G.R. No.

192084

September 14, 2011

JOSE MEL BERNARTE, Petitioner,

vs.
PHILIPPINE BASKETBALL ASSOCIATION (PBA), JOSE EMMANUEL M.
EALA, and PERRY MARTINEZ, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the 17 December 2009 Decision2 and 5 April
2010 Resolution3 of the Court of Appeals in CA-G.R. SP No. 105406. The
Court of Appeals set aside the decision of the National Labor Relations
Commission (NLRC), which affirmed the decision of the Labor Arbiter, and
held that petitioner Jose Mel Bernarte is an independent contractor, and not
an employee of respondents Philippine Basketball Association (PBA), Jose
Emmanuel M. Eala, and Perry Martinez. The Court of Appeals denied the
motion for reconsideration.
The Facts
The facts, as summarized by the NLRC and quoted by the Court of Appeals,
are as follows:
Complainants (Jose Mel Bernarte and Renato Guevarra) aver that they were
invited to join the PBA as referees. During the leadership of Commissioner
Emilio Bernardino, they were made to sign contracts on a year-to-year basis.
During the term of Commissioner Eala, however, changes were made on the
terms of their employment.
Complainant Bernarte, for instance, was not made to sign a contract during
the first conference of the All-Filipino Cup which was from February 23, 2003
to June 2003. It was only during the second conference when he was made
to sign a one and a half month contract for the period July 1 to August 5,
2003.
On January 15, 2004, Bernarte received a letter from the Office of the
Commissioner advising him that his contract would not be renewed citing his
unsatisfactory performance on and off the court. It was a total shock for

Bernarte who was awarded Referee of the year in 2003. He felt that the
dismissal was caused by his refusal to fix a game upon order of Ernie De
Leon.
On the other hand, complainant Guevarra alleges that he was invited to join
the PBA pool of referees in February 2001. On March 1, 2001, he signed a
contract as trainee. Beginning 2002, he signed a yearly contract as Regular
Class C referee. On May 6, 2003, respondent Martinez issued a
memorandum to Guevarra expressing dissatisfaction over his questioning on
the assignment of referees officiating out-of-town games. Beginning February
2004, he was no longer made to sign a contract.
Respondents aver, on the other hand, that complainants entered into two
contracts of retainer with the PBA in the year 2003. The first contract was for
the period January 1, 2003 to July 15, 2003; and the second was for
September 1 to December 2003. After the lapse of the latter period, PBA
decided not to renew their contracts.
Complainants were not illegally dismissed because they were not employees
of the PBA. Their respective contracts of retainer were simply not renewed.
PBA had the prerogative of whether or not to renew their contracts, which
they knew were fixed.4
In her 31 March 2005 Decision,5 the Labor Arbiter6 declared petitioner an
employee whose dismissal by respondents was illegal. Accordingly, the
Labor Arbiter ordered the reinstatement of petitioner and the payment of
backwages, moral and exemplary damages and attorneys fees, to wit:
WHEREFORE, premises considered all respondents who are here found to
have illegally dismissed complainants are hereby ordered to (a) reinstate
complainants within thirty (30) days from the date of receipt of this decision
and to solidarily pay complainants:
JOSE MEL
BERNARTE

RENATO GUEVARRA

1. backwages from
January 1, 2004 up
to the finality of this
Decision, which to
date is

P536,250.00

P211,250.00

2. moral damages

100,000.00

50,000.00

3. exemplary
damages

100,000.00

50,000.00

4. 10% attorney's

36,125.00

controlling his acts of blowing the whistle and making calls?

68,625.00
fees
TOTAL

P754,875.00

P397,375.00

or a total of P1,152,250.00

Moreover, this Court disagrees with the Labor Arbiters finding (as affirmed by
the NLRC) that the Contracts of Retainer show that petitioners have control
over private respondents.
xxxx

The rest of the claims are hereby dismissed for lack of merit or basis.
SO ORDERED.7
In its 28 January 2008 Decision,8 the NLRC affirmed the Labor Arbiters
judgment. The dispositive portion of the NLRCs decision reads:
WHEREFORE, the appeal is hereby DISMISSED. The Decision of Labor
Arbiter Teresita D. Castillon-Lora dated March 31, 2005 is AFFIRMED.
SO ORDERED.9
Respondents filed a petition for certiorari with the Court of Appeals, which
overturned the decisions of the NLRC and Labor Arbiter. The dispositive
portion of the Court of Appeals decision reads:
WHEREFORE, the petition is hereby GRANTED. The assailed Decision
dated January 28, 2008 and Resolution dated August 26, 2008 of the
National Labor Relations Commission are ANNULLED and SET ASIDE.
Private respondents complaint before the Labor Arbiter is DISMISSED.
SO ORDERED.10
The Court of Appeals Ruling
The Court of Appeals found petitioner an independent contractor since
respondents did not exercise any form of control over the means and
methods by which petitioner performed his work as a basketball referee. The
Court of Appeals held:
While the NLRC agreed that the PBA has no control over the referees acts of
blowing the whistle and making calls during basketball games, it,
nevertheless, theorized that the said acts refer to the means and methods
employed by the referees in officiating basketball games for the illogical
reason that said acts refer only to the referees skills. How could a skilled
referee perform his job without blowing a whistle and making calls? Worse,
how can the PBA control the performance of work of a referee without

Neither do We agree with the NLRCs affirmance of the Labor Arbiters

conclusion that private respondents repeated hiring made them regular
employees by operation of law.11
The Issues
The main issue in this case is whether petitioner is an employee of
respondents, which in turn determines whether petitioner was illegally
dismissed.
Petitioner raises the procedural issue of whether the Labor Arbiters decision
has become final and executory for failure of respondents to appeal with the
NLRC within the reglementary period.
The Ruling of the Court
The petition is bereft of merit.
The Court shall first resolve the procedural issue posed by petitioner.
Petitioner contends that the Labor Arbiters Decision of 31 March 2005
became final and executory for failure of respondents to appeal with the
NLRC within the prescribed period. Petitioner claims that the Labor Arbiters
decision was constructively served on respondents as early as August 2005
while respondents appealed the Arbiters decision only on 31 March 2006,
way beyond the reglementary period to appeal. Petitioner points out that
service of an unclaimed registered mail is deemed complete five days from
the date of first notice of the post master. In this case three notices were
issued by the post office, the last being on 1 August 2005. The unclaimed
registered mail was consequently returned to sender. Petitioner presents the
Postmasters Certification to prove constructive service of the Labor Arbiters
decision on respondents. The Postmaster certified:

xxx

That upon receipt of said registered mail matter, our registry in charge,
Vicente Asis, Jr., immediately issued the first registry notice to claim on July
12, 2005 by the addressee. The second and third notices were issued on
July 21 and August 1, 2005, respectively.
That the subject registered letter was returned to the sender (RTS) because
the addressee failed to claim it after our one month retention period elapsed.
Said registered letter was dispatched from this office to Manila CPO (RTS)
under bill #6, line 7, page1, column 1, on September 8, 2005. 12
Section 10, Rule 13 of the Rules of Court provides:
SEC. 10. Completeness of service. Personal service is complete upon
actual delivery. Service by ordinary mail is complete upon the expiration of
ten (10) days after mailing, unless the court otherwise provides. Service by
registered mail is complete upon actual receipt by the addressee, or after five
(5) days from the date he received the first notice of the postmaster,
whichever date is earlier.
The rule on service by registered mail contemplates two situations: (1) actual
service the completeness of which is determined upon receipt by the
addressee of the registered mail; and (2) constructive service the
completeness of which is determined upon expiration of five days from the
date the addressee received the first notice of the postmaster.13
Insofar as constructive service is concerned, there must be conclusive proof
that a first notice was duly sent by the postmaster to the addressee. 14 Not
only is it required that notice of the registered mail be issued but that it
should also be delivered to and received by the addressee. 15 Notably, the
presumption that official duty has been regularly performed is not applicable
in this situation. It is incumbent upon a party who relies on constructive
service to prove that the notice was sent to, and received by, the
addressee.16
The best evidence to prove that notice was sent would be a certification from
the postmaster, who should certify not only that the notice was issued or sent
but also as to how, when and to whom the delivery and receipt was made.
The mailman may also testify that the notice was actually delivered. 17
In this case, petitioner failed to present any concrete proof as to how, when
and to whom the delivery and receipt of the three notices issued by the post
office was made. There is no conclusive evidence showing that the post
office notices were actually received by respondents, negating petitioners
claim of constructive service of the Labor Arbiters decision on respondents.
The Postmasters Certification does not sufficiently prove that the three

notices were delivered to and received by respondents; it only indicates that

the post office issued the three notices. Simply put, the issuance of the
notices by the post office is not equivalent to delivery to and receipt by the
addressee of the registered mail. Thus, there is no proof of completed
constructive service of the Labor Arbiters decision on respondents.
At any rate, the NLRC declared the issue on the finality of the Labor Arbiters
decision moot as respondents appeal was considered in the interest of
substantial justice. We agree with the NLRC. The ends of justice will be
better served if we resolve the instant case on the merits rather than allowing
the substantial issue of whether petitioner is an independent contractor or an
employee linger and remain unsettled due to procedural technicalities.
The existence of an employer-employee relationship is ultimately a question
of fact. As a general rule, factual issues are beyond the province of this
Court. However, this rule admits of exceptions, one of which is where there
are conflicting findings of fact between the Court of Appeals, on one hand,
and the NLRC and Labor Arbiter, on the other, such as in the present case. 18
To determine the existence of an employer-employee relationship, case law
has consistently applied the four-fold test, to wit: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employers power to control the employee on the
means and methods by which the work is accomplished. The so-called
"control test" is the most important indicator of the presence or absence of
an employer-employee relationship.19
In this case, PBA admits repeatedly engaging petitioners services, as shown
in the retainer contracts. PBA pays petitioner a retainer fee, exclusive of per
diem or allowances, as stipulated in the retainer contract. PBA can terminate
the retainer contract for petitioners violation of its terms and conditions.
However, respondents argue that the all-important element of control is
lacking in this case, making petitioner an independent contractor and not an
employee of respondents.
Petitioner contends otherwise. Petitioner asserts that he is an employee of
respondents since the latter exercise control over the performance of his
work. Petitioner cites the following stipulations in the retainer contract which
evidence control: (1) respondents classify or rate a referee; (2) respondents
require referees to attend all basketball games organized or authorized by
the PBA, at least one hour before the start of the first game of each day; (3)
respondents assign petitioner to officiate ballgames, or to act as alternate
referee or substitute; (4) referee agrees to observe and comply with all the
requirements of the PBA governing the conduct of the referees whether on or

off the court; (5) referee agrees (a) to keep himself in good physical, mental,
and emotional condition during the life of the contract; (b) to give always his
best effort and service, and loyalty to the PBA, and not to officiate as referee
in any basketball game outside of the PBA, without written prior consent of
the Commissioner; (c) always to conduct himself on and off the court
according to the highest standards of honesty or morality; and (6) imposition
of various sanctions for violation of the terms and conditions of the contract.
The foregoing stipulations hardly demonstrate control over the means and
methods by which petitioner performs his work as a referee officiating a PBA
basketball game. The contractual stipulations do not pertain to, much less
dictate, how and when petitioner will blow the whistle and make calls. On the
contrary, they merely serve as rules of conduct or guidelines in order to
maintain the integrity of the professional basketball league. As correctly
observed by the Court of Appeals, "how could a skilled referee perform his
job without blowing a whistle and making calls? x x x [H]ow can the PBA
control the performance of work of a referee without controlling his acts of
blowing the whistle and making calls?"20
In Sonza v. ABS-CBN Broadcasting Corporation,21 which determined the
relationship between a television and radio station and one of its talents, the
Court held that not all rules imposed by the hiring party on the hired party
indicate that the latter is an employee of the former. The Court held:
We find that these general rules are merely guidelines towards the
achievement of the mutually desired result, which are top-rating television
and radio programs that comply with standards of the industry. We have
ruled that:
Further, not every form of control that a party reserves to himself over the
conduct of the other party in relation to the services being rendered may be
accorded the effect of establishing an employer-employee relationship. The
facts of this case fall squarely with the case of Insular Life Assurance Co.,
Ltd. v. NLRC. In said case, we held that:
Logically, the line should be drawn between rules that merely serve as
guidelines towards the achievement of the mutually desired result without
dictating the means or methods to be employed in attaining it, and those that
control or fix the methodology and bind or restrict the party hired to the use of
such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the
result and the means used to achieve it.22
We agree with respondents that once in the playing court, the referees
exercise their own independent judgment, based on the rules of the game, as

to when and how a call or decision is to be made. The referees decide

whether an infraction was committed, and the PBA cannot overrule them
once the decision is made on the playing court. The referees are the only,
absolute, and final authority on the playing court. Respondents or any of the
PBA officers cannot and do not determine which calls to make or not to make
and cannot control the referee when he blows the whistle because such
authority exclusively belongs to the referees. The very nature of petitioners
job of officiating a professional basketball game undoubtedly calls for
freedom of control by respondents.
Moreover, the following circumstances indicate that petitioner is an
independent contractor: (1) the referees are required to report for work only
when PBA games are scheduled, which is three times a week spread over an
average of only 105 playing days a year, and they officiate games at an
average of two hours per game; and (2) the only deductions from the fees
received by the referees are withholding taxes.
In other words, unlike regular employees who ordinarily report for work eight
hours per day for five days a week, petitioner is required to report for work
only when PBA games are scheduled or three times a week at two hours per
game. In addition, there are no deductions for contributions to the Social
Security System, Philhealth or Pag-Ibig, which are the usual deductions from
employees salaries. These undisputed circumstances buttress the fact that
petitioner is an independent contractor, and not an employee of respondents.
Furthermore, the applicable foreign case law declares that a referee is an
independent contractor, whose special skills and independent judgment are
required specifically for such position and cannot possibly be controlled by
the hiring party.
In Yonan v. United States Soccer Federation, Inc.,23 the United States District
Court of Illinois held that plaintiff, a soccer referee, is an independent
contractor, and not an employee of defendant which is the statutory body that
governs soccer in the United States. As such, plaintiff was not entitled to
protection by the Age Discrimination in Employment Act. The U.S. District
Court ruled:
Generally, "if an employer has the right to control and direct the work of an
individual, not only as to the result to be achieved, but also as to details by
which the result is achieved, an employer/employee relationship is likely to
exist." The Court must be careful to distinguish between "control[ling] the
conduct of another party contracting party by setting out in detail his
obligations" consistent with the freedom of contract, on the one hand, and
"the discretionary control an employer daily exercises over its employees
conduct" on the other.

Yonan asserts that the Federation "closely supervised" his performance at

each soccer game he officiated by giving him an assessor, discussing his
performance, and controlling what clothes he wore while on the field and
traveling. Putting aside that the Federation did not, for the most part, control
what clothes he wore, the Federation did not supervise Yonan, but rather
evaluated his performance after matches. That the Federation evaluated
Yonan as a referee does not mean that he was an employee. There is no
question that parties retaining independent contractors may judge the
performance of those contractors to determine if the contractual relationship
should continue. x x x

and methods by which the hired party is to perform his work, which is absent
in this case. The continuous rehiring by PBA of petitioner simply signifies the
renewal of the contract between PBA and petitioner, and highlights the
satisfactory services rendered by petitioner warranting such contract
renewal. Conversely, if PBA decides to discontinue petitioners services at
the end of the term fixed in the contract, whether for unsatisfactory services,
or violation of the terms and conditions of the contract, or for whatever other
reason, the same merely results in the non-renewal of the contract, as in the
present case. The non-renewal of the contract between the parties does not
constitute illegal dismissal of petitioner by respondents.

It is undisputed that the Federation did not control the way Yonan refereed
his games.1wphi1 He had full discretion and authority, under the Laws of
the Game, to call the game as he saw fit. x x x In a similar vein, subjecting
Yonan to qualification standards and procedures like the Federations
registration and training requirements does not create an employer/employee
relationship. x x x

WHEREFORE, we DENY the petition and AFFIRM the assailed decision of

the Court of Appeals.

A position that requires special skills and independent judgment weights in

favor of independent contractor status. x x x Unskilled work, on the other
hand, suggests an employment relationship. x x x Here, it is undisputed that
soccer refereeing, especially at the professional and international level,
requires "a great deal of skill and natural ability." Yonan asserts that it was
the Federations training that made him a top referee, and that suggests he
was an employee. Though substantial training supports an employment
inference, that inference is dulled significantly or negated when the putative
employers activity is the result of a statutory requirement, not the employers
choice. x x x
In McInturff v. Battle Ground Academy of Franklin,24 it was held that the
umpire was not an agent of the Tennessee Secondary School Athletic
Association (TSSAA), so the players vicarious liability claim against the
association should be dismissed. In finding that the umpire is an independent
contractor, the Court of Appeals of Tennesse ruled:
The TSSAA deals with umpires to achieve a result-uniform rules for all
baseball games played between TSSAA member schools. The TSSAA does
not supervise regular season games. It does not tell an official how to
conduct the game beyond the framework established by the rules. The
TSSAA does not, in the vernacular of the case law, control the means and
method by which the umpires work.
In addition, the fact that PBA repeatedly hired petitioner does not by itself
prove that petitioner is an employee of the former. For a hired party to be
considered an employee, the hiring party must have control over the means

SO ORDERED.

G.R. No. 108961 November 27, 1998

CITIBANK, N.A., petitioner,
vs.
COURT OF APPEALS (Third Division), and CITI-BANK INTEGRATED
GUARDS LABOR ALLIANCE (CIGLA) SEGA-TUPAS/FSM LOCAL
CHAPTER No. 1394, respondents.
PARDO, J.:
The Case
The case before the Court is a petition for review on certiorari seeking to
reverse and set aside the decision of the Court of Appeals 1 and its resolution
denying reconsideration 2, ruling that it is the labor tribunal, not the regional
trial court, that has jurisdiction over the complaint for injunction and damages
filed by petitioner with the regional trial court.
The Facts
In 1983, Citibank and El Toro Security Agency, Inc. (hereafter El Toro)
entered into a contract for the latter to provide security and protective
services to safeguard and protect the bank's premises, situated at 8741
Paseo de Roxas, Makati, Metro Manila. Under the contract, El Toro obligated

itself to provide the services of security guards to safeguard and protect the
premises and property of Citibank against theft, robbery or any other unlawful
acts committed by any person or persons, and assumed responsibility for
losses and/or damages that may be incurred by Citibank due to or as a result
of the negligence of El Toro or any of its assigned personnel. 4

Faced with the prospect of disruption of its business operations, on June 5,

1990, petitioner Citibank filed with the Regional Trial Court Makati, a
complaint for injunction and damages. 5 The complaint sought to enjoin
CIGLA and any person claiming membership therein from striking or
otherwise disrupting the operations of the bank.

Citibank renewed the security contract with El Toro yearly until 1990. On April
22, 1990, the contract between Citibank and El Toro expired.

On June 18, 1990, respondent CIGLA filed with the trial court a motion to
dismiss the complaint. The motion alleged that:

On June 7, 1990, respondent Citibank Integrated Guards Labor AllianceSEGA-TUPAS/FSM (hereafter CIGLA) filed with the National Conciliation and
Mediation Board (NCMB) a request for preventive mediation citing Citibank
as respondent therein giving as issues for preventive mediation the following:

a) The Court had no jurisdiction, this being labor dispute.

a) Unfair labor practice;

b) The guards were employees of the bank.

c) There were pending cases/labor disputes between the guards and the
bank at the different agencies of the Department of Labor and Employment
(DOLE).

b) Dismissal of union officers/members; and

c) Union bust.

d) The bank was guilty of forum shopping in filing the complaint with the
Regional Trial Court after submitting itself voluntarily to the jurisdiction of the
different agencies of the DOLE.

On June 10, 1990, petitioner Citibank served on El Toro a written notice that
the bank would not renew anymore the service agreement with the latter.
Simultaneously, Citibank hired another security agency, the Golden Pyramid
Security Agency, to render security services at Citibank's premises.

By order dated August 19, 1990, the trial court denied respondent CIGLA's
motion to dismiss. The relevant portion of the order reads as follows:

On the same date, June 10, 1990, respondent CIGLA filed a manifestation
with the NCMB that it was converting its request for preventive mediation into
a notice of strike for failure of the parties to reach a mutually acceptable
settlement of the issues, which it followed with a supplemental notice of strike
alleging as supplemental issue the mass dismissal of all union officers and
members.
On June 11, 1990, security guards of El Toro who were replaced by guards of
the Golden Pyramid Security Agency considered the non-renewal of El Toro's
service agreement with Citibank as constituting a lockout and/or a mass
dismissal. They threatened to go on strike against Citibank and picket its
premises.
In fact, security guards formerly assigned to Citibank under the expired
agreement loitered around and near the Citibank premises in large groups of
from twenty (20) and at times fifty (50) persons.
On June 14, 1990, respondent CIGLA filed a notice of strike directed at the
premises of the Citibank main office.

Plaintiff in its Opposition alleged that jurisdiction of the court

is determined by the allegations of the complaints. In the
plaintiff's complaint there are allegations, which negate any
employer-employee relationship between it and the CIGLA
members; however the Court could not dismiss the case and
lift the restraining order without first threshing out the same
at the trial of the case.
The Court finding the grounds alleged in the defendant's
motion well taken, the motion is hereby denied.
SO ORDERED.
In due time, respondent CIGLA filed with the trial court a motion for
reconsideration of the above-mentioned order. On October 1, 1990, the trial
court denied the motion.
Subsequently, respondent CIGLA filed with the trial court its answer to the
complaint, and averred as special and affirmative defense lack of jurisdiction
of the court over the subject matter of the case. Treating the averment as

motion to dismiss, on April 27, 1991, the lower court issued an order denying
the motion. The lower court stated:
The Court noted in defendant's Memorandum of Authorities
that they made no mention who among the parties the
plaintiff bank or the defendants union paid their wages or
salaries and who has the power to dismiss them.
Defendants also alleged that the complaint states no valid
cause of action as plaintiffs allegations are purely anchored
on conjectures and conclusions and not based on ultimate
facts.
Plaintiff in its Opposition alleged that it is a well-settled rule,
that in a motion to dismiss based on the ground that the
complaint fails to state a cause of action, the question
submitted to the court for determination is the sufficiency of
the allegation in the complaint itself. Plaintiff also alleged that
the defendants disputed the jurisdiction of the court, the
parties having employer-employee relationship; this mere
allegation did not serve to automatically deprive the court of
its jurisdiction duly conferred by the allegations of the
complaint; in the opinion of the defendants, a labor dispute
exists, the court is duty bound to find out if such
circumstances really exist.
The Court weighing the evidence and jurisprudence in
support in support of the respective contention of the parties,
and finding that in the case at bar, plaintiff seeks to recover
pecuniary damages, the Court gives more credence to the
decisions cited by the plaintiff, hence the special and
affirmative defenses alleged in the answer treated as a
"Motion to Dismiss" is hereby denied.
On May 24, 1991, respondent CIGLA filed with the Court of Appeals a
petition for certiorari with preliminary injunction 6 assailing the validity of the
proceedings had before the regional trial court.
After due proceedings, on March 31, 1992, the Court of Appeals promulgated
its decision in CIGLA's favor, the dispositive portion of which states:
WHEREFORE, the Writ of Certiorari is GRANTED, and the
proceedings before respondent Judge more particularly the
challenged orders are declared null and void and respondent
Judge is enjoined from taking any further action in Civil Case

No. 90-1612 except for the purpose of dismissing it.

Following, however, the disposition in San Miguel
Corporation Employees Union vs. Bersamira, the status quo
ante declaration of strike shall be observed pending the
proceedings in the National Conciliation and Mediation
Board, Department of Labor and Employment, National
Capital Region (Annex A of Petition). No Costs.
SO ORDERED.
On April 29, 1992, petitioner Citibank filed a motion for reconsideration of the
decision. On February 12, 1993, the Court of Appeals denied the motion,
finding that the arguments in the motion for reconsideration are but a rehash,
if not a repetition, of the arguments in its comments, which had been
considered by the Court in its decision.
Hence, the petitioner's recourse to this Court.
The Issue
The basic issue involved is whether it is the labor tribunal or the regional trial
court that has jurisdiction over the subject matter of the complaint filed by
Citibank with the trial court.
Petitioner's Submission
Petitioner Citibank contends that there is no employer-employee relationship
between Citibank and the security guards represented by respondent CIGLA
and that there is no "labor dispute" in the subject controversy. The security
guards were employees of El Toro security agency, not of Citibank. Its
service contract with Citibank had expired and not renewed.
The Court's Ruling
We sustain the petitioner's contention. This Court has held in many cases
that "in determining the existence of an employer-employee relationship, the
following elements are generally considered: 1) the selection and
engagement of the employee; 2) the payment of wages; 3) the power of
dismissal; and 4) the employer's power to control the employee with respect
to the means and methods by which the work is to be accomplished". 7 It has
been decided also that the Labor Arbiter has no jurisdiction over a claim filed
where no employer-employee relationship existed between a company and
the security guards assigned to it by a security service contractor. 8 In this
case, it was the security agency El Toro that recruited, hired and assigned
the watchmen to their place of work. It was the security agency that was

answerable to Citibank for the conduct of its guards.

Relief

The question arises. Is there a labor dispute between Citibank and the
security guards, members of respondent CIGLA, regardless of whether they
stand in the relation of employer and employees? Article 212, paragraph 1 of
the Labor Code provides the definition of a "labor dispute". It "includes any
controversy or matter concerning terms or conditions of employment or the
association or representation of persons in negotiating, fixing, maintaining,
changing or arranging the terms and conditions of employment, regardless of
whether the disputants stand in the proximate relation of employer and
employee.

WHEREFORE, the Court hereby GRANTS the petition for review on

certiorari. We REVERSE and SET ASIDE the decision of the Court of
Appeals and its resolution denying reconsideration in CA-G. R. SP No.
25584, and REMAND the records of the case to the Regional Trial Court,
Makati, for further proceedings in line with the ruling herein that jurisdiction
over the subject matter of the complaint in Civil Case No. 90-1612, is vested
therein.

If at all, the dispute between Citibank and El Toro security agency is one
regarding the termination or non-renewal of the contract of services. This is a
civil dispute. 9 El Toro was an independent contractor. Thus, no employeremployee relationship existed between Citibank and the security guard
members of the union in the security agency who were assigned to secure
the bank's premises and property. Hence, there was no labor dispute and no
right to strike against the bank.

SO ORDERED.

It is a basic rule of procedure that "jurisdiction of the court over the subject
matter of the action is determined by the allegations of the complaint,
irrespective of whether or not the plaintiff is entitled to recover upon all or
some of the claims asserted therein. The jurisdiction of the court can not be
made to depend upon the defenses set up in the answer or upon the motion
to dismiss, for otherwise, the question of jurisdiction would almost entirely
depend upon the defendant." 10 "What determines the jurisdiction of the court
is the nature of the action pleaded as appearing from the allegations in the
complaint. The averments therein and the character of the relief sought are
the ones to be consulted." 11
In the complaint filed with the trial court, petitioner alleged that in 1983, it
entered into a contract with El Toro, a security agency, for security and
protection service. The parties renewed the contract yearly until April 22,
1990. Petitioner further alleged that from June 11, 1990, until the filing of the
complaint, El Toro security guards formerly assigned to guard Citibank
premises loitered around the bank's premises in large groups and threatened
to stage a strike, which would hamper its operations and the normal conduct
of its business and that the bank would suffer damages should a strike push
through.
On the basis of the allegations of the complaint, it is safe to conclude that the
dispute involved is a civil one, not a labor dispute. 12 Consequently, we rule
that jurisdiction over the subject matter of the complaint lies with the regional
trial court.

No pronouncement as to costs.

G.R. No. 82211-12 March 21, 1989

TERESITA MONTOYA, petitioner,
vs.
TERESITA ESCAYO, JOY ESCAYO, AIDA GANANCIAL, MARY ANN
CAPE, CECILIA CORREJADO, ERLINDA PAYPON and ROSALIE VERDE,
AND NATIONAL LABOR RELATIONS COMMISSION, respondents.
Rolando N. Medalla and Segundo Y Chua for petitioner. The Solicitor
General for public respondent. Archie S. Baribar for private respondents.
SARMIENTO, J.:
This petition for certiorari seeks the annullment and setting aside of the
resolution 1 9dated August 20, 1987 of the National Labor Relations
Commission (NLRC), Third Division, which reversed and set aside the order
dated September 27, 1985 of Labor Arbiter Ethelwoldo R. Ovejera of the
NLRC's Regional Arbitration Branch No. VI, Bacolod City, dismissing the
complaint filed by the private respondents against the petitioner. This petition
raises a singular issue, i.e., the applicability of Presidential Decree (P.D.) No.
1508, more commonly known as the Katarungang Pambarangay Law, to
labor disputes.
The chronology of events leading to the present controversy is as follows:
The private respondents were all formerly employed as salesgirls in the
petitioner's store, the "Terry's Dry Goods Store," in Bacolod City. On different
dates, they separately filed complaints for the collection of sums of money

against the petitioner for alleged unpaid overtime pay, holiday pay, 13th
month pay, ECOLA, and service leave pay: for violation of the minimum
wage law, illegal dismissal, and attorney's fees. The complaints, which were
originally treated as separate cases, were subsequently consolidated on
account of the similarity in their nature. On August 1, 1984, the petitioneremployer moved (Annex "C" of Petition) for the dismissal of the complaints,
claiming that among others, the private respondents failed to refer the
dispute to the Lupong Tagapayapa for possible settlement and to secure the
certification required from the Lupon Chairman prior to the filing of the cases
with the Labor Arbiter. These actions were allegedly violative of the
provisions of P.D. No. 1508, which apply to the parties who are all residents
of Bacolod City.
Acting favorably on the petitioner's motion, Labor Arbiter Ethelwoldo R.
Ovejera, on September 27, 1985, ordered the dismissal of the complaints.
The private respondents sought the reversal of the Labor Arbiter's order
before the respondent NLRC. On August 20, 1987, the public respondent
rendered the assailed resolution reversing the order of Ovejera, and
remanded the case to the Labor Arbiter for further proceedings. A motion for
reconsideration was filed by the petitioner but this was denied for lack of
merit on October 28, 1987. Hence, this petition.
It is the petitioner's contention that the provisions of the Katarungang
Pambarangay Law (P.D. No. 1508) relative to the prior amicable settlement
proceedings before the Lupong Tagapayapa as a jurisdictional requirement
at the trial level apply to labor cases. More particularly, the petitioner insists
that the failure of the private respondents to first submit their complaints for
possible conciliation and amicable settlement in the proper barangay court in
Bacolod City and to secure a certification from the Lupon Chairman prior to
their filing with the Labor Arbiter, divests the Labor Arbiter, as well as the
respondent Commission itself, of jurisdiction over these labor controversies
and renders their judgments thereon null and void.

No. 1508 invoked by the petitioner are quoted:

SEC. 6. Conciliation pre-condition to filing of complaint. No complaint,
petition, action or proceeding involving any matter within the authority of the
Lupon as provided in Section 2 hereof shall be filed or instituted in court or
any other government office for adjudication unless there has been a
confrontation of the parties before the Lupon Chairman or the Pangkat and
no conciliation or settlement has been reached as certified by the Lupon
Secretary or the Pangkat Secretary, attested by the Lupon or Pangkat
Chairman, or unless the settlement has been repudiated. However, the
parties may go directly to court in the following cases:
(1) Where the accused is under detention;
(2) Where a person has otherwise been deprived of per sonal liberty calling
for habeas corpus proceedings;
(3) Actions coupled with provisional remedies such as preliminary injunction,
attachment, delivery of personal property and support pendente lite; and
(4) Where the action may otherwise be barred by the Statute of Limitations.
As correctly pointed out by the Solicitor General in his comment to the
petition, even from the three "WHEREAS" clauses of P.D. No. 1508 can be
gleaned clearly the decree's intended applicability only to courts of justice,
and not to labor relations commissions or labor arbitrators' offices. The
express reference to "judicial resources", to "courts of justice", "court
dockets", or simply to "courts" are significant. On the other band, there is no
mention at all of labor relations or controversies and labor arbiters or
commissions in the clauses involved.
These "WHEREAS" clauses state:

On the other hand, the Solicitor General, as counsel for the public
respondent NLRC, in his comment, strongly argues and convincingly against
the applicability of P.D. No. 1508 to labor cases.
We dismiss the petition for lack of merit, there being no satisfactory showing
of any grave abuse of discretion committed by the public respondent.
The provisions of P.D. No. 1508 requiring the submission of disputes before
the barangay Lupong Tagapayapa prior to their filing with the court or other
government offices are not applicable to labor cases.
For a better understanding of the issue in this case, the provisions of P.D.

WHEREAS, the perpetuation and official recognition of the

time-honored tradition of amicably settling disputes among
family and barangay members at the barangay level without
judicial resources would promote the speedy administration
of justice and implement the constitutional mandate to
preserve and develop Filipino culture and to strengthen the
family as a basic social institution;
WHEREAS, the indiscriminate filing of cases in the courts of
justice contributes heavily and unjustifiably to the congestion
of court dockets, thus causing a deterioration in the quality of
justice;

WHEREAS, in order to help relieve the courts of such docket

congestion and thereby enhance the quality of Justice
dispensed by the courts, it is deemed desirable to formally
organize and institutionalize a system of amicably settling
disputes at the barangay level; (Emphasis supplied.)
In addition, Letter of Instructions No. 956 and Letter of Implementation No.
105, both issued on November 12, 1979 by the former President in
connection with the implementation of the Katarungang Pambarangay Law,
affirm this conclusion. These Letters were addressed only to the following
officials: all judges of the Courts of first Instance, Circuit Criminal Courts,
Juvenile and Domestic Relations Courts, Courts of Agrarian Relations, City
Courts and Municipal Courts, and all Fiscals and other Prosecuting Officers.
These presidential issuances make clear that the only official directed to
oversee the implementation of the provisions of the Katarungang
Pambarangay Law (P.D. No. 1508) are the then Minister of Justice, the then
Minister of Local Governments and Community Development, and the Chief
Justice of the Supreme Court. If the contention of the petitioner were correct,
the then Minister (now Secretary) of Labor and Employment would have
been included in the list, and the two presidential issuances also would have
been addressed to the labor relations officers, labor arbiters, and the
members of the National Labor Relations Commission. Expressio unius est
exclusio alterius.
Nor can we accept the petitioner's contention that the "other government
office" referred to in Section 6 of P.D. No. 1508 includes the Office of the
Labor Arbiter and the Med-Arbiter. The declared concern of the Katarungan
Pambarangay Law is "to help relieve the courts of such docket congestion
and thereby enhance the quality of justice dispensed by the courts." Thus,
the" other government office" mentioned in Section 6 of P.D. No. 1508 refers
only to such offices as the Fiscal's Office or, in localities where there is no
fiscal, the Municipal Trial Courts, where complaints for crimes (such as those
punishable by imprisonment of not more than 30 days or a, fine of not more
than P 200.00) falling under the jurisdiction of the barangay court but which
are not amicably settled, are subsequently filed for proper disposition.
But, the opinion of the Honorable Minister of Justice (Opinion No. 59, s.
1983) to the contrary notwithstanding, all doubts on this score are dispelled
by The Labor Code Of The Philippines (Presidential Decree No. 442, as
amended) itself. Article 226 thereof grants original and exclusive jurisdiction
over the conciliation and mediation of disputes, grievances, or problems in
the regional offices of the Department of Labor and Employ- ment. It is the
said Bureau and its divisions, and not the barangay Lupong Tagapayapa,
which are vested by law with original and exclusive authority to conduct
conciliation and mediation proceedings on labor controversies before their
endorsement to the appropriate Labor Arbiter for adjudication. Article 226,

previously adverted to is clear on this regard. It provides:

ART. 226. Bureau of Labor Relations.- The Bureau of Labor
Relations and the Labor relations divisions in the regional
officer of the Department of Labor shall have original and
exclusive authority to act, at their own initiative or upon
request of either or both parties, on all inter-union and intraunion conflicts, and all disputes, grievances or problems
arising from or affecting labor-management relations in all
workplaces whether agricultural or non-agricultural, except
those arising from the implementation or interpretation of
collective bargaining agreements which shall be the subject
of grievance procedure and/or voluntary arbitration.
The Bureau shall have fifteen (15) working days to act on all
labor cases, subject to extension by agreement of the
parties, after which the Bureau shall certify the cases to the
appropriate Labor Arbiters. The 15-working day deadline,
however, shall not apply to cases involving deadlocks in
collective bargaining which the Bureau shall certify to the
appropriate Labor Arbiters only after all possibilities of
voluntary settlement shall have been tried.
Requiring conciliation of labor disputes before the barangay courts would
defeat the very salutary purposes of the law. Instead of simplifying labor
proceedings designed at expeditious settlement or referral to the proper court
or office to decide it finally, the position taken by the petitioner would only
duplicate the conciliation proceedings and unduly delay the disposition of the
labor case. The fallacy of the petitioner's submission can readily be seen by
following it to its logical conclusion. For then, if the procedure suggested is
complied with, the private respondent would have to lodge first their
complaint with the barangay court, and then if not settled there, they would
have to go to the labor relations division at the Regional Office of Region VI
of the Department of Labor and Employment, in Bacolod City, for another
round of conciliation proceedings. Failing there, their long travail would
continue to the Office of the Labor Arbiter, then to the NLRC, and finally to
us. This suggested procedure would destroy the salutary purposes of P.D.
1508 and of The Labor Code Of The Philippines. And labor would then be
given another unnecessary obstacle to hurdle. We reject the petitioner's
submission. It does violence to the constitutionally mandated policy of the
State to afford full protection to labor. 2
Finally, it is already well-settled that the ordinary rules on procedure are
merely suppletory in character vis-a-vis labor disputes which are primarily
governed by labor laws. 3 And "(A)ll doubts in the implementation and
interpretation of this Code (Labor), including its implementing rules and

regulations, shall be resolved in favor of labor. 4

WHEREFORE, the petition is DISMISSED. Costs against the petitioner.
SO ORDERED.

G.R. No. 148132

January 28, 2008

SMART COMMUNICATIONS, INC., petitioner,

vs.
REGINA M. ASTORGA, respondent.
x---------------------------------------------------x
G.R. No. 151079

January 28, 2008

SMART COMMUNICATIONS, INC., petitioner,

vs.
REGINA M. ASTORGA, respondent.
x---------------------------------------------------x
G.R. No. 151372

January 28, 2008

REGINA M. ASTORGA, petitioner,

vs.
SMART COMMUNICATIONS, INC. and ANN MARGARET V. SANTIAGO,
respondents.
For the resolution of the Court are three consolidated petitions for review on
certiorari under Rule 45 of the Rules of Court. G.R. No. 148132 assails the
February 28, 2000 Decision1 and the May 7, 2001 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP. No. 53831. G.R. Nos. 151079 and 151372
question the June 11, 2001 Decision3 and the December 18, 2001
Resolution4 in CA-G.R. SP. No. 57065.
Regina M. Astorga (Astorga) was employed by respondent Smart
Communications, Incorporated (SMART) on May 8, 1997 as District Sales
Manager of the Corporate Sales Marketing Group/ Fixed Services Division

(CSMG/FSD). She was receiving a monthly salary of P33,650.00. As District

Sales Manager, Astorga enjoyed additional benefits, namely, annual
performance incentive equivalent to 30% of her annual gross salary, a group
life and hospitalization insurance coverage, and a car plan in the amount of
P455,000.00.5
In February 1998, SMART launched an organizational realignment to achieve
more efficient operations. This was made known to the employees on
February 27, 1998.6 Part of the reorganization was the outsourcing of the
marketing and sales force. Thus, SMART entered into a joint venture
agreement with NTT of Japan, and formed SMART-NTT Multimedia,
Incorporated (SNMI). Since SNMI was formed to do the sales and marketing
work, SMART abolished the CSMG/FSD, Astorgas division.
To soften the blow of the realignment, SNMI agreed to absorb the CSMG
personnel who would be recommended by SMART. SMART then conducted
a performance evaluation of CSMG personnel and those who garnered the
highest ratings were favorably recommended to SNMI. Astorga landed last in
the performance evaluation, thus, she was not recommended by SMART.
SMART, nonetheless, offered her a supervisory position in the Customer
Care Department, but she refused the offer because the position carried
lower salary rank and rate.
Despite the abolition of the CSMG/FSD, Astorga continued reporting for
work. But on March 3, 1998, SMART issued a memorandum advising
Astorga of the termination of her employment on ground of redundancy,
effective April 3, 1998. Astorga received it on March 16, 1998. 7
The termination of her employment prompted Astorga to file a Complaint 8 for
illegal dismissal, non-payment of salaries and other benefits with prayer for
moral and exemplary damages against SMART and Ann Margaret V.
Santiago (Santiago). She claimed that abolishing CSMG and, consequently,
terminating her employment was illegal for it violated her right to security of
tenure. She also posited that it was illegal for an employer, like SMART, to
contract out services which will displace the employees, especially if the
contractor is an in-house agency.9
SMART responded that there was valid termination. It argued that Astorga
was dismissed by reason of redundancy, which is an authorized cause for
termination of employment, and the dismissal was effected in accordance
with the requirements of the Labor Code. The redundancy of Astorgas
position was the result of the abolition of CSMG and the creation of a
specialized and more technically equipped SNMI, which is a valid and
legitimate exercise of management prerogative.10

In the meantime, on May 18, 1998, SMART sent a letter to Astorga

demanding that she pay the current market value of the Honda Civic Sedan
which was given to her under the companys car plan program, or to
surrender the same to the company for proper disposition. 11 Astorga,
however, failed and refused to do either, thus prompting SMART to file a suit
for replevin with the Regional Trial Court of Makati (RTC) on August 10,
1998. The case was docketed as Civil Case No. 98-1936 and was raffled to
Branch 57.12
Astorga moved to dismiss the complaint on grounds of (i) lack of jurisdiction;
(ii) failure to state a cause of action; (iii) litis pendentia; and (iv) forumshopping. Astorga posited that the regular courts have no jurisdiction over
the complaint because the subject thereof pertains to a benefit arising from
an employment contract; hence, jurisdiction over the same is vested in the
labor tribunal and not in regular courts.13
Pending resolution of Astorgas motion to dismiss the replevin case, the
Labor Arbiter rendered a Decision14 dated August 20, 1998, declaring
Astorgas dismissal from employment illegal. While recognizing SMARTs
right to abolish any of its departments, the Labor Arbiter held that such right
should be exercised in good faith and for causes beyond its control. The
Arbiter found the abolition of CSMG done neither in good faith nor for causes
beyond the control of SMART, but a ploy to terminate Astorgas employment.
The Arbiter also ruled that contracting out the functions performed by Astorga
to an in-house agency like SNMI was illegal, citing Section 7(e), Rule VIII-A
of the Rules Implementing the Labor Code.
Accordingly, the Labor Arbiter ordered:
WHEREFORE, judgment is hereby rendered declaring the dismissal
of [Astorga] to be illegal and unjust. [SMART and Santiago] are
hereby ordered to:
1.

Reinstate [Astorga] to [her] former position or to a substantially

equivalent position, without loss of seniority rights and other
privileges, with full backwages, inclusive of allowances and other
benefits from the time of [her] dismissal to the date of
reinstatement, which computed as of this date, are as follows:

xxxx

3. Jointly and severally pay moral damages in the amount of

P500,000.00 x x x and exemplary damages in the amount of
P300,000.00. x x x
4. Jointly and severally pay 10% of the amount due as attorneys
fees.
SO ORDERED.15
Subsequently, on March 29, 1999, the RTC issued an Order16 denying
Astorgas motion to dismiss the replevin case. In so ruling, the RTC
ratiocinated that:
Assessing the [submission] of the parties, the Court finds no merit in
the motion to dismiss.
As correctly pointed out, this case is to enforce a right of possession
over a company car assigned to the defendant under a car plan
privilege arrangement. The car is registered in the name of the
plaintiff. Recovery thereof via replevin suit is allowed by Rule 60 of
the 1997 Rules of Civil Procedure, which is undoubtedly within the
jurisdiction of the Regional Trial Court.
In the Complaint, plaintiff claims to be the owner of the company car
and despite demand, defendant refused to return said car. This is
clearly sufficient statement of plaintiffs cause of action.
Neither is there forum shopping. The element of litis penden[t]ia does
not appear to exist because the judgment in the labor dispute will not
constitute res judicata to bar the filing of this case.
WHEREFORE, the Motion to Dismiss is hereby denied for lack of
merit.
SO ORDERED.17
Astorga filed a motion for reconsideration, but the RTC denied it on June 18,
1999.18
Astorga elevated the denial of her motion via certiorari to the CA, which, in its
February 28, 2000 Decision,19 reversed the RTC ruling. Granting the petition
and, consequently, dismissing the replevin case, the CA held that the case is
intertwined with Astorgas complaint for illegal dismissal; thus, it is the labor
tribunal that has rightful jurisdiction over the complaint. SMARTs motion for

reconsideration having been denied,20 it elevated the case to this Court, now
docketed as G.R. No. 148132.
Meanwhile, SMART also appealed the unfavorable ruling of the Labor Arbiter
in the illegal dismissal case to the National Labor Relations Commission
(NLRC). In its September 27, 1999 Decision,21 the NLRC sustained Astorgas
dismissal. Reversing the Labor Arbiter, the NLRC declared the abolition of
CSMG and the creation of SNMI to do the sales and marketing services for
SMART a valid organizational action. It overruled the Labor Arbiters ruling
that SNMI is an in-house agency, holding that it lacked legal basis. It also
declared that contracting, subcontracting and streamlining of operations for
the purpose of increasing efficiency are allowed under the law. The NLRC
further found erroneous the Labor Arbiters disquisition that redundancy to be
valid must be impelled by economic reasons, and upheld the redundancy
measures undertaken by SMART.

intended termination. Accordingly, the CA imposed a penalty equivalent to

Astorgas one-month salary for this non-compliance. The CA also set aside
the NLRCs order for the return of the company vehicle holding that this issue
is not essentially a labor concern, but is civil in nature, and thus, within the
competence of the regular court to decide. It added that the matter had not
been fully ventilated before the NLRC, but in the regular court.
Astorga filed a motion for reconsideration, while SMART sought partial
reconsideration, of the Decision. On December 18, 2001, the CA resolved
the motions, viz.:
WHEREFORE, [Astorgas] motion for reconsideration is hereby
PARTIALLY GRANTED. [Smart] is hereby ordered to pay [Astorga]
her backwages from 15 February 1998 to 06 November 1998.
[Smarts] motion for reconsideration is outrightly DENIED.
SO ORDERED.25

The NLRC disposed, thus:

WHEREFORE, the Decision of the Labor Arbiter is hereby reversed
and set aside. [Astorga] is further ordered to immediately return the
company vehicle assigned to her. [Smart and Santiago] are hereby
ordered to pay the final wages of [Astorga] after [she] had submitted
the required supporting papers therefor.
SO ORDERED.22
Astorga filed a motion for reconsideration, but the NLRC denied it on
December 21, 1999.23
Astorga then went to the CA via certiorari. On June 11, 2001, the CA
rendered a Decision24 affirming with modification the resolutions of the NLRC.
In gist, the CA agreed with the NLRC that the reorganization undertaken by
SMART resulting in the abolition of CSMG was a legitimate exercise of
management prerogative. It rejected Astorgas posturing that her nonabsorption into SNMI was tainted with bad faith. However, the CA found that
SMART failed to comply with the mandatory one-month notice prior to the

Astorga and SMART came to us with their respective petitions for review
assailing the CA ruling, docketed as G.R Nos. 151079 and 151372. On
February 27, 2002, this Court ordered the consolidation of these petitions
with G.R. No. 148132.26
In her Memorandum, Astorga argues:
I
THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY
OF ASTORGAS DISMISSAL DESPITE THE FACT THAT HER
DISMISSAL WAS EFFECTED IN CLEAR VIOLATION OF THE
CONSTITUTIONAL RIGHT TO SECURITY OF TENURE,
CONSIDERING THAT THERE WAS NO GENUINE GROUND FOR
HER DISMISSAL.
II
SMARTS REFUSAL TO REINSTATE ASTORGA DURING THE
PENDENCY OF THE APPEAL AS REQUIRED BY ARTICLE 223 OF

THE LABOR CODE, ENTITLES ASTORGA TO HER SALARIES

DURING THE PENDENCY OF THE APPEAL.
III
THE COURT OF APPEALS WAS CORRECT IN HOLDING THAT
THE REGIONAL TRIAL COURT HAS NO JURISDICTION OVER
THE COMPLAINT FOR RECOVERY OF A CAR WHICH ASTORGA
ACQUIRED AS PART OF HER EMPLOYEE (sic) BENEFIT.27
On the other hand, Smart in its Memoranda raises the following issues:
I
WHETHER THE HONORABLE COURT OF APPEALS HAS
DECIDED A QUESTION OF SUBSTANCE IN A WAY PROBABLY
NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISION
OF THE HONORABLE SUPREME COURT AND HAS SO FAR
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF
THE POWER OF SUPERVISION WHEN IT RULED THAT SMART
DID NOT COMPLY WITH THE NOTICE REQUIREMENTS PRIOR
TO TERMINATING ASTORGA ON THE GROUND OF
REDUNDANCY.
II
WHETHER THE NOTICES GIVEN BY SMART TO ASTORGA AND
THE DEPARTMENT OF LABOR AND EMPLOYMENT ARE
SUBSTANTIAL COMPLIANCE WITH THE NOTICE
REQUIREMENTS BEFORE TERMINATION.
III
WHETHER THE RULE ENUNCIATED IN SERRANO VS. NATIONAL
LABOR RELATIONS COMMISSION FINDS APPLICATION IN THE
CASE AT BAR CONSIDERING THAT IN THE SERRANO CASE
THERE WAS ABSOLUTELY NO NOTICE AT ALL.28
IV
WHETHER THE HONORABLE COURT OF APPEALS HAS
DECIDED A QUESTION OF SUBSTANCE IN A WAY PROBABLY
NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISION[S]

OF THE HONORABLE SUPREME COURT AND HAS SO FAR

DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF
THE POWER OF SUPERVISION WHEN IT RULED THAT THE
REGIONAL TRIAL COURT DOES NOT HAVE JURISDICTION
OVER THE COMPLAINT FOR REPLEVIN FILED BY SMART TO
RECOVER ITS OWN COMPANY VEHICLE FROM A FORMER
EMPLOYEE WHO WAS LEGALLY DISMISSED.
V
WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED
TO APPRECIATE THAT THE SUBJECT OF THE REPLEVIN CASE
IS NOT THE ENFORCEMENT OF A CAR PLAN PRIVILEGE BUT
SIMPLY THE RECOVERY OF A COMPANY CAR.
VI
WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED
TO APPRECIATE THAT ASTORGA CAN NO LONGER BE
CONSIDERED AS AN EMPLOYEE OF SMART UNDER THE
LABOR CODE.29
The Court shall first deal with the propriety of dismissing the replevin case
filed with the RTC of Makati City allegedly for lack of jurisdiction, which is the
issue raised in G.R. No. 148132.
Replevin is an action whereby the owner or person entitled to repossession
of goods or chattels may recover those goods or chattels from one who has
wrongfully distrained or taken, or who wrongfully detains such goods or
chattels. It is designed to permit one having right to possession to recover
property in specie from one who has wrongfully taken or detained the
property.30 The term may refer either to the action itself, for the recovery of
personalty, or to the provisional remedy traditionally associated with it, by
which possession of the property may be obtained by the plaintiff and
retained during the pendency of the action.31
That the action commenced by SMART against Astorga in the RTC of Makati
City was one for replevin hardly admits of doubt.
In reversing the RTC ruling and consequently dismissing the case for lack of
jurisdiction, the CA made the following disquisition, viz.:
[I]t is plain to see that the vehicle was issued to [Astorga] by [Smart]
as part of the employment package. We doubt that [SMART] would

extend [to Astorga] the same car plan privilege were it not for her
employment as district sales manager of the company. Furthermore,
there is no civil contract for a loan between [Astorga] and [Smart].
Consequently, We find that the car plan privilege is a benefit arising
out of employer-employee relationship. Thus, the claim for such falls
squarely within the original and exclusive jurisdiction of the labor
arbiters and the NLRC.32
We do not agree. Contrary to the CAs ratiocination, the RTC rightfully
assumed jurisdiction over the suit and acted well within its discretion in
denying Astorgas motion to dismiss. SMARTs demand for payment of the
market value of the car or, in the alternative, the surrender of the car, is not a
labor, but a civil, dispute. It involves the relationship of debtor and creditor
rather than employee-employer relations.33 As such, the dispute falls within
the jurisdiction of the regular courts.
In Basaya, Jr. v. Militante,34 this Court, in upholding the jurisdiction of the
RTC over the replevin suit, explained:
Replevin is a possessory action, the gist of which is the right of
possession in the plaintiff. The primary relief sought therein is the
return of the property in specie wrongfully detained by another
person. It is an ordinary statutory proceeding to adjudicate rights to
the title or possession of personal property. The question of whether
or not a party has the right of possession over the property involved
and if so, whether or not the adverse party has wrongfully taken and
detained said property as to require its return to plaintiff, is outside
the pale of competence of a labor tribunal and beyond the field of
specialization of Labor Arbiters.
x x x xThe labor dispute involved is not intertwined with the issue in
the Replevin Case. The respective issues raised in each forum can
be resolved independently on the other. In fact in 18 November
1986, the NLRC in the case before it had issued an Injunctive Writ
enjoining the petitioners from blocking the free ingress and egress to
the Vessel and ordering the petitioners to disembark and vacate.
That aspect of the controversy is properly settled under the Labor
Code. So also with petitioners right to picket. But the determination
of the question of who has the better right to take possession of the
Vessel and whether petitioners can deprive the Charterer, as the
legal possessor of the Vessel, of that right to possess in addressed
to the competence of Civil Courts.
In thus ruling, this Court is not sanctioning split jurisdiction but
defining avenues of jurisdiction as laid down by pertinent laws.

The CA, therefore, committed reversible error when it overturned the RTC
ruling and ordered the dismissal of the replevin case for lack of jurisdiction.
Having resolved that issue, we proceed to rule on the validity of Astorgas
dismissal.
Astorga was terminated due to redundancy, which is one of the authorized
causes for the dismissal of an employee. The nature of redundancy as an
authorized cause for dismissal is explained in the leading case of Wiltshire
File Co., Inc. v. National Labor Relations Commission,35 viz:
x x x redundancy in an employers personnel force necessarily or
even ordinarily refers to duplication of work. That no other person
was holding the same position that private respondent held prior to
termination of his services does not show that his position had not
become redundant. Indeed, in any well organized business
enterprise, it would be surprising to find duplication of work and two
(2) or more people doing the work of one person. We believe that
redundancy, for purposes of the Labor Code, exists where the
services of an employee are in excess of what is reasonably
demanded by the actual requirements of the enterprise. Succinctly
put, a position is redundant where it is superfluous, and superfluity of
a position or positions may be the outcome of a number of factors,
such as overhiring of workers, decreased volume of business, or
dropping of a particular product line or service activity previously
manufactured or undertaken by the enterprise.
The characterization of an employees services as superfluous or no longer
necessary and, therefore, properly terminable, is an exercise of business
judgment on the part of the employer. The wisdom and soundness of such
characterization or decision is not subject to discretionary review provided, of
course, that a violation of law or arbitrary or malicious action is not shown. 36
Astorga claims that the termination of her employment was illegal and tainted
with bad faith. She asserts that the reorganization was done in order to get
rid of her. But except for her barefaced allegation, no convincing evidence
was offered to prove it. This Court finds it extremely difficult to believe that
SMART would enter into a joint venture agreement with NTT, form SNMI and
abolish CSMG/FSD simply for the sole purpose of easing out a particular
employee, such as Astorga. Moreover, Astorga never denied that SMART
offered her a supervisory position in the Customer Care Department, but she
refused the offer because the position carried a lower salary rank and rate. If
indeed SMART simply wanted to get rid of her, it would not have offered her
a position in any department in the enterprise.

Astorga also states that the justification advanced by SMART is not true
because there was no compelling economic reason for redundancy. But
contrary to her claim, an employer is not precluded from adopting a new
policy conducive to a more economical and effective management even if it
is not experiencing economic reverses. Neither does the law require that the
employer should suffer financial losses before he can terminate the services
of the employee on the ground of redundancy. 37
We agree with the CA that the organizational realignment introduced by
SMART, which culminated in the abolition of CSMG/FSD and termination of
Astorgas employment was an honest effort to make SMARTs sales and
marketing departments more efficient and competitive. As the CA had taken
pains to elucidate:
x x x a careful and assiduous review of the records will yield no other
conclusion than that the reorganization undertaken by SMART is for
no purpose other than its declared objective as a labor and cost
savings device. Indeed, this Court finds no fault in SMARTs decision
to outsource the corporate sales market to SNMI in order to attain
greater productivity. [Astorga] belonged to the Sales Marketing
Group under the Fixed Services Division (CSMG/FSD), a distinct
sales force of SMART in charge of selling SMARTs
telecommunications services to the corporate market. SMART, to
ensure it can respond quickly, efficiently and flexibly to its customers
requirement, abolished CSMG/FSD and shortly thereafter assigned
its functions to newly-created SNMI Multimedia Incorporated, a joint
venture company of SMART and NTT of Japan, for the reason that
CSMG/FSD does not have the necessary technical expertise
required for the value added services. By transferring the duties of
CSMG/FSD to SNMI, SMART has created a more competent and
specialized organization to perform the work required for corporate
accounts. It is also relieved SMART of all administrative costs
management, time and money-needed in maintaining the
CSMG/FSD. The determination to outsource the duties of the
CSMG/FSD to SNMI was, to Our mind, a sound business judgment
based on relevant criteria and is therefore a legitimate exercise of
management prerogative.
Indeed, out of our concern for those lesser circumstanced in life, this Court
has inclined towards the worker and upheld his cause in most of his conflicts
with his employer. This favored treatment is consonant with the social justice
policy of the Constitution. But while tilting the scales of justice in favor of
workers, the fundamental law also guarantees the right of the employer to
reasonable returns for his investment.38 In this light, we must acknowledge
the prerogative of the employer to adopt such measures as will promote
greater efficiency, reduce overhead costs and enhance prospects of

economic gains, albeit always within the framework of existing laws.

Accordingly, we sustain the reorganization and redundancy program
undertaken by SMART.
However, as aptly found by the CA, SMART failed to comply with the
mandated one (1) month notice prior to termination. The record is clear that
Astorga received the notice of termination only on March 16, 1998 39 or less
than a month prior to its effectivity on April 3, 1998. Likewise, the Department
of Labor and Employment was notified of the redundancy program only on
March 6, 1998.40
Article 283 of the Labor Code clearly provides:
Art. 283. Closure of establishment and reduction of personnel.
The employer may also terminate the employment of any employee
due to the installation of labor saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of
operation of the establishment or undertaking unless the closing is
for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Ministry of Labor and
Employment at least one (1) month before the intended date thereof
x x x.
SMARTs assertion that Astorga cannot complain of lack of notice because
the organizational realignment was made known to all the employees as
early as February 1998 fails to persuade. Astorgas actual knowledge of the
reorganization cannot replace the formal and written notice required by the
law. In the written notice, the employees are informed of the specific date of
the termination, at least a month prior to the effectivity of such termination, to
give them sufficient time to find other suitable employment or to make
whatever arrangements are needed to cushion the impact of termination. In
this case, notwithstanding Astorgas knowledge of the reorganization, she
remained uncertain about the status of her employment until SMART gave
her formal notice of termination. But such notice was received by Astorga
barely two (2) weeks before the effective date of termination, a period very
much shorter than that required by law.
Be that as it may, this procedural infirmity would not render the termination of
Astorgas employment illegal. The validity of termination can exist
independently of the procedural infirmity of the dismissal. 41 In DAP
Corporation v. CA,42 we found the dismissal of the employees therein valid
and for authorized cause even if the employer failed to comply with the notice
requirement under Article 283 of the Labor Code. This Court upheld the
dismissal, but held the employer liable for non-compliance with the
procedural requirements.

The CA, therefore, committed no reversible error in sustaining Astorgas

dismissal and at the same time, awarding indemnity for violation of Astorga's
statutory rights.
However, we find the need to modify, by increasing, the indemnity awarded
by the CA to Astorga, as a sanction on SMART for non-compliance with the
one-month mandatory notice requirement, in light of our ruling in Jaka Food
Processing Corporation v. Pacot,43 viz.:
[I]f the dismissal is based on a just cause under Article 282 but the
employer failed to comply with the notice requirement, the sanction
to be imposed upon him should be tempered because the dismissal
process was, in effect, initiated by an act imputable to the employee,
and (2) if the dismissal is based on an authorized cause under Article
283 but the employer failed to comply with the notice requirement,
the sanction should be stiffer because the dismissal process was
initiated by the employers exercise of his management prerogative.

WHEREFORE, the petition of SMART docketed as G.R. No. 148132 is

GRANTED. The February 28, 2000 Decision and the May 7, 2001 Resolution
of the Court of Appeals in CA-G.R. SP. No. 53831 are SET ASIDE. The
Regional Trial Court of Makati City, Branch 57 is DIRECTED to proceed with
the trial of Civil Case No. 98-1936 and render its Decision with reasonable
dispatch.
On the other hand, the petitions of SMART and Astorga docketed as G.R.
Nos. 151079 and 151372 are DENIED. The June 11, 2001 Decision and the
December 18, 2001 Resolution in CA-G.R. SP. No. 57065, are AFFIRMED
with MODIFICATION. Astorga is declared validly dismissed. However,
SMART is ordered to pay Astorga P50,000.00 as indemnity for its noncompliance with procedural due process, her separation pay equivalent to
one (1) month pay, and her salary from February 15, 1998 until the effective
date of her termination on April 3, 1998. The award of backwages is
DELETED for lack of basis.
SO ORDERED.

We deem it proper to increase the amount of the penalty on SMART to

P50,000.00.

ANTONIO EDUARDO B. NACHURA

Associate Justice

As provided in Article 283 of the Labor Code, Astorga is, likewise, entitled to
separation pay equivalent to at least one (1) month salary or to at least one
(1) months pay for every year of service, whichever is higher. The records
show that Astorgas length of service is less than a year. She is, therefore,
also entitled to separation pay equivalent to one (1) month pay.

G.R. No. 181393

Finally, we note that Astorga claimed non-payment of wages from February

15, 1998. This assertion was never rebutted by SMART in the proceedings a
quo. No proof of payment was presented by SMART to disprove the
allegation. It is settled that in labor cases, the burden of proving payment of
monetary claims rests on the employer.44 SMART failed to discharge the
onus probandi. Accordingly, it must be held liable for Astorgas salary from
February 15, 1998 until the effective date of her termination, on April 3, 1998.
However, the award of backwages to Astorga by the CA should be deleted
for lack of basis. Backwages is a relief given to an illegally dismissed
employee. Thus, before backwages may be granted, there must be a finding
of unjust or illegal dismissal from work. 45 The Labor Arbiter ruled that Astorga
was illegally dismissed. But on appeal, the NLRC reversed the Labor
Arbiters ruling and categorically declared Astorgas dismissal valid. This
ruling was affirmed by the CA in its assailed Decision. Since Astorgas
dismissal is for an authorized cause, she is not entitled to backwages. The
CAs award of backwages is totally inconsistent with its finding of valid
dismissal.

July 28, 2009

GRANDTEQ INDUSTRIAL STEEL PRODUCTS, INC. and ABELARDO M.

GONZALES, Petitioners,
vs.
EDNA MARGALLO, Respondent.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Decision1 dated 21 January 2008 of the Court of Appeals in CAG.R. SP No. 100012, which affirmed the Decision2 dated 18 October 2006,
as modified by the Resolution3 dated 21 May 2007, of the National Labor
Relations Commission (NLRC) in NLRC NCR CA No. 045888-05. The NLRC
effectively reversed the Decision4 dated 11 July 2005 of the Labor Arbiter in
NLRC NCR Case No. 00-09-10803-04, which entirely dismissed the
Complaint filed by respondent Edna Margallo (Margallo) against petitioners
Grandteq Industrial Steel Products, Inc. (Grandteq) and Abelardo M.
Gonzales (Gonzales); and, instead, ordered Grandteq and Gonzales to
refund to Margallo her car loan payments, as well as to pay the latter sales
commission and attorneys fees.

Grandteq is a domestic corporation engaged in the business of selling

welding electrodes, alloy steels, aluminum and copper alloys. 5 Gonzales is
the President/Owner of Grandteq. 6 Grandteq employed Margallo as Sales
Engineer beginning 3 August 1999.7
Margallo claimed that on an unstated date, she availed herself of the car loan
program offered to her by Grandteq as a reward for being "Salesman of the
Year." She paid the down payment on a brand new Toyota Corolla, 8
amounting to P201,000.00, out of her own pocket. The monthly amortization
for the car was P10,302.00, of which P5,302.00 was to be her share and
P5,000.00 was to be the share of Grandteq.

4) That JVM Industrial Supply and Allied Services are

supplying steel products to Moog Control Corp. Phils.
Branch which is also a client of Grandteq and which you are
the authorized salesman of the company.
Because of this, you are given a (sic) twenty-four (24) hours upon receipt of
this letter to submit a written explanation on why you should not be given a
disciplinary action for allegedly violating/committing:
a) Moonlighting
b) Sabotage

On 29 December 2003, Margallo received a letter 9 signed by Gonzales and

Rolando de Leon (De Leon), Vice-President for Administration of Grandteq,
which reads:
Mrs. Edna E. Margallo
c/o Grandteq Industrial
Steel Products, Inc.
#2 Cooper St., cor. Benitez
SFDM, Quezon City
Dear Mrs. Margallo:
This is to inform you that our records show the following:
1) That, last December 18, 2003, you instructed our
company driver and helper to load 4 pcs. tool steel to be
delivered at circle freight.
2) That together with Mr. Steve Rivera, on or about 12:00
noon, you went at (sic) Eagle Global Logistics at Circle
Freight, NAIA, Paraaque City to ship the following items to
Moog Control Corp. Phils. Branch located at Baguio
Ecozone, Baguio City, using the Sales Invoice of JVM
Industrial Supply and Allied Services.
a) 2 pcs. tool steel 4140 " x 2x 3
b) 2 pcs. tool steel 4140 1"x 2 x 3
3) That you are working with JVM Industrial Supply and
Allied Services concurrent with your being employed with
Grandteq Industrial Steel Products, Inc.

c) Breach of trust and confidence (labor code).

You are also invited to attend a meeting with regards to the allegations on
Jan. 5, 2004 at 10:00 a.m. You may bring with you a lawyer or any
representative to assist you on (sic) the said meeting.
Failure on your part to submit a written explanation on the specified period
and failure to attend the hearing would mean that you are waiving your rights
to be heard and the appropriate action will be taken against you.
Moreover, to protect the evidences and witnesses against you, management
has decided to place you under preventive suspension effective December
29, 2003.
Very truly yours,
(Signed)
Abelardo M. Gonzales
(Signed)
Ronaldo A. de Leon

VP - Administration

President
Responding to the foregoing letter, Margallo wrote the following letter-reply
dated 30 December 2003:
December 30, 2003

To:

Mr. Abelardo M. Gonzales

President

Thru: Mr. Ronald A. de Leon

VP Administration
Dear Sir,
Last December 18, 2003, Mr. Steve D. Rivera instructed me to tell to our
delivery people to bring the said item to circle freight. Which I did that (sic) I
thought it was ok because it was inside the company. Sir I was just following
orders from Mr. D. Rivera who is one of my boss (sic). Sir, what I did is the
same thing that Ive been doing with my other bosses. That i[f] they
instructed me to do things I immediately follow. Because I am only an
employee. Sir never that I work with JVM (sic).

thereof, according to company policy, should be based on actual collections

within 180 days from invoice date. All of Margallos credit sales transactions
were unpaid, outstanding, and past due. Margallo was also not entitled to
any sales incentive, because said benefit was intended for customers, and
not for the sales personnel.14 Grandteq and Gonzales further insisted that
Margallo had no right to the refund of her car loan payments under the car
loan agreement she executed with Grandteq, which expressly provided that
in the event that Margallo resigned or was terminated for cause during the
effectivity of said agreement, her car loan payments would be forfeited in
favor of Grandteq, and Grandteq would regain possession of the car.
The Labor Arbiter rendered a Decision on 11 July 2005, dismissing all of
Margallos claims, thus:
WHEREFORE, premises considered, judgment is hereby rendered
dismissing the instant case for lack of merit.15

Sir im (sic) sorry if I did wrong by not asking what to do. Which I think an
ordinary employee like me would do is to follow orders from my superiors.

The Labor Arbiter held that Margallo was not able to prove by substantial
evidence her entitlement to the sales commission:

IM SO SORRY SIR IF I FAIL YOU.

After a careful review of the records, this Office finds that considering
[Margallo] already receives a basic salary plus allowances, her claim for
sales commission is therefore an added benefit wholly dependent upon her
sales performance based on existing company policy. As such, it is an
affirmative allegation or claim that is not normally included in the regular
course of business and for which law presumes that an employee is
generally not entitled to. Thus, it behooves, upon the employee to prove that
he is entitled to said affirmative allegations and the onus is upon him to
establish his right thereto (see Eternit Employees and Workers Unions vs. De
Veyra, 189 SCRA 752 and Nucum vs. Inciong, 204 SCRA 697).

(Signed)
Edna E. Margallo10
Margallo then averred that in January 2004, De Leon asked her to just
resign, promising that if she did, she would still be paid her commissions and
other benefits, as well as be reimbursed her car loan payments. Relying on
De Leons promise, Margallo tendered on 13 January 2004, her irrevocable
resignation, effective immediately.11
Margallo, however, alleged that she was never paid her money claims.
Grandteq failed to pay her commissions in the sum of P87,508.00, equivalent
to 5% of the total sales that she collected as of January 2004, which
amounted to P1,750,148.84. Grandteq likewise failed to refund the "sales
accommodations" or advances she gave her customers. In addition, after
Margallos resignation, Grandteq sold her car to Annaliza Estrella, another
employee, for P550,000.00.12 These events prompted her to file before the
Labor Arbiter a Complaint13 against Grandteq and Gonzales, for recovery of
sales commission, cash incentive and car loan payment, damages and
attorney fees, which was docketed as NLRC Case No. 0009-108-03-04.
Grandteq and Gonzales opposed Margallos claims. They maintained that
Margallo was not entitled to sales commissions because the computation

In the instant case, this Office finds [Margallo] to have failed to substantially
discharge her burden of proving that she is entitled to the P87,508.00 in
sales commissions since other than her bare allegations, [Margallo] did not
show any other proof, including prior payment of said sales commissions, to
justify her claim.
And, quite noteworthy too is that under the [Grandteq]s policy, rules and
regulations on the grant of sales commissions, the computation thereof shall
be based on actual collection against all sales on credit and the validity of the
said commission shall be 180 days from invoice dates; otherwise, the
salesman shall not be entitled thereto and forfeits any right to demand
payment of the commission thereon as the sales are considered bad debts
as uncollectible. Since the records of [Grandteq] showed that [Margallo]s
credit sales remain unpaid and outstanding for over 180 days, [Margallo] is

therefore not entitled to sales commissions.

No denial whatsoever of the above-discussed company policy was made by
[Margallo] in her Reply.
Thus, having failed to establish entitlement to said sales commission, the
same is hereby denied.16
For a similar reason, the Labor Arbiter denied Margallos claim for payment of
cash incentive:
As regards to cash incentives, once again this Office finds that the same is
also an affirmative allegation and the burden of proving entitlement thereto
rests upon the employee. And having failed to even mention how much of the
alleged cash incentive she is entitled to in Annexes "A" and "2-a" of her
position paper, the same is hereby denied.17
Finally, the Labor Arbiter found that Margallo had no right to the
reimbursement of her car loan payments under her car loan agreement with
Grandteq:
And as regards of (sic) the car loan, the same should be governed by the
undisputed terms and conditions of the Agreement between complainant and
respondent company (Annex "A" of respondents position paper). And page 2
of said Agreement clearly stipulates that in case of resignation, all payments
made by the personnel shall be forfeited in favor of the company. Thus, the
claim for refund of the car loan should likewise be denied. 18
Margallo filed an appeal with the NLRC, docketed as NLRC NCR CA No.
045888-05. Although the NLRC, in its Decision dated 18 October 2006,
stated that it merely "modified" the Decision dated 11 July 2005 of the Labor
Arbiter, it effectively reversed the same by granting Margallo her claims for
sales commission, reimbursement of her car loan payments, and attorneys
fees. The fallo of the NLRC Decision is quoted below:
WHEREFORE, the decision appealed from is hereby MODIFIED. [Herein
petitioners] Grandteq Industrial Products, Inc. and/or its President/General
Manager, [petitioner] Abelardo M. Gonzales, are hereby ordered to refund to
the [herein respondent Margallo] her car loan payments amounting to
P217,815.94 and to pay her the amount of P10,870.79 representing her
unpaid sales commissions plus ten percent (10%) of the total monetary
award as attorneys fees.19
In ordering that Grandteq and Gonzales reimburse the car loan payments
made by Margallo, the NLRC reasoned:

It is unlikely for an employee who has invested his time and industry in a
particular job to simply give it up after being accused of violating company
rules and regulations. It is more likely that he did so upon the expectation
that she would derive a certain benefit from it. Thus, the claim that the [herein
respondent Margalllo] resigned because she was promised that she would
be paid her money claims if she did, is more credible than the contention that
she did so without any prodding from the [herein petitioners Grandteq and
Gonzales].
It would therefore appear that the provision, in the agreement (records, pp.
32-340) executed by the parties, that "in case of resignation of the
PERSONNEL from the COMPANY, all payments made by the PERSONNEL
shall be forfeited in favor of the COMPANY" has been superseded by the
above-mentioned subsequent agreement between the parties.
Besides, it is uncontroverted that the car loan program was offered to the
complainant as a reward for being the "Salesman of the Year." Moreover,
nowhere in their pleadings did the [petitioners Grandteq and Gonzales]
controvert the claim that the [respondent Margallo] paid the down payment,
entire first amortization, insurance, and her share in the monthly
amortizations for seventeen months, or the total amount of P214,395.90 for
the car. It is also uncontroverted that after the [respondent Margallo]s
negotiated resignation, her car was resold to another employee for the
original price. Under the circumstances, the above-quoted contractual
provision is null and void for being contrary to morals, good customs, and
public policy. The law overrides contracts which are prepared by employers
to circumvent the rights of their employees (Baguio Country Club vs. NLRC,
206 SCRA 643). Thus, the above-quoted contractual provision does not bar
the [respondent Margallo] from recovering her car loan payments from the
[petitioners Grandteq and Gonzales].20
As for Margallos other claims, the NLRC affirmed her entitlement to the
unpaid sales commission, but not to the cash incentive:
Insofar as the [respondent Margallo]s claim for unpaid sales commission is
concerned, it is noteworthy that in the list (records, pp. 16-18) of sales she
adduced in evidence, the column bearing the heading "collected" indicates
that, as of January 2004, the total collections from her sales amount to only
P217,815.94. Since it is undisputed hat her sales commission are equivalent
to 5% of her collections, she may recover unpaid sales commissions
amounting to P10,890.79. Finally, since there is no showing that the
[respondent Margallo]s claim for cash incentive is based on a particular
contract or company practice, it was correctly dismissed for lack of merit. 21
Grandteq and Gonzales filed a Motion for Reconsideration, 22 while Margallo

also filed an Omnibus Motion for Partial Reconsideration and Issuance of

Subpoena.23 The NLRC denied the Motions for Reconsideration of all parties
in a Resolution dated 21 May 2007, but modified the NLRC Decision dated
18 October 2006 by slightly reducing the amount of car loan payments to be
refunded to Margallo:
WHEREFORE, the Motions for Reconsideration are hereby DENIED for lack
of merit. However, the dispositive portion of this Commissions (2nd Division)
October 18, 2006 Decision is hereby corrected to read:
WHEREFORE, the decision appealed from is hereby MODIFIED. [Herein
petitioners] Grandteq Industrial Products, Inc. and/or its President/General
Manager, [petitioner] Abelardo M. Gonzales, are hereby ordered to refund to
[herein respondent Margallo] her car loan payments amounting to
P214,395.90 and to pay her the amount of P10,870.79 representing her
unpaid sales commissions plus ten percent (10%) of the total monetary
award as attorneys fees.24
Grandteq and Gonzales elevated the case to the Court of Appeals by way of
a Petition for Certiorari, under Rule 65 of the Rules of Court, which was
docketed as CA-G.R. SP No. 100012.

doubts reasonably arising from the evidence, or in the interpretation of

agreements and writing should be resolved in the formers favor.26
The Court of Appeals likewise affirmed the order of the NLRC that Grandteq
and Gonzales pay Margallo her sales commission, placing the burden upon
the employer to prove that the employees money claims had been paid:
With respect to the unpaid sales commissions of P10,870.79 to be paid by
petitioners in favor of private respondent, it is incumbent upon petitioner
employer to prove that said money claim has been paid. This is in tune with
the general precept that: "one who pleads payment has the burden of proving
it, and even where the employees must allege nonpayment, the general rule
is that the burden rests on the defendant to prove (payment), rather than on
the plaintiff to prove non-payment." The reason for the rule is that the
pertinent personnel files, payrolls, records, remittances and other similar
documents which will show that overtime, differentials, service incentive
leave and other claims of workers have been paid are not in the
possession of the worker but in the custody and absolute control of the
employer. In the present case, petitioners [Grandteq and Gonzales] failed to
discharge the burden of proving that the amount of P10,870.79 representing
[herein respondent Margallo]s sales commissions has already been paid to
the latter. Thus, the NLRC (Second Division) did not commit grave abuse of
discretion in awarding said money claim in favor of [respondent Margallo]. 27

In its Decision dated 21 January 2008, the Court of Appeals agreed with the
NLRC, dismissing the therein Petition of Grandteq and Gonzales in this wise:

Assiduous, Grandteq and Gonzales are now before this Court via the Petition
at bar.

WHEREFORE, premises considered, the Petition is DENIED for lack of

merit. Costs against petitioners.25

Grandteq and Gonzales assert that the Court of Appeals erred in declaring
the car loan agreement between Grandteq and Margallo, particularly the
provision therein on the forfeiture of car loan payments in favor of Grandteq
should Margallo resign from the company, as null and void. 28

Like the NLRC, the Court of Appeals found that Margallo had a right to be
reimbursed her car loan payments, and the terms of the car loan agreement
between Margallo and Grandteq should not be applied for being highly
prejudicial to the employees interest:
Truly, the contracting parties may establish such stipulations, clauses, terms
and conditions as they want, and their agreement would have the force of
law between them. However, those terms and conditions agreed upon must
not be contrary to law, morals, customs, public policy or public order.
Precisely, the law overrides such conditions which are prejudicial to the
interest of the worker. The law affords protection to an employee, and it will
not countenance any attempt to subvert its spirit and intent. The sheer
inequality that characterizes employer-employee relations, where the scales
generally tip against the employee, often scarcely provides him real and
better options. Moreover, in controversies between a laborer and his master,

The Court, however, is in agreement with the Court of Appeals and the
NLRC.
Generally speaking, contracts are respected as the law between the
contracting parties. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order or public policy.29
The questionable provision in the car loan agreement between Grandteq and
Margallo provides: "In case of resignation, of the personnel from the
company, all payments made by the personnel shall be forfeited in favor of
the company."30 Connected thereto is the provision in the same car loan
agreement, which reads:

1. The COMPANY shall have the right to regain the possession of the car
before the expiration of the term of the loan in the event of any of the
following:
a. The PERSONNEL resigns from the COMPANY during the effectivity of this
agreement.31
Said provisions plainly are contrary to the fundamental principles of justice
and fairness. It must be remembered that Margallo herself paid for the down
payment and her share in the monthly amortization of the car. However, she
did not get to leave with the car when she resigned from Grandteq. In effect,
Margallo parted with her hard-earned money for nothing, being left, as she is,
with an empty bag. The inequitableness in the conduct of Grandteq and
Gonzales is heightened by the fact that after they regained possession of the
car, they resold the same to another employee under a similar contract
bearing the same terms and conditions signed by Margallo.

The principle that no person may unjustly enrich oneself at the expense of
another (Nemo cum alteris detrimento locupletari potest) is embodied in
Article 22 of the New Civil Code, to wit:
ART. 22. Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to
him.
The above-quoted article is part of the chapter of the Civil Code on Human
Relations, the provisions of which were formulated as "basic principles to be
observed for the rightful relationship between human beings and for the
stability of the social order; designed to indicate certain norms that spring
from the fountain of good conscience; [are] guides for human conduct that
should run as golden threads through society to the end that law may
approach its supreme ideal, which is the sway and dominance of justice."
There is unjust enrichment when a person unjustly retains a benefit at the
loss of another, or when a person retains the money or property of another
against the fundamental principles of justice, equity and good conscience. 32
As can be gleaned from the foregoing, there is unjust enrichment when (1) a
person is unjustly benefited, and (2) such benefit is derived at the expense of
or with damages to another. The main objective of the principle of unjust
enrichment is to prevent one from enriching oneself at the expense of

another. It is commonly accepted that this doctrine simply means that a

person shall not be allowed to profit or enrich himself inequitably at anothers
expense. One condition for invoking this principle is that the aggrieved party
has no other action based on a contract, quasi-contract, crime, quasi-delict,
or any other provision of law.
This is not a case of equity overruling or supplanting a positive provision of
law or judicial rule. Rather, equity is exercised in this case "as the
complement of legal jurisdiction [that] seeks to reach and to complete justice
where courts of law, through the inflexibility of their rules and want of power
to adapt their judgments to the special circumstances of cases, are
incompetent to do so."33
The principle against unjust enrichment obliges Grandteq and Gonzales to
refund to Margallo the car loan payments she had made, since she has not
actually acquired the car. To relieve Grandteq and Gonzales of their
obligation to reimburse Margallo would, indeed, be to sanction unjust
enrichment in favor of the first two and cause unjust poverty to the latter.34
The Court rigorously disapproves contracts that demonstrate a clear attempt
to exploit the employee and deprive him of the protection sanctioned by both
the Constitution and the Labor Code.
The Constitution and the Labor Code mandate the protection of labor. Hence,
as a matter of judicial policy, this Court has, in a number of instances, leaned
backwards to protect labor and the working class against the machinations
and incursions of their more financially entrenched employers. 35
Although not strictly a labor contract, the car loan agreement herein involves
a benefit extended by the employers, Grandteq and Gonzales, to their
employee, Margallo. It should benefit, and not unduly burden, Margallo. The
Court cannot, in any way, uphold a car loan agreement that threatens the
employee with the forfeiture of all the car loan payments he/she had
previously made, plus loss of the possession of the car, should the employee
wish to resign; otherwise, said agreement can then be used by the employer
as an instrument to either hold said employee hostage to the job or punish
him/her for resigning.
The Court further finds no error in the grant by the Court of Appeals and the
NLRC of Margallos claim for sales commission.
In cases involving money claims of employees, the employer has the burden
of proving that the employees did receive their wages and benefits and that
the same were paid in accordance with law.36

It is settled that once the employee has set out with particularity in his
complaint, position paper, affidavits and other documents the labor standard
benefits he is entitled to, and which the employer allegedly failed to pay him,
it becomes the employers burden to prove that it has paid these money
claims. One who pleads payment has the burden of proving it; and even
where the employees must allege nonpayment, the general rule is that the
burden rests on the defendant to prove payment, rather than on the plaintiff
to prove nonpayment.37
Under the terms and conditions of Margallos employment with Grandteq, it is
provided that she "will do field sales with commission on sales made after a
months training."38 On this basis, Margallos entitlement to sales commission
is unrebutted.
Hence, it was actually the Labor Arbiter who erred in denying Margallos
claim for sales commission "for failure to state the particulars to substantiate
the same." Grandteq and Gonzales have the burden of proof to show, by
substantial evidence, their claim that Margallo was not entitled to sales
commissions because the sales made by the latter remained outstanding
and unpaid, rendering these sales as bad debts and thus nullifying Margallos
right to this monetary benefit. Grandteq and Gonzales could have presented
pertinent company records to prove this claim. It is a rule that failure of
employers to submit the necessary documents that are in their possession as
employers gives rise to the presumption that the presentation thereof is
prejudicial to its cause.39
WHEREFORE, premises considered, the Petition is DENIED for lack of
merit. The Decision dated 21 January 2008 of the Court of Appeals in CA-GR
SP No. 100012 is AFFIRMED. Costs against petitioners Grandteq Industrial
Steel Products, Inc. and Abelardo M. Gonzales.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice

G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION,
SEIICHIRO TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE
BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court
seeks to annul and set aside the Decision and Resolution of the Court of
Appeals dated October 29, 2004 1 and October 7, 2005, 2 respectively, in CAG.R. SP No. 78515 dismissing the complaint for constructive dismissal filed
by herein petitioner Angelina Francisco. The appellate court reversed and set
aside the Decision of the National Labor Relations Commission (NLRC)
dated April 15, 2003, 3 in NLRC NCR CA No. 032766-02 which affirmed with
modification the decision of the Labor Arbiter dated July 31, 2002, 4 in NLRCNCR Case No. 30-10-0-489-01, finding that private respondents were liable
for constructive dismissal.
In 1995, petitioner was hired by Kasei Corporation during its incorporation
stage. She was designated as Accountant and Corporate Secretary and was
assigned to handle all the accounting needs of the company. She was also
designated as Liaison Officer to the City of Makati to secure business
permits, construction permits and other licenses for the initial operation of the
company. 5
Although she was designated as Corporate Secretary, she was not entrusted
with the corporate documents; neither did she attend any board meeting nor
required to do so. She never prepared any legal document and never
represented the company as its Corporate Secretary. However, on some
occasions, she was prevailed upon to sign documentation for the company. 6
In 1996, petitioner was designated Acting Manager. The corporation also

hired Gerry Nino as accountant in lieu of petitioner. As Acting Manager,

petitioner was assigned to handle recruitment of all employees and perform
management administration functions; represent the company in all dealings
with government agencies, especially with the Bureau of Internal Revenue
(BIR), Social Security System (SSS) and in the city government of Makati;
and to administer all other matters pertaining to the operation of Kasei
Restaurant which is owned and operated by Kasei Corporation. 7
For five years, petitioner performed the duties of Acting Manager. As of
December 31, 2000 her salary was P27,500.00 plus P3,000.00 housing
allowance and a 10% share in the profit of Kasei Corporation. 8
In January 2001, petitioner was replaced by Liza R. Fuentes as Manager.
Petitioner alleged that she was required to sign a prepared resolution for her
replacement but she was assured that she would still be connected with
Kasei Corporation. Timoteo Acedo, the designated Treasurer, convened a
meeting of all employees of Kasei Corporation and announced that nothing
had changed and that petitioner was still connected with Kasei Corporation
as Technical Assistant to Seiji Kamura and in charge of all BIR matters. 9
Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month
beginning January up to September 2001 for a total reduction of P22,500.00
as of September 2001. Petitioner was not paid her mid-year bonus allegedly
because the company was not earning well. On October 2001, petitioner did
not receive her salary from the company. She made repeated follow-ups with
the company cashier but she was advised that the company was not earning
well. 10
On October 15, 2001, petitioner asked for her salary from Acedo and the rest
of the officers but she was informed that she is no longer connected with the
company. 11
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 respondents averred that petitioner is not an employee of Kasei
Corporation. They alleged that petitioner was hired in 1995 as one of its
technical consultants on accounting matters and act concurrently as
Corporate Secretary. As technical consultant, petitioner performed her work
at her own discretion without control and supervision of Kasei Corporation.
Petitioner had no daily time record and she came to the office any time she
wanted. The company never interfered with her work except that from time to
time, the management would ask her opinion on matters relating to her
profession. Petitioner did not go through the usual procedure of selection of
employees, but her services were engaged through a Board Resolution

designating her as technical consultant. The money received by petitioner

from the corporation was her professional fee subject to the 10% expanded
withholding tax on professionals, and that she was not one of those reported
to the BIR or SSS as one of the companys employees. 12
Petitioners designation as technical consultant depended solely upon the will
of management. As such, her consultancy may be terminated any time
considering that her services were only temporary in nature and dependent
on the needs of the corporation.
To prove that petitioner was not an employee of the corporation, private
respondents submitted a list of employees for the years 1999 and 2000 duly
received by the BIR showing that petitioner was not among the employees
reported to the BIR, as well as a list of payees subject to expanded
withholding tax which included petitioner. SSS records were also submitted
showing that petitioners latest employer was Seiji Corporation. 13
The Labor Arbiter found that petitioner was illegally dismissed, thus:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
1. finding complainant an employee of respondent corporation;
2. declaring complainants dismissal as illegal;
3. ordering respondents to reinstate complainant to her former position
without loss of seniority rights and jointly and severally pay complainant her
money claims in accordance with the following computation:
a. Backwages 10/2001 07/2002 275,000.00
(27,500 x 10 mos.)
b. Salary Differentials (01/2001 09/2001) 22,500.00
c. Housing Allowance (01/2001 07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00

SO ORDERED. 16

g. Moral and exemplary damages 100,000.00

The appellate court denied petitioners motion for reconsideration, hence, the
present recourse.

h. 10% Attorneys fees 87,076.50

P957,742.50
If reinstatement is no longer feasible, respondents are ordered to pay
complainant separation pay with additional backwages that would accrue up
to actual payment of separation pay.
SO ORDERED. 14
On April 15, 2003, the NLRC affirmed with modification the Decision of the
Labor Arbiter, the dispositive portion of which reads:
PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby
MODIFIED as follows:
1) Respondents are directed to pay complainant separation pay computed at
one month per year of service in addition to full backwages from October
2001 to July 31, 2002;
2) The awards representing moral and exemplary damages and 10% share
in profit in the respective accounts of P100,000.00 and P361,175.00 are
deleted;
3) The award of 10% attorneys fees shall be based on salary differential
award only;
4) The awards representing salary differentials, housing allowance, mid year
bonus and 13th month pay are AFFIRMED.
SO ORDERED. 15
On appeal, the Court of Appeals reversed the NLRC decision, thus:
WHEREFORE, the instant petition is hereby GRANTED. The decision of the
National Labor Relations Commissions dated April 15, 2003 is hereby
REVERSED and SET ASIDE and a new one is hereby rendered dismissing
the complaint filed by private respondent against Kasei Corporation, et al. for
constructive dismissal.

The core issues to be resolved in this case are (1) whether there was an
employer-employee relationship between petitioner and private respondent
Kasei Corporation; and if in the affirmative, (2) whether petitioner was
illegally dismissed.
Considering the conflicting findings by the Labor Arbiter and the National
Labor Relations Commission on one hand, and the Court of Appeals on the
other, there is a need to reexamine the records to determine which of the
propositions espoused by the contending parties is supported by substantial
evidence. 17
We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has
been no uniform test to determine the existence of an employer-employee
relation. Generally, courts have relied on the so-called right of control test
where the person for whom the services are performed reserves a right to
control not only the end to be achieved but also the means to be used in
reaching such end. In addition to the standard of right-of-control, the existing
economic conditions prevailing between the parties, like the inclusion of the
employee in the payrolls, can help in determining the existence of an
employer-employee relationship.
However, in certain cases the control test is not sufficient to give a complete
picture of the relationship between the parties, owing to the complexity of
such a relationship where several positions have been held by the worker.
There are instances when, aside from the employers power to control the
employee with respect to the means and methods by which the work is to be
accomplished, economic realities of the employment relations help provide a
comprehensive analysis of the true classification of the individual, whether as
employee, independent contractor, corporate officer or some other capacity.
The better approach would therefore be to adopt a two-tiered test involving:
(1) the putative employers power to control the employee with respect to the
means and methods by which the work is to be accomplished; and (2) the
underlying economic realities of the activity or relationship.
This two-tiered test would provide us with a framework of analysis, which
would take into consideration the totality of circumstances surrounding the
true nature of the relationship between the parties. This is especially
appropriate in this case where there is no written agreement or terms of
reference to base the relationship on; and due to the complexity of the

relationship based on the various positions and responsibilities given to the

worker over the period of the latters employment.

securing business permits and other licenses over an indefinite period of

engagement.

The control test initially found application in the case of Viaa v. Al-Lagadan
and Piga, 19 and lately in Leonardo v. Court of Appeals, 20 where we held that
there is an employer-employee relationship when the person for whom the
services are performed reserves the right to control not only the end
achieved but also the manner and means used to achieve that end.

Under the broader economic reality test, the petitioner can likewise be said to
be an employee of respondent corporation because she had served the
company for six years before her dismissal, receiving check vouchers
indicating her salaries/wages, benefits, 13th month pay, bonuses and
allowances, as well as deductions and Social Security contributions from
August 1, 1999 to December 18, 2000. 26 When petitioner was designated
General Manager, respondent corporation made a report to the SSS signed
by Irene Ballesteros. Petitioners membership in the SSS as manifested by a
copy of the SSS specimen signature card which was signed by the President
of Kasei Corporation and the inclusion of her name in the on-line inquiry
system of the SSS evinces the existence of an employer-employee
relationship between petitioner and respondent corporation. 27

In Sevilla v. Court of Appeals, 21 we observed the need to consider the

existing economic conditions prevailing between the parties, in addition to the
standard of right-of-control like the inclusion of the employee in the payrolls,
to give a clearer picture in determining the existence of an employeremployee relationship based on an analysis of the totality of economic
circumstances of the worker.
Thus, the determination of the relationship between employer and employee
depends upon the circumstances of the whole economic activity, 22 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. 23

It is therefore apparent that petitioner is economically dependent on

respondent corporation for her continued employment in the latters 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. 24 In the United States, the touchstone of economic reality in
analyzing possible employment relationships for purposes of the Federal
Labor Standards Act is dependency. 25 By analogy, the benchmark of
economic reality in analyzing possible employment relationships for purposes
of the Labor Code ought to be the economic dependence of the worker on
his employer.

We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its

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

By applying the control test, there is no doubt that petitioner is an employee

of Kasei Corporation because she was under the direct control and
supervision of Seiji Kamura, the corporations Technical Consultant. She
reported for work regularly and served in various capacities as Accountant,
Liaison Officer, Technical Consultant, Acting Manager and Corporate
Secretary, with substantially the same job functions, that is, rendering
accounting and tax services to the company and performing functions
necessary and desirable for the proper operation of the corporation such as

In Domasig v. National Labor Relations Commission, 28 we held that in a

business establishment, an identification card is provided not only as a
security measure but mainly to identify the holder thereof as a bona fide
employee of the firm that issues it. Together with the cash vouchers covering
petitioners salaries for the months stated therein, these matters constitute
substantial evidence adequate to support a conclusion that petitioner was an
employee of private respondent.

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

clearly established that petitioner never acted as Corporate Secretary and
that her designation as such was only for convenience. The actual nature of
petitioners job was as Kamuras direct assistant with the duty of acting as
Liaison Officer in representing the company to secure construction permits,
license to operate and other requirements imposed by government agencies.
Petitioner was never entrusted with corporate documents of the company,
nor required to attend the meeting of the corporation. She was never privy to
the preparation of any document for the corporation, although once in a while
she was required to sign prepared documentation for the company. 30
The second affidavit of Kamura dated March 7, 2002 which repudiated the

December 5, 2001 affidavit has been allegedly withdrawn by Kamura himself

from the records of the case. 31 Regardless of this fact, we are convinced that
the allegations in the first affidavit are sufficient to establish that petitioner is
an employee of Kasei Corporation.
Granting arguendo, that the second affidavit validly repudiated the first one,
courts do not generally look with favor on any retraction or recanted
testimony, for it could have been secured by considerations other than to tell
the truth and would make solemn trials a mockery and place the investigation
of the truth at the mercy of unscrupulous witnesses. 32 A recantation does not
necessarily cancel an earlier declaration, but like any other testimony the
same is subject to the test of credibility and should be received with caution.
33

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

employee of respondent Kasei Corporation. She was selected and engaged
by the company for compensation, and is economically dependent upon
respondent for her continued employment in that line of business. Her main
job function involved accounting and tax services rendered to respondent
corporation on a regular basis over an indefinite period of engagement.
Respondent corporation hired and engaged petitioner for compensation, with
the power to dismiss her for cause. More importantly, respondent corporation
had the power to control petitioner with the means and methods by which the
work is to be accomplished.
The corporation constructively dismissed petitioner when it reduced her
salary by P2,500 a month from January to September 2001. This amounts to
an illegal termination of employment, where the petitioner is entitled to full
backwages. Since the position of petitioner as accountant is one of trust and
confidence, and under the principle of strained relations, petitioner is further
entitled to separation pay, in lieu of reinstatement. 34
A diminution of pay is prejudicial to the employee and amounts to
constructive dismissal. Constructive dismissal is an involuntary resignation
resulting in cessation of work resorted to when continued employment
becomes impossible, unreasonable or unlikely; when there is a demotion in
rank or a diminution in pay; or when a clear discrimination, insensibility or
disdain by an employer becomes unbearable to an employee. 35 In Globe
Telecom, Inc. v. Florendo-Flores, 36 we ruled that where an employee ceases
to work due to a demotion of rank or a diminution of pay, an unreasonable
situation arises which creates an adverse working environment rendering it
impossible for such employee to continue working for her employer. Hence,
her severance from the company was not of her own making and therefore
amounted to an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work
opportunities regardless of sex, race or creed. Even as we, in every case,
attempt to carefully balance the fragile relationship between employees and
employers, we are mindful of the fact that the policy of the law is to apply the
Labor Code to a greater number of employees. This would enable
employees to avail of the benefits accorded to them by law, in line with the
constitutional mandate giving maximum aid and protection to labor,
promoting their welfare and reaffirming it as a primary social economic force
in furtherance of social justice and national development.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of
the Court of Appeals dated October 29, 2004 and October 7, 2005,
respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE.
The Decision of the National Labor Relations Commission dated April 15,
2003 in NLRC NCR CA No. 032766-02, 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.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice

G.R. No. 138051

June 10, 2004

JOSE Y. SONZA, petitioner,

vs.
ABS-CBN BROADCASTING CORPORATION, respondent.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari1 assailing the 26 March
1999 Decision2 of the Court of Appeals in CA-G.R. SP No. 49190 dismissing
the petition filed by Jose Y. Sonza ("SONZA"). The Court of Appeals affirmed
the findings of the National Labor Relations Commission ("NLRC"), which
affirmed the Labor Arbiters dismissal of the case for lack of jurisdiction.
The Facts
In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN")
signed an Agreement ("Agreement") with the Mel and Jay Management and
Development Corporation ("MJMDC"). ABS-CBN was represented by its
corporate officers while MJMDC was represented by SONZA, as President
and General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and
Treasurer. Referred to in the Agreement as "AGENT," MJMDC agreed to
provide SONZAs services exclusively to ABS-CBN as talent for radio and
television. The Agreement listed the services SONZA would render to ABSCBN, as follows:
a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays
to Fridays;
b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m.,
Sundays.3
ABS-CBN agreed to pay for SONZAs services a monthly talent fee of
P310,000 for the first year and P317,000 for the second and third year of the

Agreement. ABS-CBN would pay the talent fees on the 10th and 25th days of
the month.
On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio
Lopez III, which reads:
Dear Mr. Lopez,
We would like to call your attention to the Agreement dated
May 1994 entered into by your goodself on behalf of ABSCBN with our company relative to our talent JOSE Y.
SONZA.
As you are well aware, Mr. Sonza irrevocably resigned in
view of recent events concerning his programs and career.
We consider these acts of the station violative of the
Agreement and the station as in breach thereof. In this
connection, we hereby serve notice of rescission of said
Agreement at our instance effective as of date.
Mr. Sonza informed us that he is waiving and renouncing
recovery of the remaining amount stipulated in paragraph 7
of the Agreement but reserves the right to seek recovery of
the other benefits under said Agreement.
Thank you for your attention.
Very truly yours,
(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4
On 30 April 1996, SONZA filed a complaint against ABS-CBN before the
Department of Labor and Employment, National Capital Region in Quezon
City. SONZA complained that ABS-CBN did not pay his salaries, separation
pay, service incentive leave pay, 13th month pay, signing bonus, travel
allowance and amounts due under the Employees Stock Option Plan
("ESOP").
On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no
employer-employee relationship existed between the parties. SONZA filed an
Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees

through his account at PCIBank, Quezon Avenue Branch, Quezon City. In
July 1996, ABS-CBN opened a new account with the same bank where ABSCBN deposited SONZAs talent fees and other payments due him under the
Agreement.
In his Order dated 2 December 1996, the Labor Arbiter5 denied the motion to
dismiss and directed the parties to file their respective position papers. The
Labor Arbiter ruled:
In this instant case, complainant for having invoked a claim that he
was an employee of respondent company until April 15, 1996 and
that he was not paid certain claims, it is sufficient enough as to
confer jurisdiction over the instant case in this Office. And as to
whether or not such claim would entitle complainant to recover upon
the causes of action asserted is a matter to be resolved only after
and as a result of a hearing. Thus, the respondents plea of lack of
employer-employee relationship may be pleaded only as a matter of
defense. It behooves upon it the duty to prove that there really is no
employer-employee relationship between it and the complainant.
The Labor Arbiter then considered the case submitted for resolution. The
parties submitted their position papers on 24 February 1997.
On 11 March 1997, SONZA filed a Reply to Respondents Position Paper
with Motion to Expunge Respondents Annex 4 and Annex 5 from the
Records. Annexes 4 and 5 are affidavits of ABS-CBNs witnesses Soccoro
Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that
the prevailing practice in the television and broadcast industry is to treat
talents like SONZA as independent contractors.
The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the
complaint for lack of jurisdiction.6 The pertinent parts of the decision read as
follows: x x x
While Philippine jurisprudence has not yet, with certainty, touched on
the "true nature of the contract of a talent," it stands to reason that a
"talent" as above-described cannot be considered as an employee
by reason of the peculiar circumstances surrounding the
engagement of his services.
It must be noted that complainant was engaged by respondent by
reason of his peculiar skills and talent as a TV host and a radio
broadcaster. Unlike an ordinary employee, he was free to
perform the services he undertook to render in accordance with

his own style. The benefits conferred to complainant under the May
1994 Agreement are certainly very much higher than those generally
given to employees. For one, complainant Sonzas monthly talent
fees amount to a staggering P317,000. Moreover, his engagement
as a talent was covered by a specific contract. Likewise, he was not
bound to render eight (8) hours of work per day as he worked only
for such number of hours as may be necessary.
The fact that per the May 1994 Agreement complainant was
accorded some benefits normally given to an employee is
inconsequential. Whatever benefits complainant enjoyed arose
from specific agreement by the parties and not by reason of
employer-employee relationship. As correctly put by the
respondent, "All these benefits are merely talent fees and other
contractual benefits and should not be deemed as salaries, wages
and/or other remuneration accorded to an employee,
notwithstanding the nomenclature appended to these benefits.
Apropos to this is the rule that the term or nomenclature given to a
stipulated benefit is not controlling, but the intent of the parties to the
Agreement conferring such benefit."
The fact that complainant was made subject to respondents
Rules and Regulations, likewise, does not detract from the
absence of employer-employee relationship. As held by the
Supreme Court, "The line should be drawn between rules that merely
serve as guidelines towards the achievement of the mutually desired
result without dictating the means or methods to be employed in
attaining it, and those that control or fix the methodology and bind or
restrict the party hired to the use of such means. The first, which aim
only to promote the result, create no employer-employee relationship
unlike the second, which address both the result and the means to
achieve it." (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R.
No. 84484, November 15, 1989).
x x x (Emphasis supplied)7
SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a
Decision affirming the Labor Arbiters decision. SONZA filed a motion for
reconsideration, which the NLRC denied in its Resolution dated 3 July 1998.
On 6 October 1998, SONZA filed a special civil action for certiorari before the
Court of Appeals assailing the decision and resolution of the NLRC. On 26
March 1999, the Court of Appeals rendered a Decision dismissing the case. 8
Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRCs finding that no employeremployee relationship existed between SONZA and ABS-CBN. Adopting the
NLRCs decision, the appellate court quoted the following findings of the
NLRC:
x x x the May 1994 Agreement will readily reveal that MJMDC
entered into the contract merely as an agent of complainant Sonza,
the principal. By all indication and as the law puts it, the act of the
agent is the act of the principal itself. This fact is made particularly
true in this case, as admittedly MJMDC is a management company
devoted exclusively to managing the careers of Mr. Sonza and his
broadcast partner, Mrs. Carmela C. Tiangco. (Opposition to Motion
to Dismiss)
Clearly, the relations of principal and agent only accrues between
complainant Sonza and MJMDC, and not between ABS-CBN and
MJMDC. This is clear from the provisions of the May 1994
Agreement which specifically referred to MJMDC as the AGENT. As
a matter of fact, when complainant herein unilaterally rescinded said
May 1994 Agreement, it was MJMDC which issued the notice of
rescission in behalf of Mr. Sonza, who himself signed the same in his
capacity as President.
Moreover, previous contracts between Mr. Sonza and ABS-CBN
reveal the fact that historically, the parties to the said agreements are
ABS-CBN and Mr. Sonza. And it is only in the May 1994 Agreement,
which is the latest Agreement executed between ABS-CBN and Mr.
Sonza, that MJMDC figured in the said Agreement as the agent of
Mr. Sonza.
We find it erroneous to assert that MJMDC is a mere labor-only
contractor of ABS-CBN such that there exist[s] employer-employee
relationship between the latter and Mr. Sonza. On the contrary, We
find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of
the talent/contractor Mr. Sonza, as expressly admitted by the latter
and MJMDC in the May 1994 Agreement.
It may not be amiss to state that jurisdiction over the instant
controversy indeed belongs to the regular courts, the same being in

the nature of an action for alleged breach of contractual obligation on

the part of respondent-appellee. As squarely apparent from
complainant-appellants Position Paper, his claims for compensation
for services, 13th month pay, signing bonus and travel allowance
against respondent-appellee are not based on the Labor Code but
rather on the provisions of the May 1994 Agreement, while his claims
for proceeds under Stock Purchase Agreement are based on the
latter. A portion of the Position Paper of complainant-appellant bears
perusal:
Under [the May 1994 Agreement] with respondent ABSCBN, the latter contractually bound itself to pay complainant
a signing bonus consisting of shares of stockswith FIVE
HUNDRED THOUSAND PESOS (P500,000.00).
Similarly, complainant is also entitled to be paid 13th month
pay based on an amount not lower than the amount he was
receiving prior to effectivity of (the) Agreement.
Under paragraph 9 of (the May 1994 Agreement),
complainant is entitled to a commutable travel benefit
amounting to at least One Hundred Fifty Thousand Pesos
(P150,000.00) per year.
Thus, it is precisely because of complainant-appellants own
recognition of the fact that his contractual relations with ABS-CBN
are founded on the New Civil Code, rather than the Labor Code, that
instead of merely resigning from ABS-CBN, complainant-appellant
served upon the latter a notice of rescission of Agreement with the
station, per his letter dated April 1, 1996, which asserted that instead
of referring to unpaid employee benefits, he is waiving and
renouncing recovery of the remaining amount stipulated in paragraph
7 of the Agreement but reserves the right to such recovery of the
other benefits under said Agreement. (Annex 3 of the respondent
ABS-CBNs Motion to Dismiss dated July 10, 1996).
Evidently, it is precisely by reason of the alleged violation of the May
1994 Agreement and/or the Stock Purchase Agreement by
respondent-appellee that complainant-appellant filed his complaint.
Complainant-appellants claims being anchored on the alleged
breach of contract on the part of respondent-appellee, the same can
be resolved by reference to civil law and not to labor law.
Consequently, they are within the realm of civil law and, thus, lie with
the regular courts. As held in the case of Dai-Chi Electronics
Manufacturing vs. Villarama, 238 SCRA 267, 21 November 1994, an

action for breach of contractual obligation is intrinsically a civil

dispute.9 (Emphasis supplied)
The Court of Appeals ruled that the existence of an employer-employee
relationship between SONZA and ABS-CBN is a factual question that is
within the jurisdiction of the NLRC to resolve.10 A special civil action for
certiorari extends only to issues of want or excess of jurisdiction of the
NLRC.11 Such action cannot cover an inquiry into the correctness of the
evaluation of the evidence which served as basis of the NLRCs conclusion. 12
The Court of Appeals added that it could not re-examine the parties evidence
and substitute the factual findings of the NLRC with its own. 13
The Issue
In assailing the decision of the Court of Appeals, SONZA contends that:
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE
NLRCS DECISION AND REFUSING TO FIND THAT AN
EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN
SONZA AND ABS-CBN, DESPITE THE WEIGHT OF
CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO
SUPPORT SUCH A FINDING.14
The Courts Ruling
We affirm the assailed decision.
No convincing reason exists to warrant a reversal of the decision of the Court
of Appeals affirming the NLRC ruling which upheld the Labor Arbiters
dismissal of the case for lack of jurisdiction.
The present controversy is one of first impression. Although Philippine labor
laws and jurisprudence define clearly the elements of an employer-employee
relationship, this is the first time that the Court will resolve the nature of the
relationship between a television and radio station and one of its "talents."
There is no case law stating that a radio and television program host is an
employee of the broadcast station.
The instant case involves big names in the broadcast industry, namely Jose
"Jay" Sonza, a known television and radio personality, and ABS-CBN, one of
the biggest television and radio networks in the country.
SONZA contends that the Labor Arbiter has jurisdiction over the case
because he was an employee of ABS-CBN. On the other hand, ABS-CBN

insists that the Labor Arbiter has no jurisdiction because SONZA was an
independent contractor.
B. Payment of Wages
Employee or Independent Contractor?
The existence of an employer-employee relationship is a question of fact.
Appellate courts accord the factual findings of the Labor Arbiter and the
NLRC not only respect but also finality when supported by substantial
evidence.15 Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion. 16 A party
cannot prove the absence of substantial evidence by simply pointing out that
there is contrary evidence on record, direct or circumstantial. The Court does
not substitute its own judgment for that of the tribunal in determining where
the weight of evidence lies or what evidence is credible. 17
SONZA maintains that all essential elements of an employer-employee
relationship are present in this case. Case law has consistently held that the
elements of an employer-employee relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employers power to control the employee on the
means and methods by which the work is accomplished.18 The last element,
the so-called "control test", is the most important element.19
A. Selection and Engagement of Employee
ABS-CBN engaged SONZAs services to co-host its television and radio
programs because of SONZAs peculiar skills, talent and celebrity status.
SONZA contends that the "discretion used by respondent in specifically
selecting and hiring complainant over other broadcasters of possibly similar
experience and qualification as complainant belies respondents claim of
independent contractorship."
Independent contractors often present themselves to possess unique skills,
expertise or talent to distinguish them from ordinary employees. The specific
selection and hiring of SONZA, because of his unique skills, talent and
celebrity status not possessed by ordinary employees, is a circumstance
indicative, but not conclusive, of an independent contractual relationship. If
SONZA did not possess such unique skills, talent and celebrity status, ABSCBN would not have entered into the Agreement with SONZA but would have
hired him through its personnel department just like any other employee.
In any event, the method of selecting and engaging SONZA does not
conclusively determine his status. We must consider all the circumstances of
the relationship, with the control test being the most important element.

ABS-CBN directly paid SONZA his monthly talent fees with no part of his
fees going to MJMDC. SONZA asserts that this mode of fee payment shows
that he was an employee of ABS-CBN. SONZA also points out that ABS-CBN
granted him benefits and privileges "which he would not have enjoyed if he
were truly the subject of a valid job contract."
All the talent fees and benefits paid to SONZA were the result of negotiations
that led to the Agreement. If SONZA were ABS-CBNs employee, there would
be no need for the parties to stipulate on benefits such as "SSS, Medicare, x
x x and 13th month pay"20 which the law automatically incorporates into every
employer-employee contract.21 Whatever benefits SONZA enjoyed arose
from contract and not because of an employer-employee relationship. 22
SONZAs talent fees, amounting to P317,000 monthly in the second and third
year, are so huge and out of the ordinary that they indicate more an
independent contractual relationship rather than an employer-employee
relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely
because of SONZAs unique skills, talent and celebrity status not possessed
by ordinary employees. Obviously, SONZA acting alone possessed enough
bargaining power to demand and receive such huge talent fees for his
services. The power to bargain talent fees way above the salary scales of
ordinary employees is a circumstance indicative, but not conclusive, of an
independent contractual relationship.
The payment of talent fees directly to SONZA and not to MJMDC does not
negate the status of SONZA as an independent contractor. The parties
expressly agreed on such mode of payment. Under the Agreement, MJMDC
is the AGENT of SONZA, to whom MJMDC would have to turn over any
talent fee accruing under the Agreement.
C. Power of Dismissal
For violation of any provision of the Agreement, either party may terminate
their relationship. SONZA failed to show that ABS-CBN could terminate his
services on grounds other than breach of contract, such as retrenchment to
prevent losses as provided under labor laws.23
During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent
fees as long as "AGENT and Jay Sonza shall faithfully and completely
perform each condition of this Agreement."24 Even if it suffered severe
business losses, ABS-CBN could not retrench SONZA because ABS-CBN

remained obligated to pay SONZAs talent fees during the life of the
Agreement. This circumstance indicates an independent contractual
relationship between SONZA and ABS-CBN.
SONZA admits that even after ABS-CBN ceased broadcasting his programs,
ABS-CBN still paid him his talent fees. Plainly, ABS-CBN adhered to its
undertaking in the Agreement to continue paying SONZAs talent fees during
the remaining life of the Agreement even if ABS-CBN cancelled SONZAs
programs through no fault of SONZA.25
SONZA assails the Labor Arbiters interpretation of his rescission of the
Agreement as an admission that he is not an employee of ABS-CBN. The
Labor Arbiter stated that "if it were true that complainant was really an
employee, he would merely resign, instead." SONZA did actually resign from
ABS-CBN but he also, as president of MJMDC, rescinded the Agreement.
SONZAs letter clearly bears this out.26 However, the manner by which
SONZA terminated his relationship with ABS-CBN is immaterial. Whether
SONZA rescinded the Agreement or resigned from work does not determine
his status as employee or independent contractor.
D. Power of Control
Since there is no local precedent on whether a radio and television program
host is an employee or an independent contractor, we refer to foreign case
law in analyzing the present case. The United States Court of Appeals, First
Circuit, recently held in Alberty-Vlez v. Corporacin De Puerto Rico Para
La Difusin Pblica ("WIPR")27 that a television program host is an
independent contractor. We quote the following findings of the U.S. court:
Several factors favor classifying Alberty as an independent
contractor. First, a television actress is a skilled position
requiring talent and training not available on-the-job. x x x In this
regard, Alberty possesses a masters degree in public
communications and journalism; is trained in dance, singing, and
modeling; taught with the drama department at the University of
Puerto Rico; and acted in several theater and television productions
prior to her affiliation with "Desde Mi Pueblo." Second, Alberty
provided the "tools and instrumentalities" necessary for her to
perform. Specifically, she provided, or obtained sponsors to provide,
the costumes, jewelry, and other image-related supplies and services
necessary for her appearance. Alberty disputes that this factor favors
independent contractor status because WIPR provided the
"equipment necessary to tape the show." Albertys argument is
misplaced. The equipment necessary for Alberty to conduct her job
as host of "Desde Mi Pueblo" related to her appearance on the show.

Others provided equipment for filming and producing the show, but
these were not the primary tools that Alberty used to perform her
particular function. If we accepted this argument, independent
contractors could never work on collaborative projects because other
individuals often provide the equipment required for different aspects
of the collaboration. x x x
Third, WIPR could not assign Alberty work in addition to filming
"Desde Mi Pueblo." Albertys contracts with WIPR specifically
provided that WIPR hired her "professional services as Hostess for
the Program Desde Mi Pueblo." There is no evidence that WIPR
assigned Alberty tasks in addition to work related to these tapings. x
x x28 (Emphasis supplied)
Applying the control test to the present case, we find that SONZA is not an
employee but an independent contractor. The control test is the most
important test our courts apply in distinguishing an employee from an
independent contractor.29 This test is based on the extent of control the hirer
exercises over a worker. The greater the supervision and control the hirer
exercises, the more likely the worker is deemed an employee. The converse
holds true as well the less control the hirer exercises, the more likely the
worker is considered an independent contractor.30
First, SONZA contends that ABS-CBN exercised control over the means and
methods of his work.
SONZAs argument is misplaced. ABS-CBN engaged SONZAs services
specifically to co-host the "Mel & Jay" programs. ABS-CBN did not assign
any other work to SONZA. To perform his work, SONZA only needed his
skills and talent. How SONZA delivered his lines, appeared on television, and
sounded on radio were outside ABS-CBNs control. SONZA did not have to
render eight hours of work per day. The Agreement required SONZA to
attend only rehearsals and tapings of the shows, as well as pre- and postproduction staff meetings.31 ABS-CBN could not dictate the contents of
SONZAs script. However, the Agreement prohibited SONZA from criticizing
in his shows ABS-CBN or its interests.32 The clear implication is that SONZA
had a free hand on what to say or discuss in his shows provided he did not
attack ABS-CBN or its interests.
We find that ABS-CBN was not involved in the actual performance that
produced the finished product of SONZAs work.33 ABS-CBN did not instruct
SONZA how to perform his job. ABS-CBN merely reserved the right to modify
the program format and airtime schedule "for more effective programming." 34
ABS-CBNs sole concern was the quality of the shows and their standing in
the ratings. Clearly, ABS-CBN did not exercise control over the means and

methods of performance of SONZAs work.

control over how SONZA utilized his skills and talent in his shows.

SONZA claims that ABS-CBNs power not to broadcast his shows proves
ABS-CBNs power over the means and methods of the performance of his
work. Although ABS-CBN did have the option not to broadcast SONZAs
show, ABS-CBN was still obligated to pay SONZAs talent fees... Thus, even
if ABS-CBN was completely dissatisfied with the means and methods of
SONZAs performance of his work, or even with the quality or product of his
work, ABS-CBN could not dismiss or even discipline SONZA. All that ABSCBN could do is not to broadcast SONZAs show but ABS-CBN must still pay
his talent fees in full.35

Second, SONZA urges us to rule that he was ABS-CBNs employee because

ABS-CBN subjected him to its rules and standards of performance. SONZA
claims that this indicates ABS-CBNs control "not only [over] his manner of
work but also the quality of his work."

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

was by the obligation to continue paying in full SONZAs talent fees, did not
amount to control over the means and methods of the performance of
SONZAs work. ABS-CBN could not terminate or discipline SONZA even if
the means and methods of performance of his work - how he delivered his
lines and appeared on television - did not meet ABS-CBNs approval. This
proves that ABS-CBNs control was limited only to the result of SONZAs
work, whether to broadcast the final product or not. In either case, ABS-CBN
must still pay SONZAs talent fees in full until the expiry of the Agreement.
In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of
Appeals ruled that vaudeville performers were independent contractors
although the management reserved the right to delete objectionable features
in their shows. Since the management did not have control over the manner
of performance of the skills of the artists, it could only control the result of the
work by deleting objectionable features.37
SONZA further contends that ABS-CBN exercised control over his work by
supplying all equipment and crew. No doubt, ABS-CBN supplied the
equipment, crew and airtime needed to broadcast the "Mel & Jay" programs.
However, the equipment, crew and airtime are not the "tools and
instrumentalities" SONZA needed to perform his job. What SONZA principally
needed were his talent or skills and the costumes necessary for his
appearance.38 Even though ABS-CBN provided SONZA with the place of
work and the necessary equipment, SONZA was still an independent
contractor since ABS-CBN did not supervise and control his work. ABSCBNs sole concern was for SONZA to display his talent during the airing of
the programs.39
A radio broadcast specialist who works under minimal supervision is an
independent contractor.40 SONZAs work as television and radio program
host required special skills and talent, which SONZA admittedly possesses.
The records do not show that ABS-CBN exercised any supervision and

The Agreement stipulates that SONZA shall abide with the rules and
standards of performance "covering talents"41 of ABS-CBN. The Agreement
does not require SONZA to comply with the rules and standards of
performance prescribed for employees of ABS-CBN. The code of conduct
imposed on SONZA under the Agreement refers to the "Television and Radio
Code of the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has
been adopted by the COMPANY (ABS-CBN) as its Code of Ethics." 42 The
KBP code applies to broadcasters, not to employees of radio and television
stations. Broadcasters are not necessarily employees of radio and television
stations. Clearly, the rules and standards of performance referred to in the
Agreement are those applicable to talents and not to employees of ABSCBN.
In any event, not all rules imposed by the hiring party on the hired party
indicate that the latter is an employee of the former.43 In this case, SONZA
failed to show that these rules controlled his performance. We find that these
general rules are merely guidelines towards the achievement of the mutually
desired result, which are top-rating television and radio programs that comply
with standards of the industry. We have ruled that:
Further, not every form of control that a party reserves to himself over the
conduct of the other party in relation to the services being rendered may be
accorded the effect of establishing an employer-employee relationship. The
facts of this case fall squarely with the case of Insular Life Assurance Co.,
Ltd. vs. NLRC. In said case, we held that:
Logically, the line should be drawn between rules that merely serve
as guidelines towards the achievement of the mutually desired result
without dictating the means or methods to be employed in attaining
it, and those that control or fix the methodology and bind or restrict
the party hired to the use of such means. The first, which aim only to
promote the result, create no employer-employee relationship unlike
the second, which address both the result and the means used to
achieve it.44
The Vaughan case also held that one could still be an independent
contractor although the hirer reserved certain supervision to insure the
attainment of the desired result. The hirer, however, must not deprive the one

hired from performing his services according to his own initiative. 45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the
most extreme form of control which ABS-CBN exercised over him.
This argument is futile. Being an exclusive talent does not by itself mean that
SONZA is an employee of ABS-CBN. Even an independent contractor can
validly provide his services exclusively to the hiring party. In the broadcast
industry, exclusivity is not necessarily the same as control.
The hiring of exclusive talents is a widespread and accepted practice in the
entertainment industry.46 This practice is not designed to control the means
and methods of work of the talent, but simply to protect the investment of the
broadcast station. The broadcast station normally spends substantial
amounts of money, time and effort "in building up its talents as well as the
programs they appear in and thus expects that said talents remain exclusive
with the station for a commensurate period of time." 47 Normally, a much
higher fee is paid to talents who agree to work exclusively for a particular
radio or television station. In short, the huge talent fees partially
compensates for exclusivity, as in the present case.
MJMDC as Agent of SONZA
SONZA protests the Labor Arbiters finding that he is a talent of MJMDC,
which contracted out his services to ABS-CBN. The Labor Arbiter ruled that
as a talent of MJMDC, SONZA is not an employee of ABS-CBN. SONZA
insists that MJMDC is a "labor-only" contractor and ABS-CBN is his
employer.

as agent of ABS-CBN in entering into the Agreement with SONZA, who

himself is represented by MJMDC. That would make MJMDC the agent of
both ABS-CBN and SONZA.
As SONZA admits, MJMDC is a management company devoted exclusively
to managing the careers of SONZA and his broadcast partner, TIANGCO.
MJMDC is not engaged in any other business, not even job contracting.
MJMDC does not have any other function apart from acting as agent of
SONZA or TIANGCO to promote their careers in the broadcast and television
industry.49
Policy Instruction No. 40
SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor
Blas Ople on 8 January 1979 finally settled the status of workers in the
broadcast industry. Under this policy, the types of employees in the broadcast
industry are the station and program employees.
Policy Instruction No. 40 is a mere executive issuance which does not have
the force and effect of law. There is no legal presumption that Policy
Instruction No. 40 determines SONZAs status. A mere executive issuance
cannot exclude independent contractors from the class of service providers
to the broadcast industry. The classification of workers in the broadcast
industry into only two groups under Policy Instruction No. 40 is not binding on
this Court, especially when the classification has no basis either in law or in
fact.
Affidavits of ABS-CBNs Witnesses

In a labor-only contract, there are three parties involved: (1) the "labor-only"
contractor; (2) the employee who is ostensibly under the employ of the
"labor-only" contractor; and (3) the principal who is deemed the real
employer. Under this scheme, the "labor-only" contractor is the agent of
the principal. The law makes the principal responsible to the employees of
the "labor-only contractor" as if the principal itself directly hired or employed
the employees.48 These circumstances are not present in this case.

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro
Vidanes and Rolando Cruz without giving his counsel the

There are essentially only two parties involved under the Agreement, namely,
SONZA and ABS-CBN. MJMDC merely acted as SONZAs agent. The
Agreement expressly states that MJMDC acted as the "AGENT" of SONZA.
The records do not show that MJMDC acted as ABS-CBNs agent. MJMDC,
which stands for Mel and Jay Management and Development Corporation, is
a corporation organized and owned by SONZA and TIANGCO. The President
and General Manager of MJMDC is SONZA himself. It is absurd to hold that
MJMDC, which is owned, controlled, headed and managed by SONZA, acted

While SONZA failed to cross-examine ABS-CBNs witnesses, he was never

prevented from denying or refuting the allegations in the affidavits. The Labor
Arbiter has the discretion whether to conduct a formal (trial-type) hearing
after the submission of the position papers of the parties, thus:

opportunity to cross-examine these witnesses. SONZA brands these

witnesses as incompetent to attest on the prevailing practice in the radio and
television industry. SONZA views the affidavits of these witnesses as
misleading and irrelevant.

Section 3. Submission of Position Papers/Memorandum

xxx
These verified position papers shall cover only those claims and
causes of action raised in the complaint excluding those that may
have been amicably settled, and shall be accompanied by all
supporting documents including the affidavits of their respective
witnesses which shall take the place of the latters direct testimony. x
xx
Section 4. Determination of Necessity of Hearing. Immediately
after the submission of the parties of their position
papers/memorandum, the Labor Arbiter shall motu propio determine
whether there is need for a formal trial or hearing. At this stage, he
may, at his discretion and for the purpose of making such
determination, ask clarificatory questions to further elicit facts or
information, including but not limited to the subpoena of relevant
documentary evidence, if any from any party or witness. 50
The Labor Arbiter can decide a case based solely on the position papers and
the supporting documents without a formal trial.51 The holding of a formal
hearing or trial is something that the parties cannot demand as a matter of
right.52 If the Labor Arbiter is confident that he can rely on the documents
before him, he cannot be faulted for not conducting a formal trial, unless
under the particular circumstances of the case, the documents alone are
insufficient. The proceedings before a Labor Arbiter are non-litigious in
nature. Subject to the requirements of due process, the technicalities of law
and the rules obtaining in the courts of law do not strictly apply in
proceedings before a Labor Arbiter.
Talents as Independent Contractors
ABS-CBN claims that there exists a prevailing practice in the broadcast and
entertainment industries to treat talents like SONZA as independent
contractors. SONZA argues that if such practice exists, it is void for violating
the right of labor to security of tenure.
The right of labor to security of tenure as guaranteed in the Constitution 53
arises only if there is an employer-employee relationship under labor laws.
Not every performance of services for a fee creates an employer-employee
relationship. To hold that every person who renders services to another for a
fee is an employee - to give meaning to the security of tenure clause - will
lead to absurd results.
Individuals with special skills, expertise or talent enjoy the freedom to offer
their services as independent contractors. The right to life and livelihood

guarantees this freedom to contract as independent contractors. The right of

labor to security of tenure cannot operate to deprive an individual, possessed
with special skills, expertise and talent, of his right to contract as an
independent contractor. An individual like an artist or talent has a right to
render his services without any one controlling the means and methods by
which he performs his art or craft. This Court will not interpret the right of
labor to security of tenure to compel artists and talents to render their
services only as employees. If radio and television program hosts can render
their services only as employees, the station owners and managers can
dictate to the radio and television hosts what they say in their shows. This is
not conducive to freedom of the press.
Different Tax Treatment of Talents and Broadcasters
The National Internal Revenue Code ("NIRC") 54 in relation to Republic Act
No. 7716,55 as amended by Republic Act No. 8241,56 treats talents, television
and radio broadcasters differently. Under the NIRC, these professionals are
subject to the 10% value-added tax ("VAT") on services they render.
Exempted from the VAT are those under an employer-employee
relationship.57 This different tax treatment accorded to talents and
broadcasters bolters our conclusion that they are independent contractors,
provided all the basic elements of a contractual relationship are present as in
this case.
Nature of SONZAs Claims
SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay,
separation pay, service incentive leave, signing bonus, travel allowance, and
amounts due under the Employee Stock Option Plan. We agree with the
findings of the Labor Arbiter and the Court of Appeals that SONZAs claims
are all based on the May 1994 Agreement and stock option plan, and
not on the Labor Code. Clearly, the present case does not call for an
application of the Labor Code provisions but an interpretation and
implementation of the May 1994 Agreement. In effect, SONZAs cause of
action is for breach of contract which is intrinsically a civil dispute cognizable
by the regular courts.58
WHEREFORE, we DENY the petition. The assailed Decision of the Court of
Appeals dated 26 March 1999 in CA-G.R. SP No. 49190 is AFFIRMED.
Costs against petitioner.
SO ORDERED.

G.R. No. 183810

January 21, 2010

FARLEY FULACHE, MANOLO JABONERO, DAVID CASTILLO, JEFFREY

LAGUNZAD, MAGDALENA MALIG-ON BIGNO, FRANCISCO CABAS,
JR., HARVEY PONCE and ALAN C. ALMENDRAS, Petitioners,
vs.
ABS-CBN BROADCASTING CORPORATION, Respondent.
DECISION
BRION, J.:
The petition for review on certiorari1 now before us seeks to set aside the
decision2 and resolution3 of the Court of Appeals, Nineteenth Division (CA)
promulgated on March 25, 2008 and July 8, 2008, respectively, in CA- G.R.
SP No. 01838.4
The Antecedents
The Regularization Case.
In June 2001, petitioners Farley Fulache, Manolo Jabonero, David Castillo,
Jeffrey Lagunzad, Magdalena Malig-on Bigno, Francisco Cabas, Jr., Harvey
Ponce and Alan C. Almendras (petitioners) and Cresente Atinen (Atinen) filed
two separate complaints for regularization, unfair labor practice and several
money claims (regularization case) against ABS-CBN Broadcasting
Corporation-Cebu (ABS-CBN). Fulache and Castillo were
drivers/cameramen; Atinen, Lagunzad and Jabonero were drivers; Ponce
and Almendras were cameramen/editors; Bigno was a PA/Teleprompter
Operator-Editing, and Cabas was a VTR man/editor. The complaints (RAB
VII Case Nos. 06-1100-01 and 06-1176-01) were consolidated and were
assigned to Labor Arbiter Julie C. Rendoque.
The petitioners alleged that on December 17, 1999, ABS-CBN and the ABSCBN Rank-and-File Employees Union (Union) executed a collective
bargaining agreement (CBA) effective December 11, 1999 to December 10,
2002; they only became aware of the CBA when they obtained copies of the
agreement; they learned that they had been excluded from its coverage as
ABS-CBN considered them temporary and not regular employees, in
violation of the Labor Code. They claimed they had already rendered more
than a year of service in the company and, therefore, should have been
recognized as regular employees entitled to security of tenure and to the

privileges and benefits enjoyed by regular employees. They asked that they
be paid overtime, night shift differential, holiday, rest day and service
incentive leave pay. They also prayed for an award of moral damages and
attorneys fees.
ABS-CBN explained the nature of the petitioners employment within the
framework of its operations. It claimed that: it operates in several divisions,
one of which is the Regional Network Group (RNG). The RNG exercises
control and supervision over all the ABS-CBN local stations to ensure that
ABS-CBN programs are extended to the provinces. A local station, like the
Cebu station, can resort to cost-effective and cost-saving measures to
remain viable; local stations produced shows and programs that were
constantly changing because of the competitive nature of the industry, the
changing public demand or preference, and the seasonal nature of media
broadcasting programs. ABS-CBN claimed, too, that the production of
programs per se is not necessary or desirable in its business because it
could generate profits by selling airtime to block-timers or through
advertising.
ABS-CBN further claimed that to cope with fluctuating business conditions, it
contracts on a case-to-case basis the services of persons who possess the
necessary talent, skills, training, expertise or qualifications to meet the
requirements of its programs and productions. These contracted persons are
called "talents" and are considered independent contractors who offer their
services to broadcasting companies.
Instead of salaries, ABS-CBN pointed out that talents are paid a prearranged consideration called "talent fee" taken from the budget of a
particular program and subject to a ten percent (10%) withholding tax.
Talents do not undergo probation. Their services are engaged for a specific
program or production, or a segment thereof. Their contracts are terminated
once the program, production or segment is completed.
ABS-CBN alleged that the petitioners services were contracted on various
dates by its Cebu station as independent contractors/off camera talents, and
they were not entitled to regularization in these capacities.
On January 17, 2002, Labor Arbiter Rendoque rendered his decision 5 holding
that the petitioners were regular employees of ABS-CBN, not independent
contractors, and are entitled to the benefits and privileges of regular
employees.
ABS-CBN appealed the ruling to the National Labor Relations Commission
(NLRC) Fourth Division, mainly contending that the petitioners were
independent contractors, not regular employees.6

The Illegal Dismissal Case.

While the appeal of the regularization case was pending, ABS-CBN
dismissed Fulache, Jabonero, Castillo, Lagunzad and Atinen (all drivers) for
their refusal to sign up contracts of employment with service contractor Able
Services. The four drivers and Atinen responded by filing a complaint for
illegal dismissal (illegal dismissal case). The case (RAB VII Case No. 071300-2002) was likewise handled by Labor Arbiter Rendoque.
In defense, ABS-CBN alleged that even before the labor arbiter rendered his
decision of January 17, 2002 in the regularization case, it had already
undertaken a comprehensive review of its existing organizational structure to
address its operational requirements. It then decided to course through
legitimate service contractors all driving, messengerial, janitorial, utility,
make-up, wardrobe and security services for both the Metro Manila and
provincial stations, to improve its operations and to make them more
economically viable. Fulache, Jabonero, Castillo, Lagunzad and Atinen were
not singled out for dismissal; as drivers, they were dismissed because they
belonged to a job category that had already been contracted out. It argued
that even if the petitioners had been found to have been illegally dismissed,
their reinstatement had become a physical impossibility because their
employer-employee relationships had been strained and that Atinen had
executed a quitclaim and release.
7

In her April 21, 2003 decision in the illegal dismissal case, Labor Arbiter
Rendoque upheld the validity of ABS-CBN's contracting out of certain work or
services in its operations. The labor arbiter found that petitioners Fulache,
Jabonero, Castillo, Lagunzad and Atinen had been dismissed due to
redundancy, an authorized cause under the law.8 He awarded them
separation pay of one (1) months salary for every year of service.
Again, ABS-CBN appealed to the NLRC which rendered on December 15,
2004 a joint decision on the regularization and illegal dismissal cases. 9 The
NLRC ruled that there was an employer-employee relationship between the
petitioners and ABS-CBN as the company exercised control over the
petitioners in the performance of their work; the petitioners were regular
employees because they were engaged to perform activities usually
necessary or desirable in ABS-CBN's trade or business; they cannot be
considered contractual employees since they were not paid for the result of
their work, but on a monthly basis and were required to do their work in
accordance with the companys schedule. The NLRC thus affirmed with
modification the labor arbiter's regularization decision of January 17, 2002,
additionally granting the petitioners CBA benefits and privileges.
The NLRC reversed the labor arbiters ruling in the illegal dismissal case; it

found that petitioners Fulache, Jabonero, Castillo, Lagunzad and Atinen had
been illegally dismissed and awarded them backwages and separation pay in
lieu of reinstatement. Under both cases, the petitioners were awarded CBA
benefits and privileges from the time they became regular employees up to
the time of their dismissal.
The petitioners moved for reconsideration, contending that Fulache,
Jabonero, Castillo and Lagunzad are entitled to reinstatement and full
backwages, salary increases and other CBA benefits as well as 13th month
pay, cash conversion of sick and vacation leaves, medical and dental
allowances, educational benefits and service awards. Atinen appeared to
have been excluded from the motion and there was no showing that he
sought reconsideration on his own.
ABS-CBN likewise moved for the reconsideration of the decision, reiterating
that Fulache, Jabonero, Castillo and Lagunzad were independent
contractors, whose services had been terminated due to redundancy; thus,
no backwages should have been awarded. It further argued that the
petitioners were not entitled to the CBA benefits because they never claimed
these benefits in their position paper before the labor arbiter while the NLRC
failed to make a clear and positive finding that that they were part of the
bargaining unit; neither was there evidence to support this finding.
The NLRC resolved the motions for reconsideration on March 24, 2006 10 by
reinstating the two separate decisions of the labor arbiter dated January 17,
2002,11 and April 21, 2003,12 respectively. Thus, on the regularization issue,
the NLRC stood by the ruling that the petitioners were regular employees
entitled to the benefits and privileges of regular employees. On the illegal
dismissal case, the petitioners, while recognized as regular employees, were
declared dismissed due to redundancy. The NLRC denied the petitioners
second motion for reconsideration in its order of May 31, 2006 for being a
prohibited pleading. 13
The CA Petition and Decision
The petitioners went to the CA through a petition for certiorari under Rule 65
of the Rules of Court.14 They charged the NLRC with grave abuse of
discretion in: (1) denying them the benefits under the CBA; (2) finding no
evidence that they are part of the companys bargaining unit; (3) not
reinstating and awarding backwages to Fulache, Jabonero, Castillo and
Lagunzad; and (4) ruling that they are not entitled to damages and attorneys
fees.
ABS-CBN, on the other hand, questioned the propriety of the petitioners use
of a certiorari petition. It argued that the proper remedy for the petitioners

was an appeal from the reinstated decisions of the labor arbiter.

In its decision of March 25, 2008,15 the appellate court brushed aside ABSCBNs procedural question, holding that the petition was justified because
there is no plain, speedy or adequate remedy from a final decision, order or
resolution of the NLRC; the reinstatement of the labor arbiters decisions did
not mean that the proceedings reverted back to the level of the arbiter. It
likewise affirmed the NLRC ruling that the petitioners second motion for
reconsideration is a prohibited pleading under the NLRC rules. 16
On the merits of the case, the CA ruled that the petitioners failed to prove
their claim to CBA benefits since they never raised the issue in the
compulsory arbitration proceedings, and did not appeal the labor arbiters
decision which was silent on their entitlement to CBA benefits. The CA found
that the petitioners failed to show with specificity how Section 1 (Appropriate
Bargaining Unit) and the other provisions of the CBA applied to them.
On the illegal dismissal issue, the CA upheld the NLRC decision reinstating
the labor arbiters April 21, 2003 ruling. 17 Thus, the drivers Fulache,
Jabonero, Castillo and Lagunzad were not illegally dismissed as their
separation from the service was due to redundancy; they had not presented
any evidence that ABS-CBN abused its prerogative in contracting out the
services of drivers. Except for separation pay, the CA denied the petitioners
claim for backwages, moral and exemplary damages, and attorneys fees.
The petitioners moved for reconsideration, but the CA denied the motion in a
resolution promulgated on July 8, 2008.18 Hence, the present petition.
The Petition
The petitioners challenge the CA ruling on both procedural and substantive
grounds. As procedural questions, they submit that the CA erred in: (1)
affirming the NLRC resolution which reversed its own decision; (2) sustaining
the NLRC ruling that their second motion for reconsideration is a prohibited
pleading; (3) not ruling that ABS-CBN admitted in its position paper before
the labor arbiter that they were members of the bargaining unit as the matter
was not raised in its appeal to the NLRC; and, (4) not ruling that
notwithstanding their failure to appeal from the first decision of the Labor
Arbiter, they can still participate in the appeal filed by ABS-CBN regarding
their employment status.
On the substantive aspect, the petitioners contend that the CA gravely erred
in: (1) not considering the evidence submitted to the NLRC on appeal to
bolster their claim that they were members of the bargaining unit and
therefore entitled to the CBA benefits; (2) not ordering ABS-CBN to pay the

petitioners salaries, allowances and CBA benefits after the NLRC has
declared that they were regular employees of ABS-CBN; (3) not ruling that
under existing jurisprudence, the position of driver cannot be declared
redundant, and that the petitioners-drivers were illegally dismissed; and, (4)
not ruling that the petitioners were entitled to damages and attorneys fees.
The petitioners argue that the NLRC resolution of March 24, 2006 19 which set
aside its joint decision of December 15, 200420 and reinstated the twin
decisions of the labor arbiter,21 had the effect of promulgating a new decision
based on issues that were not raised in ABS-CBNs partial appeal to the
NLRC. They submit that the NLRC should have allowed their second motion
for reconsideration so that it may be able to equitably evaluate the parties
"conflicting versions of the facts" instead of denying the motion on a mere
technicality.
On the question of their CBA coverage, the petitioners contend that the CA
erred in not considering that ABS-CBN admitted their membership in the
bargaining unit, for nowhere in its partial appeal from the labor arbiters
decision in the regularization case did it allege that the petitioners failed to
prove that they are members of the bargaining unit; instead, the company
stood by its position that the petitioners were not entitled to the CBA benefits
since they were independent contractors/program employees.
The petitioners submit that while they did not appeal the labor arbiters
decision in the regularization case, ABS-CBN raised the employment status
issue in its own appeal to the NLRC; this appeal laid this issue open for
review. They argue that they could still participate in the appeal proceedings
at the NLRC; pursue their position on the issue; and introduce evidence as
they did in their reply to the companys appeal.22 They bewail the appellate
courts failure to consider the evidence they presented to the NLRC
(consisting of documents and sworn statements enumerating the activities
they are performing) clearly indicating that they are part of the rank-and-file
bargaining unit at ABS-CBN.
The petitioners then proceeded to describe the work they render for the
company. Collectively, they claim that they work as assistants in the
production of the Cebuano news program broadcast daily over ABS-CBN
Channel 3, as follows: Fulache, Jabonero, Castillo and Lagunzad as
production assistants to drive the news team; Ponce and Almendras, to shoot
scenes and events with the use of cameras owned by ABS-CBN; Malig-on
Bigno, as studio production assistant and assistant editor/teleprompter
operator; and Cabas, Jr., as production assistant for video editing and
operating the VTR machine recorder. As production assistants, the
petitioners submit that they are rank-and-file employees (citing in support of
their position the Courts ruling in ABS-CBN Broadcasting Corp. v.
Nazareno23) who are entitled to salary increases and other benefits under the

CBA. Relying on the Courts ruling in New Pacific Timber and Supply
Company, Inc. v. NLRC,24 they posit that to exclude them from the CBA
"would constitute undue discrimination and would deprive them of monetary
benefits they would otherwise be entitled to."
As their final point, the petitioners argue that even if they were not able to
prove that they were members of the bargaining unit, the CA should not have
dismissed their petition. When the CA affirmed the rulings of both the labor
arbiter and the NLRC that they are regular employees, the CA should have
ordered ABS-CBN to recognize their regular employee status and to give
them the salaries, allowances and other benefits and privileges under the
CBA.1avvphi1
On the dismissal of Fulache, Jabonero, Castillo and Lagunzad, the
petitioners impute bad faith on ABS-CBN when it abolished the positions of
drivers claiming that the company failed to comply with the requisites of a
valid redundancy action. They maintain that ABS-CBN did not present any
evidence on the new staffing pattern as approved by the management of the
company, and did not even bother to show why it considered the positions of
drivers superfluous and unnecessary; it is not true that the positions of
drivers no longer existed because these positions were contracted out to an
agency that, in turn, recruited four drivers to take the place of Fulache,
Jabonero, Castillo and Lagunzad. As further indication that the redundancy
action against the four drivers was done in bad faith, the petitioners call
attention to ABS-CBNs abolition of the position of drivers after the labor
arbiter rendered her decision declaring Fulache, Jabonero, Castillo and
Lagunzad regular company employees. The petitioners object to the
dismissal of the four drivers when they refused to sign resignation letters and
join Able Services, a contracting agency, contending that the four had no
reason to resign after the labor arbiter declared them regular company
employees.
Since their dismissal was illegal and attended by bad faith, the petitioners
insist that they should be reinstated with backwages, and should likewise be
awarded moral and exemplary damages, and attorney's fees.
The Case for ABS-CBN
In its Comment filed on January 28, 2009,25 ABS-CBN presents several
grounds which may be synthesized as follows:
1. The petition raises questions of fact and not of law.
2. The CA committed no error in affirming the resolution of the NLRC
reinstating the decisions of the labor arbiter.

ABS-CBN submits that the petition should be dismissed for having raised
questions of fact and not of law in violation of Rule 45 of the Rules of Court. It
argues that the question of whether the petitioners were covered by the CBA
(and therefore entitled to the CBA benefits) and whether the petitioners were
illegally dismissed because of redundancy, are factual questions that cannot
be reviewed on certiorari because the Court is not a trier of facts.
ABS-CBN dismisses the petitioners issues and arguments as mere rehash
of what they raised in their pleadings with the CA and as grounds that do not
warrant further consideration. It further contends that because the petitioners
did not appeal the labor arbiter decisions, these decisions had lapsed to
finality and could no longer be the subject of a petition for certiorari; the
petitioners cannot obtain from the appellate court affirmative relief other than
those granted in the appealed decision. It also argues that the NLRC did not
commit any grave abuse of discretion in reinstating the twin decisions of the
labor arbiter, thereby affirming that no CBA benefits can be awarded to the
petitioners; in the absence of any illegal dismissal, the petitioners were not
entitled to reinstatement, backwages, damages, and attorney's fees.
The Court's Ruling
We first resolve the parties procedural questions.
ABS-CBN wants the petition to be dismissed outright for its alleged failure to
comply with the requirement of Rule 45 of the Rules of Court that the petition
raises only questions of law.26
We find no impropriety in the petition from the standpoint of Rule 45. The
petitioners do not question the findings of facts of the assailed decisions.
They question the misapplication of the law and jurisprudence on the facts
recognized by the decisions. For example, they question as contrary to law
their exclusion from the CBA after they were recognized as regular rank-andfile employees of ABS-CBN. They also question the basis in law of the
dismissal of the four drivers and the legal propriety of the redundancy action
taken against. To reiterate the established distinctions between questions of
law and questions of fact, we quote hereunder our ruling in New Rural Bank
of Guimba (N.E.) Inc. v. Fermina S. Abad and Rafael Susan: 27
We reiterate the distinction between a question of law and a question of
fact. A question of law exists when the doubt or controversy concerns
the correct application of law or jurisprudence to a certain set of facts;
or when the issue does not call for an examination of the probative
value of the evidence presented, the truth or falsehood of the facts
being admitted. A question of fact exists when a doubt or difference
arises as to the truth or falsehood of facts or when the query invites

calibration of the whole evidence considering mainly the credibility of

the witnesses, the existence and relevancy of specific surrounding
circumstances, as well as their relation to each other and to the whole,
and the probability of the situation.

Section 1. APPROPRIATE BARGAINING UNIT. The parties agree that the

appropriate bargaining unit shall be regular rank-and-file employees of
ABS-CBN BROADCASTING CORPORATION but shall not include:
a) Personnel classified as Supervisor and Confidential employees;

We also find no error in the CAs affirmation of the denial of the petitioners
second motion for reconsideration of the March 24, 2006 resolution of the
NLRC reinstating the labor arbiters twin decisions. The petitioners second
motion for reconsideration was a prohibited pleading under the NLRC rules
of procedure.28
The parties other procedural questions directly bear on the merits of their
positions and are discussed and resolved below, together with the core
substantive issues of: (1) whether the petitioners, as regular employees, are
members of the bargaining unit entitled to CBA benefits; and (2) whether
petitioners Fulache, Jabonero, Castillo and Lagunzad were illegally
dismissed.
The Claim for CBA Benefits
We find merit in the petitioners positions.
As regular employees, the petitioners fall within the coverage of the
bargaining unit and are therefore entitled to CBA benefits as a matter of law
and contract. In the root decision (the labor arbiters decision of January 17,
2002) that the NLRC and CA affirmed, the labor arbiter declared:
WHEREFORE, IN THE LIGHT OF THE FOREGOING, taking into account
the factual scenario and the evidence adduced by both parties, it is declared
that complainants in these cases are REGULAR EMPLOYEES of
respondent ABS-CBN and not INDEPENDENT CONTRACTORS and thus
henceforth they are entitled to the benefits and privileges attached to regular
status of their employment.
This declaration unequivocally settled the petitioners employment status:
they are ABS-CBNs regular employees entitled to the benefits and privileges
of regular employees. These benefits and privileges arise from entitlements
under the law (specifically, the Labor Code and its related laws), and from
their employment contract as regular ABS-CBN employees, part of which is
the CBA if they fall within the coverage of this agreement. Thus, what only
needs to be resolved as an issue for purposes of implementation of the
decision is whether the petitioners fall within CBA coverage.
The parties 1999-2002 CBA provided in its Article I (Scope of the Agreement)
that:29

b) Personnel who are on "casual" or "probationary" status as defined

in Section 2 hereof;
c) Personnel who are on "contract" status or who are paid for
specified units of work such as writer-producers, talent-artists, and
singers.
The inclusion or exclusion of new job classifications into the bargaining unit
shall be subject of discussion between the COMPANY and the UNION.
[emphasis supplied]
Under these terms, the petitioners are members of the appropriate
bargaining unit because they are regular rank-and-file employees and do not
belong to any of the excluded categories. Specifically, nothing in the records
shows that they are supervisory or confidential employees; neither are they
casual nor probationary employees. Most importantly, the labor arbiters
decision of January 17, 2002 affirmed all the way up to the CA level ruled
against ABS-CBNs submission that they are independent contractors. Thus,
as regular rank-and-file employees, they fall within CBA coverage under the
CBAs express terms and are entitled to its benefits.
We see no merit in ABS-CBNs arguments that the petitioners are not entitled
to CBA benefits because: (1) they did not claim these benefits in their
position paper; (2) the NLRC did not categorically rule that the petitioners
were members of the bargaining unit; and (3) there was no evidence of this
membership. To further clarify what we stated above, CBA coverage is not
only a question of fact, but of law and contract. The factual issue is whether
the petitioners are regular rank-and-file employees of ABS-CBN. The
tribunals below uniformly answered this question in the affirmative. From this
factual finding flows legal effects touching on the terms and conditions of the
petitioners regular employment. This was what the labor arbiter meant when
he stated in his decision that "henceforth they are entitled to the benefits and
privileges attached to regular status of their employment." Significantly, ABSCBN itself posited before this Court that "the Court of Appeals did not gravely
err nor gravely abuse its discretion when it affirmed the resolution of the
NLRC dated March 24, 2006 reinstating and adopting in toto the decision of
the Labor Arbiter dated January 17, 2002 x x x." 30 This representation alone
fully resolves all the objections procedural or otherwise ABS-CBN raised
on the regularization issue.

The Dismissal of Fulache, Jabonero,

Castillo and Lagunzad
The termination of employment of the four drivers occurred under highly
questionable circumstances and with plain and unadulterated bad faith.
The records show that the regularization case was in fact the root of the
resulting bad faith as this case gave rise and led to the dismissal case. First,
the regularization case was filed leading to the labor arbiters decision 31
declaring the petitioners, including Fulache, Jabonero, Castillo and
Lagunzad, to be regular employees. ABS-CBN appealed the decision and
maintained its position that the petitioners were independent contractors.
In the course of this appeal, ABS-CBN took matters into its own hands and
terminated the petitioners services, clearly disregarding its own appeal then
pending with the NLRC. Notably, this appeal posited that the petitioners were
not employees (whose services therefore could be terminated through
dismissal under the Labor Code); they were independent contractors whose
services could be terminated at will, subject only to the terms of their
contracts. To justify the termination of service, the company cited redundancy
as its authorized cause but offered no justificatory supporting evidence. It
merely claimed that it was contracting out the petitioners activities in the
exercise of its management prerogative.
ABS-CBNs intent, of course, based on the records, was to transfer the
petitioners and their activities to a service contractor without paying any
attention to the requirements of our labor laws; hence, ABS-CBN dismissed
the petitioners when they refused to sign up with the service contractor.32 In
this manner, ABS-CBN fell into a downward spiral of irreconcilable legal
positions, all undertaken in the hope of saving itself from the decision
declaring its "talents" to be regular employees.
By doing all these, ABS-CBN forgot labor law and its realities.
It forgot that by claiming redundancy as authorized cause for dismissal, it
impliedly admitted that the petitioners were regular employees whose
services, by law, can only be terminated for the just and authorized causes
defined under the Labor Code.
Likewise ABS-CBN forgot that it had an existing CBA with a union, which
agreement must be respected in any move affecting the security of tenure of
affected employees; otherwise, it ran the risk of committing unfair labor
practice both a criminal and an administrative offense. 33 It similarly forgot
that an exercise of management prerogative can be valid only if it is
undertaken in good faith and with no intent to defeat or circumvent the rights

of its employees under the laws or under valid agreements. 34

Lastly, it forgot that there was a standing labor arbiters decision that, while
not yet final because of its own pending appeal, cannot simply be
disregarded. By implementing the dismissal action at the time the labor
arbiters ruling was under review, the company unilaterally negated the
effects of the labor arbiters ruling while at the same time appealling the
same ruling to the NLRC. This unilateral move is a direct affront to the
NLRCs authority and an abuse of the appeal process.
All these go to show that ABS-CBN acted with patent bad faith. A close
parallel we can draw to characterize this bad faith is the prohibition against
forum-shopping under the Rules of Court. In forum-shopping, the Rules
characterize as bad faith the act of filing similar and repetitive actions for the
same cause with the intent of somehow finding a favorable ruling in one of
the actions filed.35 ABS-CBNs actions in the two cases, as described above,
are of the same character, since its obvious intent was to defeat and render
useless, in a roundabout way and other than through the appeal it had taken,
the labor arbiters decision in the regularization case. Forum-shopping is
penalized by the dismissal of the actions involved. The penalty against ABSCBN for its bad faith in the present case should be no less.
The errors and omissions do not belong to ABS-CBN alone. The labor arbiter
himself who handled both cases did not see the totality of the companys
actions for what they were. He appeared to have blindly allowed what he
granted the petitioners with his left hand, to be taken away with his right
hand, unmindful that the company already exhibited a badge of bad faith in
seeking to terminate the services of the petitioners whose regular status had
just been recognized. He should have recognized the bad faith from the
timing alone of ABS-CBNs conscious and purposeful moves to secure the
ultimate aim of avoiding the regularization of its so-called "talents."
The NLRC, for its part, initially recognized the presence of bad faith when it
originally ruled that:
While notice has been made to the employees whose positions were
declared redundant, the element of good faith in abolishing the positions of
the complainants appear to be wanting. In fact, it remains undisputed that
herein complainants were terminated when they refused to sign an
employment contract with Able Services which would make them appear as
employees of the agency and not of ABS-CBN. Such act by itself clearly
demonstrates bad faith on the part of the respondent in carrying out the
companys redundancy program x x x.36
On motion for reconsideration by both parties, the NLRC reiterated its

"pronouncement that complainants were illegally terminated as extensively

discussed in our Joint Decision dated December 15, 2004." 37 Yet, in an
inexplicable turnaround, it reconsidered its joint decision and reinstated not
only the labor arbiters decision of January 17, 2002 in the regularization
case, but also his illegal dismissal decision of April 21, 2003. 38 Thus, the
NLRC joined the labor arbiter in his error that we cannot but characterize as
grave abuse of discretion.
The Court cannot leave unchecked the labor tribunals patent grave abuse of
discretion that resulted, without doubt, in a grave injustice to the petitioners
who were claiming regular employment status and were unceremoniously
deprived of their employment soon after their regular status was recognized.
Unfortunately, the CA failed to detect the labor tribunals gross errors in the
disposition of the dismissal issue. Thus, the CA itself joined the same errors
the labor tribunals committed.
The injustice committed on the petitioners/drivers requires rectification. Their
dismissal was not only unjust and in bad faith as the above discussions
abundantly show. The bad faith in ABS-CBNs move toward its illegitimate
goal was not even hidden; it dismissed the petitioners already recognized
as regular employees for refusing to sign up with its service contractor.
Thus, from every perspective, the petitioners were illegally dismissed.
By law,39 illegally dismissed employees are entitled to reinstatement without
loss of seniority rights and other privileges and to full backwages, inclusive of
allowances, and to other benefits or their monetary equivalent from the time
their compensation was withheld from them up to the time of their actual
reinstatement. The four dismissed drivers deserve no less.
Moreover, they are also entitled to moral damages since their dismissal was
attended by bad faith.40 For having been compelled to litigate and to incur
expenses to protect their rights and interest, the petitioners are likewise
entitled to attorneys fees.41
WHEREFORE, premises considered, we hereby GRANT the petition. The
decision dated March 25, 2008 and the resolution dated July 8, 2008 of the
Court of Appeals in CA-G.R. SP No. 01838 are hereby REVERSED and SET
ASIDE. Accordingly, judgment is hereby rendered as follows:
1. Confirming that petitioners FARLEY FULACHE, MANOLO
JABONERO, DAVID CASTILLO, JEFFREY LAGUNZAD,
MAGDALENA MALIG-ON BIGNO, FRANCISCO CABAS, JR.,
HARVEY PONCE and ALAN C. ALMENDRAS are regular
employees of ABS-CBN BROADCASTING CORPORATION, and
declaring them entitled to all the rights, benefits and privileges,

including CBA benefits, from the time they became regular

employees in accordance with existing company practice and the
Labor Code;
2. Declaring illegal the dismissal of Fulache, Jabonero, Castillo and
Lagunzad, and ordering ABS-CBN to immediately reinstate them to
their former positions without loss of seniority rights with full
backwages and all other monetary benefits, from the time they were
dismissed up to the date of their actual reinstatement;
3. Awarding moral damages of P100,000.00 each to Fulache,
Jabonero, Castillo and Lagunzad; and,
4. Awarding attorneys fees of 10% of the total monetary award
decreed in this Decision.
Costs against the respondent.

G.R. No. 192558

February 15, 2012

BITOY JAVIER (DANILO P. JAVIER), Petitioner,

vs.
FLY ACE CORPORATION/FLORDELYN CASTILLO, Respondents.
DECISION
MENDOZA, J.:
This is a petition under Rule 45 of the Rules of Civil Procedure assailing the
March 18, 2010 Decision1 of the Court of Appeals (CA) and its June 7, 2010
Resolution,2 in CA-G.R. SP No. 109975, which reversed the May 28, 2009
Decision3 of the National Labor Relations Commission (NLRC) in the case
entitled Bitoy Javier v. Fly Ace/Flordelyn Castillo,4 holding that petitioner Bitoy
Javier (Javier) was illegally dismissed from employment and ordering Fly Ace
Corporation (Fly Ace) to pay backwages and separation pay in lieu of
reinstatement.
Antecedent Facts

On May 23, 2008, Javier filed a complaint before the NLRC for
underpayment of salaries and other labor standard benefits. He alleged that
he was an employee of Fly Ace since September 2007, performing various
tasks at the respondents warehouse such as cleaning and arranging the
canned items before their delivery to certain locations, except in instances
when he would be ordered to accompany the companys delivery vehicles,
as pahinante; that he reported for work from Monday to Saturday from 7:00
oclock in the morning to 5:00 oclock in the afternoon; that during his
employment, he was not issued an identification card and payslips by the
company; that on May 6, 2008, he reported for work but he was no longer
allowed to enter the company premises by the security guard upon the
instruction of Ruben Ong (Mr. Ong), his superior;5 that after several minutes
of begging to the guard to allow him to enter, he saw Ong whom he
approached and asked why he was being barred from entering the premises;
that Ong replied by saying, "Tanungin mo anak mo;" 6 that he then went
home and discussed the matter with his family; that he discovered that Ong
had been courting his daughter Annalyn after the two met at a fiesta
celebration in Malabon City; that Annalyn tried to talk to Ong and convince
him to spare her father from trouble but he refused to accede; that thereafter,
Javier was terminated from his employment without notice; and that he was
neither given the opportunity to refute the cause/s of his dismissal from work.
To support his allegations, Javier presented an affidavit of one Bengie
Valenzuela who alleged that Javier was a stevedore or pahinante of Fly Ace
from September 2007 to January 2008. The said affidavit was subscribed
before the Labor Arbiter (LA).7
For its part, Fly Ace averred that it was engaged in the business of
importation and sales of groceries. Sometime in December 2007, Javier was
contracted by its employee, Mr. Ong, as extra helper on a pakyaw basis at an
agreed rate of P 300.00 per trip, which was later increased to P 325.00 in
January 2008. Mr. Ong contracted Javier roughly 5 to 6 times only in a month
whenever the vehicle of its contracted hauler, Milmar Hauling Services, was
not available. On April 30, 2008, Fly Ace no longer needed the services of
Javier. Denying that he was their employee, Fly Ace insisted that there was
no illegal dismissal.8 Fly Ace submitted a copy of its agreement with Milmar
Hauling Services and copies of acknowledgment receipts evidencing
payment to Javier for his contracted services bearing the words, "daily
manpower (pakyaw/piece rate pay)" and the latters signatures/initials.
Ruling of the Labor Arbiter
On November 28, 2008, the LA dismissed the complaint for lack of merit on
the ground that Javier failed to present proof that he was a regular employee
of Fly Ace. He wrote:

Complainant has no employee ID showing his employment with the

Respondent nor any document showing that he received the benefits
accorded to regular employees of the Respondents. His contention that
Respondent failed to give him said ID and payslips implies that indeed he
was not a regular employee of Fly Ace considering that complainant was a
helper and that Respondent company has contracted a regular trucking for
the delivery of its products.
Respondent Fly Ace is not engaged in trucking business but in the
importation and sales of groceries. Since there is a regular hauler to deliver
its products, we give credence to Respondents claim that complainant was
contracted on "pakiao" basis.
As to the claim for underpayment of salaries, the payroll presented by the
Respondents showing salaries of workers on "pakiao" basis has evidentiary
weight because although the signature of the complainant appearing thereon
are not uniform, they appeared to be his true signature.
xxxx
Hence, as complainant received the rightful salary as shown by the above
described payrolls, Respondents are not liable for salary differentials. 9
Ruling of the NLRC
On appeal with the NLRC, Javier was favored. It ruled that the LA skirted the
argument of Javier and immediately concluded that he was not a regular
employee simply because he failed to present proof. It was of the view that a
pakyaw-basis arrangement did not preclude the existence of employeremployee relationship. "Payment by result x x x is a method of compensation
and does not define the essence of the relation. It is a mere method of
computing compensation, not a basis for determining the existence or
absence of an employer-employee relationship.10" The NLRC further averred
that it did not follow that a worker was a job contractor and not an employee,
just because the work he was doing was not directly related to the
employers trade or business or the work may be considered as "extra"
helper as in this case; and that the relationship of an employer and an
employee was determined by law and the same would prevail whatever the
parties may call it. In this case, the NLRC held that substantial evidence was
sufficient basis for judgment on the existence of the employer-employee
relationship. Javier was a regular employee of Fly Ace because there was
reasonable connection between the particular activity performed by the
employee (as a "pahinante") in relation to the usual business or trade of the
employer (importation, sales and delivery of groceries). He may not be
considered as an independent contractor because he could not exercise any

judgment in the delivery of company products. He was only engaged as a

"helper."
Finding Javier to be a regular employee, the NLRC ruled that he was entitled
to a security of tenure. For failing to present proof of a valid cause for his
termination, Fly Ace was found to be liable for illegal dismissal of Javier who
was likewise entitled to backwages and separation pay in lieu of
reinstatement. The NLRC thus ordered:
WHEREFORE, premises considered, complainants appeal is partially
GRANTED. The assailed Decision of the labor arbiter is VACATED and a
new one is hereby entered holding respondent FLY ACE CORPORATION
guilty of illegal dismissal and non-payment of 13th month pay. Consequently,
it is hereby ordered to pay complainant DANILO "Bitoy" JAVIER the
following:

xxx
It is incumbent upon private respondent to prove, by substantial evidence,
that he is an employee of petitioners, but he failed to discharge his burden.
The non-issuance of a company-issued identification card to private
respondent supports petitioners contention that private respondent was not
its employee.12
The CA likewise added that Javiers failure to present salary vouchers,
payslips, or other pieces of evidence to bolster his contention, pointed to the
inescapable conclusion that he was not an employee of Fly Ace. Further, it
found that Javiers work was not necessary and desirable to the business or
trade of the company, as it was only when there were scheduled deliveries,
which a regular hauling service could not deliver, that Fly Ace would contract
the services of Javier as an extra helper. Lastly, the CA declared that the
facts alleged by Javier did not pass the "control test."

1. Backwages -P 45,770.83
2. Separation pay, in lieu of reinstatement - 8,450.00
3. Unpaid 13th month pay (proportionate) - 5,633.33
TOTAL -P 59,854.16

He contracted work outside the company premises; he was not required to

observe definite hours of work; he was not required to report daily; and he
was free to accept other work elsewhere as there was no exclusivity of his
contracted service to the company, the same being co-terminous with the trip
only.13 Since no substantial evidence was presented to establish an
employer-employee relationship, the case for illegal dismissal could not
prosper.

All other claims are dismissed for lack of merit.

The petitioners moved for reconsideration, but to no avail.

SO ORDERED.11

Hence, this appeal anchored on the following grounds:

Ruling of the Court of Appeals

On March 18, 2010, the CA annulled the NLRC findings that Javier was
indeed a former employee of Fly Ace and reinstated the dismissal of Javiers
complaint as ordered by the LA. The CA exercised its authority to make its
own factual determination anent the issue of the existence of an employeremployee relationship between the parties. According to the CA:
xxx
In an illegal dismissal case the onus probandi rests on the employer to prove
that its dismissal was for a valid cause. However, before a case for illegal
dismissal can prosper, an employer-employee relationship must first be
established. x x x it is incumbent upon private respondent to prove the
employee-employer relationship by substantial evidence.

I.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE PETITIONER WAS NOT A REGULAR
EMPLOYEE OF FLY ACE.
II.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE PETITIONER IS NOT ENTITLED TO HIS
MONETARY CLAIMS.14
The petitioner contends that other than its bare allegations and self-serving
affidavits of the other employees, Fly Ace has nothing to substantiate its
claim that Javier was engaged on a pakyaw basis. Assuming that Javier was

indeed hired on a pakyaw basis, it does not preclude his regular employment
with the company. Even the acknowledgment receipts bearing his signature
and the confirming receipt of his salaries will not show the true nature of his
employment as they do not reflect the necessary details of the commissioned
task. Besides, Javiers tasks as pahinante are related, necessary and
desirable to the line of business by Fly Ace which is engaged in the
importation and sale of grocery items. "On days when there were no
scheduled deliveries, he worked in petitioners warehouse, arranging and
cleaning the stored cans for delivery to clients." 15 More importantly, Javier
was subject to the control and supervision of the company, as he was made
to report to the office from Monday to Saturday, from 7:00 oclock in the
morning until 5:00 oclock in the afternoon. The list of deliverable goods,
together with the corresponding clients and their respective purchases and
addresses, would necessarily have been prepared by Fly Ace. Clearly, he
was subjected to compliance with company rules and regulations as regards
working hours, delivery schedule and output, and his other duties in the
warehouse.16
The petitioner chiefly relied on Chavez v. NLRC,17 where the Court ruled that
payment to a worker on a per trip basis is not significant because "this is
merely a method of computing compensation and not a basis for determining
the existence of employer-employee relationship." Javier likewise invokes the
rule that, "in controversies between a laborer and his master, x x x doubts
reasonably arising from the evidence should be resolved in the formers
favour. The policy is reflected is no less than the Constitution, Labor Code
and Civil Code."18
Claiming to be an employee of Fly Ace, petitioner asserts that he was illegally
dismissed by the latters failure to observe substantive and procedural due
process. Since his dismissal was not based on any of the causes recognized
by law, and was implemented without notice, Javier is entitled to separation
pay and backwages.
In its Comment,19 Fly Ace insists that there was no substantial evidence to
prove employer-employee relationship. Having a service contract with Milmar
Hauling Services for the purpose of transporting and delivering company
products to customers, Fly Ace contracted Javier as an extra helper or
pahinante on a mere "per trip basis." Javier, who was actually a loiterer in the
area, only accompanied and assisted the company driver when Milmar could
not deliver or when the exigency of extra deliveries arises for roughly five to
six times a month. Before making a delivery, Fly Ace would turn over to the
driver and Javier the delivery vehicle with its loaded company products. With
the vehicle and products in their custody, the driver and Javier "would leave
the company premises using their own means, method, best judgment and
discretion on how to deliver, time to deliver, where and [when] to start, and
manner of delivering the products."20

Fly Ace dismisses Javiers claims of employment as baseless assertions.

Aside from his bare allegations, he presented nothing to substantiate his
status as an employee. "It is a basic rule of evidence that each party must
prove his affirmative allegation. If he claims a right granted by law, he must
prove his claim by competent evidence, relying on the strength of his own
evidence and not upon the weakness of his opponent." 21 Invoking the case of
Lopez v. Bodega City,22 Fly Ace insists that in an illegal dismissal case, the
burden of proof is upon the complainant who claims to be an employee. It is
essential that an employer-employee relationship be proved by substantial
evidence. Thus, it cites:
In an illegal dismissal case, the onus probandi rests on the employer to prove
that its dismissal of an employee was for a valid cause. However, before a
case for illegal dismissal can prosper, an employer-employee relationship
must first be established.
Fly Ace points out that Javier merely offers factual assertions that he was an
employee of Fly Ace, "which are unfortunately not supported by proof,
documentary or otherwise."23 Javier simply assumed that he was an
employee of Fly Ace, absent any competent or relevant evidence to support
it. "He performed his contracted work outside the premises of the
respondent; he was not even required to report to work at regular hours; he
was not made to register his time in and time out every time he was
contracted to work; he was not subjected to any disciplinary sanction
imposed to other employees for company violations; he was not issued a
company I.D.; he was not accorded the same benefits given to other
employees; he was not registered with the Social Security System (SSS) as
petitioners employee; and, he was free to leave, accept and engage in other
means of livelihood as there is no exclusivity of his contracted services with
the petitioner, his services being co-terminus with the trip only. All these lead
to the conclusion that petitioner is not an employee of the respondents." 24
Moreover, Fly Ace claims that it had "no right to control the result, means,
manner and methods by which Javier would perform his work or by which the
same is to be accomplished."25 In other words, Javier and the company driver
were given a free hand as to how they would perform their contracted
services and neither were they subjected to definite hours or condition of
work.
Fly Ace likewise claims that Javiers function as a pahinante was not directly
related or necessary to its principal business of importation and sales of
groceries. Even without Javier, the business could operate its usual course
as it did not involve the business of inland transportation. Lastly, the
acknowledgment receipts bearing Javiers signature and words "pakiao rate,"
referring to his earned salaries on a per trip basis, have evidentiary weight
that the LA correctly considered in arriving at the conclusion that Javier was

not an employee of the company.

of control, the Court would have affirmed the finding of employer-employee

relationship."31

The Court affirms the assailed CA decision.

It must be noted that the issue of Javiers alleged illegal dismissal is
anchored on the existence of an employer-employee relationship between
him and Fly Ace. This is essentially a question of fact. Generally, the Court
does not review errors that raise factual questions. However, when there is
conflict among the factual findings of the antecedent deciding bodies like the
LA, the NLRC and the CA, "it is proper, in the exercise of Our equity
jurisdiction, to review and re-evaluate the factual issues and to look into the
records of the case and re-examine the questioned findings." 26 In dealing
with factual issues in labor cases, "substantial evidence that amount of
relevant evidence which a reasonable mind might accept as adequate to
justify a conclusion is sufficient."27
As the records bear out, the LA and the CA found Javiers claim of
employment with Fly Ace as wanting and deficient. The Court is constrained
to agree. Although Section 10, Rule VII of the New Rules of Procedure of the
NLRC28 allows a relaxation of the rules of procedure and evidence in labor
cases, this rule of liberality does not mean a complete dispensation of proof.
Labor officials are enjoined to use reasonable means to ascertain the facts
speedily and objectively with little regard to technicalities or formalities but
nowhere in the rules are they provided a license to completely discount
evidence, or the lack of it. The quantum of proof required, however, must still
be satisfied. Hence, "when confronted with conflicting versions on factual
matters, it is for them in the exercise of discretion to determine which party
deserves credence on the basis of evidence received, subject only to the
requirement that their decision must be supported by substantial evidence." 29
Accordingly, the petitioner needs to show by substantial evidence that he
was indeed an employee of the company against which he claims illegal
dismissal.
Expectedly, opposing parties would stand poles apart and proffer allegations
as different as chalk and cheese. It is, therefore, incumbent upon the Court to
determine whether the party on whom the burden to prove lies was able to
hurdle the same. "No particular form of evidence is required to prove the
existence of such employer-employee relationship. Any competent and
relevant evidence to prove the relationship may be admitted.Hence, while no
particular form of evidence is required, a finding that such relationship exists
must still rest on some substantial evidence. Moreover, the substantiality of
the evidence depends on its quantitative as well as its qualitative aspects."30
Although substantial evidence is not a function of quantity but rather of
quality, the x x x circumstances of the instant case demand that something
more should have been proffered. Had there been other proofs of
employment, such as x x x inclusion in petitioners payroll, or a clear exercise

In sum, the rule of thumb remains: the onus probandi falls on petitioner to
establish or substantiate such claim by the requisite quantum of evidence. 32
"Whoever claims entitlement to the benefits provided by law should establish
his or her right thereto x x x."33 Sadly, Javier failed to adduce substantial
evidence as basis for the grant of relief.
In this case, the LA and the CA both concluded that Javier failed to establish
his employment with Fly Ace. By way of evidence on this point, all that Javier
presented were his self-serving statements purportedly showing his activities
as an employee of Fly Ace. Clearly, Javier failed to pass the substantiality
requirement to support his claim. Hence, the Court sees no reason to depart
from the findings of the CA.
While Javier remains firm in his position that as an employed stevedore of
Fly Ace, he was made to work in the company premises during weekdays
arranging and cleaning grocery items for delivery to clients, no other proof
was submitted to fortify his claim. The lone affidavit executed by one Bengie
Valenzuela was unsuccessful in strengthening Javiers cause. In said
document, all Valenzuela attested to was that he would frequently see Javier
at the workplace where the latter was also hired as stevedore. 34 Certainly, in
gauging the evidence presented by Javier, the Court cannot ignore the
inescapable conclusion that his mere presence at the workplace falls short in
proving employment therein. The supporting affidavit could have, to an
extent, bolstered Javiers claim of being tasked to clean grocery items when
there were no scheduled delivery trips, but no information was offered in this
subject simply because the witness had no personal knowledge of Javiers
employment status in the company. Verily, the Court cannot accept Javiers
statements, hook, line and sinker.
The Court is of the considerable view that on Javier lies the burden to pass
the well-settled tests to determine the existence of an employer-employee
relationship, viz: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to control
the employees conduct. Of these elements, the most important criterion is
whether the employer controls or has reserved the right to control the
employee not only as to the result of the work but also as to the means and
methods by which the result is to be accomplished. 35
In this case, Javier was not able to persuade the Court that the above
elements exist in his case.1avvphi1 He could not submit competent proof
that Fly Ace engaged his services as a regular employee; that Fly Ace paid
his wages as an employee, or that Fly Ace could dictate what his conduct

should be while at work. In other words, Javiers allegations did not establish
that his relationship with Fly Ace had the attributes of an employer-employee
relationship on the basis of the above-mentioned four-fold test. Worse, Javier
was not able to refute Fly Aces assertion that it had an agreement with a
hauling company to undertake the delivery of its goods. It was also baffling to
realize that Javier did not dispute Fly Aces denial of his services exclusivity
to the company. In short, all that Javier laid down were bare allegations
without corroborative proof.
Fly Ace does not dispute having contracted Javier and paid him on a "per
trip" rate as a stevedore, albeit on a pakyaw basis. The Court cannot fail to
note that Fly Ace presented documentary proof that Javier was indeed paid
on a pakyaw basis per the acknowledgment receipts admitted as competent
evidence by the LA. Unfortunately for Javier, his mere denial of the
signatures affixed therein cannot automatically sway us to ignore the
documents because "forgery cannot be presumed and must be proved by
clear, positive and convincing evidence and the burden of proof lies on the
party alleging forgery."36
Considering the above findings, the Court does not see the necessity to
resolve the second issue presented.
One final note. The Courts decision does not contradict the settled rule that
"payment by the piece is just a method of compensation and does not define
the essence of the relation."37 Payment on a piece-rate basis does not
negate regular employment. "The term wage is broadly defined in Article 97
of the Labor Code as remuneration or earnings, capable of being expressed
in terms of money whether fixed or ascertained on a time, task, piece or
commission basis. Payment by the piece is just a method of compensation
and does not define the essence of the relations. Nor does the fact that the
petitioner is not covered by the SSS affect the employer-employee
relationship. However, in determining whether the relationship is that of
employer and employee or one of an independent contractor, each case
must be determined on its own facts and all the features of the relationship
are to be considered."38 Unfortunately for Javier, the attendant facts and
circumstances of the instant case do not provide the Court with sufficient
reason to uphold his claimed status as employee of Fly Ace.
While the Constitution is committed to the policy of social justice and the
protection of the working class, it should not be supposed that every labor
dispute will be automatically decided in favor of labor. Management also has
its rights which are entitled to respect and enforcement in the interest of
simple fair play. Out of its concern for the less privileged in life, the Court has
inclined, more often than not, toward the worker and upheld his cause in his
conflicts with the employer. Such favoritism, however, has not blinded the
Court to the rule that justice is in every case for the deserving, to be

dispensed in the light of the established facts and the applicable law and
doctrine.39
WHEREFORE, the petition is DENIED. The March 18, 2010 Decision of the
Court of Appeals and its June 7, 2010 Resolution, in CA-G.R. SP No.
109975, are hereby AFFIRMED.
SO ORDERED.

G.R. No. 128024 May 9, 2000

BEBIANO M. BAEZ, petitioner,
vs.
HON. DOWNEY C. VALDEVILLA and ORO MARKETING, INC.,
respondents.
GONZAGA-REYES, J.:
The orders of respondent judge 1 dated June 20, 1996 and October 16, 1996,
taking jurisdiction over an action for damages filed by an employer against its
dismissed employee, are assailed in this petition for certiorari under Rule 65
of the Rules of Court for having been issued in grave abuse of discretion.
Petitioner was the sales operations manager of private respondent in its
branch in Iligan City. In 1993, private respondent "indefinitely suspended"
petitioner and the latter filed a complaint for illegal dismissal with the National
Labor Relations Commission ("NLRC") in Iligan City. In a decision dated July
7, 1994, Labor Arbiter Nicodemus G. Palangan found petitioner to have been
illegally dismissed and ordered the payment of separation pay in lieu of
reinstatement, and of backwages and attorney's fees. The decision was
appealed to the NLRC, which dismissed the same for having been filed out of
time. 2 Elevated by petition for certiorari before this Court, the case was
dismissed on technical grounds3; however, the Court also pointed out that
even if all the procedural requirements for the filing of the petition were met, it
would still be dismissed for failure to show grave abuse of discretion on the
part of the NLRC.
On November 13, 1995, private respondent filed a complaint for damages

before the Regional Trial Court ("RTC") of Misamis Oriental, docketed as

Civil Case No. 95-554, which prayed for the payment of the following:
a. P709,217.97 plus 12% interest as loss of profit and/or unearned income of
three years;
b. P119,700.00 plus 12% interest as estimated cost of supplies, facilities,
properties, space, etc. for three years;
c. P5,000.00 as initial expenses of litigation; and
d. P25,000.00 as attorney's fees.

collected the installment payments either personally or

through Venus Lozano, a Group Sales Manager of plaintiff
but also utilized by him as secretary in his own business for
collecting and receiving of installments, purportedly for the
plaintiff but in reality on his own account or business. The
collection and receipt of payments were made inside the
Iligan City branch using plaintiff's facilities, property and
manpower. That accordingly plaintiff's sales decreased and
reduced to a considerable extent the profits which it would
have earned. 5

On January 30, 1996, petitioner filed a motion to dismiss the above

complaint. He interposed in the court below that the action for damages,
having arisen from an employer-employee relationship, was squarely under
the exclusive original jurisdiction of the NLRC under Article 217(a), paragraph
4 of the Labor Code and is barred by reason of the final judgment in the labor
case. He accused private respondent of splitting causes of action, stating
that the latter could very well have included the instant claim for damages in
its counterclaim before the Labor Arbiter. He also pointed out that the civil
action of private respondent is an act of forum-shopping and was merely
resorted to after a failure to obtain a favorable decision with the NLRC.
Ruling upon the motion to dismiss, respondent judge issued the herein
questioned Order, which summarized the basis for private respondent's
action for damages in this manner:
Paragraph 5 of the complaint alleged that the defendant
violated the plaintiff's policy re: His business in his branch at
Iligan City wherein defendant was the Sales Operations
Manager, and paragraph 7 of the same complaint briefly
narrated the modus operandi of defendant, quoted herein:
Defendant canvassed customers personally or through
salesmen of plaintiff which were hired or recruited by him. If
said customer decided to buy items from plaintiff on
installment basis, defendant, without the knowledge of said
customer and plaintiff, would buy the items on cash basis at
ex-factory price, a privilege not given to customers, and
thereafter required the customer to sign promissory notes
and other documents using the name and property of
plaintiff, purporting that said customer purchased the items
from plaintiff on installment basis. Thereafter, defendant

In declaring itself as having jurisdiction over the subject matter of the instant
controversy, respondent court stated:
A perusal of the complaint which is for damages does not
ask for any relief under the Labor Code of the Philippines. It
seeks to recover damages as redress for defendant's breach
of his contractual obligation to plaintiff who was damaged
and prejudiced. The Court believes such cause of action is
within the realm of civil law, and jurisdiction over the
controversy belongs to the regular courts.
While seemingly the cause of action arose from employeremployee relations, the employer's claim for damages is
grounded on the nefarious activities of defendant causing
damage and prejudice to plaintiff as alleged in paragraph 7
of the complaint. The Court believes that there was a breach
of a contractual obligation, which is intrinsically a civil
dispute. The averments in the complaint removed the
controversy from the coverage of the Labor Code of the
Philippines and brought it within the purview of civil law.
(Singapore Airlines, Ltd. Vs. Pao, 122 SCRA 671.) . . . 6
Petitioner's motion for reconsideration of the above Order was denied for lack
of merit on October 16, 1996. Hence, this petition.
Acting on petitioner's prayer, the Second Division of this Court issued a
Temporary Restraining Order ("TRO") on March 5, 1997, enjoining
respondents from further proceeding with Civil Case No. 95-554 until further
orders from the Court.

By way of assignment of errors, the petition reiterates the grounds raised in

the Motion to Dismiss dated January 30, 1996, namely, lack of jurisdiction
over the subject matter of the action, res judicata, splitting of causes of
action, and forum-shopping. The determining issue, however, is the issue of
jurisdiction.
Art. 217(a), paragraph 4 of the Labor Code, which was already in effect at
the time of the filing of this case, reads:
Art. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as
otherwise provided under this Code the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after
the submission of the case by the parties for decision without extension,
even in the absence of stenographic notes, the following cases involving all
workers, whether agricultural or non-agricultural:
xxx xxx xxx
4. Claims for actual, moral, exemplary and
other forms of damages arising from the
employer-employee relations;
xxx xxx xxx
The above provisions are a result of the amendment by Section 9 of Republic
Act ("R.A.") No. 6715, which took effect on March 21, 1989, and which put to
rest the earlier confusion as to who between Labor Arbiters and regular
courts had jurisdiction over claims for damages as between employers and
employees.
It will be recalled that years prior to R.A. 6715, jurisdiction over all money
claims of workers, including claims for damages, was originally lodged with
the Labor Arbiters and the NLRC by Article 217 of the Labor Code. 7 On May
1, 1979, however, Presidential Decree ("P.D.") No. 1367 amended said
Article 217 to the effect that "Regional Directors shall not indorse and Labor
Arbiters shall not entertain claims for moral or other forms of damages." 8
This limitation in jurisdiction, however, lasted only briefly since on May 1,
1980, P.D. No. 1691 nullified P.D. No. 1367 and restored Article 217 of the
Labor Code almost to its original form. Presently, and as amended by R.A.
6715, the jurisdiction of Labor Arbiters and the NLRC in Article 217 is
comprehensive enough to include claims for all forms of damages "arising
from the employer-employee relations"
Whereas this Court in a number of occasions had applied the jurisdictional
provisions of Article 217 to claims for damages filed by employees, 9 we hold

that by the designating clause "arising from the employer-employee

relations" Article 217 should apply with equal force to the claim of an
employer for actual damages against its dismissed employee, where the
basis for the claim arises from or is necessarily connected with the fact of
termination, and should be entered as a counterclaim in the illegal dismissal
case.
Even under Republic Act No. 875 (the "Industrial Peace Act", now completely
superseded by the Labor Code), jurisprudence was settled that where the
plaintiff's cause of action for damages arose out of, or was necessarily
intertwined with, an alleged unfair labor practice committed by the union, the
jurisdiction is exclusively with the (now defunct) Court of Industrial Relations,
and the assumption of jurisdiction of regular courts over the same is a nullity.
10
To allow otherwise would be "to sanction split jurisdiction, which is
prejudicial to the orderly administration of justice." 11
Thus, even after the enactment of the Labor Code, where the damages
separately claimed by the employer were allegedly incurred as a
consequence of strike or picketing of the union, such complaint for damages
is deeply rooted from the labor dispute between the parties, and should be
dismissed by ordinary courts for lack of jurisdiction. As held by this Court in
National Federation of Labor vs. Eisma, 127 SCRA 419:
Certainly, the present Labor Code is even more committed to
the view that on policy grounds, and equally so in the
interest of greater promptness in the disposition of labor
matters, a court is spared the often onerous task of
determining what essentially is a factual matter, namely, the
damages that may be incurred by either labor or
management as a result of disputes or controversies arising
from employer-employee relations.
There is no mistaking the fact that in the case before us, private respondent's
claim against petitioner for actual damages arose from a prior employeremployee relationship. In the first place, private respondent would not have
taken issue with petitioner's "doing business of his own" had the latter not
been concurrently its employee. Thus, the damages alleged in the complaint
below are: first, those amounting to lost profits and earnings due to
petitioner's abandonment or neglect of his duties as sales manager, having
been otherwise preoccupied by his unauthorized installment sale scheme;
and second, those equivalent to the value of private respondent's property
and supplies which petitioner used in conducting his "business ".
Second, and more importantly, to allow respondent court to proceed with the
instant action for damages would be to open anew the factual issue of

whether petitioner's installment sale scheme resulted in business losses and

the dissipation of private respondent's property. This issue has been duly
raised and ruled upon in the illegal dismissal case, where private respondent
brought up as a defense the same allegations now embodied in his
complaint, and presented evidence in support thereof. The Labor Arbiter,
however, found to the contrary that no business losses may be attributed
to petitioner as in fact, it was by reason of petitioner's installment plan that
the sales of the Iligan branch of private respondent (where petitioner was
employed) reached its highest record level to the extent that petitioner was
awarded the 1989 Field Sales Achievement Award in recognition of his
exceptional sales performance, and that the installment scheme was in fact
with the knowledge of the management of the Iligan branch of private
respondent. 12 In other words, the issue of actual damages has been settled
in the labor case, which is now final and executory.

Still on the prospect of re-opening factual issues already resolved by the

labor court, it may help to refer to that period from 1979 to 1980 when
jurisdiction over employment-predicated actions for damages vacillated from
labor tribunals to regular courts, and back to labor tribunals. In Ebon vs. de
Guzman, 113 SCRA 52, 1 this Court discussed:
The lawmakers in divesting the Labor Arbiters and the NLRC
of jurisdiction to award moral and other forms of damages in
labor cases could have assumed that the Labor Arbiters'
position-paper procedure of ascertaining the facts in dispute
might not be an adequate tool for arriving at a just and
accurate assessment of damages, as distinguished from
backwages and separation pay, and that the trial procedure
in the Court of First Instance would be a more effective
means of determining such damages. . . .
Evidently, the lawmaking authority had second thoughts
about depriving the Labor Arbiters and the NLRC of the
jurisdiction to award damages in labor cases because that
setup would mean duplicity of suits, splitting the cause of
action and possible conflicting findings and conclusions by
two tribunals on one and the same claim.
So, on May 1, 1980, Presidential Decree No. 1691 (which
substantially reenacted Article 217 in its original form)
nullified Presidential Decree No. 1367 and restored to the
Labor Arbiter and the NLRC their jurisdiction to award all
kinds of damages in cases arising from employer-employee

relations. . . . (Emphasis supplied).

Clearly, respondent court's taking jurisdiction over the instant case would
bring about precisely the harm that the lawmakers sought to avoid in
amending the Labor Code to restore jurisdiction over claims for damages of
this nature to the NLRC.
This is, of course, to distinguish from cases of actions for damages where the
employer-employee relationship is merely incidental and the cause of action
proceeds from a different source of obligation. Thus, the jurisdiction of
regular courts was upheld where the damages, claimed for were based on
tort 14, malicious prosecution 15, or breach of contract, as when the claimant
seeks to recover a debt from a former employee 16 or seeks liquidated
damages in enforcement of a prior employment contract. 17

Neither can we uphold the reasoning of respondent court that because the
resolution of the issues presented by the complaint does not entail
application of the Labor Code or other labor laws, the dispute is intrinsically
civil. Article 217(a) of the Labor Code, as amended, clearly bestows upon the
Labor Arbiter original and exclusive jurisdiction over claims for damages
arising from employer-employee relations in other words, the Labor Arbiter
has jurisdiction to award not only the reliefs provided by labor laws, but also
damages governed by the Civil Code. 18
Thus, it is obvious that private respondent's remedy is not in the filing of this
separate action for damages, but in properly perfecting an appeal from the
Labor Arbiter's decision. Having lost the right to appeal on grounds of
untimeliness, the decision in the labor case stands as a final judgment on the
merits, and the instant action for damages cannot take the place of such lost
appeal.
Respondent court clearly having no jurisdiction over private respondent's
complaint for damages, we will no longer pass upon petitioner's other
assignments of error.
WHEREFORE, the Petition is GRANTED, and the complaint in Civil Case
No. 95-554 before Branch 39 of the Regional Trial Court of Misamis Oriental
is hereby DISMISSED. No pronouncement as to costs.
SO ORDERED.

G.R. No. 87700 June 13, 1990

SAN MIGUEL CORPORATION EMPLOYEES UNION-PTGWO, DANIEL
S.L. BORBON II, HERMINIA REYES, MARCELA PURIFICACION, ET AL.,
petitioners,
vs.
HON. JESUS G. BERSAMIRA, IN HIS CAPACITY AS PRESIDING JUDGE
OF BRANCH 166, RTC, PASIG, and SAN MIGUEL CORPORATION,
respondents.
Romeo C. Lagman for petitioners.
Jardeleza, Sobrevinas, Diaz, Mayudini & Bodegon for respondents.

MELENCIO-HERRERA, J.:
Respondent Judge of the Regional Trial Court of Pasig, Branch 166, is taken
to task by petitioners in this special civil action for certiorari and Prohibition
for having issued the challenged Writ of Preliminary Injunction on 29 March
1989 in Civil Case No. 57055 of his Court entitled "San Miguel Corporation
vs. SMCEU-PTGWO, et als."
Petitioners' plea is that said Writ was issued without or in excess of
jurisdiction and with grave abuse of discretion, a labor dispute being
involved. Private respondent San Miguel Corporation (SanMig. for short), for
its part, defends the Writ on the ground of absence of any employeremployee relationship between it and the contractual workers employed by
the companies Lipercon Services, Inc. (Lipercon) and D'Rite Service
Enterprises (D'Rite), besides the fact that the Union is bereft of personality to
represent said workers for purposes of collective bargaining. The Solicitor
General agrees with the position of SanMig.
The antecedents of the controversy reveal that:
Sometime in 1983 and 1984, SanMig entered into contracts for
merchandising services with Lipercon and D'Rite (Annexes K and I, SanMig's
Comment, respectively). These companies are independent contractors duly

licensed by the Department of Labor and Employment (DOLE). SanMig

entered into those contracts to maintain its competitive position and in
keeping with the imperatives of efficiency, business expansion and diversity
of its operation. In said contracts, it was expressly understood and agreed
that the workers employed by the contractors were to be paid by the latter
and that none of them were to be deemed employees or agents of SanMig.
There was to be no employer-employee relation between the contractors
and/or its workers, on the one hand, and SanMig on the other.
Petitioner San Miguel Corporation Employees Union-PTWGO (the Union, for
brevity) is the duly authorized representative of the monthly paid rank-and-file
employees of SanMig with whom the latter executed a Collective Bargaining
Agreement (CBA) effective 1 July 1986 to 30 June 1989 (Annex A, SanMig's
Comment). Section 1 of their CBA specifically provides that "temporary,
probationary, or contract employees and workers are excluded from the
bargaining unit and, therefore, outside the scope of this Agreement."
In a letter, dated 20 November 1988 (Annex C, Petition), the Union advised
SanMig that some Lipercon and D'Rite workers had signed up for union
membership and sought the regularization of their employment with SMC.
The Union alleged that this group of employees, while appearing to be
contractual workers supposedly independent contractors, have been
continuously working for SanMig for a period ranging from six (6) months to
fifteen (15) years and that their work is neither casual nor seasonal as they
are performing work or activities necessary or desirable in the usual business
or trade of SanMig. Thus, it was contended that there exists a "labor-only"
contracting situation. It was then demanded that the employment status of
these workers be regularized.
On 12 January 1989 on the ground that it had failed to receive any favorable
response from SanMig, the Union filed a notice of strike for unfair labor
practice, CBA violations, and union busting (Annex D, Petition).
On 30 January 1989, the Union again filed a second notice of strike for unfair
labor practice (Annex F, Petition).
As in the first notice of strike. Conciliatory meetings were held on the second
notice. Subsequently, the two (2) notices of strike were consolidated and
several conciliation conferences were held to settle the dispute before the
National Conciliation and Mediation Board (NCMB) of DOLE (Annex G,
Petition).
Beginning 14 February 1989 until 2 March 1989, series of pickets were
staged by Lipercon and D'Rite workers in various SMC plants and offices.

On 6 March 1989, SMC filed a verified Complaint for Injunction and

Damages before respondent Court to enjoin the Union from:
a. representing and/or acting for and in behalf of the
employees of LIPERCON and/or D'RITE for the purposes of
collective bargaining;
b. calling for and holding a strike vote, to compel plaintiff to
hire the employees or workers of LIPERCON and D'RITE;
c. inciting, instigating and/or inducing the employees or
workers of LIPERCON and D'RITE to demonstrate and/or
picket at the plants and offices of plaintiff within the
bargaining unit referred to in the CBA,...;
d. staging a strike to compel plaintiff to hire the employees or
workers of LIPERCON and D'RITE;
e. using the employees or workers of LIPERCON AND
D'RITE to man the strike area and/or picket lines and/or
barricades which the defendants may set up at the plants
and offices of plaintiff within the bargaining unit referred to in
the CBA ...;
f. intimidating, threatening with bodily harm and/or molesting
the other employees and/or contract workers of plaintiff, as
well as those persons lawfully transacting business with
plaintiff at the work places within the bargaining unit referred
to in the CBA, ..., to compel plaintiff to hire the employees or
workers of LIPERCON and D'RITE;
g. blocking, preventing, prohibiting, obstructing and/or
impeding the free ingress to, and egress from, the work
places within the bargaining unit referred to in the CBA .., to
compel plaintiff to hire the employees or workers of
LIPERCON and D'RITE;
h. preventing and/or disrupting the peaceful and normal
operation of plaintiff at the work places within the bargaining
unit referred to in the CBA, Annex 'C' hereof, to compel
plaintiff to hire the employees or workers of LIPERCON and
D'RITE. (Annex H, Petition)

Respondent Court found the Complaint sufficient in form and substance and
issued a Temporary Restraining Order for the purpose of maintaining the
status quo, and set the application for Injunction for hearing.
In the meantime, on 13 March 1989, the Union filed a Motion to Dismiss
SanMig's Complaint on the ground of lack of jurisdiction over the case/nature
of the action, which motion was opposed by SanMig. That Motion was denied
by respondent Judge in an Order dated 11 April 1989.
After several hearings on SanMig's application for injunctive relief, where the
parties presented both testimonial and documentary evidence on 25 March
1989, respondent Court issued the questioned Order (Annex A, Petition)
granting the application and enjoining the Union from Committing the acts
complained of, supra. Accordingly, on 29 March 1989, respondent Court
issued the corresponding Writ of Preliminary Injunction after SanMig had
posted the required bond of P100,000.00 to answer for whatever damages
petitioners may sustain by reason thereof.
In issuing the Injunction, respondent Court rationalized:
The absence of employer-employee relationship negates the
existence of labor dispute. Verily, this court has jurisdiction to
take cognizance of plaintiff's grievance.
The evidence so far presented indicates that plaintiff has
contracts for services with Lipercon and D'Rite. The
application and contract for employment of the defendants'
witnesses are either with Lipercon or D'Rite. What could be
discerned is that there is no employer-employee relationship
between plaintiff and the contractual workers employed by
Lipercon and D'Rite. This, however, does not mean that a
final determination regarding the question of the existence of
employer-employee relationship has already been made. To
finally resolve this dispute, the court must extensively
consider and delve into the manner of selection and
engagement of the putative employee; the mode of payment
of wages; the presence or absence of a power of dismissal;
and the Presence or absence of a power to control the
putative employee's conduct. This necessitates a full-blown
trial. If the acts complained of are not restrained, plaintiff
would, undoubtedly, suffer irreparable damages. Upon the
other hand, a writ of injunction does not necessarily expose
defendants to irreparable damages.
Evidently, plaintiff has established its right to the relief

demanded. (p. 21, Rollo)

Anchored on grave abuse of discretion, petitioners are now before us
seeking nullification of the challenged Writ. On 24 April 1989, we issued a
Temporary Restraining Order enjoining the implementation of the Injunction
issued by respondent Court. The Union construed this to mean that "we can
now strike," which it superimposed on the Order and widely circulated to
entice the Union membership to go on strike. Upon being apprised thereof, in
a Resolution of 24 May 1989, we required the parties to "RESTORE the
status quo ante declaration of strike" (p. 2,62 Rollo).
In the meantime, however, or on 2 May 1989, the Union went on strike.
Apparently, some of the contractual workers of Lipercon and D'Rite had been
laid off. The strike adversely affected thirteen (13) of the latter's plants and
offices.
On 3 May 1989, the National Conciliation and Mediation Board (NCMB)
called the parties to conciliation. The Union stated that it would lift the strike if
the thirty (30) Lipercon and D'Rite employees were recalled, and discussion
on their other demands, such as wage distortion and appointment of
coordinators, were made. Effected eventually was a Memorandum of
Agreement between SanMig and the Union that "without prejudice to the
outcome of G.R. No. 87700 (this case) and Civil Case No. 57055 (the case
below), the laid-off individuals ... shall be recalled effective 8 May 1989 to
their former jobs or equivalent positions under the same terms and conditions
prior to "lay-off" (Annex 15, SanMig Comment). In turn, the Union would
immediately lift the pickets and return to work.
After an exchange of pleadings, this Court, on 12 October 1989, gave due
course to the Petition and required the parties to submit their memoranda
simultaneously, the last of which was filed on 9 January 1990.
The focal issue for determination is whether or not respondent Court
correctly assumed jurisdiction over the present controversy and properly
issued the Writ of Preliminary Injunction to the resolution of that question, is
the matter of whether, or not the case at bar involves, or is in connection
with, or relates to a labor dispute. An affirmative answer would bring the case
within the original and exclusive jurisdiction of labor tribunals to the exclusion
of the regular Courts.
Petitioners take the position that 'it is beyond dispute that the controversy in
the court a quo involves or arose out of a labor dispute and is directly
connected or interwoven with the cases pending with the NCMB-DOLE, and
is thus beyond the ambit of the public respondent's jurisdiction. That the acts
complained of (i.e., the mass concerted action of picketing and the reliefs

prayed for by the private respondent) are within the competence of labor
tribunals, is beyond question" (pp. 6-7, Petitioners' Memo).
On the other hand, SanMig denies the existence of any employer-employee
relationship and consequently of any labor dispute between itself and the
Union. SanMig submits, in particular, that "respondent Court is vested with
jurisdiction and judicial competence to enjoin the specific type of strike
staged by petitioner union and its officers herein complained of," for the
reasons that:
A. The exclusive bargaining representative of an employer
unit cannot strike to compel the employer to hire and thereby
create an employment relationship with contractual workers,
especially were the contractual workers were recognized by
the union, under the governing collective bargaining
agreement, as excluded from, and therefore strangers to, the
bargaining unit.
B. A strike is a coercive economic weapon granted the
bargaining representative only in the event of a deadlock in a
labor dispute over 'wages, hours of work and all other and of
the employment' of the employees in the unit. The union
leaders cannot instigate a strike to compel the employer,
especially on the eve of certification elections, to hire
strangers or workers outside the unit, in the hope the latter
will help re-elect them.
C. Civil courts have the jurisdiction to enjoin the above
because this specie of strike does not arise out of a labor
dispute, is an abuse of right, and violates the employer's
constitutional liberty to hire or not to hire. (SanMig's
Memorandum, pp. 475-476, Rollo).
We find the Petition of a meritorious character.
A "labor dispute" as defined in Article 212 (1) of the Labor Code includes "any
controversy or matter concerning terms and conditions of employment or the
association or representation of persons in negotiating, fixing, maintaining,
changing, or arranging the terms and conditions of employment, regardless
of whether the disputants stand in the proximate relation of employer and
employee."
While it is SanMig's submission that no employer-employee relationship
exists between itself, on the one hand, and the contractual workers of
Lipercon and D'Rite on the other, a labor dispute can nevertheless exist

"regardless of whether the disputants stand in the proximate relationship of

employer and employee" (Article 212 [1], Labor Code, supra) provided the
controversy concerns, among others, the terms and conditions of
employment or a "change" or "arrangement" thereof (ibid). Put differently,
and as defined by law, the existence of a labor dispute is not negative by the
fact that the plaintiffs and defendants do not stand in the proximate relation of
employer and employee.
That a labor dispute, as defined by the law, does exist herein is evident. At
bottom, what the Union seeks is to regularize the status of the employees
contracted by Lipercon and D'Rite in effect, that they be absorbed into the
working unit of SanMig. This matter definitely dwells on the working
relationship between said employees vis-a-vis SanMig. Terms, tenure and
conditions of their employment and the arrangement of those terms are thus
involved bringing the matter within the purview of a labor dispute. Further, the
Union also seeks to represent those workers, who have signed up for Union
membership, for the purpose of collective bargaining. SanMig, for its part,
resists that Union demand on the ground that there is no employer-employee
relationship between it and those workers and because the demand violates
the terms of their CBA. Obvious then is that representation and association,
for the purpose of negotiating the conditions of employment are also
involved. In fact, the injunction sought by SanMig was precisely also to
prevent such representation. Again, the matter of representation falls within
the scope of a labor dispute. Neither can it be denied that the controversy
below is directly connected with the labor dispute already taken cognizance
of by the NCMB-DOLE (NCMB-NCR- NS-01- 021-89; NCMB NCR NS-01093-83).
Whether or not the Union demands are valid; whether or not SanMig's
contracts with Lipercon and D'Rite constitute "labor-only" contracting and,
therefore, a regular employer-employee relationship may, in fact, be said to
exist; whether or not the Union can lawfully represent the workers of Lipercon
and D'Rite in their demands against SanMig in the light of the existing CBA;
whether or not the notice of strike was valid and the strike itself legal when it
was allegedly instigated to compel the employer to hire strangers outside the
working unit; those are issues the resolution of which call for the
application of labor laws, and SanMig's cause's of action in the Court below
are inextricably linked with those issues.
The precedent in Layno vs. de la Cruz (G.R. No. L-29636, 30 April 1965, 13
SCRA 738) relied upon by SanMig is not controlling as in that case there was
no controversy over terms, tenure or conditions, of employment or the
representation of employees that called for the application of labor laws. In
that case, what the petitioning union demanded was not a change in working
terms and conditions, or the representation of the employees, but that its
members be hired as stevedores in the place of the members of a rival

union, which petitioners wanted discharged notwithstanding the existing

contract of the arrastre company with the latter union. Hence, the ruling
therein, on the basis of those facts unique to that case, that such a demand
could hardly be considered a labor dispute.
As the case is indisputably linked with a labor dispute, jurisdiction belongs to
the labor tribunals. As explicitly provided for in Article 217 of the Labor Code,
prior to its amendment by R.A. No. 6715 on 21 March 1989, since the suit
below was instituted on 6 March 1989, Labor Arbiters have original and
exclusive jurisdiction to hear and decide the following cases involving all
workers including "1. unfair labor practice cases; 2. those that workers may
file involving wages, hours of work and other terms and conditions of
employment; ... and 5. cases arising from any violation of Article 265 of this
Code, including questions involving the legality of striker and lockouts. ..."
Article 217 lays down the plain command of the law.
The claim of SanMig that the action below is for damages under Articles 19,
20 and 21 of the Civil Code would not suffice to keep the case within the
jurisdictional boundaries of regular Courts. That claim for damages is
interwoven with a labor dispute existing between the parties and would have
to be ventilated before the administrative machinery established for the
expeditious settlement of those disputes. To allow the action filed below to
prosper would bring about "split jurisdiction" which is obnoxious to the orderly
administration of justice (Philippine Communications, Electronics and
Electricity Workers Federation vs. Hon. Nolasco, L-24984, 29 July 1968, 24
SCRA 321).
We recognize the proprietary right of SanMig to exercise an inherent
management prerogative and its best business judgment to determine
whether it should contract out the performance of some of its work to
independent contractors. However, the rights of all workers to selforganization, collective bargaining and negotiations, and peaceful concerted
activities, including the right to strike in accordance with law (Section 3,
Article XIII, 1987 Constitution) equally call for recognition and protection.
Those contending interests must be placed in proper perspective and
equilibrium.
WHEREFORE, the Writ of certiorari is GRANTED and the Orders of
respondent Judge of 25 March 1989 and 29 March 1989 are SET ASIDE.
The Writ of Prohibition is GRANTED and respondent Judge is enjoined from
taking any further action in Civil Case No. 57055 except for the purpose of
dismissing it. The status quo ante declaration of strike ordered by the Court
on 24 May 1989 shall be observed pending the proceedings in the National
Conciliation Mediation Board-Department of Labor and Employment,
docketed as NCMB-NCR-NS-01-02189 and NCMB-NCR-NS-01-093-83. No
costs.

SO ORDERED.

3. On 8 November 1991, he joined the vessel MV "Stolt Aspiration";

Paras and Regalado, JJ., concur.

4. On February 1992 or for nearly three (3) months of rendering service

and while the vessel was at Batangas, he was ordered by the ships
master to disembark the vessel and repatriated back to Manila for no
reason or explanation;

Padilla, Sarmiento, JJ., took no part.

G.R. No. 177498

January 18, 2012

STOLT-NIELSEN TRANSPORTATION GROUP, INC. AND CHUNG GAI

SHIP MANAGEMENT, Petitioners,
vs.
SULPECIO MEDEQUILLO, JR., Respondent.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari1 of the Decision2 of the
First Division of the Court of Appeals in CA-G.R. SP No. 91632 dated 31
January 2007, denying the petition for certiorari filed by Stolt-Nielsen
Transportation Group, Inc. and Chung Gai Ship Management (petitioners)
and affirming the Resolution of the National Labor Relations Commission
(NLRC). The dispositive portion of the assailed decision reads:
WHEREFORE, the petition is hereby DENIED. Accordingly, the assailed
Decision promulgated on February 28, 2003 and the Resolution dated July
27, 2005 are AFFIRMED.3

5. Upon his return to Manila, he immediately proceeded to the

petitioners office where he was transferred employment with another
vessel named MV "Stolt Pride" under the same terms and conditions
of the First Contract;
6. On 23 April 1992, the Second Contract was noted and approved by
the POEA;
7. The POEA, without knowledge that he was not deployed with the
vessel, certified the Second Employment Contract on 18 September
1992.
8. Despite the commencement of the Second Contract on 21 April
1992, petitioners failed to deploy him with the vessel MV "Stolt
Pride";
9. He made a follow-up with the petitioner but the same refused to
comply with the Second Employment Contract.

The facts as gathered by this Court follow:

10. On 22 December 1994, he demanded for his passport, seamans

book and other employment documents. However, he was only
allowed to claim the said documents in exchange of his signing a
document;

On 6 March 1995, Sulpecio Madequillo (respondent) filed a complaint before

the Adjudication Office of the Philippine Overseas Employment
Administration (POEA) against the petitioners for illegal dismissal under a
first contract and for failure to deploy under a second contract. In his
complaint-affidavit,4 respondent alleged that:

11. He was constrained to sign the document involuntarily because

without these documents, he could not seek employment from other
agencies.

1. On 6 November 1991(First Contract), he was hired by Stolt-Nielsen

Marine Services, Inc on behalf of its principal Chung-Gai Ship
Management of Panama as Third Assistant Engineer on board the
vessel "Stolt Aspiration" for a period of nine (9) months;
2. He would be paid with a monthly basic salary of $808.00 and a fixed
overtime pay of $404.00 or a total of $1,212.00 per month during the
employment period commencing on 6 November 1991;

He prayed for actual, moral and exemplary damages as well as attorneys

fees for his illegal dismissal and in view of the Petitioners bad faith in not
complying with the Second Contract.
The case was transferred to the Labor Arbiter of the DOLE upon the
effectivity of the Migrant Workers and Overseas Filipinos Act of 1995.
The parties were required to submit their respective position papers before

the Labor Arbiter. However, petitioners failed to submit their respective

pleadings despite the opportunity given to them.5

copy of any notice of change of address. There was also no evidence that a
service of notice of change of address was served on the POEA. 13

On 21 July 2000, Labor Arbiter Vicente R. Layawen rendered a judgment 6

finding that the respondent was constructively dismissed by the petitioners.
The dispositive portion reads:

The NLRC upheld the finding of unjustified termination of contract for failure
on the part of the petitioners to present evidence that would justify their nondeployment of the respondent.14 It denied the claim of the petitioners that the
monetary award should be limited only to three (3) months for every year of
the unexpired term of the contract. It ruled that the factual incidents material
to the case transpired within 1991-1992 or before the effectivity of Republic
Act No. 8042 or the Migrant Workers and Overseas Filipinos Act of 1995
which provides for such limitation.15

WHEREFORE, premises considered, judgment is hereby rendered, declaring

the respondents guilty of constructively dismissing the complainant by not
honoring the employment contract. Accordingly, respondents are hereby
ordered jointly and solidarily to pay complainant the following:
1. $12,537.00 or its peso equivalent at the time of payment. 7
The Labor Arbiter found the first contract entered into by and between the
complainant and the respondents to have been novated by the execution of
the second contract. In other words, respondents cannot be held liable for
the first contract but are clearly and definitely liable for the breach of the
second contract.8 However, he ruled that there was no substantial evidence
to grant the prayer for moral and exemplary damages. 9
The petitioners appealed the adverse decision before the National Labor
Relations Commission assailing that they were denied due process, that the
respondent cannot be considered as dismissed from employment because
he was not even deployed yet and the monetary award in favor of the
respondent was exorbitant and not in accordance with law.10
On 28 February 2003, the NLRC affirmed with modification the Decision of
the Labor Arbiter. The dispositive portion reads:

However, the NLRC upheld the reduction of the monetary award with respect
to the deletion of the overtime pay due to the non-deployment of the
respondent.16
The Partial Motion for Reconsideration filed by the petitioners was denied by
the NLRC in its Resolution dated 27 July 2005.17
The petitioners filed a Petition for Certiorari before the Court of Appeals
alleging grave abuse of discretion on the part of NLRC when it affirmed with
modification the ruling of the Labor Arbiter. They prayed that the Decision
and Resolution promulgated by the NLRC be vacated and another one be
issued dismissing the complaint of the respondent.
Finding no grave abuse of discretion, the Court of Appeals AFFIRMED the
Decision of the labor tribunal.
The Courts Ruling

WHEREFORE, premises considered, the decision under review is hereby,

MODIFIED BY DELETING the award of overtime pay in the total amount of
Three Thousand Six Hundred Thirty Six US Dollars (US $3,636.00).

The following are the assignment of errors presented before this Court:

In all other respects, the assailed decision so stands as, AFFIRMED. 11

THE COURT A QUO ERRED IN FINDING THAT THE SECOND CONTRACT

NOVATED THE FIRST CONTRACT.

Before the NLRC, the petitioners assailed that they were not properly notified
of the hearings that were conducted before the Labor Arbiter. They further
alleged that after the suspension of proceedings before the POEA, the only
notice they received was a copy of the decision of the Labor Arbiter.12
The NLRC ruled that records showed that attempts to serve the various
notices of hearing were made on petitioners counsel on record but these
failed on account of their failure to furnish the Office of the Labor Arbiter a

I.

1. THERE WAS NO NOVATION OF THE FIRST CONTRACT BY THE

SECOND CONTRACT; THE ALLEGATION OF ILLEGAL DISMISSAL
UNDER THE FIRST CONTRACT MUST BE RESOLVED
SEPARATELY FROM THE ALLEGATION OF FAILURE TO DEPLOY
UNDER THE SECOND CONTRACT.
2. THE ALLEGED ILLEGAL DISMISSAL UNDER THE FIRST

CONTRACT TRANSPIRED MORE THAN THREE (3) YEARS

AFTER THE CASE WAS FILED AND THEREFORE HIS CASE
SHOULD HAVE BEEN DISMISSED FOR BEING BARRED BY
PRESCRIPTION.
II.
THE COURT A QUO ERRED IN RULING THAT THERE WAS
CONSTRUCTIVE DISMISSAL UNDER THE SECOND CONTRACT.
1. IT IS LEGALLY IMPOSSIBLE TO HAVE CONSTRUCTIVE
DISMISSAL WHEN THE EMPLOYMENT HAS NOT YET
COMMENCED.
2. ASSUMING THERE WAS OMISSION UNDER THE SECOND
CONTRACT, PETITIONERS CAN ONLY BE FOUND AS HAVING
FAILED IN DEPLOYING PRIVATE RESPONDENT BUT WITH
VALID REASON.
III.
THE COURT A QUO ERRED IN FAILING TO FIND THAT EVEN ASSUMING
THERE WAS BASIS FOR HOLDING PETITIONER LIABLE FOR "FAILURE
TO DEPLOY" RESPONDENT, THE POEA RULES PENALIZES SUCH
OMISSION WITH A MERE "REPRIMAND."18
The petitioners contend that the first employment contract between them and
the private respondent is different from and independent of the second
contract subsequently executed upon repatriation of respondent to Manila.
We do not agree.
Novation is the extinguishment of an obligation by the substitution or change
of the obligation by a subsequent one which extinguishes or modifies the
first, either by changing the object or principal conditions, or, by substituting
another in place of the debtor, or by subrogating a third person in the rights of
the creditor. In order for novation to take place, the concurrence of the
following requisites is indispensable:
1. There must be a previous valid obligation,
2. There must be an agreement of the parties concerned to a new
contract,

3. There must be the extinguishment of the old contract, and

4. There must be the validity of the new contract. 19
In its ruling, the Labor Arbiter clarified that novation had set in between the
first and second contract. To quote:
xxx [T]his office would like to make it clear that the first contract entered into
by and between the complainant and the respondents is deemed to have
been novated by the execution of the second contract. In other words,
respondents cannot be held liable for the first contract but are clearly and
definitely liable for the breach of the second contract. 20
This ruling was later affirmed by the Court of Appeals in its decision ruling
that:
Guided by the foregoing legal precepts, it is evident that novation took place
in this particular case. The parties impliedly extinguished the first contract by
agreeing to enter into the second contract to placate Medequillo, Jr. who was
unexpectedly dismissed and repatriated to Manila. The second contract
would not have been necessary if the petitioners abided by the terms and
conditions of Madequillo, Jr.s employment under the first contract. The
records also reveal that the 2nd contract extinguished the first contract by
changing its object or principal. These contracts were for overseas
employment aboard different vessels. The first contract was for employment
aboard the MV "Stolt Aspiration" while the second contract involved working
in another vessel, the MV "Stolt Pride." Petitioners and Madequillo, Jr.
accepted the terms and conditions of the second contract. Contrary to
petitioners assertion, the first contract was a "previous valid contract" since it
had not yet been terminated at the time of Medequillo, Jr.s repatriation to
Manila. The legality of his dismissal had not yet been resolved with finality.
Undoubtedly, he was still employed under the first contract when he
negotiated with petitioners on the second contract. As such, the NLRC
correctly ruled that petitioners could only be held liable under the second
contract.21
We concur with the finding that there was a novation of the first employment
contract.
We reiterate once more and emphasize the ruling in Reyes v. National Labor
Relations Commission,22 to wit:
x x x [F]indings of quasi-judicial bodies like the NLRC, and affirmed by the
Court of Appeals in due course, are conclusive on this Court, which is not a
trier of facts.

xxxx
x x x Findings of fact of administrative agencies and quasi-judicial
bodies, which have acquired expertise because their jurisdiction is
confined to specific matters, are generally accorded not only respect,
but finality when affirmed by the Court of Appeals. Such findings deserve
full respect and, without justifiable reason, ought not to be altered, modified
or reversed.(Emphasis supplied)23
With the finding that respondent "was still employed under the first contract
when he negotiated with petitioners on the second contract", 24 novation
became an unavoidable conclusion.
Equally settled is the rule that factual findings of labor officials, who are
deemed to have acquired expertise in matters within their jurisdiction, are
generally accorded not only respect but even finality by the courts when
supported by substantial evidence, i.e., the amount of relevant evidence
which a reasonable mind might accept as adequate to justify a conclusion. 25
But these findings are not infallible. When there is a showing that they were
arrived at arbitrarily or in disregard of the evidence on record, they may be
examined by the courts.26 In this case, there was no showing of any
arbitrariness on the part of the lower courts in their findings of facts. Hence,
we follow the settled rule.
We need not dwell on the issue of prescription. It was settled by the Court of
Appeals with its ruling that recovery of damages under the first contract was
already time-barred. Thus:
Accordingly, the prescriptive period of three (3) years within which Medequillo
Jr. may initiate money claims under the 1st contract commenced on the date
of his repatriation. xxx The start of the three (3) year prescriptive period must
therefore be reckoned on February 1992, which by Medequillo Jr.s own
admission was the date of his repatriation to Manila. It was at this point in
time that Medequillo Jr.s cause of action already accrued under the first
contract. He had until February 1995 to pursue a case for illegal dismissal
and damages arising from the 1st contract. With the filing of his ComplaintAffidavit on March 6, 1995, which was clearly beyond the prescriptive period,
the cause of action under the 1st contract was already time-barred. 27
The issue that proceeds from the fact of novation is the consequence of the
non-deployment of respondent.
The petitioners argue that under the POEA Contract, actual deployment of
the seafarer is a suspensive condition for the commencement of the
employment.28 We agree with petitioners on such point. However, even

without actual deployment, the perfected contract gives rise to obligations on

the part of petitioners.
A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service.29 The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.30
The POEA Standard Employment Contract provides that employment shall
commence "upon the actual departure of the seafarer from the airport or
seaport in the port of hire."31 We adhere to the terms and conditions of the
contract so as to credit the valid prior stipulations of the parties before the
controversy started. Else, the obligatory force of every contract will be
useless. Parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.32
Thus, even if by the standard contract employment commences only "upon
actual departure of the seafarer", this does not mean that the seafarer has no
remedy in case of non-deployment without any valid reason. Parenthetically,
the contention of the petitioners of the alleged poor performance of
respondent while on board the first ship MV "Stolt Aspiration" cannot be
sustained to justify the non-deployment, for no evidence to prove the same
was presented.33
We rule that distinction must be made between the perfection of the
employment contract and the commencement of the employer-employee
relationship. The perfection of the contract, which in this case coincided with
the date of execution thereof, occurred when petitioner and respondent
agreed on the object and the cause, as well as the rest of the terms and
conditions therein. The commencement of the employer-employee
relationship, as earlier discussed, would have taken place had petitioner
been actually deployed from the point of hire. Thus, even before the start of
any employer-employee relationship, contemporaneous with the perfection of
the employment contract was the birth of certain rights and obligations, the
breach of which may give rise to a cause of action against the erring party.
Thus, if the reverse had happened, that is the seafarer failed or refused to be
deployed as agreed upon, he would be liable for damages. 34
Further, we do not agree with the contention of the petitioners that the
penalty is a mere reprimand.
The POEA Rules and Regulations Governing Overseas Employment 35 dated
31 May 1991 provides for the consequence and penalty against in case of

non-deployment of the seafarer without any valid reason. It reads:

Section 4. Workers Deployment. An agency shall deploy its recruits within
the deployment period as indicated below:
xxx
b. Thirty (30) calendar days from the date of processing by the administration
of the employment contracts of seafarers.
Failure of the agency to deploy a worker within the prescribed period without
valid reasons shall be a cause for suspension or cancellation of license or
fine. In addition, the agency shall return all documents at no cost to the
worker.(Emphasis and underscoring supplied)
The appellate court correctly ruled that the penalty of reprimand 36 provided
under Rule IV, Part VI of the POEA Rules and Regulations Governing the
Recruitment and Employment of Land-based Overseas Workers is not
applicable in this case. The breach of contract happened on February 1992
and the law applicable at that time was the 1991 POEA Rules and
Regulations Governing Overseas Employment. The penalty for nondeployment as discussed is suspension or cancellation of license or fine.
Now, the question to be dealt with is how will the seafarer be compensated
by reason of the unreasonable non-deployment of the petitioners?
The POEA Rules Governing the Recruitment and Employment of Seafarers
do not provide for the award of damages to be given in favor of the
employees. The claim provided by the same law refers to a valid contractual
claim for compensation or benefits arising from employer-employee
relationship or for any personal injury, illness or death at levels provided for
within the terms and conditions of employment of seafarers. However, the
absence of the POEA Rules with regard to the payment of damages to the
affected seafarer does not mean that the seafarer is precluded from claiming
the same. The sanctions provided for non-deployment do not end with the
suspension or cancellation of license or fine and the return of all documents
at no cost to the worker. As earlier discussed, they do not forfend a seafarer
from instituting an action for damages against the employer or agency which
has failed to deploy him.37

We thus decree the application of Section 10 of Republic Act No. 8042

(Migrant Workers Act) which provides for money claims by reason of a
contract involving Filipino workers for overseas deployment.lavvphil The law
provides:
Sec. 10. Money Claims. Notwithstanding any provision of law to the
contrary, the Labor Arbiters of the National Labor Relations Commission
(NLRC) shall have the original and exclusive jurisdiction to hear and decide,
within ninety (90) calendar days after the filing of the complaint, the claims
arising out of an employer-employee relationship or by virtue of any law or
contract involving Filipino workers for overseas deployment including claims
for actual, moral, exemplary and other forms of damages. x x x
(Underscoring supplied)
Following the law, the claim is still cognizable by the labor arbiters of the
NLRC under the second phrase of the provision.
Applying the rules on actual damages, Article 2199 of the New Civil Code
provides that one is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved. Respondent is thus
liable to pay petitioner actual damages in the form of the loss of nine (9)
months worth of salary as provided in the contract. 38 This is but proper
because of the non-deployment of respondent without just cause.
WHEREFORE, the appeal is DENIED. The 31 January 2007 Decision of the
Court of Appeals in CA-G.R. SP. No. 91632 is hereby AFFIRMED. The
Petitioners are hereby ordered to pay Sulpecio Medequillo, Jr., the award of
actual damages equivalent to his salary for nine (9) months as provided by
the Second Employment Contract.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice