Producers Bank Vs NLRC

Producers Bank vs NLRC () 335 SCRA 506
Facts: Petitioner was placed by Central Bank of the

Philippines (Bangko Sentral ng Pilipinas) under a
conservator for the purpose of protecting its assets.
When the respondents ought to implement the CBA (Sec.
1, Art. 11) regarding the retirement plan and pertaining
to uniform allowance, the acting conservator of the
petition expressed objection resulting an impasse
between the petitioner bank and respondent union. The
deadlock continued for at least six months. The private
respondent, to resolve the issue filed a case against
petitioner for unfair labor practice and flagrant violation
of the CBA. The Labor Arbiter dismissed the petition.
NLRC reversed the findings and ordered the
implementation of the CBA.
Issue: WON the employees who have retired have no

personality to file an action since there is no longer an
employer-employee relationship.
Held: Employees who have retired still have the

personality to file a complaint. Retirement of the
employee does not in itself affect his employment status
especially when it involves all rights and benefits due to
him, since these must be protected as though there had
been no interruption of service. It must be borne in mind
that the retirement scheme was part of the employment
package and the benefits to be derived therefrom
constituted as it were a continuing consideration of
services rendered as well as an effective inducement foe
remaining with the corporation. It is intended to help the
employee enjoy the remaining years of his life.
When an employee has retired but his benefits under the
law or CBA have not yet been given, he still retains, for
the purpose of prosecuting his claims, the status of an
employee entitled to the protection of the Labor Code,
one of which is the protection of the labor union.
G.R. No. 102132. March 19, 1993.
DAVAO INTEGRATED PORT STEVEDORING SERVICES,

petitioner, vs. RUBEN V. ABARQUEZ, in his capacity as an
accredited Voluntary Arbitrator and THE ASSOCIATION
OF TRADE UNIONS (ATU-TUCP), respondents.
Libron, Gaspar & Associates for petitioner.
Bansalan B. Metilla for Association of Trade Unions

(ATUTUCP).
SYLLABUS
1. LABOR LAWS AND SOCIAL LEGISLATION; LABOR

RELATIONS; COLLECTIVE BARGAINING AGREEMENT;
DEFINED; NATURE THEREOF; CONSTRUCTION TO BE
PLACED THEREON. — A collective bargaining agreement
(CBA), as used in Article 252 of the Labor Code, refers to
a contract executed upon request of either the employer
or the exclusive bargaining representative incorporating
the agreement reached after negotiations with respect
to wages, hours of work and all other terms and
conditions of employment, including proposals for
adjusting any grievances or questions arising under such
agreement. While the terms and conditions of a CBA
constitute the law between the parties, it is not,
however, an ordinary contract to which is applied the
principles of law governing ordinary contracts. A CBA, as
a labor contract within the contemplation of Article 1700
of the Civil Code of the Philippines which governs the
relations between labor and capital, is not merely
contractual in nature but impressed with public interest,
thus, it must yield to the common good. As such, it must
be construed liberally rather than narrowly and
technically, and the courts must place a practical and
realistic construction upon it, giving due consideration to
the context in which it is negotiated and purpose which
it is intended to serve.
2. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — It is thus

erroneous for petitioner to isolate Section 1, Article VIII
of the 1989 CBA from the other related section on sick
leave with pay benefits, specifically Section 3 thereof, in
its attempt to justify the discontinuance or withdrawal of
the privilege of commutation or conversion to cash of the
unenjoyed portion of the sick leave benefit to regular
intermittent workers. The manner they were deprived of
the privilege previously recognized and extended to
them by petitioner-company during the lifetime of the
CBA of October 16, 1985 until three (3) months from its
renewal on April 15, 1989, or a period of three (3) years
and nine (9) months, is not only tainted with arbitrariness
but likewise discriminatory in nature. It must be noted
that the 1989 CBA has two (2) sections on sick leave with
pay benefits which apply to two (2) distinct classes of
workers in petitioner's company, namely: (1) the regular
non-intermittent workers or those workers who render a
daily eight-hour service to the company and are
governed by Section 1, Article VIII of the 1989 CBA; and
(2) intermittent field workers who are members of the
regular labor pool and the present regular extra labor
pool as of the signing of the agreement on April 15, 1989
or those workers who have irregular working days and
are governed by Section 3, Article VIII of the 1989 CBA. It
is not disputed that both classes of workers are entitled
to sick leave with pay benefits provided they comply with
the conditions set forth under Section 1 in relation to the
last paragraph of Section 3, to wit: (1) the employee-
applicant must be regular or must have rendered at least
one year of service with the company; and (2) the
application must be accompanied by a certification from
a company-designated physician. the phrase "herein sick
leave privilege," as used in the last sentence of Section 1,
refers to the privilege of having a fixed 15-day sick leave
with pay which, as mandated by Section 1, only the non-
intermittent workers are entitled to. This fixed 15-day
sick leave with pay benefit should be distinguished from
the variable number of days of sick leave, not to exceed
15 days, extended to intermittent workers under Section
3 depending on the number of hours of service rendered
to the company, including overtime pursuant to the
schedule provided therein. It is only fair and reasonable
for petitioner-company not to stipulate a fixed 15-day
sick leave with pay for its regular intermittent workers
since, as the term "intermittent" implies, there is
irregularity in their work-days. Reasonable and practical
interpretation must be placed on contractual provisions.
Interpetatio fienda est ut res magis valeat quam pereat.
Such interpretation is to be adopted, that the thing may
continue to have efficacy rather than fail.
3. ID.; ID.; ID.; SICK LEAVE BENEFITS; NATURE AND
PURPOSE. — Sick leave benefits, like other economic
benefits stipulated in the CBA such as maternity leave
and vacation leave benefits, among others, are by their
nature, intended to be replacements for regular income
which otherwise would not be earned because an
employee is not working during the period of said leaves.
They are non-contributory in nature, in the sense that
the employees contribute nothing to the operation of
the benefits. By their nature, upon agreement of the
parties, they are intended to alleviate the economic
condition of the workers.
4. ID.; ID.; JURISDICTION OF VOLUNTARY ARBITRATOR;

CASE AT BAR. — Petitioner-company's objection to the
authority of the Voluntary Arbitrator to direct the
commutation of the unenjoyed portion of the sick leave
with pay benefits of intermittent workers in his decision
is misplaced. Article 261 of the Labor Code is clear. The
questioned directive of the herein public respondent is
the necessary consequence of the exercise of his arbitral
power as Voluntary Arbitrator under Article 261 of the
Labor Code "to hear and decide all unresolved grievances
arising from the interpretation or implementation of the
Collective Bargaining Agreement." We, therefore, find
that no grave abuse of discretion was committed by
public respondent in issuing the award (decision).
Moreover, his interpretation of Sections 1 and 3, Article
VIII of the 1989 CBA cannot be faulted with and is
absolutely correct.
5. ID.; CONDITIONS OF EMPLOYMENT; PROHIBITION

AGAINST ELIMINATION OR DIMINUTION OF BENEFITS;
BENEFITS GRANTED PURSUANT TO COMPANY PRACTICE
OR POLICY CANNOT BE PEREMPTORILY WITHDRAWN. —
Whatever doubt there may have been early on was
clearly obliterated when petitioner-company recognized
the said privilege and paid its intermittent workers the
cash equivalent of the unenjoyed portion of their sick
leave with pay benefits during the lifetime of the CBA of
October 16, 1985 until three (3) months from its renewal
on April 15, 1989. Well-settled is it that the said privilege
of commutation or conversion to cash, being an existing
benefit, the petitioner-company may not unilaterally
withdraw, or diminish such benefits. It is a fact that
petitioner-company had, on several instances in the past,
granted and paid the cash equivalent of the unenjoyed
portion of the sick leave benefits of some intermittent
workers. Under the circumstances, these may be
deemed to have ripened into company practice or policy
which cannot be peremptorily withdrawn.
DECISION
ROMERO, J p:
In this petition for certiorari, petitioner Davao Integrated

Port Services Corporation seeks to reverse the Award 1
issued on September 10, 1991 by respondent Ruben V.
Abarquez, in his capacity as Voluntary Arbitrator of the
National Conciliation and Mediation Board, Regional
Arbitration Branch XI in Davao City in Case No. AC-211-
BX1-10-003-91 which directed petitioner to grant and
extend the privilege of commutation of the unenjoyed
portion of the sick leave with pay benefits to its
intermittent field workers who are members of the
regular labor pool and the present regular extra pool in
accordance with the Collective Bargaining Agreement
(CBA) executed between petitioner and private
respondent Association of Trade Unions (ATU-TUCP),
from the time it was discontinued and henceforth.
The facts are as follows:
Petitioner Davao Integrated Port Stevedoring Services

(petitioner-company) and private respondent ATU-TUCP
(Union), the exclusive collective bargaining agent of the
rank and file workers of petitioner-company, entered
into a collective bargaining agreement (CBA) on October
16, 1985 which, under Sections 1 and 3, Article VIII
thereof, provide for sick leave with pay benefits each
year to its employees who have rendered at least one (1)
year of service with the company, thus:
"ARTICLE VIII
Section 1. Sick Leaves — The Company agrees to grant 15

days sick leave with pay each year to every regular non-
intermittent worker who already rendered at least one
year of service with the company. However, such sick
leave can only be enjoyed upon certification by a
company designated physician, and if the same is not
enjoyed within one year period of the current year, any
unenjoyed portion thereof, shall be converted to cash
and shall be paid at the end of the said one year period.
And provided however, that only those regular workers
of the company whose work are not intermittent, are
entitled to the herein sick leave privilege.
xxx xxx xxx

Section 3. — All intermittent field workers of the
company who are members of the Regular Labor Pool
shall be entitled to vacation and sick leaves per year of
service with pay under the following schedule based on
the number of hours rendered including overtime, to wit:
Hours of Service Per Vacation Sick Leave
Calendar Year Leave
Less than 750 NII NII
751 — 825 6 days 6 days
826 — 900 7 7
901 — 925 8 8
926 — 1,050 9 9
1,051 — 1,125 10 10
1,126 — 1,200 11 11
1,201 — 1,275 12 12
1,276 — 1,350 13 13
1,351 — 1,425 14 14
1,426 — 1,500 15 15
The conditions for the availment of the herein vacation

and sick leaves shall be in accordance with the above
provided Sections 1 and 2 hereof, respectively."
Upon its renewal on April 15, 1989, the provisions for sick
leave with pay benefits were reproduced under Sections
1 and 3, Article VIII of the new CBA, but the coverage of
the said benefits was expanded to include the "present
Regular Extra Labor Pool as of the signing of this
Agreement." Section 3, Article VIII, as revised, provides,
thus:
"Section 3. — All intermittent field workers of the

company who are members of the Regular Labor Pool
and present Regular Extra Labor Pool as of the signing of
this agreement shall be entitled to vacation and sick
leaves per year of service with pay under the following
schedule based on the number of hours rendered
including overtime, to wit:
Hours of Service Per Vacation Sick Leave
Calendar Year Leave
Less than 750 NII NII
751 — 825 6 days 6 days
826 — 900 7 7
901 — 925 8 8
926 — 1,050 9 9
1,051 — 1,125 10 10
1,126 — 1,200 11 11
1,201 — 1,275 12 12
1,276 — 1,350 13 13
1,351 — 1,425 14 14
1,426 — 1,500 15 15
The conditions for the availment of the herein vacation
and sick leaves shall be in accordance with the above
provided Sections 1 and 2 hereof, respectively."
During the effectivity of the CBA of October 16, 1985

until three (3) months after its renewal on April 15, 1989,
or until July 1989 (a total of three (3) years and nine (9)
months), all the field workers of petitioner who are
members of the regular labor pool and the present
regular extra labor pool who had rendered at least 750
hours up to 1,500 hours were extended sick leave with
pay benefits. Any unenjoyed portion thereof at the end
of the current year was converted to cash and paid at the
end of the said one-year period pursuant to Sections 1
and 3, Article VIII of the CBA. The number of days of their
sick leave per year depends on the number of hours of
service per calendar year in accordance with the
schedule provided in Section 3, Article VIII of the CBA.
The commutation of the unenjoyed portion of the sick

leave with pay benefits of the intermittent workers or its
conversion to cash was, however, discontinued or
withdrawn when petitioner-company under a new
assistant manager, Mr. Benjamin Marzo (who replaced
Mr. Cecilio Beltran, Jr. upon the latter's resignation in
June 1989), stopped the payment of its cash equivalent
on the ground that they are not entitled to the said
benefits under Sections 1 and 3 of the 1989 CBA.
The Union objected to the said discontinuance of

commutation or conversion to cash of the unenjoyed sick
leave with pay benefits of petitioner's intermittent
workers contending that it is a deviation from the true
intent of the parties that negotiated the CBA; that it
would violate the principle in labor laws that benefits
already extended shall not be taken away and that it
would result in discrimination between the non-
intermittent and the intermittent workers of the
petitioner-company.
Upon failure of the parties to amicably settle the issue on

the interpretation of Sections 1 and 3, Article VIII of the
1989 CBA, the Union brought the matter for voluntary
arbitration before the National Conciliation and
Mediation Board, Regional Arbitration Branch XI at
Davao City by way of complaint for enforcement of the
CBA. The parties mutually designated public respondent
Ruben Abarquez, Jr. to act as voluntary arbitrator.
After the parties had filed their respective position

papers, 2 public respondent Ruben Abarquez, Jr. issued
on September 10, 1991 an Award in favor of the Union
ruling that the regular intermittent workers are entitled
to commutation of their unenjoyed sick leave with pay
benefits under Sections 1 and 3 of the 1989 CBA, the
dispositive portion of which reads:
"WHEREFORE, premises considered, the management of

the respondent Davao Integrated Port Stevedoring
Services Corporation is hereby directed to grant and
extend the sick leave privilege of the commutation of the
unenjoyed portion of the sick leave of all the intermittent
field workers who are members of the regular labor pool
and the present extra pool in accordance with the CBA
from the time it was discontinued and henceforth.
SO ORDERED."
Petitioner-company disagreed with the aforementioned
ruling of public respondent, hence, the instant petition.
Petitioner-company argued that it is clear from the

language and intent of the last sentence of Section 1,
Article VIII of the 1989 CBA that only the regular workers
whose work are not intermittent are entitled to the
benefit of conversion to cash of the unenjoyed portion of
sick leave, thus: ". . . And provided, however, that only
those regular workers of the Company whose work are
not intermittent are entitled to the herein sick leave
privilege."
Petitioner-company further argued that while the

intermittent workers were paid the cash equivalent of
their unenjoyed sick leave with pay benefits during the
previous management of Mr. Beltran who
misinterpreted Sections 1 and 3 of Article VIII of the 1985
CBA, it was well within petitioner-company's rights to
rectify the error it had committed and stop the payment
of the said sick leave with pay benefits. An error in
payment, according to petitioner-company, can never
ripen into a practice.
We find the arguments unmeritorious.
A collective bargaining agreement (CBA), as used in

Article 252 of the Labor Code, refers to a contract
executed upon request of either the employer or the
exclusive bargaining representative incorporating the
agreement reached after negotiations with respect to
wages, hours of work and all other terms and conditions
of employment, including proposals for adjusting any
grievances or questions arising under such agreement.
While the terms and conditions of a CBA constitute the
law between the parties, 3 it is not, however, an ordinary
contract to which is applied the principles of law
governing ordinary contracts. 4 A CBA, as a labor contract
within the contemplation of Article 1700 of the Civil Code
of the Philippines which governs the relations between
labor and capital, is not merely contractual in nature but
impressed with public interest, thus, it must yield to the
common good. As such, it must be construed liberally
rather than narrowly and technically, and the courts
must place a practical and realistic construction upon it,
giving due consideration to the context in which it is
negotiated and purpose which it is intended to serve. 5
It is thus erroneous for petitioner to isolate Section 1,

Article VIII of the 1989 CBA from the other related
section on sick leave with pay benefits, specifically
Section 3 thereof, in its attempt to justify the
discontinuance or withdrawal of the privilege of
commutation or conversion to cash of the unenjoyed
portion of the sick leave benefit to regular intermittent
workers. The manner they were deprived of the privilege
previously recognized and extended to them by
petitioner-company during the lifetime of the CBA of
on April 15, 1989, or a period of three (3) years and nine
(9) months, is not only tainted with arbitrariness but
likewise discriminatory in nature. Petitioner-company is
of the mistaken notion that since the privilege of
commutation or conversion to cash of the unenjoyed
portion of the sick leave with pay benefits is found in
Section 1, Article VIII, only the regular non-intermittent
workers and no other can avail of the said privilege
because of the proviso found in the last sentence
thereof.
It must be noted that the 1989 CBA has two (2) sections
on sick leave with pay benefits which apply to two (2)
distinct classes of workers in petitioner's company,
namely: (1) the regular non-intermittent workers or
those workers who render a daily eight-hour service to
the company and are governed by Section 1, Article VIII
of the 1989 CBA; and (2) intermittent field workers who
are members of the regular labor pool and the present
regular extra labor pool as of the signing of the
agreement on April 15, 1989 or those workers who have
irregular working days and are governed by Section 3,
Article VIII of the 1989 CBA.
It is not disputed that both classes of workers are entitled

to sick leave with pay benefits provided they comply with
the conditions set forth under Section 1 in relation to the
last paragraph of Section 3, to wit: (1) the employee-
applicant must be regular or must have rendered at least
one year of service with the company; and (2) the
application must be accompanied by a certification from
a company-designated physician.
Sick leave benefits, like other economic benefits

stipulated in the CBA such as maternity leave and
vacation leave benefits, among others, are by their
nature, intended to be replacements for regular income
which otherwise would not be earned because an
employee is not working during the period of said leaves.
6 They are non-contributory in nature, in the sense that
the employees contribute nothing to the operation of
the benefits. 7 By their nature, upon agreement of the
parties, they are intended to alleviate the economic
condition of the workers.
After a careful examination of Section 1 in relation to

Section 3, Article VIII of the 1989 CBA in light of the facts
and circumstances attendant in the instant case, we find
and so hold that the last sentence of Section 1, Article VIII
of the 1989 CBA, invoked by petitioner-company does
not bar the regular intermittent workers from the
privilege of commutation or conversion to cash of the
unenjoyed portion of their sick leave with pay benefits, if
qualified. For the phrase "herein sick leave privilege," as
used in the last sentence of Section 1, refers to the
privilege of having a fixed 15-day sick leave with pay
which, as mandated by Section 1, only the non-
intermittent workers are entitled to. This fixed 15-day
sick leave with pay benefit should be distinguished from
the variable number of days of sick leave, not to exceed
15 days, extended to intermittent workers under Section
3 depending on the number of hours of service rendered
to the company, including overtime pursuant to the
schedule provided therein. It is only fair and reasonable
for petitioner-company not to stipulate a fixed 15-day
sick leave with pay for its regular intermittent workers
since, as the term "intermittent" implies, there is
irregularity in their work-days. Reasonable and practical
interpretation must be placed on contractual provisions.
Interpetatio fienda est ut res magis valeat quam pereat.
Such interpretation is to be adopted, that the thing may
continue to have efficacy rather than fail. 8
We find the same to be a reasonable and practical
distinction readily discernible in Section 1, in relation to
Section 3, Article VIII of the 1989 CBA between the two
classes of workers in the company insofar as sick leave
with pay benefits are concerned. Any other distinction
would cause discrimination on the part of intermittent
workers contrary to the intention of the parties that
mutually agreed in incorporating the questioned
provisions in the 1989 CBA.
Public respondent correctly observed that the parties to

the CBA clearly intended the same sick leave privilege to
be accorded the intermittent workers in the same way
that they are both given the same treatment with
respect to vacation leaves - non-commutable and non-
cumulative. If they are treated equally with respect to
vacation leave privilege, with more reason should they
be on par with each other with respect to sick leave
privileges. 9 Besides, if the intention were otherwise,
during its renegotiation, why did not the parties
expressly stipulate in the 1989 CBA that regular
intermittent workers are not entitled to commutation of
the unenjoyed portion of their sick leave with pay
benefits?
Whatever doubt there may have been early on was

clearly obliterated when petitioner-company recognized
the said privilege and paid its intermittent workers the
cash equivalent of the unenjoyed portion of their sick
leave with pay benefits during the lifetime of the CBA of
on April 15, 1989. Well-settled is it that the said privilege
of commutation or conversion to cash, being an existing
benefit, the petitioner-company may not unilaterally
withdraw, or diminish such benefits. 10 It is a fact that
petitioner-company had, on several instances in the past,
granted and paid the cash equivalent of the unenjoyed
portion of the sick leave benefits of some intermittent
workers. 11 Under the circumstances, these may be
deemed to have ripened into company practice or policy
which cannot be peremptorily withdrawn. 12
Moreover, petitioner-company's objection to the

authority of the Voluntary Arbitrator to direct the
commutation of the unenjoyed portion of the sick leave
with pay benefits of intermittent workers in his decision
is misplaced. Article 261 of the Labor Code is clear. The
questioned directive of the herein public respondent is
the necessary consequence of the exercise of his arbitral
power as Voluntary Arbitrator under Article 261 of the
Labor Code "to hear and decide all unresolved grievances
arising from the interpretation or implementation of the
Collective Bargaining Agreement." We, therefore, find
that no grave abuse of discretion was committed by
public respondent in issuing the award (decision).
Moreover, his interpretation of Sections 1 and 3, Article
VIII of the 1989 CBA cannot be faulted with and is
absolutely correct.
WHEREFORE, in view of the foregoing, the petition is

DISMISSED. The award (decision) of public respondent
dated September 10, 1991 is hereby AFFIRMED. No
costs.
SO ORDERED.
G.R. No. 85073 August 24, 1993
DAVAO FRUITS CORPORATION, petitioner,

vs.
ASSOCIATED LABOR UNIONS (ALU) for in behalf of all
the rank-and-file workers/employees of DAVAO FRUITS
CORPORATION and NATIONAL LABOR RELATIONS
COMMISSION, respondents.
Dominguez & Paderna Law Offices for petitioners.
The Solicitor General for public respondents.
QUIASON, J.:
This is a petition for certiorari to set aside the resolution

of the National Labor Relations Commission (NLRC),
dismissing for lack of merit petitioner's appeal from the
decision of the Labor Arbiter in NLRC Case No. 1791-MC-
X1-82.
On December 28, 1982 respondent Associated Labor

Unions (ALU), for and in behalf of all the rank-and-file
workers and employees of petitioner, filed a complaint
(NLRC Case No. 1791-MC-XI-82) before the Ministry of
Labor and Employment, Regional Arbitration Branch XI,
Davao City, against petitioner, for "Payment of the
Thirteenth-Month Pay Differentials." Respondent ALU
sought to recover from petitioner the thirteenth month
pay differential for 1982 of its rank-and-file employees,
equivalent to their sick, vacation and maternity leaves,
premium for work done on rest days and special
holidays, and pay for regular holidays which petitioner,
allegedly in disregard of company practice since 1975,
excluded from the computation of the thirteenth month
pay for 1982.
In its answer, petitioner claimed that it erroneously

included items subject of the complaint in the
computation of the thirteenth month pay for the years
prior to 1982, upon a doubtful and difficult question of
law. According to petitioner, this mistake was discovered
only in 1981 after the promulgation of the Supreme
Court decision in the case of San Miguel Corporation v.
Inciong (103 SCRA 139).
A decision was rendered on March 7, 1984 by Labor

Arbiter Pedro C. Ramos, in favor of respondent ALU. The
dispositive portion of the decision reads as follows:
WHEREFORE, in view of all the foregoing considerations,

judgment is hereby rendered ordering respondent to pay
the 1982 — 13th month pay differential to all its rank-
and-file workers/employees herein represented by
complainant Union (Rollo, p. 32).
Petitioner appealed the decision of the Labor Arbiter to

the NLRC, which affirmed the said decision accordingly
dismissed the appeal for lack of merit.
Petitioner elevated the matter to this Court in a petition

for review under Rule 45 of the Revised Rules of Court.
This error notwithstanding and in the interest of justice,
this Court resolved to treat the instant petition as a
special civil action for certiorari under Rule 65 of the
Revised Rules of Court (P.D. No. 1391, Sec. 5; Rules
Implementing P.D. No. 1391, Rule II, Sec. 7; Cando v.
National Labor Relations Commission, 189 SCRA 666
[1990]: Pearl S. Buck Foundation, Inc. v. National Labor
Relations Commission, 182 SCRA 446 [1990]).
The crux of the present controversy is whether in the

computation of the thirteenth month pay given by
employers to their employees under P.D.
No. 851, payments for sick, vacation and maternity
leaves, premiums for work done on rest days and special
holidays, and pay for regular holidays may be excluded in
the computation and payment thereof, regardless of
long-standing company practice.
Presidential Decree No. 851, promulgated on December

16, 1975, mandates all employers to pay their employees
a thirteenth month pay. How this pay shall be computed
is set forth in Section 2 of the "Rules and Regulations
Implementing Presidential Decree No. 851," thus:
SECTION 2. . . .
(a) "Thirteenth month pay" shall mean one twelfth (1/12)

of the basic salary of an employee within a calendar year.
(b) "Basic Salary" shall include all renumerations or

earnings paid by an employer to an employee for
services rendered but may not include cost of living
allowances granted pursuant to Presidential Decree No.
525 or Letter of Instructions No. 174, profit-sharing
payments, and all allowances and monetary benefits
which are not considered or integrated as part of the
regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.
The Department of Labor and Employment issued on
January 16, 1976 the "Supplementary Rules and
Regulations Implementing P.D. No. 851" which in
paragraph 4 thereof further defines the term "basic
salary," thus:
4. Overtime pay, earnings and other renumerations

which are not part of the basic salary shall not be
included in the computation of the 13th month pay.
Clearly, the term "basic salary" includes renumerations

or earnings paid by the employer to employee, but
excludes cost-of-living allowances, profit-sharing
payments, and all allowances and monetary benefits
which have not been considered as part of the basic
salary of the employee as of December 16, 1975. The
exclusion of cost-of-living allowances and profit sharing
payments shows the intention to strip "basic salary" of
payments which are otherwise considered as "fringe"
benefits. This intention is emphasized in the catch all
phrase "all allowances and monetary benefits which are
not considered or integrated as part of the basic salary."
Basic salary, therefore does not merely exclude the
benefits expressly mentioned but all payments which
may be in the form of "fringe" benefits or allowances
(San Miguel Corporation v. Inciong, supra, at 143-144). In
fact, the Supplementary Rules and Regulations
Implementing P.D. No. 851 are very emphatic in
declaring that overtime pay, earnings and other
renumerations shall be excluded in computing the
thirteenth month pay.
In other words, whatever compensation an employee
receives for an eight-hour work daily or the daily wage
rate in the basic salary. Any compensation or
remuneration other than the daily wage rate is excluded.
It follows therefore, that payments for sick, vacation and
maternity leaves, premium for work done on rest days
special holidays, as well as pay for regular holidays, are
likewise excluded in computing the basic salary for the
purpose of determining the thirteen month pay.
Petitioner claims that the mistake in the interpretation

of "basic salary" was caused by the opinions, orders and
rulings rendered by then Acting Labor Secretary Amado
C. Inciong, expressly including the subject items in
computing the thirteenth month pay. The inclusion of
these items is clearly not sanctioned under P.D. No. 851,
the governing law and its implementing rules, which
speak only of "basis salary" as the basis for determining
the thirteenth month pay.
Moreover, whatever doubt arose in the interpretation of

P.D. No. 851 was erased by the Supplementary Rules and
Regulations which clarified the definition of "basic
salary."
As pointed out in San Miguel Corporation v. Inciong,

(supra):
While doubt may have been created by the prior Rules

and Regulations and Implementing Presidential Decree
851 which defines basic salary to include all
remunerations or earnings paid by an employer to an
employee, this cloud is dissipated in the later and more
controlling Supplementary Rules and Regulations which
categorically, exclude from the definition of basic salary
earnings and other remunerations paid by employer to
an employee. A cursory perusal of the two sets of Rules
indicates that what has hitherto been the subject of
broad inclusion is now a subject of broad exclusion. The
Supplementary Rules and Regulations cure the seeming
tendency of the former rules to include all
remunerations and earnings within the definition of
basic salary.
The all-embracing phrase "earnings and other

remunerations which are deemed not part of the basic
salary includes within its meaning payments for sick,
vacation, or maternity leaves, premium for work
performed on rest days and special holidays, pay for
regular holidays and night differentials. As such they are
deemed not part of the basic salary and shall not be
considered in the computation of the 13th-month pay. If
they were not so excluded, it is hard to find any "earnings
and other remunerations" expressly excluded in
computation of the 13th month-pay. Then the
exclusionary provision would prove to be idle and with
purpose.
The "Supplementary Rules and Regulations

Implementing P.D. No. 851," which put to rest all doubts
in the computation of the thirteenth month pay, was
issued by the Secretary of Labor as early as January 16,
1976, barely one month after the effectivity of P.D. No.
851 and its Implementing Rules. And yet, petitioner
computed and paid the thirteenth month pay, without
excluding the subject items therein until 1981. Petitioner
continued its practice in December 1981, after
promulgation of the afore-quoted San Miguel decision
on February 24, 1981, when petitioner purportedly
"discovered" its mistake.
From 1975 to 1981, petitioner had freely, voluntarily and

continuously included in the computation of its
employees' thirteenth month pay, the payments for sick,
vacation and maternity leaves, premiums for work done
on rest days and special holidays, and pay for regular
holidays. The considerable length of time the questioned
items had been included by petitioner indicates a
unilateral and voluntary act on its part, sufficient in itself
to negate any claim of mistake.
A company practice favorable to the employees had

indeed been established and the payments made
pursuant thereto, ripened into benefits enjoyed by them.
And any benefit and supplement being enjoyed by the
employees cannot be reduced, diminished, discontinued
or eliminated by the employer, by virtue of Section 10 of
the Rules and Regulations Implementing P.D. No. 851,
and Article 100 of the labor of the Philippines, which
prohibit the diminution or elimination by the employer
of the employees' existing benefits (Tiangco v. Leogardo,
Jr., 122 SCRA 267, [1983]).
Petitioner cannot invoke the principle of solutio

indebiti which as a civil law concept that is not applicable
in Labor Law. Besides, in solutio indebiti, the obligee is
required to return to the obligor whatever he received
from the latter (Civil Code of the Philippines, Arts. 2154
and 2155). Petitioner in the instant case, does not
demand the return of what it paid respondent ALU from
1975 until 1981; it merely wants to "rectify" the error it
made over these years by excluding unilaterally from the
thirteenth month pay in 1982 the items subject of
litigation. Solutio indebiti, therefore, is not applicable to
the instant case.
WHEREFORE, finding no grave abuse of discretion on the

part of the NLRC, the petition is hereby DISMISSED, and
the questioned decision of respondent NLRC is
AFFIRMED accordingly.
SEVILLA TRADING COMPANY, petitioner, vs. A.V.A.

TOMAS E. SEMANA, SEVILLA TRADING WORKERS
UNIONSUPER, respondents.
DECISION
PUNO, J.:
On appeal is the Decision[1] of the Court of Appeals in CA-

G.R. SP No. 63086 dated 27 November 2001 sustaining
the Decision[2] of Accredited Voluntary Arbitrator Tomas
E. Semana dated 13 November 2000, as well as its
subsequent Resolution[3] dated 06 March 2002 denying
petitioners Motion for Reconsideration.
The facts of the case are as follows:
For two to three years prior to 1999, petitioner Sevilla

Trading Company (Sevilla Trading, for short), a domestic
corporation engaged in trading business, organized and
existing under Philippine laws, added to the base figure,
in its computation of the 13th-month pay of its
employees, the amount of other benefits received by the
employees which are beyond the basic pay. These
benefits included:
(a) Overtime premium for regular overtime, legal and

special holidays;
(b) Legal holiday pay, premium pay for special holidays;
(c) Night premium;
(d) Bereavement leave pay;
(e) Union leave pay;
(f) Maternity leave pay;
(g) Paternity leave pay;
(h) Company vacation and sick leave pay; and
(i) Cash conversion of unused company vacation and sick

leave.
Petitioner claimed that it entrusted the preparation of

the payroll to its office staff, including the computation
and payment of the 13th-month pay and other
benefits.When it changed its person in charge of the
payroll in the process of computerizing its payroll, and
after audit was conducted, it allegedly discovered the
error of including non-basic pay or other benefits in the
base figure used in the computation of the 13th-month
pay of its employees. It cited the Rules and Regulations
Implementing P.D. No. 851 (13th-Month Pay Law),
effective December 22, 1975, Sec. 2(b) which stated that:
Basic salary shall include all remunerations or earnings

paid by an employer to an employee for services
rendered but may not include cost-of-living allowances
granted pursuant to P.D. No. 525 or Letter of Instruction
No. 174, profit-sharing payments, and all allowances and
monetary benefits which are not considered or
integrated as part of the regular or basic salary of the
employee at the time of the promulgation of the Decree
on December 16, 1975.
Petitioner then effected a change in the computation of

the thirteenth month pay, as follows:
13th-month pay = net basic pay
12 months
where:
net basic pay = gross pay (non-basic pay or other

benefits)
Now excluded from the base figure used in the

computation of the thirteenth month pay are the
following:
a) Overtime premium for regular overtime, legal and

special holidays;
b) Legal holiday pay, premium pay for special holidays;
c) Night premium;
d) Bereavement leave pay;
e) Union leave pay;
f) Maternity leave pay;
g) Paternity leave pay;

h) Company vacation and sick leave pay; and
i) Cash conversion of unused vacation/sick leave.
Hence, the new computation reduced the employees

thirteenth month pay. The daily piece-rate workers
represented by private respondent Sevilla Trading
Workers Union SUPER (Union, for short), a duly
organized and registered union, through the Grievance
Machinery in their Collective Bargaining Agreement,
contested the new computation and reduction of their
thirteenth month pay. The parties failed to resolve the
issue.
On March 24, 2000, the parties submitted the issue of

whether or not the exclusion of leaves and other related
benefits in the computation of 13th-month pay is valid to
respondent Accredited Voluntary Arbitrator Tomas E.
Semana (A.V.A. Semana, for short) of the National
Conciliation and Mediation Board, for consideration and
resolution.
The Union alleged that petitioner violated the rule

prohibiting the elimination or diminution of employees
benefits as provided for in Art. 100 of the Labor Code, as
amended. They claimed that paid leaves, like sick leave,
vacation leave, paternity leave, union leave,
bereavement leave, holiday pay and other leaves with
pay in the CBA should be included in the base figure in
the computation of their 13th-month pay.
On the other hand, petitioner insisted that the

computation of the 13th-month pay is based on basic
salary, excluding benefits such as leaves with pay, as per
P.D. No. 851, as amended. It maintained that, in
adjusting its computation of the 13th-month pay, it
merely rectified the mistake its personnel committed in
the previous years.
A.V.A. Semana decided in favor of the Union. The

dispositive portion of his Decision reads as follows:
WHEREFORE, premises considered, this Voluntary

Arbitrator hereby declared that:
1. The company is hereby ordered to include sick leave

and vacation leave, paternity leave, union leave,
bereavement leave and other leave with pay in the CBA,
holidays, and pay for regular holidays in the computation
of the 13th-month pay to all covered and entitled
employees;
2. The company is hereby ordered to pay corresponding

backwages to all covered and entitled employees arising
from the exclusion of said benefits in the computation of
13th-month pay for the year 1999.
Petitioner received a copy of the Decision of the

Arbitrator on December 20, 2000. It filed before the
Court of Appeals, a Manifestation and Motion for Time
to File Petition for Certiorari on January 19, 2001. A
month later, on February 19, 2001, it filed its Petition for
Certiorari under Rule 65 of the 1997 Rules of Civil
Procedure for the nullification of the Decision of the
Arbitrator. In addition to its earlier allegations, petitioner
claimed that assuming the old computation will be
upheld, the reversal to the old computation can only be
made to the extent of including non-basic benefits
actually included by petitioner in the base figure in the
computation of their 13th-month pay in the prior years. It
must exclude those non-basic benefits which, in the first
place, were not included in the original computation. The
appellate court denied due course to, and dismissed the
petition.
Hence, this appeal. Petitioner Sevilla Trading

enumerates the grounds of its appeal, as follows:
1. THE DECISION OF THE RESPONDENT COURT TO

REVERT TO THE OLD COMPUTATION OF THE 13TH-
MONTH PAY ON THE BASIS THAT THE OLD
COMPUTATION HAD RIPENED INTO PRACTICE IS
WITHOUT LEGAL BASIS.
2. IF SUCH BE THE CASE, COMPANIES HAVE NO MEANS

TO CORRECT ERRORS IN COMPUTATION WHICH WILL
CAUSE GRAVE AND IRREPARABLE DAMAGE TO
EMPLOYERS.[4]
First, we uphold the Court of Appeals in ruling that the

proper remedy from the adverse decision of the
arbitrator is a petition for review under Rule 43 of the
1997 Rules of Civil Procedure, not a petition
for certiorari under Rule 65. Section 1 of Rule 43 states:
RULE 43
Appeals from the Court of Tax Appeals and
Quasi-Judicial Agencies to the Court of Appeals

SECTION 1. Scope. This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and
from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of
its quasi-judicial functions. Among these agencies are the
Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of
the President, Land Registration Authority, Social
Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department
of Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction
Industry Arbitration Commission, and voluntary
arbitrators authorized by law. [Emphasis supplied.]
It is elementary that the special civil action

of certiorari under Rule 65 is not, and cannot be a
substitute for an appeal, where the latter remedy is
available, as it was in this case. Petitioner Sevilla Trading
failed to file an appeal within the fifteen-day
reglementary period from its notice of the adverse
decision of A.V.A. Semana. It received a copy of the
decision of A.V.A. Semana on December 20, 2000, and
should have filed its appeal under Rule 43 of the 1997
Rules of Civil Procedure on or before January 4,
2001. Instead, petitioner filed on January 19, 2001 a
Manifestation and Motion for Time to File Petition
for Certiorari, and on February 19, 2001, it filed a petition
for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure. Clearly, petitioner Sevilla Trading had a
remedy of appeal but failed to use it.
A special civil action under Rule 65 of the Rules of Court

will not be a cure for failure to timely file a petition for
review on certiorari under Rule 45 (Rule 43, in the case
at bar) of the Rules of Court. Rule 65 is an independent
action that cannot be availed of as a substitute for the
lost remedy of an ordinary appeal, including that under
Rule 45 (Rule 43, in the case at bar), especially if such loss
or lapse was occasioned by ones own neglect or error in
the choice of remedies.[5]
Thus, the decision of A.V.A. Semana had become final

and executory when petitioner Sevilla Trading filed its
petition for certiorari on February 19, 2001. More
particularly, the decision of A.V.A. Semana became final
and executory upon the lapse of the fifteen-day
reglementary period to appeal, or on January 5,
2001. Hence, the Court of Appeals is correct in holding
that it no longer had appellate jurisdiction to alter, or
much less, nullify the decision of A.V.A. Semana.
Even assuming that the present petition

Procedure is a proper action, we still find no grave abuse
of discretion amounting to lack or excess of jurisdiction
committed by A.V.A. Semana. Grave abuse of discretion
has been interpreted to mean such capricious and
whimsical exercise of judgment as is equivalent to lack of
jurisdiction, or, in other words where the power is
exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it must be so patent
and gross as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined or to act
at all in contemplation of law.[6] We find nothing of that
sort in the case at bar.
On the contrary, we find the decision of A.V.A. Semana

to be sound, valid, and in accord with law and
jurisprudence. A.V.A. Semana is correct in holding that
petitioners stance of mistake or error in the computation
of the thirteenth month pay is unmeritorious. Petitioners
submission of financial statements every year requires
the services of a certified public accountant to audit its
finances. It is quite impossible to suggest that they have
discovered the alleged error in the payroll only in
1999. This implies that in previous years it does not know
its cost of labor and operations. This is merely basic cost
accounting. Also, petitioner failed to adduce any other
relevant evidence to support its contention. Aside from
its bare claim of mistake or error in the computation of
the thirteenth month pay, petitioner merely appended
to its petition a copy of the 1997-2002 Collective
Bargaining Agreement and an alleged corrected
computation of the thirteenth month pay. There was no
explanation whatsoever why its inclusion of non-basic
benefits in the base figure in the computation of their
13th-month pay in the prior years was made by mistake,
despite the clarity of statute and jurisprudence at that
time.
The instant case needs to be distinguished from Globe

Mackay Cable and Radio Corp. vs. NLRC,[7] which
petitioner Sevilla Trading invokes. In that case, this Court
decided on the proper computation of the cost-of-living
allowance (COLA) for monthly-paid
employees. Petitioner Corporation, pursuant to Wage
Order No. 6 (effective 30 October 1984), increased the
COLA of its monthly-paid employees by multiplying
the P3.00 daily COLA by 22 days, which is the number of
working days in the company.The Union disagreed with
the computation, claiming that the daily COLA rate
of P3.00 should be multiplied by 30 days, which has been
the practice of the company for several years. We upheld
the contention of the petitioner corporation. To answer
the Unions contention of company practice, we ruled
that:
Payment in full by Petitioner Corporation of the COLA

before the execution of the CBA in 1982 and in
compliance with Wage Orders Nos. 1 (26 March 1981) to
5 (11 June 1984), should 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 . . . The test of long practice has been
enunciated thus:
. . . Respondent Company agreed to continue giving

holiday pay knowing fully well that said employees are
not covered by the law requiring payment of holiday pay.
(Oceanic Pharmacal Employees Union [FFW] vs. Inciong,
94 SCRA 270 [1979])
Moreover, before Wage Order No. 4, there was lack of
administrative guidelines for the implementation of the
Wage Orders. It was only when the Rules Implementing
Wage Order No. 4 were issued on 21 May 1984 that a
formula for the conversion of the daily allowance to its
monthly equivalent was laid down.
Absent clear administrative guidelines, Petitioner

Corporation cannot be faulted for erroneous application
of the law . . .
In the above quoted case, the grant by the employer of

benefits through an erroneous application of the law due
to absence of clear administrative guidelines is not
considered a voluntary act which cannot be unilaterally
discontinued. Such is not the case now. In the case at
bar, the Court of Appeals is correct when it pointed out
that as early as 1981, this Court has held in San Miguel
Corporation vs. Inciong[8] that:
Under Presidential Decree 851 and its implementing

rules, the basic salary of an employee is used as the basis
in the determination of his 13th-month pay. Any
compensations or remunerations which are deemed not
part of the basic pay is excluded as basis in the
computation of the mandatory bonus.
Under the Rules and Regulations Implementing

Presidential Decree 851, the following compensations
are deemed not part of the basic salary:
a) Cost-of-living allowances granted pursuant to

Presidential Decree 525 and Letter of Instruction No.
174;
b) Profit sharing payments;
c) All allowances and monetary benefits which are not

considered or integrated as part of the regular basic
salary of the employee at the time of the promulgation
of the Decree on December 16, 1975.
Under a later set of Supplementary Rules and

Regulations Implementing Presidential Decree 851
issued by the then Labor Secretary Blas Ople, overtime
pay, earnings and other remunerations are excluded as
part of the basic salary and in the computation of the
13th-month pay.
The exclusion of cost-of-living allowances under

Presidential Decree 525 and Letter of Instruction No. 174
and profit sharing payments indicate the intention to
strip basic salary of other payments which are properly
considered as fringe benefits. Likewise, the catch-all
exclusionary phrase all allowances and monetary
benefits which are not considered or integrated as part
of the basic salary shows also the intention to strip basic
salary of any and all additions which may be in the form
of allowances or fringe benefits.
Moreover, the Supplementary Rules and Regulations

Implementing Presidential Decree 851 is even more
empathic in declaring that earnings and other
remunerations which are not part of the basic salary shall
not be included in the computation of the 13th-month
pay.

and Regulations Implementing Presidential Decree 851
which defines basic salary to include all remunerations or
earnings paid by an employer to an employee, this cloud
is dissipated in the later and more controlling
Supplementary Rules and Regulations which
indicates that what has hitherto been the subject of a
basic salary.
The all-embracing phrase earnings and other

vacation, or maternity leaves, premium for works
they were not so excluded, it is hard to find any earnings
and other remunerations expressly excluded in the
computation of the 13th-month pay. Then the
no purpose.
In the light of the clear ruling of this Court, there is, thus
no reason for any mistake in the construction or
application of the law. When petitioner Sevilla Trading
still included over the years non-basic benefits of its
employees, such as maternity leave pay, cash equivalent
of unused vacation and sick leave, among others in the
computation of the 13th-month pay, this may only be
construed as a voluntary act on its part. Putting the
blame on the petitioners payroll personnel is
inexcusable.
In Davao Fruits Corporation vs. Associated Labor

Unions, we likewise held that:[9]
The Supplementary Rules and Regulations Implementing

P.D. No. 851 which put to rest all doubts in the
computation of the thirteenth month pay, was issued by
the Secretary of Labor as early as January 16, 1976,
barely one month after the effectivity of P.D. No. 851 and
its Implementing Rules. And yet, petitioner computed
and paid the thirteenth month pay, without excluding
the subject items therein until 1981. Petitioner
promulgation of the aforequoted San Miguel decision
discovered its mistake.

employees thirteenth month pay, without the payments
for sick, vacation and maternity leave, premium for work
done on rest days and special holidays, and pay for
regular holidays. The considerable length of time the
questioned items had been included by petitioner
indicates a unilateral and voluntary act on its part,
sufficient in itself to negate any claim of mistake.

pursuant thereto, ripened into benefits enjoyed by
them. And any benefit and supplement being enjoyed by
the employees cannot be reduced, diminished,
discontinued or eliminated by the employer, by virtue of
Sec. 10 of the Rules and Regulations Implementing P.D.
No. 851, and Art. 100 of the Labor Code of
the Philippines which prohibit the diminution or
elimination by the employer of the employees existing
benefits. [Tiangco vs. Leogardo, Jr., 122 SCRA 267 (1983)]
With regard to the length of time the company practice

should have been exercised to constitute voluntary
employer practice which cannot be unilaterally
withdrawn by the employer, we hold that jurisprudence
has not laid down any rule requiring a specific minimum
number of years. In the above quoted case of Davao
Fruits Corporation vs. Associated Labor Unions,[10] the
company practice lasted for six (6) years. In another
case, Davao Integrated Port Stevedoring Services vs.
Abarquez,[11] the employer, for three (3) years and nine
(9) months, approved the commutation to cash of the
unenjoyed portion of the sick leave with pay benefits of
its intermittent workers.While in Tiangco vs. Leogardo,
Jr.,[12] the employer carried on the practice of giving a
fixed monthly emergency allowance from November
1976 to February 1980, or three (3) years and four (4)
months. In all these cases, this Court held that the grant
of these benefits has ripened into company practice or
policy which cannot be peremptorily withdrawn. In the
case at bar, petitioner Sevilla Trading kept the practice of
including non-basic benefits such as paid leaves for
unused sick leave and vacation leave in the computation
of their 13th-month pay for at least two (2) years. This,
we rule likewise constitutes voluntary employer practice
which cannot be unilaterally withdrawn by the employer
without violating Art. 100 of the Labor Code:
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.
IN VIEW WHEREOF, the petition is DENIED. The Decision

of the Court of Appeals in CA-G.R. SP No. 63086 dated 27
November 2001 and its Resolution dated 06 March
2002 are hereby AFFIRMED.
SO ORDERED.
SEVILLA TRADING COMPANY, petitioner, vs. A.V.A.

TOMAS E. SEMANA, SEVILLA TRADING WORKERS
UNIONSUPER, respondents.
DECISION
PUNO, J.:
On appeal is the Decision[1] of the Court of Appeals in CA-

G.R. SP No. 63086 dated 27 November 2001 sustaining
the Decision[2] of Accredited Voluntary Arbitrator Tomas
E. Semana dated 13 November 2000, as well as its
subsequent Resolution[3] dated 06 March 2002 denying
petitioners Motion for Reconsideration.
The facts of the case are as follows:

For two to three years prior to 1999, petitioner Sevilla
Trading Company (Sevilla Trading, for short), a domestic
corporation engaged in trading business, organized and
existing under Philippine laws, added to the base figure,
in its computation of the 13th-month pay of its
employees, the amount of other benefits received by the
employees which are beyond the basic pay. These
benefits included:
(a) Overtime premium for regular overtime, legal and

special holidays;
(b) Legal holiday pay, premium pay for special holidays;
(c) Night premium;
(d) Bereavement leave pay;
(e) Union leave pay;
(f) Maternity leave pay;
(g) Paternity leave pay;
(h) Company vacation and sick leave pay; and
(i) Cash conversion of unused company vacation and sick

leave.
Petitioner claimed that it entrusted the preparation of

the payroll to its office staff, including the computation
and payment of the 13th-month pay and other
benefits.When it changed its person in charge of the
payroll in the process of computerizing its payroll, and
after audit was conducted, it allegedly discovered the
error of including non-basic pay or other benefits in the
base figure used in the computation of the 13th-month
pay of its employees. It cited the Rules and Regulations
Implementing P.D. No. 851 (13th-Month Pay Law),
effective December 22, 1975, Sec. 2(b) which stated that:
Basic salary shall include all remunerations or earnings

paid by an employer to an employee for services
rendered but may not include cost-of-living allowances
granted pursuant to P.D. No. 525 or Letter of Instruction
No. 174, profit-sharing payments, and all allowances and
monetary benefits which are not considered or
integrated as part of the regular or basic salary of the
employee at the time of the promulgation of the Decree
on December 16, 1975.
Petitioner then effected a change in the computation of

the thirteenth month pay, as follows:
13th-month pay = net basic pay
12 months
where:
net basic pay = gross pay (non-basic pay or other

benefits)
Now excluded from the base figure used in the

computation of the thirteenth month pay are the
following:
a) Overtime premium for regular overtime, legal and

special holidays;
b) Legal holiday pay, premium pay for special holidays;

c) Night premium;
d) Bereavement leave pay;
e) Union leave pay;
f) Maternity leave pay;
g) Paternity leave pay;
h) Company vacation and sick leave pay; and
i) Cash conversion of unused vacation/sick leave.
Hence, the new computation reduced the employees

thirteenth month pay. The daily piece-rate workers
represented by private respondent Sevilla Trading
Workers Union SUPER (Union, for short), a duly
organized and registered union, through the Grievance
Machinery in their Collective Bargaining Agreement,
contested the new computation and reduction of their
thirteenth month pay. The parties failed to resolve the
issue.
On March 24, 2000, the parties submitted the issue of

whether or not the exclusion of leaves and other related
benefits in the computation of 13th-month pay is valid to
respondent Accredited Voluntary Arbitrator Tomas E.
Semana (A.V.A. Semana, for short) of the National
Conciliation and Mediation Board, for consideration and
resolution.
The Union alleged that petitioner violated the rule

prohibiting the elimination or diminution of employees
benefits as provided for in Art. 100 of the Labor Code, as
amended. They claimed that paid leaves, like sick leave,
vacation leave, paternity leave, union leave,
bereavement leave, holiday pay and other leaves with
pay in the CBA should be included in the base figure in
the computation of their 13th-month pay.
On the other hand, petitioner insisted that the

computation of the 13th-month pay is based on basic
salary, excluding benefits such as leaves with pay, as per
P.D. No. 851, as amended. It maintained that, in
adjusting its computation of the 13th-month pay, it
merely rectified the mistake its personnel committed in
the previous years.
A.V.A. Semana decided in favor of the Union. The

dispositive portion of his Decision reads as follows:
WHEREFORE, premises considered, this Voluntary

Arbitrator hereby declared that:
1. The company is hereby ordered to include sick leave

and vacation leave, paternity leave, union leave,
bereavement leave and other leave with pay in the CBA,
holidays, and pay for regular holidays in the computation
of the 13th-month pay to all covered and entitled
employees;
2. The company is hereby ordered to pay corresponding

backwages to all covered and entitled employees arising
from the exclusion of said benefits in the computation of
13th-month pay for the year 1999.
Petitioner received a copy of the Decision of the

Arbitrator on December 20, 2000. It filed before the
Court of Appeals, a Manifestation and Motion for Time
to File Petition for Certiorari on January 19, 2001. A
month later, on February 19, 2001, it filed its Petition for
Certiorari under Rule 65 of the 1997 Rules of Civil
Procedure for the nullification of the Decision of the
Arbitrator. In addition to its earlier allegations, petitioner
claimed that assuming the old computation will be
upheld, the reversal to the old computation can only be
made to the extent of including non-basic benefits
actually included by petitioner in the base figure in the
computation of their 13th-month pay in the prior years. It
must exclude those non-basic benefits which, in the first
place, were not included in the original computation. The
appellate court denied due course to, and dismissed the
petition.
Hence, this appeal. Petitioner Sevilla Trading

enumerates the grounds of its appeal, as follows:
1. THE DECISION OF THE RESPONDENT COURT TO

REVERT TO THE OLD COMPUTATION OF THE 13TH-
MONTH PAY ON THE BASIS THAT THE OLD
COMPUTATION HAD RIPENED INTO PRACTICE IS
WITHOUT LEGAL BASIS.
2. IF SUCH BE THE CASE, COMPANIES HAVE NO MEANS

TO CORRECT ERRORS IN COMPUTATION WHICH WILL
CAUSE GRAVE AND IRREPARABLE DAMAGE TO
EMPLOYERS.[4]
First, we uphold the Court of Appeals in ruling that the

proper remedy from the adverse decision of the
arbitrator is a petition for review under Rule 43 of the
1997 Rules of Civil Procedure, not a petition
for certiorari under Rule 65. Section 1 of Rule 43 states:
RULE 43
Appeals from the Court of Tax Appeals and
Quasi-Judicial Agencies to the Court of Appeals
SECTION 1. Scope. This Rule shall apply to appeals from

judgments or final orders of the Court of Tax Appeals and
from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of
its quasi-judicial functions. Among these agencies are the
Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of
the President, Land Registration Authority, Social
Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department
of Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction
Industry Arbitration Commission, and voluntary
arbitrators authorized by law. [Emphasis supplied.]
It is elementary that the special civil action

of certiorari under Rule 65 is not, and cannot be a
substitute for an appeal, where the latter remedy is
available, as it was in this case. Petitioner Sevilla Trading
failed to file an appeal within the fifteen-day
reglementary period from its notice of the adverse
decision of A.V.A. Semana. It received a copy of the
decision of A.V.A. Semana on December 20, 2000, and
should have filed its appeal under Rule 43 of the 1997
Rules of Civil Procedure on or before January 4,
2001. Instead, petitioner filed on January 19, 2001 a
Manifestation and Motion for Time to File Petition
for Certiorari, and on February 19, 2001, it filed a petition
Procedure. Clearly, petitioner Sevilla Trading had a
remedy of appeal but failed to use it.
A special civil action under Rule 65 of the Rules of Court

will not be a cure for failure to timely file a petition for
review on certiorari under Rule 45 (Rule 43, in the case
at bar) of the Rules of Court. Rule 65 is an independent
action that cannot be availed of as a substitute for the
lost remedy of an ordinary appeal, including that under
Rule 45 (Rule 43, in the case at bar), especially if such loss
or lapse was occasioned by ones own neglect or error in
the choice of remedies.[5]
Thus, the decision of A.V.A. Semana had become final

and executory when petitioner Sevilla Trading filed its
petition for certiorari on February 19, 2001. More
particularly, the decision of A.V.A. Semana became final
and executory upon the lapse of the fifteen-day
reglementary period to appeal, or on January 5,
2001. Hence, the Court of Appeals is correct in holding
that it no longer had appellate jurisdiction to alter, or
much less, nullify the decision of A.V.A. Semana.
Even assuming that the present petition

Procedure is a proper action, we still find no grave abuse
of discretion amounting to lack or excess of jurisdiction
committed by A.V.A. Semana. Grave abuse of discretion
has been interpreted to mean such capricious and
whimsical exercise of judgment as is equivalent to lack of
jurisdiction, or, in other words where the power is
exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it must be so patent
and gross as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined or to act
at all in contemplation of law.[6] We find nothing of that
sort in the case at bar.
On the contrary, we find the decision of A.V.A. Semana

to be sound, valid, and in accord with law and
jurisprudence. A.V.A. Semana is correct in holding that
petitioners stance of mistake or error in the computation
of the thirteenth month pay is unmeritorious. Petitioners
submission of financial statements every year requires
the services of a certified public accountant to audit its
finances. It is quite impossible to suggest that they have
discovered the alleged error in the payroll only in
1999. This implies that in previous years it does not know
its cost of labor and operations. This is merely basic cost
accounting. Also, petitioner failed to adduce any other
relevant evidence to support its contention. Aside from
its bare claim of mistake or error in the computation of
the thirteenth month pay, petitioner merely appended
to its petition a copy of the 1997-2002 Collective
Bargaining Agreement and an alleged corrected
computation of the thirteenth month pay. There was no
explanation whatsoever why its inclusion of non-basic
benefits in the base figure in the computation of their
13th-month pay in the prior years was made by mistake,
despite the clarity of statute and jurisprudence at that
time.
The instant case needs to be distinguished from Globe

Mackay Cable and Radio Corp. vs. NLRC,[7] which
petitioner Sevilla Trading invokes. In that case, this Court
decided on the proper computation of the cost-of-living
allowance (COLA) for monthly-paid
employees. Petitioner Corporation, pursuant to Wage
Order No. 6 (effective 30 October 1984), increased the
COLA of its monthly-paid employees by multiplying
the P3.00 daily COLA by 22 days, which is the number of
working days in the company.The Union disagreed with
the computation, claiming that the daily COLA rate
of P3.00 should be multiplied by 30 days, which has been
the practice of the company for several years. We upheld
the contention of the petitioner corporation. To answer
the Unions contention of company practice, we ruled
that:
Payment in full by Petitioner Corporation of the COLA

before the execution of the CBA in 1982 and in
compliance with Wage Orders Nos. 1 (26 March 1981) to
5 (11 June 1984), should 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 . . . The test of long practice has been
enunciated thus:
. . . Respondent Company agreed to continue giving

holiday pay knowing fully well that said employees are
not covered by the law requiring payment of holiday pay.
(Oceanic Pharmacal Employees Union [FFW] vs. Inciong,
94 SCRA 270 [1979])
Moreover, before Wage Order No. 4, there was lack of

administrative guidelines for the implementation of the
Wage Orders. It was only when the Rules Implementing
Wage Order No. 4 were issued on 21 May 1984 that a
formula for the conversion of the daily allowance to its
monthly equivalent was laid down.
Absent clear administrative guidelines, Petitioner

Corporation cannot be faulted for erroneous application
of the law . . .
In the above quoted case, the grant by the employer of

benefits through an erroneous application of the law due
to absence of clear administrative guidelines is not
considered a voluntary act which cannot be unilaterally
discontinued. Such is not the case now. In the case at
bar, the Court of Appeals is correct when it pointed out
that as early as 1981, this Court has held in San Miguel
Corporation vs. Inciong[8] that:
Under Presidential Decree 851 and its implementing

rules, the basic salary of an employee is used as the basis
in the determination of his 13th-month pay. Any
compensations or remunerations which are deemed not
part of the basic pay is excluded as basis in the
computation of the mandatory bonus.
Under the Rules and Regulations Implementing

Presidential Decree 851, the following compensations
are deemed not part of the basic salary:
a) Cost-of-living allowances granted pursuant to
Presidential Decree 525 and Letter of Instruction No.
174;
b) Profit sharing payments;
c) All allowances and monetary benefits which are not

considered or integrated as part of the regular basic
salary of the employee at the time of the promulgation
of the Decree on December 16, 1975.
Under a later set of Supplementary Rules and

Regulations Implementing Presidential Decree 851
issued by the then Labor Secretary Blas Ople, overtime
pay, earnings and other remunerations are excluded as
part of the basic salary and in the computation of the
13th-month pay.
The exclusion of cost-of-living allowances under

Presidential Decree 525 and Letter of Instruction No. 174
and profit sharing payments indicate the intention to
strip basic salary of other payments which are properly
considered as fringe benefits. Likewise, the catch-all
exclusionary phrase all allowances and monetary
benefits which are not considered or integrated as part
of the basic salary shows also the intention to strip basic
salary of any and all additions which may be in the form
of allowances or fringe benefits.
Moreover, the Supplementary Rules and Regulations

Implementing Presidential Decree 851 is even more
empathic in declaring that earnings and other
remunerations which are not part of the basic salary shall
not be included in the computation of the 13th-month
pay.

and Regulations Implementing Presidential Decree 851
which defines basic salary to include all remunerations or
earnings paid by an employer to an employee, this cloud
is dissipated in the later and more controlling
Supplementary Rules and Regulations which
indicates that what has hitherto been the subject of a
basic salary.
The all-embracing phrase earnings and other

vacation, or maternity leaves, premium for works
they were not so excluded, it is hard to find any earnings
and other remunerations expressly excluded in the
computation of the 13th-month pay. Then the
no purpose.
In the light of the clear ruling of this Court, there is, thus
no reason for any mistake in the construction or
application of the law. When petitioner Sevilla Trading
still included over the years non-basic benefits of its
employees, such as maternity leave pay, cash equivalent
of unused vacation and sick leave, among others in the
computation of the 13th-month pay, this may only be
construed as a voluntary act on its part. Putting the
blame on the petitioners payroll personnel is
inexcusable.
In Davao Fruits Corporation vs. Associated Labor

Unions, we likewise held that:[9]
The Supplementary Rules and Regulations Implementing

P.D. No. 851 which put to rest all doubts in the
computation of the thirteenth month pay, was issued by
the Secretary of Labor as early as January 16, 1976,
barely one month after the effectivity of P.D. No. 851 and
its Implementing Rules. And yet, petitioner computed
and paid the thirteenth month pay, without excluding
the subject items therein until 1981. Petitioner
promulgation of the aforequoted San Miguel decision
discovered its mistake.

employees thirteenth month pay, without the payments
for sick, vacation and maternity leave, premium for work
done on rest days and special holidays, and pay for
regular holidays. The considerable length of time the
questioned items had been included by petitioner
indicates a unilateral and voluntary act on its part,
sufficient in itself to negate any claim of mistake.

pursuant thereto, ripened into benefits enjoyed by
them. And any benefit and supplement being enjoyed by
the employees cannot be reduced, diminished,
discontinued or eliminated by the employer, by virtue of
Sec. 10 of the Rules and Regulations Implementing P.D.
No. 851, and Art. 100 of the Labor Code of
the Philippines which prohibit the diminution or
elimination by the employer of the employees existing
benefits. [Tiangco vs. Leogardo, Jr., 122 SCRA 267 (1983)]
With regard to the length of time the company practice

should have been exercised to constitute voluntary
employer practice which cannot be unilaterally
withdrawn by the employer, we hold that jurisprudence
has not laid down any rule requiring a specific minimum
number of years. In the above quoted case of Davao
Fruits Corporation vs. Associated Labor Unions,[10] the
company practice lasted for six (6) years. In another
case, Davao Integrated Port Stevedoring Services vs.
Abarquez,[11] the employer, for three (3) years and nine
(9) months, approved the commutation to cash of the
unenjoyed portion of the sick leave with pay benefits of
its intermittent workers.While in Tiangco vs. Leogardo,
Jr.,[12] the employer carried on the practice of giving a
fixed monthly emergency allowance from November
1976 to February 1980, or three (3) years and four (4)
months. In all these cases, this Court held that the grant
of these benefits has ripened into company practice or
policy which cannot be peremptorily withdrawn. In the
case at bar, petitioner Sevilla Trading kept the practice of
including non-basic benefits such as paid leaves for
unused sick leave and vacation leave in the computation
of their 13th-month pay for at least two (2) years. This,
we rule likewise constitutes voluntary employer practice
which cannot be unilaterally withdrawn by the employer
without violating Art. 100 of the Labor Code:
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.
IN VIEW WHEREOF, the petition is DENIED. The Decision

of the Court of Appeals in CA-G.R. SP No. 63086 dated 27
November 2001 and its Resolution dated 06 March
2002 are hereby AFFIRMED.
SO ORDERED.
G.R. No. L-69741 August 19, 1986
BROKENSHIRE MEMORIAL HOSPITAL, INC., petitioner,

vs.
THE HONORABLE NATIONAL LABOR RELATIONS
COMMISSION AND THE BROKENSHIRE MEMORIAL
HOSPITAL EMPLOYEES AND WORKERS UNION-
FFW, respondents.
Maximo Magno-Libre for petitioner.
Ireneo B. Bernardo for private respondent.

NARVASA, J.:
Are employees in a private enterprise entitled to the so

called "13th month pay" prescribed by PD 851 "on top of
bonuses" already being given by the employer prior to
the decree's effectivity on December 16, 1975?
To this question, a negative answer has twice been given

by this Court.
In National Federation of Sugar Workers (NFSW) vs.

Ovejera, promulgated on May 31, 1982 1-where a
collective bargaining agreement required the employer
among others "to maintain the present practice on the
grant of Christmas bonus, milling bonus and amelioration
bonus" ("amounting to more than a month's pay")-this
Court made the following pronouncements on the issue:2
Keenly sensitive to the needs of the workingmen, yet

mindful of the mounting production cost that are the
woe of capital which provides employment to labor,
President Ferdinand E. Marcos issued Presidential
Decree No. 851 on 16 December 1975. Thereunder, 'all
employers are hereby required to pay all their employees
receiving a basic salary of not more than Pl,000 a month,
regardless of the nature of their employment, a 13th
month pay not later than December 24 of every year.'
Exempted from the obligation however are:
Employers already paying their employees a 13th month

pay or its equivalent. . . . (Section 2)
The evident intention of the law, as revealed by the law
itself, was to grant an additional income in the form of a
13th month pay to employees not already receiving the
same. Otherwise put, the intention was to grant some
relief-not to all workers-but only to the unfortunate ones
not actually paid a 13th month salary or what amounts
to it, by whatever name called; but it was not envisioned
that a double burden would be imposed on the employer
already paying his employees a 13th month pay or its
equivalent-whether out of pure generosity or on the
basis of a binding agreement and, in the latter case,
regardless of the conditional character of the grant (such
as making the payment dependent on profit), so long as
there is actual payment. Otherwise, what was conceived
to be a 13th month salary would in effect become a 14th
or possibly 15th month pay.
This view is justified by the law itself which makes no

distinction in the grant of exemption: 'Employers already
paying their employees a 13th month pay or its
equivalent are not covered by this Decree.' (P.D. 851)
The Rules Implementing P.D. 851 issued by MOLE

immediately after the adoption of said law reinforce this
stand. Under Section 3(e) thereof-
The term "its equivalent" . . . shall include Christmas

bonus, mid-year bonus, profit-sharing payments and
other cash bonuses amounting to not less than 1/12th of
the basic salary but shall not include cash and stock
dividends, cost of living allowances and all other
allowances regularly enjoyed by the employee, as well as
non-monetary benefits. Where an employer pays less
than 1/12th of the employee's basic salary, the employer
shall pay the difference.' (Empahsis supplied)
Having been issued by the agency charged with the

implementation of PD 851 as its contemporaneous
interpretation of the law, the quoted rule should be
accorded great weight.
Pragmatic considerations also weigh heavily in favor of

crediting both voluntary and contractual bonuses for the
purpose of determining liability for the 13th month pay.
To require employers (already giving their employees a
13th month salary or its equivalent to give a second 13th
month pay would be unfair and productive of
undesirable results. To the employer who had acceded
and is already bound to give bonuses to his employees,
the additional burden of a 13th month pay would
amount to a penalty for his munificence or liberality. The
probable reaction of one so circumstanced would be to
withdraw the bonuses or resist further voluntary grants
for fear that if and when a law is passed giving the same
benefits, his prior concessions might not be given due
credit; and this negative attitude would have an adverse
impact on the employees.
In Dole Philippines, Inc. vs. Leogardo, Jr., decided on

October 23, 1982 3 -where a collective bargaining
agreement imposed on the employer the obligation to
pay "a year-end productivity bonus equivalent to ten (10)
days of ... (the employee's) basic daily wage" if a
stipulated level of production were attained, and the first
bonus was in fact given on December 11, 1975-this
Court 4 adverted to the NFSW decision as binding norm
and went on to say.
Tested against this norm, it becomes clear that the year-

end productivity bonus granted by petitioner to private
respondents pursuant to their CBA is, in legal
contemplation, an integral part of their 13th month pay,
notwithstanding its conditional nature. When, therefore,
petitioner, in order to comply with the mandate of PD
851, credited the year-end productivity bonus as part of
the 13th month pay and adopted the procedure of
paying only the difference between said bonus and 1/12
of the worker's yearly basic salary, it acted well within
the letter and spirit of the law and its implementing rules.
For in the event that "an employer pays less than one
twelfth of the employees' basic salary, all that said
employer is required to do under the law is to pay the
difference.
To hold otherwise would be to impose an unreasonable

and undue burden upon those employers who had
demonstrated their sensitivity and concern for the
welfare of their employees. A contrary stance would
indeed create an absurd situation whereby an employer
who started giving his employees the 13th month pay
only because of the unmistakable force of the law would
be in a far better position than another who, by his own
magnanimity or by mutual agreement, had long been
extending to his employees the benefits contemplated
under PD 851, by whatever nomenclature these benefits
have come to be known. Indeed, PD No. 851, a legislation
benevolent in its purpose, never intended to bring about
such oppressive situation.
This Court is now called upon to answer the same
question again, this time at the instance of petitioner
Brokenshire Memorial Hospital, which initiated the
special civil action of certiorari at bar to annul the
resolution of the National Labor Relations Commission
(Second Division) affirming the decision of a Labor
Arbiter of Regional Arbitration Branch XI of the Ministry
of Labor and Employment in NLRC Case No. 64-LS-XI-82
entitled "Brokenshire Memorial Hospital Employees and
Workers Union FFW v. Brokenshire Memorial
Hospital." The affirmed decision required the hospital to
pay its employees a yearly Christmas bonus in addition
to the 13th month pay under PD 85l. 5 The answer to the
question will be the same. The hospital can not be
obliged to bear the "double burden" of giving its
employees not only the 13th month pay required by PD
851 but also the Christmas bonus it had theretofore been
granting. The decisions in question will have to be
reversed.
At the time that PD 851 became effective on December

16, 1975, the hospital had for many years been giving its
employees an annual Christmas bonus. It continued to
do so afterwards. But after 1979 the hospital stopped
giving the bonus because avowedly its poor financial
condition no longer made this possible.
Protesting the discontinuance, respondent union filed a

complaint 6 against the hospital for unlawful diminution
of benefits, alleging a violation of Article 100 of the Labor
Code and Section 10 of PD 851. 7 In response, 8 the
hospital asserted that the giving of the bonus was not an
established and continuing obligation on its part but was
contingent and entirely dependent on its financial
condition in any given year. This is why the matter of the
bonus was not dealt with at all in the Collective
Bargaining Agreement between it and the union. At any
rate, it further claimed, it should not be made to bear the
double burden of giving both 13th month pay and bonus,
in the light of the decision in National Federation of
Sugar Workers (NFSW) vs. Ethelwoldo R. Ovejera, et
al., G.R. No. 59743, rendered in the context of Section 2,
PD 851, and Section 3(c) of the Rules and Regulations
Implementing PD 851, declaring said decree inapplicable
to "employers already paying their employees a 13th
month pay or its equivalent.
On March 23, 1983, the Labor Arbiter promulgated

judgment requiring the hospital "to pay all its employees,
as it had done in 1979, an extra Christmas bonus of
P100.00 per year, for 1980, 1981, and 1982." 9 The
hospital appealed. On December 14, 1984, the National
Labor Relations Commission affirmed the labor Arbiter's
decision. 10
It is difficult to understand why the Labor Arbiter took no

account whatever of this Court's decision in NFSW vs.
Ovejera despite its having been explicitly brought to his
attention. He never mentioned the case in his decision at
all. Instead, he occupied Himself with a discussion of the
financial condition of the hospital, declaring that his
reading of the hospital's financial statement for 1980
revealed a "surplus available for expenditure" from
which the employees' bonuses could be drawn.
Equally difficult to understand is the refusal of the
National Labor Relations Commission to apply the NFSW
vs. Ovejera ruling. According to the Commission-
Respondent's (the hospital's) reliance on the La Carlota

case, GR No. 59743, is unavailing. We are not persuaded
to view the matter that way. For in the La Carlota case,
the NFSW union is claiming entitlement to a 13th month
pay, on top of Christmas bonuses already given, whereas,
in the instant case, respondent discontinued and
eliminated a favorable practice being enjoyed by the
employee at the time of promulgation of the rules
implementing PD No. 851 on December 22, 1975 which,
as fixed below, amounts to P100 christmas bonus, on top
of the 13th month pay.
The distinction sought to be drawn by the Commission

between the case at bar and NFSW vs. Ovejera is
insubstantial and unjustifiable. The message of NFSW vs.
Ovejera is clear and unequivocal: An employer may not
be obliged to assume a "double burden" of paying the
13th month pay in addition to bonuses or other
pecuniary benefits given by way of fringe benefits aside
from the employees' basic salaries or wages; PD 851
accorded to him the option either to exempt himself
from the obligation to give 13th month pay or
discontinue the payment of the bonuses or fringe
benefits deemed to be the equivalent of said 13th month
pay. In any event, whatever doubt might have existed
regarding this option on the employer's part should have
been dispelled by this Court's decision in Dole Phils., Inc.
vs. Leogardo, Jr. promulgated on October 23,
1982, 11 more than two (2) years before the rendition of
the resolution of the National Labor Relations
Commission on December 14, 1984. In Dole, this Court
declared that when an employer, in order to comply with
the mandate of PD 851, credits the bonus being paid by
him as part of his employees' 13th month pay and adopts
the procedure of paying only the difference between
said bonus and 1/12 of the employees' yearly basic
salary, said employer acts well within the letter and spirit
of the law and its implementing rules; for in the event
that "an employer pays less than one twelfth of the
employees' basic salary, all that said employer is required
to do under the law is to pay the difference."
Prescinding from these legal considerations, it would

appear that the ratiocinations of the Labor Arbiter based
on his own interpretation of the financial statements of
petitioner hospital for 1980 were quite erroneous.
Where those financial statements, to an accountant, or
one familiar with accountancy, should have shown a
deficit, to the Labor Arbiter they showed a surplus.
Be this as it may, the fact is that as early as November 5,

1984, the hospital sent to the Minister of Labor and
Employment a notice of closure 12 because of its
"critically grave" financial condition. 13 And on March 2,
1985 the hospital finally ceased to operate for lack of
operating capital 14 resulting from the garnishment of its
bank deposits amounting to P163,047.50. 15
Whether or not this unhappy eventuality would have

come to pass had the decision of the Labor Arbiter or that
of the National Labor Relations Commission correctly
applied the doctrine enunciated by this Court in NFSW
vs. Ovejera and Dole Phils., Inc. vs. Leogardo, Jr., is a
question that perhaps is incapable of a fair and realistic
answer. But the mere possibility that closure, with the
consequent loss of work for so many, was caused or
hastened by the questioned decisions should be enough
to give pause and provide an object lesson to address
such matters more studiously and with greater
circumspection in the future.
WHEREFORE, the Decision of the Labor Arbiter dated

March 23, 1983 and the Resolution of the National Labor
Relation Commission in affirmance thereof, dated
December 14, 1984, are hereby reversed and set aside,
and the complaint filed by respondent union is hereby
dismissed, with costs against said private respondent.
SO ORDERED.
G.R. No. 79004-08 October 4, 1991
FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT

AND 6 OTHERS, ROY MAGALLANES AND 4 OTHERS,
CLAUDIO BONGO, EDUARDO ANDALES and 4
OTHERS, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (3rd
DIVISION), GENERAL MILLING CORPORATION and/or
FELICIANO LUPO, respondents.
Public Attorney's Office for petitioners.

Joseph M. Baduel & Steve R. Siclot for private
respondents.
MELENCIO-HERRERA, J.:
The liability of an employer in job contracting, vis-a-vis

his contractor's employees, is the sole issue brought to
the fore in this labor dispute.
This Petition for certiorari seeks to set aside the

Resolution, dated 27 February 1987, of public
respondent National Labor Relations Commission
(NLRC), Third Division, which reversed the Resolution of
its First Division, dated 27 December 1985, and absolved
private respondent General Milling Corporation (GMC)
from any and all liability to petitioners.
Sometime in 1983, private respondent Feliciano LUPO, a

building contractor, entered into a contract with GMC, a
domestic corporation engaged in flour and feeds
manufacturing, for the construction of an annex building
inside the latter's plant in Cebu City. In connection with
the aforesaid contract, LUPO hired herein petitioners
either as carpenters, masons or laborers.
Subsequently, LUPO terminated petitioners' services, on

different dates. As a result, petitioners filed Complaints
against LUPO and GMC before the NLRC Regional
Arbitration Branch No. VII, Cebu City, for unpaid wages,
COLA differentials, bonus and overtime pay.
In a Decision, dated 21 November 1984, the Executive

Labor Arbiter, Branch VII, found LUPO and GMC jointly
and severally liable to petitioners, premised on Article
109 of the Labor Code, infra, and ordered them to pay
the aggregate amount of P95,382.92. Elevated on appeal
on 14 December 1984, the NLRC (First Division) denied
the same for lack of merit in a Resolution, dated 27
December 1985.
Upon Motion for Reconsideration, filed on 27 February

1986, the case was reassigned to the Third Division. In a
Resolution of 27 February 1987, that Division absolved
GMC from any liability. It opined that petitioners were
only hired by LUPO as workers in his construction
contract with GMC and were never meant to be
employed by the latter.
Petitioners now assail that judgment in this Petition for

Certiorari.
Petitioners contend that GMC is jointly and severally

liable with LUPO for the latter's obligations to them. They
seek recovery from GMC based on Article 106 of the
Labor Code, infra, which holds the employer jointly and
severally liable with his contractor for unpaid wages of
employees of the latter.
In his "Manifestation in lieu of Comment," the Solicitor

General recognizes the solidary liability of GMC and
LUPO but bases recovery on Article 108 of the Labor
Code, infra, contending that inasmuch as GMC failed to
require them LUPO a bond to answer for the latter's
obligations to his employees, as required by said
provision, GMC should, correspondingly, be deemed
solidarily liable.
In their respective Comments, both GMC and the NLRC

maintain that Article 106 finds no application in the
instant case because it is limited to situations where the
work being performed by the contractor's employees are
directly related to the principal business of the employer.
The NLRC further opines that Article 109 on "Solidary
Liability" finds no application either because GMC was
neither petitioners' employer nor indirect employer.
Upon the facts and circumstances, we uphold the

solidary liability of GMC and LUPO for the latter's
liabilities in favor of employees whom he had earlier
employed and dismissed.
Recovery, however, should not be based on Article 106

of the Labor Code. This provision treats specifically of
"labor-only" contracting, which is not the set-up
between GMC and LUPO.
Article 106 provides:
Art. 106. Contractor or subcontractor. — Whenever an

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

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

"labor only" contracting where (1) the person supplying
workers to an employer does not have substantial capital
or investment in the form of tools, equipment,
machineries, work premises, among others; and (2) the
workers recruited and placed by such person are
performing activities which are directly related to the
principal business of such employer (See Section 9, Rule
VIII, Book III of the Omnibus Rules Implementing the
Labor Code; emphasis supplied).
Since the construction of an annex building inside the

company plant has no relation whatsoever with the
employer's business of flour and feeds manufacturing,
"labor-only" contracting does not exist. Article 106 is
thus inapplicable.
Instead, it is "job contracting," covered by Article 107,

which is involved, reading:
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. (Emphasis supplied).
Specifically, there is "job contracting" where (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. It may be that LUPO
subsequently ran out of capital and was unable to satisfy
the award to petitioners. That was an after-the-fact
development, however, and does not detract from his
status as an independent contractor.
Based on the foregoing, GMC qualifies as an "indirect

employer." It entered into a contract with an
independent contractor, LUPO, for the construction of an
annex building, a work, task, job or project not directly
related to GMC's business of flour and feeds
manufacturing. Being an "indirect employer," GMC is
solidarily liable with LUPO for any violation of the Labor
Code pursuant to Article 109 thereof, reading:
Art. 109. Solidary Liability. — The provisions of existing

laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with a
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.
The provision of existing law referred to is Article 1728 of

the Civil Code, which states, among others, that "the
contractor is liable for all the claims of laborers and
others employed by him ..."
The foregoing interpretation finds a precedent in the

case o Deferia v. NLRC (G.R. No. 78713, 27 February
1991) per Sarmiento, J., where Articles 107 and 109 were
applied as the statutory basis for the joint and several
liability of the employer with his contractor, in addition
to Article 106, since the situation in that case was clearly
one of "labor-only" contracting.
The NLRC submission that Article 107 is not applicable in

the instant case for the reason that the coverage thereof
is limited to one "not an employer" whereas GMC is such
an employer as defined in Article 97 (b) of the Labor
Code,1 is not well-taken. Under the peculiar set-up
herein, GMC is, in fact, "not an employer" (in the sense
of not being a direct employer) as understood in Article
106 of the Labor Code, but qualifies as an "indirect
employer" under Article 107 of said Code.
The distinction between Articles 106 and 107 was in the

fact that Article 106 deals with "labor-only" contracting.
Here, by operation of law, the contractor is merely
considered as an agent of the employer, who is deemed
"responsible to the workers to the same extent as if the
latter were directly employed by him." On the other
hand, Article 107 deals with "job contracting." In the
latter situation, while the contractor himself is the direct
employer of the employees, the employer is deemed, by
operation of law, as an indirect employer.
In other words, the phrase "not an employer" found in

Article 107 must be read in conjunction with Article 106.
A contrary interpretation would render the provisions of
Article 107 meaningless considering that everytime an
employer engages a contractor, the latter is always
acting in the interest of the former, whether directly or
indirectly, in relation to his employees.
It should be recalled that a finding that a contractor is a

"labor-only" contractor is equivalent to declaring that
there is an employer-employee relationship between the
owner of the project and the employees of the "labor-
only" contractor (Associated Anglo-American Tobacco
Corp. v. Clave, G.R. No. 50915, 30 August 1990, 189 SCRA
127; Industrial Timber Corp. v. NLRC, G.R. No. 83616, 20
January 1989, 169 SCRA 341). This is evidently because,
as heretofore stated, the "labor-only" contractor is
considered as a mere agent of an employer. In contrast,
in "job contracting," no employer-employee relationship
exists between the owner and the employees of his
contractor. The owner of the project is not the direct
employer but merely an indirect employer, by operation
of law, of his contractor's employees.
As an indirect employer, and for purposes of determining

the extent of its civil liability, GMC is deemed a "direct
employee" of his contractor's employees pursuant to the
last sentence of Article 109 of the Labor Code. As a
consequence, GMC can not escape its joint and solidary
liability to petitioners.
Further, Article 108 of the Labor Code requires the

posting of a bond to answer for wages that a contractor
fails to pay, thus:
Article 108. Posting of Bond. — An employer or indirect

employer may require the contractor or subcontractor to
furnish a bond equal to the cost of labor under contract,
on condition that the bond will answer for the wages due
the employees showed the contractor or subcontractor,
as the case may be, fails to pay the same.
Having failed to require LUPO to post such a bond, GMC

must answer for whatever liabilities LUPO may have
incurred to his employees. This is without prejudice to its
seeking reimbursement from LUPO for whatever amount
it will have to pay petitioners.
WHEREFORE, the Petition for certiorari is GRANTED. The

Resolution of respondent NLRC, Third Division, dated 27
February 1987, is hereby SET ASIDE, and the Decision of
the Labor Arbiter, dated 21 November 1984, is hereby
REINSTATED.
SO ORDERED.
Paras, Sarmiento and Regalado, JJ., concur.
Separate Opinions
PADILLA, J.,:
The present petition seeks to have General Milling

Corporation (the Company) held liable for the unpaid
wages of the petitioners in solidum with the contractor
(Lupo) who recruited the petitioners' services. This
majority finds for the petitioners in the total adjudged
sum of P95,382.92, a conclusion with which I am in
complete accord. But I am not quite comfortable, and
therefore disagree, with the legal basis on which the
company's liability is determined.
As determined by the majority, such liability of the

company is called for by Article 107, Chapter III, Title II,
Book III of the Labor Code, which is as follows:
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. (emphasis supplied)
It is strongly urged by the majority that the phrase "not

being an employer" found in said Article 107 be given a
circumspect appraisal. To my mind, there is no other
interpretation of this provision of the Code than that
an indirect employer, to be categorized as such, must not
be an EMPLOYER as this term is defined under the
Code. Article 97 of the same Title of the Labor Code
defines an EMPLOYER as —
ART. 97. Definition. — As used in this Title
a) ...
b) "Employer" includes any person acting directly or
indirectly in the interest of an employer in relation to an
employee and shall include the Government and all its
branches, subdivision and instrumentalities, all
government-owned or controlled corporations and
institutions, as well as non-profit private institutions, or
organizations.
... (emphasis supplied)
From the foregoing basic premises, it is my submission

that the company (General Milling Corporation) is an
employer in every sense of the word. It engages in the
primary enterprise of manufacturing flour and feeds, it
definitely employs employees and workers in its plant
and outlets to work in various capacities. Therefore, the
company cannot, in any way, be considered an indirect
employer, as the term is defined, for purposes of the
petitioner's cause of action against it.
To hold as the majority does, that Article 107 does apply

in this case, would, in my view, render useless the phrase
"not being an employer" contained therein. Evidently,
the framers of the Labor Code had a purpose in mind in
providing for such qualification. Such a qualification, as I
see it, gives protection to those workers hired or
recruited by a contractor to work on some job for a
person who is not himself engaged in any enterprise. An
example easily comes to mind: a person who wishes to
have a residential house built. He engages an architect or
engineer to undertake the project who, in turn, hires
laborers, masons and carpenters. Should the architect or
engineer renege on his obligations to the workers he
shall have recruited, to whom will the latter seek relief?
By mandate of Article 107, above-quoted, the owner of
the house, who is not himself an employer as defined by
law, shall be held accountable. This is where, in my view,
Article 107 properly applies.
In the present case, however, the company's liability to

the petitioners properly comes under Article 106,
Chapter III, Title II, Book III of the Code, which, in its
entirety, provides:
ART. 106. Contractor or subcontractor. — Whenever an

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 the
Code.

with the contractor or subcontractor to such employees
The Secretary of Labor may, by appropriate regulations,

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

principal business of such employer. In such case, the
were directly employed by him.
It appears abundantly clear that the juridical relationship

envisioned in Article 106 involves an employer, as
defined by the Code. It thus applies to the juridical
situation involved in this case, where the actors are
General Milling Corporation (as the employer), Lupo (as
the contractor) and the petitioners (as the employees or
workers). Article 106, upon careful examination, deals
with three (3) situations in the juridical relationship
between employer-contractor-employee. It does not
deal solely with "labor-only" contracting.
The first situation in Article 106 is where the employer

(project owner) enters into a contract with a contractor
for the performance of some job or work; the employees
recruited by such contractor shall be paid, according
to Article 106, first paragraph, in accordance with the
requirements of the Labor Code. Stated in another way,
the first paragraph of Article 106, provides the manner
by which such employees shall be paid their wages and
that is, in compliance with the provisions of the Labor
Code. This, therefore, would include the rules on manner
of payment, minimum wage, place of payment, etc.
In an employer-contractor-employee relationship, it is
clear that the contractor is the real employer and,
therefore, responsible to his workers for their wages.
However, should such contractor fail or renege on his
said obligation, to whom will the unpaid worker have
recourse? The second paragraph of Article 106 resolves
the seeming dilemma of the workers by providing that
the EMPLOYER, (i.e., the project owner) shall be solidarily
liable to such workers to the extent of the work
performed by them, meaning that the EMPLOYER shall
solidarily answer for the payment of wages
corresponding to the amount of work undertaken by the
contractor's employees in the project. This is the second
situation contemplated by Article 106.
The third and final situation treated in Article 106 is

contained in the fourth paragraph thereof. It pertains to
what the majority perceives (erroneously, in my view) as
the sole coverage of Article 106-that of a "labor-only"
contracting and the extent of the rights and liabilities of
the parties involved in such a relationship. As explained
in the ponencia,for this scheme or situation to exist, two
(2) circumstances must concur: one, the contractor who
recruits the workers must have 'no substantial capital or
investment in the form of tools, equipment, machineries
and work premises,' and two, 'such workers are so
engaged to perform activities directly related to the
employer's principal business.' Should there be a finding
of 'labor-only' contracting, the law expressly provides
that the EMPLOYER (or project owner) shall be
considered the direct employer of such workers. Such
juridical relationship would then spawn a whole gamut
of employer's obligations, including obligations under
the workmen's compensation, social security, medicare,
minimum wage, termination pay and unionism.
G.R. No. 161115 November 30, 2006
DOLE PHILIPPINES, INC., Petitioner,

vs.
MEDEL ESTEVA, HENRY SILVA, GILBERT CABILAO,
LORENZO GAQUIT, DANIEL PABLO, EDWIN CAMILO,
BENJAMIN SAKILAN, RICHARD PENUELA, ARMANDO
PORRAS, EDUARDO FALDAS, NILO DONDOYANO,
MIGUEL DIAZ, ROMEL BAJO, ARTEMIO TENERIFE, EDDIE
LINAO, JERRY LIGTAS, SAMUEL RAVAL, WILFREDO
BLANDO, LORENZO MONTERO, JR., JAIME TESIPAO,
GEORGE DERAL, ERNESTO ISRAEL, JR., AGAPITO
ESTOLOGA, JOVITO DAGUIO, ARSENIO LEONCIO,
MARLON BLANDO, JOSE OTELO CASPILLO, ARNOLD
LIZADA, JERRY DEYPALUBOS, STEVEN MADULA,
ROGELIO CABULAO, JR., ALVIN COMPOC, EUGENIO
BRITANA, RONNIE GUELOS, EMMANUEL JIMENA,
GERMAN JAVA, JESUS MEJICA, JOEL INVENTADO,
DOMINGO JABULGO, RAMIL ENAD, RAYMUNDO
YAMON, RITCHIE MELENDRES, JACQUEL ORGE, RAMON
BARCELONA, ERWIN ESPIA, NESTOR DELIDELI, JR.,
ALLAN GANE, ROMEO PORRAS, RITCHIE BOCOG,
JOSELITO ACEBES, DANNY TORRES, JIMMY NAVARRO,
RALPH PEREZ, SONNY SESE, RONALD RODRIQUES,
ROBERTO ALLANEC, ERNIE GIGANTANA, NELSON
SAMSON, REDANTE DAVILA, EDDIE BUSLIG, ALLAN
PINEDA, JESUS BELGERA, VICENTE LABISTE,
CARMENCITA FELISILDA, GEORGE DERLA, RUBEN
TORMON, NEIL TAJALE, ORLANDO ESPENILLA, RITCHEL
MANEJAR, JOEL QUINTANA, ERWIN ALDE, JOEL
CATALAN, ELMER TIZON, ALLAN ESPADA, EUGENE
BRETANA, RAMIL ENAD, RENE INGALLA, STEVEN
MADULLA, RANDY REBUTAZO, NEIL BAGATILLA,
ARSENIO LEONCIO, ROLANDO VILLEGAS and JUSLIUS
TESIPAO, herein represented by MEDEL ESTEVA,
Authorized Representative,Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari

under Rule 45 of the revised Rules of Civil Procedure
seeking the reversal of the Decision,1 dated 20 May 2002,
and the Amended Decision,2 dated 27 November 2003,
both rendered by the Court of Appeals in CA-G.R. SP No.
63405, which declared herein petitioner Dole
Philippines, Inc. as the employer of herein respondents,
Medel Esteva and 86 others; found petitioner guilty of
illegal dismissal; and ordered petitioner to reinstate
respondents to their former positions and to pay the
latter backwages.
The antecedent facts of the case are recounted as

follows:
Petitioner is a corporation duly organized and existing in

accordance with Philippine laws, engaged principally in
the production and processing of pineapple for the
export market.3 Its plantation is located in Polomolok,
South Cotabato.4
Respondents are members of the Cannery Multi-Purpose

Cooperative (CAMPCO). CAMPCO was organized in
accordance with Republic Act No. 6938, otherwise
known as the Cooperative Code of the Philippines, and
duly-registered with the Cooperative Development
Authority (CDA) on 6 January 1993.5 Members of
CAMPCO live in communities surrounding petitioner’s
plantation and are relatives of petitioner’s employees.
On 17 August 1993, petitioner and CAMPCO entered into

a Service Contract.6 The Service Contract referred to
petitioner as "the Company," while CAMPCO was "the
Contractor." Relevant portions thereof read as follows –
1. That the amount of this contract shall be or shall not

exceed TWO HUNDRED TWENTY THOUSAND ONLY
(₱220,000.00) PESOS, terms and conditions of payment
shall be on a per job basis as specified in the attached
schedule of rates; the CONTRACTOR shall perform the
following services for the COMPANY;
1.1 Assist the COMPANY in its daily operations;
1.2 Perform odd jobs as may be assigned.
2. That both parties shall observe the following terms

and conditions as stipulated, to wit:
2.1 CONTRACTOR must carry on an independent

legitimate business, and must comply with all the
pertinent laws of the government both local and
national;
2.2 CONTRACTOR must provide all hand tools and
equipment necessary in the performance of their work.
However, the COMPANY may allow the use of its fixed

equipment as a casual facility in the performance of the
contract;
2.3 CONTRACTOR must comply with the attached scope

of work, specifications, and GMP and safety practices of
the company;
2.4 CONTRACTOR must undertake the contract work

under the following manner:
a. on his own account;
b. under his own responsibility;
c. according to his manner and method, free from the

control and direction of the company in all matters
connected with the performance of the work except as
to the result thereof;
3. CONTRACTOR must pay the prescribed minimum

wage, remit SSS/MEDICARE premiums to proper
government agencies, and submit copies of payroll and
proof of SSS/MEDICARE remittances to the COMPANY;
4. This contract shall be for a specific period of Six (6)

months from July 1 to December 31, 1993; x x x.
Pursuant to the foregoing Service Contract, CAMPCO

members rendered services to petitioner. The number of
CAMPCO members that report for work and the type of
service they performed depended on the needs of
petitioner at any given time. Although the Service
Contract specifically stated that it shall only be for a
period of six months, i.e., from 1 July to 31 December
1993, the parties had apparently extended or renewed
the same for the succeeding years without executing
another written contract. It was under these
circumstances that respondents came to work for
petitioner.
Investigation by DOLE
Concomitantly, the Sangguniang Bayan of Polomolok,

South Cotabato, passed Resolution No. 64, on 5 May
1993, addressed to then Secretary Ma. Nieves R.
Confessor of the Department of Labor and Employment
(DOLE), calling her attention to the worsening working
conditions of the petitioner’s workers and the
organization of contractual workers into several
cooperatives to replace the individual labor-only
contractors that used to supply workers to the
petitioner. Acting on the said Resolution, the DOLE
Regional Office No. XI in Davao City organized a Task
Force that conducted an investigation into the alleged
labor-only contracting activities of the cooperatives in
Polomolok.7
On 24 May 1993, the Senior Legal Officer of petitioner

wrote a letter addressed to Director Henry M. Parel of
DOLE Regional Office No. XI, supposedly to correct the
misinformation that petitioner was involved in labor-
only contracting, whether with a cooperative or any
private contractor. He further stated in the letter that
petitioner was not hiring cooperative members to
replace the regular workers who were separated from
service due to redundancy; that the cooperatives were
formed by the immediate dependents and relatives of
the permanent workers of petitioner; that these
cooperatives were registered with the CDA; and that
these cooperatives were authorized by their respective
constitutions and by-laws to engage in the job
contracting business.8
The Task Force submitted a report on 3 June 1993

identifying six cooperatives that were engaged in labor-
only contracting, one of which was CAMPCO. The DOLE
Regional Office No. XI held a conference on 18 August
1993 wherein the representatives of the cooperatives
named by the Task Force were given the opportunity to
explain the nature of their activities in relation to
petitioner. Subsequently, the cooperatives were
required to submit their position papers and other
supporting documents, which they did on 30 August
1993. Petitioner likewise submitted its position paper on
15 September 1993.9
On 19 October 1993, Director Parel of DOLE Regional

Office No. XI issued an Order10 in which he made the
following findings –
Records submitted to this Office show that the six (6)

aforementioned cooperatives are all duly registered with
the Cooperative Development Authority (CDA). These
cooperatives were also found engaging in different
activities with DOLE PHILIPPINES, INC. a company
engaged in the production of pineapple and export of
pineapple products. Incidentally, some of these
cooperatives were also found engaging in activities
which are directly related to the principal business or
operations of the company. This is true in the case of the
THREE (3) Cooperatives, namely; Adventurer’s Multi
Purpose Cooperative, Human Resource Multi Purpose
Cooperative and Cannery Multi Purpose Cooperative.
From the foregoing findings and evaluation of the

activities of Adventurer’s Multi Purpose Cooperative,
Human Resource Multi Purpose Cooperative and
Cannery Multi Purpose Cooperative, this Office finds and
so holds that they are engaging in Labor Only Contracting
Activities as defined under Section 9, Rule VIII, Book III of
the rules implementing the Labor Code of the
Philippines, as amended which we quote:
"Section 9 Labor Only Contracting – a) Any person who

undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where
such person:
1) Does not have substantial capital or investment in the

form of tools, equipment, machineries, work premises
and other materials; and
2) The workers recruited and placed by such person are

principal business or operation of the employer to which
workers are habitually employed.
b) Labor-only contracting as defined herein is hereby

prohibited and the person acting as contractor shall be
considered merely as an agent or intermediary of the
employer who shall be responsible to the workers in the
same manner and extent as if the latter were directly
employed by him."
WHEREFORE, premises considered, ADVENTURER’S

MULTI PURPOSE COOPERATIVE, HUMAN RESOURCE
MULTI PURPOSE COOPERATIVE and CANNERY MULTI
PURPOSE COOPERATIVE are hereby declared to be
engaged in labor only contracting which is a prohibited
activity. The same cooperatives are therefore ordered to
cease and desist from further engaging in such activities.
The three (3) other cooperatives, namely Polomolok

Skilled Workers Multi Purpose Cooperative, Unified
Engineering and Manpower Service Multi Purpose
Cooperative and Tibud sa Katibawasan Multi Purpose
Cooperative whose activities may not be directly related
to the principal business of DOLE Philippines, Inc. are also
advised not to engage in labor only contracting with the
company.
All the six cooperatives involved appealed the afore-

quoted Order to the Office of the DOLE Secretary, raising
the sole issue that DOLE Regional Director Director Parel
committed serious error of law in directing the
cooperatives to cease and desist from engaging in labor-
only contracting. On 15 September 1994, DOLE
Undersecretary Cresencio B. Trajano, by the authority of
the DOLE Secretary, issued an Order11 dismissing the
appeal on the basis of the following ratiocination –
The appeal is devoid of merit.

The Regional Director has jurisdiction to issue a cease
and desist order as provided by Art. 106 of the Labor
Code, as amended, to wit:
"Art. 106. Contractor or subcontractor. x x x
xxxx
The Secretary of Labor may, by appropriate

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

substantial capital or investment in the forms of tools,
and the workers recruited and placed by such person are
principal business of the employer. In such cases, the
person or the intermediary shall be considered merely as
an agent of the employer who shall be responsible to the
were directly employed by him."
in relation to Article 128(b) of the Labor Code, as

amended by Republic Act No. 7730, which reads:
"Art. 128. Visitorial and Enforcement Power.
b) Notwithstanding the provisions of Articles 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 the labor standards
provisions of this Code and other labor legislation based
on the findings of labor employment and enforcement
officers or industrial safety engineers made in the course
of inspection. The Secretary or his duly authorized
representatives shall issue writs of execution to the
appropriate authority for the enforcement of their
orders, except in cases where the employer contests the
findings of the labor employment and enforcement
officer and raises issues supported by documentary
proof which were not considered in the course of
inspection.
An order issued by the duly authorized representative of

the Secretary of Labor and Employment under this article
may be appealed to the latter. In case said order involves
a monetary award, an appeal by the employer may be
perfected only upon the posting of a cash bond issued by
a reputable bonding company duly accredited by the
Secretary of Labor and Employment in the amount
equivalent to the monetary award in the order appealed
from."
The records reveal that in the course of the inspection of

the premises of Dolefil, it was found out that the
activities of the members of the [cooperatives] are
necessary and desirable in the principal business of the
former; and that they do not have the necessary
investment in the form of tools and equipments. It is
worthy to note that the cooperatives did not deny that
they do not have enough capital in the form of tools and
equipment. Under the circumstances, it could not be
denied that the [cooperatives] are considered as labor-
only contractors in relation to the business operation of
DOLEFIL, INC.
Thus, Section 9, Rule VIII, Book III of the Omnibus Rules

Implementing the Labor Code, provides that:
"Sec. 9. Labor-only contracting. – (a) Any person who

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

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

principal business or operations of the employer in which
(b) Labor-only contracting as defined herein is hereby

prohibited and the person acting as a contractor shall be
employed by him.
x x x x"
Violation of the afore-quoted provision is considered a
labor standards violation and thus, within the visitorial
and enforcement powers of the Secretary of Labor and
Employment (Art. 128).
The Regional Director’s authority to issue a cease and

desist order emanates from Rule I, Section 3 of the Rules
on Disposition of Labor Standard Cases in the Regional
Offices, to wit:
"Section 3. Authorized representative of the Secretary of

Labor and Employment. – The Regional Directors shall be
the duly authorized representatives of the Secretary of
Labor and Employment in the administration and
enforcement of the labor standards within their
respective territorial jurisdiction."
The power granted under Article 106 of the Labor Code

to the Secretary of Labor and Employment to restrict or
prohibit the contracting out of labor to protect the rights
of workers established under the Code is delegated to
the Regional Directors by virtue of the above-quoted
provision.
The reason why "labor-only" contracting is prohibited

under the Labor Code is that it encourages circumvention
of the provisions of the Labor Code on the workers’ right
to security of tenure and to self-organization.
WHEREFORE, the respondents’ Appeal is hereby

DISMISSED for lack of merit. The Order of the Regional
Director, Regional Office No. XI, Davao City, is AFFIRMED.
After the motion for reconsideration of the foregoing

Order was denied, no further motion was filed by the
parties, and the Order, dated 15 September 1994, of
DOLE Undersecretary Trajano became final and
executory. A Writ of Execution12 was issued by DOLE
Regional Office No. XI only on 27 July 1999, years after
the issuance of the order subject of the writ. The DOLE
Regional Office No. XI was informed that CAMPCO and
two other cooperatives "continued to operate at DOLE
Philippines, Inc. despite the cease and desist Order" it
had issued. It therefore commanded the Sheriff to
proceed to the premises of CAMPCO and the two other
cooperatives and implement its Order dated 19 October
1993.
Respondent’s Complaint before the NLRC
Respondents started working for petitioner at various

times in the years 1993 and 1994, by virtue of the Service
Contract executed between CAMPCO and petitioner. All
of the respondents had already rendered more than one
year of service to petitioner. While some of the
respondents were still working for petitioner, others
were put on "stay home status" on varying dates in the
years 1994, 1995, and 1996 and were no longer
furnished with work thereafter. Together, respondents
filed a Complaint,13 on 19 December 1996, with the
National Labor Relations Commission (NLRC), for illegal
dismissal, regularization, wage differentials, damages
and attorney’s fees.
In their Position Paper,14 respondents reiterated and

expounded on the allegations they previously made in
their Complaint –
Sometime in 1993 and 1994, [herein petitioner] Dolefil
engaged the services of the [herein respondents]
through Cannery Multi-purpose Cooperative. A
cooperative which was organized through the initiative
of Dolefil in order to fill in the vacuum created as a result
of the dismissal of the regular employees of Dolefil
sometime in 1990 to 1993.
The [respondents] were assigned at the Industrial

Department of respondent Dolefil. All tools, implements
and machineries used in performing their task such
as: can processing attendant, feeder of canned
pineapple at pineapple processing, nata de coco
processing attendant, fruit cocktail processing
attendant, and etc. were provided by Dolefil. The
cooperative does not have substantial capital and does
not provide the [respondents] with the necessary tools
to effectively perform their assigned task as the same are
being provided by Dolefil.
The training and instructions received by the

[respondents] were provided by Dolefil. Before any of
the [respondents] will be allowed to work, he has to
undergo and pass the training prescribed by Dolefil. As a
matter of fact, the trainers are employees of Dolefil.
The [respondents] perform their assigned task inside the

premises of Dolefil. At the job site, they were given
specific task and assignment by Dolefil’s supervisors
assigned to supervise the works and efficiency of the
complainants. Just like the regular employees of Dolefil,
[respondents] were subjected to the same rules and
regulations observe [sic] inside company premises and to
some extent the rules applied to the [respondents] by
the company through its officers are even stricter.
The functions performed by the [respondents] are the

same functions discharged by the regular employees of
Dolefil. In fact, at the job site, the [respondents] were
mixed with the regular workers of Dolefil. There is no
difference in so far as the job performed by the regular
workers of Dolefil and that of the [respondents].
Some of the [respondents] were deprived of their

employment under the scheme of "stay home status"
where they were advised to literally stay home and wait
for further instruction to report anew for work. However,
they remained in this condition for more than six
months. Hence, they were constructively or illegally
dismissed.
Respondents thus argued that they should be considered

regular employees of petitioner given that: (1) they were
performing jobs that were usually necessary and
desirable in the usual business of petitioner; (2)
petitioner exercised control over respondents, not only
as to the results, but also as to the manner by which they
performed their assigned tasks; and (3) CAMPCO, a
labor-only contractor, was merely a conduit of
petitioner. As regular employees of petitioner,
respondents asserted that they were entitled to security
of tenure and those placed on "stay home status" for
more than six months had been constructively and
illegally dismissed. Respondents further claimed
entitlement to wage differential, moral damages, and
attorney’s fees.
In their Supplemental Position Paper,15 respondents
presented, in support of their Complaint, the Orders of
DOLE Regional Director Parel, dated 19 October 1993,
and DOLE Undersecretary Trajano, dated 15 September
1994, finding that CAMPCO was a labor-only contractor
and directing CAMPCO to cease and desist from any
further labor-only contracting activities.
Petitioner, in its Position Paper16 filed before the NLRC,

denied that respondents were its employees.
Petitioner explained that it found the need to engage

external services to augment its regular workforce,
which was affected by peaks in operation, work backlogs,
absenteeism, and excessive leaves. It used to engage the
services of individual workers for definite periods
specified in their employment contracts and never
exceeding one year. However, such an arrangement
became the subject of a labor case,17 in which petitioner
was accused of preventing the regularization of such
workers. The Labor Arbiter who heard the case, rendered
his Decision18 on 24 June 1994 declaring that these
workers fell squarely within the concept of seasonal
workers as envisaged by Article 280 of the Labor Code,
as amended, who were hired by petitioner in good faith
and in consonance with sound business practice; and
consequently, dismissing the complaint against
petitioner. The NLRC, in its Resolution,19 dated 14 March
1995, affirmed in toto the Labor Arbiter’s Decision and
further found that the workers were validly and legally
engaged by petitioner for "term employment," wherein
the parties agreed to a fixed period of employment,
knowingly and voluntarily, without any force, duress or
improper pressure being brought to bear upon the
employees and absent any other circumstance vitiating
their consent. The said NLRC Resolution became final and
executory on 18 June 1996. Despite the favorable ruling
of both the Labor Arbiter and the NLRC, petitioner
decided to discontinue such employment arrangement.
Yet, the problem of petitioner as to shortage of
workforce due to the peaks in operation, work backlogs,
absenteeism, and excessive leaves, persisted. Petitioner
then found a solution in the engagement of cooperatives
such as CAMPCO to provide the necessary additional
services.
Petitioner contended that respondents were owners-

members of CAMPCO; that CAMPCO was a duly-
organized and registered cooperative which had already
grown into a multi-million enterprise; that CAMPCO was
engaged in legitimate job-contracting with its own
owners-members rendering the contract work; that
under the express terms and conditions of the Service
Contract executed between petitioner (the principal)
and CAMPCO (the contractor), the latter shall undertake
the contract work on its own account, under its own
responsibility, and according to its own manner and
method free from the control and direction of the
petitioner in all matters connected with the performance
of the work, except as to the result thereof; and since
CAMPCO held itself out to petitioner as a legitimate job
contractor, respondents, as owners-members of
CAMPCO, were estopped from denying or refuting the
same.
Petitioner further averred that Department Order No.
10, amending the rules implementing Books III and VI of
the Labor Code, as amended, promulgated by the DOLE
on 30 May 1997, explicitly recognized the arrangement
between petitioner and CAMPCO as permissible
contracting and subcontracting, to wit –
Section 6. Permissible contracting and subcontracting. –

Subject to the conditions set forth in Section 3(d) and (e)
and Section 5 hereof, the principal may engage the
services of a contractor or subcontractor for the
performance of any of the following;
(a) Works or services temporarily or occasionally needed

to meet abnormal increase in the demand of products or
services, provided that the normal production capacity
or regular workforce of the principal cannot reasonably
cope with such demands;
(b) Works or services temporarily or occasionally needed

by the principal for undertakings requiring expert or
highly technical personnel to improve the management
or operations of an enterprise;
(c) Services temporarily needed for the introduction or

promotion of new products, only for the duration of the
introductory or promotional period;
(d) Works or services not directly related or not integral

to the main business or operation of the principal,
including casual work, janitorial, security, landscaping,
and messengerial services, and work not related to
manufacturing processes in manufacturing
establishments;
(e) Services involving the public display of
manufacturer’s products which does not involve the act
of selling or issuance of receipts or invoices;
(f) Specialized works involving the use of some particular,

unusual, or peculiar skills, expertise, tools or equipment
the performance of which is beyond the competence of
the regular workforce or production capacity of the
principal; and
(g) Unless a reliever system is in place among the regular

workforce, substitute services for absent regular
employees, provided that the period of service shall be
coextensive with the period of absence and the same is
made clear to the substitute employee at the time of
engagement. The phrase "absent regular employees"
includes those who are serving suspensions or other
disciplinary measures not amounting to termination of
employment meted out by the principal, but excludes
those on strike where all the formal requisites for the
legality of the strike have been prima facie complied with
based on the records filed with the National Conciliation
and Mediation Board.
According to petitioner, the services rendered by

CAMPCO constituted permissible job contracting under
the afore-quoted paragraphs (a), (c), and (g), Section 6 of
DOLE Department Order No. 10, series of 1997.
After the parties had submitted their respective Position

Papers, the Labor Arbiter promulgated its Decision20 on
11 June 1999, ruling entirely in favor of petitioner,
ratiocinating thus –
After judicious review of the facts, narrated and
supporting documents adduced by both parties, the
undersigned finds [and] holds that CAMPCO is not
engaged in labor-only contracting.
Had it not been for the issuance of Department Order

No. 10 that took effect on June 22, 1997 which in the
contemplation of Law is much later compared to the
Order promulgated by the Undersecretary Cresencio
Trajano of Department of [L]abor and Employment, the
undersigned could safely declared [sic] otherwise.
However, owing to the principle observed and followed
in legal practice that the later law or jurisprudence
controls, the reliance to Secretary Trajano’s order is
overturned.
Labor-only contracting as amended by Department

[O]rder No. 10 is defined in this wise:
"Labor-only contracting is prohibited under this Rule is

an arrangement where the contractor or subcontractor
merely recruits, supplied [sic] or places workers to
perform a job, work or service for a principal, and the
following elements are present:
i) The contractor or sub-contractor does not have

substantial capital or investment to actually perform the
job, work, or service under its own account &
responsibility, and
ii) The employees recruited, supplied or placed by such

contractor or subcontractor are performing activities
which are directly related to the main business of the
principal."
Verification of the records reveals that per Annexes "J"
and "K" of [herein petitioner DolePhil’s] position paper,
which are the yearly audited Financial Statement and
Balance Sheet of CAMPCO shows [sic] that it has more
than substantial capital or investment in order to qualify
as a legitimate job contractor.
We likewise recognize the validity of the contract

entered into and between CAMPCO and [petitioner] for
the former to assists [sic] the latter in its operations and
in the performance of odd jobs – such as the
augmentation of regular manning particularly during
peaks in operation, work back logs, absenteeism and
excessive leave availment of respondent’s regular
employees. The rule is well-settled that labor laws
discourage interference with an employer’s judgment in
the conduct of his business. Even as the law is solicitors
[sic] of the welfare of the employees, it must also protect
the right of an employer to exercise what are clearly
management prerogatives. The free will of management
to conduct its own business affairs to achieve its purpose
cannot be denied (Yuco Chemical Industries vs. Ministry
of [L]abor, GR No. 75656, May 28, 1990).
CAMPCO being engaged in legitimate contracting,

cannot therefore declared [sic] as guilty of labor-only
contracting which [herein respondents] want us to
believe.
The second issue is likewise answered in the negative.

The reason is plain and simple[,] section 12 of
Department [O]rder No. 10 states:
"Section 12. Employee-employer relationship. Except in
cases provided for in Section 13, 14, 15 & 17, the
contractor or subcontractor shall be considered the
employer of the contractual employee for purposes of
enforcing the provisions of the Code."
The Resolution of NLRC 5th division, promulgated on

March 14, 1 1995 [sic] categorically declares:
"Judging from the very nature of the terms and

conditions of their hiring, the Commission finds the
complainants to have been engaged to perform
work, although necessary or desirable to the business of
respondent company, for a definite period or what is
community called TERM EMPLOYMENT. It is clear from
the evidence and record that the nature of the business
and operation of respondent company has its peaks and
valleys and therefore, it is not difficult to discern,
inclement weather, or high availment by regular workers
of earned leave credits, additional workers categorized
as casuals, or temporary, are needed to meet the
exigencies." (Underlining in the original)
The validity of fixed-period employment has been

consistently upheld by the Supreme [C]ourt in a long line
of cases, the leading case of which is Brent School, Inc.
vs. Zamora & Alegre, GR No. 48494, February 5, 1990.
Thus at the end of the contract the employer-employee
relationship is terminated. It behooves upon us to rule
that herein complainants cannot be declared regular
rank and file employees of the [petitioner] company.
Anent the third issue, [respondents] dismally failed to

provide us the exact figures needed for the computation
of their wage differentials. To simply alleged [sic] that
one is underpaid of his wages is not enough. No bill of
particulars was submitted. Moreover, the Order of
RTWPB Region XI, Davao City dated February 21, 1996
exempts [petitioner] company from complying Wage
Order No. 04 [sic] in so far as such exemption applies only
to workers who are not covered by the Collective
Bargaining Agreement, for the period January 1 to
December 31, 1995,. [sic] In so far as [respondents] were
not privies to the CBA, they were the workers referred to
by RTWPB’s Order. [H]ence, [respondents’] claims for
wage differentials are hereby dismissed for lack of
factual basis.
We find no further necessity in delving into the issues

raised by [respondents] regarding moral damages and
attorney’s fees for being moot and academic because of
the findings that CAMPCO does not engaged [sic] in
labor-only contracting and that [respondents] cannot be
declared as regular employees of [petitioner].
WHEREFORE, premises considered, judgment is hereby

rendered in the above-entitled case, dismissing the
complaint for lack of merit.
Respondents appealed the Labor Arbiter’s Decision to

the NLRC, reiterating their position that they should be
recognized as regular employees of the petitioner since
CAMPCO was a mere labor-only contractor, as already
declared in the previous Orders of DOLE Regional
Director Parel, dated 19 October 1993, and DOLE
Undersecretary Trajano, dated 15 September 1994,
which already became final and executory. The NLRC, in
its Resolution,21 dated 29 February 2000, dismissed the
appeal and affirmed the Labor Arbiter’s Decision,
reasoning as follows –
We find no merit in the appeal.
The concept of conclusiveness of judgment under the

principle of "res judicata" means that where between the
first case wherein judgment is rendered and the second
case wherein such judgment is invoked, there is identity
of parties, but there is no identity of cause of action, the
judgment is conclusive in the second case, only as to
those matters actually and directly controverted and
determined and not as to matters merely involved
therein (Viray, etc. vs. Marinas, et al., 49 SCRA 44).
There is no denying that the order of the Department of
Labor and Employment, Regional Office No. XI in case No.
RI100-9310-RI-355, which the complainants perceive to
have sealed the status of CAMPCO as labor-only
contractor, proceeded from the visitorial and
enforcement power of the Department Secretary under
Article 128 of the Labor Code. Acting on reports that the
cooperatives, including CAMPCO, that operated and
offered services at [herein petitioner] company were
engaging in labor-only contracting activities, that Office
conducted a routinary inspection over the records of said
cooperatives and consequently, found the latter to be
engaging in labor-only contracting activities. This being
so, [petitioner] company was not a real party-in-interest
in said case, but the cooperatives concerned. Therefore,
there is no identity of parties between said case and the
present case which means that the afore-said ruling of
the DOLE is not binding and conclusive upon [petitioner]
company.
It is not correct, however, to say, as the Labor Arbiter did,

that the afore-said ruling of the Department of Labor and
Employment has been overturned by Department Order
No. 10. It is a basic principle that "once a judgment
becomes final it cannot be disturbed, except for clerical
errors or when supervening events render its execution
impossible or unjust" (Sampaguita Garmens [sic] Corp.
vs. NLRC, G. R. No. 102406, June 7, 1994). Verily, the
subsequent issuance of Department Order No. 10 cannot
be construed as supervening event that would render
the execution of said judgment impossible or unjust.
Department Order No. 10 refers to the ramification of
some provisions of the Rules Implementing Articles 106
and 109 of the Labor Code, without substantially
changing the definition of "labor-only" or "job’
contracting.
Well-settled is the rule that to qualify as an independent

job contractor, one has either substantial capital "or"
investment in the form of tools, equipment and
machineries necessary to carry out his business
(see Virginia Neri, et al. vs. NLRC, et al., G.R. Nos. 97008-
89, July 23, 1993). CAMPCO has admittedly a paid-up
capital of P4,562,470.25 and this is more than enough to
qualify it as an independent job contractor, as aptly held
by the Labor Arbiter.
WHEREFORE, the appeal is DISMISSED for lack of merit

and the appealed decision is AFFIRMED.
Petition for Certiorari with the Court of Appeals

Refusing to concede defeat, respondents filed with the
Court of Appeals a Petition for Certiorari under Rule 65
of the revised Rules of Civil Procedure, asserting that the
NLRC acted without or in excess of its jurisdiction and
with grave abuse of discretion amounting to lack of
jurisdiction when, in its Resolution, dated 29 February
2000, it (1) ruled that CAMPCO was a bona fide
independent job contractor with substantial capital,
notwithstanding the fact that at the time of its
organization and registration with CDA, it only had a
paid-up capital of ₱6,600.00; and (2) refused to apply the
doctrine of res judicata against petitioner. The Court of
Appeals, in its Decision,22 dated 20 May 2002, granted
due course to respondents’ Petition, and set aside the
assailed NLRC Decision. Pertinent portions of the Court
of Appeals Decision are reproduced below –
In the case at bench, it was established during the

proceedings before the [NLRC] that CAMPCO has a
substantial capital. However, having a substantial capital
does not per se qualify CAMPCO as a job contractor. In
order to be considered an independent contractor it is
not enough to show substantial capitalization or
investment in the form of tools, equipment, machinery
and work premises. The conjunction "and," in defining
what a job contractor is, means that aside from having a
equipment, machineries, work premise, and other
materials which are necessary in the conduct of his
business, the contractor must be able to prove that it
also 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. [Herein
petitioner DolePhil] has failed to prove, except for the
substantial capital requirement, that CAMPCO has met
the other requirements. It was not established that
CAMPCO is engaged or carries on an independent
business. In the performance of the respective tasks of
workers deployed by CAMPCO with [petitioner], it was
not established that CAMPCO undertook the contract of
work it entered with [petitioner] under its own account
and its own responsibility. It is [petitioner] who provides
the procedures to be followed by the workers in the
performance of their assigned work. The workers
deployed by CAMPCO to [petitioner] performed
activities which are directly related to the principal
business or operations of the employer in which workers
are habitually employed since [petitioner] admitted that
these workers were engaged to perform the job of other
regular employees who cannot report for work.
Moreover, [NLRC] likewise gravely erred in not giving

weight to the Order dated 19 October 1993 issued by the
Office of the Secretary of the Department of Labor and
Employment, through Undersecretary Cresencio
Trajano, which affirmed the findings of the Department
of Labor and Employment Regional Office, Region XI,
Davao City that Cannery Multi-Purpose Cooperative is
one of the cooperatives engaged in labor-only
contracting activities.
In the exercise of the visitorial and enforcement power
of the Department of Labor and Employment, an
investigation was conducted among the cooperatives
organized and existing in Polomolok, South Cotabato,
relative to labor-only contracting activities. One of the
cooperatives investigated was Cannery Multi-Purpose
Cooperative. After the investigation, the Department of
Labor and Employment, Regional Office No. XI, Davao
City, through its Regional Director, issued the Order
dated 19 October 1993, stating:
"WHEREFORE, premises considered, ADVENTURER’S

MULTI PURPOSE COOPERATIVE, HUMAN RESOURCE
MULTI PURPOSE SKILLED COOPERATIVE and CANNERY
MULTI PURPOSE COOPERATIVE are hereby declared to
be engaged in labor only contracting which is a
prohibited activity. The same cooperatives are therefore
ordered to cease and desist from further engaging in
such activities.
xxxx
SO ORDERED."
Cannery Multi Purpose Cooperative, together with the

other cooperatives declared as engaged in labor-only
contracting activity, appeal the above-findings to the
Secretary of the Department of Labor and Employment.
Their appeal was dismissed for lack of merit as follows::
[sic]
xxxx
[NLRC] held that CAMPCO, being not a real party-in

interest in the above-case, the said ruling is not binding
and conclusive upon [petitioner]. This Court, however,
finds the contrary.
CAMPCO was one of the cooperatives investigated by the

Department of Labor and Employment, Regional Office
No. XI, Davao City, pursuant to Article 128 of the Labor
Code. It was one of the appellants before the Secretary
of the Department of Labor questioning the decision of
the Regional Director of DOLE, Regional Office No. XI,
Davao City. This Court noted that in the proceedings
therein, and as mentioned in the decision rendered by
Undersecretary Cresencio B. Trajano of the Department
of Labor and Employment, Manila, regarding the
cooperatives’ appeal thereto, the parties therein,
including Cannery Multi-Purpose Cooperative, submitted
to the said office their position papers and Articles of
Cooperatives and Certification of Registrations [sic] on 30
August 1993. This is a clear indicia that CAMPCO
participated in the proceedings therein. [NLRC],
therefore, committed grave abuse of discretion
amounting to lack or excess of jurisdiction when it held
that CAMPCO was never a party to the said case.
[Petitioner] invokes Section 6 of Department Order No.

10, series of 1997, issued by the Department of Labor
and Employment which took effect on 22 June 1997. The
said section identified the circumstances which are
permissible job contracting, to wit:
xxxx
[Petitioner’s] main contention is based on the decisions

rendered by the labor arbiter and [NLRC] which are both
anchored on Department Order No. 10 issued by the
Department of Labor and Employment. The said
department order provided for several flexible working
relations between a principal, a contractor or
subcontractor and the workers recruited by the latter
and deployed to the former. In the case at bench,
[petitioner] posits that the engagement of [petitioner] of
the workers deployed by CAMPCO was pursuant to D.O.
No. 10, Series of 1997.
However, on 8 May 2001, the Department of Labor and

Employment issued Department Order No. 3, series of
2001, revoking Department Order No. 10, series of 1997.
The said department order took effect on 29 May 2001.
xxxx
Under Department Order No. 3, series of 2001, some

contracting and outsourcing arrangements are no longer
legitimate modes of employment relation. Having
revoked Department Order No. 10, series of 1997,
[petitioner] can no longer support its argument by
relying on the revoked department order.
Considering that [CAMPCO] is not a job contractor, but

one engaged in labor-only contracting, CAMPCO serves
only as an agent of [petitioner] pursuant to par. (b) of
Sec. 9, Rule VIII, Book III of the Implementing Rules and
Regulations of the Labor Code, stating,
xxxx
However, the Court cannot declare that [herein

respondents] are regular employees of [petitioner]. x x x
xxxx
In the case at bench, although [respondents] were
engaged to perform activities which are usually
necessary or desirable in the usual business or trade of
private respondent, it is apparent, however, that their
services were engaged by [petitioner] only for a definite
period. [Petitioner’s] nature of business and operation
has its peaks. In order to meet the demands during peak
seasons they necessarily have to engage the services of
workers to work only for a particular season. In the case
of [respondents], when they were deployed by CAMPCO
with [petitioner] and were assigned by the latter at its
cannery department, they were aware that they will be
working only for a certain duration, and this was made
known to them at the time they were employed, and
they agreed to the same.
xxxx
The non-rehiring of some of the petitioners who were

allegedly put on a "floating status’ is an indication that
their services were no longer needed. They attained their
"floating status" only after they have finished their
contract of employment, or after the duration of the
season that they were employed. The decision of
[petitioner] in not rehiring them means that their
services were no longer needed due to the end of the
season for which they were hired. And this Court
reiterates that at the time they were deployed to
[petitioner’s] cannery division, they knew that the
services they have to render or the work they will
perform are seasonal in nature and consequently their
employment is only for the duration of the season.
ACCORDINGLY, in view of the foregoing, the instant
petition for certiorari is hereby GRANTED DUE COURSE.
The decision dated 29 February 2000 and Resolution
dated 19 December 2000 rendered by [NLRC] are
hereby SET ASIDE. In place thereof, it is hereby rendered
that:
1. Cannery Multi-Purpose Cooperative is a labor-only

contractor as defined under the Labor Code of the
Philippines and its implementing rules and regulations;
and that
2. DOLE Philippines Incorporated is merely an agent or

intermediary of Cannery Multi-Purpose Cooperative.
All other claims of [respondents] are hereby DENIED for

lack of basis.
Both petitioner and respondents filed their respective

Motions for Reconsideration of the foregoing Decision,
dated 20 May 2002, prompting the Court of Appeals to
promulgate an Amended Decision on 27 November
2003, in which it ruled in this wise:
This court examined again the documentary evidence

submitted by the [herein petitioner] and we rule not to
disturb our findings in our Decision dated May 20, 2002.
It is our opinion that there was no competent evidence
submitted that would show that CAMPCO is engaged to
perform a specific and special job or service which is one
of the strong indicators that an entity is an independent
contractor. The articles of cooperation and by-laws of
CAMPCO do not show that it is engaged in performing a
specific and special job or service. What is clear is that it
is a multi-purpose cooperative organized under RA No.
6938, nothing more, nothing less.
As can be gleaned from the contract that CAMPCO

entered into with the [petitioner], the undertaking of
CAMPCO is to provide [petitioner] with workforce by
assisting the company in its daily operations and perform
odd jobs as may be assigned. It is our opinion that
CAMPCO merely acted as recruitment agency for
[petitioner]. CAMPCO by supplying manpower only,
clearly conducted itself as ‘labor-only" contractor. As can
be gleaned from the service contract, the work
performed by the [herein respondents] are directly
related to the main business of the [petitioner]. Clearly,
the requisites of "labor-only" contracting are present in
the case at bench.
In view of the above ruling, we find it unnecessary to

discuss whether the Order of Undersecretary Trajano
finding that CAMPCO is a "labor-only" contractor is a
determining factor or constitutes res judicata in the case
at bench. Our findings that CAMPCO is a "labor-only"
contractor is based on the evidence presented vis-à-
vis the rulings of the Supreme Court on the matter.
Since, the argument that the [petitioner] is the real

employer of the [respondents], the next question that
must be answered is – what is the nature of the
employment of the petitioners?
xxxx
The afore-quoted [Article 280 of the Labor Code, as

amended] provides for two kinds of employment,
namely: (1) regular (2) casual. In our Decision, we ruled
that the [respondents] while performing work necessary
and desirable to the business of the [petitioner] are
seasonal employees as their services were engaged by
the [petitioner] for a definite period or only during peak
season.
In the most recent case of Hacienda Fatima v. National

Federation of Sugarcane Workers Food and General
Trade, the Supreme Court ruled that for employees to be
excluded from those classified as regular employees, it is
not enough that they perform work or services that are
seasonal in nature. They must have also been
employed only for the duration of one season. It is
undisputed that the [respondents’] services were
engaged by the [petitioner] since 1993 and 1994. The
instant complaint was filed in 1996 when the
[respondents] were placed on floating status. Evidently,
[petitioner] employed the [respondents] for more than
one season. Therefore, the general rule on regular
employment is applicable. The herein petitioners who
performed their jobs in the workplace of the [petitioner]
every season for several years, are considered the
latter’s regular employees for having performed works
necessary and desirable to the business of the
[petitioner]. The [petitioner’s] eventual refusal to use
their services—even if they were ready, able and willing
to perform their usual duties whenever these were
available—and hiring other workers to perform the tasks
originally assigned to [respondents] amounted to illegal
dismissal of the latter. We thus, correct our earlier ruling
that the herein petitioners are seasonal workers. They
are regular employees within the contemplation of
Article 280 of the Labor Code and thus cannot be
dismissed except for just or authorized cause. The Labor
Code provides that when there is a finding of illegal
dismissal, the effect is that the employee dismissed shall
be reinstated to his former position without loss of
seniority rights with backwages from the date of his
dismissal up to his actual reinstatement.
This court however, finds no basis for the award of

damages and attorney’s fees in favor of the petitioners.
WHEREFORE, the Decision dated May 20, 2002 rendered

by this Court is hereby AMENDED as follows:
1) [Petitioner] DOLE PHILIPPINES is hereby declared the

employer of the [respondents].
2) [Petitioner] DOLE PHILIPPINES is hereby declared

guilty of illegal dismissal and ordered to immediately
reinstate the [respondents] to their former position
without loss of seniority rights and other benefits, and to
pay each of the [respondents] backwages from the date
of the filing of illegal dismissal on December 19, 1996 up
to actual reinstatement, the same to be computed by the
labor arbiter.
3) The claims for damages and attorney’s fees are hereby

denied for lack of merit.
No costs.23
The Petition at Bar

Aggrieved by the Decision, dated 20 May 2002, and the
Amended Decision, dated 27 November 2003, of the
Court of Appeals, petitioner filed the instant Petition for
Review on Certiorari under Rule 45 of the revised Rules
of Civil Procedure, in which it made the following
assignment of errors –
I.
THE COURT OF APPEALS HAS DEPARTED FROM THE

USUAL COURSE OF JUDCIAL PROCEEDINGS WHEN IT
MADE ITS OWN FACTUAL FINDINGS AND DISREGARDED
THE UNIFORM AND CONSISTENT FACTUAL FINDINGS OF
THE LABOR ARBITER AND THE NLRC, WHICH MUST BE
ACCORDED GREAT WEIGHT, RESPECT AND EVEN
FINALITY. IN SO DOING, THE COURT OF APPEALS
EXCEEDED ITS AUTHORITY ON CERTIORARI UNDER RULE
65 OF THE RULES OF COURT.
II.
THE COURT OF APPEALS HAS DECIDED A QUESTION OF

SUBSTANCE IN A WAY NOT IN ACCORD WITH THE
CONSTITUTION, LAW, APPLICABLE RULES AND
REGULATIONS AND DECISIONS OF THE SUPREME COURT
IN NOT HOLDING THAT DEPARTMENT ORDER NO. 10,
SERIES OF 1997 IS THE APPLICABLE REGULATION IN THIS
CASE. IN GIVING RETROACTIVE APPLICATION
TO DEPARTMENT ORDER NO. 3, SERIES OF 2001, THE
COURT OF APPEALS VIOLATED THE CONSTITUTIONAL
PROVISION AGAINST IMPAIRMENT OF CONTRACTS AND
DEPRIVED PETITIONER OF THE DUE PROCESS OF THE
LAW.
III.
THE COURT OF APPEALS HAS DETERMINED A QUESTION

OF SUBSTANCE NOT IN ACCORD WITH LAW AND
JURISPRUDENCE IN GIVING WEIGHT TO THE ORDER
DATED 19 OCTOBER 1993 ISSUED BY THE OFFICE OF
SECRETARY OF LABOR, WHICH AFFIRMED THE FINDINGS
OF THE DOLE REGIONAL OFFICE (REGION XI, DAVAO
CITY) THAT CAMPCO IS ONE OF THE COOPERATIVES
ENGAGED IN LABOR-ONLY CONTRACTING ACTIVITIES.
IV.

JURISPRUDENCE IN NOT RULING THAT RESPONDENTS,
BY ACTIVELY REPRESENTING THEMSELVES AND
WARRANTING THAT THEY ARE ENGAGED IN LEGITIMATE
JOB CONTRACTING, ARE BARRED BY THE EQUITABLE
PRINCIPLE OF ESTOPPEL FROM ASSERTING THAT THEY
ARE REGULAR EMPLOYEES OF PETITIONER.
V.

JURISPRUDENCE IN RULING THAT CAMPCO IS ENGAGED
IN THE PROHIBITED ACT OF "LABOR-ONLY
CONTRACTING" DESPITE THERE BEING SUBSTANTIAL
EVIDENCE TO THE CONTRARY.
VI.

JURISPRUDENCE IN RULING THAT PETITIONER IS THE
EMPLOYER OF RESPONDENTS AND THAT PETITIONER IS
GUILTY OF ILLEGAL DISMISSAL.24
This Court’s Ruling
Anent the first assignment of error, petitioner argues

that judicial review under Rule 65 of the revised Rules of
Civil Procedure is limited only to issues concerning want
or excess or jurisdiction or grave abuse of discretion. The
special civil action for certiorari is a remedy designed to
correct errors of jurisdiction and not mere errors of
judgment. It is the contention of petitioner that the NLRC
properly assumed jurisdiction over the parties and
subject matter of the instant case. The errors assigned by
the respondents in their Petition for Certiorari before the
Court of Appeals do not pertain to the jurisdiction of the
NLRC; they are rather errors of judgment supposedly
committed by the the NLRC, in its Resolution, dated 29
February 2000, and are thus not the proper subject of a
petition for certiorari. Petitioner also posits that the
Petition for Certiorari filed by respondents with the
Court of Appeals raised questions of fact that would
necessitate a review by the appellate court of the
evidence presented by the parties before the Labor
Arbiter and the NLRC, and that questions of fact are not
a fit subject for a special civil action for certiorari.
It has long been settled in the landmark case of St.

Martin Funeral Home v. NLRC,25 that the mode for
judicial review over decisions of the NLRC is by a petition
for certiorari under Rule 65 of the revised Rules of Civil
Procedure. The different modes of appeal, namely, writ
of error (Rule 41), petition for review (Rules 42 and 43),
and petition for review on certiorari (Rule 45), cannot be
availed of because there is no provision on appellate
review of NLRC decisions in the Labor Code, as
amended.26 Although the same case recognizes that
both the Court of Appeals and the Supreme Court have
original jurisdiction over such petitions, it has chosen to
impose the strict observance of the hierarchy of courts.
Hence, a petition for certiorari of a decision or resolution
of the NLRC should first be filed with the Court of
Appeals; direct resort to the Supreme Court shall not be
allowed unless the redress desired cannot be obtained in
the appropriate courts or where exceptional and
compelling circumstances justify an availment of a
remedy within and calling for the exercise by the
Supreme Court of its primary jurisdiction.
The extent of judicial review by certiorari of decisions or

resolutions of the NLRC, as exercised previously by the
Supreme Court and, now, by the Court of Appeals, is
described in Zarate v. Olegario,27 thus –
The rule is settled that the original and exclusive

jurisdiction of this Court to review a decision of
respondent NLRC (or Executive Labor Arbiter as in this
case) in a petition for certiorari under Rule 65 does not
normally include an inquiry into the correctness of its
evaluation of the evidence. Errors of judgment, as
distinguished from errors of jurisdiction, are not within
the province of a special civil action for certiorari, which
is merely confined to issues of jurisdiction or grave abuse
of discretion. It is thus incumbent upon petitioner to
satisfactorily establish that respondent Commission or
executive labor arbiter acted capriciously and
whimsically in total disregard of evidence material to or
even decisive of the controversy, in order that the
extraordinary writ of certiorari will lie. By grave abuse of
discretion is meant such capricious and whimsical
exercise of judgment as is equivalent to lack of
jurisdiction, and it must be shown that the discretion was
exercised arbitrarily or despotically. For certiorari to lie,
there must be capricious, arbitrary and whimsical
exercise of power, the very antithesis of the judicial
prerogative in accordance with centuries of both civil law
and common law traditions.
The Court of Appeals, therefore, can grant the Petition

for Certiorari if it finds that the NLRC, in its assailed
decision or resolution, committed grave abuse of
discretion by capriciously, whimsically, or arbitrarily
disregarding evidence which is material or decisive of the
controversy; and the Court of Appeals can not make this
determination without looking into the evidence
presented by the parties. Necessarily, the appellate court
can only evaluate the materiality or significance of the
evidence, which is alleged to have been capriciously,
whimsically, or arbitrarily disregarded by the NLRC, in
relation to all other evidence on record.
As this Court elucidated in Garcia v. National Labor

Relations Commission28 --
[I]n Ong v. People, we ruled that certiorari can be

properly resorted to where the factual findings
complained of are not supported by the evidence on
record. Earlier, in Gutib v. Court of Appeals, we
emphasized thus:
[I]t has been said that a wide breadth of discretion is

granted a court of justice in certiorari proceedings. The
cases in which certiorari will issue cannot be defined,
because to do so would be to destroy its
comprehensiveness and usefulness. So wide is the
discretion of the court that authority is not wanting to
show that certiorari is more discretionary than either
prohibition or mandamus. In the exercise of our
superintending control over inferior courts, we are to be
guided by all the circumstances of each particular case
"as the ends of justice may require." So it is that the writ
will be granted where necessary to prevent a substantial
wrong or to do substantial justice.
And in another case of recent vintage, we further held:
In the review of an NLRC decision through a special civil

action for certiorari, resolution is confined only to issues
of jurisdiction and grave abuse of discretion on the part
of the labor tribunal. Hence, the Court refrains from
reviewing factual assessments of lower courts and
agencies exercising adjudicative functions, such as the
NLRC. Occasionally, however, the Court is constrained to
delve into factual matters where, as in the instant case,
the findings of the NLRC contradict those of the Labor
Arbiter.
In this instance, the Court in the exercise of its equity

jurisdiction may look into the records of the case and re-
examine the questioned findings. As a corollary, this
Court is clothed with ample authority to review matters,
even if they are not assigned as errors in their appeal, if
it finds that their consideration is necessary to arrive at a
just decision of the case. The same principles are now
necessarily adhered to and are applied by the Court of
Appeals in its expanded jurisdiction over labor cases
elevated through a petition for certiorari; thus, we see
no error on its part when it made anew a factual
determination of the matters and on that basis reversed
the ruling of the NLRC.
II
The second assignment of error delves into the

significance and application to the case at bar of the two
department orders issued by DOLE. Department Order
No. 10, series of 1997, amended the implementing rules
of Books III and VI of the Labor Code, as amended. Under
this particular DOLE department order, the arrangement
between petitioner and CAMPCO would qualify as
permissible contracting. Department Order No. 3, series
of 2001, revoked Department Order No. 10, series of
1997, and reiterated the prohibition on labor-only
contracting.
Attention is called to the fact that the acts complained of

by the respondents occurred well before the issuance of
the two DOLE department orders in 1997 and 2001. The
Service Contract between DOLE and CAMPCO was
executed on 17 August 1993. Respondents started
working for petitioner sometime in 1993 and 1994. While
some of them continued to work for petitioner, at least
until the filing of the Complaint, others were put on "stay
home status" at various times in 1994, 1995, and 1996.
Respondents filed their Complaint with the NLRC on 19
December 1996.
A basic rule observed in this jurisdiction is that no

statute, decree, ordinance, rule or regulation shall be
given retrospective effect unless explicitly stated.29 Since
there is no provision at all in the DOLE department orders
that expressly allowed their retroactive application, then
the general rule should be followed, and the said orders
should be applied only prospectively.
Which now brings this Court to the question as to what

was the prevailing rule on labor-only contracting from
1993 to 1996, the period when the occurrences subject
of the Complaint before the NLRC took place.
Article 106 of the Labor Code, as amended, permits

legitimate job contracting, but prohibits labor-only
contracting. The said provision reads –
ART. 106. Contractor or subcontractor. – Whenever an

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.

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

principal business of such employer. In such cases, the
were directly employed by him.
To implement the foregoing provision of the Labor Code,

as amended, Sections 8 and 9, Rule VIII, Book III of the
implementing rules, in force since 1976 and prior to their
amendment by DOLE Department Order No. 10, series of
1997, provided as follows –
Sec. 8. Job contracting. – There is job contracting

permissible under the Code if the following conditions
are met;
(1) The contractor carries on an independent business
and undertakes the contract work on his own account
under his own responsibility according to his own
manner and method, free from the control and direction
of his employer or principal in all matters connected with
the performance of the work except as to the results
thereof; and
(2) The contractor has substantial capital or investment

in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the
conduct of his business.
Sec. 9. Labor-only contracting. – (a) Any person who

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

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

principal business or operations of the employer in which
(b) Labor-only contracting as defined herein is hereby

prohibited and the person acting as contractor shall be
employed by him.
(c) For cases not falling under this Article, the Secretary
of Labor shall determine through appropriate orders
whether or not the contracting out of labor is permissible
in the light of the circumstances of each case and after
considering the operating needs of the employer and the
rights of the workers involved. In such case, he may
prescribe conditions and restrictions to insure the
protection and welfare of the workers.
Since these statutory and regulatory provisions were the

ones in force during the years in question, then it was in
consideration of the same that DOLE Regional Director
Parel and DOLE Undesrsecretary Trajano issued their
Orders on 19 September 1993 and 15 September 1994,
respectively, both finding that CAMPCO was engaged in
labor-only contracting. Petitioner, in its third assignment
of error, questions the weight that the Court of Appeals
gave these orders in its Decision, dated 20 May 2002, and
Amended Decision, dated 27 November 2003.
III
The Orders of DOLE Regional Director Parel, dated 19

September 1993, and of DOLE Undersecretary Trajano,
dated 15 September 1994, were issued pursuant to the
visitorial and enforcement power conferred by the Labor
Code, as amended, on the DOLE Secretary and his duly
authorized representatives, to wit –
ART. 128. Visitorial and enforcement power. – (a) The

Secretary of Labor or his duly authorized representatives,
including labor regulation officers, shall have access to
employer’s 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 pursuant thereto.
(b) Notwithstanding the provisions of Articles 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 the labor standards
provisions of this Code and other labor legislation based
on the findings of labor employment and enforcement
officers or industrial safety engineers made in the course
of inspection. The Secretary or his duly authorized
representatives shall issue writs of execution to the
appropriate authority for the enforcement of their
orders, except in cases where the employer contests the
findings of the labor employment and enforcement
officer and raises issues supported by documentary
proofs which were not considered in the course of
inspection.
An order issued by the duly authorized representative of

the Secretary of Labor and Employment under this article
may be appealed to the latter. In case said order involves
a monetary award, an appeal by the employer may be
perfected only upon the posting of a cash or surety bond
issued by a reputable bonding company duly accredited
by the Secretary of Labor and Employment in the amount
equivalent to the monetary award in the order appealed
from. (Emphasis supplied.)
Before Regional Director Parel issued his Order, dated 19
September 1993, a Task Force investigated the
operations of cooperatives in Polomolok, South
Cotabato, and submitted a report identifying six
cooperatives that were engaged in labor-only
contracting, one of which was CAMPCO. In a conference
before the DOLE Regional Office, the cooperatives
named by the Task Force were given the opportunity to
explain the nature of their activities in relation to
petitioner; and, the cooperatives, as well as petitioner,
submitted to the DOLE Regional Office their position
papers and other supporting documents to refute the
findings of the Task Force. It was only after these
procedural steps did Regional Director Parel issued his
Order finding that three cooperatives, including
CAMPCO, were indeed engaged in labor-only contracting
and were directed to cease and desist from further
engaging in such activities. On appeal, DOLE
Undersecretary Trajano, by authority of the DOLE
Secretary, affirmed Regional Director Parel’s Order.
Upon denial of the Motion for Reconsideration filed by
the cooperatives, and no further appeal taken
therefrom, the Order of DOLE Undersecretary Trajano,
dated 15 September 1994, became final and executory.
Petitioner avers that the foregoing Orders of the

authorized representatives of the DOLE Secretary do not
constitute res judicata in the case filed before the NLRC.
This Court, however, believes otherwise and finds that
the final and executory Orders of the DOLE Secretary or
his authorized representatives should bind the NLRC.
It is obvious that the visitorial and enforcement power
granted to the DOLE Secretary is in the nature of a quasi-
judicial power. Quasi-judicial power has been described
by this Court in the following manner –
Quasi-judicial or administrative adjudicatory power on

the other hand is the power of the administrative agency
to adjudicate the rights of persons before it. It is the
power to hear and determine questions of fact to which
the legislative policy is to apply and to decide in
accordance with the standards laid down by the law
itself in enforcing and administering the same law. The
administrative body exercises its quasi-judicial power
when it performs in a judicial manner an act which is
essentially of an executive or administrative
nature, where the power to act in such manner is
incidental to or reasonably necessary for the
performance of the executive or administrative duty
entrusted to it. In carrying out their quasi-judicial
functions the administrative officers or bodies
are required to investigate facts or ascertain the
existence of facts, hold hearings, weigh evidence, and
draw conclusions from them as basis for their official
action and exercise of discretion in a judicial
nature. Since rights of specific persons are affected it is
elementary that in the proper exercise of quasi-judicial
power due process must be observed in the conduct of
the proceedings.30 (Emphasis supplied.)
The DOLE Secretary, under Article 106 of the Labor Code,

as amended, exercise quasi-judicial power, at least, to
the extent necessary to determine violations of labor
standards provisions of the Code and other labor
legislation. He can issue compliance orders and writs of
execution for the enforcement of his orders. As evidence
of the importance and binding effect of the compliance
orders of the DOLE Secretary, Article 128 of the Labor
Code, as amended, further provides –
ART. 128. Visitorial and enforcement power. –
xxxx
(d) It shall be unlawful for any person or entity to

obstruct, impede, delay or otherwise render ineffective
the orders of the Secretary of Labor or his duly
authorized representatives issued pursuant to the
authority granted under this article, and no inferior court
or entity shall issue temporary or permanent injunction
or restraining order or otherwise assume jurisdiction
over any case involving the enforcement orders issued in
accordance with this article.
The Orders of DOLE Regional Director Parel, dated 19

September 1993, and of DOLE Undersecretary Trajano,
dated 15 September 1994, consistently found that
CAMPCO was engaging in labor-only contracting. Such
finding constitutes res judicata in the case filed by the
respondents with the NLRC.
It is well-established in this jurisdiction that the decisions

and orders of administrative agencies, rendered
pursuant to their quasi-judicial authority, have upon
their finality, the force and binding effect of a final
judgment within the purview of the doctrine of res
judicata. The rule of res judicata, which forbids the
reopening of a matter once judicially determined by
competent authority, applies as well to the judicial and
quasi-judicial acts of public, executive or administrative
officers and boards acting within their jurisdiction as to
the judgments of courts having general judicial powers.
The orderly administration of justice requires that the
judgments or resolutions of a court or quasi-judicial body
must reach a point of finality set by the law, rules and
regulations, so as to write finis to disputes once and for
all. This is a fundamental principle in the Philippine
justice system, without which there would be no end to
litigations.31
Res judicata has dual aspects, "bar by prior judgment"

and "conclusiveness of judgment." This Court has
previously clarified the difference between the two –
Section 49, Rule 39 of the Revised Rules of Court lays

down the dual aspects of res judicata in actions in
personam. to wit:
"Effect of judgment. - The effect of a judgment or final

order rendered by a court or judge of the Philippines,
having jurisdiction to pronounce the judgment or order,
may be as follows:
xxxx
(b) In other cases the judgment or order is, with respect

to the matter directly adjudged or as to any other matter
that could have been raised in relation thereto,
conclusive between the parties and their successors in
interest by title subsequent to the commencement of
the action or special proceeding, litigating for the same
thing and under the same title and in the same capacity;
(c) In any other litigation between the same parties or
their successors in interest, that only is deemed to have
been adjudged in a former judgment which appears
upon its face to have been so adjudged, or which was
actually and necessarily included therein or necessary
thereto."
Section 49(b) enunciates the first concept of res judicata

known as "bar by prior judgment," whereas, Section
49(c) is referred to as "conclusiveness of judgment."
There is "bar by former judgment" when, between the

first case where the judgment was rendered, and the
second case where such judgment is invoked, there is
identity of parties, subject matter and cause of action.
When the three identities are present, the judgment on
the merits rendered in the first constitutes an absolute
bar to the subsequent action. But where between the
first case wherein Judgment is rendered and the second
case wherein such judgment is invoked, there is only
identity of parties but there is no identity of cause of
action, the judgment is conclusive in the second case,
only as to those matters actually and directly
controverted and determined, and not as to matters
merely involved therein. This is what is termed
"conclusiveness of judgment."
The second concept of res judicata, conclusiveness of

judgment, is the one applicable to the case at bar.
The same parties who participated in the proceedings

before the DOLE Regional Office are the same parties
involved in the case filed before the NLRC. CAMPCO, on
behalf of its members, attended the conference before
the DOLE Regional Office; submitted its position paper;
filed an appeal with the DOLE Secretary of the Order of
DOLE Regional Director Parel; and moved for
reconsideration of the subsequent Order of DOLE
Undersecretary Trajano. Petitioner, although not
expressly named as a respondent in the DOLE
investigation, was a necessary party thereto, considering
that CAMPCO was rendering services to petitioner solely.
Moreover, petitioner participated in the proceedings
before the DOLE Regional Office, intervening in the
matter through a letter sent by its Senior Legal Officer,
dated 24 May 1993, and submitting its own position
paper.
While the causes of action in the proceedings before the

DOLE and the NLRC differ, they are, in fact, very closely
related. The DOLE Regional Office conducted an
investigation to determine whether CAMPCO was
violating labor laws, particularly, those on labor-only
contracting. Subsequently, it ruled that CAMPCO was
indeed engaging in labor-only contracting activities, and
thereafter ordered to cease and desist from doing so.
Respondents came before the NLRC alleging illegal
dismissal by the petitioner of those respondents who
were put on "stay home status," and seeking
regularization of respondents who were still working for
petitioner. The basis of their claims against petitioner
rests on the argument that CAMPCO was a labor-only
contractor and, thus, merely an agent or intermediary of
petitioner, who should be considered as respondents’
real employer. The matter of whether CAMPCO was a
labor-only contractor was already settled and
determined in the DOLE proceedings, which should be
conclusive and binding upon the NLRC. What were left
for the determination of the NLRC were the issues on
whether there was illegal dismissal and whether
respondents should be regularized.
This Court also notes that CAMPCO and DOLE still

continued with their Service Contract despite the explicit
cease and desist orders rendered by authorized DOLE
officials. There is no other way to look at it except that
CAMPCO and DOLE acted in complete defiance and
disregard of the visitorial and enforcement power of the
DOLE Secretary and his authorized representatives under
Article 128 of the Labor Code, as amended. For the NLRC
to ignore the findings of DOLE Regional Director Parel
and DOLE Undersecretary Trajano is an unmistakable
and serious undermining of the DOLE officials’ authority.
IV
In petitioner’s fourth assignment of error, it points out

that the Court of Appeals erred in not holding
respondents estopped from asserting that they were
regular employees of petitioner since respondents, as
owners-members of CAMPCO, actively represented
themselves and warranted that they were engaged in
legitimate job contracting.
This Court cannot sustain petitioner’s argument.
It is true that CAMPCO is a cooperative composed of its

members, including respondents. Nonetheless, it cannot
be denied that a cooperative, as soon as it is registered
with the CDA, attains a juridical personality of its
own,32separate and distinct from its members; much in
the same way that a corporation has a juridical
personality separate and distinct from its stockholders,
known as the doctrine of corporate fiction. The
protection afforded by this doctrine is not absolute, but
the exception thereto which necessitates the piercing of
the corporate veil can only be made under specified
circumstances. In Traders Royal Bank v. Court of
Appeals,33 this Court ruled that –
Petitioner cannot put up the excuse of piercing the veil

of corporate entity, as this is merely an equitable
remedy, and maybe awarded only in cases when the
corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a
person.
Piercing the veil of corporate entity requires the court to

see through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could be
subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure
that the corporate fiction was misused, to such an extent
that injustice, fraud, or crime was committed upon
another, disregarding, thus, his, her, or its rights. It is the
corporate entity which the law aims to protect by this
doctrine.
Using the above-mentioned guidelines, is petitioner

entitled to a piercing of the "cooperative identity" of
CAMPCO? This Court thinks not.
It bears to emphasize that the piercing of the corporate
veil is an equitable remedy, and among the maxims of
equity are: (1) he who seeks equity must do equity, and
(2) he who comes into equity must come with clean
hands. Hence, a litigant may be denied relief by a court
of equity on the ground that his conduct has been
inequitable, unfair, dishonest, fraudulent, or deceitful as
to the controversy in issue.34
Petitioner does not come before this Court with clean

hands. It is not an innocent party in this controversy.
Petitioner itself admitted that it encouraged and even

helped the establishment of CAMPCO and the other
cooperatives in Polomolok, South Cotabato. These
cooperatives were established precisely to render
services to petitioner. It is highly implausible that the
petitioner was lured into entering into the Service
Contract with CAMPCO in 1993 on the latter’s
misrepresentation and false warranty that it was an
independent job contractor. Even if it is conceded that
petitioner was indeed defrauded into believing that
CAMPCO was an independent contractor, then the DOLE
proceedings should have placed it on guard. Remember
that petitioner participated in the proceedings before
the DOLE Regional Office, it cannot now claim ignorance
thereof. Furthermore, even after the issuance of the
cease and desist order on CAMPCO, petitioner still
continued with its prohibited service arrangement with
the said cooperative. If petitioner was truly defrauded by
CAMPCO and its members into believing that the
cooperative was an independent job contractor, the
more logical recourse of petitioner was to have the
Service Contract voided in the light of the explicit findings
of the DOLE officials that CAMPCO was engaging in labor-
only contracting. Instead, petitioner still carried on its
Service Contract with CAMPCO for several more years
thereafter.
As previously discussed, the finding of the duly

authorized representatives of the DOLE Secretary that
CAMPCO was a labor-only contractor is already
conclusive. This Court cannot deviate from said finding.
This Court, though, still notes that even an independent

review of the evidence on record, in consideration of the
proper labor statutes and regulations, would result in the
same conclusion: that CAMPCO was engaged in
prohibited activities of labor-only contracting.
The existence of an independent and permissible

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.35
While there is present in the relationship of petitioner
and CAMPCO some factors suggestive of an independent
contractor relationship (i.e., CAMPCO chose who among
its members should be sent to work for petitioner;
petitioner paid CAMPCO the wages of the members, plus
a percentage thereof as administrative charge; CAMPCO
paid the wages of the members who rendered service to
petitioner), many other factors are present which would
indicate a labor-only contracting arrangement between
petitioner and CAMPCO.36
First, although petitioner touts the multi-million pesos

assets of CAMPCO, it does well to remember that such
were amassed in the years following its establishment. In
1993, when CAMPCO was established and the Service
Contract between petitioner and CAMPCO was entered
into, CAMPCO only had ₱6,600.00 paid-up capital, which
could hardly be considered substantial.37 It only
managed to increase its capitalization and assets in the
succeeding years by continually and defiantly engaging in
what had been declared by authorized DOLE officials as
labor-only contracting.
Second, CAMPCO did not carry out an independent

business from petitioner. It was precisely established to
render services to petitioner to augment its workforce
during peak seasons. Petitioner was its only client. Even
as CAMPCO had its own office and office equipment,
these were mainly used for administrative purposes; the
tools, machineries, and equipment actually used by
CAMPCO members when rendering services to the
petitioner belonged to the latter.
Third, petitioner exercised control over the CAMPCO
members, including respondents. Petitioner attempts to
refute control by alleging the presence of a CAMPCO
supervisor in the work premises. Yet, the mere presence
within the premises of a supervisor from the cooperative
did not necessarily mean that CAMPCO had control over
its members. Section 8(1), Rule VIII, Book III of the
implementing rules of the Labor Code, as amended,
required for permissible job contracting that the
contractor undertakes the contract work on his account,
under his own responsibility, according to his own
manner and method, free from the control and direction
of his employer or principal in all matters connected with
the performance of the work except as to the results
thereof. As alleged by the respondents, and unrebutted
by petitioner, CAMPCO members, before working for the
petitioner, had to undergo instructions and pass the
training provided by petitioner’s personnel. It was
petitioner who determined and prepared the work
assignments of the CAMPCO members. CAMPCO
members worked within petitioner’s plantation and
processing plants alongside regular employees
performing identical jobs, a circumstance recognized as
an indicium of a labor-only contractorship.38
Fourth, CAMPCO was not engaged to perform a specific

and special job or service. In the Service Contract of
1993, CAMPCO agreed to assist petitioner in its daily
operations, and perform odd jobs as may be assigned.
CAMPCO complied with this venture by assigning
members to petitioner. Apart from that, no other
particular job, work or service was required from
CAMPCO, and it is apparent, with such an arrangement,
that CAMPCO merely acted as a recruitment agency for
petitioner. Since the undertaking of CAMPCO did not
involve the performance of a specific job, but rather the
supply of manpower only, CAMPCO clearly conducted
itself as a labor-only contractor.39
Lastly, CAMPCO members, including respondents,

performed activities directly related to the principal
business of petitioner. They worked as can processing
attendant, feeder of canned pineapple and pineapple
processing, nata de coco processing attendant, fruit
cocktail processing attendant, and etc., functions which
were, not only directly related, but were very vital to
petitioner’s business of production and processing of
pineapple products for export.
The findings enumerated in the preceding paragraphs

only support what DOLE Regional Director Parel and
DOLE Undersecretary Trajano had long before
conclusively established, that CAMPCO was a mere
labor-only contractor.
VI
The declaration that CAMPCO is indeed engaged in the

prohibited activities of labor-only contracting, then
consequently, an employer-employee relationship is
deemed to exist between petitioner and respondents,
since CAMPCO shall be considered as a mere agent or
intermediary of petitioner.
Since respondents are now recognized as employees of

petitioner, this Court is tasked to determine the nature
of their employment. In consideration of all the
attendant circumstances in this case, this Court
concludes that respondents are regular employees of
petitioner.
Article 280 of the Labor Code, as amended, reads –
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 and
desirable in the usual business or trade of the employer,
except where the employment has been fixed for a
specific project or undertaking the completion or
termination of which has been determined at the time of
engagement of the employee or where the work or
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 its is not

covered by the preceding paragraph: Provided, That, any
employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be
considered a regular employee with respect to the
activity in which he is employed and his employment
shall continue while such activity exists.
This Court expounded on the afore-quoted provision,

thus –
The primary standard, therefore, of determining a

regular employment is the reasonable connection
between the particular activity performed by the
employee in relation to the usual business or trade of the
employer. 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 her performance is
not continuous or merely intermittent, the law deems
the repeated and continuing need for its performance as
sufficient evidence of the necessity if not indispensability
of the activity to the business. Hence, the employment is
also considered regular, but only with respect to such
activity and while such activity exists.40
In the instant Petition, petitioner is engaged in the

manufacture and production of pineapple products for
export.1âwphi1Respondents rendered services as
processing attendant, feeder of canned pineapple and
pineapple processing, nata de coco processing
attendant, fruit cocktail processing attendant, and etc.,
functions they performed alongside regular employees
of the petitioner. There is no doubt that the activities
performed by respondents are necessary or desirable to
the usual business of petitioner.
Petitioner likewise want this Court to believe that

respondents’ employment was dependent on the peaks
in operation, work backlogs, absenteeism, and excessive
leaves. However, bearing in mind that respondents all
claimed to have worked for petitioner for over a year, a
claim which petitioner failed to rebut, then respondent’s
continued employment clearly demonstrates the
continuing necessity and indispensability of
respondents’ employment to the business of petitioner.
Neither can this Court apply herein the ruling of the NLRC
in the previous case involving petitioner and the
individual workers they used to hire before the advent of
the cooperatives, to the effect that the employment of
these individual workers were not regular, but rather,
were valid "term employments," wherein the employer
and employee knowingly and voluntarily agreed to
employment for only a limited or specified period of
time. The difference between that case and the one
presently before this Court is that the members of
CAMPCO, including respondents, were not informed, at
the time of their engagement, that their employment
shall only be for a limited or specified period of time.
There is absence of proof that the respondents were
aware and had knowingly and voluntarily agreed to such
term employment. Petitioner did not enter into
individual contracts with the CAMPCO members, but
executed a Service Contract with CAMPCO alone.
Although the Service Contract of 1993 stated that it shall
be for a specific period, from 1 July to 31 December 1993,
petitioner and CAMPCO continued the service
arrangement beyond 1993. Since there was no written
renewal of the Service Contract,41 there was no further
indication that the engagement by petitioner of the
services of CAMPCO members was for another definite
or specified period only.
Respondents, as regular employees of petitioner, are

entitled to security of tenure. They could only be
removed based on just and authorized causes as
provided for in the Labor Code, as amended, and after
they are accorded procedural due process. Therefore,
petitioner’s acts of placing some of the respondents on
"stay home status" and not giving them work
assignments for more than six months were already
tantamount to constructive and illegal dismissal.42
In summary, this Court finds that CAMPCO was a labor-

only contractor and, thus, petitioner is the real employer
of the respondents, with CAMPCO acting only as the
agent or intermediary of petitioner. Due to the nature of
their work and length of their service, respondents
should be considered as regular employees of petitioner.
Petitioner constructively dismissed a number of the
respondents by placing them on "stay home status" for
over six months, and was therefore guilty of illegal
dismissal. Petitioner must accord respondents the status
of regular employees, and reinstate the respondents
who it constructively and illegally dismissed, to their
previous positions, without loss of seniority rights and
other benefits, and pay these respondents’ backwages
from the date of filing of the Complaint with the NLRC on
19 December 1996 up to actual reinstatement.
WHEREFORE, in view of the foregoing, the instant

Petition is DENIED and the Amended Decision, dated 27
November 2003, rendered by the Court of Appeals in CA-
G.R. SP No. 63405 is AFFIRMED.
Costs against the petitioner.
SO ORDERED.
MANILA WATER COMPANY, INC., petitioner,
vs. HERMINIO D. PENA, ESTEBAN B. BALDOZA, JORGE
D. CANONIGO, JR., IKE S. DELFIN, RIZALINO M. INTAL,
REY T. MANLEGRO, JOHN L. MARTEJA, MARLON
B. MORADA, ALLAN D. ESPINA,
EDUARDO ONG, AGNESIOD. QUEBRAL, EDMUNDO
B. VICTA, VICTOR C. ZAFARALLA, EDILBERTO
C. PINGUL and FEDERICO M. RIVERA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition assails the decision[1] of the Court of

Appeals dated November 29, 2002, in CA-G.R. SP No.
67134, which reversed the decision of the National Labor
Relations Commission and reinstated the decision of the
Labor Arbiter with modification.
Petitioner Manila Water Company, Inc. is one of the two

private concessionaires contracted by the Metropolitan
Waterworks and Sewerage System (MWSS) to manage
the water distribution system in the East Zone of Metro
Manila, pursuant to Republic Act No. 8041, otherwise
known as the National Water Crisis Act of 1995.Under
the Concession Agreement, petitioner undertook to
absorb former employees of the MWSS whose names
and positions were in the list furnished by the latter,
while the employment of those not in the list was
terminated on the day petitioner took over the operation
of the East Zone, which was on August 1, 1997. Private
respondents, being contractual collectors of the MWSS,
were among the 121 employees not included in the list;
nevertheless, petitioner engaged their services without
written contract from August 1, 1997 to August 31,
1997. Thereafter, on September 1, 1997, they signed a
three-month contract to perform collection services for
eight branches of petitioner in the East Zone.[2]
Before the end of the three-month contract, the 121

collectors incorporated the Association Collectors
Group, Inc. (ACGI),[3] which was contracted by petitioner
to collect charges for the Balara Branch. Subsequently,
most of the 121 collectors were asked by the petitioner
to transfer to the First Classic Courier Services, a newly
registered corporation. Only private respondents herein
remained with ACGI. Petitioner continued to transact
with ACGI to do its collection needs until February 8,
1999, when petitioner terminated its contract
with ACGI.[4]
Private respondents filed a complaint for illegal dismissal

and money claims against petitioner, contending that
they were petitioners employees as all the methods and
procedures of their collections were controlled by the
latter.
On the other hand, petitioner asserts that private

respondents were employees of ACGI, an independent
contractor. It maintained that it had no control and
supervision over private respondents manner of
performing their work except as to the results. Thus,
petitioner did not have an employer-employee
relationship with the private respondents, but only a
service contractor-client relationship with ACGI.
On May 31, 2000, Labor Arbiter Eduardo J. Carpio

rendered a decision finding the dismissal of private
respondents illegal. He held that private respondents
were regular employees of petitioner not only because
the tasks performed by them were controlled by it but,
also, the tasks were obviously necessary and desirable to
petitioners principal business. The dispositive portion of
the decision reads:
WHEREFORE, premises considered, judgment is hereby

rendered, finding that complainants were employees of
respondent [petitioner herein], that they were illegally
dismissed, and respondent [petitioner herein] is hereby
ordered to pay their separation pay based on the
following computed amounts:
HERMINIO D. PENA P15,000.00
ESTEBAN BALDOZA P12,000.00
JORGE D. CANONIGO, JR. P16,000.00
IKE S. DELFIN P12,000.00
RIZALINO M. INTAL P16,000.00
REY T. MANLEGRO P16,000.00
JOHN L. MARTEJA P12,000.00
MARLON B. MORADA P16,000.00
ALLAN D. ESPINA P14,000.00
EDUARDO ONG P15,000.00
AGNESIO D. QUEBRAL P16,000.00
EDMUNDO B. VICTA P13,000.00

VICTOR P. ZAFARALLA P15,000.00
EDILBERTO C. PINGUL P19,500.00
FEDERICO M. RIVERA P15,000.00
-------------------------------
TOTAL P222,500.00
Respondent [petitioner herein] is further directed to pay

ten (10%) percent of the total award as attorneys fee or
the sum of P22,250.00.
SO ORDERED.[5]
Both parties appealed to the NLRC, which reversed the

decision of the Labor Arbiter and ruled that the
documentary evidence, e.g., letters and memoranda by
the petitioner to ACGI regarding the poor performance
of the collectors, did not constitute proof of control since
these documents merely identified the erring collectors;
the appropriate disciplinary actions were left to the
corporation to impose.[6] Further, there was no evidence
showing that the incorporation of ACGI was irregular.
Private respondents filed a petition for certiorari with

the Court of Appeals, contending that the NLRC acted
with grave abuse of discretion amounting to lack or
excess of jurisdiction when it reversed the decision of the
Labor Arbiter.
The Court of Appeals reversed the decision of the NLRC

and reinstated with modification the decision of the
Labor Arbiter.[7] It held that petitioner deliberately
prevented the creation of an employment relationship
with the private respondents; and that ACGI was not an
independent contractor. It likewise denied petitioners
motion for reconsideration.[8]
Hence, this petition for review raising the following

errors:
THE HONORABLE COURT OF APPEALS IN RENDERING THE

ASSAILED DECISION AND RESOLUTION COMMITTED
GRAVE REVERSIBLE ERRORS:
A. IN GOING BEYOND ITS JURISDICTION AND

PROCEEDING TO GIVE DUE COURSE TO RESPONDENTS
PETITION FOR CERTIORARI UNDER RULE 65 OF THE
RULES OF COURT, NOTWITHSTANDING THE ABSENCE OF
ANY PROOF OF GRAVE ABUSE OF DISCRETION ON THE
PART OF THE NATIONAL LABOR RELATIONS
COMMISSION WHEN IT RENDERED THE DECISION
ASSAILED BY HEREIN RESPONDENTS.
B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE

PRESENTED BY THE PETITIONER COMPANY AND RULING
THAT THE PETITIONERS DEFENSE OF LACK OF
EMPLOYER-EMPLOYEE RELATIONS IS WITHOUT MERIT.
C. IN CONCLUDING THAT PETITIONER COMPANY

REQUIRED RESPONDENTS TO INCORPORATE THE
ASSOCIATED COLLECTORS GROUP, INC. [ACGI]
NOTWITHSTANDING ABSENCE OF ANY SPECIFIC
EVIDENCE IN SUPPORT OF THE SAME.
D. IN FINDING PETITIONER COMPANY GUILTY OF BAD

FAITH NOTWITHSTANDING ABSENCE OF ANY SPECIFIC
EVIDENCE IN SUPPORT OF THE SAME, AND AWARDING
MORAL AND EXEMPLARY DAMAGES TO HEREIN
RESPONDENTS.[9]
The pivotal issue to be resolved in this petition is whether

or not there exists an employer-employee relationship
between petitioner and private respondents. Corollary
thereto is the issue of whether or not private
respondents were illegally dismissed by petitioner.
The issue of whether or not an employer-employee

relationship exists in a given case is essentially a question
of fact.[10] As a rule, the Supreme Court is not a trier of
facts, and this applies with greater force in labor
cases. Hence, factual findings of quasi-judicial bodies like
the NLRC, particularly when they coincide with those of
the Labor Arbiter and if supported by substantial
evidence, are accorded respect and even finality by this
Court.[11] However, a disharmony between the factual
findings of the Labor Arbiter and the National Labor
Relations Commission opens the door to a review
thereof by this Court. Factual findings of administrative
agencies are not infallible and will be set aside when they
fail the test of arbitrariness. Moreover, when the
findings of the National Labor Relations Commission
contradict with those of the labor arbiter, this Court, in
the exercise of its equity jurisdiction, may look into the
records of the case and reexamine the questioned
findings.[12]
The resolution of the foregoing issues initially boils down

to a determination of the true status
of ACGI, i.e., whether it is an independent contractor or
a labor-only contractor.
Petitioner asserts that ACGI, a duly organized
corporation primarily engaged in collection services, is an
independent contractor which entered into a service
contract for the collection of petitioners accounts
starting November 30, 1997 until the early part of
February 1999. Thus, it has no employment relationship
with private respondents, being employees of ACGI.
The existence of an employment relationship between

petitioner and private respondents cannot be negated by
simply alleging that the latter are employees of ACGIas
an independent contractor, it being crucial
that ACGIs status, whether as labor-only contractor or
independent contractor, be measured in terms of and
determined by the criteria set by statute.
The case of De los Santos v. NLRC[13] succinctly

enunciates this statutory criteria
Job contracting is permissible only if the following

conditions are met: 1) the contractor carries on an
independent business and undertakes the contract work
on his own account under his own responsibility
according to his own manner and method, free from the
control and direction of his employer or principal in all
matters connected with the performance of the work
except as to the results thereof; and 2) the contractor has
equipment, machineries, work premises, and other
materials which are necessary in the conduct of the
business.
Labor-only contracting as defined in Section 5,

Department Order No. 18-02, Rules Implementing
Articles 106-109 of the Labor Code[14] refers to an
arrangement where the contractor or subcontractor
merely recruits, supplies or places workers to perform
job, work or service for a principal, and any of the
following elements is present:
(i) The contractor or subcontractor does not have

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

over the performance of the work of the contractual
employee.
Given the above criteria, we agree with the Labor Arbiter

that ACGI was not an independent contractor.
First, ACGI does not have substantial capitalization or

work premises, and other materials, to qualify as an
independent contractor. While it has an authorized
capital stock of P1,000,000.00, only P62,500.00 is
actually paid-in, which cannot be considered substantial
capitalization. The 121 collectors subscribed to four
shares each and paid only the amount of P625.00 in
order to comply with the incorporation
[15]
requirements. Further, private respondents reported
daily to the branch office of the petitioner
because ACGI has no office or work premises. In fact, the
corporate address of ACGI was the residence of its
president, Mr. Herminio D. Pea.[16] Moreover, in dealing
with the consumers, private respondents used the
receipts and identification cards issued by petitioner.[17]
Second, the work of the private respondents was directly

related to the principal business or operation of the
petitioner. Being in the business of providing water to
the consumers in the East Zone, the collection of the
charges therefor by private respondents for the
petitioner can only be categorized as clearly related to,
and in the pursuit of the latters business.
Lastly, ACGI did not carry on an independent business or

undertake the performance of its service contract
according to its own manner and method, free from the
control and supervision of its principal, petitioner. Prior
to private respondents alleged employment with ACGI,
they were already working for petitioner, subject to its
rules and regulations in regard to the manner and
method of performing their tasks. This form of control
and supervision never changed although they were
already under the seeming employ of ACGI. Petitioner
issued memoranda regarding the billing methods and
distribution of books to the collectors;[18] it required
private respondents to report daily and to remit their
collections on the same day to the branch office or to
deposit them with Bank of the Philippine Islands; it
monitored strictly their attendance as when a collector
cannot perform his daily collection, he must notify
petitioner or the branch office in the morning of the day
that he will be absent; and although it was ACGI which
ultimately disciplined private respondents, the penalty
to be imposed was dictated by petitioner as shown in the
letters it sent to ACGI specifying the penalties to be
meted on the erring private respondents.[19] These are
indications that ACGI was not left alone in the
supervision and control of its alleged
employees. Consequently, it can be concluded
that ACGI was not an independent contractor since it did
not carry a distinct business free from the control and
supervision of petitioner.
Under this factual milieu, there is no doubt

that ACGI was engaged in labor-only contracting, and as
such, is considered merely an agent of the petitioner. In
labor-only contracting, the statute creates an employer-
employee relationship for a comprehensive purpose: to
prevent a circumvention of labor laws. The contractor is
considered merely an agent of the principal employer
and the latter is responsible to the employees of the
labor-only contractor as if such employees had been
directly employed by the principal
[20]
employer. Since ACGI is only a labor-only contractor,
the workers it supplied should be considered as
employees of the petitioner.
Even the four-fold test will show that petitioner is the

employer of private respondents. The elements to
determine the existence of an employment relationship
are: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and
(d) the employers power to control the employees
conduct. The most important element is the employers
control of the employees conduct, not only as to the
result of the work to be done, but also as to the means
and methods to accomplish it.[21]
We agree with the Labor Arbiter that in the three stages
of private respondents services with the
petitioner, i.e., (1) from August 1, 1997 to August 31,
1997; (2) from September 1, 1997 to November 30,
1997; and (3) from December 1, 1997 to February 8,
1999, the latter exercised control and supervision over
the formers conduct.
Petitioner contends that the employment of private

respondents from August 1, 1997 to August 30,
1997 was only temporary and done to accommodate
their request to be absorbed since petitioner was still
undergoing a transition period. It was only when its
business became settled that petitioner employed
private respondents for a fixed term of three months.
Although petitioner was not obliged to absorb the

private respondents, by engaging their services, paying
their wages in the form of commission, subjecting them
to its rules and imposing punishment in case of breach
thereof, and controlling not only the end result but the
manner of achieving the same as well, an employment
relationship existed between them.
Notably, private respondents performed activities which

were necessary or desirable to its principal trade or
business. Thus, they were regular employees of
petitioner, regardless of whether the engagement was
merely an accommodation of their request, pursuant to
Article 280 of the Labor Code which reads:
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.
As such regular employees, private respondents are

entitled to security of tenure which may not be
circumvented by mere stipulation in a subsequent
contract that their employment is one with a fixed
period. While this Court has upheld the legality of fixed-
term employment, 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.[22]
In the case at bar, we find that the term fixed in the

subsequent contract was used to defeat
the tenurial security which private respondents already
enjoy. Thus, we concur with the Labor Arbiter, as
affirmed by the Court of Appeals, when it held that:
The next question if whether, with respect to the period,

the individual contracts are valid. Not all contracts of
employment fixing a period are invalid. Under Article
280, the evil sought to be prevented is singled out:
agreements entered into precisely to circumvent
security of tenure. It has no application where a fixed
period of employment was agreed upon knowingly and
voluntarily by the parties, without any force, duress or
improper pressure being brought upon the employee
and absent any circumstances vitiating his consent, or
where it satisfactorily appears that the employer and
employee dealt with each other on more or less terms
with no moral dominance whatever being exercised by
the former over the latter. That is the doctrine in Brent
School, Inc. v. Zamora, 181 SCRA 702. The individual
contracts in question were prepared by MWC in the form
of the letter addressed to complainants. The letter-
contract is dated September 1, 1997, when complainants
were already working for MWC as collectors. With their
employment as their means of survival, there was no
room then for complainants to disagree with the
presented letter-contracts. Their choice then was not to
negotiate for the terms of the contract but to lose or not
to lose their employment employment which they
already had at that time. The choice is obvious, as what
they did, to sign the ready made letter-contract to retain
their employment, and survive. It is a defiance of the
teaching in Brent School, Inc. v. Zamora if this Office rules
that the individual contracts in question are valid, so, in
deference to Brent School ruling, this Office rules they
are null and void.[23]
In view of the foregoing, we hold that an employment

relationship exists between petitioner and private
respondents. We now proceed to ascertain whether
private respondents were dismissed in accordance with
law.
As private respondents employer, petitioner has the
burden of proving that the dismissal was for a cause
allowed under the law and that they were afforded
procedural due process.[24] Petitioner failed to discharge
this burden by substantial evidence as it maintained the
defense that it was not the employer of private
respondents. Having established that the schemes
employed by petitioner were devious attempts to defeat
the tenurial rights of private respondents and that it
failed to comply with the requirements of termination
under the Labor Code, the dismissal of the private
respondent is tainted with illegality.
Under Article 279 of the Labor Code, an employee who is

unjustly dismissed from work is 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. However, if
reinstatement is no longer possible, the employer has
the alternative of paying the employee his separation
pay in lieu of reinstatement.[25]
This Court however cannot sustain the award of moral

and exemplary damages in favor of private
respondents. Such an award cannot be justified solely
upon the premise that the employer dismissed his
employee without just cause or due process. Additional
facts must be pleaded and proved to warrant the grant
of moral damages under the Civil Code. The act of
dismissal must be attended with bad faith, or fraud, or
was oppressive to labor or done in a manner contrary to
morals, good customs or public policy and, of course,
that social humiliation, wounded feelings, or grave
anxiety resulted therefrom. Similarly, exemplary
damages are recoverable only when the dismissal was
effected in a wanton, oppressive or malevolent
manner.[26] Those circumstances have not been
adequately established.
However, private respondents are entitled to attorneys

fees as they were compelled to litigate with petitioners
and incur expenses to enforce and protect their
interests.[27] The award by the Labor Arbiter of
P22,250.00 as attorneys fees to private respondents,
being reasonable, is sustained.
WHEREFORE, in view of the foregoing, the decision of

the Court of Appeals dated November 29, 2002, in CA-
G.R. SP No. 67134, reversing the decision of the National
Labor Relations Commission and reinstating the decision
of the Labor Arbiter is AFFIRMED with the
MODIFICATION that the awards of P10,000.00 as moral
damages and P5,000.00 as exemplary damages are
DELETED for lack of evidentiary basis.
SO ORDERED.
ALEXANDER VINOYA, petitioner, vs. NATIONAL LABOR

RELATIONS COMMISSION, REGENT FOOD
CORPORATION AND/OR RICKY SEE
(PRESIDENT), respondents.
DECISION
KAPUNAN, J.:
This petition for certiorari under Rule 65 seeks to annul
and set aside the decision,[1] promulgated on 21 June
1996, of the National Labor Relations Commission
("NLRC") which reversed the decision[2] of the Labor
Arbiter, rendered on 15 June 1994, ordering Regent Food
Corporation ("RFC") to reinstate Alexander Vinoya to his
former position and pay him backwages.
Private respondent Regent Food Corporation is a

domestic corporation principally engaged in the
manufacture and sale of various food products. Private
respondent Ricky See, on the other hand, is the president
of RFC and is being sued in that capacity.
Petitioner Alexander Vinoya, the complainant, worked

with RFC as sales representative until his services were
terminated on 25 November 1991.
The parties presented conflicting versions of facts.
Petitioner Alexander Vinoya claims that he applied and

was accepted by RFC as sales representative on 26 May
1990. On the same date, a company identification
card[3]was issued to him by RFC. Petitioner alleges that
he reported daily to the office of RFC, in Pasig City, to
take the latters van for the delivery of its products.
According to petitioner, during his employ, he was
assigned to various supermarkets and grocery stores
where he booked sales orders and collected payments
for RFC. For this task, he was required by RFC to put up a
monthly bond of P200.00 as security deposit to
guarantee the performance of his obligation as sales
representative. Petitioner contends that he was under
the direct control and supervision of Mr. Dante So and
Mr. Sadi Lim, plant manager and senior salesman of RFC,
respectively. He avers that on 1 July 1991, he was
transferred by RFC to Peninsula Manpower Company,
Inc. ("PMCI"), an agency which provides RFC with
additional contractual workers pursuant to a contract for
the supply of manpower services (hereinafter referred to
as the "Contract of Service").[4] After his transfer to PMCI,
petitioner was allegedly reassigned to RFC as sales
representative. Subsequently, on 25 November 1991, he
was informed by Ms. Susan Chua, personnel manager of
RFC, that his services were terminated and he was asked
to surrender his ID card. Petitioner was told that his
dismissal was due to the expiration of the Contract of
Service between RFC and PMCI. Petitioner claims that he
was dismissed from employment despite the absence of
any notice or investigation. Consequently, on 3
December 1991, petitioner filed a case against RFC
before the Labor Arbiter for illegal dismissal and non-
payment of 13th month pay.[5]
Private respondent Regent Food Corporation, on the

other hand, maintains that no employer-employee
relationship existed between petitioner and itself. It
insists that petitioner is actually an employee of PMCI,
allegedly an independent contractor, which had a
Contract of Service[6] with RFC. To prove this fact, RFC
presents an Employment Contract[7] signed by petitioner
on 1 July 1991, wherein PMCI appears as his employer.
RFC denies that petitioner was ever employed by it prior
to 1 July 1991. It avers that petitioner was issued an ID
card so that its clients and customers would recognize
him as a duly authorized representative of RFC. With
regard to the P200.00 pesos monthly bond posted by
petitioner, RFC asserts that it was required in order to
guarantee the turnover of his collection since he handled
funds of RFC. While RFC admits that it had control and
supervision over petitioner, it argues that such was
exercised in coordination with PMCI. Finally, RFC
contends that the termination of its relationship with
petitioner was brought about by the expiration of the
Contract of Service between itself and PMCI and not
because petitioner was dismissed from employment.
On 3 December 1991, when petitioner filed a complaint

for illegal dismissal before the Labor Arbiter, PMCI was
initially impleaded as one of the respondents. However,
petitioner thereafter withdrew his charge against PMCI
and pursued his claim solely against RFC. Subsequently,
RFC filed a third party complaint against PMCI. After
considering both versions of the parties, the Labor
Arbiter rendered a decision,[8] dated 15 June 1994, in
favor of petitioner. The Labor Arbiter concluded that RFC
was the true employer of petitioner for the following
reasons: (1) Petitioner was originally with RFC and was
merely transferred to PMCI to be deployed as an agency
worker and then subsequently reassigned to RFC as sales
representative; (2) RFC had direct control and
supervision over petitioner; (3) RFC actually paid for the
wages of petitioner although coursed through PMCI;
and, (4) Petitioner was terminated per instruction of RFC.
Thus, the Labor Arbiter decreed as follows:
ACCORDINGLY, premises considered respondent RFC is

hereby declared guilty of illegal dismissal and ordered to
immediately reinstate complainant to his former
position without loss of seniority rights and other
benefits and pay him backwages in the amount
of P103,974.00.
The claim for 13th month pay is hereby DENIED for lack
of merit.
This case, insofar as respondent PMCI [is concerned] is

DISMISSED, for lack of merit.
SO ORDERED.[9]
RFC appealed the adverse decision of the Labor Arbiter

to the NLRC. In a decision,[10] dated 21 June 1996, the
NLRC reversed the findings of the Labor Arbiter. The
NLRC opined that PMCI is an independent contractor
because it has substantial capital and, as such, is the true
employer of petitioner. The NLRC, thus, held PMCI liable
for the dismissal of petitioner. The dispositive portion of
the NLRC decision states:
WHEREFORE, premises considered, the appealed

decision is modified as follows:
1. Peninsula Manpower Company Inc. is declared as

employer of the complainant;
2. Peninsula is ordered to pay complainant his separation

pay of P3,354.00 and his proportionate 13th month pay
for 1991 in the amount of P2,795.00 or the total amount
of P6,149.00.
SO ORDERED.[11]
Separate motions for reconsideration of the NLRC

decision were filed by petitioner and PMCI. In a
resolution,[12] dated 20 August 1996, the NLRC denied
both motions. However, it was only petitioner who
elevated the case before this Court.
In his petition for certiorari, petitioner submits that

respondent NLRC committed grave abuse of discretion in
reversing the decision of the Labor Arbiter, and asks for
the reinstatement of the latters decision.
Principally, this petition presents the following issues:
1. Whether petitioner was an employee of RFC or PMCI.
2. Whether petitioner was lawfully dismissed.
The resolution of the first issue initially boils down to a

determination of the true status of PMCI, whether it is a
labor-only contractor or an independent contractor.
In the case at bar, RFC alleges that PMCI is an

independent contractor on the sole ground that the
latter is a highly capitalized venture. To buttress this
allegation, RFC presents a copy of the Articles of
Incorporation and the Treasurers Affidavit[13] submitted
by PMCI to the Securities and Exchange Commission
showing that it has an authorized capital stock of One
Million Pesos (P1,000,000.00), of which Three Hundred
Thousand Pesos (P300,000.00) is subscribed and
Seventy-Five Thousand Pesos (P75,000.00) is paid-in.
According to RFC, PMCI is a duly organized corporation
engaged in the business of creating and hiring a pool of
temporary personnel and, thereafter, assigning them to
its clients from time to time for such duration as said
clients may require. RFC further contends that PMCI has
a separate office, permit and license and its own
organization.
Labor-only contracting, a prohibited act, is an

arrangement where the contractor or subcontractor
merely recruits, supplies or places workers to perform a
job, work or service for a principal.[14] In labor-only
contracting, the following elements are present:
(a) The contractor or subcontractor does not have

substantial capital or investment to actually perform the
job, work or service under its own account and
responsibility;
(b) The employees recruited, supplied or placed by such

contractor or subcontractor are performing activities
which are directly related to the main business of the
principal.[15]
On the other hand, permissible job contracting or

subcontracting refers to an arrangement whereby a
principal agrees to put out or farm out with a contractor
or subcontractor the performance or completion of a
specific job, work or service within a definite or
predetermined period, regardless of whether such job,
work or service is to be performed or completed within
or outside the premises of the principal.[16] A person is
considered engaged in legitimate job contracting or
subcontracting if the following conditions concur:
(a) The contractor or subcontractor carries on a distinct

and independent business and undertakes to perform
the job, work or service on its own account and under its
own responsibility according to its own manner and
method, and free from the control and direction of the
principal in all matters connected with the performance
of the work except as to the results thereof;
(b) The contractor or subcontractor has substantial

capital or investment; and
(c) The agreement between the principal and contractor

or subcontractor assures the contractual employees
entitlement to all labor and occupational safety and
health standards, free exercise of the right to self-
organization, security of tenure, and social and welfare
benefits.[17]
Previously, in the case of Neri vs. NLRC,[18] we held that in

order to be considered as a job contractor it is enough
that a contractor has substantial capital. In other words,
once substantial capital is established it is no longer
necessary for the contractor to show evidence that it has
work premises, among others. The rational for this is that
Article 106 of the Labor Code does not require that the
contractor possess both substantial capital and
work premises, among others.[19] The decision of the
Court in Neri thus states:
Respondent BCC need not prove that it made investment

in the form of tools, equipment, machineries, work
premises, among others, because it has established that
it has sufficient capitalization. The Labor Arbiter and the
NLRC both determined that BCC had a capital stock of P1
million fully subscribed and paid for. BCC is therefore a
highly capitalized venture and cannot be deemed
engaged in "labor-only" contracting.[20]
However, in declaring that Building Care Corporation

("BCC") was an independent contractor, the Court
considered not only the fact that it had substantial
capitalization. The Court noted that BCC carried on an
independent business and undertook the performance
of its contract according to its own manner and method,
free from the control and supervision of its principal in
all matters except as to the results thereof.[21] The Court
likewise mentioned that the employees of BCC were
engaged to perform specific special services for its
principal.[22] Thus, the Court ruled that BCC was an
independent contractor.
The Court further clarified the import of

the Neri decision in the subsequent case of Philippine
Fuji Xerox Corporation vs. NLRC.[23] In the said case,
petitioner Fuji Xerox implored the Court to apply
the Neri doctrine to its alleged job-contractor,
Skillpower, Inc., and declare the same as an independent
contractor. Fuji Xerox alleged that Skillpower, Inc. was a
highly capitalized venture registered with the Securities
and Exchange Commission, the Department of Labor and
Employment, and the Social Security System with assets
exceeding P5,000,000.00 possessing at least 29
typewriters, office equipment and service vehicles, and
its own pool of employees with 25 clerks assigned to its
clients on a temporary basis.[24] Despite the evidence
presented by Fuji Xerox the Court refused to apply
the Neri case and explained:
Petitioners cite the case of Neri v. NLRC, in which it was
held that the Building Care Corporation (BCC) was an
independent contractor on the basis of finding that it had
substantial capital, although there was no evidence that
it had investments in the form of tools, equipment,
machineries and work premises. But the Court in that
case considered not only the capitalization of the BCC but
also the fact that BCC was providing specific special
services (radio/telex operator and janitor) to the
employer; that in another case, the Court had already
found that BCC was an independent contractor; that BCC
retained control over the employees and the employer
was actually just concerned with the end-result; that BCC
had the power to reassign the employees and their
deployment was not subject to the approval of the
employer; and that BCC was paid in lump sum for the
services it rendered. These features of that case make it
distinguishable from the present one.[25]
Not having shown the above circumstances present

in Neri, the Court declared Skillpower, Inc. to be engaged
in labor-only contracting and was considered as a mere
agent of the employer.
From the two aforementioned decisions, it may be

inferred that it is not enough to show substantial
capitalization or investment in the form of tools,
equipment, machineries and work premises, among
others, to be considered as an independent contractor.
In fact, jurisprudential holdings are to the effect that in
determining the existence of an independent contractor
relationship, several factors might be considered such as,
but not necessarily confined to, whether 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 specified pieces of work; the control and
supervision of the workers; the power of the employer
with respect to the hiring, firing and payment of the
workers of the contractor; the control of the premises;
the duty to supply premises, tools, appliances, materials
and labor; and the mode, manner and terms of
payment.[26]
Given the above standards and the factual milieu of the

case, the Court has to agree with the conclusion of the
Labor Arbiter that PMCI is engaged in labor-only
contracting.
First of all, PMCI does not have substantial capitalization

or investment in the form of tools, equipment,
machineries, work premises, among others, to qualify as
an independent contractor. While it has an authorized
capital stock of P1,000,000.00, only P75,000.00 is
actually paid-in, which, to our mind, cannot be
considered as substantial capitalization. In the case
of Neri, which was promulgated in 1993, BCC had a
capital stock of P1,000,000.00 which was fully subscribed
and paid-for. Moreover, when the Neri case was decided
in 1993, the rate of exchange between the dollar and the
peso was only P27.30 to $1[27] while presently it is
at P40.390 to $1.[28] The Court takes judicial notice of the
fact that in 1993, the economic situation in the country
was not as adverse as the present, as shown by the
devaluation of our peso. With the current economic
atmosphere in the country, the paid-in capitalization of
PMCI amounting to P75,000.00 cannot be considered as
substantial capital and, as such, PMCI cannot qualify as
an independent contractor.
Second, PMCI did not carry on an independent business

nor did it undertake the performance of its contract
according to its own manner and method, free from the
control and supervision of its principal, RFC. The
evidence at hand shows that the workers assigned by
PMCI to RFC were under the control and supervision of
the latter. The Contract of Service itself provides that RFC
can require the workers assigned by PMCI to render
services even beyond the regular eight hour working day
when deemed necessary.[29] Furthermore, RFC
undertook to assist PMCI in making sure that the daily
time records of its alleged employees faithfully reflect
the actual working hours.[30]With regard to petitioner,
RFC admitted that it exercised control and supervision
over him.[31] These are telltale indications that PMCI was
not left alone to supervise and control its alleged
employees. Consequently, it can be concluded that PMCI
was not an independent contractor since it did not carry
a distinct business free from the control and supervision
of RFC.
Third, PMCI was not engaged to perform a specific and

special job or service, which is one of the strong
indicators that an entity is an independent contractor as
explained by the Court in the cases of Neri and Fuji. As
stated in the Contract of Service, the sole undertaking of
PMCI was to provide RFC with a temporary workforce
able to carry out whatever service may be required by
it.[32] Such venture was complied with by PMCI when the
required personnel were actually assigned to RFC. Apart
from that, no other particular job, work or service was
required from PMCI. Obviously, with such an
arrangement, PMCI merely acted as a recruitment
agency for RFC. Since the undertaking of PMCI did not
involve the performance of a specific job, but rather the
supply of manpower only, PMCI clearly conducted itself
as labor-only contractor.
Lastly, in labor-only contracting, the employees

recruited, supplied or placed by the contractor perform
activities which are directly related to the main business
of its principal. In this case, the work of petitioner as sales
representative is directly related to the business of RFC.
Being in the business of food manufacturing and sales, it
is necessary for RFC to hire a sales representative like
petitioner to take charge of booking its sales orders and
collecting payments for such. Thus, the work of
petitioner as sales representative in RFC can only be
categorized as clearly related to, and in the pursuit of the
latters business. Logically, when petitioner was assigned
by PMCI to RFC, PMCI acted merely as a labor-only
contractor.
Based on the foregoing, PMCI can only be classified as a

labor-only contractor and, as such, cannot be considered
as the employer of petitioner.
However, even granting that PMCI is an independent

contractor, as RFC adamantly suggests, still, a finding of
the same will not save the day for RFC. A perusal of the
Contract of Service entered into between RFC and PMCI
reveals that petitioner is actually not included in the
enumeration of the workers to be assigned to RFC. The
following are the workers enumerated in the contract:
1. Merchandiser
2. Promo Girl
3. Factory Worker
4. Driver[33]
Obviously, the above enumeration does not include the

position of petitioner as sales representative. This only
shows that petitioner was never intended to be a part of
those to be contracted out. However, RFC insists that
despite the absence of his position in the enumeration,
petitioner is deemed included because this has been
agreed upon between itself and PMCI. Such contention
deserves scant consideration. Had it really been the
intention of both parties to include the position of
petitioner they should have clearly indicated the same in
the contract. However, the contract is totally silent on
this point which can only mean that petitioner was never
really intended to be covered by it.
Even if we use the "four-fold test" to ascertain whether

RFC is the true employer of petitioner the same result
would be achieved. In determining the existence of
employer-employee relationship the following elements
of the "four-fold test" are generally considered, namely:
(1) the selection and engagement of the employee or the
power to hire; (2) the payment of wages; (3) the power
to dismiss; and (4) the power to control the
employee.[34] Of these four, the "control test" is the most
important.[35] A careful study of the evidence at hand
shows that RFC possesses the earmarks of being the
employer of petitioner.
With regard to the first element, the power to hire, RFC

denies any involvement in the recruitment and selection
of petitioner and asserts that petitioner did not present
any proof that he was actually hired and employed by
RFC.
It should be pointed out that no particular form of proof

is required to prove the existence of an employer-
employee relationship.[36] Any competent and relevant
evidence may show the relationship.[37] If only
documentary evidence would be required to
demonstrate that relationship, no scheming employer
would ever be brought before the bar of justice.[38] In the
case at bar, petitioner presented the identification card
issued to him on 26 May 1990 by RFC as proof that it was
the latter who engaged his services. To our mind, the ID
card is enough proof that petitioner was previously hired
by RFC prior to his transfer as agency worker to PMCI. It
must be noted that the Employment Contract between
petitioner and PMCI was dated 1 July 1991. On the other
hand, the ID card issued by RFC to petitioner was dated
26 May 1990, or more than one year before the
Employment Contract was signed by petitioner in favor
of PMCI. It makes one wonder why, if petitioner was
indeed recruited by PMCI as its own employee on 1 July
1991, how come he had already been issued an ID card
by RFC a year earlier? While the Employment Contract
indicates the word "renewal," presumably an attempt to
show that petitioner had previously signed a similar
contract with PMCI, no evidence of a prior contract
entered into between petitioner and PMCI was ever
presented by RFC. In fact, despite the demand made by
the counsel of petitioner for the production of the
contract which purportedly shows that prior to 1 July
1991 petitioner was already connected with PMCI, RFC
never made a move to furnish the counsel of petitioner
a copy of the alleged original Employment Contract. The
only logical conclusion which may be derived from such
inaction is that there was no such contract and that the
only Employment Contract entered into between PMCI
and petitioner was the 1 July 1991 contract and no other.
Since, as shown by the ID card, petitioner was already
with RFC on 26 May 1990, prior to the time any
Employment Contract was agreed upon between PMCI
and petitioner, it follows that it was RFC who actually
hired and engaged petitioner to be its employee.
With respect to the payment of wages, RFC disputes the

argument of petitioner that it paid his wages on the
ground that petitioner did not submit any evidence to
prove that his salary was paid by it, or that he was issued
payslip by the company. On the contrary RFC asserts that
the invoices[39] presented by it, show that it was PMCI
who paid petitioner his wages through its regular
monthly billings charged to RFC.
The Court takes judicial notice of the practice of

employers who, in order to evade the liabilities under the
Labor Code, do not issue payslips directly to their
employees.[40]Under the current practice, a third person,
usually the purported contractor (service or manpower
placement agency), assumes the act of paying the
wage.[41] For this reason, the lowly worker is unable to
show proof that it was directly paid by the true employer.
Nevertheless, for the workers, it is enough that they
actually receive their pay, oblivious of the need for
payslips, unaware of its legal implications.[42] Applying
this principle to the case at bar, even though the wages
were coursed through PMCI, we note that the funds
actually came from the pockets of RFC. Thus, in the end,
RFC is still the one who paid the wages of
petitioner albeit indirectly.
As to the third element, the power to dismiss, RFC avers

that it was PMCI who terminated the employment of
petitioner. The facts on record, however, disprove the
allegation of RFC. First of all, the Contract of Service gave
RFC the right to terminate the workers assigned to it by
PMCI without the latters approval. Quoted hereunder is
the portion of the contract stating the power of RFC to
dismiss, to wit:
7. The First party ("RFC") reserves the right to terminate

the services of any worker found to be unsatisfactory
without the prior approval of the second party
("PMCI").[43]
In furtherance of the above provision, RFC requested

PMCI to terminate petitioner from his employment with
the company. In response to the request of RFC, PMCI
terminated petitioner from service. As found by the
Labor Arbiter, to which we agree, the dismissal of
petitioner was indeed made under the instruction of RFC
to PMCI.
The fourth and most important requirement in

ascertaining the presence of employer-employee
relationship is the power of control. The power of control
refers to the authority of the employer to control the
employee not only with regard to the result of work to
be done but also to the means and methods by which the
work is to be accomplished.[44] 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, and not necessarily to the actual exercise of the
right.[45] In the case at bar, we need not belabor
ourselves in discussing whether the power of control
exists. RFC already admitted that it exercised control and
supervision over petitioner.[46] RFC, however, raises the
defense that the power of control was jointly exercised
with PMCI. The Labor Arbiter, on the other hand, found
that petitioner was under the direct control and
supervision of the personnel of RFC and not PMCI. We
are inclined to believe the findings of the Labor Arbiter
which is supported not only by the admission of RFC but
also by the evidence on record. Besides, to our mind, the
admission of RFC that it exercised control and
supervision over petitioner, the same being a declaration
against interest, is sufficient enough to prove that the
power of control truly exists.
We, therefore, hold that an employer-employee

relationship exists between petitioner and RFC.
Having determined the real employer of petitioner, we

now proceed to ascertain the legality of his dismissal
from employment.
Since petitioner, due to his length of service, already

attained the status of a regular employee,[47] he is
entitled to the security of tenure provided under the
labor laws. Hence, he may only be validly terminated
from service upon compliance with the legal requisites
for dismissal. Under the Labor Code, the requirements
for the lawful dismissal of an employee are two-fold, the
substantive and the procedural aspects. Not only must
the dismissal be for a valid or authorized cause,[48] the
rudimentary requirements of due process - notice and
hearing[49] must, likewise, be observed before an
employee may be dismissed. Without the concurrence of
the two, the termination would, in the eyes of the law,
be illegal.[50]
As the employer, RFC has the burden of proving that the

dismissal of petitioner was for a cause allowed under the
law and that petitioner was afforded procedural due
process. Sad to say, RFC failed to discharge this burden.
Indeed, RFC never pointed to any valid or authorized
cause under the Labor Code which allowed it to
terminate the services of petitioner. Its lone allegation
that the dismissal was due to the expiration or
completion of contract is not even one of the grounds for
termination allowed by law. Neither did RFC show that
petitioner was given ample opportunity to contest the
legality of his dismissal. In fact, no notice of such
impending termination was ever given him. Petitioner
was, thus, surprised that he was already terminated from
employment without any inkling as to how and why it
came about. Petitioner was definitely denied due
process. Having failed to establish compliance with the
requirements on termination of employment under the
Labor Code, the dismissal of petitioner is tainted with
illegality.
An employee who has been illegally dismissed is entitled

to reinstatement to his former position without loss of
seniority rights and to payment of full backwages
corresponding to the period from his illegal dismissal up
to actual reinstatement.[51] Petitioner is entitled to no
less.
WHEREFORE, the petition is GRANTED. The decision of

the NLRC, dated 21 June 1996, as well as its resolution,
promulgated on 20 August 1996, are ANNULLED and SET
ASIDE. The decision of the Labor Arbiter rendered on 15
June 1994, is hereby REINSTATED and AFFIRMED.
SO ORDERED.

Producers Bank Vs NLRC

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Producers Bank Vs NLRC

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Producers Bank vs NLRC () 335 SCRA 506

Facts: Petitioner was placed by Central Bank of the

Issue: WON the employees who have retired have no

Held: Employees who have retired still have the

G.R. No. 102132. March 19, 1993.

DAVAO INTEGRATED PORT STEVEDORING SERVICES,

Libron, Gaspar & Associates for petitioner.

Bansalan B. Metilla for Association of Trade Unions

1. LABOR LAWS AND SOCIAL LEGISLATION; LABOR

2. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — It is thus

4. ID.; ID.; JURISDICTION OF VOLUNTARY ARBITRATOR;

5. ID.; CONDITIONS OF EMPLOYMENT; PROHIBITION

In this petition for certiorari, petitioner Davao Integrated

The facts are as follows:

Petitioner Davao Integrated Port Stevedoring Services

Section 1. Sick Leaves — The Company agrees to grant 15

xxx xxx xxx

Hours of Service Per Vacation Sick Leave

Calendar Year Leave

Less than 750 NII NII

751 — 825 6 days 6 days

The conditions for the availment of the herein vacation

"Section 3. — All intermittent field workers of the

Hours of Service Per Vacation Sick Leave

Calendar Year Leave

Less than 750 NII NII

751 — 825 6 days 6 days

During the effectivity of the CBA of October 16, 1985

The commutation of the unenjoyed portion of the sick

The Union objected to the said discontinuance of

Upon failure of the parties to amicably settle the issue on

After the parties had filed their respective position

"WHEREFORE, premises considered, the management of

Petitioner-company argued that it is clear from the

Petitioner-company further argued that while the

We find the arguments unmeritorious.

A collective bargaining agreement (CBA), as used in

It is thus erroneous for petitioner to isolate Section 1,

It is not disputed that both classes of workers are entitled

Sick leave benefits, like other economic benefits

After a careful examination of Section 1 in relation to

Public respondent correctly observed that the parties to

Whatever doubt there may have been early on was

Moreover, petitioner-company's objection to the

WHEREFORE, in view of the foregoing, the petition is

DAVAO FRUITS CORPORATION, petitioner,

Dominguez & Paderna Law Offices for petitioners.

The Solicitor General for public respondents.

This is a petition for certiorari to set aside the resolution

On December 28, 1982 respondent Associated Labor

In its answer, petitioner claimed that it erroneously

A decision was rendered on March 7, 1984 by Labor

WHEREFORE, in view of all the foregoing considerations,

Petitioner appealed the decision of the Labor Arbiter to

Petitioner elevated the matter to this Court in a petition

The crux of the present controversy is whether in the

Presidential Decree No. 851, promulgated on December

(a) "Thirteenth month pay" shall mean one twelfth (1/12)

(b) "Basic Salary" shall include all renumerations or

4. Overtime pay, earnings and other renumerations

Clearly, the term "basic salary" includes renumerations

Petitioner claims that the mistake in the interpretation

Moreover, whatever doubt arose in the interpretation of