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G.R. No.

119205 April 15, 1998

SIME DARBY PILIPINAS, INC. petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION (2ND DIVISION) and SIME DARBY SALARIED
EMPLOYEES ASSOCIATION (ALU-TUCP), respondents.

BELLOSILLO, J.:

Is the act of management in revising the work schedule of its employees and discarding their paid lunch break constitutive of unfair labor
practice?

Sime Darby Pilipinas, Inc., petitioner, is engaged in the manufacture of automotive tires, tubes and
other rubber products. Sime Darby Salaried Employees Association (ALU-TUCP), private
respondent, is an association of monthly salaried employees of petitioner at its Marikina factory. Prior
to the present controversy, all company factory workers in Marikina including members of private
respondent union worked from 7:45 a.m. to 3:45 p.m. with a 30-minute paid "on call" lunch break.

On 14 August 1992 petitioner issued a memorandum to all factory-based employees advising all its
monthly salaried employees in its Marikina Tire Plant, except those in the Warehouse and Quality
Assurance Department working on shifts, a change in work schedule effective 14 September 1992
thus

TO: ALL FACTORY-BASED EMPLOYEES

RE: NEW WORK SCHEDULE

Effective Monday, September 14, 1992, the new work schedule of the factory office will be as
follows:

7:45 A.M. 4:45 P.M. (Monday to Friday)

7:45 A.M. 11:45 A.M. (Saturday).

Coffee break time will be ten minutes only anytime between:

9:30 A.M. 10:30 A.M. and

2:30 P.M. 3:30 P.M.

Lunch break will be between:

12:00 NN 1:00 P.M. (Monday to Friday).

Excluded from the above schedule are the Warehouse and QA employees who are on
shifting. Their work and break time schedules will be maintained as it is now. 1
Since private respondent felt affected adversely by the change in the work schedule and discontinuance
of the 30-minute paid "on call" lunch break, it filed on behalf of its members a complaint with the Labor
Arbiter for unfair labor practice, discrimination and evasion of liability pursuant to the resolution of this
Court in Sime Darby International Tire Co., Inc. v. NLRC. 2 However, the Labor Arbiter dismissed the
complaint on the ground that the change in the work schedule and the elimination of the 30-minute paid
lunch break of the factory workers constituted a valid exercise of management prerogative and that the
new work schedule, break time and one-hour lunch break did not have the effect of diminishing the
benefits granted to factory workers as the working time did not exceed eight (8) hours.

The Labor Arbiter further held that the factory workers would be unjustly enriched if they continued to
be paid during their lunch break even if they were no longer "on call" or required to work during the
break. He also ruled that the decision in the earlier Sime Darby case 3 was not applicable to the instant
case because the former involved discrimination of certain employees who were not paid for their 30-
minute lunch break while the rest of the factory workers were paid; hence, this Court ordered that the
discriminated employees be similarly paid the additional compensation for their lunch break.

Private respondent appealed to respondent National Labor Relations Commission (NLRC) which
sustained the Labor Arbiter and dismissed the appeal. 4 However, upon motion for reconsideration by
private respondent, the NLRC, this time with two (2) new commissioners replacing those who earlier
retired, reversed its earlier decision of 20 April 1994 as well as the decision of the Labor Arbiter. 5 The
NLRC considered the decision of this Court in the Sime Darby case of 1990 as the law of the case
wherein petitioner was ordered to pay "the money value of these covered employees deprived of lunch
and/or working time breaks." The public respondent declared that the new work schedule deprived the
employees of the benefits of a time-honored company practice of providing its employees a 30-minute
paid lunch break resulting in an unjust diminution of company privileges prohibited by Art. 100 of the
Labor Code, as amended. Hence, this petition alleging that public respondent committed grave abuse of
discretion amounting to lack or excess of jurisdiction: (a) in ruling that petitioner committed unfair labor
practice in the implementation of the change in the work schedule of its employees from 7:45 a.m. 3:45
p.m. to 7:45 a.m. 4:45 p.m. with one-hour lunch break from 12:00 nn to 1:00 p.m.; (b) in holding that
there was diminution of benefits when the 30-minute paid lunch break was eliminated; (c) in failing to
consider that in the earlier Sime Darby case affirming the decision of the NLRC, petitioner was authorized
to discontinue the practice of having a 30-minute paid lunch break should it decide to do so; and, (d) in
ignoring petitioner's inherent management prerogative of determining and fixing the work schedule of its
employees which is expressly recognized in the collective bargaining agreement between petitioner and
private respondent.

The Office of the Solicitor General filed in a lieu of comment a manifestation and motion
recommending that the petitioner be granted, alleging that the 14 August 1992 memorandum which
contained the new work schedule was not discriminatory of the union members nor did it constitute
unfair labor practice on the part of petitioner.

We agree, hence, we sustain petitioner. The right to fix the work schedules of the employees rests
principally on their employer. In the instant case petitioner, as the employer, cites as reason for the
adjustment the efficient conduct of its business operations and its improved production. 6 It
rationalizes that while the old work schedule included a 30-minute paid lunch break, the employees could
be called upon to do jobs during that period as they were "on call." Even if denominated as lunch break,
this period could very well be considered as working time because the factory employees were required
to work if necessary and were paid accordingly for working. With the new work schedule, the employees
are now given a one-hour lunch break without any interruption from their employer. For a full one-hour
undisturbed lunch break, the employees can freely and effectively use this hour not only for eating but
also for their rest and comfort which are conducive to more efficiency and better performance in their
work. Since the employees are no longer required to work during this one-hour lunch break, there is no
more need for them to be compensated for this period. We agree with the Labor Arbiter that the new work
schedule fully complies with the daily work period of eight (8) hours without violating the Labor
Code. 7 Besides, the new schedule applies to all employees in the factory similarly situated whether they
are union members or not. 8

Consequently, it was grave abuse of discretion for public respondent to equate the earlier Sime Darby
case 9 with the facts obtaining in this case. That ruling in the former case is not applicable here. The issue
in that case involved the matter of granting lunch breaks to certain employees while depriving the other
employees of such breaks. This Court affirmed in that case the NLRC's finding that such act of
management was discriminatory and constituted unfair labor practice.

The case before us does not pertain to any controversy involving discrimination of employees but
only the issue of whether the change of work schedule, which management deems necessary to
increase production, constitutes unfair labor practice. As shown by the records, the change effected
by management with regard to working time is made to apply to all factory employees engaged in
the same line of work whether or not they are members of private respondent union. Hence, it
cannot be said that the new scheme adopted by management prejudices the right of private
respondent to self-organization.

Every business enterprise endeavors to increase its profits. In the process, it may devise means to
attain that goal. Even as the law is solicitous of the welfare of the employees, it must also protect the
right of an employer to exercise what are clearly management prerogatives. 10 Thus, management is
free to regulate, according to its own discretion and judgment, all aspects of employment, including hiring,
work assignments, working methods, time, place and manner of work, processes to be followed,
supervision of workers, working regulations, transfer of employees, work supervision, lay off of workers
and discipline, dismissal and recall of workers. 11 Further, management retains the prerogative, whenever
exigencies of the service so require, to change the working hours of its employees. So long as such
prerogative is exercised in good faith for the advancement of the employer's interest and not for the
purpose of defeating or circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold such exercise. 12

While the Constitution is committed to the policy of social justice and the protection of the working class, it
should not be supposed that every dispute will be automatically decided in favor of labor. Management
also has rights which, as such, are entitled to respect and enforcement in the interest of simple fair play.
Although this Court has inclined more often than not toward the worker and has upheld his cause in his
conflicts with the employer, such favoritism has not blinded the Court to the rule that justice is in every
case for the deserving, to be dispensed in the light of the established facts and the applicable law and
doctrine. 13

WHEREFORE, the Petition is GRANTED. The Resolution of the National Labor Relations Commission
dated 29 November 1994 is SET ASIDE and the decision of the Labor Arbiter dated 26 November 1993
dismissing the complaint against petitioner for unfair labor practice is AFFIRMED.

SO ORDERED.

G.R. No. L-16275 February 23, 1961


PAN AMERICAN WORLD AIRWAYS SYSTEM (PHILIPPINES), petitioner,
vs.
PAN AMERICAN EMPLOYEES ASSOCIATION, respondent.

Ross, Selph and Carrascoso for petitioner.


Jose Espinas for respondent.

REYES, J.B.L., J.:

Appeal by certiorari from the decision of the Court of Industrial Relations in Case No. 1055-V dated
October 10, 1959, and its resolution en banc denying the motion for reconsideration filed by the
petitioner herein.

The dispositive portion of the appealed decision reads: .

WHEREFORE, the Court orders the Chief of the Examining Division or his representative to
compute the overtime compensation due the aforesaid fourteen (14) aircraft mechanic and
the two employees from the Communication Department based on the time sheet of said
employees from February 23 1952 up to and including July 15, 1958 and to submit his report
within 30 days for further disposition by the Court; and the company shall show to the Court
Examiner such time sheets an other documents that may be necessary in the aforesaid
computation; and two (2) representatives for the company and two (2) representatives for the
union shall be chosen to help the Court Examiner in said computation.

The company is also ordered to permanently adopt the straight 8-hour shift inclusive of meal
period which is mutually beneficial to the parties.

SO ORDERED.

In this appeal, petitioner advances five proposition which, briefly, are as follows: (1) the Industrial
Court has no jurisdiction to order the payment of overtime compensation, it being a mere monetary
claim cognizable by regular courts; (2) the finding that the one-hour meal period should be
considered overtime work (deducting 15 minutes as time allotted for eating) is not supported by
substantial evidence; (3) the court below had no authority to delegate its judicial functions by
ordering the Chief of the Examining Division or his representative to compute the overtime pay; (4)
the finding that there was no agreement to withdraw Case No. 1055-V in consideration of the wage
increases in the Collective Bargaining Contract (Exh. "A") is not supported by substantial evidence;
and (5) the court below had no authority to order the company to adopt a straight 8-hour
shift inclusive of meal period.

On the issue of jurisdiction over claims for overtime pay, we have since definitely ruled in a recent
decisions that the Industrial Court may properly take cognizance of such cases if, at the time of the
petition, the complainants were still in the service of the employer, or, having been separated from
such service, should ask for reinstatement; otherwise, such claims should be brought before the
regular courts (NASSCO v. CIR, et al., L-13888, April 29, 1960; FRISCO v. CIR, et al., L-13806, May
23, 1960; Board of Liquidators, et al. vs. CIR, et al., L-15485, May 23, 1960; Sta. Cecilia, Sawmills
Co. vs. CIR, L-14254 & L-14255, May 27, 1960; Ajax International Corp. v. Seguritan, L-16038,
October 25, 1960; Sampaguita Pictures, Inc., et al. vs. CIR, L-16404, October 25, 1960). Since, in
the instant case there is no question that the employees claiming overtime compensation were still in
the service of the company when the case was filed, the jurisdiction of the Court of Industrial
Relations cannot be assailed. In fact, since it is not pretended that, thereafter, the complainants were
discharged or otherwise terminated their relationship with the company for any reason, all of said
complainants could still be with the company up to the present.

Petitioner herein claims that the one-hour meal period should not be considered as overtime work
(after deducting 15 minutes), because the evidence showed that complainants could rest completely,
and were not in any manner under the control of the company during that period. The court below
found, on the contrary, that during the so called meal period, the mechanics were required to stand
by for emergency work; that if they happened not to be available when called, they were
reprimanded by the leadman; that as in fact it happened on many occasions, the mechanics had
been called from their meals or told to hurry Employees Association up eating to perform work during
this period. Far from being unsupported by substantial evidence, the record clearly confirms the
above factual findings of the Industrial Court.

Similarly, this Court is satisfied with the finding that there was no agreement to withdraw Case No.
1055-V in consideration of the wage increases obtained by the, union and set forth in the Collective
Bargaining Agreement Exhibit "A". As reasoned out by the court below, such alleged agreement
would have been incorporated in the contract if it existed. The fact that the union filed a motion to
dismiss without prejudice, after the Collective Bargaining Contract had been signed, did not
necessarily mean that it had agreed to withdraw the case in consideration of the wage increases.
The motion itself (Annex "B", Petition for Certiorari) was expressly based on an understanding that
the company would "formulate a schedule of work which shall be in consonance with C. A. 444". All
in all, there is substantial evidence in the record to support the finding of the court below that no
such agreement was made.

It is next contended that in ordering the Chief of the Examining Division or his representative to
compute the compensation due, the Industrial Court unduly delegated its judicial functions and
thereby rendered an incomplete decision. We do not believe so. Computation of the overtime pay
involves a mechanical function, at most. And the report would still have to be submitted to the
Industrial Court for its approval, by the very terms of the order itself. That there was no specification
of the amount of overtime pay in the decision did not make it incomplete, since this matter would
necessarily be made clear enough in the implementation of the decision (see Malate Taxicab &
Garage, Inc. vs. CIR, et al., L-8718, May 11, 1956).

The Industrial Court's order for permanent adoption of a straight 8-hour shift including the meal
period was but a consequence of its finding that the meal hour was not one of complete rest, but
was actually a work hour, since for its duration, the laborers had to be on ready call. Of course, if the
Company practices in this regard should be modified to afford the mechanics a real rest during that
hour (f. ex., by installing an entirely different emergency crew, or any similar arrangement), then the
modification of this part of the decision may be sought from the Court below. As things now stand,
we see no warrant for altering the decision.

The judgment appealed from is affirmed. Costs against appellant.

G.R. No. 138051 June 10, 2004


JOSE Y. SONZA, petitioner,
vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari 1 assailing the 26 March 1999 Decision2 of the
Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza ("SONZA").
The Court of Appeals affirmed the findings of the National Labor Relations Commission ("NLRC"),
which affirmed the Labor Arbiters dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement


("Agreement") with the Mel and Jay Management and Development Corporation ("MJMDC"). ABS-
CBN was represented by its corporate officers while MJMDC was represented by SONZA, as
President and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer.
Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZAs services exclusively
to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would
render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3

ABS-CBN agreed to pay for SONZAs services a monthly talent fee of P310,000 for the first year
and P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees
on the 10th and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by your
goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning
his programs and career. We consider these acts of the station violative of the Agreement
and the station as in breach thereof. In this connection, we hereby serve notice of rescission
of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount
stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the
other benefits under said Agreement.
Thank you for your attention.

Very truly yours,

(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and
Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did not pay
his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel
allowance and amounts due under the Employees Stock Option Plan ("ESOP").

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee
relationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees through his account at
PCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account with
the same bank where ABS-CBN deposited SONZAs talent fees and other payments due him under
the Agreement.

In his Order dated 2 December 1996, the Labor Arbiter 5 denied the motion to dismiss and directed
the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of
respondent company until April 15, 1996 and that he was not paid certain claims, it is
sufficient enough as to confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon the causes of action
asserted is a matter to be resolved only after and as a result of a hearing. Thus, the
respondents plea of lack of employer-employee relationship may be pleaded only as a
matter of defense. It behooves upon it the duty to prove that there really is no employer-
employee relationship between it and the complainant.

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their
position papers on 24 February 1997.

On 11 March 1997, SONZA filed a Reply to Respondents Position Paper with Motion to Expunge
Respondents Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBNs
witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the
prevailing practice in the television and broadcast industry is to treat talents like SONZA as
independent contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of
jurisdiction.6 The pertinent parts of the decision read as follows:

xxx
While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of the
contract of a talent," it stands to reason that a "talent" as above-described cannot be
considered as an employee by reason of the peculiar circumstances surrounding the
engagement of his services.

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

The fact that per the May 1994 Agreement complainant was accorded some benefits
normally given to an employee is inconsequential. Whatever benefits complainant
enjoyed arose from specific agreement by the parties and not by reason of employer-
employee relationship. As correctly put by the respondent, "All these benefits are merely
talent fees and other contractual benefits and should not be deemed as salaries, wages
and/or other remuneration accorded to an employee, notwithstanding the nomenclature
appended to these benefits. Apropos to this is the rule that the term or nomenclature given to
a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring
such benefit."

The fact that complainant was made subject to respondents Rules and Regulations,
likewise, does not detract from the absence of employer-employee relationship. As
held by the Supreme Court, "The line should be drawn between rules that merely serve as
guidelines towards the achievement of the mutually desired result without dictating the
means or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The first, which
aim only to promote the result, create no employer-employee relationship unlike the second,
which address both the result and the means to achieve it." (Insular Life Assurance Co., Ltd.
vs. NLRC, et al., G.R. No. 84484, November 15, 1989).

x x x (Emphasis supplied)7

SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the
Labor Arbiters decision. SONZA filed a motion for reconsideration, which the NLRC denied in its
Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals
assailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals
rendered a Decision dismissing the case.8

Hence, this petition.

The Rulings of the NLRC and Court of Appeals


The Court of Appeals affirmed the NLRCs finding that no employer-employee relationship existed
between SONZA and ABS-CBN. Adopting the NLRCs decision, the appellate court quoted the
following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract
merely as an agent of complainant Sonza, the principal. By all indication and as the law puts
it, the act of the agent is the act of the principal itself. This fact is made particularly true in this
case, as admittedly MJMDC is a management company devoted exclusively to managing
the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco. (Opposition to
Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and
MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the
May 1994 Agreement which specifically referred to MJMDC as the AGENT. As a matter of
fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was
MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the
same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that
historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in
the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN and
Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere labor-only contractor of ABS-CBN


such that there exist[s] employer-employee relationship between the latter and Mr. Sonza.
On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of the
talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994
Agreement.

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to
the regular courts, the same being in the nature of an action for alleged breach of contractual
obligation on the part of respondent-appellee. As squarely apparent from complainant-
appellants Position Paper, his claims for compensation for services, 13th month pay,
signing bonus and travel allowance against respondent-appellee are not based on the Labor
Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds
under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of
complainant-appellant bears perusal:

Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually
bound itself to pay complainant a signing bonus consisting of shares of stockswith
FIVE HUNDRED THOUSAND PESOS (P500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount
not lower than the amount he was receiving prior to effectivity of (the) Agreement.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a


commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos
(P150,000.00) per year.
Thus, it is precisely because of complainant-appellants own recognition of the fact that his
contractual relations with ABS-CBN are founded on the New Civil Code, rather than the
Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served
upon the latter a notice of rescission of Agreement with the station, per his letter dated April
1, 1996, which asserted that instead of referring to unpaid employee benefits, he is waiving
and renouncing recovery of the remaining amount stipulated in paragraph 7 of the
Agreement but reserves the right to such recovery of the other benefits under said
Agreement. (Annex 3 of the respondent ABS-CBNs Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or
the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his
complaint. Complainant-appellants claims being anchored on the alleged breach of contract
on the part of respondent-appellee, the same can be resolved by reference to civil law and
not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the
regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238
SCRA 267, 21 November 1994, an action for breach of contractual obligation is
intrinsically a civil dispute.9 (Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between
SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve. 10 A
special civil action for certiorari extends only to issues of want or excess of jurisdiction of the
NLRC.11 Such action cannot cover an inquiry into the correctness of the evaluation of the evidence
which served as basis of the NLRCs conclusion.12 The Court of Appeals added that it could not re-
examine the parties evidence and substitute the factual findings of the NLRC with its own. 13

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION


AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED
BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW,
JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING. 14

The Courts Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming
the NLRC ruling which upheld the Labor Arbiters dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression. Although Philippine labor laws and jurisprudence
define clearly the elements of an employer-employee relationship, this is the first time that the Court
will resolve the nature of the relationship between a television and radio station and one of its
"talents." There is no case law stating that a radio and television program host is an employee of the
broadcast station.
The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known
television and radio personality, and ABS-CBN, one of the biggest television and radio networks in
the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee
of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because
SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord


the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when
supported by substantial evidence.15 Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion. 16 A party cannot prove the
absence of substantial evidence by simply pointing out that there is contrary evidence on record,
direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in
determining where the weight of evidence lies or what evidence is credible. 17

SONZA maintains that all essential elements of an employer-employee relationship are present in
this case. Case law has consistently held that the elements of an employer-employee relationship
are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employers power to control the employee on the means and methods by
which the work is accomplished.18 The last element, the so-called "control test", is the most
important element.19

A. Selection and Engagement of Employee

ABS-CBN engaged SONZAs services to co-host its television and radio programs because of
SONZAs peculiar skills, talent and celebrity status. SONZA contends that the "discretion used by
respondent in specifically selecting and hiring complainant over other broadcasters of possibly
similar experience and qualification as complainant belies respondents claim of independent
contractorship."

Independent contractors often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of
his unique skills, talent and celebrity status not possessed by ordinary employees, is a
circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did
not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the
Agreement with SONZA but would have hired him through its personnel department just like any
other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his
status. We must consider all the circumstances of the relationship, with the control test being the
most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC.
SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN.
SONZA also points out that ABS-CBN granted him benefits and privileges "which he would not have
enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the
Agreement. If SONZA were ABS-CBNs employee, there would be no need for the parties to
stipulate on benefits such as "SSS, Medicare, x x x and 13th month pay" 20 which the law
automatically incorporates into every employer-employee contract.21 Whatever benefits SONZA
enjoyed arose from contract and not because of an employer-employee relationship. 22

SONZAs talent fees, amounting to P317,000 monthly in the second and third year, are so huge and
out of the ordinary that they indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZAs unique skills, talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such
huge talent fees for his services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual
relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over
any talent fee accruing under the Agreement.

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship. SONZA
failed to show that ABS-CBN could terminate his services on grounds other than breach of contract,
such as retrenchment to prevent losses as provided under labor laws. 23

During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent fees as long as "AGENT
and Jay Sonza shall faithfully and completely perform each condition of this Agreement." 24 Even if it
suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained
obligated to pay SONZAs talent fees during the life of the Agreement. This circumstance indicates
an independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him
his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying
SONZAs talent fees during the remaining life of the Agreement even if ABS-CBN cancelled SONZAs
programs through no fault of SONZA.25

SONZA assails the Labor Arbiters interpretation of his rescission of the Agreement as an admission
that he is not an employee of ABS-CBN. The Labor Arbiter stated that "if it were true that
complainant was really an employee, he would merely resign, instead." SONZA did actually resign
from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZAs letter
clearly bears this out.26 However, the manner by which SONZA terminated his relationship with ABS-
CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not
determine his status as employee or independent contractor.

D. Power of Control
Since there is no local precedent on whether a radio and television program host is an employee or
an independent contractor, we refer to foreign case law in analyzing the present case. The United
States Court of Appeals, First Circuit, recently held in Alberty-Vlez v. Corporacin De Puerto
Rico Para La Difusin Pblica ("WIPR")27 that a television program host is an independent
contractor. We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television


actress is a skilled position requiring talent and training not available on-the-job. x x x
In this regard, Alberty possesses a masters degree in public communications and
journalism; is trained in dance, singing, and modeling; taught with the drama department at
the University of Puerto Rico; and acted in several theater and television productions prior to
her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and
instrumentalities" necessary for her to perform. Specifically, she provided, or obtained
sponsors to provide, the costumes, jewelry, and other image-related supplies and services
necessary for her appearance. Alberty disputes that this factor favors independent contractor
status because WIPR provided the "equipment necessary to tape the show." Albertys
argument is misplaced. The equipment necessary for Alberty to conduct her job as host of
"Desde Mi Pueblo" related to her appearance on the show. Others provided equipment for
filming and producing the show, but these were not the primary tools that Alberty used to
perform her particular function. If we accepted this argument, independent contractors could
never work on collaborative projects because other individuals often provide the equipment
required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming "Desde Mi
Pueblo." Albertys contracts with WIPR specifically provided that WIPR hired her
"professional services as Hostess for the Program Desde Mi Pueblo." There is no evidence
that WIPR assigned Alberty tasks in addition to work related to these tapings. x x
x28 (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in distinguishing
an employee from an independent contractor.29 This test is based on the extent of control the hirer
exercises over a worker. The greater the supervision and control the hirer exercises, the more likely
the worker is deemed an employee. The converse holds true as well the less control the hirer
exercises, the more likely the worker is considered an independent contractor.30

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.

SONZAs argument is misplaced. ABS-CBN engaged SONZAs services specifically to co-host the
"Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work,
SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television,
and sounded on radio were outside ABS-CBNs control. SONZA did not have to render eight hours of
work per day. The Agreement required SONZA to attend only rehearsals and tapings of the shows,
as well as pre- and post-production staff meetings.31 ABS-CBN could not dictate the contents of
SONZAs script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-CBN
or its interests.32 The clear implication is that SONZA had a free hand on what to say or discuss in his
shows provided he did not attack ABS-CBN or its interests.
We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZAs work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN
merely reserved the right to modify the program format and airtime schedule "for more effective
programming."34 ABS-CBNs sole concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of
SONZAs work.

SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs power over the
means and methods of the performance of his work. Although ABS-CBN did have the option not to
broadcast SONZAs show, ABS-CBN was still obligated to pay SONZAs talent fees... Thus, even if
ABS-CBN was completely dissatisfied with the means and methods of SONZAs performance of his
work, or even with the quality or product of his work, ABS-CBN could not dismiss or even discipline
SONZA. All that ABS-CBN could do is not to broadcast SONZAs show but ABS-CBN must still pay
his talent fees in full.35

Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by the obligation to
continue paying in full SONZAs talent fees, did not amount to control over the means and methods
of the performance of SONZAs work. ABS-CBN could not terminate or discipline SONZA even if the
means and methods of performance of his work - how he delivered his lines and appeared on
television - did not meet ABS-CBNs approval. This proves that ABS-CBNs control was limited only
to the result of SONZAs work, whether to broadcast the final product or not. In either case, ABS-
CBN must still pay SONZAs talent fees in full until the expiry of the Agreement.

In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that vaudeville
performers were independent contractors although the management reserved the right to delete
objectionable features in their shows. Since the management did not have control over the manner
of performance of the skills of the artists, it could only control the result of the work by deleting
objectionable features.37

SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment
and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the
"Mel & Jay" programs. However, the equipment, crew and airtime are not the "tools and
instrumentalities" SONZA needed to perform his job. What SONZA principally needed were his talent
or skills and the costumes necessary for his appearance. 38Even though ABS-CBN provided SONZA
with the place of work and the necessary equipment, SONZA was still an independent contractor
since ABS-CBN did not supervise and control his work. ABS-CBNs sole concern was for SONZA to
display his talent during the airing of the programs.39

A radio broadcast specialist who works under minimal supervision is an independent


contractor.40 SONZAs work as television and radio program host required special skills and talent,
which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any
supervision and control over how SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBNs employee because ABS-CBN subjected
him to its rules and standards of performance. SONZA claims that this indicates ABS-CBNs control
"not only [over] his manner of work but also the quality of his work."

The Agreement stipulates that SONZA shall abide with the rules and standards of performance
"covering talents"41 of ABS-CBN. The Agreement does not require SONZA to comply with the rules
and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed
on SONZA under the Agreement refers to the "Television and Radio Code of the Kapisanan ng mga
Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code
of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television stations.
Broadcasters are not necessarily employees of radio and television stations. Clearly, the rules and
standards of performance referred to in the Agreement are those applicable to talents and not to
employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an
employee of the former.43 In this case, SONZA failed to show that these rules controlled his
performance. We find that these general rules are merely guidelines towards the achievement of
the mutually desired result, which are top-rating television and radio programs that comply with
standards of the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party
in relation to the services being rendered may be accorded the effect of establishing an employer-
employee relationship. The facts of this case fall squarely with the case of Insular Life Assurance
Co., Ltd. vs. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines towards
the achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create
no employer-employee relationship unlike the second, which address both the result and the
means used to achieve it.44

The Vaughan case also held that one could still be an independent contractor although the hirer
reserved certain supervision to insure the attainment of the desired result. The hirer, however, must
not deprive the one hired from performing his services according to his own initiative. 45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of
control which ABS-CBN exercised over him.

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

The hiring of exclusive talents is a widespread and accepted practice in the entertainment
industry.46 This practice is not designed to control the means and methods of work of the talent, but
simply to protect the investment of the broadcast station. The broadcast station normally spends
substantial amounts of money, time and effort "in building up its talents as well as the programs they
appear in and thus expects that said talents remain exclusive with the station for a commensurate
period of time."47 Normally, a much higher fee is paid to talents who agree to work exclusively for a
particular radio or television station. In short, the huge talent fees partially compensates for
exclusivity, as in the present case.

MJMDC as Agent of SONZA


SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which contracted out his
services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an
employee of ABS-CBN. SONZA insists that MJMDC is a "labor-only" contractor and ABS-CBN is his
employer.

In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the
employee who is ostensibly under the employ of the "labor-only" contractor; and (3) the principal
who is deemed the real employer. Under this scheme, the "labor-only" contractor is the agent of
the principal. The law makes the principal responsible to the employees of the "labor-only
contractor" as if the principal itself directly hired or employed the employees. 48 These circumstances
are not present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-
CBN. MJMDC merely acted as SONZAs agent. The Agreement expressly states that MJMDC acted
as the "AGENT" of SONZA. The records do not show that MJMDC acted as ABS-CBNs agent.
MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation
organized and owned by SONZA and TIANGCO. The President and General Manager of MJMDC is
SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and managed
by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is
represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the


careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other
business, not even job contracting. MJMDC does not have any other function apart from acting as
agent of SONZA or TIANGCO to promote their careers in the broadcast and television industry.49

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8
January 1979 finally settled the status of workers in the broadcast industry. Under this policy, the
types of employees in the broadcast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of
law. There is no legal presumption that Policy Instruction No. 40 determines SONZAs status. A mere
executive issuance cannot exclude independent contractors from the class of service providers to
the broadcast industry. The classification of workers in the broadcast industry into only two groups
under Policy Instruction No. 40 is not binding on this Court, especially when the classification has no
basis either in law or in fact.

Affidavits of ABS-CBNs Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando
Cruz without giving his counsel the

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to


attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of
these witnesses as misleading and irrelevant.
While SONZA failed to cross-examine ABS-CBNs witnesses, he was never prevented from denying
or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a
formal (trial-type) hearing after the submission of the position papers of the parties, thus:

Section 3. Submission of Position Papers/Memorandum

xxx

These verified position papers shall cover only those claims and causes of action raised in
the complaint excluding those that may have been amicably settled, and shall be
accompanied by all supporting documents including the affidavits of their respective
witnesses which shall take the place of the latters direct testimony. x x x

Section 4. Determination of Necessity of Hearing. Immediately after the submission of the


parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine
whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and
for the purpose of making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant documentary evidence, if
any from any party or witness.50

The Labor Arbiter can decide a case based solely on the position papers and the supporting
documents without a formal trial.51 The holding of a formal hearing or trial is something that the
parties cannot demand as a matter of right.52 If the Labor Arbiter is confident that he can rely on the
documents before him, he cannot be faulted for not conducting a formal trial, unless under the
particular circumstances of the case, the documents alone are insufficient. The proceedings before a
Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the
technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings
before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries
to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it
is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution53 arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee
creates an employer-employee relationship. To hold that every person who renders services to
another for a fee is an employee - to give meaning to the security of tenure clause - will lead to
absurd results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as
independent contractors. The right to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure cannot operate to deprive an
individual, possessed with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to render his services without
any one controlling the means and methods by which he performs his art or craft. This Court will not
interpret the right of labor to security of tenure to compel artists and talents to render their services
only as employees. If radio and television program hosts can render their services only as
employees, the station owners and managers can dictate to the radio and television hosts what they
say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters

The National Internal Revenue Code ("NIRC")54 in relation to Republic Act No. 7716,55 as amended
by Republic Act No. 8241,56 treats talents, television and radio broadcasters differently. Under the
NIRC, these professionals are subject to the 10% value-added tax ("VAT") on services they render.
Exempted from the VAT are those under an employer-employee relationship. 57 This different tax
treatment accorded to talents and broadcasters bolters our conclusion that they are independent
contractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZAs Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service
incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock
Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZAs
claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor
Code. Clearly, the present case does not call for an application of the Labor Code provisions but an
interpretation and implementation of the May 1994 Agreement. In effect, SONZAs cause of action is
for breach of contract which is intrinsically a civil dispute cognizable by the regular courts. 58

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26 March
1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO
TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA and
RAMON ESCUETA, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set aside
the Decision and Resolution of the Court of Appeals dated October 29, 2004 1 and October 7,
2005, 2 respectively, in CA-G.R. SP No. 78515 dismissing the complaint for constructive dismissal
filed by herein petitioner Angelina Francisco. The appellate court reversed and set aside the
Decision of the National Labor Relations Commission (NLRC) dated April 15, 2003, 3 in NLRC NCR
CA No. 032766-02 which affirmed with modification the decision of the Labor Arbiter dated July 31,
2002, 4 in NLRC-NCR Case No. 30-10-0-489-01, finding that private respondents were liable for
constructive dismissal.
In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was
designated as Accountant and Corporate Secretary and was assigned to handle all the accounting
needs of the company. She was also designated as Liaison Officer to the City of Makati to secure
business permits, construction permits and other licenses for the initial operation of the company. 5

Although she was designated as Corporate Secretary, she was not entrusted with the corporate
documents; neither did she attend any board meeting nor required to do so. She never prepared any
legal document and never represented the company as its Corporate Secretary. However, on some
occasions, she was prevailed upon to sign documentation for the company. 6

In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as
accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle recruitment of
all employees and perform management administration functions; represent the company in all
dealings with government agencies, especially with the Bureau of Internal Revenue (BIR), Social
Security System (SSS) and in the city government of Makati; and to administer all other matters
pertaining to the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. 7

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

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that she
was required to sign a prepared resolution for her replacement but she was assured that she would
still be connected with Kasei Corporation. Timoteo Acedo, the designated Treasurer, convened a
meeting of all employees of Kasei Corporation and announced that nothing had changed and that
petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji Kamura and in
charge of all BIR matters. 9

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to
September 2001 for a total reduction of P22,500.00 as of September 2001. Petitioner was not paid
her mid-year bonus allegedly because the company was not earning well. On October 2001,
petitioner did not receive her salary from the company. She made repeated follow-ups with the
company cashier but she was advised that the company was not earning well. 10

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she
was informed that she is no longer connected with the company. 11

Since she was no longer paid her salary, petitioner did not report for work and filed an action for
constructive dismissal before the labor arbiter.

Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged
that petitioner was hired in 1995 as one of its technical consultants on accounting matters and act
concurrently as Corporate Secretary. As technical consultant, petitioner performed her work at her
own discretion without control and supervision of Kasei Corporation. Petitioner had no daily time
record and she came to the office any time she wanted. The company never interfered with her work
except that from time to time, the management would ask her opinion on matters relating to her
profession. Petitioner did not go through the usual procedure of selection of employees, but her
services were engaged through a Board Resolution designating her as technical consultant. The
money received by petitioner from the corporation was her professional fee subject to the 10%
expanded withholding tax on professionals, and that she was not one of those reported to the BIR or
SSS as one of the companys employees. 12

Petitioners designation as technical consultant depended solely upon the will of management. As
such, her consultancy may be terminated any time considering that her services were only
temporary in nature and dependent on the needs of the corporation.

To prove that petitioner was not an employee of the corporation, private respondents submitted a list
of employees for the years 1999 and 2000 duly received by the BIR showing that petitioner was not
among the employees reported to the BIR, as well as a list of payees subject to expanded
withholding tax which included petitioner. SSS records were also submitted showing that petitioners
latest employer was Seiji Corporation. 13

The Labor Arbiter found that petitioner was illegally dismissed, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. finding complainant an employee of respondent corporation;

2. declaring complainants dismissal as illegal;

3. ordering respondents to reinstate complainant to her former position without loss of seniority rights
and jointly and severally pay complainant her money claims in accordance with the following
computation:

a. Backwages 10/2001 07/2002 275,000.00

(27,500 x 10 mos.)

b. Salary Differentials (01/2001 09/2001) 22,500.00

c. Housing Allowance (01/2001 07/2002) 57,000.00

d. Midyear Bonus 2001 27,500.00

e. 13th Month Pay 27,500.00

f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00

g. Moral and exemplary damages 100,000.00

h. 10% Attorneys fees 87,076.50

P957,742.50
If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay
with additional backwages that would accrue up to actual payment of separation pay.

SO ORDERED. 14

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the
dispositive portion of which reads:

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay computed at one month per year of
service in addition to full backwages from October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10% share in profit in the respective
accounts of P100,000.00 and P361,175.00 are deleted;

3) The award of 10% attorneys fees shall be based on salary differential award only;

4) The awards representing salary differentials, housing allowance, mid year bonus and 13th month
pay are AFFIRMED.

SO ORDERED. 15

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

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

SO ORDERED. 16

The appellate court denied petitioners motion for reconsideration, hence, the present recourse.

The core issues to be resolved in this case are (1) whether there was an employer-employee
relationship between petitioner and private respondent Kasei Corporation; and if in the affirmative,
(2) whether petitioner was illegally dismissed.

Considering the conflicting findings by the Labor Arbiter and the National Labor Relations
Commission on one hand, and the Court of Appeals on the other, there is a need to reexamine the
records to determine which of the propositions espoused by the contending parties is supported by
substantial evidence. 17

We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test to
determine the existence of an employer-employee relation. Generally, courts have relied on the so-
called right of control test where the person for whom the services are performed reserves a right to
control not only the end to be achieved but also the means to be used in reaching such end. In
addition to the standard of right-of-control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, can help in determining the existence of an
employer-employee relationship.

However, in certain cases the control test is not sufficient to give a complete picture of the
relationship between the parties, owing to the complexity of such a relationship where several
positions have been held by the worker. There are instances when, aside from the employers power
to control the employee with respect to the means and methods by which the work is to be
accomplished, economic realities of the employment relations help provide a comprehensive
analysis of the true classification of the individual, whether as employee, independent contractor,
corporate officer or some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative
employers power to control the employee with respect to the means and methods by which the work
is to be accomplished; and (2) the underlying economic realities of the activity or relationship.

This two-tiered test would provide us with a framework of analysis, which would take into
consideration the totality of circumstances surrounding the true nature of the relationship between
the parties. This is especially appropriate in this case where there is no written agreement or terms
of reference to base the relationship on; and due to the complexity of the relationship based on the
various positions and responsibilities given to the worker over the period of the latters employment.

The control test initially found application in the case of Viaa v. Al-Lagadan and Piga, 19 and lately
in Leonardo v. Court of Appeals, 20 where we held that there is an employer-employee relationship
when the person for whom the services are performed reserves the right to control not only the end
achieved but also the manner and means used to achieve that end.

In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic conditions
prevailing between the parties, in addition to the standard of right-of-control like the inclusion of the
employee in the payrolls, to give a clearer picture in determining the existence of an employer-
employee relationship based on an analysis of the totality of economic circumstances of the worker.

Thus, the determination of the relationship between employer and employee depends upon the
circumstances of the whole economic activity, 22 such as: (1) the extent to which the services
performed are an integral part of the employers business; (2) the extent of the workers investment
in equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the
workers opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight
required for the success of the claimed independent enterprise; (6) the permanency and duration of
the relationship between the worker and the employer; and (7) the degree of dependency of the
worker upon the employer for his continued employment in that line of business. 23

The proper standard of economic dependence is whether the worker is dependent on the alleged
employer for his continued employment in that line of business. 24 In the United States, the
touchstone of economic reality in analyzing possible employment relationships for purposes of the
Federal Labor Standards Act is dependency. 25By analogy, the benchmark of economic reality in
analyzing possible employment relationships for purposes of the Labor Code ought to be the
economic dependence of the worker on his employer.

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation
because she was under the direct control and supervision of Seiji Kamura, the corporations
Technical Consultant. She reported for work regularly and served in various capacities as
Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate Secretary, with
substantially the same job functions, that is, rendering accounting and tax services to the company
and performing functions necessary and desirable for the proper operation of the corporation such
as securing business permits and other licenses over an indefinite period of engagement.

Under the broader economic reality test, the petitioner can likewise be said to be an employee of
respondent corporation because she had served the company for six years before her dismissal,
receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and
allowances, as well as deductions and Social Security contributions from August 1, 1999 to
December 18, 2000. 26 When petitioner was designated General Manager, respondent corporation
made a report to the SSS signed by Irene Ballesteros. Petitioners membership in the SSS as
manifested by a copy of the SSS specimen signature card which was signed by the President of
Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the
existence of an employer-employee relationship between petitioner and respondent corporation. 27

It is therefore apparent that petitioner is economically dependent on respondent corporation for her
continued employment in the latters line of business.

In Domasig v. National Labor Relations Commission, 28 we held that in a business establishment, an


identification card is provided not only as a security measure but mainly to identify the holder thereof
as a bona fide employee of the firm that issues it. Together with the cash vouchers covering
petitioners salaries for the months stated therein, these matters constitute substantial evidence
adequate to support a conclusion that petitioner was an employee of private respondent.

We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the SSS is
proof that the latter were the formers employees. The coverage of Social Security Law is predicated
on the existence of an employer-employee relationship.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that
petitioner never acted as Corporate Secretary and that her designation as such was only for
convenience. The actual nature of petitioners job was as Kamuras direct assistant with the duty of
acting as Liaison Officer in representing the company to secure construction permits, license to
operate and other requirements imposed by government agencies. Petitioner was never entrusted
with corporate documents of the company, nor required to attend the meeting of the corporation. She
was never privy to the preparation of any document for the corporation, although once in a while she
was required to sign prepared documentation for the company. 30

The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001
affidavit has been allegedly withdrawn by Kamura himself from the records of the case. 31 Regardless
of this fact, we are convinced that the allegations in the first affidavit are sufficient to establish that
petitioner is an employee of Kasei Corporation.

Granting arguendo, that the second affidavit validly repudiated the first one, courts do not generally
look with favor on any retraction or recanted testimony, for it could have been secured by
considerations other than to tell the truth and would make solemn trials a mockery and place the
investigation of the truth at the mercy of unscrupulous witnesses. 32 A recantation does not
necessarily cancel an earlier declaration, but like any other testimony the same is subject to the test
of credibility and should be received with caution. 33
Based on the foregoing, there can be no other conclusion that petitioner is an employee of
respondent Kasei Corporation. She was selected and engaged by the company for compensation,
and is economically dependent upon respondent for her continued employment in that line of
business. Her main job function involved accounting and tax services rendered to respondent
corporation on a regular basis over an indefinite period of engagement. Respondent corporation
hired and engaged petitioner for compensation, with the power to dismiss her for cause. More
importantly, respondent corporation had the power to control petitioner with the means and methods
by which the work is to be accomplished.

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month
from January to September 2001. This amounts to an illegal termination of employment, where the
petitioner is entitled to full backwages. Since the position of petitioner as accountant is one of trust
and confidence, and under the principle of strained relations, petitioner is further entitled to
separation pay, in lieu of reinstatement. 34

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal.


Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to when
continued employment becomes impossible, unreasonable or unlikely; when there is a demotion in
rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer
becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. Florendo-Flores, 36 we ruled that
where an employee ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment rendering it impossible
for such employee to continue working for her employer. Hence, her severance from the company
was not of her own making and therefore amounted to an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities regardless of
sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile relationship
between employees and employers, we are mindful of the fact that the policy of the law is to apply
the Labor Code to a greater number of employees. This would enable employees to avail of the
benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and
protection to labor, promoting their welfare and reaffirming it as a primary social economic force in
furtherance of social justice and national development.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals
dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515
are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission dated
April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case is REMANDED to the
Labor Arbiter for the recomputation of petitioner Angelina Franciscos full backwages from the time
she was illegally terminated until the date of finality of this decision, and separation pay representing
one-half month pay for every year of service, where a fraction of at least six months shall be
considered as one whole year.

SO ORDERED.

G.R. No. 103586 July 21, 1994

NATIONAL FEDERATION OF LABOR, petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION and FRANKLIN BAKER COMPANY OF THE
PHILIPPINES (DAVAO PLANT), respondents.

Jose Espinas for petitioner.

Siguion-Reyna, Montecillo & Ongsiako for private respondent.

FELICIANO, J.:

Between 1 November 1983 and 1 November 1984, Wage Orders Nos. 3, 4, 5 and 6 were
promulgated by the then President Ferdinand E. Marcos. Wage Order No. 3 became effective as of
1 November 1983; Wage Order No. 4, as of 1 May 1984; Wage Order No. 5, as of 16 June 1984;
and Wage Order No. 6 went into effect on 1 November 1984. All these Wage Orders increased the
statutory minimum wages of workers with differing increases being specified for agricultural
plantation and non-agricultural workers.

Before the effectivity of Wage Order No. 3, the wage rates of regular employees and of casual (or
non-regular) employees of private respondent Franklin Baker Company of the Philippines (Davao
Plant) ("Company") were such that there was a positive differential between the two (2) in the
amount of P4.56. The effect of the implementation of the successive Wage Orders upon the daily
wage rates of these two (2) groups of employees was summarized by petitioner in the following
table:

Effectivity Wage of Wage of


Gap

Date Regulars Casuals

Before W.O. No. 3 P22.56 P18.00 P4.56


After W.O. No. 3 1 Nov. 1983 22.56 20.00 2.56
After W.O. No. 4 1 May 1984 32.64 31.00 1.64
After W.O. No. 5 16 June 1984 34.00 34.00 0.00 1

Upon the effectivity of Wage Order No. 5, grievance meetings were held by petitioner National
Federation of Labor ("NFL") and private respondent Company sometime in June 1984, addressing
the impact which implementation of the various Wage Orders had on the wage structure of the
Company.

On 21 June 1984, all the casual or non-regular employees of private respondent Company (at least
in its Davao Plant) were "regularized," or converted into regular employees, pursuant to the request
of petitioner NFL.

On 1 July 1984, the effectivity date of the 1984 Collective Bargaining Agreement between NFL and
the Company, all regular employees of the Company received an increase of P1.84 in their daily
wage; the regular daily wage of the regular employees thus became P35.84 as against P34.00 per
day for non-regular employees.
As a result of the implementation of Wage Order No. 6, casual employees received an increase of
their daily wage from P34.00 to P36.00. At the same time, the Company unilaterally granted an
across-the-board increase of P2.00 in the daily rate of all regular employees, thus increasing their
daily wage from P35.84 to P37.84. Further, on 1 July 1985, the anniversary date of the increases
under the CBA, all regular employees who were members of the collective bargaining unit got a
raise of P1.76 in their basic daily wage, which pushed that daily wage from P37.84 to P39.60, as
against the non-regular's basic wage of P36.00 per day. Finally, by November 1987, the lowest paid
regular employee had a basic daily rate of P64.64, or P10.64 more than the statutory minimum wage
paid to a non-regular employee.

The development of the wage scales of the Company's employees after the effectivity date of Wage
Order No. 5 is presented in the following table:

Effectivity Wage of Wage of


Gap

Date Regulars Casuals

After W.O. No. 5 16 June 1984 34.00 34.00 0.00


CBA Increase 1 July 1984 35.84 34.00 1.84
After W.O. No. 6 1 Nov. 1984 37.84 36.00 1.84
CBA Anniversary 1 July 1985 39.60 36.00 3.60

Increase

Meantime, while the above wage developments were unfolding, the Company experienced a work
output slow down. The Company directed some 205 workers to explain the reduction in their work
output. The workers failed to comply and they were accordingly issued notices of dismissal by the
Company. As a response to its decreasing productivity levels, the Company suspended operations
on 16 August 1984. Operations were resumed on 14 September 1984; the Company, however,
refused to take back the 205 dismissed employees. Petitioner Union then went on strike alleging a
lock-out on the part of the Company and demanding rectification of the wage distortion. The case
was certified by the Secretary of Labor to the National Labor Relations Commission ("NLRC") for
compulsory conciliation.

On 19 June 1985, the Union and the Company reached an agreement with respect to the lock-out
issue. The agreement, which was approved by the NLRC En Banc, granted the 205 employees
"financial assistance" equivalent to thirty (30) days' separation pay. This left unresolved only the
wage distortion issue.

On 11 November 1987, the NLRC En Banc rendered a decision which in effect found the existence
of wage distortion and required the Company to pay a P1.00 wage increase effective 1 May 1984:

In the computation submitted by the Union, there is a need to restore the P2.56 gap
between non-regulars or "casuals" and "regular workers." This difference in the basic
wage of these workers was existing at the time of the conclusion of the collective
bargaining agreement and before the implementation of Wage Orders No. 4 & 5. The
imprecise claim of respondent that there is P3.60 gap between non-regular and
regulars may not be sustained because as aforestated, this amount represents
negotiated wage increase which should not be considered covered and in
compliance with the wage orders. Considering, however, the present economic
conditions and the outlay involved in correcting the distortion in the wages of
respondent's workers, this Commission, in the exercise of its arbitral powers, feels
that an increase of P1.00 on the present basic wage of regular workers would
significantly rectify or minimize the distortion in the wage structure of respondent
company caused by the implementation of the various wage orders. Respondent is,
therefore, required to implement the P1.00 wage increase effective May 1,
1984 when Wage Order 4 took effect. 2 (Emphasis supplied)

On motion for partial reconsideration filed by the Company, the above quoted portion of the
NLRC En Banc's decision was reconsidered and set aside by the NLRC Fifth Division. 3 The Fifth
Division of the NLRC in effect found that while a wage distortion did exist commencing 16 June 1984, the
distortion persisted only for a total of fifteen (15) days and accordingly required private respondent
company to pay "a wage increase of P2.00 per day to all regular workers effective June 16, 1984 up to
June 30, 1984 or a total of fifteen (15) days." 4 The rest of the decision of 11 November 1987 was left
untouched.

In its decision dated 16 December 1991, the NLRC (Fifth Division) said:

. . . At the time Wage Order No. 4 was implemented on May 1, 1984, casual
employees were increased to P34.00 per day, placing them on equal salary footing
with the regular employees who were likewise receiving P34.00 per day. But effective
July 1, 1984 when the 1984 CBA took effect, the regular employees of the company
admittedly received the basic wage of P35.84 or an increase of P1.84 as against the
daily wage of P34.00 of the casual employees.

Thus, the apparent wage distortion did not last long but only for 15 days, that is from
June 16, 1984 when Wage Order No. 5 took effect and lasted only up to June 30,
1984. From July 1, 1984, the regular employees received an increase of P1.84
making their daily wage P35.84 as against the wage of casual employees of P34.00
per day. And as rightly pointed out respondent-movant, the difference in the wage
scale between the two (2) groups of employees was maintained even after the
implementation of Wage Order No. 6 which took effect on November 1,
1984. 5 (Emphasis supplied)

The bottom line issue presented to the Court is thus whether or not, under the facts as summarized
above, the NLRC (Fifth Division) committed a grave abuse of discretion amounting to lack or excess
of jurisdiction, when it concluded that the wage distortion had ceased to exist, after 1 July 1984.

The principal contention of petitioner NFL is that a wage distortion in the wage structure of private
respondent Company continued to exist although a gap of P1.84 between the daily wage rate of
regular employees and that of casual employees had been re-established upon the effectivity of the
CBA increase on 1 July 1984. The original claim of NFL was that the initial prior to effectivity of
Wage Order No. 3 differential of P4.56 in the wage rate of regular employees and that of casual
employees, should be re-created this time between the wage rates of the
newly "regularized" employees (i.e., the casual employees regularized by the Company on 21 June
1984) and the "old" regular employees (employees who, allegedly, had been regular employees for
at least three [3] years before the "regularization" of the casuals). 6 NFL stresses that seniority is a
valid basis of distinction between differing groups of employees, under the Labor Code.

We note that neither the Wage Orders noted above, nor the Implementing Rules promulgated by the
Department of Labor and Employment, set forth a clear and specific notion of "wage distortion."
What the Wage Orders and the Implementing Rules did was simply to recognize that implementation
of the Wage Orders could result in a "distortion of the wage structure" of an employer, and to direct
the employer and the union to negotiate with each other to correct the distortion. Thus, Section 6 of
Wage Order No. 3, dated 7 November 1983, provided as follows:

Sec. 6. Where the application of the minimum wage rate prescribed herein results
in distortions of the wage structure of an establishment, the employer and the union
shall negotiate to correct the distortions. Any dispute arising from wage distortions
shall be resolved through the grievance procedure under their collective bargaining
agreement or through conciliation.

In case where there is no collective bargaining agreement or recognized labor


organization, the employer shall endeavor to correct such distortions in consultation
with their workers. Any dispute shall be resolved through conciliation by the
appropriate Regional Office of the Ministry of Labor and Employment or
through arbitration by the NLRC Arbitration Branch having jurisdiction over the work-
place. 7 (Emphasis supplied)

In its Resolution dated 11 November 1987, the NLRC En Banc provided some elaboration of the
notion of wage distortion, in the following terms:

Wage distortion presupposes a classification of positions and ranking of these


positions at various levels. One visualizes a hierarchy of positions with
corresponding ranks basically in terms of wages and other emoluments. Where a
significant change occurs at the lowest level of positions in terms of basic wage
without a corresponding change in the other level in the hierarchy of positions,
negating as a result thereof the distinction between one level of position from the
next higher level, and resulting in a disparity [should be "parity"] between the lowest
level [and] the next higher level or rank, between new entrants and old hires, there
exists a wage distortion.

The various issuances on wages anticipated this occurrence so that it had been
commonly provided for in these issuances that negotiations may be initiated for the
purposes of correcting the resulting distortion. 8 (Emphases and brackets supplied)

A statutory definition of "wage distortion" is now found in Article 124 of the Labor Code as amended
by Republic Act. No. 6727 (dated 9 June 1989) which reads as follows:

Article 124. Standards/Criteria for Minimum Wage Fixing . . .

xxx xxx xxx

As used herein, a wage distortion shall mean a situation where an increase in


prescribed wage rates results in the elimination or severe contraction of intentional
quantitative differences in wage or salary rates between and among employee
groups in an establishment as to effectively obliterate the distinctions embodied in
such wage structure based on skills, length of service, or other logical bases of
differentiation. 9 (Emphasis supplied)

From the above quoted material, it will be seen that the concept of wage distortion assumes
an existing grouping or classification of employees which establishes distinctions among such
employees on some relevant or legitimate basis. This classification is reflected in a differing wage
rate for each of the existing classes of employees. The wage distortion anticipated in Wage Orders
Nos. 3, 4, 5 and 6 was a "distortion" (or "compression") which ensued from the impact of those
Wage Orders upon the different wage rates of the several classes of employees. Thus distortion
ensued where the result of implementation of one or another of the several Wage Orders was the
total elimination or the severe reduction of the differential or gap existing between the wage rates of
the differing classes of employees. 10

It is important to note that the remedy contemplated in the Wage Orders, and now in Article 124 of
the Labor Code, for a wage distortion consisted of negotiations between employer and employees
for the rectification of the distortion by re-adjusting the wage rates of the differing classes of
employees. As a practical matter, this ordinarily meant a wage increase for one or more of the
affected classes of employees so that some gap or differential would be
re-established. There was no legal requirement that the historical gap which existed before the
implementation of the Wage Orders be restored in precisely the same form or amount.

Applying the above concept to the case at bar, we note that there did exist a two-fold classification of
employees within the private respondent Company: regular employees on the one hand and casual
(or non-regular) employees on the other. As can be seen from the figures referred to earlier, the
differential between these two (2) classes of employees existing before Wage Order No. 3 was
reduced to zero upon the effectivity of Wage Order No. 5 on 16 June 1984. Obviously, distortion
consisting of complete elimination of the wage rate differential had occurred. It is equally clear,
however, that fifteen (15) days later, on 1 July 1984, upon effectivity of the wage increase stipulated
in the collective bargaining agreement between the parties, a gap or differential of P1.84 was re-
created. This restored differential persisted after the effectivity of Wage Order No. 6 on 1 November
1984. By operation of the same CBA, by 1 July 1985, the wage differential had grown to P3.60.

We believe and so hold that the re-establishment of a significant gap or differential between regular
employees and casual employees by operation of the CBA was more than substantial compliance
with the requirements of the several Wage Orders (and of Article 124 of the Labor Code). That this
re-establishment of a significant differential was the result of collective bargaining negotiations,
rather than of a special grievance procedure, is not a legal basis for ignoring it. The NLRC En
Banc was in serious error when it disregarded the differential of P3.60 which had been restored by 1
July 1985 upon the ground that such differential "represent[ed] negotiated wage increase[s] which
should not be considered covered and in compliance with the Wage Orders." 11 The Wage Orders
referred to above had provided for the crediting of increases in wages or allowances granted or paid by
employers within a specified time against the statutorily prescribed increases in minimum wages. 12 A
similar provision recognizing crediting of increases in daily basic wage rates granted by employers
pursuant to collective bargaining agreements, is set out in Section 4(d) of R.A. No. 6727, a statute which
sought to "rationalize wage policy determination by establishing the mechanism and proper standards
therefor ." In Apex Mining Company, Inc. v. National Labor Relations Commission, 13the Supreme Court
said:
It is important to note that the creditability provisions in Wage Orders Nos. 5 and 6
(as well as the parallel provisions in Wage Orders Nos. 2, 3 and 4) are grounded in
an important public policy. That public policy may be seen to be
the encouragement of employers to grant wage and allowance increases to their
employees higher than the minimum rates of increases prescribed by statute or
administrative regulation.
To obliterate the creditability provisions in the Wage Orders through interpretation or
otherwise, and to compel employers simply to add legislated increases in salaries or
allowances without regard to what is already being paid, would be to penalize
employers who grant their workers more than the statutorily prescribed minimum
rates of increases. Clearly, this would be counter-productive so far as securing the
interests of labor is concerned. The creditability provisions in the Wage Orders
prevent the penalizing of employers who are industry leaders and who do not wait for
statutorily prescribed increases in salary or allowances and pay their workers more
than what the law or regulations require. 14 (Emphases in the original)

We believe that the same public policy requires recognition and validation, as it were, of wage
increases given by employers either unilaterally or as a result of collective bargaining negotiations, in
the effort to correct wage distortions.

We consider, still further, that the "regularization" of the casual or non-regular employees on 21 June
1984 which was unilaterally effected by the Company (albeit upon the request of petitioner NFL), in
conjunction with the coming into effect of the increases in daily wage stipulated in the CBA, had the
effect of rendering the whole problem of wage distortion academic. The act
of "regularization" eliminated the classification scheme in respect of which the wage distortion had
existed.

Petitioner NFL's principal contention that the wage distortion persisted with respect to the "old"
regular employees and the "newly regularized" employees, is realistically a claim or demand that the
classification of "regular" employees be broken down into a sub-classification of "new regulars" and
"old regulars." A basic problem with this contention is that, per the record of this case and during the
period of time here relevant, there was in fact no pre-existing sub-classification of regular employees
into "new regulars" and "old regulars" (i.e., on the basis of seniority or longevity) in the Company. It
follows that, as pointed out by the Solicitor-General, 15 no wage distortion within the meaning of Wage
Orders Nos. 3 through 6 (and of Article 124 of the Labor Code) continued beyond the "regularization" of
the casual employees on
21 June 1984. It may be though here again the record is silent that the Company had some other
sub-grouping of regular employees on the basis, for instance, of the kind of functions discharged by
employees (e.g., rank and file; supervisory; middle management; senior management; highly technical,
etc.).

The basic point which needs to be stressed is that whether or not a new or additional scheme of
classification of employees for compensation purposes should be established by the Company (and
the legitimacy or viability of the bases of distinction there embodied) is properly a matter for
management judgment and discretion, and ultimately, perhaps, a subject matter for bargaining
negotiations between employer and employees. It is assuredly something that falls outside the
concept of "wage distortion." The Wage Orders and Article 124 as amended do not require the
establishment of new classifications or sub-classifications by the employer. The NLRC is not
authorized unilaterally to impose, directly or indirectly, under the guise of rectifying a "wage
distortion," upon an employer a new scheme of classification of employees where none has been
established either by management decision or by collective bargaining.

We conclude that petitioner NFL has not shown any grave abuse of discretion amounting to lack of
excess of jurisdiction on the part of the NLRC in rendering its decision (through its Fifth Division)
dated 16 December 1991.

WHEREFORE, the Petition for Certiorari is hereby DISMISSED for lack of merit. No pronouncement
as to costs.

SO ORDERED.

G.R. No. 128399 January 15, 1998

CAGAYAN SUGAR MILLING COMPANY, petitioner,


vs.
SECRETARY OF LABOR AND EMPLOYMENT, DIRECTOR RICARDO S. MARTINEZ, SR., and
CARSUMCO EMPLOYEES UNION, respondents.

PUNO, J.:

In this petition for certiorari, petitioner CAGAYAN SUGAR MILLING COMPANY (CARSUMCO)
impugns the October 8, 1996 Decision of the Secretary of Labor, dismissing its appeal and
upholding the Order of Regional Director Ricardo S. Martinez, Sr. finding petitioner guilty of violating
Regional Wage Order No. RO2-02.

The facts: On November 16, 1993, Regional Wage Order No. RO2-02 1 was issued by the Regional
Tripartite Wage and Productivity Board, Regional Office No. II of the Department of Labor and
Employment (DOLE). It provided, inter alia, that:

Sec. 1. Upon effectivity of this Wage Order, the statutory minimum wage rates
applicable to workers and employees in the private sector in Region II shall be
increased as follows:

xxx xxx xxx

1.2 P 14.00 per day . . . Cagayan

xxx xxx xxx

On September 12 and 13, 1994, labor inspectors from the DOLE Regional Office examined the
books of petitioner to determine its compliance with the wage order. They found that petitioner
violated the wage order as it did not implement an across the board increase in the salary of its
employees.
At the hearing at the DOLE Regional Office for the alleged violation, petitioner maintained that it
complied with Wage Order No. RO2-02 as it paid the mandated increase in the minimum wage.

In an Order dated December 16, 1994, public respondent Regional Director Ricardo S. Martinez, Sr.
ruled that petitioner violated Wage Order RO2-02 by failing to implement an across the board
increase in the salary of its employees. He ordered petitioner to pay the deficiency in the salary of its
employees in the total amount of P555,133.41.

On January 6, 1995, petitioner appealed to public respondent Labor Secretary Leonardo A.


Quisumbing. On the same date, the Regional Wage Board issued Wage Order No. RO2-02-
A, 2 amending the earlier wage order, thus:

Sec. 1. Section 1 of Wage Order No. RO2-02 shall now read as, "Upon effectivity of
this Wage Order, the workers and employees in the private sector in Region 2 shall
receive an across the board wage increase as follows:

xxx xxx xxx

1.2 P14.00 per day . . . Cagayan

xxx xxx xxx

Sec. 2. This amendment is curative in nature and shall retroact to the date of the
effectivity of Wage Order No. RO2-02.

On October 8, 1996, the Secretary of Labor dismissed petitioner's appeal and affirmed the Order of
Regional Director Martinez, Sr. Petitioner's motion for reconsideration was likewise denied. 3

On February 12, 1997, private respondent CARSUMCO EMPLOYEES UNION moved for execution
of the December 16, 1994 Order. Regional Director Martinet, Sr. granted the motion and issued the
writ of execution. On March 4, 1997, petitioner moved for reconsideration to set aside the writ of
execution. On March 5, the DOLE regional sheriff served on petitioner a notice of garnishment of its
account with the Far East Bank and Trust Company. On March 10, the sheriff seized petitioner's
dump truck and scheduled its public sale on March 20, 1997.

Hence, this petition, with a prayer for the issuance of a temporary restraining order (TRO).

On April 3, 1997, this Court issued a TRO enjoining respondents from enforcing the writ of
execution. 4 On July 16, upon petitioner's motion, we amended the TRO by also enjoining respondents
from enforcing the Decision of the Secretary of Labor and conducting further proceedings until further
orders from this Court. 5

In the case at bar, petitioner contends that:

I
WAGE ORDER RO2-02 IS NULL AND VOID FOR HAVING BEEN ISSUED IN
VIOLATION OF THE PROCEDURE PROVIDED BY LAW AND IN VIOLATION OF
PETITIONER'S RIGHT TO DUE PROCESS OF LAW.

II

WAGE ORDER NO. RO2-02 CLEARLY PROVIDED FOR THE FIXING OF A


STATUTORY MINIMUM WAGE RATE AND NOT AN ACROSS THE BOARD
INCREASE IN WAGES.

III

THE DECISION OF THE SECRETARY OF LABOR AND EMPLOYMENT IS NULL


AND VOID FOR LACK OF ANY LEGAL BASIS.

The petition has merit.

Wage Order No. RO2-02, passed on November 16, 1993, provided for an increase in the statutory
minimum wage rates for Region II. More than a year later, or on January 6, 1995, the Regional
Board passed Wage Order RO2-02-A amending the earlier wage order and providing instead for an
across the board increase in wages of employees in Region II, retroactive to the date of effectivity of
Wage Order RO2-02.

Petitioner assails the validity of Wage Order RO2-02-A on the ground that it was passed without the
required public consultation and newspaper publication. Thus, petitioner claims that public
respondent Labor Secretary Quisumbing abused his discretion in upholding the validity of said wage
order.

We agree.

Article 123 of the Labor Code provides:

Art. 123. Wage Order. Whenever conditions in the region so warrant, the Regional
Board shall investigate and study all pertinent facts, and, based on the standards and
criteria herein prescribed, shall proceed to determine whether a Wage Order should
be issued. Any such Wage Order shall take effect after (15) days from its complete
publication in at least one (1) newspaper of general circulation in the region.

In the performance of its wage-determining functions, the Regional Board shall


conduct public hearings/consultations giving notices to employees' and employers'
groups and other interested parties.

xxx xxx xxx

The record shows that there was no prior public consultation or hearings and newspaper publication
insofar as Wage Order No. RO2-02-A is concerned. In fact, these allegations were not denied by
public respondents in their Comment. Public respondents' position is that there was no need to
comply with the legal requirements of consultation and newspaper publication as Wage order No.
RO2-02-A merely clarified the ambiguous provision of the original wage order.

We are not persuaded.

To begin with, there was no ambiguity in the provision of Wage Order RO2-02 as it provided in clear
and categorical terms for an increase in statutory minimum wage of workers in the region. Hence,
the subsequent passage of RO2-02-A providing instead for an across the board increase in wages
did not clarify the earlier Order but amended the same. In truth, it changed the essence of the
original Order. In passing RO2-02-A without going through the process of public consultation and
hearings, the Regional Board deprived petitioner and other employers of due process as they were
not given the opportunity to ventilate their positions regarding the proposed wage increase. In wage-
fixing, factors such as fair return of capital invested, the need to induce industries to invest in the
countryside and the capacity of employers to pay are, among others, taken into
consideration. 6 Hence, our legislators provide for the creation of Regional Tripartite Boards composed of
representatives from the government, the workers and the employers to determine the appropriate wage
rates per region to ensure that all sides are heard. For the same reason, Article 123 of the Labor Code
also provides that in the performance of their wage-determining functions, the Regional Board shall
conduct public hearings and consultations, giving notices to interested parties. Moreover, it mandates that
the Wage Order shall take effect only after publication in a newspaper of general circulation in the region.
It is a fundamental rule, borne out of a sense of fairness, that the public is first notified of a law or wage
order-before it can be held liable for violation thereof. In the case at bar, it is indisputable that there was
no public consultation or hearing conducted prior to the passage of RO2-02-A. Neither was it published in
a newspaper of general circulation as attested in the February 3, 1995 minutes of the meeting of the
Regional Wage Board that the non-publication was by consensus of all the board members. 7 Hence,
RO2-02-A must be struck down for violation of Article 123 of the Labor Code.

Considering that RO2-02-A is invalid, the next issue to settle is whether petitioner could be held
liable under the original wage order, RO2-02.

Public respondents insist that despite the wording of Wage Order RO2-02 providing for a statutory
increase in minimum wage, the real intention of the Regional Board was to provide for an across the
board increase. Hence, they urge that petitioner is liable for merely providing an increase in the
statutory minimum wage rates of its employees.

The contention is absurd. Petitioner clearly complied with Wage Order RO2-02 which provided for an
increase in statutory minimum wage rates for employees in Region II. It is not just to expect
petitioner to interpret Wage RO2-02 to mean that it granted an across the board increase as such
interpretation is not sustained by its text. Indeed, the Regional Wage Board had to amend Wage
Order RO2-02 to clarify this alleged intent.

In sum, we hold that RO2-02-A is invalid for lack of public consultations and hearings and non-
publication in a newspaper of general circulation, in violation of Article 123 of the Labor Code. We
likewise find that public respondent Secretary of Labor committed grave abuse of discretion in
upholding the findings of Regional Director Ricardo S. Martinez, Sr. that petitioner violated Wage
Order RO2-02.

IN VIEW WHEREOF, the petition is GRANTED. The Decision of the Secretary of Labor, dated
October 8, 1996, is set aside for lack of merit.
SO ORDERED.

G.R. No. 120592 March 14, 1997

TRADERS ROYAL BANK EMPLOYEES UNION-INDEPENDENT, petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION and EMMANUEL NOEL A. CRUZ, respondents.

REGALADO, J.:

Petitioner Traders Royal Bank Employees Union and private respondent Atty. Emmanuel Noel A.
Cruz, head of the E.N.A. Cruz and Associates law firm, entered into a retainer agreement on
February 26, 1987 whereby the former obligated itself to pay the latter a monthly retainer fee of
P3,000.00 in consideration of the law firm's undertaking to render the services enumerated in their
contract. 1 Parenthetically, said retainer agreement was terminated by the union on April 4, 1990. 2

During the existence of that agreement, petitioner union referred to private respondent the claims of
its members for holiday, mid-year and year-end bonuses against their employer, Traders Royal Bank
(TRB). After the appropriate complaint was filed by private respondent, the case was certified by the
Secretary of Labor to the National Labor Relations Commission (NLRC) on March 24, 1987 and
docketed as NLRC-NCR Certified Case No. 0466. 3

On September 2, 1988, the NLRC rendered a decision in the foregoing case in favor of the
employees, awarding them holiday pay differential, mid-year bonus differential, and year-end bonus
differential. 4 The NLRC, acting on a motion for the issuance of a writ of execution filed by private
respondent as counsel for petitioner union, raffled the case to Labor Arbiter Oswald Lorenzo. 5

However, pending the hearing of the application for the writ of execution, TRB challenged the
decision of the NLRC before the Supreme Court. The Court, in its decision promulgated on August
30, 1990, 6 modified the decision of the NLRC by deleting the award of mid-year and year-end bonus
differentials while affirming the award of holiday pay differential. 7

The bank voluntarily complied with such final judgment and determined the holiday pay differential to
be in the amount of P175,794.32. Petitioner never contested the amount thus found by TRB. 8 The
latter duly paid its concerned employees their respective entitlement in said sum through their payroll. 9

After private respondent received the above decision of the Supreme Court on September 18,
1990, 10 he notified the petitioner union, the TRB management and the NLRC of his right to exercise and
enforce his attorney's lien over the award of holiday pay differential through a letter dated October 8,
1990. 11

Thereafter, on July 2, 1991, private respondent filed a motion before Labor Arbiter Lorenzo for the
determination of his attorney's fees, praying that ten percent (10%) of the total award for holiday pay
differential computed by TRB at P175,794.32, or the amount of P17,579.43, be declared as his
attorney's fees, and that petitioner union be ordered to pay and remit said amount to him. 12
The TRB management manifested before the labor arbiter that they did not wish to oppose or
comment on private respondent's motion as the claim was directed against the union, 13 while
petitioner union filed a comment and opposition to said motion on July 15, 1991. 14 After considering the
position of the parties, the labor arbiter issued an order 15 on November 26, 1991 granting the motion of
private respondent, as follows:

WHEREFORE, premises considered, it is hereby ordered that the TRADERS ROYAL


BANK EMPLOYEES UNION with offices at Kanlaon Towers, Roxas Boulevard is
hereby ordered (sic) to pay without delay the attorney's fees due the movant law firm,
E.N.A. CRUZ and ASSOCIATES the amount of P17,574.43 or ten (10%) per cent of
the P175,794.32 awarded by the Supreme Court to the members of the former.

This constrained petitioner to file an appeal with the NLRC on December 27, 1991, seeking a
reversal of that order. 16

On October 19, 1994, the First Division of the NLRC promulgated a resolution affirming the order of
the labor arbiter. 17 The motion for reconsideration filed by petitioner was denied by the NLRC in a
resolution dated May 23, 1995, 18hence the petition at bar.

Petitioner maintains that the NLRC committed grave abuse of discretion amounting to lack of
jurisdiction in upholding the award of attorney's fees in the amount of P17,574.43, or ten percent
(10%) of the P175,794.32 granted as holiday pay differential to its members, in violation of the
retainer agreement; and that the challenged resolution of the NLRC is null and void, 19 for the reasons
hereunder stated.

Although petitioner union concedes that the NLRC has jurisdiction to decide claims for attorney's
fees, it contends that the award for attorney's fees should have been incorporated in the main case
and not after the Supreme Court had already reviewed and passed upon the decision of the NLRC.
Since the claim for attorney's fees by private respondent was neither taken up nor approved by the
Supreme Court, no attorney's fees should have been allowed by the NLRC.

Thus, petitioner posits that the NLRC acted without jurisdiction in making the award of attorney's
fees, as said act constituted a modification of a final and executory judgment of the Supreme Court
which did not award attorney's fees. It then cited decisions of the Court declaring that a decision
which has become final and executory can no longer be altered or modified even by the court which
rendered the same.

On the other hand, private respondent maintains that his motion to determine attorney's fees was
just an incident of the main case where petitioner was awarded its money claims. The grant of
attorney's fees was the consequence of his exercise of his attorney's lien. Such lien resulted from
and corresponds to the services he rendered in the action wherein the favorable judgment was
obtained. To include the award of the attorney's fees in the main case presupposes that the fees will
be paid by TRB to the adverse party. All that the non-inclusion of attorney's fees in the award means
is that the Supreme Court did not order TRB to pay the opposing party attorney's fees in the concept
of damages. He is not therefore precluded from filing his motion to have his own professional fees
adjudicated.

In view of the substance of the arguments submitted by petitioner and private respondent on this
score, it appears necessary to explain and consequently clarify the nature of the attorney's fees
subject of this petition, in order to dissipate the apparent confusion between and the conflicting views
of the parties.

There are two commonly accepted concepts of attorney's fees, the so-called ordinary and
extraordinary. 20 In its ordinary concept, an attorney's fee is the reasonable compensation paid to a
lawyer by his client for the legal services he has rendered to the latter. The basis of this compensation is
the fact of his employment by and his agreement with the client.

In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to be
paid by the losing party in a litigation. The basis of this is any of the cases provided by law where
such award can be made, such as those authorized in Article 2208, Civil Code, and is payable not to
the lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as
additional compensation or as part thereof.

It is the first type of attorney's fees which private respondent demanded before the labor arbiter.
Also, the present controversy stems from petitioner's apparent misperception that the NLRC has
jurisdiction over claims for attorney's fees only before its judgment is reviewed and ruled upon by the
Supreme Court, and that thereafter the former may no longer entertain claims for attorney's fees.

It will be noted that no claim for attorney's fees was filed by private respondent before the NLRC
when it acted on the money claims of petitioner, nor before the Supreme Court when it reviewed the
decision of the NLRC. It was only after the High Tribunal modified the judgment of the NLRC
awarding the differentials that private respondent filed his claim before the NLRC for a percentage
thereof as attorney's fees.

It would obviously have been impossible, if not improper, for the NLRC in the first instance and for
the Supreme Court thereafter to make an award for attorney's fees when no claim therefor was
pending before them. Courts generally rule only on issues and claims presented to them for
adjudication. Accordingly, when the labor arbiter ordered the payment of attorney's fees, he did not in
any way modify the judgment of the Supreme Court.

As an adjunctive episode of the action for the recovery of bonus differentials in NLRC-NCR Certified
Case No. 0466, private respondent's present claim for attorney's fees may be filed before the NLRC
even though or, better stated, especially after its earlier decision had been reviewed and partially
affirmed. It is well settled that a claim for attorney's fees may be asserted either in the very action in
which the services of a lawyer had been rendered or in a separate action. 21

With respect to the first situation, the remedy for recovering attorney's fees as an incident of the
main action may be availed of only when something is due to the client. 22 Attorney's fees cannot be
determined until after the main litigation has been decided and the subject of the recovery is at the
disposition of the court. The issue over attorney's fees only arises when something has been recovered
from which the fee is to be paid. 23

While a claim for attorney's fees may be filed before the judgment is rendered, the determination as
to the propriety of the fees or as to the amount thereof will have to be held in abeyance until the
main case from which the lawyer's claim for attorney's fees may arise has become final. Otherwise,
the determination to be made by the courts will be premature. 24 Of course, a petition for attorney's
fees may be filed before the judgment in favor of the client is satisfied or the proceeds thereof delivered to
the client. 25
It is apparent from the foregoing discussion that a lawyer has two options as to when to file his claim
for professional fees. Hence, private respondent was well within his rights when he made his claim
and waited for the finality of the judgment for holiday pay differential, instead of filing it ahead of the
award's complete resolution. To declare that a lawyer may file a claim for fees in the same action
only before the judgment is reviewed by a higher tribunal would deprive him of his aforestated
options and render ineffective the foregoing pronouncements of this Court.

Assailing the rulings of the labor arbiter and the NLRC, petitioner union insists that it is not guilty of
unjust enrichment because all attorney's fees due to private respondent were covered by the retainer
fee of P3,000.00 which it has been regularly paying to private respondent under their retainer
agreement. To be entitled to the additional attorney's fees as provided in Part D (Special Billings) of
the agreement, it avers that there must be a separate mutual agreement between the union and the
law firm prior to the performance of the additional services by the latter. Since there was no
agreement as to the payment of the additional attorney's fees, then it is considered waived.

En contra, private respondent contends that a retainer fee is not the attorney's fees contemplated for
and commensurate to the services he rendered to petitioner. He asserts that although there was no
express agreement as to the amount of his fees for services rendered in the case for recovery of
differential pay, Article 111 of the Labor Code supplants this omission by providing for an award of
ten percent (10%) of a money judgment in a labor case as attorney's fees.

It is elementary that an attorney is entitled to have and receive a just and reasonable compensation
for services performed at the special instance and request of his client. As long as the lawyer was in
good faith and honestly trying to represent and serve the interests of the client, he should have a
reasonable compensation for such services. 26 It will thus be appropriate, at this juncture, to determine if
private respondent is entitled to an additional remuneration under the retainer agreement 27 entered into
by him and petitioner.

The parties subscribed therein to the following stipulations:

xxx xxx xxx

The Law Firm shall handle cases and extend legal services under the parameters of the following
terms and conditions:

A. GENERAL SERVICES

1. Assurance that an Associate of the Law Firm shall be designated and be available
on a day-to-day basis depending on the Union's needs;

2. Legal consultation, advice and render opinion on any actual and/or anticipatory
situation confronting any matter within the client's normal course of business;

3. Proper documentation and notarization of any or all transactions entered into by


the Union in its day-to-day course of business;

4. Review all contracts, deeds, agreements or any other legal document to which the
union is a party signatory thereto but prepared or caused to be prepared by any other
third party;
5. Represent the Union in any case wherein the Union is a party litigant in any court
of law or quasi-judicial body subject to certain fees as qualified hereinafter;

6. Lia(i)se with and/or follow-up any pending application or any papers with any
government agency and/or any private institution which is directly related to any legal
matter referred to the Law Firm.

B. SPECIAL LEGAL SERVICES

1. Documentation of any contract and other legal instrument/documents arising


and/or required by your Union which do not fall under the category of its ordinary
course of business activity but requires a special, exhaustive or detailed study and
preparation;

2. Conduct or undertake researches and/or studies on special projects of the Union;

3. Render active and actual participation or assistance in conference table


negotiations with TRB management or any other third person(s), juridical or natural,
wherein the presence of counsel is not for mere consultation except CBA
negotiations which shall be subject to a specific agreement (pursuant to PD 1391
and in relation to BP 130 & 227);

4. Preparation of Position Paper(s), Memoranda or any other pleading for and in


behalf of the Union;

5. Prosecution or defense of any case instituted by or against the Union; and,

6. Represent any member of the Union in any proceeding provided that the particular
member must give his/her assent and that prior consent be granted by the principal
officers. Further, the member must conform to the rules and policies of the Law Firm.

C. FEE STRUCTURE

In consideration of our commitment to render the services enumerated above when


required or necessary, your Union shall pay a monthly retainer fee of THREE
THOUSAND PESOS (PHP 3,000.00), payable in advance on or before the fifth day
of every month.

An Appearance Fee which shall be negotiable on a case-to-case basis.

Any and all Attorney's Fees collected from the adverse party by virtue of a successful
litigation shall belong exclusively to the Law Firm.

It is further understood that the foregoing shall be without prejudice to our claim for
reimbursement of all out-of-pocket expenses covering filing fees, transportation,
publication costs, expenses covering reproduction or authentication of documents
related to any matter referred to the Law Firm or that which redound to the benefit of
the Union.
D. SPECIAL BILLINGS

In the event that the Union avails of the services duly enumerated in Title B, the
Union shall pay the Law Firm an amount mutually agreed upon PRIOR to the
performance of such services. The sum agreed upon shall be based on actual time
and effort spent by the counsel in relation to the importance and magnitude of the
matter referred to by the Union. However, charges may be WAIVED by the Law Firm
if it finds that time and efforts expended on the particular services are
inconsequential but such right of waiver is duly reserved for the Law Firm.

xxx xxx xxx

The provisions of the above contract are clear and need no further interpretation; all that is required
to be done in the instant controversy is its application. The P3,000.00 which petitioner pays monthly
to private respondent does not cover the services the latter actually rendered before the labor arbiter
and the NLRC in behalf of the former. As stipulated in Part C of the agreement, the monthly fee is
intended merely as a consideration for the law firm's commitment to render the services enumerated
in Part A (General Services) and Part B (Special Legal Services) of the retainer agreement.

The difference between a compensation for a commitment to render legal services and a
remuneration for legal services actually rendered can better be appreciated with a discussion of the
two kinds of retainer fees a client may pay his lawyer. These are a general retainer, or a retaining
fee, and a special
retainer. 28

A general retainer, or retaining fee, is the fee paid to a lawyer to secure his future services as
general counsel for any ordinary legal problem that may arise in the routinary business of the client
and referred to him for legal action. The future services of the lawyer are secured and committed to
the retaining client. For this, the client pays the lawyer a fixed retainer fee which could be monthly or
otherwise, depending upon their arrangement. The fees are paid whether or not there are cases
referred to the lawyer. The reason for the remuneration is that the lawyer is deprived of the
opportunity of rendering services for a fee to the opposing party or other parties. In fine, it is a
compensation for lost opportunities.

A special retainer is a fee for a specific case handled or special service rendered by the lawyer for a
client. A client may have several cases demanding special or individual attention. If for every case
there is a separate and independent contract for attorney's fees, each fee is considered a special
retainer.

As to the first kind of fee, the Court has had the occasion to expound on its concept in Hilado
vs. David 29 in this wise:

There is in legal practice what is called a "retaining fee," the purpose of which stems
from the realization that the attorney is disabled from acting as counsel for the other
side after he has given professional advice to the opposite party, even if he should
decline to perform the contemplated services on behalf of the latter. It is to prevent
undue hardship on the attorney resulting from the rigid observance of the rule that a
separate and independent fee for consultation and advice was conceived and
authorized. "A retaining fee is a preliminary fee given to an attorney or counsel to
insure and secure his future services, and induce him to act for the client. It is
intended to remunerate counsel for being deprived, by being retained by one party, of
the opportunity of rendering services to the other and of receiving pay from him,
and the payment of such fee, in the absence of an express understanding to the
contrary, is neither made nor received in payment of the services contemplated; its
payment has no relation to the obligation of the client to pay his attorney for the
services for which he has retained him to perform." (Emphasis supplied).

Evidently, the P3,000.00 monthly fee provided in the retainer agreement between the union and the
law firm refers to a general retainer, or a retaining fee, as said monthly fee covers only the law firm's
pledge, or as expressly stated therein, its "commitment to render the legal services enumerated."
The fee is not payment for private respondent's execution or performance of the services listed in the
contract, subject to some particular qualifications or permutations stated there.

Generally speaking, where the employment of an attorney is under an express valid contract fixing
the compensation for the attorney, such contract is conclusive as to the amount of
compensation. 30 We cannot, however, apply the foregoing rule in the instant petition and treat the fixed
fee of P3,000.00 as full and sufficient consideration for private respondent's services, as petitioner would
have it.

We have already shown that the P3,000.00 is independent and different from the compensation
which private respondent should receive in payment for his services. While petitioner and private
respondent were able to fix a fee for the latter's promise to extend services, they were not able to
come into agreement as to the law firm's actual performance of services in favor of the union.
Hence, the retainer agreement cannot control the measure of remuneration for private respondent's
services.

We, therefore, cannot favorably consider the suggestion of petitioner that private respondent had
already waived his right to charge additional fees because of their failure to come to an agreement
as to its payment.

Firstly, there is no showing that private respondent unequivocally opted to waive the additional
charges in consonance with Part D of the agreement. Secondly, the prompt actions taken by private
respondent, i.e., serving notice of charging lien and filing of motion to determine attorney's fees,
belie any intention on his part to renounce his right to compensation for prosecuting the labor case
instituted by the union. And, lastly, to adopt such theory of petitioner may frustrate private
respondent's right to attorney's fees, as the former may simply and unreasonably refuse to enter into
any special agreement with the latter and conveniently claim later that the law firm had relinquished
its right because of the absence of the same.

The fact that petitioner and private respondent failed to reach a meeting of the minds with regard to
the payment of professional fees for special services will not absolve the former of civil liability for
the corresponding remuneration therefor in favor of the latter.

Obligations do not emanate only from contracts. 31 One of the sources of extra-contractual obligations
found in our Civil Code is the quasi-contract premised on the Roman maxim that nemo cum alterius
detrimento locupletari protest. As embodied in our law, 32 certain lawful, voluntary and unilateral acts give
rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited
at the expense of another.
A quasi-contract between the parties in the case at bar arose from private respondent's lawful,
voluntary and unilateral prosecution of petitioner's cause without awaiting the latter's consent and
approval. Petitioner cannot deny that it did benefit from private respondent's efforts as the law firm
was able to obtain an award of holiday pay differential in favor of the union. It cannot even hide
behind the cloak of the monthly retainer of P3,000.00 paid to private respondent because, as
demonstrated earlier, private respondent's actual rendition of legal services is not compensable
merely by said amount.

Private respondent is entitled to an additional remuneration for pursuing legal action in the interest of
petitioner before the labor arbiter and the NLRC, on top of the P3,000.00 retainer fee he received
monthly from petitioner. The law firm's services are decidedly worth more than such basic fee in the
retainer agreement. Thus, in Part C thereof on "Fee Structure," it is even provided that all attorney's
fees collected from the adverse party by virtue of a successful litigation shall belong exclusively to
private respondent, aside from petitioner's liability for appearance fees and reimbursement of the
items of costs and expenses enumerated therein.

A quasi-contract is based on the presumed will or intent of the obligor dictated by equity and by the
principles of absolute justice. Some of these principles are: (1) It is presumed that a person agrees
to that which will benefit him; (2) Nobody wants to enrich himself unjustly at the expense of another;
and (3) We must do unto others what we want them to do unto us under the same circumstances. 33

As early as 1903, we allowed the payment of reasonable professional fees to an interpreter,


notwithstanding the lack of understanding with his client as to his remuneration, on the basis of
quasi-contract. 34 Hence, it is not necessary that the parties agree on a definite fee for the special
services rendered by private respondent in order that petitioner may be obligated to pay compensation to
the former. Equity and fair play dictate that petitioner should pay the same after it accepted, availed itself
of, and benefited from private respondent's services.

We are not unaware of the old ruling that a person who had no knowledge of, nor consented to, or
protested against the lawyer's representation may not be held liable for attorney's fees even though
he benefited from the lawyer's services. 35 But this doctrine may not be applied in the present case as
petitioner did not object to private respondent's appearance before the NLRC in the case for differentials.

Viewed from another aspect, since it is claimed that petitioner obtained respondent's legal services
and assistance regarding its claims against the bank, only they did not enter into a special contract
regarding the compensation therefor, there is at least the innominate contract of facio ut des (I do
that you may give). 36 This rule of law, likewise founded on the principle against unjust enrichment, would
also warrant payment for the services of private respondent which proved beneficial to petitioner's
members. In any case, whether there is an agreement or not, the courts can fix a reasonable
compensation which lawyers should receive for their professional services. 37 However, the value of
private respondent's legal services should not be established on the basis of Article 111 of the Labor Code
alone. Said article provides:

Art. 111. Attorney's fees. (a) In cases of unlawful withholding of wages the
culpable party may be assessed attorney's fees equivalent to ten percent of the
amount of the wages recovered.

xxx xxx xxx


The implementing provision 38 of the foregoing article further states:

Sec. 11. Attorney's fees. Attorney's fees in any judicial or administrative


proceedings for the recovery of wages shall not exceed 10% of the amount awarded.
The fees may be deducted from the total amount due the winning party.

In the first place, the fees mentioned here are the extraordinary attorney's fees recoverable as
indemnity for damages sustained by and payable to the prevailing part. In the second place, the ten
percent (10%) attorney's fees provided for in Article 111 of the Labor Code and Section 11, Rule VIII,
Book III of the Implementing Rules is the maximum of the award that may thus be granted. 39 Article
111 thus fixes only the limit on the amount of attorney's fees the victorious party may recover in any
judicial or administrative proceedings and it does not even prevent the NLRC from fixing an amount lower
than the ten percent (10%) ceiling prescribed by the article when circumstances warrant it. 40

The measure of compensation for private respondent's services as against his client should properly
be addressed by the rule of quantum meruit long adopted in this jurisdiction. Quantum meruit,
meaning "as much as he deserves," is used as the basis for determining the lawyer's professional
fees in the absence of a contract, 41but recoverable by him from his client.

Where a lawyer is employed without a price for his services being agreed upon, the courts shall fix
the amount on quantum meruit basis. In such a case, he would be entitled to receive what he merits
for his services. 42

It is essential for the proper operation of the principle that there is an acceptance of the benefits by
one sought to be charged for the services rendered under circumstances as reasonably to notify him
that the lawyer performing the task was expecting to be paid compensation therefor. The doctrine
of quantum meruit is a device to prevent undue enrichment based on the equitable postulate that it is
unjust for a person to retain benefit without paying for it. 43

Over the years and through numerous decisions, this Court has laid down guidelines in ascertaining
the real worth of a lawyer's services. These factors are now codified in Rule 20.01, Canon 20 of the
Code of Professional Responsibility and should be considered in fixing a reasonable compensation
for services rendered by a lawyer on the basis of quantum meruit. These are: (a) the time spent and
the extent of services rendered or required; (b) the novelty and difficulty of the questions involved;
(c) the importance of the subject matter; (d) the skill demanded; (e) the probability of losing other
employment as a result of acceptance of the proffered case; (f) the customary charges for similar
services and the schedule of fees of the IBP chapter to which the lawyer belongs; (g) the amount
involved in the controversy and the benefits resulting to the client from the services; (h) the
contingency or certainty of compensation; (i) the character of the employment, whether occasional or
established; and (j) the professional standing of the lawyer.

Here, then, is the flaw we find in the award for attorney's fees in favor of private respondent. Instead
of adopting the above guidelines, the labor arbiter forthwith but erroneously set the amount of
attorney's fees on the basis of Article 111 of the Labor Code. He completely relied on the operation
of Article 111 when he fixed the amount of attorney's fees at P17,574.43. 44 Observe the conclusion
stated in his order. 45

xxx xxx xxx


FIRST. Art. 111 of the Labor Code, as amended, clearly declares movant's right to a
ten (10%) per cent of the award due its client. In addition, this right to ten (10%) per
cent attorney's fees is supplemented by Sec. 111, Rule VIII, Book III of the Omnibus
Rules Implementing the Labor Code, as amended.

xxx xxx xxx

As already stated, Article 111 of the Labor Code regulates the amount recoverable as attorney's fees
in the nature of damages sustained by and awarded to the prevailing party. It may not be used
therefore, as the lone standard in fixing the exact amount payable to the lawyer by his client for
the legal services he rendered. Also, while it limits the maximum allowable amount of attorney's fees,
it does not direct the instantaneous and automatic award of attorney's fees in such maximum limit.

It, therefore, behooves the adjudicator in questions and circumstances similar to those in the case at
bar, involving a conflict between lawyer and client, to observe the above guidelines in cases calling
for the operation of the principles of quasi-contract and quantum meruit, and to conduct a hearing for
the proper determination of attorney's fees. The criteria found in the Code of Professional
Responsibility are to be considered, and not disregarded, in assessing the proper amount. Here, the
records do not reveal that the parties were duly heard by the labor arbiter on the matter and for the
resolution of private respondent's fees.

It is axiomatic that the reasonableness of attorney's fees is a question of fact. 46 Ordinarily, therefore,
we would have remanded this case for further reception of evidence as to the extent and value of the
services rendered by private respondent to petitioner. However, so as not to needlessly prolong the
resolution of a comparatively simple controversy, we deem it just and equitable to fix in the present
recourse a reasonable amount of attorney's fees in favor of private respondent. For that purpose, we
have duly taken into account the accepted guidelines therefor and so much of the pertinent data as are
extant in the records of this case which are assistive in that regard. On such premises and in the exercise
of our sound discretion, we hold that the amount of P10,000.00 is a reasonable and fair compensation for
the legal services rendered by private respondent to petitioner before the labor arbiter and the NLRC.

WHEREFORE, the impugned resolution of respondent National Labor Relations Commission


affirming the order of the labor arbiter is MODIFIED, and petitioner is hereby ORDERED to pay the
amount of TEN THOUSAND PESOS (P10,000.00) as attorney's fees to private respondent for the
latter's legal services rendered to the former.

SO ORDERED.

G.R. No. 124055 June 8, 2000

ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER, LORETO BALDEMOR, EDUARDO


BOLONIA, ROMEO E. BOLONIA, ANICETO CADESIM, JOEL CATAPANG, NESTOR DELA
CRUZ, EDUARDO DUNGO ESCARIO REY, ELIZALDE ESTASIO, CAROLINO M. FABIAN,
RENATO JANER, EMER B. LIQUIGAN, ALEJANDRO MABAWAD, FERNANDO M. MAGTIBAY,
DOMINADOR B. MALLILLIN, NOEL B. MANILA, VIRGILIO A. MANIO, ROMEO M. MENDOZA,
TIMOTEO NOTARION, FREDERICK RAMOS, JOSEPH REYES, JESSIE SEVILLA, NOEL STO.
DOMINGO, DODJIE TAJONERA, JOSELITO TIONLOC, ARNEL UMALI, MAURLIE C. VIBAR,
ROLANDO ZALDUA, RODOLFO TUAZON, TEODORO LUGADA, MAURING MANUEL,
MARCIANO VERGARA, JR., ARMANDO IBASCO, CAYETANO IBASCO, LEONILO MEDINA,
JOSELITO ODO, MELCHOR BUELA, GOMER GOMEZ, HENRY PONCE, RAMON ORTIZ, JR.,
ANTONIO MIJARES, JR., MARIO DIZER, REYNANTE PEJO, ARNALDO RAFAEL, NELSON
BERUELA, AUGUSTO RAMOS, RODOLFO VALENTIN, ANTONIO CACAM, VERNON
VELASQUEZ, NORMAN VALLO, ALEJANDRO ORTIZ, ROSANO VALLO, ANDREW ESPINOSA,
EDGAR CABARDO, FIDELES REYES, EDGARDO FRANCISCO, FERNANDO VILLARUEL,
LEOPOLDO OLEGARIO, OSCAR SORIANO, GARY RELOS, DANTE IRANZO, RONALDO
BACOLOR, RONALD ESGUERA, VICTOR ALVAREZ, JOSE MARCELO, DANTE ESTRELLADO,
MELQUIADES ANGELES, GREGORIO TALABONG, ALBERT BALAO, ALBERT CANLAS,
CAMILO VELASCO, PONTINO CHRISTOPHER, WELFREDO RAMOS, REYNALDO
RODRIGUEZ, RAZ GARIZALDE, MIGUEL TUAZON, ROBERTO SANTOS, AND RICARDO
MORTEL, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, CALIFORNIA MANUFACTURING CO. INC. AND
DONNA LOUISE ADVERTISING AND MARKETING ASSOCIATES
INCORPORATED, respondents.

DECISION

KAPUNAN, J.:

Before this Court is a petition for certiorari under Rule 65, which seeks to annul and set aside the
decision, promulgated on 10 May 1995, of the National Labor Relations Commission (NLRC). The
assailed decision reversed the decision of the Labor Arbiter, and ruled that the petitioners are
employees of Donna Louise Advertising and Marketing Associates, Inc. and ordered the
reinstatement of petitioners and the payment of backwages.

Private respondent California Marketing Co. Inc. (CMC) is a domestic corporation principally
engaged in the manufacturing of food products and distribution of such products to wholesalers and
retailers. Private respondent Donna Louise Advertising and Marketing Associates, Inc. (D.L. Admark)
is a duly registered promotional firm.

Petitioners worked as merchandisers for the products of CMC. Their services were terminated on 16
March 1992.

The parties presented conflicting versions of the facts.

Petitioners allege that they were employed by CMC as merchandisers. Among the tasks assigned to
them were the withdrawing of stocks from the warehouse, the fixing of prices, price-tagging,
displaying of merchandise, and the inventory of stocks. These were done under the control,
management and supervision of CMC. The materials and equipment necessary in the performance
of their job, such as price markers, gun taggers, toys, pentel pen, streamers and posters were
provided by CMC. Their salaries were being paid by CMC. According to petitioners, the hiring,
control and supervision of the workers and the payment of salaries, were all coursed by CMC
through its agent D.L. Admark in order for CMC to avoid its liability under the law.

On 7 February 1992, petitioners filed a case against CMC before the Labor Arbiter for the
regularization of their employment status. During the pendency of the case before the Labor Arbiter,
D.L. Admark sent to petitioners notice of termination of their employment effective 16 March 1992.
Hence, their complaint was amended so as to include illegal dismissal as cause of action.
Thereafter, twenty-seven more persons joined as complainants. CMC filed a motion to implead as
party-defendant D. L. Admark and at the same time the latter filed a motion to intervene. Both
motions were granted.

CMC, on the other hand, denied the existence of an employer-employee relationship between
petitioner and itself. Rather, CMC contended that it is D.L. Admark who is the employer of the
petitioners. While CMC is engaged in the manufacturing of food products and distribution of such to
wholesalers and retailers, it is not allowed by law to engage in retail or direct sales to end
consumers. It, however, hired independent job contractors such as D.L. Admark, to provide the
necessary promotional activities for its product lines.

For its part, D.L. Admark asserted that it is the employer of the petitioners. Its primary purpose is to
carry on the business of advertising, promotion and publicity, the sales and merchandising of goods
and services and conduct survey and opinion polls. As an independent contractor it serves several
clients among which include Purefoods, Corona Supply, Firstbrand, Splash Cosmetics and herein
private respondent California Marketing.

On 29 July 1994, the Labor Arbiter rendered a decision finding that petitioners are the employees of
CMC as they were engaged in activities that are necessary and desirable in the usual business or
trade of CMC.1 In justifying its ruling, the Labor Arbiter cited the case of Tabas vs. CMC which,
likewise, involved private respondent CMC. In the Tabas case, this Court ruled that therein petitioner
merchandisers were employees of CMC, to wit:

There is no doubt that in the case at bar, Livi performs "manpower services," meaning to say, it
contracts out labor in favor of clients. We hold that it is one not withstanding its vehement claims to
the contrary and not- withstanding its vehement claims to the contrary, and notwithstanding the
provision of the contract that it is "an independent contractor." The nature of ones business is not
determined by self-serving appellations one attaches thereto but by the tests provided by statute and
prevailing case law. The bare fact that Livi maintains a separate line of business does not extinguish
the equal fact that it has provided California with workers to pursue the latters own business. In this
connection, we do not agree that the petitioner has been made to perform activities "which are not
directly related to the general business of manufacturing," Californias purported "principal operation
activity. The petitioners had been charged with merchandising [sic] promotion or sale of the products
of [California] in the different sales outlets in Metro Manila including task and occational [sic] price
tagging," an activity that is doubtless, an integral part of the manufacturing business. It is not, then,
as if Livi had served as its (Californias) promotions or sales arm or agent, or otherwise rendered a
piece of work it (California) could not itself have done; Livi as a placement agency, had simply
supplied it with manpower necessary to carry out its (Californias) merchandising activities, using its
(Californias) premises and equipment.2

On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled that no employer-employee
relationship existed between the petitioners and CMC. It, likewise, held that D.L. Admark is a
legitimate independent contractor, hence, the employer of the petitioners. Finding no valid grounds
existed for the dismissal of the petitioners by D.L. Admark, it ordered their reinstatement. The
dispositive portion of the decision reads:

WHEREFORE, premises considered, the appealed judgment is modified. Intervenor DL ADMARK is


ordered to reinstate the eighty one (81) complainants mentioned in the appealed decision to their
former positions with backwages from March 16, 1992 until they are actually reinstated. The award
of attorneys fees equivalent to ten (10%) of the award is deleted for lack of basis. 3

Petitioners filed a motion for reconsideration but the same was denied by the NLRC for lack of
merit. 4

Hence, this petition.

In the main, the issue brought to fore is whether petitioners are employees of CMC or D.L. Admark.
In resolving this, it is necessary to determine whether D.L. Admark is a labor-only contractor or an
independent contractor.

Petitioners are of the position that D.L. Admark is a labor-only contractor and cites this Courts ruling
in the case of Tabas, which they claim is applicable to the case at bar for the following reasons:

1. The petitioners are merchandisers and the petitioners in the Tabas case are also
merchandisers who have the same nature of work.

2. The respondent in this case is California Manufacturing Co. Inc. while respondent in the
Tabas case is the same California Manufacturing Co. Inc.

3. The agency in the Tabas case is Livi Manpower Services. In this case, there are at least,
three (3) agencies namely: the same Livi Manpower Services; the Rank Manpower Services
and D.L. Admark whose participation is to give and pay the salaries of the petitioners and
that the money came from the respondent CMC as in the Tabas case. lawphi1

4. The supervision, management and/or control rest upon respondent California


Manufacturing Co. Inc. as found by the Honorable Labor Arbiter which is also, true in the
Tabas Case.5

We cannot sustain the petition.

Petitioners reliance on the Tabas case is misplaced. In said case, we ruled that therein contractor
Livi Manpower Services was a mere placement agency and had simply supplied herein petitioner
with the manpower necessary to carry out the companys merchandising activity. We, however,
further stated that :

It would have been different, we believe, had Livi been discretely a promotions firm, and that
California had hired it to perform the latters merchandising activities. For then, Livi would have been
truly the employer of its employees and California, its client. x x x.6

In other words, CMC can validly farm out its merchandising activities to a legitimate independent
contractor.

There is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or
places workers to perform a job, work or service for a principal. In labor-only contracting, the
following elements are present:
(a) The person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others; and

(b) The workers recruited and placed by such person are performing activities which are
directly related to the principal business of the employer. 7

In contrast, there is permissible job contracting when a principal agrees to put out or farm out with a
contractor or a subcontractor the performance or completion of a specific job, work or service within
a definite or predetermined period, regardless of whether such job or work or service is to be
performed or completed within or outside the premises of the principal. In this arrangement, the
following conditions must concur:

(a)....The contractor carries on a distinct and independent business and undertakes the
contract work on his 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 his work except as to the results thereof; and

(b)....The contractor has substantial capital or investment in the form of tools, equipment,
machineries (sic), work premises, and other materials which are necessary in the conduct of
his business.8

In the recent case of Alexander Vinoya vs. NLRC et al., 9 this Court ruled that in order to be
considered an independent contractor it is not enough to show substantial capitalization or
investment in the form of tools, equipment, machinery and work premises. In addition, the following
factors need be considered: (a) whether the contractor is carrying on an independent business; (b)
the nature and extent of the work; (c) the skill required; (d) the term and duration of the relationship;
(e) the right to assign the performance of specified pieces of work; (f) the control and supervision of
the workers; (g) the power of the employer with respect to the hiring, firing and payment of workers
of the contractor; (h) the control of the premises; (i) the duty to supply premises, tools, appliances,
materials, and labor; and (j) the mode, manner and terms of payment. 10

Based on the foregoing criterion, we find that D.L. Admark is a legitimate independent contractor.

Among the circumstances that tend to establish the status of D.L. Admark as a legitimate job
contractor are:

1) The SEC registration certificate of D.L. Admark states that it is a firm engaged in
promotional, advertising, marketing and merchandising activities.

2) The service contract between CMC and D.L. Admark clearly provides that the agreement
is for the supply of sales promoting merchandising services rather than one of manpower
placement.11

3) D.L. Admark was actually engaged in several activities, such as advertising, publication,
promotions, marketing and merchandising. It had several merchandising contracts with
companies like Purefoods, Corona Supply, Nabisco Biscuits, and Licron. It was likewise
engaged in the publication business as evidenced by it magazine the "Phenomenon." 12
4) It had its own capital assets to carry out its promotion business. It then had current assets
amounting to P6 million and is therefore a highly capitalized venture. 13 It had an authorized
capital stock of P500,000.00. It owned several motor vehicles and other tools, materials and
equipment to service its clients. It paid rentals of P30,020 for the office space it occupied.

Moreover, by applying the four-fold test used in determining employer-employee relationship, the
status of D.L. Admark as the true employer of petitioners is further established. The elements of this
test are (1) the selection and engagement of employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employees conduct.14

As regards the first element, petitioners themselves admitted that they were selected and hired by
D.L. Admark.15

As to the second element, the NLRC noted that D.L. Admark was able to present in evidence the
payroll of petitioners, sample SSS contribution forms filed and submitted by D.L. Admark to the SSS,
and the application for employment by R. de los Reyes, all tending to show that D.L. Admark was
paying for the petitioners salaries. In contrast, petitioners did not submit an iota of evidence that it
was CMC who paid for their salaries. The fact that the agreement between CMC and D.L. Admark
contains the billing rate and cost breakdown of payment for core merchandisers and coordinators
does not in any way establish that it was CMC who was paying for their salaries. As correctly pointed
out by both CMC16 and the Office of the Solicitor General,17 such cost breakdown is a standard
content of service contracts designed to insure that under the contract, employees of the job
contractor will receive benefits mandated by law.

Neither did the petitioners prove the existence of the third element. Again petitioners admitted that it
was D.L. Admark who terminated their employment.18

To prove the fourth and most important element of control, petitioners presented the memoranda of
CMCs sales and promotions manager. The Labor Arbiter found that these memos "indubitably show
that the complainants were under the supervision and control of the CMC people." 19 However, as
correctly pointed out by the NLRC, a careful scrutiny of the documents adverted to, will reveal that
nothing therein would remotely suggest that CMC was supervising and controlling the work of the
petitioners:

x x x The memorandums (Exhibit "B") were addressed to the store or grocery owners telling them
about the forthcoming sales promotions of CMC products. While in one of the memorandums a
statement is made that "our merchandisers and demonstrators will be assigned to pack the premium
with your stocks in the shelves x x x, yet it does not necessarily mean to refer to the complainants,
as they claim, since CMC has also regular merchandisers and demonstrators. It would be different if
in the memorandums were sent or given to the complainants and their duties or roles in the said
sales campaign are therein defined. It is also noted that in one of the memorandums it was
addressed to: "All regular merchandisers/demonstrators." x x x we are not convinced that the
documents sufficiently prove employer-employee relationship between complainants and
respondents CMC.20

The Office of the Solicitor General, likewise, notes that the documents fail to show anything that
would remotely suggest control and supervision exercised by CMC over petitioners on the matter on
how they should perform their work. The memoranda were addressed either to the store owners or
"regular" merchandisers and demonstrators of CMC. Thus, petitioners, who filed a complaint for
regularization against respondent CMC, thereby, conceding that they are not regular employees of
the latter, cannot validly claim to be the ones referred to in said memos.21

Having proven the existence of an employer-employee relationship between D.L. Admark and
petitioners, it is no longer relevant to determine whether the activities performed by the latter are
necessary or desirable to the usual business or trade of CMC.

On the issue of illegal dismissal, we agree with the findings of the NLRC that D.L. Admark "admits
having dismissed the petitioners for allegedly disowning and rejecting them as their employer."
Undoubtedly, the reason given is not just cause to terminate petitioners. 22 D.L. Admarks belated
claim that the petitioners were not terminated but simply did not report to work 23 is not supported by
the evidence on record. Moreover, there is no showing that due process was afforded the
petitioners.

IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on the part of the National
Labor Relations Commission, the assailed decision is AFFIRMED in toto.

SO ORDERED.

G.R. No. 149011 June 28, 2005

SAN MIGUEL CORPORATION, petitioner


vs.
PROSPERO A. ABALLA, BONNY J. ABARING, EDWIN M. ADLA-ON, ALVIN C. ALCALDE,
CELANIO D. ARROLLADO, EDDIE A. ARROLLADO, REYNALDO T. ASONG, RENE A. ASPERA,
JOEL D. BALATERIA, JOSEPH D. BALATERIA, JOSE JOLLEN BALLADOS, WILFREDO B.
BASAS, EDWIN E. BEATINGO, SONNY V. BERONDO, CHRISTOPHER D. BRIONES, MARLON
D. BRIONES, JOEL C. BOOC, ENRIQUE CABALIDA, DIOSCORO R. CAHINOD, ERNESTO P.
CAHINOD, RENANTE S. CAHINOD, RUDERICK R. CALIXTON, RONILO C. CALVEZ, PANCHO
CAETE, JUNNY CASTEL, JUDY S. CELESTE, ROMEO CHUA, DANILO COBRA, ARMANDO C.
DEDOYCO, JOEY R. DELA CRUZ, JOHN D. DELFIN, RENELITO P. DEON, ARNEL C. DE
PEDRO, ORLANDO DERDER, CLIFFORD A. DESPI, RAMIE A. DESPI, SR., VICTOR A. DESPI,
ROLANDO L. DINGLE, ANTONIO D. DOLORFINO, LARRY DUMA-OP, NOEL DUMOL, CHITO L.
DUNGOG, RODERICK C. DUQUEZA, ROMMEL ESTREBOR, RIC E. GALPO, MANSUETO
GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ, ROBERTLY Y. HOFILEA, ROBERTO
HOFILEA, VICENTE INDENCIO, JONATHAN T. INVENTOR, PETER PAUL T. INVENTOR,
JOEBERT G. LAGARTO, RENATO LAMINA, ALVIN LAS POBRES, ALBERT LAS POBRES,
LEONARD LEMONCHITO, JERRY LIM, JOSE COLLY S. LUCERO, ROBERTO E. MARTIL,
HERNANDO MATILLANO, VICENTE M. MATILLANO, TANNY C. MENDOZA, WILLIAM P.
NAVARRO, WILSON P. NAVARRO, LEO A. OLVIDO, ROBERTO G. OTERO, BIENVENIDO C.
PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG, BERNIE O. PILLO, ALBERTO O.
PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON, RAUL A. RUBIO, HENRY S. SAMILLANO,
EDGAR SANTIAGO, ROLAND B. SANTILLANA, ROLDAN V. SAYAM, JOSEPH S. SAYSON,
RENE SUARNABA, ELMAR TABLIGAN, JERRY D. TALITE, OSCAR TALITE, WINIFREDO
TALITE, CAMILO N. TEMPOROSA, JOSE TEMPOROSA, RANDY TINGALA, TRISTAN A.
TINGSON, ROGELIO TOMESA, DIONISE A. TORMIS, ADELINO C. UNTAL, FELIX T. UNTAL,
RONILO E. VISTA, JOAN C. VIYO and JOSE JOFER C. VIYO and the COURT OF
APPEALS, respondents.
DECISION

CARPIO-MORALES, J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice President and Visayas
Area Manager for Aquaculture Operations Leopoldo S. Titular, and Sunflower Multi-Purpose
Cooperative (Sunflower), represented by the Chairman of its Board of Directors Roy G. Asong,
entered into a one-year Contract of Services1 commencing on January 1, 1993, to be renewed on a
month to month basis until terminated by either party. The pertinent provisions of the contract read:

1. The cooperative agrees and undertakes to perform and/or provide for the company, on a
non-exclusive basis for a period of one year the following services for the Bacolod Shrimp
Processing Plant:

A. Messengerial/Janitorial

B. Shrimp Harvesting/Receiving

C. Sanitation/Washing/Cold Storage2

2. To carry out the undertaking specified in the immediately preceding paragraph, the
cooperative shall employ the necessary personnel and provide adequate equipment,
materials, tools and apparatus, to efficiently, fully and speedily accomplish the work and
services undertaken by the cooperative. xxx

3. In consideration of the above undertaking the company expressly agrees to pay the
cooperative the following rates per activity:

A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen Thousand Five


Hundred Pesos Only (P19,500.00)

B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00 minimum per


person/activity whichever is higher, with provisions as follows:

P25.00 Fixed Fee per person

Additional meal allowance P15.00 every meal time in case harvest duration exceeds
one meal.

This will be pre-set every harvest based on harvest plan approved by the Senior
Buyer.

C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.

One-half of the payment for all services rendered shall be payable on the fifteenth
and the other half, on the end of each month. The cooperative shall pay taxes, fees,
dues and other impositions that shall become due as a result of this contract.
The cooperative shall have the entire charge, control and supervision of the work and
services herein agreed upon. xxx

4. There is no employer-employee relationship between the company and the cooperative, or


the cooperative and any of its members, or the company and any members of the
cooperative. The cooperative is an association of self-employed members, an independent
contractor, and an entrepreneur. It is subject to the control and direction of the company only
as to the result to be accomplished by the work or services herein specified, and not as to
the work herein contracted. The cooperative and its members recognize that it is taking a
business risk in accepting a fixed service fee to provide the services contracted for and its
realization of profit or loss from its undertaking, in relation to all its other undertakings, will
depend on how efficiently it deploys and fields its members and how they perform the work
and manage its operations.

5. The cooperative shall, whenever possible, maintain and keep under its control the
premises where the work under this contract shall be performed.

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

xxx

8. The cooperative undertakes to pay the wages or salaries of its member-workers, as well
as all benefits, premiums and protection in accordance with the provisions of the labor code,
cooperative code and other applicable laws and decrees and the rules and regulations
promulgated by competent authorities, assuming all responsibility therefor.

The cooperative further undertakes to submit to the company within the first ten (10) days of
every month, a statement made, signed and sworn to by its duly authorized representative
before a notary public or other officer authorized by law to administer oaths, to the effect that
the cooperative has paid all wages or salaries due to its employees or personnel for services
rendered by them during the month immediately preceding, including overtime, if any, and
that such payments were all in accordance with the requirements of law.

xxx

12. Unless sooner terminated for the reasons stated in paragraph 9 this contract shall be for
a period of one (1) year commencing on January 1, 1993. Thereafter, this Contract will be
deemed renewed on a month-to-month basis until terminated by either party by sending a
written notice to the other at least thirty (30) days prior to the intended date of termination.

xxx3 (Underscoring supplied)

Pursuant to the contract, Sunflower engaged private respondents to, as they did, render services at
SMCs Bacolod Shrimp Processing Plant at Sta. Fe, Bacolod City. The contract was deemed
renewed by the parties every month after its expiration on January 1, 1994 and private respondents
continued to perform their tasks until September 11, 1995.

In July 1995, private respondents filed a complaint before the NLRC, Regional Arbitration Branch
No. VI, Bacolod City, praying to be declared as regular employees of SMC, with claims for recovery
of all benefits and privileges enjoyed by SMC rank and file employees.

Private respondents subsequently filed on September 25, 1995 an Amended Complaint 4 to include
illegal dismissal as additional cause of action following SMCs closure of its Bacolod Shrimp
Processing Plant on September 15, 19955 which resulted in the termination of their services.

SMC filed a Motion for Leave to File Attached Third Party Complaint6 dated November 27, 1995 to
implead Sunflower as Third Party Defendant which was, by Order 7 of December 11, 1995, granted
by Labor Arbiter Ray Alan T. Drilon.

In the meantime, on September 30, 1996, SMC filed before the Regional Office at Iloilo City of the
Department of Labor and Employment (DOLE) a Notice of Closure 8 of its aquaculture operations
effective on even date, citing serious business losses.

By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private respondents complaint
for lack of merit, ratiocinating as follows:

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

xxx

Indeed, the law allows job contracting. Job contracting is permissible under the Labor Code under
specific conditions and we do not see how this activity could not be legally undertaken by an
independent service cooperative like the third-party respondent herein.

There is no basis to the demand for regularization simply on the theory that complainants performed
activities which are necessary and desirable in the business of respondent. It has been held that the
definition of regular employees as those who perform activities which are necessary and desirable
for the business of the employer is not always determinative because any agreement may provide
for one (1) party to render services for and in behalf of another for a consideration even without
being hired as an employee.
The charge of the complainants that third-party respondent is a mere labor-only contractor is a
sweeping generalization and completely unsubstantiated. xxx In the absence of clear and convincing
evidence showing that third-party respondent acted merely as a labor only contractor, we are firmly
convinced of the legitimacy and the integrity of its service contract with respondent SMC.

In the same vein, the closure of the Bacolod Shrimp Processing Plant was a management decision
purely dictated by economic factors which was (sic) mainly serious business losses. The law
recognizes the right of the employer to close his business or cease his operations for bonafide
reasons, as much as it recognizes the right of the employer to terminate the employment of any
employee due to closure or cessation of business operations, unless the closing is for the purpose of
circumventing the provisions of the law on security of tenure. The decision of respondent SMC to
close its Bacolod Shrimp Processing Plant, due to serious business losses which has (sic) clearly
been established, is a management prerogative which could hardly be interfered with.

xxx The closure did affect the regular employees and workers of the Bacolod Processing Plant, who
were accordingly terminated following the legal requisites prescribed by law. The closure, however,
in so far as the complainants are concerned, resulted in the termination of SMCs service contract
with their cooperative xxx9(Underscoring supplied)

Private respondents appealed to the NLRC.

By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of merit, it finding
that third party respondent Sunflower was an independent contractor in light of its observation that
"[i]n all the activities of private respondents, they were under the actual direction, control and
supervision of third party respondent Sunflower, as well as the payment of wages, and power of
dismissal."10

Private respondents Motion for Reconsideration11 having been denied by the NLRC for lack of merit
by Resolution of September 10, 1999, they filed a petition for certiorari12 before the Court of Appeals
(CA).

Before the CA, SMC filed a Motion to Dismiss13 private respondents petition for non-compliance with
the Rules on Civil Procedure and failure to show grave abuse of discretion on the part of the NLRC.

SMC subsequently filed its Comment14 to the petition on March 30, 2000.

By Decision of February 7, 2001, the appellate court reversed the NLRC decision and accordingly
found for private respondents, disposing as follows:

WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby RENDERED: (1)


REVERSING and SETTING ASIDE both the 29 December 1998 decision and 10 September 1999
resolution of the National Labor Relations Commission (NLRC), Fourth Division, Cebu City in NLRC
Case No. V-0361-97 as well as the 23 September 1997 decision of the labor arbiter in RAB Case
No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation, to GRANT
petitioners: (a) separation pay in accordance with the computation given to the regular SMC
employees working at its Bacolod Shrimp Processing Plant with full backwages, inclusive of
allowances and other benefits or their monetary equivalent, from 11 September 1995, the time their
actual compensation was withheld from them, up to the time of the finality of this decision;
(b) differentials pays (sic) effective as of and from the time petitioners acquired regular employment
status pursuant to the disquisition mentioned above, and all such other and further benefits as
provided by applicable collective bargaining agreement(s) or other relations, or by law, beginning
such time up to their termination from employment on 11 September 1995; and ORDERING private
respondent SMC to PAY unto the petitioners attorneys fees equivalent to ten (10%) percent of the
total award.

No pronouncement as to costs.

SO ORDERED.15 (Underscoring supplied)

Justifying its reversal of the findings of the labor arbiter and the NLRC, the appellate court reasoned:

Although the terms of the non-exclusive contract of service between SMC and [Sunflower] showed a
clear intent to abstain from establishing an employer-employee relationship between SMC and
[Sunflower] or the latters members, the extent to which the parties successfully realized this intent in
the light of the applicable law is the controlling factor in determining the real and actual
relationship between or among the parties.

xxx

With respect to the power to control petitioners conduct, it appears that petitioners were under the
direct control and supervision of SMC supervisors both as to the manner they performed their
functions and as to the end results thereof. It was only after petitioners lodged a complaint to have
their status declared as regular employees of SMC that certain members of [Sunflower] began to
countersign petitioners daily time records to make it appear that they (petitioners) were under the
control and supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx

Even without these instances indicative of control by SMC over the petitioners, it is safe to assume
that SMC would never have allowed the petitioners to work within its premises, using its own
facilities, equipment and tools, alongside SMC employees discharging similar or identical activities
unless it exercised a substantial degree of control and supervision over the petitioners not only as to
the manner they performed their functions but also as to the end results of such functions.

xxx

xxx it becomes apparent that [Sunflower] and the petitioners do not qualify as independent
contractors. [Sunflower] and the petitioners did not have substantial capital or investment in the form
of tools, equipment, implements, work premises, et cetera necessary to actually perform the service
under their own account, responsibility, and method. The only "work premises" maintained by
[Sunflower] was a small office within the confines of a small "carinderia" or refreshment parlor owned
by the mother of its chair, Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525-
525) and, the only assets it provided SMC were the bare bodies of its members, the petitioners
herein (rollo, p. 523).

In addition, as shown earlier, petitioners, who worked inside the premises of SMC, were under the
control and supervision of SMC both as to the manner and method in discharging their functions
and as to the results thereof.
Besides, it should be taken into account that the activities undertaken by the petitioners as cleaners,
janitors, messengers and shrimp harvesters, packers and handlers were directly related to the
aquaculture business of SMC (See Guarin vs. NLRC, 198 SCRA 267, 273). This is confirmed by
the renewal of the service contract from January 1993 to September 1995, a period of close to three
(3) years.

Moreover, the petitioners here numbering ninety seven (97), by itself, is a considerable workforce
and raises the suspicion that the non-exclusive service contract between SMC and [Sunflower] was
"designed to evade the obligations inherent in an employer-employee relationship" (See Rhone-
Poulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).

Equally suspicious is the fact that the notary public who signed the by-laws of [Sunflower]
and its [Sunflower] retained counsel are both partners of the local counsel of SMC (rollo, p. 9).

xxx

With these observations, no other logical conclusion can be reached except that [Sunflower] acted
as an agent of SMC, facilitating the manpower requirements of the latter, the real employer of the
petitioners. We simply cannot allow these two entities through the convenience of a non-exclusive
service contract to stipulate on the existence of employer-employee relation. Such existence is a
question of law which cannot be made the subject of agreement to the detriment of the petitioners
(Tabas vs. California Manufacturing, Inc., 169 SCRA 497, 500).

xxx

There being a finding of "labor-only" contracting, liability must be shouldered either by SMC or
[Sunflower] or shared by both (See Tabas vs. California Manufacturing, Inc., supra, p. 502). SMC
however should be held solely liable for [Sunflower] became non-existent with the closure of the
aquaculture business of SMC.

Furthermore, since the closure of the aquaculture operations of SMC appears to be valid,
reinstatement is no longer feasible. Consistent with the pronouncement in Bustamante, et al., vs.
NLRC, G.R. No. 111651, 28 November 1996, petitioners are thus entitled to separation pay (in the
computation similar to those given to regular SMC employees at its Bacolod Shrimp Processing
Plant) "with full backwages, inclusive of allowances and other benefits or their monetary equivalent,
from the time their actual compensation was withheld from them" up to the time of the finality of this
decision. This is without prejudice to differentials pays (sic) effective as of and from the time
petitioners acquired regular employment status pursuant to the discussion mentioned above, and all
such other and further benefits as provided by applicable collective bargaining agreement(s) or other
relations, or by law, beginning such time up to their termination from employment on 11 September
1995.16 (Emphasis and underscoring supplied)

SMCs Motion for Reconsideration17 having been denied for lack of merit by Resolution of July 11,
2001, it comes before this Court via the present petition for review on certiorari assigning to the CA
the following errors:

I
THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND GRANTING
RESPONDENTS PATENTLY DEFECTIVE PETITION FOR CERTIORARI. IN DOING SO, THE
COURT OF APPEALS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS.

II

THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE RESPONDENTS AS


COMPLAINANTS IN THE CASE BEFORE THE LABOR ARBITER. IN DOING SO, THE COURT OF
APPEALS DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT.

III

THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE


EMPLOYEES OF SMC.

IV

THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT RESPONDENTS ARE
NOT ENTITLED TO ANY RELIEF. THE CLOSURE OF THE BACOLOD SHRIMP PROCESSING
PLANT WAS DUE TO SERIOUS BUSINESS LOSSES.18 (Underscoring supplied)

SMC bewails the failure of the appellate court to outrightly dismiss the petition for certiorari as only
three out of the ninety seven named petitioners signed the verification and certification against
forum-shopping.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs
or petitioners in a case and the signature of only one of them is insufficient, 19 this Court has stressed
that the rules on forum shopping, which were designed to promote and facilitate the orderly
administration of justice, should not be interpreted with such absolute literalness as to subvert its
own ultimate and legitimate objective.20 Strict compliance with the provisions regarding the certificate
of non-forum shopping merely underscores its mandatory nature in that the certification cannot be
altogether dispensed with or its requirements completely disregarded. 21It does not, however, thereby
interdict substantial compliance with its provisions under justifiable circumstances. 22

Thus in the recent case of HLC Construction and Development Corporation v. Emily Homes
Subdivision Homeowners Association,23 this Court held:

Respondents (who were plaintiffs in the trial court) filed the complaint against petitioners as a group,
represented by their homeowners association president who was likewise one of the plaintiffs, Mr.
Samaon M. Buat. Respondents raised one cause of action which was the breach of contractual
obligations and payment of damages. They shared a common interest in the subject matter of the
case, being the aggrieved residents of the poorly constructed and developed Emily Homes
Subdivision. Due to the collective nature of the case, there was no doubt that Mr. Samaon M. Buat
could validly sign the certificate of non-forum shopping in behalf of all his co-plaintiffs. In cases
therefore where it is highly impractical to require all the plaintiffs to sign the certificate of non-forum
shopping, it is sufficient, in order not to defeat the ends of justice, for one of the plaintiffs, acting as
representative, to sign the certificate provided that xxx the plaintiffs share a common interest in
the subject matter of the case or filed the case as a "collective," raising only one common
cause of action or defense.24 (Emphasis and underscoring supplied)

Given the collective nature of the petition filed before the appellate court by herein private
respondents, raising one common cause of action against SMC, the execution by private
respondents Winifredo Talite, Renelito Deon and Jose Temporosa in behalf of all the other private
respondents of the certificate of non-forum shopping constitutes substantial compliance with the
Rules.25 That the three indeed represented their co-petitioners before the appellate court is, as it
correctly found, "subsequently proven to be true as shown by the signatures of the majority of the
petitioners appearing in their memorandum filed before Us."26

Additionally, the merits of the substantive aspects of the case may also be deemed as "special
circumstance" or "compelling reason" to take cognizance of a petition although the certification
against forum shopping was not executed and signed by all of the petitioners. 27

SMC goes on to argue that the petition filed before the CA is fatally defective as it was not
accompanied by "copies of all pleadings and documents relevant and pertinent thereto" in
contravention of Section 1, Rule 65 of the Rules of Court. 28

This Court is not persuaded. The records show that private respondents appended the following
documents to their petition before the appellate court: the September 23, 1997 Decision of the Labor
Arbiter,29 their Notice of Appeal with Appeal Memorandum dated October 16, 1997 filed before the
NLRC,30 the December 29, 1998 NLRC D E C I S I O N,31 their Motion for Reconsideration dated
March 26, 1999 filed with the NLRC32 and the September 10, 1999 NLRC Resolution.33

It bears stressing at any rate that it is the appellate court which ultimately determines if the
supporting documents are sufficient to make out a prima facie case.34 It discerns whether on the
basis of what have been submitted it could already judiciously determine the merits of the
petition.35 In the case at bar, the CA found that the petition was adequately supported by relevant and
pertinent documents.

At all events, this Court has allowed a liberal construction of the rule on the accomplishment of a
certificate of non-forum shopping in the following cases: (1) where a rigid application will result in
manifest failure or miscarriage of justice; (2) where the interest of substantial justice will be served;
(3) where the resolution of the motion is addressed solely to the sound and judicious discretion of
the court; and (4) where the injustice to the adverse party is not commensurate with the degree of
his thoughtlessness in not complying with the procedure prescribed. 36

Rules of procedure should indeed be viewed as mere tools designed to facilitate the attainment of
justice. Their strict and rigid application, which would result in technicalities that tend to frustrate
rather than promote substantial justice, must always be eschewed.37

SMC further argues that the appellate court exceeded its jurisdiction in reversing the decisions of the
labor arbiter and the NLRC as "findings of facts of quasi-judicial bodies like the NLRC are accorded
great respect and finality," and that this principle acquires greater weight and application in the case
at bar as the labor arbiter and the NLRC have the same factual findings.

The general rule, no doubt, is that findings of facts of an administrative agency which has acquired
expertise in the particular field of its endeavor are accorded great weight on appeal. 38 The rule is not
absolute and admits of certain well-recognized exceptions, however. Thus, when the findings of fact
of the labor arbiter and the NLRC are not supported by substantial evidence or their judgment was
based on a misapprehension of facts, the appellate court may make an independent evaluation of
the facts of the case.39

SMC further faults the appellate court in giving due course to private respondents petition despite
the fact that the complaint filed before the labor arbiter was signed and verified only by private
respondent Winifredo Talite; that private respondents position paper40 was verified by only six41 out of
the ninety seven complainants; and that their Joint-Affidavit42 was executed only by twelve43 of the
complainants.

Specifically with respect to the Joint-Affidavit of private respondents, SMC asserts that it should not
have been considered by the appellate court in establishing the claims of those who did not sign the
same, citing this Courts ruling in Southern Cotabato Development and Construction, Inc. v. NLRC.44

SMCs position does not lie.

A perusal of the complaint shows that the ninety seven complainants were being represented by
their counsel of choice. Thus the first sentence of their complaint alleges: "xxx complainants, by
counsel and unto this Honorable Office respectfully state xxx." And the complaint was signed by Atty.
Jose Max S. Ortiz as "counsel for the complainants." Following Section 6, Rule III of the 1990 Rules
of Procedure of the NLRC, now Section 7, Rule III of the 1999 NLRC Rules, Atty. Ortiz is presumed
to be properly authorized by private respondents in filing the complaint.

That the verification wherein it is manifested that private respondent Talite was one of the
complainants and was causing the preparation of the complaint "with the authority of my co-
complainants" indubitably shows that Talite was representing the rest of his co-complainants in
signing the verification in accordance with Section 7, Rule III of the 1990 NLRC Rules, now Section
8, Rule 3 of the 1999 NLRC Rules, which states:

Section 7. Authority to bind party. Attorneys and other representatives of parties shall have
authority to bind their clients in all matters of procedure; but they cannot, without a special power of
attorney or express consent, enter into a compromise agreement with the opposing party in full or
partial discharge of a clients claim. (Underscoring supplied)

As regards private respondents position paper which bore the signatures of only six of them,
appended to it was an Authority/Confirmation of Authority45 signed by the ninety one others
conferring authority to their counsel "to file RAB Case No. 06-07-10316-95, entitled Winifredo
Talite et al. v. San Miguel Corporation presently pending before the sala of Labor Arbiter Ray Alan
Drilon at the NLRC Regional Arbitration Branch No. VI in Bacolod City" and appointing him as their
retained counsel to represent them in the said case.

That there has been substantial compliance with the requirement on verification of position papers
under Section 3, Rule V of the 1990 NLRC Rules of Procedure46 is not difficult to appreciate in light
of the provision of Section 7, Rule V of the 1990 NLRC Rules, now Section 9, Rule V of the 1999
NLRC Rules which reads:

Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter shall be non-litigious in
nature. Subject to the requirements of due process, the technicalities of law and procedure and the
rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter may avail himself
of all reasonable means to ascertain the facts of the controversy speedily, including ocular inspection
and examination of well-informed persons. (underscoring supplied)

As regards private respondents Joint-Affidavit which is being assailed in view of the failure of some
complainants to affix their signatures thereon, this Court quotes with approval the appellate courts
ratiocinations:

A perusal of the Southern Cotabato Development Case would reveal that movant did not quote the
whole text of paragraph 5 on page 865 of 280 SCRA. The whole paragraph reads:

"Clearly then, as to those who opted to move for the dismissal of their complaints, or did not submit
their affidavits nor appear during trial and in whose favor no other independent evidence was
adduced, no award for back wages could have been validly and properly made for want of factual
basis. There is no showing at all that any of the affidavits of the thirty-four (34) complainants were
offered as evidence for those who did not submit their affidavits, or that such affidavits had any
bearing at all on the rights and interest of the latter. In the same vein, private respondents position
paper was not of any help to these delinquent complainants.

The implication is that as long as the affidavits of the complainants were offered as evidence
for those who did not submit theirs, or the affidavits were material and relevant to the rights
and interest of the latter, such affidavits may be sufficient to establish the claims of those
who did not give their affidavits.

Here, a reading of the joint affidavit signed by twelve (12) of the ninety-seven (97) complainants
(petitioners herein) would readily reveal that the affidavit was offered as evidence not only for the
signatories therein but for all of the complainants. (These ninety-seven (97) individuals were
previously identified during the mandatory conference as the only complainants in the proceedings
before the labor arbiter) Moreover, the affidavit touched on the common interest of all of the
complainants as it supported their claim of the existence of an employer-employee relationship
between them and respondent SMC. Thus, the said affidavit was enough to prove the claims of the
rest of the complainants.47 (Emphasis supplied, underscoring in the original)

In any event, SMC is reminded that the rules of evidence prevailing in courts of law or equity do not
control proceedings before the Labor Arbiter. So Article 221 of the Labor Code enjoins:

ART. 221. Technical rules not binding and prior resort to amicable settlement. In any
proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in
courts of law or equity shall not be controlling and it is the spirit and intention of this Code that the
Commission and its members and the Labor Arbiters shall use every and all reasonable means to
ascertain the facts in each case speedily and objectively and without regard to technicalities of law
or procedure, all in the interest of due process. xxx

As such, their application may be relaxed to serve the demands of substantial justice. 48

On the merits, the petition just the same fails.

SMC insists that private respondents are the employees of Sunflower, an independent contractor.
On the other hand, private respondents assert that Sunflower is a labor-only contractor.
Article 106 of the Labor Code provides:

ART. 106. Contractor or subcontracting. Whenever an employer enters into a contract with
another person for the performance of the formers work, the employees of the contractor and of the
latters subcontractor, if any shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work performed under the contract, in the same
manner and extent that he is liable to employees directly employed by him.

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

There is "labor-only" contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such person are performing activities which are
directly related to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed by him.

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18, distinguishes between legitimate and labor-only contracting:

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there


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

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

i) The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly
related to the main business of the principal, or

ii) The contractor does not exercise the right to control over the performance of the work of
the contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor
Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case
of corporations, tools, equipment, implements, machineries and work premises, actually and directly
used by the contractor or subcontractor in the performance or completion of the job, work or service
contracted out.

The "right to control" shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.

The test to determine the existence of independent contractorship is whether one claiming to be
an independent contractor has contracted to do the work according to his own methods and
without being subject to the control of the employer, except only as to the results of the
work.49

In legitimate labor contracting, the law creates an employer-employee relationship for a limited
purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes
jointly and severally liable with the job contractor, only for the payment of the employees wages
whenever the contractor fails to pay the same. Other than that, the principal employer is not
responsible for any claim made by the employees. 50

In labor-only contracting, the statute creates an employer-employee relationship for a


comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered
merely an agent of the principal employer and the latter is responsible to the employees of the labor-
only contractor as if such employees had been directly employed by the principal employer.51

The Contract of Services between SMC and Sunflower shows that the parties clearly disavowed the
existence of an employer-employee relationship between SMC and private respondents. The
language of a contract is not, however, determinative of the parties relationship; rather it is the
totality of the facts and surrounding circumstances of the case. 52 A party cannot dictate, by the mere
expedient of a unilateral declaration in a contract, the character of its business, i.e., whether as
labor-only contractor or job contractor, it being crucial that its character be measured in terms of and
determined by the criteria set by statute.53

SMC argues that Sunflower could not have been issued a certificate of registration as a cooperative
if it had no substantial capital.54

While indeed Sunflower was issued Certificate of Registration No. IL0-87555 on February 10, 1992 by
the Cooperative Development Authority, this merely shows that it had at least P2,000.00 in paid-up
share capital as mandated by Section 5 of Article 1456 of Republic Act No. 6938, otherwise known as
the Cooperative Code, which amount cannot be considered substantial capitalization.

What appears is that Sunflower does not have substantial capitalization or investment in the form of
tools, equipment, machineries, work premises and other materials to qualify it as an independent
contractor.
On the other hand, it is gathered that the lot, building, machineries and all other working tools utilized
by private respondents in carrying out their tasks were owned and provided by SMC. Consider the
following uncontroverted allegations of private respondents in the Joint Affidavit:

[Sunflower], during the existence of its service contract with respondent SMC, did not own a single
machinery, equipment, or working tool used in the processing plant. Everything was owned and
provided by respondent SMC. The lot, the building, and working facilities are owned by respondent
SMC. The machineries and equipments (sic) like washer machine, oven or cooking machine, sizer
machine, freezer, storage, and chilling tanks, push carts, hydrolic (sic) jack, tables, and chairs were
all owned by respondent SMC. All the boxes, trays, molding pan used in the processing are also
owned by respondent SMC. The gloves and boots used by the complainants were also owned by
respondent SMC. Even the mops, electric floor cleaners, brush, hoose (sic), soaps, floor waxes,
chlorine, liquid stain removers, lysol and the like used by the complainants assigned as cleaners
were all owned and provided by respondent SMC.

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

xxx

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

xxx In said . . . office, the only equipment used and owned by [Sunflower] was a typewriter. 57

And from the job description provided by SMC itself, the work assigned to private respondents
was directly related to the aquaculture operations of SMC. Undoubtedly, the nature of the work
performed by private respondents in shrimp harvesting, receiving and packing formed an integral
part of the shrimp processing operations of SMC. As for janitorial and messengerial services, that
they are considered directly related to the principal business of the employer 58 has been
jurisprudentially recognized.

Furthermore, Sunflower did not carry on an independent business or undertake the performance of
its service contract according to its own manner and method, free from the control and supervision of
its principal, SMC, its apparent role having been merely to recruit persons to work for SMC.

Thus, it is gathered from the evidence adduced by private respondents before the labor arbiter that
their daily time records were signed by SMC supervisors Ike Puentebella, Joemel Haro, Joemari
Raca, Erwin Tumonong, Edison Arguello, and Stephen Palabrica, which fact shows that SMC
exercised the power of control and supervision over its employees.59 And control of the premises in
which private respondents worked was by SMC. These tend to disprove the independence of the
contractor.60

More. Private respondents had been working in the aqua processing plant inside the SMC
compound alongside regular SMC shrimp processing workers performing identical jobs under the
same SMC supervisors.61 This circumstance is another indicium of the existence of a labor-only
contractorship.62
And as private respondents alleged in their Joint Affidavit which did not escape the observation of
the CA, no showing to the contrary having been proffered by SMC, Sunflower did not cater to clients
other than SMC,63 and with the closure of SMCs Bacolod Shrimp Processing Plant, Sunflower
likewise ceased to exist. This Courts ruling in San Miguel Corporation v. MAERC Integrated
Services, Inc.64 is thus instructive.

xxx Nor do we believe MAERC to have an independent business. Not only was it set up to
specifically meet the pressing needs of SMC which was then having labor problems in its
segregation division, none of its workers was also ever assigned to any other establishment, thus
convincing us that it was created solely to service the needs of SMC. Naturally, with the severance of
relationship between MAERC and SMC followed MAERCs cessation of operations, the loss of jobs
for the whole MAERC workforce and the resulting actions instituted by the workers. 65(Underscoring
supplied)

All the foregoing considerations affirm by more than substantial evidence the existence of an
employer-employee relationship between SMC and private respondents.

Since private respondents who were engaged in shrimp processing performed tasks usually
necessary or desirable in the aquaculture business of SMC, they should be deemed regular
employees of the latter66 and as such are entitled to all the benefits and rights appurtenant to regular
employment.67 They should thus be awarded differential pay corresponding to the difference between
the wages and benefits given them and those accorded SMCs other regular employees. 1awphi1.zw+

Respecting the private respondents who were tasked with janitorial and messengerial duties, this
Court quotes with approval the appellate courts ruling thereon:

Those performing janitorial and messengerial services however acquired regular status only after
rendering one-year service pursuant to Article 280 of the Labor Code. Although janitorial and
messengerial services are considered directly related to the aquaculture business of SMC, they are
deemed unnecessary in the conduct of its principal business; hence, the distinction (See Coca Cola
Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137 and Philippine Bank of Communications v.
NLRC, supra, p. 359).68

The law of course provides for two kinds of regular employees, namely: (1) those who are engaged
to perform activities which are usually necessary or desirable in the usual business or trade of the
employer; and (2) those who have rendered at least one year of service, whether continuous or
broken, with respect to the activity in which they are employed. 69

As for those of private respondents who were engaged in janitorial and messengerial tasks, they fall
under the second category and are thus entitled to differential pay and benefits extended to other
SMC regular employees from the day immediately following their first year of service. 70

Regarding the closure of SMCs aquaculture operations and the consequent termination of private
respondents, Article 283 of the Labor Code provides:

ART. 283. Closure of establishment and reduction of personnel. The employer may also
terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the provisions of
this Title, by serving a written notice on the workers and the Department of Labor and Employment
at least one (1) month before the intended date thereof. In case of termination due to the installation
of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation
pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of
service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half
(1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months
shall be considered one (1) whole year. (Underscoring supplied)

In the case at bar, a particular department under the SMC group of companies was closed allegedly
due to serious business reverses. This constitutes retrenchment by, and not closure of, the
enterprise or the company itself as SMC has not totally ceased operations but is still very much an
on-going and highly viable business concern.71

Retrenchment is a management prerogative consistently recognized and affirmed by this Court. It is,
however, subject to faithful compliance with the substantive and procedural requirements laid down
by law and jurisprudence.72

For retrenchment to be considered valid the following substantial requirements must be met: (a) the
losses expected should be substantial and not merely de minimis in extent; (b) the substantial losses
apprehended must be reasonably imminent such as can be perceived objectively and in good faith
by the employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent
the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent
losses sought to be forestalled, must be proved by sufficient and convincing evidence. 73

In the discharge of these requirements, it is the employer who has the onus, being in the nature of
an affirmative defense.74

Normally, the condition of business losses is shown by audited financial documents like yearly
balance sheets, profit and loss statements and annual income tax returns. The financial statements
must be prepared and signed by independent auditors failing which they can be assailed as self-
serving documents.75

In the case at bar, company losses were duly established by financial documents audited by Joaquin
Cunanan & Co. showing that the aquaculture operations of SMCs Agribusiness Division
accumulated losses amounting to P145,848,172.00 in 1992 resulting in the closure of its Calatrava
Aquaculture Center in Negros Occidental, P11,393,071.00 in 1993 and P80,325,608.00 in 1994
which led to the closure of its San Fernando Shrimp Processing Plant in Pampanga and the Bacolod
Shrimp Processing Plant in 1995.

SMC has thus proven substantial business reverses justifying retrenchment of its employees.

For termination due to retrenchment to be valid, however, the law requires that written notices of the
intended retrenchment be served by the employer on the worker and on the DOLE at least one (1)
month before the actual date of the retrenchment, 76 in order to give employees some time to prepare
for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of
the alleged cause of termination.77
Private respondents, however, were merely verbally informed on September 10, 1995 by SMC
Prawn Manager Ponciano Capay that effective the following day or on September 11, 1995, they
were no longer to report for work as SMC would be closing its operations. 78

Where the dismissal is based on an authorized cause under Article 283 of the Labor Code but the
employer failed to comply with the notice requirement, the sanction should be stiff as the dismissal
process was initiated by the employers exercise of his management prerogative, as opposed to a
dismissal based on a just cause under Article 282 with the same procedural infirmity where the
sanction to be imposed upon the employer should be tempered as the dismissal process was, in
effect, initiated by an act imputable to the employee.79

In light of the factual circumstances of the case at bar, this Court awards P50,000.00 to each private
respondent as nominal damages.

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


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

Considering that private respondents were not illegally dismissed, however, no backwages need be
awarded. It is well settled that backwages may be granted only when there is a finding of illegal
dismissal.80 The appellate court thus erred in awarding backwages to private respondents upon the
authority of Bustamante v. NLRC,81 what was involved in that case being one of illegal dismissal.

With respect to attorneys fees, in actions for recovery of wages or where an employee was forced to
litigate and thus incurred expenses to protect his rights and interests, 82 a maximum of ten percent
(10%) of the total monetary award83 by way of attorneys fees is justifiable under Article 111 of the
Labor Code,84 Section 8, Rule VIII, Book III of its Implementing Rules,85 and paragraph 7, Article
2208 of the Civil Code.86 Although an express finding of facts and law is still necessary to prove the
merit of the award, there need not be any showing that the employer acted maliciously or in bad faith
when it withheld the wages. There need only be a showing that the lawful wages were not paid
accordingly, as in this case.87

Absent any evidence showing that Sunflower has been dissolved in accordance with law, pursuant
to Rule VIII-A, Section 1988 of the Omnibus Rules Implementing the Labor Code, Sunflower is held
solidarily liable with SMC for all the rightful claims of private respondents.

WHEREFORE, the petition is DENIED. The assailed Decision dated February 7, 2001 and
Resolution dated July 11, 2001 of the Court of Appeals are AFFIRMED with MODIFICATION.

Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative are hereby ORDERED
to jointly and severally pay each private respondent differential pay from the time they became
regular employees up to the date of their termination; separation pay equivalent to at least one (1)
month pay or to at least one-half month pay for every year of service, whichever is higher, as
mandated by Article 283 of the Labor Code or the separation pay awarded by SMC to other regular
SMC employees that were terminated as a result of the retrenchment, depending on which is most
beneficial to private respondents; and ten percent (10%) attorneys fees based on the herein
modified award.

Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount
of P50,000.00, representing nominal damages for non-compliance with statutory due process.

The award of backwages is DELETED.

SO ORDERED.