LABOR LAW 1 – CASES
General Provisions
G.R. No. 102199 January 28, 1997
AFP MUTUAL BENEFIT ASSOCIATION, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and EUTIQUIO BUSTAMANTE, respondents.
PANGANIBAN, J.:
The determination of the proper forum is crucial because the filing of the petition or complaint in the wrong court or
tribunal is fatal, even for a patently meritorious claim. More specifically, labor arbiters and the National Labor Relations
Commission have no jurisdiction to entertain and rule on money claims where no employer-employee relations is
involved. Thus, any such award rendered without jurisdiction is a nullity.
This petition for certiorari under Rule 65, Rules of Court seeks to annul the Resolution 1 of the National Labor Relations
Commission, promulgated September 27, 1991, in NLRC-NCR Case No. 00-02-01196-90, entitled "Eutiquio Bustamante vs.
AFP Mutual Benefit Association, Inc.," affirming the decision of the labor arbiter which ordered payment of the amount of
P319,796.00 as insurance commissions to private respondent.
The Antecedent Facts
The facts are simple. Private respondent Eutiquio Bustamante had been an insurance underwriter of petitioner AFP
Mutual Benefit Association, Inc. since 1975. The Sales Agent's Agreement between them provided: 2
B. Duties and Obligations:
1. During the lifetime of this Agreement, the SALES AGENT (private respondent) shall solicit exclusively for AFPMBAI
(petitioner), and shall be bound by the latter's policies, memo circulars, rules and regulations which it may from
time to time, revise, modify or cancel to serve its business interests.
2. The SALES AGENT shall confine his business activities for AFPMBAI while inside any military camp, installation or
residence of military personnel. He is free to solicit in the area for which he/she is licensed and as authoriied,
provided however, that AFPMBAI may from time to time, assign him a specific area of responsibility and a
production quota on a case to case basis.
xxx xxx xxx
C. Commission
1. The SALES AGENT shall be entitled to the commission due for all premiums actually due and received by AFPMBAI
out of life insurance policies solicited and obtained by the SALES AGENT at the rates set forth in the applicant's
commission schedules hereto attached.
xxx xxx xxx
D.
1. There shall be no employer-employee relationship between the parties, the SALES AGENT being hereby deemed
an independent contractor.
As compensation, he received commissions based on the following percentages of the premiums paid: 3
"30% of premium paid within the first year;
10% of premium paid with the second year;
5% of the premium paid during the third year;
3% of the premium paid during the fourth year; and
1% of the premium paid during the fifth year up to the tenth year.
On July 5, 1989, petitioner dismissed private respondent for misrepresentation and for simultaneously selling insurance
for another life insurance company in violation of said agreement.
At the time of his dismissal, private respondent was entitled to accrued commissions equivalent to twenty four (24)
months per the Sales Agent Agreement and as stated in the account summary dated July 5, 1989, approved by Retired
Brig. Gen. Rosalino Alquiza, president of petitioner-company. Said summary showed that private respondent had a total
commission receivable of P438,835.00, of which only P78,039.89 had been paid to him.
Private respondent wrote petitioner seeking the release of his commissions for said 24 months. Petitioner, through
Marketing Manager Juan Concepcion, replied that he was entitled to only P75,000.00 to P100,000.00. Hence, believing
Concepcion's computations, private respondent signed a quitclaim in favor of petitioner.
Sometime in October 1989, private respondent was informed that his check was ready for release. In collecting his check,
he discovered from a document (account summary) attached to said check that his total commissions for the 24 months
actually amounted to P354,796.09. Said document stated: 4
6. The total receivable for Mr. Bustamante out of the renewals and old business generated since 1983 grosses
P438,835.00 less his outstanding obligation in the amount of P78,039.89 as of June 30, 1989, total expected
commission would amount to P354,796.09. From that figure at a 15% compromise settlement this would mean
P53,219.41 due him to settle his claim.
Private respondent, however, was paid only the amount of P35,000.00.
On November 23, 1989, private respondent filed a complaint with the Office of the Insurance Commissioner praying for
the payment of the correct amount of his commission. Atty. German C. Alejandria, Chief of the Public Assistance and
Information Division, Office of the Insurance Commissioner, advised private respondent that it was the Department of
Labor and Employment that had jurisdiction over his complaint.
On February 26, 1990, private respondent filed his complaint with the Department of Labor claiming: (1) commission for
2 years from termination of employment equivalent to 30% of premiums remitted during employment; (2) P354,796.00
as commission earned from renewals and old business generated since 1983; (3) P100,000.00 as moral damages; and (4)
P100,000.00 as exemplary damages.
After submission of position papers, Labor Arbiter Jose G. de Vera rendered his decision, dated August 24, 1990, the
dispositive portion of which reads: 5
 WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered declaring
the dismissal of the complainant as just and valid, and consequently, his claim for separation pay is
denied. On his money claim, the respondent company is hereby ordered to pay complainant the sum
of P319,796.00 plus attorney's fees in the amount of P31,976.60.
All other claims of the complainant are dismissed for want of merit.
The labor arbiter relied on the Sales Agent's Agreement proviso that petitioner could assign private respondent a specific
area of responsibility and a production quota, and read it as signalling the existence of employer- employee relationship
between petitioner and private respondent.
On appeal, the Second Division 6 of the respondent Commission affirmed the decision of the Labor Arbiter. In the assailed
Resolution, respondent Commission found no reason to disturb said ruling of the labor arbiter and
ruled: 7
WHEREFORE, in view of the foregoing considerations, the subject appeal should be as it is hereby,
denied and the decision appealed from affirmed
SO ORDERED.
Hence, this petition.
The Issue
Petitioner contends that respondent Commission committed grave abuse of discretion in ruling that the labor arbiter had
jurisdiction over this case. At the heart of the controversy is the issue of whether there existed an employer-employee
relationship between petitioner and private respondent.
Petitioner argues that, despite provisions B(1) and (2) of the Sales Agent's Agreement, there is no employer-employee
relationship between private respondent and itself. Hence, respondent commission gravely abused its discretion when it
held that the labor arbiter had jurisdiction over the case.
The Court's Ruling
The petition is meritorious.
First Issue: Not All That Glitters Is Control
Well-settled is the doctrine that the existence of an employer-employee relationship is ultimately a question of fact and
that the findings thereon by the labor arbiter and the National Labor Relations Commission shall be accorded not only
respect but even finality when supported by substantial evidence. 8 The determinative factor in such finality is the
presence of substantial evidence to support said finding, otherwise, such factual findings cannot bind this Court.
Respondent Commission concurred with the labor arbiter's findings that: 9
x x x The complainant's job as sales insurance agent is usually necessary and desirable in the usual
business of the respondent company. Under the Sales Agents Agreement, the complainant was
required to solicit exclusively for the respondent company, and he was bound by the company
policies, memo circulars, rules and regulations which were issued from time to time. By such
requirement to follow strictly management policies, orders, circulars, rules and regulations, it only
shows that the respondent had control or reserved the right to control the complainant's work as
solicitor. Complainant was not an independent contractor as he did not carry on an independent
business other than that of the company's . . .
To this, respondent Commission added that the Sales Agent's Agreement specifically provided that petitioner may assign
private respondent a specific area of responsibility and a production quota. From there, it concluded that apparently
there is that exercise of control by the employer which is the most important element in determining employer-
employee relationship. 10
We hold, however, that respondent Commission misappreciated the facts of the case. Time and again, the Court has
applied the "four-fold" test in determining the existence of employer-employee relationship. This test considers the
following elements: (1) the power to hire; (2) the payment of wages; (3) the power to dismiss; and (4) the power to
control, the last being the most important element. 11
The difficulty lies in correctly assessing if certain factors or elements properly indicate the presence of control. Anent the
issue of exclusivity in the case at bar, the fact that private respondent was required to solicit business exclusively for
petitioner could hardly be considered as control in labor jurisprudence. Under Memo Circulars No. 2-81 12 and 2-85,
dated December 17, 1981 and August 7, 1985, respectively, issued by the Insurance Commissioner, insurance agents are
barred from serving more than one insurance company, in order to protect the public and to enable insurance companies
to exercise exclusive supervision over their agents in their solicitation work. Thus, the exclusivity restriction clearly springs
from a regulation issued by the Insurance Commission, and not from an intention by petitioner to establish control over
the method and manner by which private respondent shall accomplish his work. This feature is not meant to change the
nature of the relationship between the parties, nor does it necessarily imbue such relationship with the quality of control
envisioned by the law.
So too, the fact that private respondent was bound by company policies, memo/circulars, rules and regulations issued
from time to time is also not indicative of control. In its Reply to Complainant's Position Paper, 13 petitioner alleges that
the policies, memo/circulars, and rules and regulations referred to in provision B(1) of the Sales Agent's Agreement are
only those pertaining to payment of agents' accountabilities, availment by sales agents of cash advances for sorties,
circulars on incentives and awards to be given based on production, and other matters concerning the selling of
insurance, in accordance with the rules promulgated by the Insurance Commission. According to the petitioner, insurance
solicitors are never affected or covered by the rules and regulations concerning employee conduct and penalties for
violations thereof, work standards, performance appraisals, merit increases, promotions, absenteeism/attendance,
leaves of absence, management-union matters, employee benefits and the like. Since private respondent failed to rebut
these allegations, the same are deemed admitted, or at least proven, thereby leaving nothing to support the respondent
Commission's conclusion that the foregoing elements signified an employment relationship between the parties.
In regard to the territorial assignments given to sales agents, this too cannot be held as indicative of the exercise of
control over an employee. First of all, the place of work in the business of soliciting insurance does not figure prominently
in the equation. And more significantly, private respondent failed to rebut petitioner's allegation that it had never issued
him any territorial assignment at all. Obviously, this Court cannot draw the same inference from this feature as did the
respondent Commission.
To restate, the significant factor in determining the relationship of the parties is the presence or absence of supervisory
authority to control the method and the details of performance of the service being rendered, and the degree to which
the principal may intervene to exercise such control. The presence of such power of control is indicative of an
employment relationship, while absence thereof is indicative of independent contractorship. In other words, the test to
determine the existence of independent contractorship is whether one claiming to be an independent contractor has
contracted to do the work according to his own methods and without being subject to the control of the employer except
only as to the result of the work. 14 Such is exactly the nature of the relationship between petitioner and private
respondent.
Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to the
services being rendered may be accorded the effect of establishing an employer-employee relationship. The facts of this
case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held that:
Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of
the mutually desired result without dictating the means or methods to be employed in attaining it, and those
that control or fix the methodology and bind or restrict the party hired to the use of such means. The first,
which aim only to promote the result, create no employer-employee relationship unlike the second, which
address both the result and the means used to achieve it. The distinction acquires particular relevance in the
case of an enterprise affected with public interest, as is the business of insurance, and is on that account
subject to regulation by the State with respect, not only to the relations between insurer and insured but also
to the internal affairs of the insurance company. Rules and regulations governing the conduct of the business
are provided for in the Insurance Code and enforced by the Insurance Commissioner. It is, therefore, usual and
expected for an insurande company to promulgate a set of rules to guide its commission agents in selling its
policies that they may not run afoul of the law and what it requires or prohibits. . . . None of these really
invades the agent's contractual prerogative to adopt his own selling methods or to sell insurance at his own
time and convenience, hence cannot justifiably be said to establish an employer-employee relationship
between him and the company. 15
Private respondent's contention that he was petitioner's employee is belied by the fact that he was free to sell insurance
at any time as he was not subject to definite hours or conditions of work and in turn was compensated according to the
result of his efforts. By the nature of the business of soliciting insurance, agents are normally left free to devise ways and
means of persuading people to take out insurance. There is no prohibition, as contended by petitioner, for private
respondent to work for as long as he does not violate the Insurance Code. As petitioner explains:
(Private respondent) was free to solicit life insurance anywhere he wanted and he had free and unfettered time
to pursue his business. He did not have to punch in and punch out the bundy clock as he was not required to
report to the (petitioner's) office regularly. He was not covered by any employee policies or regulations and not
subject to the disciplinary action of management on the basis of the Employee Code of Conduct. He could go out
and sell insurance at his own chosen time. He was entirely left to his own choices of areas or territories, with no
definite, much less supervised, time schedule.
(Private respondent) had complete control over his occupation and (petitioner) did not exercise any right of
Control and Supervision over his performance except as to the payment of commission the amount of which
entirely depends on the sole efforts of (private respondent). He was free to engage in other occupation or
practice other profession for as long as he did not commit any violation of the ethical standards prescribed in the
Sales Agent's Agreement. 16
Although petitioner could have, theoretically, disapproved any of private respondent's transactions, what could be
disapproved was only the result of the work, and not the means by which it was accomplished.
The "control" which the above factors indicate did not sum up to the power to control private respondent's conduct in
and mode of soliciting insurance. On the contrary, they clearly indicate that the juridical element of control had been
absent in this situation. Thus, the Court is constrained to rule that no employment relationship had ever existed between
the parties.
Second Issue: Jurisdiction of Respondent
Commission & Labor Arbiter
Under the contract invoked, private respondent had never been petitioner's employee, but only its commission agent. As
an independent contractor, his claim for unpaid commission should have been litigated in an ordinary civil action. 17
The jurisdiction of labor arbiters and respondent Commission is set forth in Article 217 of the Labor Code. 18 The unifying
element running through paragraphs (1) — (6) of said provision is the consistent reference to cases or disputes arising
out of or in connection with an employer-employee relationship. Prior to its amendment by Batas Pambansa Blg. 227 on
June 1, 1982, this point was clear as the article included "all other cases arising from employer-employee relation unless
expressly excluded by this Code." 19 Without this critical element of employment relationship, the labor arbiter and
respondent Commission can never acquire jurisdiction over a dispute. As in the case at bar. It was serious error on the
part of the labor arbiter to have assumed jurisdiction and adjudicated the claim. Likewise, the respondent Commission's
affirmance thereof.
Such lack of jurisdiction of a court or tribunal may be raised at any stage of the proceedings, even on appeal. The doctrine
of estoppel cannot be properly invoked by respondent Commission to cure this fatal defect as it cannot confer
jurisdiction upon a tribunal that to begin with, was bereft of jurisdiction over a cause of action. 20 Moreover, in the
proceedings below, petitioner consistently challenged the jurisdiction of the labor arbiter 21 and respondent
Commission. 22
It remains a basic fact in law that the choice of the proper forum is crucial as the decision of a court or tribunal without
jurisdiction is a total nullity. 23 A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of
any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no
legal effect. Hence, it can never become final. ". . . (I)t may be said to be a lawless thing which can be treated as an
outlaw and slain at sight, or ignored wherever and whenever it exhibits its head." 24
The way things stand, it becomes unnecessary to consider the merits of private respondent's claim for unpaid
commission. Be that as it may, this ruling is without prejudice to private respondent's right to file a suit for collection of
unpaid commissions against petitioner with the proper forum and within the proper period.
WHEREFORE, the petition is hereby GRANTED, and the assailed Resolution is hereby SET ASIDE.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.
G.R. No. 112546 March 13, 1996
NORTH DAVAO MINING CORPORATION and ASSET PRIVATIZATION TRUST, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ANTONIO M. VILLANUEVA and WILFREDO
GUILLEMA, respondents.
PANGANIBAN, J.:p
Is a company which is forced by huge business losses to close its business, legally required to pay separation benefits to
its employees at the time of its closure in an amount equivalent to the separation pay paid to those who were separated
when the company was still a going concern? This is the main question brought before this Court in this petition
for certiorari under Rule 65 of the Revised Rules of Court, which seeks to reverse and set aside the Resolutions dated July
29, 19931 and September 27, 19932 of the National Labor Relations Commission3 (NLRC) in NLRC CA No. M-00139593.
The Resolution dated July 29, 1993 affirmed in toto the decision of the Labor Arbiter in RAB-11-08-00672-92 and RAB-11-
08-00713-92 ordering petitioners to pay the complainants therein certain monetary claims.
The Resolution dated September 27, 1993 denied the motion for reconsideration of the said July 29, 1993 Resolution.
The Facts
Petitioner North Davao Mining Corporation (North Davao) was incorporated in 1974 as a 100% privately-owned
company. Later, the Philippine National Bank (PNB) became part owner thereof as a result of a conversion into equity of a
portion of loans obtained by North Davao from said bank. On June 30, 1986, PNB transferred all its loans to and equity in
North Davao in favor of the national government which, by virtue of Proclamation No. 50 dated December 8, 1986, later
turned them over to petitioner Asset Privatization Trust (APT). As of December 31, 1990 the national government hold
81.8% of the common stock and 100% of the preferred stock of said company.4
Respondent Wilfredo Guillema is one among several employees of North Davao who were separated by reason of the
company's closure on May 31, 1992, and who were the complainants in the cases before the respondent labor arbiter.
On May 31, 1992, petitioner North Davao completely ceased operations due to serious business reverses. From 1988
until its closure in 1992, North Davao suffered net losses averaging three billion pesos (P3,000,000,000.00) per year, for
each of the five years prior to its closure. All told, as of December 31, 1991, or five months prior to its closure, its total
liabilities had exceeded its assets by 20,392 billion pesos, as shown by its financial statements audited by the Commission
on Audit. When it ceased operations, its remaining employees were separated and given the equivalent of 12.5 days' pay
for every year of service, computed on their basic monthly pay, in addition to the commutation to cash of their unused
vacation and sick leaves. However, it appears that, during the life of the petitioner corporation, from the beginning of its
operations in 1981 until its closure in 1992, it had been giving separation pay equivalent to thirty (30) days' pay for every
year of service. Moreover, inasmuch as the region where North Davao operated was plagued by insurgency and other
peace and order problems, the employees had to collect their salaries at a bank in Tagum, Davao del Norte, some 58
kilometers from their workplace and about 2 1/2 hours' travel time by public transportation; this arrangement lasted
from 1981 up to 1990.
Subsequently, a complaint was filed with respondent Labor Arbiter by respondent Wilfredo Guillema and 271 other
separated employees for: (1) additional separation pay of 17.5 days for every year of service; (2) back wages equivalent
to two days a month; (3) transportation allowance; (4) hazard pay; (5) housing allowance; (6) food allowance; (7) post-
employment medical clearance; and (8) future medical allowance, all of which amounted to P58,022,878.31 as computed
by private respondent.5
On May 6, 1993, respondent Labor Arbiter rendered a decision ordering petitioner North Davao to pay the complainants
the following:
(a) Additional separation pay of 17.5 days for every year of service;
(b) Backwages equivalent to two (2) days a month times the number of years of service but not to
exceed three (3) years;
(c) Transportation allowance at P80 a month times the number of years of service but not to exceed
three (3) years.
The benefits awarded by respondent Labor Arbiter amounted to P10,240,517.75. Attorney's fees equivalent to ten
percent (10%) thereof were also granted.6
On appeal, respondent NLRC affirmed the decision in toto. Petitioner North Davao's motion for reconsideration was
likewise denied. Hence, this petition.
The Parties' Submissions and the Issues
In affirming the Labor Arbiter's decision, respondent NLRC ruled that "since (North Davao) has been paying its employees
separation pay equivalent to thirty (30) days pay for every year of service," knowing fully well that the law provides for a
lesser separation pay, then such company policy "has ripened into an obligation," and therefore, depriving now the
herein private respondent and others similarly situated of the same benefits would be discriminatory.7 Quoting
from Businessday Information Systems and Services, Inc. (BISSI) vs. NLRC,8 it said that petitioners "may not pay separation
benefits unequally for such discrimination breeds resentment and ill-will among those who have been treated less
generously than others." It also cited Abella vs. NLRC,9 as authority for saying that Art. 283 of the Labor Code protects
workers in case of closure of the establishment.
To justify the award of two days a month in backwages and P80 per month of transportation allowance, respondent
Commission ruled:
As to the appellants' claim that complainants-appellees' time spent in collecting their wages at Tagum, Davao is not
compensable allegedly because it was on official time can not be given credence. No iota of evidence has been
presented to back up said contention. The same is true with appellants' assertion that the claim for transportation
expenses is without basis since they were incurred by the complainants. Appellants should have submitted the
payrolls to prove that complainants appellees were not the ones who personally collected their wages and/or the
bus/jeep trip tickets or vouchers to show that the complainants-appellees were provided with free transportation as
claimed.
Petitioner, through the Government Corporate Counsel, raised the following grounds for the allowance of the petition:
1. The NLRC acted with grave abuse of discretion in affirming without legal basis the award of additional separation
pay to private respondents who were separated due to serious business losses on the part of petitioner.
2. The NLRC acted with grave abuse of discretion in affirming without sufficient factual basis the award of
backwages and transportation expenses to private respondents.
3. There is no appeal, nor any plain, speedy and adequate remedy in the ordinary course of the law.
and the following issues:
1. Whether or not an employer whose business operations ceased due to serious business losses or financial
reverses is obliged to pay separation pay to its employees separated by reason of such closure.
2. Whether or not time spent in collecting wages in a place other than the place of employment is
compensable notwithstanding that the same is done during official time.
 3. Whether or not private respondents are entitled to transportation expenses in the absence of evidence that
these expenses were incurred.
The First Issue: Separation Pay
To resolve this issue, it is necessary to revisit the provision of law adverted to by the parties in their submissions, namely,
Art. 283 of the Labor Code, which reads as follows:
Art. 283. Closure of establishment and reduction of personnel. — The employer may also terminate the
employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the
workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof.
In case of termination due to the installation of labor saving devices or redundancy, the worker affected
thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one
(1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in
cases of closures or cessation of operations of establishment or undertaking not due to serious business
losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half
(1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be
considered one (1) whole year. (emphasis supplied)
The underscored portion of Art. 283 governs the grant of separation benefits "in case of closures or cessation of
operation" of business establishments "NOT due to serious business losses or financial reverses . . . ". Where, however,
the closure was due to business losses — as in the instant case, in which the aggregate losses amounted to over P20
billion — the Labor Code does not impose any obligation upon the employer to pay separation benefits, for obvious
reasons. There is no need to belabor this point. Even the public respondents, in their Comment 10 filed by the Solicitor
General, impliedly concede this point.
However, respondents tenaciously insist on the award of separation pay, anchoring their claim solely on petitioner North
Davao's long-standing policy of giving separation pay benefits equivalent to 30-days' pay, which policy had been in force
in the years prior to its closure. Respondents contend that, by denying the same separation benefits to private
respondent and the others similarly situated, petitioners discriminated against them. They rely on this Court's ruling
in Businessday Information Systems and Services, Inc. (BISSI) vs. NLRC, (supra). In said case, petitioner BISSI, after
experiencing financial reverses, decided "as a retrenchment measure" to lay-off some employees on May 16, 1988 and
gave them separation pay equivalent to one-half (1/2) month pay for every year of service. BISSI retained some
employees in an attempt to rehabilitate its business as a trading company. However, barely two and a half months later,
these remaining employees were likewise discharged because the company decided to cease business operations
altogether. Unlike the earlier terminated employees, the second batch received separation pay equivalent to a full
month's salary for every year of service, plus a mid-year bonus. This Court ruled that "there was impermissible
discrimination against the private respondents in the payment of their separation benefits. The law requires an employer
to extend equal treatment to its employees. It may not, in the guise of exercising management prerogatives, grant
greater benefits to some and less to others. . . ."
In resolving the present case, it bears keeping in mind at the outset that the factual circumstances of BISSI are quite
different from the current case. The Court noted that BISSI continued to suffer losses even after the retrenchment of the
first batch of employees: clearly, business did not improve despite such drastic measure. That notwithstanding, when
BISSI finally shut down, it could well afford to (and actually did) pay off its remaining employees with MORE separation
benefits as compared with those earlier laid off; obviously, then, there was no reason for BISSI to skimp on separation pay
for the first batch of discharged employees. That it was able to pay one-month separation benefit for employees at
the time of closure of its business meant that it must have been also in a position to pay the same amount to those who
were separated prior to closure. That it did not do so was a wrongful exercise of management prerogatives. That is why
the Court correctly faulted it with "impermissible discrimination." Clearly, it exercised its management prerogatives
contrary to "general principles of fair play and justice."
In the instant case however, the company's practice of giving one month's pay for every year of service could no longer
be continued precisely because the company could not afford it anymore. It was forced to close down on account of
accumulated losses of over P20 billion. This could not be said of BISSI. In the case of North Davao, it gave 30-days'
separation pay to its employees when it was still a going concern even if it was already losing heavily. As a going concern,
its cash flow could still have sustained the payment of such separation benefits. But when a business enterprise
completely ceases operations, i.e., upon its death as a going business concern, its vital lifeblood — its cashflow — literally
dries up. Therefore, the fact that less separation benefits ware granted when the company finally met its business death
cannot be characterized as discrimination. Such action was dictated not by a discriminatory management option but by
its complete inability to continue its business life due to accumulated losses. Indeed, one cannot squeeze blood out of a
dry stone. Nor water out of parched land.
As already stated, Art. 283 of the Labor Code does not obligate an employer to pay separation benefits when the closure
is due to losses. In the case before us, the basis for the claim of the additional separation benefit of 17.5 days is alleged
discrimination, i.e., unequal treatment of employees, which is proscribed as an unfair labor practice by Art. 248 (e) of said
Code. Under the facts and circumstances of the present case, the grant of a lesser amount of separation pay to private
respondent was done, not by reason of discrimination, but rather, out of sheer financial bankruptcy — a fact that is not
controlled by management prerogatives. Stated differently, the total cessation of operation due to mind-boggling losses
was a supervening fact that prevented the company from continuing to grant the more generous amount of separation
pay. The fact that North Davao at the point of its forced closure voluntarily paid any separation benefits at all — although
not required by law — and 12.5-days worth at that, should have elicited admiration instead of condemnation. But to
require it to continue being generous when it is no longer in a position to do so would certainly be unduly oppressive,
unfair and most revolting to the conscience. As this Court held in Manila Trading & Supply Co. vs. Zulueta, 11 and
reiterated in San Miguel Corporation vs. NLRC 12 and later, in Allied Banking Corporation vs. Castro, 13 "(t)he law, in
protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the employer."
At this juncture, we note that the Solicitor General in his Comment challenges the petitioners' assertion that North
Davao, having closed down, no longer has the means to pay for the benefits. The Solicitor General stresses that North
Davao was among the assets transferred by PNB to the national government, and that by virtue of Proclamation No. 50
dated December 8, 1986, the APT was constituted trustee of this government asset. He then concludes that "(i)t would,
therefore, be incongruous to declare that the National Government, which should always be presumed to be solvent,
could not pay now private respondents' money claims." Such argumentation is completely misplaced. Even if the national
government owned or controlled 81.8% of the common stock and 100% of the preferred stock of North Davao, it remains
only a stockholder thereof, and under existing laws and prevailing jurisprudence, a stockholder as a rule is not directly,
individually and/or personally liable for the indebtedness of the corporation. The obligation of North Davao cannot be
considered the obligation of the national government, hence, whether the latter be solvent or not is not material to the
instant case. The respondents have not shown that this case constitutes one of the instances where the corporate veil
may be pierced. 14 From another angle, the national government is not the employer of private respondent and his co-
complainants, so there is no reason to expect any kind of bailout by the national government under existing law and
jurisprudence.
The Second and Third Issues:
Back Wages and Transportation Allowance
Anent the award of back wages and transportation allowance, the issues raised in connection therewith are factual, the
determination of which is best left to the respondent NLRC. It is well settled that this Court is bound by the findings of
fact of the NLRC, so long as said findings are supported by substantial evidence 15.
As the Solicitor General pointed out in his comment:
It is undisputed that because of security reasons, from the time of its operations, petitioner NDMC maintained its
policy of paying its workers at a bank in Tagum, Davao del Norte, which usually took the workers about two and a
half (2 1/2) hours of travel from the place of work and such travel time is not official.
Records also show that on February 12, 1992, when an inspection was conducted by the Department of Labor and
Employment at the premises of petitioner NDMC at Amacan, Maco, Davao del Norte, it was found out that
petitioners had violated labor standards law, one of which is the place of payment of wages (p. 109, Vol. 1, Record)
Section 4, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code provides that:
Sec. 4. Place of payment. — (a) As a general rule, the place of payment shall be at or near the place of
undertaking. Payment in a place other than the workplace shall be permissible only under the following
circumstances:
(1) When payment cannot be effected at or near the place of work by reason of the deterioration of peace
and order conditions, or by reason of actual or impending emergencies caused by fire, flood, epidemic or
other calamity rendering payment thereat impossible;
(2) When the employer provides free transportation to the employees back and forth; and
(3) Under any analogous circumstances; provided that the time spent by the employees in collecting their
wages shall be considered as compensable hours worked.
(b) xxx xxx xxx
(Emphasis supplied)
Accordingly, in his Order dated April 14, 1992 (p. 109, Vol. 1, Record), the Regional Director, Regional Office
No. XI, Department of Labor and Employment, Davao City, ordered petitioner NDMC, among others, as
follows:
WHEREFORE, . . . . Respondent is further ordered to pay its workers salaries at the plantsite at Amacan,
New Leyte, Maco, Davao del Norte or whenever not possible, through the bank in Tagum, Davao del
Norte as already been practiced subject, however to the provisions of Section 4 of Rule VIII, Book III of
the rules implementing the Labor Code as amended.
Thus, public respondent Labor Arbiter Antonio M. Villanueva correctly held that:
From the evidence on record, we find that the hours spent by complainants in collecting salaries at a
bank in Tagum, Davao del Norte shall be considered compensable hours worked. Considering further
the distance between Amacan, Maco to Tagum which is 2 1/2 hours by travel and the risks in
commuting all the time in collecting complainants' salaries, would justify the granting of backwages
equivalent to two (2) days in a month as prayed for.
Corollary to the above findings, and for equitable reasons, we likewise hold respondents liable for the
transportation expenses incurred by complainants at P40.00 round trip fare during pay days.
(p. 10, Decision; p. 207, Vol. 1, Record)
On the contrary, it will be petitioners' burden or duty to present evidence of compliance of the law on
labor standards, rather than for private respondents to prove that they were not paid/provided by
petitioners of their backwages and transportation expenses.
Other than the bare denials of petitioners, the above findings stand uncontradicted. Indeed we are not at liberty to set
aside findings of facts of the NLRC, absent any capriciousness, arbitrariness, or abuse or complete lack of basis. In Maya
Farms Employees Organizations vs. NLRC, 16 , we held:
This Court has consistently ruled that findings of fact of administrative agencies ad quasi-judicial bodies
which have acquired expertise because their jurisdiction is confined to specific matters are generally
accorded not only respect but even finality and are binding upon this Court unless there is a showing of
grave abuse of discretion, or where it is clearly shown that they were arrived at arbitrarily or in disregard
of the evidence on record.
WHEREFORE, judgment is hereby rendered MODIFYING the assailed Resolution by SETTING ASIDE and deleting the award
for "additional separation pay of 17.5 days for every year of service", and AFFIRMING it in all other aspects. No costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Francisco and
Hermosisima, Jr., JJ., concur.
G.R. No. L-80680 January 26, 1989
DANILO B. TABAS, EDUARDO BONDOC, RAMON M. BRIONES, EDUARDO R. ERISPE, JOEL MADRIAGA, ARTHUR M.
ESPINO, AMARO BONA, FERDINAND CRUZ, FEDERICO A. BELITA, ROBERTO P. ISLES, ELMER ARMADA, EDUARDO UDOG,
PETER TIANSING, MIGUELITA QUIAMBOA, NOMER MATAGA, VIOLY ESTEBAN and LYDIA ORTEGA, petitioners,
vs.
CALIFORNIA MANUFACTURING COMPANY, INC., LILY-VICTORIA A. AZARCON, NATIONAL LABOR RELATIONS
COMMISSION, and HON. EMERSON C. TUMANON, respondents.
V.E. Del Rosario & Associates for respondent CMC.
The Solicitor General for public respondent.
Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners.
Mildred A. Ramos for respondent Lily Victoria A. Azarcon.
SARMIENTO, J.:
On July 21, 1986, July 23, 1986, and July 28, 1986, the petitioners petitioned the National Labor Relations Commission for
reinstatement and payment of various benefits, including minimum wage, overtime pay, holiday pay, thirteen-month
pay, and emergency cost of living allowance pay, against the respondent, the California Manufacturing Company. 1
On October 7, 1986, after the cases had been consolidated, the California Manufacturing Company (California) filed a
motion to dismiss as well as a position paper denying the existence of an employer-employee relation between the
petitioners and the company and, consequently, any liability for payment of money claims. 2 On motion of the
petitioners, Livi Manpower Services, Inc. was impleaded as a party-respondent.
It appears that the petitioners were, prior to their stint with California, employees of Livi Manpower Services, Inc. (Livi),
which subsequently assigned them to work as "promotional merchandisers" 3 for the former firm pursuant to a
manpower supply agreement. Among other things, the agreement provided that California "has no control or
supervisions whatsoever over [Livi's] workers with respect to how they accomplish their work or perform [Californias]
obligation"; 4 the Livi "is an independent contractor and nothing herein contained shall be construed as creating between
[California] and [Livi] . . . the relationship of principal[-]agent or employer[-]employee'; 5 that "it is hereby agreed that it is
the sole responsibility of [Livi] to comply with all existing as well as future laws, rules and regulations pertinent to
employment of labor" 6 and that "[California] is free and harmless from any liability arising from such laws or from any
accident that may befall workers and employees of [Livi] while in the performance of their duties for [California]. 7
It was further expressly stipulated that the assignment of workers to California shall be on a "seasonal and contractual
basis"; that "[c]ost of living allowance and the 10 legal holidays will be charged directly to [California] at cost "; and that
"[p]ayroll for the preceeding [sic] week [shall] be delivered by [Livi] at [California's] premises." 8
The petitioners were then made to sign employment contracts with durations of six months, upon the expiration of which
they signed new agreements with the same period, and so on. Unlike regular California employees, who received not less
than P2,823.00 a month in addition to a host of fringe benefits and bonuses, they received P38.56 plus P15.00 in
allowance daily.
The petitioners now allege that they had become regular California employees and demand, as a consequence whereof,
similar benefits. They likewise claim that pending further proceedings below, they were notified by California that they
would not be rehired. As a result, they filed an amended complaint charging California with illegal dismissal.
California admits having refused to accept the petitioners back to work but deny liability therefor for the reason that it is
not, to begin with, the petitioners' employer and that the "retrenchment" had been forced by business losses as well as
expiration of contracts.9 It appears that thereafter, Livi re-absorbed them into its labor pool on a "wait-in or standby"
status. 10
Amid these factual antecedents, the Court finds the single most important issue to be: Whether the petitioners are
California's or Livi's employees.
The labor arbiter's decision, 11 a decision affirmed on appeal, 12 ruled against the existence of any employer-employee
relation between the petitioners and California ostensibly in the light of the manpower supply contract, supra, and
consequently, against the latter's liability as and for the money claims demanded. In the same breath, however, the labor
arbiter absolved Livi from any obligation because the "retrenchment" in question was allegedly "beyond its control
." 13 He assessed against the firm, nevertheless, separation pay and attorney's fees.
We reverse.
The existence of an employer-employees relation is a question of law and being such, it cannot be made the subject of
agreement. Hence, the fact that the manpower supply agreement between Livi and California had specifically designated
the former as the petitioners' employer and had absolved the latter from any liability as an employer, will not erase
either party's obligations as an employer, if an employer-employee relation otherwise exists between the workers and
either firm. At any rate, since the agreement was between Livi and California, they alone are bound by it, and the
petitioners cannot be made to suffer from its adverse consequences.
This Court has consistently ruled that the determination of whether or not there is an employer-employee relation
depends upon four standards: (1) the manner of selection and engagement of the putative employee; (2) the mode of
payment of wages; (3) the presence or absence of a power of dismissal; and (4) the presence or absence of a power to
control the putative employee's conduct. 14 Of the four, the right-of-control test has been held to be the decisive
factor. 15
On the other hand, we have likewise held, based on Article 106 of the Labor Code, hereinbelow reproduced:
ART. 106. Contractor or sub-contractor. — Whenever an employee enters into a contract with another person for
the performance of the former's work, the employees of the contractor and of the latter's sub-contractor, if any,
shall be paid in accordance with the provisions of this Code.
In the event that the contractor or sub-contractor fails to pay wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or sub-contractor to such employees to
the extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect
the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the employer for purposes of this
Code, to prevent any violation or circumvention of any provisions of this Code.
There is 'labor-only' contracting where the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such person are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of
the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly
employed by him.
that notwithstanding the absence of a direct employer-employee relationship between the employer in whose favor
work had been contracted out by a "labor-only" contractor, and the employees, the former has the responsibility,
together with the "labor-only" contractor, for any valid labor claims, 16 by operation of law. The reason, so we held, is
that the "labor-only" contractor is considered "merely an agent of the employer,"17 and liability must be shouldered by
either one or shared by both. 18
There is no doubt that in the case at bar, Livi performs "manpower services", 19 meaning to say, it contracts out labor in
favor of clients. We hold that it is one notwithstanding its vehement claims to the contrary, and notwithstanding the
provision of the contract that it is "an independent contractor." 20 The nature of one's business is not determined by self-
serving appellations one attaches thereto but by the tests provided by statute and prevailing case law. 21 The bare fact
that Livi maintains a separate line of business does not extinguish the equal fact that it has provided California with
workers to pursue the latter's own business. In this connection, we do not agree that the petitioners had been made to
perform activities 'which are not directly related to the general business of manufacturing," 22California's purported
"principal operation activity. " 23 The petitioner's had been charged with "merchandizing [sic] promotion or sale of the
products of [California] in the different sales outlets in Metro Manila including task and occational [sic] price
tagging," 24 an activity that is doubtless, an integral part of the manufacturing business. It is not, then, as if Livi had served
as its (California's) promotions or sales arm or agent, or otherwise, rendered a piece of work it (California) could not have
itself done; Livi, as a placement agency, had simply supplied it with the manpower necessary to carry out its (California's)
merchandising activities, using its (California's) premises and equipment. 25
Neither Livi nor California can therefore escape liability, that is, assuming one exists.
The fact that the petitioners have allegedly admitted being Livi's "direct employees" 26 in their complaints is nothing
conclusive. For one thing, the fact that the petitioners were (are), will not absolve California since liability has been
imposed by legal operation. For another, and as we indicated, the relations of parties must be judged from case to case
and the decree of law, and not by declarations of parties.
The fact that the petitioners have been hired on a "temporary or seasonal" basis merely is no argument either. As we
held in Philippine Bank of Communications v. NLRC, 27 a temporary or casual employee, under Article 218 of the Labor
Code, becomes regular after service of one year, unless he has been contracted for a specific project. And we cannot say
that merchandising is a specific project for the obvious reason that it is an activity related to the day-to-day operations of
California.
It would have been different, we believe, had Livi been discretely a promotions firm, and that California had hired it to
perform the latter's merchandising activities. For then, Livi would have been truly the employer of its employees, and
California, its client. The client, in that case, would have been a mere patron, and not an employer. The employees would
not in that event be unlike waiters, who, although at the service of customers, are not the latter's employees, but of the
restaurant. As we pointed out in the Philippine Bank of Communications case:
xxx xxx xxx
... The undertaking given by CESI in favor of the bank was not the performance of a specific job for instance, the
carriage and delivery of documents and parcels to the addresses thereof. There appear to be many companies
today which perform this discrete service, companies with their own personnel who pick up documents and
packages from the offices of a client or customer, and who deliver such materials utilizing their own delivery vans
or motorcycles to the addressees. In the present case, the undertaking of CESI was to provide its client the bank
with a certain number of persons able to carry out the work of messengers. Such undertaking of CESI was
complied with when the requisite number of persons were assigned or seconded to the petitioner bank. Orpiada
utilized the premises and office equipment of the bank and not those of CESI. Messengerial work the delivery of
documents to designated persons whether within or without the bank premises-is of course directly related to
the day-to-day operations of the bank. Section 9(2) quoted above does not require for its applicability that the
petitioner must be engaged in the delivery of items as a distinct and separate line of business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement
corporation placing bodies, as it were, in different client companies for longer or shorter periods of time, ... 28
In the case at bar, Livi is admittedly an "independent contractor providing temporary services of manpower to its client.
" 29 When it thus provided California with manpower, it supplied California with personnel, as if such personnel had been
directly hired by California. Hence, Article 106 of the Code applies.
The Court need not therefore consider whether it is Livi or California which exercises control over the petitioner vis-a-vis
the four barometers referred to earlier, since by fiction of law, either or both shoulder responsibility.
It is not that by dismissing the terms and conditions of the manpower supply agreement, we have, hence, considered it
illegal. Under the Labor Code, genuine job contracts are permissible, provided they are genuine job contracts. But, as we
held in Philippine Bank of Communications, supra, when such arrangements are resorted to "in anticipation of, and for
the very purpose of making possible, the secondment" 30 of the employees from the true employer, the Court will be
justified in expressing its concern. For then that would compromise the rights of the workers, especially their right to
security of tenure.
This brings us to the question: What is the liability of either Livi or California?
The records show that the petitioners bad been given an initial six-month contract, renewed for another six months.
Accordingly, under Article 281 of the Code, they had become regular employees-of-California-and had acquired a secure
tenure. Hence, they cannot be separated without due process of law.
California resists reinstatement on the ground, first, and as we Id, that the petitioners are not its employees, and second,
by reason of financial distress brought about by "unfavorable political and economic atmosphere" 31"coupled by the
February Revolution." 32 As to the first objection, we reiterate that the petitioners are its employees and who, by virtue of
the required one-year length-of-service, have acquired a regular status. As to the second, we are not convinced that
California has shown enough evidence, other than its bare say so, that it had in fact suffered serious business reverses as
a result alone of the prevailing political and economic climate. We further find the attribution to the February Revolution
as a cause for its alleged losses to be gratuitous and without basis in fact.
California should be warned that retrenchment of workers, unless clearly warranted, has serious consequences not only
on the State's initiatives to maintain a stable employment record for the country, but more so, on the workingman
himself, amid an environment that is desperately scarce in jobs. And, the National Labor Relations Commission should
have known better than to fall for such unwarranted excuses and nebulous claims.
WHEREFORE, the petition is GRANTED. Judgment is hereby RENDERED: (1): SETTING ASIDE the decision, dated March 20,
1987, and the resolution, dated August 19, 1987; (2) ORDERING the respondent, the California Manufacturing Company,
to REINSTATE the petitioners with full status and rights of regular employees; and (3) ORDERING the respondent, the
California Manufacturing Company, and the respondents, Livi Manpower Service, Inc. and/or Lily-Victoria Azarcon, to
PAY, jointly and severally, unto the petitioners: (a) backwages and differential pays effective as and from the time they
had acquired a regular status under the second paragraph, of Section 281, of the Labor Code, but not to exceed three (3)
years, and (b) all such other and further benefits as may be provided by existing collective bargaining agreement(s) or
other relations, or by law, beginning such time; and (4) ORDERING the private respondents to PAY unto the petitioners
attorney's fees equivalent to ten (10%) percent of all money claims hereby awarded, in addition to those money claims.
The private respondents are likewise ORDERED to PAY the costs of this suit.
IT IS SO ORDERED.
Melencio-Herrera, (Chairperson), Paras, Padilla and Regalado, JJ., concur.
G.R. No. L-21120 February 28, 1967
PHILIPPINE AIR LINES, INC., petitioner,
vs.
PHILIPPINE AIR LINES EMPLOYEES ASSOCIATION and COURT OF INDUSTRIAL RELATIONS, respondents.
Paredes, Poblador, Cruz & Nazareno for petitioner.
Tañada, Lerum & Cinco and Beltran & Lacson for respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.
CONCEPCION, C.J.:
Appeal by certiorari , taken by the Philippine Air Lines, Inc. — hereinafter referred to as the PAL from an order of the
Court of Industrial Relations — hereinafter referred to as the CIR — the dispositive part of reads:
WHEREFORE , THE Philippine Air Lines is hereby ordered to pay the four claimants, Messrs. Fortuno Biangco,
Hernando Guevarra, Bernardino Abarrientos and 140 days each, sick leave which the two may use or enjoy
according to existing company rules, and regulations regarding this privilege, and to allow the four claimants
the enjoyment of their earned and accumulated free trip passes both here and aboard subject to the above-
mentioned plan the company may adopt. In order to effect early payment of the Christmas bonus, the Chief
Examiner of the Court or his duly authorized representatives is hereby directed to examine; pertinent records
of the company, to compute and determine the Christmas bonus due each of the four claimant and to submit a
report therefore immediately upon completion of the same.
It appears that on May 4, 1950, PAL dismissed its above named four (4) employees, who are member of the
Philippine Air Lines Employees Association — hereinafter referred to as PALEA — and that on July 13, 1954, the
CIR en banc passed resolution, in Case No. 465-V thereof, directing the reinstatement of said employess "to
their former or equivalent position in the company, with back wages from the date of their reinstatement, and
without prejudice to their seniority or other rights and privileges. This resolution was affirmed by the Supreme
Court, in G.R. No. L-8197, on October 31, 1958.
On January 14, 1959, said employees were reinstated and subsequently their backwages, computed at the rate of their
compensation at the time of the aforementioned dismissal, less the wages and salaries earned by them elsewhere during
the lay-off period, were paid to them. The employees objected to this deduction and the CIR sustained them, in a
Resolution dated May 22, 1960, which was reversed by the Supreme Court, on July 26, 1960, in G.R. No. L-15544. Soon
later, or on November 10, 1960, the PALEA moved for the execution of the CIR resolution of July 13, 1954, as regards the
"other rights and privileges" therein mentioned, referring, more specifically to: (1) Christmas bonus from 1950 to 1958;
(2) accumulated sick leave; (3) transportation allowance during lay-off period; and (4) accumulated free trip passes, both
domestic and international. By an order dated October 8, 1962, the CIR granted this motion, except as regards the sick
leave of Onofre Griño and Bernardino Abarrientos, and the transportation allowance, which were denied. Hence this
appeal.
PAL maintains that the CIR has erred in acting as it did, because : (1) the aforementioned privileges were not specifically
mentioned in the CIR resolution of July 13, 1954; (2) the order of the CIR dated October 8, 1962, had, allegedly, the effect
of amending said resolution; and (3) the clause therein "without prejudice to their seniority or other rights and privileges"
should be construed prospectively, not retroactively.
Insofar as the Christmas bonus, the accumulated sick leave privileges and the transportation allowance during the lay-off
period, the PAL's contention is clearly devoid of merit. The aforementioned clause must be considered in the light of the
entire context of the resolution of July 13, 1954 and of its dispositive part. In ordering therein the "reinstatement" of said
employees with "back wages from the date of their dismissal to the date of their reinstatement, and without prejudice to
their seniority or other rights and privileges," it is obvious that the resolution intended to restore the employees to their
status immediately prior to their dismissal.
Hence, it directed , not only their reinstatement, but, also, the payment of their back wages during the period of their lay-
off — thus referring necessarily to a period of time preceding their reinstatement — and the retention of "their seniority
or other rights and privileges". Rights reinstatement, but at the time? Certainly, not after their reinstatement, but at the
time of their aforementioned dismissal. In other words, the reinstatement was with back wages for the lay-off period,
coupled with "seniority or other rights and privileges", attached to the status of the employees when they were
dismissed. To put it differently, the CIR treated said employees as if they had not been absent form work and had been
uninterruptedly working during the lay-off period.1äwphï1.ñët
Thus, in Republic Steel Corporation vs. NLRB (114 F. 2d. 820), it was held that, under a decree of the Circuit Court of
Appeals and Order of the National Labor Relations Board directing the employer to reinstate the striking
employees without prejudice to their seniority or other rights or privileges, it was the intention of the Board and Court to
provide that, upon reinstatement the employees were to be treated in matters involving seniority and continuity of
employment as though they had not been absent from work, and hence the reinstated employees were entitled to the
benefits of the employer's vacation plan for the year in which they were reinstated and subsequent years upon the basis
of continuity of service computed as though they had been actually at during the entire period from the date of strike to
the date of reinstatement.
As a consequence, the employees involved in the case at bar are entitled to the Christmas bonus that PAL had given to all
of its employees during said period, for said bonus, having been paid regularly, has become part of the compensation of
the employees.1 Said employees are, likewise, entitled to transportation allowance and the corresponding sick leave
privileges. These sick leave privileges are subject, however, to the following qualifications, namely: (1) that the
accumulated sick leave cannot exceed 140 days, pursuant to the collective bargaining agreement between the PAL and
the PALEA, effective in 1959; and (2) that, pursuant to the same agreement, which denies sick leave privileges to retired
employees, Onofre Griño and Bernardino Abarrientos, who have retired, are not entitled to said privileges.
The PAL's appeal as regards the free trip passes is, however, well taken, for the employees had no absolute right thereto,
even if they had actually rendered services during the lay-off period. The free trip passes were given, neither
automatically, nor indiscriminately. The employees had to apply therefore and their applications were subject PAL's
approval.
Wherefore, except as to the free trip passes for the lay-off period, which should not be deemed included in the "rights
and privileges" awarded in the resolution of July 13, 1954, and subject to the qualification that the accumulated sick leave
privileges cannot exceed 140 days, the appealed resolution of October 8, 1962, is hereby affirmed in all other respects,
without pronouncement as to costs. It is so ordered.
Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, Sanchez and Castro, JJ., concur.
G.R. No. 114733 January 2, 1997
AURORA LAND PROJECTS CORP. Doing business under the name "AURORA PLAZA" and TERESITA T.
QUAZON, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and HONORIO DAGUI, respondents.
HERMOSISIMA, JR., J.:
The question as to whether an employer-employee relationship exists in a certain situation continues to bedevil the
courts. Some businessmen try to avoid the bringing about of an employer-employee relationship in their enterprises
because that judicial relation spawns obligations connected with workmen's compensation, social security, medicare,
minimum wage, termination pay, and unionism.1 In light of this observation, it behooves this Court to be ever vigilant in
Checking the unscrupulous efforts of some of our entrepreneurs, primarily aimed at maximizing their return on
investments at the expense of the lowly workingman.
This petition for certiorari seeks the reversal of the Resolution2 of public respondent National Labor Relations
Commission dated March 16, 1994 affirming with modification the decision of the Labor Arbiter, dated May 25, 1992,
finding petitioners liable to pay private respondent the total amount of P195,624.00 as separation pay and attorney's
fees.
The relevant antecedents:
Private respondent Honorio Dagui was hired by Doña Aurora Suntay Tanjangco in 1953 to take charge of the maintenance
and repair of the Tanjangco apartments and residential buildings. He was to perform carpentry, plumbing, electrical and
masonry work. Upon the death of Doña Aurora Tanjangco in 1982, her daughter, petitioner Teresita Tanjangco Quazon,
took over the administration of all the Tanjangco properties. On June 8, 1991, private respondent Dagui received the
shock of his life when Mrs. Quazon suddenly told him: "Wala ka nang trabaho mula ngayon,"3 on the alleged ground that
his work was unsatisfactory. On August 29, 1991, private respondent, who was then already sixty-two (62) years old, filed
a complaint for illegal dismissal with the Labor Arbiter.
On May 25, 1992, Labor Arbiter Ricardo C. Nora rendered judgment, the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, respondents Aurora Plaza and/or Teresita Tanjangco Quazon are hereby
ordered to pay the complainant the total amount of ONE HUNDRED NINETY FIVE THOUSAND SIX HUNDRED
TWENTY FOUR PESOS (P195,624.00) representing complainant's separation pay and the ten (10%) percent
attorney's fees within ten (10) days from receipt of this Decision.
All other issues are dismissed for lack of merit.4
Aggrieved, petitioners Aurora Land Projects Corporation and Teresita T. Quazon appealed to the National Labor Relations
Commission. The Commission affirmed, with modification, the Labor Arbiter's decision in a Resolution promulgated on
March 16, 1994, in the following manner:
WHEREFORE, in view of the above considerations, let the appealed decision be as it is hereby AFFIRMED with
(the) MODIFICATION that complainant must be paid separation pay in the amount of P88,920.00 instead of
P177,840.00. The award of attorney's fees is hereby deleted.5
As a last recourse, petitioners filed the instant petition based on grounds not otherwise succinctly and distinctly
ascribed, viz:
I Honorio Dagui earns a measly sum of P180.00 a day (latest salary).7 Ostensibly, and by no stretch of the imagination can
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN AFFIRMING THE LABOR ARBITER'S DECISION SOLELY ON THE BASIS OF ITS STATEMENT THAT "WE
FAIL TO FIND ANY REASON OR JUSTIFICATION TO DISAGREE WITH THE LABOR ARBITER IN HIS FINDING THAT
HONORIO DAGUI WAS DISMISSED BY THE RESPONDENT" (p. 7, RESOLUTION), DESPITE — AND WITHOUT EVEN
BOTHERING TO CONSIDER — THE GROUNDS STATED IN PETITIONERS' APPEAL MEMORANDUM WHICH ARE PLAINLY
MERITORIOUS.
II
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN FINDING THAT COMPLAINANT WAS EMPLOYED BY THE RESPONDENTS MORE SO "FROM 1953 TO
1991" (p. 3, RESOLUTION).
III
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN AWARDING SEPARATION PAY IN FAVOR OF PRIVATE RESPONDENT MORE SO FOR THE EQUIVALENT
OF 38 YEARS OF ALLEGED SERVICE.
IV
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN HOLDING BOTH PETITIONERS LIABLE FOR SEPARATION PAY. 6
It is our impression that the crux of this petition rests on two elemental issues: (1) Whether or not private respondent
Honorio Dagui was an employee of petitioners; and (2) If he were, whether or not he was illegally dismissed.
Petitioners insist that private respondent had never been their employee. Since the establishment of Aurora Plaza, Dagui
served therein only as a job contractor. Dagui had control and supervision of whoever he would take to perform a
contracted job. On occasion, Dagui was hired only as a "tubero" or plumber as the need arises in order to unclog
sewerage pipes. Every time his services were needed, he was paid accordingly. It was understood that his job was limited
to the specific undertaking of unclogging the pipes. In effect, petitioners would like us to believe that private respondent
Dagui was an independent contractor, particularly a job contractor, and not an employee of Aurora Plaza.
We are not persuaded.
Section 8, Rule VIII, Book III of the Implementing Rules and Regulations of the Labor Code provides in part:
There is job contracting permissible under the Code if the following conditions are met:
xxx xxx xxx
(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business.
Dagui qualify as a job contractor. No proof was adduced by the petitioners to show that Dagui was merely a job
contractor, and it is absurd to expect that private respondent, with such humble resources, would have substantial
capital or investment in the form of tools, equipment, and machineries, with which to conduct the business of supplying
Aurora Plaza with manpower and services for the exclusive purpose of maintaining the apartment houses owned by the
petitioners herein.
The bare allegation of petitioners, without more, that private respondent Dagui is a job contractor has been disbelieved
by the Labor Arbiter and the public respondent NLRC. Dagui, by the findings of both tribunals, was an employee of the
petitioners. We are not inclined to set aside these findings. The issue whether or not an employer-employee relationship
exists in a given case is essentially a question of fact.8 As a rule, repetitious though it has become to state, this Court does
not review supposed errors in the decision of the NLRC which raise factual issues, because factual findings of agencies
exercising quasi-judicial functions [like public respondent NLRC] are accorded not only respect but even finality, aside
from the consideration that this Court is essentially not a trier of facts.9
However, we deem it wise to discuss this issue full-length if only to bolster the conclusions reached by the labor tribunals,
to which we fully concur.
Jurisprudence is firmly settled that whenever the existence of an employment relationship is in dispute, four elements
constitute the reliable yardstick: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the
power of dismissal; and (d) the employer's power to control the employee's conduct. 10 It is the so-called "control test,"
and that is, whether the employer controls or has reserved the right to control the employee not only as to the result of
the work to be done but also as to the means and methods by which the same is to be accomplished,11 which constitute
the most important index of the existence of the employer-employee relationship. Stated otherwise, an employer-
employee relationship exists where the person for whom the services are performed reserves the right to control not
only the end to be achieved but also the means to be used in reaching such end.12
All these elements are present in the case at bar. Private respondent was hired in 1953 by Doña Aurora Suntay Tanjangco
(mother of Teresita Tanjangco-Quazon), who was then the one in charge of the administration of the Tanjangco's various
apartments and other properties. He was employed as a stay-in worker performing carpentry, plumbing, electrical and
necessary work (sic) needed in the repairs of Tanjangco's properties.13 Upon the demise of Doña Aurora in 1982,
petitioner Teresita Tanjangco-Quazon took over the administration of these properties and continued to employ the
private respondent, until his unceremonious dismissal on June 8, 1991. 14
Dagui was not compensated in terms of profits for his labor or services like an independent contractor. Rather, he was
paid on a daily wage basis at the rate of P180.00.15 Employees are those who are compensated for their labor or services
by wages rather than by profits.16 Clearly, Dagui fits under this classification.
Doña Aurora and later her daughter petitioner Teresita Quazon evidently had the power of dismissal for cause over the
private respondent.17
Finally, the records unmistakably show that the most important requisite of control is likewise extant in this case. It
should be borne in mind that the power of control refers merely to the existence of the power and not to the actual
exercise thereof. It is not essential for the employer to actually supervise the performance of duties of the employee; it is
enough that the former has a right to wield the power.18 The establishment of petitioners is engaged in the leasing of
residential and apartment buildings. Naturally, private respondent's work therein as a maintenance man had to be
performed within the premises of herein petitioners. In fact, petitioners do not dispute the fact that Dagui reports for
work from 7:00 o'clock in the morning until 4:00 o'clock in the afternoon. It is not far-fetched to expect, therefore, that
Dagui had to observe the instructions and specifications given by then Doña Aurora and later by Mrs. Teresita Quazon as
to how his work had to be performed. Parenthetically, since the job of a maintenance crew is necessarily done within
company premises, it can be inferred that both Doña Aurora and Mrs. Quazon could easily exercise control on private
respondent whenever they please.
The employment relationship established, the next question would have to be: What kind of an employee is the private
respondent — regular, casual or probationary?
We find private respondent to be a regular employee, for Article 280 of the Labor Code provides:
Regular and Casual employment. — The provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the
employee has been engaged to perform activities which are usually necessary or desirable in the usual business
or trade of the employer, except where the employment has been fixed for a specific project or undertaking
the completion or termination of which has been determined at the time of the engagement of the employee
or where the work or services to be performed is seasonal in nature and the employment is for the duration of
the season.
An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That,
any employee who has rendered at least one year of service, whether such service is continuous or broken,
shall be considered a regular employee with respect to the activity in which he is employed and his
employment shall continue while such actually exists.
As can be gleaned from this provision, there are two kinds of regular employees, namely: (1) those who are engaged to
perform activities which are usually necessary or desirable in the usual business or trade of the employer; and (2) those
who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they
are employed.19
Whichever standard is applied, private respondent qualifies as a regular employee. As aptly ruled by the Labor Arbiter:
. . . As owner of many residential and apartment buildings in Metro Manila, the necessity of maintaining and
employing a permanent stay-in worker to perform carpentry, plumbing, electrical and necessary work needed
in the repairs of Tanjangco's properties is readily apparent and is in fact needed. So much so that upon the
demise of Doña Aurora Tanjangco, respondent's daughter Teresita Tanjangco-Quazon apparently took over the
administration of the properties and continued to employ complainant until his outright dismissal on June 8,
1991. . . . 20
The jobs assigned to private respondent as maintenance man, carpenter, plumber, electrician and mason were directly
related to the business of petitioners as lessors of residential and apartment buildings. Moreover, such a continuing need
for his services by herein petitioners is sufficient evidence of the necessity and indispensability of his services to
petitioners' business or trade.
Private respondent Dagui should likewise be considered a regular employee by the mere fact that he rendered service for
the Tanjangcos for more than one year, that is, beginning 1953 until 1982, under Doña Aurora; and then from 1982 up to
June 8, 1991 under the petitioners, for a total of twenty-nine (29) and nine (9) years respectively. Owing to private
respondent's length of service, he became a regular employee, by operation of law, one year after he was employed in
1953 and subsequently in 1982. In Baguio Country Club Corp., v. NLRC,21 we decided that it is more in consonance with
the intent and spirit of the law to rule that the status of regular employment attaches to the casual employee on the day
immediately after the end of his first year of service. To rule otherwise is to impose a burden on the employee which is
not sanctioned by law. Thus, the law does not provide the qualification that the employee must first be issued a regular
appointment or must first be formally declared as such before he can acquire a regular status.
Petitioners argue, however, that even assuming arguendo that private respondent can be considered an employee, he
cannot be classified as a regular employee. He was merely a project employee whose services were hired only with
respect to a specific job and only while the same exists,22 thus falling under the exception of Article 280, paragraph 1 of
the Labor Code. Hence, it is claimed that he is not entitled to the benefits prayed for and subsequently awarded by the
Labor Arbiter as modified by public respondent NLRC.
The circumstances of this case in light of settled case law do not, at all, support this averment. Consonant with a string of
cases beginning with Ochoco v. NLRC,23 followed by Philippine National Construction Corporation v. NLRC,24 Magante
v. NLRC,25 and Capitol Industrial Construction Corporation v. NLRC,26 if truly, private respondent was employed as a
"project employee," petitioners should have submitted a report of termination to the nearest public employment office
everytime his employment is terminated due to completion of each project, as required by Policy Instruction No. 20,
which provides:
Project employees are not entitled to termination pay if they are terminated as a result of the completion of
the project or any phase thereof in which they are employed, regardless of the number of project in which they
have been employed by a particular construction company. Moreover, the company is not required to obtain a
clearance from the Secretary of Labor in connection with such termination. What is required of the company is
a report to the nearest Public Employment Office for statistical purposes.
Throughout the duration of private respondent's employment as maintenance man, there should have been filed as
many reports of termination as there were projects actually finished, if it were true that private respondent was only a
project worker. Failure of the petitioners to comply with this simple, but nonetheless compulsory, requirement is proof
that Dagui is not a project employee.27
Coming now to the second issue as to whether or not private respondent Dagui was illegally dismissed, we rule in the
affirmative.
Jurisprudence abound as to the rule that the twin requirements of due process, substantive and procedural, must be
complied with, before a valid dismissal exists.28 Without which the dismissal becomes void.29
The twin requirements of notice and hearing constitute the essential elements of due process. This simply means that the
employer shall afford the worker ample opportunity to be beard and to defend himself with the assistance of his
representative, if he so desires.30 As held in the case of Pepsi Cola Bottling Co. v. NLRC:31
The law requires that the employer must furnish the worker sought to be dismissed with two written noticesbefore
termination of employee can be legally effected: (1) notice which apprises the employee of the particular acts or
omissions for which his dismissal is sought; and (2) the subsequent notice which informs the employee of the
employer's decision to dismiss him (Section 13, BP 130; Sections, 2-6, Rule XIV, Book V Rules and Regulations
Implementing the Labor Code as amended), Failure to comply with the requirements taints the dismissal with
illegality. This procedure is mandatory; in the absence of which, any judgment reached by management is void and
inexistent. (Tingson, Jr. v. NLRC, 185 SCRA 498 [1990]; National Service Corporation v. NLRC, 168 SCRA 122 [1988];
Ruffy v. NLRC, 182 SCRA 365 [1990].
These mandatory requirements were undeniably absent in the case at bar. Petitioner Quazon dismissed private
respondent on June 8, 1991, without giving him any written notice informing the worker herein of the cause for his
termination. Neither was there any hearing conducted in order to give Dagui the opportunity to be heard and defend
himself. He was simply told: "Wala ka nang trabaho mula ngayon," allegedly because of poor workmanship on a previous
job.32 The undignified manner by which private respondent's services were terminated smacks of absolute denial of the
employee's right to due process and betrays petitioner Quazon's utter lack of respect for labor. Such an attitude indeed
deserves condemnation.
The Court, however, is bewildered why only an award for separation pay in lieu of reinstatement was made by both the
Labor Arbiter and the NLRC. No backwages were awarded. It must be remembered that backwages and reinstatement
are two reliefs that should be given to an illegally dismissed employee. They are separate and distinct from each other. In
the event that reinstatement is no longer possible, as in this case,33 separation pay is awarded to the employee. The
award of separation pay is in lieu of reinstatement and not of backwages. In other words, an illegally dismissed employee
is entitled to (1) either reinstatement, if viable, or separation pay if reinstatement is no longer viable, and (2)
backwages.34 Payment of backwages is specifically designed to restore an employee's income that was lost because of his
unjust dismissal.35 On the other hand, payment of separation pay is intended to provide the employee money during the
period in which he will be looking for another employment.36
Considering, however, that the termination of private respondent Dagui was made on June 8, 1991 or after the effectivity
of the amendatory provision of Republic Act No. 6715 on March 21, 1989, private respondent's backwages should be
computed on the basis of said law.
It is true that private respondent did not appeal the award of the Labor Arbiter awarding separation pay sans backwages.
While as a general rule, a party who has not appealed is not entitled to affirmative relief other than the ones granted in
the decision of the court below,37 law and jurisprudence authorize a tribunal to consider errors, although unassigned, if
they involve (1) errors affecting the lower court's jurisdiction over the subject matter, (2) plain errors not specified, and
(3) clerical errors.38 In this case, the failure of the Labor Arbiter and the public respondent NLRC to award backwages to
the private respondent, who is legally entitled thereto having been illegally dismissed, amounts to a "plain error" which
we may rectify in this petition, although private respondent Dagui did not bring any appeal regarding the matter, in the
interest of substantial justice. The Supreme Court is clothed with ample authority to review matters, even if they are not
assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of the
case.39 Rules of procedure are mere tools designed to facilitate the attainment of justice. Their strict and rigid application,
which would result in technicalities that tend to frustrate rather than promote substantial justice, must always be
avoided.40 Thus, substantive rights like the award of backwages resulting from illegal dismissal must not be prejudiced by
a rigid and technical application of the rules.41
Petitioner Quazon argues that, granting the petitioner corporation should be held liable for the claims of private
respondent, she cannot be made jointly and severally liable with the corporation, notwithstanding the fact that she is the
highest ranking officer of the company, since Aurora Plaza has a separate juridical personality.
We disagree.
In the cases of Maglutac v. National Labor Relations Commission,42 Chua v. National Labor Relations
Commission,43 and A.C. Ransom Labor Union-CCLU v. National Labor Relations Commission 44 we were consistent in
holding that the highest and most ranking officer of the corporation, which in this case is petitioner Teresita Quazon as
manager of Aurora Land Projects Corporation, can be held jointly and severally liable with the corporation for the
payment of the unpaid money claims of its employees who were illegally dismissed. In this case, not only was Teresita
Quazon the most ranking officer of Aurora Plaza at the time of the termination of the private respondent, but worse, she
had a direct hand in the private respondent's illegal dismissal. A corporate officer is not personally liable for the money
claims of discharged corporate employees unless he acted with evident malice and bad faith in terminating their
employment.45 Here, the failure of petitioner Quazon to observe the mandatory requirements of due process in
terminating the services of Dagui evinced malice and bad faith on her part, thus making her liable.
Finally, we must address one last point. Petitioners aver that, assuming that private respondent can be considered an
employee of Aurora Plaza, petitioners cannot be held liable for separation pay for the duration of his employment with
Doña Aurora Tanjangco from 1953 up to 1982. If petitioners should be held liable as employers, their liability for
separation pay should only be counted from the time Dagui was rehired by the petitioners in 1982 as a maintenance
man.
We agree.
Petitioners' liability for separation pay ought to be reckoned from 1982 when petitioner Teresita Quazon, as manager of
Aurora Plaza, continued to employ private respondent. From 1953 up to the death of Doña Aurora sometime in 1982,
private respondent's claim for separation pay should have been filed in the testate or intestate proceedings of Doña
Aurora. This is because the demand for separation pay covered by the years 1953-1982 is actually a money claim against
the estate of Doña Aurora, which claim did not survive the death of the old woman. Thus, it must be filed against her
estate in accordance with Section 5, Rule 86 of the Revised Rules of Court, to wit:
Sec. 5. Claims which must be filed under tire notice. If not filed, barred; exceptions. — All claims for money against the
decedent, arising from contract, express or implied, whether the same be due, not due, or contingent, all claims for
funeral expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed
within the time limited in the notice; otherwise they are barred forever, except that they may be set forth as
counterclaims in any action that the executor or administrator may bring against the claimants.
WHEREFORE, the instant petition is partly GRANTED and the Resolution of the public respondent National Labor Relations
Commission dated March 16, 1994 is hereby MODIFIED in that the award of separation pay against the petitioners shall
be reckoned from the date private respondent was re-employed by the petitioners in 1982, until June 8, 1991. In addition
to separation pay, full backwages are likewise awarded to private respondent, inclusive of allowances, and other benefits
or their monetary equivalent pursuant to Article 27946 of the Labor Code, as amended by Section 34 of Republic Act No.
6715, computed from the time he was dismissed on June 8, 1991 up to the finality of this decision, without deducting
therefrom the earnings derived by private respondent elsewhere during the period of his illegal dismissal, pursuant to our
ruling in Osmalik Bustamante, et al. v. National Labor Relations Commission.47
No costs.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.
G.R. No. 95845 February 21, 1996
WILLIAM L. TIU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and HERMES DELA CRUZ, respondents.
DECISION
MENDOZA, J.:
On February 18, 1986, private respondent filed a complaint, for illegal dismissal, violation of the Minimum Wage Law and
non-payment of the cost of living allowances, legal holiday pay, service incentive pay and separation pay, against
petitioner. Petitioner denied that private respondent was his employee. But after consideration of the parties' evidence,
the Labor Arbiter found that private respondent was an employee of petitioner and that he had been illegally dismissed.
The Labor Arbiter ordered petitioner to pay private respondent the sum of P25,076.96, corresponding to the latter's
differentials, 13th month pay and separation pay. On appeal, the Labor Arbiter's decision was affirmed in toto by the
NLRC. Hence this petition for certiorari. Petitioner alleges that the NLRC's decision was made in "reckless disregard" of
the applicable facts and law and that it amounts to a grave abuse of discretion of the NLRC.1
Petitioner, as operator of the D'Rough Riders Transportation, is engaged in the transportation of passengers from Cebu
City to the northern towns of Cebu. Private respondent worked in petitioner's bus terminals as a "dispatcher," assisting
and guiding passengers and carrying their bags. The Labor Arbiter and the NLRC found, and petitioner had admitted in his
position paper below, that private respondent was paid a regular daily wage of P20.00.
Petitioner denies that private respondent was his employee. He alleges that he did not have the power of selection and
dismissal nor the power of control over private respondent. According to petitioner, private respondent, together with
so-called "standbys," hung around his bus terminals, assisting passengers with their baggages as "dispatchers." Petitioner
claims that, in league with "bad elements" in the locality who threatened to cause damage to his passenger buses and
scare passengers away if petitioner and other bus operators did not let them, private respondent and other "standbys"
forced passengers to hire them as baggage boys. Petitioner alleges that he had no choice but to allow private respondent
and other "standbys" to carry on their activities within the premises of his bus terminals.2 He also claims he allowed them
to do so even if their services as so-called "dispatchers" were not needed in his business. Petitioner insists that as
"dispatcher," private respondent worked in his own way, without supervision by him.
The Labor Arbiter and the NLRC found private respondent to be an employee of petitioner, applying the Four-fold test,
namely (a) who has the power of selection and engagement of the employees; (b) who pays the wages; (c) who has the
power of dismissal, and (d) and who has the power to control the employees' conduct. The Labor Arbiter stated in his
decision:
Respondents would want this office to believe that the sum of P20.00 that they pay complainant is ex gratia;
hence, not compensation for services rendered. This is however belied by respondents' own allegation in their
position paper that, "for purposes of preservation of his transportation business, agreed to give each 'standby' a
fixed daily rate; and in exchange, they would canvass,
The impression that this office gets from said allegation is that the P20.00 received by complainant represents the
value that respondents attach to complainant's services; hence, it is remuneration for services rendered.
Respondent's admission of regular payment of such an amount, already establishes the existence of one of the
factors that indicate employment relationship.
The right to hire and fire, on the other hand, has been indubitably established by complainant's Exhibit A
(rebuttal) which remains untraversed and unrefuted, a translation of its contents of which are hereunder quoted
for quick and easy reference:
Since there was an agreement for your return that when you are caught that you are inside the
terminal you are to be dismissed outright and you agreed to this condition so that last Tuesday you
were caught taking a bath inside the terminal so that from now on you are no longer with the
company "you are dismissed" because you broke the agreement.
Evident therefrom is management's unequivocal language as regards its exercise of the prerogative to dismiss.
Complainant's Exhibit "D" rebuttal, respondent's official document, reflecting the designation of respondent's
witness, (Regino) dela Cruz as Chief Dispatcher, likewise buttresses complainant's claim of employment, for the
reason that the office of Chief (Dispatcher) presupposes the existence of subordinates over whom said chief
exercises supervisory control. If a chief dispatcher works with the company, uses and signs official documents as is
 reflected in Exhibit "D," it follows that his employment as such was in consideration of a chief dispatcher's exercise
of his duties to supervise and control subordinate dispatchers. Along this line, Regino dela Cruz's testimony that
D'Rough Riders does not exercise control over the complainant cannot preponderate over Exhibit "D."
In fine, this Office finds that complainant was an employee of respondent.
Affirming the Labor Arbiter decision, the NLRC held:
We perused at length the record of the instant case, analyzing in the process, the grounds and supporting
arguments advanced in the appeal and the reply thereto and we found no merit in the appeal.
. . . A reading of the affidavit of Regino dela Cruz, a witness for the respondent who is the Chief Dispatcher and
father of the complainant would reveal that it was he who included the complainant as one of the dispatchers of the
respondents. Considering that Regino dela Cruz is the Chief Dispatcher, the selection and engagement of the
complainant as a dispatcher of the respondents was made thru him and with the acquiescence of the management.
Also, it is admitted by the respondents, as borne out by the records, including the affidavit of Regino dela Cruz, that
complainant was receiving a fixed daily rate from the respondent. The Labor Arbiter is therefore correct when she
ruled that what complainant received from the respondents is a remuneration for services rendered.
The power of dismissal which respondents exercised over the person of the complainant is clearly established by
complainants' Exhibit "A" (rebuttal). This exhibit refers to a disciplinary memorandum to the - complainant written
in Visayan dialect. This exhibit was not refuted by the respondents.
Also, we agree with the observation of the Labor Arbiter that respondent's Chief Dispatcher is exercising his
supervision and control over the complainant who is a dispatcher as clearly manifested in Exhibit "D" (rebuttal) for
the complainant.
A close scrutiny of the same exhibit would reveal that complainant was indeed signing a daily time record of their
hours of work.
The evidences [sic] submitted by the complainant have proven that complainant is really an employee of the
respondents.
The question whether an employer-employee relationship exists is a question of fact. As long as the findings of the labor
agencies on this question are supported by substantial evidence, the findings will not be disturbed on review in this
Court. Review in this Court concerning factual findings in labor cases is confined to determining allegations of lack of
jurisdiction or grave abuse of discretion.3
We agree with the finding that an employer-employee relationship existed between petitioner and private respondent,
such finding being supported by substantial evidence. Petitioner has failed to refute the evidence presented by private
respondent. He points to his Chief Dispatcher, Regino de la Cruz, as the one who exercised the powers of an employer
over the "dispatchers." Petitioner argues that under an agreement with Regino de la Cruz, it is the latter who selects and
engages the "dispatchers," dictates their time, supervises the performance of their work, and pays their wages. He
further argues that the "disciplinary memorandum" issued by him was not addressed to private respondent but to Regino
de la Cruz, as employer of private respondent, to remind him regarding the discipline of the "dispatchers."
Petitioner's contention is without merit. In determining whether there is an employer-employee relationship between
the parties the following questions must be considered: (a) who has the power of selection and engagement of the
employee? (b) who pays the wages of employee? (c) who has the power of dismissal? and; (d) who has the power to
control the employee's conduct?4 Of these powers the power of control over the employees' conduct is generally
regarded as determinative of the existence of the relationship.5 The "control test," under which the person for whom the
services are rendered reserves the right to direct not only the end to be achieved but also the means for reaching such
end, is generally relied on by the courts.6
Petitioner would have us believe that Chief Dispatcher Regino de la Cruz exercised these powers on his own and
independently of petitioner. This is untenable. Petitioner admits that Regino de la Cruz was merely assigned to do
dispatch work. While Regino dela Cruz took charge of the hiring of men and paid their wages, he did so as he was told by
petitioner. The payment of salaries and wages came from petitioner. Regino de la Cruz filled up and signed daily time
records for dispatchers and took disciplinary action against erring employees in accordance with instructions given to him
by petitioner. In sum, it cannot be said that Regino de la Cruz was the employer of the "dispatchers" or that he was an
independent contractor. He was himself only an employee of petitioner.
Indeed the "control test" only requires the existence of the right to control the manner of doing the work in a person, not
necessarily the actual exercise of the power by him, which he can delegate.7 Consequently, in the case at bar, the power
is exercised by Regino de la Cruz but it is power which is only delegated to him so that in truth the power inherently and
primarily is possessed by petitioner. De la Cruz is a mere supervisor, while petitioner is the real employer.
Petitioner does not claim that Regino de la Cruz and his dispatchers were independent contractors. Even if this be his
contention, however, the argument would still be without merit. Job contracting is permissible only if the following
conditions are met: (1) the contractor carries on an independent business and undertakes the contract work on his own
account under his own responsibility according to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the work except as to the results thereof; and (2)
the contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his business.8 In the absence of these requisites, what exists is a
"labor-only" contract under which the person acting as contractor is considered merely an agent or intermediary of the
employer who is responsible to the workers in the same manner and to the same extent as if they had been directly
employed by him.9 As held in Broadway Motors, Inc. v. NLRC,10citing Philippine Bank of Communications v. NLRC, 11 the
"labor-only" contractor is a mere agent of the employer who is responsible to the employees of the "labor-only"
contractor as if such employees had been employed by him directly. In such a case the statute establishes an employer-
employee relationship between the employer and the employees of the "labor-only" contractor to prevent any violation
or circumvention of the provisions of the Labor Code, by holding both the employer and the "labor-only" contractor
responsible to the employees.
For this reason, we hold that Regino de la Cruz can, at most, be considered a "labor-only" contractor and, therefore, a
mere agent of petitioner. As he is acting in behalf of petitioner, private respondent Hermes de la Cruz is actually the
employee of petitioner.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
Regalado, Romero and Puno, JJ., concur.