G.R. No.

L-12582 January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL
RELATIONS, respondents-appellees.

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

G.R. No. L-12598 January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL
RELATIONS, respondents-appellees.

Nicanor S. Sison for petitioner-appellant.

Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.

CONCEPCION, J.:

Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review
by certiorari of an order of the Court of Industrial Relations in Case No. 306-MC thereof,
certifying the Philippine Musicians Guild (FFW), petitioner therein and respondent herein, as the
sole and exclusive bargaining agency of all musicians working with said companies, as well as
with the Premiere Productions, Inc., which has not appealed. The appeal of LVN Pictures, Inc.,
has been docketed as G.R. No. L-12582, whereas G.R. No. L-12598 is the appeal of
Sampaguita Pictures, Inc. Involving as they do the same order, the two cases have been jointly
heard in this Court, and will similarly be disposed of.

In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter referred to as
the Guild, averred that it is a duly registered legitimate labor organization; that LVN Pictures,
Inc., Sampaguita Pictures, Inc., and Premiere Productions, Inc. are corporations, duly organized
under the Philippine laws, engaged in the making of motion pictures and in the processing and
distribution thereof; that said companies employ musicians for the purpose of making music
recordings for title music, background music, musical numbers, finale music and other incidental
music, without which a motion picture is incomplete; that ninety-five (95%) percent of all the
musicians playing for the musical recordings of said companies are members of the Guild; and
that the same has no knowledge of the existence of any other legitimate labor organization
representing musicians in said companies. Premised upon these allegations, the Guild prayed
that it be certified as the sole and exclusive bargaining agency for all musicians working in the
aforementioned companies. In their respective answers, the latter denied that they have any
musicians as employees, and alleged that the musical numbers in the filing of the companies
are furnished by independent contractors. The lower court, however, rejected this pretense and
sustained the theory of the Guild, with the result already adverted to. A reconsideration of the
order complained of having been denied by the Court en banc, LVN Pictures, inc., and
Sampaguita Pictures, Inc., filed these petitions for review for certiorari.
Apart from impugning the conclusion of the lower court on the status of the Guild members as
alleged employees of the film companies, the LVN Pictures, Inc., maintains that a petition for
certification cannot be entertained when the existence of employer-employee relationship
between the parties is contested. However, this claim is neither borne out by any legal provision
nor supported by any authority. So long as, after due hearing, the parties are found to bear said
relationship, as in the case at bar, it is proper to pass upon the merits of the petition for
certification.

It is next urged that a certification is improper in the present case, because, "(a) the petition
does not allege and no evidence was presented that the alleged musicians-employees of the
respondents constitute a proper bargaining unit, and (b) said alleged musicians-employees
represent a majority of the other numerous employees of the film companies constituting a
proper bargaining unit under section 12 (a) of Republic Act No. 875."

The absence of an express allegation that the members of the Guild constitute a proper
bargaining unit is fatal proceeding, for the same is not a "litigation" in the sense in which this
term is commonly understood, but a mere investigation of a non-adversary, fact finding
character, in which the investigating agency plays the part of a disinterested investigator
seeking merely to ascertain the desires of employees as to the matter of their representation. In
connection therewith, the court enjoys a wide discretion in determining the procedure necessary
to insure the fair and free choice of bargaining representatives by employees.1 Moreover, it is
alleged in the petition that the Guild it a duly registered legitimate labor organization and that
ninety-five (95%) percent of the musicians playing for all the musical recordings of the film
companies involved in these cases are members of the Guild. Although, in its answer, the LVN
Pictures, Inc. denied both allegations, it appears that, at the hearing in the lower court it was
merely the status of the musicians as its employees that the film companies really contested.
Besides, the substantial difference between the work performed by said musicians and that of
other persons who participate in the production of a film, and the peculiar circumstances under
which the services of that former are engaged and rendered, suffice to show that they constitute
a proper bargaining unit. At this juncture, it should be noted that the action of the lower court in
deciding upon an appropriate unit for collective bargaining purposes is discretionary (N.L.R.B. v.
May Dept. Store Co., 66 Sup. Ct. 468. 90 L. ed. 145) and that its judgment in this respect is
entitled to almost complete finality, unless its action is arbitrary or capricious (Marshall Field &
Co. v. N.L.R.B. [C.C.A. 19431, 135 F. 2d. 891), which is far from being so in the cases at bar.

Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining agency for
the musicians working in the aforesaid film companies. It does not intend to represent the other
employees therein. Hence, it was not necessary for the Guild to allege that its members
constitute a majority of all the employees of said film companies, including those who are not
musicians. The real issue in these cases, is whether or not the musicians in question are
employees of the film companies. In this connection the lower court had the following to say:

As a normal and usual course of procedure employed by the companies when a picture
is to be made, the producer invariably chooses, from the musical directors, one who will
furnish the musical background for a film. A price is agreed upon verbally between the
producer and musical director for the cost of furnishing such musical background. Thus,
the musical director may compose his own music specially written for or adapted to the
picture. He engages his own men and pays the corresponding compensation of the
musicians under him.
When the music is ready for recording, the musicians are summoned through 'call slips'
in the name of the film company (Exh 'D'), which show the name of the musician, his
musical instrument, and the date, time and place where he will be picked up by the truck
of the film company. The film company provides the studio for the use of the musicians
for that particular recording. The musicians are also provided transportation to and from
the studio by the company. Similarly, the company furnishes them meals at dinner time.

During the recording sessions, the motion picture director, who is an employee of the
company, supervises the recording of the musicians and tells what to do in every detail.
He solely directs the performance of the musicians before the camera as director, he
supervises the performance of all the action, including the musicians who appear in the
scenes so that in the actual performance to be shown on the screen, the musical
director's intervention has stopped.

And even in the recording sessions and during the actual shooting of a scene, the
technicians, soundmen and other employees of the company assist in the operation.
Hence, the work of the musicians is an integral part of the entire motion picture since
they not only furnish the music but are also called upon to appear in the finished picture.

The question to be determined next is what legal relationship exits between the
musicians and the company in the light of the foregoing facts.

We are thus called upon to apply R.A. Act 875. which is substantially the same as and
patterned after the Wagner Act substantially the same as a Act and the Taft-Hartley Law
of the United States. Hence, reference to decisions of American Courts on these laws on
the point-at-issue is called for.

Statutes are to be construed in the light of purposes achieved and the evils sought to be
remedied. (U.S. vs. American Tracking Association, 310 U.S. 534, 84 L. ed. 1345.) .

In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S. 111, the
United States Supreme Court said the Wagner Act was designed to avert the 'substantial
obstruction to the free flow of commerce which results from strikes and other forms of
industrial unrest by eliminating the causes of the unrest. Strikes and industrial unrest
result from the refusal of employers' to bargain collectively and the inability of workers to
bargain successfully for improvement in their working conditions. Hence, the purposes of
the Act are to encourage collective bargaining and to remedy the workers' inability to
bargaining power, by protecting the exercise of full freedom of association and
designation of representatives of their own choosing, for the purpose of negotiating the
terms and conditions of their employment.'

The mischief at which the Act is aimed and the remedies it offers are not confined
exclusively to 'employees' within the traditional legal distinctions, separating them from
'independent contractor'. Myriad forms of service relationship, with infinite and subtle
variations in the term of employment, blanket the nation's economy. Some are within this
Act, others beyond its coverage. Large numbers will fall clearly on one side or on the
other, by whatever test may be applied. Inequality of bargaining power in controversies
of their wages, hours and working conditions may characterize the status of one group
as of the other. The former, when acting alone may be as helpless in dealing with the
employer as dependent on his daily wage and as unable to resist arbitrary and unfair
treatment as the latter.'

To eliminate the causes of labor dispute and industrial strike, Congress thought it
necessary to create a balance of forces in certain types of economic relationship.
Congress recognized those economic relationships cannot be fitted neatly into the
containers designated as 'employee' and 'employer'. Employers and employees not in
proximate relationship may be drawn into common controversies by economic forces
and that the very dispute sought to be avoided might involve 'employees' who are at
times brought into an economic relationship with 'employers', who are not their
'employers'. In this light, the language of the Act's definition of 'employee' or 'employer'
should be determined broadly in doubtful situations, by underlying economic facts rather
than technically and exclusively established legal classifications. (NLRB vs. Blount, 131
F [2d] 585.)

In other words, the scope of the term 'employee' must be understood with reference to
the purposes of the Act and the facts involved in the economic relationship. Where all
the conditions of relation require protection, protection ought to be given .

By declaring a worker an employee of the person for whom he works and by recognizing
and protecting his rights as such, we eliminate the cause of industrial unrest and
consequently we promote industrial peace, because we enable him to negotiate an
agreement which will settle disputes regarding conditions of employment, through the
process of collective bargaining.

The statutory definition of the word 'employee' is of wide scope. As used in the Act, the
term embraces 'any employee' that is all employees in the conventional as well in the
legal sense expect those excluded by express provision. (Connor Lumber Co., 11 NLRB
776.).

It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes of
industrial unrest by protecting the exercise of their right to self-organization for the
purpose of collective bargaining. (b) To promote sound stable industrial peace and the
advancement of the general welfare, and the best interests of employers and employees
by the settlement of issues respecting terms and conditions of employment through the
process of collective bargaining between employers and representatives of their
employees.

The primary consideration is whether the declared policy and purpose of the Act can be
effectuated by securing for the individual worker the rights and protection guaranteed by
the Act. The matter is not conclusively determined by a contract which purports to
establish the status of the worker, not as an employee.

The work of the musical director and musicians is a functional and integral part of the
enterprise performed at the same studio substantially under the direction and control of
the company.

In other words, to determine whether a person who performs work for another is the
latter's employee or an independent contractor, the National Labor Relations relies on
'the right to control' test. Under this test an employer-employee relationship exist where
 the person for whom the services are performed reserves the right to control not only the
end to be achieved, but also the manner and means to be used in reaching the end.
(United Insurance Company, 108, NLRB No. 115.).

Thus, in said similar case of Connor Lumber Company, the Supreme Court said:.

'We find that the independent contractors and persons working under them are
employees' within the meaning of Section 2 (3) of its Act. However, we are of the
opinion that the independent contractors have sufficient authority over the
persons working under their immediate supervision to warrant their exclusion
from the unit. We shall include in the unit the employees working under the
supervision of the independent contractors, but exclude the contractors.'

'Notwithstanding that the employees are called independent contractors', the Board will
hold them to be employees under the Act where the extent of the employer's control over
them indicates that the relationship is in reality one of employment. (John Hancock
Insurance Co., 2375-D, 1940, Teller, Labor Dispute Collective Bargaining, Vol.).

The right of control of the film company over the musicians is shown (1) by calling the
musicians through 'call slips' in 'the name of the company; (2) by arranging schedules in
its studio for recording sessions; (3) by furnishing transportation and meals to musicians;
and (4) by supervising and directing in detail, through the motion picture director, the
performance of the musicians before the camera, in order to suit the music they are
playing to the picture which is being flashed on the screen.

Thus, in the application of Philippine statutes and pertinent decisions of the United
States Courts on the matter to the facts established in this case, we cannot but conclude
that to effectuate the policies of the Act and by virtue of the 'right of control' test, the
members of the Philippine Musicians Guild are employees of the three film companies
and, therefore, entitled to right of collective bargaining under Republic Act No. 875.

In view of the fact that the three (3) film companies did not question the union's majority,
the Philippine Musicians Guild is hereby declared as the sole collective bargaining
representative for all the musicians employed by the film companies."

We are fully in agreement with the foregoing conclusion and the reasons given in support
thereof. Both are substantially in line with the spirit of our decision in Maligaya Ship Watchmen
Agency vs. Associated Watchmen and Security Union, L-12214-17 (May 28, 1958). In fact, the
contention of the employers in the Maligaya cases, to the effect that they had dealt with
independent contractors, was stronger than that of the film companies in these cases. The third
parties with whom the management and the workers contracted in the Maligaya cases were
agencies registered with the Bureau of Commerce and duly licensed by the City of Manila to
engage in the business of supplying watchmen to steamship companies, with permits to engage
in said business issued by the City Mayor and the Collector of Customs. In the cases at bar, the
musical directors with whom the film companies claim to have dealt with
had nothing comparable to the business standing of said watchmen agencies. In this respect,
the status of said musical directors is analogous to that of the alleged independent contractor
in Caro vs. Rilloraza, L-9569 (September 30, 1957), with the particularity that the Caro case
involved the enforcement of the liability of an employer under the Workmen's Compensation
Act, whereas the cases before us are merely concerned with the right of the Guild
to represent the musicians as a collective bargaining unit. Hence, there is less reason to be
legalistic and technical in these cases, than in the Caro case.

Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe Coconut
Product Co., Inc vs. CIR(46 Off. Gaz., 5506, 5509), Philippine Manufacturing Co. vs. Santos
Vda. de Geronimo, L-6968 (November 29, 1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956),
and Josefa Vda. de Cruz vs. The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the
theory of said petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is
authority for herein respondents-appellees. It was held that, although engaged as piece-
workers, under the "pakiao" system, the "parers" and "shellers" in the case were, not
independent contractor, but employees of said company, because "the requirement imposed on
the 'parers' to the effect that 'the nuts are pared whole or that there is not much meat wasted,' in
effect limits or controls the means or details by which said workers are to accomplish their
services" — as in the cases before us.

The nature of the relation between the parties was not settled in the Viana case, the same
having been remanded to the Workmen's Compensation Commission for further evidence.

The case of the Philippine Manufacturing Co. involved a contract between said company and
Eliano Garcia, who undertook to paint a tank of the former. Garcia, in turn engaged the services
of Arcadio Geronimo, a laborer, who fell while painting the tank and died in consequence of the
injuries thus sustained by him. Inasmuch as the company was engaged in the manufacture of
soap, vegetable lard, cooking oil and margarine, it was held that the connection between its
business and the painting aforementioned was purely casual; that Eliano Garcia was an
independent contractor; that Geronimo was not an employee of the company; and that the latter
was not bound, therefore, to pay the compensation provided in the Workmen's Compensation
Act. Unlike the Philippine Manufacturing case, the relation between the business of herein
petitioners-appellants and the work of the musicians is not casual. As held in the order appealed
from which, in this respect, is not contested by herein petitioners-appellants — "the work of the
musicians is an integral part of the entire motion picture." Indeed, one can hardly find modern
films without music therein. Hence, in the Caro case (supra), the owner and operator of
buildings for rent was held bound to pay the indemnity prescribed in the Workmen's
Compensation Act for the injury suffered by a carpenter while working as such in one of said
buildings even though his services had been allegedly engaged by a third party who had directly
contracted with said owner. In other words, the repair work had not merely a casual connection
with the business of said owner. It was a necessary incident thereof, just as music is in the
production of motion pictures.

The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957) differs
materially from the present cases. It involved the interpretation of Republic Act No. 660, which
amends the law creating and establishing the Government Service Insurance System. No labor
law was sought to be construed in that case. In act, the same was originally heard in the Court
of First Instance of Manila, the decision of which was, on appeal, affirmed by the Supreme
Court. The meaning or scope if the term "employee," as used in the Industrial Peace Act
(Republic Act No. 875), was not touched therein. Moreover, the subject matter of said case was
a contract between the management of the Manila Hotel, on the one hand, and Tirso Cruz, on
the other, whereby the latter greed to furnish the former the services of his orchestra, consisting
of 15 musicians, including Tirso Cruz, "from 7:30 p.m. to closing time daily." In the language of
this court in that case, "what pieces the orchestra shall play, and how the music shall be
arranged or directed, the intervals and other details — such are left to the leader's discretion."
This is not situation obtaining in the case at bar. The musical directors above referred to
have no such control over the musicians involved in the present case. Said musical directors
control neither the music to be played, nor the musicians playing it. The film companies
summon the musicians to work, through the musical directors. The film companies, through the
musical directors, fix the date, the time and the place of work. The film companies, not the
musical directors, provide the transportation to and from the studio. The film companies furnish
meal at dinner time.

What is more — in the language of the order appealed from — "during the recording sessions,
the motion picture director who is an employee of the company" — not the musical director —
"supervises the recording of the musicians and tells them what to do in every detail". The motion
picture director — not the musical director — "solely directs and performance of the musicians
before the camera". The motion picture director "supervises the performance of all the
actors, including the musicians who appear in the scenes, so that in the actual performance to
be shown in the screen, the musical director's intervention has stopped." Or, as testified to in
the lower court, "the movie director tells the musical director what to do; tells the music to be cut
or tells additional music in this part or he eliminates the entire music he does not (want) or he
may want more drums or move violin or piano, as the case may be". The movie director "directly
controls the activities of the musicians." He "says he wants more drums and the drummer plays
more" or "if he wants more violin or he does not like that.".

It is well settled that "an employer-employee relationship exists . . .where the person for whom
the services are performed reserves a right to control not only the end to be achieved but also
the means to be used in reaching such end . . . ." (Alabama Highway Express Co., Express Co.,
v. Local 612, 108S. 2d. 350.) The decisive nature of said control over the "means to be used", is
illustrated in the case of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp.
1197, 1199-1201), in which, by reason of said control, the employer-employee relationship was
held to exist between the management and the workers, notwithstanding the intervention of an
alleged independent contractor, who had, and exercise, the power to hire and fire said workers.
The aforementioned control over the means to be used" in reading the desired end is
possessed and exercised by the film companies over the musicians in the cases before us.

WHEREFORE, the order appealed from is hereby affirmed, with costs against petitioners
herein. It is so ordered.

G.R. No. L-32245 May 25, 1979

DY KEH BENG, petitioner,

vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET AL., respondents.

A. M Sikat for petitioner.

D. A. Hernandez for respondents.

DE CASTRO, J.:
Petitioner Dy Keh Beng seeks a review by certiorari of the decision of the Court of Industrial
Relations dated March 23, 1970 in Case No. 3019-ULP and the Court's Resolution en banc of
June 10, 1970 affirming said decision. The Court of Industrial Relations in that case found Dy
Keh Beng guilty of the unfair labor practice acts alleged and order him to

reinstate Carlos Solano and Ricardo Tudla to their former jobs with backwages
from their respective dates of dismissal until fully reinstated without loss to their
right of seniority and of such other rights already acquired by them and/or
allowed by law. 1

Now, Dy Keh Beng assigns the following errors 2 as having been committed by the Court of
Industrial Relations:

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO

AND TUDLA WERE EMPLOYEES OF PETITIONERS.

II

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS SOLANO

AND TUDLA WERE DISMISSED FROM THEIR EMPLOYMENT BY
PETITIONER.

III

RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES

ADDUCED BY COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC) A
PATTERN OF DISCRIMINATION BY THE PETITIONER HEREIN.

IV

RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF

UNFAIR LABOR PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE
COMPLAINT.

RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE

RESPONDENTS TO THEIR FORMER JOBS WITH BACKWAGES FROM
THEIR RESPECTIVE DATES OF DISMISSALS UNTIL FINALLY REINSTATED
WITHOUT LOSS TO THEIR RIGHT OF SENIORITY AND OF SUCH OTHER
RIGHTS ALREADY ACQUIRED BY THEM AND/OR ALLOWED BY LAW.

The facts as found by the Hearing Examiner are as follows:

A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a basket factory,
for discriminatory acts within the meaning of Section 4(a), sub-paragraph (1) and (4). Republic
Act No. 875, 3 by dismissing on September 28 and 29, 1960, respectively, Carlos N. Solano and
Ricardo Tudla for their union activities. After preliminary investigation was conducted, a case
was filed in the Court of Industrial Relations for in behalf of the International Labor and Marine
Union of the Philippines and two of its members, Solano and Tudla In his answer, Dy Keh Beng
contended that he did not know Tudla and that Solano was not his employee because the latter
came to the establishment only when there was work which he did on pakiaw basis, each piece
of work being done under a separate contract. Moreover, Dy Keh Beng countered with a special
defense of simple extortion committed by the head of the labor union, Bienvenido Onayan.

After trial, the Hearing Examiner prepared a report which was subsequently adopted in toto by
the Court of Industrial Relations. An employee-employer relationship was found to have existed
between Dy Keh Beng and complainants Tudla and Solano, although Solano was admitted to
have worked on piece basis.4 The issue therefore centered on whether there existed an
employee employer relation between petitioner Dy Keh Beng and the respondents Solano and
Tudla .

According to the Hearing Examiner, the evidence for the complainant Union tended to show that
Solano and Tudla became employees of Dy Keh Beng from May 2, 1953 and July 15,
1955, 5 respectively, and that except in the event of illness, their work with the establishment
was continuous although their services were compensated on piece basis. Evidence likewise
showed that at times the establishment had eight (8) workers and never less than five (5);
including the complainants, and that complainants used to receive ?5.00 a day. sometimes
less. 6

According to Dy Keh Beng, however, Solano was not his employee for the following reasons:

(1) Solano never stayed long enought at Dy's establishment;

(2) Solano had to leave as soon as he was through with the

(3) order given him by Dy;

(4) When there were no orders needing his services there was nothing for him to
do;

(5) When orders came to the shop that his regular workers could not fill it was
then that Dy went to his address in Caloocan and fetched him for these orders;
and

(6) Solano's work with Dy's establishment was not continuous. , 7

According to petitioner, these facts show that respondents Solano and Tudla are only piece
workers, not employees under Republic Act 875, where an employee 8 is referred to as

shall include any employee and shag not be limited to the employee of a
particular employer unless the Act explicitly states otherwise and shall include
any individual whose work has ceased as a consequence of, or in connection
with any current labor dispute or because of any unfair labor practice and who
has not obtained any other substantially equivalent and regular employment.
while an employer 9

includes any person acting in the interest of an employer, directly or indirectly but
shall not include any labor organization (otherwise than when acting as an
employer) or anyone acting in the capacity of officer or agent of such labor
organization.

Petitioner really anchors his contention of the non-existence of employee-employer relationship

on the control test. He points to the case of Madrigal Shipping Co., Inc. v. Nieves Baens del
Rosario, et al., L-13130, October 31, 1959, where the Court ruled that:

The test ... of the existence of employee and employer relationship is whether
there is an understanding between the parties that one is to render personal
services to or for the benefit of the other and recognition by them of the right of
one to order and control the other in the performance of the work and to direct
the manner and method of its performance.

Petitioner contends that the private respondents "did not meet the control test in the fight of the
... definition of the terms employer and employee, because there was no evidence to show that
petitioner had the right to direct the manner and method of respondent's work. 10 Moreover, it is
argued that petitioner's evidence showed that "Solano worked on a pakiaw basis" and that he
stayed in the establishment only when there was work.

While this Court upholds the control test 11 under which an employer-employee relationship
exists "where the person for whom the services are performed reserves a right to control not
only the end to be achieved but also the means to be used in reaching such end, " it finds no
merit with petitioner's arguments as stated above. It should be borne in mind that the control
test calls merely for the existence of the right to control the manner of doing the work, not the
actual exercise of the right. 12 Considering the finding by the Hearing Examiner that the
establishment of Dy Keh Beng is "engaged in the manufacture of baskets known as kaing, 13 it
is natural to expect that those working under Dy would have to observe, among others, Dy's
requirements of size and quality of the kaing. Some control would necessarily be exercised by
Dy as the making of the kaing would be subject to Dy's specifications. Parenthetically, since the
work on the baskets is done at Dy's establishments, it can be inferred that the proprietor Dy
could easily exercise control on the men he employed.

As to the contention that Solano was not an employee because he worked on piece basis, this
Court agrees with the Hearing Examiner that

circumstances must be construed to determine indeed if payment by the piece is

just a method of compensation and does not define the essence of the relation.
Units of time ... and units of work are in establishments like respondent (sic) just
yardsticks whereby to determine rate of compensation, to be applied whenever
agreed upon. We cannot construe payment by the piece where work is done in
such an establishment so as to put the worker completely at liberty to turn him
out and take in another at pleasure.

At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief Justice Ricardo
Paras who penned the decision in "Sunrise Coconut Products Co. v. Court of Industrial
Relations" (83 Phil..518, 523), opined that
 judicial notice of the fact that the so-called "pakyaw" system mentioned in this
case as generally practiced in our country, is, in fact, a labor contract -between
employers and employees, between capitalists and laborers.

Insofar as the other assignments of errors are concerned, there is no showing that the Court of
Industrial Relations abused its discretion when it concluded that the findings of fact made by the
Hearing Examiner were supported by evidence on the record. Section 6, Republic Act 875
provides that in unfair labor practice cases, the factual findings of the Court of Industrial
Relations are conclusive on the Supreme Court, if supported by substantial evidence. This
provision has been put into effect in a long line of decisions where the Supreme Court did not
reverse the findings of fact of the Court of Industrial Relations when they were supported by
substantial evidence. 14

Nevertheless, considering that about eighteen (18) years have already elapsed from the time
the complainants were dismissed, 15 and that the decision being appealed ordered the payment
of backwages to the employees from their respective dates of dismissal until finally reinstated, it
is fitting to apply in this connection the formula for backwages worked out by Justice Claudio
Teehankee in "cases not terminated sooner." 16 The formula cans for fixing the award of
backwages without qualification and deduction to three years, "subject to deduction where there
are mitigating circumstances in favor of the employer but subject to increase by way of
exemplary damages where there are aggravating circumstances. 17 Considering there are no
such circumstances in this case, there is no reason why the Court should not apply the
abovementioned formula in this instance.

WHEREFORE; the award of backwages granted by the Court of Industrial Relations is herein
modified to an award of backwages for three years without qualification and deduction at the
respective rates of compensation the employees concerned were receiving at the time of
dismissal. The execution of this award is entrusted to the National Labor Relations Commission.
Costs against petitioner.

SO ORDERED.

G.R. No. 120077 October 13, 2000

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA AND
MARCELO G. SANTOS, respondents.

PARDO, J.:

The case before the Court is a petition for certiorari1 to annul the following orders of the National
Labor Relations Commission (hereinafter referred to as "NLRC") for having been issued without
or with excess jurisdiction and with grave abuse of discretion:2

(1) Order of May 31, 1993.3 Reversing and setting aside its earlier resolution of August
28, 1992.4 The questioned order declared that the NLRC, not the Philippine Overseas
Employment Administration (hereinafter referred to as "POEA"), had jurisdiction over
private respondent's complaint;
 (2) Decision of December 15, 1994.5 Directing petitioners to jointly and severally pay
private respondent twelve thousand and six hundred dollars (US$ 12,600.00)
representing salaries for the unexpired portion of his contract; three thousand six
hundred dollars (US$3,600.00) as extra four months salary for the two (2) year period of
his contract, three thousand six hundred dollars (US$3,600.00) as "14th month pay" or a
total of nineteen thousand and eight hundred dollars (US$19,800.00) or its peso
equivalent and attorney's fees amounting to ten percent (10%) of the total award; and

(3) Order of March 30, 1995.6 Denying the motion for reconsideration of the petitioners.

In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos") was an
overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of Oman.
Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing, People's
Republic of China and later terminated due to retrenchment.

Petitioners are the Manila Hotel Corporation (hereinafter referred to as "MHC") and the Manila
Hotel International Company, Limited (hereinafter referred to as "MHICL").

When the case was filed in 1990, MHC was still a government-owned and controlled corporation
duly organized and existing under the laws of the Philippines.

MHICL is a corporation duly organized and existing under the laws of Hong Kong.7 MHC is an
"incorporator" of MHICL, owning 50% of its capital stock.8

By virtue of a "management agreement"9 with the Palace Hotel (Wang Fu Company Limited),
MHICL10 trained the personnel and staff of the Palace Hotel at Beijing, China.

Now the facts.

During his employment with the Mazoon Printing Press in the Sultanate of Oman, respondent
Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt, General Manager,
Palace Hotel, Beijing, China. Mr. Schmidt informed respondent Santos that he was
recommended by one Nestor Buenio, a friend of his.

Mr. Shmidt offered respondent Santos the same position as printer, but with a higher monthly
salary and increased benefits. The position was slated to open on October 1, 1988.11

On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the
offer.

On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to sign
employment contract to respondent Santos. Mr. Henk advised respondent Santos that if the
contract was acceptable, to return the same to Mr. Henk in Manila, together with his passport
and two additional pictures for his visa to China.

On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective June
30, 1988, under the pretext that he was needed at home to help with the family's piggery and
poultry business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henk's
letter. Respondent Santos enclosed four (4) signed copies of the employment contract (dated
June 4, 1988) and notified them that he was going to arrive in Manila during the first week of
July 1988.

The employment contract of June 4, 1988 stated that his employment would commence
September 1, 1988 for a period of two years.12 It provided for a monthly salary of nine hundred
dollars (US$900.00) net of taxes, payable fourteen (14) times a year.13

On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing Press.

On July 1, 1988, respondent Santos arrived in Manila.

On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the
Palace Hotel.14

Subsequently, respondent Santos signed an amended "employment agreement" with the

Palace Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace
Hotel. The Vice President (Operations and Development) of petitioner MHICL Miguel D.
Cergueda signed the employment agreement under the word "noted".

From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He
returned to China and reassumed his post on July 17, 1989.

On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a
handwritten note that respondent Santos be given one (1) month notice of his release from
employment.

On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr.
Shmidt that his employment at the Palace Hotel print shop would be terminated due to business
reverses brought about by the political upheaval in China.15 We quote the letter:16

"After the unfortunate happenings in China and especially Beijing (referring to

Tiannamen Square incidents), our business has been severely affected. To reduce
expenses, we will not open/operate printshop for the time being.

"We sincerely regret that a decision like this has to be made, but rest assured this does
in no way reflect your past performance which we found up to our expectations."

"Should a turnaround in the business happen, we will contact you directly and give you
priority on future assignment."

On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos and
paid all benefits due him, including his plane fare back to the Philippines.

On October 3, 1989, respondent Santos was repatriated to the Philippines.

On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr. Shmidt,
demanding full compensation pursuant to the employment agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:17

His service with the Palace Hotel, Beijing was not abruptly terminated but we followed
the one-month notice clause and Mr. Santos received all benefits due him.

"For your information the Print Shop at the Palace Hotel is still not operational and with a
low business outlook, retrenchment in various departments of the hotel is going on which
is a normal management practice to control costs.

"When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now
shows a better approach.

"In closing, when Mr. Santos received the letter of notice, he hardly showed up for work
but still enjoyed free accommodation/laundry/meals up to the day of his departure."

On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the
Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC). He
prayed for an award of nineteen thousand nine hundred and twenty three dollars
(US$19,923.00) as actual damages, forty thousand pesos (P40,000.00) as exemplary damages
and attorney's fees equivalent to 20% of the damages prayed for. The complaint named MHC,
MHICL, the Palace Hotel and Mr. Shmidt as respondents.

The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in the
proceedings before the Labor Arbiter.18

On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners,
thus:19

"WHEREFORE, judgment is hereby rendered:

"1. directing all the respondents to pay complainant jointly and severally;

"a) $20,820 US dollars or its equivalent in Philippine currency as unearned

salaries;

"b) P50,000.00 as moral damages;

"c) P40,000.00 as exemplary damages; and

"d) Ten (10) percent of the total award as attorney's fees.

"SO ORDERED."

On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC had
jurisdiction over the case.

On August 28, 1992, the NLRC promulgated a resolution, stating:20

 "WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for
want of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.

"SO ORDERED."

On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted
resolution. He argued that the case was not cognizable by the POEA as he was not an
"overseas contract worker."21

On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed Labor
Arbiter Emerson Tumanon to hear the case on the question of whether private respondent was
retrenched or dismissed.22

On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the
testimonial and documentary evidence presented to and heard by him.23

Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National Capital
Region, Arbitration Branch, and the case was transferred to Labor Arbiter Jose G. de Vera.24

On November 25, 1994, Labor Arbiter de Vera submitted his report.25 He found that respondent
Santos was illegally dismissed from employment and recommended that he be paid actual
damages equivalent to his salaries for the unexpired portion of his contract.26

On December 15, 1994, the NLRC ruled in favor of private respondent, to wit:27

"WHEREFORE, finding that the report and recommendations of Arbiter de Vera are
supported by substantial evidence, judgment is hereby rendered, directing the
respondents to jointly and severally pay complainant the following computed contractual
benefits: (1) US$12,600.00 as salaries for the unexpired portion of the parties' contract;
(2) US$3,600.00 as extra four (4) months salary for the two (2) years period (sic) of the
parties' contract; (3) US$3,600.00 as "14th month pay" for the aforesaid two (2) years
contract stipulated by the parties or a total of US$19,800.00 or its peso equivalent, plus
(4) attorney's fees of 10% of complainant's total award.

"SO ORDERED."

On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor Arbiter de
Vera's recommendation had no basis in law and in fact.28

On March 30, 1995, the NLRC denied the motion for reconsideration.29

Hence, this petition.30

On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a
temporary restraining order and/or writ of preliminary injunction and a motion for the annulment
of the entry of judgment of the NLRC dated July 31, 1995.31

On November 20, 1995, the Court denied petitioner's urgent motion. The Court required
respondents to file their respective comments, without giving due course to the petition.32
On March 8, 1996, the Solicitor General filed a manifestation stating that after going over the
petition and its annexes, they can not defend and sustain the position taken by the NLRC in its
assailed decision and orders. The Solicitor General prayed that he be excused from filing a
comment on behalf of the NLRC33

On April 30,1996, private respondent Santos filed his comment.34

On June 26, 1996, the Court granted the manifestation of the Solicitor General and required the
NLRC to file its own comment to the petition.35

On January 7, 1997, the NLRC filed its comment.

The petition is meritorious.

I. Forum Non-Conveniens

The NLRC was a seriously inconvenient forum.

We note that the main aspects of the case transpired in two foreign jurisdictions and the case
involves purely foreign elements. The only link that the Philippines has with the case is that
respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are foreign corporations.
Not all cases involving our citizens can be tried here.

The employment contract. — Respondent Santos was hired directly by the Palace Hotel, a
foreign employer, through correspondence sent to the Sultanate of Oman, where respondent
Santos was then employed. He was hired without the intervention of the POEA or any
authorized recruitment agency of the government.36

Under the rule of forum non conveniens, a Philippine court or agency may assume jurisdiction
over the case if it chooses to do so provided: (1) that the Philippine court is one to which the
parties may conveniently resort to; (2) that the Philippine court is in a position to make an
intelligent decision as to the law and the facts; and (3) that the Philippine court has or is likely to
have power to enforce its decision.37 The conditions are unavailing in the case at bar.

Not Convenient. — We fail to see how the NLRC is a convenient forum given that all the
incidents of the case — from the time of recruitment, to employment to dismissal occurred
outside the Philippines. The inconvenience is compounded by the fact that the proper
defendants, the Palace Hotel and MHICL are not nationals of the Philippines. Neither .are they
"doing business in the Philippines." Likewise, the main witnesses, Mr. Shmidt and Mr. Henk are
non-residents of the Philippines.

No power to determine applicable law. — Neither can an intelligent decision be made as to the
law governing the employment contract as such was perfected in foreign soil. This calls to fore
the application of the principle of lex loci contractus (the law of the place where the contract was
made).38

The employment contract was not perfected in the Philippines. Respondent Santos signified his
acceptance by writing a letter while he was in the Republic of Oman. This letter was sent to the
Palace Hotel in the People's Republic of China.
No power to determine the facts. — Neither can the NLRC determine the facts surrounding the
alleged illegal dismissal as all acts complained of took place in Beijing, People's Republic of
China. The NLRC was not in a position to determine whether the Tiannamen Square incident
truly adversely affected operations of the Palace Hotel as to justify respondent Santos'
retrenchment.

Principle of effectiveness, no power to execute decision. — Even assuming that a proper

decision could be reached by the NLRC, such would not have any binding effect against the
employer, the Palace Hotel. The Palace Hotel is a corporation incorporated under the laws of
China and was not even served with summons. Jurisdiction over its person was not acquired.

This is not to say that Philippine courts and agencies have no power to solve controversies
involving foreign employers. Neither are we saying that we do not have power over an
employment contract executed in a foreign country. If Santos were an "overseas contract
worker", a Philippine forum, specifically the POEA, not the NLRC, would protect him.39 He is not
an "overseas contract worker" a fact which he admits with conviction.40

Even assuming that the NLRC was the proper forum, even on the merits, the NLRC's decision
cannot be sustained.

II. MHC Not Liable

Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that
MHICL was liable for Santos' retrenchment, still MHC, as a separate and distinct juridical entity
cannot be held liable.

True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock.
However, this is not enough to pierce the veil of corporate fiction between MHICL and MHC.

Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud or defend a crime. 41 It
is done only when a corporation is a mere alter ego or business conduit of a person or another
corporation.

In Traders Royal Bank v. Court of Appeals,42 we held that "the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is
not of itself a sufficient reason for disregarding the fiction of separate corporate personalities."

The tests in determining whether the corporate veil may be pierced are: First, the defendant
must have control or complete domination of the other corporation's finances, policy and
business practices with regard to the transaction attacked. There must be proof that the other
corporation had no separate mind, will or existence with respect the act complained of. Second,
control must be used by the defendant to commit fraud or wrong. Third, the aforesaid control or
breach of duty must be the proximate cause of the injury or loss complained of. The absence of
any of the elements prevents the piercing of the corporate veil.43

It is basic that a corporation has a personality separate and distinct from those composing it as
well as from that of any other legal entity to which it may be related.44 Clear and convincing
evidence is needed to pierce the veil of corporate fiction.45 In this case, we find no evidence to
show that MHICL and MHC are one and the same entity.
 III. MHICL not Liable

Respondent Santos predicates MHICL's liability on the fact that MHICL "signed" his employment
contract with the Palace Hotel. This fact fails to persuade us.

First, we note that the Vice President (Operations and Development) of MHICL, Miguel D.
Cergueda signed the employment contract as a mere witness. He merely signed under the word
"noted".

When one "notes" a contract, one is not expressing his agreement or approval, as a party
would.46 In Sichangco v. Board of Commissioners of Immigration,47 the Court recognized that the
term "noted" means that the person so noting has merely taken cognizance of the existence of
an act or declaration, without exercising a judicious deliberation or rendering a decision on the
matter.

Mr. Cergueda merely signed the "witnessing part" of the document. The "witnessing part" of the
document is that which, "in a deed or other formal instrument is that part which comes after the
recitals, or where there are no recitals, after the parties (emphasis ours)."48 As opposed to a
party to a contract, a witness is simply one who, "being present, personally sees or perceives a
thing; a beholder, a spectator, or eyewitness."49 One who "notes" something just makes a "brief
written statement"50 a memorandum or observation.

Second, and more importantly, there was no existing employer-employee relationship between
Santos and MHICL. In determining the existence of an employer-employee relationship, the
following elements are considered:51

"(1) the selection and engagement of the employee;

"(2) the payment of wages;

"(3) the power to dismiss; and

"(4) the power to control employee's conduct."

MHICL did not have and did not exercise any of the aforementioned powers. It did not select
respondent Santos as an employee for the Palace Hotel. He was referred to the Palace Hotel by
his friend, Nestor Buenio. MHICL did not engage respondent Santos to work. The terms of
employment were negotiated and finalized through correspondence between respondent
Santos, Mr. Schmidt and Mr. Henk, who were officers and representatives of the Palace Hotel
and not MHICL. Neither did respondent Santos adduce any proof that MHICL had the power to
control his conduct. Finally, it was the Palace Hotel, through Mr. Schmidt and not MHICL that
terminated respondent Santos' services.

Neither is there evidence to suggest that MHICL was a "labor-only contractor."52 There is no
proof that MHICL "supplied" respondent Santos or even referred him for employment to the
Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the same
entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not enough to
pierce the corporate veil between MHICL and the Palace Hotel.

IV. Grave Abuse of Discretion

Considering that the NLRC was forum non-conveniens and considering further that no
employer-employee relationship existed between MHICL, MHC and respondent Santos, Labor
Arbiter Ceferina J. Diosana clearly had no jurisdiction over respondent's claim in NLRC NCR
Case No. 00-02-01058-90.

Labor Arbiters have exclusive and original jurisdiction only over the following:53

"1. Unfair labor practice cases;

"2. Termination disputes;

"3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;

"4. Claims for actual, moral, exemplary and other forms of damages arising from
employer-employee relations;

"5. Cases arising from any violation of Article 264 of this Code, including questions
involving legality of strikes and lockouts; and

"6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement."

In all these cases, an employer-employee relationship is an indispensable jurisdictional

requirement.

The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to
disputes arising from an employer-employee relationship which can be resolved by reference to
the Labor Code, or other labor statutes, or their collective bargaining agreements. 54

"To determine which body has jurisdiction over the present controversy, we rely on the sound
judicial principle that jurisdiction over the subject matter is conferred by law and is determined
by the allegations of the complaint irrespective of whether the plaintiff is entitled to all or some of
the claims asserted therein."55

The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the complaint.
His failure to dismiss the case amounts to grave abuse of discretion.56

V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the orders
and resolutions of the National Labor Relations Commission dated May 31, 1993, December 15,
1994 and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-
01058-90).

G.R. No. 120969 January 22, 1998

ALEJANDRO MARAGUINOT, JR. and PAULINO ENERO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION (SECOND DIVISION) composed of
Presiding Commissioner RAUL T. AQUINO, Commissioner ROGELIO I. RAYALA and
Commissioner VICTORIANO R. CALAYCAY (Ponente), VIC DEL ROSARIO and VIVA
FIMS, respondents.

DAVIDE, JR., J.:

By way of this special civil action for certiorari under Rule 65 of the Rules of Court, petitioners
seek to annul the 10 February 1995 Decision 1 of the National Labor Relations Commission
(hereafter NLRC), and its 6 April 1995 Resolution 2 denying the motion to reconsider the former
in NLRC-NCR-CA No. 006195-94. The decision reversed that of the Labor Arbiter in NLRC-
NCR-Case No. 00-07-03994-92.

The parties present conflicting sets of facts.

Petitioner Alejandro Maraguinot, Jr. maintains that he was employed by private respondents on
18 July 1989 as part of the filming crew with a salary of P375.00 per week. About four months
later, he was designated Assistant Electrician with a weekly salary of P400.00, which was
increased to P450.00 in May 1990. In June 1991, he was promoted to the rank of Electrician
with a weekly salary of P475.00, which was increased to P539.00 in September 1991.

Petitioner Paulino Enero, on his part, claims that private respondents employed him in June
1990 as a member of the shooting crew with a weekly salary of P375.00, which was increased
to P425.00 in May 1991, then to P475.00 on 21 December 1991.3

Petitioners' tasks consisted of loading, unloading and arranging movie equipment in the
shooting area as instructed by the cameraman, returning the equipment to Viva Films'
warehouse, assisting in the "fixing" of the lighting system, and performing other tasks that the
cameraman and/or director may assign.4

Sometime in May 1992, petitioners sought the assistance of their supervisors, Mrs. Alejandria
Cesario, to facilitate their request that private respondents adjust their salary in accordance with
the minimum wage law. In June 1992, Mrs. Cesario informed petitioners that Mr. Vic del Rosario
would agree to increase their salary only if they signed a blank employment contract. As
petitioners refused to sign, private respondents forced Enero to go on leave in June 1992, then
refused to take him back when he reported for work on 20 July 1992. Meanwhile, Maraguinot
was dropped from the company payroll from 8 to 21 June 1992, but was returned on 22 June
1992. He was again asked to sign a blank employment contract, and when he still refused,
private respondents terminated his services on 20 July 1992. 5 Petitioners thus sued for illegal
dismissal6 before the Labor Arbiter.

On the other hand, private respondents claim that Viva Films (hereafter VIVA) is the trade
name of Viva Productions, Inc., and that it is primarily engaged in the distribution and
exhibition of movies — but not in the business of making movies; in the same vein,
private respondent Vic del Rosario is merely an executive producer, i.e., the financier
who invests a certain sum of money for the production of movies distributed and
exhibited by VIVA.7

Private respondents assert that they contract persons called "producers" — also referred
to as "associate producers"8 — to "produce" or make movies for private respondents;
and contend that petitioners are project employees of the association producers who, in
turn, act as independent contractors. As such, there is no employer-employee
relationship between petitioners and private respondents.

Private respondents further contend that it was the associate producer of the film
"Mahirap Maging Pogi," who hired petitioner Maraguinot. The movie shot from 2 July up
to 22 July 1992, and it was only then that Maraguinot was released upon payment of his
last salary, as his services were no longer needed. Anent petitioner Enero, he was hired
for the movie entitled "Sigaw ng Puso," later re-tired "Narito and Puso." He went on
vacation on 8 June 1992, and by the time he reported for work on 20 July 1992, shooting
for the movie had already been completed.9

After considering both versions of the facts, the Labor Arbiter found as follows:

On the first issue, this Office rules that complainants are the employees of
the respondents. The producer cannot be considered as an independent
contractor but should be considered only as a labor-only contractor and as
such, acts as a mere agent of the real employer, the herein respondent.
Respondents even failed to name and specify who are the producers. Also,
it is an admitted fact that the complainants received their salaries from the
respondents. The case cited by the respondents, Rosario Brothers,
Inc. vs. Ople, 131 SCRA 72 does not apply in this case.

It is very clear also that complainants are doing activities which are
necessary and essential to the business of the respondents, that of movie-
making. Complainant Maraguinot worked as an electrician while
complainant Enero worked as a crew [member]. 10

Hence, the Labor Arbiter, in his decision of 20 December 1993, decreed as follows:

WHEREFORE, judgment is hereby rendered declaring that complainants

were illegally dismissed.

Respondents are hereby ordered to reinstate complainant to their former

positions without loss [of] seniority rights and pay their backwages
starting July 21, 1992 to December 31, 1993 temporarily computed in the
amount of P38,000.00 for complainant Paulino Enero and P46,000.00 for
 complainant Alejandro Maraguinot, Jr. and thereafter until actually
reinstated.

Respondents are ordered to pay also attorney's fees equivalent to ten

(10%) and/or P8,400.00 on top of the award.11

Private respondents appealed to the NLRC (docketed as NLRC NCR-CA No. 006195-94).
In its decision 12 of 10 February 1995, the NLRC found the following circumstances of
petitioners' work "clearly established:"

1. Complainants [petitioners herein] were hired for specific movie projects

and their employment was co-terminus with each movie project the
completion/termination of which are pre-determined, such fact being made
known to complainants at the time of their engagement.

xxx xxx xxx

2 Each shooting unit works on one movie project at a time. And the work of
the shooting units, which work independently from each other, are not
continuous in nature but depends on the availability of movie projects.

3. As a consequence of the non-continuous work of the shooting units, the

total working hours logged by complainants in a month show extreme
variations. . . For instance, complainant Maraguinot worked for
only 1.45 hours in June 1991 but logged a total of 183.25 hours in January
1992. Complainant Enero logged a total of only 31.57 hours in September
1991 but worked for 183.35 hours the next month, October 1991.

4. Further shown by respondents is the irregular work schedule of

complainants on a daily basis. Complainant Maraguinot was supposed to
report on 05 August 1991 but reported only on 30 August 1991, or a gap of
25 days. Complainant Enero worked on 10 September 1991 and his next
scheduled working day was 28 September 1991, a gap of 18 days.

5. The extremely irregular working days and hours of complainants' work

explain the lump sum payment for complainants' services for each movie
project. Hence, complainants were paid a standard weekly salary
regardless of the number of working days and hours they logged in.
Otherwise, if the principle of "no work no pay" was strictly applied,
complainants' earnings for certain weeks would be very negligible.

6. Respondents also alleged that complainants were not prohibited from

working with such movie companies like Regal, Seiko and FPJ Productions
whenever they are not working for the independent movie producers
engaged by respondents . . . This allegation was never rebutted by
complainants and should be deemed admitted.

The NLRC, in reversing the Labor Arbiter, then concluded that these
circumstances, taken together, indicated that complainants (herein petitioners)
were "project employees."
After their motion for reconsideration was denied by the NLRC in its Resolution 13 of 6
April 1995, petitioners filed the instant petition, claiming that the NLRC committed grave
abuse of discretion amounting to lack or excess of jurisdiction in: (1) finding that
petitioners were project employees; (2) ruling that petitioners were not illegally
dismissed; and (3) reversing the decision of the Labor Arbiter.

To support their claim that they were regular (and not project) employees of private
respondents, petitioners cited their performance of activities that were necessary or
desirable in the usual trade or business of private respondents and added that their work
was continuous, i.e., after one project was completed they were assigned to another
project. Petitioners thus considered themselves part of a work pool from which private
respondents drew workers for assignment to different projects. Petitioners lamented that
there was no basis for the NLRC's conclusion that they were project employees, while
the associate producers were independent contractors; and thus reasoned that as
regular employees, their dismissal was illegal since the same was premised on a "false
cause," namely, the completion of a project, which was not among the causes for
dismissal allowed by the Labor Code.

Private respondents reiterate their version of the facts and stress that their evidence
supports the view that petitioners are project employees; point to petitioners' irregular
work load and work schedule; emphasize the NLRC's finding that petitioners never
controverted the allegation that they were not prohibited from working with other movie
companies; and ask that the facts be viewed in the context of the peculiar characteristics
of the movie industry.

The Office of the Solicitor General (OSG) is convinced that this petition is improper since
petitioners raise questions of fact, particularly, the NLRC's finding that petitioners were
project employees, a finding supported by substantial evidence; and submits that
petitioners' reliance on Article 280 of the Labor Code to support their contention that
they should be deemed regular employees is misplaced, as said section "merely
distinguishes between two types of employees, i.e., regular employees and casual
employees, for purposes of determining the right of an employee to certain benefits."

The OSG likewise rejects petitioners' contention that since they were hired not for one
project, but for a series of projects, they should be deemed regular employees.
Citing Mamansag v. NLRC, 14 the OSG asserts that what matters is that there was a time-
frame for each movie project made known to petitioners at the time of their hiring. In
closing, the OSG disagrees with petitioners' claim that the NLRC's classification of the
movie producers as independent contractors had no basis in fact and in law, since, on
the contrary, the NLRC "took pains in explaining its basis" for its decision.

As regards the propriety of this action, which the Office of the Solicitor General takes
issue with, we rule that a special civil action for certiorari under Rule 65 of the Rules of
Court is the proper remedy for one who complains that the NLRC acted in total disregard
of evidence material to or decisive of the controversy. 15 In the instant case, petitioners
allege that the NLRC's conclusions have no basis in fact and in law, hence the petition
may not be dismissed on procedural or jurisdictional grounds.

The judicious resolution of this case hinges upon, first, the determination of whether an
employer-employee relationship existed between petitioners and private respondents or
any one of private respondents. If there was none, then this petition has no merit;
conversely, if the relationship existed, then petitioners could have been unjustly
dismissed.

A related question is whether private respondents are engaged in the business of making
motion pictures. Del Rosario is necessarily engaged in such business as he finances the
production of movies. VIVA, on the other hand, alleges that it does not "make" movies,
but merely distributes and exhibits motion pictures. There being no further proof to this
effect, we cannot rely on this self-serving denial. At any rate, and as will be discussed
below, private respondents' evidence even supports the view that VIVA is engaged in the
business of making movies.

We now turn to the critical issues. Private respondents insist that petitioners are project
employees of associate producers who, in turn, act as independent contractors. It is
settled that the contracting out of labor is allowed only in case of job contracting.
Section 8, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code
describes permissible job contracting in this wise:

Sec. 8. Job contracting. — There is job contracting permissible under the

Code if the following conditions are met:

(1) The contractor carries on an independent

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

(2) The contractor has substantial capital or

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

Assuming that the associate producers are job contractors, they must then be engaged
in the business of making motion pictures. As such, and to be a job contractor under the
preceding description, associate producers must have tools, equipment, machinery,
work premises, and other materials necessary to make motion pictures. However, the
associate producers here have none of these. Private respondents' evidence reveals that
the movie-making equipment are supplied to the producers and owned by VIVA. These
include generators, 16 cables and wooden platforms, 17 cameras and "shooting
equipment;" 18 in fact, VIVA likewise owns the trucks used to transport the
equipment. 19 It is thus clear that the associate producer merely leases the equipment
from VIVA. 20 Indeed, private respondents' Formal Offer of Documentary Evidence stated
one of the purposes of Exhibit "148" as:

To prove further that the independent Producers rented Shooting Unit No. 2
from Viva to finish their films. 21
While the purpose of Exhibits "149," "149-A" and "149-B" was:

[T]o prove that the movies of Viva Films were contracted out to the
different independent Producers who rented Shooting Unit No. 3 with a
fixed budget and time-frame of at least 30 shooting days or 45 days
whichever comes first. 22

Private respondent further narrated that VIVA's generators broke down during
petitioners' last movie project, which forced the associate producer concerned to rent
generators, equipment and crew from another company. 23 This only shows that the
associate producer did not have substantial capital nor investment in the form of tools,
equipment and other materials necessary for making a movie. Private respondents in
effect admit that their producers, especially petitioners' last producer, are not engaged in
permissible job contracting.

If private respondents insist that the associate producers are labor contractors, then
these producers can only be "labor-only" contractors, defined by the Labor Code as
follows:

Art. 106. Contractor or subcontractor. — . . .

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.

A more detailed description is provided by Section 9, Rule VIII, Book III of the
Omnibus Rules Implementing the Labor Code:

Sec. 9. Labor-only contracting. — (a) Any person who undertakes to supply

workers to an employer shall be deemed to be engaged in labor-only
contracting where such person:

(1) Does not have substantial capital or investment in the

form of tools, equipment, machineries, work premises and
other materials; and

(2) The workers recruited and placed by such person are

performing activities which are directly related to the
principal business or operations of the employer in which
workers are habitually employed.

(b) Labor-only contracting as defined herein is

hereby prohibited and the person acting as
contractor shall be considered merely as an
agent or intermediary 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.

(c) For cases not falling under this Article, the

Secretary of Labor shall determine through
appropriate orders whether or not the
contracting out of labor is permissible in the
light of the circumstances of each case and
after considering the operating needs of the
employer and the rights of the workers
involved. In such case, he may prescribe
conditions and restrictions to insure the
protection and welfare of the workers.

As labor-only contracting is prohibited, the law considers the person or entity engaged in
the same a mere agent or intermediary of the direct employer. But even by the preceding
standards, the associate producers of VIVA cannot be considered labor-only contractors
as they did not supply, recruit nor hire the workers. In the instant case, it was Juanita
Cesario, Shooting Unit Supervisor and an employee of VIVA, who recruited crew
members from an "available group of free-lance workers which includes the
complainants Maraguinot and Enero." 24 And in their Memorandum, private respondents
declared that the associate producer "hiresthe services of . . . 6) camera crew which
includes (a) cameraman; (b) the utility crew; (c) the technical staff; (d) generator man and
electrician; (e) clapper; etc. . . . ." 25 This clearly showed that the associate producers did
not supply the workers required by the movie project.

The relationship between VIVA and its producers or associate producers seems to be
that of agency, 26 as the latter make movies on behalf of VIVA, whose business is to
"make" movies. As such, the employment relationship between petitioners and
producers is actually one between petitioners and VIVA, with the latter being the direct
employer.

The employer-employee relationship between petitioners and VIVA can further be

established by the "control test." While four elements are usually considered in
determining the existence of an employment relationship, namely: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and
(d) the employer's power to control of the employee's conduct, the most important
element 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 the
same. 27 These four elements are present here. In their position paper submitted to the
Labor Arbiter, private respondents narrated the following circumstances:

[T]he PRODUCER has to work within the limits of the budget he is given by
the company, for as long as the ultimate finish[ed] product is acceptable to
the company . . .

The ensure that qualify films are produced by the PRODUCER who is an
independent contractor, the company likewise employs a Supervising
PRODUCER, a Project accountant and a Shooting unit supervisor. The
 Company's Supervising PRODUCER is Mr. Eric Cuatico, the Project
accountant varies from time to time, and the Shooting Unit Supervisor is
Ms. Alejandria Cesario.

The Supervising PRODUCER acts as the eyes and ears of the company and
of the Executive Producer to monitor the progress of the PRODUCER's
work accomplishment. He is there usually in the field doing the rounds of
inspection to see if there is any problem that the PRODUCER is
encountering and to assist in threshing out the same so that the film
project will be finished on schedule. He supervises about 3 to 7 movie
projects simultaneously [at] any given time by coordinating with each film
"PRODUCER". The Project Accountant on the other hand assists the
PRODUCER in monitoring the actual expenses incurred because the
company wants to insure that any additional budget requested by the
PRODUCER is really justified and warranted especially when there is a
change of original plans to suit the tast[e] of the company on how a certain
scene must be presented to make the film more interesting and more
commercially viable. (emphasis supplied).

VIVA's control is evident in its mandate that the end result must be a "quality film
acceptable to the company." The means and methods to accomplish the result are
likewise controlled by VIVA, viz., the movie project must be finished within schedule
without exceeding the budget, and additional expenses must be justified; certain scenes
are subject to change to suit the taste of the company; and the Supervising Producer, the
"eyes and ears" of VIVA and del Rosario, intervenes in the movie-making process by
assisting the associate producer in solving problems encountered in making the film.

It may not be validly argued then that petitioners are actually subject to the movie
director's control, and not VIVA's direction. The director merely instructs petitioners on
how to better comply with VIVA's requirements to ensure that a quality film is completed
within schedule and without exceeding the budget. At bottom, the director is akin to a
supervisor who merely oversees the activities of rank-and-file employees with control
ultimately resting on the employer.

Moreover, appointment slips 28 issued to all crew members state:

During the term of this appointment you shall comply with the duties and
responsibilities of your position as well as observe the rules and
regulations promulgated by your superiors and by Top Management.

The words "supervisors" and "Top Management" can only refer to the "supervisors" and
"Top Management" of VIVA. By commanding crew members to observe the rules and
regulations promulgated by VIVA, the appointment slips only emphasize VIVA's control
over petitioners.

Aside from control, the element of selection and engagement is likewise present in the
instant case and exercised by VIVA. A sample appointment slip offered by private
respondents "to prove that members of the shooting crew except the driver are project
employees of the Independent Producers" 29 reads as follows:
 VIVA PRODUCTIONS, INC.
16 Sct. Albano St.
Diliman, Quezon City

PEDRO NICOLAS Date: June 15, 1992

APPOINTMENT SLIP

You are hereby appointed as SOUNDMAN for the film project entitled
"MANAMBIT". This appointment shall be effective upon the
commencement of the said project and shall continue to be effective until
the completion of the same.

For your services you shall receive the daily/weekly/monthly compensation

of P812.50.

During the term of this appointment you shall comply with the duties and
responsibilities of your position as well as observe the rules and
regulations promulgated by your superiors and by Top Management.

V
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s
,

(
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 s
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)

CONFORME:

_________________

Name of appointee

Signed in the presence of:

___________________

Notably, nowhere in the appointment slip does it appear that it was the producer or
associate producer who hired the crew members; moreover, it is VIVA's corporate name
which appears on the heading of the appointment slip. What likewise tells against VIVA is
that it paid petitioners' salaries as evidenced by vouchers, containing VIVA's letterhead,
for that purpose. 30

All the circumstances indicate an employment relationship between petitioners and VIVA
alone, thus the inevitable conclusion is that petitioners are employees only of VIVA.

The next issue is whether petitioners were illegally dismissed. Private respondents
contend that petitioners were project employees whose employment was automatically
terminated with the completion of their respective projects. Petitioners assert that they
were regular employees who were illegally dismissed.

It may not be ignored, however, that private respondents expressly admitted that
petitioners were part of a work pool; 31 and, while petitioners were initially hired possibly
as project employees, they had attained the status of regular employees in view if VIVA's
conduct.

A project employee or a member of a work pool may acquire the status of a regular
employee when the following concur:

1) There is a continuous rehiring of project employees even after cessation of a

project;32 and

2) The tasks performed by the alleged "project employee" are vital, necessary and
indispensable to the usual business or trade of the employer. 33
 However, the length of time during which the employee was continuously re-hired
is not controlling, but merely serves as a badge of regular employment.34

In the instant case, the evidence on record shows that petitioner Enero was employed for
a total of two (2) years and engaged in at least eighteen (18) projects, while petitioner
Maraguinot was employed for some three (3) years and worked on at least twenty-three
(23) projects. 35 Moreover, as petitioners' tasks involved, among other chores, the
loading, unloading and

FILM DATE DATE ASSOCIATE

STARTED COMPLETED PRODUCER

LOVE AT FIRST SIGHT 1/3/90 2/16/90 MARIVIC ONG

PAIKOT-IKOT 1/26/90 3/11/90 EDITH MANUEL

ROCKY & ROLLY 2/13/90 3/29/90 M. ONG

PAIKOT-IKOT (addl. 1/2) 3/12/90 4/3/90 E. MANUEL

ROCKY & ROLLY (2nd contract) 4/6/90 5/20/90 M. ONG

NARDONG TOOTHPICK 4/4/90 5/18/90 JUN CHING

BAKIT KAY TAGAL NG SANDALI 6/26/90 10/20/90 E. MANUEL

BAKIT KAY TAGAL (2nd contract) 8/10/90 9/23/90 E. MANUEL

HINUKAY KO NA ANG LIBINGAN 9/6/90 10/20/90 JUN CHING

MO

MAGING SINO KA MAN 10/25/90 12/8/90 SANDY STA. MARIA

M. SINO KA MAN (2nd contract) 12/9/90 1/22/91 SANDY S

NOEL JUICO 1/29/91 3/14/90 JUN CHING

NOEL JUICO (2nd contract) 3/15/91 4/6/91 JUN CHING

ROBIN GOOD 5/7/91 6/20/91 M. ONG

UTOL KONG HOODLUM # 1 6/23/91 8/6/91 JUN CHING

KAPUTOL NG ISANG AWIT 8/18/91 10/2/91 SANDY S.

DARNA 10/4/91 11/18/91 E. MANUEL

DARNA (addl. 1/2) 11/20/91 12/12/91 E. MANUEL

MAGNONG REHAS 12/13/91 1/27/92 BOBBY GRIMALT

M. REHAS (2nd contract) 1/28/92 3/12/92 B. GRIMALT

 HIRAM NA MUKHA 3/15/92 4/29/92 M. ONG

HIRAM (2nd contract) 5/1/92 6/14/92 M. ONG

KAHIT AKO'Y BUSABOS 5/28/92 7/7/92 JERRY OHARA

SIGAW NG PUSO 7/1/92 8/4/92 M. ONG

SIGAW (addl. 1/2) 8/15/92 9/5/92 M. ONG

NGAYON AT KAILANMAN 9/6/92 10/20/92 SANDY STA. MARIA

While Maraguinot was a member of Shooting Unit III, which made the following movies
(Annex "4-A" of Respondents' Position Paper; OR, 29):

FILM DATE DATE ASSOCIATE

STARTED COMPLETED PRODUCER
GUMAPANG KA SA LUSAK 1/27/90 3/12/90 JUN CHING
PETRANG KABAYO 2/19/90 4/4/90 RUTH GRUTA
LUSAK (2nd contract) 3/14/90 4/27/90 JUN CHING
P. KABAYO (Addl 1/2 contract) 4/21/90 5/13/90 RUTH GRUTA
BADBOY 6/15/90 7/29/90 EDITH MANUEL
BADBOY (2nd contract) 7/30/90 8/21/90 E. MANUEL
ANAK NI BABY AMA 9/2/90 10/16/90 RUTH GRUTA
A.B. AMA (addl 1/2) 10/17/90 11/8/90 RUTH GRUTA
A.B. AMA (addl 2nd 1/2) 11/9/90 12/1/90 R. GRUTA
BOYONG MANALAC 11/30/90 1/14/91 MARIVIC ONG
HUMANAP KA NG PANGET 1/20/91 3/5/91 EDITH MANUEL
H. PANGET(2nd contract) 3/10/91 4/23/91 E. MANUEL
B. MANALAC (2nd contract) 5/22/91 7/5/91 M. ONG
ROBIN GOOD (2nd contract) 7/7/91 8/20/91 M. ONG
PITONG GAMOL 8/30/91 10/13/91 M. ONG
P. GAMOL (2nd contract) 10/14/91 11/27/91 M. ONG
GREASE GUN GANG 12/28/91 2/10/92 E. MANUEL
ALABANG GIRLS (1/2 contract) 3/4/92 3/26/92 M. ONG
BATANG RILES 3/9/92 3/30/92 BOBBY GRIMALT
UTOL KONG HOODLUM (part 2) 3/22/92 5/6/92 B. GRIMALT
UTOL (addl. 1/2 contract) 5/7/92 5/29/92 B. GRIMALT
MANDURUGAS (2nd contract) 5/25/92 7/8/92 JERRY OHARA
MAHIRAP MAGING POGI 7/2/92 8/15/92 M. ONG

arranging of movie equipment in the shooting area as instructed by the

cameramen, returning the equipment to the Viva Films' warehouse, and assisting
in the "fixing" of the lighting system, it may not be gainsaid that these tasks
were vital, necessary and indispensable to the usual business or trade of the
 employer. As regards the underscored phrase, it has been held that this is
ascertained by considering the nature of the work performed and its relation to
the scheme of the particular business or trade in its entirety. 36

A recent pronouncement of this Court anent project or work pool employees who had
attained the status of regular employees proves most instructive:

The denial by petitioners of the existence of a work pool in the company

because their projects were not continuous is amply belied by petitioners
themselves who admit that: . . .

A work pool may exist although the workers in the pool do not receive
salaries and are free to seek other employment during temporary breaks in
the business, provided that the worker shall be available when called to
report of a project. Although primarily applicable to regular seasonal
workers, this set-up can likewise be applied to project workers insofar as
the effect of temporary cessation of work is concerned. This is beneficial to
both the employer and employee for it prevents the unjust situation of
"coddling labor at the expense of capital" and at the same time enables the
workers to attain the status of regular employees. Clearly, the continuous
rehiring of the same set of employees within the framework of the Lao
Group of Companies is strongly indicative that private respondents were
an integral part of a work pool from which petitioners drew its workers for
its various projects.

In a final attempt to convince the Court that private respondents were

indeed project employees, petitioners point out that the workers were not
regularly maintained in the payroll and were free to offer their services to
other companies when there were no on-going projects. This argument
however cannot defeat the workers' status of regularity. We apply by
analogy the vase of Industrial-Commercial-Agricultural Workers
Organization v. CIR [16 SCRA 526, 567-568 (1966)] which deals with regular
seasonal employees. There we held: . . .

Truly, the cessation of construction activities at the end of every project is

a foreseeable suspension of work. Of course, no compensation can be
demanded from the employer because the stoppage of operations at the
end of a project and before the start of a new one is regular and expected
by both parties to the labor relations. Similar to the case of regular
seasonal employees, the employment relation is not severed by merely
being suspended. [citing Manila Hotel Co. v. CIR, 9 SCRA 186 (1963)] The
employees are, strictly speaking, not separated from services but merely
on leave of absence without pay until they are reemployed. Thus we cannot
affirm the argument that non-payment of salary or non-inclusion in the
payroll and the opportunity to seek other employment denote project
employment. 37 (emphasis supplied)

While Lao admittedly involved the construction industry, to which Policy Instruction No.
20/Department Order No. 19 38 regarding work pools specifically applies, there seems to
be no impediment to applying the underlying principles to industries other than the
construction industry. 39 Neither may it be argued that a substantial distinction exists
between the projects undertaken in the construction industry and the motion picture
industry. On the contrary, the raison d' etre of both industries concern projects with a
foreseeable suspension of work.

At this time, we wish to allay any fears that this decision unduly burdens an employer by
imposing a duty to re-hire a project employee even after completion of the project for
which he was hired. The import of this decision is not to impose a positive and sweeping
obligation upon the employer to re-hire project employees. What this decision merely
accomplishes is a judicial recognition of the employment status of a project or work pool
employee in accordance with what is fait accompli, i.e., the continuous re-hiring by the
employer of project or work pool employees who perform tasks necessary or desirable to
the employer's usual business or trade. Let it not be said that this decision "coddles"
labor, for as Lao has ruled, project or work pool employees who have gained the status
of regular employees are subject to the "no work-no pay" principle, to repeat:

A work pool may exist although the workers in the pool do not receive salaries and are
free to seek other employment during temporary breaks in the business, provided that
the worker shall be available when called to report for a project. Although primarily
applicable to regular seasonal workers, this set-up can likewise be applied to project
workers insofar as the effect of temporary cessation of work is concerned. This is
beneficial to both the employer and employee for it prevents the unjust situation of
"coddling labor at the expense of capital" and at the same time enables the workers to
attain the status of regular employees.

The Court's ruling here is meant precisely to give life to the constitutional policy of
strengthening the labor sector, 40 but, we stress, not at the expense of management. Lest
it be misunderstood, this ruling does not mean that simply because an employee is a
project or work pool employee even outside the construction industry, he is
deemed, ipso jure, a regular employee. All that we hold today is that once a project or
work pool employee has been: (1) continuously, as opposed to intermittently, re-hired by
the same employer for the same tasks or nature of tasks; and (2) these tasks are vital,
necessary and indispensable to the usual business or trade of the employer, then the
employee must be deemed a regular employee, pursuant to Article 280 of the Labor Code
and jurisprudence. To rule otherwise would allow circumvention of labor laws in
industries not falling within the ambit of Policy Instruction No. 20/Department Order No.
19, hence allowing the prevention of acquisition of tenurial security by project or work
pool employees who have already gained the status of regular employees by the
employer's conduct.

In closing then, as petitioners had already gained the status of regular employees, their
dismissal was unwarranted, for the cause invoked by private respondents for petitioners'
dismissal, viz.: completion of project, was not, as to them, a valid cause for dismissal
under Article 282 of the Labor Code. As such, petitioners are now entitled to back wages
and reinstatement, without loss of seniority rights and other benefits that may have
accrued. 41 Nevertheless, following the principles of "suspension of work" and "no pay"
between the end of one project and the start of a new one, in computing petitioners' back
wages, the amounts corresponding to what could have been earned during the periods
from the date petitioners were dismissed until their reinstatement when petitioners'
respective Shooting Units were not undertaking any movie projects, should be deducted.
Petitioners were dismissed on 20 July 1992, at a time when Republic Act No. 6715 was
already in effect. Pursuant to Section 34 thereof which amended Section 279 of the Labor
Code of the Philippines and Bustamante v. NLRC, 42 petitioners are entitled to receive full
back wages from the date of their dismissal up to the time of their reinstatement, without
deducting whatever earnings derived elsewhere during the period of illegal dismissal,
subject however, to the above observations.

WHEREFORE, the instant petition is GRANTED. The assailed decision of the National
Labor Relations Commission in NLRC NCR CA No. 006195-94 dated 01 February 1995, as
well as its Resolution dated 6 April 1995, are hereby ANNULLED and SET ASIDE for
having been rendered with grave abuse of discretion, and the decision of the Labor
Arbiter in NLRC NCR Case No. 00-07-03994-92 is REINSTATED, subject, however, to the
modification above mentioned in the computation of back wages.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 138051 June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari1 assailing the 26 March 1999 Decision2 of
the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza
("SONZA"). The Court of Appeals affirmed the findings of the National Labor Relations
Commission ("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case for lack of
jurisdiction.

The Facts

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

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

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

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.3
ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first
year and ₱317,000 for the second and third year of the Agreement. ABS-CBN would pay the
talent fees on the 10th and 25th days of the month.

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

Dear Mr. Lopez,

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

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

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

Thank you for your attention.

Very truly yours,

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

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

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

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

In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to dismiss and
directed the parties to file their respective position papers. The Labor Arbiter ruled:

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

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

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

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

xxx

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

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

peculiar skills and talent as a TV host and a radio broadcaster. Unlike an ordinary
employee, he was free to perform the services he undertook to render in
accordance with his own style. The benefits conferred to complainant under the May
1994 Agreement are certainly very much higher than those generally given to
employees. For one, complainant Sonza’s monthly talent fees amount to a staggering
₱317,000. Moreover, his engagement as a talent was covered by a specific contract.
Likewise, he was not bound to render eight (8) hours of work per day as he worked only
for such number of hours as may be necessary.

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

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

x x x (Emphasis supplied)7

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

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

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

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

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

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

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

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

such that there exist[s] employer-employee relationship between the latter and Mr.
Sonza. On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-
CBN, but of the talent/contractor Mr. Sonza, as expressly admitted by the latter and
MJMDC in the May 1994 Agreement.
 It may not be amiss to state that jurisdiction over the instant controversy indeed belongs
to the regular courts, the same being in the nature of an action for alleged breach of
contractual obligation on the part of respondent-appellee. As squarely apparent from
complainant-appellant’s Position Paper, his claims for compensation for services, ‘13th
month pay’, signing bonus and travel allowance against respondent-appellee are not
based on the Labor Code but rather on the provisions of the May 1994 Agreement, while
his claims for proceeds under Stock Purchase Agreement are based on the latter. A
portion of the Position Paper of complainant-appellant bears perusal:

‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter
contractually bound itself to pay complainant a signing bonus consisting of
shares of stocks…with FIVE HUNDRED THOUSAND PESOS (₱500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an

amount not lower than the amount he was receiving prior to effectivity of (the)
Agreement’.

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

commutable travel benefit amounting to at least One Hundred Fifty Thousand
Pesos (₱150,000.00) per year.’

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that

his contractual relations with ABS-CBN are founded on the New Civil Code, rather than
the Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant
served upon the latter a ‘notice of rescission’ of Agreement with the station, per his letter
dated April 1, 1996, which asserted that instead of referring to unpaid employee benefits,
‘he is waiving and renouncing recovery of the remaining amount stipulated in paragraph
7 of the Agreement but reserves the right to such recovery of the other benefits under
said Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to Dismiss dated July
10, 1996).

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

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

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

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S

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

The Court’s Ruling

We affirm the assailed decision.

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

The present controversy is one of first impression. Although Philippine labor laws and
jurisprudence define clearly the elements of an employer-employee relationship, this is the first
time that the Court will resolve the nature of the relationship between a television and radio
station and one of its "talents." There is no case law stating that a radio and television program
host is an employee of the broadcast station.

The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a
known television and radio personality, and ABS-CBN, one of the biggest television and radio
networks in the country.

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

Employee or Independent Contractor?

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

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

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

A. Selection and Engagement of Employee

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

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

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

B. Payment of Wages

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

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

SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge
and out of the ordinary that they indicate more an independent contractual relationship rather
than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent
fees precisely because of SONZA’s unique skills, talent and celebrity status not possessed by
ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to
demand and receive such huge talent fees for his services. The power to bargain talent fees
way above the salary scales of ordinary employees is a circumstance indicative, but not
conclusive, of an independent contractual relationship.

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

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship.
SONZA failed to show that ABS-CBN could terminate his services on grounds other than breach
of contract, such as retrenchment to prevent losses as provided under labor laws. 23
During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as
"AGENT and Jay Sonza shall faithfully and completely perform each condition of this
Agreement."24 Even if it suffered severe business losses, ABS-CBN could not retrench SONZA
because ABS-CBN remained obligated to pay SONZA’s talent fees during the life of the
Agreement. This circumstance indicates an independent contractual relationship between
SONZA and ABS-CBN.

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

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

D. Power of Control

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

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

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

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

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

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

SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host

the "Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his
work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on
television, and sounded on radio were outside ABS-CBN’s control. SONZA did not have to
render eight hours of work per day. The Agreement required SONZA to attend only rehearsals
and tapings of the shows, as well as pre- and post-production staff meetings.31 ABS-CBN could
not dictate the contents of SONZA’s script. However, the Agreement prohibited SONZA from
criticizing in his shows ABS-CBN or its interests.32 The clear implication is that SONZA had a
free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its
interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished
product of SONZA’s work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-
CBN merely reserved the right to modify the program format and airtime schedule "for more
effective programming."34 ABS-CBN’s sole concern was the quality of the shows and their
standing in the ratings. Clearly, ABS-CBN did not exercise control over the means and methods
of performance of SONZA’s work.

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

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation
to continue paying in full SONZA’s talent fees, did not amount to control over the means and
methods of the performance of SONZA’s work. ABS-CBN could not terminate or discipline
SONZA even if the means and methods of performance of his work - how he delivered his lines
and appeared on television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s
control was limited only to the result of SONZA’s work, whether to broadcast the final product or
not. In either case, ABS-CBN must still pay SONZA’s talent fees in full until the expiry of the
Agreement.
In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that
vaudeville performers were independent contractors although the management reserved the
right to delete objectionable features in their shows. Since the management did not have control
over the manner of performance of the skills of the artists, it could only control the result of the
work by deleting objectionable features.37

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

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

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

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

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

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

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

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

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

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

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

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

MJMDC as Agent of SONZA

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

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

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

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

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

Policy Instruction No. 40

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

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

Affidavits of ABS-CBN’s Witnesses

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

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

to attest on the prevailing practice in the radio and television industry. SONZA views the
affidavits of these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from
denying or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether
to conduct a formal (trial-type) hearing after the submission of the position papers of the parties,
thus:

Section 3. Submission of Position Papers/Memorandum

xxx

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

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

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

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

Talents as Independent Contractors

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

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

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

Different Tax Treatment of Talents and Broadcasters

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

Nature of SONZA’s Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay,
service incentive leave, signing bonus, travel allowance, and amounts due under the Employee
Stock Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that
SONZA’s claims are all based on the May 1994 Agreement and stock option plan, and not
on the Labor Code. Clearly, the present case does not call for an application of the Labor Code
provisions but an interpretation and implementation of the May 1994 Agreement. In effect,
SONZA’s cause of action is for breach of contract which is intrinsically a civil dispute cognizable
by the regular courts.58
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26
March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 164156 September 26, 2006

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
MARLYN NAZARENO, MERLOU GERZON, JENNIFER DEIPARINE, and JOSEPHINE
LERASAN, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. SP No. 76582 and the Resolution denying the motion for reconsideration thereof. The
CA affirmed the Decision2 and Resolution3 of the National Labor Relations Commission (NLRC)
in NLRC Case No. V-000762-2001 (RAB Case No. VII-10-1661-2001) which likewise affirmed,
with modification, the decision of the Labor Arbiter declaring the respondents Marlyn Nazareno,
Merlou Gerzon, Jennifer Deiparine and Josephine Lerasan as regular employees.

The Antecedents

Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is engaged in the broadcasting

business and owns a network of television and radio stations, whose operations revolve around
the broadcast, transmission, and relay of telecommunication signals. It sells and deals in or
otherwise utilizes the airtime it generates from its radio and television operations. It has a
franchise as a broadcasting company, and was likewise issued a license and authority to
operate by the National Telecommunications Commission.

Petitioner employed respondents Nazareno, Gerzon, Deiparine, and Lerasan as production

assistants (PAs) on different dates. They were assigned at the news and public affairs, for
various radio programs in the Cebu Broadcasting Station, with a monthly compensation
of P4,000. They were issued ABS-CBN employees’ identification cards and were required to
work for a minimum of eight hours a day, including Sundays and holidays. They were made to
perform the following tasks and duties:

a) Prepare, arrange airing of commercial broadcasting based on the daily operations log and
digicart of respondent ABS-CBN;

b) Coordinate, arrange personalities for air interviews;

c) Coordinate, prepare schedule of reporters for scheduled news reporting and lead-in or
incoming reports;

d) Facilitate, prepare and arrange airtime schedule for public service announcement and
complaints;
e) Assist, anchor program interview, etc; and

f) Record, log clerical reports, man based control radio.4

Their respective working hours were as follows:

Name Time No. of Hours

1. Marlene Nazareno 4:30 A.M.-8:00 A.M. 7 ½

8:00 A.M.-12:00 noon

2. Jennifer Deiparine 4:30 A.M.-12:00M.N. (sic) 7 ½

3. Joy Sanchez 1:00 P.M.-10:00 P.M.(Sunday) 9 hrs.

9:00 A.M.-6:00 P.M. (WF) 9 hrs.

4. Merlou Gerzon 9:00 A.M.-6:00 P.M. 9 hrs.5

The PAs were under the control and supervision of Assistant Station Manager Dante J. Luzon,
and News Manager Leo Lastimosa.

On December 19, 1996, petitioner and the ABS-CBN Rank-and-File Employees executed a
Collective Bargaining Agreement (CBA) to be effective during the period from December 11,
1996 to December 11, 1999. However, since petitioner refused to recognize PAs as part of the
bargaining unit, respondents were not included to the CBA.6

On July 20, 2000, petitioner, through Dante Luzon, issued a Memorandum informing the PAs
that effective August 1, 2000, they would be assigned to non-drama programs, and that the
DYAB studio operations would be handled by the studio technician. Thus, their revised schedule
and other assignments would be as follows:

Monday – Saturday

4:30 A.M. – 8:00 A.M. – Marlene Nazareno.

Miss Nazareno will then be assigned at the Research Dept.

From 8:00 A.M. to 12:00

4:30 P.M. – 12:00 MN – Jennifer Deiparine

Sunday

5:00 A.M. – 1:00 P.M. – Jennifer Deiparine

1:00 P.M. – 10:00 P.M. – Joy Sanchez

Respondent Gerzon was assigned as the full-time PA of the TV News Department reporting
directly to Leo Lastimosa.

On October 12, 2000, respondents filed a Complaint for Recognition of Regular Employment
Status, Underpayment of Overtime Pay, Holiday Pay, Premium Pay, Service Incentive Pay, Sick
Leave Pay, and 13th Month Pay with Damages against the petitioner before the NLRC. The
Labor Arbiter directed the parties to submit their respective position papers. Upon respondents’
failure to file their position papers within the reglementary period, Labor Arbiter Jose G.
Gutierrez issued an Order dated April 30, 2001, dismissing the complaint without prejudice for
lack of interest to pursue the case. Respondents received a copy of the Order on May 16,
2001.7 Instead of re-filing their complaint with the NLRC within 10 days from May 16, 2001, they
filed, on June 11, 2001, an Earnest Motion to Refile Complaint with Motion to Admit Position
Paper and Motion to Submit Case For Resolution.8 The Labor Arbiter granted this motion in an
Order dated June 18, 2001, and forthwith admitted the position paper of the complainants.
Respondents made the following allegations:

1. Complainants were engaged by respondent ABS-CBN as regular and full-time employees for
a continuous period of more than five (5) years with a monthly salary rate of Four Thousand
(P4,000.00) pesos beginning 1995 up until the filing of this complaint on November 20, 2000.

Machine copies of complainants’ ABS-CBN Employee’s Identification Card and salary vouchers
are hereto attached as follows, thus:

I. Jennifer Deiparine:

Exhibit "A" - ABS-CBN Employee’s Identification Card

Exhibit "B", - ABS-CBN Salary Voucher from Nov.

Exhibit "B-1" & 1999 to July 2000 at P4,000.00

Exhibit "B-2"

Date employed: September 15, 1995

Length of service: 5 years & nine (9) months

II. Merlou Gerzon - ABS-CBN Employee’s Identification Card

Exhibit "C"

Exhibit "D"

Exhibit "D-1" &

Exhibit "D-2" - ABS-CBN Salary Voucher from March

1999 to January 2001 at P4,000.00

Date employed: September 1, 1995

Length of service: 5 years & 10 months

III. Marlene Nazareno

Exhibit "E" - ABS-CBN Employee’s Identification Card

Exhibit "E" - ABS-CBN Salary Voucher from Nov.

Exhibit "E-1" & 1999 to December 2000

Exhibit :E-2"

Date employed: April 17, 1996

Length of service: 5 years and one (1) month

IV. Joy Sanchez Lerasan

Exhibit "F" - ABS-CBN Employee’s Identification Card

Exhibit "F-1" - ABS-CBN Salary Voucher from Aug.

Exhibit "F-2" & 2000 to Jan. 2001

Exhibit "F-3"

Exhibit "F-4" - Certification dated July 6, 2000

Acknowledging regular status of

Complainant Joy Sanchez Lerasan

Signed by ABS-CBN Administrative

Officer May Kima Hife

Date employed: April 15, 1998

Length of service: 3 yrs. and one (1) month9

Respondents insisted that they belonged to a "work pool" from which petitioner chose persons
to be given specific assignments at its discretion, and were thus under its direct supervision and
control regardless of nomenclature. They prayed that judgment be rendered in their favor, thus:

WHEREFORE, premises considered, this Honorable Arbiter is most respectfully prayed, to

issue an order compelling defendants to pay complainants the following:
1. One Hundred Thousand Pesos (P100,000.00) each

and by way of moral damages;

2. Minimum wage differential;

3. Thirteenth month pay differential;

4. Unpaid service incentive leave benefits;

5. Sick leave;

6. Holiday pay;

7. Premium pay;

8. Overtime pay;

9. Night shift differential.

Complainants further pray of this Arbiter to declare them regular and permanent employees of
respondent ABS-CBN as a condition precedent for their admission into the existing union and
collective bargaining unit of respondent company where they may as such acquire or otherwise
perform their obligations thereto or enjoy the benefits due therefrom.

Complainants pray for such other reliefs as are just and equitable under the premises.10

For its part, petitioner alleged in its position paper that the respondents were PAs who basically
assist in the conduct of a particular program ran by an anchor or talent. Among their duties
include monitoring and receiving incoming calls from listeners and field reporters and calls of
news sources; generally, they perform leg work for the anchors during a program or a particular
production. They are considered in the industry as "program employees" in that, as
distinguished from regular or station employees, they are basically engaged by the station for a
particular or specific program broadcasted by the radio station. Petitioner asserted that as PAs,
the complainants were issued talent information sheets which are updated from time to time,
and are thus made the basis to determine the programs to which they shall later be called on to
assist. The program assignments of complainants were as follows:

a. Complainant Nazareno assists in the programs:

1) Nagbagang Balita (early morning edition)

2) Infor Hayupan

3) Arangkada (morning edition)

4) Nagbagang Balita (mid-day edition)

b. Complainant Deiparine assists in the programs:

1) Unzanith

2) Serbisyo de Arevalo

3) Arangkada (evening edition)

4) Balitang K (local version)

5) Abante Subu

6) Pangutana Lang

c. Complainant Gerzon assists in the program:

1) On Mondays and Tuesdays:

(a) Unzanith

(b) Serbisyo de Arevalo

(c) Arangkada (evening edition)

(d) Balitang K (local version)

(e) Abante Sugbu

(f) Pangutana Lang

2) On Thursdays

Nagbagang Balita

3) On Saturdays

(a) Nagbagang Balita

(b) Info Hayupan

(c) Arangkada (morning edition)

(d) Nagbagang Balita (mid-day edition)

4) On Sundays:

(a) Siesta Serenata

(b) Sunday Chismisan

(c) Timbangan sa Hustisya

(d) Sayri ang Lungsod

(e) Haranahan11

Petitioner maintained that PAs, reporters, anchors and talents occasionally "sideline" for other
programs they produce, such as drama talents in other productions. As program employees, a
PA’s engagement is coterminous with the completion of the program, and may be
extended/renewed provided that the program is on-going; a PA may also be assigned to new
programs upon the cancellation of one program and the commencement of another. As such
program employees, their compensation is computed on a program basis, a fixed amount for
performance services irrespective of the time consumed. At any rate, petitioner claimed, as the
payroll will show, respondents were paid all salaries and benefits due them under the law.12

Petitioner also alleged that the Labor Arbiter had no jurisdiction to involve the CBA and interpret
the same, especially since respondents were not covered by the bargaining unit.

On July 30, 2001, the Labor Arbiter rendered judgment in favor of the respondents, and
declared that they were regular employees of petitioner; as such, they were awarded monetary
benefits. The fallo of the decision reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered declaring the
complainants regular employees of the respondent ABS-CBN Broadcasting Corporation and
directing the same respondent to pay complainants as follows:

I - Merlou A. Gerzon P12,025.00

II - Marlyn Nazareno 12,025.00

III - Jennifer Deiparine 12,025.00

IV - Josephine Sanchez Lerazan 12,025.00

_________

P48,100.00

plus ten (10%) percent Attorney’s Fees or a TOTAL aggregate amount of PESOS: FIFTY TWO
THOUSAND NINE HUNDRED TEN (P52,910.00).

Respondent Veneranda C. Sy is absolved from any liability.

SO ORDERED.13

However, the Labor Arbiter did not award money benefits as provided in the CBA on his belief
that he had no jurisdiction to interpret and apply the agreement, as the same was within the
jurisdiction of the Voluntary Arbitrator as provided in Article 261 of the Labor Code.
Respondents’ counsel received a copy of the decision on August 29, 2001. Respondent
Nazareno received her copy on August 27, 2001, while the other respondents received theirs on
September 8, 2001. Respondents signed and filed their Appeal Memorandum on September 18,
2001.

For its part, petitioner filed a motion for reconsideration, which the Labor Arbiter denied and
considered as an appeal, conformably with Section 5, Rule V, of the NLRC Rules of Procedure.
Petitioner forthwith appealed the decision to the NLRC, while respondents filed a partial appeal.

In its appeal, petitioner alleged the following:

1. That the Labor Arbiter erred in reviving or re-opening this case which had long been
dismissed without prejudice for more than thirty (30) calendar days;

2. That the Labor Arbiter erred in depriving the respondent of its Constitutional right to due
process of law;

3. That the Labor Arbiter erred in denying respondent’s Motion for Reconsideration on an
interlocutory order on the ground that the same is a prohibited pleading;

4. That the Labor Arbiter erred when he ruled that the complainants are regular employees of
the respondent;

5. That the Labor Arbiter erred when he ruled that the complainants are entitled to 13th month
pay, service incentive leave pay and salary differential; and

6. That the Labor Arbiter erred when he ruled that complainants are entitled to attorney’s fees.14

On November 14, 2002, the NLRC rendered judgment modifying the decision of the Labor
Arbiter. The fallo of the decision reads:

WHEREFORE, premises considered, the decision of Labor Arbiter Jose G. Gutierrez dated 30
July 2001 is SET ASIDE and VACATED and a new one is entered ORDERING respondent
ABS-CBN Broadcasting Corporation, as follows:

1. To pay complainants of their wage differentials and other benefits arising from the CBA as of
30 September 2002 in the aggregate amount of Two Million Five Hundred, Sixty-One Thousand
Nine Hundred Forty-Eight Pesos and 22/100 (P2,561,948.22), broken down as follows:

a. Deiparine, Jennifer - P 716,113.49

b. Gerzon, Merlou - 716,113.49

c. Nazareno, Marlyn - 716,113.49

d. Lerazan, Josephine Sanchez - 413,607.75

Total - P 2,561,948.22
2. To deliver to the complainants Two Hundred Thirty-Three (233) sacks of rice as of 30
September 2002 representing their rice subsidy in the CBA, broken down as follows:

a. Deiparine, Jennifer - 60 Sacks

b. Gerzon, Merlou - 60 Sacks

c. Nazareno, Marlyn - 60 Sacks

d. Lerazan, Josephine Sanchez - 53 Sacks

Total 233 Sacks; and

3. To grant to the complainants all the benefits of the CBA after 30 September 2002.

SO ORDERED.15

The NLRC declared that the Labor Arbiter acted conformably with the Labor Code when it
granted respondents’ motion to refile the complaint and admit their position paper. Although
respondents were not parties to the CBA between petitioner and the ABS-CBN Rank-and-File
Employees Union, the NLRC nevertheless granted and computed respondents’ monetary
benefits based on the 1999 CBA, which was effective until September 2002. The NLRC also
ruled that the Labor Arbiter had jurisdiction over the complaint of respondents because they
acted in their individual capacities and not as members of the union. Their claim for monetary
benefits was within the context of Article 217(6) of the Labor Code. The validity of respondents’
claim does not depend upon the interpretation of the CBA.

The NLRC ruled that respondents were entitled to the benefits under the CBA because they
were regular employees who contributed to the profits of petitioner through their labor. The
NLRC cited the ruling of this Court in New Pacific Timber & Supply Company v. National Labor
Relations Commission.16

Petitioner filed a motion for reconsideration, which the NLRC denied.

Petitioner thus filed a petition for certiorari under Rule 65 of the Rules of Court before the CA,
raising both procedural and substantive issues, as follows: (a) whether the NLRC acted without
jurisdiction in admitting the appeal of respondents; (b) whether the NLRC committed palpable
error in scrutinizing the reopening and revival of the complaint of respondents with the Labor
Arbiter upon due notice despite the lapse of 10 days from their receipt of the July 30, 2001
Order of the Labor Arbiter; (c) whether respondents were regular employees; (d) whether the
NLRC acted without jurisdiction in entertaining and resolving the claim of the respondents under
the CBA instead of referring the same to the Voluntary Arbitrators as provided in the CBA; and
(e) whether the NLRC acted with grave abuse of discretion when it awarded monetary benefits
to respondents under the CBA although they are not members of the appropriate bargaining
unit.

On February 10, 2004, the CA rendered judgment dismissing the petition. It held that the
perfection of an appeal shall be upon the expiration of the last day to appeal by all parties,
should there be several parties to a case. Since respondents received their copies of the
decision on September 8, 2001 (except respondent Nazareno who received her copy of the
decision on August 27, 2001), they had until September 18, 2001 within which to file their
Appeal Memorandum. Moreover, the CA declared that respondents’ failure to submit their
position paper on time is not a ground to strike out the paper from the records, much less
dismiss a complaint.

Anent the substantive issues, the appellate court stated that respondents are not mere project
employees, but regular employees who perform tasks necessary and desirable in the usual
trade and business of petitioner and not just its project employees. Moreover, the CA added, the
award of benefits accorded to rank-and-file employees under the 1996-1999 CBA is a
necessary consequence of the NLRC ruling that respondents, as PAs, are regular employees.

Finding no merit in petitioner’s motion for reconsideration, the CA denied the same in a
Resolution17 dated June 16, 2004.

Petitioner thus filed the instant petition for review on certiorari and raises the following
assignments of error:

1. THE HONORABLE COURT OF APPEALS ACTED WITHOUT JURISDICTION AND

GRAVELY ERRED IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION
NOTWITHSTANDING THE PATENT NULLITY OF THE LATTER’S DECISION AND
RESOLUTION.

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING

OF THE NLRC FINDING RESPONDENTS REGULAR EMPLOYEES.

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING

OF THE NLRC AWARDING CBA BENEFITS TO RESPONDENTS.18

Considering that the assignments of error are interrelated, the Court shall resolve them
simultaneously.

Petitioner asserts that the appellate court committed palpable and serious error of law when it
affirmed the rulings of the NLRC, and entertained respondents’ appeal from the decision of the
Labor Arbiter despite the admitted lapse of the reglementary period within which to perfect the
same. Petitioner likewise maintains that the 10-day period to appeal must be reckoned from
receipt of a party’s counsel, not from the time the party learns of the decision, that is, notice to
counsel is notice to party and not the other way around. Finally, petitioner argues that the
reopening of a complaint which the Labor Arbiter has dismissed without prejudice is a clear
violation of Section 1, Rule V of the NLRC Rules; such order of dismissal had already attained
finality and can no longer be set aside.

Respondents, on the other hand, allege that their late appeal is a non-issue because it was
petitioner’s own timely appeal that empowered the NLRC to reopen the case. They assert that
although the appeal was filed 10 days late, it may still be given due course in the interest of
substantial justice as an exception to the general rule that the negligence of a counsel binds the
client. On the issue of the late filing of their position paper, they maintain that this is not a
ground to strike it out from the records or dismiss the complaint.

We find no merit in the petition.

We agree with petitioner’s contention that the perfection of an appeal within the statutory or
reglementary period is not only mandatory, but also jurisdictional; failure to do so renders the
assailed decision final and executory and deprives the appellate court or body of the legal
authority to alter the final judgment, much less entertain the appeal. However, this Court has
time and again ruled that in exceptional cases, a belated appeal may be given due course if
greater injustice may occur if an appeal is not given due course than if the reglementary period
to appeal were strictly followed.19 The Court resorted to this extraordinary measure even at the
expense of sacrificing order and efficiency if only to serve the greater principles of substantial
justice and equity.20

In the case at bar, the NLRC did not commit a grave abuse of its discretion in giving Article
22321 of the Labor Code a liberal application to prevent the miscarriage of justice. Technicality
should not be allowed to stand in the way of equitably and completely resolving the rights and
obligations of the parties.22 We have held in a catena of cases that technical rules are not
binding in labor cases and are not to be applied strictly if the result would be detrimental to the
workingman.23

Admittedly, respondents failed to perfect their appeal from the decision of the Labor Arbiter
within the reglementary period therefor. However, petitioner perfected its appeal within the
period, and since petitioner had filed a timely appeal, the NLRC acquired jurisdiction over the
case to give due course to its appeal and render the decision of November 14, 2002. Case law
is that the party who failed to appeal from the decision of the Labor Arbiter to the NLRC can still
participate in a separate appeal timely filed by the adverse party as the situation is considered
to be of greater benefit to both parties.24

We find no merit in petitioner’s contention that the Labor Arbiter abused his discretion when he
admitted respondents’ position paper which had been belatedly filed. It bears stressing that the
Labor Arbiter is mandated by law to use every reasonable means to ascertain the facts in each
case speedily and objectively, without technicalities of law or procedure, all in the interest of due
process.25 Indeed, as stressed by the appellate court, respondents’ failure to submit a position
paper on time is not a ground for striking out the paper from the records, much less for
dismissing a complaint.26 Likewise, there is simply no truth to petitioner’s assertion that it was
denied due process when the Labor Arbiter admitted respondents’ position paper without
requiring it to file a comment before admitting said position paper. The essence of due process
in administrative proceedings is simply an opportunity to explain one’s side or an opportunity to
seek reconsideration of the action or ruling complained of. Obviously, there is nothing in the
records that would suggest that petitioner had absolute lack of opportunity to be
heard.27 Petitioner had the right to file a motion for reconsideration of the Labor Arbiter’s
admission of respondents’ position paper, and even file a Reply thereto. In fact, petitioner filed
its position paper on April 2, 2001. It must be stressed that Article 280 of the Labor Code was
encoded in our statute books to hinder the circumvention by unscrupulous employers of the
employees’ right to security of tenure by indiscriminately and absolutely ruling out all written and
oral agreements inharmonious with the concept of regular employment defined therein.28

We quote with approval the following pronouncement of the NLRC:

The complainants, on the other hand, contend that respondents assailed the Labor Arbiter’s
order dated 18 June 2001 as violative of the NLRC Rules of Procedure and as such is violative
of their right to procedural due process. That while suggesting that an Order be instead issued
by the Labor Arbiter for complainants to refile this case, respondents impliedly submit that there
is not any substantial damage or prejudice upon the refiling, even so, respondents’ suggestion
acknowledges complainants right to prosecute this case, albeit with the burden of repeating the
same procedure, thus, entailing additional time, efforts, litigation cost and precious time for the
Arbiter to repeat the same process twice. Respondent’s suggestion, betrays its notion of
prolonging, rather than promoting the early resolution of the case.

Although the Labor Arbiter in his Order dated 18 June 2001 which revived and re-opened the
dismissed case without prejudice beyond the ten (10) day reglementary period had inadvertently
failed to follow Section 16, Rule V, Rules Procedure of the NLRC which states:

"A party may file a motion to revive or re-open a case dismissed without prejudice within ten
(10) calendar days from receipt of notice of the order dismissing the same; otherwise, his only
remedy shall be to re-file the case in the arbitration branch of origin."

the same is not a serious flaw that had prejudiced the respondents’ right to due process. The
case can still be refiled because it has not yet prescribed. Anyway, Article 221 of the Labor
Code provides:

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

The admission by the Labor Arbiter of the complainants’ Position Paper and Supplemental
Manifestation which were belatedly filed just only shows that he acted within his discretion as he
is enjoined by law to use every reasonable means to ascertain the facts in each case speedily
and objectively, without regard to technicalities of law or procedure, all in the interest of due
process. Indeed, the failure to submit a position paper on time is not a ground for striking out the
paper from the records, much less for dismissing a complaint in the case of the complainant.
(University of Immaculate Conception vs. UIC Teaching and Non-Teaching Personnel
Employees, G.R. No. 144702, July 31, 2001).

"In admitting the respondents’ position paper albeit late, the Labor Arbiter acted within her
discretion. In fact, she is enjoined by law to use every reasonable means to ascertain the facts
in each case speedily and objectively, without technicalities of law or procedure, all in the
interest of due process". (Panlilio vs. NLRC, 281 SCRA 53).

The respondents were given by the Labor Arbiter the opportunity to submit position paper. In
fact, the respondents had filed their position paper on 2 April 2001. What is material in the
compliance of due process is the fact that the parties are given the opportunities to submit
position papers.

"Due process requirements are satisfied where the parties are given the opportunities to submit
position papers". (Laurence vs. NLRC, 205 SCRA 737).

Thus, the respondent was not deprived of its Constitutional right to due process of law.29

We reject, as barren of factual basis, petitioner’s contention that respondents are considered as
its talents, hence, not regular employees of the broadcasting company. Petitioner’s claim that
the functions performed by the respondents are not at all necessary, desirable, or even vital to
its trade or business is belied by the evidence on record.

Case law is that this Court has always accorded respect and finality to the findings of fact of the
CA, particularly if they coincide with those of the Labor Arbiter and the National Labor Relations
Commission, when supported by substantial evidence.30 The question of whether respondents
are regular or project employees or independent contractors is essentially factual in nature;
nonetheless, the Court is constrained to resolve it due to its tremendous effects to the legions of
production assistants working in the Philippine broadcasting industry.

We agree with respondents’ contention that where a person has rendered at least one year of
service, regardless of the nature of the activity performed, or where the work is continuous or
intermittent, the employment is considered regular as long as the activity exists, the reason
being that a customary appointment is not indispensable before one may be formally declared
as having attained regular status. Article 280 of the Labor Code provides:

ART. 280. REGULAR AND CASUAL EMPLOYMENT.—The provisions of written agreement to

the contrary notwithstanding and regardless of the oral agreement of the parties, an
employment shall be deemed to be regular where the employee has been engaged to perform
activities which are usually necessary or desirable in the usual business or trade of the
employer except where the employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of the engagement of the
employee or where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season.

In Universal Robina Corporation v. Catapang,31 the Court reiterated the test in determining
whether one is a regular employee:

The primary standard, therefore, of determining regular employment is the reasonable

connection between the particular activity performed by the employee in relation to the usual
trade or business of the employer. The test is whether the former is usually necessary or
desirable in the usual business or trade of the employer. The connection can be determined by
considering the nature of work performed and its relation to the scheme of the particular
business or trade in its entirety. Also, if the employee has been performing the job for at least a
year, even if the performance is not continuous and merely intermittent, the law deems repeated
and continuing need for its performance as sufficient evidence of the necessity if not
indispensability of that activity to the business. Hence, the employment is considered regular,
but only with respect to such activity and while such activity exists.32

As elaborated by this Court in Magsalin v. National Organization of Working Men:33

Even while the language of law might have been more definitive, the clarity of its spirit and
intent, i.e., to ensure a "regular" worker’s security of tenure, however, can hardly be doubted. In
determining whether an employment should be considered regular or non-regular, the
applicable test is the reasonable connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer. The standard, supplied by
the law itself, is whether the work undertaken is necessary or desirable in the usual business or
trade of the employer, a fact that can be assessed by looking into the nature of the services
rendered and its relation to the general scheme under which the business or trade is pursued in
the usual course. It is distinguished from a specific undertaking that is divorced from the normal
activities required in carrying on the particular business or trade. But, although the work to be
performed is only for a specific project or seasonal, where a person thus engaged has been
performing the job for at least one year, even if the performance is not continuous or is merely
intermittent, the law deems the repeated and continuing need for its performance as being
sufficient to indicate the necessity or desirability of that activity to the business or trade of the
employer. The employment of such person is also then deemed to be regular with respect to
such activity and while such activity exists.34

Not considered regular employees are "project employees," the completion or termination of
which is more or less determinable at the time of employment, such as those employed in
connection with a particular construction project, and "seasonal employees" whose employment
by its nature is only desirable for a limited period of time. Even then, any employee who has
rendered at least one year of service, whether continuous or intermittent, is deemed regular with
respect to the activity performed and while such activity actually exists.

It is of no moment that petitioner hired respondents as "talents." The fact that respondents
received pre-agreed "talent fees" instead of salaries, that they did not observe the required
office hours, and that they were permitted to join other productions during their free time are not
conclusive of the nature of their employment. Respondents cannot be considered "talents"
because they are not actors or actresses or radio specialists or mere clerks or utility employees.
They are regular employees who perform several different duties under the control and direction
of ABS-CBN executives and supervisors.

Thus, there are two kinds of regular employees under the law: (1) those engaged to perform
activities which are necessary or desirable in the usual business or trade of the employer; and
(2) those casual employees who have rendered at least one year of service, whether continuous
or broken, with respect to the activities in which they are employed.35

The law overrides such conditions which are prejudicial to the interest of the worker whose
weak bargaining situation necessitates the succor of the State. What determines whether a
certain employment is regular or otherwise is not the will or word of the employer, to which the
worker oftentimes acquiesces, much less the procedure of hiring the employee or the manner of
paying the salary or the actual time spent at work. It is the character of the activities performed
in relation to the particular trade or business taking into account all the circumstances, and in
some cases the length of time of its performance and its continued existence.36 It is obvious that
one year after they were employed by petitioner, respondents became regular employees by
operation of law.37

Additionally, respondents cannot be considered as project or program employees because no

evidence was presented to show that the duration and scope of the project were determined or
specified at the time of their engagement. Under existing jurisprudence, project could refer to
two distinguishable types of activities. First, a project may refer to a particular job or undertaking
that is within the regular or usual business of the employer, but which is distinct and separate,
and identifiable as such, from the other undertakings of the company. Such job or undertaking
begins and ends at determined or determinable times. Second, the term project may also refer
to a particular job or undertaking that is not within the regular business of the employer. Such a
job or undertaking must also be identifiably separate and distinct from the ordinary or regular
business operations of the employer. The job or undertaking also begins and ends at
determined or determinable times.38
The principal test is whether or not the project employees were assigned to carry out a specific
project or undertaking, the duration and scope of which were specified at the time the
employees were engaged for that project.39

In this case, it is undisputed that respondents had continuously performed the same activities
for an average of five years. Their assigned tasks are necessary or desirable in the usual
business or trade of the petitioner. The persisting need for their services is sufficient evidence of
the necessity and indispensability of such services to petitioner’s business or trade.40 While
length of time may not be a sole controlling test for project employment, it can be a strong factor
to determine whether the employee was hired for a specific undertaking or in fact tasked to
perform functions which are vital, necessary and indispensable to the usual trade or business of
the employer.41 We note further that petitioner did not report the termination of respondents’
employment in the particular "project" to the Department of Labor and Employment Regional
Office having jurisdiction over the workplace within 30 days following the date of their separation
from work, using the prescribed form on employees’ termination/ dismissals/suspensions.42

As gleaned from the records of this case, petitioner itself is not certain how to categorize
respondents. In its earlier pleadings, petitioner classified respondents as program employees,
and in later pleadings, independent contractors. Program employees, or project employees, are
different from independent contractors because in the case of the latter, no employer-employee
relationship exists.

Petitioner’s reliance on the ruling of this Court in Sonza v. ABS-CBN Broadcasting

Corporation43 is misplaced. In that case, the Court explained why Jose Sonza, a well-known
television and radio personality, was an independent contractor and not a regular employee:

A. Selection and Engagement of Employee

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

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

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

B. Payment of Wages

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

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

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

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of
SONZA as an independent contractor. The parties expressly agreed on such mode of payment.
Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn
over any talent fee accruing under the Agreement.44

In the case at bar, however, the employer-employee relationship between petitioner and
respondents has been proven.

First. In the selection and engagement of respondents, no peculiar or unique skill, talent or
celebrity status was required from them because they were merely hired through petitioner’s
personnel department just like any ordinary employee.

Second. The so-called "talent fees" of respondents correspond to wages given as a result of an
employer-employee relationship. Respondents did not have the power to bargain for huge talent
fees, a circumstance negating independent contractual relationship.

Third. Petitioner could always discharge respondents should it find their work unsatisfactory,
and respondents are highly dependent on the petitioner for continued work.

Fourth. The degree of control and supervision exercised by petitioner over respondents through
its supervisors negates the allegation that respondents are independent contractors.

The presumption is that when the work done is an integral part of the regular business of the
employer and when the worker, relative to the employer, does not furnish an independent
business or professional service, such work is a regular employment of such employee and not
an independent contractor.45 The Court will peruse beyond any such agreement to examine the
facts that typify the parties’ actual relationship.46

It follows then that respondents are entitled to the benefits provided for in the existing CBA
between petitioner and its rank-and-file employees. As regular employees, respondents are
entitled to the benefits granted to all other regular employees of petitioner under the CBA.47 We
quote with approval the ruling of the appellate court, that the reason why production assistants
were excluded from the CBA is precisely because they were erroneously classified and treated
as project employees by petitioner:

x x x The award in favor of private respondents of the benefits accorded to rank-and-file

employees of ABS-CBN under the 1996-1999 CBA is a necessary consequence of public
respondent’s ruling that private respondents as production assistants of petitioner are regular
employees. The monetary award is not considered as claims involving the interpretation or
implementation of the collective bargaining agreement. The reason why production assistants
were excluded from the said agreement is precisely because they were classified and treated as
project employees by petitioner.

As earlier stated, it is not the will or word of the employer which determines the nature of
employment of an employee but the nature of the activities performed by such employee in
relation to the particular business or trade of the employer. Considering that We have clearly
found that private respondents are regular employees of petitioner, their exclusion from the said
CBA on the misplaced belief of the parties to the said agreement that they are project
employees, is therefore not proper. Finding said private respondents as regular employees and
not as mere project employees, they must be accorded the benefits due under the said
Collective Bargaining Agreement.

A collective bargaining agreement is a contract entered into by the union representing the
employees and the employer. However, even the non-member employees are entitled to the
benefits of the contract. To accord its benefits only to members of the union without any valid
reason would constitute undue discrimination against non-members. A collective bargaining
agreement is binding on all employees of the company. Therefore, whatever benefits are given
to the other employees of ABS-CBN must likewise be accorded to private respondents who
were regular employees of petitioner.48

Besides, only talent-artists were excluded from the CBA and not production assistants who are
regular employees of the respondents. Moreover, under Article 1702 of the New Civil Code: "In
case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety
and decent living of the laborer."

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 76582 are AFFIRMED.
Costs against petitioner.

SO ORDERED.

G.R. No. 169207 March 25, 2010

WPP MARKETING COMMUNICATIONS, INC., JOHN STEEDMAN, MARK WEBSTER, and

NOMINADA LANSANG, Petitioners,
vs.
JOCELYN M. GALERA, Respondent.

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

G.R. No. 169239

JOCELYN M. GALERA, Petitioner,
vs.
WPP MARKETING COMMUNICATIONS, INC., JOHN STEEDMAN, MARK WEBSTER, and
NOMINADA LANSANG, Respondents.

DECISION

CARPIO, Acting C.J.:

The Case

G.R. Nos. 169207 and 169239 are petitions for review1 assailing the Decision2 promulgated on
14 April 2005 as well as the Resolution3 promulgated on 1 August 2005 of the Court of Appeals
(appellate court) in CA-G.R. SP No. 78721. The appellate court granted and gave due course to
the petition filed by Jocelyn M. Galera (Galera). The appellate court’s decision reversed and set
aside that of the National Labor Relations Commission (NLRC), and directed WPP Marketing
Communications, Inc. (WPP) to pay Galera backwages, separation pay, unpaid housing benefit,
unpaid personal and accident insurance benefits, cash value under the company’s pension
plan, 30 days paid holiday benefit, moral damages, exemplary damages, 10% of the total
judgment award as attorney’s fees, and costs of the suit.

The Facts

The appellate court narrated the facts as follows:

Petitioner is Jocelyn Galera (GALERA), a [sic] American citizen who was recruited from the
United States of America by private respondent John Steedman, Chairman-WPP Worldwide
and Chief Executive Officer of Mindshare, Co., a corporation based in Hong Kong, China, to
work in the Philippines for private respondent WPP Marketing Communications, Inc. (WPP), a
corporation registered and operating under the laws of Philippines. GALERA accepted the offer
and she signed an Employment Contract entitled "Confirmation of Appointment and Statement
of Terms and Conditions" (Annex B to Petition for Certiorari). The relevant portions of the
contract entered into between the parties are as follows:

Particulars:
Name : Jocelyn M. Galera
Address : 163 Mediterranean Avenue
Hayward, CA 94544
Position : Managing Director
Mindshare Philippines
Annual Salary : Peso 3,924,000
Start Date : 1 September 1999
Commencement Date : 1 September 1999
(for continuous service)
 Office : Mindshare Manila

6. Housing Allowance

The Company will provide suitable housing in Manila at a maximum cost (including
management fee and other associated costs) of Peso 576,000 per annum.

7. Other benefits.

The Company will provide you with a fully maintained company car and a driver.

The Company will continue to provide medical, health, life and personal accident
insurance plans, to an amount not exceeding Peso 300,000 per annum, in accordance
with the terms of the respective plans, as provided by JWT Manila.

The Company will reimburse you and your spouse one way business class air tickets
from USA to Manila and the related shipping and relocation cost not exceeding
US$5,000 supported by proper documentation. If you leave the Company within one
year, you will reimburse the Company in full for all costs of the initial relocation as
described therein.

You will participate in the JWT Pension Plan under the terms of this plan, the Company
reserves the right to transfer this benefit to a Mindshare Pension Plan in the future, if so
required.

8. Holidays

You are entitled to 20 days paid holiday in addition to public holidays per calendar year
to be taken at times agreed with the Company. Carry-over of unused accrued holiday
entitlement into a new holiday year will not normally be allowed. No payment will be
made for holidays not taken. On termination of your employment, unless you have been
summarily dismissed, you will be entitled to receive payment for unused accrued holiday
pay. Any holiday taken in excess of your entitlement shall be deducted from your final
salary payment.

9. Leave Due to Sickness or Injury

The maximum provision for sick leave is 15 working days per calendar year.

12. Invention/Know-How

Any discovery, invention, improvement in procedure, trademark, trade name, designs,

copyrights or get-ups made, discovered or created by you during the continuance of your
employment hereunder relating to the business of the Company shall belong to and shall
be the absolute property of the Company. If required to do so by the Company (whether
during or after the termination of your employment) you shall at the expense of the
company execute all instruments and do all things necessary to vest in ownership for all
other rights, title and interests (including any registered rights therein) in such discovery,
 invention, improvement in procedure, trademark, trade name, design, copyright or get-up
in the Company (or its Nominee) absolutely and as sole beneficial owner.

14. Notice.

The first three months of your employment will be a trial period during which either you
or the Company may terminate your employment on one week’s notice. If at the end of
that period, the Company is satisfied with your performance, you will become a
permanent employee. Thereafter you will give Company and the Company will give you
three months notice of termination of employment. The above is always subject to the
following: (1) the Company’s right to terminate the contract of employment on no or short
notice where you are in breach of contract; (2) your employment will at any event cease
without notice on your retirement date when you are 60 years of age.

SIGNED JOCELYN M. GALERA 8-16-99

Date of Birth [sic] 12-25-55

Employment of GALERA with private respondent WPP became effective on September 1,

1999 solely on the instruction of the CEO and upon signing of the contract, without any further
action from the Board of Directors of private respondent WPP.

Four months had passed when private respondent WPP filed before the Bureau of Immigration
an application for petitioner GALERA to receive a working visa, wherein she was designated as
Vice President of WPP. Petitioner alleged that she was constrained to sign the application in
order that she could remain in the Philippines and retain her employment.

Then, on December 14, 2000, petitioner GALERA alleged she was verbally notified by private
respondent STEEDMAN that her services had been terminated from private respondent WPP. A
termination letter followed the next day.4

On 3 January 2001, Galera filed a complaint for illegal dismissal, holiday pay, service incentive
leave pay, 13th month pay, incentive plan, actual and moral damages, and attorney’s fees
against WPP and/or John Steedman (Steedman), Mark Webster (Webster) and Nominada
Lansang (Lansang). The case was docketed as NLRC NCR Case No. 30-01-00044-01.

The Labor Arbiter’s Ruling

In his Decision dated 31 January 2002, Labor Arbiter Edgardo M. Madriaga (Arbiter Madriaga)
held WPP, Steedman, Webster, and Lansang liable for illegal dismissal and damages. Arbiter
Madriaga stated that Galera was not only illegally dismissed but was also not accorded due
process. Arbiter Madriaga explained, thus:

[WPP] failed to observe the two-notice rule. [WPP] through respondent Steedman for a five (5)
minute meeting on December 14, 2000 where she was verbally told that as of that day, her
employment was being terminated. [WPP] did not give [Galera] an opportunity to defend herself
and explain her side. [Galera] was even prohibited from reporting for work that day and was told
not to report for work the next day as it would be awkward for her and respondent Steedman to
be in the same premises after her termination. [WPP] only served [Galera] her written notice of
termination only on 15 December 2001, one day after she was verbally apprised thereof.
The law mandates that the dismissal must be properly done otherwise, the termination is
gravely defective and may be declared unlawful as we hereby hold [Galera’s] dismissal to be
illegal and unlawful. Where there is no showing of a clear, valid and legal cause for the
termination of employment, the law considers the matter a case of illegal dismissal and the
burden is on the employer to prove that the termination was for a valid or authorized cause. The
law mandates that both the substantive and procedural aspects of due process should be
observed. The facts clearly show that respondents were remiss on both aspects. Perforce, the
dismissal is void and unlawful.

xxxx

Considering the work performance and achievements of [Galera] for the year 2000, we do not
find any basis for the alleged claim of incompetence by herein respondents. Had [Galera] been
really incompetent, she would not have been able to generate enormous amounts [sic] of
revenues and business for [WPP]. She also appears to be well liked as a leader by her
subordinates, who have come forth in support of [Galera]. These facts remain undisputed by
respondents.

A man’s job being a property right duly protected by our laws, an employer who deprives an
employee [of] the right to defend himself is liable for damages consistent with Article 32 of the
Civil Code. To allow an employer to terminate the employment of his worker based merely on
allegations without proof places the [employee] in an uncertain situation. The unflinching rule in
illegal dismissal cases is that the employer bears the burden of proof.

In the instant case, respondents have not been able to muster evidence to counter [Galera’s]
allegations. [Galera’s] allegations remain and stand absent proof from respondents rebutting
them. Hence, our finding of illegal dismissal against respondents who clearly have conspired in
bad faith to deprive [Galera] of her right to substantive and procedural due process.5

The dispositive portion of Arbiter Madriaga’s decision reads as follows:

WHEREFORE, premises considered, we hereby hold herein respondents liable for illegal
dismissal and damages, and award to [Galera], by virtue of her expatriate status, the following:

a. Reinstatement without loss of seniority rights.

b. Backwages amounting to $120,000 per year at ₱50.00 to US $1 exchange rate, 13th

month pay, transportation and housing benefits.

c. Remuneration for business acquisitions amounting to Two Million Eight Hundred Fifty
Thousand Pesos (₱2,850,000.00) and Media Plowback Incentive equivalent to Three
Million Pesos (₱3,000,000.00) or a total of not less than One Hundred Thousand US
Dollars ($100,000.00).

d. US Tax Protection of up to 35% coverage equivalent to Thirty Eight Thousand US

Dollars ($38,000).

e. Moral damages including implied defamation and punitive damages equivalent to Two
Million Dollars (US$2,000,000.00).
 f. Exemplary damages equivalent to One Million Dollars ($1,000,000.00).

g. Attorney’s fees of 10% of the total award herein.

SO ORDERED.6

The Ruling of the NLRC

The First Division of the NLRC reversed the ruling of Arbiter Madriaga. In its
Decision7 promulgated on 19 February 2003, the NLRC stressed that Galera was WPP’s Vice-
President, and therefore, a corporate officer at the time she was removed by the Board of
Directors on 14 December 2000. The NLRC stated thus:

It matters not that her having been elected by the Board to an added position of being a
member of the Board of Directors did not take effect as her May 31, 2000 election to such
added position was conditioned to be effective upon approval by SEC of the Amended By-Laws,
an approval which took place only in February 21, 2001, i.e., after her removal on December 14,
2000. What counts is, at the time of her removal, she continued to be WPP’s Vice-President, a
corporate officer, on hold over capacity.

Ms. Galera’s claim that she was not a corporate officer at the time of her removal because her
May 31, 2000 election as Vice President for Media, under WPP’s Amended By-Laws, was
subject to the approval by the Securities and Exchange Commission and that the SEC approved
the Amended By-Laws only in February 2001. Such claim is unavailing. Even if Ms. Galera’s
subsequent election as Vice President for Media on May 31, 2000 was subject to approval by
the SEC, she continued to hold her previous position as Vice President under the December 31,
1999 election until such time that her successor is duly elected and qualified. It is a basic
principle in corporation law, which principle is also embodied in WPP’s by-laws, that a corporate
officer continues to hold his position as such until his successor has been duly elected and
qualified. When Ms. Galera was elected as Vice President on December 31, 1999, she was
supposed to have held that position until her successor has been duly elected and qualified.
The record shows that Ms. Galera was not replaced by anyone. She continued to be Vice
President of WPP with the same operational title of Managing Director for Mindshare and
continued to perform the same functions she was performing prior to her May 31, 2000 election.

In the recent case of Dily Dany Nacpil v. International Broadcasting Corp., the definition of
corporate officer for purposes of intra-corporate controversy was even broadened to include a
Comptroller/Assistant Manager who was appointed by the General Manager, and whose
appointment was later approved by the Board of Directors. In this case, the position of
comptroller was not even expressly mentioned in the By-Laws of the corporation, and yet, the
Supreme Court found him to be a corporate officer. The Court ruled that —

(since) petitioner’s appointment as comptroller required the approval and formal action of IBC’s
Board of Directors to become valid, it is clear therefore that petitioner is a corporate officer
whose dismissal may be the subject of a controversy cognizable by the SEC... Had the
petitioner been an ordinary employee, such board action would not have been required.

Such being the case, the imperatives of law require that we hold that the Arbiter below had no
jurisdiction over Galera’s case as, again, she was a corporate officer at the time of her removal.
WHEREFORE, the appeals of petitioner from the Decision of Labor Arbiter Edgardo Madriaga
dated January 31, 2002 and his Order dated March 21, 2002, respectively, are granted. The
January 31, 2002 decision of the Labor Arbiter is set aside for being null and void and the
temporary restraining order we issued on April 24, 2002 is hereby made permanent. The
complaint of Jocelyn Galera is dismissed for lack of jurisdiction.

SO ORDERED.8

In its Resolution9 promulgated on 4 June 2003, the NLRC further stated:

We are fully convinced that this is indeed an intra-corporate dispute which is beyond the labor
arbiter’s jurisdiction. These consolidated cases clearly [involve] the relationship between a
corporation and its officer and is properly within the definition of an intra-corporate relationship
which, under P.D. No. 902-A, is within the jurisdiction of the SEC (now the commercial courts).
Such being the case, We are constrained to rule that the Labor Arbiter below had no jurisdiction
over Ms. Galera’s complaint for illegal dismissal.

WHEREFORE, the motion for reconsideration filed by Ms. Galera is hereby denied for lack of
merit. We reiterate our February 19, 2003 Decision setting aside the Labor Arbiter’s Decision
dated January 31, 2002 for being null and void.

SO ORDERED.10

Galera assailed the NLRC’s decision and resolution before the appellate court and raised a lone
assignment of error.

The National Labor Relations Commission acted with grave abuse of discretion amounting to
lack or excess of jurisdiction when it reversed the decision of the Labor Arbiter not on the merits
but for alleged lack of jurisdiction.11

The Decision of the Appellate Court

The appellate court reversed and set aside the decision of the NLRC. The appellate court ruled
that the NLRC’s dismissal of Galera’s appeal is not in accord with jurisprudence. A person could
be considered a "corporate officer" only if appointed as such by a corporation’s Board of
Directors, or if pursuant to the power given them by either the Articles of Incorporation or the By-
Laws.12

The appellate court explained:

A corporation, through its board of directors, could only act in the manner and within the
formalities, if any, prescribed by its charter or by the general law. If the action of the Board
is ultra vires such is motu proprio void ab initio and without legal effect whatsoever. The by-laws
of a corporation are its own private laws which substantially have the same effect as the laws of
the corporation. They are, in effect, written into the charter. In this sense, they beome part of the
fundamental law of the corporation with which the corporation and its directors and officers must
comply.
Even if petitioner GALERA had been appointed by the Board of Directors on December 31,
1999, private respondent WPP’s By-Laws provided for only one Vice-President, a position
already occupied by private respondent Webster. The same defect also stains the Board of
Directors’ appointment of petitioner GALERA as a Director of the corporation, because at that
time the By-Laws provided for only five directors. In addition, the By-laws only empowered the
Board of Directors to appoint a general manager and/or assistant general manager as corporate
officers in addition to a chairman, president, vice-president and treasurer. There is no mention
of a corporate officer entitled "Managing Director."

Hence, when the Board of Directors enacted the Resolutions of December 31, 1999 and May
31, 2000, it exceeded its authority under the By-Laws and are, therefore, ultra vires. Although
private respondent WPP sought to amend these defects by filing Amended By-Laws with the
Securities and Exchange Commission, they did not validate the ultra vires resolutions because
the Amended By-Laws did not take effect until February 16, 2001, when it was approved by the
SEC. Since by-laws operate only prospectively, they could not validate the ultra
vires resolutions.13

The dispositive portion of the appellate court’s decision reads:

WHEREFORE, the petition is hereby GRANTED and GIVEN DUE COURSE. The assailed
Decision of the National Labor Relations Commission is hereby REVERSED and SET ASIDE
and a new one is entered DIRECTING private respondent WPP MARKETING
COMMUNICATIONS, INC. to:

1. Pay [Galera] backwages at the peso equivalent of US$120,000.00 per annum plus
three months from her summary December 14, 2000 dismissal up to March 14, 2001
because three months notice is required under the contract, plus 13th month pay,
bonuses and general increases to which she would have been normally entitled, had she
not been dismissed and had she not been forced to stop working, including US tax
protection of up to 35% coverage which she had been enjoying as an expatriate;

2. Pay x x x GALERA the peso equivalent of US$185,000.00 separation pay (1 ½ years);

3. Pay x x x GALERA any unpaid housing benefit for the 18 ½ months of her
employment in the service to the Company as an expatriate in Manila, Philippines at the
rate of ₱576,000 per year; unpaid personal and accident insurance benefits for
premiums at the rate of ₱300,000.00 per year; whatever cash value in the JWT Pension
Plan; and thirty days paid holiday benefit under the contract for the 1 ½ calendar years
with the Company;

4. Pay x x x GALERA the reduced amount of PhP2,000,000.00 as moral damages;

5. Pay [Galera] the reduced amount of PhP1,000,000.00 as exemplary damages;

6. Pay [Galera] an amount equivalent to 10% of the judgment award as attorney’s fees;

7. Pay the cost of the suit.

SO ORDERED.14
Respondents filed a motion for reconsideration on 5 May 2005. Galera filed a motion for partial
reconsideration and/or clarification on the same date. The appellate court found no reason to
revise or reverse its previous decision and subsequently denied the motions in a Resolution
promulgated on 1 August 2005.15

The Issues

WPP, Steedman, Webster, and Lansang raised the following grounds in G.R. No. 169207:

I. The Court of Appeals seriously erred in ruling that the NLRC has jurisdiction over
[Galera’s] complaint because she was not an employee. [Galera] was a corporate officer
of WPP from the beginning of her term until her removal from office.

II. Assuming arguendo that the Court of Appeals correctly ruled that the NLRC has
jurisdiction over [Galera’s] complaint, it should have remanded the case to the Labor
Arbiter for reception of evidence on the merits of the case.

III. [Galera] is an alien, hence, can never attain a regular or permanent working status in
the Philippines.

IV. [Galera] is not entitled to recover backwages, other benefits and damages from
WPP.16

On the other hand, in G.R. No. 169239, Galera raised the following grounds in support of her
petition:

The CA decision should be consistent with Article 279 of the Labor Code and applicable
jurisprudence, that full backwages and separation pay (when in lieu of reinstatement), should be
reckoned from time of dismissal up to time of reinstatement (or payment of separation pay, in
case separation instead of reinstatement is awarded).

Accordingly, petitioner Galera should be awarded full backwages and separation pay for the
period from 14 December 2000 until the finality of judgment by the respondents, or, at the very
least, up to the promulgation date of the CA decision.

The individual respondents Steedman, Webster and Lansang must be held solidarily liable with
respondent WPP for the wanton and summary dismissal of petitioner Galera, to be consistent
with law and jurisprudence as well as the specific finding of the CA of bad faith on the part of
respondents.17

This Court ordered the consolidation of G.R. Nos. 169207 and 169239 in a resolution dated 16
January 2006.18

The Ruling of the Court

In its consolidated comment, the Office of the Solicitor General (OSG) recommended that (A)
the Decision dated 14 April 2005 of the appellate court finding (1) Galera to be a regular
employee of WPP; (2) the NLRC to have jurisdiction over the present case; and (3) WPP to
have illegally dismissed Galera, be affirmed; and (B) the case remanded to the Labor Arbiter for
the computation of the correct monetary award. Despite the OSG’s recommendations, we see
that Galera’s failure to seek an employment permit prior to her employment poses a serious
problem in seeking relief before this Court. Hence, we settle the various issues raised by the
parties for the guidance of the bench and bar.

Whether Galera is an Employee or a Corporate Officer

Galera, on the belief that she is an employee, filed her complaint before the Labor Arbiter. On
the other hand, WPP, Steedman, Webster and Lansang contend that Galera is a corporate
officer; hence, any controversy regarding her dismissal is under the jurisdiction of the Regional
Trial Court. We agree with Galera.

Corporate officers are given such character either by the Corporation Code or by the
corporation’s by-laws. Under Section 25 of the Corporation Code, the corporate officers are the
president, secretary, treasurer and such other officers as may be provided in the by-
laws.19 Other officers are sometimes created by the charter or by-laws of a corporation, or the
board of directors may be empowered under the by-laws of a corporation to create additional
offices as may be necessary.

An examination of WPP’s by-laws resulted in a finding that Galera’s appointment as a corporate

officer (Vice-President with the operational title of Managing Director of Mindshare) during a
special meeting of WPP’s Board of Directors is an appointment to a non-existent corporate
office. WPP’s by-laws provided for only one Vice-President. At the time of Galera’s appointment
on 31 December 1999, WPP already had one Vice-President in the person of Webster. Galera
cannot be said to be a director of WPP also because all five directorship positions provided in
the by-laws are already occupied. Finally, WPP cannot rely on its Amended By-Laws to support
its argument that Galera is a corporate officer. The Amended By-Laws provided for more than
one Vice-President and for two additional directors. Even though WPP’s stockholders voted for
the amendment on 31 May 2000, the SEC approved the amendments only on 16 February
2001. Galera was dismissed on 14 December 2000. WPP, Steedman, Webster, and Lansang
did not present any evidence that Galera’s dismissal took effect with the action of WPP’s Board
of Directors.1avvphi1

The appellate court further justified that Galera was an employee and not a corporate officer by
subjecting WPP and Galera’s relationship to the four-fold test: (a) the selection and engagement
of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s
power to control the employee with respect to the means and methods by which the work is to
be accomplished. The appellate court found:

x x x Sections 1 and 4 of the employment contract mandate where and how often she is to
perform her work; sections 3, 5, 6 and 7 show that wages she receives are completely
controlled by x x x WPP; and sections 10 and 11 clearly state that she is subject to the regular
disciplinary procedures of x x x WPP.

Another indicator that she was a regular employee and not a corporate officer is Section 14 of
the contract, which clearly states that she is a permanent employee — not a Vice-President or a
member of the Board of Directors.

xxxx
Another indication that the Employment Contract was one of regular employment is Section 12,
which states that the rights to any invention, discovery, improvement in procedure, trademark,
or copyright created or discovered by petitioner GALERA during her employment shall
automatically belong to private respondent WPP. Under Republic Act 8293, also known as the
Intellectual Property Code, this condition prevails if the creator of the work subject to the laws of
patent or copyright is an employee of the one entitled to the patent or copyright.

Another convincing indication that she was only a regular employee and not a corporate officer
is the disciplinary procedure under Sections 10 and 11 of the Employment Contract, which
states that her right of redress is through Mindshare’s Chief Executive Officer for the Asia-
Pacific. This implies that she was not under the disciplinary control of private respondent WPP’s
Board of Directors (BOD), which should have been the case if in fact she was a corporate officer
because only the Board of Directors could appoint and terminate such a corporate officer.

Although petitioner GALERA did sign the Alien Employment Permit from the Department of
Labor and Employment and the application for a 9(g) visa with the Bureau of Immigration – both
of which stated that she was private respondent’s WPP’ Vice President – these should not be
considered against her. Assurming arguendo that her appointment as Vice-President was a
valid act, it must be noted that these appointments occurred afater she was hired as a regular
employee. After her appointments, there was no appreciable change in her duties.20

Whether the Labor Arbiter and the NLRC

have jurisdiction over the present case

Galera being an employee, then the Labor Arbiter and the NLRC have jurisdiction over the
present case. Article 217 of the Labor Code provides:

Jurisdiction of Labor Arbiters and the Commission. — (a) Except as otherwise provided under
this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide x x
x the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions
involving the legality of strikes and lockouts;

6. Except claims for Employees Compensation, Social Security, Medicare and other
maternity benefits, all other claims, arising from employer-employee relations, including
those of persons in domestic or household service, involving an amount exceeding five
 thousand pesos (₱5,000.00) regardless of whether accompanied with a claim for
reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases
decided by Labor Arbiters.

(c) Cases arising from the interpretation of collective bargaining agreements and
those arising from the interpretation or enforcement of company personnel
policies shall be disposed of by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitration as may be provided in said
agreements.

In contrast, Section 5.2 of Republic Act No. 8799, or the Securities Regulation Code, states:

The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over these cases.
The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one year from the enactment of
this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

The pertinent portions of Section 5 of Presidential Decree No. 902-A, mentioned above, states:

b) Controversies arising out of intra-corporate or partnership relations, between and

among stockholders, members or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association and
the state insofar as it concerns their individual franchise or right to exist as such entity;

c) Controversies in the election or appointments of directors, trustees, officers or

managers of such corporations, partnerships or associations.

Whether WPP illegally dismissed Galera

WPP’s dismissal of Galera lacked both substantive and procedural due process.

Apart from Steedman’s letter dated 15 December 2000 to Galera, WPP failed to prove any just
or authorized cause for Galera’s dismissal. Steedman’s letter to Galera reads:

The operations are currently in a shamble. There is lack of leadership and confidence in your
abilities from within, our agency partners and some clients.

Most of the staff I spoke with felt they got more guidance and direction from Minda than
yourself. In your role as Managing Director, that is just not acceptable.

I believe your priorities are mismanaged. The recent situation where you felt an internal strategy
meeting was more important than a new business pitch is a good example.
You failed to lead and advise on the two new business pitches. In both cases, those involved
sort (sic) Minda’s input. As I discussed with you back in July, my directive was for you to lead
and review all business pitches. It is obvious [that] confusion existed internally right up until the
day of the pitch.

The quality output is still not to an acceptable standard, which was also part of my directive that
you needed to focus on back in July.

I do not believe you understand the basic skills and industry knowledge required to run a media
special operation.21

WPP, Steedman, Webster, and Lansang, however, failed to substantiate the allegations in
Steedman’s letter. Galera, on the other hand, presented documentary evidence22 in the form of
congratulatory letters, including one from Steedman, which contents are diametrically opposed
to the 15 December 2000 letter.

The law further requires that the employer must furnish the worker sought to be dismissed with
two written notices before termination of employment can be legally effected: (1) notice which
apprises the employee of the particular acts or omissions for which his dismissal is sought; and
(2) the subsequent notice which informs the employee of the employer’s decision to dismiss
him. Failure to comply with the requirements taints the dismissal with illegality.23WPP’s acts
clearly show that Galera’s dismissal did not comply with the two-notice rule.

Whether Galera is entitled to the monetary award

WPP, Steedman, Webster, and Lansang argue that Galera is not entitled to backwages
because she is an alien. They further state that there is no guarantee that the Bureau of
Immigration and the Department of Labor and Employment will continue to grant favorable
rulings on the applications for a 9(g) visa and an Alien Employment Permit after the expiry of the
validity of Galera’s documents on 31 December 2000. WPP’s argument is a circular argument,
and assumes what it attempts to prove. Had WPP not dismissed Galera, there is no doubt in our
minds that WPP would have taken action for the approval of documents required for Galera’s
continued employment.

This is Galera’s dilemma: Galera worked in the Philippines without a proper work permit but now
wants to claim employee’s benefits under Philippine labor laws.

Employment of GALERA with private respondent WPP became effective on September 1,

1999 solely on the instruction of the CEO and upon signing of the contract, without any further
action from the Board of Directors of private respondent WPP.

Four months had passed when private respondent WPP filed before the Bureau of
Immigration an application for petitioner GALERA to receive a working visa, wherein she
was designated as Vice President of WPP. Petitioner alleged that she was constrained to sign
the application in order that she could remain in the Philippines and retain her employment.24

The law and the rules are consistent in stating that the employment permit must be
acquired prior to employment. The Labor Code states: "Any alien seeking admission to the
Philippines for employment purposes and any domestic or foreign employer who desires to
engage an alien for employment in the Philippines shall obtain an employment permit from the
Department of Labor."25 Section 4, Rule XIV, Book 1 of the Implementing Rules and Regulations
provides:

Employment permit required for entry. — No alien seeking employment, whether as a resident
or non-resident, may enter the Philippines without first securing an employment permit from the
Ministry. If an alien enters the country under a non-working visa and wishes to be employed
thereafter, he may only be allowed to be employed upon presentation of a duly approved
employment permit.

Galera cannot come to this Court with unclean hands. To grant Galera’s prayer is to sanction
the violation of the Philippine labor laws requiring aliens to secure work permits before their
employment. We hold that the status quo must prevail in the present case and we leave the
parties where they are. This ruling, however, does not bar Galera from seeking relief from other
jurisdictions.

WHEREFORE, we PARTIALLY GRANT the petitions in G.R. Nos. 169207 and 169239.
We SET ASIDE the Decision of the Court of Appeals promulgated on 14 April 2005 as well as
the Resolution promulgated on 1 August 2005 in CA-G.R. SP No. 78721.

SO ORDERED.

G.R. No. 167648 January 28, 2008

TELEVISION AND PRODUCTION EXPONENTS, INC. and/or ANTONIO P.

TUVIERA, petitioners,
vs.
ROBERTO C. SERVAÑA, respondent.

DECISION

TINGA, J.:

This petition for review under Rule 45 assails the 21 December 2004 Decision1 and 8 April 2005
Resolution2 of the Court of Appeals declaring Roberto Servaña (respondent) a regular employee
of petitioner Television and Production Exponents, Inc. (TAPE). The appellate court likewise
ordered TAPE to pay nominal damages for its failure to observe statutory due process in the
termination of respondent’s employment for authorized cause.

TAPE is a domestic corporation engaged in the production of television programs, such as the
long-running variety program, "Eat Bulaga!". Its president is Antonio P. Tuviera (Tuviera).
Respondent Roberto C. Servaña had served as a security guard for TAPE from March 1987
until he was terminated on 3 March 2000.

Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE. He
alleged that he was first connected with Agro-Commercial Security Agency but was later on
absorbed by TAPE as a regular company guard. He was detailed at Broadway Centrum in
Quezon City where "Eat Bulaga!" regularly staged its productions. On 2 March 2000,
respondent received a memorandum informing him of his impending dismissal on account of
TAPE’s decision to contract the services of a professional security agency. At the time of his
termination, respondent was receiving a monthly salary of P6,000.00. He claimed that the
holiday pay, unpaid vacation and sick leave benefits and other monetary considerations were
withheld from him. He further contended that his dismissal was undertaken without due process
and violative of existing labor laws, aggravated by nonpayment of separation pay.3

In a motion to dismiss which was treated as its position paper, TAPE countered that the labor
arbiter had no jurisdiction over the case in the absence of an employer-employee relationship
between the parties. TAPE made the following assertions: (1) that respondent was initially
employed as a security guard for Radio Philippines Network (RPN-9); (2) that he was tasked to
assist TAPE during its live productions, specifically, to control the crowd; (3) that when RPN-9
severed its relationship with the security agency, TAPE engaged respondent’s services, as part
of the support group and thus a talent, to provide security service to production staff, stars and
guests of "Eat Bulaga!" as well as to control the audience during the one-and-a-half hour
noontime program; (4) that it was agreed that complainant would render his services until such
time that respondent company shall have engaged the services of a professional security
agency; (5) that in 1995, when his contract with RPN-9 expired, respondent was retained as a
talent and a member of the support group, until such time that TAPE shall have engaged the
services of a professional security agency; (6) that respondent was not prevented from seeking
other employment, whether or not related to security services, before or after attending to his
"Eat Bulaga!" functions; (7) that sometime in late 1999, TAPE started negotiations for the
engagement of a professional security agency, the Sun Shield Security Agency; and (8) that on
2 March 2000, TAPE issued memoranda to all talents, whose functions would be rendered
redundant by the engagement of the security agency, informing them of the management’s
decision to terminate their services.4

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

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

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

regular employee of TAPE. The Labor Arbiter relied on the nature of the work of respondent,
which is securing and maintaining order in the studio, as necessary and desirable in the usual
business activity of TAPE. The Labor Arbiter also ruled that the termination was valid on the
ground of redundancy, and ordered the payment of respondent’s separation pay equivalent to
one (1)-month pay for every year of service. The dispositive portion of the decision reads:

WHEREFORE, complainant’s position is hereby declared redundant. Accordingly,

respondents are hereby ordered to pay complainant his separation pay computed at the
rate of one (1) month pay for every year of service or in the total amount of P78,000.00.7

On appeal, the National Labor Relations Commission (NLRC) in a Decision8 dated 22 April 2002
reversed the Labor Arbiter and considered respondent a mere program employee, thus:

We have scoured the records of this case and we find nothing to support the Labor
Arbiter’s conclusion that complainant was a regular employee.

xxxx
 The primary standard to determine regularity of employment is the reasonable
connection between the particular activity performed by the employee in relation to the
usual business or trade of the employer. This connection can be determined by
considering the nature and work performed and its relation to the scheme of the
particular business or trade in its entirety. x x x Respondent company is engaged in the
business of production of television shows. The records of this case also show that
complainant was employed by respondent company beginning 1995 after respondent
company transferred from RPN-9 to GMA-7, a fact which complainant does not dispute.
His last salary was P5,444.44 per month. In such industry, security services may not be
deemed necessary and desirable in the usual business of the employer. Even without
the performance of such services on a regular basis, respondent’s company’s business
will not grind to a halt.

xxxx

Complainant was indubitably a program employee of respondent company. Unlike [a]

regular employee, he did not observe working hours x x x. He worked for other
companies, such as M-Zet TV Production, Inc. at the same time that he was working for
respondent company. The foregoing indubitably shows that complainant-appellee was a
program employee. Otherwise, he would have two (2) employers at the same time.9

Respondent filed a motion for reconsideration but it was denied in a Resolution10 dated 28 June
2002.

Respondent filed a petition for certiorari with the Court of Appeals contending that the NLRC
acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it reversed
the decision of the Labor Arbiter. Respondent asserted that he was a regular employee
considering the nature and length of service rendered.11

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

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

SO ORDERED.12

Finding TAPE’s motion for reconsideration without merit, the Court of Appeals issued a
Resolution13 dated 8 April 2005 denying said motion.

TAPE filed the instant petition for review raising substantially the same grounds as those in its
petition for certiorari before the Court of Appeals. These matters may be summed up into one
main issue: whether an employer-employee relationship exists between TAPE and respondent.
On 27 September 2006, the Court gave due course to the petition and considered the case
submitted for decision.14

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

ultimately a question of fact. Generally, only questions of law are entertained in appeals by
certiorari to the Supreme Court. This rule, however, is not absolute. Among the several
recognized exceptions is when the findings of the Court of Appeals and Labor Arbiters, on one
hand, and that of the NLRC, on the other, are conflicting,15 as obtaining in the case at bar.

Jurisprudence is abound with cases that recite the factors to be considered in determining the
existence of employer-employee relationship, namely: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power
to control the employee with respect to the means and method by which the work is to be
accomplished.16 The most important factor involves the control test. Under the control test, there
is an employer-employee relationship when the person for whom the services are performed
reserves the right to control not only the end achieved but also the manner and means used to
achieve that end.17

In concluding that respondent was an employee of TAPE, the Court of Appeals applied the
"four-fold test" in this wise:

First. The selection and hiring of petitioner was done by private respondents. In fact,
private respondents themselves admitted having engaged the services of petitioner only
in 1995 after TAPE severed its relations with RPN Channel 9.

By informing petitioner through the Memorandum dated 2 March 2000, that his services
will be terminated as soon as the services of the newly hired security agency begins,
private respondents in effect acknowledged petitioner to be their employee. For the right
to hire and fire is another important element of the employer-employee relationship.

Second. Payment of wages is one of the four factors to be considered in determining

the existence of employer-employee relation. . . Payment as admitted by private
respondents was given by them on a monthly basis at a rate of P5,444.44.

Third. Of the four elements of the employer-employee relationship, the "control test" is
the most important. x x x

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

TAPE asseverates that the Court of Appeals erred in applying the "four-fold test" in determining
the existence of employer-employee relationship between it and respondent. With respect to the
elements of selection, wages and dismissal, TAPE proffers the following arguments: that it
never hired respondent, instead it was the latter who offered his services as a talent to TAPE;
that the Memorandum dated 2 March 2000 served on respondent was for the discontinuance of
the contract for security services and not a termination letter; and that the talent fees given to
respondent were the pre-agreed consideration for the services rendered and should not be
construed as wages. Anent the element of control, TAPE insists that it had no control over
respondent in that he was free to employ means and methods by which he is to control and
manage the live audiences, as well as the safety of TAPE’s stars and guests.19

The position of TAPE is untenable. Respondent was first connected with Agro-Commercial
Security Agency, which assigned him to assist TAPE in its live productions. When the security
agency’s contract with RPN-9 expired in 1995, respondent was absorbed by TAPE or, in the
latter’s language, "retained as talent."20 Clearly, respondent was hired by TAPE. Respondent
presented his identification card21 to prove that he is indeed an employee of TAPE. It has been
in held that in a business establishment, an identification card is usually provided not just as a
security measure but to mainly identify the holder thereof as a bona fide employee of the firm
who issues it.22

Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE prefers
to designate such amount as talent fees. Wages, as defined in the Labor Code, are
remuneration or earnings, however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a written or
unwritten contract of employment for work done or to be done, or for service rendered or to be
rendered. It is beyond dispute that respondent received a fixed amount as monthly
compensation for the services he rendered to TAPE.

The Memorandum informing respondent of the discontinuance of his service proves that TAPE
had the power to dismiss respondent.

Control is manifested in the bundy cards submitted by respondent in evidence. He was required
to report daily and observe definite work hours. To negate the element of control, TAPE
presented a certification from M-Zet Productions to prove that respondent also worked as a
studio security guard for said company. Notably, the said certificate categorically stated that
respondent reported for work on Thursdays from 1992 to 1995. It can be recalled that during
said period, respondent was still working for RPN-9. As admitted by TAPE, it absorbed
respondent in late 1995.23

TAPE further denies exercising control over respondent and maintains that the latter is an
independent contractor.24Aside from possessing substantial capital or investment, a legitimate
job contractor or subcontractor carries on a distinct and independent business and undertakes
to perform the job, work or service on its own account and under its own responsibility according
to its own manner and method, and free from the control and direction of the principal in all
matters connected with the performance of the work except as to the results thereof.25 TAPE
failed to establish that respondent is an independent contractor. As found by the Court of
Appeals:

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

TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in classifying
respondent as a program employee and equating him to be an independent contractor.

Policy Instruction No. 40 defines program employees as—

x x x those whose skills, talents or services are engaged by the station for a particular or
specific program or undertaking and who are not required to observe normal working
hours such that on some days they work for less than eight (8) hours and on other days
beyond the normal work hours observed by station employees and are allowed to enter
into employment contracts with other persons, stations, advertising agencies or
sponsoring companies. The engagement of program employees, including those hired
by advertising or sponsoring companies, shall be under a written contract specifying,
among other things, the nature of the work to be performed, rates of pay and the
programs in which they will work. The contract shall be duly registered by the station
with the Broadcast Media Council within three (3) days from its consummation.27

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

Even granting arguendo that respondent is a program employee, stills, classifying him as an
independent contractor is misplaced. The Court of Appeals had this to say:

We cannot subscribe to private respondents’ conflicting theories. The theory of private

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

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

Art. 280. Regular and Casual Employment.—The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an
employment shall be deemed to be regular where the employee has been engaged to
perform activities which are usually necessary or desirable in the usual business or trade
of the employer, except where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of
 engagement of the employee or where the work or service to be performed is seasonal
in nature and employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph. Provided, that, any employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be considered a regular employee
with respect to the activity in which he is employed and his employment shall continue
while such activity exists.

As a regular employee, respondent cannot be terminated except for just cause or when
authorized by law.29 It is clear from the tenor of the 2 March 2000 Memorandum that
respondent’s termination was due to redundancy. Thus, the Court of Appeals correctly disposed
of this issue, viz:

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

xxxx

We uphold the finding of the Labor Arbiter that "complainant [herein petitioner] was
terminated upon [the] management’s option to professionalize the security services in its
operations. x x x" However, [we] find that although petitioner’s services [sic] was for an
authorized cause, i.e., redundancy, private respondents failed to prove that it complied
with service of written notice to the Department of Labor and Employment at least one
month prior to the intended date of retrenchment. It bears stressing that although notice
was served upon petitioner through a Memorandum dated 2 March 2000, the effectivity
of his dismissal is fifteen days from the start of the agency’s take over which was on 3
March 2000. Petitioner’s services with private respondents were severed less than the
month requirement by the law.

Under prevailing jurisprudence the termination for an authorized cause requires payment
of separation pay. Procedurally, if the dismissal is based on authorized causes under
Articles 283 and 284, the employer must give the employee and the Deparment of Labor
and Employment written notice 30 days prior to the effectivity of his separation. Where
the dismissal is for an authorized cause but due process was not observed, the
dismissal should be upheld. While the procedural infirmity cannot be cured, it should not
invalidate the dismissal. However, the employer should be liable for non-compliance with
procedural requirements of due process.

xxxx

Under recent jurisprudence, the Supreme Court fixed the amount of P30,000.00 as
nominal damages. The basis of the violation of petitioners’ right to statutory due process
 by the private respondents warrants the payment of indemnity in the form of nominal
damages. The amount of such damages is addressed to the sound discretion of the
court, taking into account the relevant circumstances. We believe this form of damages
would serve to deter employer from future violations of the statutory due process rights
of the employees. At the very least, it provides a vindication or recognition of this
fundamental right granted to the latter under the Labor Code and its Implementing
Rules. Considering the circumstances in the case at bench, we deem it proper to fix it
at P10,000.00.30

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

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

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

SO ORDERED.