, Magnolia Dairy Products,Skillpower
Corporation and Lipercon Services, Inc. for illegal
dismissal.
xxx xxx xxx
The Voluntary Arbitrator rendered a decision
on 29 July 1988, the dispositive of which states:

Considering that the clearances and


examinations sought by petitioners from private
respondents are not 'periodic' in nature but are made
preconditions for reinstatement, as in fact the petition
filed alleged that reinstatement shall be effective upon
compliance with such requirements, (pp. 5-6 thereof)
which should not be the case because this is not a case
of initial hiring, the workers concerned having
rendered years of service to petitioners who are
considered
direct
employers,
and
that
regularization is a labor benefit that should
apply to all qualified employees similarly
situated and may not be denied merely because
some employees were allegedly not parties to or
were not impleaded in the voluntary arbitration
case, even as the finding of Labor Arbiter Genilo
is to the contrary, this Court finds no grave
abuse of discretion committed by Labor Arbiter
Genilo in issuing the questioned order of
October 20, 1988.

WHEREFORE, it is hereby declared that


complainants are regular employees of SMC and PDPC.
Accordingly, SMC and PDPC are hereby ordered to
reinstate the dismissed 85 complainants to their former
positions as their regular employees effective from the
date of the filing of their complaints with full backwages
less the daily financial assistance of P30.00 per day
each, extended to them by Lipercon and Skillpower.
Aggrieved by the said decision of the Voluntary Arbitrator, SMC
and PDPC filed a petition for certiorari before the Supreme Court.
It was upon the filing of the said petition for certiorari that the
Court had the first opportunity to pass upon the controversies involved in
this case. In a Resolution dated 30 August 1989, the Court dismissed G.R.
No. 85577 entitled, Philippine Dairy Products Corporation and San Miguel
Corporation Magnolia Dairy Products Division v. Voluntary Arbitrator Tito
F. Genilo of the Department of Labor and Employment (DOLE) and the
National Organization of Workingmen (NOWM) for lack of merit. The Court
held in full:
Individual private respondents are xxx [SMC,
et al.] laborers supplied to petitioners by Skillpower
Corporation andLipercon Services, Inc., on the
basis of contracts of services. Upon expiration of the
said contracts, individual private respondents were
denied entry to petitioners' premises. Individual private
respondents and respondent union thus filed separate
complaints for illegal dismissal against petitioners San
Miguel Corp., Skillpower Corporation and Lipercon
Services, Inc., in the [NLRC, NCR] After consolidation
and voluntary arbitration, respondent Labor Arbiter
Tito F. Genilo rendered a decision xxx declaring
individual private respondents regular employees of
petitioners and ordering the latter to reinstate the
former and to pay them backwages. On motion for
execution filed by private respondents, Labor Arbiter
Genilo issued on October 20, 1988 an order directing,
among others, the regularization of all the complainants

ACCORDINGLY, the Court Resolved to


Dismiss the petition for lack of merit.
In fine, the Court affirmed the ruling of the Voluntary Arbitrator
and declared that therein complainants are regular employees of San Miguel
Corporation (SMC) and PDPC. It must be noted that in the
abovequoted Resolution, the Court extended the benefit of
regularization not only to the original complainants but also to
those workers who are similarly situated to therein
complainants.Herein petitioners are among those who are similarly
situated.[14] (Emphasis supplied)
We find respondent Maliksi to be similarly situated with those of the complainants
in Madriaga. Indeed, Lipercon and Skillpower have figured in not just a few of our decisions,
[15]

so much so that we are inclined to believe that these two were involved in labor-only

contracting with respect to Maliksi. We hold that the finding of the NLRC and the CA as to SMCs
resorting to labor-only contracting is entitled to consideration in its full weight.

With respect to PHILSSEC, there was no need for Maliksi to be employed under the
formers computerization program to be considered a regular employee of SMC at the time.
Moreover, SMC itself admits that Maliksis work under the computerization program did not
require the operation of a computer system, such as the software program being developed by
PHILSSEC.[16]Given this admission, we are simply at a loss to understand why Maliksi should be
included in the computerization project as a project employee. Not being a computer expert,
Maliksis inclusion in the project was uncalled for. To our mind, his placement in the project was
for the purpose of circumventing labor laws. The evidence shows that immediately before he
entered the PHILSSEC project in October 1989, Maliksi was fresh out of his employment with
SMC (through Skillpower) as acting clerk assigned to SMC-Magnolia Finance (from October
1988 to 1989).

Maliksis work under the PHILSSEC project was mainly administrative in nature and
necessary to the development of SMCs business. These were:
a.

posting manually the daily account balances in the workset;

b.

fitting the daily totals into the monthly totals;

c.

comparing the manual totals with the computer generated


totals;

d.

locating the differences between the totals; and,

e.

adjusting and correcting errors.

through the whole application and selection process once again; prepare and have them sign
waivers, quitclaims, and the like; refuse to issue them identification cards, receipts or any other
concrete proof of employment or documentary proof of payment of their salaries; fail to enroll
them for entitlement to social security and other benefits; give them positions, titles or
designations that connote short-term employment.

Simply put, the data gathered by SMC on a daily basis through Maliksis work would be
submitted for analysis and evaluation, thereby allowing SMC to make the necessary business
decisions that would enable it to market its products better, or monitor its sales and collection
with efficiency. Without the data gatherer or encoder, no analysis could occur. SMC would then,
for the most part, be kept in the dark.

Others are more creative: they set up distributors or dealers which are, in reality, shell
or dummy companies. In this manner, the mother company avoids the employer-employee
relations, and is thus shielded from liability from employee claims in case of illegal dismissal,
closure, unfair labor practices and the like. In those instances, the poor employees, finding the
shell or dummy company to be without assets, often end up confused and without recourse as to
whom to run after. They sue the mother company which conveniently sets up the defense of

As to the petitioners second assigned error, we hold that there is no need to resolve the
present case under the principle that all doubts should be resolved in favor of the workingman.
The perceived doubt does not obtain in the first place.

absence of employer-employee relations. In San Miguel Corporation v. MAERC Integrated


Services, Inc.,[20] we took note of the practice of hiring employees through labor contractors that
catered exclusively to the employment needs of SMC or its divisions or other specific business
interests, such that after the specific SMC business or division ceases to do business, the labor

We understand Maliksis desperation in making his point clear to SMC, which unduly

contractor likewise ceases its operations.

refuses to acknowledge his status as a regular employee. Instead, he was juggled from one
employment contract to another in a continuous bid to circumvent labor laws. The act of hiring
and re-hiring workers over a period of time without considering them as regular employees
evidences bad faith on the part of the employer. [17] Where, from the circumstances, it is apparent
that periods have been imposed to preclude the acquisition of tenurial security by the employee,
the policy, agreement or practice should be struck down as contrary to public policy, morals,
good customs or public order. [18] In point of law, any person who willfully causes loss or injury to
another in a manner that is contrary to morals, good customs or public policy shall be liable for
the damage.[19]

The contrivances may be many and the schemes ingenious and imaginative. But this
Court will not hesitate to put pen to a line and defend the workers right to be secure in his (or
her) proprietary right to regular employment and his right to a secure employment, viz, one that
is free from fear and doubt, that anytime he could be removed, retrenched, his contract not
renewed or he might not be re-hired. The ramifications may seem trivial, but we cannot allow the
ordinary Filipino workers right to tenurial security to be put in jeopardy by recurrent but
abhorrent practices that threaten the very lives of those that depend on him.

Ways and means contrived by employers to countermand labor laws granting regular
employment status to their workers are numerous and long. For instance, they toss the poor
workers from one job contractor to another, make them go through endless applications, lining
up, paperwork, documentation, and physical examinations; make them sign five- or ten-monthonly job contracts, yet re-hire them after brief rest periods, but not after requiring them to go

Considering, however, the supervening event that SMCs Magnolia Division has been
acquired by another entity, it appears that private respondents reinstatement is no longer
feasible. Instead, he should be awarded separation pay as an alternative. [21]Likewise, owing to

petitioners bad faith, it should be held liable to pay damages for causing undue injury and
inconvenience to the private respondent in its contractual hiring-firing-rehiring scheme.

WHEREFORE, the instant petition is DENIED and the assailed CA decision dated
September 30, 1999 is AFFIRMED, with the MODIFICATION that if the reinstatement of
private respondent is no longer practicable or feasible, then petitioner SMC is ordered to pay
him, in addition to the other monetary awards, separation pay for the period from October 31,
1990 when he was dismissed until he shall have been actually paid at the rate of one (1) month
salary for every year of his employment, with a fraction of at least six (6) months being
considered as one (1) year, or the rate of separation pay awarded by petitioner to its other regular
employees as provided by written agreement, policy or practice, whichever is higher or most
beneficial to private respondent.

In addition, petitioner is hereby suffered to indemnify private respondent the amount


of P50,000.00 as nominal damages for its bad faith in juggling the latter from one labor
contractor to another and causing him unnecessary injury and inconvenience, and for denying
him his proprietary right to regular employment.

Let this case be REMANDED to the Labor Arbiter for the computation of private
respondents backwages, proportionate 13th month pay, separation pay, attorneys fees and other
monetary awards; and for immediate execution.

Costs against the petitioner.

SO ORDERED.

SECOND DIVISION
LAKAS SA INDUSTRIYA NG KAPATIRANG HALIGI
NG
ALYANSA-PINAGBUKLOD
NG
MANGGAGAWANG PROMO NGBURLINGAME,
Petitioner,
- versus -

BURLINGAME CORPORATION,
Respondent.

The respondent filed a motion to dismiss the petition. It argued that there exists no
G.R. No. 162833

employer-employee relationship between it and the petitioners members. It further alleged that

Present:

the petitioners members are actually employees of F. Garil Manpower Services (F. Garil), a duly

QUISUMBING, J., Chairperson,


CARPIO,
CARPIO MORALES,*
TINGA, and
VELASCO, JR., JJ.

licensed local employment agency. To prove such contention, respondent presented a copy of its
contract for manpower services with F. Garil.

On June 29, 2000, Med-Arbiter Renato D. Parungo dismissed [4] the petition for lack of

Promulgated:
June 15, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

employer-employee relationship, prompting the petitioner to file an appeal [5] before the
Secretary of Labor and Employment.

DECISION
On December 29, 2000, the Secretary of Labor and Employment ordered the
QUISUMBING, J.:

immediate conduct of a certification election.[6]

This is an appeal to reverse and set aside both the Decision [1] dated August 29, 2003 of
the Court of Appeals and its Resolution [2] dated March 15, 2004 in CA-G.R. SP No. 69639. The
appellate court had reversed the decision

[3]

dated December 29, 2000 of the Secretary of Labor

A motion for reconsideration of the said decision was filed by the respondent
on January 19, 2001, but the same was denied in the Resolution [7] of February 19, 2002 of the
Secretary of Labor and Employment.

and Employment which ordered the holding of a certification election among the rank-and-file
promo employees of respondent Burlingame Corporation.

The facts are undisputed.

Respondent then filed a complaint with the Court of Appeals, which then
reversed
[9]

[8]

the decision of the Secretary. The petitioner then filed a motion for reconsideration,

which the Court of Appeals denied[10] on March 15, 2004.

On January 17, 2000, the petitioner Lakas sa Industriya ng Kapatirang Haligi ng


Alyansa-Pinagbuklod ng Manggagawang Promo ng Burlingame (LIKHA-PMPB) filed a

Hence the instant petition for review on certiorari.

petition for certification election before the Department of Labor and Employment
(DOLE). LIKHA-PMPB sought to represent all rank-and-file promo employees of respondent
numbering about 70 in all. The petitioner claimed that there was no existing union in the
aforementioned establishment representing the regular rank-and-file promo employees. It
prayed that it be voluntarily recognized by the respondent to be the collective bargaining agent,
or, in the alternative, that a certification/consent election be held among said regular rank-andfile promo employees.

The issue raised in the petition is:


WHETHER THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR IN DECLARING THAT THERE IS NO EMPLOYEREMPLOYEE RELATIONSHIP BETWEEN PETITIONERS MEMBERS AND
BURLINGAME BECAUSE F. GARIL MANPOWER SERVICES IS AN
INDEPENDENT CONTRACTOR.[11]

determine not only the end to be achieved, but also the manner and means
to be used in reaching that end.

Respondent contends that there is no employer-employee relationship between the parties.


[12]

Petitioner, on the other hand, insists that there is. [13]


Given the above criteria, we agree with the Secretary that F. Garil is not an

The resolution of this issue boils down to a determination of the true status of F.

independent contractor.

Garil, i.e., whether it is an independent contractor or a labor-only contractor.


First, F. Garil does not have substantial capitalization or investment in the form of
The case of De Los Santos v. NLRC

[14]

succinctly enunciates the statutory criteria:

Job contracting is permissible only 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 the business.[15]

tools, equipment, machineries, work premises, and other materials, to qualify as an independent
contractor. No proof was adduced to show F. Garils capitalization.

Second, the work of the promo-girls was directly related to the principal business or
operation of Burlingame. Marketing and selling of products is an essential activity to the main
business of the principal.

Lastly, F. Garil did not carry on an independent business or undertake the


According to Section 5 of DOLE Department Order No. 18-02, Series of 2002: [16]
Section
5. Prohibition
against
labor-only
contracting. Labor-only contracting is hereby declared prohibited. For
this purpose, labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to
perform a job, work or service for a principal, and any of the following
elements are [is] present:
i)

ii)

The contractor or sub-contractor does not have substantial


capital or investment which relates to the job, work or
service to be performed and the employees recruited,
supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main
business of the principal; or
The contractor does not exercise the right to control over
the performance of the work of the contractual employee.

performance of its service contract according to its own manner and method, free from the
control and supervision of its principal, Burlingame.

The four-fold test will show that respondent is the employer of petitioners members. The
elements to determine the existence of an employment relationship are: (a) the selection and engagement
of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to
control the employees conduct. The most important element is the employers control of the employees
conduct, not only as to the result of the work to be done, but also as to the means and methods to
accomplish it.[17]

The foregoing provisions shall be without prejudice to the


application of Article 248(C) of the Labor Code, as amended.
Substantial capital or investment refers to capital stocks and
subscribed capitalization in the case of corporations, tools, equipment,
implements, machineries and work premises, actually and directly used by
the contractor or subcontractor in the performance or completion of the job,
work or service contracted out.
The right to control shall refer to the right reserved to the person
for whom the services of the contractual workers are performed, to

A perusal of the contractual stipulations between Burlingame and F. Garil shows the
following:
1. The AGENCY shall provide Burlingame Corporation or the CLIENT, with
sufficient number of screened, tested and pre-selected personnel
(professionals, highly-skilled, skilled, semi-skilled and unskilled) who will
be deployed in establishment selling products manufactured by the CLIENT.
2. The AGENCY shall be responsible in paying its workers under this
contract in accordance with the new minimum wage including the daily

living allowances and shall pay them overtime or remuneration that which is
authorized by law.

The contract also provides that any personnel found to be inefficient, troublesome,

3. It is expressly understood and agreed that the worker(s) supplied shall be


considered or treated as employee(s) of the AGENCY.Consequently, there
shall be no employer-employee relationship between the worker(s) and the
CLIENT and as such, the AGENCY shall be responsible to the benefits
mandated by law.

uncooperative and not observing the rules and regulations set forth by Burlingame shall be

4. For and in consideration of the service to be rendered by the AGENCY to


the CLIENT, the latter shall during the terms of agreement pay to the
AGENCY the sum of Seven Thousand Five Hundred Pesos Only (P7,500.00)
per month per worker on the basis of Eight (8) hours work payable up-todate, semi-monthly, every 15th and 30th of each calendar month. However,
these rates may be subject to change proportionately in the event that there
will be revisions in the Minimum Wage Law or any law related to salaries
and wages.

to establish

5. The CLIENT shall report to the AGENCY any of its personnel assigned to
it if those personnel are found to be inefficient, troublesome, uncooperative
and not observing the rules and regulations set forth by the CLIENT. It is
understood and agreed that the CLIENT may request any time the
immediate replacement of any personnel(s) assigned to them. [18]

alleged employees. Consequently, it can be concluded that F. Garil was not an independent

It is patent that the involvement of F. Garil in the hiring process was only with respect
to the recruitment aspect, i.e. the screening, testing and pre-selection of the personnel it
provided to Burlingame. The actual hiring itself was done through the deployment of personnel
to establishments by Burlingame.

The contract states that Burlingame would pay the workers through F. Garil,

reported to F. Garil and may be replaced upon request. Corollary to this circumstance would be
the exercise of control and supervision by Burlingame over workers supplied by F. Garil in order
the

inefficient,

troublesome,

and

uncooperative

nature

of undesirable

personnel. Also implied in the provision on replacement of personnel carried upon request
by Burlingame is the power to fire personnel.

These are indications that F. Garil was not left alone in the supervision and control of its

contractor since it did not carry a distinct business free from the control and supervision
of Burlingame.

It goes without saying that the contractual stipulation on the nonexistence of an employeremployee relationship between Burlingame and the personnel provided by F. Garil has no legal
effect. While the parties may freely stipulate terms and conditions of a contract, such contractual
stipulations should not be contrary to law, morals, good customs, public order or public policy. A
contractual stipulation to the contrary cannot override factual circumstances firmly establishing the
legal existence of an employer-employee relationship.

stipulating that Burlingame shall pay F. Garil a certain sum per worker on the basis of eight-hour
work every 15th and 30th of each calendar month. This evinces the fact that F. Garil merely served

Under this circumstance, there is no doubt that F. Garil was engaged in labor-only

as conduit in the payment of wages to the deployed personnel. The interpretation would have

contracting, and as such, is considered merely an agent of Burlingame. In labor-only contracting,

been different if the payment was for the job, project, or services rendered during the month and

the law creates an employer-employee relationship to prevent a circumvention of labor laws. The

not on a per worker basis. In Vinoya v. National Labor Relations Commission,[19] we held:
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. Under the current practice, a third person,
usually the purported contractor (service or manpower placement agency),
assumes the act of paying the wage. 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.
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.[20]

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. [21] Since F. Garil is a labor-only contractor, the workers it supplied
should be considered as employees of Burlingame in the eyes of the law.

WHEREFORE, the challenged Decision of the Court of Appeals dated August 29,
2003 and the Resolution dated March 15, 2004 denying the motion for reconsideration

are REVERSED and SET ASIDE. The decision of the Secretary of Labor and Employment
ordering the holding of a certification election among the rank-and-file promo employees
of Burlingame is reinstated.

Costs against respondent.

SO ORDERED.

Republic of the Philippines


Supreme Court
Manila

Petitioners,
- versus -

SECOND DIVISION
JOEB M. ALIVIADO, ARTHUR
CORPUZ, ERIC ALIVIADO,
MONCHITO AMPELOQUIO,
ABRAHAM BASMAYOR,
JONATHAN MATEO, LORENZO
PLATON, JOSE FERNANDO
GUTIERREZ, ESTANISLAO
BUENAVENTURA, LOPE SALONGA,
FRANZ DAVID, NESTOR IGNACIO,
JULIO REY, RUBEN MARQUEZ, JR.,
MAXIMINO PASCUAL, ERNESTO
CALANAO, ROLANDO
ROMASANTA, RHUEL AGOO,
BONIFACIO ORTEGA, ARSENIO
SORIANO, JR., ARNEL ENDAYA,
ROBERTO ENRIQUEZ, NESTOR
BAQUILA, EDGARDO QUIAMBAO,
SANTOS BACALSO, SAMSON BASCO,
ALADINO GREGORO, JR., EDWIN
GARCIA, ARMANDO VILLAR, EMIL
TAWAT, MARIO P. LIONGSON,
CRESENTE J. GARCIA, FERNANDO
MACABENTE, MELECIO CASAPAO,
REYNALDO JACABAN, FERDINAND
SALVO, ALSTANDO MONTOS,
RAINER N. SALVADOR, RAMIL
REYES, PEDRO G. ROY, LEONARDO
P. TALLEDO, ENRIQUE F. TALLEDO,
WILLIE ORTIZ, ERNESTO SOYOSA,
ROMEO VASQUEZ, JOEL BILLONES,
ALLAN BALTAZAR, NOLI GABUYO,
EMMANUEL E. LABAN, RAMIR E.
PIAT, RAUL DULAY, TADEO DURAN,
JOSEPH BANICO, ALBERT LEYNES,
ANTONIO DACUNA, RENATO DELA
CRUZ, ROMEO VIERNES, JR., ELAIS
BASEO, WILFREDO TORRES,
MELCHOR CARDANO, MARIANO
NARANIAN, JOHN SUMERGIDO,
ROBERTO ROSALES, GERRY C.
GATPO, GERMAN N. GUEVARRA,
GILBERT Y. MIRANDA, RODOLFO C.
TOLEDO, ARNOLD D. LASTONA,
PHILIP M. LOZA, MARIO N.
CULDAYON, ORLANDO P. JIMENEZ,
FRED P. JIMENEZ, RESTITUTO C.
PAMINTUAN, JR., ROLANDO J. DE
ANDRES, ARTUZ BUSTENERA,
ROBERTO B. CRUZ, ROSEDY O.
YORDAN, DENNIS DACASIN,
ALEJANDRINO ABATON, and
ORLANDO S. BALANGUE,

G.R. No. 160506

PROCTER & GAMBLE PHILS., INC.,


Promulgated:
and PROMM-GEM INC.,
March 9, 2010
Respondents.
x-------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:

Labor laws expressly prohibit labor-only contracting. To prevent its circumvention, the Labor
Code establishes an employer-employee relationship between the employer and the employees of the laboronly contractor.

The instant petition for review assails the March 21, 2003 Decision[1] of the Court of Appeals (CA) in CA-G.R.
SP No. 52082 and its October 20, 2003 Resolution[2] denying the motions for reconsideration separately
filed by petitioners and respondent Procter & Gamble Phils. Inc. (P&G). The appellate court affirmed the
July 27, 1998 Decision of the National Labor Relations Commission (NLRC), which in turn affirmed
the November 29, 1996 Decision[3] of the Labor Arbiter. All these decisions found Promm-Gem, Inc.
(Promm-Gem) and Sales and Promotions Services (SAPS) to be legitimate independent contractors and the
employers of the petitioners.

Factual Antecedents

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as
1982 or as late as June 1991, to eitherMay 5, 1992 or March 11, 1993, more specifically as follows:
Present:
CARPIO, J., Chairperson,
BRION,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.

Name Date Employed Date Dismissed


1. Joeb M. Aliviado November, 1985 May 5, 1992
2. Arthur Corpuz 1988 March 11, 1993
3. Eric Aliviado 1985 March 11, 1993
4. Monchito Ampeloquio September, 1988 March 11, 1993
5. Abraham Basmayor[, Jr.] 1987 March 11, 1993
6. Jonathan Mateo May, 1988 March 11, 1993
7. Lorenzo Platon 1985 March 11, 1993
8. Jose Fernando Gutierrez 1988 May 5, 1992
9. Estanislao Buenaventura June, 1988 March 11, 1993
10. Lope Salonga 1982 March 11, 1993

11. Franz David 1989 March 11, 1993


12. Nestor Ignacio 1982 March 11, 1993
13. Julio Rey 1989 May 5, 1992
14. Ruben [Vasquez], Jr. 1985 May 5, 1992
15. Maximino Pascual 1990 May 5, 1992
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
17. Rolando Romasanta 1983 March 11, 1993
18. [Roehl] Agoo 1988 March 11, 1993
19. Bonifacio Ortega 1988 March 11, 1993
20. Arsenio Soriano, Jr. 1985 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993
22. Roberto Enriquez December, 1988 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992
24. Ed[g]ardo Quiambao 1989 March 11, 1993
25. Santos Bacalso 1990 March 11, 1993
26. Samson Basco 1984 March 11, 1993
27. Aladino Gregor[e], Jr. 1980 May 5, 1992
28. Edwin Garcia 1987 May 5, 1992
29. Armando Villar 1990 May 5, 1992
30. Emil Tawat 1988 March 11, 1993
31. Mario P. Liongson 1991 May 5, 1992
32. Cresente J. Garcia 1984 March 11, 1993
33. Fernando Macabent[a] 1990 May 5, 1992
34. Melecio Casapao 1987 March 11, 1993
35. Reynaldo Jacaban 1990 May 5, 1992
36. Ferdinand Salvo 1985 May 5, 1992
37. Alstando Montos 1984 March 11, 1993
38. Rainer N. Salvador 1984 May 5, 1992
39. Ramil Reyes 1984 March 11, 1993
40. Pedro G. Roy 1987
41. Leonardo [F]. Talledo 1985 March 11, 1993
42. Enrique [F]. Talledo 1988 March 11, 1993
43. Willie Ortiz 1987 May 5, 1992
44. Ernesto Soyosa 1988 May 5, 1992
45. Romeo Vasquez 1985 March 11, 1993
46. Joel Billones 1987 March 11, 1993
47. Allan Baltazar 1989 March 11, 1993
48. Noli Gabuyo 1991 March 11, 1993
49. Emmanuel E. Laban 1987 May 5, 1992
50. Ramir[o] E. [Pita] 1990 May 5, 1992
51. Raul Dulay 1988 May 5, 1992
52. Tadeo Duran[o] 1988 May 5, 1992
53. Joseph Banico 1988 March 11, 1993
54. Albert Leynes 1990 May 5, 1992
55. Antonio Dacu[m]a 1990 May 5, 1992
56. Renato dela Cruz 1982
57. Romeo Viernes, Jr. 1986
58. El[ia]s Bas[c]o 1989
59. Wilfredo Torres 1986 May 5, 1992
60. Melchor Carda[]o 1991 May 5, 1992
61. [Marino] [Maranion] 1989 May 5, 1992
62. John Sumergido 1987 May 5, 1992
63. Roberto Rosales May, 1987 May 5, 1992
64. Gerry [G]. Gatpo November, 1990 March 11, 1993
65. German N. Guevara May, 1990 March 11, 1993
66. Gilbert Y. Miranda June, 1991 March 11, 1993
67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
68. Arnold D. [Laspoa] June 1991 March 11, 1993
69. Philip M. Loza March 5, 1992 March 11, 1993

70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993


71. Orlando P. Jimenez November 6, 1992 March 11, 1993
72. Fred P. Jimenez September, 1991 March 11, 1993
73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993
74. Rolando J. de Andres June, 1991 March 11, 1993
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993
76. Roberto B. Cruz May 4, 1990 March 11, 1993
77. Rosedy O. Yordan June, 1991 May 5, 1992
78. Dennis Dacasin May. 1990 May 5, 1992
79. Alejandrino Abaton 1988 May 5, 1992
80. Orlando S. Balangue March, 1989 March 11, 1993[4]
They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or
less five months at a time. [5]They were assigned at different outlets, supermarkets and stores where they
handled all the products of P&G. They received their wages from Promm-Gem or SAPS.[6]
SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons
such as habitual absenteeism, dishonesty or changing day-off without prior notice.[7]

P&G is principally engaged in the manufacture and production of different consumer and health products,
which it sells on a wholesale basis to various supermarkets and distributors. [8] To enhance consumer
awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS for the
promotion and merchandising of its products.[9]

In December 1991, petitioners filed a complaint [10] against P&G for regularization, service
incentive leave pay and other benefits with damages. The complaint was later amended[11] to include the
matter of their subsequent dismissal.

Ruling of the Labor Arbiter

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled
that there was no employer-employee relationship between petitioners and P&G. He found that the selection
and engagement of the petitioners, the payment of their wages, the power of dismissal and control with
respect to the means and methods by which their work was accomplished, were all done and exercised by
Promm-Gem/SAPS. He further found that Promm-Gem and SAPS were legitimate independent job
contractors. The dispositive portion of his Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the


above-entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of
merit.
SO ORDERED.[12]
Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, 1998, the

GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT THEY WERE


ILLEGALLY DISMISSED BY THE FORMER.
II.
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED
[A] REVERSIBLE ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC
RESPONDENTS HAD ACTED WITH GRAVE ABUSE OF DISCRETION WHEN
THE LATTER DID NOT FIND THE PRIVATE RESPONDENTS LIABLE TO THE
PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND EXEMPLARY
DAMAGES AS WELL AS LITIGATION COSTS AND ATTORNEYS FEES.[17]

NLRC rendered a Decision[13]disposing as follows:


Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether

WHEREFORE, premises considered, the appeal of complainants is hereby


DISMISSED and the decision appealed from AFFIRMED.

petitioners were illegally dismissed; and (3) whether petitioners are entitled for payment of actual, moral and

SO ORDERED.[14]

exemplary damages as well as litigation costs and attorneys fees.

Petitioners filed a motion for reconsideration but the motion was denied in the November 19,
1998 Resolution.[15]

Petitioners Arguments

Ruling of the Court of Appeals

Petitioners insist that they are employees of P&G. They claim that they were recruited by the
salesmen of P&G and were engaged to undertake merchandising chores for P&G long before the existence of

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and the NLRC. However, said

Promm-Gem and/or SAPS. They further claim that when the latter had its so-called re-alignment program,
petitioners were instructed to fill up application forms and report to the agencies which P&G created. [18]

petition was also denied by the CA which disposed as follows:


Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its

WHEREFORE, the decision of the National Labor Relations Commission dated July
27, 1998 is AFFIRMED with the MODIFICATION that respondent Procter &
Gamble Phils., Inc. is ordered to pay service incentive leave pay to petitioners.

letter[19] to SAPS dated February 24, 1993, informing the latter that their Merchandising Services Contract

SO ORDERED.[16]

will no longer be renewed.


Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition.

services of manpower to their client. They claim that the contractors have neither substantial capital nor
tools and equipment to undertake independent labor contracting. Petitioners insist that since they had been

Issues

engaged to perform activities which are necessary or desirable in the usual business or trade of P&G, then
they are its regular employees.[20]

Petitioners now come before us raising the following issues:


I.
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED
[A] REVERSIBLE ERROR WHEN IT DID NOT FINDTHE PUBLIC
RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING
THE QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS
WERE ABLE TO PROVE AND ESTABLISH THAT RESPONDENT PROCTER &

Respondents Arguments

On the other hand, P&G points out that the instant petition raises only questions of fact and
should thus be thrown out as the Court is not a trier of facts. It argues that findings of facts of the NLRC,

Labor-only contracting and job contracting

particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and conclusive on
the Supreme Court.

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine
whether Promm-Gem and SAPS are labor-only contractors or legitimate job contractors.

P&G further argues that there is no employment relationship between it and petitioners. It was
Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2) paid their salaries; (3)
wielded the power of dismissal; and (4) had the power of control over their conduct of work.

P&G also contends that the Labor Code neither defines nor limits which services or activities may
be validly outsourced. Thus, an employer can farm out any of its activities to an independent contractor,
regardless of whether such activity is peripheral or core in nature. It insists that the determination of whether
to engage the services of a job contractor or to engage in direct hiring is within the ambit of management
prerogative.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing
of the Comment of Promm-Gem on the petition. [21] Also, although SAPS was impleaded as a party in the
proceedings before the Labor Arbiter and the NLRC, it was no longer impleaded as a party in the
proceedings before the CA.[22] Hence, our pronouncements with regard to SAPS are only for the purpose of
determining the obligations of P&G, if any.

The pertinent Labor Code provision on the matter states:


ART. 106. Contractor or subcontractor. Whenever an employer enters into
a contract with another person for the performance of the 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 wages of
his employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to the extent of
the work performed under the contract, in the same manner and extent that he is
liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or
prohibit the contracting out of labor to protect the rights of workers established
under this Code. In so prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among the
parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.
There is labor-only contracting where the person supplying workers to an
employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers recruited
and placed by such person are performing activities which are directly related to the
principal business of such employer. In such cases, the person or intermediary shall
be considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him .
(Emphasis and underscoring supplied.)

Our Ruling
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
The petition has merit.

Department Order No. 18-02,[24]distinguishes between legitimate and labor-only contracting:


xxxx

As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies
exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is constrained to wade
into factual matters when there is insufficient or insubstantial evidence on record to support those factual
findings; or when too much is concluded, inferred or deduced from the bare or incomplete facts appearing
on record.[23] In the present case, we find the need to review the records to ascertain the facts.

Section 3. Trilateral Relationship in Contracting Arrangements.


In legitimate contracting, there exists a trilateral relationship under which there is a
contract for a specific job, work or service between the principal and the contractor or
subcontractor, and a contract of employment between the contractor or
subcontractor and its workers. Hence, there are three parties involved in these
arrangements, the principal which decides to farm out a job or service to a contractor
or subcontractor, the contractor or subcontractor which has the capacity to
independently undertake the performance of the job, work or service, and the

contractual workers engaged by the contractor or subcontractor to accomplish the


job[,] work or service.

ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee. (Underscoring supplied)

xxxx
Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose, labor-only contracting
shall refer to an arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a principal, and any of
the following elements are present:

In the instant case, the financial statements[26] of Promm-Gem show that it


has authorized capital stock of P1 million and a paid-in capital, or capital available for operations,
of P500,000.00 as of 1990.[27] It also has long term assets worth P432,895.28 and current assets

i) The contractor or subcontractor does not have substantial capital or


investment which relates to the job, work or service to be performed and the
employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal;
or

of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and office space with a

ii) [T]he contractor does not exercise the right to control over the
performance of the work of the contractual employee.

the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be

The foregoing provisions shall be without prejudice to the application of


Article 248 (c) of the Labor Code, as amended.
Substantial capital or investment refers to capital stocks and subscribed
capitalization in the case of corporations, tools, equipment, implements, machineries and
work premises, actually and directly used by the contractor or subcontractor in the
performance or completion of the job, work or service contracted out.
The right to control shall refer to the right reserved to the person for whom the
services of the contractual workers are performed, to determine not only the end to be
achieved, but also the manner and means to be used in reaching that end.
x x x x (Underscoring supplied.)
Clearly, the law and its implementing rules allow contracting arrangements for the performance
of specific jobs, works or services.Indeed, it is management prerogative to farm out any of its activities,
regardless of whether such activity is peripheral or core in nature.However, in order for such outsourcing to
be valid, it must be made to an independent contractor because the current labor rules expressly prohibit

floor area of 870 square meters. [28] It also had under its name three registered vehicles which were used for
its promotional/merchandising business. [29] Promm-Gem also has other clients [30] aside from P&G.[31] Under

performed. These factors negate the existence of the element specified in Section 5(i) of DOLE Department
Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant
materials, such as markers, tapes, liners and cutters, necessary for them to perform their work. Promm-Gem
also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the
complainants working under it as its regular, not merely contractual or project, employees. [32] This
circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 1802, which speaks of contractual employees. This, furthermore, negates on the part of Promm-Gem bad faith
and intent to circumvent labor laws which factors have often been tipping points that lead the Court to strike
down the employment practice or agreement concerned as contrary to public policy, morals, good customs
or public order.[33]

labor-only contracting.
Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find
To emphasize, there is labor-only contracting when the contractor or sub-contractor merely

that it is a legitimate independent contractor.

recruits, supplies or places workers to perform a job, work or service for a principal [25] and any of the
following elements are present:
i) The contractor or subcontractor does not have substantial capital or
investment which relates to the job, work or service to be performed andthe
employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the
principal; or

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of
only P31,250.00. There is no other evidence presented to show how much its working capital and assets
are. Furthermore, there is no showing of substantial investment in tools, equipment or other assets.

In Vinoya v. National Labor Relations Commission,[34] the Court held that [w]ith the current

F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda,

economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000.00 cannot

Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P.

be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor.

Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy

Applying the same rationale to the present case, it is clear that SAPS having a paid-in capital of

O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez,

[35]

only P31,250 - has no substantial capital. SAPS lack of substantial capital is underlined by the
records

Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.

which show that its payroll for its merchandisers alone for one month would already

The following petitioners, having worked under, and been dismissed by Promm-Gem, are

total P44,561.00. It had 6-month contracts with P&G.[37] Yet SAPS failed to show that it could complete the

considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia,

6-month contracts using its own capital and investment. Its capital is not even sufficient for one months

Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino

payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period required for it to

Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie Ortiz, Armando Villar, Jose

generate its needed revenue to sustain its operations independently. Substantial capital refers to

Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto

capitalization used in the performance or completion of the job, work or service contracted out. In the

Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico,

present case, SAPS has failed to show substantial capital.

Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado. [42]

[36]

Furthermore, the petitioners have been charged with the merchandising and promotion of the

Termination of services

products of P&G, an activity that has already been considered by the Court as doubtlessly directly related to
the manufacturing business,[38] which is the principal business of P&G. Considering that SAPS has no

We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular

substantial capital or investment and the workers it recruited are performing activities which are directly

employment, the employer shall not terminate the services of an employee except for a just [43] or

related to the principal business of P&G, we find that the former is engaged in labor-only contracting.

authorized[44] cause.

Where labor-only contracting exists, the Labor Code itself establishes an employer-employee
relationship between the employer and the employees of the labor-only contractor. [39] The statute establishes

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the

this relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is

cause of dismissal as grave misconduct and breach of trust, as follows:

considered merely an agent of the principal employer and the latter is responsible to the employees of the
labor-only contractor as if such employees had been directly employed by the principal employer. [40]

Consequently, the following petitioners, having been recruited and supplied


by SAPS

[41]

-- which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur

Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo,
Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos
Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique

xxxx
This informs you that effective May 5, 1992, your employment with our
company, Promm-Gem, Inc. has been terminated. We find your expressed
admission, that you considered yourself as an employee of Procter & Gamble Phils.,
Inc. and assailing the integrity of the Company as legitimate and independent
promotion firm, is deemed as an act of disloyalty prejudicial to the interests of our
Company: serious misconduct and breach of trust reposed upon you as employee of
our Company which [co]nstitute just cause for the termination of your employment.
x x x x[45]

Misconduct has been defined as improper or wrong conduct; the transgression of some established and
definite rule of action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent

All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.

and not mere error of judgment. The misconduct to be serious must be of such grave and aggravated
character and not merely trivial and unimportant.[46] To be a just cause for dismissal, such misconduct (a)

While Promm-Gem had complied with the procedural aspect of due process in terminating the

must be serious; (b) must relate to the performance of the employees duties; and (c) must show that the

employment of petitioners-employees,i.e., giving two notices and in between such notices, an opportunity for

employee has become unfit to continue working for the employer.

the employees to answer and rebut the charges against them, it failed to comply with the substantive aspect

[47]

of due process as the acts complained of neither constitute serious misconduct nor breach of trust. Hence,
In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee

the dismissal is illegal.

under paragraph (a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of
has violated some established rules or policies. It is equally important and required that the act or conduct

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The

must have been performed with wrongful intent.[48] In the instant case, petitioners-employees of Promm-

records show that upon receipt by SAPS of P&Gs letter terminating their Merchandising Services Contact

Gem may have committed an error of judgment in claiming to be employees of P&G, but it cannot be said

effective March 11, 1993, they in turn verbally informed the concerned petitioners not to report for work

that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple

anymore. The concerned petitioners related their dismissal as follows:

misconduct for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A

xxxx

misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for
dismissing an employee.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the
trust reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is willful if
it is done intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act
done carelessly, thoughtlessly, heedlessly or inadvertently.[49]

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact
that the employee concerned holds a position of responsibility or of trust and confidence. As such, he must
be invested with confidence on delicate matters, such as custody, handling or care and protection of the
property and assets of the employer. And, in order to constitute a just cause for dismissal, the act complained
of must be work-related and must show that the employee is unfit to continue to work for the employer. [50] In
the instant case, the petitioners-employees of Promm-Gem have not been shown to be occupying positions
of responsibility or of trust and confidence. Neither is there any evidence to show that they are unfit to
continue to work as merchandisers for Promm-Gem.

5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by
Mr. Saturnino A. Ponce that we should already stop working immediately because
that was the order of Procter and Gamble. According to him he could not do
otherwise because Procter and Gamble was the one paying us. To prove that Procter
and Gamble was the one responsible in our dismissal, he showed to us the
letter[51] dated February 24, 1993, x x x
February 24, 1993
Sales and Promotions Services
Armons Bldg., 142 Kamias Road,
Quezon City
Attention: Mr. Saturnino A. Ponce
President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February 1993, this formally
informs you that we will not be renewing our Merchandising
Services Contract with your agency.
Please immediately undertake efforts to ensure that your services to
the Company will terminate effective close of business hours
of 11 March 1993.
This is without prejudice to whatever obligations you may have to
the company under the abovementioned contract.
Very truly yours,
(Sgd.)

EMMANUEL M. NON
Sales Merchandising III
6. On March 12, 1993, we reported to our respective outlet assignments. But, we were
no longer allowed to work and we were refused entrance by the security guards
posted. According to the security guards, all merchandisers of Procter and Gamble
under S[APS] who filed a case in the Dept. of Labor are already dismissed as per letter
of Procter and Gamble dated February 25, 1993. x x x[52]

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive
act on the part of the latter, we find no support for the award of damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor.
The sudden and peremptory barring of the concerned petitioners from work, and from admission to the

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike
Promm-Gem which dismissed its employees for grave misconduct and breach of trust due to disloyalty,

work place, after just a one-day verbal notice, and for no valid cause bellows oppression and utter disregard
of the right to due process of the concerned petitioners. Hence, an award of moral damages is called for.

SAPS dismissed its employees upon the initiation of P&G. It is evident that SAPS does not carry on its own
business because the termination of its contract with P&G automatically meant for it also the termination of

Attorneys

fees

may

likewise

be

awarded

to

the

concerned

petitioners

who

its employees services. It is obvious from its act that SAPS had no other clients and had no intention of

were illegally dismissed in bad faith and were compelled tolitigate or incur expenses to protect their rights

seeking other clients in order to further its merchandising business. From all indications SAPS, existed to

by reason of the oppressive acts[56] of P&G.

cater solely to the need of P&G for the supply of employees in the latters merchandising concerns
only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be

an independentcontractor.

entitled to reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and
other benefits or their monetary equivalent from the time the compensation was withheld up to the time of

Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the

actual reinstatement.[57] Hence, all the petitioners, having been illegally dismissed are entitled to

lawfulness of the dismissal rests with the employer. [53] In termination cases, the burden of proof rests upon

reinstatement without loss of seniority rights and with full back wages and other benefits from the time of

the employer to show that the dismissal is for just and valid cause. [54]In the instant case, P&G failed to

their illegal dismissal up to the time of their actual reinstatement.

discharge the burden of proving the legality and validity of the dismissals of those petitioners who are
considered its employees. Hence, the dismissals necessarily were not justified and are therefore illegal.

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of Appeals
in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003 are REVERSED and SET

Damages

ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc. are ORDEREDto reinstate their respective
employees immediately without loss of seniority rights and with full backwages and other benefits from the

We now go to the issue of whether petitioners are entitled to damages. Moral

time of their illegal dismissal up to the time of their actual reinstatement. Procter & Gamble Phils., Inc. is

and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or

further ORDERED to pay each of those petitioners considered as its employees, namely Arthur Corpuz,

fraud or constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or

Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao

public policy.[55]

Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio
Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson
Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel
Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo,

Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C.
Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S.
Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo
Viernes, Jr., Elias Basco and Dennis Dacasin,P25,000.00 as moral damages plus ten percent of the total sum
as and for attorneys fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from receipt of this
Decision, of petitioners backwages and other benefits; and ten percent of the total sum as and for attorneys
fees as stated above; and for immediate execution.

SO ORDERED.

SECOND DIVISION

and trained personnel, who are in good faith, in the performance of its herein undertaking x x
xx

[G.R. No. 120466. May 17, 1999]


COCA

COLA BOTTLERS PHILS., INC., petitioner, vs. NATIONAL LABOR


RELATIONS COMMISSION and RAMON B. CANONICATO, respondents.
DECISION

BELLOSILLO, J.:
This petition for certiorari under Rule 65 of the Revised Rules of Court assails the 3
January 1995 decision[1] of the National Labor Relations Commission (NLRC) holding that
private respondent Ramon B. Canonicato is a regular employee of petitioner Coca Cola Bottlers
Phils. Inc. (COCA COLA) entitled to reinstatement and back wages. The NLRC reversed the
decision of the Labor Arbiter of 28 April 1994 [2] which declared that no employer-employee
relationship existed between COCA COLA and Canonicato thereby foreclosing entitlement to
reinstatement and back wages.

4. The Second Party hereby guarantees against unsatisfactory workmanship. Minor repair of
comfort rooms are free of charge provided the First Party will supply the necessary materials for
such repairs at its expense. As may be necessary, the Second Party shall also report on such
part or areas of the premises covered by this contract which may require repairs from time to
time x x x (italics supplied).
Every year thereafter a service contract was entered into between the parties under similar
terms and conditions until about May 1994.[4]
On 26 October 1989 COCA COLA hired private respondent Ramon Canonicato as a casual
employee and assigned him to the bottling crew as a substitute for absent employees. In April
1990 COCA COLA terminated Canonicato's casual employment. Later that year COCA COLA
availed of Canonicato's services, this time as a painter in contractual projects which lasted from
fifteen (15) to thirty (30) days.[5]

On 7 April 1986 COCA COLA entered into a contract of janitorial services with Bacolod
Janitorial Services (BJS) stipulating[3] among others -

On 1 April 1991 Canonicato was hired as a janitor by BJS [6] which assigned him to COCA
COLA considering his familiarity with its premises. On 5 and 7 March 1992 Canonicato started
painting the facilities of COCA COLA and continued doing so several months thereafter or so for
a few days every time until 6 to 25 June 1993.[7]

That the First Party (COCA COLA) desires to engage the services of the Second Party (BJS), as an
Independent Contractor, to perform and provide for the maintenance, sanitation and cleaning
services for the areas hereinbelow mentioned, all located within the aforesaid building of the
First Party x x x x

Goaded by information that COCA COLA employed previous BJS employees who filed a
complaint against the company for regularization pursuant to a compromise agreement,
[8]
Canonicato submitted a similar complaint against COCA COLA to the Labor Arbiter on 8 June
1993.[9] The complaint was docketed as RAB Case No. 06-06-10337-93.

1. The scope of work of the Second Party includes all floors, walls, doors, vertical and
horizontal areas, ceiling, all windows, glass surfaces, partitions, furniture, fixtures and other
interiors within the aforestated covered areas.

Without notifying BJS, Canonicato no longer reported to his COCA COLA assignment
starting 29 June 1993. On 15 July 1993 he sent his sister Rowena to collect his salary from BJS.
[10]
BJS released his salary but advised Rowena to tell Canonicato to report for work. Claiming
that he was barred from entering the premises of COCA COLA on either 14 or 15 July 1993,
Canonicato met with the proprietress of BJS, Gloria Lacson, who offered him assignments in
other firms which he however refused.[11]

2. Except holidays which are rest days, the Second Party will undertake daily the following: 1)
Sweeping, damp-mopping, spot scrubbing and polishing of floors; 2) Cleaning, sanitizing and
disinfecting agents to be used on commodes, urinals and washbasins, water spots on chrome and
other fixtures to be checked; 3) Cleaning of glass surfaces, windows and glass partitions that
require daily attention; 4) Cleaning and dusting of horizontal and vertical surfaces; 5) Cleaning
of fixtures, counters, panels and sills; 6) Clean, pick-up cigarette butts from sandburns and
ashtrays and trash receptacles; 7) Trash and rubbish disposal and burning.

On 23 July 1993 Canonicato amended his complaint against COCA COLA by citing instead
as grounds therefor illegal dismissal and underpayment of wages. He included BJS therein as a
co-respondent.[12] On 28 September 1993 BJS sent him a letter advising him to report for work
within three (3) days from receipt, otherwise, he would be considered to have abandoned his job.
[13]

In addition, the Second Party will also do the following once a week, to wit: 1) Cleaning, waxing
and polishing of lobbies and offices; 2) Washing of windows, glasses that require cleaning; 3)
Thorough disinfecting and cleaning of toilets and washrooms.
3. The Second Party shall supply the necessary utensils, equipment and supervision, and it
shall only employ the services of fifteen (15) honest, reliable, carefully screened, cooperative

On 28 April 1994 the Labor Arbiter ruled that: (a) there was no employer-employee
relationship between COCA COLA and Ramon Canonicato because BJS was Canonicato's real
employer; (b) BJS was a legitimate job contractor, hence, any liability of COCA COLA as to
Canonicato's salary or wage differentials was solidary with BJS in accordance with pars. 1 and 2
of Art. 106, Labor Code; (c) COCA COLA and BJS must jointly and severally pay Canonicato his
wage differentials amounting to P2,776.80 and his 13th month salary of P1,068.00, including ten

(10%) percent attorney's fees in the sum of P384.48. The Labor Arbiter also ordered that all
other claims by Canonicato against COCA COLA be dismissed for lack of employer-employee
relationship; that the complaint for illegal dismissal as well as all the other claims be likewise
dismissed for lack of merit; and that COCA COLA and BJS deposit P4,429.28 with the
Department of Labor Regional Arbitration Branch Office within ten (10) days from receipt of the
decision.[14]
The NLRC rejected on appeal the decision of the Labor Arbiter on the ground that the
janitorial services of Canonicato were found to be necessary or desirable in the usual business or
trade of COCA COLA. The NLRC accepted Canonicato's proposition that his work with the BJS
was the same as what he did while still a casual employee of COCA COLA. In so holding the
NLRC applied Art. 280 of the Labor Code and declared that Canonicato was a regular employee
of COCA COLA and entitled to reinstatement and payment of P18,105.10 in back wages.[15]
On 26 May 1995 the NLRC denied COCA COLA's motion for reconsideration for lack of
merit.[16] Hence, this petition, assigning as errors: (a) NLRC's finding that janitorial services were
necessary and desirable in COCA COLA's trade and business; (b) NLRC's application of Art. 280
of the Labor Code in resolving the issue of whether an employment relationship existed between
the parties; (c) NLRC's ruling that there was an employer-employee relationship between
petitioner and Canonicato despite its virtual affirmance that BJS was a legitimate job contractor;
(d) NLRC's declaration that Canonicato was a regular employee of petitioner although he had
rendered the company only five (5) months of casual employment; and, (e) NLRC's order
directing the reinstatement of Canonicato and the payment to him of six (6) months back wages.
[17]

We find good cause to sustain petitioner. Findings of fact of administrative offices are
generally accorded respect by us and no longer reviewed for the reason that such factual findings
are considered to be within their field of expertise. Exception however is made, as in this case,
when the NLRC and the Labor Arbiter made contradictory findings.
We perceive at the outset the disposition of the NLRC that janitorial services are necessary
and desirable to the trade or business of petitioner COCA COLA. But this is inconsistent with our
pronouncement in Kimberly Independent Labor Union v. Drilon [18] where the Court took
judicial notice of the practice adopted in several government and private institutions and
industries of hiring janitorial services on an "independent contractor basis." In this respect,
although janitorial services may be considered directly related to the principal business of an
employer, as with every business, we deemed them unnecessary in the conduct of the employer's
principal business.[19]
This judicial notice, of course, rests on the assumption that the independent contractor is a
legitimate job contractor so that there can be no doubt as to the existence of an employeremployee relationship between contractor and the worker. In this situation, the only pertinent
question that may arise will no longer deal with whether there exists an employment bond but
whether the employee may be considered regular or casual as to deserve the application of Art.
280 of the Labor Code.
It is an altogether different matter when the very existence of an employment relationship
is in question. This was the issue generated by Canonicato's application for regularization of his
employment with COCA COLA and the subsequent denial by the latter of an employer-employee

relationship with the applicant. It was error therefore for the NLRC to apply Art. 280 of the
Labor Code in determining the existence of an employment relationship of the parties herein,
especially in light of our explicit holding in Singer Sewing Machine Company v. Drilon[20] that x x x x [t]he definition that regular employees are those who perform activities which are
desirable and necessary for the business of the employer is not determinative in this case. Any
agreement may provide that one party shall render services for and in behalf of another for a
consideration (no matter how necessary for the latter's business) even without being hired as an
employee. This is precisely true in the case of an independent contractorship as well as in an
agency agreement. The Court agrees with the petitioner's argument that Article 280 is not the
yardstick for determining the existence of an employment relationship because it merely
distinguishes between two kinds of employees, i.e., regular employees and casual employees, for
purposes of determining the right of an employee to certain benefits, to join or form a union, or
to security of tenure. Article 280 does not apply where the existence of an employment
relationship is in dispute.
In determining the existence of an employer-employee relationship it is necessary to
determine whether the following factors are present: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power to dismiss; and, (d) the power to control the
employee's conduct.[21]Notably, these are all found in the relationship between BJS and
Canonicato and not between Canonicato and petitioner COCA COLA. As the Solicitor-General
manifested[22]In the instant case, the selection and engagement of the janitors for petitioner were done by
BJS. The application form and letter submitted by private respondent (Canonicato) to BJS show
that he acknowledged the fact that it was BJS who did the hiring and not petitioner x x x x
BJS paid the wages of private respondent, as evidenced by the fact that on July 15, 1993, private
respondent sent his sister to BJS with a note authorizing her to receive his pay.
Power of dismissal is also exercised by BJS and not petitioner. BJS is the one that assigns the
janitors to its clients and transfers them when it sees fit.Since BJS is the one who engages their
services, then it only follows that it also has the power to dismiss them when justified under the
circumstances.
Lastly, BJS has the power to control the conduct of the janitors. The supervisors of petitioner,
being interested in the result of the work of the janitors, also gives suggestions as to the
performance of the janitors, but this does not mean that BJS has no control over them. The
interest of petitioner is only with respect to the result of their work. On the other hand, BJS
oversees the totality of their performance.
The power of the employer to control the work of the employee is said to be the most the
most significant determinant. Canonicato disputed this power of BJS over him by asserting
that his employment with COCA COLA was not interrupted by his application with BJS since his
duties before and after he applied for regularization were the same, involving as they did,
working in the maintenance department and doing painting tasks within its facilities. Canonicato
cited the Labor Utilization Reports of COCA COLA showing his painting assignments. These
reports, however, are not expressive of the true nature of the relationship between Canonicato

and COCA COLA; neither do they detract from the fact that BJS exercised real authority over
Canonicato as its employee.
Moreover, a closer scrutiny of the reports reveals that the painting jobs were performed by
Canonicato sporadically, either in a few days within a month and only for a few months in a year.
[23]
This infrequency or irregularity of assignments countervails Canonicatos submission that he
was assigned specifically to undertake the task of painting the whole year round. If anything, it
hews closely to the assertion of BJS that it assigned Canonicato to these jobs to maintain and
sanitize the premises of petitioner COCA COLA pursuant to its contract of services with the
company.[24]
It is clear from these established circumstances that NLRC should have recognized BJS as
the employer of Canonicato and not COCA COLA. This is demanded by the fact that it did not
disturb, and therefore it upheld, the finding of the Labor Arbiter that BJS was truly a legitimate
job-contractor and could by itself hire its own employees. The Commission could not have
reached any other legitimate conclusion considering that BJS satisfied all the requirements of a
job-contractor under the law, namely, (a) the ability to carry on an independent business and
undertake the contract work on its own account under its own responsibility according to its
manner and method, free from the control and direction of its principal or client in all matters
connected with the performance of the work except as to the results thereof; and, (b) the
substantial capital or investment in the form of tools, equipment, machinery, work premises, and
other materials which are necessary in the conduct of its business. [25]
It is to be noted that COCA COLA is not the only client of BJS which has its roster of
clients like San Miguel Corporation, Distileria Bago Incorporated, University of Negros
Occidental-Recolletos, University of St. La Salle, Riverside College, College Assurance Plan Phil.,
Inc., and Negros Consolidated Farmers Association, Inc. [26] This is proof enough that BJS has the
capability to carry on its business of janitorial services with big establishments aside from
petitioner and has sufficient capital or materials necessary therefor. [27] All told, there being no
employer-employee relationship between Canonicato and COCA COLA, the latter cannot be
validly ordered to reinstate the former and pay him back wages.
WHEREFORE, the petition is GRANTED. The NLRC decision of 3 January 1995
declaring Ramon B. Canonicato a regular employee of petitioner Coca Cola Bottlers Phils., Inc.,
entitled to reinstatement and back wages is REVERSED and SET ASIDE. The decision of the
Labor Arbiter of 28 April 1994 finding no employer-employee relationship between petitioner
and private respondent but directing petitioner Coca Cola Bottlers Phils., Inc., instead and
Bacolod Janitorial Services to pay jointly and severally Ramon B. Canonicato P2,776.80 as wage
differentials, P1,068.00 as 13th month pay andP384.48 as attorney's fees, is REINSTATED.
SO ORDERED.
Puno, Mendoza, and Quisumbing, JJ., concur.
Buena, J., on leave.

FIRST DIVISION

have an employer-employee relationship with the private respondents, but only a service
contractor-client relationship with ACGI.

[G.R. No. 158255. July 8, 2004]


MANILA WATER COMPANY, INC., petitioner, vs. HERMINIO D. PENA, ESTEBAN
B. BALDOZA,
JORGE
D.CANONIGO,
JR.,
IKE
S.
DELFIN, RIZALINO M. INTAL, REY T. MANLEGRO, JOHN L. MARTEJA,
MARLON
B. MORADA,
ALLAN
D.
ESPINA,
EDUARDO ONG, AGNESIO D. QUEBRAL, EDMUNDO B. VICTA, VICTOR
C. ZAFARALLA,
EDILBERTO
C. PINGUL and
FEDERICO
M.
RIVERA, respondents.
DECISION

On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision finding the
dismissal of private respondents illegal. He held that private respondents were regular
employees of petitioner not only because the tasks performed by them were controlled by it but,
also, the tasks were obviously necessary and desirable to petitioners principal business. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered, finding that complainants
were employees of respondent [petitioner herein], that they were illegally dismissed, and
respondent [petitioner herein] is hereby ordered to pay their separation pay based on the
following computed amounts:

YNARES-SANTIAGO, J.:

HERMINIO D. PENA P15,000.00

This petition assails the decision [1] of the Court of Appeals dated November 29, 2002, in
CA-G.R. SP No. 67134, which reversed the decision of the National Labor Relations Commission
and reinstated the decision of the Labor Arbiter with modification.

ESTEBAN BALDOZA P12,000.00

Petitioner Manila Water Company, Inc. is one of the two private concessionaires
contracted by the Metropolitan Waterworks and Sewerage System (MWSS) to manage the water
distribution system in the East Zone of Metro Manila, pursuant to Republic Act No. 8041,
otherwise known as the National Water Crisis Act of 1995. Under the Concession Agreement,
petitioner undertook to absorb former employees of the MWSS whose names and positions were
in the list furnished by the latter, while the employment of those not in the list was terminated
on the day petitioner took over the operation of the East Zone, which was on August 1,
1997. Private respondents, being contractual collectors of the MWSS, were among the 121
employees not included in the list; nevertheless, petitioner engaged their services without
written contract from August 1, 1997 to August 31, 1997. Thereafter, on September 1, 1997, they
signed a three-month contract to perform collection services for eight branches of petitioner in
the East Zone.[2]

IKE S. DELFIN P12,000.00

Before the end of the three-month contract, the 121 collectors incorporated the Association
Collectors Group, Inc. (ACGI),[3] which was contracted by petitioner to collect charges for
the Balara Branch. Subsequently, most of the 121 collectors were asked by the petitioner to
transfer to the First Classic Courier Services, a newly registered corporation. Only private
respondents herein remained with ACGI.Petitioner continued to transact with ACGI to do its
collection needs until February 8, 1999, when petitioner terminated its contract withACGI.[4]
Private respondents filed a complaint for illegal dismissal and money claims against
petitioner, contending that they were petitioners employees as all the methods and procedures of
their collections were controlled by the latter.
On the other hand, petitioner asserts that private respondents were employees of ACGI, an
independent contractor. It maintained that it had no control and supervision over private
respondents manner of performing their work except as to the results. Thus, petitioner did not

JORGE D. CANONIGO, JR. P16,000.00

RIZALINO M. INTAL P16,000.00


REY T. MANLEGRO P16,000.00
JOHN L. MARTEJA P12,000.00
MARLON B. MORADA P16,000.00
ALLAN D. ESPINA P14,000.00
EDUARDO ONG P15,000.00
AGNESIO D. QUEBRAL P16,000.00
EDMUNDO B. VICTA P13,000.00
VICTOR P. ZAFARALLA P15,000.00
EDILBERTO C. PINGUL P19,500.00
FEDERICO M. RIVERA P15,000.00

------------------------------TOTAL P222,500.00
Respondent [petitioner herein] is further directed to pay ten (10%) percent of the total award as
attorneys fee or the sum of P22,250.00.
SO ORDERED.[5]
Both parties appealed to the NLRC, which reversed the decision of the Labor Arbiter and
ruled that the documentary evidence, e.g.,letters and memoranda by the petitioner
to ACGI regarding the poor performance of the collectors, did not constitute proof of control
since these documents merely identified the erring collectors; the appropriate disciplinary
actions were left to the corporation to impose. [6] Further, there was no evidence showing that the
incorporation of ACGI was irregular.
Private respondents filed a petition for certiorari with the Court of Appeals, contending
that the NLRC acted with grave abuse of discretion amounting to lack or excess of jurisdiction
when it reversed the decision of the Labor Arbiter.
The Court of Appeals reversed the decision of the NLRC and reinstated with modification
the decision of the Labor Arbiter.[7] It held that petitioner deliberately prevented the creation of
an employment relationship with the private respondents; and that ACGI was not an
independent contractor. It likewise denied petitioners motion for reconsideration. [8]
Hence, this petition for review raising the following errors:
THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED DECISION AND
RESOLUTION COMMITTED GRAVE REVERSIBLE ERRORS:
A. IN GOING BEYOND ITS JURISDICTION AND PROCEEDING TO GIVE DUE
COURSE TO RESPONDENTS PETITION FOR CERTIORARI UNDER RULE 65
OF THE RULES OF COURT, NOTWITHSTANDING THE ABSENCE OF ANY
PROOF OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE
NATIONAL LABOR RELATIONS COMMISSION WHEN IT RENDERED THE
DECISION ASSAILED BY HEREIN RESPONDENTS.
B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE PRESENTED BY THE
PETITIONER COMPANY AND RULING THAT THE PETITIONERS DEFENSE
OF LACK OF EMPLOYER-EMPLOYEE RELATIONS IS WITHOUT MERIT.
C. IN CONCLUDING THAT PETITIONER COMPANY REQUIRED RESPONDENTS
TO INCORPORATE THE ASSOCIATED COLLECTORS GROUP, INC. [ACGI]
NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT
OF THE SAME.

D. IN FINDING PETITIONER COMPANY GUILTY OF BAD FAITH


NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT
OF THE SAME, AND AWARDING MORAL AND EXEMPLARY DAMAGES TO
HEREIN RESPONDENTS.[9]
The pivotal issue to be resolved in this petition is whether or not there exists an employeremployee relationship between petitioner and private respondents. Corollary thereto is the issue
of whether or not private respondents were illegally dismissed by petitioner.
The issue of whether or not an employer-employee relationship exists in a given case is
essentially a question of fact.[10] As a rule, the Supreme Court is not a trier of facts, and this
applies with greater force in labor cases. Hence, factual findings of quasi-judicial bodies like the
NLRC, particularly when they coincide with those of the Labor Arbiter and if supported by
substantial evidence, are accorded respect and even finality by this Court. [11] However, a
disharmony between the factual findings of the Labor Arbiter and the National Labor Relations
Commission opens the door to a review thereof by this Court. Factual findings of administrative
agencies are not infallible and will be set aside when they fail the test of arbitrariness. Moreover,
when the findings of the National Labor Relations Commission contradict with those of the labor
arbiter, this Court, in the exercise of its equity jurisdiction, may look into the records of the case
and reexamine the questioned findings.[12]
The resolution of the foregoing issues initially boils down to a determination of the true
status of ACGI, i.e., whether it is an independent contractor or a labor-only contractor.
Petitioner asserts that ACGI, a duly organized corporation primarily engaged in collection
services, is an independent contractor which entered into a service contract for the collection of
petitioners accounts starting November 30, 1997 until the early part of February 1999.Thus, it
has no employment relationship with private respondents, being employees of ACGI.
The existence of an employment relationship between petitioner and private respondents
cannot be negated by simply alleging that the latter are employees of ACGI as an independent
contractor, it being crucial that ACGIs status, whether as labor-only contractor or independent
contractor, be measured in terms of and determined by the criteria set by statute.
The case of De los Santos v. NLRC[13] succinctly enunciates this statutory criteria
Job contracting is permissible only 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 the business.
Labor-only contracting as defined in Section 5, Department Order No. 18-02, Rules
Implementing Articles 106-109 of the Labor Code [14]refers to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform job, work or
service for a principal, and any of the following elements is present:

(i) The contractor or subcontractor does not have substantial capital or investment
which relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal; or
(ii) The contractor does not exercise the right to control over the performance of the
work of the contractual employee.
Given the above criteria, we agree with the Labor Arbiter that ACGI was not an
independent contractor.

contractor as if such employees had been directly employed by the principal employer.
[20]
Since ACGI is only a labor-only contractor, the workers it supplied should be considered as
employees of the petitioner.
Even the four-fold test will show that petitioner is the employer of private
respondents. The elements to determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal;
and (d) the employers power to control the employees conduct. The most important element is
the employers control of the employees conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it. [21]

First, ACGI does not have substantial capitalization or investment in the form of tools,
equipment, machineries, work premises, and other materials, to qualify as an independent
contractor. While it has an authorized capital stock of P1,000,000.00, only P62,500.00 is
actually paid-in, which cannot be considered substantial capitalization. The 121 collectors
subscribed to four shares each and paid only the amount of P625.00 in order to comply with the
incorporation requirements.[15] Further, private respondents reported daily to the branch office
of the petitioner because ACGI has no office or work premises. In fact, the corporate address
of ACGI was the residence of its president, Mr. Herminio D. Pea. [16] Moreover, in dealing with the
consumers, private respondents used the receipts and identification cards issued by petitioner. [17]

We agree with the Labor Arbiter that in the three stages of private respondents services
with the petitioner, i.e., (1) from August 1, 1997to August 31, 1997; (2) from September 1,
1997 to November 30, 1997; and (3) from December 1, 1997 to February 8, 1999, the latter
exercised control and supervision over the formers conduct.

Second, the work of the private respondents was directly related to the principal business
or operation of the petitioner. Being in the business of providing water to the consumers in the
East Zone, the collection of the charges therefor by private respondents for the petitioner can
only be categorized as clearly related to, and in the pursuit of the latters business.

Although petitioner was not obliged to absorb the private respondents, by engaging their
services, paying their wages in the form of commission, subjecting them to its rules and
imposing punishment in case of breach thereof, and controlling not only the end result but the
manner of achieving the same as well, an employment relationship existed between them.

Lastly, ACGI did not carry on an independent business or undertake the performance of
its service contract according to its own manner and method, free from the control and
supervision of its principal, petitioner. Prior to private respondents alleged employment
with ACGI, they were already working for petitioner, subject to its rules and regulations in
regard to the manner and method of performing their tasks.This form of control and supervision
never changed although they were already under the seeming employ of ACGI. Petitioner issued
memoranda regarding the billing methods and distribution of books to the collectors; [18] it
required private respondents to report daily and to remit their collections on the same day to the
branch office or to deposit them with Bank of the Philippine Islands; it monitored strictly their
attendance as when a collector cannot perform his daily collection, he must notify petitioner or
the branch office in the morning of the day that he will be absent; and although it
was ACGI which ultimately disciplined private respondents, the penalty to be imposed was
dictated by petitioner as shown in the letters it sent to ACGI specifying the penalties to be meted
on the erring private respondents. [19] These are indications that ACGI was not left alone in the
supervision and control of its alleged employees. Consequently, it can be concluded
thatACGI was not an independent contractor since it did not carry a distinct business free from
the control and supervision of petitioner.

Notably, private respondents performed activities which were necessary or desirable to its
principal trade or business. Thus, they were regular employees of petitioner, regardless of
whether the engagement was merely an accommodation of their request, pursuant to Article 280
of the Labor Code which reads:

Under this factual milieu, there is no doubt that ACGI was engaged in labor-only
contracting, and as such, is considered merely an agent of the petitioner. 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

Petitioner contends that the employment of private respondents from August 1,


1997 to August 30, 1997 was only temporary and done to accommodate their request to be
absorbed since petitioner was still undergoing a transition period. It was only when its business
became settled that petitioner employed private respondents for a fixed term of three months.

The provisions of written agreement to the contrary notwithstanding and regardless


of the oral agreement of the parties, an employment shall be deemed to be regular where
the employee has been engaged to perform activities which are usually necessary or desirable in
the usual business or trade of the employer, except where the employment has been fixed for a
specific project or undertaking the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or services to be performed is
seasonal in nature and the employment is for the duration of the season.
As such regular employees, private respondents are entitled to security of tenure which
may not be circumvented by mere stipulation in a subsequent contract that their employment is
one with a fixed period. While this Court has upheld the legality of fixed-term employment,
where from the circumstances it is apparent that the periods have been imposed to preclude
acquisition of tenurial security by the employee, they should be struck down or disregarded as
contrary to public policy and morals.[22]
In the case at bar, we find that the term fixed in the subsequent contract was used to defeat
the tenurial security which private respondents already enjoy. Thus, we concur with the Labor
Arbiter, as affirmed by the Court of Appeals, when it held that:

The next question if whether, with respect to the period, the individual contracts are valid. Not
all contracts of employment fixing a period are invalid.Under Article 280, the evil sought to be
prevented is singled out: agreements entered into precisely to circumvent security of tenure. It
has no application where a fixed period of employment was agreed upon knowingly and
voluntarily by the parties, without any force, duress or improper pressure being brought upon
the employee and absent any circumstances vitiating his consent, or where it satisfactorily
appears that the employer and employee dealt with each other on more or less terms with no
moral dominance whatever being exercised by the former over the latter. That is the doctrine
in Brent School, Inc. v. Zamora, 181 SCRA 702. The individual contracts in question were
prepared by MWC in the form of the letter addressed to complainants.The letter-contract is
dated September 1, 1997, when complainants were already working for MWC as collectors. With
their employment as their means of survival, there was no room then for complainants to
disagree with the presented letter-contracts. Their choice then was not to negotiate for the terms
of the contract but to lose or not to lose their employment employment which they already had at
that time. The choice is obvious, as what they did, to sign the ready made letter-contract to retain
their employment, and survive. It is a defiance of the teaching in Brent School, Inc. v. Zamora if
this Office rules that the individual contracts in question are valid, so, in deference
to Brent School ruling, this Office rules they are null and void. [23]
In view of the foregoing, we hold that an employment relationship exists between
petitioner and private respondents. We now proceed to ascertain whether private respondents
were dismissed in accordance with law.
As private respondents employer, petitioner has the burden of proving that the dismissal
was for a cause allowed under the law and that they were afforded procedural due process.
[24]
Petitioner failed to discharge this burden by substantial evidence as it maintained the defense
that it was not the employer of private respondents. Having established that the schemes
employed by petitioner were devious attempts to defeat the tenurial rights of private
respondents and that it failed to comply with the requirements of termination under the Labor
Code, the dismissal of the private respondent is tainted with illegality.
Under Article 279 of the Labor Code, an employee who is unjustly dismissed from work is
entitled to reinstatement without loss of seniority rights and other privileges, and to his full
backwages, inclusive of allowances, and to his other benefits or their monetary equivalent
computed from the time his compensation was withheld from him up to the time of his actual
reinstatement. However, if reinstatement is no longer possible, the employer has the alternative
of paying the employee his separation pay in lieu of reinstatement. [25]
This Court however cannot sustain the award of moral and exemplary damages in favor of
private respondents. Such an award cannot be justified solely upon the premise that the
employer dismissed his employee without just cause or due process. Additional facts must be
pleaded and proved to warrant the grant of moral damages under the Civil Code. The act of
dismissal must be attended with bad faith, or fraud, or was oppressive to labor or done in a
manner contrary to morals, good customs or public policy and, of course, that social humiliation,
wounded feelings, or grave anxiety resulted therefrom. Similarly, exemplary damages are
recoverable only when the dismissal was effected in a wanton, oppressive or malevolent manner.
[26]
Those circumstances have not been adequately established.
However, private respondents are entitled to attorneys fees as they were compelled to
litigate with petitioners and incur expenses to enforce and protect their interests. [27] The award

by the Labor Arbiter of P22,250.00 as attorneys fees to private respondents, being reasonable, is
sustained.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated
November 29, 2002, in CA-G.R. SP No. 67134, reversing the decision of the National Labor
Relations Commission and reinstating the decision of the Labor Arbiter is AFFIRMED with the
MODIFICATION that the awards of P10,000.00 as moral damages and P5,000.00 as exemplary
damages are DELETED for lack of evidentiary basis.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur.

THIRD DIVISION
[G.R. No. 149011. June 28, 2005]
SAN MIGUEL CORPORATION, petitioner, vs. PROSPERO A. ABALLA, BONNY J.
ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE, CELANIO D.
ARROLLADO, EDDIE A. ARROLLADO, REYNALDO T. ASONG, RENE A.
ASPERA, JOEL D. BALATERIA, JOSEPH D. BALATERIA, JOSE JOLLEN
BALLADOS, WILFREDO B. BASAS, EDWIN E. BEATINGO, SONNY V.
BERONDO, CHRISTOPHER D. BRIONES, MARLON D. BRIONES, JOEL C.
BOOC, ENRIQUE CABALIDA, DIOSCORO R. CAHINOD, ERNESTO P.
CAHINOD, RENANTE S. CAHINOD, RUDERICK R. CALIXTON, RONILO
C. CALVEZ, PANCHO CAETE, JUNNY CASTEL, JUDY S. CELESTE,
ROMEO CHUA, DANILO COBRA, ARMANDO C. DEDOYCO, JOEY R. DELA
CRUZ, JOHN D. DELFIN, RENELITO P. DEON, ARNEL C. DE PEDRO,
ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE A. DESPI, SR., VICTOR
A. DESPI, ROLANDO L. DINGLE, ANTONIO D. DOLORFINO, LARRY
DUMA-OP, NOEL DUMOL, CHITO L. DUNGOG, RODERICK C. DUQUEZA,
ROMMEL ESTREBOR, RIC E. GALPO, MANSUETO GILLE, MAXIMO L.
HILA-US, GERARDO J. JIMENEZ, ROBERTLY Y. HOFILEA, ROBERTO
HOFILEA, VICENTE INDENCIO, JONATHAN T. INVENTOR, PETER PAUL
T. INVENTOR, JOEBERT G. LAGARTO, RENATO LAMINA, ALVIN LAS
POBRES, ALBERT LAS POBRES, LEONARD LEMONCHITO, JERRY LIM,
JOSE COLLY S. LUCERO, ROBERTO E. MARTIL, HERNANDO
MATILLANO, VICENTE M. MATILLANO, TANNY C. MENDOZA, WILLIAM
P. NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO, ROBERTO G.
OTERO, BIENVENIDO C. PAROCHILIN, REYNALDO C. PAROCHILIN,
RICKY PALANOG, BERNIE O. PILLO, ALBERTO O. PILLO, JOE-MARIE S.
PUGNA, EDWIN G. RIBON, RAUL A. RUBIO, HENRY S. SAMILLANO,
EDGAR SANTIAGO, ROLAND B. SANTILLANA, ROLDAN V. SAYAM,
JOSEPH S. SAYSON, RENE SUARNABA, ELMAR TABLIGAN, JERRY D.
TALITE, OSCAR TALITE, WINIFREDO TALITE, CAMILO N. TEMPOROSA,
JOSE TEMPOROSA, RANDY TINGALA, TRISTAN A. TINGSON, ROGELIO
TOMESA, DIONISE A. TORMIS, ADELINO C. UNTAL, FELIX T. UNTAL,
RONILO E. VISTA, JOAN C. VIYO and JOSE JOFER C. VIYO and the
COURT OF APPEALS, respondents.
DECISION
CARPIO-MORALES, J.:
Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and
Visayas Area Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower MultiPurpose Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G.
Asong, entered into a one-year Contract of Services [1] commencing on January 1, 1993, to be
renewed on a month to month basis until terminated by either party. The pertinent provisions of
the contract read:

1. The cooperative agrees and undertakes to perform and/or provide for the company, on a nonexclusive basis for a period of one year the following services for the Bacolod Shrimp Processing
Plant:
A. Messengerial/Janitorial
B. Shrimp Harvesting/Receiving
C. Sanitation/Washing/Cold Storage[2]
2. To carry out the undertaking specified in the immediately preceding paragraph, the
cooperative shall employ the necessary personnel and provide adequate equipment, materials,
tools and apparatus, to efficiently, fully and speedily accomplish the work and services
undertaken by the cooperative. xxx
3. In consideration of the above undertaking the company expressly agrees to pay the
cooperative the following rates per activity:
A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five Hundred
Pesos Only (P19,500.00)
B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00 minimum per
person/activity whichever is higher, with provisions as follows:
P25.00 Fixed Fee per person
Additional meal allowance P15.00 every meal time in case
harvest duration exceeds one meal.
This will be pre-set every harvest based on harvest plan
approved by the Senior Buyer.
C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.
One-half of the payment for all services rendered shall be payable on the fifteenth and the other
half, on the end of each month. The cooperative shall pay taxes, fees, dues and other impositions
that shall become due as a result of this contract.
The cooperative shall have the entire charge, control and supervision of the work and
services herein agreed upon. xxx
4. There is no employer-employee relationship between the company and the cooperative, or the
cooperative and any of its members, or the company and any members of the cooperative. The
cooperative is an association of self-employed members, an independent contractor, and an
entrepreneur. It is subject to the control and direction of the company only as to the result to be

accomplished by the work or services herein specified, and not as to the work herein contracted.
The cooperative and its members recognize that it is taking a business risk in accepting a fixed
service fee to provide the services contracted for and its realization of profit or loss from its
undertaking, in relation to all its other undertakings, will depend on how efficiently it deploys
and fields its members and how they perform the work and manage its operations.
5. The cooperative shall, whenever possible, maintain and keep under its control the premises
where the work under this contract shall be performed.

In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration
Branch No. VI, Bacolod City, praying to be declared as regular employees of SMC, with claims for
recovery of all benefits and privileges enjoyed by SMC rank and file employees.
Private respondents subsequently filed on September 25, 1995 an Amended Complaint [4] to
include illegal dismissal as additional cause of action following SMCs closure of its Bacolod
Shrimp Processing Plant on September 15, 1995[5] which resulted in the termination of their
services.

6. The cooperative shall have exclusive discretion in the selection, engagement and discharge of
its member-workers or otherwise in the direction and control thereof. The determination of the
wages, salaries and compensation of the member-workers of the cooperative shall be within its
full control. It is further understood that the cooperative is an independent contractor, and as
such, the cooperative agrees to comply with all the requirements of all pertinent laws and
ordinances, rules and regulations. Although it is understood and agreed between the parties
hereto that the cooperative, in the performance of its obligations, is subject to the control or
direction of the company merely as a (sic) result to be accomplished by the work or services
herein specified, and not as to the means and methods of accomplishing such result, the
cooperative hereby warrants that it will perform such work or services in such manner as will be
consistent with the achievement of the result herein contracted for.

SMC filed a Motion for Leave to File Attached Third Party Complaint [6] dated November
27, 1995 to implead Sunflower as Third Party Defendant which was, by Order [7] of December 11,
1995, granted by Labor Arbiter Ray Alan T. Drilon.

xxx

We sustain the stand of the respondent SMC that it could properly exercise its management
prerogative to contract out the preparation and processing aspects of its aquaculture operations.
Judicial notice has already been taken regarding the general practice adopted in government and
private institutions and industries of hiring independent contractors to perform special services.
xxx

8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well as all
benefits, premiums and protection in accordance with the provisions of the labor code,
cooperative code and other applicable laws and decrees and the rules and regulations
promulgated by competent authorities, assuming all responsibility therefor.
The cooperative further undertakes to submit to the company within the first ten (10) days of
every month, a statement made, signed and sworn to by its duly authorized representative before
a notary public or other officer authorized by law to administer oaths, to the effect that the
cooperative has paid all wages or salaries due to its employees or personnel for services rendered
by them during the month immediately preceding, including overtime, if any, and that such
payments were all in accordance with the requirements of law.
xxx
12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for a
period of one (1) year commencing on January 1, 1993. Thereafter, this Contract will be deemed
renewed on a month-to-month basis until terminated by either party by sending a written notice
to the other at least thirty (30) days prior to the intended date of termination.
xxx[3] (Underscoring supplied)
Pursuant to the contract, Sunflower engaged private respondents to, as they did, render
services at SMCs Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract was
deemed renewed by the parties every month after its expiration on January 1, 1994 and private
respondents continued to perform their tasks until September 11, 1995.

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo
City of the Department of Labor and Employment (DOLE) a Notice of Closure [8] of its
aquaculture operations effective on even date, citing serious business losses.
By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents
complaint for lack of merit, ratiocinating as follows:

xxx
Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code
under specific conditions and we do not see how this activity could not be legally undertaken by
an independent service cooperative like the third-party respondent herein.
There is no basis to the demand for regularization simply on the theory that complainants
performed activities which are necessary and desirable in the business of respondent. It has been
held that the definition of regular employees as those who perform activities which are necessary
and desirable for the business of the employer is not always determinative because any
agreement may provide for one (1) party to render services for and in behalf of another for a
consideration even without being hired as an employee.
The charge of the complainants that third-party respondent is a mere labor-only contractor is a
sweeping generalization and completely unsubstantiated. xxx In the absence of clear and
convincing evidence showing that third-party respondent acted merely as a labor only
contractor, we are firmly convinced of the legitimacy and the integrity of its service contract with
respondent SMC.
In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management
decision purely dictated by economic factors which was (sic) mainly serious business losses. The
law recognizes the right of the employer to close his business or cease his operations for bonafide

reasons, as much as it recognizes the right of the employer to terminate the employment of any
employee due to closure or cessation of business operations, unless the closing is for the purpose
of circumventing the provisions of the law on security of tenure. The decision of respondent SMC
to close its Bacolod Shrimp Processing Plant, due to serious business losses which has (sic)
clearly been established, is a management prerogative which could hardly be interfered with.
xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant,
who were accordingly terminated following the legal requisites prescribed by law. The closure,
however, in so far as the complainants are concerned, resulted in the termination of SMCs
service contract with their cooperative xxx[9] (Underscoring supplied)
Private respondents appealed to the NLRC.
By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it
finding that third party respondent Sunflower was an independent contractor in light of its
observation that [i]n all the activities of private respondents, they were under the actual
direction, control and supervision of third party respondent Sunflower, as well as the payment of
wages, and power of dismissal.[10]
Private respondents Motion for Reconsideration [11] having been denied by the NLRC for
lack of merit by Resolution of September 10, 1999, they filed a petition for certiorari [12] before the
Court of Appeals (CA).
Before the CA, SMC filed a Motion to Dismiss [13] private respondents petition for noncompliance with the Rules on Civil Procedure and failure to show grave abuse of discretion on
the part of the NLRC.
SMC subsequently filed its Comment[14] to the petition on March 30, 2000.
By Decision of February 7, 2001, the appellate court reversed the NLRC decision and
accordingly found for private respondents, disposing as follows:
WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1)
REVERSING and SETTING ASIDE both the 29 December 1998 decision and 10 September 1999
resolution of the National Labor Relations Commission (NLRC), Fourth Division, Cebu City in
NLRC Case No. V-0361-97 as well as the 23 September 1997 decision of the labor arbiter in RAB
Case No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation, to GRANT
petitioners: (a) separation pay in accordance with the computation given to the regular SMC
employees working at its Bacolod Shrimp Processing Plant with full backwages, inclusive of
allowances and other benefits or their monetary equivalent, from 11 September 1995, the time
their actual compensation was withheld from them, up to the time of the finality of this decision;
(b) differentials pays (sic) effective as of and from the time petitioners acquired regular
employment status pursuant to the disquisition mentioned above, and all such other and further
benefits as provided by applicable collective bargaining agreement(s) or other relations, or by
law, beginning such time up to their termination from employment on 11 September 1995; and
ORDERING private respondent SMC to PAY unto the petitioners attorneys fees equivalent to ten
(10%) percent of the total award.

No pronouncement as to costs.
SO ORDERED.[15] (Underscoring supplied)
Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court
reasoned:
Although the terms of the non-exclusive contract of service between SMC and [Sunflower]
showed a clear intent to abstain from establishing an employer-employee relationship between
SMC and [Sunflower] or the latters members, the extent to which the parties successfully
realized this intent in the light of the applicable law is the controlling factor in determining the
real and actual relationship between or among the parties.
xxx
With respect to the power to control petitioners conduct, it appears that petitioners were under
the direct control and supervision of SMC supervisors both as to the manner they performed
their functions and as to the end results thereof. It was only after petitioners lodged a complaint
to have their status declared as regular employees of SMC that certain members of [Sunflower]
began to countersign petitioners daily time records to make it appear that they (petitioners) were
under the control and supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx
Even without these instances indicative of control by SMC over the petitioners, it is safe
to assume that SMC would never have allowed the petitioners to work within its premises, using
its own facilities, equipment and tools, alongside SMC employees discharging similar or identical
activities unless it exercised a substantial degree of control and supervision over the
petitioners not only as to the manner they performed their functions but also as to the end
results of such functions.
xxx
xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent
contractors. [Sunflower] and the petitioners did not have substantial capital or investment in the
form of tools, equipment, implements, work premises, et cetera necessary to actually perform
the service under their own account, responsibility, and method. The only work premises
maintained by [Sunflower] was a small office within the confines of a small carinderia or
refreshment parlor owned by the mother of its chair, Roy Asong; the only equipment it owned
was a typewriter (rollo, pp. 525-525) and, the only assets it provided SMC were the bare bodies
of its members, the petitioners herein (rollo, p. 523).
In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under
the control and supervision of SMC both as to the mannerand method in discharging their
functions and as to the results thereof.
Besides, it should be taken into account that the activities undertaken by the petitioners as
cleaners, janitors, messengers and shrimp harvesters, packers and handlers were directly related
to the aquaculture business of SMC (See Guarin vs. NLRC, 198 SCRA 267, 273). This is

confirmed by the renewal of the service contract from January 1993 to September 1995, a period
of close to three (3) years.
Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable
workforce and raises the suspicion that the non-exclusive service contract between SMC and
[Sunflower] was designed to evade the obligations inherent in an employer-employee
relationship (See Rhone-Poulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249,
259).
Equally suspicious is the fact that the notary public who signed the by-laws of
[Sunflower] and its [Sunflower] retained counsel are both partners of the local
counsel of SMC (rollo, p. 9).

THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND GRANTING
RESPONDENTS PATENTLY DEFECTIVE PETITION FOR CERTIORARI. IN DOING SO, THE
COURT OF APPEALS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS.
II
THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS
COMPLAINANTS IN THE CASE BEFORE THE LABOR ARBITER. IN DOING SO, THE COURT
OF APPEALS DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH LAW OR WITH
THE APPLICABLE DECISIONS OF THE SUPREME COURT.
III

xxx
With these observations, no other logical conclusion can be reached except that [Sunflower]
acted as an agent of SMC, facilitating the manpower requirements of the latter, the real employer
of the petitioners. We simply cannot allow these two entities through the convenience of a nonexclusive service contract to stipulate on the existence of employer-employee relation. Such
existence is a question of law which cannot be made the subject of agreement to the detriment of
the petitioners (Tabas vs. California Manufacturing, Inc., 169 SCRA 497, 500).
xxx
There being a finding of labor-only contracting, liability must be shouldered either by SMC or
[Sunflower] or shared by both (See Tabas vs. California Manufacturing, Inc., supra, p. 502).
SMC however should be held solely liable for [Sunflower] became non-existent with the
closure of the aquaculture business of SMC.
Furthermore, since the closure of the aquaculture operations of SMC appears to be valid,
reinstatement is no longer feasible. Consistent with the pronouncement in Bustamante, et al.,
vs. NLRC, G.R. No. 111651, 28 November 1996, petitioners are thus entitled to separation pay (in
the computation similar to those given to regular SMC employees at its Bacolod Shrimp
Processing Plant) with full backwages, inclusive of allowances and other benefits or their
monetary equivalent, from the time their actual compensation was withheld from them up to the
time of the finality of this decision. This is without prejudice to differentials pays (sic) effective as
of and from the time petitioners acquired regular employment status pursuant to the discussion
mentioned above, and all such other and further benefits as provided by applicable collective
bargaining agreement(s) or other relations, or by law, beginning such time up to their
termination from employment on 11 September 1995. [16] (Emphasis and underscoring supplied)
SMCs Motion for Reconsideration [17] having been denied for lack of merit by Resolution of
July 11, 2001, it comes before this Court via the present petition for review on certiorari
assigning to the CA the following errors:
I

THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE


EMPLOYEES OF SMC.
IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT RESPONDENTS
ARE NOT ENTITLED TO ANY RELIEF. THE CLOSURE OF THE BACOLOD SHRIMP
PROCESSING PLANT WAS DUE TO SERIOUS BUSINESS LOSSES. [18] (Underscoring supplied)
SMC bewails the failure of the appellate court to outrightly dismiss the petition for
certiorari as only three out of the ninety seven named petitioners signed the verification and
certification against forum-shopping.
While the general rule is that the certificate of non-forum shopping must be signed by all
the plaintiffs or petitioners in a case and the signature of only one of them is insufficient, [19] this
Court has stressed that the rules on forum shopping, which were designed to promote and
facilitate the orderly administration of justice, should not be interpreted with such absolute
literalness as to subvert its own ultimate and legitimate objective. [20] Strict compliance with the
provisions regarding the certificate of non-forum shopping merely underscores its mandatory
nature in that the certification cannot be altogether dispensed with or its requirements
completely disregarded.[21] It does not, however, thereby interdict substantial compliance with its
provisions under justifiable circumstances.[22]
Thus in the recent case of HLC Construction and Development Corporation v. Emily
Homes Subdivision Homeowners Association,[23]this Court held:
Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a
group, represented by their homeowners association president who was likewise one of the
plaintiffs, Mr. Samaon M. Buat. Respondents raised one cause of action which was the breach of
contractual obligations and payment of damages. They shared a common interest in the subject
matter of the case, being the aggrieved residents of the poorly constructed and developed Emily
Homes Subdivision. Due to the collective nature of the case, there was no doubt that Mr. Samaon
M. Buat could validly sign the certificate of non-forum shopping in behalf of all his co-plaintiffs.
In cases therefore where it is highly impractical to require all the plaintiffs to sign the certificate

of non-forum shopping, it is sufficient, in order not to defeat the ends of justice, for one of the
plaintiffs, acting as representative, to sign the certificate provided that xxx the plaintiffs share
a common interest in the subject matter of the case or filed the case as a collective,
raising only one common cause of action or defense.[24] (Emphasis and underscoring
supplied)
Given the collective nature of the petition filed before the appellate court by herein private
respondents, raising one common cause of action against SMC, the execution by private
respondents Winifredo Talite, Renelito Deon and Jose Temporosa in behalf of all the other
private respondents of the certificate of non-forum shopping constitutes substantial compliance
with the Rules.[25] That the three indeed represented their co-petitioners before the appellate
court is, as it correctly found, subsequently proven to be true as shown by the signatures of the
majority of the petitioners appearing in their memorandum filed before Us. [26]
Additionally, the merits of the substantive aspects of the case may also be deemed as
special circumstance or compelling reason to take cognizance of a petition although the
certification against forum shopping was not executed and signed by all of the petitioners. [27]
SMC goes on to argue that the petition filed before the CA is fatally defective as it was not
accompanied by copies of all pleadings and documents relevant and pertinent thereto in
contravention of Section 1, Rule 65 of the Rules of Court. [28]

NLRC are accorded great respect and finality, and that this principle acquires greater weight and
application in the case at bar as the labor arbiter and the NLRC have the same factual findings.
The general rule, no doubt, is that findings of facts of an administrative agency which has
acquired expertise in the particular field of its endeavor are accorded great weight on appeal.
[38]
The rule is not absolute and admits of certain well-recognized exceptions, however. Thus,
when the findings of fact of the labor arbiter and the NLRC are not supported by substantial
evidence or their judgment was based on a misapprehension of facts, the appellate court may
make an independent evaluation of the facts of the case. [39]
SMC further faults the appellate court in giving due course to private respondents petition
despite the fact that the complaint filed before the labor arbiter was signed and verified only by
private respondent Winifredo Talite; that private respondents position paper [40] was verified by
only six[41] out of the ninety seven complainants; and that their Joint-Affidavit [42] was executed
only by twelve[43] of the complainants.
Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts that it
should not have been considered by the appellate court in establishing the claims of those who
did not sign the same, citing this Courts ruling in Southern Cotabato Development and
Construction, Inc. v. NLRC.[44]
SMCs position does not lie.

This Court is not persuaded. The records show that private respondents appended the
following documents to their petition before the appellate court: the September 23,
1997 Decision of the Labor Arbiter,[29] their Notice of Appeal with Appeal Memorandum dated
October 16, 1997 filed before the NLRC, [30] the December 29, 1998 NLRC Decision,
[31]
their Motion for Reconsideration dated March 26, 1999 filed with the NLRC [32] and the
September 10, 1999 NLRC Resolution.[33]
It bears stressing at any rate that it is the appellate court which ultimately determines if
the supporting documents are sufficient to make out a prima facie case.[34] It discerns whether
on the basis of what have been submitted it could already judiciously determine the merits of the
petition.[35] In the case at bar, the CA found that the petition was adequately supported by
relevant and pertinent documents.
At all events, this Court has allowed a liberal construction of the rule on the
accomplishment of a certificate of non-forum shopping in the following cases: (1) where a rigid
application will result in manifest failure or miscarriage of justice; (2) where the interest of
substantial justice will be served; (3) where the resolution of the motion is addressed solely to
the sound and judicious discretion of the court; and (4) where the injustice to the adverse party
is not commensurate with the degree of his thoughtlessness in not complying with the procedure
prescribed.[36]
Rules of procedure should indeed be viewed as mere tools designed to facilitate the
attainment of justice. Their strict and rigid application, which would result in technicalities that
tend to frustrate rather than promote substantial justice, must always be eschewed. [37]
SMC further argues that the appellate court exceeded its jurisdiction in reversing the
decisions of the labor arbiter and the NLRC as findings of facts of quasi-judicial bodies like the

A perusal of the complaint shows that the ninety seven complainants were being
represented by their counsel of choice. Thus the first sentence of their complaint alleges: xxx
complainants, by counsel and unto this Honorable Office respectfully state xxx. And the
complaint was signed by Atty. Jose Max S. Ortiz as counsel for the complainants. Following
Section 6, Rule III of the 1990 Rules of Procedure of the NLRC, now Section 7, Rule III of the
1999 NLRC Rules, Atty. Ortiz is presumed to be properly authorized by private respondents in
filing the complaint.
That the verification wherein it is manifested that private respondent Talite was one of the
complainants and was causing the preparation of the complaint with the authority of my cocomplainants indubitably shows that Talite was representing the rest of his co-complainants in
signing the verification in accordance with Section 7, Rule III of the 1990 NLRC Rules, now
Section 8, Rule 3 of the 1999 NLRC Rules, which states:
Section 7. Authority to bind party. Attorneys and other representatives of parties shall have
authority to bind their clients in all matters of procedure; but they cannot, without a special
power of attorney or express consent, enter into a compromise agreement with the opposing
party in full or partial discharge of a clients claim. (Underscoring supplied)
As regards private respondents position paper which bore the signatures of only six of
them, appended to it was an Authority/Confirmation of Authority [45] signed by the ninety one
others conferring authority to their counsel to file RAB Case No. 06-07-10316-95, entitled
Winifredo Talite et al. v. San Miguel Corporation presently pending before the sala of Labor
Arbiter Ray Alan Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City and
appointing him as their retained counsel to represent them in the said case.

That there has been substantial compliance with the requirement on verification of
position papers under Section 3, Rule V of the 1990 NLRC Rules of Procedure [46] is not difficult
to appreciate in light of the provision of Section 7, Rule V of the 1990 NLRC Rules, now Section
9, Rule V of the 1999 NLRC Rules which reads:
Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be non-litigious
in nature. Subject to the requirements of due process, the technicalities of law and procedure
and the rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter
may avail himself of all reasonable means to ascertain the facts of the controversy speedily,
including ocular inspection and examination of well-informed persons. (underscoring supplied)
As regards private respondents Joint-Affidavit which is being assailed in view of the failure
of some complainants to affix their signatures thereon, this Court quotes with approval the
appellate courts ratiocinations:
A perusal of the Southern Cotabato Development Case would reveal that movant did not quote
the whole text of paragraph 5 on page 865 of 280 SCRA. The whole paragraph reads:
Clearly then, as to those who opted to move for the dismissal of their complaints, or did not
submit their affidavits nor appear during trial and in whose favor no other independent evidence
was adduced, no award for back wages could have been validly and properly made for want of
factual basis. There is no showing at all that any of the affidavits of the thirty-four (34)
complainants were offered as evidence for those who did not submit their affidavits, or that such
affidavits had any bearing at all on the rights and interest of the latter. In the same vein, private
respondents position paper was not of any help to these delinquent complainants.
The implication is that as long as the affidavits of the complainants were offered as
evidence for those who did not submit theirs, or the affidavits were material and
relevant to the rights and interest of the latter, such affidavits may be sufficient to
establish the claims of those who did not give their affidavits.
Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants
(petitioners herein) would readily reveal that the affidavit was offered as evidence not only for
the signatories therein but for all of the complainants. (These ninety-seven (97) individuals were
previously identified during the mandatory conference as the only complainants in the
proceedings before the labor arbiter) Moreover, the affidavit touched on the common interest of
all of the complainants as it supported their claim of the existence of an employer-employee
relationship between them and respondent SMC. Thus, the said affidavit was enough to prove
the claims of the rest of the complainants.[47] (Emphasis supplied, underscoring in the original)
In any event, SMC is reminded that the rules of evidence prevailing in courts of law or
equity do not control proceedings before the Labor Arbiter. So Article 221 of the Labor Code
enjoins:
ART. 221. Technical rules not binding and prior resort to amicable settlement. In
any proceeding before the Commission or any of the Labor Arbiters, the rules of evidence
prevailing in courts of law or equity shall not be controlling and it is the spirit and intention of
this Code that the Commission and its members and the Labor Arbiters shall use every and all

reasonable means to ascertain the facts in each case speedily and objectively and without regard
to technicalities of law or procedure, all in the interest of due process. xxx
As such, their application may be relaxed to serve the demands of substantial justice. [48]
On the merits, the petition just the same fails.
SMC insists that private respondents are the employees of Sunflower, an independent
contractor. On the other hand, private respondents assert that Sunflower is a labor-only
contractor.
Article 106 of the Labor Code provides:
ART. 106. Contractor or subcontracting. Whenever an employer enters into a contract
with another person for the performance of the formers work, the employees of the contractor
and of the 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 wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the extent of the work performed under the contract, in
the same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out
of labor to protect the rights of workers established under the Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and determine who
among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.
There is labor-only contracting where the person supplying workers to an employer does not
have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18, distinguishes between legitimate and labor-only contracting:
Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate
contracting, there exists a trilateral relationship under which there is a contract for a specific job,
work or service between the principal and the contractor or subcontractor, and a contract of
employment between the contractor or subcontractor and its workers. Hence, there are three
parties involved in these arrangements, the principal which decides to farm out a job or service
to a contractor or subcontractor, the contractor or subcontractor which has the capacity to

independently undertake the performance of the job, work or service, and the contractual
workers engaged by the contractor or subcontractor to accomplish the job, work or service.
Section 5. Prohibition against labor-only contracting. Labor-only contracting Sis hereby
declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement
where the contractor or subcontractor merely recruits, supplies or places workers to perform a
job, work or service for a principal, and any of the following elements are present:
i) The contractor or subcontractor does not have substantial capital or investment
which relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the
principal, or
ii) The contractor does not exercise the right to control over the performance of the
work of the contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the
Labor Code, as amended.
Substantial capital or investment refers to capital stocks and subscribed capitalization in the case
of corporations, tools, equipment, implements, machineries and work premises, actually and
directly used by the contractor or subcontractor in the performance or completion of the job,
work or service contracted out.
The right to control shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.
The test to determine the existence of independent contractorship is whether one
claiming to be an independent contractor has contracted to do the work according
to his own methods and without being subject to the control of the employer,
except only as to the results of the work.[49]

respondents. The language of a contract is not, however, determinative of the parties


relationship; rather it is the totality of the facts and surrounding circumstances of the case. [52] A
party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the
character of its business, i.e., whether as labor-only contractor or job contractor, it being crucial
that its character be measured in terms of and determined by the criteria set by statute. [53]
SMC argues that Sunflower could not have been issued a certificate of registration as a
cooperative if it had no substantial capital.[54]
While indeed Sunflower was issued Certificate of Registration No. IL0-875 [55] on February
10, 1992 by the Cooperative Development Authority, this merely shows that it had at
least P2,000.00 in paid-up share capital as mandated by Section 5 of Article 14 [56] of Republic
Act No. 6938, otherwise known as the Cooperative Code, which amount cannot be considered
substantial capitalization.
What appears is that Sunflower does not have substantial capitalization or investment in
the form of tools, equipment, machineries, work premises and other materials to qualify it as an
independent contractor.
On the other hand, it is gathered that the lot, building, machineries and all other working
tools utilized by private respondents in carrying out their tasks were owned and provided by
SMC. Consider the following uncontroverted allegations of private respondents in the Joint
Affidavit:
[Sunflower], during the existence of its service contract with respondent SMC, did not own a
single machinery, equipment, or working tool used in the processing plant. Everything was
owned and provided by respondent SMC. The lot, the building, and working facilities are owned
by respondent SMC. The machineries and equipments (sic) like washer machine, oven or
cooking machine, sizer machine, freezer, storage, and chilling tanks, push carts, hydrolic (sic)
jack, tables, and chairs were all owned by respondent SMC. All the boxes, trays, molding pan
used in the processing are also owned by respondent SMC. The gloves and boots used by the
complainants were also owned by respondent SMC. Even the mops, electric floor cleaners,
brush, hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the like used by
the complainants assigned as cleaners were all owned and provided by respondent SMC.

In legitimate labor contracting, the law creates an employer-employee relationship for a


limited purpose, i.e., to ensure that the employees are paid their wages. The principal employer
becomes jointly and severally liable with the job contractor, only for the payment of the
employees wages whenever the contractor fails to pay the same. Other than that, the principal
employer is not responsible for any claim made by the employees. [50]

Simply stated, third-party respondent did not own even a small capital in the form of tools,
machineries, or facilities used in said prawn processing

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.[51]

The alleged office of [Sunflower] is found within the confines of a small carinderia or
refreshment (sic) owned by the mother of the Cooperative Chairman Roy Asong.

The Contract of Services between SMC and Sunflower shows that the parties clearly
disavowed the existence of an employer-employee relationship between SMC and private

xxx

xxx In said . . . office, the only equipment used and owned by [Sunflower] was a typewriter. [57]
And from the job description provided by SMC itself, the work assigned to private
respondents was directly related to the aquaculture operations of SMC. Undoubtedly, the nature
of the work performed by private respondents in shrimp harvesting, receiving and packing

formed an integral part of the shrimp processing operations of SMC. As for janitorial and
messengerial services, that they are considered directly related to the principal business of the
employer[58] has been jurisprudentially recognized.
Furthermore, Sunflower did not carry on an independent business or undertake the
performance of its service contract according to its own manner and method, free from the
control and supervision of its principal, SMC, its apparent role having been merely to recruit
persons to work for SMC.
Thus, it is gathered from the evidence adduced by private respondents before the labor
arbiter that their daily time records were signed by SMC supervisors Ike Puentebella, Joemel
Haro, Joemari Raca, Erwin Tumonong, Edison Arguello, and Stephen Palabrica, which fact
shows that SMC exercised the power of control and supervision over its employees.
[59]
And control of the premises in which private respondents worked was by SMC. These tend to
disprove the independence of the contractor.[60]
More. Private respondents had been working in the aqua processing plant inside the SMC
compound alongside regular SMC shrimp processing workers performing identical jobs under
the same SMC supervisors. [61] This circumstance is another indicium of the existence of a laboronly contractorship.[62]
And as private respondents alleged in their Joint Affidavit which did not escape the
observation of the CA, no showing to the contrary having been proffered by SMC, Sunflower did
not cater to clients other than SMC, [63] and with the closure of SMCs Bacolod Shrimp Processing
Plant, Sunflower likewise ceased to exist. This Courts ruling in San Miguel Corporation v.
MAERC Integrated Services, Inc.[64] is thus instructive.
xxx 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 MAERCs cessation of operations,
the loss of jobs for the whole MAERC workforce and the resulting actions instituted by the
workers.[65] (Underscoring supplied)
All the foregoing considerations affirm by more than substantial evidence the existence of
an employer-employee relationship between SMC and private respondents.
Since private respondents who were engaged in shrimp processing performed tasks
usually necessary or desirable in the aquaculture business of SMC, they should be deemed
regular employees of the latter[66] and as such are entitled to all the benefits and rights
appurtenant to regular employment. [67] They should thus be awarded differential pay
corresponding to the difference between the wages and benefits given them and those accorded
SMCs other regular employees.
Respecting the private respondents who were tasked with janitorial and messengerial
duties, this Court quotes with approval the appellate courts ruling thereon:

Those performing janitorial and messengerial services however acquired regular status only after
rendering one-year service pursuant to Article 280 of the Labor Code. Although janitorial and
messengerial services are considered directly related to the aquaculture business of SMC, they
are deemed unnecessary in the conduct of its principal business; hence, the distinction
(See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137 andPhilippine Bank of
Communications v. NLRC, supra, p. 359).[68]
The law of course provides for two kinds of regular employees, namely: (1) those who are
engaged to perform activities which are usually necessary or desirable in the usual business or
trade of the employer; and (2) those who have rendered at least one year of service, whether
continuous or broken, with respect to the activity in which they are employed. [69]
As for those of private respondents who were engaged in janitorial and messengerial tasks,
they fall under the second category and are thus entitled to differential pay and benefits
extended to other SMC regular employees from the day immediately following their first year of
service.[70]
Regarding the closure of SMCs aquaculture operations and the consequent termination of
private respondents, Article 283 of the Labor Code provides:
ART. 283. Closure of establishment and reduction of personnel. The employer may
also terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Department of Labor
and Employment at least one (1) month before the intended date thereof. In case of termination
due to the installation of labor saving devices or redundancy, the worker affected thereby shall be
entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1)
month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking not due
to serious business losses or financial reverses, the separation pay shall be equivalent to one (1)
month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher.
A fraction of at least six (6) months shall be considered one (1) whole year. (Underscoring
supplied)
In the case at bar, a particular department under the SMC group of companies was closed
allegedly due to serious business reverses. This constitutes retrenchment by, and not closure of,
the enterprise or the company itself as SMC has not totally ceased operations but is still very
much an on-going and highly viable business concern. [71]
Retrenchment is a management prerogative consistently recognized and affirmed by this
Court. It is, however, subject to faithful compliance with the substantive and procedural
requirements laid down by law and jurisprudence.[72]
For retrenchment to be considered valid the following substantial requirements must be
met: (a) the losses expected should be substantial and not merely de minimis in extent; (b) the
substantial losses apprehended must be reasonably imminent such as can be perceived
objectively and in good faith by the employer; (c) the retrenchment must be reasonably
necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if

already incurred, and the expected imminent losses sought to be forestalled, must be proved by
sufficient and convincing evidence.[73]
In the discharge of these requirements, it is the employer who has the onus, being in the
nature of an affirmative defense.[74]
Normally, the condition of business losses is shown by audited financial documents like
yearly balance sheets, profit and loss statements and annual income tax returns. The financial
statements must be prepared and signed by independent auditors failing which they can be
assailed as self-serving documents.[75]
In the case at bar, company losses were duly established by financial documents audited
by Joaquin Cunanan & Co. showing that the aquaculture operations of SMCs Agribusiness
Division accumulated losses amounting to P145,848,172.00 in 1992 resulting in the closure of its
Calatrava Aquaculture Center in Negros Occidental, P11,393,071.00 in 1993 and P80,325,608.00
in 1994 which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and
the Bacolod Shrimp Processing Plant in 1995.
SMC has thus proven substantial business reverses justifying retrenchment of its
employees.
For termination due to retrenchment to be valid, however, the law requires that written
notices of the intended retrenchment be served by the employer on the worker and on the DOLE
at least one (1) month before the actual date of the retrenchment, [76] in order to give employees
some time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity
to ascertain the verity of the alleged cause of termination. [77]
Private respondents, however, were merely verbally informed on September 10, 1995 by
SMC Prawn Manager Ponciano Capay that effective the following day or on September 11, 1995,
they were no longer to report for work as SMC would be closing its operations. [78]
Where the dismissal is based on an authorized cause under Article 283 of the Labor Code
but the employer failed to comply with the notice requirement, the sanction should be stiff as the
dismissal process was initiated by the employers exercise of his management prerogative, as
opposed to a dismissal based on a just cause under Article 282 with the same procedural
infirmity where the sanction to be imposed upon the employer should be tempered as the
dismissal process was, in effect, initiated by an act imputable to the employee. [79]
In light of the factual circumstances of the case at bar, this Court awards P50,000.00 to
each private respondent as nominal damages.

Considering that private respondents were not illegally dismissed, however, no backwages
need be awarded. It is well settled that backwages may be granted only when there is a finding of
illegal dismissal.[80] The appellate court thus erred in awarding backwages to private respondents
upon the authority of Bustamante v. NLRC,[81] what was involved in that case being one of illegal
dismissal.
With respect to attorneys fees, in actions for recovery of wages or where an employee was
forced to litigate and thus incurred expenses to protect his rights and interests, [82] a maximum of
ten percent (10%) of the total monetary award [83] by way of attorneys fees is justifiable under
Article 111 of the Labor Code, [84] Section 8, Rule VIII, Book III of its Implementing Rules, [85] and
paragraph 7, Article 2208 of the Civil Code. [86] Although an express finding of facts and law is
still necessary to prove the merit of the award, there need not be any showing that the employer
acted maliciously or in bad faith when it withheld the wages. There need only be a showing that
the lawful wages were not paid accordingly, as in this case. [87]
Absent any evidence showing that Sunflower has been dissolved in accordance with law,
pursuant to Rule VIII-A, Section 19[88] of the Omnibus Rules Implementing the Labor Code,
Sunflower is held solidarily liable with SMC for all the rightful claims of private respondents.
WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001
and Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with
MODIFICATION.
Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby
ORDERED to jointly and severally pay each private respondent differential pay from the time
they became regular employees up to the date of their termination; separation pay equivalent to
at least one (1) month pay or to at least one-half month pay for every year of service, whichever is
higher, as mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to
other regular SMC employees that were terminated as a result of the retrenchment, depending
on which is most beneficial to private respondents; and ten percent (10%) attorneys fees based
on the herein modified award.
Petitioner San Miguel Corporation is further ORDERED to pay each private respondent
the amount of P50,000.00, representing nominal damages for non-compliance with statutory
due process.
The award of backwages is DELETED.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

The grant of separation pay as an incidence of termination of employment due to


retrenchment to prevent losses is a statutory obligation on the part of the employer and a
demandable right on the part of the employee. Private respondents should thus be awarded
separation pay equivalent to at least one (1) month pay or to at least one-half month pay for
every year of service, whichever is higher, as mandated by Article 283 of the Labor Code or the
separation pay awarded by SMC to other regular SMC employees that were terminated as a
result of the retrenchment, depending on which is most beneficial to private respondents.

THIRD DIVISION

On 1 December 1997, Eparwa and LDCU, through their representatives, entered into a Contract
for Security Services. The pertinent portion of the contract provides that:

EPARWA SECURITY AND JANITORIAL SERVICES, INC.,


Petitioner,

G.R. No. 150402


5. For and in consideration of this security, protective and safety services,
[LDCU] agrees to pay [Eparwa] FIVE THOUSAND PESOS ONLY
(P5,000.00), Philippine Currency per guard a month payable within fifteen
(15) days after [Eparwa] presents its service invoice.[Eparwa] shall furnish
[LDCU] a monthly copy of SSS contribution of guards and monthly payroll
of each guard assigned at [LDCUs] premises on a monthly basis[.][4]

Present:
QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

- versus -

LICEO DE CAGAYAN UNIVERSITY,


Respondent.

Eparwa allocated the contracted amount of P5,000 per security guard per month in the following

Promulgated:
November 28, 2006
x-------------------------------------------------- x

manner:
Basic Pay (P104.50 x 391.5/12)
Night Diff. Pay
13th mo. Pay
5 day incentive leave
Uniform allowance
Employers SSS, Medicare, ECC contribution
Agency share
VAT
CONTRACT RATE
(rounded off to P5,000.00)[5]

DECISION

CARPIO, J.:

P3,40
11
28
4
5
22
42
45
P5,00

The Case

This is a petition for certiorari[1] of the Decision[2] dated 20 April 2001 and the Resolution
dated 21 September 2001 of the Court of Appeals (appellate court) in CA-G.R. SP No.
59120, Liceo de Cagayan University v. The Hon. National Labor Relations Commission, Fifth
Division, Eparwa Security and Janitorial Services, Inc., et al. The appellate court reinstated
the 18 August 1999decision[3] of the Labor Arbiter and remanded the case to the Regional
Arbitration Board, Branch

No.

10

of Cagayan de Oro City

to

compute

what

is

due

to Liceo de Cagayan University (LDCU) from Eparwa Security and Janitorial Services, Inc.

On 21 December 1998, 11 security guards (security guards) whom Eparwa assigned to LDCU
from 1 December 1997 to 30 November 1998 filed a complaint before the National Labor
Relations

Commissions

(NLRC)

Regional

Arbitration

Branch

No.

10

inCagayan de Oro City. Docketed as NLRC-RABX Case No. 10-01-00102-99, the complaint was
filed against both Eparwa and LDCU for underpayment of salary, legal holiday pay, 13 th month
pay, rest day, service incentive leave, night shift differential, overtime pay, and payment for
attorneys fees.

(Eparwa).
LDCU made a cross-claim and prayed that Eparwa should reimburse LDCU for any payment to
The Facts

the security guards.

So Ordered.[6]
The Ruling of the Labor Arbiter
LDCU filed an appeal before the NLRC. LDCU agreed with the Labor Arbiters decision on the
In its decision dated 18 August 1999, the Labor Arbiter found that the security guards are

security guards entitlement to salary differential but challenged the propriety of the amount of

entitled to wage differentials and premium for holiday and rest day work. The Labor Arbiter

the award. LDCU alleged that security guards not similarly situated were granted uniform

held Eparwa and

monetary awards and that the decision did not include the basis of the computation of the

LDCU solidarily liable

pursuant

to

Article

109

of

the

Labor

Code. The dispositive portion of the Labor Arbiters decision reads:

amount of the award.

WHEREFORE, judgment is rendered[:]


1.

Eparwa also filed an appeal before the NLRC. For its part, Eparwa questioned its liability for the

Ordering respondents [LDCU] and [Eparwa] solidarily liable to


pay [the security guards] for underpayment, holiday and rest day,
as follows:
Name

security guards claims and the awarded cross-claim amounts.

Amount

1.

Casiero

Jovencio

2.

Villarino

Leonardo

3.

Lumbab

Adriano

4.

Caballero

Gregorio, Jr.

5.

Cajilla

Delfin, Jr.

6.

Paduanga

Arnold

7.

Dungog

Achimedes

8.

Magallanes

Eduardo

9.

Dungog

Luigi

10.

Dungog

Telford

11.

Bahian

Wilfredo

The Ruling of the NLRC

The Fifth Division of the NLRC resolved Eparwa and LDCUs separate appeals in its
Resolution[7] dated 19 January 2000. The NLRC found that the security guards are entitled to
wage differentials and premium for holiday and rest day work. Although the NLRC
held Eparwa and LDCU solidarily liable for the wage differentials and premium for holiday and
P 463,540.95
rest day work, the NLRC did not require Eparwa to reimburse LDCU for its payments to the

2.

Denying the claim of unpaid 13 month pay, service incentive


leave and night shift premium pay for lack of merit;

3.

Ordering respondent [Eparwa] to reimburse respondent [LDCU]


for whatever amount the latter may be required to pay [the
security guards];

4.

th

Ordering
respondent
[Eparwa]
to
pay
respondent
[LDCU] P20,000.00 and P5,000.00 each of the [security guards],
moral and exemplary damages;

5.

Ordering [Eparwa] to pay 10% of attorneys fee[s][;]

6.

The rest of the claims are denied for lack of merit.

security guards. The NLRC also ordered the recomputation of the monetary awards according to
the dates actually worked by each security guard. The dispositive portion of the NLRC
Resolution reads thus:
WHEREFORE, the appealed decision is AFFIRMED, subject to the
modification that the portions thereof directing respondent EPARWA
Security Agency and Janitorial Services, Inc. to reimburse
respondent Liceo de Cagayan University for whatever amount the latter may
have paid complainants and to pay respondent Liceo de Cagayan University
the sum [sic] [of] P20,000.00 and P5,000.00, representing moral and
exemplary damages, respectively, of each complainants [sic], are deleted for

lack of legal basis. Further the monetary awards for wage differential and
premiums for holiday and rest day works shall be recomputed by the
Regional Arbitration Branch of origin at the execution stage of the
proceedings.

In its Decision promulgated on 20 April 2001, the appellate court granted LDCUs petition and
reinstated the Labor Arbiters decision. The appellate court also allowed LDCU to claim
reimbursement from Eparwa. The appellate courts decision reads thus:

Co[n]formably, the award of Attorneys fee[s] is equivalent to ten (10%)


percent of the aggregate monetary award as finally adjusted.

WHEREFORE,
foregoing
considered,
the
petition
is
hereby GRANTED. The decision dated August 18, 1999 of Labor
Arbiter CelenitoN. Daing is REINSTATED. The
case
is
hereby REMANDED to the Regional Arbitration Board, Branch No. 10
of Cagayan de Oro City to compute what is due to LDCU from EPARWA.

SO ORDERED.[8]

Eparwa and LDCU again filed separate motions for partial reconsideration of the 19 January
2000 NLRC

Resolution. LDCU

questioned

the NLRCs deletion

of LDCUs entitlement

SO ORDERED.[11]

to

reimbursement by Eparwa. Eparwa, on the other hand, prayed that LDCU be made to
reimburse Eparwa for whatever amount it may pay to the security guards.

Eparwa filed a motion for reconsideration of the appellate courts decision. Eparwa stressed that

In its Resolution dated 14 March 2000, the NLRC declared that although Eparwa and LDCU
are solidarily liable to the security guards for the monetary award, LDCU alone is ultimately

jurisprudence is consistent in ruling that the ultimate liability for the payment of the monetary
award rests with LDCU alone.

liable. The NLRC resolved the issue thus:


The appellate court denied Eparwas motion for reconsideration for lack of merit.
WHEREFORE, the assailed resolution, dated 19 January 2000,
is MODIFIED in that respondent Liceo de Cagayan University (LICEO) is
ordered to reimburse respondent Eparwa Security and Janitorial Services,
Inc. (EPARWA) for whatever amount the latter may have paid to
complainants arising from this case.

Hence, this petition.

SO ORDERED.[9]

The Issue

The petition raises this sole legal issue: Is LDCU alone ultimately liable to the security guards for
LDCU

filed

petition

the NLRCs decision. LDCU

for
took

certiorari[10] before
issue

with

the

appellate

the NLRCsorder

that

court
LDCU

assailing

the wage differentials and premium for holiday and rest day pay?

should

reimburse Eparwa. LDCU stated that this would free Eparwa from any liability for payment of
The Ruling of the Court

the security guards money claims.

The petition has merit.


The Ruling of the Appellate Court

Eparwa and LDCUs Solidary Liability and


LDCUs Ultimate Liability

Articles 106, 107 and 109 of the Labor Code read:


Art. 106. Contractor or subcontractor. Whenever an employer enters into a
contract with another person for the performance of theformers 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 wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to
the extent of the work performed under the contract, in the same manner
and extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit
the contracting out of labor to protect the rights of workers established
under this Code. In so prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among
the parties involved shall be considered the employer for purposes of this
Code, to prevent any violation or circumvention of any provision of this
Code.
There is labor-only contracting where the person supplying workers to an
employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such persons are performing activities
which are directly related to the principal business of the 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.
Article 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.
Article 109. Solidary liability. The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held
responsible with his contractor or subcontractor for any violation of any
provision of this Code. For purposes of determining the extent of their civil
liability under this Chapter, they shall be considered as direct employers.

This Courts ruling in Eagle Security Agency, Inc. v. NLRC [12] squarely applies to the present
case. In Eagle, we ruled that:

This joint and several liability of the contractor and the principal is
mandated by the Labor Code to assure compliance of the provisions therein
including the statutory minimum wage [Article 99, Labor Code]. The
contractor is made liable by virtue of his status as direct employer. The
principal, on the other hand, is made the indirect employer of the
contractors employees for purposes of paying the employees their wages
should the contractor be unable to pay them. This joint and several liability
facilitates, if not guarantees, payment of the workers performance of any
work, task, job or project, thus giving the workers ample protection as
mandated by the 1987 Constitution [See Article II Sec. 18 and Article XIII
Sec. 3].
In the case at bar, it is beyond dispute that the security guards are the
employees of EAGLE [See Article VII Sec. 2 of the Contract for Security
Services; G.R. No. 81447, Rollo, p. 34]. That they were assigned to guard the
premises of PTSI pursuant to the latters contract with EAGLE and that
neither of these two entities paid their wage and allowance increases under
the subject wage orders are also admitted [See Labor Arbiters Decision, p. 2;
G.R.
No.
81447, Rollo,
p.
75].
Thus,
the
application
of
the aforecited provisions of the Labor Code on joint and several liability of
the principal and contractor is appropriate [See Del Rosario & Sons Logging
Enterprises, Inc. v. NLRC, G.R. No. 64204, May 31, 1985, 136 SCRA 669].
The solidary liability of PTSI and EAGLE, however, does not preclude the
right of reimbursement from his co-debtor by the one who paid [See Article
1217, Civil Code]. It is with respect to this right of reimbursement that
petitioners can find support in the aforecitedcontractual stipulation and
Wage Order provision.
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

contractors payment of the increases mandated. In the end, therefore,


ultimate liability for the payment of the increases rests with the principal.

paid. This is the import of Eparwa and LDCUs solidary liability. Creditors, such as the security
guards, may collect from anyone of the solidary debtors. Solidary liability does not mean that, as

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.

between themselves, two solidarydebtors are liable for only half of the payment.

LDCUs ultimate liability comes into play because of the expiration of the Contract for Security
Services. There

However, in the instant case, the contract for security services had already
expired without being amended consonant with the Wage Orders. It is also
apparent from a reading of a record that EAGLE does not now demand from
PTSI any adjustment in the contract price and its main concern is freeing
itself from liability. Given these peculiar circumstances, if PTSI pays the
security guards, it cannot claim reimbursement from EAGLE. But
in case it is EAGLE that pays them, the latter can claim
reimbursement from PTSI in lieu of an adjustment, considering
that the contract, [sic] had expired and had not been renewed.
[13]
(Emphasis added)

is

no privity of

contract

between

the

security

guards

and

LDCU,

but LDCUs liability to the security guards remains because of Articles 106, 107 and 109 of the
Labor Code. Eparwa is already precluded from asking LDCU for an adjustment in the contract
price because of the expiration of the contract, but Eparwas liability to the security guards
remains because of their employer-employee relationship. In lieu of an adjustment in the
contract price, Eparwa may claim reimbursement from LDCU for any payment it may make to
the security guards. However, LDCU cannot claim any reimbursement from Eparwa for any
payment it may make to the security guards.

We repeatedly upheld our ruling in Eagle regarding reimbursement in the subsequent cases
of Spartan Security & Detective Agency, Inc. v. NLRC, [14] Development Bank of the Philippines
v. NLRC,[15] Alpha Investigation and Security Agency, Inc. v. NLRC, [16]Helpmate, Inc. v. NLRC,
et al.,[17] and Lapanday Agricultural Development Corporation v. Court of Appeals. [18]

For

the

security

guards,

the

actual

source

of

the

payment

of

their

WHEREFORE, we GRANT the


2001 and

the

Resolution

petition. We SET
dated 21

differentials and premium for holiday and rest day work does not matter as long as they are

September

Decision

2001 of

the

dated 20
Court

April
of

Appeals. We REINSTATE the Resolutions dated 19 January 2000 and 14 March 2000 of the
National Labor Relations Commission.

wage

ASIDE the

SO ORDERED.