UERMMC v. Laguesma in FELIX v. BUENASEDA G.R. No. 109704 January 17, 1995. Kapunan J.

Facts: Petitioner Felix is a Resident Physician at the National Center for Mental Health. He entered on 1980 and was promoted to Senior Resident Physician on 1983. However, on 1988 the Ministry of Health reorganized the NCMH, and under the reorganization petitioner, after tendering his courtesy resignation, was appointed to the position of Senior Resident Physician in a temporary capacity. Later, he was promoted to Medical Specialist I, again on a temporary capacity. In 1988, DOH issued Dept.Order (DO) 347, which required board certification as a prerequisite for renewal of specialist positions in its medical centers. Specifically, it required that specialists be recognized as Fellows of their respective specialty societies and/or Diplomates of their specialty boards. Petitioner was one of the hundreds of government medical specialist who would have been adversely affected by Department Order No. 347 since he was no yet accredited by the Psychiatry Specialty Board. On 1991, after reviewing petitioner's service record and performance, the Medical Credentials Committee of the NCMH recommended non-renewal of his appointment as Medical Specialist I. He was, however, allowed to continue in the service, and receive his salary, allowances and other benefits even after being informed of the termination of his appointment. On November 25, 1991, an emergency meeting of the Chiefs of Service was held to discuss, among other matters, the petitioner's case. In the said meeting, petitioner's immediate supervisor pointed out his poor performance, frequent tardiness and inflexibility as among the factors against his reappointment. All the rest except one expressed the same opinion, and hence the overwhelming consensus was for non-renewal. The matter was thereafter referred to the Civil Service Commission, which ruled that "the temporary appointment (of petitioner) as Medical Specialist I can be terminated at any time . . ." and that "[a]ny renewal of such appointment is within the discretion of the appointing authority." Petitioner appealed this to the Merit System Protection Board, which dismissed his complaint for lack of merit. Hence, he appealed to the SC. Issues: 1.) Whether petitioners right to security of tenure has been violated. 2.) Whether CSC erred in not declaring that the conversion of permanent appointment of petitioner to temporary was done in bad faith in the guise of reorganization. Held: 1.) NO. There is no violation because he has no right to speak of in the first place. He never acquired security of tenure, because he was never appointed to a permanent position from the start. Residency A residency or resident physician position in a medical specialty is never a permanent one. Residency connotes training and temporary status. It is the step taken by a physician right after post-graduate internship (and after hurdling the Medical Licensure Examinations) prior to his recognition as a specialist or subspecialist in a given field Promotion to the next post-graduate year is based on merit and performance determined by periodic evaluations and examinations of knowledge, skills and bedside manner. Under this system, residents, especially those in university teaching hospitals enjoy their right to security of tenure only to

the extent that they periodically make the grade While physicians (or consultants) of specialist rank are not subject to the same stringent evaluation procedures, specialty societies require continuing education as a requirement for accreditation in good standing, in addition to peer review processes based on performance, mortality and morbidity audits, feedback from residents, interns and medical students and research output. The nature of the contracts of resident physicians meets traditional tests for determining employer employee relationships, but because the focus of residency is training, they are neither here nor there. Moreover, stringent standards and requirements for renewal of specialist rank positions or for promotion to the next postgraduate residency year are necessary because lives are ultimately at stake. 2.) The other points assailed by the petitioner were dismissed mainly on account of estoppel by laches. Having failed to object to his temporary appointment from 1988 to 1991, he is now estopped from claiming invalidity of the assignment. Disposition: Petition dismissed for lack of merit. INSULAR LIFE v. NLRC G.R. No. 84484 November 15, 1989. Narvasa J. Facts: Insular Life and private respondent Basiao entered into a contract by which Basiao was authorized to solicit for insurance in accordance with the rules of the company. He would also receive compensation, in the form of commissions. The contract also contained the relations of the parties, duties of the agent and the acts prohibited, including the modes of termination. After 4 years, the parties entered into another contract an Agency Managers Contact and to implement his end of it, Basiao organized an agency while concurrently fulfilling his commitment under the first contract. The company terminated the Agency Managers Contract. Basiao sued the company in a civil action. Thus, the company terminated Basiaos engagement under the first contract and stopped payment of his commissions. Basiao thereafter filed with the then Ministry of Labor a complaint seeking to recover unpaid commissions. Insular Life disputed the Ministrys jurisdtiction over Basiaos claim, asserting that he was not the Companys employee but an independent contractor, and that the Company had no obligation to him for unpaid commissions under the terms and conditions of the first contract. The Labor Arbiter found for Basiao, saying that the contract created an employer-employee relation between him and Insular Life, hence placing his claim under the jurisdiction of the Ministry. Issue: Whether Basiao had become the companys employee by virtue of the contract, thereby placing his claim for unpaid commissions within the original and exclusive jurisdiction of the Labor Arbiter under Sec.217 of the Labor Code. Held: NO. The critical feature distinguishing the status of an employee from that of an independent contractor is control, that is, whether or not the party who engages the services of another has the power to control the latter's conduct in rendering such services (control test). Although the control test is controlling, it should, however, be obvious that not every form of control that the hiring party reserves to himself over the conduct of the party hired in relation to the services rendered may

be accorded the effect of establishing an employer-employee relationship between them. - Not every contract that establishes some form of control automatically creates an employer-employee relationship. - The line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employeremployee relationship unlike the second, which address both the result and the means used to achieve it. - This rule acquires special significance in an industry affected by public interest, such as the insurance business. Rules and regulations governing the conduct of the business are provided for in the Insurance Code and enforced by the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to promulgate a set of rules to guide its commission agents in selling its policies that they may not run afoul of the law. - In the case of Insular Life, it is usual and expected for it to stipulate rules to guide its Agents in the course of their selling its policies. These rules merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it. None of these really invades the agents contractual prerogative to adopt his own selling methods or to sell insurance at his own time and convenience, hence it cannot justifiably be said to establish an employer-employee relationship between Basiao and the company. The respondents limit themselves to pointing out that Basiaos contract with the company bound him to observe and conform to such rules. No showing that such rules were in fact promulgated which effectively controlled or restricted his choice of methods of selling insurance. Therefore, Basiao was not an employee of the petitioner, but a commission agent, an independent contract whose claim for unpaid commissions should have been litigated in an ordinary civil action. Disposition: Wherefore, the complaint of Basiao is dismissed.

Sevilla vs. CA G.R. No. L-41182-3 April 16, 1988. Sarmiento J. Facts: Tourist World Service (TWS), represented by respondent Canilao, entered into a contract with Noguera leasing the premises owned by the latter to be used as branch office of TWS. In this contract, Sevilla obligated herself to be solidarily liable with TWS in the timely payment of monthly rentals. When the branch office was opened, it was run by Sevilla as Branch Manager. The compensation scheme is such that for every air fare from any airline brought in on the efforts of Mrs. Sevilla, 4% was to go to Sevilla and 3% was to be withheld by the TWS. This arrangement continued until TWS was informed that Sevilla was connected with rival firm. Since the branch office was losing anyways, TWS considered closing down this office in Ermita. Later, TWS unilaterally terminated the contract of lease for use of the branch office premises, without informing Sevilla. It

cut the telephone line to the office and later padlocked the premises, again without informing Sevilla. When neither appellant Sevilla nor any of her employees could enter, a complaint was filed by her against TWS et al. TWS insisted that Sevilla was a mere employee, and hence, she had no say on the lease executed between TWS and Noguera, and for that matter, the closing of the branch office. Sevilla, on the other hand, disclaims the existence of an employer-employee relationship between her and TWS and claims that their relationship is actually a joint venture agreement to put up a travelling service business. Issue: Whether an employer-employee relationship exists between Sevilla and TWS. Held: NO. What exists between TWS and Sevilla is a contract of agency. - In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end." - Subsequently, however, we have considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. o The records show that Sevilla, was not subject to control by the private respondent TWS, either as to the result of the enterprise or as to the means used in connection therewith. o Moreover, her binding herself in solidum in the contract of lease belies the claim of a master-servant relationship. That does not make her an employee of TWS, since a true employee cannot be made to part with his own money in pursuance of his employers business, or otherwise, assume any liability thereof. o Sevilla was also not on TWS payroll. Unlike an employee, who earns fixed salary, she earned compensation in fluctuating amount depending on her booking successes. o The fact that Sevilla had been designated branch manager does not make her a TWS employee. Titles are weak indicators of control. - The real relationship between the parties is a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of another. In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. - This agency cannot be revoked at will by the principal. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal. Hence, the unilateral revocation by TWS entitled Sevilla to damages. Disposition: Wherefore, TWS and Canilao are jointly and severally liable to indemnify the petitioner, Sevilla. FRANCISCO V NLRC YNARES-SANTIAGO; August 31, 2006

(taken from Complied Week 1 digests) FACTS: In 1995, petitioner Angelina Francisco was hired by Kasei Corporation (Kasei) during its incorporation stage. She was designated as Accountant, Corporate Secretary and Liaison Officer of the company. In 1996, Francisco was designated Acting Manager to handle recruitment of all employees and perform management administration functions, represent the company in all dealings with government agencies, and to administer all other matters pertaining to the operation of Kasei Restaurant which is owned and operated by Kasei. In January 2001, Francisco was replaced as Manager. She alleged that she was required to sign a prepared resolution for her replacement but she was assured that she would still be connected with Kasei. The Treasurer convened a meeting of all employees and announced that Francisco was still connected with Kasei Corporation as Technical Assistant to Seiji Kamura and in charge of all BIR matters. Thereafter, Kasei reduced her salary by P2,500.00 a month beginning January up to September 2001 for a total reduction of P22,500.00 as of September 2001. She was not paid her mid-year bonus allegedly because the company was not earning well. In October 2001, she did not receive her salary from the company, made repeated follow-ups with the cashier but was advised that the company was not earning well. On October 15, 2001, she asked for her salary, but she was informed that she is no longer connected with the company. Since she was no longer paid her salary, petitioner did not report for work and filed an action for constructive dismissal before the labor arbiter. The Labor Arbiter found that the petitioner was illegally dismissed. NLRC affirmed the decision while CA reversed it. ISSUES: 1. WON there was an employer-employee relationship between Francisco and Kasei Corporation 2. WON Francisco was illegally dismissed HELD: 1. YES In certain cases the control test is not sufficient to give a complete picture of the relationship between the parties, owing to the complexity of such a relationship where several positions have been held by the worker. The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employers power to control the employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying economic realities of the activity or relationship. Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole economic activity, such as: (1) the extent to which the services performed are an integral part of the employers business; (2) the extent of the workers investment in equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the workers opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight required for the success of the claimed independent enterprise;

(6) the permanency and duration of the relationship between the worker and the employer; and (7) the degree of dependency of the worker upon the employer for his continued employment in that line of business. By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation because she was under the direct control and supervision of Seiji Kamura, the corporations Technical Consultant. She reported for work regularly and served in various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate Secretary, with substantially the same job functions, that is, rendering accounting and tax services to the company and performing functions necessary and desirable for the proper operation of the corporation such as securing business permits and other licenses over an indefinite period of engagement. Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation because she had served the company for six years before her dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions from August 1, 1999 to December 18, 2000. When petitioner was designated General Manager, respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioners membership in the SSS as manifested by a copy of the SSS specimen signature card which was signed by the President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an employer-employee relationship between petitioner and respondent corporation. It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment in the latters line of business. 2. YES The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month from January to September 2001. This amounts to an illegal termination of employment, where the petitioner is entitled to full backwages. Since the position of petitioner as accountant is one of trust and confidence, and under the principle of strained relations, petitioner is further entitled to separation pay, in lieu of reinstatement. A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to an employee. In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are mindful of the fact that the policy of the law is to apply the Labor Code to a greater number of employees. This would enable employees to avail of the benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and

protection to labor, promoting their welfare and reaffirming it as a primary social economic force in furtherance of social justice and national development. SAN MIGUEL CORPORATION v. ABALLA et al. G.R. No. 149011. June 28, 2005. Carpio-Morales, J. Facts: SMC and Sunflower Multi-purpose Cooperative entered into a one-year Contract of Services commencing on January 1, 1993, to be renewed on a month to month basis until terminated by either party. In the contract, Sunflower undertook, as an independent contractor, to perform certain services for SMC, like janitorial services and harvesting/shrimp receiving and sanitation, by providing the necessary personnel, tools and equipment. The contract expressly stipulates that no employer-employee relationship exists between SMC and the members/workers that Sunflower may employ for the purposes of the contract. Moreover, it categorically states that it is Sunflower, not SMC, which shall have entire charge, control and supervision of the work and services agreed upon. The extent of control of SMC is supposedly limited only to the result to be accomplished by the work or services, and does not extend to the means of carrying on the work or service. Pursuant to the contract, Sunflower engaged private respondents to render services at SMCs Bacolod Shrimp Processing Plant. The respondents worked from 1993 until September 11, 1995. On July 1995, respondents filed a complaint before the NLRC praying to be declared as regular employees of SMC, claiming for benefits and privileges enjoyed by SMC rank and file employees. On September 15, 1995, SMC closed its Bacolod Shrimp Processing Plant allegedly because of serious business losses. Respondents consequently amended their complaint to include illegal dismissal as additional cause of action. The Labor Arbiter ruled in favor of SMC, finding that Sunflower is an independent contractor and the contract it has with SMC is legitimate job contracting. NLRC sustained this finding. CA reversed and ordered SMC to pay the respondents money claims. Issues: 1. Whether the petition is fatally defective for lack of certification of forum shopping. 2. Whether Sunflower is a labor only contractor or a legitimate independent contractor 3. Whether an employer-employee relationship existed between SMC and the 97 respondents 4. If yes, whether the 97 respondents should be considered regular employees of SMC. 5. Whether the closure of the Bacolod Shrimp Processing Plant and the subsequent termination of respondents services was justified. Held: 1.) NO. Procedural rules were liberally applied in this case for compelling reasons, in order not to defeat substantive justice - HLC Construction and Development Corporation v. Emily Homes Subdivision Homeowners Association - In cases where it is highly impractical to require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to defeat the ends of justice, for one of the plaintiffs, acting as representative, to sign the certificate provided that xxx the plaintiffs share a

common interest in the subject matter of the case or filed the case as a collective, raising only one common cause of action or defense. - Liberal construction of the rule on the accomplishment of a certificate of nonforum shopping in the following cases: (1) where a rigid application will result in manifest failure or miscarriage of justice; (2) where the interest of substantial justice will be served; (3) where the resolution of the motion is addressed solely to the sound and judicious discretion of the court; and (4) where the injustice to the adverse party is not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed. 2.) Sunflower is a labor-only contractor. There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the contractor 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. - Statutory basis: Art. 106, LC - Under the LC, there are two types of work contracting: labor-only and legitimate job-contracting. In legitimate job-contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements: the principal which decides to farm out a job or service, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish such job, work or service. - Labor-only contracting refers to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: o 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 o The contractor does not exercise the right to control over the performance of the work of the contractual employee. - Employer-employee relationship in labor-only and job-contracting: Labor-only contracting is prohibited by law because it is a circumvention of the provisions of the Labor Code. Hence, in labor-only contracts, the law creates an employee-employer relationship between the principal and the workers so that the former shall be liable to the latter as if the latter were directly employed by him. Contra: In legitimate labor contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes jointly and severally liable with the job contractor, only for the payment of the employees wages whenever the contractor fails to pay the

same. Other than that, the principal employer is not responsible for any claim made by the employees. - It follows that there are two types of contractors: labor-only contractors and legitimate independent contractors. The test to determine the existence of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work. - Here, it is clear that Sunflower is not an independent contractor. It has no substantial capitalization to enable it to perform the services independently. It was not shown that it dealt with entities other than SMC. During the whole time the contract for services was in force, Sunflower did not own a single machinery, equipment, or working tool used in the processing plant. Everything was owned and under control by SMC. Sunflowers participation is limited to recruiting employees to work for SMCs Shrimp Processing Plant. In fact, it seemed to exist solely for this purpose, as it ceased existence when SMCs plant was closed. 3.) YES. Despite the clear intent in the contract to avoid an employer-employee relationship, such relationship existed between SMC and the private respondents herein. The existence of an employer-employee relationship is a question of law; it is not a matter that contracting parties can dictate, by the mere expedient of a unilateral declaration in a contract. The language of a contract is not determinative of the parties relationship; rather it is the totality of the facts and surrounding circumstances of the case. - Employer-employee relationship exists because Sunflower is a mere laboronly contractor (see discussion above). - SMC exercised the power of control and supervision over respondents. And control of the premises in which private respondents worked was by SMC. 4.) YES. Under the law, there are two kinds of regular employees, namely: (1) those who are engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer; and (2) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed. The respondents who were engaged in shrimp processing tasks should be deemed regular employees of SMC from the start and as such are entitled to all the benefits and rights appurtenant to regular employment. On the other hand, respondents engaged in janitorial and messengerial duties should be deemed to have acquired regular status only after rendering one-year service, pursuant to Art.280, LC. They are entitled to differential pay only from the day immediately following their first year of service. - The distinction is necessary to determine what kind of benefits they are entitled to. - Janitorial and messengerial services, although considered directly related to SMCs aquaculture business, is deemed unnecessary in the conduct of its principal business; hence, the distinction into two groups among the respondents 4.) YES. The dismissal of the employees pursuant to a valid retrenchment was justified. - Retrenchment to prevent losses is a management prerogative consistently recognized and affirmed by the Court. It is, however, subject to faithful

compliance with the substantive and procedural requirements laid down by law and jurisprudence. - Requirements for a valid retrenchment: For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected should be substantial and not merely de minimis in extent; (b) the substantial losses apprehended must be reasonably imminent such as can be perceived objectively and in good faith by the employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. - SMC was able to prove serious business losses in its aquaculture department, hence justifying retrenchment of its employees. - However, although the retrenchment was itself valid, the means of carrying it out was not. For termination due to retrenchment to be valid, however, the law requires that written notices of the intended retrenchment be served by the employer on the worker and on the DOLE at least one (1) month before the actual date of the retrenchment, in order to give employees some time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of the alleged cause of termination. Here, respondents were merely verbally informed one day before they were dismissed from work. - Court ruled that, where the dismissal is based on an authorized cause under Article 283, LC (e.g. retrenchment) but the employer failed to comply with the notice requirement, the sanction should be stiff as the dismissal process was initiated by the employers exercise of his management prerogative, as opposed to a dismissal based on a just cause under Article 282 affected with the same procedural infirmity, where the sanction to be imposed upon the employer should be tempered as the dismissal was, in effect, initiated by an act imputable to the employee. - In light of this rule, Court awarded nominal damages of P50,000 each to each of the private respondents in this case. Disposition: CA decision AFFIRMED with MODIFICATION. SMC and Sunflower declared solidarily liable to pay each private respondent differential pay from the time they became regular employees up to the date of their termination; separation pay equivalent to at least one (1) month pay or to at least one-half month pay for every year of service, whichever is higher; and ten percent (10%) attorneys fees based on the herein modified award. Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount of P50,000.00, representing nominal damages for non-compliance with statutory due process. The award of backwages is DELETED.