G.R. No.

L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitionersappellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC.,
ELISEO S.CANILAO, and SEGUNDINA NOGUERA, respondentsappellees.

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil
Code in this appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the
appellant Exhibit 2 for the appellees) entered into on
Oct. 19, 1960 by and between Mrs. Segundina
Noguera, party of the first part; the Tourist World
Service, Inc., represented by Mr. Eliseo Canilao as
party of the second part, and hereinafter referred to
as appellants, the Tourist World Service, Inc. leased
the premises belonging to the party of the first part
at Mabini St., Manila for the former-s use as a branch
office. In the said contract the party of the third part
held herself solidarily liable with the party of the part
for the prompt payment of the monthly rental agreed
on. When the branch office was opened, the same
was run by the herein appellant Una 0. Sevilla
payable to Tourist World Service Inc. by any airline
for any fare brought in on the efforts of Mrs. Lina
Sevilla, 4% was to go to Lina Sevilla and 3% was to
be withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the
Tourist World Service, Inc. appears to have been
informed that Lina Sevilla was connected with a rival

firm, the Philippine Travel Bureau, and, since the

branch office was anyhow losing, the Tourist World
Service considered closing down its office. This was
firmed up by two resolutions of the board of directors
of Tourist World Service, Inc. dated Dec. 2, 1961
(Exhibits 12 and 13), the first abolishing the office of
the manager and vice-president of the Tourist World
Service, Inc., Ermita Branch, and the
second,authorizing the corporate secretary to receive
the properties of the Tourist World Service then
located at the said branch office. It further appears
that on Jan. 3, 1962, the contract with the appellees
for the use of the Branch Office premises was
terminated and while the effectivity thereof was Jan.
31, 1962, the appellees no longer used it. As a
matter of fact appellants used it since Nov. 1961.
Because of this, and to comply with the mandate of
the Tourist World Service, the corporate secretary
Gabino Canilao went over to the branch office, and,
finding the premises locked, and, being unable to
contact Lina Sevilla, he padlocked the premises on
June 4, 1962 to protect the interests of the Tourist
World Service. When neither the appellant Lina
Sevilla nor any of her employees could enter the
locked premises, a complaint wall filed by the herein
appellants against the appellees with a prayer for the
issuance of mandatory preliminary injunction. Both
appellees answered with counterclaims. For apparent
lack of interest of the parties therein, the trial court
ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought
reconsideration of the order dismissing her
counterclaim which the court a quo, in an order
dated June 8, 1963, granted permitting her to
present evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her
case against the herein appellees and after the
issues were joined, the reinstated counterclaim of

Segundina Noguera and the new complaint of

appellant Lina Sevilla were jointly heard following
which the court a quo ordered both cases dismiss for
lack of merit, on the basis of which was elevated the
instant appeal on the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING
THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O.
SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT
APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT
(WITH APPELLEE TOURIST WORLD SERVICE, INC.)
WAS ONE MERELY OF EMPLOYER-EMPLOYEE
RELATION AND IN FAILING TO HOLD THAT THE SAID
ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS
ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST
WORLD SERVICE, INC. EVEN AS AGAINST THE
LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT
APPELLEES HAD NO RIGHT TO EVICT APPELLANT
MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE
BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING
AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR
APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT
APPELLANT APPELLANT MRS. LINA O. SEVILLA
SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the
issues to be resolved are:
1. Whether the appellee Tourist World Service
unilaterally disco the telephone line at the branch
office on Ermita;
2. Whether or not the padlocking of the office by the
Tourist World Service was actionable or not; and
3. Whether or not the lessee to the office premises
belonging to the appellee Noguera was appellees
TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a
joint bussiness venture was entered into by and
between her and appellee TWS with offices at the
Ermita branch office and that she was not an
employee of the TWS to the end that her relationship
with TWS was one of a joint business venture
appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a
prominent figure and wife of an
eminent eye, ear and nose specialist
as well as a imediately columnist had
been in the travel business prior to the
establishment of the joint business
venture with appellee Tourist World
Service, Inc. and appellee Eliseo
Canilao, her compadre, she being the
godmother of one of his children, with
her own clientele, coming mostly from
her own social circle (pp. 3-6 tsn.
February 16,1965).
2. Appellant Mrs. Sevilla was signatory
to a lease agreement dated 19
October 1960 (Exh. 'A') covering the
premises at A. Mabini St., she

expressly warranting and holding [sic]

herself 'solidarily' liable with appellee
Tourist World Service, Inc. for the
prompt payment of the monthly
rentals thereof to other appellee Mrs.
Noguera (pp. 14-15, tsn. Jan. 18,1964).

procured by appellant Mrs. Sevilla (p.

35 tsn Feb. 16,1965).
6. It was the understanding between
them that appellant Mrs. Sevilla would
be given the title of branch manager
for appearance's sake only (p. 31 tsn.
Id.), appellee Eliseo Canilao admit that
it was just a title for dignity (p. 36 tsn.
June 18, 1965- testimony of appellee
Eliseo Canilao pp. 38-39 tsn April
61965-testimony of corporate
secretary Gabino Canilao (pp- 2-5,
Appellants' Reply Brief)

3. Appellant Mrs. Sevilla did not

receive any salary from appellee
Tourist World Service, Inc., which had
its own, separate office located at the
Trade & Commerce Building; nor was
she an employee thereof, having no
participation in nor connection with
said business at the Trade &
Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned
commissions for her own passengers,
her own bookings her own business
(and not for any of the business of
appellee Tourist World Service, Inc.)
obtained from the airline companies.
She shared the 7% commissions given
by the airline companies giving
appellee Tourist World Service, Lic. 3%
thereof aid retaining 4% for herself
(pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise
shared in the expenses of maintaining
the A. Mabini St. office, paying for the
salary of an office secretary, Miss
Obieta, and other sundry expenses,
aside from desicion the office furniture
and supplying some of fice furnishings
(pp. 15,18 tsn. April 6,1965), appellee
Tourist World Service, Inc. shouldering
the rental and other expenses in
consideration for the 3% split in the co

Upon the other hand, appellee TWS contend that the

appellant was an employee of the appellee Tourist
World Service, Inc. and as such was designated
manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on the premise that
the private respondent, Tourist World Service, Inc., being the true
lessee, it was within its prerogative to terminate the lease and
padlock the premises. 3 It likewise found the petitioner, Lina Sevilla,
to be a mere employee of said Tourist World Service, Inc. and as
such, she was bound by the acts of her employer. 4 The respondent
Court of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining
the lower court, erred. Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE
PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC.
WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT
LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY

OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE

APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING
INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY
OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO
PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE
THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE
TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO
THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2)
DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE
OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA
RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP
PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT
PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION
FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT
SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN
JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST
ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE
TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD
SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true
nature of the relation between Lina Sevilla and Tourist World
Service, Inc. The respondent Court of see fit to rule on the question,

the crucial issue, in its opinion being "whether or not the

padlocking of the premises by the Tourist World Service, Inc.
without the knowledge and consent of the appellant Lina Sevilla
entitled the latter to the relief of damages prayed for and whether
or not the evidence for the said appellant supports the contention
that the appellee Tourist World Service, Inc. unilaterally and without
the consent of the appellant disconnected the telephone lines of
the Ermita branch office of the appellee Tourist World Service,
Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina
SEVILLA was a mere employee, being "branch manager" of its
Ermita "branch" office and that inferentially, she had no say on the
lease executed with the private respondent, Segundina Noguera.
The petitioners contend, however, that relation between the
between parties was one of joint venture, but concede
that "whatever might have been the true relationship between
Sevilla and Tourist World Service," the Rule of Law enjoined Tourist
World Service and Canilao from taking the law into their own
hands, 8 in reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the
private respondent, Tourist World Service, Inc., maintains, that the
relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try
the case, labor disputes being the exclusive domain of the Court of
Industrial Relations, later, the Bureau Of Labor Relations, pursuant
to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the
evidence of an employer-employee relation. In general, we have
relied on the so-called right of control test, "where the person for
whom the services are performed reserves a right to control
not only the end to be achieved but also the means to be used in
reaching such end." 10 Subsequently, however, we have considered,
in addition to the standard of right-of control, the existing economic
conditions prevailing between the parties, like the inclusion of the
employee in the payrolls, in determining the existence of an
employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not
subject to control by the private respondent Tourist World Service,

Inc., either as to the result of the enterprise or as to the means

used in connection therewith. In the first place, under the contract
of lease covering the Tourist Worlds Ermita office, she had bound
herself insolidum as and for rental payments, an arrangement that
would be like claims of a master-servant relationship. True the
respondent Court would later minimize her participation in the
lease as one of mere guaranty, 12 that does not make her an
employee of Tourist World, since in any case, a true employee
cannot be made to part with his own money in pursuance of his
employer's business, or otherwise, assume any liability thereof. In
that event, the parties must be bound by some other relation, but
certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen
the branch office was opened, the same was run by the herein
appellant Lina O. Sevilla payable to Tourist World Service, Inc. by
any airline for any fare brought in on the effort of Mrs. Lina
Sevilla. 13 Under these circumstances, it cannot be said that Sevilla
was under the control of Tourist World Service, Inc. "as to the
means used." Sevilla in pursuing the business, obviously relied on
her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll.
For her efforts, she retained 4% in commissions from airline
bookings, the remaining 3% going to Tourist World. Unlike an
employee then, who earns a fixed salary usually, she earned
compensation in fluctuating amounts depending on her booking
successes.
The fact that Sevilla had been designated 'branch manager" does
not make her, ergo, Tourist World's employee. As we said,
employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are
not, as a consequence, accepting Lina Sevilla's own, that is, that
the parties had embarked on a joint venture or otherwise, a
partnership. And apparently, Sevilla herself did not recognize the
existence of such a relation. In her letter of November 28, 1961,
she expressly 'concedes your [Tourist World Service, Inc.'s] right to

stop the operation of your branch office 14 in effect, accepting

Tourist World Service, Inc.'s control over the manner in which the
business was run. A joint venture, including a partnership,
presupposes generally a of standing between the joint co-venturers
or partners, in which each party has an equal proprietary interest in
the capital or property contributed 15 and where each party
exercises equal rights in the conduct of the
business. 16 furthermore, the parties did not hold themselves out as
partners, and the building itself was embellished with the electric
sign "Tourist World Service, Inc. 17in lieu of a distinct partnership
name.
It is the Court's considered opinion, that when the petitioner, Lina
Sevilla, agreed to (wo)man the private respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract that the agent
renders services "in representation or on behalf of another. 18 In the
case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As compensation,
she received 4% of the proceeds in the concept of commissions.
And as we said, Sevilla herself based on her letter of November 28,
1961, pre-assumed her principal's authority as owner of the
business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that
the ties had contemplated a principal agent relationship, rather
than a joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we
hereby declare to be compatible with the intent of the parties,
cannot be revoked at will. The reason is that it is one coupled with
an interest, the agency having been created for mutual interest, of
the agent and the principal. 19 It appears that Lina Sevilla is a bona
fidetravel agent herself, and as such, she had acquired an interest
in the business entrusted to her. Moreover, she had assumed a
personal obligation for the operation thereof, holding herself
solidarily liable for the payment of rentals. She continued the
business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not to the
commissions she earned as a result of her business transactions,
but one that extends to the very subject matter of the power of

management delegated to her. It is an agency that, as we said,

cannot be revoked at the pleasure of the principal. Accordingly, the
revocation complained of should entitle the petitioner, Lina Sevilla,
to damages.

respondent Eliseo Canilao, to effect the takeover of its branch office

properties. On January 3, 1962, the private respondents ended the
lease over the branch office premises, incidentally, without notice
to her.

As we have stated, the respondent Court avoided this issue,

confining itself to the telephone disconnection and padlocking
incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is 'no evidence showing that the Tourist
World Service, Inc. disconnected the telephone lines at the branch
office. 20Yet, what cannot be denied is the fact that Tourist World
Service, Inc. did not take pains to have them reconnected.
Assuming, therefore, that it had no hand in the disconnection now
complained of, it had clearly condoned it, and as owner of the
telephone lines, it must shoulder responsibility therefor.

It was only on June 4, 1962, and after office hours significantly, that
the Ermita office was padlocked, personally by the respondent
Canilao, on the pretext that it was necessary to Protect the
interests of the Tourist World Service. " 22 It is strange indeed that
Tourist World Service, Inc. did not find such a need when it
cancelled the lease five months earlier. While Tourist World Service,
Inc. would not pretend that it sought to locate Sevilla to inform her
of the closure, but surely, it was aware that after office hours, she
could not have been anywhere near the premises. Capping these
series of "offensives," it cut the office's telephone lines, paralyzing
completely its business operations, and in the process, depriving
Sevilla articipation therein.

The Court of Appeals must likewise be held to be in error with

respect to the padlocking incident. For the fact that Tourist World
Service, Inc. was the lessee named in the lease con-tract did not
accord it any authority to terminate that contract without notice to
its actual occupant, and to padlock the premises in such fashion. As
this Court has ruled, the petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and necessarily, in the
equipment pertaining thereto. Furthermore, Sevilla was not a
stranger to that contract having been explicitly named therein as a
third party in charge of rental payments (solidarily with Tourist
World, Inc.). She could not be ousted from possession as summarily
as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was
indeed some malevolent design to put the petitioner, Lina Sevilla,
in a bad light following disclosures that she had worked for a rival
firm. To be sure, the respondent court speaks of alleged business
losses to justify the closure '21 but there is no clear showing that
Tourist World Ermita Branch had in fact sustained such reverses, let
alone, the fact that Sevilla had moonlit for another company. What
the evidence discloses, on the other hand, is that following such an
information (that Sevilla was working for another company), Tourist
World's board of directors adopted two resolutions abolishing the
office of 'manager" and authorizing the corporate secretary, the

This conduct on the part of Tourist World Service, Inc. betrays a

sinister effort to punish Sevillsa it had perceived to be disloyalty on
her part. It is offensive, in any event, to elementary norms of
justice and fair play.
We rule therefore, that for its unwarranted revocation of the
contract of agency, the private respondent, Tourist World Service,
Inc., should be sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for "breaches of contract where
the defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further
damages for the moral injury done to Lina Sevilla from its brazen
conduct subsequent to the cancellation of the power of attorney
granted to her on the authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury
to another in a manner that is contrary to morals,
good customs or public policy shall compensate the
latter for the damage. 24

ART. 2219. Moral damages 25 may be recovered in the

following and analogous cases:
xxx xxx xxx

INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs. NATIONAL LABOR RELATIONS COMMISSION
(Fourth Division, Cebu City), LABOR ARBITER NICASIO
P. ANINON and PANTALEON DE LOS
REYES, respondents.

(10) Acts and actions refered into article 21, 26, 27,
28, 29, 30, 32, 34, and 35.

DECISION
BELLOSILLO, J.:

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise

hereby ordered to respond for the same damages in a solidary
capacity.
Insofar, however, as the private respondent, Segundina Noguera is
concerned, no evidence has been shown that she had connived
with Tourist World Service, Inc. in the disconnection and padlocking
incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral
damages,24 P10,000.00 as exemplary damages,25 and P5,000.00
as nominal 26 and/or temperate 27 damages, to be just, fair, and
reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well
as the Resolution issued on July 31, 1975, by the respondent Court
of Appeals is hereby REVERSED and SET ASIDE. The private
respondent, Tourist World Service, Inc., and Eliseo Canilao, are
ORDERED jointly and severally to indemnify the petitioner, Lina
Sevilla, the sum of 25,00.00 as and for moral damages, the sum of
P10,000.00, as and for exemplary damages, and the sum of
P5,000.00, as and for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.

[G.R. No. 119930. March 12, 1998]

On 17 June 1994 respondent Labor Arbiter dismissed for lack of

jurisdiction NLRC RAB-VII Case No. 03-0309-94 filed by private
respondent Pantaleon de los Reyes against petitioner Insular Life
Assurance Co., Ltd. (INSULAR LIFE), for illegal dismissal and
nonpayment of salaries and back wages after findings no employeremployee relationship between De los Reyes and petitioner
INSULAR LIFE.[1] On appeal by private respondent, the order of
dismissal was reversed by the National Labor Relations Commission
(NLRC) which ruled that respondent De los Reyes was an employee
of petitioner.[2] Petitioners motion for reconsideration having been
denied, the NLRC remanded the case to the Labor Arbiter for
hearing on the merits.
Seeking relief through this special civil action for certiorari with
prayer for a restraining order and/or preliminary injunction,
petitioner now comes to us praying for annulment of the decision of
respondent NLRC dated 3 March 1995 and its Order dated 6 April
1995 denying the motion for reconsideration of the decision. It
faults NLRC for acting without jurisdiction and/or with grave abuse
of discretion when, contrary to established facts and pertinent law
and jurisprudence, it reversed the decision of the Labor Arbiter and
held instead that the complaint was properly filed as an employeremployee relationship existed between petitioner and private
respondent.
Petitioner reprises the stand it assumed below that it never had
any employer-employee relationship with private respondent, this
being an express agreement between them in the agency
contracts, particularly reinforced by the stipulation therein de los
Reyes was allowed discretion to devise ways and means to fulfill his
obligations as agent and would be paid commission fees based on
his actual output. It further insists that the nature of this work
status as described in the contracts had already been squarely
resolved by the Court in the earlier case of Insular Life Assurance

Co., Ltd. v. NLRC and Basiao [3]where the complainant therein,

Melecio Basiao, was similarly situated as respondent De los Reyes
in that he was appointed first as an agent and then promoted as
agency manager, and the contracts under which he was appointed
contained terms and conditions Identical to those of De los Reyes.
Petitioner concludes that since Basiao was declared by the Court to
be an independent contractor and not an employee of petitioner,
there should be no reason why the status of De los Reyes
hereinvis--vis petitioner should not be similarly determined.
We reject the submissions of petitioner and hold that
respondent NLRC acted appropriately within the bounds of the law.
The records of the case are replete with telltale indicators of an
existing employer-employee relationship between the two parties
despite written contractual disavowals.
These facts are undisputed: on 21 August 1992 petitioner
entered into an agency contract with respondent Pantaleon de los
Reyes[4] authorizing the latter to solicit within the Philippines
applications for life insurance and annuities for which he would be
paid compensation in the form of commissions. The contract was
prepared by petitioner in its entirety and De los Reyes merely
signed his conformity thereto. It contained the stipulation that no
employer-employee relationship shall be created between the
parties and that the agent shall be free to exercise his own
judgment as to time, place and means of soliciting insurance. De
los Reyes however was prohibited by petitioner from working for
any other life insurance company, and violation of this stipulation
was sufficient ground for termination of the contract. Aside from
soliciting insurance for the petitioner, private respondent was
required to submit to the former all completed applications for
insurance within ninety (90) consecutive days, deliver policies,
receive and collect initial premiums and balances of first year
premiums, renewal premiums, deposits on applications and
payments on policy loans. Private respondent was also bound to
turn over to the company immediately any and all sums of money
collected by him. In a written communication by petitioner to
respondent De los Reyes, the latter was urged to register with the
Social Security System as a self-employed individual as provided
under PD No. 1636.[5]
On 1 March 1993 petitioner and private respondent entered
into another contract[6]where the latter was appointed as Acting
Unit Manager under its office the Cebu DSO V (157). As such, the
duties and responsibilities of De los Reyes included the recruitment,

training, organization and development within his designated

territory of a sufficient number of qualified, competent and
trustworthy underwriters, and to supervise and coordinate the sales
efforts of the underwriters in the active solicitation of new business
and in the furtherance of the agencys assigned goals. It was
similarly provIded in the management contract that the relation of
the acting unit manager and/or the agents of his unit to the
company shall be that of independent contractor. If the
appointment was terminated for any reason other than for cause,
the acting unit manager would be reverted to agent status and
assigned to any unit. As in the previous agency contract, De los
Reyes together with his unit force was granted freedom to exercise
judgment as to time, place and means of soliciting insurance. Aside
from being granted override commissions, the acting unit manager
was given production bonus, development allowance and a unit
development financing scheme euphemistically termed financial
assistance consisting of payment to him of a free portion
of P300.00 per month and a valIdate portion of P1,200.00. While
the latter amount was deemed as an advance against expected
commissions, the former was not and would be freely given to the
unit manager by the company only upon fulfillment by him of
certain manpower and premium quota requirements. The agents
and underwriters recruited and trained by the acting unit manager
would be attached to the unit but petitioner reserved the right to
determine if such assignment would be made or, for any reason, to
reassign them elsewhere.
Aside from soliciting insurance, De los Reyes was also
expressly obliged to participate in the companys conservation
program, i.e., preservation and maintenance of existing insurance
policies, and to accept moneys duly receipted on agents receipts
provided the same were turned over to the company. As long as he
was unit manager in an acting capacity, De los Reyes was
prohibited from working for other life insurance companies or with
the government. He could not also accept a managerial or
supervisory position in any firm doing business in the Philippines
without the written consent of petitioner.
Private respondent worked concurrently as agent and Acting
Unit Manager until he was notified by petitioner on 18 November
1993 that his services were terminated effective 18 December
1993. On 7 March 1994 he filed a complaint before the Labor
Arbiter on the ground that he was illegally dismissed and that he
was not paid his salaries and separation pay.

Petitioner filed a motion to dismiss the complaint of De los

Reyes for lack of jurisdiction, citing the absence of employeremployee relationship. it reasoned out that based on the criteria for
determining the existence of such relationship or the so-called fourfold test, i.e., (a) selection and engagement of employee, (b)
payment of wages, (c) power of dismissal, and, (d) power of control,
De los Reyes was not an employee but an independent contractor.
On 17 June 1994 the motion of petitioner was granted by the
Labor Arbiter and the case was dismissed on the ground that the
element of control was not sufficiently established since the rules
and guidelines set by petitioner in its agency agreement with
respondent De los Reyes were formulated only to achieve the
desired result without dictating the means or methods of attaining
it.
Respondent NLRC however appreciated the evidence from a
different perspective. It determined that respondent De los
Reyes was under the effective control of petitioner in the critical
and most important aspects of his work as Unit Manager. This
conclusion was derived from the provisions in the contract which
appointed private respondent as Acting Unit Manager, to wit: (a) De
los Reyes was to serve exclusively the company, therefore, he was
not an independent contractor; (b) he was required to meet certain
manpower and production quota; and, (c) petitioner controlled the
assignment to and removal of soliciting agents from his unit.
The NLRC also took into account other circumstances showing
that petitioner exercised employers prerogatives over De los Reyes,
e.g., (a) limiting the work of respondent De los Reyes to selling a
life insurance policy known as Salary Deduction Insurance only to
members of the Philippine National Police, public and private school
teachers and other employees of private companies; (b) assigning
private respondent to a particular place and table where he worked
whenever he has not in the field; (c) paying private respondent
during the period of twelve (12) months of his appointment as
Acting Unit Manager the amount of P1,500.00 as Unit Development
Financing of which 20% formed his salary and the rest, i.e., 80%, as
advance of his expected commissions; and (d) promising that upon
completion of certain requirements, he would be promoted to Unit
Manager with the right of petitioner to revert him to agent status
when warranted.
Parenthetically, both petitioner and respondent NLRC treated
the agency contract and the management contract entered into

between petitioner and De los Reyes as contracts of agency. We

however hold otherwise. Unquestionably there exist major
distinctions between the two agreements. While the first has the
earmarks of an agency contract, the second is far removed from
the concept of agency in that provided therein are conditionalities
that indicate an employer-employee relationship. the NLRC
therefore was correct in finding that private respondent was an
employee of petitioner, but this holds true only insofar as the
management contract is concerned. In view thereof, he Labor
Arbiter has jurisdiction over the case.
It is axiomatic that the existence of an employer-employee
relationship cannot be negated by expressly repudiating it in the
management contract and providing therein that the employee is
an independent contractor when the terms of agreement clearly
show otherwise. For, the employment status of a person is defined
and prescribed by law and not by what the parties say it should be.
[7]
In determining the status of the management contract, the fourfold test on employment earlier mentioned has to be applied.
Petitioner contends that De los Reyes was never required to go
through the pre-employment procedures and that the probationary
employment status was reserved only to employees of petitioner.
On this score, it insists that the first requirement of selection and
engagement of the employee was not met.
A look at the provisions of the contract shows that private
respondent was appointed as Acting Unit Manager only upon
recommendation of the District Manager.[8] This indicates that
private respondent was hired by petitioner because of the favorable
endorsement of its duly authorized officer. But, this approbation
could only have been based on the performance of De los Reyes
with petitioner was nothing more than a trial or probationary period
for his eventual appointment as Acting Unit Manager of petitioner.
Then, again, the very designation of the appointment of private
respondent as acting unit manager obviously implies a temporary
employment status which may be made permanent only upon
compliance with company standards such as those enumerated
under Sec. 6 of the management contract. [9]
On the matter of payment of wages, petitioner points out that
respondent was compensated strictly on commission basis, the
amount of which was totally dependent on his total output. But, the
managers contract speaks differently. Thus

4. Performance Requirements.- To maintain your

appointment as Acting Unit Manager you must meet the
following manpower and production requirements:
Quarter Active Calendar Year
Production Agents Cumulative FYP
Production
1ST 2 P125,000
2ND 3 250,000
3RD 4 375,000
4TH 5 500,000
5.4 Unit Development Financing (UDF). As an Acting Unit
Manager you shall be given during the first 12 months of your
appointment a financial assistance which is composed of two
parts:
5.4.1 Free Portion amounting to P300 per month,
subject to your meeting prescribed minimum
performance requirement on manpower and premium
production. The free portion is not payable by you.
5.4.2 Validate Portion amounting to P1,200 per
month, also subject to meeting the same prescribed
minimum performance requirements on manpower and
premium production. The valIdated portion is an advance
against expected compensation during the UDF period
and thereafter as may be necessary.
The above provisions unquestionably demonstrate that the
performance requirement imposed on De los Reyes was
applicable quarterly while his entitlement to the free portion (P300)
and the validated portion (P1,200) was monthly starting on the first
month of the twelve (12) months of the appointment. Thus, it has
to be admitted that even before the end of the first quarter and
prior to the so-called quarterly performance evaluation, private
respondent was already entitled to be paid both the free and
validated portions of the UDF every month because his production
performance could not be determined until after the lapse of the
quarter involved. This indicates quite clearly that the unit managers
quarterly performance had no bearing at all on his entitlement at

least to the free portion of the UDF which for all intents and
purposes comprised the salary regularly paid to him by petitioner.
Thus it cannot be validly claimed that the financial assistance
consisting of the free portion of the UDF was purely dependent on
the premium production of the agent. Be that as it may, it is worth
considering that the payment of compensation by way of
commission does not militate against the conclusion that private
respondent was an employee of petitioner. Under Art. 97 of the
Labor Code, wage shall mean however designated, capable of
being expressed in terms of money, whether fixed or ascertained
on a time, task, price or commission basis x x x x [10]
As to the matter involving the power of dismissal and control
by the employer, the latter of which is the most important of the
test, petitioner asserts that its termination of De los Reyes was but
an exercise of its inherent right as principal under the contracts and
that the rules and guIdelines it set forth in the contract cannot, by
any stretch of imagination, be deemed as an exercise of control
over the private respondent as these were merely directives that
fixed the desired result without dictating the means or method to
be employed in attaining it. The following factual findings of the
NLRC[11] however contradict such claims:
A perusal of the appointment of complainant as Acting Unit
Manager reveals that:
1. Complainant was to exclusively serve respondent
company. Thus it is provIded: x x x 7..7 Other causes of
Termination: This Appointment may likewise be terminated for
any of the following causes: x x x 7..7..2. Your entering the
service of the government or another life insurance company;
7..7..3. Your accepting a managerial or supervisory position in
any firm doing business in the Philippines without the written
consent of the Company; x x x
2. Complainant was required to meet certain manpower
and production quotas.
3. Respondent (herein petitioner) controlled the
assignment and removal of soliciting agents to and from
complainants unit, thus: x x x 7..2. Assignment of Agents:
Agents recruited and trained by you shall be attached to your
unit unless for reasons of Company policy, no such

10

assignment should be made. The Company retains the

exclusive right to assign new soliciting agents appointed and
assigned to the saId unit x x x x
It would not be amiss to state the respondents duty to collect
the companys premiums using company receipts under Sec. 7.4 of
the management contract is further evIdence of petitioners control
over respondent, thus:
xxxx
7.4 Acceptance and Remittance of Premiums. x x x x the Company
hereby authorizes you to accept and receive sums of money in
payment of premiums, loans, deposits on applications, with or
without interest, due from policy holders and applicants for
insurance, and the like, specially from policyholders of business
solicited and sold by the agents attached to your unit provIded
however, that all such payments shall be duly receipted by you on
the corresponding Companys Agents Receipt to be provIded you for
this purpose and to be covered by such rules and accounting
regulations the Company may issue from time to time on the
matter. Payments received by you shall be turned over to the
Companys designated District or Service Office clerk or directly to
the Home Office not later than the next working day from receipt
thereof x x x x
Petitioner would have us apply our ruling in Insular Life
Assurance Co., Ltd. v. NLRC and Basiao [12] to the instant case
under the doctrine of stare decisis, postulating that both cases
involve parties similarly situated and facts which are almost
Identical.
But we are not convinced that the cited case is on all fours with
the case at bar. In Basiao, the agent was appointed Agency
Manager under an Agency Manager Contract. To implement his end
of the agreement, Melecio Basiao organized an agency office to
which he gave the name M. Basiao and Associates. The Agency
Manager Contract practically contained the same terms and
conditions as the Agency Contract earlier entered into, and the
Court observed that drawn from the terms of the contract they had
entered into, (which) either expressly or by necessary implication,
Basiao (was) made the master of his own time and selling methods,
left to his own judgment the time, place and means of soliciting
insurance, set no accomplishment quotas and compensated him on

the bases of results obtained. He was not bound to observe any

schedule of working hours or report to any regular station; he could
seek and work on his prospects anywhere and anytime he chose to
and was free to adopt the selling methods he deemed most
effective. Upon these premises, Basiao was considered as agent an
independent contractor of petitioner INSULAR LIFE.
Unlike Basiao, herein respondent De los Reyes was
appointed Acting Unit Manager, not agency manager. There is not
evidence that to implement his obligations under the management
contract, De los Reyes had organized an office. Petitioner in fact
has admitted that it provIded De los Reyes a place and a table at its
office where he reported for and worked whenever he was not out
in the field. Placed under petitioners Cebu District Service Office,
the unit was given a name by petitioner De los Reyes and
Associates and assigned Code No. 11753 and Recruitment No.
109398. Under the managership contract, De los Reyes was obliged
to work exclusively for petitioner in life insurance solicitation and
was imposed premium production quotas. Of course, the acting unit
manager could not underwrite other lines of insurance because his
Permanent Certificate of Authority was for life insurance only and
for no other. He was proscribed from accepting a managerial or
supervisory position in any other office including the government
without the written consent of petitioner. De los Reyes could only
be promoted to permanent unit manager if he met certain
requirements and his promotion was recommended by the
petitioners District Manager and Regional Manager and approved
by its Division Manager. As Acting Unit Manager, De los Reyes
performed functions beyond mere solicitation of insurance business
for petitioner. As found by the NLRC, he exercised administrative
functions which were necessary and beneficial to the business of
INSULAR LIFE.
In Great Pacific Life Insurance Company v. NLRC [13] which is
closer in application that Basiao to this present controversy, we
found that the relationships of the Ruiz brothers and Grepalife were
those of employer-employee. First, their work at the time of their
dismissal as zone supervisor and district manager was necessary
and desirable to the usual business of the insurance company. They
were entrusted with supervisory, sales and other functions to guard
Grepalifes business interests and to bring in more clients to the
company, and even with administrative functions to ensure that all
collections, reports and data are faithfully brought to the company
x x x x A cursory reading of their respective functions as

11

enumerated in their contracts reveals that the company practically

dictates the manner by which their jobs are to be carried out x x x x
We need elaborate no further.
Exclusivity of service, control of assignments and removal of
agents under private respondents unit, collection of premiums,
furnishing of company facilities and materials as well as capital
described as Unit Development Fund are but hallmarks of the
management system in which herein private respondent worked.
This obtaining, there is no escaping the conclusion that private
respondent Pantaleon de los Reyes was an employee of herein
petitioner.
WHEREFORE, the petition of Insular Life Assurance Company,
Ltd., is DENIED and the Decision of the National Labor Relations
Commission dated 3 March 1995 and its Order of 6 April 1996
sustaining it are AFFIRMED. Let this case be REMANDED to the
Labor Arbiter a quo who is directed to hear and dispose of this case
with deliberate dispatch in light of the views expressed herein.

BALLESTEROS, TRINIDAD LIZA Promulgated:

and RAMON ESCUETA,
Respondents.
August 31, 2006
x ---------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:

This petition for review on certiorari under Rule 45 of the Rules of

Court seeks to annul and set aside the Decision and Resolution of
the Court of Appeals dated October 29, 2004 [1] and October 7,
2005,[2] respectively, in CA-G.R. SP No. 78515 dismissing the
complaint for constructive dismissal filed by herein petitioner

SO ORDERED.

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.
ANGELINA FRANCISCO, G.R. No. 170087
Petitioner,
Present:

In 1995, petitioner was hired by Kasei Corporation during its

Panganiban, C.J.
(Chairperson),

- versus - Ynares-Santiago,
Austria-Martinez,

stage. She

was

designated as

Accountant

and

Corporate Secretary and was assigned to handle all the accounting

needs of the company. She was also designated as Liaison Officer

Callejo, Sr., and

Chico-Nazario, JJ.
NATIONAL LABOR RELATIONS
COMMISSION, KASEI CORPORATION,
SEIICHIRO TAKAHASHI, TIMOTEO
ACEDO, DELFIN LIZA, IRENE

incorporation

to the City of Makati to secure business permits, construction

permits and other licenses for the initial operation of the company.
[5]

12

Although she was designated as Corporate Secretary, she

employees of Kasei Corporation and announced that nothing had

was not entrusted with the corporate documents; neither did she

changed and that petitioner was still connected with Kasei

attend any board meeting nor required to do so.She never prepared

Corporation as Technical Assistant to Seiji Kamura and in charge of

any legal document and never represented the company as its

all BIR matters.[9]

Corporate

Secretary. However,

on

some

occasions,

she

was

prevailed upon to sign documentation for the company.[6]

Thereafter,

Kasei

Corporation

reduced

her

salary

by

P2,500.00 a month beginning January up to September 2001 for a

In 1996, petitioner was designated Acting Manager. The

total reduction of P22,500.00 as of September 2001.Petitioner was

corporation also hired Gerry Nino as accountant in lieu of

not paid her mid-year bonus allegedly because the company was

petitioner. As Acting Manager, petitioner was assigned to handle

not earning well. On October 2001, petitioner did not receive her

recruitment

management

salary from the company. She made repeated follow-ups with the

administration functions; represent the company in all dealings

company cashier but she was advised that the company was not

with government agencies, especially with the Bureau of Internal

earning well.[10]

of

all

employees

and

perform

Revenue (BIR), Social Security System (SSS) and in the city

government of Makati; and to administer all other matters

On October 15, 2001, petitioner asked for her salary from

pertaining to the operation of Kasei Restaurant which is owned and

Acedo and the rest of the officers but she was informed that she is

operated by Kasei Corporation.

[7]

no longer connected with the company.[11]

For five years, petitioner performed the duties of Acting

Since she was no longer paid her salary, petitioner did not

Manager. As of December 31, 2000 her salary was P27,500.00 plus

report for work and filed an action for constructive dismissal before

P3,000.00 housing allowance and a 10% share in the profit of Kasei

the labor arbiter.

Corporation.[8]
Private respondents averred that petitioner is not an
In January 2001, petitioner was replaced by Liza R. Fuentes

employee of Kasei Corporation. They alleged that petitioner was

as Manager. Petitioner alleged that she was required to sign a

hired in 1995 as one of its technical consultants on accounting

prepared resolution for her replacement but she was assured that

matters and act concurrently as Corporate Secretary. As technical

she would still be connected with Kasei Corporation. Timoteo

consultant, petitioner performed her work at her own discretion

Acedo, the designated Treasurer, convened a meeting of all

without control and supervision of Kasei Corporation. Petitioner had

13

no daily time record and she came to the office any time she
wanted. The company never interfered with her work except that
from time to time, the management would ask her opinion on
matters relating to her profession. Petitioner did not go through the
usual procedure of selection of employees, but her services were
engaged through a Board Resolution designating her as technical
consultant. The money received by petitioner from the corporation
was her professional fee subject to the 10% expanded withholding
tax on professionals, and that she was not one of those reported to
the BIR or SSS as one of the companys employees.[12]
Petitioners designation as technical consultant depended
solely upon the will of management. As such, her consultancy may
be terminated any time considering that her services were only
temporary in nature and dependent on the needs of the
corporation.
To prove that petitioner was not an employee of the
corporation, private respondents submitted a list of employees for
the years 1999 and 2000 duly received by the BIR showing that
petitioner was not among the employees reported to the BIR, as

WHEREFORE, premises considered,

hereby rendered as follows:

judgment

is

1. finding complainant an employee of

respondent corporation;
2. declaring complainants dismissal as illegal;
3. ordering
respondents
to
reinstate
complainant to her former position without loss of
seniority rights and jointly and severally pay
complainant her money claims in accordance with
the following computation:
a. Backwages 10/2001 07/2002 275,000.00
(27,500 x 10 mos.)
b. Salary
Differentials
(01/2001
09/2001) 22,500.00
c. Housing
Allowance
(01/2001
07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
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.
SO ORDERED.[14]

well as a list of payees subject to expanded withholding tax which

included petitioner. SSS records were also submitted showing that
petitioners latest employer was Seiji Corporation.[13]
The Labor Arbiter found that petitioner was illegally
dismissed, thus:

On April 15, 2003, the NLRC affirmed with modification the

Decision of the Labor Arbiter, the dispositive portion of which reads:
PREMISES CONSIDERED, the Decision of July
31, 2002 is hereby MODIFIED as follows:
1) Respondents
are
directed
to
pay
complainant separation pay computed at one month

14

per year of service in addition to full backwages from

October 2001 to July 31, 2002;
2) The awards representing moral and
exemplary damages and 10% share in profit in the
respective accounts of P100,000.00 and P361,175.00
are deleted;
3) The award of 10% attorneys fees shall be
based on salary differential award only;
4) The
awards
representing
salary
differentials, housing allowance, mid year bonus and
13th month pay are AFFIRMED.
SO ORDERED.[15]
On appeal, the Court of Appeals reversed the NLRC decision, thus:

Considering the conflicting findings by the Labor Arbiter and

the National Labor Relations Commission on one hand, and the
Court of Appeals on the other, there is a need to reexamine the
records to determine which of the propositions espoused by the
contending parties is supported by substantial evidence.[17]
We held in Sevilla v. Court of Appeals[18] that in this
jurisdiction, there has been no uniform test to determine the
existence of an employer-employee relation. Generally, courts have
relied on the so-called right of control test where the person for
whom the services are performed reserves a right to control not
only the end to be achieved but also the means to be used in
reaching such end. In addition to the standard of right-of-control,

WHEREFORE, the instant petition is hereby

GRANTED. The decision of the National Labor
Relations Commissions dated April 15, 2003 is
hereby REVERSED and SET ASIDE and a new one is
hereby rendered dismissing the complaint filed by
private respondent against Kasei Corporation, et al.
for constructive dismissal.

the existing economic conditions prevailing between the parties,

SO ORDERED.[16]

give a complete picture of the relationship between the parties,

like the inclusion of the employee in the payrolls, can help in

determining the existence of an employer-employee relationship.
However, in certain cases the control test is not sufficient to
owing to the complexity of such a relationship where several

The appellate court denied petitioners motion for reconsideration,

positions have been held by the worker. There are instances when,

hence, the present recourse.

aside from the employers power to control the employee with

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

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

accomplished, economic realities of the employment relations help

there was an employer-employee relationship between petitioner

provide a comprehensive analysis of the true classification of the

and private respondent Kasei Corporation; and if in the affirmative,

individual,

(2) whether petitioner was illegally dismissed.

corporate officer or some other capacity.

whether

as

employee,

independent

contractor,

15

The better approach would therefore be to adopt a twoThus,

tiered test involving: (1) the putative employers power to control

the

determination

of

the

relationship

between

the employee with respect to the means and methods by which the

employer and employee depends upon the circumstances of the

work is to be accomplished; and (2) the underlying economic

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

realities of the activity or relationship.

services performed are an integral part of the employers business;

(2) the extent of the workers investment in equipment and

This two-tiered test would provide us with a framework of

facilities; (3) the nature and degree of control exercised by the

analysis, which would take into consideration the totality of

employer; (4) the workers opportunity for profit and loss; (5) the

circumstances surrounding the true nature of the relationship

amount of initiative, skill, judgment or foresight required for the

between the parties. This is especially appropriate in this case

success of the claimed independent enterprise; (6) the permanency

where there is no written agreement or terms of reference to base

and duration of the relationship between the worker and the

the relationship on; and due to the complexity of the relationship

employer; and (7) the degree of dependency of the worker upon

based on the various positions and responsibilities given to the

the employer for his continued employment in that line of business.

worker over the period of the latters employment.

[23]

The control test initially found application in the case of Viaa

The proper standard of economic dependence is whether

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

the worker is dependent on the alleged employer for his continued

Appeals,[20] where we held that there is an employer-employee

employment in that line of business. [24] In the United States, the

relationship when the person for whom the services are performed

touchstone of economic reality in analyzing possible employment

reserves the right to control not only the end achieved but also the

relationships for purposes of the Federal Labor Standards Act is

manner and means used to achieve that end.

dependency.[25] By analogy, the benchmark of economic reality in

analyzing possible employment relationships for purposes of the

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.

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

16

Technical Consultant. She reported for work regularly and served in

various

capacities

Consultant,

Acting

as

Accountant,

Manager

and

Liaison

Officer,

Corporate

Technical

Secretary,

In Domasig v. National Labor Relations Commission,[28] we

held that in a business establishment, an identification card is

with

provided not only as a security measure but mainly to identify the

substantially the same job functions, that is, rendering accounting

holder thereof as a bona fide employee of the firm that issues

and tax services to the company and performing functions

it. Together with the cash vouchers covering petitioners salaries for

necessary and desirable for the proper operation of the corporation

the months stated therein, these matters constitute substantial

such as securing business permits and other licenses over an

evidence adequate to support a conclusion that petitioner was an

indefinite period of engagement.

employee of private respondent.

Under the broader economic reality test, the petitioner can

likewise be said to be an employee of respondent corporation

We likewise ruled in Flores v. Nuestro[29] that a corporation

because she had served the company for six years before her

who registers its workers with the SSS is proof that the latter were

dismissal, receiving check vouchers indicating her salaries/wages,

the formers employees. The coverage of Social Security Law is

th

benefits, 13 month pay, bonuses and allowances, as well as

predicated on the existence of an employer-employee relationship.

deductions and Social Security contributions from August 1, 1999

to December 18, 2000.[26] When petitioner was designated General

Furthermore, the affidavit of Seiji Kamura dated December

Manager, respondent corporation made a report to the SSS signed

5, 2001 has clearly established that petitioner never acted as

by

as

Corporate Secretary and that her designation as such was only for

manifested by a copy of the SSS specimen signature card which

convenience. The actual nature of petitioners job was as Kamuras

was signed by the President of Kasei Corporation and the inclusion

direct assistant with the duty of acting as Liaison Officer in

of her name in the on-line inquiry system of the SSS evinces the

representing the company to secure construction permits, license

existence of an employer-employee relationship between petitioner

to operate and other requirements imposed by government

and respondent corporation.[27]

agencies. Petitioner was never entrusted with corporate documents

Irene

Ballesteros. Petitioners

membership

in

the

SSS

of the company, nor required to attend the meeting of the

It is therefore apparent that petitioner is economically
dependent

on

respondent

corporation

employment in the latters line of business.

for

her

continued

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]

17

The second affidavit of Kamura dated March 7, 2002 which

repudiated the December 5, 2001 affidavit has been allegedly

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

accomplished.

withdrawn by Kamura himself from the records of the case.

[31]

Regardless of this fact, we are convinced that the allegations in

The corporation constructively dismissed petitioner when it

the first affidavit are sufficient to establish that petitioner is an

reduced her salary by P2,500 a month from January to September

employee of Kasei Corporation.

2001. This amounts to an illegal termination of employment, where

the petitioner is entitled to full backwages. Since the position of

Granting arguendo,

that

the

second

affidavit

validly

petitioner as accountant is one of trust and confidence, and under

repudiated the first one, courts do not generally look with favor on

the principle of strained relations, petitioner is further entitled to

any retraction or recanted testimony, for it could have been

separation pay, in lieu of reinstatement.[34]

secured by considerations other than to tell the truth and would

A diminution of pay is prejudicial to the employee and

make solemn trials a mockery and place the investigation of the

amounts to constructive dismissal. Constructive dismissal is an

truth at the mercy of unscrupulous witnesses.

[32]

A recantation does

involuntary resignation resulting in cessation of work resorted to

not necessarily cancel an earlier declaration, but like any other

when continued employment becomes impossible, unreasonable or

testimony the same is subject to the test of credibility and should

unlikely; when there is a demotion in rank or a diminution in pay; or

be received with caution.[33]

when a clear discrimination, insensibility or disdain by an employer

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

Based on the foregoing, there can be no other conclusion

Florendo-Flores,[36] we ruled that where an employee ceases to

that petitioner is an employee of respondent Kasei Corporation. She

work due to a demotion of rank or a diminution of pay, an

was selected and engaged by the company for compensation, and

unreasonable situation arises which creates an adverse working

is economically dependent upon respondent for her continued

environment rendering it impossible for such employee to continue

employment in that line of business. Her main job function involved

working for her employer. Hence, her severance from the company

accounting and tax services rendered to respondent corporation on

was not of her own making and therefore amounted to an illegal

termination of employment.

regular

basis

over

an

indefinite

period

of

engagement. Respondent corporation hired and engaged petitioner

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

In affording full protection to labor, this Court must ensure

importantly, respondent corporation had the power to control

equal work opportunities regardless of sex, race or creed. Even as

we, in every case, attempt to carefully balance the fragile

18

relationship between employees and employers, we are mindful of

the fact that the policy of the law is to apply the Labor Code to a
greater number of employees. This would enable employees to
avail of the benefits accorded to them by law, in line with the
constitutional mandate giving maximum aid and protection to
labor, promoting their welfare and reaffirming it as a primary social
economic force in furtherance of social justice and national
development.
WHEREFORE, the petition is GRANTED. The Decision and
Resolution of the Court of Appeals dated October 29, 2004 and
October

7,

2005,

respectively,

in

CA-G.R.

SP

No.

78515

are ANNULLED and SET ASIDE. The Decision of the National

Labor Relations Commission dated April 15, 2003 in NLRC NCR CA
No. 032766-02, isREINSTATED. The case is REMANDED to the
Labor

Arbiter

Franciscos

full

for

the

recomputation

backwages

from

the

of
time

petitioner
she

was

Angelina
illegally

terminated until the date of finality of this decision, and separation

pay representing one-half month pay for every year of service,
where a fraction of at least six months shall be considered as one
whole year.
G.R. No. 165881

April 19, 2006

SO ORDERED.
OSCAR VILLAMARIA, JR. Petitioner,
vs.
COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents
DECISION
CALLEJO, SR., J.:

19

Before us is a Petition for Review on Certiorari under Rule 65 of the

Revised Rules of Court assailing the Decision1 and Resolution2 of
the Court of Appeals (CA) in CA-G.R. SP No. 78720 which set aside
the Resolution3of the National Labor Relations Commission (NLRC)
in NCR-30-08-03247-00, which in turn affirmed the Decision 4of the
Labor Arbiter dismissing the complaint filed by respondent Jerry V.
Bustamante.
Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a
sole proprietorship engaged in assembling passenger jeepneys with
a public utility franchise to operate along the Baclaran-Sucat route.
By 1995, Villamaria stopped assembling jeepneys and retained only
nine, four of which he operated by employing drivers on a
"boundary basis." One of those drivers was respondent Bustamante
who drove the jeepney with Plate No. PVU-660. Bustamante
remitted P450.00 a day to Villamaria as boundary and kept the
residue of his daily earnings as compensation for driving the
vehicle. In August 1997, Villamaria verbally agreed to sell the
jeepney to Bustamante under the "boundary-hulog scheme," where
Bustamante would remit to Villarama P550.00 a day for a period of
four years; Bustamante would then become the owner of the
vehicle and continue to drive the same under Villamarias
franchise. It was also agreed that Bustamante would make a
downpayment of P10,000.00.
On August 7, 1997, Villamaria executed a contract entitled
"Kasunduan ng Bilihan ng Sasakyan sa Pamamagitan ng BoundaryHulog"5 over the passenger jeepney with Plate No. PVU-660,
Chassis No. EVER95-38168-C and Motor No. SL-26647. The parties
agreed that if Bustamante failed to pay the boundary-hulog for
three days, Villamaria Motors would hold on to the vehicle until
Bustamante paid his arrears, including a penalty of P50.00 a day; in
case Bustamante failed to remit the daily boundary-hulog for a
period of one week, the Kasunduan would cease to have legal
effect and Bustamante would have to return the vehicle to
Villamaria Motors.
Under the Kasunduan, Bustamante was prohibited from driving the
vehicle without prior authority from Villamaria Motors. Thus,
Bustamante was authorized to operate the vehicle to transport

passengers only and not for other purposes. He was also required
to display an identification card in front of the windshield of the
vehicle; in case of failure to do so, any fine that may be imposed by
government authorities would be charged against his account.
Bustamante further obliged himself to pay for the cost of replacing
any parts of the vehicle that would be lost or damaged due to his
negligence. In case the vehicle sustained serious damage,
Bustamante was obliged to notify Villamaria Motors before
commencing repairs. Bustamante was not allowed to wear slippers,
short pants or undershirts while driving. He was required to be
polite and respectful towards the passengers. He was also obliged
to notify Villamaria Motors in case the vehicle was leased for two or
more days and was required to attend any meetings which may be
called from time to time. Aside from the boundary-hulog,
Bustamante was also obliged to pay for the annual registration fees
of the vehicle and the premium for the vehicles comprehensive
insurance. Bustamante promised to strictly comply with the rules
and regulations imposed by Villamaria for the upkeep and
maintenance of the jeepney.
Bustamante continued driving the jeepney under the supervision
and control of Villamaria. As agreed upon, he made daily
remittances of P550.00 in payment of the purchase price of the
vehicle. Bustamante failed to pay for the annual registration fees of
the vehicle, but Villamaria allowed him to continue driving the
jeepney.
In 1999, Bustamante and other drivers who also had the same
arrangement with Villamaria Motors failed to pay their respective
boundary-hulog. This prompted Villamaria to serve a
"Paalala,"6 reminding them that under the Kasunduan, failure to pay
the daily boundary-hulog for one week, would mean their
respective jeepneys would be returned to him without any
complaints. He warned the drivers that the Kasunduan would
henceforth be strictly enforced and urged them to comply with their
obligation to avoid litigation.
On July 24, 2000, Villamaria took back the jeepney driven by
Bustamante and barred the latter from driving the vehicle.

20

On August 15, 2000, Bustamante filed a Complaint 7 for Illegal

Dismissal against Villamaria and his wife Teresita. In his Position
Paper,8 Bustamante alleged that he was employed by Villamaria in
July 1996 under the boundary system, where he was required to
remit P450.00 a day. After one year of continuously working for
them, the spouses Villamaria presented the Kasunduan for his
signature, with the assurance that he (Bustamante) would own the
jeepney by March 2001 after paying P550.00 in daily installments
and that he would thereafter continue driving the vehicle along the
same route under the same franchise. He further narrated that in
July 2000, he informed the Villamaria spouses that the surplus
engine of the jeepney needed to be replaced, and was assured that
it would be done. However, he was later arrested and his drivers
license was confiscated because apparently, the replacement
engine that was installed was taken from a stolen vehicle. Due to
negotiations with the apprehending authorities, the jeepney was
not impounded. The Villamaria spouses took the jeepney from him
on July 24, 2000, and he was no longer allowed to drive the vehicle
since then unless he paid them P70,000.00.
Bustamante prayed that judgment be rendered in his favor, thus:
WHEREFORE, in the light of the foregoing, it is most respectfully
prayed that judgment be rendered ordering the respondents, jointly
and severally, the following:
1. Reinstate complainant to his former position without loss
of seniority rights and execute a Deed of Sale in favor of the
complainant relative to the PUJ with Plate No. PVU-660;
2. Ordering the respondents to pay backwages in the
amount of P400.00 a day and other benefits computed from
July 24, 2000 up to the time of his actual reinstatement;
3. Ordering respondents to return the amount of P10,000.00
and P180,000.00 for the expenses incurred by the
complainant in the repair and maintenance of the subject
jeep;

4. Ordering the respondents to refund the amount of One

Hundred (P100.00) Pesos per day counted from August 7,
1997 up to June 2000 or a total of P91,200.00;
5. To pay moral and exemplary damages of not less than
P200,000.00;
6. Attorneys fee[s] of not less than 10% of the monetary
award.
Other just and equitable reliefs under the premises are also being
prayed for.9
In their Position Paper,10 the spouses Villamaria admitted the
existence of the Kasunduan, but alleged that Bustamante failed to
pay the P10,000.00 downpayment and the vehicles annual
registration fees. They further alleged that Bustamante eventually
failed to remit the requisite boundary-hulog of P550.00 a day,
which prompted them to issue the Paalaala. Instead of complying
with his obligations, Bustamante stopped making his remittances
despite his daily trips and even brought the jeepney to the province
without permission. Worse, the jeepney figured in an accident and
its license plate was confiscated; Bustamante even abandoned the
vehicle in a gasoline station in Sucat, Paraaque City for two
weeks. When the security guard at the gasoline station requested
that the vehicle be retrieved and Teresita Villamaria asked
Bustamante for the keys, Bustamante told her: "Di kunin ninyo."
When the vehicle was finally retrieved, the tires were worn, the
alternator was gone, and the battery was no longer working.
Citing the cases of Cathedral School of Technology v. NLRC 11 and
Canlubang Security Agency Corporation v. NLRC,12 the spouses
Villamaria argued that Bustamante was not illegally dismissed since
the Kasunduan executed on August 7, 1997 transformed the
employer-employee relationship into that of vendor-vendee. Hence,
the spouses concluded, there was no legal basis to hold them liable
for illegal dismissal. They prayed that the case be dismissed for
lack of jurisdiction and patent lack of merit.

21

In his Reply,13 Bustamante claimed that Villamaria exercised control

and supervision over the conduct of his employment. He
maintained that the rulings of the Court in National Labor Union v.
Dinglasan,14 Magboo v. Bernardo,15 and Citizen's League of Free
Workers v. Abbas16 are germane to the issue as they define the
nature of the owner/operator-driver relationship under the
boundary system. He further reiterated that it was the Villamaria
spouses who presented the Kasunduan to him and that he
conformed thereto only upon their representation that he would
own the vehicle after four years. Moreover, it appeared that the
Paalala was duly received by him, as he, together with other
drivers, was made to affix his signature on a blank piece of paper
purporting to be an "attendance sheet."

WHEREFORE, premises considered, complainant's appeal is hereby

DISMISSED for reasons not stated in the Labor Arbiter's decision but
mainly on a jurisdictional issue, there being none over the subject
matter of the controversy.21

On March 15, 2002, the Labor Arbiter rendered judgment17 in favor

of the spouses Villamaria and ordered the complaint dismissed on
the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as

the PAALALA, to prove their claim that complainant violated the
terms of their contract and afterwards abandoned the vehicle
assigned to him. As against the foregoing, [the] complaints (sic)
mere allegations to the contrary cannot prevail.
Not having been illegally dismissed, complainant is not entitled to
damages and attorney's fees.18
Bustamante appealed the decision to the NLRC, 19 insisting that the
Kasunduan did not extinguish the employer-employee relationship
between him and Villamaria. While he did not receive fixed wages,
he kept only the excess of the boundary-hulog which he was
required to remit daily to Villamaria under the agreement.
Bustamante maintained that he remained an employee because he
was engaged to perform activities which were necessary or
desirable to Villamarias trade or business.
The NLRC rendered judgment20 dismissing the appeal for lack of
merit, thus:

The NLRC ruled that under the Kasunduan, the juridical relationship
between Bustamante and Villamaria was that of vendor and
vendee, hence, the Labor Arbiter had no jurisdiction over the
complaint. Bustamante filed a Motion for Reconsideration, which
the NLRC resolved to deny on May 30, 2003.22
Bustamante elevated the matter to the CA via Petition for
Certiorari, alleging that the NLRC erred

IN DISMISSING PETITIONERS APPEAL "FOR REASON NOT STATED IN

THE LABOR ARBITERS DECISION, BUT MAINLY ON JURISDICTIONAL
ISSUE;"
II
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE
WHEN IT DECLARED THAT THE RELATIONSHIP WHICH WAS
ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE
PROTECTIVE MANTLE OF OUR LABOR LAWS.23
Bustamante insisted that despite the Kasunduan, the relationship
between him and Villamaria continued to be that of employeremployee and as such, the Labor Arbiter had jurisdiction over his
complaint. He further alleged that it is common knowledge that
operators of passenger jeepneys (including taxis) pay their drivers
not on a regular monthly basis but on commission or boundary
basis, or even the boundary-hulog system. Bustamante asserted
that he was dismissed from employment without any lawful or just
cause and without due notice.
For his part, Villamaria averred that Bustamante failed to adduce
proof of their employer-employee relationship. He further pointed

22

out that the Dinglasan case pertains to the boundary system and
not the boundary-hulog system, hence inapplicable in the instant
case. He argued that upon the execution of the Kasunduan, the
juridical tie between him and Bustamante was transformed into a
vendor-vendee relationship. Noting that he was engaged in the
manufacture and sale of jeepneys and not in the business of
transporting passengers for consideration, Villamaria contended
that the daily fees which Bustmante paid were actually periodic
installments for the the vehicle and were not the same fees as
understood in the boundary system. He added that the boundaryhulog plan was basically a scheme to help the driver-buyer earn
money and eventually pay for the unit in full, and for the owner to
profit not from the daily earnings of the driver-buyer but from the
purchase price of the unit sold. Villamaria further asserted that the
apparently restrictive conditions in the Kasunduan did not mean
that the means and method of driver-buyers conduct was
controlled, but were mere ways to preserve the vehicle for the
benefit of both parties: Villamaria would be able to collect the
agreed purchase price, while Bustamante would be assured that
the vehicle would still be in good running condition even after four
years. Moreover, the right of vendor to impose certain conditions
on the buyer should be respected until full ownership of the
property is vested on the latter. Villamaria insisted that the parallel
circumstances obtaining in Singer Sewing Machine Company v.
Drilon24 has analogous application to the instant issue.
In its Decision25 dated August 30, 2004, the CA reversed and set
aside the NLRC decision. The fallo of the decision reads:
UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned
resolutions of the NLRC must be, as they are hereby are, REVERSED
AND SET ASIDE, and judgment entered in favor of petitioner:
1. Sentencing private respondent Oscar Villamaria, Jr. to pay
petitioner Jerry Bustamante separation pay computed from
the time of his employment up to the time of termination
based on the prevailing minimum wage at the time of
termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to

pay petitioner Jerry Bustamante back wages computed from
the time of his dismissal up to March 2001 based on the
prevailing minimum wage at the time of his dismissal.
Without Costs.
SO ORDERED.26
The appellate court ruled that the Labor Arbiter had jurisdiction
over Bustamantes complaint. Under the Kasunduan, the
relationship between him and Villamaria was dual: that of vendorvendee and employer-employee. The CA ratiocinated that
Villamarias exercise of control over Bustamantes conduct in
operating the jeepney is inconsistent with the formers claim that
he was not engaged in the transportation business. There was no
evidence that petitioner was allowed to let some other person drive
the jeepney.
The CA further held that, while the power to dismiss was not
mentioned in the Kasunduan, it did not mean that Villamaria could
not exercise it. It explained that the existence of an employment
relationship did not depend on how the worker was paid but on the
presence or absence of control over the means and method of the
employees work. In this case, Villamarias directives (to drive
carefully, wear an identification card, don decent attire, park the
vehicle in his garage, and to inform him about provincial trips, etc.)
was a means to control the way in which Bustamante was to go
about his work. In view of Villamarias supervision and control as
employer, the fact that the "boundary" represented installment
payments of the purchase price on the jeepney did not remove the
parties employer-employee relationship.
While the appellate court recognized that a weeks default in
paying the boundary-hulog constituted an additional cause for
terminating Bustamantes employment, it held that the latter was
illegally dismissed. According to the CA, assuming that Bustamante
failed to make the required payments as claimed by Villamaria, the
latter nevertheless failed to take steps to recover the unit and
waited for Bustamante to abandon it. It also pointed out that

23

Villamaria neither submitted any police report to support his claim

that the vehicle figured in a mishap nor presented the affidavit of
the gas station guard to substantiate the claim that Bustamante
abandoned the unit.
Villamaria received a copy of the decision on September 8, 2004,
and filed, on September 17, 2004, a motion for reconsideration
thereof. The CA denied the motion in a Resolution27 dated
November 2, 2004, and Villamaria received a copy thereof on
November 8, 2004.
Villamaria, now petitioner, seeks relief from this Court via petition
for review on certiorari under Rule 65 of the Rules of Court, alleging
that the CA committed grave abuse of its discretion amounting to
excess or lack of jurisdiction in reversing the decision of the Labor
Arbiter and the NLRC. He claims that the CA erred in ruling that the
juridical relationship between him and respondent under the
Kasunduan was a combination of employer-employee and vendorvendee relationships. The terms and conditions of the Kasunduan
clearly state that he and respondent Bustamante had entered into
a conditional deed of sale over the jeepney; as such, their
employer-employee relationship had been transformed into that of
vendor-vendee. Petitioner insists that he had the right to reserve
his title on the jeepney until after the purchase price thereof had
been paid in full.
In his Comment on the petition, respondent avers that the
appropriate remedy of petitioner was an appeal via a petition for
review on certiorari under Rule 45 of the Rules of Court and not a
special civil action of certiorari under Rule 65. He argues that
petitioner failed to establish that the CA committed grave abuse of
its discretion amounting to excess or lack of jurisdiction in its
decision, as the said ruling is in accord with law and the evidence
on record.
Respondent further asserts that the Kasunduan presented to him
by petitioner which provides for a boundary-hulog scheme was a
devious circumvention of the Labor Code of the Philippines.
Respondent insists that his juridical relationship with petitioner is
that of employer-employee because he was engaged to perform

activities which were necessary or desirable in the usual business

of petitioner, his employer.
In his Reply, petitioner avers that the Rules of Procedure should be
liberally construed in his favor; hence, it behooves the Court to
resolve the merits of his petition.
We agree with respondents contention that the remedy of
petitioner from the CA decision was to file a petition for review on
certiorari under Rule 45 of the Rules of Court and not the
independent action of certiorari under Rule 65. Petitioner had 15
days from receipt of the CA resolution denying his motion for the
reconsideration within which to file the petition under Rule 45. 28 But
instead of doing so, he filed a petition for certiorari under Rule 65
on November 22, 2004, which did not, however, suspend the
running of the 15-day reglementary period; consequently, the CA
decision became final and executory upon the lapse of the
reglementary period for appeal. Thus, on this procedural lapse, the
instant petition stands to be dismissed.29
It must be stressed that the recourse to a special civil action under
Rule 65 of the Rules of Court is proscribed by the remedy of appeal
under Rule 45. As the Court elaborated in Tomas Claudio Memorial
College, Inc. v. Court of Appeals:30
We agree that the remedy of the aggrieved party from a decision or
final resolution of the CA is to file a petition for review on certiorari
under Rule 45 of the Rules of Court, as amended, on questions of
facts or issues of law within fifteen days from notice of the said
resolution. Otherwise, the decision of the CA shall become final and
executory. The remedy under Rule 45 of the Rules of Court is a
mode of appeal to this Court from the decision of the CA. It is a
continuation of the appellate process over the original case. A
review is not a matter of right but is a matter of judicial discretion.
The aggrieved party may, however, assail the decision of the CA via
a petition for certiorari under Rule 65 of the Rules of Court within
sixty days from notice of the decision of the CA or its resolution
denying the motion for reconsideration of the same. This is based
on the premise that in issuing the assailed decision and resolution,
the CA acted with grave abuse of discretion, amounting to excess

24

or lack of jurisdiction and there is no plain, speedy and adequate

remedy in the ordinary course of law. A remedy is considered plain,
speedy and adequate if it will promptly relieve the petitioner from
the injurious effect of the judgment and the acts of the lower court.
The aggrieved party is proscribed from filing a petition for certiorari
if appeal is available, for the remedies of appeal and certiorari are
mutually exclusive and not alternative or successive. The aggrieved
party is, likewise, barred from filing a petition for certiorari if the
remedy of appeal is lost through his negligence. A petition for
certiorari is an original action and does not interrupt the course of
the principal case unless a temporary restraining order or a writ of
preliminary injunction has been issued against the public
respondent from further proceeding. A petition for certiorari must
be based on jurisdictional grounds because, as long as the
respondent court acted within its jurisdiction, any error committed
by it will amount to nothing more than an error of judgment which
may be corrected or reviewed only by appeal.31
However, we have also ruled that a petition for certiorari under
Rule 65 may be considered as filed under Rule 45, conformably
with the principle that rules of procedure are to be construed
liberally, provided that the petition is filed within the reglementary
period under Section 2, Rule 45 of the Rules of Court, and where
valid and compelling circumstances warrant that the petition be
resolved on its merits.32 In this case, the petition was filed within
the reglementary period and petitioner has raised an issue of
substance: whether the existence of a boundary-hulog agreement
negates the employer-employee relationship between the vendor
and vendee, and, as a corollary, whether the Labor Arbiter has
jurisdiction over a complaint for illegal dismissal in such case.
We resolve these issues in the affirmative.
The rule is that, the nature of an action and the subject matter
thereof, as well as, which court or agency of the government has
jurisdiction over the same, are determined by the material
allegations of the complaint in relation to the law involved and the
character of the reliefs prayed for, whether or not the
complainant/plaintiff is entitled to any or all of such reliefs. 33 A

prayer or demand for relief is not part of the petition of the cause of
action; nor does it enlarge the cause of action stated or change the
legal effect of what is alleged.34 In determining which body has
jurisdiction over a case, the better policy is to consider not only the
status or relationship of the parties but also the nature of the action
that is the subject of their controversy.35
Article 217 of the Labor Code, as amended, vests on the Labor
Arbiter exclusive original jurisdiction only over the following:
x x x (a) Except as otherwise provided under this Code, the Labor
Arbiters shall have original and exclusive jurisdiction to hear and
decide, within thirty (30) calendar days after the submission of the
case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all
workers, whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wage, rates of pay,
hours of work, and other terms and conditions of
employment;
4. Claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
5. Cases arising from violation of Article 264 of this Code,
including questions involving the legality of strikes and
lockouts; and
6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relationship, including
those of persons in domestic or household service, involving
an amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for
reinstatement.

25

(b) The Commission shall have exclusive appellate

jurisdiction over all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation or
implementation of collective bargaining agreements,
and those arising from the interpretation or
enforcement of company personnel policies shall be
disposed of by the Labor Arbiter by referring the
same to the grievance machinery and voluntary
arbitration as may be provided in said agreements.
In the foregoing cases, an employer-employee relationship is an
indispensable jurisdictional requisite.36 The jurisdiction of Labor
Arbiters and the NLRC under Article 217 of the Labor Code is
limited to disputes arising from an employer-employee relationship
which can only be resolved by reference to the Labor Code, other
labor statutes or their collective bargaining agreement.37 Not every
dispute between an employer and employee involves matters that
only the Labor Arbiter and the NLRC can resolve in the exercise of
their adjudicatory or quasi-judicial powers. Actions between
employers and employees where the employer-employee
relationship is merely incidental is within the exclusive original
jurisdiction of the regular courts.38 When the principal relief is to be
granted under labor legislation or a collective bargaining
agreement, the case falls within the exclusive jurisdiction of the
Labor Arbiter and the NLRC even though a claim for damages might
be asserted as an incident to such claim. 39
We agree with the ruling of the CA that, under the boundary-hulog
scheme incorporated in the Kasunduan, a dual juridical relationship
was created between petitioner and respondent: that of employeremployee and vendor-vendee. The Kasunduan did not extinguish
the employer-employee relationship of the parties extant before the
execution of said deed.
As early as 1956, the Court ruled in National Labor Union v.
Dinglasan40 that the jeepney owner/operator-driver relationship
under the boundary system is that of employer-employee and not
lessor-lessee. This doctrine was affirmed, under similar factual
settings, in Magboo v. Bernardo41 and Lantaco, Sr. v. Llamas,42 and

was analogously applied to govern the relationships between autocalesa owner/operator and driver,43 bus owner/operator and
conductor,44 and taxi owner/operator and driver.45
The boundary system is a scheme by an owner/operator engaged
in transporting passengers as a common carrier to primarily govern
the compensation of the driver, that is, the latters daily earnings
are remitted to the owner/operator less the excess of the boundary
which represents the drivers compensation. Under this system, the
owner/operator exercises control and supervision over the driver. It
is unlike in lease of chattels where the lessor loses complete control
over the chattel leased but the lessee is still ultimately responsible
for the consequences of its use. The management of the business
is still in the hands of the owner/operator, who, being the holder of
the certificate of public convenience, must see to it that the driver
follows the route prescribed by the franchising and regulatory
authority, and the rules promulgated with regard to the business
operations. The fact that the driver does not receive fixed wages
but only the excess of the "boundary" given to the owner/operator
is not sufficient to change the relationship between them.
Indubitably, the driver performs activities which are usually
necessary or desirable in the usual business or trade of the
owner/operator.46
Under the Kasunduan, respondent was required to remit P550.00
daily to petitioner, an amount which represented the boundary of
petitioner as well as respondents partial payment (hulog) of the
purchase price of the jeepney.
Respondent was entitled to keep the excess of his daily earnings as
his daily wage. Thus, the daily remittances also had a dual purpose:
that of petitioners boundary and respondents partial payment
(hulog) for the vehicle. This dual purpose was expressly stated in
the Kasunduan. The well-settled rule is that an obligation is not
novated by an instrument that expressly recognizes the old one,
changes only the terms of payment, and adds other obligations not
incompatible with the old provisions or where the new contract
merely supplements the previous one. 47 The two obligations of the
respondent to remit to petitioner the boundary-hulog can stand
together.

26

In resolving an issue based on contract, this Court must first

examine the contract itself, keeping in mind that when the terms of
the agreement are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its stipulations shall
prevail.48 The intention of the contracting parties should be
ascertained by looking at the words used to project their intention,
that is, all the words, not just a particular word or two or more
words standing alone. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly.49 The parts and
clauses must be interpreted in relation to one another to give effect
to the whole. The legal effect of a contract is to be determined from
the whole read together.50
Under the Kasunduan, petitioner retained supervision and control
over the conduct of the respondent as driver of the jeepney, thus:
Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng
boundary hulog ay ang mga sumusunod:
1. Pangangalagaan at pag-iingatan ng TAUHAN NG
IKALAWANG PANIG ang sasakyan ipinagkatiwala sa kanya ng
TAUHAN NG UNANG PANIG.
2. Na ang sasakyan nabanggit ay gagamitin lamang ng
TAUHAN NG IKALAWANG PANIG sa paghahanapbuhay bilang
pampasada o pangangalakal sa malinis at maayos na
pamamaraan.
3. Na ang sasakyan nabanggit ay hindi gagamitin ng
TAUHAN NG IKALAWANG PANIG sa mga bagay na
makapagdudulot ng kahihiyan, kasiraan o pananagutan sa
TAUHAN NG UNANG PANIG.
4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina
ng UNANG PANIG.
5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang
maglagay ng ID Card sa harap ng windshield upang sa
pamamagitan nito ay madaliang malaman kung ang

nagmamaneho ay awtorisado ng VILLAMARIA MOTORS o

hindi.
6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang
[halaga ng] multa kung sakaling mahuli ang sasakyang ito
na hindi nakakabit ang ID card sa wastong lugar o anuman
kasalanan o kapabayaan.
7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang
materyales o piyesa na papalitan ng nasira o nawala ito
dahil sa kanyang kapabayaan.
8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe
habang hinuhulugan pa rin ng TAUHAN NG IKALAWANG
PANIG ang nasabing sasakyan.
9. Na kung magkaroon ng mabigat na kasiraan ang
sasakyang ipinagkaloob ng TAUHAN NG UNANG PANIG, ang
TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito
muna sa VILLAMARIA MOTORS bago ipagawa sa alin mang
Motor Shop na awtorisado ng VILLAMARIA MOTORS.
10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG
PANIG sa panahon ng pamamasada na ang nagmamaneho
ay naka-tsinelas, naka short pants at nakasando lamang.
Dapat ang nagmamaneho ay laging nasa maayos ang
kasuotan upang igalang ng mga pasahero.
11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado
niyang driver ay magpapakita ng magandang asal sa mga
pasaheros at hindi dapat magsasalita ng masama kung
sakali man may pasaherong pilosopo upang maiwasan ang
anumang kaguluhan na maaaring kasangkutan.
12. Na kung sakaling hindi makapagbigay ng BOUNDARY
HULOG ang TAUHAN NG IKALAWANG PANIG sa loob ng
tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS ang
may karapatang mangasiwa ng nasabing sasakyan
hanggang matugunan ang lahat ng responsibilidad. Ang
halagang dapat bayaran sa opisina ay may karagdagang

27

multa ng P50.00 sa araw-araw na ito ay nasa pangangasiwa

ng VILLAMARIA MOTORS.
13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi
makapagbigay ng BOUNDARY HULOG sa loob ng isang
linggo ay nangangahulugan na ang kasunduang ito ay wala
ng bisa at kusang ibabalik ng TAUHAN NG IKALAWANG
PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG.
14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad
sa rehistro, comprehensive insurance taon-taon at kahit
anong uri ng aksidente habang ito ay hinuhulugan pa sa
TAUHAN NG UNANG PANIG.
15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong
dumalo sa pangkalahatang pagpupulong ng VILLAMARIA
MOTORS sa tuwing tatawag ang mga tagapangasiwa nito
upang maipaabot ang anumang mungkahi sa ikasusulong
ng samahan.
16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa
lahat ng mga patakaran na magkakaroon ng pagbabago o
karagdagan sa mga darating na panahon at hindi magiging
hadlang sa lahat ng mga balakin ng VILLAMARIA MOTORS sa
lalo pang ipagtatagumpay at ikakatibay ng Samahan.
17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi
magiging buwaya sa pasahero upang hindi kainisan ng
kapwa driver at maiwasan ang pagkakasangkot sa anumang
gulo.
18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin
ang kalagayan lalo na sa umaga bago pumasada, at sa
hapon o gabi naman ay sisikapin mapanatili ang kalinisan
nito.
19. Na kung sakaling ang nasabing sasakyan ay maaarkila
at aabutin ng dalawa o higit pang araw sa lalawigan ay
dapat lamang na ipagbigay alam muna ito sa VILLAMARIA
MOTORS upang maiwasan ang mga anumang suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang

pakikipag-unahan sa kaninumang sasakyan upang
maiwasan ang aksidente.
21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon
sasabihin sa VILLAMARIA MOTORS mabuti man or masama
ay iparating agad ito sa kinauukulan at iwasan na iparating
ito kung [kani-kanino] lamang upang maiwasan ang
anumang usapin. Magsadya agad sa opisina ng VILLAMARIA
MOTORS.
22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang
at puso kong sinasang-ayunan at buong sikap na
pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang
nasabing sasakyan at gagamitin lamang ito sa
paghahanapbuhay at wala nang iba pa.51
The parties expressly agreed that petitioner, as vendor, and
respondent, as vendee, entered into a contract to sell the jeepney
on a daily installment basis of P550.00 payable in four years and
that petitioner would thereafter become its owner. A contract is one
of conditional sale, oftentimes referred to as contract to sell, if the
ownership or title over the
property sold is retained by the vendor, and is not passed to the
vendee unless and until there is full payment of the purchase price
and/or upon faithful compliance with the other terms and
conditions that may lawfully be stipulated. 52 Such payment or
satisfaction of other preconditions, as the case may be, is a positive
suspensive condition, the failure of which is not a breach of
contract, casual or serious, but simply an event that would prevent
the obligation of the vendor to convey title from acquiring binding
force.53 Stated differently, the efficacy or obligatory force of the
vendor's obligation to transfer title is subordinated to the
happening of a future and uncertain event so that if the suspensive
condition does not take place, the parties would stand as if the
conditional obligation had never existed. 54 The vendor may
extrajudicially terminate the operation of the contract, refuse
conveyance, and retain the sums or installments already received,
where such rights are expressly provided for.55

28

Under the boundary-hulog scheme, petitioner retained ownership of

the jeepney although its material possession was vested in
respondent as its driver. In case respondent failed to make his
P550.00 daily installment payment for a week, the agreement
would be of no force and effect and respondent would have to
return the jeepney to petitioner; the employer-employee
relationship would likewise be terminated unless petitioner would
allow respondent to continue driving the jeepney on a boundary
basis of P550.00 daily despite the termination of their vendorvendee relationship.
The juridical relationship of employer-employee between petitioner
and respondent was not negated by the foregoing stipulation in the
Kasunduan, considering that petitioner retained control of
respondents conduct as driver of the vehicle. As correctly ruled by
the CA:
The exercise of control by private respondent over petitioners
conduct in operating the jeepney he was driving is inconsistent with
private respondents claim that he is, or was, not engaged in the
transportation business; that, even if petitioner was allowed to let
some other person drive the unit, it was not shown that he did so;
that the existence of an employment relation is not dependent on
how the worker is paid but on the presence or absence of control
over the means and method of the work; that the amount earned in
excess of the "boundary hulog" is equivalent to wages; and that the
fact that the power of dismissal was not mentioned in the
Kasunduan did not mean that private respondent never exercised
such power, or could not exercise such power.
Moreover, requiring petitioner to drive the unit for commercial use,
or to wear an identification card, or to don a decent attire, or to
park the vehicle in Villamaria Motors garage, or to inform Villamaria
Motors about the fact that the unit would be going out to the
province for two days of more, or to drive the unit carefully, etc.
necessarily related to control over the means by which the
petitioner was to go about his work; that the ruling applicable here
is not Singer Sewing Machine but National Labor Union since the
latter case involved jeepney owners/operators and jeepney drivers,
and that the fact that the "boundary" here represented installment

payment of the purchase price on the jeepney did not withdraw the
relationship from that of employer-employee, in view of the overt
presence of supervision and control by the employer.56
Neither is such juridical relationship negated by petitioners claim
that the terms and conditions in the Kasunduan relative to
respondents behavior and deportment as driver was for his and
respondents benefit: to insure that respondent would be able to
pay the requisite daily installment of P550.00, and that the vehicle
would still be in good condition despite the lapse of four years.
What is primordial is that petitioner retained control over the
conduct of the respondent as driver of the jeepney.
Indeed, petitioner, as the owner of the vehicle and the holder of the
franchise, is entitled to exercise supervision and control over the
respondent, by seeing to it that the route provided in his franchise,
and the rules and regulations of the Land Transportation Regulatory
Board are duly complied with. Moreover, in a business
establishment, an identification card is usually provided not just as
a security measure but to mainly identify the holder thereof as a
bona fide employee of the firm who issues it.57
As respondents employer, it was the burden of petitioner to prove
that respondents termination from employment was for a lawful or
just cause, or, at the very least, that respondent failed to make his
daily remittances of P550.00 as boundary. However, petitioner
failed to do so. As correctly ruled by the appellate court:
It is basic of course that termination of employment must be
effected in accordance with law. The just and authorized causes for
termination of employment are enumerated under Articles 282, 283
and 284 of the Labor Code.
Parenthetically, given the peculiarity of the situation of the parties
here, the default in the remittance of the boundary hulog for one
week or longer may be considered an additional cause for
termination of employment. The reason is because the Kasunduan
would be of no force and effect in the event that the purchaser
failed to remit the boundary hulog for one week. The Kasunduan in
this case pertinently stipulates:

29

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi

makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at
kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan sa TAUHAN NG UNANG PANIG na wala ng paghahabol pa.
Moreover, well-settled is the rule that, the employer has the burden
of proving that the dismissal of an employee is for a just cause. The
failure of the employer to discharge this burden means that the
dismissal is not justified and that the employee is entitled to
reinstatement and back wages.

"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin

na pong ipatutupad ang nasabing Kasunduan kayat aking
pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa
kasunduan upang maiwasan natin ito.
"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang
hindi na tayo makaabot pa sa korte kung sakaling hindi ninyo
isasauli ang inyong sasakyan na hinuhulugan na ang mga
magagastos ay kayo pa ang magbabayad sapagkat ang hindi ninyo
pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso.
"Sumasainyo

In the case at bench, private respondent in his position paper

before the Labor Arbiter, alleged that petitioner failed to pay the
miscellaneous fee of P10,000.00 and the yearly registration of the
unit; that petitioner also stopped remitting the "boundary hulog,"
prompting him (private respondent) to issue a "Paalala," which
petitioner however ignored; that petitioner even brought the unit to
his (petitioners) province without informing him (private
respondent) about it; and that petitioner eventually abandoned the
vehicle at a gasoline station after figuring in an accident. But
private respondent failed to substantiate these allegations with
solid, sufficient proof. Notably, private respondents allegation viz,
that he retrieved the vehicle from the gas station, where petitioner
abandoned it, contradicted his statement in the Paalala that he
would enforce the provision (in the Kasunduan) to the effect that
default in the remittance of the boundary hulog for one week would
result in the forfeiture of the unit. The Paalala reads as follows:
"Sa lahat ng mga kumukuha ng sasakyan
"Sa pamamagitan ng BOUNDARY HULOG
"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong
pinirmahan particular na ang paragrapo 13 na nagsasaad na kung
hindi kayo makapagbigay ng Boundary Hulog sa loob ng isang
linggo ay kusa ninyong ibabalik and nasabing sasakyan na inyong
hinuhulugan ng wala ng paghahabol pa.

"Attendance: 8/27/99
"(The Signatures appearing herein
include (sic) that of petitioners) (Sgd.)
OSCAR VILLAMARIA, JR."
If it were true that petitioner did not remit the boundary hulog for
one week or more, why did private respondent not forthwith take
steps to recover the unit, and why did he have to wait for petitioner
to abandon it?1avvphil.net
On another point, private respondent did not submit any police
report to support his claim that petitioner really figured in a
vehicular mishap. Neither did he present the affidavit of the guard
from the gas station to substantiate his claim that petitioner
abandoned the unit there.58
Petitioners claim that he opted not to terminate the employment of
respondent because of magnanimity is negated by his (petitioners)
own evidence that he took the jeepney from the respondent only on
July 24, 2000.

30

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The

decision of the Court of Appeals in CA-G.R. SP No. 78720 is
AFFIRMED. Costs against petitioner.

Pablo S. Bernardo for private respondents.

SO ORDERED.

FERNAN, C.J.:
This petition for certiorari involving two separate cases filed by
private respondents against herein petitioners assails the decision
of respondent National Labor Relations Commission in NLRC CASE
No. 7-2603-84 entitled "Sandigan Ng Manggagawang Pilipino
(SANDIGAN)-TUCP etc., et al. v. Makati Haberdashery and/or
Toppers Makati, et al." and NLRC CASE No. 2-428-85 entitled
"Sandigan Ng Manggagawang Pilipino (SANDIGAN)-TUCP etc., et al.
v. Toppers Makati, et al.", affirming the decision of the Labor Arbiter
who jointly heard and decided aforesaid cases, finding: (a)
petitioners guilty of illegal dismissal and ordering them to reinstate
the dismissed workers and (b) the existence of employer-employee
relationship and granting respondent workers by reason thereof
their various monetary claims.
The undisputed facts are as follows:

G.R. Nos. 83380-81 November 15, 1989

MAKATI HABERDASHERY, INC., JORGE LEDESMA and CECILIO
G. INOCENCIO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, CEFERINA J.
DIOSANA (Labor Arbiter, Department of Labor and
Employment, National Capital Region), SANDIGAN NG
MANGGAGAWANG PILIPINO (SANDIGAN)-TUCP and its
members, JACINTO GARCIANO, ALFREDO C. BASCO,
VICTORIO Y. LAURETO, ESTER NARVAEZ, EUGENIO L.
ROBLES, BELEN N. VISTA, ALEJANDRO A. ESTRABO,
VEVENCIO TIRO, CASIMIRO ZAPATA, GLORIA ESTRABO,
LEONORA MENDOZA, MACARIA G. DIMPAS, MERILYN A.
VIRAY, LILY OPINA, JANET SANGDANG, JOSEFINA ALCOCEBA
and MARIA ANGELES, respondents.

Individual complainants, private respondents herein, have been

working for petitioner Makati Haberdashery, Inc. as tailors,
seamstress, sewers, basters (manlililip) and "plantsadoras". They
are paid on a piece-rate basis except Maria Angeles and Leonila
Serafina who are paid on a monthly basis. In addition to their piecerate, they are given a daily allowance of three (P 3.00) pesos
provided they report for work before 9:30 a.m. everyday.
Private respondents are required to work from or before 9:30 a.m.
up to 6:00 or 7:00 p.m. from Monday to Saturday and during peak
periods even on Sundays and holidays.
On July 20, 1984, the Sandigan ng Manggagawang Pilipino, a labor
organization of the respondent workers, filed a complaint docketed
as NLRC NCR Case No. 7-2603-84 for (a) underpayment of the basic
wage; (b) underpayment of living allowance; (c) non-payment of
overtime work; (d) non-payment of holiday pay; (e) non-payment of

Ledesma, Saludo & Associates for petitioners.

31

service incentive pay; (f) 13th month pay; and (g) benefits provided
for under Wage Orders Nos. 1, 2, 3, 4 and 5. 1
During the pendency of NLRC NCR Case No. 7-2603-84, private
respondent Dioscoro Pelobello left with Salvador Rivera, a salesman
of petitioner Haberdashery, an open package which was discovered
to contain a "jusi" barong tagalog. When confronted, Pelobello
replied that the same was ordered by respondent Casimiro Zapata
for his customer. Zapata allegedly admitted that he copied the
design of petitioner Haberdashery. But in the afternoon, when again
questioned about said barong, Pelobello and Zapata denied
ownership of the same. Consequently a memorandum was issued
to each of them to explain on or before February 4, 1985 why no
action should be taken against them for accepting a job order
which is prejudicial and in direct competition with the business of
the company. 2 Both respondents allegedly did not submit their
explanation and did not report for work. 3 Hence, they were
dismissed by petitioners on February 4, 1985. They countered by
filing a complaint for illegal dismissal docketed as NLRC NCR Case
No. 2-428-85 on February 5, 1985. 4
On June 10, 1986, Labor Arbiter Ceferina J. Diosana rendered
judgment, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in NLRC
NCR Case No. 2-428-85 finding respondents guilty of
illegal dismissal and ordering them to reinstate
Dioscoro Pelobello and Casimiro Zapata to their
respective or similar positions without loss of
seniority rights, with full backwages from July 4, 1985
up to actual reinstatement. The charge of unfair
labor practice is dismissed for lack of merit.
In NLRC NCR Case No. 7-26030-84, the complainants'
claims for underpayment re violation of the minimum
wage law is hereby ordered dismissed for lack of
merit.
Respondents are hereby found to have violated the
decrees on the cost of living allowance, service

incentive leave pay and the 13th Month Pay. In view

thereof, the economic analyst of the Commission is
directed to compute the monetary awards due each
complainant based on the available records of the
respondents retroactive as of three years prior to the
filing of the instant case.
SO ORDERED.

From the foregoing decision, petitioners appealed to the NLRC. The

latter on March 30, 1988 affirmed said decision but limited the
backwages awarded the Dioscoro Pelobello and Casimiro Zapata to
only one (1) year. 6
After their motion for reconsideration was denied, petitioners filed
the instant petition raising the following issues:
I
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT AN
EMPLOYER-EMPLOYEE RELATIONSHIP EXISTS BETWEEN PETITIONER
HABERDASHERY AND RESPONDENTS WORKERS.
II
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT
RESPONDENTS WORKERS ARE ENTITLED TO MONETARY CLAIMS
DESPITE THE FINDING THAT THEY ARE NOT ENTITLED TO MINIMUM
WAGE.
III
THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT
RESPONDENTS PELOBELLO AND ZAPATA WERE ILLEGALLY
DISMISSED. 7
The first issue which is the pivotal issue in this case is resolved in
favor of private respondents. We have repeatedly held in countless
decisions that the test of employer-employee relationship is four-

32

fold: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to
control the employee's conduct. It is the so called "control test"
that is the most important element. 8 This simply means the
determination of whether the employer controls or has reserved the
right to control the employee not only as to the result of the work
but also as to the means and method by which the same is to be
accomplished. 9
The facts at bar indubitably reveal that the most important
requisite of control is present. As gleaned from the operations of
petitioner, when a customer enters into a contract with the
haberdashery or its proprietor, the latter directs an employee who
may be a tailor, pattern maker, sewer or "plantsadora" to take the
customer's measurements, and to sew the pants, coat or shirt as
specified by the customer. Supervision is actively manifested in all
these aspects the manner and quality of cutting, sewing and
ironing.
Furthermore, the presence of control is immediately evident in this
memorandum issued by Assistant Manager Cecilio B. Inocencio, Jr.
dated May 30, 1981 addressed to Topper's Makati Tailors which
reads in part:
4. Effective immediately, new procedures shall be
followed:
A. To follow instruction and orders from the
undersigned Roger Valderama, Ruben Delos Reyes
and Ofel Bautista. Other than this person (sic) must
ask permission to the above mentioned before giving
orders or instructions to the tailors.
B. Before accepting the job orders tailors must check
the materials, job orders, due dates and other
things to maximize the efficiency of our production.
The materials should be checked (sic) if it is matched
(sic) with the sample, together with the number of
the job order.

C. Effective immediately all job orders must be

finished one day before the due date. This can be
done by proper scheduling of job order and if you will
cooperate with your supervisors. If you have many
due dates for certain day, advise Ruben or Ofel at
once so that they can make necessary adjustment on
due dates.
D. Alteration-Before accepting alteration person
attending on customs (sic) must ask first or must
advise the tailors regarding the due dates so that we
can eliminate what we call 'Bitin'.
E. If there is any problem regarding supervisors or
co-tailor inside our shop, consult with me at once
settle the problem. Fighting inside the shop is strictly
prohibited. Any tailor violating this memorandum will
be subject to disciplinary action.
For strict compliance.

10

From this memorandum alone, it is evident that petitioner has

reserved the right to control its employees not only as to the result
but also the means and methods by which the same are to be
accomplished. That private respondents are regular employees is
further proven by the fact that they have to report for work
regularly from 9:30 a.m. to 6:00 or 7:00 p.m. and are paid an
additional allowance of P 3.00 daily if they report for work before
9:30 a.m. and which is forfeited when they arrive at or after 9:30
a.m. 11
Since private respondents are regular employees, necessarily the
argument that they are independent contractors must fail. As
established in the preceding paragraphs, private respondents did
not exercise independence in their own methods, but on the
contrary were subject to the control of petitioners from the
beginning of their tasks to their completion. Unlike independent
contractors who generally rely on their own resources, the
equipment, tools, accessories, and paraphernalia used by private
respondents are supplied and owned by petitioners. Private

33

respondents are totally dependent on petitioners in all these

aspects.
Coming now to the second issue, there is no dispute that private
respondents are entitled to the Minimum Wage as mandated by
Section 2(g) of Letter of Instruction No. 829, Rules Implementing
Presidential Decree No. 1614 and reiterated in Section 3(f), Rules
Implementing Presidential Decree 1713 which explicitly states that,
"All employees paid by the result shall receive not less than the
applicable new minimum wage rates for eight (8) hours work a day,
except where a payment by result rate has been established by the
Secretary of Labor. ..." 12No such rate has been established in this
case.
But all these notwithstanding, the question as to whether or not
there is in fact an underpayment of minimum wages to private
respondents has already been resolved in the decision of the Labor
Arbiter where he stated: "Hence, for lack of sufficient evidence to
support the claims of the complainants for alleged violation of the
minimum wage, their claims for underpayment re violation of the
Minimum Wage Law under Wage Orders Nos. 1, 2, 3, 4, and 5 must
perforce fall." 13
The records show that private respondents did not appeal the
above ruling of the Labor Arbiter to the NLRC; neither did they file
any petition raising that issue in the Supreme Court. Accordingly,
insofar as this case is concerned, that issue has been laid to rest.
As to private respondents, the judgment may be said to have
attained finality. For it is a well-settled rule in this jurisdiction that
"an appellee who has not himself appealed cannot obtain from the
appellate court-, any affirmative relief other than the ones granted
in the decision of the court below. " 14
As a consequence of their status as regular employees of the
petitioners, they can claim cost of living allowance. This is apparent
from the provision defining the employees entitled to said
allowance, thus: "... All workers in the private sector, regardless of
their position, designation or status, and irrespective of the method
by which their wages are paid. " 15

Private respondents are also entitled to claim their 13th Month Pay
under Section 3(e) of the Rules and Regulations Implementing P.D.
No. 851 which provides:
Section 3. Employers covered. The Decree shall
apply to all employers except to:
xxx xxx xxx
(e) Employers of those who are paid on purely
commission, boundary, or task basis, and those who
are paid a fixed amount for performing a specific
work, irrespective of the time consumed in the
performance thereof, except where the workers are
paid on piece-rate basis in which case the employer
shall be covered by this issuance insofar as such
workers are concerned. (Emphasis supplied.)
On the other hand, while private respondents are entitled to
Minimum Wage, COLA and 13th Month Pay, they are not entitled to
service incentive leave pay because as piece-rate workers being
paid at a fixed amount for performing work irrespective of time
consumed in the performance thereof, they fall under one of the
exceptions stated in Section 1(d), Rule V, Implementing
Regulations, Book III, Labor Code. For the same reason private
respondents cannot also claim holiday pay (Section 1(e), Rule IV,
Implementing Regulations, Book III, Labor Code).
With respect to the last issue, it is apparent that public respondents
have misread the evidence, for it does show that a violation of the
employer's rules has been committed and the evidence of such
transgression, the copied barong tagalog, was in the possession of
Pelobello who pointed to Zapata as the owner. When required by
their employer to explain in a memorandum issued to each of
them, they not only failed to do so but instead went on AWOL
(absence without official leave), waited for the period to explain to
expire and for petitioner to dismiss them. They thereafter filed an
action for illegal dismissal on the far-fetched ground that they were
dismissed because of union activities. Assuming that such acts do
not constitute abandonment of their jobs as insisted by private

34

respondents, their blatant disregard of their employer's

memorandum is undoubtedly an open defiance to the lawful orders
of the latter, a justifiable ground for termination of employment by
the employer expressly provided for in Article 283(a) of the Labor
Code as well as a clear indication of guilt for the commission of acts
inimical to the interests of the employer, another justifiable ground
for dismissal under the same Article of the Labor Code, paragraph
(c). Well established in our jurisprudence is the right of an employer
to dismiss an employee whose continuance in the service is
inimical to the employer's interest. 16
In fact the Labor Arbiter himself to whom the explanation of private
respondents was submitted gave no credence to their version and
found their excuses that said barong tagalog was the one they got
from the embroiderer for the Assistant Manager who was
investigating them, unbelievable.
Under the circumstances, it is evident that there is no illegal
dismissal of said employees. Thus, We have ruled that:
No employer may rationally be expected to continue
in employment a person whose lack of morals,
respect and loyalty to his employer, regard for his
employer's rules, and appreciation of the dignity and
responsibility of his office, has so plainly and
completely been bared.
That there should be concern, sympathy, and
solicitude for the rights and welfare of the working
class, is meet and proper. That in controversies
between a laborer and his master, doubts reasonably
arising from the evidence, or in the interpretation of
agreements and writings should be resolved in the
former's favor, is not an unreasonable or unfair rule.
But that disregard of the employer's own rights and
interests can be justified by that concern and
solicitude is unjust and unacceptable. (Stanford
Microsystems, Inc. v. NLRC, 157 SCRA 414-415
[1988] ).

The law is protecting the rights of the laborer authorizes neither

oppression nor self-destruction of the employer.17 More importantly,
while the Constitution is committed to the policy of social justice
and the protection of the working class, it should not be supposed
that every labor dispute will automatically be decided in favor of
labor. 18
Finally, it has been established that the right to dismiss or
otherwise impose discriplinary sanctions upon an employee for just
and valid cause, pertains in the first place to the employer, as well
as the authority to determine the existence of said cause in
accordance with the norms of due process. 19
There is no evidence that the employer violated said norms. On the
contrary, private respondents who vigorously insist on the
existence of employer-employee relationship, because of the
supervision and control of their employer over them, were the very
ones who exhibited their lack of respect and regard for their
employer's rules.
Under the foregoing facts, it is evident that petitioner Haberdashery
had valid grounds to terminate the services of private respondents.
WHEREFORE, the decision of the National Labor Relations
Commission dated March 30, 1988 and that of the Labor Arbiter
dated June 10, 1986 are hereby modified. The complaint filed by
Pelobello and Zapata for illegal dismissal docketed as NLRC NCR
Case No. 2-428-85 is dismissed for lack of factual and legal bases.
Award of service incentive leave pay to private respondents is
deleted.
SO ORDERED.

35

212 (m), Book V of the Labor Code, should be considered as officers

or members of the managerial staff under Article 82, Book III of the
same Code, and hence are not entitled to overtime rest day and
holiday pay.

G.R. No. 101761. March 24, 1993.

NATIONAL SUGAR REFINERIES CORPORATION, petitioner, vs.
NATIONAL LABOR RELATIONS COMMISSION and NBSR
SUPERVISORY UNION, (PACIWU) TUCP, respondents.
Jose Mario C. Bunag for petitioner.
The Solicitor General and the Chief Legal Officer, NLRC, for
public respondent.
Zoilo V. de la Cruz for private respondent.
DECISION
REGALADO, J p:
The main issue presented for resolution in this original petition for
certiorari is whether supervisory employees, as defined in Article

Petitioner National Sugar Refineries Corporation (NASUREFCO), a

corporation which is fully owned and controlled by the Government,
operates three (3) sugar refineries located at Bukidnon, Iloilo and
Batangas. The Batangas refinery was privatized on April 11, 1992
pursuant to Proclamation No. 50. 1 Private respondent union
represents the former supervisors of the NASUREFCO Batangas
Sugar Refinery, namely, the Technical Assistant to the Refinery
Operations Manager, Shift Sugar Warehouse Supervisor, Senior
Financial/Budget Analyst, General Accountant, Cost Accountant,
Sugar Accountant, Junior Financial/Budget Analyst, Shift Boiler
Supervisor,, Shift Operations Chemist, Shift Electrical Supervisor,
General Services Supervisor, Instrumentation Supervisor,
Community Development Officer, Employment and Training
Supervisor, Assistant Safety and Security Officer, Head and
Personnel Services, Head Nurse, Property Warehouse Supervisor,
Head of Inventory Control Section, Shift Process Supervisor, Day
Maintenance Supervisor and Motorpool Supervisor.
On June 1, 1988, petitioner implemented a Job Evaluation (JE)
Program affecting all employees, from rank-and-file to department
heads. The JE Program was designed to rationalized the duties and
functions of all positions, reestablish levels of responsibility, and
recognize both wage and operational structures. Jobs were ranked
according to effort, responsibility, training and working conditions
and relative worth of the job. As a result, all positions were reevaluated, and all employees including the members of respondent
union were granted salary adjustments and increases in benefits
commensurate to their actual duties and functions.
We glean from the records that for about ten years prior to the JE
Program, the members of respondent union were treated in the
same manner as rank-and file employees. As such, they used to be
paid overtime, rest day and holiday pay pursuant to the provisions
of Articles 87, 93 and 94 of the Labor Code as amended. With the
implementation of the JE Program, the following adjustments were

36

made: (1) the members of respondent union were re-classified

under levels S-5 to S-8 which are considered managerial staff for
purposes of compensation and benefits; (2) there was an increase
in basic pay of the average of 50% of their basic pay prior to the JE
Program, with the union members now enjoying a wide gap
(P1,269.00 per month) in basic pay compared to the highest paid
rank-and-file employee; (3) longevity pay was increased on top of
alignment adjustments; (4) they were entitled to increased
company COLA of P225.00 per month; (5) there was a grant of
P100.00 allowance for rest day/holiday work.
On May 11, 1990, petitioner NASUREFCO recognized herein
respondent union, which was organized pursuant to Republic Act
NO. 6715 allowing supervisory employees to form their own unions,
as the bargaining representative of all the supervisory employees
at the NASUREFCO Batangas Sugar Refinery.
Two years after the implementation of the JE Program, specifically
on June 20, 1990, the members of herein respondent union filed a
complainant with the executive labor arbiter for non-payment of
overtime, rest day and holiday pay allegedly in violation of Article
100 of the Labor Code.
On January 7, 1991, Executive Labor Arbiter Antonio C. Pido
rendered a decision 2 disposing as follows:
"WHEREFORE, premises considered, respondent National Sugar
refineries Corporation is hereby directed to
1. pay the individual members of complainant union the usual
overtime pay, rest day pay and holiday pay enjoyed by them
instead of the P100.00 special allowance which was implemented
on June 11, 1988; and
2. pay the individual members of complainant union the difference
in money value between the P100.00 special allowance and the
overtime pay, rest day pay and holiday pay that they ought to have
received from June 1, 1988.
All other claims are hereby dismissed for lack of merit.

SO ORDERED."
In finding for the members therein respondent union, the labor
ruled that the along span of time during which the benefits were
being paid to the supervisors has accused the payment thereof to
ripen into contractual obligation; at the complainants cannot be
estopped from questioning the validity of the new compensation
package despite the fact that they have been receiving the benefits
therefrom, considering that respondent union was formed only a
year after the implementation of the Job Evaluation Program, hence
there was no way for the individual supervisors to express their
collective response thereto prior to the formation of the union; and
the comparative computations presented by the private respondent
union showed that the P100.00 special allowance given
NASUREFCO fell short of what the supervisors ought to receive had
the overtime pay rest day pay and holiday pay not been
discontinued, which arrangement, therefore, amounted to a
diminution of benefits.
On appeal, in a decision promulgated on July 19, 1991 by its Third
Division, respondent National Labor Relations Commission (NLRC)
affirmed the decision of the labor arbiter on the ground that the
members of respondent union are not managerial employees, as
defined under Article 212 (m) of the Labor Code and, therefore,
they are entitled to overtime, rest day and holiday pay. Respondent
NLRC declared that these supervisory employees are merely
exercising recommendatory powers subject to the evaluation,
review and final action by their department heads; their
responsibilities do not require the exercise of discretion and
independent judgment; they do not participate in the formulation of
management policies nor in the hiring or firing of employees; and
their main function is to carry out the ready policies and plans of
the corporation. 3 Reconsideration of said decision was denied in a
resolution of public respondent dated August 30, 1991. 4
Hence this petition for certiorari, with petitioner NASUREFCO
asseverating that public respondent commission committed a
grave abuse of discretion in refusing to recognized the fact that the
members of respondent union are members of the managerial staff
who are not entitled to overtime, rest day and holiday pay; and in

37

making petitioner assume the "double burden" of giving the

benefits due to rank-and-file employees together with those due to
supervisors under the JE Program.
We find creditable merit in the petition and that the extraordinary
writ of certiorari shall accordingly issue.
The primordial issue to be resolved herein is whether the members
of respondent union are entitled to overtime, rest day and holiday
pay. Before this can be resolved, however it must of necessity be
ascertained first whether or not the union members, as supervisory
employees, are to be considered as officers or members of the
managerial staff who are exempt from the coverage of Article 82 of
the Labor Code.
It is not disputed that the members of respondent union are
supervisory employees, as defined employees, as defined under
Article 212(m), Book V of the Labor Code on Labor Relations, which
reads:
"(m) 'Managerial employee' is one who is vested with powers or
prerogatives to lay down and execute management policies and/or
to hire, transfer, suspend, lay-off, recall, discharged, assign or
discipline employees. Supervisory employees are those who, in the
interest of the employer effectively recommend such managerial
actions if the exercise of such authority is not merely routinary or
clerical in nature but requires the use of independent judgment. All
employees not falling within any of those above definitions are
considered rank-and-file employees of this Book."
Respondent NLRC, in holding that the union members are entitled
to overtime, rest day and holiday pay, and in ruling that the latter
are not managerial employees, adopted the definition stated in the
aforequoted statutory provision.
Petitioner, however, avers that for purposes of determining whether
or not the members of respondent union are entitled to overtime,
rest day and holiday pay, said employees should be considered as
"officers or members of the managerial staff" as defined under
Article 82, Book III of the Labor Code on "Working Conditions and

Rest Periods" and amplified in Section 2, Rule I, Book III of the Rules
to Implement the Labor Code, to wit:
"Art. 82 Coverage. The provisions of this title shall apply to
employees in all establishments and undertakings whether for
profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the employer
who are dependent on him for support, domestic helpers, persons
in the personal service of another, and workers who are paid by
results as determined by the Secretary of Labor in Appropriate
regulations.
"As used herein, 'managerial employees' refer to those whose
primary duty consists of the management of the establishment in
which they are employed or of a department or subdivision thereof,
and to other officers or members of the managerial staff."
(Emphasis supplied.)
xxx xxx xxx
'Sec. 2. Exemption. The provisions of this rule shall not apply to
the following persons if they qualify for exemption under the
condition set forth herein:
xxx xxx xxx
(b) Managerial employees, if they meet all of the following
conditions, namely:
(1) Their primary duty consists of the management of the
establishment in which they are employed or of a department or
subdivision thereof:
(2) They customarily and regularly direct the work of two or more
employees therein:
(3) They have the authority to hire or fire other employees of lower
rank; or their suggestions and recommendations as to the hiring
and firing and as to the promotion or any other change of status of
other employees are given particular weight.

38

(c) Officers or members of a managerial staff if they perform the

following duties and responsibilities:
(1) The primary duty consists of the performance of work directly
related to management policies of their employer;
(2) Customarily and regularly exercise discretion and independent
judgment;
(3) (i) Regularly and directly assist a proprietor or a managerial
employee whose primary duty consists of the management of the
establishment in which he is employed or subdivision thereof; or (ii)
execute under general supervision work along specialized or
technical lines requiring special training, experience, or knowledge;
or (iii) execute under general supervision special assignments and
tasks; and
(4) Who do not devote more 20 percent of their hours worked in a
work-week to activities which are not directly and closely related to
the performance of the work described in paragraphs (1), (2), and
above."
It is the submission of petitioner that while the members of
respondent union, as supervisors, may not be occupying
managerial positions, they are clearly officers or members of the
managerial staff because they meet all the conditions prescribed
by law and, hence, they are not entitled to overtime, rest day and
supervisory employees under Article 212 (m) should be made to
apply only to the provisions on Labor Relations, while the right of
said employees to the questioned benefits should be considered in
the light of the meaning of a managerial employee and of the
officers or members of the managerial staff, as contemplated under
Article 82 of the Code and Section 2, Rule I Book III of the
implementing rules. In other words, for purposes of forming and
joining unions, certification elections, collective bargaining, and so
forth, the union members are supervisory employees. In terms of
working conditions and rest periods and entitlement to the
questioned benefits, however, they are officers or members of the
managerial staff, hence they are not entitled thereto.

While the Constitution is committed to the policy of social justice

and the protection of the working class, it should not be supposed
that every labor dispute will be automatically decided in favor of
labor. Management also has its own rights which, as such, are
entitled to respect and enforcement in the interest of simple fair
play. Out of its concern for those with less privileges in life, this
Court has inclined more often than not toward the worker and
upheld his cause in his conflicts with the employer. Such favoritism,
however, has not blinded us to the rule that justice is in every case
for the deserving, to be dispensed in the light of the established
facts and the applicable law and doctrine. 5
This is one such case where we are inclined to tip the scales of
justice in favor of the employer.
The question whether a given employee is exempt from the
benefits of the law is a factual one dependent on the circumstances
of the particular case, In determining whether an employee is
within the terms of the statutes, the criterion is the character of the
work performed, rather than the title of the employee's position. 6
Consequently, while generally this Court is not supposed to review
the factual findings of respondent commission, substantial justice
and the peculiar circumstances obtaining herein mandate a
deviation from the rule.
A cursory perusal of the Job Value Contribution Statements 7 of the
union members will readily show that these supervisory employees
are under the direct supervision of their respective department
superintendents and that generally they assist the latter in
planning, organizing, staffing, directing, controlling communicating
and in making decisions in attaining the company's set goals and
objectives. These supervisory employees are likewise responsible
for the effective and efficient operation of their respective
departments. More specifically, their duties and functions include,
among others, the following operations whereby the employee:
1) assists the department superintendent in the following:

39

a) planning of systems and procedures relative to department

activities;
b) organizing and scheduling of work activities of the department,
which includes employee shifting scheduled and manning
complement;
c) decision making by providing relevant information data and
other inputs;
d) attaining the company's set goals and objectives by giving his
full support;
e) selecting the appropriate man to handle the job in the
department; and
f) preparing annual departmental budget;
2) observes, follows and implements company policies at all times
and recommends disciplinary action on erring subordinates;
3) trains and guides subordinates on how to assume responsibilities
and become more productive;
4) conducts semi-annual performance evaluation of his
subordinates and recommends necessary action for their
development/advancement;
5) represents the superintendent or the department when
appointed and authorized by the former;
6) coordinates and communicates with other inter and intra
department supervisors when necessary;
7) recommends disciplinary actions/promotions;
8) recommends measures to improve work methods, equipment
performance, quality of service and working conditions;

9) sees to it that safety rules and regulations and procedure and

are implemented and followed by all NASUREFCO employees,
recommends revisions or modifications to said rules when deemed
necessary, and initiates and prepares reports for any observed
abnormality within the refinery;
10) supervises the activities of all personnel under him and goes to
it that instructions to subordinates are properly implemented; and
11) performs other related tasks as may be assigned by his
immediate superior.
From the foregoing, it is apparent that the members of respondent
union discharge duties and responsibilities which ineluctably qualify
them as officers or members of the managerial staff, as defined in
Section 2, Rule I Book III of the aforestated Rules to Implement the
Labor Code, viz.: (1) their primary duty consists of the performance
of work directly related to management policies of their employer;
(2) they customarily and regularly exercise discretion and
independent judgment; (3) they regularly and directly assist the
managerial employee whose primary duty consist of the
management of a department of the establishment in which they
are employed (4) they execute, under general supervision, work
along specialized or technical lines requiring special training,
experience, or knowledge; (5) they execute, under general
supervision, special assignments and tasks; and (6) they do not
devote more than 20% of their hours worked in a work-week to
activities which are not directly and clearly related to the
performance of their work hereinbefore described.
Under the facts obtaining in this case, we are constrained to agree
with petitioner that the union members should be considered as
officers and members of the managerial staff and are, therefore,
exempt from the coverage of Article 82. Perforce, they are not
entitled to overtime, rest day and holiday.
The distinction made by respondent NLRC on the basis of whether
or not the union members are managerial employees, to determine
the latter's entitlement to the questioned benefits, is misplaced and
inappropriate. It is admitted that these union members are

40

supervisory employees and this is one instance where the

nomenclatures or titles of their jobs conform with the nature of
their functions. Hence, to distinguish them from a managerial
employee, as defined either under Articles 82 or 212 (m) of the
Labor Code, is puerile and in efficacious. The controversy actually
involved here seeks a determination of whether or not these
supervisory employees ought to be considered as officers or
members of the managerial staff. The distinction, therefore, should
have been made along that line and its corresponding conceptual
criteria.
II. We likewise no not subscribe to the finding of the labor arbiter
that the payment of the questioned benefits to the union members
has ripened into a contractual obligation.
A. Prior to the JE Program, the union members, while being
supervisors, received benefits similar to the rank-and-file
employees such as overtime, rest day and holiday pay, simply
because they were treated in the same manner as rank-and-file
employees, and their basic pay was nearly on the same level as
those of the latter, aside from the fact that their specific functions
and duties then as supervisors had not been properly defined and
delineated from those of the rank-and-file. Such fact is apparent
from the clarification made by petitioner in its motion for
reconsideration 8 filed with respondent commission in NLRC Case
No. CA No. I-000058, dated August 16, 1991, wherein, it lucidly
explained:
"But, complainants no longer occupy the same positions they held
before the JE Program. Those positions formerly classified as
'supervisory' and found after the JE Program to be rank-and-file
were classified correctly and continue to receive overtime, holiday
and restday pay. As to them, the practice subsists.
"However, those whose duties confirmed them to be supervisory,
were re-evaluated, their duties re-defined and in most cases their
organizational positions re-designated to confirm their superior
rank and duties. Thus, after the JE program, complainants cannot
be said to occupy the same positions." 9

It bears mention that this positional submission was never refuted

nor controverted by respondent union in any of its pleadings filed
before herein public respondent or with this Court. Hence, it can be
safely concluded therefrom that the members of respondent union
were paid the questioned benefits for the reason that, at that time,
they were rightfully entitled thereto. Prior to the JE Program, they
could not be categorically classified as members or officers of the
managerial staff considering that they were then treated merely on
the same level as rank-and-file. Consequently, the payment thereof
could not be construed as constitutive of voluntary employer
practice, which cannot be now be unilaterally withdrawn by
petitioner. To be considered as such, it should have been practiced
over a long period of time, and must be shown to have been
consistent and deliberate. 10
The test or rationale of this rule on long practice requires an
indubitable showing that the employer agreed to continue giving
the benefits knowingly fully well that said employees are not
covered by the law requiring payment thereof. 11 In the case at
bar, respondent union failed to sufficiently establish that petitioner
has been motivated or is wont to give these benefits out of pure
generosity.
B. It remains undisputed that the implementation of the JE Program,
the members of private respondent union were re-classified under
levels S-5 S-8 which were considered under the program as
managerial staff purposes of compensation and benefits, that they
occupied re-evaluated positions, and that their basic pay was
increased by an average of 50% of their basic salary prior to the JE
Program. In other words, after the JE Program there was an ascent
in position, rank and salary. This in essence is a promotion which is
defined as the advancement from one position to another with an
increase in duties and responsibilities as authorized by law, and
usually accompanied by an increase in salary. 12
Quintessentially, with the promotion of the union members, they
are no longer entitled to the benefits which attach and pertain
exclusively to their positions. Entitlement to the benefits provided
for by law requires prior compliance with the conditions set forth
therein. With the promotion of the members of respondent union,

41

they occupied positions which no longer met the requirements

imposed by law. Their assumption of these positions removed them
from the coverage of the law, ergo, their exemption therefrom.
As correctly pointed out by petitioner, if the union members really
wanted to continue receiving the benefits which attach to their
former positions, there was nothing to prevent them from refusing
to accept their promotions and their corresponding benefits. As the
sating goes by, they cannot have their cake and eat it too or, as
petitioner suggests, they could not, as a simple matter of law and
fairness, get the best of both worlds at the expense of NASUREFCO.
Promotion of its employees is one of the jurisprudentiallyrecognized exclusive prerogatives of management, provided it is
done in good faith. In the case at bar, private respondent union has
miserably failed to convince this Court that the petitioner acted
implementing the JE Program. There is no showing that the JE
Program was intended to circumvent the law and deprive the
members of respondent union of the benefits they used to receive.

WHEREFORE, the impugned decision and resolution of respondent

National Labor Relations Commission promulgated on July 19, 1991
and August 30, 1991, respectively, are hereby ANNULLED and SET
ASIDE for having been rendered and adopted with grave abuse of
discretion, and the basic complaint of private respondent union is
DISMISSED.

G.R. No. 159577

CHARLITO PEARANDA, Petitioner,

vs.
BAGANGA PLYWOOD CORPORATION and HUDSON
CHUA, Respondents.

Not so long ago, on this particular score, we had the occasion to

hold that:
". . . it is the prerogative of the management to regulate, according
to its discretion and judgment, all aspects of employment. This
flows from the established rule that labor law does not authorize
the substitution of the judgment of the employer in the conduct of
its business. Such management prerogative may be availed of
without fear of any liability so long as it is exercised in good faith
for the advancement of the employer's interest and not for the
purpose of defeating on circumventing the rights of employees
under special laws or valid agreement and are not exercised in a
malicious, harsh, oppressive, vindictive or wanton manner or out of
malice or spite." 13

May 3, 2006

DECISION
PANGANIBAN, CJ:
Managerial employees and members of the managerial staff are
exempted from the provisions of the Labor Code on labor
standards. Since petitioner belongs to this class of employees, he is
not entitled to overtime pay and premium pay for working on rest
days.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of
Court, assailing the January 27, 20032 and July 4, 20033 Resolutions
of the Court of Appeals (CA) in CA-GR SP No. 74358. The earlier
Resolution disposed as follows:
"WHEREFORE, premises considered, the instant petition is
hereby DISMISSED."4

42

The latter Resolution denied reconsideration.

On the other hand, the Decision of the National Labor Relations
Commission (NLRC) challenged in the CA disposed as follows:
"WHEREFORE, premises considered, the decision of the Labor
Arbiter below awarding overtime pay and premium pay for rest day
to complainant is hereby REVERSED and SET ASIDE, and the
complaint in the above-entitled case dismissed for lack of merit. 5
The Facts
Sometime in June 1999, Petitioner Charlito Pearanda was hired as
an employee of Baganga Plywood Corporation (BPC) to take charge
of the operations and maintenance of its steam plant boiler.6 In May
2001, Pearanda filed a Complaint for illegal dismissal with money
claims against BPC and its general manager, Hudson Chua, before
the NLRC.7
After the parties failed to settle amicably, the labor arbiter8 directed
the parties to file their position papers and submit supporting
documents.9 Their respective allegations are summarized by the
labor arbiter as follows:
"[Pearanda] through counsel in his position paper alleges that he
was employed by respondent [Baganga] on March 15, 1999 with a
monthly salary of P5,000.00 as Foreman/Boiler Head/Shift Engineer
until he was illegally terminated on December 19, 2000. Further,
[he] alleges that his services [were] terminated without the benefit
of due process and valid grounds in accordance with law.
Furthermore, he was not paid his overtime pay, premium pay for
working during holidays/rest days, night shift differentials and
finally claims for payment of damages and attorneys fees having
been forced to litigate the present complaint.
"Upon the other hand, respondent [BPC] is a domestic corporation
duly organized and existing under Philippine laws and is
represented herein by its General Manager HUDSON CHUA, [the]
individual respondent. Respondents thru counsel allege that
complainants separation from service was done pursuant to Art.

283 of the Labor Code. The respondent [BPC] was on temporary

closure due to repair and general maintenance and it applied for
clearance with the Department of Labor and Employment, Regional
Office No. XI to shut down and to dismiss employees (par. 2 position
paper). And due to the insistence of herein complainant he was
paid his separation benefits (Annexes C and D, ibid). Consequently,
when respondent [BPC] partially reopened in January 2001,
[Pearanda] failed to reapply. Hence, he was not terminated from
employment much less illegally. He opted to severe employment
when he insisted payment of his separation benefits. Furthermore,
being a managerial employee he is not entitled to overtime pay
and if ever he rendered services beyond the normal hours of work,
[there] was no office order/or authorization for him to do so. Finally,
respondents allege that the claim for damages has no legal and
factual basis and that the instant complaint must necessarily fail for
lack of merit."10
The labor arbiter ruled that there was no illegal dismissal and that
petitioners Complaint was premature because he was still
employed by BPC.11 The temporary closure of BPCs plant did not
terminate his employment, hence, he need not reapply when the
plant reopened.
According to the labor arbiter, petitioners money claims for illegal
dismissal was also weakened by his quitclaim and admission during
the clarificatory conference that he accepted separation benefits,
sick and vacation leave conversions and thirteenth month pay.12
Nevertheless, the labor arbiter found petitioner entitled to overtime
pay, premium pay for working on rest days, and attorneys fees in
the total amount of P21,257.98.13
Ruling of the NLRC
Respondents filed an appeal to the NLRC, which deleted the award
of overtime pay and premium pay for working on rest days.
According to the Commission, petitioner was not entitled to these
awards because he was a managerial employee.14
Ruling of the Court of Appeals

43

In its Resolution dated January 27, 2003, the CA dismissed

Pearandas Petition for Certiorari. The appellate court held that he
failed to: 1) attach copies of the pleadings submitted before the
labor arbiter and NLRC; and 2) explain why the filing and service of
the Petition was not done by personal service.15
In its later Resolution dated July 4, 2003, the CA denied
reconsideration on the ground that petitioner still failed to submit
the pleadings filed before the NLRC.16
Hence this Petition.17

Resolution on the Merits

The CA dismissed Pearandas Petition on purely technical grounds,
particularly with regard to the failure to submit supporting
documents.
In Atillo v. Bombay,19 the Court held that the crucial issue is
whether the documents accompanying the petition before the CA
sufficiently supported the allegations therein. Citing this case,
Piglas-Kamao v. NLRC20 stayed the dismissal of an appeal in the
exercise of its equity jurisdiction to order the adjudication on the
merits.

The Issues
Petitioner states the issues in this wise:
"The [NLRC] committed grave abuse of discretion amounting to
excess or lack of jurisdiction when it entertained the APPEAL of the
respondent[s] despite the lapse of the mandatory period of TEN
DAYS.1avvphil.net
"The [NLRC] committed grave abuse of discretion amounting to an
excess or lack of jurisdiction when it rendered the assailed
RESOLUTIONS dated May 8, 2002 and AUGUST 16, 2002
REVERSING AND SETTING ASIDE the FACTUAL AND LEGAL FINDINGS
of the [labor arbiter] with respect to the following:
"I. The finding of the [labor arbiter] that [Pearanda] is a
regular, common employee entitled to monetary benefits
under Art. 82 [of the Labor Code].

The Petition filed with the CA shows a prima facie case. Petitioner
attached his evidence to challenge the finding that he was a
managerial employee.21 In his Motion for Reconsideration,
petitioner also submitted the pleadings before the labor arbiter in
an attempt to comply with the CA rules.22 Evidently, the CA could
have ruled on the Petition on the basis of these attachments.
Petitioner should be deemed in substantial compliance with the
procedural requirements.
Under these extenuating circumstances, the Court does not
hesitate to grant liberality in favor of petitioner and to tackle his
substantive arguments in the present case. Rules of procedure
must be adopted to help promote, not frustrate, substantial
justice.23 The Court frowns upon the practice of dismissing cases
purely on procedural grounds.24 Considering that there was
substantial compliance,25 a liberal interpretation of procedural rules
in this labor case is more in keeping with the constitutional
mandate to secure social justice.26

"II. The finding that [Pearanda] is entitled to the payment

of OVERTIME PAY and OTHER MONETARY BENEFITS."18
The Courts Ruling
The Petition is not meritorious.
Preliminary Issue:

First Issue:
Timeliness of Appeal
Under the Rules of Procedure of the NLRC, an appeal from the
decision of the labor arbiter should be filed within 10 days from
receipt thereof.27

44

Petitioners claim that respondents filed their appeal beyond the

required period is not substantiated. In the pleadings before us,
petitioner fails to indicate when respondents received the Decision
of the labor arbiter. Neither did the petitioner attach a copy of the
challenged appeal. Thus, this Court has no means to determine
from the records when the 10-day period commenced and
terminated. Since petitioner utterly failed to support his claim that
respondents appeal was filed out of time, we need not belabor that
point. The parties alleging have the burden of substantiating their
allegations.28
Second Issue:
Nature of Employment

"(3) They have the authority to hire or fire other employees

of lower rank; or their suggestions and recommendations as
to the hiring and firing and as to the promotion or any other
change of status of other employees are given particular
weight."31
The Court disagrees with the NLRCs finding that petitioner was a
managerial employee. However, petitioner was a member of the
managerial staff, which also takes him out of the coverage of labor
standards. Like managerial employees, officers and members of the
managerial staff are not entitled to the provisions of law on labor
standards.32 The Implementing Rules of the Labor Code define
members of a managerial staff as those with the following duties
and responsibilities:

Petitioner claims that he was not a managerial employee, and

therefore, entitled to the award granted by the labor arbiter.

"(1) The primary duty consists of the performance of work

directly related to management policies of the employer;

Article 82 of the Labor Code exempts managerial employees from

the coverage of labor standards. Labor standards provide the
working conditions of employees, including entitlement to overtime
pay and premium pay for working on rest days.29 Under this
provision, managerial employees are "those whose primary duty
consists of the management of the establishment in which they are
employed or of a department or subdivision."30

"(2) Customarily and regularly exercise discretion and

independent judgment;

The Implementing Rules of the Labor Code state that managerial

employees are those who meet the following conditions:
"(1) Their primary duty consists of the management of the
establishment in which they are employed or of a
department or subdivision thereof;
"(2) They customarily and regularly direct the work of two or
more employees therein;

"(3) (i) Regularly and directly assist a proprietor or a

managerial employee whose primary duty consists of the
management of the establishment in which he is employed
or subdivision thereof; or (ii) execute under general
supervision work along specialized or technical lines
requiring special training, experience, or knowledge; or (iii)
execute under general supervision special assignments and
tasks; and
"(4) who do not devote more than 20 percent of their hours
worked in a workweek to activities which are not directly
and closely related to the performance of the work
described in paragraphs (1), (2), and (3) above."33
As shift engineer, petitioners duties and responsibilities were as
follows:
"1. To supply the required and continuous steam to all
consuming units at minimum cost.

45

"2. To supervise, check and monitor manpower workmanship

as well as operation of boiler and accessories.
"3. To evaluate performance of machinery and manpower.
"4. To follow-up supply of waste and other materials for fuel.
"5. To train new employees for effective and safety while
working.
"6. Recommend parts and supplies purchases.
"7. To recommend personnel actions such as: promotion, or
disciplinary action.

was the representative of management over the workers and the

operation of the department.37 Petitioners evidence also showed
that he was the supervisor of the steam plant.38 His classification as
supervisor is further evident from the manner his salary was paid.
He belonged to the 10% of respondents 354 employees who were
paid on a monthly basis; the others were paid only on a daily
basis.39
On the basis of the foregoing, the Court finds no justification to
award overtime pay and premium pay for rest days to petitioner.
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.

"8. To check water from the boiler, feedwater and softener,

regenerate softener if beyond hardness limit.
"9. Implement Chemical Dosing.
"10. Perform other task as required by the superior from
time to time."34
The foregoing enumeration, particularly items 1, 2, 3, 5 and 7
illustrates that petitioner was a member of the managerial staff. His
duties and responsibilities conform to the definition of a member of
a managerial staff under the Implementing Rules.
Petitioner supervised the engineering section of the steam plant
boiler. His work involved overseeing the operation of the machines
and the performance of the workers in the engineering section. This
work necessarily required the use of discretion and independent
judgment to ensure the proper functioning of the steam plant
boiler. As supervisor, petitioner is deemed a member of the
managerial staff.35
Noteworthy, even petitioner admitted that he was a supervisor. In
his Position Paper, he stated that he was the foreman responsible
for the operation of the boiler.36 The term foreman implies that he

46

AUTO BUS TRANSPORT SYSTEMS, INC., petitioner,

vs.
ANTONIO BAUTISTA, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari assailing the
Decision1 and Resolution2 of the Court of Appeals affirming the
Decision3 of the National Labor Relations Commission (NLRC). The
NLRC ruling modified the Decision of the Labor Arbiter (finding
respondent entitled to the award of 13th month pay and service
incentive leave pay) by deleting the award of 13th month pay to
respondent.
THE FACTS
Since 24 May 1995, respondent Antonio Bautista has been
employed by petitioner Auto Bus Transport Systems, Inc. (Autobus),
as driver-conductor with travel routes Manila-Tuguegarao via
Baguio, Baguio- Tuguegarao via Manila and Manila-Tabuk via
Baguio. Respondent was paid on commission basis, seven percent
(7%) of the total gross income per travel, on a twice a month basis.
On 03 January 2000, while respondent was driving Autobus No. 114
along Sta. Fe, Nueva Vizcaya, the bus he was driving accidentally
bumped the rear portion of Autobus No. 124, as the latter vehicle
suddenly stopped at a sharp curve without giving any warning.

G.R. No. 156367

May 16, 2005

Respondent averred that the accident happened because he was

compelled by the management to go back to Roxas, Isabela,
although he had not slept for almost twenty-four (24) hours, as he
had just arrived in Manila from Roxas, Isabela. Respondent further
alleged that he was not allowed to work until he fully paid the
amount of P75,551.50, representing thirty percent (30%) of the
cost of repair of the damaged buses and that despite respondents
pleas for reconsideration, the same was ignored by management.
After a month, management sent him a letter of termination.

47

Thus, on 02 February 2000, respondent instituted a Complaint for

Illegal Dismissal with Money Claims for nonpayment of 13th month
pay and service incentive leave pay against Autobus.
Petitioner, on the other hand, maintained that respondents
employment was replete with offenses involving reckless
imprudence, gross negligence, and dishonesty. To support its claim,
petitioner presented copies of letters, memos, irregularity reports,
and warrants of arrest pertaining to several incidents wherein
respondent was involved.

Not satisfied with the decision of the Labor Arbiter, petitioner

appealed the decision to the NLRC which rendered its decision on
28 September 2001, the decretal portion of which reads:
[T]he Rules and Regulations Implementing Presidential
Decree No. 851, particularly Sec. 3 provides:
"Section 3. Employers covered. The Decree shall
apply to all employers except to:
xxx

Furthermore, petitioner avers that in the exercise of its

management prerogative, respondents employment was
terminated only after the latter was provided with an opportunity to
explain his side regarding the accident on 03 January 2000.
On 29 September 2000, based on the pleadings and supporting
evidence presented by the parties, Labor Arbiter Monroe C.
Tabingan promulgated a Decision,4 the dispositive portion of which
reads:
WHEREFORE, all premises considered, it is hereby found
that the complaint for Illegal Dismissal has no leg to stand
on. It is hereby ordered DISMISSED, as it is hereby
DISMISSED.
However, still based on the above-discussed premises, the
respondent must pay to the complainant the following:
a. his 13th month pay from the date of his hiring to
the date of his dismissal, presently computed at
P78,117.87;
b. his service incentive leave pay for all the years he
had been in service with the respondent, presently
computed at P13,788.05.
All other claims of both complainant and respondent are
hereby dismissed for lack of merit.5

xxx

xxx

e) employers of those who are paid on purely

commission, boundary, or task basis, performing a
specific work, irrespective of the time consumed in
the performance thereof. xxx."
Records show that complainant, in his position paper,
admitted that he was paid on a commission basis.
In view of the foregoing, we deem it just and equitable to
modify the assailed Decision by deleting the award of
13th month pay to the complainant.

WHEREFORE, the Decision dated 29 September 2000 is

MODIFIED by deleting the award of 13th month pay. The
other findings are AFFIRMED.6
In other words, the award of service incentive leave pay was
maintained. Petitioner thus sought a reconsideration of this aspect,
which was subsequently denied in a Resolution by the NLRC dated
31 October 2001.
Displeased with only the partial grant of its appeal to the NLRC,
petitioner sought the review of said decision with the Court of
Appeals which was subsequently denied by the appellate court in a
Decision dated 06 May 2002, the dispositive portion of which reads:

48

WHEREFORE, premises considered, the Petition is

DISMISSED for lack of merit; and the assailed Decisionof
respondent Commission in NLRC NCR CA No. 026584-2000 is
hereby AFFIRMED in toto. No costs.7
Hence, the instant petition.
ISSUES
1. Whether or not respondent is entitled to service incentive leave;
2. Whether or not the three (3)-year prescriptive period provided
under Article 291 of the Labor Code, as amended, is applicable to
respondents claim of service incentive leave pay.
RULING OF THE COURT
The disposition of the first issue revolves around the proper
interpretation of Article 95 of the Labor Code vis--visSection 1(D),
Rule V, Book III of the Implementing Rules and Regulations of the
Labor Code which provides:
Art. 95. RIGHT TO SERVICE INCENTIVE LEAVE
(a) Every employee who has rendered at least one
year of service shall be entitled to a yearly service
incentive leave of five days with pay.
Book III, Rule V: SERVICE INCENTIVE LEAVE
SECTION 1. Coverage. This rule shall apply to all
employees except:

(d) Field personnel and other employees whose

performance is unsupervised by the employer
including those who are engaged on task or contract
basis, purely commission basis, or those who are

paid in a fixed amount for performing work

irrespective of the time consumed in the
performance thereof; . . .
A careful perusal of said provisions of law will result in the
conclusion that the grant of service incentive leave has been
delimited by the Implementing Rules and Regulations of the Labor
Code to apply only to those employees not explicitly excluded by
Section 1 of Rule V. According to the Implementing Rules, Service
Incentive Leave shall not apply to employees classified as "field
personnel." The phrase "other employees whose performance is
unsupervised by the employer" must not be understood as a
separate classification of employees to which service incentive
leave shall not be granted. Rather, it serves as an amplification of
the interpretation of the definition of field personnel under the
Labor Code as those "whose actual hours of work in the field cannot
be determined with reasonable certainty."8
The same is true with respect to the phrase "those who are
engaged on task or contract basis, purely commission basis." Said
phrase should be related with "field personnel," applying the rule
on ejusdem generis that general and unlimited terms are restrained
and limited by the particular terms that they follow.9 Hence,
employees engaged on task or contract basis or paid on purely
commission basis are not automatically exempted from the grant of
service incentive leave, unless, they fall under the classification of
field personnel.
Therefore, petitioners contention that respondent is not entitled to
the grant of service incentive leave just because he was paid on
purely commission basis is misplaced. What must be ascertained in
order to resolve the issue of propriety of the grant of service
incentive leave to respondent is whether or not he is a field
personnel.
According to Article 82 of the Labor Code, "field personnel" shall
refer to non-agricultural employees who regularly perform their
duties away from the principal place of business or branch office of
the employer and whose actual hours of work in the field cannot be
determined with reasonable certainty. This definition is further

49

elaborated in the Bureau of Working Conditions (BWC), Advisory

Opinion to Philippine Technical-Clerical Commercial Employees
Association10 which states that:
As a general rule, [field personnel] are those whose
performance of their job/service is not supervised by the
employer or his representative, the workplace being away
from the principal office and whose hours and days of work
cannot be determined with reasonable certainty; hence,
they are paid specific amount for rendering specific service
or performing specific work. If required to be at specific
places at specific times, employees including drivers cannot
be said to be field personnel despite the fact that they are
performing work away from the principal office of the
employee. [Emphasis ours]
To this discussion by the BWC, the petitioner differs and postulates
that under said advisory opinion, no employee would ever be
considered a field personnel because every employer, in one way
or another, exercises control over his employees. Petitioner further
argues that the only criterion that should be considered is the
nature of work of the employee in that, if the employees job
requires that he works away from the principal office like that of a
messenger or a bus driver, then he is inevitably a field personnel.
We are not persuaded. At this point, it is necessary to stress that
the definition of a "field personnel" is not merely concerned with
the location where the employee regularly performs his duties but
also with the fact that the employees performance is unsupervised
by the employer. As discussed above, field personnel are those who
regularly perform their duties away from the principal place of
business of the employer and whose actual hours of work in the
field cannot be determined with reasonable certainty. Thus, in
order to conclude whether an employee is a field employee, it is
also necessary to ascertain if actual hours of work in the field can
be determined with reasonable certainty by the employer. In so
doing, an inquiry must be made as to whether or not the
employees time and performance are constantly supervised by the
employer.

As observed by the Labor Arbiter and concurred in by the Court of

Appeals:
It is of judicial notice that along the routes that are plied by
these bus companies, there are its inspectors assigned at
strategic places who board the bus and inspect the
passengers, the punched tickets, and the conductors
reports. There is also the mandatory once-a-week car barn
or shop day, where the bus is regularly checked as to its
mechanical, electrical, and hydraulic aspects, whether or
not there are problems thereon as reported by the driver
and/or conductor. They too, must be at specific place as [sic]
specified time, as they generally observe prompt departure
and arrival from their point of origin to their point of
destination. In each and every depot, there is always the
Dispatcher whose function is precisely to see to it that the
bus and its crew leave the premises at specific times and
arrive at the estimated proper time. These, are present in
the case at bar. The driver, the complainant herein, was
therefore under constant supervision while in the
performance of this work. He cannot be considered a field
personnel.11
We agree in the above disquisition. Therefore, as correctly
concluded by the appellate court, respondent is not a field
personnel but a regular employee who performs tasks usually
necessary and desirable to the usual trade of petitioners business.
Accordingly, respondent is entitled to the grant of service incentive
leave.
The question now that must be addressed is up to what amount of
service incentive leave pay respondent is entitled to.
The response to this query inevitably leads us to the correlative
issue of whether or not the three (3)-year prescriptive period under
Article 291 of the Labor Code is applicable to respondents claim of
service incentive leave pay.
Article 291 of the Labor Code states that all money claims arising
from employer-employee relationship shall be filed within three (3)

50

years from the time the cause of action accrued; otherwise, they
shall be forever barred.
In the application of this section of the Labor Code, the pivotal
question to be answered is when does the cause of action for
money claims accrue in order to determine the reckoning date of
the three-year prescriptive period.
It is settled jurisprudence that a cause of action has three
elements, to wit, (1) a right in favor of the plaintiff by whatever
means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to
violate such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff. 12
To properly construe Article 291 of the Labor Code, it is essential to
ascertain the time when the third element of a cause of action
transpired. Stated differently, in the computation of the three-year
prescriptive period, a determination must be made as to the period
when the act constituting a violation of the workers right to the
benefits being claimed was committed. For if the cause of action
accrued more than three (3) years before the filing of the money
claim, said cause of action has already prescribed in accordance
with Article 291.13
Consequently, in cases of nonpayment of allowances and other
monetary benefits, if it is established that the benefits being
claimed have been withheld from the employee for a period longer
than three (3) years, the amount pertaining to the period beyond
the three-year prescriptive period is therefore barred by
prescription. The amount that can only be demanded by the
aggrieved employee shall be limited to the amount of the benefits
withheld within three (3) years before the filing of the complaint. 14
It is essential at this point, however, to recognize that the service
incentive leave is a curious animal in relation to other benefits
granted by the law to every employee. In the case of service
incentive leave, the employee may choose to either use his leave
credits or commute it to its monetary equivalent if not exhausted at

the end of the year.15 Furthermore, if the employee entitled to

service incentive leave does not use or commute the same, he is
entitled upon his resignation or separation from work to the
commutation of his accrued service incentive leave. As enunciated
by the Court in Fernandez v. NLRC:16
The clear policy of the Labor Code is to grant service
incentive leave pay to workers in all establishments, subject
to a few exceptions. Section 2, Rule V, Book III of the
Implementing Rules and Regulations provides that "[e]very
employee who has rendered at least one year of service
shall be entitled to a yearly service incentive leave of five
days with pay." Service incentive leave is a right which
accrues to every employee who has served "within 12
months, whether continuous or broken reckoned from the
date the employee started working, including authorized
absences and paid regular holidays unless the working days
in the establishment as a matter of practice or policy, or
that provided in the employment contracts, is less than 12
months, in which case said period shall be considered as
one year." It is also "commutable to its money equivalent if
not used or exhausted at the end of the year." In other
words, an employee who has served for one year is entitled
to it. He may use it as leave days or he may collect its
monetary value. To limit the award to three years, as the
solicitor general recommends, is to unduly restrict such
right.17 [Italics supplied]
Correspondingly, it can be conscientiously deduced that the cause
of action of an entitled employee to claim his service incentive
leave pay accrues from the moment the employer refuses to
remunerate its monetary equivalent if the employee did not make
use of said leave credits but instead chose to avail of its
commutation. Accordingly, if the employee wishes to accumulate
his leave credits and opts for its commutation upon his resignation
or separation from employment, his cause of action to claim the
whole amount of his accumulated service incentive leave shall arise
when the employer fails to pay such amount at the time of his
resignation or separation from employment.

51

Applying Article 291 of the Labor Code in light of this peculiarity of

the service incentive leave, we can conclude that the three (3)-year
prescriptive period commences, not at the end of the year when
the employee becomes entitled to the commutation of his service
incentive leave, but from the time when the employer refuses to
pay its monetary equivalent after demand of commutation or upon
termination of the employees services, as the case may be.
The above construal of Art. 291, vis--vis the rules on service
incentive leave, is in keeping with the rudimentary principle that in
the implementation and interpretation of the provisions of the
Labor Code and its implementing regulations, the workingmans
welfare should be the primordial and paramount
consideration.18 The policy is to extend the applicability of the
decree to a greater number of employees who can avail of the
benefits under the law, which is in consonance with the avowed
policy of the State to give maximum aid and protection to labor. 19

from the time when his employer dismissed him and failed to pay
his accumulated leave credits.
Therefore, the prescriptive period with respect to his claim for
service incentive leave pay only commenced from the time the
employer failed to compensate his accumulated service incentive
leave pay at the time of his dismissal. Since respondent had filed
his money claim after only one month from the time of his
dismissal, necessarily, his money claim was filed within the
prescriptive period provided for by Article 291 of the Labor Code.
WHEREFORE, premises considered, the instant petition is hereby
DENIED. The assailed Decision of the Court of Appeals in CA-G.R.
SP. No. 68395 is hereby AFFIRMED. No Costs.
SO ORDERED.

In the case at bar, respondent had not made use of his service
incentive leave nor demanded for its commutation until his
employment was terminated by petitioner. Neither did petitioner
compensate his accumulated service incentive leave pay at the
time of his dismissal. It was only upon his filing of a complaint for
illegal dismissal, one month from the time of his dismissal, that
respondent demanded from his former employer commutation of
his accumulated leave credits. His cause of action to claim the
payment of his accumulated service incentive leave thus accrued

52