TEMIC AUTOMOTIVE PHILIPPINES, INC., G.R. No.

186965
Petitioner,
Present:

CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,
BRION,
- versus - DEL CASTILLO, and
ABAD, JJ.

Promulgated:
TEMIC AUTOMOTIVE PHILIPPINES, INC.
EMPLOYEES UNION-FFW, December 23, 2009
Respondent.

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

DECISION

BRION, J.:

We resolve the present petition for review on certiorari[1] filed by Temic Automotive Philippines Inc. (petitioner) to
challenge the decision[2] and resolution[3] of the Court of Appeals (CA) in CA-G.R. SP No. 99029.[4]

The Antecedents

The petitioner is a corporation engaged in the manufacture of electronic brake systems and comfort body electronics
for automotive vehicles. Respondent Temic Automotive Philippines, Inc. Employees Union-FFW (union) is the exclusive
bargaining agent of the petitioner's rank-and-file employees. On May 6, 2005, the petitioner and the union executed a
collective bargaining agreement (CBA) for the period January 1, 2005 to December 31, 2009.

The petitioner is composed of several departments, one of which is the warehouse department consisting of two
warehouses - the electronic braking system and the comfort body electronics. These warehouses are further divided
into four sections - receiving section, raw materials warehouse section, indirect warehouse section and finished goods
section. The union members are regular rank-and-file employees working in these sections as clerks, material handlers,
system encoders and general clerks. Their functions are interrelated and include: receiving and recording of incoming
deliveries, raw materials and spare parts; checking and booking-in deliveries, raw materials and spare parts with the
use of the petitioner's system application processing; generating bar codes and sticking these on boxes and automotive
parts; and issuing or releasing spare parts and materials as may be needed at the production area, and piling them up
by means of the company's equipment (forklift or jacklift).

By practice established since 1998, the petitioner contracts out some of the work in the warehouse department,
specifically those in the receiving and finished goods sections, to three independent service providers or forwarders
(forwarders), namely: Diversified Cargo Services, Inc. (Diversified), Airfreight 2100 (Airfreight) and Kuehne & Nagel, Inc.
(KNI). These forwarders also have their own employees who hold the positions of clerk, material handler, system
encoder and general clerk. The regular employees of the petitioner and those of the forwarders share the same work
area and use the same equipment, tools and computers all belonging to the petitioner.

This outsourcing arrangement gave rise to a union grievance on the issue of the scope and coverage of the collective
bargaining unit, specifically to the question of whether or not the functions of the forwarders employees are functions
being performed by the regular rank-and-file employees covered by the bargaining unit.[5] The union thus demanded
that the forwarders' employees be absorbed into the petitioner's regular employee force and be given positions within
the bargaining unit. The petitioner, on the other hand, on the premise that the contracting arrangement with the
forwarders is a valid exercise of its management prerogative, posited that the union's position is a violation of its
management prerogative to determine who to hire and what to contract out, and that the regular rank-and-file employees
and their forwarders employees serving as its clerks, material handlers, system encoders and general clerks do not
have the same functions as regular company employees.

The union and the petitioner failed to resolve the dispute at the grievance machinery level, thus necessitating recourse
to voluntary arbitration. The parties chose Atty. Roberto A. Padilla as their voluntary arbitrator. Their voluntary arbitration
submission agreement delineated the issues to be resolved as follows:
 1. Whether or not the company validly contracted out or outsourced the services involving
forwarding, packing, loading and clerical activities related thereto; and

2. Whether or not the functions of the forwarders' employees are functions being performed by
regular rank-and-file employees covered by the bargaining unit.[6]

To support its position, the union submitted in evidence a copy of the complete manpower complement of the petitioner's
warehouse department as of January 3, 2007 [7] showing that there were at the time 19 regular company employees and
26 forwarder employees. It also presented the affidavits[8] of Edgardo P. Usog, Antonio A. Muzones, Endrico B.
Dumolong, Salvador R. Vargas and Harley J. Noval, regular employees of the petitioner, who deposed that they and
the forwarders employees assigned at the warehouse department were performing the same functions. The union also
presented the affidavits of Ramil V. Barit[9] (Barit), Jonathan G. Prevendido[10] (Prevendido) and Eduardo H.
Enano[11] (Enano), employees of forwarder KNI, who described their work at the warehouse department.

In its submission,[12] the petitioner invoked the exercise of its management prerogative and its authority under this
prerogative to contract out to independent service providers the forwarding, packing, loading of raw materials and/or
finished goods and all support and ancillary services (such as clerical activities) for greater economy and efficiency in
its operations. It argued that in Meralco v. Quisumbing[13] this Court explicitly recognized that the contracting out of work
is an employer proprietary right in the exercise of its inherent management prerogative.

The forwarders, the petitioners alleged, are all highly reputable freight forwarding companies providing total logistics
services such as customs brokerage that includes the preparation and processing of import and export documentation,
cargo handling, transport (air, land or sea), delivery and trucking; and they have substantial capital and are fully equipped
with the technical knowledge, facilities, equipment, materials, tools and manpower to service the company's forwarding,
packing and loading requirements. Additionally, the petitioner argued that the union is not in a position to question its
business judgment, for even their CBA expressly recognizes its prerogative to have exclusive control of the
management of all functions and facilities in the company, including the exclusive right to plan or control operations and
introduce new or improved systems, procedures and methods.

The petitioner maintained that the services rendered by the forwarders employees are not the same as the functions
undertaken by regular rank-and-file employees covered by the bargaining unit; therefore, the unions demand that the
forwarders employees be assimilated as regular company employees and absorbed by the collective bargaining unit
has no basis; what the union asks constitutes an unlawful interference in the company's prerogative to choose who to
hire as employees. It pointed out that the union could not, and never did, assert that the contracting-out of work to the
service providers was in violation of the CBA or prohibited by law.

The petitioner explained that its regular employees' clerical and material handling tasks are not identical with those done
by the service providers; the clerical work rendered by the contractors are recording and documentation tasks ancillary
to or supportive of the contracted services of forwarding, packing and loading; on the other hand, the company
employees assigned as general clerks prepare inventory reports relating to its shipments in general to ensure that the
recording of inventory isconsistent with the company's general system; company employees assigned as material
handlers essentially assist in counter-checking and reporting activities to ensure that the contractors' services comply
with company standards.
The petitioner submitted in evidence the affidavits of Antonio Gregorio [14] (Gregorio), its warehouse manager, and Ma.
Maja Bawar[15] (Bawar), its section head.

The Voluntary Arbitration Decision

In his decision of May 1, 2007,[16] the voluntary arbitrator defined forwarding as a universally accepted and normal
business practice or activity, and ruled that the company validly contracted out its forwarding services. The voluntary
arbitrator observed that exporters, in utilizing forwarders as travel agents of cargo, mitigate the confusion and delays
associated with international trade logistics; the company need not deal with many of the details involved in the export
of goods; and given the years of experience and constant attention to detail provided by the forwarders, it may be a
good investment for the company. He found that the outsourcing of forwarding work is expressly allowed by the rules
implementing the Labor Code.[17]
At the same time, however, the voluntary arbitrator found that the petitioner went beyond the limits of the legally
allowable contracting out because the forwarders' employees encroached upon the functions of the petitioner's regular
rank-and-file workers. He opined that the forwarders' personnel serving as clerks, material handlers, system encoders
and general clerks perform functions [that] are being performed by regular rank-and-file employees covered by the
bargaining unit. He also noted that the forwarders' employees perform their jobs in the company warehouse together
with the petitioner's employees, use the same company tools and equipment and work under the same company
supervisors indicators that the petitioner exercises supervision and control over all the employees in the warehouse
department. For these reasons, he declared the forwarders employees serving as clerks, material handlers, system
encoders and general clerks to be employees of the company who are entitled to all the rights and privileges of regular
employees of the company including security of tenure.[18]
The petitioner sought relief from the CA through a petition for review under Rule 43 of the Rules of Court invoking
questions of facts and law.[19] It specifically questioned the ruling that the company did not validly contract out the
services performed by the forwarders clerks, material handlers, system encoders and general clerks, and claimed that
the voluntary arbitrator acted in excess of his authority when he ruled that they should be considered regular employees
of the company.
The CA Decision

In its decision of October 28, 2008,[20] the CA fully affirmed the voluntary arbitrators decision and dismissed the
petition for lack of merit. The discussion essentially focused on three points. First, that decisions of voluntary arbitrators
on matters of fact and law, acting within the scope of their authority, are conclusive and constitute res adjudicata on the
theory that the parties agreed that the voluntary arbitrators decision shall be final. Second, that the petitioner has the
right to enter into the forwarding agreements, but these agreements should be limited to forwarding services; the
petitioner failed to present clear and convincing proof of the delineation of functions and duties between company and
forwarder employees engaged as clerks, material handlers, system encoders and general clerks; thus, they should be
considered regular company employees. Third, on the extent of the voluntary arbitrator's authority, the CA
acknowledged that the arbitrator can only decide questions agreed upon and submitted by the parties, but maintained
that the arbitrator also has the power to rule on consequential issues that would finally settle the dispute. On this basis,
the CA justified the ruling on the employment status of the forwarders' clerks, material handlers, system encoders and
general clerks as a necessary consequence that ties up the loose ends of the submitted issues for a final settlement of
the dispute.

The CA denied the petitioners motion for reconsideration, giving way to the present petition.

The Petition

The petition questions as a preliminary issue the CA ruling that decisions of voluntary arbitrators are conclusive and
constitute res adjudicata on the facts and law ruled upon.

Expectedly, it cites as error the voluntary arbitrators and the CAs rulings that: (a) the forwarders employees
undertaking the functions of clerks, material handlers, system encoders and general clerks exercise the functions of
regular company employees and are subject to the companys control; and (b) the functions of the forwarders employees
are beyond the limits of what the law allows for a forwarding agreement.

The petitioner reiterates that there are distinctions between the work of the forwarders employees and that of
the regular company employees. The receiving, unloading, recording or documenting of materials the forwarders
employees undertake form part of the contracted forwarding services. The similarity of these activities to those
performed by the company's regular employees does not necessarily lead to the conclusion that the forwarders
employees should be absorbed by the company as its regular employees. No proof was ever presented by the union
that the company exercised supervision and control over the forwarders' employees. The contracted services and even
the work performed by the regular employees in the warehouse department are also not usually necessary and desirable
in the manufacture of automotive electronics which is the companys main business. It adds that as held in Philippine
Global Communications, Inc. v. De Vera,[21] management can contract out even services that are usually necessary or
desirable in the employer's business.

On the issue of jurisdiction, the petitioner argues that the voluntary arbitrator neither had jurisdiction nor basis to declare
the forwarders' personnel as regular employees of the company because the matter was not among the issues submitted
by the parties for arbitration; in voluntary arbitration, it is the parties submission of the issues that confers jurisdiction on
the voluntary arbitrator. The petitioner finally argues that the forwarders and their employees were not parties to the
voluntary arbitration case and thus cannot be bound by the voluntary arbitrators decision.
The Case for the Union

In its comment,[22] the union takes exception to the petitioner's position that the contracting out of services involving
forwarding and ancillary activities is a valid exercise of management prerogative. It posits that the exercise of
management prerogative is not an absolute right, but is subject to the limitation provided for by law, contract, existing
practice, as well as the general principles of justice and fair play. It submits that both the law and the parties' CBA
prohibit the petitioner from contracting out to forwarders the functions of regular employees, especially when the
contracting out will amount to a violation of the employees' security of tenure, of the CBA provision on the coverage of
the bargaining unit, or of the law on regular employment.

The union disputes the petitioner's claim that there is a distinction between the work being performed by the regular
employees and that of the forwarders' employees. It insists that the functions being assigned, delegated to and
performed by employees of the forwarders are also those assigned, delegated to and being performed by the regular
rank-and-file employees covered by the bargaining unit.

On the jurisdictional issue, the union submits that while the submitted issue is whether or not the functions of the
forwarders' employees are functions being performed by the regular rank-and-file employees covered by the bargaining
unit, the ruling of the voluntary arbitrator was a necessary consequence of his finding that the forwarders' employees
were performing functions similar to those being performed by the regular employees of the petitioner. It maintains that
it is within the power of the voluntary arbitrator to rule on the issue since it is inherently connected to, or a consequence
of, the main issues resolved in the case.

The Court's Ruling

We find the petition meritorious.

Underlying Jurisdictional Issues

As submitted by the parties, the first issue is whether or not the company validly contracted out or outsourced the
services involving forwarding, packing, loading and clerical activities related thereto. However, the forwarders, with
whom the petitioner had written contracts for these services, were never made parties (and could not have been parties
to the voluntary arbitration except with their consent) so that the various forwarders agreements could not have
been validly impugned through voluntary arbitration and declared invalid as against the forwarders.

The second submitted issue is whether or not the functions of the forwarders employees are functions being
performed by regular rank-and-file employees covered by the bargaining unit. While this submission is couched in
general terms, the issue as discussed by the parties is limited to the forwarders employees undertaking services as
clerks, material handlers, system encoders and general clerks, which functions are allegedly the same functions
undertaken by regular rank-and-file company employees covered by the bargaining unit. Either way, however, the issue
poses jurisdictional problems as the forwarders employees are not parties to the case and the union has no
authority to speak for them.

From this perspective, the voluntary arbitration submission covers matters affecting third parties who are not
parties to the voluntary arbitration and over whom the voluntary arbitrator has no jurisdiction; thus, the voluntary
arbitration ruling cannot bind them.[23] While they may voluntarily join the voluntary arbitration process as parties, no
such voluntary submission appears in the record and we cannot presume that one exists. Thus, the voluntary arbitration
process and ruling can only be recognized as valid between its immediate parties as a case arising from their collective
bargaining agreement. This limited scope, of course, poses no problem as the forwarders and their employees are not
indispensable parties and the case is not mooted by their absence. Our ruling will fully bind the immediate parties and
shall fully apply to, and clarify the terms of, their relationship, particularly the interpretation and enforcement of the CBA
provisions pertinent to the arbitrated issues.

Validity of the Contracting Out

The voluntary arbitration decision itself established, without objection from the parties, the description of the work of
forwarding as a basic premise for its ruling. We similarly find the description acceptable and thus adopt it as our own
starting point in considering the nature of the service contracted out when the petitioner entered into its forwarding
agreements with Diversified, Airfreight and KNI. To quote the voluntary arbitration decision:
As forwarders they act as travel agents for cargo. They specialize in arranging transport and
completing required shipping documentation of respondent's company's finished products. They
provide custom crating and packing designed for specific needs of respondent company. These freight
forwarders are actually acting as agents for the company in moving cargo to an overseas
destination. These agents are familiar with the import rules and regulations, the methods of shipping,
and the documents related to foreign trade. They recommend the packing methods that will protect the
merchandise during transit. Freight forwarders can also reserve for the company the necessary space
on a vessel, aircraft, train or truck.
They also prepare the bill of lading and any special required documentation. Freight forwarders
can also make arrangement with customs brokers overseas that the goods comply with customs export
documentation regulations. They have the expertise that allows them to prepare and process the
documentation and perform related activities pertaining to international shipments. As an analogy,
freight forwarders have been called travel agents for freight.[24]

Significantly, both the voluntary arbitrator and the CA recognized that the petitioner was within its right in
entering the forwarding agreements with the forwarders as an exercise of its management prerogative. The petitioner's
declared objective for the arrangement is to achieve greater economy and efficiency in its operations a universally
accepted business objective and standard that the union has never questioned. In Meralco v. Quisumbing,[25] we joined
this universal recognition of outsourcing as a legitimate activity when we held that a company can determine in its best
judgment whether it should contract out a part of its work for as long as the employer is motivated by good faith; the
contracting is not for purposes ofcircumventing the law; and does not involve or be the result of malicious or
arbitrary action.

While the voluntary arbitrator and the CA saw nothing irregular in the contracting out as a whole, they held otherwise
for the ancillary or support services involving clerical work, materials handling and documentation. They held these to
be the same as the workplace activities undertaken by regular company rank-and-file employees covered by the
bargaining unit who work under company control; hence, they concluded that the forwarders employees should be
considered as regular company employees.

Our own examination of the agreement shows that the forwarding arrangement complies with the requirements
of Article 106[26] of the Labor Code and its implementing rules.[27] To reiterate, no evidence or argument questions the
companys basic objective of achieving greater economy and efficiency of operations. This, to our mind, goes a long
way to negate the presence of bad faith. The forwarding arrangement has been in place since 1998 and no evidence
has been presented showing that any regular employee has been dismissed or displaced by the forwarders employees
since then. No evidence likewise stands before us showing that the outsourcing has resulted in a reduction of work
hours or the splitting of the bargaining unit effects that under the implementing rules of Article 106 of the Labor Code
can make a contracting arrangement illegal. The other requirements of Article 106, on the other hand, are simply not
material to the present petition. Thus, on the whole, we see no evidence or argument effectively showing that the
outsourcing of the forwarding activities violate our labor laws, regulations, and the parties CBA, specifically that it
interfered with, restrained or coerced employees in the exercise of their rights to self-organization as provided in Section
6, par. (f) of the implementing rules. The only exception, of course, is what the union now submits as a voluntary
arbitration issue i.e., the failure to recognize certain forwarder employees as regular company employees and the effect
of this failure on the CBAs scope of coverage which issue we fully discuss below.

The job of forwarding, as we earlier described, consists not only of a single activity but of several services that
complement one another and can best be viewed as one whole process involving a package of services. These services
include packing, loading, materials handling and support clerical activities, all of which are directed at the transport of
company goods, usually to foreign destinations.

It is in the appreciation of these forwarder services as one whole package of inter-related services that we
discern a basic misunderstanding that results in the error of equating the functions of the forwarders employees with
those of regular rank-and-file employees of the company. A clerical job, for example, may similarly involve typing and
paper pushing activities and may be done on the same company products that the forwarders employees and company
employees may work on, but these similarities do not necessarily mean that all these employees work for the
company. The regular company employees, to be sure, work for the company under its supervision and control, but
forwarder employees work for the forwarder in the forwarders own operation that is itself a contracted work from the
company. The company controls its employees in the means, method and results of their work, in the same manner that
the forwarder controls its own employees in the means, manner and results of their work. Complications and confusion
result because the company at the same time controls the forwarder in the results of the latters work, without controlling
however the means and manner of the forwarder employees work. This interaction is best exemplified by the adduced
evidence, particularly the affidavits of petitioners warehouse manager Gregorio[28] and Section Head
Bawar[29] discussed below.

From the perspective of the union in the present case, we note that the forwarding agreements were already in
place when the current CBA was signed.[30] In this sense, the union accepted the forwarding arrangement, albeit
implicitly, when it signed the CBA with the company. Thereby, the union agreed, again implicitly by its silence and
acceptance, that jobs related to the contracted forwarding activities are not regular company activities and are not to
be undertaken by regular employees falling within the scope of the bargaining unit but by the forwarders
employees. Thus, the skills requirements and job content between forwarders jobs and bargaining unit jobs may be the
same, and they may even work on the same company products, but their work for different purposes and for different
entities completely distinguish and separate forwarder and company employees from one another. A clerical job,
therefore, if undertaken by a forwarders employee in support of forwarding activities, is not a CBA-covered undertaking
or a regular company activity.

The best evidence supporting this conclusion can be found in the CBA itself, Article 1, Sections 1, 2, 3 and 4
(VII) of which provide:
Section 1. Recognition and Bargaining Unit. Upon the unions representation and showing
of continued majority status among the employees covered by the bargaining unit as already
appropriately constituted, the company recognizes the union as the sole and exclusive
collective bargaining representative of all its regular rank-and-file employees, except those
excluded from the bargaining unit as hereinafter enumerated in Sections 2 and 3 of this Article, for
purposes of collective bargaining in respect to their rates of pay and other terms and condition of
employment for the duration of this Agreement.

Section 2. Exclusions. The following employment categories are expressly excluded from the
bargaining unit and from the scope of this Agreement: executives, managers, supervisors and those
employees exercising any of the attributes of a managerial employee; Accounting Department,
Controlling Department, Human Resources Department and IT Department employees, department
secretaries, the drivers and personnel assigned to the Office of the General Manager and the Office of
the Commercial Affairs and Treasury, probationary, temporary and casual employees, security guards,
and other categories of employees declared by law to be eligible for union membership.
 Section 3. Additional Exclusions. Employees within the bargaining unit heretofore defined, who
are promoted or transferred to an excluded employment category as herein before enumerated, shall
automatically be considered as resigned and/or disqualified from membership in the UNION and
automatically removed from the bargaining unit.

Section 4. Definitions x x x

VII. A regular employee is one who having satisfactorily undergone the probationary period of
employment and passed the companys full requirement for regular employees, such as, but not limited
to physical fitness, proficiency, acceptable conduct and good moral character, received an appointment
as a regular employee duly signed by the authorized official of the COMPANY.

[Emphasis supplied.]
When these CBA provisions were put in place, the forwarding agreements had been in place so that the
forwarders employees were never considered as company employees who would be part of the bargaining unit. To be
precise, the forwarders employees and their positions were not part of the appropriate bargaining unit as already
constituted. In fact, even now, the union implicitly recognizes forwarding as a whole as a legitimate non-company
activity by simply claiming as part of their unit the forwarders employees undertaking allied support activities.

At this point, the union cannot simply turn around and claim through voluntary arbitration the contrary position
that some forwarder employees should be regular employees and should be part of its bargaining unit because they
undertake regular company functions. What the union wants is a function of negotiations, or perhaps an appropriate
action before the National Labor Relations Commission impleading the proper parties, but not a voluntary arbitration
that does not implead the affected parties. The union must not forget, too, that before the inclusion of the forwarders
employees in the bargaining unit can be considered, these employees must first be proven to be regular company
employees. As already mentioned, the union does not even have the personality to make this claim for these forwarders
employees. This is the impenetrable wall that the union cannot, for now, pass through using the voluntary arbitration
proceedings now before us on appeal.

Significantly, the evidence presented does not also prove the unions point that forwarder employees undertake company
rather than the forwarders' activities. We say this mindful that forwarding includes a whole range of activities that may
duplicate company activities in terms of the exact character and content of the job done and even of the skills required,
but cannot be legitimately labeled as company activities because they properly pertain to forwarding that the company
has contracted out.
The unions own evidence, in fact, speaks against the point the union wishes to prove. Specifically, the affidavits of
forwarder KNI employees Barit, Prevendido, and Enano, submitted in evidence by the union, confirm that the work they
were doing was predominantly related to forwarding or the shipment or transport of the petitioners finished goods to
overseas destinations, particularly to Germany and the United States of America (USA).

Barit[31] deposed that on August 2, 2004 he started working at the petitioner's CBE finished goods area as an employee
of forwarder Emery Transnational Air Cargo Group; on the same date, he was absorbed by KNI and was assigned the
same task of a loader; his actual work involved: making of inventories of CBE finished products in the warehouse;
double checking of the finished products he inventoried and those received by the other personnel of KNI; securing
from his superior the delivery note and print-out indicating the model and the quantity of products to be exported to
Germany; and preparing the loading form and then referring it to his co-workers from the forwarders who gather the
goods to be transported to Germany based on the model and quantity needed; with the use of the computer, printing
the airway bill which serves as cargo ticket for the airline and posted on every box of finished products before loading
on the van of goods bound for Germany; preparing the gate pass for the van. He explained that other products to be
shipped to the USA, via sea transport, are picked up by the other forwarders and brought to their warehouse in
Paraaque.

Prevendido,[32] also a loader, stated that his actual work involved loading into the container van finished CBE products
bound for Germany; when there is a build up for the E.K. Express (Emirates Airlines), he is sent by the petitioner to the
airlines to load the finished products and check if they are in good condition; although the inspection and checking of
loaded finished products should be done by a company supervisor or clerk, he is asked to do them because he is
already there in the area; he also conducts an inventory of finished goods in the finished goods area, prepares loading
form schedule and generates the airway bill and is asked by his supervisor to call up KNI for the airway bill number.

Enano,[33] for his part, stated that on November 11, 1998, he was absorbed by KNI after initially working in 1996 for a
janitorial service agency which had a contract with the petitioner, he was also a loader and assigned at the finished
goods section in the warehouse department; his actual work involved preparing the gate pass for finished products of
the petitioner to be released; loading the finished products on the truck and calling up KNI (Air Freight Department) to
check on the volume of the petitioner's products for export; making inventories of the remaining finished products and
doing other tasks related to the export of the petitioner's products, which he claimed are supposed to be done by the
company's finished goods supervisor; and monitoring of KNI's trucking sub-contractor who handled the transport
component of KNI's arrangement with the petitioner.

The essential nature of the outsourced services is not substantially altered by the claim of the three KNI employees that
they occasionally do work that pertains to the companys finished goods supervisor or a company employee such as the
inspection of goods to be shipped and inventory of finished goods. This was clarified by petitioners warehouse manager
Gregorio[34] and Section Head Bawar[35] in their respective affidavits. They explained that the three KNI employees do
not conduct inventory of finished goods; rather, as part of the contract, KNI personnel have to count the boxes of finished
products they load into the trucks to ensure that the quantity corresponds with the entries made in the loading form;
included in the contracted service is the preparation of transport documents like the airway bill; the airway bill is prepared
in the office and a KNI employee calls for the airway bill number, a sticker label is then printed; and that the use of the
company forklift is necessary for the loading of the finished goods into the truck.

Thus, even on the evidentiary side, the unions case must fail.

In light of these conclusions, we see no need to dwell on the issue of the voluntary arbitrators authority to rule on
issues not expressly submitted but which arise as a consequence of the voluntary arbitrators findings on the submitted
issues.

WHEREFORE, premises considered, we hereby NULLIFY and SET ASIDE the assailed Court of Appeals
Decision in CA-G.R. SP No. 99029 dated October 28, 2008, together with the Voluntary Arbitrators Decision of May 1,
2007 declaring the employees of forwarders Diversified Cargo Services, Inc., Airfreight 2100 and Kuehne & Nagel, Inc.,
presently designated and functioning as clerks, material handlers, system or data encoders and general clerks, to be
regular company employees.No costs.

SO ORDERED.
 JOEB M. ALIVIADO, ARTHUR G.R. No. 160506
CORPUZ, ERIC ALIVIADO,
MONCHITO AMPELOQUIO,
ABRAHAM BASMAYOR,
JONATHAN MATEO, LORENZO
PLATON, JOSE FERNANDO
GUTIERREZ, ESTANISLAO
BUENAVENTURA, LOPE SALONGA,
FRANZ DAVID, NESTOR IGNACIO,
JULIO REY, RUBEN MARQUEZ, JR.,
MAXIMINO PASCUAL, ERNESTO
CALANAO, ROLANDO
ROMASANTA, RHUEL AGOO,
BONIFACIO ORTEGA, ARSENIO
SORIANO, JR., ARNEL ENDAYA,
ROBERTO ENRIQUEZ, NESTOR
BAQUILA, EDGARDO QUIAMBAO,
SANTOS BACALSO, SAMSON BASCO,
ALADINO GREGORO, JR., EDWIN
GARCIA, ARMANDO VILLAR, EMIL
TAWAT, MARIO P. LIONGSON,
CRESENTE J. GARCIA, FERNANDO
MACABENTE, MELECIO CASAPAO,
REYNALDO JACABAN, FERDINAND
SALVO, ALSTANDO MONTOS,
RAINER N. SALVADOR, RAMIL
REYES, PEDRO G. ROY, LEONARDO
P. TALLEDO, ENRIQUE F. TALLEDO,
WILLIE ORTIZ, ERNESTO SOYOSA,
ROMEO VASQUEZ, JOEL BILLONES,
ALLAN BALTAZAR, NOLI GABUYO,
EMMANUEL E. LABAN, RAMIR E.
PIAT, RAUL DULAY, TADEO DURAN,
JOSEPH BANICO, ALBERT LEYNES,
ANTONIO DACUNA, RENATO DELA
CRUZ, ROMEO VIERNES, JR., ELAIS
BASEO, WILFREDO TORRES,
MELCHOR CARDANO, MARIANO
NARANIAN, JOHN SUMERGIDO,
ROBERTO ROSALES, GERRY C.
GATPO, GERMAN N. GUEVARRA, Present:
GILBERT Y. MIRANDA, RODOLFO C.
TOLEDO, ARNOLD D. LASTONA, CARPIO, J., Chairperson,
PHILIP M. LOZA, MARIO N. BRION,
CULDAYON, ORLANDO P. JIMENEZ, DEL CASTILLO,
FRED P. JIMENEZ, RESTITUTO C. ABAD, and
PAMINTUAN, JR., ROLANDO J. DE PEREZ, JJ.
ANDRES, ARTUZ BUSTENERA,
ROBERTO B. CRUZ, ROSEDY O.
YORDAN, DENNIS DACASIN,
ALEJANDRINO ABATON, and
ORLANDO S. BALANGUE,
Petitioners,

- versus -

PROCTER & GAMBLE PHILS., INC., Promulgated:

and PROMM-GEM INC., March 9, 2010
Respondents.
x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

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

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

Factual Antecedents

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June
1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:

Name Date Employed Date Dismissed

1. Joeb M. Aliviado November, 1985 May 5, 1992
2. Arthur Corpuz 1988 March 11, 1993
3. Eric Aliviado 1985 March 11, 1993
4. Monchito Ampeloquio September, 1988 March 11, 1993
5. Abraham Basmayor[, Jr.] 1987 March 11, 1993
6. Jonathan Mateo May, 1988 March 11, 1993
7. Lorenzo Platon 1985 March 11, 1993
8. Jose Fernando Gutierrez 1988 May 5, 1992
9. Estanislao Buenaventura June, 1988 March 11, 1993
10. Lope Salonga 1982 March 11, 1993
11. Franz David 1989 March 11, 1993
12. Nestor Ignacio 1982 March 11, 1993
13. Julio Rey 1989 May 5, 1992
14. Ruben [Vasquez], Jr. 1985 May 5, 1992
15. Maximino Pascual 1990 May 5, 1992
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
17. Rolando Romasanta 1983 March 11, 1993
18. [Roehl] Agoo 1988 March 11, 1993
19. Bonifacio Ortega 1988 March 11, 1993
20. Arsenio Soriano, Jr. 1985 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993
22. Roberto Enriquez December, 1988 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992
24. Ed[g]ardo Quiambao 1989 March 11, 1993
25. Santos Bacalso 1990 March 11, 1993
26. Samson Basco 1984 March 11, 1993
27. Aladino Gregor[e], Jr. 1980 May 5, 1992
28. Edwin Garcia 1987 May 5, 1992
29. Armando Villar 1990 May 5, 1992
30. Emil Tawat 1988 March 11, 1993
31. Mario P. Liongson 1991 May 5, 1992
32. Cresente J. Garcia 1984 March 11, 1993
33. Fernando Macabent[a] 1990 May 5, 1992
34. Melecio Casapao 1987 March 11, 1993
35. Reynaldo Jacaban 1990 May 5, 1992
36. Ferdinand Salvo 1985 May 5, 1992
37. Alstando Montos 1984 March 11, 1993
38. Rainer N. Salvador 1984 May 5, 1992
39. Ramil Reyes 1984 March 11, 1993
40. Pedro G. Roy 1987
41. Leonardo [F]. Talledo 1985 March 11, 1993
42. Enrique [F]. Talledo 1988 March 11, 1993
43. Willie Ortiz 1987 May 5, 1992
44. Ernesto Soyosa 1988 May 5, 1992
45. Romeo Vasquez 1985 March 11, 1993
46. Joel Billones 1987 March 11, 1993
47. Allan Baltazar 1989 March 11, 1993
48. Noli Gabuyo 1991 March 11, 1993
49. Emmanuel E. Laban 1987 May 5, 1992
50. Ramir[o] E. [Pita] 1990 May 5, 1992
 51. Raul Dulay 1988 May 5, 1992
52. Tadeo Duran[o] 1988 May 5, 1992
53. Joseph Banico 1988 March 11, 1993
54. Albert Leynes 1990 May 5, 1992
55. Antonio Dacu[m]a 1990 May 5, 1992
56. Renato dela Cruz 1982
57. Romeo Viernes, Jr. 1986
58. El[ia]s Bas[c]o 1989
59. Wilfredo Torres 1986 May 5, 1992
60. Melchor Carda[]o 1991 May 5, 1992
61. [Marino] [Maranion] 1989 May 5, 1992
62. John Sumergido 1987 May 5, 1992
63. Roberto Rosales May, 1987 May 5, 1992
64. Gerry [G]. Gatpo November, 1990 March 11, 1993
65. German N. Guevara May, 1990 March 11, 1993
66. Gilbert Y. Miranda June, 1991 March 11, 1993
67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993
68. Arnold D. [Laspoa] June 1991 March 11, 1993
69. Philip M. Loza March 5, 1992 March 11, 1993
70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993
71. Orlando P. Jimenez November 6, 1992 March 11, 1993
72. Fred P. Jimenez September, 1991 March 11, 1993
73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993
74. Rolando J. de Andres June, 1991 March 11, 1993
75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993
76. Roberto B. Cruz May 4, 1990 March 11, 1993
77. Rosedy O. Yordan June, 1991 May 5, 1992
78. Dennis Dacasin May. 1990 May 5, 1992
79. Alejandrino Abaton 1988 May 5, 1992
80. Orlando S. Balangue March, 1989 March 11, 1993[4]
They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five months at a
time.[5] They were assigned at different outlets, supermarkets and stores where they handled all the products of P&G. They received
their wages from Promm-Gem or SAPS.[6]
SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual
absenteeism, dishonesty or changing day-off without prior notice.[7]

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

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

Ruling of the Labor Arbiter

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

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases against
respondent Procter & Gamble (Phils.), Inc. for lack of merit.

SO ORDERED.[12]
Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiters findings. On July 27, 1998, the NLRC rendered a
Decision[13] disposing as follows:

WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the decision
appealed from AFFIRMED.

SO ORDERED.[14]
Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998 Resolution.[15]
Ruling of the Court of Appeals

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the Labor Arbiter and the NLRC. However, said petition was also denied by the CA which disposed as
follows:

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

SO ORDERED.[16]

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

Issues

Petitioners now come before us raising the following issues:

I.
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR
WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING THE
QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND
ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT
THEY WERE ILLEGALLY DISMISSED BY THE FORMER.

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

Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether petitioners were illegally
dismissed; and (3) whether petitioners are entitled for payment of actual, moral and exemplary damages as well as litigation costs
and attorneys fees.

Petitioners Arguments

Petitioners insist that they are employees of P&G. They claim that they were recruited by the salesmen of P&G and were
engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS. They further claim
that when the latter had its so-called re-alignment program, petitioners were instructed to fill up application forms and report to the
agencies which P&G created.[18]

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter[19] to SAPS
dated February 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed.
Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their
client. They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent labor
contracting.Petitioners insist that since they had been engaged to perform activities which are necessary or desirable in the usual
business or trade of P&G, then they are its regular employees.[20]

Respondents Arguments

On the other hand, P&G points out that the instant petition raises only questions of fact and should thus be thrown out as
the Court is not a trier of facts. It argues that findings of facts of the NLRC, particularly where the NLRC and the Labor Arbiter are in
agreement, are deemed binding and conclusive on the Supreme Court.

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

P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly
outsourced. Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is
peripheral or core in nature. It insists that the determination of whether to engage the services of a job contractor or to engage in
direct hiring is within the ambit of management prerogative.
 At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of the Comment of Promm-
Gem on the petition.[21] Also, although SAPS was impleaded as a party in the proceedings before the Labor Arbiter and the NLRC,
it was no longer impleaded as a party in the proceedings before the CA.[22] Hence, our pronouncements with regard to SAPS are
only for the purpose of determining the obligations of P&G, if any.

Our Ruling

The petition has merit.

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

Labor-only contracting and job contracting

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

The pertinent Labor Code provision on the matter states:

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

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

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

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

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18-
02,[24] distinguishes between legitimate and labor-only contracting:

xxxx

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

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

xxxx

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared

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

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

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code,
as amended.

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

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

x x x x (Underscoring supplied.)
Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or
services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or
core in nature. However, in order for such outsourcing to be valid, it must be made to an independent contractor because the current
labor rules expressly prohibit labor-only contracting.

To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places
workers to perform a job, work or service for a principal[25] and any of the following elements are present:

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

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

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

has authorized capital stock of P1 million and a paid-in capital, or capital available for operations, of P500,000.00 as of 1990.[27] It
also has long term assets worth P432,895.28 and current assets of P719,042.32. Promm-Gem has also proven that it maintained
its own warehouse and office space with a floor area of 870 square meters.[28] It also had under its name three registered vehicles
which were used for its promotional/merchandising business.[29] Promm-Gem also has other clients[30] aside from P&G.[31] Under
the circumstances, we find that Promm-Gem has substantial investment which relates to the work to be performed. These factors
negate the existence of the element specified in Section 5(i) of DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers,
tapes, liners and cutters, necessary for them to perform their work. Promm-Gem also issued uniforms to them. It is also relevant to
mention that Promm-Gem already considered the complainants working under it as its regular, not merely contractual or project,
employees.[32] This circumstance negates the existence of element (ii) as stated in Section 5 of DOLE Department Order No. 18-
02, which speaks of contractual employees. This, furthermore, negates on the part of Promm-Gem bad faith and intent to
circumvent labor laws which factors have often been tipping points that lead the Court to strike down the employment practice or
agreement concerned as contrary to public policy, morals, good customs or public order.[33]

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find that it is a legitimate
independent contractor.

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

In Vinoya v. National Labor Relations Commission,[34] the Court held that [w]ith the current economic atmosphere in the
country, the paid-in capitalization of PMCI amounting to P75,000.00 cannot be considered as substantial capital and, as such, PMCI
cannot qualify as an independent contractor.[35] Applying the same rationale to the present case, it is clear that SAPS having a paid-
in capital of only P31,250 - has no substantial capital. SAPS lack of substantial capital is underlined by the records[36] which show
that its payroll for its merchandisers alone for one month would already total P44,561.00. It had 6-month contracts with P&G.[37] Yet
SAPS failed to show that it could complete the 6-month contracts using its own capital and investment. Its capital is not even
sufficient for one months payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the period required for it
to generate its needed revenue to sustain its operations independently. Substantial capital refers to capitalization used in
the performance or completion of the job, work or service contracted out. In the present case, SAPS has failed to show substantial
capital.
 Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity
that has already been considered by the Court as doubtlessly directly related to the manufacturing business,[38] which is the principal
business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited are performing
activities which are directly related to the principal business of P&G, we find that the former is engaged in labor-only contracting.
Where labor-only contracting exists, the Labor Code itself establishes an employer-employee relationship between the
employer and the employees of the labor-only contractor.[39] The statute establishes this relationship for a comprehensive purpose:
to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is
responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal
employer.[40]

Consequently, the following petitioners, having been recruited and supplied

by SAPS[41] -- which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz, Eric Aliviado,
Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz
David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto
Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo
F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda,
Rodolfo C. Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C.
Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat,
Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.
The following petitioners, having worked under, and been dismissed by Promm-Gem, are considered the employees of
Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino
Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr., Maximino Pascual, Willie
Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes,
Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico, Melchor
Cardano, Reynaldo Jacaban, and Joeb Aliviado.[42]

Termination of services

We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular employment, the employer
shall not terminate the services of an employee except for a just[43] or authorized[44] cause.

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of dismissal as
grave misconduct and breach of trust, as follows:

xxxx

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

x x x x[45]

Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of action, a
forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment. The misconduct
to be serious must be of such grave and aggravated character and not merely trivial and unimportant.[46] To be a just cause for
dismissal, such misconduct (a) must be serious; (b) must relate to the performance of the employees duties; and (c) must show
that the employee has become unfit to continue working for the employer.[47]

In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee under paragraph (a) of
Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of has violated some established rules or
policies. It is equally important and required that the act or conduct must have been performed with wrongful intent.[48] In the instant
case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming to be employees of P&G, but it
cannot be said that they were motivated by any wrongful intent in doing so. As such, we find them guilty of only simple misconduct
for assailing the integrity of Promm-Gem as a legitimate and independent promotion firm. A misconduct which is not serious or
grave, as that existing in the instant case, cannot be a valid basis for dismissing an employee.

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

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

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

While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitioners-
employees, i.e., giving two notices and in between such notices, an opportunity for the employees to answer and rebut the charges
against them, it failed to comply with the substantive aspect of due process as the acts complained of neither constitute serious
misconduct nor breach of trust. Hence, the dismissal is illegal.

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show that
upon receipt by SAPS of P&Gs letter terminating their Merchandising Services Contact effective March 11, 1993, they in turn
verbally informed the concerned petitioners not to report for work anymore. The concerned petitioners related their dismissal as
follows:

xxxx

5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino A. Ponce that
we should already stop working immediately because that was the order of Procter and Gamble. According to
him he could not do otherwise because Procter and Gamble was the one paying us. To prove that Procter and
Gamble was the one responsible in our dismissal, he showed to us the letter[51] dated February 24, 1993, x x x

February 24, 1993

Sales and Promotions Services

Armons Bldg., 142 Kamias Road,
Quezon City
Attention: Mr. Saturnino A. Ponce
President & General Manager

Gentlemen:

Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be
renewing our Merchandising Services Contract with your agency.

Please immediately undertake efforts to ensure that your services to the Company will terminate
effective close of business hours of 11 March 1993.

This is without prejudice to whatever obligations you may have to the company under the
abovementioned contract.
Very truly yours,

(Sgd.)
EMMANUEL M. NON
Sales Merchandising III

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

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike Promm-Gem which
dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon the
initiation of P&G. It is evident that SAPS does not carry on its own business because the termination of its contract with P&G
automatically meant for it also the termination of its employees services. It is obvious from its act that SAPS had no other clients
and had no intention of seeking other clients in order to further its merchandising business. From all indications SAPS, existed to
cater solely to the need of P&G for the supply of employees in the latters merchandising concerns only. Under the circumstances
prevailing in the instant case, we cannot consider SAPS as an independent contractor.

Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the lawfulness of the
dismissal rests with the employer.[53] In termination cases, the burden of proof rests upon the employer to show that the dismissal
is for just and valid cause.[54] In the instant case, P&G failed to discharge the burden of proving the legality and validity of the
dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were not justified and are
therefore illegal.
Damages

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

and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or constituted an
act oppressive to labor or was done in a manner contrary to morals, good customs or public policy.[55]

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

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden and
peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day verbal
notice, and for no valid cause bellows oppression and utter disregard of the right to due process of the concerned petitioners. Hence,
an award of moral damages is called for.

Attorneys fees may likewise be awarded to the concerned petitioners who

were illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their rights by reason of the
oppressive acts[56] of P&G.

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the
time the compensation was withheld up to the time of actual reinstatement.[57] Hence, all the petitioners, having been illegally
dismissed are entitled to reinstatement without loss of seniority rights and with full back wages and other benefits from the time of
their illegal dismissal up to the time of their actual reinstatement.

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of Appeals in CA-G.R. SP No. 52082
and the Resolution dated October 20, 2003 are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc.
are ORDERED to reinstate their respective employees immediately without loss of seniority rights and with full backwages and
other benefits from the time of their illegal dismissal up to the time of their actual reinstatement. Procter & Gamble Phils., Inc. is
further ORDERED to pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric Aliviado, Monchito
Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David,
Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez,
Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo,
Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C.
Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan,
Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente
J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
Dacasin, P25,000.00 as moral damages plus ten percent of the total sum as and for attorneys fees.

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

SO ORDERED.
 SMART COMMUNICATIONS, INC., G.R. No. 148132
Petitioner,

- versus -

REGINA M. ASTORGA, G.R. No. 151079

Respondent.
x---------------------------------------------------x
SMART COMMUNICATIONS, INC.,
Petitioner,

- versus -
G.R. No. 151372

REGINA M. ASTORGA,
Respondent. Present:

x---------------------------------------------------x
REGINA M. ASTORGA, YNARES-SANTIAGO, J.,

Petitioner, Chairperson,
AUSTRIA-MARTINEZ,
CORONA,*
NACHURA, and
REYES, JJ.

- versus -
Promulgated:

____________________

SMART COMMUNICATIONS, INC. and ANN

MARGARET V. SANTIAGO,
Respondents.
x------------------------------------------------------------------------------------x
 DECISION

NACHURA, J.:

For the resolution of the Court are three consolidated petitions for review on certiorari under Rule 45 of the
Rules of Court. G.R. No. 148132 assails the February 28, 2000 Decision[1] and the May 7, 2001 Resolution[2] of the
Court of Appeals (CA) in CA-G.R. SP. No. 53831. G.R. Nos. 151079 and 151372 question the June 11, 2001
Decision[3] and the December 18, 2001 Resolution[4] in CA-G.R. SP. No. 57065.

Regina M. Astorga (Astorga) was employed by respondent Smart Communications, Incorporated (SMART)
on May 8, 1997 as District Sales Manager of the Corporate Sales Marketing Group/ Fixed Services Division
(CSMG/FSD). She was receiving a monthly salary of P33,650.00. As District Sales Manager, Astorga enjoyed additional
benefits, namely, annual performance incentive equivalent to 30% of her annual gross salary, a group life and
hospitalization insurance coverage, and a car plan in the amount of P455,000.00.[5]

In February 1998, SMART launched an organizational realignment to achieve more efficient operations. This
was made known to the employees on February 27, 1998.[6] Part of the reorganization was the outsourcing of the
marketing and sales force. Thus, SMART entered into a joint venture agreement with NTT of Japan, and formed
SMART-NTT Multimedia, Incorporated (SNMI). Since SNMI was formed to do the sales and marketing work, SMART
abolished the CSMG/FSD, Astorgas division.

To soften the blow of the realignment, SNMI agreed to absorb the CSMG personnel who would be
recommended by SMART. SMART then conducted a performance evaluation of CSMG personnel and those who
garnered the highest ratings were favorably recommended to SNMI. Astorga landed last in the performance evaluation,
thus, she was not recommended by SMART. SMART, nonetheless, offered her a supervisory position in the Customer
Care Department, but she refused the offer because the position carried lower salary rank and rate.

Despite the abolition of the CSMG/FSD, Astorga continued reporting for work. But on March 3, 1998, SMART
issued a memorandum advising Astorga of the termination of her employment on ground of redundancy, effective April
3, 1998.Astorga received it on March 16, 1998.[7]

The termination of her employment prompted Astorga to file a Complaint[8] for illegal dismissal, non-payment of
salaries and other benefits with prayer for moral and exemplary damages against SMART and Ann Margaret V. Santiago
(Santiago). She claimed that abolishing CSMG and, consequently, terminating her employment was illegal for it violated
her right to security of tenure. She also posited that it was illegal for an employer, like SMART, to contract out services
which will displace the employees, especially if the contractor is an in-house agency.[9]

SMART responded that there was valid termination. It argued that Astorga was dismissed by reason of
redundancy, which is an authorized cause for termination of employment, and the dismissal was effected in accordance
with the requirements of the Labor Code. The redundancy of Astorgas position was the result of the abolition of CSMG
and the creation of a specialized and more technically equipped SNMI, which is a valid and legitimate exercise of
management prerogative.[10]

In the meantime, on May 18, 1998, SMART sent a letter to Astorga demanding that she pay the current market
value of the Honda Civic Sedan which was given to her under the companys car plan program, or to surrender the same
to the company for proper disposition.[11] Astorga, however, failed and refused to do either, thus prompting SMART to
file a suit for replevin with the Regional Trial Court of Makati (RTC) on August 10, 1998. The case was docketed as Civil
Case No. 98-1936 and was raffled to Branch 57.[12]

Astorga moved to dismiss the complaint on grounds of (i) lack of jurisdiction; (ii) failure to state a cause of action;
(iii) litis pendentia; and (iv) forum-shopping. Astorga posited that the regular courts have no jurisdiction over the
complaint because the subject thereof pertains to a benefit arising from an employment contract; hence, jurisdiction
over the same is vested in the labor tribunal and not in regular courts. [13]

Pending resolution of Astorgas motion to dismiss the replevin case, the Labor Arbiter rendered a
Decision[14] dated August 20, 1998, declaring Astorgas dismissal from employment illegal. While recognizing SMARTs
right to abolish any of its departments, the Labor Arbiter held that such right should be exercised in good faith and for
causes beyond its control. The Arbiter found the abolition of CSMG done neither in good faith nor for causes beyond
the control of SMART, but a ploy to terminate Astorgas employment. The Arbiter also ruled that contracting out the
functions performed by Astorga to an in-house agency like SNMI was illegal, citing Section 7(e), Rule VIII-A of the Rules
Implementing the Labor Code.
Accordingly, the Labor Arbiter ordered:

WHEREFORE, judgment is hereby rendered declaring the dismissal of [Astorga] to be illegal

and unjust. [SMART and Santiago] are hereby ordered to:

1. Reinstate [Astorga] to [her] former position or to a substantially equivalent position, without

loss of seniority rights and other privileges, with full backwages, inclusive of allowances and other
benefits from the time of [her] dismissal to the date of reinstatement, which computed as of this date,
are as follows:

(a) Astorga

BACKWAGES; (P33,650.00 x 4 months) = P134,600.00

UNPAID SALARIES (February 15, 1998-
April 3, 1998
February 15-28, 1998 = P 16,823.00
March 1-31, [1998] = P 33,650.00
April 1-3, 1998 = P 3,882.69
CAR MAINTENANCE ALLOWANCE
(P2,000.00 x 4) = P 8,000.00
FUEL ALLOWANCE (300 liters/mo. x
4 mos. at P12.04/liter) = P 14,457.83
TOTAL = P211,415.52

xxxx

3. Jointly and severally pay moral damages in the amount of P500,000.00 x x x and exemplary
damages in the amount of P300,000.00. x x x

4. Jointly and severally pay 10% of the amount due as attorneys fees.
 SO ORDERED.[15]

Subsequently, on March 29, 1999, the RTC issued an Order[16] denying Astorgas motion to dismiss
the replevin case. In so ruling, the RTC ratiocinated that:

Assessing the [submission] of the parties, the Court finds no merit in the motion to dismiss.

As correctly pointed out, this case is to enforce a right of possession over a company car
assigned to the defendant under a car plan privilege arrangement. The car is registered in the name of
the plaintiff. Recovery thereof via replevin suit is allowed by Rule 60 of the 1997 Rules of Civil
Procedure, which is undoubtedly within the jurisdiction of the Regional Trial Court.

In the Complaint, plaintiff claims to be the owner of the company car and despite demand,
defendant refused to return said car. This is clearly sufficient statement of plaintiffs cause of action.

Neither is there forum shopping. The element of litis penden[t]ia does not appear to exist
because the judgment in the labor dispute will not constitute res judicata to bar the filing of this case.

WHEREFORE, the Motion to Dismiss is hereby denied for lack of merit.

SO ORDERED.[17]

Astorga filed a motion for reconsideration, but the RTC denied it on June 18, 1999.[18]

Astorga elevated the denial of her motion via certiorari to the CA, which, in its February 28, 2000
Decision,[19] reversed the RTC ruling. Granting the petition and, consequently, dismissing the replevin case, the CA held
that the case is intertwined with Astorgas complaint for illegal dismissal; thus, it is the labor tribunal that has rightful
jurisdiction over the complaint. SMARTs motion for reconsideration having been denied, [20] it elevated the case to this
Court, now docketed as G.R. No. 148132.

Meanwhile, SMART also appealed the unfavorable ruling of the Labor Arbiter in the illegal dismissal case to the
National Labor Relations Commission (NLRC). In its September 27, 1999 Decision,[21] the NLRC sustained Astorgas
dismissal.Reversing the Labor Arbiter, the NLRC declared the abolition of CSMG and the creation of SNMI to do the
sales and marketing services for SMART a valid organizational action. It overruled the Labor Arbiters ruling that SNMI
is an in-house agency, holding that it lacked legal basis. It also declared that contracting, subcontracting and
streamlining of operations for the purpose of increasing efficiency are allowed under the law. The NLRC further found
erroneous the Labor Arbiters disquisition that redundancy to be valid must be impelled by economic reasons, and upheld
the redundancy measures undertaken by SMART.

The NLRC disposed, thus:

WHEREFORE, the Decision of the Labor Arbiter is hereby reversed and set aside. [Astorga] is
further ordered to immediately return the company vehicle assigned to her. [Smart and Santiago] are
hereby ordered to pay the final wages of [Astorga] after [she] had submitted the required supporting
papers therefor.
 SO ORDERED.[22]

Astorga filed a motion for reconsideration, but the NLRC denied it on December 21, 1999.[23]

Astorga then went to the CA via certiorari. On June 11, 2001, the CA rendered a Decision[24] affirming with
modification the resolutions of the NLRC. In gist, the CA agreed with the NLRC that the reorganization undertaken by
SMART resulting in the abolition of CSMG was a legitimate exercise of management prerogative. It rejected Astorgas
posturing that her non-absorption into SNMI was tainted with bad faith. However, the CA found that SMART failed to
comply with the mandatory one-month notice prior to the intended termination. Accordingly, the CA imposed a penalty
equivalent to Astorgas one-month salary for this non-compliance. The CA also set aside the NLRCs order for the return
of the company vehicle holding that this issue is not essentially a labor concern, but is civil in nature, and thus, within
the competence of the regular court to decide. It added that the matter had not been fully ventilated before the NLRC,
but in the regular court.

Astorga filed a motion for reconsideration, while SMART sought partial reconsideration, of the
Decision. On December 18, 2001, the CA resolved the motions, viz.:

WHEREFORE, [Astorgas] motion for reconsideration is hereby PARTIALLY GRANTED. [Smart] is

hereby ordered to pay [Astorga] her backwages from 15 February 1998 to 06 November 1998. [Smarts]
motion for reconsideration is outrightly DENIED.

SO ORDERED.[25]

Astorga and SMART came to us with their respective petitions for review assailing the CA ruling, docketed as
G.R Nos. 151079 and 151372. On February 27, 2002, this Court ordered the consolidation of these petitions with G.R.
No. 148132.[26]

In her Memorandum, Astorga argues:

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF ASTORGAS DISMISSAL

DESPITE THE FACT THAT HER DISMISSAL WAS EFFECTED IN CLEAR VIOLATION OF THE
CONSTITUTIONAL RIGHT TO SECURITY OF TENURE, CONSIDERING THAT THERE WAS NO
GENUINE GROUND FOR HER DISMISSAL.

II

SMARTS REFUSAL TO REINSTATE ASTORGA DURING THE PENDENCY OF THE APPEAL AS

REQUIRED BY ARTICLE 223 OF THE LABOR CODE, ENTITLES ASTORGA TO HER SALARIES
DURING THE PENDENCY OF THE APPEAL.

III

THE COURT OF APPEALS WAS CORRECT IN HOLDING THAT THE REGIONAL TRIAL COURT
HAS NO JURISDICTION OVER THE COMPLAINT FOR RECOVERY OF A CAR WHICH ASTORGA
ACQUIRED AS PART OF HER EMPLOYEE (sic) BENEFIT.[27]
On the other hand, Smart in its Memoranda raises the following issues:

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE

IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISION OF THE
HONORABLE SUPREME COURT AND HAS SO FAR DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER
OF SUPERVISION WHEN IT RULED THAT SMART DID NOT COMPLY WITH THE NOTICE
REQUIREMENTS PRIOR TO TERMINATING ASTORGA ON THE GROUND OF REDUNDANCY.

II

WHETHER THE NOTICES GIVEN BY SMART TO ASTORGA AND THE DEPARTMENT OF LABOR
AND EMPLOYMENT ARE SUBSTANTIAL COMPLIANCE WITH THE NOTICE REQUIREMENTS
BEFORE TERMINATION.

III

WHETHER THE RULE ENUNCIATED IN SERRANO VS. NATIONAL LABOR RELATIONS

COMMISSION FINDS APPLICATION IN THE CASE AT BAR CONSIDERING THAT IN THE
SERRANO CASE THERE WAS ABSOLUTELY NO NOTICE AT ALL.[28]

IV

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE

IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISION[S] OF THE
HONORABLE SUPREME COURT AND HAS SO FAR DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER
OF SUPERVISION WHEN IT RULED THAT THE REGIONAL TRIAL COURT DOES NOT HAVE
JURISDICTION OVER THE COMPLAINT FOR REPLEVIN FILED BY SMART TO RECOVER ITS
OWN COMPANY VEHICLE FROM A FORMER EMPLOYEE WHO WAS LEGALLY DISMISSED.

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO APPRECIATE THAT THE
SUBJECT OF THE REPLEVIN CASE IS NOT THE ENFORCEMENT OF A CAR PLAN PRIVILEGE
BUT SIMPLY THE RECOVERY OF A COMPANY CAR.

VI

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO APPRECIATE THAT

ASTORGA CAN NO LONGER BE CONSIDERED AS AN EMPLOYEE OF SMART UNDER THE
LABOR CODE.[29]
 The Court shall first deal with the propriety of dismissing the replevin case filed with the RTC of Makati City
allegedly for lack of jurisdiction, which is the issue raised in G.R. No. 148132.

Replevin is an action whereby the owner or person entitled to repossession of goods or chattels may recover
those goods or chattels from one who has wrongfully distrained or taken, or who wrongfully detains such goods or
chattels. It is designed to permit one having right to possession to recover property in specie from one who has
wrongfully taken or detained the property.[30] The term may refer either to the action itself, for the recovery of personalty,
or to the provisional remedy traditionally associated with it, by which possession of the property may be obtained by the
plaintiff and retained during the pendency of the action.[31]

That the action commenced by SMART against Astorga in the RTC of Makati City was one for replevin hardly
admits of doubt.

In reversing the RTC ruling and consequently dismissing the case for lack of jurisdiction, the CA made the
following disquisition, viz.:

[I]t is plain to see that the vehicle was issued to [Astorga] by [Smart] as part of the employment
package. We doubt that [SMART] would extend [to Astorga] the same car plan privilege were it not for
her employment as district sales manager of the company. Furthermore, there is no civil contract for a
loan between [Astorga] and [Smart]. Consequently, We find that the car plan privilege is a benefit arising
out of employer-employee relationship. Thus, the claim for such falls squarely within the original and
exclusive jurisdiction of the labor arbiters and the NLRC.[32]

We do not agree. Contrary to the CAs ratiocination, the RTC rightfully assumed jurisdiction over the suit and
acted well within its discretion in denying Astorgas motion to dismiss. SMARTs demand for payment of the market value
of the car or, in the alternative, the surrender of the car, is not a labor, but a civil, dispute. It involves the relationship of
debtor and creditor rather than employee-employer relations.[33] As such, the dispute falls within the jurisdiction of the
regular courts.

In Basaya, Jr. v. Militante,[34] this Court, in upholding the jurisdiction of the RTC over the replevin suit, explained:

Replevin is a possessory action, the gist of which is the right of possession in the plaintiff. The primary
relief sought therein is the return of the property in specie wrongfully detained by another person. It is
an ordinary statutory proceeding to adjudicate rights to the title or possession of personal property. The
question of whether or not a party has the right of possession over the property involved and if so,
whether or not the adverse party has wrongfully taken and detained said property as to require its return
to plaintiff, is outside the pale of competence of a labor tribunal and beyond the field of specialization
of Labor Arbiters.

xxxx

The labor dispute involved is not intertwined with the issue in the Replevin Case. The respective
issues raised in each forum can be resolved independently on the other. In fact in 18 November 1986,
the NLRC in the case before it had issued an Injunctive Writ enjoining the petitioners from blocking the
free ingress and egress to the Vessel and ordering the petitioners to disembark and vacate. That aspect
of the controversy is properly settled under the Labor Code. So also with petitioners right to picket. But
the determination of the question of who has the better right to take possession of the Vessel and
whether petitioners can deprive the Charterer, as the legal possessor of the Vessel, of that right to
possess in addressed to the competence of Civil Courts.
 In thus ruling, this Court is not sanctioning split jurisdiction but defining avenues of jurisdiction
as laid down by pertinent laws.

The CA, therefore, committed reversible error when it overturned the RTC ruling and ordered the dismissal of
the replevin case for lack of jurisdiction.

Having resolved that issue, we proceed to rule on the validity of Astorgas dismissal.

Astorga was terminated due to redundancy, which is one of the authorized causes for the dismissal of an
employee. The nature of redundancy as an authorized cause for dismissal is explained in the leading case of Wiltshire
File Co., Inc. v. National Labor Relations Commission,[35] viz:

x x x redundancy in an employers personnel force necessarily or even ordinarily refers to duplication of

work. That no other person was holding the same position that private respondent held prior to
termination of his services does not show that his position had not become redundant. Indeed, in any
well organized business enterprise, it would be surprising to find duplication of work and two (2) or more
people doing the work of one person. We believe that redundancy, for purposes of the Labor Code,
exists where the services of an employee are in excess of what is reasonably demanded by the actual
requirements of the enterprise. Succinctly put, a position is redundant where it is superfluous, and
superfluity of a position or positions may be the outcome of a number of factors, such as overhiring of
workers, decreased volume of business, or dropping of a particular product line or service activity
previously manufactured or undertaken by the enterprise.

The characterization of an employees services as superfluous or no longer necessary and, therefore, properly
terminable, is an exercise of business judgment on the part of the employer. The wisdom and soundness of such
characterization or decision is not subject to discretionary review provided, of course, that a violation of law or arbitrary
or malicious action is not shown.[36]

Astorga claims that the termination of her employment was illegal and tainted with bad faith. She asserts that
the reorganization was done in order to get rid of her. But except for her barefaced allegation, no convincing evidence
was offered to prove it. This Court finds it extremely difficult to believe that SMART would enter into a joint venture
agreement with NTT, form SNMI and abolish CSMG/FSD simply for the sole purpose of easing out a particular
employee, such as Astorga.Moreover, Astorga never denied that SMART offered her a supervisory position in the
Customer Care Department, but she refused the offer because the position carried a lower salary rank and rate. If
indeed SMART simply wanted to get rid of her, it would not have offered her a position in any department in the
enterprise.

Astorga also states that the justification advanced by SMART is not true because there was no compelling
economic reason for redundancy. But contrary to her claim, an employer is not precluded from adopting a new policy
conducive to a more economical and effective management even if it is not experiencing economic reverses. Neither
does the law require that the employer should suffer financial losses before he can terminate the services of the
employee on the ground of redundancy. [37]

We agree with the CA that the organizational realignment introduced by SMART, which culminated in the
abolition of CSMG/FSD and termination of Astorgas employment was an honest effort to make SMARTs sales and
marketing departments more efficient and competitive. As the CA had taken pains to elucidate:

x x x a careful and assiduous review of the records will yield no other conclusion than that the
reorganization undertaken by SMART is for no purpose other than its declared objective as a labor and
cost savings device. Indeed, this Court finds no fault in SMARTs decision to outsource the corporate
sales market to SNMI in order to attain greater productivity. [Astorga] belonged to the Sales Marketing
 Group under the Fixed Services Division (CSMG/FSD), a distinct sales force of SMART in charge of
selling SMARTs telecommunications services to the corporate market. SMART, to ensure it can
respond quickly, efficiently and flexibly to its customers requirement, abolished CSMG/FSD and shortly
thereafter assigned its functions to newly-created SNMI Multimedia Incorporated, a joint venture
company of SMART and NTT of Japan, for the reason that CSMG/FSD does not have the necessary
technical expertise required for the value added services. By transferring the duties of CSMG/FSD to
SNMI, SMART has created a more competent and specialized organization to perform the work
required for corporate accounts. It is also relieved SMART of all administrative costs management, time
and money-needed in maintaining the CSMG/FSD. The determination to outsource the duties of the
CSMG/FSD to SNMI was, to Our mind, a sound business judgment based on relevant criteria and is
therefore a legitimate exercise of management prerogative.

Indeed, out of our concern for those lesser circumstanced in life, this Court has inclined towards the worker and
upheld his cause in most of his conflicts with his employer. This favored treatment is consonant with the social justice
policy of the Constitution. But while tilting the scales of justice in favor of workers, the fundamental law also guarantees
the right of the employer to reasonable returns for his investment.[38] In this light, we must acknowledge the prerogative
of the employer to adopt such measures as will promote greater efficiency, reduce overhead costs and enhance
prospects of economic gains, albeit always within the framework of existing laws. Accordingly, we sustain the
reorganization and redundancy program undertaken by SMART.

However, as aptly found by the CA, SMART failed to comply with the mandated one (1) month notice prior to
termination. The record is clear that Astorga received the notice of termination only on March 16, 1998[39] or less than a
month prior to its effectivity on April 3, 1998. Likewise, the Department of Labor and Employment was notified of the
redundancy program only on March 6, 1998.[40]

Article 283 of the Labor Code clearly provides:

Art. 283. Closure of establishment and reduction of personnel. The employer may also terminate the
employment of any employee due to the installation of labor saving devices, redundancy, retrenchment
to prevent losses or the closing or cessation of operation of the establishment or undertaking unless
the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on
the workers and the Ministry of Labor and Employment at least one (1) month before the intended date
thereof x x x.

SMARTs assertion that Astorga cannot complain of lack of notice because the organizational realignment was
made known to all the employees as early as February 1998 fails to persuade. Astorgas actual knowledge of the
reorganization cannot replace the formal and written notice required by the law. In the written notice, the employees are
informed of the specific date of the termination, at least a month prior to the effectivity of such termination, to give them
sufficient time to find other suitable employment or to make whatever arrangements are needed to cushion the impact
of termination. In this case, notwithstanding Astorgas knowledge of the reorganization, she remained uncertain about
the status of her employment until SMART gave her formal notice of termination. But such notice was received by
Astorga barely two (2) weeks before the effective date of termination, a period very much shorter than that required by
law.

Be that as it may, this procedural infirmity would not render the termination of Astorgas employment illegal. The
validity of termination can exist independently of the procedural infirmity of the dismissal. [41] In DAP Corporation v.
CA,[42] we found the dismissal of the employees therein valid and for authorized cause even if the employer failed to
comply with the notice requirement under Article 283 of the Labor Code. This Court upheld the dismissal, but held the
employer liable for non-compliance with the procedural requirements.

The CA, therefore, committed no reversible error in sustaining Astorgas dismissal and at the same time,
awarding indemnity for violation of Astorga's statutory rights.
 However, we find the need to modify, by increasing, the indemnity awarded by the CA to Astorga, as a sanction
on SMART for non-compliance with the one-month mandatory notice requirement, in light of our ruling in Jaka Food
Processing Corporation v. Pacot,[43] viz.:

[I]f the dismissal is based on a just cause under Article 282 but the employer failed to comply
with the notice requirement, the sanction to be imposed upon him should be tempered because the
dismissal process was, in effect, initiated by an act imputable to the employee, and (2) if the dismissal
is based on an authorized cause under Article 283 but the employer failed to comply with the notice
requirement, the sanction should be stiffer because the dismissal process was initiated by the
employers exercise of his management prerogative.

We deem it proper to increase the amount of the penalty on SMART to P50,000.00.

As provided in Article 283 of the Labor Code, Astorga is, likewise, entitled to separation pay equivalent to at
least one (1) month salary or to at least one (1) months pay for every year of service, whichever is higher. The records
show that Astorgas length of service is less than a year. She is, therefore, also entitled to separation pay equivalent to
one (1) month pay.

Finally, we note that Astorga claimed non-payment of wages from February 15, 1998. This assertion was never
rebutted by SMART in the proceedings a quo. No proof of payment was presented by SMART to disprove the
allegation. It is settled that in labor cases, the burden of proving payment of monetary claims rests on the
employer.[44] SMART failed to discharge the onus probandi. Accordingly, it must be held liable for Astorgas salary
from February 15, 1998 until the effective date of her termination, on April 3, 1998.

However, the award of backwages to Astorga by the CA should be deleted for lack of basis. Backwages is a
relief given to an illegally dismissed employee. Thus, before backwages may be granted, there must be a finding of
unjust or illegal dismissal from work.[45] The Labor Arbiter ruled that Astorga was illegally dismissed. But on appeal, the
NLRC reversed the Labor Arbiters ruling and categorically declared Astorgas dismissal valid. This ruling was affirmed
by the CA in its assailed Decision. Since Astorgas dismissal is for an authorized cause, she is not entitled to
backwages. The CAs award of backwages is totally inconsistent with its finding of valid dismissal.

WHEREFORE, the petition of SMART docketed as G.R. No. 148132 is GRANTED. The February 28, 2000 Decision
and the May 7, 2001 Resolution of the Court of Appeals in CA-G.R. SP. No. 53831 are SET
ASIDE. The Regional Trial Court ofMakati City, Branch 57 is DIRECTED to proceed with the trial of Civil Case No. 98-
1936 and render its Decision with reasonable dispatch.

On the other hand, the petitions of SMART and Astorga docketed as G.R. Nos. 151079 and 151372
are DENIED. The June 11, 2001 Decision and the December 18, 2001 Resolution in CA-G.R. SP. No. 57065,
are AFFIRMED with MODIFICATION. Astorga is declared validly dismissed. However, SMART is ordered to pay
Astorga P50,000.00 as indemnity for its non-compliance with procedural due process, her separation pay equivalent to
one (1) month pay, and her salary from February 15, 1998 until the effective date of her termination on April 3, 1998.
The award of backwages is DELETED for lack of basis.

SO ORDERED.
 COCA-COLA BOTTLERS PHILS., INC., G .R . No. 17 9 54 6
Petitioner,
Present:

- versus - YNARES-SANTIAGO, J.,

Chairperson,
AUSTRIA-MARTINEZ, ,
AL AN M . AG IT O , R E G O LO S . O C A
III , E RN E ST O G . AL AR I AO , JR ., CHICO-NAZARIO,
AL FO N SO P AA, J R. , DEM P ST E R P . NACHURA, and
O NG , U RR IQ UI A T . AR V I N, G IL H .
FR AN C I SCO , and E D W IN M . G O L EZ , PERALTA, JJ.
Res p on d en ts .

Promulgated:

February 13, 2009

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

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the Decision [1] dated 19
February 2007, promulgated by the Court of Appeals in CA-G.R. SP No. 85320, reversing the Resolution[2] rendered
on 30 October 2003 by the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 036494-03. The Court
of Appeals, in its assailed Decision, declared that respondents Alan M. Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr.,
Alfonso Paa, Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M. Golez were regular employees of
petitioner Coca-Cola Bottlers Phils., Inc; and that Interserve Management & Manpower Resources, Inc. (Interserve) was
a labor-only contractor, whose presence was intended merely to preclude respondents from acquiring tenurial security.

Petitioner is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) and engaged
in manufacturing, bottling and distributing soft drink beverages and other allied products.

On 15 April 2002, respondents filed before the NLRC two complaints against petitioner, Interserve, Peerless
Integrated Services, Inc., Better Builders, Inc., and Excellent Partners, Inc. for reinstatement with backwages,
regularization, nonpayment of 13th month pay, and damages. The two cases, docketed as NLRC NCR Case No. 04-
02345-2002 and NLRC NCR Case No. 05-03137-02, were consolidated.

Respondents alleged in their Position Paper that they were salesmen assigned at the Lagro Sales Office of
petitioner. They had been in the employ of petitioner for years, but were not regularized. Their employment was
terminated on 8 April 2002without just cause and due process. However, they failed to state the reason/s for filing a
complaint against Interserve; Peerless Integrated Services, Inc.; Better Builders, Inc.; and Excellent Partners, Inc.[3]

Petitioner filed its Position Paper (with Motion to Dismiss),[4] where it averred that respondents were employees
of Interserve who were tasked to perform contracted services in accordance with the provisions of the Contract of
Services[5]executed between petitioner and Interserve on 23 March 2002. Said Contract between petitioner and
Interserve, covering the period of 1 April 2002 to 30 September 2002, constituted legitimate job contracting, given that
the latter was a bona fideindependent contractor with substantial capital or investment in the form of tools, equipment,
and machinery necessary in the conduct of its business.

To prove the status of Interserve as an independent contractor, petitioner presented the following pieces of
evidence: (1) the Articles of Incorporation of Interserve;[6] (2) the Certificate of Registration of Interserve with the Bureau
of Internal Revenue;[7] (3) the Income Tax Return, with Audited Financial Statements, of Interserve for 2001; [8] and (4)
the Certificate of Registration of Interserve as an independent job contractor, issued by the Department of Labor and
Employment (DOLE).[9]

As a result, petitioner asserted that respondents were employees of Interserve, since it was the latter which
hired them, paid their wages, and supervised their work, as proven by: (1) respondents Personal Data Files in the
records of Interserve;[10](2) respondents Contract of Temporary Employment with Interserve;[11] and (3) the payroll
records of Interserve.[12]

Petitioner, thus, sought the dismissal of respondents complaint against it on the ground that the Labor Arbiter did not
acquire jurisdiction over the same in the absence of an employer-employee relationship between petitioner and the
respondents.[13]

In a Decision dated 28 May 2003, the Labor Arbiter found that respondents were employees of Interserve and not of
petitioner. She reasoned that the standard put forth in Article 280 of the Labor Code for determining regular employment
(i.e., that the employee is performing activities that are necessary and desirable in the usual business of the employer)
was not determinative of the issue of whether an employer-employee relationship existed between petitioner and
respondents. While respondents performed activities that were necessary and desirable in the usual business or trade
of petitioner, the Labor Arbiter underscored that respondents functions were not indispensable to the principal business
of petitioner, which was manufacturing and bottling soft drink beverages and similar products.

The Labor Arbiter placed considerable weight on the fact that Interserve was registered with the DOLE as an
independent job contractor, with total assets amounting to P1,439,785.00 as of 31 December 2001. It was Interserve
that kept and maintained respondents employee records, including their Personal Data Sheets; Contracts of
Employment; and remittances to the Social Securities System (SSS), Medicare and Pag-ibig Fund, thus, further
supporting the Labor Arbiters finding that respondents were employees of Interserve. She ruled that the circulars, rules
and regulations which petitioner issued from time to time to respondents were not indicative of control as to make the
latter its employees.
 Nevertheless, the Labor Arbiter directed Interserve to pay respondents their pro-rated 13th month benefits for
the period of January 2002 until April 2002.[14]

In the end, the Labor Arbiter decreed:

WHEREFORE, judgment is hereby rendered finding that [herein respondents] are employees of [herein
petitioner] INTERSERVE MANAGEMENT & MANPOWER RESOURCES, INC. Concomitantly,
respondent Interserve is further ordered to pay [respondents] their pro-rated 13th month pay.

The complaints against COCA-COLA BOTTLERS PHILS., INC. is DISMISMMED for lack of merit.

In like manner the complaints against PEERLESS INTEGRATED SERVICES, INC., BETTER
BUILDING INC. and EXCELLENT PARTNERS COOPERATIVE are DISMISSED for failure of
complainants to pursue against them.

Other claims are dismissed for lack of merit.

The computation of the Computation and Examination Unit, this Commission if (sic) made part of this
Decision. [15]

Unsatisfied with the foregoing Decision of the Labor Arbiter, respondents filed an appeal with the
NLRC, docketed as NLRC NCR CA No. 036494-03.

In their Memorandum of Appeal,[16] respondents maintained that contrary to the finding of the Labor Arbiter, their
work was indispensable to the principal business of petitioner. Respondents supported their claim with copies of the
Delivery Agreement[17] between petitioner and TRMD Incorporated, stating that petitioner was engaged in the
manufacture, distribution and sale of soft drinks and other related products with various plants and sales offices and
warehouses located all over the Philippines. Moreover, petitioner supplied the tools and equipment used by respondents
in their jobs such as forklifts, pallet, etc. Respondents were also required to work in the warehouses, sales offices, and
plants of petitioner. Respondents pointed out that, in contrast, Interserve did not own trucks, pallets cartillas, or any
other equipment necessary in the sale of Coca-Cola products.

Respondents further averred in their Memorandum of Appeal that petitioner exercised control over workers
supplied by various contractors. Respondents cited as an example the case of Raul Arenajo (Arenajo), who, just like
them, worked for petitioner, but was made to appear as an employee of the contractor Peerless Integrated Services,
Inc. As proof of control by petitioner, respondents submitted copies of: (1) a Memorandum [18] dated 11 August 1998
issued by Vicente Dy (Dy), a supervisor of petitioner, addressed to Arenajo, suspending the latter from work until he
explained his disrespectful acts toward the supervisor who caught him sleeping during work hours; (2) a
Memorandum[19] dated 12 August 1998 again issued by Dy to Arenajo, informing the latter that the company had taken
a more lenient and tolerant position regarding his offense despite having found cause for his dismissal; (3)
Memorandum[20] issued by Dy to the personnel of Peerless Integrated Services, Inc., requiring the latter to present their
timely request for leave or medical certificates for their absences; (4) Personnel Workers Schedules, [21] prepared by RB
Chua, another supervisor of petitioner; (5) Daily Sales Monitoring Report prepared by petitioner;[22] and (6) the
Conventional Route System Proposed Set-up of petitioner. [23]
The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor Arbiters Decision dated 28 May 2003
and pronounced that no employer-employee relationship existed between petitioner and respondents. It reiterated the
findings of the Labor Arbiter that Interserve was an independent contractor as evidenced by its substantial assets and
registration with the DOLE. In addition, it was Interserve which hired and paid respondents wages, as well as paid and
remitted their SSS, Medicare, and Pag-ibig contributions. Respondents likewise failed to convince the NLRC that the
instructions issued and trainings conducted by petitioner proved that petitioner exercised control over respondents as
their employer.[24] The dispositive part of the NLRC Resolution states:[25]

WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. However, respondent
Interserve Management & Manpower Resources, Inc., is hereby ordered to pay the [herein
respondents] their pro-rated 13th month pay.

Aggrieved once more, respondents sought recourse with the Court of Appeals by filing a Petition for Certiorari under
Rule 65, docketed as CA-G.R. SP No. 85320.

The Court of Appeals promulgated its Decision on 9 February 2007, reversing the NLRC Resolution dated 30
October 2003. The appellate court ruled that Interserve was a labor-only contractor, with insufficient capital and
investments for the services which it was contracted to perform. With only P510,000.00 invested in its service vehicles
and P200,000.00 in its machineries and equipment, Interserve would be hard-pressed to meet the demands of daily
soft drink deliveries of petitioner in the Lagro area. The Court Appeals concluded that the respondents used the
equipment, tools, and facilities of petitioner in the day-to-day sales operations.

Additionally, the Court of Appeals determined that petitioner had effective control over the means and method
of respondents work as evidenced by the Daily Sales Monitoring Report, the Conventional Route System Proposed
Set-up, and the memoranda issued by the supervisor of petitioner addressed to workers, who, like respondents, were
supposedly supplied by contractors. The appellate court deemed that the respondents, who were tasked to deliver,
distribute, and sell Coca-Cola products, carried out functions directly related and necessary to the main business of
petitioner. The appellate court finally noted that certain provisions of the Contract of Service between petitioner and
Interserve suggested that the latters undertaking did not involve a specific job, but rather the supply of manpower.

The decretal portion of the Decision of the Court of Appeals reads:[26]

WHEREFORE, the petition is GRANTED. The assailed Resolutions of public respondent NLRC
are REVERSED and SET ASIDE. The case is remanded to the NLRC for further proceedings.

Petitioner filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution, dated 31
August 2007.[27]

Hence, the present Petition, in which the following issues are raised[28]:

WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH EVIDENCE ON

RECORD, APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT RULED THAT
INTERSERVE IS A LABOR-ONLY CONTRACTOR;

II
 WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH APPLICABLE
LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED THAT RESPONDENTS
PERFORMED WORK NECESSARY AND DESIRABLE TO THE BUSINESS OF [PETITIONER];

III

WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT

DECLARED THAT RESPONDENTS WERE EMPLOYEES OF [PETITIONER], EVEN ABSENT THE
FOUR ELEMENTS INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; AND

IV

WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT CONCLUDED THAT
INTERSERVE WAS ENGAGED BY [PETITIONER] TO SUPPLY MANPOWER ONLY.

The Court ascertains that the fundamental issue in this case is whether Interserve is a legitimate job
contractor. Only by resolving such issue will the Court be able to determine whether an employer-employee relationship
exists between petitioner and the respondents. To settle the same issue, however, the Court must necessarily review
the factual findings of the Court of Appeals and look into the evidence presented by the parties on record.

As a general rule, factual findings of the Court of Appeals are binding upon the Supreme Court. One exception
to this rule is when the factual findings of the former are contrary to those of the trial court, or the lower administrative
body, as the case may be. This Court is obliged to resolve an issue of fact herein due to the incongruent findings of the
Labor Arbiter and the NLRC and those of the Court of Appeals. [29]

The relations which may arise in a situation, where there is an employer, a contractor, and employees of the
contractor, are identified and distinguished under Article 106 of the Labor Code:

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

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

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

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

The afore-quoted provision recognizes two possible relations among the parties: (1) the permitted legitimate job
contract, or (2) the prohibited labor-only contracting.

A legitimate job contract, wherein an employer enters into a contract with a job contractor for the performance
of the formers work, is permitted by law. Thus, the employer-employee relationship between the job contractor and his
employees is maintained. In legitimate job contracting, the law creates an employer-employee relationship between the
employer and the contractors employees only for a limited purpose, i.e., to ensure that the employees are paid their
wages. The employer becomes jointly and severally liable with the job contractor only for the payment of the employees
wages whenever the contractor fails to pay the same. Other than that, the employer is not responsible for any claim
made by the contractors employees.[30]

On the other hand, labor-only contracting is an arrangement wherein the contractor merely acts as an agent in
recruiting and supplying the principal employer with workers for the purpose of circumventing labor law provisions setting
down the rights of employees. It is not condoned by law. A finding by the appropriate authorities that a contractor is a
labor-only contractor establishes an employer-employee relationship between the principal employer and the
contractors employees and the former becomes solidarily liable for all the rightful claims of the employees. [31]

Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, provides the guidelines
in determining whether labor-only contracting exists:

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared

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

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

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

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

The foregoing provisions shall be without prejudice to the application of Article 248(C) of the Labor
Code, as amended.

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

The right to control shall refer to the right reversed to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the manner
and means to be used in reaching that end. (Emphasis supplied.)
 When there is labor-only contracting, Section 7 of the same implementing rules, describes the consequences
thereof:

Section 7. Existence of an employer-employee relationship.The contractor or subcontractor shall

be considered the employer of the contractual employee for purposes of enforcing the provisions of the
Labor Code and other social legislation. The principal, however, shall be solidarily liable with the
contractor in the event of any violation of any provision of the Labor Code, including the failure to pay
wages.

The principal shall be deemed the employer of the contractual employee in any of the following
case, as declared by a competent authority:

a. where there is labor-only contracting; or

b. where the contracting arrangement falls within the prohibitions provided in Section
6 (Prohibitions) hereof.

According to the foregoing provision, labor-only contracting would give rise to: (1) the creation of an employer-
employee relationship between the principal and the employees of the contractor or sub-contractor; and (2) the solidary
liability of the principal and the contractor to the employees in the event of any violation of the Labor Code.

Petitioner argues that there could not have been labor-only contracting, since respondents did not perform
activities that were indispensable to petitioners principal business. And, even assuming that they did, such fact alone does
not establish an employer-employee relationship between petitioner and the respondents, since respondents were unable
to show that petitioner exercised the power to select and hire them, pay their wages, dismiss them, and control their
conduct.

The argument of petitioner is untenable.

The law clearly establishes an employer-employee relationship between the principal employer and the
contractors employee upon a finding that the contractor is engaged in labor-only contracting. Article 106 of the Labor Code
categorically states:There is labor-only contracting where the person supplying workers to an employee does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such persons are performing activities which are directly related to the principal business
of such employer. Thus, performing activities directly related to the principal business of the employer is only one of the
two indicators that labor-only contracting exists; the other is lack of substantial capital or investment. The Court finds that
both indicators exist in the case at bar.

Respondents worked for petitioner as salesmen, with the exception of respondent Gil Francisco whose job was
designated as leadman. In the Delivery Agreement[32] between petitioner and TRMD Incorporated, it is stated that
petitioner is engaged in the manufacture, distribution and sale of softdrinks and other related products. The work of
respondents, constituting distribution and sale of Coca-Cola products, is clearly indispensable to the principal business
of petitioner. The repeated re-hiring of some of the respondents supports this finding. [33] Petitioner also does not
contradict respondents allegations that the former has Sales Departments and Sales Offices in its various offices, plants,
and warehouses; and that petitioner hires Regional Sales Supervisors and District Sales Supervisors who supervise
and control the salesmen and sales route helpers.[34]

As to the supposed substantial capital and investment required of an independent job contractor, petitioner calls
the attention of the Court to the authorized capital stock of Interserve amounting to P2,000,000.00.[35] It cites as
authority Filipinas Synthetic Fiber Corp. v. National Labor Relations Commission[36] and Frondozo v. National Labor
Relations Commission,[37] where the contractors authorized capital stock of P1,600,000.00 and P2,000,000.00,
respectively, were considered substantial for the purpose of concluding that they were legitimate job contractors. Petitioner
also refers to Neri v. National Labor Relations Commission[38] where it was held that a contractor ceases to be a labor-
only contractor by having substantial capital alone, without investment in tools and equipment.

This Court is unconvinced.

At the outset, the Court clarifies that although Interserve has an authorized capital stock amounting
to P2,000,000.00, only P625,000.00 thereof was paid up as of 31 December 2001. The Court does not set an absolute
figure for what it considers substantial capital for an independent job contractor, but it measures the same against the
type of work which the contractor is obligated to perform for the principal. However, this is rendered impossible in this
case since the Contract between petitioner and Interserve does not even specify the work or the project that needs to
be performed or completed by the latters employees, and uses the dubious phrase tasks and activities that are
considered contractible under existing laws and regulations. Even in its pleadings, petitioner carefully sidesteps
identifying or describing the exact nature of the services that Interserve was obligated to render to petitioner. The
importance of identifying with particularity the work or task which Interserve was supposed to accomplish for petitioner
becomes even more evident, considering that the Articles of Incorporation of Interserve states that its primary purpose
is to operate, conduct, and maintain the business of janitorial and allied services.[39] But respondents were hired as
salesmen and leadman for petitioner. The Court cannot, under such ambiguous circumstances, make a reasonable
determination if Interserve had substantial capital or investment to undertake the job it was contracting with petitioner.

Petitioner cannot seek refuge in Neri v. National Labor Relations Commission. Unlike in Neri, petitioner was
unable to prove in the instant case that Interserve had substantial capitalization to be an independent job
contractor. In San Miguel Corporation v. MAERC Integrated Services, Inc.,[40] therein petitioner San Miguel Corporation
similarly invoked Neri, but was rebuffed by the Court based on the following ratiocination [41]:

Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in Neri v.
NLRC. In that case, it was held that the law did not require one to possess both substantial capital and
investment in the form of tools, equipment, machinery, work premises, among others, to be considered a
job contractor. The second condition to establish permissible job contracting was sufficiently met if one
possessed either attribute.

Accordingly, petitioner alleged that the appellate court and the NLRC erred when they declared
MAERC a labor-only contractor despite the finding that MAERC had investments amounting
to P4,608,080.00 consisting of buildings, machinery and equipment.

However, in Vinoya v. NLRC, we clarified that it was not enough to show substantial capitalization
or investment in the form of tools, equipment, machinery and work premises, etc., to be considered an
independent contractor. In fact, jurisprudential holdings were to the effect that in determining the existence
of an independent contractor relationship, several factors may be considered, such as, but not necessarily
confined to, whether the contractor was carrying on an independent business; the nature and extent of
the work; the skill required; the term and duration of the relationship; the right to assign the performance
of specified pieces of work; the control and supervision of the workers; the power of the employer with
respect to the hiring, firing and payment of the workers of the contractor; the control of the premises; the
duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of
payment.

In Neri, the Court considered not only the fact that respondent Building Care Corporation (BCC)
had substantial capitalization but noted that BBC carried on an independent business and performed its
contract according to its own manner and method, free from the control and supervision of its principal in
all matters except as to the results thereof. The Court likewise mentioned that the employees of BCC
were engaged to perform specific special services for their principal. The status of BCC had also been
passed upon by the Court in a previous case where it was found to be a qualified job contractor because
it was a big firm which services among others, a university, an international bank, a big local bank, a
hospital center, government agencies, etc. Furthermore, there were only two (2) complainants in that case
who were not only selected and hired by the contractor before being assigned to work in the Cagayan de
Oro branch of FEBTC but the Court also found that the contractor maintained effective supervision and
control over them.
 Thus, in San Miguel Corporation, the investment of MAERC, the contractor therein, in the form of buildings,
tools, and equipment of more than P4,000,000.00 did not impress the Court, which still declared MAERC to be a labor-
only contractor.In another case, Dole Philippines, Inc. v. Esteva,[42] the Court did not recognize the contractor therein as
a legitimate job contractor, despite its paid-up capital of over P4,000,000.00, in the absence of substantial investment
in tools and equipment used in the services it was rendering.

Insisting that Interserve had substantial investment, petitioner assails, for being purely speculative, the finding
of the Court of Appeals that the service vehicles and equipment of Interserve, with the values of P510,000.00
and P200,000.00, respectively, could not have met the demands of the Coca-Cola deliveries in the Lagro area.

Yet again, petitioner fails to persuade.

The contractor, not the employee, has the burden of proof that it has the substantial capital, investment, and
tool to engage in job contracting.[43] Although not the contractor itself (since Interserve no longer appealed the judgment
against it by the Labor Arbiter), said burden of proof herein falls upon petitioner who is invoking the supposed status of
Interserve as an independent job contractor. Noticeably, petitioner failed to submit evidence to establish that the service
vehicles and equipment of Interserve, valued at P510,000.00 and P200,000.00, respectively, were sufficient to carry out
its service contract with petitioner. Certainly, petitioner could have simply provided the courts with records showing the
deliveries that were undertaken by Interserve for the Lagro area, the type and number of equipment necessary for such
task, and the valuation of such equipment. Absent evidence which a legally compliant company could have easily
provided, the Court will not presume that Interserve had sufficient investment in service vehicles and equipment,
especially since respondents allegation that they were using equipment, such as forklifts and pallets belonging to
petitioner, to carry out their jobs was uncontroverted.

In sum, Interserve did not have substantial capital or investment in the form of tools, equipment, machineries,
and work premises; and respondents, its supposed employees, performed work which was directly related to the
principal business of petitioner. It is, thus, evident that Interserve falls under the definition of a labor-only contractor,
under Article 106 of the Labor Code; as well as Section 5(i) of the Rules Implementing Articles 106-109 of the Labor
Code, as amended.

The Court, however, does not stop at this finding. It is also apparent that Interserve is a labor-only contractor
under Section 5(ii)[44] of the Rules Implementing Articles 106-109 of the Labor Code, as amended, since it did not
exercise the right to control the performance of the work of respondents.

The lack of control of Interserve over the respondents can be gleaned from the Contract of Services between
Interserve (as the CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of which are reproduced below:

WHEREAS, the CONTRACTOR is engaged in the business, among others, of performing and/or
undertaking, managing for consideration, varied projects, jobs and other related management-oriented
services;

WHEREAS, the CONTRACTOR warrants that it has the necessary capital, expertise, technical
know-how and a team of professional management group and personnel to undertake and assume the
responsibility to carry out the above mentioned project and services;

WHEREAS, the CLIENT is desirous of utilizing the services and facilities of the CONTRACTOR
for emergency needs, rush jobs, peak product loads, temporary, seasonal and other special project
requirements the extent that the available work of the CLIENT can properly be done by an independent
CONTRACTOR permissible under existing laws and regulations;
 WHEREAS, the CONTRACTOR has offered to perform specific jobs/works at the CLIENT as
stated heretofore, under the terms and conditions herein stated, and the CLIENT has accepted the offer.

NOW THEREFORE, for and in consideration of the foregoing premises and of the mutual
covenants and stipulations hereinafter set forth, the parties have hereto have stated and the CLIENT has
accepted the offer:

1. The CONTRACTOR agrees and undertakes to perform and/or provide for the CLIENT, on a
non-exclusive basis for tasks or activities that are considered contractible under existing laws and
regulations, as may be needed by the CLIENT from time to time.

2. To carry out the undertakings specified in the immediately preceding paragraph, the
CONTRACTOR shall employ the necessary personnel like Route Helpers, Salesmen, Drivers, Clericals,
Encoders & PD who are at least Technical/Vocational courses graduates provided with adequate uniforms
and appropriate identification cards, who are warranted by the CONTRACTOR to be so trained as to
efficiently, fully and speedily accomplish the work and services undertaken herein by the
CONTRACTOR. The CONTRACTOR represents that its personnel shall be in such number as will be
sufficient to cope with the requirements of the services and work herein undertaken and that such
personnel shall be physically fit, of good moral character and has not been convicted of any crime. The
CLIENT, however, may request for the replacement of the CONTRACTORS personnel if from its
judgment, the jobs or the projects being done could not be completed within the time specified or that the
quality of the desired result is not being achieved.

3. It is agreed and understood that the CONTRACTORS personnel will comply with CLIENT,
CLIENTS policies, rules and regulations and will be subjected on-the-spot search by CLIENT, CLIENTS
duly authorized guards or security men on duty every time the assigned personnel enter and leave the
premises during the entire duration of this agreement.
4. The CONTRACTOR further warrants to make available at times relievers and/or replacements
to ensure continuous and uninterrupted service as in the case of absences of any personnel above
mentioned, and to exercise the necessary and due supervision over the work of its personnel.[45]
Paragraph 3 of the Contract specified that the personnel of contractor Interserve, which included the
respondents, would comply with CLIENT as well as CLIENTs policies, rules and regulations. It even required Interserve
personnel to subject themselves to on-the-spot searches by petitioner or its duly authorized guards or security men on
duty every time the said personnel entered and left the premises of petitioner. Said paragraph explicitly established the
control of petitioner over the conduct of respondents. Although under paragraph 4 of the same Contract, Interserve
warranted that it would exercise the necessary and due supervision of the work of its personnel, there is a dearth of
evidence to demonstrate the extent or degree of supervision exercised by Interserve over respondents or the manner
in which it was actually exercised. There is even no showing that Interserve had representatives who supervised
respondents work while they were in the premises of petitioner.

Also significant was the right of petitioner under paragraph 2 of the Contract to request the replacement of the
CONTRACTORS personnel. True, this right was conveniently qualified by the phrase if from its judgment, the jobs or
the projects being done could not be completed within the time specified or that the quality of the desired result is not
being achieved, but such qualification was rendered meaningless by the fact that the Contract did not stipulate what
work or job the personnel needed to complete, the time for its completion, or the results desired. The said provision left
a gap which could enable petitioner to demand the removal or replacement of any employee in the guise of his or her
inability to complete a project in time or to deliver the desired result. The power to recommend penalties or dismiss
workers is the strongest indication of a companys right of control as direct employer.[46]

Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the former would provide
relievers and replacements in case of absences of its personnel, raises another red flag. An independent job contractor,
who is answerable to the principal only for the results of a certain work, job, or service need not guarantee to said
principal the daily attendance of the workers assigned to the latter. An independent job contractor would surely have
the discretion over the pace at which the work is performed, the number of employees required to complete the same,
and the work schedule which its employees need to follow.
 As the Court previously observed, the Contract of Services between Interserve and petitioner did not identify
the work needed to be performed and the final result required to be accomplished. Instead, the Contract specified the
type of workers Interserve must provide petitioner (Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD) and
their qualifications (technical/vocational course graduates, physically fit, of good moral character, and have not been
convicted of any crime). The Contract also states that, to carry out the undertakings specified in the immediately
preceding paragraph, the CONTRACTOR shall employ the necessary personnel, thus, acknowledging that Interserve
did not yet have in its employ the personnel needed by petitioner and would still pick out such personnel based on the
criteria provided by petitioner. In other words, Interserve did not obligate itself to perform an identifiable job, work, or
service for petitioner, but merely bound itself to provide the latter with specific types of employees. These contractual
provisions strongly indicated that Interserve was merely a recruiting and manpower agency providing petitioner with
workers performing tasks directly related to the latters principal business.

The certification issued by the DOLE stating that Interserve is an independent job contractor does not sway this
Court to take it at face value, since the primary purpose stated in the Articles of Incorporation [47] of Interserve is
misleading.According to its Articles of Incorporation, the principal business of Interserve is to provide janitorial and allied
services. The delivery and distribution of Coca-Cola products, the work for which respondents were employed and
assigned to petitioner, were in no way allied to janitorial services. While the DOLE may have found that the capital
and/or investments in tools and equipment of Interserve were sufficient for an independent contractor for janitorial
services, this does not mean that such capital and/or investments were likewise sufficient to maintain an independent
contracting business for the delivery and distribution of Coca-Cola products.

With the finding that Interserve was engaged in prohibited labor-only contracting, petitioner shall be deemed the
true employer of respondents. As regular employees of petitioner, respondents cannot be dismissed except for just or
authorized causes, none of which were alleged or proven to exist in this case, the only defense of petitioner against the
charge of illegal dismissal being that respondents were not its employees. Records also failed to show that petitioner
afforded respondents the twin requirements of procedural due process, i.e., notice and hearing, prior to their
dismissal. Respondents were not served notices informing them of the particular acts for which their dismissal was
sought. Nor were they required to give their side regarding the charges made against them. Certainly, the respondents
dismissal was not carried out in accordance with law and, therefore, illegal.[48]
Given that respondents were illegally dismissed by petitioner, they are entitled to reinstatement, full
backwages, inclusive of allowances, and to their other benefits or the monetary equivalents thereof computed from the
time their compensations were withheld from them up to the time of their actual reinstatement, as mandated under
Article 279 of the Labor Code,.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court AFFIRMS WITH MODIFICATION the
Decision dated 19 February 2007 of the Court of Appeals in CA-G.R. SP No. 85320. The Court DECLARES that
respondents were illegally dismissed and, accordingly, ORDERS petitioner to reinstate them without loss of seniority
rights, and to pay them full back wages computed from the time their compensation was withheld up to their actual
reinstatement. Costs against the petitioner.

SO ORDERED.
MANILA WATER COMPANY, INC., G.R. No. 175501
Petitioner,
Present:
- versus -
VELASCO, JR., J.,*
JOSE J. DALUMPINES, EMMANUEL CAPIT, NACHURA,**
ROMEO B. CASTOLONE, MELITANTE CASTRO, Acting Chairperson,
NONITO FERNANDEZ, ARNULFO JAMISON, PERALTA,
ARTHUR LAVISTE, ESTEBAN LEGARTO, MENDOZA, and
SUSANO MIRANDA, RAMON C. REYES, JOSE SERENO,*** JJ.
SIERRA, BENJAMIN TALAVERA, MOISES
ZAPATERO, EDGAR PAMORAGA, BERNARDO S.
MEDINA, MELENCIO M. BAONGUIS, JR., JOSE
AGUILAR, ANGEL C. GARCIA, JOSE TEODY P.
VELASCO, AUGUSTUS J. TANDOC, ROBERTO
DAGDAG, MIGUEL LOPEZ, GEORGE CABRERA,
ARMAN BORROMEO, RONITO R. FRIAS,
ANTONIO VERGARA, RANDY CORTIGUERRA,
and FIRST CLASSIC COURIER SERVICES, INC.,
 Respondents.

Promulgated:

October 4, 2010

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

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision[1] dated
September 12, 2006 and the Resolution [2] dated November 17, 2006 of the Court of Appeals (CA) in CA-G.R. SP No.
94909.

The facts of the case are as follows:

By virtue of Republic Act No. 8041, otherwise known as the National Water Crisis Act of 1995, the Metropolitan
Waterworks and Sewerage System (MWSS) was given the authority to enter into concession agreements allowing the
private sector in its operations. Petitioner Manila Water Company, Inc. (Manila Water) was one of two private
concessionaires contracted by the MWSS to manage the water distribution system in the east zone of Metro Manila.
The east service area included the following towns and cities: Mandaluyong, Marikina, Pasig, Pateros, San Juan,
Taguig, Makati, parts of Quezon City and Manila, Angono, Antipolo, Baras, Binangonan, Cainta, Cardona, Jala-Jala,
Morong, Pililla, Rodriguez, Tanay, Taytay, Teresa, and San Mateo.[3]

Under the concession agreement, Manila Water undertook to absorb the regular employees of MWSS listed by the latter
effective August 1, 1997. Individual respondents, with the exception of Moises Zapatero (Zapatero) and Edgar
Pamoraga (Pamoraga), were among the one hundred twenty-one (121) employees not included in the list of employees
to be absorbed by Manila Water. Nevertheless, Manila Water engaged their services without written contract from
August 1, 1997 to August 31, 1997.[4]

On September 1, 1997, individual respondents signed a three (3)-month contract to perform collection services on
commission basis for Manila Waters branches in the east zone. [5]

On November 21, 1997, before the expiration of the contract of services, the 121 bill collectors formed a corporation
duly registered with the Securities and Exchange Commission (SEC) as the Association Collectors Group, Inc. (ACGI).
ACGI was one of the entities engaged by Manila Water for its courier service. However, Manila Water contracted ACGI
for collection services only in its Balara Branch.[6]
In December 1997, Manila Water entered into a service agreement with respondent First Classic Courier Services, Inc.
(FCCSI) also for its courier needs. The service agreements between Manila Water and FCCSI covered the periods 1997
to 1999 and 2000 to 2002.[7] Earlier, in a memorandum dated November 28, 1997, FCCSI gave a deadline for the bill
collectors who were members of ACGI to submit applications and letters of intent to transfer to FCCSI. The individual
respondents in this case were among the bill collectors who joined FCCSI and were hired effective December 1, 1997. [8]

On various dates between May and October 2002, individual respondents were terminated from employment. Manila
Water no longer renewed its contract with FCCSI because it decided to implement a collectorless scheme whereby
Manila Water customers would instead remit payments through Bayad Centers. [9] The aggrieved bill collectors
individually filed complaints for illegal dismissal, unfair labor practice, damages, and attorneys fees, with prayer for
reinstatement and backwages against petitioner Manila Water and respondent FCCSI. The complaints were
consolidated and jointly heard.[10]

Respondent bill collectors alleged that their employment under Manila Water had four (4) stages: (a) from August 1,
1997 to August 31, 1997; (b) from September 1, 1997 to November 30, 1997; (c) in November 1997 when FCCSI was
incorporated; and (d) after November 1977 when FCCSI came in. While in MWSS, and thereafter in Manila Water and
FCCSI, respondent bill collectors were made to perform the following functions: (1) delivery of bills to customers; (2)
collection of payments from customers; and (3) delivery of disconnection notice to customers. They were also allowed
to effect disconnection and were given tools for this purpose.[11]

Respondent bill collectors averred that when Manila Water issued their individual contracts of service for three months
in September 1997, there was already an attempt to make it appear that respondent bill collectors were not its employees
but independent contractors. Respondent bill collectors stressed that they could not qualify as independent contractors
because they did not have an independent business of their own, tools, equipment, and capitalization, but were purely
dependent on the wages they earned from Manila Water, which was termed as commission. [12]

Respondent bill collectors alleged that Manila Water had complete supervision over their work and their collections,
which they had to remit daily to the former. They also maintained that the incorporation of ACGI did not mean that they
were not employees of Manila Water. Furthermore, they alleged that they suffered injustice when Manila Water imposed
upon them the work set-up that caused them to be emotionally depressed because those who were not assigned to the
Balara Branch under Manila Waters contract with ACGI were forced to join FCCSI to retain their employment. They
argued that the entry of FCCSI did not change the employer-employee relationship of respondent bill collectors with
Manila Water.[13]

Respondent bill collectors insisted that they remained employees of Manila Water even after the entry of FCCSI. The
latter did not qualify as a legitimate labor contractor since it had no substantial capital. FCCSI only had a paid-up capital
of one hundred thousand pesos (P100,000.00), out of the four hundred thousand pesos (P400,000.00) authorized
capital. FCCSI relied mainly on what Manila Water would pay, from which it deducted an agency fee, and it had no other
clients on collection. They were forced to transfer to FCCSI when their service contracts with Manila Water was about
to expire on November 30, 1997. FCCSI was engaged in labor-only contracting which is prohibited by law.[14]
Respondent bill collectors averred that even under the four-fold test of employer-employee relationship, it appeared that
Manila Water was their true employer based on the following circumstances: (1) it was Manila Water who engaged their
services as bill collectors when it took over the operations of the east zone from MWSS on August 1, 1997; (2) it was
Manila Water which paid their wages in the form of commissions every fifteenth (15 th) and thirtieth (30th) day of each
month; (3) Manila Water exercised the power of dismissal over them as bill collectors as evidenced by the instances
surrounding their termination as set forth in their respective affidavits, and by the individual clearances issued to them
not by FCCSI but by Manila Water, stating that the same was issued in connection with his termination of contract as
Contract Collector of Manila Water Company; and (4) their work as bill collectors was clearly related to the principal
business of Manila Water.[15]

Respondent FCCSI, on the other hand, claimed that it is an independent contractor engaged in the business of providing
messengerial or courier services, and it fulfills the criteria set forth under Department Order No. 10, Series of 1997.[16] It
was issued a certificate of registration by the Department of Labor and Employment (DOLE) as an independent
contractor. It was incorporated and registered with the SEC in November 1995. It was duly registered with the
Department of Transportation and Communication (DOTC) and the Office of the Mayor of Makati City for authority to
operate. It has sufficient capital in the form of tools, equipment, and machinery as attested to by the Postal Regulation
Committee of the DOTC after conducting an ocular inspection. It provides similar services to Philippine Long Distance
Telephone Company, Smart Telecommunications, Inc., and Home Cable, Inc. Under the terms and conditions of its
service agreement with Manila Water, FCCSI has the power to hire, assign, discipline, or dismiss its own employees,
as well as control the means and methods of accomplishing the assigned tasks, and it pays the wages of the
employees.[17]

The termination of employment of respondent bill collectors upon the expiration of FCCSIs contract with Manila Water
did not mean the automatic termination or suspension of the employer-employee relationship between FCCSI and
respondent bill collectors. Their termination after their six (6) month floating status, which was allowed by law, was due
to the non-renewal of FCCSIs agreement with Manila Water and its inability to enter into a similar contract requiring the
skills of respondent bill collectors.[18]

Petitioner Manila Water, for its part, denied that there was an employer-employee relationship between its company and
respondent bill collectors. Based on the agreement between FCCSI and Manila Water, respondent bill collectors are
the employees of the former, as it is the former that has the right to select/hire, discipline, supervise, and control. FCCSI
has a separate and distinct legal personality from Manila Water, and it was duly registered as an independent contractor
before the DOLE.[19]

Petitioner further claimed that individual service contracts signed by respondent bill collectors for a 3-month period with
Manila Water were valid and legal. The fact that the duration of the engagement was stated on the face of the contract
dispels any bad faith on the part of the company. Fixed term contracts are allowed by law. Furthermore, respondent bill
collectors allegation that the incorporation of ACGI was made as a condition of their continued employment was
unfounded. They transferred to FCCSI on their own volition.[20]

Petitioner Manila Water also averred that, under its organizational structure, there was no regular plantilla position of
bill collector, which was the main reason why respondent bill collectors were not included in the list of MWSS employees
absorbed by the company. The companys out-sourcing of courier needs to an independent contractor was valid and
legal.

On September 27, 2004, the Labor Arbiter (LA) rendered a decision, [21] the dispositive portion of which reads:

WHEREFORE, premises considered, the complaints against respondent Manila Water Company,
Inc. is dismissed for lack of jurisdiction due to want of employer-employee relationship.
Respondent First Classic Courier Services is hereby ordered to pay complainants separation pay
equivalent to one (1) month pay for every year of service, to wit:

1. JOSE P. DALUMPINES - - - - - - - - P36,400.00

2. SUSANO MIRANDA - - - - - - - - - P36,400.00
3. EDGAR PAMORAGA - - - - - - - - - P29,120.00
4. ARTHUR G. LAVISTI - - - - - - - - - P36,400.00
5. BENJAMIN TALAVERA, JR. - - - - P36,400.00
6. JOSE S.A. SIERRA - - - - - - - - - - - P36,400.00
7. MELITANTE D. CASTRO - - - - - - P36,400.00
8. BERNARDO S. MEDINA - - - - - - - P36,400.00
9. MELENCIO BAONGUIS - - - - - - - P36,400.00
10. NONITO V. FERNANDEZ - - - - - - P36,400.00
11. LEGARTO ESTEBAN - - - - - - - - - P36,400.00
12. ROMEO B. CASTALONE - - - - - - P36,400.00
13. RAMON C. REYES - - - - - - - - - - - P36,400.00
14. MOISES L. ZAPATERO - - - - - - - - P29,120.00
15. JOSE T. AGUILAR - - - - - - - - - - - P36,400.00
16. ARNULFO T. JAMISON - - - - - - - P36,400.00
17. ANGEL C. GARCIA - - - - - - - - - - - P36,400.00
18. JOSE TEODY P. VELASCO - - - - - P36,400.00
19. AUGUSTUS J. TANDOC - - - - - - - P36,400.00
20. EMMANUEL L. CAPIT - - - - - - - - P36,400.00
21. WILLIAM AGANON - - - - - - - - - - P87,360.00
22. ROBERTO S. DAGDAG - - - - - - - - P36,400.00
23 MIGUEL J. LOPEZ - - - - - - - - - - - - P36,400.00
24. GEORGE CABRERA - - - - - - - - - - P36,400.00
25. BORROMEO ARMAN - - - - - - - - - P36,400.00
26. RONITO R. FRIAS - - - - - - - - - - - - P36,400.00
27. ANTONIO A. VERGARA - - - - - - - P36,400.00
28. RANDY T. CORTIGUERRA - - - - - P36,400.00
TOTAL - - - - - - - P1,055,600.00

SO ORDERED.[22]

Respondent bill collectors and FCCSI filed their separate appeals with the National Labor Relations Commission
(NLRC). On March 15, 2006, the NLRC rendered a decision[23] affirming in toto the decision of the LA. Respondent bill
collectors filed a motion for reconsideration, but the same was denied in a resolution[24] dated April 28, 2006.

Disgruntled, respondent bill collectors filed a petition for certiorari under Rule 65 of the Rules of Court before the CA.
On September 12, 2006, the CA rendered a Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the present petition is hereby GIVEN DUE COURSE and the writ
prayed for accordingly GRANTED. Consequently, the assailed Decision dated March 15, 2006 and
Resolution dated April 28, 2006 of the National Labor Relations Commission are hereby ANNULED and
SET ASIDE. A new judgment is hereby entered (a) declaring the petitioners as employees of private
respondent Manila Water Company, Inc., and their termination as bill collectors as illegal; and (b)
ordering private respondent Manila Water Company, Inc. to pay the petitioners separation pay
 equivalent to one (1) month for every year of service. In addition, private respondent Manila Water
Company, Inc. is liable to pay ten percent (10%) of the total amount awarded as attorneys fees.

No pronouncement as to costs.

SO ORDERED.[25]

Petitioner Manila Water and respondent bill collectors filed a motion for reconsideration. However, the CA denied their
respective motions for reconsideration in a Resolution dated November 17, 2006.

Hence, this petition.

Petitioner Manila Water presented the following issues for resolution, whether the CA erred (1) in ruling that an
employment relationship exists between respondent bill collectors and petitioner Manila Water; (2) in its application
of Manila Water Company, Inc. v. Pea[26] to the instant case; and (3) in ruling that respondent FCCSI is not a bona fide
independent contractor.[27]
The petition is bereft of merit.

In this case, the LA, the NLRC, and the CA reached different conclusions of law albeit agreeing on the same set of facts.
It was in their interpretation and appreciation of the evidence that they differed. The CA ruled that respondent FCCSI
was a labor-only contractor and that respondent bill collectors are employees of petitioner Manila Water, while the LA
and the NLRC ruled otherwise.

"Contracting" or "subcontracting" refers to an arrangement whereby a principal agrees to put out or farm out with a
contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or
predetermined period, regardless of whether such job, work, or service is to be performed or completed within or outside
the premises of the principal.[28]

Contracting and subcontracting arrangements are expressly allowed by law but are subject to regulation for the
promotion of employment and the observance of the rights of workers to just and humane conditions of work, security
of tenure, self-organization, and collective bargaining.[29] In legitimate contracting, the trilateral relationship between the
parties in these arrangements involves the principal which decides to farm out a job or service to a contractor or
subcontractor, which has the capacity to independently undertake the performance of the job, work, or service, and the
contractual workers engaged by the contractor or subcontractor to accomplish the job, work, or service. [30]
Job contracting is permissible only if the following conditions are met: 1) the contractor carries on an independent
business and undertakes the contract work on his own account under his own responsibility according to his own manner
and method, free from the control and direction of his employer or principal in all matters connected with the performance
of the work except as to the results thereof; and 2) the contractor has substantial capital or investment in the form of
tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of the
business.[31]

On the other hand, the Labor Code expressly prohibits labor-only contracting. Article 106 of the Code provides that there
is labor-only contracting where the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such person are performing activities which are directly related to the principal business of the employer. In
such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible
to the workers in the same manner and to the same extent as if the latter were directly employed by him. [32]

Department Order No. 18-02, Series of 2002, enunciates that labor-only contracting refers to an arrangement where the
contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal,
and any of the following elements are present: (i) the contractor or subcontractor does not have substantial capital or
investment which relates to the job, work, or service to be performed and the employees recruited, supplied, or placed
by such contractor or subcontractor are performing activities which are directly related to the main business of the
principal; or (ii) the contractor does not exercise the right to control the performance of the work of the contractual
employee.[33]

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations,
tools, equipment, implements, machineries, and work premises, actually and directly used by the contractor or
subcontractor in the performance or completion of the job, work, or service contracted out. The "right to control" refers
to the right reserved to the person for whom the services of the contractual workers are performed, to determine not
only the end to be achieved, but also the manner and means to be used in reaching that end. [34]

In the instant case, the CA found that FCCSI is a labor-only contractor. Based on the factual findings of the CA, FCCSI
does not have substantial capital or investment to qualify as an independent contractor, viz.:

FCCSI was incorporated on November 14, 1995, with an authorized capital stock of P400,000.00, of
which only P100,000.00 is actually paid-in. Going by the pronouncement in Pea, such capitalization can
hardly be considered substantial. FCCSI and Manila Water make much of the 17 April 1997 letter of
Postal Regulation Committee Chairman Francisco V. Ontalan, Jr. to DOTC Secretary Arturo T. Enrile
recommending the renewal and/or extension of authority to FCCSI to operate private messengerial
delivery services, which states in part:

Ocular inspection conducted on its office premises and evaluation of the documents submitted,
the firm during the six (6) months operation has generated employment to thirty six (36)
messengers, and four (4) office personnel.

The office equipt [sic] with modern facilities such as computers, printers, electric typewriter,
working table, telephone lines, airconditioning unit, pigeon holes, working tables
and delivery vehicles such as a Suzuki van and three (3) motorcycles. The firms
audited financial statement for the period ending 31 December 1996 [shows] that it
earned a net income of P253,000.00. x x x.

The above document only proves that FCCSI has no sufficient investment in the form of tools,
equipment and machinery to undertake contract services for Manila Water involving a fleet of around
100 collectors assigned to several branches and covering the service area of Manila Water customers
spread out in several cities/towns of the East Zone. The only rational conclusion is that it is Manila
Water that provides most if not all the logistics and equipment including service vehicles in the
performance of the contracted service, notwithstanding that the contract between FCCSI and Manila
Water states that it is the Contractor which shall furnish at its own expense all materials, tools and
equipment needed to perform the tasks of collectors. Moreover, it must be emphasized that petitioners
who are trained collectors performed tasks that cannot be simply categorized as messengerial. In fact,
these are the very functions they were already discharging even before they joined FCCSI which invited
or solicited their placement just about the expiration of their three (3)-month contract with Manila Water
on November 28, 1997. The Agreement between FCCSI and Manila Water provides that FCCSI shall
field the required number of trained collectors to the following Customer Relations Branch Office:
Cubao, Espaa, San Juan-Mandaluyong, Marikina, Pasig, Taguig-Pateros and Makati.[35]
As correctly ruled by the CA, FCCSIs capitalization may not be considered substantial considering that it had close to a
hundred collectors covering the east zone service area of Manila Water customers. The allegation in the position paper
of FCCSI that it serves other companies courier needs does not cure the fact that it has insufficient capitalization to
qualify as independent contractor. Neither did FCCSI prove its allegation by substantial evidence other than by their
self-serving declarations. What is evident is that it was Manila Water that provided the equipment and service vehicles
needed in the performance of the contracted service, even if the contract between FCCSI and Manila Water stated that
it was the Contractor which shall furnish at its own expense all materials, tools, and equipment needed to perform the
tasks of collectors.

Based on the four-fold test of employer-employee relationship, Manila Water emerges as the employer of
respondent collectors. The elements to determine the existence of an employment relationship are: (a) the selection
and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power
to control the employee's conduct. The most important of these elements is the employer's control of the employee's
conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it. [36]

The factual circumstances in the instant case are essentially the same as those cited in Manila Water Company, Inc. v.
Hermio Pea.[37] In that case, 121 bill collectors, headed by Pea, filed a complaint for illegal dismissal against Manila
Water. The bill collectors formed ACGI which was registered with the SEC. Manila Water, in opposing the claim of the
bill collectors, claimed that there was no employer-employee relationship with the latter. It averred that the bill collectors
were employees of ACGI, a separate entity engaged in collection services, an independent contractor which entered
into a service contract for the collection of Manila Waters accounts. The Court ruled that ACGI was not an independent
contractor but was engaged in labor-only contracting, and as such, is considered merely an agent of Manila Water. [38]

The Court ratiocinated that: First, ACGI does not have substantial capitalization or investment in the form of tools,
equipment, machineries, work premises, and other materials to qualify as an independent contractor. Second, the work
of the bill collectors was directly related to the principal business or operation of Manila Water. Being in the business of
providing water to the consumers in the east zone, the collection of the charges by the bill collectors for the company
can only be categorized as related to, and in the pursuit of, the latter's business. Lastly, ACGI did not carry on an
independent business or undertake the performance of its service contract in its own manner and using its own methods,
free from the control and supervision of its principal, Manila Water. Since ACGI is obviously a labor-only contractor, the
workers it supplied are considered employees of the principal. Furthermore, the activities performed by the bill collectors
were necessary or desirable to Manila Water's principal trade or business; thus, they are regular employees of the latter.
Since Manila Water failed to comply with the requirements of termination under the Labor Code, the dismissal of the bill
collectors was tainted with illegality.[39]

The similarity between the instant case and Pea is very evident. First, the work set-up between the respondent
contractor FCCSI and respondent bill collectors is the same as in Pea. Respondent bill collectors were individually hired
by the contractor, but were under the direct control and supervision of the concessionaire. Second, they performed the
same function of courier and bill collection services. Third, the element of control exercised by Manila Water over
respondent bill collectors is essentially the same as in Pea, manifested in the following circumstances, viz.: (a)
respondent bill collectors reported daily to the branch offices of Manila Water to remit their collections with the specified
monthly targets and comply with the collection reporting procedures prescribed by the latter; (b) respondent bill
collectors, except for Pamoraga and Zapatero, were among the 121 collectors who incorporated ACGI; (c) Manila Water
continued to pay their wages in the form of commissions even after the employees alleged transfer to FCCSI. Manila
Water paid the respondent bill collectors their individual commissions, and the lump sum paid by Manila Water to FCCSI
merely represented the agency fee; and (d) the certification or individual clearances issued by Manila Water to
respondent bill collectors upon the termination of the service contract with FCCSI. The certification stated that
respondents were contract collectors of Manila Water and not of FCCSI. Thus, this Court agrees with the findings of the
CA that if, indeed, FCCSI was the true employer of the bill collectors, it should have been the one to issue the certification
or individual clearances.

It should be remembered that the control test merely calls for the existence of the right to control, and not necessarily
the exercise thereof. It is not essential that the employer actually supervises the performance of duties of the employee.
It is enough that the former has a right to wield the power.[40]

Respondent bill collectors are, therefore, employees of petitioner Manila Water. It cannot be denied that the tasks
performed by respondent bill collectors are directly related to the principal business or trade of Manila Water. Payments
made by the subscribers are the lifeblood of the company, and the respondent bill collectors are the ones who collect
these payments.

The primary standard of determining regular employment is the reasonable connection between the particular activity
performed by the employee in relation to the usual business or trade of the employer. In this case, the connection is
obvious when we consider the nature of the work performed and its relation to the scheme of the particular business or
trade in its entirety. Finally, the repeated and continuing need for the performance of the job is sufficient evidence of the
necessity, if not indispensability of the activity to the business.[41]

WHEREFORE, in view of the foregoing, the Decision dated September 12, 2006 and the Resolution dated November
17, 2006 of the Court of Appeals in CA-G.R. SP No. 94909 are hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.
EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. G.R. No. 186091
VILLARIN, SR., EDWIN JAVIER, SANDI BERMEO, REX
ALLESA, MAXIMO SORIANO, JR., ARSENIO Present:
ESTORQUE, and FELIXBERTO ANAJAO,
Petitioners, CARPIO, J.
Chairperson,
NACHURA,
- versus - PERALTA,
DEL CASTILLO,* and
MENDOZA, JJ.

LORENZO SHIPPING CORPORATION,

Respondent. Promulgated:

December 15, 2010

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

DECISION

NACHURA, J.:

Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, Maximo
Soriano, Jr., Arsenio Estorque, and Felixberto Anajao appeal by certiorari under Rule 45 of the Rules of Court the
October 10, 2008 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP. No. 103804, and the January 21, 2009
Resolution,[2] denying its reconsideration.

Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic corporation engaged in the shipping
industry; it owns several equipment necessary for its business. On September 29, 1997, LSC entered into a General
Equipment Maintenance Repair and Management Services Agreement[3] (Agreement) with Best Manpower Services,
Inc. (BMSI). Under the Agreement, BMSI undertook to provide maintenance and repair services to LSCs container vans,
heavy equipment, trailer chassis, and generator sets. BMSI further undertook to provide checkers to inspect all
containers received for loading to and/or unloading from its vessels.

Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and tractors to BMSI.[4] The period
of lease was coterminous with the Agreement.

BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men, clerks, forklift operators,
motor pool and machine shop workers, technicians, trailer drivers, and mechanics. Six years later, or on May 1, 2003,
LSC entered into another contract with BMSI, this time, a service contract.[5]

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for regularization against LSC and
BMSI. On October 1, 2003, LSC terminated the Agreement, effective October 31, 2003. Consequently, petitioners lost
their employment.

BMSI asserted that it is an independent contractor. It averred that it was willing to regularize petitioners;
however, some of them lacked the requisite qualifications for the job. BMSI was willing to reassign petitioners who were
willing to accept reassignment. BMSI denied petitioners claim for underpayment of wages and non-payment of
13th month pay and other benefits.

LSC, on the other hand, averred that petitioners were employees of BMSI and were assigned to LSC by virtue of
the Agreement. BMSI is an independent job contractor with substantial capital or investment in the form of tools,
equipment, and machinery necessary in the conduct of its business. The Agreement between LSC and BMSI constituted
legitimate job contracting. Thus, petitioners were employees of BMSI and not of LSC.

After due proceedings, the LA rendered a decision[6] dismissing petitioners complaint. The LA found that petitioners
were employees of BMSI. It was BMSI which hired petitioners, paid their wages, and exercised control over them.
Petitioners appealed to the National Labor Relations Commission (NLRC), arguing that BMSI was engaged in labor-
only contracting. They insisted that their employer was LSC.

On January 16, 2008, the NLRC promulgated its decision.[7] Reversing the LA, the NLRC held:

We find from the records of this case that respondent BMSI is not engaged in legitimate job contracting.

First, respondent BMSI has no equipment, no office premises, no capital and no investments as shown
in the Agreement itself which states:

xxxx

VI. RENTAL OF EQUIPMENT

[6.01.] That the CLIENT has several forklifts and truck tractor, and has offered to the
CONTRACTOR the use of the same by way of lease, the monthly rental
of which shall be deducted from the total monthly billings of the
CONTRACTOR for the services covered by this Agreement.

6.02. That the CONTRACTOR has agreed to rent the CLIENTs forklifts and truck
tractor.

6.03. The parties herein have agreed to execute a Contract of Lease for the
forklifts and truck tractor that will be rented by the CONTRACTOR. (p.
389, Records)
True enough, parties signed a Lease Contract (p. 392, Records) wherein respondent BMSI
leased several excess equipment of LSC to enable it to discharge its obligation under the
Agreement. So without the equipment which respondent BMSI leased from respondent LSC, the former
would not be able to perform its commitments in the Agreement.

In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:

x x x. The phrase substantial capital and investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct
of his business, in the Implementing Rules clearly contemplates tools, equipment, etc.,
which are directly related to the service it is being contracted to render. One who does
not have an independent business for undertaking the job contracted for is just an agent
of the employer. (underscoring ours)

Second, respondent BMSI has no independent business or activity or job to perform in respondent LSC
free from the control of respondent LSC except as to the results thereof. In view of the absence of such
independent business or activity or job to be performed by respondent BMSI in respondent LSC
[petitioners] performed work that was necessary and desirable to the main business of respondent LSC.
Respondents were not able to refute the allegations of [petitioners] that they performed the same work
that the regular workers of LSC performed and they stood side by side with regular employees of
respondent LSC performing the same work. Necessarily, the control on the manner and method of
doing the work was exercised by respondent LSC and not by respondent BMSI since the latter had no
business of its own to perform in respondent LSC.

Lastly, respondent BMSI has no other client but respondent LSC. If respondent BMSI were a going
concern, it would have other clients to which to assign [petitioners] after its Agreement with LSC
expired. Since there is only one client, respondent LSC, it is easy to conclude that respondent BMSI is
a mere supplier of labor.

After concluding that respondent BMSI is engaged in prohibited labor-only contracting, respondent LSC
became the employer of [petitioners] pursuant to DO 18-02.
 [Petitioners] therefore should be reinstated to their former positions or equivalent positions in
respondent LSC as regular employees with full backwages and other benefits without loss of seniority
rights from October 31, 2003, when they lost their jobs, until actual reinstatement (Vinoya v. NLRC, 324
SCRA 469). If reinstatement is not feasible, [petitioners] then should be paid separation pay of one
month pay for every year of service or a fraction of six months to be considered as one year, in addition
to full backwages.

Concerning [petitioners] prayer to be paid wage differentials and benefits under the CBA, We have no
doubt that [petitioners] would be entitled to them if they are covered by the said CBA. For this purpose,
[petitioners] should first enlist themselves as union members if they so desire, or pay agency
fee. Furthermore, only [petitioners] who signed the appeal memorandum are covered by this
Decision. As regards the other complainants who did not sign the appeal, the Decision of the Labor
Arbiter dismissing this case became final and executory. [8]

The NLRC disposed thus:

WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision of the Labor Arbiter is hereby
REVERSED, and a NEW ONE rendered finding respondent Best Manpower Services, Inc. is engaged
in prohibited labor-only-contracting and finding respondent Lorenzo Shipping Corp. as the employer of
the following [petitioners]:

1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
7. Arsenio Estorque
8. Maximo N. Soriano, Jr.
9. Sandi G. Bermeo

Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] to their former
positions as regular employees and pay their wage differentials and benefits under the CBA.

If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and Best Manpower Services
are adjudged jointly and solidarily to pay [petitioners] separation pay of one month for every year of
service, a fraction of six months to be considered as one year.

In addition, respondent LSC and BMSI are solidarily liable to pay [petitioners] full backwages from
October 31, 2003 until actual reinstatement or, if reinstatement is not feasible, until finality of this
Decision.

Respondent LSC and respondent BMSI are likewise adjudged to be solidarily liable for attorneys fees
equivalent to ten (10%) of the total monetary award.

xxxx

SO ORDERED.[9]

LSC went to the CA via certiorari. On October 10, 2008, the CA rendered the now challenged Decision,[10] reversing the
NLRC. In holding that BMSI was an independent contractor, the CA relied on the provisions of the Agreement, wherein
BMSI warranted that it is an independent contractor, with adequate capital, expertise, knowledge, equipment, and
personnel necessary for the services rendered to LSC. According to the CA, the fact that BMSI entered into a contract
of lease with LSC did not ipso facto make BMSI a labor-only contractor; on the contrary, it proved that BMSI had
substantial capital. The CA was of the view that the law only required substantial capital or investment. Since BMSI had
substantial capital, as shown by its ability to pay rents to LSC, then it qualified as an independent contractor. It added
that even under the control test, BMSI would be the real employer of petitioners, since it had assumed the entire charge
and control of petitioners services. The CA further held that BMSIs Certificate of Registration as an independent
contractor was sufficient proof that it was an independent contractor. Hence, the CA absolved LSC from liability and
instead held BMSI as employer of petitioners.

The fallo of the CA Decision reads:

WHEREFORE, premises considered, the instant petition is GRANTED and the assailed decision and
resolution of public respondent NLRC are REVERSED and SET ASIDE. Consequently, the decision of
the Labor Arbiter dated September 29, 2004 is REINSTATED.

SO ORDERED.[11]

Petitioners filed a motion for reconsideration, but the CA denied it on January 21, 2009. [12]

Hence, this appeal by petitioners, positing that:

THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE CLEAR EVIDENCE OF

RECORD THAT RESPONDENT WAS ENGAGED IN LABOR-ONLY CONTRACTING TO DEFEAT
PETITIONERS RIGHT TO SECURITY OF TENURE.[13]

Before resolving the petition, we note that only seven (7) of the nine petitioners signed the Verification and
Certification.[14] Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao (Anajao) did not sign the Verification
and Certification, because they could no longer be located by their co-petitioners.[15]
In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor Relations
Commission,[16] citing Loquias v. Office of the Ombudsman,[17] we stated that the petition satisfies the formal
requirements only with regard to the petitioner who signed the petition, but not his co-petitioner who did not sign nor
authorize the other petitioner to sign it on his behalf. Thus, the petition can be given due course only as to the parties
who signed it. The other petitioners who did not sign the verification and certificate against forum shopping cannot be
recognized as petitioners and have no legal standing before the Court. The petition should be dismissed outright with
respect to the non-conforming petitioners.

Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are concerned.

Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an independent contractor,
but a labor-only contractor. LSC, on the other hand, maintains that BMSI is an independent contractor, with adequate
capital and investment. LSC capitalizes on the ratiocination made by the CA.

In declaring BMSI as an independent contractor, the CA, in the challenged Decision, heavily relied on the
provisions of the Agreement, wherein BMSI declared that it was an independent contractor, with substantial capital and
investment.

De Los Santos v. NLRC[18] instructed us that the character of the business, i.e., whether as labor-only contractor
or as job contractor, should
be measured in terms of, and determined by, the criteria set by statute. The parties cannot dictate by the mere
expedience of a unilateral declaration in a contract the character of their business.

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan Multi-Purpose
Coop (AMPCO), and Merlyn N. Policarpio,[19] this Court explained:

Despite the fact that the service contracts contain stipulations which are earmarks of
independent contractorship, they do not make it legally so. The language of a contract is neither
determinative nor conclusive of the relationship between the parties. Petitioner SMC and AMPCO
cannot dictate, by a declaration in a contract, the character of AMPCO's business, that is, whether
as labor-only contractor, or job contractor. AMPCO's character should be measured in terms of, and
determined by, the criteria set by statute.

Thus, in distinguishing between prohibited labor-only contracting and permissible job contracting, the totality of the facts
and the surrounding circumstances of the case are to be considered.

Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely
recruits, supplies, or places workers to perform a job, work, or service for a principal. In labor-only contracting, the
following elements are present: (a) the contractor or subcontractor does not have substantial capital or investment to
actually perform the job, work, or service under its own account and responsibility; and (b) the employees recruited,
supplied, or placed by such contractor or subcontractor perform activities which are directly related to the main business
of the principal.[20]

On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby a principal
agrees to put out or farm out with the contractor or subcontractor the performance or completion of a specific job, work,
or service within a definite or predetermined period, regardless of whether such job, work, or service is to be performed
or completed within or outside the premises of the principal. [21]

A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:

(a) The contractor carries on a distinct and independent business and undertakes the contract work on his
account under his own responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of his work except as to the results thereof;

(b) The contractor has substantial capital or investment; and

(c) The agreement between the principal and the contractor or subcontractor assures the contractual
employees' entitlement to all labor and occupational safety and health standards, free exercise of the right to self-
organization, security of tenure, and social welfare benefits.[22]

Given the above standards, we sustain the petitioners contention that BMSI is engaged in labor-only contracting.
 First, petitioners worked at LSCs premises, and nowhere else. Other than the provisions of the Agreement,
there was no showing that it was BMSI which established petitioners working procedure and methods, which supervised
petitioners in their work, or which evaluated the same. There was absolute lack of evidence that BMSI exercised control
over them or their work, except for the fact that petitioners were hired by BMSI.

Second, LSC was unable to present proof that BMSI had substantial capital. The record before us is bereft of
any proof pertaining to the contractors capitalization, nor to its investment in tools, equipment, or implements actually
used in the performance or completion of the job, work, or service that it was contracted to render. What is clear was
that the equipment used by BMSI were owned by, and merely rented from, LSC.

In Mandaue Galleon Trade, Inc. v. Andales,[23] we held:

The law casts the burden on the contractor to prove that it has substantial capital, investment,
tools, etc. Employees, on the other hand, need not prove that the contractor does not have substantial
capital, investment, and tools to engage in job-contracting.

Third, petitioners performed activities which were directly related to the main business of LSC. The work of petitioners
as checkers, welders, utility men, drivers, and mechanics could only be characterized as part of, or at least clearly
related to, and in the pursuit of, LSCs business. Logically, when petitioners were assigned by BMSI to LSC, BMSI acted
merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor LSC refuted this
finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.

The CA erred in considering BMSIs Certificate of Registration as sufficient proof that it is an independent
contractor. In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan Multi-Purpose
Coop (AMPCO), and Merlyn N. Policarpio,[24] we held that a Certificate of Registration issued by the Department of
Labor and Employment is not conclusive evidence of such status. The fact of registration simply prevents the legal
presumption of being a mere labor-only contractor from arising.[25]

Indubitably, BMSI can only be classified as a labor-only contractor. The CA, therefore, erred when it ruled
otherwise. Consequently, the workers that BMSI supplied to LSC became regular employees of the latter.[26] Having
gained regular status, petitioners were entitled to security of tenure and could only be dismissed for just or authorized
causes and after they had been accorded due process.

Petitioners lost their employment when LSC terminated its Agreement with BMSI. However, the termination of
LSCs Agreement with BMSI cannot be considered a just or an authorized cause for petitioners dismissal. In Almeda v.
Asahi Glass Philippines. Inc. v. Asahi Glass Philippines, Inc.,[27] this Court declared:

The sole reason given for the dismissal of petitioners by SSASI was the termination of its
service contract with respondent. But since SSASI was a labor-only contractor, and petitioners were to
be deemed the employees of respondent, then the said reason would not constitute a just or authorized
 cause for petitioners dismissal. It would then appear that petitioners were summarily dismissed based
on the aforecited reason, without compliance with the procedural due process for notice and hearing.

Herein petitioners, having been unjustly dismissed from work, are entitled to reinstatement
without loss of seniority rights and other privileges and to full back wages, inclusive of allowances, and
to other benefits or their monetary equivalents computed from the time compensation was withheld up
to the time of actual reinstatement. Their earnings elsewhere during the periods of their illegal dismissal
shall not be deducted therefrom.

Accordingly, we hold that the NLRC committed no grave abuse of discretion in its decision. Conversely, the CA
committed a reversible error when it set aside the NLRC ruling.

WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of Appeals in CA-G.R.
SP. No. 103804 are REVERSED and SET ASIDE. Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin,
Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, and Arsenio Estorque are declared regular employees of Lorenzo Shipping
Corporation. Further, LSC is ordered to reinstate the seven petitioners to their former position without loss of seniority
rights and other privileges, and to pay full backwages, inclusive of allowances, and other benefits or their monetary
equivalent, computed from the time compensation was withheld up to the time of actual reinstatement.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 169704 November 17, 2010

ALBERT TENG, doing business under the firm name ALBERT TENG FISH TRADING, and EMILIA TENG-
CHUA, Petitioners,
vs.
ALFREDO S. PAHAGAC, EDDIE D. NIPA, ORLANDO P. LAYESE, HERNAN Y. BADILLES and ROGER S.
PAHAGAC, Respondents.
DECISION
BRION, J.:
Before this Court is a Petition for Review on Certiorari 1 filed by petitioners Albert Teng Fish Trading, its owner Albert
Teng, and its manager Emilia Teng-Chua, to reverse and set aside the September 21, 2004 decision 2 and the
September 1, 2005 resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 78783. The CA reversed the decision
of the Voluntary Arbitrator (VA), National Conciliation and Mediation Board (NCMB), Region IX, Zamboanga City, and
declared that there exists an employer-employee relationship between Teng and respondents Hernan Badilles, Orlando
Layese, Eddie Nipa, Alfredo Pahagac, and Roger Pahagac (collectively, respondent workers). It also found that Teng
illegally dismissed the respondent workers from their employment.
BACKGROUND FACTS
Albert Teng Fish Trading is engaged in deep sea fishing and, for this purpose, owns boats (basnig), equipment, and
other fishing paraphernalia. As owner of the business, Teng claims that he customarily enters into joint venture
agreements with master fishermen (maestros) who are skilled and are experts in deep sea fishing; they take charge of
the management of each fishing venture, including the hiring of the members of its complement. He avers that the
maestros hired the respondent workers as checkers to determine the volume of the fish caught in every fishing voyage. 4
On February 20, 2003, the respondent workers filed a complaint for illegal dismissal against Albert Teng Fish Trading,
Teng, and Chua before the NCMB, Region Branch No. IX, Zamboanga City.
The respondent workers alleged that Teng hired them, without any written employment contract, to serve as his "eyes
and ears" aboard the fishing boats; to classify the fish caught by bañera; to report to Teng via radio communication the
classes and volume of each catch; to receive instructions from him as to where and when to unload the catch; to prepare
the list of the provisions requested by the maestro and the mechanic for his approval; and, to procure the items as
approved by him.5 They also claimed that they received regular monthly salaries, 13th month pay, Christmas bonus,
and incentives in the form of shares in the total volume of fish caught.
They asserted that sometime in September 2002, Teng expressed his doubts on the correct volume of fish caught in
every fishing voyage.6 In December 2002, Teng informed them that their services had been terminated. 7
In his defense, Teng maintained that he did not have any hand in hiring the respondent workers; the maestros, rather
than he, invited them to join the venture. According to him, his role was clearly limited to the provision of the necessary
capital, tools and equipment, consisting of basnig, gears, fuel, food, and other supplies. 8
The VA rendered a decision9 in Teng’s favor and declared that no employer-employee relationship existed between
Teng and the respondent workers. The dispositive portion of the VA’s May 30, 2003 decision reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the instant complaint for lack of merit.
It follows also, that all other claims are likewise dismissed for lack of merit. 10
The respondent workers received the VA’s decision on June 12, 2003. 11 They filed a motion for reconsideration, which
was denied in an order dated June 27, 2003 and which they received on July 8, 2003. 12 The VA reasoned out that
Section 6, Rule VII of the 1989 Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings (1989
Procedural Guidelines) does not provide the remedy of a motion for reconsideration to the party adversely affected by
the VA’s order or decision.13 The order states:
Under Executive Order No. 126, as amended by Executive Order No. 251, and in order to implement Article 260-262
(b) of the Labor Code, as amended by R.A. No. 6715, otherwise known as the Procedural Guidelines in the Conduct of
Voluntary Arbitration Proceedings, inter alia:
An award or the Decision of the Voluntary Arbitrators becomes final and executory after ten (10) calendar days from
receipt of copies of the award or decision by the parties (Sec. 6, Rule VII).
Moreover, the above-mentioned guidelines do not provide the remedy of a motion for reconsideration to the party
adversely affected by the order or decision of voluntary arbitrators. 14
On July 21, 2003, the respondent-workers elevated the case to the CA. In its decision of September 21, 2004, the CA
reversed the VA’s decision after finding sufficient evidence showing the existence of employer-employee relationship:
WHEREFORE, premises considered, the petition is granted. The questioned decision of the Voluntary Arbitrator dated
May 30, 2003 is hereby REVERSED and SET ASIDE by ordering private respondent to pay separation pay with
backwages and other monetary benefits. For this purpose, the case is REMANDED to the Voluntary Arbitrator for the
computation of petitioner’s backwages and other monetary benefits. No pronouncement as to costs.
SO ORDERED.15
Teng moved to reconsider the CA’s decision, but the CA denied the motion in its resolution of September 1, 2005. 16He,
thereafter, filed the present Petition for Review on Certiorari under Rule 45 of the Rules of Court, claiming that:
a. the VA’s decision is not subject to a motion for reconsideration; and
b. no employer-employee relationship existed between Teng and the respondent workers.
Teng contends that the VA’s decision is not subject to a motion for reconsideration in the absence of any specific
provision allowing this recourse under Article 262-A of the Labor Code.17 He cites the 1989 Procedural Guidelines,
which, as the VA declared, does not provide the remedy of a motion for reconsideration.18 He claims that after the lapse
of 10 days from its receipt, the VA’s decision becomes final and executory unless an appeal is taken. 19 He argues that
when the respondent workers received the VA’s decision on June 12, 2003, 20 they had 10 days, or until June 22, 2003,
to file an appeal. As the respondent workers opted instead to move for reconsideration, the 10-day period to appeal
continued to run; thus, the VA’s decision had already become final and executory by the time they assailed it before the
CA on July 21, 2003.21
Teng further insists that the VA was correct in ruling that there was no employer-employee relationship between him
and the respondent workers. What he entered into was a joint venture agreement with the maestros, where Teng’s role
was only to provide basnig, gears, nets, and other tools and equipment for every fishing voyage. 22
THE COURT’S RULING
We resolve to deny the petition for lack of merit.
Article 262-A of the Labor Code does not prohibit the filing of a motion for reconsideration.
On March 21, 1989, Republic Act No. 671523 took effect, amending, among others, Article 263 of the Labor Code which
was originally worded as:
Art. 263 x x x Voluntary arbitration awards or decisions shall be final, unappealable, and executory.
As amended, Article 263 is now Article 262-A, which states:
Art. 262-A. x x x [T]he award or decision x x x shall contain the facts and the law on which it is based. It shall be final
and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties.
Notably, Article 262-A deleted the word "unappealable" from Article 263. The deliberate selection of the language in the
amendatory act differing from that of the original act indicates that the legislature intended a change in the law, and the
court should endeavor to give effect to such intent.24 We recognized the intent of the change of phraseology in Imperial
Textile Mills, Inc. v. Sampang,25 where we ruled that:
It is true that the present rule [Art. 262-A] makes the voluntary arbitration award final and executory after ten calendar
days from receipt of the copy of the award or decision by the parties. Presumably, the decision may still be reconsidered
by the Voluntary Arbitrator on the basis of a motion for reconsideration duly filed during that period. 26
In Coca-Cola Bottlers Phil., Inc., Sales Force Union-PTGWO-Balais v. Coca-Cola Bottlers Philippines, Inc.,27 we likewise
ruled that the VA’s decision may still be reconsidered on the basis of a motion for reconsideration seasonably filed within
10 days from receipt thereof.28 The seasonable filing of a motion for reconsideration is a mandatory requirement to
forestall the finality of such decision.29 We further cited the 1989 Procedural Guidelines which implemented Article 262-
A, viz:30
[U]nder Section 6, Rule VII of the same guidelines implementing Article 262-A of the Labor Code, this Decision, as a
matter of course, would become final and executory after ten (10) calendar days from receipt of copies of the decision
by the parties x x x unless, in the meantime, a motion for reconsideration or a petition for review to the Court of Appeals
under Rule 43 of the Rules of Court is filed within the same 10-day period. 31
These rulings fully establish that the absence of a categorical language in Article 262-A does not preclude the filing of
a motion for reconsideration of the VA’s decision within the 10-day period. Teng’s allegation that the VA’s decision had
become final and executory by the time the respondent workers filed an appeal with the CA thus fails. We consequently
rule that the respondent workers seasonably filed a motion for reconsideration of the VA’s judgment, and the VA erred
in denying the motion because no motion for reconsideration is allowed.
The Court notes that despite our interpretation that Article 262-A does not preclude the filing of a motion for
reconsideration of the VA’s decision, a contrary provision can be found in Section 7, Rule XIX of the Department of
Labor’s Department Order (DO) No. 40, series of 2003:32
Rule XIX
Section 7. Finality of Award/Decision. – The decision, order, resolution or award of the voluntary arbitrator or panel of
voluntary arbitrators shall be final and executory after ten (10) calendar days from receipt of the copy of the award or
decision by the parties and it shall not be subject of a motion for reconsideration.
Presumably on the basis of DO 40-03, the 1989 Procedural Guidelines was revised in 2005 (2005 Procedural
Guidelines),33 whose pertinent provisions provide that:
Rule VII – DECISIONS
Section 6. Finality of Decisions. – The decision of the Voluntary Arbitrator shall be final and executory after ten (10)
calendar days from receipt of the copy of the decision by the parties.
Section 7. Motions for Reconsideration. – The decision of the Voluntary Arbitrator is not subject of a Motion for
Reconsideration.
We are surprised that neither the VA nor Teng cited DO 40-03 and the 2005 Procedural Guidelines as authorities for
their cause, considering that these were the governing rules while the case was pending and these directly and fully
supported their theory. Had they done so, their reliance on the provisions would have nevertheless been unavailing for
reasons we shall now discuss.
In the exercise of its power to promulgate implementing rules and regulations, an implementing agency, such as the
Department of Labor,34 is restricted from going beyond the terms of the law it seeks to implement; it should neither
modify nor improve the law. The agency formulating the rules and guidelines cannot exceed the statutory authority
granted to it by the legislature.35
By allowing a 10-day period, the obvious intent of Congress in amending Article 263 to Article 262-A is to provide an
opportunity for the party adversely affected by the VA’s decision to seek recourse via a motion for reconsideration or a
petition for review under Rule 43 of the Rules of Court filed with the CA. Indeed, a motion for reconsideration is the more
appropriate remedy in line with the doctrine of exhaustion of administrative remedies. For this reason, an appeal from
administrative agencies to the CA via Rule 43 of the Rules of Court requires exhaustion of available remedies36 as a
condition precedent to a petition under that Rule.
The requirement that administrative remedies be exhausted is based on the doctrine that in providing for a remedy
before an administrative agency, every opportunity must be given to the agency to resolve the matter and to exhaust all
opportunities for a resolution under the given remedy before bringing an action in, or resorting to, the courts of
justice.37 Where Congress has not clearly required exhaustion, sound judicial discretion governs, 38 guided by
congressional intent.39
By disallowing reconsideration of the VA’s decision, Section 7, Rule XIX of DO 40-03 and Section 7 of the 2005
Procedural Guidelines went directly against the legislative intent behind Article 262-A of the Labor Code. These rules
deny the VA the chance to correct himself 40 and compel the courts of justice to prematurely intervene with the action of
an administrative agency entrusted with the adjudication of controversies coming under its special knowledge, training
and specific field of expertise. In this era of clogged court dockets, the need for specialized administrative agencies with
the special knowledge, experience and capability to hear and determine promptly disputes on technical matters or
intricate questions of facts, subject to judicial review, is indispensable. 41 In Industrial Enterprises, Inc. v. Court of
Appeals,42 we ruled that relief must first be obtained in an administrative proceeding before a remedy will be supplied
by the courts even though the matter is within the proper jurisdiction of a court. 43
There exists an employer-employee relationship between Teng and the respondent workers.
We agree with the CA’s finding that sufficient evidence exists indicating the existence of an employer-employee
relationship between Teng and the respondent workers.
While Teng alleged that it was the maestros who hired the respondent workers, it was his company that issued to the
respondent workers identification cards (IDs) bearing their names as employees and Teng’s signature as the employer.
Generally, in a business establishment, IDs are issued to identify the holder as a bona fide employee of the issuing
entity.
For the 13 years that the respondent workers worked for Teng, they received wages on a regular basis, in addition to
their shares in the fish caught.44 The worksheet showed that the respondent workers received uniform amounts within
a given year, which amounts annually increased until the termination of their employment in 2002. 45 Teng’s claim that
the amounts received by the respondent workers are mere commissions is incredulous, as it would mean that the fish
caught throughout the year is uniform and increases in number each year.
More importantly, the element of control – which we have ruled in a number of cases to be a strong indicator of the
existence of an employer-employee relationship – is present in this case. Teng not only owned the tools and equipment,
he directed how the respondent workers were to perform their job as checkers; they, in fact, acted as Teng’s eyes and
ears in every fishing expedition.
Teng cannot hide behind his argument that the respondent workers were hired by the maestros. To consider the
respondent workers as employees of the maestros would mean that Teng committed impermissible labor-only
contracting. As a policy, the Labor Code prohibits labor-only contracting:
ART. 106. Contractor or Subcontractor – x x x The Secretary of Labor and Employment may, by appropriate regulations,
restrict or prohibit the contracting-out of labor.
xxxx
There is "labor-only" contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such persons are performing activities which are directly related to the
principal business of such employer. In such cases, the person or intermediary shall be considered merely as an
agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were
directly employed by him.
Section 5 of the DO No. 18-02,46 which implements Article 106 of the Labor Code, provides:
Section 5. Prohibition against labor-only contracting. – Labor-only contracting is hereby declared prohibited. For
this purpose, labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present:
(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work
or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor
are performing activities which are directly related to the main business of the principal; or
(ii) The contractor does not exercise the right to control over the performance of the work of the contractual
employee.
In the present case, the maestros did not have any substantial capital or investment.1avvphi1 Teng admitted that he
solely provided the capital and equipment, while the maestros supplied the workers. The power of control over the
respondent workers was lodged not with the maestros but with Teng. As checkers, the respondent workers’ main tasks
were to count and classify the fish caught and report them to Teng. They performed tasks that were necessary and
desirable in Teng’s fishing business. Taken together, these incidents confirm the existence of a labor-only contracting
which is prohibited in our jurisdiction, as it is considered to be the employer’s attempt to evade obligations afforded by
law to employees.
Accordingly, we hold that employer-employee ties exist between Teng and the respondent workers. A finding that the
maestros are labor-only contractors is equivalent to a finding that an employer-employee relationship exists between
Teng and the respondent workers. As regular employees, the respondent workers are entitled to all the benefits and
rights appurtenant to regular employment.
The dismissal of an employee, which the employer must validate, has a twofold requirement: one is substantive, the
other is procedural.47 Not only must the dismissal be for a just or an authorized cause, as provided by law; the
rudimentary requirements of due process – the opportunity to be heard and to defend oneself – must be observed as
well.48 The employer has the burden of proving that the dismissal was for a just cause; failure to show this, as in the
present case, would necessarily mean that the dismissal was unjustified and, therefore, illegal. 49
The respondent worker’s allegation that Teng summarily dismissed them on suspicion that they were not reporting to
him the correct volume of the fish caught in each fishing voyage was never denied by Teng. Unsubstantiated suspicion
is not a just cause to terminate one’s employment under Article 282 50 of the Labor Code. To allow an employer to
dismiss an employee based on mere allegations and generalities would place the employee at the mercy of his
employer, and would emasculate the right to security of tenure.51 For his failure to comply with the Labor Code’s
substantive requirement on termination of employment, we declare that Teng illegally dismissed the respondent
workers.
WHEREFORE, we DENY the petition and AFFIRM the September 21, 2004 decision and the September 1, 2005
resolution of the Court of Appeals in CA-G.R. SP No. 78783. Costs against the petitioners.
SO ORDERED.
G.R. Nos. L-58674-77 July 11, 1990

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
HON. DOMINGO PANIS, Presiding Judge of the Court of First Instance of Zambales & Olongapo City,
Branch III and SERAPIO ABUG, respondents.

CRUZ, J:

The basic issue in this case is the correct interpretation of Article 13(b) of P.D. 442, otherwise known as the Labor
Code, reading as follows:

(b) Recruitment and placement' refers to any act of canvassing, enlisting, contracting, transporting,
hiring, or procuring workers, and includes referrals, contract services, promising or advertising for
employment, locally or abroad, whether for profit or not: Provided, That any person or entity which,
in any manner, offers or promises for a fee employment to two or more persons shall be deemed
engaged in recruitment and placement.

Four informations were filed on January 9, 1981, in the Court of First Instance of Zambales and Olongapo City
alleging that Serapio Abug, private respondent herein, "without first securing a license from the Ministry of Labor
as a holder of authority to operate a fee-charging employment agency, did then and there wilfully, unlawfully and
criminally operate a private fee charging employment agency by charging fees and expenses (from) and promising
employment in Saudi Arabia" to four separate individuals named therein, in violation of Article 16 in relation to
Article 39 of the Labor Code. 1

Abug filed a motion to quash on the ground that the informations did not charge an offense because he was
accused of illegally recruiting only one person in each of the four informations. Under the proviso in Article 13(b),
he claimed, there would be illegal recruitment only "whenever two or more persons are in any manner promised
or offered any employment for a fee. " 2

Denied at first, the motion was reconsidered and finally granted in the Orders of the trial court dated June 24 and
September 17, 1981. The prosecution is now before us on certiorari. 3

The posture of the petitioner is that the private respondent is being prosecuted under Article 39 in relation to Article
16 of the Labor Code; hence, Article 13(b) is not applicable. However, as the first two cited articles penalize acts
of recruitment and placement without proper authority, which is the charge embodied in the informations,
application of the definition of recruitment and placement in Article 13(b) is unavoidable.

The view of the private respondents is that to constitute recruitment and placement, all the acts mentioned in this
article should involve dealings with two or m•re persons as an indispensable requirement. On the other hand, the
petitioner argues that the requirement of two or more persons is imposed only where the recruitment and
placement consists of an offer or promise of employment to such persons and always in consideration of a fee.
The other acts mentioned in the body of the article may involve even only one person and are not necessarily for
profit.

Neither interpretation is acceptable. We fail to see why the proviso should speak only of an offer or promise of
employment if the purpose was to apply the requirement of two or more persons to all the acts mentioned in the
basic rule. For its part, the petitioner does not explain why dealings with two or more persons are needed where
the recruitment and placement consists of an offer or promise of employment but not when it is done through
"canvassing, enlisting, contracting, transporting, utilizing, hiring or procuring (of) workers.
As we see it, the proviso was intended neither to impose a condition on the basic rule nor to provide an exception
thereto but merely to create a presumption. The presumption is that the individual or entity is engaged in
recruitment and placement whenever he or it is dealing with two or more persons to whom, in consideration of a
fee, an offer or promise of employment is made in the course of the "canvassing, enlisting, contracting,
transporting, utilizing, hiring or procuring (of) workers. "

The number of persons dealt with is not an essential ingredient of the act of recruitment and placement of workers.
Any of the acts mentioned in the basic rule in Article 13(b) win constitute recruitment and placement even if only
one prospective worker is involved. The proviso merely lays down a rule of evidence that where a fee is collected
in consideration of a promise or offer of employment to two or more prospective workers, the individual or entity
dealing with them shall be deemed to be engaged in the act of recruitment and placement. The words "shall be
deemed" create that presumption.

This is not unlike the presumption in article 217 of the Revised Penal Code, for example, regarding the failure of
a public officer to produce upon lawful demand funds or property entrusted to his custody. Such failure shall
be prima facie evidence that he has put them to personal use; in other words, he shall be deemed to have
malversed such funds or property. In the instant case, the word "shall be deemed" should by the same token be
given the force of a disputable presumption or of prima facie evidence of engaging in recruitment and placement.
(Klepp vs. Odin Tp., McHenry County 40 ND N.W. 313, 314.)

It is unfortunate that we can only speculate on the meaning of the questioned provision for lack of records of
debates and deliberations that would otherwise have been available if the Labor Code had been enacted as a
statute rather than a presidential decree. The trouble with presidential decrees is that they could be, and
sometimes were, issued without previous public discussion or consultation, the promulgator heeding only his own
counsel or those of his close advisers in their lofty pinnacle of power. The not infrequent results are rejection,
intentional or not, of the interest of the greater number and, as in the instant case, certain esoteric provisions that
one cannot read against the background facts usually reported in the legislative journals.

At any rate, the interpretation here adopted should give more force to the campaign against illegal recruitment and
placement, which has victimized many Filipino workers seeking a better life in a foreign land, and investing hard-
earned savings or even borrowed funds in pursuit of their dream, only to be awakened to the reality of a cynical
deception at the hands of theirown countrymen.

WHEREFORE, the Orders of June 24, 1981, and September 17, 1981, are set aside and the four informations
against the private respondent reinstated. No costs.

SO ORDERED.
G.R. No. 113547 February 9, 1995

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
ANITA BAUTISTA y LATOJA, accused-appellant.

PUNO, J.:

Four (4) separate Informations1 were filed before the Regional Trial Court of Manila (Branch XLI) against accused ANITA
BAUTISTA y LATOJA, charging her with the crimes of Illegal Recruitment In Large Scale2 and Estafa.3

Upon arraignment on January 29, 1992, accused pleaded NOT GUILTY. 4 The four (4) cases were tried jointly.

After trial, the court a quo found accused guilty as charged. 5 In the illegal recruitment case, she was meted the penalty
of life imprisonment and ordered to pay P 100,000.00 as fine. In the estafa cases, she was sentenced from two (2)
years, eight (8) months and twenty one (21) days of prision correccional as minimum, to six (6) years, five (5) months
and eleven (11) days of prision mayor as maximum for each count of estafa, and pay each complainant the amount of
P40,000.00 as civil indemnity.

Accused, thru counsel, filed her Notice of Appeal, dated March 6, 1992, indicating her desire to elevate her case to this
Court. 6 The records of the case were, however, transmitted by the trial court to the Court of Appeals. In its
Decision7 dated November 26, 1993, the appellate court affirmed appellant's conviction. However, it modified the penalty
for the three (3) estafa cases. The dispositive portion of the decision of the appellate court states:

WHEREFORE, in Criminal Case No. 92-102377, the Court finds accused Anita Bautista GUILTY
BEYOND REASONABLE DOUBT of the crime of illegal recruitment, described and penalized under
Article 13 (b), Article 38 (a) and (b) and Article 39 (a) of the Labor Code, and imposes upon her the
penalty of life imprisonment and fine of P100,000.00. . . .

Insofar as Criminal Case No. 92-102378, Criminal Case No. 92-102379 and Criminal Case No. 92-
102380, the Court renders judgment, finding accused Anita Bautista GUILTY BEYOND REASONABLE
DOUBT of the crime of estafa, described and penalized under Article 315 par. 2 (a) of the Revised
Penal Code, and sentencing her in each criminal case to the indeterminate penalty of (sic) from FOUR
(4) YEARS and TWO (2) MONTHS of prision correccional, as minimum, to NINE (9) YEARS of prision
mayor, as maximum, and to pay each complainants Remigio Fortes, Anastacio Amor and Dominador
Costales, the amount of P40,000.00, without subsidiary imprisonment in case of insolvency, with costs.
Accordingly, the penalty imposed upon accused by the lower court is MODIFIED.

IT IS SO ORDERED.

Pursuant to Section 13 of Rule 124, the appellate court elevated to us the records of the case for review. Notice was
given to appellant for her to file additional Brief if she so desires. None was filed in her behalf.

The facts are as found by the appellate court:

Sometime in August 1991, accused Anita Bautista approached Romeo Paguio at the latter's restaurant
at 565 Padre Faura St., Manila, and offered job openings abroad. At that time, Paguio had relatives
who were interested to work abroad. Accused, who also operated a restaurant nearby at Padre Faura,
informed Paguio that she knew somebody who could facilitate immediate employment in Taiwan for
Paguio's relatives. Accused Anita Bautista introduced Rosa Abrero to Paguio. Abrero informed him that
the applicants could leave for Taiwan within a period of one-month from the payment of placement fees.
They informed Paguio that the placement fee was P40,000.00 for each person. Paguio contacted his
relatives, complainants Remigio Fortes and Dominador Costales who were his brothers-in-law, and
Anastacio Amor, a cousin, who lost no time raising the needed money and gave the same to Paguio.
The three were to work as factory workers and were to be paid $850.00 monthly salary each. Paguio
gave Rosa Abrero P20,000.00, which would be used in following up the papers of the complainants;
later he gave accused P40,000.00 and P60,000.00 in separate amounts, totalling P100,000.00, as the
remaining balance. Abrero and accused Bautista promised Paguio and complainants that the latter
could leave for Taiwan before September 25, 1991. As September 25, 1991 approached, accused
Bautista informed Paguio and complainants that there was a delay in the latter's departure because
their tickets and visas had not yet been released. Accused re-scheduled the complainants' departure
to October 10, 1991. Came October 10, 1991, and complainants were still not able to leave. Paguio
then required accused Bautista to sign the "Acknowledgment Receipt," dated October 11, 1991, in
which accused admitted having received the sum of P100,000.00 from Paguio, representing payment
 of plane tickets, visas and other travel documents (Exhibit A). Paguio asked accused to return
complainants' money; accused, however, promised that complainants could leave for Taiwan before
Christmas. From POEA, Paguio secured a certification, dated January 9, 1992 attesting that Annie
Bautista and Rosa Abrero are not licensed or authorized to recruit workers for overseas employment
(Exhibit B). Complainants Fortes, Amor and Costales, as well as Paguio, gave their written statements
at the Office of the Assistant Chief Directorial Staff for Intelligence of the WPDC, complaining about
their being victims of illegal recruitment by Rosa Abrero and Annie Bautista (Exhibits C, D, E and F).

The issue boils down to whether or not reasonable doubt exists to warrant the acquittal of appellant Anita Bautista.

We find none.

The Labor Code defines recruitment and placement as referring to "any act of canvassing, enlisting, contracting,
transporting, utilizing, hiring or procuring workers, and includes referrals, contract services, promising or advertising for
employment, locally or abroad, whether for profit or not: Provided that any person or entity which, in any manner, offers
or promises for a fee employment to two or more persons shall be deemed engaged in recruitment and placement." 8

It is settled that the essential elements of the crime of illegal recruitment in large scale are: (1) the accused engages in
the recruitment and placement of workers, as defined under Article 13 (b) or in any prohibited activities under Article 34
of the Labor Code; (2) accused has not complied with the guidelines issued by the Secretary of Labor and Employment,
particularly with respect to the securing of a license or an authority to recruit and deploy workers, either locally or
overseas; and (3) accused commits the same against three (3) or more persons, individually or a group. 9

For her exculpation, appellant denied she recruited complainants for employment abroad. She claimed Romeo Paguio
was the one who approached her and asked for someone who could help his relatives work abroad. She thus introduced
Rosa Abrero, a regular customer at her restaurant, to Paguio. In turn, Paguio introduced Abrero to complainants in their
subsequent meeting. Further, appellant testified she was present during the recruitment of complainants since their
meeting with Abrero was held at her restaurant. Appellant likewise stressed she did not receive the amount of
P100,000.00, as stated in the Acknowledgment Receipt, dated October 11, 1991, but merely acknowledged that said
sum was received by Rosa Abrero from Romeo Paguio.

Appellant's defense does not persuade us.

Appellant's active participation in the recruitment process of complainants belies her claim of innocence. Complainants'
recruitment was initiated by appellant during her initial meeting with Romeo Paguio. She gave the impression to Romeo
Paguio and the complainants that her cohort, Rosa Abrero, could send workers for employment abroad. She introduced
Rosa Abrero to Romeo Paguio. Both women assured the departure of complainants to Taiwan within one month from
payment of the placement fee of P40,000.00 per person. They even claimed that complainants would work as factory
workers for a monthly salary of $850.00 per person. Moreover, it was appellant who informed Romeo Paguio that
complainants' scheduled trip to Taiwan would be on October 10, 1991, instead of the original departure date of
September 25, 1991, due to some problems on their visas and travel documents.

Her close association with Rosa Abrero is further strengthened by the Acknowledgment Receipt, dated October 11,
1991, which was prepared by Romeo Paguio for the protection of complainants. The receipt reads:

ACKNOWLEDGMENT RECEIPT

P100,000.00 October 11, 1991

RECEIVED FROM: ROMEO PAGUIO, the amount of ONE HUNDRED THOUSAND (P100,000.00)
PESOS, Philippine Currency, representing the payment (of) plane ticket, visa and other travel
documents.

CONFORME:

By:

(Sgd.) ROMEO PAGUIO (Sgd.) MRS. ANNIE BAUTISTA

c/o Rosa Abrero

SIGNED IN THE PRESENCE OF:

 (Sgd.) Anastacio Amor Remigio Fortes

Dominador Costales

Said receipt shows that appellant collected the P100,000.00 for and in behalf of Rosa Abrero, and bolsters Romeo
Paguio's allegation that he gave P20,000.00 to Rosa Abrero, while the rest was received by appellant. Notably, in its
Decision, dated February 14, 1992, the trial court observed:

The denial(s) made by the accused of any participation in the recruitment of the complainants do not
persuade. The evidence at hand shows that she acknowledged in writing the receipt of P100,000.00
from witness Romeo Paguio who was all along representing the complainants in securing employment
for them in Taiwan. Her denial of having actually received the money in the sum of P100,000.00, the
receipt of which she voluntarily signed is not convincing. By her own admission, she is a restaurant
operator. In other words, she is a business woman. As such, she ought to know the consequences in
signing any receipt. That she signed Exh. "A" only goes to show that fact, as claimed by Romeo Paguio,
that she actually received the same.

It is uncontroverted that appellant and Rosa Abrero are not authorized or licensed to engage in recruitment
activities.10 Despite the absence of such license or authority, appellant participated in the recruitment of complainants.
Since there are at least three (3) victims in this case, appellant is correctly held criminally liable for illegal recruitment in
large scale. 11

We shall now discuss appellant's culpability under the Revised Penal Code, specifically Article 315 thereof, inasmuch
as her conviction for offenses under the Labor Code does not avert punishment for offenses punishable by other laws. 12

The elements of estafa are as follows: (1) that the accused defrauded another (a) by abuse of confidence, or (b) by
means of deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused by the offended party or
third party.

In the case at bench, it is crystal clear that complainants were deceived by appellant and Rosa Abrero into believing
that there were, indeed, jobs waiting for them in Taiwan. The assurances given by these two (2) women made
complainants part with whatever resources they have, in exchange for what they thought was a promising job abroad.
Thus, they sold their carabaos, mortgaged or sold their parcels of land and even contracted loans to raise the much
needed money, the P40,000.00 placement fee, required of them by accused and Rosa Abrero.

The penalty for estafa depends on the amount defrauded. Article 315 of the Revised Penal Code provides: "the penalty
of prision correccional in its maximum period to prision mayor in its minimum period (or imprisonment ranging from 4
years, 2 months and 1 day to 8 years), if the amount of the fraud is over P12,000.00 but does not exceed P22,000.00
pesos, and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in
its maximum period (6 years, 8 months and 21 days to 8 years), adding one year for each additional P10,000.00 pesos;
but the total penalty which may be imposed shall not exceed twenty years. In such case, and in connection with the
accessory penalties which may be imposed and for the purpose of other provisions of this Code, the penalty shall be
termed prision mayor or reclusion temporal, as the case may be.

The amount defrauded in such estafa case (Criminal Case Nos. 92-102378, 92-102379, 92-102380) is P 40,000.00. As
prescribed in Article 315, supra, the penalty should be imposed in the maximum period (6 years, 8 months and 21 days
to 8 years) plus one (1) year, there being only one (1) P10,000.00 in excess of P22,000.00. Applying the Indeterminate
Sentence Law, the maximum penalty should be taken from the aforesaid period, while the minimum term of the
indeterminate penalty shall be within the range of the penalty next lower in degree, that is — prision correccional in its
minimum and medium periods which has a duration of 6 months, 1 day to 4 year and 2 months.

Considering the foregoing, the appellant court correctly imposed the indeterminate penalty of four (4) years and two (2)
months of prision correccional, as minimum, to nine (9) years of prision mayor, as maximum.

WHEREFORE, premises considered, the decision of the Court of Appeals, finding appellant ANITA BAUTISTA guilty
beyond reasonable doubt of the crimes of Illegal Recruitment in Large Scale (Criminal Case Nos. 92-102377)
and Estafa (Criminal Case Nos. 92-102378, 92-102379, 92-102380) is AFFIRMED. No Costs.

SO ORDERED.
[G.R. No. 133563. March 4, 1999]
BRIDGET BONENG Y BAGAWILI, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.
DECISION
PURISIMA, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, seeking to set
aside the Decision[1] of the Court of Appeals[2] dated March 31, 1998 in CA G.R. CR No. 17133, affirming in its entirety
the judgment of conviction handed down by the Regional Trial Court, Branch 6, Baguio City, finding the petitioner herein
guilty beyond reasonable of Illegal Recruitment and sentencing her to a prison term of four (4) years, as minimum, to
eight (8) years, as maximum, and to pay the costs.
Petitioner Bridget Boneng y Bagawili was indicated for a violation of Article 38 (a), in relation to Articles 13 (b), 16,
34 and 39 (b) of Presidential Decree No. 442, as amended by Presidential Decree No. 1920, in Criminal Case No. 12104
before the Regional Trial Court, Branch 6, Baguio City, under an Information, alleging:
That on or about the 24th day of September 1993, in the City of Baguio, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused, being then private person, did then and there willfully, unlawfully and
feloniously engage in the following illegal recruitment activities to wit: by promising, for profit to complainant MA.
TERESA GARCIA employment abroad under false pretenses and fraudulent acts, without any license or authority from
the Philippine Overseas Employment Administration, Department of Labor and Employment, Manila, in violation of the
aforecited provision of law.
On December 9, 1993, with the assistance of counsel, she was arraigned thereunder and pleaded NOT GUILTY
to the crime charged. Trial ensued, and after presenting the witnesses, SPO3 Jesus Nevado, SPO3 Romeo Dulay and
Maria Teresa Garcia, and documentary evidence consisting of Exhibits A to G, the prosecution made a formal offer of
evidence and rested its case.
On April 7, 1994, after the prosecution had rested, the accused (now petitioner) presented a demurrer to evidence
and manifested that she was waiving the right to adduce evidence for the defense, and was submitting the case for
decision on the basis of the evidence on record.
On May 5, 1994, the trial court came out with its Decision, finding petitioner guilty of the offense charged and
sentencing her thus:
Wherefore, the Court Finds (sic), accused Bridget Boneng guilty beyond reasonable doubt for the offense of Violation
of Article 38(a) in relation to Article 13(b), 16, 34 and 39(c) of PD 442 as amended by PD 1920 (Illegal Recruitment) and
sentences her, applying the indeterminate sentence law, to an imprisonment ranging from FOUR (4) YEARS as
Minimum to EIGHT (8) YEARS as Maximum and to pay the costs.
Not satisfied with the verdict below, petitioner appealed to the Court of Appeals, contending that the testimony of
the complainant, Ma. Teresa Garcia, is perjured, hearsay, uncorroborated and tainted with material inconsistencies and
she (petitioner) should have been acquitted because the documentary evidence taken from her office was seized in
violation of her constitutional right against illegal search and seizure.
On March 31, 1998, the Court of Appeals decided as follows:
In sum appellant was correctly found to be liable for violation of Art. 38(a) in relation to Articles 13(b), 16, 34 and 39 (c)
of P.D. 442, as amended.
WHEREFORE, finding the conviction of appellant in conformity with the law and evidence, the same is hereby
AFFIRMED in toto.
SO ORDERED.
Without resorting first to a motion for reconsideration, the petitioner came to this Court via the present petition,
placing reliance practically on the same grounds she invoked and relied upon before the Court of Appeals.
Did the Court of Appeals err in affirming the judgment convicting petitioner for illegal recruitment? This is the crucial
issue at bar.
Petitioner theorizes that the Court of Appeals erred in not considering the non-existence and non-admissibility of
the documents upon which the trial court based her conviction. According to her, the prosecution should have
established that other than Ma. Teresa Garcia, there were other applicants for overseas employment in the office of
petitioner where she was allegedly conducting her recruitment business and activities. In the absence of sworn
statements from the other applicants, petitioner maintains that the motive of the prosecution witnesses, whose
testimonies she branded as inconsistent with their affidavits, in carrying out the entrapment, was to fleece money from
her.
Petitioner, in effect, is asking this Court to review the factual findings by the trial court and the Court of Appeals, to
examine subject documents, and evaluate and assign the probative value of the evidence, the same evidence looked
into below, and determine once again the credibility of the witnesses.
To begin with, this Court is not a trier of facts. It is not its function to examine and determine the weight of the
evidence supporting the assailed decision. In Philippine Airlines, Inc. vs. Court of Appeals,[3] the Court held that
factual findings of the Court of Appeals which are supported by substantial evidence are binding, final and conclusive
upon the Supreme Court. So also, well-established is the rule that factual findings of the Court of Appeals are conclusive
on the parties and carry even more weight when the said court affirms the factual findings of the trial court. [4]Moreover,
well entrenched is the prevailing jurisprudence that only errors of law and not of facts are reviewable by this Court in a
petition for review on certiorari under Rule 45 of the Revised Rules of Court, which applies with greater force to the
Petition under consideration because the factual findings by the Court of Appeals are in full agreement with what the
trial court found.
 It bears stressing that by opting not to present any controverting evidence during the trial, petitioner waived her
right to come forward with evidence for the defense and foreclosed her right to interpose any objection to the
prosecutions evidence upon appeal x x x.[5]
Similarly untenable is petitioners stance that she is not an illegal recruiter, arguing that the documents introduced
to substantiate her recruitment activities were neither identified nor marked by the prosecution.
In People vs. Benemerito, 264 SCRA 677, 691, the Court enumerated the elements of illegal recruitment to be
as follows:
(1) the person charged with the crime must have undertaken recruitment activities (or any of the activities enumerated
in Article 34 of the Labor Code, as amended); and
(2) the said person does not have a license or authority to do so.
In affirming the findings arrived at by the court a quo, the Court of Appeals ratiocinated:
The prosecutions evidence shows that appellant is a non-licensee or non-holder of authority as required by law. Proof
of this is a certification (Exh. C) dated 18 August 1993 issued by the POEA-REU, Baguio City, which reads:
CERTIFICATION
This is to certify that the name BRIDGETTE BUNEG (sic) per existing and available records from this Office is
not licensed nor authorized to recruit workers for overseas employment in the City of Baguio or any part of the
region.
When the trial prosecutor was about to present the signatory of the above document, the defense readily admitted
its authenticity (TSN, 03 March 1994, p. 17). Appellant expressly waived her right to rebut this allegation and in effect
judicially admitted she was not a licensee or holder of authority. Consequently, such evidence can be validly taken
against her.
In this context, a non-licensee or non-holder of authority has been defined in People vs. Diaz, (supra)[6] as:
x x x any person, corporation or entity which has not been issued a valid license or authority to engage in recruitment
and placement by the Secretary of Labor or whose license or authority has been suspended, revoked or cancelled by
the POEA or the Secretary x x x .
Anent the second element, Article 13 (b) of the Labor Code, as amended, states:
Art. 13 (b) of the Labor Code defines recruitment and placement as any act of canvassing, enlisting, contracting,
transporting, utilizing, hiring, or procuring workers, and includes referrals, contact services, promising or advertising
abroad, whether for profit or not; provided that any person or entity which, in any manner, offers or promises for fee
employment to two or more persons shall be deemed engaged in recruitment and placement.
The evidence shows that appellant promised Garcia employment abroad for fee. Garcia testified:
Q: After the secretary has introduced Mrs. Boneng to you to be her boss, what did you do?
A: I asked from Bridget Boneng the rules and what country can I apply, sir.
Q: Did Mrs. Boneng answer you?
A: Yes, sir, she told me in Hongkong.
xxx
Q: ... what things did you talk about with Mrs. Boneng?
A: I asked Mrs. Bridget Boneng how much will I spend in applying for Hongkong and she told me that it was
around P30,000.00 and she told me also to submit my birth certificate and for the passport, she will (sic) take
charge of it but I will (sic) add a little amount for the processing of my papers.
xxx
Q: What did Mrs. Boneng tell you when you told her that you have (sic) P2,000.00 and if possible, she would work
first for your passport and your medical examination?
A: Bridget Boneng told me to at least solicit the amount of P10,000.00 as down payment because there is an on
going interview in Manila the following Sunday.
Q: What happen after that?
A: She accepted the amount of P2,000.00 and I told her that I will (sic) add more.
xxx
Q: Was there a receipt given by Bridget Boneng to you when you delivered the P2,000.00?
A: He (sic) does not issue a receipt, she told me that.
Q: To whom did you personally deliver the P2,000.00?
A: To Mrs. Boneng
(TSN., 24 February 1994, pp. 18-21).
From the aforecited testimony, it is decisively clear that aside from the promise to deploy complainant Ma. Teresa
Garcia in Hongkong, the petitioner accepted a part of the P30,000.00 fee she was collecting for her recruitment work.
Neither do we discern any tenability in petitioners contention that the prosecution should have secured sworn
statements from the other applicants to prove her (petitioners) recruitment activities. In People vs. Pabalan, 262 SCRA
574, it was succinctly ruled that the testimony of a single prosecution witness, where credible and positive, is sufficient
to prove beyond reasonable doubt the guilt of the accused. There is no law which requires that the testimony of a single
witness has to be corroborated, except where expressly mandated in determining the value and credibility of
evidence. Witnesses are to be weighed, not numbered. In People vs. Panis, 142 SCRA 665, the Court also held that
any of the acts mentioned in the basic rule in Article 13 (b) will constitute recruitment and placement even if only one
prospective worker is involved.[7]
Petitioner complains that the Court of Appeals ignored an avalanche of material inconsistencies [8] tainting the
testimony of complainant Ma. Teresa Garcia. Records disclose, however, that the said court did pass upon such aspect
of the case but adjudged the same trivial and minor inconsistencies. Ratiocinated the Court of Appeals:
xxx In this connection appellant has referred to inconsistencies as to the narration of events that transpired on 24
September 1994. But these are trivial and minor points. In People vs. Trilles, 254 SCRA 633, the Supreme Court held:
Trivial inconsequential inconsistencies in the testimony of witnesses do not merit consideration and cannot destroy the
credibility of said witnesses in the face of the positive and categorical identification of the accused as the perpetrator(s)
of the crime."[9]
Petitioner also questions the legality and validity of her arrest sans a warrant. On this score, the Court of Appeals
erred not in affirming the ruling by the trial court of origin that the present case falls under Section 5 (b), Rule 113 of the
Revised Rules of Court, to wit:
Sec. 5 Arrest Without Warrant; when lawful - A peace officer or a private person may, without a warrant, arrest a
person:
xxx
(b) when an offense has in fact just been committed, and he has personal knowledge of facts indicating that the person
to be arrested has committed it;
The Court of Appeals rationalized:
"And in the case at bar, it can be said that when Garcia filled up the application forms for work aboard and paid P2,000.00
to Boneng as partial payment or advance payment of the placement fees required and was promised she could work in
Hongkong by Boneng, the latter was actually engaged in illegal recruitment as she had no license to recruit admittedly.
Hence, at that precise time Boneng was already committing an offense of illegal recruitment in the presence of
Garcia. Garcia could have very well arrested her on the spot but she did not as she explained civilian agents are
cautioned not to effect arrest by the CIS authorities.
And when Garcia left and went downstairs to tell her CIS team that she already gave the P2,000.00 marked money to
Boneng after posing as an applicant for work abroad and describing Boneng as a short fat lady wearing pants and white
T-shirt and forthwith Nevado and Dulay[10] went up to the second floor to apprehend Boneng and recover the marked
money of P2,000.00 and the documents pertaining to the recruitment activity of Boneng, then it can be said Boneng has
just committed an offense and the effects thereof are still visible in her office, the marked money and documents of
recruitment being there, when Nevado and Dulay of the CIS, both peace officers, went up to effect her arrest.
xxx
The arrest therefore was legal as an exception under warrantless arrest under Section 5(b) of Rule 113 of the Rules of
Court ...
All things studiedly considered and the probative weight of the evidence on record taken into account, the irresistible
conclusion is that petitioner Bridget Boneng is guilty beyond reasonable doubt of the crime charged.
WHEREFORE, for lack of merit, the Petition is hereby DENIED, and the Decision of the Court of Appeals in CA
G.R. CR No. 17133 AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
G.R. No. 146964 August 10, 2006
ROSA C. RODOLFO, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
CARPIO MORALES, J.:
Petitioner was charged before the Regional Trial Court (RTC) of Makati for illegal recruitment alleged to have been
committed as follows:
That in or about and during the period from August to September 1984, in Makati, Metro Manila, Philippines, and within
the jurisdiction of this Honorable Court, the said accused representing herself to have the capacity to contract, enlist
and transport Filipino workers for employment abroad, did then and there willfully and unlawfully, for a fee, recruit and
promise employment/job placement abroad to VILLAMOR ALCANTARA, NARCISO CORPUZ, 1NECITAS R. FERRE,
GERARDO H. TAPAWAN and JOVITO L. CAMA, without first securing the required license or authority from the Ministry
of Labor and Employment. 2
After trial on the merits, Branch 61 of the Makati RTC rendered its Judgment on the case, 3 the decretal portion of which
reads:
WHEREFORE, PREMISES ABOVE CONSIDERED, the Court finds the accused ROSA C. RODOLFO as GUILTY of
the offense of ILLEGAL RECRUITMENT and hereby sentences her [to] a penalty of imprisonment of EIGHT YEARS and
to pay the costs. 4 (Underscoring supplied)
In so imposing the penalty, the trial court took note of the fact that while the information reflected the commission of
illegal recruitment in large scale, only the complaint of the two of the five complainants was proven.
On appeal, the Court of Appeals correctly synthesized the evidence presented by the parties as follows:
[The evidence for the prosecution] shows that sometime in August and September 1984, accused-
appellant approached private complainants Necitas Ferre and Narciso Corpus individually and invited them to apply for
overseas employment in Dubai. The accused-appellant being their neighbor, private complainants agreed and went to
the former’s office. This office which bore the business name "Bayside Manpower Export Specialist" was in a building
situated at Bautista St. Buendia, Makati, Metro Manila. In that office, private complainants gave certain amounts to
appellant for processing and other fees. Ferre gave P1,000.00 as processing fee (Exhibit A) and another P4,000.00
(Exhibit B). Likewise, Corpus gave appellant P7,000.00 (Exhibit D). Appellant then told private complainants that they
were scheduled to leave for Dubai on September 8, 1984. However, private complainants and all the other applicants
were not able to depart on the said date as their employer allegedly did not arrive. Thus, their departure was rescheduled
to September 23, but the result was the same. Suspecting that they were being hoodwinked, private complainants
demanded of appellant to return their money. Except for the refund of P1,000.00 to Ferre, appellant was not able to
return private complainants’ money. Tired of excuses, private complainants filed the present case for illegal recruitment
against the accused-appellant.
To prove that accused-appellant had no authority to recruit workers for overseas employment, the prosecution
presented Jose Valeriano, a Senior Overseas Employment Officer of the Philippine Overseas Employment Agency
(POEA), who testified that accused-appellant was neither licensed nor authorized by the then Ministry of Labor and
Employment to recruit workers for overseas employment.
For her defense, appellant denied ever approaching private complainants to recruit them for employment in Dubai. On
the contrary, it was the private complainants who asked her help in securing jobs abroad. As a good neighbor and friend,
she brought the private complainants to the Bayside Manpower Export Specialist agency because she knew Florante
Hinahon, 5 the owner of the said agency. While accused-appellant admitted that she received money from the private
complainants, she was quick to point out that she received the same only in trust for delivery to the agency. She denied
being part of the agency either as an owner or employee thereof. To corroborate appellant’s testimony, Milagros Cuadra,
who was also an applicant and a companion of private complainants, testified that appellant did not recruit them. On the
contrary, they were the ones who asked help from appellant. To further bolster the defense, Eriberto C. Tabing, the
accountant and cashier of the agency, testified that appellant is not connected with the agency and that he saw appellant
received money from the applicants but she turned them over to the agency through either Florantino Hinahon or
Luzviminda Marcos. 6 (Emphasis and underscoring supplied)
In light thereof, the appellate court affirmed the judgment of the trial court but modified the penalty imposed due to the
trial court’s failure to apply the Indeterminate Sentence Law.
The appellate court thus disposed:
WHEREFORE, finding no merit in the appeal, this Court DISMISSES it and AFFIRMS the appealed Decision EXCEPT
the penalty x x x which is hereby changed to five (5) years as minimum to seven (7) years as maximum with perpetual
disqualification from engaging in the business of recruitment and placement of workers. 7(Underscoring supplied)
Petitioner’s Motion for Reconsideration having been denied, 8 the present petition was filed, faulting the appellate court
I
x x x IN GIVING CREDENCE TO THE TESTIMONIES OF THE COMPLAINING WITNESSES, [AND]
II
x x x IN FINDING THE PETITIONER-ACCUSED GUILTY WHEN THE PROSECUTION FAILED TO PROVE HER
GUILT BEYOND REASONABLE DOUBT. 9 (Underscoring supplied)
Petitioner bewails the failure of the trial court and the Court of Appeals to credit the testimonies of her witnesses, her
companion Milagros Cuadra, and Eriberto C. Tabing who is an accountant-cashier of the agency.
Further, petitioner assails the trial court’s and the appellate court’s failure to consider that the provisional receipts she
issued indicated that the amounts she collected from the private complainants were turned over to the agency through
Minda Marcos and Florante Hinahon. At any rate, she draws attention to People v. Señoron 10 wherein this Court held
that the issuance or signing of receipts for placement fees does not make a case for illegal recruitment.11
The petition fails.
Articles 38 and 39 of the Labor Code, the legal provisions applicable when the offense charged was
committed, 12provided:
ART. 38. Illegal Recruitment. – (a) Any recruitment activities, including the prohibited practices enumerated under Article
34 of this Code, to be undertaken by non-licensees or non-holders of authority shall be deemed illegal and punishable
under Article 39 of this Code. x x x
Article 39. Penalties. – x x x x
(c) Any person who is neither a licensee nor a holder of authority under this Title found violating any provision thereof
or its implementing rules and regulations shall, upon conviction thereof, suffer the penalty of imprisonment of not less
than four years nor more than eight years or a fine of not less than P20,000 nor more than P100,000 or both such
imprisonment and fine, at the discretion of the court;
x x x x (Underscoring supplied)
The elements of the offense of illegal recruitment, which must concur, are: (1) that the offender has no valid license or
authority required by law to lawfully engage in recruitment and placement of workers; and (2) that the offender
undertakes any activity within the meaning of recruitment and placement under Article 13(b), or any prohibited practices
enumerated under Article 34 of the Labor Code. 13 If another element is present that the accused commits the act
against three or more persons, individually or as a group, it becomes an illegal recruitment in a large scale. 14
Article 13 (b) of the Labor Code defines "recruitment and placement" as "[a]ny act of canvassing, enlisting, contracting,
transporting, utilizing, hiring or procuring workers, and includes referrals, contract services, promising or advertising for
employment, locally or abroad, whether for profit or not." (Underscoring supplied)
That the first element is present in the case at bar, there is no doubt. Jose Valeriano, Senior Overseas Employment
Officer of the Philippine Overseas Employment Administration, testified that the records of the POEA do not show that
petitioner is authorized to recruit workers for overseas employment. 15 A Certification to that effect was in fact issued by
Hermogenes C. Mateo, Chief of the Licensing Division of POEA. 16
Petitioner’s disclaimer of having engaged in recruitment activities from the very start does not persuade in light of the
evidence for the prosecution. In People v. Alvarez, this Court held:
Appellant denies that she engaged in acts of recruitment and placement without first complying with the guidelines
issued by the Department of Labor and Employment. She contends that she did not possess any license for recruitment,
because she never engaged in such activity.
We are not persuaded. In weighing contradictory declarations and statements, greater weight must be given to the
positive testimonies of the prosecution witnesses than to the denial of the defendant. Article 38 (a) clearly shows that
illegal recruitment is an offense that is essentially committed by a non-licensee or non-holder of authority. A non-
licensee means any person, corporation or entity to which the labor secretary has not issued a valid license or authority
to engage in recruitment and placement; or whose license or authority has been suspended, revoked or cancelled by
the POEA or the labor secretary. A license authorizes a person or an entity to operate a private employment agency,
while authority is given to those engaged in recruitment and placement activities.
xxxx
That appellant in this case had been neither licensed nor authorized to recruit workers for overseas employment was
certified by Veneranda C. Guerrero, officer-in-charge of the Licensing and Regulation Office; and Ma. Salome S.
Mendoza, manager of the Licensing Branch – both of the Philippine Overseas Employment Administration. Yet, as
complainants convincingly proved, she recruited them for jobs in Taiwan. 17 (Italics in the original; underscoring supplied)
The second element is doubtless also present. The act of referral, which is included in recruitment, 18 is "the act
of passing along or forwarding of an applicant for employment after an initial interview of a selected applicant for
employment to a selected employer, placement officer or bureau." 19 Petitioner’s admission that she brought private
complainants to the agency whose owner she knows and her acceptance of fees including those for processing betrays
her guilt.
That petitioner issued provisional receipts indicating that the amounts she received from the private complainants were
turned over to Luzviminda Marcos and Florante Hinahon does not free her from liability. For the act of recruitment may
be "for profit or not." It is sufficient that the accused "promises or offers for a fee employment" to warrant conviction for
illegal recruitment. 20 As the appellate court stated:
x x x Sec. 13(b) of P.D. 442 [The Labor Code] does not require that the recruiter receives and keeps the placement
money for himself or herself. For as long as a person who has no license to engage in recruitment of workers for
overseas employment offers for a fee an employment to two or more persons, then he or she is guilty of illegal
recruitment. 21
Parenthetically, why petitioner accepted the payment of fees from the private complainants when, in light of her claim
that she merely brought them to the agency, she could have advised them to directly pay the same to the agency, she
proferred no explanation.
On petitioner’s reliance on Señoron, 22 true, this Court held that issuance of receipts for placement fees does not make
a case for illegal recruitment. But it went on to state that it is "rather the undertaking of recruitment activities without the
necessary license or authority" that makes a case for illegal recruitment. 23
A word on the penalty. Indeed, the trial court failed to apply the Indeterminate Sentence Law which also applies to
offenses punished by special laws.
Thus, Section 1 of Act No. 4103 (An Act to Provide for an Indeterminate Sentence and Parole for All Persons Convicted
of Certain Crimes by the Courts of the Philippine Islands; To Create A Board of Indeterminate Sentence and to Provide
Funds Therefor; and for Other Purposes) provides:
SECTION 1. Hereafter, in imposing a prison sentence for an offense punished by the Revised Penal Code, or its
amendments, the court shall sentence the accused to an indeterminate sentence the maximum term of which shall be
that which, in view of the attending circumstances, could be properly imposed under the rules of the said Code, and the
minimum which shall be within the range of the penalty next lower to that prescribed by the Code for the offense; and if
the offense is punished by any other law, the court shall sentence the accused to an indeterminate sentence, the
maximum term of which shall not exceed the maximum fixed by said law and the minimum shall not be less than the
minimum term prescribed by the same. (As amended by Act No. 4225) (Underscoring supplied)
While the penalty of imprisonment imposed by the appellate court is within the prescribed penalty for the offense, its
addition of "perpetual disqualification from engaging in the business of recruitment and placement of workers" is not part
thereof. Such additional penalty must thus be stricken off.
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals
are AFFIRMED with MODIFICATION in that the accessory penalty imposed by it consisting of "perpetual
disqualification from engaging in the business of recruitment and placement of workers" is DELETED.
Costs against petitioner.
SO ORDERED.
 [G.R. No. 127195. August 25, 1999]
MARSAMAN MANNING AGENCY, INC. and DIAMANTIDES MARITIME, INC., petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION and WILFREDO T. CAJERAS, respondents.
DECISION
BELLOSILLO, J.:
MARSAMAN MANNING AGENCY, INC. (MARSAMAN) and its foreign principal DIAMANTIDES MARITIME, INC.
(DIAMANTIDES) assail the Decision of public respondent National Labor Relations Commission dated 16 September
1996 as well as its Resolution dated 12 November 1996 affirming the Labor Arbiter's decision finding them guilty of
illegal dismissal and ordering them to pay respondent Wilfredo T. Cajeras salaries corresponding to the unexpired
portion of his employment contract, plus attorney's fees.
Private respondent Wilfredo T. Cajeras was hired by petitioner MARSAMAN, the local manning agent of petitioner
DIAMANTIDES, as Chief Cook Steward on the MV Prigipos, owned and operated by DIAMANTIDES, for a contract
period of ten (10) months with a monthly salary of US$600.00, evidenced by a contract between the parties dated 15
June 1995. Cajeras started work on 8 August 1995 but less than two (2) months later, or on 28 September 1995, he
was repatriated to the Philippines allegedly by mutual consent.
On 17 November 1995 private respondent Cajeras filed a complaint for illegal dismissal against petitioners with the
NLRC National Capital Region Arbitration Branch alleging that he was dismissed illegally, denying that his repatriation
was by mutual consent, and asking for his unpaid wages, overtime pay, damages, and attorneys fees. [1] Cajeras alleged
that he was assigned not only as Chief Cook Steward but also as assistant cook and messman in addition to performing
various inventory and requisition jobs. Because of his additional assignments he began to feel sick just a little over a
month on the job constraining him to request for medical attention. He was refused at first by Capt. Kouvakas Alekos,
master of the MV Prigipos, who just ordered him to continue working. However a day after the ships arrival at the port
of Rotterdam, Holland, on 26 September 1995 Capt. Alekos relented and had him examined at the Medical Center for
Seamen. However, the examining physician, Dr. Wden Hoed, neither apprised private respondent about the diagnosis
nor issued the requested medical certificate allegedly because he himself would forward the results to private
respondents superiors. Upon returning to the vessel, private respondent was unceremoniously ordered to prepare for
immediate repatriation the following day as he was said to be suffering from a disease of unknown origin.
On 28 September 1995 he was handed his Seaman's Service Record Book with the following entry: "Cause of
discharge - Mutual Consent."[2] Private respondent promptly objected to the entry but was not able to do anything more
as he was immediately ushered to a waiting taxi which transported him to the Amsterdam Airport for the return flight to
Manila. After his arrival in Manila on 29 September 1995 Cajeras complained to MARSAMAN but to no avail. [3]
MARSAMAN and DIAMANTIDES, on the other hand, denied the imputation of illegal dismissal. They alleged that
Cajeras approached Capt. Alekos on 26 September 1995 and informed the latter that he could not sleep at night because
he felt something crawling over his body.Furthermore, Cajeras reportedly declared that he could no longer perform his
duties and requested for repatriation. The following paragraph in the vessel's Deck Log was allegedly entered by Capt.
Alekos, to wit:
Cajeras approached me and he told me that he cannot sleep at night and that he feels something crawling on his body
and he declared that he can no longer perform his duties and he must be repatriated. [4]
Private respondent was then sent to the Medical Center for Seamen at Rotterdam where he was examined by Dr. Wden
Hoed whose diagnosis appeared in a Medical Report as paranoia and other mental problems.[5] Consequently, upon
Dr. Hoeds recommendation, Cajeras was repatriated to the Philippines on 28 September 1995.
On 29 January 1996 Labor Arbiter Ernesto S. Dinopol resolved the dispute in favor of private respondent Cajeras
ruling that the latter's discharge from the MV Prigipos allegedly by mutual consent was not proved by convincing
evidence. The entry made by Capt. Alekos in the Deck Log was dismissed as of little probative value because it was a
mere unilateral act unsupported by any document showing mutual consent of Capt. Alekos, as master of the MV
Prigipos, and Cajeras to the premature termination of the overseas employment contract as required by Sec. H of
the Standard Employment Contract Governing the Employment of all Filipino Seamen on Board Ocean-Going
Vessels. Dr. Hoeds diagnosis that private respondent was suffering from paranoia and other mental problems was
likewise dismissed as being of little evidentiary value because it was not supported by evidence on how the paranoia
was contracted, in what stage it was, and how it affected respondent's functions as Chief Cook Steward which, on the
contrary, was even rated Very Good in respondent's Service Record Book. Thus, the Labor Arbiter disposed of the case
as follows:
WHEREFORE, judgment is hereby rendered declaring the repatriation and dismissal of complaint Wilfredo T. Cajeras
as illegal and ordering respondents Marsaman Manning Agency, Inc. and Diamantides Maritime, Inc. to jointly and
severally pay complainant the sum of USD 5,100.00 or its peso equivalent at the time of payment plus USD 510.00 as
10% attorneys fees it appearing that complainant had to engage the service of counsel to protect his interest in the
prosecution of this case.
The claims for nonpayment of wages and overtime pay are dismissed for having been withdrawn (Minutes, December
18, 1995). The claims for damages are likewise dismissed for lack of merit, since no evidence was presented to show
that bad faith characterized the dismissal.[6]
Petitioners appealed to the NLRC.[7] On 16 September 1996 the NLRC affirmed the appealed findings and
conclusions of the Labor Arbiter.[8] The NLRC subscribed to the view that Cajeras repatriation by alleged mutual consent
was not proved by petitioners, especially after noting that private respondent did not actually sign his Seamans Service
Record Book to signify his assent to the repatriation as alleged by petitioners. The entry made by Capt. Alekos in the
Deck Log was not considered reliable proof that private respondent agreed to his repatriation because no opportunity
was given the latter to contest the entry which was against his interest. Similarly, the Medical Report issued by Dr. Hoed
of Holland was dismissed as being of dubious value since it contained only a sweeping statement of the supposed
ailment of Cajeras without any elaboration on the factual basis thereof.
Petitioners' motion for reconsideration was denied by the NLRC in its Resolution dated 12 November
1996.[9] Hence, this petition contending that the NLRC committed grave abuse of discretion: (a) in not according full faith
and credit to the official entry by Capt. Alekos in the vessels Deck Log conformably with the rulings in Haverton Shipping
Ltd. v. NLRC[10] and Wallem Maritime Services, Inc. v. NLRC;[11] (b) in not appreciating the Medical Report issued by
Dr. Wden Hoed as conclusive evidence that respondent Cajeras was suffering from paranoia and other mental
problems; (c) in affirming the award of attorneys fees despite the fact that Cajeras' claim for exemplary damages was
denied for lack of merit; and, (d) in ordering a monetary award beyond the maximum of three (3) months salary for every
year of service set by RA 8042.
We deny the petition. In the Contract of Employment[12] entered into with private respondent, petitioners
convenanted strict and faithful compliance with the terms and conditions of the Standard Employment Contract approved
by the POEA/DOLE[13] which provides:
1. The employment of the seaman shall cease upon expiration of the contract period indicated in the Crew
Contract unless the Master and the Seaman, by mutual consent, in writing, agree to an early termination x x x x
(underscoring ours).
Clearly, under the foregoing, the employment of a Filipino seaman may be terminated prior to the expiration of the
stipulated period provided that the master and the seaman (a) mutually consent thereto and (b) reduce their consent in
writing.
In the instant case, petitioners do not deny the fact that they have fallen short of the requirement. No document
exists whereby Capt. Alekos and private respondent reduced to writing their alleged mutual consent to the termination
of their employment contract. Instead, petitioners presented the vessel's Deck Log wherein an entry unilaterally made by
Capt. Alekos purported to show that private respondent himself asked for his repatriation. However, the NLRC correctly
dismissed its evidentiary value. For one thing, it is a unilateral act which is vehemently denied by private
respondent. Secondly, the entry in no way satisfies the requirement of a bilateral documentation to prove early
termination of an overseas employment contract by mutual consent required by the Standard Employment
Contract. Hence, since the latter sets the minimum terms and conditions of employment for the protection of Filipino
seamen subject only to the adoption of better terms and conditions over and above the minimum standards,[14] the NLRC
could not be accused of grave abuse of discretion in not accepting anything less.
However petitioners contend that the entry should be considered prima facie evidence that respondent himself
requested his repatriation conformably with the rulings in Haverton Shipping Ltd. v. NLRC[15] and Abacast Shipping and
Management Agency, Inc. v. NLRC.[16] Indeed, Havertonsays that a vessels log book is prima facie evidence of the facts
stated therein as they are official entries made by a person in the performance of a duty required by law. However, this
jurisprudential principle does not apply to win the case for petitioners. In Wallem Maritime Services, Inc. v.
NLRC[17] the Haverton ruling was not given unqualified application because the log book presented therein was a mere
typewritten collation of excerpts from what could be the log book. [18] The Court reasoned that since the log book was
the only piece of evidence presented to prove just cause for the termination of respondent therein, the log book had to
be duly identified and authenticated lest an injustice would result from a blind adoption of its contents which were
but prima facie evidence of the incidents stated therein.
In the instant case, the disputed entry in the Deck Log was neither authenticated nor supported by credible
evidence. Although petitioners claim that Cajeras signed his Seamans Service Record Book to signify his conformity to
the repatriation, the NLRC found the allegation to be actually untrue since no signature of private respondent appeared
in the Record Book.
Neither could the Medical Report prepared by Dr. Hoed be considered corroborative and conclusive evidence that
private respondent was suffering from paranoia and other mental problems, supposedly just causes for his
repatriation. Firstly, absolutely no evidence, not even an allegation, was offered to enlighten the NLRC or this Court as
to Dr. Hoed's qualifications to diagnose mental illnesses. It is a matter of judicial notice that there are various
specializations in medical science and that a general practitioner is not competent to diagnose any and all kinds of
illnesses and diseases. Hence, the findings of doctors who are not proven experts are not binding on this
Court.[19] Secondly, the Medical Report prepared by Dr. Hoed contained only a general statement that private
respondent was suffering from paranoia and other mental problems without providing the details on how the diagnosis
was arrived at or in what stage the illness was. If Dr. Hoed indeed competently examined private respondent then he
would have been able to discuss at length the circumstances and precedents of his diagnosis. Petitioners cannot rely
on the presumption of regularity in the performance of official duties to make the Medical Report acceptable because
the presumption applies only to public officers from the highest to the lowest in the service of the Government,
departments, bureaus, offices, and/or its political subdivisions, [20] which Dr. Wden Hoed was not shown to
be. Furthermore, neither did petitioners prove that private respondent was incompetent or continuously incapacitated
for the duties for which he was employed by reason of his alleged mental state. On the contrary his ability as Chief Cook
Steward, up to the very moment of his repatriation, was rated Very Good in his Seamans Service Record Book as
correctly observed by public respondent.
Considering all the foregoing we cannot ascribe grave abuse of discretion on the part of the NLRC in ruling that
petitioners failed to prove just cause for the termination of private respondent's overseas employment. Grave abuse of
discretion is committed only when the judgment is rendered in a capricious, whimsical, arbitrary or despotic manner,
which is not true in the present case.[21]
With respect to attorneys fees, suffice it to say that in actions for recovery of wages or where an employee was
forced to litigate and thus incurred expenses to protect his rights and interests, a maximum award of ten percent (10%)
of the monetary award by way of attorneys fees is legally and morally justifiable under Art. 111 of the Labor Code,[22] Sec.
8, Rule VIII, Book III of its Implementing Rules,[23] and par. 7, Art. 2208[24] of the Civil Code.[25] The case of Albenson
Enterprises Corporation v. Court of Appeals[26] cited by petitioners in arguing against the award of attorneys fees is
clearly not applicable, being a civil action for damages which deals with only one of the eleven (11) instances when
attorneys fees could be recovered under Art. 2208 of the Civil Code.
Lastly, on the amount of salaries due private respondent, the rule has always been that an illegally dismissed
worker whose employment is for a fixed period is entitled to payment of his salaries corresponding to the unexpired
portion of his employment.[27] However on 15 July 1995, RA 8042 otherwise known as the Migrant Workers and
Overseas Filipinos Act of 1995 took effect, Sec. 10 of which provides:
Sec. 10. In case of termination of overseas employment without just, valid or authorized cause as defined by law or
contract, the worker shall be entitled to the full reimbursement of his placement fee with interest at twelve percent
(12%) per annum, plus his salaries for the unexpired portion of the employment contract or for three (3) months for
every year of the unexpired term whichever is less (underscoring ours).
The Labor Arbiter, rationalizing that the aforesaid law did not apply since it became effective only one (1) month after
respondent's overseas employment contract was entered into on 15 June 1995, simply awarded private respondent his
salaries corresponding to the unexpired portion of his employment contract, i.e., for 8.6 months. The NLRC affirmed the
award and the Office of the Solicitor General (OSG) fully agreed. But petitioners now insist that Sec. 10, RA 8042 is
applicable because although private respondents contract of employment was entered into before the law became
effective his alleged cause of action, i.e., his repatriation on 28 September 1995 without just, valid or authorized cause,
occurred when the law was already in effect. Petitioners' purpose in so arguing is to invoke the law in justifying a lesser
monetary award to private respondent, i.e., salaries for three (3) months only pursuant to the last portion of Sec. 10 as
opposed to the salaries for 8.6 months awarded by the Labor Arbiter and affirmed by the NLRC.
We agree with petitioners that Sec. 10, RA 8042, applies in the case of private respondent and to all overseas
contract workers dismissed on or after its effectivity on 15 July 1995 in the same way that Sec. 34, [28] RA 6715,[29] is
made applicable to locally employed workers dismissed on or after 21 March 1989. [30] However, we cannot subscribe
to the view that private respondent is entitled to three (3) months salary only. A plain reading of Sec. 10 clearly reveals
that the choice of which amount to award an illegally dismissed overseas contract worker, i.e., whether his salaries for
the unexpired portion of his employment contract or three (3) months salary for every year of the unexpired term,
whichever is less, comes into play only when the employment contract concerned has a term of at least one (1) year or
more. This is evident from the words for every year of the unexpired term which follows the words salaries x x x for three
months. To follow petitioners thinking that private respondent is entitled to three (3) months salary only simply because
it is the lesser amount is to completely disregard and overlook some words used in the statute while giving effect to
some. This is contrary to the well-established rule in legal hermeneutics that in interpreting a statute, care should be
taken that every part or word thereof be given effect[31] since the law-making body is presumed to know the meaning of
the words employed in the statue and to have used them advisedly. [32] Ut res magis valeat quam pereat.[33]
WHEREFORE, the questioned Decision and Resolution dated 16 September 1996 and 12 November 1996,
respectively, of public respondent National Labor Relations Commission are AFFIRMED. Petitioners MARSAMAN
MANNING AGENCY, INC., and DIAMANTIDES MARITIME, INC., are ordered, jointly and severally, to pay private
respondent WILFREDO T. CAJERAS his salaries for the unexpired portion of his employment contract or
USD$5,100.00, reimburse the latter's placement fee with twelve percent (12%) interest per annum conformably with
Sec. 10 of RA 8042, as well as attorney's fees of ten percent (10%) of the total monetary award. Costs against
petitioners.
SO ORDERED.
G.R. No. 167614 March 24, 2009
ANTONIO M. SERRANO, Petitioner,
vs.
Gallant MARITIME SERVICES, INC. and MARLOW NAVIGATION CO., INC., Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
For decades, the toil of solitary migrants has helped lift entire families and communities out of poverty. Their earnings
have built houses, provided health care, equipped schools and planted the seeds of businesses. They have woven
together the world by transmitting ideas and knowledge from country to country. They have provided the dynamic human
link between cultures, societies and economies. Yet, only recently have we begun to understand not only how much
international migration impacts development, but how smart public policies can magnify this effect.
United Nations Secretary-General Ban Ki-Moon
Global Forum on Migration and Development
Brussels, July 10, 20071
For Antonio Serrano (petitioner), a Filipino seafarer, the last clause in the 5th paragraph of Section 10, Republic Act
(R.A.) No. 8042,2 to wit:
Sec. 10. Money Claims. - x x x In case of termination of overseas employment without just, valid or authorized cause
as defined by law or contract, the workers shall be entitled to the full reimbursement of his placement fee with interest
of twelve percent (12%) per annum, plus his salaries for the unexpired portion of his employment contract or for three
(3) months for every year of the unexpired term, whichever is less.
x x x x (Emphasis and underscoring supplied)
does not magnify the contributions of overseas Filipino workers (OFWs) to national development, but exacerbates the
hardships borne by them by unduly limiting their entitlement in case of illegal dismissal to their lump-sum salary either
for the unexpired portion of their employment contract "or for three months for every year of the unexpired term,
whichever is less" (subject clause). Petitioner claims that the last clause violates the OFWs' constitutional rights in that
it impairs the terms of their contract, deprives them of equal protection and denies them due process.
By way of Petition for Review under Rule 45 of the Rules of Court, petitioner assails the December 8, 2004 Decision 3 and
April 1, 2005 Resolution4 of the Court of Appeals (CA), which applied the subject clause, entreating this Court to declare
the subject clause unconstitutional.
Petitioner was hired by Gallant Maritime Services, Inc. and Marlow Navigation Co., Ltd. (respondents) under a Philippine
Overseas Employment Administration (POEA)-approved Contract of Employment with the following terms and
conditions:
Duration of contract 12 months

Position Chief Officer

Basic monthly salary US$1,400.00

Hours of work 48.0 hours per week

Overtime US$700.00 per month

Vacation leave with pay 7.00 days per month5

On March 19, 1998, the date of his departure, petitioner was constrained to accept a downgraded employment contract
for the position of Second Officer with a monthly salary of US$1,000.00, upon the assurance and representation of
respondents that he would be made Chief Officer by the end of April 1998. 6
Respondents did not deliver on their promise to make petitioner Chief Officer. 7 Hence, petitioner refused to stay on as
Second Officer and was repatriated to the Philippines on May 26, 1998.8
Petitioner's employment contract was for a period of 12 months or from March 19, 1998 up to March 19, 1999, but at
the time of his repatriation on May 26, 1998, he had served only two (2) months and seven (7) days of his contract,
leaving an unexpired portion of nine (9) months and twenty-three (23) days.
Petitioner filed with the Labor Arbiter (LA) a Complaint 9 against respondents for constructive dismissal and for payment
of his money claims in the total amount of US$26,442.73, broken down as follows:
May 27/31, 1998 (5 days) incl. Leave pay US$ 413.90
June 01/30, 1998 2,590.00
July 01/31, 1998 2,590.00
August 01/31, 1998 2,590.00
Sept. 01/30, 1998 2,590.00
Oct. 01/31, 1998 2,590.00
Nov. 01/30, 1998 2,590.00
Dec. 01/31, 1998 2,590.00
 Jan. 01/31, 1999 2,590.00
Feb. 01/28, 1999 2,590.00
Mar. 1/19, 1999 (19 days) incl. leave pay 1,640.00
----------------------------
----------------------------
------------------------
25,382.23
Amount adjusted to chief mate's salary
(March 19/31, 1998 to April 1/30, 1998) + 1,060.5010
----------------------------
----------------------------
----------------------------
----------
TOTAL CLAIM US$ 26,442.7311
as well as moral and exemplary damages and attorney's fees.
The LA rendered a Decision dated July 15, 1999, declaring the dismissal of petitioner illegal and awarding him
monetary benefits, to wit:
WHEREFORE, premises considered, judgment is hereby rendered declaring that the dismissal of the
complainant (petitioner) by the respondents in the above-entitled case was illegal and the respondents are
hereby ordered to pay the complainant [petitioner], jointly and severally, in Philippine Currency, based on the
rate of exchange prevailing at the time of payment, the amount of EIGHT THOUSAND SEVEN HUNDRED
SEVENTY U.S. DOLLARS (US $8,770.00), representing the complainant’s salary for three (3) months of
the unexpired portion of the aforesaid contract of employment.1avvphi1
The respondents are likewise ordered to pay the complainant [petitioner], jointly and severally, in Philippine
Currency, based on the rate of exchange prevailing at the time of payment, the amount of FORTY FIVE U.S.
DOLLARS (US$ 45.00),12 representing the complainant’s claim for a salary differential. In addition, the
respondents are hereby ordered to pay the complainant, jointly and severally, in Philippine Currency, at the
exchange rate prevailing at the time of payment, the complainant’s (petitioner's) claim for attorney’s fees
equivalent to ten percent (10%) of the total amount awarded to the aforesaid employee under this Decision.
The claims of the complainant for moral and exemplary damages are hereby DISMISSED for lack of merit.
All other claims are hereby DISMISSED.
SO ORDERED.13 (Emphasis supplied)
In awarding petitioner a lump-sum salary of US$8,770.00, the LA based his computation on the salary period
of three months only -- rather than the entire unexpired portion of nine months and 23 days of petitioner's
employment contract - applying the subject clause. However, the LA applied the salary rate of US$2,590.00,
consisting of petitioner's "[b]asic salary, US$1,400.00/month + US$700.00/month, fixed overtime pay, +
US$490.00/month, vacation leave pay = US$2,590.00/compensation per month."14
Respondents appealed15 to the National Labor Relations Commission (NLRC) to question the finding of the LA
that petitioner was illegally dismissed.
Petitioner also appealed16 to the NLRC on the sole issue that the LA erred in not applying the ruling of the Court
in Triple Integrated Services, Inc. v. National Labor Relations Commission 17 that in case of illegal dismissal,
OFWs are entitled to their salaries for the unexpired portion of their contracts. 18
In a Decision dated June 15, 2000, the NLRC modified the LA Decision, to wit:
WHEREFORE, the Decision dated 15 July 1999 is MODIFIED. Respondents are hereby ordered to pay
complainant, jointly and severally, in Philippine currency, at the prevailing rate of exchange at the time of
payment the following:
1. Three (3) months salary

$1,400 x 3 US$4,200.00

2. Salary differential 45.00

US$4,245.00

3. 10% Attorney’s fees 424.50

TOTAL US$4,669.50
The other findings are affirmed.
SO ORDERED.19
The NLRC corrected the LA's computation of the lump-sum salary awarded to petitioner by reducing the applicable
salary rate from US$2,590.00 to US$1,400.00 because R.A. No. 8042 "does not provide for the award of overtime pay,
which should be proven to have been actually performed, and for vacation leave pay." 20
Petitioner filed a Motion for Partial Reconsideration, but this time he questioned the constitutionality of the subject
clause.21 The NLRC denied the motion.22
Petitioner filed a Petition for Certiorari23 with the CA, reiterating the constitutional challenge against the subject
clause.24 After initially dismissing the petition on a technicality, the CA eventually gave due course to it, as directed by
this Court in its Resolution dated August 7, 2003 which granted the petition for certiorari, docketed as G.R. No. 151833,
filed by petitioner.
In a Decision dated December 8, 2004, the CA affirmed the NLRC ruling on the reduction of the applicable salary rate;
however, the CA skirted the constitutional issue raised by petitioner. 25
His Motion for Reconsideration26 having been denied by the CA,27 petitioner brings his cause to this Court on the
following grounds:
I
The Court of Appeals and the labor tribunals have decided the case in a way not in accord with applicable decision of
the Supreme Court involving similar issue of granting unto the migrant worker back wages equal to the unexpired portion
of his contract of employment instead of limiting it to three (3) months
II
In the alternative that the Court of Appeals and the Labor Tribunals were merely applying their interpretation of Section
10 of Republic Act No. 8042, it is submitted that the Court of Appeals gravely erred in law when it failed to discharge its
judicial duty to decide questions of substance not theretofore determined by the Honorable Supreme Court, particularly,
the constitutional issues raised by the petitioner on the constitutionality of said law, which unreasonably, unfairly and
arbitrarily limits payment of the award for back wages of overseas workers to three (3) months.
III
Even without considering the constitutional limitations [of] Sec. 10 of Republic Act No. 8042, the Court of Appeals gravely
erred in law in excluding from petitioner’s award the overtime pay and vacation pay provided in his contract since under
the contract they form part of his salary.28
On February 26, 2008, petitioner wrote the Court to withdraw his petition as he is already old and sickly, and he intends
to make use of the monetary award for his medical treatment and medication. 29 Required to comment, counsel for
petitioner filed a motion, urging the court to allow partial execution of the undisputed monetary award and, at the same
time, praying that the constitutional question be resolved.30
Considering that the parties have filed their respective memoranda, the Court now takes up the full merit of the petition
mindful of the extreme importance of the constitutional question raised therein.
On the first and second issues
The unanimous finding of the LA, NLRC and CA that the dismissal of petitioner was illegal is not disputed. Likewise not
disputed is the salary differential of US$45.00 awarded to petitioner in all three fora. What remains disputed is only the
computation of the lump-sum salary to be awarded to petitioner by reason of his illegal dismissal.
Applying the subject clause, the NLRC and the CA computed the lump-sum salary of petitioner at the monthly rate of
US$1,400.00 covering the period of three months out of the unexpired portion of nine months and 23 days of his
employment contract or a total of US$4,200.00.
Impugning the constitutionality of the subject clause, petitioner contends that, in addition to the US$4,200.00 awarded
by the NLRC and the CA, he is entitled to US$21,182.23 more or a total of US$25,382.23, equivalent to his salaries for
the entire nine months and 23 days left of his employment contract, computed at the monthly rate of US$2,590.00.31
The Arguments of Petitioner
Petitioner contends that the subject clause is unconstitutional because it unduly impairs the freedom of OFWs to
negotiate for and stipulate in their overseas employment contracts a determinate employment period and a fixed salary
package.32 It also impinges on the equal protection clause, for it treats OFWs differently from local Filipino workers (local
workers) by putting a cap on the amount of lump-sum salary to which OFWs are entitled in case of illegal dismissal,
while setting no limit to the same monetary award for local workers when their dismissal is declared illegal; that the
disparate treatment is not reasonable as there is no substantial distinction between the two groups; 33and that it defeats
Section 18,34 Article II of the Constitution which guarantees the protection of the rights and welfare of all Filipino workers,
whether deployed locally or overseas.35
Moreover, petitioner argues that the decisions of the CA and the labor tribunals are not in line with existing jurisprudence
on the issue of money claims of illegally dismissed OFWs. Though there are conflicting rulings on this, petitioner urges
the Court to sort them out for the guidance of affected OFWs.36
Petitioner further underscores that the insertion of the subject clause into R.A. No. 8042 serves no other purpose but to
benefit local placement agencies. He marks the statement made by the Solicitor General in his Memorandum, viz.:
Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that
jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation.
Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the
acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino
migrant workers, liability for money claims was reduced under Section 10 of R.A. No. 8042. 37 (Emphasis supplied)
Petitioner argues that in mitigating the solidary liability of placement agencies, the subject clause sacrifices the well-
being of OFWs. Not only that, the provision makes foreign employers better off than local employers because in cases
involving the illegal dismissal of employees, foreign employers are liable for salaries covering a maximum of only three
months of the unexpired employment contract while local employers are liable for the full lump-sum salaries of their
employees. As petitioner puts it:
In terms of practical application, the local employers are not limited to the amount of backwages they have to give their
employees they have illegally dismissed, following well-entrenched and unequivocal jurisprudence on the matter. On
the other hand, foreign employers will only be limited to giving the illegally dismissed migrant workers the maximum of
three (3) months unpaid salaries notwithstanding the unexpired term of the contract that can be more than three (3)
months.38
Lastly, petitioner claims that the subject clause violates the due process clause, for it deprives him of the salaries and
other emoluments he is entitled to under his fixed-period employment contract.39
The Arguments of Respondents
In their Comment and Memorandum, respondents contend that the constitutional issue should not be entertained, for
this was belatedly interposed by petitioner in his appeal before the CA, and not at the earliest opportunity, which was
when he filed an appeal before the NLRC.40
The Arguments of the Solicitor General
The Solicitor General (OSG)41 points out that as R.A. No. 8042 took effect on July 15, 1995, its provisions could not
have impaired petitioner's 1998 employment contract. Rather, R.A. No. 8042 having preceded petitioner's contract, the
provisions thereof are deemed part of the minimum terms of petitioner's employment, especially on the matter of money
claims, as this was not stipulated upon by the parties.42
Moreover, the OSG emphasizes that OFWs and local workers differ in terms of the nature of their employment, such
that their rights to monetary benefits must necessarily be treated differently. The OSG enumerates the essential
elements that distinguish OFWs from local workers: first, while local workers perform their jobs within Philippine territory,
OFWs perform their jobs for foreign employers, over whom it is difficult for our courts to acquire jurisdiction, or against
whom it is almost impossible to enforce judgment; and second, as held in Coyoca v. National Labor Relations
Commission43 and Millares v. National Labor Relations Commission,44 OFWs are contractual employees who can never
acquire regular employment status, unlike local workers who are or can become regular employees. Hence, the OSG
posits that there are rights and privileges exclusive to local workers, but not available to OFWs; that these peculiarities
make for a reasonable and valid basis for the differentiated treatment under the subject clause of the money claims of
OFWs who are illegally dismissed. Thus, the provision does not violate the equal protection clause nor Section 18,
Article II of the Constitution.45
Lastly, the OSG defends the rationale behind the subject clause as a police power measure adopted to mitigate the
solidary liability of placement agencies for this "redounds to the benefit of the migrant workers whose welfare the
government seeks to promote. The survival of legitimate placement agencies helps [assure] the government that migrant
workers are properly deployed and are employed under decent and humane conditions." 46
The Court's Ruling
The Court sustains petitioner on the first and second issues.
When the Court is called upon to exercise its power of judicial review of the acts of its co-equals, such as the Congress,
it does so only when these conditions obtain: (1) that there is an actual case or controversy involving a conflict of rights
susceptible of judicial determination;47 (2) that the constitutional question is raised by a proper party48 and at the earliest
opportunity;49 and (3) that the constitutional question is the very lis mota of the case, 50otherwise the Court will dismiss
the case or decide the same on some other ground.51
Without a doubt, there exists in this case an actual controversy directly involving petitioner who is personally aggrieved
that the labor tribunals and the CA computed his monetary award based on the salary period of three months only as
provided under the subject clause.
The constitutional challenge is also timely. It should be borne in mind that the requirement that a constitutional issue be
raised at the earliest opportunity entails the interposition of the issue in the pleadings before a competent court, such
that, if the issue is not raised in the pleadings before that competent court, it cannot be considered at the trial and, if not
considered in the trial, it cannot be considered on appeal. 52 Records disclose that the issue on the constitutionality of
the subject clause was first raised, not in petitioner's appeal with the NLRC, but in his Motion for Partial Reconsideration
with said labor tribunal,53 and reiterated in his Petition for Certiorari before the CA.54Nonetheless, the issue is deemed
seasonably raised because it is not the NLRC but the CA which has the competence to resolve the constitutional issue.
The NLRC is a labor tribunal that merely performs a quasi-judicial function – its function in the present case is limited to
determining questions of fact to which the legislative policy of R.A. No. 8042 is to be applied and to resolving such
questions in accordance with the standards laid down by the law itself; 55 thus, its foremost function is to administer and
enforce R.A. No. 8042, and not to inquire into the validity of its provisions. The CA, on the other hand, is vested with the
power of judicial review or the power to declare unconstitutional a law or a provision thereof, such as the subject
clause.56 Petitioner's interposition of the constitutional issue before the CA was undoubtedly seasonable. The CA was
therefore remiss in failing to take up the issue in its decision.
The third condition that the constitutional issue be critical to the resolution of the case likewise obtains because the
monetary claim of petitioner to his lump-sum salary for the entire unexpired portion of his 12-month employment contract,
and not just for a period of three months, strikes at the very core of the subject clause.
Thus, the stage is all set for the determination of the constitutionality of the subject clause.
Does the subject clause violate Section 10,
Article III of the Constitution on non-impairment
of contracts?
The answer is in the negative.
Petitioner's claim that the subject clause unduly interferes with the stipulations in his contract on the term of his
employment and the fixed salary package he will receive57 is not tenable.
Section 10, Article III of the Constitution provides:
No law impairing the obligation of contracts shall be passed.
The prohibition is aligned with the general principle that laws newly enacted have only a prospective operation, 58and
cannot affect acts or contracts already perfected; 59 however, as to laws already in existence, their provisions are read
into contracts and deemed a part thereof.60 Thus, the non-impairment clause under Section 10, Article II is limited in
application to laws about to be enacted that would in any way derogate from existing acts or contracts by enlarging,
abridging or in any manner changing the intention of the parties thereto.
As aptly observed by the OSG, the enactment of R.A. No. 8042 in 1995 preceded the execution of the employment
contract between petitioner and respondents in 1998. Hence, it cannot be argued that R.A. No. 8042, particularly the
subject clause, impaired the employment contract of the parties. Rather, when the parties executed their 1998
employment contract, they were deemed to have incorporated into it all the provisions of R.A. No. 8042.
But even if the Court were to disregard the timeline, the subject clause may not be declared unconstitutional on the
ground that it impinges on the impairment clause, for the law was enacted in the exercise of the police power of the
State to regulate a business, profession or calling, particularly the recruitment and deployment of OFWs, with the noble
end in view of ensuring respect for the dignity and well-being of OFWs wherever they may be employed.61Police power
legislations adopted by the State to promote the health, morals, peace, education, good order, safety, and general
welfare of the people are generally applicable not only to future contracts but even to those already in existence, for all
private contracts must yield to the superior and legitimate measures taken by the State to promote public welfare. 62
Does the subject clause violate Section 1,
Article III of the Constitution, and Section 18,
Article II and Section 3, Article XIII on labor
as a protected sector?
The answer is in the affirmative.
Section 1, Article III of the Constitution guarantees:
No person shall be deprived of life, liberty, or property without due process of law nor shall any person be denied the
equal protection of the law.
Section 18,63 Article II and Section 3,64 Article XIII accord all members of the labor sector, without distinction as to place
of deployment, full protection of their rights and welfare.
To Filipino workers, the rights guaranteed under the foregoing constitutional provisions translate to economic security
and parity: all monetary benefits should be equally enjoyed by workers of similar category, while all monetary obligations
should be borne by them in equal degree; none should be denied the protection of the laws which is enjoyed by, or
spared the burden imposed on, others in like circumstances.65
Such rights are not absolute but subject to the inherent power of Congress to incorporate, when it sees fit, a system of
classification into its legislation; however, to be valid, the classification must comply with these requirements: 1) it is
based on substantial distinctions; 2) it is germane to the purposes of the law; 3) it is not limited to existing conditions
only; and 4) it applies equally to all members of the class.66
There are three levels of scrutiny at which the Court reviews the constitutionality of a classification embodied in a law:
a) the deferential or rational basis scrutiny in which the challenged classification needs only be shown to be rationally
related to serving a legitimate state interest;67 b) the middle-tier or intermediate scrutiny in which the government must
show that the challenged classification serves an important state interest and that the classification is at least
substantially related to serving that interest;68 and c) strict judicial scrutiny69 in which a legislative classification which
impermissibly interferes with the exercise of a fundamental right70 or operates to the peculiar disadvantage of a suspect
class71 is presumed unconstitutional, and the burden is upon the government to prove that the classification is necessary
to achieve a compelling state interest and that it is the least restrictive means to protect such interest.72
Under American jurisprudence, strict judicial scrutiny is triggered by suspect classifications 73 based on race74 or
gender75 but not when the classification is drawn along income categories. 76
It is different in the Philippine setting. In Central Bank (now Bangko Sentral ng Pilipinas) Employee Association, Inc. v.
Bangko Sentral ng Pilipinas,77 the constitutionality of a provision in the charter of the Bangko Sentral ng Pilipinas(BSP),
a government financial institution (GFI), was challenged for maintaining its rank-and-file employees under the Salary
Standardization Law (SSL), even when the rank-and-file employees of other GFIs had been exempted from the SSL by
their respective charters. Finding that the disputed provision contained a suspect classification based on salary grade,
the Court deliberately employed the standard of strict judicial scrutiny in its review of the constitutionality of said
provision. More significantly, it was in this case that the Court revealed the broad outlines of its judicial philosophy, to
wit:
Congress retains its wide discretion in providing for a valid classification, and its policies should be accorded recognition
and respect by the courts of justice except when they run afoul of the Constitution. The deference stops where the
classification violates a fundamental right, or prejudices persons accorded special protection by the Constitution.
When these violations arise, this Court must discharge its primary role as the vanguard of constitutional guaranties, and
require a stricter and more exacting adherence to constitutional limitations. Rational basis should not suffice.
Admittedly, the view that prejudice to persons accorded special protection by the Constitution requires a stricter judicial
scrutiny finds no support in American or English jurisprudence. Nevertheless, these foreign decisions and authorities
are not per se controlling in this jurisdiction. At best, they are persuasive and have been used to support many of our
decisions. We should not place undue and fawning reliance upon them and regard them as indispensable mental
crutches without which we cannot come to our own decisions through the employment of our own endowments. We live
in a different ambience and must decide our own problems in the light of our own interests and needs, and of our
qualities and even idiosyncrasies as a people, and always with our own concept of law and justice. Our laws must be
construed in accordance with the intention of our own lawmakers and such intent may be deduced from the language
of each law and the context of other local legislation related thereto. More importantly, they must be construed to serve
our own public interest which is the be-all and the end-all of all our laws. And it need not be stressed that our public
interest is distinct and different from others.
xxxx
Further, the quest for a better and more "equal" world calls for the use of equal protection as a tool of effective judicial
intervention.
Equality is one ideal which cries out for bold attention and action in the Constitution. The Preamble proclaims "equality"
as an ideal precisely in protest against crushing inequities in Philippine society. The command to promote social justice
in Article II, Section 10, in "all phases of national development," further explicitated in Article XIII, are clear commands
to the State to take affirmative action in the direction of greater equality. x x x [T]here is thus in the Philippine Constitution
no lack of doctrinal support for a more vigorous state effort towards achieving a reasonable measure of equality.
Our present Constitution has gone further in guaranteeing vital social and economic rights to marginalized groups of
society, including labor. Under the policy of social justice, the law bends over backward to accommodate the interests
of the working class on the humane justification that those with less privilege in life should have more in law. And the
obligation to afford protection to labor is incumbent not only on the legislative and executive branches but also on the
judiciary to translate this pledge into a living reality. Social justice calls for the humanization of laws and the equalization
of social and economic forces by the State so that justice in its rational and objectively secular conception may at least
be approximated.
xxxx
Under most circumstances, the Court will exercise judicial restraint in deciding questions of constitutionality, recognizing
the broad discretion given to Congress in exercising its legislative power. Judicial scrutiny would be based on the
"rational basis" test, and the legislative discretion would be given deferential treatment.
But if the challenge to the statute is premised on the denial of a fundamental right, or the perpetuation of prejudice
against persons favored by the Constitution with special protection, judicial scrutiny ought to be more strict. A
weak and watered down view would call for the abdication of this Court’s solemn duty to strike down any law repugnant
to the Constitution and the rights it enshrines. This is true whether the actor committing the unconstitutional act is a
private person or the government itself or one of its instrumentalities. Oppressive acts will be struck down regardless of
the character or nature of the actor.
xxxx
In the case at bar, the challenged proviso operates on the basis of the salary grade or officer-employee status. It is akin
to a distinction based on economic class and status, with the higher grades as recipients of a benefit specifically withheld
from the lower grades. Officers of the BSP now receive higher compensation packages that are competitive with the
industry, while the poorer, low-salaried employees are limited to the rates prescribed by the SSL. The implications are
quite disturbing: BSP rank-and-file employees are paid the strictly regimented rates of the SSL while employees higher
in rank - possessing higher and better education and opportunities for career advancement - are given higher
compensation packages to entice them to stay. Considering that majority, if not all, the rank-and-file employees consist
of people whose status and rank in life are less and limited, especially in terms of job marketability, it is they - and not
the officers - who have the real economic and financial need for the adjustment . This is in accord with the policy of the
Constitution "to free the people from poverty, provide adequate social services, extend to them a decent standard of
living, and improve the quality of life for all." Any act of Congress that runs counter to this constitutional desideratum
deserves strict scrutiny by this Court before it can pass muster. (Emphasis supplied)
Imbued with the same sense of "obligation to afford protection to labor," the Court in the present case also employs the
standard of strict judicial scrutiny, for it perceives in the subject clause a suspect classification prejudicial to OFWs.
Upon cursory reading, the subject clause appears facially neutral, for it applies to all OFWs. However, a closer
examination reveals that the subject clause has a discriminatory intent against, and an invidious impact on, OFWs at
two levels:
First, OFWs with employment contracts of less than one year vis-à-vis OFWs with employment contracts of one
year or more;
Second, among OFWs with employment contracts of more than one year; and
Third, OFWs vis-à-vis local workers with fixed-period employment;
OFWs with employment contracts of less than one year vis-à-vis OFWs with employment contracts of one year
or more
As pointed out by petitioner,78 it was in Marsaman Manning Agency, Inc. v. National Labor Relations
Commission79(Second Division, 1999) that the Court laid down the following rules on the application of the periods
prescribed under Section 10(5) of R.A. No. 804, to wit:
A plain reading of Sec. 10 clearly reveals that the choice of which amount to award an illegally dismissed
overseas contract worker, i.e., whether his salaries for the unexpired portion of his employment contract or
three (3) months’ salary for every year of the unexpired term, whichever is less, comes into play only when the
employment contract concerned has a term of at least one (1) year or more. This is evident from the words "for
every year of the unexpired term" which follows the words "salaries x x x for three months." To follow petitioners’
thinking that private respondent is entitled to three (3) months salary only simply because it is the lesser amount is to
completely disregard and overlook some words used in the statute while giving effect to some. This is contrary to the
well-established rule in legal hermeneutics that in interpreting a statute, care should be taken that every part or word
thereof be given effect since the law-making body is presumed to know the meaning of the words employed in the statue
and to have used them advisedly. Ut res magis valeat quam pereat.80 (Emphasis supplied)
In Marsaman, the OFW involved was illegally dismissed two months into his 10-month contract, but was awarded his
salaries for the remaining 8 months and 6 days of his contract.
Prior to Marsaman, however, there were two cases in which the Court made conflicting rulings on Section 10(5). One
was Asian Center for Career and Employment System and Services v. National Labor Relations Commission (Second
Division, October 1998),81 which involved an OFW who was awarded a two-year employment contract, but was
dismissed after working for one year and two months. The LA declared his dismissal illegal and awarded him
SR13,600.00 as lump-sum salary covering eight months, the unexpired portion of his contract. On appeal, the Court
reduced the award to SR3,600.00 equivalent to his three months’ salary, this being the lesser value, to wit:
Under Section 10 of R.A. No. 8042, a worker dismissed from overseas employment without just, valid or authorized
cause is entitled to his salary for the unexpired portion of his employment contract or for three (3) months for every year
of the unexpired term, whichever is less.
In the case at bar, the unexpired portion of private respondent’s employment contract is eight (8) months. Private
respondent should therefore be paid his basic salary corresponding to three (3) months or a total of SR3,600. 82
Another was Triple-Eight Integrated Services, Inc. v. National Labor Relations Commission (Third Division, December
1998),83 which involved an OFW (therein respondent Erlinda Osdana) who was originally granted a 12-month contract,
which was deemed renewed for another 12 months. After serving for one year and seven-and-a-half months, respondent
Osdana was illegally dismissed, and the Court awarded her salaries for the entire unexpired portion of four and one-half
months of her contract.
The Marsaman interpretation of Section 10(5) has since been adopted in the following cases:
Case Title Contract Period of Unexpired Period Applied in
Period Service Period the Computation
of the Monetary
Award

Skippers v. 6 months 2 months 4 months 4 months

Maguad84

Bahia Shipping 9 months 8 months 4 months 4 months

v. Reynaldo
Chua 85

Centennial 9 months 4 months 5 months 5 months

Transmarine v.
dela Cruz l86

Talidano v. 12 months 3 months 9 months 3 months

Falcon87

Univan v. CA 88 12 months 3 months 9 months 3 months

Oriental v. CA 89 12 months more than 2 10 months 3 months

months

PCL v. NLRC90 12 months more than 2 more or less 9 3 months

months months

Olarte v. 12 months 21 days 11 months and 9 3 months

Nayona91 days

JSS v.Ferrer92 12 months 16 days 11 months and 24 3 months

days

Pentagon v. 12 months 9 months and 2 months and 23 2 months and 23

Adelantar93 7 days days days

Phil. Employ v. 12 months 10 months 2 months Unexpired portion

Paramio, et al.94

Flourish 2 years 26 days 23 months and 4 6 months or 3

Maritime v. days months for each
Almanzor 95 year of contract

Athenna 1 year, 10 1 month 1 year, 9 months 6 months or 3

Manpower v. months and and 28 days months for each
Villanos 96 28 days year of contract
As the foregoing matrix readily shows, the subject clause classifies OFWs into two categories. The first category includes
OFWs with fixed-period employment contracts of less than one year; in case of illegal dismissal, they are entitled to their
salaries for the entire unexpired portion of their contract. The second category consists of OFWs with fixed-period
employment contracts of one year or more; in case of illegal dismissal, they are entitled to monetary award equivalent
to only 3 months of the unexpired portion of their contracts.
The disparity in the treatment of these two groups cannot be discounted. In Skippers, the respondent OFW worked for
only 2 months out of his 6-month contract, but was awarded his salaries for the remaining 4 months. In contrast, the
respondent OFWs in Oriental and PCL who had also worked for about 2 months out of their 12-month contracts were
awarded their salaries for only 3 months of the unexpired portion of their contracts. Even the OFWs involved
in Talidano and Univan who had worked for a longer period of 3 months out of their 12-month contracts before being
illegally dismissed were awarded their salaries for only 3 months.
To illustrate the disparity even more vividly, the Court assumes a hypothetical OFW-A with an employment contract of
10 months at a monthly salary rate of US$1,000.00 and a hypothetical OFW-B with an employment contract of 15
months with the same monthly salary rate of US$1,000.00. Both commenced work on the same day and under the same
employer, and were illegally dismissed after one month of work. Under the subject clause, OFW -A will be entitled to
US$9,000.00, equivalent to his salaries for the remaining 9 months of his contract, whereas OFW -B will be entitled to
only US$3,000.00, equivalent to his salaries for 3 months of the unexpired portion of his contract, instead of
US$14,000.00 for the unexpired portion of 14 months of his contract, as the US$3,000.00 is the lesser amount.
The disparity becomes more aggravating when the Court takes into account jurisprudence that, prior to the effectivity
of R.A. No. 8042 on July 14, 1995,97 illegally dismissed OFWs, no matter how long the period of their employment
contracts, were entitled to their salaries for the entire unexpired portions of their contracts. The matrix below speaks for
itself:
Case Title Contract Period of Unexpired Period Applied in the
Period Service Period Computation of the
Monetary Award

ATCI v. CA, et 2 years 2 months 22 months 22 months

al.98

Phil. Integrated 2 years 7 days 23 months and 23 months and 23 days

v. NLRC99 23 days

JGB v. NLC100 2 years 9 months 15 months 15 months

Agoy v. NLRC101 2 years 2 months 22 months 22 months

EDI v. NLRC, et 2 years 5 months 19 months 19 months

al.102

Barros v. NLRC, 12 months 4 months 8 months 8 months

et al.103

Philippine 12 months 6 months and 5 months and 5 months and 18 days

Transmarine v. 22 days 18 days
Carilla104
It is plain that prior to R.A. No. 8042, all OFWs, regardless of contract periods or the unexpired portions thereof, were
treated alike in terms of the computation of their monetary benefits in case of illegal dismissal. Their claims were
subjected to a uniform rule of computation: their basic salaries multiplied by the entire unexpired portion of their
employment contracts.
The enactment of the subject clause in R.A. No. 8042 introduced a differentiated rule of computation of the money
claims of illegally dismissed OFWs based on their employment periods, in the process singling out one category whose
contracts have an unexpired portion of one year or more and subjecting them to the peculiar disadvantage of having
their monetary awards limited to their salaries for 3 months or for the unexpired portion thereof, whichever is less, but
all the while sparing the other category from such prejudice, simply because the latter's unexpired contracts fall short of
one year.
Among OFWs With Employment Contracts of More Than One Year
Upon closer examination of the terminology employed in the subject clause, the Court now has misgivings on the
accuracy of the Marsaman interpretation.
The Court notes that the subject clause "or for three (3) months for every year of the unexpired term, whichever is less"
contains the qualifying phrases "every year" and "unexpired term." By its ordinary meaning, the word "term" means a
limited or definite extent of time.105 Corollarily, that "every year" is but part of an "unexpired term" is significant in many
ways: first, the unexpired term must be at least one year, for if it were any shorter, there would be no occasion for such
unexpired term to be measured by every year; and second, the original term must be more than one year, for otherwise,
whatever would be the unexpired term thereof will not reach even a year. Consequently, the more decisive factor in the
determination of when the subject clause "for three (3) months for every year of the unexpired term, whichever is less"
shall apply is not the length of the original contract period as held in Marsaman,106 but the length of the unexpired portion
of the contract period -- the subject clause applies in cases when the unexpired portion of the contract period is at least
one year, which arithmetically requires that the original contract period be more than one year.
Viewed in that light, the subject clause creates a sub-layer of discrimination among OFWs whose contract periods are
for more than one year: those who are illegally dismissed with less than one year left in their contracts shall be entitled
to their salaries for the entire unexpired portion thereof, while those who are illegally dismissed with one year or more
remaining in their contracts shall be covered by the subject clause, and their monetary benefits limited to their salaries
for three months only.
To concretely illustrate the application of the foregoing interpretation of the subject clause, the Court assumes
hypothetical OFW-C and OFW-D, who each have a 24-month contract at a salary rate of US$1,000.00 per month. OFW-
C is illegally dismissed on the 12th month, and OFW-D, on the 13th month. Considering that there is at least 12 months
remaining in the contract period of OFW-C, the subject clause applies to the computation of the latter's monetary
benefits. Thus, OFW-C will be entitled, not to US$12,000,00 or the latter's total salaries for the 12 months unexpired
portion of the contract, but to the lesser amount of US$3,000.00 or the latter's salaries for 3 months out of the 12-month
unexpired term of the contract. On the other hand, OFW-D is spared from the effects of the subject clause, for there are
only 11 months left in the latter's contract period. Thus, OFW-D will be entitled to US$11,000.00, which is equivalent to
his/her total salaries for the entire 11-month unexpired portion.
OFWs vis-à-vis Local Workers
With Fixed-Period Employment
As discussed earlier, prior to R.A. No. 8042, a uniform system of computation of the monetary awards of illegally
dismissed OFWs was in place. This uniform system was applicable even to local workers with fixed-term employment.107
The earliest rule prescribing a uniform system of computation was actually Article 299 of the Code of Commerce
(1888),108 to wit:
Article 299. If the contracts between the merchants and their shop clerks and employees should have been made of a
fixed period, none of the contracting parties, without the consent of the other, may withdraw from the fulfillment of said
contract until the termination of the period agreed upon.
Persons violating this clause shall be subject to indemnify the loss and damage suffered, with the exception of the
provisions contained in the following articles.
In Reyes v. The Compañia Maritima,109 the Court applied the foregoing provision to determine the liability of a shipping
company for the illegal discharge of its managers prior to the expiration of their fixed-term employment. The Court
therein held the shipping company liable for the salaries of its managers for the remainder of their fixed-term
employment.
There is a more specific rule as far as seafarers are concerned: Article 605 of the Code of Commerce which provides:
Article 605. If the contracts of the captain and members of the crew with the agent should be for a definite period or
voyage, they cannot be discharged until the fulfillment of their contracts, except for reasons of insubordination in serious
matters, robbery, theft, habitual drunkenness, and damage caused to the vessel or to its cargo by malice or manifest or
proven negligence.
Article 605 was applied to Madrigal Shipping Company, Inc. v. Ogilvie, 110 in
which the Court held the shipping company liable for the salaries and subsistence allowance of its illegally dismissed
employees for the entire unexpired portion of their employment contracts.
While Article 605 has remained good law up to the present,111 Article 299 of the Code of Commerce was replaced by
Art. 1586 of the Civil Code of 1889, to wit:
Article 1586. Field hands, mechanics, artisans, and other laborers hired for a certain time and for a certain work cannot
leave or be dismissed without sufficient cause, before the fulfillment of the contract. (Emphasis supplied.)
Citing Manresa, the Court in Lemoine v. Alkan112 read the disjunctive "or" in Article 1586 as a conjunctive "and" so as
to apply the provision to local workers who are employed for a time certain although for no particular skill. This
interpretation of Article 1586 was reiterated in Garcia Palomar v. Hotel de France Company. 113 And in both Lemoine
and Palomar, the Court adopted the general principle that in actions for wrongful discharge founded on Article 1586,
local workers are entitled to recover damages to the extent of the amount stipulated to be paid to them by the terms of
their contract. On the computation of the amount of such damages, the Court in Aldaz v. Gay114 held:
The doctrine is well-established in American jurisprudence, and nothing has been brought to our attention to the contrary
under Spanish jurisprudence, that when an employee is wrongfully discharged it is his duty to seek other employment
of the same kind in the same community, for the purpose of reducing the damages resulting from such wrongful
discharge. However, while this is the general rule, the burden of showing that he failed to make an effort to secure other
employment of a like nature, and that other employment of a like nature was obtainable, is upon the defendant. When
an employee is wrongfully discharged under a contract of employment his prima facie damage is the amount which he
would be entitled to had he continued in such employment until the termination of the period. (Howard vs. Daly, 61 N.
Y., 362; Allen vs. Whitlark, 99 Mich., 492; Farrell vs. School District No. 2, 98 Mich., 43.) 115(Emphasis supplied)
On August 30, 1950, the New Civil Code took effect with new provisions on fixed-term employment: Section 2
(Obligations with a Period), Chapter 3, Title I, and Sections 2 (Contract of Labor) and 3 (Contract for a Piece of Work),
Chapter 3, Title VIII, Book IV.116 Much like Article 1586 of the Civil Code of 1889, the new provisions of the Civil Code
do not expressly provide for the remedies available to a fixed-term worker who is illegally discharged. However, it is
noted that in Mackay Radio & Telegraph Co., Inc. v. Rich,117 the Court carried over the principles on the payment of
damages underlying Article 1586 of the Civil Code of 1889 and applied the same to a case involving the illegal discharge
of a local worker whose fixed-period employment contract was entered into in 1952, when the new Civil Code was
already in effect.118
More significantly, the same principles were applied to cases involving overseas Filipino workers whose fixed-term
employment contracts were illegally terminated, such as in First Asian Trans & Shipping Agency, Inc. v. Ople,119involving
seafarers who were illegally discharged. In Teknika Skills and Trade Services, Inc. v. National Labor Relations
Commission,120 an OFW who was illegally dismissed prior to the expiration of her fixed-period employment contract as
a baby sitter, was awarded salaries corresponding to the unexpired portion of her contract. The Court arrived at the
same ruling in Anderson v. National Labor Relations Commission, 121 which involved a foreman hired in 1988 in Saudi
Arabia for a fixed term of two years, but who was illegally dismissed after only nine months on the job -- the Court
awarded him salaries corresponding to 15 months, the unexpired portion of his contract. In Asia World Recruitment, Inc.
v. National Labor Relations Commission,122 a Filipino working as a security officer in 1989 in Angola was awarded his
salaries for the remaining period of his 12-month contract after he was wrongfully discharged. Finally, in Vinta Maritime
Co., Inc. v. National Labor Relations Commission,123 an OFW whose 12-month contract was illegally cut short in the
second month was declared entitled to his salaries for the remaining 10 months of his contract.
In sum, prior to R.A. No. 8042, OFWs and local workers with fixed-term employment who were illegally discharged were
treated alike in terms of the computation of their money claims: they were uniformly entitled to their salaries for the entire
unexpired portions of their contracts. But with the enactment of R.A. No. 8042, specifically the adoption of the subject
clause, illegally dismissed OFWs with an unexpired portion of one year or more in their employment contract have since
been differently treated in that their money claims are subject to a 3-month cap, whereas no such limitation is imposed
on local workers with fixed-term employment.
The Court concludes that the subject clause contains a suspect classification in that, in the computation of the
monetary benefits of fixed-term employees who are illegally discharged, it imposes a 3-month cap on the claim
of OFWs with an unexpired portion of one year or more in their contracts, but none on the claims of other OFWs
or local workers with fixed-term employment. The subject clause singles out one classification of OFWs and
burdens it with a peculiar disadvantage.
There being a suspect classification involving a vulnerable sector protected by the Constitution, the Court now subjects
the classification to a strict judicial scrutiny, and determines whether it serves a compelling state interest through the
least restrictive means.
What constitutes compelling state interest is measured by the scale of rights and powers arrayed in the Constitution and
calibrated by history.124 It is akin to the paramount interest of the state 125 for which some individual liberties must give
way, such as the public interest in safeguarding health or maintaining medical standards,126 or in maintaining access to
information on matters of public concern.127
In the present case, the Court dug deep into the records but found no compelling state interest that the subject clause
may possibly serve.
The OSG defends the subject clause as a police power measure "designed to protect the employment of Filipino
seafarers overseas x x x. By limiting the liability to three months [sic], Filipino seafarers have better chance of getting
hired by foreign employers." The limitation also protects the interest of local placement agencies, which otherwise may
be made to shoulder millions of pesos in "termination pay."128
The OSG explained further:
Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that
jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation.
Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the
acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino
migrant workers, liability for money are reduced under Section 10 of RA 8042.
This measure redounds to the benefit of the migrant workers whose welfare the government seeks to promote. The
survival of legitimate placement agencies helps [assure] the government that migrant workers are properly deployed
and are employed under decent and humane conditions.129 (Emphasis supplied)
However, nowhere in the Comment or Memorandum does the OSG cite the source of its perception of the state interest
sought to be served by the subject clause.
The OSG locates the purpose of R.A. No. 8042 in the speech of Rep. Bonifacio Gallego in sponsorship of House Bill
No. 14314 (HB 14314), from which the law originated; 130 but the speech makes no reference to the underlying reason
for the adoption of the subject clause. That is only natural for none of the 29 provisions in HB 14314 resembles the
subject clause.
On the other hand, Senate Bill No. 2077 (SB 2077) contains a provision on money claims, to wit:
Sec. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor
Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90)
calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue
of the complaint, the claim arising out of an employer-employee relationship or by virtue of any law or contract involving
Filipino workers for overseas employment including claims for actual, moral, exemplary and other forms of damages.
The liability of the principal and the recruitment/placement agency or any and all claims under this Section shall be joint
and several.
Any compromise/amicable settlement or voluntary agreement on any money claims exclusive of damages under this
Section shall not be less than fifty percent (50%) of such money claims: Provided, That any installment payments, if
applicable, to satisfy any such compromise or voluntary settlement shall not be more than two (2) months. Any
compromise/voluntary agreement in violation of this paragraph shall be null and void.
Non-compliance with the mandatory period for resolutions of cases provided under this Section shall subject the
responsible officials to any or all of the following penalties:
 (1) The salary of any such official who fails to render his decision or resolution within the prescribed period shall
be, or caused to be, withheld until the said official complies therewith;
(2) Suspension for not more than ninety (90) days; or
(3) Dismissal from the service with disqualification to hold any appointive public office for five (5) years.
Provided, however, That the penalties herein provided shall be without prejudice to any liability which any such official
may have incurred under other existing laws or rules and regulations as a consequence of violating the provisions of
this paragraph.
But significantly, Section 10 of SB 2077 does not provide for any rule on the computation of money claims.
A rule on the computation of money claims containing the subject clause was inserted and eventually adopted as the
5th paragraph of Section 10 of R.A. No. 8042. The Court examined the rationale of the subject clause in the transcripts
of the "Bicameral Conference Committee (Conference Committee) Meetings on the Magna Carta on OCWs
(Disagreeing Provisions of Senate Bill No. 2077 and House Bill No. 14314)." However, the Court finds no discernible
state interest, let alone a compelling one, that is sought to be protected or advanced by the adoption of the subject
clause.
In fine, the Government has failed to discharge its burden of proving the existence of a compelling state interest that
would justify the perpetuation of the discrimination against OFWs under the subject clause.
Assuming that, as advanced by the OSG, the purpose of the subject clause is to protect the employment of OFWs by
mitigating the solidary liability of placement agencies, such callous and cavalier rationale will have to be rejected. There
can never be a justification for any form of government action that alleviates the burden of one sector, but imposes the
same burden on another sector, especially when the favored sector is composed of private businesses such as
placement agencies, while the disadvantaged sector is composed of OFWs whose protection no less than the
Constitution commands. The idea that private business interest can be elevated to the level of a compelling state interest
is odious.
Moreover, even if the purpose of the subject clause is to lessen the solidary liability of placement agencies vis-a-vistheir
foreign principals, there are mechanisms already in place that can be employed to achieve that purpose without
infringing on the constitutional rights of OFWs.
The POEA Rules and Regulations Governing the Recruitment and Employment of Land-Based Overseas Workers,
dated February 4, 2002, imposes administrative disciplinary measures on erring foreign employers who default on their
contractual obligations to migrant workers and/or their Philippine agents. These disciplinary measures range from
temporary disqualification to preventive suspension. The POEA Rules and Regulations Governing the Recruitment and
Employment of Seafarers, dated May 23, 2003, contains similar administrative disciplinary measures against erring
foreign employers.
Resort to these administrative measures is undoubtedly the less restrictive means of aiding local placement agencies
in enforcing the solidary liability of their foreign principals.
Thus, the subject clause in the 5th paragraph of Section 10 of R.A. No. 8042 is violative of the right of petitioner and
other OFWs to equal protection.1avvphi1
Further, there would be certain misgivings if one is to approach the declaration of the unconstitutionality of the subject
clause from the lone perspective that the clause directly violates state policy on labor under Section 3, 131Article XIII of
the Constitution.
While all the provisions of the 1987 Constitution are presumed self-executing,132 there are some which this Court has
declared not judicially enforceable, Article XIII being one,133 particularly Section 3 thereof, the nature of which, this
Court, in Agabon v. National Labor Relations Commission,134 has described to be not self-actuating:
Thus, the constitutional mandates of protection to labor and security of tenure may be deemed as self-executing in the
sense that these are automatically acknowledged and observed without need for any enabling legislation. However, to
declare that the constitutional provisions are enough to guarantee the full exercise of the rights embodied therein, and
the realization of ideals therein expressed, would be impractical, if not unrealistic. The espousal of such view presents
the dangerous tendency of being overbroad and exaggerated. The guarantees of "full protection to labor" and "security
of tenure", when examined in isolation, are facially unqualified, and the broadest interpretation possible suggests a
blanket shield in favor of labor against any form of removal regardless of circumstance. This interpretation implies an
unimpeachable right to continued employment-a utopian notion, doubtless-but still hardly within the contemplation of
the framers. Subsequent legislation is still needed to define the parameters of these guaranteed rights to ensure the
protection and promotion, not only the rights of the labor sector, but of the employers' as well. Without specific and
pertinent legislation, judicial bodies will be at a loss, formulating their own conclusion to approximate at least the aims
of the Constitution.
Ultimately, therefore, Section 3 of Article XIII cannot, on its own, be a source of a positive enforceable right to
stave off the dismissal of an employee for just cause owing to the failure to serve proper notice or hearing. As manifested
by several framers of the 1987 Constitution, the provisions on social justice require legislative enactments for their
enforceability.135 (Emphasis added)
Thus, Section 3, Article XIII cannot be treated as a principal source of direct enforceable rights, for the violation of which
the questioned clause may be declared unconstitutional. It may unwittingly risk opening the floodgates of litigation to
every worker or union over every conceivable violation of so broad a concept as social justice for labor.
It must be stressed that Section 3, Article XIII does not directly bestow on the working class any actual enforceable right,
but merely clothes it with the status of a sector for whom the Constitution urges protection through executive or legislative
action and judicial recognition. Its utility is best limited to being an impetus not just for the executive and legislative
departments, but for the judiciary as well, to protect the welfare of the working class. And it was in fact consistent with
that constitutional agenda that the Court in Central Bank (now Bangko Sentral ng Pilipinas) Employee Association, Inc.
v. Bangko Sentral ng Pilipinas, penned by then Associate Justice now Chief Justice Reynato S. Puno, formulated the
judicial precept that when the challenge to a statute is premised on the perpetuation of prejudice against persons favored
by the Constitution with special protection -- such as the working class or a section thereof -- the Court may recognize
the existence of a suspect classification and subject the same to strict judicial scrutiny.
The view that the concepts of suspect classification and strict judicial scrutiny formulated in Central Bank Employee
Association exaggerate the significance of Section 3, Article XIII is a groundless apprehension. Central Bank applied
Article XIII in conjunction with the equal protection clause. Article XIII, by itself, without the application of the equal
protection clause, has no life or force of its own as elucidated in Agabon.
Along the same line of reasoning, the Court further holds that the subject clause violates petitioner's right to substantive
due process, for it deprives him of property, consisting of monetary benefits, without any existing valid governmental
purpose.136
The argument of the Solicitor General, that the actual purpose of the subject clause of limiting the entitlement of OFWs
to their three-month salary in case of illegal dismissal, is to give them a better chance of getting hired by foreign
employers. This is plain speculation. As earlier discussed, there is nothing in the text of the law or the records of the
deliberations leading to its enactment or the pleadings of respondent that would indicate that there is an existing
governmental purpose for the subject clause, or even just a pretext of one.
The subject clause does not state or imply any definitive governmental purpose; and it is for that precise reason that the
clause violates not just petitioner's right to equal protection, but also her right to substantive due process under Section
1,137 Article III of the Constitution.
The subject clause being unconstitutional, petitioner is entitled to his salaries for the entire unexpired period of nine
months and 23 days of his employment contract, pursuant to law and jurisprudence prior to the enactment of R.A. No.
8042.
On the Third Issue
Petitioner contends that his overtime and leave pay should form part of the salary basis in the computation of his
monetary award, because these are fixed benefits that have been stipulated into his contract.
Petitioner is mistaken.
The word salaries in Section 10(5) does not include overtime and leave pay. For seafarers like petitioner, DOLE
Department Order No. 33, series 1996, provides a Standard Employment Contract of Seafarers, in which salary is
understood as the basic wage, exclusive of overtime, leave pay and other bonuses; whereas overtime pay is
compensation for all work "performed" in excess of the regular eight hours, and holiday pay is compensation for any
work "performed" on designated rest days and holidays.
By the foregoing definition alone, there is no basis for the automatic inclusion of overtime and holiday pay in the
computation of petitioner's monetary award, unless there is evidence that he performed work during those periods. As
the Court held in Centennial Transmarine, Inc. v. Dela Cruz,138
However, the payment of overtime pay and leave pay should be disallowed in light of our ruling in Cagampan v. National
Labor Relations Commission, to wit:
The rendition of overtime work and the submission of sufficient proof that said was actually performed are conditions to
be satisfied before a seaman could be entitled to overtime pay which should be computed on the basis of 30% of the
basic monthly salary. In short, the contract provision guarantees the right to overtime pay but the entitlement to such
benefit must first be established.
In the same vein, the claim for the day's leave pay for the unexpired portion of the contract is unwarranted since the
same is given during the actual service of the seamen.
WHEREFORE, the Court GRANTS the Petition. The subject clause "or for three months for every year of the unexpired
term, whichever is less" in the 5th paragraph of Section 10 of Republic Act No. 8042
is DECLAREDUNCONSTITUTIONAL; and the December 8, 2004 Decision and April 1, 2005 Resolution of the Court
of Appeals are MODIFIED to the effect that petitioner is AWARDED his salaries for the entire unexpired portion of his
employment contract consisting of nine months and 23 days computed at the rate of US$1,400.00 per month.
No costs.
SO ORDERED.
G.R. No. 197528 September 5, 2012
PERT/CPM MANPOWER EXPONENT CO., INC., Petitioner,
vs.
ARMANDO A. VINUY A, LOUIE M. ORDOVEZ, ARSENIO S. LUMANTA,. JR., ROBELITO S. ANIPAN, VIRGILIO R.
ALCANTARA, MARINO M. ERA, SANDY 0. ENJAMBRE and NOEL T. LADEA, Respondents.
DECISION
BRION, J.:
We resolve the present petition for review on certiorari1 assailing the decision2 dated May 9, 2011 and the
resolution3dated June 23, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 114353.
The Antecedents
On March 5, 2008, respondents Armando A. Vinuya, Louie M. Ordovez, Arsenio S. Lumanta, Jr., Robelito S. Anipan,
Virgilio R. Alcantara, Marino M. Era, Sandy O. Enjambre and Noel T. Ladea (respondents) filed a complaint for illegal
dismissal against the petitioner Pert/CPM Manpower Exponent Co., Inc. (agency), and its President Romeo P. Nacino.
The respondents alleged that the agency deployed them between March 29, 2007 and May 12, 2007 to work as
aluminum fabricator/installer for the agency’s principal, Modern Metal Solution LLC/MMS Modern Metal Solution LLC
(Modern Metal) in Dubai, United Arab Emirates.
The respondents’ employment contracts,4 which were approved by the Philippine Overseas Employment Administration
(POEA), provided for a two-year employment, nine hours a day, salary of 1,350 AED with overtime pay, food allowance,
free and suitable housing (four to a room), free transportation, free laundry, and free medical and dental services. They
each paid a ₱ 15,000.00 processing fee.5
On April 2, 2007, Modern Metal gave the respondents, except Era, appointment letters 6 with terms different from those
in the employment contracts which they signed at the agency’s office in the Philippines. Under the letters of appointment,
their employment was increased to three years at 1,000 to 1,200 AED and food allowance of 200 AED.
The respondents claimed that they were shocked to find out what their working and living conditions were in Dubai.
They were required to work from 6:30 a.m. to 6:30 p.m., with a break of only one hour to one and a half hours. When
they rendered overtime work, they were most of the time either underpaid or not paid at all. Their housing
accommodations were cramped and were shared with 27 other occupants. The lodging house was in Sharjah, which
was far from their jobsite in Dubai, leaving them only three to four hours of sleep a day because of the long hours of
travel to and from their place of work; there was no potable water and the air was polluted.
When the respondents received their first salaries (at the rates provided in their appointment letters and with deductions
for placement fees) and because of their difficult living and working conditions, they called up the agency and complained
about their predicament. The agency assured them that their concerns would be promptly addressed, but nothing
happened.
On May 5, 2007, Modern Metal required the respondents to sign new employment contracts, 7 except for Era who was
made to sign later. The contracts reflected the terms of their appointment letters. Burdened by all the expenses and
financial obligations they incurred for their deployment, they were left with no choice but to sign the contracts. They
raised the matter with the agency, which again took no action.
On August 5, 2007, despondent over their unbearable living and working conditions and by the agency’s inaction, the
respondents expressed to Modern Metal their desire to resign. Out of fear, as they put it, that Modern Metal would not
give them their salaries and release papers, the respondents, except Era, cited personal/family problems for their
resignation.8 Era mentioned the real reason – "because I dont (sic) want the company policy"9 – for his resignation.
It took the agency several weeks to repatriate the respondents to the Philippines. They all returned to Manila in
September 2007. Except for Ordovez and Enjambre, all the respondents shouldered their own airfare.
For its part, the agency countered that the respondents were not illegally dismissed; they voluntarily resigned from their
employment to seek a better paying job. It claimed that the respondents, while still working for Modern Metal, applied
with another company which offered them a higher pay. Unfortunately, their supposed employment failed to materialize
and they had to go home because they had already resigned from Modern Metal.
The agency further alleged that the respondents even voluntarily signed affidavits of quitclaim and release after they
resigned. It thus argued that their claim for benefits, under Section 10 of Republic Act No. (R.A.) 8042, damages and
attorney’s fees is unfounded.
The Compulsory Arbitration Rulings
On April 30, 2008, Labor Arbiter Ligerio V. Ancheta rendered a Decision10 dismissing the complaint, finding that the
respondents voluntarily resigned from their jobs. He also found that four of them – Alcantara, Era, Anipan and Lumanta
– even executed a compromise agreement (with quitclaim and release) before the POEA. He considered the POEA
recourse a case of forum shopping.
The respondents appealed to the National Labor Relations Commission (NLRC). They argued that the labor arbiter
committed serious errors in (1) admitting in evidence the quitclaims and releases they executed in Dubai, which were
mere photocopies of the originals and which failed to explain the circumstances behind their execution; (2) failing to
consider that the compromise agreements they signed before the POEA covered only the refund of their airfare and not
all their money claims; and (3) ruling that they violated the rule on non-forum shopping.
On May 12, 2009, the NLRC granted the appeal.11 It ruled that the respondents had been illegally dismissed. It anchored
its ruling on the new employment contracts they were made to sign in Dubai. It stressed that it is illegal for an employer
to require its employees to execute new employment papers, especially those which provide benefits that are inferior to
the POEA-approved contracts.
The NLRC rejected the quitclaim and release executed by the respondents in Dubai. It believed that the respondents
executed the quitclaim documents under duress as they were afraid that they would not be allowed to return to the
Philippines if they did not sign the documents. Further, the labor tribunal disagreed with the labor arbiter’s opinion that
the compromise agreement they executed before the POEA had effectively foreclosed the illegal dismissal complaint
before the NLRC and that the respondents had been guilty of forum shopping. It pointed out that the POEA case involved
pre-deployment issues; whereas, the complaint before the NLRC is one for illegal dismissal and money claims arising
from employment.
Consequently, the NLRC ordered the agency, Nacino and Modern Metal to pay, jointly and severally, the respondents,
as follows:
WHEREFORE, the Decision dated 30 April 2008 is hereby REVERSED and SET ASIDE, a new Decision is hereby
issued ordering the respondents PERT/CPM MANPOWER EXPONENTS CO., INC., ROMEO NACINO, and MODERN
METAL SOLUTIONS, INC. to jointly and severally, pay the complainants the following:
Salary for
the
unexpired
Underpaid Placement Exemplary
Employee portion of
Salary fee Damages
the contract
(1350 x 6
months)

Vinuya,
150 x 6 = 900 AED USD 400 8100 AED ₱ 20,000.00
ARMANDO

Alcantara
150 X 4 = 600 AED USD 400 8100 AED ₱ 20,000.00
VIRGILIO

Era,
350 x 4 = 1400 AED USD 400 8100 AED ₱ 20,000.00
MARINO

Ladea,
150 x 5 = 750 AED USD 400 8100 AED ₱ 20,000.00
NOEL

Ordovez,
250 X 3 = 750 AED USD 400 8100 AED ₱ 20,000.00
LOUIE

Anipan,
150 x 4 = 600 AED USD 400 8100 AED ₱ 20,000.00
ROBELITO

Enjambre,
150 x 4 = 600 AED USD 400 8100 AED ₱ 20,000.00
SANDY

Lumanta,
250 x 5 = 1250 AED USD 400 8100 AED ₱ 20,000.00
ARSENIO

TOTAL: 6,850 AED US$3,200 64,800 AED ₱ 400,000.00

or their peso equivalent at the time of actual payment plus attorney‘s fees equivalent to 10% of the judgment award. 12
The agency moved for reconsideration, contending that the appeal was never perfected and that the NLRC gravely
abused its discretion in reversing the labor arbiter’s decision.The respondents, on the other hand, moved for partial
reconsideration, maintaining that their salaries should have covered the unexpired portion of their employment contracts,
pursuant to the Court’s ruling in Serrano v. Gallant Maritime Services, Inc.13
The NLRC denied the agency’s motion for reconsideration, but granted the respondents’ motion. 14 It sustained the
respondents’ argument that the award needed to be adjusted, particularly in relation to the payment of their salaries,
consistent with the Court’s ruling in Serrano. The ruling declared unconstitutional the clause, "or for three (3) months for
every year of the unexpired term, whichever is less," in Section 10, paragraph 5, of R.A. 8042, limiting the entitlement
of illegally dismissed overseas Filipino workers to their salaries for the unexpired term of their contract or three months,
whichever is less. Accordingly, it modified its earlier decision and adjusted the respondents’ salary entitlement based
on the following matrix:

Unexpired
Duration of
Employee Departure date Date dismissed portion of
Contract
contract

Vinuya, 19 months
2 years 29 March 2007 8 August 2007
ARMANDO and 21 days
 Alcantara, 20 months
2 years 3 April 2007 8 August 2007
VIRGILIO and 5 days

Era, 21 months
2 years 12 May 2007 8 August 2007
MARINO and 4 days

Ladea, 19 months
2 years 29 March 2007 8 August 2007
NOEL and 21 days

Ordovez, 21 months
2 years 3 April 2007 26 July 2007
LOUIE and 23 days

Anipan, 20 months
2 years 3 April 2007 8 August 2007
ROBELITO and 5 days

Enjambre, 20 months
2 years 29 March 2007 26 July 2007
SANDY and 3 days

Lumanta, 19 months
2 years 29 March 2007 8 August 2007
ARSENIO and 21 days15

Again, the agency moved for reconsideration, reiterating its earlier arguments and, additionally, questioning the
application of the Serrano ruling in the case because it was not yet final and executory. The NLRC denied the motion,
prompting the agency to seek recourse from the CA through a petition for certiorari.
The CA Decision
The CA dismissed the petition for lack of merit.16 It upheld the NLRC ruling that the respondents were illegally dismissed.
It found no grave abuse of discretion in the NLRC’s rejection of the respondents’ resignation letters, and the
accompanying quitclaim and release affidavits, as proof of their voluntary termination of employment.
The CA stressed that the filing of a complaint for illegal dismissal is inconsistent with resignation. Moreover, it found
nothing in the records to substantiate the agency’s contention that the respondents’ resignation was of their own accord;
on the contrary, it considered the resignation letters "dubious for having been lopsidedly-worded to ensure that the
petitioners (employers) are free from any liability."17
The appellate court likewise refused to give credit to the compromise agreements that the respondents executed before
the POEA. It agreed with the NLRC’s conclusion that the agreements pertain to the respondents’ charge of recruitment
violations against the agency distinct from their illegal dismissal complaint, thus negating forum shopping by the
respondents.
Lastly, the CA found nothing legally wrong in the NLRC correcting itself (upon being reminded by the respondents), by
adjusting the respondents’ salary award on the basis of the unexpired portion of their contracts, as enunciated in the
Serrano case.
The agency moved for, but failed to secure, a reconsideration of the CA decision.18
The Petition
The agency is now before the Court seeking a reversal of the CA dispositions, contending that the CA erred in:
1. affirming the NLRC’s finding that the respondents were illegally dismissed;
2. holding that the compromise agreements before the POEA pertain only to the respondents’ charge of
recruitment violations against the agency; and
3. affirming the NLRC’s award to the respondents of their salaries for the unexpired portion of their employment
contracts, pursuant to the Serrano ruling.
The agency insists that it is not liable for illegal dismissal, actual or constructive. It submits that as correctly found by
the labor arbiter, the respondents voluntarily resigned from their jobs, and even executed affidavits of quitclaim and
release; the respondents stated family concerns for their resignation. The agency posits that the letters were duly proven
as they were written unconditionally by the respondents. It, therefore, assails the conclusion that the respondents
resigned under duress or that the resignation letters were dubious.
The agency raises the same argument with respect to the compromise agreements, with quitclaim and release, it
entered into with Vinuya, Era, Ladea, Enjambre, Ordovez, Alcantara, Anipan and Lumanta before the POEA, although
it submitted evidence only for six of them. Anipan, Lumanta, Vinuya and Ladea signing one document; 19Era20 and
Alcantara21 signing a document each. It points out that the agreement was prepared with the assistance of POEA
Conciliator Judy Santillan, and was duly and freely signed by the respondents; moreover, the agreement is not
conditional as it pertains to all issues involved in the dispute between the parties.
On the third issue, the agency posits that the Serrano ruling has no application in the present case for three reasons.
First, the respondents were not illegally dismissed and, therefore, were not entitled to their money claims. Second, the
respondents filed the complaint in 2007, while the Serrano ruling came out on March 24, 2009. The ruling cannot be
given retroactive application. Third, R.A. 10022, which was enacted on March 8, 2010 and which amended R.A. 8042,
restored the subject clause in Section 10 of R.A. 8042, declared unconstitutional by the Court.
The Respondents’ Position
In their Comment (to the Petition) dated September 28, 2011, 22 the respondents ask the Court to deny the petition for
lack of merit. They dispute the agency’s insistence that they resigned voluntarily. They stand firm on their submission
that because of their unbearable living and working conditions in Dubai, they were left with no choice but to resign. Also,
the agency never refuted their detailed narration of the reasons for giving up their employment.
The respondents maintain that the quitclaim and release affidavits,23 which the agency presented, betray its desperate
attempt to escape its liability to them. They point out that, as found by the NLRC, the affidavits are ready-made
documents; for instance, in Lumanta’s24 and Era’s25 affidavits, they mentioned a certain G & A International Manpower
as the agency which recruited them — a fact totally inapplicable to all the respondents. They contend that they had no
choice but to sign the documents; otherwise, their release papers and remaining salaries would not be given to them, a
submission which the agency never refuted.
On the agency’s second line of defense, the compromise agreement (with quitclaim and release) between the
respondents and the agency before the POEA, the respondents argue that the agreements pertain only to their charge
of recruitment violations against the agency. They add that based on the agreements, read and considered entirely, the
agency was discharged only with respect to the recruitment and pre-deployment issues such as excessive placement
fees, non-issuance of receipts and placement misrepresentation, but not with respect to post-deployment issues such
as illegal dismissal, breach of contract, underpayment of salaries and underpayment and nonpayment of overtime pay.
The respondents stress that the agency failed to controvert their contention that the agreements came about only to
settle their claim for refund of their airfare which they paid for when they were repatriated.
Lastly, the respondents maintain that since they were illegally dismissed, the CA was correct in upholding the NLRC’s
award of their salaries for the unexpired portion of their employment contracts, as enunciated in Serrano. They point out
that the Serrano ruling is curative and remedial in nature and, as such, should be given retroactive application as the
Court declared in Yap v. Thenamaris Ship’s Management. 26 Further, the respondents take exception to the agency’s
contention that the Serrano ruling cannot, in any event, be applied in the present case in view of the enactment of R.A.
10022 on March 8, 2010, amending Section 10 of R.A. 8042. The amendment restored the subject clause in paragraph
5, Section 10 of R.A. 8042 which was struck down as unconstitutional in Serrano.
The respondents maintain that the agency cannot raise the issue for the first time before this Court when it could have
raised it before the CA with its petition for certiorari which it filed on June 8, 2010;27 otherwise, their right to due process
will be violated. The agency, on the other hand, would later claim that it is not barred by estoppel with respect to its
reliance on R.A. 10022 as it raised it before the CA in CA-G.R. SP No. 114353.28 They further argue that RA 10022
cannot be applied in their case, as the law is an amendatory statute which is, as a rule, prospective in application, unless
the contrary is provided.29 To put the issue to rest, the respondents ask the Court to also declare unconstitutional Section
7 of R.A. 10022.
Finally, the respondents submit that the petition should be dismissed outright for raising only questions of fact, rather
than of law.
The Court’s Ruling
The procedural question
We deem it proper to examine the facts of the case on account of the divergence in the factual conclusions of the labor
arbiter on the one hand, and, of the NLRC and the CA, on the other.30 The arbiter found no illegal dismissal in the
respondents’ loss of employment in Dubai because they voluntarily resigned; whereas, the NLRC and the CA adjudged
them to have been illegally dismissed because they were virtually forced to resign.
The merits of the case
We find no merit in the petition. The CA committed no reversible error and neither did it commit grave abuse of
discretion in affirming the NLRC’s illegal dismissal ruling.
The agency and its principal, Modern Metal, committed flagrant violations of the law on overseas employment, as well
as basic norms of decency and fair play in an employment relationship, pushing the respondents to look for a better
employment and, ultimately, to resign from their jobs.
First. The agency and Modern Metal are guilty of contract substitution. The respondents entered into a POEA-approved
two-year employment contract,31 with Modern Metal providing among others, as earlier discussed, for a monthly salary
of 1350 AED. On April 2, 2007, Modern Metal issued to them appointment letters 32 whereby the respondents were hired
for a longer three-year period and a reduced salary, from 1,100 AED to 1,200 AED, among other provisions. Then, on
May 5, 2007, they were required to sign new employment contracts 33 reflecting the same terms contained in their
appointment letters, except that this time, they were hired as "ordinary laborer," no longer aluminum fabricator/installer.
The respondents complained with the agency about the contract substitution, but the agency refused or failed to act on
the matter.
The fact that the respondents’ contracts were altered or substituted at the workplace had never been denied by the
agency.1âwphi1 On the contrary, it admitted that the contract substitution did happen when it argued, "as to their claim
for underpayment of salary, their original contract mentioned 1350 AED monthly salary, which includes allowance while
in their Appointment Letters, they were supposed to receive 1,300 AED. While there was a difference of 50 AED monthly,
the same could no longer be claimed by virtue of their Affidavits of Quitclaims and Desistance."34
Clearly, the agency and Modern Metal committed a prohibited practice and engaged in illegal recruitment under the law.
Article 34 of the Labor Code provides:
Art. 34. Prohibited Practices. It shall be unlawful for any individual, entity, licensee, or holder of authority:
xxxx
(i) To substitute or alter employment contracts approved and verified by the Department of Labor from the time of actual
signing thereof by the parties up to and including the periods of expiration of the same without the approval of the
Secretary of Labor.
Further, Article 38 of the Labor Code, as amended by R.A. 8042,35 defined "illegal recruitment" to include the following
act:
(i) To substitute or alter to the prejudice of the worker, employment contracts approved and verified by the Department
of Labor and Employment from the time of actual signing thereof by the parties up to and including the period of the
expiration of the same without the approval of the Department of Labor and Employment.
Second. The agency and Modern Metal committed breach of contract. Aggravating the contract substitution imposed
upon them by their employer, the respondents were made to suffer substandard (shocking, as they put it) working and
living arrangements. Both the original contracts the respondents signed in the Philippines and the appointment letters
issued to them by Modern Metal in Dubai provided for free housing and transportation to and from the jobsite. The
original contract mentioned free and suitable housing. 36 Although no description of the housing was made in the letters
of appointment except: "Accommodation: Provided by the company," it is but reasonable to think that the housing or
accommodation would be "suitable."
As earlier pointed out, the respondents were made to work from 6:30 a.m. to 6:30 p.m., with a meal break of one to one
and a half hours, and their overtime work was mostly not paid or underpaid. Their living quarters were cramped as they
shared them with 27 other workers. The lodging house was in Sharjah, far from the jobsite in Dubai, leaving them only
three to four hours of sleep every workday because of the long hours of travel to and from their place of work, not to
mention that there was no potable water in the lodging house which was located in an area where the air was polluted.
The respondents complained with the agency about the hardships that they were suffering, but the agency failed to act
on their reports. Significantly, the agency failed to refute their claim, anchored on the ordeal that they went through while
in Modern Metal’s employ.
Third. With their original contracts substituted and their oppressive working and living conditions unmitigated or
unresolved, the respondents’ decision to resign is not surprising. They were compelled by the dismal state of their
employment to give up their jobs; effectively, they were constructively dismissed. A constructive dismissal or discharge
is "a quitting because continued employment is rendered impossible, unreasonable or unlikely, as, an offer involving a
demotion in rank and a diminution in pay."37
Without doubt, the respondents’ continued employment with Modern Metal had become unreasonable. A reasonable
mind would not approve of a substituted contract that pays a diminished salary — from 1350 AED a month in the original
contract to 1,000 AED to 1,200 AED in the appointment letters, a difference of 150 AED to 250 AED (not just 50 AED
as the agency claimed) or an extended employment (from 2 to 3 years) at such inferior terms, or a "free and suitable"
housing which is hours away from the job site, cramped and crowded, without potable water and exposed to air pollution.
We thus cannot accept the agency’s insistence that the respondents voluntarily resigned since they personally prepared
their resignation letters38 in their own handwriting, citing family problems as their common ground for resigning. As the
CA did, we find the resignation letters "dubious,"39 not only for having been lopsidedly worded to ensure that the
employer is rendered free from any liability, but also for the odd coincidence that all the respondents had, at the same
time, been confronted with urgent family problems so that they had to give up their employment and go home. The truth,
as the respondents maintain, is that they cited family problems as reason out of fear that Modern Metal would not give
them their salaries and their release papers. Only Era was bold enough to say the real reason for his resignation — to
protest company policy.
We likewise find the affidavits40 of quitclaim and release which the respondents executed suspect. Obviously, the
affidavits were prepared as a follow through of the respondents’ supposed voluntary resignation. Unlike the resignation
letters, the respondents had no hand in the preparation of the affidavits. They must have been prepared by a
representative of Modern Metal as they appear to come from a standard form and were apparently introduced for only
one purpose — to lend credence to the resignation letters. In Modern Metal’s haste, however, to secure the respondents’
affidavits, they did not check on the model they used. Thus, Lumanta’s affidavit 41 mentioned a G & A International
Manpower as his recruiting agency, an entity totally unknown to the respondents; the same thing is true for Era’s
affidavit.42 This confusion is an indication of the employer’s hurried attempt to avoid liability to the respondents.
The respondents’ position is well-founded. The NLRC itself had the same impression, which we find in order and
hereunder quote:
The acts of respondents of requiring the signing of new contracts upon reaching the place of work and requiring
employees to sign quitclaims before they are paid and repatriated to the Philippines are all too familiar stories of
despicable labor practices which our employees are subjected to abroad. While it is true that quitclaims are generally
given weight, however, given the facts of the case, We are of the opinion that the complainants-appellants executed the
same under duress and fear that they will not be allowed to return to the Philippines. 43
Fourth. The compromise agreements (with quitclaim and release) 44 between the respondents and the agency before
the POEA did not foreclose their employer-employee relationship claims before the NLRC. The respondents, except
Ordovez and Enjambre, aver in this respect that they all paid for their own airfare when they returned home 45and that
the compromise agreements settled only their claim for refund of their airfare, but not their other claims. 46Again, this
submission has not been refuted or denied by the agency.
On the surface, the compromise agreements appear to confirm the agency’s position, yet a closer examination of the
documents would reveal their true nature. Copy of the compromise agreement is a standard POEA document, prepared
in advance and readily made available to parties who are involved in disputes before the agency, such as what the
respondents filed with the POEA ahead (filed in 2007) of the illegal dismissal complaint before the NLRC (filed on March
5, 2008).
Under the heading "Post-Deployment," the agency agreed to pay Era47 and Alcantara48 ₱ 12,000.00 each, purportedly
in satisfaction of the respondents’ claims arising from overseas employment, consisting of unpaid salaries, salary
differentials and other benefits, including money claims with the NLRC. The last document was signed by (1) Anipan,
(2) Lumanta, (3) Ladea, (4) Vinuya, (5) Jonathan Nangolinola, and (6) Zosimo Gatchalian (the last four signing on the
left hand side of the document; the last two were not among those who filed the illegal dismissal complaint).49
The agency agreed to pay them a total of ₱ 72,000.00. Although there was no breakdown of the entitlement for each of
the six, but guided by the compromise agreement signed by Era and Alcantara, we believe that the agency paid them
₱ 12,000.00 each, just like Era and Alcantara.
The uniform insubstantial amount for each of the signatories to the agreement lends credence to their contention that
the settlement pertained only to their claim for refund of the airfare which they shouldered when they returned to the
Philippines. The compromise agreement, apparently, was intended by the agency as a settlement with the respondents
and others with similar claims, which explains the inclusion of the two (Nangolinola and Gatchalian) who were not
involved in the case with the NLRC. Under the circumstances, we cannot see how the compromise agreements can be
considered to have fully settled the respondents’ claims before the NLRC — illegal dismissal and monetary benefits
arising from employment. We thus find no reversible error nor grave abuse of discretion in the rejection by the NLRC
and the CA of said agreements.
Fifth. The agency’s objection to the application of the Serrano ruling in the present case is of no moment. Its argument
that the ruling cannot be given retroactive effect, because it is curative and remedial, is untenable. It points out, in this
respect, that the respondents filed the complaint in 2007, while the Serrano ruling was handed down in March 2009.
The issue, as the respondents correctly argue, has been resolved in Yap v. Thenamaris Ship’s Management, 50 where
the Court sustained the retroactive application of the Serrano ruling which declared unconstitutional the subject clause
in Section 10, paragraph 5 of R.A. 8042, limiting to three months the payment of salaries to illegally dismissed Overseas
Filipino Workers.
Undaunted, the agency posits that in any event, the Serrano ruling has been nullified by R.A. No. 10022, entitled "An
Act Amending Republic Act No. 8042, Otherwise Known as the Migrant Workers and Overseas Filipinos Act of 1995,
As Amended, Further Improving the Standard of Protection and Promotion of the Welfare of Migrant Workers, Their
Families and Overseas Filipinos in Distress, and For Other Purposes." 51 It argues that R.A. 10022, which lapsed into
law (without the Signature of the President) on March 8, 2010, restored the subject clause in the 5th paragraph, Section
10 of R.A. 8042. The amendment, contained in Section 7 of R.A. 10022, reads as follows:
In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, or
any unauthorized deductions from the migrant worker’s salary, the worker shall be entitled to the full reimbursement "of"
his placement fee and the deductions made with interest at twelve percent (12%) per annum, plus his salaries for the
unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is
less.52 (emphasis ours)
This argument fails to persuade us. Laws shall have no retroactive effect, unless the contrary is provided. 53 By its very
nature, the amendment introduced by R.A. 10022 — restoring a provision of R.A. 8042 declared unconstitutional —
cannot be given retroactive effect, not only because there is no express declaration of retroactivity in the law, but
because retroactive application will result in an impairment of a right that had accrued to the respondents by virtue of
the Serrano ruling - entitlement to their salaries for the unexpired portion of their employment contracts.
All statutes are to be construed as having only a prospective application, unless the purpose and intention of the
legislature to give them a retrospective effect are expressly declared or are necessarily implied from the language
used.54 We thus see no reason to nullity the application of the Serrano ruling in the present case. Whether or not R.A. 1
0022 is constitutional is not for us to rule upon in the present case as this is an issue that is not squarely before us. In
other words, this is an issue that awaits its proper day in court; in the meanwhile, we make no pronouncement on it.
WHEREFORE, premises considered, the petition is DENIED. The assailed Decision dated May 9, 2011 and the
Resolution dated June 23, 2011 of the Court of Appeals in CA-G.R. SP No. 114353 are AFFIRMED. Let this Decision
be brought to the attention of the Honorable Secretary of Labor and Employment and the Administrator of the Philippine
Overseas Employment Administration as a black mark in the deployment record of petitioner Pert/CPM Manpower
Exponent Co., Inc., and as a record that should be considered in any similar future violations.
Costs against the petitioner.
SO ORDERED.
G.R. No. 170139, August 05, 2014
SAMEER OVERSEAS PLACEMENT AGENCY, INC., Petitioner, v. JOY C. CABILES, Respondent.
DECISION
LEONEN, J.:
This case involves an overseas Filipino worker with shattered dreams. It is our duty, given the facts and the law, to
approximate justice for her.

We are asked to decide a petition for review1 on certiorari assailing the Court of Appeals’ decision2 dated June 27, 2005.
This decision partially affirmed the National Labor Relations Commission’s resolution dated March 31, 2004,3 declaring
respondent’s dismissal illegal, directing petitioner to pay respondent’s three-month salary equivalent to New Taiwan
Dollar (NT$) 46,080.00, and ordering it to reimburse the NT$3,000.00 withheld from respondent, and pay her NT$300.00
attorney’s fees.4cralawred

Petitioner, Sameer Overseas Placement Agency, Inc., is a recruitment and placement agency. 5Responding to an ad it
published, respondent, Joy C. Cabiles, submitted her application for a quality control job in Taiwan. 6cralawred

Joy’s application was accepted.7 Joy was later asked to sign a one-year employment contract for a monthly salary of
NT$15,360.00.8 She alleged that Sameer Overseas Agency required her to pay a placement fee of P70,000.00 when
she signed the employment contract.9cralawred

Joy was deployed to work for Taiwan Wacoal, Co. Ltd. (Wacoal) on June 26, 1997. 10 She alleged that in her employment
contract, she agreed to work as quality control for one year.11 In Taiwan, she was asked to work as a cutter.12cralawred

Sameer Overseas Placement Agency claims that on July 14, 1997, a certain Mr. Huwang from Wacoal informed Joy,
without prior notice, that she was terminated and that “she should immediately report to their office to get her salary and
passport.”13 She was asked to “prepare for immediate repatriation.” 14cralawred

Joy claims that she was told that from June 26 to July 14, 1997, she only earned a total of NT$9,000. 15According to her,
Wacoal deducted NT$3,000 to cover her plane ticket to Manila. 16cralawred

On October 15, 1997, Joy filed a complaint17 with the National Labor Relations Commission against petitioner and
Wacoal. She claimed that she was illegally dismissed. 18 She asked for the return of her placement fee, the withheld
amount for repatriation costs, payment of her salary for 23 months as well as moral and exemplary damages. 19 She
identified Wacoal as Sameer Overseas Placement Agency’s foreign principal. 20cralawred

Sameer Overseas Placement Agency alleged that respondent's termination was due to her inefficiency, negligence in
her duties, and her “failure to comply with the work requirements [of] her foreign [employer].” 21 The agency also claimed
that it did not ask for a placement fee of ?70,000.00. 22 As evidence, it showed Official Receipt No. 14860 dated June
10, 1997, bearing the amount of ?20,360.00. 23 Petitioner added that Wacoal's accreditation with petitioner had already
been transferred to the Pacific Manpower & Management Services, Inc. (Pacific) as of August 6, 1997. 24 Thus, petitioner
asserts that it was already substituted by Pacific Manpower. 25cralawred

Pacific Manpower moved for the dismissal of petitioner’s claims against it. 26 It alleged that there was no employer-
employee relationship between them.27 Therefore, the claims against it were outside the jurisdiction of the Labor
Arbiter.28 Pacific Manpower argued that the employment contract should first be presented so that the employer’s
contractual obligations might be identified.29 It further denied that it assumed liability for petitioner’s illegal
acts.30cralawred

On July 29, 1998, the Labor Arbiter dismissed Joy’s complaint. 31 Acting Executive Labor Arbiter Pedro C. Ramos ruled
that her complaint was based on mere allegations.32 The Labor Arbiter found that there was no excess payment of
placement fees, based on the official receipt presented by petitioner. 33 The Labor Arbiter found unnecessary a
discussion on petitioner’s transfer of obligations to Pacific 34 and considered the matter immaterial in view of the dismissal
of respondent’s complaint.35cralawred

Joy appealed36 to the National Labor Relations Commission.

In a resolution37 dated March 31, 2004, the National Labor Relations Commission declared that Joy was illegally
dismissed.38 It reiterated the doctrine that the burden of proof to show that the dismissal was based on a just or valid
cause belongs to the employer.39 It found that Sameer Overseas Placement Agency failed to prove that there were just
causes for termination.40 There was no sufficient proof to show that respondent was inefficient in her work and that she
failed to comply with company requirements.41 Furthermore, procedural due process was not observed in terminating
respondent.42cralawred

The National Labor Relations Commission did not rule on the issue of reimbursement of placement fees for lack of
jurisdiction.43 It refused to entertain the issue of the alleged transfer of obligations to Pacific. 44 It did not acquire
jurisdiction over that issue because Sameer Overseas Placement Agency failed to appeal the Labor Arbiter’s decision
not to rule on the matter.45cralawred

The National Labor Relations Commission awarded respondent only three (3) months worth of salary in the amount of
NT$46,080, the reimbursement of the NT$3,000 withheld from her, and attorney’s fees of NT$300.46cralawred

The Commission denied the agency’s motion for reconsideration47 dated May 12, 2004 through a resolution48 dated July
2, 2004.

Aggrieved by the ruling, Sameer Overseas Placement Agency caused the filing of a petition 49 for certiorari with the Court
of Appeals assailing the National Labor Relations Commission’s resolutions dated March 31, 2004 and July 2, 2004.

The Court of Appeals50 affirmed the decision of the National Labor Relations Commission with respect to the finding of
illegal dismissal, Joy’s entitlement to the equivalent of three months worth of salary, reimbursement of withheld
repatriation expense, and attorney’s fees.51 The Court of Appeals remanded the case to the National Labor Relations
Commission to address the validity of petitioner's allegations against Pacific. 52 The Court of Appeals held,
thus:chanRoblesvirtualLawlibrary
Although the public respondent found the dismissal of the complainant-respondent illegal, we should point out that the
NLRC merely awarded her three (3) months backwages or the amount of NT$46,080.00, which was based upon its
finding that she was dismissed without due process, a finding that we uphold, given petitioner’s lack of worthwhile
discussion upon the same in the proceedings below or before us. Likewise we sustain NLRC’s finding in regard to the
reimbursement of her fare, which is squarely based on the law; as well as the award of attorney’s fees.

But we do find it necessary to remand the instant case to the public respondent for further proceedings, for the purpose
of addressing the validity or propriety of petitioner’s third-party complaint against the transferee agent or the Pacific
Manpower & Management Services, Inc. and Lea G. Manabat. We should emphasize that as far as the decision of the
NLRC on the claims of Joy Cabiles, is concerned, the same is hereby affirmed with finality, and we hold petitioner liable
thereon, but without prejudice to further hearings on its third party complaint against Pacific for reimbursement.

WHEREFORE, premises considered, the assailed Resolutions are hereby partly AFFIRMEDin accordance with the
foregoing discussion, but subject to the caveat embodied in the last sentence. No costs.

SO ORDERED.53

Dissatisfied, Sameer Overseas Placement Agency filed this petition.54cralawred

We are asked to determine whether the Court of Appeals erred when it affirmed the ruling of the National Labor Relations
Commission finding respondent illegally dismissed and awarding her three months’ worth of salary, the reimbursement
of the cost of her repatriation, and attorney’s fees despite the alleged existence of just causes of termination.

Petitioner reiterates that there was just cause for termination because there was a finding of Wacoal that respondent
was inefficient in her work.55 Therefore, it claims that respondent’s dismissal was valid. 56cralawred

Petitioner also reiterates that since Wacoal’s accreditation was validly transferred to Pacific at the time respondent filed
her complaint, it should be Pacific that should now assume responsibility for Wacoal’s contractual obligations to the
workers originally recruited by petitioner. 57cralawred

Sameer Overseas Placement Agency’s petition is without merit. We find for respondent.
I

Sameer Overseas Placement Agency failed to show that there was just cause for causing Joy’s dismissal. The employer,
Wacoal, also failed to accord her due process of law.

Indeed, employers have the prerogative to impose productivity and quality standards at work. 58 They may also impose
reasonable rules to ensure that the employees comply with these standards. 59 Failure to comply may be a just cause
for their dismissal.60 Certainly, employers cannot be compelled to retain the services of an employee who is guilty of
acts that are inimical to the interest of the employer.61 While the law acknowledges the plight and vulnerability of workers,
it does not “authorize the oppression or self-destruction of the employer.”62 Management prerogative is recognized in
law and in our jurisprudence.

This prerogative, however, should not be abused. It is “tempered with the employee’s right to security of
tenure.”63 Workers are entitled to substantive and procedural due process before termination. They may not be removed
from employment without a valid or just cause as determined by law and without going through the proper procedure.

Security of tenure for labor is guaranteed by our Constitution. 64cralawred

Employees are not stripped of their security of tenure when they move to work in a different jurisdiction. With respect to
the rights of overseas Filipino workers, we follow the principle of lex loci contractus.

Thus, in Triple Eight Integrated Services, Inc. v. NLRC,65 this court noted:chanRoblesvirtualLawlibrary
Petitioner likewise attempts to sidestep the medical certificate requirement by contending that since Osdana was
working in Saudi Arabia, her employment was subject to the laws of the host country. Apparently, petitioner hopes to
make it appear that the labor laws of Saudi Arabia do not require any certification by a competent public health authority
in the dismissal of employees due to illness.

Again, petitioner’s argument is without merit.

First, established is the rule that lex loci contractus (the law of the place where the contract is made) governs in
this jurisdiction. There is no question that the contract of employment in this case was perfected here in the
Philippines. Therefore, the Labor Code, its implementing rules and regulations, and other laws affecting labor
apply in this case. Furthermore, settled is the rule that the courts of the forum will not enforce any foreign claim
obnoxious to the forum’s public policy. Here in the Philippines, employment agreements are more than contractual in
nature. The Constitution itself, in Article XIII, Section 3, guarantees the special protection of workers, to
wit:chanRoblesvirtualLawlibrary
The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full
employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful
concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure,
humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes
affecting their rights and benefits as may be provided by law.

. . . .chanrobleslaw

This public policy should be borne in mind in this case because to allow foreign employers to determine for and by
themselves whether an overseas contract worker may be dismissed on the ground of illness would encourage illegal or
arbitrary pre-termination of employment contracts.66 (Emphasis supplied, citation omitted)

Even with respect to fundamental procedural rights, this court emphasized in PCL Shipping Philippines, Inc. v.
NLRC,67 to wit:chanRoblesvirtualLawlibrary
Petitioners admit that they did not inform private respondent in writing of the charges against him and that they failed to
conduct a formal investigation to give him opportunity to air his side. However, petitioners contend that the twin
requirements of notice and hearing applies strictly only when the employment is within the Philippines and that these
need not be strictly observed in cases of international maritime or overseas employment.

The Court does not agree. The provisions of the Constitution as well as the Labor Code which afford protection
to labor apply to Filipino employees whether working within the Philippines or abroad. Moreover, the principle
of lex loci contractus (the law of the place where the contract is made) governs in this jurisdiction. In the present
case, it is not disputed that the Contract of Employment entered into by and between petitioners and private respondent
was executed here in the Philippines with the approval of the Philippine Overseas Employment Administration (POEA).
Hence, the Labor Code together with its implementing rules and regulations and other laws affecting labor apply in this
case.68 (Emphasis supplied, citations omitted)

By our laws, overseas Filipino workers (OFWs) may only be terminated for a just or authorized cause and after
compliance with procedural due process requirements.

Article 282 of the Labor Code enumerates the just causes of termination by the employer.
Thus:chanRoblesvirtualLawlibrary
Art. 282. Termination by employer. An employer may terminate an employment for any of the following
causes:cralawlawlibrary

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in
connection with his work;chanroblesvirtuallawlibrary

(b) Gross and habitual neglect by the employee of his duties;chanroblesvirtuallawlibrary

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized
representative;chanroblesvirtuallawlibrary

(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of
his family or his duly authorized representatives; andChanRoblesVirtualawlibrary

(e) Other causes analogous to the foregoing.

Petitioner’s allegation that respondent was inefficient in her work and negligent in her duties 69 may, therefore, constitute
a just cause for termination under Article 282(b), but only if petitioner was able to prove it.

The burden of proving that there is just cause for termination is on the employer. “The employer must affirmatively show
rationally adequate evidence that the dismissal was for a justifiable cause.”70 Failure to show that there was valid or just
cause for termination would necessarily mean that the dismissal was illegal. 71cralawred

To show that dismissal resulting from inefficiency in work is valid, it must be shown that: 1) the employer has set
standards of conduct and workmanship against which the employee will be judged; 2) the standards of conduct and
workmanship must have been communicated to the employee; and 3) the communication was made at a reasonable
time prior to the employee’s performance assessment.

This is similar to the law and jurisprudence on probationary employees, which allow termination of the employee only
when there is “just cause or when [the probationary employee] fails to qualify as a regular employee in accordance with
reasonable standards made known by the employer to the employee at the time of his [or her] engagement.” 72cralawred

However, we do not see why the application of that ruling should be limited to probationary employment. That rule is
basic to the idea of security of tenure and due process, which are guaranteed to all employees, whether their
employment is probationary or regular.

The pre-determined standards that the employer sets are the bases for determining the probationary employee’s fitness,
propriety, efficiency, and qualifications as a regular employee. Due process requires that the probationary employee be
informed of such standards at the time of his or her engagement so he or she can adjust his or her character or
workmanship accordingly. Proper adjustment to fit the standards upon which the employee’s qualifications will be
evaluated will increase one’s chances of being positively assessed for regularization by his or her employer.

Assessing an employee’s work performance does not stop after regularization. The employer, on a regular basis,
determines if an employee is still qualified and efficient, based on work standards. Based on that determination, and
after complying with the due process requirements of notice and hearing, the employer may exercise its management
prerogative of terminating the employee found unqualified.

The regular employee must constantly attempt to prove to his or her employer that he or she meets all the standards
for employment. This time, however, the standards to be met are set for the purpose of retaining employment or
promotion. The employee cannot be expected to meet any standard of character or workmanship if such standards
were not communicated to him or her. Courts should remain vigilant on allegations of the employer’s failure to
communicate work standards that would govern one’s employment “if [these are] to discharge in good faith [their] duty
to adjudicate.”73cralawred

In this case, petitioner merely alleged that respondent failed to comply with her foreign employer’s work requirements
and was inefficient in her work.74No evidence was shown to support such allegations. Petitioner did not even bother to
specify what requirements were not met, what efficiency standards were violated, or what particular acts of respondent
constituted inefficiency.

There was also no showing that respondent was sufficiently informed of the standards against which her work efficiency
and performance were judged. The parties’ conflict as to the position held by respondent showed that even the
matter as basic as the job title was not clear.

The bare allegations of petitioner are not sufficient to support a claim that there is just cause for termination. There is
no proof that respondent was legally terminated.

Petitioner failed to comply with

the due process requirements

Respondent’s dismissal less than one year from hiring and her repatriation on the same day show not only failure on
the part of petitioner to comply with the requirement of the existence of just cause for termination. They patently show
that the employers did not comply with the due process requirement.

A valid dismissal requires both a valid cause and adherence to the valid procedure of dismissal. 75 The employer is
required to give the charged employee at least two written notices before termination. 76 One of the written notices must
inform the employee of the particular acts that may cause his or her dismissal. 77 The other notice must “[inform] the
employee of the employer’s decision.”78 Aside from the notice requirement, the employee must also be given “an
opportunity to be heard.”79cralawred

Petitioner failed to comply with the twin notices and hearing requirements. Respondent started working on June 26,
1997. She was told that she was terminated on July 14, 1997 effective on the same day and barely a month from her
first workday. She was also repatriated on the same day that she was informed of her termination. The abruptness of
the termination negated any finding that she was properly notified and given the opportunity to be heard. Her
constitutional right to due process of law was violated.
II

Respondent Joy Cabiles, having been illegally dismissed, is entitled to her salary for the unexpired portion of the
employment contract that was violated together with attorney’s fees and reimbursement of amounts withheld from her
salary.

Section 10 of Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995,
states that overseas workers who were terminated without just, valid, or authorized cause “shall be entitled to the full
reimbursement of his placement fee with interest of twelve (12%) per annum, plus his salaries for the unexpired portion
of his employment contract or for three (3) months for every year of the unexpired term, whichever is less.”
Sec. 10. MONEY CLAIMS. – Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National
Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety
(90) calendar days after filing of the complaint, the claims arising out of an employer-employee relationship or by virtue
of any law or contract involving Filipino workers for overseas deployment including claims for actual, moral, exemplary
and other forms of damages.

The liability of the principal/employer and the recruitment/placement agency for any and all claims under this section
shall be joint and several. This provisions [sic] shall be incorporated in the contract for overseas employment and shall
be a condition precedent for its approval. The performance bond to be filed by the recruitment/placement agency, as
provided by law, shall be answerable for all money claims or damages that may be awarded to the workers. If the
recruitment/placement agency is a juridical being, the corporate officers and directors and partners as the case may be,
shall themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid claims and damages.

Such liabilities shall continue during the entire period or duration of the employment contract and shall not be affected
by any substitution, amendment or modification made locally or in a foreign country of the said contract.

Any compromise/amicable settlement or voluntary agreement on money claims inclusive of damages under this section
shall be paid within four (4) months from the approval of the settlement by the appropriate authority.

In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, the
workers shall be entitled to the full reimbursement of his placement fee with interest of twelve (12%) per annum, plus
his salaries for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired
term, whichever is less.

. . . .

(Emphasis supplied)chanrobleslaw

Section 15 of Republic Act No. 8042 states that “repatriation of the worker and the transport of his [or her] personal
belongings shall be the primary responsibility of the agency which recruited or deployed the worker overseas.” The
exception is when “termination of employment is due solely to the fault of the worker,” 80 which as we have established,
is not the case. It reads:chanRoblesvirtualLawlibrary
SEC. 15. REPATRIATION OF WORKERS; EMERGENCY REPATRIATION FUND. – The repatriation of the worker and
the transport of his personal belongings shall be the primary responsibility of the agency which recruited or deployed
the worker overseas. All costs attendant to repatriation shall be borne by or charged to the agency concerned and/or its
principal. Likewise, the repatriation of remains and transport of the personal belongings of a deceased worker and all
costs attendant thereto shall be borne by the principal and/or local agency. However, in cases where the termination of
employment is due solely to the fault of the worker, the principal/employer or agency shall not in any manner be
responsible for the repatriation of the former and/or his belongings.

....

The Labor Code81 also entitles the employee to 10% of the amount of withheld wages as attorney’s fees when the
withholding is unlawful.

The Court of Appeals affirmed the National Labor Relations Commission’s decision to award respondent NT$46,080.00
or the three-month equivalent of her salary, attorney’s fees of NT$300.00, and the reimbursement of the withheld
NT$3,000.00 salary, which answered for her repatriation.

We uphold the finding that respondent is entitled to all of these awards. The award of the three-month equivalent of
respondent’s salary should, however, be increased to the amount equivalent to the unexpired term of the
employment contract.
In Serrano v. Gallant Maritime Services, Inc. and Marlow Navigation Co., Inc.,82 this court ruled that the clause “or for
three (3) months for every year of the unexpired term, whichever is less” 83 is unconstitutional for violating the equal
protection clause and substantive due process. 84cralawred

A statute or provision which was declared unconstitutional is not a law. It “confers no rights; it imposes no duties; it
affords no protection; it creates no office; it is inoperative as if it has not been passed at all.” 85cralawred

We are aware that the clause “or for three (3) months for every year of the unexpired term, whichever is less” was
reinstated in Republic Act No. 8042 upon promulgation of Republic Act No. 10022 in 2010. Section 7 of Republic Act
No. 10022 provides:chanRoblesvirtualLawlibrary
Section 7. Section 10 of Republic Act No. 8042, as amended, is hereby amended to read as
follows:chanRoblesvirtualLawlibrary
SEC. 10. Money Claims. – Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor
Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90)
calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue
of any law or contract involving Filipino workers for overseas deployment including claims for actual, moral, exemplary
and other forms of damage. Consistent with this mandate, the NLRC shall endeavor to update and keep abreast with
the developments in the global services industry.

The liability of the principal/employer and the recruitment/placement agency for any and all claims under this section
shall be joint and several. This provision shall be incorporated in the contract for overseas employment and shall be a
condition precedent for its approval. The performance bond to de [sic] filed by the recruitment/placement agency, as
provided by law, shall be answerable for all money claims or damages that may be awarded to the workers. If the
recruitment/placement agency is a juridical being, the corporate officers and directors and partners as the case may be,
shall themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid claims and damages.

Such liabilities shall continue during the entire period or duration of the employment contract and shall not be affected
by any substitution, amendment or modification made locally or in a foreign country of the said contract.

Any compromise/amicable settlement or voluntary agreement on money claims inclusive of damages under this section
shall be paid within thirty (30) days from approval of the settlement by the appropriate authority.

In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, or
any unauthorized deductions from the migrant worker’s salary, the worker shall be entitled to the full reimbursement if
[sic] his placement fee and the deductions made with interest at twelve percent (12%) per annum, plus his salaries for
the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever
is less.

In case of a final and executory judgement against a foreign employer/principal, it shall be automatically disqualified,
without further proceedings, from participating in the Philippine Overseas Employment Program and from recruiting and
hiring Filipino workers until and unless it fully satisfies the judgement award.

Noncompliance with the mandatory periods for resolutions of case provided under this section shall subject the
responsible officials to any or all of the following penalties:cralawlawlibrary

(a) The salary of any such official who fails to render his decision or resolution within the prescribed period shall be, or
caused to be, withheld until the said official complies therewith;chanroblesvirtuallawlibrary

(b) Suspension for not more than ninety (90) days; or

(c) Dismissal from the service with disqualification to hold any appointive public office for five (5) years.

Provided, however, That the penalties herein provided shall be without prejudice to any liability which any such official
may have incured [sic] under other existing laws or rules and regulations as a consequence of violating the provisions
of this paragraph. (Emphasis supplied)

Republic Act No. 10022 was promulgated on March 8, 2010. This means that the reinstatement of the clause in Republic
Act No. 8042 was not yet in effect at the time of respondent’s termination from work in 1997. 86 Republic Act No. 8042
before it was amended by Republic Act No. 10022 governs this case.

When a law is passed, this court awaits an actual case that clearly raises adversarial positions in their proper context
before considering a prayer to declare it as unconstitutional.

However, we are confronted with a unique situation. The law passed incorporates the exact clause already declared as
unconstitutional, without any perceived substantial change in the circumstances.
This may cause confusion on the part of the National Labor Relations Commission and the Court of Appeals. At
minimum, the existence of Republic Act No. 10022 may delay the execution of the judgment in this case, further
frustrating remedies to assuage the wrong done to petitioner. Hence, there is a necessity to decide this constitutional
issue.

Moreover, this court is possessed with the constitutional duty to “[p]romulgate rules concerning the protection and
enforcement of constitutional rights.”87 When cases become moot and academic, we do not hesitate to provide for
guidance to bench and bar in situations where the same violations are capable of repetition but will evade review. This
is analogous to cases where there are millions of Filipinos working abroad who are bound to suffer from the lack of
protection because of the restoration of an identical clause in a provision previously declared as unconstitutional.

In the hierarchy of laws, the Constitution is supreme. No branch or office of the government may exercise its powers in
any manner inconsistent with the Constitution, regardless of the existence of any law that supports such exercise. The
Constitution cannot be trumped by any other law. All laws must be read in light of the Constitution. Any law that is
inconsistent with it is a nullity.

Thus, when a law or a provision of law is null because it is inconsistent with the Constitution, the nullity cannot be cured
by reincorporation or reenactment of the same or a similar law or provision. A law or provision of law that was already
declared unconstitutional remains as such unless circumstances have so changed as to warrant a reverse conclusion.

We are not convinced by the pleadings submitted by the parties that the situation has so changed so as to cause us to
reverse binding precedent.

Likewise, there are special reasons of judicial efficiency and economy that attend to these cases.

The new law puts our overseas workers in the same vulnerable position as they were prior to Serrano. Failure to reiterate
the very ratio decidendi of that case will result in the same untold economic hardships that our reading of the Constitution
intended to avoid. Obviously, we cannot countenance added expenses for further litigation that will reduce their hard-
earned wages as well as add to the indignity of having been deprived of the protection of our laws simply because our
precedents have not been followed. There is no constitutional doctrine that causes injustice in the face of empty
procedural niceties. Constitutional interpretation is complex, but it is never unreasonable.

Thus, in a resolution88 dated October 22, 2013, we ordered the parties and the Office of the Solicitor General to comment
on the constitutionality of the reinstated clause in Republic Act No. 10022.

In its comment,89 petitioner argued that the clause was constitutional.90 The legislators intended a balance between the
employers’ and the employees’ rights by not unduly burdening the local recruitment agency. 91 Petitioner is also of the
view that the clause was already declared as constitutional in Serrano.92cralawred

The Office of the Solicitor General also argued that the clause was valid and constitutional.93 However, since the parties
never raised the issue of the constitutionality of the clause as reinstated in Republic Act No. 10022, its contention is that
it is beyond judicial review.94cralawred

On the other hand, respondent argued that the clause was unconstitutional because it infringed on workers’ right to
contract.95cralawred

We observe that the reinstated clause, this time as provided in Republic Act. No. 10022, violates the constitutional rights
to equal protection and due process.96 Petitioner as well as the Solicitor General have failed to show any compelling
change in the circumstances that would warrant us to revisit the precedent.

We reiterate our finding in Serrano v. Gallant Maritime that limiting wages that should be recovered by an
illegally dismissed overseas worker to three months is both a violation of due process and the equal protection
clauses of the Constitution.

Equal protection of the law is a guarantee that persons under like circumstances and falling within the same class are
treated alike, in terms of “privileges conferred and liabilities enforced.” 97 It is a guarantee against “undue favor and
individual or class privilege, as well as hostile discrimination or the oppression of inequality.”98cralawred

In creating laws, the legislature has the power “to make distinctions and classifications.” 99 In exercising such power, it
has a wide discretion.100cralawred

The equal protection clause does not infringe on this legislative power.101 A law is void on this basis, only if classifications
are made arbitrarily.102 There is no violation of the equal protection clause if the law applies equally to persons within
the same class and if there are reasonable grounds for distinguishing between those falling within the class and those
who do not fall within the class.103 A law that does not violate the equal protection clause prescribes a reasonable
classification.104cralawred
A reasonable classification “(1) must rest on substantial distinctions; (2) must be germane to the purposes of the law;
(3) must not be limited to existing conditions only; and (4) must apply equally to all members of the same
class.”105cralawred

The reinstated clause does not satisfy the requirement of reasonable classification.

In Serrano, we identified the classifications made by the reinstated clause. It distinguished between fixed-period
overseas workers and fixed-period local workers.106 It also distinguished between overseas workers with employment
contracts of less than one year and overseas workers with employment contracts of at least one year. 107 Within the
class of overseas workers with at least one-year employment contracts, there was a distinction between those with at
least a year left in their contracts and those with less than a year left in their contracts when they were illegally
dismissed.108cralawred

The Congress’ classification may be subjected to judicial review. In Serrano, there is a “legislative classification which
impermissibly interferes with the exercise of a fundamental right or operates to the peculiar disadvantage of a suspect
class.”109cralawred

Under the Constitution, labor is afforded special protection.110 Thus, this court in Serrano, “[i]mbued with the same sense
of ‘obligation to afford protection to labor,’ . . . employ[ed] the standard of strict judicial scrutiny, for it perceive[d] in the
subject clause a suspect classification prejudicial to OFWs.” 111cralawred

We also noted in Serrano that before the passage of Republic Act No. 8042, the money claims of illegally terminated
overseas and local workers with fixed-term employment were computed in the same manner.112 Their money claims
were computed based on the “unexpired portions of their contracts.” 113The adoption of the reinstated clause in Republic
Act No. 8042 subjected the money claims of illegally dismissed overseas workers with an unexpired term of at least a
year to a cap of three months worth of their salary. 114 There was no such limitation on the money claims of illegally
terminated local workers with fixed-term employment.115cralawred

We observed that illegally dismissed overseas workers whose employment contracts had a term of less than one year
were granted the amount equivalent to the unexpired portion of their employment contracts.116 Meanwhile, illegally
dismissed overseas workers with employment terms of at least a year were granted a cap equivalent to three months
of their salary for the unexpired portions of their contracts. 117cralawred

Observing the terminologies used in the clause, we also found that “the subject clause creates a sub-layer of
discrimination among OFWs whose contract periods are for more than one year: those who are illegally dismissed with
less than one year left in their contracts shall be entitled to their salaries for the entire unexpired portion thereof, while
those who are illegally dismissed with one year or more remaining in their contracts shall be covered by the reinstated
clause, and their monetary benefits limited to their salaries for three months only.”118cralawred

We do not need strict scrutiny to conclude that these classifications do not rest on any real or substantial distinctions
that would justify different treatments in terms of the computation of money claims resulting from illegal termination.

Overseas workers regardless of their classifications are entitled to security of tenure, at least for the period agreed upon
in their contracts. This means that they cannot be dismissed before the end of their contract terms without due process.
If they were illegally dismissed, the workers’ right to security of tenure is violated.

The rights violated when, say, a fixed-period local worker is illegally terminated are neither greater than nor less than
the rights violated when a fixed-period overseas worker is illegally terminated. It is state policy to protect the rights of
workers without qualification as to the place of employment.119 In both cases, the workers are deprived of their expected
salary, which they could have earned had they not been illegally dismissed. For both workers, this deprivation translates
to economic insecurity and disparity.120 The same is true for the distinctions between overseas workers with an
employment contract of less than one year and overseas workers with at least one year of employment contract, and
between overseas workers with at least a year left in their contracts and overseas workers with less than a year left in
their contracts when they were illegally dismissed.

For this reason, we cannot subscribe to the argument that “[overseas workers] are contractual employees who can
never acquire regular employment status, unlike local workers” 121 because it already justifies differentiated treatment in
terms of the computation of money claims.122cralawred

Likewise, the jurisdictional and enforcement issues on overseas workers’ money claims do not justify a differentiated
treatment in the computation of their money claims.123 If anything, these issues justify an equal, if not greater protection
and assistance to overseas workers who generally are more prone to exploitation given their physical distance from our
government.

We also find that the classifications are not relevant to the purpose of the law, which is to “establish a higher standard
of protection and promotion of the welfare of migrant workers, their families and overseas Filipinos in distress, and for
other purposes.”124 Further, we find specious the argument that reducing the liability of placement agencies “redounds
to the benefit of the [overseas] workers.”125cralawred

Putting a cap on the money claims of certain overseas workers does not increase the standard of protection afforded to
them. On the other hand, foreign employers are more incentivized by the reinstated clause to enter into contracts of at
least a year because it gives them more flexibility to violate our overseas workers’ rights. Their liability for arbitrarily
terminating overseas workers is decreased at the expense of the workers whose rights they violated. Meanwhile, these
overseas workers who are impressed with an expectation of a stable job overseas for the longer contract period
disregard other opportunities only to be terminated earlier. They are left with claims that are less than what others in the
same situation would receive. The reinstated clause, therefore, creates a situation where the law meant to protect them
makes violation of rights easier and simply benign to the violator.

As Justice Brion said in his concurring opinion in Serrano:chanRoblesvirtualLawlibrary

Section 10 of R.A. No. 8042 affects these well-laid rules and measures, and in fact provides a hidden twist affecting the
principal/employer’s liability. While intended as an incentive accruing to recruitment/manning agencies, the law, as
worded, simply limits the OFWs’ recovery in wrongful dismissal situations. Thus, it redounds to the benefit of whoever
may be liable, including the principal/employer – the direct employer primarily liable for the wrongful dismissal. In this
sense, Section 10 – read as a grant of incentives to recruitment/manning agencies – oversteps what it aims to do by
effectively limiting what is otherwise the full liability of the foreign principals/employers. Section 10, in short, really
operates to benefit the wrong party and allows that party, without justifiable reason, to mitigate its liability for wrongful
dismissals. Because of this hidden twist, the limitation of liability under Section 10 cannot be an “appropriate” incentive,
to borrow the term that R.A. No. 8042 itself uses to describe the incentive it envisions under its purpose clause.

What worsens the situation is the chosen mode of granting the incentive: instead of a grant that, to encourage greater
efforts at recruitment, is directly related to extra efforts undertaken, the law simply limits their liability for the wrongful
dismissals of already deployed OFWs. This is effectively a legally-imposed partial condonation of their liability to OFWs,
justified solely by the law’s intent to encourage greater deployment efforts. Thus, the incentive, from a more practical
and realistic view, is really part of a scheme to sell Filipino overseas labor at a bargain for purposes solely of attracting
the market. . . .

The so-called incentive is rendered particularly odious by its effect on the OFWs — the benefits accruing to the
recruitment/manning agencies and their principals are taken from the pockets of the OFWs to whom the full salaries for
the unexpired portion of the contract rightfully belong. Thus, the principals/employers and the recruitment/manning
agencies even profit from their violation of the security of tenure that an employment contract embodies. Conversely,
lesser protection is afforded the OFW, not only because of the lessened recovery afforded him or her by operation of
law, but also because this same lessened recovery renders a wrongful dismissal easier and less onerous to undertake;
the lesser cost of dismissing a Filipino will always be a consideration a foreign employer will take into account in
termination of employment decisions. . . .126

Further, “[t]here can never be a justification for any form of government action that alleviates the burden of one sector,
but imposes the same burden on another sector, especially when the favored sector is composed of private businesses
such as placement agencies, while the disadvantaged sector is composed of OFWs whose protection no less than the
Constitution commands. The idea that private business interest can be elevated to the level of a compelling state interest
is odious.”127cralawred

Along the same line, we held that the reinstated clause violates due process rights. It is arbitrary as it deprives overseas
workers of their monetary claims without any discernable valid purpose. 128cralawred

Respondent Joy Cabiles is entitled to her salary for the unexpired portion of her contract, in accordance with Section 10
of Republic Act No. 8042. The award of the three-month equivalence of respondent’s salary must be modified
accordingly. Since she started working on June 26, 1997 and was terminated on July 14, 1997, respondent is entitled
to her salary from July 15, 1997 to June 25, 1998. “To rule otherwise would be iniquitous to petitioner and other OFWs,
and would, in effect, send a wrong signal that principals/employers and recruitment/manning agencies may violate an
OFW’s security of tenure which an employment contract embodies and actually profit from such violation based on an
unconstitutional provision of law.”129cralawred
III

On the interest rate, the Bangko Sentral ng Pilipinas Circular No. 799 of June 21, 2013, which revised the interest rate
for loan or forbearance from 12% to 6% in the absence of stipulation, applies in this case. The pertinent portions of
Circular No. 799, Series of 2013, read:chanRoblesvirtualLawlibrary
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate
of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of
1982:cralawlawlibrary

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.

Through the able ponencia of Justice Diosdado Peralta, we laid down the guidelines in computing legal interest in Nacar
v. Gallery Frames:130cralawred
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:chanRoblesvirtualLawlibrary
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein.131

Circular No. 799 is applicable only in loans and forbearance of money, goods, or credits, and in judgments when there
is no stipulation on the applicable interest rate. Further, it is only applicable if the judgment did not become final and
executory before July 1, 2013.132cralawred

We add that Circular No. 799 is not applicable when there is a law that states otherwise. While the Bangko Sentral ng
Pilipinas has the power to set or limit interest rates, 133 these interest rates do not apply when the law provides that a
different interest rate shall be applied. “[A] Central Bank Circular cannot repeal a law. Only a law can repeal another
law.”134cralawred

For example, Section 10 of Republic Act No. 8042 provides that unlawfully terminated overseas workers are entitled to
the reimbursement of his or her placement fee with an interest of 12% per annum. Since Bangko Sentral ng Pilipinas
circulars cannot repeal Republic Act No. 8042, the issuance of Circular No. 799 does not have the effect of changing
the interest on awards for reimbursement of placement fees from 12% to 6%. This is despite Section 1 of Circular No.
799, which provides that the 6% interest rate applies even to judgments.

Moreover, laws are deemed incorporated in contracts. “The contracting parties need not repeat them. They do not even
have to be referred to. Every contract, thus, contains not only what has been explicitly stipulated, but the statutory
provisions that have any bearing on the matter.”135 There is, therefore, an implied stipulation in contracts between the
placement agency and the overseas worker that in case the overseas worker is adjudged as entitled to reimbursement
of his or her placement fees, the amount shall be subject to a 12% interest per annum. This implied stipulation has the
effect of removing awards for reimbursement of placement fees from Circular No. 799’s coverage.

The same cannot be said for awards of salary for the unexpired portion of the employment contract under Republic Act
No. 8042. These awards are covered by Circular No. 799 because the law does not provide for a specific interest rate
that should apply.

In sum, if judgment did not become final and executory before July 1, 2013 and there was no stipulation in the contract
providing for a different interest rate, other money claims under Section 10 of Republic Act No. 8042 shall be subject to
the 6% interest per annum in accordance with Circular No. 799.
This means that respondent is also entitled to an interest of 6% per annum on her money claims from the finality of this
judgment.
IV

Finally, we clarify the liabilities of Wacoal as principal and petitioner as the employment agency that facilitated
respondent’s overseas employment.

Section 10 of the Migrant Workers and Overseas Filipinos Act of 1995 provides that the foreign employer and the local
employment agency are jointly and severally liable for money claims including claims arising out of an employer-
employee relationship and/or damages. This section also provides that the performance bond filed by the local agency
shall be answerable for such money claims or damages if they were awarded to the employee.

This provision is in line with the state’s policy of affording protection to labor and alleviating workers’ plight.136cralawred

In overseas employment, the filing of money claims against the foreign employer is attended by practical and legal
complications. The distance of the foreign employer alone makes it difficult for an overseas worker to reach it and make
it liable for violations of the Labor Code. There are also possible conflict of laws, jurisdictional issues, and procedural
rules that may be raised to frustrate an overseas worker’s attempt to advance his or her claims.

It may be argued, for instance, that the foreign employer must be impleaded in the complaint as an indispensable party
without which no final determination can be had of an action. 137cralawred

The provision on joint and several liability in the Migrant Workers and Overseas Filipinos Act of 1995 assures overseas
workers that their rights will not be frustrated with these complications.

The fundamental effect of joint and several liability is that “each of the debtors is liable for the entire obligation.” 138 A
final determination may, therefore, be achieved even if only one of the joint and several debtors are impleaded in an
action. Hence, in the case of overseas employment, either the local agency or the foreign employer may be sued for all
claims arising from the foreign employer’s labor law violations. This way, the overseas workers are assured that
someone — the foreign employer’s local agent — may be made to answer for violations that the foreign employer may
have committed.

The Migrant Workers and Overseas Filipinos Act of 1995 ensures that overseas workers have recourse in law despite
the circumstances of their employment. By providing that the liability of the foreign employer may be “enforced to the
full extent”139 against the local agent, the overseas worker is assured of immediate and sufficient payment of what is
due them.140cralawred

Corollary to the assurance of immediate recourse in law, the provision on joint and several liability in the Migrant Workers
and Overseas Filipinos Act of 1995 shifts the burden of going after the foreign employer from the overseas worker to
the local employment agency. However, it must be emphasized that the local agency that is held to answer for the
overseas worker’s money claims is not left without remedy. The law does not preclude it from going after the foreign
employer for reimbursement of whatever payment it has made to the employee to answer for the money claims against
the foreign employer.

A further implication of making local agencies jointly and severally liable with the foreign employer is that an additional
layer of protection is afforded to overseas workers. Local agencies, which are businesses by nature, are inoculated with
interest in being always on the lookout against foreign employers that tend to violate labor law. Lest they risk their
reputation or finances, local agencies must already have mechanisms for guarding against unscrupulous foreign
employers even at the level prior to overseas employment applications.

With the present state of the pleadings, it is not possible to determine whether there was indeed a transfer of obligations
from petitioner to Pacific. This should not be an obstacle for the respondent overseas worker to proceed with the
enforcement of this judgment. Petitioner is possessed with the resources to determine the proper legal remedies to
enforce its rights against Pacific, if any.
V

Many times, this court has spoken on what Filipinos may encounter as they travel into the farthest and most difficult
reaches of our planet to provide for their families. In Prieto v. NLRC:141cralawred
The Court is not unaware of the many abuses suffered by our overseas workers in the foreign land where they have
ventured, usually with heavy hearts, in pursuit of a more fulfilling future. Breach of contract, maltreatment, rape,
insufficient nourishment, sub-human lodgings, insults and other forms of debasement, are only a few of the inhumane
acts to which they are subjected by their foreign employers, who probably feel they can do as they please in their own
country. While these workers may indeed have relatively little defense against exploitation while they are abroad, that
disadvantage must not continue to burden them when they return to their own territory to voice their muted complaint.
There is no reason why, in their very own land, the protection of our own laws cannot be extended to them in full measure
for the redress of their grievances.142chanrobleslaw
But it seems that we have not said enough.

We face a diaspora of Filipinos. Their travails and their heroism can be told a million times over; each of their stories as
real as any other. Overseas Filipino workers brave alien cultures and the heartbreak of families left behind daily. They
would count the minutes, hours, days, months, and years yearning to see their sons and daughters. We all know of the
joy and sadness when they come home to see them all grown up and, being so, they remember what their work has
cost them. Twitter accounts, Facetime, and many other gadgets and online applications will never substitute for their
lost physical presence.

Unknown to them, they keep our economy afloat through the ebb and flow of political and economic crises. They are
our true diplomats, they who show the world the resilience, patience, and creativity of our people. Indeed, we are a
people who contribute much to the provision of material creations of this world.

This government loses its soul if we fail to ensure decent treatment for all Filipinos. We default by limiting the contractual
wages that should be paid to our workers when their contracts are breached by the foreign employers. While we sit, this
court will ensure that our laws will reward our overseas workers with what they deserve: their dignity.

Inevitably, their dignity is ours as well.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals is AFFIRMED with modification. Petitioner
Sameer Overseas Placement Agency is ORDERED to pay respondent Joy C. Cabiles the amount equivalent to her
salary for the unexpired portion of her employment contract at an interest of 6% per annum from the finality of this
judgment. Petitioner is also ORDERED to reimburse respondent the withheld NT$3,000.00 salary and pay respondent
attorney’s fees of NT$300.00 at an interest of 6% per annum from the finality of this judgment.

The clause, “or for three (3) months for every year of the unexpired term, whichever is less” in Section 7 of Republic Act
No. 10022 amending Section 10 of Republic Act No. 8042 is declared unconstitutional and, therefore, null and void.
G.R. No. 180636 March 13, 2013
LORENZO T. TANGGA-AN,* Petitioner,
vs.
PIDLIPPINE TRANSMARINE CARRIERS, INC., UNIVERSE TANKSHIP DELAWARE LLC, and CARLOS C.
SALINAS, Respondents.
DECISION
DEL CASTILLO, J.:
This Court's labor pronouncements must be read and applied with utmost care and caution, taking to mind that in the
very heart of the judicial system, labor cases occupy a special place. More than the State guarantees of protection of
labor and security of tenure, labor disputes involve the fundamental survival of the employees and their families, who
depend -upon the former for all the basic necessities in life.
This Petition for Review on Certiorari1 seeks a modification of the November 30, 2006 Decision2 of the Court of Appeals
(CA) in CA-G.R. SP No. 00806. Also assailed is the November 15, 2007 Resolution3 denying petitioner's Motion for
Reconsideration.
Factual Antecedents
The facts, as found by the CA, are as follows:
This is a case for illegal dismissal with a claim for the payment of salaries corresponding to the unexpired term of the
contract, damages and attorney’s fees filed by private respondent Lorenzo T. Tangga-an against the petitioners
Philippine Transmarine Carriers, Inc., Universe Tankship Delaware LLC, and Carlos C. Salinas 4 or herein respondents.
In his position paper, Tangga-an alleged that on January 31, 2002, he entered into an overseas employment contract
with Philippine Transmarine Carriers, Inc. (PTC) for and in behalf of its foreign employer, Universe Tankship Delaware,
LLC. Under the employment contract, he was to be employed for a period of six months as chief engineer of the vessel
the S.S. "Kure". He was to be paid a basic salary of US$5,000.00; vacation leave pay equivalent to 15 days a months
[sic] or US$2,500.00 per month and tonnage bonus in the amount of US$700.00 a month.
On February 11, 2002, Tangga-an was deployed. While performing his assigned task, he noticed that while they were
loading liquid cargo at Cedros, Mexico, the vessel suddenly listed too much at the bow. At that particular time both the
master and the chief mate went on shore leave together, which under maritime standard was prohibited. To avoid any
conflict, he chose to ignore the unbecoming conduct of the senior officers of the vessel.
On or about March 13, 2002, the vessel berthed at a port in Japan to discharge its cargo. Thereafter, it sailed to the
U.S.A. While the vessel was still at sea, the master required Tangga-an and the rest of the Filipino Engineer Officers to
report to his office where they were informed that they would be repatriated on account of the delay in the cargo
discharging in Japan, which was principally a duty belonging to the deck officers. He imputed the delay to the non-
readiness of the turbo generator and the inoperation of the boom, since the turbo generator had been prepared and
synchronized for 3.5 hours or even before the vessel arrived in Japan. Moreover, upon checking the boom, they found
the same [sic] operational. Upon verification, they found out that when the vessel berthed in Japan, the cargo hold was
not immediately opened and the deck officers concerned did not prepare the stock. Moreover, while cargo discharging
was ongoing, both the master and the chief mate again went on shore leave together at 4:00 in the afternoon and
returned to the vessel only after midnight. To save face, they harped on the Engine Department for their mistake.
Tangga-an and the other Engineering Officers were ordered to disembark from the vessel on April 2, 2002 and thereafter
repatriated. Thence, the complaint.
Philippine Transmarine Carriers, Inc., Universe Tankship Delaware LLC, and Carlos C. Salinas on the other hand,
contended that sometime on [sic] March 2002, during a test of the cargo discharging conveyor system, Tangga-an and
his assistant engineers failed to start the generator that supplied power to the conveyor. They spent 3 hours trying to
start the generator but failed. It was only the third assistant engineer who previously served in the same vessel who was
able to turn on the generator. When the master tried to call the engine room to find out the problem, Tangga-an did not
answer and merely hang [sic] up. The master proceeded to the engine room to find out the problem by [sic] Tangga-an
and his assistant engineers were running around trying to appear busy.
At another time, during a cargo discharging operation requiring the use of a generator system and the conveyor boom,
Tangga-an was nowhere to be found. Apparently, he went on shore leave resulting in a delay of 2 hours because the
machine could not be operated well. Both incidents were recorded in the official logbook. Due to the delay, protests
were filed by the charter [sic].
The master required Tangga-an to submit a written explanation to which he did but blamed the captain and the chief
officer. He failed to explain why he did not personally supervise the operation of the generator system and the conveyor
boom during the cargo discharging operations. His explanation not having been found satisfactory, respondents decided
to terminate Tangga-an’s services. Thus, a notice of dismissal was issued against Tangga-an. He arrived in the
Philippines on April 4, 2002.5
Tangga-an filed a Complaint6 for illegal dismissal with prayer for payment of salaries for the unexpired portion of his
contract, leave pay, exemplary and moral damages, attorney’s fees and interest.
On January 27, 2004, Labor Arbiter Jose G. Gutierrez rendered a Decision7 finding petitioner to have been illegally
dismissed. The Labor Arbiter noted that in petitioner’s letter to respondent Universe Tankship Delaware, LLC dated April
1, 20028 he categorically denied any negligence on his part relative to the delay in the discharge of the cargo while the
vessel was berthed in Japan. In view thereof, the Labor Arbiter opined that an investigation should have been conducted
in order to ferret out the truth instead of dismissing petitioner outright. Consequently, petitioner’s dismissal was illegal
for lack of just cause and for failure to comply with the twin requirements of notice and hearing. 9
As regards petitioner’s claim for back salaries, the Labor Arbiter found petitioner entitled not to four months which is
equivalent to the unexpired portion of his contract, but only to three months, inclusive of vacation leave pay and tonnage
bonus (or US$8,200 x 3 months = US$24,600) pursuant to Section 10 of Republic Act (RA) No. 8042 or The Migrant
Workers and Overseas Filipinos Act of 2005.
Regarding petitioner’s claim for damages, the same was denied for failure to prove bad faith on the part of the
respondents. However, attorney’s fees equivalent to 10% of the total back salaries was awarded because petitioner was
constrained to litigate.
The dispositive portion of the Labor Arbiter’s Decision, reads:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered finding Tangga-an illegally dismissed
from his employment and directing the respondent Phil. Transmarine Carriers, Inc. to pay Tangga-an the amount of
US$24,600.00 PLUS US$2,460.00 attorney’s fees or a total aggregate amount of US Dollars: TWENTY SEVEN
THOUSAND SIXTY (US$27,060.00) or its peso equivalent at the exchange rate prevailing at the time of payment.
SO ORDERED.10
Ruling of the National Labor Relations Commission
Respondents appealed to the National Labor Relations Commission (NLRC). They claimed that the Labor Arbiter
committed grave abuse of discretion in finding that petitioner was illegally dismissed; in awarding unearned vacation
leave pay and tonnage bonus when the law and jurisprudence limit recovery to the employee’s basic salary; and in
awarding attorney’s fees despite the absence of proof of bad faith on their part.
On August 25, 2004, the NLRC issued its Decision,11 the dispositive portion of which reads:
WHEREFORE, the Decision dated January 27, 2004 of the Labor Arbiter is AFFIRMED.
Respondents-appellants’ Memorandum of Appeal, dated 23 March 2004 is DISMISSED for lack of merit.
SO ORDERED.12
The NLRC affirmed the finding of illegal dismissal. It held that no notice of hearing was served upon petitioner, and no
hearing whatsoever was conducted on the charges against him. It ruled that respondents could not dispense with the
twin requirements of notice and hearing, which are essential elements of procedural due process. For this reason, no
valid cause for termination has been shown. The NLRC likewise found respondents guilty of bad faith in illegally
dismissing petitioner’s services.
On the issue covering the award of unearned vacation leave pay and tonnage bonus, the NLRC struck down
respondents’ arguments and held that in illegal dismissal cases, the employee is entitled to all the salaries, allowances
and other benefits or their monetary equivalents from the time his compensation is withheld from him until he is actually
reinstated, in effect citing Article 27913 of the Labor Code. It held that vacation leave pay and tonnage bonus are provided
in petitioner’s employment contract, which thus entitles the latter to the same in the event of illegal dismissal.
Finally, on the issue of attorney’s fees, the NLRC held that since respondents were found to be in bad faith for the illegal
dismissal and petitioner was constrained to litigate with counsel, the award of attorney’s fees is proper.
Respondents moved for reconsideration which was denied by the NLRC in its March 18, 2005 Resolution.14
Ruling of the Court of Appeals
Respondents went up to the CA by Petition for Certiorari,15 seeking to annul the Decision of the NLRC, raising essentially
the same issues taken up in the NLRC.
On November 30, 2006, the CA rendered the assailed Decision, the dispositive portion of which reads, as follows:
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The Decision of public respondent
is MODIFIED in the following manner:
a. Tangga-an is entitled to three (3) months salary representing the unexpired portion of his contract in the total
amount of US$15,000.00 or its peso equivalent at the exchange rate prevailing at the time of payment;
b. Tangga-an’s placement fee should be reimbursed with 12% interest per annum;
c. The award of attorney’s fees is deleted.
SO ORDERED.16
The CA adhered to the finding of illegal dismissal. But on the subject of monetary awards, the CA considered only
petitioner’s monthly US$5,000.00 basic salary and disregarded his monthly US$2,500.00 vacation leave pay and
US$700.00 tonnage bonus. It likewise held that petitioner’s "unexpired portion of contract" for which he is entitled to
back salaries should only be three months pursuant to Section 1017 of RA 8042. In addition, petitioner should be paid
back his placement fee with interest at the rate of twelve per cent (12%) per annum.
As to attorney’s fees, the CA did not agree with the NLRC’s finding that bad faith on the part of respondents was present
to justify the award of attorney’s fees. It held that there is nothing from the facts and proceedings to suggest that
respondents acted with dishonesty, moral obliquity or conscious doing of wrong in terminating petitioner’s services.
Petitioner filed a Motion for (Partial) Reconsideration,18 which was denied in the assailed November 15, 2007 Resolution.
Thus, he filed the instant Petition.
Issues
In this Petition, Tangga-an seeks a modification of the CA Decision and the reinstatement of the monetary awards as
decreed in the Labor Arbiter’s January 27, 2004 Decision, or in the alternative, the grant of back salaries equivalent to
four months which corresponds to the unexpired portion of the contract, inclusive of vacation leave pay and tonnage
bonus, plus 10% thereof as attorney’s fees.19
Petitioner submits the following issues for resolution:
I. Whether x x x the CA’s issuance of the writ of certiorari reversing the NLRC decision is in accordance with
law;
II. Whether x x x the indemnity provided in Section 10, R. A. 8042 x x x be limited only to the seafarer’s basic
monthly salary or x x x include, based on civil law concept of damages as well as Labor Code concept of
backwages, allowances/benefits or their monetary equivalent as a further relief to restore the seafarer’s income
that was lost by reason of his unlawful dismissal;
 III. Whether x x x the indemnity awarded by the CA in petitioner’s favor consisting only of 3 months’ basic
salaries conform with the proper interpretation of Section 10 R. A. 8042 and with the ruling in Skippers Pacific,
Inc. v. Mira, et al., G.R. No. 144314, November 21, 2002 and related cases or is petitioner entitled to at least 4
months salaries being the unexpired portion of his contract; and
IV. Whether x x x the CA’s disallowance of the award of attorney’s fees, based on the alleged absence of bad
faith on the part of respondent, is in accordance with law or is the attorney’s fees awarded by the NLRC to
petitioner, who was forced to litigate to enforce his rights, justified x x x.20
Petitioner’s Arguments
Petitioner essentially contends that respondents’ resort to an original Petition for Certiorari in the CA is erroneous
because the issues they raised did not involve questions of jurisdiction but of fact and law. He adds that the CA Decision
went against the factual findings of the labor tribunals which ought to be binding, given their expertise in matters falling
within their jurisdiction.
Petitioner likewise contends that the CA erred in excluding his vacation leave pay and tonnage bonus in the computation
of his back salaries as they form part of his salaries and benefits under his employment contract with the respondents,
a covenant which is deemed to be the law governing their relations. He adds that under Article 279 of the Labor Code,
he is entitled to full backwages inclusive of allowances and other benefits or their monetary equivalent from the time his
compensation was withheld up to the time he is actually reinstated.
Petitioner accuses the CA of misapplying the doctrine laid down in Skippers Pacific, Inc. v. Skippers Maritime Services,
Ltd.21 He points out that the CA wrongly interpreted and applied what the Court said in the case, and that the
pronouncement therein should have benefited him rather than the respondents.
Petitioner would have the Court reinstate the award of attorney’s fees, on the argument that the presence of bad faith
is not necessary to justify such award. He maintains that the grant of attorney’s fees in labor cases constitutes an
exception to the general requirement that bad faith or malice on the part of the adverse party must first be proved.
Finally, petitioner prays that this Court reinstate the Labor Arbiter’s monetary awards in his January 27, 2004 Decision
or, in the alternative, to grant him full back salaries equivalent to the unexpired portion of his contract, or four months,
plus 10% thereof as attorney’s fees.
Respondents’ Arguments
In seeking affirmance of the assailed CA issuances, respondents basically submit that the CA committed no reversible
error in excluding petitioner’s claims for vacation leave pay, tonnage bonus, and attorney’s fees. They support and agree
with the CA’s reliance upon Skippers Pacific, Inc. v. Skippers Maritime Services, Ltd., 22 and emphasize that in the
absence of bad faith on their part, petitioner may not recover attorney’s fees.
Our Ruling
The Court grants the Petition.
There remains no issue regarding illegal dismissal. In spite of the consistent finding below that petitioner was illegally
dismissed, respondents did not take issue, which thus renders all pronouncements on the matter final.
In resolving petitioner’s monetary claims, the CA utterly misinterpreted the Court’s ruling in Skippers Pacific, Inc. v.
Skippers Maritime Services, Ltd.,23 using it to support a view which the latter case precisely ventured to strike down. In
that case, the employee was hired as the vessel’s Master on a six-months employment contract, but was able to work
for only two months, as he was later on illegally dismissed. The Labor Arbiter, NLRC, and the CA all took the view that
the complaining employee was entitled to his salary for the unexpired portion of his contract, but limited to only three
months pursuant to Section 1024 of RA 8042. The Court did not agree and hence modified the judgment in said case. It
held that, following the wording of Section 10 and its ruling in Marsaman Manning Agency, Inc. v. National Labor
Relations Commission,25 when the illegally dismissed employee’s employment contract has a term of less than one
year, he/she shall be entitled to recovery of salaries representing the unexpired portion of his/her employment contract.
Indeed, there was nothing even vaguely confusing in the Court’s citation therein of Marsaman:
In Marsaman Manning Agency, Inc. vs. NLRC, involving Section 10 of Republic Act No. 8042, we held:
We cannot subscribe to the view that private respondent is entitled to three (3) months salary only.1âwphi1 A plain
reading of Sec. 10 clearly reveals that the choice of which amount to award an illegally dismissed overseas contract
worker, i.e., whether his salaries for the unexpired portion of his employment contract or three (3) months salary for
every year of the unexpired term, whichever is less, comes into play only when the employment contract concerned has
a term of at least one (1) year or more. This is evident from the wording "for every year of the unexpired term" which
follows the wording "salaries x x x for three months." To follow petitioners’ thinking that private respondent is entitled to
three (3) months salary only simply because it is the lesser amount is to completely disregard and overlook some words
used in the statute while giving effect to some. This is contrary to the well-established rule in legal hermeneutics that in
interpreting a statute, care should be taken that every part or word thereof be given effect since the lawmaking body is
presumed to know the meaning of the words employed in the statute and to have used them advisedly. Ut res magis
valeat quam pereat.
It is not disputed that private respondent’s employment contract in the instant case was for six (6) months. Hence, we
see no reason to disregard the ruling in Marsaman that private respondent should be paid his salaries for the unexpired
portion of his employment contract.26 (Emphases supplied)
At this juncture, the courts, especially the CA, should be reminded to read and apply this Court’s labor pronouncements
with utmost care and caution, taking to mind that in the very heart of the judicial system, labor cases occupy a special
place. More than the State guarantees of protection of labor and security of tenure, labor disputes involve the
fundamental survival of the employees and their families, who depend upon the former for all the basic necessities in
life.
Thus, petitioner must be awarded his salaries corresponding to the unexpired portion of his six-months employment
contract, or equivalent to four months. This includes all his corresponding monthly vacation leave pay and tonnage
bonuses which are expressly provided and guaranteed in his employment contract as part of his monthly salary and
benefit package. These benefits were guaranteed to be paid on a monthly basis, and were not made contingent. In fact,
their monetary equivalent was fixed under the contract: US$2,500.00 for vacation leave pay and US$700.00 for tonnage
bonus each month. Thus, petitioner is entitled to back salaries of US$32,800 (or US$5,000 + US$2,500 + US$700 =
US$8,200 x 4 months). "Article 279 of the Labor Code mandates that an employee’s full backwages shall be inclusive
of allowances and other benefits or their monetary equivalent."27 As we have time and again held, "it is the obligation of
the employer to pay an illegally dismissed employee or worker the whole amount of the salaries or wages, plus all other
benefits and bonuses and general increases, to which he would have been normally entitled had he not been dismissed
and had not stopped working."28 This well-defined principle has likewise been lost on the CA in the consideration of the
case.
The CA likewise erred in deleting the award of attorney’s fees on the ground that bad faith may not readily be attributed
to the respondents given the circumstances. The Court’s discussion on the award of attorney’s fees in Kaisahan at
Kapatiran ng mga Manggagawa at Kawani sa MWC-East Zone Union v. Manila Water Company, Inc.,29speaking through
Justice Brion, is instructive, viz:
Article 111 of the Labor Code, as amended, governs the grant of attorney’s fees in labor cases:
‘Art. 111. Attorney’s fees. – (a) In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s
fees equivalent to ten percent of the amount of wages recovered.
(b) It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for the recovery
of wages, attorney’s fees which exceed ten percent of the amount of wages recovered.’
Section 8, Rule VIII, Book III of its Implementing Rules also provides, viz.:
‘Section 8. Attorney’s fees. – Attorney’s fees in any judicial or administrative proceedings for the recovery of wages shall
not exceed 10% of the amount awarded. The fees may be deducted from the total amount due the winning party.’
We explained in PCL Shipping Philippines, Inc. v. National Labor Relations Commission that there are two commonly
accepted concepts of attorney’s fees – the ordinary and extraordinary. In its ordinary concept, an attorney’s fee is the
reasonable compensation paid to a lawyer by his client for the legal services the former renders; compensation is paid
for the cost and/or results of legal services per agreement or as may be assessed. In its extraordinary concept, attorney’s
fees are deemed indemnity for damages ordered by the court to be paid by the losing party to the winning party. The
instances when these may be awarded are enumerated in Article 2208 of the Civil Code, specifically in its paragraph 7
on actions for recovery of wages, and is payable not to the lawyer but to the client, unless the client and his lawyer have
agreed that the award shall accrue to the lawyer as additional or part of compensation.
We also held in PCL Shipping that Article 111 of the Labor Code, as amended, contemplates the extraordinary concept
of attorney’s fees and that Article 111 is an exception to the declared policy of strict construction in the award of
attorney’s fees. Although an express finding of facts and law is still necessary to prove the merit of the award, there
need not be any showing that the employer acted maliciously or in bad faith when it withheld the wages. x x x
We similarly so ruled in RTG Construction, Inc. v. Facto and in Ortiz v. San Miguel Corporation. In RTG Construction,
we specifically stated:
'Settled is the rule that in actions for recovery of wages, or where an employee was forced to litigate and, thus, incur
expenses to protect his rights and interests, a monetary award by way of attorney's fees is justifiable under Article Ill of
the Labor Code; Section 8, Rule VIII, Book III of its Implementing Rules; and paragraph 7, Article 208 of the Civil Code.
The award of attorney's fees is proper, and there need not be any showing that the employer acted maliciously or in bad
faith when it withheld the wages. There need only be a showing that the lawful wages were not paid accordingly.'
In PCL Shipping, we found the award of attorney's fees due and appropriate since the respondent therein incurred legal
expenses after he was forced to file an action for recovery of his lawful wages and other benefits to protect his rights.
From this perspective and the above precedents, we conclude that the CA erred in ruling that a finding of the employer's
malice or bad faith in withholding wages must precede an award of attorney's fees under Article Ill of the Labor Code.
To reiterate, a plain showing that the lawful wages were not paid without justification is sufficient.30
In this case, it is already settled that petitioner's employment was illegally terminated. As a result, his wages as well as
allowances were withheld without valid and legal basis. Otherwise stated, he was not paid his lawful wages without any
valid justification. Consequently, he was impelled to litigate to protect his interests. Thus, pursuant to the above ruling,
he is entitled to receive attorney’s fees. An award of attorney's fees in petitioner’s favor is in order in the amount of
US$3, 280 (or US$32, 800 x 10%).
WHEREFORE, the Petition is GRANTED. Petitioner Lorenzo T. Tangga-an is hereby declared ENTITLED to back
salaries for the unexpired portion of his contract, inclusive of vacation leave pay and tonnage bonus which is equivalent
to US$32,800 plus US$3,280 as attorney's fees or a total of US$36,080 or its peso equivalent at the exchange rate
prevailing at the time of payment.
SO ORDERED.