[G.R. No. 102199. January 28, 1997.

AFP MUTUAL BENEFIT ASSOCIATION, INC., Petitioner, v. NATIONAL

LABOR RELATIONS COMMISSION and EUTIQUIO
BUSTAMANTE, Respondents.

Gudelia L. Dinapo for Petitioner.

Patricio Bongayao for Private Respondent.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FINDINGS OF THE LABOR ARBITER AND THE NLRC,
GENERALLY RESPECTED; EXCEPTION. — 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. The determinative factor in such finality is the presence of
substantial evidence to support said finding, otherwise, such factual findings cannot
bind this Court.

2. LABOR LAW AND SOCIAL LEGISLATION; EMPLOYER-EMPLOYEE RELATIONSHIP;

ELEMENTS. — 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.

3. ID.; ID.; ID.; CONTROL; NOT PRESENT BETWEEN INSURANCE COMPANIES AND
INSURANCE AGENTS. — 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 and 2-85 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 regard to the territorial assignments given to sales agents, this too
cannot be held as indicative of the exercise of control over an employee. 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. And 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 for private
respondent to work for as long as he does not violate the Insurance Code. 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, no employment relationship had
ever existed between the parties.

4. ID.; ID.; ID.; ID.; ABSENCE THEREOF INDICATES INDEPENDENT

CONTRACTORSHIP. — 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. Such is exactly the nature of the relationship between petitioner and
private respondent.

5. ID.; LABOR ARBITERS AND THE NLRC; NO JURISDICTION ABSENT EMPLOYER-

EMPLOYEE RELATIONSHIP. — 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. The jurisdiction of labor arbiters and respondent Commission is set forth
in Article 217 of the Labor Code. 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." 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.

6. REMEDIAL LAW; CIVIL ACTIONS; LACK OF JURISDICTION MAY BE RAISED EVEN

ON APPEAL; EFFECT THEREOF. — The 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. Moreover, in the proceedings below, petitioner
consistently challenged the jurisdiction of the labor arbiter and respondent
Commission. 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. 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.

DECISION

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 v.
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:chanrob1es virtual 1aw library

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 authorized, 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.

x x x
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.

x x x

D. General Provisions

1. There shall be no employer-employee relationship between the parties, the SALES

AGENT being hereby deemed an independent contractor."cralaw virtua1aw library

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."cralaw virtua1aw library

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."cralaw virtua1aw
library

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."cralaw virtua1aw library

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

". . . 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 . . ."cralaw virtua1aw
library

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. 10chanroblesvirtuallawlibrary:red
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. v. NLRC. In said case, we
held that:jgc:chanrobles.com.ph

"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 insurance 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:jgc:chanrobles.com.ph

"(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.chanroblesvirtuallawlibrary:red

WHEREFORE, the petition is hereby GRANTED, and the assailed Resolution is hereby
SET ASIDE.

SO ORDERED.

G.R. No. 112546 March 13, 1996

NORTH DAVAO MINING CORPORATION and ASSET PRIVATIZATION

TRUST, Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION, LABOR
ARBITER ANTONIO M. VILLANUEVA and WILFREDO
GUILLEMA, Respondents.

PANGANIBAN, J.:

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, 1993 1 and
September 27, 1993 2 of the National Labor Relations Commission 3(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. v. 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.

[G.R. No. 80680. January 26, 1989.]

DANILO B. TABAS, EDUARDO A. 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 QUIAMBAO,
NOMER MATAGA, VIOLY ESTEBAN and LYDIA ORTEGA, Petitioners, v.
 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.

SYLLABUS

1. LABOR LAW; EMPLOYER-EMPLOYEE RELATIONSHIP; DETERMINATION,

DEPENDENT UPON CERTAIN STANDARDS. — 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. Of the
four, the right-of-control test has been held to be the decisive factor.

2. ID.; ID.; EMPLOYER AND "LABOR ONLY" CONTRACTOR; BOTH LIABLE FOR ANY
VALID LABOR CLAIMS EVEN IN THE ABSENCE OF DIRECT EMPLOYEE-EMPLOYER
RELATIONSHIP BETWEEN THE EMPLOYER AND THE EMPLOYEES. — It has been
likewise held, based on Article 106 of the Labor Code, 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, by operation of law. The reason, so we held, is
that the "labor-only" contractor is considered "merely an agent of the employer,"
and liability must be shouldered by either one or shared by both.

3. ID.; "MANPOWER SERVICES" ; CONSTRUED. — There is no doubt that in the case

at bar, Livi performs "manpower services," 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." 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. 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.

4. ID.; EMPLOYER-EMPLOYEE RELATIONSHIP; CASUAL EMPLOYERS BECOME

REGULAR AFTER SERVICE OF ONE (1) YEAR. — 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, 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. The records show that the petitioners had
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.

DECISION

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 [California’s] 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.chanrobles virtual lawlibrary

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 reabsorbed 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:chanrob1es virtual 1aw library

ART. 106. Contractor or subcontractor. — 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 subcontractor, if any, shall be paid in
accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay wages of his employees
in accordance with this Code, the employer shall be jointly and severally liable with
his contractor or subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the

contracting out of labor to protect the rights of workers established under this Code.
In so prohibiting or restricting, he may make appropriate distinctions between labor-
only contracting and job contracting as well as differentiations within these types of
contracting and determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or circumvention of any
provisions of this Code.chanrobles law library : red

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,"
22 California’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.25cralaw:red

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:chanrob1es virtual
1aw library

x x x

. . . 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.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph

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 had 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 said, 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 A.
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.

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.
 G.R. No. 114733 January 2, 1997

AURORA LAND PROJECTS CORP. Doing business under the name "AURORA
PLAZA" and TERESITA T. QUAZON, Petitioners, v. 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 Resolution 2 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:

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.

Honorio Dagui earns a measly sum of P180.00 a day (latest salary). 7Ostensibly, and
by no stretch of the imagination can 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 notices before 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, 42Chua 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 279 46 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.

[G.R. No. 95845. February 21, 1996.]

WILLIAM L. TIU, Petitioner, v. NATIONAL LABOR RELATIONS

COMMISSION and HERMES DELA CRUZ, Respondent.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF LABOR ARBITER,

RESPECTED — 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. We agree
with the finding that an employer-employee relationship existed between petitioner
and private respondent, such finding being supported by substantial evidence.

2. LABOR LAW AND SOCIAL, LEGISLATIQN; LABOR CODE; EMPLOYER-EMPLOYEE

RELATIONSHIP, WHEN PRESENT;CASE AT BAR. — 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? Og these powers the
power to control over the employees’ conduct is generally regarded as determinative
of the existence of the relationship. 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. 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. 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.

3. ID.; ID.: .JOB-CONTRACTlNG; REQUISITES; IN THE ABSENCE: THEREOF, WHAT

EXISTS IS A LABOR-ONLY’ CONTRACT. — Job contracting is permissible only if the
following conditions are met: (l) the contractor carries on an independent business
and undertakes the contract work on his own accnunt 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. 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. As held in Broadway Motors, Inc. v. NLRC, citing
Philippine Bank of Communications v. NLRC, 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.

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:chanrob1es virtual 1aw library

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, assist and help
passengers of respondents’ passenger trucks. This privilege or arrangement was
made possible due to the efforts and representation of complainant’s father, Mr.
Regino dela Cruz, who is close and known to the standbys and/or dispatchers." 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:chanrob1es virtual 1aw library

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."cralaw virtua1aw library

In fine, this Office finds that complainant was an employee of Respondent.

Affirming the Labor Arbiter decision, the NLRC held:chanrob1es virtual 1aw library

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."cralaw virtua1aw library

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 de la 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, 10
citing 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 petitioner.

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.
G.R. No. 111870 June 30, 1994

AIR MATERIAL WING SAVINGS AND LOAN ASSOCIATION, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, et al., respondents.

Jerry D. Banares for petitioner.

Perdrelito Q. Aquino for private respondent.

CRUZ, J.:

Private respondent Luis S. Salas was appointed "notarial and legal counsel" for
petitioner Air Material Wings Savings and Loan Association (AMWSLAI) in 1980. The
appointment was renewed for three years in an implementing order dated January
23, 1987, reading as follows:

SUBJECT: Implementing Order on the Reappointment of the Legal

Officer

TO: ATTY. LUIS S. SALAS

Per approval of the Board en banc in a regular meeting held on

January 21, 1987, you are hereby reappointed as Notarial and Legal
Counsel of this association for a term of three (3) years effective March
1, 1987, unless sooner terminated from office for cause or as may be
deemed necessary by the Board for the interest and protection of the
association.

Aside from notarization of loan & other legal documents, your duties
and responsibilities are hereby enumerated in the attached sheet, per
Articles IX, Section 1-d of the by-laws and those approved by the
Board en banc.

Your monthly compensation/retainer's fee remains the same.

This shall form part of your 201 file.

BY AUTHORITY OF THE
BOARD:

LUVIN S. MANAY
President &
 Chief of the
Board

On January 9, 1990, the petitioner issued another order reminding Salas of the
approaching termination of his legal services under their contract. This prompted
Salas to lodge a complaint against AMWSLAI for separation pay, vacation and sick
leave benefits, cost of living allowances, refund of SSS premiums, moral and
exemplary damages, payment of notarial services rendered from February 1, 1980 to
March 2, 1990, and attorney's fees.

Instead of filing an answer, AMWSLAI moved to dismiss for lack of jurisdiction. It

averred that there was no employer-employee relationship between it and Salas and
that his monetary claims properly fell within the jurisdiction of the regular courts.
Salas opposed the motion and presented documentary evidence to show that he was
indeed an employee of AMWSLAI.

The motion was denied and both parties were required to submit their position
papers. AMWSLAI filed a motion for reconsideration ad cautelam, which was also
denied. The parties were again ordered to submit their position papers but AMWSLAI
did not comply. Nevertheless, most of Salas' claims were dismissed by the labor
arbiter in his decision dated November 21, 1991. 1

It was there held that Salas was not illegally dismissed and so not entitled to collect
separation benefits. His claims for vacation leave, sick leave, medical and dental
allowances and refund of SSS premiums were rejected on the ground that he was a
managerial employee. He was also denied moral and exemplary damages for lack of
evidence of bad faith on the part of AMWSLAI. Neither was he allowed to collect his
notarial fees from 1980 up to 1986 because the claim therefor had already
prescribed. However, the petitioner was ordered to pay Salas his notarial fees from
1987 up to March 2, 1990, and attorney's fee equivalent to 10% of the judgment
award.

On appeal, the decision was affirmed in toto by the respondent Commission,

prompting the petitioner to seek relief in this Court. 2

The threshold issue in this case is whether or not Salas can be considered an
employee of the petitioner company.

We have held in a long line of decisions that the elements of an employer-employee

relationship are: (1) selection and engagement of the employee; (2) payment of
wages; (3) power of dismissal; and (4) employer's own power to control employee's
conduct.3

The existence of such a relationship is essentially a factual question. The findings of

the NLRC on this matter are accorded great respect and even finality when the same
are supported by substantial evidence. 4
The terms and conditions set out in the letter-contract entered into by the parties on
January 23, 1987, clearly show that Salas was an employee of the petitioner. His
selection as the company counsel was done by the board of directors in one of its
regular meetings. The petitioner paid him a monthly compensation/retainer's fee for
his services. Though his appointment was for a fixed term of three years, the
petitioner reserved its power of dismissal for cause or as it might deem necessary for
its interest and protection. No less importantly, AMWSLAI also exercised its power of
control over Salas by defining his duties and functions as its legal counsel, to wit:

1. To act on all legal matters pertinent to his Office.

2. To seek remedies to effect collection of overdue accounts of

members without prejudice to initiating court action to protect the
interest of the association.

3. To defend by all means all suit against the interest of the

Association. 5

In the earlier case of Hydro Resources Contractors Corp. v.

Pagalilauan, 6 this Court observed that:

A lawyer, like any other professional, may very well be an employee of

a private corporation or even of the government. It is not unusual for a
big corporation to hire a staff of lawyers as its in-house counsel, pay
them regular salaries, rank them in its table of organization, and
otherwise treat them like its other officers and employees. At the same
time, it may also contract with a law firm to act as outside counsel on a
retainer basis. The two classes of lawyers often work closely together
but one group is made up of employees while the other is not. A
similar arrangement may exist as to doctors, nurses, dentists, public
relations practitioners and other professionals.

We hold, therefore, that the public respondent committed no grave abuse of

discretion in ruling that an employer-employee relationship existed between the
petitioner and the private respondent.

We must disagree with the NLRC, however, on Salas' claims for notarial fees.

The petitioner contends that the public respondents are not empowered to
adjudicate claims for notarial fees. On the other hand, the Solicitor General believes
that the NLRC acted correctly when it took cognizance of the claim because it arose
out of Salas' employment contract with the petitioner which assigned him the duty to
notarize loan agreements and other legal documents. Moreover, Section 9 of Rule
141 of the Rules of Court does not restrict or prevent the labor arbiter and the NLRC
from determining claims for notarial fees.

Labor arbiters have the original and exclusive jurisdiction over money claims of
workers when such claims have some reasonable connection with the employer-
employee relationship. The money claims of workers referred to in paragraph 3 of
Article 217 of the Labor Code are those arising out of or in connection with the
employer-employee relationship or some aspect or incident of such relationship.

Salas' claim for notarial fees is based on his employment as a notarial officer of the
petitioner and thus comes under the jurisdiction of the labor arbiter.

The public respondents agreed that Salas was entitled to collect notarial fees from
1987 to 1990 by virtue of his having been assigned as notarial officer. We feel,
however, that there is no substantial evidence to support this finding.

The letter-contract of January 23, 1987, does not contain any stipulation for the
separate payment of notarial fees to Salas in addition to his basic salary. On the
contrary, it would appear that his notarial services were part of his regular functions
and were thus already covered by his monthly compensation. It is true that the
notarial fees were paid by members-borrowers of the petitioner for its own account
and not of Salas. However, this is not a sufficient basis for his claim to such fees in
the absence of any agreement to that effect.

ACCORDINGLY, the appealed judgment of the NLRC is AFFIRMED, with the

modification that the award of notarial fees and attorney's fees is disallowed. It is so
ordered.

G.R. No. L-75038 August 23, 1993

ELIAS VILLUGA, RENATO ABISTADO, JILL MENDOZA, ANDRES ABAD,

BENJAMIN BRIZUELA, NORLITO LADIA, MARCELO AGUILAN, DAVID ORO,
NELIA BRIZUELA, FLORA ESCOBIDO, JUSTILITA CABANIG, and DOMINGO
SAGUIT, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) and
BROAD STREET TAILORING and/or RODOLFO ZAPANTA, respondents.

Balguma, Macasaet & Associates for petitioners.

Teresita Gandionco Oledan for private respondents.

NOCON, J.:

A basic factor underlying the exercise of rights and the filing of claims for benefits
under the Labor Code and other presidential issuances or labor legislations is the
status and nature of one's employment. Whether an employer-employee relationship
exist and whether such employment is managerial in character or that of a rank and
file employee are primordial considerations before extending labor benefits. Thus,
petitioners in this case seek a definitive ruling on the status and nature of their
employment with Broad Street Tailoring and pray for the nullification of the
resolution dated May 12, 1986 of the National Labor Relations Commissions in NLRC
Case No. RB-IV- 21558-78-T affirming the decision of Labor Arbiter Ernilo V.
Peñalosa dated May 28, 1979, which held eleven of them as independent contractors
and the remaining one as employee but of managerial rank.

The facts of the case shows that petitioner Elias Villuga was employed as cutter in
the tailoring shop owned by private respondent Rodolfo Zapanta and known as
Broad Street Tailoring located at Shaw Boulevard, Mandaluyong, Metro Manila. As
cutter, he was paid a fixed monthly salary of P840.00 and a monthly transportation
allowance of P40.00. In addition to his work as cutter, Villuga was assigned the
chore of distributing work to the shop's tailors or sewers when both the shop's
manager and assistant manager would be absent. He saw to it that their work
conformed with the pattern he had prepared and if not, he had them redone,
repaired or resewn.

The other petitioners were either ironers, repairmen and sewers. They were paid a
fixed amount for every item ironed, repaired or sewn, regardless of the time
consumed in accomplishing the task. Petitioners did not fill up any time record since
they did not observe regular or fixed hours of work. They were allowed to perform
their work at home especially when the volume of work, which depended on the
number of job orders, could no longer be coped up with.

From February 17 to 22, 1978, petitioner Villuga failed to report for work allegedly
due to illness. For not properly notifying his employer, he was considered to have
abandoned his work.

In a complaint dated March 27, 1978, filed with the Regional Office of the
Department of Labor, Villuga claimed that he was refused admittance when he
reported for work after his absence, allegedly due to his active participation in the
union organized by private respondent's tailors. He further claimed that he was not
paid overtime pay, holiday pay, premium pay for work done on rest days and
holidays, service incentive leave pay and 13th month pay.

Petitioners Renato Abistado, Jill Mendoza, Benjamin Brizuela and David Oro also
claimed that they were dismissed from their employment because they joined the
Philippine Social Security Labor Union (PSSLU). Petitioners Andres Abad, Norlito
Ladia, Marcelo Aguilan, Nelia Brizuela, Flora Escobido, Justilita Cabaneg and
Domingo Saguit claimed that they stopped working because private respondents
gave them few pieces of work to do after learning of their membership with PSSLU.
All the petitioners laid claims under the different labor standard laws which private
respondent allegedly violated.

On May 28, 1979, Labor Arbiter Ernilo V. Peñalosa rendered a decision ordering the
dismissal of the complaint for unfair labor practices, illegal dismissal and other
money claims except petitioner Villuga's claim for 13th month pay for the years
1976, 1977 and 1980. The dispositive portion of the decision states as follows:
 WHEREFORE, premises considered, the respondent Broad Street
Tailoring and/or Rodolfo Zapanta are hereby ordered to pay
complainant Elias Villuga the sum of ONE THOUSAND TWO HUNDRED
FORTY-EIGHT PESOS AND SIXTY-SIX CENTAVOS (P1,248.66)
representing his 13th month pay for the years 1976, 1977 and 1978.
His other claims in this case are hereby denied for lack of merit.

The complaint insofar as the other eleven (11) complainants are

concerned should be, as it is hereby dismissed for want of jurisdiction.1

On appeal, the National Labor Relations Commission affirmed the questioned

decision in a resolution dated May 12, 1986, the dispositive portion of which states
as follows:

WHEREFORE, premises considered, the decision appealed from is, as it

is hereby AFFIRMED, and the appeal dismissed. 2

Presiding Commissioner Guillermo C. Medina merely concurred in the result while

Commissioner Gabriel M. Gatchalian rendered a dissenting opinion which states as
follows:

I am for upholding employer-employee relationship as argued by the

complainants before the Labor Arbiter and on appeal. The further fact
that the proposed decision recognizes complainant's status as piece-
rate worker all the more crystallizes employer-employee relationship
the benefits prayed for must be granted. 3

Hence, petitioners filed this instant certiorari case on the following grounds:

1. That the respondent National Labor Relations Commission abused its

discretion when it ruled that petitioner/complainant, Elias Villuga falls
within the category of a managerial employee;

2. . . . when it ruled that the herein petitioners were not dismissed by

reason of their union activities;

3. . . . when it ruled that petitioners Andres Abad, Benjamin Brizuela,

Norlito Ladia, Marcelo Aguilan, David Oro, Nelia Brizuela, Flora
Escobido, Justilita Cabaneg and Domingo Saguit were not employees
of private respondents but were contractors.

4. . . . when it ruled that petitioner Elias Villuga is not entitled to

overtime pay and services for Sundays and Legal Holidays; and

5. . . . when it failed to grant petitioners their respective claims under

the provisions of P.D. Nos. 925, 1123 and 851.4
Under Rule 1, Section 2(c), Book III of the Implementing Rules of Labor Code, to be
a member of a managerial staff, the following elements must concur or co-exist, to
wit: (1) that his primary duty consists of the performance of work directly related to
management policies; (2) that he customarily and regularly exercises discretion and
independent judgment in the performance of his functions; (3) that he regularly and
directly assists in the management of the establishment; and (4) that he does not
devote his twenty per cent of his time to work other than those described above.

Applying the above criteria to petitioner Elias Villuga's case, it is undisputed that his
primary work or duty is to cut or prepare patterns for items to be sewn, not to lay
down or implement any of the management policies, as there is a manager and an
assistant manager who perform said functions. It is true that in the absence of the
manager the assistant manager, he distributes and assigns work to employees but
such duty, though involving discretion, is occasional and not regular or customary.
He had also the authority to order the repair or resewing of defective item but such
authority is part and parcel of his function as cutter to see to it that the items cut
are sewn correctly lest the defective nature of the workmanship be attributed to his
"poor cutting." Elias Villuga does not participate in policy-making. Rather, the
functions of his position involve execution of approved and established policies.
In Franklin Baker Company of the Philippines v. Trajano, 5 it was held that
employees who do not participate in policy-making but are given ready policies to
execute and standard practices to observe are not managerial employees. The test
of "supervisory or managerial status" depends on whether a person possesses
authority that is not merely routinary or clerical in nature but one that requires use
of independent judgment. In other words, the functions of the position are not
managerial in nature if they only execute approved and established policies leaving
little or no discretion at all whether to implement said policies or not. 6

Consequently, the exclusion of Villuga from the benefits claimed under Article 87
(overtime pay and premium pay for holiday and rest day work), Article 94, (holiday
pay), and Article 95 (service incentive leave pay) of the Labor Code, on the ground
that he is a managerial employee is unwarranted. He is definitely a rank and file
employee hired to perform the work of the cutter and not hired to perform
supervisory or managerial functions. The fact that he is uniformly paid by the month
does not exclude him from the benefits of holiday pay as held in the case of Insular
Bank of America Employees Union v. Inciong.7 He should therefore be paid in
addition to the 13th month pay, his overtime pay, holiday pay, premium pay for
holiday and rest day, and service incentive leave pay.

As to the dismissal of the charge for unfair labor practices of private respondent
consisting of termination of employment of petitioners and acts of discrimination
against members of the labor union, the respondent Commission correctly held the
absence of evidence that Mr. Zapanta was aware of petitioners' alleged union
membership on February 22, 1978 as the notice of union existence in the
establishment with proposal for recognition and collective bargaining negotiation was
received by management only an March 3, 1978. Indeed, self-serving allegations
without concrete proof that the private respondent knew of their membership in the
union and accordingly reacted against their membership do not suffice.
Nor is private respondent's claim that petitioner Villuga abandoned his work
acceptable. For abandonment to constitute a valid cause for dismissal, there must be
a deliberate and unjustified refusal of the employee to resume his employment.
Mere absence is not sufficient, it must be accompanied by overt acts unerringly
pointing to the fact that the employee simply does not want to work anymore.8 At
any rate, dismissal of an employee due to his prolonged absence without leave by
reason of illness duly established by the presentation of a medical certificate is not
justified.9 In the case at bar, however, considering that petitioner Villuga absented
himself for four (4) days without leave and without submitting a medical certificate
to support his claim of illness, the imposition of a sanction is justified, but surely, not
dismissal, in the light of the fact that this is petitioner's first offense. In lieu of
reinstatement, petitioner Villuga should be paid separation pay where reinstatement
can no longer be effected in view of the long passage of time or because of the
realities of the situation. 10 But petitioner should not be granted backwages in
addition to reinstatement as the same is not just and equitable under the
circumstances considering that he was not entirely free from blame. 11

As to the other eleven petitioners, there is no clear showing that they were
dismissed because the circumstances surrounding their dismissal were not even
alleged. However, we disagree with the finding of respondent Commission that the
eleven petitioners are independent contractors.

For an employer-employee relationship to exist, the following elements are generally

considered: "(1) the selection and engagement of the employee;
(2) the payment of wages; (3) the power of dismissal and (4) the power to control
the employee's conduct." 12

Noting that the herein petitioners were oftentimes allowed to perform their work at
home and were paid wages on a piece-rate basis, the respondent Commission
apparently found the second and fourth elements lacking and ruled that "there is no
employer-employee relationship, for it is clear that respondents are interested only
in the result and not in the means and manner and how the result is obtained."

Respondent Commission is in error. The mere fact that petitioners were paid on a
piece-rate basis is no argument that herein petitioners were not employees. The
term "wage" has been broadly defined in Article 97 of the Labor Code as
remuneration or earnings, capable of being expressed in terms of money whether
fixed or ascertained on a time, task, piece or commission
basis. . . ." The facts of this case indicate that payment by the piece is just a method
of compensation and does not define the essence of the
relation. 13 The petitioners were allowed to perform their work at home does not
likewise imply absence of control and supervision. The control test calls merely for
the existence of a right to control the manner of doing the work, not the actual
exercise of the right. 14

In determining whether the relationship is that of employer and employee or one of

an independent contractor, "each case must be determined on its own facts and all
the features of the relationship are to be considered." 15Considering that petitioners
who are either sewers, repairmen or ironer, have been in the employ of private
respondent as early as 1972 or at the latest in 1976, faithfully rendering services
which are desirable or necessary for the business of private respondent, and
observing management's approved standards set for their respective lines of work as
well as the customers' specifications, petitioners should be considered employees,
not independent contractors.

Independent contractors are those who exercise independent employment,

contracting to do a piece of work according to their own methods and without being
subjected to control of their employer except as to the result of their work. By the
nature of the different phases of work in a tailoring shop where the customers'
specifications must be followed to the letter, it is inconceivable that the workers
therein would not be subjected to control.

In Rosario Brothers, Inc. v. Ople, 16 this Court ruled that tailors and similar workers
hired in the tailoring department, although paid weekly wages on piece work basis,
are employees not independent contractors. Accordingly, as regular employees, paid
on a piece-rate basis, petitioners are not entitled to overtime pay, holiday pay,
premium pay for holiday/rest day and service incentive leave pay. Their claim for
separation pay should also be defined for lack of evidence that they were in fact
dismissed by private respondent. They should be paid, however, their 13th month
pay under P.D. 851, since they are employees not independent contractors.

WHEREFORE, in view of the foregoing reasons, the assailed decision of respondent

National Labor Relations Commission is hereby MODIFIED by awarding —

(a) in favor of petitioner Villuga, overtime pay, holiday pay, premium pay for holiday
and rest day, service incentive leave pay and separation pay, in addition to his 13th
month pay; and

(b) in favor of the rest of the petitioners, their respective 13th month pay.

The case is hereby REMANDED to the National Labor Relations Commission for the
computation of the claims herein-above mentioned.

SO ORDERED.

G.R. No. 73887 December 21, 1989

GREAT PACIFIC LIFE ASSURANCE CORPORATION, petitioner,

vs.
HONORATO JUDICO and NATIONAL LABOR RELATIONS
COMMISSION, respondents.

G.A. Fortun and Associates for petitioner.

Corsino B. Soco for private respondent.

PARAS J.:

Before us is a Petition for certiorari to review the decision of the National Labor
Relations Commission (NLRC, for brevity) dated September 9, 1985 reversing the
decision of Labor Arbiter Vito J. Minoria, dated June 9, 1983, by 1) ordering
petitioner insurance company, Great Pacific Life Assurance Corporation (Grepalife,
for brevity) to recognize private respondent Honorato Judico, as its regular employee
as defined under Art. 281 of the Labor Code and 2) remanding the case to its origin
for the determination of private respondent Judico's money claims.

The records of the case show that Honorato Judico filed a complaint for illegal
dismissal against Grepalife, a duly organized insurance firm, before the NLRC
Regional Arbitration Branch No. VII, Cebu City on August 27, 1982. Said complaint
prayed for award of money claims consisting of separation pay, unpaid salary and
13th month pay, refund of cash bond, moral and exemplary damages and attorney's
fees.

Both parties appealed to the NLRC when a decision was rendered by the Labor
Arbiter dismissing the complaint on the ground that the employer-employee relations
did not exist between the parties but ordered Grepalife to pay complainant the sum
of Pl,000.00 by reason of Christian Charity.

On appeal, said decision was reversed by the NLRC ruling that complainant is a
regular employee as defined under Art. 281 of the Labor Code and declaring the
appeal of Grepalife questioning the legality of the payment of Pl,000.00 to
complainant moot and academic. Nevertheless, for the purpose of revoking the
supersedeas bond of said company it ruled that the Labor Arbiter erred in awarding
Pl,000.00 to complainant in the absence of any legal or factual basis to support its
payment.

Petitioner company moved to reconsider, which was denied, hence this petition for
review raising four legal issues to wit:

I. Whether the relationship between insurance agents and their

principal, the insurance company, is that of agent and principal to be
governed by the Insurance Code and the Civil Code provisions on
agency, or one of employer-employee, to be governed by the Labor
Code.

II. Whether insurance agents are entitled to the employee benefits

prescribed by the Labor Code.

III. Whether the public respondent NLRC has jurisdiction to take

cognizance of a controversy between insurance agent and the
insurance company, arising from their agency relations.
 IV. Whether the public respondent acted correctly in setting aside the
decision of Labor Arbiter Vito J. Minoria and in ordering the case
remanded to said Labor Arbiter for further proceedings.(p. 159, Rollo)

The crux of these issues boil down to the question of whether or not employer-
employee relationship existed between petitioner and private respondent.

Petitioner admits that on June 9, 1976, private respondent Judico entered into an
agreement of agency with petitioner Grepalife to become a debit agent attached to
the industrial life agency in Cebu City. Petitioner defines a debit agent as "an
insurance agent selling/servicing industrial life plans and policy holders. Industrial
life plans are those whose premiums are payable either daily, weekly or monthly and
which are collectible by the debit agents at the home or any place designated by the
policy holder" (p. 156, Rollo). Such admission is in line with the findings of public
respondent that as such debit agent, private respondent Judico had definite work
assignments including but not limited to collection of premiums from policy holders
and selling insurance to prospective clients. Public respondent NLRC also found out
that complainant was initially paid P 200. 00 as allowance for thirteen (13) weeks
regardless of production and later a certain percentage denominated as sales
reserve of his total collections but not lesser than P 200.00. Sometime in September
1981, complainant was promoted to the position of Zone Supervisor and was given
additional (supervisor's) allowance fixed at P110.00 per week. During the third week
of November 1981, he was reverted to his former position as debit agent but, for
unknown reasons, not paid so-called weekly sales reserve of at least P 200.00.
Finally on June 28, 1982, complainant was dismissed by way of termination of his
agency contract.

Petitioner assails the findings of the NLRC that private respondent is an employee of
the former. Petitioner argues that Judico's compensation was not based on any fixed
number of hours he was required to devote to the service of petitioner company but
rather it was the production or result of his efforts or his work that was being
compensated and that the so-called allowance for the first thirteen weeks that
Judico worked as debit agent, cannot be construed as salary but as a subsidy or a
way of assistance for transportation and meal expenses of a new debit agent during
the initial period of his training which was fixed for thirteen (13) weeks. Stated
otherwise, petitioner contends that Judico's compensation, in the form of
commissions and bonuses, was based on actual production, (insurance plans sold
and premium collections).

Said contentions of petitioner are strongly rejected by private respondent. He

maintains that he received a definite amount as his Wage known as "sales reserve"
the failure to maintain the same would bring him back to a beginner's employment
with a fixed weekly wage of P 200.00 regardless of production. He was assigned a
definite place in the office to work on when he is not in the field; and in addition to
canvassing and making regular reports, he was burdened with the job of collection
and to make regular weekly report thereto for which an anemic performance would
mean dismissal. He earned out of his faithful and productive service, a promotion to
Zone Supervisor with additional supervisor's allowance, (a definite or fixed amount
of P110.00) that he was dismissed primarily because of anemic performance and not
because of the termination of the contract of agency substantiate the fact that he
was indeed an employee of the petitioner and not an insurance agent in the ordinary
meaning of the term.

That private respondent Judico was an agent of the petitioner is unquestionable.

But, as We have held in Investment Planning Corp. vs. SSS, 21 SCRA 294, an
insurance company may have two classes of agents who sell its insurance policies:
(1) salaried employees who keep definite hours and work under the control and
supervision of the company; and (2) registered representatives who work on
commission basis. The agents who belong to the second category are not required
to report for work at anytime, they do not have to devote their time exclusively to or
work solely for the company since the time and the effort they spend in their work
depend entirely upon their own will and initiative; they are not required to account
for their time nor submit a report of their activities; they shoulder their own selling
expenses as well as transportation; and they are paid their commission based on a
certain percentage of their sales. One salient point in the determination of employer-
employee relationship which cannot be easily ignored is the fact that the
compensation that these agents on commission received is not paid by the insurance
company but by the investor (or the person insured). After determining the
commission earned by an agent on his sales the agent directly deducts it from the
amount he received from the investor or the person insured and turns over to the
insurance company the amount invested after such deduction is made. The test
therefore 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.

Applying the aforementioned test to the case at bar, We can readily see that the
element of control by the petitioner on Judico was very much present. The record
shows that petitioner Judico received a definite minimum amount per week as his
wage known as "sales reserve" wherein the failure to maintain the same would bring
him back to a beginner's employment with a fixed weekly wage of P 200.00 for
thirteen weeks regardless of production. He was assigned a definite place in the
office to work on when he is not in the field; and in addition to his canvassing work
he was burdened with the job of collection. In both cases he was required to make
regular report to the company regarding these duties, and for which an anemic
performance would mean a dismissal. Conversely faithful and productive service
earned him a promotion to Zone Supervisor with additional supervisor's allowance, a
definite amount of P110.00 aside from the regular P 200.00 weekly "allowance".
Furthermore, his contract of services with petitioner is not for a piece of work nor for
a definite period.

On the other hand, an ordinary commission insurance agent works at his own
volition or at his own leisure without fear of dismissal from the company and short of
committing acts detrimental to the business interest of the company or against the
latter, whether he produces or not is of no moment as his salary is based on his
production, his anemic performance or even dead result does not become a ground
for dismissal. Whereas, in private respondent's case, the undisputed facts show that
he was controlled by petitioner insurance company not only as to the kind of work;
the amount of results, the kind of performance but also the power of dismissal.
Undoubtedly, private respondent, by nature of his position and work, had been a
regular employee of petitioner and is therefore entitled to the protection of the law
and could not just be terminated without valid and justifiable cause.

Premises considered, the appealed decision is hereby AFFIRMED in toto.

SO ORDERED.

G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO,
respondents.

Tirol & Tirol for petitioner.

Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

NARVASA, J.:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the
Company) and Melecio T. Basiao entered into a contract 1 by which:

1. Basiao was "authorized to solicit within the Philippines applications

for insurance policies and annuities in accordance with the existing
rules and regulations" of the Company;

2. he would receive "compensation, in the form of commissions ... as

provided in the Schedule of Commissions" of the contract to "constitute
a part of the consideration of ... (said) agreement;" and

3. the "rules in ... (the Company's) Rate Book and its Agent's Manual,
as well as all its circulars ... and those which may from time to time be
promulgated by it, ..." were made part of said contract.

The contract also contained, among others, provisions governing the relations of the
parties, the duties of the Agent, the acts prohibited to him, and the modes of
termination of the agreement, viz.:

RELATION WITH THE COMPANY. The Agent shall be free to exercise

his own judgment as to time, place and means of soliciting insurance.
Nothing herein contained shall therefore be construed to create the
relationship of employee and employer between the Agent and the
 Company. However, the Agent shall observe and conform to all rules
and regulations which the Company may from time to time prescribe.

ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from

giving, directly or indirectly, rebates in any form, or from making any
misrepresentation or over-selling, and, in general, from doing or
committing acts prohibited in the Agent's Manual and in circulars of the
Office of the Insurance Commissioner.

TERMINATION. The Company may terminate the contract at will,

without any previous notice to the Agent, for or on account of ...
(explicitly specified causes). ...

Either party may terminate this contract by giving to the other notice in
writing to that effect. It shall become ipso facto cancelled if the
Insurance Commissioner should revoke a Certificate of Authority
previously issued or should the Agent fail to renew his existing
Certificate of Authority upon its expiration. The Agent shall not have
any right to any commission on renewal of premiums that may be paid
after the termination of this agreement for any cause whatsoever,
except when the termination is due to disability or death in line of
service. As to commission corresponding to any balance of the first
year's premiums remaining unpaid at the termination of this
agreement, the Agent shall be entitled to it if the balance of the first
year premium is paid, less actual cost of collection, unless the
termination is due to a violation of this contract, involving criminal
liability or breach of trust.

ASSIGNMENT. No Assignment of the Agency herein created or of

commissions or other compensations shall be valid without the prior
consent in writing of the Company. ...

Some four years later, in April 1972, the parties entered into another contract — an
Agency Manager's Contract — and to implement his end of it Basiao organized an
agency or office to which he gave the name M. Basiao and Associates, while
concurrently fulfilling his commitments under the first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly
seeking a reconsideration, Basiao sued the Company in a civil action and this, he
was later to claim, prompted the latter to terminate also his engagement under the
first contract and to stop payment of his commissions starting April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the
Company and its president. Without contesting the termination of the first contract,
the complaint sought to recover commissions allegedly unpaid thereunder, plus
attorney's fees. The respondents disputed the Ministry's jurisdiction over Basiao's
claim, asserting that he was not the Company's employee, but an independent
contractor and that the Company had no obligation to him for unpaid commissions
under the terms and conditions of his contract. 5

The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that
the underwriting agreement had established an employer-employee relationship
between him and the Company, and this conferred jurisdiction on the Ministry of
Labor to adjudicate his claim. Said official's decision directed payment of his unpaid
commissions "... equivalent to the balance of the first year's premium remaining
unpaid, at the time of his termination, of all the insurance policies solicited by ...
(him) in favor of the respondent company ..." plus 10% attorney's fees. 6

This decision was, on appeal by the Company, affirmed by the National Labor
Relations Commission. 7 Hence, the present petition for certiorari and prohibition.

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had
become the Company's employee by virtue of the contract invoked by him, thereby
placing his claim for unpaid commissions within the original and exclusive jurisdiction
of the Labor Arbiter under the provisions of Section 217 of the Labor Code, 8 or,
contrarily, as the Company would have it, that under said contract Basiao's status
was that of an independent contractor whose claim was thus cognizable, not by the
Labor Arbiter in a labor case, but by the regular courts in an ordinary civil action.

The Company's thesis, that no employer-employee relation in the legal and generally
accepted sense existed between it and Basiao, is drawn from the terms of the
contract they had entered into, which, either expressly or by necessary implication,
made Basiao the master of his own time and selling methods, left to his judgment
the time, place and means of soliciting insurance, set no accomplishment quotas and
compensated him on the basis of results obtained. He was not bound to observe any
schedule of working hours or report to any regular station; he could seek and work
on his prospects anywhere and at anytime he chose to, and was free to adopt the
selling methods he deemed most effective.

Without denying that the above were indeed the expressed implicit conditions of
Basiao's contract with the Company, the respondents contend that they do not
constitute the decisive determinant of the nature of his engagement, invoking
precedents to the effect that the critical feature distinguishing the status of an
employee from that of an independent contractor is control, that is, whether or not
the party who engages the services of another has the power to control the latter's
conduct in rendering such services. Pursuing the argument, the respondents draw
attention to the provisions of Basiao's contract obliging him to "... observe and
conform to all rules and regulations which the Company may from time to time
prescribe ...," as well as to the fact that the Company prescribed the qualifications of
applicants for insurance, processed their applications and determined the amounts
of insurance cover to be issued as indicative of the control, which made Basiao, in
legal contemplation, an employee of the Company. 9

It is true that the "control test" expressed in the following pronouncement of the
Court in the 1956 case of Viana vs. Alejo Al-Lagadan10
 ... In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employees'
conduct — although the latter is the most important element (35 Am.
Jur. 445). ...

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is
without question a valid test of the character of a contract or agreement to render
service. It should, however, be obvious that not every form of control that the hiring
party reserves to himself over the conduct of the party hired in relation to the
services rendered may be accorded the effect of establishing an employer-employee
relationship between them in the legal or technical sense of the term. A line must be
drawn somewhere, if the recognized distinction between an employee and an
individual contractor is not to vanish altogether. Realistically, it would be a rare
contract of service that gives untrammelled freedom to the party hired and eschews
any intervention whatsoever in his performance of the engagement.

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. 12 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 insurance 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. Of such a character are the rules which prescribe the
qualifications of persons who may be insured, subject insurance applications to
processing and approval by the Company, and also reserve to the Company the
determination of the premiums to be paid and the schedules of payment. 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.

There is no dearth of authority holding persons similarly placed as respondent Basiao

to be independent contractors, instead of employees of the parties for whom they
worked. In Mafinco Trading Corporation vs. Ople, 13the Court ruled that a person
engaged to sell soft drinks for another, using a truck supplied by the latter, but with
the right to employ his own workers, sell according to his own methods subject only
to prearranged routes, observing no working hours fixed by the other party and
obliged to secure his own licenses and defray his own selling expenses, all in
consideration of a peddler's discount given by the other party for at least 250 cases
of soft drinks sold daily, was not an employee but an independent contractor.

In Investment Planning Corporation of the Philippines us. Social Security System 14 a

case almost on all fours with the present one, this Court held that there was no
employer-employee relationship between a commission agent and an investment
company, but that the former was an independent contractor where said agent and
others similarly placed were: (a) paid compensation in the form of commissions
based on percentages of their sales, any balance of commissions earned being
payable to their legal representatives in the event of death or registration; (b)
required to put up performance bonds; (c) subject to a set of rules and regulations
governing the performance of their duties under the agreement with the company
and termination of their services for certain causes; (d) not required to report for
work at any time, nor to devote their time exclusively to working for the company
nor to submit a record of their activities, and who, finally, shouldered their own
selling and transportation expenses.

More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a
rice miller to buy and sell rice and palay without compensation except a certain
percentage of what he was able to buy or sell, did work at his own pleasure without
any supervision or control on the part of his principal and relied on his own
resources in the performance of his work, was a plain commission agent, an
independent contractor and not an employee.

The respondents limit themselves to pointing out that Basiao's contract with the
Company bound him to observe and conform to such rules and regulations as the
latter might from time to time prescribe. No showing has been made that any such
rules or regulations were in fact promulgated, much less that any rules existed or
were issued which effectively controlled or restricted his choice of methods — or the
methods themselves — of selling insurance. Absent such showing, the Court will not
speculate that any exceptions or qualifications were imposed on the express
provision of the contract leaving Basiao "... free to exercise his own judgment as to
the time, place and means of soliciting insurance."

The Labor Arbiter's decision makes reference to Basiao's claim of having been
connected with the Company for twenty-five years. Whatever this is meant to imply,
the obvious reply would be that what is germane here is Basiao's status under the
contract of July 2, 1968, not the length of his relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not
an employee of the petitioner, but a commission agent, an independent contractor
whose claim for unpaid commissions should have been litigated in an ordinary civil
action. The Labor Arbiter erred in taking cognizance of, and adjudicating, said claim,
being without jurisdiction to do so, as did the respondent NLRC in affirming the
Arbiter's decision. This conclusion renders it unnecessary and premature to consider
Basiao's claim for commissions on its merits.
WHEREFORE, the appealed Resolution of the National Labor Relations Commission is
set aside, and that complaint of private respondent Melecio T. Basiao in RAB Case
No. VI-0010-83 is dismissed. No pronouncement as to costs.

SO ORDERED.

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

MAKATI HABERDASHERY, INC., JORGE LEDESMA and CECILIO G.

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

Ledesma, Saludo & Associates for petitioners.

Pablo S. Bernardo for private respondents.

FERNAN, C.J.:

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

The undisputed facts are as follows:

Individual complainants, private respondents herein, have been working for

petitioner Makati Haberdashery, Inc. as tailors, seamstress, sewers, basters
(manlililip) and "plantsadoras". They are paid on a piece-rate basis except Maria
Angeles and Leonila Serafina who are paid on a monthly basis. In addition to their
piece-rate, they are given a daily allowance of three (P 3.00) pesos provided they
report for work before 9:30 a.m. everyday.
Private respondents are required to work from or before 9:30 a.m. up to 6:00 or
7:00 p.m. from Monday to Saturday and during peak periods even on Sundays and
holidays.

On July 20, 1984, the Sandigan ng Manggagawang Pilipino, a labor organization of

the respondent workers, filed a complaint docketed as NLRC NCR Case No. 7-2603-
84 for (a) underpayment of the basic wage; (b) underpayment of living allowance;
(c) non-payment of overtime work; (d) non-payment of holiday pay; (e) non-
payment of service incentive pay; (f) 13th month pay; and (g) benefits provided for
under Wage Orders Nos. 1, 2, 3, 4 and 5.1

During the pendency of NLRC NCR Case No. 7-2603-84, private respondent Dioscoro
Pelobello left with Salvador Rivera, a salesman of petitioner Haberdashery, an open
package which was discovered to contain a "jusi" barong tagalog. When confronted,
Pelobello replied that the same was ordered by respondent Casimiro Zapata for his
customer. Zapata allegedly admitted that he copied the design of petitioner
Haberdashery. But in the afternoon, when again questioned about said barong,
Pelobello and Zapata denied ownership of the same. Consequently a memorandum
was issued to each of them to explain on or before February 4, 1985 why no action
should be taken against them for accepting a job order which is prejudicial and in
direct competition with the business of the company. 2 Both respondents allegedly
did not submit their explanation and did not report for work. 3 Hence, they were
dismissed by petitioners on February 4, 1985. They countered by filing a complaint
for illegal dismissal docketed as NLRC NCR Case No. 2-428-85 on February 5,
1985. 4

On June 10, 1986, Labor Arbiter Ceferina J. Diosana rendered judgment, the
dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in NLRC NCR Case No. 2-

428-85 finding respondents guilty of illegal dismissal and ordering them
to reinstate Dioscoro Pelobello and Casimiro Zapata to their respective
or similar positions without loss of seniority rights, with full backwages
from July 4, 1985 up to actual reinstatement. The charge of unfair
labor practice is dismissed for lack of merit.

In NLRC NCR Case No. 7-26030-84, the complainants' claims for

underpayment re violation of the minimum wage law is hereby ordered
dismissed for lack of merit.

Respondents are hereby found to have violated the decrees on the cost
of living allowance, service incentive leave pay and the 13th Month
Pay. In view thereof, the economic analyst of the Commission is
directed to compute the monetary awards due each complainant based
on the available records of the respondents retroactive as of three
years prior to the filing of the instant case.

SO ORDERED. 5
From the foregoing decision, petitioners appealed to the NLRC. The latter on March
30, 1988 affirmed said decision but limited the backwages awarded the Dioscoro
Pelobello and Casimiro Zapata to only one (1) year. 6

After their motion for reconsideration was denied, petitioners filed the instant
petition raising the following issues:

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT AN EMPLOYER-

EMPLOYEE RELATIONSHIP EXISTS BETWEEN PETITIONER HABERDASHERY AND
RESPONDENTS WORKERS.

II

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS

WORKERS ARE ENTITLED TO MONETARY CLAIMS DESPITE THE FINDING THAT
THEY ARE NOT ENTITLED TO MINIMUM WAGE.

III

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS

PELOBELLO AND ZAPATA WERE ILLEGALLY DISMISSED. 7

The first issue which is the pivotal issue in this case is resolved in favor of private
respondents. We have repeatedly held in countless decisions that the test of
employer-employee relationship is four-fold: (1) the selection and engagement of
the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
power to control the employee's conduct. It is the so called "control test" that is the
most important element. 8 This simply means the determination of whether the
employer controls or has reserved the right to control the employee not only as to
the result of the work but also as to the means and method by which the same is to
be accomplished. 9

The facts at bar indubitably reveal that the most important requisite of control is
present. As gleaned from the operations of petitioner, when a customer enters into a
contract with the haberdashery or its proprietor, the latter directs an employee who
may be a tailor, pattern maker, sewer or "plantsadora" to take the customer's
measurements, and to sew the pants, coat or shirt as specified by the customer.
Supervision is actively manifested in all these aspects — the manner and quality of
cutting, sewing and ironing.

Furthermore, the presence of control is immediately evident in this memorandum

issued by Assistant Manager Cecilio B. Inocencio, Jr. dated May 30, 1981 addressed
to Topper's Makati Tailors which reads in part:

4. Effective immediately, new procedures shall be followed:

 A. To follow instruction and orders from the undersigned Roger
Valderama, Ruben Delos Reyes and Ofel Bautista. Other than this
person (sic) must ask permission to the above mentioned before giving
orders or instructions to the tailors.

B. Before accepting the job orders tailors must check the materials, job
orders, due dates and other things to maximize the efficiency of our
production. The materials should be checked (sic) if it is matched (sic)
with the sample, together with the number of the job order.

C. Effective immediately all job orders must be finished one day before
the due date. This can be done by proper scheduling of job order and
if you will cooperate with your supervisors. If you have many due
dates for certain day, advise Ruben or Ofel at once so that they can
make necessary adjustment on due dates.

D. Alteration-Before accepting alteration person attending on customs

(sic) must ask first or must advise the tailors regarding the due dates
so that we can eliminate what we call 'Bitin'.

E. If there is any problem regarding supervisors or co-tailor inside our

shop, consult with me at once settle the problem. Fighting inside the
shop is strictly prohibited. Any tailor violating this memorandum will be
subject to disciplinary action.

For strict compliance. 10

From this memorandum alone, it is evident that petitioner has reserved the right to
control its employees not only as to the result but also the means and methods by
which the same are to be accomplished. That private respondents are regular
employees is further proven by the fact that they have to report for work regularly
from 9:30 a.m. to 6:00 or 7:00 p.m. and are paid an additional allowance of P 3.00
daily if they report for work before 9:30 a.m. and which is forfeited when they arrive
at or after 9:30 a.m. 11

Since private respondents are regular employees, necessarily the argument that they
are independent contractors must fail. As established in the preceding paragraphs,
private respondents did not exercise independence in their own methods, but on the
contrary were subject to the control of petitioners from the beginning of their tasks
to their completion. Unlike independent contractors who generally rely on their own
resources, the equipment, tools, accessories, and paraphernalia used by private
respondents are supplied and owned by petitioners. Private respondents are totally
dependent on petitioners in all these aspects.

Coming now to the second issue, there is no dispute that private respondents are
entitled to the Minimum Wage as mandated by Section 2(g) of Letter of Instruction
No. 829, Rules Implementing Presidential Decree No. 1614 and reiterated in Section
3(f), Rules Implementing Presidential Decree 1713 which explicitly states that, "All
employees paid by the result shall receive not less than the applicable new minimum
wage rates for eight (8) hours work a day, except where a payment by result rate
has been established by the Secretary of Labor. ..." 12 No such rate has been
established in this case.

But all these notwithstanding, the question as to whether or not there is in fact an
underpayment of minimum wages to private respondents has already been resolved
in the decision of the Labor Arbiter where he stated: "Hence, for lack of sufficient
evidence to support the claims of the complainants for alleged violation of the
minimum wage, their claims for underpayment re violation of the Minimum Wage
Law under Wage Orders Nos. 1, 2, 3, 4, and 5 must perforce fall." 13

The records show that private respondents did not appeal the above ruling of the
Labor Arbiter to the NLRC; neither did they file any petition raising that issue in the
Supreme Court. Accordingly, insofar as this case is concerned, that issue has been
laid to rest. As to private respondents, the judgment may be said to have attained
finality. For it is a well-settled rule in this jurisdiction that "an appellee who has not
himself appealed cannot obtain from the appellate court-, any affirmative relief other
than the ones granted in the decision of the court below. " 14

As a consequence of their status as regular employees of the petitioners, they can

claim cost of living allowance. This is apparent from the provision defining the
employees entitled to said allowance, thus: "... All workers in the private sector,
regardless of their position, designation or status, and irrespective of the method by
which their wages are paid. " 15

Private respondents are also entitled to claim their 13th Month Pay under Section
3(e) of the Rules and Regulations Implementing P.D. No. 851 which provides:

Section 3. Employers covered. — The Decree shall apply to all

employers except to:

xxx xxx xxx

(e) Employers of those who are paid on purely commission, boundary,

or task basis, and those who are paid a fixed amount for performing a
specific work, irrespective of the time consumed in the performance
thereof, except where the workers are paid on piece-rate basis in
which case the employer shall be covered by this issuance insofar as
such workers are concerned. (Emphasis supplied.)

On the other hand, while private respondents are entitled to Minimum Wage, COLA
and 13th Month Pay, they are not entitled to service incentive leave pay because as
piece-rate workers being paid at a fixed amount for performing work irrespective of
time consumed in the performance thereof, they fall under one of the exceptions
stated in Section 1(d), Rule V, Implementing Regulations, Book III, Labor Code. For
the same reason private respondents cannot also claim holiday pay (Section 1(e),
Rule IV, Implementing Regulations, Book III, Labor Code).
With respect to the last issue, it is apparent that public respondents have misread
the evidence, for it does show that a violation of the employer's rules has been
committed and the evidence of such transgression, the copied barong tagalog, was
in the possession of Pelobello who pointed to Zapata as the owner. When required
by their employer to explain in a memorandum issued to each of them, they not only
failed to do so but instead went on AWOL (absence without official leave), waited for
the period to explain to expire and for petitioner to dismiss them. They thereafter
filed an action for illegal dismissal on the far-fetched ground that they were
dismissed because of union activities. Assuming that such acts do not constitute
abandonment of their jobs as insisted by private respondents, their blatant disregard
of their employer's memorandum is undoubtedly an open defiance to the lawful
orders of the latter, a justifiable ground for termination of employment by the
employer expressly provided for in Article 283(a) of the Labor Code as well as a clear
indication of guilt for the commission of acts inimical to the interests of the
employer, another justifiable ground for dismissal under the same Article of the
Labor Code, paragraph (c). Well established in our jurisprudence is the right of an
employer to dismiss an employee whose continuance in the service is inimical to the
employer's interest. 16

In fact the Labor Arbiter himself to whom the explanation of private respondents
was submitted gave no credence to their version and found their excuses that said
barong tagalog was the one they got from the embroiderer for the Assistant
Manager who was investigating them, unbelievable.

Under the circumstances, it is evident that there is no illegal dismissal of said

employees. Thus, We have ruled that:

No employer may rationally be expected to continue in employment a

person whose lack of morals, respect and loyalty to his employer,
regard for his employer's rules, and appreciation of the dignity and
responsibility of his office, has so plainly and completely been bared.

That there should be concern, sympathy, and solicitude for the rights
and welfare of the working class, is meet and proper. That in
controversies between a laborer and his master, doubts reasonably
arising from the evidence, or in the interpretation of agreements and
writings should be resolved in the former's favor, is not an
unreasonable or unfair rule. But that disregard of the employer's own
rights and interests can be justified by that concern and solicitude is
unjust and unacceptable. (Stanford Microsystems, Inc. v. NLRC, 157
SCRA 414-415 [1988] ).

The law is protecting the rights of the laborer authorizes neither oppression nor self-
destruction of the employer. 17More importantly, while the Constitution is committed
to the policy of social justice and the protection of the working class, it should not be
supposed that every labor dispute will automatically be decided in favor of labor. 18
Finally, it has been established that the right to dismiss or otherwise impose
discriplinary sanctions upon an employee for just and valid cause, pertains in the
first place to the employer, as well as the authority to determine the existence of
said cause in accordance with the norms of due process. 19

There is no evidence that the employer violated said norms. On the contrary, private
respondents who vigorously insist on the existence of employer-employee
relationship, because of the supervision and control of their employer over them,
were the very ones who exhibited their lack of respect and regard for their
employer's rules.

Under the foregoing facts, it is evident that petitioner Haberdashery had valid
grounds to terminate the services of private respondents.

WHEREFORE, the decision of the National Labor Relations Commission dated March
30, 1988 and that of the Labor Arbiter dated June 10, 1986 are hereby modified.
The complaint filed by Pelobello and Zapata for illegal dismissal docketed as NLRC
NCR Case No. 2-428-85 is dismissed for lack of factual and legal bases. Award of
service incentive leave pay to private respondents is deleted.

SO ORDERED.

G.R. No. 86693 July 2, 1990

COSMOPOLITAN FUNERAL HOMES, INC., petitioner,

vs.
NOLI MAALAT and NATIONAL LABOR RELATIONS
COMMISSION, respondents.

Castro, Enriquez, Carpio, Guillen & Associates for petitioner.

Castro B. Dorado for private respondent.

GUTIERREZ, JR., J.:

The nature of the work of a "funeraria" supervisor, whether employee or commission

agent, is the issue raised in this petition.

Sometime in 1962, petitioner Cosmopolitan Funeral Homes, Inc. engaged the

services of private respondent Noli Maalat as a "supervisor" to handle the solicitation
of mortuary arrangements, sales and collections. The funeral services which he sold
refer to the taking of the corpse, embalming, casketing, viewing and delivery. The
private respondent was paid on a commission basis of 3.5% of the amounts actually
collected and remitted.
On January 15, 1987, respondent Maalat was dismissed by the petitioner for
commission of the following violations despite previous warnings:

(a) Understatement of the reported contract price against the actual

contract price charged to and paid by the customers;

(b) Misappropriation of funds or collections by non-remittance of

collections and non-issuance of Official Receipt;

(c) Charging customers additional amount and pocketing the same for
the cost of medicines, linen, and security services without issuing
Official Receipt;

(d) Non-reporting of some embalming and re-embalming charges and

pocketing the same and non-issuance of Official Receipt;

(e) Engaging in tomb making and inclusion of the price of the tomb in
the package price without prior knowledge of the customers and the
company. (At p. 16, Records)

Maalat filed a complaint for illegal dismissal and non-payment of commissions.

On the basis of the parties' position papers, Labor Arbiter Newton R. Sancho
rendered a decision declaring Maalat's dismissal illegal and ordering the petitioner to
pay separation pay, commission, interests and attorney's fee in the total amount of
P205,571.52.

In an appeal from the decision, the National Labor Relations Commission (NLRC), on
May 31, 1988, reversed the Arbiter's action and rendered a new decision, the
dispositive portion of which reads:

WHEREFORE, premises considered, the decision dated November 27,

1987, is hereby SET ASIDE and VACATED and a New One ENTERED,
ordering as follows:

1. Judgment is hereby rendered declaring the dismissal of complainant

Noli Maalat by respondent-appellant as justified and with lawful cause.
By way of equitable relief and in the interest of social and
compassionate justice, We hereby order and direct respondent
Cosmopolitan Funeral Homes, Inc. to pay complainant Maalat his
separation pay equivalent to one-half (1/2%) month average income
for every year of service to appellant, computed on his last year of
service immediately preceding his separation from respondent, subject
to allowable set-offs and deductions of the counter-claims of
respondent company, after due notice and hearing.

2. The claims for accrued commissions by complainant may be

admitted, subject to proofs thereof, and allowable set-offs and
 deductions credited to the account of respondent-appellant by way of
counterclaims, after due notice and hearing.

3. All the evidence adduced by the parties are hereby admitted, subject
to rebuttal and/or controvertion by either party during the hearing and
the hearings hereafter.

4. The Attorney's fee in favor of complainant's counsel is hereby fixed

at two (2%) percent, assessable over whatever final money award
complainant may be entitled on the aggregate sums thereof, after
proper hearing on the same.

All other claims and counter-claims are hereby dismissed for lack of
merit, except those specified above.

Finally, this case is remanded to the Regional Arbitration Branch of

origin for further proceedings in accordance with the above judgment.
No findings as to costs. (At pp. 66-67, Rollo)

The petitioner's motion for reconsideration was denied, hence, this petition for
review before this Court.

The issues raised in this petition are:

I. Whether or not the NLRC erred in ruling that an employment relationship existed
between the parties; and

II. Whether or not there was equitable basis for the award of 1/2 month separation
pay for every year of service.

In determining whether a person who performs work for another is the latter's
employee or an independent contractor, the prevailing test is the "right of control"
test. Under this test, 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 manner and means to be used in reaching that end.

The petitioner argues that Maalat was never its employee for he was only a
commission agent whose work was not subject to its control. Citing Investment
Planning Corporation of the Philippines v. Social Security System (21 SCRA 924
[1967]), the petitioner states that the work of its agents approximates that of an
independent contractor since the agent is not under control by the latter with
respect to the means and methods employed in the performance of the work, but
only as to the results.
The NLRC, after its perusal of the facts and evidence on record, stated that there
exists an employment relationship between the parties. The petitioner has failed to
overcome this factual finding.

The fact that the petitioner imposed and applied its rule prohibiting superiors from
engaging in other funeral business which it considered inimical to company interests
proves that it had the right of control and actually exercised its control over the
private respondent. In other words, Maalat worked exclusively for the petitioner.

Moreover, the private respondent was prohibited from engaging in part-time

embalming business outside of the company and a violation thereof was cause for
dismissal. Incurring absences without leave was likewise subject to disciplinary
action: a reprimand for the first offense, one week suspension for the second
offense, and dismissal for the third offense.

The petitioner admits that these prohibitive rules bound the private respondent but
states that these rules have no bearing on the means and methods ordinarily
required of a supervisor. The overall picture is one of employment. The petitioner
failed to prove that the contract with private respondent was but a mere agency,
which indicates that a "supervisor" is free to accomplish his work on his own terms
and may engage in other means of livelihood.

In Investment Planning Corporation, supra, cited by the petitioner, the majority of

the "commission agents" are regularly employed elsewhere. Such a circumstance is
absent in Maalat's case. Moreover, the private respondent's job description states
that ". . . he attends to the needs of the clientele and arranges the kind of casket
and funeral services the customers would like to avail themselves of" and indicates
that he must always be on the job or at least most of time.

Likewise, the private respondent was not allowed to issue his own receipts, nor was
he allowed to directly deduct his commission as truly independent salesmen practice.

Worthy of note too are two other company rules which provide that "negotiation and
making of contract with customers shall be done inside the office" and "signing of
contract should be made immediately before the cadaver or deceased is place in the
casket." (Annex 10-B, Petitioner's Position Paper, Records) Said rules belie the
petitioner's stand that it does not have control over the means and methods by
which the work is accomplished. The control test has been satisfied. (Social Security
System v. Court of Appeals, 156 SCRA 383 [1987])

The finding by the public respondent that the petitioner has reported private
respondent to the Social Security System as a covered employee adds strength to
the conclusion that Maalat is an employee.

There is no reversible error in the findings of facts by the NLRC which are supported
by substantial evidence and which we, therefore, do not disturb on appeal.
The payment of compensation by way of commission does not militate against the
conclusion that private respondent was an employee. Under Article 97 of the Labor
Code, "wage" shall mean "the renumeration of earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a
time, task, pace or commission basis . . .".

The non-observance of regular office hours does not sufficiently show that Maalat is
a "supervisor on commission basis" nor does the same indicate that he is an
independent salesman. As a supervisor, although compensated on commission basis,
he is exempt from the observance of normal hours of work for his compensation is
measured by the number of sales he makes. He may not have had the usual fixed
time for starting and ending his work as in other types of employment but he had to
spend most of his working hours at his job. People die at all times of the day or
night.

All considered, we rule that private respondent is an employee of petitioner

corporation.

II

The petitioner impugns the award of separation pay equivalent to one-half (1/2)
month average income for every year of service to private respondent. The NLRC
ruled that:

However, mindful of the fact the complainant Noli Maalat has served
respondent company for the last twenty four (24) years, more or less,
it is but proper to afford him some equitable relief, consistent with the
recent rulings of the Supreme Court, due to his past services with no
known previous record, and the ends of social and compassionate
justice will thus be served if he is paid a portion of his separation pay,
equivalent to one-half (1/2) month every year of his service to said
company. (See Soco v. Mercantile Corporation, G.R. No. 53364-65,
March 16, 1987; and Firestone, et al, v. Lariosa et al., G.R. No. 70479,
February 27, 1987). We are not inclined to grant complainant his full
month termination pay for every year of his service because, unlike in
the former Soco case, the misconduct of the employee merely involves
infraction of company rules while in the latter Firestone case it involves
misconduct of a rank-and-file employee, although similarly involving
acts of dishonesty. (At pp. 65-66, Rollo)

This Court will not disturb the finding by the NLRC that private respondent Maalat
was dishonest in the discharge of his functions. The finding is sufficiently supported
by the evidence on record.

Additionally, the private respondent did not appeal from the NLRC decision, thereby
impliedly accepting the validity of his dismissal.

We take exception, therefore, to the grant of separation pay to private respondent.

In Philippine Long Distance Telephone Company (PLDT) v. NLRC, (164 SCRA 671
[1988]), this Court re-examined, the doctrine in the
aforecited Firestone and Soco cases and other previous cases that employees
dismissed for cause are nevertheless entitled to separation pay on the ground of
social and compassionate justice. In abandoning this doctrine, the Court held, and
we quote:

. . . We hold that henceforth separation pay shall be allowed as a

measure of social justice only in those instances where the employee is
validly dismissed for causes other than serious misconduct or those
reflecting on his moral character. Where the reason for the valid
dismissal is, for example, habitual intoxication or an offense involving
moral turpitude, like theft or illicit sexual relations with a fellow worker,
the employer may not be required to give the dismissed employee
separation pay, or financial assistance, or whatever other name it is
called, on the ground of social justice.

A contrary rule would, as the petitioner correctly argues, have the

effect of rewarding rather than punishing the erring employee for his
offense. . . .

The policy of social justice is not intended to countenance wrongdoing

simply because it is committed by the underprivileged. At best it may
mitigate the penalty but it certainly will not condone the offense.
Compassion for the poor is an imperative of every humane society but
only when the recipient is not a rascal claiming an undeserved
privilege. . . .

Subsequent decisions have abided by this pronouncement. (See Philippine National

Construction Corporation v. National Labor Relations Commission, 170 SCRA 207
[1989]; Eastern Paper Mills, Inc. v. National Labor Relations Commission, 170 SCRA
597 [1989]; Osias Academy v. National Labor Relations Commission, G.R. No.
83234, April 18, 1989; and Nasipit Lumber Co., Inc. v. National Labor Relations
Commission, G.R. No. 54424, August 31, 1989.)

Conformably with the above cited PLDT ruling, this Court pronounces that the grant
of separation pay to private respondent Maalat, who was validly terminated for
dishonesty, is not justified.

Parenthetically, it may be mentioned that the Labor Arbiter, apparently unaware of

the petition for review pending before this Court, conducted further proceedings to
compute private respondent's separation pay, unclaimed commission and 2%
attorney's fees, in compliance with the NLRC decision of May 31, 1988. After
hearing, the Labor Arbiter rendered a decision on May 10, 1989, the pertinent
portion of which reads:

In sum, the sustainable claims of complainant are as follows:

 (1) Separation Pay : P 76,064.40
(2) Unpaid Commissions : 39,344.80
——————
Sub-total : P 115,409.20
(3) 2% Attorney's Fees : 2,308.18
——————
P 117, 717.38

WHEREFORE, judgment is hereby rendered ordering respondent

Cosmopolitan Funeral Homes, Inc., to pay complainant Noli Maalat his
claims above set forth in the total amount of P117,717.38 only.

Neither party appealed from said decision.

For being in conflict with our holding that the private respondent is not entitled to
separation pay, this Court sets aside the Labor Arbiter's computation of separation
pay. However, we uphold his computation of unclaimed commissions amounting to
P39,344.80. The amount of attorney's fee should consequently be recomputed at
2% of P39,344.80 or P786.89.

WHEREFORE, the judgment of the National Labor Relations Commission is

AFFIRMED except for the grant of separation pay which is hereby disallowed. Private
respondent Maalat is entitled to unclaimed commissions of P39,344.80 and 2%
attorney's fees of P786.89, said amounts being considered final.

SO ORDERED.

G.R. No. 73199 October 26, 1988

DR. RENATO SARA and/or ROMEO ARANA petitioners,

vs.
CERILA AGARRADO and the NATIONAL LABOR RELATIONS
COMMISSION, respondents.

Amparo & Barcelona Law Offices for petitioners.

The Solicitor General for public respondent. Nicanor A. Magno for private
respondent.

FERNAN, C.J.:

Challenged in this petition for certiorari is the jurisdiction of the Labor Tribunal over
Case No. LRD-ROXII-006-82, a claim for unpaid commissions and reimbursement of
certain sums of money filed by herein private respondent Cerila Agarrado against
herein petitioners Dr. Renato Sara and Romeo Arabia.
Private respondent Cerila Agarrado was an attendant in the clinic of petitioner Dr.
Renato Sara She quit her job in 1973. Four years later, petitioners Dr. Sara and
Romeo Arabia, being owners of a rice mill and having begun to engage in the buy
and sell of palay and rice, entered into a verbal agreement with private respondent
Agarrado whereby it was agreed that the latter would be paid P2.00 commission per
sack of milled rice sold as well as a commission of 10% per kilo of palay purchased.
It was further agreed that private respondent would spend her own money for the
undertaking, but to enable her to carry out the agreement more effectively, she was
authorized to borrow money from other persons, as in fact she did, subject to
reimbursement by petitioners. 1

In 1982, private respondent filed with the National Labor Relations Commission
(NLRC) Regional Arbitration Branch No. XI, Cotabato City, a complaint against
petitioners for unpaid commission of P4,598.00 on milled rice sold, P2,982.80 on
palay sold, reimbursement of P17,500.00 which she had borrowed from various
persons and Pl,749.00 of her own money which petitioners allegedly had not
reimbursed (LRD-ROXII-006- 82).

By way of defense, petitioners raised the issue of lack of jurisdiction on the part of
the Labor Arbiter to take cognizance of the case, there being no employer-employee
relationship between the parties. They averred that the claim for alleged unpaid
commission and certain sums of money is governed by the law on agency under the
Civil Code and hence a purely civil obligation cognizable by the regular courts.

On January 17, 1973, Labor Arbiter Magno C. Cruz rendered a decision in favor of
private respondent ordering petitioners to pay all the claims amounting to
P26,397.80. 2

Petitioner appealed the decision to the NLRC, which in a resolution dated June 25,
1986 affirmed the Labor Arbiter's decision and dismissed the appeal. 3

Their motion for reconsideration having been denied, petitioners took the present
recourse, maintaining lack of jurisdiction on the part of the Labor Tribunal as well as
grave abuse of discretion on its part in finding them liable to private respondent.

In his comment, the Solicitor General agreed with petitioners that there was no
employer-employee relationship between the parties and that by reason thereof the
Labor Arbiter had no jurisdiction over the case. The Solicitor General's comment was
accompanied by a manifestation and motion stating that he was filing the comment
on his own behalf and that the public respondent NLRC had been informed about his
contrary stand. 4

The primordial issue in this case is whether an employer-employee relationship

exists between petitioners and private respondent as to warrant cognizance by the
Labor Arbiter of LRD-ROXII-006-82.

To determine the existence of an employer-employee relationship, this Court in a

long line of decisions 5 has invariably applied the following four-fold test: [1] the
selection and engagement of the employee; [2] the payment of wages; [3] the
power of dismissal; and [4] the power to control the employee's conduct.

In the case at bar, we find that although there was a selection and engagement of
private respondent in 1977, the verbal agreement between the parties negated the
existence of the other requisites.

As to the payment of wages, the verbal agreement entered into by the parties
stipulated that private respondent would be paid a commission of P2.00 per sack of
milled rice sold as well as a 10% commission on palay purchase. The arrangement
thus was explicitly on a commission basis dependent on the volume of sale or
purchase. Private respondent was not guaranteed any minimum compensation nor
was she allowed any drawing account or advance of any kind against unearned
commissions. Her right to compensation depended upon and was measured by the
tangible results she produced the quantity of rice sold and the quantity of palay
purchased.

The power to terminate the relationship was mutually vested upon the parties. Either
may terminate the business arrangement at will, with or without cause.

Finally, noticeably absent from the agreement between the parties is the element of
control. Among the four (4) requisites, control is deemed the most important that
the other requisites may even be disregarded. 6 Under the control test, an employer-
employee relationship exists if the "employer" has reserved the right to control the
"employee" not only as to the result of the work done but also as to the means and
methods by which the same is to be accomplished. 7 Otherwise, no such relationship
exists.

We observe that the means and methods of purchasing and selling rice or palay by
private respondent were totally independent of petitioners' control. As established by
the NLRC:

... Sometime in June 1977, respondent re-engaged the services of

herein complainant to sell milled rice to the customers of the former,
as well as to buy palay for and in behalf of Dr. Renato Sara, with the
verbal agreement that to carry out effectively the said task,
complainant was duly authorized by respondent, Dr. Sara to spend her
own money, if necessary but subject to reimbursment and if that
would not be sufficient, to borrow money from other sources with
further understanding that Dr. Sala will repay the ill thru the
complainant; ... ([Emphasis supplied], p. 21, Rollo)

Note that private respondent was never given capital by his supposed employer but
relied on her own resources and if insufficient, she borrowed money from others.
Petitioners did not supply private respondent with tools and appliances needed to
enable her to carry her undertaking, except to authorize her to borrow money from
others, subject to reimbursement.
The absence of control is made more evident by the fact that private respondent
was not even obliged to sell the palay she purchased to petitioners. She was at
liberty to sell the palay to any trader offering higher buying rates. She was thus free
to sell it to anybody whom she pleased.

Moreover, private respondent worked for petitioners at her own pleasure and was
not subject to definite hours or conditions of work. She could even delegate the task
of buying and selling to others, if she so desired, or simultaneously engaged in other
means of livelihood while selling and purchasing rice or palay.

Under the conditions set forth in their agreement, private respondent was an
independent contractor, who exercising independent employment, contracted to do
a piece of work according to her own method and without being subject to the
control of her employer except as to the result of her work. She was paid for the
result of her labor, unlike an employee who is paid for the labor he performs. 8

The verbal agreement devoid as it was of any stipulations indicative of control leaves
no doubt that private respondent was not an employee of petitioners but was rather
an independent contractor.

The Labor Tribunal's jurisdiction being primarily predicated upon the existence of an
employer-employee relationship between the parties, the absence of such element,
as in the case at bar, removes the controversy from the scope of its limited
jurisdiction.

WHEREFORE, the instant petition for certiorari is granted. Case No. LRD-ROXII-006-
82 of the National Labor Relations Commission is hereby ordered DISMISSED for
lack of jurisdiction.

SO ORDERED.

G.R. No. L-19124 November 18, 1967

INVESTMENT PLANNING CORPORATION OF THE PHILIPPINES, petitioner-

appellant,
vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.

MAKALINTAL, J.:

Petitioner is a domestic corporation engaged in business management and the sale

of securities. It has two classes of agents who sell its investment plans: (1) salaried
employees who keep definite hours and work under the control and supervision of
the company; and (2) registered representatives who work on commission basis.

On August 27, 1960 petitioner, through counsel, applied to respondent Social

Security Commission for exemption of its so-called registered representatives from
the compulsory coverage of the Social Security Act. The application was denied in a
letter signed by the Secretary to the Commission on January 16, 1961. A motion to
reconsider was filed and also denied, after hearing, by the Commission itself in its
resolution dated September 8, 1961. The matter was thereafter elevated to this
Court for review.

The issue submitted for decision here is whether petitioner's registered

representatives are employees within the meaning of the Social Security Act (R.A.
No. 1161 as amended). Section 8 (d) thereof defines the term "employee" — for
purposes of the Act — as "any person who performs services for an 'employer' in
which either or both mental and physical efforts are used and who receives
compensation for such services, where there is, employer-employee relationship."
(As amended by Sec.4, R.A. No. 2658). These representatives are in reality
commission agents. The uncontradicted testimony of petitioner's lone witness, who
was its assistant sales director, is that these agents are recruited and trained by him
particularly for the job of selling "'Filipinos Mutual Fund" shares, made to undergo a
test after such training and, if successful, are given license to practice by the
Securities and Exchange Commission. They then execute an agreement with
petitioner with respect to the sale of FMF shares to the general public. Among the
features of said agreement which respondent Commission considered pertinent to
the issue are: (a) an agent is paid compensation for services in the form of
commission; (b) in the event of death or resignation he or his legal representative
shall be paid the balance of the commission corresponding to him; (c) he is subject
to a set of rules and regulations governing the performance of his duties under the
agreement; (d) he is required to put up a performance bond; and (e) his services
may be terminated for certain causes. At the same time the Commission found from
the evidence and so stated in its resolution that the agents "are not required to
report (for work) at any time; they do not have to devote their time exclusively to or
work solely for petitioner; the time and the effort they spend in their work depend
entirely upon their own will and initiative; they are not required to account for their
time nor submit a record of their activities; they shoulder their own selling expenses
as well as transportation; and they are paid their commission based on a certain
percentage of their sales." The record also reveals that the commission earned by an
agent on his sales is directly deducted by him from the amount he receives from the
investor and turns over to the company the amount invested after such deduction is
made. The majority of the agents are regularly employed elsewhere — either in the
government or in private enterprises.

Of the three requirements under Section 8 (d) of the Social Security Act it is
admitted that the first is present in respect of the agents whose status is in question.
They exert both mental and physical efforts in the performance of their services. The
compensation they receive, however, is not necessarily for those efforts but rather
for the results thereof, that is, for actual sales that they make. This point is relevant
in the determination of whether or not the third requisite is also present, namely,
the existence of employer-employee relationship. Petitioner points out that in effect
such compensation is paid not by it but by the investor, as shown by the basis on
which the amount of the commission is fixed and the manner in which it is collected.
Petitioner submits that its commission agents, engaged under the terms and
conditions already enumerated, are not employees but independent contractors, as
defined in Article 1713 of the Civil Code, which provides:

Art. 1713. By the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain price
or compensation. The contractor may either employ only his labor or skill, or
also furnish the material.

We are convinced from the facts that the work of petitioner's agents or registered
representatives more nearly approximates that of an independent contractor than
that of an employee. The latter is paid for the labor he performs, that is, for the acts
of which such labor consists; the former is paid for the result thereof. This Court has
recognized the distinction in Chartered Bank, et al. vs. Constantino, 56 Phil. 717,
where it said:

On this point, the distinguished commentator Manresa in referring to Article

1588 of the (Spanish) Civil Code has the following to say. . . .

The code does not begin by giving a general idea of the subject matter, but
by fixing its two distinguishing characteristics.

But such an idea was not absolutely necessary because the difference
between the lease of work by contract or for a fixed price and the lease of
services of hired servants or laborers is sufficiently clear. In the latter, the
direct object of the contract is the lessor's labor; the acts in which such labor
consists, performed for the benefit of the lessee, are taken into account
immediately. In work done by contract or for a fixed price, the lessor's labor is
indeed an important, a most important factor; but it is not the direct object of
the contract, nor is it immediately taken into account. The object which the
parties consider, which they bear in mind in order to determine the cause of
the contract, and upon which they really give their consent, is not the labor
but its result, the complete and finished work, the aggregate of the lessor's
acts embodied in something material, which is the useful object of the
contract. . . . (Manresa Commentarios al Codigo Civil, Vol. X, ed., pp. 774-
775.)

Even if an agent of petitioner should devote all of his time and effort trying to sell its
investment plans would not necessarily be entitled to compensation therefor. His
right to compensation depends upon and is measured by the tangible results he
produces.

The specific question of when there is "employer-employee relationship" for

purposes of the Social Security Act has not yet been settled in this jurisdiction by
any decision of this Court. But in other connections wherein the term is used the test
that has been generally applied is the so-called control test, 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.

Thus in Philippine Manufacturing Company vs. Geronimo, et al., L-6968, November

29, 1954, involving the Workmen's Compensation Act, we read:

. . . Garcia, a painting contractor, had a contract undertaken to paint a water

tank belonging to the Company "in accordance with specifications and price
stipulated," and with "the actual supervision of the work (being) taken care of
by" himself. Clearly, this made Garcia an independent contractor, for while
the company prescribed what should be done, the doing of it and the
supervision thereof was left entirely to him, all of which meant that he was
free to do the job according to his own method without being subject to the
control of the company except as to the result.

Cruz, et al. vs. The Manila Hotel Company, L-9110, April 30, 1957, presented the
issue of who were to be considered employees of the defendant firm for purposes of
separation gratuity. LVN Pictures, Inc. vs. Phil. Musicians Guild, et al., L-12582,
January 28, 1961, involved the status of certain musicians for purposes of
determining the appropriate bargaining representative of the employees. In both
instances the "control" test was followed. (See also Mansal vs. P.P. Gocheco Lumber
Co., L-8017, April 30, 1955; and Viana vs. Allagadan, et al., L-8967, May 31, 1956.)

In the United States, the Federal Social Security Act of 1935 set forth no definition of
the term 'employee' other than that it 'includes an officer of a corporation.' Under
that Act the U.S. Supreme Court adopted for a time and in several cases the so-
called 'economic-reality' test instead of the 'control' test. (U.S. vs. Silk and Harrison,
91 Law Ed. 1757; Bartels vs. Birmingham, Ibid, 1947, both decided in June 1947). In
the Bartels case the Court said:

In United States v. Silk, No. 312, 331 US 704, ante, 1957, 67 SCt 1463, supra,
we held that the relationship of employer-employee, which determines the
liability for employment taxes under the Social Security Act was not to be
determined solely by the idea of control which an alleged employer may or
could exercise over the details of the service rendered to his business by the
worker or workers. Obviously control is characteristically associated with the
employer-employee relationship, but in the application of social legislation
employees are those who as a matter of economic reality are dependent upon
the business to which they render service. In Silk, we pointed out that
permanency of the relation, the skill required, the investment in the facilities
for work and opportunities for profit or less from the activities were also
factors that should enter into judicial determination as to the coverage of the
Social Security Act. It is the total situation that controls. The standards are as
important in the entertainment field as we have just said, in Silk, that they
were in that of distribution and transportation. (91 Law, Ed. 1947, 1953;)

However, the 'economic-reality' test was subsequently abandoned as not reflective

of the intention of Congress in the enactment of the original Security Act of 1935.
The change was accomplished by means of an amendatory Act passed in 1948,
which was construed and applied in later cases. In Benson vs. Social Security Board,
172 F. 2d. 682, the U.S. Supreme Court said:

After the decision by the Supreme Court in the Silk case, the Treasury
Department revamped its Regulation, 12 Fed. Reg. 7966, using the test set
out in the Silk case for determining the existence of an employer-employee
relationship. Apparently this was not the concept of such a relationship that
Congress had in mind in the passage of such remedial acts as the one
involved here because thereafter on June 14, 1948, Congress enacted Public
Law 642, 42 U.S C.A. Sec. 1301 (a) (6). Section 1101(a) (6) of the Social
Security Act was amended to read as follows:

The term "employee" includes an officer of a corporation, but such

term does not include (1) any individual who, under the usual
common-law rules applicable in determining the employer-employee
relationship, has the status of an independent contractor or (2) any
individual (except an officer of a corporation) who is not an employee
under such common law rules.

While it is not necessary to explore the full effect of this enactment in the
determination of the existence of employer-employee relationships arising in
the future, we think it can fairly be said that the intent of Congress was to say
that in determining in a given case whether under the Social Security Act such
a relationship exists, the common-law elements of such a relationship, as
recognized and applied by the courts generally at the time of the passage of
the Act, were the standard to be used . . . .

The common-law principles expressly adopted by the United States Congress are
summarized in Corpus Juris Secundum as follows:

Under the common-law principles as to tests of the independent contractor

relationship, discussed in Master and Servant, and applicable in determining
coverage under the Social Security Act and related taxing provisions, the
significant factor in determining the relationship of the parties is the presence
or absence of a supervisory power to control the method and detail of
performance of the service, and the degree to which the principal may
intervene to exercise such control, the presence of such power of control
being indicative of an employment relationship and the absence of such
power being indicative of the relationship of independent contractor. In other
words, the test of existence of the relationship of independent contractor,
which relationship is not taxable under the Social Security Act and related
provisions, is whether the one who is claimed 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 as to the result of
the work. (81 C.J.S. Sec. 5, pp. 24-25); See also Millard's Inc. vs. United
States, 46 F. Supp. 385; Schmidt vs. Ewing, 108 F. Supp. 505; Ramblin vs.
Ewing, 106 F. Supp. 268.
In the case last cited (Rambin v. Ewing) the question presented was whether the
plaintiff there, who was a sales representative of a cosmetics firm working on a
commission basis, was to be considered an employee. Said the Court:

Plaintiff's only remuneration was her commission of 40%, plus $5 extra for
every $250 of sales. Plaintiff was not guaranteed any minimum compensation
and she was not allowed a drawing account or advance of any kind against
unearned commissions. Plaintiff paid all of her traveling expenses and she
even had to pay the postage for sending orders to Avon.

The only office which Avon maintained in Shreveport was an office for the city
manager. Plaintiff worked from her own home and she was never furnished
any leads. The relationship between plaintiff and Avon was terminable at will .
..

xxx xxx xxx

. . . A long line of decisions holds that commission sales representatives are

not employees within the coverage of the Social Security Act. The underlying
circumstances of the relationship between the sales representatives and
company often vary widely from case to case, but commission sales
representatives have uniformly been held to be outside the Social Security
Act.

Considering the similarity between the definition of "employee" in the Federal Social
Security Act (U.S.) as amended and its definitions in our own Social Security Act, and
considering further that the local statute is admittedly patterned after that of the
United States, the decisions of American courts on the matter before us may well be
accorded persuasive force. The logic of the situation indeed dictates that where the
element of control is absent; where a person who works for another does so more or
less at his own pleasure and is not subject to definite hours or conditions of work,
and in turn is compensated according to the result of his efforts and not the amount
thereof, we should not find that the relationship of employer and employee exists.

We have examined the contract form between petitioner and its registered
representatives and found nothing therein which would indicate that the latter are
under the control of the former in respect of the means and methods they employ in
the performance of their work. The fact that for certain specified causes the
relationship may be terminated (e.g., failure to meet the annual quota of sales,
inability to make any sales production during a six-month period, conduct
detrimental to petitioner, etc.) does not mean that such control exists, for the causes
of termination thus specified have no relation to the means and methods of work
that are ordinarily required of or imposed upon employees.

In view of the foregoing considerations, the resolution of respondent Social Security

Commission subject of this appeal is reversed and set aside, without pronouncement
as to costs.
G.R. No. L-12582 January 28, 1961

LVN PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL
RELATIONS, respondents-appellees.

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

G.R. No. L-12598 January 28, 1961

SAMPAGUITA PICTURES, INC., petitioner-appellant,

vs.
PHILIPPINE MUSICIANS Guild (FFW) and COURT OF INDUSTRIAL
RELATIONS, respondents-appellees.

Nicanor S. Sison for petitioner-appellant.

Jaime E. Ilagan for respondent-appellee Court of Agrarian Relations.
Gerardo P. Cabo Chan for respondent-appellee Philippine Musicians Guild.

CONCEPCION, J.:

Petitioners herein, LVN Pictures, Inc. and Sampaguita Pictures, Inc. seek a review
by certiorari of an order of the Court of Industrial Relations in Case No. 306-MC
thereof, certifying the Philippine Musicians Guild (FFW), petitioner therein and
respondent herein, as the sole and exclusive bargaining agency of all musicians
working with said companies, as well as with the Premiere Productions, Inc., which
has not appealed. The appeal of LVN Pictures, Inc., has been docketed as G.R. No.
L-12582, whereas G.R. No. L-12598 is the appeal of Sampaguita Pictures, Inc.
Involving as they do the same order, the two cases have been jointly heard in this
Court, and will similarly be disposed of.

In its petition in the lower court, the Philippine Musicians Guild (FFW), hereafter
referred to as the Guild, averred that it is a duly registered legitimate labor
organization; that LVN Pictures, Inc., Sampaguita Pictures, Inc., and Premiere
Productions, Inc. are corporations, duly organized under the Philippine laws,
engaged in the making of motion pictures and in the processing and distribution
thereof; that said companies employ musicians for the purpose of making music
recordings for title music, background music, musical numbers, finale music and
other incidental music, without which a motion picture is incomplete; that ninety-five
(95%) percent of all the musicians playing for the musical recordings of said
companies are members of the Guild; and that the same has no knowledge of the
existence of any other legitimate labor organization representing musicians in said
companies. Premised upon these allegations, the Guild prayed that it be certified as
the sole and exclusive bargaining agency for all musicians working in the
aforementioned companies. In their respective answers, the latter denied that they
have any musicians as employees, and alleged that the musical numbers in the filing
of the companies are furnished by independent contractors. The lower court,
however, rejected this pretense and sustained the theory of the Guild, with the
result already adverted to. A reconsideration of the order complained of having been
denied by the Court en banc, LVN Pictures, inc., and Sampaguita Pictures, Inc., filed
these petitions for review for certiorari.

Apart from impugning the conclusion of the lower court on the status of the Guild
members as alleged employees of the film companies, the LVN Pictures, Inc.,
maintains that a petition for certification cannot be entertained when the existence
of employer-employee relationship between the parties is contested. However, this
claim is neither borne out by any legal provision nor supported by any authority. So
long as, after due hearing, the parties are found to bear said relationship, as in the
case at bar, it is proper to pass upon the merits of the petition for certification.

It is next urged that a certification is improper in the present case, because, "(a) the
petition does not allege and no evidence was presented that the alleged musicians-
employees of the respondents constitute a proper bargaining unit, and (b) said
alleged musicians-employees represent a majority of the other numerous employees
of the film companies constituting a proper bargaining unit under section 12 (a) of
Republic Act No. 875."

The absence of an express allegation that the members of the Guild constitute a
proper bargaining unit is fatal proceeding, for the same is not a "litigation" in the
sense in which this term is commonly understood, but a mere investigation of a non-
adversary, fact finding character, in which the investigating agency plays the part of
a disinterested investigator seeking merely to ascertain the desires of employees as
to the matter of their representation. In connection therewith, the court enjoys a
wide discretion in determining the procedure necessary to insure the fair and free
choice of bargaining representatives by employees.1 Moreover, it is alleged in the
petition that the Guild it a duly registered legitimate labor organization and that
ninety-five (95%) percent of the musicians playing for all the musical recordings of
the film companies involved in these cases are members of the Guild. Although, in
its answer, the LVN Pictures, Inc. denied both allegations, it appears that, at the
hearing in the lower court it was merely the status of the musicians as its employees
that the film companies really contested. Besides, the substantial difference between
the work performed by said musicians and that of other persons who participate in
the production of a film, and the peculiar circumstances under which the services of
that former are engaged and rendered, suffice to show that they constitute a proper
bargaining unit. At this juncture, it should be noted that the action of the lower court
in deciding upon an appropriate unit for collective bargaining purposes is
discretionary (N.L.R.B. v. May Dept. Store Co., 66 Sup. Ct. 468. 90 L. ed. 145) and
that its judgment in this respect is entitled to almost complete finality, unless its
action is arbitrary or capricious (Marshall Field & Co. v. N.L.R.B. [C.C.A. 19431, 135
F. 2d. 891), which is far from being so in the cases at bar.

Again, the Guild seeks to be, and was, certified as the sole and exclusive bargaining
agency for the musicians working in the aforesaid film companies. It does not intend
to represent the other employees therein. Hence, it was not necessary for the Guild
to allege that its members constitute a majority of all the employees of said film
companies, including those who are not musicians. The real issue in these cases, is
whether or not the musicians in question are employees of the film companies. In
this connection the lower court had the following to say:

As a normal and usual course of procedure employed by the companies when

a picture is to be made, the producer invariably chooses, from the musical
directors, one who will furnish the musical background for a film. A price is
agreed upon verbally between the producer and musical director for the cost
of furnishing such musical background. Thus, the musical director may
compose his own music specially written for or adapted to the picture. He
engages his own men and pays the corresponding compensation of the
musicians under him.

When the music is ready for recording, the musicians are summoned through
'call slips' in the name of the film company (Exh 'D'), which show the name of
the musician, his musical instrument, and the date, time and place where he
will be picked up by the truck of the film company. The film company
provides the studio for the use of the musicians for that particular recording.
The musicians are also provided transportation to and from the studio by the
company. Similarly, the company furnishes them meals at dinner time.

During the recording sessions, the motion picture director, who is an

employee of the company, supervises the recording of the musicians and tells
what to do in every detail. He solely directs the performance of the musicians
before the camera as director, he supervises the performance of all the
action, including the musicians who appear in the scenes so that in the actual
performance to be shown on the screen, the musical director's intervention
has stopped.

And even in the recording sessions and during the actual shooting of a scene,
the technicians, soundmen and other employees of the company assist in the
operation. Hence, the work of the musicians is an integral part of the entire
motion picture since they not only furnish the music but are also called upon
to appear in the finished picture.

The question to be determined next is what legal relationship exits between

the musicians and the company in the light of the foregoing facts.

We are thus called upon to apply R.A. Act 875. which is substantially the
same as and patterned after the Wagner Act substantially the same as a Act
and the Taft-Hartley Law of the United States. Hence, reference to decisions
of American Courts on these laws on the point-at-issue is called for.

Statutes are to be construed in the light of purposes achieved and the evils
sought to be remedied. (U.S. vs. American Tracking Association, 310 U.S.
534, 84 L. ed. 1345.) .
In the case of National Labor Relations Board vs. Hearts Publication, 322 U.S.
111, the United States Supreme Court said the Wagner Act was designed to
avert the 'substantial obstruction to the free flow of commerce which results
from strikes and other forms of industrial unrest by eliminating the causes of
the unrest. Strikes and industrial unrest result from the refusal of employers'
to bargain collectively and the inability of workers to bargain successfully for
improvement in their working conditions. Hence, the purposes of the Act are
to encourage collective bargaining and to remedy the workers' inability to
bargaining power, by protecting the exercise of full freedom of association
and designation of representatives of their own choosing, for the purpose of
negotiating the terms and conditions of their employment.'

The mischief at which the Act is aimed and the remedies it offers are not
confined exclusively to 'employees' within the traditional legal distinctions,
separating them from 'independent contractor'. Myriad forms of service
relationship, with infinite and subtle variations in the term of employment,
blanket the nation's economy. Some are within this Act, others beyond its
coverage. Large numbers will fall clearly on one side or on the other, by
whatever test may be applied. Inequality of bargaining power in controversies
of their wages, hours and working conditions may characterize the status of
one group as of the other. The former, when acting alone may be as helpless
in dealing with the employer as dependent on his daily wage and as unable to
resist arbitrary and unfair treatment as the latter.'

To eliminate the causes of labor dispute and industrial strike, Congress

thought it necessary to create a balance of forces in certain types of economic
relationship. Congress recognized those economic relationships cannot be
fitted neatly into the containers designated as 'employee' and 'employer'.
Employers and employees not in proximate relationship may be drawn into
common controversies by economic forces and that the very dispute sought
to be avoided might involve 'employees' who are at times brought into an
economic relationship with 'employers', who are not their 'employers'. In this
light, the language of the Act's definition of 'employee' or 'employer' should
be determined broadly in doubtful situations, by underlying economic facts
rather than technically and exclusively established legal classifications. (NLRB
vs. Blount, 131 F [2d] 585.)

In other words, the scope of the term 'employee' must be understood with
reference to the purposes of the Act and the facts involved in the economic
relationship. Where all the conditions of relation require protection, protection
ought to be given .

By declaring a worker an employee of the person for whom he works and by

recognizing and protecting his rights as such, we eliminate the cause of
industrial unrest and consequently we promote industrial peace, because we
enable him to negotiate an agreement which will settle disputes regarding
conditions of employment, through the process of collective bargaining.
The statutory definition of the word 'employee' is of wide scope. As used in
the Act, the term embraces 'any employee' that is all employees in the
conventional as well in the legal sense expect those excluded by express
provision. (Connor Lumber Co., 11 NLRB 776.).

It is the purpose of the policy of Republic Act 875; (a) To eliminate the causes
of industrial unrest by protecting the exercise of their right to self-
organization for the purpose of collective bargaining. (b) To promote sound
stable industrial peace and the advancement of the general welfare, and the
best interests of employers and employees by the settlement of issues
respecting terms and conditions of employment through the process of
collective bargaining between employers and representatives of their
employees.

The primary consideration is whether the declared policy and purpose of the
Act can be effectuated by securing for the individual worker the rights and
protection guaranteed by the Act. The matter is not conclusively determined
by a contract which purports to establish the status of the worker, not as an
employee.

The work of the musical director and musicians is a functional and integral
part of the enterprise performed at the same studio substantially under the
direction and control of the company.

In other words, to determine whether a person who performs work for

another is the latter's employee or an independent contractor, the National
Labor Relations relies on 'the right to control' test. Under this test an
employer-employee relationship exist where the person for whom the services
are performed reserves the right to control not only the end to be achieved,
but also the manner and means to be used in reaching the end. (United
Insurance Company, 108, NLRB No. 115.).

Thus, in said similar case of Connor Lumber Company, the Supreme Court
said:.

'We find that the independent contractors and persons working under
them are employees' within the meaning of Section 2 (3) of its Act.
However, we are of the opinion that the independent contractors have
sufficient authority over the persons working under their immediate
supervision to warrant their exclusion from the unit. We shall include in
the unit the employees working under the supervision of the
independent contractors, but exclude the contractors.'

'Notwithstanding that the employees are called independent contractors', the

Board will hold them to be employees under the Act where the extent of the
employer's control over them indicates that the relationship is in reality one of
employment. (John Hancock Insurance Co., 2375-D, 1940, Teller, Labor
Dispute Collective Bargaining, Vol.).
 The right of control of the film company over the musicians is shown (1) by
calling the musicians through 'call slips' in 'the name of the company; (2) by
arranging schedules in its studio for recording sessions; (3) by furnishing
transportation and meals to musicians; and (4) by supervising and directing in
detail, through the motion picture director, the performance of the musicians
before the camera, in order to suit the music they are playing to the picture
which is being flashed on the screen.

Thus, in the application of Philippine statutes and pertinent decisions of the

United States Courts on the matter to the facts established in this case, we
cannot but conclude that to effectuate the policies of the Act and by virtue of
the 'right of control' test, the members of the Philippine Musicians Guild are
employees of the three film companies and, therefore, entitled to right of
collective bargaining under Republic Act No. 875.

In view of the fact that the three (3) film companies did not question the
union's majority, the Philippine Musicians Guild is hereby declared as the sole
collective bargaining representative for all the musicians employed by the film
companies."

We are fully in agreement with the foregoing conclusion and the reasons given in
support thereof. Both are substantially in line with the spirit of our decision
in Maligaya Ship Watchmen Agency vs. Associated Watchmen and Security Union, L-
12214-17 (May 28, 1958). In fact, the contention of the employers in
the Maligaya cases, to the effect that they had dealt with independent contractors,
was stronger than that of the film companies in these cases. The third parties with
whom the management and the workers contracted in the Maligaya cases were
agencies registered with the Bureau of Commerce and duly licensed by the City of
Manila to engage in the business of supplying watchmen to steamship
companies, with permits to engage in said business issued by the City Mayor and
the Collector of Customs. In the cases at bar, the musical directors with whom the
film companies claim to have dealt with had nothing comparable to the business
standing of said watchmen agencies. In this respect, the status of said musical
directors is analogous to that of the alleged independent contractor in Caro vs.
Rilloraza, L-9569 (September 30, 1957), with the particularity that the Caro case
involved the enforcement of the liability of an employer under the Workmen's
Compensation Act, whereas the cases before us are merely concerned with the right
of the Guild to represent the musicians as a collective bargaining unit. Hence, there
is less reason to be legalistic and technical in these cases, than in the Caro case.

Herein, petitioners-appellants cite, in support of their appeal, the cases of Sunripe

Coconut Product Co., Inc vs. CIR(46 Off. Gaz., 5506, 5509), Philippine
Manufacturing Co. vs. Santos Vda. de Geronimo, L-6968 (November 29,
1954), Viana vs. Al-Lagadan, L-8967 (May 31, 1956), and Josefa Vda. de Cruz vs.
The Manila Hotel Co. (53 Off. Gaz., 8540). Instead of favoring the theory of said
petitioners-appellants, the case of the Sunripe Coconut Product Co., Inc. is authority
for herein respondents-appellees. It was held that, although engaged as piece-
workers, under the "pakiao" system, the "parers" and "shellers" in the case were,
not independent contractor, but employees of said company, because "the
requirement imposed on the 'parers' to the effect that 'the nuts are pared whole or
that there is not much meat wasted,' in effect limits or controls the means or details
by which said workers are to accomplish their services" — as in the cases before us.

The nature of the relation between the parties was not settled in the Viana case, the
same having been remanded to the Workmen's Compensation Commission for
further evidence.

The case of the Philippine Manufacturing Co. involved a contract between said
company and Eliano Garcia, who undertook to paint a tank of the former. Garcia, in
turn engaged the services of Arcadio Geronimo, a laborer, who fell while painting the
tank and died in consequence of the injuries thus sustained by him. Inasmuch as the
company was engaged in the manufacture of soap, vegetable lard, cooking oil and
margarine, it was held that the connection between its business and the painting
aforementioned was purely casual; that Eliano Garcia was an independent
contractor; that Geronimo was not an employee of the company; and that the latter
was not bound, therefore, to pay the compensation provided in the Workmen's
Compensation Act. Unlike the Philippine Manufacturing case, the relation between
the business of herein petitioners-appellants and the work of the musicians is not
casual. As held in the order appealed from which, in this respect, is not contested by
herein petitioners-appellants — "the work of the musicians is an integral part of the
entire motion picture." Indeed, one can hardly find modern films without music
therein. Hence, in the Caro case (supra), the owner and operator of buildings for
rent was held bound to pay the indemnity prescribed in the Workmen's
Compensation Act for the injury suffered by a carpenter while working as such in
one of said buildings even though his services had been allegedly engaged by a third
party who had directly contracted with said owner. In other words, the repair work
had not merely a casual connection with the business of said owner. It was a
necessary incident thereof, just as music is in the production of motion pictures.

The case of Josefa Vda. de Cruz vs. The Manila Hotel Co., L-9110 (April 30, 1957)
differs materially from the present cases. It involved the interpretation of Republic
Act No. 660, which amends the law creating and establishing the Government
Service Insurance System. No labor law was sought to be construed in that case. In
act, the same was originally heard in the Court of First Instance of Manila, the
decision of which was, on appeal, affirmed by the Supreme Court. The meaning or
scope if the term "employee," as used in the Industrial Peace Act (Republic Act No.
875), was not touched therein. Moreover, the subject matter of said case was a
contract between the management of the Manila Hotel, on the one hand, and Tirso
Cruz, on the other, whereby the latter greed to furnish the former the services of his
orchestra, consisting of 15 musicians, including Tirso Cruz, "from 7:30 p.m. to
closing time daily." In the language of this court in that case, "what pieces the
orchestra shall play, and how the music shall be arranged or directed, the intervals
and other details — such are left to the leader's discretion."

This is not situation obtaining in the case at bar. The musical directors above
referred to have no such control over the musicians involved in the present case.
Said musical directors control neither the music to be played, nor the musicians
playing it. The film companies summon the musicians to work, through the musical
directors. The film companies, through the musical directors, fix the date, the time
and the place of work. The film companies, not the musical directors, provide the
transportation to and from the studio. The film companies furnish meal at dinner
time.

What is more — in the language of the order appealed from — "during the recording
sessions, the motion picture director who is an employee of the company" — not the
musical director — "supervises the recording of the musicians and tells them what to
do in every detail". The motion picture director — not the musical director — "solely
directs and performance of the musicians before the camera". The motion picture
director "supervises the performance of all the actors, including the musicians who
appear in the scenes, so that in the actual performance to be shown in the
screen, the musical director's intervention has stopped." Or, as testified to in the
lower court, "the movie director tells the musical director what to do; tells the music
to be cut or tells additional music in this part or he eliminates the entire music he
does not (want) or he may want more drums or move violin or piano, as the case
may be". The movie director "directly controls the activities of the musicians." He
"says he wants more drums and the drummer plays more" or "if he wants more
violin or he does not like that.".

It is well settled that "an employer-employee relationship exists . . .where the

person for whom the services are performed reserves a right to control not only the
end to be achieved but also the means to be used in reaching such end . . . ."
(Alabama Highway Express Co., Express Co., v. Local 612, 108S. 2d. 350.) The
decisive nature of said control over the "means to be used", is illustrated in the case
of Gilchrist Timber Co., et al., Local No. 2530 (73 NLRB No. 210, pp. 1197, 1199-
1201), in which, by reason of said control, the employer-employee relationship was
held to exist between the management and the workers, notwithstanding the
intervention of an alleged independent contractor, who had, and exercise, the power
to hire and fire said workers. The aforementioned control over the means to be
used" in reading the desired end is possessed and exercised by the film companies
over the musicians in the cases before us.

WHEREFORE, the order appealed from is hereby affirmed, with costs against
petitioners herein. It is so ordered.

G.R. No. 114787 June 2, 1995

MAM REALTY DEVELOPMENT CORPORATION and MANUEL

CENTENO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and CELSO B.
BALBASTRO respondents.
VITUG, J.:

A prime focus in the instant petition is the question of when to hold a director or
officer of a corporation solidarily obligated with the latter for a corporate liability.

The case originated from a complaint filed with the Labor Arbiter by private
respondent Celso B. Balbastro against herein petitioners, MAM Realty Development
Corporation ("MAM") and its Vice President Manuel P. Centeno, for wage
differentials, "ECOLA," overtime pay, incentive leave pay, 13th month pay (for the
years 1988 and 1989), holiday pay and rest day pay. Balbastro alleged that he was
employed by MAM as a pump operator in 1982 and had since performed such work
at its Rancho Estate, Marikina, Metro Manila. He earned a basic monthly salary of
P1,590.00 for seven days of work a week that started from 6:00 a.m. to up until
6:00 p.m. daily.

MAM countered that Balbastro had previously been employed by Francisco Cacho
and Co., Inc., the developer of Rancho Estates. Sometime in May 1982, his services
were contracted by MAM for the operation of the Rancho Estates' water pump. He
was engaged, however, not as an employee, but as a service contractor, at an
agreed fee of P1,590.00 a month. Similar arrangements were likewise entered into
by MAM with one Rodolfo Mercado and with a security guard of Rancho Estates III
Homeowners' Association. Under the agreement, Balbastro was merely made to
open and close on a daily basis the water supply system of the different phases of
the subdivision in accordance with its water rationing scheme. He worked for only a
maximum period of three hours a day, and he made use of his free time by offering
plumbing services to the residents of the subdivision. He was not at all subject to the
control or supervision of MAM for, in fact, his work could so also be done either by
Mercado or by the security guard. On 23 May 1990, prior to the filing of the
complaint, MAM executed a Deed of Transfer,1 effective 01 July 1990, in favor of the
Rancho Estates Phase III Homeowners Association, Inc., conveying to the latter all
its rights and interests over the water system in the subdivision.

In a decision, dated 23 December 1991, the Labor Arbiter dismissed the complaint
for lack of merit.

On appeal to it, respondent National Labor Relations Commission ("NLRC") rendered

judgment (a) setting aside the questioned decision of the Labor Arbiter and (b)
referring the case, pursuant to Article 218(c) of the Labor Code, to Arbiter Cristeta
D. Tamayo for further hearing and submission of a report within 20 days from
receipt of the Order.2On 21 March 1994, respondent Commissioner, after considering
the report of Labor Arbiter Tamayo, ordered:

WHEREFORE, the respondents are hereby directed to pay jointly and

severally complainant the sum of P86,641.05 as above-computed. 3

The instant petition asseverates that respondent NLRC gravely abused its
discretion, amounting to lack or excess of jurisdiction, (1) in finding that an
employer-employee relationship existed between petitioners and private
 respondent and (2) in holding petitioners jointly and severally liable for the
money claims awarded to private respondent.

Once again, the matter of ascertaining the existence of an employer-employee

relationship is raised. Repeatedly, we have said that this factual issue is determined
by:

(a) the selection and engagement of the employee;

(b) the payment of wages;

(c) the power of dismissal; and

(d) the employer's power to control the employee with respect to the
result of the work to be done and to the means and methods by which
the work is to be accomplished.

We see no grave abuse of discretion on the part of NLRC in finding a full

satisfaction, in the case at bench, of the criteria to establish that employer-
employee relationship. The power of control, the most important feature of
that relationship and, here, a point of controversy, 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.4 It
is hard to accede to the contention of petitioners that private respondent
should be considered totally free from such control merely because the work
could equally and easily be done either by Mercado or by the subdivision's
security guard. Not without any significance is that private respondent's
employment with MAM has been registered by petitioners with the Social
Security System.5

It would seem that the money claims awarded to private respondent were computed
from 06 March 1988 to 06 March 1991,6 the latter being the date of the filing of the
complaint. The NLRC might have missed the transfer by MAM of the water system to
the Homeowners Association on 01 July 1990, a matter that would appear not to be
in dispute. Accordingly, the period for the computation of the money claims should
only be for the period from 06 March 1988 to 01 July 1990 (when petitioner
corporation could be deemed to have ceased from the activity for which private
respondent was employed), and petitioner corporation should, instead, be made
liable for the employee's separation pay equivalent to one-half (1/2) month pay for
every year of
service. 7 While the transfer was allegedly due to MAM's financial constraints,
unfortunately for petitioner corporation, however, it failed to sufficiently establish
that its business losses or financial reverses were serious enough that possibly can
warrant an exemption under the law.8

We agree with petitioners, however, that the NLRC erred in holding Centeno jointly
and severally liable with MAM. A corporation, being a juridical entity, may act only
through its directors, officers and employees. Obligations incurred by them, acting as
such corporate agents, are not theirs but the direct accountabilities of the
corporation they represent. True, solidary liabilities may at times be incurred but
only when exceptional circumstances warrant such as, generally, in the following
cases:9

1. When directors and trustees or, in appropriate cases, the officers of

a corporation —

(a) vote for or assent to patently unlawful acts of the

corporation;

(b) act in bad faith or with gross negligence in directing

the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the

corporation, its stockholders or members, and other
persons. 10

2. When a director or officer has consented to the issuance of watered

stocks or who, having knowledge thereof, did not forthwith file with
the corporate secretary his written objection thereto. 11

3. When a director, trustee or officer has contractually agreed or

stipulated to hold himself personally and solidarily liable with the
Corporation. 12

4 When a director, trustee or officer is made, by specific provision of

law, personally liable for his corporate action.13

In labor cases, for instance, the Court has held corporate directors and
officers solidarily liable with the corporation for the termination of
employment of employees done with malice or in bad faith.14

In the case at Bench, there is nothing substantial on record that can justify,
prescinding from the foregoing, petitioner Centeno's solidary liability with the
corporation.

An extra note. Private respondent avers that the questioned decision, having already
become final and executory, could no longer be reviewed by this Court. The petition
before us has been filed under Rule 65 of the Rules of Court, there being no appeal,
or any other plain, speedy and adequate remedy in the ordinary course of law from
decisions of the National Labor Relations Commission; it is a relief that is open so
long as it is availed of within a reasonable time.

WHEREFORE, the order of 21 March 1994 is MODIFIED. The case is REMANDED to

the NLRC for a re-computation of private respondent's monetary awards, which,
conformably with this opinion, shall be paid solely by petitioner MAM Realty
Development Corporation. No special pronouncement on costs.

SO ORDERED.

G.R. No. 100665 February 13, 1995

ZANOTTE SHOES/LEONARDO LORENZO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. BENIGNO C.
VILLARENTE, JR., JOSEPH LLUZ, LOLITO LLUZ, NOEL ADARAYAN, ROGELIO
SIRA, VIRGINIA HERESANO, GENELITO HERESANO and CARMELITA DE
DIOS, respondents.

VITUG, J.:

This petition for certiorari assails the 24th April 1991 resolution of respondent
National Labor Relations Commission ("NLRC"), as well as its resolution of 30 May
1991 denying a motion for reconsideration, which has dismissed herein petitioners'
appeal of the 16th October 1989 decision of Labor Arbiter Benigno C. Villarente, Jr.

Private respondents filed a complaint for illegal dismissal and for various monetary
claims, including the recovery of damages and attorney's fees, against petitioners. In
their supplemental position paper, the complainants subsequently confined
themselves to the illegal dismissal charge and abandoned the monetary claims. One
of the original eight complainants, Virgilio Alcunaba, decided to resume his work with
petitioners, thus leaving the rest to pursue the case. Private respondents averred
that they started to work for petitioners on, respectively, the following dates:

NAME DATE
1 Joseph Lluz March, 1985
2 Noel Adarayan Feb. 17, 1980
3 Rogelio Sira January, 1982
4 Lolito Lluz March, 1982
5 Virginia Heresano May, 1987
6 Genelito Heresano 20-Oct-87
7 Carmelita de Dios January, 1975 1

that they worked for a minimum of twelve hours daily, including Sundays and
holidays when needed; that they were paid on piece-work basis; that it "angered"
petitioner Lorenzo when they requested to be made members of the Social Security
System ("SSS"); and that, when they demanded an increase in their pay rates, they
were prevented (starting 24 October 1988) from entering the work premises.
Petitioners, in turn, claimed that their business operations were only seasonal,
normally twice a year, one in June (coinciding with the opening of school classes)
and another in December (during the Christmas holidays), when heavy job orders
would come in. Private respondents, according to petitioners, were engaged on
purely contractual basis and paid the rates conformably with their respective
agreements.

On 16 October 1989, Labor Arbiter Benigno C. Villarente, Jr., rendered judgment in

favor of the complainants, thus:

WHEREFORE, judgment is hereby rendered declaring that there was an

employer-employee relationship between complainants and
respondents and that the former were regular employees of the latter.
Accordingly, respondents are hereby directed to pay all complainants
their respective separation pay based on their one-half month's
earnings per year of service, a fraction of at least six months to be
considered one whole year, or the following amounts:

1 Joseph Lluz P 7,488.00 (3 yrs. & 7 mos.)

2 Noel Adarayan 12,636.00 (8 yrs. & 8 mos.)
3 Rogelio Sira 8,828.00 (6 yrs. & 9 mos.)
4 Lolito Lluz 8,828.00 (6 yrs. & 7 mos.)
5 Genelito Heresano 1,404.00 (1 year)
6 Virginia Heresano 665.00 (1 yr. & 5 mos.)
7 Carmelita de Dios 19,656.00 (13 yrs. & 9 mos.)
Total P 59,515.002

Respondents are also hereby directed to pay complainants' counsel the

amount of P5,950.00 which is equivalent to 10% of the above total
awards as attorney's fees.

SO ORDERED. 3

An appeal was interposed by petitioners. The NLRC, on 24 April 1991, sustained the
findings of the Labor Arbiter and dismissed the appeal. On 30 May 1991, the NLRC
denied petitioners' motion for reconsideration.

Hence, the instant petition.

In his comment, dated 14 October 1991, the Solicitor General moved for the
modification of NLRC's resolution of 24 April 1991. While conceding that an
employer-employee relationship existed between petitioners and private
respondents, the Solicitor General, nevertheless, expressed strong reservations on
the award of separation pay in view of the findings by both the Labor Arbiter and
the NLRC that there was neither dismissal nor abandonment in the case at bench.
The NLRC submitted its own comment on 11 February 1992.

Well-settled is the rule that factual findings of the NLRC, particularly when they
coincide with that of the Labor Arbiter, are accorded respect, if not finality, and will
not be disturbed absent any showing that substantial evidence which might
otherwise affect the result of the case has been discarded. We see no reason, in this
case at bench, for disturbing the findings of the Labor Arbiter and the NLRC on the
existence of an employer-employee relationship between herein private parties. The
work of private respondents is clearly related to, and in the pursuit of, the principal
business activity of petitioners. The indicia used for determining the existence of an
employer-employee relationship, all extant in the case at bench, include (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the
power of dismissal; and (d) the employer's power to control the employee with
respect to the result of the work to be done and to the means and methods by
which the work to be done and to the means and methods by which the work is to
be accomplished. The requirement, so herein posed as an issue, refers to the
existence of the right to control and not necessarily to the actual exercise of the
right. In Dy Keh Beng v.International Labor and Marine Union of the Philippines, et
al.,4 the Court has held:

While this Court up holds the control test under which an employer-
employee relationship exists "where the person for whom the services
are performed reserves a right to control not only the end to be
achieved but also the means to be used in reaching such end," it finds
no merit with petitioner's arguments as stated above. It should be
borne in mind that the control test calls merely for the existence of the
right to control the manner of doing the work, not the actual exercise
of the right. Considering the finding by the Hearing Examiner that the
establishment of Dy Keh Beng is "engaged in the manufacture of
basket known as kaing," it is natural to expect that those working
under Dy would have to observe, among others, Dy's requirements of
size and quality of the kaing. Some control would necessarily be
exercised by Dy's specifications. Parenthetically, since the work on the
baskets is done at Dy's establishments, it can be inferred that the
proprietor Dy could easily exercise control on the men he employed.

We share the opinion of the Solicitor General that the award of separation pay to
private respondents appears, nonetheless, to be unwarranted.

The Labor Arbiter, sustained by the NLRC, concluded that there was neither
dismissal nor abandonment. The Labor Arbiter said —

. . . At any rate, records show that even during the conciliation stage,
respondents had repeatedly indicated that they were willing to accept
back all complainants aside from denying complainants allegation.
Hence, it is clear that there was no dismissal to talk about in the first
place which would have to be determined whether legal or not. We
 also take particular note of complainants' desire to be given separation
pay instead of being ordered back to work. Considering all these
factors we hereby rule that there was neither dismissal nor
abandonment but complainants are simply out of job for reasons not
attributable to either party. (Rollo, pp. 30-31.)

The NLRC, in nonetheless agreeing with the Labor Arbiter on the latter's award of
separation pay, ventured to say:

. . . It is not difficult to see the rationale behind the Labor Arbiter's

disposition — he saw in respondents' offer of reinstatement the
commanding advantage it had to later force (by whatever unlawful
means they may resort to) the complainants out of job, just as the
Labor Arbiter saw that fear on the part of complainants to enter into a
trap being laid before them for indeed, it is peculiar for an employer
who wants to get rid of its employees, to insist on reinstatement rather
than a separation pay scheme which the law allows them so they may
be able to better manage their business. (Rollo, p. 39.)

We find the above disquisition of the NLRC too peculative and conjectural to be
sustained. The fact of the matter is that petitioners have repeatedly indicated their
willingness to accept private respondents but the latter have steadfastly refused the
offer. For being without any clear legal basis, the award of separation pay must thus
be set aside.5 There is nothing, however, that prevents petitioners from voluntarily
giving private respondents some amounts on ex gratia basis.

WHEREFORE, the questioned findings and resolutions of respondents Labor Arbiter

and NLRC are MODIFIED by deleting the award of separation pay and the
corresponding attorney's fees. No costs.

SO ORDERED.

G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,

vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO
S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this
appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for
the appellees) entered into on Oct. 19, 1960 by and between Mrs.
Segundina Noguera, party of the first part; the Tourist World Service,
Inc., represented by Mr. Eliseo Canilao as party of the second part, and
hereinafter referred to as appellants, the Tourist World Service, Inc.
leased the premises belonging to the party of the first part at Mabini
St., Manila for the former-s use as a branch office. In the said contract
the party of the third part held herself solidarily liable with the party of
the part for the prompt payment of the monthly rental agreed on.
When the branch office was opened, the same was run by the herein
appellant Una 0. Sevilla payable to Tourist World Service Inc. by any
airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4%
was to go to Lina Sevilla and 3% was to be withheld by the Tourist
World Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service,
Inc. appears to have been informed that Lina Sevilla was connected
with a rival firm, the Philippine Travel Bureau, and, since the branch
office was anyhow losing, the Tourist World Service considered closing
down its office. This was firmed up by two resolutions of the board of
directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12
and 13), the first abolishing the office of the manager and vice-
president of the Tourist World Service, Inc., Ermita Branch, and the
second,authorizing the corporate secretary to receive the properties of
the Tourist World Service then located at the said branch office. It
further appears that on Jan. 3, 1962, the contract with the appellees
for the use of the Branch Office premises was terminated and while the
effectivity thereof was Jan. 31, 1962, the appellees no longer used it.
As a matter of fact appellants used it since Nov. 1961. Because of this,
and to comply with the mandate of the Tourist World Service, the
corporate secretary Gabino Canilao went over to the branch office,
and, finding the premises locked, and, being unable to contact Lina
Sevilla, he padlocked the premises on June 4, 1962 to protect the
interests of the Tourist World Service. When neither the appellant Lina
Sevilla nor any of her employees could enter the locked premises, a
complaint wall filed by the herein appellants against the appellees with
a prayer for the issuance of mandatory preliminary injunction. Both
appellees answered with counterclaims. For apparent lack of interest of
the parties therein, the trial court ordered the dismissal of the case
without prejudice.

The appellee Segundina Noguera sought reconsideration of the order

dismissing her counterclaim which the court a quo, in an order dated
June 8, 1963, granted permitting her to present evidence in support of
her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the
herein appellees and after the issues were joined, the reinstated
 counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the court a
quo ordered both cases dismiss for lack of merit, on the basis of which
was elevated the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE

OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS.

LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD
SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE
RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-

APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING
THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES

HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM
THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN
HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL

APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O.
SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT

APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR
FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be
resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the

telephone line at the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World

Service was actionable or not; and

3. Whether or not the lessee to the office premises belonging to the

appellee Noguera was appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness

venture was entered into by and between her and appellee TWS with
offices at the Ermita branch office and that she was not an employee
of the TWS to the end that her relationship with TWS was one of a
joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and

wife of an eminent eye, ear and nose specialist as well as
a imediately columnist had been in the travel business
prior to the establishment of the joint business venture
with appellee Tourist World Service, Inc. and appellee
Eliseo Canilao, her compadre, she being the godmother
of one of his children, with her own clientele, coming
mostly from her own social circle (pp. 3-6 tsn. February
16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease

agreement dated 19 October 1960 (Exh. 'A') covering the
premises at A. Mabini St., she expressly warranting and
holding [sic] herself 'solidarily' liable with appellee Tourist
World Service, Inc. for the prompt payment of the
monthly rentals thereof to other appellee Mrs. Noguera
(pp. 14-15, tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from

appellee Tourist World Service, Inc., which had its own,
separate office located at the Trade & Commerce
Building; nor was she an employee thereof, having no
participation in nor connection with said business at the
Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own

passengers, her own bookings her own business (and not
for any of the business of appellee Tourist World Service,
Inc.) obtained from the airline companies. She shared the
7% commissions given by the airline companies giving
appellee Tourist World Service, Lic. 3% thereof aid
retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses

of maintaining the A. Mabini St. office, paying for the
salary of an office secretary, Miss Obieta, and other
sundry expenses, aside from desicion the office furniture
and supplying some of fice furnishings (pp. 15,18 tsn.
April 6,1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in
consideration for the 3% split in the co procured by
appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant

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

Upon the other hand, appellee TWS contend that the appellant was an
employee of the appellee Tourist World Service, Inc. and as such was
designated manager.1

xxx xxx xxx

The trial court2 held for the private respondent on the premise that the private
respondent, Tourist World Service, Inc., being the true lessee, it was within its
prerogative to terminate the lease and padlock the premises. 3 It likewise found the
petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc.
and as such, she was bound by the acts of her employer. 4 The respondent Court of
Appeal 5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court,
erred. Specifically, they state:

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY
TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF
THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR
ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE
APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT,
WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD
SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN
THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT
(SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER
TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD
"OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND
COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A"
P. 8)

III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT
SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL
CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT
RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST
WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST
WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST
WORLD SERVICE INC.6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation
between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit
to rule on the question, the crucial issue, in its opinion being "whether or not the
padlocking of the premises by the Tourist World Service, Inc. without the knowledge
and consent of the appellant Lina Sevilla entitled the latter to the relief of damages
prayed for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and without the
consent of the appellant disconnected the telephone lines of the Ermita branch office
of the appellee Tourist World Service, Inc.7 Tourist World Service, Inc., insists, on
the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of
its Ermita "branch" office and that inferentially, she had no say on the lease
executed with the private respondent, Segundina Noguera. The petitioners contend,
however, that relation between the between parties was one of joint venture, but
concede that "whatever might have been the true relationship between Sevilla and
Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao
from taking the law into their own hands, 8 in reference to the padlocking now
questioned.

The Court finds the resolution of the issue material, for if, as the private respondent,
Tourist World Service, Inc., maintains, that the relation between the parties was in
the character of employer and employee, the courts would have been without
jurisdiction to try the case, labor disputes being the exclusive domain of the Court of
Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then
in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an
employer-employee relation. In general, we have relied on the so-called right of
control test, "where the person for whom the services are performed reserves a
right to control not only the end to be achieved but also the means to be used in
reaching such end." 10Subsequently, however, we have considered, in addition to the
standard of right-of control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship.11
The records will show that the petitioner, Lina Sevilla, was not subject to control by
the private respondent Tourist World Service, Inc., either as to the result of the
enterprise or as to the means used in connection therewith. In the first place, under
the contract of lease covering the Tourist Worlds Ermita office, she had bound
herself in solidum as and for rental payments, an arrangement that would be like
claims of a master-servant relationship. True the respondent Court would later
minimize her participation in the lease as one of mere guaranty, 12 that does not
make her an employee of Tourist World, since in any case, a true employee cannot
be made to part with his own money in pursuance of his employer's business, or
otherwise, assume any liability thereof. In that event, the parties must be bound by
some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office
was opened, the same was run by the herein appellant Lina O. Sevilla payable to
Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs.
Lina Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under
the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing
the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts,
she retained 4% in commissions from airline bookings, the remaining 3% going to
Tourist World. Unlike an employee then, who earns a fixed salary usually, she
earned compensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her,
ergo, Tourist World's employee. As we said, employment is determined by the right-
of-control test and certain economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a

consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on
a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not
recognize the existence of such a relation. In her letter of November 28, 1961, she
expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of
your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over
the manner in which the business was run. A joint venture, including a partnership,
presupposes generally a of standing between the joint co-venturers or partners, in
which each party has an equal proprietary interest in the capital or property
contributed 15 and where each party exercises equal rights in the conduct of the
business.16 furthermore, the parties did not hold themselves out as partners, and the
building itself was embellished with the electric sign "Tourist World Service, Inc. 17in
lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to
(wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she
must have done so pursuant to a contract of agency. It is the essence of this
contract that the agent renders services "in representation or on behalf of
another.18 In the case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As compensation, she received
4% of the proceeds in the concept of commissions. And as we said, Sevilla herself
based on her letter of November 28, 1961, pre-assumed her principal's authority as
owner of the business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that the ties had
contemplated a principal agent relationship, rather than a joint managament or a
partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare
to be compatible with the intent of the parties, cannot be revoked at will. The reason
is that it is one coupled with an interest, the agency having been created for mutual
interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona
fide travel agent herself, and as such, she had acquired an interest in the business
entrusted to her. Moreover, she had assumed a personal obligation for the operation
thereof, holding herself solidarily liable for the payment of rentals. She continued the
business, using her own name, after Tourist World had stopped further operations.
Her interest, obviously, is not to the commissions she earned as a result of her
business transactions, but one that extends to the very subject matter of the power
of management delegated to her. It is an agency that, as we said, cannot be
revoked at the pleasure of the principal. Accordingly, the revocation complained of
should entitle the petitioner, Lina Sevilla, to damages.

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

The Court of Appeals must likewise be held to be in error with respect to the
padlocking incident. For the fact that Tourist World Service, Inc. was the lessee
named in the lease con-tract did not accord it any authority to terminate that
contract without notice to its actual occupant, and to padlock the premises in such
fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal
stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly
named therein as a third party in charge of rental payments (solidarily with Tourist
World, Inc.). She could not be ousted from possession as summarily as one would
eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some
malevolent design to put the petitioner, Lina Sevilla, in a bad light following
disclosures that she had worked for a rival firm. To be sure, the respondent court
speaks of alleged business losses to justify the closure '21 but there is no clear
showing that Tourist World Ermita Branch had in fact sustained such reverses, let
alone, the fact that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information (that Sevilla was
working for another company), Tourist World's board of directors adopted two
resolutions abolishing the office of 'manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office
properties. On January 3, 1962, the private respondents ended the lease over the
branch office premises, incidentally, without notice to her.

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

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to
punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any
event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the
private respondent, Tourist World Service, Inc., should be sentenced to pay
damages. Under the Civil Code, moral damages may be awarded for "breaches of
contract where the defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the
moral injury done to Lina Sevilla from its brazen conduct subsequent to the
cancellation of the power of attorney granted to her on the authority of Article 21 of
the Civil Code, in relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.24

ART. 2219. Moral damages25 may be recovered in the following and

analogous cases:

xxx xxx xxx

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

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to

respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no

evidence has been shown that she had connived with Tourist World Service, Inc. in
the disconnection and padlocking incidents. She cannot therefore be held liable as a
cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24
P10,000.00 as exemplary damages, 25and P5,000.00 as nominal 26 and/or
temperate27 damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the

Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby
REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and
Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina
Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as
and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or
temperate damages.

Costs against said private respondents.

SO ORDERED.

G.R. No. 106108 February 23, 1995

CABALAN PASTULAN NEGRITO LABOR ASSOCIATION (CAPANELA) and

JOSE ALVIZ, SR. petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FERNANDO
SANCHEZ, respondents.

REGALADO, J.:

A man said to the Universe,

Behold, I am born!
However, replied the Universe,
The fact does not create in me
A sense of obligation.

To most, these familiar verses express the article of faith for self-reliance. To the
racist in some countries, however, they mean that the world does not owe the
Negroid or other colored people equal solicitude. The neo-colonial in the Philippines
would hold the Negrito or a member of indigenous cultural communities to the same
social bondage. But our Constitution and our laws were precisely formulated under a
sense of obligation to the marginalized and the under privileged. Under such
mandates, this Court has always accorded them scrupulous and compassionate
attention. In now resolving their predicament in the case at bar, it call once again on
the old Castilian tenet: A él que la vida ha dado menos, désele mas por la ley.1
In this petition for certiorari, the resolution of the National Labor Relations
Commission (hereafter, NLRC) dated February 28, 19922 which dismissed the appeal
of herein petitioners from the decision of the labor arbiter3 for failure to file a
supersedeas bond, as well as its April 30, 19924 denying their motion for
reconsideration, are assailed for having been rendered with grave abuse of
discretion.

The antecedents of the present recourse, as culled from the records, are that herein
private respondent, Fernando Sanchez, filed a complaint for illegal dismissal, non-
payment of back wages and other benefits on January 3, 1991 with Regional Office
No. III of the Department of Labor and Employment in Olongapo City originally
docketed therein as NLRC Case No. RAB III 01-1931-91. The complaint, naming
Cabalan Pastulan Negrito Labor Association (CAPANELA, for brevity) and its
president, Jose Alviz, Sr., as respondents, alleged that the former was employed by
CAPANELA as a foreman with a monthly salary of P3,245.70 from March, 1977 until
he was illegally dismissed on January 1, 1990.5

Said complaint was later amended on February 22, 1991 to introduce the correction
that private respondent was illegally dismissed on March 27, 1990 (instead of
January 1, 1990), and to further pray for reinstatement without loss of seniority
rights and payment of full back wages and moral and exemplary damages.6 As no
amicable settlement was arrived at during the mandatory pre-conference despite
efforts exerted by the labor arbiter, the parties were required to simultaneously
submit their respective position papers and/or affidavits.7 The case was submitted
for resolution on March 11, 1991 on the bases of said position papers and other
evidence, but the parties were further allowed to submit their respective
memoranda,8 after which the case was deemed submitted for decision on May 29,
1991.9

A decision was rendered on June 24, 1991 in favor of herein private respondent,
declaring his dismissal illegal, and ordering herein petitioners, jointly and severally —

1. To pay the backwages of complainant from March 24, 1990 until

June 24, 1991 and for 15 months at P3,245.70 a month equals
P48,685.50;

2. To immediately reinstate complainant to his former or equivalent

position without loss of seniority rights and other privileges, and for
this purpose, respondents are hereby ordered to submit proof of the
physical or payroll reinstatement of the complainant within five (5)
working days from receipt hereof, provided further that should
reinstatement (be) not feasible due to any supervening event,
respondents are further ordered to pay the separation pay of
complainant equivalent to one month salary for every year of service, a
fraction of at least six (6) months service considered as in addition to
his respondents are further one (1) whole year, in addition to his
backwages; . . . .
but dismissing the claim for moral and exemplary damages for want of substantial
evidence. 10

The records further reveal that private respondent subsequently filed a motion for
the issuance of a writ of 11 This was opposed by execution on July 15, 1991. 11 This
was opposed by CAPANELA 12 through its new counsel, Atty. Isagani M. Jungco, who
at the same time filed a memorandum of appeal 13 in its behalf, although admittedly
without posting a supersedeas bond because of want of funds of either CAPANELA
or its president and co-petitioner Alviz, Sr. Private respondent, in his answer to
CAPANELA's memorandum of, appeal 14 and reply to opposition to motion for
execution, 15 was unconvinced and adamantly insisted on the dismissal of the appeal
due to non-perfection thereof for failure to comply with the legal requirement of
posting a cash or surety bond as a requisite for the perfection of an appeal.

A partial writ of execution 16 was issued by Labor Arbiter Saludares on August 15,
1991 ordering the physical or payroll reinstatement of private respondent. The
sheriff's return of November 4, 1991, signed by Numeriano S. Reyes, Sheriff II of the
NLRC Regional Arbitration Branch No. III, stated that the writ expired without any
indication of private respondent having been reinstated. 17

As stated at the outset, the NLRC dismissed the appeal on February 28, 1992 for
failure of petitioners to post the supersedeas bond required by law, stating that
"(r)espondents' contention that it cannot post bond because it is insolvent
deserve(s) scant consideration not being accompanied by proof there(of)," and
denied petitioner's motion for reconsideration.

The present controversy raises as principal issues for resolution by the Court
whether or not (1) the dismissal of private respondent was legal, and; (2) the appeal
was perfected despite failure to file a supersedeas bond.

Anent the first issue, before we delve into the matter of the alleged illegal dismissal
of private respondent Sanchez by petitioner CAPANELA, it is evidently necessary to
ascertain the existence of an employer-employee relationship between them.

Petitioners asseverate that CAPANELA is an association composed of Negritos who

worked inside the American naval base in Subic Bay (hereinafter referred to as the
Base). They initially received a daily wage of P100.00 and thus earned, on the
average, less than P3,000.00 per month. Said association organized the system of
employment of members of this cultural community who were accorded special
treatment concededly because of the occupancy of their ancestral lands as part of
the operational area and military facility used by the Base authorities.

CAPANELA, through its officers, saw to it that its members reported for work,
recorded their attendance, and distributed the workers' salaries paid by the Base at
the end of a specific pay period, without gaining any amount from such undertakings
petitioner Alviz, Sr., for his part and as president of CAPANELA, was himself only an
employee at the Base. In other words, neither CAPANELA nor its president was the
employer of private respondent Sanchez; rather, it was the United States
Government acting through the military base authorities. 18

Contrarily, private respondent maintains that there existed an employer-employee

relationship, as allegedly supported by the evidence on record, and that petitioners
CAPANELA and Alviz, Sr. exercised control as employer over the means and methods
by which the work was accomplished. He further argues that since the determination
of the existence of an employer-employee relationship is a factual question, the
findings of the labor officials thereon should be considered conclusive and binding
upon and respected by the appellate courts.19

It is hence clearly apparent that the judgment of the labor arbiter, as affirmed by
respondent commission, declaring the dismissal of private respondent illegal and
ordering the payment of back wages to him together with his payroll or physical
reinstatement, was premised on the finding that there was an existing employer-
employee relationship.

Indeed, findings of fact and conclusions of the labor arbiter, 20 as well as those of
the NLRC, 21 or, for that matter, any other adjudicative body which
can be considered as a trier of facts on specific matters within its field of
expertise, 22 should be considered as binding and conclusive upon the appellate
courts. This is in addition to the fact that they were in a better position to assess and
evaluate the credibility of the contending parties and the validity of their respective
evidence. 23However, these doctrinal strictures hold true only when such findings
and conclusions are supported by substantial evidence. 24

In the case at bar, we are hard put to find sufficient evidential support for public
respondent's conclusion on the putative existence of an employer-employee
relationship between petitioners and private respondent. We are accordingly
persuaded that there is ample justification to disturb the findings of respondent
NLRC and to hold that a reconsideration of its challenged resolutions is in order.

A careful reevaluation of the documentary evidence of record belies the finding that
CAPANELA, through its president and co-petitioner, Jose Alviz, Sr., wielded control as
an employer over private respondent. It will be noted that in his affidavit dated
March 4, 1991, 25 private respondent himself declared that through the intervention
of CAPANELA, by way of its June 13, 1389 letter26 to Lt. Mark S. Kistner, he was
cleared of the charge of larceny of U.S. government property. Thereafter, in an
indorsement dated July 11, 1989 from the Director of Security, U.S. Navy Public
Works Center, the recommendation for his reinstatement and the release of his gate
pass to the Base was addressed to the Director, Investigation Section, U.S. Facility
Security Department via the Director of the Contracts Administration Division. 27

This only goes to show that CAPANELA had in fact no control over the continued
employment of its members working in the U.S. naval base. For, after conducting its
own investigation, CAPANELA could only intervene in behalf of its members facing
charges through a recommendatory action request for favorable consideration. It
could not, on its own authority, exonerate such members from the charges, much
less effect their reinstatement without the approval of the Base authorities.
Interestingly, in order to comply with the labor arbiter's decision of June 24, 1991,
CAPANELA even had to write to the Resident Officer-in-Charge of the Facility
Support Contracts at Subic Bay recommending the reinstatement of private
respondent to his former position. 28

Under their arrangement, CAPANELA, through its officers, could only impose
disciplinary sanctions upon its members for infractions of its own rules and
regulations, to the extent of ousting a member from the association when called for
under the circumstances. Nonetheless, such called termination of membership in the
association, which could result in curtailment of the privilege of working at the Base
inasmuch as employment therein was conditioned upon membership in CAPANELA,
is not equivalent to the illegal dismissal from employment contemplated in our labor
laws. Petitioners, not being the employer, obviously could not arrogate unto
themselves an employer's prerogatives of hiring and firing workers.

As succinctly pointed out by the Solicitor General:

True, there was a stipulation to the effect that Fernando Sanchez was
employed by petitioner CAPANELA, but the real employer was
the United States government and petitioner was just a "labor-only
contractor." Annexes "G" and "H" of CAPANELA's Memorandum on
Appeal show that the award or contract of work was between
CAPANELA and the United States government through the U.S. Navy.
The same contract likewise clearly stipulated that CAPANELA was "to
provide labor and material to perform trash sorting services in the Base
period for all work specified in Section C." Annex "A" of complainant
Fernando Sanchez' Answer to petitioner's Memorandum on Appeal
itself proves that the negotiation was between CAPANELA and the U.S.
Navy, with the former supplying the labor and the U.S. government
paying the wages. Since CAPANELA merely provided the labor force, it
cannot be deduced therefrom that CAPANELA should also compensate
the laborers; it is a case of non sequitur. In other words, the actual
mechanical act of making payments was done by CAPANELA, but the
monies therefor were provided and disbursements made by the
disbursing officer of the U.S. Naval Supply Depot, Subic Bay
(see Annexes "G" and "H").

Moreover, ingress and egress in the work premises were controlled not
by CAPANELA but by the U.S. Base authorities who could even reject
entry of CAPANELA members then duly employed as part of the
project, and impose disciplinary sanctions against them. Annex "1" of
petitioners' Position Paper as respondent in the NLRC Case No. RAB-
III-01-193 1-91, which was the letter of Lt. M.E. Kistner of the U.S.
Navy, clearly proves this. 29 (Emphasis in the original text.)

Prevailing case law enumerates the essential elements of an employer-employee

relationship as: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the power of control
with regard to the means and methods by which the work is to be accomplished,
with the power of control being the most determinative factor. 30

The Solicitor General pertinently illustrates the glaring absence of these elements in
the present case:

. . . , as aforeshown, CAPANELA had no control of the premises as it

was the U.S. naval authorities who had the power to issue passes or
deny their issuance. In fact, CAPANELA did not have absolute control
on the disciplinary measures to be imposed on its members employed
in the Base. Annex "1" of CAPANELA's Position Paper submitted before
the NLRC Regional Arbitration Branch established the U.S. Navy's right
to impose disciplinary measures for violations or infractions of its rules
and regulations as well as the right to recommend suspensions or
dismissals of the workers. Moreover, it was not shown that CAPANELA
had control of the means and methods or manner by which the
workers were to go about their work. These are indeed
strong indicia of the U.S. Navy's right of control over the workers as
direct employer.

Third, there is evidence to prove that payment of wages was merely

done through CAPANELA, but the source of payment was actually the
U.S. government paying workers according to the volume of work
accomplished on rates agreed upon between CAPANELA and the U.S.
government. . . . 31

It would, therefore, be inutile to discuss the matter of the legality or illegality of the
dismissal of private respondent. Considering that petitioners cannot legally be
considered as the employer of herein private respondent, it follows that it cannot be
made liable as such nor be required to bear the responsibility for the legal
consequences of the charge of illegal dismissal. Granting arguendo that private
respondent was illegally dismissed, the action should properly be directed against
the U.S. government which, through the Base authorities, was the true employer in
this case.

Neither can petitioners be deemed to have been engaged in permissible job

contracting under the law, for failure to satisfy the following prescribed conditions:

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
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. 32
In the present case, the setup was such that CAPANELA was merely tasked with
organizing the Negritos to facilitate the orderly administration of work made
available to them at the base facilities, that is, sorting scraps for recycling.
CAPANELA recorded the attendance of its members and submitted the same to the
Base authorities for the determination of wages due them and the preparation of the
payroll. Payment of wages was coursed through CAPANELA but the funds therefor
came from the coffers of the Base. Once inside the Base, control over the means
and methods of work was exercised by the Base authorities. Accordingly, CAPANELA
functioned as just an administrator of its Negrito members employed at the Base.

From the legal standpoint, CAPANELA's activities may at most be considered akin to
that of labor-only contracting, albeit of a special or peculiar type, wherein
CAPANELA, operating like a contractor, merely acted as an agent or intermediary of
the employer. 33

The Solicitor General ramifies this aspect:

. . . , petitioner CAPANELA could not be classified as an "independent

contractor" because it was not shown that it has substantial capital or
investments to qualify as such under the law. On the other hand, it
was apparent that the premises, tools, equipment, and other
paraphernalia used by the workers were all supplied by the U.S.
government through the U.S. Navy. What CAPANELA supplied was only
the local labor force, complainant Fernando Sanchez among them. It is
therefore clear that CAPANELA had no capital outlay involved in the
business or in the maintenance thereof. 34

While it is not denied that an association or a labor organization or union can at

times be an employer insofar as people hired by it to dispose of its business are
concerned,35 the situation in this case is altogether different. A proper and necessary
distinction should be made between the employees of CAPANELA who actually
attended to its myriad functions as an association and its members who were
employed in the jobsite inside the Base vis-a-vis CAPANELA's relative position as the
employer of the former and a mere administrator with respect to the latter.

On the matter of the perfection of an appeal from the decision of the NLRC,
petitioners plead for a more considerate and humane application of the law as would
allow their appeal to prosper despite non-posting of a supersedeas bond on account
of their insolvency. To dismiss the appeal for failure to post said bond, petitioners
aver, is tantamount to denial of the constitutionally guaranteed right of access to
courts by reason of poverty. 36 Private respondent, on the other hand, argues that
perfection of an appeal within the reglementary period and in compliance with all
requirements of the law therefor is jurisdictional. That petitioners do not have the
funds for the premiums for posting a supersedeas bond or for a cash deposit,
disdainfully says private respondent, "is not in the least our problem." 37

We have no quarrel with the provision of Article 223 of the Labor Code which, in
part and among others, requires that in case of a judgment involving a monetary
award, an appeal by the employer may be perfected only upon posting of a cash or
surety bond issued by a reputable bonding company duly accredited by the
commission in the amount equivalent to the monetary award in the judgment
appealed from. Perfection of an appeal within the period and in the manner
prescribed by law is jurisdictional 38 and non-compliance with such legal
requirements is fatal and has the effect of rendering the judgment final and
executory. 39

However, in a number of recent cases, 40 the Court has eased the requirement of
posting a bond, as a condition for perfection of appeals in labor cases, when to do
so would bring about the immediate and appropriate resolution of controversies on
the merits without over-indulgence in technicalities, 41 ever mindful of the underlying
spirit and intention of the Labor Code to ascertain the facts of each case speedily
and objectively without regard to technical rules of law and procedure, all in the
interest of due process. 42 Punctilious adherence to stringent technical rules may be
relaxed in the interest of the working man, 43 and should not defeat the complete
and equitable resolution of the rights and obligations of the parties. 44 Moreover, it is
the duty of labor officials to consider their decisions and inquire into the correctness
of execution, as supervening events may affect such execution. 45

The Solicitor General realistically assesses the situation, thus:

. . . As aforestated, above the technical consideration on whether

failure to post a supersedeas bond was fatal to petitioners' appeal is
the importance of first resolving whether there was indeed an
employer-employee relationship in this case so as not to render the
execution of the NLRC's resolution unenforceable or impossible to
implement. . . . Besides, it is of public notice that the U.S. Navy had
withdrawn from the Subic Base in view of the termination of the Bases
Treaty. Even if CAPANELA were ordered to reinstate complainant
Fernando Sanchez, this is obviously an impossible thing to perform as
there is no longer any work to be done inside the Base. Nor is
petitioner CAPANELA in a position to pay Sanchez's back wages
considering that it was the U.S. Navy that paid his wages. . . . 46

In light of the circumstances in this case, the Solicitor General further suggests two
ways of writing finis to this dispute, i.e., to reconsider public respondent's resolution
of February 28, 1992 and April 30, 1992 and reinstate petitioner's appeal to give the
latter a chance to prove CAPANELA's insolvency or poverty, or to reverse the
decision of the labor arbiter on the ground that there was no employer-employee
relationship between petitioner CAPANELA and private respondent Sanchez.
Harmonizing our evaluation of the facts of this case with the greater interests of
social justice, and considering that the parties involved are those upon whose socio-
economic status we prefaced this opinion, we opt for the latter.

While this Court, when it finds that a lower court or quasi-judicial body is in error,
may simply and conveniently nullify the challenged decision, resolution or order and
remand the case thereto for further appropriate action, it is well within the
conscientious exercise of its broad review powers to refrain from doing so and
instead choose to render judgment on the merits when all material facts have been
duly laid before it as would buttress its ultimate conclusion, in the public interest and
for the expeditious administration of justice, such as where the ends of justice would
not be subserved by the remand of the case. 47

IN VIEW OF ALL THE FOREGOING PREMISES, the resolutions of February 28, 1992
and April 30, 1992 of respondent National Labor Relations Commission are
accordingly ANNULLED, and the adjudgment of Labor Arbiter Dominador B.
Saludares in NLRC Case No. RAB III 01-1931-91 is hereby REVERSED and SET
ASIDE.

SO ORDERED.

G.R. No. L-43825 May 9, 1988

CONTINENTAL MARBLE CORP. and FELIPE DAVID, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC); ARBITRATOR JOSE
T. COLLADO and RODITO NASAYAO, respondents.

Benito P. Fabie for petitioners.

Narciso C. Parayno, Jr. for respondents.

PADILLA, J.:

In this petition for mandamus, prohibition and certiorari with preliminary injunction,
petitioners seek to annul and set aside the decision rendered by the respondent
Arbitrator Jose T. Collado, dated 29 December 1975, in NLRC Case No. LR-6151,
entitled: "Rodito Nasayao, complainant, versus Continental Marble Corp. and Felipe
David, respondents," and the resolution issued by the respondent Commission,
dated 7 May 1976, which dismissed herein petitioners' appeal from said decision.

In his complaint before the NLRC, herein private respondent Rodito Nasayao claimed
that sometime in May 1974, he was appointed plant manager of the petitioner
corporation, with an alleged compensation of P3,000.00, a month, or 25% of the
monthly net income of the company, whichever is greater, and when the company
failed to pay his salary for the months of May, June, and July 1974, Rodito Nasayao
filed a complaint with the National Labor Relations Commission, Branch IV, for the
recovery of said unpaid varies. The case was docketed therein as NLRC Case No. LR-
6151.

Answering, the herein petitioners denied that Rodito Nasayao was employed in the
company as plant manager with a fixed monthly salary of P3,000.00. They claimed
that the undertaking agreed upon by the parties was a joint venture, a sort of
partnership, wherein Rodito Nasayao was to keep the machinery in good working
condition and, in return, he would get the contracts from end-users for the
installation of marble products, in which the company would not interfere. In
addition, private respondent Nasayao was to receive an amount equivalent to 25%
of the net profits that the petitioner corporation would realize, should there be any.
Petitioners alleged that since there had been no profits during said period, private
respondent was not entitled to any amount.

The case was submitted for voluntary arbitration and the parties selected the herein
respondent Jose T. Collado as voluntary arbitrator. In the course of the proceedings,
however, the herein petitioners challenged the arbitrator's capacity to try and decide
the case fairly and judiciously and asked him to desist from further hearing the case.
But, the respondent arbitrator refused. In due time, or on 29 December 1975, he
rendered judgment in favor of the complainant, ordering the herein petitioners to
pay Rodito Nasayao the amount of P9,000.00, within 10 days from notice.1

Upon receipt of the decision, the herein petitioners appealed to the National Labor
Relations Commission on grounds that the labor arbiter gravely abused his discretion
in persisting to hear and decide the case notwithstanding petitioners' request for him
to desist therefrom: and that the appealed decision is not supported by evidence.2

On 18 March 1976, Rodito Nasayao filed a motion to dismiss the appeal on the
ground that the decision of the voluntary arbitrator is final, unappealable, and
immediately executory; 3 and, on 23 March 1976, he filed a motion for the issuance
of a writ of execution. 4

Acting on the motions, the respondent Commission, in a resolution dated 7 May

1976, dismissed the appeal on the ground that the decision appealed from is final,
unappealable and immediately executory, and ordered the herein petitioners to
comply with the decision of the voluntary arbitrator within 10 days from receipt of
the resolution.5

The petitioners are before the Court in the present recourse. As prayed for, the
Court issued a temporary restraining order, restraining herein respondents from
enforcing and/or carrying out the questioned decision and resolution.6

The issue for resolution is whether or not the private respondent Rodito Nasayao
was employed as plant manager of petitioner Continental Marble Corporation with a
monthly salary of P3,000.00 or 25% of its monthly income, whichever is greater, as
claimed by said respondent, or entitled to receive only an amount equivalent to 25%
of net profits, if any, that the company would realize, as contended by the
petitioners.

The respondent arbitrator found that the agreement between the parties was for the
petitioner company to pay the private respondent, Rodito Nasayao, a monthly salary
of P3,000.00, and, consequently, ordered the company to pay Rodito Nasayao the
amount of P9,000.00 covering a period of three (3) months, that is, May, June and
July 1974.
The respondent Rodito Nasayao now contends that the judgment or award of the
voluntary arbitrator is final, unappealable and immediately executory, and may not
be reviewed by the Court. His contention is based upon the provisions of Art. 262 of
the Labor Code, as amended.

The petitioners, upon the other hand, maintain that "where there is patent and
manifest abuse of discretion, the rule on unappealability of awards of a voluntary
arbitrator becomes flexible and it is the inherent power of the Courts to maintain the
people's faith in the administration of justice." The question of the finality and
unappealability of a decision and/or award of a voluntary arbitrator had been laid to
rest in Oceanic Bic Division (FFW) vs. Romero, 7and reiterated in Mantrade FMMC
Division Employees and Workers Union vs. Bacungan.8 The Court therein ruled that
it can review the decisions of voluntary arbitrators, thus-

We agree with the petitioner that the decisions of voluntary arbitrators

must be given the highest respect and as a general rule must be
accorded a certain measure of finality. This is especially true where the
arbitrator chosen by the parties enjoys the first rate credentials of
Professor Flerida Ruth Pineda Romero, Director of the U.P. Law Center
and an academician of unquestioned expertise in the field of Labor
Law. It is not correct, however, that this respect precludes the exercise
of judicial review over their decisions. Article 262 of the Labor Code
making voluntary arbitration awards final, inappealable, and executory
except where the money claims exceed P l 00,000.00 or 40% of paid-
up capital of the employer or where there is abuse of discretion or
gross incompetence refers to appeals to the National Labor Relations
Commission and not to judicial review.

Inspite of statutory provisions making 'final' the decisions of certain

administrative agencies, we have taken cognizance of petitions
questioning these decisions where want of jurisdiction, grave abuse of
discretion, violation of due process, denial of substantial justice, or
erroneous interpretation of the law were brought to our attention.
There is no provision for appeal in the statute creating the
Sandiganbayan but this has not precluded us from examining decisions
of this special court brought to us in proper petitions. ...

The Court further said:

A voluntary arbitrator by the nature of her fucntions acts in quasi-

judicial capacity. There is no reason why herdecisions involving
interpretation of law should be beyond this Court's review.
Administrative officials are presumed to act in accordance with law and
yet we do hesitate to pass upon their work where a question of law is
involved or where a showing of abuse of authority or discretion in their
official acts is properly raised in petitions for certiorari.
The foregoing pronouncements find support in Section 29 of Republic Act No. 876,
otherwise known as the Arbitration Law, which provides:

Sec. 29. Appeals — An appeal may be taken from an order made in a

proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the
judgment thereon shall be governed by the Rules of Court in so far as
they are applicable.

The private respondent, Rodito Nasayao, in his Answer to the petition, 9 also claims
that the case is premature for non-exhaustion of administrative remedies. He
contends that the decision of the respondent Commission should have been first
appealed by petitioners to the Secretary of Labor, and, if they are not satisfied with
his decision, to appeal to the President of the Philippines, before resort is made to
the Court.

The contention is without merit. The doctrine of exhaustion of administrative

remedies cannot be invoked in this case, as contended. In the recent case of John
Clement Consultants, Inc. versus National Labor Relations Commission, 10 the Court
said:

As is well known, no law provides for an appeal from decisions of the

National Labor Relations Commission; hence, there can be no review
and reversal on appeal by higher authority of its factual or legal
conclusions. When, however, it decides a case without or in excess of
its jurisdiction, or with grave abuse of discretion, the party thereby
adversely affected may obtain a review and nullification of that
decision by this Court through the extraordinary writ of certiorari.
Since, in this case, it appears that the Commission has indeed acted
without jurisdiction and with grave abuse of discretion in taking
cognizance of a belated appeal sought to be taken from a decision of
Labor Arbiter and thereafter reversing it, the writ of certiorari will issue
to undo those acts, and do justice to the aggrieved party.

We also find no merit in the contention of Rodito Nasayao that only questions of law,
and not findings of fact of a voluntary arbitrator may be reviewed by the Court, since
the findings of fact of the voluntary arbitrator are conclusive upon the Court.

While the Court has accorded great respect for, and finality to, findings of fact of a
voluntary arbitrator 11 and administrative agencies which have acquired expertise in
their respective fields, like the Labor Department and the National Labor Relations
Commission, 12 their findings of fact and the conclusions drawn therefrom have to be
supported by substantial evidence. ln that instant case, the finding of the voluntary
arbitrator that Rodito Nasayao was an employee of the petitioner corporation is not
supported by the evidence or by the law.
On the other hand, we find the version of the petitioners to be more plausible and in
accord with human nature and the ordinary course of things. As pointed out by the
petitioners, it was illogical for them to hire the private respondent Rodito Nasayao as
plant manager with a monthly salary of P3,000.00, an amount which they could ill-
afford to pay, considering that the business was losing, at the time he was hired,
and that they were about to close shop in a few months' time.

Besides, there is nothing in the record which would support the claim of Rodito
Nasayao that he was an employee of the petitioner corporation. He was not included
in the company payroll, nor in the list of company employees furnished the Social
Security System.

Most of all, the element of control is lacking. In Brotherhood Labor Unity Movement
in the Philippines vs. Zamora,13the Court enumerated the factors in determining
whether or not an employer-employee relationship exists, to wit:

In determining the existence of an employer-employee relationship,

the elements that are generally considered are the following: (a) the
selection and engagement of the employee; (b) the payment of wages;
(c) the power of dismissal; and (d) the employer's power to control the
employee with respect to the means and methods by which the work is
to be accomplished. It is the so-called "control test" that is the most
important element (Investment Planning Corp. of the Phils. vs. The
Social Security System, 21 SCRA 924; Mafinco Trading Corp. v.
Ople, supra, and Rosario Brothers, Inc. v. Ople, 131 SCRA
72).<äre||anº•1àw>

In the instant case, it appears that the petitioners had no control over the conduct of
Rodito Nasayao in the performance of his work. He decided for himself on what was
to be done and worked at his own pleasure. He was not subject to definite hours or
conditions of work and, in turn, was compensated according to the results of his
own effort. He had a free hand in running the company and its business, so much
so, that the petitioner Felipe David did not know, until very much later, that Rodito
Nasayao had collected old accounts receivables, not covered by their agreement,
which he converted to his own personal use. It was only after Rodito Nasayao had
abandoned the plant following discovery of his wrong- doings, that Felipe David
assumed management of the plant.

Absent the power to control the employee with respect to the means and methods
by which his work was to be accomplished, there was no employer-employee
relationship between the parties. Hence, there is no basis for an award of unpaid
salaries or wages to Rodito Nasayao.

WHEREFORE, the decision rendered by the respondent Jose T. Collado in NLRC Case
No. LR-6151, entitled: "Rodito Nasayao, complainant, versus Continental Marble
Corp. and Felipe David, respondents," on 29 December 1975, and the resolution
issued by the respondent National Labor Relations Commission in said case on 7 May
1976, are REVERSED and SET ASIDE and another one entered DISMISSING private
respondent's complaints. The temporary restraning order heretofore isued by the
Court is made permanent. Without costs.

SO ORDERED.

G.R. No. L-16600 December 27, 1961

ILOILO CHINESE COMMERCIAL SCHOOL, petitioner,

vs.
LEONORA FABRIGAR and THE WORKMEN'S COMPENSATION
COMMISSION, respondents.

Luis G. Hofileña for petitioner.

J. T. de Leon for respondents.

PAREDES, J.:

As a result of the death of Santiago Fabrigar, on June 28, 1956, his heirs in the
person of Leonora Fabrigar (common-law wife) and their children, filed a claim for
compensation with the Workmen's Compensation Commission, Case No. 1085,
W.C.C., entitled "Leonora Fabrigar, et al., Claimants, vs. Iloilo Chinese Commercial
School, Respondent." In this claim, it was alleged that the cause of death was
" pulmonary tuberculosis contracted during and as a result of his employment as
janitor." The Hearing Officer of the WCC denied the claim and dismissed the case,
finding that the claimant failed to prove the casual effect of employment and death;
nothing was shown that the disease was contracted in line of duty; that whatever
evidence claimant presented about the cause of death was only a mere suggestion
that progressively developed from tuberculosis with heart trouble to a sudden fatal
turn, ending up for the cause of "beriberi adult" at the time of death, as per
certification of Sanitary Inspector Dr. P. E. Labitoria, of Dao, Capiz (Exhibits C & 4).

The heirs of Santiago Fabrigar appealed the decision with the Workmen's
Compensation Commission which, on November 12, 1959, rendered judgment
reversing the decision of its Hearing Officer, making the following findings of facts:

That Santiago Fabrigar had been employed from 1947 to March 12, 1956, as a
janitor-messenger of the respondent Iloilo Chinese Commercial School, his work
consisting of sweeping and scrubbing the floors, cleaning the classrooms and the
school premises, and other janitorial chores; on March 11, 1956, preparatory to
graduation day, he carried desks and chairs from the classrooms to the auditorium,
set the curtains and worked harder and faster than usual; that although he felt
shortness of breath and did not feel very well that day, he continued working at the
request of the overseer of respondent, that on the following day he reported for
work, but on March 13, he spat blood and stopped working; that from April 29, 1956
to May 15, 1956, he was under treatment by Dr. Quirico Villareal "for far advanced
pulmonary tuberculosis and for heart disease"; and that previous to said treatment,
he was attended by Dr. Jaranilla for pulmonary tuberculosis. The Commission
concluded that the short period of intervention between his last day of work (March
13, 1956) when he spat blood and his death on June 28, 1956, due to pulmonary
tuberculosis, indicated that he had been suffering from such disease even during the
time he was employed by the respondent and considering the strenuous work he
performed, his employment as janitor aggravated his pre-existing illness; that
although here is a discrepancy between the cause of death "beriberi adult," as
appearing in the death Certificate and the testimony of Dr. Villareal, the latter
deserves more credence, because the information (cause of death) was given by the
sanitary inspector who did not, in any way, examine the deceased before or after his
death. The Commission, therefore, ordered the respondent Chinese Commercial
School, Inc., in said case —

1. To pay to the claimant, for and in behalf of her minor children by the
deceased, namely, Carlito, Gloria, Rosita and Ernesto, all surnamed Fabrigar,
the amount of TWO THOUSAND FOUR HUNDRED NINETY SIX and 00/00
Pesos (P2,496.00) as Death benefits; and

2. To pay to the Commission the amount of P25.00 as fees pursuant to

Section 55 of Act 3428, as amended.

The above decision is now before Us for Review on a Writ of Certiorari, after the
motion for reconsideration had been denied, petitioner alleging that the Commission
erred:

1. In disregarding completely the evidentiary value of the death certificate of

the attending physician which was presented as evidence by both claimants
and respondent (Exhibits C & 4) to prove the cause of death;

2. In finding that the cause of death of said Santiago Fabrigar was

tuberculosis and was contracted during and as a result of the nature of his
employment;

3. In holding that the herein petitioner was the employer of the deceased
Santiago Fabrigar; and

4. In not holding that the herein petitioner is exempt from the scope of the
Workmen's Compensation Law.lawphil.net

Petitioner contends that the preponderance of evidence on the matters involved in

this case, militates in its favor. Considering the doctrine that the Commission, like
the Court of Industrial Relations, is bound not by the rule of preponderance of
evidence as in ordinary civil cases, but by the rule of substantial evidence (Ang Tibay
vs. CIR, 69 Phil. 635; Phil. Newspaper Guild vs. Evening News, 47 Off. Gaz. No. 12,
p. 6188; Secs. 43 & 46 Rep. Act No. 772, W.C. Act), petitioner's pretension is
without merit. Substantial evidence supports the decision of the Commission. While
seemingly there exists an inconsistency in the cause of death, as appearing in the
death certificate by Dr. Labitoria and in Dr. Villareal's diagnosis, it is a fact found by
the Commission, that the Sanitary Inspector did not examine the deceased before
and after his death. "Undoubtedly," says the Commission, "the information that he
died of beriberi adult, as appearing in the death certificate was given because it
appears that the deceased had also edema of the extremities (swollen legs)." The
evidence of record sustains the following findings of the Commission, is Fabrigar's
cause of death to wit —

The short period of time intervening between his last day of work (March 13,
1956) when he spat blood and his death June 28, 1956 due to pulmonary
tuberculosis indicates that he had been suffering from the disease even
during the time that he was employed by the respondent. Considering the
strenuous work that he performed while in the service of the respondents and
the unusually long hours of work he rendered (6:00 p.m. to 1:30 p.m. and
from 2:00 p.m. to 6:00 p.m. or 7:00 p.m.) beyond the normal and legal
working hours, we find that his employment aggravated his pre-existing
illness and brought about his death. Moreover, our conclusion finds support in
the fact that immediately preceding his last day of work with the respondent,
he had an unusually hard day lifting desks and other furnitures and assisting
in the preparations for the graduation exercises of the school. Considering
also his complaints during that day (March 11), among which was "shortness
of breath", we may also say that his work affected an already existing heart
ailment.

We find no plausible reason for altering or disturbing the above factual findings of
the Commission, in the present appeal by certiorari.

It is claimed that actually the deceased was not an employee of the petitioner, but
by the Iloilo Chinese Chamber of Commerce which was the one that furnished the
janitor service in the premises of its buildings, including the part thereof occupied by
the petitioner; that the Chamber of Commerce paid the salaries of janitors, including
the deceased; that the petitioner could not afford to pay rentals of its premises and
janitor due to limited finances depended largely on funds raised among its Board of
Directors, the Chinese Chamber of Commerce and Chinese nationals who helped the
school. In other words, it is pretended that the deceased was not an employee of
the school but of the Chinese Chamber of Commerce which should be the one
responsible for the compensation of the deceased. On one hand, according to the
Commission, there is substantial proof to the effect that Fabrigar was employed by
and rendered service for the petitioner and was an employee within the purview of
the Workmen's Compensation Law. On the other hand, the most important test of
employer-employee relation is the power to control the employee's conduct. The
records disclose that the person in charge (encargado) of the respondent school
supervised the deceased in his work and had control over the manner he performed
the same.

It is finally contended that petitioner is an institution devoted solely for learning and
is not an industry within the meaning of the Workmen's Compensation Law.
Consequently, it is argued, it is exempt from the scope of the same law. Considering
that this factual question has not been properly put in issue before the Commission,
it may not now be entertained in this appeal for the first time (Atlantic Gulf, etc. vs.
CIR, et al., L-16992, Dec. 23, 1961, citing International Oil Factory Union v. Hon.
Martinez, et al., L-15560, Dec. 31, 1960). The decision of the Commission does not
show that the matter was taken up. We are at a loss to state whether the issue was
raised in the motion for reconsideration filed with the Commission, because the said
motion is not found in the record before us. And the resolution to the motion for
reconsideration does not touch this question.

IN VIEW HEREOF, the appeal interposed by the petitioner is dismissed, and the
decision appealed from is affirmed, with costs against the herein petitioner.

G.R. No. 75112 August 17, 1992

FILAMER CHRISTIAN INSTITUTE, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT, HON. ENRIQUE P. SUPLICO, in
his capacity as Judge of the Regional Trial Court, Branch XIV, Roxas City
and POTENCIANO KAPUNAN, SR., respondents.

Bedona & Bedona Law Office for petitioner.

Rhodora G. Kapunan for private respondents.

GUTIERREZ, JR., J.:

The private respondents, heirs of the late Potenciano Kapunan, seek reconsideration
of the decision rendered by this Court on October 16, 1990 (Filamer Christian
Institute v. Court of Appeals, 190 SCRA 477) reviewing the appellate court's
conclusion that there exists an employer-employee relationship between the
petitioner and its co-defendant Funtecha. The Court ruled that the petitioner is not
liable for the injuries caused by Funtecha on the grounds that the latter was not an
authorized driver for whose acts the petitioner shall be directly and primarily
answerable, and that Funtecha was merely a working scholar who, under Section 14,
Rule X, Book III of the Rules and Regulations Implementing the Labor Code is not
considered an employee of the petitioner.

The private respondents assert that the circumstances obtaining in the present case
call for the application of Article 2180 of the Civil Code since Funtecha is no doubt an
employee of the petitioner. The private respondents maintain that under Article 2180
an injured party shall have recourse against the servant as well as the petitioner for
whom, at the time of the incident, the servant was performing an act in furtherance
of the interest and for the benefit of the petitioner. Funtecha allegedly did not steal
the school jeep nor use it for a joy ride without the knowledge of the school
authorities.

After a re-examination of the laws relevant to the facts found by the trial court and
the appellate court, the Court reconsiders its decision. We reinstate the Court of
Appeals' decision penned by the late Justice Desiderio Jurado and concurred in by
Justices Jose C. Campos, Jr. and Serafin E. Camilon. Applying Civil Code provisions,
the appellate court affirmed the trial court decision which ordered the payment of
the P20,000.00 liability in the Zenith Insurance Corporation policy, P10,000.00 moral
damages, P4,000.00 litigation and actual expenses, and P3,000.00 attorney's fees.

It is undisputed that Funtecha was a working student, being a part-time janitor and
a scholar of petitioner Filamer. He was, in relation to the school, an employee even if
he was assigned to clean the school premises for only two (2) hours in the morning
of each school day.

Having a student driver's license, Funtecha requested the driver, Allan Masa, and
was allowed, to take over the vehicle while the latter was on his way home one late
afternoon. It is significant to note that the place where Allan lives is also the house
of his father, the school president, Agustin Masa. Moreover, it is also the house
where Funtecha was allowed free board while he was a student of Filamer Christian
Institute.

Allan Masa turned over the vehicle to Funtecha only after driving down a road,
negotiating a sharp dangerous curb, and viewing that the road was clear. (TSN, April
4, 1983, pp. 78-79) According to Allan's testimony, a fast moving truck with glaring
lights nearly hit them so that they had to swerve to the right to avoid a collision.
Upon swerving, they heard a sound as if something had bumped against the vehicle,
but they did not stop to check. Actually, the Pinoy jeep swerved towards the
pedestrian, Potenciano Kapunan who was walking in his lane in the direction against
vehicular traffic, and hit him. Allan affirmed that Funtecha followed his advise to
swerve to the right. (Ibid., p. 79) At the time of the incident (6:30 P.M.) in Roxas
City, the jeep had only one functioning headlight.

Allan testified that he was the driver and at the same time a security guard of the
petitioner-school. He further said that there was no specific time for him to be off-
duty and that after driving the students home at 5:00 in the afternoon, he still had
to go back to school and then drive home using the same vehicle.

Driving the vehicle to and from the house of the school president where both Allan
and Funtecha reside is an act in furtherance of the interest of the petitioner-school.
Allan's job demands that he drive home the school jeep so he can use it to fetch
students in the morning of the next school day.

It is indubitable under the circumstances that the school president had knowledge
that the jeep was routinely driven home for the said purpose. Moreover, it is not
improbable that the school president also had knowledge of Funtecha's possession
of a student driver's license and his desire to undergo driving lessons during the time
that he was not in his classrooms.

In learning how to drive while taking the vehicle home in the direction of Allan's
house, Funtecha definitely was not having a joy ride. Funtecha was not driving for
the purpose of his enjoyment or for a "frolic of his own" but ultimately, for the
service for which the jeep was intended by the petitioner school. (See L. Battistoni v.
Thomas, Can SC 144, 1 D.L.R. 577, 80 ALR 722 [1932]; See also Association of
Baptists for World Evangelism, Inc. v. Fieldmen's Insurance Co., Inc. 124 SCRA 618
[1983]). Therefore, the Court is constrained to conclude that the act of Funtecha in
taking over the steering wheel was one done for and in behalf of his employer for
which act the petitioner-school cannot deny any responsibility by arguing that it was
done beyond the scope of his janitorial duties. The clause "within the scope of their
assigned tasks" for purposes of raising the presumption of liability of an employer,
includes any act done by an employee, in furtherance of the interests of the
employer or for the account of the employer at the time of the infliction of the injury
or damage. (Manuel Casada, 190 Va 906, 59 SE 2d 47 [1950]) Even if somehow, the
employee driving the vehicle derived some benefit from the act, the existence of a
presumptive liability of the employer is determined by answering the question of
whether or not the servant was at the time of the accident performing any act in
furtherance of his master's business. (Kohlman v. Hyland, 210 NW 643, 50 ALR 1437
[1926]; Jameson v. Gavett, 71 P 2d 937 [1937])

Section 14, Rule X, Book III of the Rules implementing the Labor Code, on which the
petitioner anchors its defense, was promulgated by the Secretary of Labor and
Employment only for the purpose of administering and enforcing the provisions of
the Labor Code on conditions of employment. Particularly, Rule X of Book III
provides guidelines on the manner by which the powers of the Labor Secretary shall
be exercised; on what records should be kept; maintained and preserved; on
payroll; and on the exclusion of working scholars from, and inclusion of resident
physicians in the employment coverage as far as compliance with the substantive
labor provisions on working conditions, rest periods, and wages, is concerned.

In other words, Rule X is merely a guide to the enforcement of the substantive law
on labor. The Court, thus, makes the distinction and so holds that Section 14, Rule
X, Book III of the Rules is not the decisive law in a civil suit for damages instituted
by an injured person during a vehicular accident against a working student of a
school and against the school itself.

The present case does not deal with a labor dispute on conditions of employment
between an alleged employee and an alleged employer. It invokes a claim brought
by one for damages for injury caused by the patently negligent acts of a person,
against both doer-employee and his employer. Hence, the reliance on the
implementing rule on labor to disregard the primary liability of an employer under
Article 2180 of the Civil Code is misplaced. An implementing rule on labor cannot be
used by an employer as a shield to avoid liability under the substantive provisions of
the Civil Code.

There is evidence to show that there exists in the present case an extra-contractual
obligation arising from the negligence or reckless imprudence of a person "whose
acts or omissions are imputable, by a legal fiction, to other(s) who are in a position
to exercise an absolute or limited control over (him)." (Bahia v. Litonjua and Leynes,
30 Phil. 624 [1915])
Funtecha is an employee of petitioner Filamer. He need not have an official
appointment for a driver's position in order that the petitioner may be held
responsible for his grossly negligent act, it being sufficient that the act of driving at
the time of the incident was for the benefit of the petitioner. Hence, the fact that
Funtecha was not the school driver or was not acting within the scope of his
janitorial duties does not relieve the petitioner of the burden of rebutting the
presumption juris tantum that there was negligence on its part either in the selection
of a servant or employee, or in the supervision over him. The petitioner has failed to
show proof of its having exercised the required diligence of a good father of a family
over its employees Funtecha and Allan.

The Court reiterates that supervision includes the formulation of suitable rules and
regulations for the guidance of its employees and the issuance of proper instructions
intended for the protection of the public and persons with whom the employer has
relations through his employees. (Bahia v. Litonjua and Leynes, supra, at p. 628;
Phoenix Construction, v. Intermediate Appellate Court, 148 SCRA 353 [1987])

An employer is expected to impose upon its employees the necessary discipline

called for in the performance of any act indispensable to the business and beneficial
to their employer.

In the present case, the petitioner has not shown that it has set forth such rules and
guidelines as would prohibit any one of its employees from taking control over its
vehicles if one is not the official driver or prohibiting the driver and son of the
Filamer president from authorizing another employee to drive the school vehicle.
Furthermore, the petitioner has failed to prove that it had imposed sanctions or
warned its employees against the use of its vehicles by persons other than the
driver.

The petitioner, thus, has an obligation to pay damages for injury arising from the
unskilled manner by which Funtecha drove the vehicle. (Cangco v. Manila Railroad
Co., 38 Phil. 768, 772 [1918]). In the absence of evidence that the petitioner had
exercised the diligence of a good father of a family in the supervision of its
employees, the law imposes upon it the vicarious liability for acts or omissions of its
employees. (Umali v. Bacani, 69 SCRA 263 [1976]; Poblete v. Fabros, 93 SCRA 200
[1979]; Kapalaran Bus Liner v. Coronado, 176 SCRA 792 [1989]; Franco v.
Intermediate Appellate Court, 178 SCRA 331 [1989]; Pantranco North Express, Inc.
v. Baesa, 179 SCRA 384 [1989]) The liability of the employer is, under Article 2180,
primary and solidary. However, the employer shall have recourse against the
negligent employee for whatever damages are paid to the heirs of the plaintiff.

It is an admitted fact that the actual driver of the school jeep, Allan Masa, was not
made a party defendant in the civil case for damages. This is quite understandable
considering that as far as the injured pedestrian, plaintiff Potenciano Kapunan, was
concerned, it was Funtecha who was the one driving the vehicle and presumably
was one authorized by the school to drive. The plaintiff and his heirs should not now
be left to suffer without simultaneous recourse against the petitioner for the
consequent injury caused by a janitor doing a driving chore for the petitioner even
for a short while. For the purpose of recovering damages under the prevailing
circumstances, it is enough that the plaintiff and the private respondent heirs were
able to establish the existence of employer-employee relationship between Funtecha
and petitioner Filamer and the fact that Funtecha was engaged in an act not for an
independent purpose of his own but in furtherance of the business of his employer.
A position of responsibility on the part of the petitioner has thus been satisfactorily
demonstrated.

WHEREFORE, the motion for reconsideration of the decision dated October 16, 1990
is hereby GRANTED. The decision of the respondent appellate court affirming the
trial court decision is REINSTATED.

SO ORDERED.

G.R. No. L-21278 December 27, 1966

FEATI UNIVERSITY, petitioner,

vs.
HON. JOSE S. BAUTISTA, Presiding Judge of the Court of Industrial
Relations and FEATI UNIVERSITY FACULTY CLUB-PAFLU, respondents.

----------------------------------------

G.R. No. L-21462 December 27, 1966

FEATI UNIVERSITY, petitioner-appellant,

vs.
FEATI UNIVERSITY FACULTY CLUB-PAFLU, respondent-appellee.

----------------------------------------

G.R. No. L-21500 December 27, 1966

FEATI UNIVERSITY, petitioner-appellant,

vs.
FEATI UNIVERSITY FACULTY CLUB-PAFLU, respondent-appellee.

Rafael Dinglasan for petitioner.

Cipriano Cid and Associates for respondents.

ZALDIVAR, J.:

This Court, by resolution, ordered that these three cases be considered together,
and the parties were allowed to file only one brief for the three cases.

On January 14, 1963, the President of the respondent Feati University Faculty Club-
PAFLU — hereinafter referred to as Faculty Club — wrote a letter to Mrs. Victoria L.
Araneta, President of petitioner Feati University — hereinafter referred to as
University — informing her of the organization of the Faculty Club into a registered
labor union. The Faculty Club is composed of members who are professors and/or
instructors of the University. On January 22, 1963, the President of the Faculty Club
sent another letter containing twenty-six demands that have connection with the
employment of the members of the Faculty Club by the University, and requesting
an answer within ten days from receipt thereof. The President of the University
answered the two letters, requesting that she be given at least thirty days to study
thoroughly the different phases of the demands. Meanwhile counsel for the
University, to whom the demands were referred, wrote a letter to the President of
the Faculty Club demanding proof of its majority status and designation as a
bargaining representative. On February 1, 1963, the President of the Faculty Club
again wrote the President of the University rejecting the latter's request for
extension of time, and on the same day he filed a notice of strike with the Bureau of
Labor alleging as reason therefor the refusal of the University to bargain collectively.
The parties were called to conferences at the Conciliation Division of the Bureau of
Labor but efforts to conciliate them failed. On February 18, 1963, the members of
the Faculty Club declared a strike and established picket lines in the premises of the
University, resulting in the disruption of classes in the University. Despite further
efforts of the officials from the Department of Labor to effect a settlement of the
differences between the management of the University and the striking faculty
members no satisfactory agreement was arrived at. On March 21, 1963, the
President of the Philippines certified to the Court of Industrial Relations the dispute
between the management of the University and the Faculty Club pursuant to the
provisions of Section 10 of Republic Act No. 875.

In connection with the dispute between the University and the Faculty Club and
certain incidents related to said dispute, various cases were filed with the Court of
Industrial Relations — hereinafter referred to as CIR. The three cases now before
this Court stemmed from those cases that were filed with the CIR.

CASE NO. G.R. NO. L-21278

On May 10, 1963, the University filed before this Court a "petition for certiorari and
prohibition with writ of preliminary injunction", docketed as G.R. No. L-21278,
praying: (1) for the issuance of the writ of preliminary injunction enjoining
respondent Judge Jose S. Bautista of the CIR to desist from proceeding in CIR Cases
Nos. 41-IPA, 1183-MC, and V-30; (2) that the proceedings in Cases Nos. 41-IPA and
1183-MC be annulled; (3) that the orders dated March 30, 1963 and April 6, 1963 in
Case No. 41-IPA, the order dated April 6, 1963 in Case No. 1183-MC, and the order
dated April 29, 1963 in Case No. V-30, all be annulled; and (4) that the respondent
Judge be ordered to dismiss said cases Nos. 41-IPA, 1183-MC and V-30 of the CIR.

On May 10, 1963, this Court issued a writ of preliminary injunction, upon the
University's filing a bond of P1,000.00, ordering respondent Judge Jose S. Bautista
as Presiding Judge of the CIR, until further order from this Court, "to desist and
refrain from further proceeding in the premises (Cases Nos. 41-IPA, 1183-MC and V-
30 of the Court of Industrial Relations)."1 On December 4, 1963, this Court ordered
the injunction bond increased to P100,000.00; but on January 23, 1964, upon a
motion for reconsideration by the University, this Court reduced the bond to
P50,000.00.

A brief statement of the three cases — CIR Cases 41-IPA, 1183-MC and V-30 —
involved in the Case G.R. No. L-21278, is here necessary.

CIR Case No. 41-IPA, relates to the case in connection with the strike staged by the
members of the Faculty Club. As we have stated, the dispute between the University
and the Faculty Club was certified on March 21, 1963 by the President of the
Philippines to the CIR. On the strength of the presidential certification, respondent
Judge Bautista set the case for hearing on March 23, 1963. During the hearing, the
Judge endeavored to reconcile the part and it was agreed upon that the striking
faculty members would return to work and the University would readmit them under
a status quo arrangement. On that very same day, however, the University, thru
counsel filed a motion to dismiss the case upon the ground that the CIR has no
jurisdiction over the case, because (1) the Industrial Peace Act is not applicable to
the University, it being an educational institution, nor to the members of the Faculty
Club, they being independent contractors; and (2) the presidential certification is
violative of Section 10 of the Industrial Peace Act, as the University is not an
industrial establishment and there was no industrial dispute which could be certified
to the CIR. On March 30, 1963 the respondent Judge issued an order denying the
motion to dismiss and declaring that the Industrial Peace Act is applicable to both
parties in the case and that the CIR had acquired jurisdiction over the case by virtue
of the presidential certification. In the same order, the respondent Judge, believing
that the dispute could not be decided promptly, ordered the strikers to return
immediately to work and the University to take them back under the last terms and
conditions existing before the dispute arose, as per agreement had during the
hearing on March 23, 1963; and likewise enjoined the University, pending
adjudication of the case, from dismissing any employee or laborer without previous
authorization from the CIR. The University filed on April 1, 1963 a motion for
reconsideration of the order of March 30, 1963 by the CIR en banc, and at the same
time asking that the motion for reconsideration be first heard by the CIR en banc.
Without the motion for reconsideration having been acted upon by the CIR en banc,
respondent Judge set the case for hearing on the merits for May 8, 1963. The
University moved for the cancellation of said hearing upon the ground that the
court en banc should first hear the motion for reconsideration and resolve the issues
raised therein before the case is heard on the merits. This motion for cancellation of
the hearing was denied. The respondent Judge, however, cancelled the scheduled
hearing when counsel for the University manifested that he would take up before the
Supreme Court, by a petition for certiorari, the matter regarding the actuations of
the respondent Judge and the issues raised in the motion for reconsideration,
specially the issue relating to the jurisdiction of the CIR. The order of March 30,
1963 in Case 41-IPA is one of the orders sought to be annulled in the case, G.R. No.
L-21278.

Before the above-mentioned order of March 30, 1963 was issued by respondent
Judge, the University had employed professors and/or instructors to take the places
of those professors and/or instructors who had struck. On April 1, 1963, the Faculty
Club filed with the CIR in Case 41-IPA a petition to declare in contempt of court
certain parties, alleging that the University refused to accept back to work the
returning strikers, in violation of the return-to-work order of March 30, 1963. The
University filed, on April 5,1963, its opposition to the petition for contempt, denying
the allegations of the Faculty Club and alleging by way of special defense that there
was still the motion for reconsideration of the order of March 30, 1963 which had
not yet been acted upon by the CIR en banc. On April 6, 1963, the respondent
Judge issued an order stating that "said replacements are hereby warned and
cautioned, for the time being, not to disturb nor in any manner commit any act
tending to disrupt the effectivity of the order of March 30,1963, pending the final
resolution of the same."2 On April 8, 1963, there placing professors and/or
instructors concerned filed, thru counsel, a motion for reconsideration by the CIR en
banc of the order of respondent Judge of April 6, 1963. This order of April 6, 1963 is
one of the orders that are sought to be annulled in case G.R. No. L-21278.

CIR Case No. 1183-MC relates to a petition for certification election filed by the
Faculty Club on March 8, 1963 before the CIR, praying that it be certified as the sole
and exclusive bargaining representative of all the employees of the University. The
University filed an opposition to the petition for certification election and at the same
time a motion to dismiss said petition, raising the very same issues raised in Case
No. 41-IPA, claiming that the petition did not comply with the rules promulgated by
the CIR; that the Faculty Club is not a legitimate labor union; that the members of
the Faculty Club cannot unionize for collective bargaining purposes; that the terms
of the individual contracts of the professors, instructors, and teachers, who are
members of the Faculty Club, would expire on March 25 or 31, 1963; and that the
CIR has no jurisdiction to take cognizance of the petition because the Industrial
Peace Act is not applicable to the members of the Faculty Club nor to the University.
This case was assigned to Judge Baltazar Villanueva of the CIR. Before Judge
Villanueva could act on the motion to dismiss, however, the Faculty Club filed on
April 3, 1963 a motion to withdraw the petition on the ground that the labor dispute
(Case No. 41-IPA) had already been certified by the President to the CIR and the
issues raised in Case No. 1183-MC were absorbed by Case No. 41-IPA. The
University opposed the withdrawal, alleging that the issues raised in Case No. 1183-
MC were separate and distinct from the issues raised in Case No. 41-IPA; that the
questions of recognition and majority status in Case No. 1183-MC were not absorbed
by Case No. 41-IPA; and that the CIR could not exercise its power of compulsory
arbitration unless the legal issue regarding the existence of employer-employee
relationship was first resolved. The University prayed that the motion of the Faculty
Club to withdraw the petition for certification election be denied, and that its motion
to dismiss the petition be heard. Judge Baltazar Villanueva, finding that the reasons
stated by the Faculty Club in the motion to withdraw were well taken, on April 6,
1963, issued an order granting the withdrawal. The University filed, on April 24,
1963, a motion for reconsideration of that order of April 6, 1963 by the CIR en banc.
This order of April 6, 1963 in Case No. 1183-MC is one of the orders sought to be
annulled in the case, G.R. No. L-21278, now before Us.

CIR Case No. V-30 relates to a complaint for indirect contempt of court filed against
the administrative officials of the University. The Faculty Club, through the Acting
Chief Prosecutor of the CIR, filed with the CIR a complaint docketed as Case No. V-
30, charging President Victoria L. Araneta, Dean Daniel Salcedo, Executive Vice-
President Rodolfo Maslog, and Assistant to the President Jose Segovia, as officials of
the University, with indirect contempt of court, reiterating the same charges filed in
Case No. 41-IPA for alleged violation of the order dated March 30, 1963. Based on
the complaint thus filed by the Acting Chief Prosecutor of the CIR, respondent Judge
Bautista issued on April 29, 1963 an order commanding any officer of the law to
arrest the above named officials of the University so that they may be dealt with in
accordance with law, and the same time fixed the bond for their release at P500.00
each. This order of April 29, 1963 is also one of the orders sought to be annulled in
the case, G.R. No. L-2l278.

The principal allegation of the University in its petition for certiorari and prohibition
with preliminary injunction in Case G.R. No. L-21278, now before Us, is that
respondent Judge Jose S. Bautista acted without, or in excess of, jurisdiction, or with
grave abuse of discretion, in taking cognizance of, and in issuing the questioned
orders in, CIR Cases Nos. 41-IPA 1183-MC and V-30. Let it be noted that when the
petition for certiorari and prohibition with preliminary injunction was filed on May 10,
1963 in this case, the questioned order in CIR Cases Nos. 41-IPA, 1183-MC and V-30
were still pending action by the CIR en banc upon motions for reconsideration filed
by the University.

On June 10, 1963, the Faculty Club filed its answer to the petition for certiorari and
prohibition with preliminary injunction, admitting some allegations contained in the
petition and denying others, and alleging special defenses which boil down to the
contentions that (1) the CIR had acquired jurisdiction to take cognizance of Case No.
41-IPA by virtue of the presidential certification, so that it had jurisdiction to issue
the questioned orders in said Case No. 41-IPA; (2) that the Industrial Peace Act
(Republic Act 875) is applicable to the University as an employer and to the
members of the Faculty Club as employees who are affiliated with a duly registered
labor union, so that the Court of Industrial Relations had jurisdiction to take
cognizance of Cases Nos. 1183-MC and V-30 and to issue the questioned orders in
those two cases; and (3) that the petition for certiorari and prohibition with
preliminary injunction was prematurely filed because the orders of the CIR sought to
be annulled were still the subjects of pending motions for reconsideration before the
CIR en banc when said petition for certiorari and prohibition with preliminary
injunction was filed before this Court.

CASE G.R. NO. L-21462

This case, G.R. No. L-21462, involves also CIR Case No. 1183-MC. As already stated
Case No. 1183-MC relates to a petition for certification election filed by the Faculty
Club as a labor union, praying that it be certified as the sole and exclusive
bargaining representative of all employees of the University. This petition was
opposed by the University, and at the same time it filed a motion to dismiss said
petition. But before Judge Baltazar Villanueva could act on the petition for
certification election and the motion to dismiss the same, Faculty Club filed a motion
to withdraw said petition upon the ground that the issue raised in Case No. 1183-MC
were absorbed by Case No. 41-IPA which was certified by the President of the
Philippines. Judge Baltazar Villanueva, by order April 6, 1963, granted the motion to
withdraw. The University filed a motion for reconsideration of that order of April 6,
1963 by the CIR en banc. That motion for reconsideration was pending action by the
CIR en banc when the petition for certiorariand prohibition with preliminary
injunction in Case G.R. no. L-21278 was filed on May 10, 1963. As earlier stated this
Court, in Case G.R. No. L-21278, issued a writ of preliminary injunction on May 10,
1963, ordering respondent Judge Bautista, until further order from this Court, to
desist and refrain from further proceeding in the premises (Cases Nos. 41-IPA, 1183-
MC and V-30 of the Court of Industrial Relations).

On June 5, 1963, that is, after this Court has issued the writ of preliminary injunction
in Case G.R. No. L-21278, the CIR en banc issued a resolution denying the motion
for reconsideration of the order of April 6, 1963 in Case No. 1183-MC.

On July 8, 1963, the University filed before this Court a petition for certiorari, by way
of an appeal from the resolution of the CIR en banc, dated June 5, 1963, denying
the motion for reconsideration of the order of April 6, 1963 in Case No. 1183-MC.
This petition was docketed as G.R. No. L-21462. In its petition for certiorari, the
University alleges (1) that the resolution of the Court of Industrial Relations of June
5, 1963 was null and void because it was issued in violation of the writ of preliminary
injunction issued in Case G.R. No. L-21278; (2) that the issues of employer-
employee relationship, the alleged status as a labor union, majority representation
and designation as bargaining representative in an appropriate unit of the Faculty
Club should have been resolved first in Case No. 1183-MC prior to the determination
of the issues in Case No. 41-IPA and therefore the motion to withdraw the petition
for certification election should not have been granted upon the ground that the
issues in the first case have been absorbed in the second case; and (3) the lower
court acted without or in excess of jurisdiction in taking cognizance of the petition
for certification election and that the same should have been dismissed instead of
having been ordered withdrawn. The University prayed that the proceedings in Case
No. 1183-MC and the order of April 6, 1963 and the resolution of June 5, 1963
issued therein be annulled, and that the CIR be ordered to dismiss Case No. 1183-
MC on the ground of lack of jurisdiction.

The Faculty Club filed its answer, admitting some, and denying other, allegations in
the petition for certiorari; and specially alleging that the lower court's order granting
the withdrawal of the petition for certification election was in accordance with law,
and that the resolution of the court en banc on June 5, 1963 was not a violation of
the writ of preliminary injunction issued in Case G.R. No. L-21278 because said writ
of injunction was issued against Judge Jose S. Bautista and not against the Court of
Industrial Relations, much less against Judge Baltazar Villanueva who was the trial
judge of Case No. 1183-MC.

CASE G.R. NO. L-21500

This case, G.R. No. L-21500, involves also CIR Case No. 41-IPA. As earlier stated,
Case No. 41-IPA relates to the strike staged by the members of the Faculty Club and
the dispute was certified by the President of the Philippines to the CIR. The
University filed a motion to dismiss that case upon the ground that the CIR has no
jurisdiction over the case, and on March 30, 1963 Judge Jose S. Bautista issued an
order denying the motion to dismiss and declaring that the Industrial Peace Act is
applicable to both parties in the case and that the CIR had acquired jurisdiction over
the case by virtue of the presidential certification; and in that same order Judge
Bautista ordered the strikers to return to work and the University to take them back
under the last terms and conditions existing before the dispute arose; and enjoined
the University from dismissing any employee or laborer without previous authority
from the court. On April 1, 1963, the University filed a motion for reconsideration of
the order of March 30, 1963 by the CIR en banc. That motion for reconsideration
was pending action by the CIR en banc when the petition for certiorari and
prohibition with preliminary injunction in Case G.R. No. L-21278 was filed on May 10,
1963. As we have already stated, this Court in said case G.R. No. L-21278, issued a
writ of preliminary injunction on May 10, 1963 ordering respondent Judge Jose S.
Bautista, until further order from this Court, to desist and refrain from further
proceeding in the premises (Cases Nos. 41-IPA, 1183-MC and V-30 of the Court of
Industrial Relations).

On July 2, 1963, the University received a copy of the resolution of the CIR en banc,
dated May 7, 1963 but actually received and stamped at the Office of the Clerk of
the CIR on June 28, 1963, denying the motion for reconsideration of the order dated
March 30, 1963 in Case No. 41-IPA.

On July 23, 1963, the University filed before this Court a petition for certiorari, by
way of an appeal from the resolution of the Court of Industrial Relations en
banc dated May 7, 1963 (but actually received by said petitioner on July 2, 1963)
denying the motion for reconsideration of the order of March 30, 1963 in Case No.
41-IPA. This petition was docketed as G.R. No. L-21500. In its petition
for certiorari the University alleges (1) that the resolution of the CIR en banc, dated
May 7, 1963 but filed with the Clerk of the CIR on June 28, 1963, in Case No. 41-
IPA, is null and void because it was issued in violation of the writ of preliminary
injunction issued by this Court in G.R. No. L-21278; (2) that the CIR, through its
Presiding Judge, had no jurisdiction to take cognizance of Case No. 41-IPA and the
order of March 30, 1963 and the resolution dated May 7, 1963 issued therein are
null and void; (3) that the certification made by the President of the Philippines is
not authorized by Section 10 of Republic Act 875, but is violative thereof; (4) that
the Faculty Club has no right to unionize or organize as a labor union for collective
bargaining purposes and to be certified as a collective bargaining agent within the
purview of the Industrial Peace Act, and consequently it has no right to strike and
picket on the ground of petitioner's alleged refusal to bargain collectively where such
duty does not exist in law and is not enforceable against an educational institution;
and (5) that the return-to-work order of March 30, 1963 is improper and illegal. The
petition prayed that the proceedings in Case No. 41-IPA be annulled, that the order
dated March 30, 1963 and the resolution dated May 7, 1963 be revoked, and that
the lower court be ordered to dismiss Case 41-IPA on the ground of lack of
jurisdiction.
On September 10, 1963, the Faculty Club, through counsel, filed a motion to dismiss
the petition for certiorari on the ground that the petition being filed by way of an
appeal from the orders of the Court of Industrial Relations denying the motion to
dismiss in Case No. 41-IPA, the petition for certiorari is not proper because the
orders appealed from are interlocutory in nature.

This Court, by resolution of September 26, 1963, ordered that these three cases
(G.R. Nos. L-21278, L-21462 and L-21500) be considered together and the motion
to dismiss in Case G.R. No. L-21500 be taken up when the cases are decided on the
merits after the hearing.

Brushing aside certain technical questions raised by the parties in their pleadings,
We proceed to decide these three cases on the merits of the issues raised.

The University has raised several issues in the present cases, the pivotal one being
its claim that the Court of Industrial Relations has no jurisdiction over the parties
and the subject matter in CIR Cases 41-IPA, 1183-MC and V-30, brought before it,
upon the ground that Republic Act No. 875 is not applicable to the University
because it is an educational institution and not an industrial establishment and hence
not an "employer" in contemplation of said Act; and neither is Republic Act No. 875
applicable to the members of the Faculty Club because the latter are independent
contractors and, therefore, not employees within the purview of the said Act.

In support of the contention that being an educational institution it is beyond the

scope of Republic Act No. 875, the University cites cases decided by this Court: Boy
Scouts of the Philippines vs. Juliana Araos, L-10091, Jan. 29, 1958; University of San
Agustin vs. CIR, et al., L-12222, May 28, 1958; Cebu Chinese High School vs.
Philippine Land-Air-Sea Labor Union, PLASLU, L-12015, April 22, 1959; La
Consolacion College, et al. vs. CIR, et al., L-13282, April 22, 1960; University of the
Philippines, et al. vs. CIR, et al., L-15416, April 8, 1960; Far Eastern University vs.
CIR, L-17620, August 31, 1962. We have reviewed these cases, and also related
cases subsequent thereto, and We find that they do not sustain the contention of
the University. It is true that this Court has ruled that certain educational
institutions, like the University of Santo Tomas, University of San Agustin, La
Consolacion College, and other juridical entities, like the Boy Scouts of the
Philippines and Manila Sanitarium, are beyond the purview of Republic Act No. 875
in the sense that the Court of Industrial Relations has no jurisdiction to take
cognizance of charges of unfair labor practice filed against them, but it is
nonetheless true that the principal reason of this Court in ruling in those cases that
those institutions are excluded from the operation of Republic Act 875 is that those
entities are not organized, maintained and operated for profit and do not declare
dividends to stockholders. The decision in the case of University of San Agustin vs.
Court of Industrial Relations, G.R. No. L-12222, May 28, 1958, is very pertinent. We
quote a portion of the decision:

It appears that the University of San Agustin, petitioner herein, is an

educational institution conducted and managed by a "religious non-stock
corporation duly organized and existing under the laws of the Philippines." It
was organized not for profit or gain or division of the dividends among its
stockholders, but solely for religious and educational purposes. It likewise
appears that the Philippine Association of College and University Professors,
respondent herein, is a non-stock association composed of professors and
teachers in different colleges and universities and that since its organization
two years ago, the university has adopted a hostile attitude to its formation
and has tried to discriminate, harass and intimidate its members for which
reason the association and the members affected filed the unfair labor
practice complaint which initiated this proceeding. To the complaint of unfair
labor practice, petitioner filed an answer wherein it disputed the jurisdiction of
the Court of Industrial Relations over the controversy on the following
grounds:

"(a) That complainants therein being college and/or university

professors were not "industrial" laborers or employees, and the
Philippine Association of College and University Professors being
composed of persons engaged in the teaching profession, is not and
cannot be a legitimate labor organization within the meaning of the
laws creating the Court of Industrial Relations and defining its powers
and functions;

"(b) That the University of San Agustin, respondent therein, is not an

institution established for the purpose of gain or division of profits, and
consequently, it is not an "industrial" enterprise and the members of its
teaching staff are not engaged in "industrial" employment (U.S.T.
Hospital Employees Association vs. Sto. Tomas University Hospital,
G.R. No. L-6988, 24 May 1954; and San Beda College vs. Court of
Industrial Relations and National Labor Union, G.R. No. L-7649, 29
October 1955; 51 O.G. (Nov. 1955) 5636-5640);

"(c) That, as a necessary consequence, alleged controversy between

therein complainants and respondent is not an "industrial" dispute, and
the Court of Industrial Relations has no jurisdiction, not only on the
parties but also over the subject matter of the complaint."

The issue now before us is: Since the University of San Agustin is not an
institution established for profit or gain, nor an industrial enterprise, but one
established exclusively for educational purposes, can it be said that its
relation with its professors is one of employer and employee that comes
under the jurisdiction of the Court of Industrial Relations? In other words, do
the provisions of the Magna Carta on unfair labor practice apply to the
relation between petitioner and members of respondent association?

The issue is not new. Thus, in the case of Boy Scouts of the Philippines v.
Juliana V. Araos, G.R. No. L-10091, promulgated on January 29, 1958, this
Court, speaking thru Mr. Justice Montemayor, answered the query in the
negative in the following wise:
 "The main issue involved in the present case is whether or not a
charitable institution or one organized not for profit but for more
elevated purposes, charitable, humanitarian, etc., like the Boy Scouts
of the Philippines, is included in the definition of "employer" contained
in Republic Act 875, and whether the employees of said institution fall
under the definition of "employee" also contained in the same Republic
Act. If they are included, then any act which may be considered unfair
labor practice, within the meaning of said Republic Act, would come
under the jurisdiction of the Court of Industrial Relations; but if they do
not fall within the scope of said Republic Act, particularly, its definitions
of employer and employee, then the Industrial Court would have no
jurisdiction at all.

xxx xxx xxx

"On the basis of the foregoing considerations, there is every reason to

believe that our labor legislation from Commonwealth Act No. 103,
creating the Court of Industrial Relations, down through the Eight-Hour
Labor Law, to the Industrial Peace Act, was intended by the Legislature
to apply only to industrial employment and to govern the relations
between employers engaged in industry and occupations for purposes
of profit and gain, and their industrial employees, but not to
organizations and entities which are organized, operated and
maintained not for profit or gain, but for elevated and lofty purposes,
such as, charity, social service, education and instruction, hospital and
medical service, the encouragement and promotion of character,
patriotism and kindred virtues in youth of the nation, etc.

"In conclusion, we find and hold that Republic Act No. 875, particularly,
that portion thereof regarding labor disputes and unfair labor practice,
does not apply to the Boy Scouts of the Philippines, and consequently,
the Court of Industrial Relations had no jurisdiction to entertain and
decide the action or petition filed by respondent Araos. Wherefore, the
appealed decision and resolution of the CIR are hereby set aside, with
costs against respondent."

There being a close analogy between the relation and facts involved in the
two cases, we cannot but conclude that the Court of Industrial Relations has
no jurisdiction to entertain the complaint for unfair labor practice lodged by
respondent association against petitioner and, therefore, we hereby set aside
the order and resolution subject to the present petition, with costs against
respondent association.

The same doctrine was confirmed in the case of University of Santo Tomas v. Hon.
Baltazar Villanueva, et al., G.R. No. L-13748, October 30, 1959, where this Court
ruled that:
 In the present case, the record reveals that the petitioner University of Santo
Tomas is not an industry organized for profit but an institution of learning
devoted exclusively to the education of the youth. The Court of First Instance
of Manila in its decision in Civil Case No. 28870, which has long become final
and consequently the settled law in the case, found as established by the
evidence adduced by the parties therein (herein petitioner and respondent
labor union) that while the University collects fees from its students, all its
income is used for the improvement and enlargement of the institution. The
University declares no dividend, and the members of the corporation who
founded it, as ordained in its articles of incorporation, receive no material
compensation for the time and sacrifice they render to the University and its
students. The respondent union itself in a case before the Industrial Court
(Case No. 314-MC) has averred that "the University of Santo Tomas, like the
San Beda College, is an educational institution operated not for profit but for
the sole purpose of educating young men." (See Annex "B" to petitioner's
motion to dismiss.). It is apparent, therefore, that on the face of the record
the University of Santo Tomas is not a corporation created for profit but an
educational institution and therefore not an industrial or business
organization.

In the case of La Consolacion College, et al. vs. CIR, et al., G.R. No. L-13282, April
22, 1960, this Court repeated the same ruling when it said:

The main issue in this appeal by petitioner is that the industry trial court
committed an error in holding that it has jurisdiction to act in this case even if
it involves unfair labor practice considering that the La Consolacion College is
not a business enterprise but an educational institution not organized for
profit.

If the claim that petitioner is an educational institution not operated for profit
is true, which apparently is the case, because the very court a quo found that
it has no stockholder, nor capital . . . then we are of the opinion that the
same does not come under the jurisdiction of the Court of Industrial Relations
in view of the ruling in the case of Boy Scouts of the Philippines v. Juliana V.
Araos, G.R. No. L-10091, decided on January 29, 1958.

It is noteworthy that the cases of the University of San Agustin, the University of
Santo Tomas, and La Consolacion College, cited above, all involve charges of unfair
labor practice under Republic Act No. 875, and the uniform rulings of this Court are
that the Court of Industrial Relations has no jurisdiction over the charges because
said Act does not apply to educational institutions that are not operated or
maintained for profit and do not declare dividends. On the other hand, in the cases
of Far Eastern University v. CIR, et al., G.R. No. L-17620, August 31, 1962, this
Court upheld the decision of the Court of Industrial Relations finding the Far Eastern
University, also an educational institution, guilty of unfair labor practice. Among the
findings of fact in said case was that the Far Eastern University made profits from
the school year 1952-1953 to 1958-1959. In affirming the decision of the lower
court, this Court had thereby ratified the ruling of the Court of Industrial Relations
which applied the Industrial Peace Act to educational institutions that are organized,
operated and maintained for profit.

It is also noteworthy that in the decisions in the cases of the Boy Scouts of the
Philippines, the University of San Agustin, the University of Sto. Tomas, and La
Consolacion College, this Court was not unanimous in the view that the Industrial
Peace Act (Republic Act No. 875) is not applicable to charitable, eleemosynary or
non-profit organizations — which include educational institutions not operated for
profit. There are members of this Court who hold the view that the Industrial Peace
Act would apply also to non-profit organizations or entities — the only exception
being the Government, including any political subdivision or instrumentality thereof,
in so far as governmental functions are concerned. However, in the Far Eastern
University case this Court is unanimous in supporting the view that an educational
institution that is operated for profit comes within the scope of the Industrial Peace
Act. We consider it a settled doctrine of this Court, therefore, that the Industrial
Peace Act is applicable to any organization or entity — whatever may be its purpose
when it was created — that is operated for profit or gain.

Does the University operate as an educational institution for profit? Does it declare
dividends for its stockholders? If it does not, it must be declared beyond the purview
of Republic Act No. 875; but if it does, Republic Act No. 875 must apply to it. The
University itself admits that it has declared dividends.3 The CIR in its order dated
March 30, 1963 in CIR Case No. 41-IPA — which order was issued after evidence
was heard — also found that the University is not for strictly educational purposes
and that "It realizes profits and parts of such earning is distributed as dividends to
private stockholders or individuals (Exh. A and also 1 to 1-F, 2-x 3-x and 4-
x)"4 Under this circumstance, and in consonance with the rulings in the decisions of
this Court, above cited, it is obvious that Republic Act No. 875 is applicable to herein
petitioner Feati University.

But the University claims that it is not an employer within the contemplation of
Republic Act No. 875, because it is not an industrial establishment. At most, it says,
it is only a lessee of the services of its professors and/or instructors pursuant to a
contract of services entered into between them. We find no merit in this claim. Let
us clarify who is an "employer" under the Act. Section 2(c) of said Act provides:

Sec. 2. Definitions.—As used in this Act —

(c) The term employer include any person acting in the interest of an
employer, directly or indirectly, but shall not include any labor organization
(otherwise than when acting as an employer) or any one acting in the
capacity or agent of such labor organization.

It will be noted that in defining the term "employer" the Act uses the word
"includes", which it also used in defining "employee". [Sec. 2 (d)], and
"representative" [Sec. 2(h)]; and not the word "means" which the Act uses in
defining the terms "court" [Sec. 2(a)], "labor organization" [Sec. 2(e)], "legitimate
labor organization [Sec. 2(f)], "company union" [Sec. 2(g)], "unfair labor practice"
[Sec. 2(i)], "supervisor" [Sec. 2(k)], "strike" [Sec. 2(l)] and "lock-out" [Sec. 2(m)]. A
methodical variation in terminology is manifest. This variation and distinction in
terminology and phraseology cannot be presumed to have been the inconsequential
product of an oversight; rather, it must have been the result of a deliberate and
purposeful act, more so when we consider that as legislative records show, Republic
Act No. 875 had been meticulously and painstakingly drafted and deliberated upon.
In using the word "includes" and not "means", Congress did not intend to give a
complete definition of "employer", but rather that such definition should be
complementary to what is commonly understood as employer. Congress intended
the term to be understood in a broad meaning because, firstly, the statutory
definition includes not only "a principal employer but also a person acting in the
interest of the employer"; and, secondly, the Act itself specifically enumerated those
who are not included in the term "employer", namely: (1) a labor organization
(otherwise than when acting as an employer), (2) anyone acting in the capacity of
officer or agent of such labor organization [Sec. 2(c)], and (3) the Government and
any political subdivision or instrumentality thereof insofar as the right to strike for
the purpose of securing changes or modifications in the terms and conditions of
employment is concerned (Section 11). Among these statutory exemptions,
educational institutions are not included; hence, they can be included in the term
"employer". This Court, however, has ruled that those educational institutions that
are not operated for profit are not within the purview of Republic Act No. 875.5

As stated above, Republic Act No. 875 does not give a comprehensive but only a
complementary definition of the term "employer". The term encompasses those that
are in ordinary parlance "employers." What is commonly meant by "employer"? The
term "employer" has been given several acceptations. The lexical definition is "one
who employs; one who uses; one who engages or keeps in service;" and "to
employ" is "to provide work and pay for; to engage one's service; to hire."
(Webster's New Twentieth Century Dictionary, 2nd ed., 1960, p. 595). The
Workmen's Compensation Act defines employer as including "every person or
association of persons, incorporated or not, public or private, and the legal
representative of the deceased employer" and "includes the owner or lessee of a
factory or establishment or place of work or any other person who is virtually the
owner or manager of the business carried on in the establishment or place of work
but who, for reason that there is an independent contractor in the same, or for any
other reason, is not the direct employer of laborers employed there." [Sec. 39(a) of
Act No. 3428.] The Minimum Wage Law states that "employer includes any person
acting directly or indirectly in the interest of the employer in relation to an employee
and shall include the Government and the government corporations". [Rep. Act No.
602, Sec. 2(b)]. The Social Security Act defines employer as "any person, natural or
juridical, domestic or foreign, who carries in the Philippines any trade, business,
industry, undertaking, or activity of any kind and uses the services of another person
who is under his orders as regards the employment, except the Government and any
of its political subdivisions, branches or instrumentalities, including corporations
owned or controlled by the Government." (Rep. Act No. 1161, Sec. 8[c]).

This Court, in the cases of the The Angat River Irrigation System, et al. vs. Angat
River Workers' Union (PLUM), et al., G.R. Nos. L-10934 and L-10944, December 28,
1957, which cases involve unfair labor practices and hence within the purview of
Republic Act No. 875, defined the term employer as follows:

An employer is one who employs the services of others; one for whom
employees work and who pays their wages or salaries (Black Law Dictionary,
4th ed., p. 618).

An employer includes any person acting in the interest of an employer,

directly or indirectly (Sec. 2-c, Rep. Act 875).

Under none of the above definitions may the University be excluded, especially so if
it is considered that every professor, instructor or teacher in the teaching staff of the
University, as per allegation of the University itself, has a contract with the latter for
teaching services, albeit for one semester only. The University engaged the services
of the professors, provided them work, and paid them compensation or salary for
their services. Even if the University may be considered as a lessee of services under
a contract between it and the members of its Faculty, still it is included in the term
"employer". "Running through the word `employ' is the thought that there has been
an agreement on the part of one person to perform a certain service in return for
compensation to be paid by an employer. When you ask how a man is employed, or
what is his employment, the thought that he is under agreement to perform some
service or services for another is predominant and paramount." (Ballentine Law
Dictionary, Philippine ed., p. 430, citing Pinkerton National Detective Agency v.
Walker, 157 Ga. 548, 35 A. L. R. 557, 560, 122 S.E. Rep. 202).

To bolster its claim of exception from the application of Republic Act No. 875, the
University contends that it is not state that the employers included in the definition
of 2 (c) of the Act. This contention can not be sustained. In the first place, Sec. 2 (c)
of Republic Act No. 875 does not state that the employers included in the definition
of the term "employer" are only and exclusively "industrial establishments"; on the
contrary, as stated above, the term "employer" encompasses all employers except
those specifically excluded by the Act. In the second place, even the Act itself does
not refer exclusively to industrial establishments and does not confine its application
thereto. This is patent inasmuch as several provisions of the Act are applicable to
non-industrial workers, such as Sec. 3, which deals with "employees' right to self-
organization"; Sections 4 and 5 which enumerate unfair labor practices; Section 8
which nullifies private contracts contravening employee's rights; Section 9 which
relates to injunctions in any case involving a labor dispute; Section 11 which
prohibits strikes in the government; Section 12 which provides for the exclusive
collective bargaining representation for labor organizations; Section 14 which deals
with the procedure for collective bargaining; Section 17 which treats of the rights
and conditions of membership in labor organizations; Sections 18, 19, 20 and 21
which provide respectively for the establishment of conciliation service, compilation
of collective bargaining contracts, advisory labor-management relations; Section 22
which empowers the Secretary of Labor to make a study of labor relations; and
Section 24 which enumerates the rights of labor organizations. (See Dissenting
Opinion of Justice Concepcion in Boy Scouts of the Philippines v. Juliana Araos, G.R.
No. L-10091, January 29, 1958.)
This Court, in the case of Boy Scouts of the Philippines v. Araos, supra, had occasion
to state that the Industrial Peace Act "refers only to organizations and entities
created and operated for profits, engaged in a profitable trade, occupation or
industry". It cannot be denied that running a university engages time and attention;
that it is an occupation or a business from which the one engaged in it may derive
profit or gain. The University is not an industrial establishment in the sense that an
industrial establishment is one that is engaged in manufacture or trade where raw
materials are changed or fashioned into finished products for use. But for the
purposes of the Industrial Peace Act the University is an industrial establishment
because it is operated for profit and it employs persons who work to earn a living.
The term "industry", for the purposes of the application of our labor laws should be
given a broad meaning so as to cover all enterprises which are operated for profit
and which engage the services of persons who work to earn a living.

The word "industry" within State Labor Relations Act controlling labor
relations in industry, cover labor conditions in any field of employment where
the objective is earning a livelihood on the one side and gaining of a profit on
the other. Labor Law Sec. 700 et seq. State Labor Relations Board vs.
McChesney, 27 N.Y.S. 2d 866, 868." (Words and Phrases, Permanent Edition,
Vol. 21, 1960 edition p. 510).

The University urges that even if it were an employer, still there would be no
employer-employee relationship between it and the striking members of the Faculty
Club because the latter are not employees within the purview of Sec. 2(d) of
Republic Act No. 875 but are independent contractors. This claim is untenable.

Section 2 (d) of Republic Act No. 875 provides:

(d) The term "employee" shall include any employee and shall not be limited
to the employee of a particular employer unless the act explicitly states
otherwise and shall include any individual whose work has ceased as a
consequence of, or in connection with, any current labor dispute or because
of any unfair labor practice and who has not obtained any other substantially
equivalent and regular employment.

This definition is again, like the definition of the term "employer" [Sec. 2(c)], by the
use of the term "include", complementary. It embraces not only those who are
usually and ordinarily considered employees, but also those who have ceased as
employees as a consequence of a labor dispute. The term "employee", furthermore,
is not limited to those of a particular employer. As already stated, this Court in the
cases of The Angat River Irrigation System, et al. v. Angat River Workers' Union
(PLUM), et al., supra, has defined the term "employer" as "one who employs the
services of others; one for whom employees work and who pays their wages or
salaries. "Correlatively, an employee must be one who is engaged in the service of
another; who performs services for another; who works for salary or wages. It is
admitted by the University that the striking professors and/or instructors are under
contract to teach particular courses and that they are paid for their services. They
are, therefore, employees of the University.
In support of its claim that the members of the Faculty Club are not employees of
the University, the latter cites as authority Francisco's Labor Laws, 2nd ed., p. 3,
which states:

While the term "workers" as used in a particular statute, has been regarded
as limited to those performing physical labor, it has been held to embrace
stenographers and bookkeepers. Teachers are not included, however.

It is evident from the above-quoted authority that "teachers" are not to be included
among those who perform "physical labor", but it does not mean that they are not
employees. We have checked the source of the authority, which is 31 Am. Jur., Sec.
3, p. 835, and the latter cites Huntworth v. Tanner, 87 Wash 670, 152 P. 523, Ann
Cas 1917 D 676. A reading of the last case confirms Our view.

That teachers are "employees' has been held in a number of cases (Aebli v. Board of
Education of City and County of San Francisco, 145 P. 2d 601, 62 Col. App 2.d 706;
Lowe & Campbell Sporting Goods Co. v. Tangipahoa Parish School Board, La. App.,
15 So. 2d 98, 100; Sister Odelia v. Church of St. Andrew, 263 N. W. 111, 112, 195
Minn. 357, cited in Words and Phrases, Permanent ed., Vol. 14, pp. 806-807). This
Court in the Far Eastern University case, supra, considered university instructors as
employees and declared Republic Act No. 875 applicable to them in their
employment relations with their school. The professors and/or instructors of the
University neither ceased to be employees when they struck, for Section 2 of Rep.
Act 875 includes among employees any individual whose work has ceased as
consequence of, or in connection with a current labor dispute. Striking employees
maintain their status as employees of the employer. (Western Cartridge Co. v. NLRB,
C.C.A. 7, 139 F2d 855, 858).

The contention of the University that the professors and/or instructors are
independent contractors, because the University does not exercise control over their
work, is likewise untenable. This Court takes judicial notice that a university controls
the work of the members of its faculty; that a university prescribes the courses or
subjects that professors teach, and when and where to teach; that the professors'
work is characterized by regularity and continuity for a fixed duration; that
professors are compensated for their services by wages and salaries, rather than by
profits; that the professors and/or instructors cannot substitute others to do their
work without the consent of the university; and that the professors can be laid off if
their work is found not satisfactory. All these indicate that the university has control
over their work; and professors are, therefore, employees and not independent
contractors. There are authorities in support of this view.

The principal consideration in determining whether a workman is an employee

or an independent contractor is the right to control the manner of doing the
work, and it is not the actual exercise of the right by interfering with the
work, but the right to control, which constitutes the test. (Amalgamated
Roofing Co. v. Travelers' Ins. Co., 133 N.E. 259, 261, 300 Ill. 487, quoted in
Words and Phrases, Permanent ed., Vol. 14, p. 576).
 Where, under Employers' Liability Act, A was instructed when and where to
work . . . he is an employee, and not a contractor, though paid specified sum
per square. (Heine v. Hill, Harris & Co., 2 La. App. 384, 390, in Words and
Phrases, loc, cit.) .

Employees are those who are compensated for their labor or services by
wages rather than by profits. (People vs. Distributors Division, Smoked Fish
Workers Union Local No. 20377, Sup. 7 N. Y. S. 2d 185, 187 in Words and
Phrases, loc, cit.)

Services of employee or servant, as distinguished from those of a contractor,

are usually characterized by regularity and continuity of work for a fixed
period or one of indefinite duration, as contrasted with employment to do a
single act or a series of isolated acts; by compensation on a fixed salary
rather than one regulated by value or amount of work; . . . (Underwood v.
Commissioner of Internal Revenue, C.C.A., 56 F. 2d 67, 71 in Words and
Phrases, op. cit., p. 579.)

Independent contractors can employ others to work and accomplish

contemplated result without consent of contractee, while "employee" cannot
substitute another in his place without consent of his employer. (Luker Sand
& Gravel Co. v. Industrial Commission, 23 P. 2d 225, 82 Utah, 188, in Words
and Phrases, Vol. 14, p. 576).

Moreover, even if university professors are considered independent contractors, still

they would be covered by Rep. Act No. 875. In the case of the Boy Scouts of the
Philippines v. Juliana Araos, supra, this Court observed that Republic Act No. 875
was modelled after the Wagner Act, or the National Labor Relations Act, of the
United States, and this Act did not exclude "independent contractors" from the orbit
of "employees". It was in the subsequent legislation — the Labor Management
Relation Act (Taft-Harley
Act) — that "independent contractors" together with agricultural laborers, individuals
in domestic service of the home, supervisors, and others were excluded. (See
Rothenberg on Labor Relations, 1949, pp. 330-331).

It having been shown that the members of the Faculty Club are employees, it
follows that they have a right to unionize in accordance with the provisions of
Section 3 of the Magna Carta of Labor (Republic Act No. 875) which provides as
follows:

Sec. 3. Employees' right to self-organization.—Employees shall have the right

to self-organization and to form, join or assist labor organizations of their own
choosing for the purpose of collective bargaining through representatives of
their own choosing and to engage in concerted activities for the purpose of
collective bargaining and other mutual aid or protection. . . .

We agree with the statement of the lower court, in its order of March 30, 1963
which is sought to be set aside in the instant case, that the right of employees to
self-organization is guaranteed by the Constitution, that said right would exist even
if Republic Act No. 875 is repealed, and that regardless of whether their employers
are engaged in commerce or not. Indeed, it is Our considered view that the
members of the faculty or teaching staff of private universities, colleges, and schools
in the Philippines, regardless of whether the university, college or school is run for
profit or not, are included in the term "employees" as contemplated in Republic Act
No. 875 and as such they may organize themselves pursuant to the above-quoted
provision of Section 3 of said Act. Certainly, professors, instructors or teachers of
private educational institutions who teach to earn a living are entitled to the
protection of our labor laws — and one such law is Republic Act No. 875.

The contention of the University in the instant case that the members of the Faculty
Club can not unionize and the Faculty Club can not exist as a valid labor organization
is, therefore, without merit. The record shows that the Faculty Club is a duly
registered labor organization and this fact is admitted by counsel for the University.5a

The other issue raised by the University is the validity of the Presidential
certification. The University contends that under Section 10 of Republic Act No. 875
the power of the President of the Philippines to certify is subject to the following
conditions, namely: (1) that here is a labor dispute, and (2) that said labor dispute
exists in an industry that is vital to the national interest. The University maintains
that those conditions do not obtain in the instant case. This contention has also no
merit.

We have previously stated that the University is an establishment or enterprise that

is included in the term "industry" and is covered by the provisions of Republic Act
No. 875. Now, was there a labor dispute between the University and the Faculty
Club?

Republic Act No. 875 defines a labor dispute as follows:

The term "labor dispute" includes any controversy concerning terms, tenure
or conditions of employment, or concerning the association or representation
of persons in negotiating, fixing, maintaining, changing, or seeking to arrange
terms or conditions of employment regardless of whether the disputants
stand in proximate relation of employer and employees.

The test of whether a controversy comes within the definition of "labor dispute"
depends on whether the controversy involves or concerns "terms, tenure or
condition of employment" or "representation." It is admitted by the University, in the
instant case, that on January 14, 1963 the President of the Faculty Club wrote to the
President of the University a letter informing the latter of the organization of the
Faculty Club as a labor union, duly registered with the Bureau of Labor Relations;
that again on January 22, 1963 another letter was sent, to which was attached a list
of demands consisting of 26 items, and asking the President of the University to
answer within ten days from date of receipt thereof; that the University questioned
the right of the Faculty Club to be the exclusive representative of the majority of the
employees and asked proof that the Faculty Club had been designated or selected as
exclusive representative by the vote of the majority of said employees; that on
February 1, 1963 the Faculty Club filed with the Bureau of Labor Relations a notice
of strike alleging as reason therefor the refusal of the University to bargain
collectively with the representative of the faculty members; that on February 18,
1963 the members of the Faculty Club went on strike and established picket lines in
the premises of the University, thereby disrupting the schedule of classes; that on
March 1, 1963 the Faculty Club filed Case No. 3666-ULP for unfair labor practice
against the University, but which was later dismissed (on April 2, 1963 after Case
41-IPA was certified to the CIR); and that on March 7, 1963 a petition for
certification election, Case No. 1183-MC, was filed by the Faculty Club in the
CIR.6 All these admitted facts show that the controversy between the University and
the Faculty Club involved terms and conditions of employment, and the question of
representation. Hence, there was a labor dispute between the University and the
Faculty Club, as contemplated by Republic Act No. 875. It having been shown that
the University is an institution operated for profit, that is an employer, and that there
is an employer-employee relationship, between the University and the members of
the Faculty Club, and it having been shown that a labor dispute existed between the
University and the Faculty Club, the contention of the University, that the
certification made by the President is not only not authorized by Section 10 of
Republic Act 875 but is violative thereof, is groundless.

Section 10 of Republic Act No. 875 provides:

When in the opinion of the President of the Philippines there exists a labor
dispute in an industry indispensable to the national interest and when such
labor dispute is certified by the President to the Court of Industrial Relations,
said Court may cause to be issued a restraining order forbidding the
employees to strike or the employer to lockout the employees, and if no other
solution to the dispute is found, the Court may issue an order fixing the terms
and conditions of employment.

This Court had occasion to rule on the application of the above-quoted provision of
Section 10 of Republic Act No. 875. In the case of Pampanga Sugar Development
Co. v. CIR, et al., G.R. No. L-13178, March 24, 1961, it was held:

It thus appears that when in the opinion of the President a labor dispute
exists in an industry indispensable to national interest and he certifies it to the
Court of Industrial Relations the latter acquires jurisdiction to act thereon in
the manner provided by law. Thus the court may take either of the following
courses: it may issue an order forbidding the employees to strike or the
employer to lockout its employees, or, failing in this, it may issue an order
fixing the terms and conditions of employment. It has no other alternative. It
can not throw the case out in the assumption that the certification was
erroneous.

xxx xxx xxx

 . . . The fact, however, is that because of the strike declared by the members
of the minority union which threatens a major industry the President deemed
it wise to certify the controversy to the Court of Industrial Relations for
adjudication. This is the power that the law gives to the President the
propriety of its exercise being a matter that only devolves upon him. The
same is not the concern of the industrial court. What matters is that by virtue
of the certification made by the President the case was placed under the
jurisdiction of said court. (Emphasis supplied)

To certify a labor dispute to the CIR is the prerogative of the President under the
law, and this Court will not interfere in, much less curtail, the exercise of that
prerogative. The jurisdiction of the CIR in a certified case is exclusive (Rizal Cement
Co., Inc. v. Rizal Cement Workers Union (FFW), et al., G.R. No. L-12747, July 30,
1960). Once the jurisdiction is acquired pursuant to the presidential certification, the
CIR may exercise its broad powers as provided in Commonwealth Act 103. All
phases of the labor dispute and the employer-employee relationship may be
threshed out before the CIR, and the CIR may issue such order or orders as may be
necessary to make effective the exercise of its jurisdiction. The parties involved in
the case may appeal to the Supreme Court from the order or orders thus issued by
the CIR.

And so, in the instant case, when the President took into consideration that the
University "has some 18,000 students and employed approximately 500 faculty
members", that `the continued disruption in the operation of the University will
necessarily prejudice the thousand of students", and that "the dispute affects the
national interest",7and certified the dispute to the CIR, it is not for the CIR nor this
Court to pass upon the correctness of the reasons of the President in certifying the
labor dispute to the CIR.

The third issue raised by the University refers to the question of the legality of the
return-to-work order (of March 30, 1963 in Case 41-IPA) and the order
implementing the same (of April 6, 1963). It alleges that the orders are illegal upon
the grounds: (1) that Republic Act No. 875, supplementing Commonwealth Act No.
103, has withdrawn from the CIR the power to issue a return-to-work order; (2) that
the only power granted by Section 10 of Republic Act No. 875 to the CIR is to issue
an order forbidding the employees to strike or forbidding the employer to lockout
the employees, as the case may be, before either contingency had become a fait
accompli; (3) that the taking in by the University of replacement professors was
valid, and the return-to-work order of March 30, 1963 constituted impairment of the
obligation of contracts; and (4) the CIR could not issue said order without having
previously determined the legality or illegality of the strike.

The contention of the University that Republic Act No. 875 has withdrawn the power
of the Court of Industrial Relations to issue a return-to-work order exercised by it
under Commonwealth Act No. 103 can not be sustained. When a case is certified by
the President to the Court of Industrial Relations, the case thereby comes under the
operation of Commonwealth Act No. 103, and the Court may exercise the broad
powers and jurisdiction granted to it by said Act. Section 10 of Republic Act No. 875
empowers the Court of Industrial Relations to issue an order "fixing the terms of
employment." This clause is broad enough to authorize the Court to order the
strikers to return to work and the employer to readmit them. This Court, in the cases
of the Philippine Marine Officers Association vs. The Court of Industrial Relations,
Compania Maritima, et al.; and Compañia Martima, et al. vs. Philippine Marine Radio
Officers Association and CIR, et al., G.R. Nos. L-10095 and L-10115, October 31,
1957, declared:

We cannot subscribe to the above contention. We agree with counsel for the
Philippine Radio Officers' Association that upon certification by the President
under Section 10 of Republic Act 875, the case comes under the operation of
Commonwealth Act 103, which enforces compulsory arbitration in cases of
labor disputes in industries indispensable to the national interest when the
President certifies the case to the Court of Industrial Relations. The evident
intention of the law is to empower the Court of Industrial Relations to act in
such cases, not only in the manner prescribed under Commonwealth Act 103,
but with the same broad powers and jurisdiction granted by that act. If the
Court of Industrial Relations is granted authority to find a solution to an
industrial dispute and such solution consists in the ordering of employees to
return back to work, it cannot be contended that the Court of Industrial
Relations does not have the power or jurisdiction to carry that solution into
effect. And of what use is its power of conciliation and arbitration if it does
not have the power and jurisdiction to carry into effect the solution it has
adopted? Lastly, if the said court has the power to fix the terms and
conditions of employment, it certainly can order the return of the workers
with or without backpay as a term or condition of employment.

The foregoing ruling was reiterated by this Court in the case of Hind Sugar Co. v.
CIR, et al., G.R. No. L-13364, July 26, 1960.

When a case is certified to the CIR by the President of the Philippines pursuant to
Section 10 of Republic Act No. 875, the CIR is granted authority to find a solution to
the industrial dispute; and the solution which the CIR has found under the authority
of the presidential certification and conformable thereto cannot be questioned (Radio
Operators Association of the Philippines vs. Philippine Marine Radio Officers
Association, et al., L-10112, Nov. 29, 1957, 54 O.G. 3218).

Untenable also is the claim of the University that the CIR cannot issue a return-to-
work order after strike has been declared, it being contended that under Section 10
of Republic Act No. 875 the CIR can only prevent a strike or a lockout — when either
of this situation had not yet occurred. But in the case of Bisaya Land Transportation
Co., Inc. vs. Court of Industrial Relations, et al., No. L-10114, Nov. 26, 1957, 50
O.G. 2518, this Court declared:

There is no reason or ground for the contention that Presidential certification

of labor dispute to the CIR is limited to the prevention of strikes and lockouts.
Even after a strike has been declared where the President believes that public
interest demands arbitration and conciliation, the President may certify the
 ease for that purpose. The practice has been for the Court of Industrial
Relations to order the strikers to work, pending the determination of the
union demands that impelled the strike. There is nothing in the law to
indicate that this practice is abolished." (Emphasis supplied)

Likewise untenable is the contention of the University that the taking in by it of

replacements was valid and the return-to-work order would be an impairment of its
contract with the replacements. As stated by the CIR in its order of March 30, 1963,
it was agreed before the hearing of Case 41-IPA on March 23, 1963 that the strikers
would return to work under the status quo arrangement and the University would
readmit them, and the return-to-work order was a confirmation of that agreement.
This is a declaration of fact by the CIR which we cannot disregard. The faculty
members, by striking, have not abandoned their employment but, rather, they have
only ceased from their labor (Keith Theatre v. Vachon et al., 187 A. 692). The
striking faculty members have not lost their right to go back to their positions,
because the declaration of a strike is not a renunciation of their employment and
their employee relationship with the University (Rex Taxicab Co. vs. CIR, et al., 40
O.G., No. 13, 138). The employment of replacements was not authorized by the CIR.
At most, that was a temporary expedient resorted to by the University, which was
subject to the power of the CIR to allow to continue or not. The employment of
replacements by the University prior to the issuance of the order of March 30, 1963
did not vest in the replacements a permanent right to the positions they held.
Neither could such temporary employment bind the University to retain permanently
the replacements.

Striking employees maintained their status as employees of the employer

(Western Castridge Co. v. National Labor Relations Board, C.C.A. 139 F. 2d
855, 858) ; that employees who took the place of strikers do not displace
them as `employees." ' (National Labor Relations Board v. A. Sartorius & Co.,
C.C.A. 2, 140 F. 2d 203, 206, 207.)

It is clear from what has been said that the return-to-work order cannot be
considered as an impairment of the contract entered into by petitioner with the
replacements. Besides, labor contracts must yield to the common good and such
contracts are subject to the special laws on labor unions, collective bargaining,
strikes and similar subjects (Article 1700, Civil Code).

Likewise unsustainable is the contention of the University that the Court of Industrial
Relations could not issue the return-to-work order without having resolved
previously the issue of the legality or illegality of the strike, citing as authority
therefor the case of Philippine Can Company v. Court of Industrial Relations, G.R.
No. L-3021, July 13, 1950. The ruling in said case is not applicable to the case at
bar, the facts and circumstances being very different. The Philippine Can Company
case, unlike the instant case, did not involve the national interest and it was not
certified by the President. In that case the company no longer needed the services
of the strikers, nor did it need substitutes for the strikers, because the company was
losing, and it was imperative that it lay off such laborers as were not necessary for
its operation in order to save the company from bankruptcy. This was the reason of
this Court in ruling, in that case, that the legality or illegality of the strike should
have been decided first before the issuance of the return-to-work order. The
University, in the case before Us, does not claim that it no longer needs the services
of professors and/or instructors; neither does it claim that it was imperative for it to
lay off the striking professors and instructors because of impending bankruptcy. On
the contrary, it was imperative for the University to hire replacements for the
strikers. Therefore, the ruling in the Philippine Can case that the legality of the strike
should be decided first before the issuance of the return-to-work order does not
apply to the case at bar. Besides, as We have adverted to, the return-to-work order
of March 30, 1963, now in question, was a confirmation of an agreement between
the University and the Faculty Club during a prehearing conference on March 23,
1963.

The University also maintains that there was no more basis for the claim of the
members of the Faculty Club to return to their work, as their individual contracts for
teaching had expired on March 25 or 31, 1963, as the case may be, and
consequently, there was also no basis for the return-to-work order of the CIR
because the contractual relationships having ceased there were no positions to
which the members of the Faculty Club could return to. This contention is not well
taken. This argument loses sight of the fact that when the professors and instructors
struck on February 18, 1963, they continued to be employees of the University for
the purposes of the labor controversy notwithstanding the subsequent termination of
their teaching contracts, for Section 2(d) of the Industrial Peace Act includes among
employees "any individual whose work has ceased a consequence of, or in
connection with, any current labor dispute or of any unfair labor practice and who
has not obtained any other substantially equivalent and regular employment."

The question raised by the University was resolved in a similar case in the United
States. In the case of Rapid Roller Co. v. NLRB 126 F. 2d 452, we read:

On May 9, 1939 the striking employees, eighty-four in number, offered to the

company to return to their employment. The company believing it had not
committed any unfair labor practice, refused the employees' offer and claimed
the right to employ others to take the place of the strikers, as it might see fit.
This constituted discrimination in the hiring and tenure of the striking
employees. When the employees went out on a strike because of the unfair
labor practice of the company, their status as employees for the purpose of
any controversy growing out of that unfair labor practice was fixed. Sec. 2 (3)
of the Act. Phelps Dodge Corp. v. National Labor Relations Board, 313 U.S.
177, 61 S. Ct. 845, 85. L. ed. 1271, 133 A.L.R. 1217.

For the purpose of such controversy they remained employees of the

company. The company contended that they could not be their employees in
any event since the "contract of their employment expired by its own terms
on April 23, 1939."

In this we think the company is mistaken for the reason we have just pointed
out, that the status of the employees on strike became fixed under Sec. 2 (3)
 of the Act because of the unfair labor practice of the company which caused
the strike.

The University, furthermore, claims that the information for indirect contempt filed
against the officers of the University (Case No. V-30) as well as the order of April 29,
1963 for their arrest were improper, irregular and illegal because (1) the officers of
the University had complied in good faith with the return-to-work order and in those
cases that they did not, it was due to circumstance beyond their control; (2) the
return-to-work order and the order implementing the same were illegal; and (3)
even assuming that the order was legal, the same was not Yet final because there
was a motion to reconsider it.

Again We find no merit in this claim of Petitioner. We have already ruled that the
CIR had jurisdiction to issue the order of March 30, 1963 in CIR Case 41-IPA, and
the return-to-work provision of that order is valid and legal. Necessarily the order of
April 6, 1963 implementing that order of March 30, 1963 was also valid and legal.

Section 6 of Commonwealth Act No. 103 empowers the Court of Industrial Relations
of any Judge thereof to punish direct and indirect contempts as provided in Rule 64
(now Rule 71) of the Rules of Court, under the same procedure and penalties
provided therein. Section 3 of Rule 71 enumerates the acts which would constitute
indirect contempt, among which is "disobedience or resistance to lawful writ,
process, order, judgment, or command of a court," and the person guilty thereof can
be punished after a written charge has been filed and the accused has been given
an opportunity to be heard. The last paragraph of said section provides:

But nothing in this section shall be so construed as to prevent the court from
issuing process to bring the accused party into court, or from holding him in
custody pending such proceedings.

The provision authorizes the judge to order the arrest of an alleged contemner
(Francisco, et al. v. Enriquez, L-7058, March 20, 1954, 94 Phil., 603) and this,
apparently, is the provision upon which respondent Judge Bautista relied when he
issued the questioned order of arrest.

The contention of petitioner that the order of arrest is illegal is unwarranted. The
return-to-work order allegedly violated was within the court's jurisdiction to issue.

Section 14 of Commonwealth Act No. 103 provides that in cases brought before the
Court of Industrial Relations under Section 4 of the Act (referring to strikes and
lockouts) the appeal to the Supreme Court from any award, order or decision shall
not stay the execution of said award, order or decision sought to be reviewed unless
for special reason the court shall order that execution be stayed. Any award, order
or decision that is appealed is necessarily not final. Yet under Section 14 of
Commonwealth Act No. 103 that award, order or decision, even if not yet final, is
executory, and the stay of execution is discretionary with the Court of Industrial
Relations. In other words, the Court of Industrial Relations, in cases involving strikes
and lockouts, may compel compliance or obedience of its award, order or decision
even if the award, order or decision is not yet final because it is appealed, and it
follows that any disobedience or non-compliance of the award, order or decision
would constitute contempt against the Court of Industrial Relations which the court
may punish as provided in the Rules of Court. This power of the Court of Industrial
Relations to punish for contempt an act of non-compliance or disobedience of an
award, order or decision, even if not yet final, is a special one and is exercised only
in cases involving strikes and lockouts. And there is reason for this special power of
the industrial court because in the exercise of its jurisdiction over cases involving
strikes and lockouts the court has to issue orders or make decisions that are
necessary to effect a prompt solution of the labor dispute that caused the strike or
the lockout, or to effect the prompt creation of a situation that would be most
beneficial to the management and the employees, and also to the public — even if
the solution may be temporary, pending the final determination of the case.
Otherwise, if the effectiveness of any order, award, or decision of the industrial court
in cases involving strikes and lockouts would be suspended pending appeal then it
can happen that the coercive powers of the industrial court in the settlement of the
labor disputes in those cases would be rendered useless and nugatory.

The University points to Section 6 of Commonwealth Act No. 103 which provides
that "Any violation of any order, award, or decision of the Court of Industrial
Relations shall after such order, award or decision has become final, conclusive
and executory constitute contempt of court," and contends that only the
disobedience of orders that are final (meaning one that is not appealed) may be the
subject of contempt proceedings. We believe that there is no inconsistency between
the above-quoted provision of Section 6 and the provision of Section 14 of
Commonwealth Act No. 103. It will be noted that Section 6 speaks of order, award
or decision that is executory. By the provision of Section 14 an order, award or
decision of the Court of Industrial Relations in cases involving strikes and lockouts
are immediately executory, so that a violation of that order would constitute an
indirect contempt of court.

We believe that the action of the CIR in issuing the order of arrest of April 29, 1963
is also authorized under Section 19 of Commonwealth Act No. 103 which provides as
follows:

SEC. 19. Implied condition in every contract of employment.—In every

contract of employment whether verbal or written, it is an implied condition
that when any dispute between the employer and the employee or laborer
has been submitted to the Court of Industrial Relations for settlement or
arbitration pursuant to the provisions of this Act . . . and pending award, or
decision by the Court of such dispute . . . the employee or laborer shall not
strike or walk out of his employment when so enjoined by the Court after
hearing and when public interest so requires, and if he has already done so,
that he shall forthwith return to it, upon order of the Court, which shall be
issued only after hearing when public interest so requires or when the dispute
cannot, in its opinion, be promptly decided or settled; and if the employees or
laborers fail to return to work, the Court may authorize the employer to
accept other employees or laborers. A condition shall further be implied that
 while such dispute . . . is pending, the employer shall refrain from accepting
other employees or laborers, unless with the express authority of the Court,
and shall permit the continuation in the service of his employees or laborers
under the last terms and conditions existing before the dispute arose. . . . A
violation by the employer or by the employee or laborer of such an order or
the implied contractual condition set forth in this section shall constitute
contempt of the Court of Industrial Relations and shall be punished by the
Court itself in the same manner with the same penalties as in the case of
contempt of a Court of First Instance. . . .

We hold that the CIR acted within its jurisdiction when it ordered the arrest of the
officers of the University upon a complaint for indirect contempt filed by the Acting
Special Prosecutor of the CIR in CIR Case V-30, and that order was valid. Besides
those ordered arrested were not yet being punished for contempt; but, having been
charged, they were simply ordered arrested to be brought before the Judge to be
dealt with according to law. Whether they are guilty of the charge or not is yet to be
determined in a proper hearing.

Let it be noted that the order of arrest dated April 29, 1963 in CIR Case V-30 is
being questioned in Case G.R. No. L-21278 before this Court in a special civil action
for certiorari. The University did not appeal from that order. In other words, the only
question to be resolved in connection with that order in CIR Case V-30 is whether
the CIR had jurisdiction, or had abused its discretion, in issuing that order. We hold
that the CIR had jurisdiction to issue that order, and neither did it abuse its
discretion when it issued that order.

In Case G.R. No. L-21462 the University appealed from the order of Judge Villanueva
of the CIR in Case No. 1183-MC, dated April 6, 1963, granting the motion of the
Faculty Club to withdraw its petition for certification election, and from the resolution
of the CIR en banc, dated June 5, 1963, denying the motion to reconsider said order
of April 6, 1963. The ground of the Faculty Club in asking for the withdrawal of that
petition for certification election was because the issues involved in that petition
were absorbed by the issues in Case 41-IPA. The University opposed the petition for
withdrawal, but at the same time it moved for the dismissal of the petition for
certification election.

It is contended by the University before this Court, in G.R. L-21462, that the issues
of employer-employee relationship between the University and the Faculty Club, the
alleged status of the Faculty Club as a labor union, its majority representation and
designation as bargaining representative in an appropriate unit of the Faculty Club
should have been resolved first in Case No. 1183-MC prior to the determination of
the issues in Case No. 41-IPA, and, therefore, the motion to withdraw the petition
for certification election should not have been granted upon the ground that the
issues in the first case were absorbed in the second case.

We believe that these contentions of the University in Case G.R. No. L-21462 have
been sufficiently covered by the discussion in this decision of the main issues raised
in the principal case, which is Case G.R. No. L-21278. After all, the University wanted
CIR Case 1183-MC dismissed, and the withdrawal of the petition for certification
election had in a way produced the situation desired by the University. After
considering the arguments adduced by the University in support of its petition
for certiorari by way of appeal in Case G.R. No. L-21278, We hold that the CIR did
not commit any error when it granted the withdrawal of the petition for certification
election in Case No. 1183-MC. The principal case before the CIR is Case No. 41-IPA
and all the questions relating to the labor disputes between the University and the
Faculty Club may be threshed out, and decided, in that case.

In Case G.R. No. L-21500 the University appealed from the order of the CIR of
March 30, 1963, issued by Judge Bautista, and from the resolution of the CIR en
banc promulgated on June 28, 1963, denying the motion for the reconsideration of
that order of March 30, 1963, in CIR Case No. 41-IPA. We have already ruled that
the CIR has jurisdiction to issue that order of March 30, 1963, and that order is
valid, and We, therefore, hold that the CIR did not err in issuing that order of March
30, 1963 and in issuing the resolution promulgated on June 28, 1963 (although
dated May 7, 1963) denying the motion to reconsider that order of March 30, 1963.

IN VIEW OF THE FOREGOING, the petition for certiorari and prohibition with
preliminary injunction in Case G.R. No. L-21278 is dismissed and the writs prayed for
therein are denied. The writ of preliminary injunction issued in Case G.R. No. L-
21278 is dissolved. The orders and resolutions appealed from, in Cases Nos. L-21462
and L-21500, are affirmed, with costs in these three cases against the petitioner-
appellant Feati University. It is so ordered.

Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P., Sanchez and Castro,
JJ., concur.

SUPREME COURT EN BANC FAR EASTERN UNIVERSITY, Petitioner, -versus- G.R. No.
L-17620 August 31, 1962 THE COURT OF INDUSTRIAL RELATIONS, PHILIPPINES
ASSOCIATION OF COLLEGES AND UNIVERSITY PROFESSORS (PACUP) and TOMAS
N. AGUIRRE, Respondents. x---------------------------------------------------x D E C I S I
O N CONCEPCION, J.: Appeal by certiorari, taken by the Far Eastern University,
hereafter referred to as the University, from a resolution of the Court of Industrial
Relations sitting en banc, modifying a decision of one of the Judges of said Court.
The main facts are set forth in said decision, from which we quote:
chanroblespublishingcompany “From the evidence on record, it appears that Tomas
N. Aguirr the rate of P30.00 per class, earning an average of P500.00 to P600.00 a
month. Aguirre joined the PACUP, a Legitimate labor organization, in June, 1953. In
July or August, 1953, upon orders of the president of the PACUP, Jose M. Fernandez,
Aguirre began to campaign and recruit members for the PACUP. As a result of his
efforts in campaigning for membership, he was able to influence seven members
from the faculty of the university (Exhibits ‘B’, ‘B-1’ to ‘B-6’, inclusive). In his
campaign for membership, he approached practically all of the faculty members of
the respondent’s Institute of Education and some from the Arts and Sciences,
Business Administration and Finance, but most of them were afraid to join the union.
They were afraid of any retaliation that the respondent may make because of their
joining the union. “In the year 1953 respondent formed a committee to classify all
faculty members and determine the rates of their back pay and assignments. Ninety-
six of the-more than four hundred faculty members were classified as full time
instructors. Aguirre was one of those who was classified by the said committee as
full time instructor in the respondent’s Institute of Education, with a fixed
compensation of P450.00 a month, effective September 1, 1953. “During the months
of December, 1953 up to May, 1954, for teaching in the Far Eastern University,
respondent herein, Aguirre was paid ,the following December, 1953 — P210.00;
January, 1954 — P302.40; February, 1954 — P313.20; March, 1954 — P249.00. In
June, 1954, respondent stopped giving him teaching assignments.
chanroblespublishingcompany “Aguirre claims that in June, 1954, he was no longer
given an assignment because of his union activities while respondent claims that
Aguirre was not given assignment because of decreased enrollment in the university.
He further avers that after recruiting some members, his classification as full time
instructor was changed to reserved full time instructor and his teaching load was
decreased to two hours a day. Hence, his reduced earnings from December, 1953 to
May, 1954, as previously mentioned. His salary as a full time instructor was
P5,400.00 per annum or P450.00 per month, irrespective of his teaching load.
Respondent, thru its witness, the dean in the Institute of Education where Aguirre
was teaching, testified and admitted that the reason for Aguirre’s not receiving any
teaching assignment in June, 1954 was because enrollment in the Institute of
Education was going down steadily in the Filipino Language class where Aguirre was
teaching. Among the other Filipino Language instructors are Baldomero de Jesus,
Teodoro Gener, Rosario Bernardo, Dolores Gupit, Iñigo Regalado, and Flordelisa
Mendoza who are older members of the faculty than Aguirre except Regalado,
Bernardo and Mendoza. The dean of the Institute of Education, Luz A. Zafra,
admitted also that in the assignment of subjects to faculty members, length of
service, experience, preparation and professional growth as well as student- faculty
relation were taken into consideration. Hence, if these above-mentioned factors,
particularly length of service and experience, were really taken into consideration.
Aguirre, a full time professor should have been given the assignment instead of
Regalado and Mendoza who were only part time professors and who started
teaching after him. The other Tagalog instructors (professors under the
classification) who were given assignments when Aguirre was not, are not members
of the PACUP. It should also be noted that since before the last war, Aguirre had
been teaching in the University of the Philippines. chanroblespublishingcompany “It
is true that there were charges brought by respondent against Aguirre but the same
had been investigated and found to be groundless. On the other hand, Aguirre
brought charges against the respondent before the Department of Education when
his teaching load was reduced and the Director of Private Schools, in his decision of
November 5, 1954, directed the respondent to pay the salary differential which
Aguirre failed to earn from December 1, 1953 to 1954 and to give Aguirre
assignment in the college department during the first semester of that current
school year under the same condition before his teaching load was reduced. The
Secretary of Education, in his decision, dated June 22, 1955, affirmed the decision of
the Director of Private Schools and on December 8, 1956, the Executive Secretary,
by authority of the President of the Philippines, affirmed the decision of the Director
of Private Schools as well as the Secretary of Education’s decisions previously
mentioned. Of course, those proceedings, in no could be considered as controlling or
affecting the case at bar. At best, they may serve as a grim reminder of the actions
of the governmental entity that could be something to bolster the relationship
between the university and the faculty members. The allegation of respondent to the
effect that it suffered reduced enrollment in 1953-1954, hence necessitating the
laying off the Aguirre, cannot be taken into consideration after a careful examination
of the balance sheet submitted by the respondent in relation to its motion to
dismiss. Said balance sheet shows that in the 1952-1953 fiscal year, respondent
made a net profit of P153,035.25 and in 1953-1954, P258,619.98, while in 1954-
1955, a net profit of P707,003.70 and in 1955- 1956, P999,766.88. These figures
show that respondent from 1952 to 1956, has been steadily increasing its income
until in 1958-1959 when it made a net income of P1,511,293.42. And even on the
assumption that enrollment in the department where Aguirre was teaching was
reduced, still the Court cannot validly reconcile the fact that Aguirre who was a full
time professor receiving a fixed monthly salary could not any further be given
assignment the part time professors and whose length of service in the university
cannot compare with that of Aguirre were given assignments and suffered no
reduction in salary. Undoubtedly, this Court cannot but conclude that when the
respondent changed the status of Aguirre from a full time professor at P450.00 a
month to that of a reserved full time professor with a teaching load of two hours and
finally got no assignments in June, 1954, it was motivated other than decreased
enrollment, especially in the case of the evidence that Aguirre campaigned for union
membership among the professors, instructors and teachers of the respondent and
the further fact, that other full time instructors similarly situated but are not union
members did not suffer the same facts of abrupt reduction in their teaching load and
salary. As indicated Aguirre was later deprived of any teaching load in the Institute
of Education. Even part time professors as Panganiban, Mendoza and Regalado had
assignments to the exclusion of Aguirre who was a full time professor. This
eventuality, was apparently, the fear of most of the faculty members who refused to
join the PACUP when Aguirre asked them to become members. “Ordinarily back
wages are granted whenever there is a finding of a commission of unfair labor
practices. However, in this particular case this testimony of Aguirre, himself as well
as the documentary evidence on the record show that since June, 1955, Aguirre
began teaching at the Philippine College of Commerce with an income of P100.00 a
month and on November 17, 1955, he began working as a permanent employee in
the Central Bank of the Philippines with a compensation of P3,000.00 per annum. On
September 5, 1956, his salary was raised to P3,060.00 per annum. The permanent
employment obtained by Aguirre in the Central Bank of the Philippines as well as in
the Philippine College of Commerce is substantial and under the concept of the
Industrial Peace Act, his employment elsewhere in a permanent capacity is sufficient
to bar his reinstatement to his former position in the respondent. While it may be
true that his earnings with the Central Bank may be less than that he was receiving
from the Far Eastern University, yet his status with the Central Bank, is permanent
and he could teach as a sideline in any school, as in fact he is connected with the
Philippine College of Commerce, a fact that could not happen if he were still
connected with the Far Eastern University.” chanroblespublishingcompany At the
instance of the Philippine Association of Colleges and University Professors, hereafter
referred to as the PACUP, and/or Tomas N. Aguirre, on September 28, 1954, an
Acting Prosecutor of the Court of Industrial Relations filed a complaint for unfair
labor practice against the University, which later moved on November 17, 1954, to
dismiss the complaint. Subsequently, or on February 4, 1955, the complainant
and/or the offended party, Tomas N. Aguirre, filed a motion to withdraw said
complaint upon the ground that there was a decision of the Director of Private
Schools ordering his reinstatement and the payment of back wages, as well as wage
differential, and that, the University was “using the pendency” of the case “as a
ground for not complying with the said decision”. Acting upon this latter motion, on
March 29, 1955, the Court dismissed said complaint. However, on August 30, 1955,
the order of dismissal was, on motion of the complainant, dated April 22, 1955, set
aside for the reason that the expected amicable settlement of the case had not
materialized. On October 10, 1955, the University filed a “supplemental pleading” to
its motion to dismiss of November 17, 1954, both of which were denied by the Court
on June 23, 1956. Later on the University filed its answer and, the issues having
been joined, the case was tried, after which Judge Arsenio I. Martinez of said Court
rendered the aforementioned decision finding the University guilty of unfair labor
practice and sentencing said institution to pay to Aguirre the salary differential due
him from December 1, 1953 to May 31, 1954, based on Aguirre’s salary of P450.00 a
month, as well as back wages at the same rate, from June 1, 1954, to November 17,
1955, after deducting therefrom the compensation paid to him by the Philippine
College of Commerce from June 1, 1955 to November 17, 1955, as well as to cease
and desist from further committing unfair labor practices. However, said Judge did
not order the reinstatement of Aguirre in the University, upon the ground that his
employment in the Central Bank of the Philippines is, within the purview of the
Industrial Peace Act, a substantial equivalent of his position as full time instructor in
said University. On motion for reconsideration filed by the complainant, a majority of
the judges of said Court sitting en banc, affirmed the decision of Judge Martinez,
insofar as the commission of unfair labor practice charged and the payment of the
salary differential and back wages are concerned, but held that Aguirre’s
employment in the Central Bank and the Philippine College of Commerce are not the
substantial equivalent of his aforementioned position as full time instructor in the
University, and, accordingly, modified said decision by, likewise, sentencing the
University to reinstate Tomas N. Aguirre, in addition to paying him the
aforementioned wage differential and back wages, plus “other emoluments”. Hence,
this appeal by certiorari taken by the University. The Court of Industrial Relations, as
one of the appellees herein, has filed a motion, which we consider as its answer, to
dismiss the appeal for lack of merit, upon the ground that appellant raises no
question of law. chanroblespublishingcompany Appellant’s contention is that the
employment of Aguirre in the Central Bank and his teaching load in the Philippine
College of Commerce are substantially equivalent to his former position in the
University. Upon the other hand, the resolution appealed reached the opposite
conclusion for the following reasons: “(a) Aguirre’s work in the respondent university
is that of a professor, while his work in the Central Bank is clerical in nature; “(b) As
professor, Aguirre’s maximum teaching period is five (5) hours daily, while in the
bank, he works eight (8) hours a day; “(c) Although his work in the bank allows him
to teach part time in the Philippine College of Commerce for one hour, he could also
do the same work even if he were employed in the university; and “(d) Aguirre was
receiving from the respondent university P5,400.00 a year, while he receives from
the Central Bank P3,000.00 a year only. This one fact decides the issue, namely,
that Aguirre’s position in the Central Bank is not substantially equivalent to his
position in the Far Eastern University. ‘Any employment at lower wage rate is not
substantially equivalent employment’ [Willard, Inc. (1937 2 NLRB 1094, Moorseville
Cotton Mills vs. NLRB (CCA-4, 1940), 2, Labor Cases, 18,576; 110 fed. (2d) 79;
Puleski Veneer Corp. (1938) 10 NLRB 136; Quidnick Dye Works, Inc. (1937) 2 NLRB
963].” Although Mr. Aguirre was, not a professor, but a full time instructor in the
University, we agree with the opinion of the lower court, siting en banc. In addition
to the circumstances relied upon by the latter, one important factor, not mentioned
in the resolution appealed from, is decisively in favor of the conclusion therein
reached, and that is that Mr. Aguirre is an instructor in Tagalog, and that, as such,
his position as researcher in the Central Bank has no future for him. The situation
would perhaps have been different had his line been economics. Inasmuch,
however, as Mr. Aguirre has specialized in the Tagalog dialect, his work as a
researcher in the Central Bank is inferior to his job as full time instructor in the
University, not so much because his salary in the latter is substantially bigger, even
if we add thereto his emoluments in the Philippine College of Commerce, but,
specially, because of the future his position as instructor in the University offers him
as a career, which is non-existent in the Central Bank. chanroblespublishingcompany
WHEREFORE, the resolution appealed from is hereby affirmed, with costs against
petitioner. It is so ordered. G.R. No. L-32245 May 25, 1979

DY KEH BENG, petitioner,

vs.
INTERNATIONAL LABOR and MARINE UNION OF THE PHILIPPINES, ET
AL., respondents.

A. M Sikat for petitioner.

D. A. Hernandez for respondents.

DE CASTRO, J.:

Petitioner Dy Keh Beng seeks a review by certiorari of the decision of the Court of
Industrial Relations dated March 23, 1970 in Case No. 3019-ULP and the Court's
Resolution en banc of June 10, 1970 affirming said decision. The Court of Industrial
Relations in that case found Dy Keh Beng guilty of the unfair labor practice acts
alleged and order him to

reinstate Carlos Solano and Ricardo Tudla to their former jobs with
backwages from their respective dates of dismissal until fully reinstated
without loss to their right of seniority and of such other rights already
acquired by them and/or allowed by law. 1

Now, Dy Keh Beng assigns the following errors 2 as having been committed by the
Court of Industrial Relations:
I

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS

SOLANO AND TUDLA WERE EMPLOYEES OF PETITIONERS.

II

RESPONDENT COURT ERRED IN FINDING THAT RESPONDENTS

SOLANO AND TUDLA WERE DISMISSED FROM THEIR EMPLOYMENT
BY PETITIONER.

III

RESPONDENT COURT ERRED IN FINDING THAT THE TESTIMONIES

ADDUCED BY COMPLAINANT ARE CONVINCING AND DISCLOSES (SIC)
A PATTERN OF DISCRIMINATION BY THE PETITIONER HEREIN.

IV

RESPONDENT COURT ERRED IN DECLARING PETITIONER GUILTY OF

UNFAIR LABOR PRACTICE ACTS AS ALLEGED AND DESCRIBED IN THE
COMPLAINT.

RESPONDENT COURT ERRED IN PETITIONER TO REINSTATE

RESPONDENTS TO THEIR FORMER JOBS WITH BACKWAGES FROM
THEIR RESPECTIVE DATES OF DISMISSALS UNTIL FINALLY
REINSTATED WITHOUT LOSS TO THEIR RIGHT OF SENIORITY AND
OF SUCH OTHER RIGHTS ALREADY ACQUIRED BY THEM AND/OR
ALLOWED BY LAW.

The facts as found by the Hearing Examiner are as follows:

A charge of unfair labor practice was filed against Dy Keh Beng, proprietor of a
basket factory, for discriminatory acts within the meaning of Section 4(a), sub-
paragraph (1) and (4). Republic Act No. 875, 3 by dismissing on September 28 and
29, 1960, respectively, Carlos N. Solano and Ricardo Tudla for their union activities.
After preliminary investigation was conducted, a case was filed in the Court of
Industrial Relations for in behalf of the International Labor and Marine Union of the
Philippines and two of its members, Solano and Tudla In his answer, Dy Keh Beng
contended that he did not know Tudla and that Solano was not his employee
because the latter came to the establishment only when there was work which he
did on pakiaw basis, each piece of work being done under a separate contract.
Moreover, Dy Keh Beng countered with a special defense of simple extortion
committed by the head of the labor union, Bienvenido Onayan.
After trial, the Hearing Examiner prepared a report which was subsequently
adopted in toto by the Court of Industrial Relations. An employee-employer
relationship was found to have existed between Dy Keh Beng and complainants
Tudla and Solano, although Solano was admitted to have worked on piece
basis.4 The issue therefore centered on whether there existed an employee employer
relation between petitioner Dy Keh Beng and the respondents Solano and Tudla .

According to the Hearing Examiner, the evidence for the complainant Union tended
to show that Solano and Tudla became employees of Dy Keh Beng from May 2, 1953
and July 15, 1955, 5 respectively, and that except in the event of illness, their work
with the establishment was continuous although their services were compensated on
piece basis. Evidence likewise showed that at times the establishment had eight (8)
workers and never less than five (5); including the complainants, and that
complainants used to receive ?5.00 a day. sometimes less. 6

According to Dy Keh Beng, however, Solano was not his employee for the following
reasons:

(1) Solano never stayed long enought at Dy's establishment;

(2) Solano had to leave as soon as he was through with the

(3) order given him by Dy;

(4) When there were no orders needing his services there was nothing
for him to do;

(5) When orders came to the shop that his regular workers could not
fill it was then that Dy went to his address in Caloocan and fetched him
for these orders; and

(6) Solano's work with Dy's establishment was not continuous. , 7

According to petitioner, these facts show that respondents Solano and Tudla are
only piece workers, not employees under Republic Act 875, where an employee 8 is
referred to as

shall include any employee and shag not be limited to the employee of
a particular employer unless the Act explicitly states otherwise and
shall include any individual whose work has ceased as a consequence
of, or in connection with any current labor dispute or because of any
unfair labor practice and who has not obtained any other substantially
equivalent and regular employment.

while an employer 9

includes any person acting in the interest of an employer, directly or

indirectly but shall not include any labor organization (otherwise than
 when acting as an employer) or anyone acting in the capacity of officer
or agent of such labor organization.

Petitioner really anchors his contention of the non-existence of employee-employer

relationship on the control test. He points to the case of Madrigal Shipping Co., Inc.
v. Nieves Baens del Rosario, et al., L-13130, October 31, 1959, where the Court
ruled that:

The test ... of the existence of employee and employer relationship is

whether there is an understanding between the parties that one is to
render personal services to or for the benefit of the other and
recognition by them of the right of one to order and control the other
in the performance of the work and to direct the manner and method
of its performance.

Petitioner contends that the private respondents "did not meet the control test in the
fight of the ... definition of the terms employer and employee, because there was no
evidence to show that petitioner had the right to direct the manner and method of
respondent's work. 10 Moreover, it is argued that petitioner's evidence showed that
"Solano worked on a pakiaw basis" and that he stayed in the establishment only
when there was work.

While this Court upholds the control test 11 under which an employer-employee
relationship exists "where the person for whom the services are performed reserves
a right to control not only the end to be achieved but also the means to be used in
reaching such end, " it finds no merit with petitioner's arguments as stated above. It
should be borne in mind that the control test calls merely for the existence of the
right to control the manner of doing the work, not the actual exercise of the
right. 12 Considering the finding by the Hearing Examiner that the establishment of
Dy Keh Beng is "engaged in the manufacture of baskets known as kaing, 13 it is
natural to expect that those working under Dy would have to observe, among
others, Dy's requirements of size and quality of the kaing. Some control would
necessarily be exercised by Dy as the making of the kaing would be subject to Dy's
specifications. Parenthetically, since the work on the baskets is done at Dy's
establishments, it can be inferred that the proprietor Dy could easily exercise control
on the men he employed.

As to the contention that Solano was not an employee because he worked on piece
basis, this Court agrees with the Hearing Examiner that

circumstances must be construed to determine indeed if payment by

the piece is just a method of compensation and does not define the
essence of the relation. Units of time ... and units of work are in
establishments like respondent (sic) just yardsticks whereby to
determine rate of compensation, to be applied whenever agreed upon.
We cannot construe payment by the piece where work is done in such
an establishment so as to put the worker completely at liberty to turn
him out and take in another at pleasure.
At this juncture, it is worthy to note that Justice Perfecto, concurring with Chief
Justice Ricardo Paras who penned the decision in "Sunrise Coconut Products Co. v.
Court of Industrial Relations" (83 Phil..518, 523), opined that

judicial notice of the fact that the so-called "pakyaw" system

mentioned in this case as generally practiced in our country, is, in fact,
a labor contract -between employers and employees, between
capitalists and laborers.

Insofar as the other assignments of errors are concerned, there is no showing that
the Court of Industrial Relations abused its discretion when it concluded that the
findings of fact made by the Hearing Examiner were supported by evidence on the
record. Section 6, Republic Act 875 provides that in unfair labor practice cases, the
factual findings of the Court of Industrial Relations are conclusive on the Supreme
Court, if supported by substantial evidence. This provision has been put into effect in
a long line of decisions where the Supreme Court did not reverse the findings of fact
of the Court of Industrial Relations when they were supported by substantial
evidence. 14

Nevertheless, considering that about eighteen (18) years have already elapsed from
the time the complainants were dismissed, 15 and that the decision being appealed
ordered the payment of backwages to the employees from their respective dates of
dismissal until finally reinstated, it is fitting to apply in this connection the formula
for backwages worked out by Justice Claudio Teehankee in "cases not terminated
sooner." 16 The formula cans for fixing the award of backwages without qualification
and deduction to three years, "subject to deduction where there are mitigating
circumstances in favor of the employer but subject to increase by way of exemplary
damages where there are aggravating circumstances. 17 Considering there are no
such circumstances in this case, there is no reason why the Court should not apply
the abovementioned formula in this instance.

WHEREFORE; the award of backwages granted by the Court of Industrial Relations

is herein modified to an award of backwages for three years without qualification
and deduction at the respective rates of compensation the employees concerned
were receiving at the time of dismissal. The execution of this award is entrusted to
the National Labor Relations Commission. Costs against petitioner.

SO ORDERED.

G.R. No. L-72654-61 January 22, 1990

ALIPIO R. RUGA, JOSE PARMA, ELADIO CALDERON, LAURENTE BAUTU,

JAIME BARBIN, NICANOR FRANCISCO, PHILIP CERVANTES and
ELEUTERIO BARBIN, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DE GUZMAN FISHING
ENTERPRISES and/or ARSENIO DE GUZMAN, respondents.
J.C. Espinas & Associates for petitioners.
Tomas A. Reyes for private respondent.

FERNAN, C.J.:

The issue to be resolved in the instant case is whether or not the fishermen-crew
members of the trawl fishing vessel 7/B Sandyman II are employees of its owner-
operator, De Guzman Fishing Enterprises, and if so, whether or not they were
illegally dismissed from their employment.

Records show that the petitioners were the fishermen-crew members of 7/B
Sandyman II, one of several fishing vessels owned and operated by private
respondent De Guzman Fishing Enterprises which is primarily engaged in the fishing
business with port and office at Camaligan, Camarines Sur. Petitioners rendered
service aboard said fishing vessel in various capacities, as follows: Alipio Ruga and
Jose Parma patron/pilot; Eladio Calderon, chief engineer; Laurente Bautu, second
engineer; Jaime Barbin, master fisherman; Nicanor Francisco, second fisherman;
Philip Cervantes and Eleuterio Barbin, fishermen.

For services rendered in the conduct of private respondent's regular business of

"trawl" fishing, petitioners were paid on percentage commission basis in cash by one
Mrs. Pilar de Guzman, cashier of private respondent. As agreed upon, they received
thirteen percent (13%) of the proceeds of the sale of the fish-catch if the total
proceeds exceeded the cost of crude oil consumed during the fishing trip, otherwise,
they received ten percent (10%) of the total proceeds of the sale. The patron/pilot,
chief engineer and master fisherman received a minimum income of P350.00 per
week while the assistant engineer, second fisherman, and fisherman-winchman
received a minimum income of P260.00 per week. 1

On September 11, 1983 upon arrival at the fishing port, petitioners were told by
Jorge de Guzman, president of private respondent, to proceed to the police station
at Camaligan, Camarines Sur, for investigation on the report that they sold some of
their fish-catch at midsea to the prejudice of private respondent. Petitioners denied
the charge claiming that the same was a countermove to their having formed a labor
union and becoming members of Defender of Industrial Agricultural Labor
Organizations and General Workers Union (DIALOGWU) on September 3, 1983.

During the investigation, no witnesses were presented to prove the charge against
petitioners, and no criminal charges were formally filed against them.
Notwithstanding, private respondent refused to allow petitioners to return to the
fishing vessel to resume their work on the same day, September 11, 1983.

On September 22, 1983, petitioners individually filed their complaints for illegal
dismissal and non-payment of 13th month pay, emergency cost of living allowance
and service incentive pay, with the then Ministry (now Department) of Labor and
Employment, Regional Arbitration Branch No. V, Legaspi City, Albay, docketed as
Cases Nos. 1449-83 to 1456-83. 2 They uniformly contended that they were
arbitrarily dismissed without being given ample time to look for a new job.

On October 24, 1983, private respondent, thru its operations manager, Conrado S.
de Guzman, submitted its position paper denying the employer-employee
relationship between private respondent and petitioners on the theory that private
respondent and petitioners were engaged in a joint venture. 3

After the parties failed to reach an amicable settlement, the Labor Arbiter scheduled
the case for joint hearing furnishing the parties with notice and summons. On
December 27, 1983, after two (2) previously scheduled joint hearings were
postponed due to the absence of private respondent, one of the petitioners herein,
Alipio Ruga, the pilot/captain of the 7/B Sandyman II, testified, among others, on
the manner the fishing operations were conducted, mode of payment of
compensation for services rendered by the fishermen-crew members, and the
circumstances leading to their dismissal. 4

On March 31, 1984, after the case was submitted for resolution, Labor Arbiter
Asisclo S. Coralde rendered a joint decision 5 dismissing all the complaints of
petitioners on a finding that a "joint fishing venture" and not one of employer-
employee relationship existed between private respondent and petitioners.

From the adverse decision against them, petitioners appealed to the National Labor
Relations Commission.

On May 30, 1985, the National Labor Relations Commission promulgated its
resolution 6 affirming the decision of the labor arbiter that a "joint fishing venture"
relationship existed between private respondent and petitioners.

Hence, the instant petition.

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

Disputing the finding of public respondent that a "joint fishing venture" exists
between private respondent and petitioners, petitioners claim that public respondent
exceeded its jurisdiction and/or abused its discretion when it added facts not
contained in the records when it stated that the pilot-crew members do not receive
compensation from the boat-owners except their share in the catch produced by
their own efforts; that public respondent ignored the evidence of petitioners that
private respondent controlled the fishing operations; that public respondent did not
take into account established jurisprudence that the relationship between the fishing
boat operators and their crew is one of direct employer and employee.

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

We rule in favor of petitioners.

Fundamental considerations of substantial justice persuade Us to decide the instant

case on the merits rather than to dismiss it on a mere technicality. In so doing, we
exercise the prerogative accorded to this Court enunciated in Firestone Filipinas
Employees Association, et al. vs. Firestone Tire and Rubber Co. of the
Philippines, Inc., 61 SCRA 340 (1974), thus "the well-settled doctrine is that in labor
cases before this Tribunal, no undue sympathy is to be accorded to any claim of a
procedural misstep, the idea being that its power be exercised according to justice
and equity and substantial merits of the controversy."

Circumstances peculiar to some extent to fishermen-crew members of a fishing

vessel regularly engaged in trawl fishing, as in the case of petitioners herein, who
spend one (1) whole week or more 7 in the open sea performing their job to earn a
living to support their families, convince Us to adopt a more liberal attitude in
applying to petitioners the 10-calendar day rule in the filing of appeals with the
NLRC from the decision of the labor arbiter.

Records reveal that petitioners were informed of the labor arbiter's decision of March
31, 1984 only on July 3,1984 by their non-lawyer representative during the
arbitration proceedings, Jose Dialogo who received the decision eight (8) days
earlier, or on June 25, 1984. As adverted to earlier, the circumstances peculiar to
petitioners' occupation as fishermen-crew members, who during the pendency of the
case understandably have to earn a living by seeking employment elsewhere,
impress upon Us that in the ordinary course of events, the information as to the
adverse decision against them would not reach them within such time frame as
would allow them to faithfully abide by the 10-calendar day appeal period. This
peculiar circumstance and the fact that their representative is a non-lawyer provide
equitable justification to conclude that there is substantial compliance with the ten-
calendar day rule of filing of appeals with the NLRC when petitioners filed on July 10,
1984, or seven (7) days after receipt of the decision, their appeal with the NLRC
through registered mail.

We have consistently ruled that in determining the existence of an employer-

employee relationship, the elements that are generally considered are the following
(a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to control the employee with
respect to the means and methods by which the work is to be accomplished. 8 The
employment relation arises from contract of hire, express or implied. 9 In the
absence of hiring, no actual employer-employee relation could exist.

From the four (4) elements mentioned, We have generally relied on the so-called
right-of-control test 10 where the person for whom the services are performed
reserves a right to control not only the end to be achieved but also the means to be
used in reaching such end. The test calls merely for the existence of the right to
control the manner of doing the work, not the actual exercise of the right. 11

The case of Pajarillo vs. SSS, supra, invoked by the public respondent as authority
for the ruling that a "joint fishing venture" existed between private respondent and
petitioners is not applicable in the instant case. There is neither light of control nor
actual exercise of such right on the part of the boat-owners in the Pajarillo case,
where the Court found that the pilots therein are not under the order of the boat-
owners as regards their employment; that they go out to sea not upon directions of
the boat-owners, but upon their own volition as to when, how long and where to go
fishing; that the boat-owners do not in any way control the crew-members with
whom the former have no relationship whatsoever; that they simply join every trip
for which the pilots allow them, without any reference to the owners of the vessel;
and that they only share in their own catch produced by their own efforts.

The aforementioned circumstances obtaining in Pajarillo case do not exist in the

instant case. The conduct of the fishing operations was undisputably shown by the
testimony of Alipio Ruga, the patron/pilot of 7/B Sandyman II, to be under the
control and supervision of private respondent's operations manager. Matters dealing
on the fixing of the schedule of the fishing trip and the time to return to the fishing
port were shown to be the prerogative of private respondent. 12 While performing
the fishing operations, petitioners received instructions via a single-side band radio
from private respondent's operations manager who called the patron/pilot in the
morning. They are told to report their activities, their position, and the number of
tubes of fish-catch in one day. 13 Clearly thus, the conduct of the fishing operations
was monitored by private respondent thru the patron/pilot of 7/B Sandyman II who
is responsible for disseminating the instructions to the crew members.

The conclusion of public respondent that there had been no change in the situation
of the parties since 1968 when De Guzman Fishing Enterprises, private respondent
herein, obtained a favorable judgment in Case No. 708 exempting it from
compulsory coverage of the SSS law is not supported by evidence on record. It was
erroneous for public respondent to apply the factual situation of the parties in the
1968 case to the instant case in the light of the changes in the conditions of
employment agreed upon by the private respondent and petitioners as discussed
earlier.

Records show that in the instant case, as distinguished from the Pajarillo case where
the crew members are under no obligation to remain in the outfit for any definite
period as one can be the crew member of an outfit for one day and be the member
of the crew of another vessel the next day, the herein petitioners, on the other
hand, were directly hired by private respondent, through its general manager,
Arsenio de Guzman, and its operations manager, Conrado de Guzman and have
been under the employ of private respondent for a period of 8-15 years in various
capacities, except for Laurente Bautu who was hired on August 3, 1983 as assistant
engineer. Petitioner Alipio Ruga was hired on September 29, 1974 as patron/captain
of the fishing vessel; Eladio Calderon started as a mechanic on April 16, 1968 until
he was promoted as chief engineer of the fishing vessel; Jose Parma was employed
on September 29, 1974 as assistant engineer; Jaime Barbin started as a pilot of the
motor boat until he was transferred as a master fisherman to the fishing vessel 7/B
Sandyman II; Philip Cervantes was hired as winchman on August 1, 1972 while
Eleuterio Barbin was hired as winchman on April 15, 1976.

While tenure or length of employment is not considered as the test of employment,

nevertheless the hiring of petitioners to perform work which is necessary or
desirable in the usual business or trade of private respondent for a period of 8-15
years since 1968 qualify them as regular employees within the meaning of Article
281 of the Labor Code as they were indeed engaged to perform activities usually
necessary or desirable in the usual fishing business or occupation of private
respondent. 14

Aside from performing activities usually necessary and desirable in the business of
private respondent, it must be noted that petitioners received compensation on a
percentage commission based on the gross sale of the fish-catch i.e. 13% of the
proceeds of the sale if the total proceeds exceeded the cost of the crude oil
consumed during the fishing trip, otherwise only 10% of the proceeds of the sale.
Such compensation falls within the scope and meaning of the term "wage" as
defined under Article 97(f) of the Labor Code, thus:

(f) "Wage" paid to any employee shall mean the remuneration or earnings,
however designated, capable of being expressed in terms of money, whether
fixed or ascertained on a time, task, piece or commission basis, or other
method of calculating the same, which is payable by an employer to an
employee under a written or unwritten contract of employment for work done
or to be done, or for services rendered or to be rendered, and included the
fair and reasonable value, as determined by the Secretary of Labor, of board,
lodging, or other facilities customarily furnished by the employer to the
employee. . . .

The claim of private respondent, which was given credence by public respondent,
that petitioners get paid in the form of share in the fish-catch which the patron/pilot
as head of the team distributes to his crew members in accordance with their own
understanding 15 is not supported by recorded evidence. Except that such claim
appears as an allegation in private respondent's position paper, there is nothing in
the records showing such a sharing scheme as preferred by private respondent.

Furthermore, the fact that on mere suspicion based on the reports that petitioners
allegedly sold their fish-catch at midsea without the knowledge and consent of
private respondent, petitioners were unjustifiably not allowed to board the fishing
vessel on September 11, 1983 to resume their activities without giving them the
opportunity to air their side on the accusation against them unmistakably reveals the
disciplinary power exercised by private respondent over them and the corresponding
sanction imposed in case of violation of any of its rules and regulations. The virtual
dismissal of petitioners from their employment was characterized by undue haste
when less extreme measures consistent with the requirements of due process should
have been first exhausted. In that sense, the dismissal of petitioners was tainted
with illegality.

Even on the assumption that petitioners indeed sold the fish-catch at midsea the act
of private respondent virtually resulting in their dismissal evidently contradicts
private respondent's theory of "joint fishing venture" between the parties herein. A
joint venture, including partnership, presupposes generally a parity of
standing between the joint co-venturers or partners, in which each party has an
equal proprietary interest in the capital or property contributed 16 and where each
party exercises equal lights in the conduct of the business. 17 It would be
inconsistent with the principle of parity of standing between the joint co-venturers as
regards the conduct of business, if private respondent would outrightly exclude
petitioners from the conduct of the business without first resorting to other
measures consistent with the nature of a joint venture undertaking, Instead of
arbitrary unilateral action, private respondent should have discussed with an open
mind the advantages and disadvantages of petitioners' action with its joint co-
venturers if indeed there is a "joint fishing venture" between the parties. But this
was not done in the instant case. Petitioners were arbitrarily dismissed
notwithstanding that no criminal complaints were filed against them. The lame
excuse of private respondent that the non-filing of the criminal complaints against
petitioners was for humanitarian reasons will not help its cause either.

We have examined the jurisprudence on the matter and find the same to be
supportive of petitioners' stand. In Negre vs. WCC 135 SCRA 653 (1985), we held
that fishermen crew members who were recruited by one master fisherman locally
known as "maestro" in charge of recruiting others to complete the crew members
are considered employees, not industrial partners, of the boat-owners. In an earlier
case of Abong vs. WCC, 54 SCRA 379 (1973) where petitioner therein, Dr. Agustin
Abong, owner of the fishing boat, claimed that he was not the employer of the
fishermen crew members because of an alleged partnership agreement between
him, as financier, and Simplicio Panganiban, as his team leader in charge of
recruiting said fishermen to work for him, we affirmed the finding of the WCC that
there existed an employer-employee relationship between the boat-owner and the
fishermen crew members not only because they worked for and in the interest of the
business of the boat-owner but also because they were subject to the control,
supervision and dismissal of the boat-owner, thru its agent, Simplicio Panganiban,
the alleged "partner" of Dr. Abong; that while these fishermen crew members were
paid in kind, or by "pakiao basis" still that fact did not alter the character of their
relationship with Dr. Abong as employees of the latter.

In Philippine Fishing Boat Officers and Engineers Union vs. Court of Industrial
Relations, 112 SCRA 159 (1982), we held that the employer-employee relationship
between the crew members and the owners of the fishing vessels engaged in deep
sea fishing is merely suspended during the time the vessels are drydocked or
undergoing repairs or being loaded with the necessary provisions for the next fishing
trip. The said ruling is premised on the principle that all these activities i.e., drydock,
repairs, loading of necessary provisions, form part of the regular operation of the
company fishing business.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The questioned

resolution of the National Labor Relations Commission dated May 30,1985 is hereby
REVERSED and SET ASIDE. Private respondent is ordered to reinstate petitioners to
their former positions or any equivalent positions with 3-year backwages and other
monetary benefits under the law. No pronouncement as to costs.

SO ORDERED.

G.R. No. L-21696 February 25, 1967

VISAYAN STEVEDORE TRANSPORTATION COMPANY (VISTRANCO) and

RAFAEL XAUDARO, petitioners,
vs.
COURT OF INDUSTRIAL RELATIONS, UNITED WORKERS' & FARMERS'
ASSOCIATION (UWFA) VENANCIO DANO-OG, BUENAVENTURA AGARCIO
and 137 others, respondents.
Pelaez, Jalandoni & Jamir for petitioners.
Luis B. Presbiterio for respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.

CONCEPCION, C.J.:

Appeal by certiorari, taken by the Visayan Stevedoring Transportation Co. —

hereinafter referred to as the Company — and Rafael Xaudaro from an order of the
Court of Industrial Relations the dispositive part of which reads:

The Court, finding respondents guilty of unfair labor practice as charged,

directs them to cease and desist from such unfair labor practice and to
reinstate the complainants, with back wages from the date they were laid off
until reinstated.

The Company is engaged in the loading and unloading of vessels, with a branch
office in Hinigaran, Negros Occidental, under the management of said Rafael
Xaudaro. Its workers are supplied by the United Workers and Farmers Association, a
labor organization — hereinafter referred to as UWFA — whose men (affiliated to
various labor unions) have regularly worked as laborers of the Company during
every milling season since immediately after World War II up to the milling season
immediately preceding November 11, 1955, when the Company refused to engage
the services of Venancio Dano-og, Buenaventura, Agarcio and 137 other persons
named in the complaint filed in case No. 62-ULP-Cebu of the Court of Industrial
Relations — and hereinafter referred to as the Complainants — owing, they claim, to
their union activities. At the behest of the UWFA and the Complainants, a complaint
for unfair labor practice was, accordingly, filed against the Company and Xaudaro
with the Court of Industrial Relations — hereinafter referred to as the CIR — in
which it was docketed as Case No. 62-ULP-Cebu. In due course, its Presiding Judge
issued the order appealed from, which was affirmed by the CIR sitting en banc.
Hence this petition for review by certiorari.

The issues raised in this appeal, are (1) whether there is employer-employee
relationship between the Company and the Complainants; (2) whether the Company
has been guilty of unfair labor practice; and (3) whether the order of reinstatement
of Complainants, with backpay, is a reversible error.1äwphï1.ñët

With respect to the first question, the Company maintains that it had never had an
employer-employee relationship with the Complainants, the latter's services having
allegedly been engaged by the UWFA not by the Company, and that, in any event,
whatever contractual relation there may have been between the Company and the
Complainants had ceased at the end of each milling season, so that the Company
can not be guilty of unfair labor practice in refusing to renew said relation at the
beginning of the milling season in November, 1955.

This pretense is untenable. Although Complainants, through the labor union to which
they belong, form part of UWFA, there was no independent contract between the
latter, as an organization, and the Company. After the first milling season
subsequently to the liberation of the Philippines, Complainants merely reported for
work, at the beginning of each succeeding milling season, and their services were
invariably availed of by the Company, although an officer of the UWFA or union
concerned determined the laborers who would work at a given time, following a
rotation system arranged therefor.

In the performance of their duties, Complainants worked, however, under the

direction and control of the officers of the Company, whose paymaster, or disbursing
officer paid the corresponding compensation directly to said Complainants, who, in
turn, acknowledged receipt in payrolls of the Company. We have already held that
laborers working under these conditions are employees of the Company,1 in the
same manner as watchmen or security guards furnished, under similar
circumstances, by watchmen or security agencies,2 inasmuch as the agencies and/or
labor organizations involved therein merely performed the role of a representative or
agent of the employer in the recruitment of men needed for the operation of the
latter's business.3

As regards the alleged termination of employer-employee relationship between the

Company and the Complainants at the conclusion of each milling season, it is,
likewise, settled that the workers concerned are considered, not separated from the
service, but, merely on leave of absence, without pay, during the off-season, their
employer-employee relationship being merely deemed suspended, not severed, in
the meanwhile.4

Referring to the unfair labor practice charge against the Company, we find, with the
CIR, that said charge is substantially borne out by the evidence of record, it
appearing that the workers not admitted to work beginning from November, 1955,
were precisely those belonging to the UWFA and the Xaudaro, the Company Branch
Manager, had told them point-blank that severance of their connection with the
UWFA was the remedy, if they wanted to continue working with the Company.

As to the payment of back wages, the law5 explicitly vests in the CIR discretion to
order the reinstatement with back pay of laborers dismissed due to union activities,
and the record does not disclose any cogent reason to warrant interference with the
action taken by said Court.6

Wherefore, the order and resolution appealed from are hereby affirmed, with costs
against petitioners herein. It is so ordered.

Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and
Castro, JJ., concur.