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163 SCRA 71; G.R. No. L-74156

Melencio-Herrera, J.

The issuance of Wage Order No. 6, which took effect on October 30, 1984,
increased the cost-of-living allowance (COLA) of non-agricultural workers
in the private sector. Petitioner corporation complied with the said order
paying its monthly-paid employees P3.00 per day COLA. However,
Petitioner Corporation only multiplied the P 3.00 daily COLA by 22 days,
which is the number of working days in the company.
Respondent Union disagreed with the computation alleging that the
Corporation had been computing and paying the COLA multiplied to 30
days per month. This, according to the union, constituted an employer
practice which should not be unilaterally withdrawn.
The Union filed a complaint against Petitioner Corporation, its President, F.
White, and Vice-President, J. Santiago, for illegal deduction,
underpayment, unpaid allowances, and violation of Wage Order No. 6.
Petitioner-officials were sought to be held personally liable for the money
claims involved.
The Labor Arbiter ruled in favor of Petitioner Corporation by upholding the
Corporations computation on the basis of 22 days.
The Arbiter added that to compel respondent company to use 30 days in a
month to compute COLA and retain 22 days for vacation and sick leave,
overtime pay and other benefits is inconsistent and palpably unjust.

However, The NLRC reversed the Labor Arbiter on appeal, holding
Petitioner Corporation guilty of illegal deductions considering that COLA
should be computed on the basis of 30 days since workers paid on a
monthly basis are entitled to COLA on days unworked. Hence, this
petition to the Supreme Court on the charge of grave abuse of discretion
by the NLRC.

ISSUE: WON the computation of COLA (multiplied by 30 days per month)
constituted an employer practice in this case

Held: No. WHEREFORE, certiorari is granted, the Decision of the NLRC is
SET ASIDE and the Decision of the Labor Arbiter is hereby REINSTATED. The
TRO issued is hereby made permanent.

The Supreme Court ruled that the primordial consideration for entitlement
of COLA is that basic wage is being paid. The payment of COLA is mandated
only for the days that the employees are paid their basic wage, even if said
days are unworked. On the days that employees are not paid their basic
wage, the payment of COLA is not mandated.

Payment in full by Petitioner Corporation of the COLA before the execution
of the CBA in 1982 and in compliance with Wage Orders Nos. 1 to 5 are not
to be construed as constitutive of voluntary employer practice, which
cannot be unilaterally withdrawn by petitioner. To be considered as such,
it should have been practiced over a long period of time, and must be
shown to have been consistent and deliberate. Adequate proof is wanting
in this respect.

Moreover, Petitioner Corporation cannot be faulted for erroneous
application of a doubtful or difficult question of law. Since it is a past
error that is being corrected, no vested right may be said to have arisen
nor any diminution of benefit under Article 100 of the Labor Code may be
said to have resulted by virtue of the correction.

2. Tabas vs. California Manufacturing Company Inc.
G.R. No. L-80680

Sarmiento, J.


The petitioners filed petitions before the NLRC for reinstatement and
payment of various benefits, including minimum wage, overtime pay,
holiday pay, thirteen-month pay, and emergency cost of living allowance
pay, against respondent California Manufacturing Company. The
respondent denied liability on the basis of non-existence of an employer-
employee relationship with the petitioners. The company further
impleaded Livi Manpower Services, Inc. as a party-respondent.

Prior to the stint with respondent, petitioners were employees of Livi, an
independent contractor, which later assigned them as promotional
merchandisers for the former firm pursuant to a manpower supply

The agreement provides that California "has no control or supervision
over Livi's workers with respect to how they accomplish their work and
that Livi "is an independent contractor and no principal-agent/employer-
employee relation exists between the two. It was also stipulated that
California is free and harmless from any liability arising from such laws or
from any accident that may befall workers and employees of Livi while in
the performance of their duties for California.

It was further agreed upon that the assignment of workers to California
shall be on a "seasonal and contractual basis, that "COLA and the 10 legal
holidays will be charged directly to California, and that "payroll for the
preceding week shall be delivered by Livi at California's premises."

The petitioners signed employment contracts with durations of six months,
upon the expiration of which they signed new agreements with the same
period. Petitioners then allege they had become regular California
employees deserving of similar benefits. However, pending proceedings,
California notified the petitioners that they would not be rehired. With
this, petitioners filed an amended complaint charging California with illegal

ISSUE: WON an employer-employee relationship exists between
petitioners and California Manufacturing Company

HELD: YES. WHEREFORE, the petition is GRANTED. Judgment is hereby
RENDERED: (1): SETTING ASIDE the decision, dated March 20, 1987, and
the resolution, dated August 19, 1987; (2) ORDERING respondent
California to REINSTATE the petitioners with full status and rights of regular
employees; and (3) ORDERING respondent California and Livi to PAY,
jointly and severally, unto the petitioners: (a) backwages and differential
pays effective as and from the time they had acquired a regular status and
(4) ORDERING the private respondents to PAY unto the petitioners
attorney's fees equivalent to ten (10%) percent of all money claims hereby
awarded, in addition to those money claims. The private respondents are
likewise ORDERED to PAY the costs of this suit.

It must be noted that the existence of an employer-employee relation
cannot be made the subject of any agreement for it is a question of law.
The fact that the petitioners have allegedly admitted being Livi's "direct
employees" in their complaints is nothing conclusive. The relations of
parties must be judged from case to case and the decree of law, and not by
declarations of parties.

Despite any stipulation between California and Livi designating the latter
as the employer of petitioners, such will not erase either firms obligation
had there been employer-employee relationship proven to exist.
Nevertheless, both Livi and California are bound by their agreement. Thus,
petitioners shall not be permitted to suffer from such agreements

The Court reiterated in this case the Four-fold test of employer-employee
relations: (1) selection and engagement of the putative employee; (2)
payment of wages; (3) power of dismissal; and (4) the power to control the
putative employee's conduct. Of the four, the right-of-control test has
been held to be the decisive factor.
In the case at bar, Article 106 of the Labor Code applies. Livi is an
"independent contractor providing temporary services of manpower to its
client. When it provided California with manpower, it supplied California
with personnel, as if such personnel had been directly hired by California.
With this, the Supreme Court need not look on whether it is Livi or
California which exercises control over the petitioners. Either or both shall
be held responsible.

It must also be stressed in this case that petitioners had been given an
initial six-month contract, renewed for another six months. The Court was
also not convinced that California has shown enough evidence, other than
its bare say so, that it had in fact suffered serious business reverses as a
result alone of the prevailing political and economic climate during the
February Revolution.

Accordingly, under Article 281 of the Labor Code, the petitioners were
deemed regular employees of California covered by security of tenure.
Hence, their services cannot be terminated without due process of law.

3. Virginia G. Neri vs. National Labor Relations Commission, et al.
G.R. Nos. 97008-09 July 23, 1993

Bellosillo, J.


Petitioners Virginia Neri and Jose Cabelin were hired by Building Care
Corporation (BCC). They were later assigned by the latter to work in Far
East Bank & Trust Company (FEBTC) Cagayan de Oro branch; Neri as
radio/telex operator and Cabelin as janitor before being promoted as

FEBTC and BCC were sued by the two employees. The petitioners also
sought to compel FEBTC to recognize them as regular employees and be
paid the same wages which its regular workers receive.

BCC had established that it had substantial capitalization of P1 Million or a
stockholders equity of P1.5 Million. The Labor Arbiter dismissed the
petition and ruled that BCC was only job contracting and its employees
were not employees of FEBTC. NLRC affirmed said finding.

However, petitioners insist before the Supreme Court that BCC is engaged
in "labor-only" contracting because it failed to adduce evidence showing
that it invested in the form of tools, equipment, machineries, work
premises and other materials necessary in the conduct of its business.
Petitioners even argued that they performed duties directly related to the
principal business operation of FEBTC. Consequently, petitioners Neri and
Cabelin conclude they are deemed employees of respondent bank by
operation of law since BCC is merely an agent of FEBTC.

WON BCC is only a job contracting company; thus, petitioners are not
regular employees of FEBTC

Held: Yes. Building Care Corporation is only job contracting and its
employees are not employees of Far East Bank & Trust Company. IN VIEW
OF THE FOREGOING, the Petition for Certiorari is DISMISSED.

The Supreme Court ruled that respondent BCC need not prove that it made
investments in the form of tools, equipment, machineries, work premises,
among others, because it has established that it has sufficient
capitalization of 1 million pesos. BCC is therefore a highly capitalized
venture and cannot be deemed engaged in "labor-only" contracting.

Article 106 of the Labor Code states that:

Art. 106. Contractor or subcontractor. There is "labor-only"
contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and
the workers recruited by such persons are performing activities
which are directly related to the principal business of such
employer . . .

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. But, having established that it has substantial capital, it
was no longer necessary for BCC to further adduce evidence to prove that
it does not fall within the purview of "labor-only" contracting.

Even assuming that petitioners were performing activities directly related
to the principal business of the bank, under the "right of control" test they
must still be considered employees of BCC.

A cursory reading of the job description of petitioner Neri shows that what
was sought to be controlled by FEBTC was actually the end-result of the
task (e.g. that the daily incoming and outgoing telegraphic transfer of
funds received and relayed by her, respectively, tallies with that of the
register). Such guidelines were laid down merely to ensure that the desired
end-result was achieved. It did not, however, tell Neri how the radio/telex
machine should be operated.

It must also be highlighted that under the terms and conditions of the
contract, it was BCC alone which had the power to reassign petitioners.
Their deployment to FEBTC was not subject to the bank's acceptance.
Cabelin was promoted to messenger because the FEBTC branch manager
promised BCC that two (2) additional janitors would be hired from the
company if the promotion was to be effected.

The Court, in the case at bar, ruled that the determination of employer-
employee relationship involves factual findings. With this, absent any
grave abuse of discretion, SC is bound by the findings of the Labor Arbiter
as affirmed by respondent NLRC. Thus, the Court cannot sustain the

G.R. No. 170087 August 31, 2006

Ynares-Santiago, J.


Petitioner Angelina Francisco was hired by Kasei Corporation during its
incorporation stage in 1995. She was designated as Accountant and
Corporate Secretary assigned to handle the accounting needs of the
company. Petitioner was also assigned as Liaison Officer to the City of
Makati in-charge of securing business permits, construction permits and
other licenses for the operation of the company.

As Corporate Secretary, Francisco was not entrusted with corporate
documents except on some occasions, she signed documents for the
company. In 1996, she was appointed as Acting Manager and served its
functions for five years. As of December 2000, her salary was 27,000 php
plus 3,000 php house allowance and a 10% share in the profit of the

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager.
Petitioner Francisco was made to sign a prepared resolution for her
replacement, but she was assured of her continuous connection with Kasei
Corporation. However, the corporation later reduced her salary for a total
reduction of 22,000 php as of September 2001. She was advised that such
reduction was because the company was not earning well. Subsequently,
petitioner was informed she was no longer connected with the company.

Since she was no longer paid her salary, petitioner did not report for work
and filed an action for constructive dismissal before the Labor Arbiter.
Private respondent meanwhile said petitioner is not an employee of Kasei
Corporation submitting proof that the former was not included in its list of
employees and payees reported to BIR. SSS records were also submitted
showing that petitioners latest employer was Seiji Corporation.

The Labor Arbiter ruled that petitioner was illegally dismissed. Such
decision was affirmed by the NLRC with some modifications. On appeal,
the Court of Appeals reversed the NLRC decision dismissing the complaint
filed by petitioner against Kasei Corporation. Thus, the present petition to
the Supreme Court.

WON an employer-employee relationship exists between petitioner and
Kasei Corporation

HELD: Yes. Petitioner is economically dependent on respondent
corporation for her continued employment in the latters line of business.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the
Court of Appeals are ANNULLED and SET ASIDE. The Decision of the
National Labor Relations Commission is REINSTATED. The case is
REMANDED to the Labor Arbiter for the recomputation of petitioner
Angelina Franciscos full backwages from the time she was illegally
terminated until the date of finality of this decision, and separation pay
representing one-half month pay for every year of service, where a
fraction of at least six months shall be considered as one whole year.


In a number of decided case, the Court have relied on the decisive factor
called 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 on 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 can also help in determining the existence of an employer-
employee relationship.

However, there are situations when aside from the power to control,
realities of the employment relations help provide a more accurate
classification of the individual, whether as employee, independent
contractor, corporate officer or some other capacity.
The SC thus pointed out it is better to adopt a two-tiered test involving: (1)
the employers power to control; and (2) the economic realities of the
activity or relationship.

The Supreme Court noted that 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. The
proper standard of economic dependence is whether the worker is
dependent on the alleged employer for his continued employment in that
line of business

Petitioner Francisco, reporting for work regularly and served in
various capacities as Accountant, Liaison Officer, Technical Consultant,
Acting Manager and Corporate satisfies the control test. Thus, it can be
said that she is an employee of Kasei Corporation because she was under
the direct control and supervision of Seiji Kamura, the corporations
Technical Consultant. Under the economic reality test, the petitioner can
also be said to be an employee of respondent corporation because she had
served the company for 6 yrs. before her dismissal, receiving check
vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses
and allowances, as well as deductions and Social Security contributions.

It must also be stressed that when Kasei Corporation reduced petitioners
salary, such amounted to an illegal termination of services and
constructive dismissal.

Constructive dismissal is an involuntary resignation resulting in cessation of
work resorted to when continued employment becomes impossible,
unreasonable or unlikely; when there is a demotion in rank or a diminution
in pay; or when a clear discrimination, insensibility or disdain by an
employer becomes unbearable to an employee.

Thus, the Court holding that petitioner was constructively dismissed,
Francisco is then entitled to full backwages.

G.R. No. 118101. September 16, 1996

Padilla, J.

A complaint was filed by Eddie Domasig against respondents Cata Garments
Corporation and its owners Otto Ong and Catalina Co for illegal dismissal, unpaid
commission and other monetary claims. Cata Garments is a company engaged in
garments business.
Complainant Domasig alleged that he worked with the respondents as Salesman;
that three (3) years ago, because of a complaint against respondent by its workers,
it changed its name to Cata Garments Corporation; and that in 1992, his services
were terminated when respondents learned that he was being pirated by a rival
company which offer he refused. Prior to dismissal, complainant was receiving a
salary of P1,500.00 a month plus commission.
Respondents said Domasig is not a regular employee saying he is a mere
commission agent and only received a fixed allowance of P1,500.00 a month.
Respondents added that Domasig had no regular time schedule. Respondent said
complainant failed to turn over to them his collection from two (2) buyers
prompting them to initiate criminal proceedings against the latter.
The Labor Arbiter ruled in favor of Domasig. It ordered complainants
reinstatement and backwages as well as payment of other claimed benefits. The
NLRC remanded the case to the Arbiter finding the latters decision unsupported by
evidence on record.
ISSUE: WON the NLRC gravely abused its discretion in remanding the case to the
arbitration branch of origin for further proceedings
HELD: YES. The resolutions of the NLRC were set aside. The decision of the labor
arbiter was REINSTATED and AFFIRMED by the Court subject to the modification as
regards a re-computation by the labor arbiter of the commissions to which
petitioner maybe actually entitled.
The Supreme Court said in this case that in administrative and quasi-judicial
proceedings, substantial evidence is sufficient as a basis for judgment on the
existence of employer-employee relationship. No particular form of evidence is
required to prove the existence of such employer-employee relationship and
that Any competent and relevant evidence to prove the relationship may be

Substantial evidence has been defined to be such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion, and its absence
is not shown by stressing that there is contrary evidence on record, direct or
Identification cards are usually provided in business establishments 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, the SC found these matters
adequate to support a conclusion that petitioner was indeed an employee of
private respondent. Such already constitute substantial evidence.
Complainant Domasig, being an employee of private respondents for more
than a year, is considered a regular employee under the law. There is no need for
proof beyond reasonable doubt nor even preponderance of evidence for that
matter, substantial evidence being sufficient in determining the legality of an
employers dismissal of an employee.
The NLRC committed GAD in remanding the case to the Labor Arbiter. Such
act will only prolong the disposition of the complaint. In labor cases, simplification
of procedures without sacrificing the fundamental requisites of due process, is
mandated to ensure the speedy administration of justice.

In addition, the NLRC and the labor arbiter have authority under the Labor
Code to decide a case based on the position papers and documents submitted
without resorting to the technical rules of evidence.

G.R. No. 147816 May 9, 2003
Vitug, J.

Respondent Metromedia Times Corporation entered into an agreement with
petitioner Efren P. Paguio appointing the latter to be an account executive of the
Petitioners duty was to solicit advertisements for "The Manila Times," a
newspaper of general circulation, published by respondent company.
It was agreed that petitioner shall receive compensation consisting of a 15%
commission on direct advertisements less withholding tax and a 10% commission
on agency advertisements based on gross revenues less agency commission and
the corresponding withholding tax. The commissions were to be given after the
clients paid for the advertisements. Apart from commissions, petitioner Paguio was
also entitled to a monthly allowance of P2,000.00 as long as he met the
P30,000.00-monthly quota.
The points raised by the parties had something to do with the stipulations of the
agreement stating that petitioner is not an employee of the respondent company;
that the company has no responsibility towards anyone whom Paguio may employ;
and that either party may terminate their agreement at any time by giving written
notice to the other, thirty (30) days prior to effectivity of termination.
Around two months after Paguio renewed his contract with respondent company,
he received a letter from the latter notifying him of their decision to terminate his
services. Apart from allegations of misconduct and pirating clients, no definite
cause for termination was given.
Meanwhile, respondent Metromedia Times Corporation asserted their right to
terminate the contract with petitioner pointing out to the last provision thereof
stating that parties may end the contract provided there is notice regarding the
matter thirty days prior to the intended date of termination.
The Labor Arbiter declared Paguios dismissal as illegal. It ordered the
reinstatement of petitioner to his former position and payment of other
remuneration accruing from the date of dismissal. A 20,000 php moral damages
was also granted by the Arbiter. The NLRC reversed the decision favoring private
respondent. Thus, herein petition.
ISSUE: WON petitioner Paguio is a regular employee of Metromedia Times
Corporation and was illegally dismissed
HELD: YES. The petition filed by petitioner Paguio was GRANTED. The decision of
the Labor Arbiter finding Paguios dismissal as illegal was REINSTATED by the Court
except with respect to the P20,000.00 moral damages award which was deleted.
RATIONALE: By cursory reading of Article 280 of the Labor Code, a regular
employee defined as one engaged to perform activities necessary in the usual
business or trade of the employer as against those which are undertaken for a
specific project or are seasonal.
Where a person has rendered at least one year of service, regardless of the nature
of the activity performed or of whether it is continuous or intermittent, the
employment is considered regular as long as the activity exists, it not being
indispensable that he be first issued a regular appointment or be formally declared
as such before acquiring a regular status.

Regular employment is gauged based from the following factors - a) the manner of
selection and engagement of the putative employee, b) the mode of payment of
wages, c) the presence or absence of the power of dismissal; and d) the presence
or absence of the power to control the conduct of the putative employee or the
power to control the employee with respect to the means or methods by which his
work is to be accomplished.

In the case at bar, Metromedia Times Corporation exercised control by requiring
petitioner, among other things, to submit a daily sales activity report and also a
monthly sales report as well. Various solicitation letters also show that Robina
Gokongwei, company president, Alda Iglesia, the advertising manager, and
Frederick Go, the advertising director, directed and monitored the sales activities
of petitioner. Thus, under the Control Test services by Paguio were rendered
under the control and supervision of the company making the former a regular
Dismissal must be for a just or authorized cause and must comply with the
rudimentary due process of notice and hearing. There was no showing that
respondent Metromedia bothered itself in complying with the requirements in
terminating the services of petitioner. The notice of termination recited no valid or
just cause for the dismissal of petitioner Paguio nor does it appear that he has been
given an opportunity to be heard in his defense.
G.R. No. L-21212 September 23, 1966
Dizon, J.


Respondents-spouses owners and operators of auto-calesas in Davao City
filed a complaint to restrain the Citizens' League of Freeworkers, a
legitimate labor organization (referred to as union), from interfering with
the respondents business operations. The members of the Union were
drivers of the spouses in the said business.

The union members allege that the defendants Teofilo Geronimo and
Emerita Mendez used to lease the auto-calesas of the spouses on a daily
rental basis and that the same does not recognize the union as their
employees rather the petitioners were treated as lessees and refuses to
bargain with them. The union declared a strike on February 20, 1963, to
which paralyzed plaintiffs' business operations through threats,
intimidation and violence. The writ was granted by respondent Judge
Macapanton Abbas.

Subsequently, petitioner-Union members filed a motion to declare the writ
of preliminary injunction void on the ground that the same had expired by
virtue of Section 9 (d) of Republic Act 875.

The respondent judge denied the motion by ruling that no employer-
employee relationship exists between respondents-spouses and the Union
members. The respondent Judge added that the Rules of Court and not
Republic Act No. 875 applied to the matter of injunction. Thus, herein
petition to the Supreme Court.


WON a labor dispute between the parties exists; thus, Republic Act No.
875 shall apply

Held: YES. A judgment was rendered by the Court setting aside the writ of
preliminary injunction issued by respondent judge Macapanton Abbas in
Civil Case No. 3966 of the Court of First Instance of Davao, with costs.


In the case of Isabelo Doce vs. Workmen's Compensation Commission, et
al. (G.R. No. L-9417, December 22, 1958), upon a similar if not an
altogether identical set of facts, the Supreme Court held that the only
features that would make the relationship of lessor and lessee between
the respondent, owner of the jeeps, and the drivers, members of the
petitioner union, are the fact that he does not pay them any fixed wage
but their compensation is the excess of the total amount of fares earned or
collected by them over and above the amount of P7.50 which they agreed
to pay to the respondent, and the fact that the gasoline burned by the
jeeps is for the account of the drivers.

In the same case of Doce, the Court went on adding that the two features
are not, however, sufficient to withdraw the relationship, between them
from that of employer-employee, because the estimated earnings for fares
must be over and above the amount they agreed to pay to the respondent
for a ten-hour shift or ten-hour a day operation of the jeeps. Not having
any interest in the business because they did not invest anything in the
acquisition of the jeeps and did not participate in the management
thereof, their service as drivers of the jeeps being their only contribution
to the business, the relationship of lessor and lessee cannot be sustained.

Thus, in the case at bar, even assuming that respondent court had
jurisdiction to issue the preliminary injunction, the Court found that the
judge erred in denying the petitioners motion upon the wrong ground that
there was no labor dispute between the parties. There was a labor dispute
between the parties from the very beginning.

Also, the least that could be done in the Civil Case involving the parties was
to either dismiss or suspend proceedings until the Court of Industrial
Relations have resolved the Unfair Labor practice case filed therein by the

G.R. Nos. 83380-81 November 15, 1989
Fernan, C.J.


This case involves a petition for certiorari to review the decision of the
NLRC which affirmed the decision of the Labor Arbiter who jointly heard
and decided two cases filed by the Union in behalf of the private

The individualrespondents in the case at bar are workers of Makati
Haberdashery Inc. The complainants were employed as tailors, seamstress,
sewers, basters, and plantsadoras and are paid on a piece-rate basis
(except two petitioners herein who are paid on a monthly basis). The
workers were given a daily allowance of P 3.00 in the condition of
reporting to work at 9:30 a.m., Mondays to Fidays, including Sundays and
Holidays on peak periods.

The Sandigan ng Manggagawang Pilipino filed a complaint for
underpayment of the basic wages, underpayment of living allowance,
nonpayment of overtime work, nonpayment of holiday pay, and other
money claims.

The Labor Arbiter rendered judgment in favor of complainants. Such
decision was affirmed with modification by the NLRC by limiting back
wages for complainants only to one year.

WON an employer-employee relationship exists between the employer
company and its workers
WON the employees are entitled to Service Incentive Leave pay

The Court ruled that based from a memorandum issued by the Assistant
Manager, an employer-employee relationship exists. However, in the issue
of entitlement to Service Incentive Leave, piece-rate workers fall out of the
coverage of Book III of the Labor Code, and thus, not entitled to the
benefits mentioned therein.


As to the issue on the existence of an employer-employee relationship, the
Supreme Court ruled that there exists such relation between the workers
and the employer in the case at bar.

Applying the four-fold test, petitioners had control over the respondents
not only as to the result but including the means and method by which the
work is to be accomplished. This element of control was evidenced by a
memorandum issued by the Assistant Manager. Such memorandum
enumerated procedures and instructions regarding job orders, alterations,
and workers behavior inside the shop.

Private respondents are regular employees of Makati Haberdashery Inc.
This was further proven by the fact that they have to report for work
regularly from 9:30 a.m. to 6:00 or 7:00 p.m. and are paid an additional
allowance of P 3.00 daily if they report for work before 9:30 a.m. and
which is forfeited when they arrive at or after 9:30 a.m.

As to the service incentive leave pay: as piece-rate workers being paid at a
fixed amount for performing work irrespective of time consumed in the
performance thereof, they fall under the exceptions stated in Sec1(d), Rule
V, IRR, Book III, Labor Code. Thus, workers are not entitled to Service
Incentive Leave.

G.R. No. L-18353 July 31, 1963
Bautista Angelo, J.


On January 27, 1955, the Democratic Labor Association filed complaint against the
San Miguel Brewery, Inc. embodying 12 demands for the betterment of the
conditions of employment of its members. The company filed its answer to the
complaint specifically denying its material averments and answering the demands
point by point. The company asked for the dismissal of the complaint.
At the hearing held sometime in September, 1955, the union manifested its desire
to confine its claim to its demands for overtime, night-shift differential pay, and
attorney's fees, although it was allowed to present evidence on service rendered
during Sundays and holidays, or on its claim for additional separation pay and sick
and vacation leave compensation.1wph1.t
After the case had been submitted for decision, Presiding Judge Jose S. Bautista,
who was commissioned to receive the evidence, rendered decision expressing his
disposition with regard to the points embodied in the complaint on which evidence
was presented. Specifically, the disposition insofar as those points covered by this
petition for review are concerned, is as follows:
1. With regard to overtime compensation, Judge Bautista held that the
provisions of the Eight-Hour Labor Law apply to the employees
concerned for those working in the field or engaged in the sale of the
company's products outside its premises and consequently they should
be paid the extra compensation accorded them by said law in addition to
the monthly salary and commission earned by them, regardless of the
meal allowance given to employees who work up to late at night.
2. As to employees who work at night, Judge Bautista decreed that they
be paid their corresponding salary differentials for work done at night
prior to January 1, 1949 with the present qualification: 25% on the basis
of their salary to those who work from 6:00 to 12:00 p.m., and 75% to
those who work from 12:01 to 6:00 in the morning.
3. With regard to work done during Sundays and holidays, Judge Bautista
also decreed that the employees concerned be paid an additional
compensation of 25% as provided for in Commonwealth Act No. 444
even if they had been paid a compensation on monthly salary basis.
The demands for the application of the Minimum Wage Law to workers paid on
"pakiao" basis, payment of accumulated vacation and sick leave and attorney's
fees, as well as the award of additional separation pay, were either dismissed,
denied, or set aside.
Its motion for reconsideration having been denied by the industrial court en banc,
which affirmed the decision of the court a quo with few exceptions, the San Miguel
Brewery, Inc. interposed the present petition for review.
Anent the finding of the court a quo, as affirmed by the Court of Industrial
Relations, to the effect that outside or field sales personnel are entitled to the
benefits of the Eight-Hour Labor Law, the pertinent facts are as follows:
After the morning roll call, the employees leave the plant of the company to go on
their respective sales routes either at 7:00 a.m. for soft drinks trucks, or 8:00 a.m.
for beer trucks. They do not have a daily time record. The company never require
them to start their work as outside sales personnel earlier than the above schedule.
The sales routes are so planned that they can be completed within 8 hours at most,
or that the employees could make their sales on their routes within such number of
hours variable in the sense that sometimes they can be completed in less than 8
hours, sometimes 6 to 7 hours, or more. The moment these outside or field
employees leave the plant and while in their sales routes they are on their own,
and often times when the sales are completed, or when making short trip
deliveries only, they go back to the plant, load again, and make another round of
sales. These employees receive monthly salaries and sales commissions in variable
amounts. The amount of compensation they receive is uncertain depending upon
their individual efforts or industry. Besides the monthly salary, they are paid sales
commission that range from P30, P40, sometimes P60, P70, to sometimes P90,
P100 and P109 a month, at the rate of P0.01 to P0.01- per case.
It is contended that since the employees concerned are paid a commission on the
sales they make outside of the required 8 hours besides the fixed salary that is paid
to them, the Court of Industrial Relations erred in ordering that they be paid an
overtime compensation as required by the Eight-Hour Labor Law for the reason
that the commission they are paid already takes the place of such overtime
compensation. Indeed, it is claimed, overtime compensation is an additional pay
for work or services rendered in excess of 8 hours a day by an employee, and if the
employee is already given extra compensation for labor performed in excess of 8
hours a day, he is not covered by the law. His situation, the company contends, can
be likened to an employee who is paid on piece-work, "pakiao", or commission
basis, which is expressly excluded from the operation of the Eight-Hour Labor Law.

We are in accord with this view, for in our opinion the Eight-Hour Labor Law only
has application where an employee or laborer is paid on a monthly or daily basis, or
is paid a monthly or daily compensation, in which case, if he is made to work
beyond the requisite period of 8 hours, he should be paid the additional
compensation prescribed by law. This law has no application when the employee or
laborer is paid on a piece-work, "pakiao", or commission basis, regardless of the
time employed. The philosophy behind this exemption is that his earnings in the
form of commission based on the gross receipts of the day. His participation
depends upon his industry so that the more hours he employs in the work the
greater are his gross returns and the higher his commission. This philosophy is
better explained in Jewel Tea Co. v. Williams, C.C.A. Okla., 118 F. 2d 202, as follows:
The reasons for excluding an outside salesman are fairly apparent. Such
salesman, to a greater extent, works individually. There are no
restrictions respecting the time he shall work and he can earn as much or
as little, within the range of his ability, as his ambition dictates. In lieu of
overtime he ordinarily receives commissions as extra compensation. He
works away from his employer's place of business, is not subject to the
personal supervision of his employer, and his employer has no way of
knowing the number of hours he works per day.
True it is that the employees concerned are paid a fixed salary for their month of
service, such as Benjamin Sevilla, a salesman, P215; Mariano Ruedas, a truck driver,
P155; Alberto Alpaza and Alejandro Empleo, truck helpers, P125 each, and
sometimes they work in excess of the required 8-hour period of work, but for their
extra work they are paid a commission which is in lieu of the extra compensation to
which they are entitled. The record shows that these employees during the period
of their employment were paid sales commission ranging from P30, P40,
sometimes P60, P70, to sometimes P90, P100 and P109 a month depending on the
volume of their sales and their rate of commission per case. And so, insofar is the
extra work they perform, they can be considered as employees paid on piece work,
"pakiao", or commission basis. The Department of Labor, called upon to
implement, the Eight-Hour Labor Law, is of this opinion when on December 9, 1957
it made the ruling on a query submitted to it, thru the Director of the Bureau of
Labor Standards, to the effect that field sales personnel receiving regular monthly
salaries, plus commission, are not subject to the Eight-Hour Labor Law. Thus, on
this point, said official stated:
. . . Moreover, when a fieldman receives a regular monthly salary plus
commission on percentage basis of his sales, it is also the established
policy of the Office to consider his commission as payment for the extra
time he renders in excess of eight hours, thereby classifying him as if he
were on piecework basis, and therefore, technically speaking, he is not
subject to the Eight-Hour Labor Law.
We are, therefore, of the opinion that the industrial court erred in holding that the
Eight-Hour Labor Law applies to the employees composing the outside service
force and in ordering that they be paid the corresponding additional compensation.
With regard to the claim for night salary differentials, the industrial court found
that claimants Magno Johnson and Jose Sanchez worked with the respondent
company during the period specified by them in their testimony and that
watchmen Zoilo Illiga, Inocentes Prescillas and Daniel Cayuca rendered night duties
once every three weeks continuously during the period of the employment and
that they were never given any additional compensation aside from their monthly
regular salaries. The court found that the company started paying night
differentials only in January, 1949 but never before that time. And so it ordered
that the employees concerned be paid 25% additional compensation for those who
worked from 6:00 to 12:00 p.m. and 75% additional compensation for those who
worked from 12:01 to 6: 00 in the morning. It is now contended that this ruling is
erroneous because an award for night shift differentials cannot be given
retroactive effect but can only be entertained from the date of demand which was
on January 27, 1953, citing in support thereof our ruling in Earnshaws Docks &
Honolulu Iron Works v. The Court of Industrial Relations, et al., L-8896, January 25,
This ruling, however, has no application here for it appears that before the filing of
the petition concerning this claim a similar one had already been filed long ago
which had been the subject of negotiations between the union and the company
which culminated in a strike in 1952. Unfortunately, however, the strike fizzled out
and the strikers were ordered to return to work with the understanding that the
claim for night salary differentials should be settled in court. It is perhaps for this
reason that the court a quo granted this claim in spite of the objection of the
company to the contrary.
The remaining point to be determined refers to the claim for pay for Sundays and
holidays for service performed by some claimants who were watchmen or security
guards. It is contended that these employees are not entitled to extra pay for work
done during these days because they are paid on a monthly basis and are given one
day off which may take the place of the work they may perform either on Sunday
or any holiday.
We disagree with this claim because it runs counter to law. Section 4 of
Commonwealth Act No. 444 expressly provides that no person, firm or corporation
may compel an employee or laborer to work during Sundays and legal holidays
unless he is paid an additional sum of 25% of his regular compensation.
This proviso is mandatory, regardless of the nature of compensation. The only
exception is with regard to public utilities who perform some public service.
WHEREFORE, the decision of the industrial court is hereby modified as follows: the
award with regard to extra work performed by those employed in the outside or
field sales force is set aside. The rest of the decision insofar as work performed on
Sundays and holidays covering watchmen and security guards, as well as the award
for night salary differentials, is affirmed. No costs.