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FIRST DIVISION

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m.,
Sundays.[3]

[G.R. No. 138051. June 10, 2004]


JOSE

Y. SONZA, petitioner, vs. ABS-CBN


CORPORATION, respondent.

BROADCASTING

ABS-CBN agreed to pay for SONZAs services a monthly talent


fee of P310,000 for the first year and P317,000 for the second and
third year of the Agreement. ABS-CBN would pay the talent fees on
the 10th and 25th days of the month.

DECISION
On 1 April 1996, SONZA wrote a letter to ABS-CBNs President,
Eugenio Lopez III, which reads:

CARPIO, J.:
The Case
Before this Court is a petition for review on certiorari[1] assailing
the 26 March 1999 Decision[2] of the Court of Appeals in CA-G.R. SP
No. 49190 dismissing the petition filed by Jose Y. Sonza
(SONZA). The Court of Appeals affirmed the findings of the National
Labor Relations Commission (NLRC), which affirmed the Labor
Arbiters dismissal of the case for lack of jurisdiction.
The Facts
In May 1994, respondent ABS-CBN Broadcasting Corporation
(ABS-CBN) signed an Agreement (Agreement) with the Mel and Jay
Management and Development Corporation (MJMDC).ABS-CBN was
represented by its corporate officers while MJMDC was represented
by SONZA, as President and General Manager, and Carmela Tiangco
(TIANGCO), as EVP and Treasurer. Referred to in the Agreement as
AGENT, MJMDC agreed to provide SONZAs services exclusively to
ABS-CBN as talent for radio and television. The Agreement listed the
services SONZA would render to ABS-CBN, as follows:

Dear Mr. Lopez,


We would like to call your attention to the Agreement dated May 1994
entered into by your goodself on behalf of ABS-CBN with our company
relative to our talent JOSE Y. SONZA.
As you are well aware, Mr. Sonza irrevocably resigned in view of recent
events concerning his programs and career. We consider these acts of the
station violative of the Agreement and the station as in breach thereof.In this
connection, we hereby serve notice of rescission of said Agreement at our
instance effective as of date.
Mr. Sonza informed us that he is waiving and renouncing recovery of the
remaining amount stipulated in paragraph 7 of the Agreement but reserves
the right to seek recovery of the other benefits under said Agreement.
Thank you for your attention.
Very truly yours,
(Sgd.)

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m.,
Mondays to Fridays;

JOSE Y.
SONZA

President and Gen.


Manager

[4]

On 30 April 1996, SONZA filed a complaint against ABS-CBN


before the Department of Labor and Employment, National Capital
Region in Quezon City. SONZA complained that ABS-CBN did not pay
his salaries, separation pay, service incentive leave pay, 13 th month
pay, signing bonus, travel allowance and amounts due under the
Employees Stock Option Plan (ESOP).
On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the
ground that no employer-employee relationship existed between the
parties. SONZA filed an Opposition to the motion on 19 July 1996.
Meanwhile, ABS-CBN continued to remit SONZAs monthly talent
fees through his account at PCIBank, Quezon Avenue
Branch, Quezon City. In July 1996, ABS-CBN opened a new account
with the same bank where ABS-CBN deposited SONZAs talent fees
and other payments due him under the Agreement.
[5]

In his Order dated 2 December 1996, the Labor Arbiter denied


the motion to dismiss and directed the parties to file their respective
position papers. The Labor Arbiter ruled:
In this instant case, complainant for having invoked a claim that he was an
employee of respondent company until April 15, 1996 and that he was not
paid certain claims, it is sufficient enough as to confer jurisdiction over the
instant case in this Office. And as to whether or not such claim would entitle
complainant to recover upon the causes of action asserted is a matter to be
resolved only after and as a result of a hearing. Thus, the respondents plea of
lack of employer-employee relationship may be pleaded only as a matter of
defense. It behooves upon it the duty to prove that there really is no
employer-employee relationship between it and the complainant.
The Labor Arbiter then considered the case submitted for
resolution. The parties submitted their position papers on 24 February
1997.

On 11 March 1997, SONZA filed a Reply to Respondents Position


Paper with Motion to Expunge Respondents Annex 4 and Annex 5
from the Records. Annexes 4 and 5 are affidavits of ABS-CBNs
witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses
stated in their affidavits that the prevailing practice in the television
and broadcast industry is to treat talents like SONZA as independent
contractors.
The Labor Arbiter rendered his Decision dated 8 July
1997 dismissing the complaint for lack of jurisdiction. [6] The pertinent
parts of the decision read as follows:
xxx
While Philippine jurisprudence has not yet, with certainty, touched on the
true nature of the contract of a talent, it stands to reason that a talent as
above-described cannot be considered as an employee by reason of the
peculiar circumstances surrounding the engagement of his services.
It must be noted that complainant was engaged by respondent by reason
of his peculiar skills and talent as a TV host and a radio
broadcaster. Unlike an ordinary employee, he was free to perform the
services he undertook to render in accordance with his own style. The
benefits conferred to complainant under the May 1994 Agreement are
certainly very much higher than those generally given to employees. For one,
complainant Sonzas monthly talent fees amount to a
staggering P317,000. Moreover, his engagement as a talent was covered by a
specific contract. Likewise, he was not bound to render eight (8) hours of
work per day as he worked only for such number of hours as may be
necessary.
The fact that per the May 1994 Agreement complainant was accorded some
benefits normally given to an employee is inconsequential. Whatever
benefits complainant enjoyed arose from specific agreement by the
parties and not by reason of employer-employee relationship. As
correctly put by the respondent, All these benefits are merely talent fees and
other contractual benefits and should not be deemed as salaries, wages and/or

other remuneration accorded to an employee, notwithstanding the


nomenclature appended to these benefits. Apropos to this is the rule that the
term or nomenclature given to a stipulated benefit is not controlling, but the
intent of the parties to the Agreement conferring such benefit.
The fact that complainant was made subject to respondents Rules and
Regulations, likewise, does not detract from the absence of employeremployee relationship. As held by the Supreme Court, The line should be
drawn between rules that merely serve as guidelines towards the achievement
of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and
bind or restrict the party hired to the use of such means. The first, which aim
only to promote the result, create no employer-employee relationship unlike
the second, which address both the result and the means to achieve
it. (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484,
November 15, 1989).
x x x (Emphasis supplied)[7]
SONZA appealed to the NLRC. On 24 February 1998, the NLRC
rendered a Decision affirming the Labor Arbiters decision. SONZA
filed a motion for reconsideration, which the NLRC denied in its
Resolution dated 3 July 1998.
On 6 October 1998, SONZA filed a special civil action for
certiorari before the Court of Appeals assailing the decision and
resolution of the NLRC. On 26 March 1999, the Court of Appeals
rendered a Decision dismissing the case.[8]
Hence, this petition.
The Rulings of the NLRC and Court of Appeals
The Court of Appeals affirmed the NLRCs finding that no
employer-employee relationship existed between SONZA and ABSCBN. Adopting the NLRCs decision, the appellate court quoted the
following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into
the contract merely as an agent of complainant Sonza, the principal. By all
indication and as the law puts it, the act of the agent is the act of the principal
itself. This fact is made particularly true in this case, as admittedly MJMDC
is a management company devoted exclusively to managing the careers of
Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco. (Opposition
to Motion to Dismiss)
Clearly, the relations of principal and agent only accrues between
complainant Sonza and MJMDC, and not between ABS-CBN and
MJMDC. This is clear from the provisions of the May 1994 Agreement
which specifically referred to MJMDC as the AGENT. As a matter of fact,
when complainant herein unilaterally rescinded said May 1994 Agreement, it
was MJMDC which issued the notice of rescission in behalf of Mr. Sonza,
who himself signed the same in his capacity as President.
Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the
fact that historically, the parties to the said agreements are ABS-CBN and
Mr. Sonza. And it is only in the May 1994 Agreement, which is the latest
Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC
figured in the said Agreement as the agent of Mr. Sonza.
We find it erroneous to assert that MJMDC is a mere labor-only contractor of
ABS-CBN such that there exist[s] employer-employee relationship between
the latter and Mr. Sonza. On the contrary, We find it indubitable, that
MJMDC is an agent, not of ABS-CBN, but of the talent/contractor Mr.
Sonza, as expressly admitted by the latter and MJMDC in the May 1994
Agreement.
It may not be amiss to state that jurisdiction over the instant controversy
indeed belongs to the regular courts, the same being in the nature of an action
for alleged breach of contractual obligation on the part of respondentappellee. As squarely apparent from complainant-appellants Position Paper,
his claims for compensation for services, 13th month pay, signing bonus and
travel allowance against respondent-appellee are not based on the Labor
Code but rather on the provisions of the May 1994 Agreement, while his

claims for proceeds under Stock Purchase Agreement are based on the
latter. A portion of the Position Paper of complainant-appellant bears perusal:
Under [the May 1994 Agreement] with respondent ABS-CBN, the latter
contractually bound itself to pay complainant a signing bonus consisting of
shares of stockswith FIVE HUNDRED THOUSAND PESOS (P500,000.00).
Similarly, complainant is also entitled to be paid 13th month pay based on an
amount not lower than the amount he was receiving prior to effectivity of
(the) Agreement.

The Court of Appeals ruled that the existence of an employeremployee relationship between SONZA and ABS-CBN is a factual
question that is within the jurisdiction of the NLRC to resolve. [10]A
special civil action for certiorari extends only to issues of want or
excess of jurisdiction of the NLRC. [11] Such action cannot cover an
inquiry into the correctness of the evaluation of the evidence which
served as basis of the NLRCs conclusion. [12] The Court of Appeals
added that it could not re-examine the parties evidence and substitute
the factual findings of the NLRC with its own.[13]
The Issue

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a


commutable travel benefit amounting to at least One Hundred Fifty
Thousand Pesos (P150,000.00) per year.
Thus, it is precisely because of complainant-appellants own recognition of
the fact that his contractual relations with ABS-CBN are founded on the New
Civil Code, rather than the Labor Code, that instead of merely resigning from
ABS-CBN, complainant-appellant served upon the latter a notice of
rescission of Agreement with the station, per his letter dated April 1, 1996,
which asserted that instead of referring to unpaid employee benefits, he is
waiving and renouncing recovery of the remaining amount stipulated in
paragraph 7 of the Agreement but reserves the right to such recovery of the
other benefits under said Agreement. (Annex 3 of the respondent ABS-CBNs
Motion to Dismiss dated July 10, 1996).
Evidently, it is precisely by reason of the alleged violation of the May 1994
Agreement and/or the Stock Purchase Agreement by respondent-appellee that
complainant-appellant filed his complaint. Complainant-appellants claims
being anchored on the alleged breach of contract on the part of respondentappellee, the same can be resolved by reference to civil law and not to labor
law. Consequently, they are within the realm of civil law and, thus, lie with
the regular courts. As held in the case of Dai-Chi Electronics Manufacturing
vs. Villarama, 238 SCRA 267, 21 November 1994, an action for breach of
contractual obligation is intrinsically a civil dispute.[9] (Emphasis
supplied)

In assailing the decision of the Court of Appeals, SONZA


contends that:
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE
NLRCS DECISION AND REFUSING TO FIND THAT AN EMPLOYEREMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABSCBN, DESPITE THE WEIGHT OF CONTROLLING LAW,
JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.[14]
The Courts Ruling
We affirm the assailed decision.
No convincing reason exists to warrant a reversal of the decision
of the Court of Appeals affirming the NLRC ruling which upheld the
Labor Arbiters dismissal of the case for lack of jurisdiction.
The present controversy is one of first impression. Although
Philippine labor laws and jurisprudence define clearly the elements of
an employer-employee relationship, this is the first time that the Court
will resolve the nature of the relationship between a television and
radio station and one of its talents. There is no case law stating that a
radio and television program host is an employee of the broadcast
station.

The instant case involves big names in the broadcast industry,


namely Jose Jay Sonza, a known television and radio personality, and
ABS-CBN, one of the biggest television and radio networks in the
country.
SONZA contends that the Labor Arbiter has jurisdiction over the
case because he was an employee of ABS-CBN. On the other hand,
ABS-CBN insists that the Labor Arbiter has no jurisdiction because
SONZA was an independent contractor.
Employee or Independent Contractor?
The existence of an employer-employee relationship is a question
of fact. Appellate courts accord the factual findings of the Labor
Arbiter and the NLRC not only respect but also finality when
supported by substantial evidence.[15] Substantial evidence means
such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.[16] A party cannot prove the
absence of substantial evidence by simply pointing out that there is
contrary evidence on record, direct or circumstantial. The Court does
not substitute its own judgment for that of the tribunal in determining
where the weight of evidence lies or what evidence is credible.[17]

ABS-CBN engaged SONZAs services to co-host its television and


radio programs because of SONZAs peculiar skills, talent and
celebrity status. SONZA contends that the discretion used by
respondent in specifically selecting and hiring complainant over other
broadcasters of possibly similar experience and qualification as
complainant belies respondents claim of independent contractorship.
Independent contractors often present themselves to possess
unique skills, expertise or talent to distinguish them from ordinary
employees. The specific selection and hiring of SONZA,because of
his unique skills, talent and celebrity status not possessed by
ordinary employees, is a circumstance indicative, but not conclusive,
of an independent contractual relationship. If SONZA did not possess
such unique skills, talent and celebrity status, ABS-CBN would not
have entered into the Agreement with SONZA but would have hired
him through its personnel department just like any other employee.
In any event, the method of selecting and engaging SONZA does
not conclusively determine his status. We must consider all the
circumstances of the relationship, with the control test being the most
important element.
B. Payment of Wages

SONZA maintains that all essential elements of an employeremployee relationship are present in this case. Case law has
consistently held that the elements of an employer-employee
relationship are: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the
employers power to control the employee on the means and methods
by which the work is accomplished. [18] The last element, the socalled control test, is the most important element.[19]

A. Selection and Engagement of Employee

ABS-CBN directly paid SONZA his monthly talent fees with no


part of his fees going to MJMDC. SONZA asserts that this mode of fee
payment shows that he was an employee of ABS-CBN.SONZA also
points out that ABS-CBN granted him benefits and privileges which he
would not have enjoyed if he were truly the subject of a valid job
contract.
All the talent fees and benefits paid to SONZA were the result of
negotiations that led to the Agreement. If SONZA were ABS-CBNs
employee, there would be no need for the parties to stipulate on
benefits such as SSS, Medicare, x x x and 13 th month pay[20] which the
law automatically incorporates into every employer-employee

contract.[21] Whatever benefits SONZA enjoyed arose from contract


and not because of an employer-employee relationship.[22]
SONZAs talent fees, amounting to P317,000 monthly in the
second and third year, are so huge and out of the ordinary that they
indicate more an independent contractual relationship rather than an
employer-employee relationship. ABS-CBN agreed to pay SONZA
such huge talent fees precisely because of SONZAs unique skills,
talent and celebrity status not possessed by ordinary employees.
Obviously, SONZA acting alone possessed enough bargaining power
to demand and receive such huge talent fees for his services. The
power to bargain talent fees way above the salary scales of ordinary
employees is a circumstance indicative, but not conclusive, of an
independent contractual relationship.
The payment of talent fees directly to SONZA and not to MJMDC
does not negate the status of SONZA as an independent contractor.
The parties expressly agreed on such mode of payment.Under the
Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC
would have to turn over any talent fee accruing under the Agreement.
C. Power of Dismissal
For violation of any provision of the Agreement, either party
may terminate their relationship. SONZA failed to show that ABS-CBN
could terminate his services on grounds other than breach of contract,
such as retrenchment to prevent losses as provided under labor laws.
[23]

During the life of the Agreement, ABS-CBN agreed to pay


SONZAs talent fees as long as AGENT and Jay Sonza shall faithfully
and completely perform each condition of this Agreement.[24]Even if it
suffered severe business losses, ABS-CBN could not retrench
SONZA because ABS-CBN remained obligated to pay SONZAs talent
fees during the life of the Agreement. This circumstance indicates an
independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his


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

that this factor favors independent contractor status because WIPR provided
the equipment necessary to tape the show. Albertys argument is
misplaced. The equipment necessary for Alberty to conduct her job as host of
Desde Mi Pueblo related to her appearance on the show. Others provided
equipment for filming and producing the show, but these were not the
primary tools that Alberty used to perform her particular function. If we
accepted this argument, independent contractors could never work on
collaborative projects because other individuals often provide the equipment
required for different aspects of the collaboration. x x x
Third, WIPR could not assign Alberty work in addition to filming Desde
Mi Pueblo. Albertys contracts with WIPR specifically provided that WIPR
hired her professional services as Hostess for the Program Desde Mi
Pueblo. There is no evidence that WIPR assigned Alberty tasks in addition to
work related to these tapings. x x x[28] (Emphasis supplied)
Applying the control test to the present case, we find that
SONZA is not an employee but an independent contractor. The
control test is the most important test our courts apply in
distinguishing an employee from an independent contractor.[29] This
test is based on the extent of control the hirer exercises over a
worker. The greater the supervision and control the hirer exercises,
the more likely the worker is deemed an employee. The converse
holds true as well the less control the hirer exercises, the more likely
the worker is considered an independent contractor.[30]
First, SONZA contends that ABS-CBN exercised control over the
means and methods of his work.
SONZAs argument is misplaced. ABS-CBN engaged SONZAs
services specifically to co-host the Mel & Jay programs. ABS-CBN did
not assign any other work to SONZA. To perform his work, SONZA
only needed his skills and talent. How SONZA delivered his lines,
appeared on television, and sounded on radio were outside ABSCBNs control. SONZA did not have to render eight hours of work per
day. The Agreement required SONZA to attend only rehearsals and
tapings of the shows, as well as pre- and post-production staff

meetings.[31] ABS-CBN could not dictate the contents of SONZAs


script. However, the Agreement prohibited SONZA from criticizing in
his shows ABS-CBN or its interests.[32] The clear implication is that
SONZA had a free hand on what to say or discuss in his shows
provided he did not attack ABS-CBN or its interests.
We find that ABS-CBN was not involved in the actual
performance that produced the finished product of SONZAs work.
[33]
ABS-CBN did not instruct SONZA how to perform his job. ABSCBN merely reserved the right to modify the program format and
airtime schedule for more effective programming. [34] ABS-CBNs sole
concern was the quality of the shows and their standing in the
ratings. Clearly, ABS-CBN did not exercise control over the means
and methods of performance of SONZAs work.
SONZA claims that ABS-CBNs power not to broadcast his shows
proves ABS-CBNs power over the means and methods of the
performance of his work. Although ABS-CBN did have the option not
to broadcast SONZAs show, ABS-CBN was still obligated to pay
SONZAs talent fees. Thus, even if ABS-CBN was completely
dissatisfied with the means and methods of SONZAs performance of
his work, or even with the quality or product of his work, ABS-CBN
could not dismiss or even discipline SONZA. All that ABS-CBN could
do is not to broadcast SONZAs show but ABS-CBN must still pay his
talent fees in full.[35]
Clearly, ABS-CBNs right not to broadcast SONZAs show,
burdened as it was by the obligation to continue paying in full
SONZAs talent fees, did not amount to control over the means and
methods of the performance of SONZAs work. ABS-CBN could not
terminate or discipline SONZA even if the means and methods of
performance of his work - how he delivered his lines and appeared on
television - did not meet ABS-CBNs approval. This proves that ABSCBNs control was limited only to the result of SONZAs work, whether
to broadcast the final product or not. In either case, ABS-CBN must
still pay SONZAs talent fees in full until the expiry of the Agreement.

In Vaughan, et al. v. Warner, et al.,[36] the United States Circuit


Court of Appeals ruled that vaudeville performers were independent
contractors although the management reserved the right to delete
objectionable features in their shows. Since the management did not
have control over the manner of performance of the skills of the
artists, it could only control the result of the work by deleting
objectionable features.[37]

the Television and Radio Code of the Kapisanan ng mga Broadcaster


sa Pilipinas (KBP), which has been adopted by the COMPANY (ABSCBN) as its Code of Ethics.[42] The KBP code applies to broadcasters,
not to employees of radio and television stations. Broadcasters are
not necessarily employees of radio and television stations. Clearly, the
rules and standards of performance referred to in the Agreement are
those applicable to talents and not to employees of ABS-CBN.

SONZA further contends that ABS-CBN exercised control over his


work by supplying all equipment and crew. No doubt, ABS-CBN
supplied the equipment, crew and airtime needed to broadcast the
Mel & Jay programs. However, the equipment, crew and airtime are
not the tools and instrumentalities SONZA needed to perform his job.
What SONZA principally needed were his talent or skills and the
costumes necessary for his appearance. [38] Even though ABS-CBN
provided SONZA with the place of work and the necessary equipment,
SONZA was still an independent contractor since ABS-CBN did not
supervise and control his work. ABS-CBNs sole concern was for
SONZA to display his talent during the airing of the programs.[39]

In any event, not all rules imposed by the hiring party on the hired
party indicate that the latter is an employee of the former. [43] In this
case, SONZA failed to show that these rules controlled his
performance.
We
find
that
these
general
rules
are
merely guidelines towards the achievement of the mutually desired
result, which are top-rating television and radio programs that comply
with standards of the industry. We have ruled that:

A radio broadcast specialist who works under minimal supervision


is an independent contractor.[40] SONZAs work as television and radio
program host required special skills and talent, which SONZA
admittedly possesses. The records do not show that ABS-CBN
exercised any supervision and control over how SONZA utilized his
skills and talent in his shows.
Second, SONZA urges us to rule that he was ABS-CBNs
employee because ABS-CBN subjected him to its rules and standards
of performance. SONZA claims that this indicates ABS-CBNs control
not only [over] his manner of work but also the quality of his work.
The Agreement stipulates that SONZA shall abide with the rules
and standards of performance covering talents[41] of ABS-CBN. The
Agreement does not require SONZA to comply with the rules and
standards of performance prescribed for employees of ABS-CBN. The
code of conduct imposed on SONZA under the Agreement refers to

Further, not every form of control that a party reserves to himself over the
conduct of the other party in relation to the services being rendered may be
accorded the effect of establishing an employer-employee relationship. The
facts of this case fall squarely with the case of Insular Life Assurance Co.,
Ltd. vs. NLRC. In said case, we held that:
Logically, the line should be drawn between rules that merely serve as
guidelines towards the achievement of the mutually desired result without
dictating the means or methods to be employed in attaining it, and those that
control or fix the methodology and bind or restrict the party hired to the use
of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the
result and the means used to achieve it.[44]
The Vaughan case also held that one could still be an
independent contractor although the hirer reserved certain supervision
to insure the attainment of the desired result. The hirer, however, must
not deprive the one hired from performing his services according to
his own initiative.[45]

Lastly, SONZA insists that the exclusivity clause in the Agreement


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

if the principal itself directly hired or employed the employees.


[48]
These circumstances are not present in this case.
There are essentially only two parties involved under the
Agreement, namely, SONZA and ABS-CBN. MJMDC merely acted as
SONZAs agent. The Agreement expressly states that MJMDC acted
as the AGENT of SONZA. The records do not show that MJMDC
acted as ABS-CBNs agent. MJMDC, which stands for Mel and Jay
Management and Development Corporation, is a corporation
organized and owned by SONZA and TIANGCO. The President and
General Manager of MJMDC is SONZA himself. It is absurd to hold
that MJMDC, which is owned, controlled, headed and managed by
SONZA, acted as agent of ABS-CBN in entering into the Agreement
with SONZA, who himself is represented by MJMDC. That would
make MJMDC the agent of both ABS-CBN and SONZA.
As SONZA admits, MJMDC is a management company
devoted exclusively to managing the careers of SONZA and his
broadcast partner, TIANGCO. MJMDC is not engaged in any other
business, not even job contracting. MJMDC does not have any other
function apart from acting as agent of SONZA or TIANGCO to
promote their careers in the broadcast and television industry.[49]

MJMDC as Agent of SONZA


Policy Instruction No. 40
SONZA protests the Labor Arbiters finding that he is a talent of
MJMDC, which contracted out his services to ABS-CBN. The Labor
Arbiter ruled that as a talent of MJMDC, SONZA is not an employee of
ABS-CBN. SONZA insists that MJMDC is a labor-only contractor and
ABS-CBN is his employer.
In a labor-only contract, there are three parties involved: (1) the
labor-only contractor; (2) the employee who is ostensibly under the
employ of the labor-only contractor; and (3) the principal who is
deemed the real employer. Under this scheme, the labor-only
contractor is the agent of the principal. The law makes the
principal responsible to the employees of the labor-only contractor as

SONZA argues that Policy Instruction No. 40 issued by then


Minister of Labor Blas Ople on 8 January 1979 finally settled the
status of workers in the broadcast industry. Under this policy, the
types of employees in the broadcast industry are the station and
program employees.
Policy Instruction No. 40 is a mere executive issuance which
does not have the force and effect of law. There is no legal
presumption that Policy Instruction No. 40 determines SONZAs
status. A mere executive issuance cannot exclude independent
contractors from the class of service providers to the broadcast
industry. The classification of workers in the broadcast industry into

only two groups under Policy Instruction No. 40 is not binding on this
Court, especially when the classification has no basis either in law or
in fact.
Affidavits of ABS-CBNs Witnesses
SONZA also faults the Labor Arbiter for admitting the affidavits of
Socorro Vidanes and Rolando Cruz without giving his counsel the
opportunity to cross-examine these witnesses. SONZA brands these
witnesses as incompetent to attest on the prevailing practice in the
radio and television industry. SONZA views the affidavits of these
witnesses as misleading and irrelevant.

The Labor Arbiter can decide a case based solely on the position
papers and the supporting documents without a formal trial. [51] The
holding of a formal hearing or trial is something that the parties cannot
demand as a matter of right.[52] If the Labor Arbiter is confident that he
can rely on the documents before him, he cannot be faulted for not
conducting a formal trial, unless under the particular circumstances of
the case, the documents alone are insufficient. The proceedings
before a Labor Arbiter are non-litigious in nature. Subject to the
requirements of due process, the technicalities of law and the rules
obtaining in the courts of law do not strictly apply in proceedings
before a Labor Arbiter.
Talents as Independent Contractors

While SONZA failed to cross-examine ABS-CBNs witnesses, he


was never prevented from denying or refuting the allegations in the
affidavits. The Labor Arbiter has the discretion whether to conduct a
formal (trial-type) hearing after the submission of the position papers
of the parties, thus:
Section 3. Submission of Position Papers/Memorandum
xxx
These verified position papers shall cover only those claims and causes of
action raised in the complaint excluding those that may have been amicably
settled, and shall be accompanied by all supporting documents including the
affidavits of their respective witnesses which shall take the place of the
latters direct testimony. x x x
Section 4. Determination of Necessity of Hearing. Immediately after the
submission of the parties of their position papers/memorandum, the Labor
Arbiter shall motu propio determine whether there is need for a formal trial
or hearing. At this stage, he may, at his discretion and for the purpose of
making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant
documentary evidence, if any from any party or witness. [50]

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


broadcast and entertainment industries to treat talents like SONZA as
independent contractors. SONZA argues that if such practice exists, it
is void for violating the right of labor to security of tenure.
The right of labor to security of tenure as guaranteed in the
Constitution[53] arises only if there is an employer-employee
relationship under labor laws. Not every performance of services for a
fee creates an employer-employee relationship. To hold that every
person who renders services to another for a fee is an employee - to
give meaning to the security of tenure clause - will lead to absurd
results.
Individuals with special skills, expertise or talent enjoy the
freedom to offer their services as independent contractors. The right
to life and livelihood guarantees this freedom to contract as
independent contractors. The right of labor to security of tenure
cannot operate to deprive an individual, possessed with special skills,
expertise and talent, of his right to contract as an independent
contractor. An individual like an artist or talent has a right to render his
services without any one controlling the means and methods by which
he performs his art or craft. This Court will not interpret the right of
labor to security of tenure to compel artists and talents to render their

services only as employees. If radio and television program hosts can


render their services only as employees, the station owners and
managers can dictate to the radio and television hosts what they say
in their shows. This is not conducive to freedom of the press.
Different Tax Treatment of Talents and Broadcasters
EN BANC
[54]

The National Internal Revenue Code (NIRC) in relation to


Republic Act No. 7716,[55] as amended by Republic Act No. 8241,
[56]
treats talents, television and radio broadcasters differently. Under
the NIRC, these professionals are subject to the 10% value-added tax
(VAT) on services they render. Exempted from the VAT are those
under an employer-employee relationship.[57] This different tax
treatment accorded to talents and broadcasters bolters our conclusion
that they are independent contractors, provided all the basic elements
of a contractual relationship are present as in this case.

G.R. No. L-69870 November 29, 1988


NATIONAL SERVICE CORPORATION (NASECO) AND ARTURO L.
PEREZ, petitioners,
vs.
THE HONORABLE THIRD DIVISION, NATIONAL LABOR
RELATIONS COMMISSION, MINISTRY OF LABOR AND
EMPLOYMENT, MANILA AND EUGENIA C. CREDO, respondents.

Nature of SONZAs Claims

G.R. No. 70295 November 29,1988

SONZA seeks the recovery of allegedly unpaid talent fees,


13 month pay, separation pay, service incentive leave, signing
bonus, travel allowance, and amounts due under the Employee Stock
Option Plan. We agree with the findings of the Labor Arbiter and the
Court of Appeals that SONZAs claims are all based on the May 1994
Agreement and stock option plan, and not on the Labor
Code. Clearly, the present case does not call for an application of the
Labor Code provisions but an interpretation and implementation of the
May 1994 Agreement. In effect, SONZAs cause of action is for breach
of contract which is intrinsically a civil dispute cognizable by the
regular courts.[58]

EUGENIA C. CREDO, petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, NATIONAL
SERVICES CORPORATION AND ARTURO L. PEREZ, respondents.

th

WHEREFORE, we DENY the petition. The assailed Decision of


the Court of Appeals dated 26 March 1999 in CA-G.R. SP No. 49190
is AFFIRMED. Costs against petitioner.
SO ORDERED.

The Chief Legal Counsel for respondents NASECO and Arturo L.


Perez. Melchor R. Flores for petitioner Eugenia C. Credo.
PADILLA, J.:
Consolidated special civil actions for certiorari seeking to review the
decision * of the Third Division, National Labor Relations Commission
in Case No. 11-4944-83 dated 28 November 1984 and its resolution
dated 16 January 1985 denying motions for reconsideration of said
decision.
Eugenia C. Credo was an employee of the National Service
Corporation (NASECO), a domestic corporation which provides

security guards as well as messengerial, janitorial and other similar


manpower services to the Philippine National Bank (PNB) and its
agencies. She was first employed with NASECO as a lady guard on
18 July 1975. Through the years, she was promoted to Clerk Typist,
then Personnel Clerk until she became Chief of Property and
Records, on 10 March 1980. 1
Sometime before 7 November 1983, Credo was administratively
charged by Sisinio S. Lloren, Manager of Finance and Special Project
and Evaluation Department of NASECO, stemming from her noncompliance with Lloren's memorandum, dated 11 October 1983,
regarding certain entry procedures in the company's Statement of
Billings Adjustment. Said charges alleged that Credo "did not comply
with Lloren's instructions to place some corrections/additional remarks
in the Statement of Billings Adjustment; and when [Credo] was called
by Lloren to his office to explain further the said instructions, [Credo]
showed resentment and behaved in a scandalous manner by shouting
and uttering remarks of disrespect in the presence of her coemployees." 2
On 7 November 1983, Credo was called to meet Arturo L. Perez, then
Acting General Manager of NASECO, to explain her side before
Perez and NASECO's Committee on Personnel Affairs in connection
with the administrative charges filed against her. After said meeting,
on the same date, Credo was placed on "Forced Leave" status for 1 5
days, effective 8 November 1983. 3
Before the expiration of said 15-day leave, or on 18 November 1983,
Credo filed a complaint, docketed as Case No. 114944-83, with the
Arbitration Branch, National Capital Region, Ministry of Labor and
Employment, Manila, against NASECO for placing her on forced
leave, without due process. 4
Likewise, while Credo was on forced leave, or on 22 November 1983,
NASECO's Committee on Personnel Affairs deliberated and evaluated
a number of past acts of misconduct or infractions attributed to
her. 5 As a result of this deliberation, said committee resolved:

1. That, respondent [Credo] committed the following


offenses in the Code of Discipline, viz:
OFFENSE vs. Company Interest & Policies
No. 3 Any discourteous act to customer, officer and
employee of client company or officer of the
Corporation.
OFFENSE vs. Public Moral
No. 7 Exhibit marked discourtesy in the course of
official duties or use of profane or insulting language to
any superior officer.
OFFENSE vs. Authority
No. 3 Failure to comply with any lawful order or any
instructions of a superior officer.
2. That, Management has already given due
consideration to respondent's [Credo] scandalous
actuations for several times in the past. Records also
show that she was reprimanded for some offense and
did not question it. Management at this juncture, has
already met its maximum tolerance point so it has
decided to put an end to respondent's [Credo] being an
undesirable employee. 6
The committee recommended Credo's termination, with forfeiture of
benefits. 7
On 1 December 1983, Credo was called age to the office of Perez to
be informed that she was being charged with certain offenses.
Notably, these offenses were those which NASECO's Committee on
Personnel Affairs already resolved, on 22 November 1983 to have
been committed by Credo.

In Perez's office, and in the presence of NASECO's Committee on


Personnel Affairs, Credo was made to explain her side in connection
with the charges filed against her; however, due to her failure to do
so, 8 she was handed a Notice of Termination, dated 24 November
1983, and made effective 1 December 1983. 9 Hence, on 6 December
1983, Credo filed a supplemental complaint for illegal dismissal in
Case No. 11-4944-83, alleging absence of just or authorized cause for
her dismissal and lack of opportunity to be heard. 10

petitioners, and 4) the termination of Credo was not for a valid or


authorized cause. 15

After both parties had submitted their respective position papers,


affidavits and other documentary evidence in support of their claims
and defenses, on 9 May 1984, the labor arbiter rendered a decision:
1) dismissing Credo's complaint, and 2) directing NASECO to pay
Credo separation pay equivalent to one half month's pay for every
year of service. 11

As guidelines for employers in the exercise of their power to dismiss


employees for just causes, the law provides that:

Both parties appealed to respondent National Labor Relations


Commission (NLRC) which, on 28 November 1984, rendered a
decision: 1) directing NASECO to reinstate Credo to her former
position, or substantially equivalent position, with six (6) months'
backwages and without loss of seniority rights and other privileges
appertaining thereto, and 2) dismissing Credo's claim for attorney's
fees, moral and exemplary damages. As a consequence, both parties
filed their respective motions for reconsideration, 12 which the NLRC
denied in a resolution of 16 January 1985. 13
Hence, the present recourse by both parties. In G.R. No. 68970,
petitioners challenge as grave abuse of discretion the dispositive
portion of the 28 November 1984 decision which ordered Credo's
reinstatement with backwages. 14 Petitioners contend that in arriving
at said questioned order, the NLRC acted with grave abuse of
discretion in finding that: 1) petitioners violated the requirements
mandated by law on termination, 2) petitioners failed in the burden of
proving that the termination of Credo was for a valid or authorized
cause, 3) the alleged infractions committed by Credo were not proven
or, even if proved, could be considered to have been condoned by

On the other hand, in G.R. No. 70295, petitioner Credo challenges as


grave abuse of discretion the dispositive portion of the 28 November
1984 decision which dismissed her claim for attorney's fees, moral
and exemplary damages and limited her right to backwages to only
six (6) months. 16

Section 2. Notice of dismissal. Any employer who


seeks to dismiss a worker shall furnish him a written
notice stating the particular acts or omission
constituting the grounds for his dismissal.
xxx xxx xxx
Section 5. Answer and Hearing. The worker may
answer the allegations stated against him in the notice
of dismissal within a reasonable period from receipt of
such notice. The employer shall afford the worker
ample opportunity to be heard and to defend himself
with the assistance of his representative, if he so
desires.
Section 6. Decision to dismiss. The employer shall
immediately notify a worker in writing of a decision to
dismiss him stating clearly the reasons therefor. 17
These guidelines mandate that the employer furnish an employee
sought to be dismissed two (2) written notices of dismissal before a
termination of employment can be legally effected. These are the
notice which apprises the employee of the particular acts or omissions
for which his dismissal is sought and the subsequent notice which
informs the employee of the employer's decision to dismiss him.

Likewise, a reading of the guidelines in consonance with the express


provisions of law on protection to labor 18(which encompasses the
right to security of tenure) and the broader dictates of procedural due
process necessarily mandate that notice of the employer's decision to
dismiss an employee, with reasons therefor, can only be issued after
the employer has afforded the employee concerned ample opportunity
to be heard and to defend himself.
In the case at bar, NASECO did not comply with these guidelines in
effecting Credo's dismissal. Although she was apprised and "given the
chance to explain her side" of the charges filed against her, this
chance was given so perfunctorily, thus rendering illusory Credo's
right to security of tenure. That Credo was not given ample
opportunity to be heard and to defend herself is evident from the fact
that the compliance with the injunction to apprise her of the charges
filed against her and to afford her a chance to prepare for her defense
was dispensed in only a day. This is not effective compliance with the
legal requirements aforementioned.
The fact also that the Notice of Termination of Credo's employment (or
the decision to dismiss her) was dated 24 November 1983 and made
effective 1 December 1983 shows that NASECO was already bent on
terminating her services when she was informed on 1 December 1983
of the charges against her, and that any hearing which NASECO
thought of affording her after 24 November 1983 would merely be pro
forma or an exercise in futility.
Besides, Credo's mere non-compliance with Lorens memorandum
regarding the entry procedures in the company's Statement of Billings
Adjustment did not warrant the severe penalty of dismissal of the
NLRC correctly held that:
... on the charge of gross discourtesy, the CPA found in
its Report, dated 22 November 1983 that, "In the
process of her testimony/explanations she again
exhibited a conduct unbecoming in front of NASECO
Officers and argued to Mr. S. S. Lloren in a sarcastic

and discourteous manner, notwithstanding, the fact that


she was inside the office of the Acctg. General
Manager." Let it be noted, however, that the Report did
not even describe how the so called "conduct
unbecoming" or "discourteous manner" was done by
complainant. Anent the "sarcastic" argument of
complainant, the purported transcript 19 of the meeting
held on 7 November 1983 does not indicate any
sarcasm on the part of complainant. At the most,
complainant may have sounded insistent or emphatic
about her work being more complete than the work of
Ms. de Castro, yet, the complaining officer signed the
work of Ms. de Castro and did not sign hers.
As to the charge of insubordination, it may be
conceded, albeit unclear, that complainant failed to
place same corrections/additional remarks in the
Statement of Billings Adjustments as instructed.
However, under the circumstances obtaining, where
complainant strongly felt that she was being
discriminated against by her superior in relation to
other employees, we are of the considered view and so
hold, that a reprimand would have sufficed for the
infraction, but certainly not termination from services. 20
As this Court has ruled:
... where a penalty less punitive would suffice,
whatever missteps may be committed by labor ought
not to be visited with a consequence so severe. It is not
only because of the law's concern for the working man.
There is, in addition, his family to consider.
Unemployment brings untold hardships and sorrows on
those dependent on the wage-earner. 21
Of course, in justifying Credo's termination of employment, NASECO
claims as additional lawful causes for dismissal Credo's previous and

repeated acts of insubordination, discourtesy and sarcasm towards


her superior officers, alleged to have been committed from 1980 to
July 1983. 22
If such acts of misconduct were indeed committed by Credo, they are
deemed to have been condoned by NASECO. For instance,
sometime in 1980, when Credo allegedly "reacted in a scandalous
manner and raised her voice" in a discussion with NASECO's Acting
head of the Personnel Administration 23 no disciplinary measure was
taken or meted against her. Nor was she even reprimanded when she
allegedly talked 'in a shouting or yelling manner" with the Acting
Manager of NASECO's Building Maintenance and Services
Department in 1980 24 or when she allegedly "shouted" at NASECO's
Corporate Auditor "in front of his subordinates displaying arrogance
and unruly behavior" in 1980, or when she allegedly shouted at
NASECO's Internal Control Consultant in 1981. 25 But then, in sharp
contrast to NASECO's penchant for ignoring the aforesaid acts of
misconduct, when Credo committed frequent tardiness in August and
September 1983, she was reprimanded. 26
Even if the allegations of improper conduct (discourtesy to superiors)
were satisfactorily proven, NASECO's condonation thereof is gleaned
from the fact that on 4 October 1983, Credo was given a salary
adjustment for having performed in the job "at least
[satisfactorily]" 27 and she was then rated "Very Satisfactory" 28as
regards job performance, particularly in terms of quality of work,
quantity of work, dependability, cooperation, resourcefulness and
attendance.
Considering that the acts or omissions for which Credo's employment
was sought to be legally terminated were insufficiently proved, as to
justify dismissal, reinstatement is proper. For "absent the reason
which gave rise to [the employee's] separation from employment,
there is no intention on the part of the employer to dismiss the
employee concerned." 29 And, as a result of having been wrongfully
dismissed, Credo is entitled to three (3) years of backwages without
deduction and qualification. 30

However, while Credo's dismissal was effected without procedural


fairness, an award of exemplary damages in her favor can only be
justified if her dismissal was effected in a wanton, fraudulent,
oppressive or malevolent manner. 31 A judicious examination of the
record manifests no such conduct on the part of management.
However, in view of the attendant circumstances in the case, i.e., lack
of due process in effecting her dismissal, it is reasonable to award her
moral damages. And, for having been compelled to litigate because of
the unlawful actuations of NASECO, a reasonable award for
attorney's fees in her favor is in order.
In NASECO's comment 32 in G.R. No. 70295, it is belatedly argued
that the NLRC has no jurisdiction to order Credo's reinstatement.
NASECO claims that, as a government corporation (by virtue of its
being a subsidiary of the National Investment and Development
Corporation (NIDC), a subsidiary wholly owned by the Philippine
National Bank (PNB), which in turn is a government owned
corporation), the terms and conditions of employment of its
employees are governed by the Civil Service Law, rules and
regulations. In support of this argument, NASECO cites National
Housing Corporation vs. JUCO, 33 where this Court held that "There
should no longer be any question at this time that employees of
government-owned or controlled corporations are governed by the
civil service law and civil service rifles and regulations."
It would appear that, in the interest of justice, the holding in said case
should not be given retroactive effect, that is, to cases that arose
before its promulgation on 17 January 1985. To do otherwise would
be oppressive to Credo and other employees similarly situated,
because under the same 1973 Constitution ,but prior to the ruling
in National Housing Corporation vs. Juco, this Court had recognized
the applicability of the Labor Code to, and the authority of the NLRC
to exercise jurisdiction over, disputes involving terms and conditions of
employment in government owned or controlled corporations, among
them, the National Service Corporation (NASECO).<re||an1w> 34

Furthermore, in the matter of coverage by the civil service of


government-owned or controlled corporations, the 1987 Constitution
starkly varies from the 1973 Constitution, upon which National
Housing Corporation vs. Juco is based. Under the 1973 Constitution,
it was provided that:
The civil service embraces every branch, agency,
subdivision, and instrumentality of the Government,
including every government-owned or controlled
corporation. ... 35
On the other hand, the 1987 Constitution provides that:
The civil service embraces all branches, subdivisions,
instrumentalities, and agencies of the Government,
including government-owned or controlled corporations
with original charter. 36(Emphasis supplied)
Thus, the situations sought to be avoided by the 1973 Constitution
and expressed by the Court in the National Housing . Corporation
case in the following manner
The infirmity of the respondents' position lies in its
permitting a circumvention or emasculation of Section
1, Article XII-B of the constitution. It would be possible
for a regular ministry of government to create a host of
subsidiary corporations under the Corporation Code
funded by a willing legislature. A government-owned
corporation could create several subsidiary
corporations. These subsidiary corporations would
enjoy the best of two worlds. Their officials and
employees would be privileged individuals, free from
the strict accountability required by the Civil Service
Decree and the regulations of the Commission on
Audit. Their incomes would not be subject to the
competitive restrains of the open market nor to the
terms and conditions of civil service employment.

Conceivably, all government-owned or controlled


corporations could be created, no longer by special
charters, but through incorporations under the general
law. The Constitutional amendment including such
corporations in the embrace of the civil service would
cease to have application. Certainly, such a situation
cannot be allowed to exist. 37
appear relegated to relative insignificance by the 1987 Constitutional
provision that the Civil Service embraces government-owned or
controlled corporations with original charter; and, therefore, by clear
implication, the Civil Service does not include government-owned or
controlled corporations which are organized as subsidiaries of
government-owned or controlled corporations under the general
corporation law.
The proceedings in the 1986 Constitutional Commission also shed
light on the Constitutional intent and meaning in the use of the phrase
"with original charter." Thus
THE PRESIDING OFFICER (Mr.
Trenas) Commissioner Romulo is
recognized.
MR. ROMULO. I beg the indulgence of
the Committee. I was reading the wrong
provision.
I refer to Section 1, subparagraph I which reads:
The Civil Service embraces all branches, subdivisions,
instrumentalities, and agencies of the government,
including government-owned or controlled
corporations.

My query: Is Philippine Airlines covered by this


provision? MR. FOZ. Will the Commissioner please
state his previous question?
MR. ROMULO. The phrase on line 4 of
Section 1, subparagraph 1, under the
Civil Service Commission, says:
"including government-owned or
controlled corporations.' Does that
include a corporation, like the Philippine
Airlines which is government-owned or
controlled?
MR. FOZ. I would like to throw a
question to the Commissioner. Is the
Philippine Airlines controlled by the
government in the sense that the
majority of stocks are owned by the
government?
MR. ROMULO. It is owned by the GSIS.
So, this is what we might call a tertiary
corporation. The GSIS is owned by the
government. Would this be covered
because the provision says "including
government-owned or controlled
corporations."

decision that destroyed that distinction


between a government-owned
corporation created under the
Corporation Law and a governmentowned corporation created by its own
charter.
MR. FOZ. Yes, we recall the Supreme
Court decision in the case of NHA vs.
Juco to the effect that all government
corporations irrespective of the manner
of creation, whether by special charter
or by the private Corporation Law, are
deemed to be covered by the civil
service because of the wide-embracing
definition made in this section of the
existing 1973 Constitution. But we recall
the response to the question of
Commissioner Ople that our intendment
in this provision is just to give a general
description of the civil service. We are
not here to make any declaration as to
whether employees of governmentowned or controlled corporations are
barred from the operation of laws, such
as the Labor Code of the Philippines.
MR. ROMULO. Yes.

MR. FOZ. The Philippine Airlines was


established as a private corporation.
Later on, the government, through the
GSIS, acquired the controlling stocks. Is
that not the correct situation?

MR. OPLE. May I be recognized, Mr.


Presiding Officer, since my name has
been mentioned by both sides.
MR. ROMULO. I yield part of my time.

MR. ROMULO. That is true as


Commissioner Ople is about to explain.
There was apparently a Supreme Court

THE PRESIDING OFFICER


(Mr.Trenas). Commissioner Ople is
recognized.
MR. OPLE. In connection with the
coverage of the Civil Service Law in
Section 1 (1), may I volunteer some
information that may be helpful both to
the interpellator and to the Committee.
Following the proclamation of martial
law on September 21, 1972, this issue
of the coverage of the Labor Code of the
Philippines and of the Civil Service Law
almost immediately arose. I am, in
particular, referring to the period
following the coming into force and
effect of the Constitution of 1973, where
the Article on the Civil Service was
supposed to take immediate force and
effect. In the case of LUZTEVECO,
there was a strike at the time. This was
a government-controlled and
government-owned corporation. I think it
was owned by the PNOC with just the
minuscule private shares left. So, the
Secretary of Justice at that time,
Secretary Abad Santos, and myself sat
down, and the result of that meeting was
an opinion of the Secretary of Justice
which 9 became binding immediately on
the government that government
corporations with original charters, such
as the GSIS, were covered by the Civil
Service Law and corporations spun off
from the GSIS, which we called second
generation corporations functioning as
private subsidiaries, were covered by

the Labor Code. Samples of such


second generation corporations were
the Philippine Airlines, the Manila
Hotel and the Hyatt. And that demarcation worked very
well. In fact, all of these companies I have mentioned
as examples, except for the Manila Hotel, had
collective bargaining agreements. In the Philippine
Airlines, there were, in fact, three collective bargaining
agreements; one, for the ground people or the PALIA
one, for the flight attendants or the PASAC and one for
the pilots of the ALPAC How then could a corporation
like that be covered by the Civil Service law? But, as
the Chairman of the Committee pointed out, the
Supreme Court decision in the case of NHA vs. Juco
unrobed the whole thing. Accordingly, the Philippine
Airlines, the Manila Hotel and the Hyatt are now
considered under that decision covered by the Civil
Service Law. I also recall that in the emergency
meeting of the Cabinet convened for this purpose at
the initiative of the Chairman of the Reorganization
Commission, Armand Fabella, they agreed to allow the
CBA's to lapse before applying the full force and effect
of the Supreme Court decision. So, we were in the
awkward situation when the new government took
over. I can agree with Commissioner Romulo when he
said that this is a problem which I am not exactly sure
we should address in the deliberations on the Civil
Service Law or whether we should be content with
what the Chairman said that Section 1 (1) of the Article
on the Civil Service is just a general description of the
coverage of the Civil Service and no more.
Thank you, Mr. Presiding Officer.
MR. ROMULO. Mr. Presiding Officer, for
the moment, I would be satisfied if the

Committee puts on records that it is not


their intent by this provision and the
phrase "including government-owned or
controlled corporations" to cover such
companies as the Philippine Airlines.

general description and we are not


making any declaration whatsoever.
MR. MONSOD. Perhaps if
Commissioner Romulo would like a
definitive understanding of the coverage
and the Gentleman wants to exclude
government-owned or controlled
corporations like Philippine Airlines, then
the recourse is to offer an amendment
as to the coverage, if the Commissioner
does not accept the explanation that
there could be a distinction of the rules,
including salaries and emoluments.

MR. FOZ. Personally, that is my view. As


a matter of fact, when this draft was
made, my proposal was really to
eliminate, to drop from the provision, the
phrase "including government- owned or
controlled corporations."
MR. ROMULO. Would the Committee
indicate that is the intent of this
provision?
MR. MONSOD. Mr. Presiding Officer, I
do not think the Committee can make
such a statement in the face of an
absolute exclusion of governmentowned or controlled corporations.
However, this does not preclude the
Civil Service Law to prescribe different
rules and procedures, including
emoluments for employees of
proprietary corporations, taking into
consideration the nature of their
operations. So, it is a general coverage
but it does not preclude a distinction of
the rules between the two types of
enterprises.
MR. FOZ. In other words, it is something
that should be left to the legislature to
decide. As I said before, this is just a

MR. ROMULO. So as not to delay the


proceedings, I will reserve my right to
submit such an amendment.
xxx xxx xxx
THE PRESIDING OFFICE (Mr. Trenas)
Commissioner Romulo is recognized.
MR. ROMULO. On page 2, line 5, I
suggest the following amendment after
"corporations": Add a comma (,) and the
phrase EXCEPT THOSE EXERCISING
PROPRIETARY FUNCTIONS.
THE PRESIDING OFFICER (Mr.
Trenas). What does the Committee say?
SUSPENSION OF SESSION
MR. MONSOD. May we have a
suspension of the session?

THE PRESIDING OFFICER (Mr.


Trenas). The session is suspended.
It was 7:16 p.m.

MR. FOZ. And not under the general


corporation law.
MR. ROMULO. That is correct. Mr.
Presiding Officer.

RESUMPTION OF SESSION
At 7:21 p.m., the session was resumed.
THE PRESIDING OFFICER (Mr. Trenas). The session
is resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending
my original proposed amendment to now read as
follows: "including government-owned or controlled
corporations WITH ORIGINAL CHARTERS." The
purpose of this amendment is to indicate that
government corporations such as the GSIS and SSS,
which have original charters, fall within the ambit of the
civil service. However, corporations which are
subsidiaries of these chartered agencies such as the
Philippine Airlines, Manila Hotel and Hyatt are excluded
from the coverage of the civil service.
THE PRESIDING OFFICER (Mr.
Trenas). What does the Committee say?
MR. FOZ. Just one question, Mr.
Presiding Officer. By the term "original
charters," what exactly do we mean?
MR. ROMULO. We mean that they were
created by law, by an act of Congress,
or by special law.

MR. FOZ. With that understanding and


clarification, the Committee accepts the
amendment.
MR. NATIVIDAD. Mr. Presiding officer,
so those created by the general
corporation law are out.
MR. ROMULO. That is correct: 38
On the premise that it is the 1987 Constitution that governs the instant
case because it is the Constitution in place at the time of decision
thereof, the NLRC has jurisdiction to accord relief to the parties. As an
admitted subsidiary of the NIDC, in turn a subsidiary of the PNB, the
NASECO is a government-owned or controlled corporation without
original charter.
Dr. Jorge Bocobo, in his Cult of Legalism, cited by Mr. Justice
Perfecto in his concurring opinion in Gomez vs. Government
Insurance Board (L-602, March 31, 1947, 44 O.G. No. 8, pp. 2687,
2694; also published in 78 Phil. 221) on the effectivity of the principle
of social justice embodied in the 1935 Constitution, said:
Certainly, this principle of social justice in our
Constitution as generously conceived and so tersely
phrased, was not included in the fundamental law as a
mere popular gesture. It was meant to (be) a vital,
articulate, compelling principle of public policy. It should
be observed in the interpretation not only of future
legislation, but also of all laws already existing on
November 15, 1935. It was intended to change the

spirit of our laws, present and future. Thus, all the laws
which on the great historic event when the
Commonwealth of the Philippines was born, were
susceptible of two interpretations strict or liberal,
against or in favor of social justice, now have to be
construed broadly in order to promote and achieve
social justice. This may seem novel to our friends, the
advocates of legalism but it is the only way to give life
and significance to the above-quoted principle of the
Constitution. If it was not designed to apply to these
existing laws, then it would be necessary to wait for
generations until all our codes and all our statutes shall
have been completely charred by removing every
provision inimical to social justice, before the policy of
social justice can become really effective. That would
be an absurd conclusion. It is more reasonable to hold
that this constitutional principle applies to all legislation
in force on November 15, 1935, and all laws thereafter
passed.
WHEREFORE, in view of the foregoing, the challenged decision of
the NLRC is AFFIRMED with modifications. Petitioners in G.R. No.
69870, who are the private respondents in G.R. No. 70295, are
ordered to: 1) reinstate Eugenia C. Credo to her former position at the
time of her termination, or if such reinstatement is not possible, to
place her in a substantially equivalent position, with three (3) years
backwages, from 1 December 1983, without qualification or
deduction, and without loss of seniority rights and other privileges
appertaining thereto, and 2) pay Eugenia C. Credo P5,000.00 for
moral damages and P5,000.00 for attorney's fees.
If reinstatement in any event is no longer possible because of
supervening events, petitioners in G.R. No. 69870, who are the
private respondents in G.R. No. 70295 are ordered to pay Eugenia C.
Credo, in addition to her backwages and damages as above
described, separation pay equivalent to one-half month's salary for

every year of service, to be computed on her monthly salary at the


time of her termination on 1 December 1983.
SO ORDERED.
Separate Opinions
CRUZ, J., concurring:
While concurring with Mr. Justice Padilla's well-researched ponencia, I
have to express once again my disappointment over still another
avoidable ambiguity in the 1987 Constitution.
It is clear now from the debates of the Constitutional Commission that
the government-owned or controlled corporations included in the Civil
Service are those with legislative charters. Excluded are its
subsidiaries organized under the Corporation Code.
If that was the intention, the logical thing, I should imagine, would
have been to simply say so. This would have avoided the suggestion
that there are corporations with duplicate charters as distinguished
from those with original charters.
All charters are original regardless of source unless they are
amended. That is the acceptable distinction. Under the provision,
however, the charter is still and always original even if amended as
long it was granted by the legislature.
It would have been clearer, I think, to say "including government
owned or controlled corporations with legislative charters." Why this
thought did not occur to the Constitutional Commission places one
again in needless puzzlement.
Separate Opinions
CRUZ, J., concurring:

While concurring with Mr. Justice Padilla's well-researched ponencia, I


have to express once again my disappointment over still another
avoidable ambiguity in the 1987 Constitution.
It is clear now from the debates of the Constitutional Commission that
the government-owned or controlled corporations included in the Civil
Service are those with legislative charters. Excluded are its
subsidiaries organized under the Corporation Code.
If that was the intention, the logical thing, I should imagine, would
have been to simply say so. This would have avoided the suggestion
that there are corporations with duplicate charters as distinguished
from those with original charters.
All charters are original regardless of source unless they are
amended. That is the acceptable distinction. Under the provision,
however, the charter is still and always original even if amended as
long it was granted by the legislature.
It would have been clearer, I think, to say "including government
owned or controlled corporations with legislative charters." Why this
thought did not occur to the Constitutional Commission places one
again in needless puzzlement.

Petitioner Benjamin C. Juco was hired as a project


engineer of respondent National Housing Corporation (NHC)
from November 16, 1970 to May 14, 1975. On May 14, 1975,
he was separated from the service for having been
implicated in a crime of theft and/or malversation of public
funds.
On March 25, 1977, petitioner filed a complaint for illegal
dismissal against the NHC with the Department of Labor.
On September 17, 1977, the Labor Arbiter rendered a
decision dismissing the complaint on the ground that the
NLRC had no jurisdiction over the case.[1]
Petitioner then elevated the case to the NLRC which
rendered a decision on December 28, 1982, reversing the
decision of the Labor Arbiter.[2]

FIRST DIVISION
[G.R. No. 98107. August 18, 1997]
BENJAMIN C. JUCO, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and NATIONAL HOUSING
CORPORATION, respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition for certiorari to set aside the Decision of
the National Labor Relations Commission (NLRC) dated March
14, 1991, which reversed the Decision dated May 21, 1990 of
Labor Arbiter Manuel R. Caday, on the ground of lack of
jurisdiction.

Dissatisfied with the decision of the NLRC, respondent


NHC appealed before this Court and on January 17, 1985, we
rendered a decision, the dispositive portion thereof reads as
follows:
WHEREFORE, the petition is hereby GRANTED. The
questioned decision of the respondent National Labor
Relations Commission is SET ASIDE. The decision of the Labor
Arbiter dismissing the case before it for lack of jurisdiction is
REINSTATED.[3]
On January 6, 1989, petitioner filed with the Civil Service
Commission a complaint for illegal dismissal, with preliminary
mandatory injunction.[4]
On February 6, 1989, respondent NHC moved for the
dismissal of the complaint on the ground that the Civil
Service Commission has no jurisdiction over the case. [5]

On April 11, 1989, the Civil Service Commission issued an


order dismissing the complaint for lack of jurisdiction. It
ratiocinated that:
The Board finds the comment and/or motion to dismiss
meritorious. It was not disputed that NHC is a government
corporation without an original charter but organized/created
under the Corporate Code.
Article IX, Section 2 (1) of the 1987 Constitution provides:
The civil service embraces all branches, subdivisions,
instrumentalities and agencies of the government, including
government owned and controlled corporations with original
charters. (underscoring supplied)
From the aforequoted constitutional provision, it is clear that
respondent NHC is not within the scope of the civil service
and is therefore beyond the jurisdiction of this
board. Moreover, it is pertinent to state that the 1987
Constitution was ratified and became effective on February 2,
1987.
WHEREFORE, for lack of jurisdiction, the instant complaint is
hereby dismissed.[6]
On April 28, 1989, petitioner filed with respondent NLRC a
complaint for illegal dismissal with preliminary mandatory
injunction against respondent NHC.[7]
On May 21, 1990, respondent NLRC thru Labor Arbiter
Manuel R. Caday ruled that petitioner was illegally dismissed
from his employment by respondent as there was evidence in
the record that the criminal case against him was purely
fabricated, prompting the trial court to dismiss the charges
against him. Hence, he concluded that the dismissal was
illegal as it was devoid of basis, legal or factual.

He further ruled that the complaint is not barred by


prescription considering that the period from which to reckon
the reglementary period of four years should be from the
date of the receipt of the decision of the Civil Service
Commission promulgated on April 11, 1989. He also
ratiocinated that:
It appears x x x complainant filed the complaint for illegal
dismissal with the Civil Service Commission on January 6,
1989 and the same was dismissed on April 11, 1989 after
which on April 28, 1989, this case was filed by the
complainant. Prior to that, this case was ruled upon by the
Supreme Court on January 17, 1985 which enjoined the
complainant to go to the Civil Service Commission which in
fact, complainant did. Under the circumstances, there is
merit on the contention that the running of the reglementary
period of four (4) years was suspended with the filing of the
complaint with the said Commission. Verily, it was not the
fault of the respondent for failing to file the complaint as
alleged by the respondent but due to, in the words of the
complainant, a legal knot that has to be untangled. [8]
Thereafter, the Labor Arbiter rendered a decision, the
dispositive portion of which reads:
"Premises considered, judgment is hereby rendered declaring
the dismissal of the complainant as illegal and ordering the
respondent to immediately reinstate him to his former
position without loss of seniority rights with full back wages
inclusive of allowance and to his other benefits or equivalent
computed from the time it is withheld from him when he was
dismissed on March 27, 1977, until actually reinstated. [9]
On June 1, 1990, respondent NHC filed its appeal before
the NLRC and on March 14, 1991, the NLRC promulgated a
decision which reversed the decision of Labor Arbiter Manuel
R. Caday on the ground of lack of jurisdiction. [10]

The primordial issue that confronts us is whether or not


public respondent committed grave abuse of discretion in
holding that petitioner is not governed by the Labor Code.
Under the laws then in force, employees of governmentowned and /or controlled corporations were governed by the
Civil Service Law and not by the Labor Code. Hence,
Article 277 of the Labor Code (PD 442) then provided:
"The terms and conditions of employment of all government
employees, including employees of government-owned and
controlled corporations shall be governed by the Civil Service
Law, rules and regulations x x x.
The 1973 Constitution, Article II-B, Section 1(1), on the other
hand provided:
The Civil Service embraces every branch, agency, subdivision
and instrumentality of the government, including
government-owned or controlled corporations.
Although we had earlier ruled in National Housing
Corporation v. Juco,[11] that employees of government-owned
and/or controlled corporations, whether created by special
law or formed as subsidiaries under the general Corporation
Law, are governed by the Civil Service Law and not by the
Labor Code, this ruling has been supplanted by the 1987
Constitution. Thus, the said Constitution now provides:
The civil service embraces all branches, subdivision,
instrumentalities, and agencies of the Government, including
government owned or controlled corporations with original
charter. (Article IX-B, Section 2[1])
In National Service Corporation (NASECO) v. National
Labor Relations Commission,[12] we had the occasion to apply

the present Constitution in deciding whether or not the


employees of NASECO are covered by the Civil Service Law
or the Labor Code notwithstanding that the case arose at the
time when the 1973 Constitution was still in effect. We ruled
that the NLRC has jurisdiction over the employees of NASECO
on the ground that it is the 1987 Constitution that governs
because it is the Constitution in place at the time of the
decision. Furthermore, we ruled that the new phrase with
original charter means that government-owned and
controlled corporations refer to corporations chartered by
special law as distinguished from corporations organized
under the Corporation Code. Thus, NASECO which had been
organized under the general incorporation stature and a
subsidiary of the National Investment Development
Corporation, which in turn was a subsidiary of the Philippine
National Bank, is excluded from the purview of the Civil
Service Commission.
We see no cogent reason to depart from the ruling in the
aforesaid case.
In the case at bench, the National Housing Corporation is
a government owned corporation organized in 1959 in
accordance with Executive Order No. 399, otherwise known
as the Uniform Charter of Government Corporation, dated
January 1, 1959. Its shares of stock are and have been one
hundred percent (100%) owned by the Government from its
incorporation under Act 1459, the former corporation
law. The government entities that own its shares of stock are
the Government Service Insurance System, the Social
Security System, the Development Bank of the Philippines,
the National Investment and Development Corporation and
the
Peoples
Homesite
and
Housing
Corporation.
[13]
Considering the fact that the NHA had been incorporated
under act 1459, the former corporation law, it is but correct
to say that it is a government-owned or controlled

corporation whose employees are subject to the provisions of


the Labor Code. This observation is reiterated in recent case
of Trade Union of the Philippines and Allied Services
(TUPAS) v. National Housing Corporation,[14] where we held
that the NHA is now within the jurisdiction of the Department
of Labor and Employment, it being a government-owned
and/or
controlled
corporation
without
an
original
charter. Furthermore, we also held that the workers or
employees of the NHC (now NHA) undoubtedly have the right
to form unions or employees organization and that there is
no impediment to the holding of a certification election
among them as they are covered by the Labor Code.
Thus, the NLRC erred in dismissing petitioners complaint
for lack of jurisdiction because the rule now is that the Civil
Service now covers only government-owned or controlled
corporations
with
original
charters. [15] Having
been
incorporated under the Corporation Law, its relations with its
personnel are governed by the Labor Code and come under
the jurisdiction of the National Labor Relations Commission.
One final point. Petitioners have been tossed from one
forum to another for a simple illegal dismissal case. It is but
apt that we put an end to his dilemma in the interest of
justice.
WHEREFORE, the decision of the NLRC in NLRC NCR-0402036089 dated March 14, 1991 is hereby REVERSED and
the Decision of the Labor Arbiter dated May 21, 1990 is
REINSTATED.
SO ORDERED.

SYNOPSIS
Petitioner had worked with the private respondent
Seventh Day Adventists (SDA) for 28 years before he was
terminated. Prior to said termination, petitioner was asked to
admit accountability for the church offerings collected by his
wife in the amount of P15,078.10. Petitioner refused since it
was private respondents Pastor Buhat and Eufronio Ibesate
who authorized his wife to collect. Thereafter petitioner
requested Pastor Buhat to convene the Executive Committee
to settle the dispute between him and Pastor Rodrigo, but the
latter denied the same, and heated arguments between the
two ensued until petitioner banged the attach case of Pastor
Buhat on the table, scattered the books and threw the
phone. Later, an Executive Committee meeting was held
where the non-remittance of church collections and the
events that transpired were discussed. Subsequently,
petitioner received a letter of dismissal citing therein grounds
for the termination of his services. Petitioner then filed a
complaint for illegal dismissal and a decision was rendered in
his favor. The SDA appealed the same to the NLRC and after

much a do, the case was dismissed for lack of jurisdiction on


the ground that the case involved an ecclesiastical affair to
which the State cannot interfere.
The case at bar did not concern a purely religious affair
as to bar the State from taking cognizance thereof. What is
involved here is the relationship of the church as an
employer and the minister as an employee .There was no
compliance of the requirement that there should be a written
notice specifying the grounds for termination and giving the
employee reasonable opportunity to explain his side. Here,
petitioner was not given enough opportunity to properly
prepare for his defense. At any rate, the validity of the
dismissal cannot be sustained. There was no basis for the
loss of confidence and breach of trust as it was petitioners
wife who collected the money and failed to remit the
same. On the ground of serious misconduct and commission
of an offense against the person of the employers duly
authorized representative, the same was unmeritorious as
petitioners actuations cannot be considered grave enough to
be considered as serious misconduct to merit the ultimate
penalty of dismissal. Then also, there was no proof that
petitioner committed gross and habitual neglect of duties.
Hence, since petitioner was illegally dismissed, he is entitled
to reinstatement with full backwages.
SYLLABUS
1. POLITICAL LAW; SEPARATION OF CHURCH AND
STATE; ELUCIDATED.- The rationale of principle of
separation of church and state is summed up in the
familiar saying, Strong fences make good neighbors. The
idea advocated by this principle is to delineate the
boundaries between the two institutions and thus avoid
encroachments by one against the other because of a
misunderstanding of the limits of their respective
exclusive jurisdictions. The demarcation line calls on the

entities to render therefore unto Ceasar the things that


are Ceasars and unto God the things that are Gods. While
the State is prohibited from interfering in purely
ecclesiastical affairs, the Church is likewise barred from
meddling in purely secular matters.
2. ID.; ID.; ECCLESIASTICAL AFFAIR; ELUCIDATED.- An
ecclesiastical affair is one that concerns doctrine, creed,
or form of worship of the church, or the adoption and
enforcement within a religious association of needful laws
and regulations for the government of the membership,
and the power of excluding from such associations those
deemed unworthy of membership. Based on this
definition, an ecclesiastical affair involves the relationship
between the church and its members and relate to
matters of faith, religious doctrines, worship and
governance of the congregation. To be concrete,
examples of this so-called ecclesiastical affairs to which
the State cannot meddle are proceedings for
excommunication, ordinations of religious ministers,
administration of sacraments and other activities with
attached religious significance.
3. ID.; ID.; ID.; NOT APPRECIATED AS CASE AT BAR
CONCERNS EMPLOYMENT PROBLEM.- The case at bar
does not concern an ecclesiastical or purely religious
affair as to bar the State from taking cognizance of the
same. While the matter at hand relates to the church and
its religious minister it does not ipso facto give the case a
religious significance. Simply stated, what is involved
here is the relationship of the church as an employer and
the minister as an employee. It is purely secular and has
no relation whatsoever with the practice of faith, worship
or doctrines of the church. In this case, petitioner was not
ex-communicated or expelled from the membership of
the SDA but was terminated from employment. Indeed,

the matter of terminating an employee, which is purely


secular in nature, is different from the ecclesiastical act
of expelling a member from the religious congregation.

brought, coupled with his failure to object to the


jurisdiction of the court or quasi-judicial body where the
action is pending, is tantamount to an invocation of that
jurisdiction and a willingness to abide by the resolution of
the case and will bar said party from later on impugning
the court or bodys jurisdiction. Thus, the active
participation of private respondents in the proceedings
before the Labor Arbiter and the NLRC mooted the
question on jurisdiction.

4. LABOR AND SOCIAL LEGISLATION; EMPLOYMENT;


DISMISSAL OF EMPLOYEES; PROVISIONS THEREOF
APPLICABLE TO RELIGIOUS CORPORATIONS.- Under
the Labor Code, the provision which governs the
dismissal of employees, is comprehensive enough to
include religious corporations, such as the SDA, in its
coverage. Article 278 of the Labor Code on postemployment states that the provisions of this Title shall
apply to all establishments or undertakings, whether for
profit or not. Obviously, the cited article does not make
any exception in favor of a religious corporation. This is
made more evident by the fact that the Rules
Implementing the Labor Code, particularly, Section 1,
Rule 1, Book VI on the Termination of Employment and
Retirement, categorically includes religious institutions in
the coverage of the law. Hence, the SDA cannot hide
behind the mantle of protection of the doctrine of
separation of church and state to avoid its responsibilities
as an employer under the Labor Code.

6. ID.; EVIDENCE; FACTUAL FINDINGS OF NATIONAL


LABOR RELATIONS COMMISSION, RESPECTED;
EXCEPTIONS; WHEN IT DIFFERS FROM THE
FINDINGS OF THE LABOR ARBITER.- As a general
rule, findings of fact of administrative bodies like the
NLRC are binding upon this Court. A review of such
findings is justified, however, in instances when the
findings of the NLRC differ from those of the labor arbiter,
as in this case. When the findings of NLRC do not agree
with those of the Labor Arbiter, this Court must of
necessity review the records to determine which findings
should be preferred as more conformable to the
evidentiary facts.

5. REMEDIAL LAW; CIVIL PROCEDURE; JURISDICTION;


ESTOPPEL; RAISING THE ISSUE OF LACK OF
JURISDICTION FOR THE FIRST TIME ON APPEAL
AFTER
ACTIVE
PARTICIPATION
IN
TRIAL
BELOW.- Private respondents are estopped from raising
the issue of lack of jurisdiction for the first time on
appeal. It is already too late in the day for private
respondents to question the jurisdiction of the NLRC and
the Labor Arbiter since the SDA had fully participated in
the trials and hearings of the case from start to
finish. The Court has already ruled that the active
participation of a party against whom the action was

7. LABOR AND SOCIAL LEGISLATION; EMPLOYMENT;


DISMISSAL
BY
EMPLOYER;
VALIDITY;
REQUISITES.- In termination cases, the settled rule is
that the burden of proving that the termination was for a
valid or authorized cause rests on the employer. Thus,
private respondents must not merely rely on the
weaknesses of petitioners evidence but must stand on
the merits of their own defense. The issue being the
legality of petitioners dismissal, the same must be
measured against the requisites for a valid dismissal,
namely: (a) the employee must be afforded due
process, i.e., he must be given an opportunity to be

heard and to defend himself, and; (b) the dismissal must


be for a valid cause as provided in Article 282 of the
Labor Code. Without the concurrence of this twin
requirements, the termination would, in the eyes of the
law, be illegal.
8. ID.; ID.; ID.; ID.; ID.; NOTICE OF TERMINATION;
DISCUSSED.- Before the services of an employee can be
validly terminated, Article 277 (b) of the Labor Code and
Section 2, Rule XXIII, Book V of the Rules Implementing
the Labor Code further require the employer to furnish
the employee with two (2) written notices, to wit: (a) a
written notice served on the employee specifying the
ground or grounds for termination, and giving to said
employee reasonable opportunity within which to explain
his side; and, (b) a written notice of termination served
on the employee indicating that upon due consideration
of all the circumstances, grounds have been established
to justify his termination. The first notice, which may be
considered as the proper charge, serves to apprise the
employee of the particular acts or omissions for which his
dismissal is sought. The second notice on the other hand
seeks to inform the employee of the employers decision
to dismiss him. This decision, however, must come only
after the employee is given a reasonable period from
receipt of the first notice within which to answer the
charge and ample opportunity to be heard and defend
himself with the assistance of a representative, if he so
desires. This is in consonance with the express provision
of law on the protection of labor and the broader dictates
of procedural due process. Non-compliance therewith is
fatal because these requirements are conditions sine qua
non before dismissal may be validly effected.

dismissal based on the ground of breach of trust. Private


respondents allege that they have lost their confidence in
petitioner for his failure, despite demands, to remit the
tithes and offerings amounting to P15,078.10, which were
collected in his district. A careful study of the voluminous
records of the case reveals that there is simply no basis
for the alleged loss of confidence and breach of
trust. Settled is the rule that under Article 282 (c) of the
Labor Code, the breach of trust must be willful. A breach
is willful if it is done intentionally, knowingly and
purposely, without justifiable excuse, as distinguished
from an act done carelessly, thoughtlessly, heedlessly or
inadvertently. It must rest on substantial grounds and not
on the employers arbitrariness, whims, caprices or
suspicion; otherwise, the employee would eternally
remain at the mercy of the employer. It should be
genuine and not simulated. This ground has never been
intended to afford an occasion for abuse, because of its
subjective nature. The records show that there were only
six (6) instances when petitioner personally collected and
received from the church treasurers the tithes,
collections,
and
donations
for
the
church. The
stenographic notes on the witnesses testimony show that
Pastor Austria was able to remit all his collections to the
treasurer of the Negros Mission. Then, petitioner cannot
be made accountable for the alleged infraction
committed by his wife.After all, they still have separate
and distinct personalities. For this reason, the Labor
Arbiter found it difficult to see the basis for the alleged
loss of confidence and breach of trust. The Court does
not find any cogent reason, therefore, to digress from the
findings of the Labor Arbiter which is fully supported by
the evidence on record.

9. ID.; ID.; ID.; GROUNDS; BREACH OF TRUST; NOT


APPRECIATED.- We cannot sustain the validity of

10. ID.; ID.; ID.; ID.; SERIOUS MISCONDUCT AND


COMMISSION OF AN OFFENSE AGAINST THE

PERSON OF THE EMPLOYERS DULY AUTHORIZED


REPRESENTATIVE; NOT APPRECIATED.- With respect
to the grounds of serious misconduct and commission of
an offense against the person of the employers duly
authorized
representative,
we
find
the
same
unmeritorious and, as such, do not warrant petitioners
dismissal from the service. Misconduct has been defined
as 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. For
misconduct to be considered serious it must be of such
grave and aggravated character and not merely trivial or
unimportant. Based on this standard, we believe that the
act of petitioner in banging the attache case on the table,
throwing the telephone and scattering the books in the
office of Pastor Buhat, although improper, cannot be
considered as grave enough to be considered as serious
misconduct. After all, though petitioner committed
damage to property, records show that he did not
physically assault Pastor Buhat or any other pastor
present during the incident. Hence, there is no basis for
the allegation that petitioners act constituted serious
misconduct or that the same was an offense against the
person
of
the
employers
duly
authorized
representative. As such, the cited actuation of petitioner
does not justify the ultimate penalty of dismissal from
employment. While the Constitution does not condone
wrongdoing by the employee, it nevertheless urges a
moderation of the sanctions that may be applied to him
in light of the many disadvantages that weigh heavily on
him like an albatross on his neck. Where a penalty less
punitive would suffice, whatever missteps may have
been committed by the worker ought not be visited with
a consequence so severe such as dismissal from
employment. For the foregoing reasons, we believe that

the minor infraction committed by petitioner does not


merit the ultimate penalty of dismissal.
11. ID.; ID.; ID.; ID.; GROSS AND HABITUAL NEGLECT
OF DUTIES; NOT APPRECIATED.- The final ground
alleged by private respondents in terminating petitioner,
gross and habitual neglect of duties, does not require an
exhaustive discussion. Suffice it to say that all private
respondents had were allegations but not proof. Aside
from merely citing the said ground, private respondents
failed to prove culpability on the part of petitioner. In fact,
the evidence on record shows otherwise. Petitioners rise
from the ranks disclose that he was actually a hardworker. Private respondents evidence, which consisted of
petitioners Workers Reports, revealed how petitioner
travelled to different churches to attend to the faithful
under his care. Indeed, he labored hard for the SDA, but,
in return, he was rewarded with dismissal from the
service for a non-existent cause.
12. ID.; ID.; ILLEGAL DISMISSAL; REINSTATEMENT AND
BACKWAGES, PROPER.- In view of the foregoing, we
sustain the finding of the Labor Arbiter that petitioner
was terminated from service without just or lawful
cause. Having been illegally dismissed, petitioner is
entitled to reinstatement to his former position without
loss of seniority rights and the payment of full backwages
without any deduction corresponding to the period from
his illegal dismissal up to actual reinstatement.
FIRST DIVISION
[G.R. No. 124382. August 16, 1999]
PASTOR DIONISIO V. AUSTRIA, petitioner, vs. HON.
NATIONAL
LABOR
RELATIONS
COMMISSION
(Fourth Division), et. al.,, respondents.

DECISION

petitioner was transferred to Bacolod City. He held the


position of district pastor until his services were terminated
on 31 October 1991.

Subject to the instant petition for certiorari under Rule 65


of the Rules of Court is the Resolution [1] of public respondent
National Labor Relations Commission (the NLRC), rendered on
23 January 1996, in NLRC Case No. V-0120-93, entitled Pastor
Dionisio V. Austria vs. Central Philippine Union Mission
Corporation of Seventh Day Adventists, et. al., which
dismissed the case for illegal dismissal filed by the petitioner
against private respondents for lack of jurisdiction.

On various occasions from August up to October, 1991,


petitioner received several communications [3] from Mr.
Eufronio Ibesate, the treasurer of the Negros Mission asking
him to admit accountability and responsibility for the church
tithes and offerings collected by his wife, Mrs. Thelma
Austria, in his district which amounted to P15,078.10, and to
remit the same to the Negros Mission.

Private Respondent Central Philippine Union Mission


Corporation of the Seventh-Day Adventists (hereinafter
referred to as the SDA) is a religious corporation duly
organized and existing under Philippine law and is
represented in this case by the other private respondents,
officers of the SDA. Petitioner, on the other hand, was a
Pastor of the SDA until 31 October 1991, when his services
were terminated.

[4]

KAPUNAN, J.:

The records show that petitioner Pastor Dionisio V. Austria


worked with the SDA for twenty eight (28) years from 1963 to
1991.[2] He began his work with the SDA on 15 July 1963 as a
literature evangelist, selling literature of the SDA over the
island of Negros. From then on, petitioner worked his way up
the ladder and got promoted several times. In January, 1968,
petitioner became the Assistant Publishing Director in the
West Visayan Mission of the SDA. In July, 1972, he was
elevated to the position of Pastor in the West Visayan Mission
covering the island of Panay, and the provinces of Romblon
and Guimaras. Petitioner held the same position up to
1988. Finally, in 1989, petitioner was promoted as District
Pastor of the Negros Mission of the SDA and was assigned at
Sagay, Balintawak and Toboso, Negros Occidental, with
twelve (12) churches under his jurisdiction. In January, 1991,

In his written explanation dated 11 October 1991,


petitioner reasoned out that he should not be made
accountable for the unremitted collections since it was
private respondents Pastor Gideon Buhat and Mr. Eufronio
Ibesate who authorized his wife to collect the tithes and
offerings since he was very sick to do the collecting at that
time.
Thereafter, on 16 October 1991, at around 7:30 a.m.,
petitioner went to the office of Pastor Buhat, the president of
the Negros Mission. During said call, petitioner tried to
persuade Pastor Buhat to convene the Executive Committee
for the purpose of settling the dispute between him and the
private respondent, Pastor David Rodrigo. The dispute
between Pastor Rodrigo and petitioner arose from an incident
in which petitioner assisted his friend, Danny Diamada, to
collect from Pastor Rodrigo the unpaid balance for the repair
of the latters motor vehicle which he failed to pay to
Diamada.[5] Due to the assistance of petitioner in collecting
Pastor Rodrigos debt, the latter harbored ill-feelings against
petitioner. When news reached petitioner that Pastor Rodrigo
was about to file a complaint against him with the Negros
Mission, he immediately proceeded to the office of Pastor
Buhat on the date abovementioned and asked the latter to
convene the Executive Committee. Pastor Buhat denied the

request of petitioner since some committee members were


out of town and there was no quorum. Thereafter, the two
exchanged heated arguments. Petitioner then left the office
of Pastor Buhat. While on his way out, petitioner overheard
Pastor Buhat saying, Pastor daw inisog na ina iya (Pastor you
are talking tough).[6] Irked by such remark, petitioner
returned to the office of Pastor Buhat, and tried to overturn
the latters table, though unsuccessfully, since it was
heavy. Thereafter, petitioner banged the attache case of
Pastor Buhat on the table, scattered the books in his office,
and threw the phone.[7] Fortunately, private respondents
Pastors Yonilo Leopoldo and Claudio Montao were around and
they pacified both Pastor Buhat and petitioner.

duly authorized representative,


termination of his services.

as

grounds

for

the

On 17 October 1991, petitioner received a letter [8] inviting


him and his wife to attend the Executive Committee meeting
at the Negros Mission Conference Room on 21 October 1991,
at nine in the morning. To be discussed in the meeting were
the non-remittance of church collection and the events that
transpired on 16 October 1991. A fact-finding committee was
created to investigate petitioner. For two (2) days, from
October 21 and 22, the fact-finding committee conducted an
investigation of petitioner. Sensing that the result of the
investigation might be one-sided, petitioner immediately
wrote Pastor Rueben Moralde, president of the SDA and
chairman of the fact-finding committee, requesting that
certain members of the fact-finding committee be excluded
in the investigation and resolution of the case. [9] Out of the
six (6) members requested to inhibit themselves from the
investigation and decision-making, only two (2) were actually
excluded,
namely:
Pastor
Buhat
and
Pastor
Rodrigo. Subsequently, on 29 October 1991, petitioner
received a letter of dismissal[10]citing misappropriation of
denominational funds, willful breach of trust, serious
misconduct, gross and habitual neglect of duties, and
commission of an offense against the person of employers

WHEREFORE, PREMISES CONSIDERED, respondents CENTRAL


PHILIPPINE UNION MISSION CORPORATION OF THE SEVENTHDAY ADVENTISTS (CPUMCSDA) and its officers, respondents
herein, are hereby ordered to immediately reinstate
complainant Pastor Dionisio Austria to his former position as
Pastor of Brgy. Taculing, Progreso and Banago, Bacolod City,
without loss of seniority and other rights and backwages in
the amount of ONE HUNDRED FIFTEEN THOUSAND EIGHT
HUNDRED THIRTY PESOS (P115,830.00) without deductions
and qualifications.

Reacting against the adverse decision of the SDA,


petitioner filed a complaint[11] on 14 November 1991, before
the Labor Arbiter for illegal dismissal against the SDA and its
officers and prayed for reinstatement with backwages and
benefits, moral and exemplary damages and other labor law
benefits.
On 15 February 1993, Labor Arbiter Cesar D. Sideo
rendered a decision in favor of petitioner, the dispositive
portion of which reads thus:

Respondent CPUMCSDA is further ordered to pay complainant


the following:
A. 13th month pay - P21,060.00
B. Allowance - P 4,770.83
C. Service Incentive Leave Pay - P 3,461.85
D. Moral Damages - P50,000.00
E. Exemplary Damages - P25,000.00

F. Attorneys Fee - P22,012.27


SO ORDERED.[12]
The SDA, through its officers, appealed the decision of
the Labor Arbiter to the National Labor Relations
Commission, Fourth Division, Cebu City. In a decision, dated
26 August 1994, the NLRC vacated the findings of the Labor
Arbiter. The decretal portion of the NLRC decision states:
WHEREFORE, the Decision appealed from is hereby VACATED
and a new one ENTERED dismissing this case for want of
merit.

The NLRC, without ruling on the merits of the case,


reversed itself once again, sustained the argument posed by
private respondents and, accordingly, dismissed the
complaint of petitioner. The dispositive portion of the NLRC
resolution dated 23 January 1996, subject of the present
petition, is as follows:
WHEREFORE, in view of all the foregoing, the instant motion
for reconsideration is hereby granted. Accordingly, this case
is hereby DISMISSED for lack of jurisdiction.
SO ORDERED.[15]
Hence, the recourse to this Court by petitioner.

SO ORDERED.

[13]

Petitioner filed a motion for reconsideration of the abovenamed decision. On 18 July 1995, the NLRC issued a
Resolution reversing its original decision. The dispositive
portion of the resolution reads:
WHEREFORE, premises considered, Our decision dated
August 26, 1994 is VACATED and the decision of the Labor
Arbiter dated February 15, 1993 is REINSTATED.
SO ORDERED.[14]
In view of the reversal of the original decision of the
NLRC, the SDA filed a motion for reconsideration of the above
resolution. Notable in the motion for reconsideration filed by
private respondents is their invocation, for the first time on
appeal, that the Labor Arbiter has no jurisdiction over the
complaint filed by petitioner due to the constitutional
provision on the separation of church and state since the
case allegedly involved and ecclesiastical affair to which the
State cannot interfere.

After the filing of the petition, the Court ordered the


Office of the Solicitor General (the OSG) to file its comment
on behalf of public respondent NLRC. Interestingly, the OSG
filed a manifestation and motion in lieu of comment [16] setting
forth its stand that it cannot sustain the resolution of the
NLRC. In its manifestation, the OSG submits that the
termination of petitioner of his employment may be
questioned before the NLRC as the same is secular in nature,
not ecclesiastical. After the submission of memoranda of all
the parties, the case was submitted for decision.
The issues to be resolved in this petition are:
1) Whether or not the Labor Arbiter/NLRC has
jurisdiction to try and decide the complaint filed by
petitioner against the SDA;
2) Whether or not the termination of the services of
petitioner is an ecclesiastical affair, and, as such,
involves the separation of church and state; and
3) Whether or not such termination is valid.

The first two issues shall be resolved jointly, since they


are related.
Private respondents contend that by virtue of the
doctrine of separation of church and state, the Labor Arbiter
and the NLRC have no jurisdiction to entertain the complaint
filed by petitioner. Since the matter at bar allegedly involves
the discipline of a religious minister, it is to be considered a
purely ecclesiastical affair to which the State has no right to
interfere.
The contention of private respondents deserves scant
consideration. The principle of separation of church and state
finds no application in this case.
The rationale of the principle of the separation of church
and state is summed up in the familiar saying, Strong fences
make good neighbors.[17] The idea advocated by this principle
is to delineate the boundaries between the two institutions
and thus avoid encroachments by one against the other
because of a misunderstanding of the limits of their
respective exclusive jurisdictions.[18] The demarcation line
calls on the entities to render therefore unto Ceasar the
things that are Ceasars and unto God the things that are
Gods.[19] While the State is prohibited from interfering in
purely ecclesiastical affairs, the Church is likewise barred
from meddling in purely secular matters.[20]
The case at bar does not concern an ecclesiastical or
purely religious affair as to bar the State from taking
cognizance of the same. An ecclesiastical affair is one that
concerns doctrine, creed, or form or worship of the church, or
the adoption and enforcement within a religious association
of needful laws and regulations for the government of the
membership, and the power of excluding from such
associations those deemed unworthy of membership.
[21]
Based on this definition, an ecclesiastical affair involves

the relationship between the church and its members and


relate to matters of faith, religious doctrines, worship and
governance of the congregation. To be concrete, examples of
this so-called ecclesiastical affairs to which the State cannot
meddle are proceedings for excommunication, ordinations of
religious ministers, administration of sacraments and other
activities with which attached religious significance. The case
at bar does not even remotely concern any of the abovecited
examples. While the matter at hand relates to the church and
its religious minister it does not ipso facto give the case a
religious significance. Simply stated, what is involved here is
the relationship of the church as an employer and the
minister as an employee. It is purely secular and has no
relation whatsoever with the practice of faith, worship or
doctrines of the church. In this case, petitioner was not
excommunicated or expelled from the membership of the
SDA but was terminated from employment. Indeed, the
matter of terminating an employee, which is purely secular in
nature, is different from the ecclesiastical act of expelling a
member from the religious congregation.
As pointed out by the OSG in its memorandum, the
grounds invoked for petitioners dismissal, namely:
misappropriation of denominational funds, willful breach of
trust, serious misconduct, gross and habitual neglect of
duties and commission of an offense against the person of
his employers duly authorize representative, are all based on
Article 282 of the Labor Code which enumerates the just
causes for termination of employment. [22] By this alone, it is
palpable that the reason for petitioners dismissal from the
service is not religious in nature. Coupled with this is the act
of the SDA in furnishing NLRC with a copy of petitioners letter
of termination. As aptly stated by the OSG, this again is an
eloquent admission by private respondents that NLRC has
jurisdiction over the case. Aside from these, SDA admitted in
a certification[23] issued by its officer, Mr. Ibesate, that

petitioner has been its employee for twenty-eight (28)


years. SDA even registered petitioner with the Social Security
System (SSS) as its employee. As a matter of fact, the
workers records of petitioner have been submitted by private
respondents as part of their exhibits. From all of these it is
clear that when the SDA terminated the services of
petitioner, it was merely exercising its management
prerogative to fire an employee which it believes to be unfit
for the job. As such, the State, through the Labor Arbiter and
the NLRC, has the right to take cognizance of the case and to
determine whether the SDA, as employer, rightfully exercised
its management prerogative to dismiss an employee. This is
in consonance with the mandate of the Constitution to afford
full protection to labor.
Under the Labor Code, the provision which governs the
dismissal of employees, is comprehensive enough to include
religious
corporations,
such
as
the
SDA,
in
its
coverage. Article 278 of the Labor Code on post-employment
states that the provisions of this Title shall apply to all
establishments or undertakings, whether for profit or not.
Obviously, the cited article does not make any exception in
favor of a religious corporation. This is made more evident by
the fact that the Rules Implementing the Labor Code,
particularly, Section 1, Rule 1, Book VI on the Termination of
Employment and Retirement, categorically includes religious
institutions in the coverage of the law, to wit:
Section 1. Coverage. This Rule shall apply to all
establishments and undertakings, whether operated for profit
or not, including educational, medical, charitable
and religious institutions and organizations, in cases of
regular employment with the exception of the Government
and its political subdivisions including government-owned or
controlled corporations.[24]

With this clear mandate, the SDA cannot hide behind the
mantle of protection of the doctrine of separation of church
and state to avoid its responsibilities as an employer under
the Labor Code.
Finally, as correctly pointed out by petitioner, private
respondents are estopped from raising the issue of lack of
jurisdiction for the first time on appeal. It is already too late
in the day for private respondents to question the jurisdiction
of the NLRC and the Labor Arbiter since the SDA had fully
participated in the trials and hearings of the case from start
to finish. The Court has already ruled that the active
participation of a party against whom the action was brought,
coupled with his failure to object to the jurisdiction of the
court or quasi-judicial body where the action is pending, is
tantamount to an invocation of that jurisdiction and a
willingness to abide by the resolution of the case and will bar
said party from later on impugning the court or bodys
jurisdiction.[25] Thus, the active participation of private
respondents in the proceedings before the Labor Arbiter and
the NLRC mooted the question on jurisdiction.
The jurisdictional question now settled, we shall now
proceed to determine whether the dismissal of petitioner was
valid.
At the outset, we note that as a general rule, findings of
fact of administrative bodies like the NLRC are binding upon
this Court. A review of such findings is justified, however, in
instances when the findings of the NLRC differ from those of
the labor arbiter, as in this case. [26] When the findings of
NLRC do not agree with those of the Labor Arbiter, this Court
must of necessity review the records to determine which
findings should be preferred as more comformable to the
evidentiary facts.[27]

We turn now to the crux of the matter. In termination


cases, the settled rule is that the burden of proving that the
termination was for a valid or authorized cause rests on the
employer.[28] Thus, private respondents must not merely rely
on the weaknesses of petitioners evidence but must stand on
the merits of their own defense.

himself with the assistance of a representative, if he so


desires.[33] This is in consonance with the express provision of
the law on the protection to labor and the broader dictates of
procedural due process.[34] Non-compliance therewith is fatal
because these requirements are conditions sine quo
non before dismissal may be validly effected.[35]

The issue being the legality of petitioners dismissal, the


same must be measured against the requisites for a valid
dismissal, namely: (a) the employee must be afforded due
process, i.e., he must be given an opportunity to be heard
and to defend himself, and; (b) the dismissal must be for a
valid cause as provided in Article 282 of the Labor Code.
[29]
Without the concurrence of this twin requirements, the
termination would, in the eyes of the law, be illegal. [30]

Private respondent failed to substantially comply with the


above requirements. With regard to the first notice, the
letter,[36] dated 17 October 1991, which notified petitioner
and his wife to attend the meeting on 21 October 1991,
cannot be construed as the written charge required by law. A
perusal of the said letter reveals that it never categorically
stated the particular acts or omissions on which petitioners
impending termination was grounded. In fact, the letter
never even mentioned that petitioner would be subject to
investigation. The letter merely mentioned that petitioner
and his wife were invited to a meeting wherein what would
be discussed were the alleged unremitted church tithes and
the events that transpired on 16 October 1991. Thus,
petitioner was surprised to find out that the alleged meeting
turned out to be an investigation. From the tenor of the
letter, it cannot be presumed that petitioner was actually on
the verge of dismissal. The alleged grounds for the dismissal
of petitioner from the service were only revealed to him when
the actual letter of dismissal was finally issued. For this
reason, it cannot be said that petitioner was given enough
opportunity to properly prepare for his defense. While
admittedly, private respondents complied with the second
requirement, the notice of termination, this does not cure the
initial defect of lack of the proper written charge required by
law.

Before the services of an employee can be validly


terminated, Article 277 (b) of the Labor Code and Section 2,
Rule XXIII, Book V of the Rules Implementing the Labor Code
further require the employer to furnish the employee with
two (2) written notices, to wit: (a) a written notice served on
the employee specifying the ground or grounds for
termination, and giving to said employee reasonable
opportunity within which to explain his side; and, (b) a
written notice of termination served on the employee
indicating that upon due consideration of all the
circumstances, grounds have been established to justify his
termination.
The first notice, which may be considered as the proper
charge, serves to apprise the employee of the particular acts
or omissions for which his dismissal is sought. [31] The second
notice on the other hand seeks to inform the employee of the
employers decision to dismiss him. [32] This decision, however,
must come only after the employee is given a reasonable
period from receipt of the first notice within which to answer
the charge and ample opportunity to be heard and defend

In the letter of termination,[37] dated 29 October 1991,


private respondents enumerated the following as grounds for
the dismissal of petitioner, namely: misappropriation of

denominational funds, willful breach of trust, serious


misconduct, gross and habitual neglect of duties, and
commission of an offense against the person of employers
duly authorized representative. Breach of trust and
misappropriation of denominational funds refer to the alleged
failure of petitioner to remit to the treasurer of the Negros
Mission tithes, collections and offerings amounting to
P15,078.10 which were collected by his wife, Mrs. Thelma
Austria, in the churches under his jurisdiction. On the other
hand, serious misconduct and commission of an offense
against the person of the employers duly authorized
representative pertain to the 16 October 1991 incident
wherein petitioner allegedly committed an act of violence in
the office of Pastor Gideon Buhat. The final ground invoked
by private respondents is gross and habitual neglect of duties
allegedly committed by petitioner.
We cannot sustain the validity of dismissal based on the
ground of breach of trust. Private respondents allege that
they have lost their confidence in petitioner for his failure,
despite demands, to remit the tithes and offerings amounting
to P15,078.10, which were collected in his district. A careful
study of the voluminous records of the case reveals that
there is simply no basis for the alleged loss of confidence and
breach of trust. Settled is the rule that under Article 282 (c)
of the Labor Code, the breach of trust must be willful. A
breach is willful if it is done intentionally, knowingly and
purposely, without justifiable excuse, as distinguished from
an act done carelessly, thoughtlessly, heedlessly or
inadvertently.[38] It must rest on substantial grounds and not
on the employers arbitrariness, whims, caprices or suspicion;
otherwise, the employee would eternally remain at the mercy
of the employer.[39] It should be genuine and not simulated.
[40]
This ground has never been intended to afford an occasion
for abuse, because of its subjective nature. The records show
that there were only six (6) instances when petitioner

personally collected and received from the church treasurers


the tithes, collections, and donations for the church. [41] The
stenographic notes on the testimony of Naomi Geniebla, the
Negros Mission Church Auditor and a witness for private
respondents, show that Pastor Austria was able to remit all
his collections to the treasurer of the Negros Mission. [42]
Though private respondents were able to establish that
petitioner collected and received tithes and donations several
times, they were not able to establish that petitioner failed to
remit the same to the Negros Mission, and that he pocketed
the amount and used it for his personal purpose. In fact, as
admitted by their own witness, Naomi Geniebla, petitioner
remitted the amounts which he collected to the Negros
Mission for which corresponding receipts were issued to
him. Thus, the allegations of private respondents that
petitioner breached their trust have no leg to stand on.
In a vain attempt to support their claim of breach of trust,
private respondents try to pin on petitioner the alleged nonremittance of the tithes collected by his wife. This argument
deserves little consideration. First of all, as proven by
convincing and substantial evidence consisting of the
testimonies of the witnesses for private respondents who are
church treasurers, it was Mrs. Thelma Austria who actually
collected the tithes and donations from them, and, who failed
to remit the same to the treasurer of the Negros Mission. The
testimony of these church treasurers were corroborated and
confirmed by Ms. Geniebla and Mr. Ibesate, officers of the
SDA. Hence, in the absence of conspiracy and collusion,
which private respondents failed to demonstrate, between
petitioner and his wife, petitioner cannot be made
accountable for the alleged infraction committed by his
wife. After all, they still have separate and distinct
personalities. For this reason, the Labor Arbiter found it
difficult to see the basis for the alleged loss of confidence

and breach of trust. The Court does not find any cogent
reason, therefore, to digress from the findings of the Labor
Arbiter which is fully supported by the evidence on record.
With respect to the grounds of serious misconduct and
commission of an offense against the person of the
employers duly authorized representative, we find the same
unmeritorious and, as such, do not warrant petitioners
dismissal from the service.
Misconduct has been defined as 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.[43] For misconduct to be considered serious
it must be of such grave and aggravated character and not
merely trivial or unimportant. [44] Based on this standard, we
believe that the act of petitioner in banging the attache case
on the table, throwing the telephone and scattering the
books in the office of Pastor Buhat, although improper,
cannot be considered as grave enough to be considered as
serious misconduct. After all, as correctly observed by the
Labor Arbiter, though petitioner committed damage to
property, he did not physically assault Pastor Buhat or any
other pastor present during the incident of 16 October
1991. In fact, the alleged offense committed upon the person
of the employers representatives was never really
established or proven by private respondents. Hence, there is
no basis for the allegation that petitioners act constituted
serious misconduct or that the same was an offense against
the
person
of
the
employers
duly
authorized
representative. As such, the cited actuation of petitioner does
not justify the ultimate penalty of dismissal from
employment. While the Constitution does not condone
wrongdoing by the employee, it nevertheless urges a
moderation of the sanctions that may be applied to him in

light of the many disadvantages that weigh heavily on him


like an albatross on his neck.[45] Where a penalty less punitive
would suffice, whatever missteps may have been committed
by the worker ought not be visited with a consequence so
severe such as dismissal from employment.[46] For the
foregoing reasons, we believe that the minor infraction
committed by petitioner does not merit the ultimate penalty
of dismissal.
The final ground alleged by private respondents in
terminating petitioner, gross and habitual neglect of duties,
does not requires an exhaustive discussion. Suffice it to say
that all private respondents had were allegations but not
proof. Aside from merely citing the said ground, private
respondents failed to prove culpability on the part of
petitioner. In fact, the evidence on record shows
otherwise. Petitioners rise from the ranks disclose that he
was actually a hard-worker. Private respondents evidence,
[47]
which consisted of petitioners Workers Reports, revealed
how petitioner travelled to different churches to attend to the
faithful under his care. Indeed, he labored hard for the SDA,
but, in return, he was rewarded with a dismissal from the
service for a non-existent cause.
In view of the foregoing, we sustain the finding of the
Labor Arbiter that petitioner was terminated from service
without just or lawful cause. Having been illegally dismissed,
petitioner is entitled to reinstatement to his former position
without loss of seniority right[48] and the payment of full
backwages without any deduction corresponding to the
period from his illegal dismissal up to actual reinstatement. [49]
WHEREFORE, the petition for certiorari is GRANTED. The
challenged Resolution of public respondent National Labor
Relations Commission, rendered on 23 January 1996, is
NULLIFIED and SET ASIDE.The Decision of the Labor Arbiter,

dated 15 February 1993, is reinstated and hereby AFFIRMED.


SO ORDERED.
THIRD DIVISION
G.R. No. L-72654-61 January 22, 1990
ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON,
LAURENTE BAUTU, JAIME BARBIN, NICANOR
FRANCISCO, PHILIP CERVANTES and ELEUTERIO
BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE
GUZMAN FISHING ENTERPRISES and/or ARSENIO DE
GUZMAN, respondents.
J.C. Espinas & Associates for petitioners.
Tomas A. Reyes for private respondent.
FERNAN, C.J.:
The issue to be resolved in the instant case is whether or not
the fishermen-crew members of the trawl fishing vessel 7/B
Sandyman II are employees of its owner-operator, De
Guzman Fishing Enterprises, and if so, whether or not they
were illegally dismissed from their employment.
Records show that the petitioners were the fishermen-crew
members of 7/B Sandyman II, one of several fishing vessels
owned and operated by private respondent De Guzman
Fishing Enterprises which is primarily engaged in the fishing
business with port and office at Camaligan, Camarines Sur.
Petitioners rendered service aboard said fishing vessel in
various capacities, as follows: Alipio Ruga and Jose Parma
patron/pilot; Eladio Calderon, chief engineer; Laurente Bautu,
second engineer; Jaime Barbin, master fisherman; Nicanor

Francisco, second fisherman; Philip Cervantes and Eleuterio


Barbin, fishermen.
For services rendered in the conduct of private respondent's
regular business of "trawl" fishing, petitioners were paid on
percentage commission basis in cash by one Mrs. Pilar de
Guzman, cashier of private respondent. As agreed upon, they
received thirteen percent (13%) of the proceeds of the sale of
the fish-catch if the total proceeds exceeded the cost of
crude oil consumed during the fishing trip, otherwise, they
received ten percent (10%) of the total proceeds of the sale.
The patron/pilot, chief engineer and master fisherman
received a minimum income of P350.00 per week while the
assistant engineer, second fisherman, and fishermanwinchman received a minimum income of P260.00 per
week. 1
On September 11, 1983 upon arrival at the fishing port,
petitioners were told by Jorge de Guzman, president of
private respondent, to proceed to the police station at
Camaligan, Camarines Sur, for investigation on the report
that they sold some of their fish-catch at midsea to the
prejudice of private respondent. Petitioners denied the
charge claiming that the same was a countermove to their
having formed a labor union and becoming members of
Defender of Industrial Agricultural Labor Organizations and
General Workers Union (DIALOGWU) on September 3, 1983.
During the investigation, no witnesses were presented to
prove the charge against petitioners, and no criminal charges
were formally filed against them. Notwithstanding, private
respondent refused to allow petitioners to return to the
fishing vessel to resume their work on the same day,
September 11, 1983.
On September 22, 1983, petitioners individually filed their
complaints for illegal dismissal and non-payment of 13th

month pay, emergency cost of living allowance and service


incentive pay, with the then Ministry (now Department) of
Labor and Employment, Regional Arbitration Branch No. V,
Legaspi City, Albay, docketed as Cases Nos. 1449-83 to 145683. 2 They uniformly contended that they were arbitrarily
dismissed without being given ample time to look for a new
job.
On October 24, 1983, private respondent, thru its operations
manager, Conrado S. de Guzman, submitted its position
paper denying the employer-employee relationship between
private respondent and petitioners on the theory that private
respondent and petitioners were engaged in a joint venture. 3
After the parties failed to reach an amicable settlement, the
Labor Arbiter scheduled the case for joint hearing furnishing
the parties with notice and summons. On December 27,
1983, after two (2) previously scheduled joint hearings were
postponed due to the absence of private respondent, one of
the petitioners herein, Alipio Ruga, the pilot/captain of the
7/B Sandyman II, testified, among others, on the manner the
fishing operations were conducted, mode of payment of
compensation for services rendered by the fishermen-crew
members, and the circumstances leading to their dismissal. 4
On March 31, 1984, after the case was submitted for
resolution, Labor Arbiter Asisclo S. Coralde rendered a joint
decision 5 dismissing all the complaints of petitioners on a
finding that a "joint fishing venture" and not one of employeremployee relationship existed between private respondent
and petitioners.
From the adverse decision against them, petitioners
appealed to the National Labor Relations Commission.
On May 30, 1985, the National Labor Relations Commission
promulgated its resolution 6 affirming the decision of the

labor arbiter that a "joint fishing venture" relationship existed


between private respondent and petitioners.
Hence, the instant petition.
Petitioners assail the ruling of the public respondent NLRC
that what exists between private respondent and petitioners
is a joint venture arrangement and not an employeremployee relationship. To stress that there is an employeremployee relationship between them and private respondent,
petitioners invite attention to the following: that they were
directly hired by private respondent through its general
manager, Arsenio de Guzman, and its operations manager,
Conrado de Guzman; that, except for Laurente Bautu, they
had been employed by private respondent from 8 to 15 years
in various capacities; that private respondent, through its
operations manager, supervised and controlled the conduct
of their fishing operations as to the fixing of the schedule of
the fishing trips, the direction of the fishing vessel, the
volume or number of tubes of the fish-catch the time to
return to the fishing port, which were communicated to the
patron/pilot by radio (single side band); that they were not
allowed to join other outfits even the other vessels owned by
private respondent without the permission of the operations
manager; that they were compensated on percentage
commission basis of the gross sales of the fish-catch which
were delivered to them in cash by private respondent's
cashier, Mrs. Pilar de Guzman; and that they have to follow
company policies, rules and regulations imposed on them by
private respondent.
Disputing the finding of public respondent that a "joint fishing
venture" exists between private respondent and petitioners,
petitioners claim that public respondent exceeded its
jurisdiction and/or abused its discretion when it added facts
not contained in the records when it stated that the pilotcrew members do not receive compensation from the boat-

owners except their share in the catch produced by their own


efforts; that public respondent ignored the evidence of
petitioners that private respondent controlled the fishing
operations; that public respondent did not take into account
established jurisprudence that the relationship between the
fishing boat operators and their crew is one of direct
employer and employee.
Aside from seeking the dismissal of the petition on the
ground that the decision of the labor arbiter is now final and
executory for failure of petitioners to file their appeal with the
NLRC within 10 calendar days from receipt of said decision
pursuant to the doctrine laid down in Vir-Jen Shipping and
Marine Services, Inc. vs. NLRC, 115 SCRA 347 (1982), the
Solicitor General claims that the ruling of public respondent
that a "joint fishing venture" exists between private
respondent and petitioners rests on the resolution of the
Social Security System (SSS) in a 1968 case, Case No. 708
(De Guzman Fishing Enterprises vs. SSS), exempting De
Guzman Fishing Enterprises, private respondent herein, from
compulsory coverage of the SSS on the ground that there is
no employer-employee relations between the boat-owner and
the fishermen-crew members following the doctrine laid
down inPajarillo vs. SSS, 17 SCRA 1014 (1966). In applying to
the case at bar the doctrine in Pajarillo vs. SSS, supra, that
there is no employer-employee relationship between the
boat-owner and the pilot and crew members when the boatowner supplies the boat and equipment while the pilot and
crew members contribute the corresponding labor and the
parties get specific shares in the catch for their respective
contribution to the venture, the Solicitor General pointed out
that the boat-owners in the Pajarillo case, as in the case at
bar, did not control the conduct of the fishing operations and
the pilot and crew members shared in the catch.
We rule in favor of petitioners.

Fundamental considerations of substantial justice persuade


Us to decide the instant case on the merits rather than to
dismiss it on a mere technicality. In so doing, we exercise the
prerogative accorded to this Court enunciated in Firestone
Filipinas Employees Association, et al. vs. Firestone Tire and
Rubber Co. of the Philippines, Inc., 61 SCRA 340 (1974), thus
"the well-settled doctrine is that in labor cases before this
Tribunal, no undue sympathy is to be accorded to any claim
of a procedural misstep, the idea being that its power be
exercised according to justice and equity and substantial
merits of the controversy."
Circumstances peculiar to some extent to fishermen-crew
members of a fishing vessel regularly engaged in trawl
fishing, as in the case of petitioners herein, who spend one
(1) whole week or more 7 in the open sea performing their job
to earn a living to support their families, convince Us to adopt
a more liberal attitude in applying to petitioners the 10calendar day rule in the filing of appeals with the NLRC from
the decision of the labor arbiter.
Records reveal that petitioners were informed of the labor
arbiter's decision of March 31, 1984 only on July 3,1984 by
their non-lawyer representative during the arbitration
proceedings, Jose Dialogo who received the decision eight (8)
days earlier, or on June 25, 1984. As adverted to earlier, the
circumstances peculiar to petitioners' occupation as
fishermen-crew members, who during the pendency of the
case understandably have to earn a living by seeking
employment elsewhere, impress upon Us that in the ordinary
course of events, the information as to the adverse decision
against them would not reach them within such time frame
as would allow them to faithfully abide by the 10-calendar
day appeal period. This peculiar circumstance and the fact
that their representative is a non-lawyer provide equitable
justification to conclude that there is substantial compliance

with the ten-calendar day rule of filing of appeals with the


NLRC when petitioners filed on July 10, 1984, or seven (7)
days after receipt of the decision, their appeal with the NLRC
through registered mail.
We have consistently ruled that in determining the existence
of an employer-employee relationship, the elements that are
generally considered are the following (a) the selection and
engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to
control the employee with respect to the means and methods
by which the work is to be accomplished. 8 The employment
relation arises from contract of hire, express or implied. 9 In
the absence of hiring, no actual employer-employee relation
could exist.
From the four (4) elements mentioned, We have generally
relied on the so-called right-of-control test 10 where the
person for whom the services are performed reserves a right
to control not only the end to be achieved but also the means
to be used in reaching such end. The test calls merely for the
existence of the right to control the manner of doing the
work, not the actual exercise of the right. 11
The case of Pajarillo vs. SSS, supra, invoked by the public
respondent as authority for the ruling that a "joint fishing
venture" existed between private respondent and petitioners
is not applicable in the instant case. There is neither light of
control nor actual exercise of such right on the part of the
boat-owners in the Pajarillo case, where the Court found that
the pilots therein are not under the order of the boat-owners
as regards their employment; that they go out to sea not
upon directions of the boat-owners, but upon their own
volition as to when, how long and where to go fishing; that
the boat-owners do not in any way control the crew-members
with whom the former have no relationship whatsoever; that
they simply join every trip for which the pilots allow them,

without any reference to the owners of the vessel; and that


they only share in their own catch produced by their own
efforts.
The aforementioned circumstances obtaining in Pajarillo case
do not exist in the instant case. The conduct of the fishing
operations was undisputably shown by the testimony of
Alipio Ruga, the patron/pilot of 7/B Sandyman II, to be under
the control and supervision of private respondent's
operations manager. Matters dealing on the fixing of the
schedule of the fishing trip and the time to return to the
fishing port were shown to be the prerogative of private
respondent. 12 While performing the fishing operations,
petitioners received instructions via a single-side band radio
from private respondent's operations manager who called the
patron/pilot in the morning. They are told to report their
activities, their position, and the number of tubes of fishcatch in one day. 13 Clearly thus, the conduct of the fishing
operations was monitored by private respondent thru the
patron/pilot of 7/B Sandyman II who is responsible for
disseminating the instructions to the crew members.
The conclusion of public respondent that there had been no
change in the situation of the parties since 1968 when De
Guzman Fishing Enterprises, private respondent herein,
obtained a favorable judgment in Case No. 708 exempting it
from compulsory coverage of the SSS law is not supported by
evidence on record. It was erroneous for public respondent to
apply the factual situation of the parties in the 1968 case to
the instant case in the light of the changes in the conditions
of employment agreed upon by the private respondent and
petitioners as discussed earlier.
Records show that in the instant case, as distinguished from
the Pajarillo case where the crew members are under no
obligation to remain in the outfit for any definite period as
one can be the crew member of an outfit for one day and be

the member of the crew of another vessel the next day, the
herein petitioners, on the other hand, were directly hired by
private respondent, through its general manager, Arsenio de
Guzman, and its operations manager, Conrado de Guzman
and have been under the employ of private respondent for a
period of 8-15 years in various capacities, except for
Laurente Bautu who was hired on August 3, 1983 as assistant
engineer. Petitioner Alipio Ruga was hired on September 29,
1974 as patron/captain of the fishing vessel; Eladio Calderon
started as a mechanic on April 16, 1968 until he was
promoted as chief engineer of the fishing vessel; Jose Parma
was employed on September 29, 1974 as assistant engineer;
Jaime Barbin started as a pilot of the motor boat until he was
transferred as a master fisherman to the fishing vessel 7/B
Sandyman II; Philip Cervantes was hired as winchman on
August 1, 1972 while Eleuterio Barbin was hired as winchman
on April 15, 1976.
While tenure or length of employment is not considered as
the test of employment, nevertheless the hiring of petitioners
to perform work which is necessary or desirable in the usual
business or trade of private respondent for a period of 8-15
years since 1968 qualify them as regular employees within
the meaning of Article 281 of the Labor Code as they were
indeed engaged to perform activities usually necessary or
desirable in the usual fishing business or occupation of
private respondent. 14
Aside from performing activities usually necessary and
desirable in the business of private respondent, it must be
noted that petitioners received compensation on a
percentage commission based on the gross sale of the fishcatch i.e. 13% of the proceeds of the sale if the total
proceeds exceeded the cost of the crude oil consumed during
the fishing trip, otherwise only 10% of the proceeds of the
sale. Such compensation falls within the scope and meaning

of the term "wage" as defined under Article 97(f) of the Labor


Code, thus:
(f) "Wage" paid to any employee shall mean 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, and included the fair and reasonable
value, as determined by the Secretary of Labor,
of board, lodging, or other facilities customarily
furnished by the employer to the employee. . . .
The claim of private respondent, which was given credence
by public respondent, that petitioners get paid in the form of
share in the fish-catch which the patron/pilot as head of the
team distributes to his crew members in accordance with
their own understanding 15 is not supported by recorded
evidence. Except that such claim appears as an allegation in
private respondent's position paper, there is nothing in the
records showing such a sharing scheme as preferred by
private respondent.
Furthermore, the fact that on mere suspicion based on the
reports that petitioners allegedly sold their fish-catch at
midsea without the knowledge and consent of private
respondent, petitioners were unjustifiably not allowed to
board the fishing vessel on September 11, 1983 to resume
their activities without giving them the opportunity to air
their side on the accusation against them unmistakably
reveals the disciplinary power exercised by private
respondent over them and the corresponding sanction
imposed in case of violation of any of its rules and

regulations. The virtual dismissal of petitioners from their


employment was characterized by undue haste when less
extreme measures consistent with the requirements of due
process should have been first exhausted. In that sense, the
dismissal of petitioners was tainted with illegality.
Even on the assumption that petitioners indeed sold the fishcatch at midsea the act of private respondent virtually
resulting in their dismissal evidently contradicts private
respondent's theory of "joint fishing venture" between the
parties herein. A joint venture, including partnership,
presupposes generally a parity of standingbetween the joint
co-venturers or partners, in which each party has an equal
proprietary interest in the capital or property
contributed 16 and where each party exercises equal lights in
the conduct of the business. 17 It would be inconsistent with
the principle of parity of standing between the joint coventurers as regards the conduct of business, if private
respondent would outrightly exclude petitioners from the
conduct of the business without first resorting to other
measures consistent with the nature of a joint venture
undertaking, Instead of arbitrary unilateral action, private
respondent should have discussed with an open mind the
advantages and disadvantages of petitioners' action with its
joint co-venturers if indeed there is a "joint fishing venture"
between the parties. But this was not done in the instant
case. Petitioners were arbitrarily dismissed notwithstanding
that no criminal complaints were filed against them. The
lame excuse of private respondent that the non-filing of the
criminal complaints against petitioners was for humanitarian
reasons will not help its cause either.
We have examined the jurisprudence on the matter and find
the same to be supportive of petitioners' stand. InNegre
vs. WCC 135 SCRA 653 (1985), we held that fishermen crew
members who were recruited by one master fisherman

locally known as "maestro" in charge of recruiting others to


complete the crew members are considered employees, not
industrial partners, of the boat-owners. In an earlier case
of Abong vs. WCC, 54 SCRA 379 (1973) where petitioner
therein, Dr. Agustin Abong, owner of the fishing boat, claimed
that he was not the employer of the fishermen crew
members because of an alleged partnership agreement
between him, as financier, and Simplicio Panganiban, as his
team leader in charge of recruiting said fishermen to work for
him, we affirmed the finding of the WCC that there existed an
employer-employee relationship between the boat-owner and
the fishermen crew members not only because they worked
for and in the interest of the business of the boat-owner but
also because they were subject to the control, supervision
and dismissal of the boat-owner, thru its agent, Simplicio
Panganiban, the alleged "partner" of Dr. Abong; that while
these fishermen crew members were paid in kind, or by
"pakiao basis" still that fact did not alter the character of
their relationship with Dr. Abong as employees of the latter.
In Philippine Fishing Boat Officers and Engineers Union
vs. Court of Industrial Relations, 112 SCRA 159 (1982), we
held that the employer-employee relationship between the
crew members and the owners of the fishing vessels
engaged in deep sea fishing is merely suspended during the
time the vessels are drydocked or undergoing repairs or
being loaded with the necessary provisions for the next
fishing trip. The said ruling is premised on the principle that
all these activities i.e., drydock, repairs, loading of necessary
provisions, form part of the regular operation of the company
fishing business.
WHEREFORE, in view of the foregoing, the petition is
GRANTED. The questioned resolution of the National Labor
Relations Commission dated May 30,1985 is hereby
REVERSED and SET ASIDE. Private respondent is ordered to

reinstate petitioners to their former positions or any


equivalent positions with 3-year backwages and other
monetary benefits under the law. No pronouncement as to
costs.
SO ORDERED.

THIRD DIVISION
[G.R. No. 121948. October 8, 2001]
PERPETUAL
HELP
CREDIT
COOPERATIVE,
INC., petitioner, vs. BENEDICTO
FABURADA,
SISINITA
VILLAR, IMELDA TAMAYO, HAROLD CATIPAY, and the
NATIONAL LABOR RELATIONS COMMISSION, Fourth
Division, Cebu City, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:

On January 3, 1990, Benedicto Faburada, Sisinita Vilar, Imelda Tamayo


and Harold Catipay, private respondents, filed a complaint against the
Perpetual Help Credit Cooperative, Inc. (PHCCI), petitioner, with the
Arbitration Branch, Department of Labor and Employment (DOLE),
Dumaguete City, for illegal dismissal, premium pay on holidays and rest
days, separation pay, wage differential, moral damages, and attorneys fees.
Forthwith, petitioner PHCCI filed a motion to dismiss the complaint on
the ground that there is no employer-employee relationship between them as
private respondents are all members and co-owners of the
cooperative. Furthermore, private respondents have not exhausted the
remedies provided in the cooperative by-laws.
On September 3, 1990, petitioner filed a supplemental motion to dismiss
alleging that Article 121 of R.A. No. 6939, otherwise known as the
Cooperative Development Authority Law which took effect on March 26,
1990, requires conciliation or mediation within the cooperative before a
resort to judicial proceeding.
On the same date, the Labor Arbiter denied petitioner's motion to
dismiss, holding that the case is impressed with employer-employee
relationship and that the law on cooperatives is subservient to the Labor
Code.
On November 23, 1993, the Labor Arbiter rendered a decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
declaring complainants illegally dismissed, thus respondent is directed to pay
Complainants backwages computed from the time they were illegally
dismissed up to the actual reinstatement but subject to the three year
backwages rule, separation pay for one month for every year of service since
reinstatement is evidently not feasible anymore, to pay complainants 13th
month pay, wage differentials and Ten Percent (10%) attorneys fees from the
aggregate monetary award. However, complainant Benedicto Faburada shall
only be awarded what are due him in proportion to the nine and a half
months that he had served the respondent, he being a part-time employee.

All other claims are hereby dismissed for lack of merit.


The computation of the foregoing awards is hereto attached and forms an
integral part of this decision.
On appeal[1], the NLRC affirmed the Labor Arbiter's decision.
Hence, this petition by the PHCCI.
The issue for our resolution is whether or not respondent judge
committed grave abuse of discretion in ruling that there is an employeremployee relationship between the parties and that private respondents were
illegally dismissed.
Petitioner PHCCI contends that private respondents are its members and
are working for it as volunteers. Not being regular employees, they cannot
sue petitioner.
In determining the existence of an employer-employee relationship, the
following elements are considered: (1) the selection and engagement of the
worker or the power to hire; (2) the power to dismiss; (3) the payment of
wages by whatever means; and (4) the power to control the workers conduct,
with the latter assuming primacy in the overall consideration. No particular
form of proof is required to prove the existence of an employer-employee
relationship. Any competent and relevant evidence may show the
relationship.[2]
The above elements are present here. Petitioner PHCCI, through Mr.
Edilberto Lantaca, Jr., its Manager, hired private respondents to work for
it. They worked regularly on regular working hours, were assigned specific
duties, were paid regular wages and made to accomplish daily time records
just like any other regular employee. They worked under the supervision of
the cooperative manager. But unfortunately, they were dismissed.
That an employer-employee exists between the parties is shown by the
averments of private respondents in their respective affidavits, carefully

considered by respondent NLRC in affirming the Labor Arbiter's decision,


thus:
Benedicto Faburada -Regular part-time Computer programmer/
operator. Worked with the Cooperative since June 1, 1988 up to
December 29, 1989. Work schedule: Tuesdays and Thursdays, from
1:00 p.m. to 5:30 p.m. and every Saturday from 8:00 to 11:30 a.m. and
1:00 to 4:00 p.m. and for at least three (3 ) hours during
Sundays. Monthly salary: P1,000.00 -from June to December 1988;
P1,350.00 - from January to June 1989; and P1,500.00 from July to
December 1989. Duties: Among others, Enter data into the computer;
compute interests on savings deposits, effect mortuary deductions and
dividends on fixed deposits; maintain the masterlist of the cooperative
members; perform various forms for mimeographing; and perform such
other duties as may be assigned from time to time.
Sisinita Vilar -Clerk. Worked with the Cooperative since December 1,
1987 up to December 29, 1989. Work schedule: Regular working
hours. Monthly salary: P500.00 - from December 1, 1987 to December
31, 1988; P1,000.00 - from January 1, 1989 to June 30, 1989; and
P1,150.00 - from July 1, 1989 to December 31, 1989. Duties: Among
others, Prepare summary of salary advances, journal vouchers, daily
summary of disbursements to respective classifications; schedule loans;
prepare checks and cash vouchers for regular and emergency loans;
reconcile bank statements to the daily summary of disbursements; post
the monthly balance of fixed and savings deposits in preparation for the
computation of interests, dividends, mortuary and patronage funds;
disburse checks during regular and emergency loans; and perform such
other bookkeeping and accounting duties as may be assigned to her
from time to time.
Imelda C. Tamayo - Clerk. Worked with the Cooperative since October
19, 1987 up to December 29, 1989. Work schedule: Monday to Friday 8:00 to 11:30 a.m and 2:00 to 5:30 p.m.; every Saturday - 8:00 to 11:30
a.m and 1:00 to 4:00 p.m; and for one Sunday each month - for at least
three (3) hours. Monthly salary: P60.00 - from October to November
1987; P250.00 for December 1987; P500.00 - from January to

December 1988; P950 - from January to June 1989; and P1,000.00 from
July to December 1989. Duties: Among others, pick up balances for the
computation of interests on savings deposit, mortuary, dividends and
patronage funds; prepare cash vouchers; check petty cash vouchers; take
charge of the preparation of new passbooks and ledgers for new
applicants; fill up members logbook of regular depositors, junior
depositors and special accounts; take charge of loan releases every
Monday morning; assist in the posting and preparation of deposit slips;
receive deposits from members; and perform such other bookkeeping
and accounting duties as may be assigned her from time to time.
Harold D. Catipay - Clerk. Worked with the Cooperative since March
3 to December 29, 1989. Work schedule: - Monday to Friday - 8:00 to
11:30 a.m. and 2:00 to 5:30 p.m.; Saturday - 8:00 to 11:30 a.m. and 1:00
to 4:00 p.m.; and one Sunday each month - for at least three (3)
hours. Monthly salary: P900.00 - from March to June 1989; P1,050.00 from July to December 1989. Duties: Among others, Bookkeeping,
accounting and collecting duties, such as, post daily collections from the
two (2) collectors in the market; reconcile passbooks and ledgers of
members in the market; and assist the other clerks in their duties.
All of them were given a memorandum of termination on January 2,
1990, effective December 29, 1989.
We are not prepared to disregard the findings of both the Labor Arbiter
and respondent NLRC, the same being supported by substantial evidence,
that quantum of evidence required in quasi-judicial proceedings, like this
one..
Necessarily, this leads us to the issue of whether or not private
respondents are regular employees. Article 280 of the Labor Code provides
for three kinds of employees: (1) regular employees or those who have been
engaged to perform activities which are usually necessary or desirable in the
usual business or trade of the employer; (2) project employees or those
whose employment has been fixed for a specific project or undertaking, the
completion or termination of which has been determined at the time of the
engagement of the employee or where the work or service to be performed is

seasonal in nature and the employment is for the duration of the season; and
(3) casual employees or those who are neither regular nor project employees.
[3]
The employees who are deemed regular are: (a) those who have been
engaged to perform activities which are usually necessary or desirable in the
usual trade or business of the employer; and (b) those casual employees who
have rendered at least one (1) year of service, whether such service is
continuous or broken, with respect to the activity in which they are
employed.[4] Undeniably, private respondents were rendering services
necessary to the day-to-day operations of petitioner PHCCI. This fact alone
qualified them as regular employees.
All of them, except Harold D. Catipay, worked with petitioner for more
than one (1) year: Benedicto Faburada, for one and a half (1 1/2) years;
Sisinita Vilar, for two (2) years; and Imelda C. Tamayo, for two (2) years and
two (2) months. That Benedicto Faburada worked only on a part-time basis,
does not mean that he is not a regular employee. Ones regularity of
employment is not determined by the number of hours one works but by the
nature and by the length of time one has been in that particular job.
[5]
Petitioner's contention that private respondents are mere volunteer
workers, not regular employees, must necessarily fail. Its invocation of San
Jose City Electric Cooperative vs. Ministry of Labor and Employment (173
SCRA 697, 703 (1989 ) is misplaced. The issue in this case is whether or not
the employees-members of a cooperative can organize themselves for
purposes of collective bargaining, not whether or not the members can be
employees. Petitioner missed the point.
As regular employees or workers, private respondents are entitled to
security of tenure. Thus, their services may be terminated only for a valid
cause, with observance of due process.
The valid causes are categorized into two groups: the just causes under
Articles 282 of the Labor Code and the authorized causes under Articles 283
and 284 of the same Code. The just causes are: (1) serious misconduct or
willful disobedience of lawful orders in connection with the employees work;
(2) gross or habitual neglect of duties; (3) fraud or willful breach of trust; (4)
commission of a crime or an offense against the person of the employer or
his immediate family member or representative; and, analogous cases. The

authorized causes are: (1) the installation of labor-saving devices; (2)


redundancy; (3) retrenchment to prevent losses; and (4) closing or cessation
of operations of the establishment or undertaking, unless the closing is for the
purpose of circumventing the provisions of law. Article 284 provides that an
employer would be authorized to terminate the services of an employee
found to be suffering from any disease if the employees continued
employment is prohibited by law or is prejudicial to his health or to the
health of his fellow employees[6]
Private respondents were dismissed not for any of the above
causes. They were dismissed because petitioner considered them to be mere
voluntary workers, being its members, and as such work at its
pleasure.Petitioner thus vehemently insists that their dismissal is not against
the law.
Procedural due process requires that the employer serve the employees
to be dismissed two (2) written notices before the termination of their
employment is effected: (a) the first, to apprise them of the particular acts or
omissions for which their dismissal is sought and (b) the second, to inform
them of the decision of the employer that they are being dismissed. [7] In this
case, only one notice was served upon private respondents by petitioner. It
was in the form of a Memorandum signed by the Manager of the Cooperative
dated January 2, 1990 terminating their services effective December 29,
1989. Clearly, petitioner failed to comply with the twin requisites of a valid
notice.
We hold that private respondents have been illegally dismissed.
Petitioner contends that the labor arbiter has no jurisdiction to take
cognizance of the complaint of private respondents considering that they
failed to submit their dispute to the grievance machinery as required by P.D
175 (strengthening the Cooperative Movement) [8] and its implementing rules
and regulations under LOI 23. Likewise, the Cooperative Development
Authority did not issue a Certificate of Non-Resolution pursuant to Section 8
of R.A. 6939 or the Cooperative Development Authority Law.

As aptly stated by the Solicitor General in his comment, P.D. 175 does
not provide for a grievance machinery where a dispute or claim may first be
submitted. LOI 23 refers to instructions to the Secretary of Public Works and
Communications to implement immediately the recommendation of the
Postmaster General for the dismissal of some employees of the Bureau of
Post. Obviously, this LOI has no relevance to the instant case.
Article 121 of Republic Act No. 6938 (Cooperative Code of the
Philippines) provides the procedure how cooperative disputes are to be
resolved, thus:
ART. 121. Settlement of Disputes.- Disputes among members, officers,
directors, and committee members, and intra-cooperative disputes shall, as
far as practicable, be settled amicably in accordance with the conciliation or
mediation mechanisms embodied in the bylaws of the cooperative, and in
applicable laws.
Should such a conciliation/mediation proceeding fail, the matter shall be
settled in a court of competent jurisdiction.
Complementing this Article is Section 8 of R.A. No. 6939 (Cooperative
Development Authority Law) which reads:
SEC. 8 Mediation and Conciliation.- Upon request of either or both parties,
the Authority shall mediate and conciliate disputes within a cooperative or
between cooperatives: Provided, That if no mediation or conciliation
succeeds within three (3) months from request thereof, a certificate of nonresolution shall be issued by the Commission prior to the filing of
appropriate action before the proper courts.
The above provisions apply to members, officers and directors of the
cooperative involved in disputes within a cooperative or between
cooperatives.
There is no evidence that private respondents are members of petitioner
PHCCI and even if they are, the dispute is about payment of wages, overtime
pay, rest day and termination of employment. Under Art. 217 of the Labor

Code, these disputes are within the original and exclusive jurisdiction of the
Labor Arbiter.
As illegally dismissed employees, private respondents are therefore
entitled to reinstatement without loss of seniority rights and other privileges
and to full backwages, inclusive of allowances, plus other benefits or their
monetary equivalent computed from the time their compensation was witheld
from them up to the time of their actual reinstatement. [9] Since they were
dismissed after March 21, 1989, the effectivity date of R.A. 6715 [10] they are
granted full backwages, meaning, without deducting from their backwages
the earnings derived by them elsewhere during the period of their illegal
dismissal.[11] If reinstatement is no longer feasible, as when the relationship
between petitioner and private respondents has become strained, payment of
their separation pay in lieu of reinstatement is in order.[12]
WHEREFORE, the petition is hereby DENIED. The decision of
respondent NLRC is AFFIRMED, with modification in the sense that the
backwages due private respondents shall be paid in full, computed from the
time they were illegally dismissed up to the time of the finality of this
Decision.[13]
SO ORDERED.

The case stemmed from the following facts:

SECOND DIVISION
[G.R. No. 146530. January 17, 2005]
PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, SUPREME PACKAGING, INC. and ALVIN
LEE, Plant Manager, respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari of the
Resolution[1] dated December 15, 2000 of the Court of Appeals (CA)
reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485.
The assailed resolution reinstated the Decision dated July 10, 1998 of
the National Labor Relations Commission (NLRC), dismissing the
complaint for illegal dismissal filed by herein petitioner Pedro Chavez.
The said NLRC decision similarly reversed its earlier Decision dated
January 27, 1998 which, affirming that of the Labor Arbiter, ruled that
the petitioner had been illegally dismissed by respondents Supreme
Packaging, Inc. and Mr. Alvin Lee.

The respondent company, Supreme Packaging, Inc., is in the


business of manufacturing cartons and other packaging materials for
export and distribution. It engaged the services of the petitioner, Pedro
Chavez, as truck driver on October 25, 1984. As such, the petitioner
was tasked to deliver the respondent companys products from its
factory in Mariveles, Bataan, to its various customers, mostly in Metro
Manila. The respondent company furnished the petitioner with a truck.
Most of the petitioners delivery trips were made at nighttime,
commencing at 6:00 p.m. from Mariveles, and returning thereto in the
afternoon two or three days after. The deliveries were made in
accordance with the routing slips issued by respondent company
indicating the order, time and urgency of delivery. Initially, the
petitioner was paid the sum of P350.00 per trip. This was later
adjusted to P480.00 per trip and, at the time of his alleged dismissal,
the petitioner was receivingP900.00 per trip.
Sometime in 1992, the petitioner expressed to respondent Alvin
Lee, respondent companys plant manager, his (the petitioners) desire
to avail himself of the benefits that the regular employees were
receiving such as overtime pay, nightshift differential pay, and 13th
month pay, among others. Although he promised to extend these
benefits to the petitioner, respondent Lee failed to actually do so.
On February 20, 1995, the petitioner filed a complaint for
regularization with the Regional Arbitration Branch No. III of the NLRC
in San Fernando, Pampanga. Before the case could be heard,
respondent company terminated the services of the petitioner.
Consequently, on May 25, 1995, the petitioner filed an amended
complaint against the respondents for illegal dismissal, unfair labor
practice and non-payment of overtime pay, nightshift differential pay,
13th month pay, among others. The case was docketed as NLRC
Case No. RAB-III-02-6181-95.
The respondents, for their part, denied the existence of an
employer-employee relationship between the respondent company

and the petitioner. They averred that the petitioner was an


independent contractor as evidenced by the contract of service which
he and the respondent company entered into. The said contract
provided as follows:
That the Principal [referring to Supreme Packaging, Inc.], by these presents,
agrees to hire and the Contractor [referring to Pedro Chavez], by nature of
their specialized line or service jobs, accepts the services to be rendered to
the Principal, under the following terms and covenants heretofore mentioned:
1. That the inland transport delivery/hauling activities to be
performed by the contractor to the principal, shall only
cover travel route from Mariveles to Metro Manila.
Otherwise, any change to this travel route shall be subject
to further agreement by the parties concerned.
2. That the payment to be made by the Principal for any
hauling or delivery transport services fully rendered by the
Contractor shall be on a per trip basis depending on the
size or classification of the truck being used in the
transport service, to wit:
a) If the hauling or delivery service shall require a truck of six
wheeler, the payment on a per trip basis from Mariveles to
Metro Manila shall be THREE HUNDRED PESOS
(P300.00) and EFFECTIVE December 15, 1984.
b) If the hauling or delivery service require a truck of ten wheeler,
the payment on a per trip basis, following the same route
mentioned, shall be THREE HUNDRED FIFTY (P350.00)
Pesos and Effective December 15, 1984.
3. That for the amount involved, the Contractor will be to [sic]
provide for [sic] at least two (2) helpers;
4. The Contractor shall exercise direct control and shall be
responsible to the Principal for the cost of any damage to,

loss of any goods, cargoes, finished products or the like,


while the same are in transit, or due to reckless [sic] of its
men utilized for the purpose above mentioned;
5. That the Contractor shall have absolute control and
disciplinary power over its men working for him subject to
this agreement, and that the Contractor shall hold the
Principal free and harmless from any liability or claim that
may arise by virtue of the Contractors non-compliance to
the existing provisions of the Minimum Wage Law, the
Employees Compensation Act, the Social Security System
Act, or any other such law or decree that may hereafter be
enacted, it being clearly understood that any truck drivers,
helpers or men working with and for the Contractor, are
not employees who will be indemnified by the Principal for
any such claim, including damages incurred in connection
therewith;
6. This contract shall take effect immediately upon the
signing by the parties, subject to renewal on a year-toyear basis.[2]
This contract of service was dated December 12, 1984. It was
subsequently renewed twice, on July 10, 1989 and September 28,
1992. Except for the rates to be paid to the petitioner, the terms of the
contracts were substantially the same. The relationship of the
respondent company and the petitioner was allegedly governed by
this contract of service.
The respondents insisted that the petitioner had the sole control
over the means and methods by which his work was accomplished.
He paid the wages of his helpers and exercised control over them. As
such, the petitioner was not entitled to regularization because he was
not an employee of the respondent company. The respondents,
likewise, maintained that they did not dismiss the petitioner. Rather,
the severance of his contractual relation with the respondent company
was due to his violation of the terms and conditions of their contract.

The petitioner allegedly failed to observe the minimum degree of


diligence in the proper maintenance of the truck he was using, thereby
exposing respondent company to unnecessary significant expenses of
overhauling the said truck.

a) Backwages .. P248,400.00
b) Separation Pay .... P140,400.00
c) 13th month pay .P 10,800.00

After the parties had filed their respective pleadings, the Labor
Arbiter rendered the Decision dated February 3, 1997, finding the
respondents guilty of illegal dismissal. The Labor Arbiter declared that
the petitioner was a regular employee of the respondent company as
he was performing a service that was necessary and desirable to the
latters business. Moreover, it was noted that the petitioner had
discharged his duties as truck driver for the respondent company for a
continuous and uninterrupted period of more than ten years.
The contract of service invoked by the respondents was declared
null and void as it constituted a circumvention of the constitutional
provision affording full protection to labor and security of tenure. The
Labor Arbiter found that the petitioners dismissal was anchored on his
insistent demand to be regularized. Hence, for lack of a valid and just
cause therefor and for their failure to observe the due process
requirements, the respondents were found guilty of illegal dismissal.
The dispositive portion of the Labor Arbiters decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby rendered
declaring respondent SUPREME PACKAGING, INC. and/or MR. ALVIN
LEE, Plant Manager, with business address at BEPZ, Mariveles, Bataan
guilty of illegal dismissal, ordering said respondent to pay complainant his
separation pay equivalent to one (1) month pay per year of service based on
the average monthly pay of P10,800.00 in lieu of reinstatement as his
reinstatement back to work will not do any good between the parties as the
employment relationship has already become strained and full backwages
from the time his compensation was withheld on February 23, 1995 up to
January 31, 1997 (cut-off date) until compliance, otherwise, his backwages
shall continue to run. Also to pay complainant his 13th month pay, night shift
differential pay and service incentive leave pay hereunder computed as
follows:

d) Service Incentive Leave Pay .. 2,040.00


TOTAL P401,640.00
Respondent is also ordered to pay ten (10%) of the amount due the
complainant as attorneys fees.
SO ORDERED.[3]
The respondents seasonably interposed an appeal with the
NLRC. However, the appeal was dismissed by the NLRC in its
Decision[4] dated January 27, 1998, as it affirmed in toto the decision
of the Labor Arbiter. In the said decision, the NLRC characterized the
contract of service between the respondent company and the
petitioner as a scheme that was resorted to by the respondents who,
taking advantage of the petitioners unfamiliarity with the English
language and/or legal niceties, wanted to evade the effects and
implications of his becoming a regularized employee.[5]
The respondents sought reconsideration of the January 27, 1998
Decision of the NLRC. Acting thereon, the NLRC rendered another
Decision[6] dated July 10, 1998, reversing its earlier decision and, this
time, holding that no employer-employee relationship existed between
the respondent company and the petitioner. In reconsidering its earlier
decision, the NLRC stated that the respondents did not exercise
control over the means and methods by which the petitioner
accomplished his delivery services. It upheld the validity of the
contract of service as it pointed out that said contract was silent as to
the time by which the petitioner was to make the deliveries and that
the petitioner could hire his own helpers whose wages would be paid
from his own account. These factors indicated that the petitioner was

an independent contractor, not an employee of the respondent


company.
The NLRC ruled that the contract of service was not intended to
circumvent Article 280 of the Labor Code on the regularization of
employees. Said contract, including the fixed period of employment
contained therein, having been knowingly and voluntarily entered into
by the parties thereto was declared valid citing Brent School, Inc. v.
Zamora.[7] The NLRC, thus, dismissed the petitioners complaint for
illegal dismissal.
The petitioner sought reconsideration of the July 10, 1998
Decision but it was denied by the NLRC in its Resolution dated
September 7, 1998. He then filed with this Court a petition for
certiorari, which was referred to the CA following the ruling in St.
Martin Funeral Home v. NLRC.[8]
The appellate court rendered the Decision dated April 28, 2000,
reversing the July 10, 1998 Decision of the NLRC and reinstating the
decision of the Labor Arbiter. In the said decision, the CA ruled that
the petitioner was a regular employee of the respondent company
because as its truck driver, he performed a service that was
indispensable to the latters business. Further, he had been the
respondent companys truck driver for ten continuous years. The CA
also reasoned that the petitioner could not be considered an
independent contractor since he had no substantial capital in the form
of tools and machinery. In fact, the truck that he drove belonged to the
respondent company. The CA also observed that the routing slips that
the respondent company issued to the petitioner showed that it
exercised control over the latter. The routing slips indicated the
chronological order and priority of delivery, the urgency of certain
deliveries and the time when the goods were to be delivered to the
customers.
The CA, likewise, disbelieved the respondents claim that the
petitioner abandoned his job noting that he just filed a complaint for
regularization. This actuation of the petitioner negated the

respondents allegation that he abandoned his job. The CA held that


the respondents failed to discharge their burden to show that the
petitioners dismissal was for a valid and just cause. Accordingly, the
respondents were declared guilty of illegal dismissal and the decision
of the Labor Arbiter was reinstated.
In its April 28, 2000 Decision, the CA denounced the contract of
service between the respondent company and the petitioner in this
wise:
In summation, we rule that with the proliferation of contracts seeking to
prevent workers from attaining the status of regular employment, it is but
necessary for the courts to scrutinize with extreme caution their legality and
justness. Where from the circumstances it is apparent that a contract has been
entered into to preclude acquisition of tenurial security by the employee, they
should be struck down and disregarded as contrary to public policy and
morals. In this case, the contract of service is just another attempt to exploit
the unwitting employee and deprive him of the protection of the Labor Code
by making it appear that the stipulations of the parties were governed by the
Civil Code as in ordinary transactions.[9]
However, on motion for reconsideration by the respondents, the
CA made a complete turn around as it rendered the assailed
Resolution dated December 15, 2000 upholding the contract of
service between the petitioner and the respondent company. In
reconsidering its decision, the CA explained that the extent of control
exercised by the respondents over the petitioner was only with
respect to the result but not to the means and methods used by him.
The CA cited the following circumstances: (1) the respondents had no
say on how the goods were to be delivered to the customers; (2) the
petitioner had the right to employ workers who would be under his
direct control; and (3) the petitioner had no working time.
The fact that the petitioner had been with the respondent
company for more than ten years was, according to the CA, of no
moment because his status was determined not by the length of
service but by the contract of service. This contract, not being contrary

to morals, good customs, public order or public policy, should be given


the force and effect of law as between the respondent company and
the petitioner. Consequently, the CA reinstated the July 10, 1998
Decision of the NLRC dismissing the petitioners complaint for illegal
dismissal.
Hence, the recourse to this Court by the petitioner. He assails the
December 15, 2000 Resolution of the appellate court alleging that:
(A)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN
GIVING MORE CONSIDERATION TO THE CONTRACT OF
SERVICE ENTERED INTO BY PETITIONER AND PRIVATE
RESPONDENT THAN ARTICLE 280 OF THE LABOR CODE OF
THE PHILIPPINES WHICH CATEGORICALLY DEFINES A
REGULAR
EMPLOYMENT
NOTWITHSTANDING
ANY
WRITTEN AGREEMENT TO THE CONTRARY AND
REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;
(B)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN
REVERSING ITS OWN FINDINGS THAT PETITIONER IS A
REGULAR EMPLOYEE AND IN HOLDING THAT THERE
EXISTED
NO
EMPLOYER-EMPLOYEE
RELATIONSHIP
BETWEEN PRIVATE RESPONDENT AND PETITIONER IN AS
MUCH AS THE CONTROL TEST WHICH IS CONSIDERED THE
MOST ESSENTIAL CRITERION IN DETERMINING THE
EXISTENCE OF SAID RELATIONSHIP IS NOT PRESENT.[10]
The threshold issue that needs to be resolved is whether there
existed an employer-employee relationship between the respondent
company and the petitioner. We rule in the affirmative.

The elements to determine the existence of an employment


relationship are: (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 employees conduct.[11] The most
important element is the employers control of the employees conduct,
not only as to the result of the work to be done, but also as to the
means and methods to accomplish it.[12] All the four elements are
present in this case.
First. Undeniably, it was the respondents who engaged the
services of the petitioner without the intervention of a third party.
Second. Wages are defined as remuneration or earnings,
however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece or commission
basis, or other method of calculating the same, which is payable by an
employer to an employee under a written or unwritten contract of
employment for work done or to be done, or for service rendered or to
be rendered.[13] That the petitioner was paid on a per trip basis is not
significant. This is merely a method of computing compensation and
not a basis for determining the existence or absence of employeremployee relationship. One may be paid on the basis of results or
time expended on the work, and may or may not acquire an
employment status, depending on whether the elements of an
employer-employee relationship are present or not. [14] In this case, it
cannot be gainsaid that the petitioner received compensation from the
respondent company for the services that he rendered to the latter.
Moreover, under the Rules Implementing the Labor Code, every
employer is required to pay his employees by means of payroll. [15] The
payroll should show, among other things, the employees rate of pay,
deductions made, and the amount actually paid to the employee.
Interestingly, the respondents did not present the payroll to support
their claim that the petitioner was not their employee, raising
speculations whether this omission proves that its presentation would
be adverse to their case.[16]

Third. The respondents power to dismiss the petitioner was


inherent in the fact that they engaged the services of the petitioner as
truck driver. They exercised this power by terminating the petitioners
services albeit in the guise of severance of contractual relation due
allegedly to the latters breach of his contractual obligation.
Fourth. As earlier opined, of the four elements of the employeremployee relationship, the control test is the most important.
Compared to an employee, an independent contractor is one who
carries on a distinct and independent business and undertakes to
perform the job, work, or service on its own account and under its own
responsibility according to its own manner and method, free from the
control and direction of the principal in all matters connected with the
performance of the work except as to the results thereof. [17] Hence,
while an independent contractor enjoys independence and freedom
from the control and supervision of his principal, an employee is
subject to the employers power to control the means and methods by
which the employees work is to be performed and accomplished.[18]
Although the respondents denied that they exercised control over
the manner and methods by which the petitioner accomplished his
work, a careful review of the records shows that the latter performed
his work as truck driver under the respondents supervision and
control. Their right of control was manifested by the following
attendant circumstances:

4. Respondents determined how, where and when the petitioner would


perform his task by issuing to him gate passes and routing slips. [21]
a. The routing slips indicated on the column REMARKS, the chronological
order and priority of delivery such as 1st drop, 2nd drop, 3rd drop, etc. This
meant that the petitioner had to deliver the same according to the order of
priority indicated therein.
b. The routing slips, likewise, showed whether the goods were to be
delivered urgently or not by the word RUSH printed thereon.
c. The routing slips also indicated the exact time as to when the goods were
to be delivered to the customers as, for example, the words tomorrow
morning was written on slip no. 2776.
These circumstances, to the Courts mind, prove that the
respondents exercised control over the means and methods by which
the petitioner accomplished his work as truck driver of the respondent
company. On the other hand, the Court is hard put to believe the
respondents allegation that the petitioner was an independent
contractor engaged in providing delivery or hauling services when he
did not even own the truck used for such services. Evidently, he did
not possess substantial capitalization or investment in the form of
tools, machinery and work premises. Moreover, the petitioner
performed the delivery services exclusively for the respondent
company for a continuous and uninterrupted period of ten years.

1. The truck driven by the petitioner belonged to respondent company;


2. There was an express instruction from the respondents that the truck shall
be used exclusively to deliver respondent companys goods; [19]
3. Respondents directed the petitioner, after completion of each delivery, to
park the truck in either of two specific places only, to wit: at its office in
Metro Manila at 2320 Osmea Street, Makati City or at BEPZ, Mariveles,
Bataan;[20] and

The contract of service to the contrary notwithstanding, the


factual circumstances earlier discussed indubitably establish the
existence of an employer-employee relationship between the
respondent company and the petitioner. It bears stressing that the
existence of an employer-employee relationship cannot be negated by
expressly repudiating it in a contract and providing therein that the
employee is an independent contractor when, as in this case, the
facts clearly show otherwise. Indeed, the employment status of a
person is defined and prescribed by law and not by what the parties
say it should be.[22]

Having established that there existed an employer-employee


relationship between the respondent company and the petitioner, the
Court shall now determine whether the respondents validly dismissed
the petitioner.
As a rule, the employer bears the burden to prove that the
dismissal was for a valid and just cause.[23] In this case, the
respondents failed to prove any such cause for the petitioners
dismissal. They insinuated that the petitioner abandoned his job. To
constitute abandonment, these two factors must concur: (1) the failure
to report for work or absence without valid or justifiable reason; and
(2) a clear intention to sever employer-employee relationship.
[24]
Obviously, the petitioner did not intend to sever his relationship with
the respondent company for at the time that he allegedly abandoned
his job, the petitioner just filed a complaint for regularization, which
was forthwith amended to one for illegal dismissal. A charge of
abandonment is totally inconsistent with the immediate filing of a
complaint for illegal dismissal, more so when it includes a prayer for
reinstatement.[25]
Neither can the respondents claim that the petitioner was guilty of
gross negligence in the proper maintenance of the truck constitute a
valid and just cause for his dismissal. Gross negligence implies a
want or absence of or failure to exercise slight care or diligence, or the
entire absence of care. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them.[26] The
negligence, to warrant removal from service, should not merely
be gross but also habitual.[27] The single and isolated act of the
petitioners negligence in the proper maintenance of the truck alleged
by the respondents does not amount to gross and habitual neglect
warranting his dismissal.
The Court agrees with the following findings and conclusion of the
Labor Arbiter:
As against the gratuitous allegation of the respondent that complainant was
not dismissed from the service but due to complainants breach of their

contractual relation, i.e., his violation of the terms and conditions of the
contract, we are very much inclined to believe complainants story that his
dismissal from the service was anchored on his insistent demand that he be
considered a regular employee. Because complainant in his right senses will
not just abandon for that reason alone his work especially so that it is only his
job where he depends chiefly his existence and support for his family if he
was not aggrieved by the respondent when he was told that his services as
driver will be terminated on February 23, 1995.[28]
Thus, the lack of a valid and just cause in terminating the services
of the petitioner renders his dismissal illegal. Under Article 279 of the
Labor Code, an employee who is unjustly dismissed is entitled to
reinstatement, without loss of seniority rights and other privileges, and
to the payment of full backwages, inclusive of allowances, and other
benefits or their monetary equivalent, computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement.[29] However, as found by the Labor Arbiter, the
circumstances obtaining in this case do not warrant the petitioners
reinstatement. A more equitable disposition, as held by the Labor
Arbiter, would be an award of separation pay equivalent to one month
for every year of service from the time of his illegal dismissal up to the
finality of this judgment in addition to his full backwages, allowances
and other benefits.
WHEREFORE, the instant petition is GRANTED. The Resolution
dated December 15, 2000 of the Court of Appeals reversing its
Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is
REVERSED and SET ASIDE. The Decision dated February 3, 1997 of
the Labor Arbiter in NLRC Case No. RAB-III-02-6181-5, finding the
respondents guilty of illegally terminating the employment of petitioner
Pedro Chavez, is REINSTATED.
SO ORDERED.

This petition for review on certiorari under Rule 45 of the


Rules of Court seeks to annul and set aside the Decision and
Resolution of the Court of Appeals dated October 29,
2004[1]and October 7, 2005,[2] respectively, in CA-G.R. SP No.
78515 dismissing the complaint for constructive dismissal
filed by herein petitioner Angelina Francisco. The appellate
court reversed and set aside the Decision of the National
Labor Relations Commission (NLRC) dated April 15, 2003, [3] in
NLRC

NCR

CA

No.

032766-02

which

affirmed

with

modification the decision of the Labor Arbiter dated July 31,


2002,[4] in NLRC-NCR Case No. 30-10-0-489-01, finding that
private respondents were liable for constructive dismissal.
FIRST DIVISION
ANGELINA FRANCISCO, G.R. No. 170087

In 1995, petitioner was hired by Kasei Corporation during its


incorporation stage. She was designated as Accountant and
Corporate Secretary and was assigned to handle all the

Petitioner,

accounting needs of the company. She was also designated


as Liaison Officer to the City of Makati to secure business

Present:

permits, construction permits and other licenses for the initial

- versus -

operation of the company.[5]

NATIONAL LABOR RELATIONS


COMMISSION, et. al.,
Respondents.
Promulgated :August 31, 2006
x
--------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:

Although she was designated as Corporate Secretary,


she was not entrusted with the corporate documents; neither
did she attend any board meeting nor required to do so. She
never prepared any legal document and never represented
the company as its Corporate Secretary. However, on some
occasions, she was prevailed upon to sign documentation for
the company.[6]
In

1996,

Manager. The

petitioner

corporation

was

also

designated

hired

Gerry

Acting
Nino

as

accountant in lieu of petitioner. As Acting Manager, petitioner

company. She made repeated follow-ups with the company

was assigned to handle recruitment of all employees and

cashier but she was advised that the company was not

perform management administration functions; represent the

earning well.[10]

company

in

all

dealings

with

government

agencies,

especially with the Bureau of Internal Revenue (BIR), Social


Security System (SSS) and in the city government of Makati;
and to administer all other matters pertaining to the
operation of Kasei Restaurant which is owned and operated
by Kasei Corporation.

[7]

On October 15, 2001, petitioner asked for her salary


from Acedo and the rest of the officers but she was informed
that she is no longer connected with the company. [11]
Since she was no longer paid her salary, petitioner did
not report for work and filed an action for constructive

For five years, petitioner performed the duties of

dismissal before the labor arbiter.

Acting Manager. As of December 31, 2000 her salary was

Private respondents averred that petitioner is not an

P27,500.00 plus P3,000.00 housing allowance and a 10%

employee of Kasei Corporation. They alleged that petitioner

share in the profit of Kasei Corporation.

[8]

was hired in 1995 as one of its technical consultants on

In January 2001, petitioner was replaced by Liza R.


Fuentes as Manager. Petitioner alleged that she was required
to sign a prepared resolution for her replacement but she
was assured that she would still be connected with Kasei
Corporation. Timoteo

Acedo,

the

designated

Treasurer,

convened a meeting of all employees of Kasei Corporation


and announced that nothing had changed and that petitioner
was still connected with Kasei Corporation as Technical
Assistant to Seiji Kamura and in charge of all BIR matters. [9]

accounting matters and act concurrently as Corporate


Secretary. As technical consultant, petitioner performed her
work at her own discretion without control and supervision of
Kasei Corporation. Petitioner had no daily time record and
she came to the office any time she wanted. The company
never interfered with her work except that from time to time,
the management would ask her opinion on matters relating
to her profession. Petitioner did not go through the usual
procedure of selection of employees, but her services were
engaged through a Board Resolution designating her as

Thereafter, Kasei Corporation reduced her salary by

technical consultant. The money received by petitioner from

P2,500.00 a month beginning January up to September 2001

the corporation was her professional fee subject to the 10%

for a total reduction of P22,500.00 as of September

expanded withholding tax on professionals, and that she was

2001.Petitioner was not paid her mid-year bonus allegedly

not one of those reported to the BIR or SSS as one of the

because the company was not earning well. On October

companys employees.[12]

2001, petitioner did not receive her salary from the

Petitioners

designation

as

technical

b. Salary
Differentials
(01/2001
09/2001) 22,500.00
c. Housing
Allowance
(01/2001
07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
g. Moral and exemplary damages 100,000.00
h. 10% Attorneys fees 87,076.50
P957,742.50
If reinstatement is no longer feasible,
respondents are ordered to pay complainant
separation pay with additional backwages that
would accrue up to actual payment of
separation pay.

consultant

depended solely upon the will of management. As such, her


consultancy may be terminated any time considering that
her services were only temporary in nature and dependent
on the needs of the corporation.
To prove that petitioner was not an employee of the
corporation,

private

respondents

submitted

list

of

employees for the years 1999 and 2000 duly received by the
BIR showing that petitioner was not among the employees
reported to the BIR, as well as a list of payees subject to
expanded withholding tax which included petitioner. SSS
records were also submitted showing that petitioners latest
employer was Seiji Corporation.[13]

SO ORDERED.[14]
The Labor Arbiter found that petitioner was illegally
On April 15, 2003, the NLRC affirmed with modification the

dismissed, thus:
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
1. finding
complainant
respondent corporation;

an

employee

of

2. declaring complainants dismissal as illegal;


3. ordering
respondents
to
reinstate
complainant to her former position without loss
of seniority rights and jointly and severally pay
complainant her money claims in accordance
with the following computation:
a. Backwages 10/2001 07/2002 275,000.00
(27,500 x 10 mos.)

Decision of the Labor Arbiter, the dispositive portion of which


reads:
PREMISES CONSIDERED, the Decision of July 31, 2002
is hereby MODIFIED as follows:
1) Respondents are directed to pay
complainant separation pay computed at one
month per year of service in addition to full
backwages from October 2001 to July 31, 2002;
2) The awards representing moral and
exemplary damages and 10% share in profit in
the respective accounts of P100,000.00 and
P361,175.00 are deleted;

3) The award of 10% attorneys fees shall


be based on salary differential award only;

propositions espoused by the contending parties is supported

4) The
awards
representing
salary
differentials, housing allowance, mid year bonus
and 13th month pay are AFFIRMED.

We held in Sevilla v. Court of Appeals[18] that in this

by substantial evidence.[17]

jurisdiction, there has been no uniform test to determine the


existence

SO ORDERED.[15]

of

an

employer-employee

relation. Generally,

courts have relied on the so-called right of control test where

On appeal, the Court of Appeals reversed the NLRC decision,

the person for whom the services are performed reserves a

thus:

right to control not only the end to be achieved but also the
WHEREFORE, the instant petition is hereby GRANTED.

The decision of the National Labor Relations Commissions


dated April 15, 2003 is hereby REVERSED and SET ASIDE and
a new one is hereby rendered dismissing the complaint filed
by private respondent against Kasei Corporation, et al. for

means to be used in reaching such end. In addition to the


standard of right-of-control, the existing economic conditions
prevailing between the parties, like the inclusion of the
employee in the payrolls, can help in determining the
existence of an employer-employee relationship.

constructive dismissal.

However, in certain cases the control test is not

SO ORDERED.[16]

sufficient to give a complete picture of the relationship


between the parties, owing to the complexity of such a

The

appellate

court

denied

petitioners

motion

for

reconsideration, hence, the present recourse.

worker. There are instances when, aside from the employers

The core issues to be resolved in this case are (1)


whether
between

there

was

petitioner

an

employer-employee

and

private

relationship where several positions have been held by the

relationship

respondent

Kasei

Corporation; and if in the affirmative, (2) whether petitioner


was illegally dismissed.
Considering the conflicting findings by the Labor
Arbiter and the National Labor Relations Commission on one
hand, and the Court of Appeals on the other, there is a need
to reexamine the records to determine which of the

power to control the employee with respect to the means and


methods by which the work is to be accomplished, economic
realities

of

the

employment

relations

help

provide

comprehensive analysis of the true classification of the


individual, whether as employee, independent contractor,
corporate officer or some other capacity.
The better approach would therefore be to adopt a
two-tiered test involving: (1) the putative employers power to
control the employee with respect to the means and methods

by which the work is to be accomplished; and (2) the

the whole economic activity,[22] such as: (1) the extent to

underlying economic realities of the activity or relationship.

which the services performed are an integral part of the

This

two-tiered

test

would

provide

us

with

framework of analysis, which would take into consideration


the totality of circumstances surrounding the true nature of
the relationship between the parties. This is especially
appropriate in this case where there is no written agreement
or terms of reference to base the relationship on; and due to
the complexity of the relationship based on the various
positions and responsibilities given to the worker over the
period of the latters employment.

employers business; (2) the extent of the workers investment


in equipment and facilities; (3) the nature and degree of
control

Court of Appeals,[20] where we held that there is an employeremployee relationship when the person for whom the
services are performed reserves the right to control not only
the end achieved but also the manner and means used to
achieve that end.
In Sevilla v. Court of Appeals,[21] we observed the need to consider
the existing economic conditions prevailing between the parties, in addition
to the standard of right-of-control like the inclusion of the employee in the
payrolls, to give a clearer picture in determining the existence of an
employer-employee relationship based on an analysis of the totality of
economic circumstances of the worker.

by

the

employer;

(4)

the

workers

opportunity for profit and loss; (5) the amount of initiative,


skill, judgment or foresight required for the success of the
claimed independent enterprise; (6) the permanency and
duration of the relationship between the worker and the
employer; and (7) the degree of dependency of the worker
upon the employer for his continued employment in that line
of business.[23]

The control test initially found application in the case


of Viaa v. Al-Lagadan and Piga,[19] and lately in Leonardo v.

exercised

The proper standard of economic dependence is


whether the worker is dependent on the alleged employer for
his continued employment in that line of business. [24] In the
United

States,

the

touchstone

of

economic

reality

in

analyzing possible employment relationships for purposes of


the

Federal

Labor

Standards

Act

is

dependency. [25] By

analogy, the benchmark of economic reality in analyzing


possible employment relationships for purposes of the Labor
Code ought to be the economic dependence of the worker on
his employer.
By applying the control test, there is no doubt that
petitioner is an employee of Kasei Corporation because she
was under the direct control and supervision of Seiji Kamura,
the corporations Technical Consultant. She reported for work

Thus, the determination of the relationship between

regularly and served in various capacities as Accountant,

employer and employee depends upon the circumstances of

Liaison Officer, Technical Consultant, Acting Manager and

Corporate

Secretary,

with

substantially

the

same

job

In Domasig v. National Labor Relations Commission,

functions, that is, rendering accounting and tax services to

[28]

the company and performing functions necessary and

card is provided not only as a security measure but mainly to

desirable for the proper operation of the corporation such as

identify the holder thereof as a bona fide employee of the

securing business permits and other licenses over an

firm that issues it. Together with the cash vouchers covering

indefinite period of engagement.

petitioners salaries for the months stated therein, these

Under the broader economic reality test, the petitioner


can likewise be said to be an employee of respondent
corporation because she had served the company for six
years

before

her

dismissal,

receiving

check

vouchers

we held that in a business establishment, an identification

matters constitute substantial evidence adequate to support


a conclusion that petitioner was an employee of private
respondent.
We

likewise

ruled

in Flores

v.

Nuestro[29] that

indicating her salaries/wages, benefits, 13 th month pay,

corporation who registers its workers with the SSS is proof

bonuses and allowances, as well as deductions and Social

that the latter were the formers employees. The coverage of

Security contributions from August 1, 1999 to December 18,

Social Security Law is predicated on the existence of an

2000.

[26]

When petitioner was designated General Manager,

respondent corporation made a report to the SSS signed by


Irene Ballesteros. Petitioners membership in the SSS as
manifested by a copy of the SSS specimen signature card
which was signed by the President of Kasei Corporation and
the inclusion of her name in the on-line inquiry system of the
SSS

evinces

the

existence

of

an

employer-employee

relationship between petitioner and respondent corporation.


[27]

employer-employee relationship.
Furthermore, the affidavit of Seiji Kamura dated
December 5, 2001 has clearly established that petitioner
never acted as Corporate Secretary and that her designation
as such was only for convenience. The actual nature of
petitioners job was as Kamuras direct assistant with the duty
of acting as Liaison Officer in representing the company to
secure construction permits, license to operate and other
requirements imposed by government agencies. Petitioner

It is therefore apparent that petitioner is economically

was never entrusted with corporate documents of the

dependent on respondent corporation for her continued

company, nor required to attend the meeting of the

employment in the latters line of business.

corporation. She was never privy to the preparation of any


document for the corporation, although once in a while she
was required to sign prepared documentation for the
company.[30]

The second affidavit of Kamura dated March 7, 2002


which repudiated the December 5, 2001 affidavit has been

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


accomplished.

allegedly withdrawn by Kamura himself from the records of


the case.[31] Regardless of this fact, we are convinced that the
allegations in the first affidavit are sufficient to establish that
petitioner is an employee of Kasei Corporation.

The corporation constructively dismissed petitioner


when it reduced her salary by P2,500 a month from January
to September 2001. This amounts to an illegal termination of
employment,

where

the

petitioner

is

entitled

to

full

Granting arguendo, that the second affidavit validly

backwages. Since the position of petitioner as accountant is

repudiated the first one, courts do not generally look with

one of trust and confidence, and under the principle of

favor on any retraction or recanted testimony, for it could

strained relations, petitioner is further entitled to separation

have been secured by considerations other than to tell the

pay, in lieu of reinstatement.[34]

truth and would make solemn trials a mockery and place the
investigation of the truth at the mercy of unscrupulous
witnesses.[32] A recantation does not necessarily cancel an
earlier declaration, but like any other testimony the same is
subject to the test of credibility and should be received with
caution.[33]

A diminution of pay is prejudicial to the employee and


amounts to constructive dismissal. Constructive dismissal is
an involuntary resignation resulting in cessation of work
resorted

to

when

continued

employment

becomes

impossible, unreasonable or unlikely; when there is a


demotion in rank or a diminution in pay; or when a clear

Based on the foregoing, there can be no other

discrimination, insensibility or disdain by an employer

conclusion that petitioner is an employee of respondent Kasei

becomes unbearable to an employee. [35] In Globe Telecom,

Corporation. She was selected and engaged by the company

Inc. v. Florendo-Flores,[36] we ruled that where an employee

for compensation, and is economically dependent upon

ceases to work due to a demotion of rank or a diminution of

respondent for her continued employment in that line of

pay, an unreasonable situation arises which creates an

business. Her main job function involved accounting and tax

adverse working environment rendering it impossible for

services rendered to respondent corporation on a regular

such employee to continue working for her employer. Hence,

basis over an indefinite period of engagement. Respondent

her severance from the company was not of her own making

corporation hired and engaged petitioner for compensation,

and

with the power to dismiss her for cause. More importantly,

employment.

respondent corporation had the power to control petitioner

therefore

amounted

to

an

illegal

termination

of

In affording full protection to labor, this Court must


ensure equal work opportunities regardless of sex, race or

creed. Even as we, in every case, attempt to carefully


balance the fragile relationship between employees and
employers, we are mindful of the fact that the policy of the
law is to apply the Labor Code to a greater number of
employees. This would enable employees to avail of the
benefits

accorded

to

them

by

law,

in

line

with

the

constitutional mandate giving maximum aid and protection


to labor, promoting their welfare and reaffirming it as a
primary social economic force in furtherance of social justice
and national development.

Petitioners,
- versus
ROBERTO C. SERVAA,
Respondent.

Promulgated: January 28, 2008

x----------------------------------------------------------------------------x
DECISION
TINGA, J.:
This petition for review under Rule 45 assails the 21 December
2004 Decision[1] and 8 April 2005 Resolution[2] of the Court of Appeals
declaring Roberto Servaa (respondent) a regular employee of petitioner
Television and Production Exponents, Inc. (TAPE). The appellate court

WHEREFORE, the petition is GRANTED. The Decision

likewise ordered TAPE to pay nominal damages for its failure to observe

and Resolution of the Court of Appeals dated October 29,

statutory due process in the termination of respondents employment for

2004 and October 7, 2005, respectively, in CA-G.R. SP No.

authorized cause.

78515 are ANNULLED and SET ASIDE. The Decision of the

TAPE is a domestic corporation engaged in the production of

National Labor Relations Commission dated April 15, 2003 in

television programs, such as the long-running variety program, Eat Bulaga!.

NLRC NCR CA No. 032766-02, is REINSTATED. The case

Its president is Antonio P. Tuviera (Tuviera). Respondent Roberto C. Servana

is REMANDED to the Labor Arbiter for the re-computation of

had served as a security guard for TAPE from March 1987 until he was

petitioner Angelina Franciscos full backwages from the time

terminated on 3 March 2000.

she was illegally terminated until the date of finality of this

Respondent filed a complaint for illegal dismissal and nonpayment of

decision, and separation pay representing one-half month

benefits against TAPE. He alleged that he was first connected with Agro-

pay for every year of service, where a fraction of at least six

Commercial Security Agency but was later on absorbed by TAPE as a regular

months shall be considered as one whole year.

company guard. He was detailed at Broadway Centrum in Quezon


City where Eat Bulaga! regularly staged its productions. On 2 March 2000,

SO ORDERED.

respondent received a memorandum informing him of his impending


dismissal on account of TAPEs decision to contract the services of a
professional security agency. At the time of his termination, respondent was

SECOND DIVISION
TELEVISION AND PRODUCTION G.R. No. 167648
EXPONENTS, INC. and/or ANTONIO
P. TUVIERA, Present:

receiving a monthly salary of P6,000.00. He claimed that the holiday pay,


unpaid vacation and sick leave benefits and other monetary considerations
were withheld from him. He further contended that his dismissal was

undertaken without due process and violative of existing labor laws,

Respondent for his part insisted that he was a regular employee having been

aggravated by nonpayment of separation pay.[3]

engaged to perform an activity that is necessary and desirable to TAPEs


business for thirteen (13) years.[6]

In a motion to dismiss which was treated as its position paper, TAPE


countered that the labor arbiter had no jurisdiction over the case in the

On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared

absence of an employer-employee relationship between the parties. TAPE

respondent to be a regular employee of TAPE. The Labor Arbiter relied on

made the following assertions: (1) that respondent was initially employed as

the nature of the work of respondent, which is securing and maintaining

a security guard for Radio Philippines Network (RPN-9); (2) that he was

order in the studio, as necessary and desirable in the usual business activity

tasked to assist TAPE during its live productions, specifically, to control the

of TAPE. The Labor Arbiter also ruled that the termination was valid on the

crowd; (3) that when RPN-9 severed its relationship with the security agency,

ground of redundancy, and ordered the payment of respondents separation

TAPE engaged respondents services, as part of the support group and thus a

pay equivalent to one (1)-month pay for every year of service. The

talent, to provide security service to production staff, stars and guests of Eat

dispositive portion of the decision reads:

Bulaga! as well as to control the audience during the one-and-a-half hour


noontime program; (4) that it was agreed that complainant would render his
services until such time that respondent company shall have engaged the
services of a professional security agency; (5) that in 1995, when his contract
with RPN-9 expired, respondent was retained as a talent and a member of the
support group, until such time that TAPE shall have engaged the services of a
professional security agency; (6) that respondent was not prevented from
seeking other employment, whether or not related to security services, before
or after attending to his Eat Bulaga! functions; (7) that sometime in late
1999, TAPE started negotiations for the engagement of a professional
security agency, the Sun Shield Security Agency; and (8) that on 2 March
2000, TAPE issued memoranda to all talents, whose functions would be
rendered redundant by the engagement of the security agency, informing
them of the managements decision to terminate their services. [4]
TAPE averred that respondent was an independent contractor falling
under the talent group category and was working under a special arrangement
which is recognized in the industry.[5]

WHEREFORE, complainants position is hereby declared


redundant. Accordingly, respondents are hereby ordered to
pay complainant his separation pay computed at the rate of
one (1) month pay for every year of service or in the total
amount of P78,000.00.[7]
On appeal, the National Labor Relations Commission (NLRC) in a
[8]

Decision dated 22 April 2002 reversed the Labor Arbiter and considered
respondent a mere program employee, thus:
We have scoured the records of this case and we find
nothing to support the Labor Arbiters conclusion that
complainant was a regular employee.
xxxx
The primary standard to determine regularity of employment
is the reasonable connection between the particular activity
performed by the employee in relation to the usual business
or trade of the employer. This connection can be determined
by considering the nature and work performed and its
relation to the scheme of the particular business or trade in
its entirety. x x x Respondent company is engaged in the

business of production of television shows. The records of


this case also show that complainant was employed by
respondent company beginning 1995 after respondent
company transferred from RPN-9 to GMA-7, a fact which
complainant does not dispute. His last salary was P5,444.44
per month. In such industry, security services may not be
deemed necessary and desirable in the usual business of the
employer. Even without the performance of such services on
a regular basis, respondents companys business will not
grind to a halt.

IN LIGHT OF THE FOREGOING, the petition is


hereby GRANTED. The Decision dated 22 April 2002 of
the public respondent NLRC reversing the Decision of the
Labor Arbiter and its Resolution dated 28 June 2002 denying
petitioners
motion
for
reconsideration
are REVERSED and SET ASIDE. The Decision dated 29
June
2001 of
the
Labor
Arbiter
is REINSTATED withMODIFICATION in that private
respondents are ordered to pay jointly and severally
petitioner the amount of P10,000.00 as nominal damages for
non-compliance with the statutory due process.

xxxx
SO ORDERED.[12]
Complainant was indubitably a program employee of
respondent company. Unlike [a] regular employee, he did
not observe working hours x x x. He worked for other
companies, such as M-Zet TV Production, Inc. at the same
time that he was working for respondent company. The
foregoing indubitably shows that complainant-appellee was
a program employee. Otherwise, he would have two (2)
employers at the same time.[9]

Finding TAPEs motion for reconsideration without merit, the Court of


Appeals issued a Resolution[13] dated 8 April 2005 denying said motion.
TAPE filed the instant petition for review raising substantially the same
grounds as those in its petition for certiorari before the Court of Appeals.
These matters may be summed up into one main issue: whether an employer-

Respondent filed a motion for reconsideration but it was denied in a

employee relationship exists between TAPE and respondent.

Resolution[10] dated 28 June 2002.


Respondent filed a petition for certiorari with the Court of Appeals
contending that the NLRC acted with grave abuse of discretion amounting to
lack or excess of jurisdiction when it reversed the decision of the Labor
Arbiter. Respondent asserted that he was a regular employee considering the
nature and length of service rendered.[11]
Reversing the decision of the NLRC, the Court of Appeals found respondent
to be a regular employee. We quote the dispositive portion of the decision:

On 27 September 2006, the Court gave due course to the petition and
considered the case submitted for decision. [14]
At the outset, it bears emphasis that the existence of employer-employee
relationship is ultimately a question of fact. Generally, only questions of law
are entertained in appeals by certiorari to the Supreme Court. This rule,
however, is not absolute. Among the several recognized exceptions is when
the findings of the Court of Appeals and Labor Arbiters, on one hand, and
that of the NLRC, on the other, are conflicting, [15] as obtaining in the case at
bar.

Jurisprudence is abound with cases that recite the factors to be considered in


determining the existence of employer-employee relationship, namely: (a)
the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to control the employee
with respect to the means and method by which the work is to be
accomplished.[16] The most important factor involves the control test. Under
the control test, there is an employer-employee relationship when the person
for whom the services are performed reserves the right to control not only the
end achieved but also the manner and means used to achieve that end. [17]
In concluding that respondent was an employee of TAPE, the Court
of Appeals applied the four-fold test in this wise:
First. The selection and hiring of petitioner was done
by private respondents. In fact, private respondents
themselves admitted having engaged the services of
petitioner only in 1995 after TAPE severed its relations with
RPN Channel 9.
By informing petitioner through the Memorandum
dated 2 March 2000, that his services will be terminated as
soon as the services of the newly hired security agency
begins, private respondents in effect acknowledged petitioner
to be their employee. For the right to hire and fire is another
important element of the employer-employee relationship.
Second. Payment of wages is one of the four factors
to be considered in determining the existence of employeremployee relation. . . Payment as admitted by private
respondents was given by them on a monthly basis at a rate
of P5,444.44.
Third. Of the four elements of the employeremployee relationship, the control test is the most important.
xxx

The bundy cards representing the time petitioner had


reported for work are evident proofs of private respondents
control over petitioner more particularly with the time he is
required to report for work during the noontime program of
Eat Bulaga! If it were not so, petitioner would be free to
report for work anytime even not during the noontime
program of Eat Bulaga! from 11:30 a.m. to 1:00 p.m. and still
gets his compensation for being a talent. Precisely, he is
being paid for being the security of Eat Bulaga! during the
above-mentioned period. The daily time cards of petitioner
are not just for mere record purposes as claimed by private
respondents. It is a form of control by the management of
private respondent TAPE.[18]
TAPE asseverates that the Court of Appeals erred in applying the four-fold
test in determining the existence of employer-employee relationship between
it and respondent. With respect to the elements of selection, wages and
dismissal, TAPE proffers the following arguments: that it never hired
respondent, instead it was the latter who offered his services as a talent to
TAPE; that the Memorandum dated 2 March 2000 served on respondent was
for the discontinuance of the contract for security services and not a
termination letter; and that the talent fees given to respondent were the preagreed consideration for the services rendered and should not be construed as
wages. Anent the element of control, TAPE insists that it had no control over
respondent in that he was free to employ means and methods by which he is
to control and manage the live audiences, as well as the safety of TAPEs stars
and guests.[19]
The position of TAPE is untenable. Respondent was first connected
with Agro-Commercial Security Agency, which assigned him to assist TAPE
in its live productions. When the security agencys contract with RPN-9
expired in 1995, respondent was absorbed by TAPE or, in the latters
language, retained as talent. [20] Clearly, respondent was hired by TAPE.

Respondent presented his identification card [21] to prove that he is indeed an

TAPE further denies exercising control over respondent and

employee of TAPE. It has been in held that in a business establishment, an

maintains that the latter is an independent contractor.[24] Aside from

identification card is usually provided not just as a security measure but to

possessing substantial capital or investment, a legitimate job contractor or

mainly identify the holder thereof as a bona fide employee of the firm who

subcontractor carries on a distinct and independent business and undertakes

issues it.

[22]

to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the

Respondent claims to have been receiving P5,444.44 as his monthly salary

control and direction of the principal in all matters connected with the

while TAPE prefers to designate such amount as talent fees. Wages, as

performance of the work except as to the results thereof. [25] TAPE failed to

defined in the Labor Code, are remuneration or earnings, however

establish that respondent is an independent contractor. As found by the Court

designated, capable of being expressed in terms of money, whether fixed or

of Appeals:

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


calculating the same, which is payable by an employer to an employee under
a written or unwritten contract of employment for work done or to be done,
or for service rendered or to be rendered. It is beyond dispute that respondent
received a fixed amount as monthly compensation for the services he
rendered to TAPE.
The Memorandum informing respondent of the discontinuance of his service
proves that TAPE had the power to dismiss respondent.

We find the annexes submitted by the private


respondents insufficient to prove that herein petitioner is
indeed an independent contractor. None of the above
conditions exist in the case at bar.Private respondents failed
to show that petitioner has substantial capital or investment
to be qualified as an independent contractor. They likewise
failed to present a written contract which specifies the
performance of a specified piece of work, the nature and
extent of the work and the term and duration of the
relationship between herein petitioner and private
respondent
TAPE.[26]

Control is manifested in the bundy cards submitted by respondent in


evidence. He was required to report daily and observe definite work
hours. To negate the element of control, TAPE presented a certification from

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

M-Zet Productions to prove that respondent also worked as a studio security

of Labor, in classifying respondent as a program employee and equating him

guard for said company. Notably, the said certificate categorically stated that

to be an independent contractor.

respondent reported for work on Thursdays from 1992 to 1995. It can be


recalled that during said period, respondent was still working for RPN-9. As
admitted by TAPE, it absorbed respondent in late 1995.[23]

Policy Instruction No. 40 defines program employees as


x x x those whose skills, talents or services are
engaged by the station for a particular or specific program or
undertaking and who are not required to observe normal

working hours such that on some days they work for less
than eight (8) hours and on other days beyond the normal
work hours observed by station employees and are allowed
to enter into employment contracts with other persons,
stations, advertising agencies or sponsoring companies. The
engagement of program employees, including those hired by
advertising or sponsoring companies, shall be under a
written contract specifying, among other things, the nature
of the work to be performed, rates of pay and the programs
in which they will work. The contract shall be duly
registered by the station with the Broadcast Media Council
within three (3) days from its consummation.[27]

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


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

More importantly, respondent had been continuously under the


employ of TAPE from 1995 until his termination in March 2000, or for a
span of 5 years. Regardless of whether or not respondent had been
performing work that is necessary or desirable to the usual business of TAPE,
respondent is still considered a regular employee under Article 280 of the
Labor Code which provides:
Art. 280. Regular and Casual Employment.The
provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the
parties, an employment shall be deemed to be regular where
the employee has been engaged to perform activities which
are usually necessary or desirable in the usual business or
trade of the employer, except where the employment has
been fixed for a specific project or undertaking the
completion or termination of which has been determined at
the time of engagement of the employee or where the work
or service to be performed is seasonal in nature and
employment is for the duration of the season.

Even granting arguendo that respondent is a program employee,


stills, classifying him as an independent contractor is misplaced. The Court
of Appeals had this to say:
We cannot subscribe to private respondents
conflicting theories. The theory of private respondents that
petitioner is an independent contractor runs counter to their
very own allegation that petitioner is a talent or a program
employee. An independent contractor is not an employee of
the employer, while a talent or program employee is an
employee. The only difference between a talent or program
employee and a regular employee is the fact that a regular
employee is entitled to all the benefits that are being prayed
for. This is the reason why private respondents try to seek
refuge under the concept of an independent contractor
theory. For if petitioner were indeed an independent
contractor, private respondents will not be liable to pay the
benefits prayed for in petitioners complaint.[28]

An employment shall be deemed to be casual if it is


not covered by the preceding paragraph. Provided, that, any
employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in
which he is employed and his employment shall continue
while such activity exists.
As a regular employee, respondent cannot be terminated except for
just cause or when authorized by law.[29] It is clear from the tenor of the 2
March 2000 Memorandum that respondents termination was due to
redundancy. Thus, the Court of Appeals correctly disposed of this issue, viz:
Article 283 of the Labor Code provides that the
employer may also terminate the employment of any
employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or

cessation of operation of the establishment or undertaking


unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the
workers and the Ministry of Labor and Employment at least
one (1) month before the intended date thereof. In case of
termination due to the installation of labor saving devices or
redundancy, the worker affected thereby shall be entitled to a
separation pay equivalent to at least his one (1) month pay or
to at least one (1) month pay for every year or service,
whichever is higher.

xxxx
Under recent jurisprudence, the Supreme Court
fixed the amount of P30,000.00 as nominal damages. The
basis of the violation of petitioners right to statutory due
process by the private respondents warrants the payment of
indemnity in the form of nominal damages. The amount of
such damages is addressed to the sound discretion of the
court, taking into account the relevant circumstances. We
believe this form of damages would serve to deter employer
from future violations of the statutory due process rights of
the employees. At the very least, it provides a vindication or
recognition of this fundamental right granted to the latter
under the Labor Code and its Implementing
Rules. Considering the circumstances in the case at bench,
we deem it proper to fix it at P10,000.00.[30]

xxxx
We uphold the finding of the Labor Arbiter that
complainant [herein petitioner] was terminated upon [the]
managements option to professionalize the security services
in its operations. x x xHowever, [we] find that although
petitioners services [sic] was for an authorized cause, i.e.,
redundancy, private respondents failed to prove that it
complied with service of written notice to the Department of
Labor and Employment at least one month prior to
the intended date of retrenchment. It bears stressing that
although notice was served upon petitioner through a
Memorandum dated 2 March 2000, the effectivity of his
dismissal is fifteen days from the start of the agencys take
over which was on 3 March 2000. Petitioners services with
private respondents were severed less than the month
requirement by the law.
Under prevailing jurisprudence the termination for
an authorized cause requires payment of separation
pay. Procedurally, if the dismissal is based on authorized
causes under Articles 283 and 284, the employer must give
the employee and the Deparment of Labor and Employment
written notice 30 days prior to the effectivity of his
separation. Where the dismissal is for an authorized cause
but due process was not observed, the dismissal should be
upheld. While the procedural infirmity cannot be cured, it
should not invalidate the dismissal. However, the employer
should be liable for non-compliance with procedural
requirements of due process.

In sum, we find no reversible error committed by the Court of


Appeals in its assailed decision.
However, with respect to the liability of petitioner Tuviera, president
of TAPE, absent any showing that he acted with malice or bad faith in
terminating respondent, he cannot be held solidarily liable with TAPE.
[31]

Thus, the Court of Appeals ruling on this point has to be modified.


WHEREFORE, the assailed Decision and Resolution of the Court of

Appeals are AFFIRMED with MODIFICATION in that only petitioner


Television and Production Exponents, Inc. is liable to pay respondent the
amount of P10,000.00 as nominal damages for non-compliance with the
statutory due process and petitioner Antonio P. Tuviera is accordingly
absolved from liability.
SO ORDERED.

GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court,
petitioner San Miguel Corporation (SMC) seeks the reversal and setting aside
of the Decision[1] dated September 30, 1999 of the Court of Appeals (CA)
in CA-G.R. SP No. 50321, as reiterated in its Resolution[2] of March 20, 2001,
affirming in toto an earlier decision of the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 005478-93, entitled Rafael C.
Maliksi v. San Miguel Corporation and/or Philippine Software Services &
Education Center. The affirmed NLRC decision overturned that of the Labor
Arbiter and declared the herein private respondent Rafael Maliksi (Maliksi) a
regular employee of the petitioner and ordered the latter to reinstate him with
benefits.
As found by the NLRC and subsequently adopted by the CA, the
facts are as follows:

SECOND DIVISION
SAN MIGUEL CORPORATION,
Petitioner,

G.R. No. 147566

- versus Promulgated:
NATIONAL
LABOR
RELATIONS December 6, 2006
COMMISSION and RAFAEL MALIKSI,
Respondents.
x------------------------------------------------------------------------------------x
DECISION

On 16 October 1990, Rafael M. Maliksi filed a


complaint against the San Miguel Corporation-Magnolia
Division, herein referred to as SMC and Philippine Software
Services and EducationCenter herein referred to as
PHILSSEC to compel the said respondents to recognize him
as a regular employee. He amended the complaint on 12
November 1990 to include the charge of illegal dismissal
because his services were terminated on 31 October 1990.
The complainants employment record indicates that
he rendered service with Lipercon Services from 1 April
1981 to February 1982 as budget head assigned to SMCBeer Division, then from July 1983 to April 1985 with
Skillpower, Inc., as accounting clerk assigned to SMCMagnolia Division, then from October 1988 to 1989 also
with Skillpower, Inc. as acting clerk assigned to SMCMagnolia Finance, and from October 1989 to 31 October
1990 with PHILSSEC assigned to Magnolia Finance as

accounting clerk. The complainant considered himself as an


employee of SMC-Magnolia. Lipercon Services, Skillpower,
Inc. and PHILSSEC are labor-only contractors and any one
of which had never been his employer. His dismissal,
according to him, was in retaliation for his filing of the
complaint for regularization in service. His dismissal was
illegal there being no just cause for the action. He was not
accorded due process neither was his dismissal reported to
the Department of Labor and Employment.
PHILSSEC disclaimed liability. As an entity catering
(sic) computer systems and program for business enterprises,
it has contracted with SMC-Magnolia to computerize the
latters manual accounting reporting systems of its provincial
sales. PHILSSEC then conducted a three phase analysis of
SMCMagnolia set up: first the computer needs of the firm
was (sic) determined; then, the development of computer
systems or program suitable; and, finally, set up the systems
and train the employees to operate the same. In all these
phases, PHILSSEC uses its computer system and technology
and provided the necessary manpower to compliment the
transfer of the technology to SMC-Magnolia. Complainant
Maliksi was one of those employed by PHILSSEC whose
principal function was the manual control of data needed
during the computerization. Like all assigned to the project,
the complainants work was controlled by PHILSSEC
supervisors, his salary paid by the agency and he reported
directly to PHILSSEC. The computerization project was
completed on 31 October 1990, and so, the complainant was
terminated on the said date.
SMC, on the other hand, submitted its position. In
the contract SMC entered with PHILSSEC, the latter
undertook to set up the computerization of the provincial
sales reporting system of Magnolia Division. To carry out
the task, PHILSSEC utilized 3 computer programmers and
the rest were data encoders. The complainant being one of
the compliments (sic) performed the following functions:
xxx xxx xxx

SMC likewise contends that PHILSSEC exercised


exclusive managerial prerogative over the complainant as to
hiring, payment of salary, dismissal and most importantly,
the control over his work. SMC was interested only in the
result of the work specified in the contract but not as to the
means and methods of accomplishing the same. Moreover,
PHILSSEC has substantial capital of its own. It has an IBM
system, 3 computers, 17 IBM or IBM-compatible computers;
it has a building where the computer training center and
main office are located. What it markets to clients are
computer programs and training systems on computer
technology and not the usual labor or manpower supply to
establishment concerns. Moreover, what PHILSSEC set up
employing the complainant, among others, has no relation to
the principal business of SMC, which is food and beverage.
It was a single relationship between the people utilized by
PHILSSEC and SMC [3]

The Labor Arbiter declared Maliksi a regular employee of


PHILSSEC and absolved SMC from liability. Dispositively, the Labor
Arbiters decision reads:
WHEREFORE, the complainant, Rafael Maliksi, is
recognized as a regular employee of Philippine Software
Services and Education Center which respondent is ordered
to reinstate him to a job of the same level as his previous
position in any of the projects where there is a vacancy and
without loss of seniority rights. A five months backwages is
awarded because the prolonged suspension from his work
was brought about by his refusal to take any job offered by
PHILSSEC earlier in the proceedings of this case. The
respondent, SMC-Magnolia Division, is exempted from any
liability as the complaint against the said corporation is
dismissed for lack of merit.
SO ORDERED.[4]

Maliksis previous employment contracts with SMC, through these two


Maliksi appealed to the NLRC. In turn, in a decision dated January

entities, are deemed to have been entered into in violation of labor laws.

26, 1998, the NLRC reversed that of the Labor Arbiter by declaring Maliksi

Consequently, Maliksis employment with SMC became permanent and

a regular employee of the petitioner and ordering the latter to reinstate him

regular after the statutory period of one year of service through these entities.

without loss of seniority rights and with full benefits, to wit:

The CA concluded that on account of his past employment contracts with

WHEREFORE, as recommended, the decision


below is hereby SET ASIDE. Accordingly, judgment is
hereby rendered directing respondent SMC-Magnolia
Division to reinstate complainant as a regular employee
without loss of seniority rights and other privileges and to
pay complainant full backwages, inclusive of allowances and
other benefits or their monetary equivalent, computed from
the time his compensation was withheld from him up to time
of his actual reinstatement, plus 10% of the total money
award for and attorneys fees.
SO ORDERED.[5]

From the aforementioned decision of the NLRC, SMC went


on certiorari to the CA in CA-G.R. SP No. 50321.
As stated at the outset, the CA, in the herein assailed
[6]

Decision dated September 30, 1999, affirmed in toto that of the NLRC. In
so doing, the CA found SMC to have utilized PHILSSEC, Lipercon Services,
Inc. (Lipercon) and Skillpower, Inc. (Skillpower) as conduits to circumvent
Article 280 of the Labor Code, employing Maliksi as contractual or project
employee through these entities, thereby undermining his right to gain
regular employment status under the law. The appellate court echoed the
NLRCs assessment that Maliksis work was necessary or desirable in the
business of SMC in its Magnolia Division, for more than the required oneyear period. It affirmed the NLRCs finding that the three (3) conduit entities
adverted to, Lipercon and Skillpower, are labor-only contractors such that

SMC under Lipercon and Skillpower, Maliksi was already a regular


employee of SMC when he entered into SMCs computerization project as
part of the PHILSSEC project complement.
With its motion for reconsideration having been denied by the CA in
its Resolution of March 20, 2001, SMC is now with this Court via the present
recourse on the following assigned errors:

I
The Court of Appeals gravely erred in declaring
private respondent a regular employee of petitioner SMC
despite its findings that PHILSSEC, the contractor that
employed private respondent, is an independent job
contractor.
Corollarily, the declaration of the Honorable Court
of Appeals that private respondent is a regular employee of
petitioner SMC proceeds from the erroneous premise that
private respondent was already a regular employee of SMC
when he was hired by the independent contractor
PHILSSEC. Having been placed in petitioner SMC by a
supposed labor-only contractor, for just five months and for
a different job, three years after his last assignment therein,
private respondent had not thereby become a regular
employee of petitioner SMC.
II
The Court of Appeals gravely erred in ultimately
resolving the case upon the principle that all doubts must be

resolved in favor of labor; certainly, protection to labor does


not imply sanctioning a plain injustice to the employer,
particularly where private respondent was shown to have
stated falsehoods and committed malicious intercalations
and misrepresentations.

do manpower services to the public for a fee. The existence of an employer-

III

having served SMC for an aggregate period of more than three (3) years

The Court of Appeals gravely erred in declaring that


private respondent was not part of the of the personnel group
in the computerization program of petitioner SMC under
PHILSSEC.

We DENY.
SMC concedes that Maliksi, before his employment with
PHILSSEC, worked in SMC from November 1988 to April 1990, but as
employee of Skillpower[7] and that he was previously assigned to
SMC between 1981 up to February 1985, for periods spread apart.[8] The
Labor Arbiter found, as earlier stated, that Maliksi rendered service with
Liperconfrom 1 April 1981 to February 1982 as budget head assigned to
SMC-Beer Division; from July 1983 to April 1985 with Skillpower as
accounting clerk assigned to SMC-Magnolia Division, then from October
1988 to 1989[9] also with Skillpower as acting clerk assigned to SMCMagnolia Finance, and from October 1989 to 31 October 1990 with
PHILSSEC assigned to Magnolia Finance as accounting clerk. In all, it
appears that, while under the employ of either Lipercon or Skillpower,
Maliksi has undisputedly rendered service with SMC for at least three years
and seven months.[10]
The Court takes judicial notice of the fact that Lipercon and
Skillpower were declared to be labor-only contractors, [11] providing as they

employee relationship is factual and we give due deference to the factual


findings of both the NLRC and the CA that an employer-employee
relationship existed between SMC (or its subsidiaries) and Maliksi. Indeed,
through employment contracts with these two labor contractors, Maliksi
should be considered as SMCs regular employee. The hard fact is that he was
hired and re-hired by SMC to perform administrative and clerical work that
was necessary to SMCs business on a daily basis. In Bustamante v. National
Labor Relations Commission, [12] we ruled:
In the case at bar, petitioners were employed at
various periods from 1985 to 1989 for the same kind of
work they were hired to perform in September 1989.
Both the labor arbiter and the respondent NLRC agree
that petitioners were employees engaged to perform
activities necessary in the usual business of the
employer. As laborers, harvesters or sprayers in an
agricultural establishment which produces high grade
bananas, petitioners tasks are indispensable to the year-round
operations of respondent company. This belies the theory of
respondent company that the employment of petitioners was
terminated due to the expiration of their probationary period
in June 1990. If at all significant, the contract for
probationary employment was utilized by respondent
company as a chicanery to deny petitioners their status as
regular employees and to evade paying them the benefits
attached to such status. Some of the petitioners were hired as
far back as 1985, although the hiring was not
continuous. They were hired and re-hired in a span of
from two to four years to do the same type of work which
conclusively shows the necessity of petitioners service to
the respondent companys business. Petitioners have,
therefore, become regular employees after performing
activities which are necessary in the usual business of their
employer. But, even assuming that the activities of
petitioners in respondent companys plantation were not
necessary or desirable to its business, we affirm the public
respondents finding that all of the complainants (petitioners)

have rendered non-continuous or broken service for more


than one (1) year and are consequently considered regular
employees.

Corporation and Lipercon Services, Inc.


for illegal dismissal.

We do not sustain public respondents theory that


private respondent should not be made to compensate
petitioners for backwages because its termination of their
employment was not made in bad faith. The act of hiring
and re-hiring the petitioners over a period of time
without considering them as regular employees evidences
bad faith on the part of private respondent. The public
respondent made a finding to this effect when it stated that
the subsequent re-hiring of petitioners on a probationary
status clearly appears to be a convenient subterfuge on the
part of management to prevent complainants (petitioners)
from becoming regular employees. (Emphasis supplied)

The Voluntary Arbitrator rendered a


decision on 29 July 1988, the dispositive of
which states:

It is worth noting that, except for the computerization project of


PHILSSEC, petitioner did not make any insinuation at all that the services of
Maliksi with SMC was project-related such that an employment contract
with Lipercon and Skillpower was necessary.
In Madriaga v. Court of Appeals,[13] the Court, confronted with the
same issue now being addressed, declared that regularization of employment
in SMC should extend to those whose situation is similar to the complainants
in said case. We wrote:
This is the third time that the parties have invoked
the power of this Court to decide the labor dispute involved
in this case. The generative facts of the case are as follows:
On 04 March 1988, the NOWM and
a number of workers-complainants filed
with the Arbitration Branch of the NCR,
NLRC, Manila,
against
San
Miguel
Corporation, Philippine Dairy Products
Corporation,
Magnolia
Dairy
Products, Skillpower

xxx xxx xxx

WHEREFORE, it is hereby declared


that complainants are regular employees of
SMC and PDPC. Accordingly, SMC and
PDPC are hereby ordered to reinstate the
dismissed 85 complainants to their former
positions as their regular employees
effective from the date of the filing of their
complaints with full backwages less the
daily financial assistance of P30.00 per day
each, extended to them by Lipercon and
Skillpower.
Aggrieved by the said decision of the Voluntary
Arbitrator, SMC and PDPC filed a petition for certiorari
before the Supreme Court.
It was upon the filing of the said petition for
certiorari that the Court had the first opportunity to pass
upon the controversies involved in this case. In a Resolution
dated 30 August 1989, the Court dismissed G.R. No. 85577
entitled, Philippine Dairy Products Corporation and San
Miguel Corporation Magnolia Dairy Products Division v.
Voluntary Arbitrator Tito F. Genilo of the Department of
Labor and Employment (DOLE) and the National
Organization of Workingmen (NOWM) for lack of
merit. The Court held in full:
Individual private respondents are
xxx [SMC, et al.] laborers supplied to
petitioners
by Skillpower
Corporation and Lipercon Services, Inc.,
on the basis of contracts of services. Upon
expiration of the said contracts, individual
private respondents were denied entry to
petitioners' premises. Individual private
respondents and respondent union thus filed

separate complaints for illegal dismissal


against petitioners San Miguel Corp.,
Skillpower Corporation and Lipercon
Services, Inc., in the [NLRC, NCR] After
consolidation and voluntary arbitration,
respondent Labor Arbiter Tito F. Genilo
rendered a decision xxx declaring individual
private respondents regular employees of
petitioners and ordering the latter to reinstate
the former and to pay them backwages. On
motion for execution filed by private
respondents, Labor Arbiter Genilo issued on
October 20, 1988 an order directing, among
others, the regularization of all the
complainants which include those still
working
and
those
already
terminated. Hence, this petition for certiorari
with injunction.
Petitioners contend that prior to
reinstatement, individual private respondents
should
first
comply
with
certain
requirements, like submission of NBI and
police clearances and submission to physical
and medical examinations, since petitioners
are deemed to be direct employers and have
the right to ascertain the physical fitness and
moral uprightness of its employees by
requiring the latter to undergo periodic
examinations, and that petitioners may not
be ordered to employ on regular basis the
other workers rendering services to
petitioners by virtue of a similar contract
of services between petitioners and
Skillpower Corporation and Lipercon
Services, Inc. because such other workers
were not parties to or were not impleaded
in the voluntary arbitration case.
Considering that the clearances and
examinations sought by petitioners from
private respondents are not 'periodic' in
nature but are made preconditions for

reinstatement, as in fact the petition filed


alleged that reinstatement shall be effective
upon compliance with such requirements,
(pp. 5-6 thereof) which should not be the
case because this is not a case of initial
hiring, the workers concerned having
rendered years of service to petitioners
who are considered direct employers, and
that regularization is a labor benefit that
should apply to all qualified employees
similarly situated and may not be denied
merely because some employees were
allegedly not parties to or were not
impleaded in the voluntary arbitration
case, even as the finding of Labor Arbiter
Genilo is to the contrary, this Court finds
no grave abuse of discretion committed
by Labor Arbiter Genilo in issuing the
questioned order of October 20, 1988.
ACCORDINGLY,
the
Court
Resolved to Dismiss the petition for lack of
merit.
In fine, the Court affirmed the ruling of the
Voluntary Arbitrator and declared that therein complainants
are regular employees of San Miguel Corporation (SMC)
and PDPC. It must be noted that in the abovequoted
Resolution, the Court extended the benefit of
regularization not only to the original complainants but
also to those workers who are similarly situated to
therein complainants. Herein petitioners are among those
who are similarly situated.[14] (Emphasis supplied)
We find respondent Maliksi to be similarly situated with those of the
complainants in Madriaga. Indeed, Lipercon and Skillpower have figured in
not just a few of our decisions, [15] so much so that we are inclined to believe
that these two were involved in labor-only contracting with respect to
Maliksi. We hold that the finding of the NLRC and the CA as to SMCs
resorting to labor-only contracting is entitled to consideration in its full
weight.

products better, or monitor its sales and collection with efficiency. Without
With respect to PHILSSEC, there was no need for Maliksi to be
employed under the formers computerization program to be considered a

the data gatherer or encoder, no analysis could occur. SMC would then, for
the most part, be kept in the dark.

regular employee of SMC at the time. Moreover, SMC itself admits that
Maliksis work under the computerization program did not require the

As to the petitioners second assigned error, we hold that there is no

operation of a computer system, such as the software program being

need to resolve the present case under the principle that all doubts should be

developed by PHILSSEC.

[16]

Given this admission, we are simply at a loss to

understand why Maliksi should be included in the computerization project as

resolved in favor of the workingman. The perceived doubt does not obtain in
the first place.

a project employee. Not being a computer expert, Maliksis inclusion in the


project was uncalled for. To our mind, his placement in the project was for

We understand Maliksis desperation in making his point clear to

the purpose of circumventing labor laws. The evidence shows that

SMC, which unduly refuses to acknowledge his status as a regular employee.

immediately before he entered the PHILSSEC project in October 1989,

Instead, he was juggled from one employment contract to another in a

Maliksi was fresh out of his employment with SMC (through Skillpower) as

continuous bid to circumvent labor laws. The act of hiring and re-hiring

acting clerk assigned to SMC-Magnolia Finance (from October 1988 to

workers over a period of time without considering them as regular employees

1989).

evidences bad faith on the part of the employer.[17] Where, from the
circumstances, it is apparent that periods have been imposed to preclude the
Maliksis

mainly

acquisition of tenurial security by the employee, the policy, agreement or

administrative in nature and necessary to the development of SMCs business.

practice should be struck down as contrary to public policy, morals, good

These were:

customs or public order.[18] In point of law, any person who willfully causes

a.
b.
c.
d.
e.

work

under

the

PHILSSEC

project

was

posting manually the daily account balances in


the workset;
fitting the daily totals into the monthly totals;
comparing the manual totals with the
computer generated totals;
locating the differences between the totals;
and,
adjusting and correcting errors.

Simply put, the data gathered by SMC on a daily basis through Maliksis
work would be submitted for analysis and evaluation, thereby allowing SMC
to make the necessary business decisions that would enable it to market its

loss or injury to another in a manner that is contrary to morals, good customs


or public policy shall be liable for the damage.[19]
Ways and means contrived by employers to countermand labor laws
granting regular employment status to their workers are numerous and
long. For instance, they toss the poor workers from one job contractor to
another, make them go through endless applications, lining up, paperwork,
documentation, and physical examinations; make them sign five- or tenmonth-only job contracts, yet re-hire them after brief rest periods, but not
after requiring them to go through the whole application and selection
process once again; prepare and have them sign waivers, quitclaims, and the
like; refuse to issue them identification cards, receipts or any other concrete

proof of employment or documentary proof of payment of their salaries; fail

Considering, however, the supervening event that SMCs Magnolia

to enroll them for entitlement to social security and other benefits; give them

Division has been acquired by another entity, it appears that private

positions, titles or designations that connote short-term employment.

respondents reinstatement is no longer feasible. Instead, he should be

Others are more creative: they set up distributors or dealers which

awarded separation pay as an alternative. [21] Likewise, owing to petitioners

are, in reality, shell or dummy companies. In this manner, the mother

bad faith, it should be held liable to pay damages for causing undue injury

company avoids the employer-employee relations, and is thus shielded from

and inconvenience to the private respondent in its contractual hiring-firing-

liability from employee claims in case of illegal dismissal, closure, unfair

rehiring scheme.

labor practices and the like. In those instances, the poor employees, finding
the shell or dummy company to be without assets, often end up confused and

WHEREFORE, the instant petition is DENIED and the assailed CA

without recourse as to whom to run after. They sue the mother company

decision

dated

September

30,

1999

is AFFIRMED,

with

which conveniently sets up the defense of absence of employer-employee

the MODIFICATION that if the reinstatement of private respondent is no

relations. In San Miguel Corporation v. MAERC Integrated Services, Inc.,

longer practicable or feasible, then petitioner SMC is ordered to pay him, in

[20]

we took note of the practice of hiring employees through labor contractors

addition to the other monetary awards, separation pay for the period from

that catered exclusively to the employment needs of SMC or its divisions or

October 31, 1990 when he was dismissed until he shall have been actually

other specific business interests, such that after the specific SMC business or

paid at the rate of one (1) month salary for every year of his employment,

division ceases to do business, the labor contractor likewise ceases its

with a fraction of at least six (6) months being considered as one (1) year, or

operations.

the rate of separation pay awarded by petitioner to its other regular


employees as provided by written agreement, policy or practice, whichever is
higher or most beneficial to private respondent.

The contrivances may be many and the schemes ingenious and


imaginative. But this Court will not hesitate to put pen to a line and defend

In addition, petitioner is hereby suffered to indemnify private

the workers right to be secure in his (or her) proprietary right to regular

respondent the amount of P50,000.00 as nominal damages for its bad faith in

employment and his right to a secure employment, viz, one that is free from

juggling the latter from one labor contractor to another and causing him

fear and doubt, that anytime he could be removed, retrenched, his contract

unnecessary injury and inconvenience, and for denying him his proprietary

not renewed or he might not be re-hired. The ramifications may seem trivial,

right to regular employment.

but we cannot allow the ordinary Filipino workers right to tenurial security to
be put in jeopardy by recurrent but abhorrent practices that threaten the very
lives of those that depend on him.

Let this case be REMANDED to the Labor Arbiter for the


computation of private respondents backwages, proportionate 13th month
pay, separation pay, attorneys fees and other monetary awards; and for
immediate execution.

DECISION

Costs against the petitioner.

QUISUMBING, J.:
This

SO ORDERED.

is

an

appeal

to

reverse

and

set

aside

both

the

[1]

Decision dated August 29, 2003 of the Court of Appeals and its
Resolution[2] dated March 15, 2004 in CA-G.R. SP No. 69639. The appellate
court had reversed the decision [3] dated December 29, 2000 of the Secretary
of Labor and Employment which ordered the holding of a certification
election among the rank-and-file promo employees of respondent
Burlingame Corporation.
The facts are undisputed.
On January 17, 2000, the petitioner Lakas sa Industriya ng
Kapatirang Haligi ng Alyansa-Pinagbuklod ng Manggagawang Promo
ng Burlingame (LIKHA-PMPB) filed a petition for certification election
before the Department of Labor and Employment (DOLE). LIKHA-PMPB
sought to represent all rank-and-file promo employees of respondent
numbering about 70 in all. The petitioner claimed that there was no existing
union in the aforementioned establishment representing the regular rank-andfile promo employees. It prayed that it be voluntarily recognized by the

SECOND DIVISION
LAKAS SA INDUSTRIYA NG KAPATIRANG G.R. No. 162833
HALIGI NG ALYANSA-PINAGBUKLOD NG
MANGGAGAWANG
PROMO
NGBURLINGAME,
Petitioner,

respondent to be the collective bargaining agent, or, in the alternative, that a


certification/consent election be held among said regular rank-and-file promo
employees.
The respondent filed a motion to dismiss the petition. It argued that
there exists no employer-employee relationship between it and the petitioners

- versus BURLINGAME CORPORATION,


Respondent.

Promulgated:

June 15, 2007


x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

members. It further alleged that the petitioners members are actually


employees of F. Garil Manpower Services (F. Garil), a duly licensed local
employment agency. To prove such contention, respondent presented a copy
of its contract for manpower services with F. Garil.

On June 29, 2000, Med-Arbiter Renato D. Parungo dismissed [4] the

The resolution of this issue boils down to a determination of the true status of

petition for lack of employer-employee relationship, prompting the petitioner

F. Garil, i.e., whether it is an independent contractor or a labor-only

[5]

to file an appeal before the Secretary of Labor and Employment.

contractor.

On December 29, 2000, the Secretary of Labor and Employment


ordered the immediate conduct of a certification election. [6]

statutory criteria:

A motion for reconsideration of the said decision was filed by the


respondent on January 19, 2001, but the same was denied in the
Resolution[7] of February

19,

2002 of

the

Secretary

The case of De Los Santos v. NLRC[14] succinctly enunciates the

of

Labor

and

Employment.
Respondent then filed a complaint with the Court of Appeals, which
then reversed[8] the decision of the Secretary. The petitioner then filed a
motion for reconsideration,[9] which the Court of Appeals denied[10] on March

Job contracting is permissible only 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 the business.[15]

15, 2004.
According to Section 5 of DOLE Department Order No. 18-02,
Hence the instant petition for review on certiorari.
The issue raised in the petition is:
WHETHER THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR IN DECLARING
THAT THERE IS NO EMPLOYER-EMPLOYEE
RELATIONSHIP BETWEEN PETITIONERS MEMBERS
AND BURLINGAME BECAUSE F. GARIL MANPOWER
SERVICES IS AN INDEPENDENT CONTRACTOR.[11]

Respondent contends that there is no employer-employee relationship


between the parties.[12] Petitioner, on the other hand, insists that there is.[13]

Series of 2002:[16]
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 [is] present:
i)

The contractor or sub-contractor 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.

The four-fold test will show that respondent is the employer of petitioners
members. The elements to determine the existence 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 employers power to control the employees
conduct. The most important element is the employers control of the employees

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.

conduct, not only as to the result of the work to be done, but also as to the means

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.

1. The AGENCY shall provide Burlingame Corporation or


the CLIENT, with sufficient number of screened, tested and
pre-selected personnel (professionals, highly-skilled, skilled,
semi-skilled and unskilled) who will be deployed in
establishment selling products manufactured by the
CLIENT.

Given the above criteria, we agree with the Secretary that F. Garil is
not an independent contractor.
First, F. Garil does not have substantial capitalization or investment
in the form of tools, equipment, machineries, work premises, and other
materials, to qualify as an independent contractor. No proof was adduced to
show F. Garils capitalization.
Second, the work of the promo-girls was directly related to the
principal business or operation of Burlingame. Marketing and selling of
products is an essential activity to the main business of the principal.
Lastly, F. Garil did not carry on an independent business or undertake
the performance of its service contract according to its own manner and
method, free from the control and supervision of its principal, Burlingame.

and methods to accomplish it.[17]


A perusal of the contractual stipulations between Burlingame and F.
Garil shows the following:

2. The AGENCY shall be responsible in paying its workers


under this contract in accordance with the new minimum
wage including the daily living allowances and shall pay
them overtime or remuneration that which is authorized by
law.
3. It is expressly understood and agreed that the worker(s)
supplied shall be considered or treated as employee(s) of the
AGENCY. Consequently, there shall be no employeremployee relationship between the worker(s) and the
CLIENT and as such, the AGENCY shall be responsible to
the benefits mandated by law.
4. For and in consideration of the service to be rendered by
the AGENCY to the CLIENT, the latter shall during the
terms of agreement pay to the AGENCY the sum of Seven
Thousand Five Hundred Pesos Only (P7,500.00) per month
per worker on the basis of Eight (8) hours work payable upto-date, semi-monthly, every 15th and 30th of each calendar
month. However, these rates may be subject to change
proportionately in the event that there will be revisions in the

Minimum Wage Law or any law related to salaries and


wages.
5. The CLIENT shall report to the AGENCY any of its
personnel assigned to it if those personnel are found to be
inefficient, troublesome, uncooperative and not observing
the rules and regulations set forth by the CLIENT. It is
understood and agreed that the CLIENT may request any
time the immediate replacement of any personnel(s) assigned
to them.[18]

the funds actually came from the pockets of RFC. Thus, in


the end, RFC is still the one who paid the wages of petitioner
albeit indirectly.[20]
The contract also provides that any personnel found to be inefficient,
troublesome, uncooperative and not observing the rules and regulations set
forth by Burlingame shall be reported to F. Garil and may be replaced upon
request. Corollary to this circumstance would be the exercise of control and
supervision by Burlingame over workers supplied by F. Garil in order to

It is patent that the involvement of F. Garil in the hiring process was

establish the inefficient, troublesome, and uncooperative nature of

only with respect to the recruitment aspect, i.e. the screening, testing and pre-

undesirable personnel. Also implied in the provision on replacement of

selection of the personnel it provided to Burlingame. The actual hiring itself

personnel carried upon request byBurlingame is the power to fire personnel.

was done through the deployment of personnel to establishments


by Burlingame.

These are indications that F. Garil was not left alone in the supervision
and control of its alleged employees. Consequently, it can be concluded that F.

The contract states that Burlingame would pay the workers through
F. Garil, stipulating that Burlingame shall pay F. Garil a certain sum per
worker on the basis of eight-hour work every 15 th and 30th of each calendar
month. This evinces the fact that F. Garil merely served as conduit in the
payment of wages to the deployed personnel. The interpretation would have
been different if the payment was for the job, project, or services rendered
during the month and not on a per worker basis. In Vinoya v. National Labor
Relations Commission,[19] we held:

Garil was not an independent contractor since it did not carry a distinct

The Court takes judicial notice of the practice of


employers who, in order to evade the liabilities under the
Labor Code, do not issue payslips directly to their
employees. Under the current practice, a third person,
usually the purported contractor (service or manpower
placement agency), assumes the act of paying the wage. For
this reason, the lowly worker is unable to show proof that it
was directly paid by the true employer. Nevertheless, for the
workers, it is enough that they actually receive their pay,
oblivious of the need for payslips, unaware of its legal
implications. Applying this principle to the case at bar, even
though the wages were coursed through PMCI, we note that

not be contrary to law, morals, good customs, public order or public policy. A

business free from the control and supervision of Burlingame.


It goes without saying that the contractual stipulation on the
nonexistence of an employer-employee relationship between Burlingame and the
personnel provided by F. Garil has no legal effect. While the parties may freely
stipulate terms and conditions of a contract, such contractual stipulations should
contractual stipulation to the contrary cannot override factual circumstances
firmly establishing the legal existence of an employer-employee relationship.
Under this circumstance, there is no doubt that F. Garil was engaged
in labor-only contracting, and as such, is considered merely an agent
of Burlingame. In labor-only contracting, the law creates an employeremployee relationship to prevent a circumvention of labor laws. The
contractor is considered merely an agent of the principal employer and the

latter is responsible to the employees of the labor-only contractor as if such

On March 9, 2010, this Court rendered a Decision[1] holding: (a) that Promm-Gem,

employees had been directly employed by the principal employer. [21] Since F.

Inc. (Promm-Gem) is a legitimate independent contractor; (b) that Sales and

Garil is a labor-only contractor, the workers it supplied should be considered

Promotions Services (SAPS) is a labor-only contractor consequently its employees

as employees of Burlingame in the eyes of the law.

are considered employees of Procter & Gamble Phils., Inc. (P&G); (c) that PrommGem is guilty of illegal dismissal; (d) that SAPS/P&G is likewise guilty of illegal

WHEREFORE, the challenged Decision of the Court of Appeals

dismissal; (e) that petitioners are entitled to reinstatement; and (f) that the dismissed

dated August 29, 2003 and the Resolution dated March 15, 2004 denying the

employees of SAPS/P&G are entitled to moral damages and attorneys fees there

motion for reconsideration areREVERSED and SET ASIDE. The decision of

being bad faith in their dismissal.

the Secretary of Labor and Employment ordering the holding of a certification


election among the rank-and-file promo employees ofBurlingame is reinstated.
Costs against respondent.
SO ORDERED.

FIRST DIVISION
JOEB M. ALIVIADO,
et. al., Petitioners,

G.R. No. 160506

- versus PROCTER & GAMBLE PHILS., INC.,


and PROMM-GEM INC.,
Respondents.
x----------------------------------------------------------------x
R E S O LU TI O N
DEL CASTILLO, J.:

The dispositive portion of our Decision reads:


WHEREFORE, the petition is GRANTED. The
Decision dated March 21, 2003 of the Court of Appeals in CAG.R. SP No. 52082 and the Resolution dated October 20, 2003
are REVERSED and SET ASIDE. Procter & Gamble Phils.,
Inc. and Promm-Gem, Inc. are ORDERED to reinstate their
respective employees immediately without loss of seniority rights
and with full backwages and other benefits from the time of their
illegal dismissal up to the time of their actual
reinstatement. Procter
&
Gamble
Phils.,
Inc.
is
further ORDERED to pay each of those petitioners considered as
its employees, namely Arthur Corpuz, Eric Aliviado, Monchito
Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo
Platon, Estanislao Buenaventura, Lope Salonga, Franz David,
Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio
Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez,
Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando
Montos, Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo,
Promulgated: Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo,
June 6, 2011 Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C.
Toledo, Jr., Arnold D. Laspoa, Philip M. Loza, Mario N.
Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C.
Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr.,
Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil
Tawat, Cresente J. Garcia, Melencio Casapao, Romeo Vasquez,
Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis
Dacasin, P25,000.00 as moral damages plus ten percent of the
total sum as and for attorneys fees.

Let this case be REMANDED to the Labor Arbiter for


the computation, within 30 days from receipt of this Decision, of
petitioners backwages and other benefits; and ten percent of the
total sum as and for attorneys fees as stated above; and for
immediate execution.

Clarification, Motion to Refer the Case to the Supreme Court En Banc with Second
Motion for Reconsideration and Motion for Clarification, Motion for Leave to
Admit the Attached Supplement to the Motion to Refer the Case to the Supreme
Court En Banc with Second Motion for Reconsideration and Motion for
Clarification as well as its Supplement to the Motion to Refer the Case to the

SO ORDERED.

[2]

Supreme Court En Banc with Second Motion for Reconsideration and Motion for
Clarification, be resolved as they were filed before it received notice of the entry of
[3]

[4]

P&G filed a Motion for Reconsideration, an Opposition (to petitioners' motion

judgment.

[5]

for partial reconsideration), and Supplemental Opposition. On the other hand,


petitioners

filed

a Motion

for

Reconsideration[6] and Comment/

Partial

Opposition[7] (to P&G's motion for reconsideration).

In our Resolution[15] dated January 17, 2011, we resolved to note the aforesaid
pleadings and at the same time to require the petitioners to file their comment
thereto. We reiterated our directive for petitioners to file their comment via our

On June 16, 2010, we denied the Motion for Reconsideration of P&G as well as the

Resolution[16] dated February 28, 2011. On March 16, 2011, petitioners filed a Very

Motion for Partial Reconsideration of the petitioners.[8]

Urgent Manifestation[17] in lieu of their comment. In gist, they reminded this Court of
the Entry of Judgment made on July 27, 2010 and argued that the motions filed by

Entry of Judgment was made on July 27, 2010.

[9]

P&G are frivolous and dilatory.

Before any of the parties received the notice of Entry of Judgment, P&G filed on
August 9, 2010 a Motion for Leave to File Motion to Refer the Case to the Supreme
Court En Banc with Second Motion for Reconsideration and Motion for

Issuance of Entry
Judgment was Proper.

of

Clarification[10] and a Motion to Refer the Case to the Supreme Court En Banc with
Second Motion for Reconsideration and Motion for Clarification.[11]On October 4,

We stress that the issuance of the Entry of Judgment on July 27, 2010 was proper

2010, P&G filed a Motion for Leave to Admit the Attached Supplement to the

because it was made after receipt by P&G of a copy of the Resolution denying its

Motion to Refer the Case to the Supreme Court En Banc with Second Motion for

motion for reconsideration. Section 1, Rule 15 of the Internal Rules of the Supreme

Reconsideration and Motion for Clarification

[12]

as well as a Supplement to the

Motion to Refer the Case to the Supreme Court En Banc with Second Motion for
Reconsideration and Motion for Clarification.[13]
Thereafter, or on November 8, 2010, P&G filed a Manifestation and
Motion[14] praying that its Motion for Leave to File Motion to Refer the Case to the
Supreme Court En Banc with Second Motion for Reconsideration and Motion for

Court[18] provides that:


SECTION 1. Finality of decisions and resolutions. - A decision or
resolution of the Court may be deemed final after the lapse of
fifteen days from receipt by the parties of a copy of the same
subject to the following:
(a) the date of receipt indicated in the registry return card signed
by the party or, in case he or she is represented by counsel, by such

counsel or his or her representative, shall be the reckoning date for


counting the fifteen-day period; and

that the period for the finality of judgments shall


run, thereby, prolonging the disposition of cases.
Moreover, such a ruling would allow a party to
forestall the running of the period of finality of
judgments by virtue of filing a prohibited
pleading; such a situation is not only illogical but
also unjust to the winning party.[20]

(b) if the Judgment Division is unable to retrieve the registry


return card within thirty (30) days from mailing, it shall
immediately inquire from the receiving post office on (i) the date
when the addressee received the mailed decision or resolution, and
(ii) who received the same, with the information provided by
authorized personnel of the said post office serving as the basis for
the computation of the fifteen-day period.

The March 9, 2010 Decision


has attained finality; it is
therefore immutable.

It is immaterial that the Entry of Judgment was made without the Court having first
resolved P&Gs second motion for reconsideration. This is because the issuance of

The March 9, 2010 Decision had already attained finality. It could no longer be set

the entry of judgment is reckoned from the time the parties received a copy of the

aside or modified.

resolution denying the first motion for reconsideration. The filing by P&G of several
pleadings after receipt of the resolution denying its first motion for reconsideration
does not in any way bar the finality or entry of judgment. Besides, to reckon the
finality of a judgment from receipt of the denial of the second motion for
reconsideration would be absurd. First, the Rules of Court and the Internal Rules of
the

Supreme

Court

prohibit

the

filing

of

second

motion

for

reconsideration. Second, some crafty litigants may resort to filing prohibited


pleadings just to delay entry of judgment. Our ruling in Securities and Exchange
Commission v. PICOP Resources, Inc.[19] is instructive, thus:
In Dinglasan v. Court of Appeals, this Court explained the
reason why it is unwise to reckon the period of finality of
judgment from the denial of the second motion for
reconsideration.
To rule that finality of judgment shall be
reckoned from the receipt of the resolution or
order denying the second motion for
reconsideration would result to an absurd
situation whereby courts will be obliged to
issue orders or resolutions denying what is a
prohibited motion in the first place, in order

It is a hornbook rule that once a judgment has become final and


executory, it may no longer be modified in any respect, even if the
modification is meant to correct an erroneous conclusion of fact or
law, and regardless of whether the modification is attempted to be
made by the court rendering it or by the highest court of the land,
as what remains to be done is the purely ministerial enforcement
or execution of the judgment.
The doctrine of finality of judgment is grounded on fundamental
considerations of public policy and sound practice that at the risk
of occasional errors, the judgment of adjudicating bodies must
become final and executory on some definite date fixed by law. [],
the Supreme Court reiterated that the doctrine of immutability of
final judgment is adhered to by necessity notwithstanding
occasional errors that may result thereby, since litigations must
somehow come to an end for otherwise, it would 'even be more
intolerable than the wrong and injustice it is designed to
correct.'[21]
In Mocorro, Jr. v. Ramirez,[22] we held that:
A definitive final judgment, however erroneous, is no longer
subject to change or revision.
A decision that has acquired finality becomes immutable and

unalterable. This quality of immutability precludes the


modification of a final judgment, even if the modification is meant
to correct erroneous conclusions of fact and law. And this postulate
holds true whether the modification is made by the court that
rendered it or by the highest court in the land. The orderly
administration of justice requires that, at the risk of occasional
errors, the judgments/resolutions of a court must reach a point of
finality set by the law. The noble purpose is to write finis to
dispute once and for all. This is a fundamental principle in our
justice system, without which there would be no end to litigations.
Utmost respect and adherence to this principle must always be
maintained by those who exercise the power of adjudication. Any
act, which violates such principle, must immediately be struck
down. Indeed, the principle of conclusiveness of prior
adjudications is not confined in its operation to the judgments of
what are ordinarily known as courts, but extends to all bodies upon
which judicial powers had been conferred.
The only exceptions to the rule on the immutability of final
judgments are (1) the correction of clerical errors, (2) the socalled nunc pro tunc entries which cause no prejudice to any party,
and (3) void judgments. Nunc pro tunc judgments have been
defined and characterized by the Court in the following manner:
The object of a judgment nunc pro
tunc is not the rendering of a new judgment and
the ascertainment and determination of new
rights, but is one placing in proper form on the
record, the judgment that had been previously
rendered, to make it speak the truth, so as to
make it show what the judicial action really was,
not to correct judicial errors, such as to render a
judgment which the court ought to have
rendered, in place of the one it did erroneously
render, nor to supply nonaction by the court,
however erroneous the judgment may have
been. (Wilmerding vs. Corbin Banking Co., 28
South., 640, 641; 126 Ala., 268.)

date. Its office is not to supply omitted action by


the court, but to supply an omission in the record
of action really had, but omitted through
inadvertence or mistake. (Perkins vs. Haywood,
31 N. E., 670, 672)
A second motion
reconsideration
is
prohibited pleading.

for
a

Section 2, Rule 52 of the Rules of Court explicitly provides that [n]o motion for
reconsideration of a judgment or final resolution by the same party shall be
entertained. Moreover, Section 3, Rule 15 of the Internal Rules of the Supreme
Court[23] decrees viz:
SEC. 3. Second motion for reconsideration. - The Court shall not
entertain a second motion for reconsideration and any exception to
this rule can only be granted in the higher interest of justice by the
Court en banc upon a vote of at least two-thirds of its actual
membership. There is reconsideration 'in the highest interest of
justice' when the assailed decision is not only legally erroneous but
is likewise patently unjust and potentially capable of causing
unwarranted and irremediable injury or damage to the parties. A
second motion for reconsideration can only be entertained before
the ruling sought to be reconsidered becomes final by
operation of law or by the Court's declaration.
In the Division, a vote of three Members shall be required to
elevate a second motion for reconsideration to the Court En Banc.
[24]

Clearly, therefore, P&G's second motion for reconsideration could no longer be


entertained based on two grounds: First, it is a prohibited pleading. Second, the

A nunc pro tunc entry in practice is an entry


made now of something which was actually
previously done, to have effect as of the former

ruling sought to be reconsidered has already become final per Entry of Judgment
made on July 27, 2010.

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:

The foregoing notwithstanding, we will proceed to discuss the issues raised by P&G
not because they are of transcendental importance or that P&G proffered
extraordinarily persuasive reasons[25]but only to dispel any doubt that it is being

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) [T]he contractor does not exercise the right to control over the
performance of the work of the contractual employee.

denied due process.


The
Court
correctly
determined that SAPS is a
labor-only contractor.

There is no basis for P&G's claim that the Court erred in not applying the four-fold
test, particularly the control test in determining whether SAPS is a legitimate
independent contractor or a labor-only contractor. As discussed in our March 9, 2010
Decision, the applicable rules are Article 106 of the Labor Code and Rule VIII-A,
Book III of the Omnibus Rules Implementing the Labor Code, as amended by
Department Order No. 18-02.[26]

Therefore, the control test is merely one of the factors to consider. This is clearly
deduced from the above-provision which states that labor-only contracting exists
when any of the two elements is present. In our March 9, 2010 Decision, it was
established that SAPS has no substantial capitalization and it was performing
merchandising and promotional activities which are directly related to P&G's
business. Since SAPS met one of the requirements, it was enough basis for us to
hold that it is a labor-only contractor. Consequently, its principal, P&G, is considered

Article 106 defines labor-only contracting, viz:


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 employer of its employees. This is pursuant to our ruling in Aklan v. San Miguel
Corporation[27] where we held that [a] finding that a contractor is a laboronly contractor, as opposed to permissible job contracting, is equivalent to
declaring that there is an employer-employee relationship between the
principal and the employees of the supposed contractor, and the labor-only
contractor is considered as a mere agent of the principal, the real employer.
Corollarily, we also decreed in Coca-Cola Bottlers Phils., Inc. v.
Agito

[28]

that:

On the same vein, Rule VIII-A, Book III of the Omnibus Rules Implementing the
Labor Code, as amended by Department Order No. 18-02, pertinently provides:
Section 5. Prohibition against labor-only contracting. Labor only
contracting is hereby declared prohibited. For this purpose, labor-

The law clearly establishes an employer-employee


relationship between the principal employer and the contractor's
employee upon a finding that the contractor is engaged in "laboronly" contracting. Article 106 of the Labor Code categorically

states: "There is `labor-only' contracting where the person


supplying workers to an employer does not have substantial capital
or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by
such persons are performing activities which are directly related to
the principal business of such employer." Thus, performing
activities directly related to the principal business of the employer
is only one of the two indicators that "labor-only" contracting
exists; the other is lack of substantial capital or investment. The
Court finds that both indicators exist in the case at bar.
The Court did not err in
finding that SAPS has no
substantial capital.
P&G claims that contrary to the principle that no absolute figure is set for what is
considered 'substantial capital' because the same is measured against the type of
work which the contractor is obligated to perform for the principal,[29] the March 9,
2010 Decision used the prevailing economic atmosphere in the country and the
capitalization of another contractor engaged to perform a different kind of service to
gauge the sufficiency or insufficiency of the capitalization of SAPS.
This is misleading. Our discussion on whether Promm-Gem and SAPS have
substantial capitalization in our March 9, 2010 Decision is self-explanatory.
In the instant case, the financial statements of Promm-Gem show
that it has authorized capital stock of P1 million and a paid-in
capital, or capital available for operations, of P500,000.00 as of
1990. It also has long term assets worth P432,895.28 and current
assets of P719,042.32. Promm-Gem has also proven that it
maintained its own warehouse and office space with a floor area of
870 square meters. It also had under its name three registered
vehicles which were used for its promotional/merchandising
business. Promm-Gem also has other clients aside from
P&G. Under the circumstances, we find that Promm-Gem has
substantial investment which relates to the work to be
performed. These facts negate the existence of the element
specified in Section 5(i) of DOLE Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainantworkers with the relevant materials, such as markers, tapes, liners
and cutters, necessary for them to perform their work. PrommGem also issued uniforms to them. It is also relevant to mention
that Promm-Gem already considered the complainants working
under it as its regular, not merely contractual or project,
employees. This circumstance negates the existence of element (ii)
as stated in Section 5 of DOLE Department Order No. 18-02,
which speaks of contractual employees. This, furthermore,
negates on the part of Promm-Gem bad faith and intent to
circumvent labor laws which factors have often been tipping
points that lead the Court to strike down the employment practice
or agreement concerned as contrary to public policy, morals, good
customs or public order.
Under the circumstances, Promm-Gem cannot be considered as a
labor-only contractor. We find that it is a legitimate independent
contractor.
On the other hand, the Articles of Incorporation of SAPS
shows that it has a paid-in capital of only P31,250. There is no
other evidence presented to show how much its working
capital and assets are.Furthermore, there is no showing of
substantial investment in tools, equipment or other assets.
In Vinoya v. National Labor Relations Commission, the Court held
that [w]ith the current economic atmosphere in the country, the
paid-in capitalization of PMCI amounting to P75,000.00 cannot be
considered as substantial capital and, as such, PMCI cannot qualify
as an independent contractor. Applying the same rationale to the
present case, it is clear that SAPS having a paid-in capital of
only P31,250 has no substantial capital. SAPS' lack of
substantial capital is underlined by the records which show
that its payroll for its merchandisers alone for one month
would already total P44,561.00. It has 6-month contracts with
P&G. Yet SAPS failed to show that it could complete the 6month contracts using its own capital and investment. Its
capital is not even sufficient for one month's payroll. SAPS
failed to show that its paid-in capital of P31,250.00 is sufficient
for the period required for it to generate [the] needed revenue
to sustain its operations independently. Substantial capital
refers to capitalization used in the performance or

completion of the job, work or service contracted out. In the


present case, SAPS failed to show substantial capital.[30]
The awards of moral
damages and attorney's fees
are proper.

there was any bad faith in the dismissal of the petitioners, it could only be attributed
to SAPS and not to P&G. [34] It asserts that it acted in good faith in dealing with
SAPS.
The contentions are untenable. It must be emphasized that in labor-only

P&G insists that to be entitled to moral damages, it must be proven that the act of
dismissal was attended by bad faith or fraud, or was oppressive to labor, or done in a
manner contrary to morals, good customs, or public policy.[31] Our March 9, 2010
Decision complied with this requirement when we ruled in this wise:
We now go to the issue of whether petitioners are entitled to
damages. Moral and exemplary damages are recoverable where
the dismissal of an employee was attended by bad faith or fraud or
constituted an act oppressive to labor or was done in a manner
contrary to moral, good customs or public policy.
With regard to the employees of Promm-Gem, there being no
evidence of bad faith, fraud or any oppressive act on the part of the
latter, we find no support for the award of damages.
As for P&G, the records show that it dismissed its employees
through SAPS in a manner oppressive to labor. The sudden
and peremptory barring of concerned petitioners from work,
and from admission to the work place, after just a one-day
verbal notice, and for no valid cause bellows oppression and
utter disregard of the right to the due process of the concerned
petitioners. Hence, an award of moral damages is called for.
Attorney's fees may likewise be awarded to the concerned
petitioners who were illegally dismissed in bad faith and were
compelled to litigate or incur expenses to protect their rights by
reason of the oppressive acts of P&G.[32]

contracting, the labor-only contractor is considered merely an agent of the principal


employer. The principal employer is responsible to the employees of the labor-only
contractor as if such employees had been directly employed by the principal
employer. The principal employer therefore becomes solidarily liable with the laboronly contractor for all the rightful claims of the employees.[35]
P&G's assertions that it was
held responsible for 10
employees
despite
their
having no record of having
been assigned by SAPS to
P&G and that petitioners
could not be reinstated
because there are no
available positions for them
in the existing plantilla of
P&G are belatedly raised.

P&G claims that 10 out of the 50 employees of SAPS have never been assigned to
P&G; thus, they should not be declared employees of P&G.[36] In particular, P&G
asserts that Rosedy Yordan, Dennis Dacasin, Allan Baltazar, Philip Loza, Emil
Tawat, Cresente Garcia, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr. and
Elias Basco, were never assigned to it.
It would appear that this issue was raised for the first time in P&G's second motion
for reconsideration. It will be noted that in petitioners' Petition for Review

Nevertheless, P&G insists that there is no evidence to prove that it dismissed the
petitioners, much less that it was done in an oppressive manner.[33] It claims that if

on Certiorari,[37] and even in petitioners' previous pleadings, it was alleged already


that Rosedy Yordan,[38] Dennis Dacasin,[39] Allan Baltazar,[40] Philip Loza,[41] Emil

Tawat,[42] Cresente Garcia,[43] Romeo Vasquez,[44] Renato dela Cruz,[45] Romeo

without basis. It omitted to mention the issue of reinstatement which is one of

Viernes, Jr.[46] and Elias Basco[47] were employees of P&G through its own agents

petitioners' causes of action.

and salesmen. However, this was never rebutted by P&G. In fact, in its
Comment[48] P&G even alleged that it was amply shown throughout the course of

Even after the rendition of our March 9, 2010 Decision where we ordered the

the proceedings that the respondent contractors, through an assigned supervisor,

reinstatement of the petitioners, P&G still failed to raise the non-feasibility of the

regularly checked the attendance of the petitioners, monitored their on-site

same. In its Motion for Reconsideration,[52] P&G only tersely stated that there is no

performance, and oversaw their actual day-to-day work in the areas where they had

basis for petitioners' reinstatement or payment of backwages because they are not its

been engaged to promote the products of respondent P&G.[49] This alone belies the

employees. It is only now that it is raising the issue that no similar or equivalent

claim that these 10 petitioners were never assigned by SAPS to P&G. Moreover, this

position exists in its plantilla and that there is existing antagonism between the

issue has not been raised in P&G's Memorandum; consequently it is now considered

parties.[53] It is likewise in its second motion for reconsideration and in its supplement

as waived or abandoned. In our January 29, 2007 Resolution[50] we apprised both

thereto that P&G is raising the issue that reinstatement is no longer feasible because

parties that [n]o new issues may be raised by a party in his/its memorandum and the

of the length of time that has passed from the date of their dismissal to the final

issues raised in his/its pleadings but not included in the memorandum shall be

resolution of the case.[54] P&G failed to raise this matter in its first motion for

deemed waived or abandoned. Being summations of the parties' previous pleadings,

reconsideration. It was only after the Decision became final and executory that it

the Court may consider the memoranda alone in deciding or resolving this petition.

brought this issue to the attention of the Court. For the orderly administration of
justice, the rules of court provide for only one motion for reconsideration so errors

Likewise raised belatedly is P&G's claim that petitioners could no longer be

committed by the Court may be brought to its attention and the Court be given a

reinstated because its existing plantilla does not have positions for them; that there is

chance to timely correct its mistake. It wreaks havoc on the administration of justice

a climate of antagonism pervading between the parties; and because of the prolonged

to allow parties to move for a reconsideration of a decision in a piecemeal manner

period of time that has passed between the dismissals and the resolution of the case.

and with no time limit. Even P&G concedes to this principle when it stated in its

We note that petitioners had been consistently praying for reinstatement as shown in

Supplemental Opposition[55] (to petitioners' motion for partial reconsideration) that to

their Memorandum filed before the Labor Arbiter, Memorandum of Appeal filed

allow fresh issues on appeal is violative of the rudiments of fair play, justice and due

before the National Labor Relations Commission, Motion for Reconsideration filed

process.[56]

before the Court of Appeals, and their Petition for Review on Certiorari and

Well-settled is the rule that issues or grounds not raised below cannot be resolved on

Memorandum filed before this Court. However, in P&G's Memorandum filed

review by the Supreme Court, for to allow the parties to raise new issues is

before this Court, it merely confined its discussion to the fact that it was allegedly not

antithetical to the sporting idea of fair play, justice and due process. Issues not raised

the employer of the herein petitioners and proceeded to argue that there being no

during the trial cannot be raised for the first time on appeal and more especially on

employer-employee relationship between it and the petitioners, then petitioners'

motion for reconsideration. Litigation must end at some point; once the case is

claims for backwages, monetary claims, damages and/or attorney's fees

[51]

are

finally adjudged, the parties must learn to accept victory or defeat. [57] Finally, we
wish to reiterate our discussion above that a second motion for reconsideration is a

prohibited pleading and that the instant Decision had already attained finality hence
it is already immutable.
Every case must end at some some point. Every Decision becomes final
and executory at some point. In the present case, the Entry of Judgment states that
the Decision became final and executory on July 27, 2010.
ACCORDINGLY, premises

rests on the assumption that the independent contractor is a legitimate job


contractor so that there can be no doubt as to the existence of an employeremployee relationship between the contractor and the worker. It is an
altogether different matter when the very existence of an employment
relationship is in question, as in the case at bar. As the Court ruled in Singer
Sewing Machine Company vs. Drilon; Art. 280 is not the yardstick for
determining the existence of an employment relationship because it merely
distinguishes between two kinds of employees, i.e., regular employees and
casual employees

considered,

we DENY with FINALITY respondent Procter & Gamble Phils., Inc.'s Motion to
Refer the Case to the Supreme Court En Banc with Second Motion for
Reconsideration and Motion for Clarification and its Supplement to the Motion to
Refer the Case to the Supreme Court En Banc with Second Motion for
Reconsideration and Motion for Clarification considering that the assailed March 9,
2010 Decision has already attained finality in view of the Entry of Judgment made
on July 27, 2010. No further pleadings shall be entertained.
SO ORDERED.
SYNOPSIS
Private respondent Ramon Canonicato was hired as a janitor by the
Bacolod Janitorial Services (BJS). He was assigned at the Coca Cola
Bottlers, Inc. considering his familiarity with its premises, having been
previous casual employee there. On July 23, 1993, respondent filed with the
Labor Arbiter a complaint for illegal dismissal and underpayment of wages.
He included BJS therein as a co-respondent. The Labor Arbiter dismissed
the complaint and ruled that there was employer-employee relationship
between Canonicato and Coca Cola. The NLRC rejected the decision of the
Labor Arbiter on the ground that the janitorial services of Canonicato were
found to be necessary in the usual trade of Coca Cola. Its motion for
reconsideration having been denied, Coca Cola filed this petition. Petition
granted. Although janitorial services may be considered directly related to the
principal business of an employer, the Court deemed them unnecessary in the
conduct of the employers principal business. This judicial notice however

In determining the existence of an employer-employee relationship, the


presence of the following factors are considered: a) selection and
engagement of the employee; b) payment of wages; c) power to dismiss; and,
d) power to control the employees conduct. These are all found in the
relationship between BJS and Canonicato.
SYLLABUS
1. LABOR AND SOCIAL LEGISLATION; EMPLOYER-EMPLOYEE
RELATIONSHIP; JANITORIAL SERVICES UNNECESSARY IN
CONDUCT OF EMPLOYERS BUSINESS. We perceive at the outset
the disposition of the NLRC that janitorial services are necessary and
desirable to the trade or business of petitioner COCA COLA. But this is
inconsistent with our pronouncement in Kimberly Independent Labor
Union v. Drilon where the Court took judicial notice of the practice
adopted in several government and private institutions and industries of
hiring janitorial services on an independent contractor basis. In this
respect, although janitorial services may be considered directly related
to the principal business of an employer, as with every business, we
deemed them unnecessary in the conduct of the employers principal
business.
2. ID.; ID.; ARTICLE 280 OF THE LABOR CODE DOES NOT APPLY
WHERE EXISTENCE OF EMPLOYMENT RELATIONSHIP IS
IN DISPUTE. It is an altogether different matter when the very
existence of an employment relationship is in question. This was the
issue generated by Canonicatos application for regularization of his

employment with COCA COLA and the subsequent denial by the latter
of an employer-employee relationship with the applicant. It was error
therefore for the NLRC to apply Art. 280 of the Labor Code in
determining the existence of an employment relationship of the parties
herein, especially in light of our explicit holding in Singer Sewing
Machine Company v. Drilon that x x x [t]he definition that regular
employees are those who perform activities which are desirable and
necessary for business of the employer is not determative in this case.
Any agreement may provide that one party shall render services for and
in behalf of another for a consideration ( no matter how necessary for
the latters business ) even without being hired as an employee. This is
precisely true in the case of an independent contractorship as well as in
an agency agreement. The Court agrees with the petitioners argument
that Article 280 is not the yardstick for determining the existence of an
employment relationship because it merely distinguishes between two
kinds of employees, i.e., regular employees and casual employees, for
purposes of determining the right of an employee to certain benefits, to
join or form a union, or to security of tenure. Article 280 does not apply
where the existence of an employment relationship is in dispute.
3.

ID.; ID.; FACFORS IN DETERMINING EMPLOYEREMPLOYEE RELATIONSHIP; ABSENT IN CASE AT BAR. In


determining the existence of an employer-employee relationship it is
necessary to determine whether the following factors are present: (a) the
selection and engagement of the employee; (b) the payment of wages;
(c) the power to dismiss; and, (d) the power to control the employees
conduct. Notably, these are all found in the relationship between BJS
and Canonicato and not between Canonicato and petitioner COCA
COLA. As the Solicitor-General manifested In the instant case, the
selection and engagement of the janitors for petitioner were done by
BJS. The application form and letter submitted by private respondent
(Canonicato) to BJS show that he acknowledged the fact that it was BJS
who did the hiring and not petitioner x x x BJS paid the wages of private
respondent, as evidenced by the fact that on July 15, 1993, private
respondent sent his sister to BJS with a note authorizing her to receive
his pay. Power of dismissal is also exercised by BJS and not petitioner.
BJS is the one that assigns the janitors to its clients and transfers them

when it sees fit. Since BJS is the one who engages their services, then it
only follows that it also has the power to dismiss them when justified
under the circumstances. Lastly, BJS has the power to control the
conduct of the janitors. x x x.
4. ID.; ID.; POWER OF CONTROL; UNAVAILING IN CASE AT
BAR. The power of the employer to control the work of the employee is
said to be the most significant determinant. Canonicato disputed this
power of BJS over him by asserting that his employment with COCA
COLA was not interrupted by his application with BJS since his duties
before and after he applied for regularization were the same, involving
as they did, working in the maintenance department and doing painting
tasks within its facilities. Canonicato cited the Labor Utilization
Reports of COCA COLA showing his painting assignments. These
reports, however, are not expressive of the true nature of the relationship
between Canonicato and COCA COLA; neither do they detract from the
fact that BJS exercised real authority over Canonicato as its employee.
5.

ID.; ID.; JOB CONTRACTOR; REQUIREMENTS; DULY


ESTABLISHED IN CASE AT BAR. It is clear from these established
circumstances that NLRC should have recognized BJS as the employer
of Canonicato and not COCA COLA. This is demanded by the fact that
it did not disturb, and therefore it upheld, the finding of the Labor
Arbiter that BJS was truly a legitimate job-contractor and could by itself
hire its own employees. The Commission could not have reached any
other legitimate conclusion considering that BJS satisfied all the
requirements of a job-contractor under the law, namely, (a) the ability to
carry on an independent business and undertake the contract work on its
own account under its own responsibility according to its own manner
and method, free from the control and direction of its principal or client
in all matters connected with the performance of the work except as to
the restrlts thereof; and, (b) the substantial capital or investment in the
form of tools, equipment, machinery, work premises, and other
materials which are necessary in the conduct of its business.

SECOND DIVISION
[G.R. No. 120466. May 17, 1999]
COCA COLA BOTTLERS PHILS., INC., petitioner, vs. NATIONAL
LABOR RELATIONS COMMISSION and RAMON B.
CANONICATO, respondents.
DECISION
BELLOSILLO, J.:
This petition for certiorari under Rule 65 of the Revised Rules of Court
assails the 3 January 1995 decision [1] of the National Labor Relations
Commission (NLRC) holding that private respondent Ramon B. Canonicato
is a regular employee of petitioner Coca Cola Bottlers Phils. Inc. (COCA
COLA) entitled to reinstatement and back wages. The NLRC reversed the
decision of the Labor Arbiter of 28 April 1994 [2] which declared that no
employer-employee relationship existed between COCA COLA and
Canonicato thereby foreclosing entitlement to reinstatement and back wages.
On 7 April 1986 COCA COLA entered into a contract of janitorial
services with Bacolod Janitorial Services (BJS) stipulating [3] among others That the First Party (COCA COLA) desires to engage the services of the
Second Party (BJS), as an Independent Contractor, to perform and provide
for the maintenance, sanitation and cleaning services for the areas
hereinbelow mentioned, all located within the aforesaid building of the First
Party x x x x

commodes, urinals and washbasins, water spots on chrome and other fixtures
to be checked; 3) Cleaning of glass surfaces, windows and glass partitions
that require daily attention; 4) Cleaning and dusting of horizontal and vertical
surfaces; 5) Cleaning of fixtures, counters, panels and sills; 6) Clean, pick-up
cigarette butts from sandburns and ashtrays and trash receptacles; 7) Trash
and rubbish disposal and burning.
In addition, the Second Party will also do the following once a week, to wit:
1) Cleaning, waxing and polishing of lobbies and offices; 2) Washing of
windows, glasses that require cleaning; 3) Thorough disinfecting and
cleaning of toilets and washrooms.
3. The Second Party shall supply the necessary utensils, equipment and
supervision, and it shall only employ the services of fifteen (15) honest,
reliable, carefully screened, cooperative and trained personnel, who are in
good faith, in the performance of its herein undertaking x x x x
4. The Second Party hereby guarantees against unsatisfactory
workmanship. Minor repair of comfort rooms are free of charge provided the
First Party will supply the necessary materials for such repairs at its
expense.As may be necessary, the Second Party shall also report on such
part or areas of the premises covered by this contract which may require
repairs from time to time x x x (italics supplied).
Every year thereafter a service contract was entered into between the
parties under similar terms and conditions until about May 1994. [4]

1. The scope of work of the Second Party includes all floors, walls, doors,
vertical and horizontal areas, ceiling, all windows, glass surfaces, partitions,
furniture, fixtures and other interiors within the aforestated covered areas.

On 26 October 1989 COCA COLA hired private respondent Ramon


Canonicato as a casual employee and assigned him to the bottling crew as a
substitute for absent employees. In April 1990 COCA COLA terminated
Canonicato's casual employment. Later that year COCA COLA availed of
Canonicato's services, this time as a painter in contractual projects which
lasted from fifteen (15) to thirty (30) days. [5]

2. Except holidays which are rest days, the Second Party will undertake daily
the following: 1) Sweeping, damp-mopping, spot scrubbing and polishing of
floors; 2) Cleaning, sanitizing and disinfecting agents to be used on

On 1 April 1991 Canonicato was hired as a janitor by BJS [6] which


assigned him to COCA COLA considering his familiarity with its
premises. On 5 and 7 March 1992 Canonicato started painting the facilities of

COCA COLA and continued doing so several months thereafter or so for a


few days every time until 6 to 25 June 1993.[7]

Department of Labor Regional Arbitration Branch Office within ten (10)


days from receipt of the decision.[14]

Goaded by information that COCA COLA employed previous BJS


employees who filed a complaint against the company for regularization
pursuant to a compromise agreement, [8] Canonicato submitted a similar
complaint against COCA COLA to the Labor Arbiter on 8 June 1993. [9] The
complaint was docketed as RAB Case No. 06-06-10337-93.

The NLRC rejected on appeal the decision of the Labor Arbiter on the
ground that the janitorial services of Canonicato were found to be necessary
or desirable in the usual business or trade of COCA COLA. The NLRC
accepted Canonicato's proposition that his work with the BJS was the same
as what he did while still a casual employee of COCA COLA. In so holding
the NLRC applied Art. 280 of the Labor Code and declared that Canonicato
was a regular employee of COCA COLA and entitled to reinstatement and
payment of P18,105.10 in back wages.[15]

Without notifying BJS, Canonicato no longer reported to his COCA


COLA assignment starting 29 June 1993. On 15 July 1993 he sent his sister
Rowena to collect his salary from BJS.[10] BJS released his salary but advised
Rowena to tell Canonicato to report for work. Claiming that he was barred
from entering the premises of COCA COLA on either 14 or 15 July 1993,
Canonicato met with the proprietress of BJS, Gloria Lacson, who offered him
assignments in other firms which he however refused. [11]
On 23 July 1993 Canonicato amended his complaint against COCA
COLA by citing instead as grounds therefor illegal dismissal and
underpayment of wages. He included BJS therein as a co-respondent. [12] On
28 September 1993 BJS sent him a letter advising him to report for work
within three (3) days from receipt, otherwise, he would be considered to have
abandoned his job.[13]
On 28 April 1994 the Labor Arbiter ruled that: (a) there was no
employer-employee relationship between COCA COLA and Ramon
Canonicato because BJS was Canonicato's real employer; (b) BJS was a
legitimate job contractor, hence, any liability of COCA COLA as to
Canonicato's salary or wage differentials was solidary with BJS in
accordance with pars. 1 and 2 of Art. 106, Labor Code; (c) COCA COLA and
BJS must jointly and severally pay Canonicato his wage differentials
amounting to P2,776.80 and his 13th month salary of P1,068.00, including
ten (10%) percent attorney's fees in the sum of P384.48. The Labor Arbiter
also ordered that all other claims by Canonicato against COCA COLA be
dismissed for lack of employer-employee relationship; that the complaint for
illegal dismissal as well as all the other claims be likewise dismissed for lack
of merit; and that COCA COLA and BJS deposit P4,429.28 with the

On 26 May 1995 the NLRC denied COCA COLA's motion for


reconsideration for lack of merit. [16] Hence, this petition, assigning as
errors: (a) NLRC's finding that janitorial services were necessary and
desirable in COCA COLA's trade and business; (b) NLRC's application of
Art. 280 of the Labor Code in resolving the issue of whether an employment
relationship existed between the parties; (c) NLRC's ruling that there was an
employer-employee relationship between petitioner and Canonicato despite
its virtual affirmance that BJS was a legitimate job contractor; (d) NLRC's
declaration that Canonicato was a regular employee of petitioner although he
had rendered the company only five (5) months of casual employment; and,
(e) NLRC's order directing the reinstatement of Canonicato and the payment
to him of six (6) months back wages.[17]
We find good cause to sustain petitioner. Findings of fact of
administrative offices are generally accorded respect by us and no longer
reviewed for the reason that such factual findings are considered to be within
their field of expertise. Exception however is made, as in this case, when the
NLRC and the Labor Arbiter made contradictory findings.
We perceive at the outset the disposition of the NLRC that janitorial
services are necessary and desirable to the trade or business of petitioner
COCA COLA. But this is inconsistent with our pronouncement inKimberly
Independent Labor Union v. Drilon[18] where the Court took judicial notice of
the practice adopted in several government and private institutions and
industries of hiring janitorial services on an "independent contractor

basis." In this respect, although janitorial services may be considered directly


related to the principal business of an employer, as with every business, we
deemed them unnecessary in the conduct of the employer's principal
business.[19]
This judicial notice, of course, rests on the assumption that the
independent contractor is a legitimate job contractor so that there can be no
doubt as to the existence of an employer-employee relationship between
contractor and the worker. In this situation, the only pertinent question that
may arise will no longer deal with whether there exists an employment bond
but whether the employee may be considered regular or casual as to deserve
the application of Art. 280 of the Labor Code.

In determining the existence of an employer-employee relationship it is


necessary to determine whether the following factors are present: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the
power to dismiss; and, (d) the power to control the employee's conduct.
[21]
Notably, these are all found in the relationship between BJS and
Canonicato and not between Canonicato and petitioner COCA COLA. As the
Solicitor-General manifested[22]In the instant case, the selection and engagement of the janitors for petitioner
were done by BJS. The application form and letter submitted by private
respondent (Canonicato) to BJS show that he acknowledged the fact that it
was BJS who did the hiring and not petitioner x x x x

It is an altogether different matter when the very existence of an


employment relationship is in question. This was the issue generated by
Canonicato's application for regularization of his employment with COCA
COLA and the subsequent denial by the latter of an employer-employee
relationship with the applicant. It was error therefore for the NLRC to apply
Art. 280 of the Labor Code in determining the existence of an employment
relationship of the parties herein, especially in light of our explicit holding
in Singer Sewing Machine Company v. Drilon[20] that -

BJS paid the wages of private respondent, as evidenced by the fact that on
July 15, 1993, private respondent sent his sister to BJS with a note
authorizing her to receive his pay.

x x x x [t]he definition that regular employees are those who perform


activities which are desirable and necessary for the business of the employer
is not determinative in this case. Any agreement may provide that one party
shall render services for and in behalf of another for a consideration (no
matter how necessary for the latter's business) even without being hired as an
employee. This is precisely true in the case of an independent contractorship
as well as in an agency agreement. The Court agrees with the petitioner's
argument that Article 280 is not the yardstick for determining the existence
of an employment relationship because it merely distinguishes between two
kinds of employees, i.e., regular employees and casual employees, for
purposes of determining the right of an employee to certain benefits, to join
or form a union, or to security of tenure.Article 280 does not apply where the
existence of an employment relationship is in dispute.

Lastly, BJS has the power to control the conduct of the janitors. The
supervisors of petitioner, being interested in the result of the work of the
janitors, also gives suggestions as to the performance of the janitors, but this
does not mean that BJS has no control over them. The interest of petitioner is
only with respect to the result of their work. On the other hand, BJS oversees
the totality of their performance.

Power of dismissal is also exercised by BJS and not petitioner. BJS is the one
that assigns the janitors to its clients and transfers them when it sees fit. Since
BJS is the one who engages their services, then it only follows that it also has
the power to dismiss them when justified under the circumstances.

The power of the employer to control the work of the employee is said
to be the most the most significant determinant. Canonicato disputed this
power of BJS over him by asserting that his employment with COCA COLA
was not interrupted by his application with BJS since his duties before and
after he applied for regularization were the same, involving as they did,
working in the maintenance department and doing painting tasks within its
facilities. Canonicato cited the Labor Utilization Reports of COCA COLA
showing his painting assignments. These reports, however, are not expressive

of the true nature of the relationship between Canonicato and COCA COLA;
neither do they detract from the fact that BJS exercised real authority over
Canonicato as its employee.
Moreover, a closer scrutiny of the reports reveals that the painting jobs
were performed by Canonicato sporadically, either in a few days within a
month and only for a few months in a year.[23] This infrequency or irregularity
of assignments countervails Canonicatos submission that he was assigned
specifically to undertake the task of painting the whole year round. If
anything, it hews closely to the assertion of BJS that it assigned Canonicato
to these jobs to maintain and sanitize the premises of petitioner COCA
COLA pursuant to its contract of services with the company.[24]
It is clear from these established circumstances that NLRC should have
recognized BJS as the employer of Canonicato and not COCA COLA. This is
demanded by the fact that it did not disturb, and therefore it upheld, the
finding of the Labor Arbiter that BJS was truly a legitimate job-contractor
and could by itself hire its own employees. The Commission could not have
reached any other legitimate conclusion considering that BJS satisfied all the
requirements of a job-contractor under the law, namely, (a) the ability to
carry on an independent business and undertake the contract work on its own
account under its own responsibility according to its manner and method,
free from the control and direction of its principal or client in all matters
connected with the performance of the work except as to the results thereof;
and, (b) the substantial capital or investment in the form of tools, equipment,
machinery, work premises, and other materials which are necessary in the
conduct of its business.[25]
It is to be noted that COCA COLA is not the only client of BJS which
has its roster of clients like San Miguel Corporation, Distileria Bago
Incorporated, University of Negros Occidental-Recolletos, University of St.
La Salle, Riverside College, College Assurance Plan Phil., Inc., and Negros
Consolidated Farmers Association, Inc.[26] This is proof enough that BJS has
the capability to carry on its business of janitorial services with big
establishments aside from petitioner and has sufficient capital or materials
necessary therefor.[27] All told, there being no employer-employee

relationship between Canonicato and COCA COLA, the latter cannot be


validly ordered to reinstate the former and pay him back wages.
WHEREFORE, the petition is GRANTED. The NLRC decision of 3
January 1995 declaring Ramon B. Canonicato a regular employee of
petitioner Coca Cola Bottlers Phils., Inc., entitled to reinstatement and back
wages is REVERSED and SET ASIDE. The decision of the Labor Arbiter of
28 April 1994 finding no employer-employee relationship between petitioner
and private respondent but directing petitioner Coca Cola Bottlers Phils.,
Inc., instead and Bacolod Janitorial Services to pay jointly and severally
Ramon B. Canonicato P2,776.80 as wage differentials, P1,068.00 as 13th
month pay and P384.48 as attorney's fees, is REINSTATED.
SO ORDERED.

FIRST DIVISION
[G.R. No. 158255. July 8, 2004]
MANILA WATER COMPANY, INC., petitioner, vs. HERMINIO D.
PENA, et. al., respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition assails the decision[1] of the Court of Appeals
dated November 29, 2002, in CA-G.R. SP No. 67134, which reversed
the decision of the National Labor Relations Commission and
reinstated the decision of the Labor Arbiter with modification.
Petitioner Manila Water Company, Inc. is one of the two private
concessionaires contracted by the Metropolitan Waterworks and
Sewerage System (MWSS) to manage the water distribution system
in the East Zone of Metro Manila, pursuant to Republic Act No. 8041,
otherwise known as the National Water Crisis Act of 1995. Under the
Concession Agreement, petitioner undertook to absorb former
employees of the MWSS whose names and positions were in the list
furnished by the latter, while the employment of those not in the list
was terminated on the day petitioner took over the operation of the
East Zone, which was on August 1, 1997. Private respondents, being
contractual collectors of the MWSS, were among the 121 employees
not included in the list; nevertheless, petitioner engaged their services
without written contract from August 1, 1997 to August 31,

1997. Thereafter, on September 1, 1997, they signed a three-month


contract to perform collection services for eight branches of petitioner
in the East Zone.[2]
Before the end of the three-month contract, the 121 collectors
incorporated the Association Collectors Group, Inc. (ACGI),[3] which
was
contracted
by
petitioner
to
collect
charges
for
the BalaraBranch. Subsequently, most of the 121 collectors were
asked by the petitioner to transfer to the First Classic Courier
Services, a newly registered corporation. Only private respondents
herein remained with ACGI. Petitioner continued to transact
with ACGI to do its collection needs until February 8, 1999, when
petitioner terminated its contract with ACGI.[4]

WHEREFORE, premises considered, judgment is hereby rendered, finding


that complainants were employees of respondent [petitioner herein], that they
were illegally dismissed, and respondent [petitioner herein] is hereby ordered
to pay their separation pay based on the following computed amounts:
HERMINIO D. PENA P15,000.00
ESTEBAN BALDOZA P12,000.00
JORGE D. CANONIGO, JR. P16,000.00
IKE S. DELFIN P12,000.00
RIZALINO M. INTAL P16,000.00

Private respondents filed a complaint for illegal dismissal and


money claims against petitioner, contending that they were petitioners
employees as all the methods and procedures of their collections
were controlled by the latter.

REY T. MANLEGRO P16,000.00


JOHN L. MARTEJA P12,000.00

On the other hand, petitioner asserts that private respondents


were employees of ACGI, an independent contractor. It maintained
that it had no control and supervision over private respondents
manner of performing their work except as to the results. Thus,
petitioner did not have an employer-employee relationship with the
private respondents, but only a service contractor-client relationship
with ACGI.

MARLON B. MORADA P16,000.00

On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a


decision finding the dismissal of private respondents illegal. He held
that private respondents were regular employees of petitioner not only
because the tasks performed by them were controlled by it but, also,
the tasks were obviously necessary and desirable to petitioners
principal business. The dispositive portion of the decision reads:

EDMUNDO B. VICTA P13,000.00

ALLAN D. ESPINA P14,000.00


EDUARDO ONG P15,000.00
AGNESIO D. QUEBRAL P16,000.00

VICTOR P. ZAFARALLA P15,000.00


EDILBERTO C. PINGUL P19,500.00
FEDERICO M. RIVERA P15,000.00
-------------------------------

TOTAL P222,500.00
Respondent [petitioner herein] is further directed to pay ten (10%) percent of
the total award as attorneys fee or the sum of P22,250.00.
SO ORDERED.[5]
Both parties appealed to the NLRC, which reversed the decision
of the Labor Arbiter and ruled that the documentary
evidence, e.g., letters
and
memoranda
by
the
petitioner
to ACGI regarding the poor performance of the collectors, did not
constitute proof of control since these documents merely identified the
erring collectors; the appropriate disciplinary actions were left to the
corporation to impose.[6] Further, there was no evidence showing that
the incorporation of ACGI was irregular.
Private respondents filed a petition for certiorari with the Court of
Appeals, contending that the NLRC acted with grave abuse of
discretion amounting to lack or excess of jurisdiction when it reversed
the decision of the Labor Arbiter.
The Court of Appeals reversed the decision of the NLRC and
reinstated with modification the decision of the Labor Arbiter. [7] It held
that petitioner deliberately prevented the creation of an employment
relationship with the private respondents; and that ACGI was not an
independent contractor. It likewise denied petitioners motion for
reconsideration.[8]
Hence, this petition for review raising the following errors:
THE HONORABLE COURT OF APPEALS IN RENDERING THE
ASSAILED DECISION AND RESOLUTION COMMITTED GRAVE
REVERSIBLE ERRORS:
A. IN GOING BEYOND ITS JURISDICTION AND
PROCEEDING
TO
GIVE
DUE
COURSE
TO
RESPONDENTS PETITION FOR CERTIORARI UNDER

RULE
65
OF
THE
RULES
OF
COURT,
NOTWITHSTANDING THE ABSENCE OF ANY PROOF
OF GRAVE ABUSE OF DISCRETION ON THE PART OF
THE NATIONAL LABOR RELATIONS COMMISSION
WHEN IT RENDERED THE DECISION ASSAILED BY
HEREIN RESPONDENTS.
B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE
PRESENTED BY THE PETITIONER COMPANY AND
RULING THAT THE PETITIONERS DEFENSE OF LACK
OF EMPLOYER-EMPLOYEE RELATIONS IS WITHOUT
MERIT.
C. IN CONCLUDING THAT PETITIONER COMPANY
REQUIRED RESPONDENTS TO INCORPORATE THE
ASSOCIATED COLLECTORS GROUP, INC. [ACGI]
NOTWITHSTANDING ABSENCE OF ANY SPECIFIC
EVIDENCE IN SUPPORT OF THE SAME.
D. IN FINDING PETITIONER COMPANY GUILTY OF BAD
FAITH NOTWITHSTANDING ABSENCE OF ANY
SPECIFIC EVIDENCE IN SUPPORT OF THE SAME,
AND AWARDING MORAL AND EXEMPLARY DAMAGES
TO HEREIN RESPONDENTS.[9]
The pivotal issue to be resolved in this petition is whether or not
there exists an employer-employee relationship between petitioner
and private respondents. Corollary thereto is the issue of whether or
not private respondents were illegally dismissed by petitioner.
The issue of whether or not an employer-employee relationship
exists in a given case is essentially a question of fact. [10] As a rule, the
Supreme Court is not a trier of facts, and this applies with greater
force in labor cases. Hence, factual findings of quasi-judicial bodies
like the NLRC, particularly when they coincide with those of the Labor
Arbiter and if supported by substantial evidence, are accorded respect
and even finality by this Court.[11] However, a disharmony between the

factual findings of the Labor Arbiter and the National Labor Relations
Commission opens the door to a review thereof by this Court. Factual
findings of administrative agencies are not infallible and will be set
aside when they fail the test of arbitrariness. Moreover, when the
findings of the National Labor Relations Commission contradict with
those of the labor arbiter, this Court, in the exercise of its equity
jurisdiction, may look into the records of the case and reexamine the
questioned findings.[12]
The resolution of the foregoing issues initially boils down to a
determination of the true status of ACGI, i.e., whether it is an
independent contractor or a labor-only contractor.
Petitioner asserts that ACGI, a duly organized corporation
primarily engaged in collection services, is an independent contractor
which entered into a service contract for the collection of petitioners
accounts starting November 30, 1997 until the early part of February
1999. Thus, it has no employment relationship with private
respondents, being employees of ACGI.
The existence of an employment relationship between petitioner
and private respondents cannot be negated by simply alleging that the
latter are employees of ACGI as an independent contractor, it being
crucial that ACGIs status, whether as labor-only contractor or
independent contractor, be measured in terms of and determined by
the criteria set by statute.
The case of De los Santos v. NLRC[13] succinctly enunciates this
statutory criteria
Job contracting is permissible only 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 the business.
Labor-only contracting as defined in Section 5, Department Order
No. 18-02, Rules Implementing Articles 106-109 of the Labor
Code[14] refers to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform
job, work or service for a principal, and any of the following elements
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 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.
Given the above criteria, we agree with the Labor Arbiter
that ACGI was not an independent contractor.
First, ACGI does not have substantial capitalization or investment
in the form of tools, equipment, machineries, work premises, and
other materials, to qualify as an independent contractor.While it has
an authorized capital stock of P1,000,000.00, only P62,500.00 is
actually paid-in, which cannot be considered substantial
capitalization. The 121 collectors subscribed to four shares each and
paid only the amount of P625.00 in order to comply with the
incorporation requirements.[15] Further, private respondents reported
daily to the branch office of the petitioner because ACGIhas no office
or work premises. In fact, the corporate address of ACGI was the
residence of its president, Mr. Herminio D. Pea. [16] Moreover, in
dealing with the consumers, private respondents used the receipts
and identification cards issued by petitioner.[17]

Second, the work of the private respondents was directly related


to the principal business or operation of the petitioner. Being in the
business of providing water to the consumers in the East Zone, the
collection of the charges therefor by private respondents for the
petitioner can only be categorized as clearly related to, and in the
pursuit of the latters business.
Lastly, ACGI did not carry on an independent business or
undertake the performance of its service contract according to its own
manner and method, free from the control and supervision of its
principal, petitioner. Prior to private respondents alleged employment
with ACGI, they were already working for petitioner, subject to its rules
and regulations in regard to the manner and method of performing
their tasks. This form of control and supervision never changed
although they were already under the seeming employ
of ACGI. Petitioner issued memoranda regarding the billing methods
and distribution of books to the collectors; [18] it required private
respondents to report daily and to remit their collections on the same
day to the branch office or to deposit them with Bank of the Philippine
Islands; it monitored strictly their attendance as when a collector
cannot perform his daily collection, he must notify petitioner or the
branch office in the morning of the day that he will be absent; and
although it was ACGI which ultimately disciplined private respondents,
the penalty to be imposed was dictated by petitioner as shown in the
letters it sent to ACGI specifying the penalties to be meted on the
erring private respondents.[19] These are indications that ACGI was not
left alone in the supervision and control of its alleged
employees. Consequently, it can be concluded that ACGI was not an
independent contractor since it did not carry a distinct business free
from the control and supervision of petitioner.
Under this factual milieu, there is no doubt that ACGI was
engaged in labor-only contracting, and as such, is considered merely
an agent of the petitioner. In labor-only contracting, the statute creates
an employer-employee relationship for a comprehensive purpose: to
prevent a circumvention of labor laws. The contractor is considered
merely an agent of the principal employer and the latter is responsible

to the employees of the labor-only contractor as if such employees


had been directly employed by the principal employer.
[20]
Since ACGI is only a labor-only contractor, the workers it supplied
should be considered as employees of the petitioner.
Even the four-fold test will show that petitioner is the employer of
private respondents. The elements to determine the existence 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 employers power to control the employees conduct. The most
important element is the employers control of the employees conduct,
not only as to the result of the work to be done, but also as to the
means and methods to accomplish it.[21]
We agree with the Labor Arbiter that in the three stages of private
respondents services with the petitioner, i.e., (1) from August 1,
1997 to August 31, 1997; (2) from September 1, 1997 toNovember
30, 1997; and (3) from December 1, 1997 to February 8, 1999, the
latter exercised control and supervision over the formers conduct.
Petitioner contends that the employment of private respondents
from August 1, 1997 to August 30, 1997 was only temporary and done
to accommodate their request to be absorbed since petitioner was still
undergoing a transition period. It was only when its business became
settled that petitioner employed private respondents for a fixed term of
three months.
Although petitioner was not obliged to absorb the private
respondents, by engaging their services, paying their wages in the
form of commission, subjecting them to its rules and imposing
punishment in case of breach thereof, and controlling not only the end
result but the manner of achieving the same as well, an employment
relationship existed between them.
Notably, private respondents performed activities which were
necessary or desirable to its principal trade or business. Thus, they
were regular employees of petitioner, regardless of whether the

engagement was merely an accommodation of their request, pursuant


to Article 280 of the Labor Code which reads:
The provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an employment shall be
deemed to be regular where the employee has been engaged to perform
activities which are usually necessary or desirable in the usual business or
trade of the employer, except where the employment has been fixed for a
specific project or undertaking the completion or termination of which has
been determined at the time of the engagement of the employee or where the
work or services to be performed is seasonal in nature and the employment is
for the duration of the season.
As such regular employees, private respondents are entitled to
security of tenure which may not be circumvented by mere stipulation
in a subsequent contract that their employment is one with a fixed
period. While this Court has upheld the legality of fixed-term
employment, where from the circumstances it is apparent that the
periods have been imposed to preclude acquisition of tenurialsecurity
by the employee, they should be struck down or disregarded as
contrary to public policy and morals.[22]
In the case at bar, we find that the term fixed in the subsequent
contract was used to defeat the tenurial security which private
respondents already enjoy. Thus, we concur with the Labor Arbiter, as
affirmed by the Court of Appeals, when it held that:
The next question if whether, with respect to the period, the individual
contracts are valid. Not all contracts of employment fixing a period are
invalid. Under Article 280, the evil sought to be prevented is singled out:
agreements entered into precisely to circumvent security of tenure. It has no
application where a fixed period of employment was agreed upon knowingly
and voluntarily by the parties, without any force, duress or improper pressure
being brought upon the employee and absent any circumstances vitiating his
consent, or where it satisfactorily appears that the employer and employee
dealt with each other on more or less terms with no moral dominance
whatever being exercised by the former over the latter. That is the doctrine

in Brent School, Inc. v. Zamora, 181 SCRA 702. The individual contracts in
question were prepared by MWC in the form of the letter addressed to
complainants. The letter-contract is dated September 1, 1997, when
complainants were already working for MWC as collectors. With their
employment as their means of survival, there was no room then for
complainants to disagree with the presented letter-contracts. Their choice
then was not to negotiate for the terms of the contract but to lose or not to
lose their employment employment which they already had at that time. The
choice is obvious, as what they did, to sign the ready made letter-contract to
retain their employment, and survive. It is a defiance of the teaching in Brent
School, Inc. v. Zamora if this Office rules that the individual contracts in
question are valid, so, in deference to Brent School ruling, this Office rules
they are null and void.[23]
In view of the foregoing, we hold that an employment relationship
exists between petitioner and private respondents. We now proceed
to ascertain whether private respondents were dismissed in
accordance with law.
As private respondents employer, petitioner has the burden of
proving that the dismissal was for a cause allowed under the law and
that they were afforded procedural due process.[24] Petitioner failed to
discharge this burden by substantial evidence as it maintained the
defense that it was not the employer of private respondents. Having
established that the schemes employed by petitioner were devious
attempts to defeat the tenurial rights of private respondents and that it
failed to comply with the requirements of termination under the Labor
Code, the dismissal of the private respondent is tainted with illegality.
Under Article 279 of the Labor Code, an employee who is unjustly
dismissed from work is entitled to reinstatement without loss of
seniority rights and other privileges, and to his full backwages,
inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld
from him up to the time of his actual reinstatement. However, if
reinstatement is no longer possible, the employer has the alternative
of paying the employee his separation pay in lieu of reinstatement.[25]

This Court however cannot sustain the award of moral and


exemplary damages in favor of private respondents. Such an award
cannot be justified solely upon the premise that the employer
dismissed his employee without just cause or due process. Additional
facts must be pleaded and proved to warrant the grant of moral
damages under the Civil Code. The act of dismissal must be attended
with bad faith, or fraud, or was oppressive to labor or done in a
manner contrary to morals, good customs or public policy and, of
course, that social humiliation, wounded feelings, or grave anxiety
resulted therefrom. Similarly, exemplary damages are recoverable
only when the dismissal was effected in a wanton, oppressive or
malevolent manner.[26] Those circumstances have not been
adequately established.
However, private respondents are entitled to attorneys fees as
they were compelled to litigate with petitioners and incur expenses to
enforce and protect their interests.[27] The award by the Labor Arbiter
of P22,250.00 as attorneys fees to private respondents, being
reasonable, is sustained.
WHEREFORE, in view of the foregoing, the decision of the Court
of Appeals dated November 29, 2002, in CA-G.R. SP No. 67134,
reversing the decision of the National Labor Relations Commission
and reinstating the decision of the Labor Arbiter is AFFIRMED with the
MODIFICATION that the awards of P10,000.00 as moral damages
and P5,000.00 as exemplary damages are DELETED for lack of
evidentiary basis.
SO ORDERED.

2. To carry out the undertaking specified in the immediately preceding


paragraph, the cooperative shall employ the necessary personnel and provide
adequate equipment, materials, tools and apparatus, to efficiently, fully and
speedily accomplish the work and services undertaken by the cooperative.
xxx
3. In consideration of the above undertaking the company expressly agrees to
pay the cooperative the following rates per activity:
THIRD DIVISION
[G.R. No. 149011. June 28, 2005]
SAN MIGUEL CORPORATION, petitioner, vs. PROSPERO A.
ABALLA, et. al., respondent
DECISION
CARPIO-MORALES, J.:
Petitioner San Miguel Corporation (SMC), represented by its
Assistant Vice President and Visayas Area Manager for Aquaculture
Operations Leopoldo S. Titular, and Sunflower Multi-Purpose
Cooperative (Sunflower), represented by the Chairman of its Board of
Directors Roy G. Asong, entered into a one-year Contract of
Services[1] commencing on January 1, 1993, to be renewed on a
month to month basis until terminated by either party. The pertinent
provisions of the contract read:
1. The cooperative agrees and undertakes to perform and/or provide for the
company, on a non-exclusive basis for a period of one year the following
services for the Bacolod Shrimp Processing Plant:

A. Messengerial/Janitorial Monthly Fixed Service Charge of: Nineteen


Thousand Five Hundred Pesos Only (P19,500.00)
B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or P100.00
minimum per person/activity whichever is higher, with provisions as follows:
P25.00 Fixed Fee per person
Additional meal allowance P15.00 every meal
time in case harvest duration exceeds one meal.
This will be pre-set every harvest based on
harvest plan approved by the Senior Buyer.
C. Sanitation/Washing and Cold Storage P125.00/person for 3 shifts.
One-half of the payment for all services rendered shall be payable on the
fifteenth and the other half, on the end of each month. The cooperative shall
pay taxes, fees, dues and other impositions that shall become due as a result
of this contract.
The cooperative shall have the entire charge, control and supervision of the
work and services herein agreed upon. xxx

A. Messengerial/Janitorial
B. Shrimp Harvesting/Receiving
C. Sanitation/Washing/Cold Storage[2]

4. There is no employer-employee relationship between the company and the


cooperative, or the cooperative and any of its members, or the company and
any members of the cooperative. The cooperative is an association of selfemployed members, an independent contractor, and an entrepreneur. It is

subject to the control and direction of the company only as to the result to be
accomplished by the work or services herein specified, and not as to the work
herein contracted. The cooperative and its members recognize that it is taking
a business risk in accepting a fixed service fee to provide the services
contracted for and its realization of profit or loss from its undertaking, in
relation to all its other undertakings, will depend on how efficiently it
deploys and fields its members and how they perform the work and manage
its operations.

duly authorized representative before a notary public or other officer


authorized by law to administer oaths, to the effect that the cooperative has
paid all wages or salaries due to its employees or personnel for services
rendered by them during the month immediately preceding, including
overtime, if any, and that such payments were all in accordance with the
requirements of law.

5. The cooperative shall, whenever possible, maintain and keep under its
control the premises where the work under this contract shall be performed.

12. Unless sooner terminated for the reasons stated in paragraph 9 this
contract shall be for a period of one (1) year commencing on January 1,
1993. Thereafter, this Contract will be deemed renewed on a month-to-month
basis until terminated by either party by sending a written notice to the other
at least thirty (30) days prior to the intended date of termination.

6. The cooperative shall have exclusive discretion in the selection,


engagement and discharge of its member-workers or otherwise in the
direction and control thereof. The determination of the wages, salaries and
compensation of the member-workers of the cooperative shall be within its
full control. It is further understood that the cooperative is an independent
contractor, and as such, the cooperative agrees to comply with all the
requirements of all pertinent laws and ordinances, rules and regulations.
Although it is understood and agreed between the parties hereto that the
cooperative, in the performance of its obligations, is subject to the control or
direction of the company merely as a (sic) result to be accomplished by the
work or services herein specified, and not as to the means and methods of
accomplishing such result, the cooperative hereby warrants that it will
perform such work or services in such manner as will be consistent with the
achievement of the result herein contracted for.

xxx

xxx[3] (Underscoring supplied)


Pursuant to the contract, Sunflower engaged private respondents
to, as they did, render services at SMCs Bacolod Shrimp Processing
Plant at Sta. Fe, Bacolod City. The contract was deemed renewed by
the parties every month after its expiration on January 1, 1994 and
private respondents continued to perform their tasks until September
11, 1995.

xxx

In July 1995, private respondents filed a complaint before the


NLRC, Regional Arbitration Branch No. VI, Bacolod City, praying to be
declared as regular employees of SMC, with claims for recovery of all
benefits and privileges enjoyed by SMC rank and file employees.

8. The cooperative undertakes to pay the wages or salaries of its memberworkers, as well as all benefits, premiums and protection in accordance with
the provisions of the labor code, cooperative code and other applicable laws
and decrees and the rules and regulations promulgated by competent
authorities, assuming all responsibility therefor.

Private respondents subsequently filed on September 25, 1995


an Amended Complaint[4] to include illegal dismissal as additional
cause of action following SMCs closure of its Bacolod Shrimp
Processing Plant on September 15, 1995[5] which resulted in the
termination of their services.

The cooperative further undertakes to submit to the company within the first
ten (10) days of every month, a statement made, signed and sworn to by its

SMC filed a Motion for Leave to File Attached Third Party


Complaint[6] dated November 27, 1995 to implead Sunflower as Third

Party Defendant which was, by Order [7] of December 11, 1995,


granted by Labor Arbiter Ray Alan T. Drilon.
In the meantime, on September 30, 1996, SMC filed before the
Regional Office at Iloilo City of the Department of Labor and
Employment (DOLE) a Notice of Closure[8] of its aquaculture
operations effective on even date, citing serious business losses.
By Decision of September 23, 1997, Labor Arbiter Drilon
dismissed private respondents complaint for lack of merit,
ratiocinating as follows:
We sustain the stand of the respondent SMC that it could properly exercise
its management prerogative to contract out the preparation and processing
aspects of its aquaculture operations. Judicial notice has already been taken
regarding the general practice adopted in government and private institutions
and industries of hiring independent contractors to perform special services.
xxx
xxx
Indeed, the law allows job contracting. Job contracting is permissible under
the Labor Code under specific conditions and we do not see how this activity
could not be legally undertaken by an independent service cooperative like
the third-party respondent herein.
There is no basis to the demand for regularization simply on the theory that
complainants performed activities which are necessary and desirable in the
business of respondent. It has been held that the definition of regular
employees as those who perform activities which are necessary and desirable
for the business of the employer is not always determinative because any
agreement may provide for one (1) party to render services for and in behalf
of another for a consideration even without being hired as an employee.
The charge of the complainants that third-party respondent is a mere laboronly contractor is a sweeping generalization and completely unsubstantiated.
xxx In the absence of clear and convincing evidence showing that third-party

respondent acted merely as a labor only contractor, we are firmly convinced


of the legitimacy and the integrity of its service contract with respondent
SMC.
In the same vein, the closure of the Bacolod Shrimp Processing Plant was a
management decision purely dictated by economic factors which was (sic)
mainly serious business losses. The law recognizes the right of the employer
to close his business or cease his operations for bonafide reasons, as much as
it recognizes the right of the employer to terminate the employment of any
employee due to closure or cessation of business operations, unless the
closing is for the purpose of circumventing the provisions of the law on
security of tenure. The decision of respondent SMC to close its Bacolod
Shrimp Processing Plant, due to serious business losses which has (sic)
clearly been established, is a management prerogative which could hardly be
interfered with.
xxx The closure did affect the regular employees and workers of the Bacolod
Processing Plant, who were accordingly terminated following the legal
requisites prescribed by law. The closure, however, in so far as the
complainants are concerned, resulted in the termination of SMCs service
contract with their cooperative xxx[9] (Underscoring supplied)
Private respondents appealed to the NLRC.
By Decision of December 29, 1998, the NLRC dismissed the
appeal for lack of merit, it finding that third party respondent Sunflower
was an independent contractor in light of its observation that [i]n all
the activities of private respondents, they were under the actual
direction, control and supervision of third party respondent Sunflower,
as well as the payment of wages, and power of dismissal.[10]
Private respondents Motion for Reconsideration[11] having been
denied by the NLRC for lack of merit by Resolution of September 10,
1999, they filed a petition for certiorari [12] before the Court of Appeals
(CA).

Before the CA, SMC filed a Motion to Dismiss [13] private


respondents petition for non-compliance with the Rules on Civil
Procedure and failure to show grave abuse of discretion on the part of
the NLRC.
SMC subsequently filed its Comment[14] to the petition on March
30, 2000.
By
Decision
of
February
7,
2001, the
appellate
court reversed the NLRC decision and accordingly found for private
respondents, disposing as follows:
WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby
RENDERED: (1) REVERSING and SETTING ASIDE both the 29
December 1998 decision and 10 September 1999 resolution of the National
Labor Relations Commission (NLRC), Fourth Division, Cebu City in NLRC
Case No. V-0361-97 as well as the 23 September 1997 decision of the labor
arbiter in RAB Case No. 06-07-10316-95; (2)ORDERING the respondent,
San Miguel Corporation, to GRANT petitioners: (a) separation pay in
accordance with the computation given to the regular SMC employees
working at its Bacolod Shrimp ProcessingPlant with full backwages,
inclusive of allowances and other benefits or their monetary equivalent, from
11 September 1995, the time their actual compensation was withheld from
them, up to the time of the finality of this decision; (b) differentials pays (sic)
effective as of and from the time petitioners acquired regular employment
status pursuant to the disquisition mentioned above, and all such other and
further benefits as provided by applicable collective bargaining agreement(s)
or other relations, or by law, beginning such time up to their termination
from employment on 11 September 1995; and ORDERING private
respondent SMC to PAY unto the petitioners attorneys fees equivalent to ten
(10%) percent of the total award.
No pronouncement as to costs.
SO ORDERED.[15] (Underscoring supplied)

Justifying its reversal of the findings of the labor arbiter and the
NLRC, the appellate court reasoned:
Although the terms of the non-exclusive contract of service between SMC
and [Sunflower] showed a clear intent to abstain from establishing an
employer-employee relationship between SMC and [Sunflower] or the latters
members, the extent to which the parties successfully realized this intent in
the light of the applicable law is the controlling factor in determining the real
and actual relationship between or among the parties.
xxx
With respect to the power to control petitioners conduct, it appears
that petitioners were under the direct control and supervision of SMC
supervisors both as to the manner they performed their functions and as to
the end results thereof. It was only after petitioners lodged a complaint to
have their status declared as regular employees of SMC that certain members
of [Sunflower] began to countersign petitioners daily time records to make it
appear that they (petitioners) were under the control and supervision of
[Sunflower] team leaders (rollo, pp. 523-527). xxx
Even without these instances indicative of control by SMC over the
petitioners, it is safe to assume that SMC would never have allowed the
petitioners to work within its premises, using its own facilities, equipment
and tools, alongside SMC employees discharging similar or identical
activities unless it exercised a substantial degree of control and supervision
over the petitioners not only as to the manner they performed their functions
but also as to the end results of such functions.
xxx
xxx it becomes apparent that [Sunflower] and the petitioners do not qualify
as independent contractors. [Sunflower] and the petitioners did not have
substantial capital or investment in the form of tools, equipment, implements,
work premises, et cetera necessary to actually perform the service under their
own account, responsibility, and method. The only work premises maintained
by [Sunflower] was a small office within the confines of a small carinderia or

refreshment parlor owned by the mother of its chair, Roy Asong; the only
equipment it owned was a typewriter (rollo, pp. 525-525) and, the only assets
it provided SMC were the bare bodies of its members, the petitioners
herein (rollo, p. 523).
In addition, as shown earlier, petitioners, who worked inside the premises of
SMC, were under the control and supervision of SMC both as to
the manner and method in discharging their functions and as to
theresults thereof.
Besides, it should be taken into account that the activities undertaken by the
petitioners as cleaners, janitors, messengers and shrimp harvesters, packers
and handlers were directly related to the aquaculture business of
SMC (See Guarin vs. NLRC, 198 SCRA 267, 273). This is confirmed by
the renewal of the service contract from January 1993 to September 1995, a
period of close to three (3) years.
Moreover, the petitioners here numbering ninety seven (97), by itself, is a
considerable workforce and raises the suspicion that the non-exclusive
service contract between SMC and [Sunflower] was designed to evade the
obligations inherent in an employer-employee relationship (See RhonePoulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).
Equally suspicious is the fact that the notary public who signed the bylaws of [Sunflower] and its [Sunflower] retained counsel are both
partners of the local counsel of SMC (rollo, p. 9).

xxx
There being a finding of labor-only contracting, liability must be shouldered
either by SMC or [Sunflower] or shared by both (See Tabas vs. California
Manufacturing, Inc., supra, p. 502). SMC however should be
held solely liable for [Sunflower] became non-existent with the closure of
the aquaculture business of SMC.
Furthermore, since the closure of the aquaculture operations of SMC appears
to be valid, reinstatement is no longer feasible. Consistent with the
pronouncement in Bustamante, et al., vs. NLRC, G.R. No. 111651, 28
November 1996, petitioners are thus entitled to separation pay (in the
computation similar to those given to regular SMC employees at its Bacolod
Shrimp Processing Plant) with full backwages, inclusive of allowances and
other benefits or their monetary equivalent, from the time their actual
compensation was withheld from them up to the time of the finality of this
decision. This is without prejudice to differentials pays (sic) effective as of
and from the time petitioners acquired regular employment status pursuant to
the discussion mentioned above, and all such other and further benefits as
provided by applicable collective bargaining agreement(s) or other relations,
or by law, beginning such time up to their termination from employment on
11 September 1995.[16] (Emphasis and underscoring supplied)
SMCs Motion for Reconsideration[17] having been denied for lack
of merit by Resolution of July 11, 2001, it comes before this Court via
the present petition for review on certiorari assigning to the CA the
following errors:

xxx
I
With these observations, no other logical conclusion can be reached except
that [Sunflower] acted as an agent of SMC, facilitating the manpower
requirements of the latter, the real employer of the petitioners. We simply
cannot allow these two entities through the convenience of a non-exclusive
service contract to stipulate on the existence of employer-employee relation.
Such existence is a question of law which cannot be made the subject of
agreement to the detriment of the petitioners (Tabas vs. California
Manufacturing, Inc., 169 SCRA 497, 500).

THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE


COURSE AND GRANTING RESPONDENTS PATENTLY DEFECTIVE
PETITION FOR CERTIORARI. IN DOING SO, THE COURT OF
APPEALS DEPARTED FROM THE ACCEPTED AND USUAL COURSE
OF JUDICIAL PROCEEDINGS.
II

THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL


THE RESPONDENTS AS COMPLAINANTS IN THE CASE BEFORE
THE LABOR ARBITER. IN DOING SO, THE COURT OF APPEALS
DECIDED THIS CASE IN A MANNER NOT IN ACCORD WITH LAW
OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT.
III
THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
RESPONDENTS ARE EMPLOYEES OF SMC.
IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic)
THAT RESPONDENTS ARE NOT ENTITLED TO ANY RELIEF. THE
CLOSURE OF THE BACOLOD SHRIMP PROCESSING PLANT WAS
DUE TO SERIOUS BUSINESS LOSSES.[18] (Underscoring supplied)
SMC bewails the failure of the appellate court to outrightly
dismiss the petition for certiorari as only three out of the ninety seven
named petitioners signed the verification and certification against
forum-shopping.
While the general rule is that the certificate of non-forum
shopping must be signed by all the plaintiffs or petitioners in a case
and the signature of only one of them is insufficient,[19] this Court has
stressed that the rules on forum shopping, which were designed to
promote and facilitate the orderly administration of justice, should not
be interpreted with such absolute literalness as to subvert its own
ultimate and legitimate objective.[20] Strict compliance with the
provisions regarding the certificate of non-forum shopping merely
underscores its mandatory nature in that the certification cannot be
altogether dispensed with or its requirements completely disregarded.
[21]
It does not, however, thereby interdict substantial compliance with
its provisions under justifiable circumstances.[22]

Thus in the recent case of HLC Construction and Development


Corporation v. Emily Homes Subdivision Homeowners Association,
[23]
this Court held:
Respondents (who were plaintiffs in the trial court) filed the complaint
against petitioners as a group, represented by their homeowners association
president who was likewise one of the plaintiffs, Mr. Samaon M.
Buat. Respondents raised one cause of action which was the breach of
contractual obligations and payment of damages. They shared a common
interest in the subject matter of the case, being the aggrieved residents of the
poorly constructed and developed Emily Homes Subdivision. Due to the
collective nature of the case, there was no doubt that Mr. Samaon M. Buat
could validly sign the certificate of non-forum shopping in behalf of all his
co-plaintiffs. In cases therefore where it is highly impractical to require all
the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in
order not to defeat the ends of justice, for one of the plaintiffs, acting as
representative, to sign the certificate provided that xxx the plaintiffs share a
common interest in the subject matter of the case or filed the case as a
collective, raising only one common cause of action or defense.
[24]
(Emphasis and underscoring supplied)
Given the collective nature of the petition filed before the
appellate court by herein private respondents, raising one common
cause of action against SMC, the execution by private respondents
Winifredo Talite, Renelito Deon and Jose Temporosa in behalf of all
the other private respondents of the certificate of non-forum shopping
constitutes substantial compliance with the Rules. [25] That the three
indeed represented their co-petitioners before the appellate court is,
as it correctly found, subsequently proven to be true as shown by the
signatures of the majority of the petitioners appearing in their
memorandum filed before Us.[26]
Additionally, the merits of the substantive aspects of the case
may also be deemed as special circumstance or compelling reason to
take cognizance of a petition although the certification against forum
shopping was not executed and signed by all of the petitioners.[27]

SMC goes on to argue that the petition filed before the CA is


fatally defective as it was not accompanied by copies of all pleadings
and documents relevant and pertinent thereto in contravention of
Section 1, Rule 65 of the Rules of Court.[28]
This Court is not persuaded. The records show that private
respondents appended the following documents to their petition
before the appellate court: the September 23, 1997 Decision of the
Labor
Arbiter,[29] their Notice
of
Appeal
with
Appeal
Memorandum dated October 16, 1997 filed before the NLRC, [30] the
December
29,
1998 NLRC Decision,
[31]
their Motion for Reconsiderationdated March 26, 1999 filed with the
NLRC[32] and the September 10, 1999 NLRC Resolution.[33]
It bears stressing at any rate that it is the appellate court which
ultimately determines if the supporting documents are sufficient to
make out a prima facie case.[34] It discerns whether on the basis of
what have been submitted it could already judiciously determine the
merits of the petition.[35] In the case at bar, the CA found that the
petition was adequately supported by relevant and pertinent
documents.
At all events, this Court has allowed a liberal construction of the
rule on the accomplishment of a certificate of non-forum shopping in
the following cases: (1) where a rigid application will result in manifest
failure or miscarriage of justice; (2) where the interest of substantial
justice will be served; (3) where the resolution of the motion is
addressed solely to the sound and judicious discretion of the court;
and (4) where the injustice to the adverse party is not commensurate
with the degree of his thoughtlessness in not complying with the
procedure prescribed.[36]
Rules of procedure should indeed be viewed as mere tools
designed to facilitate the attainment of justice. Their strict and rigid
application, which would result in technicalities that tend to frustrate
rather than promote substantial justice, must always be eschewed.[37]

SMC further argues that the appellate court exceeded its


jurisdiction in reversing the decisions of the labor arbiter and the
NLRC as findings of facts of quasi-judicial bodies like the NLRC are
accorded great respect and finality, and that this principle acquires
greater weight and application in the case at bar as the labor arbiter
and the NLRC have the same factual findings.
The general rule, no doubt, is that findings of facts of an
administrative agency which has acquired expertise in the particular
field of its endeavor are accorded great weight on appeal.[38] The rule
is not absolute and admits of certain well-recognized exceptions,
however. Thus, when the findings of fact of the labor arbiter and the
NLRC are not supported by substantial evidence or their judgment
was based on a misapprehension of facts, the appellate court may
make an independent evaluation of the facts of the case.[39]
SMC further faults the appellate court in giving due course to
private respondents petition despite the fact that the complaint filed
before the labor arbiter was signed and verified only by private
respondent Winifredo Talite; that private respondents position
paper[40] was verified by only six[41] out of the ninety seven
complainants; and that their Joint-Affidavit[42] was executed only by
twelve[43]of the complainants.
Specifically with respect to the Joint-Affidavit of private
respondents, SMC asserts that it should not have been considered by
the appellate court in establishing the claims of those who did not sign
the same, citing this Courts ruling in Southern Cotabato Development
and Construction, Inc. v. NLRC.[44]
SMCs position does not lie.
A perusal of the complaint shows that the ninety seven
complainants were being represented by their counsel of choice. Thus
the first sentence of their complaint alleges: xxx complainants, by
counsel and unto this Honorable Office respectfully state xxx. And the
complaint was signed by Atty. Jose Max S. Ortiz as counsel for the

complainants. Following Section 6, Rule III of the 1990 Rules of


Procedure of the NLRC, now Section 7, Rule III of the 1999 NLRC
Rules, Atty. Ortiz is presumed to be properly authorized by private
respondents in filing the complaint.
That the verification wherein it is manifested that private
respondent Talite was one of the complainants and was causing the
preparation of the complaint with the authority of my co-complainants
indubitably shows that Talite was representing the rest of his cocomplainants in signing the verification in accordance with Section 7,
Rule III of the 1990 NLRC Rules, now Section 8, Rule 3 of the 1999
NLRC Rules, which states:
Section 7. Authority to bind party. Attorneys and other representatives of
parties shall have authority to bind their clients in all matters of procedure;
but they cannot, without a special power of attorney or express consent, enter
into a compromise agreement with the opposing party in full or partial
discharge of a clients claim. (Underscoring supplied)
As regards private respondents position paper which bore the
signatures of only six of them, appended to it was an
Authority/Confirmation of Authority[45] signed by the ninety one others
conferring authority to their counsel to file RAB Case No. 06-0710316-95, entitled Winifredo Talite et al. v. San Miguel Corporation
presently pending before the sala of Labor Arbiter Ray Alan Drilon at
the NLRC Regional Arbitration Branch No. VI in Bacolod City and
appointing him as their retained counsel to represent them in the said
case.
That there has been substantial compliance with the requirement
on verification of position papers under Section 3, Rule V of the 1990
NLRC Rules of Procedure[46] is not difficult to appreciate in light of the
provision of Section 7, Rule V of the 1990 NLRC Rules, now Section
9, Rule V of the 1999 NLRC Rules which reads:
Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter
shall be non-litigious in nature. Subject to the requirements of due

process, the technicalities of law and procedure and the rules obtaining in the
courts of law shall not strictly apply thereto. The Labor Arbiter may avail
himself of all reasonable means to ascertain the facts of the controversy
speedily, including ocular inspection and examination of well-informed
persons. (underscoring supplied)
As regards private respondents Joint-Affidavit which is being
assailed in view of the failure of some complainants to affix their
signatures thereon, this Court quotes with approval the appellate
courts ratiocinations:
A perusal of the Southern Cotabato Development Case would reveal that
movant did not quote the whole text of paragraph 5 on page 865 of 280
SCRA. The whole paragraph reads:
Clearly then, as to those who opted to move for the dismissal of their
complaints, or did not submit their affidavits nor appear during trial and in
whose favor no other independent evidence was adduced, no award for back
wages could have been validly and properly made for want of factual
basis. There is no showing at all that any of the affidavits of the thirty-four
(34) complainants were offered as evidence for those who did not submit
their affidavits, or that such affidavits had any bearing at all on the rights and
interest of the latter. In the same vein, private respondents position paper was
not of any help to these delinquent complainants.
The implication is that as long as the affidavits of the complainants were
offered as evidence for those who did not submit theirs, or the affidavits
were material and relevant to the rights and interest of the latter, such
affidavits may be sufficient to establish the claims of those who did not
give their affidavits.
Here, a reading of the joint affidavit signed by twelve (12) of the ninetyseven (97) complainants (petitioners herein) would readily reveal that the
affidavit was offered as evidence not only for the signatories therein but for
all of the complainants. (These ninety-seven (97) individuals were previously
identified during the mandatory conference as the only complainants in the
proceedings before the labor arbiter) Moreover, the affidavit touched on the

common interest of all of the complainants as it supported their claim of the


existence of an employer-employee relationship between them and
respondent SMC. Thus, the said affidavit was enough to prove the claims of
the rest of the complainants.[47] (Emphasis supplied, underscoring in the
original)
In any event, SMC is reminded that the rules of evidence
prevailing in courts of law or equity do not control proceedings before
the Labor Arbiter. So Article 221 of the Labor Code enjoins:
ART. 221. Technical rules not binding and prior resort to amicable
settlement. In any proceeding before the Commission or any of the Labor
Arbiters, the rules of evidence prevailing in courts of law or equity shall not
be controlling and it is the spirit and intention of this Code that the
Commission and its members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively
and without regard to technicalities of law or procedure, all in the interest of
due process. xxx
As such, their application may be relaxed to serve the demands
of substantial justice.[48]
On the merits, the petition just the same fails.
SMC insists that private respondents are the employees of
Sunflower, an independent contractor. On the other hand, private
respondents assert that Sunflower is a labor-only contractor.
Article 106 of the Labor Code provides:
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 latters 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 may, by appropriate regulations, restrict or prohibit
the contracting out of labor to protect the rights of workers established under
the 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.
Rule VIII-A, Book III of the Omnibus Rules Implementing the
Labor Code, as amended by Department Order No. 18, distinguishes
between legitimate and labor-only contracting:
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.

Section 5. Prohibition against labor-only contracting. Labor-only


contracting Sis 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.
The test to determine the existence of independent contractorship
is whether one claiming to be an independent contractor has
contracted to do the work according to his own methods and
without being subject to the control of the employer, except only
as to the results of the work.[49]

In legitimate labor contracting, the law creates an employeremployee relationship for a limited purpose, i.e., to ensure that the
employees are paid their wages. The principal employer becomes
jointly and severally liable with the job contractor, only for the payment
of the employees wages whenever the contractor fails to pay the
same. Other than that, the principal employer is not responsible for
any claim made by the employees.[50]
In labor-only contracting, the statute creates an employeremployee relationship for a comprehensive purpose: to prevent a
circumvention of labor laws. The contractor is considered merely an
agent of the principal employer and the latter is responsible to the
employees of the labor-only contractor as if such employees had been
directly employed by the principal employer.[51]
The Contract of Services between SMC and Sunflower shows
that the parties clearly disavowed the existence of an employeremployee relationship between SMC and private respondents.The
language of a contract is not, however, determinative of the parties
relationship; rather it is the totality of the facts and surrounding
circumstances of the case.[52] A party cannot dictate, by the mere
expedient of a unilateral declaration in a contract, the character of its
business, i.e., whether as labor-only contractor or job contractor, it
being crucial that its character be measured in terms of and
determined by the criteria set by statute.[53]
SMC argues that Sunflower could not have been issued a
certificate of registration as a cooperative if it had no substantial
capital.[54]
While indeed Sunflower was issued Certificate of Registration No.
IL0-875[55] on February 10, 1992 by the Cooperative Development
Authority, this merely shows that it had at least P2,000.00 in paid-up
share capital as mandated by Section 5 of Article 14 [56] of Republic Act
No. 6938, otherwise known as the Cooperative Code, which amount
cannot be considered substantial capitalization.

What appears is that Sunflower does not have substantial


capitalization or investment in the form of tools, equipment,
machineries, work premises and other materials to qualify it as an
independent contractor.
On the other hand, it is gathered that the lot, building,
machineries and all other working tools utilized by private respondents
in carrying out their tasks were owned and provided by SMC.
Consider the following uncontroverted allegations of private
respondents in the Joint Affidavit:
[Sunflower], during the existence of its service contract with respondent
SMC, did not own a single machinery, equipment, or working tool used in
the processing plant. Everything was owned and provided by respondent
SMC. The lot, the building, and working facilities are owned by respondent
SMC. The machineries and equipments (sic) like washer machine, oven or
cooking machine, sizer machine, freezer, storage, and chilling tanks, push
carts, hydrolic (sic) jack, tables, and chairs were all owned by respondent
SMC. All the boxes, trays, molding pan used in the processing are also
owned by respondent SMC. The gloves and boots used by the complainants
were also owned by respondent SMC. Even the mops, electric floor cleaners,
brush, hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol
and the like used by the complainants assigned as cleaners were all owned
and provided by respondent SMC.
Simply stated, third-party respondent did not own even a small capital in the
form of tools, machineries, or facilities used in said prawn processing
xxx
The alleged office of [Sunflower] is found within the confines of a small
carinderia or refreshment (sic) owned by the mother of the Cooperative
Chairman Roy Asong.
xxx In said . . . office, the only equipment used and owned by [Sunflower]
was a typewriter. [57]

And from the job description provided by SMC itself, the work
assigned to private respondents was directly related to the
aquaculture operations of SMC. Undoubtedly, the nature of the work
performed by private respondents in shrimp harvesting, receiving and
packing formed an integral part of the shrimp processing operations of
SMC. As for janitorial and messengerial services, that they are
considered directly related to the principal business of the
employer[58] has been jurisprudentially recognized.
Furthermore, Sunflower did not carry on an independent business
or undertake the performance of its service contract according to its
own manner and method, free from the control and supervision of its
principal, SMC, its apparent role having been merely to recruit
persons to work for SMC.
Thus, it is gathered from the evidence adduced by private
respondents before the labor arbiter that their daily time records
were signed by SMC supervisors Ike Puentebella, Joemel Haro,
Joemari Raca, Erwin Tumonong, Edison Arguello, and Stephen
Palabrica, which fact shows that SMC exercised the power of control
and supervision over its employees.[59] And control of the premises in
which private respondents worked was by SMC. These tend to
disprove the independence of the contractor.[60]
More. Private respondents had been working in the aqua
processing plant inside the SMC compound alongside regular SMC
shrimp processing workers performing identical jobs under the same
SMC supervisors.[61] This circumstance is another indicium of the
existence of a labor-only contractorship.[62]
And as private respondents alleged in their Joint Affidavit which
did not escape the observation of the CA, no showing to the contrary
having been proffered by SMC, Sunflower did not cater to clients
other than SMC,[63] and with the closure of SMCs Bacolod Shrimp
Processing Plant, Sunflower likewise ceased to exist. This Courts
ruling in San Miguel Corporation v. MAERC Integrated Services, Inc.
[64]
is thus instructive.

xxx Nor do we believe MAERC to have an independent business. Not only


was it set up to specifically meet the pressing needs of SMC which was then
having labor problems in its segregation division, none of its workers was
also ever assigned to any other establishment, thus convincing us that it was
created solely to service the needs of SMC. Naturally, with the severance of
relationship between MAERC and SMC followed MAERCs cessation of
operations, the loss of jobs for the whole MAERC workforce and the
resulting actions instituted by the workers.[65] (Underscoring supplied)
All the foregoing considerations affirm by more than substantial
evidence the existence of an employer-employee relationship
between SMC and private respondents.
Since private respondents who were engaged in shrimp
processing performed tasks usually necessary or desirable in the
aquaculture business of SMC, they should be deemed regular
employees of the latter[66] and as such are entitled to all the benefits
and rights appurtenant to regular employment.[67] They should thus be
awarded differential pay corresponding to the difference between the
wages and benefits given them and those accorded SMCs other
regular employees.
Respecting the private respondents who were tasked with
janitorial and messengerial duties, this Court quotes with approval the
appellate courts ruling thereon:
Those performing janitorial and messengerial services however acquired
regular status only after rendering one-year service pursuant to Article 280 of
the Labor Code. Although janitorial and messengerial services are considered
directly related to the aquaculture business of SMC, they are deemed
unnecessary in the conduct of its principal business; hence, the distinction
(See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136-137
and Philippine Bank of Communications v. NLRC, supra, p. 359).[68]
The law of course provides for two kinds of regular employees,
namely: (1) those who are engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the

employer; and (2) those who have rendered at least one year of
service, whether continuous or broken, with respect to the activity in
which they are employed.[69]
As for those of private respondents who were engaged in
janitorial and messengerial tasks, they fall under the second category
and are thus entitled to differential pay and benefits extended to other
SMC regular employees from the day immediately following their first
year of service.[70]
Regarding the closure of SMCs aquaculture operations and the
consequent termination of private respondents, Article 283 of the
Labor Code provides:
ART. 283. Closure of establishment and reduction of personnel. The
employer may also terminate the employment of any employee due to the
installation of labor saving devices, redundancy, retrenchment to prevent
losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the
Department of Labor and Employment at least one (1) month before the
intended date thereof. In case of termination due to the installation of labor
saving devices or redundancy, the worker affected thereby shall be entitled to
a separation pay equivalent to at least his one (1) month pay or to at least one
(1) month pay for every year of service, whichever is higher. In case of
retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business losses
or financial reverses, the separation pay shall be equivalent to one (1) month
pay or to at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered
one (1) whole year. (Underscoring supplied)
In the case at bar, a particular department under the SMC group
of companies was closed allegedly due to serious business reverses.
This constitutes retrenchment by, and not closure of, the enterprise or
the company itself as SMC has not totally ceased operations but is
still very much an on-going and highly viable business concern.[71]

Retrenchment is a management prerogative consistently


recognized and affirmed by this Court. It is, however, subject to faithful
compliance with the substantive and procedural requirements laid
down by law and jurisprudence.[72]
For retrenchment to be considered valid the following substantial
requirements must be met: (a) the losses expected should be
substantial and not merely de minimis in extent; (b) the substantial
losses apprehended must be reasonably imminent such as can be
perceived objectively and in good faith by the employer; (c) the
retrenchment must be reasonably necessary and likely to effectively
prevent the expected losses; and (d) the alleged losses, if already
incurred, and the expected imminent losses sought to be forestalled,
must be proved by sufficient and convincing evidence.[73]
In the discharge of these requirements, it is the employer who
has the onus, being in the nature of an affirmative defense.[74]
Normally, the condition of business losses is shown by audited
financial documents like yearly balance sheets, profit and loss
statements and annual income tax returns. The financial statements
must be prepared and signed by independent auditors failing which
they can be assailed as self-serving documents.[75]
In the case at bar, company losses were duly established by
financial documents audited by Joaquin Cunanan & Co. showing that
the aquaculture operations of SMCs Agribusiness Division
accumulated losses amounting to P145,848,172.00 in 1992 resulting
in the closure of its Calatrava Aquaculture Center in Negros
Occidental, P11,393,071.00 in 1993 and P80,325,608.00 in 1994
which led to the closure of its San Fernando Shrimp Processing Plant
in Pampanga and the Bacolod Shrimp Processing Plant in 1995.
SMC has thus proven substantial business reverses justifying
retrenchment of its employees.

For termination due to retrenchment to be valid, however, the law


requires that written notices of the intended retrenchment be served
by the employer on the worker and on the DOLE at least one (1)
month before the actual date of the retrenchment,[76] in order to give
employees some time to prepare for the eventual loss of their jobs, as
well as to give DOLE the opportunity to ascertain the verity of the
alleged cause of termination.[77]
Private respondents, however, were merely verbally informed on
September 10, 1995 by SMC Prawn Manager Ponciano Capay that
effective the following day or on September 11, 1995, they were no
longer to report for work as SMC would be closing its operations.[78]
Where the dismissal is based on an authorized cause under
Article 283 of the Labor Code but the employer failed to comply with
the notice requirement, the sanction should be stiff as the dismissal
process was initiated by the employers exercise of his management
prerogative, as opposed to a dismissal based on a just cause under
Article 282 with the same procedural infirmity where the sanction to be
imposed upon the employer should be tempered as the dismissal
process was, in effect, initiated by an act imputable to the employee.
[79]

In light of the factual circumstances of the case at bar, this Court


awards P50,000.00 to each private respondent as nominal damages.
The grant of separation pay as an incidence of termination of
employment due to retrenchment to prevent losses is a statutory
obligation on the part of the employer and a demandable right on the
part of the employee. Private respondents should thus be awarded
separation pay equivalent to at least one (1) month pay or to at least
one-half month pay for every year of service, whichever is higher, as
mandated by Article 283 of the Labor Code or the separation pay
awarded by SMC to other regular SMC employees that were
terminated as a result of the retrenchment, depending on which is
most beneficial to private respondents.

Considering that private respondents were not illegally dismissed,


however, no backwages need be awarded. It is well settled that
backwages may be granted only when there is a finding of illegal
dismissal.[80] The appellate court thus erred in awarding backwages to
private respondents upon the authority of Bustamante v. NLRC,
[81]
what was involved in that case being one of illegal dismissal.
With respect to attorneys fees, in actions for recovery of wages or
where an employee was forced to litigate and thus incurred expenses
to protect his rights and interests,[82] a maximum of ten percent (10%)
of the total monetary award[83] by way of attorneys fees is justifiable
under Article 111 of the Labor Code,[84] Section 8, Rule VIII, Book III of
its Implementing Rules,[85] and paragraph 7, Article 2208 of the Civil
Code.[86] Although an express finding of facts and law is still necessary
to prove the merit of the award, there need not be any showing that
the employer acted maliciously or in bad faith when it withheld the
wages. There need only be a showing that the lawful wages were not
paid accordingly, as in this case.[87]
Absent any evidence showing that Sunflower has been dissolved
in accordance with law, pursuant to Rule VIII-A, Section 19 [88] of the
Omnibus Rules Implementing the Labor Code, Sunflower is held
solidarily liable with SMC for all the rightful claims of private
respondents.
WHEREFORE, the petition is DENIED. The assailed Decision
dated February 7, 2001 and Resolution dated July 11, 2001 of the
Court of Appeals are AFFIRMED with MODIFICATION.
Petitioner San Miguel Corporation and Sunflower Multi-Purpose
Cooperative are hereby ORDERED to jointly and severally pay each
private respondent differential pay from the time they became regular
employees up to the date of their termination; separation pay
equivalent to at least one (1) month pay or to at least one-half month
pay for every year of service, whichever is higher, as mandated by
Article 283 of the Labor Code or the separation pay awarded by SMC
to other regular SMC employees that were terminated as a result of

the retrenchment, depending on which is most beneficial to private


respondents; and ten percent (10%) attorneys fees based on the
herein modified award.
Petitioner San Miguel Corporation is further ORDERED to pay
each private respondent the amount of P50,000.00, representing
nominal damages for non-compliance with statutory due process.
The award of backwages is DELETED.
SO ORDERED.

5. For and in consideration of this security, protective and


safety services, [LDCU] agrees to pay [Eparwa] FIVE
THOUSAND PESOS ONLY (P5,000.00), Philippine
Currency per guard a month payable within fifteen (15) days
after [Eparwa] presents its service invoice. [Eparwa] shall
furnish [LDCU] a monthly copy of SSS contribution of
guards and monthly payroll of each guard assigned at
[LDCUs] premises on a monthly basis[.][4]

THIRD DIVISION
EPARWA SECURITY AND JANITORIAL
SERVICES, INC.,
Petitioner,
- versus -

G.R. No. 150402

LICEO DE CAGAYAN UNIVERSITY,


Respondent.

Promulgated:
November 28, 2006
x-------------------------------------------------- x
Eparwa allocated the contracted amount of P5,000 per security guard per
month in the following manner:
DECISION
Basic Pay (P104.50 x 391.5/12)
Night Diff. Pay
13th mo. Pay
5 day incentive leave
Uniform allowance
Employers SSS, Medicare, ECC contribution
Agency share
VAT
CONTRACT RATE
(rounded off to P5,000.00)[5]

CARPIO, J.:
The Case
This is a petition for certiorari[1] of the Decision[2] dated 20 April 2001 and
the Resolution dated 21 September 2001 of the Court of Appeals (appellate
court) in CA-G.R. SP No. 59120, Liceo de Cagayan University v. The Hon.

P3,409
113
284
43
50
224
420
454
P5,000

National Labor Relations Commission, Fifth Division, Eparwa Security and


Janitorial Services, Inc., et al. The appellate court reinstated the 18 August
[3]

On 21

December

1998,

11

security

guards

(security

guards)

1999 decision of the Labor Arbiter and remanded the case to the Regional

whom Eparwa assigned to LDCU from 1 December 1997 to 30 November

Arbitration Board, Branch No. 10 of Cagayan de Oro City to compute what

1998 filed a complaint before the National Labor Relations Commissions

is due to Liceo de Cagayan University (LDCU) from Eparwa Security and

(NLRC)

Janitorial Services, Inc. (Eparwa).

in Cagayan de Oro City. Docketed as NLRC-RABX Case No. 10-01-00102-

The Facts

Regional

Arbitration

Branch

No.

10

99, the complaint was filed against both Eparwa and LDCU for
underpayment of salary, legal holiday pay, 13th month pay, rest day, service

On 1 December 1997, Eparwa and LDCU, through their representatives,

incentive leave, night shift differential, overtime pay, and payment for

entered into a Contract for Security Services. The pertinent portion of the

attorneys fees.

contract provides that:

LDCU made a cross-claim and prayed that Eparwa should reimburse LDCU

2.

Denying the claim of unpaid 13th month pay,


service incentive leave and night shift premium pay
for lack of merit;

3.

Ordering respondent [Eparwa] to reimburse


respondent [LDCU] for whatever amount the latter
may be required to pay [the security guards];

4.

Ordering respondent [Eparwa] to pay


respondent [LDCU] P20,000.00 and P5,000.00 each
of the [security guards], moral and exemplary
damages;

5.

Ordering [Eparwa] to pay 10% of attorneys


fee[s][;]

6.

The rest of the claims are denied for lack of


merit.

for any payment to the security guards.


The Ruling of the Labor Arbiter
In its decision dated 18 August 1999, the Labor Arbiter found that the
security guards are entitled to wage differentials and premium for holiday
and

rest

day

LDCU solidarily liable

work. The
pursuant

Labor
to

Arbiter

Article

109

held Eparwa and


of

the

Labor

Code. The dispositive portion of the Labor Arbiters decision reads:


WHEREFORE, judgment is rendered[:]
1.

Ordering
respondents
[LDCU]
and
[Eparwa] solidarily liable to pay [the security
guards] for underpayment, holiday and rest day, as
follows:
Name

So Ordered.[6]
Amount
LDCU filed an appeal before the NLRC. LDCU agreed with the Labor
P 46,819.95
Arbiters decision on the security guards entitlement to salary differential but
46,819.95
challenged the propriety of the amount of the award. LDCU alleged that
46,819.95
security guards not similarly situated were granted uniform monetary awards
46,819.95
and that the decision did not include the basis of the computation of the
37,918.95
amount of the award.
20,321.10

1.

Casiero

Jovencio

2.

Villarino

Leonardo

3.

Lumbab

Adriano

4.

Caballero

Gregorio, Jr.

5.

Cajilla

Delfin, Jr.

6.

Paduanga

Arnold

7.

Dungog

Achimedes

8.

Magallanes

Eduardo

9.

Dungog

Luigi

10.

Dungog

Telford

46,819.95
Eparwa also
filed
an
appeal
before
the
NLRC. For
its
46,819.95
part, Eparwa questioned its liability for the security guards claims and the
46,819.95
awarded cross-claim amounts.
46,819.95

11.

Bahian

Wilfredo

30,741.30
P 463,540.95

The Ruling of the NLRC

The Fifth Division of the NLRC resolved Eparwa and LDCUs separate

by Eparwa. Eparwa, on the other hand, prayed that LDCU be made to

appeals in its Resolution[7] dated 19 January 2000. The NLRC found that the

reimburse Eparwa for whatever amount it may pay to the security guards.

security guards are entitled to wage differentials and premium for holiday

In its Resolution dated 14 March 2000, the NLRC declared that

and

NLRC

although Eparwa and LDCU are solidarily liable to the security guards for

held Eparwa and LDCU solidarily liable for the wage differentials and

the monetary award, LDCU alone is ultimately liable. The NLRC resolved

premium for holiday and rest day work, the NLRC did not require Eparwa to

the issue thus:

rest

day

work. Although

the

reimburse LDCU for its payments to the security guards. The NLRC also
ordered the recomputation of the monetary awards according to the dates
actually worked by each security guard. The dispositive portion of the NLRC
Resolution reads thus:
WHEREFORE, the
appealed
decision
is AFFIRMED, subject to the modification that the portions
thereof directing respondent EPARWA Security Agency and
Janitorial
Services,
Inc.
to
reimburse
respondent Liceo de Cagayan University
for
whatever
amount the latter may have paid complainants and to pay
respondent Liceo de Cagayan University the sum [sic]
[of] P20,000.00 and P5,000.00, representing moral and
exemplary damages, respectively, of each complainants [sic],
are deleted for lack of legal basis. Further the monetary
awards for wage differential and premiums for holiday and
rest day works shall be recomputed by the Regional
Arbitration Branch of origin at the execution stage of the
proceedings.
Co[n]formably, the award of Attorneys fee[s] is equivalent to
ten (10%) percent of the aggregate monetary award as finally
adjusted.
SO ORDERED.[8]
Eparwa and LDCU again filed separate motions for partial reconsideration of
the 19

January

the NLRCs deletion

2000 NLRC

Resolution. LDCU

of LDCUs entitlement

to

questioned
reimbursement

WHEREFORE, the assailed resolution, dated 19 January


2000,
is MODIFIED in
that
respondent Liceo de Cagayan University (LICEO) is ordered
to reimburse respondent Eparwa Security and Janitorial
Services, Inc. (EPARWA) for whatever amount the latter
may have paid to complainants arising from this case.
SO ORDERED.[9]
LDCU filed a petition for certiorari [10] before the appellate court assailing
the NLRCs decision. LDCU took issue with the NLRCs order that LDCU
should reimburse Eparwa. LDCU stated that this would free Eparwa from
any liability for payment of the security guards money claims.
The Ruling of the Appellate Court
In its Decision promulgated on 20 April 2001, the appellate court
granted LDCUs petition and reinstated the Labor Arbiters decision. The
appellate

court

also

allowed

LDCU

to

claim

reimbursement

from Eparwa. The appellate courts decision reads thus:


WHEREFORE, foregoing considered, the petition is
hereby GRANTED. The decision dated August 18, 1999 of
Labor
Arbiter Celenito N. Daing is REINSTATED. The
case
is
hereby REMANDEDto
the
Regional
Arbitration Board, Branch No. 10 of Cagayan de Oro City to
compute what is due to LDCU from EPARWA.

SO ORDERED.[11]
Eparwa filed a motion for reconsideration of the appellate courts
decision. Eparwa stressed that jurisprudence is consistent in ruling that the
ultimate liability for the payment of the monetary award rests with LDCU
alone.
The appellate court denied Eparwas motion for reconsideration for lack of
merit.
Hence, this petition.
The Issue
The petition raises this sole legal issue: Is LDCU alone ultimately liable to
the security guards for the wage differentials and premium for holiday and
rest day pay?
The Ruling of the Court
The petition has merit.
Eparwa and LDCUs Solidary Liability and
LDCUs Ultimate Liability
Articles 106, 107 and 109 of the Labor Code read:
Art. 106. Contractor or subcontractor. Whenever an
employer enters into a contract with another person for the
performance of the formers work, the employees of the
contractor and of the latters subcontractor, 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 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 persons 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 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.
Article 107. Indirect employer. The provisions of the
immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.
Article 109. Solidary liability. The provisions of existing
laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any
provision of this Code. For purposes of determining the
extent of their civil liability under this Chapter, they shall be
considered as direct employers.

This Courts ruling in Eagle Security Agency, Inc. v. NLRC[12] squarely applies
to the present case. In Eagle, we ruled that:
This joint and several liability of the contractor and the
principal is mandated by the Labor Code to assure
compliance of the provisions therein including the statutory
minimum wage [Article 99, Labor Code]. The contractor is
made liable by virtue of his status as direct employer. The
principal, on the other hand, is made the indirect employer of
the contractors employees for purposes of paying the
employees their wages should the contractor be unable to
pay them. This joint and several liability facilitates, if not
guarantees, payment of the workers performance of any
work, task, job or project, thus giving the workers ample
protection as mandated by the 1987 Constitution [See Article
II Sec. 18 and Article XIII Sec. 3].
In the case at bar, it is beyond dispute that the security
guards are the employees of EAGLE [See Article VII Sec. 2
of the Contract for Security Services; G.R. No. 81447, Rollo,
p. 34]. That they were assigned to guard the premises of
PTSI pursuant to the latters contract with EAGLE and that
neither of these two entities paid their wage and allowance
increases under the subject wage orders are also admitted
[See Labor Arbiters Decision, p. 2; G.R. No. 81447, Rollo,
p. 75]. Thus, the application of the aforecited provisions of
the Labor Code on joint and several liability of the principal
and contractor is appropriate [See Del Rosario & Sons
Logging Enterprises, Inc. v. NLRC, G.R. No. 64204, May
31, 1985, 136 SCRA 669].
The solidary liability of PTSI and EAGLE, however, does
not preclude the right of reimbursement from his co-debtor
by the one who paid [See Article 1217, Civil Code]. It is
with respect to this right of reimbursement that petitioners
can find support in the aforecited contractual stipulation and
Wage Order provision.
The Wage Orders are explicit that payment of the increases
are to be borne by the principal or client. To be borne,

however, does not mean that the principal, PTSI in this case,
would directly pay the security guards the wage and
allowance increases because there is no privity of contract
between them. The security guards contractual relationship is
with their immediate employer, EAGLE. As an employer,
EAGLE is tasked, among others, with the payment of their
wages [See Article VII Sec. 3 of the Contract for Security
Services, supra and Bautista v. Inciong, G.R. No. 52824,
March 16, 1988, 158 SCRA 665].
On the other hand, there existed a contractual agreement
between PTSI and EAGLE wherein the former availed of the
security services provided by the latter. In return, the security
agency collects from its client payment for its security
services. This payment covers the wages for the security
guards and also expenses for their supervision and training,
the guards bonds, firearms with ammunitions, uniforms and
other equipments, accessories, tools, materials and supplies
necessary for the maintenance of a security force.
Premises considered, the security guards immediate
recourse for the payment of the increases is with their
direct employer, EAGLE. However, in order for the
security agency to comply with the new wage and allowance
rates it has to pay the security guards, the Wage Orders made
specific provision to amend existing contracts for security
services by allowing the adjustment of the consideration paid
by the principal to the security agency concerned. What the
Wage Orders require, therefore, is the amendment of the
contract as to the consideration to cover the service
contractors payment of the increases mandated. In the end,
therefore, ultimate liability for the payment of the increases
rests with the principal.
In view of the foregoing, the security guards should claim
the amount of the increases from EAGLE. Under the Labor
Code, in case the agency fails to pay them the amounts
claimed, PTSI should be held solidarily liable with EAGLE
[Articles 106,107 and 109]. Should EAGLE pay, it can claim
an adjustment from PTSI for an increase in consideration to
cover the increases payable to the security guards.

However, in the instant case, the contract for security


services had already expired without being amended
consonant with the Wage Orders. It is also apparent from a
reading of a record that EAGLE does not now demand from
PTSI any adjustment in the contract price and its main
concern is freeing itself from liability. Given these peculiar
circumstances, if PTSI pays the security guards, it cannot
claim reimbursement from EAGLE. But in case it is
EAGLE that pays them, the latter can claim
reimbursement from PTSI in lieu of an adjustment,
considering that the contract,[sic] had expired and had
not been renewed.[13] (Emphasis added)

guards, may collect from anyone of the solidary debtors. Solidary liability
does not mean that, as between themselves, two solidary debtors are liable
for only half of the payment.
LDCUs ultimate liability comes into play because of the expiration of the
Contract for Security Services. There is no privity of contract between the
security guards and LDCU, butLDCUs liability to the security guards
remains because of Articles 106, 107 and 109 of the Labor Code. Eparwa is
already precluded from asking LDCU for an adjustment in the contract price
because of the expiration of the contract, but Eparwas liability to the security
guards remains because of their employer-employee relationship. In lieu of

We repeatedly upheld our ruling in Eagle regarding reimbursement in the

an adjustment in the contract price, Eparwa may claim reimbursement from

subsequent cases of Spartan Security & Detective Agency, Inc. v. NLRC,

LDCU for any payment it may make to the security guards. However, LDCU

[14]

Development Bank of the Philippines v. NLRC,

Security Agency, Inc. v. NLRC,


[17]

[16]

[15]

Alpha Investigation and

Helpmate, Inc. v. NLRC, et al.,

and Lapanday Agricultural Development Corporation v. Court of

Appeals.[18]

cannot claim any reimbursement from Eparwafor any payment it may make
to the security guards.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision
dated 20 April 2001 and the Resolution dated 21 September 2001 of the
Court of Appeals. We REINSTATEthe Resolutions dated 19 January

For the security guards, the actual source of the payment of their wage

2000 and 14 March 2000 of the National Labor Relations Commission.

differentials and premium for holiday and rest day work does not matter as
long

as

they

are

paid. This

is

the

import

of Eparwa and LDCUs solidary liability. Creditors, such as the security

SO ORDERED.