Sometime in 1992, the petitioner expressed to respondent Alvin
PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, SUPREME PACKAGING, INC. and ALVIN LEE,
Plant Manager, respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari of the
Resolution[1] dated December 15, 2000 of the Court of Appeals (CA)
reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485.
The assailed resolution reinstated the Decision dated July 10, 1998 of
the National Labor Relations Commission (NLRC), dismissing the
complaint for illegal dismissal filed by herein petitioner Pedro Chavez.
The said NLRC decision similarly reversed its earlier Decision dated
January 27, 1998 which, affirming that of the Labor Arbiter, ruled that
the petitioner had been illegally dismissed by respondents Supreme
Packaging, Inc. and Mr. Alvin Lee.
The case stemmed from the following facts:
The respondent company, Supreme Packaging, Inc., is in the
business of manufacturing cartons and other packaging materials for
export and distribution. It engaged the services of the petitioner,
Pedro Chavez, as truck driver on October 25, 1984. As such, the
petitioner was tasked to deliver the respondent companys products
from its factory in Mariveles, Bataan, to its various customers, mostly
in Metro Manila. The respondent company furnished the petitioner
with a truck. Most of the petitioners delivery trips were made at
nighttime, commencing at 6:00 p.m. from Mariveles, and returning
thereto in the afternoon two or three days after. The deliveries were
made in accordance with the routing slips issued by respondent
company indicating the order, time and urgency of delivery. Initially,
the petitioner was paid the sum of P350.00 per trip. This was later
adjusted to P480.00 per trip and, at the time of his alleged dismissal,
the petitioner was receiving P900.00 per trip.
Lee, respondent companys plant manager, his (the petitioners) desire
to avail himself of the benefits that the regular employees were
receiving such as overtime pay, nightshift differential pay, and 13th
month pay, among others. Although he promised to extend these
benefits to the petitioner, respondent Lee failed to actually do so.
On February 20, 1995, the petitioner filed a complaint for
regularization with the Regional Arbitration Branch No. III of the NLRC
in San Fernando, Pampanga. Before the case could be heard,
respondent company terminated the services of the petitioner.
Consequently, on May 25, 1995, the petitioner filed an amended
complaint against the respondents for illegal dismissal, unfair labor
practice and non-payment of overtime pay, nightshift differential pay,
13th month pay, among others. The case was docketed as NLRC Case
No. RAB-III-02-6181-95.
The respondents, for their part, denied the existence of an
employer-employee relationship between the respondent company
and the petitioner. They averred that the petitioner was an
independent contractor as evidenced by the contract of service which
he and the respondent company entered into. The said contract
provided as follows:
That the Principal [referring to Supreme Packaging, Inc.], by these
presents, agrees to hire and the Contractor [referring to Pedro
Chavez], by nature of their specialized line or service jobs, accepts the
services to be rendered to the Principal, under the following terms
and covenants heretofore mentioned:
1. That the inland transport delivery/hauling activities to be
performed by the contractor to the principal, shall only
cover travel route from Mariveles to Metro Manila.
Otherwise, any change to this travel route shall be subject
to further agreement by the parties concerned.
1
2. That the payment to be made by the Principal for any
hauling or delivery transport services fully rendered by
the Contractor shall be on a per trip basis depending on
the size or classification of the truck being used in the
transport service, to wit:
a) If the hauling or delivery service shall require a truck of six
wheeler, the payment on a per trip basis from
Mariveles to Metro Manila shall be THREE HUNDRED
PESOS (P300.00) and EFFECTIVE December 15, 1984.
b) If the hauling or delivery service require a truck of ten
wheeler, the payment on a per trip basis, following the
same route mentioned, shall be THREE HUNDRED FIFTY
(P350.00) Pesos and Effective December 15, 1984.
3. That for the amount involved, the Contractor will be to
[sic] provide for [sic] at least two (2) helpers;
4. The Contractor shall exercise direct control and shall be
responsible to the Principal for the cost of any damage to,
loss of any goods, cargoes, finished products or the like,
while the same are in transit, or due to reckless [sic] of its
men utilized for the purpose above mentioned;
5. That the Contractor shall have absolute control and
disciplinary power over its men working for him subject to
this agreement, and that the Contractor shall hold the
Principal free and harmless from any liability or claim that
may arise by virtue of the Contractors non-compliance to
the existing provisions of the Minimum Wage Law, the
Employees Compensation Act, the Social Security System
Act, or any other such law or decree that may hereafter
be enacted, it being clearly understood that any truck
drivers, helpers or men working with and for the
Contractor, are not employees who will be indemnified by
the Principal for any such claim, including damages
incurred in connection therewith;
6. This contract shall take effect immediately upon the
signing by the parties, subject to renewal on a year-to-
year basis.[2]
This contract of service was dated December 12, 1984. It was
subsequently renewed twice, on July 10, 1989 and September 28,
1992. Except for the rates to be paid to the petitioner, the terms of
the contracts were substantially the same. The relationship of the
respondent company and the petitioner was allegedly governed by
this contract of service.
The respondents insisted that the petitioner had the sole control
over the means and methods by which his work was accomplished.
He paid the wages of his helpers and exercised control over them. As
such, the petitioner was not entitled to regularization because he was
not an employee of the respondent company. The respondents,
likewise, maintained that they did not dismiss the petitioner. Rather,
the severance of his contractual relation with the respondent
company was due to his violation of the terms and conditions of their
contract. The petitioner allegedly failed to observe the minimum
degree of diligence in the proper maintenance of the truck he was
using, thereby exposing respondent company to unnecessary
significant expenses of overhauling the said truck.
After the parties had filed their respective pleadings, the Labor
Arbiter rendered the Decision dated February 3, 1997, finding the
respondents guilty of illegal dismissal. The Labor Arbiter declared that
the petitioner was a regular employee of the respondent company as
he was performing a service that was necessary and desirable to the
latters business. Moreover, it was noted that the petitioner had
discharged his duties as truck driver for the respondent company for a
continuous and uninterrupted period of more than ten years.
The contract of service invoked by the respondents was declared
null and void as it constituted a circumvention of the constitutional
2
provision affording full protection to labor and security of tenure. The
Labor Arbiter found that the petitioners dismissal was anchored on his
insistent demand to be regularized. Hence, for lack of a valid and just
cause therefor and for their failure to observe the due process
requirements, the respondents were found guilty of illegal dismissal.
The dispositive portion of the Labor Arbiters decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby
rendered declaring respondent SUPREME PACKAGING, INC. and/or
MR. ALVIN LEE, Plant Manager, with business address at BEPZ,
Mariveles, Bataan guilty of illegal dismissal, ordering said respondent
to pay complainant his separation pay equivalent to one (1) month
pay per year of service based on the average monthly pay
of P10,800.00 in lieu of reinstatement as his reinstatement back to
work will not do any good between the parties as the employment
relationship has already become strained and full backwages from the
time his compensation was withheld on February 23, 1995 up to
January 31, 1997 (cut-off date) until compliance, otherwise, his
backwages shall continue to run. Also to pay complainant his 13th
month pay, night shift differential pay and service incentive leave pay
hereunder computed as follows:
a) Backwages .. P248,400.00
b) Separation Pay .... P140,400.00
c) 13th month pay .P 10,800.00
d) Service Incentive Leave Pay .. 2,040.00
TOTAL P401,640.00
Respondent is also ordered to pay ten (10%) of the amount due the
complainant as attorneys fees.
SO ORDERED.[3]
The respondents seasonably interposed an appeal with the NLRC.
However, the appeal was dismissed by the NLRC in its
Decision[4] dated January 27, 1998, as it affirmed in toto the decision
of the Labor Arbiter. In the said decision, the NLRC characterized the
contract of service between the respondent company and the
petitioner as a scheme that was resorted to by the respondents who,
taking advantage of the petitioners unfamiliarity with the English
language and/or legal niceties, wanted to evade the effects and
implications of his becoming a regularized employee.[5]
The respondents sought reconsideration of the January 27, 1998
Decision of the NLRC. Acting thereon, the NLRC rendered another
Decision[6] dated July 10, 1998, reversing its earlier decision and, this
time, holding that no employer-employee relationship existed
between the respondent company and the petitioner. In reconsidering
its earlier decision, the NLRC stated that the respondents did not
exercise control over the means and methods by which the petitioner
accomplished his delivery services. It upheld the validity of the
contract of service as it pointed out that said contract was silent as to
the time by which the petitioner was to make the deliveries and that
the petitioner could hire his own helpers whose wages would be paid
from his own account. These factors indicated that the petitioner was
an independent contractor, not an employee of the respondent
company.
The NLRC ruled that the contract of service was not intended to
circumvent Article 280 of the Labor Code on the regularization of
employees. Said contract, including the fixed period of employment
contained therein, having been knowingly and voluntarily entered into
by the parties thereto was declared valid citing Brent School, Inc. v.
Zamora.[7] The NLRC, thus, dismissed the petitioners complaint for
illegal dismissal.
The petitioner sought reconsideration of the July 10, 1998
Decision but it was denied by the NLRC in its Resolution dated
September 7, 1998. He then filed with this Court a petition for
certiorari, which was referred to the CA following the ruling in St.
Martin Funeral Home v. NLRC.[8]
3
 The appellate court rendered the Decision dated April 28, 2000,
reversing the July 10, 1998 Decision of the NLRC and reinstating the
decision of the Labor Arbiter. In the said decision, the CA ruled that
the petitioner was a regular employee of the respondent company
because as its truck driver, he performed a service that was
indispensable to the latters business. Further, he had been the
respondent companys truck driver for ten continuous years. The CA
also reasoned that the petitioner could not be considered an
independent contractor since he had no substantial capital in the form
of tools and machinery. In fact, the truck that he drove belonged to
the respondent company. The CA also observed that the routing slips
that the respondent company issued to the petitioner showed that it
exercised control over the latter. The routing slips indicated the
chronological order and priority of delivery, the urgency of certain
deliveries and the time when the goods were to be delivered to the
customers.
The CA, likewise, disbelieved the respondents claim that the
petitioner abandoned his job noting that he just filed a complaint for
regularization. This actuation of the petitioner negated the
respondents allegation that he abandoned his job. The CA held that
the respondents failed to discharge their burden to show that the
petitioners dismissal was for a valid and just cause. Accordingly, the
respondents were declared guilty of illegal dismissal and the decision
of the Labor Arbiter was reinstated.
In its April 28, 2000 Decision, the CA denounced the contract of
service between the respondent company and the petitioner in this
wise:
In summation, we rule that with the proliferation of contracts seeking
to prevent workers from attaining the status of regular employment, it
is but necessary for the courts to scrutinize with extreme caution their
legality and justness. Where from the circumstances it is apparent
that a contract has been entered into to preclude acquisition of
tenurial security by the employee, they should be struck down and
disregarded as contrary to public policy and morals. In this case, the
contract of service is just another attempt to exploit the unwitting
employee and deprive him of the protection of the Labor Code by
making it appear that the stipulations of the parties were governed by
the Civil Code as in ordinary transactions. [9]
However, on motion for reconsideration by the respondents, the
CA made a complete turn around as it rendered the assailed
Resolution dated December 15, 2000 upholding the contract of
service between the petitioner and the respondent company. In
reconsidering its decision, the CA explained that the extent of control
exercised by the respondents over the petitioner was only with
respect to the result but not to the means and methods used by him.
The CA cited the following circumstances: (1) the respondents had no
say on how the goods were to be delivered to the customers; (2) the
petitioner had the right to employ workers who would be under his
direct control; and (3) the petitioner had no working time.
The fact that the petitioner had been with the respondent
company for more than ten years was, according to the CA, of no
moment because his status was determined not by the length of
service but by the contract of service. This contract, not being
contrary to morals, good customs, public order or public policy, should
be given the force and effect of law as between the respondent
company and the petitioner. Consequently, the CA reinstated the July
10, 1998 Decision of the NLRC dismissing the petitioners complaint for
illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the
December 15, 2000 Resolution of the appellate court alleging that:
(A)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN GIVING
MORE CONSIDERATION TO THE CONTRACT OF SERVICE ENTERED
INTO BY PETITIONER AND PRIVATE RESPONDENT THAN ARTICLE
280 OF THE LABOR CODE OF THE PHILIPPINES WHICH
CATEGORICALLY DEFINES A REGULAR EMPLOYMENT
4
 NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE
CONTRARY AND REGARDLESS OF THE ORAL AGREEMENT OF THE
PARTIES;
(B)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN
REVERSING ITS OWN FINDINGS THAT PETITIONER IS A REGULAR
EMPLOYEE AND IN HOLDING THAT THERE EXISTED NO
EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PRIVATE
RESPONDENT AND PETITIONER IN AS MUCH AS THE CONTROL
TEST WHICH IS CONSIDERED THE MOST ESSENTIAL CRITERION IN
DETERMINING THE EXISTENCE OF SAID RELATIONSHIP IS NOT
PRESENT.[10]
The threshold issue that needs to be resolved is whether there
existed an employer-employee relationship between the respondent
company and the petitioner. We rule in the affirmative.
The elements to determine the existence of an employment
relationship are: (1) the selection and engagement of the employee;
(2) the payment of wages; (3) the power of dismissal; and (4) the
employers power to control the employees conduct. [11] The most
important element is the employers control of the employees
conduct, not only as to the result of the work to be done, but also as
to the means and methods to accomplish it.[12] All the four elements
are present in this case.
First. Undeniably, it was the respondents who engaged the
services of the petitioner without the intervention of a third party.
Second. Wages are defined as remuneration or earnings, however
designated, capable of being expressed in terms of money, whether
fixed or ascertained on a time, task, piece or commission basis, or
other method of calculating the same, which is payable by an
employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or
to be rendered.[13] That the petitioner was paid on a per trip basis is
not significant. This is merely a method of computing compensation
and not a basis for determining the existence or absence of employer-
employee relationship. One may be paid on the basis of results or
time expended on the work, and may or may not acquire an
employment status, depending on whether the elements of an
employer-employee relationship are present or not. [14] In this case, it
cannot be gainsaid that the petitioner received compensation from
the respondent company for the services that he rendered to the
latter.
Moreover, under the Rules Implementing the Labor Code, every
employer is required to pay his employees by means of payroll. [15] The
payroll should show, among other things, the employees rate of pay,
deductions made, and the amount actually paid to the employee.
Interestingly, the respondents did not present the payroll to support
their claim that the petitioner was not their employee, raising
speculations whether this omission proves that its presentation would
be adverse to their case.[16]
Third. The respondents power to dismiss the petitioner was
inherent in the fact that they engaged the services of the petitioner as
truck driver. They exercised this power by terminating the petitioners
services albeit in the guise of severance of contractual relation due
allegedly to the latters breach of his contractual obligation.
Fourth. As earlier opined, of the four elements of the employer-
employee relationship, the control test is the most important.
Compared to an employee, an independent contractor is one who
carries on a distinct and independent business and undertakes to
perform the job, work, or service on its own account and under its
own responsibility according to its own manner and method, free
from the control and direction of the principal in all matters
connected with the performance of the work except as to the results
thereof.[17] Hence, while an independent contractor enjoys
independence and freedom from the control and supervision of his
principal, an employee is subject to the employers power to control
5
the means and methods by which the employees work is to be
performed and accomplished.[18]
Although the respondents denied that they exercised control over
the manner and methods by which the petitioner accomplished his
work, a careful review of the records shows that the latter performed
his work as truck driver under the respondents supervision and
control. Their right of control was manifested by the following
attendant circumstances:
1. The truck driven by the petitioner belonged to respondent
company;
2. There was an express instruction from the respondents that the
truck shall be used exclusively to deliver respondent companys
goods; [19]
3. Respondents directed the petitioner, after completion of each
delivery, to park the truck in either of two specific places only, to wit:
at its office in Metro Manila at 2320 Osmea Street, Makati City or at
BEPZ, Mariveles, Bataan;[20] and
4. Respondents determined how, where and when the petitioner
would perform his task by issuing to him gate passes and routing
slips. [21]
a. The routing slips indicated on the column REMARKS, the
chronological order and priority of delivery such as 1st drop, 2nd drop,
3rd drop, etc. This meant that the petitioner had to deliver the same
according to the order of priority indicated therein.
b. The routing slips, likewise, showed whether the goods were to be
delivered urgently or not by the word RUSH printed thereon.
c. The routing slips also indicated the exact time as to when the goods
were to be delivered to the customers as, for example, the words
tomorrow morning was written on slip no. 2776.
These circumstances, to the Courts mind, prove that the
respondents exercised control over the means and methods by which
the petitioner accomplished his work as truck driver of the
respondent company. On the other hand, the Court is hard put to
believe the respondents allegation that the petitioner was an
independent contractor engaged in providing delivery or hauling
services when he did not even own the truck used for such services.
Evidently, he did not possess substantial capitalization or investment
in the form of tools, machinery and work premises. Moreover, the
petitioner performed the delivery services exclusively for the
respondent company for a continuous and uninterrupted period of
ten years.
The contract of service to the contrary notwithstanding, the
factual circumstances earlier discussed indubitably establish the
existence of an employer-employee relationship between the
respondent company and the petitioner. It bears stressing that the
existence of an employer-employee relationship cannot be negated by
expressly repudiating it in a contract and providing therein that the
employee is an independent contractor when, as in this case, the facts
clearly show otherwise. Indeed, the employment status of a person is
defined and prescribed by law and not by what the parties say it
should be.[22]
Having established that there existed an employer-employee
relationship between the respondent company and the petitioner, the
Court shall now determine whether the respondents validly dismissed
the petitioner.
As a rule, the employer bears the burden to prove that the
dismissal was for a valid and just cause. [23] In this case, the
respondents failed to prove any such cause for the petitioners
dismissal. They insinuated that the petitioner abandoned his job. To
6
constitute abandonment, these two factors must concur: (1) the
failure to report for work or absence without valid or justifiable
reason; and (2) a clear intention to sever employer-employee
relationship.[24] Obviously, the petitioner did not intend to sever his
relationship with the respondent company for at the time that he
allegedly abandoned his job, the petitioner just filed a complaint for
regularization, which was forthwith amended to one for illegal
dismissal. A charge of abandonment is totally inconsistent with the
immediate filing of a complaint for illegal dismissal, more so when it
includes a prayer for reinstatement.[25]
Neither can the respondents claim that the petitioner was guilty
of gross negligence in the proper maintenance of the truck constitute
a valid and just cause for his dismissal. Gross negligence implies a
want or absence of or failure to exercise slight care or diligence, or the
entire absence of care. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them. [26] The
negligence, to warrant removal from service, should not merely
be gross but also habitual.[27] The single and isolated act of the
petitioners negligence in the proper maintenance of the truck alleged
by the respondents does not amount to gross and habitual neglect
warranting his dismissal.
The Court agrees with the following findings and conclusion of
the Labor Arbiter:
As against the gratuitous allegation of the respondent that
complainant was not dismissed from the service but due to
complainants breach of their contractual relation, i.e., his violation of
the terms and conditions of the contract, we are very much inclined
to believe complainants story that his dismissal from the service was
anchored on his insistent demand that he be considered a regular
employee. Because complainant in his right senses will not just
abandon for that reason alone his work especially so that it is only his
job where he depends chiefly his existence and support for his family
if he was not aggrieved by the respondent when he was told that his
services as driver will be terminated on February 23, 1995. [28]
Thus, the lack of a valid and just cause in terminating the services
of the petitioner renders his dismissal illegal. Under Article 279 of the
Labor Code, an employee who is unjustly dismissed is entitled to
reinstatement, without loss of seniority rights and other privileges,
and to the payment of full backwages, inclusive of allowances, and
other benefits or their monetary equivalent, computed from the time
his compensation was withheld from him up to the time of his actual
reinstatement.[29] However, as found by the Labor Arbiter, the
circumstances obtaining in this case do not warrant the petitioners
reinstatement. A more equitable disposition, as held by the Labor
Arbiter, would be an award of separation pay equivalent to one month
for every year of service from the time of his illegal dismissal up to the
finality of this judgment in addition to his full backwages, allowances
and other benefits.
WHEREFORE, the instant petition is GRANTED. The Resolution
dated December 15, 2000 of the Court of Appeals reversing its
Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is REVERSED
and SET ASIDE. The Decision dated February 3, 1997 of the Labor
Arbiter in NLRC Case No. RAB-III-02-6181-5, finding the respondents
guilty of illegally terminating the employment of petitioner Pedro
Chavez, is REINSTATED.
[G.R. No. 138051. June 10, 2004]
JOSE Y. SONZA, petitioner, vs. ABS-CBN BROADCASTING
CORPORATION, respondent.
DECISION
CARPIO, J.:
7
 The Case
Before this Court is a petition for review on certiorari[1] assailing
the 26 March 1999 Decision[2] of the Court of Appeals in CA-G.R. SP
No. 49190 dismissing the petition filed by Jose Y. Sonza (SONZA). The
Court of Appeals affirmed the findings of the National Labor Relations
Commission (NLRC), which affirmed the Labor Arbiters dismissal of
the case for lack of jurisdiction.
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.
[4]
Manager
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, 13 th month
pay, signing bonus, travel allowance and amounts due under the
Employees Stock Option Plan (ESOP).
8
 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.
9
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
10
against respondent-appellee are not based on the Labor Code but same can be resolved by reference to civil law and not to labor
rather on the provisions of the May 1994 Agreement, while his claims law.Consequently, they are within the realm of civil law and, thus, lie
for proceeds under Stock Purchase Agreement are based on the with the regular courts. As held in the case of Dai-Chi Electronics
latter. A portion of the Position Paper of complainant-appellant bears Manufacturing vs. Villarama, 238 SCRA 267, 21 November 1994, an
perusal: action for breach of contractual obligation is intrinsically a civil
dispute.[9] (Emphasis supplied)
Under [the May 1994 Agreement] with respondent ABS-CBN, the
latter contractually bound itself to pay complainant a signing bonus The Court of Appeals ruled that the existence of an employer-
consisting of shares of stockswith FIVE HUNDRED THOUSAND PESOS employee relationship between SONZA and ABS-CBN is a factual
(P500,000.00). 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
Similarly, complainant is also entitled to be paid 13th month pay based excess of jurisdiction of the NLRC. [11] Such action cannot cover an
on an amount not lower than the amount he was receiving prior to inquiry into the correctness of the evaluation of the evidence which
effectivity of (the) Agreement. served as basis of the NLRCs conclusion. [12] The Court of Appeals
added that it could not re-examine the parties evidence and
Under paragraph 9 of (the May 1994 Agreement), complainant is substitute the factual findings of the NLRC with its own.[13]
entitled to a commutable travel benefit amounting to at least One
Hundred Fifty Thousand Pesos (P150,000.00) per year.
The Issue
Thus, it is precisely because of complainant-appellants own
recognition of the fact that his contractual relations with ABS-CBN are
In assailing the decision of the Court of Appeals, SONZA contends
founded on the New Civil Code, rather than the Labor Code, that
that:
instead of merely resigning from ABS-CBN, complainant-appellant
served upon the latter a notice of rescission of Agreement with the
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS
station, per his letter dated April 1, 1996, which asserted that instead
DECISION AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE
of referring to unpaid employee benefits, he is waiving and
RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE
renouncing recovery of the remaining amount stipulated in paragraph
WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO
7 of the Agreement but reserves the right to such recovery of the
SUPPORT SUCH A FINDING.[14]
other benefits under said Agreement. (Annex 3 of the respondent
ABS-CBNs Motion to Dismiss dated July 10, 1996).
The Courts Ruling
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 We affirm the assailed decision.
complaint.Complainant-appellants claims being anchored on the
alleged breach of contract on the part of respondent-appellee, the
11
 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
12
 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 13 th 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
13
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 x[28] (Emphasis
supplied)
Applying the control test to the present case, we find that SONZA
is not an employee but an independent contractor. The control test is
the most important test our courts apply in distinguishing an
employee from an independent contractor. [29] This test is based on the
extent of control the hirer exercises over a worker. The greater the
supervision and control the hirer exercises, the more likely the worker
is deemed an employee. The converse holds true as well the less
control the hirer exercises, the more likely the worker is considered an
independent contractor.[30]
First, SONZA contends that ABS-CBN exercised control over the
means and methods of his work.
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
14
to broadcast SONZAs show, ABS-CBN was still obligated to pay SONZAs
talent fees. Thus, even if ABS-CBN was completely dissatisfied with
the means and methods of SONZAs performance of his work, or even
with the quality or product of his work, ABS-CBN could not dismiss or
even discipline SONZA. All that ABS-CBN could do is not to broadcast
SONZAs show but ABS-CBN must still pay his talent fees in full.[35]
Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened
as it was by the obligation to continue paying in full SONZAs talent
fees, did not amount to control over the means and methods of the
performance of SONZAs work. ABS-CBN could not terminate or
discipline SONZA even if the means and methods of performance of
his work - how he delivered his lines and appeared on television - did
not meet ABS-CBNs approval. This proves that ABS-CBNs control was
limited only to the result of SONZAs work, whether to broadcast the
final product or not. In either case, ABS-CBN must still pay SONZAs
talent fees in full until the expiry of the Agreement.
In Vaughan, et al. v. Warner, et al.,[36] the United States Circuit
Court of Appeals ruled that vaudeville performers were independent
contractors although the management reserved the right to delete
objectionable features in their shows. Since the management did not
have control over the manner of performance of the skills of the
artists, it could only control the result of the work by deleting
objectionable features.[37]
SONZA further contends that ABS-CBN exercised control over his
work by supplying all equipment and crew. No doubt, ABS-CBN
supplied the equipment, crew and airtime needed to broadcast the
Mel & Jay programs. However, the equipment, crew and airtime are
not the tools and instrumentalities SONZA needed to perform his job.
What SONZA principally needed were his talent or skills and the
costumes necessary for his appearance. [38] Even though ABS-CBN
provided SONZA with the place of work and the necessary equipment,
SONZA was still an independent contractor since ABS-CBN did not
supervise and control his work. ABS-CBNs sole concern was for SONZA
to display his talent during the airing of the programs. [39]
A radio broadcast specialist who works under minimal
supervision is an independent contractor. [40] SONZAs work as
television and radio program host required special skills and talent,
which SONZA admittedly possesses. The records do not show that
ABS-CBN exercised any supervision and control over how SONZA
utilized his skills and talent in his shows.
Second, SONZA urges us to rule that he was ABS-CBNs employee
because 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
15
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
16
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.
17

Talents as Independent Contractors
ABS-CBN claims that there exists a prevailing practice in the
broadcast and entertainment industries to treat talents like SONZA as
independent contractors. SONZA argues that if such practice exists, it
is void for violating the right of labor to security of tenure.
The right of labor to security of tenure as guaranteed in the
Constitution[53] arises only if there is an employer-employee
relationship under labor laws. Not every performance of services for a
fee creates an employer-employee relationship. To hold that every
person who renders services to another for a fee is an employee - to
give meaning to the security of tenure clause - will lead to absurd
results.
Individuals with special skills, expertise or talent enjoy the
freedom to offer their services as independent contractors. The right
to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure
cannot operate to deprive an individual, possessed with special skills,
expertise and talent, of his right to contract as an independent
contractor. An individual like an artist or talent has a right to render
his services without any one controlling the means and methods by
which he performs his art or craft. This Court will not interpret the
right of labor to security of tenure to compel artists and talents to
render their services only as employees. If radio and television
program hosts can render their services only as employees, the
station owners and managers can dictate to the radio and television
hosts what they say in their shows.This is not conducive to freedom of
the press.
Different Tax Treatment of Talents and Broadcasters
The National Internal Revenue Code (NIRC)[54] in relation to
Republic Act No. 7716,[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,
th
13 month pay, separation pay, service incentive leave, signing bonus,
travel allowance, and amounts due under the Employee Stock Option
Plan. We agree with the findings of the Labor Arbiter and the Court of
Appeals that SONZAs claims are all based on the May 1994
Agreement and stock option plan, and not on the Labor
Code. Clearly, the present case does not call for an application of the
Labor Code provisions but an interpretation and implementation of
the May 1994 Agreement. In effect, SONZAs cause of action is for
breach of contract which is intrinsically a civil dispute cognizable by
the regular courts.[58]
WHEREFORE, we DENY the petition. The assailed Decision of the
Court of Appeals dated 26 March 1999 in CA-G.R. SP No. 49190 is
AFFIRMED. Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-
Santiago, and Azcuna, JJ., concur.
G.R. No. 195190 July 28, 2014
ROYALE HOMES MARKETING CORPORATION, Petitioner,
vs.
18
FIDEL P. ALCANTARA [deceased], substituted by his
heirs, Respondent.
DECISION
DEL CASTILLO, J.:
Not every form of control that a hiring party imposes on the hired
party is indicative of employee-employer relationship. Rules and
regulations that merely serve as guidelines towards the achievement
of a mutually desired result without dictating the means and methods
of accomplishing it do not establish employer-employee relationship. 1
This Petition for Review on Certiorari2 assails the June 23, 2010
Decision3 of the Court of Appeals (CA) in CA-G.R. SP No. 109998 which
(i) reversed and set aside the February 23, 2009 Decision 4 of the
National Labor Relations Commission (NLRC), (ii) ordered petitioner
Royale Homes Marketing Corporation (Royale Homes) to pay
respondent Fidel P. Alcantara (Alcantara) backwages and separation
pay, and (iii) remanded the case to the Labor Arbiter for the proper
determination and computation of said monetary awards.
Also assailed in this Petition isthe January 18, 2011 Resolution 5 of the
CA denying Royale Homes Motion for Reconsideration, 6 as well as its
Supplemental7 thereto.
Factual Antecedents
In 1994, Royale Homes, a corporation engaged in marketing real
estates, appointed Alcantara asits Marketing Director for a fixed
period of one year. His work consisted mainly of marketing Royale
Homes realestate inventories on an exclusive basis. Royale Homes
reappointed him for several consecutive years, the last of which
covered the period January 1 to December 31, 2003 where he held
the position of Division 5 Vice-President-Sales.8
Proceedings before the Labor Arbiter
On December 17, 2003, Alcantara filed a Complaint for Illegal
Dismissal9 against Royale Homes and its President Matilde Robles,
Executive Vice-President for Administration and Finance Ma. Melinda
Bernardino, and Executive Vice- President for Sales Carmina Sotto.
Alcantara alleged that he is a regular employee of Royale Homes since
he is performing tasks that are necessary and desirable to its business;
that in 2003 the company gave him 1.2 million for the services he
rendered to it; that in the first week of November 2003, however, the
executive officers of Royale Homes told him that they were wondering
why he still had the gall to come to office and sit at his table;10 and
that the actsof the executive officers of Royale Homes amounted to
his dismissal from work without any valid or just cause and in gross
disregard of the proper procedure for dismissing employees. Thus, he
alsoimpleaded the corporate officers who, he averred, effected his
dismissal in bad faith and in an oppressive manner.
Alcantara prayed to be reinstated tohis former position without loss of
seniority rights and other privileges, as well as to be paid backwages,
moral and exemplary damages, and attorneys fees. He further sought
that the ownership of the Mitsubishi Adventure with Plate No. WHD-
945 be transferred to his name.
Royale Homes, on the other hand, vehemently denied that Alcantara
is its employee. It argued that the appointment paper of Alcantara
isclear that it engaged his services as an independent sales
contractorfor a fixed term of one year only. He never received any
salary, 13th month pay, overtime pay or holiday pay from Royale
Homes as hewas paid purely on commission basis. In addition, Royale
Homes had no control on how Alcantara would accomplish his tasks
and responsibilities as he was free to solicit sales at any time and by
any manner which he may deem appropriateand necessary. He is
even free to recruit his own sales personnel to assist him in pursuance
of his sales target.
19
According to Royale Homes, Alcantara decided to leave the company
after his wife, who was once connectedwith it as a sales agent, had
formed a brokerage company that directly competed with its
business, and even recruited some of its sales agents. Although this
was against the exclusivity clause of the contract, Royale Homes still
offered to accept Alcantaras wife back so she could continue to
engage in real estate brokerage, albeit exclusively for Royale Homes.
In a special management committee meeting on October 8,2003,
however, Alcantara announced publicly and openly that he would
leave the company by the end of October 2003 and that he would no
longer finish the unexpired term of his contract. He has decided to
join his wifeand pursue their own brokerage business. Royale Homes
accepted Alcantaras decision. It then threw a despedidaparty in his
honor and, subsequently, appointed a new independent contractor.
Two months after herelinquished his post, however, Alcantara
appeared in Royale Homes and submitted a letter claiming that he
was illegally dismissed.
Ruling of the Labor Arbiter
On September 7, 2005,the Labor Arbiter rendered a Decision 11 holding
that Alcantara is an employee of Royale Homes with a fixed-term
employment period from January 1 to December 31, 2003 and that
the pre-termination of his contract was against the law.Hence,
Alcantara is entitled to an amount which he may have earned on the
average for the unexpired portion of the contract. With regard to the
impleaded corporate officers, the Labor Arbiter absolved them from
any liability.
The dispositive portion of the Labor Arbiters Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering the respondent Royale Homes Marketing Corp. to pay the
complainant the total amount of TWO HUNDRED SEVENTY SEVEN
THOUSAND PESOS (277,000.00) representing his
compensation/commission for the unexpired term of his contract.
All other claims are dismissed for lack of merit.
SO ORDERED.12
Both parties appealed the Labor Arbiters Decision to the NLRC.
Royale Homes claimed that the Labor Arbiter grievously erred inruling
that there exists an employer-employee relationship between the
parties. It insisted that the contract between them expressly
statesthat Alcantara is an independent contractor and not an ordinary
employee. Ithad no control over the means and methods by which he
performed his work. RoyaleHomes likewise assailed the award of
277,000.00 for lack of basis as it did not pre-terminate the contract.
It was Alcantara who chose not to finish the contract.
Alcantara, for his part, argued that the Labor Arbiter erred in ruling
that his employment was for a fixed-term and that he is not entitled
to backwages, reinstatement, unpaid commissions, and damages.
Ruling of the National LaborRelations Commission
On February 23, 2009, the NLRC rendered its Decision,13 ruling that
Alcantara is not an employee but a mere independent contractor of
Royale Homes. It based its ruling mainly on the contract which does
not require Alcantara to observe regular working hours. He was also
free to adopt the selling methods he deemed most effective and can
even recruit sales agents to assist him in marketing the inventories of
Royale Homes. The NLRC also considered the fact that Alcantara was
not receiving monthly salary, but was being paid on commission basis
as stipulated in the contract. Being an independent contractor, the
NLRC concluded that Alcantaras Complaint iscognizable by the regular
courts.
The falloof the NLRC Decision reads:
WHEREFORE, premises considered, the Decision of Labor Arbiter
Dolores Peralta-Beley dated September 5, 2005 is REVERSED and SET
20
ASIDE and a NEW ONE rendered dismissing the complaint for lack of
jurisdiction.
SO ORDERED.14
Alcantara moved for reconsideration.15 In a Resolution16 dated May 29,
2009, however, the NLRC denied his motion.
Alcantara thus filed a Petition for Certiorari17 with the CA imputing
grave abuse of discretion on the partof the NLRC in ruling that he is
not an employee of Royale Homes and that it is the regular courts
which have jurisdiction over the issue of whether the pre-termination
of the contract is valid.
Ruling of the Court of Appeals
On June 23, 2010, the CA promulgated its Decision18 granting
Alcantaras Petition and reversing the NLRCs Decision. Applying the
four-fold and economic reality tests, it held thatAlcantara is an
employee of Royale Homes. Royale Homes exercised some degree of
control over Alcantara since his job, as observed by the CA, is subject
to company rules, regulations, and periodic evaluations. He was also
bound by the company code of ethics. Moreover, the exclusivity
clause of the contract has made Alcantara economically dependent on
Royale Homes, supporting the theory that he is anemployee of said
company.
The CA further held that Alcantaras termination from employment
was without any valid or just cause, and it was carried out in violation
of his right to procedural due process. Thus, the CA ruled that he
isentitled to backwages and separation pay, in lieu of reinstatement.
Considering,however, that the CA was not satisfied with the
proofadduced to establish the amount of Alcantaras annual salary, it
remanded the caseto the Labor Arbiter to determine the same and
the monetary award he is entitled to. With regard to the corporate
officers, the CA absolved them from any liability for want of clear
proof that they assented to the patently unlawful acts or that they are
guilty of bad faith orgross negligence. Thus:
WHEREFORE, in view of the foregoing, the instant PETITION is
GRANTED. The assailed decision of the National Labor Relations
Commission in NLRC NCR CASE NO. 00-12-14311-03 NLRC CA NO.
046104-05 dated February 23, 2009 as well as the Resolution dated
May 29, 2009 are hereby SET ASIDE and a new one is entered
ordering the respondent company to pay petitioner backwages which
shall be computed from the time of his illegal termination in October
2003 up to the finality of this decision, plus separation pay equivalent
to one month salary for every year of service. This case is REMANDED
to the Labor Arbiter for the proper determination and computation of
back wages, separation pay and other monetary benefits that
petitioner is entitled to.
SO ORDERED.19
Royale Homes filed a Motion for Reconsideration20 and a
Supplemental Motion for Reconsideration.21 In a Resolution22 dated
January 18, 2011, however, the CA denied said motions.
Issues
Hence, this Petition where Royale Homes submits before this Court
the following issues for resolution:
A.
WHETHER THE COURT OF APPEALS HAS DECIDED THE INSTANT
CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS
OF THE SUPREME COURT WHEN IT REVERSED THE RULING OF
THE NLRC DISMISSING THE COMPLAINT OF RESPONDENT FOR
LACK OF JURISDICTION AND CONSEQUENTLY, IN FINDING THAT
RESPONDENT WAS ILLEGALLY DISMISSED[.]
21
 B.
WHETHER THE COURT OF APPEALS COMMITTED A SERIOUS
ERROR OF LAW IN DISREGARDING THE EN BANCRULING OF
THIS HONORABLE COURT IN THE CASEOF TONGKO VS.
MANULIFE, AND IN BRUSHING ASIDE THE APPLICABLE
RULINGS OF SONZA VS. ABS CBN AND CONSULTA V. CA[.]
C.
WHETHER THE COURT OF APPEALS COMMITTED A SERIOUS
ERROR OF LAW IN DENYING THE MOTION FOR
RECONSIDERATION OF PETITIONER AND IN REFUSING TO
CORRECT ITSELF[.]23
Royale Homes contends that its contract with Alcantara is clear and
unambiguous it engaged his services as an independent contractor.
This can be readily seen from the contract stating that no employer-
employee relationship exists between the parties; that Alcantara was
free to solicit sales at any time and by any manner he may deem
appropriate; that he may recruit sales personnel to assist him in
marketing Royale Homes inventories; and, thathis remunerations are
dependent on his sales performance.
Royale Homes likewise argues that the CA grievously erred in ruling
that it exercised control over Alcantara based on a shallow ground
that his performance is subject to company rules and regulations,
code of ethics, periodic evaluation, and exclusivity clause of contract.
RoyaleHomes maintains that it is expected to exercise some degree of
control over its independent contractors,but that does not
automatically result in the existence ofemployer-employee
relationship. For control to be consideredas a proof tending to
establish employer-employee relationship, the same mustpertain to
the means and method of performing the work; not on the
relationship of the independent contractors among themselves or
their persons or their source of living.
Royale Homes further asserts that it neither hired nor wielded the
power to dismiss Alcantara. It was Alcantara who openly and publicly
declared that he was pre-terminating his fixed-term contract.
The pivotal issue to be resolved in this case is whether Alcantara was
an independent contractor or anemployee of Royale Homes.
Our Ruling
The Petition is impressed with merit.
The determination of whether a party who renders services to
another is an employee or an independent contractor involves an
evaluation of factual matters which, ordinarily, is not within the
province of this Court. In view of the conflicting findings of the
tribunals below, however, this Court is constrained to go over the
factual matters involved in this case.24
The juridical relationship of the parties based on their written contract
The primary evidence of the nature of the parties relationship in this
case is the written contract that they signed and executed in
pursuanceof their mutual agreement. While the existence of
employer-employee relationship is a matter of law, the
characterization made by the parties in their contract as to the nature
of their juridical relationship cannot be simply ignored, particularly in
this case where the parties written contractunequivocally states their
intention at the time they entered into it. In Tongko v. The
Manufacturers LifeInsurance Co. (Phils.), Inc.,25 it was held that:
To be sure, the Agreements legal characterization of the nature of the
relationship cannot be conclusive and binding on the courts; x x x the
characterization of the juridical relationship the Agreement embodied
is a matter of law that is for the courts to determine. At the same
time, though, the characterization the parties gave to their
relationship in the Agreement cannot simply be brushed aside
22
because it embodiestheir intent at the time they entered the
Agreement, and they were governed by this understanding
throughout their relationship. At the very least, the provision on the
absence of employer- employee relationship between the parties can
be an aid in considering the Agreement and its implementation, and
in appreciating the other evidence on record.26
In this case, the contract,27 duly signed and not disputed by the
parties, conspicuously provides that "no employer-employee
relationship exists between" Royale Homes and Alcantara, as well as
his sales agents. It is clear that they did not want to be bound by
employer-employee relationship atthe time ofthe signing of the
contract. Thus:
January 24, 2003
MR. FIDEL P. ALCANTARA
13 Rancho I
Marikina City
Dear Mr. Alcantara,
This will confirm yourappointment as Division 5
VICE[-]PRESIDENTSALES of ROYALE HOMES MARKETING
CORPORATION effective January 1, 2003 to December 31, 2003.
Your appointment entails marketing our real estate inventories on an
EXCLUSIVE BASIS under such price, terms and condition to be
provided to you from time to time.
As such, you can solicit sales at any time and by any manner which
you deem appropriate and necessary to market our real estate
inventories subject to rules, regulations and code of ethics
promulgated by the company. Further, you are free to recruit sales
personnel/agents to assist you in marketing of our inventories
provided that your personnel/agents shall first attend the required
seminars and briefing to be conducted by us from time to time for the
purpose of familiarizing them of terms and conditionsof sale, the
natureof property sold, etc., attendance of which shall be a condition
precedent for their accreditation by us.
That as such Division 5 VICE[-]PRESIDENT-SALES you shall be entitled
to:
1. Commission override of 0.5% for all option sales beginning
January 1, 2003 booked by your sales agents.
2. Budget allocation depending on your divisions sale
performance as per our budget guidelines.
3. Sales incentive and other forms of company support which
may be granted from time to time. It is understood, however,
that no employer-employee relationship exists between us,
that of your sales personnel/agents, and that you shall hold
our company x x x, its officers and directors, free and harmless
from any and all claims of liability and damages arising from
and/or incident to the marketing of our real estate inventories.
We reserve, however, our right to terminate this agreement in case of
violation of any company rules and regulations, policies and code of
ethics upon notice for justifiable reason.
Your performance shall be subject toperiodic evaluation based on
factors which shall be determined by the management.
If you are amenable to the foregoing terms and conditions, please
indicate your conformity by signing on the space provided below and
return [to] us a duplicate copy of this letter, duly accomplished, to
constitute as our agreement on the matter.(Emphasis ours)
23
Since "the terms of the contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of
itsstipulations should control."28 No construction is even needed
asthey already expressly state their intention. Also, this Court adopts
the observation of the NLRC that it is rather strange on the part of
Alcantara, an educated man and a veteran sales broker who claimed
to be receiving 1.2 million as his annual salary, not to have contested
the portion of the contract expressly indicating that he is not an
employee of Royale Homes if their true intention were otherwise.
The juridical relationship of the parties based on Control Test
In determining the existence of an employer-employee relationship,
this Court has generally relied on the four-fold test, to wit: (1) the
selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the employers power to
control the employee with respect to the means and methods by
which the work is to be accomplished.29 Among the four, the most
determinative factor in ascertaining the existence of
employeremployee relationship is the "right of control test". 30 "It is
deemed to be such an important factor that the other requisites may
even be disregarded."31 This holds true where the issues to be
resolved iswhether a person who performs work for another is the
latters employee or is an independent contractor, 32 as in this case. For
where the person for whom the services are performed reserves the
right to control not only the end to beachieved, but also the means by
which such end is reached, employer-employee relationship is
deemed to exist.33
In concluding that Alcantara is an employee of RoyaleHomes, the CA
ratiocinated that since the performance of his tasks is subject to
company rules, regulations, code of ethics, and periodic evaluation,
the element of control is present.
The Court disagrees.
Not every form of control is indicative of employer-employee
relationship.1wphi1 A person who performs work for another and is
subjected to its rules, regulations, and code of ethics does not
necessarily become an employee.34 As long as the level of control
does not interfere with the means and methods of accomplishing the
assigned tasks, the rules imposed by the hiring party on the hired
party do not amount to the labor law concept of control that is
indicative of employer-employee relationship. In Insular Life
Assurance Co., Ltd. v. National Labor Relations Commission35 it was
pronounced 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 employeremployee relationship unlike
the second, which address both the result and the means used to
achieve it. x x x36
In this case, the Court agrees with Royale Homes that the rules,
regulations, code of ethics, and periodic evaluation alluded to
byAlcantara do not involve control over the means and methods by
which he was to performhis job. Understandably, Royale Homes has
to fix the price, impose requirements on prospective buyers, and lay
down the terms and conditionsof the sale, including the mode of
payment, which the independent contractors must follow. It is also
necessary for Royale Homes to allocateits inventories among its
independent contractors, determine who has priority in selling the
same, grant commission or allowance based on predetermined
criteria, and regularly monitor the result of their marketing and sales
efforts. But tothe mind of this Court, these do not pertain to the
means and methods of how Alcantara was to perform and accomplish
his task of soliciting sales. They do not dictate upon him the details of
how he would solicit sales or the manner as to how he would transact
business with prospective clients. In Tongko, this Court held that
24
guidelines or rules and regulations that do notpertain to the means or
methodsto be employed in attaining the result are not indicative of
control as understood inlabor law. Thus:
From jurisprudence, an important lesson that the first Insular Lifecase
teaches us is that a commitment to abide by the rules and regulations
of an insurance company does not ipso factomake the insurance
agent an employee. Neither do guidelines somehow restrictive of the
insurance agents conduct necessarily indicate "control" as this term is
defined in jurisprudence. Guidelines indicative of labor law "control,"
as the first Insular Lifecase tells us, should not merely relate to the
mutually desirable result intended by the contractual relationship;
they must have the nature of dictating the means or methods to
beemployed in attaining the result, or of fixing the methodology and
of binding or restricting the party hired to the use of these means.In
fact, results-wise, the principal can impose production quotas and can
determine how many agents, with specific territories, ought to be
employed to achieve the companys objectives. These are
management policy decisions that the labor law element of control
cannot reach. Our ruling in these respects in the first Insular Lifecase
was practically reiterated in Carungcong. Thus, as will be shown more
fully below, Manulifes codes of conduct, all of which do not intrude
into the insurance agents means and manner of conducting their
sales and only control them as to the desired results and Insurance
Code norms, cannot be used as basis for a finding that the labor law
concept of control existed between Manulife and Tongko. 37 (Emphases
in the original)
As the party claiming the existence of employer-employee
relationship, it behoved upon Alcantara to prove the elements
thereof, particularly Royale Homes power of control over the means
and methods of accomplishing the work.38 He, however, failed to cite
specificrules, regulations or codes of ethics that supposedly imposed
control on his means and methods of soliciting sales and dealing with
prospective clients. On the other hand, this case is replete with
instances that negate the element of control and the existence of
employer-employee relationship. Notably, Alcantara was not required
to observe definite working hours. 39 Except for soliciting sales,
RoyaleHomes did not assign other tasks to him. He had full control
over the means and methods of accomplishing his tasks as he can
"solicit sales at any time and by any manner which [he may] deem
appropriate and necessary." He performed his tasks on his own
account free from the control and direction of Royale Homes in all
matters connected therewith, except as to the results thereof.40
Neither does the repeated hiring of Alcantara prove the existence of
employer-employee relationship.41 As discussed above, the absence of
control over the means and methodsdisproves employer-employee
relationship. The continuous rehiring of Alcantara simply signifies the
renewal of his contract with Royale Homes, and highlights his
satisfactory services warranting the renewal of such contract. Nor
does the exclusivity clause of contract establish the existence of the
labor law concept of control. In Consulta v. Court of Appeals,42 it was
held that exclusivity of contract does not necessarily result in
employer-employee relationship, viz:
x x x However, the fact that the appointment required Consulta to
solicit business exclusively for Pamana did not mean that Pamana
exercised control over the means and methods of Consultas work as
the term control is understood in labor jurisprudence. Neither did it
make Consulta an employee of Pamana. Pamana did not prohibit
Consulta from engaging in any other business, or from being
connected with any other company, for aslong as the business [of the]
company did not compete with Pamanas business.43
The same scenario obtains in this case. Alcantara was not prohibited
from engaging in any other business as long as he does not sell
projects of Royale Homes competitors. He can engage in selling
various other products or engage in unrelated businesses.
Payment of Wages
25
The element of payment of wages is also absent in thiscase. As MADRID, ARIEL REYES, ALFREDO REYES, JAVIER
provided in the contract, Alcantaras remunerations consist only of TIMERESA, ARMANDO MACA, JR., ROLANDO
commission override of 0.5%, budget allocation, sales incentive and FALQUERA, JOSE BENITEZ, RODOLFO TIMERESA,
other forms of company support. There is no proof that he received ROLANDO LUCENA, NOEL SUBTINIENTE,
fixed monthly salary. No payslip or payroll was ever presented and GUILLERMA QUIMADO, BENIGNO REGALADO, Present:
there is no proof that Royale Homes deducted from his supposed RANDY DELA CRUZ, JUVY MACA, AMBROSIO
salary withholding tax or that it registered him with the Social Security CANARIA, JR., FELICIANO PAJARO, PETER BADIANA, YNARES-SANTIAGO, J.,
System, Philippine Health Insurance Corporation, or Pag-Ibig Fund. In DANILO JORDAN, DENNIS EDIESCA, JOGIL AVILA, Chairperson,
fact, his Complaint merely states a ballpark figure of his alleged salary ABRAHAM BURCE, ONOFRE VINAS, DENNIS CHICO-NAZARIO,
of 100,000.00, more or less. All of these indicate an independent VITARA, ARIEL GALUPO and ALBERT AUSTERO, VELASCO, JR.,
contractual relationship.44 Besides, if Alcantara indeed Petitioners, NACHURA, and
consideredhimself an employee of Royale Homes, then he, an PERALTA, JJ.
experienced and professional broker, would have complained that he - versus -
was being denied statutorily mandated benefits. But for nine
consecutive years, he kept mum about it, signifying that he has CREATIVE CREATURES, INC.,
agreed, consented, and accepted the fact that he is not entitled Respondent.
tothose employee benefits because he is an independent contractor.

This Court is, therefore,convinced that Alcantara is not an employee

of Royale Homes, but a mere independent contractor. The NLRC is,
therefore, correct in concluding that the Labor Arbiter has no Promulgated:
jurisdiction over the case and that the same is cognizable by the
regular courts. July 13, 2009

WHEREFORE, the instant Petition is hereby GRANTED. The June 23, x------------------------------------------------------------------------------------x
2010 Decision of the Court of Appeals in CA-G.R. SP No. 109998 is
REVERSED and SET ASIDE. The February 23, 2009 Decision of the
National Labor Relations Commission is REINSTATED and AFFIRMED.
SO ORDERED.

MARIANO C. DEL CASTILLO

AssociateJustice

VICTOR METEORO, REY CAGA, JIMMY CORONEL, G.R. No. 171275

COSME TAMOR, FELIXES LATONERO, ENRIQUE DECISION
SALAZAR, MAYLA LAQUI, ORLY BANUA, BERNARDO
26
 (NCR). Their complaints were consolidated and docketed as NCR00-
NACHURA, J.:
9902-IS-011.[5]
After the inspection conducted at respondents premises, the labor
inspector noted that the records were not made available at the time
Assailed in this petition for review on certiorari are the Court
of the inspection; that respondent claimed that petitioners were
of Appeals Decision[1] dated May 31, 2005 and Resolution [2] dated
contractual employees and/or independent talent workers; and that
January 27, 2006 in CA-G.R. SP No. 76942.
petitioners were required to punch their cards.[6]

The facts of the case are as follows:

In its position paper, respondent argued that the DOLE-NCR had no
jurisdiction over the complaint of the petitioners because of the
Respondent is a domestic corporation engaged in the business of
absence of an employer-employee relationship. It added that
producing, providing, or procuring the production of set designs and
petitioners were free-lance individuals, performing special services
set construction services for television exhibitions, concerts, theatrical
with skills and expertise inherently exclusive to them like actors,
performances, motion pictures and the like. It primarily caters to the
actresses, directors, producers, and script writers, such that they were
production design requirements of ABS-CBN Broadcasting Corporation
treated as special types of workers.[7]
in Metro Manila and nationwide. [3] On the other hand, petitioners
were hired by respondent on various dates as artists, carpenters and
Petitioners, on the other hand, averred that they were
welders. They were tasked to design, create, assemble, set-up and
employees of respondent, as the elements of an employer-employee
dismantle props, and provide sound effects to respondents various TV
relationship existed.
programs and movies.[4]
Meanwhile, on April 12, 1999, petitioners filed a complaint for illegal
dismissal against petitioner, with prayer for payment of overtime pay,
Sometime in February and March 1999, petitioners filed their
premium pay for holiday and rest day, holiday pay, service incentive
respective complaints for non-payment of night shift differential pay,
leave pay, 13th month pay and attorneys fees before the National
overtime pay, holiday pay, 13thmonth pay, premium pay for Sundays
Labor Relations Commission (NLRC). The case was docketed as NLRC-
and/or rest days, service incentive leave pay, paternity leave pay,
NCR Case No. 00-04-04459-9.[8]
educational assistance, rice benefits, and illegal and/or unauthorized
deductions from salaries against respondent, before the Department
On October 11, 1999, DOLE Regional Director Maximo Baguyot Lim
of Labor and Employment (DOLE), National Capital Region
issued an Order[9] directing respondent to pay petitioners the total

27
amount of P2,694,709.00. The dispositive portion of the Order reads
as follows:
WHEREFORE, premises considered, this Office finds
merit in the complaint. Accordingly, Respondent
Creative Creatures, Inc. and/or Mr. Edmond Ty, is
hereby ordered to pay thirty three (33) Complainants,
within ten (10) days from receipt hereof, the total
amount of TWO MILLION SIX HUNDRED NINETY FOUR
THOUSAND SEVEN HUNDRED NINE PESOS
th
(P2,694,709.00) representing unpaid 13 month pay,
vacation and sick leave benefits, regular holiday pay,
rest day and holiday premiums, overtime pay,
educational allowance, and rice allowance presented
as follows:
xxxx
Failure to pay Complainants within the given
period will constrain this Office to issue a WRIT OF
EXECUTION for the immediate enforcement of this
order.
SO ORDERED.[10]
The Regional Director sustained petitioners claim on the existence of
an employer-employee relationship using the determinants set forth
by the Labor Code, specifically, the elements of control and
supervision, power of dismissal, payment of wages, and the selection
and engagement of employees. He added that since the petitioners
had worked for more than one year doing the same routine work,
they were regular employees with respect to the activity in which
they were employed. Lastly, he upheld the DOLE-NCRs jurisdiction to
hear and determine cases in violation of labor standards law.[11]
On appeal, then DOLE Secretary Patricia A. Sto. Tomas affirmed the
findings of the DOLE Regional Director. [12] In upholding the jurisdiction
of the DOLE-NCR, she explained that the Secretary of Labor or his duly
authorized representative is allowed to use his visitorial and
enforcement powers to give effect to labor legislation, regardless of
the amount involved, pursuant to Article 128 of the Labor Code, as
amended by Republic Act (R.A.) No. 7730.
For failure to obtain a favorable decision, respondent elevated the
matter to the Court of Appeals in CA-G.R. SP No. 76942. On May 31,
2005, the appellate court rendered the assailed decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, the instant petition
is GRANTED. For lack of jurisdiction, the Orders
dated October 18, 2002 and February 5, 2003, issued
by respondent Secretary are hereby declared NULL and
VOID. However, in view of the filing of a similar case
before the NLRC, referral of the instant case to the
NLRC for appropriate determination is no longer
necessary.
SO ORDERED.[13]
While recognizing the visitorial and enforcement powers of the
Regional Director and his jurisdiction to entertain money claims, the
appellate court noted that Article 128 of the Labor Code provides an
instance when he (Regional Director) may be divested of
jurisdiction. The CA pointed out that respondent had consistently
28
disputed the existence of employer-employee relationship, thereby
placing the case beyond the jurisdiction of the Regional Director.
Petitioners now come before this Court in this petition for
review on certiorari raising the lone issue of:
Whether or not the Court of Appeals committed an
error when it ruled that the instant case falls within the
exception clause of Article 128 (b) of the Labor Code,
as amended, and in annulling and setting aside the
Orders of the Secretary of Labor which affirmed the
Order of the Regional Director of DOLE-NCR awarding
the claims of the petitioners for benefits under the
Labor Standards laws, namely, 13th month benefit,
overtime pay, night shift differentials, premium on rest
days, vacation and sick leave and other benefits
accorded to employees of the responden[t] in the
exercise of its visitorial powers pursuant to Article 128
(b) of the Labor Code as amended.[14]
In fine, we are tasked to determine which body/tribunal has
jurisdiction over petitioners money claims --- the DOLE Secretary or
his duly authorized representative, or the NLRC.
We sustain the appellate courts conclusion that the instant
case falls within the exclusive jurisdiction of the NLRC.
The DOLE Secretary and her authorized representatives, such
as the DOLE-NCR Regional Director, have jurisdiction to enforce
compliance with labor standards laws under the broad visitorial and
enforcement powers conferred by Article 128 of the Labor Code, and
expanded by Republic Act (R.A.) No. 7730,[15] to wit:[16]
Art. 128. Visitorial and Enforcement Power
(a) The Secretary of Labor or his duly authorized
representatives, including labor regulation officers,
shall have access to employers records and premises at
anytime of the day or night whenever work is being
undertaken therein, and the right to copy therefrom, to
question any employee and investigate any fact,
condition or matter which may be necessary to
determine violations or which may aid in the
enforcement of this Code and of any labor law, wage
order or rules and regulations issued pursuant thereto.
(b) Notwithstanding the provisions of Article
129 and 217 of this Code to the contrary, and in cases
where the relationship of employer-employee relation
still exists, the Secretary of Labor and Employment or
his duly authorized representatives shall have the
power to issue compliance orders to give effect to the
labor standards provisions of this Code and other labor
legislation based on the findings of labor employment
and enforcement officers or industrial safety engineers
made in the course of inspection. The Secretary or his
duly authorized representatives shall issue writs of
execution, to the appropriate authority for the
enforcement of their orders, except in cases where the
employer contests the findings of the labor
employment and enforcement officer and raises issues
supported by documentary proofs which were not
considered in the course of inspection.
xxxx
29
 or his duly authorized representatives. Thus, we upheld the
jurisdiction of the Regional Director, notwithstanding the fact that the
As it is now worded, and as consistently held in a number of
amount awarded exceeded P5,000.00 per employee.
[17]
cases, the visitorial and enforcement powers of the Secretary,
exercised through his representatives, encompass compliance with all
In order to do away with the jurisdictional limitations imposed
labor standards laws and other labor legislation, regardless of the
by the Servando ruling and to finally settle any lingering doubts on the
amount of the claims filed by workers.
extent of the visitorial and enforcement powers of the Secretary of
Labor and Employment, R.A. 7730 was enacted, amending Article 128
It is well to note that the Regional Directors visitorial and
(b) to its present formulation, so as to free it from the jurisdictional
enforcement powers have undergone a series of
restrictions found in Articles 129 and 217.
amendments. Confusion was engendered with the promulgation of
the decision in Servandos Inc. v. Secretary of Labor and Employment.
This notwithstanding, the power of the Regional Director to
[18]
In that case, this Court held that to harmonize Articles 217 (a) (6),
hear and decide the monetary claims of employees is not
[19]
129,[20] and 128 of the Labor Code, the Secretary of Labor should be
absolute. The last sentence of Article 128 (b) of the Labor Code,
deemed as clothed with plenary visitorial powers to order the
otherwise known as the exception clause, provides an instance when
inspection of all establishments where labor is employed, and to look
the Regional Director or his representatives may be divested of
into all possible violations of labor laws and regulations; but the
jurisdiction over a labor standards case.
power to hear and decide employees claims exceeding P5,000.00 for
each employee should be left to the Labor Arbiter as the exclusive
Under prevailing jurisprudence, the so-called exception clause
repository of the power to hear and decide such claims.
has the following elements, all of which must concur:
(a) that the employer contests the findings of the labor
Jurisprudence, however, rendered the Servando ruling regulations officer and raises issues thereon;
inapplicable. In Guico, Jr. v. Quisumbing,[21] Allied Investigation Bureau,
(b) that in order to resolve such issues, there is a need
Inc. v. Sec. of Labor,[22] and Cirineo Bowling Plaza, Inc. v. Sensing,[23] we
to examine evidentiary matters; and
had occasion to explain that while it is true that under Articles 129
and 217 of the Labor Code, the Labor Arbiter has jurisdiction to hear (c) that such matters are not verifiable in the normal
and decide cases where the aggregate money claim of each employee course of inspection.[24]
exceeds P5,000.00, these provisions of law do not contemplate or
cover the visitorial and enforcement powers of the Secretary of Labor

30
 In the present case, the CA aptly applied the exception clause.
At the earliest opportunity, respondent registered its objection to the
findings of the labor inspector.The labor inspector, in fact, noted in its
report that respondent alleged that petitioners were contractual
workers and/or independent and talent workers without control or
supervision and also supplied with tools and apparatus pertaining to
their job.[25] In its position paper, respondent again insisted that
petitioners were not its employees.It then questioned the Regional
Directors jurisdiction to entertain the matter before it, primarily
because of the absence of an employer-employee relationship. Finally,
it raised the same arguments before the Secretary of Labor and the
appellate court. It is, therefore, clear that respondent contested and
continues to contest the findings and conclusions of the labor
inspector.
To resolve the issue raised by respondent, that is, the
existence of an employer-employee relationship, there is need to
examine evidentiary matters. The following elements constitute the
reliable yardstick to determine such relationship: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the
power of dismissal; and (d) the employers power to control the
employees conduct.[26] There is no hard and fast rule designed to
establish the aforesaid elements. Any competent and relevant
evidence to prove the relationship may be admitted. Identification
cards, cash vouchers, social security registration, appointment letters
or employment contracts, payrolls, organization charts, and personnel
lists, serve as evidence of employee status. [27] These pieces of
evidence are readily available, as they are in the possession of either
the employee or the employer; and they may easily be looked into by
the labor inspector (in the course of inspection) when confronted with
the question of the existence or absence of an employer-employee
relationship.
Some businessmen, however, try to avoid an employer-
employee relationship from arising in their enterprises, because that
juridical relation spawns obligations connected with workmens
compensation, social security, medicare, termination pay, and
unionism.[28] Thus, in addition to the above-mentioned documents,
other pieces of evidence are considered in ascertaining the true
nature of the parties relationship. This is especially true in
determining the element of control. The most important index of an
employer-employee relationship is the so-called control test, that is,
whether the employer controls or has reserved the right to control
the employee, not only as to the result of the work to be done, but
also as to the means and methods by which the same is to be
accomplished.[29]
In the case at bar, whether or not petitioners were
independent contractors/project employees/free lance workers is a
question of fact that necessitates the examination of evidentiary
matters not verifiable in the normal course of inspection. Indeed, the
contracts of independent services, as well as the check vouchers,
were kept and maintained in or about the premises of the workplace
and were, therefore, verifiable in the course of inspection. However,
respondent likewise claimed that petitioners were not precluded from
working outside the service contracts they had entered into with it
(respondent); and that there were instances when petitioners
abandoned their service contracts with the respondent, because they
31
had to work on another project with a different
company. Undoubtedly, the resolution of these issues requires the
examination of evidentiary matters not verifiable in the normal course
of inspection. Verily, the Regional Director and the Secretary of Labor
are divested of jurisdiction to decide the case.
We would like to emphasize that to contest means to raise
questions as to the amounts complained of or the absence of
violation of labor standards laws; or, as in the instant case, issues as to
the complainants right to labor standards benefits. To be sure, raising
lack of jurisdiction alone is not the contest contemplated by the
exception clause.[30] It is necessary that the employer contest the
findings of the labor regulations officer during the hearing or after
receipt of the notice of inspection results. [31] More importantly, the
key requirement for the Regional Director and the DOLE Secretary to
be divested of jurisdiction is that the evidentiary matters be not
verifiable in the course of inspection. Where the evidence presented
was verifiable in the normal course of inspection, even if presented
belatedly by the employer, the Regional Director, and later the DOLE
Secretary, may still examine it; and these officers are not divested of
jurisdiction to decide the case.[32]
In sum, respondent contested the findings of the labor
inspector during and after the inspection and raised issues the
resolution of which necessitated the examination of evidentiary
matters not verifiable in the normal course of inspection. Hence, the
Regional Director was divested of jurisdiction and should have
endorsed the case to the appropriate Arbitration Branch of the NLRC.
[33]
Considering, however, that an illegal dismissal case had been filed
by petitioners wherein the existence or absence of an employer-
employee relationship was also raised, the CA correctly ruled that
such endorsement was no longer necessary.
WHEREFORE, premises considered, the petition is DENIED for
lack of merit. The Court of Appeals Decision dated May 31, 2005 and
its Resolution dated January 27, 2006 in CA-G.R. SP No. 76942,
are AFFIRMED.
SO ORDERED.
G.R. No. 179001 August 28, 2013
MZR INDUSTRIES, MARILOU R. QUIROZ AND LEA
TIMBAL, PETITIONERS,
vs.
MAJEN COLAMBOT, RESPONDENT.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking the reversal of the Decision1dated May 17, 2007 and
Resolution2 dated July 25, 2007 of the Court of Appeals in CA-G.R. SP
No. 98445, reversing the Decision dated October 31, 2006 3 and
Resolution4 dated December 21, 2006 of the National Labor Relations
Commission (NLRC) which set aside the Decision 5 dated April 28, 2006
of the Labor Arbiter.
The facts are as follows:
32
On February 8, 2000, petitioner Marilou Quiroz, Owner and Vice-
President for Finance and Marketing of MZR, hired respondent Majen
Colambot (Colambot) as messenger. Colambot's duties and
responsibilities included field, messengerial and other liaison work.
However, beginning 2002, Colambot's work performance started to
deteriorate. Petitioners issued several memoranda to Colambot for
habitual tardiness, negligence, and violations of office policies. 6 He
was also given written warnings for insubordination committed on
August 27, 2003 and September 11-12, 2003;7 on September 16, 2003
for negligence caused by careless handling of confidential office
documents;8 on September 22, 2004 for leaving his post without
proper turnover;9 and, on October 4, 2004 for insubordination. 10
Petitioners claimed that despite written warnings for repeated
tardiness and insubordination, Colambot failed to mend his ways.
Hence, in a Memorandum11 dated October 25, 2004 issued by
petitioner Lea Timbal (Timbal), MZR's Administrative Manager,
Colambot was given a notice of suspension for insubordination and
negligence.
Again, in a Memorandum12 dated November 25, 2004, Colambot was
suspended from November 26, 2004 until December 6, 2004 for
insubordination. Allegedly, Colambot disobeyed and left the office
despite clear instructions to stay in the office because there was an
important meeting in preparation for a very important activity the
following day.
Petitioners claimed they waited for Colambot to report back for work
on December 7, 2004, but they never heard from him anymore. Later,
petitioners were surprised to find out that Colambot had filed a
complaint for illegal suspension, underpayment of salaries, overtime
pay, holiday pay, rest day, service incentive leave and 13th month pay.
On December 16, 2004, the complaint was amended to illegal
dismissal, illegal suspension, underpayment of salaries, holiday pay,
service incentive pay, 13th month pay and separation pay. 13
For his part, Colambot narrated that he worked as a messenger for
petitioners since February 2000. That on November 2004, he was
directed to take care of the processing of a document in Roxas
Boulevard, Pasay City. When he arrived at the office around 6 to 7
o'clock in the evening, he looked for petitioner Quiroz to give the
documents. The latter told him to wait for her for a while. When
respondent finally had the chance to talk to Quiroz, she allegedly told
him that she is dissatisfied already with his work performance.
Afterwards, Colambot claimed that he was made to choose between
resigning from the company or the company will be the one to
terminate his services. He said he refused to resign. Colambot alleged
that Quiroz made him sign a memorandum for his suspension, from
November 26 to December 6, 2004. After affixing his signature, Quiroz
told him that effective December 7, 2004, he is already deemed
terminated. Later, on December 2, 2004, respondent went back to the
company to look for Timbal to get his salary. He claimed that Timbal
asked him to turn over his company I.D.14
Petitioners, however, insisted that while Colambot was suspended
due to insubordination and negligence, they maintained that they
never terminated Colambot's employment. They added that
Colambot's failure to report for work since December 7, 2004 without
any approved vacation or sick leave constituted abandonment of his
work, but they never terminated his employment. Petitioners further
emphasized that even with Colambot's filing of the complaint against
them, his employment with MZR has not been terminated.
Colambot, meanwhile, argued that contrary to petitioners claim that
he abandoned his job, he claimed that he did not report back to work
after the expiration of his suspension on December 6, 2004, because
Quiroz told him that his employment was already terminated effective
December 7, 2004.
On April 28, 2006, the Labor Arbiter rendered a Decision, 15 the
dispositive portion of which reads:
33
WHEREFORE, premises considered, respondents are hereby declared
guilty of ILLEGAL DISMISSAL and hereby ORDERED to reinstate
complainant to his former position with full backwages from date of
dismissal until actual reinstatement and moral and exemplary
damages in the sum of 100,000.00 and 50,000.00, respectively.
The computation of the judgment award marked as Annex "A" is part
and parcel of this decision.
SO ORDERED.16
The Labor Arbiter held that there was no abandonment as there was
no deliberate intent on the part of Colambot to sever the employer-
employee relationship. The Labor Arbiter likewise noted that
Colambot should have been notified to return back to work, which
petitioner failed to do.
Aggrieved, petitioners appealed the decision before the NLRC.
On October 31, 2006, the NLRC rendered a Decision,17 the dispositive
portion of which reads as follows:
WHEREFORE, premises considered, the appeal filed by respondents is
GRANTED. The judgment of the Labor Arbiter dated April 28, 2006 is
hereby SET ASIDE and the Complaint is DISMISSED for lack of merit.
SO ORDERED.18
The NLRC pointed out that Colambot's complaint was unsupported by
any evidence and was not even made under oath, thus, lacking in
credibility and probative value. The NLRC further believed that
Colambot abandoned his work due to his refusal to report for work
after his suspension. The failure of MZR to notify Colambot to return
back to work is not tantamount to actual dismissal.
Colambot filed a motion for reconsideration, but was denied. Thus, via
a petition for certiorari under Rule 65 of the Rules of Court, raising
grave abuse of discretion as a ground, Colambot appealed before the
Court of Appeals and sought that the Decision dated October 31, 2006
and Resolution dated December 21, 2006 of the NLRC be reversed
and set aside.
In the disputed Decision19 dated May 17, 2007, the Court of Appeals
granted the petition and reversed the assailed Decision dated October
31, 2006 and Resolution dated December 21, 2006 of the NLRC. The
Decision dated April 28, 2006 of the Labor Arbiter was ordered
reinstated with modification that in lieu of reinstatement, petitioners
were ordered to pay respondent separation pay equivalent to one (1)
month pay for every year of service in addition to full backwages.
The appellate court ruled that Colambot was illegally dismissed based
on the grounds that: (1) MZR failed to prove abandonment on the
part of Colambot, and (2) MZR failed to serve Colambot with the
required written notices of dismissal.2007.
Petitioners appealed, but was denied in a Resolution20 dated July 25,
2007.
Thus, via Rule 45 of the Rules of Court, before this Court, petitioners
raised the following issues:
I
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
COMPLAINANT WAS ILLEGALLY DISMISSED FROM THE SERVICE.
II
THE HONORABLE COURT SERIOUSLY ERRED IN RULING THAT
PETITIONER IS ENTITLED TO SEPARATION PAY AND BACKWAGES.
34
Petitioners argue that they did not terminate the employer-employee
relationship with Colambot. Other than Colambot's self-serving and
unverified narration of facts, he failed to present any document
showing that he was terminated from work. Petitioners assert that
Colambot abandoned his work when he failed to report back to work
without an approved vacation or sick leave, thus, he is not entitled to
an award of separation pay and backwages.
RULING
While we recognize the rule that in illegal dismissal cases, the
employer bears the burden of proving that the termination was for a
valid or authorized cause, in the present case, however, the facts and
the evidence do not establish a prima facie case that the employee
was dismissed from employment. Before the employer must bear the
burden of proving that the dismissal was legal, the employee must
first establish by substantial evidence the fact of his dismissal from
service. If there is no dismissal, then there can be no question as to
the legality or illegality thereof.21
In the present case, other than Colambot's unsubstantiated allegation
of having been verbally terminated from his work, there was no
evidence presented to show that he was indeed dismissed from work
or was prevented from returning to his work. In the absence of any
showing of an overt or positive act proving that petitioners had
dismissed respondent, the latter's claim of illegal dismissal cannot be
sustained22 as the same would be self-serving, conjectural and of no
probative value.
A review of the Notice of Suspension23 dated November 25, 2004
shows that respondent was merely suspended from work for 6 days,
there was, however, no evidence that Colambot was terminated from
work. For clarification, we quote:
TO : MAJEN COLAMBOT
MZR MESSENGER
FROM : HUMAN RESOURCE DEPT
DATE : NOV. 25, 2004
RE : SUSPENSION DUE TO INSUBORDINATION
xxxx
Cases of insubordination and violations have been filed against you
many times. We kept on reminding that you should have changed and
improved your working attitudes because it greatly affects not only
your working performance but the company's productivity as well.
Your attitude only shows HARD HEADEDNESS AND LACK OF RESPECT
TO YOUR SUPERIORS which in any company cannot tolerate.
With these, you are suspended for 6 working days effective November
26, 2004, you will only report on December 7, 2004.
THIS IS OUR LAST WARNING FOR YOU TO IMPROVE, FAILURE TO DO
SO MAY MEAN TERMINATION OF YOUR EMPLOYMENT CONTRACT.
x x x x24
While the same appeared to contain a warning of termination should
Colambot fail to improve his behavior, it is likewise apparent that
there was also a specific instruction for him to report back to work, on
December 7, 2004, upon serving his suspension. The subject of the
Letter, i.e., "Suspension due to Insubordination," the wordings and
content of the letter is a clear-cut notice of suspension, and not a
notice of termination. The notice of suspension may have contained
warnings of termination, but it must be noted that such was
conditioned on the ground that Colambot would fail to improve his
attitude/behavior. There were no wordings whatsoever implying
35
actual or constructive dismissal. Thus, Colambot's general allegation
of having been orally dismissed from the service as against the clear
wordings and intent of the notice of suspension which he signed, we
are then inclined to believe that there was no dismissal.
In Machica v. Roosevelt Services Center, Inc.,25 this Court sustained the
employer's denial as against the employees' categorical assertion of
illegal dismissal. In so ruling, this Court held that:
The rule is that one who alleges a fact has the burden of proving it;
thus, petitioners were burdened to prove their allegation that
respondents dismissed them from their employment. It must be
stressed that the evidence to prove this fact must be clear, positive
and convincing. The rule that the employer bears the burden of proof
in illegal dismissal cases finds no application here because the
respondents deny having dismissed the petitioners.26
Hence, as between respondents general allegation of having been
orally dismissed from the service vis-a-vis those of petitioners which
were found to be substantiated by the sworn statement of foreman
Wenifredo, we are persuaded by the latter. Absent any showing of an
overt or positive act proving that petitioners had dismissed
respondents, the latters claim of illegal dismissal cannot be sustained.
Indeed, a cursory examination of the records reveal no illegal
dismissal to speak of.27
Moreover, in Abad v. Roselle Cinema,28 we ruled that the substantial
evidence proffered by the employer that it had not terminated the
employee should not be ignored on the pretext that the employee
would not have filed the complaint for illegal dismissal if he had not
really been dismissed. We held that such non sequitur reasoning
cannot take the place of the evidence of both the employer and the
employee.
Neither could the petitioners be blamed for failing to order
respondent to return back to work.1wphi1 Records show that
Colambot immediately filed the complaint for illegal dismissal on
December 16, 2004,29 or just a few days when he was supposed to
report back to work on December 7, 2004. For petitioners to order
respondent to report back to work, after the latter had already filed a
case for illegal dismissal, would be unsound.
However, while the Court concurs with the conclusion of the NLRC
that there was no illegal dismissal, no dismissal having actually taken
place, the Court does not agree with its findings that Colambot
committed abandonment of work.
In a number of cases,30 this Court consistently held that to constitute
abandonment of work, two elements must be present: first, the
employee must have failed to report for work or must have been
absent without valid or justifiable reason; and second, there must
have been a clear intention on the part of the employee to sever the
employer-employee relationship manifested by some overt act.
In the instant case, other than Colambot's failure to report back to
work after suspension, petitioners failed to present any evidence
which tend to show his intent to abandon his work. It is a settled rule
that mere absence or failure to report for work is not enough to
amount to abandonment of work. There must be a concurrence of the
intention to abandon and some overt acts from which an employee
may be deduced as having no more intention to work.31 On this point,
the CA was correct when it held that:
Mere absence or failure to report for work, even after notice to
return, is not tantamount to abandonment. The burden of proof to
show that there was unjustified refusal to go back to work rests on
the employer. Abandonment is a matter of intention and cannot
lightly be presumed from certain equivocal acts. To constitute
abandonment, there must be clear proof of deliberate and unjustified
intent to sever the employer-employee relationship. Clearly, the
operative act is still the employees ultimate act of putting an end to
his employment. Furthermore, it is a settled doctrine that the filing of
36
a complaint for illegal dismissal is inconsistent with abandonment of DIOSDADO M. PERALTA
employment. An employee who takes steps to protest his dismissal Associate Justice
cannot logically be said to have abandoned his work. the filing of such
complaint is proof enough of his desire to return to work, thus WE CONCUR:
negating any suggestion of abandonment.32
PRESBITERO J. VELASCO, JR.
Suffice it to say that, it is the employer who has the burden of proof to Associate Justice
show a deliberate and unjustified refusal of the employee to resume Chairperson
his employment without any intention of returning. It is therefore
incumbent upon petitioners to ascertain the respondents interest or ROBERTO A. ABAD
non-interest in the continuance of their employment. This, petitioners Associate Justice
failed to do so.
FIRST DIVISION
These circumstances, taken together, the lack of evidence of dismissal
and the lack of intent on the part of the respondent to abandon his
work, the remedy is reinstatement but without
backwages.33 However, considering that reinstatement is no longer [G.R. No. 147816. May 9, 2003]
applicable due to the strained relationship between the parties and
that Colambot already found another employment, each party must
bear his or her own loss, thus, placing them on equal footing. EFREN P. PAGUIO, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, METROMEDIA TIMES CORPORATION, ROBINA
Verily, in a case where the employee's failure to work was occasioned
Y. GOKONGWEI, LIBERATO GOMEZ, JR., YOLANDA E.
neither by his abandonment nor by a termination, the burden of
ARAGON, FREDERICK D. GO and ALDA IGLESIA, respondents.
economic loss is not rightfully shifted to the employer; each party
must bear his own loss.34
DECISION
WHEREFORE, premises considered and subject to the above VITUG, J.:
disquisitions, the Decision dated May 1 7, 2007 of the Court of
Appeals is hereby REVERSED and SET ASIDE. The Resolution dated On 22 June 1992, respondent Metromedia Times Corporation
October 31, 2006 of the National Labor Relations Commission in NLRC entered, for the fifth time, into an agreement with petitioner Efren P.
NCR CASE No. 00-11-12189-04/ CA No. 049533-06 is hereby Paguio, appointing the latter to be an account executive of the firm.
[1]
REINSTATED. Again, petitioner was to solicit advertisements for "The Manila
Times," a newspaper of general circulation, published by respondent
SO ORDERED. company.Petitioner, for his efforts, was to receive compensation
consisting of a 15% commission on direct advertisements less
withholding tax and a 10% commission on agency advertisements
37
based on gross revenues less agency commission and the
corresponding withholding tax. The commissions, released every
fifteen days of each month, were to be given to petitioner only after
the clients would have paid for the advertisements. Apart from
commissions, petitioner was also entitled to a monthly allowance of
P2,000.00 as long as he met the P30,000.00-monthly quota. Basically,
the contentious points raised by the parties had something to do with
the following stipulations of the agreement; viz:
12. You are not an employee of the Metromedia Times Corporation
nor does the company have any obligations towards anyone you may
employ, nor any responsibility for your operating expenses or for any
liability you may incur. The only rights and obligations between us are
those set forth in this agreement. This agreement cannot be amended
or modified in any way except with the duly authorized consent in
writing of both parties.
13. Either party may terminate this agreement at any time by giving
written notice to the other, thirty (30) days prior to effectivity of
termination.[2]
On 15 August 1992, barely two months after the renewal of his
contract, petitioner received the following notice from respondent
firm -
Dear Mr. Paguio,
Please be advised of our decision to terminate your services as
Account Executive of Manila Times effective September 30, 1992.
This is in accordance with our contract signed last July 1, 1992.[3]
Apart from vague allegations of misconduct on which he was not
given the opportunity to defend himself, i.e., pirating clients from his
co-executives and failing to produce results, no definite cause for
petitioners termination was given. Aggrieved, petitioner filed a case
before the labor arbiter, asking that his dismissal be declared unlawful
and that his reinstatement, with entitlement to backwages without
loss of seniority rights, be ordered. Petitioner also prayed that
respondent company officials be held accountable for acts of unfair
labor practice, for P500,000.00 moral damages and for P200,000.00
exemplary damages.
In their defense, respondent Metromedia Times Corporation
asserted that it did not enter into any agreement with petitioner
outside of the contract of services under Articles 1642 and 1644 of
the Civil Code of the Philippines.[4] Asserting their right to terminate
the contract with petitioner, respondents pointed to the last provision
thereof stating that both parties could opt to end the contract
provided that either party would serve, thirty days prior to the
intended date of termination, the corresponding notice to the other.
The labor arbiter found for petitioner and declared his dismissal
illegal. The arbiter ordered respondent Metromedia Times
Corporation and its officers to reinstate petitioner to his former
position, without loss of seniority rights, and to pay him his
commissions and other remuneration accruing from the date of
dismissal on 15 August 1992 up until his reinstatement. He likewise
adjudged that Liberato I. Gomez, general manager of respondent
corporation, be held liable to petitioner for moral damages in the
amount of P20,000.00.
On appeal, the National Labor Relations Commission (NLRC)
reversed the ruling of the labor arbiter and declared the contractual
relationship between the parties as being for a fixed-term
employment. The NLRC declared a fixed-term employment to be
lawful as long as it was agreed upon knowingly and voluntarily by the
parties, without any force, duress or improper pressure being brought
to bear upon the worker and absent any other circumstances vitiating
his consent."[5] The finding of the NLRC was primarily hinged on the
assumption that petitioner, on account of his educated stature, having
indeed personally prepared his pleadings without the aid of counsel,
was an unlikely victim of a lopsided contract. Rejecting the assertion
38
of petitioner that he was a regular employee, the NLRC held: "The
decisive determinant would not be the activities that the employee
(was) called upon to perform but rather, the day certain agreed upon
by the parties for the commencement and termination of their
employment relationship, a day certain being understood to be that
which (would) necessarily come, although it (might) not be known
when."[6]
Petitioner appealed the ruling of the NLRC before the Court of
Appeals which upheld in toto the findings of the commission. In his
petition for review on certiorari, petitioner raised the following issues
for resolution:
WHETHER OR NOT PETITIONER'S CONTRACT WITH PRIVATE
RESPONDENTS COMPANY IS FOR A FIXED PERIOD.
WHETHER OR NOT PETITIONER'S DISMISSAL IS LEGAL.
WHETHER OR NOT PETITIONER IS ENTITLED TO BACKWAGES AND
MORAL DAMAGES.[7]
The crux of the matter would entail the determination of the
nature of contractual relationship between petitioner and respondent
company - was it or was it not one of regular employment?
A regular employment, whether it is one or not, is aptly gauged
from the concurrence, or the non-concurrence, of the following
factors - a) the manner of selection and engagement of the putative
employee, b) the mode of payment of wages, c) the presence or
absence of the power of dismissal; and d) the presence or absence of
the power to control the conduct of the putative employee or the
power to control the employee with respect to the means or methods
by which his work is to be accomplished.[8] The "control test" assumes
primacy in the overall consideration. Under this test, an employment
relation obtains where work is performed or services are rendered
under the control and supervision of the party contracting for the
service, not only as to the result of the work but also as to the manner
and details of the performance desired.[9]
An indicum of regular employment, rightly taken into account by
the labor arbiter, was the reservation by respondent Metromedia
Times Corporation not only of the right to control the results to be
achieved but likewise the manner and the means used in reaching
that end.[10] Metromedia Times Corporation exercised such control by
requiring petitioner, among other things, to submit a daily sales
activity report and also a monthly sales report as well. Various
solicitation letters would indeed show that Robina Gokongwei,
company president, Alda Iglesia, the advertising manager, and
Frederick Go, the advertising director, directed and monitored the
sales activities of petitioner.
The Labor Code, in Article 280 thereof, provides:
ART. 280. Regular and Casual Employment. The provisions of written
agreement to the contrary notwithstanding and regardless of the oral
agreement of the parties, an employment shall be deemed to be
regular where the employee has been engaged to perform activities
which are usually necessary or desirable in the usual business or trade
of the employer, except where the employment has been fixed for a
specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the
employee or where the work or services to be performed is seasonal
in nature and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by
the proceeding paragraph: Provided, That, any employee who has
rendered at least one year of service, whether such service is
continuous or broken, shall be considered a regular employee with
respect to the activity in which he is employed and his employment
shall continue while such activity exists.
Thus defined, a regular employee is one who is engaged to perform
activities which are necessary and desirable in the usual business or
39
trade of the employer as against those which are undertaken for a
specific project or are seasonal. Even in these latter cases, where such
person has rendered at least one year of service, regardless of the
nature of the activity performed or of whether it is continuous or
intermittent, the employment is considered regular as long as the
activity exists, it not being indispensable that he be first issued a
regular appointment or be formally declared as such before acquiring
a regular status.[11]
That petitioner performed activities which were necessary and
desirable to the business of the employer, and that the same went on
for more than a year, could hardly be denied. Petitioner was an
account executive in soliciting advertisements, clearly necessary and
desirable, for the survival and continued operation of the business of
respondent corporation. Robina Gokongwei, its President, herself
admitted that the income generated from paid advertisements was
the lifeblood of the newspaper's existence. Implicitly, respondent
corporation recognized petitioners invaluable contribution to the
business when it renewed, not just once but five times, its contract
with petitioner.
Respondent company cannot seek refuge under the terms of the
agreement it has entered into with petitioner. The law, in defining
their contractual relationship, does so, not necessarily or exclusively
upon the terms of their written or oral contract, but also on the basis
of the nature of the work petitioner has been called upon to perform.
[12]
The law affords protection to an employee, and it will not
countenance any attempt to subvert its spirit and intent. A stipulation
in an agreement can be ignored as and when it is utilized to deprive
the employee of his security of tenure. [13] The sheer inequality that
characterizes employer-employee relations, where the scales
generally tip against the employee, often scarcely provides him real
and better options.
The real question that should thus be posed is whether or not
petitioner has been justly dismissed from service. A lawful dismissal
must meet both substantive and procedural requirements; in fine, the
dismissal must be for a just or authorized cause and must comply with
the rudimentary due process of notice and hearing. It is not shown
that respondent company has fully bothered itself with either of these
requirements in terminating the services of petitioner. The notice of
termination recites no valid or just cause for the dismissal of
petitioner nor does it appear that he has been given an opportunity to
be heard in his defense.
The evidence, however, found by the appellate court is wanting
that would indicate bad faith or malice on the part of respondents,
particularly by respondent Liberato I. Gomez, and the award of moral
damages must thus be deleted.
WHEREFORE, the instant petition is GRANTED. The decision of
the Court of Appeals in C.A. G.R. SP No. 527773 and that of the
National Labor Relations Commission are hereby SET ASIDE and that
of the Labor Arbiter is REINSTATED except with respect to the
P20,000.00 moral damages adjudged against respondent Liberato I.
Gomez which award is deleted.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,
JJ., concur.
VICENTE ANG, Petitioner, v. CEFERINO SAN JOAQUIN, JR., AND
DIOSDADO FERNANDEZ,Respondents.
DECISION
DEL CASTILLO, J.:
The employers act of tearing to pieces the employees time card may
be considered an outright not only symbolic termination of the
parties employment relationship.
40
This Petition for Review on Certiorari1 assails the August 29, 2008
Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 75545 which
dismissed the Petition for Certiorari3 in said case, as well as its
December 4, 2008 Resolution4 denying reconsideration thereof.
Factual Antecedents
Petitioner Vicente Ang (Ang) is the proprietor of Virose Furniture and
Glass Supply (Virose) in Tayug, Pangasinan, a wholesaler/retailer of
glass supplies, jalousies, aluminum windows, table glass, and assorted
furniture. Respondents Ceferino San Joaquin, Jr. (San Joaquin) and
Diosdado Fernandez (Fernandez) were regular employees of Virose:
San Joaquin was hired in 1974 as helper, while Fernandez was
employed in 1982 as driver.5 Respondents have been continuously in
Angs employ without any derogatory record.6 Each received a daily
salary of P166.00.7cralaw virtualaw library
Through the years, San Joaquin who is Angs first cousin, their
mothers being sisters became a pahinante or delivery helper, and
later on an all-around worker of Virose.8cralaw virtualaw library
On August 24, 1999, respondents attended the court hearing relative
to the 41 criminal cases filed by former Virose employee Daniel
Abrera (Abrera) against Ang for the latters non-remittance of Social
Security System (SSS) contributions.9 During that hearing, respondents
testified against Ang; it was the second time for San Joaquin to testify,
while it was Fernandezs first.10 Previously, respondents joined Abrera
in questioning Angs procedure in remitting their SSS
contributions.11 After the said hearing Ang began to treat respondents
with hostility and antagonism.
On August 28, 1999, Angs wife, Rosa, instructed a Virose salesclerk to
find helpers who would transfer monobloc chairs from the Virose
store to her restaurant, Leng-Lengs Foodshop, located just beside the
store. The salesclerk instructed San Joaquin to help, but the latter
refused, saying that he was not an employee of the restaurant but a
glass installer of Virose. A heated argument ensued between San
Joaquin on the one hand and Rosa, her son Jonathan, and the
salesclerk on the other. San Joaquin left the store, shouting
invectives.12cralaw virtualaw library
On August 30, 1999, San Joaquin returned to the store, only to find
out that Ang had torn his DTR to pieces that day while the DTR of
Fernandez was torn to pieces by Ang immediately after the August 24,
1999 hearing in which the respondents testified.13 On the same day,
Fernandez reported for work and received a memorandum of even
date issued by Ang informing him that he was placed on a one-week
suspension for insubordination.14 The memorandum did not specify
the act of insubordination.15cralaw virtualaw library
On August 31, 1999, respondents filed against Ang Complaints for
illegal constructive dismissal with claims for backwages and
separation pay.16 The Complaints were docketed as NLRC Case No.
SUB-RAB-1-07-8-0175-99 Pang.
On September 5, 1999, Fernandez confronted Ang, demanding that
the latter sign certain documents which the former had with him. Ang
refused, and Fernandez who was then intoxicated left uttering
unsavory remarks and threatening to sue Ang.17cralaw virtualaw
library
On September 8, 1999, San Joaquin received a memorandum from
Ang dated August 30, 1999, placing the former under preventive
suspension and ordering him to explain in writing, within three days,
why no disciplinary action should be imposed against him for his
refusal to obey the August 28, 1999 instructions to transfer the
monobloc chairs.18cralaw virtualaw library
On September 13, 1999, Fernandez received another memorandum
from Ang, ordering him to report for work after being absent for a
week.19cralaw virtualaw library
41

On September 21, 1999, Ang issued a memorandum terminating San
Joaquins employment.20cralaw virtualaw library
Ruling of the Labor Arbiter
In their Position Paper,21 respondents claimed that they were
constructively dismissed on August 30, 1999, when the situation in
the workplace became extremely unbearable owing to their
attendance at the August 24, 1999 hearing of the criminal cases
against Ang, where they testified against the latter. They accused Ang
of irregularities relative to the remittance of their SSS contributions;
subjecting them to verbal abuse; unfair practices specifically
assigning them tasks which were not part of their work; and removing
their DTRs and tearing them to pieces, soon after they testified
against him in the criminal cases and after complaining of
irregularities in the remittance of their SSS contributions.
Respondents referred to Angs act of tearing their DTRs to pieces as
the last straw that finally broke the camels back.22cralaw virtualaw
library
Respondents further argued that Angs memoranda which he later
issued were intended to cover up his illegal acts, an afterthought
whose purpose was to conceal Angs unlawful act of removing and
tearing up their time cards.23cralaw virtualaw library
For his part, Fernandez claimed that the August 30, 1999
memorandum suspending him for insubordination was illegal as it did
not specify the act constituting insubordination, the date it was
committed, and the particular company policy or rule that was
violated. Fernandez further alleged that the September 13, 1999
memorandum which ordered him to report for work after being
absent for a week was another prevarication, because he reported for
work on three occasions following receipt of the said memorandum,
but he could not find his time card. Finally, Fernandez claimed that he
did not receive any notice of dismissal from Ang. 24cralaw virtualaw
library
Respondents claimed that their relationship with Ang had become so
strained that their reinstatement was no longer feasible, and ordering
them back to work would only subject them to further harassment
and embarrassment.25 They thus prayed for an award of backwages,
separation pay, P100,000.00 each as moral and exemplary damages,
and 10% attorneys fees.26cralaw virtualaw library
In his Position Paper,27 Ang claimed that respondents were
disrespectful, disobedient, and that they abandoned their
employment, went on absence without leave (AWOL), and failed to
respond to his memoranda. They were thus accordingly dismissed for
cause, and were not entitled to backwages, separation pay, damages
and attorneys fees. He prayed for the dismissal of the case.
On July 25, 2000, Labor Arbiter Gerardo A. Yulo issued a
Decision28 decreeing as follows:
WHEREFORE, premises considered, the complaint is hereby
DISMISSED for lack of merit.
SO ORDERED.29cralaw virtualaw library
The Labor Arbiter held that respondents were unable to show how
Ang discriminated against them. He pointed out that respondents
cited only two instances of alleged discrimination/reprisal committed
against them: the August 28, 1999 incident regarding the transfer of
the monobloc chairs and Fernandezs failure to find his DTR when he
reported for work following receipt of the September 13, 1999
memorandum; but these were not acts of discrimination/ reprisal.
The Labor Arbiter found that the order to transfer the chairs to Rosas
restaurant was reasonable considering the exigencies of the moment,
and the order was given by the Virose salesclerk; on the contrary, San
Joaquin was guilty of insubordination in not carrying out a reasonable
order of his employer. As for Fernandez, the Labor Arbiter held that
the loss of his time card is not sufficient reason to suppose that his
42
employment had been terminated. Fernandez should have
approached the person charged with keeping his time cards so that a
new one could be issued, but he did not do so.
The Labor Arbiter added that Angs issuance of the memoranda does
not constitute an afterthought, since it has not been shown that they
were issued with knowledge that respondents previously filed
Complaints on August 31, 1999. Moreover, the Labor Arbiter found
that Ang correctly assumed that respondents were no longer
interested in resuming their employment, when they failed to
respond to his memoranda and did not report for work.
Finally, the Labor Arbiter concluded that respondents were guilty of
abandonment of work, and that their accusation of constructive
dismissal was false. As such, respondents were not entitled to the
awards as prayed for in their Complaints.
Ruling of the National Labor Relations Commission (NLRC)
Respondents filed an Appeal30 with the NLRC. In a September 30, 2002
Decision,31 the NLRC decreed, thus:
WHEREFORE, the Decision of the Labor Arbiter is hereby AFFIRMED
and complainants appeal therefrom is DISMISSED for lack of merit.
32
SO ORDERED. cralaw virtualaw library
The NLRC declared that there was no constructive dismissal. It held
that respondents failed to prove that they were constructively
dismissed; nor do the facts of the case sufficiently show that they
were constructively dismissed from employment.
Respondents moved for reconsideration, 33 but in a November 22,
2002 Resolution,34 the NLRC denied the same.
Ruling of the Court of Appeals
Respondents went up to the CA via an original Petition
for Certiorari.35 On August 29, 2008, the CA issued the assailed
Decision,36 decreeing as follows:
WHEREFORE, in view of the foregoing, finding that petitioners
Ceferino San Joaquin and Diosdado A. Fernandez were illegally
dismissed, the instant petition for certiorari is hereby GRANTED. The
30 September 2002 Decision of the National Labor Relations
Commission, Third Division is hereby REVERSED and SET ASIDE.
Private respondent Vicente Ang is hereby ordered to pay petitioners:
1. Separation pay in lieu of reinstatement considering that
resentment and enmity have transpired between the parties
paving the way for strained
relations;chanr0blesvirtualawlibrary
2. Backwages computed from the time of illegal dismissal of San
Joaquin and Fernandez from August 30, 1999, both up to the
date of the finality of this decision, without qualification or
deduction;chanr0blesvirtualawlibrary
3. Attorneys fees in the amount of ten (10) percent of the total
amount awarded to petitioners.
This case is hereby remanded to the National Labor Relations
Commission for the proper computation of the awards
hereinstated, with DISPATCH.
No pronouncement as to costs.
SO ORDERED.37cralaw virtualaw library
The CA held that the Labor Arbiter and the NLRC misappreciated the
facts which thus led to the erroneous conclusion that there was no
constructive dismissal. It considered Angs act of tearing the
respondents DTRs or time cards as a categorical indication of their
dismissal from employment. The CA declared, thus:
43
San Joaquin and Fernandez were constructively dismissed when Ang
tore their time cards to pieces thus preventing them from returning to
work.38cralaw virtualaw library
The CA also found that respondents did not abandon their
employment, as they both voluntarily reported for work: San Joaquin
went to the store on August 30, 1999 after the unfortunate incident of
August 28, 1999, only to find out that his time card had been torn to
pieces by Ang, while Fernandez reported for work and even received a
memorandum from Ang placing him under suspension, and this
despite the fact that previously, Ang had torn his time card to pieces.
It added that the immediate filing of illegal dismissal Complaints by
the respondents goes against the very concept of abandonment of
work.39cralaw virtualaw library
The CA further declared that constructive dismissal does not only
mean forthright dismissal or diminution in rank, compensation,
benefits and privileges; it may be equated with acts of clear
discrimination, insensibility or disdain by an employer as to be
unbearable on the part of the employee that it forecloses any choice
but to forego continued employment.40 Likewise, dismissal may be
defined as a quitting because continued employment is rendered
impossible, unreasonable or unlikely.41 It added that constructive
dismissal may occur when by the employers conduct or behavior, an
employee could not reasonably be expected to continue his
employment on account of the employers making his life very
difficult, as by vindictive action, harassment, or humiliation, among
others.42cralaw virtualaw library
The CA found unreasonble San Joaquins assignment to perform tasks
related to Angs other businesses, specifically Rosas restaurant. It held
that assigning San Joaquin to transfer Viroses monobloc chairs for use
by Leng-Lengs Foodshop was improper as it was beyond San
Joaquins scope of work.
Petitioner moved for reconsideration,43 but in its December 4, 2008
Resolution,44 the CA stood firm in its stance. Hence, the present
Petition.
Issues
Petitioner submits the following assignment of errors:
I
THE QUESTIONED DECISION AND RESOLUTION OF THE COURT OF
APPEALS REVERSING THE DECISION OF THE NATIONAL LABOR
RELATIONS COMMISSION WHICH AFFIRMED THE DECISION OF THE
LABOR ARBITER IS NOT IN ACCORDANCE WITH LAW AND
JURISPRUDENCE APPLICABLE TO THE CASE.
II
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE
NATIONAL LABOR RELATIONS COMMISSION AND THE LABOR ARBITER
AND ORDERING HEREIN PETITIONER TO PAY PRIVATE RESPONDENTS
SEPARATION PAY, BACKWAGES AND ATTORNEYS FEES.
III
WHETHER X X X THE PRIVATE RESPONDENTS HAVE ABANDONED
THEIR JOB THERE BEING NO PRAYER FOR REINSTATEMENT IN THEIR
COMPLAINT OR WERE THEY DISMISSED ILLEGALLY WHEN AT THE TIME
THEY FILED THEIR COMPLAINT THEY WERE STILL VERY MUCH IN THE
EMPLOY OF THE HEREIN PETITIONER.45cralaw virtualaw library
Petitioners Arguments
In his Petition and Reply,46 petitioner insists that respondents
abandoned their employment; that they are guilty of gross
insubordination/disobedience and misconduct, given the manner
they conducted themselves during the period in question. He cites
that contrary to the CA pronouncement, San Joaquin was an all-
around helper who could not refuse to carry out the August 28, 1999
44
order to transfer monobloc chairs from Virose to Leng-Lengs
Foodshop, such being within the scope of San Joaquins work.
Petitioner accuses San Joaquin of arrogance and disrespect when
after refusing to carry out the order, the latter shouted invectives at
petitioners wife, Rosa, and left the workplace. His dismissal from
employment was thus justified.
Petitioner further cites that he provided housing and assistance to San
Joaquin, his cousin; and yet the latter abused petitioners generosity
and rewarded the latter with acts of ingratitude and disrespect.
Petitioner insists that Fernandez abandoned his employment when,
after receiving the August 30, 1999 memorandum of suspension for
his alleged insubordination and serving out the same, he failed to
report for work; and in spite of the September 13, 1999
memorandum ordering him to return to work, Fernandez continued
to absent himself from the store. Petitioner likewise charges
Fernandez with gross misconduct for the September 5, 1999 incident.
Petitioner claims that his argument that abandonment exists is
bolstered by the fact that respondents respective Complaint and
Position Paper contain no prayer for reinstatement.
Respondents Arguments
In their Comment,47 respondents cite procedural errors, specifically
that the attached copies of the assailed Decision and Resolution of the
CA were not certified by the appellate courts Clerk of Court and that
the same contained no certification that they were from original
copies on file. They echo the appellate courts finding of illegal
constructive dismissal, and implore the Court to consider their length
of service and lack of a derogatory record. They beg the Court to
consider Angs oppressive conduct which is tied to the criminal cases
where they stood as witnesses against the latter, and how such
behavior made life in the workplace unbearable for them, which
should justify an affirmance of the assailed disposition.
Our Ruling
The Court affirms the CA ruling.
The Court opts to forego the matter of procedural errors attributed by
respondents. This is a labor case whose substantive issues must be
addressed, more than anything else. Besides, the nature of the
alleged procedural infirmity cannot prod the Court to dismiss the
Petition outright without first considering its merits.
When there is a divergence between the findings of facts of the NLRC
and that of the CA, there is a need to review the records.48 In the
present case, not only is there a divergence of findings of facts; the
conclusions arrived at by the two tribunals are diametrically opposed.
For this reason, the doctrine that the findings of specialized
administrative agencies or tribunals should be respected must be set
aside for a moment.
There is considerable reason to believe that Ang began to treat
respondents with disdain and discrimination after the hearing of the
criminal cases on August 24, 1999, where respondents testified
against him. Indeed, respondents claim in their Position Paper that
Ang began to subject them to verbal abuse, as well as assigning them
tasks which were not part of their work, is not far-fetched. All these,
respondents claim, are rooted in the 41 charges of estafa pending
against Ang, where they were compelled to testify as witnesses for
the State. Ang did not successfully dispute this claim; indeed, on this
issue, he has remained silent all along. His silence on this issue is
telling; considering that upon him lay the burden of proof to show
that no illegal dismissal was effected. He should have addressed this
issue, which is material and significant to the case as it forms the
foundation for respondents claim of illegal constructive dismissal.
45
The Court has held before that the filing of criminal charges by and
between the employer and employee confirms the existence of
strained relations between them.49 In the instant case, Ang is in
danger of being punished for the alleged commission of 41 counts of
estafa; worse, respondents testified against him while they were
under his employ, and they join the complainant in said cases in
accusing Ang of irregularities relative to the remittance of their SSS
contributions. Ang could not reasonably be expected to thank
respondents for it, yet he may not be allowed to treat them
oppressively either. Nevertheless, the existence of the criminal
charges and respondents testifying against petitioner prove that their
relations have been strained, and that respondents allegations of
oppression and abuse are not without basis. It thus became
incumbent upon Ang to dispute such claims.
The Court can only imagine how the relationship between Ang and
respondents deteriorated to a point where both parties began
treating each other with disrespect and hostility, subjecting each
other to indignities and resentful acts, thus making the store an
insufferable place to be in for respondents, who are mere employees
and as such were placed constantly under the mercy of petitioner. But
it must be emphasized that this situation was not brought about by
respondents; it appears without dispute that it was Ang who started
treating the respondents unfairly and oppressively. Respondents
reaction to their employers oppressive conduct may be explained
within the context of human nature and the need to defend oneself
against constant abuse. Respondents have stayed long with Ang with
no apparent derogatory record San Joaquin since 1974, while
Fernandez was employed in 1982 that they must be credited with
good faith. They merely reacted to the unfair treatment they received
from their employer after being called to testify against him in a
criminal trial. Our norms of social justice demand that we credit
employees with the presumption of good faith in the performance of
their duties, especially (where the employees have served the
employer for so long) without any tinge of dishonesty. 50cralaw
virtualaw library
This is not to say that respondents behavior toward Ang should be
condoned; indeed it is deplorable that an employee should shout
invectives against his employer or that he should show up in the
workplace in an intoxicated state. However, this only characterizes the
extent to which their employer-employee relationship had
degenerated, owing to vindictive and oppressive acts perpetrated by
the employer. Indeed, it is inconceivable that respondents would
suddenly take such a belligerent stance toward petitioner for no
reason at all; more so if it indeed is true that Ang provided the land
and housing of San Joaquin. Certainly, San Joaquin would not sacrifice
his blessings and dare go against Ang his cousin and provider of
employment and shelter unless he is pushed to the wall by the
latter. Yet while gross and abusive conduct on the part of respondents
is not tolerated, the Court notes that petitioners treatment of
respondents is equally unacceptable, and is tantamount to
constructive dismissal.
Constructive dismissal exists where there is cessation of work
because continued employment is rendered impossible, unreasonable
or unlikely, as an offer involving a demotion in rank and a diminution
in pay.51 It is a dismissal in disguise or an act amounting to dismissal
but made to appear as if it were not.52 Constructive dismissal may
likewise exist if an act of clear discrimination, insensibility, or disdain
by an employer becomes so unbearable on the part of the employee
that it could foreclose any choice by him except to forego his
continued employment.53 Constructive dismissal exists when the
employee involuntarily resigns due to the harsh, hostile, and
unfavorable conditions set by the employer.54 The test of
constructive dismissal is whether a reasonable person in the
employees position would have felt compelled to give up his position
under the circumstances.55cralaw virtualaw library
The CA is correct in its pronouncement that respondents were
46
constructively dismissed from work. Moreover, by destroying
respondents time cards, Ang discontinued and severed his
relationship with respondents. The purpose of a time record is to
show an employees attendance in office for work and to be paid
accordingly, taking into account the policy of no work, no pay. A
daily time record is primarily intended to prevent damage or loss to
the employer, which could result in instances where it pays an
employee for no work done;56 it is a mandatory requirement for
inclusion in the payroll, and in the absence of an employment
agreement, it constitutes evidence of employment. Thus, when Ang
tore the respondents time cards to pieces, he virtually removed them
from Viroses payroll and erased all vestiges of respondents
employment; respondents were effectively dismissed from work. The
act may be considered an outright not only symbolic termination
of the parties employment relationship; the last straw that finally
broke the camels back, as respondents put it in their Position Paper.
In addition, such tearing of respondents time cards confirms
petitioners vindictive nature and oppressive conduct, as well as his
reckless disregard for respondents rights.
For a termination of employment on the ground of abandonment to
be valid, the employer must prove, by substantial evidence, the
concurrence of [the employees] failure to report for work for no valid
reason and his categorical intention to discontinue employment. 57 In
the present case, it appears that there is no intention to abandon
employment; respondents repeated absence were caused by Angs
oppressive treatment and indifference which respondents simply
grew tired of and wanted a break from. Indeed, an employee cannot
be expected to work efficiently in an atmosphere where the
employers hostility pervades; certainly, it is too stressful and
depressing the threat of immediate termination from work, if not
aggression, is a heavy burden carried on the employees shoulder.
Respondents may have stayed away from work to cool off, but not
necessarily to abandon their employment. The fact remains that
respondents returned to work, but then their time cards had been
torn to pieces.
Besides, as correctly held by the CA, the immediate filing of the labor
case negates the claim of abandonment. Employees who immediately
protest their dismissal, as by filing a labor case, cannot logically be
said to have abandoned their employment. 58cralaw virtualaw library
Respondents could not be faulted for failing to submit their respective
replies to the petitioners memoranda. By the time they were notified
of the same, the labor Complaints had been filed; not to mention that
their cause of action is based on constructive dismissal, which they
claim occurred even prior to their receipt of the subject memoranda.
With the filing of their labor case, the submission of replies to the
petitioners memoranda became an unnecessary exercise.
Likewise, while respondents did not pray for reinstatement, this is no
valid indication that they abandoned their employment. It is, on the
other hand, proof of strained relations, such that they would seek
separation pay and risk unemployment, rather than fight for their
reinstatement and maintain themselves under petitioners employ.
Finally, interest at the rate of 6% per annum must be imposed in
accordance with Circular No. 799, Series of 2013 of the Bangko
Sentral ng Pilipinas which took effect July 1, 2013.
WHEREFORE, premises considered, the Petition is DENIED. The
August 29, 2008 Decision and the December 4, 2008 Resolution of the
Court of Appeals in CA-G.R. SP No. 75545 are AFFIRMED with
MODIFICATION in that interest at the rate of 6% per annum on the
total monetary awards from finality of this Decision until full payment
is hereby imposed.
SO ORDERED.
SECOND DIVISION
47
 [G.R. No. 131108. March 25, 1999]
ASIAN ALCOHOL CORPORATION, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, FOURTH DIVISION, CEBU CITY and
ERNESTO A. CARIAS, ROBERTO C. MARTINEZ, RAFAEL H.
SENDON, CARLOS A. AMACIO, LEANDRO O. VERAYO and
ERENEO S. TORMO, respondents.
DECISION
PUNO, J.:
Contending that the dismissal of private respondents Ernesto A.
Carias, Roberto C. Martinez, Rafael H. Sendon, Carlos A. Amacio,
Leandro O. Verayo and Ereneo S. Tormo, was valid on the twin
grounds of redundancy and retrenchment to prevent business losses,
petitioner Asian Alcohol Corporation (hereinafter referred to as Asian
Alcohol) filed this petition for certiorari. Asian Alcohol ascribes grave
abuse of discretion to public respondents National Labor Relations
Commission[1] (hereinafter referred to as NLRC) when, on May 30,
1997, it set aside[2] the decision[3] of the Executive Labor Arbiter
dismissing the illegal termination complaints filed by private
respondents.
We first unfurl the facts.
In September, 1991, the Parsons family, who originally owned the
controlling stocks in Asian Alcohol, were driven by mounting business
losses to sell their majority rights to prior Holdings, Inc. (hereinafter
referred to as Prior Holdings). The next month, Prior Holdings took
over its management and operation.[4]
To thwart further losses, Prior Holdings implemented a
reorganizational plan and other cost-saving measures. Some one
hundred seventeen (117) employees out of a total workforce of three
hundred sixty (360) were separated. Seventy two (72) of them
occupied redundant positions that were abolished. Of these positions,
twenty one (21) were held by union members and fifty one (51) by
non-union members.
The six (6) private respondents are among those union
members[5] whose positions were abolished due to
redundancy. Private respondents Carias, Martinez, and Sendon were
water pump tenders; Amacio was a machine shop mechanic; Verayo
was a briquetting plant operator while Tormo was a plant helper
under him. They were all assigned at the Repair and Maintenance
Section of the Pulupandan plant.[6]
In October, 1992, they received individual notices of termination
effective November 30, 1992.[7] They were paid the equivalent of one
month salary for every year of service as separation pay, the money
value of their unused sick, vacation, emergency and seniority leave
credits, thirteenth (13th) month pay for the year 1992, medicine
allowance, tax refunds, and goodwill cash bonuses for those with at
least ten (10) years of service.[8] All of them executed sworn releases,
waivers and quitclaims.[9] Except for Verayo and Tormo, they all signed
sworn statements of conformity to the company retrenchment
program.[10] And except for Martinez, they all tendered letters of
resignation.[11]
On December 18, 1992, the six (6) private respondents files with
the NLRC Regional Arbitration Branch VI, Bacolod City, complaints for
illegal dismissal with a prayer for reinstatement with backwages,
moral damages and attorneys fees. They alleged that Asian Alcohol
used the retrenchment program as a subterfuge for the union
busting. They claimed that they were singled out for separation by
reason for their active participation in the union. They also
asseverated that Asian Alcohol was not bankrupt as it has engaged in
an aggressive scheme of contractual hiring.
The Executive Labor Arbiter dismissed the complaints. He
explained, thus:
48
The fact that respondents AAC incurred losses in its business
operations was not seriously challenged by the complainants. The fact
that it incurred substantial losses in its business operations prior to
the implementation of its retrenchment program is amply supported
by the documents on records, (sic) namely: (1) Balance Sheet of AAC
as of December 31, 1991 x x x, (2) Statement of Income and Deficit for
the year ended December 31, 1991 x x x, (3) Income Tax Return for
Fiscal Year ending September 30, 1989 x x x, (4) Income Tax Return for
the Fiscal Year ending December 31, 1989 x x x, (5) Income Tax Return
for Fiscal Year ending December 31, 1990 x x x, and (6) Income Tax
Return for the Fiscal Year ending December 31, 1991 x x x, indicating
an accumulated deficit of P26,117,889.00.
It has to be emphasized that the law allows an employer to retrench
some of its employees to prevent losses. In the case of respondent
AAC, it implemented its retrenchment program not only to prevent
losses but to prevent further losses as it was then incurring huge
losses in its operations.
Complainants would want us to believe that their positions were
abolished because they are union members, and that they were
replaced by casual employees. Complainants pretense is rather
untenable. For one thing, the retrenchment program of AAC affected
not only union members but also the non-union members. As earlier
said, there were 117 employees of AAC who were affected by the
reorganization. Of the 117 positions, 72 positions were abolished due
to redundancy, 21 of which were occupied by union members, while
51 were held by non-union members. Thus, the theory of
complainants that they were terminated from work on ground of their
union membership is far from the truth.
On the contrary, we find that complainants Ernesto Carias, Roberto
Martinez and Rafael Sendon who were all Water Pump Tenders
assigned to AACs water wells in Ubay, Pulupandan, Negros Occidental
which were drilled and operated before under the old management
by virtue of right-of-way with the landowner, were retrenched as an
offshoot to the termination of the lease agreement as the water
thereunder had become salty due to extensive prawn farming nearby,
so that AAC could no longer use the water for its purpose. As a
consequence, the services of Ernesto Carias, Roberto Martinez and
Rafael Sendon had become unnecessary, redundant and superfluous.
As regards complainants Leandro Verayo and Ereneo Tormo, the
grounds cited by respondent AAC in support of its decision to retrench
them are too convincing to be ignored. Accordingly to respondent
AAC, its boiler before was 100% coal fired. The boiler was manned by
a briquetting plant operator in the person of Leandro Verayo and
three (3) briquetting helpers, namely, Ereneo Tormo, Eriberto
Songaling, Jr. and Rudy Javier, Jr. Since AAC had shifted to the use of
bunker fuel by about 70% to fire its boiler, its usage of coal had been
drastically reduced to only 30% of its total fuel usage in its production
plant, thereby saving on fuel cost. For this reason, there was no more
need for the position of briquetting plant operator and the services
for only two briquetting helpers were determined to be adequate for
the job of briquetting coal. Of the three (3) briquetting helpers,
Ereneo Tormo was the oldest, being already 41 years old, the other
two, Javier and Songaling, being only 28 and 35
respectively. Considering the manual nature of the work of coal
briquetting, younger workers are always preferred for reasons of
efficiency [sic]. Hence the abolition of the position of Ereneo
Tormo. We have to stress that Eriberto Songaling, Jr. and Rudy Javier,
Jr. are also union members. x x x
With respect to Carlos Amacio, he was retrenched not because of his
being a union member but because of his poor health condition which
greatly affect[ed] his work efficiency. Records show that Carlos
Amacio was among the ten machine shop mechanics employed by
respondent AAC. Under AACs reorganization plan, it needs only nine
mechanics.
xxx
49
On the whole, therefore, the dismissal of complainants on ground of Admittedly, from the testimonies of Engr. Palmares, the wells of the
redundancy/retrenchment was perfectly valid or legal. [12] respondent were operated by contractors. Otherwise stated,
complainant[s] who are regular workers of the respondent,
Private respondents appealed to the NLRC. performing jobs necessary and desirable to the business of the
company, were eased out in the guise of retrenchment or redundancy
On May 30, 1997, the NLRC rendered the challenged decision. It
[so that] their jobs [will] be performed by workers belonging to a
rejected the evidence proffered by Asian Alcohol to prove its business
contractor.
reversals. It ruled that the positions of private respondents were not
redundant for the simple reason that they were replaced by
In summation, retrenchment and/or redundancy not having been
casuals. The NLRC essayed this explanation:
proved, complainants, therefore, were illegally dismissed.[13]
In this case, [that] the respondent terminated complainants to protect
The dispositive portion of the decision of the NLRC provides as
the company from future losses, does not create an impression of
follows:
imminent loss. The company at the time of retrenchment was not
then in the state of business reverses. There is therefore no reason to
WHEREFORE, premises considered, the Decision appealed from is
retrench. x x x
hereby ordered SET ASIDE and VACATED and in lieu thereof, the
respondent Asian Alcohol Corporation is hereby ordered to reinstate
The alleged deficits of the corporations did not prove anything for the
complainants with full backwages from the time they were dismissed
respondent. The financial status as shown in the Statement of Income
on November 30, 1992 and up to actual reinstatement. Plus 10%
and Deficits and Income Tax Returns from 1989 to 1991, submitted by
attorneys fees.
respondent was before the respondent, new management of Prior
Holdings, Inc., took over the operation and management of the
SO ORDERED.[14]
corporation in October, 199[1]. This is no proof that on November 30,
1992 when the termination of complainant[s] took effect the
On July 2, 1997, Asian Alcohol moved for reconsideration of the
company was experiencing losses or at least imminent losses. Possible
foregoing decision. On September 25, 1997, the NLRC denied the
future losses do not authorize retrenchment.
motion.[15]
Secondly in the case of REDUNDANCY. On January 12, 1998, Asian Alcohol filed in this Court a petition
for certiorari assailing both the decision of the NLRC and the
Redundancy exist where the service[s] of x x x employee[s] are in resolution denying its reconsideration. It invoked the following
excess of what is reasonably demanded by the actual requirements of grounds:
the enterprise. The evidence, however, proved that, in truth and in
fact, the positions of the complainants were not redundant for the 6. GROUNDS FOR THE PETITION
simple reason that they were replaced by casuals.
6.1 Public respondent has committed, as hereinafter shown, a
xxx manifest grave abuse of discretion amounting to lack or excess of

50
 [20]
jurisdiction in declaring in its assailed Decision x x x and Resolution x x Corollarily, the law allows an employer to downsize his business to
x that the termination of the employment of private respondents by meet clear and continuing economic threats. [21] Thus, this Court has
the petitioner herein is illegal and ordering their reinstatement with upheld reductions in the work force to forestall business losses or stop
full backwages from the time they were dismissed on November 30, the hemorrhaging of capital.[22]
1992 up to their actual reinstatement, plus 10% attorneys fees, said
The right of management to dismiss workers during periods of
Decision and Resolution of the public respondents being contrary to
business recession and to install labor saving devices to prevent losses
the established facts of the case, well-settled jurisprudence and the
is governed by Art. 283 of the Labor Code, as amended. It provides,
law on the matter.
viz.:
6.2 Public respondent has likewise committed, as hereinafter shown, a
Art. 283. Closure of establishment and reduction of personnel.--The
manifest grave abuse of discretion amounting to lack or excess of
employer may also terminate the employment of any employee due
jurisdiction by totally disregarding and refusing to consider the factual
to the installation of labor saving devices, redundancy, retrenchment
findings of the Executive Labor Arbiter with respect to the
to prevent losses or the closing or cessation of operation of the
circumstances which rendered the positions of the private
establishment or undertaking unless the closing is for the purpose of
respondents unnecessary, redundant and superfluous, thereby
circumventing the provisions of this Title, by serving a written notice
justifying the termination of their employment.
on the workers and the Ministry of Labor and Employment at least
one (1) month before the intended date thereof. In case of
6.3 Public respondents has furthermore committed, as hereinafter
termination due to the installation of labor saving devices or
shown, a manifest grave abuse of discretion amounting to lack or
redundancy, the worker affected thereby shall be entitled to a
excess of jurisdiction in giving full credit to the oral testimonies
separation pay equivalent to at least his one (1) month pay or to at
quoted in its assailed Decision x x x and taking them as conclusive
least one (1) month pay for every year of service, whichever is
proof of the alleged replacement of the private respondents with
higher. In case of retrenchment to prevent losses and in case of
casual workers despite the fact that said quoted testimonies clearly
closures or cessation of operations of establishment or undertaking
amount to nothing but speculations, surmises and conjectures.[16]
not due to serious business losses or financial reverses, the separation
pay shall be equivalent to one (1) month pay or at least one-half (1/2)
On March 25, 1998, we issued a Temporary Restraining
month pay for every year of service, whichever is higher. A fraction of
Order[17] enjoining the NLRC from enforcing its Decision and
at least six (6) months shall be considered one (1) whole year.
Resolution dated May 30, 1997 and September 25, 1997, respectively.
[emphasis ours]
We find the petition meritorious.
Under the foregoing provisions, retrenchment and redundancy
Out of its concern for those with less privilege in life, this Court
are just causes for the employer to terminate the services of workers
has inclined towards the worker and upheld his cause in his conflicts
to preserve the viability of the business. In exercising its right,
with the employer.[18] This favored treatment is directed by the social
however, management must faithfully comply with the substantive
justice policy of the Constitution. [19] But while tilting the scales of
and procedural requirements laid down by law and jurisprudence. [23]
justice in favor of workers, the fundamental law also guarantees the
right of the employer to reasonable returns from his investments.
51
 The requirements for valid retrenchment which must be proved
by clear and convincing evidence are: (1) that the retrenchment is
reasonably necessary and likely to prevent business losses which, if
already incurred, are not merely de minimis, but substantial, serious,
actual and real, or if only expected, are reasonably imminent as
perceived objectively and in good faith by the employer; [24] (2) that
the employer served written notice both to the employees and to the
Department of Labor and Employment at least one month prior to the
intended date of retrenchment;[25](3) that the employer pays the
retrenched employees separation pay equivalent to one month pay or
at least month pay for every year of service, whichever is higher; [26] (4)
that the employer exercises its prerogative to retrench employees in
good faith for the advancement of its interest and not to defeat or
circumvent the employees right to security of tenure; [27] and (5) that
the employer used fair and reasonable criteria [28] in ascertaining who
would be dismissed and who would be retained among the
employees, such as status (i.e., whether they are temporary, casual,
regular or managerial employees), efficiency, seniority, [29] physical
fitness, age, and financial hardship for certain workers. [30]
The condition of business losses is normally shown by audited
financial documents like yearly balance sheets and profit and loss
statements as well as annual income tax returns. [31] It is our ruling that
financial statements must be prepared and signed by independent
auditors.[32] Unless duly audited, they can be assailed as self-serving
documents.[33] But it is not enough that only the financial statements
for the year during which retrenchment was undertaken, are
presented in evidence. For it may happen that while the company has
indeed been losing, its losses may be on a downward trend, indicating
that business is picking up and retrenchment, being a drastic move,
should no longer be resorted to. [34] Thus, the failure of the employer
to show its income or loss for the immediately preceding year or to
prove that it expected no abatement of such losses in the coming
years, may bespeak the weakness of its cause. [35] It is necessary that
the employer also show that its losses increased through a period of
time and that the condition of the company is not likely to improve in
the near future.[36]
In the instant case, private respondents never contested the
veracity of the audited financial documents proffered by Asian Alcohol
before the Executive Labor Arbiter. Neither did they object their
admissibility. They show that petitioner has accumulated losses
amounting to P306,764,349.00 and showing nary sign of abating in
the near future. The allegation of union busting is bereft of
proof. Union and non-union members were treated alike. The records
show that the positions of fifty one (51) other non-union members
were abolished due to business losses.
In rejecting petitioners claim of business losses, the NLRC stated
that the alleged deficits of the corporation did not prove anything for
the [petitioners][37] since they were incurred before the take over of
Prior Holdings. Theorizing that proof of losses before the take over is
no proof of losses after the take over, it faulted Asian Alcohol for
retrenching private respondent on the ground of mere possible future
losses[38].
We do not agree. It should be observed that Article 283 of the
Labor Code uses the phrase retrenchment to prevent losses. In its
ordinary connotation, this phrase means that retrenchment must be
undertaken by the employer before losses are actually sustained.
[39]
We have, however, interpreted the law to mean that the employer
need not keep all his employees until after his losses shall have
materialized.[40] Otherwise, the law could be vulnerable to attack as
undue taking of property for the benefit of another.[41]
In the case at bar, Prior Holdings took over the operations of
Asian Alcohol in October 1991. Plain to see, the last quarter losses in
1991 were already incurred under the new management.There were
no signs that these losses would abate. Irrefutable was the fact that
losses have bled Asian Alcohol incessantly over a span of several
years. They were incurred under the management of the Parsons
family and continued to be suffered under the new management of
52
Prior Holdings. Ultimately, it is Prior Holding that will absorb all the
losses, including those incurred under the former owners of the
company. The law gives the new management every right to
undertake measures to save the company from bankruptcy.
We find that the reorganizational plan and comprehensive cost-
saving program to turn the business around were nor designed to
bust the union of the private respondent. Retrenched were one
hundred seventeen (117) employees. Seventy two (72) of them
including private respondent were separated because their positions
had become redundant. In this context, what may technically be
considered as redundancy may verily be considered as retrenchment
measures.[42] Their positions had to be declared redundant to cut
losses.
Redundancy exist when the service capability of the work is in
excess of what is reasonably needed to meet the demands on the
enterprise. A redundant position is one rendered superfluous by any
number of factors, such as overhiring of workers, decreased volume
of business, dropping of a particular product line previously
manufactured by the company or phasing out of a service activity
priorly undertaken by the business. [43] Under these conditions, the
employer has no legal obligation to keep in its payroll more
employees than are necessary for the operation of its business. [44]
For the implementation of a redundancy program to be valid, the
employer must comply with the following requisites: (1) written
notice served on both the employees and the Department of Labor
and Employment at least one moth prior to the intended date of
retrenchment;[45] (2) payment of separation pay equivalent to at least
one month pay or at least one month pay for every year of service
whichever is higher; (3) good faith in abolishing the redundant
positions;[46] and (4) fair and reasonable criteria in ascertaining what
positions are to be declared redundant and accordingly abolished.[47]
In the case at bar, private respondent Carias, Martinez and
Sendon were water pump tenders. They tended the water wells of
Asian Alcohol located in Ubay, Pulupandan, Negros
Occidental.However, Asian Alcohol did not own the land where the
wells stood. It only leased them.
In 1992, the lease contract which also provided for a right of way
leading to the site of the wells, was terminated. Also, the water from
the wells had become salty due to extensive prawn farming nearby
and could no longer be used by Asian Alcohol for its purpose. The
wells had to be closed and needless to say, the services of Carias,
Martinez and Sendon had to be terminated on the twin grounds of
redundancy and retrenchment.
Private respondent Verayo was the briquetting plant operator in
charge of the coal-fired boiler. Private respondent Tormo was one of
the three briquetting helpers. To enhance production efficiency, the
new management team shifted to the use of bunker fuel by about
seventy percent (70%) to fire its boiler. The shift meant substantial
fuel cost savings. In the process, however the need for a briquetting
plant operator ceased as the services of only two (2) helpers were all
that was necessary to attend to the much lesser amount of coal
required to run the boiler. Thus, the positions of private respondent
Verayo had to be abolished. Of the three (3) briquetting helpers,
Tormo, was the oldest, being already 41 years old. The other two,
Rudy Javier Jr. and Eriberto Songaling, Jr., were younger, being only
28 and 35, respectively. Age, with the physical strength that comes
with it, was particularly taken into consideration by the management
team in deciding whom to separate. Hence, it was private respondent
Tormo who was separated from service. The management choice
rested on a rational basis.
Private respondent Amacio was among the ten (10) mechanics
who manned the machine shop at the plant site. At their current
production level, the new management found that it was more cost
efficient to maintain only nine (9) mechanics. In choosing whom to
separate among the ten (10) mechanics, the management examined
employment records and reports to determine the least efficient
53
among them. It was private respondent Amacio who appeared the WITNESS:
least efficient because of his poor health conditions.
A I am not sure, maybe.[50]
Not one of the private respondents refuted the foregoing
In any event, we have held that an employers good faith in
facts. They only contend that the new management should have
implementing a redundancy program is not necessarily destroyed by
followed the policy of first in, last out in choosing which positions to
availment of the services of an independent contractor to replace the
declare as redundant or whom to retrench to prevent further business
services of the terminated employees. We have previously ruled that
losses. No law mandates such a policy. And the reason is simple
the reduction of the number of workers in a company made necessary
enough. A host of relevant factors come into play in determining cost
by the introduction of the services of an independent contractor is
efficient measures and in choosing the employees who will be
justified when the latter is undertaken in order to effectuate more
retained or separated to save the company from closing shop. In
economic and efficient methods of production.[51] In the case at bar,
determining these issues, management has to enjoy a pre-eminent
private respondent failed to proffer any proof that the management
role. The characterization of positions as redundant is an exercise of
acted in a malicious or arbitrary manner in engaging the services of an
business judgment on the part of the employer. [48] It will be upheld as
independent contractor to operate the Laura wells. Absent such proof,
long as it passes the test of arbitrariness.[49]
the Court has no basis to interfere with the bona fide decision of
Private respondents call our attention to their allegation that management to effect more economic and efficient methods of
casuals were hired to replace Carias, Martinez and Sendon as water production.
pump tenders at the Ubay wells. They rely on the testimony of Engr.
Finally, private respondents now claim that they signed the
Federico Palmares, Jr., the head of the Mechanical Engineering
quitclaims, waivers and voluntary resignation letters only to get their
Department who admitted the engagement of independent
separation package. They maintain that in principle, they did not
contractors to operate the wells. A reading of the testimony of Engr.
believe that their dismissal was valid.
Palmares, however, will reveal that he referred not to the Ubay wells
which were tended by private respondents Carias, Martinez and It is true that this court has generally held that quitclaims and
Sendon, but to the Laura wells. Thus, he declared in cross releases are contrary to public policy and therefore,
examinations: void. Nonetheless, voluntary agreements that represents a reasonable
settlement are binding on the parties and should not later be
ATTY. YMBALLA: (cross-examination of respondent witness,
disowned. It is only where there is clear proof that the waiver was
Federico Palmares)
wangled from an unsuspecting or gullible person, or the terms of
Q But in the Laura well? settlement are unconscionable, that the law will step in to bail out the
employees. While it is our duty to prevent the exploitation of
WITNESS:
employees, it is also behooves us to protect the sanctity of contracts
A Mansteel was hired as contractor. that do not contravene our laws.
ATTY. YMBALLA: In the case at bar, there is no showing that the quitclaims, waivers
and voluntary resignation letters were executed by the private
Q In other words, the persons mentioned are all workers
respondents under force or duress. In truth, the documents embodied
of independent contractors?
54
separation benefits that were well beyond what the company was BRION and
legally required to give private respondents. We note that out of more PERALTA, JJ.
than one hundred workers that were retrenched by Asian Alcohol, PHILIPPINE TELEGRAPH AND
only these six (6) private respondents were not impressed by the TELEPHONE COMPANY and
generosity of their employer. Their late complaints have no basis and JOSE LUIS SANTIAGO,
deserve our scant consideration. Respondents. Promulgated:
IN VIEW WHEREOF, the petition is GRANTED. The Decision of the
National Labor Relations Commission dated May 30, 1997 and its April 7, 2009
Resolution dated September 25, 1997 are ANNULED AND SET x--------------------------------------------------x
ASIDE. The Decision of the Executive Labor Arbiter dated January 10,
1996 in RAB Case No. 06-12-10893-92 is ORDERED REINSTATED. The DECISION
complaints for illegal dismissal filed by private respondents against
CORONA, J.:
Asian Alcohol Corporation are hereby ORDERED DISMISSED FOR LACK
OF MERIT. No cost.
Petitioners Felix B. Perez and Amante G. Doria were employed
SO ORDERED.
FELIX B. PEREZ and G.R. No. 152048 by respondent Philippine Telegraph and Telephone Company (PT&T)
AMANTE G. DORIA, as shipping clerk and supervisor, respectively, in PT&Ts Shipping
Petitioners,
Present: Section, Materials Management Group.
PUNO, C.J.,
QUISUMBING,
YNARES- Acting on an alleged unsigned letter regarding anomalous
SANTIAGO, transactions at the Shipping Section, respondents formed a special
CARPIO,
AUSTRIA- audit team to investigate the matter. It was discovered that the
MARTINEZ,*
Shipping Section jacked up the value of the freight costs for goods
- v e r s u s - CORONA,
CARPIO shipped and that the duplicates of the shipping documents allegedly
MORALES,
TINGA, showed traces of tampering, alteration and superimposition.
CHICO-NAZARIO,
VELASCO, JR.,
On September 3, 1993, petitioners were placed on preventive
NACHURA,
LEONARDO-DE CASTRO, suspension for 30 days for their alleged involvement in the anomaly.
55
[1]
Their suspension was extended for 15 days twice: first on October 3, The National Labor Relations Commission (NLRC) reversed the

1993[2] and second on October 18, 1993.[3] decision of the labor arbiter. It ruled that petitioners were dismissed

for just cause, that they were accorded due process and that they
On October 29, 1993, a memorandum with the following tenor
were illegally suspended for only 15 days (without stating the reason
was issued by respondents:
for the reduction of the period of petitioners illegal suspension). [6]
In line with the recommendation of the AVP-Audit as
presented in his report of October 15, 1993 (copy Petitioners appealed to the Court of Appeals (CA). In its
attached) and the subsequent filing of criminal charges
against the parties mentioned therein, [Mr. Felix Perez January 29, 2002 decision,[7] the CA affirmed the NLRC decision insofar
and Mr. Amante Doria are] hereby dismissed from the
as petitioners illegal suspension for 15 days and dismissal for just
service for having falsified company documents.
[4]
(emphasis supplied) cause were concerned. However, it found that petitioners were

dismissed without due process.

On November 9, 1993, petitioners filed a complaint for illegal

Petitioners now seek a reversal of the CA decision. They
suspension and illegal dismissal.[5] They alleged that they were
contend that there was no just cause for their dismissal, that they
dismissed on November 8, 1993, the date they received the above-
were not accorded due process and that they were illegally suspended
mentioned memorandum.
for 30 days.

The labor arbiter found that the 30-day extension of We rule in favor of petitioners.

petitioners suspension and their subsequent dismissal were both

illegal. He ordered respondents to pay petitioners their salaries during RESPONDENTS FAILED TO PROVE JUST
CAUSE AND TO OBSERVE DUE PROCESS
their 30-day illegal suspension, as well as to reinstate them with
backwages and 13th month pay.

56
 The CA, in upholding the NLRCs decision, reasoned that there
was sufficient basis for respondents to lose their confidence in
petitioners[8] for allegedly tampering with the shipping documents.
Respondents emphasized the importance of a shipping order or
request, as it was the basis of their liability to a cargo forwarder. [9]
We disagree.
Without undermining the importance of a shipping order or
request, we find respondents evidence insufficient to clearly and
convincingly establish the facts from which the loss of confidence
resulted.[10] Other than their bare allegations and the fact that such
documents came into petitioners hands at some point, respondents
should have provided evidence of petitioners functions, the extent of
their duties, the procedure in the handling and approval of shipping
requests and the fact that no personnel other than petitioners were
involved. There was, therefore, a patent paucity of proof connecting
petitioners to the alleged tampering of shipping documents.
The alterations on the shipping documents could not
reasonably be attributed to petitioners because it was never proven
that petitioners alone had control of or access to these documents.
Unless duly proved or sufficiently substantiated otherwise, impartial
tribunals should not rely only on the statement of the employer that it
has lost confidence in its employee.[11]
Willful breach by the employee of the trust reposed in him by
his employer or duly authorized representative is a just cause for
termination.[12] However, in General Bank and Trust Co. v. CA, [13] we
said:
[L]oss of confidence should not be simulated. It should
not be used as a subterfuge for causes which are
improper, illegal or unjustified. Loss of confidence may
not be arbitrarily asserted in the face of overwhelming
evidence to the contrary. It must be genuine, not a
mere afterthought to justify an earlier action taken in
bad faith.
The burden of proof rests on the employer to establish that
the dismissal is for cause in view of the security of tenure that
employees enjoy under the Constitution and the Labor Code. The
employers evidence must clearly and convincingly show the facts on
which the loss of confidence in the employee may be fairly made to
rest.[14] It must be adequately proven by substantial evidence.
[15]
Respondents failed to discharge this burden.
57
 Respondents illegal act of dismissing petitioners was
aggravated by their failure to observe due process. To meet the
requirements of due process in the dismissal of an employee, an
employer must furnish the worker with two written notices: (1) a
written notice specifying the grounds for termination and giving to
said employee a reasonable opportunity to explain his side and (2)
another written notice indicating that, upon due consideration of all
circumstances, grounds have been established to justify the
employer's decision to dismiss the employee. [16]
Petitioners were neither apprised of the charges against them
nor given a chance to defend themselves. They were simply and
arbitrarily separated from work and served notices of termination in
total disregard of their rights to due process and security of tenure.
The labor arbiter and the CA correctly found that respondents failed
to comply with the two-notice requirement for terminating
employees.
Petitioners likewise contended that due process was not
observed in the absence of a hearing in which they could have
explained their side and refuted the evidence against them.
There is no need for a hearing or conference. We note a
marked difference in the standards of due process to be followed as
prescribed in the Labor Code and its implementing rules. The Labor
Code, on one hand, provides that an employer must provide the
employee ample opportunity to be heard and to defend himself with
the assistance of his representative if he so desires:
ART. 277. Miscellaneous provisions. x x x
(b) Subject to the constitutional right of workers to
security of tenure and their right to be protected
against dismissal except for a just and authorized cause
and without prejudice to the requirement of notice
under Article 283 of this Code, the employer shall
furnish the worker whose employment is sought to be
terminated a written notice containing a statement of
the causes for termination and shall afford the
latter ample opportunity to be heard and to defend
himself with the assistance of his representative if he
so desires in accordance with company rules and
regulations promulgated pursuant to guidelines set by
the Department of Labor and Employment. Any
decision taken by the employer shall be without
prejudice to the right of the worker to contest the
validity or legality of his dismissal by filing a complaint
with the regional branch of the National Labor
Relations Commission. The burden of proving that the
termination was for a valid or authorized cause shall
rest on the employer. (emphasis supplied)
58
 The omnibus rules implementing the Labor Code, on the other
hand, require a hearing and conference during which the employee
concerned is given the opportunity to respond to the charge, present
his evidence or rebut the evidence presented against him:[17]
Section 2. Security of Tenure. x x x
(d) In all cases of termination of employment,
the following standards of due process shall be
substantially observed:
For termination of employment based on just
causes as defined in Article 282 of the Labor Code:
(i) A written notice served on the employee
specifying the ground or grounds for termination, and
giving said employee reasonable opportunity within
which to explain his side.
(ii) A hearing or conference during which the
employee concerned, with the assistance of counsel if
he so desires, is given opportunity to respond to the
charge, present his evidence or rebut the evidence
presented against him.
(iii) A written notice of termination served on
the employee, indicating that upon due consideration
of all the circumstances, grounds have been
established to justify his termination. (emphasis
supplied)
Which one should be followed? Is a hearing (or conference)
mandatory in cases involving the dismissal of an employee? Can the
apparent conflict between the law and its IRR be reconciled?
At the outset, we reaffirm the time-honored doctrine that, in
case of conflict, the law prevails over the administrative regulations
implementing it.[18] The authority to promulgate implementing rules
proceeds from the law itself. To be valid, a rule or regulation must
conform to and be consistent with the provisions of the enabling
statute.[19] As such, it cannot amend the law either by abridging or
expanding its scope.[20]
Article 277(b) of the Labor Code provides that, in cases of
termination for a just cause, an employee must be given ample
opportunity to be heard and to defend himself. Thus, the opportunity
to be heard afforded by law to the employee is qualified by the word
ample which ordinarily means considerably more than adequate or
sufficient.[21] In this regard, the phrase ample opportunity to be heard
can be reasonably interpreted as extensive enough to cover actual
hearing or conference. To this extent, Section 2(d), Rule I of the
Implementing Rules of Book VI of the Labor Code is in conformity with
Article 277(b).
59
 Nonetheless, Section 2(d), Rule I of the Implementing Rules of of due process outlined therein shall be observed substantially, not

Book VI of the Labor Code should not be taken to mean that holding strictly. This is a recognition that while a formal hearing or conference

an actual hearing or conference is a condition sine qua non for is ideal, it is not an absolute, mandatory or exclusive avenue of due

compliance with the due process requirement in termination of process.

employment. The test for the fair procedure guaranteed under Article
An employees right to be heard in termination cases under
277(b) cannot be whether there has been a formal pretermination
Article 277(b) as implemented by Section 2(d), Rule I of the
confrontation between the employer and the employee. The ample
Implementing Rules of Book VI of the Labor Code should be
opportunity to be heard standard is neither synonymous nor similar
interpreted in broad strokes. It is satisfied not only by a formal face to
to a formal hearing. To confine the employees right to be heard to a
face confrontation but by any meaningful opportunity to controvert
solitary form narrows down that right. It deprives him of other equally
the charges against him and to submit evidence in support thereof.
effective forms of adducing evidence in his defense. Certainly, such an

exclusivist and absolutist interpretation is overly restrictive. The very A hearing means that a party should be given a chance to
nature of due process negates any concept of inflexible procedures adduce his evidence to support his side of the case and that the
universally applicable to every imaginable situation.[22] evidence should be taken into account in the adjudication of the

controversy.[23] To be heard does not mean verbal argumentation

The standard for the hearing requirement, ample opportunity,
alone inasmuch as one may be heard just as effectively through
is couched in general language revealing the legislative intent to give
written explanations, submissions or pleadings. [24] Therefore, while the
some degree of flexibility or adaptability to meet the peculiarities of a
phrase ample opportunity to be heard may in fact include an actual
given situation. To confine it to a single rigid proceeding such as a
hearing, it is not limited to a formal hearing only. In other words, the
formal hearing will defeat its spirit.
existence of an actual, formal trial-type hearing, although preferred, is
Significantly, Section 2(d), Rule I of the Implementing Rules of
not absolutely necessary to satisfy the employees right to be heard.
Book VI of the Labor Code itself provides that the so-called standards
60
 This Court has consistently ruled that the due process
requirement in cases of termination of employment does not require
an actual or formal hearing. Thus, we categorically declared
in Skippers United Pacific, Inc. v. Maguad:[25]
The Labor Code does not, of course, require a formal
or trial type proceeding before an erring employee
may be dismissed. (emphasis supplied)
In Autobus Workers Union v. NLRC,[26] we ruled:
The twin requirements of notice and hearing
constitute the essential elements of due process. Due
process of law simply means giving opportunity to be
heard before judgment is rendered. In fact, there is no
violation of due process even if no hearing was
conducted, where the party was given a chance to
explain his side of the controversy. What is frowned
upon is the denial of the opportunity to be heard.
xxxxxxxxx
A formal trial-type hearing is not even
essential to due process. It is enough that the parties
are given a fair and reasonable opportunity to explain
their respective sides of the controversy and to
present supporting evidence on which a fair decision
can be based. This type of hearing is not even
mandatory in cases of complaints lodged before the
Labor Arbiter. (emphasis supplied)
In Solid Development Corporation Workers Association v. Solid
Development Corporation,[27] we had the occasion to state:
[W]ell-settled is the dictum that the twin requirements
of notice and hearing constitute the essential elements
of due process in the dismissal of employees. It is a
cardinal rule in our jurisdiction that the employer must
furnish the employee with two written notices before
the termination of employment can be effected: (1) the
first apprises the employee of the particular acts or
omissions for which his dismissal is sought; and (2) the
second informs the employee of the employers
decision to dismiss him. The requirement of a hearing,
on the other hand, is complied with as long as there
was an opportunity to be heard, and not necessarily
that an actual hearing was conducted.
In separate infraction reports, petitioners were
both apprised of the particular acts or omissions
constituting the charges against them. They were also
required to submit their written explanation within 12
hours from receipt of the reports. Yet, neither of them
complied. Had they found the 12-hour period too
short, they should have requested for an extension of
time. Further, notices of termination were also sent to
them informing them of the basis of their dismissal. In
fine, petitioners were given due process before they
were dismissed. Even if no hearing was conducted, the
requirement of due process had been met since they
were accorded a chance to explain their side of the
controversy. (emphasis supplied)
61
 Our holding in National Semiconductor HK Distribution, Ltd. v. records (such as his 201 file and daily time records) and the sworn

NLRC[28] is of similar import: statements of his witnesses. For this purpose, he may prepare his

That the investigations conducted by explanation personally or with the assistance of a representative or
petitioner may not be counsel. He may also ask the employer to provide him copy of records
considered formal or recorded hearings or
investigations is immaterial. A formal or trial type material to his defense. His written explanation may also include a
hearing is not at all times and in all instances essential
request that a formal hearing or conference be held. In such a case,
to due process, the requirements of which are satisfied
where the parties are afforded fair and reasonable the conduct of a formal hearing or conference becomes mandatory,
opportunity to explain their side of the controversy. It
is deemed sufficient for the employer to follow the just as it is where there exist substantial evidentiary disputes [29] or
natural sequence of notice, hearing and judgment.
where company rules or practice requires an actual hearing as part of

employment pretermination procedure. To this extent, we refine the

The above rulings are a clear recognition that the employer
decisions we have rendered so far on this point of law.
may provide an employee with ample opportunity to be heard and

defend himself with the assistance of a representative or counsel in This interpretation of Section 2(d), Rule I of the Implementing

ways other than a formal hearing. The employee can be fully afforded Rules of Book VI of the Labor Code reasonably implements the ample

a chance to respond to the charges against him, adduce his evidence opportunity to be heard standard under Article 277(b) of the Labor

or rebut the evidence against him through a wide array of methods, Code without unduly restricting the language of the law or excessively

verbal or written. burdening the employer. This not only respects the power vested in

the Secretary of Labor and Employment to promulgate rules and

After receiving the first notice apprising him of the charges
regulations that will lay down the guidelines for the implementation
against him, the employee may submit a written explanation (which
of Article 277(b). More importantly, this is faithful to the mandate of
may be in the form of a letter, memorandum, affidavit or position
Article 4 of the Labor Code that [a]ll doubts in the implementation
paper) and offer evidence in support thereof, like relevant company

62
and interpretation of the provisions of [the Labor Code], including its of 30 days, after which the employee shall either be reinstated or paid

implementing rules and regulations shall be resolved in favor of labor. his wages during the extended period.[30]

In sum, the following are the guiding principles in connection In this case, petitioners contended that they were not paid

with the hearing requirement in dismissal cases: during the two 15-day extensions, or a total of 30 days, of their

(a) ample opportunity to be heard means any meaningful preventive suspension. Respondents failed to adduce evidence to the

opportunity (verbal or written) given to the employee contrary. Thus, we uphold the ruling of the labor arbiter on this point.

to answer the charges against him and submit evidence Where the dismissal was without just or authorized cause and

in support of his defense, whether in a hearing, there was no due process, Article 279 of the Labor Code, as amended,

conference or some other fair, just and reasonable way. mandates that the employee is entitled to reinstatement without loss

(b) a formal hearing or conference becomes mandatory only of seniority rights and other privileges and full backwages, inclusive of

when requested by the employee in writing or allowances, and other benefits or their monetary equivalent

substantial evidentiary disputes exist or a company rule computed from the time the compensation was not paid up to the

or practice requires it, or when similar circumstances time of actual reinstatement.[31] In this case, however, reinstatement is

justify it. no longer possible because of the length of time that has passed from

(c) the ample opportunity to be heard standard in the Labor the date of the incident to final resolution. [32] Fourteen years have

Code prevails over the hearing or conference transpired from the time petitioners were wrongfully dismissed. To

requirement in the implementing rules and regulations. order reinstatement at this juncture will no longer serve any prudent
PETITIONERS WERE ILLEGALLY
SUSPENDED FOR 30 DAYS or practical purpose.[33]

WHEREFORE, the petition is hereby GRANTED. The decision of

An employee may be validly suspended by the employer for
the Court of Appeals dated January 29, 2002 in CA-G.R. SP No. 50536
just cause provided by law. Such suspension shall only be for a period
63

finding that petitioners Felix B. Perez and Amante G. Doria were not
illegally dismissed but were not accorded due process and were
illegally suspended for 15 days, is SET ASIDE. The decision of the labor
arbiter dated December 27, 1995 in NLRC NCR CN. 11-06930-93 is
hereby AFFIRMED with the MODIFICATION that petitioners should be
paid their separation pay in lieu of reinstatement.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No.170904 November 13, 2013
BANI RURAL BANK INC. ENOC THEATER I AND II and/or RAFAEL DE
GUZMAN, Petitioners,
vs.
TERESA DE GUZMAN, EDGAR C. TAN and TERESA G.
TAN, Respondents.
DECISION
BRION, J.:
We pass upon the petition for review on certiorari1 under Rule 45 of
the Rules of Court filed by petitioners Bani Rural Bank, Inc., ENOC
Theater I and II, and Rafael de Guzman. They assail the
decision2 dated September 1, 2005 and the resolution3 dated
December 14, 2005 of the Court of Appeals CA) in CA-G.R. SP No.
70085. The assailed CA rulings, in turn, affirmed the computation of
the backwages due respondents Teresa de Guzman and Edgar C.
Tan4made by the National Labor Relations Commission (NLRC).
The Facts
The respondents were employees of Bani Rural Bank, Inc. and ENOC
Theatre I and II who filed a complaint for illegal dismissal against the
petitioners. The complaint was initially dismissed by Labor Arbiter
Roque B. de Guzman on March 15, 1994. On appeal, the National
Labor Relations Commission (NLRC) reversed Labor Arbiter De
Guzman's findings, and ruled that the respondents had been illegally
dismissed. In a resolution5 dated March 17, 1995 the NLRC ordered
the petitioners to:
... [R]einstate the two complainants to their former positions, without
loss o seniority rights and other benefits and privileges, with
backwages from the time o their dismissal (constructive) until their
actual reinstatement, less earnings elsewhere.6
The parties did not file any motion for reconsideration or appeal. The
March 17, 1995 resolution of the NLRC became final and executory
and the computation of the awards was remanded to the labor arbiter
for execution purposes.
The first computation of he monetary award under the March ,17
1995 resolution of the NLRC
The computation of the respondents' backwages, under the terms of
the March 17 1995 NLRC resolution was remanded to Labor Arbiter
Rolando D. Gambito. First, Labor Arbiter Gambito deducted the
earnings derived by the respondents either from Bani Rural Bank, Inc.
or ENOC Theatre I and II. Second, Labor Arbiter Gambito fixed the
period of backwages from the respondents' illegal dismissal until
August 25 1995 or the date when the respondents allegedly
manifested that they no longer wanted to be reinstated.7
64
The respondents appealed Labor Arbiter Gambito's computation with
the NLRC. In a
Decision8 dated July 31, 1998, the NLRC modified the terms of the
March 17, 1995 resolution insofar as it clarified the phrase less
earnings elsewhere. The NLRC additionally awarded the payment of
separation pay, in lieu of reinstatement, under the following terms:
The decision of this Commission is hereby MODIFIED to the extent
that: (1) the phrase earnings elsewhere in its dispositive portion shall
exclude the complainants' salaries from the Rural Bank of
Mangantarem; and (2) in lieu of reinstatement, the respondents are
hereby ordered to pay the complainants separation pay equivalent to
one month salary for every year of service computed from the start of
their employment up to the date of the finality of the decision.9
The NLRC justified the award of separation pay on account of the
strained relations between the parties. In doing so, the NLRC ruled:
Insofar as the second issue is concerned, it should be noted: (1) that
in his report dated November 8, 1995, the NLRC Sheriff stated that on
October 5, 1995, he went to the Sub-Arbitration Branch to serve the
writ of execution upon the complainants; that they did not appear,
but instead, sent a representative named Samuel de la Cruz who
informed him that they were interested, not on being reinstated, but
only in the monetary award; (2) that in a letter dated October 9, 1995,
the complainants authorized one Samuel de la Cruz to get a copy of
the writ of execution; and (3) that during the pre-execution
conference, the respondents' counsel manifested that the
respondents were requiring the complainants to report for work on
Monday and, in turn, the complainants' counsel manifested that the
complainants were asking to be reinstated. The proceedings already
protracted as it is-would be delayed further if this case were to be
remanded to the Labor Arbiter for a hearing to ascertain the
correctness of the above-mentioned sheriff's report. Besides, if both
parties were really interested in the complainants being reinstated, as
their counsels stated during the pre-execution conference, the said
reinstatement should already have been effected. Since neither party
has actually done anything to implement the complainants'
reinstatement, it would appear that the relations between them have
been strained to such an extent as to make the resumption of the
employer-employee relationship unpalatable to both of them. Under
the circumstances, separation pay may be awarded in lieu of
reinstatement.10
The respondents filed a motion for reconsideration on whether the
award of backwages was still included in the judgment. The NLRC
dismissed the motion for having been filed out of time.
On January 29, 1999, the July 31, 1998 decision of the NLRC lapsed to
finality and became executory.
The second computation of the monetary awards under the July 31,
998 decision of the NLRC
The recomputation of the monetary awards of the respondents'
backwages and separation pay, according to the decision dated July
31, 1998 and the modified terms of the March 17, 1995 resolution of
the NLRC, was referred to Labor Arbiter Gambito. In the course of the
recomputation, the petitioners filed before Labor Arbiter Gambito a
Motion to Quash Writ of
Execution and Suspend Further Execution they reiterated their
position that the respondents backwages should be computed only up
to August 25, 1995, citing the alleged manifestation made by the
respondents, through Samuel de la Cruz, as their basis.
In an order11 dated July 12, 2000, Labor Arbiter Gambito computed
the respondents backwages only up to August 25, 1995.
The NLRCs Ruling
65
The respondents appealed the July 12, 2000 order of Labor Arbiter
Gambito to the NLRC, which reversed Labor Arbiter Gambito s order.
In its decision12 dated September 28, 2001, the NLRC ruled that the
computation of the respondents backwages should be until January
29 1999 which was the date when the July 31, 1998 decision attained
finality:
WHEREFORE, the Order of Labor Arbiter Rolando D. Gambito dated
July 12, 2000 is SET ASIDE. In lieu thereof, judgment is hereby
rendered by ordering respondents to p y complainants backwages up
to January 29, 1999 as above discussed.13
The NLRC emphasized that the issue relating to the computation of
the respondents backwages had been settled in its July 31, 1998
decision. In a resolution dated January 23, 2002, the NLRC denied the
motion for reconsideration filed by the petitioners.
The petitioners disagreed with the NLRC s ruling and filed a petition
for certiorari with the CA, raising the following issues:
(A) THE COMMISSION ACTED WITHOUT JURISDICTION AND
WITH GRAVE . ABUSE OF DISCRETION AMOUNTING TO LACK
OF JURISDICTION WHEN IT REVERSED AND SET ASIDE THE
ORDER OF LABOR ARBITER ROLANDO D. GAMBITO DATED JULY
12, 2000 AND ORDERED THE COMPUTATION OF PRIVATE
RESPONDENTS BACKWAGES TO COVER THE PERIOD AFTER
AUGUST 25, 1995, OR UNTIL JANUARY 29, 1999, THE DATE OF
FINALITY OF THE SECOND RESOLUTION OF THE COMMISSION.
(B) THE COMMISSION ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION FOR
DENYING PETITIONERS MOTION FOR RECONSIDERA TION.14
The CA Rulings
The CA found the petition to be without merit. It held that certiorari
was not the proper remedy since no error of jurisdiction was raised or
no grave abuse of discretion was committed by the NLRC. The CA
stated that:
The extraordinary remedy of certiorari is proper if the tribunal, board
or officer exercising judicial or quasi-judicial functions acted without
or in grave abuse of discretion amounting to lack or excess of
jurisdiction and there is no appeal or any plain, speedy, and adequate
remedy in law. When a court, tribunal or officer has jurisdiction over
the person and the subject matter of dispute, the decision on all other
questions arising in the case is an exercise of that jurisdiction.
Consequently, all errors committed in the exercise of said jurisdiction
are merely errors of judgment. Under prevailing procedural rules and
jurisprudence, errors of judgment are not proper subjects of a special
civil action for certiorari.15
Thus, the CA echoed the NLRCs conclusions:
As explained in the assailed Decision, what is controlling for purposes
of the backwages is the NLRC s Resolution dated 17 March 1995
which decreed that private respondents are entitled to backwages
from the time of their dismissal (constructive) until their actual
reinstatement; and considering that the award of reinstatement was
set aside by the NLRC in its final and executory Decision dated 3 July
1998 which ordered the payment of separation pay in lieu of
reinstatement to be computed up to the finality on 29 January 1999
of said Decision dated 3 July 1998, then the computation of the
backwages should also end on said date, which is 29 January 1999.16
Citing the case of Chronicle Securities Corp. v. NLRC, 17 the CA held that
backwages are granted to an employee or worker who had been
illegally dismissed from employment. If reinstatement is no longer
possible, the backwages shall be computed from the time of the
illegal termination up to the finality of the decision.
66
The Present Petition
The petitioners argue that the following reversible errors were
committed by the CA, namely:
(1) In ruling that no grave abuse of discretion was committed
by the NLRC when it issued the September 28, 2001 decision,
the January 23, 2002 resolution and the July 31, 1998 decision,
which modified the final and executory resolution dated
March 17, 1995 of the NLRC computing the backwages only
until the reinstatement of the respondents;
(2) When it manifestly overlooked or misappreciated relevant
facts, i.e. Labor Arbiter Gambito s computation did conform to
the NLRC s March 17, 1995 resolution considering the
manifestation of Samuel that the respondents no longer
wanted to be reinstated, in response to the order of execution
dated August 25, 1995; and
(3) When it declared that only errors o judgment, and not
jurisdiction, were committed by the NLRC.
18
In their Comment, the respondents contend that the computation of
the backwages until January 29, 1999 was consistent with the tenor of
the decision dated July 31, 1998 and the modified March 17, 1995
resolution of the NLRC.
After the petitioners filed their Reply,19 the Court resolved to give due
course to the petition; in compliance with our directive, the parties
submitted their respective memoranda repeating the arguments in
the pleadings earlier filed.20
The Issue
As presented, the issue boils down to whether the respondents
backwages had been correctly computed under the decision dated
September 28, 2001 of the NLRC, as confirmed by the CA, in light of
the circumstance that there were two final NLRC decisions affecting
the computation of the backwages.
The Court s Ruling
We find the petition unmeritorious.
Preliminary considerations
In Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth
Division),21 we held that a decision in an illegal dismissal case consists
essentially of two components:
The first is that part of the decision that cannot now be disputed
because it has been confirmed with finality. This is the finding of the
illegality of the dismissal and the awards of separation pay in lieu of
reinstatement, backwages.
The second part is the computation of the awards made.22
The first part of the decision stems from the March 17, 1995 NLRC
resolution finding an illegal dismissal and defining the legal
consequences of this dismissal. The second part involves the
computation of the monetary award of backwages and the
respondents' reinstatement. Under the terms of the March 17, 1995
resolution, the respondents' backwages were to be computed from
the time of the illegal dismissal up to their reinstatement.
In the first computation of the backwages, Labor Arbiter Gambito
confronted the following circumstances and the Sheriffs Report dated
November 8, 1995:23 first, how to interpret the phrase less earnings
elsewhere as stated in the dispositive portion of the March 17, 1995
resolution of the NLRC; second, the effect of the alleged manifestation
(dated October 9, 1995) of Samuel that the respondents were only
interested in the monetary award, not in their reinstatement; and
67
third, the effect of the respondents' counsel's statement during the
pre-execution proceedings that the respondents simply wanted to be
reinstated.
The records indicate that the respondents denied Samuel's statement
and asked for reinstatement through their counsel. Nevertheless,
Labor Arbiter Gambito relied on Samuel's statement and fixed the
computation date of the respondents' backwages to be up to and
until August 25, 1995 or the date the order of execution was issued
for the NLRC's March 17, 1995 decision. As stated in his July 12, 2000
order,24 Labor Arbiter Gambito found it fair and just that in the
execution of the NLRC's decision, the computation of the
respondents' backwages should "stop at that time when it was put on
record by them [respondents] that they had no desire to return to
work."25
The NLRC disregarded Labor Arbiter Gambito's first computation. In
the dispositive portion of its July 31, 1998 decision, the NLRC modified
the final March 17, 1995 resolution. The first part of this decision -the
original ruling of illegal dismissal -was left untouched while the second
part of the decision -the monetary award and its computation -was
altered to conform with the strained relations between the parties
that became manifest during the execution phase of the March 17,
1995 resolution.
The effect of the modification of the March 17, 1995 resolution of the
NLRC was two-fold: , the reinstatement aspect of the March 1 7,
1995 resolution was expressly substituted by an order of payment of
separation pay; and two the July 31, 1998 decision of the NLRC now
provided for two monetary awards (backwages and separation pay).
The July 31, 1998 decision of the NLRC became final since neither
parties appealed.
Immutability of Judgment
That there is already a final and executory March 17, 1995 resolution
finding that respondents have been illegally dismissed, and awarding
backwages and reinstatement, is not disputed. That there, too, is the
existence of another final and executory July 31, 1998 decision
modifying the reinstatement aspect of the March 17, 1995 resolution,
by awarding separation pay, is likewise beyond dispute.
As a rule, "a final judgment may no longer be altered, amended or
modified, even if the alteration, amendment or modification is meant
to correct what is perceived to be an erroneous conclusion of fact or
law and regardless of what court, be it the highest Court of the land,
rendered it. Any attempt on the part of the x x x entities charged with
the execution of a final judgment to insert, change or add matters not
clearly contemplated in the dispositive portion violates the rule on
immutability of judgments."26 An exception to this rule is the
existence of supervening events27which refer to facts transpiring after
judgment has become final and executory or to new circumstances
that developed after the judgment acquired finality, including matters
that the parties were not aware of prior to or during the trial as they
were not yet in existence at that time.28
Under the circumstances of this case, the existence of the strained
relations between the petitioners and the respondents was a
supervening event that justified the NLRC s modification of its final
March 17, 1995 resolution. The NLRC, in its July 31, 1998 decision,
based its conclusion that strained relations existed on the conduct of
the parties during the first execution proceedings before Labor Arbiter
Gambito. The NLRC considered the delay in the respondents
reinstatement and the parties conflicting claims on whether the
respondents wanted to be reinstated.29The NLRC also observed that
during the intervening period from the first computation (which was
done in 1995) to the appeal and resolution of the correctness of the
first computation (subject of the NLRC s July 31, 1998 decision),
neither party actually did anything to implement the respondents
reinstatement. The NLRC considered these, actions as indicative of the
strained relations between the parties so that neither of them actually
68
wanted to implement the reinstatement decree in the March 17, 1995
resolution. The NLRC concluded that the award of reinstatement was
no longer possible; thus, it awarded separation pay, in lieu of
reinstatement. Unless exceptional reasons are presented, these above
findings and conclusion can no longer be disturbed after they lapsed
to finality.
Appeal of labor case under Rule 45
A review of the CA s decision in a labor case, brought to the Court via
Rule 45 of the Rules of Court, is limited to a review of errors of law
imputed to the CA. In Montoya v. Transmed Manila Corporation, 30 we
laid down the basic approach in reviews of Rule 45 decisions of the CA
in labor cases, as follows:
In a Rule 45 review, we consider the correctness of the assailed CA
decision, in contrast with the review for jurisdictional error that we
undertake under Rule 65. Furthermore, Rule 45 limits us to the review
of questions of law raised against the assailed CA decision. In ruling
for legal correctness, we have to view the CA decision in the same
context that the petition for certiorari it ruled upon was presented to
it; we have to examine the CA decision from the prism of whether it
correctly determined the presence or absence of grave abuse of
discretion in the NLRC decision before it, not on the basis of whether
the NLRC decision on the merits of the case was correct. In other
words, we have to be keenly aware that the CA undertook a Rule 65
review, not a review on appeal, of the NLRC decision challenged
before it. This is the approach that should be basic in a Rule 45 review
of a CA ruling in a labor case. In question form, the question to ask is:
Did the C correctly determine whether the NLRC committed grave
abuse of discretion in ruling on the case?
This manner of review was reiterated in Holy Child Catholic School v
Hon. Patricia Sta. Tomas, etc., et al.,31 where the Court limited its
review under Rule 45 of the CA s decision in a labor case to the
determination of whether the CA correctly resolved the presence or
absence of grave abuse of discretion in the decision of the Secretary
of Labor, and not on the basis of whether the latter's decision on the
merits of the case was strictly correct.
Grave abuse of discretion, amounting to lack or excess of jurisdiction,
has been defined as the capricious and whimsical exercise of
judgment amounting to or equivalent to lack of jurisdiction. 32 There is
grave abuse of discretion when the power is exercised in an arbitrary
or despotic manner by reason of passion or personal hostility, and
must be so patent and so gross as to amount to an evasion of a
positive duty or to a virtual refusal to perform the duty enjoined or to
act at all in contemplation of law."33
With this standard in mind, we find no reversible error committed by
the CA when it found no grave abuse of discretion in the NLRC's
ruling. We find the computation of backwages and separation pay in
the September 28, 2001 decision of the NLRC consistent with the
provisions of law and jurisprudence. The computation conforms to the
terms of the March 17, 1995 resolution (on illegal dismissal and
payment of backwages) and the July 31, 1998 decision (on the
computation of the backwages and the payment of separation pay).
Article 279 of the Labor Code, as amended,34 provides backwages and
reinstatement as basic awards and consequences of illegal dismissal:
Article 279. Security of Tenure. -x x x An employee who is unjustly
dismissed from work shall be entitled to reinstatement without loss of
seniority rights and other privileges and to his full backwages,
inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld
from him up to the time of his actual reinstatement.
"By jurisprudence derived from this provision, separation pay may
[also] be awarded to an illegally dismissed employee in lieu of
reinstatement."35 Section 4(b), Rule I of the Rules Implementing Book
VI of the Labor Code provides the following instances when the award
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of separation pay, in lieu of reinstatement to an illegally dismissed
employee, is proper: (a) when reinstatement is no longer possible, in
cases where the dismissed employee s position is no longer available;
(b) the continued relationship between the employer and the
employee is no longer viable due to the strained relations between
them; and (c) when the dismissed employee opted not to be
reinstated, or the payment of se aration benefits would be for the
best interest of the parties involved. 36 In these instances, separation
pay is the alternative remedy to reinstatement in addition to the
award of backwages.37 The payment of separation pay and
reinstatement are exclusive remedies. The payment of separation pay
replaces the legal consequences of reinstatement to an employee
who was illegally dismissed.38
For clarity, the bases for computing separation pay and backwages are
different. Our ruling in Macasero v. Southern Industrial Gases
Philippines39 provides us with the manner these awards should be
computed:
[U]nder Article 279 of the Labor Code and as held in a catena of cases,
an employee who is dismissed without just cause and without due
process is entitled to backwages and reinstatement or payment of
separation pay in lieu thereof:
Thus, an illegally dismissed employee is entitled to two reliefs:
backwages and reinstatement. The two reliefs provided are separate
and distinct. In instances where reinstatement is no longer feasible
because of strained relations between the employee and the
employer, separation pay is granted. In effect, an illegally dismissed
employee is entitled to either reinstatement, if viable, or separation
pay if reinstatement is no longer viable, and backwages.
The normal consequences of respondents illegal dismissal, then, are
reinstatement without loss of seniority rights, and payment of
backwages computed from the time compensation was withheld up
to the date of actual reinstatement. Where reinstatement is no longer
viable as an option, separation pay equivalent to one (1) month salary
for every year of service should be awarded as an alternative. The
payment of separation pay is in addition to payment of backwages. 40
The computation of separation pay is based on the length of the
employee s service; and the computation of backwages is based on
the actual period when the employee was unlawfully prevented from
working.41
The basis of computation of backwages
The computation of backwages depends on the final awards adjudged
as a consequence of illegal dismissal, in that:
First, when reinstatement is ordered, the general concept under
Article 279 of the Labor Code, as amended, computes the backwages
from the time of dismissal until the employees reinstatement. The
computation of backwages (and similar benefits considered part of
the backwages) can even continue beyond the decision of the labor
arbiter or NLRC and ends only when the employee is actually
reinstated.42
Second, when separation pay is ordered in lieu of reinstatement (in
the event that this aspect of the case is disputed) or reinstatement is
waived by the employee (in the event that the payment of separation
pay, in lieu, is not disputed), backwages is computed from the time of
dismissal until the finality of the decision ordering separation pay.
Third, when separation pay is ordered after the finality of the decision
ordering the reinstatement by reason of a supervening event that
makes the award of reinstatement no longer possible (as in the case),
backwages is computed from the time of dismissal until the finality of
the decision ordering separation pay.
The above computation of backwages, when separation pay is
ordered, has been the Court s consistent ruling. In Session Delights Ice
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Cream and Fast Foods v. Court Appeals Sixth Division, we explained
that the finality of the decision becomes the reckoning point because
in allowing separation pay, the final decision effectively declares that
the employment relationship ended so that separation pay and
backwages are to be computed up to that point. 43
We may also view the proper computation of backwages (whether
based on reinstatement or an order of separation pay) in terms of the
life of the employment relationship itself.1wphi1
When reinstatement is ordered, the employment relationship
continues. Once the illegally dismissed employee is reinstated, any
compensation and benefits thereafter received stem from the
employee s continued employment. In this instance, backwages are
computed only up until the reinstatement of the employee since after
the reinstatement, the employee begins to receive compensation
from his resumed employment.
When there is an order of separation pay (in lieu of reinstatement or
when the reinstatement aspect is waived or subsequently ordered in
light of a supervening event making the award of reinstatement no
longer possible), the employment relationship is terminated only
upon the finality of the decision ordering the separation pay. The
finality of the decision cuts-off the employment relationship and
represents the final settlement of the rights and obligations of the
parties against each other. Hence, backwages no longer accumulate
upon the finality of the decision ordering the payment of separation
pay since the employee is no longer entitled to any compensation
from the employer by reason of the severance of his employment.
The computation of the respondents backwages
As the records show, the contending parties did not dispute the NLRC
s order of separation pay that replaced the award of reinstatement on
the ground of the supervening event arising from the newly-
discovered strained relations between the parties. The parties allowed
the NLRC s July 31, 1998 decision to lapse into finality and recognized,
by their active participation in the second computation of the awards,
the validity and binding effect on them of the terms of the July 31,
1998 decision.
Under these circumstances, while there was no express modification
on the period for computing backwages stated in the dispositive
portion of the July 31, 1998 decision of the NLRC, it is nevertheless
clear that the award of reinstatement under the March 17, 1995
resolution (to which the respondents backwages was initially
supposed to have been computed) was substituted by an award of
separation pay. As earlier stated, the awards of reinstatement and
separation pay are exclusive remedies; the change of awards (from
reinstatement to separation pay) under the NLRC s July 31, 1998 not
only modified the awards granted, but also changed the manner the
respondents backwages is to be computed. The respondents
backwages can no longer be computed up to the point of
reinstatement as there is no longer any award of reinstatement to
speak of.
We also emphasize that the payment of backwages and separation
pay cannot be computed from the time the respondents allegedly
expressed their wish to be paid separation pay. In the first place, the
records show that the alleged manifestation by the respondents,
through Samuel, was actually a mere expression of interest. 44 More
importantly, the alleged manifestation was disregarded in the NLRC's
July 31, 1998 decision where the NLRC declared that the award of
separation pay was due to the supervening event arising from the
strained relations (not a waiver of reinstatement) that justified the
modification of the NLRC's final March 17, 1995 resolution on the
award of reinstatement. Simply put, insofar as the computation of the
respondents' backwages, we are guided by the award, modified to
separation pay, under the NLRC's July 31, 1998 decision.
Thus, the computation of the respondents' backwages must be from
the time of the illegal dismissal from employment until the finality of
71
the decision ordering the payment of separation pay. It is only when (c) Legal interest of six percent (6) per annum of the total
the NLRC rendered its July 31, 1998 decision ordering the payment of monetary awards computed from January 29, 1999 until their
separation pay (which both parties no longer questioned and which full satisfaction.
thereafter became final) that the issue of the respondents'
employment with the petitioners was decided with finality, effectively The labor arbiter is hereby ORDERED to make another recomputation
terminating it. The respondents' backwages, therefore, must be according to the above directives.
computed from the time of their illegal dismissal until January 29,
1999, the date of finality of the NLRC's July 31, 1998 Decision. As a SO ORDERED.
final point, the CA s ruling must be modified to include legal interest
commencing from the finality of the NLRC's July 31, 1998 decision.
The CA failed to consider that the NLRC's July 31, 1998 decision, once
final, becomes a judgment for money from which another
consequence flows -the payment of interest in case of delay.45 Under
the circumstances, the payment of legal interest of six percent (6)
upon the finality of the judgment is proper. It is not barred by the
principle of immutability of judgment as it is compensatory interest
arising from the final judgment.46

WHEREFORE, premises considered, we DENY the petition and thus

effectively AFFIRM with MODIFICATION the decision dated September
1 2005 and the resolution dated December 14, 2005 of the Court of
Appeals in CA-G.R. SP No. 70085. The petitioners Bani Rural Bank, Inc.,
Enoc Theatre I and II and/or Rafael de Guzman, are ORDERED to PAY
respondents Teresa de Guzman, Edgar C. Tan and Teresa G. Tan the
following:

(a) Backwages computed from the date the petitioners illegally

dismissed the respondents up to January 29, 1999, the date of
the finality of the decision dated July 31, 1998 of the National
Labor Relations Commission in NLRC CN. SUB-RAB-01-07- 7-
0136-93 CA No. L-001403 and NLRC CN. SUB-RAB-01-07-7-
0137-93 CA No. L-001405;

(b) Separation pay computed from respondents' first day of

employment up to January 29, 1999 at the rate of one (1)
month pay per year of service; and
72