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SECOND DIVISION

G.R. No. 177493, March 19, 2014


ERIC GODFREY STANLEY LIVESEY, Petitioner, v. BINSWANGER PHILIPPINES,
INC. AND KEITH ELLIOT, Respondents.
DECISION
BRION, J.:
We resolve this petition for review on certiorari1 assailing the decision2 dated August 18, 2006
and the resolution3 dated March 29, 2007 of the Court of Appeals (CA) in CAG.R. SP No.
94461.
The Antecedents
In December 2001, petitioner Eric Godfrey Stanley Livesey filed a complaint for illegal
dismissal with money claims4 against CBB Philippines Strategic Property Services, Inc. (CBB)
and Paul Dwyer. CBB was a domestic corporation engaged in real estate brokerage and Dwyer
was its President.
Livesey alleged that on April 12, 2001, CBB hired him as Director and Head of Business Space
Development, with a monthly salary of US$5,000.00; shareholdings in CBBs offshore parent
company; and other benefits. In August 2001, he was appointed as Managing Director and his
salary was increased to US$16,000.00 a month. Allegedly, despite the several deals for CBB he
drew up, CBB failed to pay him a significant portion of his salary. For this reason, he was
compelled to resign on December 18, 2001. He claimed CBB owed him US$23,000.00 in unpaid
salaries.
CBB denied liability. It alleged that it engaged Livesey as a corporate officer in April 2001: he
was elected VicePresident (with a salary of P75,000.00/month), and thereafter, he became
President (at P1,200,000.00/year). It claimed that Livesey was later designated as Managing
Director when it became an extension office of its principal in Hongkong.5
On December 17, 2001, Livesey demanded that CBB pay him US$25,000.00 in unpaid salaries
and, at the same time, tendered his resignation. CBB posited that the labor arbiter (LA) had no
jurisdiction as the complaint involved an intracorporate dispute.
In his decision dated September 20, 2002,6 LA Jaime M. Reyno found that Livesey had been
illegally dismissed. LA Reyno ordered CBB to reinstate Livesey to his former position as
Managing Director and to pay him US$23,000.00 in accrued salaries (from July to December
2001), and US$5,000.00 a month in back salaries from January 2002 until reinstatement; and
10% of the total award as attorneys fees.
Thereafter, the parties entered into a compromise agreement7 which LA Reyno approved in an
order dated November 6, 2002.8 Under the agreement, Livesey was to receive US$31,000.00 in

full satisfaction of LA Reynos decision, broken down into US$13,000.00 to be paid by CBB to
Livesey or his authorized representative upon the signing of the agreement; US$9,000.00 on or
before June 30, 2003; and US$9,000.00 on or before September 30, 2003. Further, the agreement
provided that unless and until the agreement is fully satisfied, CBB shall not: (1) sell, alienate, or
otherwise dispose of all or substantially all of its assets or business; (2) suspend, discontinue, or
cease its entire, or a substantial portion of its business operations; (3) substantially change the
nature of its business; and (4) declare bankruptcy or insolvency.
CBB paid Livesey the initial amount of US$13,000.00, but not the next two installments as the
company ceased operations. In reaction, Livesey moved for the issuance of a writ of execution.
LA Eduardo G. Magno granted the writ,9 but it was not enforced. Livesey then filed a motion for
the issuance of an alias writ of execution,10 alleging that in the process of serving respondents the
writ, he learned that respondents, in a clear and willful attempt to avoid their liabilities to
complainant x x x have organized another corporation, [Binswanger] Philippines, Inc.11 He
claimed that there was evidence showing that CBB and Binswanger Philippines, Inc.
(Binswanger) are one and the same corporation, pointing out that CBB stands for Chesterton
Blumenauer Binswanger.12 Invoking the doctrine of piercing the veil of corporate fiction,
Livesey prayed that an alias writ of execution be issued against respondents Binswanger and
Keith Elliot, CBBs former President, and now Binswangers President and Chief Executive
Officer (CEO).
The Compulsory Arbitration Rulings
In an order13 dated March 22, 2004, LA Catalino R. Laderas denied Liveseys motion for an alias
writ of execution, holding that the doctrine of piercing the corporate veil was inapplicable in the
case. He explained that the stockholders of the two corporations were not the same. Further, LA
Laderas stressed that LA Reynos decision had already become final and could no longer be
altered or modified to include additional respondents.
Livesey filed an appeal which the National Labor Relations Commission (NLRC) granted in its
decision14 dated September 7, 2005. It reversed LA Laderas March 22, 2004 order and declared
the respondents jointly and severally liable with CBB for LA Reynos decision15 of September
20, 2002 in favor of Livesey. The respondents moved for reconsideration, filed by an Atty.
Genaro S. Jacosalem,16 not by their counsel of record at the time, Corporate Counsels
Philippines, Law Offices. The NLRC denied the motion in its resolution of January 6, 2006.17
The respondents then sought relief from the CA through a petition for certiorari under Rule 65 of
the Rules of Court.
The respondents charged the NLRC with grave abuse of discretion for holding them liable to
Livesey and in exercising jurisdiction over an intracorporate dispute. They maintained that
Binswanger is a separate and distinct corporation from CBB and that Elliot signed the
compromise agreement in CBBs behalf, not in his personal capacity. It was error for the NLRC,
they argued, when it applied the doctrine of piercing the veil of corporate fiction to the case,
despite the absence of clear evidence in that respect.
For his part, Livesey contended that the petition should be dismissed outright for being filed out
of time. He claimed that the respondents counsel of record received a copy of the NLRC

resolution denying their motion for reconsideration as early as January 19, 2006, yet the petition
was filed only on May 15, 2006. He insisted that in any event, there was ample evidence
supporting the application of the doctrine of piercing the veil of corporate fiction to the case.
The CA Decision
The CA granted the petition,18 reversed the NLRC decision19 of September 7, 2005 and reinstated
LA Laderas order20 of March 22, 2004. The CA found untenable Liveseys contention that the
petition for certiorari was filed out of time, stressing that while there was no valid substitution or
withdrawal of the respondents former counsel, the NLRC impliedly recognized Atty. Jacosalem
as their new counsel when it resolved the motion for reconsideration which he filed.
On the merits of the case, the CA disagreed with the NLRC finding that the respondents are
jointly and severally liable with CBB in the case. It emphasized that the mere fact that
Binswanger and CBB have the same President is not in itself sufficient to pierce the veil of
corporate fiction of the two entities, and that although Elliot was formerly CBBs President, this
circumstance alone does not make him answerable for CBBs liabilities, there being no proof that
he was motivated by malice or bad faith when he signed the compromise agreement in CBBs
behalf; neither was there proof that Binswanger was formed, or that it was operated, for the
purpose of shielding fraudulent or illegal activities of its officers or stockholders or that the
corporate veil was used to conceal fraud, illegality or inequity at the expense of third persons like
Livesey.
Livesey moved for reconsideration, but the CA denied the motion in its resolution dated March
29, 2007.21 Hence, the present petition.
The Petition
Livesey prays for a reversal of the CA rulings on the basis of the following arguments:

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1. The CA erred in not denying the respondents petition for certiorari dated May 12, 2006 for
being filed out of time.
Livesey assails the CAs reliance on the Courts pronouncement in Rinconada Telephone Co.,
Inc. v. Hon. Buenviaje22 to justify its ruling that the receipt on March 17, 2006 by Atty. Jacosalem
of the NLRCs denial of the respondents motion for reconsideration was the reckoning date for
the filing of the petition for certiorari, not the receipt of a copy of the same resolution on January
19, 2006 by the respondents counsel of record, the Corporate Counsels Philippines, Law
Offices. The cited Courts pronouncement reads:
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In view of respondent judges recognition of Atty. Santos as new counsel for petitioner without
even a valid substitution or withdrawal of petitioners former counsel, said new counsel logically
awaited for service to him of any action taken on his motion for reconsideration. Respondent
judges sudden change of posture in insisting that Atty. Maggay is the counsel of record is,
therefore, a whimsical and capricious exercise of discretion that prevented petitioner and Atty.
Santos from taking a timely appeal[.]23

With the above citation, Livesey points out, the CA opined that a copy of the NLRC resolution
denying the respondents motion for reconsideration should have been served on Atty. Jacosalem
and no longer on the counsel of record, so that the sixty (60)day period for the filing of the
petition should be reckoned from March 17, 2006 when Atty. Jacosalem secured a copy of the
resolution from the NLRC (the petition was filed by a Jeffrey Jacosalem on May 15, 2006).24
Livesey submits that the CAs reliance on Rinconada was misplaced. He argues that
notwithstanding the signing by Atty. Jacosalem of the motion for reconsideration, it was only
proper that the NLRC served a copy of the resolution on the Corporate Counsels Philippines,
Law Offices as it was still the respondents counsel at the time.25 He adds that Atty. Jacosalem
never participated in the NLRC proceedings because he did not enter his appearance as the
respondents counsel before the labor agency; further, he did not even indicate his office address
on the motion for reconsideration he signed.
2. The CA erred in not applying the doctrine of piercing the veil of corporate fiction to the case.
Livesey bewails the CAs refusal to pierce Binswangers corporate veil in his bid to make the
company and Elliot liable, together with CBB, for the judgment award to him. He insists that
CBB and Binswanger are one and the same corporation as shown by the overwhelming
evidence he presented to the LA, the NLRC and the CA, as follows:
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a. CBB stands for Chesterton Blumenauer Binswanger.26


b. After executing the compromise agreement with him, through Elliot, CBB ceased operations
following a transaction where a substantial amount of CBB shares changed hands. Almost
simultaneously with CBBs closing (in July 2003), Binswanger was established with its
headquarters set up beside CBBs office at Unit 501, 5/F Peninsula Court Building in Makati
City.27
c. Key CBB officers and employees moved to Binswanger led by Elliot, former CBB President
who became Binswangers President and CEO; Ferdie Catral, former CBB Director and Head of
Operations; Evangeline Agcaoili and Janet Pei.
d. Summons served on Binswanger in an earlier labor case was received by Binswanger using
CBBs receiving stamp.28
e. A Leslie Young received on August 23, 2003 an online query on whether CBB was the same
as Blumaneuver Binswanger (BB). Signing as Web Editor, Binswanger/CBB, Young replied via
email:29
We are known as either CBB (Chesterton Blumenauer Binswanger) or as Chesterton Petty Ltd. in
the Philippines. Contact info for our office in Manila is as follows:
Manila Philippines
CBB Philippines
Unit 509, 5th Floor
Peninsula Court, Paseo de Roxas corner

Makati Avenue
1226 Makati City
Philippines
Contact: Keith Elliot
f. In a letter dated August 21, 2003,30 Elliot noted a Binswanger bid solicitation for a project with
the Philippine National Bank (PNB) which was actually a CBB project as shown by a CBB draft
proposal to PNB dated January 24, 2003.31
g. The affidavit32 dated October 1, 2003 of Hazel de Guzman, another former CBB employee
who also filed an illegal dismissal case against the company, attested to the existence of
Liveseys documentary evidence in his own case and who deposed that at one time, Elliot told
her of CBBs plan to close the corporation and to organize another for the purpose of evading
CBBs liabilities.
h. The findings33 of facts of LA Veneranda C. Guerrero who ruled in De Guzmans favor that
bolstered his own evidence in the present case.
3. The CA erred in not holding Elliot liable for the judgment award.
Livesey questions the CAs reliance on Laperal Development Corporation v. Court of Appeals,34
Sunio, et al. v. NLRC, et al.,35 and Palay, Inc., et al. v. Clave, etc., et al.,36 in support of its ruling
that Elliot is not liable to him for the LAs award. He argues that in these cases, the Court upheld
the separate personalities of the corporations and their officers/employees because there was no
evidence that the individuals sought to be held liable were in bad faith or that there were badges
of fraud in their actions against the aggrieved party or parties in said cases. He reiterates his
submission to the CA that the circumstances of the present case are different from those of the
cited cases. He posits that the closure of CBB and its immediate replacement by Binswanger
could not have been possible without Elliots guiding hand, such that when CBB ceased
operations, Elliot (CBBs President and CEO) moved to Binswanger in the same position. More
importantly, Livesey points out, as signatory for CBB in the compromise agreement between him
(Livesey) and CBB, Elliot knew that it had not been and would never be fully satisfied.
Livesey thus laments Elliots devious scheme of leaving him an unsatisfied award, stressing that
Elliot was the chief orchestrator of CBB and Binswangers fraudulent act of evading the full
satisfaction of the compromise agreement. In this light, he submits that the Courts ruling in A.C.
Ransom Labor UnionCCLU v. NLRC,37 which deals with the issue of who is liable for the
workers backwages when a corporation ceases operations, should apply to his situation.
The Respondents Position
Through their comment38 and memorandum,39 the respondents pray that the petition be denied for
the following reasons:
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1. The NLRC had no jurisdiction over the dispute between Livesey and CBB/Dwyer as it
involved an intracorporate controversy; under Republic Act No. 8799, the Regional Trial Court
exercises jurisdiction over the case.

As shown by the records, Livesey was appointed as CBBs Managing Director during the
relevant period and was also a shareholder, making him a corporate officer.
2. There was no employeremployee relationship between Livesey and Binswanger. Under
Article 217 of the Labor Code, the labor arbiters and the NLRC have jurisdiction only over
disputes where there is an employeremployee relationship between the parties.
3. The NLRC erred in applying the doctrine of piercing the veil of corporate fiction to the case
based only on mere assumptions. Point by point, they take exception to Liveseys submissions
as follows:
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a. The email statement in reply to an online query of Young (CBBs Web Editor) that CBB
is known as Chesterton Blumenauer Binswanger or Chesterton Petty. Ltd. to establish a
connection between CBB and Binswanger is inconclusive as there was no mention in the
statement of Binswanger Philippines, Inc.
b. The affidavit of De Guzman, former CBB Associate Director, who also resigned from the
company like Livesey, has no probative value as it was selfserving and contained only
misrepresentation of facts, conjectures and surmises.
c. When Binswanger was organized and incorporated, CBB had already been abandoned by
its Board of Directors and no longer subsidized by CBBHongkong; it had no business
operations to work with.
d. The mere transfer of Elliot and Catral from CBB to Binswanger is not a ground to pierce
the corporate veil in the present case absent a clear evidence supporting the application of
the doctrine. The NLRC applied the doctrine on the basis only of LA Guerreros decision
in the De Guzman case.
e. The respondents petition for certiorari was filed on time. Atty. Jacosalem, who was
presumed to have been engaged as the respondents counsel, was deemed to have
received a copy of the NLRC resolution (denying the motion for reconsideration) on
March 17, 2006 when he requested and secured a copy from the NLRC. The petition was
filed on May 15, 2006 or fiftynine (59) days from March 17, 2006. Atty. Jacosalem may
have failed to indicate his address on the motion for reconsideration he filed but that is
not a reason for him to be deprived of the notices and processes of the case.
The Courts Ruling
The procedural question
The respondents petition for certiorari before the CA was filed out of time. The sixty (60)day
filing period under Rule 65 of the Rules of Court should have been counted from January 19,
2006, the date of receipt of a copy of the NLRC resolution denying the respondents motion for
reconsideration by the Corporate Counsels Philippines, Law Offices which was the respondents
counsel of record at the time. The respondents cannot insist that Atty. Jacosalems receipt of a

copy of the resolution on March 17, 2006 as the reckoning date for the filing of the petition as we
shall discuss below.
The CA chided the NLRC for serving a copy of the resolution on the Corporate Counsels
Philippines, Law Offices, instead of on Atty. Jacosalem as it believed that the labor tribunal
impliedly recognized Atty. Jacosalem as the respondents counsel when it acted on the motion for
reconsideration that he signed. As we see it, the fault was not on the NLRC but on Atty.
Jacosalem himself as he left no forwarding address with the NLRC, a serious lapse that even he
admitted.40 This is a matter that cannot just be taken for granted as it betrays a careless legal
representation that can cause adverse consequences to the other party.
To our mind, Atty. Jacosalems nonobservance of a simple, but basic requirement in the practice
of law lends credence to Liveseys claim that the lawyer did not formally enter his appearance
before the NLRC as the respondents new counsel; if it had been otherwise, he would have
supplied his office address to the NLRC. Also, had he exercised due diligence in the performance
of his duty as counsel, he could have inquired earlier with the NLRC and should not have waited
as late as March 17, 2006 about the outcome of the respondents motion for reconsideration
which was filed as early as October 28, 2005.
To reiterate, the filing of the respondents petition for certiorari should have been reckoned from
January 19, 2006 when a copy of the subject NLRC resolution was received by the Corporate
Counsels Philippines, Law Offices, which, as of that date, had not been discharged or had
withdrawn and therefore remained to be the respondents counsel of record. Clearly, the petition
for certiorari was filed out of time. Section 6(a), Rule III of the NLRC Revised Rules of
Procedure provides that [f]or purposes of appeal, the period shall be counted from receipt of
such decisions, resolutions, or orders by the counsel or representative of record.
We now come to the issue of whether the NLRC had jurisdiction over the controversy between
Livesey and CBB/Dwyer on the ground that it involved an intracorporate dispute.
Based on the facts of the case, we find this issue to have been rendered academic by the
compromise agreement between Livesey and CBB and approved by LA Reyno.41 That CBB
reneged in the fulfillment of its obligation under the agreement is no reason to revive the issue
and further frustrate the full settlement of the obligation as agreed upon.
The substantive aspect of the case
Even if we rule that the respondents appeal before the CA had been filed on time, we believe
and so hold that the appellate court committed a reversible error of judgment in its challenged
decision.
The NLRC committed no grave abuse of discretion in reversing LA Laderas ruling as there is
substantial evidence in the records that Livesey was prevented from fully receiving his monetary
entitlements under the compromise agreement between him and CBB, with Elliot signing for
CBB as its President and CEO. Substantial evidence is more than a scintilla; it means such
relevant evidence as a reasonable mind might accept as adequate to support a conclusion.42

Shortly after Elliot forged the compromise agreement with Livesey, CBB ceased operations, a
corporate event that was not disputed by the respondents. Then Binswanger suddenly appeared.
It was established almost simultaneously with CBBs closure, with no less than Elliot as its
President and CEO. Through the confluence of events surrounding CBBs closure and
Binswangers sudden emergence, a reasonable mind would arrive at the conclusion that
Binswanger is CBBs alter ego or that CBB and Binswanger are one and the same corporation.
There are also indications of badges of fraud in Binswangers incorporation. It was a business
strategy to evade CBBs financial liabilities, including its outstanding obligation to Livesey.
The respondents impugned the probative value of Liveseys documentary evidence and insist that
the NLRC erred in applying the doctrine of piercing the veil of corporate fiction in the case to
avoid liability. They consider the NLRC conclusions as mere assumptions.
We disagree.
It has long been settled that the law vests a corporation with a personality distinct and separate
from its stockholders or members. In the same vein, a corporation, by legal fiction and
convenience, is an entity shielded by a protective mantle and imbued by law with a character
alien to the persons comprising it.43 Nonetheless, the shield is not at all times impenetrable and
cannot be extended to a point beyond its reason and policy. Circumstances might deny a claim
for corporate personality, under the doctrine of piercing the veil of corporate fiction.
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations
where the separate corporate personality of a corporation is abused or used for wrongful
purposes.44 Under the doctrine, the corporate existence may be disregarded where the entity is
formed or used for nonlegitimate purposes, such as to evade a just and due obligation, or to
justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable considerations,
other unjustifiable aims or intentions,45 in which case, the fiction will be disregarded and the
individuals composing it and the two corporations will be treated as identical.46
In the present case, we see an indubitable link between CBBs closure and Binswangers
incorporation. CBB ceased to exist only in name; it reemerged in the person of
Binswanger for an urgent purpose to avoid payment by CBB of the last two installments
of its monetary obligation to Livesey, as well as its other financial liabilities. Freed of
CBBs liabilities, especially that owing to Livesey, Binswanger can continue, as it did
continue, CBBs real estate brokerage business.
Liveseys evidence, whose existence the respondents never denied, converged to show this
continuity of business operations from CBB to Binswanger. It was not just coincidence that
Binswanger is engaged in the same line of business CBB embarked on: (1) it even holds office in
the very same building and on the very same floor where CBB once stood; (2) CBBs key
officers, Elliot, no less, and Catral moved over to Binswanger, performing the tasks they were
doing at CBB; (3) notwithstanding CBBs closure, Binswangers Web Editor (Young), in an e
mail correspondence, supplied the information that Binswanger is now known as either CBB
(Chesterton Blumenauer Binswanger or as Chesterton Petty, Ltd., in the Philippines; (4) the use

of Binswanger of CBBs paraphernalia (receiving stamp) in connection with a labor case where
Binswanger was summoned by the authorities, although Elliot claimed that he bought the item
with his own money; and (5) Binswangers takeover of CBBs project with the PNB.
While the ostensible reason for Binswangers establishment is to continue CBBs business
operations in the Philippines, which by itself is not illegal, the close proximity between CBBs
disestablishment and Binswangers coming into existence points to an unstated but urgent
consideration which, as we earlier noted, was to evade CBBs unfulfilled financial obligation to
Livesey under the compromise agreement.47
This underhanded objective, it must be stressed, can only be attributed to Elliot as it was
apparent that Binswangers stockholders had nothing to do with Binswangers operations as
noted by the NLRC and which the respondents did not deny.48 Elliot was well aware of the
compromise agreement between Livesey and CBB, as he agreed and accepted the terms of the
agreement49 for CBB. He was also well aware that the last two installments of CBBs obligation
to Livesey were due on June 30, 2003 and September 30, 2003. These installments were not met
and the reason is that after the alleged sale of the majority of CBBs shares of stock, it closed
down.
With CBBs closure, Livesey asked why people would buy into a corporation and simply close it
down immediately thereafter?50 The answer to pave the way for CBBs reappearance as
Binswanger. Elliots guiding hand, as Livesey puts it, is very much evident in CBBs demise
and Binswangers creation. Elliot knew that CBB had not fully complied with its financial
obligation under the compromise agreement. He made sure that it would not be fulfilled when he
allowed CBBs closure, despite the condition in the agreement that unless and until the
Compromise Amount has been fully settled and paid by the Company in favor of Mr. Livesey,
the Company shall not x x x suspend, discontinue, or cease its entire or a substantial portion of
its business operations[.]51
What happened to CBB, we believe, supports Liveseys assertion that De Guzman, CBBs
former Associate Director, informed him that at one time Elliot told her of CBBs plan to close
the corporation and organize another for the purpose of evading CBBs liabilities to Livesey and
its other financial liabilities.52 This wrongful intent we cannot and must not condone, for it will
give a premium to an iniquitous business strategy where a corporation is formed or used for a
nonlegitimate purpose, such as to evade a just and due obligation.53 We, therefore, find Elliot as
liable as Binswanger for CBBs unfulfilled obligation to Livesey.
WHEREFORE, premises considered, we hereby GRANT the petition. The decision dated
August 18, 2006 and the Resolution dated March 29, 2007 of the Court of Appeals are SET
ASIDE. Binswanger Philippines, Inc. and Keith Elliot (its President and CEO) are declared
jointly and severally liable for the second and third installments of CBBs liability to Eric
Godfrey Stanley Livesey under the compromise agreement dated October 14, 2002. Let the case
record be remanded to the National Labor Relations Commission for execution of this Decision.
Costs against the respondents.

SO ORDERED.
Carpio, (Chairperson), Del Castillo, Perez, and Reyes,* JJ., concu

THIRD DIVISION
G.R. No. 211497, March 18, 2015
HOCHENG PHILIPPINES CORPORATION, Petitioner, v. ANTONIO M. FARRALES,
Respondent.
DECISION
REYES, J.:
Before this Court on Petition for Review on Certiorari1 is the Decision2 dated October 17, 2013
of the Court of Appeals (CA) in CA-G.R. SP No. 125103, which reversed the Decision3 dated
February 29, 2012 and Resolution4 dated May 7, 2012 of the National Labor Relations
Commission (NLRC) in NLRC LAC No. 08-002249-11, and reinstated with modifications the
Decision5 dated April 29, 2011 of the Labor Arbiter (LA) in NLRC Case No. RAB-IV-03-0061810-C, which found that respondent Antonio M. Farrales (Farrales) was illegally dismissed by
Hocheng Philippines Corporation (HPC). The fallo of the appellate decision reads:
WHEREFORE, premises considered, the Decision of the Labor Arbiter dated April 29, 2011 in
NLRC Case No. RAB-IV-03-00618-10-C is reinstated with modifications. Private respondent
Hocheng Philippines Corporation is liable to pay [Farrales] the following:
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(1) Full backwages from date of dismissal on February 15, 2010 until date of decision
equivalent to P276,466.67;
(2) Separation pay of one (1) month salary per year of service for a period of twelve years
equivalent to P228,800.00;
(3) Appraisal year-end bonus in the sum of P11,000.00; and,
(4) Attorneys fees equivalent to 10% of the total award.
SO ORDERED.6
The Facts
Farrales was first employed by HPC on May 12, 1998 as Production Operator, followed by
promotions as (1) Leadman in 2004, (2) Acting Assistant Unit Chief in 2007, and (3) Assistant
Unit Chief of Production in 2008, a supervisory position with a monthly salary of ?17,600.00. He
was a consistent recipient of citations for outstanding performance, as well as appraisal and year-

end bonuses.7

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On December 2, 2009, a report reached HPC management that a motorcycle helmet of an


employee, Reymar Solas (Reymar), was stolen at the parking lot within its premises on
November 27, 2009. On December 3, 2009, Security Officer Francisco Paragas III confirmed a
video sequence recorded on closed-circuit television (CCTV) around 3:00 p.m. on November 27,
2009 showing Farrales taking the missing helmet from a parked motorcycle, to wit:
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a. At around 3:07:44, [Farrales] was seen walking towards the motorcycle parking lot;

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b. At around 3:08:47, [Farrales] walked back towards the pedestrian gate of the company,
passing by the motorcycle parking lot;
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c. At around 3:08:51, [Farrales] walked back towards the motorcycle parking lot and
returned to the pedestrian gate;
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d. At around 3:09:10, [Farrales] called on the person of Andy Lopega and instructed him to
get the helmet he was pointing at; [and]
e. At around 3:09:30, Andy gave the helmet to [Farrales].8
Later that day, HPC sent Farrales a notice to explain his involvement in the alleged theft. The
investigation was supported by the employees union, ULO-Hocheng.9Below is Farrales
explanation, as summarized by the CA:
On November 27, 2009, [Farrales] borrowed a helmet from his co-worker Eric Libutan (Eric)
since they reside in the same barangay. They agreed that Eric could get it at the house of
[Farrales] or the latter could return it the next time that they will see each other. Eric told him
that his motorcycle was black in color. As there were many motorcycles with helmets, he asked
another employee, Andy Lopega (Andy) who was in the parking area where he could find
Erics helmet. Andy handed over to him the supposed helmet which he believed to be owned by
Eric, then he went home.
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On November 28, 2009, at around 6 oclock in the morning, he saw Eric at their barangay and
told him to get the helmet. But Eric was in a rush to go to work, he did not bother to get it.
In the morning of December 3, 2009, upon seeing Eric in the workplace, [Farrales] asked him
why he did not get the helmet from his house. Eric told him that, Hindi po sa akin yung nakuha
nyong helmet. [Farrales] was shocked and he immediately phoned the HPCs guard to report the
situation that he mistook the helmet which he thought belonged to Eric. After several employees
were asked as to the ownership of the helmet, he finally found the owner thereof, which is Jun
Reyess (Jun) nephew, Reymar, who was with him on November 27, 2009. [Farrales] promptly
apologized to Jun and undertook to return the helmet the following day and explained that it was
an honest mistake. These all happened in the morning of December 3, 2009; [Farrales] did not
know yet that HPC will send a letter demanding him to explain.10
A hearing was held on December 10, 2009 at 1:00 p.m. Present were Farrales, Eric Libutan
(Eric), Andy Lopega (Andy), Jun Reyes, Antonio Alinda, a witness, and Rolando Garciso,
representing ULO-Hocheng. From Andy it was learned that at the time of the alleged incident, he

was already seated on his motorcycle and about to leave the company compound when Farrales
approached and asked him to hand to him a yellow helmet hanging from a motorcycle parked
next to him. When Andy hesitated, Farrales explained that he owned it, and so Andy complied.
But Eric had specifically told Farrales that his helmet was colored red and black and his
motorcycle was a black Honda XRM-125 with plate number 8746-DI, parked near the perimeter
fence away from the walkway to the pedestrian gate. The CCTV showed Farrales instructing
Andy to fetch a yellow helmet from a blue Rossi 110 motorcycle with plate number 3653-DN
parked in the middle of the parking lot, opposite the location given by Eric. Farrales in his
defense claimed he could no longer remember the details of what transpired that time, nor could
he explain why he missed Erics specific directions.11
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On February 15, 2010, the HPC issued a Notice of Termination12 to Farrales dismissing him for
violation of Article 69, Class A, Item No. 29 of the HPC Code of Discipline, which provides that
stealing from the company, its employees and officials, or from its contractors, visitors or
clients, is akin to serious misconduct and fraud or willful breach by the employee of the trust
reposed in him by his employer or duly authorized representative, which are just causes for
termination of employment under Article 282 of the Labor Code.
On March 25, 2010, Farrales filed a complaint for illegal dismissal, non-payment of appraisal
and mid-year bonuses, service incentive leave pay and 13th month pay. He also prayed for
reinstatement, or in lieu thereof, separation pay with full backwages, plus moral and exemplary
damages and attorneys fees. During the mandatory conference, HPC paid Farrales ?10,914.51,
representing his 13th month pay for the period of January to February 2010 and vacation
leave/sick leave conversion. Farrales agreed to waive his claim for incentive bonus.13
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On April 29, 2011, the LA ruled in favor of Farrales,14 the fallo of which is as follows:
WHEREFORE, PREMISES CONSIDERED, all the respondents Hocheng Phils. Corporation,
Inc. Sam Chen[g] and Judy Geregale are found guilty of illegal dismissal and ordered jointly and
severally to pay complainant the following:
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1. Full backwages from date of dismissal on February 15, 2010 until date of decision equivalent
to P276,466.67.
2. Separation pay of one (1) month salary per year of service for a period of twelve years
equivalent to P228,800.00.
3. Appraisal year-end bonus in the sum of P11,000.00.
4. Moral damages in the sum of P200,000.00.
5. Exemplary damages in the sum of P100,000.00.
6. 10% of all sums owing as attorneys fees or the amount of P81,626.67.
SO ORDERED.15
On appeal by HPC,16 the NLRC reversed the LA,17 and denied Farrales motion for
reconsideration, finding substantial evidence of just cause to terminate Farrales.18

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On petition for certiorari to the CA,19 Farrales sought to refute the NLRCs factual finding that
he committed theft, as well as to question NLRCs jurisdiction over HPCs appeal for nonpayment of appeal fees. But the CA found that HPC was able to perfect its appeal by posting a
bond equivalent to the monetary award of ?897,893.37 and paying the appeal fees by postal
money order in the amount of ?520.00.20
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Concerning the substantive issues, the appellate court agreed with the LA that Farrales act of
taking Reymars helmet did not amount to theft, holding that HPC failed to prove that Farrales
conduct was induced by a perverse and wrongful intent to gain, in light of the admission of Eric
that he did let Farrales borrow one of his two helmets, only that Farrales mistook Reymars
helmet as the one belonging to him.
Petition for Review to the Supreme Court
In this petition, HPC raises the following grounds for this Courts review:

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A. THE HONORABLE [CA] PLAINLY ERRED AND ACTED CONTRARY TO


EXISTING LAW AND JURISPRUDENCE IN REVERSING THE DECISION OF THE
[NLRC] AND DECLARING ILLEGAL THE DISMISSAL FOR [HPCs] ALLEGED
FAILURE TO PROVE THE EXISTENCE OF JUST CAUSE.
1. THERE IS SUBSTANTIAL EVIDENCE TO SHOW THAT [FARRALES]
COMMITTED THEFT IN [HPCs] PREMISES.
2. THEFT IS A JUST CAUSE FOR TERMINATION.
3. BY COMMITTING THEFT, [FARRALES], BEING A SUPERVISORIAL
EMPLOYEE, FORFEITED THE TRUST REPOSED IN HIM BY [HPC], THUS
RENDERING HIM DISMISSIBLE FOR LOSS OF CONFIDENCE.

B. IN DECLARING ILLEGAL THE DISMISSAL OF [FARRALES], THE HONORABLE


[CA] VIOLATED DOCTRINES LAID DOWN BY THE SUPREME COURT.
1. COURTS CANNOT SUBSTITUTE THEIR JUDGMENT FOR THAT OF THE
MANAGEMENT.
2. COURTS MUST ACCORD DUE RESPECT TO THE FINDINGS OF
ADMINISTRATIVE AGENCIES.21
Chiefly, HPC insists that since the complaint below involves an administrative case, only
substantial evidence, not proof of guilt beyond reasonable doubt, is required to prove the guilt of
Farrales;22 that what the CA has done is substitute its judgment for that of the NLRC, which is
vested with statutory duty to make factual determinations based on the evidence on record.23
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Ruling of the Court


The Court resolves to deny the petition.
To validly dismiss an employee, the law requires the employer to prove the existence of any of
the valid or authorized causes,24 which, as enumerated in Article 282 of the Labor Code, are: (a)
serious misconduct or willful disobedience by the employee of the lawful orders of his employer
or the latters representative in connection with his work; (b) gross and habitual neglect by the
employee of his duties; (c) fraud or willful breach by the employee of the trust reposed in him by
his employer or his duly authorized representative; (d) commission of a crime or offense by the
employee against the person of his employer or any immediate member of his family or his duly
authorized representative; and (e) other causes analogous to the foregoing.25 As a supervisorial
employee, Farrales is admittedly subject to stricter rules of trust and confidence, and thus
pursuant to its management prerogative HPC enjoys a wider latitude of discretion to assess his
continuing trustworthiness, than if he were an ordinary rank-and-file employee.26 HPC therefore
insists that only substantial proof of Farrales guilt for theft is needed to establish the just causes
to dismiss him, as the NLRC lengthily asserted in its decision.
Article 4 of the Labor Code mandates that all doubts in the implementation and interpretation of
the provisions thereof shall be resolved in favor of labor. Consistent with the States avowed
policy to afford protection to labor, as Article 3 of the Labor Code and Section 3, Article XIII of
the 1987 Constitution have enunciated, particularly in relation to the workers security of tenure,
the Court held that [t]o be lawful, the cause for termination must be a serious and grave
malfeasance to justify the deprivation of a means of livelihood. This is merely in keeping with
the spirit of our Constitution and laws which lean over backwards in favor of the working class,
and mandate that every doubt must be resolved in their favor.27 Moreover, the penalty imposed
on the erring employee ought to be proportionate to the offense, taking into account its nature
and surrounding circumstances.
The Court has always taken care, therefore, that the employer does not invoke any baseless
justification, much less management prerogative, as a subterfuge by which to rid himself of an
undesirable worker,28 and thus in exceptional cases the Court has never hesitated to delve into the
NLRCs factual conclusions where evidence was found insufficient to support them, or too much
was deduced from the bare facts submitted by the parties, or the LA and the NLRC came up with
conflicting positions, as is true in this case.29
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As aptly pointed out by the LA, while HPC has the onus probandi that the taking of Reymars
helmet by Farrales was with intent to gain, it failed to discharge this burden, as shown by the
following circumstances: Farrales sought and obtained the permission of Eric, his co-employee
as well as barangay co-resident, to borrow his helmet; at the parking lot, Farrales asked another
employee, Andy, to fetch a yellow helmet from one of the parked motorcycles, mistakenly
thinking it belonged to Eric (whom he knew owned two helmets); the following day, November
28, Farrales asked Eric why he had not dropped by his house to get his helmet, and Eric replied
that Farrales got the wrong helmet because he still had his other helmet with him; Farrales
immediately sought the help of the company guards to locate the owner of the yellow helmet,
who turned out to be Reymar; Farrales apologized to Reymar for his mistake, and his apology

was promptly accepted.30 All these circumstances belie HPCs claim that Farrales took Reymars
helmet with intent to gain, the LA said.
In ruling that Farrales dismissal by HPC was attended with utmost malice and bad faith as to
justify an award of moral and exemplary damages and attorneys fees, the LA stated that [i]t is
succinctly clear that [the] respondents [therein] tried to blow out of proportions the indiscretion
of [Farrales] for reasons known only to them, and moreover, [f]inding that the dismissal on the
ground of theft is unavailing, [the] respondents [therein] immediately offered [Farrales] his
former position when he filed [his] complaint. What does this act of [the] respondents [therein]
speak [of]?31
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On the other hand, the NLRC found that Farrales lied, first, when he told Andy, then already
astride his motorbike at the parking area and about to leave the company premises, that the
yellow helmet belonged to him,32 and second, when he claimed that Eric was his neighbor,
although they were not. It ruled as doubtful Farrales hazy recollection about what happened that
afternoon at the parking lot, since he could not even give a description of the motorcycle from
which he took the yellow helmet. These circumstances, the NLRC determined, comprise
substantial proof belying Farrales claim of good faith. As a supervisory employee, he held a
position of high responsibility in the company making him accountable to stricter rules of trust
and confidence than an ordinary employee, and under Article 282 of the Labor Code, he is guilty
of a serious misconduct and a willful breach of trust. The NLRC went on to cite a settled policy
that in trying to protect the rights of labor, the law does not authorize the oppression or selfdestruction of the employer. Management also has its own rights, which as such, are entitled to
respect and enforcement in the interest of simple fair play.33
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But the Court agrees with the CA that Farrales committed no serious or willful misconduct or
disobedience to warrant his dismissal. It is not disputed that Farrales lost no time in returning the
helmet to Reymar the moment he was apprised of his mistake by Eric, which proves, according
to the CA, that he was not possessed of a depravity of conduct as would justify HPCs claimed
loss of trust in him. Farrales immediately admitted his error to the company guard and sought
help to find the owner of the yellow helmet, and this, the appellate court said, only shows that
Farrales did indeed mistakenly think that the helmet he took belonged to Eric.
It is not, then, difficult to surmise that when Farrales told Andy that the yellow helmet was his,
his intent was not to put up a pretence of ownership over it and thus betray his intent to gain, as
the NLRC held, but rather simply to assuage Andys reluctance to heed his passing request to
reach for the helmet for him; Andy, it will be recalled, was at that moment already seated in his
motorbike and about to drive out when Farrales made his request. As to Farrales claim that he
and Eric were neighbors, suffice it to say that as the CA noted, they resided in the same
barangay, and thus, loosely, were neighbors.
The CA also pointed out that although the alleged theft occurred within its premises, HPC was
not prejudiced in any way by Farrales conduct since the helmet did not belong to it but to
Reymar. In light of Article 69, Class A, Item No. 29 of the HPC Code of Discipline, this
observation may be irrelevant, although it may be that the LA regarded it as proving HPCs bad
faith.

Theft committed by an employee against a person other than his employer, if proven by
substantial evidence, is a cause analogous to serious misconduct.34 Misconduct is improper or
wrong conduct, it is the transgression of some established and definite rule of action, a forbidden
act, a dereliction of duty, willful in character, and implies wrongful intent and not mere error in
judgment. The misconduct to be serious must be of such grave and aggravated character and not
merely trivial or unimportant. Such misconduct, however serious, must, nevertheless, be in
connection with the employees work to constitute just cause for his separation.35
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But where there is no showing of a clear, valid and legal cause for termination of employment,
the law considers the case a matter of illegal dismissal.36 If doubts exist between the evidence
presented by the employer and that of the employee, the scales of justice must be tilted in favor
of the latter. The employer must affirmatively show rationally adequate evidence that the
dismissal was for a justifiable cause.37
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Nonetheless, the Court agrees with the CAs dismissal of the award of moral and exemplary
damages for lack of merit. There is no satisfactory proof that the concerned officers of HPC
acted in bad faith or with malice in terminating Farrales. Notwithstanding the LAs assertion to
this effect, Farrales bare allegations of bad faith deserve no credence, and neither is the mere
fact that he was illegally dismissed sufficient to prove bad faith on the part of HPCs officers.38
But concerning the award of attorneys fees, Farrales was dismissed for a flimsy charge, and he
was compelled to litigate to secure what is due him which HPC unjustifiably withheld.
WHEREFORE, premises considered, the petition for review is DENIED.
SO ORDERED.
Velasco, Jr., (Chairperson), Peralta, Villarama, Jr., and Jardeleza, JJ., concur.

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THIRD DIVISION
G.R. No. 205153, September 09, 2015
PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. SUZETTE ARNAIZ A.K.A.
"BABY ROSAL", Accused-Appellant.
DECISION
VILLARAMA, JR., J.:
On appeal is the June 25, 2012 Decision1 of the Court of Appeals (CA) in CA-G.R. CR.-H.C.
No. 04762 affirming the conviction of appellant Suzette Arnaiz a.k.a. "Baby Rosal" for illegal
recruitment in large scale and two counts of estafa.
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Facts
In Criminal Case No. 02-199399, appellant Suzette Arnaiz, Ruel P. Garcia and Chita Lorenzo
were charged with the crime of illegal recruitment committed in large scale and by a syndicate.
In Criminal Case No. 02-199404, appellant and her two co-accused were charged with estafa. In
Criminal Case No. 02-199406, appellant and her two co-accused were also charged with estafa.
Appellant pleaded not guilty to the charges against her. Trial on the merits ensued.
Prosecution witness Edenelda Cayetano testified that she learned that appellant was recruiting
workers for Australia. On December 16, 1999, Cayetano gave appellant P30,000 for the
processing of her papers. She gave another P40,000 on January 19, 2000, P30,000 on February 4,
2000, and $500 on March 8, 2000. However, she was not able to leave for Australia. She then
confronted appellant, who tried to refund the amount by issuing a check for P175,000.
Unfortunately, Cayetano was not able to recover her money since the account was already
closed.2
Witness Napoleon Bunuan testified that in June 2000, he went to appellant's travel agency,
Florida Travel and Tours located in Manila after learning that it was recruiting factory workers
for South Korea. On June 6, 2000, Bunuan gave appellant P45,000 believing that he will be
deployed soon. On June 19, 2000, he gave appellant another P25,000 for which he was issued a
receipt, even though he had no employment contract. Bunuan again paid P20,000 but this time he
was not given a receipt. After paying a total of P90,000, Bunuan discovered that appellant sent
26 persons to Korea but all were sent back to the Philippines. He went to appellant's office only
to find out that it was already padlocked.3
Another witness, Flerminio Cantor, Jr., testified that he went to appellant's office sometime in

May 2000 to apply as a factory worker in Korea. He gave appellant the total amount of P110,000
evidenced by cash vouchers. When he arrived in Korea, he was sent back by the Immigration
Officer after confirming that his visa and passport were fake. Cantor, Jr. reported back to
appellant, who promised that she will change Cantor, Jr.'s name in the passport. He later found
out that appellant was arrested by the National Bureau of Investigation.4
During trial, all the complainants identified appellant in open court as Suzette Arnaiz also known
as Baby/Rosita Rosal to whom they gave their money.5
The Labor and Employment Officer of the Philippine Overseas Employment Administration
(POEA), Mildred N. Versoza, confirmed that based on the records of their office, appellant and
Florida Travel and Tours were not licensed to recruit workers for deployment abroad.6
On the other hand, appellant testified that her office was only a travel agency and they only
processed the issuance of visas in the different embassies in the Philippines. She claimed that
Bunuan went to her office in June 2000 with Julie Landicho, and it was Landicho who recruited
Bunuan and assisted him in getting a visa from their office. Appellant averred that Bunuan went
to their office with Cantor, Jr. who said that his brother in Korea instructed him to get a Korean
visa. Two weeks later, Bunuan and Cantor, Jr. were able to get their visas after paying P65,000,
covering the airfare, consultancy and visa assistance fees. The two were able to leave for Korea
but were held at the airport. Appellant claimed that she was able to refund Bunuan and Cantor, Jr.
the amount of P135,000 each.7 She asserted that the signature appearing on the voucher was that
of her secretary Suzette Arnaiz who is now residing abroad, and insisted that her name is Rosita
Rosal.8
In its Decision,9 the Regional Trial Court (RTC) found appellant guilty of illegal recruitment in
large scale in Criminal Case No. 02-199399. Appellant was sentenced to life imprisonment and
ordered to pay a fine of P500,000. The RTC also found appellant guilty of estafa in Criminal
Case No. 02-199404 and sentenced her to an indeterminate penalty of 4 years and 2 months of
prision correccional as minimum, to 14 years of reclusion temporal as maximum. She was
ordered to pay the amount of P70,000 as payment for the sums paid by Bunuan. The RTC
likewise found appellant guilty of estafa in Criminal Case No. 02-199406 and sentenced her to
an indeterminate penalty of 4 years and 2 months of prision correccional as minimum, to 15
years of reclusion temporal as maximum. She was ordered to pay Cantor, Jr. the amount of
P100,000.
The RTC held that the prosecution was able to establish that appellant undertook recruitment
activities and promised employment abroad to the complainants without a valid license or
authority to engage in recruitment and placement of workers.
On the estafa charges, the RTC noted the elements of the crime of estafa under Article 315(2)(a)
of the Revised Penal Code, as amended, and held that appellant, by her false pretenses that she
can deploy the complainants for work abroad, was able to induce them to part with their money
which caused them damage. We note, however, that the fallo of the RTC Decision convicted
appellant of two counts of estafa under Article 315(1)(b) of the Revised Penal Code, as amended.

Appellant appealed to the CA.


The CA denied the appeal and affirmed the conviction of appellant for illegal recruitment in large
scale and two counts of estafa. However, it reduced the penalty of imprisonment imposed in
Criminal Case No. 02-199404 to an indeterminate penalty of 6 months and 1 day of prision
correccional as minimum, to 10 years of prision mayor as maximum. Appellant was also ordered
to refund to Bunuan the reduced amount of P45,000.
In affirming appellant's conviction for illegal recruitment in large scale, the CA cited the
testimonies of the complainants that appellant led them to believe that she had the power to send
them to work in Korea and Australia. They were required to submit their bio-data and passports.
They were also asked to give substantial amounts of money on several occasions for the
processing of their visas and other documents necessary for deployment. Still, they were not able
to leave the country and work abroad. Efforts to have their money refunded also failed, said the
CA.
On the estafa charges, the CA ruled that the elements of estafa under Article 315(2)(a) of the
Revised Penal Code, as amended, were present. The CA again noted the clear and categorical
testimonies of the complainants that they were made to believe that appellant had the authority to
send them to work in Australia and Korea, for which reason they gave her substantial amounts of
money.
Hence, this appeal.

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Issue
The essential issue is whether appellant's guilt was proven beyond reasonable doubt.

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Our Ruling
We rule in the affirmative. The appeal lacks merit.
Section 6 of Republic Act No. 8042 (RA 8042) defines illegal recruitment as follows:
SEC. 6. Definition. - For purposes of this Act, illegal recruitment shall mean any act of
canvassing, enlisting, contracting, transporting, utilizing, hiring, or procuring workers and
includes referring, contract services, promising or advertising for employment abroad, whether
for profit or not, when undertaken by a non-licensee or non-holder of authority contemplated
under Article 13(f) of Presidential Decree No. 442, as amended, otherwise known as the Labor
Code of the Philippines: Provided, That any such non-licensee or non-holder who, in any
manner, offers or promises for a fee employment abroad to two or more persons shall be deemed
so engaged. It shall likewise include the following acts, whether committed by any person,
whether a non-licensee, non-holder, licensee or holder of authority:
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xxxx
(m) Failure to reimburse expenses incurred by the worker in connection with his documentation
and processing for purposes of deployment, in cases where the deployment does not actually take

place without the worker's fault. Illegal recruitment when committed by a syndicate or in large
scale shall be considered an offense involving economic sabotage.
Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or
more persons conspiring or confederating with one another. It is deemed committed in large scale
if committed against three (3) or more persons individually or as a group.
To constitute illegal recruitment in large scale, three elements must concur: (a) the offender has
no valid license or authority required by law to enable him to lawfully engage in recruitment and
placement of workers; (b) the offender undertakes any of the activities within the meaning of
"recruitment and placement" under Article 13(b) of the Labor Code, or any of the prohibited
practices under Article 34 of the said Code (now Section 6 of RA 8042); and (c) the offender
committed the same against three or more persons, individually or as a group.10
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Article 13(b) of the Labor Code defines recruitment and placement as "any act of canvassing,
enlisting, contracting, transporting, utilizing, hiring or procuring workers; and includes referrals,
contract services, promising or advertising for employment, locally or abroad, whether for profit
or not." In the simplest terms, illegal recruitment is committed by persons who, without authority
from the government, give the impression that they have the power to send workers abroad for
employment purposes.11
The elements of illegal recruitment in large scale were proven in this case. One, appellant has no
valid license or authority to engage in recruitment and placement of workers. The Labor and
Employment Officer of the POEA, Mildred N. Versoza, confirmed that based on the records of
their office, appellant and Florida Travel and Tours were not licensed to recruit workers for
deployment abroad. Two, appellant clearly engaged in recruitment activities and promised
employment abroad to the complainants as proven by their testimonies. Three, appellant
committed illegal recruitment against three persons.
Thus, we uphold appellant's conviction for illegal recruitment in large scale. We also agree with
the RTC and CA in imposing the penalty of life imprisonment and ordering appellant to pay a
fine of P500,000 for being in conformity with Section 712 of RA 8042.
Appellant insists on the veracity of her own testimony in claiming that the prosecution failed to
prove that she is guilty of illegal recruitment in large scale. Her testimony, however, was rejected
by the RTC which found the testimonies of the complainants credible and truthful.13 Settled is the
rule that the findings and conclusion of the trial court on the credibility of witnesses are entitled
to great respect because the trial courts have the advantage of observing the demeanor of
witnesses as they testify.14 The CA likewise believed the complainants' testimonies and found
them to be clear and categorical.15 The determination by the trial court of the credibility of
witnesses, when affirmed by the appellate court, as in this case, is accorded full weight and credit
as well as great respect, if not conclusive effect.16
We also agree with the CA that appellant is guilty of two counts of estafa under Article 315(2)(a)
of the Revised Penal Code, as amended. It is settled that a person may be charged and convicted
separately of illegal recruitment under RA 8042, in relation to the Labor Code, and estafa under

Article 315(2)(a) of the Revised Penal Code.17 Article 315(2)(a) of the Revised Penal Code, as
amended, defines estafa as:
ART. 315. Swindling (estafa). - Any person who shall defraud another by any of the means
mentioned hereinbelow x x x:
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2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
(a) By using a fictitious name, or falsely pretending to possess power, influence, qualifications,
property, credit, agency, business or imaginary transactions; or by means of other similar
deceits.
The elements of estafa are: (a) that the accused defrauded another by abuse of confidence or by
means of deceit, and (b) that damage or prejudice capable of pecuniary estimation is caused to
the offended party or third person.18 These elements were proven in this case. By means of
deceit, appellant made complainants believe that she had the proper authority to send them to
work in Australia and Korea, for which reason they gave her substantial amounts of money.
Appellant clearly misled the complainants who believed she had the power to send them to work
in Australia and Korea. They were required to submit their bio-data and passports, and were
asked to give substantial amounts of money for the processing of their visas and other documents
necessary for deployment. Efforts to recover their money after they were not deployed for the
promised work abroad failed resulting to monetary damages on their part.
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The penalty for estafa depends on the amount defrauded. Per Article 315 of the Revised Penal
Code:
ART. 315. Swindling (estafa). - Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
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1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum
period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if
such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in
its maximum period, adding one year for each additional 10,000 pesos; but the total penalty
which may be imposed shall not exceed twenty years. In such cases, and in connection with the
accessory penalties which may be imposed and for the purpose of the other provisions of this
Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be.
The prescribed penalty for estafa under Article 315 of the Revised Penal Code, when the amount
of fraud is over P12,000 but not exceeding P22,000, is prision correccional maximum to prision
mayor minimum (i.e., from 4 years, 2 months, and 1 day to 8 years). Under the Indeterminate
Sentence Law, the minimum term shall be within the range of the penalty next lower to that
prescribed by the Revised Penal Code, or anywhere within prision correccional minimum and
medium (i.e., from 6 months and 1 day to 4 years and 2 months).19
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The maximum term under the Indeterminate Sentence Law shall be that which, in view of
attending circumstances, could be properly imposed under the rules of the Revised Penal Code.
To compute the minimum, medium, and maximum periods of the prescribed penalty for estafa

when the amount of fraud exceeds P12,000, the time included in prision correccional maximum
to prision mayor minimum shall be divided into three equal portions, with each portion forming
a period. Following this computation, the minimum period for prision correccional maximum to
prision mayor minimum is from 4 years, 2 months and 1 day to 5 years, 5 months and 10 days;
the medium period is from 5 years, 5 months and 11 days to 6 years, 8 months and 20 days; and
the maximum period is from 6 years, 8 months and 21 days to 8 years. Any incremental penalty
(i.e., one year for every P10,000 in excess of P22,000) shall thus be added to anywhere from 6
years, 8 months and 21 days to 8 years, at the discretion of the court, provided that the total
penalty does not exceed 20 years.20
Based on the foregoing discussion, the RTC and the CA correctly sentenced appellant to suffer
an indeterminate penalty of 4 years and 2 months of prision correccional as minimum to 15
years of reclusion temporal as maximum in Criminal Case No. 02-199406. The CA was also
correct in imposing an indeterminate penalty of 6 months and 1 day of prision correccional as
minimum to 10 years of prision mayor as maximum in Criminal Case No. 02-199404.
Interest at the rate of 6% per annum shall also be paid by appellant to Bunuan and Cantor, Jr.
from the time the Informations (February 8, 2002) were filed until the amounts paid by them are
fully paid.21
WHEREFORE, we DISMISS the appeal. We AFFIRM with MODIFICATIONS the Decision
dated June 25, 2012 of the Court of Appeals in CA-G.R. CR.-H.C. No. 04762 to read as follows:
1. In Criminal Case No. 02-199399, appellant Suzette Arnaiz a.k.a. "Baby Rosal" is found
guilty beyond reasonable doubt of the crime of illegal recruitment in large scale and is
hereby sentenced to suffer the penalty of life imprisonment and to pay a fine of P500,000.
2. In Criminal Case No. 02-199404, appellant Suzette Arnaiz a.k.a. "Baby Rosal" is found
guilty beyond reasonable doubt of the crime of estafa under Article 315(2)(a) of the
Revised Penal Code, as amended, and is hereby sentenced to suffer an indeterminate
penalty of 6 months and 1 day of prision correccional as minimum to 10 years of prision
mayor as maximum. Appellant is further ordered to indemnify Napoleon R. Bunuan in
the amount of P45,000 as actual damages, with legal interest of 6% per annum computed
from the filing of the Information, i.e., February 8, 2002, until the amount is fully paid.
3. In Criminal Case No. 02-199406, appellant Suzette Arnaiz a.k.a. "Baby Rosal" is found
guilty beyond reasonable doubt of the crime of estafa under Article 315(2)(a) of the
Revised Penal Code, as amended, and is hereby sentenced to suffer an indeterminate
penalty of 4 years and 2 months of prision correccional as minimum to 15 years of
reclusion temporal as maximum. Appellant is further ordered to indemnify Herminio
Cantor, Jr. in the amount of P100,000 as actual damages, with legal interest of 6% per
annum computed from the filing of the Information, i.e., February 8, 2002, until the
amount is fully paid.
With costs against the appellant.
SO ORDERED.

chanroblesvirtuallawlibrary

Velasco, Jr., (Chairperson), Peralta, Perez,* and Leonen,**JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 208686

July 1, 2015

PEOPLE OF THE PHILIPPINES, Appellee,


vs.
ALELIE TOLENTINO a.k.a. "Alelie Tolentino y Hernandez," Appellant.
DECISION
CARPIO, J.:
This is an appeal from the 29 November 2012 Decision1 of the Court of Appeals in CA-G.R.
CR-HC No. 04558, affirming the trial court's decision, finding appellant Alelie Tolentino
(appellant) guilty beyond reasonable doubt of illegal recruitment and estafa.
The Facts
Appellant was charged with illegal recruitment and five (5) counts of estafa under Article 315,
paragraph 2(a) of the Revised Penal Code. The Informations against appellant read:
CRIM. CASE NO. 02-755
The undersigned Assistant City Prosecutor accuses ALELIE TOLENTINO of the crime of Illegal
Recruitment committed as follows:
That on or about [or sometime in] the last week of August, 2001 and 1st week of November,
2001 and thereafter, in the City of Muntinlupa, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused jointly with NARCISA SANTOS did then and there
willfully, unlawfully and feloniously advertise for employment, enlist, contract and promise
employment to the following persons: LEDERLE PANESA, ORLANDO LAYOSO, JIMMY
LEJOS, MARCELINO LEJOS and DONNA MAGBOO for a fee without first securing license
and/or permit from the government agency concerned.
Contrary to law.2

CRIM. CASE NO. 02-756


The undersigned Assistant City Prosecutor accuses ALELIE TOLENTINO of the crime of Estafa
under Art. 315 Par. 2(a) of the Revised Penal Code, as amended, committed as follows:
That on or about or sometime in the first week of August 2001 and thereafter, in the City of
Muntinlupa, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused, by means of deceit, fraudulent acts and false pretenses executed prior to or
simultaneously with the commission of the fraud, did [then] and there willfully, unlawfully and
feloniously defraud one LEDERLE PANESA, in the following manner: accused represented to
the said complainant that she could secure work for the said complainant at Korea and she is
capable of processing the travel visa and other documents for her travel and employment at
Korea and demanded from the said complainant to pay the amount of P75,000.00 as placement
fee; accused well knew that such representations were false and made only to induce
complainant to part with her money as in fact complainant gave and delivered the amount of
P15,000.00 as partial payment to the accused; and accused once in possession of the said
amount, did then and there willfully, unlawfully and feloniously misappropriate, misapply and
convert the same to her own personal use and benefit to the damage and prejudice of the said
complainant in the amount of P15,000.00.
Contrary to law.3
CRIM. CASE NO. 02-757
The undersigned Assistant City Prosecutor accuses ALELIE TOLENTINO of the crime of Estafa
under Art. 315 Par. 2(a) of the Revised Penal Code, as amended, committed as follows:
That on or about or sometime in the first week of November, 2001 and thereafter, in the City of
Muntinlupa, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused conspiring and confederating with NARCISA SANTOS, and both of them mutually
helping and aiding one another, by means of deceit, fraudulent acts and false pretenses executed
prior to or simultaneously with the commission of the fraud, did [then] and there willfully,
unlawfully and feloniously defraud one ORLANDO LAYOSO, in the following manner: accused
represented to the said complainant that she could secure work for the said complainant at Korea
and she is capable of processing the travel visa and other documents for [his] travel and
employment at Korea and demanded from the said complainant to pay the amount of P80,000.00
as placement fee; accused well knew that such representations were false and made only to
induce complainant to part with [his] money as in fact complainant gave and delivered the
amount of P35,000.00 as partial payment to the accused; and accused once in possession of the
said amount, did then and there willfully, unlawfully and feloniously misappropriate, misapply
and convert the same to her own personal use and benefit to the damage and prejudice of the said
complainant in the amount of P35,000.00.
Contrary to law.4
CRIM. CASE NO. 02-758

The undersigned Assistant City Prosecutor accuses ALELIE TOLENTINO of the crime of Estafa
under Art. 315 Par. 2(a) of the Revised Penal Code, as amended, committed as follows:
That on or about or sometime in the first week of November, 2001 and thereafter, in the City of
Muntinlupa, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused conspiring and confederating with NARCISA SANTOS, and both of them mutually
helping and aiding one another, by means of deceit, fraudulent acts and false pretenses executed
prior to or simultaneously with the commission of the fraud, did [then] and there willfully,
unlawfully and feloniously defraud one DONNA MAGBOO, in the following manner: accused
represented to the said complainant that she could secure work for the said complainant at Korea
and she is capable of processing the travel visa and other documents for her travel and
employment at Korea and demanded from the said complainant to pay the amount of P80,000.00
as placement fee; accused well knew that such representations were false and made only to
induce complainant to part with her money as in fact complainant gave and delivered the amount
of P35,000.00 as partial payment to the accused; and accused once in possession of the said
amount, did then and there willfully, unlawfully and feloniously misappropriate, misapply and
convert the same to her own personal use and benefit to the damage and prejudice of the said
complainant in the amount of P35,000.00.
Contrary to law.5
CRIM. CASE NO. 02-759
The undersigned Assistant City Prosecutor accuses ALELIE TOLENTINO of the crime of Estafa
under Art. 315 Par. 2(a) of the Revised Penal Code, as amended, committed as follows: That on
or about or sometime in the first week of November, 2001 and thereafter, in the City of
Muntinlupa, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused conspiring and confederating with NARCISA SANTOS, and both of them mutually
helping and aiding one another, by means of deceit, fraudulent acts and false pretenses executed
prior to or simultaneously with the commission of the fraud, did [then] and there willfully,
unlawfully and feloniously defraud one JIMMY LEJOS, in the following manner: accused
represented to the said complainant that she could secure work for the said complainant at Korea
and she is capable of processing the travel visa and other documents for [his] travel and
employment at Korea and demanded from the said complainant to pay the amount of P80,000.00
as placement fee; accused well knew that such representations were false and made only to
induce complainant to part with [his] money as in fact complainant gave and delivered the
amount of P35,000.00 as partial payment to the accused; and accused once in possession of the
said amount, did then and there willfully, unlawfully and feloniously misappropriate, misapply
and convert the same to her own personal use and benefit to the damage and prejudice of the said
complainant in the amount of P35,000.00.
Contrary to law.6
CRIM. CASE NO. 02-760

The undersigned Assistant City Prosecutor accuses ALELIE TOLENTINO of the crime of Estafa
under Art. 315 Par. 2(a) of the Revised Penal Code, as amended, committed as follows:
That on or about or sometime in the first week of November, 2001 and thereafter, in the City of
Muntinlupa, Philippines and within the jurisdiction of this Honorable Court, the above-named
accused conspiring and confederating with NARCISA SANTOS, and both of them mutually
helping and aiding one another, by means of deceit, fraudulent acts and false pretenses executed
prior to or simultaneously with the commission of the fraud, did [then] and there willfully,
unlawfully and feloniously defraud one MARCELINO LEJOS, in the following manner: accused
represented to the said complainant that she could secure work for the said complainant at Korea
and she is capable of processing the travel visa and other documents for [his] travel and
employment at Korea and demanded from the said complainant to pay the amount of P80,000.00
as placement fee; accused well knew that such representations were false and made only to
induce complainant to part with [his] money as in fact complainant gave and delivered the
amount of P20,000.00 as partial payment to the accused; and accused once in possession of the
said amount, did then and there willfully, unlawfully and feloniously misappropriate, misapply
and convert the same to her own personal use and benefit to the damage and prejudice of the said
complainant in the amount of P20,000.00.
Contrary to law.7
Private complainants Orlando Layoso, Donna Magboo, Jimmy Lejos, and Marcelino Lejos8
alleged that sometime in the first week of November 2001, they had a meeting with appellant
Alelie Tolentino (appellant) in her office at the 3rd floor, Arevalo Building, Alabang, Muntinlupa
City. Appellant told them the procedure for overseas employment and offered them assistance to
find work abroad for a fee of P80,000. Appellant showed them pictures of those she allegedly
helped find work abroad and told them that they would be earning $630 monthly as factory
workers in Korea. When asked about her license to recruit overseas workers, appellant told
private complainants that she would show it to them at some other time. On 14 November 2001,
private complainants again met with appellant at her office and each of them gave appellant
P20,000 as partial payment of the agreed fee, which included expenses for medical examination
and processing of their documents for work in Korea. Appellant promised to secure their visas
and employment contracts within three months.
On 30 January 2002, private complainants met with appellant, who was accompanied by a
certain Narcisa Santos, at Wendys in Arquiza Street, Manila for signing of contract. However,
the names written on the employment contracts were not private complainants names. Appellant
explained that the contracts were supposedly for other applicants who sought her services but
later backed out. Appellant assured them that original contracts bearing their names would
subsequently be provided. Private complainants signed the contracts and paid P15,000 each as
their second partial payment.
On 7 February 2002, private complainants received information that the Criminal Investigation
and Detection Group arrested appellant for illegal recruitment. When private complainants
confronted appellant at the Manila City Hall where she was held, they demanded the return of
their payments amounting to P35,000 each, except for Marcelino Lejos whose total payment

only amounted to P20,000. Appellant denied the charges against her and promised them that they
would get their money back. Subsequently, private complainants were able to secure a
certification from the Philippine Overseas Employment Administration (POEA) that appellant
was not licensed to recruit workers for overseas employment.
Another complainant, Lederle Panesa, alleged that in August 2001, she met with appellant, who
offered her work in Korea for a placement fee of P75,000. On 7 September 2001, Panesa gave
appellant P15,000 as initial payment. Appellant assured Panesa that she would be leaving for
Korea on the second week of November 2001 and that the balance of the placement fee could be
paid upon her receipt of the visa. However, after said meeting, Panesa no longer heard from
appellant, which prompted Panesa to visit appellants office. Appellant informed Panesa that
there were no job openings in Korea at that time. Appellant offered Panesa employment in other
countries such as Malaysia and Palau, but Panesa refused the offer and demanded the return of
her money. Nevertheless, appellant was able to persuade Panesa to wait until December 2001.
Appellant never contacted Panesa thereafter. On 7 February 2002,Panesa was informed that
appellant was apprehended for illegal recruitment. Panesa proceeded to the Office of the City
Prosecutor in Manila, but failed to confront appellant. It was only then that Panesa learned about
appellant not being authorized by the POEA to recruit workers for overseas employment.
For the defense, appellant was presented as the lone witness. Appellant denied the charges
against her. She testified that she was introduced to private complainants by a certain Cezar
Manonson and that the owner of the office she is renting is her relative. Private complainants
allegedly sought her help regarding possible work in Korea and that she merely explained the
procedure for overseas employment to them. She was hesitant to help them because she does not
recruit workers as she herself was also applying for work as factory worker through Narcisa
Santos. She admitted having received money from private complainants and issuing receipts for
the payments, upon instructions from Narcisa Santos. She confirmed her signature on the petty
cash vouchers she issued to private complainants, evidencing their payments. She testified that
she gave the payments to Narcisa Santos. However, she admitted that she does not have proof
that she indeed turned over the money to Narcisa Santos.
On 9 June 2010, the trial court rendered a decision, the dispositive portion of which reads:
WHEREFORE, the Court finds accused Alelie (also known as Alelie Tolentino) guilty beyond
reasonable doubt of the offense of large scale illegal recruitment, which constitutes economic
sabotage in Criminal Case Case No. 02-755 and sentences her to life imprisonment and to pay a
fine of P500,000.00; and five counts of estafa under Article 315 2(a) of the Revised Penal Code,
as amended, in the following criminal cases and sentences her, as follows:
In Criminal Case No. 02-756, an indeterminate penalty of six months of arresto mayor in its
maximum to four years two months and one day of prision correccional in its maximum as the
maximum period, and to pay the private complainant the amount of P5,000.00 as and for moral
damages. Accused is further ordered to return the amount of P15,000.00 she illegally collected
from the private complainant.
In Criminal Case Nos. 02-757, 02-758 and 02-759, an indeterminate penalty [of] six months of
arresto mayor in its maximum to twelve years of prision mayor in its maximum, and to pay the

private complainants individually each in the amount of P15,000.00 as and for moral damages.
Accused is further ordered to return the amount of P35,000.00 she illegally collected each from
the private complainants.
In Criminal Case No. 02-760, an indeterminate penalty of six months of arresto mayor in its
maximum as the minimum period to six years and one day of prision mayor in its minimum as
the maximum period, and to pay the private complainant the amount of P8,000.00 as and for
moral damages. Accused is further ordered to return the amount of P20,000.00 she illegally
collected from the private complainant.
Her full period of preventive imprisonment shall be credited in her favor in accordance with
Article 29 of the Revised Penal Code.
SO ORDERED.9
The Ruling of the Court of Appeals
On appeal, the Court of Appeals affirmed the trial courts decision. The Court of Appeals held
that the prosecution adequately proved that appellant engaged in illegal recruitment in large
scale. The Court of Appeals noted that appellant admitted that she had no authority or valid
license to engage in recruitment and placement of workers. The testimonies and the documentary
evidence submitted by the prosecution showed that appellant led complainants to believe that she
had the power or ability to send private complainants to Korea to work as factory workers and
that the latter were convinced to give their payment to appellant in order to be employed.
Appellant even issued petty cash vouchers acknowledging receipt of private complainants
payment and she made them sign Trainee Agreements, which were purportedly their contract
with their Korean employer. Based on the facts and evidence presented, the Court of Appeals
concluded that appellant clearly engaged in illegal recruitment activities. Appellants claim that it
was Narcisa Santos who recruited the private complainants and who profited from the illegal
transaction was disregarded by the Court of Appeals for lack of evidence. The Court of Appeals
noted that it was appellant who dealt directly with private complainants.
On the charge of estafa, the Court of Appeals likewise upheld appellants conviction for said
crime. The evidence presented to prove appellants liability for illegal recruitment also
established her liability for estafa. The Court of Appeals ruled that a person may be charged and
convicted separately of illegal recruitment under Republic Act No. 8042 (RA 8042) in relation to
the Labor Code, and estafa under Article 315, paragraph 2(a) of the Revised Penal Code.
Hence, this appeal.
The Court's Ruling
We find the appeal without merit. The Court of Appeals was correct in affirming the ruling of the
trial court that the appellants guilt of the crimes she was accused of was clearly established by
the witnesses and the evidence of the prosecution.

Illegal Recruitment in Large Scale


Article 13(b) of the Labor Code defines recruitment and placement as "any act of canvassing,
enlisting, contracting, transporting, utilizing, hiring or procuring workers, and includes referrals,
contract services, promising or advertising for employment, locally or abroad, whether for profit
or not."
Illegal recruitment, on the other hand is defined under Article 38 of the Labor Code as follows:
ART. 38. Illegal Recruitment
(a) Any recruitment activities, including the prohibited practices enumerated under
Article 34of this Code, to be undertaken by non-licensees or non-holders of authority
shall be deemed illegal and punishable under Article 39 of this Code. The Department of
Labor and Employment or any law enforcement officer may initiate complaints under this
Article.
(b) Illegal recruitment when committed by a syndicate or in large scale shall be
considered an offense involving economic sabotage and shall be penalized in accordance
with Article 39 hereof. Illegal recruitment is deemed committed by a syndicate if carried
out by a group of three (3) or more persons conspiring and/or confederating with one
another in carrying out any unlawful or illegal transaction, enterprise or scheme defined
under the first paragraph hereof. Illegal recruitment is deemed committed in large scale if
committed against three (3) or more persons individually or as a group.
(c) The Secretary of Labor and Employment or his duly authorized representatives shall
have the power to cause the arrest and detention of such non-licensee or non-holder of
authority if after investigation it is determined that his activities constitute a danger to
national security and public order or will lead to further exploitation of job-seekers. The
Secretary shall order the search of the office or premises and seizure of documents,
paraphernalia, properties and other implements used in illegal recruitment activities and
the closure of companies, establishments and entities found to be engaged in the
recruitment of workers for overseas employment, without having been licensed or
authorized to do so. (Emphases supplied)
Illegal recruitment, as defined under Article 38 of the Labor Code, encompasses recruitment
activities for both local and overseas employment. However, illegal recruitment under this article
is limited to recruitment activities undertaken by non-licensees or non-holders of authority.10
Thus, under the Labor Code, to constitute illegal recruitment in large scale, three elements must
concur:
1. The accused undertook any recruitment activity defined under Art. 13 (b) or any
prohibited practice enumerated under Art. 34 of the Labor Code.
2. He did not have the license or the authority to lawfully engage in the recruitment and
placement of workers.

3. He committed the same against three or more persons, individually or as a group.11


RA 8042,12 otherwise known as the "Migrant Workers and Overseas Filipinos Act of 1995,"
established a higher standard of protection and promotion of the welfare of the migrant workers,
their families and overseas Filipinos in distress. RA 8042 also broadened the concept of illegal
recruitment for overseas employment and increased the penalties, especially for Illegal
Recruitment in Large Scale and Illegal Recruitment Committed by a Syndicate, which are
considered offenses involving economic sabotage.13 Part II of RA 8042 defines and penalizes
illegal recruitment for employment abroad, whether undertaken by a non-licensee or non-holder
of authority or by a licensee or holder of authority.
Section 6 of RA 8042 provides for the definition of illegal recruitment, while Section 7
enumerates the penalties therefor, thus:
SEC. 6. Definition. For purposes of this Act, illegal recruitment shall mean any act of
canvassing, enlisting, contracting, transporting, utilizing, hiring, or procuring workers and
includes referring, contract services, promising or advertising for employment abroad, whether
for profit or not, when undertaken by a non-licensee or non-holder of authority contemplated
under Article 13(f) of Presidential Decree No. 442, as amended, otherwise known as the Labor
Code of the Philippines: Provided, That any such non-licensee or non-holder who, in any
manner, offers or promises for a fee employment abroad for two or more persons shall be
deemed so engaged. It shall likewise include the following acts, whether committed by any
person, whether a non-licensee, non-holder, licensee or holder of authority:
(a) To charge or accept directly or indirectly any amount greater than that specified in the
schedule of allowable fees prescribed by the Secretary of Labor and Employment, or to
make a worker pay any amount greater than that actually received by him as a loan or
advance;
(b) To furnish or publish any false notice or information or document in relation to
recruitment or employment;
(c) To give any false notice, testimony, information or document or commit any act of
misrepresentation for the purpose of securing a license or authority under the Labor
Code;
(d) To induce or attempt to induce a worker already employed to quit his employment in
order to offer him another unless the transfer is designed to liberate a worker from
oppressive terms and conditions of employment;
(e) To influence or attempt to influence any person or entity not to employ any worker
who has not applied for employment through his agency;
(f) To engage in the recruitment or placement of workers in jobs harmful to public health
or morality or to the dignity of the Republic of the Philippines;

(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and


Employment or by his duly authorized representative;
(h) To fail to submit reports on the status of employment, placement vacancies,
remittance of foreign exchange earnings, separation from jobs, departures and such other
matters or information as may be required by the Secretary of Labor and Employment;
(i) To substitute or alter to the prejudice of the worker, employment contracts approved
and verified by the Department of Labor and Employment from the time of actual signing
thereof by the parties up to and including the period of the expiration of the same without
the approval of the Department of Labor and Employment;
(j) For an officer or agent of a recruitment or placement agency to become an officer or
member of the Board of any corporation engaged in travel agency or to be engaged
directly or indirectly in the management of a travel agency;
(k) To withhold or deny travel documents from applicant workers before departure for
monetary or financial considerations other than those authorized under the Labor Code
and its implementing rules and regulations;
(l) Failure to actually deploy without valid reason as determined by the Department of
Labor and Employment; and
(m) Failure to reimburse expenses incurred by the worker in connection with his
documentation and processing for purposes of deployment, in cases where the
deployment does not actually take place without the workers fault. Illegal recruitment
when committed by a syndicate or in large scale shall be considered an offense involving
economic sabotage.
Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or
more persons conspiring or confederating with one another. It is deemed committed in large scale
if committed against three (3) or more persons individually or as a group.
The persons liable for the above offenses are the principals, accomplices and accessories. In case
of juridical persons, the officers having control, management or direction of their business shall
be liable.
SEC. 7. Penalties.
(a) Any person found guilty of illegal recruitment shall suffer the penalty of
imprisonment of not less than six (6) years and one (1) day but not more than twelve (12)
years and a fine of not less than Two hundred thousand pesos (P200,000.00) nor more
than Five hundred thousand pesos (P500,000.00).

(b) The penalty of life imprisonment and a fine of not less than Five hundred thousand
pesos (P500,000.00) nor more than One million pesos (P1,000,000.00) shall be imposed
if illegal recruitment constitutes economic sabotage as defined herein.
Provided, however, That the maximum penalty shall be imposed If the person illegally recruited
is less than eighteen (18) years of age or committed by a non-licensee or non-holder of authority.
(Emphases supplied)
Unlike illegal recruitment as defined under the Labor Code which is limited to recruitment
activities undertaken by non-licensees or non-holders of authority, under Article 6 of RA 8042,
illegal recruitment (for overseas employment) may be committed not only by non-licensees or
non-holders of authority but also by licensees or holders of authority. Article 6 enumerates
thirteen acts or practices [(a) to (m)] which constitute illegal recruitment, whether committed by
any person, whether a non-licensee, non-holder, licensee or holder of authority. Except for the
last two acts [(l) and (m)] on the list under Article 6 of RA8042, the first eleven acts or practices
are also listed in Article 3414 of the Labor Code under the heading "Prohibited practices." Thus,
under Article 34 of the Labor Code, it is unlawful for any individual, entity, licensee or holder of
authority to engage in any of the enumerated prohibited practices, but such acts or practices do
not constitute illegal recruitment when undertaken by a licensee or holder of authority. However,
under Article 38(A) of the Labor Code, when a non-licensee or non-holder of authority
undertakes such "prohibited practices," he or she is liable for illegal recruitment. RA 8042
broadened the definition of illegal recruitment for overseas employment by including thirteen
acts or practices which now constitute as illegal recruitment, whether committed by a nonlicensee, non-holder, licensee or holder of authority.
Under RA 8042, a non-licensee or non-holder of authority commits illegal recruitment for
overseas employment in two ways: (1) by any act of canvassing, enlisting, contracting,
transporting, utilizing, hiring, or procuring workers, and includes referring, contract services,
promising or advertising for employment abroad, whether for profit or not; and (2) by
undertaking any of the acts enumerated under Section 6 of RA 8042. On the other hand, a
licensee or holder of authority is also liable for illegal recruitment for overseas employment
when he or she undertakes any of the thirteen acts or practices [(a) to (m)] listed under Section 6
of RA 8042. To constitute illegal recruitment in large scale, the offense of illegal recruitment
must be committed against three or more persons, individually or as a group.
In this case, the prosecution sufficiently proved that appellant engaged in large-scale illegal
recruitment.
First, appellant is a non-licensee or non-holder of authority. Part of the evidence submitted by the
prosecution is a POEA Certification15 dated 10 March 2003, stating that appellant is not licensed
by the POEA to recruit workers for overseas employment. Appellant admitted that she has no
valid license or authority required by law to lawfully engage in recruitment and placement of
workers.
Second, despite the absence of a license or authority to undertake recruitment activities,
appellant gave the impression that she has the power or ability to secure work for private

complainants in Korea. Private complainants Orlando Layoso, Donna Magboo, and Jimmy Lejos
all testified that appellant promised them work as factory workers in Korea and induced them to
pay placement fees, which included the expenses for medical examination and the processing of
their documents for work in Korea. Appellant even showed pictures of previous applicants,
whom she allegedly helped find work abroad. Appellant also explained to them the procedure for
overseas employment and promised them that she would secure their visas and employment
contracts within three months. The testimonies of Orlando Layoso, Donna Magboo, and Jimmy
Lejos were corroborated by private respondents Marcelino Lejos and Lederle Panesa, whose
Affidavits of Complaint were adopted as their direct testimonies.
This Court has held in several cases that an accused who represents to others that he could send
workers abroad for employment, even without the authority or license to do so, commits illegal
recruitment.16
Third, there are at least three victims in this case which makes appellant liable for large-scale
illegal recruitment.
Appellant denies that she gave private complainants the distinct impression that she had the
power or ability to send them abroad for work. She insists that she herself had been applying
then as a factory worker in Korea through Narcisa Santos, who had previously deployed her as
domestic helper in Hongkong. Although appellant admits having received payments from private
complainants and issuing receipts, she submits that she did so only upon the instructions of
Narcisa Santos, to whom she turned over the money collected from private complainants.
The Court is not swayed by appellants contentions. As found by the trial court and the appellate
court, it was clearly established that appellant dealt directly with the private complainants: she
explained to them the procedure for overseas employment; she charged them placement fees to
cover their medical examination and the processing of their travel documents; she issued petty
cash vouchers with her signature, acknowledging receipts of their payments; she promised the
eventual release of their visas and employment contracts; and she made them sign Trainee
Agreements, purportedly their contract with their Korean employer. Clearly, appellant, despite
being a non-licensee or non-holder of authority, engaged in recruitment activities, making her
liable for illegal recruitment.
Well-settled is the rule that the trial court, having the opportunity to observe the witnesses and
their demeanor during the trial, can best assess the credibility of the witnesses and their
testimonies.17 Appellants mere denial cannot prevail over the positive and categorical
testimonies of the complainants.18 The trial courts findings are accorded great respect unless the
trial court has overlooked or misconstrued some substantial facts, which if considered might
affect the result of the case.19 Furthermore, factual findings of the trial court, when affirmed by
the Court of Appeals, are deemed binding and conclusive.20
Thus, we affirm the finding of both the trial court and the appellate court that appellant is guilty
beyond reasonable doubt of illegal recruitment in large scale. However, we modify the penalty
imposed.

The penalty imposed by the trial court in this case for large-scale illegal recruitment, which
constitutes economic sabotage, is life imprisonment and a fine of P500,000. Section 7 of RA
8042 provides that the penalty of life imprisonment and a fine of not less than P500,000 nor
more than P1,000,000 shall be imposed if illegal recruitment constitutes economic sabotage. Said
article further provides that the maximum penalty shall be imposed if committed by a nonlicensee or non-holder of authority. Thus, the proper penalty in this case is life imprisonment and
a fine of P1,000,000.
Estafa
We likewise affirm appellants conviction for five counts of estafa under Article 315(2)(a) of the
Revised Penal Code. It is settled that a person, for the same acts, may be convicted separately for
illegal recruitment under RA 8042 (or the Labor Code), and estafa under Article 315(2)(a)21 of
the Revised Penal Code.22
The elements of estafa are: (1) the accused defrauded another by abuse of confidence or by
means of deceit; and (2) the offended party or a third party suffered damage or prejudice capable
of pecuniary estimation.23 In this case, the prosecution proved beyond reasonable doubt that
appellant deceived private complainants into believing that she had the authority and capability
to send them to Korea for employment, despite her not being licensed by the POEA to recruit
workers for overseas employment. She even showed them pictures of past applicants whom she
allegedly sent abroad for work. She also assured them that she would be able to secure their visas
and employment contracts once they pay the placement fee. Because of the assurances given by
appellant, private complainants paid appellant a portion of the agreed placement fee, for which
appellant issued petty cash vouchers24 with her signature, evidencing her receipt of the
payments. Clearly, these acts of appellant constitute estafa punishable under Article 315 (2)(a) of
the Revised Penal Code.
The penalty for estafa depends on the amount defrauded. Article 315 of the Revised Penal Code
provides:
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum
period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos, and if
such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in
its maximum period, adding one year for each additional 10,000 pesos; but the total penalty
which may be imposed shall not exceed twenty years. In such cases, and in connection with the
accessory penalties which may be imposed and for the purpose of the other provisions of this
Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be;
xxxx
Thus, when the amount of fraud is over P12,000 but not exceeding P22,000, the penalty imposed
is prision correccional in its maximum period to prision mayor in its minimum period, i.e., from

4 years, 2 months and 1 day to 8 years. Under the Indeterminate Sentence Law, the minimum
term shall be within the range of the penalty next lower to that prescribed by the Revised Penal
Code, which is prision correccional in its minimum to medium period. The time included in this
penalty is from 6 months and 1 day to 4 years and 2 months.
When the amount of fraud exceeds P22,000, the penalty shall be imposed in its maximum period,
and adding one year for every P10,000 in excess of P22,000. But, the total penalty imposed
should not exceed 20 years. The maximum term under the Indeterminate Sentence Law is that
which, in view of the attending circumstances, could be properly imposed under the Revised
Penal Code. The range of penalty under Article 315 is composed of only two periods. To
compute the maximum period of the indeterminate sentence, the total number of years included
in the two periods should be divided into three equal portions, with each portion forming a
period. Following this computation, the minimum, medium, and maximum periods of the
prescribed penalty are:
1. Minimum Period 4 years, 2 months and 1 day to 5 years, 5 months and 10 days;
2. Medium Period 5 years, 5 months and 11 days to 6 years, 8 months and 20 days;
3. Maximum Period 6 years, 8 months and 21 days to 8 years.
Any incremental penalty, i.e. one year for every P10,000 in excess of P22,000, shall be added to
anywhere from6 years, 8 months and 21 days to 8 years, at the courts discretion, provided the
total penalty does not exceed 20 years.25
We find that the penalty imposed by the trial court, and affirmed by the appellate court, is not in
accord with the penalty prescribed.1wphi1 The trial court erroneously imposed the minimum
period of "six months of arresto mayor in its maximum." Hence, we modify the penalty imposed
on the five counts of estafa and we delete the moral damages awarded for having no basis in law.
Considering the number of victims defrauded, we find that a minimum period of 2 years of
prision correccional is appropriate.
In Criminal Case No. 02-756, where the amount defrauded is P15,000, and in the absence of any
mitigating or aggravating circumstance, the maximum term shall be taken from the medium
period of the penalty prescribed (i.e. 5 years, 5 months and 11 days to 6 years, 8 months and 20
days). Appellant should be sentenced to 2 years of prision correccional as minimum to 6 years
and 1 day of prision mayor as maximum.
In Criminal Case Nos. 02-757, 02-758, and 02-759, where the amount defrauded is P35,000
each, the maximum period (anywhere from 6 years, 8 months and 21 days to 8 years) shall be
imposed, plus the incremental penalty of one year (additional 1 year imprisonment for the
P10,000 in excess of P22,000). We fix the maximum term at 7 years of prision mayor. Adding
the incremental penalty of 1 year to the maximum term, appellant should be sentenced in each of
these cases to 2 years of prision correccional as minimum to 8 years of prision mayor as
maximum.

In Criminal Case No. 02-760, where the amount defrauded is P20,000, appellant should be
sentenced to 2 years of prision correccional as minimum to 6 years and 1 day of prision mayor as
maximum.
Furthermore, appellant should indemnify private complainants for the amounts paid to her, with
legal interest at the rate of 6% per annum, from the time of demand, which shall be deemed as
the same day the Informations were filed against appellant, until the amounts are fully paid.26
WHEREFORE, we AFFIRM WITH MODIFICATIONS the Decision dated 29 November 2012
of the Court of Appeals in CA-G.R. CRHC No. 04558 to read as follows:
1. In Criminal Case No. 02-755, appellant Alelie Tolentino is found GUILTY beyond
reasonable doubt of illegal recruitment in large scale, constituting economic sabotage, as
defined and penalized in Section 6 and Section 7(b) of RA 8042. She is sentenced to
suffer the penalty of life imprisonment and is ordered to pay a fine of One Million Pesos
(P1,000,000).
2. In Criminal Case No. 02-756, appellant Alelie Tolentino is found GUILTY beyond
reasonable doubt of estafa, as defined and penalized in Article 315(2)(a) of the Revised
Penal Code. She is sentenced to suffer the indeterminate penalty of 2 years of prision
correccional as minimum to 6 years and 1 day of prision mayor as maximum. She is
ordered to indemnify private complainant Lederle Panesa in the amount of Fifteen
Thousand Pesos (P15,000) as actual damages, with legal interest of six percent (6%) per
annum from 28 June 2002, until the said amount is fully paid.
3. In Criminal Case No. 02-757, appellant Alelie Tolentino is found GUILTY beyond
reasonable doubt of estafa, as defined and penalized in Article 315(2)(a) of the Revised
Penal Code. She is sentenced to suffer the indeterminate penalty of 2 years of prision
correccional as minimum to 8 years of prision mayor as maximum. She is ordered to
indemnify private complainant Orlando Layoso in the amount of Thirty Five Thousand
Pesos (P35,000) as actual damages, with legal interest of six percent (6%) per annum
from 28 June 2002, until the said amount is fully paid.
4. In Criminal Case No. 02-758,appellant Alelie Tolentino is found GUILTY beyond
reasonable doubt of estafa, as defined and penalized in Article 315(2)(a) of the Revised
Penal Code. She is sentenced to suffer the indeterminate penalty of 2 years of prision
correccional as minimum to 8 years of prision mayor as maximum. She is ordered to
indemnify private complainant Donna Magboo in the amount of Thirty Five Thousand
Pesos (P35,000) as actual damages, with legal interest of six percent (6%) per annum
from 28 June 2002, until the said amount is fully paid.
5. In Criminal Case No. 02-759, appellant Alelie Tolentino is found GUILTY beyond
reasonable doubt of estafa, as defined and penalized in Article 315(2)(a) of the Revised
Penal Code. She is sentenced to suffer the indeterminate penalty of 2 years of prision
correccional as minimum to 8 years of prision mayor as maximum. She is ordered to
indemnify private complainant Jimmy Lejos in the amount of Thirty Five Thousand

Pesos (P35,000) as actual damages, with legal interest of six percent (6%) per annum
from 28 June 2002, until the said amount is fully paid.
6. In Criminal Case No. 02-760, appellant Alelie Tolentino is found GUILTY beyond
reasonable doubt of estafa, as defined and penalized in Article 315(2)(a) of the Revised
Penal Code. She is sentenced to suffer the indeterminate penalty of 2 years of prision
correccional as minimum to 6 years and 1 day of prision mayor as maximum. She is
ordered to indemnify private complainant Marcelino Lejos in the amount of Twenty
Thousand Pesos (P20,000) as actual damages, with legal interest of six percent (6%) per
annum from 28 June 2002, until the said amount is fully paid.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 201298

February 5, 2014

RAUL C. COSARE, Petitioner,


vs.
BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.
DECISION
REYES, J.:
Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court,
which assails the Decision2 dated November 24, 2011 and Resolution3 dated March 26, 2012 of
the Court of Appeals (CA) in CA-G.R. SP. No. 117356, wherein the CA ruled that the Regional
Trial Court (RTC), and not the Labor Arbiter (LA), had the jurisdiction over petitioner Raul C.
Cosare's (Cosare) complaint for illegal dismissal against Broadcom Asia, Inc. (Broadcom) and
Dante Arevalo (Arevalo), the President of Broadcom (respondents).
The Antecedents

The case stems from a complaint4 for constructive dismissal, illegal suspension and monetary
claims filed with the National Capital Region Arbitration Branch of the National Labor Relations
Commission (NLRC) by Cosare against the respondents.
Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo, who
was then in the business of selling broadcast equipment needed by television networks and
production houses. In December 2000, Arevalo set up the company Broadcom, still to continue
the business of trading communication and broadcast equipment. Cosare was named an
incorporator of Broadcom, having been assigned 100 shares of stock with par value of P1.00 per
share.5 In October 2001, Cosare was promoted to the position of Assistant Vice President for
Sales (AVP for Sales) and Head of the Technical Coordination, having a monthly basic net salary
and average commissions of P18,000.00 and P37,000.00, respectively.6
Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcoms Vice President for Sales
and thus, became Cosares immediate superior. On March 23, 2009, Cosare sent a confidential
memo7 to Arevalo to inform him of the following anomalies which were allegedly being
committed by Abiog against the company: (a) he failed to report to work on time, and would
immediately leave the office on the pretext of client visits; (b) he advised the clients of
Broadcom to purchase camera units from its competitors, and received commissions therefor; (c)
he shared in the "under the-table dealings" or "confidential commissions" which Broadcom
extended to its clients personnel and engineers; and (d) he expressed his complaints and disgust
over Broadcoms uncompetitive salaries and wages and delay in the payment of other benefits,
even in the presence of office staff. Cosare ended his memo by clarifying that he was not
interested in Abiogs position, but only wanted Arevalo to know of the irregularities for the
corporations sake.
Apparently, Arevalo failed to act on Cosares accusations. Cosare claimed that he was instead
called for a meeting by Arevalo on March 25, 2009, wherein he was asked to tender his
resignation in exchange for "financial assistance" in the amount of P300,000.00.8 Cosare refused
to comply with the directive, as signified in a letter9 dated March 26, 2009 which he sent to
Arevalo.
On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcoms Manager
for Finance and Administration, a memo10 signed by Arevalo, charging him of serious
misconduct and willful breach of trust, and providing in part:
1. A confidential memo was received from the VP for Sales informing me that you had
directed, or at the very least tried to persuade, a customer to purchase a camera from
another supplier. Clearly, this action is a gross and willful violation of the trust and
confidence this company has given to you being its AVP for Sales and is an attempt to
deprive the company of income from which you, along with the other employees of this
company, derive your salaries and other benefits. x x x.
2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned in
another place outside of the office without proper turnover from you to this office which
had assigned said vehicle to you. The vehicle was found to be inoperable and in very bad

condition, which required that the vehicle be towed to a nearby auto repair shop for
extensive repairs.
3. You have repeatedly failed to submit regular sales reports informing the company of
your activities within and outside of company premises despite repeated reminders.
However, it has been observed that you have been both frequently absent and/or tardy
without proper information to this office or your direct supervisor, the VP for Sales Mr.
Alex Abiog, of your whereabouts.
4. You have been remiss in the performance of your duties as a Sales officer as evidenced
by the fact that you have not recorded any sales for the past immediate twelve (12)
months. This was inspite of the fact that my office decided to relieve you of your duties
as technical coordinator between Engineering and Sales since June last year so that you
could focus and concentrate [on] your activities in sales.11
Cosare was given forty-eight (48) hours from the date of the memo within which to present his
explanation on the charges. He was also "suspended from having access to any and all company
files/records and use of company assets effective immediately."12 Thus, Cosare claimed that he
was precluded from reporting for work on March 31, 2009, and was instead instructed to wait at
the offices receiving section. Upon the specific instructions of Arevalo, he was also prevented
by Villareal from retrieving even his personal belongings from the office.
On April 1, 2009, Cosare was totally barred from entering the company premises, and was told to
merely wait outside the office building for further instructions. When no such instructions were
given by 8:00 p.m., Cosare was impelled to seek the assistance of the officials of Barangay San
Antonio, Pasig City, and had the incident reported in the barangay blotter.13
On April 2, 2009, Cosare attempted to furnish the company with a Memo14 by which he
addressed and denied the accusations cited in Arevalos memo dated March 30, 2009. The
respondents refused to receive the memo on the ground of late filing, prompting Cosare to serve
a copy thereof by registered mail. The following day, April 3, 2009, Cosare filed the subject
labor complaint, claiming that he was constructively dismissed from employment by the
respondents. He further argued that he was illegally suspended, as he placed no serious and
imminent threat to the life or property of his employer and co-employees.15
In refuting Cosares complaint, the respondents argued that Cosare was neither illegally
suspended nor dismissed from employment. They also contended that Cosare committed the
following acts inimical to the interests of Broadcom: (a) he failed to sell any broadcast
equipment since the year 2007; (b) he attempted to sell a Panasonic HMC 150 Camera which
was to be sourced from a competitor; and (c) he made an unauthorized request in Broadcoms
name for its principal, Panasonic USA, to issue an invitation for Cosares friend, one Alex
Paredes, to attend the National Association of Broadcasters Conference in Las Vegas, USA.16
Furthermore, they contended that Cosare abandoned his job17 by continually failing to report for
work beginning April 1, 2009, prompting them to issue on April 14, 2009 a memorandum18
accusing Cosare of absence without leave beginning April 1, 2009.

The Ruling of the LA


On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his Decision19 dismissing
the complaint on the ground of Cosares failure to establish that he was dismissed, constructively
or otherwise, from his employment. For the LA, what transpired on March 30, 2009 was merely
the respondents issuance to Cosare of a show-cause memo, giving him a chance to present his
side on the charges against him. He explained:
It is obvious that [Cosare] DID NOT wait for respondents action regarding the charges leveled
against him in the show-cause memo. What he did was to pre-empt that action by filing this
complaint just a day after he submitted his written explanation. Moreover, by specifically
seeking payment of "Separation Pay" instead of reinstatement, [Cosares] motive for filing this
case becomes more evident.20
It was also held that Cosare failed to substantiate by documentary evidence his allegations of
illegal suspension and non-payment of allowances and commissions.
Unyielding, Cosare appealed the LA decision to the NLRC.
The Ruling of the NLRC
On August 24, 2010, the NLRC rendered its Decision21 reversing the Decision of LA Menese.
The dispositive portion of the NLRC Decision reads:
WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are
found guilty of Illegal Constructive Dismissal. Respondents BROADCOM ASIA, INC. and
Dante Arevalo are ordered to pay [Cosares] backwages, and separation pay, as well as damages,
in the total amount of P1,915,458.33, per attached Computation.
SO ORDERED.22
In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded to
[Cosares] contention that he was constructively dismissed by Respondent Arevalo when he was
asked to resign from his employment."23 The fact that Cosare was suspended from using the
assets of Broadcom was also inconsistent with the respondents claim that Cosare opted to
abandon his employment.
Exemplary damages in the amount of P100,000.00 was awarded, given the NLRCs finding that
the termination of Cosares employment was effected by the respondents in bad faith and in a
wanton, oppressive and malevolent manner. The claim for unpaid commissions was denied on
the ground of the failure to include it in the prayer of pleadings filed with the LA and in the
appeal.
The respondents motion for reconsideration was denied.24 Dissatisfied, they filed a petition for
certiorari with the CA founded on the following arguments: (1) the respondents did not have to
prove just cause for terminating the employment of Cosare because the latters complaint was

based on an alleged constructive dismissal; (2) Cosare resigned and was thus not dismissed from
employment; (3) the respondents should not be declared liable for the payment of Cosares
monetary claims; and (4) Arevalo should not be held solidarily liable for the judgment award.
In a manifestation filed by the respondents during the pendency of the CA appeal, they raised a
new argument, i.e., the case involved an intra-corporate controversy which was within the
jurisdiction of the RTC, instead of the LA.25 They argued that the case involved a complaint
against a corporation filed by a stockholder, who, at the same time, was a corporate officer.
The Ruling of the CA
On November 24, 2011, the CA rendered the assailed Decision26 granting the respondents
petition. It agreed with the respondents contention that the case involved an intra-corporate
controversy which, pursuant to Presidential Decree No. 902-A, as amended, was within the
exclusive jurisdiction of the RTC. It reasoned:
Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed as
one of its directors. Moreover, he held the position of [AVP] for Sales which is listed as a
corporate office. Generally, the president, vice-president, secretary or treasurer are commonly
regarded as the principal or executive officers of a corporation, and modern corporation statutes
usually designate them as the officers of the corporation. However, it bears mentioning that
under Section 25 of the Corporation Code, the Board of Directors of [Broadcom] is allowed to
appoint such other officers as it may deem necessary. Indeed, [Broadcoms] By-Laws provides:
Article IV
Officer
Section 1. Election / Appointment Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary
at said meeting.
The Board, may, from time to time, appoint such other officers as it may determine to be
necessary or proper. x x x
We hold that [the respondents] were able to present substantial evidence that [Cosare] indeed
held a corporate office, as evidenced by the General Information Sheet which was submitted to
the Securities and Exchange Commission (SEC) on October 22, 2009.27 (Citations omitted and
emphasis supplied)
Thus, the CA reversed the NLRC decision and resolution, and then entered a new one dismissing
the labor complaint on the ground of lack of jurisdiction, finding it unnecessary to resolve the
main issues that were raised in the petition. Cosare filed a motion for reconsideration, but this
was denied by the CA via the Resolution28 dated March 26, 2012. Hence, this petition.
The Present Petition

The pivotal issues for the petitions full resolution are as follows: (1) whether or not the case
instituted by Cosare was an intra-corporate dispute that was within the original jurisdiction of the
RTC, and not of the LAs; and (2) whether or not Cosare was constructively and illegally
dismissed from employment by the respondents.
The Courts Ruling
The petition is impressed with merit.
Jurisdiction over the controversy
As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the
CA, it is the LA, and not the regular courts, which has the original jurisdiction over the subject
controversy. An intra-corporate controversy, which falls within the jurisdiction of regular courts,
has been regarded in its broad sense to pertain to disputes that involve any of the following
relationships: (1) between the corporation, partnership or association and the public; (2) between
the corporation, partnership or association and the state in so far as its franchise, permit or
license to operate is concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders, partners or
associates, themselves.29 Settled jurisprudence, however, qualifies that when the dispute
involves a charge of illegal dismissal, the action may fall under the jurisdiction of the LAs upon
whose jurisdiction, as a rule, falls termination disputes and claims for damages arising from
employer-employee relations as provided in Article 217 of the Labor Code. Consistent with this
jurisprudence, the mere fact that Cosare was a stockholder and an officer of Broadcom at the
time the subject controversy developed failed to necessarily make the case an intra-corporate
dispute.
In Matling Industrial and Commercial Corporation v. Coros,30 the Court distinguished between a
"regular employee" and a "corporate officer" for purposes of establishing the true nature of a
dispute or complaint for illegal dismissal and determining which body has jurisdiction over it.
Succinctly, it was explained that "[t]he determination of whether the dismissed officer was a
regular employee or corporate officer unravels the conundrum" of whether a complaint for illegal
dismissal is cognizable by the LA or by the RTC. "In case of the regular employee, the LA has
jurisdiction; otherwise, the RTC exercises the legal authority to adjudicate.31
Applying the foregoing to the present case, the LA had the original jurisdiction over the
complaint for illegal dismissal because Cosare, although an officer of Broadcom for being its
AVP for Sales, was not a "corporate officer" as the term is defined by law. We emphasized in
Real v. Sangu Philippines, Inc.32 the definition of corporate officers for the purpose of
identifying an intra-corporate controversy. Citing Garcia v. Eastern Telecommunications
Philippines, Inc.,33 we held:
" Corporate officers in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporations bylaws. There are three specific officers whom a corporation must have under Section 25 of the
Corporation Code. These are the president, secretary and the treasurer. The number of officers is

not limited to these three. A corporation may have such other officers as may be provided for by
its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The
number of corporate officers is thus limited by law and by the corporations by-laws."34
(Emphasis ours)
In Tabang v. NLRC,35 the Court also made the following pronouncement on the nature of
corporate offices:
It has been held that an "office" is created by the charter of the corporation and the officer is
elected by the directors and stockholders. On the other hand, an "employee" usually occupies no
office and generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be paid to such
employee.36 (Citations omitted)
As may be deduced from the foregoing, there are two circumstances which must concur in order
for an individual to be considered a corporate officer, as against an ordinary employee or officer,
namely: (1) the creation of the position is under the corporations charter or by-laws; and (2) the
election of the officer is by the directors or stockholders. It is only when the officer claiming to
have been illegally dismissed is classified as such corporate officer that the issue is deemed an
intra-corporate dispute which falls within the jurisdiction of the trial courts.
To support their argument that Cosare was a corporate officer, the respondents referred to Section
1, Article IV of Broadcoms by-laws, which reads:
ARTICLE IV
OFFICER
Section 1. Election / Appointment Immediately after their election, the Board of Directors shall
formally organize by electing the President, the Vice-President, the Treasurer, and the Secretary
at said meeting.
The Board may, from time to time, appoint such other officers as it may determine to be
necessary or proper. Any two (2) or more compatible positions may be held concurrently by the
same person, except that no one shall act as President and Treasurer or Secretary at the same
time.37 (Emphasis ours)
This was also the CAs main basis in ruling that the matter was an intra-corporate dispute that
was within the trial courts jurisdiction.
The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted
provision, the only officers who are specifically listed, and thus with offices that are created
under Broadcoms by-laws are the following: the President, Vice-President, Treasurer and
Secretary. Although a blanket authority provides for the Boards appointment of such other
officers as it may deem necessary and proper, the respondents failed to sufficiently establish that
the position of AVP for Sales was created by virtue of an act of Broadcoms board, and that
Cosare was specifically elected or appointed to such position by the directors. No board

resolutions to establish such facts form part of the case records. Further, it was held in Marc II
Marketing, Inc. v. Joson38 that an enabling clause in a corporations by-laws empowering its
board of directors to create additional officers, even with the subsequent passage of a board
resolution to that effect, cannot make such position a corporate office. The board of directors has
no power to create other corporate offices without first amending the corporate by-laws so as to
include therein the newly created corporate office.39 "To allow the creation of a corporate officer
position by a simple inclusion in the corporate by-laws of an enabling clause empowering the
board of directors to do so can result in the circumvention of that constitutionally well-protected
right [of every employee to security of tenure]."40
The CAs heavy reliance on the contents of the General Information Sheets41, which were
submitted by the respondents during the appeal proceedings and which plainly provided that
Cosare was an "officer" of Broadcom, was clearly misplaced. The said documents could neither
govern nor establish the nature of the office held by Cosare and his appointment thereto.
Furthermore, although Cosare could indeed be classified as an officer as provided in the General
Information Sheets, his position could only be deemed a regular office, and not a corporate office
as it is defined under the Corporation Code. Incidentally, the Court noticed that although the
Corporate Secretary of Broadcom, Atty. Efren L. Cordero, declared under oath the truth of the
matters set forth in the General Information Sheets, the respondents failed to explain why the
General Information Sheet officially filed with the Securities and Exchange Commission in 2011
and submitted to the CA by the respondents still indicated Cosare as an AVP for Sales, when
among their defenses in the charge of illegal dismissal, they asserted that Cosare had severed his
relationship with the corporation since the year 2009.
Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the cases filing
did not necessarily make the action an intra- corporate controversy. "Not all conflicts between
the stockholders and the corporation are classified as intra-corporate. There are other facts to
consider in determining whether the dispute involves corporate matters as to consider them as
intra-corporate controversies."42 Time and again, the Court has ruled that in determining the
existence of an intra-corporate dispute, the status or relationship of the parties and the nature of
the question that is the subject of the controversy must be taken into account.43 Considering that
the pending dispute particularly relates to Cosares rights and obligations as a regular officer of
Broadcom, instead of as a stockholder of the corporation, the controversy cannot be deemed
intra-corporate. This is consistent with the "controversy test" explained by the Court in Reyes v.
Hon. RTC, Br. 142,44 to wit:
Under the nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The
controversy must not only be rooted in the existence of an intra-corporate relationship, but must
as well pertain to the enforcement of the parties correlative rights and obligations under the
Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the
relationship and its incidents are merely incidental to the controversy or if there will still be
conflict even if the relationship does not exist, then no intra-corporate controversy exists.45
(Citation omitted)

It bears mentioning that even the CAs finding46 that Cosare was a director of Broadcom when
the dispute commenced was unsupported by the case records, as even the General Information
Sheet of 2009 referred to in the CA decision to support such finding failed to provide such detail.
All told, it is then evident that the CA erred in reversing the NLRCs ruling that favored Cosare
solely on the ground that the dispute was an intra-corporate controversy within the jurisdiction of
the regular courts.
The charge of constructive dismissal
Towards a full resolution of the instant case, the Court finds it appropriate to rule on the
correctness of the NLRCs ruling finding Cosare to have been illegally dismissed from
employment.
In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing
among other circumstances the charges that were hurled and the suspension that was imposed
against him via Arevalos memo dated March 30, 2009. Even prior to such charge, he claimed to
have been subjected to mental torture, having been locked out of his files and records and
disallowed use of his office computer and access to personal belongings.47 While Cosare
attempted to furnish the respondents with his reply to the charges, the latter refused to accept the
same on the ground that it was filed beyond the 48-hour period which they provided in the
memo.
Cosare further referred to the circumstances that allegedly transpired subsequent to the service of
the memo, particularly the continued refusal of the respondents to allow Cosares entry into the
companys premises. These incidents were cited in the CA decision as follows:
On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could retrieve
his personal belongings, but the latter said that x x x Arevalo directed her to deny his request, so
[Cosare] again waited at the receiving section of the office. On April 1, 2009, [Cosare] was not
allowed to enter the office premises. He was asked to just wait outside of the Tektite (PSE)
Towers, where [Broadcom] had its offices, for further instructions on how and when he could get
his personal belongings. [Cosare] waited until 8 p.m. for instructions but none were given. Thus,
[Cosare] sought the assistance of the officials of Barangay San Antonio, Pasig who advised him
to file a labor or replevin case to recover his personal belongings. x x x.48 (Citation omitted)
It is also worth mentioning that a few days before the issuance of the memo dated March 30,
2009, Cosare was allegedly summoned to Arevalos office and was asked to tender his immediate
resignation from the company, in exchange for a financial assistance of P300,000.00.49 The
directive was said to be founded on Arevalos choice to retain Abiogs employment with the
company.50 The respondents failed to refute these claims.
Given the circumstances, the Court agrees with Cosares claim of constructive and illegal
dismissal. "[C]onstructive dismissal occurs when there is cessation of work because continued
employment is rendered impossible, unreasonable, or unlikely as when there is a demotion in
rank or diminution in pay or when a clear discrimination, insensibility, or disdain by an employer

becomes unbearable to the employee leaving the latter with no other option but to quit."51 In
Dimagan v. Dacworks United, Incorporated,52 it was explained:
The test of constructive dismissal is whether a reasonable person in the employees position
would have felt compelled to give up his position under the circumstances. It is an act amounting
to dismissal but is made to appear as if it were not. Constructive dismissal is therefore a
dismissal in disguise. The law recognizes and resolves this situation in favor of employees in
order to protect their rights and interests from the coercive acts of the employer.53 (Citation
omitted)
It is clear from the cited circumstances that the respondents already rejected Cosares continued
involvement with the company. Even their refusal to accept the explanation which Cosare tried
to tender on April 2, 2009 further evidenced the resolve to deny Cosare of the opportunity to be
heard prior to any decision on the termination of his employment. The respondents allegedly
refused acceptance of the explanation as it was filed beyond the mere 48-hour period which they
granted to Cosare under the memo dated March 30, 2009. However, even this limitation was a
flaw in the memo or notice to explain which only further signified the respondents
discrimination, disdain and insensibility towards Cosare, apparently resorted to by the
respondents in order to deny their employee of the opportunity to fully explain his defenses and
ultimately, retain his employment. The Court emphasized in King of Kings Transport, Inc. v.
Mamac54 the standards to be observed by employers in complying with the service of notices
prior to termination:
[T]he first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the
opportunity to submit their written explanation within a reasonable period. "Reasonable
opportunity" under the Omnibus Rules means every kind of assistance that management must
accord to the employees to enable them to prepare adequately for their defense. This should be
construed as a period of at least five (5) calendar days from receipt of the notice to give the
employees an opportunity to study the accusation against them, consult a union official or
lawyer, gather data and evidence, and decide on the defenses they will raise against the
complaint. Moreover, in order to enable the employees to intelligently prepare their explanation
and defenses, the notice should contain a detailed narration of the facts and circumstances that
will serve as basis for the charge against the employees. A general description of the charge will
not suffice. Lastly, the notice should specifically mention which company rules, if any, are
violated and/or which among the grounds under Art. 282 is being charged against the
employees.55 (Citation omitted, underscoring ours, and emphasis supplied)
In sum, the respondents were already resolute on a severance of their working relationship with
Cosare, notwithstanding the facts which could have been established by his explanations and the
respondents full investigation on the matter. In addition to this, the fact that no further
investigation and final disposition appeared to have been made by the respondents on Cosares
case only negated the claim that they actually intended to first look into the matter before making
a final determination as to the guilt or innocence of their employee. This also manifested from
the fact that even before Cosare was required to present his side on the charges of serious

misconduct and willful breach of trust, he was summoned to Arevalos office and was asked to
tender his immediate resignation in exchange for financial assistance.
The clear intent of the respondents to find fault in Cosare was also manifested by their persistent
accusation that Cosare abandoned his post, allegedly signified by his failure to report to work or
file a leave of absence beginning April 1, 2009. This was even the subject of a memo56 issued by
Arevalo to Cosare on April 14, 2009, asking him to explain his absence within 48 hours from the
date of the memo. As the records clearly indicated, however, Arevalo placed Cosare under
suspension beginning March 30, 2009. The suspension covered access to any and all company
files/records and the use of the assets of the company, with warning that his failure to comply
with the memo would be dealt with drastic management action. The charge of abandonment was
inconsistent with this imposed suspension. "Abandonment is the deliberate and unjustified
refusal of an employee to resume his employment. To constitute abandonment of work, two
elements must concur: (1) the employee must have failed to report for work or must have been
absent without valid or justifiable reason; and (2) there must have been a clear intention on the
part of the employee to sever the employer- employee relationship manifested by some overt
act."57 Cosares failure to report to work beginning April 1, 2009 was neither voluntary nor
indicative of an intention to sever his employment with Broadcom. It was illogical to be
requiring him to report for work, and imputing fault when he failed to do so after he was
specifically denied access to all of the companys assets. As correctly observed by the NLRC:
[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April 1,
2009. However[,] the show-cause letter dated March 3[0], 2009 (Annex "F", ibid) suspended
[Cosare] from using not only the equipment but the "assets" of Respondent [Broadcom]. This
insults rational thinking because the Respondents tried to mislead us and make [it appear] that
[Cosare] failed to report for work when they had in fact had [sic] placed him on suspension. x x
x.58
Following a finding of constructive dismissal, the Court finds no cogent reason to modify the
NLRC's monetary awards in Cosare's favor. In Robinsons Galleria/Robinsons Supermarket
Corporation v. Ranchez,59 the Court reiterated that an illegally or constructively dismissed
employee is entitled to: (1) either reinstatement, if viable, or separation pay, if reinstatement is no
longer viable; and (2) backwages.60 The award of exemplary damages was also justified given
the NLRC's finding that the respondents acted in bad faith and in a wanton, oppressive and
malevolent manner when they dismissed Cosare. It is also by reason of such bad faith that
Arevalo was correctly declared solidarily liable for the monetary awards.
WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and
Resolution dated March 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are SET
ASIDE. The Decision dated August 24, 2010 of the National Labor Relations Commission in
favor of petitioner Raul C. Cosare is AFFIRMED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 191455

March 12, 2014

DREAMLAND HOTEL RESORT and WESTLEY J. PRENTICE, Petitioners,


vs.
STEPHEN B. JOHNSON, Respondent.
DECISION
REYES, J.:
Before the Court is a Petition for Review on Certiorari1 assailing the December 14, 20092 and
February 11, 20103 Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 111693 which
dismissed outright the petition for certiorari on technical grounds.
Dreamland Hotel Resort (Dreamland) and its President, Westley J. Prentice (Prentice)
(petitioners) alleged the following facts in the instant petition:
9. Dreamland is a corporation duly registered with the Securities and Exchange Commission on
January 15, 2003 to exist for a period of fifty [50] years with registration number SEC A 19986436. Prentice is its current President and Chief Executive Officer. It is engaged in the hotel,
restaurant and allied businesses. Dreamland is presently undertaking operations of its business at
National Highway, Sto. Tomas, Matain Subic, Zambales, 2209.
10. Respondent Stephen B. Johnson is an Australian citizen who came to the Philippines as a
businessman/investor without the authority to be employed as the employee/officer of any
business as he was not able to secure his Alien Employment Permit ["AEP" for brevity], which
fact was duly supported by the Certification dated March 14, 2008 of the Department of Labor
and Employment ["DOLE" for brevity] Regional Director, Regional Office No. III, San
Fernando City, Pampanga,
x x x.
11. As a fellow Australian citizen, Johnson was able to convince Prentice to accept his offer to
invest in Dreamland and at the same time provide his services as Operations Manager of
Dreamland with a promise that he will secure an AEP and Tax Identification Number ["TIN" for
brevity] prior to his assumption of work.

12. Sometime on June 21, 2007, Prentice and Johnson entered into an Employment Agreement,
which stipulates among others, that the [sic] Johnson shall serve as Operations Manager of
Dreamland from August 1, 2007 and shall serve as such for a period of three (3) years.
13. Before entering into the said agreement[,] Prentice required the submission of the AEP and
TIN from Johnson. Johnson promised that the same shall be supplied within one (1) month from
the signing of the contract because the application for the TIN and AEP were still under process.
Thus[,] it was agreed that the efficacy of the said agreement shall begin after one (1) month or on
August 1, 2007. x x x.
14. On or about October 8, 2007, Prentice asked on several occasions the production of the AEP
and TIN from Johnson. Johnson gave excuses and promised that he is already in possession of
the requirements. Believing the word of Johnson, Dreamland commenced a dry run of its
operations.
15. Johnson worked as a hotel and resort Operations Manager only at that time. He worked for
only about three (3) weeks until he suddenly abandoned his work and subsequently resigned as
Operations Manager starting November 3, 2007. He never reported back to work despite several
attempts of Prentice to clarify his issues. x x x.4
On the other hand, respondent Stephen B. Johnson (Johnson) averred that:
4. There is also no truth to the allegation that it was [Johnson] who "offered" and "convinced"
petitioner Prentice to "invest" in and provide his services to petitioner Dreamland Hotel Resort x
x x. The truth of the matter is that it was petitioners who actively advertised for a resort manager
for Dreamland Hotel. x x x
5. It was in response to these advertisements that private respondent Johnson contacted
petitioners to inquire on the terms for employment offered. It was Prentice who offered
employment and convinced Johnson to give out a loan, purportedly so the resort can be
completed and operational by August 2007. Believing the representations of petitioner Prentice,
private respondent Johnson accepted the employment as Resort Manager and loaned money to
petitioners [consisting of] his retirement pay in the amount of One Hundred Thousand US
Dollars (USD 100,000.00) to finish construction of the resort. x x x.
6. From the start of August 2007, as stipulated in the Employment Agreement, respondent
Johnson already reported for work. It was then that he found out to his dismay that the resort was
far from finished. However, he was instructed to supervise construction and speak with potential
guests. He also undertook the overall preparation of the guestrooms and staff for the opening of
the hotel, even performing menial tasks (i.e. inspected for cracked tiles, ensured proper grout
installation, proper lighting and air-conditioning unit installation, measured windows for curtain
width and showers for shower curtain rods, unloaded and installed mattresses, beddings,
furniture and appliances and even ironed and hung guest room curtains).
xxxx

8. As [Johnson] remained unpaid since August 2007 and he has loaned all his money to
petitioners, he asked for his salary after the resort was opened in October 2007 but the same was
not given to him by petitioners. [Johnson] became very alarmed with the situation as it appears
that there was no intention to pay him his salary, which he now depended on for his living as he
has been left penniless. He was also denied the benefits promised him as part of his
compensation such as service vehicles, meals and insurance.
9. [Johnson] was also not given the authority due to him as resort manager. Prentice
countermanded his orders to the staff at every opportunity. Worse, he would even be berated and
embarrassed in front of the staff. Prentice would go into drunken tiffs, even with customers and
[Johnson] was powerless to prohibit Prentice. It soon became clear to him that he was only used
for the money he loaned and there was no real intention to have him as resort manager of
Dreamland Hotel.
10. Thus, on November 3, 2007, after another embarrassment was handed out by petitioner
Prentice in front of the staff, which highlighted his lack of real authority in the hotel and the
disdain for him by petitioners, respondent Johnson was forced to submit his resignation, x x x. In
deference to the Employment Agreement signed, [Johnson] stated that he was willing to continue
work for the three month period stipulated therein.
11. However, in an SMS or text message sent by Prentice to [Johnson] on the same day at around
8:20 pm, he was informed that " I consider [yo]ur resignation as immediate". Despite demand,
petitioners refused to pay [Johnson] the salaries and benefits due him.5
On January 31, 2008, Johnson filed a Complaint for illegal dismissal and non-payment of
salaries, among others, against the petitioners.
On May 23, 2008, the Labor Arbiter (LA) rendered a Decision6 dismissing Johnsons complaint
for lack of merit with the finding that he voluntarily resigned from his employment and was not
illegally dismissed. We quote:
There [is] substantial evidence on record that [Johnson] indeed resigned voluntarily from his
position by his mere act of tendering his resignation and immediately abandoned his work as
Operations Manager from the time that he filed said resignation letter on November 3, 2007 and
never returned to his work up to the filing of this case. Evidence on record also show that
[Johnson] only served as Operations Manager for a period of three (3) weeks after which he
tendered his voluntary resignation and left his job. This fact was not denied or questioned by
him. His claim that there was breach of employment contract committed by the respondents and
that he was not refunded his alleged investment with the respondent Dreamland Hotel and Resort
were not properly supported with substantial evidence and besides these issues are not within the
ambit of jurisdiction of this Commission.
There being competent, concrete and substantial evidence to confirm the voluntary resignation of
[Johnson] from his employment, there was no illegal dismissal committed against him and for
him to be entitled to reinstatement to his former position and backwages.

xxxx
WHEREFORE, premises considered, let this case be as it is hereby ordered DISMISSED for
lack of merit.
All the money claims of the complainant are likewise ordered dismissed for lack of legal basis.
SO ORDERED.7
Dissatisfied, Johnson appealed to the National Labor Relations Commission (NLRC). The NLRC
rendered its Decision8 on April 30, 2009, the dispositive portion of which reads:
WHEREFORE, the decision appeared from is hereby REVERSED. Respondent Wes[t]ley
Prentice and/or Dreamland Resort & Hotel, Inc[.] are hereby ordered to pay [Johnson] the
following:
1. Backwages computed at [P]60,000.00 monthly from November
3, 2007 up to the finality of this decision;
2. Separation pay equivalent to one months salary, or [P]60,000.00;
3. Unpaid salaries from August 1, 2007 to November 1, 2007 amounting to a total of
[P]172,800.00.
SO ORDERED.9
The NLRC also noted the following:
Insofar as the charge of abandonment against [Johnson] is concerned, it is significant that the
contention that [Johnson] received a total of [P]172,000.00 from the [petitioners] since July 2007
is not supported by the evidence x x x submitted by the [petitioners]. Except for a promissory
note x x x for [P]2,200.00, the pieces of evidence in question do not bear [Johnsons] signature,
and do not therefore constitute proof of actual receipt by him of the amounts stated therein. Thus,
based on the evidence and on the admission by [Johnson] that he received the amount of
[P]5,000.00 from the [petitioners], it appears that [Johnson] received a total of only [P]7,200.00
from the [petitioners]. Since based on the Employment Agreement, his employment commenced
on August 1, 2007, it follows that as of November 3, 2007, when he tendered his resignation, the
[petitioners] had failed to pay him a total of [P]172,800.00 representing his unpaid salaries for
three months ([P]60,000.00 x 3 mos. = [P]180,000.00 [P]7,200 = [P]172,800.00). Even the
most reasonable employee would consider quitting his job after working for three months and
receiving only an insignificant fraction of his salaries. There was, therefore, not an abandonment
of employment nor a resignation in the real sense, but a constructive dismissal, which is defined
as an involuntary resignation resorted to when continued employment is rendered impossible,
unreasonable or unlikely x x x. Consequently, [Johnson] is entitled to reinstatement with full

backwages. However, due to the strained relation between the parties, which renders his
reinstatement inadvisable, separation pay may be awarded in lieu of reinstatement.10
Consequently, the petitioners elevated the NLRC decision to the CA by way of Petition for
Certiorari with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction under Rule 47.
In the assailed Resolution11 dated December 14, 2009, the CA dismissed the petition for lack of
proof of authority and affidavit of service of filing as required by Section 13 of the 1997 Rules of
Procedure. The subsequent motion for reconsideration filed by the petitioners was likewise
denied by the CA in a Resolution12 dated February 11, 2010.
Undaunted, the petitioners filed before this Court the present Petition for Review on Certiorari,
raising the following issues, viz:
A.
THE HONORABLE [CA] COMMITTED A REVERSIBLE ERROR IN
PROMULGATING ITS FIRST RESOLUTION (DECEMBER 14, 2009) WHICH
OUTRIGHTLY DISMISSED PETITIONERS PETITION FOR CERTIORARI.
B.
THE HONORABLE [CA] COMMITTED A REVERSIBLE ERROR IN
PROMULGATING ITS SECOND RESOLUTION (FEBRUARY 11, 2010) WHICH
DENIED FOR LACK OF MERIT PETITIONERS MOTION FOR
RECONSIDERATION.
C.
THE HONORABLE [CA] COMMITTED A REVERSIBLE ERROR IN NOT GIVING
DUE CONSIDERATION TO THE MERITS OF THE PETITIONERS PETITION AND
IN NOT GRANTING THEIR PRAYER FOR TEMPORARY RESTRAINING
ORDER[.]13
The petition is partially granted.
At its inception, the Court takes note of the Resolutions dated December 14, 2009 and February
11, 2010 of the CA dismissing the Petition for Certiorari due to the following infirmities:
1. The affiant has no proof of authority to file the petition in behalf of petitioner
Dreamland.
2. The petition has no appended affidavit of service to show proof of service of filing as
required by Sec. 13 of the 1997 Rules of Civil Procedure.14

To justify their stance that the CA should have considered the merits of the case, instead of
dismissing merely on procedural grounds, the petitioners cited numerous cases wherein the Court
has decided to waive the strict application of the Rules in the interest of substantial justice.15
While "[u]tter disregard of [the rules of procedure] cannot justly be rationalized by harking on
the policy of liberal construction,"16 the Court recognizes badges of inequity present in the case
at bar, which would be seemingly branded with approval should the Court turn a blind eye and
dismiss this petition on procedural grounds alone.
"While it is desirable that the Rules of Court be faithfully observed, courts should not be so strict
about procedural lapses that do not really impair the proper administration of justice. If the rules
are intended to ensure the proper and orderly conduct of litigation, it is because of the higher
objective they seek which are the attainment of justice and the protection of substantive rights of
the parties. Thus, the relaxation of procedural rules, or saving a particular case from the
operation of technicalities when substantial justice requires it, as in the instant case, should no
longer be subject to cavil."17
Time and again, this Court has emphasized that procedural rules should be treated with utmost
respect and due regard, since they are designed to facilitate the adjudication of cases to remedy
the worsening problem of delay in the resolution of rival claims and in the administration of
justice. "From time to time, however, we have recognized exceptions to the Rules but only for
the most compelling reasons where stubborn obedience to the Rules would defeat rather than
serve the ends of justice."18 "It is true that procedural rules may be waived or dispensed with in
the interest of substantial justice."19
Brushing aside technicalities, in the utmost interest of substantial justice and taking into
consideration the varying and conflicting factual deliberations by the LA and the NLRC, the
Court shall now delve into the merits of the case.
The petitioners contend that the employment of Johnson as operations manager commenced only
on October 8, 2007 and not on August 1, 2007. However, the employment contract categorically
stated that the "term of employment shall commence on [August 1, 2007]." Furthermore, the
factual allegations of Johnson that he actually worked from August 1, 2007 were neither
sufficiently rebutted nor denied by the petitioners. As Johnson has specifically set forth in his
reply before the LA:
Although the resort did not open until approximately 8th October 2007, [Johnsons] employment
began, as per Employment Agreement, on 1st August 2007. During the interim period[, Johnson]
was frequently instructed by [Prentice] to supervise the construction staff and speak with
potential future guests who visited the site out of curiosity. Other duties carried out by [Johnson]
prior to [the] opening included the overall preparation of the guest rooms for eventual occupation
ensuring cracked tiles were replaced, ensuring grout was properly installed between tiles,
ensuring all lighting and air conditioning [were] functioning, measuring windows for curtain
width, measuring showers for shower curtain rods and installing shower curtains. Other duties
included the unloading, carrying and installation of mattresses, bedding[s], TVs, refrigerators
and other furnishings and ironing curtains x x x.20

Notably, it was only in their Motion for Reconsideration21 of the NLRC decision where the
petitioners belatedly disagreed that Johnson performed the abovementioned tasks and argued that
had Johnson done the tasks he enumerated, those were tasks foreign and alien to his position as
operations manager and [were done] without their knowledge and consent.22
Nevertheless, Prentice did not deny that he ordered Johnson to speak with potential guests of the
hotel. In fact, the petitioners admitted and submitted documents23 which showed that Johnson
has already taken his residence in the hotel as early as July 2007a part of Johnsons
remuneration as the hotel operations manager. In presenting such documents, the petitioners
would want to impress upon the Court that their act of accommodating Johnson was merely due
to his being a fellow Australian national.
As it could not be determined with absolute certainty whether or not Johnson rendered the
services he mentioned during the material time, doubt must be construed in his favor for the
reason that "the consistent rule is that if doubt exists between the evidence presented by the
employer and that by the employee, the scales of justice must be tilted in favor of the latter."24
What is clear upon the records is that Johnson had already taken his place in the hotel since July
2007.
For the petitioners failure to disprove that Johnson started working on August 1, 2007, as stated
on the employment contract, payment of his salaries on said date, even prior to the opening of
the hotel is warranted.
The petitioners also maintain that they have paid the amount of P7,200.00 to Johnson for his
three weeks of service from October 8, 2007 until November 3, 2007, the date of Johnsons
resignation,25 which Johnson did not controvert. Even so, the amount the petitioners paid to
Johnson as his three-week salary is significantly deficient as Johnsons monthly salary as
stipulated in their contract is P60,000.0026. Thus, the amount which Johnson should have been
paid is P45,000.00 and not P7,200.00. In light of this deficiency, there is more reason to believe
that the petitioners withheld the salary of Johnson without a valid reason. If they indeed believed
that Johnson deserves to be paid only for three-week worth of service as operations manager,
then they should still have paid him the amount due for three weeks of work rendered.
Another argument posited by the petitioners is that the employment contract executed by the
parties is inefficacious because the employment contract is subject to the presentation of Johnson
of his Alien Employment Permit (AEP) and Tax Identification Number (TIN).
Again, this statement is wanting of merit.
Johnson has adduced proof that as a permanent resident, he is exempted from the requirement of
securing an AEP as expressed under Department Order No. 75-06, Series of 2006 of the
Department of Labor and Employment (DOLE), which we quote:
Rule I- Coverage and Exemption
xxxx

2. Exemption. The following categories of foreign nationals are exempt from securing an
employment permit:
xxxx
2.7 Resident foreign nationals
Furthermore, Johnson submitted a Certification27 from DOLE Regional Office III, stating that
he is exempted from securing an AEP as a holder of Permanent Resident Visa. Consequently, the
condition imposed upon Johnsons employment, if there is any, is in truth without effect to its
validity.
Anent the requirement of securing a TIN to make the contract of employment efficacious,
records show that Johnson secured his TIN only on December 200728 after his resignation as
operations manager. Nevertheless, this does not negate the fact that the contract of employment
had already become effective even prior to such date.
In addition to the foregoing, there is no stipulation in the employment contract itself that the
same shall only be effective upon the submission of AEP and TIN. The petitioners did not
present any proof to support this agreement prior to the execution of the employment contract. In
the case of Ortaez v. CA29, the Court held:
Spoken words could be notoriously unreliable unlike a written contract which speaks of a
uniform language. Thus, under the general rule in Section 9 of Rule 130 of the Rules of Court,
when the terms of an agreement were reduced to writing, as in this case, it is deemed to contain
all the terms agreed upon and no evidence of such terms can be admitted other than the contents
thereof. x x x.30 (Citations omitted)
As regards the NLRC findings that Johnson was constructively dismissed and did not abandon
his work, the Court is in consonance with this conclusion with the following basis:
Even the most reasonable employee would consider quitting his job after working for three
months and receiving only an insignificant fraction of his salaries. There was, therefore, not an
abandonment of employment nor a resignation in the real sense, but a constructive dismissal,
which is defined as an involuntary resignation resorted to when continued employment is
rendered impossible, unreasonable or unlikely x x x.31
The petitioners aver that considering that Johnson tendered his resignation and abandoned his
work, it is his burden to prove that his resignation was not voluntary on his part.32
With this, the Court brings to mind its earlier ruling in the case of SHS Perforated Materials, Inc.
v. Diaz33 where it held that:
"There is constructive dismissal if an act of clear discrimination, insensibility, or disdain by an
employer becomes so unbearable on the part of the employee that it would foreclose any choice
by him except to forego his continued employment. It exists where there is cessation of work

because continued employment is rendered impossible, unreasonable or unlikely, as an offer


involving a demotion in rank and a diminution in pay."34
It is impossible, unreasonable or unlikely that any employee, such as Johnson would continue
working for an employer who does not pay him his salaries. Applying the Courts
pronouncement in Duldulao v. CA35, the Court construes that the act of the petitioners in not
paying Johnson his salaries for three months has become unbearable on the latters part that he
had no choice but to cede his employment with them. The Court quotes the pertinent sections of
Johnsons resignation letter which reflects the real reason why he was resigning as operations
manager of the hotel:
I hereby tender my resignation to you, Mr[.] Wes Prentice, Dreamland Resort, Subic, Zambales,
Philippines.
Since joining Dreamland Resort & Hotel over three months ago I have put my heart and soul into
the business. I have donated many hours of my personal time. I have frequently worked seven
days a week and twelve to thirteen hours a day. I am now literally penniless, due totally to the
fact that I have lent you and your resort/hotel well over $200,000AU (approx 8million pesos) and
your non-payment of wages to me from 1st August 2007 as per Employment Agreement. x x
x.36 (Emphasis and underscoring ours)
The above preceding statement only goes to show that while it was Johnson who tendered his
resignation, it was due to the petitioners acts that he was constrained to resign. The petitioners
cannot expect Johnson to tolerate working for them without any compensation.
Since Johnson was constructively dismissed, he was illegally dismissed. As to the reliefs granted
to an employee who is illegally dismissed, Golden Ace Builders v. Talde37 referring to Macasero
v. Southern Industrial Gases Philippines38 is instructive:
Thus, an illegally dismissed employee is entitled to two reliefs: backwages and reinstatement.
The two reliefs provided are separate and distinct. In instances where reinstatement is no longer
feasible because of strained relations between the employee and the employer, separation pay is
granted. In effect, an illegally dismissed employee is entitled to either reinstatement, if viable, or
separation pay if reinstatement is no longer viable, and backwages.
The normal consequences of respondents illegal dismissal, then, are reinstatement without loss
of seniority rights, and payment of backwages computed from the time compensation was
withheld up to the date of actual reinstatement. Where reinstatement is no longer viable as an
option, separation pay equivalent to one (1) month salary for every year of service should be
awarded as an alternative. The payment of separation pay is in addition to payment of
backwages.39 (Emphasis and underscoring supplied)
The case of Golden Ace further provides:

"The accepted doctrine is that separation pay may avail in lieu of reinstatement if reinstatement
is no longer practical or in the best interest of the parties. Separation pay in lieu of reinstatement
may likewise be awarded if the employee decides not to be reinstated." x x x
Under the doctrine of strained relations, the payment of separation pay is considered an
acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On
one hand, such payment liberates the employee from what could be a highly oppressive work
environment.1wphi1 On the other hand, it releases the employer from the grossly unpalatable
obligation of maintaining in its employ a worker it could no longer trust.40
In the present case, the NLRC found that due to the strained relations between the parties,
separation pay is to be awarded to Johnson in lieu of his reinstatement.
The NLRC held that Johnson is entitled to backwages from November 3, 2007 up to the finality
of the decision; separation pay equivalent to one month salary; and unpaid salaries from August
1, 2007 to November 1, 2007 amounting to a total of P172,800.00.41
While the Court agrees with the NLRC that the award of separation pay and unpaid salaries is
warranted, the Court does not lose sight of the fact that the employment contract states that
Johnson's employment is for a term of three years.
Accordingly, the award of backwages should be computed from November 3, 2007 to August 1,
2010 - which is three years from August 1, 2007. Furthermore, separation pay is computed from
the commencement of employment up to the time of termination, including the imputed service
for which the employee is entitled to backwages.42 As one-month salary is awarded as
separation pay for every year of service, including imputed service, Johnson should be paid
separation pay equivalent to his three-month salary for the three-year contract.
WHEREFORE, the Resolutions dated December 14, 2009 and February 11, 2010 of the Court of
Appeals in CA-G.R. SP No. 111693 are hereby SET ASIDE. The Decision of the NLRC dated
April 30, 2009 in NLRC LAC No. 07-002711-08 is REINSTATED and AFFIRMED with
MODIFICATIONS in the computation of backwages and separation pay. Dreamland Hotel
Resort and Westley Prentice are ORDERED to PAY Stephen Johnson backwages of P60,000.00
per month which should be computed from November 3, 2007 to August 1, 2010 less the
P.7,200.00 already paid to him. Likewise, separation pay of P180.000.00, representing Stephen
Johnson's three-year contract should be awarded.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 195190

July 28, 2014

ROYALE HOMES MARKETING CORPORATION, Petitioner,


vs.
FIDEL P. ALCANTARA [deceased], substituted by his heirs, Respondent.
DECISION
DEL CASTILLO, J.:
Not every form of control that a hiring party imposes on the hired party is indicative of
employee-employer relationship. Rules and regulations that merely serve as guidelines towards
the achievement of a mutually desired result without dictating the means and methods of
accomplishing it do not establish employer-employee relationship.1
This Petition for Review on Certiorari2 assails the June 23, 2010 Decision3 of the Court of
Appeals (CA) in CA-G.R. SP No. 109998 which (i) reversed and set aside the February 23, 2009
Decision4 of the National Labor Relations Commission (NLRC), (ii) ordered petitioner Royale
Homes Marketing Corporation (Royale Homes) to pay respondent Fidel P. Alcantara (Alcantara)
backwages and separation pay, and (iii) remanded the case to the Labor Arbiter for the proper
determination and computation of said monetary awards.
Also assailed in this Petition isthe January 18, 2011 Resolution5 of the CA denying Royale
Homes Motion for Reconsideration,6 as well as its Supplemental7 thereto.
Factual Antecedents
In 1994, Royale Homes, a corporation engaged in marketing real estates, appointed Alcantara
asits Marketing Director for a fixed period of one year. His work consisted mainly of marketing
Royale Homes realestate inventories on an exclusive basis. Royale Homes reappointed him for
several consecutive years, the last of which covered the period January 1 to December 31, 2003
where he held the position of Division 5 Vice-President-Sales.8
Proceedings before the Labor Arbiter
On December 17, 2003, Alcantara filed a Complaint for Illegal Dismissal9 against Royale
Homes and its President Matilde Robles, Executive Vice-President for Administration and
Finance Ma. Melinda Bernardino, and Executive Vice- President for Sales Carmina Sotto.

Alcantara alleged that he is a regular employee of Royale Homes since he is performing tasks
that are necessary and desirable to its business; that in 2003 the company gave him P1.2 million
for the services he rendered to it; that in the first week of November 2003, however, the
executive officers of Royale Homes told him that they were wondering why he still had the gall
to come to office and sit at his table;10 and that the actsof the executive officers of Royale
Homes amounted to his dismissal from work without any valid or just cause and in gross
disregard of the proper procedure for dismissing employees. Thus, he alsoimpleaded the
corporate officers who, he averred, effected his dismissal in bad faith and in an oppressive
manner.
Alcantara prayed to be reinstated tohis former position without loss of seniority rights and other
privileges, as well as to be paid backwages, moral and exemplary damages, and attorneys fees.
He further sought that the ownership of the Mitsubishi Adventure with Plate No. WHD-945 be
transferred to his name.
Royale Homes, on the other hand, vehemently denied that Alcantara is its employee. It argued
that the appointment paper of Alcantara isclear that it engaged his services as an independent
sales contractorfor a fixed term of one year only. He never received any salary, 13th month pay,
overtime pay or holiday pay from Royale Homes as hewas paid purely on commission basis. In
addition, Royale Homes had no control on how Alcantara would accomplish his tasks and
responsibilities as he was free to solicit sales at any time and by any manner which he may deem
appropriateand necessary. He is even free to recruit his own sales personnel to assist him in
pursuance of his sales target.
According to Royale Homes, Alcantara decided to leave the company after his wife, who was
once connectedwith it as a sales agent, had formed a brokerage company that directly competed
with its business, and even recruited some of its sales agents. Although this was against the
exclusivity clause of the contract, Royale Homes still offered to accept Alcantaras wife back so
she could continue to engage in real estate brokerage, albeit exclusively for Royale Homes. In a
special management committee meeting on October 8,2003, however, Alcantara announced
publicly and openly that he would leave the company by the end of October 2003 and that he
would no longer finish the unexpired term of his contract. He has decided to join his wifeand
pursue their own brokerage business. Royale Homes accepted Alcantaras decision. It then threw
a despedidaparty in his honor and, subsequently, appointed a new independent contractor. Two
months after herelinquished his post, however, Alcantara appeared in Royale Homes and
submitted a letter claiming that he was illegally dismissed.
Ruling of the Labor Arbiter
On September 7, 2005,the Labor Arbiter rendered a Decision11 holding that Alcantara is an
employee of Royale Homes with a fixed-term employment period from January 1 to December
31, 2003 and that the pre-termination of his contract was against the law.Hence, Alcantara is
entitled to an amount which he may have earned on the average for the unexpired portion of the
contract. With regard to the impleaded corporate officers, the Labor Arbiter absolved them from
any liability.

The dispositive portion of the Labor Arbiters Decision reads:


WHEREFORE, premises considered, judgment is hereby rendered ordering the respondent
Royale Homes Marketing Corp. to pay the complainant the total amount of TWO HUNDRED
SEVENTY SEVEN THOUSAND PESOS (P277,000.00) representing his
compensation/commission for the unexpired term of his contract.
All other claims are dismissed for lack of merit.
SO ORDERED.12
Both parties appealed the Labor Arbiters Decision to the NLRC. Royale Homes claimed that the
Labor Arbiter grievously erred inruling that there exists an employer-employee relationship
between the parties. It insisted that the contract between them expressly statesthat Alcantara is an
independent contractor and not an ordinary employee. Ithad no control over the means and
methods by which he performed his work. RoyaleHomes likewise assailed the award of
P277,000.00 for lack of basis as it did not pre-terminate the contract. It was Alcantara who chose
not to finish the contract.
Alcantara, for his part, argued that the Labor Arbiter erred in ruling that his employment was for
a fixed-term and that he is not entitled to backwages, reinstatement, unpaid commissions, and
damages.
Ruling of the National LaborRelations Commission
On February 23, 2009, the NLRC rendered its Decision,13 ruling that Alcantara is not an
employee but a mere independent contractor of Royale Homes. It based its ruling mainly on the
contract which does not require Alcantara to observe regular working hours. He was also free to
adopt the selling methods he deemed most effective and can even recruit sales agents to assist
him in marketing the inventories of Royale Homes. The NLRC also considered the fact that
Alcantara was not receiving monthly salary, but was being paid on commission basis as
stipulated in the contract. Being an independent contractor, the NLRC concluded that Alcantaras
Complaint iscognizable by the regular courts.
The falloof the NLRC Decision reads:
WHEREFORE, premises considered, the Decision of Labor Arbiter Dolores Peralta-Beley dated
September 5, 2005 is REVERSED and SET ASIDE and a NEW ONE rendered dismissing the
complaint for lack of jurisdiction.
SO ORDERED.14
Alcantara moved for reconsideration.15 In a Resolution16 dated May 29, 2009, however, the
NLRC denied his motion.

Alcantara thus filed a Petition for Certiorari17 with the CA imputing grave abuse of discretion on
the partof the NLRC in ruling that he is not an employee of Royale Homes and that it is the
regular courts which have jurisdiction over the issue of whether the pre-termination of the
contract is valid.
Ruling of the Court of Appeals
On June 23, 2010, the CA promulgated its Decision18 granting Alcantaras Petition and
reversing the NLRCs Decision. Applying the four-fold and economic reality tests, it held
thatAlcantara is an employee of Royale Homes. Royale Homes exercised some degree of control
over Alcantara since his job, as observed by the CA, is subject to company rules, regulations, and
periodic evaluations. He was also bound by the company code of ethics. Moreover, the
exclusivity clause of the contract has made Alcantara economically dependent on Royale Homes,
supporting the theory that he is anemployee of said company.
The CA further held that Alcantaras termination from employment was without any valid or just
cause, and it was carried out in violation of his right to procedural due process. Thus, the CA
ruled that he isentitled to backwages and separation pay, in lieu of reinstatement.
Considering,however, that the CA was not satisfied with the proofadduced to establish the
amount of Alcantaras annual salary, it remanded the caseto the Labor Arbiter to determine the
same and the monetary award he is entitled to. With regard to the corporate officers, the CA
absolved them from any liability for want of clear proof that they assented to the patently
unlawful acts or that they are guilty of bad faith orgross negligence. Thus:
WHEREFORE, in view of the foregoing, the instant PETITION is GRANTED. The assailed
decision of the National Labor Relations Commission in NLRC NCR CASE NO. 00-12-1431103 NLRC CA NO. 046104-05 dated February 23, 2009 as well as the Resolution dated May 29,
2009 are hereby SET ASIDE and a new one is entered ordering the respondent company to pay
petitioner backwages which shall be computed from the time of his illegal termination in October
2003 up to the finality of this decision, plus separation pay equivalent to one month salary for
every year of service. This case is REMANDED to the Labor Arbiter for the proper
determination and computation of back wages, separation pay and other monetary benefits that
petitioner is entitled to.
SO ORDERED.19
Royale Homes filed a Motion for Reconsideration20 and a Supplemental Motion for
Reconsideration.21 In a Resolution22 dated January 18, 2011, however, the CA denied said
motions.
Issues
Hence, this Petition where Royale Homes submits before this Court the following issues for
resolution:
A.

WHETHER THE COURT OF APPEALS HAS DECIDED THE INSTANT CASE NOT
IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME
COURT WHEN IT REVERSED THE RULING OF THE NLRC DISMISSING THE
COMPLAINT OF RESPONDENT FOR LACK OF JURISDICTION AND
CONSEQUENTLY, IN FINDING THAT RESPONDENT WAS ILLEGALLY
DISMISSED[.]
B.
WHETHER THE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW
IN DISREGARDING THE EN BANCRULING OF THIS HONORABLE COURT IN
THE CASEOF TONGKO VS. MANULIFE, AND IN BRUSHING ASIDE THE
APPLICABLE RULINGS OF SONZA VS. ABS CBN AND CONSULTA V. CA[.]
C.
WHETHER THE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW
IN DENYING THE MOTION FOR RECONSIDERATION OF PETITIONER AND IN
REFUSING TO CORRECT ITSELF[.]23
Royale Homes contends that its contract with Alcantara is clear and unambiguous it engaged
his services as an independent contractor. This can be readily seen from the contract stating that
no employer-employee relationship exists between the parties; that Alcantara was free to solicit
sales at any time and by any manner he may deem appropriate; that he may recruit sales
personnel to assist him in marketing Royale Homes inventories; and, thathis remunerations are
dependent on his sales performance.
Royale Homes likewise argues that the CA grievously erred in ruling that it exercised control
over Alcantara based on a shallow ground that his performance is subject to company rules and
regulations, code of ethics, periodic evaluation, and exclusivity clause of contract. RoyaleHomes
maintains that it is expected to exercise some degree of control over its independent
contractors,but that does not automatically result in the existence ofemployer-employee
relationship. For control to be consideredas a proof tending to establish employer-employee
relationship, the same mustpertain to the means and method of performing the work; not on the
relationship of the independent contractors among themselves or their persons or their source of
living.
Royale Homes further asserts that it neither hired nor wielded the power to dismiss Alcantara. It
was Alcantara who openly and publicly declared that he was pre-terminating his fixed-term
contract.
The pivotal issue to be resolved in this case is whether Alcantara was an independent contractor
or anemployee of Royale Homes.
Our Ruling

The Petition is impressed with merit.


The determination of whether a party who renders services to another is an employee or an
independent contractor involves an evaluation of factual matters which, ordinarily, is not within
the province of this Court. In view of the conflicting findings of the tribunals below, however,
this Court is constrained to go over the factual matters involved in this case.24
The juridical relationship of the parties based on their written contract
The primary evidence of the nature of the parties relationship in this case is the written contract
that they signed and executed in pursuanceof their mutual agreement. While the existence of
employer-employee relationship is a matter of law, the characterization made by the parties in
their contract as to the nature of their juridical relationship cannot be simply ignored, particularly
in this case where the parties written contractunequivocally states their intention at the time they
entered into it. In Tongko v. The Manufacturers LifeInsurance Co. (Phils.), Inc.,25 it was held
that:
To be sure, the Agreements legal characterization of the nature of the relationship cannot be
conclusive and binding on the courts; x x x the characterization of the juridical relationship the
Agreement embodied is a matter of law that is for the courts to determine. At the same time,
though, the characterization the parties gave to their relationship in the Agreement cannot simply
be brushed aside because it embodiestheir intent at the time they entered the Agreement, and they
were governed by this understanding throughout their relationship. At the very least, the
provision on the absence of employer- employee relationship between the parties can be an aid in
considering the Agreement and its implementation, and in appreciating the other evidence on
record.26
In this case, the contract,27 duly signed and not disputed by the parties, conspicuously provides
that "no employer-employee relationship exists between" Royale Homes and Alcantara, as well
as his sales agents. It is clear that they did not want to be bound by employer-employee
relationship atthe time ofthe signing of the contract. Thus:
January 24, 2003
MR. FIDEL P. ALCANTARA
13 Rancho I
Marikina City
Dear Mr. Alcantara,
This will confirm yourappointment as Division 5 VICE[-]PRESIDENTSALES of ROYALE
HOMES MARKETING CORPORATION effective January 1, 2003 to December 31, 2003.

Your appointment entails marketing our real estate inventories on an EXCLUSIVE BASIS under
such price, terms and condition to be provided to you from time to time.
As such, you can solicit sales at any time and by any manner which you deem appropriate and
necessary to market our real estate inventories subject to rules, regulations and code of ethics
promulgated by the company. Further, you are free to recruit sales personnel/agents to assist you
in marketing of our inventories provided that your personnel/agents shall first attend the required
seminars and briefing to be conducted by us from time to time for the purpose of familiarizing
them of terms and conditionsof sale, the natureof property sold, etc., attendance of which shall be
a condition precedent for their accreditation by us.
That as such Division 5 VICE[-]PRESIDENT-SALES you shall be entitled to:
1. Commission override of 0.5% for all option sales beginning January 1, 2003 booked
by your sales agents.
2. Budget allocation depending on your divisions sale performance as per our budget
guidelines.
3. Sales incentive and other forms of company support which may be granted from time
to time. It is understood, however, that no employer-employee relationship exists between
us, that of your sales personnel/agents, and that you shall hold our company x x x, its
officers and directors, free and harmless from any and all claims of liability and damages
arising from and/or incident to the marketing of our real estate inventories.
We reserve, however, our right to terminate this agreement in case of violation of any company
rules and regulations, policies and code of ethics upon notice for justifiable reason.
Your performance shall be subject toperiodic evaluation based on factors which shall be
determined by the management.
If you are amenable to the foregoing terms and conditions, please indicate your conformity by
signing on the space provided below and return [to] us a duplicate copy of this letter, duly
accomplished, to constitute as our agreement on the matter.(Emphasis ours)
Since "the terms of the contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of itsstipulations should control."28 No construction is even needed
asthey already expressly state their intention. Also, this Court adopts the observation of the
NLRC that it is rather strange on the part of Alcantara, an educated man and a veteran sales
broker who claimed to be receiving P1.2 million as his annual salary, not to have contested the
portion of the contract expressly indicating that he is not an employee of Royale Homes if their
true intention were otherwise.
The juridical relationship of the parties based on Control Test

In determining the existence of an employer-employee relationship, this Court has generally


relied on the four-fold test, to wit: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the employers power to control the
employee with respect to the means and methods by which the work is to be accomplished.29
Among the four, the most determinative factor in ascertaining the existence of
employeremployee relationship is the "right of control test".30 "It is deemed to be such an
important factor that the other requisites may even be disregarded."31 This holds true where the
issues to be resolved iswhether a person who performs work for another is the latters employee
or is an independent contractor,32 as in this case. For where the person for whom the services are
performed reserves the right to control not only the end to beachieved, but also the means by
which such end is reached, employer-employee relationship is deemed to exist.33
In concluding that Alcantara is an employee of RoyaleHomes, the CA ratiocinated that since the
performance of his tasks is subject to company rules, regulations, code of ethics, and periodic
evaluation, the element of control is present.
The Court disagrees.
Not every form of control is indicative of employer-employee relationship.1wphi1 A person
who performs work for another and is subjected to its rules, regulations, and code of ethics does
not necessarily become an employee.34 As long as the level of control does not interfere with the
means and methods of accomplishing the assigned tasks, the rules imposed by the hiring party on
the hired party do not amount to the labor law concept of control that is indicative of employeremployee relationship. In Insular Life Assurance Co., Ltd. v. National Labor Relations
Commission35 it was pronounced 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
employeremployee relationship unlike the second, which address both the result and the means
used to achieve it. x x x36
In this case, the Court agrees with Royale Homes that the rules, regulations, code of ethics, and
periodic evaluation alluded to byAlcantara do not involve control over the means and methods
by which he was to performhis job. Understandably, Royale Homes has to fix the price, impose
requirements on prospective buyers, and lay down the terms and conditionsof the sale, including
the mode of payment, which the independent contractors must follow. It is also necessary for
Royale Homes to allocateits inventories among its independent contractors, determine who has
priority in selling the same, grant commission or allowance based on predetermined criteria, and
regularly monitor the result of their marketing and sales efforts. But tothe mind of this Court,
these do not pertain to the means and methods of how Alcantara was to perform and accomplish
his task of soliciting sales. They do not dictate upon him the details of how he would solicit sales
or the manner as to how he would transact business with prospective clients. In Tongko, this
Court held that guidelines or rules and regulations that do notpertain to the means or methodsto
be employed in attaining the result are not indicative of control as understood inlabor law. Thus:

From jurisprudence, an important lesson that the first Insular Lifecase teaches us is that a
commitment to abide by the rules and regulations of an insurance company does not ipso
factomake the insurance agent an employee. Neither do guidelines somehow restrictive of the
insurance agents conduct necessarily indicate "control" as this term is defined in jurisprudence.
Guidelines indicative of labor law "control," as the first Insular Lifecase tells us, should not
merely relate to the mutually desirable result intended by the contractual relationship; they must
have the nature of dictating the means or methods to beemployed in attaining the result, or of
fixing the methodology and of binding or restricting the party hired to the use of these means.In
fact, results-wise, the principal can impose production quotas and can determine how many
agents, with specific territories, ought to be employed to achieve the companys objectives.
These are management policy decisions that the labor law element of control cannot reach. Our
ruling in these respects in the first Insular Lifecase was practically reiterated in Carungcong.
Thus, as will be shown more fully below, Manulifes codes of conduct, all of which do not
intrude into the insurance agents means and manner of conducting their sales and only control
them as to the desired results and Insurance Code norms, cannot be used as basis for a finding
that the labor law concept of control existed between Manulife and Tongko.37 (Emphases in the
original)
As the party claiming the existence of employer-employee relationship, it behoved upon
Alcantara to prove the elements thereof, particularly Royale Homes power of control over the
means and methods of accomplishing the work.38 He, however, failed to cite specificrules,
regulations or codes of ethics that supposedly imposed control on his means and methods of
soliciting sales and dealing with prospective clients. On the other hand, this case is replete with
instances that negate the element of control and the existence of employer-employee relationship.
Notably, Alcantara was not required to observe definite working hours.39 Except for soliciting
sales, RoyaleHomes did not assign other tasks to him. He had full control over the means and
methods of accomplishing his tasks as he can "solicit sales at any time and by any manner which
[he may] deem appropriate and necessary." He performed his tasks on his own account free from
the control and direction of Royale Homes in all matters connected therewith, except as to the
results thereof.40
Neither does the repeated hiring of Alcantara prove the existence of employer-employee
relationship.41 As discussed above, the absence of control over the means and methodsdisproves
employer-employee relationship. The continuous rehiring of Alcantara simply signifies the
renewal of his contract with Royale Homes, and highlights his satisfactory services warranting
the renewal of such contract. Nor does the exclusivity clause of contract establish the existence
of the labor law concept of control. In Consulta v. Court of Appeals,42 it was held that
exclusivity of contract does not necessarily result in employer-employee relationship, viz:
x x x However, the fact that the appointment required Consulta to solicit business exclusively for
Pamana did not mean that Pamana exercised control over the means and methods of Consultas
work as the term control is understood in labor jurisprudence. Neither did it make Consulta an
employee of Pamana. Pamana did not prohibit Consulta from engaging in any other business, or
from being connected with any other company, for aslong as the business [of the] company did
not compete with Pamanas business.43

The same scenario obtains in this case. Alcantara was not prohibited from engaging in any other
business as long as he does not sell projects of Royale Homes competitors. He can engage in
selling various other products or engage in unrelated businesses.
Payment of Wages
The element of payment of wages is also absent in thiscase. As provided in the contract,
Alcantaras remunerations consist only of commission override of 0.5%, budget allocation, sales
incentive and other forms of company support. There is no proof that he received fixed monthly
salary. No payslip or payroll was ever presented and there is no proof that Royale Homes
deducted from his supposed salary withholding tax or that it registered him with the Social
Security System, Philippine Health Insurance Corporation, or Pag-Ibig Fund. In fact, his
Complaint merely states a ballpark figure of his alleged salary of P100,000.00, more or less. All
of these indicate an independent contractual relationship.44 Besides, if Alcantara indeed
consideredhimself an employee of Royale Homes, then he, an experienced and professional
broker, would have complained that he was being denied statutorily mandated benefits. But for
nine consecutive years, he kept mum about it, signifying that he has agreed, consented, and
accepted the fact that he is not entitled tothose employee benefits because he is an independent
contractor.
This Court is, therefore,convinced that Alcantara is not an employee of Royale Homes, but a
mere independent contractor. The NLRC is, therefore, correct in concluding that the Labor
Arbiter has no jurisdiction over the case and that the same is cognizable by the regular courts.
WHEREFORE, the instant Petition is hereby GRANTED. The June 23, 2010 Decision of the
Court of Appeals in CA-G.R. SP No. 109998 is REVERSED and SET ASIDE. The February 23,
2009 Decision of the National Labor Relations Commission is REINSTATED and AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 195466

July 2, 2014

ARIEL L. DAVID, doing business under the name and style "YIELS HOG DEALER,"
Petitioner,
vs.
JOHN G. MACASIO, Respondent.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari1 the challenge to the November 22, 2010
decision2 and the January 31, 2011 resolution3 of the Court of Appeals (CA) in CA-G.R. SP No.
116003. The CA decision annulled and set aside the May 26, 2010 decision4 of the National
Labor Relations Commission (NLRC)5 which, in turn, affirmed the April 30, 2009 Decision6 of
the Labor Arbiter (LA). The LA's decision dismissed respondent John G. Macasio's monetary
claims.
The Factual Antecedents
In January 2009, Macasio filed before the LA a complaint7 against petitioner Ariel L. David,
doing business under the name and style "Yiels Hog Dealer," for non-payment of overtime pay,
holiday pay and 13th month pay. He also claimed payment for moral and exemplary damages
and attorneys fees. Macasio also claimed payment for service incentive leave (SIL).8
Macasio alleged9 before the LA that he had been working as a butcher for David since January 6,
1995. Macasio claimed that David exercised effective control and supervision over his work,
pointing out that David: (1) set the work day, reporting time and hogs to be chopped, as well as
the manner by which he was to perform his work; (2) daily paid his salary of P700.00, which was
increased from P600.00 in 2007, P500.00 in 2006 and P400.00 in 2005; and (3) approved and
disapproved his leaves. Macasio added that David owned the hogs delivered for chopping, as
well as the work tools and implements; the latter also rented the workplace. Macasio further
claimed that David employs about twenty-five (25) butchers and delivery drivers.
In his defense,10 David claimed that he started his hog dealer business in 2005 and that he only
has ten employees. He alleged that he hired Macasio as a butcher or chopper on "pakyaw" or task
basis who is, therefore, not entitled to overtime pay, holiday pay and 13th month pay pursuant to
the provisions of the Implementing Rules and Regulations (IRR) of the Labor Code. David

pointed out that Macasio: (1) usually starts his work at 10:00 p.m. and ends at 2:00 a.m. of the
following day or earlier, depending on the volume of the delivered hogs; (2) received the fixed
amount of P700.00 per engagement, regardless of the actual number of hours that he spent
chopping the delivered hogs; and (3) was not engaged to report for work and, accordingly, did
not receive any fee when no hogs were delivered.
Macasio disputed Davids allegations.11 He argued that, first, David did not start his business
only in 2005. He pointed to the Certificate of Employment12 that David issued in his favor
which placed the date of his employment, albeit erroneously, in January 2000. Second, he
reported for work every day which the payroll or time record could have easily proved had David
submitted them in evidence.
Refuting Macasios submissions,13 David claims that Macasio was not his employee as he hired
the latter on "pakyaw" or task basis. He also claimed that he issued the Certificate of
Employment, upon Macasios request, only for overseas employment purposes. He pointed to the
"Pinagsamang Sinumpaang Salaysay,"14 executed by Presbitero Solano and Christopher
(Antonio Macasios co-butchers), to corroborate his claims.
In the April 30, 2009 decision,15 the LA dismissed Macasios complaint for lack of merit. The
LA gave credence to Davids claim that he engaged Macasio on "pakyaw" or task basis. The LA
noted the following facts to support this finding: (1) Macasio received the fixed amount of
P700.00 for every work done, regardless of the number of hours that he spent in completing the
task and of the volume or number of hogs that he had to chop per engagement; (2) Macasio
usually worked for only four hours, beginning from 10:00 p.m. up to 2:00 a.m. of the following
day; and (3) the P700.00 fixed wage far exceeds the then prevailing daily minimum wage of
P382.00. The LA added that the nature of Davids business as hog dealer supports this "pakyaw"
or task basis arrangement.
The LA concluded that as Macasio was engaged on "pakyaw" or task basis, he is not entitled to
overtime, holiday, SIL and 13th month pay.
The NLRCs Ruling
In its May 26, 2010 decision,16 the NLRC affirmed the LA ruling.17 The NLRC observed that
David did not require Macasio to observe an eight hour work schedule to earn the fixed P700.00
wage; and that Macasio had been performing a non-time work, pointing out that Macasio was
paid a fixed amount for the completion of the assigned task, irrespective of the time consumed in
its performance. Since Macasio was paid by result and not in terms of the time that he spent in
the workplace, Macasio is not covered by the Labor Standards laws on overtime, SIL and holiday
pay, and 13th month pay under the Rules and Regulations Implementing the 13th month pay
law.18
Macasio moved for reconsideration19 but the NLRC denied his motion in its August 11, 2010
resolution,20 prompting Macasio to elevate his case to the CA via a petition for certiorari.21
The CAs Ruling

In its November 22, 2010 decision,22 the CA partly granted Macasios certiorari petition and
reversed the NLRCs ruling for having been rendered with grave abuse of discretion.
While the CA agreed with the LAand the NLRC that Macasio was a task basis employee, it
nevertheless found Macasio entitled to his monetary claims following the doctrine laid down in
Serrano v. Severino Santos Transit.23 The CA explained that as a task basis employee, Macasio
is excluded from the coverage of holiday, SIL and 13th month pay only if he is likewise a "field
personnel." As defined by the Labor Code, a "field personnel" is one who performs the work
away from the office or place of work and whose regular work hours cannot be determined with
reasonable certainty. In Macasios case, the elements that characterize a "field personnel" are
evidently lacking as he had been working as a butcher at Davids "Yiels Hog Dealer" business in
Sta. Mesa, Manila under Davids supervision and control, and for a fixed working schedule that
starts at 10:00 p.m.
Accordingly, the CA awarded Macasios claim for holiday, SIL and 13th month pay for three
years, with 10% attorneys fees on the total monetary award. The CA, however, denied
Macasios claim for moral and exemplary damages for lack of basis.
David filed the present petition after the CA denied his motion for reconsideration24 in the CAs
January 31, 2011 resolution.25
The Petition
In this petition,26 David maintains that Macasios engagement was on a "pakyaw" or task basis.
Hence, the latter is excluded from the coverage of holiday, SIL and 13th month pay. David
reiterates his submissions before the lower tribunals27 and adds that he never had any control
over the manner by which Macasio performed his work and he simply looked on to the "endresult." He also contends that he never compelled Macasio to report for work and that under their
arrangement, Macasio was at liberty to choose whether to report for work or not as other
butchers could carry out his tasks. He points out that Solano and Antonio had, in fact, attested to
their (David and Macasios) established "pakyawan" arrangement that rendered a written contract
unnecessary. In as much as Macasio is a task basis employee who is paid the fixed amount of
P700.00 per engagement regardless of the time consumed in the performance David argues that
Macasio is not entitled to the benefits he claims. Also, he posits that because he engaged Macasio
on "pakyaw" or task basis then no employer-employee relationship exists between them.
Finally, David argues that factual findings of the LA, when affirmed by the NLRC, attain finality
especially when, as in this case, they are supported by substantial evidence. Hence, David posits
that the CA erred in reversing the labor tribunals findings and granting the prayed monetary
claims.
The Case for the Respondent
Macasio counters that he was not a task basis employee or a "field personnel" as David would
have this Court believe.28 He reiterates his arguments before the lower tribunals and adds that,
contrary to Davids position, the P700.00 fee that he was paid for each day that he reported for

work does not indicate a "pakyaw" or task basis employment as this amount was paid daily,
regardless of the number or pieces of hogs that he had to chop. Rather, it indicates a daily-wage
method of payment and affirms his regular employment status. He points out that David did not
allege or present any evidence as regards the quota or number of hogs that he had to chop as
basis for the "pakyaw" or task basis payment; neither did David present the time record or
payroll to prove that he worked for less than eight hours each day. Moreover, David did not
present any contract to prove that his employment was on task basis. As David failed to prove the
alleged task basis or "pakyawan" agreement, Macasio concludes that he was Davids employee.
Procedurally, Macasio points out that Davids submissions in the present petition raise purely
factual issues that are not proper for a petition for review on certiorari. These issues whether he
(Macasio) was paid by result or on "pakyaw" basis; whether he was a "field personnel"; whether
an employer-employee relationship existed between him and David; and whether David
exercised control and supervision over his work are all factual in nature and are, therefore,
proscribed in a Rule 45 petition. He argues that the CAs factual findings bind this Court, absent
a showing that such findings are not supported by the evidence or the CAs judgment was based
on a misapprehension of facts. He adds that the issue of whether an employer-employee
relationship existed between him and David had already been settled by the LA29 and the
NLRC30 (as well as by the CA per Macasios manifestation before this Court dated November
15, 2012),31 in his favor, in the separate illegal case that he filed against David.
The Issue
The issue revolves around the proper application and interpretation of the labor law provisions
on holiday, SIL and 13th month pay to a worker engaged on "pakyaw" or task basis. In the
context of the Rule 65 petition before the CA, the issue is whether the CA correctly found the
NLRC in grave abuse of discretion in ruling that Macasio is entitled to these labor standards
benefits.
The Courts Ruling
We partially grant the petition.
Preliminary considerations: the Montoya ruling and the factual-issue-bar rule
In this Rule 45 petition for review on certiorari of the CAs decision rendered under a Rule 65
proceeding, this Courts power of review is limited to resolving matters pertaining to any
perceived legal errors that the CA may have committed in issuing the assailed decision. This is in
contrast with the review for jurisdictional errors, which we undertake in an original certiorari
action. In reviewing the legal correctness of the CA decision, we examine the CA decision based
on how it determined the presence or absence of grave abuse of discretion in the NLRC decision
before it and not on the basis of whether the NLRC decision on the merits of the case was
correct.32 In other words, we have to be keenly aware that the CA undertook a Rule 65 review,
not a review on appeal, of the NLRC decision challenged before it.33
Moreover, the Courts power in a Rule 45 petition limits us to a review of questions of law raised
against the assailed CA decision.34

In this petition, David essentially asks the question whether Macasio is entitled to holiday, SIL
and 13th month pay. This one is a question of law. The determination of this question of law
however is intertwined with the largely factual issue of whether Macasio falls within the rule on
entitlement to these claims or within the exception. In either case, the resolution of this factual
issue presupposes another factual matter, that is, the presence of an employer-employee
relationship between David and Macasio.
In insisting before this Court that Macasio was not his employee, David argues that he engaged
the latter on "pakyaw" or task basis. Very noticeably, David confuses engagement on "pakyaw"
or task basis with the lack of employment relationship. Impliedly, David asserts that their
"pakyawan" or task basis arrangement negates the existence of employment relationship.
At the outset, we reject this assertion of the petitioner. Engagement on "pakyaw" or task basis
does not characterize the relationship that may exist between the parties, i.e., whether one of
employment or independent contractorship. Article 97(6) of the Labor Code defines wages as
"xxx the remuneration or earnings, however designated, capable of being expressed in terms of
money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method
of calculating the same, which is payable by an employer to an employee under a written or
unwritten contract of employment for work done or to be done, or for services rendered or to be
rendered[.]"35 In relation to Article 97(6), Article 10136 of the Labor Code speaks of workers
paid by results or those whose pay is calculated in terms of the quantity or quality of their work
output which includes "pakyaw" work and other non-time work.
More importantly, by implicitly arguing that his engagement of Macasio on "pakyaw" or task
basis negates employer-employee relationship, David would want the Court to engage on a
factual appellate review of the entire case to determine the presence or existence of that
relationship. This approach however is not authorized under a Rule 45 petition for review of the
CA decision rendered under a Rule 65 proceeding.
First, the LA and the NLRC denied Macasios claim not because of the absence of an employeremployee but because of its finding that since Macasio is paid on pakyaw or task basis, then he is
not entitled to SIL, holiday and 13th month pay. Second, we consider it crucial, that in the
separate illegal dismissal case Macasio filed with the LA, the LA, the NLRC and the CA
uniformly found the existence of an employer-employee relationship.37
In other words, aside from being factual in nature, the existence of an employer-employee
relationship is in fact a non-issue in this case. To reiterate, in deciding a Rule 45 petition for
review of a labor decision rendered by the CA under 65, the narrow scope of inquiry is whether
the CA correctly determined the presence or absence of grave abuse of discretion on the part of
the NLRC. In concrete question form, "did the NLRC gravely abuse its discretion in denying
Macasios claims simply because he is paid on a non-time basis?"
At any rate, even if we indulge the petitioner, we find his claim that no employer-employee
relationship exists baseless. Employing the control test,38 we find that such a relationship exist
in the present case.

Even a factual review shows that Macasio is Davids employee


To determine the existence of an employer-employee relationship, four elements generally need
to be considered, namely: (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. These
elements or indicators comprise the so-called "four-fold" test of employment relationship.
Macasios relationship with David satisfies this test.
First, David engaged the services of Macasio, thus satisfying the element of "selection and
engagement of the employee." David categorically confirmed this fact when, in his "Sinumpaang
Salaysay," he stated that "nag apply po siya sa akin at kinuha ko siya na chopper[.]"39 Also,
Solano and Antonio stated in their "Pinagsamang Sinumpaang Salaysay"40 that "[k]ami po ay
nagtratrabaho sa Yiels xxx na pag-aari ni Ariel David bilang butcher" and "kilalanamin si xxx
Macasio na isa ring butcher xxx ni xxx David at kasama namin siya sa aming trabaho."
Second, David paid Macasios wages.Both David and Macasio categorically stated in their
respective pleadings before the lower tribunals and even before this Court that the former had
been paying the latter P700.00 each day after the latter had finished the days task. Solano and
Antonio also confirmed this fact of wage payment in their "Pinagsamang Sinumpaang
Salaysay."41 This satisfies the element of "payment of wages."
Third, David had been setting the day and time when Macasio should report for work. This
power to determine the work schedule obviously implies power of control. By having the power
to control Macasios work schedule, David could regulate Macasios work and could even refuse
to give him any assignment, thereby effectively dismissing him.
And fourth, David had the right and power to control and supervise Macasios work as to the
means and methods of performing it. In addition to setting the day and time when Macasio
should report for work, the established facts show that David rents the place where Macasio had
been performing his tasks. Moreover, Macasio would leave the workplace only after he had
finished chopping all of the hog meats given to him for the days task. Also, David would still
engage Macasios services and have him report for work even during the days when only few
hogs were delivered for butchering.
Under this overall setup, all those working for David, including Macasio, could naturally be
expected to observe certain rules and requirements and David would necessarily exercise some
degree of control as the chopping of the hog meats would be subject to his specifications. Also,
since Macasio performed his tasks at Davids workplace, David could easily exercise control and
supervision over the former. Accordingly, whether or not David actually exercised this right or
power to control is beside the point as the law simply requires the existence of this power to
control 4243 or, as in this case, the existence of the right and opportunity to control and supervise
Macasio.44
In sum, the totality of the surrounding circumstances of the present case sufficiently points to an
employer-employee relationship existing between David and Macasio.

Macasio is engaged on "pakyaw" or task basis


At this point, we note that all three tribunals the LA, the NLRC and the CA found that
Macasio was engaged or paid on "pakyaw" or task basis. This factual finding binds the Court
under the rule that factual findings of labor tribunals when supported by the established facts and
in accord with the laws, especially when affirmed by the CA, is binding on this Court.
A distinguishing characteristic of "pakyaw" or task basis engagement, as opposed to straighthour wage payment, is the non-consideration of the time spent in working. In a task-basis work,
the emphasis is on the task itself, in the sense that payment is reckoned in terms of completion of
the work, not in terms of the number of time spent in the completion of work.45 Once the work
or task is completed, the worker receives a fixed amount as wage, without regard to the standard
measurements of time generally used in pay computation.
In Macasios case, the established facts show that he would usually start his work at 10:00 p.m.
Thereafter, regardless of the total hours that he spent at the workplace or of the total number of
the hogs assigned to him for chopping, Macasio would receive the fixed amount of P700.00 once
he had completed his task. Clearly, these circumstances show a "pakyaw" or task basis
engagement that all three tribunals uniformly found.
In sum, the existence of employment relationship between the parties is determined by applying
the "four-fold" test; engagement on "pakyaw" or task basis does not determine the parties
relationship as it is simply a method of pay computation. Accordingly, Macasio is Davids
employee, albeit engaged on "pakyaw" or task basis.
As an employee of David paid on pakyaw or task basis, we now go to the core issue of whether
Macasio is entitled to holiday, 13th month, and SIL pay.
On the issue of Macasios entitlement to holiday, SIL and 13th month pay
The LA dismissed Macasios claims pursuant to Article 94 of the Labor Code in relation to
Section 1, Rule IV of the IRR of the Labor Code, and Article 95 of the Labor Code, as well as
Presidential Decree (PD) No. 851. The NLRC, on the other hand, relied on Article 82 of the
Labor Code and the Rules and Regulations Implementing PD No. 851. Uniformly, these
provisions exempt workers paid on "pakyaw" or task basis from the coverage of holiday, SIL and
13th month pay.
In reversing the labor tribunals rulings, the CA similarly relied on these provisions, as well as on
Section 1, Rule V of the IRR of the Labor Code and the Courts ruling in Serrano v. Severino
Santos Transit.46 These labor law provisions, when read together with the Serrano ruling,
exempt those engaged on "pakyaw" or task basis only if they qualify as "field personnel."
In other words, what we have before us is largely a question of law regarding the correct
interpretation of these labor code provisions and the implementing rules; although, to conclude
that the worker is exempted or covered depends on the facts and in this sense, is a question of
fact: first, whether Macasio is a "field personnel"; and second, whether those engaged on

"pakyaw" or task basis, but who are not "field personnel," are exempted from the coverage of
holiday, SIL and 13th month pay.
To put our discussion within the perspective of a Rule 45 petition for review of a CA decision
rendered under Rule 65 and framed in question form, the legal question is whether the CA
correctly ruled that it was grave abuse of discretion on the part of the NLRC to deny Macasios
monetary claims simply because he is paid on a non-time basis without determining whether he
is a field personnel or not.
To resolve these issues, we need tore-visit the provisions involved.
Provisions governing SIL and holiday pay
Article 82 of the Labor Code provides the exclusions from the coverage of Title I, Book III of the
Labor Code - provisions governing working conditions and rest periods.
Art. 82. Coverage. The provisions of [Title I] shall apply to employees in all establishments
and undertakings whether for profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the employer who are dependent on him
for support, domestic helpers, persons in the personal service of another, and workers who are
paid by results as determined by the Secretary of Labor in appropriate regulations.
xxxx
"Field personnel" shall refer to non-agricultural employees who regularly perform their duties
away from the principal place of business or branch office of the employer and whose actual
hours of work in the field cannot be determined with reasonable certainty. [emphases and
underscores ours]
Among the Title I provisions are the provisions on holiday pay (under Article 94 of the Labor
Code) and SIL pay (under Article 95 of the Labor Code). Under Article 82,"field personnel" on
one hand and "workers who are paid by results" on the other hand, are not covered by the Title I
provisions. The wordings of Article82 of the Labor Code additionally categorize workers "paid
by results" and "field personnel" as separate and distinct types of employees who are exempted
from the Title I provisions of the Labor Code.
The pertinent portion of Article 94 of the Labor Code and its corresponding provision in the
IRR47 reads:
Art. 94. Right to holiday pay. (a) Every worker shall be paid his regular daily wage during
regular holidays, except in retail and service establishments regularly employing less than (10)
workers[.] [emphasis ours]
xxxx
SECTION 1. Coverage. This Rule shall apply to all employees except:

xxxx
(e)Field personnel and other employees whose time and performance is unsupervised by the
employer including those who are engaged on task or contract basis, purely commission basis, or
those who are paid a fixed amount for performing work irrespective of the time consumed in the
performance thereof. [emphases ours]
On the other hand, Article 95 of the Labor Code and its corresponding provision in the IRR48
pertinently provides:
Art. 95. Right to service incentive. (a) Every employee who has rendered at least one year of
service shall be entitled to a yearly service incentive leave of five days with pay.
(b) This provision shall not apply to those who are already enjoying the benefit herein provided,
those enjoying vacation leave with pay of at least five days and those employed in
establishments regularly employing less than ten employees or in establishments exempted from
granting this benefit by the Secretary of Labor and Employment after considering the viability or
financial condition of such establishment. [emphases ours]
xxxx
Section 1. Coverage. This rule shall apply to all employees except:
xxxx
(e) Field personnel and other employees whose performance is unsupervised by the employer
including those who are engaged on task or contract basis, purely commission basis, or those
who are paid a fixed amount for performing work irrespective of the time consumed in the
performance thereof. [emphasis ours]
Under these provisions, the general rule is that holiday and SIL pay provisions cover all
employees. To be excluded from their coverage, an employee must be one of those that these
provisions expressly exempt, strictly in accordance with the exemption. Under the IRR,
exemption from the coverage of holiday and SIL pay refer to "field personnel and other
employees whose time and performance is unsupervised by the employer including those who
are engaged on task or contract basis[.]" Note that unlike Article 82 of the Labor Code, the IRR
on holiday and SIL pay do not exclude employees "engaged on task basis" as a separate and
distinct category from employees classified as "field personnel." Rather, these employees are
altogether merged into one classification of exempted employees.
Because of this difference, it may be argued that the Labor Code may be interpreted to mean that
those who are engaged on task basis, per se, are excluded from the SIL and holiday payment
since this is what the Labor Code provisions, in contrast with the IRR, strongly suggest. The
arguable interpretation of this rule may be conceded to be within the discretion granted to the LA
and NLRC as the quasi-judicial bodies with expertise on labor matters.

However, as early as 1987 in the case of Cebu Institute of Technology v. Ople49 the phrase
"those who are engaged on task or contract basis" in the rule has already been interpreted to
mean as follows:
[the phrase] should however, be related with "field personnel" applying the rule on ejusdem
generis that general and unlimited terms are restrained and limited by the particular terms that
they follow xxx Clearly, petitioner's teaching personnel cannot be deemed field personnel which
refers "to non-agricultural employees who regularly perform their duties away from the principal
place of business or branch office of the employer and whose actual hours of work in the field
cannot be determined with reasonable certainty. [Par. 3, Article 82, Labor Code of the
Philippines]. Petitioner's claim that private respondents are not entitled to the service incentive
leave benefit cannot therefore be sustained.
In short, the payment of an employee on task or pakyaw basis alone is insufficient to exclude one
from the coverage of SIL and holiday pay. They are exempted from the coverage of Title I
(including the holiday and SIL pay) only if they qualify as "field personnel." The IRR therefore
validly qualifies and limits the general exclusion of "workers paid by results" found in Article 82
from the coverage of holiday and SIL pay. This is the only reasonable interpretation since the
determination of excluded workers who are paid by results from the coverage of Title I is
"determined by the Secretary of Labor in appropriate regulations."
The Cebu Institute Technology ruling was reiterated in 2005 in Auto Bus Transport Systems,
Inc., v. Bautista:
A careful perusal of said provisions of law will result in the conclusion that the grant of service
incentive leave has been delimited by the Implementing Rules and Regulations of the Labor
Code to apply only to those employees not explicitly excluded by Section 1 of Rule V. According
to the Implementing Rules, Service Incentive Leave shall not apply to employees classified as
"field personnel." The phrase "other employees whose performance is unsupervised by the
employer" must not be understood as a separate classification of employees to which service
incentive leave shall not be granted. Rather, it serves as an amplification of the interpretation of
the definition of field personnel under the Labor Code as those "whose actual hours of work in
the field cannot be determined with reasonable certainty."
The same is true with respect to the phrase "those who are engaged on task or contract basis,
purely commission basis." Said phrase should be related with "field personnel," applying the rule
on ejusdem generis that general and unlimited terms are restrained and limited by the particular
terms that they follow.
The Autobus ruling was in turn the basis of Serrano v. Santos Transit which the CA cited in
support of granting Macasios petition.
In Serrano, the Court, applying the rule on ejusdem generis50 declared that "employees engaged
on task or contract basis xxx are not automatically exempted from the grant of service incentive
leave, unless, they fall under the classification of field personnel."51 The Court explained that
the phrase "including those who are engaged on task or contract basis, purely commission basis"

found in Section 1(d), Rule V of Book III of the IRR should not be understood as a separate
classification of employees to which SIL shall not be granted. Rather, as with its preceding
phrase - "other employees whose performance is unsupervised by the employer" - the phrase
"including those who are engaged on task or contract basis" serves to amplify the interpretation
of the Labor Code definition of "field personnel" as those "whose actual hours of work in the
field cannot be determined with reasonable certainty."
In contrast and in clear departure from settled case law, the LA and the NLRC still interpreted the
Labor Code provisions and the IRR as exempting an employee from the coverage of Title I of the
Labor Code based simply and solely on the mode of payment of an employee. The NLRCs utter
disregard of this consistent jurisprudential ruling is a clear act of grave abuse of discretion.52 In
other words, by dismissing Macasios complaint without considering whether Macasio was a
"field personnel" or not, the NLRC proceeded based on a significantly incomplete consideration
of the case. This action clearly smacks of grave abuse of discretion.
Entitlement to holiday pay
Evidently, the Serrano ruling speaks only of SIL pay. However, if the LA and the NLRC had only
taken counsel from Serrano and earlier cases, they would have correctly reached a similar
conclusion regarding the payment of holiday pay since the rule exempting "field personnel" from
the grant of holiday pay is identically worded with the rule exempting "field personnel" from the
grant of SIL pay. To be clear, the phrase "employees engaged on task or contract basis "found in
the IRR on both SIL pay and holiday pay should be read together with the exemption of "field
personnel."
In short, in determining whether workers engaged on "pakyaw" or task basis" is entitled to
holiday and SIL pay, the presence (or absence) of employer supervision as regards the workers
time and performance is the key: if the worker is simply engaged on pakyaw or task basis, then
the general rule is that he is entitled to a holiday pay and SIL pay unless exempted from the
exceptions specifically provided under Article 94 (holiday pay) and Article95 (SIL pay) of the
Labor Code. However, if the worker engaged on pakyaw or task basis also falls within the
meaning of "field personnel" under the law, then he is not entitled to these monetary benefits.
Macasio does not fall under the classification of "field personnel"
Based on the definition of field personnel under Article 82, we agree with the CA that Macasio
does not fall under the definition of "field personnel." The CAs finding in this regard is
supported by the established facts of this case: first, Macasio regularly performed his duties at
Davids principal place of business; second, his actual hours of work could be determined with
reasonable certainty; and, third, David supervised his time and performance of duties. Since
Macasio cannot be considered a "field personnel," then he is not exempted from the grant of
holiday, SIL pay even as he was engaged on "pakyaw" or task basis.
Not being a "field personnel," we find the CA to be legally correct when it reversed the NLRCs
ruling dismissing Macasios complaint for holiday and SIL pay for having been rendered with
grave abuse of discretion.

Entitlement to 13th month pay


With respect to the payment of 13th month pay however, we find that the CA legally erred in
finding that the NLRC gravely abused its discretion in denying this benefit to Macasio.1wphi1
The governing law on 13th month pay is PD No. 851.53
As with holiday and SIL pay, 13th month pay benefits generally cover all employees; an
employee must be one of those expressly enumerated to be exempted. Section 3 of the Rules and
Regulations Implementing P.D. No. 85154 enumerates the exemptions from the coverage of 13th
month pay benefits. Under Section 3(e), "employers of those who are paid on xxx task basis, and
those who are paid a fixed amount for performing a specific work, irrespective of the time
consumed in the performance thereof"55 are exempted.
Note that unlike the IRR of the Labor Code on holiday and SIL pay, Section 3(e) of the Rules
and Regulations Implementing PD No. 851 exempts employees "paid on task basis" without any
reference to "field personnel." This could only mean that insofar as payment of the 13th month
pay is concerned, the law did not intend to qualify the exemption from its coverage with the
requirement that the task worker be a "field personnel" at the same time.
WHEREFORE, in light of these considerations, we hereby PARTIALLY GRANT the petition
insofar as the payment of 13th month pay to respondent is concerned. In all other aspects, we
AFFIRM the decision dated November 22, 2010 and the resolution dated January 31, 2011 of the
Court of Appeals in CA-G.R. SP No. 116003.
SO ORDERED.
ARTURO D. BRION
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 204651

August 6, 2014

OUR HAUS REALTY DEVELOPMENT CORPORATION, Petitioner,


vs.
ALEXANDER PARIAN, JAY C. ERINCO, ALEXANDER CANLAS, BERNARD
TENEDERO and JERRY SABULAO, Respondents.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari1 the challenge to the May 7, 2012 decision2
and the November 27, 2012 resolution3 (assailed CA rulings) of the Court of Appeals (CA) in
CA-G.R. SP No. 123273. These assailed CA rulings affirmed the July 20, 2011 decision4 and the
December 2, 2011 resolution5 (NLRC rulings) of the National Labor Relations Commission
(NLRC) in NLRC LAC No. 02-000489-11 (NLRC NCR Case No. 06-08544-10). The NLRC
rulings in turn reversed and set aside the December 10, 2010 decision6 of the labor arbiter (LA).
Factual Antecedents
Respondents Alexander Parian, Jay Erinco, Alexander Canlas, Jerry Sabulao and Bernardo
Tenederowere all laborers working for petitioner Our Haus Realty Development Corporation
(Our Haus), a company engaged in the construction business.The respondents respective
employment records and daily wage rates from 2007 to 2010 are summarized in the table7
below:
Name

Date Hired

Years of
Service

Year and Place of Assignment

Daily
Rate

Alexander M.
Parian

October
1999

10 years

2007-2010- Quezon City

P353.50

Jay C. Erinco

January
2000

10 years

2008- Quezon City 2009- Antipolo


2010- Quezon City

P342.00

Alexander R.
Canlas

2005

5 years

2007-2010- Quezon City

P312.00

Jerry Q. Sabulao

August
1999

10 years

2008- Quezon City 2009- Antipolo


2010- Quezon City

P342.00

Bernardo N.

1994

16 years

2007-2010- Quezon City

P383.50

Tenedero
Sometime in May 2010, Our Haus experienced financial distress. To alleviate its condition, Our
Haus suspended some of its construction projects and asked the affected workers, including the
respondents, to take vacation leaves.8
Eventually, the respondents were asked to report back to work but instead of doing so, they filed
with the LA a complaint for underpayment of their daily wages. They claimed that except for
respondent Bernardo N. Tenedero, their wages were below the minimum rates prescribed in the
following wage orders from 2007 to 2010:
1. Wage Order No. NCR-13, which provides for a daily minimum wage rate of
P362.00for the non-agriculture sector (effective from August 28, 2007 until June 13,
2008); and
2. Wage Order No. NCR-14, which provides for a daily minimum wage rate of
P382.00for the non-agriculture sector (effective from June 14, 2008 until June 30, 2010).
The respondents also alleged thatOur Haus failed to pay them their holiday, service incentive
leave (SIL), 13th month and overtime pays.9
The Labor Arbitration Rulings
Before the LA, Our Haus primarily argued that the respondents wages complied with the laws
minimum requirement. Aside from paying the monetary amount of the respondents wages, Our
Haus also subsidized their meals (3 times a day), and gave them free lodging near the
construction project they were assigned to.10 In determining the total amount of the respondents
daily wages, the value of these benefits should be considered, in line with Article 97(f)11 of the
Labor Code.
Our Haus also rejected the respondents other monetary claims for lack of proof that they were
entitled to it.12
On the other hand, the respondents argued that the value of their meals should not be considered
in determining their wages total amount since the requirements set under Section 413 of
DOLE14 Memorandum Circular No. 215 were not complied with.
The respondents pointed out that Our Haus never presented any proof that they agreed in writing
to the inclusion of their meals value in their wages.16 Also, Our Haus failed to prove that the
value of the facilities it furnished was fair and reasonable.17 Finally, instead of deducting the
maximum amount of 70% of the value of the meals, Our Haus actually withheld its full value
(which was Php290.00 per week for each employee).18
The LA ruled in favor of Our Haus. He held that if the reasonable values of the board and
lodging would be taken into account, the respondents daily wages would meet the minimum

wage rate.19 As to the other benefits, the LA found that the respondents were not able to
substantiate their claims for it.20
The respondents appealed the LAs decision to the NLRC, which in turn, reversed it. Citing the
case of Mayon Hotel & Restaurant v. Adana,21 the NLRC noted that the respondents did not
authorize Our Haus in writing to charge the values of their board and lodging to their wages.
Thus, the samecannot be credited.
The NLRC also ruled that the respondents are entitled to their respective proportionate 13th
month payments for the year 2010 and SIL payments for at least three years,immediately
preceding May 31, 2010, the date when the respondents leftOur Haus. However, the NLRC
sustained the LAs ruling that the respondents were not entitled to overtime pay since the exact
dates and times when they rendered overtime work had not been proven.22
Our Haus moved for the reconsideration23 of the NLRCs decision and submitted new evidence
(the five kasunduans) to show that the respondents authorized Our Haus in writing to charge the
values of their meals and lodging to their wages.
The NLRC denied Our Haus motion, thus it filed a Rule 65 petition24 with the CA. In its
petition, Our Haus propounded a new theory. It made a distinction between deduction and
charging. A written authorization is only necessary if the facilitys value will be deducted and
will not be needed if it will merely be charged or included in the computation of wages.25 Our
Haus claimed that it did not actually deduct the values of the meals and housing benefits. It only
considered these in computing the total amount of wages paid to the respondents for purposes of
compliance with the minimum wage law. Hence, the written authorization requirement should
not apply.
Our Haus also asserted that the respondents claim for SIL pay should be denied as this was not
included in their pro formacomplaint. Lastly, it questioned the respondentsentitlement to
attorneys fees because they were not represented by a private lawyer but by the Public
Attorneys Office (PAO).
The CAs Ruling
The CA dismissed Our Haus certiorari petition and affirmed the NLRC rulings in toto. It found
no real distinction between deduction and charging,26 and ruled that the legal requirements
before any deduction or charging can be made, apply to both. Our Haus, however, failed to prove
that it complied with any of the requirements laid down in Mabeza v. National Labor Relations
Commission.27 Accordingly, it cannot consider the values of its meal and housing facilities in
the computation of the respondents total wages.
Also, the CA ruled that since the respondents were able to allege non-payment of SIL in their
position paper, and Our Haus, in fact, opposed it in its various pleadings,28 then the NLRC
properly considered it as part of the respondents causes of action. Lastly, the CA affirmed the
respondents entitlement to attorneys fees.29

Our Haus filed a motion for reconsideration but the CA denied its motion, prompting it to file the
present petition for review on certiorari under Rule 45.
The Petition
Our Haus submits that the CA erred in ruling that the legal requirements apply without
distinction whether the facilitys value will be deducted or merely included in the computation
of the wages. At any rate, it complied with the requirements for deductibility of the value of the
facilities. First, the five kasunduans executed by the respondents constitute the written
authorization for the inclusion of the board and lodgings values to their wages. Second, Our
Haus only withheld the amount of P290.00 which represents the foods raw value; the weekly
cooking cost (cooks wage, LPG, water) at P239.40 per person is a separate expense that Our
Haus did not withhold from the respondents wages.30 This disproves the respondentsclaim that
it deducted the full amount of the meals value.
Lastly, the CA erred in ruling that the claim for SIL pay may still be granted though not raised in
the complaint; and that the respondents are entitled to an award of attorneys fees.31
The Case for the Respondents
The respondents prayed for the denial of the petition.32 They maintained that the CA did not err
inruling that the values of the board and lodging cannot be deducted from their wages for failure
to comply with the requirements set by law.33 And though the claim for SIL pay was not
included in their pro forma complaint, they raised their claims in their position paper and Our
Haus had the opportunity to contradict it in its pleadings.34
Finally, under the PAO law, the availment of the PAOs legal services does not exempt its clients
from an award of attorneys fees.35
The Courts Ruling
We resolve to DENYthe petition.
The nature of a Rule 45 petition only questions of law
Basic is the rule that only questions of lawmay be raised in a Rule 45 petition.36 However, in
this case, weare confronted with mixed questions of fact and law that are subsumed under the
issue of whether Our Haus complied with the legal requirements on the deductibility of the value
of facilities. Strictly, factual issues cannot be considered under Rule 45 except in the course of
resolving if the CA correctly determined whether or not the NLRC committed grave abuse of
discretion in considering and appreciating the factual issues before it.37
In ruling for legal correctness, we have to view the CA decision in the same context that the
petition for certiorariit ruled upon was presented to it; we have to examine the CA decision from
the prism of whether it correctly determined the presence or absence of grave abuse of discretion
in the NLRC decision before it, not on the basis of whether the NLRC decision, on the merits of

the case, was correct. In other words, we have to be keenly aware that the CA undertook a Rule
65 review, not a review on appeal, of the NLRC decision challenged before it. This is the
approach that should bebasic in a Rule 45 review of a CA ruling in a labor case. In question
form, the question to ask in the present case is: did the CA correctly determine that the NLRC
did not commit grave abuse of discretion in ruling on the case?38 We rule that the CA correctly
did.
No substantial distinction between deducting and charging a facilitys value from the employees
wage; the legal requirements for creditability apply to both
To justify its non-compliance with the requirements for the deductibility of a facility, Our Haus
asks us to believe that there is a substantial distinction between the deduction and the charging of
a facilitys value to the wages. Our Haus explains that in deduction, the amount of the wage
(which may already be below the minimum) would still be lessened by the facilitys value, thus
needing the employees consent. On the other hand, in charging, there is no reduction of the
employees wage since the facilitys value will just be theoretically added to the wage for
purposes of complying with the minimum wage requirement.39
Our Haus argument is a vain attempt to circumvent the minimum wage law by trying to create a
distinction where none exists.
In reality, deduction and charging both operate to lessen the actual take-home pay of an
employee; they are two sides of the same coin. In both, the employee receives a lessened amount
because supposedly, the facilitys value, which is part of his wage, had already been paid to him
in kind. As there is no substantial distinction between the two, the requirements set by law must
apply to both.
As the CA correctly ruled, these requirements, as summarized in Mabeza, are the following:
a. proof must be shown thatsuch facilities are customarily furnished by the trade;
b. the provision of deductiblefacilities must be voluntarily accepted in writingby the
employee; and
c. The facilities must be charged at fair and reasonable value.40
We examine Our Haus compliance with each of these requirements in seriatim.
a. The facility must be customarily furnished by the trade
In a string of cases, we have concluded that one of the badges to show that a facility is
customarily furnished by the trade is the existence of a company policy or guideline showing that
provisions for a facility were designated as part of the employees salaries.41 To comply with
this, Our Haus presented in its motion for reconsideration with the NLRC the joint sinumpaang
salaysayof four of its alleged employees. These employees averred that they were recipients of
free lodging, electricity and water, as well as subsidized meals from Our Haus.42

We agree with the NLRCs finding that the sinumpaang salaysay statements submitted by Our
Haus are self-serving.1wphi1 For one, Our Haus only produced the documents when the NLRC
had already earlier determined that Our Haus failed to prove that it was traditionally giving the
respondents their board and lodging. This document did not state whether these benefits had been
consistently enjoyed by the rest of Our Haus employees. Moreover, the records reveal that the
board and lodging were given on a per project basis. Our Haus did not show if these benefits
were also provided inits other construction projects, thus negating its claimed customary nature.
Even assuming the sinumpaang salaysay to be true, this document would still work against Our
Haus case. If Our Haus really had the practice of freely giving lodging, electricity and water
provisions to its employees, then Our Haus should not deduct its values from the respondents
wages. Otherwise, this will run contrary to the affiants claim that these benefits were
traditionally given free of charge.
Apart from company policy, the employer may also prove compliance with the first requirement
by showing the existence of an industry-wide practice of furnishingthe benefits in question
among enterprises engaged in the same line of business. If it were customary among construction
companies to provide board and lodging to their workers and treat their values as part of their
wages, we would have more reason to conclude that these benefits were really facilities.
However, Our Haus could not really be expected to prove compliance with the first requirement
since the living accommodation of workers in the construction industry is not simply a matter of
business practice. Peculiar to the construction business are the occupational safety and health
(OSH) services which the law itself mandates employers to provide to their workers. This isto
ensure the humane working conditions of construction employees despite their constant exposure
to hazardous working environments. Under Section 16 of DOLE Department Order (DO) No. 13,
series of 1998,43 employers engaged in the construction business are required to providethe
following welfare amenities:
16.1 Adequate supply of safe drinking water
16.2 Adequate sanitaryand washing facilities
16.3 Suitable living accommodation for workers, and as may be applicable, for their
families
16.4 Separate sanitary, washing and sleeping facilitiesfor men and women workers.
[emphasis ours]
Moreover, DOLE DO No. 56, series of 2005, which sets out the guidelines for the
implementation ofDOLE DO No. 13, mandates that the cost of the implementation of the
requirements for the construction safety and health of workers, shall be integrated to the overall
project cost.44 The rationale behind this isto ensure that the living accommodation of the
workers is not substandard and is strictly compliant with the DOLEs OSH criteria.
As part of the project cost that construction companies already charge to their clients, the value
of the housing of their workers cannot be charged again to their employees salaries. Our Haus

cannot pass the burden of the OSH costs of its construction projects to its employees by
deducting it as facilities. This is Our Haus obligation under the law.
Lastly, even if a benefit is customarily provided by the trade, it must still pass the purpose testset
by jurisprudence. Under this test, if a benefit or privilege granted to the employee is clearly for
the employers convenience, it will not be considered as a facility but a supplement.45 Here,
careful consideration is given to the nature of the employers business in relation to the work
performed by the employee. This test is used to address inequitable situations wherein employers
consider a benefit deductible from the wages even if the factual circumstances show that it
clearly redounds to the employers greater advantage.
While the rules serve as the initial test in characterizing a benefit as a facility, the purpose test
additionally recognizes that the employer and the employee do not stand at the same bargaining
positions on benefits that must or must not formpart of an employees wage. In the ultimate
analysis, the purpose test seeks to prevent a circumvention of the minimum wage law.
a1. The purpose test in jurisprudence
Under the law,46 only the value of the facilities may be deducted from the employees wages but
not the value of supplements. Facilities include articles or services for the benefit of the
employee or his family but exclude tools of the trade or articles or services primarily for the
benefit of the employer or necessary to the conduct of the employers business.47
The law also prescribes that the computation of wages shall exclude whatever benefits,
supplementsor allowances given to employees. Supplements are paid to employees on top of
their basic pay and are free of charge.48 Since it does not form part of the wage, a supplements
value may not be includedin the determination of whether an employer complied with the
prescribed minimum wage rates.
In the present case, the board and lodging provided by Our Haus cannot be categorized
asfacilities but as supplements. In SLL International Cables Specialist v. National Labor
Relations Commission,49 this Court was confronted with the issue on the proper characterization
of the free board and lodging provided by the employer. We explained:
The Court, at this point, makes a distinction between "facilities" and "supplements". It is of the
view that the food and lodging, or the electricity and water allegedly consumed by private
respondents in this case were not facilities but supplements. In the case of Atok-Big Wedge Assn.
v. Atok-Big Wedge Co., the two terms were distinguished from one another in this wise:
"Supplements", therefore, constitute extra remuneration or special privileges or benefits given to
or received by the laborers overand above their ordinary earnings or wages. "Facilities", on the
other hand, are items of expense necessary for the laborer's and his family's existence and
subsistence so thatby express provision of law (Sec. 2[g]), they form part of the wage and when
furnished by the employer are deductible therefrom, since if they are not so furnished, the laborer
would spend and pay for them just the same.

In short, the benefit or privilege given to the employee which constitutes an extra remuneration
above and over his basic or ordinary earning or wage is supplement; and when said benefit or
privilege is part of the laborers' basic wages, it is a facility. The distinction lies not so much in
the kind of benefit or item (food, lodging, bonus or sick leave) given, but in the purpose for
which it is given.In the case at bench, the items provided were given freely by SLLfor the
purpose of maintaining the efficiency and health of its workers while they were working attheir
respective projects.50
Ultimately, the real difference lies not on the kind of the benefit but on the purpose why it was
given by the employer. If it is primarily for the employees gain, then the benefit is a facility; if
its provision is mainly for the employers advantage, then it is a supplement. Again, this is to
ensure that employees are protected in circumstances where the employer designates a benefit as
deductible from the wages even though it clearly works to the employers greater convenience or
advantage.
Under the purpose test, substantial consideration must be given to the nature of the employers
business inrelation to the character or type of work performed by the employees involved.
Our Haus is engaged in the construction business, a laborintensive enterprise. The success of its
projects is largely a function of the physical strength, vitality and efficiency of its laborers. Its
business will be jeopardized if its workers are weak, sickly, and lack the required energy to
perform strenuous physical activities. Thus, by ensuring that the workers are adequately and well
fed, the employer is actually investing on its business.
Unlike in office enterprises where the work is focused on desk jobs, the construction industry
relies heavily and directly on the physical capacity and endurance of its workers. This is not to
say that desk jobs do not require muscle strength; wesimply emphasize that in the construction
business, bulk of the work performed are strenuous physical activities.
Moreover, in the construction business, contractors are usually faced with the problem ofmeeting
target deadlines. More often than not, work is performed continuously, day and night, in order to
finish the project on the designated turn-over date. Thus, it will be more convenient to the
employer if itsworkers are housed near the construction site to ensure their ready availability
during urgent or emergency circumstances. Also, productivity issues like tardiness and
unexpected absences would be minimized. This observation strongly bears in the present case
since three of the respondents are not residents of the National Capital Region. The board and
lodging provision might have been a substantial consideration in their acceptance of employment
in a place distant from their provincial residences.
Based on these considerations, we conclude that even under the purpose test, the subsidized
meals and free lodging provided by Our Haus are actually supplements. Although they also work
to benefit the respondents, an analysis of the nature of these benefits in relation to Our Haus
business shows that they were given primarily for Our Haus greater convenience and advantage.
If weighed on a scale, the balance tilts more towards Our Haus side. Accordingly, their values
cannot be considered in computing the total amount of the respondents wages. Under the

circumstances, the dailywages paid to the respondents are clearly below the prescribed minimum
wage rates in the years 2007-2010.
b. The provision of deductible facilities must be voluntarily accepted in writing by the employee
In Mayon Hotel, we reiterated that a facility may only be deducted from the wage if the
employer was authorized in writingby the concerned employee.51 As it diminishes the takehome pay of an employee, the deduction must be with his express consent.
Again, in the motion for reconsideration with the NLRC, Our Haus belatedly submitted five
kasunduans, supposedly executed by the respondents, containing their conformity to the
inclusion of the values of the meals and housing to their total wages. Oddly, Our Haus only
offered these documents when the NLRC had already ruled that respondents did not accomplish
any written authorization, to allow deduction from their wages. These five kasunduans were also
undated, making us wonder if they had reallybeen executed when respondents first assumed their
jobs.
Moreover, in the earlier sinumpaang salaysay by Our Haus four employees, it was not
mentioned that they also executed a kasunduanfor their board and lodging benefits. Because of
these surrounding circumstances and the suspicious timing when the five kasunduanswere
submitted as evidence, we agree withthe CA that the NLRC committed no grave abuse of
discretion in disregarding these documents for being self serving.
c. The facility must be charged at a fair and reasonable value
Our Haus admitted that it deducted the amount of P290.00 per week from each of the
respondents for their meals. But it now submits that it did not actually withhold the entire
amount as it did not figure in the computation the money it expended for the salary of the cook,
the water, and the LPG used for cooking, which amounts to P249.40 per week per person. From
these, it appears that the total meal expense per week for each person is P529.40,making Our
Haus P290.00 deduction within the 70% ceiling prescribed by the rules.
However, Our Haus valuation cannotbe plucked out of thin air. The valuation of a facility must
besupported by relevant documents such as receipts and company records for it to be considered
as fair and reasonable. In Mabeza, we noted:
Curiously, in the case at bench, the only valuations relied upon by the labor arbiter in his
decision were figures furnished by the private respondent's own accountant, without
corroborative evidence.On the pretext that records prior to the July 16, 1990 earthquake were lost
or destroyed, respondent failed to produce payroll records, receipts and other relevant
documents, where he could have, as has been pointedout in the Solicitor General's manifestation,
"secured certified copies thereof from the nearest regional office of the Department of Labor, the
SSS or the BIR".52 [emphasis ours]
In the present case, Our Haus never explained how it came up with the valuesit assigned for the
benefits it provided; it merely listed its supposed expenses without any supporting document.

Since Our Haus is using these additional expenses (cooks salary, water and LPG) to support its
claim that it did not withhold the full amount of the meals value, Our Haus is burdened to
present evidence to corroborate its claim. The records however, are bereft of any evidence to
support Our Haus meal expense computation. Eventhe value it assigned for the respondents
living accommodations was not supported by any documentary evidence. Without any
corroborative evidence, it cannot be said that Our Haus complied withthis third requisite.
A claim not raised in the pro forma complaint may still beraised in the position paper.
Our Haus questions the respondents entitlement to SIL pay by pointing out that this claim was
not included in the pro forma complaint filed with the NLRC. However, we agree with the CA
that such omission does not bar the labor tribunals from touching upon this cause of action since
this was raised and discussed inthe respondents position paper. In Samar-Med Distribution v.
National Labor Relations Commission,53 we held:
Firstly, petitioners contention that the validity of Gutangs dismissal should not be determined
because it had not been included in his complaint before the NLRC is bereft of merit. The
complaint of Gutang was a mere checklist of possible causes of action that he might have against
Roleda. Such manner of preparing the complaint was obviously designed to facilitate the filing
of complaints by employees and laborers who are thereby enabled to expediently set forth their
grievances in a general manner. But the non-inclusion in the complaint of the issue on the
dismissal did not necessarily mean that the validity of the dismissal could not be an issue.The
rules of the NLRC require the submission of verified position papers by the parties should they
fail to agree upon an amicable settlement, and bar the inclusion of any cause of action not
mentioned in the complaint or position paper from the time of their submission by the parties. In
view of this, Gutangs cause of action should be ascertained not from a reading of his complaint
alone but also from a consideration and evaluation of both his complaint and position paper.54
The respondents entitlement to the other monetary benefits
Generally a party who alleges payment as a defense has the burden of proving it.Particularly in
labor cases, the burden of proving payment of monetary claims rests on the employeron the
reasoning 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.55
Unfortunately, records will disclose the absence of any credible document which will show that
respondents had been paid their 13th month pay, holiday and SIL pays. Our Haus merely
presented a handwritten certification from its administrative officer that its employees
automatically become entitled to five days of service incentive leave as soon as they pass
probation. This certification was not even subscribed under oath. Our Haus could have at least
submitted its payroll or copies of the pay slips of respondents to show payment of these benefits.
However, it failed to do so.
Respondents are entitled to attorneys fees.

Finally, we affirm that respondents are entitled to attorneys fees. Our Haus asserts that
respondents availment of free legal services from the PAO disqualifies them from such award.
We find this untenable.
It is settled that in actions for recovery of wages or where an employee was forced to litigate and,
thus, incur expenses to protect his rights and interest, the award of attorney's fees is legally and
morally justifiable.56 Moreover, under the PAO Law or Republic Act No. 9406, the costs of the
suit, attorney's fees and contingent fees imposed upon the adversary of the PAO clients after a
successful litigation shall be deposited in the National Treasury as trust fund and shall be
disbursed for special allowances of authorized officials and lawyers of the PAO.57
Thus, the respondents are still entitled to attorney's fees. The attorney's fees awarded to them
shall be paid to the PAO. It serves as a token recompense to the PAO for its provision of free
legal services to litigants who have no means of hiring a private lawyer.
WHEREFORE, in light of these considerations, we conclude that the Court of Appeals correctly
found that the National Labor Relations Commission did not abuse its discretion in its decision
of July 20, 2011 and Resolution of December 2, 2011.1wphi1 Consequently we DENY the
petition and AFFIRM the Court of Appeals' decision dated May 7, 2012 and resolution dated
November 27, 2012 in CA-G.R. SP No. 123273. No costs.
SO ORDERED.
ARTURO D. BRION
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 181806

March 12, 2014

WESLEYAN UNIVERSITY-PHILIPPINES, Petitioner,


vs.
WESLEYAN UNIVERSITY-PHILIPPINES FACULTY and STAFF ASSOCIATION,
Respondent.
DECISION
DEL CASTILLO, J.:
A Collective Bargaining Agreement (CBA) is a contract entered into by an employer and a
legitimate labor organization concerning the terms and conditions of employment.1 Like any
other contract, it has the force of law between the parties and, thus, should be complied with in
good faith.2 Unilateral changes or suspensions in the implementation of the provisions of the
CBA, therefore, cannot be allowed without the consent of both parties.
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the
September 25, 2007 Decision4 and the February 5, 2008 Resolution5 of the Court of Appeals
(CA) in CA-G.R. SP No. 97053.
Factual Antecedents
Petitioner Wesleyan University-Philippines is a non-stock, non-profit educational institution duly
organized and existing under the laws of the Philippines.6 Respondent Wesleyan UniversityPhilippines Faculty and Staff Association, on the other hand, is a duly registered labor
organization7 acting as the sole and exclusive bargaining agent of all rank-and-file faculty and
staff employees of petitioner.8
In December 2003, the parties signed a 5-year CBA9 effective June 1, 2003 until May 31,
2008.10
On August 16, 2005, petitioner, through its President, Atty. Guillermo T. Maglaya (Atty.
Maglaya), issued a Memorandum11 providing guidelines on the implementation of vacation and
sick leave credits as well as vacation leave commutation. The pertinent portions of the
Memorandum read:

1. VACATION AND SICK LEAVE CREDITS


Vacation and sick leave credits are not automatic. They have to be earned. Monthly, a
qualified employee earns an equivalent of 1.25 days credit each for VL and SL. Vacation
Leave and Sick Leave credits of 15 days become complete at the cut off date of May 31
of each year. (Example, only a total of 5 days credit will be given to an employee for each
of sick leave [or] vacation leave, as of month end September, that is, 4 months from June
to September multiplied by 1.25 days). An employee, therefore, who takes VL or SL
beyond his leave credits as of date will have to file leave without pay for leaves beyond
his credit.
2. VACATION LEAVE COMMUTATION
Only vacation leave is commuted or monetized to cash. Vacation leave commutation is
effected after the second year of continuous service of an employee. Hence, an employee
who started working June 1, 2005 will get his commutation on May 31, 2007 or
thereabout.12
On August 25, 2005, respondents President, Cynthia L. De Lara (De Lara) wrote a letter13 to
Atty. Maglaya informing him that respondent is not amenable to the unilateral changes made by
petitioner.14 De Lara questioned the guidelines for being violative of existing practices and the
CBA,15 specifically Sections 1 and 2, Article XII of the CBA, to wit:
ARTICLE XII
VACATION LEAVE AND SICK LEAVE
SECTION 1. VACATION LEAVE - All regular and non-tenured rank-and-file faculty and staff
who are entitled to receive shall enjoy fifteen (15) days vacation leave with pay annually.
1.1 All unused vacation leave after the second year of service shall be converted into cash and be
paid to the entitled employee at the end of each school year to be given not later than August 30
of each year.
SECTION 2. SICK LEAVE - All regular and non-tenured rank-and-file faculty and staff shall
enjoy fifteen (15) days sick leave with pay annually.16
On February 8, 2006, a Labor Management Committee (LMC) Meeting was held during which
petitioner advised respondent to file a grievance complaint on the implementation of the vacation
and sick leave policy.17 In the same meeting, petitioner announced its plan of implementing a
one-retirement policy,18 which was unacceptable to respondent.
Ruling of the Voluntary Arbitrator
Unable to settle their differences at the grievance level, the parties referred the matter to a
Voluntary Arbitrator. During the hearing, respondent submitted affidavits to prove that there is an
established practice of giving two retirement benefits, one from the Private Education Retirement

Annuity Association (PERAA) Plan and another from the CBA Retirement Plan. Sections 1, 2, 3
and 4 of Article XVI of the CBA provide:
ARTICLE XVI
SEPARATION, DISABILITY AND RETIREMENT PAY
SECTION 1. ELIGIBILITY FOR MEMBERSHIP - Membership in the Plan shall be automatic
for all full-time, regular staff and tenured faculty of the University, except the University
President. Membership in the Plan shall commence on the first day of the month coincident with
or next following his statement of Regular/Tenured Employment Status.
SECTION 2. COMPULSORY RETIREMENT DATE - The compulsory retirement date of each
Member shall be as follows:
a. Faculty The last day of the School Year, coincident with his attainment of age sixty
(60) with at least five (years) of unbroken, credited service.
b. Staff Upon reaching the age of sixty (60) with at least five (5) years of unbroken,
credited service.
SECTION 3. OPTIONAL RETIREMENT DATE - A Member may opt for an optional retirement
prior to his compulsory retirement. His number of years of service in the University shall be the
basis of computing x x x his retirement benefits regardless of his chronological age.
SECTION 4. RETIREMENT BENEFIT - The retirement benefit shall be a sum equivalent to
100% of the members final monthly salary for compulsory retirement.
For optional retirement, the vesting schedule shall be:
x x x x19
On November 2, 2006, the Voluntary Arbitrator rendered a Decision20 declaring the oneretirement policy and the Memorandum dated August 16, 2005 contrary to law. The dispositive
portion of the Decision reads:
WHEREFORE, the following award is hereby made:
1. The assailed University guidelines on the availment of vacation and sick leave credits
and vacation leave commutation are contrary to law. The University is consequently
ordered to reinstate the earlier scheme, practice or policy in effect before the issuance of
the said guidelines on August 16, 2005;
2. The "one retirement" policy is contrary to law and is hereby revoked and rescinded.
The University is ordered x x x to resume and proceed with the established practice of
extending to qualified employees retirement benefits under both the CBA and the
PERAA Plan.

3. The other money claims are denied.21


Ruling of the Court of Appeals
Aggrieved, petitioner appealed the case to the CA via a Petition for Review under Rule 43 of the
Rules of Court.
On September 25, 2007, the CA rendered a Decision22 finding the rulings of the Voluntary
Arbitrator supported by substantial evidence. It also affirmed the nullification of the oneretirement policy and the Memorandum dated August 16, 2005 on the ground that these
unilaterally amended the CBA without the consent of respondent.23 Thus:
WHEREFORE, the instant appeal is DISMISSED for lack of merit.
SO ORDERED.24
Petitioner moved for reconsideration but the same was denied by the CA in its February 5, 2008
Resolution.25
Issues
Hence, this recourse by petitioner raising the following issues:
a.
Whether x x x the [CA] committed grave and palpable error in sustaining the Voluntary
Arbitrators ruling that the Affidavits submitted by Respondent WU-PFSA are substantial
evidence as defined by the rules and jurisprudence that would substantiate that Petitioner WU-P
has long been in the practice of granting its employees two (2) sets of Retirement Benefits.
b.
Whether x x x the [CA] committed grave and palpable error in sustaining the Voluntary
Arbitrators ruling that a university practice of granting its employees two (2) sets of Retirement
Benefits had already been established as defined by the law and jurisprudence especially in light
of the illegality and lack of authority of such alleged grant.
c.
Whether x x x the [CA] committed grave and palpable error in sustaining the Voluntary
Arbitrators ruling that it is incumbent upon Petitioner WU-P to show proof that no Board
Resolution was issued granting two (2) sets of Retirement Benefits.
d.

Whether x x x the [CA] committed grave and palpable error in revoking the 16 August 2005
Memorandum of Petitioner WU-P for being contrary to extant policy.26
Petitioners Arguments
Petitioner argues that there is only one retirement plan as the CBA Retirement Plan and the
PERAA Plan are one and the same.27 It maintains that there is no established company practice
or policy of giving two retirement benefits to its employees.28 Assuming, without admitting, that
two retirement benefits were released,29 petitioner insists that these were done by mere oversight
or mistake as there is no Board Resolution authorizing their release.30 And since these benefits
are unauthorized and irregular, these cannot ripen into a company practice or policy.31 As to the
affidavits submitted by respondent, petitioner claims that these are self-serving declarations,32
and thus, should not be given weight and credence.33
In addition, petitioner claims that the Memorandum dated August 16, 2005, which provides for
the guidelines on the implementation of vacation and sick leave credits as well as vacation leave
commutation, is valid because it is in full accord with existing policy.34
Respondents Arguments
Respondent belies the claims of petitioner and asserts that there are two retirement plans as the
PERAA Retirement Plan, which has been implemented for more than 30 years, is different from
the CBA Retirement Plan.35 Respondent further avers that it has always been a practice of
petitioner to give two retirement benefits36 and that this practice was established by substantial
evidence as found by both the Voluntary Arbitrator and the CA.37
As to the Memorandum dated August 16, 2005, respondent asserts that it is arbitrary and
contrary to the CBA and existing practices as it added qualifications or limitations which were
not agreed upon by the parties.38
Our Ruling
The Petition is bereft of merit.
The Non-Diminution Rule found in Article 10039 of the Labor Code explicitly prohibits
employers from eliminating or reducing the benefits received by their employees. This rule,
however, applies only if the benefit is based on an express policy, a written contract, or has
ripened into a practice.40 To be considered a practice, it must be consistently and deliberately
made by the employer over a long period of time.41
An exception to the rule is when "the practice is due to error in the construction or application of
a doubtful or difficult question of law."42 The error, however, must be corrected immediately
after its discovery;43 otherwise, the rule on Non-Diminution of Benefits would still apply.

The practice of giving two retirement


benefits to petitioners employees is
supported by substantial evidence.
In this case, respondent was able to present substantial evidence in the form of affidavits to
support its claim that there are two retirement plans. Based on the affidavits, petitioner has been
giving two retirement benefits as early as 1997.44 Petitioner, on the other hand, failed to present
any evidence to refute the veracity of these affidavits. Petitioners contention that these affidavits
are self-serving holds no water. The retired employees of petitioner have nothing to lose or gain
in this case as they have already received their retirement benefits. Thus, they have no reason to
perjure themselves. Obviously, the only reason they executed those affidavits is to bring out the
truth. As we see it then, their affidavits, corroborated by the affidavits of incumbent employees,
are more than sufficient to show that the granting of two retirement benefits to retiring
employees had already ripened into a consistent and deliberate practice.
Moreover, petitioners assertion that there is only one retirement plan as the CBA Retirement
Plan and the PERAA Plan are one and the same is not supported by any evidence. There is
nothing in Article XVI of the CBA to indicate or even suggest that the "Plan" referred to in the
CBA is the PERAA Plan. Besides, any doubt in the interpretation of the provisions of the CBA
should be resolved in favor of respondent. In fact, petitioners assertion is negated by the
announcement it made during the LMC Meeting on February 8, 2006 regarding its plan of
implementing a "one-retirement plan." For if it were true that petitioner was already
implementing a one-retirement policy, there would have been no need for such announcement.
Equally damaging is the letter-memorandum45 dated May 11, 2006, entitled "Suggestions on the
defenses we can introduce to justify the abolition of double retirement policy," prepared by the
petitioners legal counsel.
These circumstances, taken together, bolster the finding that the two-retirement policy is a
practice.1wphi1 Thus, petitioner cannot, without the consent of respondent, eliminate the tworetirement policy and implement a one-retirement policy as this would violate the rule on nondiminution of benefits.
As a last ditch effort to abolish the two-retirement policy, petitioner contends that such practice is
illegal or unauthorized and that the benefits were erroneously given by the previous
administration. No evidence, however, was presented by petitioner to substantiate its allegations.
Considering the foregoing disquisition, we agree with the findings of the Voluntary Arbitrator, as
affirmed by the CA, that there is substantial evidence to prove that there is an existing practice of
giving two retirement benefits, one under the PERAA Plan and another under the CBA
Retirement Plan.
The Memorandum dated August 16,
2005 is contrary to the existing CBA.
Neither do we find any reason to disturb the findings of the CA that the Memorandum dated
August 16, 2005 is contrary to the existing CBA.

Sections 1 and 2 of Article XII of the CBA provide that all covered employees are entitled to 15
days sick leave and 15 days vacation leave with pay every year and that after the second year of
service, all unused vacation leave shall be converted to cash and paid to the employee at the end
of each school year, not later than August 30 of each year.
The Memorandum dated August 16, 2005, however, states that vacation and sick leave credits
are not automatic as leave credits would be earned on a month-to-month basis. This, in effect,
limits the available leave credits of an employee at the start of the school year. For example, for
the first four months of the school year or from June to September, an employee is only entitled
to five days vacation leave and five days sick leave.46 Considering that the Memorandum dated
August 16, 2005 imposes a limitation not agreed upon by the parties nor stated in the CBA, we
agree with the CA that it must be struck down.
In closing, it may not be amiss to mention that when the provision of the CBA is clear, leaving
no doubt on the intention of the parties, the literal meaning of the stipulation shall govem.47
However, if there is doubt in its interpretation, it should be resolved in favor of labor,48 as this is
mandated by no less than the Constitution.49
WHEREFORE, the Petition is hereby DENIED. The assailed September 25, 2007 Decision and
the February 5, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 97053 are hereby
AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160827

June 18, 2014

NETLINK COMPUTER INCORPORATED, Petitioner,


vs.
ERIC DELMO, Respondent.
DECISION
BERSAMIN, J.:
In the absence of a written agreement between the employer and the employee that sales
commissions shall be paid in a foreign currency, the latter has the right to be paid in such foreign
currency once the same has become an established practice of the former. The rate of exchange at
the time of payment, not the rate of exchange at the time of the sales, controls.
Antecedents
On November 3, 1991, Netlink Computer, Inc. Products and Services (Netlink) hired Eric S.
Delmo (Delmo) as account manager tasked to canvass and source clients and convince them to
purchase the products and services of Netlink. Delmo worked in the field most of the time. He
and his fellow account managers were not required to accomplish time cards to record their
personal presence in the office of Netlink.1 He was able to generate sales worth P35,000,000.00,
more or less, from which he earned commissions amounting to P993,558.89 and US$7,588.30.
He then requested payment of his commissions, but Netlink refused and only gave him partial
cash advances chargeable to his commissions. Later on, Netlink began to nitpick and fault find,
like stressing his supposed absences and tardiness. In order to force him to resign, Netlink issued
several memoranda detailing his supposed infractions of the companys attendance policy.
Despite the memoranda, Delmo continued to generate huge sales for Netlink.2
On November 28, 1996, Delmo was shocked when he was refused entry into the company
premises by the security guard pursuant to a memorandum to that effect. His personal belongings
were still inside the company premises and he sought their return to him. This incident prompted
Delmo to file a complaint for illegal dismissal.3
In its answer to Delmos complaint,Netlink countered that there were guidelines regarding
company working time and its utilization and how the employees time would be recorded.
Allegedly, all personnel were required to use the bundy clock to punch in and out in the morning,

and in and out in the afternoon. Excepted from the rules were the company officers, and the
authorized personnel in the field project assignments. Netlink claimed that it would be losing on
the business transactions closed by Delmo due to the high costs of equipment, and in fact his
biggest client had not yet paid. Netlink pointed out that Delmo had becomevery lax in his
obligations, with the other account managers eventually having outperformed him. Netlink
asserted that warning, reprimand, and suspension memoranda were given to employees who
violated company rules and regulations, but such actions were considered as a necessary
management tool to instill discipline.4
Ruling of the Labor Arbiter
On September 23, 1998, the Labor Arbiter ruled against Netlink and in favor of Delmo, to wit:
WHEREFORE, judgment is hereby rendered declaring complainant as illegally and unjustly
dismissed and respondents are ordered to reinstate complainant to his former position without
loss of seniority rights with full backwages and other benefits and respondents are hereby
ordered to pay complainant as follows:
P161,000.00

- Backwages, basic pay and allowances from Nov. 1996 to Sept. 1998

15,000.00

- 13th month pay for 1996 to 1998

993,558.89

- unpaid commissions

P1,169,558.89

- Total

plus US$7,588.30 - unpaid commissions


plus 10% attorneys fees
The reinstatement aspect is immediately executory even pending appeal. In case reinstatement is
no longer feasible, complainant shall be paid separation pay of one-month pay for every year of
service. All other claims are hereby dismissed.
SO ORDERED.5
Decision of the NLRC
On appeal, the National Labor Relations Commission (NLRC) modified the decision of the
Labor Arbiter by setting aside the backwages and reinstatement decreed by the Labor Arbiter due
to the existence of valid and just causes for the termination of Delmos employment, to wit:
WHEREFORE, premises considered, the decision of the Labor Arbiter a quo is hereby SET
ASIDEand a new one ENTERED, ordering the respondents-appellantsto pay the following:
1. TWO THOUSAND PESOS (P2,000.00) as indemnity for failure to observe procedural
due process;

2. Unpaid commission in the amount of P993,558.89;


3. US$7,588.30 as unpaid commission;
4. P15,000.00 representing the 13th month pay for 1996, 1997, and 1998;
5. 10% attorneys fees of the total amount awarded.
SO ORDERED.6
The NLRC denied the motion for reconsideration, after which Netlink filed a petition for
certiorariin the CA.
Judgment of the CA
On May 9, 2003, the CA promulgated its assailed decision upholding the NLRCs ruling subject
to modifications,7 viz:
In the present case, since the payment of the commission is made to depend on the future and
uncertain event which is the payment of the accounts by the persons who have transacted
business with the petitioner, without payment by the former to the latter, the obligation to pay the
commission has not yet arisen.
The evidence on record shows that the ALCATEL, private respondents biggest client has not
paid fully the amount it owes to the petitioner as of March 10, 1998. (Rollo, pp. 101, 397, 398)
The obligation therefore, on the part of the petitioner to pay the private respondent for his
commission for the said unpaid account has not yet arisen. Thus it is a grave abuse of discretion
on the part of the public respondent to make petitioner liable to the private respondent for the
payment of the said commission, when it is clear on the record, as We have discussed above, that
the obligation therefor has not yet arisen.
Perusal of the records, likewise, show that petitioner failed to refute by evidence that the private
respondent is not entitled to the P993, 558.89 commission. Petitioner however claimed that since
the amounts out of which the commission will be taken has not yet been paid fully, petitioner
must, likewise, not be made liable for the said commission. However, public respondent
committed grave abuse of discretion when it disregard the evidence on record which is not
disputed by the private respondent that out of the total commissions of the private respondent,
petitioner has paid the petitioner in the amount of P216,799.45 in the form of advance payment.
(Rollo, p. 12)
In view of the foregoing discussions, therefore, the advance payment made by the petitioner in
favorof the private respondent in the amount of P216, 799.45 must be deducted to the P993,
558.89 unpaid commission of the private respondent. The difference amounting to P776, 779.44
must likewise be deducted to the amount of P4, 066.19 which represents the amount which the
petitioner had admitted as the net commission payable to private respondent. The difference
thereof amounting to P772, 713.25 shall represent the unpaid commission which shall be payable

to the private respondent by the petitioner upon payment of the accounts out of which such
commission shall be taken.
We, likewise, agree with the petitioner that the private respondent is not entitled to 13th month
pay in the years 1997 and 1998. The order of the public respondent making the petitioner liable
to the private respondent for the 13th month pay of the latter in the years 1997 and 1998 is
contrary to its findings that there are valid and just cause for the termination of the private
respondent from employment, although private respondent was not given his right to due
process. (Rollo, pp. 32-33) The rule applicable in the present case is the decision of the Supreme
Court in the case of Sebuguero vs National Labor Relations Commission [248 SCRA 532, 547
(1995)] where it was ruled that "where the dismissal of an employee is in fact for a just and valid
cause and is so proven to be but he is not accorded his right to due process,i.e., he was not
furnished the twin requirements of notice and the opportunityto be heard, the dismissal shall be
upheld but the employer must be sanctioned for non-compliance with the requirements of or for
failureto observe due process." Hence, petitioner should not be made to pay the 13th month pay
to private respondent whose employment was terminated for cause but without due process in
1996.
xxxx
Thus, private respondent is entitled only to a 13th month pay computed pro-rata from January
1996 to November 1996 which as properly computed by the petitioner amounts to P4, 584.00.
(Rollo, p. 11)
With respect to the other arguments of the petitioner, this Court is not persuaded. Petitioner failed
to refute by evidence that private respondent is not entitled to the commissions payable in US
dollars. Neither is there any reason for us to agree with the petitioner that the computation of
these commissions must be based on the value of [the] Peso in relation to a Dollar at the time of
sale. As properly observed by the Labor Arbiter a quo, viz: "Likewise the devaluation of the peso
cannot be used as a shield against the complainant because that should have been the lookout of
the respondent company in providing for such a clause that in case of devaluation, the price
agreed upon should be at the exchange rate when the contract of sale had been consummated.
For the lack of foresight and inefficiency of the respondent company and as regards its contracts
or agreements with its clientele, the complainant should not be made to suffer." (Labor Arbiter
Ricardo Olairez Decision, September 23, 1998, pp. 11-12, Rollo,pp. 328-329) In this
regardtherefore, We uphold the well settled rule that "the findings of facts of the NLRC,
particularly where the NLRC and the Labor Arbiter are in agreement, are deemed binding and
conclusive upon the Court." (Permex, Inc. vs National Labor Relations Commission, 323 SCRA
121, 126).
xxxx
WHEREFORE, premises considered, the assailed Resolutions are hereby AFFIRMED with
MODIFICATION, ordering the petitioner to pay the private respondent the following:

1. TWO-THOUSAND PESOS (P2,000.00) as indemnity for failure to observe procedural


due process;
2. P4,066.19 representing the unpaid commissions that have accrued in favor of the
private respondent;
3. P776,779.44 payable to the private respondent upon payment of the accounts out of
which the said amount will be taken;
4. P4,584.00 representing the unpaid 13th month pay of the private respondent;
5. US$7,588.30 as unpaid commission;
6. 10% attorneys fees of the total amount awarded excluding the amount contained in the
No.3 of this Order.
SO ORDERED.
Issues
Hence, this appeal.
Netlink submits that the CA committed a palpable and reversible error of law in not holding that
the applicable exchange rate for computing the US dollar commissions of Delmo should be the
rates prevailing at the time when the sales were actually generated, not the rates prevailing at the
time of the payment; and in awarding attorneys fees.
In his comment,8 Delmo counters that because he had earned in US dollars it was only fair that
his commissions be paid in US dollars; that Netlink should not be allowed to flip-flop after it had
paid commissions in US dollar on the sales generated by its sales agents on US-dollar
denominated transactions; and that attorneys fees were warranted because of the unanimous
finding that there was violation of procedural due process.
In its reply,9 Netlink maintains that the commissions of Delmo should be based on sales
generated, actually paid by and collected from the customers; that commissions must be paid on
the basis of the conversion of the US dollar to the Philippine peso at the time of sale; and that no
cogent and justifiable reason existed for the award of attorneys fees.
To be considered for resolution are,therefore, the following, namely: (1) whether or not the
payment of the commissions should be in US dollars; and (2) whether or not the award
ofattorneys fees was warranted.
Ruling of the Court
The appeal lacks merit.

As a general rule, all obligations shall be paid in Philippine currency. However, the contracting
parties may stipulate that foreign currencies may be used for settling obligations. This is pursuant
to Republic Act No. 8183,10 which provides as follows:
Section 1. All monetary obligations shall be settled in the Philippine currency which is legal
tender in the Philippines. However, the parties may agree that the obligation ortransaction shall
be settled in any other currency at the time of payment.
We remarked in C.F. Sharp & Co. v. Northwest Airlines, Inc.11 that the repeal of Republic Act
No. 529 had the effect of removing the prohibition on the stipulation of currency other than
Philippine currency, such that obligations or transactions could already be paid in the currency
agreed upon by the parties. However, both Republic Act No. 529 and Republic Act No. 8183 did
not stipulate the applicable rate of exchange for the conversion of foreign currency-incurred
obligations to their peso equivalent. It follows, therefore, that the jurisprudence established under
Republic Act No. 529 with regard to the rate of conversion remains applicable. In C.F. Sharp, the
Court cited Asia World Recruitment,Inc. v. NLRC,12 to the effect that the real value of the
foreign exchange-incurred obligation up to the date of itspayment should be preserved.
There was no written contract between Netlink and Delmo stipulating that the latters
commissions would be paid in US dollars.1wphi1 The absence of the contractual stipulation
notwithstanding, Netlink was still liable to pay Delmo in US dollars because the practice of
paying its sales agents in US dollars for their US dollar-denominatedsales had become a
company policy. This was impliedly admitted by Netlink when it did not refute the allegation
that the commissions earned by Delmo and its other sales agents had been paid in US dollars.
Instead of denying the allegation, Netlink only sought a declaration that the US dollar
commissions be paid using the exchange rate at the time of sale. The principle of non-diminution
of benefits, which has been incorporated in Article 10013 of the Labor Code, forbade Netlink
from unilaterally reducing, diminishing, discontinuing or eliminating the practice. Verily, the
phrase "supplements, or other employee benefits" in Article 100 is construed to mean the
compensation and privileges received by an employee aside from regular salaries or wages.
With regard to the length of timethe company practice should have been observed to constitute a
voluntary employer practice that cannot be unilaterally reduced, diminished, discontinued or
eliminated by the employer, we find that jurisprudence has not laid down any rule requiring a
specific mmimum number of years. In Davao Fruits Corporation v. Associated Labor Unions,14
the company practice lasted for six years. In Davao Integrated Port Stevedoring Services v.
Abarquez,15 the employer, for three years and nine months, approved the commutation to cash
of the unenjoyed portion of the sick leave with pay benefits of its intermittent workers. In
Tiangco v. Leogardo, Jr.,16 the employer carried on the practice of giving a fixed monthly
emergency allowance from November 1976 to February 1980, or three years and four months. In
Sevilla Trading Company v. Semana, 17 the employer kept the practice of including non-basic
benefits such as paid leaves for unused sick leave and vacation in the computation of their 13thmonth pay for at least two years.
With the payment of US dollar commissions having ripened into a company practice, there is no
way that the commissions due to Delmo were to be paid in US dollars or their equivalent in

Philippine currency determined at the time of the sales. To rule otherwise would be to cause an
unjust diminution of the commissions due and owing to Delmo.
Finally, we affirm the following justification of the CA in granting attorney's fees to Delmo, viz:
The award of attorney's fees must, likewise, be upheld in line of (sic) the decision of the
Supreme Court in the case of Consolidated Rural Bank (Cagayan Valley), Inc. vs. National Labor
Relations Commission, 301 SCRA 223, 235, where it was held that "in actions for recovery of
wages or where an employee was forced to litigate and thus incur expenses to protect her rights
and interests, even if not so claimed, an award of attorney's fees equivalent to ten percent (10%)
of the total award is legally and morally justifiable. There is no doubt that in the present case, the
private respondent has incurred expenses for the protection and enforcement of his right to his
commissions.18
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision
promulgated on May 9, 2003; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED
LUCAS P. BERSAMIN
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 162021

June 16, 2014

MEGA MAGAZINE PUBLICATIONS, INC., JERRY TIU, AND SARITA V. YAP,


Petitioners,
vs.
MARGARET A. DEFENSOR, Respondent.
DECISION
BERSAMIN, J.:
In labor cases, the rules on the degree of proof are enforced not as stringently as in other cases in
order to better serve the higher ends of justice. This lenity is intended to afford to the employee
every opportunity to level the playing field.
The Case

Being now assailed is the amended decision promulgated on November 19, 2003,1 whereby the
Court of Appeals (CA) reconsidered its original disposition, and granted the petition for certiorari
filed by respondent Margaret A. Defensor (respondent) by annulling and setting aside the adverse
resolutions dated July 31, 2002 and March 31, 2003 issued by the National Labor Relations
Commission (NLRC).
Antecedents
Petitioner Mega Magazine Publications, Inc. (MMPI) first employed the respondent as an
Associate Publisher in 1996, and later promoted her as a Group Publisher with a monthly salary
of P60,000.00.2
In a memorandum dated February 25, 1999, the respondent proposed to MMPIs Executive VicePresident Sarita V. Yap (Yap) year-end commissions for herself and a special incentive plan for
the Sales Department.3
The proposed schedule of the respondents commissions would be as follows:
1. MMPI Total revenue at P28-P29 M 0.05% outright commission
2. MMPI Total revenue at P30-P34 M 0.075% outright commission
3. MMPI Total revenue at P35-P38 M 0.1% outright commission
4. MMPI Total revenue at P39-P41 M 0.1% outright commission
5. MMPI Total revenue at P41M up 0.1% outright commission
while the proposed schedule of the special incentive plan would be the following:
1. MMPI Total revenue at P28-P29 M P5,000 each by year-end
2. MMPI Total revenue at P30-P34 M P7,000 each by year-end
3. MMPI Total revenue at P35-P38 M P8,500 each by year-end
4. MMPI Total revenue at P39-P41 M P10,000 each by year-end
5. MMPI Total revenue at P41M up P10,000 each by year-end Plus incentive trip abroad
Yap made marginal notes of her counter-proposals on her copy of the respondents memorandum
dated February 25, 1999 itself,4 crossing out proposed items 1 and 2 from the schedule of the
respondents commissions, and proposing instead that outright commissions be at 0.1% of P35P38 million in accordance with proposed item 3; and crossing out proposed items 1 and 2 from
the schedule of the special incentive plan, and writing "start here" and "stet" in reference to item
3. Yap also wrote on the memorandum: "Marge, if everything is ok w/ you, draft something for

me to sign "; "You can also announce that at 5 M net for MMPI [acc to my computation,
achievable if they only meet their month min. quota] we can declare 14th month pay for entire
company."5
The respondent sent another memorandum on April 5, 1999 setting out the 1999 advertisement
sales, target and commissions, and proposing that the schedule of her outright commissions
should start at .05% of P34.5 million total revenue, or P175,000.00;6 and further proposing that
the special incentives be given when total revenues reached P35-P38 million.
On August 31, 1999, the respondent sent Yap a report on sales and sales targets.7
On October 1999, the respondent tendered her letter of resignation effective at the end of
December 1999.1wphi1 Yap accepted the resignation.8 Before leaving MMPI, the respondent
sent Yap another report on the sales and advertising targets for 1999.9 On December 8, 1999,
Yap responded with a "formalization" of her approval of the 1999 special incentive scheme
proposed by the respondent through her memorandum dated February 25, 1999,10 revising anew
the schedule by starting commissions at.05% of P35-P38 million gross advertising revenue
(including barter), and the proposed special incentives at P35-P38 million with P8,500.00
bonus.11
The respondent replied to Yap, pointing out that her memorandum dated April 5, 1999 had been
the result of Yaps own comments on the special incentive scheme she had proposed, and that she
had assumed that Yap had been amenable to the proposal when she did not receive any further
reaction from the latter.12
On May 2000, after the respondent had left the company, she filed a complaint for payment of
bonus and incentive compensation with damages,13 specifically demanding the payment
ofP271,264.68 as sales commissions, P60,000.00 as 14th month pay, and P8,500.00 as her share
in the incentive scheme for the advertising and sales staff.14
Ruling of the Labor Arbiter
In a decision dated February 5, 2001,15 the Labor Arbiter (LA) dismissed the respondents
complaint, ruling that the respondent had not presented any evidence showing that MMPI had
agreed or committed to the terms proposed in her memorandum of April 5, 1999; that even
assuming that the petitioners had agreed to her terms, the table she had submitted justifying a
gross revenue of P36,216,624.07 was not an official account by MMPI;16 and that the
petitioners had presented a 1999 statement of income and deficit prepared by the auditing firm of
Punongbayan & Araullo showing MMPIs gross revenue for 1999 being only P31,947,677.00.17
Decision of the NLRC
The respondent appealed, but the NLRC denied the appeal for its lack of merit,18 with the
NLRC concurring with the LAs ruling that there had been no agreement between the petitioners
and the respondent on the terms and conditions of the incentives reached.

The respondent filed a motion for reconsideration and a supplement to the motion for
reconsideration.1wphi1 In the supplement, she included a motion to admit additional evidence
(i.e., the affidavit of Lie Tabingo who had worked as a traffic clerk in the Advertising
Department of MMPI and had been in charge of keeping track of the advertisements placed with
MMPI) on the ground that such evidence had been "unavailable during the hearing as newly
discovered evidence in a motion for new trial".19
The NLRC denied the respondents motions for reconsideration.20
Judgment of the CA
The respondent brought a special civil action for certiorari in the CA.
In its decision promulgated on August 28, 2003,21 the CA dismissed the respondents petition for
certiorari and upheld the resolutions of the NLRC.
On motion for reconsideration by the respondent, however, the CA promulgated on November
19, 2003 its assailed amended decision granting the motion for reconsideration and giving due
course to the respondents petition for certiorari; annulling the challenged resolutions of the
NLRC; and remanding the case to the NLRC for the reception of additional evidence. The CA
opined that the NLRC had committed a grave abuse of discretion in finding that there had been
no special incentive scheme approved and implemented for 1999,22 and in disallowing the
respondent from presenting additional evidence that was crucial in establishing her claim about
MMPIs gross revenue.23 The amended decision disposed as follows:
WHEREFORE, premises considered, the motion for reconsideration is hereby GRANTED. Our
Decision of August 28, 2003 is hereby RECONSIDERED AND SET ASIDE. A new judgment is
hereby entered GIVING DUE COURSE to the petition and GRANTING the writ prayed for.
Accordingly, the challenged Resolutions of the NLRC in NLRC NCR 00-03-61361-00 (CA No.
028358-01) dated July 31, 2002 and March 31, 2003 are hereby ANNULLED and SET ASIDE.
The case is hereby remanded to the NLRC for reception of additional evidence on appeal as
prayed for by petitioner and for proper proceedings in accordance with Our disquisitions herein.
The denial of the claim for 14th month pay is sustained for lack of evidentiary basis.
No pronouncement as to costs.
SO ORDERED.24
The petitioners and the respondent sought reconsideration of the CAs amended decision, but the
CA denied their motions through the resolution promulgated on February 4, 2004.25
Issues
Hence, this appeal by petition for review on certiorari, with the petitioners urging that the CA
erred in ruling that

I. RESPONDENT CAN INTRODUCE EVIDENCE THAT IS NOT NEWLYDISCOVERED FOR THE FIRST TIME ON APPEAL.
II. A [REMAND] OF THE CASETO THE NLRC FOR FURTHER RECEPTION OF
EVIDENCE IS JUSTIFIED BY REASON OF DEARTH OF EVIDENCE TO PROVE
THAT TARGET GROSS SALES OR REVENUES WEREACTUALLY MET AS TO
ENTITLE RESPONDENT TO THE INCENTIVE BONUS FOR THE SUBJECT
PERIOD/YEAR.26
The petitioners argue that the circumstances of the case did not warrant the relaxation of the rules
of procedure in order to allow the submission of the memorandum and the affidavit of Tabingo to
the LA and the NLRC. They contend that the respondent had sought to introduce in the
proceedings before the LA Tabingos memorandum dated December 10, 1999 addressed to the
Accounting Department stating that the "gross revenue from all publications was
P36,022,624.07, while net revenue was P32,551,890.58";27 that Tabingos affidavit was meant
to validate her memorandum; that such pieces of evidence sought to prove that MMPIs target
gross sales had been met, and would then entitle the respondent to her claims of commissions
and special incentives; that the LA actually considered but did not give any weight or value to
Tabingos memorandum in resolving the respondents claims; that any affidavit from Tabingo
that the respondent intended to introduce would be merely corroborative of the evidence already
presented, like the table purportedly showing MMPIs gross revenue for 1999; and that such
evidence was already considered by the NLRC in resolving the appeal.28
The important issue is whether or not the respondent was entitled to the commissions and the
incentive bonus being claimed.
Ruling
The appeal is partly meritorious.
The grant of a bonus or special incentive, being a management prerogative, is not a demandable
and enforceable obligation, except when the bonus or special incentive is made part of the wage,
salary or compensation of the employee,29 or is promised by the employer and expressly agreed
upon by the parties.30 By its very definition, bonus is a gratuity or act of liberality of the
giver,31 and cannot be considered part of an employees wages if it is paid only when profits are
realized or a certain amount of productivity is achieved. If the desired goal of production or
actual work is not accomplished, the bonus does not accrue.
Due to the nature of the bonus or special incentive being a gratuity or act of liberality on the part
of the giver, the respondent could not validly insist on the schedule proposed in her
memorandum of April 5, 1999 considering that the grant of the bonus or special incentive
remained a management prerogative. However, the Court agrees with the CAs ruling that the
petitioners had already exercised the management prerogative to grant the bonus or special
incentive. At no instance did Yap flatly refuse or reject the respondents request for commissions
and the bonus or incentive. This is plain from the fact that Yap even "bargained" with the
respondent on the schedule of the rates and the revenues on which the bonus or incentive would

be pegged. What remained contested was only the schedule of the rates and the revenues. In her
initial memorandum of February 25, 1999, the respondent had suggested the following schedule,
namely: (a) 0.05% outright commission on total revenue of P28-P29 million; (b) 0.075% on P30P34 million; (c) 0.1% on P35-P38 million; (d) 0.1% on P39-P41 million pesos; and (f) 0.1% on
P41 million or higher, but Yap had countered by revising the schedule to start at 0.1% as outright
commissions on a total revenue of P35-P38 million, and the special incentive bonus to start at
revenues of P35-P38 million. Moreover, on December 8, 1999, Yap sent to the respondent a
memorandum entitled Re: Formalization of my handwritten approval of 1999 Incentive scheme
dated 25 February 1999. Such actuations and actions by Yap indicated that, firstly, the petitioners
had already acceded to the grant of the special incentive bonus; and, secondly, the only issue still
to be threshed out was at which point and at what rate the respondents outright commissions and
the special incentive bonus for the sales staff should be given.
For sure, Yaps memorandum dated December 8, 1999, aside from being the petitioners
categorical admission of the grant of the commissions and the bonus or incentives, laid down the
petitioners own schedule of the commissions and the bonus or incentives,32 to wit:
Re: Formalization of my handwritten approval of 1999 incentive scheme dated 25 February 1999
1999 Incentive Scheme for Group Publisher
MMPI Gross Advertising Revenue P35-38 M .05%
(includes barter)
P39-41 M .075%
P41 M
up 1%
Commissionable ad revenue is net of advertising agency commission and absorbed production
costs.1avvphi1 Commission will be paid in bartered goods and cash in direct proportion to
percentage of cash and bartered goods revenue for the year. This amount will be paid by January
30, 2000 if the documents (contracts, P.O.s) to support the gross revenue claim are in order and
submitted to Finance.
Group Incentive for Sale and Traffic Team
MMPI Gross Advertising Revenue P35-38 M P8,500.00 each
P39-41 M P10,000.00 each
P41 M up P10,000.00 each
+ incentive trip abroad
Concerning the remand of the case to the NLRC for reception of additional evidence at the
instance of the respondent, we hold that the CA committed a reversible error. Although, as a rule,
the submission to the NLRC of additional evidence like documents and affidavits is not
prohibited, so that the NLRC may properly consider such evidence for the first time on appeal,33
the circumstances of the case did not justify the application of the rule herein.

The additional evidence the respondent has sought to be admitted (i.e., Tabingos affidavit
executed on October 14, 2002) was already attached to the pleadings filed in the NLRC, and was
part of the records thereat. Its introduction was apparently aimed to rebut the petitioners claim
that its gross revenue was only P31,947,677.00 and did not reach the minimum P35 million
necessary for the grant of the respondents outright commissions and the special incentive bonus
for the sales staff (inclusive of the respondent). Tabingos affidavit corroborated her
memorandum to the Accounting Department dated December 10, 1999 stating that MMPIs
revenue for 1999 was P36,216,624.07.341wphi1
Confronted with the conflicting claims on MMPIs gross revenue realized in 1999, the question
is which evidence must be given more weight?
The resolution of the question requires the re-examination and calibration of evidence.35 Such
re-examination and calibration, being of a factual nature, ordinarily lies beyond the purview of
the Courts authority in this appeal. Yet, because the documents are already before the Court, we
hereby treat the situation as an exception in order to resolve the question promptly and finally
instead of still remanding the case to the CA for the reevaluation and calibration.
We start by observing that the degree of proof required in labor cases is not as stringent as in
other types of cases.36 This liberal approach affords to the employee every opportunity to level
the playing field in which her employer is pitted against her. Here, on the one hand, were
Tabingos memorandum and affidavit indicating that MMPIs revenues in 1999 totaled
P36,216,624.07, and, on the other, the audit report showing MMPIs gross revenues amounting
to only P31,947,677.00 in the same year. That the audit report was rendered by the auditing firm
of Punongbayan & Araullo did not make it weightier than Tabingos memorandum and affidavit,
for only substantial evidence that amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion37 was required in labor adjudication. Moreover,
whenever the evidence presented by the employer and that by the employee are in equipoise,
the scales of justice must tilt in favor of the latter.38For purposes of determining whether or not
the petitioners gross revenue reached the minimum target of P35 million, therefore, Tabingos
memorandum and affidavit sufficed to positively establish that it did, particularly considering
that Tabingos memorandum was made in the course of the performance of her official tasks as a
traffic clerk of MMPI. In her affidavit, too, Tabingo asserted that her issuance of the
memorandum was pursuant to MMPIs year-end procedures, an assertion that the petitioners did
not refute. In any event, Tabingos categorical declaration in her affidavit that "[because] of that
achievement, as part of the Sales and Traffic Team of MMPI, in addition to my other bonuses
that year, I received P8,500.00 in gift certificates as my share in the Group Incentive for the
Sales and Traffic Team for gross advertising revenue of P35 to P38 million xxx,"39 aside from
the petitioners not refuting it, was corroborated by the 1999 Advertising Target sent by the
respondent to Yap on December 2, 1999, in which the respondent reported a gross revenue of
P36,216,624.07 as of December 1, 1999.40
Accordingly, the Court concludes that the respondent was entitled to her 0.05% outright
commissions and to the special incentive bonus of P8,500.00 based on MMPI having reached the
minimum target of P35 million in gross revenues paid in "bartered goods and cash in direct

proportion to percentage of cash and bartered goods revenue for the year," as provided in Yaps
memorandum of December 8, 1999.41
WHEREFORE, the Court REVERSES AND SETS ASIDE the amended decision promulgated
on November 19, 2003; ENTERS a new decision granting respondent Margaret A. Defensors
claim for outright commissions in the amount of P 181,083 .12 and special incentive bonus of
P8,500.00, or a total of 1!189,583.12; and DIRECTS petitioner Mega Magazine Publications,
Inc. to pay the costs of suit.
SO ORDERED.
LUCAS P. BERSAMIN
Associate Justice

SECOND DIVISION
G.R. No. 208451, February 03, 2016
MANILA MEMORIAL PARK CEMETERY, INC., Petitioner, v. EZARD D. LLUZ,
NORMAN CORRAL, ERWIN FUGABAN, VALDIMAR BALISI, EMILIO FABON,
JOHN MARK APLICADOR, MICHAEL CURIOSO, JUNLIN ESPARES, GAVINO
FARINAS, AND WARD TRADING AND SERVICES, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 assailing the Decision2 dated 21 January 2013 and the
Resolution3 dated 17 July 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 119237.
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The Facts
On 23 February 2006, petitioner Manila Memorial Park Cemetery, Inc. (Manila Memorial)
entered into a Contract of Services with respondent Ward Trading and Services (Ward Trading).
The Contract of Services provided that Ward Trading, as an independent contractor, will render
interment and exhumation services and other related work to Manila Memorial in order to
supplement operations at Manila Memorial Park, Paranaque City.
Among those assigned by Ward Trading to perform services at the Manila Memorial Park were
respondents Ezard Lluz, Norman Corral, Erwm Fugaban, Valdimar Balisi, Emilio Fabon, John

Mark Aplicador, Michael Curioso, Junlin Espares, and Gavino Farinas (respondents). They
worked six days a week for eight hours daily and were paid P250 per day.
On 26 June 2007, respondents filed a Complaint4 for regularization and Collective Bargaining
Agreement benefits against Manila Memorial; Enrique B. Lagdameo, Manila Memorial's
Executive Vice-President and Director in Charge for Overall Operations, and Ward Trading. On 6
August 2007, respondents filed an amended complaint to include illegal dismissal, underpayment
of 13th month pay, and payment of attorney's fees.
Respondents alleged that they asked Manila Memorial to consider them as regular workers
within the appropriate bargaining unit established in the collective bargaining agreement by
Manila Memorial and its union, the Manila Memorial Park Free Workers Union (MMP Union).
Manila Memorial refused the request since respondents were employed by Ward Trading, an
independent labor contractor. Thereafter, respondents joined the MMP Union. The MMP Union,
on behalf of respondents, sought their regularization which Manila Memorial again declined.
Respondents then filed the complaint. Subsequently, respondents were dismissed by Manila
Memorial. Thus, respondents amended the complaint to include the prayer for their reinstatement
and payment of back wages.
Meanwhile, Manila Memorial sought the dismissal of the complaint for lack of jurisdiction since
there was no employer-employee relationship. Manila Memorial argued that respondents were
the employees of Ward Trading.
In a Decision5 dated 29 March 2010, the Labor Arbiter dismissed the complaint for failing to
prove the existence of an employer-employee relationship. The dispositive portion of the
Decision states:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled
case for complainants' lack of employer-employee relationship with respondent Manila
Memorial Park Cemetery, Inc.
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SO ORDERED.6
Respondents appealed7 to the NLRC. In a Decision8 dated 30 September 2010, the NLRC
reversed the Labor Arbiter's findings. The NLRC ruled that Ward Trading was a labor-only
contractor and an agent of Manila Memorial. The dispositive portion of the Decision states:
WHEREFORE, premises considered, complainants' appeal is GRANTED. The assailed Decision
of Labor Arbiter Geobel A. Bartolabac dated March 29, 2010 is MODIFIED. It is hereby
declared that complainants were regular employees of respondent Manila Memorial Park
Cemetery, Inc. and entitled to the benefits provided for under the CBA between the latter and the
Manila Memorial Park Free Workers Union.
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Respondent Manila Memorial Park Cemetery, Inc. is ordered to pay wage differentials to
complainants as follows:
1. Ezard D. Lluz P43,982.79
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2. Norman Corral -

P29,765.67

3. Erwin Fugaban -

P28,634.67

4. Valdimar Balisi -

P20,310.33

5. Emilio Fabon -

P43,982.79

6. John Mark
Aplicador -

P43,982.79

7. Michael Curioso
-

P43,982.79

8. Ju[n]lin Espares -

P43,982.79

9. Gavino Farinas - P43,982.79


SO ORDERED.9
Manila Memorial filed a Motion for Reconsideration which was denied in a Resolution10 dated
31 January 2011.
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Thereafter, Manila Memorial filed an appeal with the CA. In a Decision dated 21 January 2013,
the CA affirmed the ruling of the NLRC. The CA found the existence of an employer-employee
relationship between Manila Memorial and respondents. The dispositive portion of the Decision
states:
WHEREFORE, in view of the foregoing, the instant Petition for Certiorari is DENIED. The
Decision, dated September 30, 2010 and the Resolution, dated January 31, 2011, rendered by the
National Labor Relations Commission (NLRC) in NLRC LAC No. 06-001267-10 are
AFFIRMED.
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SO ORDERED.11
Manila Memorial then filed a Motion for Reconsideration which was denied by the CA in a
Resolution dated 17 July 2013.
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Hence, the instant petition.

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The Issue
The main issue for our resolution is whether or not an employer-employee relationship exists
between Manila Memorial and respondents for the latter to be entitled to their claim for wages
and other benefits.
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The Court's Ruling


The petition lacks merit.
Manila Memorial contends that Ward Trading has total assets in excess of P1.4 million,
according to Ward Trading's financial statements for the year 2006, proving that it has sufficient
capitalization to qualify as a legitimate independent contractor. Manila Memorial insists that
nowhere is it provided in the Contract of Services that Manila Memorial controls the manner and
means by which respondents accomplish the results of their work. Manila Memorial states that
the company only wants its contractors and the latter's employees to abide by company rules and

regulations.
Respondents, on the other hand, assert that they are regular employees of Manila Memorial since
Ward Trading cannot qualify as an independent contractor but should be treated as a mere laboronly contractor. Respondents state that (1) there is enough proof that Ward Trading does not have
substantial capital, investment, tools and the like; (2) the workers recruited and placed by the
alleged contractors performed activities that were related to Manila Memorial's business; and (3)
Ward Trading does not exercise the right to control the performance of the work of the
contractual employees.
As a general rule, factual findings of the CA are binding upon this Court. One exception to this
rule is when the factual findings of the former are contrary to those of the trial court, or the lower
administrative body, as the case may be. This Court is obliged to resolve an issue of fact due to
the conflicting findings of the Labor Arbiter on one hand, and the NLRC and the CA on the
other.
In order to determine whether there exists an employer-employee relationship between Manila
Memorial and respondents, relevant provisions of the labor law and rules must first be reviewed.
Article 106 of the Labor Code states:
Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another
person for the performance of the former's work, the employees of the contractor and of the
latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.
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In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within these types of contracting and determine
who among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and placed by such person are
performing activities which are directly related to the principal business of such employer.
In such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him. (Emphasis supplied)
Sections 3, 5 and 7 of Department Order No. 18-0212 distinguish between legitimate and laboronly contracting and assume the existence of an employer-employee relationship if found to be
engaged in labor-only contracting. The provisions state:
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xxxx
Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there
exists a trilateral relationship under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and a contract of employment between
the contractor or subcontractor and its workers. Hence, there are three parties involved in these
arrangements, the principal which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the capacity to independently undertake
the performance of the job, work or service, and the contractual workers engaged by the
contractor or subcontractor to accomplish the job, work or service.
xxxx
Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where
the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work
or service for a principal, and any of the following elements are present:
i) The contractor or subcontractor does not have substantial capital or investment which relates to
the job, work or service to be performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are directly related to the main
business of the principal; or
ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the
Labor Code, as amended.
"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the
case of corporations, tools, equipment, implements, machineries and work premises, actually and
directly used by the contractor or subcontractor in the performance or completion of the job,
work or service contracted out.
The "right to control" shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.
xxxx
Section 7. Existence of an employer-employee relationship. - The contractor or subcontractor
shall be considered the employer of the contractual employee for purposes of enforcing the
provisions of the Labor Code and other social legislation. The principal, however, shall be
solidarity liable with the contractor in the event of any violation of any provision of the Labor
Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of the following
cases as declared by a competent authority:
(a) where there is labor-only contracting; or
(b) where the contracting arrangement falls within the prohibitions provided in Section 6
(Prohibitions) hereof. (Emphasis supplied)
It is clear from these provisions that contracting arrangements for the performance of specific
jobs or services under the law and its implementing rules are allowed. However, contracting
must be made to a legitimate and independent job contractor since labor rules expressly prohibit
labor-only contracting.
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Labor-only contracting exists when the contractor or subcontractor merely recruits, supplies or
places workers to perform a job, work or service for a principal and any of the following
elements are present:
1)

The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly
related to the main business of the principal; or

2)

The contractor does not exercise the right to control the performance of the work of the
contractual employee.13

In the present case, Manila Memorial entered into a Contract of Services with Ward Trading, a
single proprietorship owned by Emmanuel Mayor Ward with business address in Las Pias City
on 23 February 2006. In the Contract of Services, it was provided that Ward Trading, as the
contractor, had adequate workers and substantial capital or investment in the form of tools,
equipment, machinery, work premises and other materials which were necessary in the conduct
of its business.
However, a closer look at the Contract of Services reveals that Ward Trading does not have
substantial capital or investment in the form of tools, equipment, machinery, work premises and
other materials since it is Manila Memorial which owns the equipment used in the performance
of work needed for interment and exhumation services. The pertinent provision in the Contract of
Services which shows that Manila Memorial owns the equipment states:
The COMPANY shall [sell] to the contractor the COMPANY owned equipment in the amount of
ONE MILLION FOUR HUNDRED THOUSAND PESOS ONLY (Php 1,400,000.00) payable in
two (2) years or a monthly payment of FIFTY EIGHT THOUSAND THREE HUNDRED
THIRTY FIVE PESOS ONLY (Php 58,335.00) to be deducted from the CONTRACTOR'S
billing.14
Just by looking at the provision, it seems that the sale was a regular business transaction between
two parties. However, Manila Memorial did not present any evidence to show that the sale
actually pushed through or that payments were made by Ward Trading to prove an ordinary arms
length transaction. We agree with the NLRC in its findings:
While the above-cited provision of the Contract of Service implies that respondent MMPCI
would sell subject equipment to Ward at some future time, the former failed to present any
contract of sale as proof that, indeed, it actually sold said equipment to Ward. Likewise,
respondent MMPCI failed to present any "CONTRACTOR'S billing" wherein the purported
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monthly installment of P58,335.00 had been deducted, to prove that Ward truly paid the same as
they fell due. In a contract to sell, title is retained by the vendor until full payment of the price.
Moreover, the Contract of Service provides that:
"5. The COMPANY reserves the right to rent all or any of the CONTRACTOR'S equipment in
the event the COMPANY requires the use of said equipment, x x x."
This provision is clear proof that Ward does not have an absolute right to use or enjoy subject
equipment, considering that its right to do so is subject to respondent MMPCI's use thereof at
any time the latter requires it. Such provision is contrary to Article 428 of the Civil Code, which
provides that "The owner has the right to enjoy and dispose of a thing, without other limitation
than those established by law." It is plain to see that Ward is not the owner of the equipment
worth P1,400,000.00 that is being actually and directly used in the performance of the services
contracted out.
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Further, the Service Contract states that:


"For its part, the COMPANY agrees to provide the following:
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a) Area to store CONTRACTOR'S equipment and materials


b) Office space for CONTRACTOR'S staff and personnel"
This provision is clear proof that even the work premises actually and directly used by Ward in
the performance of the services contracted out is owned by respondent MMPCI.15
Also, the difference in the value of the equipment in the total amount of P1,400,000.00 can be
glaringly seen in Ward Trading's financial statements for the year 2006 when compared to its
2005 financial statements. It is significant to note that these financial statements were submitted
by Manila Memorial without any certification that these financial statements were actually
audited by an independent certified public accountant. Ward Trading's Balance Sheet16 as of 31
December 2005 showed that it had assets in the amount of P441,178.50 and property and
equipment with a net book value of P86,026.50 totaling P534,705. A year later, Ward Trading's
Balance Sheet17 ending in 31 December 2006 showed that it had assets in the amount of
P57,084.70 and property and equipment with a net book value of Pl,426,468 totaling
P1,491,052.70. Ward Trading, in its Income Statements18 for the years 2005 and 2006, only
earned a net income of P53,800 in the year ending 2005 and P68,141.50 in 2006. Obviously,
Ward Trading could not have raised a substantial capital of P1,400,000.00 from its income alone
without the inclusion of the equipment owned and allegedly sold by Manila Memorial to Ward
Trading after they signed the Contract of Services on 23 February 2006.
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Further, the records show that Manila Memorial and Enrique B. Lagdameo admitted that
respondents performed various interment services at its Sucat, Paranaque branch which were
directly related to Manila Memorial's business of developing, selling and maintaining memorial
parks and interment functions. Manila Memorial even retained the right to control the
performance of the work of the employees concerned. As correctly observed by the CA:
A perusal of the Service Contract would reveal that respondent Ward is still subject to petitioner's
control as it specifically provides that although Ward shall be in charge of the supervision over
individual respondents, the exercise of its supervisory function is heavily dependent upon the
needs of petitioner Memorial Park, particularly:
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"It is also agreed that:


a) The CONTRACTOR'S supervisor will conduct a regular inspection of grave sites/areas being
dug to ensure compliance with the COMPANY'S interment schedules and other related
ceremonies.
b) The CONTRACTOR will provide enough manpower during peak interment days including
Sundays and Holidays.
c) The CONTRACTOR shall schedule off-days for its workers in coordination with the
COMPANY'S schedule of interment operation.
d) The CONTRACTOR shall be responsible for any damage done to lawn/s and/or structure/s
resulting from its operation, which must be restored to its/their original condition without delay
and at the expense of CONTRACTOR."
The contract further provides that petitioner has the option to take over the functions of Ward's
personnel if it finds any part or aspect of the work or service provided to be unsatisfactory,
thus:
"6.1 It is hereby expressly agreed and understood that, at any time during the effectivity of this
CONTRACT and its sole determination, the COMPANY may take over the performance of any
of the functions mentioned in Paragraph I above, in any of the following cases:
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xxx
c. If the COMPANY finds the performance of the CONTRACTOR in any part or aspect of the
grave digging works or other services provided by it to be unsatisfactory."
It is obvious that the aforementioned provision leaves respondent Ward at the mercy of petitioner
Memorial Park as the contract states that the latter may take over if it finds any part of the
services to be below its expectations, including the manner of its performance. x x x.19
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The NLRC also found that Ward Trading's business documents fell short of sound business
practices. The relevant portion in the NLRC's Decision states:
It is also worth noting that while Ward has a Certificate of Business Name Registration issued by
the Department of Trade and Industry on October 24, 2003 and valid up to October 24, 2008, the
same expressly states that it is not a license to engage in any kind of business, and that it is valid
only at the place indicated therein, which is Las Pias City. Hence, the same is not valid in
Paranaque City, where Ward assigned complainants to perform interment services it contracted
with respondent MMPCI. It is also noted that the Permit, which was issued to Ward by the Office
of the Mayor of Las Pias City on October 28, 2003, was valid only up to December 31, 2003.
Likewise, the Sanitary Permit to Operate, which was issued to Ward by the Office of the City
Health Officer of the Las Pias City Health Office on October 28, 2003, expired on December
31, 2003. While respondents MMPCI and Lagdameo were able to present copies of the abovementioned documents, they failed to present any proof that Ward is duly registered as [a]
contractor with the Department of Labor and Employment.20
Section 11 of Department Order No. 18-02, which mandates registration of contractors or
subcontractors with the DOLE, states:
Section 11. Registration of Contractors or Subcontractors. - Consistent with authority of the
Secretary of Labor and Employment to restrict or prohibit the contracting out of labor through
appropriate regulations, a registration system to govern contracting arrangements and to be
implemented by the Regional Office is hereby established.
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The Registration of contractors and subcontractors shall be necessary for purposes of


establishing an effective labor market information and monitoring.
Failure to register shall give rise to the presumption that the contractor is engaged in labor-only
contracting.
For failing to register as a contractor, a presumption arises that one is engaged in labor-only
contracting unless the contractor overcomes the burden of proving that it has substantial capital,
investment, tools and the like.21
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In this case, however, Manila Memorial failed to adduce evidence to prove that Ward Trading
had any substantial capital, investment or assets to perform the work contracted for. Thus, the
presumption that Ward Trading is a labor-only contractor stands. Consequently, Manila Memorial
is deemed the employer of respondents. As regular employees of Manila Memorial, respondents
are entitled to their claims for wages and other benefits as awarded by the NLRC and affirmed by
the CA.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 21 January 2013 and
the Resolution dated 17 July 2013 of the Court of Appeals in CA-G.R. SP No. 119237.
SO ORDERED.
Velasco, Jr.,*Del Castillo, and Mendoza, JJ., concur.
Leonen, J., on leave.

THIRD DIVISION
G.R. Nos. 173254-55 & 173263, January 13, 2016
DIAMOND FARMS, INC., Petitioner, v. SOUTHERN PHILIPPINES FEDERATION OF
LABOR (SPFL)-WORKERS SOLIDARITY OF DARBMUPCO/DIAMOND-SPFL,
DIAMOND FARMS AGRARIAN REFORM BENEFICIARIES MULTI-PURPOSE
COOPERATIVE (DARBMUPCO), VOLTER LOPEZ, RUEL ROMERO, PATRICK)
CAPRECHO, REY DIMACALI, ELESIO EMANEL, VICTOR SINGSON, NILDA
DIMACALI, PREMITIVO* DIAZ, RUDY VISTAL, ROGER MONTERO, JOSISIMO
GOMEZ AND MANUEL MOSQUERA, Respondents.
DECISION
JARDELEZA, J.:
We resolve in this Petition for Review1 under Rule 45 of the Rules of Court, the issue of who
among Diamond Farms, Inc. ("DFI"), Diamond Farms Agrarian Reform Beneficiaries Multi-

Purpose Cooperative ("DARBMUPCO") and the individual contractors2 ("respondentcontractors") is the employer of the 400 employees ("respondent-workers").
DFI challenges the March 31, 2006 Decision3 and May 30, 2006 Resolution4 of the Court
Appeals, Special Twenty-Second Division, Cagayan De Oro City for being contrary to law and
jurisprudence. The Decision dismissed DFI's Petition for Certiorari in C.A.-G.R. SP Nos. 53806
and 61607 and granted DARBMUPCO's Petition for Certiorari in C.A.-G.R. SP No. 59958. It
declared DFI as the statutory employer of the respondent-workers.
The Facts
DFI owns an 800-hectare banana plantation ("original plantation") in Alejal, Carmen, Davao.5
Pursuant to Republic Act No. 6657 or the Comprehensive Agrarian Reform Law of 1988
("CARL"), commercial farms shall be subject to compulsory acquisition and distribution, 6 thus
the original plantation was covered by the law. However, the Department of Agrarian Reform
("DAR") granted DFI a deferment privilege to continue agricultural operations until 1998.7 Due
to adverse marketing problems and observance of the so-called "lay-follow" or the resting of a
parcel of land for a certain period of time after exhaustive utilization, DFI closed some areas of
operation in the original plantation and laid off its employees.8 These employees petitioned the
DAR for the cancellation of DFI's deferment privilege alleging that DFI already abandoned its
area of operations.9 The DAR Regional Director recalled DFI's deferment privilege resulting in
the original plantation's automatic compulsory acquisition and distribution under the CARL.10
DFI filed a motion for reconsideration which was denied. It then appealed to the DAR
Secretary.11
In the meantime, to minimize losses, DPI offered to give up its rights and interest over the
original plantation in favor of the government by way of a Voluntary Offer to Sell.12 The DAR
accepted DFI's offer to sell the original plantation. However, out of the total 800 hectares, the
DAR only approved the disposition of 689.88 hectares. Hence, the original plantation was split
into two: 689.88 hectares were sold to the government ("awarded plantation") and the remaining
200 hectares, more or less, were retained by DPI ("managed area").13 The managed area is
subject to the outcome of the appeal on the cancellation of the deferment privilege before the
DAR Secretary.
On January 1, 1996, the awarded plantation was turned over to qualified agrarian reform
beneficiaries ("ARBs") under the CARL. These ARBs are the same farmers who were working
in the original plantation. They subsequently organized themselves into a multi-purpose
cooperative named "DARBMUPCO," which is one of the respondents in this case.14
On March 27, 1996, DARBMUPCO entered into a Banana Production and Purchase Agreement
("BPPA")15 with DFI.16 Under the BPPA, DARBMUPCO and its members as owners of the
awarded plantation, agreed to grow and cultivate only high grade quality exportable bananas to
be sold exclusively to DPI.17 The BPPA is effective for 10 years.18
On April 20, 1996, DARBMUPCO and DFI executed a "Supplemental to Memorandum
Agreement" ("SMA").19 The SMA stated that DFI shall take care of the labor cost arising from
the packaging operation, cable maintenance, irrigation pump and irrigation maintenance that the

workers of DARBMUPCO shall conduct for DFI's account under the BPPA.20
From the start, DARBMUPCO was hampered by lack of manpower to undertake the agricultural
operation under the BPPA because some of its members were not willing to work.21 Hence, to
assist DARBMUPCO in meeting its production obligations under the BPPA, DFI engaged the
services of the respondent-contractors, who in turn recruited the respondent-workers.22
The engagement of the respondent-workers, as will be seen below, started a series of labor
disputes among DARBMUPCO, DFI and the respondent-contractors.
CA. G.R. SP No. 53806
On February 10, 1997, respondent Southern Philippines Federation of Labor ("SPFL")a
legitimate labor organization with a local chapter in the awarded plantationfiled a petition for
certification election in the Office of the Med-Arbiter in Davao City.23 SPFL filed the petition on
behalf of some 400 workers (the respondent-workers in this petition) "jointly employed by DFI
and DARBMUPCO" working in the awarded plantation.
DARBMUPCO and DFI dented that they are the employers of the respondent-workers. They
claimed, instead, that the respondent-workers are the employees of the respondent-contractors.24
In an Order dated May 14, 1997,25 the Med-Arbiter granted the petition for certification election.
It directed the conduct of certification election and declared that DARBMUPCO was the
employer of the respondent-workers. The Order stated that "whether the said workers/employees
were hired by independent contractors is of no moment. What is material is that they were hired
purposely to work on the 689.88 hectares banana plantation [the awarded plantation] now owned
and operated by DARBMUPCO."26
DARBMUPCO appealed to the Secretary of Labor and Employment ("SOLE"). In a Resolution
dated February 18, 1999,27 the SOLE modified the decision of the Med-Arbiter. The SOLE held
that DFI, through its manager and personnel, supervised and directed the performance of the
work of the respondent-contractors. The SOLE thus declared DFI as the employer of the
respondent-workers.28
DFI filed a motion for reconsideration which the SOLE denied in a Resolution dated May 4,
1999.29
On June 11, 1999, DFI elevated the case to the Court of Appeals ("CA") via a Petition for
Certiorari30 under Rule 65 of the Rules of Court. The case was raffled to the CA's former
Twelfth Division and was docketed as C.A.-G.R. SP No. 53806.
CA.-G.R. SP No. 59958
Meanwhile, on June 20, 199731 and September 15, 1997,32 SPFL, together with more than 300
workers, filed a case for underpayment of wages, nonpayment of 13th month pay and service
incentive leave pay and attorney's fees against DFI, DARBMUPCO and the respondent-

contractors before the National Labor Relations Commission ("NLRC") in Davao City.
DARBMUPCO averred that it is not the employer of respondent-workers; neither is DFI. It
asserted that the money claims should be directed against the true employerthe respondentcontractors.33
In a Decision dated January 22, 1999,34 the Labor Arbiter ("LA") held that die respondentcontractors are "labor-only contractors." The LA gave credence to the affidavits of the other
contractors35 of DFI (who are not party-respondents in this petition) asserting that DFI engaged
their services, and supervised and paid their laborers. The affidavits also stated that the
contractors had no dealings with DARBMUPCO, except that their work is done in the awarded
plantation.36
The LA held that, under the law, DFI is deemed as the statutory employer of all the respondentworkers.37 The LA dismissed the case against DARBMUPCO and the respondent-contractors.38
DFI appealed to the NLRC. In a Resolution dated May 24, 1999,39 the NLRC Fifth Division
modified the Decision of the LA and declared that DARBMUPCO and DFI are the statutory
employers of the workers rendering services in the awarded plantation and the managed area,
respectively.40 It adjudged DFI and DARBMUPCO as solidarity liable with the respondentcontractors for the monetary claims of the workers, in proportion to their net planted area.41
DARBMUPCO filed a motion for reconsideration which was denied.42 It filed a second motion
for reconsideration in the NLRC, which was also denied for lack of merit and for being barred
under the NLRC Rules of Procedure.43 Hence, DARBMUPCO elevated the case to the CA by
way of a Petition for Certiorari.44 The case was docketed as CA.-G.R. SP. No. 59958.
The former Eleventh Division of the CA consolidated C.A. G.R. SP. No. 59958 and C.A.-G.R.
SP No. 53806 in a Resolution dated January 27, 2001.45
C.A.-G.R. SPNo. 61607
Pursuant to the May 4, 1999 Resolution of the SOLE approving the conduct of certification
election, the Department of Labor and Employment ("DOLE") conducted a certification election
on October 1, 1999.46 On even date, DFI filed an election protest47 before the Med-Arbiter
arguing that the certification election was premature due to the pendency of a petition for
certiorari before the CA assailing the February 18, 1999 and May 4, 1999 Resolutions of the
SOLE (previously discussed in C.A.-G.R. SP No. 53806).
In an Order dated December 15, 1999,48 the Med-Arbiter denied DFI's election protest, and
certified SPFL- Workers Solidarity of DARBMUPCO/DIAMOND-SPFL ("WSD-SPFL") as the
exclusive bargaining representative of the respondent-workers. DPI filed a Motion for
Reconsideration49 which the Med-Arbiter treated as an appeal, and which the latter elevated to
the SOLE.
In a Resolution dated July 18, 2000,50 the SOLE dismissed the appeal. The Resolution stated that
the May 4, 1999 Resolution directing the conduct of certification election is already final and

executory on June 4, 1999. It pointed out that the filing of the petition for certiorari before the
CA assailing the February 18, 1999 and May 4, 1999 Resolutions does not stay the conduct of
the certification election because the CA did not issue a restraining order.51 DFI filed a Motion
for Reconsideration but the motion was denied.52
On October 27, 2000, DFI filed a Petition for Certiorari53 before the CA, docketed as C.A.-G.R.
SP No. 61607.
In a Resolution dated August 2, 2005,54 the CA Twenty-Third Division consolidated C.A.-G.R.
SP No. 61607 with C.A.-G.R. SP. No. 59958 and C.A. G.R. SP No. 53806.
The Assailed CA Decision and Resolution
The CA was confronted with two issues:55
(1) "Whether DFI or DARBMUPCO is the statutory employer of the [respondent-workers] in
these petitions; and
(2)

Whether or not a certification election may be conducted pending the resolution of the
petition for certiorari filed before this Court, the main issue of which is the identity of the
employer of the [respondent-workers] in these petitions."
On the first issue, the CA agreed with the ruling of the SOLE56 that DFI is the statutory employer
of the respondent-workers. It noted that the DFI hired the respondent-contractors, who in turn
procured their own men to work in the land owned by DARBMUPCO. Further, DFI admitted
that the respondent-contractors worked under the direction and supervision of DFI's managers
and personnel. DFI also paid for the respondent-contractors' services.57 The CA said that the fact
that the respondent-workers worked in the land owned by DARBMUPCO is immaterial.
"Ownership of the land is not one of the four (4) elements generally considered to establish
employer-employee relationship."58
The CA also ruled that DFI is the true employer of the respondent-workers because the
respondent-contractors are not independent contractors.59 The CA stressed that in its pleadings
before the Med-Arbiter, the SOLE, and the CA, DFI revealed that DARBMUPCO lacks
manpower to fulfill the production requirements under the BPPA. This impelled DFI to hire
contractors to supply labor enabling DARBMUPCO to meet its quota. The CA observed that
while the various agencies involved in the consolidated petitions sometimes differ as to who the
statutory employer of the respondent-workers is, they are uniform in finding that the respondentcontractors are labor-only contractors.60
On the second issue, the CA reiterated the ruling of the SOLE61 that absent an injunction from
the CA, the pendency of a petition for certiorari does not stay the holding of the certification
election.62 The challenged Resolution of the SOLE is already final and executory as evidenced by
an Entry of Judgment dated July 14, 1999; hence, the merits of the case can no longer be
reviewed.63
The CA thus held in its Decision dated March 31, 2006:

WHEREFORE, premises considered, this Court hereby ORDERS:


(1) the DISMISSAL of the petitions in C.A.-G.R. SP No. 53806 and C.A.-G.R. SP No. 61607;
and
(2)

the GRANTING of the petition in C.A.-G.R. SP No. 59958 and the SETTING ASIDE of the
assailed resolutions of the NLRC dated 24 May 1999, 30 July 1999 and 26 June 2000,
respectively.
SO ORDERED.64
DFI filed a Motion for Reconsideration of the CA Decision which was denied in a Resolution
dated May 30, 2006.65
ChanRoblesVirtualawlibrary

DFI is now before us by way of Petition for Review on Certiorari praying that DARBMUPCO
be declared the true employer of the respondent-workers.
DARBMUPCO filed a Comment66 maintaining that under the control test, DFI is the true
employer of the respondent-workers.
Respondent-contractors filed a Verified Explanation and Memorandum67 asserting that they were
labor-only contractors; hence, they are merely agents of the true employer of the respondentworkers.
SPFL did not file any comment or memorandum on behalf of the respondent-workers.68
The Issue
The issue before this Court is who among DFI, DARBMUPCO and the respondent-contractors is
the employer of the respondent-workers.
Our Ruling
We deny the petition.
This case involves job contracting, a labor arrangement expressly allowed by law. Contracting or
subcontracting is an arrangement whereby a principal (or employer) agrees to put out or farm out
with a contractor or subcontractor the performance or completion of a specific job, work or
service within a definite or predetermined period, regardless of whether such job, work or service
is to be performed or completed within or outside the premises of the principal.69 It involves a
trilateral relationship among the principal or employer, the contractor or subcontractor, and the
workers engaged by the contractor or subcontractor.70
Article 106 of the Labor Code of the Philippines71 (Labor Code) explains the relations which
may arise between an employer, a contractor, and the contractor's employees,72 thus:
ART. 106. Contractor or subcontracting. - Whenever an employer enters into a contract with
another person for the performance of the formers work, the employees of the contractor and of
the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor
or subcontractor to such employees to the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees directly employed by him.
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the
contracting out of labor to protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within these types of contracting and determine
who among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does not
have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer. In such cases, the
person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed
by him.
The Omnibus Rules Implementing the Labor Code73 distinguishes between permissible job
contracting (or independent contractorship) and labor-only contracting. Job contracting is
permissible under the Code if the following conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on his
own account under his own responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(2)

The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.74
In contrast, job contracting shall be deemed as labor-only contracting, an arrangement prohibited
by law, if a person who undertakes to supply workers to an employer:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries,
work premises and other materials; and
(2)

The workers recruited and placed by such person are performing activities which are directly
related to the principal business or operations of the employer in which workers are
habitually employed.75
As a general rule, a contractor is presumed to be a labor-only contractor, unless such contractor
overcomes the burden of proving that it has the substantial capital, investment, tools and the
like.76

Based on the conditions for permissible job contracting, we rule that respondentcontractors are labor-only contractors.
There is no evidence showing that respondent-contractors are independent contractors. The
respondent-contractors, DFI, and DARBMUPCO did not offer any proof that respondentcontractors were not engaged in labor-only contracting. In this regard, we cite our ruling in Caro
v. Rilloraza,77 thus:
"In regard to the first assignment of error, the defendant company pretends to show through
Venancio Nasol's own testimony that he was an independent contractor who undertook to
construct a railway line between Maropadlusan and Mantalisay, but as far as the record shows,
Nasol did not testify that the defendant company had no control over him as to the manner or
methods he employed in pursuing his work. On the contrary, he stated that he was not bonded,
and that he only depended upon the Manila Railroad for money to be paid to his laborers. As
stated by counsel for the plaintiffs, the word 'independent contractor' means 'one who exercises
independent employment and contracts to do a piece of work according to his own methods and
without being subject to control of his employer except as to result of the work.' furthermore, if
the employer claims that the workmen is an independent contractor, for whose acts he is not
responsible, the burden is on him to show his independence.
Tested by these definitions and by the fact that the defendant has presented piactically no
evidence to determine whether Venancio Nasol was in reality an independent contractor or
not, we are inclined to think that he is nothing but an intermediary between the defendant
and certain laborers. It is indeed difficult to find that Nasol is an independent contractor; a
person who possesses no capital or money of his own to pay his obligations to them, who files
no bond to answer for any fulfillment of his contract with his employer and specially subject to
the control and supervision of his employer, falls short of the requisites or conditions necessary
for the common and independent contractor."78 (Citations omitted; Emphasis supplied.)
To support its argument that respondent-contractors are the employers of respondent-workers,
and not merely labor-only contractors, DFI should have presented proof showing that
respondent-contractors carry on an independent business and have sufficient capitalization. The
record, however, is bereft of showing of even an attempt on the part of DFI to substantiate its
argument.
DFI cannot cite the May 24, 1999 Resolution of the NLRC as basis that respondent-contractors
are independent contractors. Nowhere in the NLRC Resolution does it say that the respondentcontractors are independent contractors. On the contrary, the NLRC declared that "it was not
clearly established on record that said [respondent-]contractors are independent, xxx."79
Further, respondent-contractors admit, and even insist that they are engaged in labor-only
contracting. As will be seen below, respondent-contractors made the admissions and declarations
on two occasions: first was in their Formal Appearance of Counsel and Motion for Exclusion of
Individual Party-Respondents filed before the LA; and second was in their Verified Explanation
and Memorandum filed before this Court.
Before the LA, respondent-contractors categorically stated that they are "labor-only" contractors
who have been engaged by DFI and DARBMUPCO.80 They admitted that they do not have

substantial capital or investment in the form of tools, equipment, machineries, work premises and
other materials, and they recruited workers to perform activities directly related to the principal
operations of their employer.81
Before this Court, respondents-contractors again admitted that they are labor-only contractors.
They narrated that:
1. Herein respondents, Voltaire Lopez, Jr., et al., were commissioned and contracted by
petitioner, Diamond Farms, Inc. (DFI) to recruit farm workers, who are the
complaining [respondent-workers] (as represented by Southern Philippines
Federation of Labor (SPFL) in this appeal by certiorari), in order to perform specific
farm activities, such as pruning, dcleafing, fertilizer application, bud inject, stem spray,
drainage, bagging, etc., on banana plantation lands awarded to private respondent,
Diamond Farms Agrarian Reform Beneficiaries Multi-Purpose Cooperative
(DARBMUPCO) and on banana planted lands owned and managed by petitioner, DFI.
2. All farm tools, implements and equipment necessary to performance of such farm
activities were supplied by petitioner DFI to respondents Voltaire Lopez, Jr., et. al. as well
as to respondents-SPFL, et. al. Herein respondents Voltaire Lopez, Jr. et. al. had no
adequate capital to acquire or purchase such tools, implements, equipment, etc.
3. Herein respondents Voltaire Lopez, Jr., et. al. as well as rcspondents-SPFL, et. al.
were being directly supervised, controlled and managed by petitioner DFI farm
managers and supervisors, specifically on work assignments and performance
targets. DFI managers and supervisors, at their sole discretion and prerogative, could
directly hire and terminate any or all of the respondents-SPFL, et. al., including any or all
of the herein respondents Voltaire Lopez, Jr., et. al.
4. Attendance/Time sheets of respondents-SPFL, et. al. were being prepared by herein
respondents Voltaire Lopez, Jr., et. al., and correspondingly submitted to petitioner DFI.
Payment of wages to respondents-SPFL, et. al. were being paid for by petitioner DFI thru
herein respondents Voltaire Lopez, [Jr.], et. al. The latter were also receiving their
wages/salaries from petitioner DFI for monitoring/leading/recruiting the respondentsSPFL, et. al.
5. No monies were being paid directly by private respondent DARBMUPCO to
respondents-SPFL, et al., nor to herein respondents Voltaire Lopez, [Jr.], et. al. Nor did
respondent DARBMUPCO directly intervene much less supervise any or all of [the]
respondents- SPFL, et. al. including herein respondents Voltaire Lopez, Jr.. et. al.82
(Emphasis supplied.)
The foregoing admissions are legally binding on respondent-contractors.83 Judicial admissions
made by parties in the pleadings, or in the course of the trial or other proceedings in the same
case are conclusive and so does not require further evidence to prove them.84 Here, the
respondent-contractors voluntarily pleaded that they are labor-only contractors; hence, these
admissions bind them.

A finding that a contractor is a labor-only contractor is equivalent to a declaration that there is an


employer-employee relationship between the principal, and the workers of the labor-only
contractor; the labor-only contractor is deemed only as the agent of the principal.85 Thus, in this
case, respondent-contractors are the labor-only contractors and either DFI or DARBMUPCO is
their principal.
We hold that DFI is the principal.
Under Article 106 of the Labor Code, a principal or employer refers to the person who enters into
an agreement with a job contractor, either for the performance of a specified work or for the
supply of manpower.86 In this regard, we quote with approval the findings of the CA, to wit:
The records show that it is DFI which hired the individual [respondent-contractors] who in
turn hired their own men to work in the 689.88 hectares land of DARBMUPCO as well as
in the managed area of the plantation. DFI admits [that] these [respondent-contractors]
worked under the direction and supervision of the DFI. managers and personnel. DFI paid the
[respondent-contractors] for the services rendered in the plantation and the [respondentcontractors] in turn pay their workers after they [respondent-contractors] received payment from
DFI xxx DARBMUPCO did not have anything to do with the hiring, supervision and payment of
the wages of the workers-respondents thru the contractors-respondents. xxx87 (Emphasis
supplied.)
DFI does not deny that it engaged the services of the respondent-contractors. It does not dispute
the claims of respondent-contractors that they sent their billing to DFI for payment; and that
DFI's managers and personnel are in close consultation with the respondent-contractors.88
DFI cannot argue that DARBMUPCO is the principal of the respondent-contractors because it
(DARBMUPCO) owns the awarded plantation where respondent-contractors and respondentworkers were working;89 and therefore DARBMUPCO is the ultimate beneficiary of the
employment of the respondent-workers.90
That DARBMUPCO owns the awarded plantation where the respondent-contractors and
respondent-workers were working is immaterial. This does not change the situation of the
parties. As correctly found by the CA, DFI, as the principal, hired the respondent-contractors and
the latter, in turn, engaged the services of the respondent-workers.91 This was also the unanimous
finding of the SOLE,92 the LA,93 and the NLRC.94 Factual findings of the NLRC, when they
coincide with the LA and affirmed by the CA are accorded with great weight and respect and
even finality by this Court.95
Alilin v. Petron Corporation96 is applicable. In that case, this Court ruled that the presence of the
power of control on the part of the principal over the workers of the contractor, under the facts,
prove the employer-employee relationship between the former and the latter, thus:
[A] finding that a contractor is a 'labor-only' contractor is equivalent to declaring that there is an
employer-employee relationship between the principal and the employees of the supposed
contractor." In this case, the employer-employee relationship between Pctron and petitioners
becomes all the more apparent due to the presence of the power of control on the part of
the former over the latter.

It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals that:
This Court has constantly adhered to the "fourfold test" to determine whether there exists an
employer-employee relationship between the parties. The four elements of an employment
relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the power to control the employee's conduct.
Of these four elements, it is the power to control which is the most crucial and most
determinative factor, so important, in fact, that, the other elements may even be
disregarded.
Hence, the facts that petitioners were hired by Romeo or his father and that their salaries were
paid by them do not detract from the conclusion that there exists an employer-employee
relationship between the parties due to Pctron's power of control over the petitioners. One
manifestation of the power of control is the power to transfer employees from one work
assignment to another. Here, Petron could order petitioners to do work outside of their regular
"maintenance/utility" job. Also, petitioners were required to report for work everyday at the bulk
plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear proper uniform and safety
helmets as prescribed by the safety and security measures being implemented within the bulk
plant. All these imply control. In an industry where safety is of paramount concern, control and
supervision over sensitive operations, such as those performed by the petitioners, are inevitable if
not at all necessary. Indeed, Petron deals with commodities that are highly volatile and
flammable which, if mishandled or not properly attended to, may cause serious injuries and
damage to property and the environment. Naturally, supervision by Petron is essential in every
aspect of its product handling in order not to compromise the integrity, quality and safety of the
products that it distributes to the consuming public.97 (Citations omitted; Emphasis supplied)
That DFI is the employer of the respondent-workers is bolstered by the CA's finding that DFI
exercises control over the respondent-workers.98 DFI, through its manager and supervisors
provides for the work assignments and performance targets of the respondent-workers. The
managers and supervisors also have the power to directly hire and terminate the respondentworkers.99 Evidently, DFI wields control over the respondent-workers.
Neither can DFI argue that it is only the purchaser of the bananas produced in the awarded
plantation under the BPPA,100 and that under the terms of the BPPA, no employer-employee
relationship exists between DFI and the respondent-workers,101 to wit:
UNDERTAKING OF THE FIRST PARTY
xxx
3. THE FIRST PARTY [DARBMUPCO] shall be responsible for the proper conduct, safety,
benefits and general welfare of its members working in the plantation and specifically render free
and harmless the SECOND PARTY [DPI] of any expense, liability or claims arising therefrom.
It is clearly recognized, by the FIRST PARTY that its members and other personnel
utilized in the performance of its function under this agreement are not employees of the
SECOND PARTY.102 (Emphasis supplied)
In labor-only contracting, it is the law which creates an employer-employee relationship between
the principal and the workers of the labor-only contractor.103

Inasmuch as it is the law that forms the employment ties, the stipulation in the BPPA that
respondent-workers are not employees of DFI is not controlling, as the proven facts show
otherwise. The law prevails over the stipulations of the parties. Thus, in Tabas v. California
Manufacturing Co., Inc.,104 we held that:
The existence of an employer-employees relation is a question of law and being such, it
cannot be made the subject of agreement. Hence, the fact that the manpower supply agreement
between Livi and California had specifically designated the former as the petitioners' employer
and had absolved the latter from any liability as an employer, will not erase either party's
obligations as an employer, if an employer-employee relation otherwise exists between the
workers and either firm. xxx105 (Emphasis supplied.)
Clearly, DFI is the true employer of the respondent-workers; respondent-contractors are only
agents of DFI. Under Article 106 of the Labor Code, DFI shall be solidarily liable with the
respondent-contractors for the rightful claims of the respondent-workers, to the same manner and
extent, as if the latter are directly employed by DFI.106
WHEREFORE, the petition is DENIED for lack of merit. The March 31, 2006 Decision and
the May 30, 2006 Resolution of the Court of Appeals in C.A.-G.R. SP Nos. 53806, 61607 and
59958 are hereby AFFIRMED.
SO ORDERED.

chanroblesvirtuallawlibrary

Velasco, Jr., (Chairperson), Leonardo-De Castro,**Peralta, and Villarama, Jr., JJ., concur.

SECOND DIVISION
G.R. No. 182255, June 15, 2015
PETRON CORPORATION, Petitioner, v. ARMZ CABERTE, ANTONIO CABERTE, JR.,
MICHAEL SERVICIO,* ARIEL DEVELOS, ADOLFO GESTUPA, ARCHIE PONTERAS,
ARNOLD BLANCO, DANTE MARIANO,* VIRGILIO GALOROSA, AND CAMILO TE,*
Respondents.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the November 14, 2007 Decision2 of the Court of
Appeals (CA) in CA-G.R. SP No. 82356 which reversed the May 14, 2003 Decision3 and
November 27, 2003 Resolution4 of the National Labor Relations Commission (NLRC) in NLRC

Case No. V-000329-2002. The NLRC affirmed the March 7, 2002 Decision5 of the Labor Arbiter
dismissing the Complaints for illegal dismissal and payment of monetary claims filed by
respondents Armz Caberte (Caberte), Antonio Caberte, Jr. (Caberte Jr.), MichaeServicio
(Servicio), Ariel Develos (Develos), Adolfo Gestupa (Gestupa), Archie Ponteras (Ponteras),
Arnold Blanco (Blanco), Dante Mariano (Mariano), Virgilio Galorosa (Galorosa) and Camilo Te
(Te) against petitioner Petron Corporation (Petron), ABC Contracting Services (ABC), and its
owner Antonio B. Caberte, Sr. (Caberte Sr.). Likewise assailed is the CA Resolution6 dated
March 4, 2008 which denied Perron's Motion for Reconsideration.
Factual Antecedents
Petron is a domestic corporation engaged in the manufacture and distribution to the general
public of various petroleum products. In pursuance of its business, Petron owns and operates
several bulk plants in the country for receiving, storing and distributing its products.
On various dates from 1979 to 1998, respondents were hired to work at Petron's Bacolod Bulk
Plant in San Patrick, Bacolod City, Negros Occidental as LPG/Gasul fillers, maintenance crew,
warehousemen, utility workers and tanker receiving crew.
For the periods from March 1, 1996 to February 28, 1999 and November 1, 1996 to June 30,
1999, Petron and ABC, a labor contracting business owned and operated by Caberte Sr., entered
into a Contract for Services7 and a Contract for LPG Assistance Services.8 Under both service
contracts, ABC undertook to provide utility and maintenance services to Petron in its Bacolod
Bulk Plant.
Proceedings before the Labor Arbiter
On July 2, 1999, respondents Caberte, Caberte Jr., Servicio, Develos, Gestupa, Ponteras, Blanco
and Mariano filed before the Labor Arbiter a Complaint9 for illegal dismissal, underpayment of
wages and non-payment of allowances, 13th month pay, overtime pay, holiday pay, service
incentive leave pay, moral and exemplary damages and attorney's fees against Petron, ABC and
Caberte Sr., docketed as NLRC RAB VI Case No. 06-07-10588-99. Subsequently, respondents
Galorosa and Te separately filed similar Complaints10 docketed as NLRC RAB VI Case No. 0607-10675-99 and RAB Case No. 06-09-10785-99, respectively. The three Complaints were
consolidated in an Order11 dated October 25, 1999 of the Labor Arbiter.
Respondents averred that even before Petron engaged ABC as contractor in 1996, most of them
had already been working for Petron for years. However, every time Petron engages a new
contractor, it would designate such new contractor as their employer. Despite such arrangement,
Petron exercised control and supervision over their work, the performance of which is necessary
and desirable in its usual trade and business. Respondents added that ABC is a mere labor-only
contractor which had no substantial capital and investment, and had no control over the manner
and method on how they accomplished their work. Thus, Petron is their true employer. On July
1, 1999, however, Petron no longer allowed them to enter and work in the premises of its
Bacolod Bulk Plant. Hence, the complaints for illegal dismissal.

On the other hand, Petron asserted that ABC is an independent contractor which supplied the
needed manpower for the maintenance of its bulk handling premises and offices, as well as for
tanker assistance in the receiving and re-filling of its LPG products; that among the workers
supplied by ABC were respondents, except Caberte Jr., who does not appear to be one of those
assigned by ABC to work for it; that it has no direct control and supervision over respondents
who were tasked to perform work required by the service contracts it entered into with ABC;
and, that it cannot allow the continuous employment of respondents beyond the expiration of the
contracts with ABC. To prove the legitimacy and capacity of ABC as an independent contractor,
Petron submitted the following documents: (1) Contractor's Pre-Qualification Statement;12 (2)
Petron's Conflict of Interest Policy signed by Caberte Sr., as proprietor of ABC;13 (3) ABC's
Certificate of Registration issued by the Bureau of Internal Revenue (BIR);14 (4) Value-Added
Tax Return for the year 1995;15 (5) BIR Confirmation Receipt;16 (6) Caberte Sr.'s Tax
Identification Number (TIN) issued by the BIR;17 (7) Caberte Sr.'s Individual Income Tax Return
for the years 199318 and 1994;19 (8) ABC's Audited Financial Statements for the years 1992,20
199321 and 1994;22 (9) ABC's Mayor's Permit for the year 1995;23 and, (10) ABC's Certificate of
Registration of Business Name issued by the Department of Trade and Industry (DTI).24 In
addition, it averred that ABC, as a contractor, had duly posted a performance bond25 and took out
insurance policies26 against liabilities. Petron likewise presented affidavits27 of two Petron
employees stating that respondents do not perform activities related to Petron's business
operation but only tasks which are intermittent and which can be contracted out. Also submitted
were affidavits28 of three former employees of ABC attesting to the fact that during their stint in
Petron, they used materials such as floor polisher, floor wax, broom, dustpan, cleaning rags and
other equipment owned by ABC to accomplish their tasks and that they worked under the
supervision of Caberte Sr., through the latter's designated overall supervisor, respondent Caberte.
Petron further revealed that ABC/Caberte Sr. has the power to hire and fire respondents and was
the one paying their wages.
In a Decision29 dated March 7, 2002, Executive Labor Arbiter Danilo C. Acosta (LA Acosta) held
that ABC is an independent contractor that has substantial capital and that respondents were its
employees. He likewise ruled that ABC's cessation of operation is a force majeure that justifies
respondents' dismissal. Nonetheless, LA Acosta awarded respondents separation pay based on
the applicable minimum wage rate at the time of expiration of the contracts of service. He,
however, denied the claims for overtime pay and night shift differential pay for lack of merit.
The dispositive portion of the Decision reads:
Conformably with the foregoing, respondent ABC is hereby ORDERED TO PAY EACH
COMPLAINANT, namely, complainants Antonio Caberte, Jr., Armz M. Caberte, Michael
Servicio, Ariel Develos, Adolfo Gestupa, Archie Ponteras, Arnold Blanco, Dante Mirano,
Virgilio Galorosa and Camilo Te, separation pay of one month for every year of service.
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All other claims and the claims against respondent PETRON are hereby ORDERED
DISMISSED for lack of merit.
SO ORDERED.30
Proceedings before the National Labor Relations Commission
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Respondents appealed to the NLRC where they insisted that they are regular employees of

Petron since ABC is a labor-only contractor.


In a Decision31 dated May 14, 2003, the NLRC affirmed the ruling of the Labor Arbiter after it
found that ABC is not a mere labor contractor but a legitimate independent contractor. In so
ruling, the NLRC took into account the following: (1) ABC/Caberte Sr. has the power of control
over respondents as Caberte Sr. was the one controlling and supervising respondents in their
work. While Petron intervened at times, the same was limited to safety precautions due to the
hazardous nature of the products the workers were dealing with; (2) ABC possessed sufficient
capital and equipment per the various documents that Petron submitted showing the former's
financial capability to maintain its status as an accredited contractor of the latter. In fact, Caberte
Sr. was even able to establish ABC's Bacolod City Office; and, (3) ABC/Caberte Sr. has the
power to hire and dismiss respondents. Hence, the dispositive portion of the Decision, viz:
WHEREFORE, premises considered, this appeal is DISMISSED and the decision of the
Executive Labor Arbiter is AFFIRMED.
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SO ORDERED.32
Respondents filed a Motion for Reconsideration which was, however, denied in the NLRC
Resolution33 dated November 27, 2003.
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Proceedings before the Court of Appeals


Aggrieved, respondents filed a Petition for Certiorari34 before the CA ascribing upon the NLRC
grave abuse of discretion amounting to lack or in excess of jurisdiction in holding that they are
not employees of Petron.
The CA, in a Decision35 dated November 14, 2007, found merit in respondents' Petition. It ruled
that ABC is engaged in labor-only contracting because: first, it did not have substantial capital or
investment in the form of tools, equipment, implements, machineries and work premises,
actually and directly used in the performance or completion of the job it contracted out from
Petron; second, the work assigned to respondents were directly related to Petron's business; and,
third, the nature of Petron's business requires it to exercise control over the performance of
respondents' work. Consequently, the CA declared respondents as Petron's regular employees.
And since Petron did not comply with the requirements under the Labor Code when it terminated
their employment, respondents were illegally dismissed and therefore entitled to reinstatement
without loss of seniority rights and other privileges, with the alternative relief of separation pay
in lieu of reinstatement, and to full backwages, inclusive of allowances, and to other benefits or
their monetary equivalent computed from the time compensation was withheld up to the time of
actual reinstatement. The CA, however, denied respondents' claims for moral and exemplary
damages in the absence of bad faith in Petron's act of dismissing them but awarded respondents
10% attorney's fees for having to litigate to protect their interests. The dispositive portion of the
Decision reads:
WHEREFORE, in view of the foregoing, the decision of the National Labor Relations
Commission dated May 14, 2003, in NLRC Case No. V-000329-2002, affirming the March 7,
2002 Decision of Executive Labor Arbiter Danilo C. Acosta of the Sub-Regional Arbitration
Branch VI, Bacolod City, is hereby REVERSED.
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Respondent Petron Corporation is ordered to reinstate Armz Caberte, Antonio Caberte, Jr.,
Michael Servicio, Ariel Develos, Adolfo Gestupa, Archie Ponteras, Arnold Blanco, Dante
Mirano, Virgilio Galorosa and Camilo Te to their former positions with the same rights and
benefits and the same salary rates as its regular employees.
Respondent Petron Corporation is likewise ordered to pay petitioner's attorney's fees equivalent
to ten percent (10%) of the monetary award.
All other claims are dismissed for lack of merit.
Costs against private respondent Petron.
SO ORDERED.36
Petron's Motion for Reconsideration37 was denied by the CA in its Resolution38 dated March 4,
2008. Hence, this present recourse.
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Issues
Petron presents the following grounds for review:
XXX THE COURT OF APPEALS SERIOUSLY ERRED AND DECIDED A QUESTION OF
SUBSTANCE IN A MANNER NOT IN ACCORD WITH LAW AND WITH APPLICABLE
JURISPRUDENCE IN FINDING THAT ABC CONTRACTING SERVICES IS A MERE
LABOR-ONLY CONTRACTOR AND IN HOLDING THAT RESPONDENTS ARE THUS
REGULAR EMPLOYEES OF THE COMPANY CONSIDERING THAT:
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A. THERE IS A LEGITIMATE SERVICE CONTRACTING AGREEMENT BETWEEN


THE COMPANY AND ABC CONTRACTING SERVICES;
B. THE CONTRACTED SERVICES THAT RESPONDENTS PERFORMED ARE NOT
DIRECTLY RELATED AND NECESSARY OR DESIRABLE TO THE COMPANY'S
PRINCIPAL BUSINESS;
C. ABC CONTRACTING SERVICES CARRIES ON AN INDEPENDENT BUSINESS
AND POSSESSES SUBSTANTIAL CAPITAL AND INVESTMENT;
D. RESPONDENTS ARE EMPLOYEES OF ABC CONTRACTING SERVICES. 39

Petron asserts that ABC, as an independent contractor, rendered janitorial, utility and LPG
assistance services by virtue of legitimate contracts entered into by and between them. As such,
the services rendered by respondents were purely maintenance and utility works which are not
directly related, necessary and desirable to Petron's main business.
Petron likewise insists that ABC is not a labor-only contractor as it carries on an independent
business and uses its own equipment, tools, materials and supplies in the performance of its
contracted services. Further, it asserts that ABC wielded and exercised the power of selection or
engagement, payment of wages, discipline or dismissal, and of control over respondents.
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Our Ruling
The Petition has no merit.
Labor-only contracting and permissible job contracting, defined; a contractor is presumed by
law to be a labor-only contractor; anyone claiming the supposed status of an independent
contractor bears the burden of proving the same.
As defined under Article 106 of the Labor Code, labor-only contracting, a prohibited act, is an
arrangement where the contractor, who does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others, supplies workers to an
employer and the workers recruited are performing activities which are directly related to the
principal business of such employer.
Permissible or legitimate job contracting or subcontracting, on the other hand, "refers to an
arrangement whereby a principal agrees to put out or farm out with the contractor or
subcontractor the performance or completion of a specific job, work, or service within a definite
or predetermined period, regardless of whether such job, work, or service is to be performed or
completed within or outside the premises of the principal. A person is considered engaged in
legitimate job contracting or subcontracting if the following conditions concur: (a) the contractor
carries on a distinct and independent business and partakes the contract work on his account
under his own responsibility according to his own manner and method, free from the control and
direction of his employer or principal in all matters connected with the performance of his work
except as to the results thereof; (b) the contractor has substantial capital or investment; and (c)
the agreement between the principal and the contractor or subcontractor assures the contractual
employees' entitlement to all labor and occupational safety and health standards, free exercise of
the right to self-organization, security of tenure, and social welfare benefits."40
To determine whether a contractor is engaged in labor-only contracting or permissible job
contracting, "the totality of the facts and the surrounding circumstances of the case are to be
considered."41
Petron contends that the CA erred in ruling that ABC is a labor-only contractor since respondents
failed to prove that ABC is not an independent contractor. The contention, however, is incorrect.
The law presumes a contractor to be a labor-only contractor and the employees are not expected
to prove the negative fact that the contractor is a labor-only contractor.42 Thus, it is not
respondents but Petron which bears the burden of establishing that ABC is not a labor-only
contractor but a legitimate independent contractor. As held in Alilin v. Petron Corporation,43
"where the principal is the one claiming that the contractor is a legitimate contractor, the burden
of proving the supposed status of the contractor rests on the principal."
Petron failed to overcome the presumption that ABC is a labor-only contractor.
Foremost, Petron banks on the contracts of services it entered into with ABC. It contends that the
said contracts were legitimate business transactions and were not only for the purpose of ABC
providing manpower or labor-only to Petron, but rather for specific services pertaining to

janitorial, utility and LPG assistance.


Suffice it to state, however, that Petron cannot place reliance on the contracts it entered into with
ABC since these are not determinative of the true nature of the parties' relationship. As held in
Babas v. Lorenzo Shipping Corporation,44 the character of the business, whether as labor-only
contractor or as a job contractor, should be determined by the criteria set by statute and the
parties cannot dictate by the mere expedience of a unilateral declaration in a contract the
character of their business.
Next, Petron endeavours to prove that ABC is a legitimate independent contractor.
To restate, a contractor is deemed to be a labor-only contractor if the following elements are
present: (i) the contractor does not have substantial capital or investment to actually perform the
job, work or service under its own account and responsibility; and (ii) the employees recruited,
supplied or placed by such contractor are performing activities which are directly related to the
main business of the principal.45 Conversely, in proving that ABC is not a labor-only contractor,
it is incumbent upon Petron to show that ABC has substantial capital or investment and that
respondents were performing activities which were not directly related to Petron's principal
business.
To show that ABC has substantial capital or investment, Petron submitted, among others, ABC's
BIR Certificate of Registration, VAT Return, BIR Confirmation Receipt, TIN, Individual Income
Tax Return, Mayor's Permit and DTI Certificate of Registration. However, the Court observes
that these documents are not conclusive evidence of ABC's financial capability. At most, they
merely show that ABC is engaged in business and licensed by the appropriate government
agencies.
As for the financial statements presented, it appears that only the audited financial statements of
ABC for the years 1992, 1993 and 1994 were submitted. As aptly observed by the CA, these
documents cannot be given much credence considering that the service contracts between Petron
and ABC commenced in 1996 and ended in 1999. However, no audited financial statements for
the years material to this case (1996, 1997, 1998 and 1999) were submitted. Also, as per record,
ABC was obligated to submit to Petron at least once every two years its latest audited financial
statements, among others, as a requirement for the retention of its status as an accredited
contractor of Petron.46 If it is true that ABC continued to possess its financial qualification after
1994, Petron should have presented ABC's financial statements for the said years which are
presumed to be in Petron's possession considering that they are part of the requirements that it
itself set for its accredited contractors.
Neither does the performance bond taken out by ABC serve as significant evidence of its
substantial capital. As aptly explained by the CA:
The performance bond posted by ABC Contracting Services likewise fails to convince us that the
former has substantial capital or investment inasmuch as it was not shown that the performance
bond in the amount of P596,799.51 was enough to cover not only payrolls, rentals and equipment
but also possible damages to the equipment and to third parties and other contingent liabilities.
Moreover, this Court takes judicial notice that bonds of this nature are issued upon payment of a
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small percentage as premium without necessarily requiring any guarantee.


If at all, the bond was a convenient smoke screen to disguise the real nature of ABC's
employment as an agent of Petron.47
Anent substantial investment in the form of equipment, tools, implements, machineries and work
premises, Petron likewise failed to show that ABC possessed the same. Instead, what is evident
in the records was that ABC had been renting a forklift from Petron in order to carry out the job
of respondents.48 This only shows that ABC does not own basic equipment needed in the
performance of respondents' job. Similarly and again as correctly held by the CA, the fact that
ABC leased a property for the establishment of its Bacolod office is immaterial since it was not
shown that it was used in the performance or completion of the job contracted out. "Substantial
capital or investment," under Section 5, Rule VIII-A, Book III of the Omnibus Rules
Implementing the Labor Code (Implementing Rules), as amended by Department Order No. 1802,49 does not include those which are not actually and directly used in the performance of the
job contracted out.
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Going now to the activities performed by respondents, Petron avers that the same were not
necessary or desirable to its principal business. In fact, the service contracts it entered into with
ABC clearly referred to respondents' functions as maintenance and utility works only which are
remote to its principal business of manufacturing and distributing petroleum products.
The Court finds otherwise. Gestupa, Ponteras, Develos, Blanco and Mariano were LPG fillers
and maintenance crew; Caberte was an LPG operator supervisor; Te was a warehouseman and
utility worker; and Servicio and Galorosa were tanker receiving crew and utility workers.
Undoubtedly, the work they rendered were directly related to Petron's main business, vital as
they are in the manufacture and distribution of petroleum products. Besides, some of the
respondents were already working for Petron even before it engaged ABC as a contractor in
1996. Albeit it was made to appear that they were under the different contractors that Petron
engaged over the years, respondents have been regularly performing the same tasks within the
premises of Petron. This "the repeated and continuing need for the performance of the job is
sufficient evidence of the necessity, if not indispensability of the activity to the business."50
What further militates against Perron's claim that ABC, as an alleged independent contractor, is
the true employer of respondents, is the fact that Petron has the power of control over
respondents in the performance of their work. It bears stressing that the power of control merely
calls for the existence of the right to control and not necessarily the exercise thereof.51 Here,
Petron admitted in its Position Paper that the supervision of a Petron employee is required over
LPG and tanker assistance jobs for inventory control and safety checking purposes. It explained
that due to the hazardous nature of its products, constant checking of the procedures in their
handling is essential considering the high possibility of fatal accidents. It also admitted that it
was the one supplying the needed materials and equipment in discharging these functions to
better insure the integrity, quality and safety of its products.
From the foregoing, it is clear that Petron failed to discharge its burden of proving that ABC is
not a labor-only contractor. Consequently, and as warranted by the facts, the Court declares ABC
as a mere labor-only contractor. "A finding that a contractor is a 'labor-only' contractor is

equivalent to declaring that there is an employer-employee relationship between the principal


and the employees of the supposed contractor, and the 'labor-only' contractor is considered as a
mere agent of the principal, the real employer." 52 Accordingly in this case, Petron is declared to
be the true employer of respondents who are considered regular employees in view of the fact
that they have been regularly performing activities which are necessary and desirable to the usual
business of Petron for a number of years.
Respondents, except Antonio Caberte, Jr., were illegally dismissed.
With respect to respondents' dismissal, Petron claimed that the same sprang from the termination
or conclusion of the service contracts it entered into with ABC. As earlier held, respondents are
considered regular employees. In cases of regular employment, an employer may only terminate
the services of an employee for just or authorized causes under the law.53 As the reason given by
Petron dismissing respondents does not constitute a just or authorized cause for termination, 54 the
latter are declared to have been illegally dismissed. Respondents are thus entitled to all the
remedies of an illegally dismissed employee, i.e., backwages and reinstatement, or if no longer
feasible, separation pay. The CA is thus correct in ruling that respondents are entitled to
reinstatement without loss of seniority rights and other privileges. However, if reinstatement is
no longer feasible, respondents are entitled to receive separation pay equivalent to one month
salary for every year of service. In addition, respondents are entitled to full backwages from the
time they were not allowed to work on July 1, 1999 up to actual reinstatement or finality of this
Decision as the case may be.
An exception must be taken, however, with respect to Caberte Jr. From the beginning, Petron
disputes the fact he ever worked for Petron. Therefore, before his case against Petron can
prosper, Caberte Jr. must first establish that an employer-employee relationship existed between
them since it is basic that the issue of illegal dismissal is premised on the existence of such
relationship between the parties.55 Unfortunately, nowhere in the records does it show that he
indeed worked for Petron. Consequently, his complaint should be dismissed.
WHEREFORE, the petition is DENIED. The November 14, 2007 Decision and the March 4,
2008 Resolution of the Court of Appeals in CA-G.R. SP No. 82356 are MODIFIED in that: (1)
the Complaint of respondent Antonio Caberte, Jr. against petitioner Petron Corporation is
dismissed; and (2) petitioner Petron Corporation is ordered to reinstate all of the respondents,
except for Antonio Caberte, Jr., to their former positions with the same rights and benefits and
the same salary rates as its regular employees, or if reinstatement is no longer feasible, to
separation pay equivalent to one month salary for every year of service and to pay them their full
backwages from July 1, 1999 until actual reinstatement or upon finality of this Decision as the
case may be, as well as attorney's fees equivalent to 10% of the monetary award, with costs
against Petron Corporation.
SO ORDERED.

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Carpio, (Chairperson), Brion, Mendoza, and Leonen, JJ., concur.

THIRD DIVISION
G.R. No. 186114, October 07, 2015
CHEVRON (PHILS.), INC., Petitioner, v. VITALIANO C GALIT, SJS AND SONS
CONSTRUCTION CORPORATION AND MR. REYNALDO SALOMON, Respondents.
DECISION
PERALTA J.:*
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking the reversal and setting aside of the Decision1 and Resolution2 of the Court of Appeals
(CA), dated December 8, 2008 and January 20, 2009, respectively, in CA-G.R. SP No. 104713.
The assailed CA Decision reversed and set aside the Decision dated January 31, 2008 and the
Resolution dated May 27, 2008 of the National Labor Relations Commission (NLRC), Second
Division in NLRC NCR (Case No.) 00-03-02399-06 (CA No. 051468-07), while the questioned
CA Resolution denied petitioner's Motion for Reconsideration.
The factual and procedural antecedents of the case are as follows:

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On March 20, 2006, herein respondent (Galit) filed against Caltex Philippines, Inc., now
Chevron (Phils.), Inc., SJS and Sons Construction Corporation (SJS), and its president, Reynaldo
Salomon (Salomon),3 a Complaint4 for illegal dismissal, underpayment/non-payment of 13th
month pay, separation pay and emergency cost of living allowance. The Complaint was filed
with the NLRC National Capital Region, North Sector Branch in Quezon City.
In his Position Paper,5 Galit alleged that: he is a regular and permanent employee of Chevron
since 1982, having been assigned at the company's Pandacan depot; he is an "all-around
employee" whose job consists of cleaning the premises of the depot, changing malfunctioning oil
gaskets, transferring oil from containers and other tasks that management would assign to him; in
the performance of his duties, he was directly under the control and supervision of Chevron
supervisors; on January 15, 2005, he was verbally informed that his employment is terminated
but was promised that he will be reinstated soon; for several months, he followed up his
reinstatement but was not given back his job.
In its Position Paper,6 SJS claimed that: it is a company which was established in 1993 and was
engaged in the business of providing manpower to its clients on a "per project/contract" basis;
Galit was hired by SJS in 1993 as a project employee and was assigned to Chevron, as a janitor,
based on a contract between the two companies; contrary to Galit's allegation, he started working
for SJS only in 1993; the manpower contract between SJS and Chevron eventually ended on
November 30, 2004 which resulted in the severance of Galit's employment; SJS finally closed its
business operations in December 2004; it retired from doing business in Manila on January 21,
2005; Galit was paid separation pay of P11,000.00.

On the other hand, petitioner contended in its Position Paper with Motion to Dismiss7 that: it
entered into two (2) contracts for-janitorial services with SJS from May 1, 2001 to April 30, 2003
and from June 1, 2003 to June 1, 2004; under these contracts, SJS undertook to "assign such
number of its employees, upon prior .agreement with [petitioner], as would be sufficient to fully
and effectively render the work and services undertaken" and to "supply the equipment, tools and
materials, which shall, by all means, be effective and efficient, at its own expense, necessary for
the performance" of janitorial services; Galit, who was employed by SJS, was assigned to
petitioner's Pandacan depot as a janitor; his wages and all employment benefits were paid by
SJS; he was subject to the supervision, discipline and control of SJS; on November 30, 2004, the
extended contract between petitioner and SJS expired; subsequently, a new contract for janitorial
services was awarded by petitioner to another independent contractor; petitioner was surprised
that Galit filed an action impleading it; despite several conferences, the parties were not able to
arrive at an amicable settlement.
On October 31, 2006, the Labor Arbiter (LA) assigned to the case rendered a Decision,8 the
dispositive portion of which reads as follows:
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WHEREFORE, judgment is hereby rendered DISMISSING the Complaint against respondent


Chevron for lack of jurisdiction, and against respondents SJS and Reynaldo Salomon for lack of
merit. For equity and compassionate consideration, however, respondent SJS is hereby ordered to
pay the complainant a separation pay at the rate of a half-month salary for every year of service
that the complainant had with respondent SJS.
SO ORDERED.9
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The LA found that SJS is a legitimate contractor and that it was Galit's employer, not petitioner.
The LA dismissed Galit's complaint for illegal dismissal against petitioner for lack of jurisdiction
on the ground that there was no employer-employee relationship between petitioner and Galit.
The LA likewise dismissed the complaint against SJS and Salomon for lack of merit on the basis
of his finding that Galit's employment with SJS simply expired as a result of the completion of
the project for which he was engaged.
Aggrieved, herein respondent filed an appeal10 with the NLRC.
On January 31, 2008, the NLRC rendered its Decision11 and disposed as follows:

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


Respondent SJS and Sons Construction Corporation is ordered to pay the complainant, severance
compensation, at the rate of one (1) month salary for every year of service. In all other respects,
the appealed decision so stands as AFFIRMED.
SO ORDERED.12
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The NLRC affirmed the findings of the LA that SJS was a legitimate job contractor and that it
was Galit's employer. However,"the NLRC found that Gal it was a regular, and not a project

employee, of SJS, whose employment was effectively terminated when SJS ceased to operate.
Herein respondent tiled a Motion for Reconsideration,13 but the NLRC denied it in its
Resolution14 dated May 27, 2008.
Respondent then filed a petition for certiorari with the CA assailing the above NLRC Decision
and Resolution.
On December 8, 2008, the CA promulgated its assailed Decision, the dispositive portion of
which reads, thus:
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WHEREFORE, premises considered, the petition is GRANTED. The Decision dated January
31, 2008 and the Resolution dated May 27, 2008 of the NLRC, Second Division in NLRC NCR
[Cast No.] 00-03-02399-06 (CA No. 051468-07) are REVERSED and SET ASIDE. Judgment
is rendered declaring private respondent Chevron Phils, guilty of illegal dismissal and ordering
petitioner Galit's reinstatement without loss of seniority rights and other privileges and payment
of his full backwages, inclusive of allowances and to other benefits or their monetary equivalents
computed from the time compensation was withheld up to the time of actual reinstatement.
Private respondent Chevron Phils, is also hereby ordered to pay 10% of the amount due
petitioner Galit as attorney's fees.
SO ORDERED.15
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Contrary to the- findings of the LA and the NLRC, the CA held that SJS was a labor-only
contractor, that petitioner is Galit's actual employer and that the latter was unjustly dismissed
from his employment.
Herein petitioner filed a motion for reconsideration, but the CA denied it in its Resolution dated
January 20, 2009.
Hence, the present petition for review on certiorari based on the following grounds:

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I.
WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN DECLARING THAT THE DISMISSAL OF RESPONDENT WAS ILLEGAL
CONSIDERING THAT:
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A. THE FINDINGS OF FACT OF TFIE LABOR ARBITER A QUO AND THE NATIONAL
LABOR RELATIONS COMMISSION ARE ALREADY BINDING UPON THE
HONORABLE COURT OF APPEALS.
B. THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE COMPANY
AND RESPONDENT HEREIN.
C. PETITIONER SJS IS A. LEGITIMATE INDEPENDENT CONTRACTOR.

II.
CONSIDERING THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP
BETWEEN THE COMPANY AND RESPONDENT HEREIN, THE HONORABLE COURT
OF APPEALS' AWARD OF REINSTATEMENT, BACKWAGES, AND ATTORNEY'S FEES
AGAINST THE COMPANY HAS NO LEGAL BASIS.16
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On September 19, 2012, this Court issued a Resolution17 directing petitioner to implead SJS as
party-respondent on the ground that it is an indispensable party without whom no final
determination can be had of this case.
In a Motion18 dated November 21, 2012, petitioner manifested its compliance with this Court's
September 19, 2012 Resolution. In addition, it prayed that Salomon be also impleaded as partyrespondent
Acting on petitioner's above Motion, this Court issued another Resolution19 on June 19, 2013,
stating that SJS and Salomon are impleaded as parties-respondents and are required to comment
on the petition for review on certiorari.
However, despite due notice sent to SJS and Salomon at their last known addresses, copies of the
above Resolution were returned unserved. Hence, on October 20, 2014, the Court, acting on
Galit's plea for early resolution of the case, promulgated a Resolution20 resolving to dispense
with the filing by SJS and Salomon of their respective comments.
The Court will, thus, proceed to resolve the instant petition.
At the outset, the Court notes that the first ground raised by petitioner consists of factual issues.
It is settled that this Court is not a trier of facts, and this applies with greater force in labor
cases.21 Corollary thereto, this Court has held in a number of cases that factual findings of
administrative or quasi-judicial bodies, which are deemed to have acquired expertise in matters
within their respective jurisdictions, are generally accorded not only respect but even finality,
and bind the Court when supported by substantial evidence.22 However, it is equally settled that
the.foregoing principles admit of certain exceptions, to wit: (1) the findings are grounded entirely
on speculation, surmises or conjectures; (2) the inference made is manifestly mistaken, absurd or
impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of fact are conflicting; (6) in making its findings, the
Court of Appeals went beyond the issues of the case, or its findings are contrary to the
admissions of both appellant and appellee; (7) the findings are contrary to those of the trial court;
(8) the findings are conclusions without citation of specific evidence on which they are based;
(9) the facts set forth in the petition, as well as in petitioners main and reply briefs, are not
disputed by respondent; (10) the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.23 In the instant case, the Court gives due course to the
instant petition considering that the findings of fact and conclusions of law of the LA and the
NLRC differ from those of the CA.

Thus, the primordial question that confronts the Court is whether there existed an employeremployee relationship between petitioner and Galit, and whether the former is liable to the latter
for the termination of his employment. Corollary to this, is the issue of whether or not SJS is an
independent contractor or a labor only contractor.
To ascertain the existence of an employer-employee relationship, jurisprudence has invariably
adhered to the four-fold test, to wit: (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 employee's
conduct, or the so-called "control test."24 Of these four, the last one is the most important.25 The
so-called "control test" is commonly regarded as the most crucial and determinative indicator of
the presence or absence of an employer-employee relationship.26 Under the control test, an
employer-employee relationship exists where the person for whom the services are performed
reserves the right to control not only the end achieved, but also the manner and means to be used
in reaching that end.27
In the instant case, the true nature of Galit's employment is evident from the Job Contract
between petitioner and SJS, pertinent portions of which are reproduced hereunder:
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xxxx
1.1 The CONTRACTOR [SJS] shall provide the following specific services to the COMPANY
[petitioner]:
xxxx
1. Scooping of slop of oil water separator
2. Cleaning of truck parking area/drum storage area and pier
xxxx
4.1 In the fulfillment of its obligations to the COMPANY, the CONTRACTOR shall select and
hire its workers. The CONTRACTOR alone shall be responsible for the payment of their wages
and other employment benefits and likewise for the safeguarding of their health and safety in
accordance with existing laws- and regulations. Likewise, the CONTRACTOR shall be
responsible for the discipline and/or dismissal of these workers.
4.2 The CONTRACTOR shall retain the right to control the manner and the means of performing
the work, with the COMPANY having the control or direction only as to the results to be
accomplished.
xxxx
4.4 It is understood that, for the above reasons, these workers shall be considered as the
employees of the CONTRACTOR. Under no circumstances, shall these workers be deemed
directly or indirectly as the employees of the COMPANY.
xxxx

5.1 The CONTRACTOR shall maintain efficient and effective discipline over any and all
employees it may utilize in performing its obligations under this CONTRACT, x x x
5.2 The COMPANY shall in no manner be answerable or accountable for any incident or injury
which may occur to any worker or personnel of .the CONTRACTOR during the time and
consequent upon the performance of the work and services under this Agreement, nor for any
injury, loss or damage arising from fault, negligence or carelessness of the CONTRACTOR or
anyone of its workers to any person or persons or to his or their property; and the
CONTRACTOR covenants and agrees to assume, as it does hereby assume, all liabilities for any
such injury, loss or damage and to make the COMPANY free and blameless therefrom, x x x
5.3. The CONTRACTOR shall be responsible for any loss or damage that may be incurred upon
the products, properties and installations of the COMPANY during the effectivity of this
Contract which are due to the unreasonable or negligent act of the CONTRACTOR, its agents or
its workers.
xxxx
6.1 The CONTRACTOR shall at its own expense maintain with a reputable insurance company,
acceptable to the CQMPANY, a comprehensive liability insurance in the amount required by the
COMPANY to cover claims for bodily injury, death or property damage caused to any person or
persons by an act or omission of the CONTRACTOR or any of its employees, agents or
representatives.
xxxx
x x x [T]he CONTRACTOR agrees and undertakes:

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xxxx
b. To submit satisfactory proof to the COMPANY that it has registered its personnel/workers
assigned to perform the work and services herein required with the Social Security System,
Medicare and other appropriate agencies for purposes of the Labor Code as well as other laws,
decrees, rules and regulations.
c. To pay the wages or salaries of its personnel/workers as well as benefits, premia and protection
in accordance with the provisions of the Labor Code and other applicable laws, decrees, rules
and regulations promulgated by competent authority, xxx
d. To assign such number of its employees, upon prior agreement with the COMPANY, as would
be sufficient to fully and effectively render the work and services herein undertaken, xxx
e. To supply the equipment, tools and materials, which shall, by all means, be effective and
efficient, at its own expense, necessary for the performance of the services under this Contract.28

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The foregoing provisions of the Job Contract between petitioner and SJS demonstrate that the

latter possessed the following earmarks of an employer, to wit: (1) the power of selection and
engagement of employees, under.Sections 4.1 and 6.1(d); (2) the payment of wages, under
Sections 4.1 and 6.1(c); (3) the power to discipline and dismiss, under Section 4.1; and, (4) the
power to control the employee's conduct, under Sections 4.1, 4.2, and 5.1.
As to SJS' power of selection and engagement, Galit himself admitted in his own affidavit that it
was SJS which assigned him to work at Chevron's Pandacan depot.29 As such, there is no
question that it was SJS which selected and engaged Galit as its employee.
With respect to the payment of wages, the Court finds no error in the findings of the LA that
Galit admitted that it was SJS which paid his wages. While Galit claims that petitioner was the
one which actually paid his wages and that SJS was merely used as a conduit, Galit failed to
present evidence to this effect. Galit, likewise, failed to present sufficient proof to back up his
claim that it was petitioner, and not SJS, which actually paid his SSS, Philhealth and Pag-IBIG
premiums. On the contrary, it is .unlikely that SJS would report Galit as its worker, pay his SSS,
Philhealth and Pag-IBIG premiums, as well as his wages, if it were not true that he was indeed its
employee.30 In the same manner, the Quitclaim and Release,31 which was undisputedly signed by
Galit, acknowledging receipt of his separation pay from SJS, is an indirect admission or
recognition of the fact that the latter was indeed his employer. Again, it would be unlikely for
SJS to pay Galit his separation pay if it is not the latter's employer.
Galit also did not dispute the fact that he was dismissed from employment by reason of the
termination of the service contract between SJS and petitioner. In other words, it was not
petitioner which ended his employment. He was dismissed therefrom because petitioner no
longer renewed its contract with SJS and that the latter subsequently ceased to operate.
Anent the power of control, the Court again finds no cogent reason to depart from the findings of
the NLRC that in case of matters that needed to be addressed with respect to employee
performance, petitioner dealt directly with SJS and not with the employee concerned. In any
event, it is settled that such power merely calls for the existence of the right to control and not
necessarily the exercise thereof. In the' present case, the Job Contract between petitioner and SJS
clearly provided that SJS "shall retain the right to control the manner and the means of
performing the work, with [petitioner] having the control or direction only as to the results to be
accomplished."32
In addition, it would bear to point out that contrary to the ruling of the CA, the work performed
by Galit, which is the "scooping of slop of oil water separator,"33 has no direct relation to
petitioner's business, which is the importation, refining and manufacture of petroleum products.
The Court defers to the findings of both the LA and the NLRC that the job performed by Galit,
which essentially consists of janitorial services, may be incidental or desirable to petitioner's
main activity but it is not necessary and directly related to it.
As to whether or not SJS is an independent contractor, jurisprudence has invariably ruled that an
independent contractor carries on an independent business and undertakes the contract work on
his own account, under his own responsibility, according to his own manner and method, and
free from the control and direction of his employer or principal in all matters connected with the

performance of the work except as to the results thereof.34 This embodies what has long been
jurisprudentially recognized as the control test, as discussed above. In the instant case, SJS
presented evidence to show that it had an independent business by paying business taxes and fees
and that it was registered as an employer with the Social Security System. Moreover, there was
no evidence to show that SJS and its employees were ever subject to the control of petitioner. On
the contrary, as shown above, SJS possessed the right to control its employees' manner and
means of performing their work , including herein respondent Galit.
As to its capital, there is no dispute that SJS generated an income of P1,523,575.81 for the year
2004.35 In Neri v. National Labor Relations Commission,36 this Court held that a business venture
which had a capitalization of P1,000,000.00 was considered as highly capitalized and cannot be
deemed engaged in labor-only contracting. In the present case, while SJS' income of more than
P1,500,000.00 was not shown to be equivalent to its authorized capital stock, such income is an
indication of how much capital was put into its business to generate such amount of revenue.
Thus, the Court finds no sufficient reason to disturb the findings of the LA and the NLRC that
SJS had substantial capital.
WHEREFORE, the instant petition is GRANTED. The assailed Decision and Resolution of the
Court of Appeals, dated December 8, 2008 and January 20, 2009, respectively, are REVERSED
and SET ASIDE. The Decision of the National Labor Relations Commission, dated January 31,
2008 in NLRC NCR' [Case No.] 00-03-02399-06 (CA No. 051468-07) is REINSTATED.
SO ORDERED.

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Villarama, Jr., Perlas-Bernabe,** Leonen,*** and Jardeleza, JJ., concur.

SECOND DIVISION
G.R. No. 201494, July 29, 2015
MARITES R. CUSAP, Petitioner, v. ADIDAS PHILIPPINES, INC., (ADIDAS),
PROMOTION RESOURCES & INTER-MARKETING EXPONENTS, INC. (PRIME)
AND JC ATHLETES, INC. (JCA), Respondents.
DECISION
BRION, J.:
We resolve petitioner Marites R. Cusap's appeal1 from the September 21, 2011 decision2 and
February 20, 2012 resolution3 of the Court of Appeals in CA-G.R. SP No. 104725.
The Antecedents
On January 21, 2003, the petitioner and 27 other employees (complainants) filed a complaint for

illegal dismissal4 against the respondents Adidas Philippines Inc. (Adidas) and Promotion
Resources Inter-Marketing Exponents, Inc. (PRIME). The complainants later amended the
complaint to include JC Athletes, Inc. (JCA), as a respondent.5 They prayed for reinstatement
with back wages, separation pay (should reinstatement be no longer feasible), 13th month pay,
service incentive leave pay, and damages.
Through their "Magkasanib na Sinumpaang Salaysay,"6 the complainants alleged that they were
regular employees of Adidas after having worked as promo girls and stockmen at the company's
various rented outlets for years, ranging from one year to seven years; the earliest employed
(June 1, 1995) was Nova Toque while the latest was Aquilino Banaag (September 21, 2000). The
petitioner was hired on October 28, 1995.7
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The record shows that Adidas is engaged in the manufacture and marketing of different lines of
shoes and other sporting goods and apparel in the Philippines.8 After its contract with its former
distributor, World Sports, Inc. (WOSI) allegedly expired, it contracted9 JCA to be its exclusive
distributor nationwide for one year or from January 1, 2002 to December 31, 2002. In turn, JCA
entered into a Promotional Contract10 with PRIME to meet the promotional requirements in the
distribution of Adidas products. PRIME supposedly assigned the complainants to JCA for the
purpose.
The complainants claimed that they were dismissed from employment on December 9, 2002,
when the service contract between PRIME and JCA was terminated. This notwithstanding, they
argued that Adidas was their real employer, not PRIME which, they believed, was merely a
recruitment agency supplying Adidas with manpower. PRIME was being used, they further
claimed, to conceal the actual employment relationship between them and Adidas.
They pointed out that for the years that they were employed, they worked for Adidas, under the
supervision and control of Adidas and JCA personnel. They stressed that their work was related
to and in pursuit of Adidas' principal business activity (the marketing of its products), thereby
making them regular employees of the company. This was their reason for demanding their
regularization by Adidas.
Further, the complainants maintained that JCA was a mere alter ego of Adidas and was being
used to further muddle the employment relationship between them and Adidas. JCA's actual role
as a dummy (together with PRIME) for Adidas, the complainants explained, was evidenced by
the fact that JCA and Adidas occupied the same office. JCA took the place of WOSI as
distributor of Adidas products.
Elaborating on their "muddled" employment status in relation with Adidas, the complainants
bewailed that JCA was erroneously identified as "distributor" of Adidas products as no evidence
showed that JCA purchased the Adidas products they were selling.11 Under their supposed
Distribution Agreement, the "Distributor shall purchase the Products only from Adidas or any
other sources expressly designated by Adidas and sell the Products in its own name and for its
own account x x x."12
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The complainants asserted that the products they were selling at various outlets remained the

property and under the control of Adidas - it was Adidas that provided the warehouse where the
products were stored, that leased the outlets from department stores, and that provided regular
training to them.13 Also, the proceeds of the sales were directly deposited to the bank account of
Adidas. Moreover, their salaries and other monetary benefits supposedly paid by PRIME were
charged to the account of Adidas, as indicated in their payslips.14 They argued that if JCA
purchased the products being sold and were already its property, there was no point to still charge
complainants' wages and benefits to the Adidas' account.
These circumstances, complainants stressed, confirmed their position that JCA and PRIME were
only intermediaries of Adidas and were used to conceal Adidas' identity as their real employer.
To substantiate their assertion that PRIME was just an intermediary of Adidas, they submitted
documentary proof that it was not even a registered corporation, labor recruiter, or agency when
it supposedly entered into a contract with JCA; neither with the Securities and Exchange
Commission15 nor with the Department of Trade and Industry.16 It was registered as a "job
contractor/subcontractor" only on May 20, 2002.17 They thus maintained that PRIME was just a
labor-only contractor at the time it claimed it had employed them for its supposed undertaking
with JCA.
In defense, Adidas argued that in 2002, it amended its Articles of Incorporation18 to enable it
to engage in the retail business without the need to contract the services of distributors
such as JCA, following the approval by the Board of Investments of the application of its
mother company, Adidas Solomon AG, to operate as a foreign retailer in the country. As a
consequence, it no longer renewed its Distribution Agreement with JCA when it expired on
December 31, 2002.
Necessarily, it maintained, the Promotion Contract between JCA and PRIME was also
terminated, resulting in the complainants' dismissal. However, for purposes of proper inventory,
accounting and turnover of products, it agreed with JCA for a hold-over period of three months
ending March 31, 2003.
Also, Adidas turned down the complainants' demand for regularization as they were employees
of PRIME. It claimed it was PRIME who exercised control over their work; at most, the
supervision it exercised over the complainants was only to provide them guidelines in aid of their
marketing work. It added that neither could it satisfy their money claims because they were
legally dismissed when their contracts with PRIME expired.
For its part, JCA prayed for the dismissal of the complaint as far as it was concerned in view of
what it claimed - its valid job contract with PRIME, the complainants' employer. It averred that it
was PRIME who exercised the power to select, engage, and dismiss the complainants, and who
assumed the obligation to pay their wages. To bolster its position, JCA presented quitclaim and
release papers executed by some employees in favor ofPRIME.19
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JCA added that whatever liability it had with the complainants was limited to satisfying their
unpaid wages to the extent of the work performed under its Promotion Contract with PRIME.
However, PRIME'S payment of its monetary obligations to the complainants extinguished its

liability towards them.


As its co-respondents did, PRIME denied liability, contending that it hired the complainants as
contractual employees for its project with JCA to promote Adidas products. It maintained that
their employment was terminated when its contract with JCA expired and was not renewed.
Thus, the petitioner and the other complainants were not illegally dismissed and were not
therefore entitled to reinstatement and back wages. On the issue of its legal personality as an
independent contractor, it submitted certificates of registration from the DTI,20 DOLE,21 and
SEC22 to establish that it had been in operation earlier than May 20, 2002.
The Rulings on Compulsory Arbitration
In a decision23 dated February 23, 2004, Labor Arbiter (LA) Elias H. Salinas dismissed the
complaint for lack of merit, holding that PRIME was the complainants' employer as it was
PRIME who hired them to work under its Promotions Contract with JCA. LA Salinas found the
complainants' dismissal valid in view of the termination and nonrenewal of the contract.
LA Salinas denied the complainants' money claims, finding that PRIME had shown that it paid
their 13th month pay and service incentive leave pay. However, for reasons of equity and
humanitarian considerations, LA Salinas awarded the petitioner and the complainants financial
assistance of one-half month's salary for every year of service.
The petitioner and 15 of the other complainants appealed. The 15 however moved to withdraw
their appeal, which the National Labor Relations Commission (NLRC) granted in its decision24 of
January 23, 2008, leaving only the petitioner to pursue the case. Eventually, NLRC denied the
appeal. It also denied the petitioner's motion for reconsideration, prompting her to seek recourse
from the CA through a petition for certiorari. She charged the NLRC with grave abuse of
discretion in rejecting her appeal and motion for reconsideration; as it was, she lamented,
contrary to law and jurisprudence.
The CA Decision
Before the CA, the petitioner reiterated her position in compulsory arbitration that Adidas was
her employer, not JCA or PRIME, since the two entities were mere dummies/intermediaries or
were labor-only contractors of Adidas. She insisted that JCA and PRIME carried out - under their
respective contracts - Adidas' merchandising activities using Adidas' premises and equipment
with PRIME'S purported employees working under the supervision and control of Adidas'
personnel.
The CA 10th Division denied the petition in its September 21, 201125 decision and affirmed the
assailed NLRC rulings as they were not rendered with grave abuse of discretion. It held that the
rulings were supported by evidence establishing PRIME to be a "legitimate job contractor" as it
possessed substantial capital to finance its promotions undertaking with JCA. The evidence, the
CA explained, consisted of remittances to Philhealth, SSS and Pag-ibig26 which showed that
PRIME fulfilled its obligations toward its employees under the government's welfare programs.
Applying the four-fold employer-employee relationship test,27 the CA found PRIME to be the

complainants' and the petitioner's employer as it was PRIME which (1) hired the complainants;28
(2) paid their wages;29 (3) dismissed them upon the expiration of the contract for which they
were hired; and (4) exercised control over them with respect to the conduct of the work to be
performed.30
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Consequently, the CA brushed aside the random certificates of attendance in Adidas seminars31 of
some of the complainants to prove that Adidas was their employer, agreeing with NLRC finding
that the "certificates only establish the fact that complainants attended the seminars for product
knowledge, service quality, and retail service."32
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The petitioner moved for reconsideration of the CA decision, to no avail, as the CA denied the
motion in its February 20, 2012 resolution.33
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The Petition
The petitioner now asks this Court to reverse the CA rulings, contending that the appeals court
seriously erred and gravely abused its discretion when it held that she was an employee of
PRIME, not of Adidas, and was validly dismissed, contrary to law and applicable jurisprudence.
Before the Court, the petitioner reiterates the arguments she presented to the CA, particularly the
following factual narration:
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1. She applied at Adidas in its former address at Estrata 200, Emerald Avenue, Ortigas
Center City. After the interviews made by Ms. Cornelia Indon (Head Concession, World
of Sports Inc.) and Mr. Enrique Victoria (Adidas Sales Manager), they ordered her to
proceed to the office of PRIME and from there she was given a letter of introduction
("intro letter") addressed to the outlet where she was assigned.
2. She was assigned to different Adidas outlets and she, together with her co-employees,
were supervised by Adidas managers and supervisors Cornelia Indon, Sonny Niebres
(Managing Director) and Philip Go (President). It was not PRIME who supervised them;
neither was it JCA.
3. The sales in the outlets were deposited directly to the bank account of Adidas and not to
JCA or PRIME bank accounts.
4. The products being sold and the tools she used in the performance of her duty were
owned by Adidas. Adidas was also the one that paid the rents in the stores where it has
concessions.
5. She continued to work in different Adidas outlets for more than seven years.
The petitioner submits that Adidas, JCA and PRIME failed to refute the above narration or to
present any evidence to the contrary. Citing Lakas sa Industriya ng Kapatirang Haligi ng
Alyansa-Pinagbuklod ng Manggawang Promo ng Burlingame v. Burlingame Corporation,34 she
argues that as promo girl, her work is directly related to Adidas' principal business or operations,
which makes her a regular employee of the company.

On the other hand, she points out, JCA and PRIME did not carry on an independent business or
undertook the performance of their service contracts according to their own manner and
methods, free from the control and supervision of the principal Adidas. The two entities, she
insists, were mere labor-only contractors.
It is thus clear, the petitioner submits, that an employer-employee relationship existed between
her and Adidas. Accordingly, she prays that: (1) she be declared a regular employee of Adidas;
(2) Adidas be ordered (a) to reinstate her with full back wages or to pay her back wages and
separation pay if reinstatement is no longer feasible; (b) to grant her moral and exemplary
damages, plus attorney's fees; and (3) JCA and PRIME be declared jointly and solidarity liable
with Adidas for all her other money claims.
The Case for the Respondents
In its Comment35 filed on June 7, 2012, Adidas asks for the dismissal of the petition, arguing
principally that the petitioner failed to present any cogent reason to reverse the CA factual
conclusions upholding the labor tribunals' ruling that the petitioner was an employee of PRIME
and was not illegally dismissed.
To support its position, Adidas submits that the arguments relied upon by the petitioner are
substantially identical with those raised in her certiorari petition with the CA, which do not merit
further consideration as they had already been correctly passed upon by the appellate court.
Adidas bewails the petitioner's repeated reference to her regular employment with it and not with
PRIME, "adducing in evidence only her self-serving Salaysay which simply stated her baseless
claims."36 On the other hand, it was able to present proof, together with JCA and PRIME,
showing that PRIME was the petitioner's employer, it being, like JCA, an independent and
distinct business entity.
The respondents JCA and PRIME opted not to comment on the petition, despite being required
by the Court to do so.37
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The Court's Ruling


We find merit in the petition based on the evidence on record.
The evidence relied upon by LA Salinas, the NLRC, and the CA was insufficient to support their
conclusion that the petitioner was an employee of PRIME. On the contrary, the evidence points
to Adidas as the petitioner's and the complainants' real employer.
PRIME is a labor-only contractor; JCA an agent/intermediary of Adidas
One of the criteria the CA cited as a basis of its conclusion that PRIME was a legitimate job
contractor was its possession of "substantial capital to finance its undertakings,"38 yet it was
silent on what these undertakings were. It merely said: "We reached this conclusion based on
records which showed PRIME has fulfilled its obligations towards its employees as regards

remittances to Philhealth, the SSS and Pag-ibig."39 The CA conclusion, to our mind, fell short of
establishing that PRIME satisfied the substantial-capital requirement for legitimate job
contractors under the law and the rules.
Article 106 of the Labor Code provides that "There is 'labor-only' contracting where the person
supplying workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such person are performing activities which are directly related to the principal
business of the employer. In such cases, the person or intermediary shall be considered merely
an agent of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him. (emphasis supplied)
Sec. 5. Department Order No. 18-02, s. of 2002, implementing Articles 106 to 109 of the Labor
Code, prohibits labor-only contracting and defines it as "an arrangement where the contractor
or sub-contractor merely recruits, supplies or places workers to perform a job, work or service
for a principal, and any of the following is present: (i) The contractor or subcontractor does not
have substantial capital or investment which relates to the job, work or service to be performed
and the workers recruited, supplied or placed by such contractor or sub-contractor are
performing activities which are directly related to the principal business of the employer; or (ii)
the contractor does not exercise the right to control over the performance of the work of the
contractual employee, x x x 'substantial capital or investment' refers to capital stocks and
subscribed capitalization in the case of corporations, tools, equipment, implements,
machineries and work premises, actually and directly used by the contractor or subcontractor
in the performance or completion of the job, work or service contracted out." (emphasis
supplied)
Aside from PRIME'S remittances of employee contributions to Philhealth, SSS, and Pag-ibig and
the payment for the complainants' and the petitioner's wages, we find no indication, except
mostly general statements from Adidas, PRIME and JCA, that PRIME possessed substantial
capital or investment to operate as a legitimate job contractor or subcontractor.
According to Adidas, not only did PRIME have substantial capital or investment to run its own
business operations independent of its clients, it also has sufficient capability to control and
supervise its employees. Yet it offered no proof to substantiate its claim,40 other than its
recognition of PRIME'S capability to fulfill its obligations towards its employees.
The same thing is true with PRIME. It likewise offered no proof of how or in what manner its
purported substantial capital financed its "promotional and inter-marketing business"41 with JCA,
except to say that in the pursuit of its business operations, "it has complied with all the
requirements of law anent the rights, privileges and benefits of its employees."42
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For its part, JCA relied principally on its promotional contract with PRIME to avoid liability,
saying that the terms of their service agreement demonstrate the earmarks of an employer under
the four-fold employer-employee relationship test.43 It also presented no proof of how or in what
manner PRIME carried out its undertaking under the contract; although like Adidas, it
acknowledged PRIME'S payment of the petitioners' and the complainants' wages, and

remittances to Philhealth, SSS, and Pag-ibig.


While the payment of wages and workers' benefits is one of the determinants of an employeremployee relationship, we do not find it a reliable basis in this case. In fact, a closer look at the
payslips44 of PRIME'S supposed employees reveals that the complainants' salaries and benefits
were under the account of Adidas,45 giving credence to their claim that their compensation was
charged to Adidas. If indeed JCA and PRIME were an independent contractor and a
subcontractor, respectively, why would the name "ADIDAS" still appear on the payslips of
PRIME'S employees.
The answer lies in the fact that Adidas avoided being identified as the complainants' direct
employer so that it would not have to bear the consequences of the complainants' and the
petitioner's regularization. Notably, the records show46 that these complainants and the petitioner
were engaged not only in 2002, but much earlier; some were even hired in 1995, including the
petitioner, who started selling Adidas products on October 28, 1995. In fact, LA Salinas relied on
the complainants' several years of service of selling Adidas products in awarding financial
assistance to them.
Under these circumstances, we have reason to believe that PRIME, the supposed JCA
subcontractor, just assumed the act of paying the complainants' wages and benefits on behalf of
Adidas, indicating thereby that it was a mere agent of Adidas or a labor-only contractor.47
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In the light of the complete absence of proof that PRIME applied its "substantial capital or
investment" in performing the promotional job it contracted with JCA, we find credence in the
petitioner's submission that the products she was selling remained to be the property and under
the control of Adidas; that it was Adidas who owned the warehouse where they were stored; that
leased the sales outlets from department stores; and that provided regular training to her and to
the other complainants. The record shows that this particular claim by the petitioner had not
been disputed by either Adidas or JCA.
Moreover, if in fact Adidas entered a distribution agreement with JCA, we wonder why the
products the petitioner and the other supposed "contractual employees" were selling were
retained and remained to be under the control of Adidas, and also, why the proceeds of the sales
went into Adidas' bank account. The answer is because JCA itself is not an independent
contractor. It was merely an agent or intermediary of Adidas, despite the distribution agreement
between them which they did not even honor since, as required under Section 2.2 of the
agreement,48 the distributor shall purchase the Adidas products and sell them in its own name and
for its own account.
Although Adidas claims that by virtue of the agreement, JCA did not purchase but rather had in
its custody and safekeeping different Adidas products, for distribution to different sales outlets in
the country,49 nowhere in the record does it appear that the agreement had been amended to allow
such arrangement. Neither has it been shown how or in what manner the distribution was to be
done. It was not also shown who managed and provided the storage places and the sales outlets
for the products.

Again, in the absence of evidence that JCA had the wherewithal to undertake its distribution
agreement with Adidas, except to enter into a promotions contract with PRIME, we find merit in
the petitioner's contention that Adidas and JCA, at a time, held office in the same address; and
that Adidas provided the storage places and the outlets for the distribution of its products, not
PRIME or JCA. As the petitioner points out, formerly it was WOSI and later JCA which acted as
agent of Adidas. The record bears out her observations.
The petitioner performed activities necessary to the principal business of Adidas
Thus, the petitioner and the complainants (who withdrew from the case) were performing
activities that were necessary to market the products that Adidas itself manufactured. They sold
these products for several years, starting in June 1995 until December 9, 2000. While Adidas
explains that it amended its articles of incorporation in October 2002 to engage in retail, it cannot
be denied that in 1995 it was already in the retail business through its agents WOSI and JCA and
labor-only contractor PRIME. Thus, the petitioner had become an Adidas regular employee a
long time before she was supposedly made a "contractual employee" of PRIME.
Adidas exercised control and supervision over the performance of the petitioner's work
In the absence of evidence showing how or in what manner PRIME carried out its promotion
work under its contract with JCA and how it provided the necessary requirements for such
undertaking (such as the maintenance of storage areas and engagement of sales outlets), we
likewise find merit in the petitioner's submission that it was Adidas who exercised control and
supervision over the petitioner's work performance, through its Sales Manager Sonny Niebres, its
President Philip Go, and even Cornelia Indon, head of the WOSI concession.
In sum, we hold that PRIME failed to satisfy the four-fold employer-employee relationship test,50
making it a labor-only contractor under the law and the rules. Like JCA, it was merely an agent
of Adidas, notwithstanding the quitclaims of some of the complainants in its favor. Adidas,
therefore, is petitioner's real employer who shall be responsible to her in the same manner and
extent as if she were directly employed by the company.51 In this light, we find the petitioner
to have been illegally dismissed, there being obviously no valid cause to and absent due
process in her dismissal.
Consequently, the petitioner is entitled under the law52 to reinstatement, without loss of seniority
rights and other privileges, and with full back wages. Should reinstatement no longer be feasible,
she shall be entitled to full back wages and separation pay at one month's pay for every year of
service. However, her claim for other monetary benefits is denied as she failed to refute LA
Salinas' ruling that she had been paid her 13th month pay and service incentive leave pay.
Further, we find the respondents to have shown bad faith in the petitioner's dismissal as it
resulted from the prohibited labor-only contracting arrangement imposed on her since October
28, 1995. Thus, the petitioner is also entitled to damages and to attorney's fees as she was
compelled to litigate to protect her rights. Under the circumstances, we deem an award to the
petitioner of P50,000.00 each in moral and exemplary damages, plus ten percent attorney's fees
reasonable, to be paid jointly and solidarity by Adidas, PRIME, and JCA.

WHEREFORE, premises considered, the petition is GRANTED. The assailed decision and
resolution of the Court of Appeals are SET ASIDE. The respondent Adidas Philippines, Inc., is
ORDERED to reinstate the petitioner Marites R. Cusap to her former position without loss of
seniority rights and other privileges, and to pay her back wages from her illegal dismissal on
December 9, 2002, up to her actual reinstatement; and should reinstatement no longer be
feasible, to pay her back wages and separation pay at one month's pay for every year of service.
Adidas Philippines, Inc., Promotion Resources & Inter-Marketing Exponents, Inc., and JC
Athletes Inc., are ORDERED to pay the petitioner, jointly and solidarity, moral damages of
P50,000.00, exemplary damages of P50,000.00 and 10% of all the sums due under this Decision
as attorney's fees.
SO ORDERED.

cralawl awlibrary

Carpio, (Chairperson), Mendoza, Perlas-Bernabe,* and Leonen, JJ., concur.

chanrobleslaw

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 177592

June 9, 2014

AVELINO S. ALILIN, TEODORO CALESA, CHARLIE HINDANG, EUTIQUIO


GINDANG, ALLAN SUNGAHID, MAXIMO LEE, JOSE G. MORA TO, REX GABILAN,
AND EUGEMA L. LAURENTE, Petitioners,
vs.
PETRON CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
A contractor is presumed to be a labor-only contractor, unless it proves that it has the substantial
capital, investment, tools and the like. However, where the principal is the one claiming that the
contractor is a legitimate contractor, the burden of proving the supposed status of the contractor
rests on the principal.1
This Petition for Review on Certiorari2 assails the Decision3 dated May 10, 2006 of the Court of
Appeals (CA) in CA-G.R. SP No. 01291 which granted the Petition for Certiorari filed therewith,

reversed and set aside the February 18, 2005 Decision4 and August 24, 2005 Resolution5 of the
National Labor Relations Commission (NLRC) in NLRC Case No. V-000481-2003 and
dismissed the Complaint for illegal dismissal filed by petitioners Avelino Alilin (Alilin), Teodoro
Calesa (Calesa), Charlie Hindang (Hindang), Eutiquio Gindang (Gindang), Allan Sungahid
(Sungahid), Maximo Lee (Lee), Jose G. Morato (Morato), Rex Gabilan (Gabilan) and Eugema L.
Laurente (Laurente) against respondent Petron Corporation (Petron). Also assailed in this
Petition is the CA Resolution6 dated March 30, 2007 which denied petitioners Motion for
Reconsideration7 and Supplemental Motion for Reconsideration.8
Factual Antecedents
Petron is a domestic corporation engaged in the oil business. It owns several bulk plants in the
country for receiving, storing and distributing its petroleum products.
In 1968, Romualdo D. Gindang Contractor, which was owned and operated by Romualdo D.
Gindang (Romualdo), started recruiting laborers for fielding to Petrons Mandaue Bulk Plant.
When Romualdo died in1989, his son Romeo D. Gindang (Romeo), through Romeo D. Gindang
Services(RDG), took over the business and continued to provide manpower services to Petron.
Petitioners were among those recruited by Romualdo D. Gindang Contractor and RDG to work
in the premises of the said bulk plant, with the corresponding dates of hiring and work duties, to
wit:
Employees

Date of Hiring

Duties

Eutiquio Gindang

1968

utility/tanker receiver/barge loader/warehouseman/mixer

Eugema L. Laurente

June 1979

telephone operator/order taker

Teodoro Calesa

August 1, 1981

utility/tanker receiver/barge loader/sounder/gauger

Rex Gabilan

July 1, 1987

warehouseman/forklift driver/tanker receiver/barge loader

Charlie T. Hindang

September 18, 1990 utility/tanker receiver/barge loader/sounder/gauger

Allan P. Sungahid

September 18, 1990 filler/sealer/painter/tanker receiver/utility

Maximo S. Lee

September 18, 1990 gasul filler/painter/utility

Avelino S. Alilin

July 16, 1992

carpenter/driver

Jose Gerry M. Morato

March 16, 1993

cylinder checker/tanker receiver/grass cutter/janitor/utility

On June 1, 2000, Petron and RDG entered into a Contract for Services9 for the period from June
1, 2000 to May 31, 2002, whereby RDG undertook to provide Petron with janitorial,
maintenance, tanker receiving, packaging and other utility services in its Mandaue Bulk Plant.
This contract was extended on July 31, 2002 and further extended until September 30, 2002.
Upon expiration thereof, no further renewal of the service contract was done.
Proceedings before the Labor Arbiter

Alleging that they were barred fromcontinuing their services on October 16, 2002, petitioners
Alilin, Calesa, Hindang, Gindang, Sungahid, Lee, Morato and Gabilan filed a Complaint10 for
illegal dismissal, underpayment of wages, damages and attorneys fees against Petron and RDG
on November 12, 2002. Petitioner Laurente filed another Complaint11 for illegal dismissal,
underpayment of wages, non-payment of overtime pay, holiday pay, premium pay for holiday,
rest day, 13th month pay, service incentive leave pay, allowances, separation pay, retirement
benefits, damages and attorneys fees against Petron and RDG. The said complaints were later
consolidated.
Petitioners did not deny that RDG hired them and paid their salaries. They, however, claimed that
the latter is a labor-only contractor, which merely acted as an agent of Petron, their true
employer. They asseverated that their jobs, which are directly related to Petrons business,
entailed them to work inside the premises of Petron using the required equipment and tools
furnished by it and that they were subject to Petrons supervision. Claiming to be regular
employees, petitioners thus asserted that their dismissal allegedly in view of the expiration of the
service contract between Petron and RDG is illegal.
RDG corroborated petitioners claim that they are regular employees of Petron. It alleged that
Petron directly supervised their activities; they performed jobs necessary and desirable to
Petrons business; Petron provided petitioners with supplies, tools and equipment used in their
jobs; and that petitioners workplace since the start of their employment was at Petrons bulk
plant in Mandaue City. RDG denied liability over petitioners claim of illegal dismissal and
further argued that Petron cannot capitalize on the service contract to escape liability.
Petron, on the other hand, maintained that RDG is an independent contractor and the real
employer of the petitioners. It was RDG which hired and selected petitioners, paid their salaries
and wages, and directly supervised their work. Attesting to these were two former employees of
RDG and Petrons Mandaue Terminal Superintendent whose joint affidavit12 and affidavit,13
respectively, were submitted by Petron. Anent its allegation that RDG is an independent
contractor, Petron presented the following documents: (1) RDGs Certificate of Registration
issued by the Department of Labor and Employment (DOLE) on December 27, 2000;14 (2)
RDGs Certificate of Registration of Business Name issued by the Department of Trade and
Industry (DTI) on August 18, 2000;15 (3) Contractors Pre-Qualification Statement;16 (4)
Conflict of Interest Statement signed by Romeo Gindang as manager of RDG;17 (5) RDGs
Audited Financial Statements for the years 199818 199919 and 2000;20 (6) RDGs Mayors
Permit for the years 200021 and 2001;22 (7) RDGs Certificate of Accreditation issued by DTI in
October 1991;23 (8) performance bond24 and insurance policy25 posted to insure against
liabilities; (9) Social Security System (SSS) Online Inquiry System Employee Contributions and
Employee Static Information;26 and, (10) Romeos affidavit27 stating that he had paid the
salaries of his employees assigned to Petron for the period of November 4, 2001 to December 31,
2001. Petron argued that with the expiration of the service contract it entered with RDG,
petitioners term of employment has concomitantly ended. And not being the employer, Petron
cannot be held liable for petitioners claim of illegal dismissal.
In a Decision28 dated June 12, 2003,the Labor Arbiter ruled that petitioners are regular
employees of Petron. It found that their jobs were directly related to Petrons business

operations; they worked under the supervision of Petrons foreman and supervisor; and they were
using Petrons tools and equipment in the performance of their works. The Labor Arbiter also
found that Petron merely utilized RDG in its attempt to hide the existence of employee-employer
relationship between it and petitioners and avoid liability under labor laws. And there being no
showing that petitioners dismissal was for just or authorized cause, the Labor Arbiter declared
them to have been illegally dismissed. Petron was thus held solidarily liable with Romeo for the
payment of petitioners separation pay (in lieu of reinstatement due to strained relations with
Petron) fixed at one month pay for every year of service and backwages computed on the basis
of the last salary rate at the time of dismissal. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering the respondents
Petron Corporation and Romeo Gindang to pay the complainants as follows:
1. Teodoro Calesa

P 136,890.00

2. Eutiquio Gindang

P 202,800.00

3. Charlie T. Gindang

P 91,260.00

4. Allan P. Sungahid

P 91,260.00

5. Jose Gerry Morato

P 76,050.00

6. Avelino A. Alilin

P 95,680.00

7. Rex S. Gabilan

P 106,470.00

8. Maximo S. Lee

P 91,260.00

9. Eugema Minao Laurente P 150,800.00


Total award

P1,042,470.00

The other claims are dismissed for lack of merit.


SO ORDERED.29
Proceedings before the National Labor Relations Commission
Petron continued to insist that there is no employer-employee relationship between it and
petitioners. The NLRC, however, was not convinced. In its Decision30 of February 18, 2005, the
NLRC ruled that petitioners are Petrons regular employees because they are performing job
assignments which are germane to its main business. Thus:
WHEREFORE, premises considered, the Decision of the Labor Arbiter is hereby affirmed. It is
understood that the grant of backwages shall be until finality of the Decision.
The appeal of respondent Petron Corporation is hereby DISMISSED for lack of merit.
SO ORDERED.31

The NLRC also denied Petrons Motion for Reconsideration in its Resolution32 of August 24,
2005.
Proceedings before the Court of Appeals
Petron filed a Petition for Certiorari with prayer for the issuance of a temporary restraining order
or writ of injunction before the CA. The said court resolved to grant the injunction.33 Hence, a
Writ of Preliminary Injunction34 to restrain the implementation of the February 18, 2005
Decision and August 24, 2005 Resolution of the NLRC was issued on March 3, 2006.
In a Decision35 dated May 10, 2006, the CA found no employer-employee relationship between
the parties. According to it, the records of the case do not show that petitioners were directly
hired, selected or employed by Petron; that their wages and other wage related benefits were paid
by the said company; and that Petron controlled the manner by which they carried out their tasks.
On the other hand, RDG was shown to be responsible for paying petitioners wages. In fact, SSS
records show that RDG is their employer and actually the one remitting their contributions
thereto. Also, two former employees of RDG who were likewise assigned in the Mandaue Bulk
Plant confirmed by way of a joint affidavit that it was Romeo and his brother Alejandre Gindang
who supervised their work, not Petrons foreman or supervisor. This was even corroborated by
the Terminal Superintendent of the Mandaue Bulk Plant.
The CA also found RDG to be an independent labor contractor with sufficient capitalization and
investment as shown by its financial statement for year-end 2000. In addition, the works for
which RDG was contracted to provide were menial which were neither directly related nor
sensitive and critical to Petrons principal business. The CA disposed of the case as follows:
WHEREFORE, the Petition is GRANTED. The February 18, 2005 Decision and the August 24,
2005 Resolution of the Fourth Division of the National Labor Relations Commission in NLRC
Case No. V-000481-2003, entitled "Teodoro Calesa et al. vs. Petron Corporation and R.D.
Gindang Services", having been rendered with grave abuse of discretion amounting to excess of
jurisdiction, are hereby REVERSED and SET ASIDE and a NEW ONE is entered DISMISSING
private respondents complaint against petitioner. It is so ordered.36
Petitioners filed a Motion for Reconsideration37 insisting that Petron illegally dismissed them;
that RDG is a labor-only contractor; and that they performed jobs which are sensitive to Petrons
business operations. To support these, they attached to their Supplemental Motion for
Reconsideration38 Affidavits39 of former employees of Petron attesting to the fact that their jobs
were critical to Petrons business operations and that they were carried out under the control of a
Petron employee.
Petitioners motions were, however, denied by the CA in a Resolution40 dated March 30, 2007.
Hence, this Petition.
Issue

The primary issue to be resolved in this case is whether RDG is a legitimate job contractor. Upon
such finding hinges the determination of whether an employer-employee relationship exists
between the parties as to make Petron liable for petitioners dismissal.
Our Ruling
The Petition is impressed with merit. The conflicting findings of the Labor Arbiter and the
NLRC on one hand, and of the CA on the other, constrains the Court to review the factual issues
involved in this case.
As a general rule, the Court does not review errors that raise factual questions.41 Nonetheless,
while it is true that the determination of whether an employer-employee relationship existed
between the parties basically involves a question of fact, the conflicting findings of the Labor
Arbiter and the NLRC on one hand, and of the CA on the other, constrains the Court to review
and reevaluate such factual findings.42
Labor-only contracting, distinguished
from permissible job contracting.
The prevailing rule on labor-only contracting at the time Petron and RDG entered into the
Contract for Services in June 2000 is DOLE Department Order No. 10, series of 1997,43 the
pertinent provision of which reads:
Section 4. x x x
xxxx
(f) "Labor-only contracting" prohibited under this Rule is an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job, work or service for a
principal and the following elements are present:
(i) The contractor or subcontractor does not have substantial capital or investment to
actually perform the job, work or service under its own account and responsibility; and
(ii) The employees recruited, supplied or placed by such contractor or subcontractor are
performing activities which are directly related to the main business of the principal.
xxxx
Section 6. Permissible contracting or subcontracting. - Subject to the conditions set forth in
Section 3 (d) and (e) and Section 5 hereof, the principal may engage the services of a contractor
or subcontractor for the performance of any of the following:

(a) Works or services temporarily or occasionally needed to meet abnormal increase in


the demand of products or services, provided that the normal production capacity or
regular workforce of the principal cannot reasonably cope with such demands;
(b) Works or services temporarily or occasionally needed by the principal for
undertakings requiring expert or highly technical personnel to improve the management
or operations of an enterprise;
(c) Services temporarily needed for the introduction or promotion of new products, only
for the duration of the introductory or promotional period;
(d) Works or services not directly related or not integral to the main business or operation
of the principal, including casual work, janitorial, security, landscaping, and messengerial
services, and work not related to manufacturing processes in manufacturing
establishments;
(e) Services involving the public display of manufacturers products which do not involve
the act of selling or issuance of receipts or invoices;
(f) Specialized works involving the use of some particular, unusual or peculiar skills,
expertise, tools or equipment the performance of which is beyond the competence of the
regular workforce or production capacity of the principal; and
(g) Unless a reliever system is in place among the regular workforce, substitute services
for absent regular employees, provided that the period of service shall be coextensive
with the period of absence and the same is made clear to the substitute employee at the
time of engagement. The phrase "absent regular employees" includes those who are
serving suspensions or other disciplinary measures not amounting to termination of
employment meted out by the principal, but excludes those on strike where all the formal
requisites for the legality of the strike have been prima facie complied with based on the
records filed with the National Conciliation and Mediation Board.
"Permissible job contracting or subcontracting refers to an arrangement whereby a principal
agrees to farm out with a contractor or subcontractor the performance of a specific job, work, or
service within a definite or predetermined period, regardless of whether such job, work or,
service is to be performed or completed within or outside the premises of the principal. Under
this arrangement, the following conditions must be met: (a) the contractor carries on a distinct
and independent business and undertakes the contract work on his account under his own
responsibility according to his own manner and method, free from the control and direction of
his employer or principal in all matters connected with the performance of his work except as to
the results thereof; (b) the contractor has substantial capital or investment; and (c) the agreement
between the principal and contractor or subcontractor assures the contractual employees
entitlement to all labor and occupational safety and health standards, free exercise of the right to
self-organization, security of tenure, and social welfare benefits."44 Labor-only contracting, on
the other hand, is a prohibited act, defined as "supplying workers to an employer who does not
have substantial capital or investment in the form of tools, equipment, machineries, work

premises, among others, and the workers recruited and placed by such person are performing
activities which are directly related to the principal business of such employer."45 "[I]n
distinguishing between prohibited labor-only contracting and permissible job contracting, the
totality of the facts and the surrounding circumstances of the case shall be considered."46
Generally, the contractor is presumed to be a labor-only contractor, unless such contractor
overcomes the burden of proving that it has the substantial capital, investment, tools and the like.
However, where the principal is the one claiming that the contractor is a legitimate contractor, as
in the present case, said principal has the burden of proving that supposed status.47 It is thus
incumbent upon Petron, and not upon petitioners as Petron insists,48 to prove that RDG is an
independent contractor.
Petron failed to discharge the burden of
proving that RDG is a legitimate
contractor. Hence, the presumption that
RDG is a labor-only contractor stands.
Here, the audited financial statements and other financial documents of RDG for the years 1999
to 2001 establish that it does have sufficient working capital to meet the requirements of its
service contract. In fact, the financial evaluation conducted by Petron of RDGs financial
statements for years 1998-2000 showed RDG to have a maximum financial capability of
Php4.807 Million as of December 1998,49 and Php1.611 Million as of December 2000.50 Petron
was able to establish RDGs sufficient capitalization when it entered into the service contract in
2000. The Court stresses though that this determination of RDGs status as an independent
contractor is only with respect to its financial capability for the period covered by the financial
and other documents presented. In other words, the evidence adduced merely proves that RDG
was financially qualified as a legitimate contractor but only with respect to its last service
contract with Petron in the year 2000.
As may be recalled, petitioners have rendered work for Petron for a long period of time even
before the service contract was executed in 2000. The respective dates on which petitioners claim
to have started working for Petron, as well as the fact that they have rendered continuous service
to it until October 16, 2002, when they were prevented from entering the premises of Petrons
Mandaue Bulk Plant, were not at all disputed by Petron. In fact, Petron even recognized that
some of the petitioners were initially fielded by Romualdo Gindang, the father of Romeo,
through RDGs precursor, Romualdo D.Gindang Contractor, while the others were provided by
Romeo himself when he took over the business of his father in 1989.1wphi1 Hence, while
Petron was able to establish that RDG was financially capable as a legitimate contractor at the
time of the execution of the service contract in 2000, it nevertheless failed to establish the
financial capability of RDG at the time when petitioners actually started to work for Petron in
1968, 1979, 1981, 1987, 1990,1992 and 1993.
Sections 8 and 9,Rule VIII, Book III51 of the implementing rules of the Labor Code, in force
since 1976 and prior to DOLE Department Order No. 10, series of 1997,52 provide that for job
contracting to be permissible, one of the conditions that has to be met is that the contractor must
have substantial capital or investment. Petron having failed to show that this condition was met
by RDG, it can be concluded, on this score alone, that RDG is a mere labor-only contractor.

Otherwise stated, the presumption that RDG is a labor-only contractor stands due to the failure of
Petron to discharge the burden of proving the contrary.
The Court also finds, as will be discussed below, that the works performed by petitioners were
directly related to Petrons business, another factor which negates Petrons claim that RDG is an
independent contractor.
Petrons power of control over
petitioners exists in this case.
"[A] finding that a contractor is a labor-only contractor is equivalent to declaring that there is
an employer-employee relationship between the principal and the employees of the supposed
contractor."53 In this case, the employer employee relationship between Petron and petitioners
becomes all the more apparent due to the presence of the power of control on the part of the
former over the latter.
It was held in Orozco v. The Fifth Division of the Hon. Court of Appeals54 that:
This Court has constantly adhered to the "four-fold test" to determine whether there exists an
employer-employee relationship between the parties. The four elements of an employment
relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the power to control the employees conduct.
Of these four elements, it is the power to control which is the most crucial and most
determinative factor, so important, in fact, that, the other elements may even be disregarded."
(Emphasis supplied)
Hence, the facts that petitioners were hired by Romeo or his father and that their salaries were
paid by them do not detract from the conclusion that there exists an employer-employee
relationship between the parties due to Petrons power of control over the petitioners. One
manifestation of the power of control is the power to transfer employees from one work
assignment to another.55 Here, Petron could order petitioners to do work outside of their regular
"maintenance/utility" job. Also, petitioners were required to report for work everyday at the bulk
plant, observe an 8:00 a.m. to 5:00 p.m. daily work schedule, and wear proper uniform and safety
helmets as prescribed by the safety and security measures being implemented within the bulk
plant. All these imply control. In an industry where safety is of paramount concern, control and
supervision over sensitive operations, such as those performed by the petitioners, are inevitable if
not at all necessary. Indeed, Petron deals with commodities that are highly volatile and
flammable which, if mishandled or not properly attended to, may cause serious injuries and
damage to property and the environment. Naturally, supervision by Petron is essential in every
aspect of its product handling in order not to compromise the integrity, quality and safety of the
products that it distributes to the consuming public.
Petitioners already attained regular
status as employees of Petron.

Petitioners were given various work assignments such as tanker receiving, barge loading,
sounding, gauging, warehousing, mixing, painting, carpentry, driving, gasul filling and other
utility works. Petron refers to these work assignments as menial works which could be
performed by any able-bodied individual. The Court finds, however, that while the jobs
performed by petitioners may be menial and mechanical, they are nevertheless necessary and
related to Petrons business operations. If not for these tasks, Petrons products will not reach the
consumers in their proper state. Indeed, petitioners roles were vital inasmuch as they involve the
preparation of the products that Petron will distribute to its consumers.
Furthermore, while it may be true that any able-bodied individual can perform the tasks assigned
to petitioners, the Court notes the undisputed fact that for many years, it was the same ablebodied individuals (petitioners) who performed the tasks for Petron. The engagement of
petitioners for the same works for a long period of time is a strong indication that such works
were indeed necessary to Petrons business. In view of these, and considering further that
petitioners length of service entitles them to become regular employees under the Labor Code,
petitioners are deemed by law to have already attained the status as Petrons regular employees.
As such, Petron could not terminate their services on the pretext that the service contract it
entered with RDG has already lapsed. For one, and as previously discussed, such regular status
had already attached to them even before the execution of the service contract in 2000. For
another, the same does not constitute a just or authorized cause for a valid dismissal of regular
employees.
In sum, the Court finds that RDG is a labor-only contractor. As such, it is considered merely as
an agent of Petron. Consequently, the employer-employee relationship which the Court finds to
exist in this case is between petitioners as employees and Petron as their employer. Petron
therefore, being the principal employer and RDG, being the labor-only contractor, are solidarily
liable for petitioners' illegal dismissal and monetary claims.56
WHEREFORE, the Petition is GRANTED. The May 10, 2006 Decision and March 30, 2007
Resolution of the Court of Appeals in CA-G.R. SP No. 01291 are REVERSED and SET ASIDE.
The February 18, 2005 Decision and August 24, 2005 Resolution of the National Labor Relations
Commission in NLRC Case No. V-000481-2003 are hereby REINSTATED and AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice