Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 126297

February 2, 2010

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 126467
NATIVIDAD [substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma
Agana-Andaya, Jesus Agana and Raymund Agana] and ENRIQUE AGANA, Petitioners,
vs.
THE COURT OF APPEALS and JUAN FUENTES, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 127590
MIGUEL AMPIL, Petitioner,
vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
RESOLUTION
CORONA, J.:
With prior leave of court,1 petitioner Professional Services, Inc. (PSI) filed a second motion for
reconsideration2urging referral thereof to the Court en banc and seeking modification of the
decision dated January 31, 2007 and resolution dated February 11, 2008 which affirmed its
vicarious and direct liability for damages to respondents Enrique Agana and the heirs of
Natividad Agana (Aganas).
Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc. (AHI),4 and Private Hospital
Association of the Philippines (PHAP)5 all sought to intervene in these cases invoking the
common ground that, unless modified, the assailed decision and resolution will jeopardize the
financial viability of private hospitals and jack up the cost of health care.
The Special First Division of the Court granted the motions for intervention of MMSI, AHI and
PHAP (hereafter intervenors),6 and referred en consulta to the Court en banc the motion for prior
leave of court and the second motion for reconsideration of PSI.7
Due to paramount public interest, the Court en banc accepted the referral8 and heard the parties
on oral arguments on one particular issue: whether a hospital may be held liable for the
negligence of physicians-consultants allowed to practice in its premises. 9
To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and Dr. Juan Fuentes
(Dr. Fuentes), was impleaded by Enrique Agana and Natividad Agana (later substituted by her

heirs), in a complaint10 for damages filed in the Regional Trial Court (RTC) of Quezon City,
Branch 96, for the injuries suffered by Natividad when Dr. Ampil and Dr. Fuentes neglected to
remove from her body two gauzes11 which were used in the surgery they performed on her on
April 11, 1984 at the Medical City General Hospital. PSI was impleaded as owner, operator and
manager of the hospital.
In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable with Dr. Ampil and Dr.
Fuentes for damages.13 On appeal, the Court of Appeals (CA), absolved Dr. Fuentes but affirmed
the liability of Dr. Ampil and PSI, subject to the right of PSI to claim reimbursement from Dr.
Ampil.14
1avvphi1

On petition for review, this Court, in its January 31, 2007 decision, affirmed the CA decision. 15 PSI
filed a motion for reconsideration16 but the Court denied it in a resolution dated February 11,
2008.17
The Court premised the direct liability of PSI to the Aganas on the following facts and law:
First, there existed between PSI and Dr. Ampil an employer-employee relationship as
contemplated in the December 29, 1999 decision in Ramos v. Court of Appeals18 that "for
purposes of allocating responsibility in medical negligence cases, an employer-employee
relationship exists between hospitals and their consultants." 19Although the Court in Ramos later
issued a Resolution dated April 11, 200220 reversing its earlier finding on the existence of an
employment relationship between hospital and doctor, a similar reversal was not warranted in the
present case because the defense raised by PSI consisted of a mere general denial of control or
responsibility over the actions of Dr. Ampil.21
Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the public
impression that he was its agent.22 Enrique testified that it was on account of Dr. Ampil's
accreditation with PSI that he conferred with said doctor about his wife's (Natividad's)
condition.23 After his meeting with Dr. Ampil, Enrique asked Natividad to personally consult Dr.
Ampil.24 In effect, when Enrigue and Natividad engaged the services of Dr. Ampil, at the back of
their minds was that the latter was a staff member of a prestigious hospital. Thus, under the
doctrine of apparent authority applied in Nogales, et al. v. Capitol Medical Center, et al.,25 PSI
was liable for the negligence of Dr. Ampil.
Finally, as owner and operator of Medical City General Hospital, PSI was bound by its duty to
provide comprehensive medical services to Natividad Agana, to exercise reasonable care to
protect her from harm,26 to oversee or supervise all persons who practiced medicine within its
walls, and to take active steps in fixing any form of negligence committed within its
premises.27 PSI committed a serious breach of its corporate duty when it failed to conduct an
immediate investigation into the reported missing gauzes.28
PSI is now asking this Court to reconsider the foregoing rulings for these reasons:
I
The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009 Resolution that
the ruling in Ramos vs. Court of Appeals (G.R. No. 134354, December 29, 1999) that "an
employer-employee relations exists between hospital and their consultants" stays should be set
aside for being inconsistent with or contrary to the import of the resolution granting the hospital's
motion for reconsideration in Ramos vs. Court of Appeals (G.R. No. 134354, April 11, 2002),
which is applicable to PSI since the Aganas failed to prove an employer-employee relationship
between PSI and Dr. Ampil and PSI proved that it has no control over Dr. Ampil. In fact, the trial
court has found that there is no employer-employee relationship in this case and that the doctor's
are independent contractors.

II
Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not primarily and
specifically look to the Medical City Hospital (PSI) for medical care and support; otherwise stated,
respondents Aganas did not select Medical City Hospital (PSI) to provide medical care because
of any apparent authority of Dr. Miguel Ampil as its agent since the latter was chosen primarily
and specifically based on his qualifications and being friend and neighbor.
III
PSI cannot be liable under doctrine of corporate negligence since the proximate cause of Mrs.
Agana's injury was the negligence of Dr. Ampil, which is an element of the principle of corporate
negligence.29
In their respective memoranda, intervenors raise parallel arguments that the Court's ruling on the
existence of an employer-employee relationship between private hospitals and consultants will
force a drastic and complex alteration in the long-established and currently prevailing
relationships among patient, physician and hospital, with burdensome operational and financial
consequences and adverse effects on all three parties.30
The Aganas comment that the arguments of PSI need no longer be entertained for they have all
been traversed in the assailed decision and resolution.31
After gathering its thoughts on the issues, this Court holds that PSI is liable to the Aganas, not
under the principle of respondeat superior for lack of evidence of an employment relationship
with Dr. Ampil but under the principle of ostensible agency for the negligence of Dr. Ampil
and, pro hac vice, under the principle of corporate negligence for its failure to perform its duties
as a hospital.
While in theory a hospital as a juridical entity cannot practice medicine, 32 in reality it utilizes
doctors, surgeons and medical practitioners in the conduct of its business of facilitating medical
and surgical treatment.33 Within that reality, three legal relationships crisscross: (1) between the
hospital and the doctor practicing within its premises; (2) between the hospital and the patient
being treated or examined within its premises and (3) between the patient and the doctor. The
exact nature of each relationship determines the basis and extent of the liability of the hospital for
the negligence of the doctor.
Where an employment relationship exists, the hospital may be held vicariously liable under
Article 217634 in relation to Article 218035 of the Civil Code or the principle of respondeat
superior. Even when no employment relationship exists but it is shown that the hospital holds out
to the patient that the doctor is its agent, the hospital may still be vicariously liable under Article
2176 in relation to Article 143136 and Article 186937 of the Civil Code or the principle of apparent
authority.38 Moreover, regardless of its relationship with the doctor, the hospital may be held
directly liable to the patient for its own negligence or failure to follow established standard of
conduct to which it should conform as a corporation.39
This Court still employs the "control test" to determine the existence of an employer-employee
relationship between hospital and doctor. In Calamba Medical Center, Inc. v. National Labor
Relations Commission, et al.40 it held:
Under the "control test", an employment relationship exists between a physician and a hospital if
the hospital controls both the means and the details of the process by which the physician is to
accomplish his task.
xxx

xxx

xxx

As priorly stated, private respondents maintained specific work-schedules, as determined by

petitioner through its medical director, which consisted of 24-hour shifts totaling forty-eight hours
each week and which were strictly to be observed under pain of administrative sanctions.
That petitioner exercised control over respondents gains light from the undisputed fact
that in the emergency room, the operating room, or any department or ward for that
matter, respondents' work is monitored through its nursing supervisors, charge nurses
and orderlies. Without the approval or consent of petitioner or its medical director, no
operations can be undertaken in those areas. For control test to apply, it is not essential
for the employer to actually supervise the performance of duties of the employee, it being
enough that it has the right to wield the power. (emphasis supplied)
Even in its December 29, 1999 decision41 and April 11, 2002 resolution42 in Ramos, the Court
found the control test decisive.
In the present case, it appears to have escaped the Court's attention that both the RTC and the
CA found no employment relationship between PSI and Dr. Ampil, and that the Aganas did not
question such finding. In its March 17, 1993 decision, the RTC found "that defendant doctors
were not employees of PSI in its hospital, they being merely consultants without any employeremployee relationship and in the capacity of independent contractors."43 The Aganas never
questioned such finding.
PSI, Dr. Ampil and Dr. Fuentes appealed44 from the RTC decision but only on the issues of
negligence, agency and corporate liability. In its September 6, 1996 decision, the CA mistakenly
referred to PSI and Dr. Ampil as employer-employee, but it was clear in its discussion on the
matter that it viewed their relationship as one of mere apparent agency.45
The Aganas appealed from the CA decision, but only to question the exoneration of Dr.
Fuentes.46 PSI also appealed from the CA decision, and it was then that the issue of employment,
though long settled, was unwittingly resurrected.
In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had no employeremployee relationship, such finding became final and conclusive even to this Court. 47 There was
no reason for PSI to have raised it as an issue in its petition. Thus, whatever discussion on the
matter that may have ensued was purely academic.
Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this particular
instance, the concurrent finding of the RTC and the CA that PSI was not the employer of Dr.
Ampil is correct. Control as a determinative factor in testing the employer-employee relationship
between doctor and hospital under which the hospital could be held vicariously liable to a patient
in medical negligence cases is a requisite fact to be established by preponderance of evidence.
Here, there was insufficient evidence that PSI exercised the power of control or wielded such
power over the means and the details of the specific process by which Dr. Ampil applied his skills
in the treatment of Natividad. Consequently, PSI cannot be held vicariously liable for the
negligence of Dr. Ampil under the principle of respondeat superior.
There is, however, ample evidence that the hospital (PSI) held out to the patient (Natividad) 48 that
the doctor (Dr. Ampil) was its agent. Present are the two factors that determine apparent
authority: first, the hospital's implied manifestation to the patient which led the latter to conclude
that the doctor was the hospital's agent; and second, the patients reliance upon the conduct of
the hospital and the doctor, consistent with ordinary care and prudence. 49
Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the condition of his wife;
that after the meeting and as advised by Dr. Ampil, he "asked [his] wife to go to Medical City to
be examined by [Dr. Ampil]"; and that the next day, April 3, he told his daughter to take her
mother to Dr. Ampil.50 This timeline indicates that it was Enrique who actually made the decision

on whom Natividad should consult and where, and that the latter merely acceded to it. It explains
the testimony of Natividad that she consulted Dr. Ampil at the instigation of her daughter.51
Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified:
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing Dr. Ampil to contact
with in connection with your wife's illness?
A. First, before that, I have known him to be a specialist on that part of the body as a surgeon,
second, I have known him to be a staff member of the Medical City which is a prominent and
known hospital. And third, because he is a neighbor, I expect more than the usual medical
service to be given to us, than his ordinary patients.52 (emphasis supplied)
Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly
influenced by the impression that Dr. Ampil was a staff member of Medical City General Hospital,
and that said hospital was well known and prominent. Enrique looked upon Dr. Ampil not as
independent of but as integrally related to Medical City.
PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It is of record that
PSI required a "consent for hospital care"53 to be signed preparatory to the surgery of Natividad.
The form reads:
Permission is hereby given to the medical, nursing and laboratory staff of the Medical City
General Hospital to perform such diagnostic procedures and to administer such medications and
treatments as may be deemed necessary or advisable by the physicians of this hospital for
and during the confinement of xxx. (emphasis supplied)
By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a
physician of its hospital, rather than one independently practicing in it; that the medications and
treatments he prescribed were necessary and desirable; and that the hospital staff was prepared
to carry them out.
1avvphi1

PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not the exclusive basis
of the Aganas decision to have Natividad treated in Medical City General Hospital, meaning that,
had Dr. Ampil been affiliated with another hospital, he would still have been chosen by the
Aganas as Natividad's surgeon.54
The Court cannot speculate on what could have been behind the Aganas decision but would
rather adhere strictly to the fact that, under the circumstances at that time, Enrique decided to
consult Dr. Ampil for he believed him to be a staff member of a prominent and known hospital.
After his meeting with Dr. Ampil, Enrique advised his wife Natividad to go to the Medical City
General Hospital to be examined by said doctor, and the hospital acted in a way that fortified
Enrique's belief.
This Court must therefore maintain the ruling that PSI is vicariously liable for the negligence of
Dr. Ampil as its ostensible agent.
Moving on to the next issue, the Court notes that PSI made the following admission in its Motion
for Reconsideration:
51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not liable for Dr. Ampil's
acts during the operation. Considering further that Dr. Ampil was personally engaged as a doctor
by Mrs. Agana, it is incumbent upon Dr. Ampil, as "Captain of the Ship", and as the Agana's

doctor to advise her on what to do with her situation vis-a-vis the two missing gauzes. In
addition to noting the missing gauzes, regular check-ups were made and no signs of
complications were exhibited during her stay at the hospital, which could have alerted
petitioner PSI's hospital to render and provide post-operation services to and tread on Dr.
Ampil's role as the doctor of Mrs. Agana. The absence of negligence of PSI from the
patient's admission up to her discharge is borne by the finding of facts in this case.
Likewise evident therefrom is the absence of any complaint from Mrs. Agana after her
discharge from the hospital which had she brought to the hospital's attention, could have
alerted petitioner PSI to act accordingly and bring the matter to Dr. Ampil's attention. But
this was not the case. Ms. Agana complained ONLY to Drs. Ampil and Fuentes, not the
hospital. How then could PSI possibly do something to fix the negligence committed by
Dr. Ampil when it was not informed about it at all.55 (emphasis supplied)
PSI reiterated its admission when it stated that had Natividad Agana "informed the hospital of her
discomfort and pain, the hospital would have been obliged to act on it."56
The significance of the foregoing statements is critical.
First, they constitute judicial admission by PSI that while it had no power to control the means or
method by which Dr. Ampil conducted the surgery on Natividad Agana, it had the power to
review or cause the review of what may have irregularly transpired within its walls strictly for
the purpose of determining whether some form of negligence may have attended any procedure
done inside its premises, with the ultimate end of protecting its patients.
Second, it is a judicial admission that, by virtue of the nature of its business as well as its
prominence57 in the hospital industry, it assumed a duty to "tread on" the "captain of the ship" role
of any doctor rendering services within its premises for the purpose of ensuring the safety of the
patients availing themselves of its services and facilities.
Third, by such admission, PSI defined the standards of its corporate conduct under the
circumstances of this case, specifically: (a) that it had a corporate duty to Natividad even after
her operation to ensure her safety as a patient; (b) that its corporate duty was not limited to
having its nursing staff note or record the two missing gauzes and (c) that its corporate duty
extended to determining Dr. Ampil's role in it, bringing the matter to his attention, and correcting
his negligence.
And finally, by such admission, PSI barred itself from arguing in its second motion for
reconsideration that the concept of corporate responsibility was not yet in existence at the time
Natividad underwent treatment;58 and that if it had any corporate responsibility, the same was
limited to reporting the missing gauzes and did not include "taking an active step in fixing the
negligence committed."59 An admission made in the pleading cannot be controverted by the party
making such admission and is conclusive as to him, and all proofs submitted by him contrary
thereto or inconsistent therewith should be ignored, whether or not objection is interposed by a
party.60
Given the standard of conduct that PSI defined for itself, the next relevant inquiry is whether the
hospital measured up to it.
PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the
personal responsibility of informing Natividad about the two missing gauzes. 61 Dr. Ricardo
Jocson, who was part of the group of doctors that attended to Natividad, testified that toward the
end of the surgery, their group talked about the missing gauzes but Dr. Ampil assured them that
he would personally notify the patient about it.62Furthermore, PSI claimed that there was no
reason for it to act on the report on the two missing gauzes because Natividad Agana showed no
signs of complications. She did not even inform the hospital about her discomfort. 63

The excuses proffered by PSI are totally unacceptable.

To begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr. Ampil
the duty to review what transpired during the operation. The purpose of such review would have
been to pinpoint when, how and by whom two surgical gauzes were mislaid so that necessary
remedial measures could be taken to avert any jeopardy to Natividads recovery. Certainly, PSI
could not have expected that purpose to be achieved by merely hoping that the person likely to
have mislaid the gauzes might be able to retrace his own steps. By its own standard of corporate
conduct, PSI's duty to initiate the review was non-delegable.
While Dr. Ampil may have had the primary responsibility of notifying Natividad about the missing
gauzes, PSI imposed upon itself the separate and independent responsibility of initiating the
inquiry into the missing gauzes. The purpose of the first would have been to apprise Natividad of
what transpired during her surgery, while the purpose of the second would have been to pinpoint
any lapse in procedure that led to the gauze count discrepancy, so as to prevent a recurrence
thereof and to determine corrective measures that would ensure the safety of Natividad. That Dr.
Ampil negligently failed to notify Natividad did not release PSI from its self-imposed separate
responsibility.
Corollary to its non-delegable undertaking to review potential incidents of negligence committed
within its premises, PSI had the duty to take notice of medical records prepared by its own staff
and submitted to its custody, especially when these bear earmarks of a surgery gone awry. Thus,
the record taken during the operation of Natividad which reported a gauze count discrepancy
should have given PSI sufficient reason to initiate a review. It should not have waited for
Natividad to complain.
As it happened, PSI took no heed of the record of operation and consequently did not initiate a
review of what transpired during Natividads operation. Rather, it shirked its responsibility and
passed it on to others to Dr. Ampil whom it expected to inform Natividad, and to Natividad
herself to complain before it took any meaningful step. By its inaction, therefore, PSI failed its
own standard of hospital care. It committed corporate negligence.
It should be borne in mind that the corporate negligence ascribed to PSI is different from the
medical negligence attributed to Dr. Ampil. The duties of the hospital are distinct from those of
the doctor-consultant practicing within its premises in relation to the patient; hence, the failure of
PSI to fulfill its duties as a hospital corporation gave rise to a direct liability to the Aganas distinct
from that of Dr. Ampil.
All this notwithstanding, we make it clear that PSIs hospital liability based on ostensible agency
and corporate negligence applies only to this case, pro hac vice. It is not intended to set a
precedent and should not serve as a basis to hold hospitals liable for every form of negligence of
their doctors-consultants under any and all circumstances. The ruling is unique to this case, for
the liability of PSI arose from an implied agency with Dr. Ampil and an admitted corporate duty to
Natividad.64
Other circumstances peculiar to this case warrant this ruling, 65 not the least of which being that
the agony wrought upon the Aganas has gone on for 26 long years, with Natividad coming to the
end of her days racked in pain and agony. Such wretchedness could have been avoided had PSI
simply done what was logical: heed the report of a guaze count discrepancy, initiate a review of
what went wrong and take corrective measures to ensure the safety of Nativad. Rather, for 26
years, PSI hemmed and hawed at every turn, disowning any such responsibility to its patient.
Meanwhile, the options left to the Aganas have all but dwindled, for the status of Dr. Ampil can no
longer be ascertained.66

Therefore, taking all the equities of this case into consideration, this Court believes P15 million
would be a fair and reasonable liability of PSI, subject to 12% p.a. interest from the finality of this
resolution to full satisfaction.
WHEREFORE, the second motion for reconsideration is DENIED and the motions for
intervention are NOTED.
Professional Services, Inc. is ORDERED pro hac vice to pay Natividad (substituted by her
children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and
Raymund Agana) and Enrique Agana the total amount of P15 million, subject to 12% p.a. interest
from the finality of this resolution to full satisfaction.
No further pleadings by any party shall be entertained in this case.
Let the long-delayed entry of judgment be made in this case upon receipt by all concerned
parties of this resolution.
SO ORDERED.
RENATO C. CORONA
Associate Justice

G.R. No. 186114, October 07, 2015

CHEVRON (PHILS.), INC., Petitioner, v. VITALIANO C GALIT, SJS AND SONS

CONSTRUCTION CORPORATION AND MR. REYNALDO
SALOMON, Respondents.
DECISION
PERALTA J.:*
Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court seeking the reversal and setting aside of the Decision 1 and
Resolution2 of the Court of Appeals (CA), dated December 8, 2008 and January
20, 2009, respectively, in CA-G.R. SP No. 104713. The assailed CA Decision
reversed and set aside the Decision dated January 31, 2008 and the Resolution
dated May 27, 2008 of the National Labor Relations Commission (NLRC), Second
Division in NLRC NCR (Case No.) 00-03-02399-06 (CA No. 051468-07), while the
questioned CA Resolution denied petitioner's Motion for Reconsideration.
The factual and procedural antecedents of the case are as
follows:chanRoblesvirtualLawlibrary
On March 20, 2006, herein respondent (Galit) filed against Caltex Philippines,
Inc., now Chevron (Phils.), Inc., SJS and Sons Construction Corporation (SJS), and
its president, Reynaldo Salomon (Salomon),3 a Complaint4 for illegal dismissal,
underpayment/non-payment of 13th month pay, separation pay and emergency
cost of living allowance. The Complaint was filed with the NLRC National Capital
Region, North Sector Branch in Quezon City.
In his Position Paper,5 Galit alleged that: he is a regular and permanent employee
of Chevron since 1982, having been assigned at the company's Pandacan depot;
he is an "all-around employee" whose job consists of cleaning the premises of
the depot, changing malfunctioning oil gaskets, transferring oil from containers
and other tasks that management would assign to him; in the performance of his
duties, he was directly under the control and supervision of Chevron supervisors;
on January 15, 2005, he was verbally informed that his employment is
terminated but was promised that he will be reinstated soon; for several months,
he followed up his reinstatement but was not given back his job.
In its Position Paper,6 SJS claimed that: it is a company which was established in
1993 and was engaged in the business of providing manpower to its clients on a
"per project/contract" basis; Galit was hired by SJS in 1993 as a project employee
and was assigned to Chevron, as a janitor, based on a contract between the two
companies; contrary to Galit's allegation, he started working for SJS only in 1993;
the manpower contract between SJS and Chevron eventually ended on
November 30, 2004 which resulted in the severance of Galit's employment; SJS
finally closed its business operations in December 2004; it retired from doing
business in Manila on January 21, 2005; Galit was paid separation pay of
P11,000.00.

On the other hand, petitioner contended in its Position Paper with Motion to
Dismiss7 that: it entered into two (2) contracts for-janitorial services with SJS from
May 1, 2001 to April 30, 2003 and from June 1, 2003 to June 1, 2004; under these
contracts, SJS undertook to "assign such number of its employees, upon prior
.agreement with [petitioner], as would be sufficient to fully and effectively render
the work and services undertaken" and to "supply the equipment, tools and
materials, which shall, by all means, be effective and efficient, at its own
expense, necessary for the performance" of janitorial services; Galit, who was
employed by SJS, was assigned to petitioner's Pandacan depot as a janitor; his
wages and all employment benefits were paid by SJS; he was subject to the
supervision, discipline and control of SJS; on November 30, 2004, the extended
contract between petitioner and SJS expired; subsequently, a new contract for
janitorial services was awarded by petitioner to another independent contractor;
petitioner was surprised that Galit filed an action impleading it; despite several
conferences, the parties were not able to arrive at an amicable settlement.
On October 31, 2006, the Labor Arbiter (LA) assigned to the case rendered a
Decision,8 the dispositive portion of which reads as follows:cralawlawlibrary
WHEREFORE, judgment is hereby rendered DISMISSING the Complaint against
respondent Chevron for lack of jurisdiction, and against respondents SJS and
Reynaldo Salomon for lack of merit. For equity and compassionate consideration,
however, respondent SJS is hereby ordered to pay the complainant a separation
pay at the rate of a half-month salary for every year of service that the
complainant had with respondent SJS.
SO ORDERED.9
chanrobleslaw
The LA found that SJS is a legitimate contractor and that it was Galit's employer,
not petitioner. The LA dismissed Galit's complaint for illegal dismissal against
petitioner for lack of jurisdiction on the ground that there was no employeremployee relationship between petitioner and Galit. The LA likewise dismissed
the complaint against SJS and Salomon for lack of merit on the basis of his
finding that Galit's employment with SJS simply expired as a result of the
completion of the project for which he was engaged.
Aggrieved, herein respondent filed an appeal 10 with the NLRC.
On January 31, 2008, the NLRC rendered its Decision 11 and disposed as
follows:cralawlawlibrary
WHEREFORE, premises considered, the decision under review is hereby,
MODIFIED.
Respondent SJS and Sons Construction Corporation is ordered to pay the
complainant, severance compensation, at the rate of one (1) month salary for

every year of service. In all other respects, the appealed decision so stands as
AFFIRMED.
SO ORDERED.12
chanrobleslaw
The NLRC affirmed the findings of the LA that SJS was a legitimate job contractor
and that it was Galit's employer. However,"the NLRC found that Gal it was a
regular, and not a project employee, of SJS, whose employment was effectively
terminated when SJS ceased to operate.
Herein respondent tiled a Motion for Reconsideration, 13 but the NLRC denied it in
its Resolution14dated May 27, 2008.
Respondent then filed a petition for certiorari with the CA assailing the above
NLRC Decision and Resolution.
On December 8, 2008, the CA promulgated its assailed Decision, the dispositive
portion of which reads, thus:cralawlawlibrary
WHEREFORE, premises considered, the petition is GRANTED. The Decision
dated January 31, 2008 and the Resolution dated May 27, 2008 of the NLRC,
Second Division in NLRC NCR [Cast No.] 00-03-02399-06 (CA No. 051468-07)
are REVERSED and SET ASIDE. Judgment is rendered declaring private
respondent Chevron Phils, guilty of illegal dismissal and ordering petitioner
Galit's reinstatement without loss of seniority rights and other privileges and
payment of his full backwages, inclusive of allowances and to other benefits or
their monetary equivalents computed from the time compensation was withheld
up to the time of actual reinstatement. Private respondent Chevron Phils, is also
hereby ordered to pay 10% of the amount due petitioner Galit as attorney's fees.
SO ORDERED.15
chanrobleslaw
Contrary to the- findings of the LA and the NLRC, the CA held that SJS was a
labor-only contractor, that petitioner is Galit's actual employer and that the latter
was unjustly dismissed from his employment.
Herein petitioner filed a motion for reconsideration, but the CA denied it in its
Resolution dated January 20, 2009.
Hence, the present petition for review on certiorari based on the following
grounds:cralawlawlibrary
I.

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
IN DECLARING THAT THE DISMISSAL OF RESPONDENT WAS ILLEGAL
CONSIDERING THAT:chanRoblesvirtualLawlibrary
A. THE FINDINGS OF FACT OF TFIE LABOR ARBITER A QUO AND THE NATIONAL
LABOR RELATIONS COMMISSION ARE ALREADY BINDING UPON THE HONORABLE
COURT OF APPEALS.
B. THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE COMPANY
AND RESPONDENT HEREIN.
C. PETITIONER SJS IS A. LEGITIMATE INDEPENDENT CONTRACTOR.
II.
CONSIDERING THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN
THE COMPANY AND RESPONDENT HEREIN, THE HONORABLE COURT OF APPEALS'
AWARD OF REINSTATEMENT, BACKWAGES, AND ATTORNEY'S FEES AGAINST THE
COMPANY HAS NO LEGAL BASIS.16chanrobleslaw
On September 19, 2012, this Court issued a Resolution 17 directing petitioner to
implead SJS as party-respondent on the ground that it is an indispensable party
without whom no final determination can be had of this case.
In a Motion18 dated November 21, 2012, petitioner manifested its compliance
with this Court's September 19, 2012 Resolution. In addition, it prayed that
Salomon be also impleaded as party-respondent
Acting on petitioner's above Motion, this Court issued another Resolution 19 on
June 19, 2013, stating that SJS and Salomon are impleaded as partiesrespondents and are required to comment on the petition for review
on certiorari.
However, despite due notice sent to SJS and Salomon at their last known
addresses, copies of the above Resolution were returned unserved. Hence, on
October 20, 2014, the Court, acting on Galit's plea for early resolution of the
case, promulgated a Resolution20 resolving to dispense with the filing by SJS and
Salomon of their respective comments.
The Court will, thus, proceed to resolve the instant petition.
At the outset, the Court notes that the first ground raised by petitioner consists
of factual issues. It is settled that this Court is not a trier of facts, and this applies
with greater force in labor cases. 21Corollary thereto, this Court has held in a
number of cases that factual findings of administrative or quasi-judicial bodies,

which are deemed to have acquired expertise in matters within their respective
jurisdictions, are generally accorded not only respect but even finality, and bind
the Court when supported by substantial evidence. 22 However, it is equally
settled that the.foregoing principles admit of certain exceptions, to wit: (1) the
findings are grounded entirely on speculation, surmises or conjectures; (2) the
inference made is manifestly mistaken, absurd or impossible; (3) there is grave
abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5)
the findings of fact are conflicting; (6) in making its findings, the Court of Appeals
went beyond the issues of the case, or its findings are contrary to the admissions
of both appellant and appellee; (7) the findings are contrary to those of the trial
court; (8) the findings are conclusions without citation of specific evidence on
which they are based; (9) the facts set forth in the petition, as well as in
petitioners main and reply briefs, are not disputed by respondent; (10) the
findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion. 23 In the instant case, the Court
gives due course to the instant petition considering that the findings of fact and
conclusions of law of the LA and the NLRC differ from those of the CA.
Thus, the primordial question that confronts the Court is whether there existed
an employer-employee relationship between petitioner and Galit, and whether
the former is liable to the latter for the termination of his employment. Corollary
to this, is the issue of whether or not SJS is an independent contractor or a labor
only contractor.
To ascertain the existence of an employer-employee relationship, jurisprudence
has invariably adhered to the four-fold test, to wit: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct, or the so-called
"control test."24 Of these four, the last one is the most important. 25 The so-called
"control test" is commonly regarded as the most crucial and determinative
indicator of the presence or absence of an employer-employee
relationship.26 Under the control test, an employer-employee relationship exists
where the person for whom the services are performed reserves the right to
control not only the end achieved, but also the manner and means to be used in
reaching that end.27
In the instant case, the true nature of Galit's employment is evident from the Job
Contract between petitioner and SJS, pertinent portions of which are reproduced
hereunder:cralawlawlibrary
xxxx
1.1 The CONTRACTOR [SJS] shall provide the following specific services to the
COMPANY [petitioner]:

xxxx
1. Scooping of slop of oil water separator
2. Cleaning of truck parking area/drum storage area and pier
xxxx
4.1 In the fulfillment of its obligations to the COMPANY, the CONTRACTOR shall
select and hire its workers. The CONTRACTOR alone shall be responsible for the
payment of their wages and other employment benefits and likewise for the
safeguarding of their health and safety in accordance with existing laws- and
regulations. Likewise, the CONTRACTOR shall be responsible for the discipline
and/or dismissal of these workers.
4.2 The CONTRACTOR shall retain the right to control the manner and the means
of performing the work, with the COMPANY having the control or direction only as
to the results to be accomplished.
xxxx
4.4 It is understood that, for the above reasons, these workers shall be
considered as the employees of the CONTRACTOR. Under no circumstances, shall
these workers be deemed directly or indirectly as the employees of the
COMPANY.
xxxx
5.1 The CONTRACTOR shall maintain efficient and effective discipline over any
and all employees it may utilize in performing its obligations under this
CONTRACT, x x x
5.2 The COMPANY shall in no manner be answerable or accountable for any
incident or injury which may occur to any worker or personnel of .the
CONTRACTOR during the time and consequent upon the performance of the work
and services under this Agreement, nor for any injury, loss or damage arising
from fault, negligence or carelessness of the CONTRACTOR or anyone of its
workers to any person or persons or to his or their property; and the
CONTRACTOR covenants and agrees to assume, as it does hereby assume, all
liabilities for any such injury, loss or damage and to make the COMPANY free and
blameless therefrom, x x x
5.3. The CONTRACTOR shall be responsible for any loss or damage that may be
incurred upon the products, properties and installations of the COMPANY during
the effectivity of this Contract which are due to the unreasonable or negligent act
of the CONTRACTOR, its agents or its workers.
xxxx

6.1 The CONTRACTOR shall at its own expense maintain with a reputable
insurance company, acceptable to the CQMPANY, a comprehensive liability
insurance in the amount required by the COMPANY to cover claims for bodily
injury, death or property damage caused to any person or persons by an act or
omission of the CONTRACTOR or any of its employees, agents or representatives.
xxxx
x x x [T]he CONTRACTOR agrees and undertakes:chanRoblesvirtualLawlibrary
xxxx
b. To submit satisfactory proof to the COMPANY that it has registered its
personnel/workers assigned to perform the work and services herein required
with the Social Security System, Medicare and other appropriate agencies for
purposes of the Labor Code as well as other laws, decrees, rules and regulations.
c. To pay the wages or salaries of its personnel/workers as well as benefits,
premia and protection in accordance with the provisions of the Labor Code and
other applicable laws, decrees, rules and regulations promulgated by competent
authority, xxx
d. To assign such number of its employees, upon prior agreement with the
COMPANY, as would be sufficient to fully and effectively render the work and
services herein undertaken, xxx
e. To supply the equipment, tools and materials, which shall, by all means, be
effective and efficient, at its own expense, necessary for the performance of the
services under this Contract.28chanrobleslaw
The foregoing provisions of the Job Contract between petitioner and SJS
demonstrate that the latter possessed the following earmarks of an employer, to
wit: (1) the power of selection and engagement of employees, under.Sections 4.1
and 6.1(d); (2) the payment of wages, under Sections 4.1 and 6.1(c); (3) the
power to discipline and dismiss, under Section 4.1; and, (4) the power to control
the employee's conduct, under Sections 4.1, 4.2, and 5.1.
As to SJS' power of selection and engagement, Galit himself admitted in his own
affidavit that it was SJS which assigned him to work at Chevron's Pandacan
depot.29 As such, there is no question that it was SJS which selected and engaged
Galit as its employee.
With respect to the payment of wages, the Court finds no error in the findings of
the LA that Galit admitted that it was SJS which paid his wages. While Galit
claims that petitioner was the one which actually paid his wages and that SJS

was merely used as a conduit, Galit failed to present evidence to this effect.
Galit, likewise, failed to present sufficient proof to back up his claim that it was
petitioner, and not SJS, which actually paid his SSS, Philhealth and Pag-IBIG
premiums. On the contrary, it is .unlikely that SJS would report Galit as its
worker, pay his SSS, Philhealth and Pag-IBIG premiums, as well as his wages, if it
were not true that he was indeed its employee. 30 In the same manner, the
Quitclaim and Release,31 which was undisputedly signed by Galit, acknowledging
receipt of his separation pay from SJS, is an indirect admission or recognition of
the fact that the latter was indeed his employer. Again, it would be unlikely for
SJS to pay Galit his separation pay if it is not the latter's employer.
Galit also did not dispute the fact that he was dismissed from employment by
reason of the termination of the service contract between SJS and petitioner. In
other words, it was not petitioner which ended his employment. He was
dismissed therefrom because petitioner no longer renewed its contract with SJS
and that the latter subsequently ceased to operate.
Anent the power of control, the Court again finds no cogent reason to depart
from the findings of the NLRC that in case of matters that needed to be
addressed with respect to employee performance, petitioner dealt directly with
SJS and not with the employee concerned. In any event, it is settled that such
power merely calls for the existence of the right to control and not necessarily
the exercise thereof. In the' present case, the Job Contract between petitioner
and SJS clearly provided that SJS "shall retain the right to control the manner and
the means of performing the work, with [petitioner] having the control or
direction only as to the results to be accomplished." 32
In addition, it would bear to point out that contrary to the ruling of the CA, the
work performed by Galit, which is the "scooping of slop of oil water
separator,"33 has no direct relation to petitioner's business, which is the
importation, refining and manufacture of petroleum products. The Court defers to
the findings of both the LA and the NLRC that the job performed by Galit, which
essentially consists of janitorial services, may be incidental or desirable to
petitioner's main activity but it is not necessary and directly related to it.
As to whether or not SJS is an independent contractor, jurisprudence has
invariably ruled that an independent contractor carries on an independent
business and undertakes the contract work on his own account, under his own
responsibility, according to his own manner and method, and free from the
control and direction of his employer or principal in all matters connected with
the performance of the work except as to the results thereof. 34 This embodies
what has long been jurisprudentially recognized as the control test, as discussed
above. In the instant case, SJS presented evidence to show that it had an
independent business by paying business taxes and fees and that it was
registered as an employer with the Social Security System. Moreover, there was
no evidence to show that SJS and its employees were ever subject to the control
of petitioner. On the contrary, as shown above, SJS possessed the right to control

its employees' manner and means of performing their work , including herein
respondent Galit.
As to its capital, there is no dispute that SJS generated an income of
P1,523,575.81 for the year 2004.35 In Neri v. National Labor Relations
Commission,36 this Court held that a business venture which had a capitalization
of P1,000,000.00 was considered as highly capitalized and cannot be deemed
engaged in labor-only contracting. In the present case, while SJS' income of more
than P1,500,000.00 was not shown to be equivalent to its authorized capital
stock, such income is an indication of how much capital was put into its business
to generate such amount of revenue. Thus, the Court finds no sufficient reason to
disturb the findings of the LA and the NLRC that SJS had substantial capital.
WHEREFORE, the instant petition is GRANTED. The assailed Decision and
Resolution of the Court of Appeals, dated December 8, 2008 and January 20,
2009, respectively, are REVERSED and SET ASIDE. The Decision of the National
Labor Relations Commission, dated January 31, 2008 in NLRC NCR' [Case No.] 0003-02399-06 (CA No. 051468-07) is REINSTATED.
SO ORDERED.chanroblesvirtuallawlibrary
Villarama, Jr., Perlas-Bernabe,** Leonen,*** and Jardeleza, JJ., concur.

G.R. No. 208451, February 03, 2016

MANILA MEMORIAL PARK CEMETERY, INC., Petitioner, v. EZARD D. LLUZ,
NORMAN CORRAL, ERWIN FUGABAN, VALDIMAR BALISI, EMILIO FABON,
JOHN MARK APLICADOR, MICHAEL CURIOSO, JUNLIN ESPARES, GAVINO
FARINAS, AND WARD TRADING AND SERVICES, Respondents.
DECISION
CARPIO, J.:

The Case
This is a petition for review on certiorari 1 assailing the Decision2 dated 21 January
2013 and the Resolution3 dated 17 July 2013 of the Court of Appeals (CA) in CAG.R. SP No. 119237.chanRoblesvirtualLawlibrary
The Facts
On 23 February 2006, petitioner Manila Memorial Park Cemetery, Inc. (Manila
Memorial) entered into a Contract of Services with respondent Ward Trading and
Services (Ward Trading). The Contract of Services provided that Ward Trading, as
an independent contractor, will render interment and exhumation services and
other related work to Manila Memorial in order to supplement operations at
Manila Memorial Park, Paranaque City.
Among those assigned by Ward Trading to perform services at the Manila
Memorial Park were respondents Ezard Lluz, Norman Corral, Erwm Fugaban,
Valdimar Balisi, Emilio Fabon, John Mark Aplicador, Michael Curioso, Junlin
Espares, and Gavino Farinas (respondents). They worked six days a week for
eight hours daily and were paid P250 per day.
On 26 June 2007, respondents filed a Complaint 4 for regularization and Collective
Bargaining Agreement benefits against Manila Memorial; Enrique B. Lagdameo,
Manila Memorial's Executive Vice-President and Director in Charge for Overall
Operations, and Ward Trading. On 6 August 2007, respondents filed an amended
complaint to include illegal dismissal, underpayment of 13 th month pay, and
payment of attorney's fees.
Respondents alleged that they asked Manila Memorial to consider them as
regular workers within the appropriate bargaining unit established in the
collective bargaining agreement by Manila Memorial and its union, the Manila
Memorial Park Free Workers Union (MMP Union). Manila Memorial refused the
request since respondents were employed by Ward Trading, an independent
labor contractor. Thereafter, respondents joined the MMP Union. The MMP Union,
on behalf of respondents, sought their regularization which Manila Memorial
again declined. Respondents then filed the complaint. Subsequently,
respondents were dismissed by Manila Memorial. Thus, respondents amended
the complaint to include the prayer for their reinstatement and payment of back
wages.
Meanwhile, Manila Memorial sought the dismissal of the complaint for lack of
jurisdiction since there was no employer-employee relationship. Manila Memorial
argued that respondents were the employees of Ward Trading.
In a Decision5 dated 29 March 2010, the Labor Arbiter dismissed the complaint

for failing to prove the existence of an employer-employee relationship. The

dispositive portion of the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, judgment is hereby rendered dismissing the
above-entitled case for complainants' lack of employer-employee relationship
with respondent Manila Memorial Park Cemetery, Inc.
SO ORDERED.6chanroblesvirtuallawlibrary
Respondents appealed7 to the NLRC. In a Decision8 dated 30 September 2010,
the NLRC reversed the Labor Arbiter's findings. The NLRC ruled that Ward Trading
was a labor-only contractor and an agent of Manila Memorial. The dispositive
portion of the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, complainants' appeal is GRANTED. The
assailed Decision of Labor Arbiter Geobel A. Bartolabac dated March 29, 2010 is
MODIFIED. It is hereby declared that complainants were regular employees of
respondent Manila Memorial Park Cemetery, Inc. and entitled to the benefits
provided for under the CBA between the latter and the Manila Memorial Park Free
Workers Union.
Respondent Manila Memorial Park Cemetery, Inc. is ordered to pay wage
differentials to complainants as follows:ChanRoblesVirtualawlibrary
1. Ezard D. Lluz
-

P43,982.
79

2. Norman
Corral -

P29,765.
67

3. Erwin
Fugaban -

P28,634.
67

4. Valdimar
Balisi -

P20,310.
33

5. Emilio Fabon -

P43,982.
79

6. John Mark
Aplicador -

P43,982.
79

7. Michael
Curioso -

P43,982.
79

8. Ju[n]lin
Espares -

P43,982.
79

9. Gavino
Farinas -

P43,982.
79

SO ORDERED.9chanroblesvirtuallawlibrary
Manila Memorial filed a Motion for Reconsideration which was denied in a
Resolution10 dated 31 January 2011.
Thereafter, Manila Memorial filed an appeal with the CA. In a Decision dated 21
January 2013, the CA affirmed the ruling of the NLRC. The CA found the existence
of an employer-employee relationship between Manila Memorial and
respondents. The dispositive portion of the Decision
states:ChanRoblesVirtualawlibrary
WHEREFORE, in view of the foregoing, the instant Petition for Certiorari is
DENIED. The Decision, dated September 30, 2010 and the Resolution, dated
January 31, 2011, rendered by the National Labor Relations Commission (NLRC)
in NLRC LAC No. 06-001267-10 are AFFIRMED.
SO ORDERED.11chanroblesvirtuallawlibrary
Manila Memorial then filed a Motion for Reconsideration which was denied by the
CA in a Resolution dated 17 July 2013.
Hence, the instant petition.chanRoblesvirtualLawlibrary
The Issue
The main issue for our resolution is whether or not an employer-employee
relationship exists between Manila Memorial and respondents for the latter to be
entitled to their claim for wages and other benefits.chanRoblesvirtualLawlibrary
The Court's Ruling
The petition lacks merit.
Manila Memorial contends that Ward Trading has total assets in excess of P1.4
million, according to Ward Trading's financial statements for the year 2006,
proving that it has sufficient capitalization to qualify as a legitimate independent
contractor. Manila Memorial insists that nowhere is it provided in the Contract of
Services that Manila Memorial controls the manner and means by which
respondents accomplish the results of their work. Manila Memorial states that
the company only wants its contractors and the latter's employees to abide by
company rules and regulations.
Respondents, on the other hand, assert that they are regular employees of
Manila Memorial since Ward Trading cannot qualify as an independent contractor

but should be treated as a mere labor-only contractor. Respondents state that (1)
there is enough proof that Ward Trading does not have substantial capital,
investment, tools and the like; (2) the workers recruited and placed by the
alleged contractors performed activities that were related to Manila Memorial's
business; and (3) Ward Trading does not exercise the right to control the
performance of the work of the contractual employees.
As a general rule, factual findings of the CA are binding upon this Court. One
exception to this rule is when the factual findings of the former are contrary to
those of the trial court, or the lower administrative body, as the case may be.
This Court is obliged to resolve an issue of fact due to the conflicting findings of
the Labor Arbiter on one hand, and the NLRC and the CA on the other.
In order to determine whether there exists an employer-employee relationship
between Manila Memorial and respondents, relevant provisions of the labor law
and rules must first be reviewed. Article 106 of the Labor Code
states:ChanRoblesVirtualawlibrary
Art. 106. Contractor or subcontractor. Whenever an employer enters into a
contract with another person for the performance of the former's work, the
employees of the contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict
or prohibit the contracting-out of labor to protect the rights of workers
established under this Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor-only contracting and job contracting as
well as differentiations within these types of contracting and determine who
among the parties involved shall be considered the employer for purposes of this
Code, to prevent any violation or circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to
an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly
employed by him. (Emphasis supplied)

Sections 3, 5 and 7 of Department Order No. 18-02 12 distinguish between

legitimate and labor-only contracting and assume the existence of an employeremployee relationship if found to be engaged in labor-only contracting. The
provisions state:ChanRoblesVirtualawlibrary
xxxx
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.
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:
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.

xxxx
Section 7. Existence of an employer-employee relationship. - The contractor or
subcontractor shall be considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code and other social
legislation. The principal, however, shall be solidarity liable with the contractor in
the event of any violation of any provision of the Labor Code, including the
failure to pay wages.
The principal shall be deemed the employer of the contractual employee in any
of the following cases as declared by a competent
authority:ChanRoblesVirtualawlibrary
(a) where there is labor-only contracting; or
(b) where the contracting arrangement falls within the prohibitions provided in
Section 6 (Prohibitions) hereof. (Emphasis supplied)
It is clear from these provisions that contracting arrangements for the
performance of specific jobs or services under the law and its implementing rules
are allowed. However, contracting must be made to a legitimate and
independent job contractor since labor rules expressly prohibit labor-only
contracting.
Labor-only contracting exists when the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or service for a
principal and any of the following elements are present:
1)

The contractor or subcontractor does not have substantial capital or

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

2)

The contractor does not exercise the right to control the performance of the
work of the contractual employee.13

In the present case, Manila Memorial entered into a Contract of Services with
Ward Trading, a single proprietorship owned by Emmanuel Mayor Ward with
business address in Las Pias City on 23 February 2006. In the Contract of
Services, it was provided that Ward Trading, as the contractor, had adequate
workers and substantial capital or investment in the form of tools, equipment,
machinery, work premises and other materials which were necessary in the
conduct of its business.
However, a closer look at the Contract of Services reveals that Ward Trading does

not have substantial capital or investment in the form of tools, equipment,

machinery, work premises and other materials since it is Manila Memorial which
owns the equipment used in the performance of work needed for interment and
exhumation services. The pertinent provision in the Contract of Services which
shows that Manila Memorial owns the equipment
states:ChanRoblesVirtualawlibrary
The COMPANY shall [sell] to the contractor the COMPANY owned equipment in
the amount of ONE MILLION FOUR HUNDRED THOUSAND PESOS ONLY (Php
1,400,000.00) payable in two (2) years or a monthly payment of FIFTY EIGHT
THOUSAND THREE HUNDRED THIRTY FIVE PESOS ONLY (Php 58,335.00) to be
deducted from the CONTRACTOR'S billing.14chanroblesvirtuallawlibrary
Just by looking at the provision, it seems that the sale was a regular business
transaction between two parties. However, Manila Memorial did not present any
evidence to show that the sale actually pushed through or that payments were
made by Ward Trading to prove an ordinary arms length transaction. We agree
with the NLRC in its findings:ChanRoblesVirtualawlibrary
While the above-cited provision of the Contract of Service implies that
respondent MMPCI would sell subject equipment to Ward at some future time,
the former failed to present any contract of sale as proof that, indeed, it actually
sold said equipment to Ward. Likewise, respondent MMPCI failed to present any
"CONTRACTOR'S billing" wherein the purported monthly installment of
P58,335.00 had been deducted, to prove that Ward truly paid the same as they
fell due. In a contract to sell, title is retained by the vendor until full payment of
the price.
Moreover, the Contract of Service provides that:ChanRoblesVirtualawlibrary
"5. The COMPANY reserves the right to rent all or any of the CONTRACTOR'S
equipment in the event the COMPANY requires the use of said equipment, x x x."
This provision is clear proof that Ward does not have an absolute right to use or
enjoy subject equipment, considering that its right to do so is subject to
respondent MMPCI's use thereof at any time the latter requires it. Such provision
is contrary to Article 428 of the Civil Code, which provides that "The owner has
the right to enjoy and dispose of a thing, without other limitation than those
established by law." It is plain to see that Ward is not the owner of the equipment
worth P1,400,000.00 that is being actually and directly used in the performance
of the services contracted out.
Further, the Service Contract states that:ChanRoblesVirtualawlibrary
"For its part, the COMPANY agrees to provide the following:
a) Area to store CONTRACTOR'S equipment and materials
b) Office space for CONTRACTOR'S staff and personnel"

This provision is clear proof that even the work premises actually and directly
used by Ward in the performance of the services contracted out is owned by
respondent MMPCI.15chanroblesvirtuallawlibrary
Also, the difference in the value of the equipment in the total amount of
P1,400,000.00 can be glaringly seen in Ward Trading's financial statements for
the year 2006 when compared to its 2005 financial statements. It is significant to
note that these financial statements were submitted by Manila Memorial without
any certification that these financial statements were actually audited by an
independent certified public accountant. Ward Trading's Balance Sheet 16 as of 31
December 2005 showed that it had assets in the amount of P441,178.50 and
property and equipment with a net book value of P86,026.50 totaling P534,705.
A year later, Ward Trading's Balance Sheet17 ending in 31 December 2006
showed that it had assets in the amount of P57,084.70 and property and
equipment with a net book value of Pl,426,468 totaling P1,491,052.70. Ward
Trading, in its Income Statements18for the years 2005 and 2006, only earned a
net income of P53,800 in the year ending 2005 and P68,141.50 in 2006.
Obviously, Ward Trading could not have raised a substantial capital of
P1,400,000.00 from its income alone without the inclusion of the equipment
owned and allegedly sold by Manila Memorial to Ward Trading after they signed
the Contract of Services on 23 February 2006.
Further, the records show that Manila Memorial and Enrique B. Lagdameo
admitted that respondents performed various interment services at its Sucat,
Paranaque branch which were directly related to Manila Memorial's business of
developing, selling and maintaining memorial parks and interment functions.
Manila Memorial even retained the right to control the performance of the work
of the employees concerned. As correctly observed by the
CA:ChanRoblesVirtualawlibrary
A perusal of the Service Contract would reveal that respondent Ward is still
subject to petitioner's control as it specifically provides that although Ward shall
be in charge of the supervision over individual respondents, the exercise of its
supervisory function is heavily dependent upon the needs of petitioner Memorial
Park, particularly:ChanRoblesVirtualawlibrary
"It is also agreed that:
a) The CONTRACTOR'S supervisor will conduct a regular inspection of grave
sites/areas being dug to ensure compliance with the COMPANY'S interment
schedules and other related ceremonies.
b) The CONTRACTOR will provide enough manpower during peak interment days
including Sundays and Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in coordination with
the COMPANY'S schedule of interment operation.
d) The CONTRACTOR shall be responsible for any damage done to lawn/s and/or
structure/s resulting from its operation, which must be restored to its/their
original condition without delay and at the expense of CONTRACTOR."

The contract further provides that petitioner has the option to take over the
functions of Ward's personnel if it finds any part or aspect of the work or service
provided to be unsatisfactory, thus:ChanRoblesVirtualawlibrary
"6.1 It is hereby expressly agreed and understood that, at any time during the
effectivity of this CONTRACT and its sole determination, the COMPANY may take
over the performance of any of the functions mentioned in Paragraph I above, in
any of the following cases:chanRoblesvirtualLawlibrary
xxx
c. If the COMPANY finds the performance of the CONTRACTOR in any part or
aspect of the grave digging works or other services provided by it to be
unsatisfactory."
It is obvious that the aforementioned provision leaves respondent Ward at the
mercy of petitioner Memorial Park as the contract states that the latter may take
over if it finds any part of the services to be below its expectations, including the
manner of its performance. x x x.19chanroblesvirtuallawlibrary
The NLRC also found that Ward Trading's business documents fell short of sound
business practices. The relevant portion in the NLRC's Decision
states:ChanRoblesVirtualawlibrary
It is also worth noting that while Ward has a Certificate of Business Name
Registration issued by the Department of Trade and Industry on October 24,
2003 and valid up to October 24, 2008, the same expressly states that it is not a
license to engage in any kind of business, and that it is valid only at the place
indicated therein, which is Las Pias City. Hence, the same is not valid in
Paranaque City, where Ward assigned complainants to perform interment
services it contracted with respondent MMPCI. It is also noted that the Permit,
which was issued to Ward by the Office of the Mayor of Las Pias City on October
28, 2003, was valid only up to December 31, 2003. Likewise, the Sanitary Permit
to Operate, which was issued to Ward by the Office of the City Health Officer of
the Las Pias City Health Office on October 28, 2003, expired on December 31,
2003. While respondents MMPCI and Lagdameo were able to present copies of
the above-mentioned documents, they failed to present any proof that Ward is
duly registered as [a] contractor with the Department of Labor and
Employment.20chanroblesvirtuallawlibrary
Section 11 of Department Order No. 18-02, which mandates registration of
contractors or subcontractors with the DOLE, states:ChanRoblesVirtualawlibrary
Section 11. Registration of Contractors or Subcontractors. - Consistent with
authority of the Secretary of Labor and Employment to restrict or prohibit the
contracting out of labor through appropriate regulations, a registration system to
govern contracting arrangements and to be implemented by the Regional Office
is hereby established.

The Registration of contractors and subcontractors shall be necessary for

purposes of establishing an effective labor market information and monitoring.
Failure to register shall give rise to the presumption that the contractor is
engaged in labor-only contracting.
For failing to register as a contractor, a presumption arises that one is engaged
in labor-only contracting unless the contractor overcomes the burden of proving
that it has substantial capital, investment, tools and the
like.21chanroblesvirtuallawlibrary
In this case, however, Manila Memorial failed to adduce evidence to prove that
Ward Trading had any substantial capital, investment or assets to perform the
work contracted for. Thus, the presumption that Ward Trading is a labor-only
contractor stands. Consequently, Manila Memorial is deemed the employer of
respondents. As regular employees of Manila Memorial, respondents are entitled
to their claims for wages and other benefits as awarded by the NLRC and
affirmed by the CA.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 21 January
2013 and the Resolution dated 17 July 2013 of the Court of Appeals in CA-G.R. SP
No. 119237.
SO ORDERED.
Velasco, Jr.,*Del Castillo, and Mendoza, JJ., concur.
Leonen, J., on leave.

G.R. Nos. 173254-55 & 173263, January 13, 2016

DIAMOND FARMS, INC., Petitioner, v. SOUTHERN PHILIPPINES FEDERATION
OF LABOR (SPFL)-WORKERS SOLIDARITY OF DARBMUPCO/DIAMONDSPFL, DIAMOND FARMS AGRARIAN REFORM BENEFICIARIES MULTIPURPOSE COOPERATIVE (DARBMUPCO), VOLTER LOPEZ, RUEL ROMERO,
PATRICK) CAPRECHO, REY DIMACALI, ELESIO EMANEL, VICTOR SINGSON,
NILDA DIMACALI, PREMITIVO* DIAZ, RUDY VISTAL, ROGER MONTERO,
JOSISIMO GOMEZ AND MANUEL MOSQUERA, Respondents.
DECISION
JARDELEZA, J.:

We resolve in this Petition for Review1 under Rule 45 of the Rules of Court, the
issue of who among Diamond Farms, Inc. ("DFI"), Diamond Farms Agrarian
Reform Beneficiaries Multi-Purpose Cooperative ("DARBMUPCO") and the
individual contractors2 ("respondent-contractors") is the employer of the 400
employees ("respondent-workers").
DFI challenges the March 31, 2006 Decision 3 and May 30, 2006 Resolution4 of the
Court Appeals, Special Twenty-Second Division, Cagayan De Oro City for being
contrary to law and jurisprudence. The Decision dismissed DFI's Petition
for Certiorari in C.A.-G.R. SP Nos. 53806 and 61607 and granted DARBMUPCO's
Petition for Certiorari in C.A.-G.R. SP No. 59958. It declared DFI as the statutory
employer of the respondent-workers.
The Facts
DFI owns an 800-hectare banana plantation ("original plantation") in Alejal,
Carmen, Davao.5 Pursuant to Republic Act No. 6657 or the Comprehensive
Agrarian Reform Law of 1988 ("CARL"), commercial farms shall be subject to
compulsory acquisition and distribution,6 thus the original plantation was covered
by the law. However, the Department of Agrarian Reform ("DAR") granted DFI a
deferment privilege to continue agricultural operations until 1998. 7 Due to
adverse marketing problems and observance of the so-called "lay-follow" or the
resting of a parcel of land for a certain period of time after exhaustive utilization,
DFI closed some areas of operation in the original plantation and laid off its
employees.8 These employees petitioned the DAR for the cancellation of DFI's
deferment privilege alleging that DFI already abandoned its area of
operations.9 The DAR Regional Director recalled DFI's deferment privilege
resulting in the original plantation's automatic compulsory acquisition and
distribution under the CARL.10 DFI filed a motion for reconsideration which was
denied. It then appealed to the DAR Secretary. 11
In the meantime, to minimize losses, DPI offered to give up its rights and interest
over the original plantation in favor of the government by way of a Voluntary
Offer to Sell.12 The DAR accepted DFI's offer to sell the original plantation.
However, out of the total 800 hectares, the DAR only approved the disposition of
689.88 hectares. Hence, the original plantation was split into two: 689.88
hectares were sold to the government ("awarded plantation") and the remaining
200 hectares, more or less, were retained by DPI ("managed area"). 13 The
managed area is subject to the outcome of the appeal on the cancellation of the
deferment privilege before the DAR Secretary.
On January 1, 1996, the awarded plantation was turned over to qualified agrarian
reform beneficiaries ("ARBs") under the CARL. These ARBs are the same farmers
who were working in the original plantation. They subsequently organized
themselves into a multi-purpose cooperative named "DARBMUPCO," which is one
of the respondents in this case. 14

On March 27, 1996, DARBMUPCO entered into a Banana Production and Purchase
Agreement ("BPPA")15 with DFI.16 Under the BPPA, DARBMUPCO and its members
as owners of the awarded plantation, agreed to grow and cultivate only high
grade quality exportable bananas to be sold exclusively to DPI. 17 The BPPA is
effective for 10 years.18
On April 20, 1996, DARBMUPCO and DFI executed a "Supplemental to
Memorandum Agreement" ("SMA").19 The SMA stated that DFI shall take care of
the labor cost arising from the packaging operation, cable maintenance,
irrigation pump and irrigation maintenance that the workers of DARBMUPCO shall
conduct for DFI's account under the BPPA. 20
From the start, DARBMUPCO was hampered by lack of manpower to undertake
the agricultural operation under the BPPA because some of its members were not
willing to work.21 Hence, to assist DARBMUPCO in meeting its production
obligations under the BPPA, DFI engaged the services of the respondentcontractors, who in turn recruited the respondent-workers. 22
The engagement of the respondent-workers, as will be seen below, started a
series of labor disputes among DARBMUPCO, DFI and the respondentcontractors.
CA. G.R. SP No. 53806
On February 10, 1997, respondent Southern Philippines Federation of Labor
("SPFL")a legitimate labor organization with a local chapter in the awarded
plantationfiled a petition for certification election in the Office of the MedArbiter in Davao City.23 SPFL filed the petition on behalf of some 400 workers (the
respondent-workers in this petition) "jointly employed by DFI and DARBMUPCO"
working in the awarded plantation.
DARBMUPCO and DFI dented that they are the employers of the respondentworkers. They claimed, instead, that the respondent-workers are the employees
of the respondent-contractors.24
In an Order dated May 14, 1997,25 the Med-Arbiter granted the petition for
certification election. It directed the conduct of certification election and declared
that DARBMUPCO was the employer of the respondent-workers. The Order stated
that "whether the said workers/employees were hired by independent
contractors is of no moment. What is material is that they were hired purposely
to work on the 689.88 hectares banana plantation [the awarded plantation] now
owned and operated by DARBMUPCO."26
DARBMUPCO appealed to the Secretary of Labor and Employment ("SOLE"). In a
Resolution dated February 18, 1999,27 the SOLE modified the decision of the MedArbiter. The SOLE held that DFI, through its manager and personnel, supervised
and directed the performance of the work of the respondent-contractors. The

SOLE thus declared DFI as the employer of the respondent-workers. 28

DFI filed a motion for reconsideration which the SOLE denied in a Resolution
dated May 4, 1999.29
On June 11, 1999, DFI elevated the case to the Court of Appeals ("CA") via a
Petition for Certiorari30under Rule 65 of the Rules of Court. The case was raffled
to the CA's former Twelfth Division and was docketed as C.A.-G.R. SP No. 53806.
CA.-G.R. SP No. 59958
Meanwhile, on June 20, 199731 and September 15, 1997,32 SPFL, together with
more than 300 workers, filed a case for underpayment of wages, nonpayment of
13th month pay and service incentive leave pay and attorney's fees against DFI,
DARBMUPCO and the respondent-contractors before the National Labor Relations
Commission ("NLRC") in Davao City. DARBMUPCO averred that it is not the
employer of respondent-workers; neither is DFI. It asserted that the money
claims should be directed against the true employerthe respondentcontractors.33
In a Decision dated January 22, 1999,34 the Labor Arbiter ("LA") held that die
respondent-contractors are "labor-only contractors." The LA gave credence to the
affidavits of the other contractors35 of DFI (who are not party-respondents in this
petition) asserting that DFI engaged their services, and supervised and paid their
laborers. The affidavits also stated that the contractors had no dealings with
DARBMUPCO, except that their work is done in the awarded plantation. 36
The LA held that, under the law, DFI is deemed as the statutory employer of all
the respondent-workers.37 The LA dismissed the case against DARBMUPCO and
the respondent-contractors.38
DFI appealed to the NLRC. In a Resolution dated May 24, 1999, 39 the NLRC Fifth
Division modified the Decision of the LA and declared that DARBMUPCO and DFI
are the statutory employers of the workers rendering services in the awarded
plantation and the managed area, respectively. 40 It adjudged DFI and
DARBMUPCO as solidarity liable with the respondent-contractors for the
monetary claims of the workers, in proportion to their net planted area. 41
DARBMUPCO filed a motion for reconsideration which was denied. 42 It filed a
second motion for reconsideration in the NLRC, which was also denied for lack of
merit and for being barred under the NLRC Rules of Procedure. 43 Hence,
DARBMUPCO elevated the case to the CA by way of a Petition for Certiorari.44 The
case was docketed as CA.-G.R. SP. No. 59958.
The former Eleventh Division of the CA consolidated C.A. G.R. SP. No. 59958 and
C.A.-G.R. SP No. 53806 in a Resolution dated January 27, 2001. 45

C.A.-G.R. SPNo. 61607

Pursuant to the May 4, 1999 Resolution of the SOLE approving the conduct of
certification election, the Department of Labor and Employment ("DOLE")
conducted a certification election on October 1, 1999. 46 On even date, DFI filed
an election protest47 before the Med-Arbiter arguing that the certification election
was premature due to the pendency of a petition for certiorari before the CA
assailing the February 18, 1999 and May 4, 1999 Resolutions of the SOLE
(previously discussed in C.A.-G.R. SP No. 53806).
In an Order dated December 15, 1999,48 the Med-Arbiter denied DFI's election
protest, and certified SPFL- Workers Solidarity of DARBMUPCO/DIAMOND-SPFL
("WSD-SPFL") as the exclusive bargaining representative of the respondentworkers. DPI filed a Motion for Reconsideration 49 which the Med-Arbiter treated as
an appeal, and which the latter elevated to the SOLE.
In a Resolution dated July 18, 2000,50 the SOLE dismissed the appeal. The
Resolution stated that the May 4, 1999 Resolution directing the conduct of
certification election is already final and executory on June 4, 1999. It pointed out
that the filing of the petition for certiorari before the CA assailing the February
18, 1999 and May 4, 1999 Resolutions does not stay the conduct of the
certification election because the CA did not issue a restraining order. 51 DFI filed
a Motion for Reconsideration but the motion was denied. 52
On October 27, 2000, DFI filed a Petition for Certiorari53 before the CA, docketed
as C.A.-G.R. SP No. 61607.
In a Resolution dated August 2, 2005,54 the CA Twenty-Third Division consolidated
C.A.-G.R. SP No. 61607 with C.A.-G.R. SP. No. 59958 and C.A. G.R. SP No. 53806.
The Assailed CA Decision and Resolution
The CA was confronted with two issues: 55
(1)

"Whether DFI or DARBMUPCO is the statutory employer of the

[respondent-workers] in these petitions; and

(2)

Whether or not a certification election may be conducted pending the

resolution of the petition for certiorari filed before this Court, the main
issue of which is the identity of the employer of the [respondent-workers]
in these petitions."

On the first issue, the CA agreed with the ruling of the SOLE 56 that DFI is the
statutory employer of the respondent-workers. It noted that the DFI hired the
respondent-contractors, who in turn procured their own men to work in the land

owned by DARBMUPCO. Further, DFI admitted that the respondent-contractors

worked under the direction and supervision of DFI's managers and personnel. DFI
also paid for the respondent-contractors' services. 57 The CA said that the fact
that the respondent-workers worked in the land owned by DARBMUPCO is
immaterial. "Ownership of the land is not one of the four (4) elements generally
considered to establish employer-employee relationship." 58
The CA also ruled that DFI is the true employer of the respondent-workers
because the respondent-contractors are not independent contractors. 59 The CA
stressed that in its pleadings before the Med-Arbiter, the SOLE, and the CA, DFI
revealed that DARBMUPCO lacks manpower to fulfill the production requirements
under the BPPA. This impelled DFI to hire contractors to supply labor enabling
DARBMUPCO to meet its quota. The CA observed that while the various agencies
involved in the consolidated petitions sometimes differ as to who the statutory
employer of the respondent-workers is, they are uniform in finding that the
respondent-contractors are labor-only contractors. 60
On the second issue, the CA reiterated the ruling of the SOLE 61 that absent an
injunction from the CA, the pendency of a petition for certiorari does not stay the
holding of the certification election.62 The challenged Resolution of the SOLE is
already final and executory as evidenced by an Entry of Judgment dated July 14,
1999; hence, the merits of the case can no longer be reviewed. 63
The CA thus held in its Decision dated March 31, 2006:
WHEREFORE, premises considered, this Court hereby ORDERS:
(1)

the DISMISSAL of the petitions in C.A.-G.R. SP No. 53806 and C.A.-G.R. SP

No. 61607; and

(2)

the GRANTING of the petition in C.A.-G.R. SP No. 59958 and the SETTING
ASIDE of the assailed resolutions of the NLRC dated 24 May 1999, 30 July
1999 and 26 June 2000, respectively.

SO ORDERED.64ChanRoblesVirtualawlibrary
DFI filed a Motion for Reconsideration of the CA Decision which was denied in a
Resolution dated May 30, 2006.65
DFI is now before us by way of Petition for Review on Certiorari praying that
DARBMUPCO be declared the true employer of the respondent-workers.
DARBMUPCO filed a Comment66 maintaining that under the control test, DFI is
the true employer of the respondent-workers.
Respondent-contractors filed a Verified Explanation and Memorandum 67 asserting

that they were labor-only contractors; hence, they are merely agents of the true
employer of the respondent-workers.
SPFL did not file any comment or memorandum on behalf of the respondentworkers.68
The Issue
The issue before this Court is who among DFI, DARBMUPCO and the respondentcontractors is the employer of the respondent-workers.
Our Ruling
We deny the petition.
This case involves job contracting, a labor arrangement expressly allowed by law.
Contracting or subcontracting is an arrangement whereby a principal (or
employer) agrees to put out or farm out with a contractor or subcontractor the
performance or completion of a specific job, work or service within a definite or
predetermined period, regardless of whether such job, work or service is to be
performed or completed within or outside the premises of the principal. 69 It
involves a trilateral relationship among the principal or employer, the contractor
or subcontractor, and the workers engaged by the contractor or subcontractor. 70
Article 106 of the Labor Code of the Philippines71 (Labor Code) explains the
relations which may arise between an employer, a contractor, and the
contractor's employees,72 thus:
ART. 106. Contractor or subcontracting. - Whenever an employer enters into a
contract with another person for the performance of the formers work, the
employees of the contractor and of the latter's subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict
or prohibit the contracting out of labor to protect the rights of workers
established under this Code. In so prohibiting or restricting, he may make
appropriate distinctions between labor-only contracting and job contracting as
well as differentiations within these types of contracting and determine who
among the parties involved shall be considered the employer for purposes of this
Code, to prevent any violation or circumvention of any provision of this Code.

There is "labor-only" contracting where the person supplying workers to an

employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers
recruited and placed by such person are performing activities which are directly
related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter
were directly employed by him.
The Omnibus Rules Implementing the Labor Code 73 distinguishes between
permissible job contracting (or independent contractorship) and labor-only
contracting. Job contracting is permissible under the Code if the following
conditions are met:
(1)

The contractor carries on an independent business and undertakes the

contract work on his own account under his own responsibility according to
his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the
work except as to the results thereof; and

(2)

The contractor has substantial capital or investment in the form of tools,

equipment, machineries, work premises, and other materials which are
necessary in the conduct of his business. 74

In contrast, job contracting shall be deemed as labor-only contracting, an

arrangement prohibited by law, if a person who undertakes to supply workers to
an employer:
(1)

Does not have substantial capital or investment in the form of tools,

equipment, machineries, work premises and other materials; and

(2)

The workers recruited and placed by such person are performing activities
which are directly related to the principal business or operations of the
employer in which workers are habitually employed. 75

As a general rule, a contractor is presumed to be a labor-only contractor, unless

such contractor overcomes the burden of proving that it has the substantial
capital, investment, tools and the like.76
Based on the conditions for permissible job contracting, we rule that
respondent-contractors are labor-only contractors.
There is no evidence showing that respondent-contractors are independent
contractors. The respondent-contractors, DFI, and DARBMUPCO did not offer any

proof that respondent-contractors were not engaged in labor-only contracting. In

this regard, we cite our ruling in Caro v. Rilloraza,77thus:
"In regard to the first assignment of error, the defendant company pretends to
show through Venancio Nasol's own testimony that he was an independent
contractor who undertook to construct a railway line between Maropadlusan and
Mantalisay, but as far as the record shows, Nasol did not testify that the
defendant company had no control over him as to the manner or methods he
employed in pursuing his work. On the contrary, he stated that he was not
bonded, and that he only depended upon the Manila Railroad for money to be
paid to his laborers. As stated by counsel for the plaintiffs, the word 'independent
contractor' means 'one who exercises independent employment and contracts to
do a piece of work according to his own methods and without being subject to
control of his employer except as to result of the work.' furthermore, if the
employer claims that the workmen is an independent contractor, for whose acts
he is not responsible, the burden is on him to show his independence.
Tested by these definitions and by the fact that the defendant has
presented piactically no evidence to determine whether Venancio Nasol
was in reality an independent contractor or not, we are inclined to think
that he is nothing but an intermediary between the defendant and
certain laborers. It is indeed difficult to find that Nasol is an
independent contractor; a person who possesses no capital or money of his
own to pay his obligations to them, who files no bond to answer for any
fulfillment of his contract with his employer and specially subject to the control
and supervision of his employer, falls short of the requisites or conditions
necessary for the common and independent contractor." 78 (Citations
omitted; Emphasis supplied.)
To support its argument that respondent-contractors are the employers of
respondent-workers, and not merely labor-only contractors, DFI should have
presented proof showing that respondent-contractors carry on an independent
business and have sufficient capitalization. The record, however, is bereft of
showing of even an attempt on the part of DFI to substantiate its argument.
DFI cannot cite the May 24, 1999 Resolution of the NLRC as basis that
respondent-contractors are independent contractors. Nowhere in the NLRC
Resolution does it say that the respondent-contractors are independent
contractors. On the contrary, the NLRC declared that "it was not clearly
established on record that said [respondent-]contractors are independent, xxx." 79
Further, respondent-contractors admit, and even insist that they are engaged in
labor-only contracting. As will be seen below, respondent-contractors made the
admissions and declarations on two occasions: first was in their Formal
Appearance of Counsel and Motion for Exclusion of Individual Party-Respondents
filed before the LA; and second was in their Verified Explanation and
Memorandum filed before this Court.

Before the LA, respondent-contractors categorically stated that they are "laboronly" contractors who have been engaged by DFI and DARBMUPCO. 80 They
admitted that they do not have substantial capital or investment in the form of
tools, equipment, machineries, work premises and other materials, and they
recruited workers to perform activities directly related to the principal operations
of their employer.81
Before this Court, respondents-contractors again admitted that they are laboronly contractors. They narrated that:
1. Herein respondents, Voltaire Lopez, Jr., et al., were commissioned
and contracted by petitioner, Diamond Farms, Inc. (DFI) to recruit
farm workers, who are the complaining [respondent-workers] (as
represented by Southern Philippines Federation of Labor (SPFL) in
this appeal by certiorari), in order to perform specific farm activities,
such as pruning, dcleafing, fertilizer application, bud inject, stem spray,
drainage, bagging, etc., on banana plantation lands awarded to private
respondent, Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose
Cooperative (DARBMUPCO) and on banana planted lands owned and
managed by petitioner, DFI.
2. All farm tools, implements and equipment necessary to performance of
such farm activities were supplied by petitioner DFI to respondents
Voltaire Lopez, Jr., et. al. as well as to respondents-SPFL, et. al. Herein
respondents Voltaire Lopez, Jr. et. al. had no adequate capital to
acquire or purchase such tools, implements, equipment, etc.
3. Herein respondents Voltaire Lopez, Jr., et. al. as well as
rcspondents-SPFL, et. al. were being directly supervised,
controlled and managed by petitioner DFI farm managers and
supervisors, specifically on work assignments and performance
targets. DFI managers and supervisors, at their sole discretion and
prerogative, could directly hire and terminate any or all of the
respondents-SPFL, et. al., including any or all of the herein respondents
Voltaire Lopez, Jr., et. al.
4. Attendance/Time sheets of respondents-SPFL, et. al. were being prepared
by herein respondents Voltaire Lopez, Jr., et. al., and correspondingly
submitted to petitioner DFI. Payment of wages to respondents-SPFL, et. al.
were being paid for by petitioner DFI thru herein respondents Voltaire
Lopez, [Jr.], et. al. The latter were also receiving their wages/salaries from
petitioner DFI for monitoring/leading/recruiting the respondents- SPFL, et.
al.
5. No monies were being paid directly by private respondent DARBMUPCO to
respondents-SPFL, et al., nor to herein respondents Voltaire Lopez, [Jr.], et.
al. Nor did respondent DARBMUPCO directly intervene much less supervise
any or all of [the] respondents- SPFL, et. al. including herein respondents
Voltaire Lopez, Jr.. et. al.82 (Emphasis supplied.)

The foregoing admissions are legally binding on respondent-contractors. 83 Judicial

admissions made by parties in the pleadings, or in the course of the trial or other
proceedings in the same case are conclusive and so does not require further
evidence to prove them.84 Here, the respondent-contractors voluntarily pleaded
that they are labor-only contractors; hence, these admissions bind them.
A finding that a contractor is a labor-only contractor is equivalent to a declaration
that there is an employer-employee relationship between the principal, and the
workers of the labor-only contractor; the labor-only contractor is deemed only as
the agent of the principal.85 Thus, in this case, respondent-contractors are the
labor-only contractors and either DFI or DARBMUPCO is their principal.
We hold that DFI is the principal.
Under Article 106 of the Labor Code, a principal or employer refers to the person
who enters into an agreement with a job contractor, either for the performance
of a specified work or for the supply of manpower. 86 In this regard, we quote with
approval the findings of the CA, to wit:
The records show that it is DFI which hired the individual [respondentcontractors] who in turn hired their own men to work in the 689.88
hectares land of DARBMUPCO as well as in the managed area of the
plantation. DFI admits [that] these [respondent-contractors] worked under the
direction and supervision of the DFI. managers and personnel. DFI paid the
[respondent-contractors] for the services rendered in the plantation and the
[respondent-contractors] in turn pay their workers after they [respondentcontractors] received payment from DFI xxx DARBMUPCO did not have anything
to do with the hiring, supervision and payment of the wages of the workersrespondents thru the contractors-respondents. xxx 87 (Emphasis supplied.)
DFI does not deny that it engaged the services of the respondent-contractors. It
does not dispute the claims of respondent-contractors that they sent their billing
to DFI for payment; and that DFI's managers and personnel are in close
consultation with the respondent-contractors. 88
DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors
because it (DARBMUPCO) owns the awarded plantation where respondentcontractors and respondent-workers were working; 89 and therefore DARBMUPCO
is the ultimate beneficiary of the employment of the respondent-workers. 90
That DARBMUPCO owns the awarded plantation where the respondentcontractors and respondent-workers were working is immaterial. This does not
change the situation of the parties. As correctly found by the CA, DFI, as the
principal, hired the respondent-contractors and the latter, in turn, engaged the
services of the respondent-workers. 91 This was also the unanimous finding of the
SOLE,92 the LA,93 and the NLRC.94 Factual findings of the NLRC, when they
coincide with the LA and affirmed by the CA are accorded with great weight and
respect and even finality by this Court.95

Alilin v. Petron Corporation96 is applicable. In that case, this Court ruled that the
presence of the power of control on the part of the principal over the workers of
the contractor, under the facts, prove the employer-employee relationship
between the former and the latter, thus:
[A] finding that a contractor is a 'labor-only' contractor is equivalent to declaring
that there is an employer-employee relationship between the principal and the
employees of the supposed contractor." In this case, the employer-employee
relationship between Pctron and petitioners becomes all the more
apparent due to the presence of the power of control on the part of the
former over the latter.
It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals that:
This Court has constantly adhered to the "fourfold test" to determine whether
there exists an employer-employee relationship between the parties. The four
elements of an employment relationship are: (a) the selection and engagement
of the employee; (b) the payment of wages; (c) the power of dismissal; and (d)
the power to control the employee's conduct.
Of these four elements, it is the power to control which is the most
crucial and most determinative factor, so important, in fact, that, the
other elements may even be disregarded.
Hence, the facts that petitioners were hired by Romeo or his father and that their
salaries were paid by them do not detract from the conclusion that there exists
an employer-employee relationship between the parties due to Pctron's power of
control over the petitioners. One manifestation of the power of control is the
power to transfer employees from one work assignment to another. Here, Petron
could order petitioners to do work outside of their regular "maintenance/utility"
job. Also, petitioners were required to report for work everyday at the bulk plant,
observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear proper uniform
and safety helmets as prescribed by the safety and security measures being
implemented within the bulk plant. All these imply control. In an industry where
safety is of paramount concern, control and supervision over sensitive
operations, such as those performed by the petitioners, are inevitable if not at all
necessary. Indeed, Petron deals with commodities that are highly volatile and
flammable which, if mishandled or not properly attended to, may cause serious
injuries and damage to property and the environment. Naturally, supervision by
Petron is essential in every aspect of its product handling in order not to
compromise the integrity, quality and safety of the products that it distributes to
the consuming public.97 (Citations omitted; Emphasis supplied)
That DFI is the employer of the respondent-workers is bolstered by the CA's
finding that DFI exercises control over the respondent-workers. 98 DFI, through its
manager and supervisors provides for the work assignments and performance
targets of the respondent-workers. The managers and supervisors also have the

power to directly hire and terminate the respondent-workers. 99 Evidently, DFI

wields control over the respondent-workers.
Neither can DFI argue that it is only the purchaser of the bananas produced in
the awarded plantation under the BPPA,100 and that under the terms of the BPPA,
no employer-employee relationship exists between DFI and the respondentworkers,101 to wit:
UNDERTAKING OF THE FIRST PARTY

xxx
3. THE FIRST PARTY [DARBMUPCO] shall be responsible for the proper conduct,
safety, benefits and general welfare of its members working in the plantation and
specifically render free and harmless the SECOND PARTY [DPI] of any expense,
liability or claims arising therefrom. It is clearly recognized, by the FIRST
PARTY that its members and other personnel utilized in the
performance of its function under this agreement are not employees of
the SECOND PARTY.102 (Emphasis supplied)
In labor-only contracting, it is the law which creates an employer-employee
relationship between the principal and the workers of the labor-only contractor. 103
Inasmuch as it is the law that forms the employment ties, the stipulation in the
BPPA that respondent-workers are not employees of DFI is not controlling, as the
proven facts show otherwise. The law prevails over the stipulations of the
parties. Thus, in Tabas v. California Manufacturing Co., Inc.,104 we held that:
The existence of an employer-employees relation is a question of law
and being such, it cannot be made the subject of agreement. Hence, the
fact that the manpower supply agreement between Livi and California had
specifically designated the former as the petitioners' employer and had absolved
the latter from any liability as an employer, will not erase either party's
obligations as an employer, if an employer-employee relation otherwise exists
between the workers and either firm. xxx105(Emphasis supplied.)
Clearly, DFI is the true employer of the respondent-workers; respondentcontractors are only agents of DFI. Under Article 106 of the Labor Code, DFI shall
be solidarily liable with the respondent-contractors for the rightful claims of the
respondent-workers, to the same manner and extent, as if the latter are directly
employed by DFI.106
WHEREFORE, the petition is DENIED for lack of merit. The March 31, 2006
Decision and the May 30, 2006 Resolution of the Court of Appeals in C.A.-G.R. SP
Nos. 53806, 61607 and 59958 are hereby AFFIRMED.

SO ORDERED.chanroblesvirtuallawlibrary
Velasco, Jr., (Chairperson), Leonardo-De Castro, **Peralta, and Villarama, Jr., JJ.,
concur.

G.R. No. 187691, January 13, 2016

OLYMPIA HOUSING, INC., Petitioner, v. ALLAN LAPASTORA AND IRENE
UBALUBAO, Respondents.
DECISION

REYES, J.:
This is a Petition for Review on Certiorari1 filed under Rule 45 of the Rules of
Court, assailing the Decision2 dated April 28, 2009 of the Court of Appeals (CA) in
CA-G.R. SP No. 103699, which affirmed the Decision dated December 28, 2007
and Resolution3 dated February 29, 2008 of the National Labor Relations
Commission (NLRC) in NLRC NCR Case No. 30-03-00976-00.
The instant case stemmed from a complaint for illegal dismissal, payment of
backwages and other benefits, and regularization of employment filed by Allan
Lapastora (Lapastora) and Irene Ubalubao (Ubalubao) against Olympic Housing,
Inc. (OHI), the entity engaged in the management of the Olympia Executive
Residences (OER), a condominium hotel building situated in Makati City, owned
by a Philippine-registered corporation known as the Olympia Condominium
Corporation (OCC). The complaint, which was docketed as NLRC NCR Case No.
30-03-00976-00 (NLRC NCR CA No. 032043-02), likewise impleaded as
defendants the part owner of OHI, Felix Limcaoco (Limcaoco), and Fast Manpower
and Allied Services Company, Inc. (Fast Manpower). Lapastora and Ubalubao
alleged that they worked as room attendants of OHI from March 1995 and June
1997, respectively, until they were placed on floating status on February 24,
2000, through a memorandum sent by Fast
Manpower.4chanroblesvirtuallawlibrary
To establish employer-employee relationship with OHI, Lapastora and Ubalubao
alleged that they were directly hired by the company and received salaries
directly from its operations clerk, Myrna Jaylo (Jaylo). They also claimed that OHI
exercised control over them as they were issued time cards, disciplinary action
reports and checklists of room assignments. It was also OHI which terminated
their employment after they petitioned for regularization. Prior to their dismissal,
they were subjected to investigations for their alleged involvement in the theft of
personal items and cash belonging to hotel guests and were summarily
dismissed by OHI despite lack of evidence. 5chanroblesvirtuallawlibrary
For their part, OHI and Limcaoco alleged that Lapastora and Ubalubao were not
employees of the company but of Fast Manpower, with which it had a contract of
services, particularly, for the provision of room attendants. They claimed that
Fast Manpower is an independent contractor as it (1) renders janitorial services
to various establishments in Metro Manila, with 500 janitors under its employ; (2)
maintains an office where janitors assemble before they are dispatched to their
assignments; (3) exercises the right to select, refuse or change personnel
assigned to OHI; and (4) supervises and pays the wages of its
employees.6chanroblesvirtuallawlibrary
Reinforcing OHI's claims, Fast Manpower reiterated that it is a legitimate
manpower agency and that it had a valid contract of services with OHI, pursuant
to which Lapastora and Ubalubao were deployed as room attendants. Lapastora
and Ubalubao were, however, found to have violated house rules and regulations

and were reprimanded accordingly. It denied the employees' claim that they
were dismissed and maintained they were only placed on floating status for lack
of available work assignments.7chanroblesvirtuallawlibrary
Subsequently, on August 22, 2000, a memorandum of agreement was executed,
stipulating the transfer of management of the OER from OHI to HSAI-Raintree,
Inc. (HSAI-Raintree). Thereafter, OHI informed the Department of Labor and
Employment (DOLE) of its cessation of operations due to the said change of
management and issued notices of termination to all its employees. This
occurrence prompted some union officers and members to file a separate
complaint for illegal dismissal and unfair labor practice against OHI, OCC and
HSAI-Raintree, docketed as NLRC NCR CN 30-11-04400-00 (CA No. 032193-02),
entitled Malonie D. Ocampo, et al. v. Olympia Housing, Inc., et at. (Ocampo v.
OHI). This complaint was, however, dismissed for lack of merit. The complainants
therein appealed the said ruling to the NLRC. 8chanroblesvirtuallawlibrary
Meanwhile, on May 10, 2002, the Labor Arbiter (LA) rendered a Decision 9 in the
instant case, holding that Lapastora and Ubalubao were regular employees of
OHI and that they were illegally dismissed. The dispositive portion of the decision
reads as follows:
WHEREFORE, finding complainants to have been illegally dismissed and as
regular employees of [OHI] the latter is ordered to reinstate complainants to their
former position or substantially equal position without loss of seniority rights and
benefits. [OHI] is further ordered to pay complainants backwages, service
incentive leave pay and attorney's fees as follows:
1. Backwages:
[Lapastora] P171,616.60 and
[Ubalubao] - P170,573.44 from February 24, 2000 to date of decision
which shall further be adjusted until their actual reinstatement.
2. P3,305.05 - ILP for Lapastora
3. P3,426.04 - SILP for Ubalubao
4. 10% of the money awards as attorney's fees.
Other claims are dismissed for lack of merit.
The claim against [Limcaoco] is hereby dismissed for lack of merit.
SO ORDERED.10chanrobleslaw
In ruling for the existence of employer-employee relationship, the LA held that
OHI exercised control and supervision over Lapastora and Ubalubao through its
supervisor, Anamie Lat. The LA likewise noted that documentary evidence

consisting of time cards, medical cards and medical examination reports all
indicated OHI as employer of the said employees. Moreover, the affidavit of
OHI's housekeeping coordinator, Jaylo, attested to the fact that OHI is the one
responsible for the selection of employees for its housekeeping department. OHI
also paid the salaries of the housekeeping staff by depositing them to their
respective ATM accounts. That there is a contract of services between OHI and
Fast Manpower did not rule out the existence of employer-employee relationship
between the former and Lapastora and Ubalubao as it appears that the said
contract was a mere ploy to circumvent the application of pertinent labor laws
particularly those relating to security of tenure. The LA pointed out that the
business of OHI necessarily requires the services of housekeeping aides, room
boys, chambermaids, janitors and gardeners in its daily operations, which is
precisely the line of work being rendered by Lapastora and
Ubalubao.11chanroblesvirtuallawlibrary
Both parties appealed to the NLRC. OHI asseverated that the reinstatement of
Lapastora and Ubalubao was no longer possible in view of the transfer of the
management of the OER to HSAI-Raintree.12chanroblesvirtuallawlibrary
On December 28, 2007, the NLRC rendered a decision, dismissing the appeal for
lack of merit, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the appeals of both the respondents and the
complainants are DISMISSED, and the Decision of the [LA] is hereby AFFIRMED.
All other claims are dismissed for lack of merit. 13chanrobleslaw
The NLRC held that OHI is the employer of Lapastora and Ubalubao since Fast
Manpower failed to establish the fact that it is an independent contractor.
Further, it ruled that the memorandum of agreement between OCC and HSAIRaintree did not render the reinstatement of Lapastora and Ubalubao impossible
since a change in the management does not automatically result in a change of
personnel especially when the memorandum itself did not include a provision on
that matter.14chanroblesvirtuallawlibrary
Unyielding, OHI filed its Motion for Reconsideration 15 but the NLRC denied the
same in a Resolution16dated February 29, 2008.
In the meantime, in Ocampo v. OHI, the NLRC rendered a Decision17 dated
November 22, 2002, upholding the validity of the cessation of OHI's operations
and the consequent termination of all its employees. It stressed that the
cessation of business springs from the management's prerogative to do what is
necessary for the protection of its investment, notwithstanding adverse effect on
the employees. The discharge of employees for economic reasons does not
amount to unfair labor practice.18 The said ruling of the NLRC was elevated on
petition for certiorari to the CA, which dismissed the same in Resolutions dated
November 28, 200319 and June 23, 2004.20 The mentioned resolutions were
appealed to this Court and were docketed as G.R. No. 164160, which was,

however, denied in the Resolution21 dated July 26, 2004 for failure to comply with
procedural rules and lack of reversible error on the part of the
CA.chanRoblesvirtualLawlibrary
Ruling of the CA
OHI, upon receipt of the adverse decision in NLRC NCR Case No. 30-03-00976-00,
filed a Petition for Certiorari22 with the CA, praying that the Decision dated
December 28, 2007 and Resolution dated February 29, 2008 of the NLRC be set
aside. It pointed out that in the related case of Ocampo v. OHI, the NLRC took
into consideration the supervening events which transpired after the supposed
termination of Lapastora and Ubalubao, particularly OHI's closure of business on
October 1, 2000. The NLRC then likewise upheld the validity of the closure of
business and the consequent termination of employees in favor of OHI, holding
that the measures taken by the company were proper exercises of management
prerogative. OHI argued that since the said disposition of the NLRC in Ocampo v.
OHI was affirmed by both the CA and the Supreme Court, the principle of stare
decisis becomes applicable and the issues that had already been resolved in the
said case may no longer be relitigated.23 At any rate, OHI argued that it could not
be held liable for illegal dismissal since Lapastora and Ubalubao were not its
employees.24chanroblesvirtuallawlibrary
On April 28, 2009, the CA rendered a Decision 25 dismissing the petition, the
dispositive portion of which reads as follows:
WHEREFORE, the petition for certiorari is DISMISSED. The NLRC's Decision
dated December 28, 2007 and Resolution dated February 29, 2008 in NLRC NCR
Case No. 30-03-00976-00 (NLRC NCR CANo. 032043-02) are AFFIRMED.
SO ORDERED.26chanroblesvirtuallawlibrary
The CA ruled that OHI's cessation of operations on October 1, 2000 is not a
supervening event because it transpired long before the promulgation of the LA's
Decision dated May 10, 2002 in the instant case. In the same manner, the ruling
of the NLRC in Ocampo v. OHI does not constitute stare decisis to the present
petition because of the apparent dissimilarities in the attendant circumstances.
For instance, Ocampo v. OHI was founded on the union members' allegation that
OHI's claim of substantial financial losses to support closure of business lacked
evidence, while in the instant case, Lapastora and Ubalubao claimed illegal
dismissal on account of their being placed on floating status after they were
implicated in a theft case. The differences in the facts and issues in the two
cases rule out the invocation of the doctrine. The CA added that the prevailing
jurisprudence is that the NLRC decision upholding the validity of the closure of
business and retrenchment of employees resulting therefrom will not preclude it
from decreeing the illegality of an employee's dismissal. Considering that OHI
failed to prove that the memorandum of agreement between OCC and HSAI-

Raintree had any effect on the employment of Lapastora and Ubalubao or that
there is any other valid or authorized cause for their termination from
employment, the CA concluded that they were unlawfully
dismissed.27chanroblesvirtuallawlibrary
Unyielding, OHI filed the instant petition, reiterating its arguments before the CA.
It added that, even assuming that the facts warrant a finding of illegal dismissal,
the cessation of operations of the company is a supervening event that should
limit the award of backwages to Lapastora and Ubalubao until October 1, 2000
only and justify the deletion of the order of reinstatement. After all, it complied
with the notice requirements of the DOLE for a valid closure of
business.28chanroblesvirtuallawlibrary
On April 4, 2011, Ubalubao, on her own behalf, filed a Motion to
Dismiss/Withdraw Complaint and Waiver,29 stating that she has decided to accept
the financial assistance in the amount of P50,000.00 offered by OHI, in lieu of all
the monetary claims she has against the company, as full and complete
satisfaction of any judgment that may be subsequently rendered in her favor.
She likewise informed the Court that she had willingly and knowingly executed a
quitclaim and waiver agreement, releasing OHI from any liability. She thus
prayed for the dismissal of the complaint she filed against OHI.
In a Resolution30 dated January 16, 2012, the Court granted Ubalubao's motion
and considered the case closed and terminated as to her part, leaving Lapastora
as the lone respondent in the present petition.chanRoblesvirtualLawlibrary
Ruling of the Court
Lapastora was illegally dismissed
Indisputably, Lapastora was a regular employee of OHI. As found by the LA, he
has been under the continuous employ of OHI since March 3, 1995 until he was
placed on floating status in February 2000. His uninterrupted employment by
OHI, lasting for more than a year, manifests the continuing need and desirability
of his services, which characterize regular employment. Article 280 of the Labor
Code provides as follows:
Art. 280. Regular and casual employment. The provisions of written
agreement to the contrary notwithstanding and regardless of the oral agreement
of the parties, an employment shall be deemed to be regular where the
employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer, except where the
employment has been fixed for a specific project or undertaking, the completion
or termination of which has been determined at the time of 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.

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.
Based on records, OHI is engaged in the business of managing residential and
commercial condominium units at the OER. By the nature of its business, it is
imperative that it maintains a pool of housekeeping staff to ensure that the
premises remain an uncluttered place of comfort for the occupants. It is no
wonder why Lapastora, among several others, was continuously employed by
OHI precisely because of the indispensability of their services to its business. The
fact alone that Lapastora was allowed to work for an unbroken period of almost
five years is all the same a reason to consider him a regular employee.
The attainment of a regular status of employment guarantees the employee's
security of tenure that he cannot be unceremoniously terminated from
employment. "To justify fully the dismissal of an employee, the employer must,
as a rule, prove that the dismissal was for a just cause and that the employee
was afforded due process prior to dismissal. As a complementary principle, the
employer has the onus of proving with clear, accurate, consistent, and
convincing evidence the validity of the dismissal." 31chanroblesvirtuallawlibrary
OHI miserably failed to discharge its burdens thus making Lapastora's
termination illegal.
On the substantive aspect, it appears that OHI failed to prove that Lapastora's
dismissal was grounded on a just or authorized cause. While it claims that it had
called Lapastora's attention several times for tardiness, unexplained absences
and loitering, it does not appear from the records that the latter had been
notified of the company's dissatisfaction over his performance and that he was
made to explain his supposed infractions. It does not even show from the records
that Lapastora was ever disciplined because of his alleged tardiness. In the same
manner, allegations regarding Lapastora's involvement in the theft of personal
items and cash belonging to hotel guests remained unfounded suspicions as they
were not proven despite OHI's probe into the incidents.
On the procedural aspect, OHI admittedly failed to observe the twin notice rule in
termination cases. As a rule, the employer is required to furnish the concerned
employee two written notices: (1) 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 (2) 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.32 In the present case, Lapastora was not informed of the charges
against him and was denied the opportunity to disprove the same. He was

summarily terminated from employment.

OHI argues that no formal notices of investigation, notice of charges or
termination was issued to Lapastora since he was not an employee of the
company but of Fast Manpower.
The issue of employer-employee relationship between OHI and Lapastora had
been deliberated and ruled upon by the LA and the NLRC in the affirmative on
the basis of the evidence presented by the parties. The LA ruled that Lapastora
was under the effective control and supervision of OHI through the company
supervisor. She gave credence to the pertinent records of Lapastora's
employment, i.e., timecards, medical records and medical examinations, which
all indicated OHI as his employer. She likewise noted Fast Manpower's failure to
establish its capacity as independent contractor based on the standards provided
by law.
That there is an existing contract of services between OHI and Fast Manpower
where both parties acknowledged the latter as the employer of the housekeeping
staff, including Lapastora, did not alter established facts proving the contrary.
The parties cannot evade the application of labor laws by mere expedient of a
contract considering that labor and employment are matters imbued with public
interest. It cannot be subjected to the agreement of the parties but rather on
existing laws designed specifically for the protection of labor. Thus, it had been
repeatedly stressed in a number of jurisprudence that "[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 as job contractor, it being
crucial that its character be measured in terms of and determined by the criteria
set by statute."33chanroblesvirtuallawlibrary
The Court finds no compelling reason to deviate from the findings of the LA and
NLRC, especially in this case when the same was affirmed by the CA. It is settled
that findings of fact made by LAs, when affirmed by the NLRC, are entitled not
only to great respect but even finality and are binding on this Court especially
when they are supported by substantial evidence. 34chanroblesvirtuallawlibrary
The principle of stare decisis is not applicable
Still, OHI argues that the legality of the closure of its business had been the
subject of the separate case of Ocampo v. OHI, where the NLRC upheld the
validity of the termination of all the employees of OHI due to cessation of
operations. It asserts that since the ruling was affirmed by the CA and,
eventually by this Court, the principle of stare decisis becomes applicable.
Considering the closure of its business, Lapastora can no longer be reinstated
and should instead be awarded backwages up to the last day of operations of the
company only, specifically on October 1, 2000.35chanroblesvirtuallawlibrary
In Ting v. Velez-Ting,36 the Court elaborated on the principle of stare decisis, thus:

The principle of stare decisis enjoins adherence by lower courts to doctrinal rules
established by this Court in its final decisions. It is based on the principle that
once a question of law has been examined and decided, it should be deemed
settled and closed to further argument. Basically, it is a bar to any attempt to
relitigate the same issues, necessary for two simple reasons: economy and
stability. In our jurisdiction, the principle is entrenched in Article 8 of the Civil
Code.37 (Citations omitted)
Verily, the import of the principle is that questions of law that have been decided
by this Court and applied in resolving earlier cases shall be deemed the
prevailing rule which shall be binding on future cases dealing on the same
intricacies. Apart from saving the precious time of the Court, the application of
this principle is essential to the consistency of the rulings of the Court which is
significant in its role as the final arbiter of judicial controversies.
The CA correctly ruled that the principle of stare decisis finds no relevance in the
present case. To begin with, there is no doctrine of law that is similarly applicable
in both the present case and in Ocampo v. OHI. While both are illegal dismissal
cases, they are based on completely different sets of facts and involved distinct
issues. In the instant case, Lapastora cries illegal dismissal after he was
arbitrarily placed on a floating status on mere suspicion that he was involved in
theft incidents within the company premises without being given the opportunity
to explain his side or any formal investigation of his participation. On the other
hand, in Ocampo v. OHI, the petitioners therein questioned the validity of OHI's
closure of business and the eventual termination of all the employees. Thus, the
NLRC ruled upon both cases differently.
Nonetheless, the Court finds the recognition of the validity of OHI's cessation of
business in the Decision dated November 22, 2002 of the NLRC, which was
affirmed by the CA and this Court, a supervening event which inevitably alters
the judgment award in favor of Lapastora. The NLRC noted that OHI complied
with all the statutory requirements, including the filing of a notice of closure with
the DOLE and furnishing written notices of termination to all employees effective
30 days from receipt.38OHI likewise presented financial statements substantiating
its claim that it is operating at a loss and that the closure of business is
necessary to avert further losses. 39 The action of the OHI, the NLRC held, is a
valid exercise of management prerogative.
Thus, while the finding of illegal dismissal in favor of Lapastora subsists, his
reinstatement was rendered a legal impossibility with OHI's closure of business.
In Galindez v. Rural Bank of Llanera, Inc.,40 the Court noted:
Reinstatement presupposes that the previous position from which one had been
removed still exists or there is an unfilled position more or less of similar nature
as the one previously occupied by the employee. Admittedly, no such position is
available. Reinstatement therefore becomes a legal impossibility. The law cannot
exact compliance with what is impossible.41chanrobleslaw

Considering the impossibility of Lapastora's reinstatement, the payment of

separation pay, in lieu thereof, is proper. The amount of separation pay to be
given to Lapastora must be computed from March 1995, the time he commenced
employment with OHI, until the time when the company ceased operations in
October 2000.42 As a twin relief, Lapastora is likewise entitled to the payment of
backwages, computed from the time he was unjustly dismissed, or from February
24, 2000 until October 1, 2000 when his reinstatement was rendered impossible
without fault on his part.43chanroblesvirtuallawlibrary
Finally, for OHI's failure to prove the fact of payment, the Court sustains the
award for the payment of service incentive leave pay and 13 th month pay. The
rule, as stated in Mantle Trading Services, Inc. and/or Del Rosario v. NLRC, et
al.,44 is that "the burden rests on the employer to prove payment, rather than on
the employee to prove nonpayment. The reason for the rule is that the pertinent
personnel files, payrolls, records, remittances and other similar documents
which will show that overtime, differentials, service incentive leave and other
claims of workers have been paid are not in the possession of the employee
but in the custody and absolute control of the employer." 45Considering that OHI
did not dispute Lapastora's claim for nonpayment of the mentioned benefits and
opted to disclaim employer-employee relationship, the presumption is that the
said claims were not paid.
The award for attorney's fees of 10% of the monetary awards is likewise
sustained considering that Lapastora was forced to litigate and, thus, incurred
expenses to protect his rights and interests. 46chanroblesvirtuallawlibrary
WHEREFORE, the Decision dated April 28, 2009 of. the Court of Appeals in CAG.R. SP No. 103699 is AFFIRMED with MODIFICATION in that OHI is
hereby ORDERED to pay Allan Lapastora the following: (1) separation pay, in
lieu of reinstatement, computed from the time of his employment until the time
of its closure of business, or from March 1995 to October 2000; (2) backwages,
computed from the time of illegal dismissal until cessation of business, or from
February 24, 2000 to October 1, 2000; (3) service incentive leave pay and 13 th
month pay; and (4) attorney's fees.
SO ORDERED.cralawlawlibrary
Velasco, Jr., (Chairperson), Peralta, Villarama, Jr., and Jardeleza, JJ.,
concur.cralawlawlibrary
GR NO. 220978, July 05, 2016
CENTURY PROPERTIES, INC., PETITIONER,
~vs~
EDWIN J. BABIANO & EMMA B. CONCEPCION, RESPONDENTS.
DECISION

PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari[1] are the Decision[2] dated April 8,
2015 and the Resolution[3] dated October 12, 2015 of the Court of Appeals (CA) in
CA-G.R. SP No. 132953, which affirmed, with modification the Decision [4] dated
June 25, 2013 and the Resolution[5] dated October 16, 2013 of the National Labor
Relations Commission (NLRC) in NLRC LAC No. 05-001615-12, and ordered
petitioner Century Properties, Inc. (CPI) to pay respondents Edwin J. Babiano
(Babiano) and Emma B. Concepcion (Concepcion; collectively, respondents)
unpaid commissions in the amounts of P889,932.42 and P591,953.05,
respectively.
The Facts
On October 2, 2002, Babiano was hired by CPI as Director of Sales, and was
eventually[6] appointed as Vice President for Sales effective September 1, 2007.
As CPFs Vice President for Sales, Babiano was remunerated with, inter alia, the
following benefits: (a) monthly salary of P70,000.00; (b) allowance of P50,000.00;
and (c) 0.5% override commission for completed sales. His employment
contract[7]also contained a Confidentiality of Documents and Non-Compete
Clause[8] which, among others, barred him from disclosing confidential
information, and from working in any business enterprise that is in direct
competition with CPI while [he is] employed and for a period of one year from
date of resignation or termination from [CPI]. Should Babiano breach any of the
terms thereof, his forms of compensation, including commissions and incentives
will be forfeited.[9]
During the same period, Concepcion was initially hired as Sales Agent by CPI and
was eventually[10] promoted as Project Director on September 1, 2007. [11] As such,
she signed an employment agreement, denominated as Contract of Agency for
Project Director[12]which provided, among others, that she would directly report
to Babiano, and receive, a monthly subsidy of P60,000.00, 0.5% commission, and
cash incentives.[13] On March 31, 2008, Concepcion executed a similar
contract[14] anew with CPI in which she would receive a monthly subsidy of
P50,000.00, 0.5% commission, and cash incentives as per company policy.
Notably, it was stipulated in both contracts that no employer-employee
relationship exists between Concepcion and CPI. [15]
After receiving reports that Babiano provided a competitor with information
regarding CPFs marketing strategies, spread false information regarding CPI and
its projects, recruited CPIs personnel to join the competitor, and for being absent
without official leave (AWOL) for five (5) days, CPI, through its Executive Vice
President for Marketing and Development, Jose Marco R. Antonio (Antonio), sent
Babiano a Notice to Explain[16] on February 23, 2009 directing him to explain why
he should not be charged with disloyalty, conflict of interest, and breach of trust
and confidence for his actuations.[17]
On February 25, 2009, Babiano tendered[18] his resignation and revealed that he
had been accepted as Vice President of First Global BYO Development

Corporation (First Global), a competitor of CPI. [19] On March 3, 2009, Babiano was
served a Notice of Termination[20] for: (a) incurring AWOL; (b) violating the
Confidentiality of Documents and Non-Compete Clause when he joined a
competitor enterprise while still working for CPI and provided such competitor
enterprise information regarding CPFs marketing strategies; and (c) recruiting
CPI personnel to join a competitor.[21]
On the other hand, Concepcion resigned as CPFs Project Director through a
letter[22] dated February 23, 2009, effective immediately.
On August 8, 2011, respondents filed a complaint [23] for non-payment of
commissions and damages against CPI and Antonio before the NLRC, docketed
as NLRC Case No. NCR-08-12029-11, claiming that their repeated demands for
the payment and release of their commissions remained unheeded. [24]
For its part, CPI maintained[25] that Babiano is merely its agent tasked with selling
its projects. Nonetheless, he was afforded due process in the termination of his
employment which was based on just causes. [26] It also claimed to have validly
withheld Babianos commissions, considering that they were deemed forfeited
for violating the Confidentiality of Documents and Non-Compete Clause. [27]On
Concepcions money claims, CPI asserted that the NLRC had no jurisdiction to
hear the same because there was no employer-employee relations between
them, and thus, she should have litigated the same in an ordinary civil action. [28]
The LA Ruling
In a Decision[29] dated March 19, 2012, the Labor Arbiter (LA) ruled in CPIs favor
and, accordingly, dismissed the complaint for lack of merit. [30]
The LA found that: (a) Babianos acts of providing information on CPIs marketing
strategies to the competitor and spreading false information about CPI and its
projects are blatant violations of the Confidentiality of Documents and NonCompete Clause of his employment contract, thus, resulting in the forfeiture of
his unpaid commissions in accordance with the same clause; [31] and (b) it had no
jurisdiction over Concepcions money claim as she was not an employee but a
mere agent of CPI, as clearly stipulated in her engagement contract with the
latter.[32]
Aggrieved, respondents appealed[33] to the NLRC.
The NLRC Ruling
In a Decision[34] dated June 25, 2013, the NLRC reversed and set aside the LA
ruling, and entered a new one ordering CPI to pay Babiano and Concepcion the
amounts of P685,211.76 and P470,754.62, respectively, representing their
commissions from August 9, 2008 to August 8, 2011, as well as 10% attorneys
fees of the total monetary awards.[35]
While the NLRC initially concurred with the LA that Babianos acts constituted
just cause which would warrant the termination of his employment from CPI, it,

however, ruled that the forfeiture of all earned commissions of Babiano under
the Confidentiality of Documents and Non-Compete Clause is confiscatory and
unreasonable and hence, contrary to law and public policy. [36] In this light, the
NLRC held that CPI could not invoke such clause to avoid the payment of
Babianos commissions since he had already earned those monetary benefits
and, thus, should have been released to him. However, the NLRC limited the
grant of the money claims in light of Article 291 (now Article 306) [37] of the Labor
Code which provides for a prescriptive period of three (3) years. Consequently,
the NLRC awarded unpaid commissions only from August 9, 2008 to August 8,
2011 i.e., which was the date when the complaint was filed. [38]Meanwhile,
contrary to the LAs finding, the NLRC ruled that Concepcion was CPIs employee,
considering that CPI: (a) repeatedly hired and promoted her since 2002; (b) paid
her wages despite referring to it as subsidy; and (c) exercised the power of
dismissal and control over her.[39] Lastly, the NLRC granted respondents claim for
attorneys fees since they were forced to litigate and incurred expenses for the
protection of their rights and interests.[40]
Respondents did not assail the NLRC findings. In contrast, only CPI moved for
reconsideration,[41] which the NLRC denied in a Resolution [42] dated October 16,
2013. Aggrieved, CPI filed a petition for certiorari[43] before the CA.
The CA Ruling
In a Decision[44] dated April 8, 2015, the CA affirmed the NLRC ruling with
modification increasing the award of unpaid commissions to Babiano and
Concepcion in the amounts of P889,932.42 and P591.953.05, respectively, and
imposing interest of six percent (6%) per annum on all monetary awards from
the finality of its decision until fully paid.[45]
The CA held that Babiano properly instituted his claim for unpaid commissions
before the labor tribunals as it is a money claim arising from an employeremployee relationship with CPI. In this relation, the CA opined that CPI cannot
withhold such unpaid commissions on the ground of Babianos alleged breach of
the Confidentiality of Documents and Non-Compete Clause integrated in the
latters employment contract, considering that such clause referred to acts done
after the cessation of the employer-employee relationship or to the postemployment relations of the parties. Thus, any such supposed breach thereof is
a civil law dispute that is best resolved by the regular courts and not by labor
tribunals.[46]
Similarly, the CA echoed the NLRCs finding that there exists an employeremployee relationship between Concepcion and CPI, because the latter exercised
control over the performance of her duties as Project Director which is indicative
of an employer-employee relationship. Necessarily therefore, CPI also exercised
control over Concepcions duties in recruiting, training, and developing directors
of sales because she was supervised by Babiano in the performance of her
functions. The CA likewise observed the presence of critical factors which were
indicative of an employer-employee relationship with CPI, such as: (a)
Concepcions receipt of a monthly salary from CPI; and (b) that she performed

tasks besides selling CPI properties. To add, the title of her contract which was
referred to as Contract of Agency for Project Director was not binding and
conclusive, considering that the characterization of the juridical relationship is
essentially a matter of law that is for the courts to determine, and not the parties
thereof. Moreover, the totality of evidence sustains a finding of employeremployee relationship between CPI and Concepcion. [47]
Further, the CA held that despite the NLRCs proper application of the three (3)year prescriptive period under Article 291 of the Labor Code, it nonetheless failed
to include all of respondents earned commissions during that time i.e., August
9, 2008 to August 8, 2011 thus, necessitating the increase in award of unpaid
commissions in respondents favor.[48]
Undaunted, CPI sought for reconsideration, [49] which was, however, denied in a
Resolution[50] dated October 12, 2015; hence, this petition.
The Issue Before the Court
The core issue for the Courts resolution is whether or not the CA erred in
denying CPIs petition for certiorari, thereby holding it liable for the unpaid
commissions of respondents.
The Courts Ruling
The petition is partly meritorious.
I.
Article 1370 of the Civil Code provides that [i]f the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control. [51] In Norton Resources and
Development Corporation v. All Asia Bank Corporation,[52] the Court had the
opportunity to thoroughly discuss the said rule as follows:
The rule is that where the language of a contract is plain and
unambiguous, its meaning should be determined without reference to
extrinsic facts or aids. The intention of the parties must be gathered from that
language, and from that language alone. Stated differently, where the
language of a written contract is clear and unambiguous, the contract
must be taken to mean that which, on its face, it purports to mean,
unless some good reason can be assigned to show that the words
should be understood in a different sense. Courts cannot make for the
parties better or more equitable agreements than they themselves have been
satisfied to make, or rewrite contracts because they operate harshly or
inequitably as to one of the parties, or alter them for the benefit of one party and
to the detriment of the other, or by construction, relieve one of the parties from
the terms which he voluntarily consented to, or impose on him those which he
did not.[53] (Emphases and underscoring supplied)

Thus, in the interpretation of contracts, the Court must first determine whether a
provision or stipulation therein is ambiguous. Absent any ambiguity, the
provision on its face will be read as it is written and treated as the binding law of
the parties to the contract.[54]
In the case at bar, CPI primarily invoked the Confidentiality of Documents and
Non-Compete Clause found in Babianos employment contract [55] to justify the
forfeiture of his commissions, viz.:
Confidentiality of Documents and Non-Compete Clause
All records and documents of the company and all information pertaining to its
business or affairs or that of its affiliated companies are confidential and no
unauthorized disclosure or reproduction or the same will be made by you any
time during or after your employment.
And in order to ensure strict compliance herewith, you shall not work
for whatsoever capacity, either as an employee, agent or consultant
with any person whose business is in direct competition with the
company while you are employed and for a period of one year from date
of resignation or termination from the company.
In the event the undersigned breaches any term of this contract, the
undersigned agrees and acknowledges that damages may not be an adequate
remedy and that in addition to any other remedies available to the Company at
law or in equity, the Company is entitled to enforce its rights hereunder by way
of injunction, restraining order or other relief to enjoin any breach or default of
this contract.
The undersigned agrees to pay all costs, expenses and attorneys fees incurred
by the Company in connection with the enforcement of the obligations of the
undersigned. The undersigned also agrees to .pay the Company all profits,
revenues and income or benefits derived by or accruing to the undersigned
resulting from the undersigneds breach of the obligations hereunder. This
Agreement shall be binding upon the undersigned, all employees, agents,
officers, directors, shareholders, partners and representatives of the undersigned
and all heirs, successors and assigns of the foregoing.
Finally, if undersigned breaches any terms of this contract, forms of
compensation including commissions and incentives will be forfeited.
[56]
(Emphases and underscoring supplied)
Verily, the foregoing clause is not only clear and unambiguous in stating that
Babiano is barred to work for whatsoever capacity x x x with any person whose
business is in direct competition with [CPI] while [he is] employed and for a
period of one year from date of [his] resignation or termination from the
company, it also expressly provided in no uncertain terms that should Babiano
[breach] any term of [the employment contract], forms of compensation
including commissions and incentives will be forfeited. Here, the contracting
parties namely Babiano on one side, and CPI as represented by its COO-

Vertical, John Victor R. Antonio, and Director for Planning and Controls, Jose Carlo
R. Antonio, on the other -indisputably wanted the said clause to be effective even
during the existence of the employer-employee relationship between Babiano
and CPI, thereby indicating their intention to be bound by such clause by affixing
their respective signatures to the employment contract. More significantly, as
CPFs Vice President for Sales, Babiano held a highly sensitive and confidential
managerial position as he was tasked, among others, to guarantee the
achievement of agreed sales targets for a project and to ensure that his team
has a qualified and competent manpower resources by conducting recruitment
activities, training sessions, sales rallies, motivational activities, and evaluation
programs.[57] Hence, to allow Babiano to freely move to direct competitors
during and soon after his employment with CPI would make the latters trade
secrets vulnerable to exposure, especially in a highly competitive marketing
environment. As such, it is only reasonable that CPI and Babiano agree on such
stipulation in the latters employment contract in order to afford a fair and
reasonable protection to CPI.[58] Indubitably, obligations arising from contracts,
including employment contracts, have the force of law between the contracting
parties and should be complied with in good faith. [59]Corollary thereto, parties are
bound by the stipulations, clauses, terms, and conditions they have agreed to,
provided that these stipulations, clauses, terms, and conditions are not contrary
to law, morals, public order or public policy, [60] as in this case.
Therefore, the CA erred in limiting the Confidentiality of Documents and NonCompete Clause only to acts done after the cessation of the employer-employee
relationship or to the post-employment relations of the parties. As clearly
stipulated, the parties wanted to apply said clause during the pendency of
Babianos employment, and CPI correctly invoked the same before the labor
tribunals to resist the formers claim for unpaid commissions on account of his
breach of the said clause while the employer-employee relationship between
them still subsisted. Hence, there is now a need to determine whether or not
Babiano breached said clause while employed by CPI, which would then resolve
the issue of his entitlement to his unpaid commissions.
A judicious review of the records reveals that in his resignation letter [61] dated
February 25, 2009, Babiano categorically admitted to CPI Chairman Jose Antonio
that on February 12, 2009, he sought employment from First Global, and five (5)
days later, was admitted thereto as vice president. From the foregoing, it is
evidently clear that when he sought and eventually accepted the said position
with First Global, he was still employed by CPI as he has not formally resigned at
that time. Irrefragably, this is a glaring violation of the Confidentiality of
Documents and Non-Compete Clause in his employment contract with CPI, thus,
justifying the forfeiture of his unpaid commissions.
II.
Anent the nature of Concepcions engagement, based on case law, the presence
of the following elements evince the existence of an employer-employee
relationship: (a) the power to hire, i.e., 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, or the so called control
test. The control test is commonly regarded as the most important indicator of
the presence or absence of an employer-employee relationship. [62] Under this
test, an employer-employee relationship exists where the person for whom the
services are performed reserves the right to control not only the end achieved,
but also the manner and means to be used in reaching that end. [63]
Guided by these parameters, the Court finds that Concepcion was an employee
of CPI considering that: (a) CPI continuously hired and promoted Concepcion
from October 2002 until her resignation on February 23, 2009, [64] thus, showing
that CPI exercised the power of selection and engagement over her person and
that she performed functions that were necessary and desirable to the business
of CPI; (b) the monthly subsidy and cash incentives that Concepcion was
receiving from CPI are actually remuneration in the concept of wages as it was
regularly given to her on a monthly basis without any qualification, save for the
complete submission of documents on what is a sale policy; [65] (c) CPI had the
power to discipline or even dismiss Concepcion as her engagement contract with
CPI expressly conferred upon the latter the right to discontinue [her] service
anytime during the period of engagement should [she] fail to meet the
performance standards,[66] among others, and that CPI actually exercised such
power to dismiss when it accepted and approved Concepcions resignation letter;
and most importantly, (d) as aptly pointed out by the CA, CPI possessed the
power of control over Concepcion because in the performance of her duties as
Project Director particularly in the conduct of recruitment activities, training
sessions, and skills development of Sales Directors she did not exercise
independent discretion thereon, but was still subject to the direct supervision of
CPI, acting through Babiano.[67]
Besides, while the employment agreement of Concepcion was denominated as a
Contract of Agency for Project Director, it should be stressed that the existence
of employer-employee relations could not be negated by the mere expedient of
repudiating it in a contract. In the case of Insular Life Assurance Co., Ltd. v.
NLRC,[68] it was ruled that ones employment status is defined and prescribed by
law, and not by what the parties say it should be, viz.:
It is axiomatic that the existence of an employer-employee relationship cannot
be negated by expressly repudiating it in the management contract and
providing therein that the employee is an independent contractor when the
terms of the agreement clearly show otherwise. For, the employment status
of a person is defined and prescribed by law and not by what the
parties say it should be. In determining the status of the management
contract, the four-fold test on employment earlier mentioned has to be applied.
[69]
(Emphasis and underscoring supplied)
Therefore, the CA correctly ruled that since there exists an employer-employee
relationship between Concepcion and CPI, the labor tribunals correctly assumed
jurisdiction over her money claims.

III.
Finally, CPI contends that Concepcions failure to assail the NLRC ruling awarding
her the amount of P470,754.62 representing unpaid commissions rendered the
same final and binding upon her. As such, the CA erred in increasing her
monetary award to P591,953.05.[70]
The contention lacks merit.
As a general rule, a party who has not appealed cannot obtain any affirmative
relief other than the one granted in the appealed decision. However,
jurisprudence admits an exception to the said rule, such as when strict
adherence thereto shall result in the impairment of the substantive rights of the
parties concerned. In Global Resource for Outsourced Workers, Inc. v. Velasco:[71]
Indeed, a party who has failed to appeal from a judgment is deemed to have
acquiesced to it and can no longer obtain from the appellate court any
affirmative relief other than what was already granted under said
judgment. However, when strict adherence to such technical rule will
impair a substantive right, such as that of an illegally dismissed
employee to monetary compensation as provided by law, then equity
dictates that the Court set aside the rule to pave the way for a full and
just adjudication of the case.[72](Emphasis and underscoring supplied)
In the present case, the CA aptly pointed out that the NLRC failed to account for
all the unpaid commissions due to Concepcion for the period of August 9, 2008
to August 8, 2011.[73] Indeed, Concepcions right to her earned commissions is a
substantive right which cannot be impaired by an erroneous computation of what
she really is entitled to. Hence, following the dictates of equity and in order to
arrive at a complete and just resolution of the case, and avoid a piecemeal
dispensation of justice over the same, the CA correctly recomputed Concepcions
unpaid commissions, notwithstanding her failure to seek a review of the NLRCs
computation of the same.
In sum, the Court thus holds that the commissions of Babiano were properly
forfeited for violating the Confidentiality of Documents and Non-Compete
Clause. On.the other hand, CPI remains liable for the unpaid commissions of
Concepcion in the sum of P591,953.05.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 8,
2015 and the Resolution dated October 12, 2015 of the Court of Appeals (CA) in
CA-G.R. SP No. 132953 are hereby MODIFIED in that the commissions of
respondent Edwin J. Babiano are deemed FORFEITED. The rest of the CA
Decision stands.
SO ORDERED.
Sereno, C. J., on official leave.
Leonardo-De Castro,** (Acting Chairperson), Bersamin, and Caguioa, JJ., concur.