DISCUSSION 3

CHAPTER III
G.R. No. 122917, July 12, 1999

MARITES BERNARDO, ELVIRA GO DIAMANTE, REBECCA E. DAVID, DAVID P. PASCUAL,

RAQUEL ESTILLER, ALBERT HALLARE, EDMUND M. CORTEZ, JOSELITO O. AGDON
GEORGE P. LIGUTAN JR., CELSO M. YAZAR, ALEX G. CORPUZ, RONALD M. DELFIN,
ROWENA M. TABAQUERO, CORAZON C. DELOS REYES, ROBERT G. NOORA, MILAGROS
O. LEQUIGAN, ADRIANA F. TATLONGHARI, IKE CABANDUCOS, COCOY NOBELLO,
DORENDA CANTIMBUHAN, ROBERT MARCELO, LILIBETH Q. MARMOLEJO, JOSE E.
SALES, ISABEL MAMAUAG, VIOLETA G. MONTES, ALBINO TECSON, MELODY V.
GRUELA, BERNADETH D. AGERO, CYNTHIA DE VERA, LANI R. CORTEZ, MA. ISABEL B.
CONCEPCION, DINDO VALERIO, ZENAIDA MATA, ARIEL DEL PILAR, MARGARET
CECILIA CANOZA, THELMA SEBASTIAN, MA. JEANETTE CERVANTES, JEANNIE RAMIL,
ROZAIDA PASCUAL, PINKY BALOLOA, ELIZABETH VENTURA, GRACE S. PARDO & RICO
TIMOSA, PETITIONERS VS. NATIONAL LABOR RELATIONS COMMISSION & FAR EAST
BANK AND TRUST COMPANY, RESPONDENTS.

DECISION

PANGANIBAN, J.:

The Magna Carta for Disabled Persons mandates that qualified disabled persons be granted the same terms
and conditions of employment as qualified able-bodied employees. Once they have attained the status of
regular workers, they should be accorded all the benefits granted by law, notwithstanding written or verbal
contracts to the contrary. This treatment is rooted not merely on charity or accommodation, but on justice
for all.

The Case

Challenged in the Petition for Certiorari[1] before us is the June 20, 1995 Decision[2] of the National Labor
Relations Commission (NLRC),[3] which affirmed the August, 22 1994 ruling of Labor Arbiter Cornelio L.
Linsangan. The labor arbiter's Decision disposed as follows:[4]
"WHEREFORE, judgment is hereby rendered dismissing the above-mentioned complaint for lack of
merit."
Also assailed is the August 4, 1995 Resolution[5] of the NLRC, which denied the Motion for
Reconsideration.

The Facts

The facts were summarized by the NLRC in this wise:[6]

"Complainants numbering 43 (p. 176, Records) are deaf-mutes who were hired on various periods from
1988 to 1993 by respondent Far East Bank and Trust Co. as Money Sorters and Counters through a
uniformly worded agreement called `Employment Contract for Handicapped Workers'. (pp. 68 & 69,
Records) The full text of said agreement is quoted below:

`EMPLOYMENT CONTRACT FOR HANDICAPPED WORKERS

This Contract, entered into by and between:

FAR EAST BANK AND TRUST COMPANY, a universal banking corporation duly organized and
existing under and by virtue of the laws of the Philippines, with business address at FEBTC Building,
Muralla, Intramuros, Manila, represented herein by its Assistant Vice President, MR. FLORENDO G.
MARANAN, (hereinafter referred to as the `BANK');

- and -

________________, ________________ years old, of legal age, _____________, and residing at

__________________ (hereinafter referred to as the (`EMPLOYEE').

WITNESSETH: That

WHEREAS, the BANK, cognizant of its social responsibility, realizes that there is a need to provide
disabled and handicapped persons gainful employment and opportunities to realize their potentials, uplift
their socio-economic well being and welfare and make them productive, self-reliant and useful citizens to
enable them to fully integrate in the mainstream of society;

WHEREAS, there are certain positions in the BANK which may be filled-up by disabled and handicapped
persons, particularly deaf-mutes, and the BANK ha[s] been approached by some civic-minded citizens and
authorized government agencies [regarding] the possibility of hiring handicapped workers for these
positions;

WHEREAS, the EMPLOYEE is one of those handicapped workers who [were] recommended for possible
employment with the BANK;

NOW, THEREFORE, for and in consideration of the foregoing premises and in compliance with Article 80
of the Labor Code of the Philippines as amended, the BANK and the EMPLOYEE have entered into this
Employment Contract as follows:

1. The BANK agrees to employ and train the EMPLOYEE, and the EMPLOYEE agrees to
diligently and faithfully work with the BANK, as Money Sorter and Counter.

2. The EMPLOYEE shall perform among others, the following duties and responsibilities:

i. Sort out bills according to color;

ii. Count each denomination per hundred, either manually or with the aid of a
counting machine;

iii. Wrap and label bills per hundred;

iv. Put the wrapped bills into bundles; and

v. Submit bundled bills to the bank teller for verification.

3. The EMPLOYEE shall undergo a training period of one (1) month, after which the
BANK shall determine whether or not he/she should be allowed to finish the remaining
term of this Contract.

4. The EMPLOYEE shall be entitled to an initial compensation of P118.00 per day, subject
to adjustment in the sole judgment of the BANK, payable every 15 th and end of the
month.
 5. The regular work schedule of the EMPLOYEE shall be five (5) days per week, from
Mondays thru Fridays, at eight (8) hours a day. The EMPLOYEE may be required to
perform overtime work as circumstance may warrant, for which overtime work he/she
[shall] be paid an additional compensation of 125% of his daily rate if performed during
ordinary days and 130% if performed during Saturday or [a] rest day.

6. The EMPLOYEE shall likewise be entitled to the following benefits:

i. Proportionate 13th month pay based on his basic daily wage.

ii. Five (5) days incentive leave.

iii. SSS premium payment.

7. The EMPLOYEE binds himself/herself to abide [by] and comply with all the BANK
Rules and Regulations and Policies, and to conduct himself/herself in a manner expected
of all employees of the BANK.

8. The EMPLOYEE acknowledges the fact that he/she had been employed under a special
employment program of the BANK, for which reason the standard hiring requirements of
the BANK were not applied in his/her case. Consequently, the EMPLOYEE
acknowledges and accepts the fact that the terms and conditions of the employment
generally observed by the BANK with respect to the BANK's regular employee are not
applicable to the EMPLOYEE, and that therefore, the terms and conditions of the
EMPLOYEE's employment with the BANK shall be governed solely and exclusively by
this Contract and by the applicable rules and regulations that the Department of Labor
and Employment may issue in connection with the employment of disabled and
handicapped workers. More specifically, the EMPLOYEE hereby acknowledges that the
provisions of Book Six of the Labor Code of the Philippines as amended, particularly on
regulation of employment and separation pay are not applicable to him/her.

9. The Employment Contract shall be for a period of six (6) months or from ____ to ____
unless earlier terminated by the BANK for any just or reasonable cause. Any continuation
or extension of this Contract shall be in writing and therefore this Contract will
automatically expire at the end of its terms unless renewed in writing by the BANK.

IN WITNESS WHEREOF, the parties, have hereunto affixed their signature[s] this ____ day of
_________________, ____________ at Intramuros, Manila, Philippines.'
"In 1988, two (2) deaf-mutes were hired under this Agreement; in 1989 another two (2); in 1990, nineteen
(19); in 1991 six (6); in 1992, six (6) and in 1993, twenty-one (21). Their employment[s] were renewed
every six months such that by the time this case arose, there were fifty-six (56) deaf-mutes who were
employed by respondent under the said employment agreement. The last one was Thelma Malindoy who
was employed in 1992 and whose contract expired on July 1993.

xxxxxxxxx

"Disclaiming that complainants were regular employees, respondent Far East Bank and Trust Company
maintained that complainants who are a special class of workers - the hearing impaired employees were
hired temporarily under [a] special employment arrangement which was a result of overtures made by some
civic and political personalities to the respondent Bank; that complainant[s] were hired due to `pakiusap'
which must be considered in the light of the context of the respondent Bank's corporate philosophy as well
as its career and working environment which is to maintain and strengthen a corps of professionals trained
and qualified officers and regular employees who are baccalaureate degree holders from excellent schools
which is an unbending policy in the hiring of regular employees; that in addition to this, training continues
so that the regular employee grows in the corporate ladder; that the idea of hiring handicapped workers was
acceptable to them only on a special arrangement basis; that it adopted the special program to help tide over
a group of handicapped workers such as deaf-mutes like the complainants who could do manual work for
the respondent Bank; that the task of counting and sorting of bills which was being performed by tellers
could be assigned to deaf-mutes; that the counting and sorting of money are tellering works which were
always logically and naturally part and parcel of the tellers' normal functions; that from the beginning there
have been no separate items in the respondent Bank plantilla for sorters or counters; that the tellers
themselves already did the sorting and counting chore as a regular feature and integral part of their duties
(p. 97, Records); that through the `pakiusap' of Arturo Borjal, the tellers were relieved of this task of
counting and sorting bills in favor of deaf-mutes without creating new positions as there is no position
either in the respondent or in any other bank in the Philippines which deals with purely counting and
sorting of bills in banking operations."
Petitioners specified when each of them was hired and dismissed.

As earlier noted, the labor arbiter and, on appeal, the NLRC ruled against herein petitioners. Hence, this
recourse to this Court.[9]

The Ruling of the NLRC

In affirming the ruling of the labor arbiter that herein petitioners could not be deemed regular employees
under Article 280 of the Labor Code, as amended, Respondent Commission ratiocinated as follows:

"We agree that Art. 280 is not controlling herein. We give due credence to the conclusion that complainants
were hired as an accommodation to [the] recommendation of civic oriented personalities whose
employment[s] were covered by xxx Employment Contract[s] with special provisions on duration of
contract as specified under Art. 80. Hence, as correctly held by the Labor Arbiter a quo, the terms of the
contract shall be the law between the parties." [10]
The NLRC also declared that the Magna Carta for Disabled Persons was not applicable, "considering the
prevailing circumstances/milieu of the case."

Issues

In their Memorandum, petitioners cite the following grounds in support of their cause:

"I. The Honorable Commission committed grave abuse of discretion in holding that the petitioners - money
sorters and counters working in a bank - were not regular employees.

"II. The Honorable Commission committed grave abuse of discretion in holding that the employment
contracts signed and renewed by the petitioners - which provide for a period of six (6) months - were valid.

"III. The Honorable Commission committed grave abuse of discretion in not applying the provisions of the
Magna Carta for the Disabled (Republic Act No. 7277), on proscription against discrimination against
disabled persons."[11]
In the main, the Court will resolve whether petitioners have become regular employees.

This Court's Ruling

The petition is meritorious. However, only the employees, who worked for more than six months and
whose contracts were renewed are deemed regular. Hence, their dismissal from employment was illegal.
 Preliminary Matter:
Propriety of Certiorari

Respondent Far East Bank and Trust Company argues that a review of the findings of facts of the NLRC is
not allowed in a petition for certiorari. Specifically, it maintains that the Court cannot pass upon the
findings of public respondents that petitioners were not regular employees.

True, the Court, as a rule, does not review the factual findings of public respondents in
a certiorari proceeding. In resolving whether the petitioners have become regular employees, we shall not
change the facts found by the public respondent. Our task is merely to determine whether the NLRC
committed grave abuse of discretion in applying the law to the established facts, as above-quoted from the
assailed Decision.

Main Issue:
Are Petitioners Regular Employees?

Petitioners maintain that they should be considered regular employees, because their task as money sorters
and counters was necessary and desirable to the business of respondent bank. They further allege that their
contracts served merely to preclude the application of Article 280 and to bar them from becoming regular
employees.

Private respondent, on the other hand, submits that petitioners were hired only as "special workers and
should not in any way be considered as part of the regular complement of the Bank." [12] Rather, they were
"special" workers under Article 80 of the Labor Code. Private respondent contends that it never solicited
the services of petitioners, whose employment was merely an "accommodation" in response to the requests
of government officials and civic-minded citizens. They were told from the start, "with the assistance of
government representatives," that they could not become regular employees because there were no plantilla
positions for "money sorters," whose task used to be performed by tellers. Their contracts were renewed
several times, not because of need "but merely for humanitarian reasons." Respondent submits that "as of
the present, the `special position' that was created for the petitioners no longer exist[s] in private respondent
[bank], after the latter had decided not to renew anymore their special employment contracts."

At the outset, let it be known that this Court appreciates the nobility of private respondent's effort to
provide employment to physically impaired individuals and to make them more productive members of
society. However, we cannot allow it to elude the legal consequences of that effort, simply because it now
deems their employment irrelevant. The facts, viewed in light of the Labor Code and the Magna Carta for
Disabled Persons, indubitably show that the petitioners, except sixteen of them, should be deemed regular
employees. As such, they have acquired legal rights that this Court is duty-bound to protect and uphold, not
as a matter of compassion but as a consequence of law and justice.

The uniform employment contracts of the petitioners stipulated that they shall be trained for a period of one
month, after which the employer shall determine whether or not they should be allowed to finish the 6-
month term of the contract. Furthermore, the employer may terminate the contract at any time for a just and
reasonable cause. Unless renewed in writing by the employer, the contract shall automatically expire at the
end of the term.

According to private respondent, the employment contracts were prepared in accordance with Article 80 of
the Labor Code, which provides:

"ART. 80. Employment agreement. - Any employer who employs handicapped workers shall enter into an
employment agreement with them, which agreement shall include:

(a) The names and addresses of the handicapped workers to be employed;

(b) The rate to be paid the handicapped workers which shall be not less than seventy five (75%) per cent of
the applicable legal minimum wage;

(c) The duration of employment period; and

(d) The work to be performed by handicapped workers.

The employment agreement shall be subject to inspection by the Secretary of Labor or his duly authorized
representatives."
The stipulations in the employment contracts indubitably conform with the aforecited provision.
Succeeding events and the enactment of RA No. 7277 (the Magna Carta for Disabled Persons),[13] however,
justify the application of Article 280 of the Labor Code.

Respondent bank entered into the aforesaid contract with a total of 56 handicapped workers and renewed
the contracts of 37 of them. In fact, two of them worked from 1988 to 1993. Verily, the renewal of the
contracts of the handicapped workers and the hiring of others lead to the conclusion that their tasks were
beneficial and necessary to the bank. More important, these facts show that they were qualified to perform
the responsibilities of their positions. In other words, their disability did not render them unqualified or
unfit for the tasks assigned to them.

In this light, the Magna Carta for Disabled Persons mandates that a qualified disabled employee should be
given the same terms and conditions of employment as a qualified able-bodied person. Section 5 of the
Magna Carta provides:

"Section 5. Equal Opportunity for Employment.--No disabled person shall be denied access to opportunities
for suitable employment. A qualified disabled employee shall be subject to the same terms and conditions
of employment and the same compensation, privileges, benefits, fringe benefits, incentives or allowances as
a qualified able bodied person."
The fact that the employees were qualified disabled persons necessarily removes the employment contracts
from the ambit of Article 80. Since the Magna Carta accords them the rights of qualified able-bodied
persons, they are thus covered by 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 the
engagement of the employee or where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season.

"An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided,
That, any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered as regular employee with respect to the activity in which he is employed and
his employment shall continue while such activity exists."
The test of whether an employee is regular was laid down in De Leon v. NLRC,[14] in which this Court held:

"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 the 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 one 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."
Without a doubt, the task of counting and sorting bills is necessary and desirable to the business of
respondent bank. With the exception of sixteen of them, petitioners performed these tasks for more than six
months. Thus, the following twenty-seven petitioners should be deemed regular employees: Marites
Bernardo, Elvira Go Diamante, Rebecca E. David, David P. Pascual, Raquel Estiller, Albert Hallare,
Edmund M. Cortez, Joselito O. Agdon, George P. Ligutan Jr., Lilibeth Q. Marmolejo, Jose E. Sales, Isabel
Mamauag, Violeta G. Montes, Albino Tecson, Melody V. Gruela, Bernadeth D. Agero, Cynthia de Vera,
Lani R. Cortez, Ma. Isabel B. Concepcion, Margaret Cecilia Canoza, Thelma Sebastian, Ma. Jeanette
Cervantes, Jeannie Ramil, Rozaida Pascual, Pinky Baloloa, Elizabeth Ventura and Grace S. Pardo.

As held by the Court, "Articles 280 and 281 of the Labor Code put an end to the pernicious practice of
making permanent casuals of our lowly employees by the simple expedient of extending to them
probationary appointments, ad infinitum."[15] The contract signed by petitioners is akin to a probationary
employment, during which the bank determined the employees' fitness for the job. When the bank renewed
the contract after the lapse of the six-month probationary period, the employees thereby became regular
employees.[16] No employer is allowed to determine indefinitely the fitness of its employees.

As regular employees, the twenty-seven petitioners are entitled to security of tenure; that is, their services
may be terminated only for a just or authorized cause. Because respondent failed to show such
cause,[17] these twenty-seven petitioners are deemed illegally dismissed and therefore entitled to back wages
and reinstatement without loss of seniority rights and other privileges.[18] Considering the allegation of
respondent that the job of money sorting is no longer available because it has been assigned back to the
tellers to whom it originally belonged,[19] petitioners are hereby awarded separation pay in lieu of
reinstatement.[20]

Because the other sixteen worked only for six months, they are not deemed regular employees and hence
not entitled to the same benefits.

Applicability of the
Brent Ruling

Respondent bank, citing Brent School v. Zamora[21] in which the Court upheld the validity of an
employment contract with a fixed term, argues that the parties entered into the contract on equal footing. It
adds that the petitioners had in fact an advantage, because they were backed by then DSWD Secretary Mita
Pardo de Tavera and Representative Arturo Borjal.

We are not persuaded. The term limit in the contract was premised on the fact that the petitioners were
disabled, and that the bank had to determine their fitness for the position. Indeed, its validity is based on
Article 80 of the Labor Code. But as noted earlier, petitioners proved themselves to be qualified disabled
persons who, under the Magna Carta for Disabled Persons, are entitled to terms and conditions of
employment enjoyed by qualified able-bodied individuals; hence, Article 80 does not apply because
petitioners are qualified for their positions. The validation of the limit imposed on their contracts, imposed
by reason of their disability, was a glaring instance of the very mischief sought to be addressed by the new
law.

Moreover, it must be emphasized that a contract of employment is impressed with public

interest.[22] Provisions of applicable statutes are deemed written into the contract, and the "parties are not at
liberty to insulate themselves and their relationships from the impact of labor laws and regulations by
simply contracting with each other." [23] Clearly, the agreement of the parties regarding the period of
employment cannot prevail over the provisions of the Magna Carta for Disabled Persons, which mandate
that petitioners must be treated as qualified able-bodied employees.

Respondent's reason for terminating the employment of petitioners is instructive. Because the Bangko
Sentral ng Pilipinas (BSP) required that cash in the bank be turned over to the BSP during business hours
from 8:00 a.m. to 5:00 p.m., respondent resorted to nighttime sorting and counting of money. Thus, it
reasons that this task "could not be done by deaf mutes because of their physical limitations as it is very
risky for them to travel at night." [24] We find no basis for this argument. Travelling at night involves risks to
handicapped and able-bodied persons alike. This excuse cannot justify the termination of their employment.

Other Grounds Cited by Respondent

Respondent argues that petitioners were merely "accommodated" employees. This fact does not change the
nature of their employment. As earlier noted, an employee is regular because of the nature of work and the
length of service, not because of the mode or even the reason for hiring them.

Equally unavailing are private respondent's arguments that it did not go out of its way to recruit petitioners,
and that its plantilla did not contain their positions. In L. T. Datu v. NLRC,[25] the Court held that "the
determination of whether employment is casual or regular does not depend on the will or word of the
employer, and the procedure of hiring x x x but on the nature of the activities performed by the employee,
and to some extent, the length of performance and its continued existence."

Private respondent argues that the petitioners were informed from the start that they could not become
regular employees. In fact, the bank adds, they agreed with the stipulation in the contract regarding this
point. Still, we are not persuaded. The well-settled rule is that the character of employment is determined
not by stipulations in the contract, but by the nature of the work performed. [26] Otherwise, no employee can
become regular by the simple expedient of incorporating this condition in the contract of employment.

In this light, we iterate our ruling in Romares v. NLRC:[27]

"Article 280 was emplaced in our statute books to prevent the circumvention of the employee's right to be
secure in his tenure by indiscriminately and completely ruling out all written and oral agreements
inconsistent with the concept of regular employment defined therein. Where an employee has been engaged
to perform activities which are usually necessary or desirable in the usual business of the employer, such
employee is deemed a regular employee and is entitled to security of tenure notwithstanding the contrary
provisions of his contract of employment.

"x x x x x x x x x

"At this juncture, the leading case of Brent School, Inc. v. Zamora proves instructive. As reaffirmed in
subsequent cases, this Court has upheld the legality of fixed-term employment. It ruled that the decisive
determinant in `term employment' should not be the activities that the employee is called upon to perform
but the day certain agreed upon the parties for the commencement and termination of their employment
relationship. But this Court went on to say that where from the circumstances it is apparent that the periods
have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down
or disregarded as contrary to public policy and morals."
In rendering this Decision, the Court emphasizes not only the constitutional bias in favor of the working
class, but also the concern of the State for the plight of the disabled. The noble objectives of Magna Carta
for Disabled Persons are not based merely on charity or accommodation, but on justice and the equal
treatment of qualified persons, disabled or not. In the present case, the handicap of petitioners (deaf-mutes)
is not a hindrance to their work. The eloquent proof of this statement is the repeated renewal of their
employment contracts. Why then should they be dismissed, simply because they are physically impaired?
The Court believes, that, after showing their fitness for the work assigned to them, they should be treated
and granted the same rights like any other regular employees.

In this light, we note the Office of the Solicitor General's prayer joining the petitioners' cause. [28]

WHEREFORE, premises considered, the Petition is hereby GRANTED. The June 20, 1995 Decision and
the August 4, 1995 Resolution of the NLRC are REVERSED and SET ASIDE. Respondent Far East Bank
and Trust Company is hereby ORDERED to pay back wages and separation pay to each of the following
twenty-seven (27) petitioners, namely, Marites Bernardo, Elvira Go Diamante, Rebecca E. David, David P.
Pascual, Raquel Estiller, Albert Hallare, Edmund M. Cortez, Joselito O. Agdon, George P. Ligutan Jr.,
Lilibeth Q. Marmolejo, Jose E. Sales, Isabel Mamauag, Violeta G. Montes, Albino Tecson, Melody V.
Gruela, Bernadeth D. Agero, Cynthia de Vera, Lani R. Cortez, Ma. Isabel B. Concepcion, Margaret Cecilia
Canoza, Thelma Sebastian, Ma. Jeanette Cervantes, Jeannie Ramil, Rozaida Pascual, Pinky Baloloa,
Elizabeth Ventura and Grace S. Pardo. The NLRC is hereby directed to compute the exact amount due each
of said employees, pursuant to existing laws and regulations, within fifteen days from the finality of this
Decision. No costs.

SO ORDERED.

DISCUSSION 4
TITLE I
CHAPTER I
G.R. No. L-48645, January 07, 1987

"BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO

CASBADILLO, PROSPERO TABLADA, ERNESTO BENGSON, PATRICIO SERRANO,
ANTONIO B. BOBIAS, VIRGILIO ECHAS, DOMINGO PARINAS, NORBERTO GALANG,
JUANITO NAVARRO, NESTORIO MARCELLANA, TEOFILO B. CACATIAN, RUFO L.
EGUIA, CARLOS SUMOYAN, LAMBERTO RONQUILLO, ANGELITO AMANCIO, DANILO B.
MATIAR, ET AL., PETITIONERS, VS. HON. RONALDO B. ZAMORA, PRESIDENTIAL
ASSISTANT FOR LEGAL AFFAIRS, OFFICE OF THE PRESIDENT, HON. AMADO G.
INCIONG, UNDERSECRETARY OF LABOR, SAN MIGUEL CORPORATION, GENARO
OLIVES, ENRIQUE CAMAHORT, FEDERICO OÑATE, ERNESTO VILLANUEVA, ANTONIO
BOCALING AND GODOFREDO CUETO, RESPONDENTS.

DECISION

GUTIERREZ, JR., J.:

The elemental question in labor law of whether or not an employer-employee relationship exists between
petitioners - members of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM) and
respondent San Miguel Corporation, is the main issue in this petition. The disputed decision of public
respondent Ronaldo Zamora, Presidential Assistant for Legal Affairs, contains a brief summary of the facts
involved:

"1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now defunct Court of
Industrial Relations, charging San Miguel Corporation, and the following officers: Enrique Camahort,
Federico Oñate, Feliciano Arceo, Melencio Eugenio, Jr., Ernesto Villanueva,
Antonio Bocaling and Godofredo Cueto of unfair labor practice as set forth in Section 4 (a), sub-sections
(1) and (4) of Republic Act No. 875 and of illegal dismissal. It was alleged that respondents ordered the
individual complainants to disaffiliate from the complainant union; and that management dismissed the
individual complainants when they insisted on their union membership.
"On their part, respondents moved for the dismissal of the complaint on the grounds that the complainants
are not and have never been employees of respondent company but employees of the independent
contractor; that respondent company has never had control over the means and methods followed by the
independent contractor who enjoyed full authority to hire and control said employees; and that the
individual complainants are barred by estoppel from asserting that they are employees of respondent
company.
"While pending with the Court of Industrial Relations (CIR), pleadings and testimonial and documentary
evidences were duly presented, although the actual hearing was delayed by several postponements. The
dispute was taken over by the National Labor Relations Commission (NLRC) with thedecreed abolition of
the CIR and the hearing of the case intransferably commenced on September 8, 1975.
"On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was concurred in by the
NLRC in a decision dated June 28, 1976. The amount of backwages awarded, however, was reduced by
NLRC to the equivalent of one (1) year salary.
"On appeal, the Secretary in a decision dated June 1, 1977, set aside the NLRC ruling, stressing the absence
of an employer-employee relationship as borne out by the records of the case. x x x."

The petitioners strongly argue that there exists an employer-employee relationship between them and the
respondent company and that they were dismissed for unionism, an act constituting unfair labor practice
"for which respondents must be made to answer".

Unrebutted evidence and testimony on record establish that the petitioners are workers who have been
employed at the San Miguel Parola Glass Factory since 1961, averaging about seven (7) years of service at
the time of their termination. They worked as "cargadores" or "pahinantes" at the SMC Plant loading,
unloading, piling or palleting empty bottles and wooden shells to and from company trucks and
warehouses. At times, they accompanied the company trucks on their delivery routes.

The petitioners first reported for work to Superintendent-in-Charge Camahort. They were issued gate
passes signed by Camahort and were provided by the respondent company with the tools, equipment and
paraphernalia used in the loading, unloading, piling and hauling operation.

Job orders emanated from Camahort. The orders are then transmitted to an assistant-officer-in-charge. In
turn, the assistant informs the warehousemen and checkers regarding the same. The latter, thereafter, relays
said orders to the capatazes or group leaders who then give orders to the workers as to where, when and
what to load, unload, pile, pallet or clean.

Work in the glass factory was neither regular nor continuous, depending wholly on the volume of bottles
manufactured to be loaded and unloaded, as well as the business activity of the company. Work did not
necessarily mean a full eight (8) hour day for the petitioners. However, work, at times, exceeded the eight
(8) hour day and necessitated work on Sundays and holidays. For this, they were neither paid overtime nor
compensation for work on Sundays and holidays.

Petitioners were paid every ten (10) days on a piece rate basis, that is, according to the number of cartons
and wooden shells they were able to load, unload, or pile. The group leader notes down the number or
volume of work that each individual worker has accomplished. This is then made the basis of a report or
statement which is compared with the notes of the checker and warehousemen as to whether or not they
tally. Final approval of report is by officer-in-charge Camahort. The pay check is given to the group
leaders for encashment, distribution, and payment to the petitioners in accordance with payrolls prepared
by said leaders. From the total earnings of the group, the group leader gets a participation or share of ten
(10%) percent plus an additional amount from the earnings of each individual.

The petitioners worked exclusively at the SMC plant, never having been assigned to other companies or
departments of SMC plant, even when the volume of work was at its minimum. When any of the glass
furnaces suffered a breakdown, making a shutdown necessary, the petitioners' work was temporarily
suspended. Thereafter, the petitioners would return to work at the glass plant.

Sometime in January, 1969, the petitioner workers — numbering one hundred and forty (140) organized
and affiliated themselves with the petitioner union and engaged in union activities. Believing themselves
entitled to overtime and holiday pay, the petitioners pressed management, airing other grievances such as
being paid below the minimum wage law, in human treatment, being forced to borrow at usurious rates of
interest and to buy raffle tickets, coerced by withholding their salaries, and salary deductions made without
their consent. However, their gripes and grievances were not heeded by the respondents.

On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of Labor Relations in
connection with the dismissal of some of its members who were allegedly castigated for their union
membership and warned that should they persist in continuing with their union activities they would be
dismissed from their jobs. Several conciliation conferences were scheduled in order to thresh out their
differences. On February 12, 1969, union member Rogelio Dipad was dismissed from work. At the
scheduled conference on February 19, 1969, the complainant union through its officers headed by National
President ArtemioPortugal, Sr., presented a letter to the respondent company containing proposals and/or
labor demands together with a request for recognition and collective bargaining.

San Miguel refused to bargain with the petitioner union alleging that the workers are not their employees.

On February 20, 1969, all the petitioners were dismissed from their jobs and, thereafter, denied entrance to
respondent company's glass factory despite their regularly reporting for work. A complaint for illegal
dismissal and unfair labor practice was filed by the petitioners.

The case reaches us now with the same issues to be resolved as when it had begun.

The question of whether an employer-employee relationship exists in a certain situation continues to

bedevil the courts. Some businessmen try to avoid the bringing about of an employer-employee
relationship in their enterprises because that judidical relation spawns obligations connected with
workmen's compensation, social security, medicare, minimum wage, termination pay, and
unionism. (Mafinco Trading Corporation v. Ople, 70 SCRA 139).

In determining the existence of an employer-employee relationship, the elements that are generally
considered are the following: (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. It is the so-called "control test" that is the most
important element (Investment Planning Corp. of the Phils. v. The Social Security System, 21 SCRA
924; Mafinco Trading Corp. v. Ople, supra, and Rosario Brothers, Inc. v. Ople, 131 SCRA 72).

Applying the above criteria, the evidence strongly indicates the existence of an employer-employee
relationship between petitioner workers and respondent San Miguel Corporation. The respondent asserts
that the petitioners are employees of the Guaranteed Labor Contractor, an independent labor contracting
firm.

The facts and evidence on record negate respondent SMC's claim.

The existence of an independent contractor relationship is generally established by the following

criteria: "whether or not the contractor is carrying on an independent business; the nature and extent of the
work; the skill required; the term and duration of the relationship; the right to assign the performance of a
specified piece of work; the control and supervision of the work to another; the employer's power with
respect to the hiring, firing and payment of the contractor's workers; the control of the premises; the duty to
supply the premises tools, appliances, materials and labor; and the mode, manner and terms of payment (56
CJS Master and Servant, Sec. 3(2), 46; See also 27 AM. Jur. Independent Contractor, Sec. 5, 485
and Anne., 75 ALR 7260727).

None of the above criteria exists in the case at bar.

Highly unusual and suspect is the absence of a written contract to specify the performance of a specified
piece of work, the nature and extent of the work and the term and duration of the relationship. The records
fail to show that a large commercial outfit, such as the San Miguel Corporation, entered into mere oral
agreements of employment or labor contracting where the same would involve considerable expenses and
dealings with a large number of workers over a long period of time. Despite respondent company's
allegations not an iota of evidence was offered to prove the same or its particulars. Such failure makes
respondent SMC's stand subject to serious doubts.

Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked
continuously and exclusively for the respondent company's shipping and warehousing
department. Considering the length of time that the petitioners have worked with the respondent company,
there is justification to conclude that they were engaged to perform activities necessary or desirable in the
usual business or trade of the respondent, and the petitioners are, therefore regular employees (Phil. Fishing
Boat Officers and Engineers Union v. Court of Industrial Relations, 112 SCRA 159 and RJL Martinez
Fishing Corporation v. National Labor Relations Commission, 127 SCRA 454).

As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission, (supra):

"x x x [T]he employer-employee relationship between the parties herein is not co-terminous with each
loading and unloading job. As earlier shown, respondents are engaged in the business of fishing. For this
purpose, they have a fleet of fishing vessels. Under this situation, respondents' activity of catching fish is a
continuous process and could hardly be considered as seasonal in nature. So that the activities performed
by herein complainants, i.e. unloading the catch of tuna fish from respondents' vessels and then loading the
same to refrigerated vans, are necessary or desirable in the business of respondents. This circumstance
makes the employment of complainants a regular one, in the sense that it does not depend on any specific
project or seasonable activity. (NLRC Decision, p. 94, Rollo)."

so is it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for repairs, the
petitioners, thereafter, promptly returned to their jobs, never having been replaced, or assigned elsewhere
until the present controversy arose. The term of the petitioners' employment appears indefinite. The
Continuity and habituality of petitioners' work bolsters their claim of employee status vis-a-vis respondent
company.

Even under the assumption that a contract of employment had indeed been executed between respondent
SMC and the alleged labor contractor, respondent's case will, nevertheless, fail.

Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides:

"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."

We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor investment to
qualify as an independent contractor under the law. The premises, tools, equipment and paraphernalia used
by the petitioners in their jobs are admittedly all supplied by respondent company. It is only the manpower
or labor force which the alleged contractors supply, suggesting the existence of a "labor-only" contracting
scheme prohibited by law (Article 106, 109 of the Labor Code; Section 9(b), Rule VIII, Book III,
Implementing Rules and Regulations of the Labor Code). In fact, even the alleged contractor's office,
which consists of a space at respondent company's warehouse, table, chair, typewriter and cabinet, are
provided for by respondent SMC. It is therefore clear that the alleged contractors have no capital outlay
involved in the conduct of its business, in the maintenance thereof or in the payment of its workers' salaries.

The payment of the workers' wages is a critical factor in determining the actuality of an employer-
employee relationship whether between respondent company and petitioners or between the alleged
independent contractor and petitioners. It is important to emphasize that in a truly independent contractor-
contracteerelationship, the fees are paid directly to the manpower agency in lump sum without indicating or
implying that the basis of such lump sum is the salary per worker multiplied by the number of workers
assigned to the company. This is the rule in Social Security System v. Court of Appeals (39 SCRA 629,
635).

The alleged independent contractors in the case at bar were paid a lump sum representing only the salaries
the workers were entitled to, arrived at by adding the salaries of each worker which depend on the volume
of work they had accomplished individually. These are based on payrolls, reports or statements prepared
by the workers' group leader, warehousemen and checkers, where they note down the number of cartons,
wooden shells and bottles each worker was able to load, unload, pile or pallet and see whether they
tally. The amount paid by respondent company to the alleged independent contractor considers no business
expenses or capital outlay of the latter. Nor is the profit or gain of the alleged contractor in the conduct of
its business provided for as an amount over and above the workers' wages. Instead, the alleged contractor
receives a percentage from the total earnings of all the workers plus an additional amount corresponding to
a percentage of the earnings of each individual worker, which, perhaps, accounts for the petitioners' charge
of unauthorized deductions from their salaries by the respondents.

Anent the argument that the petitioners are not employees as they worked on piece basis, we merely have to
cite our rulings in Dy Keh Beng v. International Labor and Marine Union of the Philippines (90 SCRA
161), as follows:

"'[C]ircumstances 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.'"

Article 106 of the Labor Code provides the legal effect of a labor-only contracting scheme, to wit:

"x x x 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."

Firmly establishing respondent SMC's role as employer is the control exercised by it over the petitioners —
that is, control in the means and methods/manner by which petitioners are to go about their work, as well as
in disciplinary measures imposed by it.

Because of the nature of the petitioners' work as cargadores or pahinantes, supervision as to the means
and manner of performing the same is practically nil. For, how many ways are there to load and unload
bottles and wooden shells? The mere concern of both respondent SMC and the alleged contractor is that
the job of having the bottles and wooden shells brought to and from the warehouse be done. More evident
and pronounced is respondent company's right to control in the discipline of petitioners. Documentary
evidence presented by the petitioners establish respondent SMC's right to impose disciplinary measures for
violations or infractions of its rules and regulations as well as its right to recommend transfers and
dismissals of the piece workers. The inter-office memoranda submitted in evidence prove the company's
control over the petitioners. That respondent SMC has the power to recommend penalties or dismissal of
the piece workers, even as to Abner Bungay who is alleged by SMC to be a representative of the alleged
labor contractor, is the strongest indication of respondent company's right of control over the petitioners as
direct employer. There is no evidence to show that the alleged labor contractor had such right of control or
much less had been there to supervise or deal with the petitioners.

The petitioners were dismissed allegedly because of the shutdown of the glass manufacturing
plant. Respondent company would have us believe that this was a case of retrenchment due to the closure
or cessation of operations of the establishment or undertaking. But such is not the case here. The
respondent's shutdown was merely temporary, one of its furnaces needing repair. Operations continued
after such repairs, but the petitioners had already been refused entry to the premises and dismissed from
respondent's service. New workers manned their positions. It is apparent that the closure of respondent's
warehouse was merely a ploy to get rid of the petitioners, who were then agitating the respondent company
for benefits, reforms and collective bargaining as a union. There is no showing that petitioners had been
remiss in their obligations and inefficient in their jos to warrant their separation.

As to the charge of unfair labor practice because of SMC's refusal to bargain with the petitioners, it is clear
that the respondent company had an existing collective bargaining agreement with the IBM union which is
the recognized collective bargaining representative at the respondent's glass plant.

There being a recognized bargaining representative of all employees at the company's glass plant, the
petitioners cannot merely form a union and demand bargaining. The Labor Code provides the proper
procedure for the recognition of unions as sole bargaining representatives. This must be followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel
Corporation is hereby ordered to REINSTATE petitioners, with three (3) years backwages. However,
where reinstatement is no longer possible, the respondent SMC is ordered to pay the petitioners separation
pay equivalent to one (1) month pay for every year of service.

SO ORDERED.

G.R. No. L-43825, May 09, 1988

CONTINENTAL MARBLE CORP. AND FELIPE DAVID, PETITIONERS, VS. NATIONAL

LABOR RELATIONS COMMISSION (NLRC); ARBITRATOR JOSE T. COLLADO AND
RODITO NASAYAO, RESPONDENTS.

DECISION

PADILLA, J.:

In this petition for mandamus, prohibition and certiorari with preliminary injunction, petitioners seek to
annul and set aside the decision rendered by the respondent Arbitrator Jose T. Collado, dated 29 December
1975, in NLRC Case No. LR-6151, entitled: "Rodito Nasayao, complainant, versus Continental Marble
Corp. and Felipe David, respondents", and the resolution issued by the respondent Commission, dated 7
May 1976, which dismissed herein petitioners' appeal from said decision.

In his complaint before the NLRC, herein private respondent Rodito Nasayao claimed that sometime in
May 1974, he was appointed plant manager of the petitioner corporation, with an alleged compensation of
P3,000.00, a month, or 25% of the monthly net income of the company, whichever is greater, and when the
company failed to pay his salary for the months of May, June, and July 1974, Rodito Nasayao filed a
complaint with the National Labor Relations Commission, Branch IV, for the recovery of said unpaid
salaries. The case was docketed therein as NLRC Case no. LR-6151.

Answering, the herein petitioners denied that Rodito Nasayao was employed in the company as plant
manager with a fixed monthly salary of P3,000.00. They claimed that the undertaking agreed upon by the
parties was a joint venture, a sort of partnership, wherein Rodito Nasayao was to keep the machinery in
good working condition and, in return, he would get the contracts from end-users for the installation of
marble products, in which the company would not interfere. In addition, private respondent Nasayao was to
receive an amount equivalent to 25% of the net profits that the petitioner corporation would realize, should
there be any. Petitioners alleged that since there had been no profits during said period, private respondent
was not entitled to any amount.

The case was submitted for voluntary arbitration and the parties selected the herein respondent Jose T.
Collado as voluntary arbitrator. In the course of the proceedings, however, the herein petitioners challenged
the arbitrator's capacity to try and decide the case fairly and judiciously and asked him to desist from
further hearing the case. But, the respondent arbitrator refused. In due time, or on 29 December 1975, he
rendered judgment in favor of the complainant, ordering the herein petitioners to pay Rodito Nasayao the
amount of P9,000.00, within 10 days from notice [1].

Upon receipt of the decision, the herein petitioners appealed to the National Labor Relations Commission
on grounds that the labor arbiter gravely abused his discretion in persisting to hear and decide the case
notwithstanding petitioners' request for him to desist therefrom; and that the appealed decision is not
supported by evidence[2].

On 18 March 1976, Rodito Nasayao filed a motion to dismiss the appeal on the ground that the decision of
the voluntary arbitrator is final, unappealable, and immediately executory[3]; and, on 23 March 1976, he
filed a motion for the issuance of a writ of execution[4].

Acting on the motions, the respondent Commission, in a resolution dated 7 May 1976, dismissed the appeal
on the ground that the decision appealed from is final, unappealable and immediately executory, and
ordered the herein petitioners to comply with the decision of the voluntary arbitrator within 10 days from
receipt of the resolution[5].

The petitioners are before the Court in the present recourse. As prayed for, the Court issued a temporary
restraining order, restraining herein respondents from enforcing and/or carrying out the questioned decision
and resolution[6].

The issue for resolution is whether or not the private respondent Rodito Nasayao was employed as plant
manager of petitioner Continental Marble Corporation with a monthly salary of P3,000.00 or 25% of its
monthly income, whichever is greater, as claimed by said respondent, or entitled to receive only an amount
equivalent to 25% of net profits, if any, that the company would realize, as contended by the petitioners.

The respondent arbitrator found that the agreement between the parties was for the petitioner company to
pay the private respondent, Rodito Nasayao, a monthly salary of P3,000.00, and, consequently, ordered the
company to pay Rodito Nasayao the amount of P9,000.00 covering a period of three (3) months, that is,
May, June and July 1974.

The respondent Rodito Nasayao now contends that the judgment or award of the voluntary arbitrator is
final, unappealable and immediately executory, and may not be reviewed by the Court. His contention is
based upon the provisions of Art. 262 of the Labor Code, as amended.

The petitioners, upon the other hand, maintain that "where there is patent and manifest abuse of discretion,
the rule on unappealability of awards of a voluntary arbitrator becomes flexible and it is the inherent power
of the Courts to maintain the people's faith in the administration of justice".
The question of the finality and unappealability of a decision and/or award of a voluntary arbitrator had
been laid to rest in Oceanic Bic Division (FFW) vs. Romero [7], and reiterated in Mantrade/FMMC Division
Employees and Workers Union vs. Bacungan[8]. The Court therein ruled that it can review the decisions of
voluntary arbitrators, thus -
"We agree with the petitioner that the decisions of voluntary arbitrators must be given the highest respect
and as a general rule must be accorded a certain measure of finality. This is especially true where the
arbitrator chosen by the parties enjoys the first rate credentials of Professor Flerida Ruth Pineda Romero,
Director of the U.P. Law Center and an academician of unquestioned expertise in the field of Labor Law. It
is not correct, however, that this respect precludes the exercise of judicial review over their decisions.
Article 262 of the Labor Code making voluntary arbitration awards final, inappelable, and executory except
where the money claims exceed P100,000.00 or 40% of paid-up capital of the employer or where there is
abuse of discretion or gross incompetence refers to appeals to the National Labor Relations Commission
and not to judicial review.

"Inspite of statutory provisions making 'final' the decisions of certain administrative agencies, we have
taken cognizance of petitions questioning these decisions where want of jurisdiction, grave abuse of
discretion, violation of due process, denial of substantial justice, or erroneous interpretation of the law were
brought to our attention. There is no provision for appeal in the statute creating the Sandiganbayan but this
has not precluded us from examining decisions of this special court brought to us in proper petitions. x x x"
The Court further said:
"A voluntary arbitrator by the nature of her functions acts in a quasi-judicial capacity. There is no reason
why her decisions involving interpretation of law should be beyond this Court's review. Administrative
officials are presumed to act in accordance with law and yet we do not hesitate to pass upon their work
where a question of law is involved or where a showing of abuse of authority or discretion in their official
acts is properly raised in petitions for certiorari".
The foregoing pronouncements find support in Section 29 of Republic Act No. 876, otherwise known as
the Arbitration Law, which provides:
"Sec. 29. Appeals. - An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the judgment thereon shall be governed
by the Rules of Court in so far as they are applicable".
The private respondent, Rodito Nasayao, in his Answer to the petition[9], also claims that the case is
premature for non-exhaustion of administrative remedies. He contends that the decision of the respondent
Commission should have been first appealed by petitioners to the Secretary of Labor, and, if they are not
satisfied with his decision, to appeal to the President of the Philippines, before resort is made to the Court.

The contention is without merit. The doctrine of exhaustion of administrative remedies cannot be invoked
in this case, as contended. In the recent case of John Clement Consultants, Inc. versus National Labor
Relations Commission[10], the Court said:
"As is well known, no law provides for an appeal from decisions of the National Labor Relations
Commission; hence, there can be no review and reversal on appeal by higher authority of its factual or legal
conclusions. When, however, it decides a case without or in excess of its jurisdiction, or with grave abuse
of discretion, the party thereby adversely affected may obtain a review and nullification of that decision by
this Court through the extraordinary writ of certiorari. Since, in this case, it appears that the Commission
has indeed acted without jurisdiction and with grave abuse of discretion in taking cognizance of a belated
appeal sought to be taken from a decision of Labor Arbiter and thereafter reversing it, the writ of certiorari
will issue to undo those acts, and do justice to the aggrieved party".
We also find no merit in the contention of Rodito Nasayao that only questions of law, and not findings of
fact of a voluntary arbitrator may be reviewed by the Court, since the findings of fact of the voluntary
arbitrator are conclusive upon the Court.

While the Court has accorded great respect for, and finality to, findings of fact of a voluntary
arbitrator[11] and administrative agencies which have acquired expertise in their respective fields, like the
Labor Department and the National Labor Relations Commission[12], their findings of fact and the
conclusions drawn therefrom have to be supported by substantial evidence. In the instant case, the finding
of the voluntary arbitrator that Rodito Nasayao was an employee of the petitioner corporation is not
supported by the evidence or by the law.

On the other hand, we find the version of the petitioners to be more plausible and in accord with human
nature and the ordinary course of things. As pointed out by the petitioners, it was illogical for them to hire
the private respondent Rodito Nasayao as plant manager with a monthly salary of P3,000.00, an amount
which they could ill-afford to pay, considering that the business was losing, at the time he was hired, and
that they were about to close shop in a few months' time.

Besides, there is nothing in the record which would support the claim of Rodito Nasayao that he was an
employee of the petitioner corporation. He was not included in the company payroll, nor in the list of
company employees furnished the Social Security System.

Most of all, the element of control is lacking. In Brotherhood Labor Unity Movement in the Philippines vs.
Zamora[13], the Court enumerated the factors in determining whether or not an employer-employee
relationship exists, to wit:
"In determining the existence of an employer-employee relationship, the elements that are generally
considered are the following: (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. It is the so-called 'control test' that is the most
important element (Investment Planning Corp. of the Phils. vs. The Social Security System, 21 SCRA
924; Mafinco Trading Corp. v. Ople, supra, and Rosario Brothers, Inc. v. Ople, 131 SCRA 72)".
In the instant case, it appears that the petitioners had no control over the conduct of Rodito Nasayao in the
performance of his work. He decided for himself on what was to be done and worked at his own pleasure.
He was not subject to definite hours or conditions of work and, in turn, was compensated according to the
results of his own effort. He had a free hand in running the company and its business, so much so, that the
petitioner Felipe David did not know, until very much later, that Rodito Nasayao had collected old accounts
receivables, not covered by their agreement, which he converted to his own personal use. It was only after
Rodito Nasayao had abandoned the plant following discovery of his wrong-doings, that Felipe David
assumed management of the plant.

Absent the power to control the employee with respect to the means and methods by which his work was to
be accomplished, there was no employer-employee relationship between the parties. Hence, there is no
basis for an award of unpaid salaries or wages to Rodito Nasayao.

WHEREFORE, the decision rendered by the respondent Jose T. Collado in NLRC Case No. LR-6151,
entitled: "Rodito Nasayao, complainant, versus Continental Marble Corp. and Felipe David,
respondents", on 29 December 1975, and the resolution issued by the respondent National Labor Relations
Commission in said case on 7 May 1976, are REVERSED and SET ASIDE and another one entered
DISMISSING private respondent's complaint. The temporary restraining order heretofore issued by the
Court is made permanent. Without costs.

SO ORDERED.

G.R. No. 84484, November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., PETITIONER, VS. NATIONAL LABOR RELATIONS
COMMISSION AND MELECIO BASIAO, RESPONDENTS.

DECISION

NARVASA, J.:
On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company)
and Melecio T. Basiao entered into a contract[1] by which:

1. Basiao was "authorized to solicit within the Philippines applications for insurance policies and
annuities in accordance with the existing rules and regulations" of the Company;
2. he would receive "compensation, in the form of commissions * * as provided in the Schedule of
Commissions" of the contract to "constitute a part of the consideration of * * (said) agreement;" and
3. the "rules in * * (the Company's) Rate Book and its Agent's Manual, as well as all its circulars * * and
those which may from time to time be promulgated by it, * *" were made part of said contract.

The contract also contained, among others, provisions governing the relations of the parties, the duties of
the Agent, the acts prohibited to him, and the modes of termination of the agreement, viz.:

"RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to time,
place and means of soliciting insurance. Nothing herein contained shall therefore be construed to create the
relationship of employee and employer between the Agent and the Company. However, the Agent shall
observe and conform to all rules and regulations which the Company may from time to time prescribe.
"ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving, directly or indirectly,
rebates in any form, or from making any misrepresentation or over-selling, and, in general, from doing or
committing acts prohibited in the Agent's Manual and in circulars of the Office of the Insurance
Commissioner.
"TERMINATION. The Company may terminate the contract at will, without any previous notice to the
Agent, for or on account of * * (explicitly specified causes). * *
Either party may terminate this contract by giving to the other notice in writing to that effect. It shall
become ipso facto cancelled if the Insurance Commissioner should revoke a Certificate of Authority
previously issued or should the Agent fail to renew his existing Certificate of Authority upon its
expiration. The Agent shall not have any right to any commission on renewal of premiums that may be
paid after the termination of this agreement for any cause whatsoever, except when the termination is due
to disability or death in line of service. As to commission corresponding to any balance of the first year's
premiums remaining unpaid at the termination of this agreement, the Agent shall be entitled to it if the
balance of the first year premium is paid, less actual cost of collection, unless the termination is due to a
violation of this contract, involving criminal liability or breach of trust.
"ASSIGNMENT. No assignment of the Agency herein created or of commissions or other compensations
shall be valid without the prior consent in writing of the Company. * *."

Some four years later, in April 1972, the parties entered into another contract -- an Agency Manager's
Contract -- and to implement his end of it Basiao organized an agency or office to which he gave the name
M. Basiao and Associates, while concurrently fulfilling his commitments under the first contract with the
Company.[2]

In May, 1979, the Company terminated the Agency a Manager's Contract. After vainly seeking a
reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted the
latter to terminate also his engagement under the first contract and to stop payment of his commissions
starting April 1, 1980.[3]

Basiao thereafter filed with the then Ministry of Labor a complaint [4] against the Company and its
president. Without contesting the termination of the first contract, the complaint sought to recover
commissions allegedly unpaid thereunder, plus attorney's fees. The respondents disputed the Ministry's
jurisdiction over Basiao's claim, asserting that he was not the Company's employee, but an independent
contractor and that the Company had no obligation to him for unpaid commissions under the terms and
conditions of his contract.[5]

The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting
agreement had established an employer-employee relationship between him and the Company, and this
conferred jurisdiction on the Ministry of Labor to adjudicate his claim. Said official's decision directed
payment of his unpaid commissions "* * equivalent to the balance of the first year's premium remaining
unpaid, at the time of his termination, of all the insurance policies solicitedby * * (him) in favor of the
respondent company * *" plus 10% attorney's fees.[6]

This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission.[7] Hence, the present petition for certiorari and prohibition.

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company's
employee by virtue of the contract invoked by him, thereby placing his claim for unpaid commissions
within the original and exclusive jurisdiction of the Labor Arbiter under the provisions of Section 217 of
the Labor Code[8] or, contrarily, as the Company would have it, that under said contract Basiao's status was
that of an independent contractor whose claim was thus cognizable, not by the Labor Arbiter in a labor
case, but by the regular courts in an ordinary civil action.

The Company's thesis, that no employer-employee relation in the legal and generally accepted sense existed
between it and Basiao, is drawn from the terms of the contract they had entered into, which, either
expressly or by necessary implication, made Basiao the master of his own time and selling methods, left to
his judgment the time, place and means of soliciting insurance, set no accomplishment quotas and
compensated him on the basis of results obtained. He was not bound to observe any schedule of working
hours or report to any regular station; he could seek and work on his prospects anywhere and at anytime he
chose to, and was free to adopt the selling methods he deemed most effective.

Without denying that the above were indeed the expressed or implicit conditions of Basiao's contract with
the Company, the respondents contend that they do not constitute the decisive determinant of the nature of
his engagement, invoking precedents to the effect that the critical feature distinguishing the status of an
employee from that of an independent contractor is control, that is, whether or not the party who engages
the services of another has the power to control the latter's conduct in rendering such services. Pursuing the
argument, the respondents draw attention to the provisions of Basiao's contract obliging him to "* *
observe and conform to all rules and regulations which the Company may from time to time prescribe * *,"
as well as to the fact that the Company prescribed the qualifications of applicants for insurance, processed
their applications and determined the amounts of insurance cover to be issued as indicative of the control
which made Basiao, in legal contemplation, an employee of the Company.[9]

It is true that the "control test" expressed in the following pronouncement of the Court in the 1956 case
of Viana vs. Alejo Al-Lagadan:[10]

"* * Indetermining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employees’ conduct -- although the latter is the most
important element (35 Am. Jur. 445). * *,"

has been followed and applied in later cases, some fairly recent. [11] Indeed, it is without question a valid test
of the character of a contract or agreement to render service. It should, however, be obvious that not every
form of control that the hiring party reserves to himself over the conduct of the party hired in relation to the
services rendered may be accorded the effect of establishing an employer-employee relationship between
them in the legal or technical sense of the term. A line must be drawn somewhere, if the recognized
distinction between an employee and an individual contractor is not to vanish altogether. Realistically, it
would be a rare contract of service that gives untrammelled freedom to the party hired and eschews any
intervention whatsoever in his performance of the engagement.

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. The distinction acquires particular
relevance in the case of an enterprise affected with public interest, as is the business of insurance, and is on
that account subject to regulation by the State with respect, not only to the relations between insurer and
insured but also to the internal affairs of the insurance company. [12] Rules and regulations governing the
conduct of the business are provided for in the Insurance Code and enforced by the Insurance
Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of rules to
guide its commission agents in selling its policies that they may not run afoul of the law and what it
requires or prohibits. Of such a character are the rules which prescribe the qualifications of persons who
may be insured, subject insurance applications to processing and approval by the Company, and also
reserve to the Company the determination of the premiums to be paid and the schedules of payment. None
of these really invades the agent's contractual prerogative to adopt his own selling methods or to sell
insurance at his own time and convenience, hence cannot justifiably be said to establish an employer-
employee relationship between him and the company.

There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent
contractors, instead of employees of the parties for whom they worked. In Mafinco Trading
Corporation vs. Ople,[13] the Court ruled that a person engaged to sell soft drinks for another, using a truck
supplied by the latter, but with the right to employ his own workers, sell according to his own methods
subject only to prearranged routes, observing no working hours fixed by the other party and obliged to
secure his own licenses and defray his own selling expenses, all in consideration of a peddler’s discount
given by the other party for at least 250 cases of soft drinks sold daily, was not an employee but an
independent contractor.

In Investment Planning Corporation of the Philippines vs. Social Security System,[14] a case almost on all
fours with the present one, this Court held that there was no employer-employee relationship between a
commission agent and an investment company, but that the former was an independent contractor where
said agent and others similarly placed were: (a) paid compensation in the form of commissions based on
percentages of their sales, any balance of commissions earned being payable to their legal representatives
in the event of death or resignation; (b) required to put up performance bonds; (c) subject to a set of rules
and regulations governing the performance of their duties under the agreement with the company and
termination of their services for certain causes; (d) not required to report for work at any time, nor to devote
their time exclusively to working for the company nor to submit a record of their activities, and who,
finally, shouldered their own selling and transportation expenses.

More recently, in Sara vs. NLRC,[15] it was held that one who had been engaged by a rice miller to buy and
sell rice and palay without compensation except a certain percentage of what he was able to buy or sell, did
work at his own pleasure without any supervision or control on the part of his principal and relied on his
own resources in the performance of his work, was a plain commission agent, an independent contractor
and not an employee.

The respondents limit themselves to pointing out that Basiao's contract with the Company bound him to
observe and conform to such rules and regulations as the latter might from time to time prescribe. No
showing has been made that any such rules or regulations were in fact promulgated, much less that any
rules existed or were issued which effectively controlled or restricted his choice of methods -- or the
methods themselves -- of selling insurance. Absent such showing, the Court will not speculate that any
exceptions or qualifications were imposed on the express provision of the contract leaving Basiao "* * free
to exercise his own judgment as to the time, place and means of soliciting insurance."

The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the
Company for twenty-five years. Whatever this is meant to imply, the obvious reply would be that what is
germane here is Basiao's status under the contract of July 2, 1968, not the length of his relationship with the
Company.
The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the
petitioner, but a commission agent, an independent contractor whose claim for unpaid commissions should
have been litigated in an ordinary civil action. The Labor Arbiter erred in taking cognizance of, and
adjudicating, said claim, being without jurisdiction to do so, as did the respondent NLRC in affirming the
Arbiter's decision. This conclusion renders it unnecessary and premature to consider Basiao's claim for
commissions on its merits.

WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and the
complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No
pronouncement as to costs.

SO ORDERED.

G.R. No. 119268, February 23, 2000

ANGEL JARDIN, DEMETRIO CALAGOS, URBANO MARCOS, ROSENDO MARCOS, LUIS DE

LOS ANGELES, JOEL ORDENIZA AND AMADO CENTENO, PETITIONERS, VS. NATIONAL
LABOR RELATIONS COMMISSION (NLRC) AND GOODMAN TAXI (PHILJAMA
INTERNATIONAL, INC.), RESPONDENTS.

DECISION

QUISUMBING, J.:

This special civil action for certiorari seeks to annul the decision[1] of public respondent promulgated on
October 28, 1994, in NLRC NCR CA No. 003883-92, and its resolution[2] dated December 13, 1994 which
denied petitioners motion for reconsideration.

Petitioners were drivers of private respondent, Philjama International Inc., a domestic corporation engaged
in the operation of "Goodman Taxi." Petitioners used to drive private respondent’s taxicabs every other day
on a 24-hour work schedule under the boundary system. Under this arrangement, the petitioners earned an
average of P400.00 daily. Nevertheless, private respondent admittedly regularly deducts from petitioners’
daily earnings the amount of P30.00 supposedly for the washing of the taxi units. Believing that the
deduction is illegal, petitioners decided to form a labor union to protect their rights and interests.

Upon learning about the plan of petitioners, private respondent refused to let petitioners drive their taxicabs
when they reported for work on August 6, 1991, and on succeeding days. Petitioners suspected that they
were singled out because they were the leaders and active members of the proposed union. Aggrieved,
petitioners filed with the labor arbiter a complaint against private respondent for unfair labor practice,
illegal dismissal and illegal deduction of washing fees. In a decision[3] dated August 31, 1992, the labor
arbiter dismissed said complaint for lack of merit.

On appeal, the NLRC (public respondent herein), in a decision dated April 28, 1994, reversed and set aside
the judgment of the labor arbiter. The labor tribunal declared that petitioners are employees of private
respondent, and, as such, their dismissal must be for just cause and after due process. It disposed of the case
as follows:
"WHEREFORE, in view of all the foregoing considerations, the decision of the Labor Arbiter appealed
from is hereby SET ASIDE and another one entered:
1. Declaring the respondent company guilty of illegal dismissal and accordingly it is directed to reinstate
the complainants, namely, Alberto A. Gonzales, Joel T. Morato, Gavino Panahon, Demetrio L. Calagos,
Sonny M. Lustado, Romeo Q. Clariza, Luis de los Angeles, Amado Centino, Angel Jardin, Rosendo
Marcos, Urbano Marcos, Jr., and Joel Ordeniza, to their former positions without loss of seniority and other
privileges appertaining thereto; to pay the complainants full backwages and other benefits, less earnings
elsewhere, and to reimburse the drivers the amount paid as washing charges; and

2. Dismissing the charge of unfair [labor] practice for insufficiency of evidence.

SO ORDERED."[4]
Private respondent’s first motion for reconsideration was denied. Remaining hopeful, private respondent
filed another motion for reconsideration. This time, public respondent, in its decision[5] dated October 28,
1994, granted aforesaid second motion for reconsideration. It ruled that it lacks jurisdiction over the case as
petitioners and private respondent have no employer-employee relationship. It held that the relationship of
the parties is leasehold which is covered by the Civil Code rather than the Labor Code, and disposed of the
case as follows:
"VIEWED IN THE LIGHT OF ALL THE FOREGOING, the Motion under reconsideration is hereby
given due course.

Accordingly, the Resolution of August 10, 1994, and the Decision of April 28, 1994 are hereby SET
ASIDE. The Decision of the Labor Arbiter subject of the appeal is likewise SET ASIDE and a NEW ONE
ENTERED dismissing the complaint for lack of jurisdiction.

No costs.

SO ORDERED."[6]
Expectedly, petitioners sought reconsideration of the labor tribunal’s latest decision which was denied.
Hence, the instant petition.

In this recourse, petitioners allege that public respondent acted without or in excess of jurisdiction, or with
grave abuse of discretion in rendering the assailed decision, arguing that:
"I

THE NLRC HAS NO JURISDICTION TO ENTERTAIN RESPONDENT’S SECOND MOTION FOR

RECONSIDERATION WHICH IS ADMITTEDLY A PLEADING PROHIBITED UNDER THE NLRC
RULES, AND TO GRANT THE SAME ON GROUNDS NOT EVEN INVOKED THEREIN.

II

THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES IS

ALREADY A SETTLED ISSUE CONSTITUTING RES JUDICATA, WHICH THE NLRC HAS NO
MORE JURISDICTION TO REVERSE, ALTER OR MODIFY.

III

IN ANY CASE, EXISTING JURISPRUDENCE ON THE MATTER SUPPORTS THE VIEW THAT
PETITIONERS-TAXI DRIVERS ARE EMPLOYEES OF RESPONDENT TAXI COMPANY." [7]
The petition is impressed with merit.

The phrase "grave abuse of discretion amounting to lack or excess of jurisdiction" has settled meaning in
the jurisprudence of procedure. It means such capricious and whimsical exercise of judgment by the
tribunal exercising judicial or quasi-judicial power as to amount to lack of power.[8] In labor cases, this
Court has declared in several instances that disregarding rules it is bound to observe constitutes grave abuse
of discretion on the part of labor tribunal.
In Garcia vs. NLRC,[9] private respondent therein, after receiving a copy of the labor arbiter’s decision,
wrote the labor arbiter who rendered the decision and expressed dismay over the judgment. Neither notice
of appeal was filed nor cash or surety bond was posted by private respondent. Nevertheless, the labor
tribunal took cognizance of the letter from private respondent and treated said letter as private respondent’s
appeal. In a certiorari action before this Court, we ruled that the labor tribunal acted with grave abuse of
discretion in treating a mere letter from private respondent as private respondent’s appeal in clear violation
of the rules on appeal prescribed under Section 3(a), Rule VI of the New Rules of Procedure of NLRC.

In Philippine Airlines Inc. vs. NLRC,[10] we held that the labor arbiter committed grave abuse of discretion
when he failed to resolve immediately by written order a motion to dismiss on the ground of lack of
jurisdiction and the supplemental motion to dismiss as mandated by Section 15 of Rule V of the New Rules
of Procedure of the NLRC.

In Unicane Workers Union-CLUP vs. NLRC,[11] we held that the NLRC gravely abused its discretion by
allowing and deciding an appeal without an appeal bond having been filed as required under Article 223 of
the Labor Code.

In Mañebo vs. NLRC,[12] we declared that the labor arbiter gravely abused its discretion in disregarding the
rule governing position papers. In this case, the parties have already filed their position papers and even
agreed to consider the case submitted for decision, yet the labor arbiter still admitted a supplemental
position paper and memorandum, and by taking into consideration, as basis for his decision, the alleged
facts adduced therein and the documents attached thereto.

In Gesulgon vs. NLRC,[13] we held that public respondent gravely abused its discretion in treating the
motion to set aside judgment and writ of execution as a petition for relief of judgment. In doing so, public
respondent had, without sufficient basis, extended the reglementary period for filing petition for relief from
judgment contrary to prevailing rule and case law.

In this case before us, private respondent exhausted administrative remedy available to it by seeking
reconsideration of public respondent’s decision dated April 28, 1994, which public respondent denied.
With this motion for reconsideration, the labor tribunal had ample opportunity to rectify errors or mistakes
it may have committed before resort to courts of justice can be had. [14] Thus, when private respondent filed
a second motion for reconsideration, public respondent should have forthwith denied it in accordance with
Rule 7, Section 14 of its New Rules of Procedure which allows only one motion for reconsideration from
the same party, thus:
"SEC. 14. Motions for Reconsideration. --- Motions for reconsideration of any order, resolution or decision
of the Commission shall not be entertained except when based on palpable or patent errors, provided that
the motion is under oath and filed within ten (10) calendar days from receipt of the order, resolution or
decision with proof of service that a copy of the same has been furnished within the reglementary period
the adverse party and provided further, that only one such motion from the same party shall be
entertained." [Emphasis supplied]
The rationale for allowing only one motion for reconsideration from the same party is to assist the parties in
obtaining an expeditious and inexpensive settlement of labor cases. For obvious reasons, delays cannot be
countenanced in the resolution of labor disputes. The dispute may involve no less than the livelihood of an
employee and that of his loved ones who are dependent upon him for food, shelter, clothing, medicine, and
education. It may as well involve the survival of a business or an industry. [15]

As correctly pointed out by petitioner, the second motion for reconsideration filed by private respondent is
indubitably a prohibited pleading[16] which should have not been entertained at all. Public respondent
cannot just disregard its own rules on the pretext of "satisfying the ends of justice", [17] especially when its
disposition of a legal controversy ran afoul with a clear and long standing jurisprudence in this jurisdiction
as elucidated in the subsequent discussion. Clearly, disregarding a settled legal doctrine enunciated by this
Court is not a way of rectifying an error or mistake. In our view, public respondent gravely abused its
discretion in taking cognizance and granting private respondent’s second motion for reconsideration as it
wrecks the orderly procedure in seeking reliefs in labor cases.
But, there is another compelling reason why we cannot leave untouched the flip-flopping decisions of the
public respondent. As mentioned earlier, its October 28, 1994 judgment is not in accord with the applicable
decisions of this Court. The labor tribunal reasoned out as follows:
"On the issue of whether or not employer-employee relationship exists, admitted is the fact that
complainants are taxi drivers purely on the ‘boundary system’. Under this system the driver takes out his
unit and pays the owner/operator a fee commonly called ‘boundary’ for the use of the unit. Now, in the
determination the existence of employer-employee relationship, the Supreme Court in the case of Sara, et
al., vs. Agarrado, et al. (G.R. No. 73199, 26 October 1988) has applied the following four-fold test: ‘(1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4)
the power of control the employees conduct.’

‘Among the four (4) requisites’, the Supreme Court stresses that ‘control is deemed the most important that
the other requisites may even be disregarded’. Under the control test, an employer-employee relationship
exists if the ‘employer’ has reserved the right to control the ‘employee’ not only as to the result of the work
done but also as to the means and methods by which the same is to be accomplished. Otherwise, no such
relationship exists.’ (Ibid.)
Applying the foregoing parameters to the case herein obtaining, it is clear that the respondent does not pay
the drivers, the complainants herein, their wages. Instead, the drivers pay a certain fee for the use of the
vehicle. On the matter of control, the drivers, once they are out plying their trade, are free to choose
whatever manner they conduct their trade and are beyond the physical control of the owner/operator; they
themselves determine the amount of revenue they would want to earn in a day’s driving; and, more
significantly aside from the fact that they pay for the gasoline they consume, they likewise shoulder the
cost of repairs on damages sustained by the vehicles they are driving.

Verily, all the foregoing attributes signify that the relationship of the parties is more of a leasehold or one
that is covered by a charter agreement under the Civil Code rather than the Labor Code." [18]

The foregoing ratiocination goes against prevailing jurisprudence.

In a number of cases decided by this Court,[19] we ruled that the relationship between jeepney
owners/operators on one hand and jeepney drivers on the other under the boundary system is that of
employer-employee and not of lessor-lessee. We explained that in the lease of chattels, the lessor loses
complete control over the chattel leased although the lessee cannot be reckless in the use thereof, otherwise
he would be responsible for the damages to the lessor. In the case of jeepney owners/operators and jeepney
drivers, the former exercise supervision and control over the latter. The management of the business is in
the owner’s hands. The owner as holder of the certificate of public convenience must see to it that the
driver follows the route prescribed by the franchising authority and the rules promulgated as regards its
operation. Now, the fact that the drivers do not receive fixed wages but get only that in excess of the so-
called "boundary" they pay to the owner/operator is not sufficient to withdraw the relationship between
them from that of employer and employee. We have applied by analogy the abovestated doctrine to the
relationships between bus owner/operator and bus conductor, [20] auto-calesa owner/operator and
driver,[21] and recently between taxi owners/operators and taxi drivers. [22] Hence, petitioners are
undoubtedly employees of private respondent because as taxi drivers they perform activities which are
usually necessary or desirable in the usual business or trade of their employer.

As consistently held by this Court, termination of employment must be effected in accordance with law.
The just and authorized causes for termination of employment are enumerated under Articles 282, 283 and
284 of the Labor Code. The requirement of notice and hearing is set-out in Article 277 (b) of the said Code.
Hence, petitioners, being employees of private respondent, can be dismissed only for just and authorized
cause, and after affording them notice and hearing prior to termination. In the instant case, private
respondent had no valid cause to terminate the employment of petitioners. Neither were there two (2)
written notices sent by private respondent informing each of the petitioners that they had been dismissed
from work. These lack of valid cause and failure on the part of private respondent to comply with the twin-
notice requirement underscored the illegality surrounding petitioners’ dismissal.
Under the law, an employee who is unjustly dismissed from work shall be entitled to reinstatement without
loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his
other benefits or their monetary equivalent computed from the time his compensation was withheld from
him up to the time of his actual reinstatement.[23] It must be emphasized, though, that recent judicial
pronouncements[24] distinguish between employees illegally dismissed prior to the effectivity of Republic
Act No. 6715 on March 21, 1989, and those whose illegal dismissals were effected after such date. Thus,
employees illegally dismissed prior to March 21, 1989, are entitled to backwages up to three (3) years
without deduction or qualification, while those illegally dismissed after that date are granted full backwages
inclusive of allowances and other benefits or their monetary equivalent from the time their actual
compensation was withheld from them up to the time of their actual reinstatement. The legislative policy
behind Republic Act No. 6715 points to "full backwages" as meaning exactly that, i.e., without deducting
from backwages the earnings derived elsewhere by the concerned employee during the period of his illegal
dismissal. Considering that petitioners were terminated from work on August 1, 1991, they are entitled to
full backwages on the basis of their last daily earnings.

With regard to the amount deducted daily by private respondent from petitioners for washing of the taxi
units, we view the same as not illegal in the context of the law. We note that after a tour of duty, it is
incumbent upon the driver to restore the unit he has driven to the same clean condition when he took it out.
Car washing after a tour of duty is indeed a practice in the taxi industry and is in fact dictated by fair
play.[25] Hence, the drivers are not entitled to reimbursement of washing charges.

WHEREFORE, the instant petition is GRANTED. The assailed DECISION of public respondent dated
October 28, 1994, is hereby SET ASIDE. The DECISION of public respondent dated April 28, 1994, and
its RESOLUTION dated December 13, 1994, are hereby REINSTATED subject to MODIFICATION.
Private respondent is directed to reinstate petitioners to their positions held at the time of the complained
dismissal. Private respondent is likewise ordered to pay petitioners their full backwages, to be computed
from the date of dismissal until their actual reinstatement. However, the order of public respondent that
petitioners be reimbursed the amount paid as washing charges is deleted. Costs against private respondents.

SO ORDERED.

G.R. No. 64948, September 27, 1994

MANILA GOLF & COUNTRY CLUB, INC. PETITIONER, VS. INTERMEDIATE APPELLATE
COURT AND FERMIN LLAMAR, RESPONDENTS.

DECISION

NARVASA, C.J.:

The question before the Court here is whether or not persons rendering caddying services for members of
golf clubs and their guests in said clubs' courses or premises are the employees of such clubs and therefore
within the compulsory coverage of the Social Security System (SSS).

That question appears to have been involved, either directly or peripherally, in three separate proceedings,
all initiated by or on behalf of herein private respondent and his fellow caddies. That which gave rise to the
present petition for review was originally filed with the Social Security Commission (SSC) via petition of
seventeen (17) persons who styled themselves "Caddies of Manila Golf and Country Club-PTCCEA" for
coverage and availment of benefits under the Social Security Act as amended, "PTCCEA" being the
acronym of a labor organization, the "Philippine Technical, Clerical, Commercial Employees Association,"
with which the petitioners claimed to be affiliated. The petition, docketed as SSC Case No. 5443, alleged in
essence that although the petitioners were employees of the Manila Golf and Country Club, a domestic
corporation, the latter had not registered them as such with the SSS.

At about the same time, two other proceedings bearing on the same question were filed or were pending;
these were:

(1) a certification election case filed with the Labor Relations Division of the Ministry of Labor by the
PTCCEA on behalf of the same caddies of the Manila Golf and Country Club, the case being titled
"Philippine Technical, Clerical, Commercial Association vs. Manila Golf and Country Club" and docketed
as Case No. R4-LRDX-M-10-504-78; it appears to have been resolved in favor of the petitioners therein by
Med-Arbiter Orlando S. Rojo, who was thereafter upheld by Director Carmelo S. Noriel, denying the
Club's motion for reconsideration;[1]
(2) a compulsory arbitration case initiated before the Arbitration Branch of the Ministry of Labor by the
same labor organization, titled "Philippine Technical, Clerical, Commercial Employees Association
(PTCCEA), Fermin Lamar and Raymundo Jomok vs. Manila Golf and Country Club, Inc., Miguel Celdran,
Henry Lim and Geronimo Alejo;" it was dismissed for lack of merit by Labor Arbiter Cornelio T.
Linsangan, a decision later affirmed on appeal by the National Labor Relations Commission on the ground
that there was no employer-employee relationship between the petitioning caddies and the respondent
Club.[2]

In the case before the SSC, the respondent Club filed answer praying for the dismissal of the petition,
alleging in substance that the petitioners, caddies by occupation, were allowed into the Club premises to
render services as such to the individual members and guests playing the Club's golf course and who
themselves paid for such services; that as such caddies, the petitioners were not subject to the direction and
control of the Club as regards the manner in which they performed their work; and hence, they were not the
Club's employees.

Subsequently, all but two of the seventeen petitioners of their own accord withdrew their claim for social
security coverage, avowedly coming to realize that indeed there was no employment relationship between
them and the Club. The case continued, and was eventually adjudicated by the SSC after protracted
proceedings only as regards the two holdouts, Fermin Llamar and Raymundo Jomok. The Commission
dismissed the petition for lack of merit,[3] ruling:

“*** that the caddy's fees were paid by the golf players themselves and not by respondent club. For
instance, petitioner Raymundo Jomok averred that for their services as caddies a caddy's Claim Stub (Exh.
'1- A') is issued by a player who will in turn hand over to management the other portion of the stub known
as Caddy Ticket (Exh. '1') so that by this arrangement management will know how much a caddy will be
paid (TSN, p. 80, July 23, 1980). Likewise, petitioner Fermin Llamar admitted that caddy works on his own
in accordance with the rules and regulations (TSN, p. 24, February 26, 1980) but petitioner Jomok could
not state any policy of respondent that directs the manner of caddying (TSN, pp. 76-77, July 23, 1980).
While respondent club promulgates rules and regulations on the assignment, deportment and conduct of
caddies (Exh. 'C') the same are designed to impose personal discipline among the caddies but not to direct
or conduct their actual work. In fact, a golf player is at liberty to choose a caddy of his preference
regardless of the respondent club's group rotation system and has the discretion on whether or not to pay a
caddy. As testified to by petitioner Llamar that their income depends on the number of players engaging
their services and liberality of the latter (TSN, pp. 10-11, Feb. 26, 1980). This lends credence to
respondent's assertion that the caddies are never their employees in the absence of two elements, namely,
(1) payment of wages and (2) control or supervision over them. In this connection, our Supreme Court
ruled that in the determination of the existence of an employer-employee relationship, the 'control test' shall
be considered decisive (Philippine Manufacturing Co. vs. Geronimo and Garcia, 96 Phil. 276; Mansal vs.
P.P. Cocheco Lumber Co., 96 Phil. 941; Viana vs. Al-lagadan, et al., 99 Phil. 408; Vda. de Ang, et al. vs.
The Manila Hotel Co., 101 Phil. 358, LVN Pictures Inc. vs. Phil. Musicians Guild, et al., L-12582, January
28, 1961, 1 SCRA 132. *** (reference being made also to Investment Planning Corporation Phil. vs. SSS
21 SCRA 925).
Records show that respondent club had reported for SS coverage Graciano Awit and Daniel Quijano, as bat
unloader and helper, respectively, including their ground men, house and administrative personnel, a
situation indicative of the latter's concern with the rights and welfare of its employees under the SS law, as
amended. The unrebutted testimony of Col. Generoso A. Alejo (Ret.) that the ID cards issued to the caddies
were merely intended to identify the holders as accredited caddies of the club and privilege(d) to ply their
trade or occupation within its premises which could be withdrawn anytime for loss of confidence. This
gives us a reasonable ground to state that the defense posture of respondent that petitioners were never its
employees is well taken."[4]

From this Resolution appeal was taken to the Intermediate Appellate Court by the union representing
Llamar and Jomok. After the appeal was docketed [5] and some months before decision thereon was reached
and promulgated, Raymundo Jomok's appeal was dismissed at his instance, leaving Fermin Llamar the lone
appellant.[6]

The appeal ascribed two errors to the SSC:

(1) refusing to suspend the proceedings to await judgment by the Labor Relations Division of National
Capital Regional Office in the certification election case (R-4-LRD-M-10-504-78) supra, on the precise
issue of the existence of employer-employee relationship between the respondent club and the appellants, it
being contended that said issue was "a function of the proper labor office"; and
(2) adjudging that self same issue in a manner contrary to the ruling of the Director of the Bureau of Labor
Relations, which "has not only become final but (has been) executed or (become) res adjudicata." [7]

The Intermediate Appellate Court gave short shrift to the first assigned error, dismissing it as of the least
importance. Nor, it would appear, did it find any greater merit in the second alleged error. Although said
Court reversed the appealed SSC decision and declared Fermin Llamar an employee of the Manila Golf and
Country Club, ordering that he be reported as such for social security coverage and paid any corresponding
benefits,[8] it conspicuously ignored the issue of res adjudicata raised in said second assignment. Instead, it
drew basis for the reversal from this Court's ruling in Investment Planning Corporation of the Philippines
vs. Social Security System, supra[9] and declared that upon the evidence, the questioned employer-
employee relationship between the Club and Fermin Llamar passed the so-called "control test," established
in that case -- i.e., "whether the employer controls or has reserved the right to control the employee not only
as to the result of the work to be done but also as to the means and methods by which the same is to be
accomplished,” -- the Club's control over the caddies encompassing:

(a) the promulgation of no less than twenty four (24) rules and regulations just about every aspect of the
conduct that the caddy must observe, or avoid, when serving as such, any violation of any of which could
subject him to disciplinary action, which may include suspending or cutting off his access to the club
premises;
(b) the devising and enforcement of a group rotation system whereby a caddy is assigned a number which
designates his turn to serve a player;
(c) the Club's "suggesting" the rate of fees payable to the caddies.

Deemed of little or no moment by the Appellate Court was the fact that the caddies were paid by the
players, not by the Club, that they observed no definite working hours and earned no fixed income. It
quoted with approval from an American decision[10] to the effect that: "whether the club paid the caddies
and afterward collected from the players or the players themselves paid the caddies in the first instance, the
caddies were still employees of the club." This, no matter that the case which produced this ruling had a
slightly different factual cast, apparently having involved a claim for workmen's compensation made by a
caddy who, about to leave the premises of the club where he worked, was hit and injured by an automobile
then negotiating the club's private driveway.

That same issue of res adjudicata, ignored by the IAC beyond bare mention thereof, as already pointed out,
is now among the mainstays of the private respondent's defense to the petition for review. Considered in the
perspective of the incidents just recounted, it illustrates as well as anything can, why the practice of forum-
shopping justly merits censure and punitive sanction. Because the same question of employer-employee
relationship has been dragged into three different fora, willy-nilly and in quick succession, it has birthed
controversy as to which of the resulting adjudications must now be recognized as decisive. On the one
hand, there is the certification case (R4-LRDX-M-10-504-78), where the decision of the Med-Arbiter found
for the existence of employer-employee relationship between the parties, was affirmed by Director Carmelo
S. Noriel, who ordered a certification election held, a disposition never thereafter appealed according to the
private respondent; on the other, the compulsory arbitration case (NCR Case No. AB-4-1771-79), instituted
by or for the same respondent at about the same time, which was dismissed for lack of merit by the Labor
Arbiter, which was afterwards affirmed by the NLRC itself on the ground that there existed no such
relationship between the Club and the private respondent. And, as if matters were not already complicated
enough, the same respondent, with the support and assistance of the PTCCEA, saw fit, also
contemporaneously, to initiate still a third proceeding for compulsory social security coverage with the
Social Security Commission (SSC Case No. 5443), with the result already mentioned.

Before this Court, the petitioner Club now contends that the decision of the Med-Arbiter in the certification
case had never become final, being in fact the subject of three pending and unresolved motions for
reconsideration, as well as of a later motion for early resolution. [11] Unfortunately, none of these motions is
incorporated or reproduced in the record before the Court. And, for his part, the private respondent
contends, not only that said decision had been appealed to and been affirmed by the Director of the BLR,
but that a certification election had in fact been held, which resulted in the PTCCEA being recognized as
the sole bargaining agent of the caddies of the Manila Golf and Country Club with respect to wages, hours
of work, terms of employment, etc.[12] Whatever the truth about these opposing contentions, which the
record before the Court does not adequately disclose, the more controlling consideration would seem to be
that, however final it may become, the decision in a certification case, by the very nature of that
proceeding, is not such as to foreclose all further dispute between the parties as to the existence, or non-
existence, of employer-employee relationship between them.

It is well settled that for res adjudicata, or the principle of bar by prior judgment, to apply, the following
essential requisites must concur: (1) there must be a final judgment or order; (2) said judgment or order
must be on the merits; (3) the court rendering the same must have jurisdiction over the subject matter and
the parties; and (4) there must be between the two cases identity of parties, identity of subject matter and
identity of cause of action.[13]

Clearly implicit in these requisites is that the action or proceedings in which is issued the "prior Judgment"
that would operate in bar of a subsequent action between the same parties for the same cause,
be adversarial, or contentious, "one having opposing parties; (is) contested, as distinguished from an ex
parte hearing or proceeding. *** of which the party seeking relief has given legal notice to the other party
and afforded the latter an opportunity to contest it."[14] and a certification case is not such a proceeding, as
this Court has already ruled:

"A certification proceeding 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 the employees as to the matter
of their representation. The court enjoys a wide discretion in determining the procedure necessary to insure
the fair and free choice of bargaining representatives by the employees.”15

Indeed, if any ruling or judgment can be said to operate as res adjudicata on the contested issue of
employer-employee relationship between present petitioner and the private respondent, it would logically
be that rendered in the compulsory arbitration case (NCR Case No. AB-4-771-79, supra), petitioner having
asserted, without dispute from the private respondent, that said issue was there squarely raised and litigated,
resulting in a ruling of the Arbitration Branch (of the same Ministry of Labor) that such relationship did not
exist, and which ruling was thereafter affirmed by the National Labor Relations Commission in an appeal
taken by said respondent.16
In any case, this Court is not inclined to allow private respondent the benefit of any doubt as to which of
the conflicting rulings just adverted to should be accorded primacy, given the fact that it was he who
actively sought them simultaneously, as it were, from separate fora, and even if the graver sanctions more
lately imposed by the Court for forum-shopping may not be applied to him retroactively.

Accordingly, the IAC is not to be faulted for ignoring private respondent's invocation of res adjudicata; on
the contrary, it acted correctly in doing so.

Said Court's holding that upon the facts, there exists (or existed) a relationship of employer and employee
between petitioner and private respondent is, however, another matter. The Court does not agree that said
facts necessarily or logically point to such a relationship, and to the exclusion of any form of arrangements,
other than of employment, that would make the respondent's services available to the members and guests
of the petitioner.

As long as it is, the list made in the appealed decision detailing the various matters of conduct, dress,
language, etc. covered by the petitioner's regulations, does not, in the mind of the Court, so circumscribe
the actions or judgment of the caddies concerned as to leave them little or no freedom of choice whatsoever
in the manner of carrying out their services. In the very nature of things, caddies must submit to some
supervision of their conduct while enjoying the privilege of pursuing their occupation within the premises
and grounds of whatever club they do their work in. For all that is made to appear, they work for the club to
which they attach themselves on sufferance but, on the other hand, also without having to observe any
working hours, free to leave anytime they please, to stay away for as long as they like. It is not pretended
that if found remiss in the observance of said rules, any discipline may be meted them beyond barring them
from the premises which, it may be supposed, the Club may do in any case even absent any breach of the
rules, and without violating any right to work on their part. All these considerations clash frontally with the
concept of employment.

The IAC would point to the fact that the Club suggests the rate of fees payable by the players to the caddies
as still another indication of the latter's status as employees. It seems to the Court, however, that the
intendment of such fact is to the contrary, showing that the Club has not the measure of control over the
incidents of the caddies' work and compensation that an employer would possess.

The Court agrees with petitioner that the group rotation system so-called, is less a measure of employee
control than an assurance that the work is fairly distributed, a caddy who is absent when his turn number is
called simply losing his turn to serve and being assigned instead the last number for the day.17

By and large, there appears nothing in the record to refute the petitioner's claim that:

"(Petitioner) has no means of compelling the presence of a caddy. A caddy is not required to exercise his
occupation only in the premises of petitioner. He may work with any other golf club or he may seek
employment as a caddy or otherwise with any entity or individual without restriction by petitioner. ***.
*** In the final analysis, petitioner has no way of compelling the presence of the caddies as they are not
required to render a definite number of hours of work on a single day. Even the group rotation of caddies is
not absolute because a player is at liberty to choose a caddy of his preference regardless of the caddy's
order in the rotation.
It can happen that a caddy who has rendered services to a player on one day may still find sufficient time to
work elsewhere. Under such circumstances, he may then leave the premises of petitioner and go to such
other place of work that he wishes (sic). Or a caddy who is on call for a particular day may deliberately
absent himself if he has more profitable caddying, or another, engagement in some other place. These are
things beyond petitioner's control and for which it imposes no direct sanctions on the caddies. ***18

WHEREFORE, the Decision of the Intermediate Appellate Court, review of which is sought, is reversed
and set aside, it being hereby declared that the private respondent, Fermin Llamar, is not an employee of
petitioner Manila Golf and Country Club and that petitioner is under no obligation to report him for
compulsory coverage to the Social Security System. No pronouncement as to costs.

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.

DECISION

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 ordered 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 PETITIONER.

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.

V
RESPONDENT COURT ERRED IN ORDERING 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 and 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
P5.00 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 enough at Dy's establishment;

(2) Solano had to leave as soon as he was through with the order given him by Dy;
(3) When there were no orders needing his services there was nothing for him to do;
(4) 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
(5) 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 shall 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 nonexistence 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 light 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 "Sunripe 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 calls for fixing the award of backwageswithout 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 above-
mentioned 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. 138051, June 10, 2004

JOSE Y. SONZA, PETITIONER, VS. ABS-CBN BROADCASTING CORPORATION,

RESPONDENT.

DECISION

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari[1] assailing the 26 March 1999 Decision[2] of the
Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza (“SONZA”).
The Court of Appeals affirmed the findings of the National Labor Relations Commission (“NLRC”), which
affirmed the Labor 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 P310,000 for the first year and
P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on the 10th
and 25th days of the month.

On 1 April 1996, SONZA wrote a letter to ABS-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. Manager[4]
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 Arbiter [5] denied the motion to dismiss and directed the
parties to file their respective position papers. The Labor Arbiter ruled:
In this instant case, complainant for having invoked a claim that he was an employee of respondent
company until April 15, 1996 and that he was not paid certain claims, it is sufficient enough as to confer
jurisdiction over the instant case in this Office. And as to whether or not such claim would entitle
complainant to recover upon the causes of action asserted is a matter to be resolved only after and as a
result of a hearing. Thus, the 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 P317,000. Moreover,
his engagement as a talent was covered by a specific contract. Likewise, he was not bound to render eight
(8) hours of work per day as he worked only for such number of hours as may be necessary.

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

The fact that complainant was made subject to 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
(P500,000.00).

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

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel benefit
amounting to at least One Hundred Fifty Thousand Pesos (P150,000.00) per year.’
Thus, it is precisely because of complainant-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.[21] Whatever benefits SONZA enjoyed arose from contract and not because of
an employer-employee relationship.[22]

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.

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 x[28] (Emphasis supplied)
Applying the control test to the present case, we find that SONZA is not an employee but an independent
contractor. The control test is the most important test our courts apply in distinguishing an employee from
an independent contractor.[29] This test is based on the extent of control the hirer exercises over a worker.
The greater the supervision and control the hirer exercises, the more likely the worker is deemed an
employee. The converse holds true as well – the less control the hirer exercises, the more likely the worker
is considered an independent contractor.[30]

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

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. [38] Even though ABS-CBN provided SONZA with the place of work and the
necessary equipment, SONZA was still an independent contractor since ABS-CBN did not supervise and
control his work. ABS-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 Constitution [53] arises only if there is an
employer-employee relationship under labor laws. Not every performance of services for a fee creates an
employer-employee relationship. To hold that every person who renders services to another for a fee is an
employee - to give meaning to the security of tenure clause - will lead to absurd results.

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

Different Tax Treatment of Talents and Broadcasters

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

Nature of 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. L-19124, November 18, 1967

INVESTMENT PLANNING CORPORATION OF THE PHILIPPINES, PETITIONER-

APPELLANT, VS. SOCIAL SECURITY SYSTEM, RESPONDENT-APPELLEE.

DECISION

MAKALINTAL, J.:

Petitioner is a domestic corporation engaged in business management and the sale of securities. It
has two classes of agents who sell its investment plans: (1) salaried employees who keep definite hours
and work under the control and supervision of the company; and (2) registered representatives who work
on commission basis.

On August 27, 1960 petitioner, through counsel, applied to respondent Social Security Commission for
exemption of its so-called registered representatives from the compulsory coverage of the Social Security
Act. The application was denied in a letter signed by the Secretary to the Commission on January 16,
1961. A motion to reconsider was filed and also denied, after hearing, by the Commission itself in its
resolution dated September 8, 1961. The matter was thereafter elevated to this Court for review.

The issue submitted for decision here is whether petitioner's registered representatives are employees
within the meaning of the Social Security Act (R.A. No. 1161 as amended). Section 8 (d) thereof defines
the term "employee" - for purposes of the Act - as "any person who performs services for an 'employer' in
which either or both mental and physical efforts are used and who receives compensation for such services,
where there is an employer-employee relationship." (As amended by Sec. 4, R.A. No. 2658) These
representatives are in reality commission agents. The uncontradicted testimony of petitioner's lone witness,
who was its assistant sales director, is that these agents are recruited and trained by him particularly for the
job of selling "Filipinas Mutual Fund" shares, made to undergo a test after such training and, if successful,
are given license to practice by the Securities and Exchange Commission. They then execute an agreement
with petitioner with respect to the sale of FMF shares to the general public. Among the features of said
agreement which respondent Commission considered pertinent to the issue are: (a) an agent is paid
compensation for services in the form of commission; (b) in the event of death or resignation he or his legal
representative shall be paid the balance of the commission corresponding to him; (c) he is subject to a set of
rules and regulations governing the performance of his duties under the agreement; (d) he is required to put
up a performance bond; and (e) his services may be terminated for certain causes. At the same time the
Commission found from the evidence and so stated in its resolution that the agents "are not required to
report (for work) at any time; they do not have to devote their time exclusively to or work solely for
petitioner; the time and the effort they spend in their work depend entirely upon their own will and
initiative; they are not required to account for their time nor submit a record of their activities; they
shoulder their own selling expenses as well as transportation; and they are paid their commission based on
a certain percentage of their sales." The record also reveals that the commission earned by an agent on his
sales is directly deducted by him from the amount he receives from the investor and turns over to the
company the amount invested after such deduction is made. The majority of the agents are regularly
employed elsewhere - either in the government or in private enterprises.

Of the three requirements under Section 8 (d) of the Social Security Act it is admitted that the first is
present in respect of the agents whose status is in question. They exert both mental and physical efforts in
the performance of their services. The compensation they receive, however, is not necessarily for those
efforts but rather for the results thereof, that is, for actual sales that they make. This point is relevant in
the determination of whether or not the third requisite is also present, namely, the existence of employer-
employee relationship. Petitioner points out that in effect such compensation is paid not by it but by the
investor, as shown by the basis on which the amount of the commission is fixed and the manner in which
it is collected.

Petitioner submits that its commission agents, engaged under the terms and conditions
already enumerated, are not employees but independent contractors, as defined in Article 1713 of the Civil
Code, which provides:

"ART. 1713. By the contract for a piece of work the contractor binds himself to execute a piece of work
for the employer, in consideration of a certain price or compensation. The contractor may either employ
only his labor or skill, or also furnish the material."

We are convinced from the facts that the work of petitioner's agents or registered representatives more
nearly approximates that of an independent contractor than that of an employee. The latter is paid for the
labor he performs, that is, for the acts of which such labor consists; the former is paid for the result
thereof. This Court has recognized the distinction in Chartered Bank et al. vs. Constantino, 56 Phil. 717,
where it said:

“On this point, the distinguished commentator Manresa in referring to Article 1588 of the (Spanish) Civil
Code has the following to say. x x x
“‘The code does not begin by giving a general idea of the subject matter, but by fixing its two dis-
tinguishing characteristics.
“‘But such an idea was not absolutely necessary because the difference between the lease of work by
contract or for a fixed price and the lease of services of hired servants or laborers is sufficiently clear. In
the latter, the direct object of the contract is the lessor's labor; the acts in which such labor consists,
performed for the benefit of the lessee, are taken into account immediately. In work done by contract or for
a fixed price, the lessor's labor is indeed an important, a most important factor; but it is not the direct object
of the contract, nor is it immediately taken into account. The object which the parties consider, which they
bear in mind in order to determine the cause of the contract, and upon which they really give their consent,
is not the labor but its result, the complete and finished work, the aggregate of the lessor's acts embodied in
something material, which is the useful object of the contract. x x x'
(Manresa Commentarios al Codigo Civil, Vol. X, 3d ed., pp. 774-775.)"

Even if an agent of petitioner should devote all of his time and effort trying to sell its investment plans he
would not necessarily be entitled to compensation therefor. His right to compensation depends upon and is
measured by the tangible results he produces.

The specific question of when there is "employer?employee relationship" for purposes of the Social
Security Act has not yet been settled in this jurisdiction by any decision of this Court. But in other
connections wherein the term is used the test that has been generally applied is the so-called control test,
that is, whether the "employer" controls or has reserved the right to control the "employee" not only as to
the result of the work to be done but also as to the means and methods by which the same is to be
accomplished.

Thus in Philippine Manufacturing Company vs. Geronimo et al., L-6968, November 29, 1954, involving
the Workmen's Compensation Act, we read:

“. . . Garcia, a painting contractor, had a contract undertaken to paint a water tank belonging to the
Company ‘in accordance with specifications and price stipulated,’ and with 'the actual supervision of the
work (being) taken care of by' himself. Clearly, this made Garcia an independent contractor, for while the
company prescribed what should be done, the doing of it and the supervision thereof was left entirely to
him, all of which meant that he was free to do the job according to his own method without being subject to
the control of the company except as to the result."

Cruz et al. vs. The Manila Hotel Company, L-9110, April 30, 1957, presented the issue of who were to be
considered employees of the defendant firm for purposes of separation gratuity. LVN Pictures, Inc. vs.
Phil. Musicians Guild et al., L-12582, January 28, 1961, involved the status of certain musicians for
purposes of determining the appropriate bargaining representative of the employees. In both instances the
"control" test was followed. (See also Mensal vs. P.P. GochecoLumber Co., L-8017, April 30, 1955;
and Viana vs. Alagadan, et al., L-8967, May 31, 1956.)

In the United States, the Federal Social Security Act of 935 set forth no definition of the term 'employee'
other than that ‘it includes an officer of a corporation.’ Under that Act the U.S. Supreme Court adopted for
a time and in several cases the so-called "economic reality" test instead of the "control" test. (U.S. vs. Silk
and Harrison, 91 Law Ed. 1757; Bartels vs. Birmingham Ibid, 1947, both decided in June 1947). In the
Bartels case the Court said:

"In United States v. Silk, No. 312, 331 US 704, ante, 1957, 67 S Ct 1463, supra, we held that the
relationship of employer-employee, which determines the liability for employment taxes under the Social
Security Act was not to be determines solely by the idea of control which an alleged employer may or
could exercise over the details of the service rendered to his business by the worker or workers. Obviously
control is characteristically associated with the employer-employee relationship, but in the application of
social legislation employees are those who as a matter of economic reality are dependent upon the business
to which they render service. In Silk, we pointed out that permanency of the relation, the skill required, the
investment in the facilities for work and opportunities for profit or less from the activities were also factors
that should enter into judicial determination as to the coverage of the Social Security Act. It is the total
situation that controls. These standards are as important in the entertainment field as we have just said, in
Silk, that they were in that of distribution and transportation." (91 Law, Ed. 1947, 1953;)

However, the "economic-reality" test was subsequently abandoned as not reflective of the intention of
Congress in the enactment of the original Security Act of 1935. The change was accomplished by means of
an amendatory Act passed in 1948, which was construed and applied in later cases. In Benson vs. Social
Security Board, 172 F. 2d. 682, the U.S. Supreme Court said:

"After the decision by the Supreme Court in the Silk case, the Treasury Department revamped its
Regulation, 12 Fed. Reg. 7966, using the test set out in the Silk case for determining the existence of an
employer-employee relationship. Apparently this was not the concept of such a relationship that Congress
had in mind in the passage of such remedial acts as the one involved here because thereafter on June 14,
1948, Congress enacted Public Law 642, 42 U.S. C.A. Sec. 1301(a) (6). Section 1101(a) (6) of the Social
Security Act was amended to read as follows:
“‘The term ‘employee’ includes an officer of a corporation, but such term does not include (1) any
individual who, under the usual common-law rules applicable in determining the employer-employee
relationship, has the status of an independent contractor or (2) any individual (except an officer of a
corporation) who is not an employee under such common-law rules.’
"While it is not necessary to explore the full effect of this enactment in the determination of the existence of
employer-employee relationships arising in the future, we think it can fairly be said that the intent of
Congress was to say that in determining in a given case whether under the Social Security Act such a
relationship exists, the common-law elements of such a relationship, as recognized and applied by the
courts generally at the time of the passage of the Act, were the standard to be used . . . ."

The common-law principles expressly adopted by the United States Congress are summarized in
Corpus Juris Secundum as follows:

"Under the common-law principles as to tests of the independent contractor relationship, discussed in
Master and Servant, and applicable in determining coverage under the Social Security Act and related
taxing provisions, the significant factor in determining the relationship of the parties is the presence or
absence of a supervisory power to control the method and detail of performance of the service, and the
degree to which the principal may intervene to exercise such control, the presence of such power of control
being indicative of an employment relationship and the absence of such power being indicative of the
relationship of independent contractor. In other words, the test of existence of the relationship of
independent contractor, which relationship is not taxable under the Social Security Act and related
provisions, is whether the one who is claimed to be an independent contractor has contracted to do the work
according to his own methods and without being subject to the control of the employer except as to the
result of the work." (81 C.J.S. Sec. 5, pp. 24-25;) See also Millard's Inc. vs. United States, 146 F. Supp.
385; Schmidt vs. Ewing, 108 F. Supp. 505; Rambin vs. Ewing, 106 F. Supp. 268.

In the case last cited (Rambin v. Ewing) the question presented was whether the plaintiff there, who was a
sales representative of a cosmetics firm working on a commission basis, was to be considered an
employee. Said the Court:

"Plaintiff’s only remuneration was her commission of 40% plus $5 extra for every $250 of sales. Plaintiff
was not guaranteed any minimum compensation and she was not allowed a drawing account or advance of
any kind against unearned commissions. Plaintiff paid all of her traveling expenses and she even had to
pay the postage for sending orders to Avon.
"The only office which Avon maintained in Shreveport was an office for the city manager. Plaintiff
worked from her own home and she was never furnished any leads. The relationship between plaintiff
and Avon was terminable at will x x x
“x x x
“x x x A long line of decisions holds that commissions sales representatives are not employees within the
coverage of the Social Security Act. The underlying circumstances of the relationship between
the sales representatives and company often vary widely from case to case, but commission sales
representatives have uniformly been held to be outside the Social Security Act."

Considering the similarity between the definition of "employee" in the Federal Social Security Act (U.S.)
as amended and its definitions in our own Social Security Act, and considering further that the local statute
is admittedly patterned after that of the United States, the decisions of American courts on the matter before
us may well be accorded persuasive force. The logic of the situation indeed dictates that where the
element of control is absent; where a person who works for another does so more or less at his own
pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to
the result of his efforts and not the amount thereof, we should not find that the relationship of employer and
employee exists.

We have examined the contract form between petitioner and its registered representatives and found
nothing therein which would indicate that the latter are under the control of the former in respect of the
means and methods they employ in the performance of their work. The fact that for certain specified
causes the relationship may be terminated (e.g. failure to meet the annual quota of sales, inability to make
any sales production during a six-month period, conduct detrimental to petitioner, etc.) does not mean that
such control exists, for the causes of termination thus specified have no relation to the means and methods
of work that are ordinarily required of or imposed upon employees.
In view of the foregoing considerations, the resolution of respondent Social Security Commission subject
of this appeal is reversed and set aside, without pronouncement as to costs.

G.R. No. 101761, March 24, 1993

NATIONAL SUGAR REFINERIES CORPORATION, PETITIONER, VS. NATIONAL LABOR

RELATIONS COMMISSION AND NBSR SUPERVISORY UNION (PACIWU) TUCP,
RESPONDENTS.

DECISION

REGALADO, J.:

The main issue presented for resolution in this original petition for certiorari is whether supervisory
employees, as defined in Article 212(m), Book V of the Labor Code, should be considered as officers or
members of the managerial staff under Article 82, Book III of the same Code, and hence are not entitled to
overtime, rest day and holiday pay.

Petitioner National Sugar Refineries Corporation (NASUREFCO), a corporation which is fully owned and
controlled by the Government, operates three (3) sugar refineries located at Bukidnon, Iloilo and Batangas.
The Batangas refinery was privatized on April 11, 1992 pursuant to Proclamation No. 50. [1] Private
respondent union represents the former supervisors of the NASUREFCO Batangas Sugar Refinery, namely,
the Technical Assistant to the Refinery Operations Manager, Shift Sugar Warehouse Supervisor, Senior
Financial/Budget Analyst, General Accountant, Cost Accountant, Sugar Accountant, Junior
Financial/Budget Analyst, Shift Boiler Supervisor, Shift Operations Chemist, Shift Electrical Supervisor,
General Services Supervisor, Instrumentation Supervisor, Community Development Officer, Employment
and Training Supervisor, Assistant Safety and Security Officer, Head of Personnel Services, Head Nurse,
Property Warehouse Supervisor, Head of Inventory Control Section, Shift Process Supervisor, Assistant
Shift Process Supervisor, Shift R/M Supervisor, Day Maintenance Supervisor and Motorpool Supervisor.

On June 1, 1988, petitioner implemented a Job Evaluation (JE) Program affecting all employees, from
rank-and-file to department heads. The JE Program was designed to rationalize the duties and functions of
all positions, reestablish levels of responsibility, and reorganize both wage and operational structures. Jobs
were ranked according to effort, responsibility, training and working conditions and relative worth of the
job. As a result, all positions were re-evaluated, and all employees including the members of respondent
union were granted salary adjustments and increases in benefits commensurate to their actual duties and
functions.

We glean from the records that for about ten years prior to the JE Program, the members of respondent
union were treated in the same manner as rank-and-file employees. As such, they used to be paid overtime,
rest day and holiday pay pursuant to the provisions of Articles 87, 93 and 94 of the Labor Code, as
amended. With the implementation of the JE Program, the following adjustments were made: (1) the
members of respondent union were re-classified under levels S-5 to S-8 which are considered managerial
staff for purposes of compensation and benefits; (2) there was an increase in basic pay on the average of
50% of their basic pay prior to the JE Program, with the union members now enjoying a wide gap
(P1,269.00 per month) in basic pay compared to the highest paid rank-and-file employee; (3) longevity pay
was increased on top of alignment adjustments; (4) they were entitled to increased company COLA of
P225.00 per month; and (5) there was a grant of P100.00 allowance for rest day/holiday work.
On May 11, 1990, petitioner NASUREFCO recognized herein respondent union, which was organized
pursuant to Republic Act No. 6715 allowing supervisory employees to form their own unions, as the
bargaining representative of all the supervisory employees at the NASUREFCO Batangas Sugar Refinery.

Two years after the implementation of the JE Program, specifically on June 20, 1990, the members of
herein respondent union filed a complaint with the executive labor arbiter for non-payment of overtime,
rest day and holiday pay allegedly in violation of Article 100 of the Labor Code.

On January 7, 1991, Executive Labor Arbiter Antonio C. Pido rendered a decision[2] disposing as follows:
“WHEREFORE, premises considered, respondent National Sugar Refineries Corporation is hereby directed
to -

1. pay the individual members of complainant union the usual overtime pay, restday pay and holiday pay
enjoyed by them instead of the P100.00 special allowance which was implemented on June 1, 1988; and

2. pay the individual members of complainant union the difference in money value between the P100.00
special allowance and the overtime pay, restday pay and holiday pay that they ought to have received from
June 1, 1988.

All other claims are hereby dismissed for lack of merit.

SO ORDERED.”
In finding for the members of herein respondent union, the labor arbiter ruled that the long span of time
during which the benefits were being paid to the supervisors has caused the payment thereof to ripen into a
contractual obligation; that the complainants cannot be estopped from questioning the validity of the new
compensation package despite the fact that they have been receiving the benefits therefrom, considering
that respondent union was formed only a year after the implementation of the Job Evaluation Program,
hence there was no way for the individual supervisors to express their collective response thereto prior to
the formation of the union; and the comparative computations presented by the private respondent union
showed that the P100.00 special allowance given by NASUREFCO fell short of what the supervisors ought
to receive had the overtime pay, rest day pay and holiday pay not been discontinued, which arrangement,
therefore, amounted to a diminution of benefits.

On appeal, in a decision promulgated on July 19, 1991 by its Third Division, respondent National Labor
Relations Commission (NLRC) affirmed the decision of the labor arbiter on the ground that the members of
respondent union are not managerial employees, as defined under Article 212(m) of the Labor Code and,
therefore, they are entitled to overtime, rest day and holiday pay. Respondent NLRC declared that these
supervisory employees are merely exercising recommendatory powers subject to the evaluation, review and
final action by their department heads; their responsibilities do not require the exercise of discretion and
independent judgment; they do not participate in the formulation of management policies nor in the hiring
or firing of employees; and their main function is to carry out the ready policies and plans of the
corporation.[3] Reconsideration of said decision was denied in a resolution of public respondent dated
August 30, 1991.[4]

Hence this petition for certiorari, with petitioner NASUREFCO asseverating that public respondent
commission committed a grave abuse of discretion in refusing to recognize the fact that the members of
respondent union are members of the managerial staff who are not entitled to overtime, rest day and
holiday pay; and in making petitioner assume the “double burden” of giving the benefits due to rank-and-
file employees together with those due to supervisors under the JE Program.

We find creditable merit in the petition and the extraordinary writ of certiorari shall accordingly issue.

The primordial issue to be resolved herein is whether the members of respondent union are entitled to
overtime, rest day and holiday pay. Before this can be resolved, however, it must of necessity be
ascertained first whether or not the union members, as supervisory employees, are to be considered as
officers or members of the managerial Staff who are exempt from the coverage of Article 82 of the Labor
Code.

It is not disputed that the members of respondent union are supervisory employees, as defined under Article
212(m), Book V of the Labor Code on Labor Relations, which reads:
“(m) ‘Managerial employee’ is one who is vested with powers or prerogatives to lay down and execute
management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline
employees. Supervisory employees are those who, in the interest of the employer, effectively recommend
such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but
requires the use of independent judgment. All employees not falling within any of the above definitions are
considered rank-and-file employees for purposes of this Book.”
Respondent NLRC, in holding that the union members are entitled to overtime, rest day and holiday pay,
and in ruling that the latter are not managerial employees, adopted the definition stated in the aforequoted
statutory provision.

Petitioner, however, avers that for purposes of determining whether or not the members of respondent
union are entitled to overtime, rest day and holiday pay, said employees should be considered as “officers
or members of the managerial staff” as defined under Article 82, Book III of the Labor Code on “Working
Conditions and Rest Periods” and amplified in Section 2, Rule I, Book III of the Rules to Implement the
Labor Code, to wit:
“Art. 82. Coverage. - The provisions of this title shall apply to employees in all establishments and
undertakings whether for profit or not, but not to government employees, managerial employees, field
personnel, members of the family of the employer who are dependent on him for support, domestic helpers,
persons in the personal service of another, and workers who are paid by results as determined by the
Secretary of Labor in appropriate regulations.

“As used herein, ‘managerial employees’ refer to those whose primary duty consists of the management of
the establishment in which they are employed or of a department or subdivision thereof, and to
other officers or members of the managerial staff.” (Emphasis supplied.)

xxx

“Sec. 2. Exemption. - The provisions of this rule shall not apply to the following persons if they qualify for
exemption under the condition set forth herein:

xxx

(b) Managerial employees, if they meet all of the following conditions, namely:

(1) Their primary duty consists of the management of the establishment in which they are employed or of a
department or subdivision thereof;

(2) They customarily and regularly direct the work of two or more employees therein;

(3) they have the authority to hire or fire other employees of lower rank; or their suggestions and
recommendations as to the hiring and firing and as to the promotion or any other change of status of other
employees are given particular weight.

(c) Officers or members of a managerial staff if they perform the following duties and responsibilities:

(1) The primary duty consists of the performance of work directly related to management policies of their
employer;

(2) Customarily and regularly exercise discretion and independent judgment;

(3) (i) Regularly and directly assist a proprietor or a managerial employee whose primary duty consists of
the management of the establishment in which he is employed or subdivision thereof; or (ii) execute under
general supervision work along specialized or technical lines requiring special training, experience, or
knowledge; or (iii) execute under general supervision special assignments and tasks; and

(4) Who do not devote more than 20 percent of their hours worked in a work week to activities which are
not directly and closely related to the performance of the work described in paragraphs (1), (2), and (3)
above.”
It is the submission of petitioner that while the members of respondent union, as supervisors, may not be
occupying managerial positions, they are clearly officers or members of the managerial staff because they
meet all the conditions prescribed by law and, hence, they are not entitled to overtime, rest day and holiday
pay. It contends that the definition of managerial and supervisory employees under Article 212(m) should
be made to apply only to the provisions on Labor Relations, while the right of said employees to the
questioned benefits should be considered in the light of the meaning of a managerial employee and of the
officers or members of the managerial staff, as contemplated under Article 82 of the Code and Section 2,
Rule I, Book III of the implementing rules. In other words, for purposes of forming and joining unions,
certification slections, collective bargaining, and so forth, the union members are supervisory employees. In
terms of working conditions and rest periods and entitlement to the questioned benefits, however, they are
officers or members of the managerial staff, hence they are not entitled thereto.

While the Constitution is committed to the policy of social justice and the protection of the working class, it
should not be supposed that every labor dispute will be automatically decided in favor of labor.
Management also has its own rights which, as such, are entitled to respect and enforcement in the interest
of simple fair play. Out of its concern for those with less privileges in life, this Court has inclined more
often than not toward the worker and upheld his cause in his conflicts with the employer. Such favoritism,
however, has not blinded us to the rule that justice is in every case for the deserving, to be dispensed in the
light of the established facts and the applicable law and doctrine. [5]

This is one such case where we are inclined to tip the scales of justice in favor of the employer.

I. The question whether a given employee is exempt from the benefits of the law is a factual one dependent
on the circumstances of the particular case. In determining whether an employee is within the terms of the
statutes, the criterion is the character of the work performed, rather than the title of the employee’s
position.[6]

Consequently, while generally this Court is not supposed to review the factual findings of respondent
commission, substantial justice and the peculiar circumstances obtaining herein mandate a deviation from
the rule.

A cursory perusal of the Job Value Contribution Statements[7] of the union members will readily show that
these supervisory employees are under the direct supervision of their respective department superintendents
and that generally they assist the latter in planning, organizing, staffing, directing, controlling,
communicating and in making decisions in attaining the company’s set goals and objectives. These
supervisory employees are likewise responsible for the effective and efficient operation of their respective
departments. More specifically, their duties and functions include, among others, the following operations
whereby the employee:
1) assists the department superintendent in the following:

a) planning of systems and procedures relative to department activities;

b) organizing and scheduling of work activities of the department, which includes employee shifting
schedule and manning complement;

c) decision making by providing relevant information data and other inputs;

d) attaining the company’s set goals and objectives by giving his full support;
e) selecting the appropriate man to handle the job in the department; and

f) preparing annual departmental budget;

2) observes, follows and implements company policies at all times and recommends disciplinary action
on erring subordinates;

3) trains and guides subordinates on how to assume responsibilities and become more productive;

4) conducts semi-annual performance evaluation of his subordinates and recommends necessary action
for their development/advancement;

5) represents the superintendent or the department when appointed and authorized by the former;

6) coordinates and communicates with other inter and intra department supervisors when necessary;

7) recommends disciplinary actions/ promotions;

8) recommends measures to improve work methods, equipment performance, quality of service and
working conditions;

9) sees to it that safety rules and regulations and procedure are implemented and followed by all
NASUREFCO employees, recommends revisions or modifications to said rules when deemed necessary,
and initiates and prepares reports for any observed abnormality within the refinery;

10) supervises the activities of all personnel under him and sees to it that instructions to subordinates are
properly implemented; and

11) performs other related tasks as may be assigned by his immediate superior.
From the foregoing, it is apparent that the members of respondent union discharge duties and
responsibilities which ineluctably qualify them as officers or members of the managerial staff, as defined in
Section 2, Rule I, Book III of the aforestated Rules to Implement the Labor Code, viz.: (1) their primary
duty consists of the performance of work directly related to management policies of their employer; (2)
they customarily and regularly exercise discretion and independent judgment; (3) they regularly and
directly assist the managerial employee whose primary duty consists of the management of a department of
the establishment in which they are employed; (4) they execute, under general supervision, work along
specialized or technical lines requiring special training, experience, or knowledge; (5) they execute, under
general supervision, special assignments and tasks; and (6) they do not devote more than 20% of their
hours worked in a work-week to activities which are not directly and clearly related to the performance of
their work hereinbefore described.

Under the facts obtaining in this case, we are constrained to agree with petitioner that the union members
should be considered as officers or members of the managerial staff and are, therefore, exempt from the
coverage of Article 82. Perforce, they are not entitled to overtime, rest day and holiday pay.

The distinction made by respondent NLRC on the basis of whether or not the union members
are managerial employees, to determine the latter’s entitlement to the questioned benefits, is misplaced and
inappropriate. It is admitted that these union members are supervisory employees and this is one instance
where the nomenclatures or titles of their jobs conform with the nature of their functions. Hence, to
distinguish them from a managerial employee, as defined either under Articles 82 or 212(m) of the Labor
Code, is puerile and inefficacious. The controversy actually involved here seeks a determination of whether
or not these supervisory employees ought to be considered as officers or members of the managerial
staff. The distinction, therefore, should have been made along that line and its corresponding conceptual
criteria.

II. We likewise do not subscribe to the finding of the labor arbiter that the payment of the questioned
benefits to the union members has ripened into a contractual obligation.

A. Prior to the JE Program, the union members, while being supervisors, received benefits similar to the
rank-and-file employees such as overtime, rest day and holiday pay, simply because they were treated in
the same manner as rank-and-file employees, and their basic pay was nearly on the same level as those of
the latter, aside from the fact that their specific functions and duties then as supervisors had not been
properly defined and delineated from those of the rank-and-file. Such fact is apparent from the clarification
made by petitioner in its motion for reconsideration[8] filed with respondent commission in NLRC Case No.
CA No. I-000058, dated August 16, 1991, wherein it lucidly explained:
“But, complainants no longer occupy the same positions they held before the JE Program. Those positions
formerly classified as ‘supervisory’ and found after the JE Program to be rank-and-file were classified
correctly and continue to receive overtime, holiday and restday pay. As to them, the practice subsists.

“However, those whose duties confirmed them to be supervisory, were re-evaluated, their duties re-defined
and in most cases their organizational positions re-designated to confirm their superior rank and duties.
Thus, after the JE program, complainants cannot be said to occupy the same positions.” [9]
It bears mention that this positional submission was never refuted nor controverted by respondent union in
any of its pleadings filed before herein public respondent or with this Court. Hence, it can be safely
concluded therefrom that the members of respondent union were paid the questioned benefits for the reason
that, at that time, they were rightfully entitled thereto. Prior to the JE Program, they could not be
categorically classified as members or officers of the managerial staff considering that they were then
treated merely on the same level as rank-and-file. Consequently, the payment thereof could not be
construed as constitutive of voluntary employer practice, which cannot now be unilaterally withdrawn by
petitioner. To be considered as such, it should have been practiced over a long period of time, and must be
shown to have been consistent and deliberate.[10]

The test or rationale of this rule on long practice requires an indubitable showing that the employer agreed
to continue giving the benefits knowing fully well that said employees are not covered by the law requiring
payment thereof.[11] In the case at bar, respondent union failed to sufficiently establish that petitioner has
been motivated or is wont to give these benefits out of pure generosity.

B. It remains undisputed that with the implementation of the JE Program, the members of private
respondent union were re-classified under levels S-5 to S-8 which were considered under the program as
managerial staff for purposes of compensation and benefits, that they occupied re-evaluated positions, and
that their basic pay was increased by an average of 50% of their basic salary prior to the JE Program. In
other words, after the JE Program there was an ascent in position, rank and salary. This in essence is a
promotion which is defined as the advancement from one position to another with an increase in duties and
responsibilities as authorized by law, and usually accompanied by an increase in salary. [12]

Quintessentially, with the promotion of the union members, they are no longer entitled to the benefits
which attach and pertain exclusively to their former positions. Entitlement to the benefits provided for by
law requires prior compliance with the conditions set forth therein. With the promotion of the members of
respondent union, they occupied positions which no longer meet the requirements imposed by law. Their
assumption of these positions removed them from the coverage of the law, ergo, their exemption therefrom.

As correctly pointed out by petitioner, if the union members really wanted to continue receiving the
benefits which attach to their former positions, there was nothing to prevent them from refusing to accept
their promotions and their corresponding benefits. As the saying goes, they cannot have their cake and eat it
too or, as petitioner suggests, they should not, as a simple matter of law and fairness, get the best of both
worlds at the expense of NASUREFCO.

Promotion of its employees is one of the jurisprudentially-recognized exclusive prerogatives of

management, provided it is done in good faith. In the case at bar, private respondent union has miserably
failed to convince this Court that the petitioner acted in bad faith in implementing the JE Program. There is
no showing that the JE Program was intended to circumvent the law and deprive the members of
respondent union of the benefits they used to receive.
Not so long ago, on this particular score, we had the occasion to hold that:
“x x x it is the prerogative of management to regulate, according to its discretion and judgment, all aspects
of employment. This flows from the established rule that labor law does not authorize the substitution of
the judgment of the employer in the conduct of its business. Such management prerogative may be availed
of without fear of any liability so long as it is exercised in good faith for the advancement of the employers’
interest and not for the purpose of defeating or circumventing the rights of employees under special laws or
valid agreement and are not exercised in a malicious, harsh, oppressive, vindictive or wanton manner or out
of malice or spite.”[13]
WHEREFORE, the impugned decision and resolution of respondent National Labor Relations
Commission promulgated on July 19, 1991 and August 30, 1991, respectively, are
hereby ANNULLED and SET ASIDE for having been rendered and adopted with grave abuse of
discretion, and the basic complaint of private respondent union is DISMISSED.
SO ORDERED.

G.R. NO. 156367, May 16, 2005

AUTO BUS TRANSPORT SYSTEMS, INC., PETITIONER, VS. ANTONIO BAUTISTA,

RESPONDENT.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari assailing the Decision[1] and Resolution[2] of the Court of
Appeals affirming the Decision[3] of the National Labor Relations Commission (NLRC). The NLRC ruling
modified the Decision of the Labor Arbiter (finding respondent entitled to the award of 13th month pay and
service incentive leave pay) by deleting the award of 13th month pay to respondent.

THE FACTS

Since 24 May 1995, respondent Antonio Bautista has been employed by petitioner Auto Bus Transport
Systems, Inc. (Autobus), as driver-conductor with travel routes Manila-Tuguegarao via Baguio, Baguio-
Tuguegarao via Manila and Manila-Tabuk via Baguio. Respondent was paid on commission basis, seven
percent (7%) of the total gross income per travel, on a twice a month basis.

On 03 January 2000, while respondent was driving Autobus No. 114 along Sta. Fe, Nueva Vizcaya, the bus
he was driving accidentally bumped the rear portion of Autobus No. 124, as the latter vehicle suddenly
stopped at a sharp curve without giving any warning.

Respondent averred that the accident happened because he was compelled by the management to go back
to Roxas, Isabela, although he had not slept for almost twenty-four (24) hours, as he had just arrived in
Manila from Roxas, Isabela. Respondent further alleged that he was not allowed to work until he fully paid
the amount of P75,551.50, representing thirty percent (30%) of the cost of repair of the damaged buses and
that despite respondent's pleas for reconsideration, the same was ignored by management. After a month,
management sent him a letter of termination.

Thus, on 02 February 2000, respondent instituted a Complaint for Illegal Dismissal with Money Claims for
nonpayment of 13th month pay and service incentive leave pay against Autobus.

Petitioner, on the other hand, maintained that respondent's employment was replete with offenses involving
reckless imprudence, gross negligence, and dishonesty. To support its claim, petitioner presented copies of
letters, memos, irregularity reports, and warrants of arrest pertaining to several incidents wherein
respondent was involved.

Furthermore, petitioner avers that in the exercise of its management prerogative, respondent's employment
was terminated only after the latter was provided with an opportunity to explain his side regarding the
accident on 03 January 2000.

On 29 September 2000, based on the pleadings and supporting evidence presented by the parties, Labor
Arbiter Monroe C. Tabingan promulgated a Decision,[4]the dispositive portion of which reads:
WHEREFORE, all premises considered, it is hereby found that the complaint for Illegal Dismissal has no
leg to stand on. It is hereby ordered DISMISSED, as it is hereby DISMISSED.

However, still based on the above-discussed premises, the respondent must pay to the complainant the
following:

a. his 13th month pay from the date of his hiring to the date of his dismissal, presently computed at
P78,117.87;

b. his service incentive leave pay for all the years he had been in service with the respondent,
presently computed at P13,788.05.

All other claims of both complainant and respondent are hereby dismissed for lack of merit. [5]
Not satisfied with the decision of the Labor Arbiter, petitioner appealed the decision to the NLRC which
rendered its decision on 28 September 2001, the decretal portion of which reads:
[T]he Rules and Regulations Implementing Presidential Decree No. 851, particularly Sec. 3 provides:

"Section 3. Employers covered. – The Decree shall apply to all employers except to:

xxx xxx xxx

e) employers of those who are paid on purely commission, boundary, or task basis, performing a specific
work, irrespective of the time consumed in the performance thereof. xxx."

Records show that complainant, in his position paper, admitted that he was paid on a commission basis.

In view of the foregoing, we deem it just and equitable to modify the assailed Decision by deleting the
award of 13th month pay to the complainant.

...

WHEREFORE, the Decision dated 29 September 2000 is MODIFIED by deleting the award of 13 th month
pay. The other findings are AFFIRMED.[6]
In other words, the award of service incentive leave pay was maintained. Petitioner thus sought a
reconsideration of this aspect, which was subsequently denied in a Resolution by the NLRC dated 31
October 2001.

Displeased with only the partial grant of its appeal to the NLRC, petitioner sought the review of said
decision with the Court of Appeals which was subsequently denied by the appellate court in a Decision
dated 06 May 2002, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition is DISMISSED for lack of merit; and the assailed
Decision of respondent Commission in NLRC NCR CA No. 026584-2000 is hereby AFFIRMED in toto.
No costs.[7]
Hence, the instant petition.
 ISSUES

1. Whether or not respondent is entitled to service incentive leave;

2. Whether or not the three (3)-year prescriptive period provided under Article 291 of the
Labor Code, as amended, is applicable to respondent's claim of service incentive leave
pay.

RULING OF THE COURT

The disposition of the first issue revolves around the proper interpretation of Article 95 of the Labor
Code vis-á-vis Section 1(D), Rule V, Book III of the Implementing Rules and Regulations of the Labor
Code which provides:
Art. 95. RIGHT TO SERVICE INCENTIVE LEAVE

(a) Every employee who has rendered at least one year of service shall be entitled to a yearly service
incentive leave of five days with pay.

Book III, Rule V: SERVICE INCENTIVE LEAVE

SECTION 1. Coverage. – This rule shall apply to all employees except:

...

(d) Field personnel and other employees whose performance is unsupervised by the employer including
those who are engaged on task or contract basis, purely commission basis, or those who are paid in a fixed
amount for performing work irrespective of the time consumed in the performance thereof; . . .
A careful perusal of said provisions of law will result in the conclusion that the grant of service incentive
leave has been delimited by the Implementing Rules and Regulations of the Labor Code to apply only to
those employees not explicitly excluded by Section 1 of Rule V. According to the Implementing Rules,
Service Incentive Leave shall not apply to employees classified as "field personnel." The phrase "other
employees whose performance is unsupervised by the employer" must not be understood as a separate
classification of employees to which service incentive leave shall not be granted. Rather, it serves as an
amplification of the interpretation of the definition of field personnel under the Labor Code as those "whose
actual hours of work in the field cannot be determined with reasonable certainty." [8]

The same is true with respect to the phrase "those who are engaged on task or contract basis, purely
commission basis." Said phrase should be related with "field personnel," applying the rule on ejusdem
generis that general and unlimited terms are restrained and limited by the particular terms that they
follow.[9] Hence, employees engaged on task or contract basis or paid on purely commission basis are not
automatically exempted from the grant of service incentive leave, unless, they fall under the classification
of field personnel.

Therefore, petitioner's contention that respondent is not entitled to the grant of service incentive leave just
because he was paid on purely commission basis is misplaced. What must be ascertained in order to resolve
the issue of propriety of the grant of service incentive leave to respondent is whether or not he is a field
personnel.

According to Article 82 of the Labor Code, "field personnel" shall refer to non-agricultural employees who
regularly perform their duties away from the principal place of business or branch office of the employer
and whose actual hours of work in the field cannot be determined with reasonable certainty. This definition
is further elaborated in the Bureau of Working Conditions (BWC), Advisory Opinion to Philippine
Technical-Clerical Commercial Employees Association[10] which states that:
As a general rule, [field personnel] are those whose performance of their job/service is not supervised by
the employer or his representative, the workplace being away from the principal office and whose hours
and days of work cannot be determined with reasonable certainty; hence, they are paid specific amount for
rendering specific service or performing specific work. If required to be at specific places at specific times,
employees including drivers cannot be said to be field personnel despite the fact that they are performing
work away from the principal office of the employee. [Emphasis ours]
To this discussion by the BWC, the petitioner differs and postulates that under said advisory opinion, no
employee would ever be considered a field personnel because every employer, in one way or another,
exercises control over his employees. Petitioner further argues that the only criterion that should be
considered is the nature of work of the employee in that, if the employee's job requires that he works away
from the principal office like that of a messenger or a bus driver, then he is inevitably a field personnel.

We are not persuaded. At this point, it is necessary to stress that the definition of a "field personnel" is not
merely concerned with the location where the employee regularly performs his duties but also with the fact
that the employee's performance is unsupervised by the employer. As discussed above, field personnel are
those who regularly perform their duties away from the principal place of business of the employer and
whose actual hours of work in the field cannot be determined with reasonable certainty. Thus, in order to
conclude whether an employee is a field employee, it is also necessary to ascertain if actual hours of work
in the field can be determined with reasonable certainty by the employer. In so doing, an inquiry must be
made as to whether or not the employee's time and performance are constantly supervised by the employer.

As observed by the Labor Arbiter and concurred in by the Court of Appeals:

It is of judicial notice that along the routes that are plied by these bus companies, there are its inspectors
assigned at strategic places who board the bus and inspect the passengers, the punched tickets, and the
conductor's reports. There is also the mandatory once-a-week car barn or shop day, where the bus is
regularly checked as to its mechanical, electrical, and hydraulic aspects, whether or not there are problems
thereon as reported by the driver and/or conductor. They too, must be at specific place as [sic] specified
time, as they generally observe prompt departure and arrival from their point of origin to their point of
destination. In each and every depot, there is always the Dispatcher whose function is precisely to see to it
that the bus and its crew leave the premises at specific times and arrive at the estimated proper time. These,
are present in the case at bar. The driver, the complainant herein, was therefore under constant supervision
while in the performance of this work. He cannot be considered a field personnel. [11]
We agree in the above disquisition. Therefore, as correctly concluded by the appellate court, respondent is
not a field personnel but a regular employee who performs tasks usually necessary and desirable to the
usual trade of petitioner's business. Accordingly, respondent is entitled to the grant of service incentive
leave.

The question now that must be addressed is up to what amount of service incentive leave pay respondent is
entitled to.

The response to this query inevitably leads us to the correlative issue of whether or not the three (3)-year
prescriptive period under Article 291 of the Labor Code is applicable to respondent's claim of service
incentive leave pay.

Article 291 of the Labor Code states that all money claims arising from employer-employee relationship
shall be filed within three (3) years from the time the cause of action accrued; otherwise, they shall be
forever barred.

In the application of this section of the Labor Code, the pivotal question to be answered is when does the
cause of action for money claims accrue in order to determine the reckoning date of the three-year
prescriptive period.

It is settled jurisprudence that a cause of action has three elements, to wit, (1) a right in favor of the plaintiff
by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the
named defendant to respect or not to violate such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting a breach of the obligation of the defendant to
the plaintiff.[12]
To properly construe Article 291 of the Labor Code, it is essential to ascertain the time when the third
element of a cause of action transpired. Stated differently, in the computation of the three-year prescriptive
period, a determination must be made as to the period when the act constituting a violation of the workers'
right to the benefits being claimed was committed. For if the cause of action accrued more than three (3)
years before the filing of the money claim, said cause of action has already prescribed in accordance with
Article 291.[13]

Consequently, in cases of nonpayment of allowances and other monetary benefits, if it is established that
the benefits being claimed have been withheld from the employee for a period longer than three (3) years,
the amount pertaining to the period beyond the three-year prescriptive period is therefore barred by
prescription. The amount that can only be demanded by the aggrieved employee shall be limited to the
amount of the benefits withheld within three (3) years before the filing of the complaint. [14]

It is essential at this point, however, to recognize that the service incentive leave is a curious animal in
relation to other benefits granted by the law to every employee. In the case of service incentive leave, the
employee may choose to either use his leave credits or commute it to its monetary equivalent if not
exhausted at the end of the year.[15] Furthermore, if the employee entitled to service incentive leave does
not use or commute the same, he is entitled upon his resignation or separation from work to the
commutation of his accrued service incentive leave. As enunciated by the Court in Fernandez v. NLRC:[16]
The clear policy of the Labor Code is to grant service incentive leave pay to workers in all establishments,
subject to a few exceptions. Section 2, Rule V, Book III of the Implementing Rules and Regulations
provides that "[e]very employee who has rendered at least one year of service shall be entitled to a yearly
service incentive leave of five days with pay." Service incentive leave is a right which accrues to every
employee who has served "within 12 months, whether continuous or broken reckoned from the date the
employee started working, including authorized absences and paid regular holidays unless the working
days in the establishment as a matter of practice or policy, or that provided in the employment contracts, is
less than 12 months, in which case said period shall be considered as one year." It is also "commutable to
its money equivalent if not used or exhausted at the end of the year." In other words, an employee who has
served for one year is entitled to it. He may use it as leave days or he may collect its monetary value. To
limit the award to three years, as the solicitor general recommends, is to unduly restrict such
right.[17] [Italics supplied]
Correspondingly, it can be conscientiously deduced that the cause of action of an entitled employee to
claim his service incentive leave pay accrues from the moment the employer refuses to remunerate its
monetary equivalent if the employee did not make use of said leave credits but instead chose to avail of its
commutation. Accordingly, if the employee wishes to accumulate his leave credits and opts for its
commutation upon his resignation or separation from employment, his cause of action to claim the whole
amount of his accumulated service incentive leave shall arise when the employer fails to pay such amount
at the time of his resignation or separation from employment.

Applying Article 291 of the Labor Code in light of this peculiarity of the service incentive leave, we can
conclude that the three (3)-year prescriptive period commences, not at the end of the year when the
employee becomes entitled to the commutation of his service incentive leave, but from the time when the
employer refuses to pay its monetary equivalent after demand of commutation or upon termination of the
employee's services, as the case may be.

The above construal of Art. 291, vis-á-vis the rules on service incentive leave, is in keeping with the
rudimentary principle that in the implementation and interpretation of the provisions of the Labor Code and
its implementing regulations, the workingman's welfare should be the primordial and paramount
consideration.[18] The policy is to extend the applicability of the decree to a greater number of employees
who can avail of the benefits under the law, which is in consonance with the avowed policy of the State to
give maximum aid and protection to labor.[19]

In the case at bar, respondent had not made use of his service incentive leave nor demanded for its
commutation until his employment was terminated by petitioner. Neither did petitioner compensate his
accumulated service incentive leave pay at the time of his dismissal. It was only upon his filing of a
complaint for illegal dismissal, one month from the time of his dismissal, that respondent demanded from
his former employer commutation of his accumulated leave credits. His cause of action to claim the
payment of his accumulated service incentive leave thus accrued from the time when his employer
dismissed him and failed to pay his accumulated leave credits.

Therefore, the prescriptive period with respect to his claim for service incentive leave pay only commenced
from the time the employer failed to compensate his accumulated service incentive leave pay at the time of
his dismissal. Since respondent had filed his money claim after only one month from the time of his
dismissal, necessarily, his money claim was filed within the prescriptive period provided for by Article 291
of the Labor Code.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The assailed Decision of the
Court of Appeals in CA-G.R. SP. No. 68395 is hereby AFFIRMED. No Costs.

SO ORDERED.

G.R. No. 126383, November 28, 1997

SAN JUAN DE DIOS HOSPITAL EMPLOYEES ASSOCIATION-AFW/MA. CONSUELO

MAQUILING, LEONARDO MARTINEZ, DOMINGO ELA, JR., RODOLFO CALUCIN, JR.,
PERLA MENDOZA, REX RAPHAEL REYES, ROGELIO BELMONTE, AND 375 OTHER
EMPLOYEE-UNION MEMBERS, PETITIONERS, VS. NATIONAL LABOR RELATIONS
COMMISSION, AND SAN JUAN DE DIOS HOSPITAL, RESPONDENTS.

DECISION

FRANCISCO, J.:

Petitioners, the rank-and-file employee-union officers and members of San Juan De Dios Hospital
Employees Association, sent on July 08, 1991, a “four (4)-page letter with attached support signatures x x x
requesting and pleading for the expeditious implementation and payment by respondent” Juan De Dios
Hospital "of the ’40 HOURS/5-DAY WORKWEEK’ with compensable weekly two (2) days off provided
for by Republic Act 5901 as clarified for enforcement by the Secretary of Labor’s Policy Instructions No.
54 dated April 12, 1988.”[1] Respondent hospital failed to give a favorable response; thus, petitioners filed a
complaint regarding their “claims for statutory benefits under the above-cited law and policy issuance”[2],
docketed as NLRC NCR Case No. 00-08-04815-91. On February 26, 1992, the Labor Arbiter [3] dismissed
the complaint. Petitioners appealed before public respondent National Labor Relations
Commission[4] (NLRC), docketed as NLRC NCR CA 003028-92, which affirmed the Labor Arbiter’s
decision. Petitioners’ subsequent motion for reconsideration was denied; hence, this petition under Rule 65
of the Rules of Court ascribing grave abuse of discretion on the part of NLRC in concluding that Policy
Instructions No. 54 “proceeds from a wrong interpretation of RA 5901” [5] and Article 83 of the Labor
Code.

As the Court sees it, the core issue is whether Policy Instructions No. 54 issued by then Labor Secretary
(now Senator) Franklin M. Drilon is valid or not.

The policy instruction in question provides in full as follows:

“Policy Instruction No. 54

“To: All Concerned

“Subject: Working Hours and Compensation of Hospital/Clinic Personnel

“This issuance clarifies the enforcement policy of this Department on the working hours and compensation
of personnel employed by hospital/clinics with a bed capacity of 100 or more and those located in cities
and municipalities with a population of one million or more.

“Republic Act 5901 took effect on 21 June 1969 prescribes a 40-hour/5 day work week for hospital/clinic
personnel. At the same time, the Act prohibits the diminution of the compensation of these workers who
would suffer a reduction in their weekly wage by reason of the shortened workweek prescribed by the Act.
In effect, RA 5901 requires that the covered hospital workers who used to work seven (7) days a week
should be paid for such number of days for working only 5 days or 40 hours a week.

“The evident intention of RA 5901 is to reduce the number of hospital personnel, considering the nature of
their work, and at the same time guarantee the payment to them of a full weekly wage for seven (7) days.
This is quite clear in the Exemplary Note of RA 5901 which states:
‘As compared with the other employees and laborers, these hospital and health clinic personnel are over-
worked despite the fact that their duties are more delicate in nature. If we offer them better working
conditions, it is believed that the “brain drain”, that our country suffers nowadays as far as these personnel
are concerned will be considerably lessened. The fact that these hospitals and health clinics personnel
perform duties which are directly concerned with the health and lives of our people does not mean that they
should work for a longer period than most employees and laborers. They are also entitled to as much rest as
other workers. Making them work longer than is necessary may endanger, rather than protect the health of
their patients. Besides, they are not receiving better pay than the other workers. Therefore, it is just and fair
that they may be made to enjoy the privileges of equal working hours with other workers except those
excepted by law. (Sixth Congress of the Republic of the Philippines, Third Session, House of
Representatives, H. No. 16630)’
“The Labor Code in its Article 83 adopts and incorporates the basic provisions of RA 5901 and retains its
spirit and intent which is to shorten the workweek of covered hospital personnel and at the same time
assure them of a full weekly wage.

“Consistent with such spirit and intent, it is the position of the Department that personnel in subject hospital
and clinics are entitled to a full weekly wage for seven (7) days it they have completed the 40-hours/5-day
workweek in any given workweek.

“All enforcement and adjudicatory agencies of this Department shall be guided by this issuance in the
disposition of cases involving the personnel of covered hospitals and clinics.

“Done in the City of Manila, this 12th day of April, 1988.

“(Sgd.) FRANKLIN M. DRILON

Secretary”

(Emphasis Added)
We note that Policy Instruction No. 54 relies and purports to implement Republic Act No. 5901, otherwise
known as “An Act Prescribing Forty Hours A Week Of Labor For Government and Private Hospitals Or
Clinic Personnel”, enacted on June 21, 1969. Reliance on Republic Act No. 5901, however, is misplaced
for the said statute, as correctly ruled by respondent NLRC, has long been repealed with the passage of the
Labor Code on May 1, 1974, Article 302 of which explicitly provides: “All labor laws not adopted as part
of this Code either directly or by reference are hereby repealed. All provisions of existing laws, orders,
decrees, rules and regulations inconsistent herewith are likewise repealed.” Accordingly, only Article 83 of
the Labor Code which appears to have substantially incorporated or reproduced the basic provisions of
Republic Act No. 5901 may support Policy Instructions No. 54 on which the latter’s validity may be
gauged. Article 83 of the Labor Code states:
“Art. 83. Normal Hours of Work. -- The normal hours of work of any employee shall not exceed eight (8)
hours a day.
“Health personnel in cities and municipalities with a population of at least one million (1,000,000) or in
hospitals and clinics with a bed capacity of at least one hundred (100) shall hold regular office hours for
eight (8) hours a day, for five (5) days a week, exclusive of time for meals, except where the exigencies of
the service require that such personnel work for six (6) days or forty-eight (48) hours, in which case they
shall be entitled to an additional compensation of at least thirty per cent (30%) of their regular wage for
work on the sixth day. For purposes of this Article, “health personnel” shall include: resident physicians,
nurses, nutritionists, dietitians, pharmacists, social workers, laboratory technicians, paramedical
technicians, psychologists, midwives, attendants and all other hospital or clinic personnel.” (Underscoring
supplied)
A cursory reading of Article 83 of the Labor Code betrays petitioners’ position that “hospital employees”
are entitled to “a full weekly salary with paid two (2) days’ off if they have completed the 40-hour/5-day
workweek”.[6] What Article 83 merely provides are: (1) the regular office hour of eight hours a day, five
days per week for health personnel, and (2) where the exigencies of service require that health personnel
work for six days or forty-eight hours then such health personnel shall be entitled to an additional
compensation of at least thirty percent of their regular wage for work on the sixth day. There is nothing in
the law that supports then Secretary of Labor’s assertion that “personnel in subject hospitals and clinics are
entitled to a full weekly wage for seven (7) days if they have completed the 40-hour/5-day workweek in
any given workweek”. Needless to say, the Secretary of Labor exceeded his authority by including a two
days off with pay in contravention of the clear mandate of the statute. Such act the Court shall not
countenance. Administrative interpretation of the law, we reiterate, is at best merely advisory, [7] and the
Court will not hesitate to strike down an administrative interpretation that deviates from the provision of
the statute.

Indeed, even if we were to subscribe with petitioners’ erroneous assertion that Republic Act No. 5901 has
neither been amended nor repealed by the Labor Code, we nevertheless find Policy Instructions No. 54
invalid. A perusal of Republic Act No. 5901[8] reveals nothing therein that gives two days off with pay for
health personnel who complete a 40-hour work or 5-day workweek. In fact, the Explanatory Note of House
Bill No. 16630 (later passed into law as Republic Act No. 5901) explicitly states that the bill’s sole purpose
is to shorten the working hours of health personnel and not to dole out a two days off with pay.

Hence:
“The accompanying bill seeks to grant resident physicians, staff nurses, nutritionists, midwives, attendants
and other hospital and health clinic personnel of public and private hospitals and clinics, the privilege of
enjoying the eight hours a week exclusive of time for lunch granted by law to all government employees
and workers except those employed in schools and in courts. At present those hospitals and health clinic
personnel including those employed in private hospitals and clinics, work six days a week, 8 hours a day or
48 hours a week.

“As compared with the other employees and laborers, these hospital and health clinic personnel are over-
worked despite the fact that their duties are more delicate in nature. If we offer them better working
conditions, it is believed that the ‘brain drain’, that our country suffers nowadays as far as these personnel
are concerned will be considerably lessened. The fact that these hospitals and health clinic personnel
perform duties which are directly concerned with the health and lives of our people does not mean that they
should work for a longer period than most employees and laborers. They are also entitled to as much rest as
other workers. Making them work longer than is necessary may endanger, rather than protect, the health of
their patients. Besides, they are not receiving better pay than the other workers. Therefore, it is just and fair
that they be made to enjoy the privileges of equal working hours with other workers except those excepted
by law.

“In the light of the foregoing, approval of this bill is strongly recommended.

“(SGD.) SERGIO H. LOYOLA

“Congressman, 3rd District Manila”

(Annex “F” of petition, underscoring supplied)
Further, petitioners' position is also negated by the very rules and regulations promulgated by the Bureau of
Labor Standards which implement Republic Act No. 5901. Pertinent portions of the implementing rules
provide:

“RULES AND REGULATIONS IMPLEMENTING REPUBLIC ACT NO. 5901

“By virtue of Section 79 of the Revised Administrative Code, as modified by section 18 of Implementation
Report for Reorganization Plan No. 20-A on Labor, vesting in the Bureau of Labor Standards the authority
to promulgate rules and regulations to implement wage and hour laws, the following rules and regulations
are hereby issued for the implementation of Republic Act No. 5901.

“CHAPTER I – Coverage

“Section 1. General Statement on Coverage. Republic Act No. 5901, hereinafter referred to as the Act, shall
apply to:
‘(a) All hospitals and clinics, including those with a bed capacity of less than one hundred, which are
situated in cities or municipalities with a population of one million or more; and to

‘(b) All hospitals and clinics with a bed capacity of at least one hundred, irrespective of the size of
population of the city or municipality where they may be situated.’

“Section 7. Regular Working Day. The regular working days of covered employees shall be not more than
five days in a workweek. The workweek may begin at any hour and on any day, including Saturday or
Sunday, designated by the employer.

“Employers are not precluded from changing the time at which the workday or workweek begins, provided
that the change is not intended to evade the requirements of these regulations on the payment of additional
compensation.”

“Section 15. Additional Pay Under the Act and C.A. No. 444. (a) Employees of covered hospitals and
clinics who are entitled to the benefits provided under the Eight-Hour Labor Law, as amended, shall be
paid an additional compensation equivalent to their regular rate plus at least twenty-five percent thereof for
work performed on Sunday and Holidays, not exceeding eight hours, such employees shall be entitled to an
additional compensation of at least 25% of their regular rate.

(b) For work performed in excess of forty hours a week, excluding those rendered in excess of eight
hours a day during the week, employees covered by the Eight-Hour Labor Law shall be entitled to an
additional straight-time pay which must be equivalent at least to their regular rate.”
If petitioners are entitled to two days off with pay, then there appears to be no sense at all why Section 15
of the implementing rules grants additional compensation equivalent to the regular rate plus at least twenty-
five percent thereof for work performed on Sunday to health personnel, or an “additional straight-time pay
which must be equivalent at least to the regular rate” “[f]or work performed in excess of forty hours a week
xxx. Policy Instructions No. 54 to our mind unduly extended the statute. The Secretary of Labor moreover
erred in invoking the “spirit and intent” of Republic Act No. 5901 and Article 83 of the Labor Code for it is
an elementary rule of statutory construction that when the language of the law is clear and unequivocal, the
law must be taken to mean exactly what it says.[9] No additions or revisions may be permitted. Policy
Instructions No. 54 being inconsistent with and repugnant to the provision of Article 83 of the Labor Code,
as well as to Republic Act No. 5901, should be, as it is hereby, declared void.

WHEREFORE, the decision appealed from is AFFIRMED. No costs.

SO ORDERED.
GAYONA DELIVERY TRUCK DRIVER

G.R. No. 119205, April 15, 1998

SIME DARBY PILIPINAS, INC., PETITIONER, VS. NATIONAL LABOR RELATIONS

COMMISSION (2ND DIVISION) AND SIME DARBY SALARIED EMPLOYEES ASSOCIATION
(ALU-TUCP), RESPONDENTS.

DECISION

BELLOSILLO, J.:

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

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

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

TO: ALL FACTORY-BASED EMPLOYEES

RE: NEW WORK SCHEDULE
Effective Monday, September 14, 1992, the new work schedule factory office will be as follows:

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

7:45 A.M. – 11:45 P.M. (Saturday).

Coffee break time will be ten minutes only anytime between:

9:30 A.M. –10:30 A.M. and

2:30 P.M. –3:30 P.M.

Lunch break will be between:

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

Excluded from the above schedule are the Warehouse and QA employees who are on shifting. Their work
and break time schedules will be maintained as it is now.[1]

Since private respondent felt affected adversely by the change in the work schedule and discontinuance of
the 30-minute paid “on call” lunch break, it filed on behalf of its members a complaint with the Labor
Arbiter for unfair labor practice, discrimination and evasion of liability pursuant to the resolution of this
Court in Sime Darby International Tire Co., Inc. v. NLRC.[2] However, the Labor Arbiter dismissed the
complaint on the ground that the change in the work schedule and the elimination of the 30-minute paid
lunch break of the factory workers constituted a valid exercise of management prerogative and that the new
work schedule, break time and one-hour lunch break did not have the effect of diminishing the benefits
granted to factory workers as the working time did not exceed eight (8) hours.

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

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

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

We agree, hence, we sustain petitioner. The right to fix the work schedules of the employees rests
principally on their employer. In the instant case petitioner, as the employer, cites as reason for the
adjustment the efficient conduct of its business operations and its improved production. [6] It rationalizes
that while the old work schedule included a 30-minute paid lunch break, the employees could be called
upon to do jobs during that period as they were “on call.” Even if denominated as lunch break, this period
could very well be considered as working time because the factory employees were required to work if
necessary and were paid accordingly for working. With the new work schedule, the employees are now
given a one-hour lunch break without any interruption from their employer. For a full one-hour undisturbed
lunch break, the employees can freely and effectively use this hour not only for eating but also for their rest
and comfort which are conducive to more efficiency and better performance in their work. Since the
employees are no longer required to work during this one-hour lunch break, there is no more need for them
to be compensated for this period. We agree with the Labor Arbiter that the new work schedule fully
complies with the daily work period of eight (8) hours without violating the Labor Code. [7] Besides, the
new schedule applies to all employees in the factory similarly situated whether they are union members or
not.[8]
Consequently, it was grave abuse of discretion for public respondent to equate the earlier Sime Darby
case[9] with the facts obtaining in this case. That ruling in the former case is not applicable here. The issue
in that case involved the matter of granting lunch breaks to certain employees while depriving the other
employees of such breaks. This Court affirmed in that case the NLRC’s finding that such act of
management was discriminatory and constituted unfair labor practice.

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

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

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

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

SO ORDERED.

G.R. No. L-15422, November 30, 1962

NATIONAL DEVELOPMENT COMPANY, PETITIONER, VS. COURT OF INDUSTRIAL

RELATIONS AND NATIONAL TEXTILE WORKERS UNION, RESPONDENTS.

DECISION

REGALA, J.:
This is a case for review from the Court of Industrial Relations. The pertinent facts are the following.

At the National Development Co., a government-owned and controlled corporation, there were four shifts
of work. One shift was from 8 a.m. to 4 p.m., while the three other shifts were from 6 a.m. to 2 p.m.; then
from 2 p.m. to 10 p.m. and, finally, from 10 p.m. to 6 a.m. In each shift, there was a one-hour mealtime
period, to wit: from (1) 11 a.m. to 12 noon for those working between 6 a.m. and 2 p.m. and from (2) 7
p.m. to 8 p.m. for those working between 2 p.m. and 10 p.m.

The records disclose that although there was a one-hour mealtime, petitioner nevertheless credited the
workers with eighth hours of work for each shift and paid them for the same number of hours. However,
since 1953, whenever workers in one shift were required to continue working until the next shift, petitioner,
instead of crediting them with eight hours of overtime work, has been paying them for six hours only,
petitioner claiming that the two hours corresponding to the mealtime periods should not be included in
computing compensation. On the other hand, respondent National Textile Workers Union whose members
are employed at the NDC, maintained the opposite view and asked the Court of Industrial Relations to
order the payment of additional overtime pay corresponding to the mealtime periods.

After hearing, Judge Arsenio I. Martinez of the CIR issued an order, dated March 19, 1959, holding that
mealtime should be counted in the determination of overtime work and accordingly ordered petitioner to
pay P101,407.96 by way of overtime compensation. Petitioner filed a motion for reconsideration but the
same was dismissed by the CIR en banc on the ground that petitioner failed to furnish the union a copy of
its motion.

Thereafter, petitioner appealed to this Court, contending, first, that the CIR has no jurisdiction over claims
for overtime compensation and, secondly, that the CIR did not make "a correct appraisal of the facts, in the
light of the evidence" in holding that mealtime periods should be included in overtime work because
workers could not leave their places of work and rest completely during those hours.

In support of its contention that the CIR lost its jurisdiction over claims for overtime pay upon the
enactment of the Industrial Peace Act (Republic Act No. 875), petitioner cites a number of decisions of this
Court. On May 23, 1960, however, We ruled in Price Stabilization Corp. vs. Court of Industrial Relations,
et al., 108 Phil., 138, 139, that

"Analyzing these cases, the underlying principle, it will bt noted in all of them, though not stated in express
terms, is that were the employer-employee relationship is still existing or is sought to be reestablished
because of its wrongful severance, (at where the employee seeks reinstatement), the Court of Industrial
Relations has jurisdiction over all claims arising out of, or in connection with the employment, such as
those related to the Minimum Wage Law and Eight-Hour Labor Law. After the termination of their
relationship and no reinstatement is sought, such claims become mere money claims, and come within the
jurisdiction of the regular courts.

"We are aware that in 2 cases, some statements implying a different view have been made, but we now hold
and declare the principle set forth in the next preceding paragraph as the one governing all cases of this
nature."

This has been the constant doctrine of this Court since May 23, 1960 [1]

A more recent definition of the jurisdiction of the CIR is found in Campos, et al. vs. Manila Railroad Co.,
et al., G. R. No. L-17905, May 25, 1962, in which We held that, for such jurisdiction to come into play, the
following requisites must be complied with: (a) there must exist between the parties an employer-employee
relationship or the claimant must seek his reinstatement; and (b) the controversy must relate to a case
certified by the President to the CIR as one involving national interest, or must have a bearing on an unfair
labor practice charge, or must arise either under the Eight-Hour Labor Law, or under the Minimum Wage
Law. In default of any of these circumstances, the claim becomes a mere money claim that comes under the
jurisdiction of the regular courts. Here, petitioner does not deny the existence of an employer-employee
relationship between it and the members of the union. Neither is there any question that the claim is based
on the Eight-Hour Labor Law (Com. Act No. 444, as amended). We therefore rule in favor of the
jurisdiction of the CIR over the present claim.

The other issue raised in the appeal is whether or not, on the basis of the evidence, the mealtime breaks
should be considered working time under the following provision of the law:

"The legal working day for any person employed by another shall be of not more than eight hours
daily. When the work is not continuous, the time during which the laborer is not working and can leave his
working place and can rest completely shall not be counted." (Sec. 1, Com. Act No. 444, as amended.
Italics ours.)

It will be noted that, under the law, the idle time that an employee may spend for resting and during which
ha may leave the spot or place of work though not the premises [2] of his employer, is not counted as
working time only where the work is broken or is not continuous.

The determination as to whether work is continuous or not is mainly one of fact which We shall not review
as A long as the same is supported by evidence. (Sec 15, Com. Act No. 103, as amended; Philippine
Newspaper Guild vs. Evening News, Inc., 86 Phil. 303).

That is why We brushed aside petitioner's contention in one case that workers who worked under a 6 a.m.
to 6 p.m. schedule had enough "free time" and, therefore should not be credited with four hours of overtime
and held that the finding of the CIR "that claimants herein rendered services to the Company from 6:00
a.m. to 6 p.m. including Sundays and holidays, * * * implies either that they were not allowed to leave the
spot of their working place, or that they could not rest completely." (Luzon Stevedoring Co., Inc., vs.
Luzon Marine Department Union, et al., 101 Phil., 257).

Indeed, it has been said that no general rule can be laid down as to what constitutes compensable work, but
rather the question is one of fact depending upon the particular circumstances, to be determined by the
courts in controverted cases. (31 Am. Jur. Sec. 626 pp. 877-378)

In this case, the CIR's finding that work in the petitioner company was continuous and did not permit
employees and laborers to rest completely is not without basis in evidence and following our earlier rulings,
We shall not disturbed the same. Thus, the CIR found:

"While it may be corrected to say that it is well-nigh impossible for an employee to work while he is eating,
yet under Section 1 of Com. Act No. 444 such, a time for eating can only be segregated or deducted from
his work, if the same is not continuous and the employee can leave his working place and rest completely.
The tune cards show that, the work was continuous and without interruption. There is also the evidence
adduced by the petitioner that the pertinent employees cannot freely leave their working places nor rest
completely. There is furthermore the aspect that during the period covered by the computation the work
was on a 24 hour basis and as previously stated divided into shifts."

From these facts, the CIR correctly concluded that work in petition company was continuous and therefore
the mealtime breaks should be counted as working time for purposes of overtime compensation.

Petitioner gives an eight-hour credit to its employees who work a single shift, say from 6 a.m. to 2 p.m..
Why cannot it credit them sixteen hours should they work in two shifts?

There is another reason why this appeal should be dismissed and that is that there is no decision by the
CIR en banc from which petitioner can appeal to this Court. As already indicated above, the records show
that petitioner's motion for reconsideration of the order of March 19, 1959 was dismissed by the CIR en
banc because of petitioner's failure to serve a copy of the same on the union.

Section 15 of the rules of the CIR, in relation to Section 1 of Commonwealth Act No. 103, states:

"The movant shall file the motion (for reconsideration), in six copies within five (5) days from the date on
which he receives notice of the order or decision, object of the motion for reconsideration, the same to be
verified under oath with respect to the correctness of the allegations of fact, and serving a copy thereof,
personally or by registered mail, on the adverse party. The latter may file an answer, is six (6) copies duly
verified under oath." (Italics ours)

In one case (Bien, et al. vs. Castillo, etc., et al. G. R. No. L-7428, May 24, 1955), We sustained the
dismissal of a motion for reconsideration filed outside of the period provided in the rules of the CIR. A
motion for reconsideration, a copy of winch has not been served on the adverse party as required by the
rules, stands on the same footing. For "in the very nature of things, a motion for reconsideration against a
ruling or decision by one Judge is in effect an appeal to the Court of Industrial Relations, en banc," the
purpose being "to substitute the decision or order of a collegiate court for the ruling or decision of any
judge." The provision in Commonwealth Act No. 103 authorizing the presentation of a motion for
reconsideration of a decision or order of the judge to the CIR, en banc, and not direct appeal therefrom to
this Court, is also in accord with the principle of exhaustion of administrative remedies before resort can be
made to this Court (Broce, et al. vs. The Court of Industrial Relations, et al., 106 Phil. 388; 56 Off. Gaz.
(49) 7445).

Petitioner's motion for reconsideration having been dismissed for its failure to serve a copy of the same on
the union, there is no decision of the CIR en banc that petitioner can bring to this Court for review.

G. R. No. L-9265, April 29, 1957

LUZON STEVEDORING CO., INC., PETITIONER, VS. LUZON MARINE DEPARTMENT

UNION AND THE HON. MODESTO CASTILLO, THE HON. JOSE S. BAUTISTA, THE HON. V.
JIMENEZ YANSON AND THE HON. JUAN L. LANTING, JUDGES OF THE COURT OF
INDUSTRIAL RELATIONS, RESPONDENTS.

DECISION

FELIX, J.:

This case involves a petition for certiorari filed hy the Luzon Stevedoring Co., Inc., to review a resolution
dated June 5, 1955, issued by the Court of Industrial Relations. On September 5, 1955, with leave of court,
a supplemental petition was filed by said petitioner, and both petitions were given due course by resolution
of this Court of September 15, 1955. The facts of the case may be summarized as follows:

On June 21, 1948, herein respondent Luzon Marine Department Union filed a petition with the Court of
Industrial' Relations containing several demands against herein petitioner Luzon Stevedoring Co., Inc.,
among which were the petition for full recognition of the right of collective bargaining, close shop and
check off. However, on July 18, 1948, while the case was still pending with the CIR, said labor union
declared a strike which was ruled down as illegal by this Court in case G. R. No. L-2660, promulgated on
May 30, 1950. In view of said ruling, the Union filed a "Constancia" with the Court of Industrial Relations
praying that the remaining unresolved demands of the Union presented in their original petition, be
granted. Said unresolved demands are the following:
a. Point No. 2.
"That the work performed in excess of eight (8) hours be paid an overtime pay oi' 50 per cent the regular
rate of pay, and that work performed on Sundays and legal holidays be paid double the regular rate of pay",
b. Point No. 7.
"That all officers, engineers and crew members of motor tugboats who have not received their pay
corresponding to the second half of December, 1941, be paid accordingly".
c. Point No. 11.
"That Ciriaco Sarmiento, Chief Mate, M/V Ularlin, Kafael Santos, Port Engineer, and Lorenzo de la Cruz,
Chief Engineer, M/V Shark, who have been suspended without justifiable cause and for union activities, be
reinstated with pay from time of suspension".
d. Point No. 12.
"That all officers, engineers and crew members of the motor tugboats "Shark", "Herring-", "Pike" and
"Ray", who have been discharged without justifiable cause and for union activities, be reinstated with/pay
from time of discharge", (p, 65-66, Record).

On the basis of these demands, the case was set for hearing and the parties submitted their respective
evidence, both oral and documentary, from June 8, 1951, to January 7, 1954. In one of the hearings of the
case, the original intervenor in L-2660, Union de Obreros Estibadores de Filipinas (UOEF), through
counsel, moved for the withdrawal of said Union from the case, which motion was granted by the Court.

After the parties had submitted exhaustive memoranda, the trial Judge rendered a decision on February 10,
1955, finding that the company gave said employees 3 free meals every day and about 20 minutes rest after
each mealtime; that they worked from 6:00 a.m. to 6:00 p.m. every day including Sundays and holidays,
and for work performed in excess of 8 hours, the officers, patrons and radio operators were given overtime
pay in the amount of P4 each and P2 each for the rest of the crew up to March, 1947, and after said date,
these payments were increased to P5 and P2.50, respectively, until the time of their separation or the strike
of July 19, 1948; that when the tugboats underwent repairs, their personnel worked only 8 hours a day
excluding Sundays and holidays; that although there was an effort on the part of claimants to show that
some had worked beyond 6:00 p.m., the evidence was uncertain and indefinite and that demand was,
therefore, denied; that respondent Company, by the nature of its business and as denned by law (Section
18-b of Commonwealth Act No. 146, as amended) is considered a public service operator by the Public
Service Commission in its decision in case No. 3035-C entitled "Philippine Shipowners . Association vs.
Luzon Stevedoring Co., Inc., et al." (Exh, 23), and, therefore, exempt from paying additional remuneration
or compensation for work performed on Sundays and legal holidays, pursuant to the provisions of section 4
of Commonwealth Act No. 444 (Manila Electric Co. vs. Public Utilities Employees Association, 79 Phil.,
408, 44 Off. Gaz., 1760) ; and ruled that:
"For the above reasons, the aforementioned employees are only entitled to receive overtime pay for work
Tendered in excess of 8 hours on ordinary days including Sundays and legal holidays.

"However, the respondent company has proved to the satisfaction of the Court that it has paid its employees
for such overtime work as shown above Exhs. 1 to 20-B).

"It is, therefore, only a matter of computation whether such over time pay by the respondent for overtime
services rendered covers the actual overtime work performed by the employees concerned equivalent to 25
per cent which is the minimum rate fixed by law in the absence of other proof to justify the granting' of
more beyond said minimum rate."
Demands Nos. 11 and 12 regarding the reinstatement to the service of the employees named therein were
denied and respondent Company was only ordered to pay the reparation pay and overtime work rendered
by Ciriaco Sarmiento, Rafael Santos and Lorenzo de la Cruz, after making the pronouncement that their
separation or dismissal was not due to union activities but for valid and legal grounds.

The Luzon Marine Department Union, through counsel, therefore, filed a motion for reconsideration
praying that the decision of February 10, 1955, be modified so as to declare and rule that the members of
the Union who had rendered services from 6:00 a.m. to 6:00 p.m. were entitled to 4 hours' overtime pay;
that whatever little time allotted to the taking of their meals should not be deducted from the 4 hours of
overtime rendered by said employees, that the amounts of P3 and P2 set aside for the daily meals of the
employees be considered as part of their actual compensation in determining the amount due to said
employees for their unpaid overtime work; that the employees separated from the service without just cause
be paid their unearned Wages and salaries from the date of their separation up to the time the decision in
case L-2660 became final; and for such other relief as may be just and equitable in the premises.

Luzon Stevedoring Go., Inc. also sought for the reconsideration of the decision only in so far as it
interpreted that the period during which a seaman is aboard a tugboat shall be considered as "working time"
for the purpose of the Eight-Hour-Labor Law.

In pursuance of Section 1 of Commonwealth Act No. 103, as amended by Commonwealth Act No. 254 and
further amended by Commonwealth Act No. 559, the motions for reconsideration were passed upon by
the Court en banc, and on June 6, 1955, a resolution modifying the decision of February 10, 1955, was
issued, in the sense that the 4 hours of overtime work included in the regular daily schedule of work from
6:00 a.m. to 6:00 p.m. should be paid independently of the so-called "coffee-money", after making a
finding that said extra amounts were given to crew members of some tugboats for work performed beyond
6:00 p.m. over a period of some 16 weeks. The Company's motion for reconsideration was denied.

From this resolution, the Luzon Stevedoring Co., Inc. filed the present petition for certiorari and when the
Court of Industrial Relations, acting upon said Company's motion for clarification, ruled that the 20
minutes' rest given the claimants after mealtime should not be deducted from the 4 hours of overtime
worked performed by said claimants, petitioner filed a supplemental petition for certiorari dated September
5, 1955, and both petitions were given due course by this Court.

Respondent Luzon Marine Labor Union filed within the reglementary period a motion to dismiss, which
this Court considered as an answer by resolution of October 14, 1955, alleging that the decision, resolution
and order of the Court of Industrial Relations sought to be reviewed by petitioner do not present any
question of law, the issues in said CIR case No. 147-V being purely factual. The respondent judges of the
Court of Industrial Relations, represented by counsel, timely filed an answer likewise asserting that there
could have been no question of law involved or error of law committed by the said Judges in the resolutions
appealed from, same having been based on purely findings of fact.

In this instance, petitioner does not seek to alter the lower court's finding that the regular daily schedule of
work of the members of the herein respondent Union was from 6:00 a.m. to 6:00 p.m. Petitioner, however,
submits several "issues" which We will proceed to discuss one after the other. They are the following:

I. Is the definition for "hours of work" as presently applied to dryland laborers equally applicable to
seamen? Or should a different criterion be applied by virtue of the fact that the seamen's employment is
completely different in nature as well as in condition of work from that of a dryland laborer?

Petitioner questions the applicability to seamen of the interpretation given to the phrase "hours of work" for
the purpose of the Eight-Hour Labor Law, insinuating that although the seamen concerned stayed in
petitioner's tugboats, or merely within its compound, for 12 hours, yet their work was not continuous but
interrupted or broken. It has been the consistent stand of petitioner that while it is true that the workers
herein were required to report for work at 6:00 a.m. and were made to stay up to 6:00 p.m., their work was
not continuous and they could have left the premises of their working place were it not for the inherent
physical impossibility peculiar to the nature of their duty which prevented them from leaving the tugboats.
It is the Company's defense that a literal interpretation of what constitutes non-working hours would result
in absurdity if made to apply to seamen aboard vessels in bays and rivers, and We are called upon to make
an interpretation of the law on "non-working hours" that may comprehend within its embrace not only the
non-working hours of laborers employed in land jobs, but also of that particular group of seamen, i.e., those
employed in vessels plying in rivers and bays, since admittedly there is no need for such ruling with respect
to officers and crew of interisland vessels, which have aboard 2 shifts of said men and strictly follow the 8-
hour working period.

Seetion 1 of Commonwealth Act No. 444, known as the Eight-Hour Labor Law, provides:
"Sec. L The legal working day for any person employed by another shall be of not more than eight hours
daily. When the work is not continuous, the time drawing which the laborer is not working AND CAN
LEAVE HIS WORKING PLACE and can rest completely, shall nor be counted."
The requisites contained in this section are further implemented by contemporary regulations issued by
administrative authorities (Sections 4 and 5 of Chapter III, Article 1, Code of Rules and Regulations to
Implement the Minimum Wage Law).

For the purposes of this case, We do not need to set for seamen a criterion different from that applied to
laborers on land, for under the provisions of the above quote'd section, the only thing to be done is to
determine the meaning and scope of the term "working place" used therein. As We understand this term, a
laborer need not leave the premises of the factory, shop or boat in order that his period of rest shall not be
counted, it being enough that he ''cease to work", may rest completely and leave or may leave at his will
the spot where he actually stays while working, to go somewhere else, whether within or outside the
premises of said factory, shop or boat. If these requisites are complied with, the period of such rest shall not
be counted.

In the case at bar We do not need to look into the nature of the work of claimant mariners to ascertain the
truth of petitioner's allegation that this kind of seamen have had enough "free time", a task of which We are
relieved, for although after an ocular inspection of the working premises of the seamen affected in this case
the trial Judge declared in his decision that the Company gave the complaining laborers 3 free meals a day
with a recess of 20 minutes after each meal, this decision was specifically amended by the Court en banc in
its Resolution of June 6, 1955, wherein it held that the claimants herein rendered services to the
Company from 6:00 a.m. to 6:00 p.m. including Sundays and holidays, which implies either that said
laborers were not given any recess at all, or that they were not allowed to leave the spot of their working
place, or that they could not rest completely. And such resolution being on a question essentially of facts
this Court is now precluded to review the same (Com. Act No. 103, Sec. 15, as amended by Sec. 2 of Com.
Act

No. 559; Rule 44 of the Rules of Court; Kaisahan Ng Mga Manggagawa sa Kahoy sa Filipinas vs. Gotamco
Sawmill, 80 Phil., 521; Operators, Inc. vs. Pelagic, 99 Phil., 893, and others).

II. Should a person be penalized for following an opinion issued by the Secretary of Justice in the absence
of any judicial pronouncement whatsoever?

Petitioner cites Opinion No. 247, Series of 1941 of the Secretary of Justice to a query made by the
Secretary of Labor in connection with a similar subject matter as the one involved in this issue, but that
opinion has no bearing on the case at bar because it refers to officers and crew on board interisland
boats whose situation is different from that of mariners or sailors working in small tugboats that ply along
bays and rivers and have no cabins or resting places for persons that man the same. Moreover, We cannot
pass upon this second issue because, aside from the fact that there appears nothing on record that would
support petitioner's assertion that in its dealing with its employees, it was guided by an opinion of the
Secretary of Justice, the issue involves a mere theoretical question.

III. When employees with full knowledge of the law, voluntarily agreed to work for so many hours in
consideration of a certain definite wage, and continue working without any protest for a period of almost
two years, is said compensation as agreed upon legally deemed and retroactively presumed to constitute
full payment for all services rendered, including' whatever overtime wages might be due? Especially
so if such wages, though received years before the enactment of the Minimum Wage1 Law, were already
set mostly above said minimum wage?

IV. The members of respondent Union having expressly manifested acquiescence over a period of almost
two years with reference to the sufficiency of their wages and having made no protest whatsoever with
reference to said compensation, does the legal and equitable principle of estoppel operate to bar them from
making a claim for, or making any recovery of, back overtime compensation?

We are going to discuss these two issues jointly. Section 6 of Commonwealth Act No. 444 provides:
"Sec. 6. Any agreement or contract between the employer and the laborer or employee contrary to the
provisions of this Act shall be mill and void ab initio."
In the case of the Manila Terminal Co. vs. Court of Industrial Relations et al., 91 Phil., 625, 48 Off. Gaz.,
2725, this. Court held:
"The principles of estoppel and laches cannot be invoked against employees or laborers in an action for the
recovery of compensation i'or past overtime work. In the first place, it would be contrary to the spirit of the
Eight-Hour Labor Law, under which, as already seen, the laborers cannot waive their right to extra
conpensation. In the second place, the law principally obligates the employer to observe it, so "much so that
it punishes the employer for its violation and leaves the employee free and blameless. In the third place, the
employee or laborer is in such a disadvantageous position as to> be naturally reluctant or even
apprehensive in asserting a claim which may cause the employer to devise a way for exercising Ins-right to
terminate the employment.

Moreover, if the principle of estoppel and laches is to be applied, it would bring about a situation whereby
the employee or laborer, who can not expressly renounce the right to extra compensation under the Eight-
Hour Labor Law, may be compelled to accomplish the same thing by mere silence or lapse of time, thereby
frustrating the purpose of the law by indirection."
This is the law on the matter and We certainly adhere to it in the present ease. We deem it, however,
convenient to say a few words of explanation so that the principle enunciated herein may not lead to any
misconstruction of the law in future cases. There is no question that the right of the laborers to overtime
pay cannot be waived. But there may be cases in which the silence of the employee or laborer who lets the
time go by for quite a long period without claiming or asserting his right to overtime compensation may
favor the inference that he has not worked any such overtime or that his extra work has been duly
compensated. But this is not so in the case at bar. The complaining laborers have declared that long before
the filing of this case, they had informed Mr. Martinez, a sort of overseer of the petitioner, that they had
been working overtime and claiming the corresponding compensation therefor, and there is nothing on
record to show that the claimants, at least the majority of them, had received wages in excess of the
minimum wage later provided by Republic Act No. 602, approved April 6, 1951. On the contrary, in the
decision of the trial Judge, it appears that 34 out of the 58 claimants received salaries less than the
minimum wage authorized by said Minimum Wage Law, to wit:
Per month
1. Ambrosio Tanada but after passing the oiler P82.50
examinations his wages were increased to
P225 per month;
2. Patricio Santiagobut after passing the quartermaster 82.50
examinations his wages were increased to
P225 per month;
3. Fidelino Viilanueva oiler 82.50
4. Pedro Filamor then his wage was reduced quartermaster 82.50
to P67.50 per month as cook;
5. Emiliano Irabo then his wage was reduced seaman 67.50
to P60 and he stayed for 1 month only; it was
increased again to P67.50;
6. Juanito de Luna oiler 82.50
7. Benigno Curambao oiler 82.50
8. Salvador Mercadillo oiler 82.50
9. Nicasio Sta. Lucia cook 82.00
10. Damaso Arciaga seaman 82.50
11. Leonardo Patmigot oiler 82.50
12. Bienvenido Crisostomo oiler 82.50
13. Isidro Malabanan cook 82.00
14. Saturnine Tumbokon seaman 67.50
15. Bonifacio Cortex quarter-master 82.50
16. Vietorio Carillo cook 67.50
17. Francisco Atilano cook 67.50
18. Gualberto Legaspi seaman 67.50
] 9. Numeriano Juanillo quarter-master 82.50
20. Moises Nicodemus quarter-master 82.50
21. Arsenio Itidiano seaman 82.50
22. Ricardo Autencio oiler 82.50
23. Mateo Areiaga seaman 67.50
24. Eomuio Magallanes quarter-master 82.50
25. Antonio Belbes seaman 67.50
26. Benjamin Aguirre quarter-master 82.50
27. Emilio Anastasio quarter-master 82.50
28. Ealtazar- Labrada oiler 82.50
29. Emetcrio Magallanes seaman 67.50
30. Agripino Laurente quarter-master 82.50
31. Roberto Francisco oiler 82.50
32. Elias Matrocinio seaman 82.50
33. ftaltazar Vega seaman 67.50
34. Jose Sanchez. oiler 82.50
Consequently, for lack of the necessary supporting evidence for the petitioner, the inference referred to
above cannot be drawn in this case.

V. Granting, without conceding, that any overtime pay in arrears is due, what is the extent and rule of
retro-activity with reference to overtime pay in arrears as set forth and established by the precedents and
policies of the Court of Industrial Relations in past decisions duly affirmed by the Honorable Supreme
Court?

VI. Is the grant of a .sizeable amount as back overtime wages by the Court of Industrial Relations in
consonance with the dictates of public policy and the avowed national and government policy on economic
recovery and financial stability?

In connection with issue No. 5, petitioner advances the theory that the computation of the overtime
payment in arrears should be based from the filing of the petition. In support of this contention, petitioner
cites the case of Gotamco Lumber Co. vs. Court of Industrial Relations, 85 Phil., 242; 47 Off. Gaz., 3421.
This case is not in point; it merely declares that Commonwealth Act No-444 imposes upon the employer
the duty to secure the permit for overtime work, and the latter may not therefore be heard to plead his own
negligence as exemption or defense. The employee in rendering extra services at the request of his
employer has a right to assume that the latter has complied with the requirements of the law and therefore
has obtained the required permission from the Department of Labor (47 Off. Gaz., 3421). The other
decisions of the Court of Industrial Relations cited by petitioner, to wit: Cases 6-V, 7-V and 8-V, Gotamco
& Co., Dy Pac & Co., Inc. and D. C. Chuan; Case 110-V, National Labor Union vs. Standard Vacuum Oil
Co.; Case No. 76-V, Dee Cho Workers, CLO vs. Dee Cho Lumber Co., and Case No. 70—V, National
Labor Union vs. Benguet Consolidated Mining Co., do not seem to have reached this Court and to have
been affirmed by Us.

It is of common occurrence that a workingman has already rendered services in excess of the statutory
period of 8 hours for some time before he can be led or he can muster enough courage to confront his
employer with a demand for payment thereof Fear of possible unemployment sometimes is a very strong
factor that gags the working-man from asserting his right under the law and it may take him months or
years before he could be made to present a claim against his employer. To allow the workingman to be
compensated only from the date of the filing of the petition with the court would be to penalize him for his
acquiescence or silence which We have declared in the case of the Manila Terminal Co. vs. CIR, supra, to
be beyond the intent of the law. It is not just and humane that he should be deprived of what is lawfully his
under the law, for the true intendent of Commonwealth Act No. 444 is to compensate the worker for
services rendered beyond the statutory period and this should be made to retroact to the date when such
services were actually performed.
Anent issue No. VI, petitioner questions the reasonableness of the law providing for the grant of overtime
wages. It is sufficient for Us to state here that courts cannot go outside of the field of interpretation so as to
inquire into the motive or motives of Congress in enacting a particular piece of legislation. This question,
certainly, is not within Our province to entertain.

It may be alleged, however, that the delay in asserting the right to back overtime compensation may cause
an unreasonable or irreparable injury to the employer, be- • cause the accumulation of such back overtime
wages may become so great that their payment might cause the bankruptcy or the closing of the business of
the employer who might not be in a position to defray the same. Perhaps this situation may occur, but We
shall. not delve on it this time because petitioner does not claim that the payment of the back overtime
wages it is ordered to pay to its claimant laborers will cause the injury it foresees or force it to close its
business, a situation which it speaks of theoretically and in general.

VII. Should not a Court of Industrial Relations' resolution, en banc, which is clearly unsupported in fact
and in law, patently arbitrary and capricious and absolutely devoid of sustaining reason, be declared illegal?
Especially so, if the trial court's decision which the resolution en banc reversed, is most detailed, exhaustive
and comprehensive in its findings as well as most reasonable and legal in its conclusions?

This issue was raised by petitioner in its supplemental petition and We have this much to say. The Court of
Industrial Relations has been considered "a court of justice" (Metropolitan Transportation Service vs.
Paredes, * G. R. No. L-1232, prom. January 12, 1948), although in another case. We said that it is "more an
administrative board than a part of the integrated judicial system of the nation" (Ang Tibay vs. Court of
Industrial Relations, 69 Phil., 635). But for procedural purposes, the Court of Industrial Relations is a court
with well-defined powers vested by the law creating it and with such other powers as generally pertain to a
court of justice (Sec. 20, Com. Act No. 103). As such, the general rule that before a judgment becomes
final, the Court that rendered the same may alter or modify it so as to conform with the with the law and
the evidence, is applicable to the Court of Industrial Relations (Connel Bros. Co. (Phil.) vs. National Labor
Union, G. R. No. L-8631 prom. January SO, 1956). The law also provides that after a judge of the Court of
Industrial Relations, duly designated by the Presiding Judge therein to hear a particular case, had rendered a
decision, any agrieved party may request for reconsideration thereof and the judges of said Court shall sit
together, the concurrence of the 3 of them being necessary for the pronouncement of a decision, order or
award (Sec. 1, Com. Act No. 103). It was in virtue of these rules and upon motions for reconsideration
presented by both parties that resolution subject of the present petition was issued, the Court en
banc finding it necessary to modify a part of the decision of February 10, 1955, which is clearly within its
power to do.

On the other hand, the issue under consideration is predicated on a situation which is not obtaining in the
case at bar, for it presupposes that the resolutions en banc of the respondent Court "are clearly unsupported
in fact and in law, patently arbitrary and capricious and absolutely devoid of any sustaining reason", which
does not seem to be the case as a matter of fact.

Wherefore, and on the strength of the foregoing consideration, the resolutions of the Court of Industrial
Relations appealed from are hereby affirmed, with costs against petitioner. It is so ordered.
 CHAPTER II

G.R. No. L-26844, September 30, 1969

FELIPE DE LEON, BALDOMERO SALVADOR, MARTINIANO EVANGELISTA, VICENTE

PANLAQUI, CASTOR TUASON, FRANCISCO GONZALO, ENRIQUE PAGCU, CLAUDIO
SICHON, ESTANISLAO SICHON, RUBEN ICBAN, ABONDINO ISIP, LUIS P. ISIP, DIOSDADO
P. GONZALES, MAXIMO PAULE, FAUSTINO DIMATULAC, MATEO BAUTISTA, WILFREDO
AYCARDO, HORACIO OCAMPO, FABIAN MENESES, FLORENTINO GARCIA AND JOSE D.
GALANG, PETITIONERS, VS. PAMPANGA SUGAR DEVELOPMENT COMPANY, INC.,
RESPONDENTS.

DECISION

RUIZ CASTRO, J.:

Review on certiorari of the resolution dated October 14, 1966 of the Court of Industrial Relations (CIR)
dismissing the petitioners' complaint in case 38-V.

The respondent Pampanga Sugar Development Company (PASUDECO) operates a sugar central at San
Fernando, Pampanga. The petitioners, 21 all told, were its security guards required to work eight hours a
day, seven days a week. On November 28, 1961 the petitioners filed with the CIR a complaint seeking
payment to them of premium or differential pay in the total amount of P49,581.79, plus attorney's fees of
P3,000 and costs of suit. Upon the finding that the "petitioners were paid their monthly salaries plus 25%
additional compensation for work on Sundays and holidays as provided for by law and that work on said
days is one of the terms and conditions of their employment as security guards," CIR Judge Joaquin M.
Salvador dismissed the case. Acting on the petitioners' motion for reconsideration, the
court en banc affirmed Judge Salvador's order. Hence this appeal

The petitioners' claim, in essence, is that under the authority of section 4 of Commonwealth Act 444 as
amended (Eight-Hour Labor Law), for a Sunday or legal holiday work of not more than eight hours, each
of them is entitled to his monthly salary and his premium or differential compensation, i.e., his wage for the
said. Sunday or legal holiday plus at least 25% thereof.

Sec. 4 of C.A. 444, as amended, reads:

"No person, firm, or corporation, business establishment or place or center of labor-shall compel an
employee or laborer to work during Sundays and legal holidays, unless he is paid an additional sum of at
least twenty-five per centum of his regular remuneration: Provided, however, That this prohibition shall
not apply to public utilities per forming some public service such as supplying gas, electricity, power,
water, or providing means of transportation or communication."

The issue which the petitioners here pose is not one of novel perception. In Manalo vs. Pampanga Sugar
Development Company, Inc., L-26776, June 30, 1969, this Court disposed of a similar contention, thus:

"The law is plain and unambiguous. It directs payment for work done not exceeding eight hours during
Sundays and legal holidays by an employee or laborer not falling under the exception 'an additional sum of
at least twenty-five per centum of his regular remuneration'. And we already said in one case that '(t)he
minimum legal additional compensation for work on Sundays and legal holidays is - - - - 25% of the
laborer's regular remuneration'. Thus, if said employee or laborer regularly receives P6 a day for an eight-
hour work on an ordinary day and he is made to work for eight hours on a Sunday or legal holiday, he is
entitled to his base pay of P6 plus P1.50 (25% of P6), or a total of P7.50. His premium pay is P1. 50, the
'twenty-five per centum of his regular remuneration' of P6. It does not include his base pay of P6. He gets
that P6 for an eight-hour work performed any day. And he gets the extra P1.50 if such eight-hour work is
rendered on a Sunday or legal holiday. This is the most logical and reasonable import of the law. The CIR
did not err in following it.
"The same signification is, contrary to petitioners' contention, given to the term 'premium pay' by the
Department of Labor, as may be gleaned from the following formula it devised in determining the daily
wage of monthly-salaried employees, except those employed by public utilities, working the whole year
round, including Sundays and legal holidays:
"Monthly salary multiplied by 12 (months) equals yearly salary; yearly salary divided by 380.5 (days)
equals daily wage.
"The figure 380.5 above is the sum of the 303 ordinary days of the year and the 62 Sundays and legal
holidays of the same year and 15.5 (25% of 62). Stated otherwise, the last figure 15.5 is the difference
between 380.5 (theoretically, the number of days worked by the employee in one year) and 365 days (the
actual number of days in a year). It is, in short, the equivalent in days of the employee's 25% premium pay
for 52 Sundays and 10 legal holidays in one year. The premium pay is not therefore, 125% as petitioners
want us to believe. Thus, if the employee's daily wage is P6, his total premium pay for one year is P93 (P6
times 15.5). Computed in another way, with the same daily wage, his premium pay for one Sunday or legal
holiday is 1.50 (25% of P 6); multiplying P1.50 by 62 (the number of Sundays and legal holidays in one
year), we get the same amount of P93. This is the amount of premium pay to which he is entitled in one
year in addition to his fixed yearly salary.
"Petitioners postulate that the monthly salary or, for that matter, the yearly salary applies only to the
ordinary working days and does not take into account the Sundays and legal holidays found in a given
calendar month or year.
"The position thus taken by petitioners-appellants, that they are entitled to 125% premium, or extra pay, for
work done in each Sunday and holiday, would only apply if it is shown that the monthly or yearly salaries
stipulated are intended to cover work on ordinary working days only or where the nature or conditions of
employment do not require work on Sundays and holidays. But where, in agreeing to the monthly or yearly
stipend, the parties knew, or had reason to know, that the work would be continuous, without interruption
on Sundays and holidays, then the wage earner would only be entitled to the 25% supplement (or extra pay)
provided by section 4 of the Eight-Hour Labor law, as the regular monthly or yearly wage already covered
the work done on Sundays and holidays."

The import of the law and the decision in Manalo is that for work on Sundays and legal holidays, the
employer must pay the employee (1) his regular remuneration, or 100%, and (2) an additional sum of at
least 25% of the regular remuneration, which is called the "premium pay. In other words, the pay for
Sundays and legal holidays is 125% of the pay for ordinary days, but only the excess of 25% is premium
pay. With respect to employees paid on a monthly basis, the first 100% (of the 125%), corresponding to
the regular remuneration, may or may not be included in the monthly salary. If it is, then the employee is
entitled to collect only the premium of 25%. If it is not, then the employee has a right to receive the entire
125%.

The question that thus emerges is whether the petitioners' monthly salaries already cover the 100% regular
remuneration for Sundays and legal holidays.[1]

From the allegations in paragraph 3 of the petitioners' complaint it can be clearly inferred that such regular
remuneration of 100% is already encompassed in the petitioners' monthly salaries. We hereunder quote the
itemization of the claim (which is essentially the same in respect to the other petitioners) of the petitioner
Felipe de Leon:

"Period of employment
 for which claim is based - - - - - - - - - January 1, 1946 to
October 31, 1957
Salary per month from
January 1, 1946 to
December 31, 1950 - - - - - - - - - - - - P95.00
Number of Sundays and
Holidays from January 1,
1946 to December 31, 1950 - - - - - - - 300
Rate per day plus 25% - - - - - - - - - - P3.95
300 Sundays and Holidays
multiplied by P3.95 rate per
each Sunday and Holiday - - - - - - - - - P1,185.00"

From the particular precise statement, "Rate per day plus 25% - - - P3.95,"[2] it follows that the regular rate
per ordinary day is P 3.1666, which is 1/30th of the monthly salary of P95. This means that in computing
the daily wage, each of the petitioners divided his monthly salary by 30, the average number of days in a
month, which includes Sundays and legal holidays. This is an effective admission, or at least demonstrates
awareness on the part of the petitioners, that their monthly salaries covered work not only on ordinary days
but also on Sundays and legal holidays.[3] The allegation, "300 Sundays and holidays multiplied by P 3.95
rate per each Sunday and Holiday - - - - P1,185.00," is correct. However, it must be remembered that of the
amount of P1,185, the sum of P948 had already been paid to De Leon as part of his salary for the five-year
period from January 1, 1946 to December 31, 1950.

The only question remaining is whether the 25% premium pay has also been paid. In the order of Judge
Salvador, affirmed by the court en banc, there is a finding that the "petitioners were paid their monthly
salaries plus 25% additional compensation for work on Sundays and holidays." The factual findings of the
trial judge, unaltered or unmodified by the court en banc, cannot be reviewed by this Court.[4] The findings
of fact of the CIR are conclusive on this Court, where they are supported by substantial evidence, and the
lower court has not acted with grave abuse of discretion in reaching them. [5]

ACCORDINGLY, the judgment a quo dismissing the complaint is affirmed. No pronouncement as to

costs.

G.R. No. L-63122, February 20, 1984

UNIVERSITY OF PANGASINAN FACULTY UNION, PETITIONER, VS. UNIVERSITY OF

PANGASINAN AND NATIONAL LABOR RELATIONS COMMISSION, RESPONDENTS.

DECISION

GUTIERREZ, JR., J.:

This is a petition for review on certiorari pursuant to Rule 65 of the Rules of Court to annul and to set aside
the decision of respondent National Labor Relations Commission (NLRC) dated October 25, 1982,
dismissing the appeal of petitioner in NLRC Case No. RBI-47-82, entitled "University of Pangasinan
Faculty Union, complainant, versus University of Pangasinan, respondent."
Petitioner is a labor union composed of faculty members of the respondent University of Pangasinan, an
educational institution duly organized and existing by virtue of the laws of the Philippines.

On December 18, 1981, the petitioner, through its President, Miss Consuelo Abad, filed a complaint against
the private respondent with the Arbitration Branch of the NLRC, Dagupan District Office, Dagupan City.
The complaint seeks: (a) the payment of Emergency Cost of Living Allowances (ECOLA) for November 7
to December 5, 1981, a semestral break; (b) salary increases from the sixty (60%) percent of the
incremental proceeds of increased tuition fees; and (c) payment of salaries for suspended extra loads.

The petitioner's members are full-time professors, instructors, and teachers of respondent University. The
teachers in the college level teach for a normal duration of ten (10) months a school year, divided into two
(2) semesters of five (5) months each, excluding the two (2) months summer vacation. These teachers are
paid their salaries on a regular monthly basis.

In November and December, 1981, the petitioner's members were fully paid their regular monthly salaries.
However, from November 7 to December 5, during the semestral break, they were not paid their ECOLA.
The private respondent claims that the teachers are not entitled thereto because the semestral break is not an
integral part of the schoolyear and there being no actual services rendered by the teachers during said
period, the principle of "No work, no pay" applies.

During the same schoolyear (1981-1982), the private respondent was authorized by the Ministry of
Education and Culture to collect, as it did collect, from its students a fifteen (15%) percent increase of
tuition fees. Petitioner's members demanded a salary increase effective the first semester of said schoolyear
to be taken from the sixty (60%) percent incremental proceeds of the increased tuition fees. Private
respondent refused, compelling the petitioner to include said demand in the complaint filed in the case at
bar. While the complaint was pending in the arbitration branch, the private respondent granted an across-
the-board salary increase of 5.86%. Nonetheless, the petitioner is still pursuing full distribution of the 60%
of the incremental proceeds as mandated by Presidential Decree No. 451.

Aside from their regular loads, some of petitioner's members were given extra loads to handle during the
same 1981-1982 schoolyear. Some of them had extra loads to teach on September 21, 1981, but they were
unable to teach as classes in all levels throughout the country were suspended, although said day was
proclaimed by the President of the Philippines as a working holiday. Those with extra loads to teach on said
day claimed they were not paid their salaries for those loads, but the private respondent claim otherwise.

The issues to be resolved in the case at bar are the following:

"WHETHER OR NOT PETITIONER'S MEMBERS ARE ENTITLED TO ECOLA DURING THE

SEMESTRAL BREAK FROM NOVEMBER 7 TO DECEMBER 5, 1981 OF THE 1981-82 SCHOOL
YEAR.

II

"WHETHER OR NOT 60% OF THE INCREMENTAL PROCEEDS OF INCREASED TUITION FEES

SHALL BE DEVOTED EXCLUSIVELY SALARY INCREASE.

III

"WHETHER OR NOT ALLEGED PAYMENT OF SALARIES FOR EXTRA LOADS ON NOVEMBER

21, 1981 WAS PROVEN BY SUBSTANTIAL EVIDENCE."
Anent the first issue, the various Presidential Decrees on ECOLAs to wit: PD's 1614, 1634, 1678 and 1713,
provide on "Allowances of Fulltime Employees x x x" that "Employees shall be paid in full the required
monthly allowance regardless of the number of their regular working days if they incur no absences during
the month. If they incur absences without pay, the amounts corresponding to the absences may be deducted
from the monthly allowance x x x"; and on "Leave of Absence Without Pay", that "All covered employees
shall be entitled to the allowance provided herein when they are on leave of absence with pay."

It is beyond dispute that the petitioner's members are full-time employees receiving their monthly salaries
irrespective of the number of working days or teaching hours in a month. However, they find themselves in
a most peculiar situation whereby they are forced to go on leave during semestral breaks. These semestral
breaks are in the nature of work interruptions beyond the employees control. The duration of the semestral
break varies from year to year dependent on a variety of circumstances affecting at times only the private
respondent but at other times all educational institutions in the country. As such, these breaks cannot be
considered as absences within the meaning of the law for which deductions may be made from monthly
allowances. The "No work, no pay" principle does not apply in the instant case. The petitioner's members
received their regular salaries during this period. It is clear from the aforequoted provision of law that it
contemplates a "no work" situation where the employees voluntarily absent themselves. Petitioners, in the
case at bar, certainly do not, ad voluntatem, absent themselves during semestral breaks. Rather, they are
constrained to take mandatory leave from work. For this they cannot be faulted nor can they be begrudged
that which is due them under the law. To a certain extent, the private respondent can specify dates when no
classes would be held. Surely, it was not the intention of the framers of the law to allow employers to
withhold employee benefits by the simple expedient of unilaterally imposing "no work" days and con-
sequently avoiding compliance with the mandate of the law for those days.

Respondent's contention that "the fact of receiving a salary alone should not be the basis of receiving
ECOLA", is, likewise, without merit. Particular attention is brought to the Implementing Rules and
Regulations of Wage Order No. 1 to wit:

SECTION 5. Allowance for Unworked Days. -

"a) All covered employees whether paid on a monthly or daily basis shall be entitled to their daily living
allowance when they are paid their basic wage."

xxx xxx xxx

This provision, at once refutes the above contention. It is evident that the intention of the law is to grant
ECOLA upon the payment of basic wages. Hence, we have the principle of "No pay, no ECOLA" the
converse of which finds application in the case at bar. Petitioners cannot be considered to be on leave
without pay so as not to be entitled to ECOLA, for, as earlier stated, the petitioners were paid their wages in
full for the months of November and December of 1981, notwithstanding the intervening semestral break.
This, in itself, is a tacit recognition of the rather unusual state of affairs in which teachers find themselves.
Although said to be on forced leave, professors and teachers are, nevertheless, burdened with the task of
working during a period of time supposedly available for rest and private matters. There are papers to
correct, students to evaluate, deadlines to meet, and periods within which to submit grading reports.
Although they may be considered by the respondent to be on leave, the semestral break could not be used
effectively for the teachers' own purposes for the nature of a teacher's job imposes upon him further duties
which must be done during the said period of time. Learning is a never ending process. Teachers and
professors must keep abreast of developments all the time. Teachers cannot also wait for the opening of the
next semester to begin their work. Arduous preparation is necessary for the delicate task of educating our
children. Teaching involves not only an application of skill and an imparting of knowledge, but a
responsibility which entails self dedication and sacrifice. The task of teaching ends not with the perceptible
efforts of the petitioner's members but goes beyond the classroom: a continuum where only the visible
labor is relieved by academic intermissions. It would be most unfair for the private respondent to consider
these teachers as employees on leave without pay to suit its purposes and, yet, in the meantime, continue
availing of their services as they prepare for the next semester or complete all of the last semester's
requirements. Furthermore, we may also by analogy apply the principle enunciated in the Omnibus Rules
Implementing the Labor Code to wit:

Sec. 4 Principles in Determining Hours Worked. - The following general principles shall govern in
determining whether the tine spent by an employee is considered hours worked for purposes of this Rule:

xxx xxx xxx

"(d) The time during which an Employee is inactive by reason of interruptions in his work beyond his
control shall be considered time either if the imminence of the resumption of work requires the employee's
presence at the place of work or if the interval is too brief to be utilized effectively and gainfully in the
employee's own interest." (Italics ours)

The petitioner's members in the case at bar, are exactly in such a situation. The semestral break scheduled is
an interruption beyond petitioner's control and it cannot be used "effectively nor gainfully in the employee's
interest". Thus, the semestral break may also be considered as "hours worked". For this, the teachers are
paid regular salaries and, for this, they should be entitled to ECOLA. Not only do the teachers continue to
work during this short recess but much less do they cease to live for which the cost of living allowance is
intended. The legal principles of "No work, no pay; No pay, no ECOLA" must necessarily give way to the
purpose of the law to augment the income of employees to enable them to cope with the harsh living
conditions brought about by inflation, and to protect employees and their wages against the ravages brought
by these conditions. Significantly, it is the commitment of the State to protect labor and to provide means
by which the difficulties faced by the working force may best be alleviated. To submit to the respondents'
interpretation of the no work, no pay policy is to defeat this noble purpose. The Constitution and the law
mandate otherwise.

With regard to the second issue, we are called upon to interpret and apply Section 3 of Presidential Decree
451 to wit:

SEC. 3. Limitations. - The increase in tuition or other school fees or other charges as well as the new fees
or charges authorized under the next preceding section shall be subject to the following conditions:

"a) That no increase in tuition or other school fees or charges shall be approved unless sixty (60%) per
centum of the proceeds is allocated for increase in salaries or wages of the members of the faculty and all
other employees of the school concerned, and the balance for institutional development, student assistance
and extension services, and return to investments: Provided, That in no case shall the return to investments
exceed twelve (12%) per centum of the incremental proceeds; x x x "

xxx xxx xxx

This Court had the occasion to rule squarely on this point in the very recent case entitled, University of the
East v. University of the East Faculty Association, 117 SCRA 554. We held that:

"In effect, the problem posed before Us is whether or not the reference in Section 3(a) to ‘increase in
salaries or wages of the faculty and all other employees of the schools concerned’ as the first purpose to
which the incremental proceeds from authorized increases to tuition fees may be devoted, may be construed
to include allowances and benefits. In the negative, which is the position of respondents, it would follow
that such allowances must be taken from resources of the school not derived from tuition fees.

"Without delving into the factual issue of whether or not there could be any such other resources, We note
that among the items of the second purpose stated in provision in question is return in investment. And the
law provides only for a maximum, not a minimum. In other words, the schools may get a return to
investment of not more than 12%, but if circumstances warrant, there is no minimum fixed by law which
they should get.

"On this predicate, We are of the considered view that, if the schools happen to have no other resources to
grant allowances and benefits, either mandated by law or secured by collective bargaining, such allowances
and benefits should be charged against the return to investments referred to in the second purpose stated in
Section 3(a) of P.D. 451."

Private respondent argues that the above interpretation "disregarded the intention and spirit of the law"
which intention is clear from the "whereas" clauses as follows:

"It is imperative that private educational institutions upgrade classroom instruction x x x provide salary and
or wage increases and other benefits x x x."

Respondent further contends that PD 451 was issued to alleviate the sad plight of private schools, their
personnel and all those directly or indirectly on school income as the decree was aimed -

"x x x to upgrade classroom instruction by improving their facilities and bring competent teachers in all
levels of education, provide salary and or wage increases and other benefits to their teaching,
administrative, and other personnel to keep up with the increasing cost of living." (Italics ours)

Respondent overlooks the elemental principle of statutory construction that the general statements in the
whereas clauses cannot prevail over the specific or particular statements in the law itself which define or
limit the purposes of the legislation or proscribe certain acts. True, the whereas clauses of PD 451 provide
for salary and or wage increase and other benefits, however, the same do not delineate the source of such
funds and it is only in Section 3 which provides for the limitations wherein the intention of the framers of
the law is clearly outlined. The law is clear. The sixty (60%) percent incremental proceeds from the tuition
increase are to be devoted entirely to wage or salary increases which means increases in basic salary. The
law cannot be construed to include allowances which are benefits over and above the basic salaries of the
employees. To charge such benefits to the 60% incremental proceeds would be to reduce the increase in
basic salary provided by law, an increase intended also to help the teachers and other workers tide
themselves and their families over these difficult economic times.

This Court is not guilty of usurpation of legislative functions as claimed by the respondents. We expressed
the opinion in the University of the East case that benefits mandated by law and collective bargaining may
be charged to the 12% return on investments within the 40% incremental proceeds of tuition increase. As
admitted by respondent, we merely made this statement as a suggestion in answer to the respondent's query
as to where then, under the law, can such benefits be charged. We were merely interpreting the meaning of
the law within the confines of its provisions. The law provides that 60% should go to wage increases and
40% to institutional developments, student assistance, extension services, and return on investments (ROI).
Under the law, the last item ROI has flexibility sufficient to accommodate other purposes of the law and the
needs of the university. ROI is not set aside for any one purpose of the university such as profits or returns
on investments. The amount may be used to comply with other duties and obligations imposed by law
which the university exercising managerial prerogatives finds cannot under present circumstances, be
funded by other revenue sources. It may be applied to any other collateral purpose of the university or
invested elsewhere. Hence, the framers of the law intended this portion of the increases in tuition fees to be
a general fund to cover up for the university's miscellaneous expenses and, precisely, for this reason, it was
not so delimited. Besides, ROI is a return or profit over and above the operating expenditures of the
university, and still, over and above the profits it may have had prior to the tuition increase. The earning
capacities of private educational institutions are not dependent on the increases in tuition fees allowed by
P.D. 451. Accommodation of the allowances required by law require wise and prudent management of all
the university resources together with the incremental proceeds of tuition increases. Cognizance should be
taken of the fact that the private respondent had, before PD 451, managed to grant all allowances required
by law. It cannot now claim that it could not afford the same, considering that additional funds are even
granted them by the law in question. We find no compelling reason, therefore, to deviate from our previous
ruling in the University of the East case even as we take the second hard look at the decision requested by
the private respondent. This case was decided in 1982 when PDs 1614, 1634, 1678, and 1713 which are
also the various Presidential Decrees on ECOLA were already in force. PD 451 was interpreted in the light
of these subsequent legislations which bear upon, but do not modify nor amend, the same. We need not go
beyond the ruling in the University of the East case.

Coming now to the third issue, the respondents are of the considered view that as evidenced by the payrolls
submitted by them during the period September 16 to September 30, 1981, the faculty members have been
paid for the extra loads. We agree with the respondents that this issue involves a question of fact properly
within the competence of the respondent NLRC to pass upon. The findings of fact of the respondent
Commission are binding on this Court there being no indication of their being unsubstantiated by evidence.
We find no grave abuse in the findings of respondent NLRC on this matter to warrant reversal. Assuming
arguendo, however, that the petitioners have not been paid for these extra loads, they are not entitled to
payment following the principle of "No work, no pay". This time, the rule applies. Involved herein is a
matter different from the payment of ECOLA under the first issue. We are now concerned with extra, not
regular loads for which the petitioners are paid regular salaries every month regardless of the number of
working days or hours in such a month. Extra loads should be paid for only when actually performed by the
employee. Compensation is based, therefore, on actual work done and on the number of hours and days
spent over and beyond their regular hours of duty. Since there was no work on September 21, 1981, it
would now be unfair to grant petitioner's demand for extra wages on that day.

Finally, disposing of the respondent's charge of petitioner's lack of legal capacity to sue, suffice it to say
that this question can no longer be raised initially on appeal or certiorari. It is quite belated for the private
respondent to question the personality of the petitioner after it had dealt with it as a party in the proceedings
below. Furthermore, it was not disputed that the petitioner is a duly registered labor organization and as
such has the legal capacity to sue and be sued. Registration grants it the rights of a legitimate labor
organization and recognition by the respondent University is not necessary for it to institute this action in
behalf of its members to protect their interests and obtain relief from grievances. The issues raised by the
petitioner do not involve pure money claims but are more intricately intertwined with conditions of
employment.

WHEREFORE, the petition for certiorari is hereby GRANTED. The private respondent is ordered to pay
its regular fulltime teachers/employees emergency cost of living allowances for the semestral break from
November 7 to December 5, 1981 and the undistributed balance of the sixty (60%) percent incremental
proceeds from tuition increases for the same schoolyear as outlined above. The respondent Commission is
sustained insofar as it DENIED the payment of salaries for the suspended extra loads on September 21,
1981.

SO ORDERED.
 CHAPTER III

G.R. No. 65482, December 01, 1987

JOSE RIZAL COLLEGE, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION

AND NATIONAL ALLIANCE OF TEACHERS/OFFICE WORKERS, RESPONDENTS.

DECISION

PARAS, J.:

This is a petition for certiorari with prayer for the issuance of a writ of preliminary injunction, seeking the
annulment of the decision of the national labor relations commission* in nlrc case no. Rb-iv-23037-78
(case no. R4-1-1081-71) entitled "national alliance of teachers and office workers and juan e. Estacio,
jaime medina, et al. Vs.jose rizal college" modifying the decision of the labor arbiter as follows:

"wherefore, in view of the foregoing considerations, the decision appealed from is modified, in the sense
that teaching personnel paid by the hour are hereby declared to be entitled to holiday pay.
"so ordered."

The factual background of this case which is undisputed is as follows:

Petitioner is a non-stock, non-profit educational institution duly organized and existing under the laws of
the philippines. It has three groups of employees categorized as follows: (a) personnel on monthly basis,
who receive their monthly salary uniformly throughout the year, irrespective of the actual number of
working days in a month without deduction for holidays; (b) personnel on daily basis who are paid on
actual days worked and they receive unworked holiday pay and (c) collegiate faculty who are paid on the
basis of student contact hour. Before the start of the semester they sign contracts with the college
undertaking to meet their classes as per schedule.

Unable to receive their corresponding holiday pay, as claimed, from 1975 to 1977, private respondent
national alliance of teachers and office workers (natow) in behalf of the faculty and personnel
of jose rizal collegefiled with the ministry of labor a complaint against the college for said alleged non-
payment of holiday pay, docketed as case no. R04-10-81-72. Due to the failure of the parties to settle their
differences on conciliation, the case was certified for compulsory arbitration where it was docketed as rb-
iv-23037-78 (rollo, pp. 155-156).

After the parties had submitted their respective position papers, the labor arbiter* rendered a
decision on february 5, 1979, the dispositive portion of which reads:

"wherefore, judgment is hereby rendered as follows:

1. The faculty and personnel of the respondent jose rizal college who are paid their salary by the month
uniformly in a school year, irrespective of the number of working days in a month, without deduction for
holidays, are presumed to be already paid the 10 paid legal holidays and are no longer entitled to separate
payment for the said regular holidays;
2. The personnel of the respondent jose rizal college who are paid their wages daily are entitled to be paid
the 10 unworked regular holidays according to the pertinent provisions of the rules and regulations
implementing the labor code;
3. Collegiate faculty of the respondent jose rizal college who by contract are paid compensation per
student contact hour are not entitled to unworked regular holiday pay considering that these regular
holidays have been excluded in the programming of the student contact hours." (rollo, pp. 26-27)

On appeal, respondent national labor relations commission in a decision promulgated on june 2,

1982, modified the decision appealed from, in the sense that teaching personnel paid by the hour are
declared to be entitled to holiday pay (rollo, p. 33).

Hence, this petition.

The sole issue in this case is whether or not the school faculty who according to their contracts are paid per
lecture hour are entitled to unworked holiday pay.

Labor arbiter julio andres, jr. Found that faculty and personnel employed by petitioner who are paid their
salaries monthly, are uniformly paid throughout the school year regardless of working days, hence their
holiday pay are included therein while the daily paid employees are renumerated for work performed
during holidays per affidavit of petitioner's treasurer (rollo, pp. 72-73).

There appears to be no problem therefore as to the first two classes or categories of petitioner's workers.

The problem, however, lies with its faculty members, who are paid on an hourly basis, for while the labor
arbiter sustains the view that said instructors and professors are not entitled to holiday pay, his decision was
modified by the national labor relations commission holding the contrary. Otherwise stated, on appeal
the nlrc ruled that teaching personnel paid by the hour are declared to be entitled to holiday pay.

Petitioner maintains the position among others, that it is not covered by book v of the labor code on labor
relations considering that it is a non-profit institution and that its hourly paid faculty members are paid on a
"contract" basis because they are required to hold classes for a particular number of hours. In the
programming of these student contact hours, legal holidays are excluded and labelled in the schedule as "no
class day." on the other hand, if a regular week day is declared a holiday, the school calendar is extended to
compensate for that day. Thus petitioner argues that the advent of any of the legal holidays within the
semester will not affect the faculty's salary because this day is not included in their schedule while the
calendar is extended to compensate for special holidays. Thus the programmed number of lecture
hours is not diminished (rollo, pp. 157-158).

The solicitor general on the other hand, argues that under article 94 of the labor code
(p.d. no. 442 as amended), holiday pay applies to all employees except those in retail and service
establishments. To deprive therefore employees paid at an hourly rate of unworked holiday pay is contrary
to the policy considerations underlying such presidential enactment, and its precursor, the blue sunday law
(republic act no. 946) apart from the constitutional mandate to grant greater rights to labor (constitution,
article ii, section 9). (rollo, pp. 76-77).

In addition, respondent national labor relations commission in its decision promulgated on june 2,
1982, ruledthat the purpose of a holiday pay is obvious; that is to prevent diminution of the monthly income
of the workers on account of work interruptions. In other words, although the worker is forced to take a
rest, he earns what he should earn. That is his holiday pay. It is no excuse therefore that the school
calendar is extended whenever holidays occur, because such happens only in cases of special holidays
(rollo, p. 32).
Subject holiday pay is provided for in the labor code (presidential decree no. 442, as amended), which
reads:

"art. 94. Right to holiday pay - (a) every worker shall be paid his regular daily wage during regular
holidays, except in retail and service establishments regularly employing less than ten (10) workers;
(b) the employer may require an employee to work on any holiday but such employee shall be paid a
compensation equivalent to twice his regular rate; x x x"

And in the implementing rules and regulations, rule iv, book iii, which reads:

"sec. 8. Holiday pay of certain employees. - (a) private school teachers, including faculty members of
colleges and universities, may not be paid for the regular holidays during semestral vacations, they shall,
however, be paid for the regular holidays during christmas vacations. X x x"

Under the foregoing provisions, apparently, the petitioner, although a non-profit institution is under
obligation to give pay even on unworked regular holidays to hourly paid faculty members subject to the
terms and conditions provided for therein.

We believe that the aforementioned implementing rule is not justified by the provisons of the law which
after all is silent with respect to faculty members paid by the hour who because of their teaching contracts
are obliged to work and consent to be paid only for work actually done (except when an emergency or a
fortuitous event or a national need calls for the declaration of special holidays). Regular holidays specified
as such by law are known to both school and faculty members as "no class days"; certainly the latter do not
expect payment for said unworked days, and this was clearly in their minds when they entered into the
teaching contracts.

On the other hand, both the law and the implementing rules governing holiday pay are silent as to payment
on special public holidays.

It is readily apparent that the declared purpose of the holiday pay which is the prevention of diminution of
the monthly income of the employees on account of work interruptions is defeated when a regular
class day is cancelled on account of a special public holiday and class hours are held on another working
day to make up for time lost in the school calendar. Otherwise stated, the faculty member, although forced
to take a rest, does not earn what he should earn on that day. Be it noted that when a special public
holiday is declared, the faculty member paid by the hour is deprived of expected income, and it does not
matter that the school calendar is extended in view of the days or hours lost, for their income that could be
earned from other sources is lost during the extended days similarly, when classes are called off or
shortened on account of typhoons, floods, rallies, and the like, these faculty members must likewise be
paid, whether or not extensions are ordered.

Petitioner alleges that it was deprived of due process as it was not notified of the appeal made to the nlrc
against the decision of the labor arbiter.

The court has already set forth what is now known as the "cardinal primary" requirements of due process in
administrative proceedings, to wit: "(1) the right to a hearing which includes the right to present one's case
and submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the
decision must have something to support itself; (4) the evidence must be substantial, and substantial
evidence means such evidence as a reasonable mind might accept as adequate to support a conclusion; (5)
the decision must be based on the evidence presented at the hearing, or at least contained in the record and
disclosed to the parties affected; (6) the tribunal or body of any of its judges must act on its or his own
independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate; (7) the board or body should in all controversial questions, render its decisions in such manner
that the parties to the proceeding can know the various issues involved, and the reason for the decision
rendered." (doruelo vs. Commission on elections, 133 scra 382 [1984]).
The records show petitioner jrc was amply heard and represented in the instant proceedings. It submitted
its position paper before the labor arbiter and the nlrc and even filed a motion for reconsideration of the
decision of the latter, as well as an "urgent motion for hearing en banc" (rollo, p. 175). Thus,
petitioner's claim of lack of due process is unfounded.

Premises considered, the decision of respondent national labor relations commission is hereby set
aside, and a new one is hereby rendered:

(a) exempting petitioner from paying hourly paid faculty members their pay for regular holidays, whether
the same be during the regular semesters of the school year or during semestral, christmas, or holy week
vacations;
(b) but ordering petitioner to pay said faculty members their regular hourly rate on days declared as special
holidays or for some reason classes are called off or shortened for the hours they are supposed to have
taught, whether extensions of class days be ordered or not; in case of extensions said faculty members shall
likewise be paid their hourly rates should they teach during said extensions.

So ordered.

G.R. No. 114698, July 03, 1995

WELLINGTON INVESTMENT AND MANUFACTURING CORPORATION, PETITIONER, VS.

CRESENCIANO B. TRAJANO, UNDER-SECRETARY OF LABOR AND EMPLOYMENT,
ELMER ABADILLA, AND 34 OTHERS, RESPONDENTS.

DECISION

NARVASA, C.J.:

The basic issue raised by petitioner in this case is, as its counsel puts it, "whether or not a monthly-paid
employee, receiving a fixed monthly compensation, is entitled to an additional pay aside from his usual
holiday pay, whenever a regular holiday falls on a Sunday."

The case arose from a routine inspection conducted by a Labor Enforcement Officer on August 6, 1991 of
the Wellington Flour Mills, an establishment owned and operated by petitioner Wellington Investment and
Manufacturing Corporation (hereafter, simply Wellington). The officer thereafter drew up a report, a copy
of which was "explained to and received by" Wellington's personnel manager, in which he set forth his
finding of "(n)on-payment of regular holidays falling on a Sunday for monthly-paid employees."[1]

Wellington sought reconsideration of the Labor Inspector's report, by letter dated August 10, 1991. It
argued that "the monthly salary of the company's monthly-salaried employees already includes holiday pay
for all regular holidays ** (and hence) there is no legal basis for the finding of alleged non-payment of
regular holidays falling on a Sunday." [2] It expounded on this thesis in a position paper subsequently
submitted to the Regional Director, asserting that it pays its monthly-paid employees a fixed monthly
compensation "using the 314 factor which undeniably covers and already includes payment for all the
working days in a month as well as all the 10 unworked regular holidays within a year." [3]

Wellington's arguments failed to persuade the Regional Director who, in an Order issued on July 28, 1992,
ruled that "when a regular holiday falls on a Sunday, an extra or additional working day is created and the
employer has the obligation to pay the employees for the extra day except the last Sunday of August since
the payment for the said holiday is already included in the 314 factor," and accordingly directed Wellington
to pay its employees compensation corresponding to four (4) extra working days. [4]

Wellington timely filed a motion for reconsideration of this Order of August 10, 1992, pointing out that it
was in effect being compelled to "shell out an additional pay for an alleged extra working day" despite its
complete payment of all compensation lawfully due its workers, using the 314 factor.[5] Its motion was
treated as an appeal and was acted on by respondent Undersecretary. By Order dated September 22, the
latter affirmed the challenged order of the Regional Director, holding that "the divisor being used by the
respondent (Wellington) does not reliably reflect the actual working days in a year," and consequently
commanded Wellington to pay its employees the "six additional working days resulting from regular
holidays falling on Sundays in 1988, 1989 and 1990." [6] Again, Wellington moved for
reconsideration,[7] and again was rebuffed.[8]

Wellington then instituted the special civil action of certiorari at bar in an attempt to nullify the orders
above mentioned. By Resolution dated July 4, 1994, this Court authorized the issuance of a temporary
restraining order enjoining the respondents from enforcing the questioned orders. [9]

Every worker should, according to the Labor Code, [10] "be paid his regular daily wage during regular
holidays, except in retail and service establishments regularly employing less than ten (10) workers;" this,
of course, even if the worker does no work on these holidays. The regular holidays include: "New Year's
Day, Maundy Thursday, Good Friday, the ninth of April, the first of May, the twelfth of June, the fourth of
July, the thirtieth of November, the twenty-fifth of December, and the day designated by law for holding a
general election (or national referendum or plebiscite). [11]

Particularly as regards employees "who are uniformly paid by the month, "the monthly minimum wage
shall not be less than the statutory minimum wage multiplied by 365 days divided by twelve." [12] This
monthly salary shall serve as compensation "for all days in the month whether worked or not," and
"irrespective of the number of working days therein." [13] In other words, whether the month is of thirty (30)
or thirty-one (31) days' duration, or twenty-eight (28) or twenty-nine (29) (as in February), the employee is
entitled to receive the entire monthly salary. So, too, in the event of the declaration of any special holiday,
or any fortuitous cause precluding work on any particular day or days (such as transportation strikes, riots,
or typhoons or other natural calamities), the employee is entitled to the salary for the entire month and the
employer has no right to deduct the proportionate amount corresponding to the days when no work was
done. The monthly compensation is evidently intended precisely to avoid computations and adjustments
resulting from the contingencies just mentioned which are routinely made in the case of workers paid on
daily basis.

In Wellington's case, there seems to be no question that at the time of the inspection conducted by the
Labor Enforcement Officer on August 6, 1991, it was and had been paying its employees "a salary of not
less than the statutory or established minimum wage," and that the monthly salary thus paid was "not **
less than the statutory minimum wage multiplied by 365 days divided by twelve," supra. There is, in other
words, no issue that to this extent, Wellington complied with the minimum norm laid down by law.

Apparently the monthly salary was fixed by Wellington to provide for compensation for every working day
of the year including the holidays specified by law — and excluding only Sundays. In fixing the salary,
Wellington used what it calls the "314 factor;" that is to say, it simply deducted 51 Sundays from the 365
days normally comprising a year and used the difference, 314, as basis for determining the monthly
salary. The monthly salary thus fixed actually covers payment for 314 days of the year, including regular
and special holidays, as well as days when no work is done by reason of fortuitous cause, as above
specified, or causes not attributable to the employees.

The Labor Officer who conducted the routine inspection of Wellington discovered that in certain years, two
or three regular holidays had fallen on Sundays. He reasoned that this had precluded the enjoyment by the
employees of a non-working day, and the employees had consequently had to work an additional day for
that month. This ratiocination received the approval of his Regional Director who opined [14] that "when a
regular holiday falls on a Sunday, an extra or additional working day is created and the employer has the
obligation to pay its employees for the extra day except the last Sunday of August since the payment for the
said holiday is already included in the 314 factor." [15]

This ingenuous theory was adopted and further explained by respondent Labor Undersecretary, to whom
the matter was appealed, as follows:[16]
" * * By using said (314) factor, the respondent (Wellington) assumes that all the regular holidays fell on
ordinary days and never on a Sunday. Thus, the respondent failed to consider the circumstance that
whenever a regular holiday coincides with a Sunday, an additional working day is created and left
unpaid. In other words, while the said divisor may be utilized as proof evidencing payment of 302 working
days, 2 special days and the ten regular holidays in a calendar year, the same does not cover or include
payment of additional working days created as a result of some regular holidays falling on Sundays."

He pointed out that in 1988 there was "an increase of three (3) working days resulting from regular
holidays falling on Sundays;" hence Wellington "should pay for 317 days, instead of 314 days." By the
same process of ratiocination, respondent Undersecretary theorized that there should be additional payment
by Wellington to its monthly-paid employees for "an increment of three (3) working days" for 1989 and
again, for 1990. What he is saying is that in those years, Wellington should have used the "317 factor," not
the "314 factor."

The theory loses sight of the fact that the monthly salary in Wellington -- which is based on the so-called
"314 factor" — accounts for all 365 days of a year; i.e., Wellington's "314 factor" leaves no day
unaccounted for; it is paying for all the days of a year with the exception only of 51 Sundays.

The respondents' theory would make each of the years in question (1988, 1989, 1990), a year of 368 days.
Pursuant to this theory, no employer opting to pay his employees by the month would have any definite
basis to determine the number of days in a year for which compensation should be given to his work
force. He would have to ascertain the number of times legal holidays would fall on Sundays in all the years
of the expected or extrapolated lifetime of his business. Alternatively, he would be compelled to make
adjustments in his employees' monthly salaries every year, depending on the number of times that a legal
holiday fell on a Sunday.

There is no provision of law requiring any employer to make such adjustments in the monthly salary rate
set by him to take account of legal holidays falling on Sundays in a given year, or, contrary to the legal
provisions bearing on the point, otherwise to reckon a year at more than 365 days. As earlier mentioned,
what the law requires of employers opting to pay by the month is to assure that "the monthly minimum
wage shall not be less than the statutory minimum wage multiplied by 365 days divided by twelve," [17] and
to pay that salary "for all days in the month whether worked or not," and "irrespective of the number of
working days therein."[18] That salary is due and payable regardless of the declaration of any special holiday
in the entire country or a particular place therein, or any fortuitous cause precluding work on any particular
day or days (such as transportation strikes, riots, or typhoons or other natural calamities), or cause not
imputable to the worker. And as also earlier pointed out, the legal provisions governing monthly
compensation are evidently intended precisely to avoid re-computations and alterations in salary on account
of the contingencies just mentioned, which, by the way, are routinely made between employer and
employees when the wages are paid on daily basis.

The public respondents argue that their challenged conclusions and dispositions may be justified by Section
2, Rule X, Book III of the Implementing Rules, giving the Regional Director power - [19]

" ** to order and administer (in cases where employer-employee relations still exist), after due notice and
hearing, compliance with the labor standards provisions of the Code and the other labor legislations based
on the findings of their Regulations Officers or Industrial Safety Engineers (Labor Standard and Welfare
Officers) and made in the course of inspection, and to issue writs of execution to the appropriate authority
for the enforcement of his order, in line with the provisions of Article 128 in relation to Articles 289 and
290 of the Labor Code, as amended. ** ."

The respondents beg the question. Their argument assumes that there are some "labor standards provisions
of the Code and the other labor legislations" imposing on employers the obligation to give additional
compensation to their monthly-paid employees in the event that a legal holiday should fall on a Sunday in a
particular month — with which compliance may be commanded by the Regional Director — when the
existence of said provisions is precisely the matter to be established.
In promulgating the orders complained of the public respondents have attempted to legislate, or interpret
legal provisions in such a manner as to create obligations where none are intended. They have acted
without authority, or at the very least, with grave abuse of their discretion. Their acts must be nullified and
set aside.

WHEREFORE, the orders complained of, namely: that of the respondent Undersecretary dated
September 22, 1993, and that of the Regional Director dated July 30, 1992, are NULLIFIED AND SET
ASIDE, and the proceeding against petitioner DISMISSED.

SO ORDERED.

TITLE II
CHAPTER I
G.R. No. 83834, June 30, 1989

PHILIPPINE AIRLINES, INC., PETITIONER, VS. NATIONAL LABOR RELATIONS

COMMISSION, GASSIE C. SANGEL AND PHILIPPINE AIRLINES EMPLOYEES
ASSOCIATION, RESPONDENTS.

DECISION

GRIÑO-AQUINO. J.

Private respondent Gassie C. Sangel was an employee of Philippine Airlines Inc. (PAL) from May 1978
until June 25 986. At the time of his dismissal, he was a Cargo Representative A with a basic monthly
salary of P2,653 cost-of-living allowance of P270 per month and night shift differential of P200 monthly.

As Cargo Representative A at the PAL International Cargo Terminal his duties were:

1. To receive cargoes tendered by agents;

2. To check packing and documentation requirements;

3. To re-weigh cargoes being transferred by forwarders; and

4. To verify correctness of rates applied on airway bills.

In May 1986 Sangel received cargo for shipment to Stuttgart Germany under Airway Bill 079-0444-3681
dated May 1, 1986. The cargo was weighed in by Sangel at 2,334 kilograms. However, when the cargo was
reweighed in Germany by PAL's employees there they discovered that it weighed 2734 kilos or 400 kilos
more than Sangel had indicated. The discrepancy was reported to PAL's Manila office.

As a result Sangel was "interviewed" by Messrs. Avelino Zapanta, Estrada and Fulo of PAL. The minutes
of the interview were transcribed. He was questioned about the underweighing of the Stuttgart cargo. He
insisted, however, that he recorded on the airway bill only what the scales showed.

On June 14 1986, Sangel received some cargo for Copenhagen which he weighed. He recorded its weight
on the airway bill as 2,520 kilos, but when the weight was entered in the logbook in the Manifesting
Section, it was recorded as only 2,220 kgs. or 300 kgs. less. Sangel was not present when the re-weighing
was done in the Manifesting Section. PAL's supervisor Virgilio Pasia, who noticed the discrepancy
personally supervised the re-weighing and registered 2,560 kgs.

On June 24, 1986 a Notice of Administrative Charge was issued to Sangel by Avelino Zapanta. The notice
placed him under preventive suspension on the same day and directed him to submit evidence within ten
(10) days. Sangel sent a reply dated July 1 1986.

On July 14, 1986, Zapanta and Leslie Espino jointly signed a Notice of Termination addressed to Sangel
which reads:

"1. Upon examination and evaluation of documents/evidence submitted to this office in connection with the
administrative charge filed against you, the committee investigating your case found you to have
committed serious misconduct and breach of trust in the improprieties in your dealings with some cargo
agents and forwarders. These were deemed most inimical to the best interest of the Company since the said
acts resulted not only in losses in revenues but in jeopardizing the safety of the flights as well.

"2. In view of the above, the committee has recommended, and the undersigned has concurred, to terminate
your services from the Company effective June 25, 1986 the date you were placed on preventive
suspension." (p. 27, Rollo.)

Sangel filed a compiaint for illegal dismissal with damages and attorney's fees against PAL. After the
parties had filed their position papers and other pleadings the Labor Arbiter rendered a decision ordering
the reinstatement of Sangel with full backwages but denied his claim for damages and attorney's fees.

On appeal, the National Labor Relations Commission affirmed the Labor Arbiter's decision but awarded
damages and attorney's fees to Sangel thus:

"WHEREFORE, in view of all the foregoing, the decision of Labor Arbiter Evangeline S. Lubaton ordering
the reinstatement of complainant-appellee to his former position with full backwages computed from June
24 1986 up to the time he is actually reinstated is hereby AFFIRMED with the following modifications to
wit:
"a) Respondent-appellant Philippine Airlines Inc. is hereby ordered to pay complainant-appellee moral
damages of P20,000.00 as well as exemplary damages of P10,000.00;

"b) Respondent-appellant Philippine Airlines Inc. is further ordered to pay complainant Gassie C. Sangel
attorney's fees of P3,000.00." (p. 35, Rollo.)

In this petition for review PAL alleges that the NLRC gravely abused its discretion and erred:

1. in ruling that Sangel was dismissed without due process;

2. in finding that there was no just and valid cause for his dismissal;

3. in ruling that Sangel's dismissal was attended with malice and bad faith; and

4. in baselessly indicting some employees of PAL and in the Process freeing Sangel of responsibility.

The essential elements of due process in a labor dispute are: notice of the charge and a hearing where the
employee is given an opportunity to defend himself (Century Textile Mills Inc., et al. vs. NLRC. et al., 161
SCRA 528: Wenphil Corp. vs. NLRC, et al., G.R. No. 80587, February 8 1989).

The Labor Arbiter and the NLRC erred in finding that Sangel was not given notice of the charge against
him before he was dismissed. Sangel was informed of the said charge during the "fact-finding interview"
(Annex F). Thus, the transcript of that interview shows:

“ZAPANTA: Do you know this business of underweighing Gassie?

“SANGEL: Wala akong alam sir.

XXX XXX XXX

“ZAPANTA: Eh paano itong shipment ng Stuttgart? Ang ibig mong sabihin walang nag-imbestiga sa
iyo tungkol dito?
“SANGEL: Sir, merong nagtanong sa akin nuong . . . last May tungkol sa mga timbangan sa ibaba
ilinuro ko sa kanila ang ginagamit ko.

“ZAPANTA: Sino ang nagtanong sa iyo?

“SANGEL: Sir, si Jess Madrid.

“ZAPANTA: Si Jess Madrid, Iyon tang ang itinanong sa iyo? Kung anong timbangan mong ginagamit?
Hindi sinabi sa iyo na merong kaso ng underweighing?

“SANGEL: Sir, eh sabi sa akin dahil meron daw silang sagot na imporlante kaya itinatanong sa akin
iyong mga limbangang ginagamit ko.

XXX XXX XXX

“ZAPANTA: Wala ka ring ibinigay na written reply? Eh. paano ito cstablisido na itong kargamento ng
Stuttgart ikaw ang tumunggap. Natatandaan mo ba ito?

“SANGEL: Iyon nga, sir, ang sabi sa akin, ako daw ang tumanggap niyan sabi ni Jess Madrid.
Kinakabahan na nga ako.

“ZAPANTA: At sa dalawang tonelada dito mahigit na 400 ang underweighing according to Frankfurt
eksaktong 400 as a matter of fact. Paano mong i-explain iyan?

“SANGEL: Sir wala akong . . . kasi ang ano kasi. . . kung ano ang recorded na ano diyan sa TRM iyon
ang isinusulat ko.

“ZAPANTA: Ibig mong sabihin ni-reweigh mo at iyon ang isinulat mo sa TRM?

“SANGEL: Yes, sir.

“ZAPANTA: Eh bakit may 400 underweighing?

“SANGEL: Ewan ko sir, dahil may guardia naman kasi kami sir. Nagta-tally naman kami ng guardia.

XXX XXX XXX

“ZAPANTA: Gusto ko lang ipaliwanag sa iyo, Gassie, na itong denial mo hindi sapat dahil sa ang
ebidensya ay maliwanag. Ang HA WB nagsasabi 2, 700, and MA WB mo 2,300. Eksaktong 400 ang
underweighing. Ni-reweigh ng Customs sa Germany iyong shipment, ang kanilang reweighing eksakto
duon sa HAWB 2700. So, maliwanag na niloko ang pagtanggap dito.

“SANGEL: Sir, so far na nalalaman ko, iyong timbang natin, iyon ang timbang na lumalabas duon sa
weighing scale natin." (pp. 43-46 Rollo.)

Formal notice of the charge was also given him on June 24 1986 eleven (11) days after his interview or
investigation on June 13,1986 (Annex F). He was placed under suspension and advised to submit evidence
within ten (10) days but he did not submit any evidence to rebut the charge against him on the pretext that it
would have been futile to do so because the investigating committee had already prejudged and pronounced
him guilty. So, no further investigation or hearing was conducted by the Committee. What followed was a
notice of his termination on July 14,1986.

Under the circumstances, it cannot be said that Sangel was dismissed without due process. If the process of
investigation was not completed it was because he refused to submit to it.

There is no doubt that the Stuttgart shipment was underweighed by Sangel. Sangel's supervisor Jesus T.
Madrid in his sworn statement (Annex N) declared that when he required Sangel to submit a handling
report as required by Ralph Duran Manager of the Export Division regarding the weight discrepancy —
"Mr. Sangel verbally told me that he used one of the electronic weighing scales which according to him
was defective at the time of the shipment." (Italics supplied; p. 65, Rollo.)

The use by Sangel of a weighing scale which he knew to be defective (possibly tampered) at the time of the
shipment in order to benefit the shipper and defraud the airline, constituted serious misconduct and
dishonesty justifying his dismissal from the service. With regard to the second airway bill where the
recorded weight of 2,520 kilos was erased and substituted with 2,200 kilos (Annex L, Petition), Sangel's
denial of having made the alteration (for he allegedly could have simply entered the understated weight of
the cargo on the airway bill instead of recording the correct weight [2,520 kilos] and then changing the
figures to 2,220 kilos) was shattered by Abundio the representative of the cargo forwarder, who stated in
his affidavit (Annex R) that it was he not Sangel who typed the correct weight in the airway bill:
"4. That I personally typed the figure 2,520 kgs. at (sic) the airway bill (AWB-217-316 7572) and signed
the same before 1 gave it to Mr. Sangel for counter-signature."

Evidently, the weight of the cargo had already been filled in the airway bill so all that had to be done was to
change the "5" to "2" in order to lop off 300 kgs. from the true weight of the cargo.

Sangel lied when he alleged that it was he who recorded the correct weight of 2,520 in the airway bill and
that someone else must have changed it in the Manifesting Section. The fact is that the underweighing was
discovered precisely in the Manifesting Section.

We find ourselves unable to agree with the Commission's finding that PAL acted with malice and bad faith
in conducting the "fact-finding interview" to fish for evidence against employees who were suspected of
involvement in the underweighing anomalies at its International Cargo Terminal (p. 28, Rollo). PAL may
not be accused of bad faith and malice for trying to ferret out the culprits responsible for the shenanigans in
its international cargo department. The fraudulent underweighing of cargo not only robs PAL of substantial
revenues from this particular field of its operations, but, more importantly, it endangers the safety of the
airline's aircraft and passengers. PAL must be vigilant to protect its airplanes its passengers and its business
for, as a carrier, it has the obligation to exercise extraordinary diligence to safely conduct its passengers and
cargo to their destinations (Art. 1733, Civil Code). Its efforts to discharge that grave responsibility may not
be characterized as malicious or in bad faith.

WHEREFORE, the petition for review is granted. The decisions of the Labor Arbiter and the NLRC in
NLRC Case No. NCR-6-2532-36 are reversed and set aside. The private respondent's complaint for illegal
dismissal is hereby dismissed. No pronouncement as to costs.

SO ORDERED.

G.R. No. 128845, June 01, 2000

INTERNATIONAL SCHOOL ALLIANCE OF EDUCATORS (ISAE), PETITIONER, VS. HON.

LEONARDO A. QUISUMBING IN HIS CAPACITY AS THE SECRETARY OF LABOR AND
EMPLOYMENT; HON. CRESENCIANO B. TRAJANO IN HIS CAPACITY AS THE ACTING
SECRETARY OF LABOR AND EMPLOYMENT; DR. BRIAN MACCAULEY IN HIS CAPACITY
AS THE SUPERINTENDENT OF INTERNATIONAL SCHOOL-MANILA; AND
INTERNATIONAL SCHOOL, INC., RESPONDENTS.

DECISION

KAPUNAN, J.:

Receiving salaries less than their counterparts hired abroad, the local-hires of private respondent School,
mostly Filipinos, cry discrimination. We agree. That the local-hires are paid more than their colleagues in
other schools is, of course, beside the point. The point is that employees should be given equal pay for
work of equal value. That is a principle long honored in this jurisdiction. That is a principle that rests on
fundamental notions of justice. That is the principle we uphold today.

Private respondent International School, Inc. (the School, for short), pursuant to Presidential Decree 732, is
a domestic educational institution established primarily for dependents of foreign diplomatic personnel and
other temporary residents.[1] To enable the School to continue carrying out its educational program and
improve its standard of instruction, Section 2(c) of the same decree authorizes the School to
employ its own teaching and management personnel selected by it either locally or abroad, from Philippine
or other nationalities, such personnel being exempt from otherwise applicable laws and regulations
attending their employment, except laws that have been or will be enacted for the protection of employees.
Accordingly, the School hires both foreign and local teachers as members of its faculty, classifying the
same into two: (1) foreign-hires and (2) local-hires. The School employs four tests to determine whether a
faculty member should be classified as a foreign-hire or a local hire:
a. What is one's domicile?
b. Where is one's home economy?
c. To which country does one owe economic allegiance?
d. Was the individual hired abroad specifically to work in the School and was the School
responsible for bringing that individual to the Philippines? [2]

Should the answer to any of these queries point to the Philippines, the faculty member is classified as a
local hire; otherwise, he or she is deemed a foreign-hire.

The School grants foreign-hires certain benefits not accorded local-hires. These include housing,
transportation, shipping costs, taxes, and home leave travel allowance. Foreign-hires are also paid a salary
rate twenty-five percent (25%) more than local-hires. The School justifies the difference on two "significant
economic disadvantages" foreign-hires have to endure, namely: (a) the "dislocation factor" and (b) limited
tenure. The School explains:
A foreign-hire would necessarily have to uproot himself from his home country, leave his family and
friends, and take the risk of deviating from a promising career path-all for the purpose of pursuing his
profession as an educator, but this time in a foreign land. The new foreign hire is faced with economic
realities: decent abode for oneself and/or for one's family, effective means of transportation, allowance for
the education of one's children, adequate insurance against illness and death, and of course the primary
benefit of a basic salary/retirement compensation.

Because of a limited tenure, the foreign hire is confronted again with the same economic reality after his
term: that he will eventually and inevitably return to his home country where he will have to confront the
uncertainty of obtaining suitable employment after a long period in a foreign land.

The compensation scheme is simply the School's adaptive measure to remain competitive on an
international level in terms of attracting competent professionals in the field of international education. [3]
When negotiations for a new collective bargaining agreement were held on June 1995, petitioner
International School Alliance of Educators, "a legitimate labor union and the collective bargaining
representative of all faculty members" [4] of the School, contested the difference in salary rates between
foreign and local-hires. This issue, as well as the question of whether foreign-hires should be included in
the appropriate bargaining unit, eventually caused a deadlock between the parties.

On September 7, 1995, petitioner filed a notice of strike. The failure of the National Conciliation and
Mediation Board to bring the parties to a compromise prompted the Department of Labor and Employment
(DOLE) to assume jurisdiction over the dispute. On June 10, 1996, the DOLE Acting Secretary,
Crescenciano B. Trajano, issued an Order resolving the parity and representation issues in favor of the
School. Then DOLE Secretary Leonardo A. Quisumbing subsequently denied petitioner's motion for
reconsideration in an Order dated March 19, 1997. Petitioner now seeks relief in this Court.

Petitioner claims that the point-of-hire classification employed by the School is discriminatory to Filipinos
and that the grant of higher salaries to foreign-hires constitutes racial discrimination.

The School disputes these claims and gives a breakdown of its faculty members, numbering 38 in all, with
nationalities other than Filipino, who have been hired locally and classified as local hires. [5]The Acting
Secretary of Labor found that these non-Filipino local-hires received the same benefits as the Filipino local-
hires:
The compensation package given to local-hires has been shown to apply to all, regardless of race. Truth to
tell, there are foreigners who have been hired locally and who are paid equally as Filipino local hires. [6]
The Acting Secretary upheld the point-of-hire classification for the distinction in salary rates:
The principle "equal pay for equal work" does not find application in the present case. The international
character of the School requires the hiring of foreign personnel to deal with different nationalities and
different cultures, among the student population.

We also take cognizance of the existence of a system of salaries and benefits accorded to foreign hired
personnel which system is universally recognized. We agree that certain amenities have to be provided to
these people in order to entice them to render their services in the Philippines and in the process remain
competitive in the international market.

Furthermore, we took note of the fact that foreign hires have limited contract of employment unlike the
local hires who enjoy security of tenure. To apply parity therefore, in wages and other benefits would also
require parity in other terms and conditions of employment which include the employment contract.

A perusal of the parties' 1992-1995 CBA points us to the conditions and provisions for salary and
professional compensation wherein the parties agree as follows:
All members of the bargaining unit shall be compensated only in accordance with Appendix C hereof
provided that the Superintendent of the School has the discretion to recruit and hire expatriate teachers
from abroad, under terms and conditions that are consistent with accepted international practice.
Appendix C of said CBA further provides:
The new salary schedule is deemed at equity with the Overseas Recruited Staff (OSRS) salary schedule.
The 25% differential is reflective of the agreed value of system displacement and contracted status of the
OSRS as differentiated from the tenured status of Locally Recruited Staff (LRS).
To our mind, these provisions demonstrate the parties' recognition of the difference in the status of two
types of employees, hence, the difference in their salaries.

The Union cannot also invoke the equal protection clause to justify its claim of parity. It is an established
principle of constitutional law that the guarantee of equal protection of the laws is not violated by
legislation or private covenants based on reasonable classification. A classification is reasonable if it is
based on substantial distinctions and apply to all members of the same class. Verily, there is a substantial
distinction between foreign hires and local hires, the former enjoying only a limited tenure, having no
amenities of their own in the Philippines and have to be given a good compensation package in order to
attract them to join the teaching faculty of the School.[7]

We cannot agree.
That public policy abhors inequality and discrimination is beyond contention. Our Constitution and laws
reflect the policy against these evils. The Constitution[8] in the Article on Social Justice and Human Rights
exhorts Congress to "give highest priority to the enactment of measures that protect and enhance the right
of all people to human dignity, reduce social, economic, and political inequalities." The very broad Article
19 of the Civil Code requires every person, "in the exercise of his rights and in the performance of his
duties, [to] act with justice, give everyone his due, and observe honesty and good faith."

International law, which springs from general principles of law, [9] likewise proscribes discrimination.
General principles of law include principles of equity,[10] i.e., the general principles of fairness and justice,
based on the test of what is reasonable.[11] The Universal Declaration of Human Rights,[12] the International
Covenant on Economic, Social, and Cultural Rights,[13] the International Convention on the Elimination of
All Forms of Racial Discrimination,[14] the Convention against Discrimination in Education,[15] the
Convention (No. 111) Concerning Discrimination in Respect of Employment and Occupation[16] - all
embody the general principle against discrimination, the very antithesis of fairness and justice. The
Philippines, through its Constitution, has incorporated this principle as part of its national laws.

In the workplace, where the relations between capital and labor are often skewed in favor of capital,
inequality and discrimination by the employer are all the more reprehensible.
The Constitution[17] specifically provides that labor is entitled to "humane conditions of work." These
conditions are not restricted to the physical workplace - the factory, the office or the field - but include as
well the manner by which employers treat their employees.

The Constitution[18] also directs the State to promote "equality of employment opportunities for all."
Similarly, the Labor Code[19] provides that the State shall "ensure equal work opportunities regardless of
sex, race or creed." It would be an affront to both the spirit and letter of these provisions if the State, in
spite of its primordial obligation to promote and ensure equal employment opportunities, closes its eyes to
unequal and discriminatory terms and conditions of employment. [20]

Discrimination, particularly in terms of wages, is frowned upon by the Labor Code. Article 135, for
example, prohibits and penalizes[21] the payment of lesser compensation to a female employee as against a
male employee for work of equal value. Article 248 declares it an unfair labor practice for an employer to
discriminate in regard to wages in order to encourage or discourage membership in any labor organization.

Notably, the International Covenant on Economic, Social, and Cultural Rights, supra, in Article 7 thereof,
provides:
The States Parties to the present Covenant recognize the right of everyone to the enjoyment of just and
favourable conditions of work, which ensure, in particular:
a. Remuneration which provides all workers, as a minimum, with:
i. Fair wages and equal remuneration for work of equal value without distinction of any
kind, in particular women being guaranteed conditions of work not inferior to those
enjoyed by men, with equal pay for equal work;

x x x.
The foregoing provisions impregnably institutionalize in this jurisdiction the long honored legal truism of
"equal pay for equal work." Persons who work with substantially equal qualifications, skill, effort and
responsibility, under similar conditions, should be paid similar salaries. [22] This rule applies to the School,
its "international character" notwithstanding.

The School contends that petitioner has not adduced evidence that local-hires perform work equal to that of
foreign-hires.[23] The Court finds this argument a little cavalier. If an employer accords employees the same
position and rank, the presumption is that these employees perform equal work. This presumption is borne
by logic and human experience. If the employer pays one employee less than the rest, it is not for that
employee to explain why he receives less or why the others receive more. That would be adding insult to
injury. The employer has discriminated against that employee; it is for the employer to explain why the
employee is treated unfairly.

The employer in this case has failed to discharge this burden. There is no evidence here that foreign-hires
perform 25% more efficiently or effectively than the local-hires. Both groups have similar functions and
responsibilities, which they perform under similar working conditions.

The School cannot invoke the need to entice foreign-hires to leave their domicile to rationalize the
distinction in salary rates without violating the principle of equal work for equal pay.

"Salary" is defined in Black's Law Dictionary (5th ed.) as "a reward or recompense for services
performed." Similarly, the Philippine Legal Encyclopedia states that "salary" is the "[c]onsideration paid
at regular intervals for the rendering of services." In Songco v. National Labor Relations
Commission,[24] we said that:

"salary" means a recompense or consideration made to a person for his pains or industry in another man's
business. Whether it be derived from "salarium," or more fancifully from "sal," the pay of the Roman
soldier, it carries with it the fundamental idea of compensation for services rendered. (Emphasis
supplied.)

While we recognize the need of the School to attract foreign-hires, salaries should not be used as an
enticement to the prejudice of local-hires. The local-hires perform the same services as foreign-hires and
they ought to be paid the same salaries as the latter. For the same reason, the "dislocation factor" and the
foreign-hires' limited tenure also cannot serve as valid bases for the distinction in salary rates. The
dislocation factor and limited tenure affecting foreign-hires are adequately compensated by certain benefits
accorded them which are not enjoyed by local-hires, such as housing, transportation, shipping costs, taxes
and home leave travel allowances.

The Constitution enjoins the State to "protect the rights of workers and promote their welfare,"[25] "to afford
labor full protection."[26] The State, therefore, has the right and duty to regulate the relations between labor
and capital.[27] These relations are not merely contractual but are so impressed with public interest that
labor contracts, collective bargaining agreements included, must yield to the common good. [28] Should such
contracts contain stipulations that are contrary to public policy, courts will not hesitate to strike down these
stipulations.

In this case, we find the point-of-hire classification employed by respondent School to justify the
distinction in the salary rates of foreign-hires and local hires to be an invalid classification. There is no
reasonable distinction between the services rendered by foreign-hires and local-hires. The practice of the
School of according higher salaries to foreign-hires contravenes public policy and, certainly, does not
deserve the sympathy of this Court.

We agree, however, that foreign-hires do not belong to the same bargaining unit as the local-hires.

A bargaining unit is "a group of employees of a given employer, comprised of all or less than all of the
entire body of employees, consistent with equity to the employer indicate to be the best suited to serve the
reciprocal rights and duties of the parties under the collective bargaining provisions of the law." [29] The
factors in determining the appropriate collective bargaining unit are (1) the will of the employees (Globe
Doctrine); (2) affinity and unity of the employees' interest, such as substantial similarity of work and duties,
or similarity of compensation and working conditions (Substantial Mutual Interests Rule); (3) prior
collective bargaining history; and (4) similarity of employment status. [30] The basic test of an asserted
bargaining unit's acceptability is whether or not it is fundamentally the combination which will best assure
to all employees the exercise of their collective bargaining rights. [31]

It does not appear that foreign-hires have indicated their intention to be grouped together with local-hires
for purposes of collective bargaining. The collective bargaining history in the School also shows that these
groups were always treated separately. Foreign-hires have limited tenure; local-hires enjoy security of
tenure. Although foreign-hires perform similar functions under the same working conditions as the local-
hires, foreign-hires are accorded certain benefits not granted to local-hires. These benefits, such as housing,
transportation, shipping costs, taxes, and home leave travel allowance, are reasonably related to their status
as foreign-hires, and justify the exclusion of the former from the latter. To include foreign-hires in a
bargaining unit with local-hires would not assure either group the exercise of their respective collective
bargaining rights.

WHEREFORE, the petition is GIVEN DUE COURSE. The petition is hereby GRANTED IN PART. The
Orders of the Secretary of Labor and Employment dated June 10, 1996 and March 19, 1997, are hereby
REVERSED and SET ASIDE insofar as they uphold the practice of respondent School of according
foreign-hires higher salaries than local-hires.

SO ORDERED.
 G.R. No. L-7349, July 19, 1955

ATOK-BIG WEDGE MUTUAL BENEFIT ASSOCIATION, PETITIONER, VS. ATOK-BIG

WEDGE MINING COMPANY, INCORPORATED, RESPONDENTS.

DECISION

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

On September 4, 1950, the. petitioner labor union, the Atok-Big Wedge Mutual Benefit Association,
submitted to the Atok-Big Wedge Mining Co., Inc. (respondent herein) several 'demands, among which
was an increase of P0.50 in daily wage. The matter was referred by the mining company to the Court of
Industrial Relations for arbitration and settlement (Case No. 523-V). In the course of conciliatory measures
taken by the Court, some of the demands were granted, and others (including the demand for increased
wages)' rejected, and so, hearings proceeded and evidence submitted on the latter. On July 14, 1951, the
Court rendered a decision (Record, pp. 25-32) fixing the minimum wage at P2.65 a day with rice ration, or
P3.20 without rice ration; denying the deduction from such minimum wage, of the value of housing
facilities furnished by the company to the laborers, as well as the efficiency bonus given to them by the
company; and ordered that the award be made effective retroactively from the date of the demand,
September 4, 1950, as agreed by the parties. From this decision, the mining company appealed to this Court
(G. R. No. L-5276).

Subsequently, an urgent petition was presented in Court on October 15, 1952 by the Atok-Big Wedge
Mining Company for authority to stop operations and lay off employees and laborers, for the reason that
due to heavy losses, increased taxes, high cost of materials, negligible quantity of ore deposits, and the
enforcement of the Minimum Wage Law, the continued operation of the company would lead to its
immediate bankruptcy and collapse (Rec. pp. 100-109). To avert the closure of the company and the
consequent lay-off of hundreds of laborers and employees, the Court, instead of hearing the petition on the
merits, convened the parties for voluntary conciliation and mediation. After lengthy discussions and
exchange of views, the parties on October 29, 1952 reached an agreement effective from August 4, 1952 to
December 31, 1954 (Rec. pp. 18-23). The Agreement in part provides:

That the petitioner, Atok-Big Wedge Mining Company, Incor- porated, agrees to abide by whatever
decision that the Supreme Court may render with respect to Case No. 523-V (G. R. 5276) and Case No.
523-1 (10) (G. R. 5594).

*******

III

*******

That the petitioner, Atok-Big Wedge Mining Company, Incorporated, and the respondent, Atok-Big Wedge
Mutual Benefit Association, agree that the following facilities heretofore given or actually being given by
the petitioner to its workers and laborers, and which constitute as part of their wages, be valued as follows:

Rice ration .................................................................... P.55 per day

Housing facility............................................................... 40 per day
All other facilities such as recreation facilities, medical treatment to
dependents of laborers, school facilities, rice ration during off-days, 85 per day
water, light, fuel, etc., equivalent to at least......................
It is understood that the said amount of facilities valued at the above-mentioned prices, may be charged in
full or partially by the Atok-Big Wedge Mining Company, Inc., against laborer or employee, as it may see
fit pursuant to the exigencies of its operation."

The agreement was submitted to the Court for approval and on December 26, 1952, was approved by the
Court in an order giving it effect as ail award, or decision in the case (Rec, p. 24).

Later, Case No. G. R. No. L-5276 was decided by this Court (promulgated March 3, 1953), affirming the
decision of the Court of Industrial Relations fixing the minimum cash wage of the laborers and employees
of the Atok-Big Wedge Mining Co. at P3.20 cash, without rice ration, or P2.65, with rice ration. On June
13, 1953, the labor union presented to the Court a petition for the enforcement of the terms of the
agreement of October 29, 1952, as allegedly modified by the decision of this Court in G. R. No. L-5276
and the provisions of the Minimum Wage Law, which has since taken effect, praying for the payment of
the minimum cash wage of P3.45 a day with rice ration, or P4.00 without rice ration, and the payment of
differential pay from August 4, 1952, when the award became effective. The mining company opposed the
petition claiming that the Agreement of October 29, 1952 was entered into by the parties with the end in
view that the company's cost of production be not increased in any way, so that it was intended to
supersede whatever decision the Supreme Court would render in G. R. No. L-5276 and the provisions of
the Minimum Wage Law with respect to the minimum cash wage payable to the laborers and employees.
Sustaining the opposition, the Court of Industrial Relations, in an order issued, on September 22, 1953
(Rec. pp. 44-49), denied the petition, upon the ground that when the Agreement of the parties of October
29, 1952 was entered into by them, they already knew the decision of said Court (although subject to
appeal to the Supreme Court) fixing the minimum cash wage at P3.20 without rice ration, or P2.65 with
rice ration, as well as the provisions of the Minimum Wage Law requiring the payment of P4 minimum
daily wage in the provinces effective August 4, 1952; so that the parties had intended to be regulated by
their Agreement of October 29, 1952. On the same day, the Court issued another order (Rec pp. 50-55),
denying the claim of the labor union for payment of an additional 50 per cent based on the basic wage of P4
for work on Sundays and holidays, holding that the payments being made by the company were within the
requirements of the law. Its motion for the reconsideration of both orders having been denied, the labor
union filed this petition for review by certiorari.

. The first issue submitted to us arises from an apparent contradiction in the Agreement of October 29,
1952. By paragraph' III thereof, the parties by common consent evaluated the facilities furnished by the
Company to its laborers (rice rations, housing, recreation, medical treat- ment, water, light, fuel, etc.) at
P1.80 per day, and authorized the company to have such value "charge in full or partially—against any
laborer or employee as it may see fit"; while in paragraph I, the Company agreed to abide by the decision of
this Court (pending at the time the agreement was had) in G. R. No. L-5594; and as rendered, the decision
was to the effect that the Company could deduct from the minimum wage only the value of the rice ration.

It is contended by the petitioner union that the two provisions should be harmonized by holding paragraph
III (deduction of all facilities) to be merely provisional, effective only while this Court had not rendered its
decision in G. R. No. L-5594; and that'tne terms of said paragraph should be deemed superseded by the
decision from the time the latter became final, some four or five months after the agreement was entered
into; in consequence, (it is claimed), the laborers became entitled by virtue of said decision to the prevailing
P4.00 minimum wage with no other deduction than that of the rice ration, or a net cash wage of P3.45.

This contention, in our opinion, is untenable. The in- tention of the parties could not have been to mate the
arrangement in paragraph III a merely provisional arrangement pending the decision of the Supreme Court
for "this agreement" was expressly made retroactive and effective as of August 4, 1952, and to be in force
up to and including December 31, 1954" (Par. IV). When concluded on October 29, 1952, neither party
could anticipate the date when the decision of the Supreme Court would be rendered; nor is any reason
shown why the parties should desire to limit the effects of the decision to the period 1952-1954 if it was to
supersede the agreement of October 29, 1952. '
To ascertain the true import of paragraph I of said Agreement providing that the respondent company
agreed to abide by whatever decision the Supreme Court would render in G. R. No. L-5276, it is important
to remember that, as shown by the records, the agreement was prompted by an urgent petition filed by the
respondent mining company to close operations and lay-off laborers because of heavy losses and the full
enforcement of the Minimum Wage Law in the provinces, requiring it to pay its laborers the minimum
wage of P4; to avoid such eventuality, through the mediation of the Court of Industrial Relations, a
compromise was reached whereby it was agreed that the company would pay the minimum wage fixed by
the law, but the facilities then being received by the laborers would be evaluated and charged as part of the
wage, but without in any way reducing the P2.00 cash portion of their wages which they were receiving
prior to the agreement (hearing of Oct. 28, 1952, CIR, t. s. n. 47). In other words, while it was the objective
of the parties to comply with the requirements of the Minimum Wage Law, it was also deemed important
that the mining company should not have to increase the cash wages it was then paying its laborers, so that
its cost of production would not also be increased, in order to prevent its closure and the lay-off of
employees and laborers. And as found by the Court below in the order appealed from (which finding is
conclusive upon us), "it is this eventuality that the parties did not like to happen, when they have executed
the said agreement" (Rec. p. 49). Accordingly, after said agreement was entered into, the Company started
paying its laborers a basic cash or "take-home" wage of P2.20 (Rec. p. 9), representing the difference
between P4 (minimum wage) and P1.80 (value of all facilities).

With this background, the provision to abide by our decision in G. R. L-5276 can only be interpreted thus:
That the company agreed to pay whatever award this Court would make in said case from the date fixed by
the decision (which was that of the original demand, September 4, 1950) up to August 3, 1952 (the day
previous to the effectivity of the Compromise Agreement) and from August 4, 1952 to December 31, 1954,
they are to be bound by their agreement of October 29, 1952.

This means that during the first period (September 4. 1950 to August 3, 1952), only rice rations given to the
laborers are to be regarded as forming part of their wage and deductible therefrom. The minimum wage
was then fixed (by the Court of Industrial Relations, and affirmed by this Court) at P3.20 without rice
ration, or P2.65 with rice ration. Since the respondent company had been pay- ing its laborers the basic cash
or "take-home" wage of F2 prior to said decision and up to August 3, 1952, the laborers are entitled to a
differential pay of P0.65 per working day from September 4, 1950 (the date of the effectivity of the award
in G. R. L-5276) up to August 3, 1952.

From August 4, 1952, the date when the Agreement of the parties of October 29, 1952 became effective
(which was also the date when the Minimum Wage Law became fully enforceable in the provinces), the
laborers should be paid a minimum wage of P4 a day. From this amount, the respondent mining company is
given the right to charge each laborer "in full or partially", the facilities enumerated in par. III of the
Agreement; i. e., rice ration at P0.55 per day, housing facility at P0.40 per day, and other facilities at P0.85
per day (or a total of P1.80), which facilities '"constitute part of his wages". It appears that the company had
actually been paying its laborers the minimum wage of P2.20 since August 4, 1952; hence they are not
entitled to any differential pay from this date.

Petitioner argues that to allow the deductions stipulated in the Agreement of October 29, 1952 from the
minimum daily wage of P4 would be a waiver of the minimum wage fixed by the law and hence null and
void, since Republic Act No. 602, section 20, provides that "no agreement or contract, oral or written, to
accept a lower wage or less than any other under this Act, shall be valid". An agreement to deduct certain
facilities received by the laborers from their employer is not a waiver of the minimum wage fixed by the
law. Wage, as defined by section 2 of Republic Act No. 602, "includes the fair and reasonable value as
determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the
employer to the employee." thus, the law permits the deduction of such facilities- from the laborer's
minimum wage of P4, as long as their value is "fair and reasonable". It is not here claimed that the
valuations fixed in the Agreement of October 29, 1952 are not fair and reasonable. On the contrary, the
agreement expressly states that such valuations:
'have been arrived at after careful study and deliberation by both representatives of both parties, with the
assistance of their respective counsels, and in the presence of the Honorable Presiding Judge of the Court of
Industrial Relations' (Rec. p. 2).

Neither is it claimed that the parties, with the aid of the Court of Industrial Relations in a dispute pending
before it, may not fix by agreement the valuation of such facilities, without referring the matter to the
Department of Labor.

Petitioner also argues that to allow the deductions of the facilities appearing in the Agreement referred to,
would be contrary to the mandate of section 19 of the law, that "nothing in this Act shall * * * justify an
employer * * * in reducing supplements furnished on the date of enactment".

The meaning of the term "supplements" has been fixed by the Code of Rules and Regulations promulgated
by the Wage Administration Office to implement the Minimum Wage Law (Ch. 1, [c]), as:

"extra remuneration or benefits received by wage earners from their employers and include but are not
restricted to pay for vacation and holidays not worked; paid sick leave or maternity leave; overtime rate in
excess of what is required by law; sick, pension, retirement, and death benefits; profit-sharing; family
allowances; Christmas, war risk and cost-of-living bonuses; or other bonuses other than those paid as a
reward for extra output or time spent on the job."

"Supplements", therefore, constitute extra enumeration or special privileges or benefits given to or received
by the laborers over and above their ordinary earnings or wages. Facilities, on the other hand,1 are items of
expense necessary for the laborer's and his family's existence and subsistence, so that by express provision
of the law (sec. 2[g]) they form part of the wage and when furnished by the employer are deductible
therefrom since if they are not so furnished, the laborer would spend and pay for them just the same. It is
thus clear that the facilities mentioned in the agreement of October 29, 1952 do not come within the term
"supplements" as used in Art. 19 of the Minimum Wage Law.

For the above reasons, we find the appeal from the Order of the Court a quo of September 22, 1953
denying the motion of the petitioner labor union for the payment of the minimum wage of P3.45 per day
plus rice ration, or P4 without rice ration, to be unmeritorious and untenable.

The second question involved herein relates to the additional compensation that should be paid by the
respondent company to its laborers for work rendered on Sundays and holidays. It is admitted that the
respondent company is paying an additional compensation of 50 per cent based on the basic "cash portion"
of the laborer's wage of P2.20 per day; ie., P1.10 additional compensation for each Sunday or holiday's
work. Petitioner union insists, however, that this 50 per cent additional compensation should be computed
on the minimum wage of P400 and not on the "cash portion" of the laborer's wage of P2.20, under the
provisions of the Agreement of October 29, 1952 and the Minimum Wage Law.

Sec. 4. Commonwealth Act No. 444 (otherwise known as the Eight Hour Labor Law) provides:

"No person, firm, or corporations, business establishment or place or center of labor shall compel an
employee or laborer to work during Sundays and holidays, unless he is paid an additional sum of at least
twenty-five per centum of his regular remuneration:

The minimum legal additional compensation for work on Sundays and legal holidays is, therefore, 25 per
cent of the laborer's regular renumeration. Under the Minimum Wage Law, this minimum additional
compensation is P1 a day (25 per cent of P4, the minimum daily wage).

While the respondent company computes the additional compensation given to its laborers for work on
Sundays and holidays on the "cash portion" of their wages of P2.20, it is giving them 50 per cent thereof, or
P1.10 a day. Considering that the minimum additional compensation fixed by the law is P1 (25 per cent of
P4), the compensation being paid by the respondent company to its laborers is even higher than such
minimum legal additional compensation. We, therefore, see no error in the holding of the Court a quo that
the respondent company has not violated the law with respect to the payment of additional compensation
for work rendered by its laborers on Sundays and legal holidays.

Finding no reason to sustain the present petition for review, the same is, therefore, dismissed, with costs
against the petitioner Atok-Big Wedge Mutual Benefit Association.

G.R. No. 118506, April 18, 1997

NORMA MABEZA, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION,

PETER NG/HOTEL SUPREME, RESPONDENTS.
DECISION

KAPUNAN, J.:

This petition seeking the nullification of a resolution of public respondent National Labor Relations
Commission dated April 28, 1994 vividly illustrates why courts should be ever vigilant in the preservation
of the constitutionally enshrined rights of the working class. Without the protection accorded by our laws
and the tempering of courts, the natural and historical inclination of capital to ride roughshod over the
rights of labor would run unabated.

The facts of the case at bar, culled from the conflicting versions of petitioner and private respondent, are
illustrative.

Petitioner Norma Mabeza contends that around the first week of May, 1991, she and her co-employees at
the Hotel Supreme in Baguio City were asked by the hotel's management to sign an instrument attesting to
the latter's compliance with minimum wage and other labor standard provisions of law. [1] The instrument
provides:[2]

JOINT AFFIDAVIT

We, SYLVIA IGANA, HERMINIGILDO AQUINO, EVELYN OGOY, MACARIA JUGUETA,

ADELAIDA NONOG, NORMA MABEZA, JONATHAN PICART and JOSE DIZON, all of legal ages
(sic), Filipinos and residents of Baguio City, under oath, depose and say:

1. That we are employees of Mr. Peter L. Ng of his Hotel Supreme situated at No. 416 Magsaysay Ave.,
Baguio City;

2. That the said Hotel is separately operated from the Ivy's Grill and Restaurant;

3. That we are all (8) employees in the hotel and assigned in each respective shifts;

4. That we have no complaints against the management of the Hotel Supreme as we are paid accordingly
and that we are treated well.

5. That we are executing this affidavit voluntarily without any force or intimidation and for the purpose of
informing the authorities concerned and to dispute the alleged report of the Labor Inspector of the
Department of Labor and Employment conducted on the said establishment on February 2, 1991.

IN WITNESS WHEREOF, we have hereunto set our hands this 7th day of May, 1991 at Baguio City,
Philippines.

(Sgd.) (Sgd.) (Sgd.)

SYLVIA IGAMA HERMINIGILDO AQUINO EVELYN OGOY

(Sgd) (Sgd.) (Sgd.)

MACARIA JUGUETA ADELAIDA NONOG NORMA MABEZA

(Sgd) (Sgd.)

JONATHAN PICART JOSE DIZON

SUBSCRIBED AND SWORN to before me this 7th day of May, 1991, at Baguio City, Philippines.

Asst. City Prosecutor

Petitioner signed the affidavit but refused to go to the City Prosecutor's Office to swear to the veracity and
contents of the affidavit as instructed by management. The affidavit was nevertheless submitted on the
same day to the Regional Office of the Department of Labor and Employment in Baguio City.

As gleaned from the affidavit, the same was drawn by management for the sole purpose of refuting findings
of the Labor Inspector of DOLE (in an inspection of respondent's establishment on February 2, 1991)
apparently adverse to the private respondent.[3]

After she refused to proceed to the City Prosecutor's Office - on the same day the affidavit was submitted to
the Cordillera Regional Office of DOLE - petitioner avers that she was ordered by the hotel management to
turn over the keys to her living quarters and to remove her belongings from the hotel premises. [4]According
to her, respondent strongly chided her for refusing to proceed to the City Prosecutor's Office to attest to the
affidavit.[5] She thereafter reluctantly filed a leave of absence from her job which was denied by
management. When she attempted to return to work on May 10, 1991, the hotel's cashier, Margarita Choy,
informed her that she should not report to work and, instead, continue with her unofficial leave of absence.
Consequently, on May 13, 1991, three days after her attempt to return to work, petitioner filed a complaint
for illegal dismissal before the Arbitration Branch of the National Labor Relations Commission - CAR
Baguio City. In addition to her complaint for illegal dismissal, she alleged underpayment of wages, non-
payment of holiday pay, service incentive leave pay, 13th month pay, night differential and other benefits.
The complaint was docketed as NLRC Case No. RAB-CAR-05-0198-91 and assigned to Labor Arbiter
Felipe P. Pati.

Responding to the allegations made in support of petitioner's complaint for illegal dismissal, private
respondent Peter Ng alleged before Labor Arbiter Pati that petitioner "surreptitiously left (her job) without
notice to the management"[6] and that she actually abandoned her work. He maintained that there was no
basis for the money claims for underpayment and other benefits as these were paid in the form of facilities
to petitioner and the hotel's other employees.[7] Pointing to the Affidavit of May 7, 1991, the private
respondent asserted that his employees actually have no problems with management. In a supplemental
answer submitted eleven (11) months after the original complaint for illegal dismissal was filed, private
respondent raised a new ground, loss of confidence, which was supported by a criminal complaint for
Qualified Theft he filed before the prosecutor's office of the City of Baguio against petitioner on July 4,
1991.[8]
On May 14, 1993, Labor Arbiter Pati rendered a decision dismissing petitioner's complaint on the ground
of loss of confidence. His disquisitions in support of his conclusion read as follows:

It appears from the evidence of respondent that complainant carted away or stole one (1) blanket, 1 piece
bedsheet, 1 piece thermos, 2 pieces towel (Exhibits '9', '9-A,' '9-B,' '9-C' and '10' pages 12-14 TSN,
December 1, 1992).

In fact, this was the reason why respondent Peter Ng lodged a criminal complaint against complainant for
qualified theft and perjury. The fiscal's office finding a prima facie evidence that complainant committed
the crime of qualified theft issued a resolution for its filing in court but dismissing the charge of perjury
(Exhibit '4' for respondent and Exhibit 'B-7' for complainant). As a consequence, complainant was charged
in court for the said crime (Exhibit '5' for respondent and Exhibit 'B-6' for the complainant).

With these pieces of evidence, complainant committed serious misconduct against her employer which is
one of the just and valid grounds for an employer to terminate an employee (Article 282 of the Labor Code
as amended).[9]

On April 28, 1994, respondent NLRC promulgated its assailed Resolution[10] affirming the Labor Arbiter's
decision. The resolution substantially incorporated the findings of the Labor Arbiter. [11] Unsatisfied,
petitioner instituted the instant special civil action for certiorari under Rule 65 of the Rules of Court on the
following grounds:[12]
1. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS
COMMISSION COMMITTED A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE
ABUSE OF DISCRETION IN ITS FAILURE TO CONSIDER THAT THE ALLEGED LOSS OF
CONFIDENCE IS A FALSE CAUSE AND AN AFTERTHOUGHT ON THE PART OF THE
RESPONDENT-EMPLOYER TO JUSTIFY, ALBEIT ILLEGALLY, THE DISMISSAL OF THE
COMPLAINANT FROM HER EMPLOYMENT;

2. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS

COMMISSION COMMITTED A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE
ABUSE OF DISCRETION IN ADOPTING THE RULING OF THE LABOR ARBITER THAT THERE
WAS NO UNDERPAYMENT OF WAGES AND BENEFITS ON THE BASIS OF EXHIBIT "8" (AN
UNDATED SUMMARY OF COMPUTATION PREPARED BY ALLEGEDLY BY RESPONDENT'S
EXTERNAL ACCOUNTANT) WHICH IS TOTALLY INADMISSIBLE AS AN EVIDENCE TO
PROVE PAYMENT OF WAGES AND BENEFITS;

3. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS

COMMISSION COMMITTED A PATENT AND PALPABLE ERROR AMOUNTING TO GRAVE
ABUSE OF DISCRETION IN FAILING TO CONSIDER THE EVIDENCE ADDUCED BEFORE THE
LABOR ARBITER AS CONSTITUTING UNFAIR LABOR PRACTICE COMMITTED BY THE
RESPONDENT.
The Solicitor General, in a Manifestation in lieu of Comment dated August 8, 1995 rejects private
respondent's principal claims and defenses and urges this Court to set aside the public respondent's assailed
resolution.[13]

We agree.

It is settled that in termination cases the employer bears the burden of proof to show that the dismissal is for
just cause, the failure of which would mean that the dismissal is not justified and the employee is entitled to
reinstatement.[14]

In the case at bar, the private respondent initially claimed that petitioner abandoned her job when she failed
to return to work on May 8, 1991. Additionally, in order to strengthen his contention that there existed
sufficient cause for the termination of petitioner, he belatedly included a complaint for loss of confidence,
supporting this with charges that petitioner had stolen a blanket, a bedsheet and two towels from the
hotel.[15] Appended to his last complaint was a suit for qualified theft filed with the Baguio City
prosecutor's office.

From the evidence on record, it is crystal clear that the circumstances upon which private respondent
anchored his claim that petitioner "abandoned" her job were not enough to constitute just cause to sanction
the termination of her services under Article 283 of the Labor Code. For abandonment to arise, there must
be concurrence of two things: 1) lack of intention to work;[16] and 2) the presence of overt acts signifying
the employee's intention not to work.[17]

In the instant case, respondent does not dispute the fact that petitioner tried to file a leave of absence when
she learned that the hotel management was displeased with her refusal to attest to the affidavit. The fact that
she made this attempt clearly indicates not an intention to abandon but an intention to return to work after
the period of her leave of absence, had it been granted, shall have expired.

Furthermore, while absence from work for a prolonged period may suggest abandonment in certain
instances, mere absence of one or two days would not be enough to sustain such a claim. The overt act
(absence) ought to unerringly point to the fact that the employee has no intention to return to
work,[18] which is patently not the case here. In fact, several days after she had been advised to take an
informal leave, petitioner tried to resume working with the hotel, to no avail. It was only after she had been
repeatedly rebuffed that she filed a case for illegal dismissal. These acts militate against the private
respondent's claim that petitioner abandoned her job. As the Solicitor General in his manifestation
observed:

Petitioner's absence on that day should not be construed as abandonment of her job. She did not report
because the cashier told her not to report anymore, and that private respondent Ng did not want to see her in
the hotel premises. But two days later or on the 10th of May, after realizing that she had to clarify her
employment status, she again reported for work. However, she was prevented from working by private
respondents.[19]
We now come to the second cause raised by private respondent to support his contention that petitioner was
validly dismissed from her job.

Loss of confidence as a just cause for dismissal was never intended to provide employers with a blank
check for terminating their employees. Such a vague, all-encompassing pretext as loss of confidence, if
unqualifiedly given the seal of approval by this Court, could readily reduce to barren form the words of the
constitutional guarantee of security of tenure. Having this in mind, loss of confidence should ideally apply
only to cases involving employees occupying positions of trust and confidence or to those situations where
the employee is routinely charged with the care and custody of the employer's money or property. To the
first class belong managerial employees, i.e., those vested with the powers or prerogatives to lay down
management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline
employees or effectively recommend such managerial actions; and to the second class belong cashiers,
auditors, property custodians, etc., or those who, in the normal and routine exercise of their functions,
regularly handle significant amounts of money or property. Evidently, an ordinary chambermaid who has to
sign out for linen and other hotel property from the property custodian each day and who has to account for
each and every towel or bedsheet utilized by the hotel's guests at the end of her shift would not fall under
any of these two classes of employees for which loss of confidence, if ably supported by evidence, would
normally apply. Illustrating this distinction, this Court, in Marina Port Services, Inc. vs. NLRC, [20] has
stated that:

To be sure, every employee must enjoy some degree of trust and confidence from the employer as that is
one reason why he was employed in the first place. One certainly does not employ a person he distrusts.
Indeed, even the lowly janitor must enjoy that trust and confidence in some measure if only because he is
the one who opens the office in the morning and closes it at night and in this sense is entrusted with the
care or protection of the employer's property. The keys he holds are the symbol of that trust and confidence.

By the same token, the security guard must also be considered as enjoying the trust and confidence of his
employer, whose property he is safeguarding. Like the janitor, he has access to this property. He too, is
charged with its care and protection.

Notably, however, and like the janitor again, he is entrusted only with the physical task of protecting that
property. The employer's trust and confidence in him is limited to that ministerial function. He is not
entrusted, in the Labor Arbiter's words, 'with the duties of safekeeping and safeguarding company policies,
management instructions, and company secrets such as operation devices.' He is not privy to these
confidential matters, which are shared only in the higher echelons of management. It is the persons on such
levels who, because they discharge these sensitive duties, may be considered holding positions of trust and
confidence. The security guard does not belong in such category. [21]
More importantly, we have repeatedly held that loss of confidence should not be simulated in order to
justify what would otherwise be, under the provisions of law, an illegal dismissal. "It should not be used as
a subterfuge for causes which are illegal, improper and unjustified. It must be genuine, not a mere
afterthought to justify an earlier action taken in bad faith." [22]

In the case at bar, the suspicious delay in private respondent's filing of qualified theft charges against
petitioner long after the latter exposed the hotel's scheme (to avoid its obligations as employer under the
Labor Code) by her act of filing illegal dismissal charges against the private respondent would hardly
warrant serious consideration of loss of confidence as a valid ground for dismissal. Notably, the Solicitor
General has himself taken a position opposite the public respondent and has observed that:

If petitioner had really committed the acts charged against her by private respondents (stealing supplies of
respondent hotel), private respondents should have confronted her before dismissing her on that ground.
Private respondents did not do so. In fact, private respondent Ng did not raise the matter when petitioner
went to see him on May 9, 1991, and handed him her application for leave. It took private respondents 52
days or up to July 4, 1991 before finally deciding to file a criminal complaint against petitioner, in an
obvious attempt to build a case against her.

The manipulations of private respondents should not be countenanced. [23]

Clearly, the efforts to justify petitioner's dismissal - on top of the private respondent's scheme of inducing
his employees to sign an affidavit absolving him from possible violations of the Labor Code - taints with
evident bad faith and deliberate malice petitioner's summary termination from employment.

Having said this, we turn to the important question of whether or not the dismissal by the private
respondent of petitioner constitutes an unfair labor practice.

The answer in this case must inevitably be in the affirmative.

The pivotal question in any case where unfair labor practice on the part of the employer is alleged is
whether or not the employer has exerted pressure, in the form of restraint, interference or coercion, against
his employee's right to institute concerted action for better terms and conditions of employment. Without
doubt, the act of compelling employees to sign an instrument indicating that the employer observed labor
standards provisions of law when he might have not, together with the act of terminating or coercing those
who refuse to cooperate with the employer's scheme constitutes unfair labor practice. The first act clearly
preempts the right of the hotel's workers to seek better terms and conditions of employment through
concerted action.

We agree with the Solicitor General's observation in his manifestation that "[t]his actuation... is analogous
to the situation envisaged in paragraph (f) of Article 248 of the Labor Code" [24] which distinctly makes it an
unfair labor practice "to dismiss, discharge or otherwise prejudice or discriminate against an employee for
having given or being about to give testimony" [25] under the Labor Code. For in not giving positive
testimony in favor of her employer, petitioner had reserved not only her right to dispute the claim and
proffer evidence in support thereof but also to work for better terms and conditions of employment.

For refusing to cooperate with the private respondent's scheme, petitioner was obviously held up as an
example to all of the hotel's employees, that they could only cause trouble to management at great personal
inconvenience. Implicit in the act of petitioner's termination and the subsequent filing of charges against
her was the warning that they would not only be deprived of their means of livelihood, but also possibly,
their personal liberty.

This Court does not normally overturn findings and conclusions of quasi-judicial agencies when the same
are ably supported by the evidence on record. However, where such conclusions are based on a
misperception of facts or where they patently fly in the face of reason and logic, we will not hesitate to set
aside those conclusions. Going into the issue of petitioner's money claims, we find one more salient reason
in this case to set things right: the labor arbiter's evaluation of the money claims in this case incredibly
ignores existing law and jurisprudence on the matter. Its blatant one-sidedness simply raises the suspicion
that something more than the facts, the law and jurisprudence may have influenced the decision at the level
of the Arbiter.

Labor Arbiter Pati accepted hook, line and sinker the private respondent's bare claim that the reason the
monetary benefits received by petitioner between 1981 to 1987 were less than minimum wage was because
petitioner did not factor in the meals, lodging, electric consumption and water she received during the
period in her computations.[26] Granting that meals and lodging were provided and indeed constituted
facilities, such facilities could not be deducted without the employer complying first with certain legal
requirements. Without satisfying these requirements, the employer simply cannot deduct the value from the
employee's wages. First, proof must be shown that such facilities are customarily furnished by the trade.
Second, the provision of deductible facilities must be voluntarily accepted in writing by the employee.
Finally, facilities must be charged at fair and reasonable value.[27]

These requirements were not met in the instant case. Private respondent "failed to present any company
policy or guideline to show that the meal and lodging . . . (are) part of the salary;" [28] he failed to provide
proof of the employee's written authorization; and, he failed to show how he arrived at the valuations. [29]

Curiously, in the case at bench, the only valuations relied upon by the labor arbiter in his decision were
figures furnished by the private respondent's own accountant, without corroborative evidence. On the
pretext that records prior to the July 16, 1990 earthquake were lost or destroyed, respondent failed to
produce payroll records, receipts and other relevant documents, where he could have, as has been pointed
out in the Solicitor General's manifestation, "secured certified copies thereof from the nearest regional
office of the Department of Labor, the SSS or the BIR." [30]

More significantly, the food and lodging, or the electricity and water consumed by the petitioner were not
facilities but supplements. A benefit or privilege granted to an employee for the convenience of the
employer is not a facility. The criterion in making a distinction between the two not so much lies in the
kind (food, lodging) but the purpose.[31] Considering, therefore, that hotel workers are required to work
different shifts and are expected to be available at various odd hours, their ready availability is a necessary
matter in the operations of a small hotel, such as the private respondent's hotel.

It is therefore evident that petitioner is entitled to the payment of the deficiency in her wages equivalent to
the full wage applicable from May 13, 1988 up to the date of her illegal dismissal.

Additionally, petitioner is entitled to payment of service incentive leave pay, emergency cost of living
allowance, night differential pay, and 13th month pay for the periods alleged by the petitioner as the private
respondent has never been able to adduce proof that petitioner was paid the aforestated benefits.

However, the claims covering the period of October 1987 up to the time of filing the case on May 13, 1988
are barred by prescription as P.D. 442 (as amended) and its implementing rules limit all money claims
arising out of employer-employee relationship to three (3) years from the time the cause of action
accrues.[32]

We depart from the settled rule that an employee who is unjustly dismissed from work normally should be
reinstated without loss of seniority rights and other privileges. Owing to the strained relations between
petitioner and private respondent, allowing the former to return to her job would only subject her to
possible harassment and future embarrassment. In the instant case, separation pay equivalent to one month's
salary for every year of continuous service with the private respondent would be proper, starting with her
job at the Belfront Hotel.

In addition to separation pay, backwages are in order. Pursuant to R.A. 6715 and our decision in Osmalik
Bustamante, et al. vs. National Labor Relations Commission, [33] petitioner is entitled to full backwages
from the time of her illegal dismissal up to the date of promulgation of this decision without qualification
or deduction.

Finally, in dismissal cases, the law requires that the employer must furnish the employee sought to be
terminated from employment with two written notices before the same may be legally effected. The first is
a written notice containing a statement of the cause(s) for dismissal; the second is a notice informing the
employee of the employer's decision to terminate him stating the basis of the dismissal. During the process
leading to the second notice, the employer must give the employee ample opportunity to be heard and
defend himself, with the assistance of counsel if he so desires.

Given the seriousness of the second cause (qualified theft) of the petitioner's dismissal, it is noteworthy that
the private respondent never even bothered to inform petitioner of the charges against her. Neither was
petitioner given the opportunity to explain the loss of the articles. It was only almost two months after
petitioner had filed a complaint for illegal dismissal, as an afterthought, that the loss was reported to the
police and added as a supplemental answer to petitioner's complaint. Clearly, the dismissal of petitioner
without the benefit of notice and hearing prior to her termination violated her constitutional right to due
process. Under the circumstances, an award of One Thousand Pesos (P1,000.00) on top of payment of the
deficiency in wages and benefits for the period aforestated would be proper.

WHEREFORE, premises considered, the RESOLUTION of the National Labor Relations Commission
dated April 24, 1994 is REVERSED and SET ASIDE, with costs. For clarity, the economic benefits due
the petitioner are hereby summarized as follows:
1) Deficiency wages and the applicable ECOLA from May 13, 1988 up to the date of petitioner's illegal
dismissal;

2) Service incentive leave pay; night differential pay and 13th month pay for the same period;

3) Separation pay equal to one month's salary for every year of petitioner's continuous service with the
private respondent starting with her job at the Belfront Hotel;

4) Full backwages, without qualification or deduction, from the date of petitioner's illegal dismissal up
to the date of promulgation of this decision pursuant to our ruling in Bustamante vs. NLRC. [34]

5) P1.000.00.
SO ORDERED.
 CHAPTER II
DEL ROSARIO V DIR

G.R. No. L-23542, January 02, 1968

JUANA T. VDA. DE RACHO, PLAINTIFF-APPELLEE, VS. MUNICIPALITY OF ILAGAN,

DEFENDANT-APPELLANT.

DECISION

BENGZON, J.P., J.:

Plaintiff Juana T. Vda. de Racho and the decedent, Manuel Racho, were spouses and had five minor
children. On July 1, 1954 the decedent was appointed as market cleaner in
the Municipality of Ilagan, Isabela, at the rate of P660.00 per annum (P55.00 monthly) which amount he
received up to June 30, 1958. On July 1, 1958, decedent's salary was increased to P720.00 per annum
(P60.00 monthly) by virtue of a promotional appointment extended to him by the Municipal Mayor. He
received this amount until January 6, 1960 when he tendered his resignation effective July 7,
1960. Decedent was then paid the money value of his accumulated leaves from January 7, 1960 to May 23,
1960 at the rate of P60.00 a month.

On October 5, 1960, decedent died intestate at Ilagan. Plaintiff then filed on December 9, 1960 a claim for
salary differentials with the Regional Office of the Department of Labor which dropped the case later on
for lack of jurisdiction.

Based on the foregoing facts, the Court of First Instance of Isabela, in an action brought on December 5,
1961, by plaintiff, in her own behalf and as guardian ad litem of her minor children, ruled that defendant
Municipality of Ilagan must pay P1,766.00 to plaintiff representing the wage differentials and adjusted
terminal leave of the decedent from December 9, 1957 [1] to May 23, 1960, based on the monthly wage rate
of P120.00 pursuant to the Minimum Wage Law.

Defendant municipality immediately appealed the case to Us on the sole submission that its shortage and
lack of available funds and expected revenue validly exempted it from complying with the Minimum Wage
Law.

The appeal must be dismissed. We have already answered the question posed in Rivera vs. Colago, L-
12323, February 24, 1961, wherein We ruled that lack of funds of a municipality does not excuse it from
paying the statutory minimum wages to its employees, which, after all, is a mandatory statutory
obligation of the municipality. To uphold such defense of lack of available funds would render the
Minimum Wage Law futile and defeat its purpose. This also disposes of the implication appellant is trying
to make that its duty to pay minimum wages is not a statutory obligation which would command preference
in the municipal budget and appropriation ordinance.[2]

Moreover, We cannot sanction appellant's proposition that it would eventually and gradually implement the
Minimum Wage Law, "if and when its revenues can afford." The law - insofar as it affects government
employees - took effect in 1952.[3] It should have been implemented - or at least steps to implement it
should have been taken - right then. To excuse the defendant municipality now would be to permit it to
benefit from its nonfeasance. It would also make the effectivityof the law dependent upon the will
and initiative of said municipality without statutory sanction. Defendant's remedy, therefore, is not to seek
an excuse from implementing the law but, as the lower court suggested, to upgrade and improve its tax
collection machinery with a view towards realizing more revenues. Or, it could for the present forego all
non-essential expenditures.

WHEREFORE, the appealed judgment is, as it is hereby, affirmed. No costs.

SO ORDERED.

G.R. NO. 155059, April 29, 2005

AMERICAN WIRE AND CABLE DAILY RATED EMPLOYEES UNION, PETITIONER, VS.
AMERICAN WIRE AND CABLE CO., INC. AND THE COURT OF APPEALS, RESPONDENTS.

DECISION

CHICO-NAZARIO, J.:

Before Us is a special civil action for certiorari, assailing the Decision[1] of the Special Eighth Division of
the Court of Appeals dated 06 March 2002. Said Decision upheld the Decision[2] and Order[3] of Voluntary
Arbitrator Angel A. Ancheta of the National Conciliation and Mediation Board (NCMB) dated 25
September 2001 and 05 November 2001, respectively, which declared the private respondent herein not
guilty of violating Article 100 of the Labor Code, as amended. Assailed likewise, is the Resolution [4] of the
Court of Appeals dated 12 July 2002, which denied the motion for reconsideration of the petitioner, for lack
of merit.

THE FACTS

The facts of this case are quite simple and not in dispute.

American Wire and Cable Co., Inc., is a corporation engaged in the manufacture of wires and
cables. There are two unions in this company, the American Wire and Cable Monthly-Rated Employees
Union (Monthly-Rated Union) and the American Wire and Cable Daily-Rated Employees Union (Daily-
Rated Union).

On 16 February 2001, an original action was filed before the NCMB of the Department of Labor and
Employment (DOLE) by the two unions for voluntary arbitration. They alleged that the private respondent,
without valid cause, suddenly and unilaterally withdrew and denied certain benefits and entitlements which
they have long enjoyed. These are the following:

a. Service Award;

b. 35% premium pay of an employee’s basic pay for the work rendered during Holy Monday, Holy
Tuesday, Holy Wednesday, December 23, 26, 27, 28 and 29;
 c. Christmas Party; and

d. Promotional Increase.

A promotional increase was asked by the petitioner for fifteen (15) of its members who were given or
assigned new job classifications. According to petitioner, the new job classifications were in the nature of a
promotion, necessitating the grant of an increase in the salaries of the said 15 members.

On 21 June 2001, a Submission Agreement was filed by the parties before the Office for Voluntary
Arbitration. Assigned as Voluntary Arbitrator was Angel A. Ancheta.

On 04 July 2001, the parties simultaneously filed their respective position papers with the Office of the
Voluntary Arbitrator, NCMB, and DOLE.

On 25 September 2001, a Decision[5] was rendered by Voluntary Arbitrator Angel A. Ancheta in favor of
the private respondent. The dispositive portion of the said Decision is quoted hereunder:
WHEREFORE, with all the foregoing considerations, it is hereby declared that the Company is not guilty
of violating Article 100 of the Labor Code, as amended, or specifically for withdrawing the service award,
Christmas party and 35% premium for work rendered during Holy Week and Christmas season and for not
granting any promotional increase to the alleged fifteen (15) Daily-Rated Union Members in the absence of
a promotion. The Company however, is directed to grant the service award to deserving employees in
amounts and extent at its discretion, in consultation with the Unions on grounds of equity and fairness.[6]
A motion for reconsideration was filed by both unions[7] where they alleged that the Voluntary Arbitrator
manifestly erred in finding that the company did not violate Article 100 of the Labor Code, as amended,
when it unilaterally withdrew the subject benefits, and when no promotional increase was granted to the
affected employees.

On 05 November 2001, an Order[8] was issued by Voluntary Arbitrator Angel A. Ancheta. Part of the Order
is quoted hereunder:
Considering that the issues raised in the instant case were meticulously evaluated and length[i]ly discussed
and explained based on the pleadings and documentary evidenc[e] adduced by the contending parties, we
find no cogent reason to change, modify, or disturb said decision.

WHEREFORE, let the instant MOTION[S] FOR RECONSIDERATION be, as they are hereby, denied for
lack of merit. Our decision dated 25 September 2001 is affirmed “en toto.” [9]
An appeal under Rule 43 of the 1997 Rules on Civil Procedure was made by the Daily-Rated Union before
the Court of Appeals[10] and docketed as CA-G.R. SP No. 68182. The petitioner averred that Voluntary
Arbitrator Angel A. Ancheta erred in finding that the company did not violate Article 100 of the Labor
Code, as amended, when the subject benefits were unilaterally withdrawn. Further, they assert, the
Voluntary Arbitrator erred in adopting the company’s unaudited Revenues and Profitability Analysis for
the years 1996-2000 in justifying the latter’s withdrawal of the questioned benefits.[11]

On 06 March 2002, a Decision in favor of herein respondent company was promulgated by the Special
Eighth Division of the Court of Appeals in CA-G.R. SP No. 68182. The decretal portion of the decision
reads:
WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and
accordingly DISMISSED, for lack of merit. The Decision of Voluntary Arbitrator Angel A. Ancheta dated
September 25, 2001 and his Order dated November 5, 2001 in VA Case No. AAA-10-6-4-2001 are hereby
AFFIRMED and UPHELD.[12]
A motion for reconsideration[13] was filed by the petitioner, contending that the Court of Appeals
misappreciated the facts of the case, and that it committed serious error when it ruled that the unaudited
financial statement bears no importance in the instant case.

The Court of Appeals denied the motion in its Resolution dated 12 July 2002 [14] because it did not present
any new matter which had not been considered in arriving at the decision. The dispositive portion of the
Resolution states:
WHEREFORE, the motion for reconsideration is hereby DENIED for lack of merit.[15]
Dissatisfied with the court a quo’s ruling, petitioner instituted the instant special civil action
for certiorari,[16] citing grave abuse of discretion amounting to lack of jurisdiction.
ASSIGNMENT OF ERRORS

The petitioner assigns as errors the following:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPANY DID NOT VIOLATE
ARTICLE 100 OF THE LABOR CODE, AS AMENDED, WHEN IT UNILATERALLY WITHDREW
THE BENEFITS OF THE MEMBERS OF PETITIONER UNION, TO WIT: 1) 35% PREMIUM PAY; 2)
CHRISTMAS PARTY AND ITS INCIDENTAL BENEFITS; AND 3) SERVICE AWARD, WHICH IN
TRUTH AND IN FACT SAID BENEFITS/ENTITLEMENTS HAVE BEEN GIVEN THEM SINCE
TIME IMMEMORIAL, AS A MATTER OF LONG ESTABLISHED COMPANY PRACTICE, WITH
THE FURTHER FACT THAT THE SAME NOT BEING DEPENDENT ON PROFITS.

II

THE COURT OF APPEALS ERRED WHEN IT JUST ACCEPTED HOOK, LINE AND SINKER, THE
RESPONDENT COMPANY’S SELF SERVING AND UNAUDITED REVENUES AND
PROFITABILITY ANALYSIS FOR THE YEARS 1996-2000 WHICH THEY SUBMITTED TO
FALSELY JUSTIFY THEIR UNLAWFUL ACT OF UNILATERALLY AND SUDDENLY
WITHDRAWING OR DENYING FROM THE PETITIONER THE SUBJECT
BENEFITS/ENTITLEMENTS.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE YEARLY SERVICE AWARD IS
NOT DEPENDENT ON PROFIT BUT ON SERVICE AND THUS, CANNOT BE UNILATERALLY
WITHDRAWN BY RESPONDENT COMPANY.
ISSUE

Synthesized, the solitary issue that must be addressed by this Court is whether or not private respondent is
guilty of violating Article 100 of the Labor Code, as amended, when the benefits/entitlements given to the
members of petitioner union were withdrawn.

THE COURT’S RULING

Before we address the sole issue presented in the instant case, it is best to first discuss a matter which was
raised by the private respondent in its Comment. The private respondent contends that this case should
have been dismissed outright because of petitioner’s error in the mode of appeal. According to it, the
petitioner should have elevated the instant case to this Court through a petition for review
on certiorari under Rule 45, and not through a special civil action for certiorari under Rule 65, of the 1997
Rules on Civil Procedure.[17]
Assuming arguendo that the mode of appeal taken by the petitioner is improper, there is no question that
the Supreme Court has the discretion to dismiss it if it is defective. However, sound policy dictates that it
is far better to dispose the case on the merits, rather than on technicality. [18]

The Supreme Court may brush aside the procedural barrier and take cognizance of the petition as it raises
an issue of paramount importance. The Court shall resolve the solitary issue on the merits for future
guidance of the bench and bar.[19]

With that out of the way, we shall now resolve whether or not the respondent company is guilty of violating
Article 100 of the Labor Code, as amended.

Article 100 of the Labor Code provides:

ART. 100. PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF BENEFITS. –
Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other
employee benefits being enjoyed at the time of promulgation of this Code.
The petitioner submits that the withdrawal of the private respondent of the 35% premium pay for selected
days during the Holy Week and Christmas season, the holding of the Christmas Party and its incidental
benefits, and the giving of service awards violated Article 100 of the Labor Code. The grant of these
benefits was a customary practice that can no longer be unilaterally withdrawn by private respondent
without the tacit consent of the petitioner. The benefits in question were given by the respondent to the
petitioner consistently, deliberately, and unconditionally since time immemorial. The benefits/entitlements
were not given to petitioner due to an error in interpretation, or a construction of a difficult question of law,
but simply, the grant has been a practice over a long period of time. As such, it cannot be withdrawn from
the petitioner at respondent’s whim and caprice, and without the consent of the former. The benefits given
by the respondent cannot be considered as a “bonus” as they are not founded on profit. Even assuming that
it can be treated as a “bonus,” the grant of the same, by reason of its long and regular concession, may be
regarded as part of regular compensation.[20]

With respect to the fifteen (15) employees who are members of petitioner union that were given new job
classifications, it asserts that a promotional increase in their salaries was in order. Salary adjustment is a
must due to their promotion.[21]

On respondent company’s Revenues and Profitability Analysis for the years 1996-2000, the petitioner
insists that since the former was unaudited, it should not have justified the company’s sudden withdrawal of
the benefits/entitlements. The normal and/or legal method for establishing profit and loss of a company is
through a financial statement audited by an independent auditor. [22]

The petitioner cites our ruling in the case of Saballa v. NLRC,[23] where we held that financial statements
audited by independent auditors constitute the normal method of proof of the profit and loss performance
of the company. Our ruling in the case of Bogo-Medellin Sugarcane Planters Association, Inc., et al. v.
NLRC, et al.[24] was likewise invoked. In this case, we held:
… The Court has previously ruled that financial statements audited by independent external auditors
constitute the normal method of proof of the profit and loss performance of a company.
On the matter of the withdrawal of the service award, the petitioner argues that it is the employee’s length
of service which is taken as a factor in the grant of this benefit, and not whether the company acquired
profit or not.[25]

In answer to all these, the respondent corporation avers that the grant of all subject benefits has not ripened
into practice that the employees concerned can claim a demandable right over them. The grant of these
benefits was conditional based upon the financial performance of the company and that
conditions/circumstances that existed before have indeed substantially changed thereby justifying the
discontinuance of said grants. The company’s financial performance was affected by the recent political
turmoil and instability that led the entire nation to a bleeding economy. Hence, it only necessarily follows
that the company’s financial situation at present is already very much different from where it was three or
four years ago.[26]
On the subject of the unaudited financial statement presented by the private respondent, the latter contends
that the cases cited by the petitioner indeed uniformly ruled that financial statements audited by
independent external auditors constitute the normal method of proof of the profit and loss performance of a
company. However, these cases do not require that the only legal method to ascertain profit and loss is
through an audited financial statement. The cases only provide that an audited financial statement is the
normal method.[27]

The respondent company likewise asseverates that the 15 members of petitioner union were not actually
promoted. There was only a realignment of positions.[28]

From the foregoing contentions, it appears that for the Court to resolve the issue presented, it is critical that
a determination must be first made on whether the benefits/entitlements are in the nature of a bonus or not,
and assuming they are so, whether they are demandable and enforceable obligations.

In the case of Producers Bank of the Philippines v. NLRC[29] we have characterized what a bonus is, viz:
A bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the
success of the employer’s business and made possible the realization of profits. It is an act of generosity
granted by an enlightened employer to spur the employee to greater efforts for the success of the business
and realization of bigger profits. The granting of a bonus is a management prerogative, something given in
addition to what is ordinarily received by or strictly due the recipient. Thus, a bonus is not a demandable
and enforceable obligation, except when it is made part of the wage, salary or compensation of the
employee.
Based on the foregoing pronouncement, it is obvious that the benefits/entitlements subjects of the instant
case are all bonuses which were given by the private respondent out of its generosity and munificence. The
additional 35% premium pay for work done during selected days of the Holy Week and Christmas season,
the holding of Christmas parties with raffle, and the cash incentives given together with the service awards
are all in excess of what the law requires each employer to give its employees. Since they are above what
is strictly due to the members of petitioner-union, the granting of the same was a management prerogative,
which, whenever management sees necessary, may be withdrawn, unless they have been made a part of the
wage or salary or compensation of the employees.

The consequential question therefore that needs to be settled is if the subject benefits/entitlements, which
are bonuses, are demandable or not. Stated another way, can these bonuses be considered part of the wage
or salary or compensation making them enforceable obligations?

The Court does not believe so.

For a bonus to be enforceable, it must have been promised by the employer and expressly agreed upon by
the parties,[30] or it must have had a fixed amount[31]and had been a long and regular practice on the part of
the employer.[32]

The benefits/entitlements in question were never subjects of any express agreement between the parties.
They were never incorporated in the Collective Bargaining Agreement (CBA). As observed by the
Voluntary Arbitrator, the records reveal that these benefits/entitlements have not been subjects of any
express agreement between the union and the company, and have not yet been incorporated in the CBA. In
fact, the petitioner has not denied having made proposals with the private respondent for the service award
and the additional 35% premium pay to be made part of the CBA. [33]

The Christmas parties and its incidental benefits, and the giving of cash incentive together with the service
award cannot be said to have fixed amounts. What is clear from the records is that over the years, there had
been a downtrend in the amount given as service award.[34] There was also a downtrend with respect to the
holding of the Christmas parties in the sense that its location changed from paid venues to one which was
free of charge,[35] evidently to cut costs. Also, the grant of these two aforementioned bonuses cannot be
considered to have been the private respondent’s long and regular practice. To be considered a “regular
practice,” the giving of the bonus should have been done over a long period of time, and must be shown to
have been consistent and deliberate.[36] The downtrend in the grant of these two bonuses over the years
demonstrates that there is nothing consistent about it. Further, as held by the Court of Appeals:
Anent the Christmas party and raffle of prizes, We agree with the Voluntary Arbitrator that the same was
merely sponsored by the respondent corporation out of generosity and that the same is dependent on the
financial performance of the company for a particular year…[37]
The additional 35% premium pay for work rendered during selected days of the Holy Week and Christmas
season cannot be held to have ripened into a company practice that the petitioner herein have a right to
demand. Aside from the general averment of the petitioner that this benefit had been granted by the private
respondent since time immemorial, there had been no evidence adduced that it had been a regular
practice. As propitiously observed by the Court of Appeals:
. . . [N]otwithstanding that the subject 35% premium pay was deliberately given and the same was in excess
of that provided by the law, the same however did not ripen into a company practice on account of the fact
that it was only granted for two (2) years and with the express reservation from respondent corporation’s
owner that it cannot continue to rant the same in view of the company’s current financial situation. [38]
To hold that an employer should be forced to distribute bonuses which it granted out of kindness is to
penalize him for his past generosity.[39]

Having thus ruled that the additional 35% premium pay for work rendered during selected days of the Holy
Week and Christmas season, the holding of Christmas parties with its incidental benefits, and the grant of
cash incentive together with the service award are all bonuses which are neither demandable nor
enforceable obligations of the private respondent, it is not necessary anymore to delve into the Revenues
and Profitability Analysis for the years 1996-2000 submitted by the private respondent.

On the alleged promotion of 15 members of the petitioner union that should warrant an increase in their
salaries, the factual finding of the Voluntary Arbitrator is revealing, viz:
… Considering that the Union was unable to adduce proof that a promotion indeed occur[ed] with respect
to the 15 employees, the Daily Rated Union’s claim for promotional increase likewise fall[s] there being no
promotion established under the records at hand.[40]
WHEREFORE, in view of all the foregoing, the assailed Decision and Resolution of the Court of Appeals
dated 06 March 2002 and 12 July 2002, respectively, which affirmed and upheld the decision of the
Voluntary Arbitrator, are hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 112658, March 16, 1995

INTERNATIONAL SCHOOL OF SPEECH AND/OR WILMA CRUZ TAPALLA, PETITIONERS,

VS. NATIONAL LABOR RELATIONS COMMISSION AND MA. CORAZON D. MAMUYAC,
RESPONDENTS.

DECISION

REGALADO, J.:

The instant case was precipitated by a complaint, dated April 18, 1990, filed by private respondent Ma.
Corazon D. Mamuyac against petitioners International School of Speech and/or Wilma Cruz Tapalla,
charging the latter with unfair labor practice; illegal deduction; non-payment of wages, overtime pay, legal
holiday pay, premium pay for holiday and rest day; and violation of Presidential Decrees Nos. 525, 851 and
928. [1]

On June 20, 1990, petitioners filed a counter-complaint charging private respondent with abandonment and
violation of contract, with a prayer for P150,000.00 as actual damages, P50,000.00 as moral damages and
P50,000.00 for exemplary damages. [2]

It appears that sometime in June, 1989, private respondent was hired as an English teacher paid on an
hourly basis, and she served as such up to March 15, 1990. She avers that petitioners committed acts
constitutive of unfair labor practice, that is, by preventing employees of the school from socializing with
each other for fear that a labor organization might be formed, not furnishing her a copy of her contract,
imposing stiff penalties for tardiness, imposing inhuman and unbearable working conditions such as lunch-
break of only 15 minutes, violating labor standard laws, prohibiting stay-in employees from eating in
adjoining restaurants, and hitting a teacher for allegedly refusing to sign a contract. [3]

She likewise cited several unauthorized deductions made from her salary, namely, P1,000.00 for cash bond,
P460.00 for books, and P1,500.00 for alleged tardiness. [4]

On unpaid wages, she claimed that she was not compensated from March 15 up to September 15 (the year
was not specified but, based on the records, it was in 1990) at the agreed sum of P3,000.00 per month, or a
total sum of P21,000.00. She further asseverates that she was constructively dismissed from the service
when she was divested of her assigned load of subjects. Finally, she was allegedly not paid for services she
rendered on weekends and legal holidays. [5]

On their part, petitioners contended that private respondent abandoned her job when she failed to report for
work in the summer of 1990 contrary to their agreement, hence they prayed for an award of damages in
their favor. [6]

After a careful evaluation of the position papers of the contending parties, the labor arbiter found that only
the claims for illegal deduction, 13th month pay, unpaid wages, and legal holiday pay were meritorious.
Accordingly, petitioners were ordered to pay private respondent the aggregate sum of P11,335.96 and
attorney's fees in the amount of P1,133.60, while petitioners' counter-complaint was dismissed. [7]

For the ratio decidendi of said ruling, we reproduce with approval the following discussion in the decision
of the labor arbiter:

"x x x This Branch cannot give due course to the alleged illegal dismissal. In the first place, illegal
dismissal was not among the causes of action cited in the complaint. The complainant is not permitted by
the rules to implead additional causes of action in her position paper without first amending her complaint.
To allow her such stance would unduly prejudice the respondents who are entitled to due process inasmuch
as under the ordinary course of procedure summons must first be issued before additional causes of action
could be cited against the respondents. Besides, how could there be illegal dismissal when it was the
complainant who ceased reporting for work on April 12, 1990? The reason advanced by the complainant in
support of her alleged illegal dismissal is that her subject loads were withdrawn from her. Granting that her
subject loads as an English Teacher were withdrawn, it appears that when that was done, complainant
yielded without any remonstrance as in fact she agreed to work as Course Adviser instead during the
summer time.

“Regarding the claim of unfair labor practice, the acts complained of and being attributed to the
respondents as hereinbefore discussed cannot be categorized as unfair labor practice acts as understood and
contemplated by the Labor Code, as amended, particularly Art. 248, paragraph (a) to (i), inclusive. The
alleged attempts of the respondents not to let (sic) the employees to socialize for fear of the organization of
a labor union is just a mere conclusion of fact not supported by the evidence.

"Anent the alleged violations of PD 525 and PD 928, these charges do not have merit. PD 525 refers to
emergency living allowance already integrated into the basic wage sometime in 1980. PD 928 refers to
wage increase granted sometime in 1982 not applicable to the case of the complainant.
"With respect to the claim for overtime pay, it appears from the evidence (Exh. ‘3-b’ to '3-j') that the
complainant being paid on per hour basis did not render any overtime work or services beyond eight (8)
hours everyday. Most of the time, her teaching loads did not keep her at work to no (sic) more than four (4)
hours everyday.

"On legal holiday pays, it appears from the evidence that complainant reported for work on November 30
and December 30, 1989, at four (4) hours each. Being legal holidays, complainant is entitled to an
additional 100% of her daily rate which was P30.00 per hour. Thus, complainant for the total eight (8)
hours for the two (2) legal holidays, she must be paid P240.00.

"On unpaid wages, it appears that complainant was paid P500.00 only for the period from March 15, 1990
up to April 12, 1990 instead of the P3,500.00 per month as agreed upon between her and the respondents.
Thus, the respondents must pay the balance in the sum of P3,000.00. The complainant's claim for unpaid
salaries from April 15, 1990 up to September 15, 1990 cannot be granted where it appears that she was
already out of work starting April 12, 1990.

"Regarding the complainant's claim for illegal deduction, the alleged deduction of P460.00 for books was
admitted by the respondents. Said deduction without any written authorization from the complainant cannot
be made. Besides, there was no agreement before complainant was hired that she had to buy books from the
respondents. Hence, respondent must reimburse the complainant the said sum of P460.00. This Branch also
awards the claim of P1,000.00 to complainant by way of reimbursement of what was also deducted as cash
bond. As between the affirmative declaration of the complainant and the negative denial of the respondents,
the former deserves more evidentiary weight. Besides, in case of doubt in case of two (2) unsubstantiated
but opposing assertions, such doubt must be resolved in favor of workingmen.

"On the claim for 13th month pay (violation of PD 851), it appears from the evidence submitted by the
respondents that no such payment by way of proportionate 13th month pay for 1990 and 1989 was paid to
the complainant. From July, 1989 up to December 31, 1989, the complainant received a total compensation
amounting to P7,319.00, then, from January 1, 1990 up to April, 1990, she received a total of P10,205.00.
Thus, her proportionate 13th month pay is computed, as follows:

1989
6 mos. x P 7,319.00 = P3,659.50
12

1990
3.5 x P 10,205.00 = P2,976.46
12

TOTAL 13TH MONTH PAY = P6,635.96

"With respect to the counter-complaint that respondents filed against the complainant for damages, for want
of basis the same, is dismissed. The complainant has been forced to be absent on account of the failure of
the respondents to pay her salaries. In fact, for that reason and her other money claims against the
respondents, complainant without further delay instituted her suit against the respondents in less than a
week after she absented herself. The complainant cannot be faulted. Part of the blame is imputable to the
respondents. It has been said that one who comes to court must do so with clean hands. The respondents do
not belong to this category. Apart from their non-observance of certain labor standard laws as hereinabove
discussed, it even appears that they do not keep the required payrolls, daily time records, and pay slips as
required by Book III, Rule X, Section 6, to 12, of the Implementing Rules and Regulations of the Labor
Code, as amended."[8]

Dissatisfied with the aforequoted ruling, both petitioners and private respondent lodged separate appeals
before the National Labor Relations Commission (NLRC). The latter affirmed the appealed decisions [9],
hence the instant petition.

In this action for certiorari, petitioners assail the public respondent's judgment on two points, viz.: (1) in
awarding 13th month pay in the amount of P6,635.96 in favor of private respondent, and (2) in dismissing
its counter-complaint. [10]

The appeal with regard to the first issue is meritorious. The NLRC, as earlier illustrated, adopted the labor
arbiter's computation of private respondent's 13th month pay as follows:

1989
6 mos. x P 7,319.00 = P3,659.50
12

1990
3.5 x P 10,205.00 = P2,976.46
12

TOTAL 13TH MONTH PAY = P6,635.96[11]

According to No. 4(a) of the Revised Guidelines on the implementation of the 13th Month Pay Law
(Presidential Decree No. 851) dated November 16, 1987, the 13th month pay of an individual is (not less
than) one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year. Moreover,
in No. 6 thereof, it is provided that an employee who has resigned or whose services were terminated at any
time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to
the length of time he worked during the year, reckoned from the time he started working during the
calendar year up to the time of his resignation or termination from the service. Thus, if he worked only
from January up to September, his proportionate 13th month pay should be equivalent to 1/12 of the total
basic salary he earned during that period.

Since no evidence was adduced by private respondent that petitioners observe a different formula in the
computation of the 13th month pay for their employees, the aforementioned mode of computation should
be applied.

Thus, considering that in 1989 private respondent rendered service for only 6 months, her 13th month pay
should be one-twelfth (1/12) of the total compensation she received for that year, that is, P7,319.00.
Consequently her 13th month pay for the year 1989 should be P610,00.

Following the same formula, private respondent should receive a 13th month pay of P850.00 for the year
1990 for services rendered for three months wherein she received a total compensation of P10,205.00, that
is, P10,205.00 divided by 12 equals P850.00.

On this particular aspect, therefore, the Court takes exception to the rule that the findings on technical
matters by administrative bodies like respondent NLRC are accorded respect and finality on appeal [12],
since it is clear that a palpable and demonstrable mistake has been committed and should be rectified.
Petitioners should, therefore, pay private respondent the total amount of P1,460.00, instead of P6,635.96, as
her 13th month pay for 1989 and 1990.

With regard to the second issue, on whether or not petitioners are entitled to damages in view of private
respondent's abandonment of her job, the Court upholds and approvingly quotes respondent NLRC's ruling
on this matter which affirmed that of the labor Arbiter, to wit:

"As regards respondents’ counterclaim on the allegation that complainant is guilty of having abandoned her
job, we likewise vote for a dismissal thereof. It is a well-settled rule that to constitute abandonment, there
must be a deliberate unjustified refusal of the employee to resume his employment. This circumstance does
not however exist in complainant's case, the assertions in her testimony given during the hearing standing
unrebutted, and which is hereunder quoted as:

"THE LABOR ARBITER

(to witness)

What did you do as Course Adviser?

THE WITNESS
(answering)

As Course Adviser whenever there are enrollees, we advise them on the course that they have
A
to take.

THE LABOR ARBITER

(to witness)

So, after you agreed with Mrs. Tapalla, did you report for the two month period, April and
Q
May, 1990 as Course Adviser?

THE WITNESS
(answering)

A As Course Adviser, yes, Your Honor.

THE LABOR ARBITER

(to witness)

Q For the two month period April and May?

THE WITNESS
(answering)

Not for the two month period. I was not able to finish since when I waited for the salary, there
A
were two fifteen that were not given.

THE LABOR ARBITER

(to witness)

Q In other words, there were two (2) pay periods that you were not paid?

THE WITNESS
(answering)

A Yes, Your Honor.

THE LABOR ARBITER

(to witness)

Q What in particular were the periods involved?

THE WITNESS
(answering)

A The first month.

THE LABOR ARBITER
(answering)

Q You mean April?

THE WITNESS
(answering)

A Yes, Your Honor, March 15 to April 15.

xxx

THE LABOR ARBITER

(to witness)

In other words, your agreement involving rendition of your services as Course Adviser started
Q
March 15, 1990?

THE WITNESS
(answering)

A Yes, Your Honor.

THE LABOR ARBITER

(to witness)

Q And according to you, you were not paid your salary for March 15 up to March 31?

THE WITNESS
(answering)

A Yes, Your Honor.

THE LABOR ARBITER

(to witness)

Q And also from April 1 to April 15 because according to you two pay periods?

THE WITNESS
(answering)

A Yes, Your Honor.

xxx

THE LABOR ARBITER

(to witness)

Q All right, after that conference with Mrs. Tapalla, did you still report for work as Course
Adviser?
THE WITNESS
(answering)

A I wasn't able to report anymore because I don't have any money. In fact I borrowed money from
people without my husband's knowledge.
THE LABOR ARBITER
(to witness)
Q Did you inform Mrs. Tapalla about the fact that you will no longer report anymore to your
work?

THE WITNESS
(answering)

A I was not able to inform her since they sent me a letter at once. So, they did not give me any
chance to call them up because I received a letter the following day, and I think that is a
Sunday.
xxx

"Had respondents been free from any participation in the adverted cause for complainant's failure to report
for work, this Commission could have taken a different course from that of the Labor Arbiter. It appears,
however, that respondents are not free from any wrong as it is also clear from the records of the case that
they have been remiss in fully observing the letter of the law concerning labor standards provisions. As
such, we concur with the Labor Arbiter in invoking the principle in equity that he who comes to court must
do so with 'clean hands.' Accordingly, respondents do not deserve the remedial relief asked." [13]

WHEREFORE, as MODIFIED by awarding private respondent her 13th month pay for 1989 and 1990 in
the reduced total amount of P1,460.00, the assailed decision of respondent National Labor Relations
Commission is hereby AFFIRMED in all other respects.

SO ORDERED.

G. R. No. 123938, May 21, 1998

LABOR CONGRESS OF THE PHILIPPINES (LCP) FOR AND IN BEHALF OF ITS MEMBERS,
ANA MARIE OCAMPO, MARY INTAL, ANNABEL CARESO, MARLENE MELQIADES, IRENE
JACINTO, NANCY GARCIA, IMELDA SARMIENTO, LENITA VIRAY, GINA JACINTO,
ROSEMARIE DEL ROSARIO, CATHERINE ASPURNA, WINNIE PENA, VIVIAN BAA, EMILY
LAGMAN, LILIAN MARFIL, NANCY DERACO, JANET DERACO, MELODY JACINTO,
CAROLYN DIZON, IMELDA MANALOTO, NORY VIRAY, ELIZA SALAZAR, GIGI
MANALOTO, JOSEFINA BASILIO, MARY ANN MAYATI, ZENAIDA GARCIA, MERLY
CANLAS, ERLINDA MANALANG, ANGELINA QUIAMBAO, LANIE GARCIA, ELVIRA
PIEDRA, LOURDES PANLILIO, LUISA PANLILIO, LERIZA PANLILIO, ALMA CASTRO,
ALDA DAVID, MYRA T. OLALIA, MARIFE PINLAC, NENITA DE GUZMAN, JULIE GACAD,
EVELYN MANALO, NORA PATIO, JANETH CARREON, ROWENA MENDOZA, ROWENA
MANALO, LENY GARCIA, FELISISIMA PATIO, SUSANA SALOMON, JOYDEE
LANSANGAN, REMEDIOS AGUAS, JEANIE LANSANGAN, ELIZABETH MERCADO,
JOSELYN MANALESE, BERNADETH RALAR, LOLITA ESPIRITU, AGNES SALAS,
VIRGINIA MENDIOLA, GLENDA SALITA, JANETH RALAR, ERLINDA BASILIO, CORA
PATIO, ANTONIA CALMA, AGNES CARESO, GEMMA BONUS, MARITESS OCAMPO,
LIBERTY GELISANGA, JANETH MANARANG, AMALIA DELA CRUZ, EVA CUEVAS,
TERESA MANIAGO, ARCELY PEREZ, LOIDA BIE, ROSITA CANLAS, ANALIZA
ESGUERRA, LAILA MANIAGO, JOSIE MANABAT, ROSARIO DIMATULAC, NYMPA
TUAZON, DAIZY TUASON, ERLINDA NAVARRO, EMILY MANARANG, EMELITA
CAYANAN, MERCY CAYANAN, LUZVIMINDA CAYANAN, ANABEL MANALO, SONIA
DIZON, ERNA CANLAS, MARIAN BENEDICTA, DOLORES DOLETIN, JULIE DAVID,
 GRACE VILLANUEVA, VIRGINIA MAGBAG, CORAZON RILLION, PRECY MANALILI,
ELENA RONOZ, IMELDA MENDOZA, EDNA CANLAS AND ANGELA CANLAS,
PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, EMPIRE FOOD
PRODUCTS, ITS PROPRIETOR/PRESIDENT & MANAGER, MR. GONZALO KEHYENG AND
MRS. EVELYN KEHYENG, RESPONDENTS.

DECISION

DAVIDE, JR., J.:

In this special civil action for certiorari under Rule 65, petitioners seek to reverse the 29 March 1995
resolution[1] of the National Labor Relations Commission (NLRC) in NLRC RAB III Case No. 01-1964-91
which affirmed the Decision[2] of Labor Arbiter Ariel C. Santos dismissing their complaint for utter lack of
merit.

The antecedents of this case as summarized by the Office of the Solicitor General in its Manifestation and
Motion in Lieu of Comment,[3] are as follows:

The 99 persons named as petitioners in this proceeding were rank-and-file employees of respondent Empire
Food Products, which hired them on various dates (Paragraph 1, Annex “A” of Petition, Annex “B;” Page
2, Annex “F” of Petition).

Petitioners filed against private respondents a complaint for payment of money claim[s] and for violation of
labor standard[s] laws (NLRC Case No. RAB-111-10-1817-90). They also filed a petition for direct
certification of petitioner Labor Congress of the Philippines as their bargaining representative (Case No.
R0300-9010-RU-005).

On October 23, 1990, petitioners represented by LCP President Benigno B. Navarro, Sr. and private
respondents Gonzalo Kehyeng and Evelyn Kehyeng in behalf of Empire Food Products, Inc. entered into a
Memorandum of Agreement which provided, among others, the following:

1. That in connection with the pending Petition for Direct Certification filed by the Labor Congress
with the DOLE, Management of the Empire Food Products has no objection [to] the direct
certification of the LCP Labor Congress and is now recognizing the Labor Congress of the
Philippines (LCP) and its Local Chapter as the SOLE and EXCLUSIVE Bargaining Agent and
Representative for all rank and file employees of the Empire Food Products regarding ‘WAGES,
HOURS OF WORK, AND OTHER TERMS AND CONDITIONS OF EMPLOYMENT;’

2. That with regards [sic] to NLRC CASE NO. RAB-III-10-1817-90 pending with the NLRC parties
jointly and mutually agreed that the issues thereof, shall be discussed by the parties and resolve[d]
during the negotiation of the Collective Bargaining Agreement;

3. That Management of the Empire Food Products shall make the proper adjustment of the
Employees Wages within fifteen (15) days from the signing of this Agreement and further agreed
 to register all the employees with the SSS;

4. That Employer, Empire Food Products thru its Management agreed to deduct thru payroll
deduction UNION DUES and other Assessment[s] upon submission by the LCP Labor Congress
individual Check-Off Authorization[s] signed by the Union Members indicating the amount to be
deducted and further agreed all deduction[s] made representing Union Dues and Assessment[s]
shall be remitted immediately to the LCP Labor Congress Treasurer or authorized representative
within three (3) or five (5) days upon deductions [sic], Union dues not deducted during the period
due, shall be refunded or reimbursed by the Employer/Management. Employer/Management
further agreed to deduct Union dues from non-union members the same amount deducted from
union members without need of individual Check-Off Authorizations [for] Agency Fee;

5. That in consideration [of] the foregoing covenant, parties jointly and mutually agreed that NLRC
CASE NO. RAB-III-10-1817-90 shall be considered provisionally withdrawn from the Calendar
of the National Labor Relations Commission(NLRC), while the Petition for direct certification of
the LCP Labor Congress parties jointly move for the direct certification of the LCP Labor
Congress;

6. That parties jointly and mutually agreed that upon signing of this Agreement, no Harassments
[sic], Threats, Interferences [sic] of their respective rights under the law, no Vengeance or
Revenge by each partner nor any act of ULP which might disrupt the operations of the business;

7. Parties jointly and mutually agreed that pending negotiations or formalization of the propose[d]
CBA, this Memorandum of Agreement shall govern the parties in the exercise of their respective
rights involving the Management of the business and the terms and condition[s] of employment,
and whatever problems and grievances may arise by and between the parties shall be resolved by
them, thru the most cordial and good harmonious relationship by communicating the other party in
writing indicating said grievances before taking any action to another forum or government
agencies;

8. That parties [to] this Memorandum of Agreement jointly and mutually agreed to respect, abide and
comply with all the terms and conditions hereof. Further agreed that violation by the parties of any
provision herein shall constitute an act of ULP. (Annex “A” of Petition).

In an Order dated October 24, 1990, Mediator Arbiter Antonio Cortez approved the memorandum of
agreement and certified LCP “as the sole and exclusive bargaining agent among the rank-and-file
employees of Empire Food Products for purposes of collective bargaining with respect to wages, hours of
work and other terms and conditions of employment” (Annex “B” of Petition).
On November 9, 1990, petitioners through LCP President Navarro submitted to private respondents a
proposal for collective bargaining (Annex “C” of Petition).

On January 23, 1991, petitioners filed a complaint docketed as NLRC Case No. RAB-III-01-1964-91
against private respondents for:

a. Unfair Labor Practice by way of Illegal Lockout and/or Dismissal;

b. Union busting thru Harassments [sic], threats, and interfering with the rights of employees to self-
organization;

c. Violation of the Memorandum of Agreement dated October 23, 1990;

d. Underpayment of Wages in violation of R.A. No. 6640 and R.A. No. 6727, such as Wages
promulgated by the Regional Wage Board;

e. Actual, Moral and Exemplary Damages.” (Annex “D” of Petition)

After the submission by the parties of their respective position papers and presentation of testimonial
evidence, Labor Arbiter Ariel C. Santos absolved private respondents of the charges of unfair labor
practice, union busting, violation of the memorandum of agreement, underpayment of wages and denied
petitioners’ prayer for actual, moral and exemplary damages. Labor Arbiter Santos, however, directed the
reinstatement of the individual complainants:

The undersigned Labor Arbiter is not oblivious to the fact that respondents have violated a cardinal rule in
every establishment that a payroll and other papers evidencing hours of work, payments, etc. shall always
be maintained and subjected to inspection and visitation by personnel of the Department of Labor and
Employment. As such penalty, respondents should not escape liability for this technicality, hence, it is
proper that all individual complainants except those who resigned and executed quitclaim[s] and releases
prior to the filing of this complaint should be reinstated to their former position[s] with the admonition to
respondents that any harassment, intimidation, coercion or any form of threat as a result of this immediately
executory reinstatement shall be dealt with accordingly.

SO ORDERED. (Annex “G” of Petition)

On appeal, the National Labor Relations Commission vacated the Decision dated April 14, 1972 [sic] and
remanded the case to the Labor Arbiter for further proceedings for the following reasons:

The Labor Arbiter, through his decision, noted that “xxx complainant did not present any single witness
while respondent presented four (4) witnesses in the persons of Gonzalo Kehyeng, Orlando Cairo, Evelyn
Kehyeng and Elvira Bulagan xxx” (p. 183, Records), that “xxx complainant before the National Labor
Relations Commission must prove with definiteness and clarity the offense charged. xxx” (Record, p. 183);
that “xxx complainant failed to specify under what provision of the Labor Code particularly Art. 248 did
respondents violate so as to constitute unfair labor practice xxx” (Record, p. 183); that ‘complainants failed
to present any witness who may describe in what manner respondents have committed unfair labor practice
xxx’ (Record, p. 185); that ‘xxx complainant LCP failed to present anyone of the so-called 99 complainants
in order to testify who committed the threats and intimidation xxx’ (Record, p. 185).

Upon review of the minutes of the proceedings on record, however, it appears that complainant presented
witnesses, namely, BENIGNO NAVARRO, JR. (28 February 1991, RECORD, p. 91; 8 March 1991,
RECORD, p. 92, who adopted its POSITION PAPER AND CONSOLIDATED AFFIDAVIT, as Exhibit
“A” and the annexes thereto as Exhibit “B”, “B-1” to “B-9”, inclusive. Minutes of the proceedings on
record show that complainant further presented other witnesses, namely: ERLINDA BASILIO (13 March
1991, RECORD, p. 93; LOURDES PANTILLO, MARIFE PINLAC, LENIE GARCIA (16 April 1991,
Record, p. 96, see back portion thereof; 2 May 1991, Record, p. 102; 16 May 1991, Record, p. 103; 11 June
1991, Record, p. 105). Formal offer of Documentary and Testimonial Evidence was made by complainant
on June 24, 1991 (Record, p. 106-109)

The Labor Arbiter must have overlooked the testimonies of some of the individual complainants which are
now on record. Other individual complainants should have been summoned with the end in view of
receiving their testimonies. The complainants should be afforded the time and opportunity to fully
substantiate their claims against the respondents. Judgment should be rendered only based on the
conflicting positions of the parties. The Labor Arbiter is called upon to consider and pass upon the issues of
fact and law raised by the parties. Toward this end, therefore, it is Our considered view [that] the case
should be remanded to the Labor Arbiter of origin for further proceedings.(Annex “H” of Petition)

In a Decision dated July 27, 1994, Labor Arbiter Santos made the following determination:

Complainants failed to present with definiteness and clarity the particular act or acts constitutive of unfair
labor practice.

It is to be borne in mind that a declaration of unfair labor practice connotes a finding of prima facie
evidence of probability that a criminal offense may have been committed so as to warrant the filing of a
criminal information before the regular court. Hence, evidence which is more than a scintilla is required in
order to declare respondents/employers guilty of unfair labor practice. Failing in this regard is fatal to the
cause of complainants. Besides, even the charge of illegal lockout has no leg to stand on because of the
testimony of respondents through their guard Orlando Cairo (TSN, July 31, 1991 hearing; p. 5-35) that on
January 21, 1991, complainants refused and failed to report for work, hence guilty of abandoning their post
without permission from respondents. As a result of complainants[’] failure to report for work, the cheese
curls ready for repacking were all spoiled to the prejudice of respondents. Under cross-examination,
complainants failed to rebut the authenticity of respondents’ witness testimony.

As regards the issue of harassments [sic], threats and interference with the rights of employees to self-
organization which is actually an ingredient of unfair labor practice, complainants failed to specify what
type of threats or intimidation was committed and who committed the same. What are the acts or utterances
constitutive of harassments [sic] being complained of? These are the specifics which should have been
proven with definiteness and clarity by complainants who chose to rely heavily on its position paper
through generalizations to prove their case.

Insofar as violation of [the] Memorandum of Agreement dated October 23, 1990 is concerned, both
parties agreed that:

2 - That with regards [sic] to the NLRC Case No. RAB III-10-1817-90 pending with the NLRC, parties
jointly and mutually agreed that the issues thereof shall be discussed by the parties and resolve[d] during
the negotiation of the CBA.

The aforequoted provision does not speak of [an] obligation on the part of respondents but on a resolutory
condition that may occur or may not happen. This cannot be made the basis of an imposition of an
obligation over which the National Labor Relations Commission has exclusive jurisdiction thereof.
Anent the charge that there was underpayment of wages, the evidence points to the contrary. The
enumeration of complainants’ wages in their consolidated Affidavits of merit and position paper which
implies underpayment has no leg to stand on in the light of the fact that complainants’ admission that they
are piece workers or paid on a pakiao [basis] i.e. a certain amount for every thousand pieces of cheese curls
or other products repacked. The only limitation for piece workers or pakiao workers is that they should
receive compensation no less than the minimum wage for an eight (8) hour work [sic]. And compliance
therewith was satisfactorily explained by respondent Gonzalo Kehyeng in his testimony (TSN, p. 12-30)
during the July 31, 1991 hearing. On cross-examination, complainants failed to rebut or deny Gonzalo
Kehyeng’s testimony that complainants have been even receiving more than the minimum wage for an
average workers [sic]. Certainly, a lazy worker earns less than the minimum wage but the same cannot be
attributable to respondents but to the lazy workers.

Finally, the claim for moral and exemplary damages has no leg to stand on when no malice, bad faith or
fraud was ever proven to have been perpetuated by respondents.

WHEREFORE, premises considered, the complaint is hereby DISMISSED for utter lack of merit. (Annex
“I” of Petition).[4]

On appeal, the NLRC, in its Resolution dated 29 March 1995,[5] affirmed in toto the decision of Labor
Arbiter Santos. In so doing, the NLRC sustained the Labor Arbiter’s findings that: (a) there was a dearth of
evidence to prove the existence of unfair labor practice and union busting on the part of private
respondents; (b) the agreement of 23 October 1990 could not be made the basis of an obligation within the
ambit of the NLRC’s jurisdiction, as the provisions thereof, particularly Section 2, spoke of a resolutory
condition which could or could not happen; (c) the claims for underpayment of wages were without basis as
complainants were admittedly “pakiao” workers and paid on the basis of their output subject to the lone
limitation that the payment conformed to the minimum wage rate for an eight-hour workday; and (d)
petitioners were not underpaid.

Their motion for reconsideration having been denied by the NLRC in its Resolution of 31 October
1995,[6] petitioners filed the instant special civil action for certiorari raising the following issues:

WHETHER OR NOT THE PUBLIC RESPONDENT NATIONAL LABOR RELATIONS COMMISSION

GRAVELY ABUSED ITS DISCRETION WHEN IT DISREGARDED OR IGNORED NOT ONLY THE
EVIDENCE FAVORABLE TO HEREIN PETITIONERS, APPLICABLE JURISPRUDENCE BUT ALSO
ITS OWN DECISIONS AND THAT OF THIS HONORABLE HIGHEST TRIBUNAL WHICH [WAS]
TANTAMOUNT NOT ONLY TO THE DEPRIVATION OF PETITIONERS’ RIGHT TO DUE
PROCESS BUT WOULD RESULT [IN] MANIFEST INJUSTICE.

II

WHETHER OR NOT THE PUBLIC RESPONDENT GRAVELY ABUSED ITS DISCRETION WHEN
IT DEPRIVED THE PETITIONERS OF THEIR CONSTITUTIONAL RIGHT TO SELF-
ORGANIZATION, SECURITY OF TENURE, PROTECTION TO LABOR, JUST AND HUMANE
CONDITIONS OF WORK AND DUE PROCESS.

III

WHETHER OR NOT THE PETITIONERS WERE ILLEGALLY EASED OUT [OF] OR

CONSTRUCTIVELY DISMISSED FROM THEIR ONLY MEANS OF LIVELIHOOD.

IV
 WHETHER OR NOT PETITIONERS SHOULD BE REINSTATED FROM THE DATE OF THEIR
DISMISSAL UP TO THE TIME OF THEIR REINSTATEMENT, WITH BACKWAGES, STATUTORY
BENEFITS, DAMAGES AND ATTORNEY’S FEES.[7]

We required respondents to file their respective Comments.

In their Manifestation and Comment, private respondents asserted that the petition was filed out of time. As
petitioners admitted in their Notice to File petition for Review on Certiorari that they received a copy of
the resolution (denying their motion for reconsideration) on 13 December 1995, they had only until 29
December 1995 to file the petition. Having failed to do so, the NLRC thus already entered judgment in
private respondents’ favor.

In their Reply, petitioners averred that Mr. Navarro, a non-lawyer who filed the notice to file a petition for
review on their behalf, mistook which reglementary period to apply. Instead of using the “reasonable time”
criterion for certiorari under Rule 65, he used the 15-day period for petitions for review on certiorari under
Rule 45. They hastened to add that such was a mere technicality which should not bar their petition from
being decided on the merits in furtherance of substantial justice, especially considering that respondents
neither denied nor contradicted the facts and issues raised in the
petition. In its Manifestation and Motion in Lieu of Comment, the
Office of the Solicitor General (OSG) sided with petitioners. It pointed out that the Labor Arbiter, in
finding that petitioners abandoned their jobs, relied solely on the testimony of Security Guard Rolando
Cairo that petitioners refused to work on 21 January 1991, resulting in the spoilage of cheese curls ready
for repacking. However, the OSG argued, this refusal to report for work for a single day did not constitute
abandonment, which pertains to a clear, deliberate and unjustified refusal to resume employment, and not
mere absence. In fact, the OSG stressed, two days after allegedly abandoning their work, petitioners filed a
complaint for, inter alia, illegal lockout or illegal dismissal. Finally, the OSG questioned the lack of
explanation on the part of Labor Arbiter Santos as to why he abandoned his original decision to reinstate
petitioners.

In view of the stand of the OSG, we resolved to require the NLRC to file its own Comment.

In its Comment, the NLRC invokes the general rule that factual findings of an administrative agency bind a
reviewing court and asserts that this case does not fall under the exceptions. The NLRC further argues that
grave abuse of discretion may not be imputed to it, as it affirmed the factual findings and legal conclusions
of the Labor Arbiter only after carefully reviewing, weighing and evaluating the evidence in support
thereof, as well as the pertinent provisions of law and jurisprudence.

In their Reply, petitioners claim that the decisions of the NLRC and the Labor Arbiter were not supported
by substantial evidence; that abandonment was not proved; and that much credit was given to self-serving
statements of Gonzalo Kehyeng, owner of Empire Foods, as to payment of just wages.

On 7 July 1997, we gave due course to the petition and required the parties to file their respective
memoranda. However, only petitioners and private respondents filed their memoranda, with the NLRC
merely adopting its Comment as its Memorandum.

We find for petitioners.

Invocation of the general rule that factual findings of the NLRC bind this Court is unavailing under the
circumstances. Initially, we are unable to discern any compelling reason justifying the Labor Arbiter’s volte
face from his 14 April 1992 decision reinstating petitioners to his diametrically opposed 27 July 1994
decision, when in both instances, he had before him substantially the same evidence. Neither do we find the
29 March 1995 NLRC resolution to have sufficiently discussed the facts so as to comply with the standard
of substantial evidence. For one thing, the NLRC confessed its reluctance to inquire into the veracity of the
Labor Arbiter’s factual findings, staunchly declaring that it was “not about to substitute [its] judgment on
matters that are within the province of the trier of facts.” Yet, in the 21 July 1992 NLRC resolution, [8] it
chastised the Labor Arbiter for his errors both in judgment and procedure, for which reason it remanded the
records of the case to the Labor Arbiter for compliance with the pronouncements therein.

What cannot escape from our attention is that the Labor Arbiter did not heed the observations and
pronouncements of the NLRC in its resolution of 21 July 1992, neither did he understand the purpose of the
remand of the records to him. In said resolution, the NLRC summarized the grounds for the appeal to be:

1. that there is a prima facie evidence of abuse of discretion and acts of gross incompetence
committed by the Labor Arbiter in rendering the decision.

2. that the Labor Arbiter in rendering the decision committed serious errors in the findings of facts.

After which, the NLRC observed and found:

Complainant alleged that the Labor Arbiter disregarded the testimonies of the 99 complainants who
submitted their Consolidated Affidavit of Merit and Position Paper which was adopted as direct testimonies
during the hearing and cross-examined by respondents’ counsel.

The Labor Arbiter, through his decision, noted that “x x x complainant did not present any single witness
while respondent presented four (4) witnesses in the persons of Gonzalo Kehyeng, Orlando Cairo, Evelyn
Kehyeng and Elvira Bulagan x x x” (Records, p. 183), that “x x x complainant before the National Labor
Relations Commission must prove with definiteness and clarity the offense charged. x x x” (Record, p. 183;
that “x x x complainant failed to specify under what provision of the Labor Code particularly Art. 248 did
respondents violate so as to constitute unfair labor practice x x x” (Record, p. 183); that “complainants
failed to present any witness who may describe in what manner respondents have committed unfair labor
practice x x x” (Record, p. 185); that “x x x complainant a [sic] LCP failed to present anyone of the so
called 99 complainants in order to testify who committed the threats and intimidation x x x” (Record, p.
185).

Upon review of the minutes of the proceedings on record, however, it appears that complainant presented
witnesses, namely BENIGNO NAVARRO, JR. (28 February 1991, RECORD, p. 91; 8 March 1991,
RECORD, p. 92), who adopted its POSITION PAPER AND CONSOLIDATED AFFIDAVIT, as Exhibit
A and the annexes thereto as Exhibit B, B-1 to B-9, inclusive. Minutes of the proceedings on record show
that complainant further presented other witnesses, namely: ERLINDA BASILIO (13 March 1991,
RECORD, p. 93; LOURDES PANTILLO, MARIFE PINLAC, LENI GARCIA (16 April 1991, Record, p.
96, see back portion thereof; 2 May 1991, Record, p. 102; 16 May 1991, Record, p. 103; 11 June 1991,
Record, p. 105). Formal offer of Documentary and Testimonial Evidence was made by the complainant on
June 24, 1991 (Record, p. 106-109).

The Labor Arbiter must have overlooked the testimonies of some of the individual complainants which are
now on record. Other individual complainants should have been summoned with the end in view of
receiving their testimonies. The complainants should [have been] afforded the time and opportunity to fully
substantiate their claims against the respondents. Judgment should [have been] rendered only based on the
conflicting positions of the parties. The Labor Arbiter is called upon to consider and pass upon the issues of
fact and law raised by the parties.

Toward this end, therefore, it is Our considered view the case should be remanded to the Labor Arbiter of
origin for further proceedings.
 Further, We take note that the decision does not contain a dispositive portion or fallo. Such being the case,
it may be well said that the decision does not resolve the issues at hand. On another plane, there is no
portion of the decision which could be carried out by way of execution.

It may be argued that the last paragraph of the decision may be categorized as the dispositive portion
thereof:

“x x x x x

The undersigned Labor Arbiter is not oblivious [to] the fact that respondents have violated a cardinal rule
in every establishment that a payroll and other papers evidencing hour[s] of work, payment, etc. shall
always be maintained and subjected to inspection and visitation by personnel of the Department of Labor
and Employment. As such penalty, respondents should not escape liability for this technicality, hence, it is
proper that all the individual complainants except those who resigned and executed quitclaim[s] and
release[s] prior to the filing of this complaint should be reinstated to their former position with the
admonition to respondents that any harassment, intimidation, coercion or any form of threat as a result of
this immediately executory reinstatement shall be dealt with accordingly.

SO ORDERED.”

It is Our considered view that even assuming arguendo that the respondents failed to maintain their payroll
and other papers evidencing hours of work, payment etc., such circumstance, standing alone, does not
warrant the directive to reinstate complainants to their former positions. It is [a] well settled rule that there
must be a finding of illegal dismissal before reinstatement be mandated.

In this regard, the LABOR ARBITER is hereby directed to include in his clarificatory decision, after
receiving evidence, considering and resolving the same, the requisite dispositive portion. [9]

Apparently, the Labor Arbiter perceived that if not for petitioners, he would not have fallen victim to this
stinging rebuke at the hands of the NLRC. Thus does it appear to us that the Labor Arbiter, in concluding in
his 27 July 1994 Decision that petitioners abandoned their work, was moved by, at worst, spite, or at best,
lackadaisically glossed over petitioner’s evidence. On this score, we find the following observations of the
OSG most persuasive:

In finding that petitioner employees abandoned their work, the Labor Arbiter and the NLRC relied on the
testimony of Security Guard Rolando Cairo that on January 21, 1991, petitioners refused to work. As a
result of their failure to work, the cheese curls ready for repacking on said date were spoiled.

The failure to work for one day, which resulted in the spoilage of cheese curls does not amount to
abandonment of work. In fact two (2) days after the reported abandonment of work or on January 23, 1991,
petitioners filed a complaint for, among others, unfair labor practice, illegal lockout and/or illegal
dismissal. In several cases, this Honorable Court held that “one could not possibly abandon his work and
shortly thereafter vigorously pursue his complaint for illegal dismissal (De Ysasi III v. NLRC, 231 SCRA
173; Ranara v. NLRC, 212 SCRA 631; Dagupan Bus Co. v. NLRC, 191 SCRA 328; Atlas Consolidated
Mining and Development Corp. v. NLRC, 190 SCRA 505; Hua Bee Shirt Factory v. NLRC, 186 SCRA
586; Mabaylan v. NLRC, 203 SCRA 570 and Flexo Manufacturing v. NLRC, 135 SCRA 145). In Atlas
Consolidated, supra, this Honorable Court explicitly stated:

“It would be illogical for Caballo, to abandon his work and then immediately file an action seeking for his
reinstatement. We can not believe that Caballo, who had worked for Atlas for two years and ten months,
would simply walk away from his job unmindful of the consequence of his act, i.e. the forfeiture of his
accrued employment benefits. In opting to finally to [sic] contest the legality of his dismissal instead of just
claiming his separation pay and other benefits, which he actually did but which proved to be futile after all,
ably supports his sincere intention to return to work, thus negating Atlas’ stand that he had abandoned his
job.

In De Ysasi III v. NLRC (supra), this Honorable Court stressed that it is the clear, deliberate and unjustified
refusal to resume employment and not mere absence that constitutes abandonment. The absence of
petitioner employees for one day on January 21, 1991 as testified [to] by Security Guard Orlando Cairo did
not constitute abandonment.

In his first decision, Labor Arbiter Santos expressly directed the reinstatement of the petitioner employees
and admonished the private respondents that “any harassment, intimidation, coercion or any form of threat
as a result of this immediately executory reinstatement shall be dealt with accordingly.”

In his second decision, Labor Arbiter Santos did not state why he was abandoning his previous decision
directing the reinstatement of petitioner employees.

By directing in his first decision the reinstatement of petitioner employees, the Labor Arbiter impliedly
held that they did not abandon their work but were not allowed to work without just cause.

That petitioner employees are “pakyao” or piece workers does not imply that they are not regular
employees entitled to reinstatement. Private respondent Empire Food Products, Inc. is a food and fruit
processing company. In Tabas v. California Manufacturing Co., Inc. (169 SCRA 497), this Honorable
Court held that the work of merchandisers of processed food, who coordinate with grocery stores and other
outlets for the sale of the processed food is necessary in the day-to-day operation[s] of the company. With
more reason, the work of processed food repackers is necessary in the day-to-day operation[s] of
respondent Empire Food Products.[10]

It may likewise be stressed that the burden of proving the existence of just cause for dismissing an
employee, such as abandonment, rests on the employer, [11] a burden private respondents failed to
discharge.

Private respondents, moreover, in considering petitioners’ employment to have been terminated by

abandonment, violated their rights to security of tenure and constitutional right to due process in not even
serving them with a written notice of such termination.[12] Section 2, Rule XIV, Book V of the Omnibus
Rules Implementing the Labor Code provides:

SEC. 2. Notice of Dismissal. - Any employer who seeks to dismiss a worker shall furnish him a written
notice stating the particular acts or omission constituting the grounds for his dismissal. In cases of
abandonment of work, the notice shall be served at the worker’s last known address.

Petitioners are therefore entitled to reinstatement with full back wages pursuant to Article 279 of the Labor
Code, as amended by R.A. No. 6715. Nevertheless, the records disclose that taking into account the number
of employees involved, the length of time that has lapsed since their dismissal, and the perceptible
resentment and enmity between petitioners and private respondents which necessarily strained their
relationship, reinstatement would be impractical and hardly promotive of the best interests of the parties. In
lieu of reinstatement then, separation pay at the rate of one month for every year of service, with a fraction
of at least six (6) months of service considered as one (1) year, is in order. [13]

That being said, the amount of back wages to which each petitioner is entitled, however, cannot be fully
settled at this time. Petitioners, as piece-rate workers having been paid by the piece,[14] there is need to
determine the varying degrees of production and days worked by each worker. Clearly, this issue is best left
to the National Labor Relations Commission.
As to the other benefits, namely, holiday pay, premium pay, 13th month pay and service incentive leave
which the labor arbiter failed to rule on but which petitioners prayed for in their complaint, [15] we hold that
petitioners are so entitled to these benefits. Three (3) factors lead us to conclude that petitioners, although
piece-rate workers, were regular employees of private respondents. First, as to the nature of petitioners’
tasks, their job of repacking snack food was necessary or desirable in the usual business of private
respondents, who were engaged in the manufacture and selling of such food products; second, petitioners
worked for private respondents throughout the year, their employment not having been dependent on a
specific project or season; and third, the length of time [16] that petitioners worked for private respondents.
Thus, while petitioners’ mode of compensation was on a “ per piece basis,” the status and nature of their
employment was that of regular employees.

The Rules Implementing the Labor Code exclude certain employees from receiving benefits such as
nighttime pay, holiday pay, service incentive leave [17] and 13th month pay,[18] inter alia, “field personnel
and other employees whose time and performance is unsupervised by the employer, including those who
are engaged on task or contract basis, purely commission basis, or those who are paid a fixed amount for
performing work irrespective of the time consumed in the performance thereof.” Plainly, petitioners as
piece-rate workers do not fall within this group. As mentioned earlier, not only did petitioners labor under
the control of private respondents as their employer, likewise did petitioners toil throughout the year with
the fulfillment of their quota as supposed basis for compensation. Further, in Section 8 (b), Rule IV, Book
III which we quote hereunder, piece workers are specifically mentioned as being entitled to holiday pay.

SEC. 8. Holiday pay of certain employees.-

(b) Where a covered employee is paid by results or output, such as payment on piece work, his holiday pay
shall not be less than his average daily earnings for the last seven (7) actual working days preceding the
regular holiday: Provided, however, that in no case shall the holiday pay be less than the applicable
statutory minimum wage rate.

In addition, the Revised Guidelines on the Implementation of the 13th Month Pay Law, in view of the
modifications to P.D. No. 851[19] by Memorandum Order No. 28, clearly exclude the employer of piece rate
workers from those exempted from paying 13 th month pay, to wit:

2. EXEMPTED EMPLOYERS

The following employers are still not covered by P.D. No. 851:

d. Employers of those who are paid on purely commission, boundary or task basis, and those who are
paid a fixed amount for performing specific work, irrespective of the time consumed in the performance
thereof, except where the workers are paid on piece-rate basis in which case the employer shall grant the
required 13th month pay to such workers. (italics supplied)

The Revised Guidelines as well as the Rules and Regulations identify those workers who fall under the
piece-rate category as those who are paid a standard amount for every piece or unit of work produced that
is more or less regularly replicated, without regard to the time spent in producing the same. [20]

As to overtime pay, the rules, however, are different. According to Sec. 2(e), Rule I, Book III of the
Implementing Rules, workers who are paid by results including those who are paid on piece-
work, takay, pakiao, or task basis, if their output rates are in accordance with the standards prescribed
under Sec. 8, Rule VII, Book III, of these regulations, or where such rates have been fixed by the Secretary
of Labor in accordance with the aforesaid section, are not entitled to receive overtime pay. Here, private
respondents did not allege adherence to the standards set forth in Sec. 8 nor with the rates prescribed by the
Secretary of Labor. As such, petitioners are beyond the ambit of exempted persons and are therefore
entitled to overtime pay. Once more, the National Labor Relations Commission would be in a better
position to determine the exact amounts owed petitioners, if any.
As to the claim that private respondents violated petitioners’ right to self-organization, the evidence on
record does not support this claim. Petitioners relied almost entirely on documentary evidence which, per
se, did not prove any wrongdoing on private respondents’ part. For example, petitioners presented their
complaint[21]to prove the violation of labor laws committed by private respondents. The complaint,
however, is merely “the pleading alleging the plaintiff’s cause or causes of action.” [22] Its contents are
merely allegations, the verity of which shall have to be proved during the trial. They likewise offered their
Consolidated Affidavit of Merit and Position Paper[23] which, like the offer of their Complaint, was a
tautological exercise, and did not help nor prove their cause. In like manner, the petition for certification
election[24] and the subsequent order of certification[25] merely proved that petitioners sought and acquired
the status of bargaining agent for all rank-and-file employees. Finally, the existence of the memorandum of
agreement[26] offered to substantiate private respondents’ non-compliance therewith, did not prove either
compliance or non-compliance, absent evidence of concrete, overt acts in contravention of the provisions of
the memorandum.

IN VIEW WHEREOF, the instant petition is hereby GRANTED. The Resolution of the National Labor
Relations Commission of 29 March 1995 and the Decision of the Labor Arbiter of 27 July 1994 in NLRC
Case No. RAB-III-01-1964-91 are hereby SET ASIDE, and another is hereby rendered:

1. DECLARING petitioners to have been illegally dismissed by private respondents, thus entitled to
full back wages and other privileges, and separation pay in lieu of reinstatement at the rate of one
month’s salary for every year of service with a fraction of six months of service considered as one
year;

2. REMANDING the records of this case to the National Labor Relations Commission for its
determination of the back wages and other benefits and separation pay, taking into account the
foregoing observations; and

3. DIRECTING the National Labor Relations Commission to resolve the referred issues within sixty
(60) days from its receipt of a copy of this decision and of the records of the case and to submit to
this Court a report of its compliance hereof within ten (10) days from the rendition of its
resolution. Costs against
private respondents.

SO ORDERED.
 CHAPTER III
G.R. No. 116960, April 02, 1996

BERNARDO JIMENEZ AND JOSE JIMENEZ, AS OPERATORS OF JJ’S TRUCKING,

PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, PEDRO JUANATAS
AND FREDELITO JUANATAS, RESPONDENTS.

DECISION

REGALADO, J.:

This petition for certiorari seeks the annulment of the decision of respondent National Labor Relations
Commission (NLRC), dated May 27, 1994, as well as its resolution, dated August 8, 1994, denying
petitioner’s motion for reconsideration,[1] which assailed decision affirmed with modifications the adverse
decision of the labor arbiter against herein petitioners.

On June 29, 1990, herein private respondents Pedro and Fredelito Juanatas, father and son, filed a claim for
unpaid wages/commissions, separation pay and damages against JJ’ s Trucking and/or Dr. Bernardo
Jimenez. Said respondents, as complainants therein, alleged that in December, 1987, they were hired by
herein petitioner Bernardo Jimenez as driver! mechanic and helper, respectively, in his trucking firm, JJ
Trucking. They were assigned to a ten-wheeler truck to haul soft drinks of Coca-Cola Bottling Company
and paid on commission basis, initially fixed at 17% but later increased to 20% in 1988.

Private respondents further alleged that for the years 1988 and 1989 they received only a partial
commission of P84,000.00 from petitioners’ total gross income of almost P1,000,000.00 for the said two
years. Consequently, with their commission for that period being computed at 20% of said income, there
was an unpaid balance to them of P106,211.86; that until March, 1990 when their services were illegally
terminated, they were further entitled to P15,050.309 which, excluding the partial payment of P7,000.00,
added up to a grand total of P114,261.86 due and payable to them; and that petitioners refusal to pay their
aforestated commission was a ploy to unjustly terminate them.

Disputing the complaint, petitioners contend that respondent Fredelito Juanatas was not an employee of the
firm but was merely a helper of his father Pedro; that all commissions for 1988 and 1989, as well as those
up to March, 1990, were duly paid; and that the truck driven by respondent Pedro Juanatas was sold to one
Winston Flores in 1991 and, therefore, private respondents were not illegally dismissed. [2]

After hearings duly conducted, and with the submission of the parties’ position/supporting papers, Labor
Arbiter Roque B. de Guzman rendered a decision dated March 9, 1993, with this decretal portion:

"WHEREFORE, decision is hereby issued ordering respondents JJ’s Trucking and/or Dr. Bernardo Jimenez
to pay jointly and severally complainant Pedro Juanatas a separation pay of FIFTEEN THOUSAND FIFTY
(P15,050.00) PESOS, plus attorney’s fee equivalent to ten percent (10%) of the award.
The complaint of Fredelito Juanatas is hereby dismissed for lack of merit." [3]

On appeal filed by private respondents, the NLRC modified the decision of the labor arbiter and disposed
as follows:

"PREMISES CONSIDERED, the Decision of March 9, 1993 is hereby MODIFIED, to wit:

1. Complainant Fredelito Juanatas is hereby declared respondents’ employee and shares in (the)
commission and separation pay awarded to complainant Pedro Juanatas, his father.
2. Respondent JJ’s Trucking and Dr. Bernardo Jimenez are jointly and severally liable to pay complainants
their unpaid commissions in the total amount of Eighty Four Thousand Three Hundred Eighty Seven Pesos
and 05/100 (P84,387.05).

3. The award of attorney’s fees is reduced accordingly to eight thousand four hundred thirty eight pesos
and 70/100 (P8,438.70).

4. The other findings stand affirmed." [4]

Petitioners’ motion for reconsideration having been denied thereafter in public respondent’s resolution
dated August 8, 1994,[5] petitioners have come to us in this recourse, raising for resolution the issues as to
whether or not respondent NLRC committed grave abuse of discretion in ruling (a) that private respondents
were not paid their commissions in full, and (b) that respondent Fredelito Juanatas was an employee of JJ’s
Trucking.

The review of labor cases elevated to us on certiorari is confined to questions ofjurisdiction or grave abuse
of discretion.[6] As a rule, this Court does not review supposed errors in the decision of the NLRC which
raise factual issues, because factual findings of agencies exercising quasi-judicial functions are accorded
not only respect but even finality,[7] aside from the consideration that the Court is essentially not a trier of
facts. However, in the case at bar, a review of the records thereof with an assessment of the facts is
necessary since the factual findings of the NLRC and the labor arbiter are at odds with each other.[8]

On the first issue, we find no reason to disturb the findings of respondent NLRC that the entire amount of
commissions was not paid, this by reason of the evident failure of herein petitioners to present evidence
that full payment thereof has been made. It is a basic rule in evidence that each party must prove his
affirmative allegations. Since the burden of evidence lies with the party who asserts an affirmative
allegation, the plaintiff or complainant has to prove his affirmative allegation, in the complaint and the
defendant or respondent has to prove the affirmative allegations in his affirmative defenses and
counterclaim. Considering that petitioners herein assert that the disputed commissions have been paid, they
have the bounden duty to prove that fact.

As a general rule, one who pleads payment has the burden of proving it. [9] Even where the plaintiff must
allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than
on the plaintiff to prove non-payment.[10] The debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment.[11]

When the existence of a debt is fully established by the evidence contained in the record, the burden of
proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the
claim of the creditor.[12] Where the debtor introduces some evidence of payment, the burden of going
forward with the evidence - as distinct from the general burden of proof - shifts to the creditor, who is then
under a duty of producing some evidence to show non-payment.[13]

In the instant case, the right of respondent Pedro Juanatas to be paid a commission equivalent to 17%, later
increased to 20%, of the gross income is not disputed by petitioners. Although private respondents admit
receipt of partial payment, petitioners still have to present proof of full payment. Where the defendant sued
for a debt admits that the debt was originally owed, and pleads payment in whole or in part, it is incumbent
upon him to prove such payment. That a plaintiff admits that some payments have been made does not
change the burden of proof. The defendant still has the burden of establishing payments beyond those
admitted by plaintiff.[14]

The testimony of petitioners which merely denied the claim of private respondents, unsupported by
documentary evidence, is not sufficient to establish payment. Although petitioners submitted a notebook
showing the alleged vales of private respondents for the year 1990,[15] the same is inadmissible and cannot
be given probative value considering that it is not properly accomplished, is undated and unsigned, and is
thus uncertain as to its origin and authenticity.[16]
The positive testimony of a creditor may be sufficient of itself to show non-payment, even when met by
indefinite testimony of the debtor. Similarly, the testimony of the debtor may also be sufficient to show
payment, but, where his testimony is contradicted by the other party or by a disinterested witness, the issue
may be determined against the debtor since he has the burden of proof. The testimony of the debtor creating
merely an inference of payment will not be regarded as conclusive on that issue. [17]

Hence, for failure to present evidence to prove payment, petitioners defaulted in their defense and in effect
admitted the allegations of private respondents.

With respect to the second issue, however, we agree with petitioners that the NLRC erred in holding that
the son, Fredelito, was an employee of petitioners.

We have consistently ruled that in determining the existence of an employer-employee relationship, the
elements that are generally considered are the following: (1) the selection and engagement of the employee;
(2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s
conduct,[18] with the control test assuming primacy in the overall consideration.

In the case at bar, the aforementioned elements are not present. The agreement was between petitioner JJ’s
Trucking and respondent Pedro Juanatas. The hiring of a helper was discretionary on the part of Pedro.
Under their contract, should he employ a helper, he would be responsible for the latter’s compensation.
With or without a helper, respondent Pedro Juanatas was entitled to the same percentage of commission.
Respondent Fredelito Juanatas was hired by his father, Pedro, and the compensation he received was paid
by his father out of the latter’s commission. Further, Fredelito was not subject to the control and
supervision of and dismissal by petitioners but of and by his father.

Even the Solicitor General, in his comment, agreed with the finding of the labor arbiter that Fredelito was
not an employee of petitioners, to wit:

"Public respondent committed grave abuse of discretion in holding that said private respondent is an
employee of JJ’s Trucking on the ground that, citing Article 281 of the Labor Code, ‘Fredelito’s functions
as helper was (sic) necessary and desirable to respondent’s trucking business.’

"In the first place, Article 281 of the Labor Code does not refer to the basic factors that must underlie every
existing employer-employee relationship, the absence of any of which will negate such existence. It refers
instead to the qualifications of ‘(A)n employee who is allowed to work after a probationary period’ and
who, as a consequence, ‘shall be considered a regular employee.’ Secondly, the test in determining the
existence of an employee-employer relationship is not the necessity and/or desirability of one’s functions in
relation to an employer’s business, but ‘(1) the selection and engagement of the employee; (2) the payment
of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct. The latter is the
most important element’ (Singer Sewing Machine Company vs. Drilon, 193 SCRA 270, 275; Deferia vs.
NLRC, 194 SCRA 531, 525; Ecal vs. NLRC, 224, 228; Hijos De F. Escano, Inc. vs. NLRC, 224 SCRA
781, 785). The aforequoted pertinent findings of the Labor Arbiter indicate (that) the foregoing
requirements do not exist between petitioner and private respondent Fredelito Juanatas. Thus, the labor
arbiter stated that respondent Fredelito Juanatas was never hired by petitioners. Instead the former’s
services were availed of by respondent Pedro Juanatas his father, who, at the same time, supervised and
controlled his work and paid his commissions. Respondent NLRC’s ruling did not traverse these findings
of the labor arbiter."[19]

WHEREFORE, the judgment of respondent National Labor Relations Commission is

hereby AFFIRMED, with the MODIFICATION that paragraph 1 thereof, declaring Fredelito Juanatas an
employee of petitioners and entitled to share in the award for commission and separation pay, is
hereby DELETED.

SO ORDERED.
 G.R. No. 129584, December 03, 1998

TRIPLE EIGHT INTEGRATED SERVICES, INC., PETITIONER, VS. NATIONAL LABOR

RELATIONS COMMISSION, HON. LABOR ARBITER POTENCIANO S. CANIZARES, JR.
AND ERLINDA R. OSDANA, RESPONDENTS.

DECISION

ROMERO, J.:

In this petition for certiorari now before us, petitioner Triple Eight Integrated Services Inc. seeks to annul
the decision[1] of public respondent National Labor Relations Commission (First Division, Quezon City)
dated March 11, 1997 affirming the August 20, 1996 decision[2] of Labor Arbiter Potenciano Canizares.
Petitioner was ordered to pay private respondent Erlinda Osdana her salaries for the unexpired portion of
her employment contract, unpaid salaries, salary differential, moral and exemplary damages, as well as
attorney’s fees. On April 28, 1997, the NLRC denied petitioner’s motion for reconsideration. [3]

The antecedent facts follow.

Sometime in August 1992, private respondent Osdana was recruited by petitioner for employment with the
latter’s principal, Gulf Catering Company (GCC), a firm based in the Kingdom of Saudi Arabia. Under the
original employment contract, Osdana was engaged to work as "Food Server" for a period of thirty-six (36)
months with a salary of five hundred fifty Saudi rials (SR550).

Osdana claims she was required by petitioner to pay a total of eleven thousand nine hundred fifty pesos
(P11,950.00) in placement fees and other charges, for which no receipt was issued. She was likewise asked
to undergo a medical examination conducted by the Philippine Medical Tests System, a duly accredited
clinic for overseas workers, which found her to be "Fit of Employment."

Subsequently, petitioner asked Osdana to sign another "Contractor-Employee Agreement"[4] which

provided that she would be employed as a waitress for twelve (12) months with a salary of two hundred
eighty US dollars ($280). It was this employment agreement which was approved by the Philippine
Overseas Employment Administration (POEA).

On September 16, 1992, Osdana left for Riyadh, Saudi Arabia, and commenced working for GCC. She was
assigned to the College of Public Administration of the Oleysha University and, contrary to the terms and
conditions of the employment contract, was made to wash dishes, cooking pots, and utensils, perform
janitorial work and other tasks which were unrelated to her job designation as waitress. Making matters
worse was the fact that she was made to work a gruelling twelve-hour shift, from six o’clock in the
morning to six o’clock in the evening, without overtime pay.

Because of the long hours and the strenuous nature of her work, Osdana suffered from numbness and pain
in her arms. The pain was such that she had to be confined at the Ladies Villa, a housing facility of GCC,
from June 18 to August 22, 1993, during which period, she was not paid her salaries.

After said confinement, Osdana was allowed to resume work, this time as Food Server and Cook at the
Hota Bani Tameem Hospital, where she worked seven days a week from August 22 to October 5, 1993.
Again, she was not compensated.
Then, from October 6 to October 23, 1993, Osdana was again confined at the Ladies Villa for no apparent
reason. During this period, she was still not paid her salary.

On October 24, 1993, she was re-assigned to the Oleysha University to wash dishes and do other menial
tasks. As with her previous assignment at the said University, Osdana worked long hours and under harsh
conditions. Because of this, she was diagnosed as having Bilateral Carpal Tunnel Syndrome, a condition
precipitated by activities requiring "repeated flexion, pronation, and supination of the wrist and
characterized by excruciating pain and numbness in the arms." [5]

As the pain became unbearable, Osdana had to be hospitalized. She underwent two surgical operations, one
in January 1994, another on April 23, 1994. Between these operations, she was not given any work
assignments even if she was willing and able to do light work in accordance with her doctor’s advice.
Again, Osdana was not paid any compensation for the period between February to April 22, 1994.

After her second operation, Osdana was discharged from the hospital on April 25, 1994. The medical report
stated that "she had very good improvement of the symptoms and she was discharged on the second day of
the operation."[6]

Four days later, however, she was dismissed from work, allegedly on the ground of illness. She was not
given any separation pay nor was she paid her salaries for the periods when she was not allowed to work.

Upon her return to the Philippines, Osdana sought the help of petitioner, but to no avail. She was thus
constrained to file a complaint before the POEA against petitioner, praying for unpaid and underpaid
salaries, salaries for the unexpired portion of the employment contract, moral and exemplary damages and
attorney’s fees, as well as the revocation, cancellation, suspension and/or imposition of administrative
sanctions against petitioner.

Pursuant to Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act
of 1995, the case was transferred to the arbitration branch of the NLRC and assigned to Labor Arbiter
Canizares.

In a decision dated August 20, 1996, the labor arbiter ruled in favor of Osdana. The dispositive portion of
the decision follows:
"Wherefore, the respondent is hereby ordered to pay the complainant US$2,499.00 as salaries for the
unexpired portion of the contract, and US$1,076.00 as unpaid salary and salary differential, or its
equivalent in Philippine Peso.

The respondent is likewise ordered to pay the complainant P50,000 moral damages, and P20,000
exemplary damages.

The respondent is further ordered to pay the complainant 10% of the monetary award as attorney’s fee.

Other claims are hereby dismissed for lack of sufficient evidence.

SO ORDERED."
Aggrieved by the labor arbiter’s decision, petitioner appealed to the NLRC, which affirmed the decision in
question on March 11, 1997. Petitioner’s motion for reconsideration was likewise denied by the NLRC in
its order dated April 28, 1997.

Hence, this petition for certiorari.

Petitioner alleges grave abuse of discretion on the part of the public respondents for the following reasons:
(a) ruling in favor of Osdana even if there was no factual or legal basis for the award and, (b) holding
petitioner solely liable for her claims despite the fact that its liability is joint and several with its principal,
GCC.
At the outset, petitioner argues that "public respondent Labor Arbiter gravely abused his discretion when he
rendered the questioned decision dated August 20, 1996 without stating the facts and the law where he
derived his conclusions."[7] In support of this argument, petitioner cites the first paragraph of Article VIII,
Section 14 of the Constitution: "No decision shall be rendered by any court without expressing therein
clearly and distinctly the facts and the law on which it is based."

On this point, it is enough to note that the decisions of both the labor arbiter and the NLRC were based
mainly on the facts and allegations in Osdana’s position paper and supporting documents. We find these
sufficient to constitute substantial evidence to support the questioned decisions. Generally, findings of facts
of quasi-judicial agencies like the NLRC are accorded great respect and, at times, even finality if supported
by substantial evidence. "Substantial evidence" is such amount of relevant evidence which a reasonable
mind might accept as adequate to justify a conclusion.[8]

Moreover, well-settled is the rule that if doubts exist between the evidence presented by the employer and
the employee, the scales of justice must be tilted in favor of the latter. Thus, in controversies between a
worker and her employer, doubts reasonably arising from the evidence or in the interpretation of
agreements should be resolved in favor of the former.

Petitioner, for its part, was given the same opportunity to file its own position paper but instead, it opted to
file a two-page Answer With Special And Affirmative Defenses, denying generally the allegations of the
complaint.[9]

As observed by the labor arbiter, "The record shows the complainant filed complaint (sic), position paper,
and supporting documents, and prosecuted her case diligently; while the respondent merely tried to settle
the case amicably, failing even to file its position paper."[10] The present case being one for illegal
dismissal, it was incumbent upon petitioner employer to show by substantial evidence that the termination
was validly made. In termination cases, the burden of proof rests on the employer to show that the
dismissal is for a just cause.[11] Having failed to file its position paper and to support its denials and
affirmative defenses in its answer, petitioner cannot now fault the labor arbiter and the NLRC for relying
on the facts as laid down by Osdana in her position paper and supported by other documents. The essence
of due process is that a party be afforded reasonable opportunity to be heard and to submit any evidence he
may have in support of his defense,[12] and this is exactly what petitioner was accorded, although it chose
not to fully avail thereof.

This Court, therefore, upholds the finding of herein public respondents that the facts and the evidence on
record adduced by Osdana and taken in relation to the answer of petitioner show that indeed there was
breach of the employment contract and illegal dismissal committed by petitioner’s principal.

Petitioner claims that public respondents committed grave abuse of discretion when they ruled that Osdana
had been illegally dismissed by GCC. It maintains that the award for salaries for the unexpired portion of
the contract was improper because Osdana was validly dismissed on the ground of illness.

The argument must fail.

In its Answer, Memorandum of Appeal,[13] Petition for Certiorari,[14] and Consolidated Reply,[15] petitioner
consistently asserted that Osdana was validly repatriated for medical reasons, but it failed to substantiate its
claim that such repatriation was justified and done in accordance with law.

Article 284 of the Labor Code is clear on the matter of termination by reason of disease or illness, viz:
"Art. 284. Disease as a ground for termination - An employer may terminate the services of an employee
who has been found to be suffering from any disease and whose continued employment is prohibited by
law or prejudicial to his health as well as the health of his co-employees: x x x."
Specifically, Section 8, Rule 1, Book VI of the Omnibus Rules Implementing the Labor Code provides:
"Sec. 8. Disease as a ground for dismissal - Where the employee suffers from a disease and his continued
employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the
employer shall not terminate his employment unless there is a certification by competent public authority
that the disease is of such nature or at such a stage that it cannot be cured within a period of six (6) months
with proper medical treatment. If the disease or ailment can be cured within the period, the employer shall
not terminate the employee but shall ask the employee to take a leave. The employer shall reinstate such
employee to his former position immediately upon the restoration of his normal health." (Underscoring
supplied)
Viewed in the light of the foregoing provisions, the manner by which Osdana was terminated was clearly in
violation of the Labor Code and its implementing rules and regulations.

In the first place, Osdana’s continued employment despite her illness was not prohibited by law nor was it
prejudicial to her health, as well as that of her co-employees. In fact, the medical report issued after her
second operation stated that "she had very good improvement of the symptoms." Besides, "Carpal Tunnel
Syndrome" is not a contagious disease.

Petitioner attributes good faith on the part of its principal, claiming that "It was the concern for the welfare
and physical well being (sic) of private respondent that drove her employer to take the painful decision of
terminating her from the service and having her repatriated to the Philippines at its expense. The employer
did not want to risk the aggravation of the illness of private respondent which could have been the logical
consequence were private respondent allowed to continue with her job." [16]

The Court notes, however, that aside from these bare allegations, petitioner has not presented any medical
certificate or similar document from a competent public health authority in support of its claims.

On the medical certificate requirement, petitioner erroneously argues that "private respondent was
employed in Saudi Arabia and not here in the Philippines. Hence, there was a physical impossibility to
secure from a Philippine public health authority the alluded medical certificate that public respondent’s
illness will not be cured within a period of six months." [17]

Petitioner entirely misses the point, as counsel for private respondent states in the Comment. [18] The rule
simply prescribes a "certification by a competent public health authority" and not a "Philippine public
health authority."

If, indeed, Osdana was physically unfit to continue her employment, her employer could have easily
obtained a certification to that effect from a competent public health authority in Saudi Arabia, thereby
heading off any complaint for illegal dismissal.

The requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with;
otherwise, it would sanction the unilateral and arbitrary determination by the employer of the gravity or
extent of the employee’s illness and thus defeat the public policy on the protection of labor. As the Court
observed in Prieto v. NLRC,[19]"The Court is not unaware of the many abuses suffered by our overseas
workers in the foreign land where they have ventured, usually with heavy hearts, in pursuit of a more
fulfilling future. Breach of contract, maltreatment, rape, insufficient nourishment, sub-human lodgings,
insults and other forms of debasement, are only a few of the inhumane acts to which they are subjected by
their foreign employers, who probably feel they can do as they please in their country. While these workers
may indeed have relatively little defense against exploitation while they are abroad, that disadvantage must
not continue to burden them when they return to their own territory to voice their muted complaint. There is
no reason why, in their own land, the protection of our own laws cannot be extended to them in full
measure for the redress of their grievances."

Petitioner likewise attempts to sidestep the medical certificate requirement by contending that since Osdana
was working in Saudi Arabia, her employment was subject to the laws of the host country. Apparently,
petitioner hopes to make it appear that the labor laws of Saudi Arabia do not require any certification by a
competent public health authority in the dismissal of employees due to illness.

Again, petitioner’s argument is without merit.

First, established is the rule that lex loci contractus (the law of the place where the contract is made)
governs in this jurisdiction. There is no question that the contract of employment in this case was perfected
here in the Philippines. Therefore, the Labor Code, its implementing rules and regulations, and other laws
affecting labor apply in this case. Furthermore, settled is the rule that the courts of the forum will not
enforce any foreign claim obnoxious to the forum’s public policy. [20] Here in the Philippines, employment
agreements are more than contractual in nature. The Constitution itself, in Article XIII Section 3,
guarantees the special protection of workers, to wit:
"The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote
full employment and equality of employment opportunities for all.

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

xxx xxx x x x."

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

As regards the monetary award of salaries for the unexpired portion of the employment contract, unpaid
salaries and salary differential granted by public respondents to Osdana, petitioner assails the same for
being contrary to law, evidence and existing jurisprudence, all of which therefore constitutes grave abuse of
discretion.

Although this contention is without merit, the award for salaries for the unexpired portion of the contract
must, however, be reduced. Paragraph 5, Section 10 of R.A. No. 8042, applies in this case, thus:
"In case of termination of overseas employment without just, valid or authorized cause as defined by law or
contract, the worker shall be entitled to the full reimbursement of his placement fee with interest at twelve
percent (12%) per annum, plus his salaries for the unexpired portion of his employment contract or for
three (3) months for every year of the unexpired term, whichever is less."
In the case at bar, while it would appear that the employment contract approved by the POEA was only for
a period of twelve months, Osdana’s actual stint with the foreign principal lasted for one year and seven-
and-a-half months. It may be inferred, therefore, that the employer renewed her employment contract for
another year. Thus, the award for the unexpired portion of the contract should have been US$1,260
(US$280 x 4 ½ months) or its equivalent in Philippine pesos, not US$2,499 as adjudged by the labor arbiter
and affirmed by the NLRC.

As for the award for unpaid salaries and differential amounting to US$1,076 representing seven months’
unpaid salaries and one month underpaid salary, the same is proper because, as correctly pointed out by
Osdana, the "no work, no pay" rule relied upon by petitioner does not apply in this case. In the first place,
the fact that she had not worked from June 18 to August 22, 1993 and then from January 24 to April 29,
1994, was due to her illness which was clearly work-related. Second, from August 23 to October 5, 1993,
Osdana actually worked as food server and cook for seven days a week at the Hota Bani Tameem Hospital,
but was not paid any salary for the said period. Finally, from October 6 to October 23, 1993, she was
confined to quarters and was not given any work for no reason at all.

Now, with respect to the award of moral and exemplary damages, the same is likewise proper but should be
reduced. Worth reiterating is the rule that moral damages are recoverable where the dismissal of the
employee was attended by bad faith or fraud or constituted an act oppressive to labor, or was done in a
manner contrary to morals, good customs, or public policy. [21] Likewise, exemplary damages may be
awarded if the dismissal was effected in a wanton, oppressive or malevolent manner. [22]

According to the facts of the case as stated by public respondent, Osdana was made to perform such menial
chores, as dishwashing and janitorial work, among others, contrary to her job designation as waitress. She
was also made to work long hours without overtime pay. Because of such arduous working conditions, she
developed Carpal Tunnel Syndrome. Her illness was such that she had to undergo surgery twice. Since her
employer determined for itself that she was no longer fit to continue working, they sent her home posthaste
without as much as separation pay or compensation for the months when she was unable to work because
of her illness. Since the employer is deemed to have acted in bad faith, the award for attorney’s fees is
likewise upheld.

Finally, petitioner alleges grave abuse of discretion on the part of public respondents for holding it solely
liable for the claims of Osdana despite the fact that its liability with the principal is joint and several.

Petitioner misunderstands the decision in question. It should be noted that contrary to petitioner’s
interpretation, the decision of the labor arbiter which was affirmed by the NLRC did not really absolve the
foreign principal.

Petitioner was the only one held liable for Osdana’s monetary claims because it was the only respondent
named in the complaint and it does not appear that petitioner took steps to have its principal included as co-
respondent. Thus, the POEA, and later the labor arbiter, did not acquire jurisdiction over the foreign
principal.

This is not to say, however, that GCC may not be held liable at all. Petitioner can still claim reimbursement
or contribution from it for the amounts awarded to the illegally-dismissed employee.

WHEREFORE, in view of the foregoing, the instant petition is DISMISSED. Accordingly, the decisions
of the labor arbiter dated August 20, 1996, and of the NLRC dated March 11, 1997, are AFFIRMED with
the MODIFICATION that the award to private respondent Osdana should be one thousand two hundred
sixty US dollars (US$1,260), or its equivalent in Philippine pesos, as salaries for the unexpired portion of
the employment contract, and one thousand seventy six US dollars (US$1,076), or its equivalent in
Philippine pesos, representing unpaid salaries for seven (7) months and underpaid salary for one (1) month,
plus interest.

Petitioner is likewise ordered to pay private respondent P30,000.00 in moral damages, P10,000.00 in
exemplary damages and 10% attorney’s fees.

This decision is without prejudice to any remedy or claim for reimbursement or contribution petitioner may
institute against its foreign principal, Gulf Catering Company. No pronouncement as to costs.

SO ORDERED.

G.R. No. 87700, June 13, 1990

SAN MIGUEL CORPORATION EMPLOYEES UNION-PTGWO, DANIEL S.L. BORBON II,

HERMINIA REYES, MARCELA PURIFICACION, ET AL., PETITIONERS, VS. HON. JESUS G.
BERSAMIRA, IN HIS CAPACITY AS PRESIDING JUDGE OF BRANCH 166, RTC, PASIG, AND
SAN MIGUEL CORPORATION, RESPONDENTS.

DECISION

MELENCIO-HERRERA, J.:
Respondent Judge of the Regional Trial Court of Pasig, Branch 166, is taken to task by petitioners in this
special civil action for Certiorari and Prohibition for having issued the challenged Writ of Preliminary
Injunction on 29 March 1989 in Civil Case No. 57055 of his Court entitled “San Miguel Corporation vs.
SMCEU-PTGWO, et als.”

Petitioners’ plea is that said Writ was issued without or in excess of jurisdiction and with grave abuse of
discretion, a labor dispute being involved. Private respondent San Miguel Corporation (SanMig, for short),
for its part, defends the Writ on the ground of absence of any employer-employee relationship between it
and the contractual workers employed by the companies Lipercon Services, Inc. (Lipercon)
and D’Rite Service Enterprises (D’Rite), besides the fact that the Union is bereft of personality to represent
said workers for purposes of collective bargaining. The Solicitor General agrees with the position
of SanMig.

The antecedents of the controversy reveal that:

Sometime in 1983 and 1984, SanMig entered into contracts for merchandising services
with Lipercon and D’Rite (Annexes K and I, SanMig’s Comment, respectively). These companies are
independent contractors duly licensed by the Department of Labor and Employment
(DOLE). SanMig entered into those contracts to maintain its competitive position and in keeping with the
imperatives of efficiency, business expansion and the diversity of its operation. In said contracts, it was
expressly understood and agreed that the workers employed by the contractors were to be paid by the latter
and that none of them were to be deemed employees or agents of SanMig. There was to be no employer-
employee relation between the contractors and/or its workers, on the one hand, and SanMig on the other.

Petitioner San Miguel Corporation Employees Union-PTWGO (the Union, for brevity) is the duly
authorized representative of the monthly paid rank-and-file employees of SanMig with whom the latter
executed a Collective Bargaining Agreement (CBA) effective 1 July 1986 to 30 June 1989 (Annex
A, SanMig’s Comment). Section 1 of their CBA specifically provides that “temporary, probationary, or
contract employees and workers are excluded from the bargaining unit and, therefore, outside the scope of
this Agreement.”

In a letter, dated 20 November 1988 (Annex C, Petition), the Union advised SanMig that
some Lipercon and D’Rite workers had signed up for union membership and sought the regularization of
their employment with SMC. The Union alleged that this group of employees, while appearing to be
contractual workers of supposedly independent contractors, have been continuously working
for SanMig for a period ranging from six (6) months to fifteen (15) years and that their work is neither
casual nor seasonal as they are performing work or activities necessary or desirable in the usual business or
trade of SanMig. Thus, it was contended that there exists a “labor-only” contracting situation. It was then
demanded that the employment status of these workers be regularized.

On 12 January 1989, on the ground that it had failed to receive any favorable response from SanMig,
the Union filed a notice of strike for unfair labor practice, CBA violations, and union busting (Annex D,
Petition).

On 30 January 1989, the Union again filed a second notice of strike for unfair labor practice (Annex F,
Petition).

As in the first notice of strike, conciliatory meetings were held on the second notice. Subsequently, the two
(2) notices of strike were consolidated and several conciliation conferences were held to settle the dispute
before the National Conciliation and Mediation Board (NCMB) of DOLE (Annex G, Petition).

Beginning 14 February 1989 until 2 March 1989, series of pickets were staged
by Lipercon and D’Rite workers in various SMC plants and offices.
On 6 March 1989, SMC filed a verified Complaint for Injunction and Damages before respondent Court to
enjoin the Union from:

a. representing and/or acting for and in behalf of the employees of LIPERCON and/or D’RITE for the
purposes of collective bargaining;
b. calling for and holding a strike vote to compel plaintiff to hire the employees or workers of LIPERCON
and D’RITE;
c. inciting, instigating and/or inducing the employees or workers of LIPERCON and D’RITE to
demonstrate and/or picket at the plants and offices of plaintiff within the bargaining unit referred to in the
CBA, x x x;
d. staging a strike to compel plaintiff to hire the employees or workers of LIPERCON and D’RITE;
e. using the employees or workers of LIPERCON AND D’RITE to man the strike area and/or picket lines
and/or barricades which the defendants may set up at the plants and offices of plaintiff within the
bargaining unit referred to in the CBA x x x ;
f. intimidating, threatening with bodily harm and/or molesting the other employees and/or contract workers
of plaintiff, as well as those persons lawfully transacting business with plaintiff at the work places within
the bargaining unit referred to in the CBA, x x x , to compel plaintiff to hire the employees or workers of
LIPERCON and D’RITE;
g. blocking, preventing, prohibiting, obstructing and/or impeding the free ingress to, and egress from, the
work places within the bargaining unit referred to in the CBA x x , to compel plaintiff to hire the employees
or workers of LIPERCON and D’RITE.
h. preventing and/or disrupting the peaceful and normal operation of plaintiff at the work places within the
bargaining unit referred to in the CBA. Annex “C” hereof, to compel plaintiff to hire the employees or
workers of LIPERCON and D’RITE. (Annex H, Petition)

Respondent Court found the Complaint sufficient in form and substance and issued a Temporary
Restraining Order for the purpose of maintaining the status quo,and set the application for Injunction for
hearing.

In the meantime, on 13 March 1989, the Union filed a Motion to Dismiss SanMig’s Complaint on the
ground of lack of jurisdiction over the case/nature of the action, which motion was opposed
by SanMig. That Motion was denied by respondent Judge in an Order dated 11 April 1989.

After several hearings on SanMig’s application for injunctive relief, where the parties presented both
testimonial and documentary evidence, on 25 March 1989, respondent Court issued the questioned Order
(Annex A, Petition) granting the application and enjoining the Union from committing the acts complained
of, supra. Accordingly, on 29 March 1989, respondent Court issued the corresponding Writ of Preliminary
Injunction after SanMig had posted the required bond of P100,000.00 to answer for whatever damages
petitioners may sustain by reason thereof.

In issuing the Injunction, respondent Court rationalized:

The absence of employer-employee relationship negates the existence of labor dispute. Verily, this court
has jurisdiction to take cognizance of plaintiff’s grievance.
The evidence so far presented indicates that plaintiff has contracts for services
with Lipercon and D’Rite. The application and contract for employment of the defendants’ witnesses are
either with Lipercon or D’Rite. What could be discerned is that there is no employer-employee relationship
between plaintiff and the contractual workers employed by Lipercon and D’Rite. This, however, does not
mean that a final determination regarding the question of the existence of employer-employee relationship
has already been made. To finally resolve this dispute, the court must extensively consider and delve into
the manner of selection and engagement of the putative employee; the mode of payment of wages; the
presence or absence of a power of dismissal; and the presence or absence of a power to control the putative
employee’s conduct. This necessitates a full-blown trial. If the acts complained of are not restrained,
plaintiff would, undoubtedly, suffer irreparable damages. Upon the other hand, a writ of injunction does
not necessarily expose defendants to irreparable damages.
Evidently, plaintiff has established its right to the relief demanded. (p. 21, Rollo)

Anchored on grave abuse of discretion, petitioners are now before us seeking nullification of the challenged
Writ. On 24 April 1989, we issued a Temporary Restraining Order enjoining the implementation of the
Injunction issued by respondent Court. The Union construed this to mean that “we can now strike,” which
it superimposed on the Order and widely circulated to entice the Union membership to go on strike. Upon
being apprised thereof, in a Resolution of 24 May 1989, we required the parties to “RESTORE
the status quo ante declaration of strike” (p. 262 Rollo).

In the meantime, however, or on 2 May 1989, the Union went on strike. Apparently, some of the
contractual workers of Lipercon and D’Rite had been laid off. The strike adversely affected thirteen (13) of
the latter’s plants and offices.

On 3 May 1989, the National Conciliation and Mediation Board (NCMB) called the parties to
conciliation. The Union stated that it would lift the strike if the thirty (30) Lipercon and D’Rite employees
were recalled, and discussion on their other demands, such as wage distortion and appointment of
coordinators, were made. Effected eventually was a Memorandum of Agreement between SanMig and the
Union that “without prejudice to the outcome of G.R. No. 87700 (this case) and Civil Case No. 57055 (the
case below), the laid-off individuals x x x shall be recalled effective 8 May 1989 to their former jobs or
equivalent positions under the same terms and conditions prior to lay-off” (Annex
15, SanMig Comment). In turn, the Union would immediately lift the pickets and return to work.

After an exchange of pleadings, this Court, on 12 October 1989, gave due course to the Petition and
required the parties to submit their memoranda simultaneously, the last of which was filed on 9 January
1990.

The focal issue for determination is whether or not respondent Court correctly assumed jurisdiction over
the present controversy and properly issued the Writ of Preliminary Injunction. Crucial to the resolution of
that question, is the matter of whether or not the case at bar involves, or is in connection with, or relates to a
labor dispute. An affirmative answer would bring the case within the original and exclusive jurisdiction of
labor tribunals to the exclusion of the regular Courts.

Petitioners take the position that “it is beyond dispute that the controversy in the court a quo involves or
arose out of a labor dispute and is directly connected or interwoven with the cases pending with the
NCMB-DOLE, and is thus beyond the ambit of the public respondent’s jurisdiction. That the acts
complained of (i.e., the mass concerted action of picketing and the reliefs prayed for by the private
respondent) are within the competence of labor tribunals, is beyond question” (pp. 6-7, Petitioners’ Memo).

On the other hand, SanMig denies the existence of any employer-employee relationship and consequently
of any labor dispute between itself and the Union. SanMig submits, in particular, that “respondent Court is
vested with jurisdiction and judicial competence to enjoin the specific type of strike staged by petitioner
union and its officers herein complained of,” for the reasons that:

A. The exclusive bargaining representative of an employer unit cannot strike to compel the employer to
hire and thereby create an employment relationship with contractual workers, especially where the
contractual workers were recognized by the union, under the governing collective bargaining agreement, as
excluded from, and therefore strangers to, the bargaining unit.
B. A strike is a coercive economic weapon granted the bargaining representative only in the event of a
deadlock in a labor dispute over ‘wages, hours of work and all other terms and conditions of the
employment’ of the employees in the unit. The union leaders cannot instigate a strike to compel the
employer, especially on the eve of certification elections, to hire strangers or workers outside the unit, in
the hope the latter will help re-elect them.
C. Civil courts have the jurisdiction to enjoin the above strike because this specie of strike does not arise
out of a labor dispute, is an abuse of right, and violates the employer’s constitutional liberty to hire or not to
hire. (SanMig’s Memorandum, pp. 475-476, Rollo).

We find the Petition of a meritorious character.

A “labor dispute” as defined in Article 212 (1) of the Labor Code includes “any controversy or matter
concerning terms and conditions of employment or the association or representation of persons in
negotiating, fixing, maintaining, changing, or arranging the terms and conditions of employment, regardless
of whether the disputants stand in the proximate relation of employer and employee.”

While it is SanMig’s submission that no employer-employee relationship exists between itself, on the one
hand, and the contractual workers of Lipercon and D’Riteon the other, a labor dispute can nevertheless
exist “regardless of whether the disputants stand in the proximate relationship of employer and employee”
(Article 212 [1], Labor Code, supra) provided the controversy concerns, among others, the terms and
conditions of employment or a “change” or “arrangement” thereof (ibid.). Put differently, and as defined
by law, the existence of a labor dispute is not negatived by the fact that the plaintiffs and defendants do not
stand in the proximate relation of employer and employee.

That a labor dispute, as defined by law, does exist herein is evident. At bottom, what the Union seeks is to
regularize the status of the employees contracted by Lipercon and D’Rite and, in effect, that they be
absorbed into the working unit of SanMig. This matter definitely dwells on the working relationship
between said employees vis-a-vis SanMig. Terms, tenure and conditions of their employment and the
arrangement of those terms are thus involved bringing the matter within the purview of a labor
dispute. Further, the Union also seeks to represent those workers, who have signed up for Union
membership, for the purpose of collective bargaining. SanMig, for its part, resists that Union demand on
the ground that there is no employer-employee relationship between it and those workers and because the
demand violates the terms of their CBA. Obvious then is that representation and association, for the
purpose of negotiating the conditions of employment are also involved. In fact, the injunction sought
by SanMig was precisely also to prevent such representation. Again, the matter of representation falls
within the scope of a labor dispute. Neither can it be denied that the controversy below is directly
connected with the labor dispute already taken cognizance of by the NCMB-DOLE (NCMB-NCR-NS-01-
021-89; NCMB NCR-NS-01-093-83).

Whether or not the Union demands are valid; whether or not SanMig’s contracts
with Lipercon and D’Rite constitute “labor-only” contracting and, therefore, a regular employer-employee
relationship may, in fact, be said to exist; whether or not the Union can lawfully represent the workers
of Lipercon and D’Rite in their demands against SanMig in the light of the existing CBA; whether or not
the notice of strike was valid and the strike itself legal when it was allegedly instigated to compel the
employer to hire strangers outside the working unit; - those are issues the resolution of which call for the
application of labor laws. And SanMig’s cause/s of action in the Court below are inextricably linked with
those issues.

The precedent in Layno vs. de la Cruz (G.R. No. L-29636, 30 April 1965, 13 SCRA 738) relied upon
by SanMig is not controlling as in that case there was no controversy over terms, tenure or conditions of
employment or the representation of employees that called for the application of labor laws. In that case,
what the petitioning union demanded was not a change in working terms and conditions, or the
representation of the employees, but that its members be hired as stevedores in the place of the members of
a rival union, which petitioners wanted discharged notwithstanding the existing contract of
the arrastre company with the latter union. Hence, the ruling therein, on the basis of those facts unique to
that case, that such a demand could hardly be considered a labor dispute.

As the case is indisputably linked with a labor dispute, jurisdiction belongs to the labor tribunals. As
explicitly provided for in Article 217 of the Labor Code, prior to its amendment by R.A. No. 6715 on 21
March 1989, since the suit below was instituted on 6 March 1989, Labor Arbiters have original and
exclusive jurisdiction to hear and decide the following cases involving all workers including
“1. unfair labor practice cases; 2. those that workers may file involving wages, hours of work and other
terms and conditions of employment; x x x and 5. cases arising from any violation of Article 265 of this
Code, including questions involving the legality of strikes and lockouts. x x x.” Article 217 lays down the
plain command of the law.

The claim of SanMig that the action below is for damages under Articles 19, 20 and 21 of the Civil Code
would not suffice to keep the case within the jurisdictional boundaries of regular Courts. That claim for
damages is interwoven with a labor dispute existing between the parties and would have to be ventilated
before the administrative machinery established for the expeditious settlement of those disputes. To allow
the action filed below to prosper would bring about “split jurisdiction” which is obnoxious to the orderly
administration of justice (Philippine Communications, Electronics and Electricity Workers Federation vs.
Hon. Nolasco, L-24984, 29 July 1968, 24 SCRA 321).

We recognize the proprietary right of SanMig to exercise an inherent management prerogative and its best
business judgment to determine whether it should contract out the performance of some of its work to
independent contractors. However, the rights of all workers to self-organization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in accordance with law (Section
3, Article XIII, 1987 Constitution) equally call for recognition and protection. Those contending interests
must be placed in proper perspective and equilibrium.

WHEREFORE, the Writ of Certiorari is GRANTED and the Orders of respondent Judge of 25 March
1989 and 29 March 1989 are SET ASIDE. The Writ of Prohibition is GRANTED and respondent Judge is
enjoined from taking any further action in Civil Case No. 57055 except for the purpose of dismissing
it. The status quo ante declaration of strike ordered by the Court on 24 May 1989 shall be observed
pending the proceedings in the National Conciliation Mediation Board - Department of Labor and
Employment, docketed as NCMB-NCR-NS-01-021-89 and NCMB-NCR-NS-01-093-83. No costs.

SO ORDERED.

G.R. No. 127598, January 27, 1999

MANILA ELECTRIC COMPANY, PETITIONER, VS. THE HONORABLE SECRETARY OF

LABOR LEONARDO QUISUMBING AND MERALCO EMPLOYEES AND WORKERS
ASSOCIATION (MEWA), RESPONDENTS

DECISION

AUSTRIA-MARTINEZ, J.:

In this petition for certiorari, the Manila Electric Company (MERALCO) seeks to annul the orders of the
Secretary of labor dated August 19, 1996 and December 28, 1996, wherein the Secretary required
MERALCO and its rank and file union- the Meralco Workers Association (MEWA) – to execute a
collective bargaining agreement (CBA) for the remainder of the parties’ 1992-1997 CBA cycle, and to
incorporate in this new CBA the Secretary’s dispositions on the disputed economic and non-economic
issues.
MEWA is the duly recognized labor organization of the rank-and-file employees of MERALCO.

On September 7, 1995, MEWA informed MERALCO of its intention to re-negotiate the terms and
conditions of their existing 1992-1997 Collective Bargaining Agreement (CBA) covering the remaining
period of two years starting from December 1, 1995 to November 30, 1997. [1] MERALCO signified its
willingness to re-negotiate through its letter dated October 17, 1995 [2] and formed a CBA negotiating panel
for the purpose. On November 10, 1995, MEWA submitted its proposal[3] to MERALCO, which, in turn,
presented a counter-proposal. Thereafter, collective bargaining negotiations proceeded. However, despite
the series of meetings between the negotiating panels of MERALCO and MEWA, the parties failed to
arrive at “terms and conditions acceptable to both of them.”

On April 23, 1996, MEWA filed a Notice of Strike with the National Capital Region Branch of the
National Conciliation and Mediation Board (NCMB) of the Department of Labor and Employment (DOLE)
which was docketed as NCMB-NCR-NS-04-152-96, on the grounds of bargaining deadlock and unfair
labor practices. The NCMB then conducted a series of conciliation meetings but the parties failed to reach
an amicable settlement. Faced with the imminence of a strike, MERALCO on May 2, 1996, filed an
Urgent Petition[4] with the Department of Labor and Employment which was docketed as OS-AJ No.
0503[1]96 praying that the Secretary assume jurisdiction over the labor dispute and to enjoin the striking
employees to go back to work.

The Labor Secretary granted the petition through its Order [5] of May 8, 1996, the dispositive portion of
which reads:

“WHEREFORE, premises considered, this Office now assumes jurisdiction over the labor dispute
obtaining between the parties pursuant to Article 263 (g) of the Labor Code. Accordingly, the parties are
here enjoined from committing any act that may exacerbate the situation. To speed up the resolution of the
dispute, the parties are also directed to submit their respective Position Papers within ten (10) days from
receipt.
‘Undersecretary Jose M. Espanol, Jr. is deputized to conduct conciliation conferences between the parties
to bridge their differences and eventually hammer out a solution that is mutually acceptable. He shall be
assisted by the Legal Service.

SO ORDERED.”
Thereafter, the parties submitted their respective memoranda and on August 19, 1996, the Secretary
resolved the labor dispute through an Order,[6] containing the following awards:

“ECONOMIC DEMANDS
P2,300.00 for the first year covering the period from December 1, 1995 to November
Wage increase -
30, 1996
P2,200.00 for the second year covering the period December 1, 1996 to November 30,
-
1997.

Red Circle Rate (RCR) Allowance- all RCR allowances (promotional increases that go beyond the
maximum range of a job classification salary) shall be integrated into the basic salary of employees
effective December 1, 1995.

Longevity Allowance- the integration of the longevity allowance into the basic wage is denied; the present
policy is maintained.

Longevity Increase- the present longevity bonus is maintained but the bonus shall be incorporated into the
new CBA.

Sick Leave- MEWA’s demand for upgrading is denied; the company’s present policy is
maintained. However, those who have not used the sick leave benefit during a particular year shall be
entitled to a one-day sick leave incentive.

Sick leave reserve- the present reserve of 25 days shall be reduced to 15 days; the employee has the option
either to convert the excess of 10 days to cash or let it remain as long as he wants. In case he opts to let it
remain, he may later on convert it to cash at his retirement or separation.

Vacation Leave - MEWA’s demand for upgrading denied & the company’s present policy is maintained
which must be incorporated into the new CBA but scheduled vacation leave may be rounded off to one full
day at a time in case of a benefit involving a fraction of a day.

Union Leave- of MEWA’s officers, directors or stewards assigned to perform union duties or legitimate
union activity is increased from 30 to 40 Mondays per month.

Maternity, Paternity and Funeral leaves- the existing policy is to be maintained and must be incorporated in
the new CBA unless a new law granting paternity leave benefit is enacted which is superior to what the
company has already granted.

Birthday Leave - union’s demand is granted. If birthday falls on the employee’s rest day or on a non-
working holiday, the worker shall be entitled to go on leave with pay on the next working day.

Group Hospitalization & Surgical Insurance Plan (GHSIP) and Health Maintenance Plan (HMP)- present
policy is maintained insofar as the cost sharing is concerned- 70% for the Company and 30% for MEWA.

Health Maintenance Plan (HMP) for dependents - subsidized dependents increased from three to five
dependents.

Longevity Bonus- is increased from P140.00 to P200.00 for every year of service to be received by the
employee after serving the Company for 5 years.

Christmas Bonus and Special Christmas Grant- MEWA’s demand of one month salary as Christmas Bonus
and two month’s salary as Special Christmas Grant is granted and to be incorporated in the new CBA.

Midyear Bonus- one month’s pay to be included in the CBA.

Anniversary Bonus - union’s demand is denied.

Christmas Gift Certificate - company has the discretion as to whether it will give it to its employees.

Retirement Benefits:

a. Full retirement-present policy is maintained;

b. one cavan of rice per month is granted to retirees;
c. special retirement leave and allowance-present policy is maintained;
d. HMP coverage for retirees- HMP coverage is granted to retirees who have not reached the age
of 70, with MERALCO subsidizing 100% of the monthly premium; those over 70 are entitled to
not more than 30 days of hospitalization at the J.F. Cotton Hospital with the company
shouldering the entire cost.
e. HMP coverage for retiree’s dependents is denied
f. Monthly pension of P3,000.00 for each retiree is denied.
g. Death benefit for retiree’s beneficiaries is denied.
Optional retirement - union’s demand is denied; present policy is maintained; employee is eligible for
optional retirement if he has rendered at least 18 years of service.
Dental, Medical and Hospitalization Benefits- grant of all the allowable medical, surgical, dental and
annual physical examination benefits, including free medicine whenever the same is not available at the
JFCH.

Resignation benefits- union’s demand is denied.

Night work- union demand is denied but present policy must be incorporated in CBA.

Shortswing- work in another shift within the same day shall be considered as the employee’s work for the
following day and the employee shall be given additional four (4) hours straight time and the applicable
excess time premium if he works beyond 8 hours in the other shift.

High Voltage allowance- is increased from P45.00 to P55.00 to be given to any employee authorized by the
Safety Division to perform work on or near energized bare lines & bus including stockman drivers & crane
operators and other crew members on ground.

High Pole Allowance- is increased from P30.00 to P40.00 to be given to those authorized to climb poles up
to at least 60 ft. from the ground. Members of the team including stockman drivers, crane operators and
other crew members on the ground, are entitled to this benefit.

Towing Allowance- where stockmen drive tow trailers with long poles and equipment on board, they shall
be entitled to a towing allowance of P20.00 whether they perform the job on regular shift or on overtime.

Employee’s Cooperative- a loan of P3 M seed money is granted to the proposed establishment of a

cooperative, payable in twenty (20) years starting one year from the start of operations.

Holdup Allowance- the union demand is denied; the present policy shall be maintained.

Meal and Lodging Allowance- shall be increased effective December 1, 1995 as follows:

Breakfast - from P25.00 to P35.00

Lunch - from P35.00 to P45.00
Dinner - from P35.00 to P45.00
Lodging - from P135.00 to P180.00 a night in all MERALCO franchise areas

Payroll Treatment for Accident while on Duty- an employee shall be paid his salary and allowance if any is
due plus average excess time for the past 12 months from the time of the accident up to the time of full
recovery and placing of the employee back to normal duty or an allowance of P2,000.00, whichever is
higher.

Housing and Equity Assistance Loan- is increased to P60,000.00; those who have already availed of the
privilege shall be allowed to get the difference.

Benefits for Collectors:

a. Company shall reduce proportionately the quota and monthly average product level (MAPL) in
terms of equivalent bill assignment when an employee is on sick leave and paid vacation leave.
b. When required to work on Saturdays, Sundays and holidays, an employee shall receive P60.00
lunch allowance and applicable transportation allowance as determined by the Company and
shall also receive an additional compensation to one day fixed portion in addition to lunch and
 transportation allowance.
c. The collector shall be entitled to an incentive pay of P25.00 for every delinquent account
disconnected.
d. When a collector voluntarily performs other work on regular shift or overtime, he shall be
entitled to remuneration based on his computed hourly compensation and the reimbursement of
actually incurred transportation expenses.
e. Collectors shall be provided with bobcat belt bags every year
f. Collector’s cash bond shall be deposited under his capital contribution to MESALA.
g. Collectors quota and MAPL shall be proportionately reduced during typhoons, floods,
earthquakes and other similar force majeure events when it is impossible for a collector to
perform collection work.

Political Demands:

a. Scope of the collective bargaining unit- the collective bargaining unit shall be composed of all
regular rank-and-file employees hired by the company in all its offices and operative centers
throughout its franchise area and those it may employ by reason of expansion, reorganization or
as a result of operational exigencies.
b. Union recognition and security -
i. The union shall be recognized by the Company as sole and exclusive bargaining
representative of the rank-and-file employees included in the bargaining unit. The
Company shall agree to meet only with Union officers and its authorized
representatives on all matters involving the Union and all issues arising from the
implementation and interpretation of the new CBA.
ii. The union shall meet with the newly regularized employees for a period not to
exceed four (4) hours, on company time, to acquaint the new regular employees of
the rights, duties and benefits of Union membership.
iii. The right of all rank-and-file employees to join the union shall be recognized in
accordance with the maintenance of membership principle as a form of union
security.
c. Transfer of assignment and job security-
i. No transfer of an employee from one position to another shall be made if motivated
by considerations of sex, race, creed, political and religious belief, seniority or union
activity.
ii. If the transfer is due to the reorganization or decentralization, the distance from the
employee’s residence shall be considered unless the transfer is accepted by the
employee. If the transfer is extremely necessary, the transfer shall be made within
the offices in the same district.
iii. Personnel hired through agencies or contractors to perform the work done by covered
employees shall not exceed one month. If extension is necessary, the union shall be
informed. But the Company shall not permanently contract out regular or permanent
positions that are necessary in the normal operation of the Company.
d. Check off Union Dues- where the union increases its dues as approved by the Board of
Directors, the Company shall check off such increase from the salaries of union members after
the union submits check off authorizations signed by majority of the members. The Company
shall honor only those individual authorizations signed by the majority of the union members
and collectively submitted by the union to the Company’s Salary Administration.
e. Payroll Reinstatement- shall be in accordance with Article 223, p. 3 of the Labor Code.
f. Union Representation in Committees- the union is allowed to participate in policy formulation
and in the decision-making process on matters affecting their rights and welfare, particularly in
the Uniform Committee, the Safety Committee and other committees that may be formed in the
 future.

Signing Bonus- P4,000.00 per member of the bargaining unit for the conclusion of the CBA

Existing benefits already granted by the Company but which are not expressly or impliedly repealed in the
new agreement shall remain subsisting and shall be included in the new agreement to be signed by the
parties effective December 1, 1995.
On August 30, 1996, MERALCO filed a motion for reconsideration [7] alleging that the Secretary of Labor
committed grave abuse of discretion amounting to lack or excess of jurisdiction:

1. in awarding to MEWA a package that would cost at least P1.142 billion, a package that is grossly
excessive and exorbitant, would not be affordable to MERALCO and would imperil its viability as a public
utility affected with national interest.

2. in ordering the grant of a P4,500.00 wage increase, as well as a new and improved fringe benefits, under
the remaining two (2) years of the CBA for the rank-and-file employees.

3. in ordering the ‘incorporation into the CBA of all existing employee benefits, on the one hand, and those
that MERALCO has unilaterally granted to its employees by virtue of voluntary company policy or
practice, on the other hand.’

4. in granting certain ‘political demands’ presented by the union.

5. in ordering the CBA to be ‘effective December 1995’ instead of August 19, 1996 when he resolved the
dispute.
MERALCO filed a supplement to the motion for reconsideration on September 18, 1995, alleging that the
Secretary of Labor did not properly appreciate the effect of the awarded wages and benefits on
MERALCO’s financial viability.

MEWA likewise filed a motion asking the Secretary of Labor to reconsider its Order on the wage increase,
leaves, decentralized filing of paternity and maternity leaves, bonuses, retirement benefits, optional
retirement, medical, dental and hospitalization benefits, short swing and payroll treatment. On its political
demands, MEWA asked the Secretary to rule its proposal to institute a Code of Discipline for its members
and the union’s representation in the administration of the Pension Fund.

On December 28, 1996, the Secretary issued an Order [8] resolving the parties’ separate motions, the
modifications of the August 19, 1996 Order being highlighted hereunder:
1) Effectivity of Agreement - December 1, 1995 to November 30, 1997.

Economic Demands

2) Wage Increase:
First year - P2,200.00 per month;

Second year - P2,200.00 per month.

3) Integration of Red Circle Rate (RCR) and Longevity Allowance into Basic Salary -the RCR allowance
shall be integrated into the basic salary of employees as of August 19, 1996 (the date of the disputed
Order).

4) Longevity Bonus - P170 per year of service starting from 10 years of continuous service.

5) Vacation Leave - The status quo shall be maintained as to the number of vacation leave but employee’s
scheduled vacation may be taken one day at a time in the manner that this has been provided in the
supervisory CBA.
6) Sick Leave Reserve - is reduced to 15 days, with any excess payable at the end of the year. The
employee has the option to avail of this cash conversion or to accumulate his sick leave credits up to 25
days for conversion to cash at retirement or separation from the service.

7) Birthday Leave - the grant of a day off when an employee’s birthday falls on a non-working day is
deleted.

8) Retirement Benefits for Retirees - The benefits granted shall be effective on August 19, 1996, the date
of the disputed order up to November 30, 1997, which is the date the CBA expires and shall apply to those
who are members of the bargaining unit at the time the award is made.
One sack of rice per quarter of the year shall be given to those retiring between August 19, 1996 and
November 30, 1997.

On HMP Coverage for Retirees- The parties ‘maintain the status quo, that is, with the Company complying
with the present arrangement and the obligations to retirees as is.’
9) Medical, Dental and Hospitalization Benefits - The cost of medicine unavailable at the J.F. Cotton
Hospital shall be in accordance with MERALCO’s Memorandum dated September 14, 1976.

10) GHSIP and HMP for Dependents - The number of dependents to be subsidized shall be reduced from
5 to 4 provided that their premiums are proportionately increased.

11) Employees’ Cooperative - The original award of P3 million pesos as seed money for the proposed
Cooperative is reduced to P1.5 million pesos.

12) Shortswing - the original award is deleted.

13) Payroll Treatment for Accident on Duty - Company ordered to continue its present practice on payroll
treatment for accident on duty without need to pay the excess time the Union demanded.

Political Demands:

14) Scope of the collective bargaining unit - The bargaining unit shall be composed of all rank and file
employees hired by the Company in accordance with the original Order.

15) Union recognition and security - The incorporation of a closed shop form of union security in the
CBA; the Company is prohibited from entertaining individuals or groups of individuals only on matters
that are exclusively within the domain of the union; the Company shall furnish the union with a complete
list of newly regularized employees within a week from regularization so that the Union can meet these
employees on the Union’s and the employee’s own time.

16) Transfer of assignment and job security - Transfer is a prerogative of the Company but the transfer
must be for a valid business reason, made in good faith and must be reasonably exercised. The CBA shall
provide that ‘No transfer of an employee from one position to another, without the employee’s written
consent, shall be made if motivated by considerations of sex, race, creed, political and religious belief, age
or union activity.

17) Contracting Out - The Company has the prerogative to contract out services provided that this move
is based on valid business reasons in accordance with law, is made in good faith, is reasonably exercised
and, provided further that if the contracting out involves more than six months, the Union must be
consulted before its implementation.

18) Check off of union dues

In any increase of union dues or contributions for mandatory activities, the union must submit to the
Company a copy of its board resolution increasing the union dues or authorizing such contributions;

If a board resolution is submitted, the Company shall deduct union dues from all union members after a
majority of the union members have submitted their individual written authorizations. Only those check-
off authorizations submitted by the union shall be honored by the Company.

With respect to special assessments, attorney’s fees, negotiation fees or any other extraordinary fees,
individual authorizations shall be necessary before the company may so deduct the same.
19) Union Representation in Committees - The union is granted representation in the Safety Committee,
the Uniform Committee and other committees of a similar nature and purpose involving personnel welfare,
rights and benefits as well as duties.
Dissatisfied, petitioner filed this petition contending that the Secretary of Labor gravely abused his
discretion:
1). . . in awarding wage increases of P2,200.00 for 1996 and P2,200.00 for 1997;

2) . . . in awarding the following economic benefits:

a. Two months Christmas bonus;
b. Rice Subsidy and retirement benefits for retirees;
c. Loan for the employees’ cooperative;
d. Social benefits such as GHSIP and HMP for dependents, employees’ cooperative and housing
equity assistance loan;
e. Signing bonus;
f. Integration of the Red Circle Rate Allowance
g. Sick leave reserve of 15 days
h. The 40-day union leave;
i. High pole/high voltage and towing allowance; and
j. Benefits for collectors

3) . . . in expanding the scope of the bargaining unit to all regular rank and file employees hired by the
company in all its offices and operating centers and those it may employ by reason of expansion,
reorganization or as a result of operational exigencies;

4) . . . in ordering for a closed shop when his original order for a maintenance of membership arrangement
was not questioned by the parties;

5) . . . in ordering that Meralco should consult the union before any contracting out for more than six
months;

6) . . . in decreeing that the union be allowed to have representation in policy and decision making into
matters affecting “personnel welfare, rights and benefits as well as duties;”

7) . . . in ruling for the inclusion of all terms and conditions of employment in the collective bargaining
agreement;

8) . . . in exercising discretion in determining the retroactivity of the CBA;

Both MEWA and the Solicitor General; on behalf of the Secretary of Labor, filed their comments to the
petition. While the case was also set for oral argument on Feb 10, 1997, this hearing was cancelled due to
MERALCO not having received the comment of the opposing parties. The parties were instead required to
submit written memoranda, which they did. Subsequently, both petitioner and private respondent MEWA
also filed replies to the opposing parties’ Memoranda, all of which We took into account in the resolution
of this case.

The union disputes the allegation of MERALCO that the Secretary abused his discretion in issuing the
assailed orders arguing that he acted within the scope of the powers granted him by law and by the
Constitution. The union contends that any judicial review is limited to an examination of the Secretary’s
decision-making/discretion - exercising process to determine if this process was attended by some
capricious or whimsical act that constitutes “grave abuse”; in the absence of such abuse, his findings -
considering that he has both jurisdiction and expertise to make them - are valid.

The union’s position is anchored on two premises:

First, no reviewable abuse of discretion could have attended the Secretary’s arbitral award because the
Secretary complied with constitutional norms in rendering the dispute award. The union posits that the
yardstick for comparison and for the determination of the validity of the Secretary’s actions should be the
specific standards laid down by the Constitution itself. To the union, these standards include the State
policy on the promotion of workers’ welfare,[9] the principle of distributive justice,[10] the right of the State
to regulate the use of property,[11] the obligation of the State to protect workers, both organized and
unorganized, and insure their enjoyment of “humane conditions of work” and a “living wage,” and the right
of labor to a just share in the fruits of production. [12]

Second, no reversible abuse of discretion attended the Secretary’s decision because the Secretary took all
the relevant evidence into account, judiciously weighed them, and rendered a decision based on the facts
and law. Also, the arbitral award should not be reversed given the Secretary’s expertise in his field and the
general rule that findings of fact based on such expertise is generally binding on this Court.

To put matters in proper perspective, we go back to basic principles. The Secretary of Labor’s statutory
power under Art. 263 (g) of the Labor Code to assume jurisdiction over a labor dispute in an industry
indispensable to the national interest, and, to render an award on compulsory arbitration, does not exempt
the exercise of this power from the judicial review that Sec. 1, Art. 8 of the Constitution mandates. This
constitutional provision states:
“Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality
of the government.”
Under this constitutional mandate, every legal power of the Secretary of Labor under the Labor Code, or,
for that matter, any act of the Executive, that is attended by grave abuse of discretion is subject to review
by this Court in an appropriate proceeding. To be sure, the existence of an executive power alone - whether
granted by statute or by the Constitution - cannot exempt the executive action from judicial oversight,
interference or reversal when grave abuse of discretion is, or is alleged to be, present. This is particularly
true when constitutional norms are cited as the applicable yardsticks since this Court is the final interpreter
of the meaning and intent of the Constitution.[13]

The extent of judicial review over the Secretary of Labor’s arbitral award is not limited to a determination
of grave abuse in the manner of the secretary’s exercise of his statutory powers. This Court is entitled to,
and must - in the exercise of its judicial power - review the substance of the Secretary’s award when grave
abuse of discretion is alleged to exist in the award, i.e., in the appreciation of and the conclusions the
Secretary drew from the evidence presented.

The natural and ever present limitation on the Secretary’s acts is, of course, the Constitution. And we
recognize that indeed the constitutional provisions the union cited are State policies on labor and social
justice that can serve as standards in assessing the validity of a Secretary of Labor’s actions. However, we
note that these provisions do not provide clear, precise and objective standards of conduct that lend
themselves to easy application. We likewise recognize that the Constitution is not a lopsided document that
only recognizes the interests of the working man; it too protects the interests of the property owner and
employer as well.[14]

For these reasons - and more importantly because a ruling on the breadth and scope of the suggested
constitutional yardsticks is not absolutely necessary in the disposition of this case - we shall not use these
yardsticks in accordance with the time-honored practice of avoiding constitutional interpretations when a
decision can be reached using non-constitutional standards. We have repeatedly held that one of the
essential requisites for a successful judicial inquiry into constitutional questions is that the resolution of the
constitutional question must be necessary in deciding the case. [15]
In this case we believe that the more appropriate and available standard - and one does not require a
constitutional interpretation - is simply the standard of reasonableness. In layman’s terms, reasonableness
implies the absence of arbitrariness;[16] in legal parlance, this translates into the exercise of proper
discretion and to the observance of due process. Thus, the question we have to answer in deciding this case
is whether the Secretary’s actions have been reasonable in light of the parties positions and the evidence
they presented.

MEWA’s second premise - i.e., that the Secretary duly considered the evidence presented - is the main
issue that we shall discuss at length below. Additionally, MEWA implied that we should take great care
before reading an abuse of discretion on the part of the Secretary because of his expertise on labor issues
and because his findings of fact deserve the highest respect from this Court.

This Court has recognized the Secretary of Labor’s distinct expertise in the study and settlement of labor
disputes falling under his power of compulsory arbitration. [17] It is also well-settled that factual findings of
labor administrative officials, if supported by substantial evidence, are entitled not only to great respect but
even to finality.[18] We, therefore, have no difficulty in accepting the union’s caveat on how to handle a
Secretary of Labor’s arbitral award.

But at the same time, we also recognize the possibility that abuse of discretion may attend the exercise of
the Secretary’s arbitral functions; his findings in an arbitration case are usually based on position papers
and their supporting documents (as they are in the present case), and not on the thorough examination of
the parties’ contending claims that may be present in a court trial and in the face-to-face adversarial process
that better insures the proper presentation and appreciation of evidence. [19] There may also be grave abuse
of discretion where the board, tribunal or officer exercising judicial function fails to consider evidence
adduced by the parties.[20] Given the parties’ positions on the justiciability of the issues before us, the
question we have to answer is one that goes into the substance of the Secretary’s disputed orders: Did the
Secretary properly consider and appreciate the evidence presented before him?

We find, based on our consideration of the parties’ positions and the evidence on record, that the Secretary
of Labor disregarded and misappreciated evidence, particularly with respect to the wage award. The
Secretary of Labor apparently also acted arbitrarily and even whimsically in considering a number of legal
points; even the Solicitor General himself considered that the Secretary gravely abused his discretion on at
least three major points: (a) on the signing bonus issue; (b) on the inclusion of confidential employees in
the rank and file bargaining unit, and (c) in mandating a union security “closed-shop” regime in the
bargaining unit.

We begin with a discussion on the wages issue. The focal point in the consideration of the wage award is
the projected net income for 1996 which became the basis for the 1996 wage award, which in turn - by
extrapolation - became the basis for the (2nd Year) 1997 award. MERALCO projected that the net
operating income for 1996 was 14.7% above the 1999 level or a total net operating income of 4.171 Billion,
while the union placed the 1996 net operating income at 5.795 Billion.

MERALCO based its projection on the increase of the income for the first 6 months of 1996 over the same
period in 1995. The union, on the other hand, projected that the 1996 income would increase by 29% to
35% because the “consumption of electric power is at its highest during the last two quarters with the
advent of the Yuletide season.” The union likewise relied heavily on a newspaper report citing an estimate
by an all Asia capital financial analyst that the net operating income would amount to 5.795 Billion.[21]

Based essentially on these considerations, the Secretary made the following computations and ordered his
disputed wage award
Projected net
operating income for
1996 I 5,795,000,000
Principals and 1,426,571,703
interests
Dividends at 1995
rate 1,636,949,000
Net amount left with
the Company 2,729,479,297
Add: Tax credit
equivalent to 35% of
labor cost 231,804,940
Company’s net
operating income 2,961,284,237

“For 1997, the projected income is P7,613,612 which can easily absorb the incremental increase of P2,200
per month or a total of P4,500 during the last year of the CBA period.

xxx xxx xxx

“An overriding aim is to estimate the amount that is left with the Company after the awarded wages and
benefits and the company’s customary obligations are paid. This amount can be the source of an item not
found in the above computations but which the Company must provide for, that is - the amount the
company can use for expansion.

“Considering the expansion plans stated in the Company’s Supplement that calls for capital expenditures of
6 billion, 6.263 billion and 5.802 billion for 1996, 1997 and 1998 respectively, We conclude that our
original award of P2,300 per month for the first year and P2,200 for the second year will still leave much
by way of retained income that can be used for expansion.”[22] (Underscoring ours.)
We find after considering the records that the Secretary gravely abused his discretion in making this wage
award because he disregarded evidence on record. Where he considered MERALCO’s evidence at all, he
apparently misappreciated this evidence in favor of claims that do not have evidentiary support. To our
mind, the MERALCO projection had every reason to be reliable because it was based on actual and
undisputed figures for the first six months of 1996. [23] On the other hand, the union projection was based on
a speculation of Yuletide consumption that the union failed to substantiate. In fact, as against the union’s
unsubstantiated Yuletide consumption claim, MERALCO adduced evidence in the form of historical
consumption data showing that a lengthy consumption does not tend to rise during the Christmas
period.[24] Additionally, the All-Asia Capital Report was nothing more than a newspaper report that did not
show any specific breakdown or computations. While the union claimed that its cited figure is based on
MERALCO’s 10-year income stream,[25] no data or computation of this 10-year stream appear in the
record.

While the Secretary is not expected to accept the company-offered figures wholesale in determining a wage
award, we find it a grave abuse of discretion to completely disregard data that is based on actual and
undisputed record of financial performance in favor of the third-hand and unfounded claims the Secretary
eventually relied upon. At the very least, the Secretary should have properly justified his disregard of the
company figures. The Secretary should have also reasonably insured that the figure that served as the
starting point for his computation had some substantial basis.

Both parties extensely discussed the factors that the decision maker should consider in making a wage
award. While We do not seek to enumerate in this decision the factors that should affect wage
determination, we must emphasize that a collective bargaining dispute such as this one requires due
consideration and proper balancing of the interests of the parties to the dispute and of those who
might be affected by the dispute. To our mind, the best way in approaching this task holistically is to
consider the available objective facts, including, where applicable, factors such as the bargaining history of
the company, the trends and amounts of arbitrated and agreed wage awards and the company’s previous
CBAs, and industry trends in general. As a rule, affordability or capacity to pay should be taken into
account but cannot be the sole yardstick in determining the wage award, especially in a public utility like
MERALCO. In considering a public utility, the decision maker must always take into account the “public
interest” aspects of the case; MERALCO’s income and the amount of money available for operating
expenses - including labor costs - are subject to State regulation. We must also keep in mind that high
operating costs will certainly and eventually be passed on to the consuming public as MERALCO has
bluntly warned in its pleadings.

We take note of the “middle ground” approach employed by the Secretary in this case which we do not
necessarily find to be the best method of resolving a wage dispute. Merely finding the midway point
between the demands of the company and the union, and “splitting the difference” is a simplistic solution
that fails to recognize that the parties may already be at the limits of the wage levels they can afford. It
may lead to the danger too that neither of the parties will engage in principled bargaining; the company
may keep its position artificially low while the union presents an artificially high position, on the fear that a
“Solomonic” solution cannot be avoided. Thus, rather than encourage agreement, a “middle ground
approach” instead promotes a “play safe” attitude that leads to more deadlocks than to successfully
negotiated CBAs.

After considering the various factors the parties cited, we believe that the interests of both labor and
management are best served by a wage increase of P1,900.00 per month for the first year and another
P1,900.00 per month for the second year of the two-year CBA term. Our reason for this is that these
increases sufficiently protects the interest of the worker as they are roughly 15% of the monthly average
salary of P11,600.00.[26] They likewise sufficiently consider the employer’s costs and its overall wage
structure, while at the same time, being within the range that will not disrupt the wage trends in Philippine
industries.

The records shows that MERALCO, throughout its long years of existence, was never remiss in its
obligation towards its employees. In fact, as a manifestation of its strong commitment to the promotion of
the welfare and well-being of its employees, it has consistently improved their compensation package. For
instance, MERALCO has granted salary increases[27] through the collective bargaining agreement the
amount of which since 1980 for both rank-and-file and supervisory employees were as follows:

AMOUNT OF CBA INCREASES DIFFERENCE

CBA
COVERAGE RANK-AND-FILE SUPERVISORY AMOUNT PERCENT
1980 230.00 342.50 112.50 48.91%
1981 210.00 322.50 112.50 53.57
1982 200.00 312.50 112.50 56.25
TOTAL 640.00 977.50 337.50 52.73
1983 320.00 432.50 112.50 35.16
1984 350.00 462.50 112.50 32.14
1985 370.00 482.50 112.50 30.41
TOTAL 1,040.00 1,377.50 337.50 32.45
1986 860.00 972.50 112.50 13.08
1987 640.00 752.50 112.50 17.58
1988 600.00 712.50 112.50 18.75
TOTAL 2,100.00 2,437.50 337.50 16.07
1989 1,100.00 1,212.50 112.50 10.23
1990 1,200.00 1,312.50 112.50 9.38
1991 1,300.00 1,412.50 112.50 8.65
 TOTAL 3,600.00 3,937.50 337.50 9.38
1992 1,400.00 1,742.50 342.50 24.46
1993 1,350.00 1,682.50 332.50 24.63
1994 1,150.00 1,442.50 292.50 25.43
TOTAL 3,900.00 4,867.50 967.50 24.81

Based on the above-quoted table, specifically under the column “RANK-AND-FILE,” it is easily
discernible that the total wage increase of P3,800.00 for 1996 to 1997 which we are granting in the instant
case is significantly higher than the total increases given in 1992 to 1994, or a span of three (3) years,
which is only P3,900.00 a month. Thus, the Secretary’s grant of P2,200.00 monthly wage increase in the
assailed order is unreasonably high a burden for MERALCO to shoulder.

We now go to the economic issues.

1. CHRISTMAS BONUS

MERALCO questions the Secretary’s award of “Christmas bonuses” on the ground that what it had given
its employees were special bonuses to mark or celebrate “special occasions,” such as when the Asia Money
Magazine recognized MERALCO as the “best managed company in Asia.” These grants were given on or
about Christmas time, and the timing of the grant apparently led the Secretary to the conclusion that what
were given were Christmas bonuses given by way of a “company practice” on top of the legally required
13th month pay.

The Secretary in granting the two-month bonus, considered the following factual finding, to wit:
“We note that each of the grant mentioned in the commonly adopted table of grants has a special
description. Christmas bonuses were given in 1988 and 1989. However, the amounts of bonuses given
differed. In 1988, it was P1,500. In 1989, it was ½ month salary. The use of “Christmas bonus” title
stopped after 1989. In 1990, what was given was a “cash gift” of ½ month’s salary. The grants thereafter
bore different titles and were for varying amounts. Significantly, the Company explained the reason for the
1995 bonuses and this explanation was not substantially contradicted by the Union.

“What comes out from all these is that while the Company has consistently given some amount by way of
bonuses since 1988, these awards were not given uniformly as Christmas bonuses or special Christmas
grants although they may have been given at or about Christmas time.

“xxx xxx xxx

“The Company is not therefore correct in its position that there is not established practice of giving
Christmas bonuses that has ripened to the status of being a term and condition of employment. Regardless
of its nomenclature and purpose, the act of giving this bonus in the spirit of Christmas has ripened into a
Company practice.”[28]
It is MERALCO’s position that the Secretary erred when he recognized that there was an “established
practice” of giving a two-month Christmas bonus based on the fact that bonuses were given on or about
Christmas time. It points out that the “established practice” attributed to MERALCO was neither for a
considerable period of time nor identical in either amount or purpose. The purpose and title of the grants
were never the same except for the Christmas bonuses of 1988 and 1989, and were not in the same
amounts.

We do not agree.

As a rule, a bonus is not a demandable and enforceable obligation; [29] it may nevertheless be granted
on equitable consideration[30] as when the giving of such bonus has been the company’s long and
regular practice.[31] To be considered a “regular practice,” the giving of the bonus should have been done
over a long period of time, and must be shown to have been consistent and deliberate. [32] Thus we have
ruled in National Sugar Refineries Corporation vs. NLRC:[33]
“The test or rationale of this rule on long practice requires an indubitable showing that the employer agreed
to continue giving the benefits knowing fully well that said employees are not covered by the law requiring
payment thereof.”
In the case at bar, the record shows the MERALCO, aside from complying with the regular 13th month
bonus, has further been giving its employees an additional Christmas bonus at the tail-end of the year since
1988. While the special bonuses differed in amount and bore different titles, it can not be denied that these
were given voluntarily and continuously on or about Christmas time. The considerable length of time
MERALCO has been giving the special grants to its employees indicates a unilateral and voluntary act on
its part, to continue giving said benefits knowing that such act was not required by law.

Indeed, a company practice favorable to the employees has been established and the payments made by
MERALCO pursuant thereto ripened into benefits enjoyed by the employees. Consequently, the giving of
the special bonus can no longer be withdrawn by the company as this would amount to a diminution of the
employee’s existing benefits.[34]

We can not, however, affirm the Secretary’s award of a two-month special Christmas bonus to the
employees since there was no recognized company practice of giving a two-month special grant. The two-
month special bonus was given only in 1995 in recognition of the employees’ prompt and efficient
response during the calamities. Instead, a one-month special bonus, We believe, is sufficient, this being
merely a generous act on the part of MERALCO.

2. RICE SUBSIDY and RETIREMENT BENEFITS for RETIREES

It appears that the Secretary of Labor originally ordered the increase of the retirement pay, rice subsidy and
medical benefits of MERALCO retirees. This ruling was reconsidered based on the position that retirees
are no longer employees of the company and therefore are no longer bargaining members who can benefit
from a compulsory arbitration award. The Secretary, however, ruled that all members of the bargaining
unit who retire between August 19, 1996 and November 30, 1997 (i.e., the term of the disputed CBA under
the Secretary’s disputed orders) are entitled to receive an additional rice subsidy.

The question squarely brought in this petition is whether the Secretary can issue an order that binds the
retirement fund. The company alleges that a separate and independent trust fund is the source of retirement
benefits for MERALCO retirees, while the union maintains that MERALCO controls these funds and may
therefore be compelled to improve this benefit in an arbitral award.

The issue requires a finding of fact on the legal personality of the retirement fund. In the absence of any
evidence on record indicating the nature of the retirement fund’s legal personality, we rule that the issue
should be remanded to the Secretary for reception of evidence as whether or not the MERALCO retirement
fund is a separate and independent trust fund. The existence of a separate and independent juridical entity
which controls an irrevocable retirement trust fund means that these retirement funds are beyond the scope
of collective bargaining: they are administered by an entity not a party to the collective bargaining and the
funds may not be touched without the trustee’s conformity.

On the other hand, MERALCO control over these funds means that MERALCO may be compelled in the
compulsory arbitration of a CBA deadlock where it is the employer, to improve retirement benefits since
retirement is a term or condition of employment that is a mandatory subject of bargaining.

3. EMPLOYEES’ COOPERATIVE

The Secretary’s disputed ruling requires MERALCO to provide the employees covered by the bargaining
unit with a loan of 1.5 Million as seed money for the employees formation of a cooperative under the
Cooperative Law, R.A. 6938. We see nothing in this law - whether expressed or implied - that requires
employers to provide funds, by loan or otherwise, that employees can use to form a cooperative. The
formation of a cooperative is a purely voluntary act under this law, and no party in any context or
relationship is required by law to set up a cooperative or to provide the funds therefor. In the absence of
such legal requirement, the Secretary has no basis to order the grant of a 1.5 million loan to MERALCO
employees for the formation of a cooperative. Furthermore, we do not see the formation of an employees
cooperative, in the absence of an agreement by the collective bargaining parties that this is a bargainable
term or condition of employment, to be a term or condition of employment that can be imposed on the
parties on compulsory arbitration.

4. GHSIP, HMP BENEFITS FOR DEPENDENTS and HOUSING EQUITY LOAN

MERALCO contends that it is not bound to bargain on these benefits because these do not relate to “wages,
hours of work and other terms and conditions of employment” hence, the denial of these demands cannot
result in a bargaining impasse.

The GHSIP, HMP benefits for dependents and the housing equity loan have been the subject of bargaining
and arbitral awards in the past. We do not see any reason why MERALCO should not now bargain on
these benefits. Thus, we agree with the Secretary’s ruling:
“x x x Additionally and more importantly, GHSIP and HMP, aside from being contributory plans, have
been the subject of previous rulings from this Office as bargainable matters. At this point, we cannot do
any less and must recognize that GHSIP and HMP are matters where the union can demand and negotiate
for improvements within the framework of the collective bargaining system.” [35]
Moreover, MERALCO have long been extending these benefits to the employees and their dependents that
they now become part of the terms and conditions of employment. In fact, MERALCO even pledged to
continue giving these benefits. Hence, these benefits should be incorporated in the new CBA.

With regard to the increase of the housing equity grant, we find P60,000.00 reasonable considering the
prevailing economic crisis.

5. SIGNING BONUS

On the signing bonus issue, we agree with the positions commonly taken by MERALCO and by the Office
of the Solicitor General that the signing bonus is a grant motivated by the goodwill generated when a CBA
is successfully negotiated and signed between the employer and the union. In the present case, this
goodwill does not exist. In the words of the Solicitor General:
“When negotiations for the last two years of the 1992-1997 CBA broke down and the parties sought the
assistance of the NCMB, but which failed to reconcile their differences, and when petitioner MERALCO
bluntly invoked the jurisdiction of the Secretary of Labor in the resolution of the labor dispute, whatever
goodwill existed between petitioner MERALCO and respondent union disappeared. xxx.”[36]
In contractual terms, a signing bonus is justified by and is the consideration paid for the goodwill that
existed in the negotiations that culminated in the signing of a CBA. Without the goodwill, the payment of a
signing bonus cannot be justified and any order for such payment, to our mind, constitutes grave abuse of
discretion. This is more so where the signing bonus is in the not insignificant total amount of P16 Million.

6. RED-CIRCLE-RATE ALLOWANCE

An RCR allowance is an amount, not included in the basic salary, that is granted by the company to an
employee who is promoted to a higher position grade but whose actual basic salary at the time of the
promotion already exceeds the maximum salary for the position to which he or she is promoted. As an
allowance, it applies only to specifics individuals whose salary levels are unique with respect to their new
and higher positions. It is for these reasons that MERALCO prays that it be allowed to maintain the RCR
allowance as a separate benefit and not be integrated in the basic salary.

The integration of the RCR allowance in the basic salary of the employees had consistently been raised in
the past CBAs (1989 and 1992) and in those cases, the Secretary decreed the integration of the RCR
allowance in the basic salary. We do not see any reason why it should not be included in the present
CBA. In fact, in the 1995 CBA between MERALCO and the supervisory union (FLAMES), the integration
of the RCR allowance was recognized. Thus, Sec. 4 of the CBA provides:
“All Red-Circle-Rate Allowance as of December 1, 1995 shall be integrated in the basic salary of the
covered employees who as of such date are receiving such allowance. Thereafter, the company rules on
RCR allowance shall continue to be observed/applied.”[37]
For purposes of uniformity, we affirm the Secretary’s order on the integration of the RCR allowance in the
basic salary of the employees.

7. SICK LEAVE RESERVE OF 15 DAYS

MERALCO assails the Secretary’s reduction of the sick leave reserve benefit from 25 days to 15 days,
contending that the sick leave reserve of 15 days has reached the lowest safe level that should be
maintained to give employees sufficient buffer in the event they fall ill.

We find no compelling reason to deviate from the Secretary’s ruling that the sick leave reserve is reduced
to 15 days, with any excess convertible to cash at the end of the year. The employee has the option to avail
of this cash conversion or to accumulate his sick leave credits up to 25 days for conversion to cash at his
retirement or separation from the service. This arrangement is, in fact, beneficial to MERALCO. The
latter admits that “the diminution of this reserve does not seriously affect MERALCO because whatever is
in reserve are sick leave credits that are payable to the employee upon separation from service. In fact, it
may be to MERALCO’s financial interest to pay these leave credits now under present salary levels than
pay them at future higher salary levels.”[38]

8. 40-DAY UNION LEAVE

MERALCO objects to the demand increase in union leave because the union leave granted to the union is
already substantial. It argues that the union has not demonstrated any real need for additional union leave.

The thirty (30) days union leave granted by the Secretary, to our mind, constitute sufficient time within
which the union can carry out its union activities such as but not limited to the election of union officers,
selection or election of appropriate bargaining agents, conduct referendum on union matters and other
union-related matters in furtherance of union objectives. Furthermore, the union already enjoys a special
union leave with pay for union authorized representatives to attend work education seminars, meetings,
conventions and conferences where union representation is required or necessary, and Paid-Time-off for
union officers, stewards and representatives for purpose of handling or processing grievances.

9. HIGH VOLTAGE/HIGH POLE/TOWING ALLOWANCE

MERALCO argues that there is no justification for the increase of these allowances. The personnel
concerned will not receive any additional risk during the life of the current CBA that would justify the
increase demanded by the union. In the absence of such risk, then these personnel deserve only the same
salary increase that all other members of the bargaining unit will get as a result of the disputed
CBA. MERALCO likewise assails the grant of the high voltage/high pole allowance to members of the
team who are not exposed to the high voltage/high pole risks. The risks that justify the higher salary and
the added allowance are personal to those who are exposed to those risks. They are not granted to a team
because some members of the team are exposed to the given risks.

The increase in the high-voltage allowance (from P45.00 to P55.00), high-pole allowance (from P30.00 to
P40.00), and towing allowance is justified considering the heavy risk the employees concerned are exposed
to. The high-voltage allowance is granted to an employee who is authorized by the company to actually
perform work on or near energized bare lines and bus, while the high-pole allowance is given to those
authorized to climb poles on a height of at least 60 feet from the ground to work thereat. The towing
allowance, on the other hand, is granted to the stockman drivers who tow trailers with long poles and
equipment on board. Based on the nature of the job of these concerned employees, it is imperative to give
them these additional allowances for taking additional risks. These increases are not even commensurate to
the danger the employees concerned are subjected to. Besides, no increase has been given by the company
since 1992.[39]
We do not, however, subscribe to the Secretary’s order granting these allowances to the members of the
team who are not exposed to the given risks. The reason is obvious- no risk, no pay. To award them the
said allowances would be manifestly unfair for the company and even to those who are exposed to the
risks, as well as to the other members of the bargaining unit who do not receive the said allowances.

10. BENEFITS FOR COLLECTORS

MERALCO opposes the Secretary’s grant of benefits for collectors on the ground that this is grossly
unreasonable both in scope and on the premise it is founded.

We have considered the arguments of the opposing parties regarding these benefits and find the Secretary’s
ruling on the (a) lunch allowance; (b) disconnection fee for delinquent accounts; (c) voluntary performance
of other work at the instance of the Company; (d) bobcat belt bags; and (e) reduction of quota and MAPL
during typhoons and other force majeure events, reasonable considering the risks taken by the company
personnel involved, the nature of the employees’ functions and responsibilities and the prevailing standard
of living. We do not however subscribe to the Secretary’s award on the following:

(a) Reduction of quota and MAPL when the collector is on sick leave because the previous CBA has
already provided for a reduction of this demand. There is no need to further reduce this.

(b) Deposit of cash bond at MESALA because this is no longer necessary in view of the fact that collectors
are no longer required to post a bond.

We shall now resolve the non-economic issues.

1. SCOPE OF THE BARGAINING UNIT

The Secretary’s ruling on this issue states that:

“a. Scope of the collective bargaining unit. The union is demanding that the collective bargaining unit
shall be composed of all regular rank and file employees hired by the company in all its offices and
operating centers through its franchise and those it may employ by reason of expansion, reorganization or
as a result of operational exigencies. The law is that only managerial employees are excluded from any
collective bargaining unit and supervisors are now allowed to form their own union (Art. 254 of the Labor
Code as amended by R.A. 6715). We grant the union demand.”
Both MERALCO and the Office of the Solicitor General dispute this ruling because if disregards the rule
We have established on the exclusion of confidential employee from the rank and file bargaining unit.

In Pier 8 Arrastre vs. Confesor and General Maritime and Stevedores Union,[40] we ruled that:
“Put another way, the confidential employee does not share in the same “community of interest” that might
otherwise make him eligible to join his rank and file co-workers, precisely because of a conflict in those
interests.”
Thus, in Metrolab Industries vs. Roldan-Confesor,[41] We ruled:
“……..that the Secretary’s order should exclude the confidential employees from the regular rank and file
employees qualified to become members of the MEWA bargaining unit.”
From the foregoing disquisition, it is clear that employees holding a confidential position are prohibited
from joining the union of the rank and file employees.

2. ISSUE OF UNION SECURITY

The Secretary in his Order of August 19, 1996,[42] ruled that:

“b. Union recognition and security. The union is proposing that it be recognized by the Company as sole
and exclusive bargaining representative of the rank and file employees included in the bargaining unit for
the purpose of collective bargaining regarding rates of pay, wages, hours of work and other terms and
conditions of employment. For this reason, the Company shall agree to meet only with the Union officers
and its authorized representatives on all matters involving the Union as an organization and all issues
arising from the implementation and interpretation of the new CBA. Towards this end, the Company shall
not entertain any individual or group of individuals on matters within the exclusive domain of the Union.

Additionally, the Union is demanding that the right of all rank and file employees to join the Union shall be
recognized by the Company. Accordingly, all rank and file employees shall join the union.

xxx xxx xxx

These demands are fairly reasonable. We grant the same in accordance with the maintenance of
membership principle as a form of union security."

The Secretary reconsidered this portion of his original order when he said in his December 28, 1996 order
that:
“x x x. when we decreed that all rank and file employees shall join the Union, we were actually decreeing
the incorporation of a closed shop form of union security in the CBA between the parties. In Ferrer v.
NLRC, 224 SCRA 410, the Supreme Court ruled that a CBA provision for a closed shop is a valid form of
union security and is not a restriction on the right or freedom of association guaranteed by the Constitution,
citing Lirag v. Blanco, 109 SCRA 87.”
MERALCO objected to this ruling on the grounds that: (a) it was never questioned by the parties; (b) there
is no evidence presented that would justify the restriction on employee's union membership; and (c) the
Secretary cannot rule on the union security demand because this is not a mandatory subject for collective
bargaining agreement.

We agree with MERALCO’s contention.

An examination of the records of the case shows that the union did not ask for a closed shop security
regime; the Secretary in the first instance expressly stated that a maintenance of membership clause should
govern; neither MERALCO nor MEWA raised the issue of union security in their respective motions for
reconsideration of the Secretary’s first disputed order; and that despite the parties clear acceptance of the
Secretary’s first ruling, the Secretary motu proprio reconsidered his maintenance of membership ruling in
favor of the more stringent union shop regime.

Under these circumstances, it is indubitably clear that the Secretary gravely abused his discretion when he
ordered a union shop in his order of December 28, 1996. The distinctions between a maintenance of
membership regime from a closed shop and their consequences in the relationship between the union and
the company are well established and need no further elaboration.

Consequently, We rule that the maintenance of membership regime should govern at MERALCO in
accordance with the Secretary’s order of August 19, 1996 which neither party disputed.

3. THE CONTRACTING OUT ISSUE

This issue is limited to the validity of the requirement that the union be consulted before the
implementation of any contracting out that would last for 6 months or more. Proceeding from our ruling
in San Miguel Employees Union-PTGWO vs Bersamina,[43] (where we recognized that contracting out of
work is a proprietary right of the employer in the exercise of an inherent management prerogative) the issue
we see is whether the Secretary’s consultation requirement is reasonable or unduly restrictive of the
company’s management prerogative. We note that the Secretary himself has considered that management
should not be hampered in the operations of its business when he said that:
‘We feel that the limitations imposed by the union advocates are too specific and may not be applicable to
the situations that the company and the union may face in the future. To our mind, the greater risk with this
type of limitation is that it will tend to curtail rather than allow the business growth that the company and
the union must aspire for. Hence, we are for the general limitations we have stated above because they will
allow a calibrated response to specific future situations the company and the union may face.”[44]
Additionally, We recognize that contracting out is not unlimited; rather, it is a prerogative that management
enjoys subject to well-defined legal limitations. As we have previously held, the company can determine in
its best business judgment whether it should contract out the performance of some of its work for as long as
the employer is motivated by good faith, and the contracting out must not have been resorted to circumvent
the law or must not have been the result of malicious or arbitrary action.[45] The Labor Code and its
implementing rules also contain specific rules governing contracting out (Department of Labor Order No.
10, May 30, 1997, Sections. 1-25).

Given these realities, we recognize that a balance already exist in the parties’ relationship with respect to
contracting out; MERALCO has its legally defined and protected management prerogatives while workers
are guaranteed their own protection through specific labor provisions and the recognition of limits to the
exercise of management prerogatives. From these premises, we can only conclude that the Secretary’s
added requirement only introduces an imbalance in the parties’ collective bargaining relationship on a
matter that the law already sufficiently regulates. Hence, we rule that the Secretary’s added requirement,
being unreasonable, restrictive and potentially disruptive should be struck down.

4. UNION REPRESENTATION IN COMMITTEES

As regards this issue, We quote with approval the holding of the Secretary in his Order of December 28,
1996, to wit:
“We see no convincing reason to modify our original Order on union representation in committees. It
reiterates what the Article 211 (A)(g) of the Labor Codes provides: “To ensure the participation of workers
in decision and policy-making processes affecting their rights, duties and welfare. ‘Denying this
opportunity to the Union is to lay the claim that only management has the monopoly of ideas that may
improve management strategies in enhancing the Company’s growth. What every company should
remember is that there might be one among the Union members who may offer productive and viable ideas
on expanding the Company’s business horizons. The union’s participation in such committees might just
be the opportune time for dormant ideas to come forward. So, the Company must welcome this
development (see also PAL v. NLRC, et. al., G.R. 85985, August 13, 1995). It must be understood,
however, that the committees referred to here are the Safety Committee, the Uniform Committee and other
committees of a similar nature and purpose involving personnel welfare, rights and benefits as well as
duties.”
We do not find merit in MERALCO’s contention that the above-quoted ruling of the Secretary is an
intrusion into the management prerogatives of MERALCO. It is worthwhile to note that all the Union
demands and what the Secretary’s order granted is that the Union be allowed to participate in policy
formulation and decision-making process on matters affecting the Union member’s right, duties and
welfare as required in Article 211 (A)(g) of the Labor Code. And this can only be done when the Union
is allowed to have representatives in the Safety Committee, Uniform Committee and other committees of a
similar nature. Certainly, such participation by the Union in the said committees is not in the nature of a
co-management control of the business of MERALCO. What is granted by the Secretary
is participation and representation. Thus, there is no impairment of management prerogatives.

5. INCLUSION OF ALL TERMS AND CONDITIONS IN THE CBA

MERALCO also decries the Secretary’s ruling in both the assailed Orders that-
“All other benefits being enjoyed by the company’s employees but which are not expressly or impliedly
repealed in this new agreement shall remain subsisting and shall likewise be included in the new collective
bargaining agreement to be signed by the parties effective December 1, 1995.” [46]
claiming that the above-quoted ruling intruded into the employer’s freedom to contract by ordering the
inclusion in the new CBA all other benefits presently enjoyed by the employees even if they are not
incorporated in the new CBA. This matter of inclusion, MERALCO argues, was never discussed and
agreed upon in the negotiations; nor presented as issues before the Secretary; nor were part of the previous
CBA’s between the parties.

We agree with MERALCO.

The Secretary acted in excess of the discretion allowed him by law when he ordered the inclusion of
benefits, terms and conditions that the law and the parties did not intend to be reflected in their CBA.
To avoid the possible problems that the disputed orders may bring, we are constrained to rule that only the
terms and conditions already existing in the current CBA and was granted by the Secretary (subject to the
modifications decreed in this decision) should be incorporated in the CBA, and that the Secretary’s
disputed orders should accordingly be modified.

6. RETROACTIVITY OF THE CBA

Finally, MERALCO also assails the Secretary’s order that the effectivity of the new CBA shall retroact to
December 1, 1995, the date of the commencement of the last two years of the effectivity of the existing
CBA. This retroactive date, MERALCO argues, is contrary to the ruling of this Court in Pier 8 Arrastre
and Stevedoring Services, Inc. vs. Roldan-Confessor[47] which mandates that the effective date of the new
CBA should be the date the Secretary of Labor has resolved the labor disputes.

On the other hand, MEWA supports the ruling of the Secretary on the theory that he has plenary power and
discretion to fix the date of effectivity of his arbitral award citing our ruling in St. Lukes Medical Center,
Inc. vs. Torres.[48] MEWA also contends that if the arbitral award takes effect on the date of the Secretary
Labor’s ruling on the parties’ motion for reconsideration (i.e., on December 28, 1996), an anomaly
situation will result when CBA would be more than the 5-year term mandated by Article 253-A of the
Labor Code.

However, neither party took into account the factors necessary for a proper resolution of this aspect. Pier
8, for instance, does not involve a mid-term negotiation similar to this case, while St. Lukes does not take
the “hold over” principle into account, i.e., the rule that although a CBA has expired, it continues to have
legal effects as between the parties until a new CBA has been entered into. [49]

Article 253-A serves as the guide in determining when the effectivity of the CBA at bar is to take effect. It
provides that the representation aspect of the CBA is to be for a term of 5 years, while
“x x x [A]ll other provisions of the Collective Bargaining Agreement shall be re-negotiated not later than 3
years after its execution. Any agreement on such other provisions of the Collective Bargaining Agreement
entered into within 6 months from the date of expiry of the term of such other provisions as fixed in such
Collective Bargaining Agreement shall retroact to the day immediately following such date. If such
agreement is entered into beyond 6 months, the parties shall agree on the duration of the effectivity
thereof. x x x.”
Under these terms, it is clear that the 5-year term requirement is specific to the representation aspect. What
the law additionally requires is that a CBA must be re-negotiated within 3 years “after its execution.” It is
in this re-negotiation that gives rise to the present CBA deadlock.

If no agreement is reached within 6 months from the expiry date of the 3 years that follow the CBA
execution, the law expressly gives the parties - not anybody else - the discretion to fix the effectivity of the
agreement.

Significantly, the law does not specifically cover the situation where 6 months have elapsed but no
agreement has been reached with respect to effectivity. In this eventuality, we hold that any provision of
law should then apply for the law abhors a vacuum. [50]

One such provision is the principle of hold over, i.e., that in the absence of a new CBA, the parties must
maintain the status quo and must continue in full force and effect the terms and conditions of the existing
agreement until a new agreement is reached.[51] In this manner, the law prevents the existence of a gap in
the relationship between the collective bargaining parties. Another legal principle that should apply is that
in the absence of an agreement between the parties, then, an arbitrated CBA takes on the nature of any
judicial or quasi-judicial award; it operates and may be executed only respectively unless there are legal
justifications for its retroactive application.

Consequently, we find no sufficient legal ground on the other justification for the retroactive application of
the disputed CBA, and therefore hold that the CBA should be effective for a term of 2 years counted from
December 28, 1996 (the date of the Secretary of Labor’s disputed order on the parties’ motion for
reconsideration) up to December 27, 1999.

WHEREFORE, the petition is granted and the orders of public respondent Secretary of Labor dated August
19, 1996 and December 28, 1996 are set aside to the extent set forth above. The parties are directed to
execute a Collective Bargaining Agreement incorporating the terms and conditions contained in the
unaffected portions of the Secretary of Labor’s order of August 19, 1996 and December 28, 1996, and the
modifications set forth above. The retirement fund issue is remanded to the Secretary of Labor for
reception of evidence and determination of the legal personality of the MERALCO retirement fund.

SO ORDERED.

G.R. No. 115394, September 27, 1995

FE S. SEBUGUERO, CARLOS ONG, NENE MANAOG, JUANITO CUSTODIO, CRISANTA

LACSAM, SATURNINO GURAL, WILMA BALDERA, LEONILA VALDEZ, FATIMA
POTESTAD, EVANGELINE AGNADO, RESTITUTO GLORIOSO, JANESE DE LOS REYES,
RODOLFO SANCHEZ, WILMA ORBELLO, DAISY PASCUA, AND ALEX MASAYA,
PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, G.T.I. SPORTSWEAR
CORPORATION AND/OR BENEDICTO YUJUICO, RESPONDENTS.

DECISION

DAVIDE, JR., J.:

This is a special civil action for certiorari under Rule 65 of the Rules of Court to set aside for having been
rendered with grave abuse of discretion the decision of 29 November 1993 [1] and resolution of 9 February
1994[2] of public respondent National Labor Relations Commission (NLRC) in NLRC NCR CA Case No.
004673-93. The former modified the decision of 26 February 1993 of the Labor Arbiter [3] by setting aside
the award of back wages, proportionate 13th month pay for 1991 and attorney's fees, while the latter denied
the motion to reconsider the former.

The antecedent facts as disclosed by the decisions of the Labor Arbiter and the NLRC, as well as by the
pleadings of the parties, are not complicated.

The petitioners were among the thirty-eight (38) regular employees of private respondent GTI Sportswear
Corporation (hereinafter GTI), a corporation engaged in the manufacture and export of ready-to-wear
garments, who were given "temporary lay-off" notices by the latter on 22 January 1991 due to alleged lack
of work and heavy losses caused by the cancellation of orders from abroad and by the garments embargo of
1990.

Believing that their "temporary lay-off" was a ploy to dismiss them, resorted to because of their union
activities and was in violation of their right to security of tenure since there was no valid ground therefor,
the 38 laid-off employees filed with the Labor Arbiter's office in the National Capital Region complaints
for illegal dismissal, unfair labor practice, underpayment of wages under Wage Orders Nos. 01 and 02, and
nonpayment of overtime pay and 13th month pay.[4]

Private respondent GTI denied the claim of illegal dismissal and asserted that it was its prerogative to lay-
off its employees temporarily for a period not exceeding six months to prevent losses due to lack of work or
job orders from abroad, and that the lay-off affected both union and non-union members. It justified its
failure to recall the 38 laid-off employees after the lapse of six months because of the subsequent
cancellations of job orders made by its foreign principals, a fact which was communicated to the petitioners
and the other complainants who were all offered severance pay. Twenty-two (22) of the 38 complainants
accepted the separation pay. The petitioners herein did not.

The cases then involving those who accepted the separation pay were pro tanto dismissed with prejudice.

In his decision of 26 February 1993 with respect to the claims of the petitioners, Labor Arbiter Pablo C.
Espiritu, Jr. found for them and disposed as follows:

WHEREFORE, above premises considered, judgment is hereby rendered finding Respondent, G.T.I.
Sportswear Corporation, liable for constructive dismissal, underpayment of wages under NCR 01 and 02,
and 13th-month pay differentials and concomitantly, Respondent corporation is hereby ordered:

a. To pay the following complainants backwages from the time of their constructive dismissal (July
22, 1991) till promulgation considering that reinstatement is no longer, decreed: ...

b. To pay complainants separation pay of 1/2 month for every year of service in lieu of
reinstatement in the following amounts: ...

c. To pay complainants 13th-month pay differentials arising out of underpayment of wages and
proportionate 13th-month pay for 1991 in the following amounts: ...

d. To pay complainants underpayment of wages under NCR Wage 01 and NCR Wage 02 in the
following amounts: ...

e. To pay complainants the amount of P120,618.87 representing 10% attorney's fees based on the
total judgment award of P1,326,807.63.

The claims for unfair labor practice, nonpayment of overtime pay, moral damages, and exemplary damages
are hereby denied for lack of merit.

SO ORDERED.[5]

In support of the disposition, the Labor Arbiter made the following ratiocinations:

On the validity of the temporary lay-off, this Arbitration Branch finds that there was ample justification on
the part of Respondent company to lay-off temporarily some of its employees to prevent losses as a result
of the reduction of the garment quota allocated to Respondent company due to the garment embargo of
1990. In fact, in the months of March, April, and May of 1991 respondent company received several
messages/correspondence from its foreign principals informing them (Respondent) that they are
cancelling/transferring some of their quotas/orders to other countries. The evidence presented by
Respondent company proves this fact (Exhibits "12", "13", "14", "15", "15-A", "16", "17" and Annexes "5",
"6", "7", showing the different documentary evidence on cancellation of orders and forced leave schedules
of workers due to lack of work). This is sustainable, as in this case, where the Respondent found it
unnecessary to continue employing some of its workers because of business recession, lack of materials to
work on due to government controls (garments embargo) and due to the lack of the demand for export
quota from its principal foreign buyers.

Although, as a general rule, Respondent company has the prerogative and right to resort to temporary lay-
off, such right is likewise limited to a period of six (6) months applying Art. 286 of the Labor Code on
suspension of employer-employee relationship not exceeding six (6) months.

In this case, respondent company was justified in the temporary lay-off of some of its employees. However,
Respondent company should have recalled them after the end of the six month period or at the least
reasonably informed them (complainants) that the Respondent company is still not in a position to recall
them due to the continuous drop of demand in the export market (locally or internationally), thereby
extending the temporary lay-off with a definite period of recall and if the same cannot be met, then the
company should implement retrenchment and pay its employees separation pay. Failing in this regard,
respondent company chose not to recall nor send notice to the complainants after the lapse of the six (6)
month period. Hence, there is in this complaint a clear case of constructive dismissal. While there is a
valid reason for the temporary lay-off, the same is also limited to a duration of six months. Thereafter the
employees, complainants herein, are entitled under the law (Art. 286) to be recalled back to work. As result
thereof, the temporary lay-off of the complainants from January 2??? 1991 (date of lay-off) to July 22,
1991 is valid, however, thereafter complainants are already entitled to backwages, in view of constructive
dismissal, due to the fact that they were no longer recalled back to work. Complainants cannot be placed
on temporary lay-off forever. The limited period of six (6) months is based provisionally to prevent
circumvention on the right to security of tenure and to prevent grave abuse of discretion on the part of the
employer. However, since during the trial it was proven, as testified by the Vice-President for marketing
and personnel manager, that the lack of work and selection of personnel continued to persist and
considering the antagonism and hostility displayed by both litigants, as observed by this Arbiter, during the
trial of this case and in view of the strained relations between the parties, reinstatement of the complainants
would not be prudent. (Divine Word High School vs. NLRC, G.R. 72207, 6 Aug. 1986; Esmalin vs.
NLRC, G.R. 67880, 15 Sept. 1989; Hernandez vs. NLRC, G.R. 34302, 10 Aug. 1989). Hence, separation
pay of 1/2 month for every year of service in lieu of reinstatement is in order. . . .

On the issue of monetary claims this Arbitration Branch finds that Respondent is liable for underpayment
of wages under NCR Wage Order 01 and 02 considering that respondent failed to rebut the claims of the
complainants. Respondent failed to show proof by means of payrolls to disprove the claim of the
complainants. Complainants are also entitled to their proportionate 13th-month pay differentials as a result
of the underpayment of wages under NCR-01 and 02 and likewise to their proportionate 13th-month pay
for 1991 for the month of January 1991. . . .

However, complainants are entitled to reasonable attorney's fees considering they were forced to engage the
services of counsel in order to fully ventilate their rights and grievances in accordance with the Labor Code
as amended.[6]

The Labor Arbiter found no sufficient evidence to prove the petitioners' charges of unfair labor practice,
overtime pay, and for moral and exemplary damages.

Private respondent GTI seasonably appealed the aforesaid decision to the NLRC, which docketed the
appeal as NLRC NCR CA Case No. 004673-93.

In its challenged decision, the NLRC concurred with the findings of the Labor Arbiter that there was a valid
lay-off of the petitioners due to lack of work, but disagreed with the latter's ruling granting back wages after
22 July 1991. The NLRC justified its postulation as follows:

However, we cannot sustain the findings of the Labor Arbiter in awarding the complainants backwages
after July 22, 1991 in view of constructive dismissal, it being acknowledged by him that "x x during the
trial it was proven, as testified by the Vice-President for marketing and personnel manager, that the lack of
work and selection of personnel continued to persist xx." Besides, it was not denied by the complainants
that during the proceeding of the case, the respondents conveyed to the complainants the impossibility of
having them recalled in view of the continued unavailability of work as the economic recession of the
respondent's principal market persisted. In fact, the respondent company offered to complainants payment
of their separation pay which offer [w]as accepted by 22 out of 38 complainants.

Having established lack of work, it necessarily follow[s] that retrenchment did take place and not
constructive dismissal. Dismissal by its term, presuppose that there was still work available and that the
employer terminated the services of the employee therefrom. The same cannot be said of the case at
bar. The complainants did not question the evidence of lack of work on account of reduction of
government quota or cancellation of orders.

Art. 286 of the Labor Code is precised [sic] in this regards when it provided that:

"Art. 286. When employment not deemed terminated.— The bona fide suspension of the operation of a
business or undertaking for a period not exceeding six (6) months, x x x shall not terminate employment x
x x."

It is only after the six months period that an employee can be presumed to have been terminated.[7]

It thus set aside the awards for back wages, proportionate 13th month pay for 1991, and for attorney's fees
which it found to be without basis, and disposed as follows:

WHEREFORE, premises considered the decision of the Labor Arbiter dated February 26, 1993 is hereby
modified by deleting the award of backwages, the proportionate 13th month pay for 1991 and attorney's
fees for lack of legal basis and direct, the payment of separation pay equal to one-half month salary for
every year of service as of July 22, 1991.[8]

Unable to accept the NLRC judgment, the petitioners filed this special civil action for certiorari. They
contend that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion when it:
(a) ruled that there was a valid and legal reduction of business and in sustaining the theory of redundancy in
justifying the dismissal of the petitioners; (b) failed to apply in full the provisions of law and of
jurisprudence as to the full payment of back wages in cases of illegal dismissal; and (c) deleted the award
of attorney's fees.

We gave due course to this petition after the filing of the separate comments to the petition by the public
and private respondents and the petitioners' reply to the public respondent's comment.

The petitioners' first contention is based on a wrong premise or on a miscomprehension of the statement of
the NLRC. What the NLRC sustained and affirmed is not redundancy, but retrenchment as a ground for
termination of employment. They are not synonymous but distinct and separate grounds under Article 283
of the Labor Code, as amended.[9]

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the
actual requirements of the enterprise. A position is redundant where it is superfluous, and superfluity of a
position or positions may be the outcome of a number of factors, such as overhiring of workers, decreased
volume of business, or dropping of a particular product line or service activity previously manufactured or
undertaken by the enterprise.[10]

Retrenchment, on the other hand, is used interchangeably with the term "lay-off." It is the termination of
employment initiated by the employer through no fault of the employee's and without prejudice to the
latter, resorted to by management during periods of business recession, industrial depression, or seasonal
fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for
a new production program or the introduction of new methods or more efficient machinery, or of
automation.[11] Simply put, it is an act of the employer of dismissing employees because of losses in the
operation of a business, lack of work, and considerable reduction on the volume of his business, a right
consistently recognized and affirmed by this Court.[12]

Article 283 of the Labor Code which covers retrenchment, reads as follows:

ART. 283. Closure of establishment and reduction of personnel. -- The employer may also terminate the
employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title, by servicing 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 of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closure or cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least
one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6)
months shall be considered one (1) whole year.

This provision, however, speaks of a permanent retrenchment as opposed to a temporary lay-off as is the
case here. There is no specific provision of law which treats of a temporary retrenchment or lay-off and
provides for the requisites in effecting it or a period or duration therefor. These employees cannot forever
be temporarily laid-off. To remedy this situation or fill the hiatus, Article 286 may be applied but only by
analogy to set a specific period that employees may remain temporarily laid-off or in floating status.[13] Six
months is the period set by law that the operation of a business or undertaking may be suspended thereby
suspending the employment of the employees concerned. The, temporary lay-off wherein the employees
likewise cease to work should also not last longer than six months. After six months, the employees should
either be recalled to work or permanently retrenched following the requirements of the law, and that failing
to comply with this would be tantamount to dismissing the employees and the employer would thus be
liable for such dismissal.

To determine, therefore, whether the petitioners were validly retrenched or were illegally dismissed, we
must determine whether there was compliance with the law regarding a valid retrenchment at anytime
within the six month-period that they were temporarily laid-off.

Under the aforequoted Article 283 of the Labor Code, there are three basic requisites for a valid
retrenchment:

(1) the retrenchment is necessary to prevent losses and such losses are proven;
(2) written notice to the employees and to the Department of Labor and Employment at least one
month prior to the intended date of retrenchment; and
(3) payment of separation pay equivalent to one month pay or at least 1/2 month pay for every year
of service, whichever is higher.

As for the first requisite, whether or not an employer would imminently suffer serious or substantial losses
for economic reasons is essentially a question of fact for the Labor Arbiter and the NLRC to
determine.[14] Here, both the Labor Arbiter and the NLRC found that the private respondent was suffering
and would continue to suffer serious losses, thereby justifying the retrenchment of some of its employees,
including the petitioners. We are not prepared to disregard this finding of fact. It is settled that findings
of quasi-judicial agencies which have acquired expertise in the matters entrusted to their jurisdiction are
accorded by this Court not only with respect but with finality if they are supported by substantial
evidence.[15] The latter means that amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.[16] In the instant case, no claim was made by any of the parties that such a
finding was not supported by substantial evidence. Furthermore, the petitioners did not appeal the finding
of the Labor Arbiter that their temporary lay-off to prevent losses was amply justified. They cannot now
question this finding that there is a valid ground to lay-off or retrench them.

The requirement of notice to both the employees concerned and the Department of Labor and Employment
(DOLE) is mandatory and must be written and given at least one month before the intended date of
retrenchment. In this case, it is undisputed that the petitioners were given notice of the temporary lay-
off. There is, however, no evidence that any written notice to permanently retrench them was given at least
one month prior to the date of the intended retrenchment. The NLRC found that GTI conveyed to the
petitioners the impossibility of recalling them due to the continued unavailability of work. [17] But what the
law requires is a written notice to the employees concerned and that requirement is mandatory . [18] The
notice must also be given at least one month in advance of the intended date of retrenchment to enable the
employees to look for other means of employment and therefore to ease the impact of the loss of their jobs
and the corresponding income.[19] That they were already on temporary lay-off at the time notice should
have been given to them is not an excuse to forego the one-month written notice because by this time, their
lay-off is to become permanent and they were definitely losing their employment.

There is also nothing in the records to prove that a written notice was ever given to the DOLE as required
by law. GTI's position paper,[20] offer of exhibits,[21]Comment to the Petition,[22] and Memorandum[23] in
this case do not mention of any such written notice. The law requires two notices — one to the employee/s
concerned and another to the DOLE — not just one. The notice to the DOLE is essential because the right
to retrench is not an absolute prerogative of an employer but is subject to the requirement of law that
retrenchment be done to prevent losses. The DOLE is the agency that will determine whether the planned
retrenchment is justified and adequately supported by facts.[24]

With respect to the payment of separation pay, the NLRC found that GTI offered to give the petitioners
their separation pay but that the latter rejected such offer which was accepted only by 22 out of the 38
original complainants in this case.[25] As to when this offer was made was not, however, proven. All that
the parties, the Labor Arbiter and the NLRC stated in their respective pleadings and decisions was that the
offer and payment were made during the pendency of the illegal dismissal case with the Labor Arbiter. But
with or without this offer of separation pay, our conclusion would remain the same: that the retrenchment
of the petitioners is defective in the face of our finding that the required notices to both the petitioners and
the DOLE were not given.

The lack of written notice to the petitioners and to the DOLE does not, however, make the petitioners'
retrenchment illegal such that they are entitled to the payment of back wages and separation pay in lieu of
reinstatement as they contend. Their retrenchment, for not having been effected with the required notices,
is merely defective. In those cases where we found the retrenchment to be illegal and ordered the
employees' reinstatement and the payment of back wages, the validity of the cause for retrenchment, that is
the existence of imminent or actual serious or substantial losses, was not proven. [26] But here, such a cause
is present as found by both the Labor Arbiter and the NLRC. There is only a violation by GTI of the
procedure prescribed in Article 283 of the Labor Code in effecting the retrenchment of the petitioners.

It is now settled that where the dismissal of an employee is in fact for a just and valid cause and is so
proven to be but he is not accorded his right to due process, i.e., he was not furnished the twin requirements
of notice and the opportunity to be heard, the dismissal shall be upheld but the employer must be
sanctioned for non-compliance with the requirements of or for failure to observe due process. The
sanction, in the nature of indemnification or penalty, depends on the facts of each case and the gravity of
the omission committed by the employer and has ranged from P1,000.00 as in the cases of Wenphil vs.
National Labor Relations Commission,[27] Seahorse Maritime Corp. vs. National Labor Relations
Commission,[28] Shoemart, Inc. vs. National Labor Relations Commission,[29] Rubberworld (Phils.), Inc. vs.
National Labor Relations Commission,[30] Pacific Mills, Inc. vs. Alonzo,[31] and Aurelio vs. National Labor
Relations Commission[32] to P10,000.00 in Reta vs. National Labor Relations Commission [33] and Alhambra
Industries, Inc. vs. National Labor Relations Commission.[34] More recently, in Worldwide Papermills, Inc.
vs. National Labor Relations Commission,[35] the sum of P5,000.00 was awarded to the employee as
indemnification for the employer's failure to comply with the requirements of procedural due process.

Accordingly, we affirm the deletion by the NLRC of the award of back wages. But because the required
notices of the petitioners' retrenchment were not served upon the petitioners and the DOLE, GTI must be
sanctioned for such failure and thereby required to indemnify each of the petitioners the sum of P2,000.00
which we find to be just and reasonable under the circumstances of this case.

As for the award of the 13th-month pay made by the Labor Arbiter and deleted by the NLRC, we do not
find anything in the decision of the NLRC to support the deletion of this award other than its opinion that
there is lack of legal basis to support such an award, without, however, furnishing any explanation for this
finding. Thus, the award of the 13th-month pay made and sufficiently justified by the Labor Arbiter must
be reinstated as prayed for by the petitioners.
Also, the petitioners are entitled to an award for attorney's fees pursuant to paragraph 7, Article 2208 of the
Civil Code which must, however, be reasonable. The award of P120,618.87, which is equivalent to ten
percent (10%) of the amounts recovered, as attorney's fees should be reduced to P25,000.00, an amount we
find to be reasonable. The ten percent (10%) attorney's fees provided for in Article 111 of the Labor Code
and Section 11, Rule VIII, Book III of the Implementing Rules is the maximum; hence, any amount less
than that may be awarded as the circumstances of the case may warrant.

WHEREFORE, the instant petition is partially GRANTED and the challenged decision of public
respondent National Labor Relations Commission in NLRC NCR CA Case No. 004673-93 is modified by
reversing and setting aside its deletion of the awards in the Labor Arbiter's decision of proportionate 13th
month pay for 1991 and attorney's fees, the latter being reduced to P25,000.00. Separation pay equivalent
to one-half (1/2) month pay for every year of service shall be computed from the dates of the
commencement of the petitioners' respective employment until the end of their six-month temporary lay-off
which is 22 July 1991. In addition, private respondent G.T.I. Sportswear Corporation is ordered to pay
each of the petitioners the sum of P2,000.00 as indemnification for its failure to observe due process in
effecting the retrenchment.

Costs against the private respondent.

SO ORDERED.

G.R. No. 116354, December 04, 1997

HEIRS OF THE LATE R/O REYNALDO ANIBAN REPRESENTED BY BRIGIDA P. ANIBAN,

PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, PHILIPPINE
TRANSMARINE CARRIERS, INC., NORWEGIAN SHIP MANAGEMENT, INC. A/S, AND
PIONEER INSURANCE AND SURETY CORPORATION, RESPONDENTS.
DECISION

BELLOSILLO, J.:

BRIGIDA P. ANIBAN representing the heirs of the late Reynaldo Aniban assails the decision of the
National Labor Relations Commission (NLRC), [1] reversing that of the Philippine Overseas Employment
Administration (POEA) which ruled that myocardial infarction was an occupational decease in the case of
radio operator Reynaldo Aniban and awarded, aside from attorney's fees of US$6,700.00, a total of
US$67,000.00 in death benefits to his heirs: US$13,000.00 for death benefits under the POEA Standard
Employment Contract; US$30,000.00 for death benefits under the Collective Bargaining Agreement; and,
US$24,000.00 as additional compensation for his three (3) children under eighteen (18) years of age at
US$8,000.00 each, [2] as well as denying the motion for its reconsideration. [3]

Reynaldo Aniban was employed by the Philippine Transmarine Carriers, Inc. (TRANSMARINE) acting in
behalf of its foreign principal Norwegian Ship Management A/S (NORWEGIAN) [4] as radio operator
(R/O) on board the vessel "Kassel" for a contract period of nine (9) to eleven (11) months. On 26 June
1992, or during the period of his employment, R/O Aniban died due to myocardial infarction. [5] He was
survived by a pregnant wife and three (3) minor children who prayed for death benefits provided under par.
(1) of the POEA Standard Employment Contract thus -
1. In case of death of the seaman during the term of his contract, the employer shall pay his beneficicaries
the Philippine currency equivalent to the amount of: x x x x b. US$13,000.00 for other officers including
radio operators and master electricians.
A claim was also made for additional death benefits under the Collective Bargaining Agreement executed
between Associated Marine Officers and Seamen's Union of the Philippines and NORWEGIAN
represented by TRANSMARINE, to wit:

Article 11

Compensation for loss of Life

Death caused by an Occupational Injury or Disease. - In the event of death of an officer due to an
occupational injury or disease while serving on board, while travelling to and from the vessel on
Company's business or due to marine peril, the Company will pay his beneficiaries a compensation in
accordance with the POEA's rules and regulations x x x x It is agreed that these beneficiaries will be the
following next of kin: The officer's spouse, children or parents in this preferential order.

The company will pay an additional compensation to the beneficiaries listed above with same preferential
order to that compensation provided by the POEA Rules and Regulations. The additional compensation
will be US$30,000.00 plus US$8,000.00 to each child under the age of eighteen (18) years, maximum
US$24,000.00 (not exceeding 3 children).
The claim was granted only to the extent of US$13,000.00 provided under the POEA Standard
Employment Contract. The claim under the CBA was rejected on the ground that myocardial infarction of
which R/O Aniban died was not an occupational disease as to entitle his heirs to the additional death
benefits provided therein. Consequently, Brigida Aniban and her children filed a formal complaint for non-
payment of death compensation benefits under the CBA. [6]

On 11 January 1994 the POEA ruled that myocardial infarction was an occupational disease in the case of
R/O Aniban and granted the prayer of his heirs for payment of death benefits under the POEA Standard
Employment Contract as well as under the Collective Bargaining Agreement plus attorney's fees of
US$6,700.00 equivalent to 10% of the total award. [7]

On appeal, however, the NLRC reversed the POEA and denied the claim for additional death benefits on
the ground that it was the Employees Compensation Commission (ECC) which had original and exclusive
jurisdiction to hear and determine the claim for death benefits. [8] A motion to reconsider the decision of the
NLRC was denied; hence, this petition by the heirs of R/O Reynaldo Aniban.

Two issues are raised before us: (a) whether the POEA has jurisdiction to determine the claim of petitioners
for death benefits, and (b) whether myocardial infarction is an occupational disease as to entitle petitioners
to the death benefits provided under the CBA.

It must be stated at the outset that the proper issue raised before us is that dealing with the jurisdiction of
the POEA to resolve the claim for additional death benefits since the NLRC denied the claim on this sole
ground. However, we are likewise addressing the second issue, i.e., merits of the claim, to afford the parties
the relief they seek and prevent further needless delay in the resolution thereof.

On the issue of jurisdiction, it is not disputed that R/O Reynaldo Aniban was a Filipino seaman and that he
died on board the vessel of his foreign employer during the existence of his employment contract, hence,
this claim for death benefits by his widow and children.

The law applicable at the time the complaint was filed on 13 November 1992 was Art. 20 of the Labor
Code as amended by E. O. Nos. 797 [9] and 247 [10] which clearly provided that "original and exclusive
jurisdiction over all matters or cases including money claims, involving employer-employee relations,
arising out of or by virtue of any law or contract involving Filipino seamen for overseas employment is
vested with the POEA. [11]

On the other hand, the jurisdiction of the ECC comes into play only when the liability of the State
Insurance Fund is in issue, as correctly suggested by the Solicitor General. The ECC was created under
Title II, Bk. IV, of the Labor Code with the heading of Employees Compensation and State Insurance Fund.
In addition to its powers and duties enumerated in Art. 177, Art. 180 explicitly provides that the
Commission exercises appellate jurisdiction only over decisions rendered by either the Government Service
Insurance System (GSIS) or Social Security System (SSS) in the exercise of their respective original and
exclusive jurisdictions. Hence, the ECC may not be considered as having jurisdiction over money claims,
albeit death compensation benefits, of overseas contract workers. Thus, in so ruling, the NLRC clearly
committed grave abuse of discretion.

As regards the second issue, i.e., whether the death of Reynaldo Aniban due to myocardial infarction is
compensable, the POEA ruled in the affirmative when it likened the infirmity to a "heart attack" commonly
aggravated by pressure and strain. It was observed that R/O Aniban, in addition to undergoing physical
exertion while performing his duties as radio operator, was also exposed to undue pressure and strain as he
was required to be on call twenty-four (24) hours a day to receive/transmit messages and to keep track of
weather conditions. Such pressure and strain were aggravated by being away from his family, a plight
commonly suffered by all seamen. In the case of R/O Aniban, the separation was particularly distressful as
his pregnant wife was due to deliver their fourth child. Hence, the POEA ruled that myocardial infarction
was an occupational disease.

We cannot rule otherwise. Reynaldo Aniban was healthy at the time he boarded the vessel of his foreign
employer. His medical records reveal that he had no health problem except for a "defective central vision
secondary to injury." [12] Hence, he was certified "fit to work as radio operator" by the examining physician.
However, R/O Aniban died three (3) months after he boarded "Kassel" due to myocardial infarction. As
aforesaid, the POEA ruled that the cause of death could be considered occupational. Being a factual finding
by the administrative agency tasked with its determination, such conclusion deserves respect and must be
accorded finality. [13] Besides we have already repeatedly ruled that death due to myocardial infarction is
compensable. [14] In Eastern Shipping Lines, Inc. v. POEA, [15] although compensability was not the main
issue, we upheld the decision of the POEA adjudging as compensable the death of a seaman on board the
vessel of his foreign employer due to myocardial infarction.

Although it may be conceded in the instant case that the physical exertion involved in carrying out the
functions of a radio operator may have been quite minimal, we cannot discount the pressure and strain that
went with the position of radio operator. As radio operator, Reynaldo Aniban had to place his full attention
in hearing the exact messages received by the vessel and to relay those that needed to be transmitted to the
mainland or to other vessels. We have already recognized that any kind of work or labor produces stress
and strain normally resulting in the wear and tear of the human body. [16] It is not required that the
occupation be the only cause of the disease as it is enough that the employment contributed even in a small
degree to its development. [17]

It must be stressed that the strict rules of evidence are not applicable in claims for compensation
considering that probability and not the ultimate degree of certainty is the test of proof in compensation
proceedings. [18]

It is a matter of judicial notice that an overseas worker, having to ward off homesickness by reason of being
physically separated from his family for the entire duration of his contract, bears a great degree of
emotional strain while making an effort to perform his work well. The strain is even greater in the case of a
seaman who is constantly subjected to the perils of the sea while at work abroad and away from his family.
In this case, there is substantial proof that myocardial infarction is an occupational disease for which
Aniban's employer obligated itself to pay death benefits and additional compensation under the CBA in the
event of the demise of its employee by reason thereof.

On the award of attorney's fees which NLRC deleted on the ground that there was no unlawful withholding
of wages, suffice it to say that Art. 111 of the Labor Code does not limit the award of attorney's fees to
cases of unlawful withholding of wages only. What it explicitly prohibits is the award of attorney's fees
which exceed 10% of the amount of wages recovered. Thus, under the circumstances, attorney's fees are
recoverable for the services rendered by petitioner's counsel to compel Aniban's employer to pay its
monetary obligations under the CBA. However the amount of P50,000.00 claimed as attorney's fees in this
case is the reasonable compensation based on the records and not the maximum 10% of the total award as
granted by POEA. The reduction of unreasonable attorney's fees is within our regulatory powers. [19]

WHEREFORE, the assailed Decision and Resolution of the National Labor Relations Commission
are REVERSED and SET ASIDE.

The Decision of the Philippine Overseas Employment Administration dated 10 January 1994 ordering
respondents Philippine Transmarine Carriers, Inc., Norwegian Ship Management A/S, and Pioneer
Insurance and Surety Corporation jointly and severally to pay the heirs of the late R/O Reynaldo Aniban
represented by his widow Brigida P. Aniban the following amounts in Philippine currency at the prevailing
rate of exchange at the time of payment: (a) US$13,000.00 for death benefits in accordance with POEA
Standard Employment Contract; (b) US$30,000.00 death benefits under the Collective Bargaining
Agreement; (c) US$24,000.00 additional compensation for the three (3) children under 18 years of age at
US$8,000.00 each; and, (d) US$6,700.00 for attorney's fees, is REINSTATED and ADOPTED herein,
with the MODIFICATION that the award of US$6,700.00 or its equivalent in Philippine currency for
attorney's fees is reduced to P50,000.00, with costs against private respondents.

SO ORDERED.

CHAPTER V

G.R. No. 113097, April 27, 1998

NASIPIT LUMBER COMPANY, INC., AND PHILIPPINE WALLBOARD CORPORATION,

PETITIONERS, VS. NATIONAL WAGES AND PRODUCTIVITY COMMISSION, WESTERN
AGUSAN WORKERS UNION (WAWU-ULGWP LOCAL 101), TUNGAO LUMBER WORKERS
UNION (TULWU-ULGWP LOCAL 102) AND UNITED WORKERS UNION (UWU-ULGWP
LOCAL 103), RESPONDENTS.

DECISION

PANGANIBAN, J.:

The Labor Code, as amended by RA 6727 (the Wage Rationalization Act), grants the National Wages and
Productivity Commission (NWPC) the power to prescribe rules and guidelines for the determination of
appropriate wages in the country. Hence, “guidelines” issued by the Regional Tripartite Wages and
Productivity Boards (RTWPB) without the approval of or, worse, contrary to those promulgated by the
NWPC are ineffectual, void and cannot be the source of rights and privileges.

The Case
This is the principle used by the Court in resolving this petition for certiorari under Rule 65 of the Rules of
Court assailing the Decision[1] dated March 8, 1993, promulgated by the NWPC[2] which disposed as
follows:

“WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The application
for exemption of Anakan Lumber Company is hereby GRANTED for a period of one (1) year retroactive to
the date subject Wage Orders took effect until November 21, 1991. The applications for exemption of
Nasipit Lumber Company and Philippine Wallboard Corporation are hereby DENIED for lack of merit, and
as such, they are hereby ordered to pay their covered workers the wage increases under subject Wage
Orders retroactive to the date of effectivity of said Wage Orders plus interest of one percent (1%) per
month.
SO ORDERED.”

Petitioners also challenge the NWPC’s Decision[3] dated November 17, 1993 which denied their motion for
reconsideration.

The RTWPB’s August 1, 1991 Decision, which the NWPC modified, disposed as follows:

“WHEREFORE, all foregoing premises considered, the instant petition for exemption from compliance
with Wage Order Nos. RX-01 and RX-01-A is hereby approved under and by virtue of criteria No. 2,
Section 3 of RTWPB Guidelines No. 3 on Exemption, dated November 26, 1990, for a period of only one
(1) year, retroactive to the date said Wage Order took effect up to November 21, 1991.
SO ORDERED.”[4]

The Facts

The undisputed facts are narrated by the NWPC as follows:

“On October 20, 1990, the Region X [Tripartite Wages and Productivity] Board issued Wage Order No.
RX-01 which provides as follows:

‘Section 1. Upon the effectivity of this Wage Order, the increase in minimum wage rates applicable to
workers and employees in the private sector in Northern Mindanao (Region X) shall be as follows:

a. The provinces of Agusan del Norte, Bukidnon, Misamis Oriental, and the Cities of Butuan, Gingoog,
and Cagayan de Oro - - - - -P13.00/day

b. The provinces of Agusan del Sur, Surigao del Norte and Misamis Occidental, and the Cities of Surigao
Oroquieta, Ozamis and Tangub - - - - - P11.00/day

c. The province of Camiguin P9.00/day’

Subsequently, a supplementary Wage Order No. RX-01-A was issued by the Board on November 6, 1990
which provides as follows:

‘Section 1. Upon the effectivity of the original Wage Order RX-01, all workers and employees in the
private sector in Region X already receiving wages above the statutory minimum wage rates up to one
hundred and twenty pesos (P120.00) per day shall also receive an increase of P13, P11, P9 per day, as
provided for under Wage Order No. RX-01;’

Applicants/appellees Nasipit Lumber Company, Inc. (NALCO), Philippine Wallboard Corporation (PWC),
and Anakan Lumber Company (ALCO), claiming to be separate and distinct from each other but for
expediency and practical purposes, jointly filed an application for exemption from the above-mentioned
Wage Orders as distressed establishments under Guidelines No. 3, issued by the herein Board on November
26, 1990, specifically Sec. 3(2) thereof which, among others, provides:

‘A. For purposes of this Guidelines the following criteria to determine whether the applicant-firm is
actually distressed shall be used.

xxx xxx xxx

2. Establishment belonging to distressed industry - an establishment that is engaged in an industry that

is distressed due to conditions beyond its control as may be determined by the Board in consultation with
DTI and NWPC. (Underscoring supplied)

xxx xxx xxx

Applicants/appellees aver that they are engaged in logging and integrated wood processing industry but are
distressed due to conditions beyond their control, to wit: 1) Depressed economic conditions due to
worldwide recession; 2) Peace and order and other emergency-related problems causing disruption and
suspension of normal logging operations; 3) Imposition of environmental fee for timber production in
addition to regular forest charges; 4) Logging moratorium in Bukidnon; 5) A reduction in the annual
allowable volume of cut logs of NALCO & ALCO by 59%; 6) Highly insufficient raw material supply; 7)
Extraordinary increases in the cost of fuel, oil, spare parts, and maintenance; 8) Excessive labor
cost/production ratio that is more or less 47%; and 9) Lumber export ban.
On the other hand, oppositor/appellant Unions jointly opposed the application for exemption on the ground
that said companies are not distressed establishments since their capitalization has not been impaired by
25%.”[5]

Citing liquidity problems and business decline in the wood-processing industry, the RTWPB approved the
applicants’ joint application for exemption in this wise:

“1. The Board considered the arguments presented by petitioners and the oppositors. The Board likewise
took note of the financial condition of petitioner firms. One of the affiliates, Anakan Lumber Company, is
confirmed to be suffering from capital impairment by: 14:80% in 1988, 71.35% in 1989 and 100% in 1990.
On the other hand, NALCO had a capital impairment of 6.41%. 13.53% and 17.04% in 1988, 1989 and
1990, respectively, while PWC had no capital impairment from 1988 to 1990. However, the Board also
took note of the fact that petitioners are claiming for exemption, not on the strength of capital impairment,
but on the basis of belonging to a distressed industry - an establishment that is engaged in an industry that
is distressed due to conditions beyond its control as may be determined by the Board in consultation with
DTI and NWPC.
2. Inquiries made by the Board from the BOI and the DTI confirm that all petitioner-firms are
encountering liquidity problems and extreme difficulty servicing their loan obligations.
3. A perusal of the Provincial Trade and Industry Development Plan for Agusan del Norte and Butuan
City where petitioners are operating their business, confirms the existence of a slump in the wood-
processing industry due to the growing scarcity of [a] large volume of raw materials to feed the various
plywood and lumber mills in the area. A lot of firms have closed and shifted to other ventures, the report
continued, although the competitive ones are still in operation.
4. The Board took note of the fact that most of the circumstances responsible for the financial straits of
petitioners are largely external, over which petitioners have very little control. The Board feels that as an
alternative to closing up their business[es] which could bring untold detriment and dislocation to [their]
4,000 workers and their families, petitioners should be extended assistance and encouragement to continue
operating - so that jobs could thereby be preserved during these difficult times. One such way is for the
Board to grant them a temporary reprieve from compliance with the mandated wage increase specifically
W.O. RX-01 and RX-01-A only.”[6]
Dissatisfied with the RTWPB’s Decision, the private respondents lodged an appeal with the NWPC, which
affirmed ALCO’s application but reversed the applications of herein petitioners, NALCO and PWC. The
NWPC reasoned:

“The Guidelines No. 3 dated November 26, 1990, issued by the herein Board cannot be used as valid basis
for granting applicants/appellees application for exemption since it did not pass the approval of this
Commission.
Under the Rules of Procedure on Minimum Wage Fixing dated June 4, 1990, issued by this Commission
pursuant to Republic Act 6727, particularly Section 1 of Rule VIII thereof provides that:

‘Section 1. Application For Exemption. Whenever a wage order provides for exemption, applications
thereto shall be filed with the appropriate Board which shall process the same, subject to guidelines issued
by the Commission.” (Underscoring supplied)

Clearly, it is the Commission that is empowered to set [the] criteria on exemption from compliance with
wage orders. While the Boards may issue supplementary guidelines on exemption, the same should first
pass the Commission for the purpose of determining its conformity to the latter’s general policies and
guidelines relative thereto. In fact, under the “Guidelines on Exemption from Compliance with the
Prescribed Wage/Cost of Living Allowance Increases Granted by the Regional Tripartite Wages and
Productivity Boards” dated February 25, 1991, issued by the Commission, there is a provision that “(T)he
Board may issue supplementary guidelines for exemption x x x subject to review/approval by the
Commission”. (Section 11). In the case at bar, after the Commission Secretariat made some comments on
said Guidelines No. 3, the same was never submitted again for [the] Commission’s approval either
justifying its original provisions or incorporating the comments made thereon. Until and unless said
Guidelines No. 3 is approved by the Commission, it has no operative force and effect.
The applicable guidelines on exemption therefore is that one issued by the Commission dated February 25,
1991, the pertinent portion of which reads:
“Section 3. CRITERIA FOR EXEMPTION

xxx xxx xxx

2. Distressed Employers/Establishment:

a. In the case of a stock corporation, partnership, single proprietorship or non-stock, non-profit

organization engaged in business activity or charging fees for its services.

When accumulated losses at end of the period under review have impaired by at least 25 percent the:

- Paid-up-capital at the end of the last full accounting period preceding the application, in the case of
corporations;

- Total invested capital at the beginning of the last full accounting period preceding the application, in the
case of partnership and single proprietor-ships”(Underscoring supplied)

A perusal of the financial documents on record shows that for the year 1990, which is the last full
accounting period preceding the applications for exemption, appellees NALCO, ALCO, and PWC incurred
a capital impairment of 1.89%, 28.72%, and 5.03%, respectively. Accordingly, based on the criteria set
forth above in the NWPC Guidelines on Exemption, only the application for exemption of ALCO should be
approved in view of its capital impairment of 28.72%.
We are not unmindful of the fact that during the Board hearing conducted, both labor and management
manifested their desire for a uniform decision to apply to all three (3) firms. However, we cannot grant the
same for want of legal basis considering that we are required by the rules to decide on the basis of the merit
of application by an establishment having a legal personality of its own.” [7]
In denying petitioners’ motion for reconsideration, public respondent explained:

“The fact that applicant companies relied in good faith upon Guidelines No. 3 issued by the Board a quo,
the same is not sufficient reason that they should be assessed based on the criteria of said Guidelines
considering that it does not conform to the policies and guidelines relative to wage exemption issued by this
Commission pursuant to Republic Act 6727. Consequently, it has no force and effect. As such, said
Guidelines No. 3 cannot therefore be a source of a right no matter if one has relied on it in good faith. In
like manner that the workers, who are similarly affected, cannot be bound thereof.
Moreover, even assuming that Guidelines No. 3 conforms to the procedural requirement, still, the same
cannot be given effect insofar as it grants exemption by industry considering that the subject Wage Order
mentioned only distressed establishments as one of those to be exempted thereof. It did not
mention exemption by industries. Well-settled is the rule that an implementing guidelines [sic] cannot
expand nor limit the provision of [the] law it seeks to implement. Otherwise, it shall be considered ultra
vires. And, contrary to applicant companies’ claim, this Commission does not approve rules implementing
the Wage Orders issued by the Regional Tripartite Wages and Productivity Boards. Perforce, it cannot be
said that this Commission has approved the Rules Implementing Wage Order No[s]. RX-01 and RX-01-
A.”[8]

Hence, this recourse.[9]

The Issue

Petitioners raise this solitary issue:

“With all due respect, Public Respondent National Wages and Productivity Commission committed grave
abuse of discretion amounting to lack of or in excess of jurisdiction in ruling that RTWPB-X-Guideline No.
3 has ‘no operative force and effect’, among others, and consequently, denying for lack of merit the
application for exemption of petitioners Nasipit Lumber Company, Inc. and Philippine Wallboard
Corporation from the coverage of Wage Orders Nos. RX-01 and RX-01-A.”

In the main, the issue boils down to a question of power. Is a guideline issued by an RTWPB without the
approval of or, worse, contrary to the guidelines promulgated by the NWPC valid?

The Court’s Ruling

The petition is unmeritorious. The answer to the above question is in the negative.

Sole Issue: Approval of NWPC Required

Petitioners contend that the NWPC gravely abused its discretion in overturning the RTWPB’s approval of
their application for exemption from Wage Orders RX-01 and RX-01-A. They argue that under Art. 122 (e)
of the Labor Code, the RTWPB has the power “[t]o receive, process and act on applications for exemption
from prescribed wage rates as may be provided by law or any wage order.” [10] They also maintain that no
law expressly requires the approval of the NWPC for the effectivity of the RTWPB’s Guideline No. 3.
Assuming arguendo that the approval of the NWPC was legally necessary, petitioners should not be
prejudiced by their observance of the guideline, pointing out that the NWCP’s own guidelines[11] took
effect “only on March 18, 1991 long after Guideline No. 3 was issued on November 26, 1990.”[12] Lastly,
they posit that the NWPC guidelines “cannot be given retroactive effect as [they] will affect or change the
petitioners’ vested rights.”[13]

The Court is not persuaded.

Power to Prescribe Guidelines Lodged in the NWPC, Not in the RTWPB

The three great branches and the various administrative agencies of the government can exercise only those
powers conferred upon them by the Constitution and the law. [14] It is through the application of this basic
constitutional principle that the Court resolves the instant case.

RA 6727 (the Wage Rationalization Act), amending the Labor Code, created both the NWPC and the
RTWPB and defined their respective powers. Article 121 of the Labor Code lists the powers and functions
of the NWPC, as follows:

“ART. 121. Powers and Functions of the Commission. - The Commission shall have the following powers
and functions:
(a) To act as the national consultative and advisory body to the President of the Philippine[s] and Congress
on matters relating to wages, incomes and productivity;
(b) To formulate policies and guidelines on wages, incomes and productivity improvement at the
enterprise, industry and national levels;
(c) To prescribe rules and guidelines for the determination of appropriate minimum wage and productivity
measures at the regional, provincial or industry levels;
(d) To review regional wage levels set by the Regional Tripartite Wages and Productivity Boards to
determine if these are in accordance with prescribed guidelines and national development plans;
(e) To undertake studies, researches and surveys necessary for the attainment of its functions and
objectives, and to collect and compile data and periodically disseminate information on wages and
productivity and other related information, including, but not limited to, employment, cost-of-living, labor
costs, investments and returns;
(f) To review plans and programs of the Regional Tripartite Wages and Productivity Boards to determine
whether these are consistent with national development plans;
(g) To exercise technical and administrative supervision over the Regional Tripartite Wages and
Productivity Boards;
(h) To call, from time to time, a national tripartite conference of representatives of government, workers
and employers for the consideration of measures to promote wage rationalization and productivity; and
(i) To exercise such powers and functions as may be necessary to implement this Act.
xxx xxx x x x” (Underscoring supplied)

Article 122 of the Labor Code, on the other hand, prescribes the powers of the RTWPB thus:

“ART.122. Creation of Regional Tripartite Wages and Productivity Boards.

xxx xxx xxx
The Regional Boards shall have the following powers and functions in their respective territorial
jurisdiction:
(a) To develop plans, programs and projects relative to wages, income and productivity improvement for
their respective regions;
(b) To determine and fix minimum wage rates applicable in their region, provinces or industries therein and
to issue the corresponding wage orders, subject to guidelines issued by the Commission;
(c) To undertake studies, researches, and surveys necessary for the attainment of their functions, objectives
and programs, and to collect and compile data on wages, incomes, productivity and other related
information and periodically disseminate the same;
(d) To coordinate with the other Regional Boards as may be necessary to attain the policy and intention of
this Code.
(e) To receive, process and act on applications for exemption from prescribed wage rates as may be
provided by law or any Wage Order; and
(f) To exercise such other powers and functions as may be necessary to carry out their mandate under this
Code.” (Underscoring supplied)

The foregoing clearly grants the NWPC, not the RTWPB, the power to “prescribe the rules and guidelines”
for the determination of minimum wage and productivity measures. While the RTWPB has the power to
issue wage orders under Article 122 (b) of the Labor Code, such orders are subject to the guidelines
prescribed by the NWPC. One of these guidelines is the “Rules on Minimum Wage Fixing,” which was
issued on June 4, 1990.[15] Rule IV, Section 2 thereof, allows the RTWPB to issue wage orders exempting
enterprises from the coverage of the prescribed minimum wages.[16] However, the NWPC has the power not
only to prescribe guidelines to govern wage orders, but also to issue exemptions therefrom, as the said rule
provides that “[w]henever a wage order provides for exemption, applications thereto shall be filed with the
appropriate Board which shall process the same, subject to guidelines issued by the Commission.”[17] In
short, the NWPC lays down the guidelines which the RTWPB implements.

Significantly, the NWPC authorized the RTWPB to issue exemptions from wage orders, but subject to its
review and approval.[18] Since the NWPC never assented to Guideline No. 3 of the RTWPB, the said
guideline is inoperative and cannot be used by the latter in deciding or acting on petitioners’ application for
exemption. Moreover, Rule VIII, Section 1 of the NWPC’s Rules of Procedure on Minimum Wage Fixing
issued on June 4, 1990 -- which was prior to the effectivity of RTWPB Guideline No. 3 -- requires that an
application for exemption from wage orders should be processed by the RTWPB, subject specifically to the
guidelines issued by the NWPC.

To allow RTWPB Guideline No. 3 to take effect without the approval of the NWPC is to arrogate unto
RTWPB a power vested in the NWPC by Article 121 of the Labor Code, as amended by RA 6727. The
Court will not countenance this naked usurpation of authority. It is a hornbook doctrine that the issuance of
an administrative rule or regulation must be in harmony with the enabling law. If a discrepancy occurs
“between the basic law and an implementing rule or regulation, it is the former that prevails.” [19] This is so
because the law cannot be broadened by a mere administrative issuance. It is axiomatic that “[a]n
administrative agency cannot amend an act of Congress.”[20] Article 122 (e) of the Labor Code cannot be
construed to enable the RTWPB to decide applications for exemption on the basis of its own guidelines
which were not reviewed and approved by the NWPC, for the simple reason that a statutory grant of
“powers should not be extended by implication beyond what may be necessary for their just and reasonable
execution. Official powers cannot be merely assumed by administrative officers, nor can they be created by
the courts in the exercise of their judicial functions.”[21]

There is no basis for petitioners’ claim that their vested rights were prejudiced by the NWPC’s alleged
retroactive application of its own rules[22] which were issued on February 25, 1991 and took effect on
March 18, 1991.[23] Such claim cannot stand because Guideline No. 3, as previously discussed and as
correctly concluded by the NWPC,[24] was not valid and, thus, cannot be a source of a right; much less, a
vested one.

The Insertion in Guideline No. 3 of “Distressed Industry” as a Criterion for Exemption Void

The Court wishes to stress that the law does not automatically grant exemption to all establishments
belonging to an industry which is deemed “distressed.” Hence, RX-O1, Section 3 (4), must not be
construed to automatically include all establishments belonging to a distressed industry. The fact that the
wording of a wage order may contain some ambiguity would not help petitioners. Basic is the rule in
statutory construction that all doubts in the implementation and the interpretation of the provisions of the
Labor Code, as well as its implementing rules and regulations, must be resolved in favor of labor. [25] By
exempting all establishments belonging to a distressed industry, Guideline No. 3 surreptitiously and
irregularly takes away the mandated increase in the minimum wage awarded to the affected workers. In so
acting, the RTWPB proceeded against the declared policy of the State, enshrined in the enabling act, “to
rationalize the fixing of minimum wages and to promote productivity-improvement and gain-sharing
measures to ensure a decent standard of living for the workers and their families; to guarantee the rights of
labor to its just share in the fruits of production; x x x.”[26] Thus, Guideline No. 3 is void not only because it
lacks NWPC approval and contains an arbitrarily inserted exemption, but also because it is inconsistent
with the avowed State policies protective of labor.

NWPC Decision Not Arbitrary

To justify the exemption of a distressed establishment from effects of wage orders, the NWPC requires the
applicant, if a stock corporation like petitioners, to prove that its accumulated losses impaired its paid-up
capital by at least 25 percent in the last full accounting period preceding the application [27] or the effectivity
of the order.[28] In the case at bar, it is undisputed that during the relevant accounting period, NALCO,
ALCO and PWC sustained capital impairments of 1.89, 28.72, and 5.03 percent, respectively. [29] Clearly, it
was only ALCO which met the exemption standard. Hence, the NWPC did not commit grave abuse of
discretion in approving the application only of ALCO and in denying those of petitioners. Indeed, the
NWPC acted within the ambit of its administrative prerogative when it set guidelines for the exemption of a
distressed establishment. Absent any grave abuse of discretion, NWPC’s actions will not be subject to
judicial review.[30] Accordingly, we deem the appealed Decisions to be consistent with law.

WHEREFORE, the petition is hereby DISMISSED. The assailed Decisions are hereby AFFIRMED. Costs
against petitioners.

SO ORDERED.

G.R. No. 128399, January 15, 1998

CAGAYAN SUGAR MILLING COMPANY, PETITIONER, VS. SECRETARY OF LABOR AND

EMPLOYMENT, DIRECTOR RICARDO S. MARTINEZ, SR., AND CARSUMCO
EMPLOYEES UNION, RESPONDENTS.

DECISION

PUNO, J.:

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

The facts: On November 16, 1993, Regional Wage Order No. RO2-02[1] was issued by the Regional
Tripartite Wage and Productivity Board, Regional Office No. II of the Department of Labor and
Employment (DOLE). It provided, inter alia, that:
"Section 1. Upon effectivity of this Wage Order, the statutory minimum wage rates applicable to workers
and employees in the private sector in Region II shall be increased as follows:

xxx

1.2 P14.00 per day .... Cagayan

x x x"
On September 12 and 13, 1994, labor inspectors from the DOLE Regional Office examined the books of
petitioner to determine its compliance with the wage order. They found that petitioner violated the wage
order as it did not implement an across the board increase in the salary of its employees.

At the hearing at the DOLE Regional Office for the alleged violation, petitioner maintained that it
complied with Wage Order No. RO2-02 as it paid the mandated increase in the minimum wage.
In an Order dated December 16, 1994, public respondent Regional Director Ricardo S. Martinez, Sr.
ruled that petitioner violated Wage Order RO2-02 by failing to implement an across the board increase in
the salary of its employees. He ordered petitioner to pay the deficiency in the salary of its employees in the
total amount of P555,133.41.

On January 6, 1995, petitioner appealed to public respondent Labor Secretary Leonardo A. Quisumbing.
On the same date, the Regional Wage Board issued Wage Order No. RO2-02-A,[2] amending the earlier
wage order, thus:
"Section 1. Section 1 of Wage Order No. RO2-02 shall now read as, "Upon effectivity of this Wage Order,
the workers and employees in the private sector in Region 2 shall receive an across the board wage increase
as follows:
xxx

1.2 P14.00 per day .... Cagayan

xxx
"Section 2. This amendment is curative in nature and shall retroact to the date of the effectivity of Wage
Order No. RO2-02."
On October 8, 1996, the Secretary of Labor dismissed petitioner's appeal and affirmed the Order of
Regional Director Martinez, Sr. Petitioner's motion for reconsideration was likewise denied. [3]

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

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

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

In the case at bar, petitioner contends that:

I

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

II

WAGE ORDER NO. RO2-02 CLEARLY PROVIDED FOR THE FIXING OF A STATUTORY
MINIMUM WAGE RATE AND NOT AN ACROSS THE BOARD INCREASE IN WAGES.

III

THE DECISION OF THE SECRETARY OF LABOR AND EMPLOYMENT IS NULL AND VOID FOR
LACK OF ANY LEGAL BASIS.

The petition has merit.

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

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

Article 123 of the Labor Code provides:

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

"In the performance of its wage-determining functions, the Regional Board shall conduct public
hearings/consultations, giving notices to employees' and employers' groups and other interested parties.

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

We are not persuaded.

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

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

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

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

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

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

SO ORDERED.

G.R. No. 102636, September 10, 1993

METROPOLITAN BANK & TRUST COMPANY EMPLOYEES UNION-ALU-TUCP AND

ANTONIO V. BALINANG, PETITIONERS, VS. NATIONAL LABOR RELATIONS
COMMISSION (2ND DIVISION) AND METROPOLITAN BANK & TRUST COMPANY,
RESPONDENTS.

RESOLUTION

VITUG, J.:

In this petition for certiorari, the Metropolitan Bank & Trust Company Employees Union-ALU-TUCP
(MBTCEU) and its president, Antonio V. Balinang, raise the issue of whether or not the implementation by
the Metropolitan Bank and Trust Company of Republic Act No. 6727, mandating an increase in pay of P25
per day for certain employees in the private sector, created a distortion that would require an adjustment
under said law in the wages of the latter's other various groups of employees.

On 25 May 1989, the bank entered into a collective bargaining agreement with the MBTCEU, granting a
monthly P900 wage increase effective 01 January 1989, P600 wage increase effective 01 January 1990, and
P200 wage increase effective 01 January 1991. The MBTCEU had also bargained for the inclusion of
probationary employees in the list of employees who would benefit from the first P900 increase but the
bank had adamantly refused to accede thereto. Consequently, only regular employees as of 01 January 1989
were given the increase to the exclusion of probationary employees.

Barely a month later, or on 01 July 1989, Republic Act 6727, "an act to rationalize
wage policy determination by establishing the mechanism and proper standards therefor, x x x fixing new
wage rates, providing wage incentives for industrial dispersal to the countryside, and for other purposes,"
took effect. Its provisions, pertinent to this case, state:
"SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates of all workers and
employees in the private sector, whether agricultural or non-agricultural, shall be increased by twenty-five
pesos (P25) per day, x x x: Provided, That those already receiving above the minimum wage rates up to one
hundred pesos (P100.00) shall also receive an increase of twenty-five pesos (P25.00) per day, x x x.
xxx xxx x x x.
(d) If expressly provided for and agreed upon in the collective bargaining agreements, all increases in the
daily basic wage rates granted by the employers three (3) months before the effectivity of this Act shall be
credited as compliance with the increases in the wage rates prescribed herein, provided that, where such
increases are less than the prescribed increases in the wage rates under this Act, the employer shall pay the
difference. Such increase shall not include anniversary wage increases, merit wage increase and those
resulting from the regularization or promotion of employees.
Where the application of the increases in the wage rates under this Section results in distortions as defined
under existing laws in the wage structure within an establishment and gives rise to a dispute therein,
such dispute shall first be settled voluntarily between the parties and in the event of a deadlock, the same
shall be finally resolved through compulsory arbitration by the regional branches of the National Labor
Relations Commission (NLRC) having jurisdiction over the workplace.
It shall be mandatory for the NLRC to conduct continuous hearings and decide any dispute arising under
this Section within twenty (20) calendar days from the time said dispute is formally submitted to it for
arbitration. The pendency of a dispute arising from a wage distortion shall not in any way
delay the applicability of the increase in the wage rates prescribed under this Section."

Pursuant to the above provisions, the bank gave the P25 increase per day, or P750 a month, to its
probationary employees and to those who had been promoted to regular or permanent status before 01 July
1989 but whose daily rate was P100 and below. The bank refused to give the same increase to its regular
employees who were receiving more than P100 per day and recipients of the P900 CBA increase.

Contending that the bank's implementation of Republic Act 6727 resulted in the categorization of the
employees into (a) the probationary employees as of 30 June 1989 and regular employees receiving
P100 or less a day who had been promoted to permanent or regular status before 01 July 1989, and (b) the
regular employees as of 01 January 1989, whose pay was over P100 a day, and that, between the two
groups, there emerged a substantially reduced salary gap, the MBTCEU sought from the bank the
correction of the alleged distortion in pay. In order to avert an impending strike, the bank petitioned the
Secretary of Labor to assume jurisdiction over the case or to certify the same to the National Labor
Relations Commission (NLRC) under Article 263 (g) of the Labor Code. [1] The parties ultimately agreed to
refer the issue for compulsory arbitration to the NLRC.

The case was assigned to Labor Arbiter Eduardo J. Carpio. In his decision of 05 February 1991, the labor
arbiter disagreed with the bank's contention that the increase in its implementation of Republic Act 6727
did not constitute a distortion because "only 143 employees or 6.8% of the bank's population of a total of
2,108 regular employees" benefited. He stressed that "it is not necessary that a big number of wage earners
within a company be benefited by the mandatory increase before a wage distortion may be considered to
have taken place," it being enough, he said, that such increase "result(s) in the severe contraction of an
intentional quantitative difference in wage rates between employee groups."

The labor arbiter concluded that since the "intentional quantitative difference" in wage or salary rates
between and among groups of employees is not based purely on skills or length of service but also on
"other logical bases of differentiation, a P900.00 wage gap intentionally provided in a collective
bargaining agreement as a quantitative difference in wage between those who WERE regular employees as
of January 1, 1989 and those who WERE NOT as of that date, is definitely a logical basis of differentiation
(that) deserves protection from any distorting statutory wage increase." Otherwise, he added, "a minimum
wage statute that seek to uplift the economic condition of labor would itself destroy the mechanism of
collective bargaining which, with perceived stability, has been labor's constitutional and regular source of
wage increase for so long a time now." Thus, since the "subjective quantitative difference" between wage
rates had been reduced from P900.00 to barely P150.00, correction of the wage distortion pursuant
to Section 4(c) of the Rules Implementing Republic Act 6727 should be made.
The labor arbiter disposed of the case, thus:

WHEREFORE, premises considered, the respondent is hereby directed to restore to complainants and their
members the Nine Hundred (P900.00) Pesos CBA wage gap they used to enjoy over non-regular
employees as of January 1, 1989 by granting them a Seven Hundred Fifty (P750.00) Pesos monthly
increase effective July 1, 1989.
SO ORDERED.”[2]

The bank appealed to the NLRC. On 31 May 1991, the NLRC Second Division, by a vote of 2 to 1,
reversed the decision of the Labor Arbiter. Speaking, through Commissioners Rustico L. Diokno and
Domingo H. Zapanta, the NLRC said:

"x x x a wage distortion can arise only in a situation where the salary structure is characterized intentional
quantitative differences among employee groups determined or fixed on the basis of skills, length of
service, or other logical basis of differentiation and such differences or distinctions are obliterated or
contracted by subsequent wage increases (In Re: Labor Dispute at the Bank of the Philippine Islands,
NCMB-RB-7-11-096-89, Secretary of Labor and Employment, February 18, 1991).
As applied in this case, We noted that in the new wage salary structure, the wage gaps between Levels
6 and 7 levels 5 and 6, and levels 6 and 7 (sic) were maintained. While there is a noticeable decrease in the
wage gap between Levels 2 and 3, Levels 3 and 4, and Levels 4 and 5, the reduction in the wage gaps
between said levels is not significant as to obliterate or result in severe contraction of the intentional
quantitative differences in salary rates between the employee groups. For this reason, the basic requirement
for a wage distortion to exist does not appear in this case. Moreover, there is nothing in the law which
would justify an across-the-board adjustment of P750.00 as ordered by the Labor Arbiter.
WHEREFORE, premises considered, the appealed decision is hereby set aside and a new judgment is
hereby entered, dismissing the complaint for lack of merit.
SO ORDERED."[3]

In her dissent, Presiding Commissioner Edna Bonto-Perez opined:

"There may not be an obliteration nor elimination of said quantitative distinction/difference aforecited but
clearly there is a contraction. Would such contraction be severe as to warrant the necessary correction
sanctioned by the law in point, RA 6727? It is my considered view that the quantitative intended distinction
in pay between the two groups of workers in respondent company was contracted by more than fifty (50%)
per cent or in particular by more or less eighty-three (83%) percent hence, there is no doubt that there is an
evident severe contraction resulting in the complained of wage distortion.
Nonetheless, the award of P750.00 per month to all of herein individual complainants as ordered by the
Labor Arbiter below, to my mind is not the most equitable remedy at bar, for the same would be an across
the board increase which is not the intention of RA 6727. For that matter, herein complainants cannot by
right claim for the whole amount of P750.00 a month or P25.00 per day granted to the workers covered by
the said law in the sense that they are not covered by the said increase mandated by RA 6727. They are
only entitled to the relief granted by said law by way of correction of the pay scale in case of distortion in
wages by reason thereof.
Hence, the formula offered and incorporated in Wage Order No. IV-02 issued on 21 May 1991 by the
Regional Tripartite Wages and Productivity Commission for correction of pay scale structures in cases of
wage distortion as in the case at bar which is:
Minimum Wage = % x Prescribed = Distortion
Actual Salary Increase Adjustment
would be the most equitable and fair under the circumstances obtaining in this case.
For this very reason, I register my dissent from the majority opinion and opt for modification of the Labor
Arbiter's decision as afore-discussed."[4]

The MBTCEU filed a motion for the reconsideration of the decision of the NLRC; having been denied, the
MBTCEU and its president filed the instant petition for certiorari, charging the NLRC with grave abuse
of discretion by its refusal (a) "to acknowledge the existence of a wage distortion in the wage or salary rates
between and among the employee groups of the respondent bank as a result of the bank's
partial implementation" of Republic Act 6727 and (b) to give due course to its claim for an across-the-
board P25 increase under Republic Act No. 6727.[5]

We agree with the Solicitor General that the petition is impressed with merit. [6]

The term "wage distortion", under the Rules Implementing Republic Act 6727, is defined, thus:

"(p) Wage Distortion means a situation where an increase in prescribed wage rates results in the elimination
or severe contraction of intentional quantitative differences in wage or salary rates between and among
employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage
structure based on skills, length of service, or other logical bases of differentiation."

The issue of whether or not a wage distortion exists as a consequence of the grant of a wage increase to
certain employees, we agree, is, by and large, a question of fact the determination of which is the statutory
function of the NLRC.[7] Judicial review of labor cases, we may add, does not go beyond the
evaluation of the sufficiency of the evidence upon which the labor officials' findings rest. [8] As such, factual
findings of the NLRC are generally accorded not only respect but also finality provided that its decisions
are supported by substantial evidence and devoid of any taint of unfairness or arbitrariness. [9] When,
however, the members of the same labor tribunal are not in accord on those aspects of a case, as in this
case, this Court is well cautioned not to be as so conscious in passing upon the sufficiency of the evidence,
let alone the conclusions derived therefrom.

In this case, the majority of the members of the NLRC, as well as its dissenting member, agree that there
is a wage distortion arising from the bank's implementation of the P25 wage increase; they do differ,
however, on the extent of the distortion that can warrant the adoption of corrective measures required by
the law.

The definition of "wage distortion," [10] aforequoted, shows that such distortion can so exist when, as a result
of an increase in the prescribed wage rate, an "elimination or severe contraction of intentional quantitative
differences in wage or salary rates" would occur "between and among employee groups in an establishment
as to effectively obliterate the distinctions embodied in such wage structure based on skills, length of
service, or other logical bases of differentiation." In mandating an adjustment, the law did not require that
there be an elimination or total abrogation of quantitative wage or salary differences; a severe contraction
thereof is enough. As has been aptly observed by Presiding Commissioner Edna BontoPerez in her
dissenting opinion, the contraction between personnel groupings comes close to eighty-three (83%), which
cannot, by any stretch of imagination, be considered less than severe.

The "intentional quantitative differences" in wage among employees of the bank has been set by the CBA
to about P900 per month as of 01 January 1989. It is intentional as it has been arrived at through the
collective bargaining process to which the parties are thereby concluded [11]. The Solicitor General, in
recommending the grant of due course to the petition, has correctly emphasized that the intention of the
parties, whether the benefits under a collective bargaining agreement should be equated with those granted
by law or not, unless there are compelling reasons otherwise, must prevail and be given effect.[12]

In keeping then with the intendment of the law and the agreement of the parties themselves, along with the
often repeated rule that all doubts in the interpretation and implementation of labor laws should be resolved
in favor of labor,[13] we must approximate an acceptable quantitative difference between and among the
CBA agreed work levels. We, however, do not subscribe to the labor arbiter's exacting prescription in
correcting the wage distortion. Like the majority of the members of the NLRC, we are also of the view that
giving the employees an across-the-board increase of P750 may not be conducive to the
policy of encouraging "employers to grant wage and allowance increases to their employees higher than the
minimum rates of increases prescribed by statute or administrative regulation," particularly in this case
where both Republic Act 6727 and the CBA allow a credit for voluntary compliance. As the Court, through
Associate Justice Florentino Feliciano, also pointed out in Apex Mining Company, Inc. v. NLRC:[14]

"x x x. (T)o compel employers simply to add on legislated increases in salaries or allowances without
regard to what is already being paid, would be to penalize employers who grant their workers more than the
statutorily prescribed minimum rates of increases. Clearly, this would be counterproductive so far as
securing the interests of labor is concerned. x x x."

We find the formula suggested then by Commissioner Bonto-Perez, which has also been the standard
considered by the regional Tripartite Wages and Productivity Commission for the correction of pay scale
structures in cases of wage distortion,[15] to well be the appropriate measure to balance the respective
contentions of the parties in this instance. We also view it as being just and equitable.

WHEREFORE, finding merit in the instant petition for certiorari, the same is GRANTED DUE
COURSE, the questioned NLRC decision is hereby SET ASIDE and the decision of the labor arbiter is
REINSTATED subject to the MODIFICATION that the wage distortion in question be corrected in
accordance with the formula expressed in the dissenting opinion of Presiding Commissioner Edna Bonto-
Perez. This decision is immediately executory.

SO ORDERED.

G.R. No. 91980, June 27, 1991

ILAW AT BUKLOD NG MANGGAGAWA (IBM), PETITIONER, VS. NATIONAL LABOR

RELATIONS COMMISSION (FIRST DIVISION), HON. CARMEN TALUSAN AND SAN
MIGUEL CORPORATION, RESPONDENTS.

DECISION

NARVASA, J.:

The controversy at bar had its origin in the "wage distortions" affecting the employees of respondent San
Miguel Corporation allegedly caused by Republic Act No. 6727, otherwise known as the Wage
Rationalization Act.

Upon the effectivity of the Act on June 5, 1989, the union known
as "Ilaw at Buklod Ng Manggagawa (IBM)" -- said to represent 4,500 employees of San Miguel
Corporation, more or less, “working at the various plants, offices, and warehouses located at the National
Capital Region" -- presented to the company a "demand" for correction of the "significant distortion in **
(the workers) wages." In that "demand," the Union explicitly invoked Section 4 (d) of RA 6727 which
reads as follows:

“*****
“(d) * * * * *
Where the application of the increases in the wage rates under this Section results in distortions as defined
under existing laws in the wage structure within an establishment and gives rise to a dispute therein, such
dispute shall first be settled voluntarily between the parties and in the event of a deadlock, the same shall be
finally resolved through compulsory arbitration by the regional branches of the National Labor Relations
Commission (NLRC) having jurisdiction over the workplace.
It shall be mandatory for the NLRC to conduct continuous hearings and decide any dispute arising under
this Section within twenty (20) calendar days from the time said dispute is formally submitted to it for
arbitration. The pendency of a dispute arising from a wage distortion shall not in any way delay the
applicability of the increase in the wage rates prescribed under this Section."

But the Union claims that that "demand" was ignored:[1]

"The ** COMPANY ignored said demand by offering a measly across-the-board wage increase of P7.00
per day, per employee, as against the proposal of the UNION of P25.00 per day, per employee. Later, the
UNION reduced its proposal to P15.00 per day, per employee by way of amicable settlement.
When the ** COMPANY rejected the reduced proposal of the UNION, the members thereof, on their own
accord, refused to render overtime services, most especially at the Beer Bottling Plants at Polo, starting
October 16, 1989."

In this connection, the workers involved issued a joint notice reading as follows: [2]

"SAMA-SAMANG PAHAYAG: KAMING ARAWANG MANGGAGAWA NG POLO BREWERY PAWANG

KASAPI NG ILAW AT BUKLOD NG MANGGAGAWA (IBM) AY NAGKAISANG NAGPASYA NA
IPATUPAD MUNA ANG EIGHT HOURS WORK SHIFT PANSAMANTALA HABANG HINDI
IPINATUTUPAD NG SMC MANAGEMENT ANG TAMANG WAGE DISTORTION."

The Union's position (set out in the petition subsequently filed in this Court, infra) was that the workers'
refusal "to work beyond eight (8) hours everyday starting October 16, 1989" as a legitimate means of
compelling SMC to correct "the distortion in their wages brought about by the implementation of the said
laws (R.A. 6640 and R.A. 6727) to newly-hired employees."[3] That decision to observe the "eight hours
work shift" was implemented on October 16, 1989 by "some 800 daily-paid workers at the Polo Plant's
production line (of San Miguel Corporation [hereafter, simply SMC]), joined by others at statistical quality
control and warehouse, all members of ** IBM **." [4] There ensued thereby a change in the work schedule
which had been observed by daily-paid workers at the Polo Plant for the past five (5) years, i.e., "ten (10)
hours for the first shift and ten (10) to fourteen (14) hours for the second shift, from Mondays to Fridays
**; (and on) Saturdays, ** eight (8) hours for both shifts" -- a work schedule which, SMC says, the workers
had "welcomed, and encouraged" because the automatic overtime built into the schedule "gave them a
steady source of extra-income," and pursuant to which it (SMC) "planned its production targets and
budgets."[5]

This abandonment of the long-standing schedule of work and the reversion to the eight-hour shift
apparently caused substantial losses to SMC. Its claim is that there ensued "from 16 October 1989 to 30
November 1989 alone ** work disruption and lower efficiency ** (resulting in turn, in) lost production of
2,004,105 cases of beer ** ; that (i)n "money terms, SMC lost P174,657,598 in sales and P48,904,311 in
revenues ** (and the) Government lost excise tax revenue of P42 Million, computed at the rate of P21 per
case collectible at the plant."[6] These losses occurred despite such measures taken by SMC as organizing "a
third shift composed of regular employees and some contractuals," and appeals "to the Union members,
through letters and memoranda and dialogues with their plant delegates and shop stewards," to adhere to
the existing work schedule.

Thereafter, on October 18, 1989, SMC filed with the Arbitration Branch of the National Labor Relations
Commission a complaint against the Union and its members "to declare the strike or slowdown illegal" and
to terminate the employment of the union officers and shop stewards. The complaint was docketed as
NLRC-NCR Case No. 00-10-04917.[7]

Then on December 8, 1989, on the claim that its action in the Arbitration Branch had as yet "yielded no
relief," SMC filed another complaint against the Union and members thereof, this time directly with the
National Labor Relations Commission, "to enjoin and restrain illegal slowdown and for damages, with
prayer for the issuance of a cease-and-desist and temporary restraining order." [8] Before acting on the
application for restraining order, the NLRC's First Division first directed SMC to present evidence in
support of the application before a commissioner, Labor Arbiter Carmen Talusan. On December 19, 1989,
said First Division promulgated a Resolution on the basis of "the allegations of the petitioner (SMC) and
the evidence adduced ex parte in support of their petition." The Resolution -

1) authorized the issuance of "a Temporary Restraining Order for a period of twenty (20) days ** upon
** a cash or surety bond in the amount of P50,000.00 ** DIRECTING the respondents to CEASE and
DESIST from further committing the acts complained about particularly their not complying with the work
schedule established and implemented by the company through the years or at the least since 1984, which
schedule appears to have been adhered to by the respondents until October 16, 1989 ** ;"
2) "set the incident on injunction for hearing before Labor Arbiter Carmen Talusan on 27 December
1989 **."

The Labor Arbiter accordingly scheduled the incident for hearing on various dates: December 27 and 29,
1989, January 8, 11, 16, and 19, 1990. The first two settings were cancelled on account of the
unavailability of the Union's counsel. The hearing on January 8, 1990 was postponed also at the instance of
said counsel who declared that the Union refused to recognize the NLRC's jurisdiction. The hearings set on
January 11, 16 and 19, 1990 were taken up with the cross-examination of SMC's witness on the basis of his
affidavit and supplemental affidavits. The Union thereafter asked the Hearing Officer to schedule other
hearings. SMC objected. The Hearing Officer announced she would submit a report to the Commission
relative to the extension of the temporary restraining order of December 9, 1989, supra, prayed for by
SMC. Here the matter rested until February 14, 1990, when the Union filed the petition which commenced
the special civil action of certiorari and prohibition at bar.[9]

In its petition, the Union asserted that:

1) the "central issue ** is the application of the Eight-Hour Labor Law ** (i.e.) (m)ay an employer force
an employee to work everyday beyond eight hours a day?"
2) although the work schedule adopted by SMC with built-in "automatic overtime,"[10] "tremendously
increased its production of beer at lesser cost," SMC had been paying its workers “wages far below the
productivity per employee," and turning a deaf ear to the Union's demands for wage increases;
3) the NLRC had issued the temporary restraining order of December 19, 1989 "with indecent haste,
based on ex parte evidence of SMC; and such an order had the effect of "forcing the workers to work
beyond eight (8) hours a day, everyday !!"
4) the members of the NLRC had no authority to act as Commissioners because their appointments had
not been confirmed by the Commission on Appointment; and
5) even assuming the contrary, the NLRC, as an essentially appellate body, had no jurisdiction to act on
the plea for injunction in the first instance.

The petition thus prayed:

1) for judgment (a) annulling the Resolution of December 19, 1990; (b) declaring mandatory the
confirmation by the Commission on Appointments of the appointments of National Labor Relations
Commissioners; and (c) ordering the removal "from the 201 files of employees any and all memoranda or
disciplinary action issued/imposed to the latter by reason of their refusal to render overtime work;" and
2) pending such judgment, restraining (a) the NLR Commissioners "from discharging their power and
authority under R.A. 6715 prior to their re-appointment and/or confirmation;" as well as (b)
Arbiter Talusan and the Commission from acing on the matter or rendering a decision or issuing a
permanent injunction therein, or otherwise implementing said Resolution of December 19, 1989.

In traverse of the petition, SMC filed a pleading entitled "Comment with Motion to Admit Comment as
Counter-Petition," in which it contended that:
1) the workers' abandonment of the regular work schedule and their deliberate and wilful reduction of
the Polo plant's production efficiency is a slowdown, which is an illegal and unprotected concerted activity;
2) against such a slowdown, the NLRC has jurisdiction to issue injunctive relief in the first instance;
3) indeed, the NLRC has "the positive legal duty and statutory obligation to enjoin the slowdown
complained of and to compel the parties to arbitrate **, (and) to effectuate the important national policy of
peaceful settlement of labor disputes through arbitration;" accordingly, said NLRC "had no legal choice but
to issue injunction to enforce the reciprocal no lockout-no slowdown and mandatory arbitration agreement
of the parties;" and
4) the NLRC "gravely abused its discretion when it refused to decide the application for injunction
within the twenty day period of its temporary restraining order, in violation of its own rules and the
repeated decisions of this ** Court."

It is SMC's submittal that the coordinated reduction by the Union's members of the work time theretofore
willingly and consistently observed by them, thereby causing financial losses to the employer in order to
compel it to yield to the demand for correction of "wage distortions," is an illegal and "unprotected"
activity. It is, SMC argues, contrary to the law and to the collective bargaining agreement between it and
the Union. The argument is correct and will be sustained.

Among the rights guaranteed to employees by the Labor Code is that of engaging in concerted activities in
order to attain their legitimate objectives. Article 263 of the Labor Code, as amended, declares that in line
with "the policy of the State to encourage free trade unionism and free collective bargaining, **
(w)orkers shall have the right to engage in concerted activities for purposes of collective bargaining or for
their mutual benefit and protection." A similar right to engage in concerted activities for mutual benefit and
protection is tacitly and traditionally recognized in respect of employers.

The more common of these concerted activities as far as employees are concerned are: strikes -- the
temporary stoppage of work as a result of an industrial or labor dispute; picketing -- the marching to and fro
at the employer's premises, usually accompanied by the display of placards and other signs making known
the facts involved in a labor dispute; and boycotts -- the concerted refusal to patronize an employer's goods
or services and to persuade others to a like refusal. On the other hand, the counterpart activity that
management may licitly undertake is the lockout -- the temporary refusal to furnish work on account of a
labor dispute. In this connection, the same Article 263 provides that the "right of legitimate labor
organizations to strike and picket and of employer to lockout, consistent with the national interest, shall
continue to be recognized and respected." The legality of these activities is usually dependent on the
legality of the purposes sought to be attained and the means employed therefor.

It goes without saying that these joint or coordinated activities may be forbidden or restricted by law or
contract. In the particular instance of "distortions of the wage structure within an establishment" resulting
from "the application of any prescribed wage increase by virtue of a law or wage order," Section 3 of
Republic Act No. 6727 prescribes a specific, detailed and comprehensive procedure for the correction
thereof, thereby implicitly excluding strikes or lockouts or other concerted activities as a modes of
settlement of the issue. The provision[11] states that?

" ** the employer and the union shall negotiate to correct the distortions. Any dispute arising from wage
distortions shall be resolved through the grievance procedure under their collective bargaining
agreement and, if it remains unresolved, through voluntary arbitration. Unless otherwise agreed by the
parties in writing, such dispute shall be decided by the voluntary arbitration or panel of voluntary
arbitrators within ten (10) calendar days from the time said dispute was referred to voluntary arbitration.
In cases where there are no collective agreements or recognized labor unions, the employers and workers
shall endeavor to correct such distortions. Any dispute arising therefrom shall be settled through the
National Conciliation and Mediation Board and, if it remains unresolved after ten (10) calendar days of
conciliation, shall be referred to the appropriate branch of the National Labor Relations Commission
(NLRC). It shall be mandatory for the NLRC to conduct continuous hearings and decide the dispute within
twenty (20) calendar days from the time said dispute is submitted for compulsory arbitration.
The pendency of a dispute arising from a wage distortion shall not in any way delay the applicability of any
increase in prescribed wage rates pursuant to the provisions of law or Wage Order.
*****."

The legislative intent that solution of the problem of wage distortions shall be sought by voluntary
negotiation or arbitration, and not by strikes, lockouts, or other concerted activities of the employees or
management, is made clear in the rules implementing RA 6727 issued by the Secretary of Labor and
Employment[12]pursuant to the authority granted by Section 13 of the Act. [13] Section 16, Chapter I of these
implementing rules, after reiterating the policy that wage distortions be first settled voluntarily by the
parties and eventually by compulsory arbitration, declares that, "Any issue involving wage distortion shall
not be a ground for a strike/lockout."

Moreover, the collective bargaining agreement between the SMC and the Union, relevant provisions of
which are quoted by the former without the latter's demurring to the accuracy of the quotation, [14] also
prescribes a similar eschewal of strikes or other similar or related concerted activities as a mode of
resolving disputes or controversies, generally, said agreement clearly stating that settlement of "all disputes,
disagreements or controversies of any kind" should be achieved by the stipulated grievance procedure and
ultimately by arbitration. The provisions are as follows:

"Section 1. Any and all disputes, disagreements and controversies of any kind between the COMPANY
and the UNION and/or the workers involving or relating to wages, hours of work, conditions of
employment and/or employer-employee relations arising during the effectivity of this Agreement or any
renewal thereof, shall be settled by arbitration in accordance with the procedure set out in this Article. No
dispute, disagreement or controversy which may be submitted to the grievance procedure in Article IX
shall be presented for arbitration unless all the steps of the grievance procedure are exhausted" (Article V -
Arbitration).
"Section 1. The UNION agrees that there shall be no strikes, walkouts, stoppage or slowdown of work,
boycotts, secondary boycotts, refusal to handle any merchandise, picketing, sit-down strikes of any kind,
sympathetic or general strikes, or any other interference with any of the operations of the COMPANY
during the terms of this agreement" (Article VI).

The Union was thus prohibited to declare and hold a strike or otherwise engage in non-peaceful concerted
activities for the settlement of its controversy with SMC in respect of wage distortions, or for that matter,
any other issue "involving or relating to wages, hours of work, conditions of employment and/or employer-
employee relations." The partial strike or concerted refusal by the Union members to follow the five-year-
old work schedule which they had theretofore been observing, resorted to as a means of coercing correction
of "wage distortions," was therefore forbidden by law and contract and, on this account, illegal.

Awareness by the Union of the proscribed character of its members' collective activities, is clearly
connoted by its attempt to justify those activities as a means of protesting and obtaining redress against said
members working overtime every day from Monday to Friday (on an average of 12 hours), and every
Saturday (on 8-hour shifts),[15] rather than as a measure to bring about rectification of the wage distortions
caused by RA 6727 -- which was the real cause of its differences with SMC. By concealing the real cause
of their dispute with management (alleged failure of correction of wage distortion), and trying to make it
appear that the controversy involved application of the eight-hour labor law, they obviously hoped to
remove their case from the operation of the rules implementing RA 6727 that "Any issue involving wage
distortion shall not be a ground for a strike / lockout." The stratagem cannot succeed.

In the first place, that it was indeed the wage distortion issue that principally motivated the Union's partial
or limited strike is clear from the facts. The work schedule (with "built-in overtime") had not been forced
upon the workers; it had been agreed upon between SMC and its workers at the Polo Plant and indeed, had
been religiously followed with mutually beneficial results for the past five (5) years. Hence, it could not be
considered a matter of such great prejudice to the workers as to give rise to a controversy between them and
management. Furthermore, the workers never asked, nor were there ever any negotiations at their instance,
for a change in that work schedule prior to the strike. What really bothered them, and was in fact the
subject of talks between their representatives and management, was the “wage distortion” question, a fact
made even more apparent by the joint notice circulated by them prior to the strike, i.e., that they would
adopt the eight-hour work shift in the meantime pending correction by management of the wage
distortion (IPATUPAD MUNA ANG EIGHT HOURS WORK SHIFT PANSAMANTALA HABANG HINDI
IPINATUTUPAD NG SMC MANAGEMENT ANG TAMANG WAGE DISTORTION").

In the second place, even if there were no such legal prohibition, and even assuming the controversy really
did not involve the wage distortions caused by RA 6727, the concerted activity in question
would still be illicit because contrary to the workers' explicit contractual commitment "that there shall be no
strikes, walkouts, stoppage or slowdown of work, boycotts, secondary boycotts, refusal to handle any
merchandise, picketing, sit-down strikes of any kind, sympathetic or general strikes, or any other
interference with any of the operations of the COMPANY during the term of ** (their collective
bargaining) agreement."[16]

What has just been said makes unnecessary resolution of SMC's argument that the
workers' concerted refusal to adhere to the work schedule in force for the last several years, is
a slowdown, an inherently illegal activity essentially illegal even in the absence of a no-strike clause in a
collective bargaining contract, or statute or rule. The Court is in substantial agreement with the petitioner's
concept of a slowdown as a "strike on the installment plan;" as a wilful reduction in the rate of work by
concerted action of workers for the purpose of restricting the output of the employer, in relation to a labor
dispute; as an activity by which workers, without a complete stoppage of work, retard production or their
performance of duties and functions to compel management to grant their demands.[17] The Court also
agrees that such a slowdown is generally condemned as inherently illicit and unjustifiable, because while
the employees "continue to work and remain at their positions and accept the wages paid to them," they at
the same time "select what part of their allotted tasks they care to perform of their own volition or refuse
openly or secretly, to the employer's damage, to do other work;" in other words, they "work on their own
terms."[18] But whether or not the workers' activity in question -- their concerted adoption of a different
work schedule than that prescribed by management and adhered to for several years -- constitutes a
slowdown need not, as already stated, be gone into. Suffice it to say that that activity is contrary to the law,
RA 6727, and the parties' collective bargaining agreement.

The Union's claim that the restraining order is void because issued by Commissioners whose appointments
had not been duly confirmed by the Commission on Appointments should be as it is hereby given short
shrift, for, as the Solicitor General points out, it is an admitted fact that the members of the respondent
Commission were actually appointed by the President of the Philippines on November 18, 1989; there is no
evidence whatever in support of the Union's bare allegation that the appointments of said members had not
been confirmed; and the familiar presumption of regularity in appointment and in performance of official
duty exists in their favor.[19]

Also untenable is the Union's other argument that the respondent NLRC Division had no jurisdiction to
issue the temporary restraining order or otherwise grant the preliminary injunction prayed for by SMC and
that, even assuming the contrary, the restraining order had been improperly issued. The Court finds that the
respondent Commission had acted entirely in accord with applicable provisions of the Labor Code.

Article 254 of the Code provides that "No temporary or permanent injunction or restraining order in any
case involving or growing out of labor disputes shall be issued by any court or other entity, except as
otherwise provided in Articles 218 and 264 * *." Article 264 lists down specific "prohibited activities"
which may be forbidden or stopped by a restraining order or injunction. Article 218 inter alia enumerates
the powers of the National Labor Relations Commission and lays down then conditions under which a
restraining order or preliminary injunction may issue, and the procedure to be followed in issuing the same.

Among the powers expressly conferred on the Commission by Article 218 is the power to "enjoin or
restrain any actual or threatened commission of any or all prohibited or unlawful acts or to require the
performance of a particular act in any labor dispute which, if not restrained or performed forthwith, may
cause grave or irreparable damage to any party or render ineffectual any decision in favor of such party **."
As a rule such restraining orders or injunctions do not issue ex parte, but only after compliance with the
following requisites, to wit:

a) a hearing held "after due and personal notice thereof has been served, in such manner as the
Commission shall direct, to all known persons against whom relief is sought, and also to the Chief
Executive and other public officials of the province or city within which the unlawful acts have been
threatened or committed charged with the duty to protect complainant's property;"
b) reception at the hearing of "testimony of witnesses, with opportunity for cross-examination, in support
of the allegations of a complaint made under oath," as well as "testimony in opposition thereto, if offered
** ;"
c) "a finding of fact by the Commission, to the effect:

(1) That prohibited or unlawful acts have been threatened and will be committed and will
be continued unless restrained, but no injunction or temporary restraining order shall
be issued on account of any threat, prohibited or unlawful act, except against the
person or persons, association or organization making the threat or committing the
prohibited or unlawful act or actually authorizing or ratifying the same after actual
knowledge thereof;

(2) That substantial and irreparable injury to complainant's property will follow;

(3) That as to each item of relief to be granted, greater injury will be inflicted upon
complainant by the denial of relief than will be inflicted upon defendants by the
granting of relief;

(4) That complainant has no adequate remedy at law; and

(5) That the public officers charged with the duty to protect complainant's property are
unable or unwilling to furnish adequate protection."

However, a temporary restraining order may be issued ex parte under the following conditions:

a) the complainant "shall also allege that, unless a temporary restraining order shall be issued without
notice, a substantial and irreparable injury to complainant's property will be unavoidable;"
b) there is "testimony under oath, sufficient, if sustained, to justify the Commission in issuing a
temporary injunction upon hearing after notice;"
c) the "complainant shall first file an undertaking with adequate security in an amount to be fixed by the
Commission sufficient to recompense those enjoined for any loss, expense or damage caused by the
improvident or erroneous issuance of such order or injunction, including all reasonable costs, together with
a reasonable attorney's fee, and expense of defense against the order or against the granting of any
injunctive relief sought in the same proceeding and subsequently denied by the Commission;" and
d) the "temporary restraining order shall be effective for no longer than twenty (20) days and shall
become void at the expiration of said twenty (20) days."

The reception of evidence "for the application of a writ of injunction may be delegated by the Commission
to any of its Labor Arbiters who shall conduct such hearings in such places as he may determine to be
accessible to the parties and their witnesses and shall submit thereafter his recommendation to the
Commission."

The record reveals that the Commission exercised the power directly and plainly granted to it by sub-
paragraph (e) Article 217 in relation to Article 254 of the Code, and that it faithfully observed the
procedure and complied with the conditions for the exercise of that power prescribed in said sub-paragraph
(e). It acted on SMC's application for immediate issuance of a temporary restraining order ex parte on the
ground that substantial and irreparable injury to its property would transpire before the matter could be
heard on notice; it, however, first directed SMC Labor Arbiter Carmen Talusan to receive SMC's
testimonial evidence in support of the application and thereafter submit her recommendation thereon; it
found SMC's evidence adequate and issued the temporary restraining order upon bond. No irregularity
may thus be imputed to the respondent Commission in the issuance of that order.

In any event, the temporary restraining order had a lifetime of only twenty (20) days and became
void ipso facto at the expiration of that period.

In view of the foregoing factual and legal considerations, all irresistibly leading to the basic conclusion that
the concerted acts of the members of petitioner Union in question are violative of the law and their formal
agreement with the employer, the latter's submittal, in its counter-petition that there was, in the premises, a
"legal duty and obligation" on the part of the respondent Commission “to enjoin the unlawful and
prohibited acts and omissions of petitioner IBM and the workers complained of” [20] -- a proposition with
which, it must be said, the Office of the Solicitor General concurs, asserting that the "failure of the
respondent commission to resolve the application for a writ of injunction is an abuse of discretion
especially in the light of the fact that the restraining order it earlier issued had already expired" [21] -- must
perforce be conceded.

WHEREFORE, the petition is DENIED, the counter-petition is GRANTED, and the case is REMANDED
to the respondent Commission (First Division) with instructions to immediately take such action thereon as
is indicated by and is otherwise in accord with, the findings and conclusions herein set forth. Costs against
petitioner.

IT IS SO ORDERED.

G.R. No. 131247, January 25, 1999

PRUBANKERS ASSOCIATION, PETITIONER, VS. PRUDENTIAL BANK & TRUST

COMPANY, RESPONDENT

DECISION

PANGANIBAN, J.:

Wage distortion presupposes an increase in the compensation of the lower ranks in an office hierarchy
without a corresponding raise for higher-tiered employees in the same region of the country, resulting in the
elimination or the severe diminution of the distinction between the two groups. Such distortion does not
arise when a wage order gives employees in one branch of a bank higher compensation than that given to
their counterparts in other regions occupying the same pay scale, who are not covered by said wage
order. In short, the implementation of wage orders in one region but not in others does not in itself
necessarily result in wage distortion.

The Case

Before us is a Petition for Review on Certiorari, challenging the November 6, 1997 Decision [1] of the Court
of Appeals in CA-GR SP No. 42525. The dispositive portion of the challenged Decision reads:
“WHEREFORE, the petition is GRANTED. The assailed decision of the Voluntary Arbitration Committee
dated June 18, 1996 is hereby REVERSED and SET ASIDE for having been issued with grave abuse of
discretion tantamount to lack of or excess of jurisdiction, and a new judgment is rendered finding that no
wage distortion resulted from the petitioner’s separate and regional implementation of Wage Order No.
VII-03 at its Cebu, Mabolo and P. del Rosario branches.”
The June 18, 1996 Decision of the Voluntary Arbitration Committee, [2] which the Court of Appeals
reversed and set aside, disposed as follows:
“WHEREFORE, it is hereby ruled that the Bank’s separate and regional implementation of Wage Order
No. VII-03 at its Cebu, Mabolo and P. del Rosario branches created a wage distortion in the Bank
nationwide which should be resolved in accordance with Art. 124 of the Labor Code.” [3]
The Facts

The facts of the case are summarized by the Court of Appeals thus:
“On November 18, 1993, the Regional Tripartite Wages and Productivity Board of Region V issued Wage
Order No. RB 05-03 which provided for a Cost of Living Allowance (COLA) to workers in the private
sector who ha[d] rendered service for at least three (3) months before its effectivity, and for the same period
[t]hereafter, in the following categories: SEVENTEEN PESOS AND FIFTY CENTAVOS (P17.50) in the
cities of Naga and Legaspi; FIFTEEN PESOS AND FIFTY CENTAVOS (P15.50) in the municipalities of
Tabaco, Daraga, Pili and the city of Iriga; and TEN PESOS (P10.00) for all other areas in the Bicol
Region.

“Subsequently on November 23, 1993, the Regional Tripartite Wages and Productivity Board of Region
VII issued Wage Order No. RB VII-03, which directed the integration of the COLA mandated pursuant to
Wage Order No. RO VII-02-A into the basic pay of all workers. It also established an increase in the
minimum wage rates for all workers and employees in the private sector as follows: by Ten Pesos (P10.00)
in the cities of Cebu, Mandaue and Lapulapu; Five Pesos (P5.00) in the municipalities of Compostela,
Liloan, Consolacion, Cordova, Talisay, Minglanilla, Naga and the cities of Davao, Toledo, Dumaguete,
Bais, Canlaon, and Tagbilaran.

“The petitioner then granted a COLA of P17.50 to its employees at its Naga Branch, the only branch
covered by Wage Order No. RB 5-03, and integrated the P150.00 per month COLA into the basic pay of its
rank-and-file employees at its Cebu, Mabolo and P. del Rosario branches, the branches covered by Wage
Order No. RB VII-03.

“On June 7, 1994, respondent Prubankers Association wrote the petitioner requesting that the Labor
Management Committee be immediately convened to discuss and resolve the alleged wage distortion
created in the salary structure upon the implementation of the said wage orders. Respondent Association
then demanded in the Labor Management Committee meetings that the petitioner extend the application of
the wage orders to its employees outside Regions V and VII, claiming that the regional implementation of
the said orders created a wage distortion in the wage rates of petitioner’s employees nationwide. As the
grievance could not be settled in the said meetings, the parties agreed to submit the matter to voluntary
arbitration. The Arbitration Committee formed for that purpose was composed of the following: public
respondent Froilan M. Bacungan as Chairman, with Attys. Domingo T. Anonuevo and Emerico O. de
Guzman as members. The issue presented before the Committee was whether or not the bank’s separate
and regional implementation of Wage Order No. 5-03 at its Naga Branch and Wage Order No. VII-03 at its
Cebu, Mabolo and P. del Rosario branches, created a wage distortion in the bank nationwide.

“The Arbitration Committee on June 18, 1996 rendered the questioned decision.” [4]
Ruling of the Court of Appeals

In ruling that there was no wage distortion, the Court of Appeals held that the variance in the salary rates of
employees in different regions of the country was justified by RA 6727. It noted that “the underlying
considerations in issuing the wage orders are diverse, based on the distinctive situations and needs existing
in each region. Hence, there is no basis to apply the salary increases imposed by Wage Order No. VII-03 to
employees outside of Region VII.” Furthermore, the Court of Appeals ruled that “the distinctions between
each employee group in the region are maintained, as all employees were granted an increase in minimum
wage rate.”[5]

The Issues

In its Memorandum, petitioner raises the following issues:[6]

“I

Whether or not the Court of Appeals departed from the usual course of judicial procedure when it
disregarded the factual findings of the Voluntary Arbitration Committee as to the existence of wage
distortion.

II

Whether or not the Court of Appeals committed grave error in law when it ruled that wage distortion exists
only within a region and not nationwide.

III

Whether or not the Court of Appeals erred in implying that the term ‘establishment’ as used in Article 125
of the Labor Code refers to the regional branches of the bank and not to the bank as a whole.”
The main issue is whether or not a wage distortion resulted from respondent’s implementation of the
aforecited Wage Orders. As a preliminary matter, we shall also take up the question of forum-shopping.

The Court’s Ruling

The petition is devoid of merit.[7]

Preliminary Issue: Forum-Shopping

Respondent asks for the dismissal of the petition because petitioner allegedly engaged in forum-
shopping. It maintains that petitioner failed to comply with Section 2 of Rule 42 of the Rules of Court,
which requires that parties must certify under oath that they have not commenced any other action
involving the same issues in the Supreme Court, the Court of Appeals, or different divisions thereof, or any
other tribunal or agency; if there is such other action or proceeding, they must state the status of the same;
and if they should thereafter learn that a similar action or proceeding has been filed or is pending before the
said courts, they should promptly inform the aforesaid courts or any other tribunal or agency within five
days therefrom. Specifically, petitioner accuses respondent of failing to inform this Court of the pendency
of NCMB-NCR-RVA-04-012-97 entitled “In Re: Voluntary Arbitration between Prudential Bank and
Prubankers Association” (hereafter referred to as “voluntary arbitration case”), an action involving issues
allegedly similar to those raised in the present controversy.

In its Reply, petitioner effectively admits that the voluntary arbitration case was already pending when it
filed the present petition. However, it claims no violation of the rule against forum-shopping, because there
is no identity of causes of action and issues between the two cases.

We sustain the respondent. The rule on forum-shopping was first included in Section 17 of the Interim
Rules and Guidelines issued by this Court on January 11, 1983, which imposed a sanction in this wise: “A
violation of the rule shall constitute contempt of court and shall be a cause for the summary dismissal of
both petitions, without prejudice to the taking of appropriate action against the counsel or party
concerned.” Thereafter, the Court restated the rule in Revised Circular No. 28-91 and Administrative
Circular No. 04-94. Ultimately, the rule was embodied in the 1997 amendments to the Rules of Court.
As explained by this Court in First Philippine International Bank v. Court of Appeals,[8] forum-
shopping exists where the elements of litis pendentia are present, and where a final judgment in one case
will amount to res judicata in the other. Thus, there is forum-shopping when, between an action pending
before this Court and another one, there exist: “a) identity of parties, or at least such parties as represent the
same interests in both actions, b) identity of rights asserted and relief prayed for, the relief being founded
on the same facts, and c) the identity of the two preceding particulars is such that any judgement rendered
in the other action, will, regardless of which party is successful amount to res judicata in the action under
consideration; said requisites also constitutive of the requisites for auter action pendant or lis
pendens.”[9] Another case elucidates the consequence of forum-shopping: “[W]here a litigant sues the same
party against whom another action or actions for the alleged violation of the same right and the
enforcement of the same relief is/are still pending, the defense of litis pendentia in one case is a bar to the
others; and, a final judgment in one would constitute res judicata and thus would cause the dismissal of the
rest.”[10]

The voluntary arbitration case involved the issue of whether the adoption by the Bank of regionalized
hiring rates was valid and binding.

On the other hand, the issue now on hand revolves around the existence of a wage distortion arising from
the Bank’s separate and regional implementation of the two Wage Orders in the affected branches. A
closer look would show that, indeed, the requisites of forum-shopping are present.

First, there is identity of parties. Both cases are between the Bank and the Association, acting on behalf of
all its members. Second, although the respective issues and reliefs prayed for in the two cases are stated
differently, both actions boil down to one single issue: the validity of the Bank’s regionalization of its wage
structure based on RA 6727. Even if the voluntary arbitration case calls for striking down the Bank’s
regionalized hiring scheme while the instant petition calls for the correction of the alleged wage distortion
caused by the regional implementation of Wage Order No. VII-03, the ultimate relief prayed for in both
cases is the maintenance of the Bank’s national wage structure. Hence, the final disposition of one would
constitute res judicata in the other. Thus, forum-shopping is deemed to exist and, on this basis, the
summary dismissal of both actions is indeed warranted.

Nonetheless, we deem it appropriate to pass upon the main issue on its merit in view of its importance.

Main Issue: Wage Distortion

The statutory definition of wage distortion is found in Article 124 of the Labor Code, as amended by
Republic Act No. 6727, which reads:
“Article 124. Standards/Criteria for Minimum Wage Fixing - xxx

“As used herein, a wage distortion shall mean a situation where an increase in prescribed wage results in
the elimination or severe contraction of intentional quantitative differences in wage or salary rates between
and among employee groups in an establishment as to effectively obliterate the distinctions embodied in
such wage structure based on skills, length of service, or other logical bases of differentiation.”
Elaborating on this statutory definition, this Court ruled: “Wage distortion presupposes a classification of
positions and ranking of these positions at various levels. One visualizes a hierarchy of positions with
corresponding ranks basically in terms of wages and other emoluments. Where a significant change occurs
at the lowest level of positions in terms of basic wage without a corresponding change in the other level in
the hierarchy of positions, negating as a result thereof the distinction between one level of position from the
next higher level, and resulting in a parity between the lowest level and the next higher level or rank,
between new entrants and old hires, there exists a wage distortion. xxx. The concept of wage distortion
assumes an existing grouping or classification of employees which establishes distinctions among such
employees on some relevant or legitimate basis. This classification is reflected in a differing wage rate for
each of the existing classes of employees”[11]
Wage distortion involves four elements:

1. An existing hierarchy of positions with corresponding salary rates

 A significant change in the salary rate of a lower pay class without a concomitant increase in the
2.
salary rate of a higher one
3. The elimination of the distinction between the two levels
4. The existence of the distortion in the same region of the country.
In the present case, it is clear that no wage distortion resulted when respondent implemented the subject
Wage Orders in the covered branches. In the said branches, there was an increase in the salary rates of all
pay classes. Furthermore, the hierarchy of positions based on skills, length of service and other logical
bases of differentiation was preserved. In other words, the quantitative difference in compensation between
different pay classes remained the same in all branches in the affected region. Put differently, the
distinction between Pay Class 1 and Pay Class 2, for example, was not eliminated as a result of the
implementation of the two Wage Orders in the said region. Hence, it cannot be said that there was a wage
distortion.

Petitioner argues that a wage distortion exists because the implementation of the two Wage Orders has
resulted in the discrepancy in the compensation of employees of similar pay classification
in different regions. Hence, petitioner maintains that, as a result of the two Wage Orders, the employees in
the affected regions have higher compensation than their counterparts of the same level in other
regions. Several tables are presented by petitioner to illustrate that the employees in the regions covered by
the Wage Orders are receiving more than their counterparts in the same pay scale in other regions.

The Court is not persuaded. A wage parity between employees in different rungs is not at issue here, but
a wage disparity between employees in the same rung but located in different regions of the country.

Contrary to petitioner’s postulation, a disparity in wages between employees holding similar positions but
in different regions does not constitute wage distortion as contemplated by law. As previously enunciated,
it is the hierarchy of positions and the disparity of their corresponding wages and other emoluments that are
sought to be preserved by the concept of wage distortion. Put differently, a wage distortion arises when a
wage order engenders wage parity between employees in different rungs of the organizational ladder of the
same establishment. It bears emphasis that wage distortion involves a parity in the salary rates
of different pay classes which, as a result, eliminates the distinction between the different ranks in the same
region.

Different Regional Wages

Mandated by RA 6727

Petitioner’s claim of wage distortion must also be denied for one other reason. The difference in wages
between employees in the same pay scale in different regions is not the mischief sought to be banished by
the law. In fact, Republic Act No. 6727 (the Wage Rationalization Act), recognizes “existing regional
disparities in the cost of living.” Section 2 of said law provides:
“SEC 2. It is hereby declared the policy of the State to rationalize the fixing of minimum wages and to
promote productivity-improvement and gain-sharing measures to ensure a decent standard of living for the
workers and their families; to guarantee the rights of labor to its just share in the fruits of production; to
enhance employment generation in the countryside through industry dispersal; and to allow business and
industry reasonable returns on investment, expansion and growth.

“The State shall promote collective bargaining as the primary mode of settling wages and other terms and
conditions of employment; and whenever necessary, the minimum wage rates shall be adjusted in a fair and
equitable manner, considering existing regional disparities in the cost of living and other socio-economic
factors and the national economic and social development plans.”

RA 6727 also amended Article 124 of the Labor Code, thus:

“Art. 124. Standards/Criteria for Minimum Wage Fixing. - The regional minimum wages to be established
by the Regional Board shall be as nearly adequate as is economically feasible to maintain the minimum
standards of living necessary for the health, efficiency and general well-being of the employees within the
frame work of the national economic and social development program. In the determination of such
regional minimum wages, the Regional Board shall, among other relevant factors, consider the following:

‘(a) The demand for living wages;

‘(b) Wage adjustment vis-a-vis the consumer price index;
‘(c) The cost of living and changes or increases therein;
‘(d) The needs of workers and their families;
‘(e) The need to induce industries to invest in the countryside;
‘(f) Improvements in standards of living;
‘(g) The prevailing wage levels;
‘(h) Fair return of the capital invested and capacity to pay of employers;
‘(I) Effects on employment generation and family income; and
‘(j) The equitable distribution of income and wealth along the imperatives of social and economic
development.”

From the above-quoted rationale of the law, as well as the criteria enumerated, a disparity in wages
between employees with similar positions in different regions is necessarily expected. In insisting that the
employees of the same pay class in different regions should receive the same compensation, petitioner has
apparently misunderstood both the meaning of wage distortion and the intent of the law to regionalize wage
rates.

It must be understood that varying in each region of the country are controlling factors such as the cost of
living; supply and demand of basic goods, services and necessities; and the purchasing power of the
peso. Other considerations underscore the necessity of the law. Wages in some areas may be increased in
order to prevent migration to the National Capital Region and, hence, to decongest the
metropolis. Therefore, what the petitioner herein bewails is precisely what the law provides in order to
achieve its purpose.

Petitioner claims that it “does not insist that the Regional Wage Boards created pursuant to RA 6727 do not
have the authority to issue wage orders based on the distinctive situations and needs existing in each
region. So also, xxx it does not insist that the [B]ank should not implement regional wage orders. Neither
does it seek to penalize the Bank for following Wage Order VII-03. xxx What it simply argues is that it is
wrong for the Bank to peremptorily abandon a national wage structure and replace the same with a
regionalized structure in violation of the principle of equal pay for equal work. And, it is wrong to say that
its act of abandoning its national wage structure is mandated by law.”

As already discussed above, we cannot sustain this argument. Petitioner contradicts itself in not objecting,
on the one hand, to the right of the regional wage boards to impose a regionalized wage scheme; while
insisting, on the other hand, on a national wage structure for the whole Bank. To reiterate, a uniform
national wage structure is antithetical to the purpose of RA 6727.

The objective of the law also explains the wage disparity in the example cited by petitioner: Armae Librero,
though only in Pay Class 4 in Mabolo, was, as a result of the Wage Order, receiving more than Bella
Cristobal, who was already in Pay Class 5 in Subic.[12] RA 6727 recognizes that there are different needs
for the different situations in different regions of the country. The fact that a person is receiving more in
one region does not necessarily mean that he or she is better off than a person receiving less in another
region. We must consider, among others, such factors as cost of living, fulfillment of national economic
goals, and standard of living. In any event, this Court, in its decisions, merely enforces the law. It has no
power to pass upon its wisdom or propriety.

Equal Pay for Equal Work

Petitioner also avers that the implementation of the Wage Order in only one region violates the equal-pay-
for-equal-work principle. This is not correct. At the risk of being repetitive, we stress that RA 6727
mandates that wages in every region must be set by the particular wage board of that region, based on the
prevailing situation therein. Necessarily, the wages in different regions will not be uniform. Thus, under
RA 6727, the minimum wage in Region 1 may be different from that in Region 13, because the
socioeconomic conditions in the two regions are different.

Meaning of “Establishment”

Petitioner further contends that the Court of Appeals erred in interpreting the meaning of “establishment” in
relation to wage distortion. It quotes the RA 6727 Implementing Rules, specifically Section 13 thereof
which speaks of “workers working in branches or agencies of establishments in or outside the National
Capital Region.” Petitioner infers from this that the regional offices of the Bank do not themselves
constitute, but are simply branches of, the establishment which is the whole bank. In effect, petitioner
argues that wage distortion covers the pay scales even of employees in different regions, and not
only those of employees in the same region or branch. We disagree.

Section 13 provides that the “minimum wage rates of workers working in branches or agencies of
establishments in or outside the National Capital Region shall be those applicable in the place where they
are sanctioned.” The last part of the sentence was omitted by petitioner in its argument. Given the entire
phrase, it is clear that the statutory provision does not support petitioner’s view that “establishment”
includes all branches and offices in different regions.

Further negating petitioner’s theory is NWPC Guideline No. 1 (S. 1992) entitled “Revised Guidelines on
Exemption From Compliance With the Prescribed Wage/Cost of Living Allowance Increases Granted by
the Regional Tripartite Wages and Productivity Board,” which states that “establishment” “refers to an
economic unit which engages in one or predominantly one kind of economic activity with a single fixed
location.”

Management Practice

Petitioner also insists that the Bank has adopted a uniform wage policy, which has attained the status of an
established management practice; thus, it is estopped from implementing a wage order for a specific region
only. We are not persuaded. Said nationwide uniform wage policy of the Bank had been adopted prior to
the enactment of RA 6727. After the passage of said law, the Bank was mandated to regionalize its wage
structure. Although the Bank implemented Wage Order Nos. NCR-01 and NCR-02 nationwide instead of
regionally even after the effectivity of RA 6727, the Bank at the time was still uncertain about how to
follow the new law. In any event, that single instance cannot be constitutive of “management practice.”

WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against
petitioner.

SO ORDERED.

G.R. No. 140689, February 17, 2004

BANKARD EMPLOYEES UNION-WORKERS ALLIANCE TRADE UNIONS, PETITIONER, VS.

NATIONAL LABOR RELATIONS COMMISSION AND BANKARD, INC., RESPONDENTS.

DECISION
CARPIO MORALES, J.:

The present Petition for Review on Certiorari under Rule 45 of the Rules of Court raises the issue of
whether the unilateral adoption by an employer of an upgraded salary scale that increased the hiring rates of
new employees without increasing the salary rates of old employees resulted in wage distortion within the
contemplation of Article 124 of the Labor Code.

Bankard, Inc. (Bankard) classifies its employees by levels, to wit: Level I, Level II, Level III, Level IV, and
Level V. On May 28, 1993, its Board of Directors approved a “New Salary Scale”, made retroactive to
April 1, 1993, for the purpose of making its hiring rate competitive in the industry’s labor market. The
“New Salary Scale” increased the hiring rates of new employees, to wit: Levels I and V by one thousand
pesos (P1,000.00), and Levels II, III and IV by nine hundred pesos (P900.00). Accordingly, the salaries of
employees who fell below the new minimum rates were also adjusted to reach such rates under their levels.

Bankard’s move drew the Bankard Employees Union-WATU (petitioner), the duly certified exclusive
bargaining agent of the regular rank and file employees of Bankard, to press for the increase in the salary of
its old, regular employees.

Bankard took the position, however, that there was no obligation on the part of the management to grant to
all its employees the same increase in an across-the-board manner.

As the continued request of petitioner for increase in the wages and salaries of Bankard’s regular
employees remained unheeded, it filed a Notice of Strike on August 26, 1993 on the ground of
discrimination and other acts of Unfair Labor Practice (ULP).

A director of the National Conciliation and Mediation Board treated the Notice of Strike as a “Preventive
Mediation Case” based on a finding that the issues therein were “not strikeable”.

Petitioner filed another Notice of Strike on October 8, 1993 on the grounds of refusal to bargain,
discrimination, and other acts of ULP -union busting. The strike was averted, however, when the dispute
was certified by the Secretary of Labor and Employment for compulsory arbitration.

The Second Division of the NLRC, by Order of May 31, 1995, finding no wage distortion, dismissed the
case for lack of merit.

Petitioner’s motion for reconsideration of the dismissal of the case was, by Resolution of July 28, 1995,
denied.

Petitioner thereupon filed a petition for certiorari before this Court, docketed as G.R. 121970. In
accordance with its ruling in St. Martin Funeral Homes v. NLRC,[1]the petition was referred to the Court of
Appeals which, by October 28, 1999, denied the same for lack of merit.

Hence, the present petition which faults the appellate court as follows:
(1) It misapprehended the basic issues when it concluded that under Bankard’s new wage structure, the
old salary gaps between the different classification or level of employees were “still reflected” by the
adjusted salary rates[2]; and

(2) It erred in concluding that “wage distortion does not appear to exist”, which conclusion is manifestly
contrary to law and jurisprudence.[3]
Upon the enactment of R.A. No. 6727 (WAGE RATIONALIZATION ACT, amending, among others,
Article 124 of the Labor Code) on June 9, 1989, the term “wage distortion” was explicitly defined as:
... a situation where an increase in prescribed wage rates results in the elimination or severe contraction of
intentional quantitative differences in wage or salary rates between and among employee groups in an
establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills,
length of service, or other logical bases of differentiation.[4]
Prubankers Association v. Prudential Bank and Trust Company [5] laid down the four elements of wage
distortion, to wit: (1.) An existing hierarchy of positions with corresponding salary rates; (2) A significant
change in the salary rate of a lower pay class without a concomitant increase in the salary rate of a higher
one; (3) The elimination of the distinction between the two levels; and (4) The existence of the distortion in
the same region of the country.

Normally, a company has a wage structure or method of determining the wages of its employees. In a
problem dealing with “wage distortion,” the basic assumption is that there exists a grouping or
classification of employees that establishes distinctions among them on some relevant or legitimate bases.[6]

Involved in the classification of employees are various factors such as the degrees of responsibility, the
skills and knowledge required, the complexity of the job, or other logical basis of differentiation. The
differing wage rate for each of the existing classes of employees reflects this classification.

Petitioner maintains that for purposes of wage distortion, the classification is not one based on “levels” or
“ranks” but on two groups of employees, the newly hired and the old, in each and every level, and not
between and among the different levels or ranks in the salary structure.

Public respondent National Labor Relations Commission (NLRC) refutes petitioner’s position, however. It,
through the Office of the Solicitor General, essays in its Comment of April 12, 2000 as follows:
To determine the existence of wage distortion, the “historical” classification of the employees prior to the
wage increase must be established. Likewise, it must be shown that as between the different classification
of employees, there exists a “historical” gap or difference.

xxx

The classification preferred by petitioner is belied by the wage structure of private respondent as shown in
the new salary scale it adopted on May 28, 1993, retroactive to April 1, 1993, which provides, thus:
Hiring Minimum Maximum
Level From To From To From To
I 3,100 4,100 3,200 4,200 7,200 9,250
II 3,200 4,100 3,300 4,200 7,500 9,500
III 3,300 4,200 3,400 4,300 8,000 10,000
IV 3,500 4,400 3,600 4,500 8,500 10,500
V 3,700 4,700 3,800 4,800 9,000 11,000
Thus the employees of private respondent have been “historically” classified into levels, i.e. I to V, and
not on the basis of their length of service. Put differently, the entry of new employees to the
company ipso facto place[s] them under any of the levels mentioned in the new salary scale which private
respondent adopted retroactive [to] April 1, 1993. Petitioner cannot make a contrary classification of
private respondent’s employees without encroaching upon recognized management prerogative of
formulating a wage structure, in this case, one based on level.[7] (Emphasis and underscoring supplied)
The issue of whether wage distortion exists being a question of fact that is within the jurisdiction of quasi-
judicial tribunals,[8] and it being a basic rule that findings of facts of quasi-judicial agencies, like the NLRC,
are generally accorded not only respect but at times even finality if they are supported by substantial
evidence, as are the findings in the case at bar, they must be respected. For these agencies have acquired
expertise, their jurisdiction being confined to specific matters. [9]

It is thus clear that there is no hierarchy of positions between the newly hired and regular employees of
Bankard, hence, the first element of wage distortion provided in Prubankers is wanting.

While seniority may be a factor in determining the wages of employees, it cannot be made the sole basis in
cases where the nature of their work differs.

Moreover, for purposes of determining the existence of wage distortion, employees cannot create their own
independent classification and use it as a basis to demand an across-the-board increase in salary.
As National Federation of Labor v. NLRC, et al.[10] teaches, the formulation of a wage structure through the
classification of employees is a matter of management judgment and discretion.
[W]hether or not a new additional scheme of classification of employees for compensation purposes should
be established by the Company (and the legitimacy or viability of the bases of distinction there embodied)
is properly a matter of management judgment and discretion, and ultimately, perhaps, a subject
matter for bargaining negotiations between employer and employees. It is assuredly something that falls
outside the concept of “wage distortion.”[11] (Emphasis and underscoring supplied)
As did the Court of Appeals, this Court finds that the third element provided in Prubankers is also wanting.
For, as the appellate court explained:
In trying to prove wage distortion, petitioner union presented a list of five (5) employees allegedly affected
by the said increase:no
Pay of Old/Regular Employees Pay of Newly Hired Employees Difference

A. Prior to April 1, 1993

Level I P4,518.75 (Sammy Guce) P3,100 P1,418.75

Level II P6,242.00 (Nazario Abello) P3,200 P3,042.00
Level IIIP4,850.00 (Arthur Chavez) P3,300 P1,550.00
Level IVP5,339.00 (Melissa Cordero) P3,500 P1,839.00
Level VP7,090.69 (Ma. Lourdes Dee) P3,700 P3,390.69

B. Effective April 1, 1993

Level I P4,518.75 (Sammy Guce) P4,100 P418.75
Level II P6,242.00 (Nazario Abello) P4,100 P2,142.00
Level IIIP4,850.00 (Arthur Chavez) P4,200 P650.00
Level IVP5,330.00 (Melissa Cordero) P4,400 P939.00
Level VP7,090.69 (Ma. Lourdes Dee) P4,700 P2,390.69
Even assuming that there is a decrease in the wage gap between the pay of the old employees and the newly
hired employees, to Our mind said gap is not significant as to obliterate or result in severe contraction of
the intentional quantitative differences in the salary rates between the employee group. As already stated,
the classification under the wage structure is based on the rank of an employee, not on seniority. For this
reason, ,wage distortion does not appear to exist.[12] (Emphasis and underscoring supplied)

Apart from the findings of fact of the NLRC and the Court of Appeals that some of the elements of wage
distortion are absent, petitioner cannot legally obligate Bankard to correct the alleged “wage distortion” as
the increase in the wages and salaries of the newly-hired was not due to a prescribed law or wage order.

The wordings of Article 124 are clear. If it was the intention of the legislators to cover all kinds of wage
adjustments, then the language of the law should have been broad, not restrictive as it is currently phrased:
Article 124. Standards/Criteria for Minimum Wage Fixing.

xxx

Where the application of any prescribed wage increase by virtue of a law or Wage Order issued by any
Regional Board results in distortions of the wage structure within an establishment, the employer and the
union shall negotiate to correct the distortions. Any dispute arising from the wage distortions shall be
resolved through the grievance procedure under their collective bargaining agreement and, if it remains
unresolved, through voluntary arbitration.

x x x (Italics and emphasis supplied)

Article 124 is entitled “Standards/Criteria for Minimum Wage Fixing.” It is found in CHAPTER V on
“WAGE STUDIES, WAGE AGREEMENTS AND WAGE DETERMINATION” which principally
deals with the fixing of minimum wage. Article 124 should thus be construed and correlated in relation to
minimum wage fixing, the intention of the law being that in the event of an increase in minimum wage, the
distinctions embodied in the wage structure based on skills, length of service, or other logical bases of
differentiation will be preserved.

If the compulsory mandate under Article 124 to correct “wage distortion” is applied to voluntary and
unilateral increases by the employer in fixing hiring rates which is inherently a business judgment
prerogative, then the hands of the employer would be completely tied even in cases where an increase in
wages of a particular group is justified due to a re-evaluation of the high productivity of a particular group,
or as in the present case, the need to increase the competitiveness of Bankard’s hiring rate. An employer
would be discouraged from adjusting the salary rates of a particular group of employees for fear that it
would result to a demand by all employees for a similar increase, especially if the financial conditions of
the business cannot address an across-the-board increase.

Petitioner cites Metro Transit Organization, Inc. v. NLRC[13] to support its claim that the obligation to
rectify wage distortion is not confined to wage distortion resulting from government decreed law or wage
order.

Reliance on Metro Transit is however misplaced, as the obligation therein to rectify the wage distortion
was not by virtue of Article 124 of the Labor Code, but on account of a then existing “company practice”
that whenever rank-and-file employees were paid a statutorily mandated salary increase, supervisory
employees were, as a matter of practice, also paid the same amount plus an added premium. Thus this
Court held in said case:
We conclude that the supervisory employees, who then (i.e., on April 17, 1989) had, unlike the rank-and-
file employees, no CBA governing the terms and conditions of their employment, had the right to rely on
the company practice of unilaterally correcting the wage distortion effects of a salary increase given to the
rank-and-file employees, by giving the supervisory employees a corresponding salary increase plus a
premium. . . .[14] (Emphasis supplied)
Wage distortion is a factual and economic condition that may be brought about by different causes.
In Metro Transit, the reduction or elimination of the normal differential between the wage rates of rank-
and-file and those of supervisory employees was due to the granting to the former of wage increase which
was, however, denied to the latter group of employees.

The mere factual existence of wage distortion does not, however, ipso facto result to an obligation to rectify
it, absent a law or other source of obligation which requires its rectification.

Unlike in Metro Transit then where there existed a “company practice,” no such management practice is
herein alleged to obligate Bankard to provide an across-the-board increase to all its regular employees.

Bankard’s right to increase its hiring rate, to establish minimum salaries for specific jobs, and to adjust the
rates of employees affected thereby is embodied under Section 2, Article V (Salary and Cost of Living
Allowance) of the parties’ Collective Bargaining Agreement (CBA), to wit:
Section 2. Any salary increase granted under this Article shall be without prejudice to the right of the
Company to establish such minimum salaries as it may hereafter find appropriate for specific jobs, and to
adjust the rates of the employees thereby affected to such minimum salaries thus established.[15] (Italics and
underscoring supplied)
This CBA provision, which is based on legitimate business-judgment prerogatives of the employer, is a
valid and legally enforceable source of rights between the parties.

In fine, absent any indication that the voluntary increase of salary rates by an employer was done arbitrarily
and illegally for the purpose of circumventing the laws or was devoid of any legitimate purpose other than
to discriminate against the regular employees, this Court will not step in to interfere with this management
prerogative. Employees are of course not precluded from negotiating with its employer and lobby for wage
increases through appropriate channels, such as through a CBA.

This Court, time and again, has shown concern and compassion to the plight of workers in adherence to the
Constitutional provisions on social justice and has always upheld the right of workers to press for better
terms and conditions of employment. It does not mean, however, that every dispute should be decided in
favor of labor, for employers correspondingly have rights under the law which need to be respected.

WHEREFORE, the present petition is hereby DENIED.

SO ORDERED.

CHAPTER VI

G.R. NO. 88538, April 25, 1990

ABOITIZ SHIPPING CORPORATION, PETITIONER, VS. HON. DIONISIO C. DELA SERNA,

IN HIS CAPACITY AS UNDERSECRETARY OF LABOR AND EMPLOYMENT; HON. LUNA C.
PIEZAS, IN HIS CAPACITY AS DIRECTOR, NATIONAL CAPITAL REGION, DEPARTMENT
OF LABOR AND EMPLOYMENT; AND, ABOITIZ SHIPPING EMPLOYEES ASSOCIATION,
RESPONDENTS.

DECISION

PADILLA, J.:

The principal issue in this special civil action for certiorari is whether the respondent Regional Director,
National Capital Region, Department of Labor and Employment (Regional Director, for short) correctly
assumed jurisdiction over the money claims filed with him by the complainants (members of herein private
respondent).

Assailed specifically in this petition is the Order dated 9 February 1989 of the respondent Undersecretary
of Labor and Employment affirming the Order dated 13 October 1988 of the Regional Director, ordering
petitioner company to pay the seven hundred seventeen (717) complainants a total amount of
P1,350,828.00, or P1,884.00 each, representing underpayment of an allowance of P2.00 per day, reckoned
from 16 February 1982 to 15 February 1985.

The facts of the case, as found by respondent Undersecretary, are as follows:

''x x x a complaint was filed by the Aboitiz Shipping Employees Association against Aboitiz Shipping
Corporation for non-compliance of the mandated minimum wage rates and allowances pursuant to P.D.
Nos. 1713, 1751, Wage Order Nos. 1, 2, 3, 4, 5 and 6. Accordingly, the Labor Regulation Officers of the
Regional Office a quo inspected the respondent's employment records.

On the other hand, the respondent filed a Motion to Dismiss contending that the complainant-union has no
legal capacity to sue because a representation issue is still pending with Med-Arbiter Edgardo Cruz in LRD
CASE NO. M?001-85.

Series of hearings were conducted whereby the Office a quo repeatedly directed the respondent to present
and submit all its pertinent papers/employment records covered by the investigation. However, on several
occasions, the respondent failed to appear. Likewise, despite repeated notices, the respondent failed to
present any of the documents due for inspection evidencing correct payments of salaries and allowances.

On December 28, 1987, the hearing officer submitted his report and recommended for the payment to the
union's members amounting to an aggregate sum of P16,200,877.47.

On January 20, 1988, the Office a quo formally issued subpoena duces tecum, requiring the presentation by
the respondent of its employees' payrolls and vouchers covering the period from February 16, 1982 to
December 31, 1985. This, the respondent ignored. In lieu thereof, it filed a second Motion to Dismiss
alleging that on July 24, 1986, the parties entered into a compromise agreement whereby they agreed that
all cases filed against and by respondent would be dropped and/or dismissed, including the above entitled
case; that pursuant to and by virtue of the compromise agreement, cases filed against the Aboitiz Shipping
Corporation and its officers were dropped and/or withdrawn and/or dismissed; and that similarly, cases
filed by Aboitiz Shipping Corporation and its officers against the union and its officers were dropped,
withdrawn and/or dismissed.

In the subsequent hearing of February 16, 1988 however, the parties agreed that on March 4, 1988, the
respondent shall submit to the Office a quo the required payrolls/vouchers for wages and salaries covering
the period from February 16, 1982 to December 31, 1985. On that date, the respondent again failed to
make good its commitment. Nevertheless, it agreed to submit the payrolls of its Manila-based employees
for the period from January 1982 to December 1982. Together with the submission of the photocopies of
the payrolls of the Manila-based employees, the respondent also filed a Manifestation of Compliance
stating that the following should be taken into consideration:

‘Annex 1. Which is a BWF/ISM Form No. 5 an advance notice dated October 1987 issued by the DOLE
Regional Office No. 7 notifying respondent of their intent to check payrolls etc. xxx

Annex 2. Which is the notice of inspection results no. 05598 dated October 23, 1987 stating that the
respondent (companywide payrolls, etc.) has no violation insofar as wages, salaries, etc. are concerned as
well as the benefits indicated in the CBA. xxx

Annex 3. Which is the certification of the ASEA Union President based in Cebu City and the Union Vice
President that company records inspected covering the period 1984-1987 were true correct and in order,
and in compliance with the Labor and Standard Laws;

Annex 4. Which is the existing CBA between the respondent and complainant ASEA employees Union;

Annex 5. Which is the letter of Bureau of Working Conditions dated July 17, 1987 signed by Director
Augusto Sanchez sustaining and validating respondent's use of 314 as divisor in the computation of wages
and COLA for land based employees of respondent.’

Again, on July 5, 1988, the respondent filed a supplemental Motion to Dismiss, questioning this time the
jurisdiction of the Office a quo. The motion alleged that ‘x x x considering the complaint involves money
claims, the original and exclusive jurisdiction rests not before the Honorable Director but before the Labor
Arbiter x x x'.

xxx xxx xxx

Another hearing was conducted on August 17, 1988, whereby the respondent was required to submit its
payrolls for the year 1984. The respondent manifested however, that its Motion to Dismiss be resolved first
by the Office a quo. Further, the respondent averred that the payroll for 1984 need not be submitted, and
thus moved for the resolution of this case based on the available records and motions submitted." [1]
Subsequently, respondent Regional Director issued the now assailed Order dated 13 October 1988, the
dispositive portion of which reads:
"WHEREFORE, premises considered, the Aboitiz Shipping Corporation is hereby Ordered to pay the
herein listed complainants the total amount of ONE MILLION THREE HUNDRED FIFTY THOUSAND
EIGHT HUNDRED TWENTY EIGHT and 00/100 PESOS (P1,350,828.00) representing underpayment of
daily allowance of TWO (P2.00) PESOS per day reckoned from 16 February 1982 to 15 February 1985.

FURTHER, the Aboitiz Shipping Corporation is hereby Ordered to pay each and every one of its
employees the deficiency in allowance of two (P2.00) PESOS per day from 16 February 1985 on ward until
this Order is fully complied with." [2]
On appeal to the Office of the Secretary of Labor and Employment, in which petitioner questioned, among
others, the jurisdiction of respondent Regional Director over the instant claims, respondent Undersecretary
issued the Order dated 9 February 1989 dismissing petitioner's appeal and affirming the Order dated 13
October 1988 of the respondent Director. The motion for reconsideration of the order dated 9 February
1989 having been denied by respondent Undersecretary in the Order dated 2 June 1989, petitioner
interposed this present petition.

Petitioner contends that it is the Labor Arbiter, not the Regional Director who has jurisdiction over money
claims, citing Article 217 of the Labor Code, and invoking this Court's ruling in Zambales Base Metals,
Inc. vs. Minister of Labor.[3]

We rule against petitioner's contention.

Pertinent to the issue at bar are Articles 129 and 217 of the Labor Code, as amended by Sections 2 and 9 of
Republic Act 6715 approved on 2 March 1989 which read as follows:
"Article 129. Recovery of wages, simple money claims and other benefits. - Upon complaint of any
interested party, the Regional Director of the Department of Labor and Employment or any of the duly
authorized hearing officers of the Department is empowered, through summary proceeding and after due
notice, to hear and decide any matter involving the recovery of wages and other monetary claims and
benefits, including legal interest, owing to an employee or person employed in domestic or household
service or househelper under this Code, arising from employer-employee relations: Provided, that such
complaint does not include a claim for reinstatement: Provided, further, That the aggregate money claims
of each employee or househelper do not exceed five thousand pesos (P5,000.00). The Regional Director or
hearing officer shall decide or resolve the complaint within thirty (30) calendar days from the date of the
filing of the same. Any sum thus recovered on behalf of any employee or househelper pursuant to this
Article shall be held in a special deposit account, and shall be paid, on order of the Secretary of Labor and
Employment or the Regional Director directly to the employee or househelper concerned. Any such sum
not paid to the employee or house-helper, because he cannot be located after diligent and reasonable effort
to locate him within a period of three (3) years, shall be held as a special fund of the Department of Labor
and Employment to be used exclusively for the amelioration and benefit of workers.

Any decision or resolution of the Regional Director or hearing officer pursuant to this provision may be
appealed on the same grounds provided in Article 223 of this Code, within five (5) calendar days from
receipt of a copy of said decision or resolution, to the National Labor Relations Commission which shall
resolve the appeal within ten (10) calendar days from the submission of the last pleading required or
allowed under its rules.

The Secretary of Labor and Employment or his duly authorized representative may supervise the payment
of unpaid wages and other monetary claims and benefits, including legal interest, found owing to any
employee or househelper under this Code."

xxx xxx xxx

"Art. 217. 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, within thirty
(30) calendar days after the submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, 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; 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), whether or not accompanies 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 or implementation 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."
It should be pointed out that, following the ruling in Briad Agro vs. Dela Cerna, and L.M. Camus
Engineering vs. Secretary of Labor,[4] the above-cited amendments, being curative in nature, have
retroactive effect and, thus, find application in the instant case.

Under the foregoing provisions of Articles 129 and 217 of the Labor Code, as amended, the Regional
Director is empowered, through summary proceeding and after due notice, to hear and decide cases
involving recovery of wages and other monetary claims and benefits, including legal interest, provided the
following requisites are present,[5] to wit:

1) the claim is presented by an employee or person employed in domestic or household service, or

househelper;

2) the claim arises from employer-employee relations;

3) the claimant does not seek reinstatement; and

4) the aggregate money claim of each employee or househelper does not exceed P5,000.00 (Art. 129,
Labor Code, as amended by R.A. 6715).

In the absence of any of the requisites above-enumerated, it is the Labor Arbiter who shall have exclusive
original jurisdiction over claims arising from employer-employee relations, except claims for employees’
compensation, social security, medicare and maternity benefits, all these pursuant to Article 217 of the
Labor Code, particularly paragraph six (6) thereof.

This power of the Regional Directors qualified under R.A. 6715 is recognized in the modificatory
resolution dated 9 November 1989 in said Briad Agro vs. Dela Cerna which modified the earlier decision
therein dated 29 June 1989.[6]
In view of the enactment of R.A. 6715, and the modificatory resolution in the Briad Agro case, the ruling
in Zambales Base Metals, Inc. vs. Minister of Labor, supra, is no longer applicable.

In the case at bar, it is noted that in the Order dated 13 October 1988 of the Regional Director, the latter
found each of the seven hundred seventeen (717) complainants entitled to a uniform amount of
P1,884.00. (Rollo, pp. 117-131). All the other requisites for the exercise of the power of the Regional
Director under Article 129 of the Labor Code, as amended by R.A. 6715, are present. It follows that the
respondent Regional Director properly took cognizance of the claims, subject of this petition.

To the petitioner's contention that it was denied due process of law as it was not afforded time and
opportunity to present its evidence, the records show that on several occasions, despite due notice,
petitioner failed to either appear at the scheduled hearings, or to present its employees’ payrolls and
vouchers for wages and salaries, particularly, those covering the period from 16 February 1982 to 31
December 1985. Therefore, petitioner was not denied due process of law.

We also do not agree with the petitioner's allegation that it was improper for the respondent Regional
Director to order, in the questioned Order dated 13 October 1988, compliance with P.D. 1678[7] as the issue
on the said decree was never raised by private respondent in its complaint filed before the Regional
Director. While it may be true that P.D. 1678 is not one of the laws where non-compliance therewith was
complained of, still, the Regional Director correctly acted in ordering petitioner to comply therewith, as he
(Regional Director) has such power under his visitorial and enforcement authority provided under Article
128(a) of the Labor Code, which provides:
"Art. 128. Visitorial and enforcement power. - (a) The Secretary of Labor or his duly authorized
representatives, including labor regulation officers, shall have access to employers’ records and premises at
any time of the day or night whenever work is being undertaken therein, and the right to copy therefrom, to
question any employee and investigate any fact, condition or matter which may be necessary to determine
violations or which may aid in the enforcement of this Code and of any labor law, wage order or rules and
regulations issued pursuant thereto."
Petitioner also claims that the complaint filed against it should have been dismissed outright, considering
the compromise agreement dated 24 July 1986, which purportedly contains the agreement of the parties
therein to dismiss the cases filed by one against the other. [8]

We find no merit in said contention, in the light of the Regional Director's finding that the said agreement
can not bind the complainant-union vis-a-vis the instant claims, for the reason that it was entered into by
one Mr. Elizardo Manuel[9] in his personal capacity, one Luis M. Moro, Jr. representing Aboitiz Shipping
Corporation, and Atty. Luis D. Flores in his capacity as legal counsel of ASEA-CLO,[10] which finding is
supported by the records of the case before us. Such records show that the compromise agreement
primarily binds only the said Mr. Manuel, and that, therefore, it has nothing to do with the rest of the other
complainant-union members. The said agreement[11] reads:

"COMPROMISE AGREEMENT
This Agreement, entered into by and among Mr. ELIZARDO MANUEL in his personal capacity, LUIS M.
MORO, JR. representing Aboitiz Shipping Corporation and Atty. LUIS D. FLORES in his capacity as
Legal Counsel of ASEA-CLO.

Based on a compromise agreement Mr. Elizardo Manuel is requesting Aboitiz Shipping Corporation for
payment of P70,000.00 in full settlement of all monetary claims for back wages and benefits he has,
including the settlement decided by the NLRC which presently is under appeal.

For and in consideration of the above stated amount Mr. Elizardo Manuel and Aboitiz Shipping
Corporation mutually agree that:

- Mr. Elizardo Manuel is deemed resigned from Aboitiz Shipping Corporation

 upon payment of the above stated amount; xxx

- Aboitiz Shipping Corporation will furnish Mr. E. Manuel a certificate of good

moral character;

- All pending cases as attested by our Legal Counsel that are related or filed by Mr.
E. Manuel against the Officers of Aboitiz Shipping Corporation and Aboitiz
Shipping Corporation itself will be immediately dropped;

- Aboitiz Shipping Corporation also agrees to drop all pending cases related to and
filed against Mr. E. Manuel and Officers of the Union.

Done this 24th day of July, 1986 in Metro Manila, Philippines.

(SGD) (SGD)
_________________ ________________
ELIZARDO MANUEL LUIS M. MORO, JR.
(SGD)
_________________
ATTY. LUIS D. FLORES"
Considering the terms of the said compromise agreement, we rule that said Mr. Manuel shall be excluded
from the list of complainants who shall receive money awards from the petitioner.

Finally, petitioner avers: that the award of P1,350,828 is without factual and legal basis; that petitioner did
not commit any labor standards violation pursuant to the DOLE inspection results and the union
certification to that effect; and that 291 of the 717 complainants are non-employees of petitioner, and that
the other 136 of the said 717 commenced employment only after February 1982, hence, not entitled to
receive money awards. The foregoing contentions being evidentiary in nature, we have to respect the
factual findings of public respondents regarding the above-cited petitioner's averments, the long-settled rule
being that factual findings of labor officials are, generally, conclusive and binding on this Court when
supported by substantial evidence.[12]

WHEREFORE, the assailed Order dated 9 February 1989 of the respondent Undersecretary of Labor and
Employment affirming the Order dated 13 October 1988 of the Regional Director is hereby AFFIRMED,
with the modification that Mr. Elizardo Manuel shall be excluded from the list of complainants at bar who
are entitled to money awards of P1,884.00 each. Petition is DISMISSED.

SO ORDERED.

G.R. No. 122791, February 19, 2003

PLACIDO O. URBANES, JR., DOING BUSINESS UNDER THE NAME & STYLE OF CATALINA
SECURITY AGENCY, PETITIONER, VS. THE HONORABLE SECRETARY OF LABOR AND
EMPLOYMENT AND SOCIAL SECURITY SYSTEM, RESPONDENTS.
 DECISION

CARPIO MORALES, J.:

Before this Court is a Petition for Certiorari under Rule 65 of the Revised Rules of Court assailing the June
22, 1995 Order of the Department of Labor and Employment (DOLE) Secretary which set aside the
September 16, 1994 Order of the Regional Director, National Capital Region (NCR).

The antecedent facts of the case are as follows:

Petitioner Placido O. Urbanes, Jr., doing business under the name and style of Catalina Security Agency,
entered into an agreement[1] to provide security services to respondent Social Security System (SSS).

During the effectivity of the agreement, petitioner, by letter of May 16, 1994, [2] requested the SSS for the
upward adjustment of their contract rate in view of Wage Order No. NCR-03 which was issued by the
Regional Tripartite Wages and Productivity Board-NCR pursuant to Republic Act 6727 otherwise known
as the Wage Rationalization Act, the pertinent provision of which wage order reads:
Section 9. In the case of contracts for construction projects and for security, janitorial and similar
services, the prescribed amount set forth herein for covered workers shall be borne by the principals
or the clients of the construction/service contractors and the contract shall be deemed amended
accordingly. In the event, however, that the principal or client failed to pay the prescribed increase,
the construction/service contractors shall be jointly and severally liable with the principal or
client. (Emphasis and underscoring supplied.)
As his May 16, 1994 letter to the SSS remained unheeded, petitioner sent another letter,[3] dated June 7,
1994, reiterating the request, which was followed by still another letter, [4] dated June 8, 1994.

On June 24, 1994, petitioner pulled out his agency’s services from the premises of the SSS and another
security agency, Jaguar, took over.[5]

On June 29, 1994, petitioner filed a complaint[6] with the DOLE-NCR against the SSS seeking the
implementation of Wage Order No. NCR-03.

In its position paper,[7] the SSS prayed for the dismissal of the complaint on the ground that petitioner is not
the real party in interest and has no legal capacity to file the same. In any event, it argued that if it had any
obligation, it was to the security guards.

On the other hand, petitioner in his position paper,[8] citing Eagle Security Agency, Inc. v.
NLRC,[9] contended that the security guards assigned to the SSS do not have any legal basis to file a
complaint against it for lack of contractual privity.

Finding for petitioner, the Regional Director of the DOLE-NCR issued an Order [10] of September 16, 1994,
the dispositive portion of which reads, quoted verbatim:
WHEREFORE, premises considered, the respondent Social Security System (SSS) is hereby Ordered to
pay Complainant the total sum of ONE MILLION SIX HUNDRED THOUSAND EIGHT HUNDRED
FIFTY EIGHT AND 46/100 (P 1,600,858.46) representing the wage differentials under Wage Order No.
NCR-03 of the ONE HUNDRED SIXTY EIGHT (168) Security Guards of Catalina Security Agency
covering the period from December 16, 1993 to June 24, 1994, inclusive within ten (10) days from receipt
hereof, otherwise a writ of execution shall be issued to enforce this Order.

The claims for the payment of interest and Attorney’s fees are hereby ordered dismissed for want of
jurisdiction.

SO ORDERED.
The SSS moved to reconsider the September 16, 1994 Order of the Regional Director, praying that the
computation be revised.[11]

By Order[12] of December 9, 1994, the Regional Director modified his September 16, 1994 Order by
reducing the amount payable by the SSS to petitioner. The dispositive portion of the Regional Director’s
Order of December 9, 1994 reads:
WHEREFORE, premises considered, the Order of this Office dated September 16, 1994 is hereby
modified. Respondent Social Security System is hereby ordered to pay complainant the amount of ONE
MILLION TWO HUNDRED THIRTY SEVEN THOUSAND SEVEN HUNDRED FORTY PESOS (P
1,237,740.00) representing the wage differentials under Wage Order No. NCR-03 of the one hundred sixty-
eight (168) security guards of Catalina Security Agency covering the period from December 16, 1993 to
June 20, 1994, inclusive, within ten (10) days from receipt of this Order, otherwise, execution shall issue.
The SSS appealed[13] to the Secretary of Labor upon the following assigned errors, quoted verbatim:

A. THE REGIONAL DIRECTOR HAS NO JURISDICTION OF THE CASE AT BAR.

B. THE HONORABLE REGIONAL DIRECTOR ERRED IN FINDING THAT COMPLAINANT

IS THE REAL PARTY IN INTEREST AND HAS LEGAL CAPACITY TO FILE THE CASE.

C. THE HONORABLE REGIONAL DIRECTOR ERRED IN ADOPTING COMPLAINANT’S

COMPUTATION FOR WAGE ADJUSTMENT UNDER WAGE ORDER NO. NCR-03 AS
BASIS OF RESPONDENT’S LIABILITY.[14]

The Secretary of Labor, by Order[15] of June 22, 1995, set aside the order of the Regional Director and
remanded the records of the case “for recomputation of the wage differentials using P 5,281.00 as the basis
of the wage adjustment.” And the Secretary held petitioner’s security agency “JOINTLY AND
SEVERALLY liable for wage differentials, the amount of which should be paid DIRECTLY to the security
guards concerned.”

Petitioner’s Motion for Reconsideration of the DOLE Secretary’s Order of June 22, 1995 having been
denied by Order[16] of October 10, 1995, the present petition was filed, petitioner contending that the DOLE
Secretary committed grave abuse of discretion when he:

1. . . . TOTALLY IGNORED THE PROVISION OF ARTICLE 129 OF THE LABOR CODE FOR
PERFECTING AN APPEAL FROM THE DECISION OF THE REGIONAL DIRECTOR
UNDER ARTICLE 129 INVOKED BY RESPONDENT SSS;

2. . . . DISREGARDED THE PROVISION ON APPEALS FROM THE DECISIONS OR

RESOLUTIONS OF THE REGIONAL DIRECTOR, DOLE, UNDER ARTICLE 129 OF THE
LABOR CODE, AS AMENDED BY REPUBLIC ACT NO. 6715;

3. . . . TOTALLY OVERLOOKED THE LAW AND PREVAILING JURISPRUDENCE WHEN IT

ACTED ON THE APPEAL OF RESPONDENT SSS.[17]

Petitioner asserts that the Secretary of Labor does not have jurisdiction to review appeals from decisions of
the Regional Directors in complaints filed under Article 129 of the Labor Code [18] which provides:
ART. 129. RECOVERY OF WAGES, SIMPLE MONEY CLAIMS AND OTHER BENEFITS. – Upon
complaint of any interested party, the regional director of the Department of Labor and Employment or any
duly authorized hearing officers of the Department is empowered, through summary proceeding and after
due notice, to hear and decide any matter involving the recovery of wages and other monetary claims and
benefits, including legal interest, owing to an employee or person employed in domestic or household
service or househelper under this Code, arising from employer-employee relations: Provided, That such
complaint does not include a claim for reinstatement; Provided, further, That the aggregate money claim of
each employee or househelper does not exceed Five Thousand pesos (P5,000.00). The regional director or
hearing officer shall decide or resolve the complaint within thirty (30) calendar days from the date of the
filing of the same. Any sum thus recovered on behalf of any employee or househelper pursuant to this
Article shall be held in a special deposit account by, and shall be paid on order of, the Secretary of Labor
and Employment or the regional director directly to the employee or househelper concerned. Any such sum
not paid to the employee or househelper, because he cannot be located after diligent and reasonable effort
to locate him within a period of three (3) years, shall be held as a special fund of the Department of Labor
and Employment to be used exclusively for the amelioration and benefit of workers.

Any decision or resolution of the regional director or officer pursuant to this provision may be
appealed on the same grounds provided in Article 223 of this Code, within five (5) calendar days from
receipt of a copy of said decision or resolution, to the National Labor Relations Commission which shall
resolve the appeal within ten (10) calendar days from submission of the last pleading required or allowed
under its rules.

x x x (Emphasis supplied).
Petitioner thus contends that as the appeal of SSS was filed with the wrong forum, it should have been
dismissed.[19]

The SSS, on the other hand, contends that Article 128, not Article 129, is applicable to the case. Article 128
provides:
ART. 128. VISITORIAL AND ENFORCEMENT POWERS –

xxx

(b) Notwithstanding the provisions of Article 129 and 217 of this Code to the contrary, and in cases where
the relationship of employer-employee still exists, the Secretary of Labor and Employment or his duly
authorized representatives shall have the power to issue compliance orders to give effect to labor
legislation based on the findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection.

xxx

An order issued by the duly authorized representative of the Secretary of Labor and Employment
under this article may be appealed to the latter.

x x x (Emphasis supplied).
Neither the petitioner’s contention nor the SSS’s is impressed with merit. Lapanday Agricultural
Development Corporation v. Court of Appeals[20] instructs so. In that case, the security agency filed a
complaint before the Regional Trial Court (RTC) against the principal or client Lapanday for the upward
adjustment of the contract rate in accordance with Wage Order Nos. 5 and 6. Lapanday argued that it is the
National Labor Relations Commission, not the civil courts, which has jurisdiction to resolve the issue in the
case, it involving the enforcement of wage adjustment and other benefits due the agency’s security guards
as mandated by several wage orders. Holding that the RTC has jurisdiction over the controversy, this Court
ruled:
We agree with the respondent that the RTC has jurisdiction over the subject matter of the present case. It is
well settled in law and jurisprudence that where no employer-employee relationship exists between
the parties and no issue is involved which may be resolved by reference to the Labor Code, other
labor statutes or any collective bargaining agreement, it is the Regional Trial Court that has
jurisdiction. In its complaint, private respondent is not seeking any relief under the Labor Code
but seeks payment of a sum of money and damages on account of petitioner's alleged breach of its
obligation under their Guard Service Contract. The action is within the realm of civil law hence
jurisdiction over the case belongs to the regular courts. While the resolution of the issue involves the
application of labor laws, reference to the labor code was only for the determination of the solidary
liability of the petitioner to the respondent where no employer-employee relation exists.[21]
x x x (Emphasis and underscoring supplied).
In the case at bar, even if petitioner filed the complaint on his and also on behalf of the security
guards,[22] the relief sought has to do with the enforcement of the contract between him and the SSS which
was deemed amended by virtue of Wage Order No. NCR-03. The controversy subject of the case at bar is
thus a civil dispute, the proper forum for the resolution of which is the civil courts.

But even assuming arguendo that petitioner’s complaint were filed with the proper forum, for lack of cause
of action it must be dismissed.

Articles 106, 107 and 109 of the Labor Code provide:

ART. 106. CONTRACTOR OR SUBCONTRACTOR. – Whenever an employer enters into contract with
another person for the performance of the former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of this Code.

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

xxx (Emphasis and underscoring supplied)

ART. 107 INDIRECT EMPLOYER. – The provisions of the immediately preceding Article shall likewise
apply to any person, partnership, association or corporation which, not being an employer, contracts with
an independent contractor for the performance of any work, task, job or project.

ART. 109. SOLIDARY LIABILTY. – The provisions of existing laws to the contrary notwithstanding,
every employer or indirect employer shall be held responsible with his contractor or subcontractor for any
violation of any provision of this Code. For purposes of determining the extent of their civil liability under
this Chapter, they shall be considered as direct employers.(Emphasis supplied.)
In the case of Eagle Security Agency, Inc. v. NLRC,[23] this Court held:
The Wage Orders are explicit that payment of the increases are "to be borne" by the principal or
client. "To be borne", however, does not mean that the principal, PTSI in this case, would directly pay the
security guards the wage and allowance increases because there is no privity of contract between them. The
security guards' contractual relationship is with their immediate employer, EAGLE. As an employer,
EAGLE is tasked, among others, with the payment of their wages [See Article VII Sec. 3 of the Contract
for Security Services, supra and Bautista v. Inciong, G.R. No. 52824, March 16, 1988, 158 SCRA 665].

On the other hand, there existed a contractual agreement between PTSI and EAGLE wherein the former
availed of the security services provided by the latter. In return, the security agency collects from its client
payment for its security services. This payment covers the wages for the security guards and also expenses
for their supervision and training, the guards' bonds, firearms with ammunitions, uniforms and other
equipments, accessories, tools, materials and supplies necessary for the maintenance of a security force.

Premises considered, the security guards' immediate recourse for the payment of the increases is with
their direct employer, EAGLE. However, in order for the security agency to comply with the new wage
and allowance rates it has to pay the security guards, the Wage Orders made specific provision to amend
existing contracts for security services by allowing the adjustment of the consideration paid by the principal
to the security agency concerned. What the Wage Orders require, therefore, is the amendment of the
contract as to the consideration to cover the service contractor's payment of the increases mandated. In the
end, therefore, ultimate liability for the payment of the increases rests with the principal.

In view of the foregoing, the security guards should claim the amount of the increases from
EAGLE. Under the Labor Code, in case the agency fails to pay them the amounts claimed, PTSI
should be held solidarily liable with EAGLE [Articles 106, 107 and 109]. Should EAGLE pay, it can
claim an adjustment from PTSI for an increase in consideration to cover the increases payable to the
security guards.

x x x (Emphasis and underscoring supplied).

Passing on the foregoing disquisition in Eagle, this Court, in Lapanday,[24] held:
It is clear also from the foregoing that it is only when [the] contractor pays the increases mandated that it
can claim an adjustment from the principal to cover the increases payable to the security guards. The
conclusion that the right of the contractor (as principal debtor) to recover from the principal (as
solidary co-debtor) arises only if he has paid the amounts for which both of them are jointly and
severally liable is in line with Article 1217 of the Civil Code which provides:

“Art. 1217. Payment made by one the solidary debtors extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which offer to accept.

He who made payment make claim from his co-debtors only the share which corresponds to each, with
interest for the payment already made. If the payment is made before the debt is due, no interest for the
intervening period may be demanded. x x x” [25] (Emphasis and underscoring supplied).
In fine, the liability of the SSS to reimburse petitioner arises only if and when petitioner pays his employee-
security guards “the increases” mandated by Wage Order No. NCR-03.

The records do not show that petitioner has paid the mandated increases to the security guards. The security
guards in fact have filed a complaint[26] with the NLRC against petitioner relative to, among other things,
underpayment of wages.

WHEREFORE, the present petition is hereby DISMISSED, and petitioner’s complaint before the
Regional Director is dismissed for lack of jurisdiction and cause of action.

SO ORDERED.

TITLE IV
CHAPTER I

G.R. No. 118978, May 23, 1997

PHILIPPINE TELEGRAPH AND TELEPHONE COMPANY,* PETITIONER, VS. NATIONAL

LABOR RELATIONS COMMISSION AND GRACE DE GUZMAN, RESPONDENTS.
DECISION

REGALADO, J.:
Seeking relief through the extraordinary writ of certiorari, petitioner Philippine Telegraph and Telephone
Company (hereafter, PT&T) invokes the alleged concealment of civil status and defalcation of company
funds as grounds to terminate the services of an employee. That employee, herein private respondent Grace
de Guzman, contrarily argues that what really motivated PT&T to terminate her services was her having
contracted marriage during her employment, which is prohibited by petitioner in its company policies. She
thus claims that she was discriminated against in gross violation of law, such a proscription by an employer
being outlawed by Article 136 of the Labor Code.

Grace de Guzman was initially hired by petitioner as a reliever, specifically as a “Supernumerary Project
Worker,” for a fixed period from November 21, 1990 until April 20, 1991 vice one C.F. Tenorio who went
on maternity leave.[1] Under the Reliever Agreement which she signed with petitioner company, her
employment was to be immediately terminated upon expiration of the agreed period. Thereafter, from June
10, 1991 to July 1, 1991, and from July 19, 1991 to August 8, 1991, private respondent’s services as
reliever were again engaged by petitioner, this time in replacement of one Erlinda F. Dizon who went on
leave during both periods.[2] After August 8, 1991, and pursuant to their Reliever Agreement, her services
were terminated.

On September 2, 1991, private respondent was once more asked to join petitioner company as a
probationary employee, the probationary period to cover 150 days. In the job application form that was
furnished her to be filled up for the purpose, she indicated in the portion for civil status therein that she was
single although she had contracted marriage a few months earlier, that is, on May 26, 1991. [3]

It now appears that private respondent had made the same representation in the two successive reliever
agreements which she signed on June 10, 1991 and July 8, 1991. When petitioner supposedly learned about
the same later, its branch supervisor in Baguio City, Delia M. Oficial, sent to private respondent a
memorandum dated January 15, 1992 requiring her to explain the discrepancy. In that memorandum, she
was reminded about the company’s policy of not accepting married women for employment. [4]

In her reply letter dated January 17, 1992, private respondent stated that she was not aware of PT&T’s
policy regarding married women at the time, and that all along she had not deliberately hidden her true civil
status.[5] Petitioner nonetheless remained unconvinced by her explanations. Private respondent was
dismissed from the company effective January 29, 1992, [6] which she readily contested by initiating a
complaint for illegal dismissal, coupled with a claim for non-payment of cost of living allowances (COLA),
before the Regional Arbitration Branch of the National Labor Relations Commission in Baguio City.

At the preliminary conference conducted in connection therewith, private respondent volunteered the
information, and this was incorporated in the stipulation of facts between the parties, that she had failed to
remit the amount of P2,380.75 of her collections. She then executed a promissory note for that amount in
favor of petitioner.[7] All of these took place in a formal proceeding and with the agreement of the parties
and/or their counsel.

On November 23, 1993, Labor Arbiter Irenarco R. Rimando handed down a decision declaring that private
respondent, who had already gained the status of a regular employee, was illegally dismissed by petitioner.
Her reinstatement, plus payment of the corresponding back wages and COLA, was correspondingly
ordered, the labor arbiter being of the firmly expressed view that the ground relied upon by petitioner in
dismissing private respondent was clearly insufficient, and that it was apparent that she had been
discriminated against on account of her having contracted marriage in violation of company rules.

On appeal to the National Labor Relations Commission (NLRC), said public respondent upheld the labor
arbiter and, in its decision dated April 29, 1994, it ruled that private respondent had indeed been the subject
of an unjust and unlawful discrimination by her employer, PT&T. However, the decision of the labor
arbiter was modified with the qualification that Grace de Guzman deserved to be suspended for three
months in view of the dishonest nature of her acts which should not be condoned. In all other respects, the
NLRC affirmed the decision of the labor arbiter, including the order for the reinstatement of private
respondent in her employment with PT&T.
The subsequent motion for reconsideration filed by petitioner was rebuffed by respondent NLRC in its
resolution of November 9, 1994, hence this special civil action assailing the aforestated decisions of the
labor arbiter and respondent NLRC, as well as the denial resolution of the latter.

1. Decreed in the Bible itself is the universal norm that women should be regarded with love and respect
but, through the ages, men have responded to that injunction with indifference, on the hubristic conceit that
women constitute the inferior sex. Nowhere has that prejudice against womankind been so pervasive as in
the field of labor, especially on the matter of equal employment opportunities and standards. In the
Philippine setting, women have traditionally been considered as falling within the vulnerable groups or
types of workers who must be safeguarded with preventive and remedial social legislation against
discriminatory and exploitative practices in hiring, training, benefits, promotion and retention.

The Constitution, cognizant of the disparity in rights between men and women in almost all phases of
social and political life, provides a gamut of protective provisions. To cite a few of the primordial ones,
Section 14, Article II[8] on the Declaration of Principles and State Policies, expressly recognizes the role of
women in nation-building and commands the State to ensure, at all times, the fundamental equality before
the law of women and men. Corollary thereto, Section 3 of Article XIII [9] (the progenitor whereof dates
back to both the 1935 and 1973 Constitution) pointedly requires the State to afford full protection to labor
and to promote full employment and equality of employment opportunities for all, including an assurance
of entitlement to tenurial security of all workers. Similarly, Section 14 of Article XIII [10] mandates that the
State shall protect working women through provisions for opportunities that would enable them to reach
their full potential.

2. Corrective labor and social laws on gender inequality have emerged with more frequency in the years
since the Labor Code was enacted on May 1, 1974 as Presidential Decree No. 442, largely due to our
country’s commitment as a signatory to the United Nations Convention on the Elimination of All Forms of
Discrimination Against Women (CEDAW).[11]

Principal among these laws are Republic Act No. 6727 [12] which explicitly prohibits discrimination against
women with respect to terms and conditions of employment, promotion, and training opportunities;
Republic Act No. 6955[13] which bans the “mail-order-bride” practice for a fee and the export of female
labor to countries that cannot guarantee protection to the rights of women workers; Republic Act No.
7192,[14] also known as the “Women in Development and Nation Building Act,” which affords women
equal opportunities with men to act and to enter into contracts, and for appointment, admission, training,
graduation, and commissioning in all military or similar schools of the Armed Forces of the Philippines and
the Philippine National Police; Republic Act No. 7322[15] increasing the maternity benefits granted to
women in the private sector; Republic Act No. 7877[16] which outlaws and punishes sexual harassment in
the workplace and in the education and training environment; and Republic Act No. 8042, [17] or the
“Migrant Workers and Overseas Filipinos Act of 1995,” which prescribes as a matter of policy, inter alia,
the deployment of migrant workers, with emphasis on women, only in countries where their rights are
secure. Likewise, it would not be amiss to point out that in the Family Code, [18] women’s rights in the field
of civil law have been greatly enhanced and expanded.

In the Labor Code, provisions governing the rights of women workers are found in Articles 130 to 138
thereof. Article 130 involves the right against particular kinds of night work while Article 132 ensures the
right of women to be provided with facilities and standards which the Secretary of Labor may establish to
ensure their health and safety. For purposes of labor and social legislation, a woman working in a
nightclub, cocktail lounge, massage clinic, bar or other similar establishments shall be considered as an
employee under Article 138. Article 135, on the other hand, recognizes a woman’s right against
discrimination with respect to terms and conditions of employment on account simply of sex. Finally, and
this brings us to the issue at hand, Article 136 explicitly prohibits discrimination merely by reason of the
marriage of a female employee.

3. Acknowledged as paramount in the due process scheme is the constitutional guarantee of protection to
labor and security of tenure. Thus, an employer is required, as a condition sine qua non prior to severance
of the employment ties of an individual under his employ, to convincingly establish, through substantial
evidence, the existence of a valid and just cause in dispensing with the services of such employee, one’s
labor being regarded as constitutionally protected property.

On the other hand, it is recognized that regulation of manpower by the company falls within the so-called
management prerogatives, which prescriptions encompass the matter of hiring, supervision of workers,
work assignments, working methods and assignments, as well as regulations on the transfer of employees,
lay-off of workers, and the discipline, dismissal, and recall of employees. [19] As put in a case, an employer
is free to regulate, according to his discretion and best business judgment, all aspects of employment, “from
hiring to firing,” except in cases of unlawful discrimination or those which may be provided by law. [20]

In the case at bar, petitioner’s policy of not accepting or considering as disqualified from work any woman
worker who contracts marriage runs afoul of the test of, and the right against, discrimination, afforded all
women workers by our labor laws and by no less than the Constitution. Contrary to petitioner’s assertion
that it dismissed private respondent from employment on account of her dishonesty, the record discloses
clearly that her ties with the company were dissolved principally because of the company’s policy that
married women are not qualified for employment in PT&T, and not merely because of her supposed acts of
dishonesty.

That it was so can easily be seen from the memorandum sent to private respondent by Delia M. Oficial, the
branch supervisor of the company, with the reminder, in the words of the latter, that “you’re fully aware
that the company is not accepting married women employee (sic), as it was verbally instructed to
you.”[21] Again, in the termination notice sent to her by the same branch supervisor, private respondent was
made to understand that her severance from the service was not only by reason of her concealment of her
married status but, over and on top of that, was her violation of the company’s policy against marriage
(“and even told you that married women employees are not applicable [sic] or accepted in our
company.”)[22] Parenthetically, this seems to be the curious reason why it was made to appear in the
initiatory pleadings that petitioner was represented in this case only by its said supervisor and not by its
highest ranking officers who would otherwise be solidarily liable with the corporation. [23]

Verily, private respondent’s act of concealing the true nature of her status from PT&T could not be
properly characterized as willful or in bad faith as she was moved to act the way she did mainly because
she wanted to retain a permanent job in a stable company. In other words, she was practically forced by that
very same illegal company policy into misrepresenting her civil status for fear of being disqualified from
work. While loss of confidence is a just cause for termination of employment, it should not be
simulated.[24] It must rest on an actual breach of duty committed by the employee and not on the employer’s
caprices.[25]Furthermore, it should never be used as a subterfuge for causes which are improper, illegal, or
unjustified.[26]

In the present controversy, petitioner’s expostulations that it dismissed private respondent, not because the
latter got married but because she concealed that fact, does have a hollow ring. Her concealment, so it is
claimed, bespeaks dishonesty hence the consequent loss of confidence in her which justified her dismissal.
Petitioner would asseverate, therefore, that while it has nothing against marriage, it nonetheless takes
umbrage over the concealment of that fact. This improbable reasoning, with interstitial distinctions,
perturbs the Court since private respondent may well be minded to claim that the imputation of dishonesty
should be the other way around.

Petitioner would have the Court believe that although private respondent defied its policy against its female
employees contracting marriage, what could be an act of insubordination was inconsequential. What it
submits as unforgivable is her concealment of that marriage yet, at the same time, declaring that marriage
as a trivial matter to which it supposedly has no objection. In other words, PT&T says it gives its blessings
to its female employees contracting marriage, despite the maternity leaves and other benefits it would
consequently respond for and which obviously it would have wanted to avoid. If that employee confesses
such fact of marriage, there will be no sanction; but if such employee conceals the same instead of
proceeding to the confessional, she will be dismissed. This line of reasoning does not impress us as
reflecting its true management policy or that we are being regaled with responsible advocacy.
This Court should be spared the ennui of strained reasoning and the tedium of propositions which confuse
through less than candid arguments. Indeed, petitioner glosses over the fact that it was its unlawful policy
against married women, both on the aspects of qualification and retention, which compelled private
respondent to conceal her supervenient marriage. It was, however, that very policy alone which was the
cause of private respondent’s secretive conduct now complained of. It is then apropos to recall the familiar
saying that he who is the cause of the cause is the cause of the evil caused.

Finally, petitioner’s collateral insistence on the admission of private respondent that she supposedly
misappropriated company funds, as an additional ground to dismiss her from employment, is somewhat
insincere and self-serving. Concededly, private respondent admitted in the course of the proceedings that
she failed to remit some of her collections, but that is an altogether different story. The fact is that she was
dismissed solely because of her concealment of her marital status, and not on the basis of that supposed
defalcation of company funds. That the labor arbiter would thus consider petitioner’s submissions on this
supposed dishonesty as a mere afterthought, just to bolster its case for dismissal, is a perceptive conclusion
born of experience in labor cases. For, there was no showing that private respondent deliberately
misappropriated the amount or whether her failure to remit the same was through negligence and, if so,
whether the negligence was in nature simple or grave. In fact, it was merely agreed that private respondent
execute a promissory note to refund the same, which she did, and the matter was deemed settled as a
peripheral issue in the labor case.

Private respondent, it must be observed, had gained regular status at the time of her dismissal. When she
was served her walking papers on January 29, 1992, she was about to complete the probationary period of
150 days as she was contracted as a probationary employee on September 2, 1991. That her dismissal
would be effected just when her probationary period was winding down clearly raises the plausible
conclusion that it was done in order to prevent her from earning security of tenure. [27] On the other hand,
her earlier stints with the company as reliever were undoubtedly those of a regular employee, even if the
same were for fixed periods, as she performed activities which were essential or necessary in the usual
trade and business of PT&T.[28] The primary standard of determining regular employment is the reasonable
connection between the activity performed by the employee in relation to the business or trade of the
employer.[29]

As an employee who had therefore gained regular status, and as she had been dismissed without just cause,
she is entitled to reinstatement without loss of seniority rights and other privileges and to full back wages,
inclusive of allowances and other benefits or their monetary equivalent. [30] However, as she had undeniably
committed an act of dishonesty in concealing her status, albeit under the compulsion of an unlawful
imposition of petitioner, the three-month suspension imposed by respondent NLRC must be upheld to
obviate the impression or inference that such act should be condoned. It would be unfair to the employer if
she were to return to its fold without any sanction whatsoever for her act which was not totally justified.
Thus, her entitlement to back wages, which shall be computed from the time her compensation was
withheld up to the time of her actual reinstatement, shall be reduced by deducting therefrom the amount
corresponding to her three months suspension.

4. The government, to repeat, abhors any stipulation or policy in the nature of that adopted by petitioner
PT&T. The Labor Code states, in no uncertain terms, as follows:

“ART. 136. Stipulation against marriage. - It shall be unlawful for an employer to require as a condition of
employment or continuation of employment that a woman shall not get married, or to stipulate expressly or
tacitly that upon getting married, a woman employee shall be deemed resigned or separated, or to actually
dismiss, discharge, discriminate or otherwise prejudice a woman employee merely by reason of marriage.”

This provision had a studied history for its origin can be traced to Section 8 of Presidential Decree No.
148,[31] better known as the “Women and Child Labor Law,” which amended paragraph (c), Section 12 of
Republic Act No. 679,[32] entitled “An Act to Regulate the Employment of Women and Children, to
Provide Penalties for Violations Thereof, and for Other Purposes.” The forerunner to Republic Act No.
679, on the other hand, was Act No. 3071 which became law on March 16, 1923 and which regulated the
employment of women and children in shops, factories, industrial, agricultural, and mercantile
establishments and other places of labor in the then Philippine Islands.

It would be worthwhile to reflect upon and adopt here the rationalization in Zialcita, et al. vs. Philippine
Air Lines,[33] a decision that emanated from the Office of the President. There, a policy of Philippine Air
Lines requiring that prospective flight attendants must be single and that they will be automatically
separated from the service once they marry was declared void, it being violative of the clear mandate in
Article 136 of the Labor Code with regard to discrimination against married women. Thus:

“Of first impression is the incompatibility of the respondent’s policy or regulation with the codal
provision of law. Respondent is resolute in its contention that Article 136 of the Labor Code applies only to
women employed in ordinary occupations and that the prohibition against marriage of women engaged in
extraordinary occupations, like flight attendants, is fair and reasonable, considering the pecularities of their
chosen profession.

We cannot subscribe to the line of reasoning pursued by respondent. All along, it knew that the
controverted policy has already met its doom as early as March 13, 1973 when Presidential Decree No.
148, otherwise known as the Women and Child Labor Law, was promulgated. But for the timidity of those
affected or their labor unions in challenging the validity of the policy, the same was able to obtain a
momentary reprieve. A close look at Section 8 of said decree, which amended paragraph (c) of Section 12
of Republic Act No. 679, reveals that it is exactly the same provision reproduced verbatim in Article 136 of
the Labor Code, which was promulgated on May 1, 1974 to take effect six (6) months later, or on
November 1, 1974.

It cannot be gainsaid that, with the reiteration of the same provision in the new Labor Code, all policies and
acts against it are deemed illegal and therefore abrogated. True, Article 132 enjoins the Secretary of Labor
to establish standards that will ensure the safety and health of women employees and in appropriate cases
shall by regulation require employers to determine appropriate minimum standards for termination in
special occupations, such as those of flight attendants, but that is precisely the factor that militates against
the policy of respondent. The standards have not yet been established as set forth in the first paragraph, nor
has the Secretary of Labor issued any regulation affecting flight attendants.

It is logical to presume that, in the absence of said standards or regulations which are as yet to be
established, the policy of respondent against marriage is patently illegal. This finds support in Section 9 of
the New Constitution, which provides:
“Sec. 9. The State shall afford protection to labor, promote full employment and equality in employment,
ensure equal work opportunities regardless of sex, race, or creed, and regulate the relations between
workers and employees. The State shall assure the rights of workers to self-organization, collective
bargaining, security of tenure, and just and humane conditions of work x x x.”
Moreover, we cannot agree to the respondent’s proposition that termination from employment of flight
attendants on account of marriage is a fair and reasonable standard designed for their own health, safety,
protection and welfare, as no basis has been laid therefor. Actually, respondent claims that its concern is
not so much against the continued employment of the flight attendant merely by reason of marriage as
observed by the Secretary of Labor, but rather on the consequence of marriage-pregnancy. Respondent
discussed at length in the instant appeal the supposed ill effects of pregnancy on flight attendants in the
course of their employment. We feel that this needs no further discussion as it had been adequately
explained by the Secretary of Labor in his decision of May 2, 1976.

In a vain attempt to give meaning to its position, respondent went as far as invoking the provisions of
Articles 52 and 216 of the New Civil Code on the preservation of marriage as an inviolable social
institution and the family as a basic social institution, respectively, as bases for its policy of non-marriage.
In both instances, respondent predicates absence of a flight attendant from her home for long periods of
time as contributory to an unhappy married life. This is pure conjecture not based on actual conditions,
considering that, in this modern world, sophisticated technology has narrowed the distance from one place
to another. Moreover, respondent overlooked the fact that married flight attendants can program their lives
to adapt to prevailing circumstances and events.
Article 136 is not intended to apply only to women employed in ordinary occupations, or it should have
categorically expressed so. The sweeping intendment of the law, be it on special or ordinary occupations, is
reflected in the whole text and supported by Article 135 that speaks of non-discrimination on the
employment of women.
The judgment of the Court of Appeals in Gualberto, et al. vs. Marinduque Mining & Industrial
Corporation[34] considered as void a policy of the same nature. In said case, respondent, in dismissing from
the service the complainant, invoked a policy of the firm to consider female employees in the project it was
undertaking as separated the moment they get married due to lack of facilities for married women.
Respondent further claimed that complainant was employed in the project with an oral understanding that
her services would be terminated when she gets married. Branding the policy of the employer as an
example of “discriminatory chauvinism” tantamount to denying equal employment opportunities to women
simply on account of their sex, the appellate court struck down said employer policy as unlawful in view of
its repugnance to the Civil Code, Presidential Decree No. 148 and the Constitution.

Under American jurisprudence, job requirements which establish employer preference or conditions
relating to the marital status of an employee are categorized as a “sex-plus” discrimination where it is
imposed on one sex and not on the other. Further, the same should be evenly applied and must not inflict
adverse effects on a racial or sexual group which is protected by federal job discrimination laws.
Employment rules that forbid or restrict the employment of married women, but do not apply to married
men, have been held to violate Title VII of the United States Civil Rights Act of 1964, the main federal
statute prohibiting job discrimination against employees and applicants on the basis of, among other things,
sex.[35]

Further, it is not relevant that the rule is not directed against all women but just against married women.
And, where the employer discriminates against married women, but not against married men, the variable
is sex and the discrimination is unlawful.[36] Upon the other hand, a requirement that a woman employee
must remain unmarried could be justified as a “bona fide occupational qualification,” or BFOQ, where the
particular requirements of the job would justify the same, but not on the ground of a general principle, such
as the desirability of spreading work in the workplace. A requirement of that nature would be valid
provided it reflects an inherent quality reasonably necessary for satisfactory job performance. Thus, in one
case, a no-marriage rule applicable to both male and female flight attendants, was regarded as unlawful
since the restriction was not related to the job performance of the flight attendants. [37]

5. Petitioner’s policy is not only in derogation of the provisions of Article 136 of the Labor Code on the
right of a woman to be free from any kind of stipulation against marriage in connection with her
employment, but it likewise assaults good morals and public policy, tending as it does to deprive a woman
of the freedom to choose her status, a privilege that by all accounts inheres in the individual as an
intangible and inalienable right.[38] Hence, while it is true that the parties to a contract may establish any
agreements, terms, and conditions that they may deem convenient, the same should not be contrary to law,
morals, good customs, public order, or public policy. [39] Carried to its logical consequences, it may even be
said that petitioner’s policy against legitimate marital bonds would encourage illicit or common-law
relations and subvert the sacrament of marriage.

Parenthetically, the Civil Code provisions on the contract of labor state that the relations between the
parties, that is, of capital and labor, are not merely contractual, impressed as they are with so much public
interest that the same should yield to the common good.[40] It goes on to intone that neither capital nor labor
should visit acts of oppression against the other, nor impair the interest or convenience of the public. [41] In
the final reckoning, the danger of just such a policy against marriage followed by petitioner PT&T is that it
strikes at the very essence, ideals and purpose of marriage as an inviolable social institution and, ultimately,
of the family as the foundation of the nation.[42] That it must be effectively interdicted here in all its
indirect, disguised or dissembled forms as discriminatory conduct derogatory of the laws of the land is not
only in order but imperatively required.

ON THE FOREGOING PREMISES, the petition of Philippine Telegraph and Telephone Company is
hereby DISMISSED for lack of merit, with double costs against petitioner.
SO ORDERED.

G.R. No. 106341, September 02, 1994

DELFIN G. VILLARAMA, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION

AND GOLDEN DONUTS, INC., RESPONDENTS.

DECISION

PUNO, J.:

Sexual harassment abounds in all sick societies. It is reprehensible enough but more so when inflicted by
those with moral ascendancy over their victims. We rule that it is a valid cause for separation from service.

First, the facts. On November 16, 1987, petitioner DELFIN VILLARAMA was employed by private
respondent GOLDEN DONUTS, INC., as its Materials Manager. His starting salary was P6,500.00 per
month, later increased to P8,500.00.

On July 15 1989, petitioner Villarama was charged with sexual harassment by Divina Gonzaga, a clerk-
typist assigned in his department. The humiliating experience compelled her to resign from work. Her
letter-resignation, dated July 15, 1989, reads:

"MR. LEOPOLDO H. PRIETO

President
Golden Donuts, Inc.
Dear Sir:
I would like to tender my resignation from my post as Clerk Typist of Materials Department effective
immediately.
It is really my regret to leave this company which has given me all the opportunity I long desired. My five
(5) months stay in the company have been very gratifying professionally and financially and I would not
entertain the idea of resigning except for the most shocking experience I have had in my wholelife.
Last Friday, July 7, 1989, Mr. Delfin Villarama and Mr. Jess de Jesus invited all the girls of Materials
Department for a dinner when in (sic) the last minute the other three (3) girls decided not to join the group
anymore. I do (sic) not have second thought(s) in accepting their invitation for they are my colle(a)gues and
I had nothing in mind that would in any manner prompt me to refuse to what appeared to me as a simple
and cordial invitation. We went to a restaurant along Makati Avenue where we ate our dinner. Mr.
Villarama, Mr. Olaybar and Mr. Jess de Jesus were drinking while we were eating and (they) even offered
me a few drinks and when we were finished, they decided to bring me home. While on my way, I found
out that Mr. Villarama was not driving the way to my house. I was wondering why we were taking
the wrong way until I found out that we were entering a motel. I was really shock(ed). I did not
expect that a somewhat reputable person like Mr. Villarama could do such a thing to any of his
subordinates. I should have left the company without any word but I feel that I would be unfair to
those who might be similarly situated. I hope that you would find time to investigate the veracity
of my allegations and make each (sic) responsible for his own deed. (emphasis ours)
Thank you very much and more power.
Very respectfully yours,
DIVINA GONZAGA"
The letter prompted Mr. Leopoldo Prieto, President of Golden Donuts, Inc., to call petitioner to a meeting
on August 4, 1989. Petitioner was then required to explain the letter against him. It appears that petitioner
agreed to tender his resignation. Private respondent moved swiftly to separate petitioner. Thus, private
respondent approved petitioner's application for leave of absence with pay from August 5-28, 1989. It also
issued an inter-office memorandum, dated August 4, 1989, advising "all concerned" that petitioner was no
longer connected with the company effective August 5, 1989. [1] Two (2) days later, or on August 7, 1989,
Mr. Prieto sent a letter to petitioner confirming their agreement that petitioner would be officially separated
from the private respondent. The letter reads:

"Dear Mr. Villarama:

This is to officially confirm our discussion last Friday, August 4, 1989, regarding your employment with
us. As per our agreement, you will be officially separated from the company effective August 23, 1989.
May I, therefore, request you to please submit or send us your resignation letter on or before the close of
business hours of August 22, 1989.
Please see the Personnel & Industrial Relations Office for your clearance.
Very truly yours,
(SGD). LEOPOLDO H. PRIETO, JR.
President"

In the interim, petitioner had a change of mind. In a letter dated August 16, 1989, petitioner sought
reconsideration of the management's decision to terminate him, viz:

"DEAR SIR:
MAY I REQUEST FOR A RECONSIDERATION ON THE DECISION HANDED DURING OUR
MEETING OF AUGUST 4, 1989, TERMINATING MY SERVICES WITH THE COMPANY
EFFECTIVE AUGUST 5, 1989.
THE SIGNIFICANT CONTRIBUTION OF THE MATERIALS DEPARTMENT, WHICH I HAD BEEN
HEADING FOR THE PAST 21 MONTHS, TO THE PERFORMANCE OF THE COMPANY FAR
OUTWEIGHS THE ERROR THAT I HAD COMMITTED. AN ERROR THAT MUST NOT BE A
BASIS FOR SUCH A DRASTIC DECISION.
AS I AM STILL OFFICIALLY ON LEAVE UNTIL THE 29th, OF THIS MONTH, MAY I EXPECT
THAT I WILL RESUME MY REGULAR DUTY ON THE 29th?
ANTICIPATING YOUR FAVORABLE REPLY.
VERY TRULY YOURS,
(SGD.) DELFIN G. VILLARAMA"

For his failure to tender his resignation, petitioner was dismissed by private respondent on August 23, 1989.
Feeling aggrieved, petitioner filed an illegal dismissal case[2] against private respondent.

In a decision dated January 23, 1991, Labor Arbiter Salimar V. Nambi held that due process was not
observed in the dismissal of petitioner and there was no valid cause for dismissal. Private respondent
GOLDEN DONUTS, INC. was ordered to: (1) reinstate petitioner DELFIN G. VILLARAMA to his former
position, without loss of seniority rights, and pay his backwages at the rate of P8,500.00 per month from
August 1989, until actual reinstatement; (2) pay petitioner the amount of P24,866.66, representing his
unused vacation leave and proportionate 13th month pay; (3) pay petitioner P100,000.00, as moral
damages, and P20,000.00, as exemplary damages; and (3) pay the attorney's fees equivalent to ten percent
of the entire monetary award.

Private respondent appealed to the National Labor Relations Commission. On July 16, 1992, public
respondent reversed the decision of the labor arbiter. The dispositive portion of its Resolution reads:

"WHEREFORE, premises considered, the decision appealed from is hereby set aside and a new one entered
declaring the cause of dismissal of complainant as valid; however, for the procedural lapses, respondent
(Golden Donuts, Inc.) is hereby ordered to indemnify complainant (petitioner) in the form of separation pay
equivalent to two month's (sic) pay (for his two years of service, as appears (sic) in the records), or the
amount of P17,000.00.
"SO ORDERED."

Hence, this petition where the following arguments are raised:

THE ALLEGED IMMORALITY CHARGED AGAINST PETITIONER IS NOT SUPPORTED BY

SUBSTANTIAL EVIDENCE ON RECORD.
THE MERE ADMISSION OF THE VIOLATION OF DUE PROCESS ENTITLES PETITIONER TO
REINSTATEMENT.
IN ANY EVENT, PETITIONER IS ENTITLED TO HIS SALARIES FROM RECEIPT BY PRIVATE
RESPONDENT OF THE DECISION OF THE LABOR ARBITER ON 4 FEBRUARY 1991 TO (sic) AT
LEAST THE PROMULGATION OF THE ASSAILED RESOLUTION ON (sic) 16 JULY 1992.
IN ANY EVENT, PETITIONER IS ALSO ENTITLED TO HIS UNUSED VACATION LEAVE AND
PROPORTIONATE 13TH MONTH PAY IN THE TOTAL AMOUNT OF P24,866.66, ADJUDGED BY
THE LABOR ARBITER.
THE AWARD OF MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES BY THE
LABOR ARBITER IS JUSTIFIED.

We affirm with modification the impugned Resolution.

At the outset, we note that the Petition was not accompanied by a certified true copy of the assailed July 16,
1992 NLRC Resolution,[3] in violation of Revised Circular No. 1-88. Neither was there any certification
under oath that "petitioner has not commenced any other action or proceeding involving the same issues in
the Supreme Court, the Court of Appeals or different Divisions thereof, or any other tribunal or agency, and
that to the best of his knowledge, no such action or proceeding is pending in the Supreme Court, the Court
of Appeals, or different Divisions thereof or any other tribunal or agency," as required under Circular No.
28-91. It is settled, that non-compliance with the provisions of Revised Circular No. 1-88 and Circular No.
28-91, would result in the outright dismissal of the petition.[4]

In addition, under Rule 65 of the Revised Rules of Court, the special civil action for certiorari is available
in cases where the concerned "tribunal, board or officer exercising judicial functions had acted without or
in excess of its jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain,
speedy, and adequate remedy in the ordinary course of law." In Antonio v. National Labor Relations
Commission,[5] we held that the plain and adequate remedy expressly provided by law is a motion for
reconsideration of the assailed decision, and the resolution thereof, which is not only expected to be but
would actually have provided adequate and more speedy remedy than a petition for certiorari. The
rationale for this requirement is to enable the court or agency concerned to pass upon and correct its
mistakes without the intervention of a higher court.[6] In this case, the assailed July 16, 1992 Resolution of
the National Labor Relations Commission was received by petitioner's counsel on July 23,
1992.[7] Petitioner did not file a motion for reconsideration, instead, he commenced this special civil action
for certiorari. Be that as it may, we allowed the petition to enable us to rule on the significant issues raised
before us, viz: (1) whether or not petitioner's right to procedural due process was violated, and (2) whether
or not he was dismissed for a valid or just cause.

The procedure for terminating an employee is found in Article 277 (b) of the Labor Code, viz:

"x x x
"(b) Subject to the constitutional right of workers to security of tenure and their right to be protected against
dismissal except for a just and authorized cause and without prejudice to the requirement of notice under
Article 283 of this Code the employer shall furnish the worker whose employment is sought to be
terminated a written notice containing a statement of the causes for termination and shall afford the
latter ample opportunity to be heard and to defend himself with the assistance of his counsel if he so
desires in accordance with company rules and regulations promulgated pursuant to guidelines set by the
Department of Labor and Employment. Any decision taken by the employer shall be without prejudice to
the right of the worker to contest the validity or legality of his dismissal by filing a complaint with the
regional branch of the National Labor Relations Commission. The burden of proving that the termination
was for a valid or authorized cause shall rest on the employer. xxx" (emphasis supplied)

This procedure protects not only rank-and-file employees but also managerial employees. Both have the
right to security of tenure as provided for in Section 3, Article XIII of the 1987 Constitution. In the case at
bench, petitioner decided to seek reconsideration of the termination of his service thru his August 16, 1989
letter. While admitting his error, he felt that its gravity did not justify his dismissal. Considering this stance,
and in conformity with the aforequoted Article 277 (b) of the Labor Code, petitioner should have been
formally charged and given an opportunity to refute the charges. Under the facts in field, we hold that
petitioner was denied procedural due process.

We now come to the more important issue of whether there was valid cause to terminate petitioner.

Petitioner claims that his alleged immoral act was unsubstantiated, hence, he could not be dismissed. We
hold otherwise. The records show that petitioner was confronted with the charge against him. Initially, he
voluntarily agreed to be separated from the company. He took a leave of absence preparatory to his
separation. This agreement was confirmed by the letter to him by Mr. Prieto dated August 7, 1989. A few
days after, petitioner reneged on the agreement. He refused to be terminated on the ground that the
seriousness of his offense would not warrant his separation from service. So he alleged in his letter to Mr.
Prieto dated August 16, 1989. But even in this letter, petitioner admitted his "error" vis-a-vis Miss Gonzaga.
As a manager, petitioner should know the evidentiary value of his admissions. Needless to stress, he cannot
complain there was no valid cause for his separation.

Moreover, loss of trust and confidence is a good ground for dismissing a managerial employee. It can be
proved by substantial evidence which is present in the case at bench. As further observed by the Solicitor
General:

"x x x assuming arguendo that De Jesus and Gonzaga were sweethearts and that petitioner merely acceded
to the request of the former to drop them in the motel, petitioner acted in collusion with the immoral
designs of De Jesus and did not give due regard to Gonzaga's feeling on the matter and acted in chauvinistic
disdain of her honor, thereby justifying public respondent's finding of sexual harassment. Thus, petitioner
not only failed to act accordingly as a good father of the family because he was not able to maintain his
moral ascendancy and authority over the group in the matter of morality and discipline of his subordinates,
but he actively facilitated the commission of immoral conduct of his subordinates by driving his car into the
motel."
(Comment, April 29, 1993, p. 9)

As a managerial employee, petitioner is bound by a more exacting work ethics. He failed to live up to this
higher standard of responsibility when he succumbed to his moral perversity. And when such moral
perversity is perpetrated against his subordinate, he provides a justifiable ground for his dismissal for lack
of trust and confidence. It is the right, nay, the duty of every employer to protect its employees from over
sexed superiors.

To be sure, employers are given wider latitude of discretion in terminating the employment of managerial
employees on the ground of lack of trust and confidence. [8]

We next rule on the monetary awards due to petitioner. The public respondent erred in awarding separation
pay of P17,000.00 as indemnity for his dismissal without due process of law. The award of separation pay
is proper in the cases enumerated under Articles 283 and 284 of the Labor Code, [9] and in cases where there
is illegal dismissal (for lack of valid cause) and reinstatement is no longer feasible. But this is not to state
that an employer cannot be penalized for failure to give formal notice and conduct the necessary
investigation before dismissing an employee.[10] Thus, in Wenphil vs. NLRC[11] and Pacific Mills, Inc. vs.
Alonzo,[12] this Court awarded P1,000.00 as penalty for non-observance of due process.

Petitioner is not also entitled to moral and exemplary damages. There was no bad faith or malice on the part
of private respondent in terminating the services of petitioner. [13]

Petitioner is entitled, however, to his unused vacation/sick leave and proportionate 13th month pay, as held
by the labor arbiter. These are monies already earned by petitioner and should be unaffected by his
separation from the service.

WHEREFORE, premises considered, the assailed resolution of public respondent is hereby AFFIRMED
WITH MODIFICATION that the award of separation pay is DELETED. Private respondent is ordered to
pay petitioner the amount of P1,000.00 for non-observance of due process, and the equivalent amount of
his unused vacation/sick leave and proportionate 13th month pay. No pronouncement as to costs.

SO ORDERED.

G.R. No. 123737, May 28, 1999

CARLOS G. LIBRES, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION,

NATIONAL STEEL CORPORATION, OSMUNDO G. WAGA, JR., ANTOINE D. SEVA, PETER
J. LOQUILLANO, SATURNINO P. MEJORADA AND ISIDRO F. HYNSON, JR.,
RESPONDENTS.

DECISION

BELLOSILLO, J.:

This petition for certiorari seeks to annul the decision of public respondent National Labor Relations
Commission (NLRC) sustaining the Labor Arbiter's finding that petitioner was validly suspended by
private respondents, as well as the NLRC resolution denying petitioner's motion to reconsider its decision.

Petitioner Carlos G. Libres, an electrical engineer, was holding a managerial position with National Steel
Corporation (NSC) as Assistant Manager. On 3 August 1993 he received a Notice of Investigation from
Assistant Vice President Isidro F. Hynson Jr., his immediate superior, requesting him to submit a written
explanation relative to the charge of sexual harassment made by Susan D. Capiral, Hynson's secretary,
allegedly committed by Libres sometime in May 1992, and subsequently to answer clarificatory questions
on the matter. The notice also warned him that failure to file his written explanation would be construed as
a waiver of his right to be heard. On 14 August 1993 petitioner submitted his written explanation denying
the accusation against him and offering to submit himself for clarificatory interrogation.

Subsequently, Hynson Jr. conducted an internal investigation to which Libres and Capiral were invited to
ventilate their respective sides of the issue. They readily responded. Thereafter, Hynson Jr. submitted his
report to the Management Evaluation Committee (MEC).

The MEC, after deliberation, concluded that the charges against petitioner constituted a violation of Item 2,
Table V, of the Plant's Rules and Regulations.[1] It opined that "touching a female subordinate's hand and
shoulder, caressing her nape and telling other people that Capiral was the one who hugged and kissed or
that she responded to the sexual advances are unauthorized acts that damaged her honor."[2] Referring to
the Manual of the Philippine Daily Inquirer in defining sexual harassment,[3] the MEC finally concluded
that petitioner's acts clearly constituted sexual harassment as charged and recommended petitioner's
suspension for thirty (30) days without pay.

On 5 January 1994 petitioner wrote Melchor Q. Villamor, Vice President for Manufacturing, requesting
reconsideration of his suspension, but the same was denied. On 12 February 1994 the suspension order was
finally implemented.

Seeking to reverse his misfortune, Libres filed a complaint for illegal suspension and unjust discrimination
against respondent NSC and its officers, private respondents herein, before the Labor Arbiter. Citing the
failure of the MEC to grant him audience despite his offer to answer clarificatory questions, petitioner
claimed denial of due process. Labor Arbiter Nicodemus G. Palangan however ruled that due process was
properly observed and that there was a positive finding of sexual harassment to justify petitioner's
suspension. He pointed out that there was no substantial inconsistency between the narration of
complainant Capiral and petitioner regarding the incident in the evening of May 1992. The Labor Arbiter
found that aside from a few facts which were controverted by Capiral in her complaint-affidavit,
petitioner's admissions approximated the truth; consequently, he ruled that the MEC was correct in
including that sexual harassment had indeed transpired. The Labor Arbiter observed that petitioner should
welcome that his penalty was only for suspension of thirty (30) days as opposed to termination imposed
in Villarama v. NLRC and Golden Donuts.[4] In this recourse petitioner maintains that public respondent
grievously erred amounting to lack or excess of jurisdiction in finding that he committed sexual harassment
justifying his suspension, and in concluding that he was afforded due process.

Petitioner argues that the issue of sexual harassment was not adequately considered as he noted that the
finding of the NLRC was made without proper basis in fact and in law. He maintains that the NLRC merely
adopted the conclusions of the Labor Arbiter which in turn were simply derived from the report of the
MEC. Petitioner primarily disputes the failure of the NLRC to apply RA No. 7877, "An Act Declaring
Sexual Harassment Unlawful in the Employment, Education or Training Environment and for Other
Purposes," in determining whether he actually committed sexual harassment. He asserts that his acts did
not fall within the definition and criteria of sexual harassment as laid down in Sec. 3 of the
law.[5] Specifically, he cites public respondent's failure to show that his acts of fondling the hand and
massaging the shoulders of Capiral "discriminated against her continued employment," "impaired her rights
and privileges under the Labor Code," or "created a hostile, intimidating or offensive environment." [6]

Petitioner also contends that public respondent's reliance on Villarama v. NLRC and Golden Donuts[7] was
misplaced. He draws attention to victim Divina Gonzaga's immediate filing of her letter of resignation in
the Villarama case as opposed to the one year delay of Capiral in filing her complaint against him. He now
surmises that the filing of the case against him was merely an afterthought and not borne out of a valid
complaint, hence, the Villarama case should have no bearing on the instant case.

As regards his assertion that he was not afforded due process, petitioner would point to his demand for
personal confrontation which was brushed aside by the MEC. He argues strongly that in rejecting his plea,
the MEC clearly denied him an opportunity to be heard and present his side.

The issues raised in this petition require this Court to delve into the findings of fact by the public
respondent. We have ruled in a litany of cases that resort to judicial review of the decisions of the NLRC
under Rule 65 of the Rules of Court is confined only to issues of want or excess of jurisdiction and grave
abuse of discretion on the part of the tribunal rendering them. It does not include an inquiry on the
correctness of the evaluation of evidence, which served as basis for the labor official in determining his
conclusion. Findings of fact of administrative officers are generally given finality.[8] Nonetheless, the Court
shall discuss the matter if only to emphasize that the contentions of petitioner are definitely without merit.

Petitioner assails the failure of the NLRC to strictly apply RA No. 7877 to the instant case. We note
however, that petitioner never raised the applicability of the law in his appeal to the NLRC nor in his
motion for reconsideration. Issues or arguments must chiefly be raised before the court or agency
concerned so as to allow it to pass upon and correct its mistakes without the intervention of a higher court.
Having failed to indicate his effort along this line, petitioner cannot now belatedly raise its application in
this petition.

Republic Act No. 7877 was not yet in effect at the time of the occurrence of the act complained of. It was
still being deliberated upon in Congress when petitioner's case was decided by the Labor Arbiter. As a rule,
laws shall have no retroactive effect unless otherwise provided, or except in a criminal case when their
application will favor the accused.[9] Hence, the Labor Arbiter have to rely on the MEC report and the
common connotation of sexual harassment as it is generally understood by the public. Faced with the same
predicament, the NLRC had to agree with the Labor Arbiter. In so doing, the NLRC did not commit any
abuse of discretion in affirming the decision of the Labor Arbiter.

Petitioner next trains his gun on the reliance by the NLRC on Villarama and claims it was erroneous. We
rule otherwise and hold that it was both fitting and appropriate since it singularly addressed the issue of a
managerial employee committing sexual harassment on a subordinate. The disparity in the periods of filing
the complaints in the two (2) cases did not in any way reduce this case into insignificance. On the contrary,
it even invited the attention of the Court to focus on sexual harassment as a just and valid cause for
termination. Whereas petitioner Libres was only meted a 30-day suspension by the NLRC, Villarama, in
the other case was penalized with termination. As Mr. Justice Puno elucidated, "As a managerial employee,
petitioner is bound by more exacting work ethics. He failed to live up to his higher standard of
responsibility when he succumbed to his moral perversity. And when such moral perversity is perpetrated
against his subordinate, he provides a justifiable ground for his dismissal for lack of trust and confidence. It
is the right, nay, the duty of every employer to protect its employees from oversexed superiors."[10] Public
respondent therefore is correct in its observation that the Labor Arbiter was in fact lenient in his application
of the law and jurisprudence for which petitioner must be grateful and not gripe against.

Petitioner further claims that the delay in instituting the complaint shows that it was only an afterthought.
We disagree. As pointed out by the Solicitor General, it could be expected since Libres was Capiral's
immediate superior. Fear of retaliation and backlash, not to forget the social humiliation and
embarrassment that victims of this human frailty usually suffer, are all realities that Capiral had to contend
with. Moreover, the delay did not detract from the truth derived from the facts. Petitioner Libres never
questioned the veracity of Capiral's allegations. In fact his narration even corroborated the latter's assertion
in several material points. He only raised issue on the complaint's protracted filing.

On the question of due process, we find that the requirements thereof were sufficiently complied with. Due
process as a constitutional precept does not always and in all situations require a trial type proceeding. Due
process is satisfied when a person is notified of the charge against him and given an opportunity to explain
or defend himself. The essence of due process is simply to be heard, or as applied to administrative
proceedings, an opportunity to explain one's side, or an opportunity to seek a reconsideration of the action
or ruling complained of.[11] It is undeniable that petitioner was given a Notice of Investigation informing
him of the charge of sexual harassment as well as advising him to submit a written explanation regarding
the matter; that he submitted his written explanation to his superior, Isidro F. Hynson Jr.; that Hynson Jr.
further allowed him to air his grievance in a private session; and, that upon release of the suspension order
made by the MEC petitioner requested its reconsideration but was denied. From the foregoing it can be
gleaned that petitioner was given more than adequate opportunity to explain his side and air his grievances.

The personal confrontation with the MEC officers, which he requested, was not necessary. The parties had
already exhaustively presented their claims and defenses in different fora. As stated in Homeowners
Savings and Loan Association v. NLRC, litigants may be heard through pleadings, written explanations,
position papers, memoranda or oral arguments.[12] Petitioner has been afforded all of the above means to air
his side. Due process was therefore properly observed.

WHEREFORE, the petition is DISMISSED, no grave abuse of discretion having been committed by
public respondent National Labor Relations Commission in upholding the suspension of petitioner Carlos
G. Libres as justified and in accordance with due process. Consequently, its decision of 28 August 1995 as
well as its resolution of 31 October 1995 is AFFIRMED.

SO ORDERED.

CHAPTER III

CADIZ V PHILIPPINE SINTER CORPORATION