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employer has the right to wield that power.

LABOR LAW REVIEW


Case Doctrines

Absent a clear showing that petitioners and private respondent had


intended to pursue a relationship of industrial partnership, we
entertain no doubt that private respondent was employed by
petitioners as caretaker-barber. Initially, petitioners, as new owners
of the barbershop, hired private respondent as barber by absorbing
the latter in their employ. Undoubtedly, the services performed by
private respondent as barber is related to, and in the pursuit of the
principal business activity of petitioners. Later on, petitioners
tapped private respondent to serve concurrently as caretaker of the
shop. Certainly, petitioners had the power to dismiss private
respondent being the ones who engaged the services of the latter.
In fact, private respondent sued petitioners for illegal
dismissal, albeit contested by the latter. As a caretaker, private
respondent was paid by petitioners wages in the form of
honorarium, originally, at the rate of one-third (1/3) of the shops
net income but subsequently pegged at a fixed amount per month.
As a barber, private respondent earned two-thirds (2/3) of the fee
paid per haircut or shaving job done. Furthermore, the following
facts indubitably reveal that petitioners controlled private
respondents work performance, in that: (1) private respondent had
to inform petitioners of the things needed in the shop; (2) he could
only recommend the hiring of barbers and masseuses, with
petitioners having the final decision; (3) he had to be at the shop at
9:00 a.m. and could leave only at 9:00 p.m. because he was the
one who opened and closed it, being the one entrusted with the
key. These duties were complied with by private respondent upon
instructions of petitioners. Moreover, such task was far from being
negligible as claimed by petitioners. On the contrary, it was crucial
to the business operation of petitioners as shown in the preceding
discussion. Hence, there was enough basis to declare private
respondent an employee of petitioners. Accordingly, there is no
cogent reason to disturb the findings of the labor arbiter and NLRC
on the existence of employer-employee relationship between herein
private parties.

A. Elements of Employer Employee Relationship

The Manila Hotel Corp. v NLRC, 343 SCRA 1


(2000)
There was no existing employer-employee relationship between
Santos and MHICL. In determining the existence of an employeremployee relationship, the following elements are considered:
"(1) the selection and engagement of the employee;
"(2) the payment of wages;
"(3) the power to dismiss; and
"(4) the power to control employee's conduct."

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

Jo v. NLRC 324 SCRA 437 (2000)


At the outset, we reiterate the doctrine that the existence of an
employer-employee relationship is ultimately a question of fact and
that the findings thereon by the labor arbiter and the NLRC shall be
accorded not only respect but even finality when supported by
ample evidence.
In determining the existence of an employer-employee relationship,
the following elements are considered: (1) the selection and
engagement of the workers; (2) power of dismissal; (3) the
payment of wages by whatever means; and (4) the power to
control the workers conduct, with the latter assuming primacy in
the overall consideration. The power of control refers to the
existence of the power and not necessarily to the actual exercise
thereof. It is not essential for the employer to actually supervise the
performance of duties of the employee; it is enough that the

Canlubang Security Agency Corporation v.


NLRC, et al., 216 SCRA 280 (1992)
The right-of-control test, i.e., "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 an
end" (Sevilla vs. Court of Appeals, 160 SCRA 171) belonging to
petitioner CSA by express stipulation of its contract with CARCO, is
determinative of the existence of employer-employee relationship
1

between CSA and its guards, the private respondents herein. Where
no employer-employee relationship has been proven to exist
between the private respondents and CARCO, the labor case filed
by the private respondents against CARCO with DOLE's arbitration
body should be dismissed for there is no legal basis for the private
respondents' claims for separation pay and other benefits against
CARCO.

under the boundary system is that of employer-employee and not


lessor-lessee. This doctrine was affirmed, under similar factual
settings, in Magboo v. Bernardo and Lantaco, Sr. v. Llamas, and was
analogously applied to govern the relationships between autocalesa owner/operator
and
driver, bus
owner/operator
and
conductor, and taxi owner/operator and driver.
The boundary system is a scheme by an owner/operator engaged
in transporting passengers as a common carrier to primarily govern
the compensation of the driver, that is, the latters daily earnings
are remitted to the owner/operator less the excess of the boundary
which represents the drivers compensation. Under this system, the
owner/operator exercises control and supervision over the driver. It
is unlike in lease of chattels where the lessor loses complete control
over the chattel leased but the lessee is still ultimately responsible
for the consequences of its use. The management of the business
is still in the hands of the owner/operator, who, being the holder of
the certificate of public convenience, must see to it that the driver
follows the route prescribed by the franchising and regulatory
authority, and the rules promulgated with regard to the business
operations. The fact that the driver does not receive fixed wages
but only the excess of the boundary given to the owner/operator is
not sufficient to change the relationship between them. Indubitably,
the driver performs activities which are usually necessary or
desirable in the usual business or trade of the owner/operator.

In the similar case of AMERICAN PRESIDENT LINES vs. CLAVE (114


SCRA 826, 833), we ruled:
In the light of the foregoing standards, We fail to see how the
complaining watchmen of the Marine Security Agency can be
considered as employees of the petitioner. It is the agency that
recruits, hires, and assigns the work of its watchmen. Hence, a
watchman cannot perform any security service for the petitioner's
vessels unless the agency first accepts him as its watchmen. With
respect to his wages, the amount to be paid to a security guard is
beyond the power of the petitioner to determine. Certainly, the
lump sum amount paid by the petitioner to the agency in
consideration of the latter's service is much more than the wages
of any one watchman. In point of fact, it is the agency that
quantifies and pays the wages to which the watchman is entitled.
Neither does the petitioner have any power to dismiss the security
guards. In fact, We fail to see any evidence in the record that it
wielded such a power. It is true that it may request the agency to
change a particular guard. But this, precisely, is proof that the
power lies in the hands of the agency.

Under the Kasunduan, respondent was required to remit P550.00


daily to petitioner, an amount which represented the boundary of
petitioner as well as respondents partial payment (hulog) of the
purchase price of the jeepney.

Since the petitioner has to deal with the agency, and not the
individual watchmen, on matters pertaining to the contracted task,
it stands to reason that the petitioner does not exercise any power
over the watchman's conduct. Always, the agency stands between
the petitioner and the watchmen; and it is the agency that is
answerable to the petitioner for the conduct of its guards.

Respondent was entitled to keep the excess of his daily earnings as


his daily wage. Thus, the daily remittances also had a dual purpose:
that of petitioners boundary and respondents partial payment
(hulog) for the vehicle. This dual purpose was expressly stated in
the Kasunduan. The well-settled rule is that an obligation is not
novated by an instrument that expressly recognizes the old one,
changes only the terms of payment, and adds other obligations not
incompatible with the old provisions or where the new contract
merely supplements the previous one. The two obligations of the
respondent to remit to petitioner the boundary-hulog can stand
together.

Villamaria v. CA, (GR No. 165881, April 19,


2006)
We agree with the ruling of the CA that, under the boundaryhulog scheme incorporated in the Kasunduan, a dual juridical
relationship was created between petitioner and respondent: that
of employer-employee and vendor-vendee. The Kasunduan did not
extinguish the employer-employee relationship of the parties extant
before the execution of said deed.

In resolving an issue based on contract, this Court must first


examine the contract itself, keeping in mind that when the terms of
the agreement are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its stipulations shall

As early as 1956, the Court ruled in National Labor Union v.


Dinglasan that the jeepney owner/operator-driver relationship
2

prevail. The intention of the contracting parties should be


ascertained by looking at the words used to project their intention,
that is, all the words, not just a particular word or two or more
words standing alone. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. The parts and
clauses must be interpreted in relation to one another to give effect
to the whole. The legal effect of a contract is to be determined from
the whole read together.

respondents conduct as driver of the vehicle. As correctly ruled by


the CA:
The exercise of control by private respondent over petitioners
conduct in operating the jeepney he was driving is inconsistent
with private respondents claim that he is, or was, not engaged in
the transportation business; that, even if petitioner was allowed to
let some other person drive the unit, it was not shown that he did
so; that the existence of an employment relation is not dependent
on how the worker is paid but on the presence or absence of
control over the means and method of the work; that the amount
earned in excess of the boundary hulog is equivalent to wages; and
that the fact that the power of dismissal was not mentioned in
the Kasunduan did not mean that private respondent never
exercised such power, or could not exercise such power.

Under the Kasunduan, petitioner retained supervision and control


over the conduct of the respondent as driver of the jeepney, thus:
The parties expressly agreed that petitioner, as vendor, and
respondent, as vendee, entered into a contract to sell the jeepney
on a daily installment basis of P550.00 payable in four years and
that petitioner would thereafter become its owner. A contract is
one of conditional sale, oftentimes referred to as contract to sell, if
the ownership or title over the property sold is retained by the
vendor, and is not passed to the vendee unless and until there is
full payment of the purchase price and/or upon faithful compliance
with the other terms and conditions that may lawfully be
stipulated. Such payment or satisfaction of other preconditions, as
the case may be, is a positive suspensive condition, the failure of
which is not a breach of contract, casual or serious, but simply an
event that would prevent the obligation of the vendor to convey
title from acquiring binding force. Stated differently, the efficacy or
obligatory force of the vendor's obligation to transfer title is
subordinated to the happening of a future and uncertain event so
that if the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed. The
vendor may extrajudicially terminate the operation of the contract,
refuse conveyance, and retain the sums or installments already
received, where such rights are expressly provided for.

Moreover, requiring petitioner to drive the unit for commercial use,


or to wear an identification card, or to don a decent attire, or to
park the vehicle in Villamaria Motors garage, or to inform
Villamaria Motors about the fact that the unit would be going out to
the province for two days of more, or to drive the unit carefully,
etc. necessarily related to control over the means by which the
petitioner was to go about his work; that the ruling applicable here
is not Singer Sewing Machine but National Labor Union since the
latter case involved jeepney owners/operators and jeepney drivers,
and that the fact that the boundary here represented installment
payment of the purchase price on the jeepney did not withdraw the
relationship from that of employer-employee, in view of the overt
presence of supervision and control by the employer.

Neither is such juridical relationship negated by petitioners claim


that the terms and conditions in the Kasunduan relative to
respondents behavior and deportment as driver was for his and
respondents benefit: to insure that respondent would be able to
pay the requisite daily installment of P550.00, and that the vehicle
would still be in good condition despite the lapse of four
years. What is primordial is that petitioner retained control over the
conduct of the respondent as driver of the jeepney.

Under the boundary-hulog scheme, petitioner retained ownership of


the jeepney although its material possession was vested in
respondent as its driver. In case respondent failed to make
his P550.00 daily installment payment for a week, the agreement
would be of no force and effect and respondent would have to
return the jeepney to petitioner; the employer-employee
relationship would likewise be terminated unless petitioner would
allow respondent to continue driving the jeepney on a boundary
basis of P550.00 daily despite the termination of their vendorvendee relationship.

Indeed, petitioner, as the owner of the vehicle and the holder of the
franchise, is entitled to exercise supervision and control over the
respondent, by seeing to it that the route provided in his franchise,
and the rules and regulations of the Land Transportation Regulatory
Board are duly complied with. Moreover, in a business
establishment, an identification card is usually provided not just as
a security measure but to mainly identify the holder thereof as
a bona fide employee of the firm who issues it.

The juridical relationship of employer-employee between petitioner


and respondent was not negated by the foregoing stipulation in
the Kasunduan, considering that petitioner retained control of
3

ABS-CBN Broadcasting Corp. v. Nazareno (G.R.


No. 164156, Sept. 26, 2006)

assistants were excluded from the said agreement is precisely


because they were classified and treated as project employees by
petitioner.

In the case at bar, however, the employer-employee relationship


between petitioner and respondents has been proven.

As earlier stated, it is not the will or word of the employer which


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

First. In the selection and engagement of respondents, no peculiar


or unique skill, talent or celebrity status was required from them
because they were merely hired through petitioners personnel
department just like any ordinary employee.
Second. The so-called "talent fees" of respondents correspond to
wages given as a result of an employer-employee relationship.
Respondents did not have the power to bargain for huge talent
fees,
a
circumstance
negating
independent
contractual
relationship.

Phil. Global Communications v. De Vera (G.R.


No. 157214, June 7, 2005)

Third. Petitioner could always discharge respondents should it find


their work unsatisfactory, and respondents are highly dependent on
the petitioner for continued work.

In a long line of decisions, the Court, in determining the existence


of an employer-employee relationship, has invariably adhered to
the four-fold test.

Fourth. The degree of control and supervision exercised by


petitioner over respondents through its supervisors negates the
allegation that respondents are independent contractors.

Applying the four-fold test to this case, we initially find that it was
respondent himself who sets the parameters of what his duties
would be in offering his services to petitioner. This is borne by no
less than his 15 May 1981 letter.

The presumption is that when the work done is an integral part of


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

Significantly, the foregoing letter was substantially the basis of the


labor arbiters finding that there existed no employer-employee
relationship between petitioner and respondent, in addition to the
following factual settings:

It follows then that respondents are entitled to the benefits


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

The fact that the complainant was not considered an employee was
recognized by the complainant himself in a signed letter to the
respondent.
The tenor of this letter indicates that the complainant was
proposing to extend his time with the respondent and seeking
additional compensation for said extension. This shows that the
respondent PHILCOM did not have control over the schedule of the
complainant as it [is] the complainant who is proposing his own
schedule and asking to be paid for the same. This is proof that the
complainant understood that his relationship with the respondent
PHILCOM was a retained physician and not as an employee. If he
were an employee he could not negotiate as to his hours of work.

x x x The award in favor of private respondents of the benefits


accorded to rank-and-file employees of ABS-CBN under the 19961999 CBA is a necessary consequence of public respondents ruling
that private respondents as production assistants of petitioner are
regular employees. The monetary award is not considered as
claims involving the interpretation or implementation of the
collective bargaining agreement. The reason why production

The complainant is a Doctor of Medicine, and presumably, a well4

educated person. Yet, the complainant, in his position paper, is


claiming that he is not conversant with the law and did not give
much attention to his job title- on a retainer basis. But the same
complainant admits in his affidavit that his service for the
respondent was covered by a retainership contract [which] was
renewed every year from 1982 to 1994. Upon reading the contract
dated September 6, 1982, signed by the complainant himself
(Annex C of Respondents Position Paper), it clearly states that is a
retainership contract. The retainer fee is indicated thereon and the
duration of the contract for one year is also clearly indicated in
paragraph 5 of the Retainership Contract. The complainant cannot
claim that he was unaware that the contract was good only for one
year, as he signed the same without any objections. The
complainant also accepted its renewal every year thereafter until
1994. As a literate person and educated person, the complainant
cannot claim that he does not know what contract he signed and
that it was renewed on a year to year basis.

profession, not to mention the fact that respondents work hours


and the additional compensation therefor were negotiated upon by
the parties. In fine, the parties themselves practically agreed on
every terms and conditions of respondents engagement, which
thereby negates the element of control in their relationship. For
sure, respondent has never cited even a single instance when
petitioner interfered with his work.

The labor arbiter added the indicia, not disputed by respondent,


that from the time he started to work with petitioner, he never was
included in its payroll; was never deducted any contribution for
remittance to the Social Security System (SSS); and was in fact
subjected by petitioner to the ten (10%) percent withholding tax for
his professional fee, in accordance with the National Internal
Revenue Code, matters which are simply inconsistent with an
employer-employee relationship.

Second. Wages are defined as remuneration or earnings, however


designated, capable of being expressed in terms of money, whether
fixed or ascertained on a time, task, piece or commission basis, or
other method of calculating the same, which is payable by an
employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or
to be rendered. That the petitioner was paid on a per trip basis is
not significant. This is merely a method of computing compensation
and not a basis for determining the existence or absence of
employer-employee relationship. One may be paid on the basis of
results or time expended on the work, and may or may not acquire
an employment status, depending on whether the elements of an
employer-employee relationship are present or not. In this case, it
cannot be gainsaid that the petitioner received compensation from
the respondent company for the services that he rendered to the
latter.

Chavez v. NLRC (G.R. No. 146530, January 17,


2005)
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. All
the four elements are present in this case.
First. Undeniably, it was the respondents who engaged the services
of the petitioner without the intervention of a third party.

Clearly, the elements of an employer-employee relationship are


wanting in this case. We may add that the records are replete with
evidence showing that respondent had to bill petitioner for his
monthly professional fees. It simply runs against the grain of
common experience to imagine that an ordinary employee has yet
to bill his employer to receive his salary.
We note, too, that the power to terminate the parties relationship
was mutually vested on both. Either may terminate the
arrangement at will, with or without cause.

Moreover, under the Rules Implementing the Labor Code, every


employer is required to pay his employees by means of payroll. The
payroll should show, among other things, the employees rate of
pay, deductions made, and the amount actually paid to the
employee. Interestingly, the respondents did not present the
payroll to support their claim that the petitioner was not their
employee, raising speculations whether this omission proves that
its presentation would be adverse to their case.

Finally, remarkably absent from the parties arrangement is the


element of control, whereby the employer has reserved the right to
control the employee not only as to the result of the work done but
also as to the means and methods by which the same is to be
accomplished.
Here, petitioner had no control over the means and methods by
which respondent went about performing his work at the company
premises. He could even embark in the private practice of his

Third. The respondents power to dismiss the petitioner was


inherent in the fact that they engaged the services of the petitioner
5

as truck driver. They exercised this power by terminating the


petitioners services albeit in the guise of severance of contractual
relation due allegedly to the latters breach of his contractual
obligation.

goods were to be delivered to the customers as, for example, the


words tomorrow morning was written on slip no. 2776.

These circumstances, to the Courts mind, prove that the


respondents exercised control over the means and methods by
which the petitioner accomplished his work as truck driver of the
respondent company. On the other hand, the Court is hard put to
believe the respondents allegation that the petitioner was an
independent contractor engaged in providing delivery or hauling
services when he did not even own the truck used for such
services. Evidently, he did not possess substantial capitalization or
investment in the form of tools, machinery and work premises.
Moreover, the petitioner performed the delivery services
exclusively for the respondent company for a continuous and
uninterrupted period of ten years.

Fourth. As earlier opined, of the four elements of the employeremployee relationship, the control test is the most important.
Compared to an employee, an independent contractor is one who
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, 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. Hence, while an independent contractor enjoys
independence and freedom from the control and supervision of his
principal, an employee is subject to the employers power to control
the means and methods by which the employees work is to be
performed and accomplished.

The contract of service to the contrary notwithstanding, the factual


circumstances earlier discussed indubitably establish the existence
of an employer-employee relationship between the respondent
company and the petitioner. It bears stressing that the existence of
an employer-employee relationship cannot be negated by expressly
repudiating it in a contract and providing therein that the employee
is an independent contractor when, as in this case, the facts clearly
show otherwise. Indeed, the employment status of a person is
defined and prescribed by law and not by what the parties say it
should be.

Although the respondents denied that they exercised control over


the manner and methods by which the petitioner accomplished his
work, a careful review of the records shows that the latter
performed his work as truck driver under the respondents
supervision and control. Their right of control was manifested by
the following attendant circumstances:
1. The truck driven by the petitioner belonged to respondent
company;

Angelina Francisco v. NLRC (G.R. No. 170087,


August 31, 2006)

2. There was an express instruction from the respondents that the


truck shall be used exclusively to deliver respondent companys
goods;

We held in Sevilla v. Court of Appeals that in this jurisdiction, there


has been no uniform test to determine the existence of an
employer-employee relation. Generally, courts 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. 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, can help in determining
the existence of an employer-employee relationship.

3. Respondents directed the petitioner, after completion of each


delivery, to park the truck in either of two specific places only, to
wit: at its office in Metro Manila at 2320 Osmea Street, Makati City
or at BEPZ, Mariveles, Bataan; and
4. Respondents determined how, where and when the petitioner
would perform his task by issuing to him gate passes and routing
slips.
a. The routing slips indicated on the column REMARKS, the
chronological order and priority of delivery such as 1 drop, 2 drop,
3 drop, etc. This meant that the petitioner had to deliver the same
according to the order of priority indicated therein.

However, 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. There are instances when, aside from the
employers power to control the employee with respect to the
means and methods by which the work is to be accomplished,

b. The routing slips, likewise, showed whether the goods were to be


delivered urgently or not by the word RUSH printed thereon.
c. The routing slips also indicated the exact time as to when the

economic realities of the employment relations help provide a


comprehensive analysis of the true classification of the individual,
whether as employee, independent contractor, corporate officer or
some other capacity.

worker is dependent on the alleged employer for his continued


employment in that line of business. In the United States, the
touchstone of economic reality in analyzing possible employment
relationships for purposes of the Federal Labor Standards Act is
dependency. By analogy, the benchmark of economic reality in
analyzing possible employment relationships for purposes of the
Labor Code ought to be the economic dependence of the worker on
his employer.

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.

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.

This two-tiered test would provide us with a framework of analysis,


which would take into consideration the totality of circumstances
surrounding the true nature of the relationship between the
parties. This is especially appropriate in this case where there is no
written agreement or terms of reference to base the relationship
on; and due to the complexity of the relationship based on the
various positions and responsibilities given to the worker over the
period of the latters employment.
The control test initially found application in the case of Viaa v. AlLagadan and Piga, and lately in Leonardo v. Court of
Appeals, where we held that there is an employer-employee
relationship when the person for whom the services are performed
reserves the right to control not only the end achieved but also the
manner and means used to achieve that end.

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,
13 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.

In Sevilla v. Court of Appeals, we observed the need to consider the


existing economic conditions prevailing between the parties, in
addition to the standard of right-of-control like the inclusion of the
employee in the payrolls, to give a clearer picture in determining
the existence of an employer-employee relationship based on an
analysis of the totality of economic circumstances of the worker.
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.

It is therefore apparent that petitioner is economically dependent


on respondent corporation for her continued employment in the
latters line of business.
In Domasig v. National Labor Relations Commission, we held that in
a business establishment, an identification card is provided not only
as a security measure but mainly to identify the holder thereof as a
bona fide employee of the firm that issues it. Together with the
cash vouchers covering petitioners salaries for the months stated
therein, these matters constitute substantial evidence adequate to
support a conclusion that petitioner was an employee of private

The proper standard of economic dependence is whether the


7

respondent.

petitioner with the means and methods by which the work is to be


accomplished.

We likewise ruled in Flores v. Nuestro that a corporation who


registers its workers with the SSS is proof that the latter were the
formers employees. The coverage of Social Security Law is
predicated on the existence of an employer-employee relationship.

Orizco v. Fifth Division of the Court of Appeals,


562 SCRA 36 (2008)
The test is whether the employer controls or has reserved the
right to control the employee, not only as to the work done, but
also as to the means and methods by which the same is
accomplished.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001


has clearly established that petitioner never acted as Corporate
Secretary and that her designation as such was only for
convenience. The actual nature of petitioners job was as Kamuras
direct assistant with the duty of acting as Liaison Officer in
representing the company to secure construction permits, license
to operate and other requirements imposed by government
agencies. Petitioner was never entrusted with corporate documents
of the company, nor required to attend the meeting of the
corporation. She was never privy to the preparation of any
document for the corporation, although once in a while she was
required to sign prepared documentation for the company.

Not all rules imposed by the hiring party on the hired party indicate
that the latter is an employee of the former. Rules which serve as
general guidelines towards the achievement of the mutually
desired result are not indicative of the power of control. Thus, this
Court has explained:
It should, however, be obvious that not every form of control that
the hiring party reserves to himself over the conduct of the party
hired in relation to the services rendered may be accorded the
effect of establishing an employer-employee relationship between
them in the legal or technical sense of the term. A line must be
drawn somewhere, if the recognized distinction between an
employee and an individual contractor is not to vanish altogether.
Realistically, it would be a rare contract of service that gives
untrammelled freedom to the party hired and eschews any
intervention whatsoever in his performance of the engagement.

The second affidavit of Kamura dated March 7, 2002 which


repudiated the December 5, 2001 affidavit has been allegedly
withdrawn by Kamura himself from the records of the
case. Regardless of this fact, we are convinced that the allegations
in the first affidavit are sufficient to establish that petitioner is an
employee of Kasei Corporation.
Granting arguendo, that the second affidavit validly repudiated the
first one, courts do not generally look with favor on any retraction
or recanted testimony, for it could have been secured by
considerations other than to tell the truth and would make solemn
trials a mockery and place the investigation of the truth at the
mercy of unscrupulous witnesses. A recantation does not
necessarily cancel an earlier declaration, but like any other
testimony the same is subject to the test of credibility and should
be received with caution.

Logically, the line should be drawn between rules that merely


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

The main determinant therefore is whether the rules set by the


employer are meant to control not just the results of the work but
also the means and method to be used by the hired party in order
to achieve such results. Thus, in this case, we are to examine the
factors enumerated by petitioner to see if these are merely
guidelines or if they indeed fulfill the requirements of the control
test.

Based on the foregoing, there can be no other conclusion that


petitioner is an employee of respondent Kasei Corporation. She was
selected and engaged by the company for compensation, and is
economically dependent upon respondent for her continued
employment in that line of business. Her main job function involved
accounting and tax services rendered to respondent corporation on
a
regular
basis
over
an
indefinite
period
of
engagement. Respondent corporation hired and engaged petitioner
for compensation, with the power to dismiss her for cause. More
importantly, respondent corporation had the power to control

Petitioner believes that respondents


she executes her work. We do not
reveals that the factors enumerated
conditions in running a newspaper.
8

acts are meant to control how


agree. A careful examination
by the petitioner are inherent
In other words, the so-called

control as to time, space, and discipline are dictated by the very


nature of the newspaper business itself.

The newspapers power to approve or reject publication of any


specific article she wrote for her column cannot be the control
contemplated in the "control test," as it is but logical that one who
commissions another to do a piece of work should have the right to
accept or reject the product. The important factor to consider in the
"control test" is still the element of control over how the work itself
is done, not just the end result thereof.

We agree with the observations of the Office of the Solicitor


General that:
The Inquirer is the publisher of a newspaper of general circulation
which is widely read throughout the country. As such, public
interest dictates that every article appearing in the newspaper
should subscribe to the standards set by the Inquirer, with its
thousands of readers in mind. It is not, therefore, unusual for the
Inquirer to control what would be published in the newspaper. What
is important is the fact that such control pertains only to the end
result, i.e., the submitted articles. The Inquirer has no control over
[petitioner] as to the means or method used by her in the
preparation of her articles. The articles are done by [petitioner]
herself without any intervention from the Inquirer.

In contrast, a regular reporter is not as independent in doing his or


her work for the newspaper. We note the common practice in the
newspaper business of assigning its regular reporters to cover
specific subjects, geographical locations, government agencies, or
areas of concern, more commonly referred to as "beats." A reporter
must produce stories within his or her particular beat and cannot
switch to another beat without permission from the editor. In most
newspapers also, a reporter must inform the editor about the story
that he or she is working on for the day. The story or article must
also be submitted to the editor at a specified time. Moreover, the
editor can easily pull out a reporter from one beat and ask him or
her to cover another beat, if the need arises.

Petitioner has not shown that PDI, acting through its editors,
dictated how she was to write or produce her articles each week.
Aside from the constraints presented by the space allocation of her
column, there were no restraints on her creativity; petitioner was
free to write her column in the manner and style she was
accustomed to and to use whatever research method she deemed
suitable for her purpose. The apparent limitation that she had to
write only on subjects that befitted the Lifestyle section did not
translate to control, but was simply a logical consequence of the
fact that her column appeared in that section and therefore had to
cater to the preference of the readers of that section.

This is not the case for petitioner. Although petitioner had a weekly
deadline to meet, she was not precluded from submitting her
column ahead of time or from submitting columns to be published
at a later time. More importantly, respondents did not dictate upon
petitioner the subject matter of her columns, but only imposed the
general guideline that the article should conform to the standards
of the newspaper and the general tone of the particular section.

The perceived constraint on petitioners column was dictated by


her own choice of her columns perspective. The column title
"Feminist Reflections" was of her own choosing, as she herself
admitted, since she had been known as a feminist writer. Thus,
respondent PDI, as well as her readers, could reasonably expect her
columns to speak from such perspective.

Where a person who works for another performs his job more or
less at his own pleasure, in the manner he sees fit, not subject to
definite hours or conditions of work, and is compensated according
to the result of his efforts and not the amount thereof, no employeremployee relationship exists.
Aside from the control test, this Court has also used the economic
reality test. The economic realities prevailing within the activity or
between the parties are examined, taking into consideration the
totality of circumstances surrounding the true nature of the
relationship between the parties. This is especially appropriate
when, as in this case, there is no written agreement or contract on
which to base the relationship. In our jurisdiction, the benchmark of
economic reality in analyzing possible employment relationships for
purposes of applying the Labor Code ought to be the economic
dependence of the worker on his employer.

Contrary to petitioners protestations, it does not appear that there


was any actual restraint or limitation on the subject matter within
the Lifestyle section that she could write about. Respondent PDI
did not dictate how she wrote or what she wrote in her column.
Neither did PDIs guidelines dictate the kind of research, time, and
effort she put into each column. In fact, petitioner herself said that
she received "no comments on her articlesexcept for her to
shorten them to fit into the box allotted to her column." Therefore,
the control that PDI exercised over petitioner was only as to the
finished product of her efforts, i.e., the column itself, by way of
either shortening or outright rejection of the column.

Petitioners main occupation is not as a columnist for respondent


9

Social Security System v. Court of Appeals, 348


SCRA 1 (2000)

but as a womens rights advocate working in various womens


organizations. Likewise, she herself admits that she also
contributes articles to other publications. Thus, it cannot be said
that petitioner was dependent on respondent PDI for her continued
employment in respondents line of business.

The mandatory coverage under the SSS Law (Republic Act No.
1161, as amended by PD 1202 and PD 1636) is premised on the
existence of an employer-employee relationship, and Section 8(d)
defines an employee as any person who performs services for an
employer in which either or both mental and physical efforts are
used and who receives compensation for such services where there
is an employer-employee relationship.

The inevitable conclusion is that petitioner was not respondent


PDIs employee but an independent contractor, engaged to do
independent work.
There is no inflexible rule to determine if a person is an employee
or an independent contractor; thus, the characterization of the
relationship must be made based on the particular circumstances
of each case. There are several factors that may be considered by
the courts, but as we already said, the right to control is the
dominant factor in determining whether one is an employee or an
independent contractor.

There is no question that Tana was selected and his services


engaged by either Ayalde herself, or by Antero Maghari, her
overseer. Corollarily, they also held the prerogative of dismissing or
terminating Tanas employment. The dispute is in the question of
payment of wages. Claimant Margarita Tana and her corroborating
witnesses testified that her husband was paid daily wages per
quincena as well as on pakyaw basis. Ayalde, on the other hand,
insists that Tana was paid solely on pakyaw basis. To support her
claim, she presented payrolls covering the period January of 1974
to January of 1976; and November of 1978 to May of 1979.

In our jurisdiction, the Court has held that an independent


contractor is one who carries on a distinct and independent
business and undertakes to perform the job, work, or service on
ones own account and under ones own responsibility according to
ones own manner and method, 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.

A careful perusal of the records readily show that the exhibits


offered are not complete, and are but a mere sampling of
payrolls. While the names of the supposed laborers appear therein,
their signatures are nowhere to be found. And while they cover the
years 1975, 1976 and portions of 1978 and 1979, they do not cover
the 18-year period during which Tana was supposed to have worked
in Ayaldes plantations. Also an admitted fact is that these exhibits
only cover Hda. B70, Ayalde having averred that all her records and
payrolls for the other plantation (Hda. B-15-M) were either
destroyed or lost.

The instant case presents a parallel to Sonza. Petitioner was


engaged as a columnist for her talent, skill, experience, and her
unique viewpoint as a feminist advocate. How she utilized all these
in writing her column was not subject to dictation by respondent.
As in Sonza, respondent PDI was not involved in the actual
performance that produced the finished product. It only reserved
the right to shorten petitioners articles based on the newspapers
capacity to accommodate the same. This fact, we note, was not
unique to petitioners column. It is a reality in the newspaper
business that space constraints often dictate the length of articles
and columns, even those that regularly appear therein.

To our mind, these documents are not only sadly lacking, they are
also unworthy of credence. The fact that Tanas name does not
appear in the payrolls for the years 1975, 1976 and part of 1978
and 1979, is no proof that he did not work in Hda. B70 in the years
1961 to 1974, and the rest of 1978 and 1979. The veracity of the
alleged documents as payrolls are doubtful considering that the
laborers named therein never affixed their signatures to show that
they actually received the amounts indicated corresponding to their
names. Moreover, no record was shown pertaining to Hda. B-15-M,
where Tana was supposed to have worked. Even Ayalde admitted
that she hired Tana as arador and sometimes as laborer during
milling in Hda. B-15-M. In light of her incomplete documentary
evidence, Ayaldes denial that Tana was her employee in Hda. B-70

Furthermore, respondent PDI did not supply petitioner with the


tools and instrumentalities she needed to perform her work.
Petitioner only needed her talent and skill to come up with a
column every week. As such, she had all the tools she needed to
perform her work.
Considering that respondent PDI was not petitioners employer, it
cannot be held guilty of illegal dismissal.

10

or Hda. B-15-M must fail.

The argument is raised that Tana is an independenent contractor


because he was hired and paid wages on pakyaw basis. We find
this assertion to be specious for several reasons.

In contrast to Ayaldes evidence, or lack thereof, is Margarita Tanas


positive testimony, corroborated by two (2) other witnesses.

First, while Tana was sometimes hired as an arador or plower for


intermittent periods, he was hired to do other tasks in Ayaldes
plantations. Ayalde herself admitted as much, although she
minimized the extent of Tanas labors. On the other hand, the
claimant and her witnesses were direct and firm in their
testimonies.

These witnesses did not waver in their assertion that while Tana
was hired by Ayalde as an arador on pakyaw basis, he was also
paid a daily wage which Ayaldes overseer disbursed every fifteen
(15) days. It is also undisputed that they were made to
acknowledge receipt of their wages by signing on sheets of ruled
paper, which are different from those presented by Ayalde as
documentary evidence. In fine, we find that the testimonies of
Margarita Tana, Agaton Libawas and Aurelio Tana prevail over the
incomplete and inconsistent documentary evidence of Ayalde.

It is indubitable, therefore, that Tana worked continuously for


Ayalde, not only as arador on pakyaw basis, but as a regular
farmhand, doing backbreaking jobs for Ayaldes business.There is no
shred of evidence to show that Tana was only a seasonal worker,
much less a migrant worker. All witnesses, including Ayalde herself,
testified that Tana and his family resided in the plantation. If he was
a mere pakyaw worker or independent contractor, then there would
be no reason for Ayalde to allow them to live inside her property for
free. The only logical explanation is that he was working for most
part of the year exclusively for Ayalde, in return for which the latter
gratuitously allowed Tana and his family to reside in her property.

In the parallel case of Opulencia Ice Plant and Storage v. NLRC, the
petitioners argued that since Manuel P. Esitas name does not
appear in the payrolls of the company it necessarily means that he
was not an employee. This Court held:
Petitioners further argue that complainant miserably failed to
present
any
documentary
evidence
to
prove
his
employment. There was no timesheet, pay slip and/or payroll/cash
voucher to speak of. Absence of these material documents are
necessarily fatal to complainants cause.

The Court of Appeals, in finding for Ayalde, relied on the claimants


and her witnesses admission that her husband was hired as
an arador on pakyaw basis, but it failed to appreciate the rest of
their testimonies. Just because he was, for short periods of time,
hired on pakyaw basis does not necessarily mean that he was not
employed to do other tasks for the remainder of the year. Even
Ayalde admitted that Tana did other jobs when he was not hired to
plow. Consequently, the conclusion culled from their testimonies to
the effect that Tana was mainly and solely an arador was at best a
selective appreciation of portions of the entire evidence. It was the
Social Security Commission that took into consideration all the
documentary and testimonial evidence on record.

We do not agree. No particular form of evidence is required to


prove the existence of an employer-employee relationship. Any
competent and relevant evidence to prove the relationship may be
admitted. For, if only documentary evidence would be required to
show that relationship, no scheming employer would ever be
brought before the bar of justice, as no employer would wish to
come out with any trace of the illegality he has authored
considering that it should take much weightier proof to invalidate a
written instrument. Thus, as in this case where the employeremployee relationship between petitioners and Esita was
sufficiently proved by testimonial evidence, the absence of time
sheet,
time
record
or
payroll
has
become
inconsequential. (Underscoring ours)

Secondly, Ayalde made much ado of her claim that Tana could not
be her employee because she exercised no control over his work
hours and method of performing his task as arador. It is also an
admitted fact that Tana, Jr. used his own carabao and tools. Thus,
she contends that, applying the control test, Tana was not an
employee but an independent contractor.

Clearly, then, the testimonial evidence of the claimant and her


witnesses constitute positive and credible evidence of the
existence of an employer-employee relationship between Tana and
Ayalde. As the employer, the latter is duty-bound to keep faithful
and complete records of her business affairs, not the least of which
would be the salaries of the workers. And yet, the documents
presented have been selective, few and incomplete in substance
and content. Consequently, Ayalde has failed to convince us that,
indeed, Tana was not her employee.

A closer scrutiny of the records, however, reveals that while Ayalde


herself may not have directly imposed on Tana the manner and
methods to follow in performing his tasks, she did exercise control
through her overseer.
11

Be that as it may, the power of control refers merely to the


existence of the power. It is not essential for the employer to
actually supervise the performance of duties of the employee; it is
sufficient that the former has a right to wield the power. Certainly,
Ayalde, on her own or through her overseer, wielded the power to
hire or dismiss, to check on the work, be it in progress or quality, of
the laborers. As the owner/lessee of the plantations, she possessed
the power to control everyone working therein and everything
taking place therein.

Code, or, contrarily, as the Company would have it, that under said
contract Basiao's status was that of an independent contractor
whose claim was thus cognizable, not by the Labor Arbiter in a
labor case, but by the regular courts in an ordinary civil action.
The Company's thesis, that no employer-employee relation in the
legal and generally accepted sense existed between it and Basiao,
is drawn from the terms of the contract they had entered into,
which, either expressly or by necessary implication, made Basiao
the master of his own time and selling methods, left to his
judgment the time, place and means of soliciting insurance, set no
accomplishment quotas and compensated him on the basis of
results obtained. He was not bound to observe any schedule of
working hours or report to any regular station; he could seek and
work on his prospects anywhere and at anytime he chose to, and
was free to adopt the selling methods he deemed most effective.

Jurisprudence provides other equally important considerations


which support the conclusion that Tana was not an independent
contractor. First, Tana cannot be said to be engaged in a distinct
occupation or business. His carabao and plow may be useful in his
livelihood, but he is not independently engaged in the business of
farming or plowing. Second, he had been working exclusively for
Ayalde for eighteen (18) years prior to his demise. Third, there is no
dispute that Ayalde was in the business of growing sugarcane in the
two plantations for commercial purposes. There is also no question
that plowing or preparing the soil for planting is a major part of the
regular business of Ayalde.

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

Under the circumstances, the relationship between Ayalde and Tana


has more of the attributes of employer-employee than that of an
independent contractor hired to perform a specific project. In the
case of Dy Keh Beng v. International Labor, we cited our longstanding ruling in Sunripe Coconut Products Co. v. Court of
Industrial Relations, to wit:
When a worker possesses some attributes of an employee and
others of an independent contractor, which make him fall within an
intermediate area, he may be classified under the category of an
employee when the economic facts of the relations make it more
nearly one of employment than one of independent business
enterprise
with
respect
to
the
ends
sought
to
be
accomplished. (Underscoring Ours)

It is true that the "control test" expressed in the following


pronouncement of the Court in the 1956 case of Viana vs. Alejo AlLagadan has been followed and applied in later cases, some
fairly recent. Indeed, it is without question a valid test of the
character of a contract or agreement to render service. It should,
however, be obvious that not every form of control that the hiring
party reserves to himself over the conduct of the party hired in
relation to the services rendered may be accorded the effect of
establishing an employer-employee relationship between them in
the legal or technical sense of the term. A line must be drawn
somewhere, if the recognized distinction between an employee and
an individual contractor is not to vanish altogether. Realistically, it

We find the above-quoted ruling to be applicable in the case of


Tana. There is preponderance of evidence to support the conclusion
that he was an employee rather than an independent contractor.

Insular Life v NLRC, 179 SCRA 459 (1989)


The chief issue here is one of jurisdiction: whether, as Basiao
asserts, he had become the Company's employee by virtue of the
contract invoked by him, thereby placing his claim for unpaid
commissions within the original and exclusive jurisdiction of the
Labor Arbiter under the provisions of Section 217 of the Labor
12

would be a rare contract of service that gives untrammelled


freedom to the party hired and eschews any intervention
whatsoever in his performance of the engagement.

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

Logically, the line should be drawn between rules that merely serve
as guidelines towards the achievement of the mutually desired
result without dictating the means or methods to be employed in
attaining it, and those that control or fix the methodology and bind
or restrict the party hired to the use of such means. The first, which
aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and
the means used to achieve it. The distinction acquires particular
relevance in the case of an enterprise affected with public interest,
as is the business of insurance, and is on that account subject to
regulation by the State with respect, not only to the relations
between insurer and insured but also to the internal affairs of the
insurance company. Rules and regulations governing the conduct of
the business are provided for in the Insurance Code and enforced
by the Insurance Commissioner. It is, therefore, usual and expected
for an insurance company to promulgate a set of rules to guide its
commission agents in selling its policies that they may not run
afoul of the law and what it requires or prohibits. Of such a
character are the rules which prescribe the qualifications of persons
who may be insured, subject insurance applications to processing
and approval by the Company, and also reserve to the Company
the determination of the premiums to be paid and the schedules of
payment. None of these really invades the agent's contractual
prerogative to adopt his own selling methods or to sell insurance at
his own time and convenience, hence cannot justifiably be said to
establish an employer-employee relationship between him and the
company.

More recently, in Sara vs. NLRC, it was held that one who had been
engaged by a rice miller to buy and sell rice and palay without
compensation except a certain percentage of what he was able to
buy or sell, did work at his own pleasure without any supervision or
control on the part of his principal and relied on his own resources
in the performance of his work, was a plain commission agent, an
independent contractor and not an employee.
The respondents limit themselves to pointing out that Basiao's
contract with the Company bound him to observe and conform to
such rules and regulations as the latter might from time to time
prescribe. No showing has been made that any such rules or
regulations were in fact promulgated, much less that any rules
existed or were issued which effectively controlled or restricted his
choice of methods or the methods themselves of selling
insurance. Absent such showing, the Court will not speculate that
any exceptions or qualifications were imposed on the express
provision of the contract leaving Basiao "... free to exercise his own
judgment as to the time, place and means of soliciting insurance."

There is no dearth of authority holding persons similarly placed as


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

The Labor Arbiter's decision makes reference to Basiao's claim of


having been connected with the Company for twenty-five years.
Whatever this is meant to imply, the obvious reply would be that
what is germane here is Basiao's status under the contract of July
2, 1968, not the length of his relationship with the Company.
The Court, therefore, rules that under the contract invoked by him,
Basiao was not an employee of the petitioner, but a commission
agent, an independent contractor whose claim for unpaid
commissions should have been litigated in an ordinary civil action.
The Labor Arbiter erred in taking cognizance of, and adjudicating,

In Investment Planning Corporation of the Philippines us. Social


13

said claim, being without jurisdiction to do so, as did the


respondent NLRC in affirming the Arbiter's decision. This conclusion
renders it unnecessary and premature to consider Basiao's claim
for commissions on its merits.

parties.
In regard to the territorial assignments given to sales agents, this
too cannot be held as indicative of the exercise of control over an
employee. First of all, the place of work in the business of soliciting
insurance does not figure prominently in the equation. And more
significantly, private respondent failed to rebut petitioner's
allegation that it had never issued him any territorial assignment at
all. Obviously, this Court cannot draw the same inference from this
feature as did the respondent Commission.

AFP Mutual Benefit Association, Inc. v. NLRC,


267 SCRA 47 (1997)
The difficulty lies in correctly assessing if certain factors or
elements properly indicate the presence of control. Anent the issue
of exclusivity in the case at bar, the fact that private respondent
was required to solicit business exclusively for petitioner could
hardly be considered as control in labor jurisprudence. Under Memo
Circulars No. 2-81 and 2-85, dated December 17, 1981 and August
7, 1985, respectively, issued by the Insurance Commissioner,
insurance agents are barred from serving more than one insurance
company, in order to protect the public and to enable insurance
companies to exercise exclusive supervision over their agents in
their solicitation work. Thus, the exclusivity restriction clearly
springs from a regulation issued by the Insurance Commission, and
not from an intention by petitioner to establish control over the
method and manner by which private respondent shall accomplish
his work. This feature is not meant to change the nature of the
relationship between the parties, nor does it necessarily imbue
such relationship with the quality of control envisioned by the law.

To restate, the significant factor in determining the relationship of


the parties is the presence or absence of supervisory authority to
control the method and the details of performance of the service
being rendered, and the degree to which the principal may
intervene to exercise such control. The presence of such power of
control is indicative of an employment relationship, while absence
thereof is indicative of independent contractorship. In other words,
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 result of the work. Such is exactly the nature of the
relationship between petitioner and private respondent.
Private respondent's contention that he was petitioner's employee
is belied by the fact that he was free to sell insurance at any time
as he was not subject to definite hours or conditions of work and in
turn was compensated according to the result of his efforts. By the
nature of the business of soliciting insurance, agents are normally
left free to devise ways and means of persuading people to take
out insurance. There is no prohibition, as contended by petitioner,
for private respondent to work for as long as he does not violate
the Insurance Code. As petitioner explains:

So too, the fact that private respondent was bound by company


policies, memo/circulars, rules and regulations issued from time to
time is also not indicative of control. In its Reply to Complainant's
Position Paper, petitioner alleges that the policies, memo/circulars,
and rules and regulations referred to in provision B(1) of the Sales
Agent's Agreement are only those pertaining to payment of agents'
accountabilities, availment by sales agents of cash advances for
sorties, circulars on incentives and awards to be given based on
production, and other matters concerning the selling of insurance,
in accordance with the rules promulgated by the Insurance
Commission. According to the petitioner, insurance solicitors are
never affected or covered by the rules and regulations
concerning employee conduct and penalties for violations thereof,
work standards, performance appraisals, merit increases,
promotions,
absenteeism/attendance,
leaves
of
absence,
management-union matters, employee benefits and the like. Since
private respondent failed to rebut these allegations, the same are
deemed admitted, or at least proven, thereby leaving nothing to
support the respondent Commission's conclusion that the foregoing
elements signified an employment relationship between the

"(Private respondent) was free to solicit life insurance anywhere he


wanted and he had free and unfettered time to pursue his
business. He did not have to punch in and punch out the bundy
clock as he was not required to report to the (petitioner's) office
regularly. He was not covered by any employee policies or
regulations and not subject to the disciplinary action of
management on the basis of the Employee Code of Conduct. He
could go out and sell insurance at his own chosen time. He was
entirely left to his own choices of areas or territories, with no
definite, much less supervised, time schedule.
(Private respondent) had complete control over his occupation and
(petitioner) did not exercise any right of Control and Supervision
over his performance except as to the payment of commission the

14

or her say in directing the course of the principal-agent


relationship, especially in cases where the company-representative
relationship in the insurance industry is an agency.

amount of which entirely depends on the sole efforts of (private


respondent). He was free to engage in other occupation or practice
other profession for as long as he did not commit any violation of
the ethical standards prescribed in the Sales Agent's Agreement."

a. The laws on insurance and agency

Although petitioner could have, theoretically, disapproved any of


private respondent's transactions, what could be disapproved was
only the result of the work, and not the means by which it was
accomplished.

The business of insurance is a highly regulated commercial activity


in the country, in terms particularly of who can be in the insurance
business, who can act for and in behalf of an insurer, and how
these parties shall conduct themselves in the insurance
business. Section 186 of the Insurance Code provides that No
person, partnership, or association of persons shall transact any
insurance business in the Philippines except as agent of a person
or corporation authorized to do the business of insurance in
thePhilippines. Sections 299 and 300 of the Insurance Code on
Insurance Agents and Brokers, among other provisions, provide:

The "control" which the above factors indicate did not sum up to
the power to control private respondent's conduct in and mode of
soliciting insurance. On the contrary, they clearly indicate that the
juridical element of control had been absent in this situation. Thus,
the Court is constrained to rule that no employment relationship
had ever existed between the parties.

Tongko v. Manufacturers Life Assurance


Company (G.R. No. 167622, 29 June 2010)

Section 299. No insurance company doing business in the


Philippines, nor any agent thereof, shall pay any commission or
other compensation to any person for services in obtaining
insurance, unless such person shall have first procured from the
Commissioner a license to act as an insurance agent of such
company or as an insurance broker as hereinafter provided.

We cannot consider the present case purely from a labor law


perspective, oblivious that the factual antecedents were set in the
insurance industry so that the Insurance Code primarily
governs. Chapter IV, Title 1 of this Code is wholly devoted to
Insurance Agents and Brokers and specifically defines the agents
and brokers relationship with the insurance company and how they
are governed by the Code and regulated by the Insurance
Commission.

No person shall act as an insurance agent or as an insurance


broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company
doing business in the Philippines or any agent thereof, without first
procuring a license so to act from the Commissioner x x xThe
Commissioner shall satisfy himself as to the competence and
trustworthiness of the applicant and shall have the right to refuse
to issue or renew and to suspend or revoke any such license in his
discretion.

The Insurance Code, of course, does not wholly regulate the agency
that it speaks of, as agency is a civil law matter governed by the
Civil Code. Thus, at the very least, three sets of laws namely, the
Insurance Code, the Labor Code and the Civil Code have to be
considered in looking at the present case. Not to be forgotten, too,
is the Agreement (partly reproduced on page 2 of this Dissent and
which no one disputes) that the parties adopted to govern their
relationship for purposes of selling the insurance the company
offers. To forget these other laws is to take a myopic view of the
present case and to add to the uncertainties that now exist in
considering the legal relationship between the insurance company
and its agents.

Section 300. Any person who for compensation solicits or obtains


insurance on behalf of any insurance company or transmits for a
person other than himself an application for a policy or contract of
insurance to or from such company or offers or assumes to act in
the negotiating of such insurance shall be an insurance agent
within the intent of this section and shall thereby become liable to
all the duties, requirements, liabilities and penalties to which an
insurance agent is subject.

The application for an insurance agents license requires a written


examination, and the applicant must be of good moral character
and must not have been convicted of a crime involving moral
turpitude. The insurance agent who collects premiums from an
insured person for remittance to the insurance company does so in
a fiduciary capacity, and an insurance company which delivers an

The main issue of whether an agency or an employment


relationship exists depends on the incidents of the relationship. The
Labor Code concept of control has to be compared and
distinguished with the control that must necessarily exist in a
principal-agent relationship. The principal cannot but also have his
15

insurance policy or contract to an authorized agent is deemed to


have authorized the agent to receive payment on the companys
behalf.Section 361 further prohibits the offer, negotiation, or
collection of any amount other than that specified in the policy and
this covers any rebate from the premium or any special favor or
advantage in the dividends or benefit accruing from the policy.

contrary. Other than the compensation, the principal is bound to


advance to, or to reimburse, the agent the agreed sums necessary
for the execution of the agency. By implication at least under Article
1994 of the Civil Code, the principal can appoint two or more
agents to carry out the same assigned tasks, based necessarily on
the specific instructions and directives given to them.

Thus, under the Insurance Code, the agent must, as a matter of


qualification, be licensed and must also act within the parameters
of the authority granted under the license and under the contract
with the principal. Other than the need for a license, the agent is
limited in the way he offers and negotiates for the sale of the
companys insurance products, in his collection activities, and in the
delivery of the insurance contract or policy. Rules regarding the
desired results (e.g., the required volume to continue to qualify as a
company agent, rules to check on the parameters on the authority
given to the agent, and rules to ensure that industry, legal and
ethical rules are followed) are built-in elements of control specific to
an insurance agency and should not and cannot be read as
elements of control that attend an employment relationship
governed by the Labor Code.

With particular relevance to the present case is the provision that In


the execution of the agency, the agent shall act in accordance with
the instructions of the principal. This provision is pertinent for
purposes of the necessary control that the principal exercises over
the agent in undertaking the assigned task, and is an area where
the instructions can intrude into the labor law concept of control so
that minute consideration of the facts is necessary. A related article
is Article 1891 of the Civil Code which binds the agent to render an
account of his transactions to the principal.
The
Decision
of
November
7,
2008
refers
to
the
first Insular and Grepalife cases to establish that the company rules
and regulations that an agent has to comply with are indicative of
an employer-employee relationship. The Dissenting Opinions of
Justice Presbitero Velasco, Jr. and Justice Conchita Carpio Morales
also cite Insular Life Assurance Co. v. National Labor Relations
Commission (second Insular case) to support the view that Tongko
is Manulifes employee. On the other hand, Manulife cites
theCarungcong case and AFP Mutual Benefit Association, Inc. v.
National Labor Relations Commission (AFPMBAI case) to support its
allegation that Tongko was not its employee.

On the other hand, the Civil Code defines an agent as a person


[who] binds himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter. While this is a very broad definition that on
its face may even encompass an employment relationship, the
distinctions between agency and employment are sufficiently
established by law and jurisprudence.

A caveat has been given above with respect to the use of the
rulings in the cited cases because none of them is on all fours with
the present case; the uniqueness of the factual situation of the
present case prevents it from being directly and readily cast in the
mold of the cited cases. These cited cases are themselves different
from one another; this difference underscores the need to read and
quote them in the context of their own factual situations.

Generally, the determinative element is the control exercised over


the one rendering service. The employer controls the employee
both in the results and in the means and manner of achieving this
result. The principal in an agency relationship, on the other hand,
also has the prerogative to exercise control over the agent in
undertaking the assigned task based on the parameters outlined in
the pertinent laws.

The present case at first glance appears aligned with the facts in
the Carungcong, the Grepalife, and the second Insular Life cases. A
critical difference, however, exists as these cited cases dealt
with
the
proper
legal
characterization
of
a subsequent management contract that superseded the
original agency contract between the insurance company
and its agent. Carungcong dealt with a subsequent Agreement
making Carungcong a New Business Manager that clearly
superseded the Agreement designating Carungcong as an agent
empowered to solicit applications for insurance. The Grepalife case,

Under the general law on agency as applied to insurance, an


agency must be express in light of the need for a license and for
the designation by the insurance company. In the present case, the
Agreement fully serves as grant of authority to Tongko as Manulifes
insurance agent. This agreement is supplemented by the companys
agency practices and usages, duly accepted by the agent in
carrying out the agency. By authority of the Insurance Code, an
insurance agency is for compensation, a matter the Civil Code
Rules on Agency presumes in the absence of proof to the
16

on the other hand, dealt with the proper legal characterization of


the appointment of the Ruiz brothers to positions higher than their
original position as insurance agents. Thus, after analyzing the
duties and functions of the Ruiz brothers, as these were
enumerated in their contracts, we concluded that the company
practically dictated the manner by which the Ruiz brothers were to
carry out their jobs. Finally, the second Insular Life case dealt with
the implications of de los Reyes appointment as acting unit
manager
which,
like
the
subsequent
contracts
in
the Carungcong and the Grepalife cases, was clearly defined under
a subsequent contract. In all these cited cases, a
determination of the presence of the Labor Code element of
control was made on the basis of the stipulations of the
subsequent contracts.

embodied is a matter of law that is for the courts to determine. At


the same time, though, the characterization the parties gave to
their relationship in the Agreement cannot simply be brushed aside
because it embodies their intent at the time they entered the
Agreement, and they were governed by this understanding
throughout their relationship. At the very least, the provision on the
absence of employer-employee relationship between the parties
can be an aid in considering the Agreement and its
implementation, and in appreciating the other evidence on record.
The parties legal characterization of their intent, although not
conclusive, is critical in this case because this intent is not illegal or
outside the contemplation of law, particularly of the Insurance and
the Civil Codes. From this perspective, the provisions of the
Insurance Code cannot be disregarded as this Code (as heretofore
already noted) expressly envisions a principal-agent relationship
between the insurance company and the insurance agent in the
sale of insurance to the public. For this reason, we can take
judicial notice that as a matter of Insurance Code-based
business practice, an agency relationship prevails in the
insurance industry for the purpose of selling insurance. The
Agreement, by its express terms, is in accordance with the
Insurance Code model when it provided for a principal-agent
relationship, and thus cannot lightly be set aside nor simply be
considered as an agreement that does not reflect the parties true
intent. This intent, incidentally, is reinforced by the system of
compensation the Agreement provides, which likewise is in
accordance with the production-based sales commissions the
Insurance Code provides.

In
stark
contrast
with
the Carungcong,
the
Grepalife,
and the second
Insular
Life cases, the
only
contract
or
document extant and submitted as evidence in the present
case is the Agreement a pure agency agreement in the Civil Code
context similar to the original contract in the first Insular
Life case and the contract in the AFPMBAI case. And while Tongko
was later on designated unit manager in 1983, Branch Manager in
1990, and Regional Sales Manager in 1996, no formal contract
regarding these undertakings appears in the records of the
case. Any such contract or agreement, had there been any, could
have at the very least provided the bases for properly ascertaining
the juridical relationship established between the parties.
These critical differences, particularly between the present case
and the Grepalife and the second Insular Life cases, should
therefore immediately drive us to be more prudent and cautious in
applying the rulings in these cases.

Significantly, evidence shows that Tongkos role as an insurance


agent never changed during his relationship with Manulife. If
changes occurred at all, the changes did not appear to be in the
nature of their core relationship. Tongko essentially remained an
agent, but moved up in this role through Manulifes recognition that
he could use other agents approved by Manulife, but operating
under his guidance and in whose commissions he had a share. For
want of a better term, Tongko perhaps could be labeled as a lead
agent who guided under his wing other Manulife agents similarly
tasked with the selling of Manulife insurance.

The primary evidence in the present case is the July 1, 1977


Agreement that governed and defined the parties relations until the
Agreements termination in 2001. This Agreement stood for more
than two decades and, based on the records of the case, was
never modified or novated. It assumes primacy because it directly
dealt with the nature of the parties relationship up to the very end;
moreover, both parties never disputed its authenticity or the
accuracy of its terms.

Like Tongko, the evidence suggests that these other agents


operated under their own agency agreements. Thus, if Tongkos
compensation scheme changed at all during his relationship with
Manulife, the change was solely for purposes of crediting him with
his share in the commissions the agents under his wing generated.

By the Agreements express terms, Tongko served as an insurance


agent for Manulife, not as an employee. To be sure, the Agreements
legal characterization of the nature of the relationship cannot be
conclusive and binding on the courts; as the dissent clearly stated,
the characterization of the juridical relationship the Agreement
17

As an agent who was recruiting and guiding other insurance


agents, Tongko likewise moved up in terms of the reimbursement of
expenses he incurred in the course of his lead agency, a
prerogative he enjoyed pursuant to Article 1912 of the Civil
Code. Thus, Tongko received greater reimbursements for his
expenses and was even allowed to use Manulife facilities in his
interactions with the agents, all of whom were, in the strict sense,
Manulife agents approved and certified as such by Manulife with
the Insurance Commission.

that cannot be brushed aside by a mere denial. Even on a laymans


view that is devoid of legal considerations, the extent of his annual
income alone renders his claimed employment status doubtful.
Hand in hand with the concept of admission against interest in
considering the tax returns, the concept of estoppel a legal and
equitable concept necessarily must come into play. Tongkos
previous admissions in several years of tax returns as an
independent agent, as against his belated claim that he was all
along an employee, are too diametrically opposed to be simply
dismissed or ignored. Interestingly, Justice Velascos dissenting
opinion states that Tongko was forced to declare himself a business
or self-employed person by Manulifes persistent refusal to
recognize him as its employee. Regrettably, the dissent has
shown no basis for this conclusion, an understandable
omission since no evidence in fact exists on this point in
the records of the case. In fact, what the evidence shows is
Tongkos full conformity with, and action as, an independent agent
until his relationship with Manulife took a bad turn.

That Tongko assumed a leadership role but nevertheless wholly


remained an agent is the inevitable conclusion that results from the
reading of the Agreement (the only agreement on record in this
case) and his continuing role thereunder as sales agent, from the
perspective of the Insurance and the Civil Codes and in light of
what Tongko himself attested to as his role as Regional Sales
Manager. To be sure, this interpretation could have been
contradicted if other agreements had been submitted as evidence
of the relationship between Manulife and Tongko on the latters
expanded undertakings. In the absence of any such evidence,
however, this reading based on the available evidence and the
applicable insurance and civil law provisions must stand, subject
only to objective and evidentiary Labor Code tests on the existence
of an employer-employee relationship.

Another interesting point the dissent raised with respect to the


Agreement is its conclusion that the Agreement negated any
employment relationship between Tongko and Manulife so that the
commissions he earned as a sales agent should not be considered
in the determination of the backwages and separation pay that
should be given to him. This part of the dissent is correct although
it went on to twist this conclusion by asserting that Tongko had dual
roles in his relationship with Manulife; he was an agent, not an
employee, in so far as he sold insurance for Manulife, but was an
employee in his capacity as a manager. Thus, the dissent
concluded that Tongkos backwages should only be with respect to
his role as Manulifes manager.

In applying such Labor Code tests, however, the enforcement of the


Agreement during the course of the parties relationship should be
noted. From 1977 until the termination of the Agreement, Tongkos
occupation was to sell Manulifes insurance policies and
products. Both parties acquiesced with the terms and conditions of
the Agreement. Tongko, for his part, accepted all the benefits
flowing from the Agreement, particularly the generous
commissions.

The conclusion with respect to Tongkos employment as a manager


is, of course, unacceptable for the legal, factual and practical
reasons discussed in this Resolution. In brief, the factual reason is
grounded on the lack of evidentiary support of the conclusion that
Manulife exercised control over Tongko in the sense understood in
the Labor Code.The legal reason, partly based on the lack of
factual basis, is the erroneous legal conclusion that Manulife
controlled Tongko and was thus its employee. The practical
reason, on the other hand, is the havoc that the dissents
unwarranted conclusion would cause the insurance industry that,
by the laws own design, operated along the lines of principal-agent
relationship in the sale of insurance.

Evidence indicates that Tongko consistently clung to the view that


he was an independent agent selling Manulife insurance products
since he invariably declared himself a business or self-employed
person in his income tax returns. This consistency with, and
action made pursuant to the Agreement were pieces of
evidence that were never mentioned nor considered in our
Decision of November 7, 2008. Had they been considered, they
could, at the very least, serve as Tongkos admissions against his
interest. Strictly speaking, Tongkos tax returns cannot but be legally
significant because he certified under oath the amount he earned
as gross business income, claimed business deductions, leading to
his net taxable income. This should be evidence of the first order

A glaring evidentiary gap for Tongko in this case is the lack of


18

evidence on record showing that Manulife ever exercised meansand-manner control, even to a limited extent, over Tongko during
his ascent in Manulifes sales ladder. In 1983, Tongko was appointed
unit manager. Inexplicably, Tongko never bothered to present any
evidence at all on what this designation meant. This also holds true
for Tongkos appointment as branch manager in 1990, and as
Regional Sales Manager in 1996. The best evidence of control the
agreement or directive relating to Tongkos duties and
responsibilities was never introduced as part of the records of the
case. The reality is, prior to de Dios letter, Manulife had practically
left Tongko alone not only in doing the business of selling
insurance, but also in guiding the agents under his wing. As
discussed below, the alleged directives covered by de Dios letter,
heretofore quoted in full, were policy directions and targeted results
that the company wanted Tongko and the other sales groups to
realign with in their own selling activities. This is the reality that the
parties presented evidence consistently tells us.

From jurisprudence, an important lesson that the first Insular


Life case teaches us is that a commitment to abide by the rules and
regulations of an insurance company does not ipso facto make the
insurance agent an employee. Neither do guidelines somehow
restrictive of the insurance agents conduct necessarily indicate
control as this term is defined in jurisprudence. Guidelines
indicative of labor law control, as the first Insular Life case
tells us, should not merely relate to the mutually desirable
result intended by the contractual relationship; they must
have the nature of dictating the means or methods to be
employed in attaining the result, or of fixing the
methodology and of binding or restricting the party hired to
the use of these means. In fact, results-wise, the principal can
impose production quotas and can determine how many agents,
with specific territories, ought to be employed to achieve the
companys objectives. These are management policy decisions that
the labor law element of control cannot reach. Our ruling in these
respects in the first Insular Life case was practically reiterated
in Carungcong. Thus, as will be shown more fully below, Manulifes
codes of conduct, all of which do not intrude into the insurance
agents means and manner of conducting their sales and only
control them as to the desired results and Insurance Code norms,
cannot be used as basis for a finding that the labor law concept of
control existed between Manulife and Tongko.

What, to Tongko, serve as evidence of labor law control are the


codes of conduct that Manulife imposes on its agents in the sale of
insurance. The mere presentation of codes or of rules and
regulations, however, is not per se indicative of labor law control as
the law and jurisprudence teach us.
As already recited above, the Insurance Code imposes obligations
on both the insurance company and its agents in the performance
of their respective obligations under the Code, particularly on
licenses and their renewals, on the representations to be made to
potential customers, the collection of premiums, on the delivery of
insurance policies, on the matter of compensation, and on
measures to ensure ethical business practice in the industry.

Aside from these affidavits however, no other evidence exists


regarding the effects of Tongkos additional roles in Manulifes sales
operations on the contractual relationship between them.
To the dissent, Tongkos administrative functions as recruiter,
trainer, or supervisor of other sales agents constituted a
substantive alteration of Manulifes authority over Tongko and the
performance of his end of the relationship with Manulife. We could
not deny though that Tongko remained, first and foremost, an
insurance agent, and that his additional role as Branch Manager did
not lessen his main and dominant role as insurance agent; this role
continued to dominate the relations between Tongko and Manulife
even after Tongko assumed his leadership role among agents. This
conclusion cannot be denied because it proceeds from the
undisputed fact that Tongko and Manulife never altered their July 1,
1977 Agreement, a distinction the present case has with the
contractual changes made in the second Insular Life case. Tongkos
results-based commissions, too, attest to the primacy he gave to
his role as insurance sales agent.

The general law on agency, on the other hand, expressly allows the
principal an element of control over the agent in a manner
consistent with an agency relationship. In this sense, these control
measures cannot be read as indicative of labor law control.
Foremost among these are the directives that the principal may
impose on the agent to achieve the assigned tasks, to the extent
that they do not involve the means and manner of undertaking
these tasks. The law likewise obligates the agent to render an
account; in this sense, the principal may impose on the agent
specific instructions on how an account shall be made, particularly
on the matter of expenses and reimbursements. To these extents,
control can be imposed through rules and regulations without
intruding into the labor law concept of control for purposes of
employment.

The dissent apparently did not also properly analyze and appreciate
19

the great qualitative difference that exists between:

between Manulife and Tongko.

the Manulife managers role is to coordinate activities of the


agents under the managers Unit in the agents daily, weekly, and
monthly selling activities, making sure that their respective sales
targets are met.

Even de Dios letter is not determinative of control as it indicates


the least amount of intrusion into Tongkos exercise of his role as
manager in guiding the sales agents.Strictly viewed, de Dios
directives are merely operational guidelines on how Tongko could
align his operations with Manulifes re-directed goal of being a big
league player. The method is to expand coverage through the use
of more agents. This requirement for the recruitment of more
agents is not a means-and-method control as it relates, more than
anything else, and is directly relevant, to Manulifes objective of
expanded business operations through the use of a bigger sales
force whose members are all on a principal-agent relationship. An
important point to note here is that Tongko was not
supervising regular full-time employees of Manulife
engaged in the running of the insurance business; Tongko
was effectively guiding his corps of sales agents, who are
bound to Manulife through the same Agreement that he had
with Manulife, all the while sharing in these agents
commissions through his overrides. This is the lead agent
concept mentioned above for want of a more appropriate term,
since the title of Branch Manager used by the parties is really a
misnomer given that what is involved is not a specific regular
branch of the company but a corps of non-employed agents,
defined in terms of covered territory, through which the company
sells insurance. Still another point to consider is that Tongko was
not even setting policies in the way a regular company manager
does; company aims and objectives were simply relayed to him
with suggestions on how these objectives can be reached through
the expansion of a non-employee sales force.

the District Managers duty in Grepalife is to properly account,


record, and document the company's funds, spot-check and audit
the work of the zone supervisors, conserve the company's business
in the district through reinstatements, follow up the submission of
weekly remittance reports of the debit agents and zone
supervisors, preserve company property in good condition, train
understudies for the position of district managers, and maintain his
quota of sales (the failure of which is a ground for termination).
the Zone Supervisors (also in Grepalife) has the duty to direct
and supervise the sales activities of the debit agents under him,
conserve company property through reinstatements, undertake
and discharge the functions of absentee debit agents, spot-check
the records of debit agents, and insure proper documentation of
sales and collections by the debit agents.

These
job
contents
are
worlds
apart
in
terms
of
control. In Grepalife, the details of how to do the job are specified
and pre-determined; in the present case, the operative words are
the sales target, the methodology being left undefined except to
the extent of being coordinative. To be sure, a coordinative
standard for a manager cannot be indicative of control; the
standard only essentially describes what a Branch Manager is the
person in the lead who orchestrates activities within the group. To
coordinate, and thereby to lead and to orchestrate, is not so much
a matter of control by Manulife; it is simply a statement of a branch
managers role in relation with his agents from the point of view of
Manulife whose business Tongkos sales group carries.

Interestingly, a large part of de Dios letter focused on income,


which Manulife demonstrated, in Tongkos case, to be unaffected by
the new goal and direction the company had set. Income in
insurance agency, of course, is dependent on results, not on the
means and manner of selling a matter for Tongko and his agents to
determine and an area into which Manulife had not
waded. Undeniably, de Dios letter contained a directive to secure a
competent assistant at Tongkos own expense. While couched in
terms of a directive, it cannot strictly be understood as an intrusion
into Tongkos method of operating and supervising the group of
agents within his delineated territory. More than anything else, the
directive was a signal to Tongko that his results were unsatisfactory,
and was a suggestion on how Tongkos perceived weakness in
delivering results could be remedied. It was a solution, with an eye
on results, for a consistently underperforming group; its obvious

A disturbing note, with respect to the presented affidavits and


Tongkos alleged administrative functions, is the selective citation of
the portions supportive of an employment relationship and the
consequent omission of portions leading to the contrary
conclusion. For example, the following portions of the affidavit of
Regional Sales Manager John Chua, with counterparts in the other
affidavits, were not brought out in the Decision of November 7,
2008, while the other portions suggesting labor law control were
highlighted. Specifically, the following portions of the affidavits
were not brought out.
These statements, read with the above comparative analysis of the
Manulife and the Grepalife cases, would have readily yielded the
conclusion that no employer-employee relationship existed
20

intent was to save Tongko from the result that he then failed to
grasp that he could lose even his own status as an agent, as he in
fact eventually did.

The Grepalife case dealt with the sole issue of whether the Ruiz
brothers appointment as zone supervisor and district manager
made them employees of Grepalife. Indeed, because of the
presence of the element of control in their contract of
engagements, they were considered Grepalifes employees. This did
not mean, however, that they were simultaneously considered
agents as well as employees of Grepalife; the Courts ruling never
implied that this situation existed insofar as the Ruiz brothers were
concerned. The Courts statement the Insurance Code may govern
the licensing requirements and other particular duties of insurance
agents, but it does not bar the application of the Labor Code with
regard to labor standards and labor relations simply means that
when an insurance company has exercised control over its agents
so as to make them their employees, the relationship between the
parties, which was otherwise one for agency governed by the Civil
Code and the Insurance Code, will now be governed by the Labor
Code. The reason for this is simple the contract of agency has been
transformed into an employer-employee relationship.

The present case must be distinguished from the second Insular


Life case that showed the hallmarks of an employer-employee
relationship in the management system established. These were:
exclusivity of service, control of assignments and removal of agents
under the private respondents unit, and furnishing of company
facilities and materials as well as capital described as Unit
Development Fund. All these are obviously absent in the present
case. If there is a commonality in these cases, it is in the collection
of premiums which is a basic authority that can be delegated to
agents under the Insurance Code.
Given this anemic state of the evidence, particularly on the
requisite confluence of the factors determinative of the existence of
employer-employee relationship, the Court cannot conclusively find
that the relationship exists in the present case, even if such
relationship only refers to Tongkos additional functions. While a
rough deduction can be made, the answer will not be fully
supported by the substantial evidence needed.

The second Insular Life case, on the other hand, involved the issue
of whether the labor bodies have jurisdiction over an illegal
termination dispute involving parties who had two contracts first,
an original contract (agency contract), which was undoubtedly one
for agency, and another subsequent contract that in turn
designated the agent acting unit manager (a management
contract). Both the Insular Life and the labor arbiter were one in the
position that both were agency contracts. The Court disagreed with
this conclusion and held that insofar as the management contract
is concerned, the labor arbiter has jurisdiction. It is in this light that
we remanded the case to the labor arbiter for further
proceedings. We never said in this case though that the insurance
agent had effectively assumed dual personalities for the simple
reason that the agency contract has been effectively superseded
by the management contract. The management contract provided
that if the appointment was terminated for any reason other than
for cause, the acting unit manager would be reverted to agent
status and assigned to any unit.

Under this legal situation, the only conclusion that can be made is
that the absence of evidence showing Manulifes control over
Tongkos contractual duties points to the absence of any employeremployee relationship between Tongko and Manulife. In the context
of the established evidence, Tongko remained an agent all along;
although his subsequent duties made him a lead agent with
leadership role, he was nevertheless only an agent whose basic
contract yields no evidence of means-and-manner control.
This conclusion renders unnecessary any further discussion of the
question of whether an agent may simultaneously assume
conflicting dual personalities. But to set the record straight, the
concept of a single person having the dual role of agent and
employee while doing the same task is a novel one in our
jurisprudence, which must be viewed with caution especially when
it is devoid of any jurisprudential support or precedent. The
quoted portions in Justice Carpio-Morales dissent, borrowed from
both theGrepalife and the second Insular Life cases, to support the
duality approach of the Decision of November 7, 2008, are
regrettably far removed from their context i.e., the cases factual
situations, the issues they decided and the totality of the rulings in
these cases and cannot yield the conclusions that the dissenting
opinions drew.

Singer Sewing Machine v Drilon, 193 SCRA 270


(1991)
The nature of the relationship between a company and its
collecting agents depends on the circumstances of each particular
relationship. Not all collecting agents are employees and neither
are all collecting agents independent contractors. The collectors
could fall under either category depending on the facts of each
21

case.

exclusively for SINGER. There is no prohibition on the part of the


collection agents from working elsewhere. Nor are these agents
required to account for their time and submit a record of their
activity.

The Agreement confirms the status of the collecting agent in this


case as an independent contractor not only because he is explicitly
described as such but also because the provisions permit him to
perform collection services for the company without being subject
to the control of the latter except only as to the result of his work.
After a careful analysis of the contents of the agreement, we rule in
favor of the petitioner.

3. The manner and method of effecting collections are left solely to


the discretion of the collection agents without any interference on
the part of Singer.
4. The collection agents shoulder their transportation expenses
incurred in the collections of the accounts assigned to them.

The requirement that collection agents utilize only receipt forms


and report forms issued by the Company and that reports shall be
submitted at least once a week is not necessarily an indication of
control over the means by which the job of collection is to be
performed. The agreement itself specifically explains that receipt
forms shall be used for the purpose of avoiding a co-mingling of
personal funds of the agent with the money collected on behalf of
the Company. Likewise, the use of standard report forms as well as
the regular time within which to submit a report of collection are
intended to facilitate order in office procedures. Even if the report
requirements are to be called control measures, any control is only
with respect to the end result of the collection since the
requirements regulate the things to be done after the performance
of the collection job or the rendition of the service.

5. The collection agents are paid strictly on commission basis. The


amounts paid to them are based solely on the amounts of
collection each of them make. They do not receive any commission
if they do not effect any collection even if they put a lot of effort in
collecting. They are paid commission on the basis of actual
collections.
6. The commissions earned by the collection agents are directly
deducted by them from the amount of collections they are able to
effect. The net amount is what is then remitted to Singer." (Rollo,
pp. 7-8)

If indeed the union members are controlled as to the manner by


which they are supposed to perform their collections, they should
have explicitly said so in detail by specifically denying each of the
facts asserted by the petitioner. As there seems to be no objections
on the part of the respondents, the Court finds that they miserably
failed to defend their position.

The monthly collection quota is a normal requirement found in


similar contractual agreements and is so stipulated to encourage a
collecting agent to report at least the minimum amount of
proceeds. In fact, paragraph 5, section b gives a bonus, aside from
the regular commission every time the quota is reached. As a
requirement for the fulfillment of the contract, it is subject to
agreement by both parties. Hence, if the other contracting party
does not accede to it, he can choose not to sign it. From the
records, it is clear that the Company and each collecting agent
intended that the former take control only over the amount of
collection, which is a result of the job performed.

A thorough examination of the facts of the case leads us to the


conclusion that the existence of an employer-employee relationship
between the Company and the collection agents cannot be
sustained.
The plain language of the agreement reveals that the designation
as collection agent does not create an employment relationship and
that the applicant is to be considered at all times as an
independent contractor. This is consistent with the first rule of
interpretation that the literal meaning of the stipulations in the
contract controls (Article 1370, Civil Code; La Suerte Cigar and
Cigarette Factory v. Director of Bureau of Labor, Relations, 123
SCRA 679 [1983]). No such words as "to hire and employ" are
present. Moreover, the agreement did not fix an amount for wages
nor the required working hours. Compensation is earned only on
the basis of the tangible results produced, i.e., total collections
made (Sarra v. Agarrado, 166 SCRA 625 [1988]). In Investment
Planning Corp. of the Philippines v. Social Security System, 21 SCRA
924 [1967] which involved commission agents, this Court had the

The respondents' contention that the union members are


employees of the Company is based on selected provisions of the
Agreement but ignores the following circumstances which
respondents never refuted either in the trial proceedings before the
labor officials nor in its pleadings filed before this Court.
1. The collection agents are not required to observe office hours or
report to Singer's office everyday except, naturally and necessarily,
for the purpose of remitting their collections.
2. The collection agents do not have to devote their time

22

occasion to rule, thus:

determining the right of an employee to certain benefits, to join or


form a union, or to security of tenure. Article 280 does not apply
where the existence of an employment relationship is in dispute.

We are convinced from the facts that the work of petitioner's


agents or registered representatives more nearly approximates
that of an independent contractor than that of an employee. The
latter is paid for the labor he performs, that is, for the acts of which
such labor consists the former is paid for the result thereof . . . .

Mafinco v. Ople, 70 SCRA 139 (1976)


Pro hac vice the issue of whether Repomanta and Moralde were
employees of Mafinco or were independent contractors should be
resolved mainly in the light of their peddling contracts. A different
approach would lead this Court astray into the field of factual
controversy where its legal pronouncements would not rest on solid
grounds.

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

We hold that under their peddling contracts Repomanta and


Moralde were not employees of Mafinco but were independent
contractors as found by the NLRC and its fact-finder and by the
committee appointed by the Secretary of Labor to look into the
status of Cosmos and Mafinco peddlers. They were distributors of
Cosmos soft drinks with their own capital and employees.
Ordinarily, an employee or a mere peddler does not execute a
formal contract of employment. He is simply hired and he works
under the direction and control of the employer.

Moreover, the collection agent does his work "more or less at his
own pleasure" without a regular daily time frame imposed on him
(Investment Planning Corporation of the Philippines v. Social
Security System, supra; See alsoSocial Security System v. Court of
Appeals, 30 SCRA 210 [1969]).
The grounds specified in the contract for termination of the
relationship do not support the view that control exists "for the
causes of termination thus specified have no relation to the means
and methods of work that are ordinarily required of or imposed
upon employees." (Investment Planning Corp. of the Phil. v. Social
Security System, supra)

Repomanta and Moralde voluntarily executed with Mafinco formal


peddling contracts which indicate the manner in which they would
sell Cosmos soft drinks. That Circumstance signifies that they were
acting as independent businessmen. They were to sign or not to
sign that contract. If they did not want to sell Cosmos products
under the conditions defined in that contract; they were free to
reject it.

The last and most important element of the control test is not
satisfied by the terms and conditions of the contracts. There is
nothing in the agreement which implies control by the Company
not only over the end to be achieved but also over the means and
methods in achieving the end (LVN Pictures, Inc. v. Philippine
Musicians Guild, 1 SCRA 132 [1961]).

But having signed it, they were bound by its stipulations and the
consequences thereof under existing labor laws. One such
stipulation is the right of the parties to terminate the contract upon
five days' prior notice (Par. 9). Whether the termination in this case
was an unwarranted dismissal of an employee, as contended by
Repomanta and Moralde, is a point that cannot be resolved without
submission of evidence. Using the contract itself as the sole
criterion, the termination should perforce be characterized as
simply the exercise of a right freely stipulated upon by the parties.

The Court finds the contention of the respondents that the union
members are employees under Article 280 of the Labor Code to
have no basis. The definition that regular employees are those who
perform activities which are desirable and necessary for the
business of the employer is not determinative in this case. Any
agreement may provide that one party shall render services for and
in behalf of another for a consideration (no matter how necessary
for the latter's business) even without being hired as an employee.
This is precisely true in the case of an independent contractorship
as well as in an agency agreement. The Court agrees with the
petitioner's argument that Article 280 is not the yardstick for
determining the existence of an employment relationship because
it merely distinguishes between two kinds of employees, i.e.,
regular employees and casual employees, for purposes of

Besa v. Trajano, 146 SCRA 501 (1986)


Our records of the case reveal that an employer-employee
relationship does not exist between the 17 shoeshiners and
petitioner.
Be it noted that the defunct CIR in dismissing the cases for unfair
labor practice filed by the shoeshiners against herein petitioner
23

BESA declared in its Decision dated December 21, 1965 that:

The Office of the Solicitor General as counsel for public respondent


agrees that in the present case, no employer-employee relationship
exists.

The shoe shiner is distinct from a piece worker because while the
latter is paid for work accomplished, he does not, however,
contribute anything to the capital of the employer other than his
service. It is the employer of the piece worker who pays his wages,
while the shoe shiner in this instance is paid directly by his
customer. The piece worker is paid for work accomplished without
regard or concern to the profit as derived by his employer, but in
the case of the shoe shiners, the proceeds derived from the trade
are always divided share and share alike with respondent BESA.
The shoe shiner can take his share of the proceeds everyday if he
wanted to or weekly as is the practice of Besas The employer of
the piece worker supervises and controls his work, but in the case
of the shoe shiner, respondent BESA does not exercise any degree
of control or supervision over their person and their work. All these
are not obtaining in the case of a piece worker as he is in fact an
employee in contemplation of law, distinct from the shoe shiner in
this instance who, in relation to respondent MAMERTO B. BESA, is
a partner in the trade. Consequently, employer-employee
relationship between members of the Petitioning union and
respondent MAMERTO B. BESA being absent the latter could not be
held guilty of the unfair tabor practice acts imputed against him.
(p. 6, Annex "B1 " of said Decision).

The Supreme Court in the Rosario Brothers case ruled that:


A basic factor underlying the exercise of rights under the Labor
Code is the status of employment. It is important in the
determination of who shall be included in a proposed bargaining
unit because it is sine qua non. The fundamental and essential
condition that a bargaining unit be composed of employees. Failure
to establish this juridical relationship between the union members
and the employer affects the legality of the union itself. It means
the ineligibility of the union members to present a petition for
certification election as well as to vote therein.

Tan v. Lagrama, 387 SCRA 393 (2002)


First. The existence in this case of the first element is undisputed. It
was petitioner who engaged the services of Lagrama without the
intervention of a third party. It is the existence of the second
element, the power of control, that requires discussion here.
Of the four elements of the employer-employee relationship, the
control test is the most important. Compared to an employee, an
independent contractor is one who 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, 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. Hence,
while an independent contractor enjoys independence and freedom
from the control and supervision of his principal, an employee is
subject to the employers power to control the means and methods
by which the employees work is to be performed and
accomplished.

Then too on Dec. 27, 1983, then Director Augusto Sanchez of the
Bureau of Working Conditions, MOLE, in response to a letter of
petitioner relative to the implementation of wage Order No. 2 which
provided for an increase both in minimum wage and cost of living
allowance, opined as follows:
The most important condition to be considered is the exercise of
control and supervision over the employees, per our conversation,
the persons concerned under your query are the shoe shiners and
based on the decision rendered by Associate Judge Emiliano
Tabigne of the defunct Court of Industrial Relations, these shoe
shiners are not employees of the company, but are partners
instead. This is due to the fact that the owner/manager does not
exercise control and supervision over the shoe shiners. That the
shiners have their own customers from whom they charge the fee
and divide the proceeds equally with the owner, which make the
owner categorized them as on purely commission basis. The
attendant circumstances clearly show that there is no employeremployee relationship existing, and such the owner/manager is not
by law, under obligation to extend to those on purely commission
basis the benefit of Wage Order No. 2. However, the law does not
preclude the employer in giving such benefit to all its employees
including those which may not be covered by the mandate of the
law. (Letter dated December 27, 1985 addressed to petitioner
Annex B-2, Petition)

In the case at bar, albeit petitioner Tan claims that private


respondent Lagrama was an independent contractor and never his
employee, the evidence shows that the latter performed his work
as painter under the supervision and control of petitioner. Lagrama
worked in a designated work area inside the Crown Theater of
petitioner, for the use of which petitioner prescribed rules. The
rules included the observance of cleanliness and hygiene and a
prohibition against urinating in the work area and any place other
than the toilet or the rest rooms. Petitioners control over Lagramas
work extended not only to the use of the work area, but also to the
result of Lagramas work, and the manner and means by which the
work was to be accomplished.
24

Moreover, it would appear that petitioner not only provided the


workplace, but supplied as well the materials used for the
paintings, because he admitted that he paid Lagrama only for the
latters services.

ascertained on a time, task, piece, or commission basis, or other


method of calculating the same, which is payable by an employer
to an employee under a written or unwritten contract of
employment for work done or to be done, or for services rendered
or to be rendered. That Lagrama worked for Tan on a fixed piecework basis is of no moment. Payment by result is a method of
compensation and does not define the essence of the relation. It is
a method of computing compensation, not a basis for determining
the existence or absence of employer-employee relationship. One
may be paid on the basis of results or time expended on the work,
and may or may not acquire an employment status, depending on
whether the elements of an employer-employee relationship are
present or not.

Private respondent Lagrama claimed that he worked daily, from 8


oclock in the morning to 5 oclock in the afternoon. Petitioner
disputed this allegation and maintained that he paid
Lagrama P1,475.00 per week for the murals for the three theaters
which the latter usually finished in 3 to 4 days in one week. Even
assuming this to be true, the fact that Lagrama worked for at least
3 to 4 days a week proves regularity in his employment by
petitioner.
Second. That petitioner had the right to hire and fire was admitted
by him in his position paper submitted to the NLRC, the pertinent
portions of which stated:

The Rules Implementing the Labor Code require every employer to


pay his employees by means of payroll. The payroll should show
among other things, the employees rate of pay, deductions made,
and the amount actually paid to the employee. In the case at bar,
petitioner did not present the payroll to support his claim that
Lagrama was not his employee, raising speculations whether his
failure to do so proves that its presentation would be adverse to his
case.

Complainant did not know how to use the available comfort rooms
or toilets in and about his work premises. He was urinating right at
the place where he was working when it was so easy for him, as
everybody else did and had he only wanted to, to go to the comfort
rooms. But no, the complainant had to make a virtual urinal out of
his work place! The place then stunk to high heavens, naturally, to
the consternation of respondents and everyone who could smell
the malodor.

The primary standard for determining regular employment is the


reasonable connection between the particular activity performed by
the employee in relation to the usual trade or business of the
employer. In this case, there is such a connection between the job
of Lagrama painting billboards and murals and the business of
petitioner. To let the people know what movie was to be shown in a
movie theater requires billboards. Petitioner in fact admits that the
billboards are important to his business.

...
Given such circumstances, the respondents had every right, nay all
the compelling reason, to fire him from his painting job upon
discovery and his admission of such acts. Nonetheless, though
thoroughly scolded, he was not fired. It was he who stopped to
paint for respondents.

By stating that he had the right to fire Lagrama, petitioner in effect


acknowledged Lagrama to be his employee. For the right to hire
and fire is another important element of the employer-employee
relationship. Indeed, the fact that, as petitioner himself said, he
waited for Lagrama to report for work but the latter simply stopped
reporting for work reinforces the conviction that Lagrama was
indeed an employee of petitioner. For only an employee can nurture
such an expectancy, the frustration of which, unless satisfactorily
explained, can bring about some disciplinary action on the part of
the employer.

The fact that Lagrama was not reported as an employee to the SSS
is not conclusive on the question of whether he was an employee of
petitioner. Otherwise, an employer would be rewarded for his
failure or even neglect to perform his obligation.

Third. Payment of wages is one of the four factors to be considered


in determining the existence of employer-employee relation. Wages
are defined as remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or

Lagrama had been employed by petitioner since 1988. Under the


law, therefore, he is deemed a regular employee and is thus
entitled to security of tenure, as provided in Art. 279 of Labor Code:

Neither does the fact that Lagrama painted for other persons affect
or alter his employment relationship with petitioner. That he did so
only during weekends has not been denied by petitioner. On the
other hand, Samuel Villalba, for whom Lagrama had rendered
service, admitted in a sworn statement that he was told by
Lagrama that the latter worked for petitioner.

25

guests. In any case, since she had rendered more than one year of
intermittent service as a reliever nurse at the hotel, she had
become a regular employee as early as December 12, 1994. Lastly,
per the hotel's own Certification dated April 22, 1997, she was
already a "regular staff nurse" until her dismissal.

ART. 279. Security of Tenure. In cases of regular employment, the


employer shall not terminate the services of an employee except
for a just cause or when authorized by this Title. An employee who
is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full
backwages, inclusive of allowances, and to his other benefits or
their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement.

Rowell Industrial Corporation v. CA, March 7,


2007

B. Classes of Employees

The aforesaid Article 280 of the Labor Code, as amended, classifies


employees
into
three
categories,
namely:
(1) regular
employees or those whose work is necessary or desirable to the
usual business of the employer; (2) project employees or those
whose 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; and
(3) casual employees or those who are neither regular nor project
employees.

The Peninsula Manila v. Alipio, June 17, 2008


The conclusions reached by the NLRC and the Labor Arbiter, that
Alipio was not a regular employee of the hotel and that she was
validly dismissed, are not supported by law and evidence on record.
Article 280 of the Labor Code provides:
ART. 280. Regular and Casual Employment. - The provisions of
written agreement to the contrary notwithstanding and regardless
of the oral agreement of the parties, an employment shall be
deemed to be regular where the employee has been engaged to
perform activities which are usually necessary or desirable in the
usual business or trade of the employer, except where the
employment has been fixed for a specific project or undertaking
the completion or termination of which has been determined at the
time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the
employment is for the duration of the season.

Regular employees are further classified into: (1) regular


employees by nature of work; and (2) regular employees by years
of service. The former refers to those employees who perform a
particular activity which is necessary or desirable in the usual
business or trade of the employer, regardless of their length of
service; while the latter refers to those employees who have been
performing the job, regardless of the nature thereof, for at least a
year.

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


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

The aforesaid Article 280 of the Labor Code, as amended, however,


does not proscribe or prohibit an employment contract with a fixed
period. It does not necessarily follow that where the duties of the
employee consist of activities usually necessary or desirable in the
usual business of the employer, the parties are forbidden from
agreeing on a period of time for the performance of such
activities. There is nothing essentially contradictory between a
definite period of employment and the nature of the employees
duties. What Article 280 of the Labor Code, as amended, seeks to
prevent is the practice of some unscrupulous and covetous
employers who wish to circumvent the law that protects lowly
workers from capricious dismissal from their employment. The
aforesaid provision, however, should not be interpreted in such a
way as to deprive employers of the right and prerogative to choose
their own workers if they have sufficient basis to refuse an
employee a regular status. Management has rights which should

Thus, an employment is deemed regular when the activities


performed by the employee are usually necessary or desirable in
the usual business of the employer. However, any employee who
has rendered at least one year of service, even though intermittent,
is deemed regular with respect to the activity performed and while
such activity actually exists.
In this case, records show that Alipio's services were engaged by
the hotel intermittently from 1993 up to 1998. Her services as a
reliever nurse were undoubtedly necessary and desirable in the
hotel's business of providing comfortable accommodation to its
26

also be protected.

prepared by petitioner RIC, as a condition for his hiring. Such


contract in which the terms are prepared by only one party and the
other party merely affixes his signature signifying his adhesion
thereto is called contract of adhesion. It is an agreement in
which the parties bargaining are not on equal footing, the weaker
partys participation being reduced to the alternative to take it or
leave it.In the present case, respondent Taripe, in need of a job,
was compelled to agree to the contract, including the five-month
period of employment, just so he could be hired. Hence, it cannot
be argued that respondent Taripe signed the employment contract
with a fixed term of five months willingly and with full knowledge of
the impact thereof.

In the case at bar, respondent Taripe signed a contract of


employment prior to his admission into the petitioners
company. Based on the said contract, respondent Taripes
employment with the petitioner is good only for a period of five
months unless the said contract is renewed by mutual consent. And
as claimed by petitioner RIC, respondent Taripe, along with its other
contractual employees, was hired only to meet the increase in
demand for packaging materials during the Christmas season and
also to build up stock levels during the early part of the year.
Although Article 280 of the Labor Code, as amended, does not
forbid fixed term employment, it must, nevertheless, meet any of
the following guidelines in order that it cannot be said to
circumvent security of tenure: (1) that the fixed period of
employment was knowingly and voluntarily agreed upon by the
parties, without any force, duress or improper pressure being
brought to bear upon the employee and absent any other
circumstances vitiating his consent; or (2) it satisfactorily appears
that the employer and employee dealt with each other on more or
less equal terms with no moral dominance whatever being
exercised by the former on the latter.

With regard to the second guideline, this Court agrees with the
Court of Appeals that petitioner RIC and respondent Taripe cannot
be said to have dealt with each other on more or less equal terms
with no moral dominance exercised by the former over the
latter. As a power press operator, a rank and file employee, he can
hardly be on equal terms with petitioner RIC. As the Court of
Appeals said, almost always, employees agree to any terms of an
employment contract just to get employed considering that it is
difficult to find work given their ordinary qualifications.
Therefore, for failure of petitioner RIC to comply with the necessary
guidelines for a valid fixed term employment contract, it can be
safely stated that the aforesaid contract signed by respondent
Taripe for a period of five months was a mere subterfuge to deny to
the latter a regular status of employment.

In the present case, it cannot be denied that the employment


contract signed by respondent Taripe did not mention that he was
hired only for a specific undertaking, the completion of which had
been determined at the time of his engagement. The said
employment contract neither mentioned that respondent Taripes
services were seasonal in nature and that his employment was only
for the duration of the Christmas season as purposely claimed by
petitioner RIC. What was stipulated in the said contract was that
respondent Taripes employment was contractual for the period of
five months.

Settled is the rule that the primary standard of determining regular


employment is the reasonable connection between the particular
activity performed by the employee in relation to the casual
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.

Likewise, as the NLRC mentioned in its Resolution, to which the


Court of Appeals agreed, other than the bare allegations of
petitioner RIC that respondent Taripe was hired only because of the
increase in the demand for packaging materials during the
Christmas season, petitioner RIC failed to substantiate such claim
with any other evidence. Petitioner RIC did not present any
evidence which might prove that respondent Taripe was employed
for a fixed or specific project or that his services were seasonal in
nature.

Given the foregoing, this Court agrees in the findings of the Court
of Appeals and the NLRC that, indeed, respondent Taripe, as a
rectangular power press machine operator, in charge of
manufacturing covers for four liters rectangular tin cans, was
holding a position which is necessary and desirable in the usual
business or trade of petitioner RIC, which was the manufacture of
tin cans. Therefore, respondent Taripe was a regular employee of
petitioner RIC by the nature of work he performed in the company.

Also, petitioner RIC failed to controvert the claim of respondent


Taripe that he was made to sign the contract of employment,

Respondent Taripe does not fall under the exceptions mentioned in


27

Article 280 of the Labor Code, as amended, because it was not


proven by petitioner RIC that he was employed only for a specific
project or undertaking or his employment was merely
seasonal. Similarly, the position and function of power press
operator cannot be said to be merely seasonal. Such position
cannot be considered as only needed for a specific project or
undertaking because of the very nature of the business of
petitioner RIC. Indeed, respondent Taripe is a regular employee of
petitioner RIC and as such, he cannot be dismissed from his
employment unless there is just or authorized cause for his
dismissal.

such activity exists.

Not considered regular employees are "project employees," the


completion or termination of which is more or less determinable at
the time of employment, such as those employed in connection
with a particular construction project, and "seasonal employees"
whose employment by its nature is only desirable for a limited
period of time. Even then, any employee who has rendered at least
one year of service, whether continuous or intermittent, is deemed
regular with respect to the activity performed and while such
activity actually exists.
It is of no moment that petitioner hired respondents as "talents."
The fact that respondents received pre-agreed "talent fees" instead
of salaries, that they did not observe the required office hours, and
that they were permitted to join other productions during their free
time are not conclusive of the nature of their employment.
Respondents cannot be considered "talents" because they are not
actors or actresses or radio specialists or mere clerks or utility
employees. They are regular employees who perform several
different duties under the control and direction of ABS-CBN
executives and supervisors.

ABS-CBN Broadcasting Corp. v. Nazareno,


September 26, 2006
We agree with respondents contention that where a person has
rendered at least one year of service, regardless of the nature of
the activity performed, or where the work is continuous or
intermittent, the employment is considered regular as long as the
activity exists, the reason being that a customary appointment is
not indispensable before one may be formally declared as having
attained regular status.

The law overrides such conditions which are prejudicial to the


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

As elaborated by this Court in Magsalin v. National Organization of


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

Additionally, respondents cannot be considered as project or


program employees because no evidence was presented to show
that the duration and scope of the project were determined or
specified at the time of their engagement. Under existing
jurisprudence, project could refer to two distinguishable types of
activities. First, a project may refer to a particular job or
undertaking that is within the regular or usual business of the
employer, but which is distinct and separate, and identifiable as
such, from the other undertakings of the company. Such job or
undertaking begins and ends at determined or determinable times.
Second, the term project may also refer to a particular job or
28

undertaking that is not within the regular business of the employer.


Such a job or undertaking must also be identifiably separate and
distinct from the ordinary or regular business operations of the
employer. The job or undertaking also begins and ends at
determined or determinable times.

petition for certification election by KILUSAN-OLALIA.


Owing to their length of service with the company, these workers
became regular employees, by operation of law, one year after
they were employed by KIMBERLY through RANK. While the actual
regularization of these employees entails the mechanical act of
issuing regular appointment papers and compliance with such
other operating procedures as may be adopted by the employer, it
is more in keeping with the intent and spirit of the law to rule that
the status of regular employment attaches to the casual worker on
the day immediately after the end of his first year of service. To
rule otherwise, and to instead make their regularization dependent
on the happening of some contingency or the fulfillment of certain
requirements, is to impose a burden on the employee which is not
sanctioned by law.

The principal test is whether or not the project employees were


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

That the first stated position is the situation contemplated and


sanctioned by law is further enhanced by the absence of a
statutory limitation before regular status can be acquired by a
casual employee. The law is explicit. As long as the employee has
rendered at least one year of service, he becomes a regular
employee with respect to the activity in which he is employed. The
law does not provide the qualification that the employee must first
be issued a regular appointment or must first be formally declared
as such before he can acquire a regular status. Obviously, where
the law does not distinguish, no distinction should be drawn.

Considering that an employee becomes regular with respect to the


activity in which he is employed one year after he is employed, the
reckoning date for determining his regularization is his hiring date.
Therefore, it is error for petitioner Kimberly to claim that it is
from April 21, 1986 that the one-year period should be counted.
While it is a fact that the issue of regularization came about only
when KILUSAN-OLALIA filed a petition for certification election, the
concerned employees attained regular status by operation of law.

As gleaned from the records of this case, petitioner itself is not


certain how to categorize respondents. In its earlier pleadings,
petitioner classified respondents as program employees, and in
later pleadings, independent contractors. Program employees, or
project employees, are different from independent contractors
because in the case of the latter, no employer-employee
relationship exists.

Kimberly Clark Phils. v. Secretary, November 23,


2007

Further, the grant of the benefit of regularization should not be


limited to the employees who questioned their status before the
labor tribunal/court and asserted their rights; it should also extend
to those similarly situated. There is, thus, no merit in petitioner's
contention that only those who presented their circumstances of
employment to the courts are entitled to regularization.

In G.R. No. 77629, we ruled as follows:

Benares v. Pancho, April 29, 2005

The individual petitioners herein who have been adjudged to be


regular employees fall under the second category. These are the
mechanics, electricians, machinists, machine shop helpers,
warehouse helpers, painters, carpenters, pipefitters and masons. It
is not disputed that these workers have been in the employ of
KIMBERLY for more than one year at the time of the filing of the

In Mercado v. NLRC, the Court ruled that seasonal workers do not


become regular employees by the mere fact that they have
rendered at least one year of service, whether continuous or
broken, because the proviso in the second paragraph of Article 280
demarcates as casual employees, all other employees who do not
29

fall under the definition of the preceding paragraph. It deems as


regular employees those casual employees who have rendered at
least one year of service regardless of the fact that such service
may be continuous or broken.

The issue, therefore, of whether respondents were regular


employees of petitioner has been adequately dealt with. The labor
arbiter, the NLRC and the Court of Appeals have similarly held that
respondents were regular employees of petitioner. Since it is a
settled rule that the factual findings of quasi-judicial agencies
which have acquired expertise in the matters entrusted to their
jurisdiction are accorded by this Court not only respect but even
finality, we shall no longer disturb this finding.

The factual circumstances obtaining in the Mercado case, however,


are peculiar. In that case, the workers were engaged to do a
particular phase of agricultural work necessary for rice and/or
sugarcane production, after which they would be free to render
services to other farm workers who need their services.

Hacienda Bino/Hortencia Starke v. Cuenca, April


15, 2005

In contrast, in the case of Hacienda Fatima v. National Federation


of Sugarcane Workers-Food and General Trade, respondents
performed the same tasks for petitioners every season for several
years. Thus, they were considered the latters regular employees for
their respective tasks. The fact that they do not work continuously
for one whole year but only for the duration of the season does not
detract from considering them in regular employment since in a
litany of cases this Court has already settled that seasonal workers
who are called to work from time to time and are temporarily laid
off during off-season are not separated from service in that period,
but merely considered on leave until re-employed.

On the substantial issue of whether the respondents are regular or


seasonal employees, the petitioners contend that the CA violated
the doctrine of stare decisis by not applying the ruling in
the Mercado case that sugar workers are seasonal employees. We
hold otherwise. Under the doctrine of stare decisis, when a court
has laid down a principle of law as applicable to a certain state of
facts, it will adhere to that principle and apply it to all future cases
in which the facts are substantially the same. Where the facts are
essentially different, however,stare decisis does not apply, for a
perfectly sound principle as applied to one set of facts might be
entirely inappropriate when a factual variance is introduced.

Citing jurisprudence, the Court, in Hacienda Fatima, condensed the


rule that the primary standard for determining regular employment
is the reasonable connection between the particular activity
performed by the employee vis--vis the usual trade or business of
the employer. This 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. If the employee has
been performing the job for at least a year, even if the performance
is not continuous and merely intermittent, the law deems repeated
and continuing need for its performance as sufficient evidence of
the necessity if not indispensability of that activity to the business.
Hence, the employment is considered regular, but only with respect
to such activity and while such activity exists.

The CA correctly found that the facts involved in this case are
different from the Mercado case; therefore, the ruling in that case
cannot be applied to the case at bar, thus:
We do not find the concept of stare decisis relevant in the case at
bench. For although in the Mercado case, the Supreme Court held
the petitioners who were sugar workers not to be regular but
seasonal workers, nevertheless, the same does not operate to
abandon the settled doctrine of the High Court that sugar workers
are considered regular and permanent farm workers of a sugar
plantation owner, the reason being that there are facts present
that are peculiar to the Mercado case. The disparity in facts
between the Mercado case and the instant case is best exemplified
by the fact that the former decision ruled on the status of
employment of farm laborers, who, as found by the labor arbiter,
work only for a definite period for a farm worker, after which they
offer their services to other farm owners, considering the area in
question being comparatively small, comprising of seventeen and
a half (17) hectares of land, such that the planting of rice and
sugar cane thereon could not possibly entail a whole year
operation. The herein case presents a different factual condition as
the enormity of the size of the sugar hacienda of petitioner, with an
area of two hundred thirty-six (236) hectares, simply do not allow
for private respondents to render work only for a definite period.

In this case, petitioner argues that respondents were not her


regular employees as they were merely pakiao workers who did not
work continuously in the sugar plantation. They performed such
tasks as weeding, cutting and loading canes, planting cane points,
fertilizing, cleaning the drainage, etc. These functions allegedly do
not require respondents daily presence in the sugarcane field as it
is not everyday that one weeds, cuts canes or applies fertilizer. In
support of her allegations, petitioner submitted cultivo and milling
payrolls.
30

Indeed, in a number of cases, the Court has recognized the peculiar


facts attendant in the Mercado case. In Abasolo v. NLRC, and
earlier, in Philippine Tobacco Flue-Curing & Redrying Corporation v.
NLRC, the Court made the following observations:

regular employment should, therefore, stand. It bears stressing that


the employer has the burden of proving the lawfulness of his
employees dismissal.

Filipinas Pre-fabricated Building Systems


(FilSystems) v. Puente,

In Mercado, although respondent constantly availed herself of the


petitioners services from year to year, it was clear from the facts
therein that they were not in her regular employ. Petitioners therein
performed different phases of agricultural work in a given year.
However, during that period, they were free to work for other farm
owners, and in fact they did. In other words, they worked for
respondent, but were nevertheless free to contract their services
with other farm owners. The Court was thus emphatic when it ruled
that petitioners were mere project employees, who could be hired
by other farm owners.

With particular reference to the construction industry, to which


Petitioner Filsystems belongs, Department (of Labor and
Employment) Order No. 19, Series of 1993, states:
2.1 Classification of employees. The employees in the construction
industry are generally categorized as a) project employees and b)
non-project employees. Project employees are those employed in
connection with a particular construction project or phase thereof
and whose employment is co-terminous with each project or phase
of the project to which they are assigned.

Recently, the Court reiterated the same observations in Hacienda


Fatima v. National Federation of Sugarcane Workers-Food and
General Trade and added that the petitioners in the Mercado case
were not hired regularly and repeatedly for the same phase/s of
agricultural work, but on and off for any single phase thereof.

xxxxxxxxx
2.2 Indicators of project employment. Either one or more of the
following circumstances, among other, may be considered as
indicators that an employee is a project employee.

In this case, there is no evidence on record that the same


particulars are present. The petitioners did not present any
evidence that the respondents were required to perform certain
phases of agricultural work for a definite period of time. Although
the petitioners assert that the respondents made their services
available to the neighboring haciendas, the records do not,
however, support such assertion.

(a) The duration of the specific/identified undertaking for which the


worker is engaged is reasonably determinable.
(b) Such duration, as well as the specific work/service to be
performed, is defined in an employment agreement and is made
clear to the employee at the time of hiring.
(c) The work/service performed by the employee is in connection
with the particular project/undertaking for which he is engaged.

The primary standard for determining regular employment is the


reasonable connection between the particular activity performed by
the employee in relation to the usual trade or business of the
employer. There is no doubt that the respondents were performing
work necessary and desirable in the usual trade or business of an
employer. Hence, they can properly be classified as regular
employees.

(d) The employee, while not employed and awaiting engagement,


is free to offer his services to any other employer.
(e) The termination of his employment in the particular
project/undertaking is reported to the Department of Labor and
Employment (DOLE) Regional Office having jurisdiction over the
workplace within 30 days following the date of his separation from
work,
using
the
prescribed
form
on
employees
terminations/dismissals/suspensions.

For respondents 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 been employed only for the
duration of one season. While the records sufficiently show that the
respondents work in the hacienda was seasonal in nature, there
was, however, no proof that they were hired for the duration of one
season only. In fact, the payrolls, submitted in evidence by the
petitioners, show that they availed the services of the respondents
since 1991. Absent any proof to the contrary, the general rule of

(f) An undertaking in the employment contract by the employer to


pay completion bonus to the project employee as practiced by
most construction companies.

The above-quoted provisions make it clear that a project employee


is one whose 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
31

and the employment is for the duration of the season. In D.M.


Consunji, Inc. v. NLRC, this Court has ruled that the length of
service of a project employee is not the controlling test of
employment tenure but whether or not 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.

This means that where the final completion of a project or phase


thereof is in fact determinable and the expected completion is
made known to the employee, such project employee may not be
considered regular, notwithstanding the one-year duration of
employment in the project or phase thereof or the one-year
duration of two or more employments in the same project or phase
of the object. (Italicization and emphasis supplied)

Evidently, although the employment contract did not state a


particular date, it did specify that the termination of the parties
employment relationship was to be on a day certain -- the day
when the phase of work termed Lifting & Hauling of Materials for
the World Finance Plaza project would be completed. Thus,
respondent cannot be considered to have been a regular employee.
He was a project employee.

In the present case, the contracts of employment of Puente attest


to the fact that he was hired for specific projects. His employment
was coterminous with the completion of the projects for which he
had been hired. Those contracts expressly provided that his tenure
of employment depended on the duration of any phase of the
project or on the completion of the construction projects.
Furthermore, petitioners regularly submitted to the labor
department reports of the termination of services of project
workers. Such compliance with the reportorial requirement confirms
that respondent was a project employee.

That he was employed with Petitioner Filsystems for ten years


in various projects did not ipso facto make him a regular employee,
considering that the definition of regular employment in Article 280
of the Labor Code makes a specific exception with respect to
project employment. The mere rehiring of respondent on a projectto-project basis did not confer upon him regular employment
status. The practice was dictated by the practical consideration
that experienced construction workers are more preferred. It did
not change his status as a project employee.

With regard specifically to the last employment contract executed


by the parties, a contract that respondent accepted on August 26,
1996, we find that he worked at the site of the World Finance Plaza
project. That he did is amply proven by the Affidavit of Eduardo
Briagas, another employee who was also stationed at the World
Finance Plaza project, as well as by respondents Travel Trip Reports.

St. Marys University v. CA, March 8, 2005

Furthermore, respondents Complaint specified the address of


Filsystems, as 69 INDUSTRIA ROAD, B.BAYAN Q.C., but specified his
place of work as PROJECT TO PROJECT. These statements, coupled
with the other pieces of evidence presented by petitioners,
convinces the Court that -- contrary to the subsequent claims of
respondent -- he performed his work at the project site, not at the
companys premises.

Section 93 of the 1992 Manual of Regulations for Private Schools,


provides that full-time teachers who have satisfactorily completed
their probationary period shall be considered regular or
permanent. Furthermore, the probationary period shall not be more
than six consecutive regular semesters of satisfactory service for
those in the tertiary level. Thus, the following requisites must
concur before a private school teacher acquires permanent status:
(1) the teacher is a full-time teacher; (2) the teacher must have
rendered three consecutive years of service; and (3) such service
must have been satisfactory.

That his employment contract does not mention particular dates


that establish the specific duration of the project does not preclude
his classification as a project employee. This fact is clear from the
provisions of Clause 3.3(a) of Department Order No. 19, which
states:

In the present case, petitioner claims that private respondent


lacked the requisite years of service with the university and also
the appropriate quality of his service, i.e., it is less than
satisfactory. The basic question, however, is whether respondent is
a full-time teacher.

a) Project employees whose aggregate period of continuous


employment in a construction company is at least one year shall
be considered regular employees, in the absence of a day certain
agreed upon by the parties for the termination of their relationship.
Project employees who have become regular shall be entitled to
separation pay.

Section 45 of the 1992 Manual of Regulations for Private Schools


provides that full-time academic personnel are those meeting all
the following requirements:

A day as used herein, is understood to be that which must


necessarily come, although is may not be known exactly when.

32

of tenure. The school could not lawfully terminate a part-timer


before the end of the agreed period without just cause. But once
the period, semester, or term ends, there is no obligation on the
part of the school to renew the contract of employment for the next
period, semester, or term.

a. Who possess at least the minimum academic qualifications


prescribed by the Department under this Manual for all academic
personnel;
b. Who are paid monthly or hourly, based on the regular teaching
loads as provided for in the policies, rules and standards of the
Department and the school;

In this case, the contract of employment of the respondent was not


presented. However, judicial notice may be taken that contracts of
employment of part-time teachers are generally on a per semester
or term basis. In the absence of a specific agreement on the period
of the contract of employment, it is presumed to be for a term or
semester. After the end of each term or semester, the school does
not have any obligation to give teaching load to each and every
part-time teacher. That petitioner did not give any teaching
assignment to the respondent during a given term or semester,
even if factually true, did not amount to an actionable violation of
respondents rights. It did not amount to illegal dismissal of the
part-time teacher.

c. Whose total working day of not more than eight hours a day is
devoted to the school;
d. Who have no other remunerative occupation elsewhere requiring
regular hours of work that will conflict with the working hours in
the school; and
e. Who are not teaching full-time in any other educational
institution.

All teaching personnel who do not meet the foregoing qualifications


are considered part-time.
A perusal of the various orders of the then Department of
Education, Culture and Sports prescribing teaching loads shows
that the regular full-time load of a faculty member is in the range of
15 units to 24 units a semester or term, depending on the courses
taught. Part-time instructors carry a load of not more than 12 units.

The law, while protecting the rights of the employees, authorizes


neither the oppression nor destruction of the employer. And when
the law tilts the scale of justice in favor of labor, the scale should
never be so tilted if the result would be an injustice to the
employer.

The evidence on record reveals that, except for four nonconsecutive terms, respondent generally carried a load of twelve
units or less from 1992 to 1999. There is also no evidence that he
performed other functions for the school when not teaching. These
give the impression that he was merely a part-time
teacher. Although this is not conclusive since there are full-time
teachers who are allowed by the university to take fewer load, in
this case, respondent did not show that he belonged to the latter
group, even after the university presented his teaching record. With
a teaching load of twelve units or less, he could not claim he
worked for the number of hours daily as prescribed by Section 45 of
the Manual. Furthermore, the records also indubitably show he was
employed elsewhere from 1993 to 1996.

Mercado vs. AMA 168 SCRA 218, April 13, 2010


A reality we have to face in the consideration of employment on
probationary status of teaching personnel is that they are not
governed purely by the Labor Code. The Labor Code
is supplemented with respect to the period of probation by special
rules found in the Manual of Regulations for Private Schools. On the
matter of probationary period, Section 92 of these regulations
provides:
Section 92. Probationary Period. Subject in all instances to
compliance with the Department and school requirements,
the probationary period for academic personnel shall not be more
than three (3) consecutive years of satisfactory service for those in
the elementary and secondary levels, six (6) consecutive regular
semesters of satisfactory service for those in the tertiary level,
and nine (9) consecutive trimesters of satisfactory service
for those in the tertiary level where collegiate courses are
offered on a trimester basis. [Emphasis supplied]

Since there is no showing that respondent worked on a full-time


basis for at least three years, he could not have acquired a
permanent status. A part-time employee does not attain permanent
status no matter how long he has served the school. And as a parttimer, his services could be terminated by the school without being
held liable for illegal dismissal. Moreover, the requirement of twinnotice applicable only to regular or permanent employees could not
be invoked by respondent.

The CA pointed this out in its decision (as the NLRC also did), and
we confirm the correctness of this conclusion. Other than on the
period, the following quoted portion of Article 281 of the Labor
Code still fully applies:

Yet, this is not to say that part-time teachers may not have security
33

dealt purely and simply with the validity of a fixed-term


employment under the terms of the Labor Code, then newly issued
and which does not expressly contain a provision on fixed-term
employment.

x x x The services of an employee who has been engaged on a


probationary basis may be terminated for a just cause when he
fails to qualify as a regular employee in accordance with
reasonable standards made known by the employer to the
employee at the time of his engagement. An employee who is
allowed to work after a probationary period shall be considered a
regular employee. [Emphasis supplied]

Last but not the least factor in the academic world, is that a school
enjoys academic freedom a guarantee that enjoys protection from
the Constitution no less. Section 5(2) Article XIV of the Constitution
guarantees all institutions of higher learning academic freedom.

The use of employment for fixed periods during the teachers


probationary period is likewise an accepted practice in the teaching
profession. We mentioned this in passing in Magis Young Achievers
Learning Center v. Adelaida P. Manalo, albeit a case that involved
elementary, not tertiary, education, and hence spoke of a school
year rather than a semester or a trimester. We noted in this case:

The institutional academic freedom includes the right of the school


or college to decide and adopt its aims and objectives, and to
determine how these objections can best be attained, free from
outside coercion or interference, save possibly when the overriding
public welfare calls for some restraint. The essential freedoms
subsumed in the term academic freedom encompass the freedom
of the school or college to determine for itself: (1) who may teach;
(2) who may be taught; (3) how lessons shall be taught; and (4)
who may be admitted to study.

The common practice is for the employer and the teacher


to enter into a contract, effective for one school year. At the
end of the school year, the employer has the option not to renew
the contract, particularly considering the teachers performance. If
the contract is not renewed, the employment relationship
terminates. If the contract is renewed, usually for another school
year, the probationary employment continues. Again, at the end of
that period, the parties may opt to renew or not to renew the
contract. If renewed, this second renewal of the contract for
another school year would then be the last year since it would be
the third school year of probationary employment. At the end of
this third year, the employer may now decide whether to
extend a permanent appointment to the employee,
primarily on the basis of the employee having met the
reasonable standards of competence and efficiency set by
the employer.For the entire duration of this three-year
period, the teacher remains under probation. Upon the
expiration of his contract of employment, being simply on
probation, he cannot automatically claim security of tenure
and compel the employer to renew his employment
contract. It is when the yearly contract is renewed for the third
time that Section 93 of the Manual becomes operative, and the
teacher then is entitled to regular or permanent employment
status.

AMACCs right to academic freedom is particularly important in the


present case, because of the new screening guidelines for AMACC
faculty put in place for the school year 2000-2001. We agree with
the CA that AMACC has the inherent right to establish high
standards of competency and efficiency for its faculty members in
order to achieve and maintain academic excellence. The schools
prerogative to provide standards for its teachers and to determine
whether or not these standards have been met is in accordance
with academic freedom that gives the educational institution the
right to choose who should teach. In Pea v. National Labor
Relations Commission, we emphasized:
It is the prerogative of the school to set high standards of efficiency
for its teachers since quality education is a mandate of the
Constitution.As long as the standards fixed are reasonable and not
arbitrary, courts are not at liberty to set them aside. Schools
cannot be required to adopt standards which barely satisfy criteria
set for government recognition.

It is important that the contract of probationary employment


specify the period or term of its effectivity. The failure to stipulate
its precise duration could lead to the inference that the contract is
binding for the full three-year probationary period.

The same academic freedom grants the school the autonomy to


decide for itself the terms and conditions for hiring its teacher,
subject of course to the overarching limitations under the Labor
Code. Academic freedom, too, is not the only legal basis for
AMACCs issuance of screening guidelines. The authority to hire is
likewise covered and protected by its management prerogative the
right of an employer to regulate all aspects of employment, such as
hiring, the freedom to prescribe work assignments, working
methods, process to be followed, regulation regarding transfer of

We have long settled the validity of a fixed-term contract in the


case Brent
School,
Inc.
v.
Zamora that
AMACC
cited. Significantly, Brent happened in a school setting. Care should
be taken, however, in reading Brent in the context of this case
as Brent did not involve any probationary employment issue; it
34

employees, supervision of their work, lay-off and discipline, and


dismissal and recall of workers. Thus, AMACC has every right to
determine for itself that it shall use fixed-term employment
contracts as its medium for hiring its teachers. It also acted within
the terms of the Manual of Regulations for Private Schools when it
recognized the petitioners to be merely on probationary status up
to a maximum of nine trimesters.

students for a given semester or trimester. Termination of


employment on this basis is an authorized cause under the Labor
Code.
Labor, for its part, is given the protection during the probationary
period of knowing the company standards the new hires have to
meet during the probationary period, and to be judged on the basis
of these standards, aside from the usual standards applicable to
employees after they achieve permanent status. Under the terms
of the Labor Code, these standards should be made known to the
teachers on probationary status at the start of their probationary
period, or at the very least under the circumstances of the present
case, at the start of the semester or the trimester during which the
probationary standards are to be applied. Of critical importance in
invoking a failure to meet the probationary standards, is that the
school should show as a matter of due process how these
standards have been applied. This is effectively the second notice
in a dismissal situation that the law requires as a due process
guarantee supporting the security of tenure provision, and is in
furtherance, too, of the basic rule in employee dismissal that the
employer carries the burden of justifying a dismissal. These rules
ensure compliance with the limited security of tenure guarantee
the law extends to probationary employees.

The existence of the term-to-term contracts covering the


petitioners employment is not disputed, nor is it disputed that they
were on probationary status not permanent or regular status from
the time they were employed on May 25, 1998 and until the
expiration of their Teaching Contracts on September 7, 2000. As the
CA correctly found, their teaching stints only covered a period of at
least seven (7) consecutive trimesters or two (2) years and three
(3) months of service. This case, however, brings to the fore
the essential question of which, between the two factors
affecting employment, should prevail given AMACCs
position that the teachers contracts expired and it had the
right not to renew them. In other words, should the teachers
probationary status be disregarded simply because the contracts
were fixed-term?
The provision on employment on probationary status under the
Labor Code is a primary example of the fine balancing of interests
between labor and management that the Code has institutionalized
pursuant to the underlying intent of the Constitution.

When fixed-term employment is brought into play under the above


probationary period rules, the situation as in the present case may
at first blush look muddled as fixed-term employment is in itself a
valid
employment
mode
under
Philippine
law
and
jurisprudence. The conflict, however, is more apparent than real
when the respective nature of fixed-term employment and of
employment on probationary status are closely examined.

On the one hand, employment on probationary status affords


management the chance to fully scrutinize the true worth of hired
personnel before the full force of the security of tenure guarantee
of the Constitution comes into play. Based on the standards set at
the start of the probationary period, management is given the
widest opportunity during the probationary period to reject hirees
who fail to meet its own adopted but reasonable standards. These
standards, together with the just and authorized causes for
termination of employment the Labor Code expressly provides, are
the grounds available to terminate the employment of a teacher on
probationary status. For example, the school may impose
reasonably stricter attendance or report compliance records on
teachers on probation, and reject a probationary teacher for failing
in this regard, although the same attendance or compliance record
may not be required for a teacher already on permanent status. At
the same time, the same just and authorizes causes for dismissal
under the Labor Code apply to probationary teachers, so that they
may be the first to be laid-off if the school does not have enough

The fixed-term character of employment essentially refers to the


period agreed upon between the employer and the employee;
employment exists only for the duration of the term and ends on its
own when the term expires. In a sense, employment on
probationary status also refers to a period because of the technical
meaning probation carries in Philippine labor law a maximum
period of six months, or in the academe, a period of three years for
those engaged in teaching jobs. Their similarity ends there,
however, because of the overriding meaning that being on
probation connotes, i.e., a process of testing and observing the
character or abilities of a person who is new to a role or job.
Understood in the above sense, the essentially protective character
of probationary status for management can readily be
appreciated. But this same protective character gives rise to the
35

countervailing but equally protective rule that the probationary


period can only last for a specific maximum period and under
reasonable,
well-laid
and
properly
communicated
standards. Otherwise stated, within the period of the probation, any
employer move based on the probationary standards and affecting
the continuity of the employment must strictly conform to the
probationary rules.

term, under the circumstances, leads to no probationary status


implications as she was never employed on probationary basis; her
employment is for a specific purpose with particular focus on the
term and with every intent to end her teaching relationship with the
school upon expiration of this term.
If the school were to apply the probationary standards (as in fact it
says it did in the present case), these standards must not only be
reasonable but must have also been communicated to the teachers
at the start of the probationary period, or at the very least, at the
start of the period when they were to be applied. These terms, in
addition to those expressly provided by the Labor Code, would
serve as the just cause for the termination of the probationary
contract. As explained above, the details of this finding of just
cause must be communicated to the affected teachers as a matter
of due process.

Under the given facts where the school year is divided into
trimesters, the school apparently utilizes its fixed-term contracts as
a convenient arrangement dictated by the trimestral system and
not because the workplace parties really intended to limit the
period of their relationship to any fixed term and to finish this
relationship at the end of that term. If we pierce the veil, so to
speak, of the parties so-called fixed-term employment contracts,
what undeniably comes out at the core is a fixed-term contract
conveniently used by the school to define and regulate its relations
with its teachers during their probationary period.

AMACC, by its submissions, admits that it did not renew the


petitioners contracts because they failed to pass the Performance
Appraisal System for Teachers (PAST) and other requirements for
regularization that the school undertakes to maintain its high
academic standards. The evidence is unclear on the exact terms of
the standards, although the school also admits that these were
standards under the Guidelines on the Implementation of AMACC
Faculty Plantilla put in place at the start of school year 2000-2001.

To be sure, nothing is illegitimate in defining the school-teacher


relationship in this manner. The school, however, cannot forget that
its system of fixed-term contract is a system that operates during
the probationary period and for this reason is subject to the terms
of Article 281 of the Labor Code. Unless this reconciliation is
made, the requirements of this Article on probationary
status would be fully negated as the school may freely
choose not to renew contracts simply because their terms
have expired.The inevitable effect of course is to wreck the
scheme that the Constitution and the Labor Code
established to balance relationships between labor and
management.

While we can grant that the standards were duly communicated to


the petitioners and could be applied beginning the 1 trimester of
the school year 2000-2001, glaring and very basic gaps in the
schools evidence still exist. The exact terms of the standards were
never introduced as evidence; neither does the evidence show how
these standards were applied to the petitioners. Without these
pieces of evidence (effectively, the finding of just cause for the nonrenewal of the petitioners contracts), we have nothing to consider
and
pass
upon
as
valid
or
invalid for each
of
the
petitioners. Inevitably, the non-renewal (or effectively, the
termination of employment of employees on probationary status)
lacks the supporting finding of just cause that the law requires and,
hence, is illegal.

Given the clear constitutional and statutory intents, we cannot but


conclude that in a situation where the probationary status overlaps
with a fixed-term contract not specifically used for the fixed term it
offers, Article 281 should assume primacy and the fixed-period
character of the contract must give way. This conclusion is
immeasurably strengthened by the petitioners and the AMACCs
hardly concealed expectation that the employment on probation
could lead to permanent status, and that the contracts are
renewable unless the petitioners fail to pass the schools standards.

Robinsons Galleria v. Ranchez, G.R. No. 177937


Jan. 19, 2011

To highlight what we mean by a fixed-term contract specifically


used for the fixed term it offers, a replacement teacher, for
example, may be contracted for a period of one year
to temporarily take the place of a permanent teacher on a one-year
study leave. The expiration of the replacement teachers contracted

There is probationary employment when the employee upon his


engagement is made to undergo a trial period during which the
employer determines his fitness to qualify for regular employment
based on reasonable standards made known to him at the time of
36

engagement.

represented by counsel when she was strip-searched inside the


company premises or during the police investigation, and in the
preliminary investigation before the Prosecutors Office.

A probationary employee, like a regular employee, enjoys security


of tenure. However, in cases of probationary employment, aside
from just or authorized causes of termination, an additional ground
is provided under Article 281 of the Labor Code, i.e., the
probationary employee may also be terminated for failure to qualify
as a regular employee in accordance with reasonable standards
made known by the employer to the employee at the time of the
engagement. Thus, the services of an employee who has been
engaged on probationary basis may be terminated for any of the
following: (1) a just or (2) an authorized cause; and (3) when he
fails to qualify as a regular employee in accordance with reasonable
standards prescribed by the employer.

Respondent
was
constructively
dismissed
by
petitioner
Supermarket effective October 30, 1997. It was unreasonable for
petitioners to charge her with abandonment for not reporting for
work upon her release in jail. It would be the height of callousness
to expect her to return to work after suffering in jail for two weeks.
Work had been rendered unreasonable, unlikely, and definitely
impossible, considering the treatment that was accorded
respondent by petitioners.
In this case, since respondent was a probationary employee at the
time she was constructively dismissed by petitioners, she is entitled
to separation pay and backwages. Reinstatement of respondent is
no longer viable considering the circumstances.

Article 277(b) of the Labor Code mandates that subject to the


constitutional right of workers to security of tenure and their right
to be protected against dismissal, except for just and authorized
cause and without prejudice to the requirement of notice under
Article 283 of the same Code, the employer shall furnish the
worker, whose employment is sought to be terminated, a written
notice containing a statement of the causes of termination, and
shall afford the latter ample opportunity to be heard and to defend
himself with the assistance of a representative if he so desires, in
accordance with company rules and regulations pursuant to the
guidelines set by the Department of Labor and Employment.

However, the backwages that should be awarded to respondent


shall be reckoned from the time of her constructive dismissal until
the date of the termination of her employment,i.e., from October
30, 1997 to March 14, 1998. The computation should not cover the
entire period from the time her compensation was withheld up to
the time of her actual reinstatement. This is because respondent
was a probationary employee, and the lapse of her probationary
employment without her appointment as a regular employee of
petitioner Supermarket effectively severed the employer-employee
relationship between the parties.

In the instant case, based on the facts on record, petitioners failed


to accord respondent substantive and procedural due process. The
haphazard manner in the investigation of the missing cash, which
was left to the determination of the police authorities and the
Prosecutors Office, left respondent with no choice but to cry
foul. Administrative investigation was not conducted by petitioner
Supermarket. On the same day that the missing money was
reported by respondent to her immediate superior, the company
already pre-judged her guilt without proper investigation, and
instantly reported her to the police as the suspected thief, which
resulted in her languishing in jail for two weeks.

In all cases involving employees engaged on probationary basis,


the employer shall make known to its employees the standards
under which they will qualify as regular employees at the time of
their engagement. Where no standards are made known to an
employee at the time, he shall be deemed a regular
employee, unless the job is self-descriptive, like maid, cook, driver,
or messenger. However, the constitutional policy of providing full
protection to labor is not intended to oppress or destroy
management.Naturally, petitioner Supermarket cannot be expected
to retain respondent as a regular employee considering that she
lost P20,299.00 while acting as a cashier during the probationary
period. The rules on probationary employment should not be used
to exculpate a probationary employee who acts in a manner
contrary to basic knowledge and common sense, in regard to
which, there is no need to spell out a policy or standard to be met.

As correctly pointed out by the NLRC, the due process requirements


under the Labor Code are mandatory and may not be supplanted
by police investigation or court proceedings. The criminal aspect of
the case is considered independent of the administrative aspect.
Thus, employers should not rely solely on the findings of the
Prosecutors Office. They are mandated to conduct their own
separate investigation, and to accord the employee every
opportunity to defend himself. Furthermore, respondent was not

Poseidon Fishing v. NLRC, February 20, 2006


Petitioners construal of Brent School, Inc. v. Zamora, has certainly
37

gone astray. The subject of scrutiny in the Brent case was the
employment contract inked between the school and one engaged
as its Athletic Director. The contract fixed a specific term of five
years from the date of execution of the agreement. This Court
upheld the validity of the contract between therein petitioner and
private respondent, fixing the latters period of employment. This
Court laid down the following criteria for judging the validity of such
fixed-term contracts, to wit:

It is apparent from Brent School that the critical consideration is


the presence or absence of a substantial indication that the period
specified in an employment agreement was designed to
circumvent the security of tenure of regular employees which is
provided for in Articles 280 and 281 of the Labor Code. This
indication must ordinarily rest upon some aspect of the agreement
other than the mere specification of a fixed term of the
employment agreement, or upon evidence aliunde of the intent to
evade.

Accordingly, and since the entire purpose behind the development


of legislation culminating in the present Article 280 of the Labor
Code clearly appears to have been, as already observed, to
prevent circumvention of the employees right to be secure in his
tenure, the clause in said article indiscriminately and completely
ruling out all written or oral agreements conflicting with the
concept of regular employment as defined therein should be
construed to refer to the substantive evil that the Code itself has
singled out: agreements entered into precisely to circumvent
security of tenure. It should have no application to instances where
a fixed period of employment was agreed upon knowingly and
voluntarily by the parties, without any force, duress or improper
pressure being brought to bear upon the employee and absent any
other circumstances vitiating his consent, or where it satisfactorily
appears that the employer and employee dealt with each other on
more or less equal terms with no moral dominance whatever being
exercised by the former over the latter. Unless thus limited in its
purview, the law would be made to apply to purposes other than
those explicitly stated by its framers; it thus becomes pointless and
arbitrary, unjust in its effects and apt to lead to absurd and
unintended consequences. (Emphasis supplied.)

Consistent with the pronouncements in these two earlier cases, the


Court, in Cielo v. National Labor Relations Commission, did not
hesitate to nullify employment contracts stipulating a fixed term
after finding that the purpose behind these individual
contracts was to evade the application of the labor laws.
In the case under consideration, the agreement has such an
objective - to frustrate the security of tenure of private respondentand fittingly, must be nullified. In this case, petitioners intent to
evade the application of Article 280 of the Labor Code is
unmistakable. In a span of 12 years, private respondent worked for
petitioner company first as a Chief Mate, then Boat Captain, and
later as Radio Operator. His job was directly related to the deep-sea
fishing business of petitioner Poseidon. His work was, therefore,
necessary and important to the business of his employer. Such
being the scenario involved, private respondent is considered a
regular employee of petitioner under Article 280 of the Labor Code,
the law in point.
Moreover, unlike in the Brent case where the period of the contract
was fixed and clearly stated, note that in the case at bar, the terms
of employment of private respondent as provided in
the Kasunduan was not only vague, it also failed to provide an
actual or specific date or period for the contract. As adroitly
observed by the Labor Arbiter:

Brent cited some familiar examples of employment contracts which


may neither be for seasonal work nor for specific projects, but to
which a fixed term is an essential and natural appurtenance, i.e.,
overseas employment contracts, appointments to the positions of
dean, assistant dean, college secretary, principal, and other
administrative offices in educational institutions, which are by
practice or tradition rotated among the faculty members, and
where fixed terms are a necessity without which no reasonable
rotation would be possible. Thus, in Brent, the acid test in
considering fixed-term contracts as valid is: if from the
circumstances it is apparent that periods have been
imposed to preclude acquisition of tenurial security by the
employee, they should be disregarded for being contrary to
public policy.

There is nothing in the contract that says complainant, who


happened to be the captain of said vessel, is a casual, seasonal or
a project worker. The date July 1 to 31, 1998 under the
heading Pagdating had been placed there merely to indicate the
possible date of arrival of the vessel and is not an indication of the
status of employment of the crew of the vessel.
Actually, the exception under Article 280 of the Labor Code in
which the respondents have taken refuge to justify its position does
not apply in the instant case. The proviso, Except where the
employment has been fixed for a specific project or undertaking
the completion or determination of which has been determined at
the time of the engagement of the employee or where the work or

On the same tack as Brent, the Court in Pakistan International


Airlines Corporation v. Ople, ruled in this wise:
38

business or trade.

services to be performed is seasonal in nature and the


employment is for the duration of the season. (Article
280 Labor Code), is inapplicable because the very contract
adduced
by
respondents
is
unclear
and
uncertain.
The kasunduan does not specify the duration that complainant had
been hired x x x. (Emphasis supplied.)

Petitioners would brush off private respondents length of service by


stating that he had worked for the company merely for several
years and that in those times, his services were not exclusive to
petitioners. On the other hand, to prove his claim that he had
continuously worked for petitioners from 1988 to 2000, private
respondent submitted a copy of his payroll from 30 May 1988 to
October 1988 and a copy of his SSS Employees Contributions as of
the year 2000. These documents were submitted by private
respondent in order to benchmark his claim of 12 years of
service. Petitioners, however, failed to submit the pertinent
employee files, payrolls, records, remittances and other similar
documents which would show that private respondents work was
not continuous and for less than 12 years. Inasmuch as these
documents are not in private respondents possession but in the
custody and absolute control of petitioners, their failure to refute
private respondents evidence or even categorically deny private
respondents allegations lead us to no other conclusion than that
private respondent was hired in 1988 and had been continuously in
its employ since then. Indeed, petitioners failure to submit the
necessary documents, which as employers are in their possession,
gives rise to the presumption that their presentation is prejudicial
to its cause.

Furthermore, as petitioners themselves admitted in their petition


before this Court, private respondent was repeatedly hired as
part of the boats crew and he acted in various capacities onboard
the vessel. In Integrated Contractor and Plumbing Works, Inc. v.
National Labor Relations Commission, we held that the test to
determine whether employment is regular or not is the reasonable
connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer.
And, if the employee has been performing the job for at least one
year, even if the 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 that activity to the business.
In Bustamante v. National Labor Relations Commission, the Court
expounded on what are regular employees under Article 280 of
the Labor Code, viz:
This provision draws a line between regular and casual
employment,
a
distinction
however
often
abused
by
employers. The provision enumerates two (2) kinds of employees,
the regular employees and the casual employees. The regular
employees consist of the following:

To recapitulate, it was after 12 long years of having private


respondent under its wings when petitioners, possibly sensing a
brewing brush with the law as far as private respondents
employment is concerned, finally found a loophole to kick private
respondent out when the latter failed to properly record a 7:25
a.m. call. Capitalizing on this faux pas, petitioner summarily
dismissed private respondent. On this note, we disagree with the
finding of the NLRC that private respondent was negligent on
account of his failure to properly record a call in the log book. A
review of the records would ineluctably show that there is no basis
to deduct six months worth of salary from the total separation pay
that private respondent is entitled to. We note further that
the NLRCs finding clashes with that of the Labor Arbiter which
found no such negligence and that such inadvertence on the part of
private respondent, at best, constitutes simple negligence
punishable only with admonition or suspension for a day or two.

1) those 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
such service is continuous or broken.

Ostensibly, in the case at bar, at different times, private respondent


occupied the position of Chief Mate, Boat Captain, and Radio
Operator. In petitioners interpretation, however, this act of hiring
and re-hiring actually highlight private respondents contractual
status saying that for every engagement, a fresh contract was
entered into by the parties at the outset as the conditions of
employment changed when the private respondent filled in a
different position. But to this Court, the act of hiring and re-hiring in
various capacities is a mere gambit employed by petitioner to
thwart the tenurial protection of private respondent. Such pattern
of re-hiring and the recurring need for his services are testament to
the necessity and indispensability of such services to petitioners

As the records bear out, private respondent himself seasonably


realized his oversight and in no time recorded the 7:25 a.m. call
after the 7:30 a.m. call. Gross negligence under Article 282 of
the Labor Code, as amended, connotes want of care in the
39

performance of ones duties, while habitual neglect implies repeated


failure to perform ones duties for a period of time, depending upon
the circumstances. Here, it is not disputed that private respondent
corrected straight away the recording of the call and petitioners
failed to prove the damage or injury that such inadvertence caused
the company. We find, as the Labor Arbiter had found, that there is
no sufficient evidence on record to prove private respondents
negligence, gross or simple for that matter, in the performance of
his duties to warrant a reduction of six months salary from private
respondents separation pay. Moreover, respondent missed to
properly record, not two or three calls, but just a single call. It was
also a first infraction on the part of private respondent, not to
mention that the gaffe, if at all, proved to be innocuous. Thus, we
find such slip to be within tolerable range. After all, is it not a
rule that in carrying out and interpreting the provisions of
the Labor Code and its implementing regulations, the workingman's
welfare should be primordial?

business or trade of the employer, then the employee must be


deemed a regular employee.
In fine, inasmuch as private respondents functions as described
above are no doubt usually necessary or desirable in the usual
business or trade of petitioner fishing company and he was hired
continuously for 12 years for the same nature of tasks, we are
constrained to say that he belongs to the ilk of regular
employee. Being one, private respondents dismissal without valid
cause was illegal. And, where illegal dismissal is proven, the worker
is entitled to back wages and other similar benefits without
deductions or conditions.
Indeed, it behooves this Court to be ever vigilant in checking the
unscrupulous efforts of some of our entrepreneurs, primarily aimed
at maximizing their return on investments at the expense of the
lowly workingman.

PLDT v. Arceo, May 5, 2006

Petitioners next assert that deep-sea fishing is a seasonal industry


because catching of fish could only be undertaken for a limited
duration or seasonal within a given year. Thus, according to
petitioners, private respondent was a seasonal or project employee.

Under the first criterion, respondent is qualified to be a regular


employee. Her work, consisting mainly of photocopying documents,
sorting out telephone bills and disconnection notices, was certainly
necessary or desirable to the business of PLDT. But even if the
contrary were true, the uncontested fact is that she rendered
service for more than one year as a casual employee. Hence, under
the second criterion, she is still eligible to become a regular
employee.

As correctly pointed out by the Court of Appeals, the activity of


catching fish is a continuous process and could hardly be
considered as seasonal in nature. In Philex Mining Corp. v. National
Labor Relations Commission, we defined project employees as
those workers hired (1) for a specific project or undertaking, and (2)
the completion or termination of such project has been determined
at the time of the engagement of the employee. The principal test
for determining whether particular employees are project
employees as distinguished from regular employees, is whether or
not the project employees were assigned to carry out a specific
project or undertaking, the duration and scope of which were
specified at the time the employees were engaged for that
project. In this case, petitioners have not shown that private
respondent was informed that he will be assigned to a specific
project or undertaking. As earlier noted, neither has it been
established that he was informed of the duration and scope of such
project or undertaking at the time of their engagement.

Petitioners argument that respondents position has been abolished,


if indeed true, does not preclude Arceos becoming a regular
employee. The order to reinstate her also included the alternative
to reinstate her to a position equivalent thereto. Thus, PLDT can
still regularize her in an equivalent position.
Moreover, PLDTs argument does not hold water in the absence of
proof that the activity in which Arceo was engaged (like
photocopying of documents and sorting of telephone bills) no
longer subsists. Under Article 280, any employee who has rendered
at least one year of service 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.For PLDTs failure to show that the activity undertaken
by Arceo has been discontinued, we are constrained to confirm her
regularization in that position.

More to the point, in Maraguinot, Jr. v. National Labor Relations


Commission, we ruled that once a project or work pool employee
has been: (1) continuously, as opposed to intermittently, re-hired
by the same employer for the same tasks or nature of tasks; and
(2) these tasks are vital, necessary and indispensable to the usual

From what date will she be entitled to the benefits of a regular


employee? Considering that she has already worked in PLDT for
40

more than one year at the time she was reinstated, she should be
entitled to all the benefits of a regular employee from June 9,
1993 the day of her actual reinstatement.

regularity of employment, namely: (1) designation of a specific


project or undertaking for which the employee is hired; and (2)
clear determination of the completion or termination of the project
at the time of the employees engagement. The services of the
project employees are legally and automatically terminated upon
the end or completion of the project as the employees services are
coterminous with the project.

PLDTs other contention that the regularization of respondent as


telephone operator was not possible since she failed in three
qualifying exams for that position is also untenable. It is understood
that she will be regularized in the position she held prior to the
filing of her complaint with the labor arbiter, or, if that position was
already abolished, to an equivalent position. The position of
telephone operator was never even considered in any of the
assailed decisions of the labor arbiter, the NLRC or the CA.

Unlike in a regular employment under Article 280 of the Labor


Code, however, the length of time of the asserted "project"
employees engagement is not controlling as the employment may,
in fact, last for more than a year, depending on the needs or
circumstances of the project. Nevertheless, this length of time (or
the continuous rehiring of the employee even after the cessation of
the project) may serve as a badge of regular employment when the
activities performed by the purported "project" employee are
necessary and indispensable to the usual business or trade of the
employer. In this latter case, the law will regard the arrangement as
regular employment.

Universal Robina Sugar Milling Corporation and


Rene Cabati, G.R. No. 186439, January 15, 2014
We disagree with the petitioners position. We find the respondents
to be regular seasonal employees of URSUMCO.
As the CA has explained in its challenged decision, Article 280 of
the Labor Code provides for three kinds of employment
arrangements, namely: regular, project/seasonal and casual.
Regular employment refers to that arrangement whereby the
employee "has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the
employer[.]" Under the definition, the primary standard that
determines regular employment is the reasonable connection
between the particular activity performed by the employee and the
usual business or trade of the employer; the emphasis is on the
necessity or desirability of the employees activity. Thus, when the
employee performs activities considered necessary and desirable
to the overall business scheme of the employer, the law regards
the employee as regular.

Seasonal employment operates much in the same way as project


employment, albeit it involves work or service that is seasonal in
nature or lasting for the duration of the season. As with project
employment, although the seasonal employment arrangement
involves work that is seasonal or periodic in nature, the
employment itself is not automatically considered seasonal so as to
prevent the employee from attaining regular status. To exclude the
asserted "seasonal" employee from those classified as regular
employees, the employer must show that: (1) the employee must
be performing work or services that are seasonal in nature; and (2)
he had been employed for the duration of the season. Hence, when
the "seasonal" workers are continuously and repeatedly hired to
perform the same tasks or activities for several seasons or even
after the cessation of the season, this length of time may likewise
serve as badge of regular employment. In fact, even though
denominated as "seasonal workers," if these workers are called to
work from time to time and are only temporarily laid off during the
off-season, the law does not consider them separated from the
service during the off-season period. The law simply considers
these seasonal workers on leave until re-employed.

By way of an exception, paragraph 2, Article 280 of the Labor Code


also considers regular a casual employment arrangement when the
casual employees engagement has lasted for at least one year,
regardless of the engagements continuity. The controlling test in
this arrangement is the length of time during which the employee
is engaged.
A project employment, on the other hand, contemplates on
arrangement whereby "the employment has been fixed for a
specific project or undertaking whose completion or termination
has been determined at the time of the engagement of the
employee[.]" Two requirements, therefore, clearly need to be
satisfied to remove the engagement from the presumption of

Casual employment, the third kind of employment arrangement,


refers to any other employment arrangement that does not fall
under any of the first two categories, i.e., regular or
project/seasonal.
Interestingly,
41

the

Labor

Code

does

not

mention

another

employment arrangement contractual or fixed term employment


(or employment for a term) which, if not for the fixed term, should
fall under the category of regular employment in view of the nature
of the employees engagement, which is to perform an activity
usually necessary or desirable in the employers business.

applicable jurisprudence, the respondents are neither project,


seasonal nor fixed-term employees, but regular seasonal workers of
URSUMCO. The following factual considerations from the records
support this conclusion:
First, the respondents were made to perform various tasks that did
not at all pertain to any specific phase of URSUMCOs strict milling
operations that would ultimately cease upon completion of a
particular phase in the milling of sugar; rather, they were tasked to
perform duties regularly and habitually needed in URSUMCOs
operations during the milling season. The respondents duties as
loader operators, hookers, crane operators and drivers were
necessary to haul and transport the sugarcane from the plantation
to the mill; laboratory attendants, workers and laborers to mill the
sugar; and welders, carpenters and utility workers to ensure the
smooth and continuous operation of the mill for the duration of the
milling season, as distinguished from the production of the
sugarcane which involves the planting and raising of the sugarcane
until it ripens for milling. The production of sugarcane, it must be
emphasized, requires a different set of workers who are
experienced in farm or agricultural work. Needless to say, they
perform the activities that are necessary and desirable in
sugarcane production. As in the milling of sugarcane, the
plantation workers perform their duties only during the planting
season.

In Brent School, Inc. v. Zamora, the Court, for the first time,
recognized and resolved the anomaly created by a narrow and
literal interpretation of Article 280 of the Labor Code that appears
to restrict the employees right to freely stipulate with his employer
on the duration of his engagement. In this case, the Court upheld
the validity of the fixed-term employment agreed upon by the
employer, Brent School, Inc., and the employee, Dorotio Alegre,
declaring that the restrictive clause in Article 280 "should be
construed to refer to the substantive evil that the Code itself x x x
singled out: agreements entered into precisely to circumvent
security of tenure. It should have no application to instances where
[the] fixed period of employment was agreed upon knowingly and
voluntarily by the parties x x x absent any x x x circumstances
vitiating [the employees] consent, or where [the facts satisfactorily
show] that the employer and [the] employee dealt with each other
on more or less equal terms[.]" The indispensability or desirability
of the activity performed by the employee will not preclude the
parties from entering into an otherwise valid fixed term
employment agreement; a definite period of employment does not
essentially contradict the nature of the employees duties as
necessary and desirable to the usual business or trade of the
employer.

Second, the respondents were regularly and repeatedly hired to


perform the same tasks year after year. This regular and repeated
hiring of the same workers (two different sets) for two separate
seasons has put in place, principally through jurisprudence, the
system of regular seasonal employment in the sugar industry and
other industries with a similar nature of operations.

Nevertheless, "where the circumstances evidently show that the


employer imposed the period precisely to preclude the employee
from acquiring tenurial security, the law and this Court will not
hesitate to strike down or disregard the period as contrary to public
policy, morals, etc." In such a case, the general restrictive rule
under Article 280 of the Labor Code will apply and the employee
shall be deemed regular.

Under the system, the plantation workers or the mill employees do


not work continuously for one whole year but only for the duration
of the growing of the sugarcane or the milling season. Their
seasonal work, however, does not detract from considering them in
regular employment since in a litany of cases, this Court has
already settled that seasonal workers who are called to work from
time to time and are temporarily laid off during the off-season are
not separated from the service in said period, but are merely
considered on leave until re-employment. Be this as it may, regular
seasonal employees, like the respondents in this case, should not
be confused with the regular employees of the sugar mill such as
the administrative or office personnel who perform their tasks for
the entire year regardless of the season. The NLRC, therefore,
gravely erred when it declared the respondents regular employees
of URSUMCO without qualification and that they were entitled to
the benefits granted, under the CBA, to URSUMCOS regular
employees.

Clearly, therefore, the nature of the employment does not depend


solely on the will or word of the employer or on the procedure for
hiring and the manner of designating the employee. Rather, the
nature of the employment depends on the nature of the activities
to be performed by the employee, considering the nature of the
employers business, the duration and scope to be done, and, in
some cases, even the length of time of the performance and its
continued existence.
In light of the above legal parameters laid down by the law and
42

union be consulted before the implementation of any contracting


out that would last for 6 months or more. Proceeding from our
ruling
in
San
Miguel
Employees
Union-PTGWO
vs
Bersamina, (where we recognized that contracting out of work is a
proprietary right of the employer in the exercise of an inherent
management prerogative) the issue we see is whether the
Secretarys consultation requirement is reasonable or unduly
restrictive of the companys management prerogative. We note that
the Secretary himself has considered that management should not
be hampered in the operations of its business when he said that:

Third, while the petitioners assert that the respondents were free
to work elsewhere during the off-season, the records do not
support this assertion. There is no evidence on record showing that
after the completion of their tasks at URSUMCO, the respondents
sought and obtained employment elsewhere.

Contrary to the petitioners position, Mercado, Sr. v. NLRC, 3rd


Div. is not applicable to the respondents as this case was resolved
based on different factual considerations. In Mercado, the workers
were hired to perform phases of the agricultural work in their
employers farm for a definite period of time; afterwards, they were
free to offer their services to any other farm owner. The workers
were not hired regularly and repeatedly for the same phase(s) of
agricultural work, but only intermittently for any single phase. And,
more importantly, the employer in Mercado sufficiently proved
these factual circumstances. The Court reiterated these same
observations in Hda. Fatima v. Natl Fed. of Sugarcane WorkersFood and Gen. Trade and Hacienda Bino/Hortencia Starke, Inc. v.
Cuenca.

We feel that the limitations imposed by the union advocates are


too specific and may not be applicable to the situations that the
company and the union may face in the future. To our mind, the
greater risk with this type of limitation is that it will tend to curtail
rather than allow the business growth that the company and the
union must aspire for. Hence, we are for the general limitations we
have stated above because they will allow a calibrated response to
specific future situations the company and the union may face.

Additionally, We recognize that contracting out is not unlimited;


rather, it is a prerogative that management enjoys subject to welldefined legal limitations. As we have previously held, the company
can determine in its best business judgment whether it should
contract out the performance of some of its work for as long as the
employer is motivated by good faith, and the contracting out must
not have been resorted to circumvent the law or must not have
been the result of malicious or arbitrary action. The Labor Code and
its implementing rules also contain specific rules governing
contracting out (Department of Labor Order No. 10, May 30, 1997,
Sections. 1-25).

Viewed in this light, we find the need to place the CAs affirmation,
albeit with modification, of the NLRC decision of July 22, 2005 in
perspective. To recall, the NLRC declared the respondents as
regular employees of URSUMCO. With such a declaration, the NLRC
in effect granted the respondents prayer for regularization and,
concomitantly, their prayer for the grant of monetary benefits
under the CBA for URSUMCOs regular employees. In its challenged
ruling, the CA concurred with the NLRC finding, but with the
respondents characterized as regular seasonal employees of
URSUMCO.
To reiterate, the respondents are regular seasonal employees, as
the CA itself opined when it declared that "private respondents who
are regular workers with respect to their seasonal tasks or activities
and while such activities exist, cannot automatically be governed
by the CBA between petitioner URSUMCO and the authorized
bargaining representative of the regular and permanent
employees." Citing jurisprudential standards, it then proceeded to
explain that the respondents cannot be lumped with the regular
employees due to the differences in the nature of their duties and
the duration of their work vis-a-vis the operations of the company.

Given these realities, we recognize that a balance already exist in


the parties relationship with respect to contracting out; MERALCO
has its legally defined and protected management prerogatives
while workers are guaranteed their own protection through specific
labor provisions and the recognition of limits to the exercise of
management prerogatives. From these premises, we can only
conclude that the Secretarys added requirement only introduces
an imbalance in the parties collective bargaining relationship on a
matter that the law already sufficiently regulates. Hence, we rule
that the Secretarys added requirement, being unreasonable,
restrictive and potentially disruptive should be struck down.

C. Independent Contractors and Labor-Only Contractors

Coca cola Bottlers v. Dela Cruz, et al. (G.R. No.


184977, 7 December 2009)

MERALCO v. Quisumbing 302 SCRA 173 (1999)


This issue is limited to the validity of the requirement that the
43

Contracting and sub-contracting are hot labor issues for two


reasons. The first is that job contracting and labor-only contracting
are
technical
Labor
Code
concepts
that
are
easily
misunderstood. For one, there is a lot of lay misunderstanding of
what kind of contracting the Labor Code prohibits or allows.
The second, echoing the cry from the labor sector, is that the Labor
Code provisions on contracting are blatantly and pervasively
violated, effectively defeating workers right to security of tenure.

The Department of Labor and Employment implements this Labor


Code provision through its Department Order No. 18-02 (D.O. 1802). On the matter of labor-only contracting, Section 5 thereof
provides:
Prohibition against labor-only contracting. - Labor-only contracting
is hereby declared prohibited x x x labor-only contracting shall
refer to an arrangement where the contractor or subcontractor
merely recruits, supplies or places workers to perform a job, work
or service for a principal, and any of the following elements are
present:

This Court, through its decisions, can directly help address the
problem of misunderstanding. The second problem, however,
largely relates to implementation issues that are outside the Courts
legitimate scope of activities; the Court can only passively address
the problem through the cases that are brought before us. Either
way, however, the need is for clear decisions that the workers,
most especially, will easily understand and appreciate. We resolve
the present case with these thoughts in mind.

i) The contractor or subcontractor does not have sufficient 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.

The law allows contracting and subcontracting involving services


but closely regulates these activities for the protection of
workers. Thus, an employer can contract out part of its operations,
provided it complies with the limits and standards provided in the
Code and in its implementing rules.

Substantial capital or investment refers to capital stocks and


subscribed capitalization in the case of corporations, tools or
equipment, implements, machineries and work premises, actually
and directly used by the contractor or subcontractor in the
performance or completion of the job, work or service contracted
out. [Emphasis supplied]

The directly applicable provision of the Labor Code on contracting


and subcontracting is Article 106 which provides:

The right to control refers to the prerogative of a party to


determine, not only the end result sought to be achieved, but also
the means and manner to be used to achieve this end.

Whenever, an employer enters into a contract with another person


for the performance of the formers work, the employees of the
contractor and of the latters subcontractor shall be paid in
accordance with the provisions of this Code.

In strictly laymans terms, a manufacturer can sell its products on its


own, or allow contractors, independently operating on their own, to
sell and distribute these products in a manner that does not violate
the regulations. From the terms of the above-quoted D.O. 18-02,
the legitimate job contractor must have the capitalization and
equipment to undertake the sale and distribution of the
manufacturers products, and must do it on its own using its own
means and selling methods.

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.

In the present case, both the capitalization of Peerless and


Excellent and their control over the means and manner of their
operations are live sub-issues before us.

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 alter were directly employed by
him(underscoring supplied).

A key consideration in resolving these issues is the contract


between the company and the purported contractors. These
provisions particularly, that Peerless and Excellent retain the right
to select, hire, dismiss, supervise, control, and discipline all
personnel they will assign to the petitioner, as well as pay their
salaries were cited by the labor arbiter and the NLRC as basis for
44

their conclusion that no employer-employee relationship existed


between the respondents and the petitioner.

In plainer terms, the contracted personnel (acting as sales route


helpers) were only engaged in the marginal work of helping in the
sale and distribution of company products; they only provided the
muscle work that sale and distribution required and were thus
necessarily under the companys control and supervision in doing
these tasks.

The Court of Appeals viewed matters differently and faulted the


labor tribunals for relying solely on the service contracts to prove
that the respondents were employees of Peerless and
Excellent. The CA cited in this regard what we said in 7K
Corporation v. NLRC:

Still another way of putting it is that the contractors were not


independently selling and distributing company products, using
their own equipment, means and methods of selling and
distribution; they only supplied the manpower that helped the
company in the handing of products for sale and distribution. In the
context of D.O. 18-02, the contracting for sale and distribution as
an independent and self-contained operation is a legitimate
contract, but the pure supply of manpower with the task of
assisting in sales and distribution controlled by a principal falls
within prohibited labor-only contracting.

The fact that the service contract entered into by petitioner and
Universal stipulated that private respondents shall be the
employees of Universal, would not help petitioner, as the language
of a contract is not determinative of the relationship of the parties.
Petitioner and Universal cannot dictate, by the mere expedient of a
declaration in a contract, the character of Universal business, i.e.,
whether as labor-only contractor , or job contractor, it being crucial
that Universals character be mentioned in terms of and determined
by the criteria set by the statute.

as basis for looking at how the contracted workers really related


with the company in performing their contracted tasks. In other
words, the contract between the principal and the contractor is not
the final word on how the contracted workers relate to the principal
and the purported contractor; the relationships must be tested on
the basis of how they actually operate.

The role of sales route helpers in company operations is not a new


issue before this Court as we have ruled on this issue in Magsalin v.
National Organization of Workingmen which the CA itself cited in
the assailed decision. We held in this cited case that:
The argument of petitioner that its usual business or trade is
softdrink manufacturing and that the work assigned to the
respondent workers so involves merely postproduction activities,
one which is not indispensable in the manufacture of its products,
scarcely can be persuasive. If, as so argued by petitioner company,
only those whose work are directly involved in the production of
softdrinks may be held performing functions necessary and
desirable in its usual business or trade, there would have been no
need for it to even maintain regular truck sales route helpers. The
nature of the work performed must be viewed from a perspective
of the business or trade in its entirety and not only in a confined
scope.

Even before going into the realities of workplace operations, the CA


found that the service contracts themselves provide ample leads
into the relationship between the company, on the one hand, and
Peerless and Excellent, on the other. The CA noted that both the
Peerless and the Excellent contracts show that their obligation was
solely to provide the company with the services of contractual
employees, and nothing more. These contracted services were for
the handling and delivery of the companys products and allied
services. Following D.O. 18-02 and the contracts that spoke purely
of the supply of labor, the CA concluded that Peerless and Excellent
were labor-only contractors unless they could prove that they had
the required capitalization and the right of control over their
contracted workers.

While the respondents were not direct parties to this ruling, the
petitioner was the party involved and Magsalin described in a very
significant way the manufacture of softdrinks and the companys
sales and distribution activities in relation with one another.
Following the lead we gave in Magsalin, the CA concluded that the
contracted personnel who served as route helpers were really
engaged in functions directly related to the overall business of the
petitioner. This led to the further CA conclusion that the contracted
personnel were under the companys supervision and control since
sales and distribution were in fact not the purported contractors
independent, discrete and separable activities, but were
component parts of sales and distribution operations that the

The CA concluded that other than the petitioners bare allegation,


there is no indication in the records that Peerless and Excellent had
substantial capital, tools or investment used directly in providing
the contracted services to the petitioner. Thus, in the handling and
delivery of company products, the contracted personnel used
company trucks and equipment in an operation where company
sales personnel primarily handled sales and distribution, merely
utilizing the contracted personnel as sales route helpers.
45

company controlled in its softdrinks business.

similarly involve typing and paper pushing activities and may be


done on the same company products that the forwarders
employees and company employees may work on, but these
similarities do not necessarily mean that all these employees work
for the company. The regular company employees, to be sure, work
for the company under its supervision and control, but forwarder
employees work for the forwarder in the forwarders own operation
that is itself a contracted work from the company. The company
controls its employees in the means, method and results of their
work, in the same manner that the forwarder controls its own
employees in the means, manner and results of their
work. Complications and confusion result because the company at
the same time controls the forwarder in the results of the latters
work, without controlling however the means and manner of the
forwarder employees work. This interaction is best exemplified by
the adduced evidence, particularly the affidavits of petitioners
warehouse manager Gregorio and Section Head Bawar discussed
below.

Temic Automotive Phils v. Temic Automative


Phils Inc. Employees Union FFW, G.R. No.
186965, 23 December 2009.
Our own examination of the agreement shows that the forwarding
arrangement complies with the requirements of Article 106 of the
Labor Code and its implementing rules. To reiterate, no evidence or
argument
questions
the
companys
basic
objective
of
achieving greater economy and efficiency of operations. This, to
our mind, goes a long way to negate the presence of bad faith. The
forwarding arrangement has been in place since 1998 and no
evidence has been presented showing that any regular employee
has been dismissed or displaced by the forwarders employees since
then. No evidence likewise stands before us showing that the
outsourcing has resulted in a reduction of work hours or the
splitting of the bargaining unit effects that under the implementing
rules of Article 106 of the Labor Code can make a contracting
arrangement illegal. The other requirements of Article 106, on the
other hand, are simply not material to the present petition. Thus,
on the whole, we see no evidence or argument effectively showing
that the outsourcing of the forwarding activities violate our labor
laws, regulations, and the parties CBA, specifically that it interfered
with, restrained or coerced employees in the exercise of their rights
to self-organization as provided in Section 6, par. (f) of the
implementing rules. The only exception, of course, is what the
union now submits as a voluntary arbitration issue i.e., the failure
to recognize certain forwarder employees as regular company
employees and the effect of this failure on the CBAs scope of
coverage which issue we fully discuss below.

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

The job of forwarding, as we earlier described, consists not only of


a single activity but of several services that complement one
another and can best be viewed as one whole process involving a
package of services. These services include packing, loading,
materials handling and support clerical activities, all of which are
directed at the transport of company goods, usually to foreign
destinations.

The best evidence supporting this conclusion can be found in the


CBA itself. At this point, the union cannot simply turn around and
claim through voluntary arbitration the contrary position that some
forwarder employees should be regular employees and should be
part of its bargaining unit because they undertake regular company
functions. What the union wants is a function of negotiations, or
perhaps an appropriate action before the National Labor Relations
Commission impleading the proper parties, but not a voluntary
arbitration that does not implead the affected parties. The union

It is in the appreciation of these forwarder services as one whole


package of inter-related services that we discern a basic
misunderstanding that results in the error of equating the functions
of the forwarders employees with those of regular rank-and-file
employees of the company. A clerical job, for example, may
46

must not forget, too, that before the inclusion of the forwarders
employees in the bargaining unit can be considered, these
employees must first be proven to be regular company employees.
As already mentioned, the union does not even have the
personality to make this claim for these forwarders employees. This
is the impenetrable wall that the union cannot, for now, pass
through using the voluntary arbitration proceedings now before us
on appeal.

Legitimate contracting and labor-only contracting are defined in


Department Order (D.O.) No. 18-02, Series of 2002 (Rules
Implementing Articles 106 to 109 of the Labor Code, as amended)
as follows:
Section
3. Trilateral
relationship
in
contracting
arrangements. In legitimate contracting, there exists a trilateral
relationship under which there is a contract for a specific job, work
or service between the principal and the contractor or
subcontractor, and a contract of employment between the
contractor or subcontractor and its workers. Hence, there are three
parties involved in these arrangements, the principal which
decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the
capacity to independently undertake the performance of the job,
work or service, and the contractual workers engaged by the
contractor or subcontractor to accomplish the job, work or
service. (Emphasis and underscoring supplied)

Significantly, the evidence presented does not also prove the


unions point that forwarder employees undertake company rather
than the forwarders' activities. We say this mindful that forwarding
includes a whole range of activities that may duplicate company
activities in terms of the exact character and content of the job
done and even of the skills required, but cannot be legitimately
labeled as company activities because they properly pertain to
forwarding that the company has contracted out.

From the records of the case, it is gathered that the work performed
by almost all of the respondents loading and unloading of baggage
and cargo of passengers is directly related to the main business of
petitioner. And the equipment used by respondents as station
loaders, such as trailers and conveyors, are owned by petitioner.

The unions own evidence, in fact, speaks against the point the
union wishes to prove. Specifically, the affidavits of forwarder KNI
employees Barit, Prevendido, and Enano, submitted in evidence by
the union, confirm that the work they were doing was
predominantly related to forwarding or the shipment or transport of
the petitioners finished goods to overseas destinations, particularly
to Germany and the United States of America (USA).

Petitioner asserts, however, that mere compliance with substantial


capital requirement suffices for Synergy to be considered a
legitimate contractor, citing Neri v. National Labor Relations
Commission. Petitioners reliance on said case is misplaced.

The essential nature of the outsourced services is not substantially


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

In Neri, the Labor Arbiter and the NLRC both determined that
Building Care Corporation had a capital stock of P1 million fully
subscribed and paid for. The corporations status as independent
contractor had in fact been previously confirmed in an earlier
case by this Court which found it to be serving, among others, a
university, an international bank, a big local bank, a hospital
center, government agencies, etc.
In stark contrast to the case at bar, while petitioner steadfastly
asserted before the Labor Arbiter and the NLRC that Synergy has a
substantial capital to engage in legitimate contracting, it failed to
present evidence thereon. As the NLRC held:
The decision of the Labor Arbiter merely mentioned on page 5 of
his decision that respondent SYNERGY has substantial capital, but
there is no showing in the records as to how much is that capital.
Neither had respondents shown that SYNERGY has such substantial
capital. x x x (Underscoring supplied)

Philippine Airlines v. Ligan (G.R. No. 146408,


February 29, 2008)

It was only after the appellate court rendered its challenged


47

Decision of September 29, 2002 when petitioner, in its Motion for


Reconsideration of the decision, sought to prove, for the first time,
Synergys substantial capitalization by attaching photocopies of
Synergys financial statements, e.g., balance sheets, statements of
income and retained earnings, marked as Annexes A A-4.

respondents and other regular PAL employees were all referred to


as station attendants of the cargo operation and airfreight services
of petitioner.
Respondents having performed tasks which are usually necessary
and desirable in the air transportation business of petitioner, they
should be deemed its regular employees and Synergy as a laboronly contractor.

More significantly, however, is that respondents worked alongside


petitioners regular employees who were performing identical
work. As San Miguel Corporation v. Aballa and Dole Philippines, Inc.
v. Esteva, et al. teach, such is an indicium of labor-only contracting.

The express provision in the Agreement that Synergy was an


independent contractor and there would be no employer-employee
relationship between [Synergy] and/or its employees on one hand,
and [petitioner] on the other hand is not legally binding and
conclusive as contractual provisions are not valid determinants of
the existence of such relationship. For it is the totality of the
facts and surrounding circumstances of the case which is
determinative of the parties relationship.

For labor-only contracting to exist, Section 5 of D.O. No. 18-02


which requires any of two elements to be present is, for
convenience, re-quoted:
(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

San Miguel Corporation v. Aballa (G.R. No.


149011, June 28, 2005)

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

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.

Even if only one of the two elements is present then, there is laboronly contracting.
The control test element under the immediately-quoted paragraph
(ii), which was not present in the old Implementing Rules
(Department Order No. 10, Series of 1997),echoes the prevailing
jurisprudential trend elevating such element as a primary
determinant of employer-employee relationship in job contracting
agreements.

In legitimate labor contracting, the law creates an employeremployee 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.

One who claims to be an independent contractor has to prove that


he contracted to do the work according to his own methods and
without being subject to the employers control except only as to
the results.

In labor-only contracting, the statute creates an employeremployee relationship for a comprehensive purpose: to prevent a
circumvention of labor laws. The contractor is considered merely an
agent of the principal employer and the latter is responsible to the
employees of the labor-only contractor as if such employees had
been directly employed by the principal employer.

While petitioner claimed that it was Synergys supervisors who


actually supervised respondents, it failed to present evidence
thereon. It did not even identify who were the Synergy supervisors
assigned at the workplace.

The Contract of Services between SMC and Sunflower shows that


the parties clearly disavowed the existence of an employeremployee relationship between SMC and private respondents. The
language of a contract is not, however, determinative of the parties
relationship; rather it is the totality of the facts and surrounding
circumstances of the case. A party cannot dictate, by the mere

Even the parties Agreement does not lend support to petitioners


claim. Petitioner in fact admitted that it fixes the work schedule of
respondents as their work was dependent on the frequency of
plane arrivals. And as the NLRC found, petitioners managers and
supervisors approved respondents weekly work assignments and
48

expedient of a unilateral declaration in a contract, the character of


its business, i.e., whether as labor-only contractor or job contractor,
it being crucial that its character be measured in terms of and
determined by the criteria set by statute.

plant inside the SMC compound alongside regular SMC shrimp


processing workers performing identical jobs under the same SMC
supervisors. This circumstance is another indicium of the existence
of a labor-only contractorship.

SMC argues that Sunflower could not have been issued a certificate
of registration as a cooperative if it had no substantial capital.

And as private respondents alleged in their Joint Affidavit which did


not escape the observation of the CA, no showing to the contrary
having been proffered by SMC, Sunflower did not cater to clients
other than SMC, and with the closure of SMCs Bacolod Shrimp
Processing Plant, Sunflower likewise ceased to exist. This Courts
ruling in San Miguel Corporation v. MAERC Integrated Services,
Inc. is thus instructive.

While indeed Sunflower was issued Certificate of Registration No.


IL0-875 on February 10, 1992 by the Cooperative Development
Authority, this merely shows that it had at leastP2,000.00 in paidup share capital as mandated by Section 5 of Article 14 of Republic
Act No. 6938, otherwise known as the Cooperative Code, which
amount cannot be considered substantial capitalization.

xxx Nor do we believe MAERC to have an independent business.


Not only was it set up to specifically meet the pressing needs of
SMC which was then having labor problems in its segregation
division, none of its workers was also ever assigned to any other
establishment, thus convincing us that it was created solely to
service the needs of SMC. Naturally, with the severance of
relationship between MAERC and SMC followed MAERCs cessation
of operations, the loss of jobs for the whole MAERC workforce and
the resulting actions instituted by the workers. (Underscoring
supplied)

What appears is that Sunflower does not have substantial


capitalization or investment in the form of tools, equipment,
machineries, work premises and other materials to qualify it as an
independent contractor.
On the other hand, it is gathered that the lot, building, machineries
and all other working tools utilized by private respondents in
carrying out their tasks were owned and provided by SMC. And
from the job description provided by SMC itself, the work assigned
to private respondents was directly related to the aquaculture
operations of SMC. Undoubtedly, the nature of the work performed
by private respondents in shrimp harvesting, receiving and packing
formed an integral part of the shrimp processing operations of SMC.
As for janitorial and messengerial services, that they are considered
directly related to the principal business of the employer has been
jurisprudentially recognized.

All the foregoing considerations affirm by more than substantial


evidence the existence of an employer-employee relationship
between SMC and private respondents.
Since private respondents who were engaged in shrimp processing
performed tasks usually necessary or desirable in the aquaculture
business of SMC, they should be deemed regular employees of the
latter and as such are entitled to all the benefits and rights
appurtenant to regular employment. They should thus be awarded
differential pay corresponding to the difference between the wages
and benefits given them and those accorded SMCs other regular
employees.

Furthermore, Sunflower 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, SMC, its apparent role having been merely to recruit
persons to work for SMC.

Respecting the private respondents who were tasked with janitorial


and messengerial duties, this Court quotes with approval the
appellate courts ruling thereon:

Thus, it is gathered from the evidence adduced by private


respondents before the labor arbiter that their daily time records
were signed by SMC supervisors Ike Puentebella, Joemel Haro,
Joemari Raca, Erwin Tumonong, Edison Arguello, and Stephen
Palabrica, which fact shows that SMC exercised the power of control
and supervision over its employees. Andcontrol of the premises in
which private respondents worked was by SMC. These tend to
disprove the independence of the contractor.

Those
performing
janitorial
and
messengerial
services
however acquired regular status only after rendering one-year
service pursuant to Article 280 of the Labor Code. Although
janitorial and messengerial services are considered directly related
to the aquaculture business of SMC, they are deemed unnecessary
in the conduct of its principal business; hence, the distinction
(See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137
and Philippine Bank of Communications v. NLRC, supra, p. 359).

More. Private respondents had been working in the aqua processing


49

As for those of private respondents who were engaged in janitorial


and messengerial tasks, they fall under the second category and
are thus entitled to differential pay and benefits extended to other
SMC regular employees from the day immediately following their
first year of service.

mean that the party with whom an independent contractor deals is


solidarily liable with the latter for unpaid wages, and only to that
extent and for that purpose that the latter is considered a direct
employer. The term wage is defined in Article 97(f) of the Labor
Code as the remuneration of earnings, however designated,
capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other
method of calculating the unwritten contract of employment for
work done or to be done, or for services rendered or to be rendered
and includes the fair and reasonable value, as determined by the
Secretary of Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee.

Meralco Industrial Engineering Services v. NLRC


(G.R. No. 145402, March 14, 2008)
The Court of Appeals indeed erred when it ruled that the petitioner
was jointly and solidarily liable with the private respondents as
regards the payment of separation pay.

Further, there is no question that private respondents are operating


as an independent contractor and that the complainants were their
employees. There was no employer-employee relationship that
existed between the petitioner and the complainants and, thus, the
former could not have dismissed the latter from employment. Only
private respondents, as the complainants employer, can terminate
their services, and should it be done illegally, be held liable
therefor. The only instance when the principal can also be held
liable with the independent contractor or subcontractor for the
backwages and separation pay of the latters employees is when
there is proof that the principal conspired with the independent
contractor or subcontractor in the illegal dismissal of the
employees, thus:

The appellate court used as basis Article 109 of the Labor Code, as
amended, in holding the petitioner solidarily liable with the private
respondents for the payment of separation pay.
However, the afore-quoted provision must be read in conjunction
with Articles 106 and 107 of the Labor Code, as amended.
Article 107 of the Labor Code, as amended, defines an indirect
employer as 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. To
ensure that the contractors employees are paid their appropriate
wages, Article 106 of the Labor Code, as amended
Taken together, an indirect employer (as defined by Article 107)
can only be held solidarily liable with the independent contractor or
subcontractor (as provided under Article 109) in the event that the
latter fails to pay the wages of its employees (as described in
Article 106).

The liability arising from an illegal dismissal is unlike an order to


pay the statutory minimum wage, because the workers right to
such wage is derived from law. The proposition that payment of
back wages and separation pay should be covered by Article 109,
which holds an indirect employer solidarily responsible with his
contractor or subcontractor for any violation of any provision of this
Code, would have been tenable if there were proof - there was
none in this case - that the principal/employer had conspired with
the contractor in the acts giving rise to the illegal dismissal.

Hence, while it is true that the petitioner was the indirect employer
of the complainants, it cannot be held liable in the same way as the
employer in every respect. The petitioner may be considered
an indirect employer only for purposes of unpaid wages. As
this Court succinctly explained in Philippine Airlines, Inc. v. National
Labor Relations Commission:

It is the established fact of conspiracy that will tie the principal or


indirect employer to the illegal dismissal of the contractor or
subcontractors employees. In the present case, there is no
allegation, much less proof presented, that the petitioner conspired
with private respondents in the illegal dismissal of the latters
employees; hence, it cannot be held liable for the same.

While USSI is an independent contractor under the security service


agreement and PAL may be considered an indirect employer, that
status did not make PAL the employer of the security guards in
every respect. As correctly posited by the Office of the Solicitor
General, PAL may be considered an indirect employer only for
purposes of unpaid wages since Article 106, which is applicable to
the situation contemplated in Section 107, speaks of wages. The
concept of indirect employer only relates or refers to the liability
for unpaid wages. Read together, Articles 106 and 109 simply

Neither can the liability for the separation pay of the complainants
be extended to the petitioner based on contract. Contract Order No.
166-84 executed between the petitioner and the private
respondents contains no provision for separation pay in the event
that the petitioner terminates the same. It is basic that a contract is
50

the law between the parties and the stipulations therein, provided
that they are not contrary to law, morals, good customs, public
order or public policy, shall be binding as between the
parties.Hence, if the contract does not provide for such a liability,
this Court cannot just read the same into the contract without
possibly violating the intention of the parties.

contractor), who paid for the judgment awards in full, to recover


from the petitioner (the indirect employer).
Private respondents have nothing more to recover from petitioner.
Petitioner had already handed over to private respondent the
wages and other benefits of the complainants. Records reveal that
it had complied with complainants salary increases in accordance
with the minimum wage set by Republic Act No. 6727 by faithfully
adjusting the contract price for the janitorial services it contracted
with private respondents. This is a finding of fact made by the
Labor Arbiter, untouched by the NLRC and explicitly affirmed by the
Court of Appeals, and which should already bind this Court.

It is also worth noting that although the issue in CA-G.R. SP No.


50806 pertains to private respondents right to reimbursement from
petitioner for the monetary awards in favor of the complainants,
they limited their arguments to the monetary awards for
underpayment of wages and non-payment of overtime pay, and
were conspicuously silent on the monetary award for separation
pay. Thus, private respondents sole liability for the separation pay
of their employees should have been deemed settled and already
beyond the power of the Court of Appeals to resolve, since it was
an issue never raised before it.

Manila Electric Company v. Benamira (G.R. No.


145271, July 14, 2005)
Moreover, ASDAI and AFSISI are not labor-only contractors. There is
labor only contract when the person acting as contractor is
considered merely as an agent or intermediary of the principal who
is responsible to the workers in the same manner and to the same
extent as if they had been directly employed by him. On the other
hand, job (independent) contracting is present if the following
conditions are met: (a) 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 to the result thereof; and (b) the contractor has substantial
capital or investments in the form of tools, equipment, machineries,
work premises and other materials which are necessary in the
conduct of his business. Given the above distinction and the
provisions of the security service agreements entered into by
petitioner with ASDAI and AFSISI, we are convinced that ASDAI and
AFSISI were engaged in job contracting.

Although petitioner is not liable for complainants separation pay,


the Court conforms to the consistent findings in the proceedings
below that the petitioner is solidarily liable with the private
respondents for the judgment awards for underpayment of wages
and non-payment of overtime pay.
In this case, however, private respondents had already posted a
surety bond in an amount sufficient to cover all the judgment
awards due the complainants, including those for underpayment of
wages and non-payment of overtime pay. The joint and several
liability of the principal with the contractor and subcontractor were
enacted to ensure compliance with the provisions of the Labor
Code, principally those on statutory minimum wage. This liability
facilitates, if not guarantees, payment of the workers
compensation, thus, giving the workers ample protection as
mandated by the 1987 Constitution. With private respondents
surety bond, it can therefore be said that the purpose of the Labor
Code provision on the solidary liability of the indirect employer is
already accomplished since the interest of the complainants are
already adequately protected. Consequently, it will be futile to
continuously hold the petitioner jointly and solidarily liable with the
private respondents for the judgment awards for underpayment of
wages and non-payment of overtime pay.

The individual respondents can not be considered as regular


employees of the MERALCO for, although security services are
necessary and desirable to the business of MERALCO, it is not
directly related to its principal business and may even be
considered unnecessary in the conduct of MERALCOs principal
business, which is the distribution of electricity.

But while this Court had previously ruled that the indirect employer
can recover whatever amount it had paid to the employees in
accordance with the terms of the service contract between itself
and the contractor, the said ruling cannot be applied in reverse to
this case as to allow the private respondents (the independent

Furthermore, the fact that the individual respondents filed their


claim for unpaid monetary benefits against ASDAI is a clear
indication that the individual respondents acknowledge that ASDAI
is their employer.
51

We cannot give credence to individual respondents insistence that


they were absorbed by AFSISI when MERALCOs security service
agreement with ASDAI was terminated. The individual respondents
failed to present any evidence to confirm that AFSISI absorbed
them into its workforce. Thus, respondent Benamira was not
retained in his post at MERALCO since July 25, 1992 due to the
termination of the security service agreement of MERALCO with
ASDAI. As for the rest of the individual respondents, they retained
their post only as hold-over guards until the security guards of
AFSISI took over their post on August 6, 1992.

justice provisions of the 1987 Constitution.

In the present case, respondent Benamira has been off-detail for


seventeen days while the rest of the individual respondents have
only been off- detail for five days when they amended their
complaint on August 11, 1992 to include the charge of illegal
dismissal. The inclusion of the charge of illegal dismissal then was
premature. Nonetheless, bearing in mind that ASDAI simply
stopped giving the individual respondents any assignment and their
inactivity clearly persisted beyond the six-month period allowed by
Article 286 of the Labor Code, the individual respondents were, in
effect, constructively dismissed by ASDAI from employment, hence,
they should be reinstated.

He who made the payment may claim from his co-debtors only the
share which corresponds to each, with the interest for the payment
already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.

However, as held in Mariveles Shipyard Corp. vs. Court of


Appeals, the solidary liability of MERALCO with that of ASDAI does
not preclude the application of Article 1217 of the Civil Code on
the right of reimbursement from his co-debtor by the one who
paid, which provides:
ART. 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary debtors offer to
pay, the creditor may choose which offer to accept.

When one of the solidary debtors cannot, because of his


insolvency, reimburse his share to the debtor paying the obligation,
such share shall be borne by all his co-debtors, in proportion to the
debt of each.
ASDAI may not seek exculpation by claiming that MERALCOs
payments to it were inadequate for the individual respondents
lawful compensation. As an employer, ASDAI is charged with
knowledge of labor laws and the adequacy of the compensation
that it demands for contractual services is its principal concern and
not any others.

The fact that there is no actual and direct employer-employee


relationship between MERALCO and the individual respondents
does not exonerate MERALCO from liability as to the monetary
claims of the individual respondents. When MERALCO contracted
for security services with ASDAI as the security agency that hired
individual respondents to work as guards for it, MERALCO became
an indirect employer of individual respondents pursuant to Article
107 of the Labor Code, which reads:

DOLE Phils. v. Esteva (G.R. No. No. 161115,


November 30, 2006)
As previously discussed, the finding of the duly authorized
representatives of the DOLE Secretary that CAMPCO was a laboronly contractor is already conclusive. This Court cannot deviate
from said finding.

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.

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.

When ASDAI as contractor failed to pay the individual respondents,


MERALCO as principal becomes jointly and severally liable for the
individual respondents wages, underArticles 106 and 109 of the
Labor Code, which provide:

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

ASDAI is held liable by virtue of its status as direct employer, while


MERALCO is deemed the indirect employer of the individual
respondents for the purpose of paying their wages in the event of
failure of ASDAI to pay them. This statutory scheme gives the
workers the ample protection consonant with labor and social
52

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.

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
petitioners personnel. It was petitioner who determined and
prepared the work assignments of the CAMPCO members. CAMPCO
members worked within petitioners plantation and processing
plants alongside regular employees performing identical jobs, a
circumstance recognized as an indicium of a labor-only
contractorship.

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.

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.

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 P6,600.00 paid-up
capital, which could hardly be considered substantial. 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.

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
petitioners business of production and processing of pineapple
products for export.

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.

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.

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

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.

Sonza v. ABS-CBN (G.R. No. 138051, June 10,


2004)
Employee or Independent Contractor?
The existence of an employer-employee relationship is a question
53

of fact. Appellate courts accord the factual findings of the Labor


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

ABS-CBN directly paid SONZA his monthly talent fees with no part
of his fees going to MJMDC. SONZA asserts that this mode of fee
payment shows that he was an employee of ABS-CBN. SONZA also
points out that ABS-CBN granted him benefits and privileges which
he would not have enjoyed if he were truly the subject of a valid job
contract.
All the talent fees and benefits paid to SONZA were the result of
negotiations that led to the Agreement. If SONZA were ABS-CBNs
employee, there would be no need for the parties to stipulate on
benefits such as SSS, Medicare, x x x and 13 month pay which the
law automatically incorporates into every employer-employee
contract. Whatever benefits SONZA enjoyed arose from contract
and not because of an employer-employee relationship.

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

SONZAs talent fees, amounting to P317,000 monthly in the second


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

A. Selection and Engagement of Employee


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

The payment of talent fees directly to SONZA and not to MJMDC


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

Independent contractors often present themselves to possess


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

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

In any event, the method of selecting and engaging SONZA does


not conclusively determine his status. We must consider all the
circumstances of the relationship, with the control test being the
most important element.
B. Payment of Wages
54

CBN.

accepted this argument, independent contractors could never work


on collaborative projects because other individuals often provide
the equipment required for different aspects of the collaboration. x
xx

SONZA admits that even after ABS-CBN ceased broadcasting his


programs, ABS-CBN still paid him his talent fees. Plainly, ABS-CBN
adhered to its undertaking in the Agreement to continue paying
SONZAs talent fees during the remaining life of the Agreement
even if ABS-CBN cancelled SONZAs programs through no fault of
SONZA.

Third, WIPR could not assign Alberty work in addition to


filming Desde Mi Pueblo. Albertys contracts with WIPR
specifically provided that WIPR hired her professional services as
Hostess for the Program Desde Mi Pueblo. There is no evidence that
WIPR assigned Alberty tasks in addition to work related to these
tapings. x x x (Emphasis supplied)

SONZA assails the Labor Arbiters interpretation of his rescission of


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

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

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

First, SONZA contends that ABS-CBN exercised control over the


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

Several factors favor classifying Alberty as an independent


contractor. First, a television actress is a skilled position
requiring talent and training not available on-the-job. x x x
In this regard, Alberty possesses a masters degree in public
communications and journalism; is trained in dance, singing, and
modeling; taught with the drama department at the University of
Puerto Rico; and acted in several theater and television
productions prior to her affiliation with Desde Mi Pueblo. Second,
Alberty provided the tools and instrumentalities necessary
for her to perform. Specifically, she provided, or obtained
sponsors to provide, the costumes, jewelry, and other imagerelated
supplies
and
services
necessary
for
her
appearance. Alberty disputes that this factor favors independent
contractor status because WIPR provided the equipment necessary
to tape the show. Albertys argument is misplaced. The equipment
necessary for Alberty to conduct her job as host of Desde Mi Pueblo
related to her appearance on the show.Others provided equipment
for filming and producing the show, but these were not the primary
tools that Alberty used to perform her particular function. If we

We find that ABS-CBN was not involved in the actual performance


that produced the finished product of SONZAs work. ABS-CBN did
not instruct SONZA how to perform his job.ABS-CBN merely
reserved the right to modify the program format and airtime
schedule for more effective programming. ABS-CBNs sole concern
was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means
and methods of performance of SONZAs work.
55

SONZA claims that ABS-CBNs power not to broadcast his shows


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

admittedly possesses. The records do not show that ABS-CBN


exercised any supervision and control over how SONZA utilized his
skills and talent in his shows.
Second, SONZA urges us to rule that he was ABS-CBNs employee
because ABS-CBN subjected him to its rules and standards of
performance. SONZA claims that this indicates ABS-CBNs control
not only [over] his manner of work but also the quality of his work.
The Agreement stipulates that SONZA shall abide with the rules
and standards of performance covering talents of ABS-CBN. The
Agreement does not require SONZA to comply with the rules and
standards of performance prescribed for employees of ABSCBN. The code of conduct imposed on SONZA under the Agreement
refers to the Television and Radio Code of the Kapisanan ng mga
Broadcaster sa Pilipinas (KBP), which has been adopted by the
COMPANY (ABS-CBN) as its Code of Ethics. The KBP code applies to
broadcasters, not to employees of radio and television
stations. Broadcasters are not necessarily employees of radio and
television stations. Clearly, the rules and standards of performance
referred to in the Agreement are those applicable to talents and not
to employees of ABS-CBN.

Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened


as it was by the obligation to continue paying in full SONZAs talent
fees, did not amount to control over the means and methods of the
performance of SONZAs work. ABS-CBN could not terminate or
discipline SONZA even if the means and methods of performance of
his work - how he delivered his lines and appeared on television did not meet ABS-CBNs approval. This proves that ABS-CBNs
control was limited only to the result of SONZAs work, whether to
broadcast the final product or not. In either case, ABS-CBN must
still pay SONZAs talent fees in full until the expiry of the
Agreement.

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

In Vaughan, et al. v. Warner, et al., the United States Circuit


Court of Appeals ruled that vaudeville performers were
independent contractors although the management reserved the
right to delete objectionable features in their shows. Since the
management did not have control over the manner of performance
of the skills of the artists, it could only control the result of the work
by deleting objectionable features.

Further, not every form of control that a party reserves to himself


over the conduct of the other party in relation to the services being
rendered may be accorded the effect of establishing an employeremployee relationship. The facts of this case fall squarely with the
case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we
held that:

SONZA further contends that ABS-CBN exercised control over his


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

Logically, the line should be drawn between rules that merely


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

A radio broadcast specialist who works under minimal supervision


is an independent contractor. SONZAs work as television and radio
program host required special skills and talent, which SONZA

The Vaughan case also held that one could still be an independent
contractor although the hirer reserved certain supervision to insure
56

the attainment of the desired result. The hirer, however, must not
deprive the one hired from performing his services according to his
own initiative.

General Manager of MJMDC is SONZA himself. It is absurd to hold


that MJMDC, which is owned, controlled, headed and managed by
SONZA, acted as agent of ABS-CBN in entering into the Agreement
with SONZA, who himself is represented by MJMDC. That would
make MJMDC the agent of both ABS-CBN and SONZA.

Lastly, SONZA insists that the exclusivity clause in the Agreement


is the most extreme form of control which ABS-CBN exercised over
him.

As SONZA admits, MJMDC is a management company


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

This argument is futile. Being an exclusive talent does not by itself


mean that SONZA is an employee of ABS-CBN. Even an
independent contractor can validly provide his services exclusively
to the hiring party. In the broadcast industry, exclusivity is not
necessarily the same as control.

SONZA argues that Policy Instruction No. 40 issued by then Minister


of Labor Blas Ople on 8 January 1979 finally settled the status of
workers in the broadcast industry. Under this policy, the types of
employees in the broadcast industry are the station and program
employees.

The hiring of exclusive talents is a widespread and accepted


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

Policy Instruction No. 40 is a mere executive issuance which does


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

SONZA protests the Labor Arbiters finding that he is a talent of


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

ABS-CBN claims that there exists a prevailing practice in the


broadcast and entertainment industries to treat talents like SONZA
as independent contractors. SONZA argues that if such practice
exists, it is void for violating the right of labor to security of tenure.

In a labor-only contract, there are three parties involved: (1) the


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

The right of labor to security of tenure as guaranteed in the


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

There are essentially only two parties involved under the


Agreement, namely, SONZA and ABS-CBN. MJMDC merely acted as
SONZAs agent. The Agreement expressly states that MJMDC acted
as the AGENT of SONZA. The records do not show that MJMDC acted
as ABS-CBNs agent. MJMDC, which stands for Mel and Jay
Management and Development Corporation, is a corporation
organized and owned by SONZA and TIANGCO. The President and

Individuals with special skills, expertise or talent enjoy the freedom


to offer their services as independent contractors. The right to life
and livelihood guarantees this freedom to contract as independent
contractors. The right of labor to security of tenure cannot operate
to deprive an individual, possessed with special skills, expertise and
talent, of his right to contract as an independent contractor. An
57

individual like an artist or talent has a right to render his services


without any one controlling the means and methods by which he
performs his art or craft. This Court will not interpret the right of
labor to security of tenure to compel artists and talents to render
their services only as employees. If radio and television program
hosts can render their services only as employees, the station
owners and managers can dictate to the radio and television hosts
what they say in their shows. This is not conducive to freedom of
the press.

when the person for whom the services are performed reserves the
right to control not only the end achieved but also the manner and
means used to achieve that end.
In concluding that respondent was an employee of TAPE, the Court
of Appeals applied the four-fold test in this wise:
First. The selection and hiring of petitioner was done by private
respondents. In fact, private respondents themselves admitted
having engaged the services of petitioner only in 1995 after TAPE
severed its relations with RPN Channel 9.

The National Internal Revenue Code (NIRC) in relation to Republic


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

By informing petitioner through the Memorandum dated 2 March


2000, that his services will be terminated as soon as the services
of the newly hired security agency begins, private respondents in
effect acknowledged petitioner to be their employee. For the right
to hire and fire is another important element of the employeremployee relationship.
Second. Payment of wages is one of the four factors to be
considered in determining the existence of employer-employee
relation. . . Payment as admitted by private respondents was given
by them on a monthly basis at a rate of P5,444.44.

SONZA seeks the recovery of allegedly unpaid talent fees,


13 month pay, separation pay, service incentive leave, signing
bonus, travel allowance, and amounts due under the Employee
Stock Option Plan. We agree with the findings of the Labor Arbiter
and the Court of Appeals that SONZAs claims are all based on the
May 1994 Agreement and stock option plan, and not on the
Labor Code. Clearly, the present case does not call for an
application of the Labor Code provisions but an interpretation and
implementation of the May 1994 Agreement. In effect, SONZAs
cause of action is for breach of contract which is intrinsically a civil
dispute cognizable by the regular courts.

Third. Of the four elements of the employer-employee relationship,


the control test is the most important. x x x

The bundy cards representing the time petitioner had reported for
work are evident proofs of private respondents control over
petitioner more particularly with the time he is required to report
for work during the noontime program of Eat Bulaga! If it were not
so, petitioner would be free to report for work anytime even not
during the noontime program of Eat Bulaga! from11:30
a.m. to 1:00 p.m. and still gets his compensation for being a
talent. Precisely, he is being paid for being the security of Eat
Bulaga! during the above-mentioned period. The daily time cards of
petitioner are not just for mere record purposes as claimed by
private respondents. It is a form of control by the management of
private respondent TAPE.

TAPE v. Servana (G.R. No. 167648, January 28,


2008)
At the outset, it bears emphasis that the existence of employeremployee relationship is ultimately a question of fact. Generally,
only questions of law are entertained in appeals by certiorari to the
Supreme Court. This rule, however, is not absolute. Among the
several recognized exceptions is when the findings of the Court of
Appeals and Labor Arbiters, on one hand, and that of the NLRC, on
the other, are conflicting, as obtaining in the case at bar.

TAPE asseverates that the Court of Appeals erred in applying the


four-fold test in determining the existence of employer-employee
relationship between it and respondent. With respect to the
elements of selection, wages and dismissal, TAPE proffers the
following arguments: that it never hired respondent, instead it was
the latter who offered his services as a talent to TAPE; that the
Memorandum dated 2 March 2000 served on respondent was for
the discontinuance of the contract for security services and not a
termination letter; and that the talent fees given to respondent
were the pre-agreed consideration for the services rendered and

Jurisprudence is abound with cases that recite the factors to be


considered in determining the existence of employer-employee
relationship. The most important factor involves the control test.
Under the control test, there is an employer-employee relationship
58

should not be construed as wages. Anent the element of control,


TAPE insists that it had no control over respondent in that he was
free to employ means and methods by which he is to control and
manage the live audiences, as well as the safety of TAPEs stars and
guests.

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. TAPE failed to establish that
respondent is an independent contractor. As found by the Court of
Appeals:

The position of TAPE is untenable. Respondent was first connected


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

We find the annexes submitted by the private respondents


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

Respondent claims to have been receiving P5,444.44 as his


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

TAPE relies on Policy Instruction No. 40, issued by the Department


of Labor, in classifying respondent as a program employee and
equating him to be an independent contractor.
Policy Instruction No. 40 defines program employees as
x x x those whose skills, talents or services are engaged by the
station for a particular or specific program or undertaking and who
are not required to observe normal working hours such that on
some days they work for less than eight (8) hours and on other
days beyond the normal work hours observed by station
employees and are allowed to enter into employment contracts
with other persons, stations, advertising agencies or sponsoring
companies. The engagement of program employees, including
those hired by advertising or sponsoring companies, shall be under
a written contract specifying, among other things, the nature of the
work to be performed, rates of pay and the programs in which they
will work. The contract shall be duly registered by the station with
the Broadcast Media Council within three (3) days from its
consummation.

The Memorandum informing respondent of the discontinuance of


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

TAPE failed to adduce any evidence to prove that it complied with


the requirements laid down in the policy instruction. It did not even
present its contract with respondent. Neither did it comply with the
contract-registration requirement.

TAPE further denies exercising control over respondent and


maintains that the latter is an independent contractor. Aside from
possessing substantial capital or investment, a legitimate job
contractor or subcontractor carries on a distinct and independent

Even granting arguendo that respondent is a program employee,


stills, classifying him as an independent contractor is
misplaced. The Court of Appeals had this to say:
We

59

cannot

subscribe

to

private

respondents

conflicting

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.

theories. The theory of private respondents that petitioner is an


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

It should be pointed out that no particular form of proof is required


to prove the existence of an employer-employee relationship. Any
competent and relevant evidence may show the relationship. If only
documentary evidence would be required to demonstrate that
relationship, no scheming employer would ever be brought before
the bar of justice. 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.

Vinoya v. NLRC (G.R. No. 126586, February 2,


2000)
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

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.

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 presented by it, show that it was PMCI who
paid petitioner his wages through its regular monthly billings
charged to RFC.

Even if we use the "four-fold test" to ascertain whether RFC is the


true employer of petitioner the same result would be achieved.
With regard to the first element, the power to hire, RFC denies any
60

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. Under the current practice, a
third person, usually the purported contractor (service or
manpower placement agency), assumes the act of paying the
wage. 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. 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.

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.

Rosewood Processing, Inc. v. NLRC (290 SCRA


408)
The overriding premise in the labor arbiters Decision holding the
security agency and the petitioner liable was that said parties
offered no evidence refuting or rebutting the complainants
computation of their monetary claims. The arbiter ruled that
petitioner was liable in solidum with the agency for salary
differentials based on Articles 106, 107 and 109 of the Labor Code
which hold an employer jointly and severally liable with its
contractor or subcontractor, as if it is the direct employer. We quote
said provisions below:

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.

ART. 109. Solidary liability. -- The provisions of existing laws to the


contrary notwithstanding, every employer or indirect employer
shall be held responsible with his contractor or subcontractor for
any violation of any provision of this Code. For purposes of
determining the extent of their civil liability under this Chapter,
they shall be considered as direct employers.

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.

Upon the other hand, back wages and separation pay were
awarded because the complainants were constructively and
illegally dismissed by the security agency which placed them on
floating status and at the same time gave assignments to newly
hired security guards. Noting that the relationship between the
security agency and the complainants was already strained, the
labor arbiter granted separation pay in lieu of reinstatement.

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. 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. 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. 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.

The first two grounds are meritorious. Legally untenable, however,


is the contention that petitioner is not liable for any wage
differential for the reason that it paid the employees in accordance
with the contract for security services which it had entered into
with the security agency. Notwithstanding the service contract
between the petitioner and the security agency, the former is still
solidarily liable to the employees, who were not privy to said
contract, pursuant to the aforecited provisions of the Code. Labor
standard legislations are enacted to alleviate the plight of workers
whose wages barely meet the spiraling costs of their basic needs.
They are considered written in every contract, and stipulations in
61

violation thereof are considered not written. Similarly, legislated


wage increases are deemed amendments to the contract. Thus,
employers cannot hide behind their contracts in order to evade
their or their contractors or subcontractors liability for
noncompliance with the statutory minimum wage.

performance of any work, task, job or project; and under Article


109, to the extent of their civil liability under this Chapter [on
payment of wages].
These provisions cannot apply to petitioner, considering that the
complainants were no longer working for or assigned to it when
they were illegally dismissed. Furthermore, an order to pay back
wages and separation pay is invested with a punitive character,
such that an indirect employer should not be made liable without a
finding that it had committed or conspired in the illegal dismissal.

The joint and several liability of the employer or principal was


enacted to ensure compliance with the provisions of the Code,
principally those on statutory minimum wage. The contractor or
subcontractor is made liable by virtue of his or her status as a
direct employer, and the principal as the indirect employer of the
contractors employees. This liability facilitates, if not guarantees,
payment of the workers compensation, thus, giving the workers
ample protection as mandated by the 1987 Constitution. This is not
unduly burdensome to the employer.Should the indirect employer
be constrained to pay the workers, it can recover whatever amount
it had paid in accordance with the terms of the service contract
between itself and the contractor.

The liability arising from an illegal dismissal is unlike an order to


pay the statutory minimum wage, because the workers right to
such wage is derived from law. The proposition that payment of
back wages and separation pay should be covered by Article 109,
which holds an indirect employer solidarily responsible with his
contractor or subcontractor for any violation of any provision of this
Code, would have been tenable if there were proof -- there was
none in this case -- that the principal/employer had conspired with
the contractor in the acts giving rise to the illegal dismissal.

Withal, fairness likewise dictates that the petitioner should not,


however, be held liable for wage differentials incurred while the
complainants were assigned to other companies. Under these cited
provisions of the Labor Code, should the contractor fail to pay the
wages of its employees in accordance with law, the indirect
employer (the petitioner in this case), is jointly and severally liable
with the contractor, but such responsibility should be understood to
be limited to the extent of the work performed under the contract,
in the same manner and extent that he is liable to the employees
directly employed by him. This liability of petitioner covers the
payment of the workers performance of any work, task, job or
project. So long as the work, task, job or project has been
performed for petitioners benefit or on its behalf, the liability
accrues for such period even if, later on, the employees are
eventually transferred or reassigned elsewhere.

Alviado, et al v. Procter & Gamble, and Promm


Gemm, G.R. No. 160506, 9 March 2010
In order to resolve the issue of whether P&G is the employer of
petitioners, it is necessary to first determine whether Promm-Gem
and SAPS are labor-only contractors or legitimate job contractors.
The foregoing provisions shall be without prejudice to the
application of Article 248 (c) of the Labor Code, as amended.
Substantial capital or investment refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises, actually
and directly used by the contractor or subcontractor in the
performance or completion of the job, work or service contracted
out.

We repeat: The indirect employers liability to the contractors


employees extends only to the period during which they were
working for the petitioner, and the fact that they were reassigned
to another principal necessarily ends such responsibility. The
principal is made liable to his indirect employees, because it can
protect itself from irresponsible contractors by withholding such
sums and paying them directly to the employees or by requiring a
bond from the contractor or subcontractor for this purpose.

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

Clearly, the law and its implementing rules allow contracting


arrangements for the performance of specific jobs, works or
services. Indeed, it is management prerogative to farm out any of
its activities, regardless of whether such activity is peripheral or
core in nature. However, in order for such outsourcing to be valid, it

Similarly, the solidary liability for payment of back wages and


separation pay is limited, under Article 106, to the extent of the
work performed under the contract; under Article 107, to the
62

must be made to an independent contractor because the current


labor rules expressly prohibit labor-only contracting.

activities which are directly related to the principal business of


P&G, we find that the former is engaged in labor-only contracting.

In the instant case, the financial statements of Promm-Gem show


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

Where labor-only contracting exists, the Labor Code itself


establishes an employer-employee relationship between the
employer and the employees of the labor-only contractor. The
statute establishes this relationship for a comprehensive purpose:
to prevent a circumvention of labor laws. The contractor is
considered merely an agent of the principal employer and the latter
is responsible to the employees of the labor-only contractor as if
such employees had been directly employed by the principal
employer.

Industrial Timber Corp v. NLRC, 169 SCRA 341


Granting, arguendo, that private respondents were employed by
Engineer Dosdos, petitioners would still be liable to private
respondents since the indices of a "labor only" contracting situation
will apply to the present case. "Labor-only" contracting is defined in
Section 9, Rule VIII, Book III of the Omnibus Rules. Implementing
the Labor Code in the following terms:

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

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


supply workers to an employer shall be deemed to be engaged in
labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises and other materials;
and
(2) The workers recruited and placed by such person are
performing activities which are directly related to the principal
business or operations of the employer in which workers are
habitually employed.

Under the circumstances, Promm-Gem cannot be considered as a


labor-only contractor. We find that it is a legitimate independent
contractor.

(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 worker in the same manner and extent as if the latter were
directly employed by him.

On the other hand, the Articles of Incorporation of SAPS shows that


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

x x x x x x x x x. (Emphasis supplied.)

The legal effect of a finding that a contractor is not a true


independent contractor or "job contractor" but merely a "laboronly" contractor was expounded upon in Philippine Bank of
Communications vs. NLRC to wit:

Furthermore, the petitioners have been charged with the


merchandising and promotion of the products of P&G, an activity
that has already been considered by the Court as doubtlessly
directly related to the manufacturing business, which is the
principal business of P&G. Considering that SAPS has no substantial
capital or investment and the workers it recruited are performing

... The labor-only' contractor i.e., 'the person or intermediary is


considered 'merely as an agent of the employer.' The employer is
made by the statute responsible to the employees of the laboronly' contractor as if such employees had been directly employed

63

by the employer. Thus, where 'labor-only' contracting exists in a


given case, the statute itself implies or establishes an employeremployee relationship between the employer (the owner of the
project) and the employees of the 'labor-only' contractor, this time
for a comprehensive purpose: 'employer for purposes of this Code,
to prevent any violation or circumvention of any provision of this
Code.' The law in effect holds both the employer and the 'laboronly' contractor responsible to the latter's employees for the more
effective safeguarding of the employees' rights under the Labor
Code.'

Despite the fact that the service contracts contain stipulations


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

Thus, in distinguishing between prohibited labor-only contracting


and permissible job contracting, the totality of the facts and the
surrounding circumstances of the case are to be considered.

Hence, a finding that a contractor is a "labor-only" contractor is


equivalent to a finding that there exists an employer-employee
relationship between the owner of the project and the employees of
the 'labor only contractor since that relationship is defined and
prescribed by the law itself.

Labor-only contracting, a prohibited act, is an arrangement where


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

Prescinding from the foregoing, the ineluctable conclusion is that an


employer-employee relationship existed between petitioner and
private respondents. Engineer Dosdos had no substantial capital
investment in the form of tools, equipment, machineries, work
premises and other materials since the plywood plant and panels
were all supplied by petitioner. Likewise, the activities undertaken
by the contractor were petitioners' business.

Babas v. Lorenzo Shipping Corp G.R. No.


186091, 15 December 2010

On the other hand, permissible job contracting or subcontracting


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

Petitioners vigorously insist that they were employees of LSC; and


that BMSI is not an independent contractor, but a labor-only
contractor. LSC, on the other hand, maintains that BMSI is an
independent contractor, with adequate capital and investment. LSC
capitalizes on the ratiocination made by the CA.

A person is considered engaged in legitimate job contracting or


subcontracting if the following conditions concur:

In declaring BMSI as an independent contractor, the CA, in the


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

(a) The contractor carries on a distinct and independent business


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

De Los Santos v. NLRC instructed us that the character of the


business, i.e., whether as labor-only contractor or as job contractor,
should be measured in terms of, and determined by, the criteria set
by statute. The parties cannot dictate by the mere expedience of a
unilateral declaration in a contract the character of their business.

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


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

In San Miguel Corporation v. Vicente B. Semillano, Nelson


Mondejas, Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO),
and Merlyn N. Policarpio, this Court explained:
64

Given the above standards, we sustain the petitioners contention


that BMSI is engaged in labor-only contracting.

Under Section 8, Rule VIII, Book III, of the Omnibus Rules


Implementing the Labor Code, an independent contractor is one
who undertakes job contracting, i.e., a person who: (a) 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 (b)
has substantial capital or investment in the form of tools,
equipments, machineries, work premises, and other materials
which are necessary in the conduct of the business. Jurisprudential
holdings are to the effect that in determining the existence of an
independent contractor relationship, several factors may be
considered, such as, but not necessarily confined to, whether 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 specified
pieces of work; the control and supervision of the work to another;
the employers power with respect to the hiring, firing and payment
of the contractors workers; the control of the premises; the duty to
supply premises, tools, appliances, materials and labor; and the
mode, manner and terms of payment.

First, petitioners worked at LSCs premises, and nowhere else. Other


than the provisions of the Agreement, there was no showing that it
was BMSI which established petitioners working procedure and
methods, which supervised petitioners in their work, or which
evaluated the same. There was absolute lack of evidence that BMSI
exercised control over them or their work, except for the fact that
petitioners were hired by BMSI.
Second, LSC was unable to present proof that BMSI had substantial
capital. The record before us is bereft of any proof pertaining to the
contractors capitalization, nor to its investment in tools, equipment,
or implements actually used in the performance or completion of
the job, work, or service that it was contracted to render. What is
clear was that the equipment used by BMSI were owned by, and
merely rented from, LSC.
In Mandaue Galleon Trade, Inc. v. Andales, we held:
The law casts the burden on the contractor to prove that it has
substantial capital, investment, tools, etc. Employees, on the other
hand, need not prove that the contractor does not have substantial
capital, investment, and tools to engage in job-contracting.

Juxtaposing this provision vis--vis the facts of this case, we are


convinced that Nilo Layno Builders is undertaking permissible labor
or job contracting. Nilo Layno Builders is a duly licensed labor
contractor carrying on an independent business for a specialized
work that involves the use of some particular, unusual and peculiar
skills and expertise, like concrete works, form works and
steel rebars works. As a licensed labor contractor, it complied with
the conditions set forth in Section 5, Rule VII-A, Book III, Rules to
Implement the Labor Code, among others, proof of financial
capability and list of equipment, tools, machineries and implements
to be used in the business. Further, it entered into a written
contract with the petitioner, a requirement under Section 3, Rule
VII-A, Book III, Rules to Implement the Labor Code to assure the
employees of the minimum labor standards and benefits provided
by existing laws.

Third, petitioners performed activities which were directly related to


the main business of LSC. The work of petitioners as checkers,
welders, utility men, drivers, and mechanics could only be
characterized as part of, or at least clearly related to, and in the
pursuit of, LSCs business. Logically, when petitioners were assigned
by BMSI to LSC, BMSI acted merely as a labor-only contractor.
Lastly, as found by the NLRC, BMSI had no other client except for
LSC, and neither BMSI nor LSC refuted this finding, thereby
bolstering the NLRC finding that BMSI is a labor-only contractor.
The CA erred in considering BMSIs Certificate of Registration as
sufficient proof that it is an independent contractor. In San Miguel
Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito
Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N.
Policarpio, we held that a Certificate of Registration issued by the
Department of Labor and Employment is not conclusive evidence of
such status. The fact of registration simply prevents the legal
presumption of being a mere labor-only contractor from arising.

This is exactly the situation obtaining in the case at


bar. Nilo Layno Builders hired its own employees, the private
respondents, to do specialized work in the Prince David Project of
the petitioner. The means and methods adopted by the private
respondents were directed by Nilo Layno Builders except that, from
time to time, the engineers of the petitioner visited the site to
check whether the work was in accord with the plans and

New Golden Builders v CA, G.R. No. 154715, 11


December 2003
65

specifications of the principal. As admitted by Nilo G. Layno, he


undertook the contract work on his own account and responsibility,
free from interference from any other persons, except as to the
results; that he was the one paying the salaries of private
respondents; and that as employer of the private respondents, he
had the power to terminate or dismiss them for just and valid
cause. Indubitably, the Court finds that Nilo Layno Builders
maintained effective supervision and control over the private
complainants.

From the foregoing disquisition, the petitioner did not, as it could


not, illegally dismissed the private complainants. Hence, it could
not be held liable for backwages and separation pay. Nevertheless,
it is jointly and severally liable with Nilo Layno Builders for the
private complainants wages, in the same manner and extent that it
is liable to its direct employees.
This liability covers the payment of service incentive leave and
13 month pay of the private complainants during the time they
were working at petitioners Prince David Project. So long as the
work, task, job or project has been performed for petitioners benefit
or on its behalf, the liability accrues for such period even if, later
on, the employees are eventually transferred or reassigned
elsewhere.

Thus, it was plain conjecture on the part of the Labor Arbiter, the
NLRC and the Court of Appeals to conclude that Nilo Layno Builders
was a labor-only contractor merely because it does not have
investment in the form of tools or machineries. They failed to
appreciate the fact that Nilo Layno Builders had substantial
capitalization for it did not only provide labor to do the specified
project and pay their wages, but it furnished the materials to be
used in the construction.

Garden of Memories Park, et al., v. National


Labor Relations Commission, et al., G.R. No.
160278, 8 February 2012

In Neri v. NLRC, we held that the labor contractor which sufficiently


proved that it had substantial capital was not engaged in labor-only
contracting. Thus:

In the same vein, Sections 8 and 9, DOLE Department Order No. 10,
Series of 1997, state that:
Sec. 8. Job contracting. There is job contracting permissible under
the Code if the following conditions are met:

While there may be no evidence that it has investment in the form


of tools, equipment, machineries, work premises, among others, it
is enough that it has substantial capital, as was established before
the Labor Arbiter as well as the NLRC. In other words, the law does
not require both substantial capital and investment in the form of
tools, equipment, machineries, etc. This is clear from the use of the
conjunction or. If the intention was to require the contractor to
prove that he has both capital and the requisite investment, then
the conjunction and should have been used.

(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.

Moreover, the Court has taken judicial notice of the general


practice adopted in several government and private institutions
and industries of hiring independent contractors to perform special
services.

Thus, in determining the existence of an independent contractor


relationship, several factors may be considered, such as, but not
necessarily confined to, 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 specified pieces of work; the control and
supervision of the work to another; the employers power with
respect to the hiring, firing and payment of the contractors
workers; the control of the premises; the duty to supply premises,
tools, appliances, materials and labor; and the mode, manner and
terms of payment.

Anent the second issue, we hold that there existed an employeremployee relationship between petitioner and private respondents
albeit for a limited purpose.
In legitimate job contracting, the law creates an employeremployee 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.

On the other hand, there is labor-only contracting where: (a) the


66

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 (b) the workers recruited and
placed by such person are performing activities which are directly
related to the principal business of the employer.

compliance with, and subject to, all requirements and standards


of Garden of Memories.
Under these circumstances, there is no doubt that Requio is
engaged in labor-only contracting, and is considered merely an
agent of Garden of Memories. As such, the workers she supplies
should be considered as employees of Garden of Memories.
Consequently, the latter, as principal employer, is responsible to
the employees of the labor-only contractor as if such employees
have been directly employed by it.

The Court finds no compelling reason to deviate from the findings


of the tribunals below. Both the capitalization requirement and the
power of control on the part of Requio are wanting.
Generally, the presumption is that the contractor is a labor-only
contracting unless such contractor overcomes the burden of
proving that it has the substantial capital, investment, tools and the
like. In the present case, though Garden of Memories is not the
contractor, it has the burden of proving that Requio has sufficient
capital or investment since it is claiming the supposed status of
Requio as independent contractor. Garden of Memories, however,
failed to adduce evidence purporting to show that Requio had
sufficient capitalization. Neither did it show that she invested in the
form of tools, equipment, machineries, work premises and other
materials which are necessary in the completion of the service
contract.

Notably, Cruz was hired as a utility worker tasked to clean, sweep


and water the lawn of the memorial park. She performed activities
which were necessary or desirable to its principal trade or
business. Thus,
she
was
a regular
employee
of Garden of Memories and cannot be dismissed except for just and
authorized causes.

Polyfoam-RGC International, Corporation and


Precilla A. Gramaje vs. Edgardo Concepcion G.R.
No. 172349, June 13, 2012.

Furthermore, Requio was not a licensed contractor. Her explanation


that her business was a mere livelihood program akin to a cottage
industry provided by Garden of Memories as part of its contribution
to the upliftment of the underprivileged residing near the memorial
park proves that her capital investment was not substantial.
Substantial capital or investment refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries, and work premises, actually
and directly used by the contractor or subcontractor in the
performance or completion of the job, work or service contracted
out. Obviously, Requio is a labor-only contractor.

In Sasan, Sr. v. National Labor Relations Commission 4 Division, the


Court distinguished permissible job contracting or subcontracting
from labor-only contracting, to wit:

Another determinant factor that classifies petitioner Requio as a


labor-only contractor was her failure to exercise the right to control
the performance of the work of Cruz. This can be gleaned from the
Service
Contract
Agreement between Garden of Memories and
Requio. The requirement of the law in determining the existence of
independent contractorship is that the contractor should undertake
the work on his own account, under his own responsibility,
according to his own manner and method, free from the control and
direction of the employer except as to the results thereof. In this
case, however, the Service Contract Agreement clearly indicates
that Requio has no discretion to determine the means and manner
by which the work is performed. Rather, the work should be in strict

(a)

Permissible job contracting or subcontracting refers to an


arrangement whereby a principal agrees to put out or farm out to 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. A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions concur:

(b)
(c)
67

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;
The contractor or subcontractor has substantial capital or
investment; and
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.

she furnished the plastic containers and carton boxes used in


carrying out the function of packing the mattresses of
Polyfoam. She added that she had placed in Polyfoams workplace
ten (10) sealing machines, twenty (20) hand trucks, and two (2)
forklifts to enable respondent and the other employees of Gramaje
assigned at Polyfoam to perform their job. Finally, she explained
that she had her own office with her own staff. However, aside from
her own bare statement, neither Gramaje nor Polyfoam presented
evidence showing Gramajes ownership of the equipment and
machineries used in the performance of the alleged contracted
job. Considering that these machineries are found in Polyfoams
premises, there can be no other logical conclusion but that the
tools and equipment utilized by Gramaje and her employees are
owned by Polyfoam. Neither did Polyfoam nor Gramaje show that
the latter had clients other than the former. Since petitioners failed
to adduce evidence that Gramaje had any substantial capital,
investment or assets to perform the work contracted for, the
presumption that Gramaje is a labor-only contractor stands.

In contrast, labor-only contracting, a prohibited act, is an


arrangement where the contractor or subcontractor merely recruits,
supplies or places workers to perform a job, work or service for a
principal. In labor-only contracting, the following elements are
present:
(a)
(b)

The contractor or subcontractor does not have substantial


capital or investment to actually perform the job, work or
service under its own account and responsibility; and
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.

In San Miguel Corporation v. Semillano, the Court laid down the


criteria in determining the existence of an independent and
permissible contractor relationship, to wit:

Second, Gramaje 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, Polyfoam, its apparent role having been merely to
recruit persons to work for Polyfoam. It is undisputed that
respondent had performed his task of packing Polyfoams foam
products in Polyfoams premises. As to the recruitment of
respondent, petitioners were able to establish only that
respondents application was referred to Gramaje, but that is
all. Prior to his termination, respondent had been performing the
same job in Polyfoams business for almost six (6) years. He was
even furnished a copy of Polyfoams Mga Alituntunin at
Karampatang Parusa, which embodied Polyfoams rules on
attendance, the manner of performing the employees duties,
ethical standards, cleanliness, health, safety, peace and
order. These rules carried with them the corresponding penalties in
case of violation.

x x x [W]hether 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 employers power with
respect to the hiring, firing and payment of the contractors
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.

Simply put, the totality of the facts and the surrounding


circumstances of the case are to be considered. Each case must be
determined by its own facts and all the features of the relationship
are to be considered.
Applying the foregoing tests, we agree with the CAs conclusion that
Gramaje is not an independent job contractor, but a labor-only
contractor.
First, Gramaje has no substantial capital or investment. The
presumption is that a contractor is a labor-only contractor unless he
overcomes the burden of proving that it has substantial capital,
investment, tools, and the like. The employee should not be
expected to prove the negative fact that the contractor does not
have substantial capital, investment and tools to engage in jobcontracting.

While it is true that petitioners submitted the Affidavit of Polyfoams


supervisor Victor Abadia, claiming that the latter did not exercise
supervision over respondent because the latter was not Polyfoams
but Gramajes employee, said Affidavit is insufficient to prove such
claim. Petitioners should have presented the person who they claim
to have exercised supervision over respondent and their alleged
other employees assigned to Polyfoam. It was never established
that Gramaje took entire charge, control and supervision of the
work and service agreed upon. And as aptly observed by the CA, it

Gramaje claimed that it has substantial capital of its own as well as


investment in its office, equipment and tools. She pointed out that
68

is likewise highly unusual and suspect as to the absence of a


written contract specifying the performance of a specified service,
the nature and extent of the service or work to be done and the
term and duration of the relationship.

The DOLE recognized anew this solidary liability of the principal


employer and the labor-only contractor when it issued Department
Order No. 18-A, series of 2011, which is the latest set of rules
implementing Articles 106-109 of the Labor Code. Section 27
thereof reads:

A finding that a contractor is a labor-only contractor, as opposed to


permissible job contracting, is equivalent to declaring that there is
an employer-employee relationship between the principal and the
employees of the supposed contractor, and the labor-only
contractor is considered as a mere agent of the principal, the real
employer. In this case, Polyfoam is the principal employer and
Gramaje is the labor-only contractor. Polyfoam and Gramaje are,
therefore, solidarily liable for the rightful claims of respondent.

Section 27. Effects of finding of labor-only contracting and/or


violation of Sections 7, 8 or 9 of the Rules. A finding by competent
authority of labor-only contracting shall render the principal jointly
and severally liable with the contractor to the latters employees,
in the same manner and extent that the principal is liable to
employees directly hired by him/her, as provided in Article 106 of
the Labor Code, as amended.
A finding of commission of any of the prohibited activities in
Section 7, or violation of either Sections 8 or 9 hereof, shall render
the principal the direct employer of the employees of the
contractor or subcontractor, pursuant to Article 109 of the Labor
Code, as amended. (Emphasis supplied.)

Vigilla, et al., v. Philippine College of


Criminology, G.R. No. 200094, 10 June 2013
The NLRC and the CA correctly ruled that the releases, waivers and
quitclaims executed by petitioners in favor of MBMSI redounded to
the benefit of PCCr pursuant to Article 1217 of the New Civil Code.
The reason is that MBMSI is solidarily liable with the respondents
for the valid claims of petitioners pursuant to Article 109 of the
Labor Code.

These legislative rules and regulations designed to implement a


primary legislation have the force and effect of law. A rule is
binding on the courts so long as the procedure fixed for its
promulgation is followed and its scope is within the statutory
authority granted by the legislature.

As correctly pointed out by the respondents, the basis of the


solidary liability of the principal with those engaged in labor-only
contracting is the last paragraph of Article 106 of the Labor Code,
which in part provides: "In such cases labor-only contracting, 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."

Jurisprudence is also replete with pronouncements that a job-only


contractor is solidarily liable with the employer. One of these is the
case of Philippine Bank of Communications v. NLRC where this
Court explained the legal effects of a job-only contracting, to wit:
Under the general rule set out in the first and second paragraphs
of Article 106, an employer who enters into a contract with a
contractor for the performance of work for the employer, does not
thereby create an employer-employees relationship between
himself and the employees of the contractor. Thus, the employees
of the contractor remain the contractor's employees and his alone.
Nonetheless when a contractor fails to pay the wages of his
employees in accordance with the Labor Code, the employer who
contracted out the job to the contractor becomes jointly and
severally liable with his contractor to the employees of the latter
"to the extent of the work performed under the contract" as such
employer were the employer of the contractor's employees. The
law itself, in other words, establishes an employer-employee
relationship between the employer and the job contractor's
employees for a limited purpose, i.e., in order to ensure that the
latter get paid the wages due to them.

Section 19 of Department Order No. 18-02 issued by the


Department of Labor and Employment (DOLE), which was still in
effect at the time of the promulgation of the subject decision and
resolution, interprets Article 106 of the Labor Code in this wise:
Section 19. Solidary liability. The principal shall be deemed as the
direct employer of the contractual employees and therefore,
solidarily liable with the contractor or subcontractor for whatever
monetary claims the contractual employees may have against the
former in the case of violations as provided for in Sections 5
(LaborOnly contracting), 6 (Prohibitions), 8 (Rights of Contractual
Employees) and 16 (Delisting) of these Rules. In addition, the
principal shall also be solidarily liable in case the contract between
the principal and contractor or subcontractor is preterminated for
reasons not attributable to the fault of the contractor or
subcontractor. [Emphases supplied].

A similar situation obtains where there is "labor only" contracting.


The "labor-only" contractor-i.e "the person or intermediary" - is
considered "merely as an agent of the employer." The employer is

69

This Court has constantly applied the Civil Code provisions on


solidary liability, specifically Articles 1217 and 1222, to labor cases.
In Varorient Shipping Co., Inc. v. NLRC, this Court held:

made by the statute responsible to the employees of the "labor


only" contractor as if such employees had been directly employed
by the employer. Thus, where "labor-only" contracting exists in a
given case, the statute itself implies or establishes an employeremployee relationship between the employer (the owner of the
project) and the employees of the "labor only" contractor, this time
for a comprehensive purpose: "employer for purposes of this Code,
to prevent any violation or circumvention of any provision of this
Code." The law in effect holds both the employer and the "laboronly" contractor responsible to the latter's employees for the more
effective safeguarding of the employees' rights under the Labor
Code. [Emphasis supplied].

The POEA Rules holds her, as a corporate officer, solidarily liable


with the local licensed manning agency. Her liability is inseparable
from those of Varorient and Lagoa. If anyone of them is held liable
then all of them would be liable for the same obligation. Each of
the solidary debtors, insofar as the creditor/s is/are concerned, is
the debtor of the entire amount; it is only with respect to his codebtors that he/she is liable to the extent of his/her share in the
obligation. Such being the case, the Civil Code allows each solidary
debtor, in actions filed by the creditor/s, to avail himself of all
defenses which are derived from the nature of the obligation and of
those which are personal to him, or pertaining to his share [citing
Section 1222 of the Civil Code]. He may also avail of those
defenses personally belonging to his co-debtors, but only to the
extent of their share in the debt. Thus, Varorient may set up all the
defenses pertaining to Colarina and Lagoa; whereas Colarina and
Lagoa are liable only to the extent to which Varorient may be found
liable by the court.

The case of San Miguel Corporation v. MAERC Integrated Services,


Inc. also recognized this solidary liability between a labor-only
contractor and the employer. In the said case, this Court gave the
distinctions between solidary liability in legitimate job contracting
and in labor-only contracting, to wit:
In legitimate job contracting, the law creates an employeremployee 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.

xxxx
If Varorient were to be found liable and made to pay pursuant
thereto, the entire obligation would already be extinguished [citing
Article 1217 of the Civil Code] even if no attempt was made to
enforce the judgment against Colarina. Because there existed a
common cause of action against the three solidary obligors, as the
acts and omissions imputed against them are one and the same,
an ultimate finding that Varorient was not liable would, under these
circumstances, logically imply a similar exoneration from liability
for Colarina and Lagoa, whether or not they interposed any
defense. [Emphases supplied]

On the other hand, 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 employer.
The principal employer therefore becomes solidarily liable with the
labor-only contractor for all the rightful claims of the
employees. [Emphases supplied; Citations omitted]

In light of these conclusions, the Court holds that the releases,


waivers and quitclaims executed by petitioners in favor of MBMSI
redounded to the respondents' benefit. The liabilities of the
respondents to petitioners are now deemed extinguished. The
Court cannot allow petitioners to reap the benefits given to them by
MBMSI in exchange for the releases, waivers and quitclaims and,
again, claim the same benefits from PCCr.

Recently, this Court reiterated this solidary liability of labor-only


contractor in the case of 7K Corporation v. NLRC where it was ruled
that the principal employer is solidarily liable with the labor-only
contractor for the rightful claims of the employees.
Considering that MBMSI, as the labor-only contractor, is solidarily
liable with the respondents, as the principal employer, then the
NLRC and the CA correctly held that the respondents solidary
liability was already expunged by virtue of the releases, waivers
and quitclaims executed by each of the petitioners in favor of
MBMSI pursuant to Article 1217 of the Civil Code which provides
that "payment made by one of the solidary debtors extinguishes
the obligation."

While it is the duty of the courts to prevent the exploitation of


employees, it also behooves the courts to protect the sanctity of
contracts that do not contravene the law. The law in protecting the
rights of the laborer authorizes neither oppression nor selfdestruction of the employer. While the Constitution is committed to
the policy of social justice and the protection of the working class, it
should not be supposed that every labor dispute will be
70

automatically decided in favor of labor. Management also has its


own rights, which, as such, are entitled to respect and enforcement
in the interest of simple fair play. Out of its concern for those with
less privileges in life, the Court has inclined more often than not
toward the worker and upheld his cause in his conflicts with the
employer. Such favoritism, however, has not blinded the Court to
the rule that justice is in every case for the deserving, to be
dispensed in the light of the established facts and applicable law
and doctrine.

71

Miguel case. The provisions of the Code clearly have repercusions


on the employee's right to security of tenure. The implementation
of the provisions may result in the deprivation of an employee's
means of livelihood which, as correctly pointed out by the NLRC, is
a property right (Callanta, vs Carnation Philippines, Inc., 145 SCRA
268 [1986]). In view of these aspects of the case which border on
infringement of constitutional rights, we must uphold the
constitutional requirements for the protection of labor and the
promotion of social justice, for these factors, according to Justice
Isagani Cruz, tilt "the scales of justice when there is doubt, in favor
of the worker" (Employees Association of the Philippine American
Life Insurance Company vs. NLRC, 199 SCRA 628 [1991] 635).

LABOR RELATIONS
INTRODUCTION
A Constitution
D. Labor Code

Phil. Airlines, Inc. v NLRC, 225 SCRA 301


PAL asserts that when it revised its Code on March 15, 1985, there
was no law which mandated the sharing of responsibility therefor
between employer and employee.

Verily, a line must be drawn between management prerogatives


regarding business operations per se and those which affect the
rights of the employees. In treating the latter, management should
see to it that its employees are at least properly informed of its
decisions or modes action. PAL asserts that all its employees have
been furnished copies of the Code. Public respondents found to the
contrary, which finding, to say the least is entitled to great respect.

Indeed, it was only on March 2, 1989, with the approval of Republic


Act No. 6715, amending Article 211 of the Labor Code, that the law
explicitly considered it a State policy "(t)o ensure the participation
of workers in decision and policy-making processes affecting the
rights, duties and welfare." However, even in the absence of said
clear provision of law, the exercise of management prerogatives
was never considered boundless. Thus, in Cruz vs. Medina (177
SCRA 565 [1989]) it was held that management's prerogatives
must be without abuse of discretion.

PAL posits the view that by signing the 1989-1991 collective


bargaining agreement, on June 27, 1990, PALEA in effect,
recognized PAL's "exclusive right to make and enforce company
rules and regulations to carry out the functions of
management without having to discuss the same with PALEA and
much less, obtain the latter'sconformity thereto" (pp. 11-12,
Petitioner's Memorandum; pp 180-181, Rollo.) Petitioner's view is
based on the following provision of the agreement:

In San Miguel Brewery Sales Force Union (PTGWO) vs. Ople (170
SCRA 25 [1989]), we upheld the company's right to implement a
new system of distributing its products, but gave the following
caveat:
So long as a company's management prerogatives are exercised in
good faith for the advancement of the employer's interest and not
for the purpose of defeating or circumventing the rights of the
employees under special laws or under valid agreements, this
Court will uphold them. (at p. 28.)

The Association recognizes the right of the Company to determine


matters of management it policy and Company operations and to
direct its manpower. Management of the Company includes the
right to organize, plan, direct and control operations, to hire, assign
employees to work, transfer employees from one department, to
another, to promote, demote, discipline, suspend or discharge
employees for just cause; to lay-off employees for valid and legal
causes, to introduce new or improved methods or facilities or to
change existing methods or facilities and the right to make and
enforce Company rules and regulations to carry out the functions
of management.

All this points to the conclusion that the exercise of managerial


prerogatives is not unlimited. It is circumscribed by limitations
found in law, a collective bargaining agreement, or the general
principles of fair play and justice (University of Sto. Tomas vs.
NLRC, 190 SCRA 758 [1990]). Moreover, as enunciated in Abbott
Laboratories (Phil.), vs. NLRC (154 713 [1987]), it must be duly
established that the prerogative being invoked is clearly a
managerial one.

The exercise by management of its prerogative shall be done in a


just reasonable, humane and/or lawful manner.

Such provision in the collective bargaining agreement may not be


interpreted as cession of employees' rights to participate in the
deliberation of matters which may affect their rights and the

A close scrutiny of the objectionable provisions of the Code reveals


that they are not purely business-oriented nor do they concern the
management aspect of the business of the company as in the San
72

formulation of policies relative thereto. And one such mater is the


formulation of a code of discipline.

Companys growth. What every company should remember is that


there might be one among the Union members who may offer
productive and viable ideas on expanding the Companys business
horizons. The unions participation in such committees might just
be the opportune time for dormant ideas to come forward. So, the
Company must welcome this development (see also PAL v. NLRC,
et. al., G.R. 85985, August 13, 1995). It must be understood,
however, that the committees referred to here are the Safety
Committee, the Uniform Committee and other committees of a
similar nature and purpose involving personnel welfare, rights and
benefits as well as duties.

Indeed, industrial peace cannot be achieved if the employees are


denied their just participation in the discussion of matters affecting
their rights. Thus, even before Article 211 of the labor Code (P.D.
442) was amended by Republic Act No. 6715, it was already
declared a policy of the State, "(d) To promote the enlightenment of
workers concerning their rights and obligations as employees."
This was, of course, amplified by Republic Act No 6715 when it
decreed the "participation of workers in decision and policy making
processes affecting their rights, duties and welfare." PAL's position
that it cannot be saddled with the "obligation" of sharing
management prerogatives as during the formulation of the Code,
Republic Act No. 6715 had not yet been enacted (Petitioner's
Memorandum, p. 44; Rollo, p. 212), cannot thus be sustained.
While such "obligation" was not yet founded in law when the Code
was formulated, the attainment of a harmonious labor-management
relationship and the then already existing state policy of
enlightening workers concerning their rights as employees demand
no less than the observance of transparency in managerial moves
affecting employees' rights.

We do not find merit in MERALCOs contention that the abovequoted ruling of the Secretary is an intrusion into the management
prerogatives of MERALCO. It is worthwhile to note that all the Union
demands and what the Secretarys order granted is that the Union
be allowed to participate in policy formulation and decision-making
process on matters affecting the Union members right,
duties and welfare as required in Article 211 (A)(g) of the
Labor Code. And this can only be done when the Union is allowed
to have representatives in the Safety Committee, Uniform
Committee and other committees of a similar nature. Certainly,
such participation by the Union in the said committees is not in the
nature of a co-management control of the business of
MERALCO. What
is
granted
by
the
Secretary
is participation and representation. Thus,
there
is
no
impairment of management prerogatives.

Petitioner's assertion that it needed the implementation of a new


Code of Discipline considering the nature of its business cannot be
overemphasized. In fact, its being a local monopoly in the business
demands the most stringent of measures to attain safe travel for its
patrons. Nonetheless, whatever disciplinary measures are adopted
cannot be properly implemented in the absence of full cooperation
of the employees. Such cooperation cannot be attained if the
employees are restive on account, of their being left out in the
determination of cardinal and fundamental matters affecting their
employment.

E. Common Terms

Manila Electric Co. v. Quisumbing, 326 SCRA


172
As regards this issue, We quote with approval the holding of the
Secretary in his Order of December 28, 1996, to wit:
We see no convincing reason to modify our original Order on union
representation in committees. It reiterates what the Article 211 (A)
(g) of the Labor Codes provides: To ensure the participation of
workers in decision and policy-making processes affecting their
rights, duties and welfare. Denying this opportunity to the Union is
to lay the claim that only management has the monopoly of ideas
that may improve management strategies in enhancing the

73

affirmative. Wrote the BLR:

RIGHT TO SELF-ORGANIZATION

It is imperative to look into the records of respondent union with


this Bureau pursuant to our role as a central registry of union and
CBA records under Article 231 of the Labor Code and Rule XVII of
the rules implementing Book V of the Labor Code, as amended x x
x.

A Concept & Scope

S.S. Ventures International v. S.S Ventures Labor


Union, 559 SCRA 435

In its union records on file with this Bureau, respondent union


submitted the names of [542] members x x x. This number easily
complied with the 20% requirement, be it 1,928 or 2,202
employees in the establishment. Even subtracting the 82
employees from 542 leaves 460 union members, still within
440 or 20% of the maximum total of 2,202 rank-and-file
employees.

The right to form, join, or assist a union is specifically protected by


Art. XIII, Section 3 of the Constitution and such right, according to
Art. III, Sec. 8 of the Constitution and Art. 246 of the Labor Code,
shall not be abridged. Once registered with the DOLE, a union is
considered a legitimate labor organization endowed with the right
and privileges granted by law to such organization. While a
certificate of registration confers a union with legitimacy with the
concomitant right to participate in or ask for certification election in
a bargaining unit, the registration may be canceled or the union
may be decertified as the bargaining unit, in which case the union
is divested of the status of a legitimate labor organization.

Whatever misgivings the petitioner may have with regard to the 82


dismissed employees is better addressed in the inclusion-exclusion
proceedings during a pre-election conference x x x. The issue
surrounding the involvement of the 82 employees is a
matter of membership or voter eligibility. It is not a ground
to cancel union registration. (Emphasis added.)

Second, Ventures draws attention to the inclusion of 82 individuals


to the list of participants in the January 9, 2000 organizational
meeting. Ventures submits that the 82, being no longer connected
with the company, should not have been counted as attendees in
the meeting and the ratification proceedings immediately
afterwards.

The bare fact that three signatures twice appeared on the list of
those who participated in the organizational meeting would not, to
our mind, provide a valid reason to cancel Certificate of
Registration No. RO300-00-02-UR-0003. As the Union tenably
explained without rebuttal from Ventures, the double entries are no
more than normal human error, effected without malice. Even the
labor arbiter who found for Ventures sided with the Union in its
explanation on the absence of malice.

The assailed inclusion of the said 82 individuals to the meeting and


proceedings adverted to is not really fatal to the Unions cause for,
as determined by the BLR, the allegations of falsification of
signatures or misrepresentation with respect to these individuals
are without basis. The Court need not delve into the question of
whether these 82 dismissed individuals were still Union members
qualified to vote and affix their signature on its application for
registration and supporting documents. Suffice it to say that, as
aptly observed by the CA, the procedure for acquiring or losing
union membership and the determination of who are qualified or
disqualified to be members are matters internal to the union and
flow from its right to self-organization.

The cancellation of a unions registration doubtless has an impairing


dimension on the right of labor to self-organization. Accordingly, we
can accord concurrence to the following apt observation of the BLR:
[F]or fraud and misrepresentation [to be grounds for] cancellation
of union registration under Article 239 [of the Labor Code], the
nature of the fraud and misrepresentation must be grave and
compelling enough to vitiate the consent of a majority of union
members.

F. Special Groups of Employees

To our mind, the relevancy of the 82 individuals active participation


in the Unions organizational meeting and the signing ceremonies
thereafter comes in only for purposes of determining whether or
not the Union, even without the 82, would still meet what Art.
234(c) of the Labor Code requires to be submitted.

Cathay Pacific Steel Corp. v. CA, August 30,


2006

The BLR, based on its official records, answered the poser in the

In any event, granting arguendo, that the present petition is proper,

1. Managerial & Supervisory Employees

74

still it is dismissible. The Court of Appeals cannot be said to have


acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in annulling the Decision of the NLRC because the
findings
of
the
Court
of
Appeals
that
private
respondent Tamondong was indeed a supervisory employee and
not a managerial employee, thus, eligible to join or participate in
the union activities of private respondent CUSE, were supported by
evidence on record. In the Decision of the Court of Appeals
dated 28
October
2003,
it
made
reference
to
the
Memorandum dated 12 September 1996, which required private
respondentTamondong to observe fixed daily working hours
from 8:00 am to 12:00 noon and from 1:00 pm to 5:00 pm. This
imposition upon private respondent Tamondong, according to the
Court of Appeals, is very uncharacteristic of a managerial
employee. To support such a conclusion, the Court of Appeals cited
the case of Engineering Equipment, Inc. v. NLRC where this Court
held that one of the essential characteristics of an employee
holding a managerial rank is that he is not subjected to the rigid
observance of regular office hours or maximum hours of work.

differentiates supervisory employees from managerial employees,


to wit: supervisory employees are those who, in the interest of the
employer, effectively recommend such managerial actions, if the
exercise of such authority is not merely routinary or clerical in
nature but requires the use of independent judgment; whereas,
managerial employees are those who are vested with powers or
prerogatives to lay down and execute management policies and/or
hire, transfer, suspend, lay off, recall, discharge, assign or discipline
employees. Thus, from the foregoing provision of the Labor Code, it
can be clearly inferred that private respondent Tamondong was just
a supervisory employee. Private respondent Tamondong did not
perform any of the functions of a managerial employee as stated in
the definition given to it by the Code. Hence, the Labor
Code provisions regarding disqualification of a managerial
employee from joining, assisting or forming any labor organization
does not apply to herein private respondent Tamondong. Being a
supervisory employee of CAPASCO, he cannot be prohibited from
joining or participating in the union activities of private respondent
CUSE, and in making such a conclusion, the Court of Appeals did
not act whimsically, capriciously or in a despotic manner, rather, it
was guided by the evidence submitted before it. Thus, given the
foregoing findings of the Court of Appeals that private respondent
is a supervisory employee, it is indeed an unfair labor practice on
the part of petitioner CAPASCO to dismiss him on account of his
union activities, thereby curtailing his constitutionally guaranteed
right to self-organization.

Moreover, the Court of Appeals also held that upon careful


examination of the documents submitted before it, it found out
that:
[Private respondent] Tamondong may have possessed enormous
powers and was performing important functions that goes with the
position of Personnel Superintendent, nevertheless, there was no
clear showing that he is at liberty, by using his own discretion and
disposition, to lay down and execute major business and
operational policies for and in behalf of CAPASCO. [Petitioner]
CAPASCO
miserably
failed
to
establish
that
[private
respondent] Tamondong was authorized to act in the interest of the
company using his independent judgment. x x x. Withal, [private
respondent] Tamondong may have been exercising certain
important powers, such as control and supervision over erring
rank-and-file employees, however, x x x he does not possess the
power to hire, transfer, terminate, or discipline erring employees of
the company. At the most, the record merely showed that [private
respondent] Tamondong informed
and
warned
rank-and-file
employees with respect to their violations of CAPASCOs rules and
regulations. x x x. [Also, the functions performed by private
respondent such as] issuance of warning to employees with
irregular attendance and unauthorized leave of absences and
requiring employees to explain regarding charges of abandonment
of work, are normally performed by a mere supervisor, and not by
a manager.

With
regard
to
the
allegation
that
private
respondent Tamondong was not only a managerial employee but
also a confidential employee, the same cannot be validly raised in
this Petition for Certiorari. It is settled that an issue which was not
raised in the trial court cannot be raised for the first time on
appeal. This principle applies to a special civil action
for certiorari under Rule 65. In addition, petitioners failed to
adduced evidence which will prove that, indeed, private respondent
was also a confidential employee.

2. Confidential Employees

Pepsi Cola Products v. Secretary of Labor, 312


SCRA 104
As regards the issue of whether or not confidential employees can
join the labor union of the rank and file, what was held in the case
of National Association of Trade Unions (NATU) - Republic Planters
Bank Supervisors Chapter vs. Hon. R. D. Torres, et. al., G.R. No.

Accordingly, Article 212(m) of the Labor Code, as amended,


75

93468, December 29, 1994, applies to this case. Citing Bulletin


Publishing Corporation vs. Sanchez, 144 SCRA 628,635, Golden
Farms vs. NLRC, 175 SCRA 471, and Pier 8 Arrastre and Stevedoring
Services, Inc. vs. Hon. Nieves Roldan-Confessor et al., G.R. No.
110854, February 14, 1995, the Court ruled:

the disqualification of confidential employees were written in the


provision. If confidential employees could unionize in order to
bargain for advantages for themselves, then they could be
governed by their own motives rather than the interest of the
employers. Moreover, unionization of confidential employees for
the purpose of collective bargaining would mean the extension of
the law to persons or individuals who are supposed to act in the
interest of the employers. It is not farfetched that in the course of
collective bargaining, they might jeopardize that interest which
they are duty bound to protect. Along the same line of reasoning
we held in Golden Farms, Inc. vs. Ferrer-Calleja reiterated in Philips
Industrial Development, Inc., NLRC, that confidential employees
such as accounting personnel, radio and telegraph operators who,
having access to confidential information, may become the source
of undue advantage. Said employee(s) may act as spy or spies of
either party to a collective bargaining agreement.

xxx A confidential employee is one entrusted with confidence on


delicate matters, or with the custody, handling, or care and
protection of the employers property. While Art. 245 of the Labor
Code singles out managerial employee as ineligible to join, assist
or form any labor organization, under the doctrine of necessary
implication, confidential employees are similarly disqualified. This
doctrine states that what is implied in a statute is as much a part
thereof as that which is expressed, as elucidated in several case;
the latest of which is Chua v. Civil Service Commission where we
said:
No statute can be enacted that can provide all the details
involved in its application. There is always an omission that
may not meet a particular situation. What is thought, at
the time of the enactment, to be an all embracing
legislation maybe inadequate to provide for the unfolding
events of the future. So-called gaps in the law develop as
the law is enforced. One of the rules of statutory
construction used to fill in the gap is the doctrine of
necessary implication xxx, Every statute is understood, by
implication, to contain all such provisions as may be
necessary to effectuate its object and purpose, or to make
effective rights, powers, privileges or jurisdiction which it
grants, including all such collateral and subsidiary
consequences as may be fairly and logically inferred from
its terms. Ex necessitate legis xxx

The Court finds merit in the submission of the OSG that Route
Managers, Chief Checkers and Warehouse Operations Managers are
supervisors while Credit & Collection Managers and Accounting
Managers are highly confidential employees. Designation should be
reconciled with the actual job description of subject employees. A
careful scrutiny of their job description indicates that they dont lay
down company policies. Theirs is not a final determination of the
company policies since they have to report to their respective
superior. The mere fact that an employee is designated manager
does not necessarily make him one. Otherwise, there would be an
absurd situation where one can be given the title just to be
deprived of the right to be a member of a union. In the case
of National Steel Corporation v. Laguesma, G. R. No. 103743,
January 29,1996, it was stressed that:

In applying the doctrine of necessary implication, we took into


consideration the rationale behind the disqualification of
managerial employees expressed in Bulletin Publishing Corporation
v. Sanchez, thus xxx if these managerial employees would belong
to or be affiliated with a Union, the latter might not be assured of
their loyalty to the Union in view of evident conflict of interests. The
Union can also become company dominated with the presence of
managerial employees in Union membership. Stated differently, in
the collective bargaining process, managerial employees are
supposed to be on the side of the employer, to act as its
representatives, and to see to it that its interest are well
protected. The employer is not assured of such protection if these
employees themselves are union members. Collective bargaining in
such a situation can become one-sided. It is the same reason that
impelled this Court to consider the position of confidential
employees as included in the disqualification found in Art. 245 as if

What is essential is the nature of the employees function and not


the nomenclature or title given to the job which determines
whether the employee has rank and file or managerial status, or
whether he is a supervisory employee.

San Miguel Corp. Supervisors and Exempt Union


v. Laguesma, August 15, 1997
There is no question that the said employees, supervisors and the
exempt employees, are not vested with the powers and
prerogatives to lay down and execute management policies and/or
to hire, transfer, suspend, layoff, recall, discharge or dismiss
employees. They are, therefore, not qualified to be classified as
managerial employees who, under Article 245 of the Labor Code,
76

are not eligible to join, assist or form any labor organization. In the
very same provision, they are not allowed membership in a labor
organization of the rank-and-file employees but may join, assist or
form separate labor organizations of their own. The only question
that need be addressed is whether these employees are properly
classified as confidential employees or not.

determining the confidentiality of certain employees, a key


questions frequently considered is the employees necessary access
to confidential labor relations information.
It is the contention of respondent corporation that Supervisory
employees 3 and 4 and the exempt employees come within the
meaning of the term confidential employees primarily because they
answered in the affirmative when asked Do you handle confidential
data or documents? in the Position Questionnaires submitted by the
Union. In the same questionnaire, however, it was also stated that
the confidential information handled by questioned employees
relate to product formulation, product standards and product
specification which by no means relate to labor relations.

Confidential employees are those who (1) assist or act in a


confidential capacity, (2) to persons who formulate, determine, and
effectuate management policies in the field of labor relations. The
two criteria are cumulative, and both must be met if an employee is
to be considered a confidential employee that is, the confidential
relationship must exist between the employees and his supervisor,
and the supervisor must handle the prescribed responsibilities
relating to labor relations.

Granting arguendo that an employee has access to confidential


labor relations information but such is merely incidental to his
duties and knowledge thereof is not necessary in the performance
of such duties, said access does not render the employee a
confidential employee. If access to confidential labor relations
information is to be a factor in the determination of an employees
confidential status, such information must relate to the employers
labor relations policies. Thus, an employee of a labor union, or of a
management association, must have access to confidential labor
information with respect to his employer, the union, or the
association, to be regarded a confidential employee, and
knowledge of labor relations information pertaining to the
companies with which the union deals, or which the association
represents, will not clause an employee to be excluded from the
bargaining unit representing employees of the union or
association. Access to information which is regarded by the
employer to be confidential from the business standpoint, such as
financial information or technical trade secrets, will not render an
employee a confidential employee.

The exclusion from bargaining units of employees who, in the


normal course of their duties, become aware of management
policies relating to labor relations is a principal objective sought to
be accomplished by the confidential employee rule. The broad
rationale behind this rule is that employees should not be placed in
a position involving a potential conflict of interests. Management
should not be required to handle labor relations matters through
employees who are represented by the union with the company is
required to deal and who in the normal performance of their duties
may obtain advance information of the companys position with
regard to contract negotiations, the disposition of grievances, or
other labor relations matters.
There have been ample precedents in this regard, thus in Bulletin
Publishing Company v. Hon. Augusto Sanchez, the Court held that if
these managerial employees would belong to or be affiliated with a
Union, the latter might not be assured of their loyalty to the Union
in view of evident conflict of interest. The Union can also become
company-dominated with the presence of managerial employees in
Union membership. The same rationale was applied to confidential
employees in Golden Farms, Inc. v. Ferrer-Calleja and in the more
recent case of Philips Industrial Development, Inc. v. NLRC which
held that confidential employees, by the very nature of their
functions, assist and act in a confidential capacity to, or have
access to confidential matters of, persons who exercise managerial
functions in the field of labor relations. Therefore, the rationale
behind the ineligibility of managerial employees to form, assist or
join a labor union was held equally applicable to them.

Herein listed are the functions of supervisors 3 and higher:


1. To undertake decisions to discontinue/temporarily stop shift
operations when situations require.
2. To effectively oversee the quality control function at the
processing lines in the storage of chicken and other products.
3. To administer efficient system of evaluation of products in the
outlets.
4. To be directly responsible for the recall, holding and rejection of
direct manufacturing materials.

An important element of the confidential employee rule is the


employees need to use labor relations information. Thus, in

5. To recommend and initiate actions in the maintenance of


sanitation and hygiene throughout the plant.

77

It is evident that whatever confidential data the questioned


employees may handle will have to relate to their functions. From
the foregoing functions, it can be gleaned that the confidential
information said employees have access to concern the employers
internal business operations. As held in Westinghouse Electric
Corporation v. National Labor Relations Board, an employee may
not be excluded from appropriate bargaining unit merely because
he has access to confidential information concerning employers
internal business operations and which is not related to the field of
labor relations.

entrenched in jurisprudence. While Article 245 of the Labor Code


limits the ineligibility to join, form and assist any labor organization
to managerial employees, jurisprudence has extended this
prohibition to confidential employees or those who by reason of
their positions or nature of work are required to assist or act in a
fiduciary manner to managerial employees and hence, are likewise
privy to sensitive and highly confidential records.
In this case, the question that needs to be answered is whether the
Bank's Chief Cashiers and Assistant Cashiers, personnel of the Telex
Department and HR staff are confidential employees, such that
they should be excluded.

It must be borne in mind that Section 3 of Article XIII of the 1987


Constitution mandates the State to guarantee to all workers the
right to self-organization. Hence, confidential employees who may
be excluded from bargaining unit must be strictly defined so as not
to needlessly deprive many employees of their right bargain
collectively through representatives of their choosing.

As regards the qualification of bank cashiers as confidential


employees, National Association of Trade Unions (NATU) Republic
Planters Bank Supervisors Chapter v. Torres declared that they are
confidential employees having control, custody and/or access to
confidential matters, e.g., the branch's cash position, statements of
financial condition, vault combination, cash codes for telegraphic
transfers, demand drafts and other negotiable instruments,
pursuant to Sec. 1166.4 of the Central Bank Manual regarding joint
custody, and therefore, disqualified from joining or assisting a
union; or joining, assisting or forming any other labor organization.

In the case at bar, supervisors 3 and above may not be considered


confidential employees merely because they handle confidential
data as such must first be strictly classified as pertaining to labor
relations for them to fall under said restrictions. The information
they handle are properly classifiable as technical and internal
business operations data which, to our mind, has no relevance to
negotiations and settlement of grievances wherein the interests of
a union and the management are invariably adversarial. Since the
employees are not classifiable under the confidential type, this
Court rules that they may appropriately form a bargaining unit for
purposes of collective bargaining. Furthermore, even assuming that
they are confidential employees, jurisprudence has established that
there is no legal prohibition against confidential employees who are
not performing managerial functions to form and join a union.

Golden Farms,
Inc.
v. Ferrer-Calleja meanwhile
stated
that
confidential employees such as accounting personnel, radio
and telegraph operators who, having access to confidential
information, may become the source of undue advantage. Said
employee(s) may act as spy or spies of either party to a collective
bargaining agreement.
Finally, in Philips Industrial Development, Inc. v. National Labor
Relations Commission, the Court designated personnel staff, in
which human resources staff may be qualified, as confidential
employees because by the very nature of their functions, they
assist and act in a confidential capacity to, or have access to
confidential matters of, persons who exercise managerial functions
in the field of labor relations.

Standard Chartered Bank Employees Union


(SCBEU-NUBE) v. Standard Chartered Bank, April
22, 2008
Whether or not the employees sought to be excluded from the
appropriate bargaining unit are confidential employees is a
question of fact, which is not a proper issue in a petition for review
under Rule 45 of the Rules of Court. This holds more true in the
present case in which petitioner failed to controvert with evidence
the findings of the Secretary and the CA.

Petitioner insists that the foregoing employees are not confidential


employees; however, it failed to buttress its claim. Aside from its
generalized arguments, and despite the Secretary's finding that
there was no evidence to support it, petitioner still failed to
substantiate its claim. Petitioner did not even bother to state the
nature of the duties and functions of these employees, depriving
the Court of any basis on which it may be concluded that they are
indeed confidential employees. As aptly stated by the CA:

The disqualification of managerial and confidential employees from


joining a bargaining unit for rank and file employees is already well78

organization, RA 6715 was subsequently passed which reorganized


the employee-ranks by including a third group, or the supervisory
employees, and laying down the distinction between supervisory
employees and those of managerial ranks in Art. 212, renumbered
par. [m], depending on whether the employee concerned has the
power to lay down and execute management policies, in the case
of managerial employees, or merely to recommend them, in case of
supervisory employees.

While We agree that petitioner's proposed revision is in accordance


with the law, this does not necessarily mean that the list of
exclusions enumerated in the 1998-2000 CBA is contrary to law. As
found by public respondent, petitioner failed to show that the
employees sought to be removed from the list of exclusions
are actually rank and file employees who are not
managerial or confidential in status
and should,
accordingly, be included in the appropriate bargaining unit.
Absent any proof that Chief Cashiers and Assistant
Cashiers, personnel of the Telex department and one (1) HR
Staff have mutuality of interest with the other rank and file
employees, then they are rightfully excluded from the
appropriate bargaining unit. x x x (Emphasis supplied)

In this petition, MERALCO has admitted that the employees


belonging to Pay Grades VII and up are supervisory (p. 10, Rollo).
The records also show that STEAM-PCWF had "renounced its
representation of the employees in Patrol Division, Treasury
Security Service Section and rank and file employees in Pay Grades
I-VI" (p. 6, Rollo); while FLAMES, on the other hand, had limited its
representation to employees belonging to Pay Grades VII-XIV,
generally accepted as supervisory employees, as follows:

3. Security Guards

Manila Electric Co. v. Secretary of Labor &


Employment, 197 SCRA 275

It must be emphasized that private respondent First Line


Association of Meralco Supervisory Employees seeks to represent
only the Supervisory Employees with Pay Grades VII to XIV.

In its petition, MERALCO has relented and recognized respondents


STEAM-PCWF and FLAMES' desired representation of supervisory
employees from Grades VII up. However, it believes that all that the
Secretary of Labor has to do is to establish a demarcation line
between supervisory and managerial rank, and not to classify
outright the group of employees represented by STEAM-PCWF and
FLAMES as rank and file employees.

Supervisory Employees with Pay Grades VII to XIV are not


managerial employees. In fact the petition itself of petitioner
Manila Electric Company on page 9, paragraph 3 of the petition
stated as follows, to wit:
There was no need for petitioner to prove that these
employees are not rank-and-file. As adverted to above, the
private respondents admit that these are not the rank-andfile but the supervisory employees, whom they seek to
represent. What needs to be established is the rank where
supervisory ends and managerial begins.

In questioning the Secretary of Labor's directive allowing security


guards (Treasury/Patrol Services Section) to be represented by
respondents, MERALCO contends that this contravenes the
provisions of the recently passed RA 6715 and its implementing
rules (specifically par. 2, Sec. 1, Rule II, Book V) which disqualifies
supervisory employees and security guards from membership in a
labor organization of the rank and file (p. 11, Rollo).

and First Line Association of Meralco Supervisory Employees herein


states that Pay Grades VII to XIV are not managerial employees. In
fact, although employees with Pay Grade XV carry the Rank of
Department Managers, these employees only enjoys (sic) the Rank
Manager but their recommendatory powers are subject to
evaluation, review and final action by the department heads and
other higher executives of the company. (FLAMES' Memorandum,
p. 305, Rollo)

The Secretary of Labor's Resolution was obviously premised on the


provisions of Art. 212, then par. (k), of the 1988 Labor Code
defining "managerial" and "rank and file" employees, the law then
in force when the complaint was filed. At the time, only two groups
of employees were recognized, the managerial and rank and file.
This explains the absence of evidence on job descriptions on who
would be classified managerial employees. It is perhaps also for
this reason why the Secretary of Labor limited his classification of
the Meralco employees belonging to Pay Grades VII and up, to only
two groups, the managerial and rank and file.
However, pursuant to the Department of Labor's
strenghthening the constitutional right of workers

Based on the foregoing, it is clear that the employees from Pay


Grades VII and up have been recognized and accepted as
supervisory. On the other hand, those employees who have been
automatically disqualified have been directed by the Secretary of
Labor to remain in the existing labor organization for the rank and
file, (the condition in the CBA deemed as not having been written
into the contract, as unduly restrictive of an employee's exercise of

goal of
to self79

the right to self-organization). We shall discuss the rights of the


excluded employees (or those covered by Sec. 2, Art. I, MEWA-CBA
later.

he customarily and regularly exercises discretionary


powers . . . (56 CJS, pp. 666-668. (p. 226, Rollo)
We shall now discuss the rights of the security guards to selforganize. MERALCO has questioned the legality of allowing them to
join either the rank and file or the supervisory union, claiming that
this is a violation of par. 2, Sec. 1, Rule II, Book V of the
Implementing Rules of RA 6715, which states as follows:

Anent the instant petition therefore, STEAM-PCWF, and FLAMES


would therefore represent supervisory employees only. In this
regard, the authority given by the Secretary of Labor for the
establishment of two labor organizations for the rank and file will
have to be disregarded since We hereby uphold certification
elections only for supervisory employees from Pay Grade VII and
up, with STEAM-PCWF and FLAMES as choices.

Sec 1. Who may join unions. . . .


xxxxxxxxx
Supervisory employees and security guards shall not be
eligible for membership in a labor organization of the rankand-file employees but may join, assist or form separate
labor organizations of their own; . . .

As to the alleged failure of the Secretary of Labor to establish a


demarcation line for purposes of segregating the supervisory from
the managerial employees, the required parameter is really not
necessary since the law itself, Art. 212-m, (as amended by Sec. 4 of
RA 6715) has already laid down the corresponding guidelines:

xxxxxxxxx
(emphasis ours)

Art. 212. Definitions. . . .

Paragraph 2, Sec. 1, Rule II, Book V, is similar to Sec. 2 (c), Rule V,


also of Book V of the implementing rules of RA 6715:

(m) "Managerial employee" is one who is vested with powers or


prerogatives to lay down and execute management policies and/or
to hire, transfer, suspend, lay-off, recall, discharge, assign or
discipline employees. Supervisory employees are those who, in the
interest of the employer, effectively recommend such managerial
actions if the exercise of such authority is not merely routinary or
clerical in nature but requires the use of independent judgment. All
employees not falling within any of the above definitions are
considered rank-and-file employees for purposes of to Book.

Rule
REPRESENTATION
INTERNAL-UNION CONFLICTS

CASES

V.
AND

Sec. 1. . . .
Sec. 2. Who may file.Any legitimate labor organization or
the employer, when requested to bargain collectively, may
file the petition.

In his resolution, the Secretary of Labor further elaborated:

The petition, when filed by a legitimate labor-organization


shall contain, among others:

. . . Thus, the determinative factor in classifying an employee as


managerial, supervisory or rank-and-file is the nature of the work
of the employee concerned.

(a) . . .
(b) . . .

In National Waterworks and Sewerage Authority vs. National


Waterworks and Sewerage Authority Consolidated Unions (11 SCRA
766) the Supreme Court had the occasion to come out with an
enlightening dissertation of the nature of the work of a managerial
employees as follows:

(c) description of the bargaining unit which shall be the


employer unit unless circumstances otherwise require;
and provided further, that the appropriate bargaining unit
of the rank-and-file employees shall not include
supervisory employees and/or security guards;

. . . that the employee's primary duty consists of the


management of the establishment or of a customarily
recognized department or subdivision thereof, that he
customarily and regularly directs the work of other
employees therein, that he has the authority to hire or
discharge other employees or that his suggestions and
recommendations as to the hiring and discharging and or
to the advancement and promotion or any other change of
status of other employees are given particular weight, that

xxxxxxxxx
(emphasis ours)

Both rules, barring security guards from joining a rank and file
organization, appear to have been carried over from the old rules
which implemented then Art. 245 of the Labor Code, and which
provided thus:
80

6715, they may now freely join a labor organization of the rank and
file or that of the supervisory union, depending on their rank. By
accommodating supervisory employees, the Secretary of Labor
must likewise apply the provisions of RA 6715 to security guards by
favorably allowing them free access to a labor organization,
whether rank and file or supervisory, in recognition of their
constitutional right to self-organization.

Art. 245. Ineligibility of security personnel to join any labor


organization.Security guards and other personnel employed for
the protection and security of the person, properties and premises
of the employer shall not be eligible for membership in any labor
organization.

On December 24, 1986, Pres. Corazon C. Aquino issued E.O.


111
which eliminated the
above-cited
provision
on
disqualification of security guards. What was retained was
disqualification of managerial employees, renumbered as Art.
(previously Art. 246), as follows:

No.
the
the
245

We are aware however of possible consequences in the


implementation of the law in allowing security personnel to join
labor unions within the company they serve. The law is apt to
produce divided loyalties in the faithful performance of their duties.
Economic reasons would present the employees concerned with the
temptation to subordinate their duties to the allegiance they owe
the union of which they are members, aware as they are that it is
usually union action that obtains for them increased pecuniary
benefits.

Art. 245. Ineligibility of managerial employees to joint any labor


organization.Managerial employees are not eligible to join, assist
or form any labor organization.
With the elimination, security guards were thus free to join a rank
and file organization.

On March 2, 1989, the present Congress passed RA 6715. Section


18 thereof amended Art. 245, to read as follows:

Thus, in the event of a strike declared by their union, security


personnel may neglect or outrightly abandon their duties, such as
protection of property of their employer and the persons of its
officials and employees, the control of access to the employer's
premises, and the maintenance of order in the event of
emergencies and untoward incidents.

Art. 245. Ineligibility of managerial employees to join any labor


organization; right of supervisory employees.Managerial
employees are not eligible to join, assist or form any labor
organization. Supervisory employees shall not be eligible for
membership in a labor organization of the rank-and-file employees
but may join, assist, or form separate labor organizations of their
own. (emphasis ours)

4. Members of Cooperatives

Benguet Electric Cooperative v. Ferrer-Calleja,


180 SCRA 740

As will be noted, the second sentence of Art. 245 embodies an


amendment disqualifying supervisory employees from membership
in a labor organization of the rank-and-file employees. It does not
include security guards in the disqualification.

The issue of whether or not employees of a cooperative are


qualified to form or join a labor organization for purposes of
collective bargaining has already been resolved and clarified in the
case of Cooperative Rural Bank of Davao City, Inc. vs. Ferrer
Calleja, et al. [G.R. No. 7795, September 26,1988] and reiterated in
the cases ofBatangas-Electric Cooperative Labor Union v. Young, et
al. [G.R. Nos. 62386, 70880 and 74560 November 9, 1988] and San
Jose City Electric Service Cooperative, Inc. v. Ministry of Labor and
Employment, et al. [G.R. No. 77231, May 31, 1989] wherein the
Court had stated that the right to collective bargaining is not
available to an employee of a cooperative who at the same time is
a member and co-owner thereof. With respect, however, to
employees who are neither members nor co-owners of the
cooperative they are entitled to exercise the rights to selforganization, collective bargaining and negotiation as mandated by
the 1987 Constitution and applicable statutes.

The implementing rules of RA 6715, therefore, insofar as they


disqualify security guards from joining a rank and file organization
are null and void, for being not germane to the object and purposes
of EO 111 and RA 6715 upon which such rules purportedly derive
statutory moorings. In Shell Philippines, Inc. vs. Central Bank, G.R.
No. 51353, June 27, 1988, 162 SCRA 628, We stated:
The rule-making power must be confined to details for regulating
the mode or proceeding to carry into effect the law as it has been
enacted. The power cannot be extended to amending or expanding
the statutory requirements or to embrace matters not covered by
the statute. Rules that subvert the statute cannot be sanctioned.
(citing University of Sto. Tomas vs. Board of Tax Appeals, 93 Phil.
376).

While therefore under the old rules, security guards were barred
from joining a labor organization of the rank and file, under RA
81

Respondent director argues that to deny the members of petitioner


cooperative the right to form, assist or join a labor union of their
own choice for purposes of collective bargaining would amount to a
patent violation of their right to self-organization. She points out
that:

Respondent union further claims that if nominal ownership in a


cooperative is "enough to take away the constitutional protections
afforded to labor, then there would be no hindrance for employers
to grant, on a scheme of generous profit sharing, stock bonuses to
their employees and thereafter claim that since their employees
are not stockholders [of the corporation], albeit in a minimal and
involuntary manner, they are now also co-owners and thus
disqualified to form unions." To allow this, BELU argues, would be
"to allow the floodgates of destruction to be opened upon the rights
of labor which the Constitution endeavors to protect and which
welfare it promises to promote." [Comment of BELU, p. 10; Rollo, p.
100].

Albeit a person assumes a dual capacity as rank and file employee


and as member of a certain cooperative does not militate, as in the
instant case, against his/her exercise of the right to selforganization and to collective bargaining guaranteed by the
Constitution and Labor Code because, while so doing, he/she is
acting in his/her capacity as rank and file employee thereof. It may
be added that while the employees concerned became members of
petitioner cooperative, their status employment as rank and filers
who are hired for fixed compensation had not changed. They still
do not actually participate in the management of the cooperative
as said function is entrusted to the Board of Directors and to the
elected or appointed officers thereof. They are not vested with the
powers and prerogatives to lay down and execute managerial
policies; to hire, transfer, suspend, lay-off, recall, discharge, assign
or discipline employees; and/or to effectively recommend such
managerial functions [Comment of Respondent Director, p. 4;
Rollo, p. 125.]

The above contention of respondent union is based on the


erroneous presumption that membership in a cooperative is the
same as ownership of stocks in ordinary corporations. While
cooperatives may exercise some of the rights and privileges given
to ordinary corporations provided under existing laws, such
cooperatives enjoy other privileges not granted to the latter [See
Sections 4, 5, 6, and 8, Pres. Decree No. 175; Cooperative Rural
Bank of Davao City v. Ferrer-Calleja, supra]. Similarly, members of
cooperatives have rights and obligations different from those of
stockholders of ordinary corporations. It was precisely because of
the special nature of cooperatives, that the Court held in the Davao
City case that members-employees thereof cannot form or join a
labor union for purposes of collective bargaining. The Court held
that:

Private respondent BELU concurs with the above contention of


respondent director and, additionally, claims that since
membership in petitioner cooperative is only nominal, the rank and
file employees who are members thereof should not be deprived of
their right to self-organization.
The above contentions are untenable. Contrary to respondents'
claim, the fact that the members-employees of petitioner do not
participate in the actual management of the cooperative does not
make them eligible to form, assist or join a labor organization for
the purpose of collective bargaining with petitioner. The Court's
ruling in the Davao City case that members of cooperative cannot
join a labor union for purposes of collective bargaining was based
on the fact that as members of the cooperative they are co-owners
thereof. As such, they cannot invoke the right to collective
bargaining for "certainly an owner cannot bargain with himself or
his co-owners." [Cooperative Rural Bank of Davao City, Inc. v.
Ferrer-Calleja, et al., supra]. It is the fact of ownership of the
cooperative, and not involvement in the management thereof,
which disqualifies a member from joining any labor organization
within the cooperative. Thus, irrespective of the degree of their
participation in the actual management of the cooperative, all
members thereof cannot form, assist or join a labor organization for
the purpose of collective bargaining.

A cooperative ... is by its nature different from an ordinary business


concern being run either by persons, partnerships, or corporations.
Its owners and/or members are the ones who run and operate the
business while the others are its employees. As above stated,
irrespective of the number of shares owned by each member they
are entitled to cast one vote each in deciding upon the affairs of
the cooperative. Their share capital earn limited interest. They
enjoy special privileges as-exemption from income tax and sales
taxes, preferential right to supply their products to State agencies
and even exemption from the minimum wage laws.

An employee therefore of such a cooperative who is a member and


co-owner thereof cannot invoke the right to collective bargaining
for certainly an owner cannot bargain with himself or his co-owners.

5. Members of the Iglesia ni Cristo

Kapatiran sa Meat and Canning Division v.


Ferrer-Calleja, 162 SCRA 367
82

After deliberating on the petition and the documents annexed


thereto, We find no merit in the Petition. The public respondent did
not err in dismissing the petitioner's appeal in BLR Case No. A-12389-87. This Court's decision in Victoriano vs. Elizalde Rope
Workers' Union, 59 SCRA 54, upholding the right of members of the
IGLESIA NI KRISTO sect not to join a labor union for being contrary
to their religious beliefs, does not bar the members of that sect
from forming their own union. The public respondent correctly
observed that the "recognition of the tenets of the sect ... should
not infringe on the basic right of self-organization granted by the
constitution to workers, regardless of religious affiliation."

petition for redress of grievances but because of their successive


unauthorized and unilateral absences which produced adverse
effects upon their students for whose education they are
responsible. The actuations of petitioners definitely constituted
conduct prejudicial to the best interest of the service, punishable
under the Civil Service law, rules and regulations.
As aptly stated by the Solicitor General, "It is not the exercise by
the petitioners of their constitutional right to peaceably assemble
that was punished, but the manner in which they exercised such
right which resulted in the temporary stoppage or disruption of
public service and classes in various public schools in Metro Manila.
For, indeed, there are efficient and non-disruptive avenues, other
than the mass actions in question, whereby petitioners could
petition the government for redress of grievances."

6. Government Employees

Acosta v. CA, G.R. 132088, June 28, 2000

It bears stressing that suspension of public services, however


temporary, will inevitably derail services to the public, which is one
of the reasons why the right to strike is denied government
employees. It may be conceded that the petitioners had valid
grievances and noble intentions in staging the "mass actions," but
that will not justify their absences to the prejudice of innocent
school children. Their righteous indignation does not legalize an
illegal work stoppage.

Petitioners do not deny their absence from work nor the fact that
said absences were due to their participation in the mass actions at
the Liwasang Bonifacio. However, they contend that their
participation in the mass actions was an exercise of their
constitutional rights to peaceably assemble and petition the
government for redress of grievances. Petitioners likewise maintain
that they never went on strike because they never sought to secure
changes or modification of the terms and conditions of their
employment.

In Jacinto v. Court of Appeals, De la Cruz v. Court of Appeals, and


Alipat v. Court of Appeals, we upheld our rulings in MPSTA
and Bangalisan. Considering the factual circumstances of this case
and the doctrine of stare decisis to which we consistently adhere,
we find no compelling reason to deviate from our earlier rulings in
these related cases.

Petitioners' contentions are without merit. The character and


legality of the mass actions which they participated in have been
passed upon by this Court as early as 1990 in Manila Public School
Teachers' Association (MPSTA) v. Laguio, Jr. wherein we ruled that
"these 'mass actions' were to all intents and purposes a strike; they
constituted a concerted and unauthorized stoppage of, or absence
from, work which it was the teachers' sworn duty to perform,
undertaken for essentially economic reasons." In Bangalisan v.
Court of Appeals, we added that:

7. Employees of International Organizations

International Catholic Migration Commission v.


Ferrer-Calleja, 190 SCRA 130
Facts and Issues

It is an undisputed fact that there was a work stoppage and that


petitioners' purpose was to realize their demands by withholding
their services. The fact that the conventional term "strike" was not
used by the striking employees to describe their common course of
action is inconsequential, since the substance of the situation, and
not its appearance, will be deemed to be controlling.

There can be no question that diplomatic immunity has, in fact,


been granted ICMC and IRRI.
Article II of the Memorandum of Agreement between the Philippine
Government and ICMC provides that ICMC shall have a status
"similar to that of a specialized agency." Article III, Sections 4 and 5
of the Convention on the Privileges and Immunities of Specialized
Agencies, adopted by the UN General Assembly on 21 November
1947 and concurred in by the Philippine Senate through Resolution
No. 19 on 17 May 1949, explicitly provides:

The ability to strike is not essential to the right of association. In


the absence of statute, public employees do not have the right to
engage in concerted work stoppages for any purpose.
Further, herein petitioners, except Mariano, are being penalized not
because they exercised their right of peaceable assembly and

Art. III, Section 4. The specialized agencies, their property and

83

embarrass the executive arm of the government in conducting


foreign relations, it is accepted doctrine that in such cases the
judicial department of (this) government follows the action of the
political branch and will not embarrass the latter by assuming an
antagonistic jurisdiction.

assets, wherever located and by whomsoever held, shall enjoy


immunity from every form of legal process except insofar as in any
particular case they have expressly waived their immunity. It is,
however, understood that no waiver of immunity shall extend to
any measure of execution.
Sec. 5. The premises of the specialized agencies shall be
inviolable. The property and assets of the specialized agencies,
wherever located and by whomsoever held shall be immune from
search, requisition, confiscation, expropriation and any other form
of interference, whether by executive, administrative, judicial or
legislative action. (Emphasis supplied).

A brief look into the nature of international organizations and


specialized agencies is in order. The term "international
organization" is generally used to describe an organization set up
by agreement between two or more states. Under contemporary
international law, such organizations are endowed with some
degree of international legal personality such that they are capable
of exercising specific rights, duties and powers. They are organized
mainly as a means for conducting general international business in
which the member states have an interest. The United Nations, for
instance, is an international organization dedicated to the
propagation of world peace.

IRRI is similarly situated, Pres. Decree No. 1620, Article 3, is explicit


in its grant of immunity, thus:
Art. 3. Immunity from Legal Process. The Institute shall enjoy
immunity from any penal, civil and administrative proceedings,
except insofar as that immunity has been expressly waived by the
Director-General of the Institute or his authorized representatives.

"Specialized agencies" are international organizations having


functions in particular fields. The term appears in Articles 57 and 63
of the Charter of the United Nations:

Thus it is that the DEFORAF, through its Legal Adviser, sustained


ICMC'S invocation of immunity when in a Memorandum, dated 17
October 1988, it expressed the view that "the Order of the Director
of the Bureau of Labor Relations dated 21 September 1988 for the
conduct of Certification Election within ICMC violates the diplomatic
immunity of the organization." Similarly, in respect of IRRI, the
DEFORAF speaking through The Acting Secretary of Foreign Affairs,
Jose D. Ingles, in a letter, dated 17 June 1987, to the Secretary of
Labor, maintained that "IRRI enjoys immunity from the jurisdiction
of DOLE in this particular instance."

The Charter, while it invests the United Nations with the general
task of promoting progress and international cooperation in
economic, social, health, cultural, educational and related matters,
contemplates that these tasks will be mainly fulfilled not by organs
of the United Nations itself but by autonomous international
organizations established by inter-governmental agreements
outside the United Nations. There are now many such international
agencies having functions in many different fields, e.g. in posts,
telecommunications, railways, canals, rivers, sea transport, civil
aviation, meteorology, atomic energy, finance, trade, education
and culture, health and refugees. Some are virtually world-wide in
their membership, some are regional or otherwise limited in their
membership. The Charter provides that those agencies which have
"wide international responsibilities" are to be brought into
relationship with the United Nations by agreements entered into
between them and the Economic and Social Council, are then to be
known as "specialized agencies."

The foregoing opinions constitute a categorical recognition by the


Executive Branch of the Government that ICMC and IRRI enjoy
immunities accorded to international organizations, which
determination has been held to be a political question conclusive
upon the Courts in order not to embarrass a political department of
Government.
It is a recognized principle of international law and under our
system of separation of powers that diplomatic immunity is
essentially a political question and courts should refuse to look
beyond a determination by the executive branch of the
government, and where the plea of diplomatic immunity is
recognized and affirmed by the executive branch of the
government as in the case at bar, it is then the duty of the courts to
accept the claim of immunity upon appropriate suggestion by the
principal law officer of the government . . . or other officer acting
under his direction. Hence, in adherence to the settled principle
that courts may not so exercise their jurisdiction . . . as to

The
rapid
growth
of
international
organizations
under
contemporary international law has paved the way for the
development of the concept of international immunities.
It is now usual for the constitutions of international organizations to
contain provisions conferring certain immunities on the
organizations themselves, representatives of their member states
and persons acting on behalf of the organizations. A series of
conventions, agreements and protocols defining the immunities of
various international organizations in relation to their members

84

arising out of contracts or other disputes of private character to


which the specialized agency is a party." Moreover, pursuant to
Article IV of the Memorandum of Agreement between ICMC the the
Philippine Government, whenever there is any abuse of privilege by
ICMC, the Government is free to withdraw the privileges and
immunities accorded. Thus:

generally are now widely in force; . . .

There are basically three propositions underlying the grant of


international immunities to international organizations. These
principles, contained in the ILO Memorandum are stated thus: 1)
international institutions should have a status which protects them
against control or interference by any one government in the
performance of functions for the effective discharge of which they
are responsible to democratically constituted international bodies in
which all the nations concerned are represented; 2) no country
should derive any national financial advantage by levying fiscal
charges on common international funds; and 3) the international
organization should, as a collectivity of States members, be
accorded the facilities for the conduct of its official business
customarily extended to each other by its individual member
States. The theory behind all three propositions is said to be
essentially institutional in character. "It is not concerned with the
status, dignity or privileges of individuals, but with the elements of
functional independence necessary to free international institutions
from national control and to enable them to discharge their
responsibilities impartially on behalf of all their members.
The raison d'etre for these immunities is the assurance of
unimpeded performance of their functions by the agencies
concerned.

Art. IV. Cooperation with Government Authorities. 1. The


Commission shall cooperate at all times with the appropriate
authorities of the Government to ensure the observance of
Philippine laws, rules and regulations, facilitate the proper
administration of justice and prevent the occurrences of any abuse
of the privileges and immunities granted its officials and alien
employees in Article III of this Agreement to the Commission.
2. In the event that the Government determines that there has
been an abuse of the privileges and immunities granted under this
Agreement, consultations shall be held between the Government
and the Commission to determine whether any such abuse has
occurred and, if so, the Government shall withdraw the privileges
and immunities granted the Commission and its officials.

Neither are the employees of IRRI without remedy in case of


dispute with management as, in fact, there had been organized a
forum for better management-employee relationship as evidenced
by the formation of the Council of IRRI Employees and Management
(CIEM) wherein "both management and employees were and still
are represented for purposes of maintaining mutual and beneficial
cooperation between IRRI and its employees." The existence of this
Union factually and tellingly belies the argument that Pres. Decree
No. 1620, which grants to IRRI the status, privileges and immunities
of an international organization, deprives its employees of the right
to self-organization.

The grant of immunity from local jurisdiction to ICMC and IRRI is


clearly necessitated by their international character and respective
purposes. The objective is to avoid the danger of partiality and
interference by the host country in their internal workings. The
exercise of jurisdiction by the Department of Labor in these
instances would defeat the very purpose of immunity, which is to
shield the affairs of international organizations, in accordance with
international practice, from political pressure or control by the host
country to the prejudice of member States of the organization, and
to ensure the unhampered performance of their functions.

The immunity granted being "from every form of legal process


except in so far as in any particular case they have expressly
waived their immunity," it is inaccurate to state that a certification
election is beyond the scope of that immunity for the reason that it
is not a suit against ICMC. A certification election cannot be viewed
as an independent or isolated process. It could tugger off a series of
events in the collective bargaining process together with related
incidents and/or concerted activities, which could inevitably involve
ICMC in the "legal process," which includes "any penal, civil and
administrative proceedings." The eventuality of Court litigation is
neither remote and from which international organizations are
precisely shielded to safeguard them from the disruption of their
functions. Clauses on jurisdictional immunity are said to be
standard provisions in the constitutions of international

ICMC's and IRRI's immunity from local jurisdiction by no means


deprives labor of its basic rights, which are guaranteed by Article II,
Section 18, Article III, Section 8, and Article XIII, Section 3 (supra),
of the 1987 Constitution; and implemented by Articles 243 and 246
of the Labor Code, relied on by the BLR Director and by Kapisanan.
For, ICMC employees are not without recourse whenever there are
disputes to be settled. Section 31 of the Convention on the
Privileges and Immunities of the Specialized Agencies of the United
Nations provides that "each specialized agency shall make
provision for appropriate modes of settlement of: (a) disputes
85

Organizations. "The immunity covers the organization concerned,


its property and its assets. It is equally applicable to proceedings in
personam and proceedings in rem."

In its challenged decision, the public respondent held that in


demanding the dismissal of Evaristo and Biascan, PLAC had acted
prematurely because the 1974 CBA providing for union shop and
pursuant to which the two petitioners were dismissed had not yet
been certified. The implication is that it was not yet in effect and so
could not be the basis of the action taken against the two
petitioners. This conclusion is erroneous. It disregards the ruling of
this Court in Tanduay Distillery Labor Union v. NLRC, were we held:

8. Non-employees

Republic Planters Bank v. Laguesma, 264 SCRA


637
The more applicable case is Singer Sewing Machine Company vs.
Drilon, et al., where we ruled that if the union members are not
employees, no right to organized for purposes of bargaining, nor to
be certified as bargaining agent can be recognized. Since the
persons involved are not employees of the company, we held that
they are not entitled to the constitutional right to join or form a
labor organization for purposes of collective bargaining. Singer
reiterated our earlier pronouncement in La Suerte Cigar and
Cigarette Factory v. Director of Labor Relations (123 SCRA 679
[1983]), thus:

The fact, therefore, that the Bureau of Labor Relations (BLR) failed
to certify or act on TDLU's request for certification of the CBA in
question is of no moment to the resolution of the issues presented
in this case. The BLR itself found in its order of July 8, 1982, that
the (un)certified CBA was duly filed and submitted on October 29,
1980, to last until June 30, 1982 is certifiable for having complied
with all the requirements for certification. (Emphasis supplied.)

The CBA concluded in 1974 was certifiable and was in fact certified
on April 11, 1975, It bears stressing that Evaristo and Biascan were
dismissed only on May 20, 1975, more than a month after the said
certification.

The question of whether employer-employee relationship exist is a


primordial consideration before extending labor benefits under the
workmens compensation, social security, medicare, termination
pay and labor relations law. It is important in the determination of
who shall be included in the proposed bargaining unit because, it is
the sine qua non, the fundamental and essential condition that a
bargaining unit be composed of employees. Failure to establish this
juridical relationship between the union members and the
employer affects the legality of the union itself. It means the
ineligibility of the union members to present a petition for
certification election as well as to vote therein."

The correct view is that expressed by Commissioner Cecilio P. Seno


in his concurring and dissenting opinion, viz.:
I cannot however subscribe to the majority view that the 'dismissal
of complainants Biascan and Evaristo, ... was, to say the least, a
premature action on the part of the respondents because at the
time they were expelled by PLAC the contract containing the union
security clause upon which the action was based was yet to be
certified and the representation status of the contracting union was
still in question.

Evidence on record show that after the cancellation of the


registration certificate of the Federation of Democratic Labor
Unions, no other union contested the exclusive representation of
the Philippine Labor Alliance Council (PLAC), consequently, there
was no more legal impediment that stood on the way as to the
validity and enforceability of the provisions of the collective
bargaining agreement entered into by and between respondent
corporation and respondent union. The certification of the collective
bargaining agreement by the Bureau of Labor Relations is not
required to put a stamp of validity to such contract. Once it is duly
entered into and signed by the parties, a collective bargaining
agreement becomes effective as between the parties regardless of
whether or not the same has been certified by the BLR.

G. Acquisition and Retention of Membership: Union


Security Agreements

Liberty Flour Mills Employees v. Liberty Flour


Mills, Inc., December 29, 1989
Coming now to the second issue, we find that it must also be
resolved against the petitioners.
Evaristo and Biascan claim they were illegally dismissed for
organizing another labor union opposed to PLAC, which they
describe as a company union. Arguing that they were only
exercising the right to self organization as guaranteed by the
Constitution, they insist they are entitled to the back wages which
the NLRC disallowed while affirming their reinstatement.

To be fair, it must be mentioned that in the certification election


held at the Liberty Flour Mills, Inc. on December 27, 1976, the Ilaw
86

at Buklod ng Manggagawa, with which the union organized by


Biascan and Evaristo was affiliated, won overwhelmingly with 441
votes as against the 5 votes cast for PLAC. However, this does not
excuse the fact that the two disaffiliated from PLAC as early as
March 1975 and thus rendered themselves subject to dismissal
under the union shop clause in the CBA.

labor unions appears nowhere in the wording of Republic Act No.


3350; neither can the same be deduced by necessary implication
therefrom. It is not surprising, therefore, that appellant, having thus
misread the Act, committed the error of contending that said Act is
obnoxious to the constitutional provision on freedom of association.
Both the Constitution and Republic Act No. 875 recognize freedom
of association. Section 1 (6) of Article III of the Constitution of 1935,
as well as Section 7 of Article IV of the Constitution of 1973, provide
that the right to form associations or societies for purposes not
contrary to law shall not be abridged. Section 3 of Republic Act No.
875 provides that employees shall have the right to selforganization and to form, join of assist labor organizations of their
own choosing for the purpose of collective bargaining and to
engage in concerted activities for the purpose of collective
bargaining and other mutual aid or protection. What the
Constitution and the Industrial Peace Act recognize and guarantee
is the "right" to form or join associations. Notwithstanding the
different theories propounded by the different schools of
jurisprudence regarding the nature and contents of a "right", it can
be safely said that whatever theory one subscribes to, a right
comprehends at least two broad notions, namely: first, liberty or
freedom, i.e., the absence of legal restraint, whereby an employee
may act for himself without being prevented by law; and second,
power, whereby an employee may, as he pleases, join or refrain
from Joining an association. It is, therefore, the employee who
should decide for himself whether he should join or not an
association; and should he choose to join, he himself makes up his
mind as to which association he would join; and even after he has
joined, he still retains the liberty and the power to leave and cancel
his membership with said organization at any time. It is clear,
therefore, that the right to join a union includes the right to abstain
from joining any union. Inasmuch as what both the Constitution and
the Industrial Peace Act have recognized, and guaranteed to the
employee, is the "right" to join associations of his choice, it would
be absurd to say that the law also imposes, in the same breath,
upon the employee the duty to join associations. The law does not
enjoin an employee to sign up with any association.

The petitioners say that the reinstatement issue of Evaristo and


Biascan has become academic because the former has been
readmitted and the latter has chosen to await the resolution of this
case. However, they still insist on the payment of their back wages
on the ground that their dismissal was illegal. This claim must be
denied for the reasons already given. The union shop clause was
validly enforced against them and justified the termination of their
services.
It is the policy of the State to promote unionism to enable the
workers to negotiate with management on the same level and with
more persuasiveness than if they were to individually and
independently bargain for the improvement of their respective
conditions. To this end, the Constitution guarantees to them the
rights "to self-organization, collective bargaining and negotiations
and peaceful concerted actions including the right to strike in
accordance with law." There is no question that these purposes
could be thwarted if every worker were to choose to go his own
separate way instead of joining his co-employees in planning
collective action and presenting a united front when they sit down
to bargain with their employers. It is for this reason that the law has
sanctioned stipulations for the union shop and the closed shop as a
means of encouraging the workers to join and support the labor
union of their own choice as their representative in the negotiation
of their demands and the protection of their interest vis-a-vis the
employer.
The Court would have preferred to resolve this case in favor of the
petitioners, but the law and the facts are against them. For all the
concern of the State, for the well-being of the worker, we must at
all times conform to the requirements of the law as long as such
law has not been shown to be violative of the Constitution. No such
violation has been shown here.

The right to refrain from joining labor organizations recognized by


Section 3 of the Industrial Peace Act is, however, limited. The legal
protection granted to such right to refrain from joining is withdrawn
by operation of law, where a labor union and an employer have
agreed on a closed shop, by virtue of which the employer may
employ only member of the collective bargaining union, and the
employees must continue to be members of the union for the

Victoriano v. Elizalde Rope Workers Union, 59


SCRA 54
1. Appellant Union's contention that Republic Act No.
3350 prohibits and bans the members of such religious sects that
forbid affiliation of their members with labor unions from joining
87

duration of the contract in order to keep their jobs. Thus Section 4


(a) (4) of the Industrial Peace Act, before its amendment by
Republic Act No. 3350, provides that although it would be an unfair
labor practice for an employer "to discriminate in regard to hire or
tenure of employment or any term or condition of employment to
encourage or discourage membership in any labor organization"
the employer is, however, not precluded "from making an
agreement with a labor organization to require as a condition of
employment membership therein, if such labor organization is the
representative of the employees". By virtue, therefore, of a closed
shop agreement, before the enactment of Republic Act No. 3350, if
any person, regardless of his religious beliefs, wishes to be
employed or to keep his employment, he must become a member
of the collective bargaining union. Hence, the right of said
employee not to join the labor union is curtailed and withdrawn.

impairing the obligation of its contract, specifically, the "union


security clause" embodied in its Collective Bargaining Agreement
with the Company, by virtue of which "membership in the union
was required as a condition for employment for all permanent
employees workers". This agreement was already in existence at
the time Republic Act No. 3350 was enacted on June 18, 1961, and
it cannot, therefore, be deemed to have been incorporated into the
agreement. But by reason of this amendment, Appellee, as well as
others similarly situated, could no longer be dismissed from his job
even if he should cease to be a member, or disaffiliate from the
Union, and the Company could continue employing him
notwithstanding his disaffiliation from the Union. The Act, therefore,
introduced a change into the express terms of the union security
clause; the Company was partly absolved by law from the
contractual obligation it had with the Union of employing only
Union members in permanent positions, It cannot be denied,
therefore, that there was indeed an impairment of said union
security clause.

To that all-embracing coverage of the closed shop arrangement,


Republic Act No. 3350 introduced an exception, when it added to
Section 4 (a) (4) of the Industrial Peace Act the following proviso:
"but such agreement shall not cover members of any religious
sects which prohibit affiliation of their members in any such labor
organization". Republic Act No. 3350 merely excludes ipso jure from
the application and coverage of the closed shop agreement the
employees belonging to any religious sects which prohibit affiliation
of their members with any labor organization. What the exception
provides, therefore, is that members of said religious sects cannot
be compelled or coerced to join labor unions even when said unions
have closed shop agreements with the employers; that in spite of
any closed shop agreement, members of said religious sects cannot
be refused employment or dismissed from their jobs on the sole
ground that they are not members of the collective bargaining
union. It is clear, therefore, that the assailed Act, far from infringing
the constitutional provision on freedom of association, upholds and
reinforces it. It does not prohibit the members of said religious
sects from affiliating with labor unions. It still leaves to said
members the liberty and the power to affiliate, or not to affiliate,
with labor unions. If, notwithstanding their religious beliefs, the
members of said religious sects prefer to sign up with the labor
union, they can do so. If in deference and fealty to their religious
faith, they refuse to sign up, they can do so; the law does not
coerce them to join; neither does the law prohibit them from
joining; and neither may the employer or labor union compel them
to join. Republic Act No. 3350, therefore, does not violate the
constitutional provision on freedom of association.

What then was the purpose sought to be achieved by Republic Act


No. 3350? Its purpose was to insure freedom of belief and religion,
and to promote the general welfare by preventing discrimination
against those members of religious sects which prohibit their
members from joining labor unions, confirming thereby their
natural, statutory and constitutional right to work, the fruits of
which work are usually the only means whereby they can maintain
their own life and the life of their dependents. It cannot be gainsaid
that said purpose is legitimate.
The questioned Act also provides protection to members of said
religious sects against two aggregates of group strength from which
the individual needs protection. The individual employee, at various
times in his working life, is confronted by two aggregates of power
collective labor, directed by a union, and collective capital,
directed by management. The union, an institution developed to
organize labor into a collective force and thus protect the individual
employee from the power of collective capital, is, paradoxically,
both the champion of employee rights, and a new source of their
frustration. Moreover, when the Union interacts with management,
it produces yet a third aggregate of group strength from which the
individual also needs protection the collective bargaining
relationship.
The aforementioned purpose of the amendatory law is clearly seen
in the Explanatory Note to House Bill No. 5859, which later became
Republic Act No. 3350, as follows:

2. Appellant Union also contends that the Act is unconstitutional for


88

enjoined, in the 1935 Constitution, to afford protection to labor, and


regulate the relations between labor and capital and industry. More
so now in the 1973 Constitution where it is mandated that "the
State shall afford protection to labor, promote full employment and
equality in employment, ensure equal work opportunities
regardless of sex, race or creed and regulate the relation between
workers and employers.

It would be unthinkable indeed to refuse employing a person who,


on account of his religious beliefs and convictions, cannot accept
membership in a labor organization although he possesses all the
qualifications for the job. This is tantamount to punishing such
person for believing in a doctrine he has a right under the law to
believe in. The law would not allow discrimination to flourish to the
detriment of those whose religion discards membership in any
labor organization. Likewise, the law would not commend the
deprivation of their right to work and pursue a modest means of
livelihood, without in any manner violating their religious faith
and/or belief.

The primary effects of the exemption from closed shop agreements


in favor of members of religious sects that prohibit their members
from affiliating with a labor organization, is the protection of said
employees against the aggregate force of the collective bargaining
agreement, and relieving certain citizens of a burden on their
religious beliefs; and by eliminating to a certain extent economic
insecurity due to unemployment, which is a serious menace to the
health, morals, and welfare of the people of the State, the Act also
promotes the well-being of society. It is our view that the exemption
from the effects of closed shop agreement does not directly
advance, or diminish, the interests of any particular religion.
Although the exemption may benefit those who are members of
religious sects that prohibit their members from joining labor
unions, the benefit upon the religious sects is merely incidental and
indirect. The "establishment clause" (of religion) does not ban
regulation on conduct whose reason or effect merely happens to
coincide or harmonize with the tenets of some or all religions. The
free exercise clause of the Constitution has been interpreted to
require that religious exercise be preferentially aided.

It cannot be denied, furthermore, that the means adopted by the


Act to achieve that purpose exempting the members of said
religious sects from coverage of union security agreements is
reasonable.
It may not be amiss to point out here that the free exercise of
religious profession or belief is superior to contract rights. In case of
conflict, the latter must, therefore, yield to the former. The
Supreme Court of the United States has also declared on several
occasions that the rights in the First Amendment, which include
freedom of religion, enjoy a preferred position in the constitutional
system. Religious freedom, although not unlimited, is a
fundamental personal right and liberty, and has a preferred position
in the hierarchy of values. Contractual rights, therefore, must yield
to freedom of religion. It is only where unavoidably necessary to
prevent an immediate and grave danger to the security and welfare
of the community that infringement of religious freedom may be
justified, and only to the smallest extent necessary to avoid the
danger.

We believe that in enacting Republic Act No. 3350, Congress acted


consistently with the spirit of the constitutional provision. It acted
merely to relieve the exercise of religion, by certain persons, of a
burden that is imposed by union security agreements. It was
Congress itself that imposed that burden when it enacted the
Industrial Peace Act (Republic Act 875), and, certainly, Congress, if
it so deems advisable, could take away the same burden. It is
certain that not every conscience can be accommodated by all the
laws of the land; but when general laws conflict with scrupples of
conscience, exemptions ought to be granted unless some
"compelling state interest" intervenes. In the instant case, We see
no such compelling state interest to withhold exemption.

3. In further support of its contention that Republic Act No. 3350 is


unconstitutional, appellant Union averred that said Act
discriminates in favor of members of said religious sects in violation
of Section 1 (7) of Article Ill of the 1935 Constitution, and which is
now Section 8 of Article IV of the 1973 Constitution.
The purpose of Republic Act No. 3350 is secular, worldly, and
temporal, not spiritual or religious or holy and eternal. It was
intended to serve the secular purpose of advancing the
constitutional right to the free exercise of religion, by averting that
certain persons be refused work, or be dismissed from work, or be
dispossessed of their right to work and of being impeded to pursue
a modest means of livelihood, by reason of union security
agreements. To help its citizens to find gainful employment
whereby they can make a living to support themselves and their
families is a valid objective of the state. In fact, the state is

Appellant bewails that while Republic Act No. 3350 protects


members of certain religious sects, it leaves no right to, and is
silent as to the protection of, labor organizations. The purpose of
Republic Act No. 3350 was not to grant rights to labor unions. The
rights of labor unions are amply provided for in Republic Act No.
89

875 and the new Labor Code. As to the lamented silence of the Act
regarding the rights and protection of labor unions, suffice it to say,
first, that the validity of a statute is determined by its provisions,
not by its silence ; and, second, the fact that the law may work
hardship does not render it unconstitutional.

5. Appellant avers as its fifth ground that Republic Act No. 3350 is a
discriminatory legislation, inasmuch as it grants to the members of
certain religious sects undue advantages over other workers, thus
violating Section 1 of Article III of the 1935 Constitution which
forbids the denial to any person of the equal protection of the laws.

It would not be amiss to state, regarding this matter, that to compel


persons to join and remain members of a union to keep their jobs in
violation of their religious scrupples, would hurt, rather than help,
labor unions, Congress has seen it fit to exempt religious objectors
lest their resistance spread to other workers, for religious objections
have contagious potentialities more than political and philosophic
objections.

We believe that Republic Act No. 3350 satisfies the aforementioned


requirements. The Act classifies employees and workers, as to the
effect and coverage of union shop security agreements, into those
who by reason of their religious beliefs and convictions cannot sign
up with a labor union, and those whose religion does not prohibit
membership in labor unions. Tile classification rests on real or
substantial, not merely imaginary or whimsical, distinctions. There
is such real distinction in the beliefs, feelings and sentiments of
employees. Employees do not believe in the same religious faith
and different religions differ in their dogmas and cannons. Religious
beliefs, manifestations and practices, though they are found in all
places, and in all times, take so many varied forms as to be almost
beyond imagination. There are many views that comprise the broad
spectrum of religious beliefs among the people. There are diverse
manners in which beliefs, equally paramount in the lives of their
possessors, may be articulated. Today the country is far more
heterogenous in religion than before, differences in religion do
exist, and these differences are important and should not be
ignored.

Furthermore, let it be noted that coerced unity and loyalty even to


the country, and a fortiori to a labor union assuming that such
unity and loyalty can be attained through coercion is not a goal
that is constitutionally obtainable at the expense of religious liberty.
A desirable end cannot be promoted by prohibited means.
4. Appellants' fourth contention, that Republic Act No. 3350 violates
the constitutional prohibition against requiring a religious test for
the exercise of a civil right or a political right, is not well taken. The
Act does not require as a qualification, or condition, for joining any
lawful association membership in any particular religion or in any
religious sect; neither does the Act require affiliation with a
religious sect that prohibits its members from joining a labor union
as a condition or qualification for withdrawing from a labor union.
Joining or withdrawing from a labor union requires a positive act.
Republic Act No. 3350 only exempts members with such religious
affiliation from the coverage of closed shop agreements. So, under
this Act, a religious objector is not required to do a positive act to
exercise the right to join or to resign from the union. He is
exempted ipso jure without need of any positive act on his part. A
conscientious religious objector need not perform a positive act or
exercise the right of resigning from the labor union he is
exempted from the coverage of any closed shop agreement that a
labor union may have entered into. How then can there be a
religious test required for the exercise of a right when no right need
be exercised?

Even from the psychological point of view, the classification is


based on real and important differences. Religious beliefs are not
mere beliefs, mere ideas existing only in the mind, for they carry
with them practical consequences and are the motives of certain
rules. of human conduct and the justification of certain acts.
Religious sentiment makes a man view things and events in their
relation to his God. It gives to human life its distinctive character,
its tone, its happiness or unhappiness its enjoyment or
irksomeness. Usually, a strong and passionate desire is involved in
a religious belief. To certain persons, no single factor of their
experience is more important to them than their religion, or their
not having any religion. Because of differences in religious belief
and sentiments, a very poor person may consider himself better
than the rich, and the man who even lacks the necessities of life
may be more cheerful than the one who has all possible luxuries.
Due to their religious beliefs people, like the martyrs, became
resigned to the inevitable and accepted cheerfully even the most
painful and excruciating pains. Because of differences in religious
beliefs, the world has witnessed turmoil, civil strife, persecution,
hatred, bloodshed and war, generated to a large extent by

We have said that it was within the police power of the State to
enact Republic Act No. 3350, and that its purpose was legal and in
consonance with the Constitution. It is never an illegal evasion of a
constitutional provision or prohibition to accomplish a desired
result, which is lawful in itself, by discovering or following a legal
way to do it.
90

members of sects who were intolerant of other religious beliefs. The


classification, introduced by Republic Act No. 3350, therefore, rests
on substantial distinctions.

the constitutional provision on social justice is also baseless. Social


justice is intended to promote the welfare of all the people.
Republic Act No. 3350 promotes that welfare insofar as it looks
after the welfare of those who, because of their religious belief,
cannot join labor unions; the Act prevents their being deprived of
work and of the means of livelihood. In determining whether any
particular measure is for public advantage, it is not necessary that
the entire state be directly benefited it is sufficient that a portion
of the state be benefited thereby.

The classification introduced by said Act is also germane to its


purpose. The purpose of the law is precisely to avoid those who
cannot, because of their religious belief, join labor unions, from
being deprived of their right to work and from being dismissed from
their work because of union shop security agreements.
Republic Act No. 3350, furthermore, is not limited in its application
to conditions existing at the time of its enactment. The law does
not provide that it is to be effective for a certain period of time only.
It is intended to apply for all times as long as the conditions to
which the law is applicable exist. As long as there are closed shop
agreements between an employer and a labor union, and there are
employees who are prohibited by their religion from affiliating with
labor unions, their exemption from the coverage of said
agreements continues.

Social justice also means the adoption by the Government of


measures calculated to insure economic stability of all component
elements of society, through the maintenance of a proper economic
and social equilibrium in the inter-relations of the members of the
community. Republic Act No. 3350 insures economic stability to the
members of a religious sect, like the Iglesia ni Cristo, who are also
component elements of society, for it insures security in their
employment, notwithstanding their failure to join a labor union
having a closed shop agreement with the employer. The Act also
advances the proper economic and social equilibrium between
labor unions and employees who cannot join labor unions, for it
exempts the latter from the compelling necessity of joining labor
unions that have closed shop agreements and equalizes, in so far
as opportunity to work is concerned, those whose religion prohibits
membership in labor unions with those whose religion does not
prohibit said membership. Social justice does not imply social
equality, because social inequality will always exist as long as
social relations depend on personal or subjective proclivities. Social
justice does not require legal equality because legal equality, being
a relative term, is necessarily premised on differentiations based on
personal or natural conditions. Social justice guarantees equality of
opportunity , and this is precisely what Republic Act No. 3350
proposes to accomplish it gives laborers, irrespective of their
religious scrupples, equal opportunity for work.

Finally, the Act applies equally to all members of said religious


sects; this is evident from its provision. The fact that the law grants
a privilege to members of said religious sects cannot by itself
render the Act unconstitutional, for as We have adverted to, the Act
only restores to them their freedom of association which closed
shop agreements have taken away, and puts them in the same
plane as the other workers who are not prohibited by their religion
from joining labor unions. The circumstance, that the other
employees, because they are differently situated, are not granted
the same privilege, does not render the law unconstitutional, for
every classification allowed by the Constitution by its nature
involves inequality.
The mere fact that the legislative classification may result in actual
inequality is not violative of the right to equal protection, for every
classification of persons or things for regulation by law produces
inequality in some degree, but the law is not thereby rendered
invalid. A classification otherwise reasonable does not offend the
constitution simply because in practice it results in some inequality.
Anent this matter, it has been said that whenever it is apparent
from the scope of the law that its object is for the benefit of the
public and the means by which the benefit is to be obtained are of
public character, the law will be upheld even though incidental
advantage may occur to individuals beyond those enjoyed by the
general public.

7. As its last ground, appellant contends that the amendment


introduced by Republic Act No. 3350 is not called for in other
words, the Act is not proper, necessary or desirable. Anent this
matter, it has been held that a statute which is not necessary is
not, for that reason, unconstitutional; that in determining the
constitutional validity of legislation, the courts are unconcerned
with issues as to the necessity for the enactment of the legislation
in question. Courts do inquire into the wisdom of laws. Moreover,
legislatures, being chosen by the people, are presumed to
understand and correctly appreciate the needs of the people, and it
may change the laws accordingly. The fear is entertained by

6. Appellant's further contention that Republic Act No. 3350 violates


91

appellant that unless the Act is declared unconstitutional,


employers will prefer employing members of religious sects that
prohibit their members from joining labor unions, and thus be a
fatal blow to unionism. We do not agree. The threat to unionism will
depend on the number of employees who are members of the
religious sects that control the demands of the labor market. But
there is really no occasion now to go further and anticipate
problems We cannot judge with the material now before Us. At any
rate, the validity of a statute is to be determined from its general
purpose and its efficacy to accomplish the end desired, not from its
effects on a particular case. The essential basis for the exercise of
power, and not a mere incidental result arising from its exertion, is
the criterion by which the validity of a statute is to be measured.

A closed-shop agreement has been considered as one form of union


security whereby only union members can be hired and workers
must remain union members as a condition of continued
employment. The requirement for employees or workers to become
members of a union as a condition for employment redounds to the
benefit and advantage of said employees because by holding out to
loyal members a promise of employment in the closed-shop the
union wields group solidarity. In fact, it is said that "the closed-shop
contract is the most prized achievement of unionism" (National
Labor Union vs. Aguinaldo's-Echague, Inc. et al., supra).
Coming now to the closed-shop proviso of the collective bargaining
agreement between the respondent Bulaklak Publications and the
Busocope Labor Union, it is clearly provided that "All employees
and/or workers who on January 1, 1961 are not yet members of the
Union shall, as condition of maintaining their employment, become
members of such Union." The question now before Us is whether
the above-quoted proviso of the said collective bargaining
agreement applies to the petitioner Santos Juat. The contention of
said petitioner is that the said proviso cannot apply, and should not
be applied to him because he is an old employee of the Bulaklak
Publications. It is not disputed that petitioner had been employed
with the Bulaklak Publications since 1953, and the collective
bargaining agreement embodying the closed-shop proviso in
question was entered into only on December 1, 1959 and amended
on December 27, 1960. It has been established, however, that said
petitioner was not a member of any labor union when that
collective bargaining agreement was entered into, and in fact he
had never been a member of any labor union.

Juat v. CIR. 15 SCRA 391


The contentions of the petitioner are without merit, The closedshop proviso in a collective bargaining agreement between
employer and employee is sanctioned by law. The pertinent
provision of the law, in this connection, says:
Provided, that nothing in this Act or in any Act or statute of the
Republic of the Philippines shall preclude an employer from making
an agreement with a labor organization to require as a condition of
employment membership therein, if such labor organization is the
representative of the employees as provided in said section twelve;
... ." (Section 4, subsection [a] par. 4 of Republic Act No. 875,
known as the Industrial Peace Act).
The validity of a closed-shop agreement has been upheld by this
Court. In one particular case this Court held:

This Court had categorically held in the case of Freeman Shirt


Manufacturing Co., Inc., et al. vs. Court of Industrial Relations, et
al., G.R. No. L-16561, Jan. 28, 1961, that the closed-shop proviso of
a collective bargaining agreement entered into between an
employer and a duly authorized labor union is applicable not only
to the employees or laborers that are employed after the collective
bargaining agreement had been entered into but also to old
employees who are not members of any labor union at the time the
said collective bargaining agreement was entered into. In other
words, if an employee or laborer is already a member of a labor
union different from the union that entered into a collective
bargaining agreement with the employer providing for a closedshop, said employee or worker cannot be obliged to become a
member of that union which had entered into a collective
bargaining agreement with the employer as a condition for his
continued employment. This Court in that Freeman case made this

There is no need for us to take sides and give reasons because our
Congress, in the exercise of its policy-making power, has chosen to
approve the closed-shop, when it legalized in Sec. 4, sub-section
(a) paragraph 4 of Republic Act 875 (Magna Charta of Labor) "any
agreement of the employer with a labor organization requiring
membership in such organization as condition of employment,"
provided such labor organization properly represents the
employees (National Labor Union vs. Aguinaldo's Echague, et al.,
G.R. No. L-7358, May 31, 1955.)

The foregoing pronouncement of this Court had been reiterated in


the cases of Tolentino, et al. vs. Angeles, et al., G.R. No. L-8150,
May 30, 1956; Ang Malayang Manggagawa Ng Ang Tibay
Enterprises, et al., vs. Ang Tibay, et al., G.R. No. L-8259, Dec. 23,
1957; Confederated Sons of Labor vs. Anakan Lumber Co., et al.,
G.R. No. L-12503, April 20, 1960; Bacolod-Murcia Milling Co., et al.
vs. National Employees Workers Security Union, 53 O.G. 615.
92

clear pronouncement:

collective bargaining agreement in question was entered into he


could be obliged by the respondent Bulaklak Publications to
become a member of the Busocope Labor Union. And because
petitioner refused to join the Busocope Labor Union respondent
Bulaklak Publications was justified in dismissing him from the
service on the ground that he had refused to join said union.

The closed-shop agreement authorized under Sec. 4 sub-sec. a (4)


of the Industrial Peace Act above-quoted should, however, apply
only to persons to be hired or to employees who are not yet
members of any labor organization. It is inapplicable to those
already in the service who are members of another union. To hold
otherwise, i.e., that the employees in a company who are members
of a minority union may be compelled to disaffiliate from their
union and join the majority or contracting union, would render
nugatory the right of all employees to self-organization and to
form, joint or assist labor organizations of their own choosing, a
right guaranteed by the Industrial Peace Act (sec. 3, Rep. Act No.
875) as well as by the Constitution (Art. III, see. 1 [6]).

Manila Cordage Co. v. CIR 78 SCRA 398


Decisions of American federal and state courts as well as the
comments of recognized American treatise writers uniformly define
a maintenance-of-membership provision as one which requires all
employees who are already members of the union at the time the
provision takes effect to remain such members during the life
thereof -is a condition of continued employment. (NLRB vs. Eaton
Mfg. Co. [6th Cir. 1949]175 F2d 292, 16 Lab Cas 75, 761; Markham
& Callow vs. International Woodworkers, 175 P2d 727, 170 or 517
[1943]; Walter vs. State, 38 Sold 609, 34 AlaApp 268 [1949];
Colonial Press vs. Ellis 74 NE2d 1, 321 Mass 495; Rothenberg on
Labor Relations, 49-50; Mathews Labor Relations and the Law 448;
Prentice-Hall Labor Course, Par. 12, 204, also at 914; 3 CCH Labor
Law Reporter [Labor Relations], Pat. 4520. )

Section 12 of the Industrial Peace Act, providing that when there is


reasonable doubt as to who the employees have chosen as their
representative the Industrial Court can order a certification
election, would also become useless. For once a union has been
certified by the court and enters into a collective bargaining
agreement with the employer a closed-shop clause applicable to all
employees be they union or non-union members, the question of
majority representation among the members would be closed
forever. Certainly, there can no longer exist any petition for
certification election, since eventually the majority or contracting
union will become a perpetual labor union. This alarming result
could not have been the intention of Congress. The Industrial
Peace Act was enacted precisely for the promotion of unionism in
this country. (Emphasis supplied)

It is not necessary to consider American jurisprudence. The issue of


whether or not the so-called "maintenance-of membership" clause
requires all employees who were already members of the Manco
Labor Union at the time the said clause took effect to remain
members of the union during the life of the collection bargaining
agreement as a condition of continued employment may be
resolved under the constitution and relevant Philippine
jurisprudence.

The above-quoted ruling was reaffirmed by this Court in its decision


in the case of Findlay Miller Timber Co. vs. PLASLU, et al., G.R. Nos.
L-18217 & L-18222, Sept. 29, 1962.
It should be declared, therefore, as a settled doctrine, that the
closed-shop proviso of a collective bargaining agreement entered
into between an employer and a duly authorized labor union
applies, and should be applied, to old employees or workers who
are non-members of any labor union at the time the collective
bargaining agreement was entered into. In other words, the old
employees or workers can be obliged by his employer to join the
labor union which had entered into a collective bargaining
agreement that provides for a closed-shop as a condition for his
continuance in his employment, otherwise his refusal to join the
contracting labor union would constitute a justifiable basis for his
dismissal.

It is a fact that the complainants were employees of the Manila


Cordage Company and members of the Manco Labor Union when
the following stipulation was included in the collective bargaining
agreement:
IV MAINTENANCE OF MEMBERSHIP
Both parties agree that all employees of the COMPANY who are
already members of the UNION at the time of the signing of this
AGREEMENT shall continue to remain members of the UNION for
the duration- of this AGREEMENT" (Exhibits '5-B' and '6-B' Company
).
The foregoing stipulation, however, does not clearly state that
maintenance of membership in the Manco Labor Union is a
condition of continuous employment in the Manila Labor Cordage
Company.

It being established by the evidence that petitioner Santos Juat,


although an old employee of the respondent Bulaklak Publications,
was not a member of any labor union at the time when the
93

In consonance with the ruling in Confederated Sons of Labor vs.


Anakan Lumber Co., et al., 107 Phil. 915, in order that the Manila
Cordage Company may be deemed bound to dismiss employees
who do not maintain their membership in the Manco Labor Union,
the stipulation to this effect must be so clear as to leave no room
for doubt thereon An undertaking of this nature is so harsh that it
must be strictly construed and doubts must be resolved against
the existence of the right to dismiss.

The respondent Court of Industrial Relations correctly found that


the disputed "maintenance-of-membership" clause in question did
not give the Manila Cordage Company the right to dismiss just
because they resigned as members of the Manco Labor Union.

Apparently aware of the deficiency of the maintenance- of


membership clause, the petitioner urges that the same should be
construed together with the "Whereas" provision of the contract
which reads:

The contention n of the petitioners that they acted in good faith in


dismissing the complainants and, therefore, should not be field
liable to pay their back wages has no merit. The dismissal of the
complainants by the petitioners was precipitate and done with
undue haste. Considering that the so-called "maintenance to
membership' clause did it clearly the petitioners the right to
dismiss the complainants if said complainants did not maintain
their membership in the Manco Labor Union, the petitioners should
have raised the issue before the Court of Industrial Relations in a
petition for permission to dismiss the complainants.

There is a showing that the dismissed complainants sought our


substantially equivalent and regular employment. They failed to
find any.

WHEREAS, the parties hereto nave decided to enter into an


agreement relating to the terms and conditions of employment and
reference to those employees to whom 7 the provisions of this
AGREEMENT apply." (Exhibits '5-A' and '5-A-Company)

Anent this point, the Court of Industrial Relations through 'Judge


Amando Bugayong ruled:
But whether read disjunctively or conjunctively, these two
provisions would not justify the interpretation which respondent
company would want to attribute to the same. For said whereas'
proviso neither refers to tenure of duration of employment which is
tile issue in the case at bar but only to terms and conditions of
employment such as working hours. wages, other benefits and
privileges clearly specified therein. We need not stretch our
imagination too far to know the difference between or duration of
employment from terms and conditions of employment. Besides
even on the assumption that 'terms and conditions of employment'
covers continuity or period of employment, the ambiguity of the
provision should not adversely affect complainants. Hence, even
with the conjuctive interpretation, these two provisions can not
supplant the omission of and said maintenance of membership
clause, let alone cure the act of the same This is especially so if the
rule which states that in case of inconsistency a particular
provision like the disputed maintenance of membership clause
prevails over or controls a general provision, such as 'WHEREAS'
proviso, invoked by respondents, is to be applied to the
interpretation of this doubtful provision (Rule 130(4), Section 10,
New Rules of Court).

To construe the stipulations above-quoted as imposing as a


condition to continued employment in the Manila Cordage
Company the maintenance of membership in the Manco Labor
Union is to violate the natural and constitutional right of the laborer
to organize freely. Such interpretation would be inconsistent with
the constitutional mandate that the State shall afford protection to
labor.
94

fifty-five (55) employees. Surely, it would not be for the best


interest of these employees if they would further be fractionalized.
The adage "there is strength in number" is the very rationale
underlying the formation of a labor union.

BARGAINING UNIT

San Miguel Corp. v. Laguesma, 236 SCRA 595


A bargaining unit is a "group of employees of a given employer,
comprised of all or less than all of the entire body of employees,
consistent with equity to the employer, indicate to be the best
suited to serve the reciprocal rights and duties of the parties under
the collective bargaining provisions of the law."
The fundamental factors in determining the appropriate collective
bargaining unit are: (1) the will of the employees (Globe
Doctrine); (2) affinity and unity of the employees' interest, such as
substantial similarity of work and duties, or similarity of
compensation and working conditions (Substantial Mutual Interests
Rule); (3) prior collective bargaining history; and (4) similarity of
employment status.

In the case at bench, petitioner insists that each of the sales offices
in northern Luzon should be considered as a separate bargaining
unit for negotiations would be more expeditious. Petitioner
obviously chooses to follow the path of least resistance. It is not,
however, the convenience of the employer that constitutes the
determinative factor in forming an appropriate bargaining unit.
Equally, if not more important, is the interest of the employees. In
choosing and crafting an appropriate bargaining unit, extreme care
should be taken to prevent an employer from having any undue
advantage over the employees' bargaining representative. Our
workers are weak enough and it is not our social policy to further
debilitate their bargaining representative.

Contrary to petitioner's assertion, this Court has categorically ruled


that the existence of a prior collective bargaining history is neither
decisive nor conclusive in the determination of what constitutes an
appropriate bargaining unit.

In sum, we find that no arbitrariness or grave abuse of discretion


can be attributed to public respondents certification of respondent
union as the sole and exclusive bargaining agent of all the regular
Magnolia sales personnel of the north Luzon sales area.

Indeed, the test of grouping is mutuality or commonality of


interests. The employees sought to be represented by the
collective bargaining agent must have substantial mutual interests
in terms of employment and working conditions as evinced by the
type of work they perform.

University of the Philippines v. Ferrer-Calleja,


211 SCRA 451
Our labor laws do not however provide the criteria for determining
the proper collective bargaining unit. Section 12 of the old law,
Republic Act No. 875 otherwise known as the Industrial Peace Act,
simply reads as follows:

In the case at bench, respondent union sought to represent the


sales personnel in the various Magnolia sales offices in northern
Luzon. There is similarity of employment status for only the regular
sales personnel in the north Luzon area are covered. They have the
same duties and responsibilities and substantially similar
compensation and working conditions. The commonality of interest
among the sales personnel in the north Luzon sales area cannot be
gainsaid. In fact, in the certification election held on November 24,
1990, the employees concerned accepted respondent union as
their exclusive bargaining agent. Clearly, they have expressed their
desire to be one.

Sec. 12. Exclusive Collective Bargaining Representation for Labor


Organizations. The labor organization designated or selected for
the purpose of collective bargaining by the majority of the
employees in an appropriate collective bargaining unit shall be the
exclusive representative of all the employees in such unit for the
purpose of collective bargaining in respect to rates of pay, wages,
hours
of
employment,
or
other
conditions
of
employment; Provided, That any individual employee or group of
employees shall have the right at any time to present grievances
to their employer.

Petitioner cannot insist that each of the sales office of Magnolia


should constitute only one bargaining unit. What greatly militates
against this position is the meager number of sales personnel in
each of the Magnolia sales office in northern Luzon. Even the
bargaining unit sought to be represented by respondent union in
the entire north Luzon sales area consists only of approximately

Although said Section 12 of the Industrial Peace Act was


subsequently incorporated into the Labor Code with minor changes,
no guidelines were included in said Code for determination of an
appropriate bargaining unit in a given case. Thus, apart from the
single descriptive word "appropriate," no specific guide for
determining the proper collective bargaining unit can be found in
95

the statutes.

permanent employees and another consisting of casual laborers or


stevedores.

Even Executive Order No. 180 already adverted to is not much help.
All it says, in its Section 9, is that "(t)he appropriate organizational
unit shall be the employer unit consisting of rank-and-file
employees, unless circumstances otherwise require." Case law
fortunately furnishes some guidelines.

Since then, the "community or mutuality of interests" test has


provided the standard in determining the proper constituency of a
collective bargaining unit. In Alhambra Cigar & Cigarette
Manufacturing Company, et al. vs. Alhambra Employees'
Association (PAFLU), 107 Phil. 23, the Court, noting that the
employees in the administrative, sales and dispensary departments
of a cigar and cigarette manufacturing firm perform work which
have nothing to do with production and maintenance, unlike those
in the raw lead (malalasi), cigar, cigarette, packing (precintera) and
engineering and garage departments, authorized the formation of
the former set of employees into a separate collective bargaining
unit. The ruling in the Democratic Labor Association case, supra,
was reiterated in Philippine Land-Air-Sea Labor Unit vs. Court of
Industrial Relations, 110 Phil. 176, where casual employees were
barred from joining the union of the permanent and regular
employees.

When first confronted with the task of determining the proper


collective bargaining unit in a particular controversy, the Court had
perforce to rely on American jurisprudence. In Democratic Labor
Association vs. Cebu Stevedoring Company, Inc., decided on
February 28, 1958, the Court observed that "the issue of how to
determine the proper collective bargaining unit and what unit
would be appropriate to be the collective bargaining agency" . . . "is
novel in this jurisdiction; however, American precedents on the
matter abound . . (to which resort may be had) considering that our
present Magna Carta has been patterned after the American law on
the subject." Said the Court:
An enlightening appraisal of the problem of defining an appropriate
bargaining unit is given in the 10th Annual Report of the National
Labor Relations Board wherein it is emphasized that the factors
which said board may consider and weigh in fixing appropriate
units are: the history, extent and type of organization of
employees; the history of their collective bargaining; the history,
extent and type of organization of employees in other plants of the
same employer, or other employers in the same industry; the skill,
wages, work, and working conditions of the employees; the desires
of the employees; the eligibility of the employees for membership
in the union or unions involved; and the relationship between the
unit or units proposed and the employer's organization,
management, and operation. . . .

Applying the same "community or mutuality of interests" test, but


resulting in the formation of only one collective bargaining units is
the case of National Association of Free Trade Unions vs. Mainit
Lumber Development Company Workers Union-United Lumber and
General Workers of the Phils., G.R. No. 79526, December 21, 1990,
192 SCRA 598. In said case, the Court ordered the formation of a
single bargaining unit consisting of the Sawmill Division in Butuan
City and the Logging Division in Zapanta Valley, Kitcharao, Agusan
Norte of the Mainit Lumber Development Company. The Court
reasoned:

. . In said report, it is likewise emphasized that the basic test in


determining the appropriate bargaining unit is that a unit, to be
appropriate, must affect a grouping of employees who have
substantial, mutual interests in wages, hours, working conditions
and other subjects of collective bargaining (citing Smith on Labor
Laws, 316-317; Francisco, Labor Laws, 162). . . .

Certainly, there is a mutuality of interest among the employees of


the Sawmill Division and the Logging Division. Their functions
mesh with one another. One group needs the other in the same
way that the company needs them both. There may be difference
as to the nature of their individual assignments but the distinctions
are not enough to warrant the formation of a separate bargaining
unit.

The Court further explained that "(t)he test of the grouping is


community or mutuality of interests. And this is so because 'the
basic test of an asserted bargaining unit's acceptability is whether
or not it is fundamentally the combination which will best assure to
all employees the exercise of their collective bargaining rights'
(Rothenberg on Labor Relations, 490)." Hence, in that case, the
Court upheld the trial court's conclusion that two separate
bargaining units should be formed, one consisting of regular and

In the case at bar, the University employees may, as already


suggested, quite easily be categorized into two general
classes: one, the group composed of employees whose functions
are non-academic, i.e., janitors, messengers, typists, clerks,
receptionists, carpenters, electricians, grounds-keepers, chauffeurs,
mechanics, plumbers; and two, the group made up of those
performing academic functions, i.e., full professors, associate
professors, assistant professors, instructors who may be judges
96

or government executives and research, extension and


professorial staff. Not much reflection is needed to perceive that
the community or mutuality of interests which justifies the
formation of a single collective bargaining unit is wanting between
the academic and non-academic personnel of the university. It
would seem obvious that teachers would find very little in common
with the University clerks and other non-academic employees as
regards responsibilities and functions, working conditions,
compensation rates, social life and interests, skills and intellectual
pursuits, cultural activities, etc. On the contrary, the dichotomy of
interests, the dissimilarity in the nature of the work and duties as
well as in the compensation and working conditions of the
academic and non-academic personnel dictate the separation of
these two categories of employees for purposes of collective
bargaining. The formation of two separate bargaining units, the first
consisting of the rank-and-file non-academic personnel, and the
second, of the rank-and-file academic employees, is the set-up that
will best assure to all the employees the exercise of their collective
bargaining rights. These special circumstances, i.e., the dichotomy
of interests and concerns as well as the dissimilarity in the nature
and conditions of work, wages and compensation between the
academic and non-academic personnel, bring the case at bar within
the exception contemplated in Section 9 of Executive Order No.
180. It was grave abuse of discretion on the part of the Labor
Relations Director to have ruled otherwise, ignoring plain and
patent realities.

monthly paid rank-and-file employees have even been excluded


from the bargaining unit of the daily paid rank-and-file employees.
This dissimilarity of interests warrants the formation of a separate
and distinct bargaining unit for the monthly paid rank-and-file
employees of the petitioner. To rule otherwise would deny this
distinct class of employees the right to self-organization for
purposes of collective bargaining. Without the shield of an
organization, it will also expose them to the exploitations of
management.

Golden Farms v. Secretary, 234 SCRA 517

Given this definition, the monthly paid office and technical


employees, accountants, and cashiers of the petitioner are not
managerial employees for they do not participate in policy-making
but are given cut out policies to execute and standard practices to
observe. In the main, the discharge of their duties does not involve
the use of independent judgment. As factually found by the MedArbiter, to wit:

Petitioner next contends that these monthly paid office and


technical employees are managerial employees. They allegedly
include those in the accounting and personnel department, cashier,
and other employees holding positions with access to classified
information.
We are not persuaded. Article 212, paragraph (m) of the Labor
Code, as amended, defines as managerial employee as follows:
"Managerial employee" is one who is vested with power or
prerogatives to lay down and execute management policies and/or
to hire, transfer, suspend, lay-off, recall, discharge, assign or
discipline employees. Supervisory employees are those who, in the
interest of the employer, effectively recommend such managerial
actions if the exercise of such authority is not merely routinary or
clerical in nature but requires the use of independent judgment. All
employees not falling within any of the above definitions are
considered rank-and-file employees for purposes of this Book.

The monthly paid office and technical rank-and-file employees of


petitioner Golden Farms enjoy the constitutional right to selforganization and collective bargaining. The community or mutuality
of interest is therefore the essential criterion in the grouping. "And
this is so because 'the basic test of an asserted bargaining unit's
acceptability is whether or not it is fundamentally the combination
which will best assure to all employees the exercise of their
collective bargaining rights.'

A perusal of the list of the office and technical employees sought to


be represented in the instant case, with their corresponding
designation does not show that said Office and Technical
employees exercises supervisory or managerial functions.

In the case at bench, the evidence established that the monthly


paid rank-and-file employees of petitioner primarily perform
administrative or clerical work. In contradistinction, the petitioner's
daily paid rank-and-file employees mainly work in the cultivation of
bananas in the fields. It is crystal clear the monthly paid rank-andfile employees of petitioner have very little in common with its daily
paid rank-and-file employees in terms of duties and obligations,
working conditions, salary rates, and skills. To be sure, the said

The office believes and so hold that the employees whose names
appear in the "Masterlist of Office and Technical Employees"
submitted during the hearing are eligible to join/form a labor
organization of their own choice.

97

Mechanical Department Labor Union sa PNR v.


CIR, 24 SCRA 925

discipline employees, or to effectively recommend such managerial


actions. All employees not falling within this definition are
considered rank and file employees for purposes of this Book.

We find no grave abuse of discretion in the issuance of the ruling


under appeal as would justify our interfering with it. Republic Act
No. 875 has primarily entrusted the prosecution of its policies to
the Court of Industrial Relations, and, in view of its intimate
knowledge concerning the facts and circumstances surrounding the
cases brought before it, this Court has repeatedly upheld the
exercise of discretion of the Court of Industrial Relations in matters
concerning the representation of employee groups (Manila Paper
Mills Employees & Workers' Association vs. C.I.R. 104 Phil. 10;
Benguet Consolidated vs. Bobok Lumber Jack Association, 103 Phil.
1150).

In implementation of the aforequoted provision of the law, Section


11 of Rule II, Book V of the Omnibus Rules implementing the Labor
Code did away with existing supervisors' unions classifying the
members either as managerial or rank and file employees
depending on the work they perform. If they discharge managerial
functions, supervisors are prohibited from forming or joining any
labor organization. If they do not perform managerial work, they
may join the rank and file union and if none exists, they may form
one such rank and file organization. This rule was emphasized in
the case of Bulletin Publishing Corp. v. Sanchez, (144 SCRA 628
[1986]).

Appellant contends that the application of the "Globe doctrine" is


not warranted because the workers of the Caloocan shops do not
require different skills from the rest of the workers in the
Mechanical Department of the Railway Company. This question is
primarily one of facts. The Industrial Court has found that there is a
basic difference, in that those in the Caloocan shops not only have
a community of interest and working conditions but perform major
repairs of railway rolling stock, using heavy equipment and
machineries found in said shops, while the others only perform
minor repairs. It is easy to understand, therefore, that the workers
in the Caloocan shops require special skill in the use of heavy
equipment and machinery sufficient to set them apart from the rest
of the workers. In addition, the record shows that the collective
bargaining agreements negotiated by the appellant union have
been in existence for more than two (2) years; hence, such
agreements can not constitute a bar to the determination, by
proper elections, of a new bargaining representative (PLDT
Employees' Union vs. Philippine Long Distance Telephone Co., 51
Off. Gaz., 4519).

It, therefore, follows that the members of the KASAMA KO who are
professional, technical, administrative and confidential personnel of
PHILTRANCO performing managerial functions are not qualified to
join, much less form a union. This rationalizes the exclusion of
managers and confidential employees exercising managerial
functions from the ambit of the collective bargaining unit. As
correctly observed by Med-Arbiter Adap:
... managerial and confidential employees were expressly excluded
within the operational ambit of the bargaining unit for the simple
reason that under the law, managers are disqualified to be
members of a labor organization.
On the other hand, confidential workers were not included because
either they were performing managerial functions and/or their
duties and responsibilities were considered or may be categorized
as part and parcel of management as the primary reason for their
exclusion in the bargaining unit. The other categorized employees
were likewise not included because parties have agreed on the fact
that the aforementioned group of workers are not qualified to join a
labor organization at the time the agreement was executed and
that they were classified as outside the parameter of the
bargaining unit. (Rollo, pp. 28-29)

Philtranco Services Enterprises v. BLR, 174


SCRA 388

There is no conflict. The employees of Philtranco have been


appraised and their functions evaluated. Managers by any name
may not join the rank and file union. On the other hand, those who
are rank and file workers may join the existing bargaining unit
instead of organizing another bargaining unit and compelling the
employer to deal with it.

The Labor Code recognizes two (2) principal groups of employees,


namely, the managerial and the rank and file groups. Thus, Art. 212
(k) of the Code provides:
xxx xxx xxx
(k) Managerial employee' is one who is vested with powers or
prerogatives to lay down and execute management policies and/or
to hire, transfer, suspend, lay-off, recall, discharge, assign or

We are constrained to disallow the formation of another union.


There is no dispute that there exists a labor union in the company,
98

herein intervenor, the NAMAWU-MIF which is the collective


bargaining agent of the rank and file employees in PHILTRANCO.

needless profusion. Where shall the line be drawn? The questioned


decision of the public respondent can only lead to confusion,
discord and labor strife.

Article 2 of the Collective Bargaining Agreement between


PHILTRANCO and NAMAWU-MIF under the sub-title Appropriate
Bargaining Unit provides:

The respondents state that this case is an exception to the general


rule considering that substantial differences exist between the
office employees or professional, technical, administrative and
confidential employees vis-a-vis the field workers or drivers,
conductors and mechanics of the petitioner. Against this
contention, we find that the "substantial differences" in the terms
and conditions of employment between the private respondent's
members and the rest of the company's rank and file employees
are more imagined than real. We agree with the petitioner that the
differences alleged are not substantial or significant enough to
merit the formation of another union.

Section 1 -The appropriate bargaining unit covered by this


agreement consists of all regular rank- and file employees of the
company.
Managerial,
confidential,
casuals,
temporary,
probationary and contractual employees as well as trainees,
apprentices, security personnel and foreman are excluded from the
bargaining unit and therefore, not covered by this AGREEMENT. The
job description outside the bargaining unit are enumerated in the
list hereto attached as Annex '1' and made an integral part hereof
(Emphasis supplied; Rollo, p. 27)

We see no need for the formation of another union in PHILTRANCO.


The qualified members of the KASAMA KO may join the NAMAWUMIF if they want to be union members, and to be consistent with
the one-union, one-company policy of the Department of Labor and
Employment, and the laws it enforces. As held in the case of
General Rubber and Footwear Corp. v. Bureau of Labor Relations
(155 SCRA 283 [1987]):

PHILTRANCO is a large bus company engaged in the business of


carrying passengers and freight, servicing Luzon, Visayas and
Mindanao. Certainly there is a commonality of interest among filing
clerks, dispatchers, drivers, typists, and field men. They are all
interested in the progress of their company and in each worker
sharing in the fruits of their endeavors equitably and generously.
Their functions mesh with one another. One group needs the other
in the same way that the company needs them all. The drivers,
mechanics and conductors are necessary for the company but
technical, administrative and office personnel are also needed and
equally important for the smooth operation of the business. There
may be differences as to the nature of their individual assignments
but the distinctions are not enough to warrant the formation of
separate unions. The private respondent has not even shown that a
separate bargaining unit would be beneficial to the employees
concerned. Office employees also belong to the rank and file. There
is an existing employer wide unit in the company represented by
NAMAWU-MIF. And as earlier stated, the fact that NAMAWU-MIF
moved to intervene in the petition for certification election filed by
KASAMA KO negates the allegations that "substantial differences"
exist between the employees concerned. We find a commonality of
interest among them. There are no compelling reasons for the
formation of another union.

... It has been the policy of the Bureau to encourage the formation
of an employer unit 'unless circumstances otherwise require. The
proliferation of unions in an employer unit is discouraged as a
matter of policy unless there are compelling reasons which would
deny a certain class of employees the right to self-organization for
purposes of collective bargaining. This case does not fall squarely
within the exception. (Emphasis supplied).

There are no compelling reasons in this case such as a denial to the


KASAMA KO group of the right to join the certified bargaining unit or
substantial distinctions warranting the recognition of a separate
group of rank and file workers. Precisely, NAMAWU-MIF intervened
to make it clear it has no objections to qualified rank and file
workers joining its union.
It is natural in almost all fairly sized companies to have groups of
workers discharging different functions. No company could possibly
have all employees performing exactly the same work. Variety of
tasks is to be expected. It would not be in the interest of sound
labor-management relations if each group of employees assigned
to a specialized function or section would decide to break away
from their fellow-workers and form their own separate bargaining
unit. We cannot allow one unit for typists and clerks, one unit for
accountants, another unit for messengers and drivers, and so on in

We quote with favor Med-Arbiter Adap's rationale, to wit:


... It is against the policy of the Department of Labor to dismember
the already wide existing bargaining unit because of its well
established goal towards a single employer wide unit which is more
to the broader and greater benefit of the employees working force.
The philosophy is to avoid fragmentation of the bargaining unit so

99

that they are managed through the Utilities Management


Corporation with all of their employees drawing their salaries and
wages from said entity; that the agencies have common and
interlocking incorporators and officers; and that the PSVSIA, GVM
and ASDA employees have a single Mutual Benefit System and
followed a single system of compulsory retirement.

as to strengthen the employees bargaining power with the


management. To do otherwise, would be contrary, inimical and
repugnant to the objectives of a strong and dynamic unionism. Let
there be a unified whole rather than a divisive one, let them speak
as one in a clear resonant voice unmarred by dissension towards
progressive unionism. (Rollo, p. 29)

Philippine Scout Veterans Security and


Investigation Agency v. Secretary, 224 SCRA
682

No explanation was also given by petitioners why the security


guards of one agency could easily transfer from one agency to
another and then back again by simply filling-up a common pro
forma slip called "Request for Transfer". Records also shows that
the PSVSIA, GVM and ASDA always hold joint yearly ceremonies
such as the "PGA Annual Awards Ceremony". In emergencies, all
PSVSIA Detachment Commanders were instructed in a
memorandum dated November 10, 1988 to get in touch with the
officers not only of PSVSIA but also of GVM and ASDA. All of these
goes to show that the security agencies concerned do not exist and
operate separately and distinctly from each other with different
corporate directions and goals. On the contrary, all the cross-linking
of the three agencies' command, control and communication
systems indicate their unitary corporate personality. Accordingly,
the veil of corporate fiction of the three agencies should be lifted
for the purpose of allowing the employees of the three agencies to
form a single labor union. As a single bargaining unit, the
employees therein need not file three separate petitions for
certification election. All of these could be covered in a single
petition.

Petitioners' arguments deserve scant consideration. The facts and


circumstances extant in the record indicate that the Med-Arbiter
and Secretaries Drilon and Torres were not mistaken in holding that
the three security companies are in reality a single business entity
operating as a single company called the "PGA Security Group" or
"PGA Security Services Group." Factual findings of labor officials are
conclusive and binding on the Court when supported by substantial
evidence.
The public repondent noted the following circumstances in the La
Campana case similar to the case at bar, as indicative of the fact
that the La Campana Coffee Factory and La Campana Gaugau
Packing were in reality only one business with two trade names: (1)
the two factories occupied the same address, wherein they had
their principal place of business; (2) their signboards,
advertisements, packages of starch, delivery truck and delivery
forms all use one appellation, "La Campana Starch and Coffee
Factory"; (3) the workers in either company received their pay from
a single cashier, and (4) the workers in one company could easily
transfer to the other company, and vice-versa. This Court held
therein that the veil of corporate fiction of the coffee factory may
be pierced to thwart the attempt to consider it part from the other
business owned by the same family. Thus, the fact that one of the
businesses is not incorporated was not the decisive factor that led
the Court to consider the two factories as one. Moreover, we do not
find any materiality in the fact that the La Campana case was
instituted to demand wage increases and other labor standards
benefits while this case was filed by the labor union to seek
recognition as the sole bargaining agent in the establishment. If
businesses operating under one management are treated as one
for bargaining purposes, there is not much difference in treating
such businesses also as one for the preliminary purpose of labor
organizing.

International School Alliance of Educators v.


Quisumbing, G.R. No. 123619, June 8, 2000
We agree, however, that foreign-hires do not belong to the same
bargaining unit as the local-hires.
It does not appear that foreign-hires have indicated their intention
to be grouped together with local-hires for purposes of collective
bargaining. The collective bargaining history in the School also
shows that these groups were always treated separately. Foreignhires have limited tenure; local-hires enjoy security of tenure.
Although foreign-hires perform similar functions under the same
working conditions as the local-hires, foreign-hires are accorded
certain benefits not granted to local-hires. These benefits, such as
housing, transportation, shipping costs, taxes, and home leave
travel allowance, are reasonably related to their status as foreignhires, and justify the exclusion of the former from the latter. To
include foreign-hires in a bargaining unit with local-hires would not

Indeed, the three agencies in the case at bar failed to rebut the fact
100

assure either group the exercise of their respective collective


bargaining rights.

Union, supported by the Solicitor General at this point, asserts that


the veil of corporate fiction should be pierced, thus, according to
the Union, the University and the College of St. Benilde should be
considered as only one entity because the latter is but a mere
integral part of the University.

De La Salle V. De La Salle University Employees'


Association, 330 SCRA 363

The Universitys arguments on the first issue fail to impress us. The
Court agrees with the Solicitor General that the express exclusion
of the computer operators and discipline officers from the
bargaining unit of rank-and-file employees in the 1986 collective
bargaining agreement does not bar any re-negotiation for the
future inclusion of the said employees in the bargaining unit.
During the freedom period, the parties may not only renew the
existing collective bargaining agreement but may also propose and
discuss modifications or amendments thereto. With regard to the
alleged confidential nature of the said employees functions, after a
careful consideration of the pleadings filed before this Court, we
rule that the said computer operators and discipline officers are not
confidential employees. As carefully examined by the Solicitor
General, the service record of a computer operator reveals that his
duties are basically clerical and non-confidential in nature. As to the
discipline officers, we agree with the voluntary arbitrator that based
on the nature of their duties, they are not confidential employees
and should therefore be included in the bargaining unit of rank-andfile employees.

On the first issue involving the classification of the computer


operators assigned at the Universitys Computer Services Center
and discipline officers, the University argues that they are
confidential employees and that the Union has already recognized
the confidential nature of their functions when the latter agreed in
the parties 1986 collective bargaining agreement to exclude the
said employees from the bargaining unit of rank-and-file
employees. As far as the said computer operators are concerned,
the University contends that " the parties have already previously
agreed to exclude all positions in the Universitys Computer Services
Center (CSC), which include the positions of computer operators,
from the collective bargaining unit. xxx xxx." The University further
contends that "the nature of the work done by these Computer
Operators is enough justification for their exclusion from the
coverage of the bargaining unit of the Universitys rank-and-file
employees. xxx xxx." According to the University, the Computer
Services Center, where these computer operators work, "processes
data that are needed by management for strategic planning and
evaluation of systems. It also houses the Universitys confidential
records and information [e.g. student records, faculty records,
faculty and staff payroll data, and budget allocation and
expenditure related data] which are contained in computer files
and computer-generated reports. xxx xxx. Moreover, the Computer
Operators are in fact the repository of the Universitys confidential
information and data, including those involving and/or pertinent to
labor relations. xxx xxx."
As to the discipline officers, the University maintains that "they are
likewise excluded from the bargaining unit of the rank-and-file
employees under the parties 1986 CBA. The Discipline Officers are
clearly alter egos of management as they perform tasks which are
inherent in management [e.g. enforce discipline, act as peace
officers, secure peace and safety of the students inside the
campus, conduct investigations on violations of University
regulations, or of existing criminal laws, committed within the
University or by University employees] xxx xxx." The University
also alleges that "the Discipline Officers are privy to highly
confidential information ordinarily accessible only to management."
With regard to the employees of the College of St. Benilde, the
101

effect on 21 June 1997, and again by Department Order No. 40


dated 17 February 2003. The Implementing Rules as amended by
D.O. No. 9 should govern the resolution of the petition at bar since
respondents petition for certification election was filed with the BLR
in 1999; and that of petitioner on 17 August 1999.

LABOR ORGANIZATIONS
A Definition & Types
H. Registration of Unions

The applicable Implementing Rules enunciates a two-fold procedure


for the creation of a chapter or a local. The first involves the
affiliation of an independent union with a federation or national
union or industry union. The second, finding application in the
instant petition, involves the direct creation of a local or a chapter
through the process of chartering.

San Miguel Corporation Employees UnionPhilippine Transport and General Workers


Organization (SMCEU-PTGWO) v. San Miguel
Packaging Products Employees UnionPambansang Diwa Ng Manggagawang Pilipino
(SMPPEU-PDMP), September 12, 2007

A duly registered federation or national union may directly create a


local or chapter by submitting to the DOLE Regional Office or to the
BLR two copies of the following:
(a) A charter certificate issued by the federation or national union
indicating the creation or establishment of the local/chapter;

A legitimate labor organization is defined as any labor organization


duly registered with the Department of Labor and Employment, and
includes any branch or local thereof. The mandate of the Labor
Code is to ensure strict compliance with the requirements on
registration because a legitimate labor organization is entitled to
specific rights under the Labor Code, and are involved in activities
directly
affecting
matters
of
public
interest. Registration
requirements are intended to afford a measure of protection to
unsuspecting employees who may be lured into joining
unscrupulous or fly-by-night unions whose sole purpose is to control
union funds or use the labor organization for illegitimate
ends. Legitimate labor organizations have exclusive rights under
the law which cannot be exercised by non-legitimate unions, one of
which is the right to be certified as the exclusive representative of
all the employees in an appropriate collective bargaining unit for
purposes of collective bargaining. The acquisition of rights by any
union or labor organization, particularly the right to file a petition
for certification election, first and foremost, depends on whether or
not the labor organization has attained the status of a legitimate
labor organization.

(b) The names of the local/chapters officers, their addresses, and


the principal office of the local/chapter; and
(c) The local/chapters constitution and by-laws; Provided, That
where the local/chapters constitution and by-laws is the same as
that of the federation or national union, this fact shall be indicated
accordingly.
All the foregoing supporting requirements shall be certified under
oath by the Secretary or the Treasurer of the local/chapter and
attested to by its President.
The Implementing Rules stipulate that a local or chapter may be
directly created by a federation or national union. A duly
constituted local or chapter created in accordance with the
foregoing shall acquire legal personality from the date of filing of
the complete documents with the BLR. The issuance of the
certificate of registration by the BLR or the DOLE Regional Office is
not the operative act that vests legal personality upon a local or a
chapter under Department Order No. 9. Such legal personality is
acquired from the filing of the complete documentary requirements
enumerated in Section 1, Rule VI.

A perusal of the records reveals that respondent is registered with


the BLR as a local or chapter of PDMP and was issued Charter
Certificate No. 112 on 15 June 1999. Hence, respondent was
directly chartered by PDMP.

Petitioner insists that Section 3 of the Implementing Rules, as


amended by Department Order No. 9, violated Article 234 of the
Labor Code when it provided for less stringent requirements for the
creation of a chapter or local. This Court disagrees.

The procedure for registration of a local or chapter of a labor


organization is provided in Book V of the Implementing Rules of the
Labor Code, as amended by Department Order No. 9 which took

Article 234 of the Labor Code provides that an independent labor


102

organization acquires legitimacy only upon its registration with


the BLR:

Court was unequivocal in finding that there is no inconsistency


between the Labor Code and Department Order No. 9.

Any applicant labor organization, association or group of unions or


workers shall acquire legal personality and shall be entitled to the
rights and privileges granted by law to legitimate labor
organizations upon issuance of the certificate of registration based
on the following requirements:

As to petitioners claims that respondent obtained its Certificate of


Registration through fraud and misrepresentation, this Court finds
that the imputations are not impressed with merit. In the instant
case, proof to declare that respondent committed fraud and
misrepresentation remains wanting. This Court had, indeed, on
several occasions, pronounced that registration based on false and
fraudulent statements and documents confer no legitimacy upon a
labor organization irregularly recognized, which, at best, holds on to
a mere scrap of paper. Under such circumstances, the labor
organization, not being a legitimate labor organization, acquires no
rights.

(a) Fifty pesos (P50.00) registration fee;


(b) The names of its officers, their addresses, the principal address
of the
labor
organization,
the
minutes
of
the
organizational meetings and the list of the workers who
participated in suchmeetings;
(c) The names of all its members comprising at least twenty
percent (20%) of all the employees in the bargaining unit where it
seeks to operate;

This Court emphasizes, however, that a direct challenge to the


legitimacy of a labor organization based on fraud and
misrepresentation in securing its certificate of registration is a
serious allegation which deserves careful scrutiny. Allegations
thereof should be compounded with supporting circumstances and
evidence. The records of the case are devoid of such
evidence. Furthermore, this Court is not a trier of facts, and this
doctrine applies with greater force in labor cases. Findings of fact of
administrative agencies and quasi-judicial bodies, such as the BLR,
which have acquired expertise because their jurisdiction is confined
to specific matters, are generally accorded not only great respect
but even finality.

(d) If the applicant union has been in existence for one or


more years, copies of its annual financial reports; and
(e) Four (4) copies of the constitution and by-laws of the applicant
union, minutes of its adoption or ratification, and the list of the
members who participated in it. (Italics supplied.)

It is emphasized that the foregoing pertains to the registration of


an independent labor organization, association or group of unions
or workers.
However, the creation of a branch, local or chapter is treated
differently. This Court, in the landmark case of Progressive
Development Corporation v. Secretary, Department of Labor and
Employment, declared that when an unregistered union becomes a
branch, local or chapter, some of the aforementioned requirements
for registration are no longer necessary or compulsory. Whereas an
applicant for registration of an independent union is mandated to
submit, among other things, the number of employees and names
of all its members comprising at least 20% of the employees in the
bargaining unit where it seeks to operate, as provided under Article
234 of the Labor Code and Section 2 of Rule III, Book V of the
Implementing Rules, the same is no longer required of a branch,
local or chapter. The intent of the law in imposing less requirements
in the case of a branch or local of a registered federation or
national union is to encourage the affiliation of a local union with a
federation or national union in order to increase the local unions
bargaining powers respecting terms and conditions of labor.

Still, petitioner postulates that respondent was not validly and


legitimately created, for PDMP cannot create a local or chapter as it
is not a legitimate labor organization, it being a trade union center.
Petitioners argument creates a predicament as it hinges on the
legitimacy of PDMP as a labor organization. Firstly, this line of
reasoning attempts to predicate that a trade union center is not a
legitimate labor organization. In the process, the legitimacy of
PDMP is being impugned, albeit indirectly. Secondly, the same
contention premises that a trade union center cannot directly
create a local or chapter through the process of chartering.
Anent the foregoing, as has been held in a long line of cases, the
legal personality of a legitimate labor organization, such as PDMP,
cannot be subject to a collateral attack.The law is very clear on this
matter. Article 212 (h) of the Labor Code, as amended, defines
a legitimate labor organization as any labor organization duly
registered with the DOLE, and includes any branch or local
thereof. On the other hand, a trade union center is any group of

Subsequently, in Pagpalain Haulers, Inc. v. Trajano where the


validity of Department Order No. 9 was directly put in issue, this
103

registered national unions or federations organized for the mutual


aid and protection of its members; for assisting such members in
collective bargaining; or for participating in the formulation of social
and employment policies, standards, and programs, and is duly
registered with the DOLE in accordance with Rule III, Section 2 of
the Implementing Rules.

After an exhaustive study of the governing labor law provisions,


both statutory and regulatory, we find no legal justification to
support the conclusion that a trade union center is allowed to
directly create a local or chapter through chartering. Apropos, we
take this occasion to reiterate the first and fundamental duty of this
Court, which is to apply the law. The solemn power and duty of the
Court to interpret and apply the law does not include the power to
correct by reading into the law what is not written therein.

The Implementing Rules stipulate that a labor organization shall be


deemed registered and vested with legal personality on the date of
issuance of its certificate of registration. Once a certificate of
registration is issued to a union, its legal personality cannot be
subject to collateral attack. It may be questioned only in an
independent petition for cancellation in accordance with Section 5
of Rule V, Book V of the Implementing Rules. The aforementioned
provision is enunciated in the following:

Presidential Decree No. 442, better known as the Labor Code, was
enacted in 1972. Being a legislation on social justice, the provisions
of the Labor Code and the Implementing Rules have been subject
to several amendments, and they continue to evolve, considering
that labor plays a major role as a socio-economic force. The Labor
Code was first amended by Republic Act No. 6715, and recently, by
Republic Act No. 9481. Incidentally, the term trade union
center was never mentioned under Presidential Decree No. 442,
even as it was amended by Republic Act No. 6715. The term trade
union center was first adopted in the Implementing Rules, under
Department Order No. 9.

Sec. 5. Effect of registration. The labor organization or workers


association shall be deemed registered and vested with legal
personality on the date of issuance of its certificate of registration.
Such legal personality cannot thereafter be subject to collateral
attack, but may be questioned only in an independent petition for
cancellation in accordance with these Rules.

Culling from its definition as provided by Department Order No. 9,


a trade union center is any group of registered national unions or
federations organized for the mutual aid and protection of its
members; for assisting such members in collective bargaining; or
for participating in the formulation of social and employment
policies, standards, and programs, and is duly registered with the
DOLE in accordance with Rule III, Section 2 of the Implementing
Rules. The same rule provides that the application for registration
of an industry or trade union center shall be supported by the
following:

PDMP was registered as a trade union center and issued


Registration Certificate No. FED-11558-LC by the BLR on 14
February 1991. Until the certificate of registration of PDMP is
cancelled, its legal personality as a legitimate labor organization
subsists. Once a union acquires legitimate status as a labor
organization, it continues to be recognized as such until its
certificate of registration is cancelled or revoked in an independent
action for cancellation. It bears to emphasize that what is being
directly challenged is the personality of respondent as a legitimate
labor organization and not that of PDMP. This being a collateral
attack, this Court is without jurisdiction to entertain questions
indirectly impugning the legitimacy of PDMP.

(a) The list of its member organizations and their respective


presidents and, in the case of an industry union, the industry
where the union seeks to operate;

Corollarily, PDMP is granted all the rights and privileges


appurtenant to a legitimate labor organization, and continues to be
recognized as such until its certificate of registration is successfully
impugned and thereafter cancelled or revoked in an independent
action for cancellation.

(b) The resolution of membership of each member organization,


approved by the Board of Directors of such union;
(c) The name and principal address of the applicant, the names of
its officers and their addresses, the minutes of its organizational
meeting/s, and the list of member organizations and their
representatives who attended such meeting/s; and

We now proceed to the contention that PDMP cannot directly create


a local or a chapter, it being a trade union center.

(d) A copy of its constitution and by-laws and minutes of its


ratification by a majority of the presidents of the member
organizations, provided that where the ratification was done
simultaneously with the organizational meeting, it shall be
sufficient that the fact of ratification be included in the minutes of

This Court reverses the finding of the appellate court and BLR on
this ground, and rules that PDMP cannot directly create a local or
chapter.
104

the organizational meeting.

amended, otherwise known as the Labor Code of the Philippines, is


hereby further amended to read as follows:

Evidently, while a national union or federation is a labor


organization with at least ten locals or chapters or affiliates, each of
which must be a duly certified or recognized collective bargaining
agent; a trade union center, on the other hand, is composed of a
group of registered national unions or federations.

ART. 234. Requirements of Registration. A federation, national


union or industry or trade union center or an independent union
shall acquire legal personality and shall be entitled to the rights
and privileges granted by law to legitimate labor organizations
upon issuance of the certificate of registration based on the
following requirements:

The Implementing Rules, as amended by Department Order No. 9,


provide that a duly registered federation or national union may
directly create a local or chapter. The provision reads:

(a) Fifty pesos (P50.00) registration fee;


(b) The names of its officers, their addresses, the principal address
of the labor organization, the minutes of the organizational
meetings and the list of the workers who participated in such
meetings;

Section 1. Chartering and creation of a local/chapter. A duly


registered federation or national union may directly create a
local/chapter by submitting to the Regional Office or to the Bureau
two (2) copies of the following:
(a) A charter certificate issued by the federation or national union
indicating the creation or establishment of the local/chapter;

(c) In case the applicant is an independent union, the names of all


its members comprising at least twenty percent (20%) of all the
employees in the bargaining unit where it seeks to operate;

(b) The names of the local/chapters officers, their addresses, and


the principal office of the local/chapter; and

(d) If the applicant union has been in existence for one or more
years, copies of its annual financial reports; and

(c) The local/chapters constitution and by-laws; provided that


where the local/chapters constitution and by-laws is the same as
that of the federation or national union, this fact shall be indicated
accordingly.

(e) Four copies of the constitution and by-laws of the applicant


union, minutes of its adoption or ratification, and the list of the
members who participated in it.
SECTION 2. A new provision is hereby inserted into the Labor Code
as Article 234-A to read as follows:

All the foregoing supporting requirements shall be certified under


oath by the Secretary or the Treasurer of the local/chapter and
attested to by its President.

ART. 234-A. Chartering and Creation of a Local Chapter. A duly


registered federation or national union may directly create a local
chapter by issuing a charter certificate indicating the
establishment of the local chapter. The chapter shall acquire legal
personality only for purposes of filing a petition for certification
election from the date it was issued a charter certificate.

Department Order No. 9 mentions two labor organizations either of


which is allowed to directly create a local or chapter through
chartering
a
duly
registered federation or anational
union.
Department Order No. 9 defines a "chartered local" as a labor
organization in the private sector operating at the enterprise level
that acquired legal personality through a charter certificate, issued
by a duly registered federation or national union and reported to
the Regional Office in accordance with Rule III, Section 2-E of these
Rules.

The chapter shall be entitled to all other rights and privileges of a


legitimate labor organization only upon the submission of the
following documents in addition to its charter certificate:
(a) The names of the chapter's officers, their addresses, and the
principal office of the chapter; and

Republic Act No. 9481 or An Act Strengthening the Workers


Constitutional Right to Self-Organization, Amending for the Purpose
Presidential Decree No. 442, As Amended, Otherwise Known as the
Labor Code of the Philippines lapsed into law on 25 May 2007 and
became effective on 14 June 2007. This law further amends the
Labor Code provisions on Labor Relations.

(b) The chapter's constitution and by-laws: Provided, That where


the chapter's constitution and by-laws are the same as that of the
federation or the national union, this fact shall be indicated
accordingly.
The additional supporting requirements shall be certified under
oath by the secretary or treasurer of the chapter and attested by
its president. (Emphasis ours.)

Pertinent amendments read as follows:

Article 234 now includes the term trade union center, but

SECTION 1. Article 234 of Presidential Decree No. 442, as

105

interestingly, the provision indicating the procedure for chartering


or creating a local or chapter, namely Article 234-A, still makes no
mention of a trade union center.

small group of employees to foist a not-so-desirable federation or


union on unsuspecting co-workers and pare the need for
wholehearted voluntariness, which is basic to free unionism. As a
legitimate labor organization is entitled to specific rights under the
Labor Code and involved in activities directly affecting public
interest, it is necessary that the law afford utmost protection to the
parties affected. However, as this Court has enunciated
in Progressive
Development
Corporation
v.
Secretary
of
Department of Labor and Employment, it is not this Court's function
to augment the requirements prescribed by law. Our only recourse,
as previously discussed, is to exact strict compliance with what the
law provides as requisites for local or chapter formation.

Also worth emphasizing is that even in the most recent amendment


of the implementing rules, there was no mention of a trade union
center as being among the labor organizations allowed to charter.
This Court deems it proper to apply the Latin maxim expressio
unius est exclusio alterius. Under this maxim of statutory
interpretation, the expression of one thing is the exclusion of
another. When certain persons or things are specified in a law,
contract, or will, an intention to exclude all others from its
operation may be inferred. If a statute specifies one exception to a
general rule or assumes to specify the effects of a certain provision,
other exceptions or effects are excluded. Where the terms are
expressly limited to certain matters, it may not, by interpretation or
construction, be extended to other matters. Such is the case
here. If its intent were otherwise, the law could have so easily and
conveniently included trade union centers in identifying the labor
organizations allowed to charter a chapter or local. Anything that is
not included in the enumeration is excluded therefrom, and a
meaning that does not appear nor is intended or reflected in the
very language of the statute cannot be placed therein. The rule is
restrictive in the sense that it proceeds from the premise that the
legislating body would not have made specific enumerations in a
statute if it had the intention not to restrict its meaning and confine
its terms to those expressly mentioned. Expressium facit cessare
tacitum. What is expressed puts an end to what is implied. Casus
omissus pro omisso habendus est. A person, object or thing omitted
must have been omitted intentionally.

In sum, although PDMP as a trade union center is a legitimate labor


organization, it has no power to directly create a local or
chapter. Thus, SMPPEU-PDMP cannot be created under the more
lenient requirements for chartering, but must have complied with
the more stringent rules for creation and registration of an
independent union, including the 20% membership requirement.

Eagle Ridge Golf and Country Club v. CA, March


18, 2010
Eagle Ridge cites the grounds provided under Art. 239(a) and (c) of
the Labor Code for its petition for cancellation of the EREUs
registration. On
the
other
hand,
the Unionasserts bona
fide compliance with the registration requirements under Art. 234
of the Code, explaining the seeming discrepancies between the
number of employees who participated in the organizational
meeting and the total number of union members at the time it filed
its registration, as well as the typographical error in its certification
which understated by one the number of union members who
ratified the unions constitution and by-laws.

Therefore, since under the pertinent status and applicable


implementing rules, the power granted to labor organizations to
directly create a chapter or local through chartering is given to a
federation or national union, then a trade union center is without
authority to charter directly.

Before their amendment by Republic Act No. 9481 on June 15,


2007, the then governing Art. 234 (on the requirements of
registration of a labor union) and Art. 239 (on the grounds for
cancellation of union registration) of the Labor Code respectively
provided as follows:

The ruling of this Court in the instant case is not a departure from
the policy of the law to foster the free and voluntary organization of
a strong and united labor movement, and thus assure the rights of
workers to self-organization. The mandate of the Labor Code in
ensuring strict compliance with the procedural requirements for
registration is not without reason. It has been observed that the
formation of a local or chapter becomes a handy tool for the
circumvention of union registration requirements. Absent the
institution of safeguards, it becomes a convenient device for a

ART. 239. GROUNDS FOR CANCELLATION OF UNION REGISTRATION.


The following shall constitute grounds for cancellation of union
registration:
(a) Misrepresentation, false statements or fraud in
connection with the adoption or ratification of the
constitution and by-laws or amendments thereto, the minutes
of ratification, and the list of members who took part in the

106

112 rank-and-file employees in Eagle Ridge, as shown in the Sworn


Statement of the Union president and secretary and confirmed by
Eagle Ridge in its petition for cancellation.

ratification;
xxxx
(c) Misrepresentation, false statements or fraud in
connection with the election of officers, minutes of the
election of officers, the list of voters, or failure to submit these
documents together with the list of the newly elected/appointed
officers and their postal addresses within thirty (30) days from
election. (Emphasis supplied.)

Third. The Union has sufficiently explained the discrepancy


between the number of those who attended the organizational
meeting showing 26 employees and the list of union members
showing 30. The difference is due to the additional four members
admitted two days after the organizational meeting as attested to
by
their
duly
accomplished
Union
Membership
forms. Consequently, the total number of union members, as of
December 8, 2005, was 30, which was truthfully indicated in its
application for registration on December 19, 2005.

A scrutiny of the records fails to show any misrepresentation, false


statement, or fraud committed by EREU to merit cancellation of its
registration.
First. The Union submitted the required documents attesting to the
facts of the organizational meeting on December 6, 2005, the
election of its officers, and the adoption of the Unions constitution
and by-laws. It submitted before the DOLE Regional Office with its
Application for Registration and the duly filled out BLR Reg. Form
No. I-LO, s. 1998, the following documents, to wit:

As aptly found by the BLR Director, the Union already had 30


members when it applied for registration, for the admission of new
members is neither prohibited by law nor was it concealed in its
application for registration. Eagle Ridges contention is flawed when
it equated the requirements under Art. 234(b) and (c) of the Labor
Code. Par. (b) clearly required the submission of the minutes of the
organizational meetings and the list of workers who participated in
the meetings, while par. (c) merely required the list of names of all
the union members comprising at least 20% of the bargaining
unit. The fact that EREU had 30 members when it applied for
registration on December 19, 2005 while only 26 actually
participated in the organizational meeting is borne by the records.

(a) the minutes of its organizational meeting held on December 6,


2005 showing 26 founding members who elected its union officers
by secret ballot;
(b) the list of rank-and-file employees of Eagle Ridge who attended
the organizational meeting and the election of officers with their
individual signatures;
(c) the list of rank-and-file employees who ratified the unions
constitution and by-laws showing the very same list as those who
attended the organizational meeting and the election of officers
with their individual signatures except the addition of four
employees
without
their
signatures, i.e.,
Cherry Labajo,
Grace Pollo, Annalyn Poniente and Rowel Dolendo;

Fourth. In its futile attempt to clutch at straws, Eagle Ridge assails


the inclusion of the additional four members allegedly for not
complying with what it termed as the sine qua non requirements
for union member applications under the Unions constitution and
by-laws, specifically Sec. 2 of Art. IV. We are not persuaded. Any
seeming infirmity in the application and admission of union
membership, most especially in cases of independent labor unions,
must be viewed in favor of valid membership.

(d) the unions constitution and by-laws as approved on December


6, 2005;
(e) the list of officers and their addresses;

The right of employees to self-organization and membership in a


union must not be trammeled by undue difficulties. In this case,
when the Union said that the four employee-applicants had been
admitted as union members, it is enough to establish the fact of
admission of the four that they had duly signified such desire by
accomplishing the membership form. The fact, as pointed out by
Eagle Ridge, that the Union, owing to its scant membership, had
not yet fully organized its different committees evidently shows the
direct and valid acceptance of the four employee applicants rather
than deter their admission as erroneously asserted by Eagle Ridge.

(f) the list of union members showing a total of 30 members; and


(g) the Sworn Statement of the unions elected president and
secretary. All the foregoing documents except the sworn statement
of the president and the secretary were accompanied by
Certifications by the union secretary duly attested to by the union
president.

Second. The members of the EREU totaled 30 employees when it


applied on December 19, 2005 for registration. The Union thereby
complied with the mandatory minimum 20% membership
requirement under Art. 234(c). Of note is the undisputed number of
107

Fifth. The difference between the number of 26 members, who


ratified the Unions constitution and by-laws, and the 25 members
shown in the certification of the Union secretary as having ratified
it, is, as shown by the factual antecedents, a typographical error. It
was an insignificant mistake committed without malice or
prevarication. The list of those who attended the organizational
meeting shows 26 members, as evidenced by the signatures beside
their handwritten names. Thus, the certifications understatement
by one member, while not factual, was clearly an error, but neither
a misleading one nor a misrepresentation of what had actually
happened.

the opposing party, i.e., the Union.


For their non-presentation and consonant to the above-quoted rule,
the six affidavits of retraction are inadmissible as evidence against
the Union in the instant case. Moreover, the affidavit and jointaffidavits presented by the Union before the DOLE Regional
Director were duly re-affirmed in the hearing of March 20, 2006 by
the affiants. Thus, a reversible error was committed by the DOLE
Regional Director and the BLR OIC Director in giving credence to
the inadmissible affidavits of retraction presented by Eagle Ridge
while not giving credence to the duly re-affirmed affidavits
presented by the Union.

Sixth. In the more meaty issue of the affidavits of retraction


executed by six union members, we hold that the probative value
of these affidavits cannot overcome those of the supporting
affidavits of 12 union members and their counsel as to the
proceedings and the conduct of the organizational meeting on
December 6, 2005. The DOLE Regional Director and the BLR OIC
Director obviously erred in giving credence to the affidavits of
retraction, but not according the same treatment to the supporting
affidavits.

Evidently, the allegations in the six affidavits of retraction have no


probative value and at the very least cannot outweigh the rebutting
attestations of the duly re-affirmed affidavits presented by
the Union.
Seventh. The fact that six union members, indeed, expressed the
desire to withdraw their membership through their affidavits of
retraction will not cause the cancellation of registration on the
ground of violation of Art. 234(c) of the Labor Code requiring the
mandatory minimum 20% membership of rank-and-file employees
in the employees union.

The six affiants of the affidavits of retraction were not presented in


a hearing before the Hearing Officer (DOLE Regional Director), as
required under the Rules Implementing Book V of the Labor Code
covering Labor Relations. Said Rules is embodied in Department
Order No. (DO) 40-03 which was issued on February 17, 2003 and
took effect on March 15, 2003 to replace DO 9 of 1997. Sec. 11,
Rule XI of DO 40-03 specifically requires:

The six retracting union members clearly severed and withdrew


their union membership. The query is whether such separation
from the Union can detrimentally affect the registration of
the Union.
Twenty percent (20%) of 112 rank-and-file employees in Eagle
Ridge would require a union membership of at least 22 employees
(112 x 205 = 22.4). When the EREU filed its application for
registration on December 19, 2005, there were clearly 30 union
members. Thus, when the certificate of registration was granted,
there is no dispute that the Union complied with the mandatory
20% membership requirement.

Section 11. Affirmation of testimonial evidence. Any affidavit


submitted by a party to prove his/her claims or defenses shall be
re-affirmed by the presentation of the affiantbefore the Med-Arbiter
or Hearing Officer, as the case may be. Any affidavit
submitted without the re-affirmation of the affiant during a
scheduled hearing shall not be admitted in evidence, except when
the party against whom the affidavit is being offered admits all
allegations therein and waives the examination of the affiant.

Besides, it cannot be argued that the six affidavits of retraction


retroact to the time of the application of registration or even way
back to the organizational meeting. Prior to their withdrawal, the
six employees in question were bona fide union members. More so,
they never disputed affixing their signatures beside their
handwritten names during the organizational meetings. While they
alleged that they did not know what they were signing, it bears
stressing that their affidavits of retraction were not re-affirmed
during the hearings of the instant case rendering them of little, if
any, evidentiary value.

It is settled that affidavits partake the nature of hearsay evidence,


since they are not generally prepared by the affiant but by another
who uses his own language in writing the affiants statement, which
may thus be either omitted or misunderstood by the one writing
them. The above rule affirms the general requirement in
adversarial proceedings for the examination of the affiant by the
party against whom the affidavit is offered. In the instant case, it is
required for affiants to re-affirm the contents of their affidavits
during the hearing of the instant case for them to be examined by
108

With the withdrawal of six union members, there is still compliance


with the mandatory membership requirement under Art. 234(c), for
the remaining 24 union members constitute more than the 20%
membership requirement of 22 employees.

certification election had been filed. The initial five affidavits of


retraction were executed on February 15, 2006; the sixth, on March
15, 2006. Indisputably, all six were executed way after the filing of
the petition for certification election on January 10, 2006.

Eagle Ridge further argues that the list of union members includes
a supervisory employee. This is a factual issue which had not been
raised at the first instance before the DOLE Regional Director and
cannot be appreciated in this proceeding. To be sure, Eagle Ridge
knows well who among its personnel belongs or does not belong to
the supervisory group. Obviously, its attempt to raise the issue
referred to is no more than an afterthought and ought to be
rejected.

In Eastland Manufacturing Company, Inc. v. Noriel, the Court


emphasized, and reiterated its earlier rulings, that even if there
were less than 30% [the required percentage of minimum
membership then] of the employees asking for a certification
election, that of itself would not be a bar to respondent Director
ordering such an election provided, of course, there is no grave
abuse of discretion. Citing Philippine Association of Free Labor
Unions v. Bureau of Labor Relations, the Court emphasized that a
certification election is the most appropriate procedure for the
desired goal of ascertaining which of the competing organizations
should represent the employees for the purpose of collective
bargaining.

Eighth. Finally, it may not be amiss to note, given the factual


antecedents of the instant case, that Eagle Ridge has apparently
resorted to filing the instant case for cancellation of the Unions
certificate of registration to bar the holding of a certification
election. This can be gleaned from the fact that the grounds it
raised in its opposition to the petition for certification election are
basically the same grounds it resorted to in the instant case for
cancellation of EREUs certificate of registration. This amounts to a
clear circumvention of the law and cannot be countenanced.

Indeed, where the company seeks the cancellation of a unions


registration during the pendency of a petition for certification
election, the same grounds invoked to cancel should not be used to
bar the certification election. A certification election is the most
expeditious and fairest mode of ascertaining the will of a collective
bargaining unit as to its choice of its exclusive representative. It is
the fairest and most effective way of determining which labor
organization can truly represent the working force. It is a
fundamental postulate that the will of the majority, if given
expression in an honest election with freedom on the part of the
voters to make their choice, is controlling.

For clarity, we reiterate the following undisputed antecedent facts:


(1) On December 6, 2005, the Union was organized, with 26
employees of Eagle Ridge attending;
(2) On December 19, 2005, the Union filed its formal application for
registration indicating a total of 30 union members with the
inclusion of four additional members on December 8, 2005 (Reg.
Cert. No. RO400-200512-UR-003 was eventually issued by the
DOLE RO IV-A);

The Court ends this disposition by reproducing the following


apt excepts from its holding in S.S. Ventures International, Inc. v.
S.S. Ventures Labor Union (SSVLU) on the effect of the withdrawal
from union membership right before or after the filing of a petition
for certification election:

(3) On January 10, 2006, the Union filed before the DOLE RO IV-A
its petition for certification election in Eagle Ridge;
(4) On February 13, 2006, Eagle Ridge filed its Position Paper
opposing the petition for certification election on essentially the
same grounds it raised in the instant case; and

We are not persuaded. As aptly noted by both the BLR and


CA, these mostly undated written statements submitted by
Ventures on March 20, 2001, or seven months after it filed its
petition for cancellation of registration, partake of the nature of
withdrawal of union membership executed after the Unions filing of
a petition for certification election on March 21, 2000. We have in
precedent cases said that the employees withdrawal from a
labor union made before the filing of the petition for
certification
election
is
presumed
voluntary,
whilewithdrawal after the filing of such petition is
considered to be involuntary and does not affect the
same. Now then, if a withdrawal from union membership

(5) On February 24, 2006, Eagle Ridge filed the instant case for
cancellation of the Unions certificate of registration on essentially
the same grounds it raised in its opposition to the Unions petition
for certification election.

Evidently, as the Union persuasively argues, the withdrawal of six


member-employees from the Union will affect neither the Unions
registration nor its petition for certification election, as their
affidavits of retraction were executed after the Unions petition for
109

done after a petition for certification election has been filed


does not vitiate such petition, is it not but logical to
assume that such withdrawal cannot work to nullify the
registration of the union? Upon this light, the Court is inclined
to agree with the CA that the BLR did not abuse its discretion nor
gravely err when it concluded that the affidavits of retraction of the
82 members had no evidentiary weight. (Emphasis supplied.)

Phil. 356 (1996), the Court ruled that it wasnot necessary for the
charter certificate to be certified and attested by the local/chapter
officers. Id. While this ruling was based on the interpretation
of the previous Implementing Rules provisions which were
supplanted by the 1997 amendments, we believe that the
same doctrine obtains in this case. Considering that the
charter certificate is prepared and issued by the national union and
not the local/chapter, it does not make sense to have the
local/chapters officers x x x certify or attest to a document
which they had no hand in the preparation of. (Emphasis
supplied)

Samahang Mangagawa Sa Charter Chemical


(SMCC-SUPER) v. Charter Chemical and Coating
Corp. March 16, 2011

In accordance with this ruling, petitioner unions charter certificate


need not be executed under oath. Consequently, it validly acquired
the status of a legitimate labor organization upon submission of (1)
its charter certificate, (2) the names of its officers, their addresses,
and its principal office, and (3) its constitution and by-laws the
last two requirements having been executed under oath by the
proper union officials as borne out by the records.

The then prevailing Section 1, Rule VI of the Implementing Rules of


Book V, as amended by D.O. No. 9, series of 1997, provides:
Section 1. Chartering and creation of a local chapter A duly
registered federation or national union may directly create a
local/chapter by submitting to the Regional Office or to the Bureau
two (2) copies of the following:

The CA found that petitioner union has for its membership both
rank-and-file and supervisory employees. However, petitioner union
sought to represent the bargaining unit consisting of rank-and-file
employees. Under Article 245 of the Labor Code, supervisory
employees are not eligible for membership in a labor organization
of rank-and-file employees. Thus, the appellate court ruled that
petitioner union cannot be considered a legitimate labor
organization pursuant to Toyota Motor Philippines v. Toyota Motor
Philippines Corporation Labor Union(hereinafter Toyota).

(a) A charter certificate issued by the federation or national union


indicating the creation or establishment of the local/chapter;
(b) The names of the local/chapters officers, their addresses, and
the principal office of the local/chapter; and
(c) The local/chapters constitution and by-laws provided that
where the local/chapters constitution and by-laws [are] the same
as [those] of the federation or national union, this fact shall be
indicated accordingly.
All the foregoing supporting requirements shall be certified under
oath by the Secretary or the Treasurer of the local/chapter and
attested to by its President.

Preliminarily, we note that petitioner union questions the factual


findings of the Med-Arbiter, as upheld by the appellate court, that
12 of its members, consisting of batchman, mill operator and
leadman, are supervisory employees. However, petitioner union
failed to present any rebuttal evidence in the proceedings below
after respondent company submitted in evidence the job
descriptions of the aforesaid employees. The job descriptions
indicate that the aforesaid employees exercise recommendatory
managerial actions which are not merely routinary but require the
use of independent judgment, hence, falling within the definition of
supervisory employees under Article 212(m) of the Labor Code. For
this reason, we are constrained to agree with the Med-Arbiter, as
upheld by the appellate court, that petitioner union consisted of
both rank-and-file and supervisory employees.

As readily seen, the Sama-samang Pahayag ng Pagsapi at


Authorization and Listahan ng mga Dumalo sa Pangkalahatang
Pulong at mga Sumang-ayon at Nagratipika sa Saligang Batas are
not among the documents that need to be submitted to the
Regional Office or Bureau of Labor Relations in order to register a
labor organization. As to the charter certificate, the above-quoted
rule indicates that it should be executed under oath. Petitioner
union concedes and the records confirm that its charter certificate
was not executed under oath. However, in San Miguel Corporation
(Mandaue Packaging Products Plants) v. Mandaue Packing Products
Plants-San Miguel Corporation Monthlies Rank-and-File Union-FFW
(MPPP-SMPP-SMAMRFU-FFW), which was decided under the
auspices of D.O. No. 9, Series of 1997, we ruled

Nonetheless, the inclusion of the aforesaid supervisory employees


in petitioner union does not divest it of its status as a legitimate
labor organization. The appellate courts reliance on Toyota is

In San Miguel Foods-Cebu B-Meg Feed Plant v. Hon. Laguesma, 331

110

misplaced in view of this Courts subsequent ruling in Republic v.


Kawashima Textile Mfg., Philippines, Inc. (hereinafter Kawashima).
InKawashima,
we
explained
at
length
how
and
why
the Toyota doctrine no longer holds sway under the altered state of
the law and rules applicable to this case, viz:

amended by R.A. No. 6715, held:


"Clearly, based on this provision, a labor organization composed of
both rank-and-file and supervisory employees is no labor
organization at all. It cannot, for any guise or purpose, be a
legitimate labor organization. Not being one, an organization
which carries a mixture of rank-and-file and supervisory
employees cannot possess any of the rights of a legitimate
labor organization, including the right to file a petition for
certification election for the purpose of collective
bargaining. It becomes necessary, therefore, anterior to the
granting of an order allowing a certification election, to
inquire into the composition of any labor organization
whenever the status of the labor organization is challenged
on the basis of Article 245 of the Labor Code.

R.A. No. 6715 omitted specifying the exact effect any


violation of the prohibition [on the co-mingling of
supervisory and rank-and-file employees] would bring about
on the legitimacy of a labor organization.
It was the Rules and Regulations Implementing R.A. No. 6715 (1989
Amended Omnibus Rules) which supplied the deficiency by
introducing the following amendment to Rule II (Registration of
Unions):

xxxx

"Sec. 1. Who may join unions. - x x x Supervisory employees and


security guards shall not be eligible for membership in a labor
organization of the rank-and-file employees but may join, assist or
form separate labor organizations of their own; Provided, that
those supervisory employees who are included in an existing rankand-file bargaining unit, upon the effectivity of Republic Act No.
6715, shall remain in that unit x x x. (Emphasis supplied) and Rule
V (Representation Cases and Internal-Union Conflicts) of the
Omnibus Rules, viz:

In the case at bar, as respondent union's membership list contains


the names of at least twenty-seven (27) supervisory employees in
Level Five positions, the union could not, prior to purging itself of
its supervisory employee members, attain the status of a
legitimate labor organization. Not being one, it cannot possess the
requisite personality to file a petition for certification election."
(Emphasis supplied)

In Dunlop, in which the labor organization that filed a petition for


certification election was one for supervisory employees, but in
which the membership included rank-and-file employees, the Court
reiterated that such labor organization had no legal right to file a
certification election to represent a bargaining unit composed of
supervisors for as long as it counted rank-and-file employees
among its members.

"Sec. 1. Where to file. - A petition for certification election may be


filed with the Regional Office which has jurisdiction over the
principal office of the employer. The petition shall be in writing and
under oath.
Sec. 2. Who may file. - Any legitimate labor organization or the
employer, when requested to bargain collectively, may file the
petition.

It should be emphasized that the petitions for certification election


involved in Toyota and Dunlop were filed on November 26, 1992
and September 15, 1995, respectively; hence, the 1989 Rules was
applied in both cases.

The petition, when filed by a legitimate labor organization, shall


contain, among others:
xxxx

But then, on June 21, 1997, the 1989 Amended Omnibus Rules was
further amended by Department Order No. 9, series of 1997 (1997
Amended Omnibus Rules). Specifically, the requirement under Sec.
2(c) of the 1989 Amended Omnibus Rules that the petition for
certification election indicate that the bargaining unit of rank-andfile employees has not been mingled with supervisory employees
was removed. Instead, what the 1997 Amended Omnibus Rules
requires is a plain description of the bargaining unit, thus:

(c) description of the bargaining unit which shall be the employer


unit unless circumstances otherwise require; and provided further,
that the appropriate bargaining unit of the rank-and-file employees
shall not include supervisory employees and/or security
guards. (Emphasis supplied)

By that provision, any questioned mingling will prevent an


otherwise legitimate and duly registered labor organization from
exercising its right to file a petition for certification election.

Rule XI

Thus, when the issue of the effect of mingling was brought to the
fore in Toyota, the Court, citing Article 245 of the Labor Code, as

Certification Elections

111

explained that since the 1997 Amended Omnibus Rules does not
require a local or chapter to provide a list of its members, it would
be improper for the DOLE to deny recognition to said local or
chapter on account of any question pertaining to its individual
members.

xxxx
Sec. 4. Forms and contents of petition. - The petition shall be in
writing and under oath and shall contain, among others, the
following: x x x (c) The description of the bargaining unit.

In Pagpalain Haulers, Inc. v. Trajano, the Court had occasion to


uphold the validity of the 1997 Amended Omnibus Rules, although
the specific provision involved therein was only Sec. 1, Rule VI, to
wit:

More to the point is Air Philippines Corporation v. Bureau of Labor


Relations, which involved a petition for cancellation of union
registration filed by the employer in 1999 against a rank-and-file
labor organization on the ground of mixed membership: the Court
therein reiterated its ruling in Tagaytay Highlands that the inclusion
in a union of disqualified employees is not among the grounds for
cancellation, unless such inclusion is due to misrepresentation,
false statement or fraud under the circumstances enumerated in
Sections (a) and (c) of Article 239 of the Labor Code.

"Section. 1. Chartering and creation of a local/chapter.- A duly


registered federation or national union may directly create a
local/chapter by submitting to the Regional Office or to the Bureau
two (2) copies of the following: a) a charter certificate issued by
the federation or national union indicating the creation or
establishment of the local/chapter; (b) the names of the
local/chapter's officers, their addresses, and the principal office of
the local/chapter; and (c) the local/ chapter's constitution and bylaws; provided that where the local/chapter's constitution and bylaws is the same as that of the federation or national union, this
fact shall be indicated accordingly.

All said, while the latest issuance is R.A. No. 9481, the 1997
Amended Omnibus Rules, as interpreted by the Court in Tagaytay
Highlands, San Miguel and Air Philippines, had already set the tone
for it. Toyota and Dunlopno longer hold sway in the present altered
state of the law and the rules. [Underline supplied]

All the foregoing supporting requirements shall be certified under


oath by the Secretary or the Treasurer of the local/chapter and
attested to by its President."

The applicable law and rules in the instant case are the same as
those in Kawashima because the present petition for certification
election was filed in 1999 when D.O. No. 9, series of 1997, was still
in effect. Hence, Kawashimaa applies with equal force here. As a
result, petitioner union was not divested of its status as a
legitimate labor organization even if some of its members were
supervisory employees; it had the right to file the subject petition
for certification election.

which does not require that, for its creation and registration, a local
or chapter submit a list of its members.
Then came Tagaytay Highlands Int'l. Golf Club, Inc. v. Tagaytay
Highlands Employees Union-PGTWO in which the core issue was
whether mingling affects the legitimacy of a labor organization and
its right to file a petition for certification election. This time, given
the altered legal milieu, the Court abandoned the view
in Toyota and Dunlopand
reverted
to
its
pronouncement
in Lopez that while there is a prohibition against the mingling of
supervisory and rank-and-file employees in one labor organization,
the Labor Code does not provide for the effects thereof. Thus, the
Court held that after a labor organization has been registered, it
may exercise all the rights and privileges of a legitimate labor
organization. Any mingling between supervisory and rank-and-file
employees in its membership cannot affect its legitimacy for that is
not among the grounds for cancellation of its registration, unless
such mingling was brought about by misrepresentation, false
statement or fraud under Article 239 of the Labor Code.

The legal personality of petitioner union cannot be collaterally


attacked by respondent company in the certification election
proceedings.
Petitioner union correctly argues that its legal personality cannot be
collaterally attacked in the certification election proceedings. As we
explained in Kawashima:
Except when it is requested to bargain collectively, an employer is
a mere bystander to any petition for certification election; such
proceeding is non-adversarial and merely investigative, for the
purpose thereof is to determine which organization will represent
the employees in their collective bargaining with the employer. The
choice of their representative is the exclusive concern of the
employees; the employer cannot have any partisan interest
therein; it cannot interfere with, much less oppose, the process by
filing a motion to dismiss or an appeal from it; not even a mere

In San Miguel Corp. (Mandaue Packaging Products Plants) v.


Mandaue Packing Products Plants-San Miguel Packaging ProductsSan Miguel Corp. Monthlies Rank-and-File Union-FFW, the Court
112

allegation that some employees participating in a petition for


certification election are actually managerial employees will lend
an employer legal personality to block the certification election.
The employer's only right in the proceeding is to be notified or
informed thereof.

pahayag executed by 50 YEU members who averred about the


holding of an organizational meeting. The public respondent
justifiably favored the latter, deeming the meeting to include the
holding of an election of officers, for, after all, Art. 234, (b), Labor
Code, does not itself distinguish between the two.
Respondent BLR Director is further assailed for not taking into
consideration the affidavit asserting that no election of officers was
ever conducted, which Bernardino David, YEUs second vice
president, executed. The omission is not serious enough, however,
because the affidavit was submitted only when the petitioner
moved for the reconsideration of the questioned decision, and
because the affidavit was even inconsistent with Davids
earlier sinumpaang salaysay, whereby he attested to his
attendance at the organizational meeting and to his election
thereat as vice president.

The amendments to the Labor Code and its implementing rules


have buttressed that policy even more.

Yokohama Tire Phils. v. Yokohama Employees


Union, March 10, 2010
The Court of Appeals found that YEU did not commit fraud or
misrepresentation:
Anent whether an election of officers was conducted or not, the
petitioner relied largely on the affidavit of Pineda to substantiate
its claim that no election of officers was held by the
union.However, respondent BLR Director accorded greater
credence to Pinedas handwritten statement, wherein he made
references to at least 2 meetings he had attended during which he
had signed the organizational documents, than to Pinedas
later affidavit, whereby he denied any knowledge of the holding of
an election. A perusal of the affirmative handwritten statement
easily explains why the public respondent preferred it to the
negating affidavit, to wit:

As to the inclusion of Pinedas signature in the organizational


documents, the BLR Director correctly ruled that evidence to prove
the participation of YEU in the failure to delete Pinedas signature
from the organizational documents was wanting. It is not deniable
that Pineda never approached any officer of YEU; and that Pineda
approached a certain Tonton whom he knew to be a union
organizer but who was not an officer of the union nor an employee
of the company.
If the petitioner was [sic] sincere and intent on this imputed error,
its effort to show so does not [sic] appear in the record. What
appears is its abject failure to establish Tontons actual identity.The
petitioner seemed content in making the insinuation in the petition
for certiorari that Tonton was widely recognized as the organizer
behind the creation of YEU. That was not enough.

Noong unang araw na pumirma ako galing ako sa


graveyard. Pagkatapos
yung
pangalawang meeting graveyard din ako, pinapirma ako
doon sa siyam (9) na pirasong papel noong umagang paguwi namin. x x x

In sum, the BLR Director was neither capricious nor whimsical in


his exercise of judgment, and, therefore, did not commit grave
abuse of discretion. For certiorari to lie, more than mere abuse of
discretion is required to be established by the petitioner. Herein, no
degree of abuse of discretion was attendant.

July 25, 99 - Unang Pirmahan


July 26, 99 - Pinirmahan ko ang siyam na piraso
July 27, 99 - Pinatatanggal ko ang aking pangalan sa
listahan

YTPI claims that the Court of Appeals erred in finding that YEU did
not commit fraud or misrepresentation. YTPI stated that:

The petitioner also relied on the affidavit of Ma. Rachelle Gonzales


attesting that there was no election of officers, but respondent BLR
Director dismissed the affidavit as nothing but the petitioners
belated attempt to establish its claim about the election being held
considering that Gonzales did not even intimate such matter in her
handwritten resignation letter to YEU.

There was evidence that respondent committed fraud and


misrepresentation in its failure to omit the name of Ronald Pineda
prior to the filing of the respondents organizational documents with
the Department of Labor and Employment. On the other hand, the
Regional Director held that there was no election of officers
that had taken place during respondents alleged
organizational meeting as there was no proof of such
election. (Emphasis in the original)

Another affidavit, that of Arthur Calma, stated that no election was


held,
but,
again,
respondent
BLR
Director
gave
Calmas affidavit scant consideration because the affiant admittedly
remainedin the YEU office for only 20 minutes. In contrast, the
public respondent accorded more weight to the sama-samang

Whether YEU committed fraud and misrepresentation in failing to


remove Pinedas signature from the list of employees who
113

supported YEUs application for registration and whether YEU


conducted an election of its officers are questions of fact. They are
not reviewable.

Did respondent PIGLAS union commit fraud and misrepresentation


in its application for union registration? We agree with the DOLENCR and the BLR that it did not. Except for the evident
discrepancies as to the number of union members involved as
these appeared on the documents that supported the unions
application for registration, petitioner company has no other
evidence of the alleged misrepresentation. But those
discrepancies alone cannot be taken as an indication that
respondent misrepresented the information contained in these
documents.

The Court of Appeals held that YTPI had the burden of proving that
YEU committed fraud and misrepresentation:
The cancellation of union registration at the employers instance,
while permitted, must be approached with caution and strict
scrutiny in order that the right to belong to a legitimate labor
organization and to enjoy the privileges appurtenant to such
membership will not be denied to the employees. As the applicant
for cancellation, the petitioner naturally had the burden to present
proof sufficient to warrant the cancellation. The petitioner was thus
expected to satisfactorily establish that YEU committed
misrepresentations, false statements or fraud in connection with
the election of its officers, or with the minutes of the election of
officers, or in the list of votes, as expressly required in Art. 239,
(c), Labor Code. But, as the respondent BLR Director has found and
determined, and We fully agree with him, the petitioner simply
failed to discharge its burden.

The charge that a labor organization committed fraud


and misrepresentation in securing its registration is a
serious charge and deserves close scrutiny. It is serious
because once such charge is proved, the labor union acquires none
of the rights accorded to registered organizations. Consequently,
charges of this nature should be clearly established by
evidence and the surrounding circumstances. (Emphasis
supplied)

I. Local Unions and Federations

YTPI claims that the Court of Appeals erred in holding that YTPI had
the burden of proving that YEU committed fraud and
misrepresentation. YTPI stated that:

MSMG-UWP v. Ramos, G.R. No. 113907,


February 28, 2000

5.5 In the Decision dated 16 January 2004, the Honorable Court of


Appeals upheld the BLR Directors ruling that the petitioner had the
burden of proving that subject election of officers never took place.

This ruling of the NLRC is erroneous. Although this Court has ruled
that union security clauses embodied in the collective bargaining
agreement may be validly enforced and that dismissals pursuant
thereto may likewise be valid, this does not erode the fundamental
requirement of due process. The reason behind the enforcement of
union security clauses which is the sanctity and inviolability of
contracts cannot override ones right to due process.

5.6 However, the petitioner does not have the burden of proof vis-vis whether or not the said elections took place. The respondent
has the burden of proof in showing that an election of
officers took place. (Emphasis in the original)

The Court is not convinced. YTPI, being the one which filed the
petition for the revocation of YEUs registration, had the burden of
proving that YEU committed fraud and misrepresentation. YTPI had
the burden of proving the truthfulness of its accusations that YEU
fraudulently failed to remove Pinedas signature from the
organizational
documents
and
that
YEU
fraudulently
misrepresented that it conducted an election of officers.

In the case of Cario vs. National Labor Relations Commission, this


Court pronounced that while the company, under a maintenance of
membership provision of the collective bargaining agreement, is
bound to dismiss any employee expelled by the union for disloyalty
upon its written request, this undertaking should not be done
hastily and summarily. The company acts in bad faith in dismissing
a worker without giving him the benefit of a hearing.

In Heritage Hotel Manila v. Pinag-Isang Galing at Lakas ng mga


Manggagawa sa Heritage Manila, the employer filed a petition to
revoke the registration of its rank-and-file employees union,
accusing it of committing fraud and misrepresentation. The Court
held that the petition was rightfully denied because the employer
failed to prove that the labor union committed fraud and
misrepresentation. The Court held that:

"The power to dismiss is a normal prerogative of the employer.


However, this is not without limitation. The employer is bound to
exercise caution in terminating the services of his employees
especially so when it is made upon the request of a labor union
pursuant to the Collective Bargaining Agreement, xxx. Dismissals
must not be arbitrary and capricious. Due process must be
observed in dismissing an employee because it affects not only his
114

position but also his means of livelihood. Employers should respect


and protect the rights of their employees, which include the right to
labor."

relying on the findings of the Labor Secretary that the issue of


expulsion of petitioner union officers by the federation is a purely
intra-union matter.

In the case under scrutiny, petitioner union officers were expelled


by the federation for allegedly commiting acts of disloyalty and/or
inimical to the interest of ULGWP and in violation of its Constitution
and By-laws. Upon demand of the federation, the company
terminated the petitioners without conducting a separate and
independent investigation. Respondent company did not inquire
into the cause of the expulsion and whether or not the federation
had sufficient grounds to effect the same. Relying merely upon the
federations
allegations,
respondent
company
terminated
petitioners from employment when a separate inquiry could have
revealed if the federation had acted arbitrarily and capriciously in
expelling the union officers. Respondent companys allegation that
petitioners were accorded due process is belied by the termination
letters received by the petitioners which state that the dismissal
shall be immediately effective.

Again, such a contention is untenable. While it is true that the issue


of expulsion of the local union officers is originally between the
local union and the federation, hence, intra-union in character, the
issue was later on converted into a termination dispute when the
company dismissed the petitioners from work without the benefit of
a separate notice and hearing. As a matter of fact, the records
reveal that the the termination was effective on the same day that
the the termination notice was served on the petitioners.
In the case of Liberty Cotton Mills Workers Union vs. Liberty Cotton
Mills, Inc., the Court held the company liable for the payment of
backwages for having acted in bad faith in effecting the dismissal
of the employees.
"xxx Bad faith on the part of the respondent company may be
gleaned from the fact that the petitioner workers were dismissed
hastily and summarily. At best, it was guilty of a tortious act, for
which it must assume solidary liability, since it apparently chose to
summarily dismiss the workers at the unions instance secure in the
unions contractual undertaking that the union would hold it free
from any liability arising from such dismissal."

As held in the aforecited case of Cario, "the right of an employee to


be informed of the charges against him and to reasonable
opportunity to present his side in a controversy with either the
company or his own union is not wiped away by a union security
clause or a union shop clause in a collective bargaining agreement.
An employee is entitled to be protected not only from a company
which disregards his rights but also from his own union the
leadership of which could yield to the temptation of swift and
arbitrary expulsion from membership and mere dismissal from his
job."

Thus, notwithstanding the fact that the dismissal was at the


instance of the federation and that it undertook to hold the
company free from any liability resulting from such a dismissal, the
company may still be held liable if it was remiss in its duty to
accord the would-be dismissed employees their right to be heard
on the matter.

While respondent company may validly dismiss the employees


expelled by the union for disloyalty under the union security clause
of the collective bargaining agreement upon the recommendation
by the union, this dismissal should not be done hastily and
summarily thereby eroding the employees right to due process,
self-organization and security of tenure. The enforcement of union
security clauses is authorized by law provided such enforcement is
not characterized by arbitrariness, and always with due
process. Even on the assumption that the federation had valid
grounds to expell the union officers, due process requires that
these union officers be accorded a separate hearing by respondent
company.

Anent petitioners contention that the federation was not a principal


party to the collective bargaining agreement between the company
and the union, suffice it to say that the matter was already ruled
upon in the Interpleader case filed by respondent company. MedArbiter Anastacio Bactin thus ruled:
After a careful examination of the facts and evidences presented by
the parties, this Officer hereby renders its decision as follows:
1.) It appears on record that in the Collective Bargaining
Agreement (CBA) which took effect on July 1, 1986, the contracting
parties are M. Greenfield, Inc. (B) and Malayang Samahan ng Mga
Manggagawa sa M. Greenfield, Inc. (B) (MSMG)/United Lumber and
General Workers of the Philippines (ULGWP). However, MSMG was
not yet a registered labor organization at the time of the signing of
the CBA. Hence, the union referred to in the CBA is the ULGWP."

In its decision, public respondent also declared that if complainants


(herein petitioners) have any recourse in law, their right of action is
against the federation and not against the company or its officers,
115

Likewise on appeal, Director Pura Ferrer-Calleja put the issue to rest


as follows:

down in the agreement which brought it into existence."

Thus, a local union which has affiliated itself with a federation is


free to sever such affiliation anytime and such disaffiliation cannot
be considered disloyalty. In the absence of specific provisions in the
federations constitution prohibiting disaffiliation or the declaration
of autonomy of a local union, a local may dissociate with its parent
union.

It is undisputed that ULGWP is the certified sole and exclusive


collective bargaining agent of all the regular rank-and-file workers
of the company, M. Greenfield, Inc. (pages 31-32 of the records).

It has been established also that the company and ULGWP signed a
3-year collective bargaining agreement effective July 1, 1986 up to
June 30, 1989.

The evidence on hand does not show that there is such a provision
in ULGWPs constitution. Respondents reliance upon Article V,
Section 6, of the federations constitution is not right because said
section, in fact, bolsters the petitioner unions claim of its right to
declare autonomy:

Although the issue of whether or not the federation had reasonable


grounds to expel the petitioner union officers is properly within the
original and exclusive jurisdiction of the Bureau of Labor Relations,
being an intra-union conflict, this Court deems it justifiable that
such issue be nonetheless ruled upon, as the Labor Arbiter did, for
to remand the same to the Bureau of Labor Relations would be to
intolerably delay the case.

Section 6. The autonomy of a local union affiliated with ULGWP


shall be respected insofar as it pertains to its internal affairs,
except as provided elsewhere in this Constitution.

There is no disloyalty to speak of, neither is there any violation of


the federations constitution because there is nothing in the said
constitution which specifically prohibits disaffiliation or declaration
of autonomy. Hence, there cannot be any valid dismissal because
Article II, Section 4 of the union security clause in the CBA limits the
dismissal to only three (3) grounds, to wit: failure to maintain
membership in the union (1) for non-payment of union dues, (2) for
resignation; and (3) for violation of the unions Constitution and ByLaws.

The Labor Arbiter found that petitioner union officers were


justifiably expelled from the federation for committing acts of
disloyalty when it "undertook to disaffiliate from the federation by
charging ULGWP with failure to provide any legal, educational or
organizational support to the local. x x x and declared autonomy,
wherein they prohibit the federation from interfering in any internal
and external affairs of the local union."
In its decision, the Labor Arbiter declared that the act of
disaffiliation and declaration of autonomy by the local union was
part of its "plan to take over the respondent federation." This is
purely conjecture and speculation on the part of public respondent,
totally unsupported by the evidence.

To support the finding of disloyalty, the Labor Arbiter gave weight


to the fact that on February 26, 1989, the petitioners declared as
vacant all the responsible positions of ULGWP, filled these
vacancies through an election and filed a petition for the
registration of UWP as a national federation. It should be pointed
out, however, that these occurred after the federation had already
expelled the union officers. The expulsion was effective November
21, 1988. Therefore, the act of establishing a different federation,
entirely separate from the federation which expelled them, is but a
normal retaliatory reaction to their expulsion.

A local union has the right to disaffiliate from its mother union or
declare its autonomy. A local union, being a separate and voluntary
association, is free to serve the interests of all its members
including the freedom to disaffiliate or declare its autonomy from
the federation to which it belongs when circumstances warrant, in
accordance with the constitutional guarantee of freedom of
association.

Phil. Skylanders v. NLRC, G.R. No. 127374, 31


January 2002

The purpose of affiliation by a local union with a mother union or a


federation
"xxx is to increase by collective action the bargaining power in
respect of the terms and conditions of labor. Yet the locals
remained the basic units of association, free to serve their own and
the common interest of all, subject to the restraints imposed by the
Constitution and By-Laws of the Association, and free also to
renounce the affiliation for mutual welfare upon the terms laid

At the outset, let it be noted that the issue of disaffiliation is an


inter-union conflict the jurisdiction of which properly lies with the
Bureau of Labor Relations (BLR) and not with the Labor
Arbiter. Nonetheless, with due recognition of this fact, we deem it
proper to settle the controversy at this instance since to remand
116

the case to the BLR would only mean intolerable delay for the
parties.

granting of the petitions. It stands unchallenged that PAFLU


instituted the complaint for unfair labor practice against the wishes
of workers whose interests it was supposedly protecting. The mere
act of disaffiliation did not divest PSEA of its own personality;
neither did it give PAFLU the license to act independently of the
local union. Recreant to its mission, PAFLU cannot simply ignore the
demands of the local chapter and decide for its welfare. PAFLU
might have forgotten that as an agent it could only act in
representation of and in accordance with the interests of the local
union. The complaint then for unfair labor practice lodged by PAFLU
against PSI, PSEA and their respective officers, having been filed by
a party which has no legal personality to institute the complaint,
should have been dismissed at the first instance for failure to state
a cause of action.

The right of a local union to disaffiliate from its mother federation is


not a novel thesis unillumined by case law. In the landmark case
of Liberty Cotton Mills Workers Union vs. Liberty Cotton Mills,
Inc. we upheld the right of local unions to separate from their
mother federation on the ground that as separate and voluntary
associations, local unions do not owe their creation and existence
to the national federation to which they are affiliated but, instead,
to the will of their members. The sole essence of affiliation is to
increase, by collective action, the common bargaining power of
local unions for the effective enhancement and protection of their
interests. Admittedly, there are times when without succor and
support local unions may find it hard, unaided by other support
groups, to secure justice for themselves.

Policy considerations dictate that in weighing the claims of a local


union as against those of a national federation, those of the former
must be preferred. Parenthetically though, the desires of the
mother federation to protect its locals are not altogether to be
shunned. It will however be to err greatly against the Constitution if
the desires of the federation would be favored over those of its
members. That, at any rate, is the policy of the law. For if it were
otherwise, instead of protection, there would be disregard and
neglect of the lowly workingmen.

Yet the local unions remain the basic units of association, free to
serve their own interests subject to the restraints imposed by the
constitution and by-laws of the national federation, and free also to
renounce the affiliation upon the terms laid down in the agreement
which brought such affiliation into existence.
Such dictum has been punctiliously followed since then.
Upon an application of the aforecited principle to the issue at hand,
the impropriety of the questioned Decisions becomes clearly
apparent. There is nothing shown in the records nor is it claimed by
PAFLU that the local union was expressly forbidden to disaffiliate
from the federation nor were there any conditions imposed for a
valid breakaway. As such, the pendency of an election protest
involving both the mother federation and the local union did not
constitute a bar to a valid disaffiliation. Neither was it disputed by
PAFLU that 111 signatories out of the 120 members of the local
union, or an equivalent of 92.5% of the total union membership
supported the claim of disaffiliation and had in fact disauthorized
PAFLU from instituting any complaint in their behalf. Surely, this is
not a case where one (1) or two (2) members of the local union
decided to disaffiliate from the mother federation, but it is a case
where almost all local union members decided to disaffiliate.

J. Cancellation of Registration

Mariwasa v. Sec. of DOLE, 608 SCRA 706


The petitioner insists that respondent failed to comply with the 20%
union membership requirement for its registration as a legitimate
labor organization because of the disaffiliation from the total
number of union members of 102 employees who executed
affidavits recanting their union membership.
It is, thus, imperative that we peruse the affidavits appearing to
have been executed by these affiants. Evidently, these affidavits
were written and prepared in advance, and the pro forma affidavits
were ready to be filled out with the employees names and
signatures.

It was entirely reasonable then for PSI to enter into a collective


bargaining agreement with PSEA-NCW. As PSEA had validly severed
itself from PAFLU, there would be no restrictions which could validly
hinder it from subsequently affiliating with NCW and entering into a
collective bargaining agreement in behalf of its members.

The first common allegation in the affidavits is a declaration that, in


spite of his hesitation, the affiant was forced and deceived into
joining the respondent union. It is worthy to note, however, that the
affidavit does not mention the identity of the people who allegedly
forced and deceived the affiant into joining the union, much less
the circumstances that constituted such force and deceit. Indeed,

There is a further consideration that likewise argues for the


117

not only was this allegation couched in very general terms and
sweeping in nature, but more importantly, it was not supported by
any evidence whatsoever.

In the instant case, the affidavits of recantation were executed after


the identities of the union members became public, i.e., after the
union filed a petition for certification election on May 23, 2005,
since the names of the members were attached to the petition. The
purported withdrawal of support for the registration of the union
was made after the documents were submitted to the DOLE, Region
IV-A. The logical conclusion, therefore, following jurisprudence, is
that the employees were not totally free from the employers
pressure, and so the voluntariness of the employees execution of
the affidavits becomes suspect.

The second allegation ostensibly bares the affiants regret for


joining respondent union and expresses the desire to abandon or
renege from whatever agreement he may have signed regarding
his membership with respondent.
Simply put, through these affidavits, it is made to appear that the
affiants recanted their support of respondents application for
registration.

It is likewise notable that the first batch of 25 pro forma affidavits


shows that the affidavits were executed by the individual affiants
on different dates from May 26, 2005 until June 3, 2005, but they
were all sworn before a notary public on June 8, 2005.

In appreciating affidavits of recantation such as these, our ruling in


La Suerte Cigar and Cigarette Factory v. Director of the Bureau of
Labor Relations is enlightening, viz.

There was also a second set of standardized affidavits executed on


different dates from May 26, 2005 until July 6, 2005. While these 77
affidavits were notarized on different dates, 56 of these were
notarized on June 8, 2005, the very same date when the first set of
25 was notarized.

On the second issuewhether or not the withdrawal of 31 union


members from NATU affected the petition for certification election
insofar as the 30% requirement is concerned, We reserve the Order
of the respondent Director of the Bureau of Labor Relations, it
appearing undisputably that the 31 union members had withdrawn
their support to the petition before the filing of said petition. It
would be otherwise if the withdrawal was made after the filing of
the petition for it would then be presumed that the withdrawal was
not free and voluntary. The presumption would arise that the
withdrawal was procured through duress, coercion or for valuable
consideration. In other words, the distinction must be that
withdrawals made before the filing of the petition are presumed
voluntary unless there is convincing proof to the contrary, whereas
withdrawals made after the filing of the petition are deemed
involuntary.

Considering that the first set of 25 affidavits was submitted to the


DOLE on June 14, 2005, it is surprising why petitioner was able to
submit the second set of affidavits only on July 12, 2005.
Accordingly, we cannot give full credence to these affidavits, which
were executed under suspicious circumstances, and which contain
allegations unsupported by evidence. At best, these affidavits are
self-serving. They possess no probative value.
A retraction does not necessarily negate an earlier declaration. For
this reason, retractions are looked upon with disfavor and do not
automatically exclude the original statement or declaration based
solely on the recantation. It is imperative that a determination be
first made as to which between the original and the new
statements should be given weight or accorded belief, applying the
general rules on evidence. In this case, inasmuch as they remain
bare allegations, the purported recantations should not be upheld.

The reason for such distinction is that if the withdrawal or retraction


is made before the filing of the petition, the names of employees
supporting the petition are supposed to be held secret to the
opposite party. Logically, any such withdrawal or retraction shows
voluntariness in the absence of proof to the contrary. Moreover, it
becomes apparent that such employees had not given consent to
the filing of the petition, hence the subscription requirement has
not been met.

Nevertheless, even assuming the veracity of the affidavits of


recantation, the legitimacy of respondent as a labor organization
must be affirmed. While it is true that the withdrawal of support
may be considered as a resignation from the union, the fact
remains that at the time of the unions application for registration,
the affiants were members of respondent and they comprised more
than the required 20% membership for purposes of registration as
a labor union. Article 234 of the Labor Code merely requires a 20%

When the withdrawal or retraction is made after the petition is filed,


the employees who are supporting the petition become known to
the opposite party since their names are attached to the petition at
the time of filing. Therefore, it would not be unexpected that the
opposite party would use foul means for the subject employees to
withdraw their support.
118

minimum membership during the application for union registration.


It does not mandate that a union must maintain the 20% minimum
membership requirement all throughout its existence.

RIGHTS OF LABOR ORGANIZATIONS

Respondent asserts that it had a total of 173 union members at the


time it applied for registration. Two names were repeated in
respondents list and had to be deducted, but the total would still
be 171 union members. Further, out of the four names alleged to
be no longer connected with petitioner, only two names should be
deleted from the list since Diana Motilla and T.W. Amutan resigned
from petitioner only on May 10, 2005 and May 17, 2005,
respectively, or after respondents registration had already been
granted. Thus, the total union membership at the time of
registration was 169. Since the total number of rank-and-file
employees at that time was 528, 169 employees would be
equivalent to 32% of the total rank-and-file workers complement,
still very much above the minimum required by law.
For the purpose of de-certifying a union such as respondent, it must
be shown that there was misrepresentation, false statement or
fraud in connection with the adoption or ratification of the
constitution and by-laws or amendments thereto; the minutes of
ratification; or, in connection with the election of officers, the
minutes of the election of officers, the list of voters, or failure to
submit these documents together with the list of the newly electedappointed officers and their postal addresses to the BLR.
The bare fact that two signatures appeared twice on the list of
those who participated in the organizational meeting would not, to
our mind, provide a valid reason to cancel respondents certificate
of registration. The cancellation of a unions registration doubtless
has an impairing dimension on the right of labor to selforganization. For fraud and misrepresentation to be grounds for
cancellation of union registration under the Labor Code, the nature
of the fraud and misrepresentation must be grave and compelling
enough to vitiate the consent of a majority of union members.
In this case, we agree with the BLR and the CA that respondent
could not have possibly committed misrepresentation, fraud, or
false statements. The alleged failure of respondent to indicate with
mathematical precision the total number of employees in the
bargaining unit is of no moment, especially as it was able to comply
with the 20% minimum membership requirement. Even if the total
number of rank-and-file employees of petitioner is 528, while
respondent declared that it should only be 455, it still cannot be
denied that the latter would have more than complied with the
registration requirement.
119

Substantial compliance is not enough in view of the fact that the


special assessment will diminish the compensation of the union
members. Their express consent is required, and this consent must
be obtained in accordance with the steps outlined by law, which
must be followed to the letter. No shortcuts are allowed.

MEMBERSHIP; RIGHTS OF MEMBERS

Palacol, et al vs. Pura Ferrer-Calleja, G.R. No.


85333, February 26, 1990
Petitioners allege that the respondent-Director committed a grave
abuse of discretion amounting to lack or excess of jurisdiction when
she held Article 241 (n) of the Labor Code to be the applicable
provision instead of Article 222(b) in relation to Article 241(o) of the
same law.

The applicable provisions are clear. The Union itself admits that
both paragraphs (n) and (o) of Article 241 apply. Paragraph (n)
refers to "levy" while paragraph (o) refers to "check-off" of a special
assessment. Both provisions must be complied with. Under
paragraph (n), the Union must submit to the Company a written
resolution of a majority of all the members at a general
membership meeting duly called for the purpose. In addition, the
secretary of the organization must record the minutes of the
meeting which, in turn, must include, among others, the list of all
the members present as well as the votes cast.

According to petitioners, a cursory examination and comparison of


the two provisions of Article 241 reveals that paragraph (n) cannot
prevail over paragraph (o). The reason advanced is that a special
assessment is not a matter of major policy affecting the entire
union membership but is one which concerns the individual rights
of union members.

As earlier outlined by petitioners, the Union obviously failed to


comply with the requirements of paragraph (n). It held local
membership meetings on separate occasions, on different dates
and at various venues, contrary to the express requirement that
there must be a general membership meeting. The contention of
the Union that "the local membership meetings are precisely the
very general meetings required by law" is untenable because the
law would not have specified a general membership meeting had
the legislative intent been to allow local meetings in lieu of the
latter.

Petitioners further assert that assuming arguendo that Article


241(n) should prevail over paragraph (o), the Union has
nevertheless failed to comply with the procedure to legitimize the
questioned special assessment by: (1) presenting mere minutes of
local membership meetings instead of a written resolution; (2)
failing to call a general membership meeting; (3) having the
minutes of three (3) local membership meetings recorded by a
union director, and not by the union secretary as required; (4)
failing to have the list of members present included in the minutes
of the meetings; and (5) failing to present a record of the votes
cast. Petitioners concluded their argument by citingGalvadores.

It submitted only minutes of the local membership meetings when


what is required is a written resolution adopted at the general
meeting. Worse still, the minutes of three of those local meetings
held were recorded by a union director and not by the union
secretary. The minutes submitted to the Company contained no list
of the members present and no record of the votes cast. Since it is
quite evident that the Union did not comply with the law at every
turn, the only conclusion that may be made therefrom is that there
was no valid levy of the special assessment pursuant to paragraph
(n) of Article 241 of the Labor Code.

After a careful review of the records of this case, We are convinced


that the deduction of the 10% special assessment by the Union was
not made in accordance with the requirements provided by law.
Petitioners are correct in citing the ruling of this Court
in Galvadores which is applicable to the instant case. The principle
"that employees are protected by law from unwarranted practices
that diminish their compensation without their known edge
and consent" is in accord with the constitutional principle of the
State affording full protection to labor.

Paragraph (o) on the other hand requires an individual written


authorization duly signed by every employee in order that a special
assessment may be validly checked-off. Even assuming that the
special assessment was validly levied pursuant to paragraph (n),
and granting that individual written authorizations were obtained
by the Union, nevertheless there can be no valid check-off
considering that the majority of the union members had already

The respondent-Union brushed aside the defects pointed out by


petitioners in the manner of compliance with the legal
requirements as "insignificant technicalities." On the contrary, the
failure of the Union to comply strictly with the requirements set out
by the law invalidates the questioned special assessment.
120

withdrawn their individual authorizations. A withdrawal of individual


authorizations is equivalent to no authorization at all. Hence, the
ruling in Galvadores that "no check-offs from any amounts due
employees may be effected without an individual written
authorization signed by the employees ... " is applicable.

pointed out by the Union. The two other purposes, namely, the
purchase of vehicles and other items for the benefit of the union
officers and the general membership, and the payment of services
rendered by union officers, consultants and others, should be
supported by the regular union dues, there being no showing that
the latter are not sufficient to cover the same.

The Union points out, however, that said disauthorizations are not
valid for being collective in form, as they are "mere bunches of
randomly procured signatures, under loose sheets of paper." The
contention deserves no merit for the simple reason that the
documents containing the disauthorizations have the signatures of
the union members. The Court finds these retractions to be valid.
There is nothing in the law which requires that the disauthorization
must be in individual form.

The last stated purpose is contended by petitioners to fall under


the coverage of Article 222 (b) of the Labor Code. The contention is
impressed with merit. Article 222 (b) prohibits attorney's fees,
negotiations fees and similar charges arising out of the conclusion
of a collective bargaining agreement from being imposed on any
individual union member. The collection of the special assessment
partly for the payment for services rendered by union officers,
consultants and others may not be in the category of "attorney's
fees or negotiations fees." But there is no question that it is an
exaction which falls within the category of a "similar charge," and,
therefore, within the coverage of the prohibition in the
aforementioned article. There is an additional proviso giving the
Union President unlimited discretion to allocate the proceeds of the
special assessment. Such a proviso may open the door to abuse by
the officers of the Union considering that the total amount of the
special assessment is quite considerable P1,027,694.33 collected
from those union members who originally authorized the deduction,
and P1,267,863.39 from those who did not authorize the same, or
subsequently retracted their authorizations. The former amount
had already been remitted to the Union, while the latter is being
held in trust by the Company.

Moreover, it is well-settled that "all doubts in the implementation


and interpretation of the provisions of the Labor Code ... shall be
resolved in favor of labor." And as previously stated, labor in this
case refers to the union members, as employees of the Company.
Their mere desire to establish a separate bargaining unit, albeit
unproven, cannot be construed against them in relation to the
legality of the questioned special assessment. On the contrary, the
same may even be taken to reflect their dissatisfaction with their
bargaining representative, the respondent-Union, as shown by the
circumstances of the instant petition, and with good reason.
The Med-Arbiter correctly ruled in his Order that:
The mandate of the majority rank and file have (sic) to be
respected considering they are the ones directly affected and the
realities of the high standards of survival nowadays. To ignore the
mandate of the rank and file would enure to destabilizing industrial
peace and harmony within the rank and file and the employer's
fold, which we cannot countenance.

The Court, therefore, stakes down the questioned special


assessment for being a violation of Article 241, paragraphs (n) and
(o), and Article 222 (b) of the Labor Code.

UNFAIR LABOR PRACTICES

Moreover, it will be recalled that precisely union dues are collected


from the union members to be spent for the purposes alluded to by
respondent. There is no reason shown that the regular union dues
being now implemented is not sufficient for the alleged expenses.
Furthermore, the rank and file have spoken in withdrawing their
consent to the special assessment, believing that their regular
union dues are adequate for the purposes stated by the
respondent. Thus, the rank and file having spoken and, as we have
earlier mentioned, their sentiments should be respected.

A Concept
K. Unfair Labor Practices of Employers
L. Unfair Labor Practices of Labor Organizations
BARGAINING
AGENT
AND
ELECTION PROCEEDINGS

Of the stated purposes of the special assessment, as embodied in


the board resolution of the Union, only the collection of a special
fund for labor and education research is mandated, as correctly
121

CERTIFICATION

A Bargaining Agent and Certification Election


Proceedings
B Bars to Certification Election

122

Espinas & Associates for MACATIFU and the MFWU, and the
complainant LAKAS for MULU which we understand is the
aggrupation of MACATIFU, MFWU and UNWU. On top of all of these,
Jose Roque of UNWU disauthorized the PSSLU from representing his
union; and similarly, Augusta Carreon of MACATIFU itself informed
management as late as July 11, 1967 or after the demand of LAKAS
that no group representing his Union "is not authorized and should
not be entertained."

COLLECTIVE BARGAINING AND ADMINISTRATION


OF AGREEMENT
A Duty to Bargain Collectively

Lakas ng Manggagawang Makabayan v. Marcelo


Enterprises 118 SCRA 425

Indeed, what We said in Philippine Association of Free Labor Unions


(PAFLU) vs. The Bureau of Labor Relations,69 SCRA 132, applies as
well to this case.

Hence, anent the second issue of whether or not the complaint for
unfair labor practice can be sustained, this Court rules in favor of
the respondent Marcelo Companies and consequently, the
appealed Decision is reversed. This reversal is inevitable after this
Court has pored through the voluminuous records of the case as
well as after applying the established jurisprudence and the law on
the matters raised. We are not unmindful of the plight of the
employees in this case but We consider it oppressive to grant their
petition in G.R. No. L38258 for not only is there no evidence which
shows that the respondent Marcelo Companies were seeking for an
opportunity to discharge these employees for union activities, or to
discriminate against them because of such activities, but there is
affirmative evidence to establish the contrary conclusion.

..., in a situation like this where the issue of legitimate


representation in dispute is viewed for not only by one legitimate
labor organization but two or more, there is every equitable ground
warranting the holding of a certification election. In this way, the
issue as to who is really the true bargaining representative of all
the employees may be firmly settled by the simple expedient of an
election.
The above-cited case gives the reason for the need of determining
once and for all the true choice of membership as to who should be
their bargaining representative, which is that, "(E)xperience
teaches us, one of the root causes of labor or industrial disputes is
the problem arising from a questionable bargaining representative
entering into CBA concerning terms and conditions of employment.
"

The present controversy is a three-sided conflict, although focus


has been greatly placed upon an alleged labor dispute between
complainant LAKAS and the respondent Marcelo Companies. It
would bear emphasizing, however, that what had been patently
disregarded by the respondent industrial court and the parties
alike, is the fact that LAKAS had never been the bargaining
representative of any and an of the local unions then existing in the
respondent Marcelo Companies.

Respecting the issue of representation and the right of the


employer to demand reasonable proof of majority representation on
the part of the supposed or putative bargaining agent, the
commentaries in Rothenberg on Labor Relations, pp. 42943 1, are
forceful and persuasive, thus:

Contrary to the pretensions of complainant LAKAS, the respondent


Marcelo Companies did not ignore the demand for collective
bargaining contained in its letter of June 20, 1967. Neither did the
companies refuse to bargain at all. What it did was to apprise
LAKAS of the existing conflicting demands for recognition as the
bargaining representative in the appropriate units involved, and
suggested the settlement of the issue by means of the filing of a
petition for certification election before the Court of Industrial
Relations. This was not only the legally approved procedure but was
dictated by the fact that there was indeed a legitimate
representation issue. PSSLU, with whom the existing CBAs were
entered into, was demanding of respondent companies to
collectively bargain with it; so was Paulino Lazaro of MUEWA, J.C.

It is essential to the right of a putative bargaining agent to


represent the employees that it be the delegate of a majority of
the employees and, conversely, an employer is under duty to
bargain collectively only when the bargaining agent is
representative of the majority of the employees. A natural
consequence of these principles is that the employer has the right
to demand of the asserted bargaining agent proof of its
representation of its employees. Having the right to demonstration
of this fact, it is not an 'unfair labor practice' for an employer to
refuse to negotiate until the asserted bargaining agent has
presented reasonable proof of majority representation. It is
necessary however, that such demand be made in good faith and
not merely as a pretext or device for delay or evasion. The
employer's right is however to reasonable proof. ...

123

complainant LAKAS lacked candor, truth and fidelity towards the


courts.

... Although an employer has the undoubted right to bargain with a


bargaining agent whose authority has been established, without
the requirement that the bargaining agent be officially certified by
the National Labor Relations Board as such, if the informally
presented evidence leaves a real doubt as to the issue, the
employer has a right to demand a certification and to refuse to
negotiate until such official certification is presented."

It is a fact found by the respondent court, and as revealed by he


records of the case, that the respondent Marcelo Companies did not
violate the terms of the Return-to-Work Agreement negotiated after
the first strike. All of the strikers were admitted back to work except
four (4) who opted not to report for work because of the
administrative investigation conducted in connection with the acts
of violence perpetrated during the said strike.

The clear facts of the case as hereinbefore restated indusputably


show that a legitimate representation issue confronted the
respondent Marcelo Companies. In the face of these facts and in
conformity with the existing jurisprudence.

It is also evident from the records that the charge of bargaining in


bad faith imputed to the respondent companies, is hardly credible.
In fact, such charge is valid as only against the complainant LAKAS.
The parties had a total of five (5) conferences for purposes of
collective bargaining. It is worth considering that the first strike of
September 4, 1967 was staged less than a week after the fourth
CBA conference and without any benefit of any previous strike
notice. In this connection, it must be stated that the notice of strike
filed on June 13, 1967 could not have been the strike notice for the
first strike because it was already withdrawn on July 14, 1967. Thus,
from these stated facts can be seen that the first strike was held
while the parties were in the process of negotiating. Nor can it be
sustained that the respondent Marcelo Companies bargained in bad
faith since there were proposals offered by them, but the
complainant LAKAS stood pat on its position that all of their
economic demands should be met and that all of these demands
should be granted in all of the respondent Marcelo Companies. The
companies' refusal to accede to the demands of LAKAS appears to
be justified since there is no showing that these companies were in
the same state of financial and economic affairs. There is reason to
believe that the first strike was staged only for the purpose of
compelling the respondent Marcelo Companies to accede to the
inflexible demands of the complainant LAKAS. The records further
establish that after the resumption of normal operations following
the first strike and the consequent Return-to-Work Agreement, the
striking unions led by complainant LAKAS and the management of
the respondent Marcelo Companies resumed their bargaining
negotiations. And that on October 13, 1967, complainant LAKAS
sent the final drafts of the collective bargaining proposals for MFWU
and UNWU. The second strike of November 7, 1967 was then
staged immediately after which strike, as before, was again lacking
of a strike notice. All of these facts show that it was complainant
LAKAS, and not the respondent Marcelo Companies, which refused
to negotiate in the pending collective bargaining process. AR that
the facts show is that the bargaining position of complainant LAKAS

We hold that there existed no duty to bargain collectively with The


complainant LAKAS on the part of said companies. And proceeding
from this basis, it follows that all acts instigated by complainant
LAKAS such as the filing of the Notice of strike on June 13, 1967
(although later withdrawn) and the 'two strikes of September 4,
1967 and November 7, 1967 were calculated , designed and
intended to compel the respondent Marcelo Companies to
recognize or bargain with it notwithstanding that it was an
uncertified union, or in the case of respondent Marcelo Tire and
Rubber Corporation, to bargain with it despite the fact that the
MUEWA of Paulino Lazaro vas already certified as the sole
bargaining agent in said respondent company. These concerted
activities executed and carried into effect at the instigation and
motivation of LAKAS ire all illegal and violative of the employer's
basic right to bargain collectively only with the representative
supported by the majority of its employees in each of the
bargaining units. This Court is not unaware of the present
predicament of the employees involved but much as We
sympathize with those who have been misled and so lost their jobs
through hasty, ill-advised and precipitate moves, We rule that the
facts neither substantiate nor support the finding that the
respondent Marcelo Companies are guilty of unfair labor practice.
There are also other facts which this Court cannot ignore. the
complaint of LAKAS charge that after their first strike of September
4, 1967, management and the striking employees entered into a
Return-to-Work Agreement but that it was violated by the
respondent companies who "refused to admit the members of the
three striking local unions ... and gave reference to the casual
employees." (No. 8, Complaint). It is also alleged that the strike of
November 7, 1967 was staged "because of the refusal of the
respondents to accept some union members ... and refusal of
respondents to bargain in good faith with complainant" (No. 9,
Complaint). We find however, that in making these charges,
124

was inflexible and that it was in line with this uncompromising


attitude that the strikes were declared, significantly after notice
that management did not or could not meet all of their 17-points
demand.

bargain collectively with the respondents this is because they were


of the impression that before a union could have that capacity it
must first be certified by the Court of Industrial Relations as the
duly authorized bargaining unit, in fact this is what they stated in
their answer to the petition for certification filed by said union
before the Court of Industrial Relations (See Case No. 763-MC). In
said case, another union known as the International Labor and
Marine Union of the Philippines claimed to represent the majority of
the employees of respondent restaurant, and this is what it alleged
in a letter sent to the manager of respondents dated May 25, 1962.

National Union of Restaurant Workers (PTUC) V.


C1R, 10 SCRA 843
Anent the first issue, the court a quo found that in the letter sent by
the union to respondents containing its demands marked in the
case as Exhibit 1, there appears certain marks, opposite each
demand, such as a check for those demands to which Mrs. Felisa
Herrera was agreeable, a cross signifying the disapproval of Mrs.
Herrera, and a circle regarding those demands which were left open
for discussion on some future occasion that the parties may deem
convenient. Such markings were made during the discussion of the
demands in the meeting called by respondents on May 3, 1960 at
their restaurant in Quezon City. The court a quo concluded that the
fact that respondent Herrera had agreed to some of the demands
shows that she did not refuse to bargain collectively with the
complaining union.

Liberty Flour Mills Employees Association v.


Liberty Flour Mills. 180 SCRA 668
Coming now to the second issue, we find that it must also be
resolved against the petitioners.
Evaristo and Biascan claim they were illegally dismissed for
organizing another labor union opposed to PLAC, which they
describe as a company union. Arguing that they were only
exercising the right to self organization as guaranteed by the
Constitution, they insist they are entitled to the back wages which
the NLRC disallowed while affirming their reinstatement.

We can hardly dispute this finding, for it finds support in the


evidence. The inference that respondents did not refuse to bargain
collectively with the complaining union because they accepted
some of the demands while they refused the others even leaving
open other demands for future discussion is correct, especially so
when those demands were discussed at a meeting called by
respondents themselves precisely in view of the letter sent by the
union on April 29, 1960. It is true that under Section 14 of Republic
Act 875 whenever a party serves a written notice upon the
employer making some demands the latter shall reply thereto not
later than 10 days from receipt thereof, but this rendition is merely
procedural and as such its non-compliance cannot be deemed to be
an act of unfair labor practice. The fact is that respondents did not
ignore the letter sent by the union so much so that they called a
meeting to discuss its demands, as already stated elsewhere.

In its challenged decision, the public respondent held that in


demanding the dismissal of Evaristo and Biascan, PLAC had acted
prematurely because the 1974 CBA providing for union shop and
pursuant to which the two petitioners were dismissed had not yet
been certified. The implication is that it was not yet in effect and so
could not be the basis of the action taken against the two
petitioners. This conclusion is erroneous. It disregards the ruling of
this Court in Tanduay Distillery Labor Union v. NLRC, were we held:
The fact, therefore, that the Bureau of Labor Relations (BLR) failed
to certify or act on TDLU's request for certification of the CBA in
question is of no moment to the resolution of the issues presented
in this case. The BLR itself found in its order of July 8, 1982, that
the (un)certified CBA was duly filed and submitted on October 29,
1980, to last until June 30, 1982 is certifiable for having complied
with all the requirements for certification. (Emphasis supplied.)

It is contended that respondents refused to bargain with the


complaining union as such even if they called a meeting of its
officers and employees thereby concluding that they did not desire
to enter into a bargaining agreement with said union. This
conclusion has no rational relation with the main premise of the
union for it is belied by the fact that respondents did actually agree
and bargain with the representatives of the union. While it is true
that respondents denied the capacity of the complaining union to

The CBA concluded in 1974 was certifiable and was in fact certified
on April 11, 1975, It bears stressing that Evaristo and Biascan were
dismissed only on May 20, 1975, more than a month after the said
certification.
The correct view is that expressed by Commissioner Cecilio P. Seno
in his concurring and dissenting opinion, viz.:
125

accordance with law." There is no question that these purposes


could be thwarted if every worker were to choose to go his own
separate way instead of joining his co-employees in planning
collective action and presenting a united front when they sit down
to bargain with their employers. It is for this reason that the law has
sanctioned stipulations for the union shop and the closed shop as a
means of encouraging the workers to join and support the labor
union of their own choice as their representative in the negotiation
of their demands and the protection of their interest vis-a-vis the
employer.

I cannot however subscribe to the majority view that the 'dismissal


of complainants Biascan and Evaristo, ... was, to say the least, a
premature action on the part of the respondents because at the
time they were expelled by PLAC the contract containing the union
security clause upon which the action was based was yet to be
certified and the representation status of the contracting union was
still in question.

Evidence on record show that after the cancellation of the


registration certificate of the Federation of Democratic Labor
Unions, no other union contested the exclusive representation of
the Philippine Labor Alliance Council (PLAC), consequently, there
was no more legal impediment that stood on the way as to the
validity and enforceability of the provisions of the collective
bargaining agreement entered into by and between respondent
corporation and respondent union. The certification of the collective
bargaining agreement by the Bureau of Labor Relations is not
required to put a stamp of validity to such contract. Once it is duly
entered into and signed by the parties, a collective bargaining
agreement becomes effective as between the parties regardless of
whether or not the same has been certified by the BLR.

The Court would have preferred to resolve this case in favor of the
petitioners, but the law and the facts are against them. For all the
concern of the State, for the well-being of the worker, we must at
all times conform to the requirements of the law as long as such
law has not been shown to be violative of the Constitution. No such
violation has been shown here.

Colegio de San Juan de Letran v. Association of


Employees and Faculty of Letran 340 SCRA 587
As regards the first issue, Article 252 of the Labor Code defines the
meaning of the phrase "duty to bargain collectively," as follows:

To be fair, it must be mentioned that in the certification election


held at the Liberty Flour Mills, Inc. on December 27, 1976, the Ilaw
at Buklod ng Manggagawa, with which the union organized by
Biascan and Evaristo was affiliated, won overwhelmingly with 441
votes as against the 5 votes cast for PLAC. However, this does not
excuse the fact that the two disaffiliated from PLAC as early as
March 1975 and thus rendered themselves subject to dismissal
under the union shop clause in the CBA.

Art. 252. Meaning of duty to bargain collectively. - The duty to


bargain collectively means the performance of a mutual obligation
to meet and convene promptly and expeditiously in good faith for
the purpose of negotiating an agreement 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 and executing a contract
incorporating such agreements if requested by either party but
such duty does not compel any party to agree to a proposal or to
make any concession.

The petitioners say that the reinstatement issue of Evaristo and


Biascan has become academic because the former has been
readmitted and the latter has chosen to await the resolution of this
case. However, they still insist on the payment of their back wages
on the ground that their dismissal was illegal. This claim must be
denied for the reasons already given. The union shop clause was
validly enforced against them and justified the termination of their
services.

Noteworthy in the above definition is the requirement on both


parties of the performance of the mutual obligation to meet and
convene promptly and expeditiously in good faith for the purpose of
negotiating an agreement. Undoubtedly, respondent Association
of Employees and Faculty of Letran (AEFL) (hereinafter,
"union") lived up to this requisite when it presented its proposals
for the CBA to petitioner on February 7, 1996. On the other hand,
petitioner devised ways and means in order to prevent the
negotiation.

It is the policy of the State to promote unionism to enable the


workers to negotiate with management on the same level and with
more persuasiveness than if they were to individually and
independently bargain for the improvement of their respective
conditions. To this end, the Constitution guarantees to them the
rights "to self-organization, collective bargaining and negotiations
and peaceful concerted actions including the right to strike in

Petitioner's utter lack of interest in bargaining with the union is


obvious in its failure to make a timely reply to the proposals
presented by the latter. More than a month after the proposals
126

were submitted by the union, petitioner still had not made any
counter-proposals. This inaction on the part of petitioner prompted
the union to file its second notice of strike on March 13,
1996. Petitioner could only offer a feeble explanation that the Board
of Trustees had not yet convened to discuss the matter as its
excuse for failing to file its reply. This is a clear violation of Article
250 of the Labor Code governing the procedure in collective
bargaining, to wit:

union's proposals to the Board of Trustees and that a series of


conferences had already been undertaken to discuss the ground
rules for negotiation such should already be considered as acts
indicative of its intention to bargain. As pointed out earlier, the
evidence on record belie the assertions of petitioner.
Petitioner, likewise, claims that the suspension of negotiation was
proper since by the filing of the petition for certification election the
issue on majority representation of the employees has arose.
According to petitioner, the authority of the union to negotiate on
behalf of the employees was challenged when a rival union filed a
petition for certification election. Citing the case of Lakas Ng
Manggagawang Makabayan v. Marcelo Enterprises, petitioner
asserts that in view of the pendency of the petition for certification
election, it had no duty to bargain collectively with the union.

Art. 250. Procedure in collective bargaining. - The following


procedures shall be observed in collective bargaining:
(a) When a party desires to negotiate an agreement, it shall serve
a written notice upon the other party with a statement of its
proposals. The other party shall make a reply thereto not later than
ten (10) calendar days from receipt of such notice.
xxx

We disagree. In order to allow the employer to validly suspend the


bargaining process there must be a valid petition for certification
election raising a legitimate representation issue. Hence, the mere
filing of a petition for certification election does not ipso
facto justify the suspension of negotiation by the employer. The
petition must first comply with the provisions of the Labor Code and
its Implementing Rules. Foremost is that a petition for certification
election must be filed during the sixty-day freedom period. The
"Contract Bar Rule" under Section 3, Rule XI, Book V, of the
Omnibus Rules Implementing the Labor Code, provides that: " . If a
collective bargaining agreement has been duly registered in
accordance with Article 231 of the Code, a petition for certification
election or a motion for intervention can only be entertained within
sixty (60) days prior to the expiry date of such agreement." The
rule is based on Article 232, in relation to Articles 253, 253-A and
256 of the Labor Code. No petition for certification election for any
representation issue may be filed after the lapse of the sixty-day
freedom period. The old CBA is extended until a new one is signed.
The rule is that despite the lapse of the formal effectivity of the
CBA the law still considers the same as continuing in force and
effect until a new CBA shall have been validly executed. Hence, the
contract bar rule still applies. The purpose is to ensure stability in
the relationship of the workers and the company by preventing
frequent modifications of any CBA earlier entered into by them in
good faith and for the stipulated original period.

As we have held in the case of Kiok Loy vs. NLRC, the company's
refusal to make counter-proposal to the union's proposed CBA is an
indication of its bad faith. Where the employer did not even bother
to submit an answer to the bargaining proposals of the union, there
is a clear evasion of the duty to bargain collectively. In the case at
bar, petitioner's actuation show a lack of sincere desire to negotiate
rendering it guilty of unfair labor practice.
Moreover, the series of events that transpired after the filing of the
first notice of strike in January 1996 show petitioner's resort to
delaying tactics to ensure that negotiation would not push through.
Thus, on February 15, 1996, or barely a few days after the union
proposals for the new CBA were submitted, the union president was
informed by her superior that her work schedule was being
changed from Mondays to Fridays to Tuesdays to Saturdays. A
request from the union president that the issue be submitted to a
grievance machinery was subsequently denied. Thereafter, the
petitioner and the union met on March 27, 1996 to discuss the
ground rules for negotiation. However, just two days later, or on
March 29, 1996, petitioner dismissed the union president for
alleged
insubordination. In
its
final
attempt
to
thwart the bargaining process, petitioner
suspended
the
negotiation on the ground that it allegedly received information
that a new group of employees called the Association of Concerned
Employees of Colegio (ACEC) had filed a petition for certification
election. Clearly, petitioner tried to evade its duty to bargain
collectively.

In the case at bar, the lifetime of the previous CBA was from 19891994. The petition for certification election by ACEC, allegedly a
legitimate labor organization, was filed with the Department of
Labor and Employment (DOLE) only on May 26, 1996. Clearly, the

Petitioner, however, argues that since it has already submitted the


127

petition was filed outside the sixty-day freedom period. Hence, the
filing thereof was barred by the existence of a valid and existing
collective bargaining agreement. Consequently, there is no
legitimate representation issue and, as such, the filing of the
petition for certification election did not constitute a bar to the
ongoing negotiation. Reliance, therefore, by petitioner of the ruling
in Lakas Ng Manggagawang Makabayan v. Marcelo Enterprises is
misplaced since that case involved a legitimate representation
issue which is not present in the case at bar.

provisions of the Collective Bargaining Agreement entered into


within six (6) months from the date of expiry of the term of such
other provisions as fixed in such Collective Bargaining Agreement,
shall retroact to the day immediately following such date. If any
such agreement is entered into beyond six months, the parties
shall agree on the duration of retroactivity thereof. In case of a
deadlock in the renegotiation of the collective bargaining
agreement, the parties may exercise their rights under this Code.
(underlining supplied.)

Article 253-A is a new provision. This was incorporated by Section


21 of Republic Act No. 6715 (the Herrera-Veloso Law) which took
effect on March 21, 1989. This new provision states that the CBA
has a term of five (5) years instead of three years, before the
amendment of the law as far as the representation aspect is
concerned. All other provisions of the CBA shall be negotiated not
later than three (3) years after its execution. The representation
aspect refers to the identity and majority status of the union that
negotiated the CBA as the exclusive bargaining representative of
the appropriate bargaining unit concerned. All other provisions
simply refers to the rest of the CBA, economic as well as noneconomic provisions, except representation.

Significantly, the same petition for certification election was


dismissed by the Secretary of Labor on October 25, 1996. The
dismissal was upheld by this Court in a Resolution, dated April 21,
1997.
In view of the above, there is no doubt that petitioner is guilty of
unfair labor practice by its stern refusal to bargain in good faith
with respondent union.

San Miguel Corporation Employees UnionPTGWO v. Confesor 262 SCRA 81


Petitioner-union contends that the duration for the nonrepresentation provisions of the CBA should be coterminous with
the term of the bargaining agency which in effect shall be for the
remaining two years of the current CBA, citing a previous decision
of the Secretary of Labor on December 14, 1992 in the matter of
the labor dispute at Philippine Refining Company.

As the Secretary of Labor herself observed in the instant case, the


law is clear and definite on the duration of the CBA insofar as the
representation aspect is concerned, but is quite ambiguous with the
terms of the other provisions of the CBA. It is a cardinal principle of
statutory construction that the Court must ascertain the legislative
intent for the purpose of giving effect to any statute. The history of
the times and state of the things existing when the act was framed
or adopted must be followed and the conditions of the things at the
time of the enactment of the law should be considered to
determine the legislative intent.

However, the Secretary of Labor, in her questioned Order


of February 15, 1993 ruled that the renegotiated terms of the CBA
at SMC should run for a period of three (3) years.
We agree with the Secretary of Labor.

From the aforesaid discussions, the legislators were more inclined


to have the period of effectivity for three (3) years insofar as the
economic as well as non-economic provisions are concerned,
except representation.

Pertinent to the first issue is Art. 253-A of the Labor Code as


amended which reads:
ART. 253-A. Terms of a Collective Bargaining Agreement. Any
Collective Bargaining Agreement that the parties may enter into
shall, insofar as the representation aspect is concerned, be for a
term of five (5) years. No petition questioning the majority status
of the incumbent bargaining agent shall be entertained and no
certification election shall be conducted by the Department of
Labor and Employment outside of the sixty-day period immediately
before the date of expiry of such five year term of the Collective
Bargaining Agreement. All other provisions of the Collective
Bargaining Agreement shall be renegotiated not later than three
(3) years after its execution. Any agreement on such other

Obviously, the framers of the law wanted to maintain industrial


peace and stability by having both management and labor work
harmoniously together without any disturbance. Thus, no outside
union can enter the establishment within five (5) years and
challenge the status of the incumbent union as the exclusive
bargaining agent. Likewise, the terms and conditions of
employment (economic and non-economic) can not be questioned
by the employers or employees during the period of effectivity of
the CBA. The CBA is a contract between the parties and the parties
128

must respect the terms and conditions of the agreement.Notably,


the framers of the law did not give a fixed term as to the effectivity
of the terms and conditions of employment. It can be gleaned from
their discussions that it was left to the parties to fix the period.

unions as the bargaining agents of their respective bargaining


units. In the meantime, the other unions in these companies
eventually concluded their CBA negotiations on the remaining term
and all of them agreed on a 3-year cycle.Notably, the following
CBAs were forged incorporating a term of 3-years on the
renegotiated provisions, to wit:

In the instant case, it is not difficult to determine the period of


effectivity for the non-representation provisions of the CBA. Taking
it from the history of their CBAs, SMC intended to have the terms of
the CBA effective for three (3) years reckoned from the expiration
of the old or previous CBA which was on June 30, 1989, as it
provides:

1. SMC - daily-paid employees union (IBM)


2. SMF - monthly-paid employees and daily-paid employees at the
Cabuyao Plant.
There is a direct link between the voluntary recognition by the
company of the continuing representative status of the unions
after the aforementioned spin-offs and the stand of the company
for a 3-year renegotiated cycle when the economic provisions of
the existing CBAs expired, i.e., to maintain stability and avoid
confusion when the umbilical cord of the two divisions were
severed from their parent.These two cannot be considered
independently of each other for they were intended to reinforce
one another. Precisely, the company conceded to face the same
union notwithstanding the spin-offs in order to preserve industrial
peace during the infancy of the two corporations. If the union
would insist on a shorter renegotiated term, then all the
advantages gained by both parties in this regard, would have gone
to naught. With this in mind, this office feels that it will betray its
mandate should we order the parties to execute a 2-year
renegotiated term for then chaos and confusion, rather than
tranquility, would be the order of the day. Worse, there is a strong
likelihood that such a ruling might spawn discontent and possible
mass actions against the company coming from the other unions
who had already agreed to a 3-year renegotiated terms. If this
happens, the purpose of this Offices intervention into the parties
controversy would have been defeated.

SECTION 1. This Agreement which shall be binding upon the


parties hereto and their respective successors-in-interest, shall
become effective and shall remain in force and effect until June 30,
1992.

The argument that the PRC case is applicable is indeed


misplaced. We quote with favor the Order of the Secretary of Labor
in the light of SMCs peculiar situation as compared with PRCs
company situation.
It is true that in the Philippine Refining Company case (OS-AJ-003191 (sic), Labor Dispute at Philippine Refining Company), we ruled
that the term of the renegotiated provisions of the CBA should
coincide with the remaining term of the agency. In doing so, we
placed premium on the fact that PRC has only two (2) unions and
no other union had yet executed a renewed term of 3 years.
Nonetheless, in ruling for a shortened term, we were guided by our
considered perception that the said term would improve, rather
than ruin, the general welfare of both the workers and the
company. It is equally true that once the economic provisions of the
CBA expire, the residual representative status of the union is
effective for only 2 more years. However, if circumstances warrant
that the contract duration which it is soliciting from the company
for the benefit of the workers, shall be a little bit longer than its
lifespan, then this Office cannot stand in the way of a more ideal
situation. We must not lose sight of the fact that the primordial
purpose of a collective contract is to promote industrial harmony
and stability in the terms and conditions of employment. To our
mind, this objective cannot be achieved without giving due
consideration to the peculiarities and unique characteristics of the
employer. In the case at bar, there is no dispute that the mother
corporation (SMC) spun-off two of its divisions and thereby gave
birth to two (2) other entities now known as Magnolia Corporation
and San Miguel Foods, Inc. In order to effect a smooth transition,
the companies concerned continued to recognize the existing

The issue as to the term of the non-representation provisions of the


CBA need not belabored especially when we take note of the
Memorandum of the Secretary of Labor dated February 24, 1994
which was mentioned in the Resolution of Undersecretary
Bienvenido Laguesma on January 16, 1995 in the certification
election case involving the SMC employees.In said memorandum,
the Secretary of Labor had occasion to clarify the term of the
renegotiated terms of the CBA vis-a-vis the term of the bargaining
agent, to wit:
As a matter of policy the parties are encourages (sic) to enter into
a renegotiated CBA with a term which would coincidde (sic) with
the aforesaid five (5) year term of the bargaining representative.
In the event however, that the parties, by mutual agreement, enter
into a renegotiated contract with a term of three (3) years or one

129

contrary to the ruling of this Court in Pier 8 Arrastre and


Stevedoring Services, Inc. vs. Roldan-Confessor which
mandates that the effective date of the new CBA should be the
date the Secretary of Labor has resolved the labor disputes.

which does not coincide with the said 5-year term, and said
agreement is ratified by majority of the members in the bargaining
unit, the subject contract is valid and legal and therefore, binds the
contracting parties. The same will however not adversely affect the
right of another union to challenge the majority status of the
incumbent bargaining agent within sixty (60) days before the lapse
of the original five (5) year term of the CBA.

On the other hand, MEWA supports the ruling of the Secretary on


the theory that he has plenary power and discretion to fix the date
of effectivity of his arbitral award citing our ruling in St. Lukes
Medical Center, Inc. vs. Torres. MEWA also contends that if the
arbitral award takes effect on the date of the Secretary Labors
ruling on the parties motion for reconsideration (i.e., on December
28, 1996), an anomaly situation will result when CBA would be
more than the 5-year term mandated by Article 253-A of the Labor
Code.

Thus, we do not find any grave abuse of discretion on the part of


the Secretary of Labor in ruling that the effectivity of the
renegotiated terms of the CBA shall be for three (3) years.

Manila Electric Co. v. Ouisumbing, 302 SCRA


173
MERALCO also decries the Secretarys ruling in both the assailed
Orders that-

However, neither party took into account the factors necessary for
a proper resolution of this aspect. Pier 8, for instance, does not
involve a mid-term negotiation similar to this case, while St.
Lukes does not take the hold over principle into account, i.e., the
rule that although a CBA has expired, it continues to have legal
effects as between the parties until a new CBA has been entered
into.

All other benefits being enjoyed by the companys employees but


which are not expressly or impliedly repealed in this new
agreement shall remain subsisting and shall likewise be included in
the new collective bargaining agreement to be signed by the
parties effective December 1, 1995.

claiming that the above-quoted ruling intruded into the employers


freedom to contract by ordering the inclusion in the new CBA all
other benefits presently enjoyed by the employees even if they are
not incorporated in the new CBA. This matter of inclusion,
MERALCO argues, was never discussed and agreed upon in the
negotiations; nor presented as issues before the Secretary; nor
were part of the previous CBAs between the parties.

Article 253-A serves as the guide in determining when the


effectivity of the CBA at bar is to take effect. It provides that the
representation aspect of the CBA is to be for a term of 5 years,
while
x x x [A]ll other provisions of the Collective Bargaining Agreement
shall be re-negotiated not later than 3 years after its
execution. Any agreement on such other provisions of the
Collective Bargaining Agreement entered into within 6 months from
the date of expiry of the term of such other provisions as fixed in
such Collective Bargaining Agreement shall retroact to the day
immediately following such date. If such agreement is entered into
beyond 6 months, the parties shall agree on the duration of the
effectivity thereof. x x x.

We agree with MERALCO.


The Secretary acted in excess of the discretion allowed him by law
when he ordered the inclusion of benefits, terms and conditions
that the law and the parties did not intend to be reflected in their
CBA.
To avoid the possible problems that the disputed orders may bring,
we are constrained to rule that only the terms and conditions
already existing in the current CBA and was granted by the
Secretary (subject to the modifications decreed in this decision)
should be incorporated in the CBA, and that the Secretarys
disputed orders should accordingly be modified.

Under these terms, it is clear that the 5-year term requirement is


specific to the representation aspect. What the law additionally
requires is that a CBA must be re-negotiated within 3 years after its
execution. It is in this re-negotiation that gives rise to the present
CBA deadlock.
If no agreement is reached within 6 months from the expiry date of
the 3 years that follow the CBA execution, the law expressly gives
the parties - not anybody else - the discretion to fix the effectivity
of the agreement.

Finally, MERALCO also assails the Secretarys order that the


effectivity of the new CBA shall retroact to December 1, 1995, the
date of the commencement of the last two years of the effectivity
of the existing CBA. This retroactive date, MERALCO argues, is
130

Significantly, the law does not specifically cover the situation where
6 months have elapsed but no agreement has been reached with
respect to effectivity. In this eventuality, we hold that any provision
of law should then apply for the law abhors a vacuum.

On the other hand, the Union argues that the award should retroact
to such time granted by the Secretary, citing the 1993 decision
of St Lukes.
"Finally, the effectivity of the Order of January 28, 1991, must
retroact to the date of the expiration of the previous CBA, contrary
to the position of petitioner. Under the circumstances of the case,
Article 253-A cannot be properly applied to herein case. As
correctly stated by public respondent in his assailed Order of April
12, 1991 dismissing petitioners Motion for Reconsideration---

One such provision is the principle of hold over, i.e., that in the
absence of a new CBA, the parties must maintain the status
quo and must continue in full force and effect the terms and
conditions of the existing agreement until a new agreement is
reached. In this manner, the law prevents the existence of a gap in
the relationship between the collective bargaining parties. Another
legal principle that should apply is that in the absence of an
agreement between the parties, then, an arbitrated CBA takes on
the nature of any judicial or quasi-judicial award; it operates and
may be executed only respectively unless there are legal
justifications for its retroactive application.

Anent the alleged lack of basis for the retroactivity provisions


awarded, we would stress that the provision of law invoked by the
Hospital, Article 253-A of the Labor Code, speaks of agreements by
and between the parties, and not arbitral awards . . .
"Therefore, in the absence of a specific provision of law prohibiting
retroactivity of the effectivity of arbitral awards issued by the
Secretary of Labor pursuant to Article 263(g) of the Labor Code,
such as herein involved, public respondent is deemed vested with
plenary and discretionary powers to determine the effectivity
thereof."

Consequently, we find no sufficient legal ground on the other


justification for the retroactive application of the disputed CBA, and
therefore hold that the CBA should be effective for a term of 2
years counted from December 28, 1996 (the date of the Secretary
of Labors disputed order on the parties motion for reconsideration)
up to December 27, 1999.

In the 1997 case of Mindanao Terminal, the Court applied the St.
Lukes doctrine and ruled that:
"In St. Lukes Medical Center v. Torres, a deadlock also developed
during the CBA negotiations between management and the union.
The Secretary of Labor assumed jurisdiction and ordered the
retroaction of the CBA to the date of expiration of the previous
CBA. As in this case, it was alleged that the Secretary of Labor
gravely abused its discretion in making his award retroactive. In
dismissing this contention this Court held:

Manila Electric Co. v. Quisumbing, G.R. 127598


February 22, 2000
On the retroactivity of the CBA arbitral award, it is well to recall that
this petition had its origin in the renegotiation of the parties 19921997 CBA insofar as the last two-year period thereof is concerned.
When the Secretary of Labor assumed jurisdiction and granted the
arbitral awards, there was no question that these arbitral awards
were to be given retroactive effect. However, the parties dispute
the reckoning period when retroaction shall commence. Petitioner
claims that the award should retroact only from such time that the
Secretary of Labor rendered the award, invoking the 1995 decision
in Pier 8 case where the Court, citing Union of Filipino Employees v.
NLRC, said:

"Therefore, in the absence of a specific provision of law prohibiting


retroactive of the effectivity of arbitral awards issued by the
Secretary of Labor pursuant to Article 263(g) of the Labor Code,
such as herein involved, public respondent is deemed vested with
plenary and discretionary powers to determine the effectivity
thereof."

The Court in the January 27, 1999 Decision, stated that the CBA
shall be "effective for a period of 2 years counted from December
28, 1996 up to December 27, 1999." Parenthetically, this actually
covers a three-year period. Labor laws are silent as to when an
arbitral award in a labor dispute where the Secretary had assumed
jurisdiction by virtue of Article 263 (g) of the Labor Code shall
retroact. In general, a CBA negotiated within six months after the
expiration of the existing CBA retroacts to the day immediately
following such date and if agreed thereafter, the effectivity
depends on the agreement of the parties. On the other hand, the

"The assailed resolution which incorporated the CBA to be signed


by the parties was promulgated on June 5, 1989, the expiry date of
the past CBA. Based on the provision of Section 253-A, its
retroactivity should be agreed upon by the parties. But since no
agreement to that effect was made, public respondent did not
abuse its discretion in giving the said CBA a prospective effect. The
action of the public respondent is within the ambit of its authority
vested by existing law."

131

Manila Electric Co. v. Quisumbing, G.R. No.


127598 August 1, 2000

law is silent as to the retroactivity of a CBA arbitral award or that


granted not by virtue of the mutual agreement of the parties but by
intervention of the government. Despite the silence of the law, the
Court rules herein that CBA arbitral awards granted after six
months from the expiration of the last CBA shall retroact to such
time agreed upon by both employer and the employees or their
union. Absent such an agreement as to retroactivity, the award
shall retroact to the first day after the six-month period following
the expiration of the last day of the CBA should there be one. In the
absence of a CBA, the Secretarys determination of the date of
retroactivity as part of his discretionary powers over arbitral awards
shall control.

The parties respective positions are both well supported by


jurisprudence. For its part, petitioner invokes the ruling in Union of
Filipro Employees, wherein this Court upheld the NLRCs act of
giving prospective effect to the CBA, and argues that the two-year
arbitral award in the case at bar should likewise be applied
prospectively, counted from December 28, 1996 to December 27,
1998. Petitioner maintains that there is nothing in Article 253-A of
the Labor Code which states that arbitral awards or renewals of a
collective bargaining agreement shall always have retroactive
effect. The Filipro case was applied more recently in Pier 8 Arrastre
& Stevedoring Services, Inc. v. Roldan-Confesor thus:

It is true that an arbitral award cannot per se be categorized as an


agreement voluntarily entered into by the parties because it
requires the interference and imposing power of the State thru the
Secretary of Labor when he assumes jurisdiction. However, the
arbitral award can be considered as an approximation of a
collective bargaining agreement which would otherwise have been
entered into by the parties. The terms or periods set forth in Article
253-A pertains explicitly to a CBA. But there is nothing that would
prevent its application by analogy to an arbitral award by the
Secretary considering the absence of an applicable law. Under
Article 253-A: "(I)f any such agreement is entered into beyond six
months, the parties shal! agree on the duration of retroactivity
thereof." In other words, the law contemplates retroactivity whether
the agreement be entered into before or after the said six-month
period. The agreement of the parties need not be categorically
stated for their acts may be considered in determining the duration
of retroactivity. In this connection, the Court considers the letter of
petitioners Chairman of the Board and its President addressed to
their stockholders, which states that the CBA "for the rank-and-file
employees covering the period December 1, 1995 to November 30,
1997 is still with the Supreme Court," as indicative of petitioners
recognition that the CBA award covers the said period. Earlier,
petitioners negotiating panel transmitted to the Union a copy of its
proposed CBA covering the same period inclusive. In addition,
petitioner does not dispute the allegation that in the past CBA
arbitral awards, the Secretary granted retroactivity commencing
from the period immediately following the last day of the expired
CBA. Thus, by petitioners own actions, the Court sees no reason to
retroact the subject CBA awards to a different date. The period is
herein set at two (2) years from December 1, 1995 to November
30, 1997.

In Union of Filipro Employees v. NLRC, 192 SCRA 414 (1990), this


Court interpreted the above law as follows:
"In light of the foregoing, this Court upholds the pronouncement of
the NLRC holding the CBA to be signed by the parties effective
upon the promulgation of the assailed resolution. It is clear and
explicit from Article 253-A that any agreement on such other
provisions of the CBA shall be given retroactive effect only when it
is entered into within six (6) months from its expiry date. If the
agreement was entered into outside the six (6) month period, then
the parties shall agree on the duration of the retroactivity thereof.
"The assailed resolution which incorporated the CBA to be signed
by the parties was promulgated June 5, 1989, and hence, outside
the 6 month period from June 30, 1987, the expiry date of the past
CBA. Based on the provision of Section 253-A, its retroactivity
should be agreed upon by the parties. But since no agreement to
that effect was made, public respondent did not abuse its
discretion in giving the said CBA a prospective effect. The action of
the public respondent is within the ambit of its authority vested by
existing laws."

In the case of Lopez Sugar Corporation v. Federation of Free


Workers, 189 SCRA 179 (1991), this Court reiterated the rule that
although a CBA has expired, it continues to have legal effects as
between the parties until a new CBA has been entered into. It is the
duty of both parties to the CBA to keep the status quo, and to
continue in full force and effect the terms and conditions of the
existing agreement during the 60-day freedom period and/or until a
new agreement is reached by the parties (National Congress of
Unions in the Sugar Industry of the Philippines v. Ferrer-Calleja, 205
SCRA 478 [1992]). Applied to the case at bench, the legal effects of
the immediate past CBA between petitioner and private respondent
132

terminated, and the effectivity of the new CBA began, only on


March 4, 1993, when public respondent resolved their dispute.

old CBA.

And after an evaluation of the parties respective contention and


argument thereof, it is believed that that of the union is fair and
reasonable. It is the observation of this Arbitrator that in almost
subsequent CBAs, the effectivity of the renegotiated CBA, usually
and most often is made effective retroactive to the date when the
immediately preceding CBA expires so as to give a semblance of
continuity. Hence, for this particular case, it is believed that there is
nothing wrong adopting the stand of the union, that is that this CBA
be made retroactive effective March 15, 1989.

On the other hand, respondent MEWA invokes the ruling in St.


Lukes Medical Center, Inc. v. Torres, which held that the Secretary
of Labor has plenary and discretionary powers to determine the
effectivity of arbitral awards. Thus, respondent maintains that the
arbitral award in this case should be made effective from December
1, 1995 to November 30, 1997. The ruling in the St. Lukes case was
restated in the 1998 case of Manila Central Line Corporation v.
Manila Central Line Free Workers Union-National Federation of
Labor, et al., where it was held that:

Parenthetically, the Decision rendered in the case at bar on January


27, 1999 ordered that the CBA should be effective for a term of two
years counted from December 28, 1996 (the date of the Secretary
of Labors disputed Order on the parties motion for reconsideration)
up to December 27, 1998. That is to say, the arbitral award was
given prospective effect.

Art. 253-A refers to collective bargaining agreements entered into


by the parties as a result of their mutual agreement. The CBA in
this case, on the other hand, is part of an arbitral award. As such, it
may be made retroactive to the date of expiration of the previous
agreement. As held in St. Lukes Medical Center, Inc. v. Torres:
Finally, the effectivity of the Order of January 28, 1991, must
retroact to the date of the expiration of the previous CBA, contrary
to the position of petitioner. Under the circumstances of the case,
Article 253-A cannot be properly applied to herein case. As
correctly stated by public respondent in his assailed Order of April
12, 1991 dismissing petitioners Motion for Reconsideration

Upon a reconsideration of the Decision, this Court issued the


assailed Resolution which ruled that where an arbitral award
granted beyond six months after the expiration of the existing CBA,
and there is no agreement between the parties as to the date of
effectivity thereof, the arbitral award shall retroact to the first day
after the six-month period following the expiration of the last day of
the CBA. In the dispositive portion, however, the period to which
the award shall retroact was inadvertently stated as beginning on
December 1, 1995 up to November 30, 1997.

Anent the alleged lack of basis for the retroactivity provisions


awarded, we would stress that the provision of law invoked by the
Hospital, Article 253-A of the Labor Code, speaks of agreements by
and between the parties, and not arbitral awards . . . (p. 818 Rollo).

In resolving the motions for reconsideration in this case, this Court


took into account the fact that petitioner belongs to an industry
imbued with public interest. As such, this Court can not ignore the
enormous cost that petitioner will have to bear as a consequence of
the full retroaction of the arbitral award to the date of expiry of the
CBA, and the inevitable effect that it would have on the national
economy. On the other hand, under the policy of social justice, the
law bends over backward to accommodate the interests of the
working class on the humane justification that those with less
privilege in life should have more in law. Balancing these two
contrasting interests, this Court turned to the dictates of fairness
and equitable justice and thus arrived at a formula that would
address the concerns of both sides. Hence, this Court held that the
arbitral award in this case be made to retroact to the first day after
the six-month period following the expiration of the last day of the
CBA, i.e., from June 1, 1996 to May 31, 1998.

Therefore, in the absence of a specific provision of law prohibiting


retroactivity of the effectivity of arbitral awards issued by the
Secretary of Labor pursuant to Article 263(g) of the Labor Code,
such as herein involved, public respondent is deemed vested with
plenary and discretionary powers to determine the effectivity
thereof (223 SCRA 779, 792-793 [1993]; reiterated in Philippine
Airlines, Inc. v. Confessor 231 SCRA 41 [1994]).
Indeed, petitioner has not shown that the question of effectivity
was not included in the general agreement of the parties to submit
their dispute for arbitration. To the contrary, as the order of the
labor arbiter states, this question was among those submitted for
arbitration by the parties:
As regards the "Effectivity and Duration" clause, the company
proposes that the collective bargaining agreement shall take effect
only upon its signing and shall remain in full force and effect for a
period of five years. The union proposes that the agreement shall
take effect retroactive to March 15, 1989, the expiration date of the

This Court, therefore, maintains the foregoing rule in the assailed


133

Resolution pro hac vice. It must be clarified, however, that


consonant with this rule, the two-year effectivity period must start
from June 1, 1996 up to May 31, 1998, not December 1, 1995 to
November 30, 1997.

respondents.
Petitioner's contentions are untenable.
We find no grave abuse of discretion on the part of the NLRC, when
it entertained the petition for relief filed by the private respondents
and treated it as an appeal. even if it was filed beyond the
reglementary period for filing an appeal. Ordinarily, once a
judgment has become final and executory, it can no longer be
disturbed, altered or modified. However, a careful scrutiny of the
facts and circumstances of the instant case warrants liberality in
the application of technical rules and procedure. It would be a
greater injustice to deprive the concerned employees of the
monetary benefits rightly due them because of a circumstance over
which they had no control. As stated above, private respondents, in
their petition for relief, claimed that they were wrongfully excluded
from the list of those entitled to the CBA benefits by their union,
NFL, without their knowledge; and, because they were under the
impression that they were ably represented, they were not able to
appeal their case on time.

During the interregnum between the expiration of the economic


provisions of the CBA and the date of effectivity of the arbitral
award, it is understood that the hold-over principle shall
govern, viz:
"[I]t shall be the duty of both parties to keep the status quo and to
continue in full force and effect the terms and conditions of the
existing agreement during the 60-day freedom period and/or until
a new agreement is reached by the parties." Despite the lapse of
the formal effectivity of the CBA the law still considers the same as
continuing in force and effect until a new CBA shall have been
validly executed.

New Pacific Timber v. NLRC, 328 SCRA 404


Anent the second issue, petitioner argues that the private
respondents are not entitled to the benefits under the CBA because
employees hired after the term of a CBA are not parties to the
agreement, and therefore, may not claim benefits thereunder, even
if they subsequently become members of the bargaining unit.

The Supreme Court has allowed appeals from decisions of the labor
arbiter to the NLRC, even if filed beyond the reglementary period,
in the interest of justice. Moreover, under Article 218 (c) of the
Labor Code, the NLRC may, in the exercise of its appellate powers,
"correct, amend or waive any error, defect or irregularity whether in
substance or in form." Further, Article 221 of the same provides
that: "In any proceeding before the Commission or any of the Labor
Arbiters, the rules of evidence prevailing in courts of law or equity
shall not be controlling and it is the spirit and intention of this Code
that the Commission and its members and the Labor Arbiters shall
use every and all reasonable means to ascertain the facts in each
case speedily and objectively and without regard to technicalities of
law or procedure, all in the interest of due process. x x x"

As for the term of the CBA, petitioner maintains that Article 253 of
the Labor Code refers to the continuation in full force and effect of
the previous CBA's terms and conditions. By necessity, it could not
possibly refer to terms and conditions which, as expressly
stipulated, ceased to have force and effect.
According to petitioner, the provision on wage increase in the 1981
to 1984 CBA between petitioner Company and NFL provided for
yearly wage increases. Logically, these provisions ended in the year
1984 - the last year that the economic provisions of the CBA were,
pursuant to contract and law, effective. Petitioner claims that there
is no contractual basis for the grant of CBA benefits such as wage
increases in 1985 and subsequent years, since the CBA stipulates
only the increases for the years 1981 to 1984.

Anent the issue of whether or not the term of an existing CBA,


particularly as to its economic provisions, can be extended beyond
the period stipulated therein, and even beyond the three-year
period prescribed by law, in the absence of a new agreement.

Moreover, petitioner alleges that it was through no fault of theirs


that no new CBA was entered pending appeal of the decision in
NLRC Case No. RAB-IX-0334-82.

It is clear from the above provision of law that until a new Collective
Bargaining Agreement has been executed by and between the
parties, they are duty-bound to keep the status quo and to continue
in full force and effect the terms and conditions of the existing
agreement. The law does not provide for any exception nor
qualification as to which of the economic provisions of the existing
agreement are to retain force and effect; therefore, it must be

Finally, petitioner Company claims that it was never given the


opportunity to submit a counter-computation of the benefits
supposedly due the private respondents. Instead, the NLRC
allegedly relied on the self-serving computations of private
134

understood as encompassing all the terms and conditions in the


said agreement.

Having established that the CBA between petitioner Company and


NFL remained in full force and effect even beyond the stipulated
term, in the absence of a new agreement; and, therefore, that the
economic provisions such as wage increases continued to have
legal effect, we are now faced with the question of who are entitled
to the benefits provided thereunder.

In the case at bar, no new agreement was entered into by and


between petitioner Company and NFL pending appeal of the
decision in NLRC Case No. RAB-IX-0334-82; nor were any of the
economic provisions and/or terms and conditions pertaining to
monetary benefits in the existing agreement modified or altered.
Therefore, the existing CBA in its entirety, continues to have legal
effect.

Petitioner Company insists that the rank-and-file employees hired


after the term of the CBA inspite of their subsequent membership
in the bargaining unit, are not parties to the agreement, and
certainly may not claim the benefits thereunder.

In a recent case, the Court had occassion to rule that Articles 253
and 253-A mandate the parties to keep the status quo and to
continue in full force and effect the terms and conditions of the
existing agreement during the 60-day period prior to the expiration
of the old CBA and/or until a new agreement is reached by the
parties. Consequently, the automatic renewal clause provided for
by the law, which is deemed incorporated in all CBA's, provides the
reason why the new CBA can only be given a prospective effect.

We do not agree. In a long line of cases, this Court has held that
when a collective bargaining contract is entered into by the union
representing the employees and the employer, even the nonmember employees are entitled to the benefits of the contract. To
accord its benefits only to members of the union without any valid
reason
would
constitute
undue
discrimination
against
nonmembers. It is even conceded, that a laborer can claim benefits
from a CBA entered into between the company and the union of
which he is a member at the time of the conclusion of the
agreement, after he has resigned from said union.

In the case of Lopez Sugar Corporation vs. Federation of Free


Workers, et.al, this Court reiterated the rule that although a CBA
has expired, it continues to have legal effects as between the
parties until a new CBA has been entered into. It is the duty of both
parties to the CBA to keep the status quo, and to continue in full
force and effect the terms and conditions of the existing agreement
during the 60-day period and/or until a new agreement is reached
by the parties.

In the same vein, the benefits under the CBA in the instant case
should be extended to those employees who only became such
after the year 1984. To exclude them would constitute undue
discrimination and deprive them of monetary benefits they would
otherwise be entitled to under a new collective bargaining contract
to which they would have been parties. Since in this particular
case, no new agreement had been entered into after the CBA's
stipulated term, it is only fair and just that the employees hired
thereafter be included in the existing CBA. This is in consonance
with our ruling that the terms and conditions of a collective
bargaining agreement continue to have force and effect beyond the
stipulated term when no new agreement is executed by and
between the parties to avoid or prevent the situation where no
collective bargaining agreement at all would govern between the
employer company and its employees.

To rule otherwise, i.e., that the economic provisions of the existing


CBA in the instant case ceased to have force and effect in the year
1984, would be to create a gap during which no agreement would
govern, from the time the old contract expired to the time a new
agreement shall have been entered into. For if, as contended by the
petitioner, the economic provisions of the existing CBA were to
have no legal effect, what agreement as to wage increases and
other monetary benefits would govern at all? None, it would seem,
if we are to follow the logic of petitioner Company. Consequently,
the employees from the year 1985 onwards would be deprived of a
substantial amount of monetary benefits which they could have
enjoyed had the terms and conditions of the CBA remained in force
and effect. Such a situation runs contrary to the very intent and
purpose of Articles 253 and 253-A of the Labor Code which is to
curb labor unrest and to promote industrial peace, as can be
gleaned from the discussions of the legislators leading to the
passage of said laws.

Mindanao Terminal and Brokerage Service. Inc.


v. Confesor, 272 SCRA 161
The respondent indeed stated in her order of May 14, 1993 that
"this case is clearly beyond the scope of the automatic renewal
clause," but she also stated in the same order that "the parties
have reached an agreement on all the renegotiated provisions of
the CBA" on January 14, 1993, i.e., within six (6) months of the
135

expiration of the third year of the CBA.

and the Union have perfected their agreement." The claim of


petitioner to the contrary notwithstanding, this is a finding of an
administrative agency which, in the absence of evidence to the
contrary, must be affirmed.

The signing of the CBA is not determinative of the question whether


"the agreement was entered into within six months from the date
of expiry of the term of such other provisions as fixed in such
collective bargaining agreement" within the contemplation of Art.
253-A.

Moreover, the order of the Secretary of Labor may be considered in


the nature of an arbitral award, pursuant to Art. 263(g) of the Labor
Code, and, therefore, binding on the parties. After all, the Secretary
of Labor assumed jurisdiction over the dispute because petitioner
asked the Secretary of Labor to do so after the NCMB failed to make
the parties come to an agreement. It is also conceded that the
industry in which the petitioner is engaged is vital to the national
interest. As stated in the Order issued by the Secretary of Labor on
March 10, 1993:

As already stated, on November 12, 1992, the Union sent the


Company a notice of deadlock in view of their inability to reconcile
their positions on the main issues, particularly on wages. The
Union filed a notice of strike. However, on December 18, 1992, in a
conference called by the NCMB, the Union and the Company
agreed on a number of provisions of the CBA, including the
provision on wage increase, leaving only the issue of retirement to
be threshed out. In time, this, too, was settled, so that in his record
of the January 14, 1993 conference, the Med-Arbiter noted that "the
issues raised by the notice of strike had been settled and said
notice is thus terminated." It would therefore seem that at that
point, there was already a meeting of the minds of the parties,
which was before the February 1993 end of the six-month period
provided in Art. 253-A.

The services being provided by the Company evidently reflect their


indispensability to the normal operations of the Davao City Pier
where millions of crates and boxes of goods are loaded and
unloaded monthly. The current disruption, therefore, of the
Company's services, if allowed to continue, will cause serious
prejudice and damages to the agricultural exporters, the cargo
handlers, the vessel owners, the foreign buyers of agricultural
products and the entire business sector in the area. These
considerations and the dispute's implications on the national
economy warrant the intervention by this Office to exercise its
power under Article 263(g) of the Labor Code, as amended.

The fact that no agreement was then signed is of no moment. Art.


253-A refers merely to an "agreement" which, according to Black's
Law Dictionary is "a coming together of minds; the coming together
in accord of two minds on a given proposition." This is similar to
Art. 1305 of the Civil Code's definition of "contract" as "a meeting
of minds between two persons."

In St. Luke's Medical Center, Inc. v. Torres, a deadlock also


developed during the CBA negotiations between management and
the union. The Secretary of Labor assumed jurisdiction and ordered
the retroaction of their CBA to the date of expiration of the previous
CBA. As in this case, it was alleged that the Secretary of Labor
gravely abused his discretion in making his award retroactive. In
dismissing this contention this Court held:

The two terms, "agreement" and "contract," are indeed similar,


although the former is broader than the latter because an
agreement may not have all the elements of a contract. As in the
case of contracts, however, agreements may be oral or
written. Hence, even without any written evidence of the Collective
Bargaining Agreement made by the parties, a valid agreement
existed in this case from the moment the minds of the parties met
on all matters they set out to discuss. As Art. 1315 of the Civil Code
states:

Therefore, in the absence of a specific provision of law prohibiting


retroactivity of the effectivity of arbitral awards issued by the
Secretary of Labor pursuant to Article 263(g) of the Labor Code,
such as herein involved, public respondent is deemed vested with
plenary and discretionary powers to determine the effectivity
thereof.

Contracts are perfected by mere consent, and from that moment,


the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.

This case is controlled by the ruling in that case.


With respect to the issue of the creditability of the fourth and fifth
year wage increases, the Court takes cognizance of the fact that
the question was raised by the Company only when the six-month
period was almost over and all that was left to be done by the

The Secretary of Labor found that "as early as January 14, 1993,
well within the six (6) month period provided by law, the Company
136

parties was to sign their agreement. Before that, the Company did
not qualify its position. It should have known that crediting of wage
increases in the CBA as compliance with future mandated increases
is the exception rather than the rule. For the general rule is that
such increases are over and above any increase that may be
granted by law or wage order. As held in Meycauayan College
v. Drilon:

compel private respondent to incorporate this specific economic


proposal in the CBA. It could have invoked Article 252 of the Labor
Code defining "duty to bargain," thus, the duty includes "executing
a contract incorporating such agreements if requested by either
party." Petitioner union's assertion that it had insisted on the
incorporation of the same proposal may have a factual basis
considering the allegations in the aforementioned joint affidavit of
its members. However, Article 252 also states that the duty to
bargain "does not compel any party to agree to a proposal or make
any concession." Thus, petitioner union may not validly claim that
the proposal embodied in the Minutes of the negotiation forms part
of the CBA that it finally entered into with private respondent.

Increments to the laborers' financial gratification, be they in the


form of salary increases or changes in the salary scale are aimed at
one thing improvement of the economic predicament of the
laborers. As such they should be viewed in the light of the States
avowed policy to protect labor. Thus, having entered into an
agreement with its employees, an employer may not be allowed to
renege on its obligation under a collective bargaining agreement
should, at the same time, the law grant the employees the same or
better terms and conditions of employment. Employee benefits
derived from law are exclusive of benefits arrived at through
negotiation and agreement unless otherwise provided by the
agreement itself or by law.

The CBA is the law between the contracting parties the


collective bargaining representative and the employer-company.
Compliance with a CBA is mandated by the expressed policy to give
protection to labor. In the same vein, CBA provisions should 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." This is founded on the
dictum that a CBA is not an ordinary contract but one impressed
with public interest. It goes without saying, however, that only
provisions embodied in the CBA should be so interpreted and
complied with. Where a proposal raised by a contracting party does
not find print in the CBA, it is not a part thereof and the proponent
has no claim whatsoever to its implementation.

For making a belated issue of "creditability," petitioner is correctly


said to have "delay[ed] the agreement beyond the six (6) month
period so as to minimize its expenses to the detriment of its
workers" and its conduct to smack of "bad faith and [to run
counter] to the good faith required in Collective Bargaining." If
petitioner wanted to be given credit for the wage increases in the
event of future mandated wage increases, it should have expressly
stated its reservation during the early part of the CBA negotiations.

Hence, petitioner union's contention that the Minutes of the


collective bargaining negotiation meeting forms part of the entire
agreement is pointless. The Minutes reflects the proceedings and
discussions undertaken in the process of bargaining for worker
benefits in the same way that the minutes of court proceedings
show what transpired therein. At the negotiations, it is but natural
for both management and labor to adopt positions or make
demands and offer proposals and counter-proposals. However,
nothing is considered final until the parties have reached an
agreement. In fact, one of management's usual negotiation
strategies is to ". . . agree tentatively as you go along with the
understanding that nothing is binding until the entire agreement is
reached." If indeed private respondent promised to continue with
the practice of granting across-the-board salary increases ordered
by the government, such promise could only be demandable in law
if incorporated in the CBA.

Samahana Manggagawa sa Top Form v. NLRC,


295 SCRA 171
With respect to the first issue, petitioner union anchors its
arguments on the alleged commitment of private respondent to
grant an automatic across-the-board wage increase in the event
that a statutory or legislated wage increase is promulgated. It cites
as basis therefor, the aforequoted portion of the Minutes of the
collective bargaining negotiation on February 27, 1990 regarding
wages, arguing additionally that said Minutes forms part of the
entire agreement between the parties.
The basic premise of this argument is definitely untenable. To start
with, if there was indeed a promise or undertaking on the part of
private respondent to obligate itself to grant an automatic acrossthe-board wage increase, petitioner union should have requested or
demanded that such "promise or undertaking" be incorporated in
the CBA. After all, petitioner union has the means under the law to

Moreover, by making such promise, private respondent may not be


137

considered in bad faith or at the very least, resorting to the scheme


of feigning to undertake the negotiation proceedings through
empty promises. As earlier stated, petitioner union had, under the
law,
the
right
and
the
opportunity
to
insist
on
the foreseeable fulfillment of the private respondent's promise by
demanding its incorporation in the CBA. Because the proposal was
never embodied in the CBA, the promise has remained just that, a
promise, the implementation of which cannot be validly demanded
under the law.

be imputed upon any of the parties thereto. All provisions in the


CBA are supposed to have been jointly and voluntarily incorporated
therein by the parties. This is not a case where private respondent
exhibited an indifferent attitude towards collective bargaining
because the negotiations were not the unilateral activity of
petitioner union. The CBA is proof enough that private respondent
exerted "reasonable effort at good faith bargaining."
Indeed, the adamant insistence on a bargaining position to the
point where the negotiations reach an impasse does not establish
bad faith. Neither can bad faith be inferred from a party's insistence
on the inclusion of a particular substantive provision unless it
concerns trivial matters or is obviously intolerable.

Petitioner's reliance on this Court's pronouncements in Kiok Loy v.


NLRC is, therefore, misplaced. In that case, the employer refused
to bargain with the collective bargaining representative, ignoring all
notices for negotiations and requests for counter proposals that the
union had to resort to conciliation proceedings. In that case, the
Court opined that "(a) Company's refusal to make counter-proposal,
if considered in relation to the entire bargaining process, may
indicate bad faith and this is specially true where the Union's
request for a counter-proposal is left unanswered." Considering the
facts of that case, the Court concluded that the company was
"unwilling to negotiate and reach an agreement with the Union."

The question as to what are mandatory and what are merely


permissive subjects of collective bargaining is of significance on the
right of a party to insist on his position to the point of stalemate. A
party may refuse to enter into a collective bargaining contract
unless it includes a desired provision as to a matter which is a
mandatory subject of collective bargaining; but a refusal to contract
unless the agreement covers a matter which is not a mandatory
subject is in substance a refusal to bargain about matters which are
mandatory subjects of collective bargaining, and it is no answer to
the charge of refusal to bargain in good faith that the insistence on
the disputed clause was not the sole cause of the failure to agree or
that agreement was not reached with respect to other disputed
clauses.

In the case at bench, however, petitioner union does not deny that
discussion on its proposal that all government-mandated salary
increases should be on an across-the-board basis was "deferred,"
purportedly because it relied upon the "undertaking" of the
negotiating panel of private respondent. Neither does petitioner
union deny the fact that "there is no provision of the 1990 CBA
containing a stipulation that the company will grant across-theboard to its employees the mandated wage increase." They simply
assert that private respondent committed "acts of unfair labor
practices by virtue of its contractual commitment made during the
collective bargaining process." The mere fact, however, that the
proposal in question was not included in the CBA indicates that
no contractual commitment thereon was ever made by private
respondent as no agreement had been arrived at by the parties.
Thus:

On account of the importance of the economic issue proposed by


petitioner union, it could have refused to bargain and to enter into
a CBA with private respondent. On the other hand, private
respondent's firm stand against the proposal did not mean that it
was bargaining in bad faith. It had the right "to insist on (its)
position to the point of stalemate." On the part of petitioner union,
the importance of its proposal dawned on it only after the wage
orders were issued after the CBA had been entered into. Indeed,
from the facts of this case, the charge of bad faith bargaining on
the part of private respondent was nothing but a belated reaction
to the implementation of the wage orders that private respondent
made in accordance with law. In other words, petitioner union
harbored the notion that its members and the other employees
could have had a better deal in terms of wage increases had it
relentlessly pursued the incorporation in the CBA of its proposal.
The inevitable conclusion is that private respondent did not commit
the unfair labor practices of bargaining in bad faith and
discriminating against its employees for implementing the wage

Obviously the purpose of collective bargaining is the reaching of an


agreement resulting in a contract binding on the parties; but the
failure to reach an agreement after negotiations continued for a
reasonable period does not establish a lack of good faith. The
statutes invite and contemplate a collective bargaining contract,
but they do not compel one. The duty to bargain does not include
the obligation to reach an agreement. . . .

With the execution of the CBA, bad faith bargaining can no longer
138

orders pursuant to law.

specific timetables wherein negotiations become a matter of right


and requirement. Nothing in Article 253-A, prohibits the parties
from waiving or suspending the mandatory timetables and agreeing
on the remedies to enforce the same.

Rivera v. Espiritu, 374 SCRA 351


On the second issue, petitioners contend that the controverted PALPALEA agreement is void because it abrogated the right of workers
to
self-organization and
their
right
to
collective
bargaining. Petitioners claim that the agreement was not meant
merely to suspend the existing PAL-PALEA CBA, which expires on
September 30, 2000, but also to foreclose any renegotiation or any
possibility to forge a new CBA for a decade or up to 2008. It
violates the "protection to labor" policy laid down by the
Constitution.

In the instant case, it was PALEA, as the exclusive bargaining agent


of PALs ground employees, that voluntarily entered into the CBA
with PAL. It was also PALEA that voluntarily opted for the 10-year
suspension of the CBA. Either case was the unions exercise of its
right to collective bargaining. The right to free collective
bargaining, after all, includes the right to suspend it.
The acts of public respondents in sanctioning the 10-year
suspension of the PAL-PALEA CBA did not contravene the
"protection to labor" policy of the Constitution. The agreement
afforded full protection to labor; promoted the shared responsibility
between
workers
and
employers;
and
the
exercised voluntary modes
in
settling
disputes,
including
conciliation to foster industrial peace."

Under this provision [Article 253-A], insofar as representation is


concerned, a CBA has a term of five years, while the other
provisions, except for representation, may be negotiated not later
than three years after the execution.Petitioners submit that a 10year CBA suspension is inordinately long, way beyond the
maximum statutory life of a CBA, provided for in Article 253-A. By
agreeing to a 10-year suspension, PALEA, in effect, abdicated the
workers constitutional right to bargain for another CBA at the
mandated time.

Petitioners further allege that the 10-year suspension of the CBA


under the PAL-PALEA agreement virtually installed PALEA as a
company union for said period, amounting to unfair labor practice,
in violation of Article 253-A of the Labor Code mandating that an
exclusive bargaining agent serves for five years only.

We find the argument devoid of merit.


A CBA is "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." The primary purpose of a CBA is
the stabilization of labor-management relations in order to create a
climate of a sound and stable industrial peace. In construing a CBA,
the courts must be practical and realistic and give due
consideration to the context in which it is negotiated and the
purpose which it is intended to serve.

The questioned proviso of the agreement reads:


a. PAL shall continue recognizing PALEA as the duly certifiedbargaining agent of the regular rank-and-file ground employees of
the Company;

Said proviso cannot be construed alone. In construing an


instrument with several provisions, a construction must be adopted
as will give effect to all. Under Article 1374 of the Civil
Code, contracts cannot be construed by parts, but clauses must be
interpreted in relation to one another to give effect to the whole.
The legal effect of a contract is not determined alone by any
particular provision disconnected from all others, but from the
whole read together. The aforesaid provision must be read within
the context of the next clause, which provides:

The assailed PAL-PALEA agreement was the result of voluntary


collective bargaining negotiations undertaken in the light of the
severe financial situation faced by the employer, with the peculiar
and unique intention of not merely promoting industrial peace at
PAL, but preventing the latters closure. We find no conflict between
said agreement and Article 253-A of the Labor Code. Article 253-A
has a two-fold purpose. One is to promote industrial stability and
predictability. Inasmuch as the agreement sought to promote
industrial peace at PAL during its rehabilitation, said agreement
satisfies the first purpose of Article 253-A. The other is to assign

b. The union shop/maintenance of membership provision under


the PAL-PALEA CBA shall be respected.

The aforesaid provisions, taken together, clearly show the intent of


the parties to maintain "union security" during the period of the
suspension of the CBA. Its objective is to assure the continued
existence of PALEA during the said period. We are unable to declare
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the objective of union security an unfair labor practice. It is State


policy to promote unionism to enable workers to negotiate with
management on an even playing field and with more
persuasiveness than if they were to individually and separately
bargain with the employer. For this reason, the law has allowed
stipulations for "union shop" and "closed shop" as means of
encouraging workers to join and support the union of their choice in
the protection of their rights and interests vis--vis the employer.

if requested by either party.


While it is a mutual obligation of the parties to bargain, the
employer, however, is not under any legal duty to initiate contract
negotiation. The mechanics of collective bargaining is set in motion
only when the following jurisdictional preconditions are present,
namely, (1) possession of the status of majority representation of
the employees' representative in accordance with any of the means
of selection or designation provided for by the Labor Code; (2) proof
of majority representation; and (3) a demand to bargain under
Article 251, par. (a) of the New Labor Code . ... all of which
preconditions are undisputedly present in the instant case.

Petitioners contention that the agreement installs PALEA as a


virtual company union is also untenable.1wphi1 Under Article 248
(d) of the Labor Code, a company union exists when the employer
acts "[t]o initiate, dominate, assist or otherwise interfere with the
formation or administration of any labor organization, including the
giving of financial or other support to it or its organizers or
supporters." The case records are bare of any showing of such acts
by PAL.

From the over-all conduct of petitioner company in relation to the


task of negotiation, there can be no doubt that the Union has a
valid cause to complain against its (Company's) attitude, the
totality of which is indicative of the latter's disregard of, and failure
to live up to, what is enjoined by the Labor Code to bargain in
good faith.

We also do not agree that the agreement violates the five-year


representation limit mandated by Article 253-A. Under said article,
the representation limit for the exclusive bargaining agent applies
only when there is an extant CBA in full force and effect. In the
instant case, the parties agreed to suspend the CBA and put in
abeyance the limit on the representation period.

We are in total conformity with respondent NLRC's pronouncement


that petitioner Company is GUILTY of unfair labor practice. It has
been indubitably established that (1) respondent Union was a duly
certified bargaining agent; (2) it made a definite request to bargain,
accompanied with a copy of the proposed Collective Bargaining
Agreement, to the Company not only once but twice which were
left unanswered and unacted upon; and (3) the Company made no
counter proposal whatsoever all of which conclusively indicate lack
of a sincere desire to negotiate. A Company's refusal to make
counter proposal if considered in relation to the entire bargaining
process, may indicate bad faith and this is specially true where the
Union's request for a counter proposal is left unanswered. Even
during the period of compulsory arbitration before the NLRC,
petitioner Company's approach and attitude-stalling the negotiation
by a series of postponements, non-appearance at the hearing
conducted, and undue delay in submitting its financial statements,
lead to no other conclusion except that it is unwilling to negotiate
and reach an agreement with the Union. Petitioner has not at any
instance, evinced good faith or willingness to discuss freely and
fully the claims and demands set forth by the Union much less
justify its opposition thereto.

In sum, we are of the view that the PAL-PALEA agreement dated


September 27, 1998, is a valid exercise of the freedom to contract.
Under the principle of inviolability of contracts guaranteed by the
Constitution, the contract must be upheld.

B Jurisdictional Requirements
Kiok Loy v. NLRC, 141 SCRA 179
Collective bargaining which is defined as negotiations towards a
collective agreement, is one of the democratic frameworks under
the New Labor Code, designed to stabilize the relation between
labor and management and to create a climate of sound and stable
industrial peace. It is a mutual responsibility of the employer and
the Union and is characterized as a legal obligation. So much so
that Article 249, par. (g) of the Labor Code makes it an unfair labor
practice for an employer to refuse "to meet and convene promptly
and expeditiously in good faith for the purpose of negotiating an
agreement with respect to wages, hours of work, and all other
terms and conditions of employment including proposals for
adjusting any grievance or question arising under such an
agreement and executing a contract incorporating such agreement,

The case at bar is not a case of first impression, for in the Herald
Delivery Carriers Union (PAFLU) vs. Herald Publications the rule
had been laid down that "unfair labor practice is committed when it
is shown that the respondent employer, after having been served
with a written bargaining proposal by the petitioning Union, did not
140

even bother to submit an answer or reply to the said proposal This


doctrine was reiterated anew in Bradman vs. Court of Industrial
Relations wherein it was further ruled that "while the law does not
compel the parties to reach an agreement, it does contemplate that
both parties will approach the negotiation with an open mind and
make a reasonable effort to reach a common ground of agreement

collective bargaining agreement entered into two days


thereafter. Evidently, there was precipitate haste on the part of
respondent company in recognizing petitioner union, which
recognition appears to have been based on the self-serving claim of
the latter that it had the support of the majority of the employees
in the bargaining unit. Furthermore, at the time of the supposed
recognition, the employer was obviously aware that there were
other unions existing in the unit. As earlier stated, respondent
company's letter is dated May 12, 1986 while the two other unions,
Southern Philippine Federation of Labor (hereafter, SPFL and
Philippine Social Security Labor Union (PSSLU, for short), went on
strike earlier on May 9, 1986. The unusual promptitude in the
recognition of petitioner union by respondent company as the
exclusive bargaining representative of the workers in GAW Trading,
Inc. under the fluid and amorphous circumstances then obtaining,
was decidedly unwarranted and improvident.

We agree with the pronouncement that it is not obligatory upon


either side of a labor controversy to precipitately accept or agree to
the proposals of the other. But an erring party should not be
tolerated and allowed with impunity to resort to schemes feigning
negotiations by going through empty gestures.

ALU v. Ferrer-Calleia. 173 SCRA 178


We have previously held that the mechanics of collective
bargaining are set in motion only when the following jurisdictional
preconditions are present In the present case, the standing of
petitioner as an exclusive bargaining representative is dubious, to
say the least. It may be recalled that respondent company, in a
letter dated May 12, 1986 and addressed to petitioner, merely
indicated that it was "not against the desire of (its) workers" and
required petitioner to present proof that it was supported by the
majority thereof in a meeting to be held on the same date. The
only express recognition of petitioner as said employees'
bargaining representative that We see in the records is in the

It bears mention that even in cases where it was the then Minister
of Labor himself who directly certified the union as the bargaining
representative, this Court voided such certification where there was
a failure to properly determine with legal certainty whether the
union enjoyed a majority representation. In such a case, the
holding of a certification election at a proper time would not
necessarily be a mere formality as there was a compelling reason
not to directly and unilaterally certify a union.

141