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Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-80680 January 26, 1989
DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE,
JOEL MADRIAGA, ARTHUR M. ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO
A. BELITA, ROBERTO P. ISLES, ELMER ARMADA, EDUARDO UDOG, PETER TIANSING,
MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN and LYDIA
ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON,
NATIONAL LABOR RELATIONS COMMISSION, and HON. EMERSON C.
TUMANON, respondents.
V.E. Del Rosario & Associates for respondent CMC.
The Solicitor General for public respondent.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.
Mildred A. Ramos for respondent Lily Victoria A. Azarcon.

SARMIENTO, J.:
On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor
Relations Commission 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 the
respondent, the California Manufacturing Company. 1
On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company
(California) filed a motion to dismiss as well as a position paper denying the existence of an employeremployee relation between the petitioners and the company and, consequently, any liability for payment
of money claims. 2 On motion of the petitioners, Livi Manpower Services, Inc. was impleaded as a partyrespondent.
It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower
Services, Inc. (Livi), which subsequently assigned them to work as "promotional merchandisers" 3 for the
former firm pursuant to a manpower supply agreement. Among other things, the agreement provided that
California "has no control or supervisions whatsoever over [Livi's] workers with respect to how they
accomplish their work or perform [Californias] obligation"; 4 the Livi "is an independent contractor and
nothing herein contained shall be construed as creating between [California] and [Livi] . . . the
relationship of principal[-]agent or employer[-]employee'; 5 that "it is hereby agreed that it is the sole
responsibility of [Livi] to comply with all existing as well as future laws, rules and regulations pertinent
to employment of labor" 6 and 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]. 7
It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal and
contractual basis"; that "[c]ost of living allowance and the 10 legal holidays will be charged directly to

[California] at cost "; and that "[p]ayroll for the preceeding [sic] week [shall] be delivered by [Livi] at
[California's] premises." 8
The petitioners were then made to sign employment contracts with durations of six months, upon the
expiration of which they signed new agreements with the same period, and so on. Unlike regular
California employees, who received not less than P2,823.00 a month in addition to a host of fringe
benefits and bonuses, they received P38.56 plus P15.00 in allowance daily.
The petitioners now allege that they had become regular California employees and demand, as a
consequence whereof, similar benefits. They likewise claim that pending further proceedings below, they
were notified by California that they would not be rehired. As a result, they filed an amended complaint
charging California with illegal dismissal.
California admits having refused to accept the petitioners back to work but deny liability therefor for the
reason that it is not, to begin with, the petitioners' employer and that the "retrenchment" had been forced
by business losses as well as expiration of contracts. 9 It appears that thereafter, Livi re-absorbed them into
its labor pool on a "wait-in or standby" status. 10
Amid these factual antecedents, the Court finds the single most important issue to be: Whether the
petitioners are California's or Livi's employees.
The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any
employer-employee relation between the petitioners and California ostensibly in the light of the
manpower supply contract, supra, and consequently, against the latter's liability as and for the money
claims demanded. In the same breath, however, the labor arbiter absolved Livi from any obligation
because the "retrenchment" in question was allegedly "beyond its control ." 13 He assessed against the
firm, nevertheless, separation pay and attorney's fees.
We reverse.
The existence of an employer-employees relation is a question of law and being such, it cannot be made
the subject of agreement. Hence, the fact that the manpower supply agreement between Livi and
California had specifically designated the former as the petitioners' employer and had absolved the latter
from any liability as an employer, will not erase either party's obligations as an employer, if an employeremployee relation otherwise exists between the workers and either firm. At any rate, since the agreement
was between Livi and California, they alone are bound by it, and the petitioners cannot be made to suffer
from its adverse consequences.
This Court has consistently ruled that the determination of whether or not there is an employer-employee
relation depends upon four standards: (1) the manner of selection and engagement of the putative
employee; (2) the mode of payment of wages; (3) the presence or absence of a power of dismissal; and (4)
the presence or absence of a power to control the putative employee's conduct. 14 Of the four, the right-ofcontrol test has been held to be the decisive factor. 15
On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow
reproduced:
ART. 106. Contractor or sub-contractor. Whenever an employee enters into a contract
with another person for the performance of the former's work, the employees of the
contractor and of the latter's sub-contractor, if any, shall be paid in accordance with the
provisions of this Code.
In the event that the contractor or sub-contractor fails to pay wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his
contractor or sub-contractor to such employees to the extent of the work performed under

the contract, in the same manner and extent that he is liable to employees directly
employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the
contracting out of labor to protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate distinctions between labor-only
contracting and job contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any
provisions of this Code.
There is 'labor-only' contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and placed by such person are
performing activities which are directly related to the principal business of such
employer. In such cases, the 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.
that notwithstanding the absence of a direct employer-employee relationship between the employer in
whose favor work had been contracted out by a "labor-only" contractor, and the employees, the former
has the responsibility, together with the "labor-only" contractor, for any valid labor claims, 16 by operation
of law. The reason, so we held, is that the "labor-only" contractor is considered "merely an agent of the
employer," 17 and liability must be shouldered by either one or shared by both. 18
There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it
contracts out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to the
contrary, and notwithstanding the provision of the contract that it is "an independent contractor." 20 The
nature of one's business is not determined by self-serving appellations one attaches thereto but by the tests
provided by statute and prevailing case law. 21 The bare fact that Livi maintains a separate line of business
does not extinguish the equal fact that it has provided California with workers to pursue the latter's own
business. In this connection, we do not agree that the petitioners had been made to perform activities
'which are not directly related to the general business of manufacturing," 22 California's purported
"principal operation activity. " 23 The petitioner's had been charged with "merchandizing [sic] promotion
or sale of the products of [California] in the different sales outlets in Metro Manila including task and
occational [sic] price tagging," 24 an activity that is doubtless, an integral part of the manufacturing
business. It is not, then, as if Livi had served as its (California's) promotions or sales arm or agent, or
otherwise, rendered a piece of work it (California) could not have itself done; Livi, as a placement agency,
had simply supplied it with the manpower necessary to carry out its (California's) merchandising
activities, using its (California's) premises and equipment. 25
Neither Livi nor California can therefore escape liability, that is, assuming one exists.
The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their complaints
is nothing conclusive. For one thing, the fact that the petitioners were (are), will not absolve California
since liability has been imposed by legal operation. For another, and as we indicated, the relations of
parties must be judged from case to case and the decree of law, and not by declarations of parties.
The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no argument
either. As we held in Philippine Bank of Communications v. NLRC, 27 a temporary or casual employee,
under Article 218 of the Labor Code, becomes regular after service of one year, unless he has been
contracted for a specific project. And we cannot say that merchandising is a specific project for the
obvious reason that it is an activity related to the day-to-day operations of California.

It would have been different, we believe, had Livi been discretely a promotions firm, and that California
had hired it to perform the latter's merchandising activities. For then, Livi would have been truly the
employer of its employees, and California, its client. The client, in that case, would have been a mere
patron, and not an employer. The employees would not in that event be unlike waiters, who, although at
the service of customers, are not the latter's employees, but of the restaurant. As we pointed out in
the Philippine Bank of Communicationscase:
xxx xxx xxx
... The undertaking given by CESI in favor of the bank was not the performance of a
specific job for instance, the carriage and delivery of documents and parcels to the
addresses thereof. There appear to be many companies today which perform this discrete
service, companies with their own personnel who pick up documents and packages from
the offices of a client or customer, and who deliver such materials utilizing their own
delivery vans or motorcycles to the addressees. In the present case, the undertaking of
CESI was to provide its client the bank with a certain number of persons able to carry out
the work of messengers. Such undertaking of CESI was complied with when the requisite
number of persons were assigned or seconded to the petitioner bank. Orpiada utilized the
premises and office equipment of the bank and not those of CESI. Messengerial work the
delivery of documents to designated persons whether within or without the bank
premises-is of course directly related to the day-to-day operations of the bank. Section
9(2) quoted above does not require for its applicability that the petitioner must be
engaged in the delivery of items as a distinct and separate line of business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a
recruitment and placement corporation placing bodies, as it were, in different client
companies for longer or shorter periods of time, ... 28
In the case at bar, Livi is admittedly an "independent contractor providing temporary services of
manpower to its client. " 29 When it thus provided California with manpower, it supplied California with
personnel, as if such personnel had been directly hired by California. Hence, Article 106 of the Code
applies.
The Court need not therefore consider whether it is Livi or California which exercises control over the
petitioner vis-a-vis the four barometers referred to earlier, since by fiction of law, either or both shoulder
responsibility.
It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence,
considered it illegal. Under the Labor Code, genuine job contracts are permissible, provided they are
genuine job contracts. But, as we held in Philippine Bank of Communications, supra, when such
arrangements are resorted to "in anticipation of, and for the very purpose of making possible, the
secondment" 30 of the employees from the true employer, the Court will be justified in expressing its
concern. For then that would compromise the rights of the workers, especially their right to security of
tenure.
This brings us to the question: What is the liability of either Livi or California?
The records show that the petitioners bad been given an initial six-month contract, renewed for another
six months. Accordingly, under Article 281 of the Code, they had become regular employees-ofCalifornia-and had acquired a secure tenure. Hence, they cannot be separated without due process of law.
California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its
employees, and second, by reason of financial distress brought about by "unfavorable political and
economic atmosphere" 31"coupled by the February Revolution." 32 As to the first objection, we reiterate
that the petitioners are its employees and who, by virtue of the required one-year length-of-service, have

acquired a regular status. As to the second, we are 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. We further find the attribution to the February
Revolution as a cause for its alleged losses to be gratuitous and without basis in fact.
California should be warned that retrenchment of workers, unless clearly warranted, has serious
consequences not only on the State's initiatives to maintain a stable employment record for the country,
but more so, on the workingman himself, amid an environment that is desperately scarce in jobs. And, the
National Labor Relations Commission should have known better than to fall for such unwarranted
excuses and nebulous claims.
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 the
respondent, the California Manufacturing Company, to REINSTATE the petitioners with full status and
rights of regular employees; and (3) ORDERING the respondent, the California Manufacturing Company,
and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, 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 under the second paragraph, of Section 281, of the Labor Code, but not to exceed
three (3) years, and (b) all such other and further benefits as may be provided by existing collective
bargaining agreement(s) or other relations, or by law, beginning such time; 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.
SECOND DIVISION
[G.R. No. 111501. March 5, 1996]
PHILIPPINE FUJI XEROX CORPORATION, JENNIFER A. BERNARDO, and ATTY.
VICTORINO LUIS, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION
(First Division), PAMBANSANG KILUSAN NG PAGGAWA, (KILUSAN)-TUCP,
PHILIPPINE
XEROX
EMPLOYEES
UNION-KILUSAN
and
PEDRO
GARADO, respondents.
DECISION
MENDOZA, J:
This is a petition for certiorari to set aside the decision of the NLRC, finding petitioner Philippine
Fuji Xerox Corporation (Fuji Xerox) guilty of illegally dismissing private respondent Pedro Garado and
ordering him reinstated. The NLRC decision reverses on appeal a decision of the Labor Arbiter finding
private respondent to be an employee of another firm, the Skillpower, Inc., and not of petitioner Fuji
Xerox.
The question raised in this case is whether private respondent is an employee of ,Fuji Xerox (as the
NLRC found) or of Skillpower, Inc. (as the Labor Arbiter found). For reasons to be hereafter explained,
we hold that private respondent is an employee of Fuji Xerox and accordingly dismiss the petition for
certiorari of Fuji Xerox.
The following are the facts.
On May 6, 1977, petitioner Fuji Xerox entered into an agreement under which Skillpower, Inc.
supplied workers to operate copier machines of Fuji Xerox as part of the latters Xerox Copier Project
in its sales offices. Private respondent Pedro Garado was assigned as key operator at Fuji Xeroxs branch
at Buendia, Makati, Metro Manila, in February of 1980.

In February of 1983, Garado went on leave and his place was taken over by a substitute. Upon his
return in March, he discovered that there was a spoilage of over 600 copies. Afraid that he might be
blamed for the spoilage, he tried to talk to a service technician of Fuji Xerox into stopping the meter of
the machine.
The technician refused Garados request, but this incident came to the knowledge of Fuji Xerox
which, on May 31, 1983, reported the matter to Skillpower, Inc. The next day, Skillpower, Inc. wrote
Garado, ordering him to explain. In the meantime, it suspended him from work. Garado filed a complaint
for illegal dismissal.
The Labor Arbiter found that Garado applied for work to Skillpower, Inc.; that in 1980 he was
employed and made to sign a contract; that although he received his salaries regularly from Fuji Xerox, it
was Skillpower, Inc. which exercised control and supervision over his work; that Skillpower, Inc. had
substantial capital and investments in machinery, equipment, and service vehicles, and assets totalling
P5,008,812.43. On the basis of these findings the Labor Arbiter held in a decision rendered on October
30, 1986 that Garado was an employee of Skillpower, Inc., and that he had merely been assigned by
Skillpower, Inc. to Fuji Xerox. Hence, the Labor Arbiter dismissed Garados complaint.
On the other hand, the NLRC found Garado to be in fact an employee of petitioner Fuji Xerox and
by it to have been illegally dismissed. The NLRC found that although Garados request was wrongful,
dismissal would be a disproportionate penalty. The NLRC held that although Skillpower, Inc. had
substantial capital assets, the fact was that the copier machines, which Garado operated, belonged to
petitioner Fuji Xerox, and that although it was Skillpower, Inc. which had suspended Garado, the latter
merely acted at the behest of Fuji Xerox. The NLRC found that Garado worked under the control and
supervision of Fuji Xerox, which paid his salaries, and that Skilipower, Inc. merely acted as paymasteragent of Fuji Xerox. The NLRC held that Skilipower, Inc. was a labor-only contractor and Garado should
be deemed to have been directly employed by Fuji Xerox, regardless of the agreement between it and
Skillpower, Inc. Accordingly, the NLRC ordered:
WHEREFORE, premises considered, the respondents are hereby ordered to immediately reinstate
complainant Pedro Garado to his former position as key operator with three (3) years backwages, without
qualification or reduction whatsoever x x x. Except as herein above MODIFIED, the appealed decision is
hereby Affirmed.
Hence the present petition. Fuji Xerox argues that Skillpower, Inc. is an independent contractor and
that Garado is its employee for the following reasons:
(1) Garado was recruited by Skillpower, Inc.;
(2) The work done by Garado was not necessary to the conduct of the business of Fuji Xerox;
(3) Garados salaries and benefits were paid directly by Skillpower, Inc.;
(4) Garado worked under the control of Skillpower, Inc.; and
(5) Skillpower, Inc. is a highly-capitalized business venture.
The contentions are without merit.
Fuji Xerox contends that Garado was actually recruited by Skillpower, Inc. as part of its personnel
pool and later merely assigned to it (petitioner). It is undisputed, however, that since 1980, [1] when Garado
was first assigned to work at Fuji Xerox, he had never been assigned to any other company so much so
that by 1984, he was already a member of the union which petitioned the company for his regularization.
[2]
From 1980 to 1984 he worked exclusively for petitioner. Indeed, he was recruited by Skillpower, Inc.
solely for assignment to Fuji Xerox to work in the latters Xerox Copier Project. [3]

Petitioners claim that Skillpower, Inc. has other clients to whom it provided temporary services.
That, however, is irrelevant. What is important is that once employed, Garado was never assigned to any
other client of Skillpower, Inc. In fact, although under the agreement Skillpower, Inc. was supposed to
provide only temporary services, Skilipower, Inc. actually supplied Fuji Xerox the labor which the
latter needed for its Xerox Copier Project for seven (7) years, from 1977 to 1984.
On January 1, 1983, private respondent signed a contract entitled Appointment as Contract
Worker, in which it was stated that private respondents status was that of a contract worker for a definite
period from January 1, 1983 to June 30, 1983. As such, private respondents employment was considered
temporary, to terminate automatically six (6) months afterwards, without necessity of any notice and
without entitling private respondent to separation or termination pay. Private respondent was made to
understand that he was an employee of Skillpower, Inc., and not of the client to which he was assigned.
Therefore, the termination of the contract or any renewal or extension thereof did not entitle him to
become an employee of the client and the latter was not under any obligation to appoint him as such,
notwithstanding the total duration of the contract or any extension or renewal thereof.
This is nothing but a crude attempt to circumvent the law and undermine the security of tenure of
private respondent by employing workers under six-month contracts which are later extended indefinitely
through renewals. As this Court held in the Philippine Bank of Communications v. NLRC:[4]
It is not difficult to see that to uphold the contractual arrangement between the bank and CESI would
in effect be to permit employers to avoid the necessity of hiring regular or permanent employees and to
enable them to keep their employees indefinitely on a temporary or casual status, thus to deny them
security of tenure in their jobs. Article 106 of the Labor Code is precisely designed to prevent such a
result.
Second. Petitioner contends that the service provided by Skillpower, Inc., namely, operating
petitioners xerox machine, is not directly related nor necessary to the business of selling and leasing
copier machines of petitioner. Petitioners claim that their Xerox Copier Project is just for public service
and is purely incidental to its business. What petitioners earn from the project is not even sufficient to
defray their expenses, let alone bring profits to them. As such, the project is no different from other
services which can legally be contracted out, such as security and janitorial services. Petitioners contend
that the copier service can be considered as part of their housekeeping tasks which can be let to
independent contractors.[5]
We disagree. As correctly held by the NLRC, at the very least, the Xerox Copier Project of
petitioners promotes goodwill for the company. It may not generate income for the company but there are
activities which a company may find necessary to engage in because they ultimately redound to its
benefit. Operating the companys copiers at its branches advertises the quality of their products and
promotes the companys reputation and public image. It also advertises the utility and convenience of
having a copier machine. It is noteworthy that while not operated for profit the copying service is not
intended either to be promotional, as, indeed, petitioner charged a fee for the copies made.
It is wrong to say that if a task is not directly related to the employers business, or it falls under what
may be considered housekeeping activities, the one performing the task is a job contractor. The
determination of the existence of an employer-employee relationship is defined by law according to the
facts of each case, regardless of the nature of the activities involved.
Third. Petitioners contend that it never exercised control over the conduct of private respondent.
Petitioners allege that the salaries paid to Garado, as well as his employment records, vouchers and loan
checks from the SSS were coursed through Skillpower, Inc. In addition private respondent applied for
vacation leaves to Skilipower, Inc.
It is also contended that it was Skillpower, Inc. which twice required private respondent to explain
why he should not be dismissed for the spoilage in Fuji Xeroxs Buendia branch and suspended him

pending the result of the investigation. According to petitioners, although they conducted an
administrative investigation, the purpose was only to determine the complicity of their own employees in
the incident, if any, and any criminal liability of private respondent.
This claim is belied by two letters written by Atty. Victorino H. Luis, Legal and Industrial Relations
Officer of the company, to the union president, Nick Macaraig. The first letter, datedJuly 6, 1983, stated:
This has reference to your various letters dated today on administrative case concerning Messrs.
Crisostomo Cruz, Pedro Garado and Ms. Evelyn Abenes. In connection with the above and in the case
likewise of Mr. Dionisio Guyala, please be advised that the proceedings against them are being carried
out under the terms, and in accordance with the provisions of our Policy and Procedure on Employment
Termination as well as Policy on Disciplinary Actions dated October 1, 1982, and not under the
Grievance Machinery under our CBA.
Your action apparently is premised on the assumption that we are now in the Grievance Stage, which is
premature. If we have allowed the Union to participate in our Investigation and Administrative panels, it
is only a concession on managements part in accordance with No. IV, Section B, Paragraph 3 of the
abovecited policy on the investigation, the Personnel/Administrative Department may consult
the Unionwhenever necessary.
We shall entertain grievances under our CBA Machinery only after decisions have been made on the
foregoing cases and should you find the penalties imposed, if any, as unjust, unduly harsh, discriminating
otherwise fit subject for grievance by the Union itself under the terms of our CBA.
Accordingly, we are proceeding with our investigations on the administrative charges with or without
your presence or that of the respondents if it is the latters preference, as in the case of Crisostomo Cruz,
to ignore the same. (Italics ours)
The second letter, dated July 13, 1983,[6] read:
You obviously persist in pursuing the misconception that our allowing your presence in the administrative
proceedings against Messrs. Guyala, Cruz, et al. has set the Grievance Machinery under our CBA into
play. We can only reiterate our statement in our letter of July 6 that we were implementing Policy and
Procedures on Termination dated October 1, 1982 and that your presence in helping bolster the defense
for the respondents was only with our forbearance in the spirit of cooperation in order to better ferret out
the truth.
The power or authority to impose discipline and disciplinary measures upon employees is a basic
prerogative of Management, something that cannot be abdicated, much less ceded to a CBA Grievance
Committee which is limited to settling disputes and misunderstanding as to interpretation, application, or
violation of any provisions of the CBA agreement x x x. As likewise pointed out in our letter of July
6recourse to Grievance may possibly be resorted to if in the Unions opinion a penalty imposed upon a
respondent Union member is discriminating to the member or otherwise illegal, unduly harsh, and the
like. Ultimately, the remedy lies in appeal to the NLRC, as in similar cases in the past. (Italics ours)
These letters reveal the role which Fuji Xerox played in the dismissal of the private respondent. They
dispel any doubt that Fuji Xerox exercised disciplinary authority over Garado and that Skillpower, Inc.
issued the order of dismissal merely in obedience to the decision of petitioner.
Fourth. Petitioner avers that Skillpower, Inc. is a highly-capitalized business venture, registered as
an independent employer with the Securities and Exchange Commission as well as the Department of
Labor and Employment. Skillpower, Inc. is a member of the Social Security System. In 1984 it had assets
exceeding P5 million pesos and at least 20 typewriters, office equipment and service vehicles. It had
employees of its own and a pool of 25 clerks assigned to clients on a temporary basis.

Petitioners cite the case of Neri v. NLRC,[7] in which it was held that the Building Care Corporation
(BCC) was an independent contractor on the basis of finding that it had substantial capital, although there
was no evidence that it had investments in the form of tools, equipment, machineries and work premises.
But the Court in that case considered not only the capitalization of the BCC but also the fact that BCC
was providing specific special services (radio/telex operator and janitor) to the employer; that in another
case[8] the Court had already found that the BCC was an independent contractor; that BCC retained
control over the employees and the employer was actually just concerned with the end-result; that BCC
had the power to reassign the employees and their deployment was not subject to the approval of the
employer; and that BCC was paid in lump sum for the services it rendered. These features of that case
make it distinguishable from the present one.
Here, the service being rendered by private respondent was not a specific or special skill that
Skillpower, Inc. was in the business of providing. Although in the Neri case the telex machine operated by
the employee belonged to the employer, the service was deemed permissible because it was specific and
technical. This cannot be said of the service rendered by private respondent Garado.
The Rules to Implement of the Labor Code, Book III, Rule VIII, 8, provide that there is job
contracting when the following conditions are fulfilled:
(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.
Otherwise, according to Art. 106 of the Labor Code,
There is labor-only contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing activities which are directly
related to the principal business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the workers in the same
manner and extent as if the latter were directly employed by him.
Petitioner Fuji Xerox argues that Skillpower, Inc. had typewriters and service vehicles for the
conduct of its business independently of the petitioner. But typewriters and vehicles bear no direct
relationship to the job for which Skillpower, Inc. contracted its service of operating copier machines and
offering copying services to the public. The fact is that Skillpower, Inc. did not have copying machines of
its own. What it did was simply to supply manpower to Fuji Xerox. The phrase substantial capital and
investment in the form of tools, equipment, machineries, work premises, and other materials which are
necessary in the conduct of his business, in the Implementing Rules clearly contemplates tools,
equipment, etc., which are directly related to the service it is being contracted to render. One who does
not have an independent business for undertaking the job contracted for is just an agent of the employer.
Fifth. The Agreement between petitioner Fuji Xerox and Skillpower, Inc. provides that Skillpower,
Inc. is an independent contractor and that the workers hired by it shall not, in any manner and under any
circumstances, be considered employees of [the] Company, and that the Company has no control or
supervision whatsoever over the conduct of the Contractor or any of its workers in respect to how they
accomplish their work or perform the Contractors obligations under this AGREEMENT.
In Tabas v. California Manufacturing Company, Inc.,[9] this Court held on facts similar to those in the
case at bar:

There is no doubt that in the case at bar, Livi performs manpower services, meaning to say, it contracts
out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to the contrary,
and notwithstanding the provision of the contract that it is an independent contractor. The nature of
ones business is not determined by self-serving appellations one attaches thereto but by the tests provided
by statute and prevailing case law. The bare fact that Livi maintains a separate line of business does not
extinguish the equal fact that it has provided California with workers to pursue the latters own business.
In this connection, we do not agree that the petitioners had been made to perform activities which are not
directly related to the general business of manufacturing, Californias purported principal operation
activity. The petitioners had been charged with merchandising [sic] promotion or sale of the products of
[California] in the different sales outlets in Metro Manila including task and occasional [sic] price
tagging, an activity that is doubtless, an integral part of the manufacturing business. It is not, then, as if
Livi had served as its (Californias) promotions or sales arm or agents, or otherwise, rendered a piece of
work it (California) could not have itself done; Livi as a placement agency, had simply supplied it with
the manpower necessary to carry out its (Californias) merchandising activities, using its (Californias)
premises and equipment.
xxx

xxx

xxx

The fact that the petitioners have allegedly admitted being Livis direct employees in their complaints is
nothing conclusive. For one thing, the fact that the petitioners were (are), will not absolve Californiasince
liability has been imposed by legal operation. For another, and as we indicated, the relations of parties
must be judged from case to case and the decree of law, and not by declaration of parties.
Skilipower, Inc. is, therefore, a labor-only contractor and Garado is not its employee. No grave
abuse of discretion can thus be imputed to the NLRC for declaring petitioner Fuji Xerox guilty of illegal
dismissal of private respondent.
ACCORDINGLY, the petition for certiorari is DISMISSED for lack of merit.
SO ORDERED.
Regalado, J. (Chairman), Romero, and Puno, JJ., concur

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and
SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari.
The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees)
entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first
part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the
second part, and hereinafter referred to as appellants, the Tourist World Service, Inc.
leased the premises belonging to the party of the first part at Mabini St., Manila for the
former-s use as a branch office. In the said contract the party of the third part held herself
solidarily liable with the party of the part for the prompt payment of the monthly rental
agreed on. When the branch office was opened, the same was run by the herein appellant
Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in
on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be
withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to
have been informed that Lina Sevilla was connected with a rival firm, the Philippine
Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service
considered closing down its office. This was firmed up by two resolutions of the board of
directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first
abolishing the office of the manager and vice-president of the Tourist World Service, Inc.,
Ermita Branch, and the second,authorizing the corporate secretary to receive the
properties of the Tourist World Service then located at the said branch office. It further
appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch
Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the
appellees no longer used it. As a matter of fact appellants used it since Nov. 1961.
Because of this, and to comply with the mandate of the Tourist World Service, the

corporate secretary Gabino Canilao went over to the branch office, and, finding the
premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on
June 4, 1962 to protect the interests of the Tourist World Service. When neither the
appellant Lina Sevilla nor any of her employees could enter the locked premises, a
complaint wall filed by the herein appellants against the appellees with a prayer for the
issuance of mandatory preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein, the trial court ordered
the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting
her to present evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and
after the issues were joined, the reinstated counterclaim of Segundina Noguera and the
new complaint of appellant Lina Sevilla were jointly heard following which the court a
quo ordered both cases dismiss for lack of merit, on the basis of which was elevated the
instant appeal on the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0.
SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.)
WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO
HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT
MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC.
EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE
NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT
MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the
branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and
3. Whether or not the lessee to the office premises belonging to the appellee Noguera was
appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered
into by and between her and appellee TWS with offices at the Ermita branch office and
that she was not an employee of the TWS to the end that her relationship with TWS was
one of a joint business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an
eminent eye, ear and nose specialist as well as a imediately columnist
had been in the travel business prior to the establishment of the joint
business venture with appellee Tourist World Service, Inc. and appellee
Eliseo Canilao, her compadre, she being the godmother of one of his
children, with her own clientele, coming mostly from her own social
circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19
October 1960 (Exh. 'A') covering the premises at A. Mabini St., she
expressly warranting and holding [sic] herself 'solidarily' liable with
appellee Tourist World Service, Inc. for the prompt payment of the
monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn.
Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist
World Service, Inc., which had its own, separate office located at the
Trade & Commerce Building; nor was she an employee thereof, having
no participation in nor connection with said business at the Trade &
Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own passengers,
her own bookings her own business (and not for any of the business of
appellee Tourist World Service, Inc.) obtained from the airline
companies. She shared the 7% commissions given by the airline
companies giving appellee Tourist World Service, Lic. 3% thereof aid
retaining 4% for herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining
the A. Mabini St. office, paying for the salary of an office secretary, Miss
Obieta, and other sundry expenses, aside from desicion the office
furniture and supplying some of fice furnishings (pp. 15,18 tsn. April
6,1965), appellee Tourist World Service, Inc. shouldering the rental and
other expenses in consideration for the 3% split in the co procured by
appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).
6. It was the understanding between them that appellant Mrs. Sevilla
would be given the title of branch manager for appearance's sake only (p.
31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for
dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao
pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino
Canilao (pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of the
appellee Tourist World Service, Inc. and as such was designated manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World
Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the

premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World
Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of
Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically,
they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST
WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT
LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER
EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO
IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE
CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO
PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE
CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD
SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP.
7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE
OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO
WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS
CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER
CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla
and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue,
in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc.
without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages
prayed for and whether or not the evidence for the said appellant supports the contention that the appellee
Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the
telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World
Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch
manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with
the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the
between parties was one of joint venture, but concede that "whatever might have been the true

relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service
and Canilao from taking the law into their own hands, 8 in reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World
Service, Inc., maintains, that the relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the case, labor disputes being the
exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to
statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee
relation. In general, we have relied on the so-called right of control test, "where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also the means to be
used in reaching such end." 10 Subsequently, however, we have considered, in addition to the standard of
right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the
employee in the payrolls, in determining the existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in
connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita
office, she had bound herself insolidum as and for rental payments, an arrangement that would be like
claims of a master-servant relationship. True the respondent Court would later minimize her participation
in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any
case, a true employee cannot be made to part with his own money in pursuance of his employer's
business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some
other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same
was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for
any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said that
Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing
the business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in
commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then,
who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her
booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's
employee. As we said, employment is determined by the right-of-control test and certain economic
parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting
Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership.
And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of
November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the
operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the
manner in which the business was run. A joint venture, including a partnership, presupposes generally a of
standing between the joint co-venturers or partners, in which each party has an equal proprietary interest
in the capital or property contributed 15 and where each party exercises equal rights in the conduct of the
business. 16 furthermore, the parties did not hold themselves out as partners, and the building itself was
embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private
respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of
agency. It is the essence of this contract that the agent renders services "in representation or on behalf of

another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her
principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of
commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her
principal's authority as owner of the business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal
agent relationship, rather than a joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with
the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the
agency having been created for mutual interest, of the agent and the principal. 19 It appears that Lina
Sevilla is a bona fidetravel agent herself, and as such, she had acquired an interest in the business
entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding
herself solidarily liable for the payment of rentals. She continued the business, using her own name, after
Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she
earned as a result of her business transactions, but one that extends to the very subject matter of the power
of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the
principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to
damages.
As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection
and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that
there is 'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the
branch office. 20Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to
have them reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of,
it had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the
fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any
authority to terminate that contract without notice to its actual occupant, and to padlock the premises in
such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the
business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a
stranger to that contract having been explicitly named therein as a third party in charge of rental payments
(solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would
eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put
the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be
sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no clear
showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that
Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that
following such an information (that Sevilla was working for another company), Tourist World's board of
directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January
3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without
notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,
personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the
Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc. did not find such a need
when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it
sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she
could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's
telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla
articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had
perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair
play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent,
Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages
may be awarded for "breaches of contract where the defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to
Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to
her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage. 24
ART. 2219. Moral damages 25 may be recovered in the following and analogous cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same
damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been
shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking
incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary
damages,25 and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair, and reasonable under
the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July
31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private
respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to
indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of
P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or
temperate damages.
Costs against said private respondents.
SO ORDERED.
SECOND DIVISION
[G.R. No. 87098. November 4, 1996]
ENCYCLOPAEDIA BRITANNICA (PHILIPPINES), INC., petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, HON. LABOR ARBITER TEODORICO L. DOGELIO and
BENJAMIN LIMJOCO, respondents.
DECISION
TORRES, JR., J.:

Encyclopaedia Britannica (Philippines), Inc. filed this petition for certiorari to annul and set aside
the resolution of the National Labor Relations Commission, Third Division, in NLRC Case No. RB IV5158-76, dated December 28, 1988, the dispositive portion of which reads:
WHEREFORE, in view of all the foregoing, the decision dated December 7, 1982 of then Labor Arbiter
Teodorico L. Dogelio is hereby AFFIRMED, and the instant appeal is hereby DISMISSED for lack of
merit.
SO ORDERED.[1]
Private respondent Benjamin Limjoco was a Sales Division Manager of petitioner Encyclopaedia
Britannica and was in charge of selling petitioners products through some sales representatives. As
compensation, private respondent received commissions from the products sold by his agents. He was
also allowed to use petitioners name, goodwill and logo. It was, however, agreed upon that office
expenses would be deducted from private respondents commissions. Petitioner would also be informed
about appointments, promotions, and transfers of employees in private respondents district.
On June 14, 1974, private respondent Limjoco resigned from office to pursue his private business.
Then on October 30, 1975, he filed a complaint against petitioner Encyclopaedia Britannica with the
Department of Labor and Employment, claiming for non-payment of separation pay and other benefits,
and also illegal deduction from his sales commissions.
Petitioner Encyclopaedia Britannica alleged that complainant Benjamin Limjoco (Limjoco, for
brevity) was not its employee but an independent dealer authorized to promote and sell its products and in
return, received commissions therefrom. Limjoco did not have any salary and his income from the
petitioner company was dependent on the volume of sales accomplished. He also had his own separate
office, financed the business expenses, and maintained his own workforce. The salaries of his secretary,
utility man, and sales representatives were chargeable to his commissions. Thus, petitioner argued that it
had no control and supervision over the complainant as to the manner and means he conducted his
business operations. The latter did not even report to the office of the petitioner and did not observe fixed
office hours. Consequently, there was no employer-employee relationship.
Limjoco maintained otherwise. He alleged that he was hired by the petitioner in July 1970, was
assigned in the sales department, and was earning an average of P4,000.00 monthly as his sales
commission. He was under the supervision of the petitioners officials who issued to him and his other
personnel, memoranda, guidelines on company policies, instructions and other orders. He was, however,
dismissed by the petitioner when the Laurel-Langley Agreement expired. As a result thereof, Limjoco
asserts that in accordance with the established company practice and the provisions of the collective
bargaining agreement, he was entitled to termination pay equivalent to one month salary, the unpaid
benefits (Christmas bonus, midyear bonus, clothing allowance, vacation leave, and sick leave), and the
amounts illegally deducted from his commissions which were then used for the payments of office
supplies, office space, and overhead expenses.
On December 7, 1982, Labor Arbiter Teodorico Dogelio, in a decision ruled that Limjoco was an
employee of the petitioner company. Petitioner had control over Limjoco since the latter was required to
make periodic reports of his sales activities to the company. All transactions were subject to the final
approval of the petitioner, an evidence that petitioner company had active control on the sales
activities. There was therefore, an employer-employee relationship and necessarily, Limjoco was entitled
to his claims. The decision also ordered petitioner company to pay the following:
1.

To pay complainant his separation pay in the total amount of P16,000.00;

2.

To pay complainant his unpaid Christmas bonus for three years or the amount of P12,000.00;

3.
To pay complainant his unpaid mid-year bonus equivalent to one-half month pay or the total
amount of P6,000.00;
4.
To pay complainant his accrued vacation leave equivalent to 15 days per year of service, or the total
amount of P6,000.00;
5.

To pay complainant his unpaid clothing allowance in the total amount of P600.00; and

6.
To pay complainant his accrued sick leave equivalent to 15 days per year of service or the total
amount of P6,000.00.[2]
On appeal, the Third Division of the National Labor Relations Commission affirmed the assailed
decision. The Commission opined that there was no evidence supporting the allegation that Limjoco was
an independent contractor or dealer. The petitioner still exercised control over Limjoco through its
memoranda and guidelines and even prohibitions on the sale of products other than those authorized by
it. In short, the petitioner company dictated how and where to sell its products. Aside from that fact,
Limjoco passed the costs to the petitioner chargeable against his future commissions. Such practice
proved that he was not an independent dealer or contractor for it is required by law that an independent
contractor should have substantial capital or investment.
Dissatisfied with the outcome of the case, petitioner Encyclopaedia Britannica now comes to us in
this petition for certiorari and injunction with prayer for preliminary injunction. On April 3, 1989, this
Court issued a temporary restraining order enjoining the enforcement of the decision dated December 7,
1982.
The following are the arguments raised by the petitioner:
I
The respondent NLRC gravely abused its discretion in holding that appellants contention that appellee
was an independent contractor is not supported by evidence on record.
II
Respondent NLRC committed grave abuse of discretion in not passing upon the validity of the
pronouncement of the respondent Labor Arbiter granting private respondents claim for payment of
Christmas bonus, Mid-year bonus, clothing allowance and the money equivalent of accrued and unused
vacation and sick leave.
The NLRC ruled that there existed an employer-employee relationship and petitioner failed to
disprove this finding. We do not agree.
In determining the existence of an employer-employee relationship the following elements must be
present: 1) selection and engagement of the employee; 2) payment of wages; 3) power of dismissal; and
4) the power to control the employees conduct. Of the above, control of employees conduct is
commonly regarded as the most crucial and determinative indicator of the presence or absence of an
employer-employee relationship.[3] Under the control test, an employer-employee relationship exists
where the person for whom the services are performed reserves the right to control not only the end to be
achieved, but also the manner and means to be used in reaching that end. [4]
The fact that petitioner issued memoranda to private respondents and to other division sales
managers did not prove that petitioner had actual control over them. The different memoranda were
merely guidelines on company policies which the sales managers follow and impose on their respective
agents. It should be noted that in petitioners business of selling encyclopedias and books, the marketing
of these products was done through dealership agreements. The sales operations were primarily

conducted by independent authorized agents who did not receive regular compensations but only
commissions based on the sales of the products. These independent agents hired their own sales
representatives, financed their own office expenses, and maintained their own staff. Thus, there was a
need for the petitioner to issue memoranda to private respondent so that the latter would be apprised of
the company policies and procedures. Nevertheless, private respondent Limjoco and the other agents were
free to conduct and promote their sales operations. The periodic reports to the petitioner by the agents
were but necessary to update the company of the latters performance and business income.
Private respondent was not an employee of the petitioner company. While it was true that the
petitioner had fixed the prices of the products for reason of uniformity and private respondent could not
alter them, the latter, nevertheless, had free rein in the means and methods for conducting the marketing
operations. He selected his own personnel and the only reason why he had to notify the petitioner about
such appointments was for purpose of deducting the employees salaries from his commissions. This he
admitted in his testimonies, thus:
Q. Yes, in other words you were on what is known as P&L basis or profit and loss basis?
A. That is right.
Q. If for an instance, just example your sales representative in any period did not produce any
sales, you would not get any money from Britannica, would you?
A. No, sir.
Q. In fact, Britannica by doing the accounting for you as division manager was merely making
it easy for you to concentrate all your effort in selling and you dont worry about
accounting, isnt that so?
A. Yes, sir.
Q. In fact whenever you hire a secretary or trainer you merely hire that person and notify
Britannica so that Encyclopaedia Britannica will give the salaries and deduct it from your
earnings, isnt that so?
A. In certain cases I just hired people previously employed by Encyclopaedia Britannica.
x

Q. In this Exhibit 2 you were informing Encyclopaedia Britannica that you have hired a
certain person and you were telling Britannica how her salary was going to be taken cared
of, is it not?
A. Yes, sir.
Q. You said here, please be informed that we have appointed Miss Luz Villan as division
trainer effective May 1, 1971 at P550.00 per month her salary will be chargeable to the
Katipunan and Bayanihan Districts, signed by yourself. What is the Katipunan and
Bayanihan District?
A. Those were districts under my division.
Q. In effect you were telling Britannica that you have hired this person and you should charge
her salary to me, is that right?
A. Yes, sir.[5]

Private respondent was merely an agent or an independent dealer of the petitioner. He was free to
conduct his work and he was free to engage in other means of livelihood. At the time he was connected
with the petitioner company, private respondent was also a director and later the president of the Farmers
Rural Bank. Had he been an employee of the company, he could not be employed elsewhere and he
would be required to devote full time for petitioner. If private respondent was indeed an employee, it was
rather unusual for him to wait for more than a year from his separation from work before he decided to
file his claims. Significantly, when Limjoco tendered his resignation to petitioner on June 14, 1974, he
stated, thus:
"Re: Resignation
I am resigning as manager of the EB Capitol Division effective 16 June 1974.
This decision was brought about by conflict with other interests which lately have increasingly required
my personal attention. I feel that in fairness to the company and to the people under my supervision I
should relinquish the position to someone who can devote full-time to the Division.
I wish to thank you for all the encouragement and assistance you have extended to me and to my group
during my long association with Britannica.
Evidently, Limjoco was aware of conflict with other interests which xxx have increasingly required
my personal attention (p. 118, Records). At the very least, it would indicate that petitioner has no
effective control over the personal activities of Limjoco, who as admitted by the latter had other conflict
of interest requiring his personal attention.
In ascertaining whether the relationship is that of employer-employee or one of independent
contractor, each case must be determined by its own facts and all features of the relationship are to be
considered.[6] The records of the case at bar showed that there was no such employer-employee
relationship.
As stated earlier, the element of control is absent; where a person who works for another does so
more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is
compensated according to the result of his efforts and not the amount thereof, we should not find that the
relationship of employer and employee exists. [7] In fine, there is nothing in the records to show or would
indicate that complainant was under the control of the petitioner in respect of the means and
methods[8] in the performance of complainants work.
Consequently, private respondent is not entitled to the benefits prayed for.
In view of the foregoing premises, the petition is hereby GRANTED, and the decision of the NLRC
is hereby REVERSED AND SET ASIDE.
SO ORDERED.
Regalado (Chairman), Romero, Puno, and Mendoza, JJ., concur

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 100665 February 13, 1995


ZANOTTE SHOES/LEONARDO LORENZO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. BENIGNO C. VILLARENTE, JR.,
JOSEPH LLUZ, LOLITO LLUZ, NOEL ADARAYAN, ROGELIO SIRA, VIRGINIA
HERESANO, GENELITO HERESANO and CARMELITA DE DIOS, respondents.

VITUG, J.:
This petition for certiorari assails the 24th April 1991 resolution of respondent National Labor Relations
Commission ("NLRC"), as well as its resolution of 30 May 1991 denying a motion for reconsideration,
which has dismissed herein petitioners' appeal of the 16th October 1989 decision of Labor Arbiter
Benigno C. Villarente, Jr.
Private respondents filed a complaint for illegal dismissal and for various monetary claims, including the
recovery of damages and attorney's fees, against petitioners. In their supplemental position paper, the
complainants subsequently confined themselves to the illegal dismissal charge and abandoned the
monetary claims. One of the original eight complainants, Virgilio Alcunaba, decided to resume his work
with petitioners, thus leaving the rest to pursue the case. Private respondents averred that they started to
work for petitioners on, respectively, the following dates:

NAME

Joseph Lluz

DATE

March, 1985

Noel Adarayan

Feb. 17, 1980

Rogelio Sira

January, 1982

Lolito Lluz

March, 1982

Virginia Heresano

May, 1987

Genelito Heresano

20-Oct-87

Carmelita de Dios

January, 1975 1

that they worked for a minimum of twelve hours daily, including Sundays and holidays when needed; that
they were paid on piece-work basis; that it "angered" petitioner Lorenzo when they requested to be made
members of the Social Security System ("SSS"); and that, when they demanded an increase in their pay
rates, they were prevented (starting 24 October 1988) from entering the work premises.
Petitioners, in turn, claimed that their business operations were only seasonal, normally twice a year, one
in June (coinciding with the opening of school classes) and another in December (during the Christmas
holidays), when heavy job orders would come in. Private respondents, according to petitioners, were
engaged on purely contractual basis and paid the rates conformably with their respective agreements.
On 16 October 1989, Labor Arbiter Benigno C. Villarente, Jr., rendered judgment in favor of the
complainants, thus:
WHEREFORE, judgment is hereby rendered declaring that there was an employeremployee relationship between complainants and respondents and that the former were
regular employees of the latter. Accordingly, respondents are hereby directed to pay all
complainants their respective separation pay based on their one-half month's earnings per
year of service, a fraction of at least six months to be considered one whole year, or the
following amounts:

1 Joseph Lluz

P 7,488.00

(3 yrs. & 7 mos.)

2 Noel Adarayan

12,636.00

(8 yrs. & 8 mos.)

3 Rogelio Sira

8,828.00

(6 yrs. & 9 mos.)

4 Lolito Lluz

8,828.00

(6 yrs. & 7 mos.)

5 Genelito Heresano

1,404.00

(1 year)

6 Virginia Heresano

665.00

7 Carmelita de Dios

19,656.00

Total

(1 yr. & 5 mos.)

(13 yrs. & 9 mos.)

P 59,515.002

Respondents are also hereby directed to pay complainants' counsel the amount of
P5,950.00 which is equivalent to 10% of the above total awards as attorney's fees.
SO ORDERED. 3
An appeal was interposed by petitioners. The NLRC, on 24 April 1991, sustained the findings of the
Labor Arbiter and dismissed the appeal. On 30 May 1991, the NLRC denied petitioners' motion for
reconsideration.
Hence, the instant petition.
In his comment, dated 14 October 1991, the Solicitor General moved for the modification of NLRC's
resolution of 24 April 1991. While conceding that an employer-employee relationship existed between
petitioners and private respondents, the Solicitor General, nevertheless, expressed strong reservations on
the award of separation pay in view of the findings by both the Labor Arbiter and the NLRC that there
was neither dismissal nor abandonment in the case at bench. The NLRC submitted its own comment on
11 February 1992.
Well-settled is the rule that factual findings of the NLRC, particularly when they coincide with that of the
Labor Arbiter, are accorded respect, if not finality, and will not be disturbed absent any showing that
substantial evidence which might otherwise affect the result of the case has been discarded. We see no
reason, in this case at bench, for disturbing the findings of the Labor Arbiter and the NLRC on the
existence of an employer-employee relationship between herein private parties. The work of private
respondents is clearly related to, and in the pursuit of, the principal business activity of petitioners.
The indicia used for determining the existence of an employer-employee relationship, all extant in the
case at bench, include (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to control the employee with respect to the result of
the work to be done and to the means and methods by which the work to be done and to the means and
methods by which the work is to be accomplished. The requirement, so herein posed as an issue, refers to
the existence of the right to control and not necessarily to the actual exercise of the right. In Dy Keh Beng
v. International Labor and Marine Union of the Philippines, et al., 4 the Court has held:
While this Court up holds the control test under which an employer-employee
relationship exists "where the person for whom the services are performed reserves a
right to control not only the end to be achieved but also the means to be used in reaching
such end," it finds no merit with petitioner's arguments as stated above. It should be borne
in mind that the control test calls merely for the existence of the right to control the
manner of doing the work, not the actual exercise of the right. Considering the finding by
the Hearing Examiner that the establishment of Dy Keh Beng is "engaged in the
manufacture of basket known as kaing," it is natural to expect that those working under
Dy would have to observe, among others, Dy's requirements of size and quality of the
kaing. Some control would necessarily be exercised by Dy's specifications.
Parenthetically, since the work on the baskets is done at Dy's establishments, it can be
inferred that the proprietor Dy could easily exercise control on the men he employed.

We share the opinion of the Solicitor General that the award of separation pay to private respondents
appears, nonetheless, to be unwarranted.
The Labor Arbiter, sustained by the NLRC, concluded that there was neither dismissal nor abandonment.
The Labor Arbiter said
. . . At any rate, records show that even during the conciliation stage, respondents had
repeatedly indicated that they were willing to accept back all complainants aside from
denying complainants allegation. Hence, it is clear that there was no dismissal to talk
about in the first place which would have to be determined whether legal or not. We also
take particular note of complainants' desire to be given separation pay instead of being
ordered back to work. Considering all these factors we hereby rule that there was neither
dismissal nor abandonment but complainants are simply out of job for reasons not
attributable to either party. (Rollo, pp. 30-31.)
The NLRC, in nonetheless agreeing with the Labor Arbiter on the latter's award of separation pay,
ventured to say:
. . . It is not difficult to see the rationale behind the Labor Arbiter's disposition he saw
in respondents' offer of reinstatement the commanding advantage it had to later force (by
whatever unlawful means they may resort to) the complainants out of job, just as the
Labor Arbiter saw that fear on the part of complainants to enter into a trap being laid
before them for indeed, it is peculiar for an employer who wants to get rid of its
employees, to insist on reinstatement rather than a separation pay scheme which the law
allows them so they may be able to better manage their business. (Rollo, p. 39.)
We find the above disquisition of the NLRC too peculative and conjectural to be sustained. The fact of the
matter is that petitioners have repeatedly indicated their willingness to accept private respondents but the
latter have steadfastly refused the offer. For being without any clear legal basis, the award of separation
pay must thus be set aside. 5 There is nothing, however, that prevents petitioners from voluntarily giving
private respondents some amounts on ex gratia basis.
WHEREFORE, the questioned findings and resolutions of respondents Labor Arbiter and NLRC are
MODIFIED by deleting the award of separation pay and the corresponding attorney's fees. No costs.
SO ORDERED.
Feliciano, Romero, Melo and Francisco, JJ., concur.

Footnotes
1 Rollo, p. 27.
2 The total amount should be P59,505.00.
3 Rollo, p. 31.
4 90 SCRA 161.
5 Art. 279. Security of Tenure. In cases of regular employment, the employer shall to
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 of their monetary equivalent computed from the
time his compensation was withheld from him up to the time of actual reinstatement.
(Labor Code)