PHILIPPINE FUJI XEROX CORPORATION, petitioners, vs.

NATIONAL LABOR RELATIONS

COMMISSION

FACTS:

Petitioner Fuji Xerox entered into an agreement under which Skillpower, Inc. supplied workers to
operate copier machines of Fuji Xerox as part of the latter’s “Xerox Copier Project” in its sales
offices. Private respondent Pedro Garado was assigned as key operator at Fuji Xerox’s in its one of
its branch.

When he went on leave and was substituted by other, upon his return he discovered there was a
spoilage of over 600 copies afraid that he might be blamed the asked the technician to stop the
meter f the machine. This was reported by FUJI ZEROX to Skillpower and it ordere him to explain
and suspended him from work. Grado filed a complaint for illegal dismissal. LA rendered decision
that Grado is an employee of Skillpower Inc. but NLRC held that although Skillpower, Inc. had
substantial capital assets, the fact was that the copier machines, which Garado operated, belonged
to petitioner Fuji Xerox, and that although it was Skillpower, Inc. which had suspended Garado, the
latter merely acted at the behest of Fuji Xerox. And that FUJI ZEROX is the employer of Grado and
that Skilipower, Inc. merely acted as paymaster-agent of Fuji Xerox. The NLRC held that Skilipower,
Inc. was a labor-only contractor and Garado should be deemed to have been directly employed by
Fuji Xerox, regardless of the agreement between it and Skillpower. Hence this petition

ISSUE:

1) WON Skillpower Inc is a labor only contractor?

2)WON there was an employer- employee relationship between FUJI ZEROX and Grado?

HELD:

1) YES.

ARTICLE 106.

There is “labor-only” contracting where the person supplying workers to an employer does not
have substantial capital or investment in the form of tools, equipment, machineries, work premises,
among others, and the workers recruited and placed by such persons are performing activities
which are directly related to the principal business of such employer. 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.

Petitioner Fuji Xerox argues that Skillpower, Inc. had typewriters and service vehicles for the
conduct of its business independently of the petitioner. But typewriters and vehicles bear no
direct relationship to the job for which Skillpower, Inc. contracted its service of operating
copier machines and offering copying services to the public. The fact is that Skillpower, Inc. did
not have copying machines of its own. What it did was simply to supply manpower to Fuji
Xerox. The phrase “substantial capital and investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business,” in the Implementing Rules clearly contemplates tools, equipment, etc., which are
directly related to the service it is being contracted to render. One who does not have an
independent business for undertaking the job contracted for is just an agent of the employer.

2) YES.

As shown in the following:

1) Though he was recruited by Skillpower to be assigned in FUJI ZEROX, he was employed

exclusively in FUJI from 1980 to 1984 and was already a member of union which petitioned
the company for his regularization.

2) Though the service provided by Skillpower, Inc., namely, operating petitioners’ xerox
machine, is neither directly related nor necessary to the business of selling and leasing copier
machines of petitioner but Xerox Copier machines of petitioners promotes goodwill as it
advertise the quality of their products. Though the task is not directly related to the employer’s
business it cannot be automatically said that the one performing the task is a job
contractor.

3) Though employment records, vouchers and loan checks as well as SSS were course
through Skillbuilder but the power of control and dismissal is with FUJI ZEROX as evince in the 2
letters. They dispel any doubt that Fuji Xerox exercised disciplinary authority over Garado
and that Skillpower, Inc. issued the order of dismissal merely in obedience to the decision of
petitioner.

4) Though Skillpower is highly-capitalized business venture registered as “independent

employer” with SEC and DOLE but the service of private respondent was not a specific or
special skill that Skillpower Inc was in the business of providing. Although in the Neri case
the telex machine operated by the employee belonged to the employer, the service was deemed
permissible because it was specific and technical. This cannot be said of the service rendered by
private respondent Garado.

5) And lastly though there was agreement between them that Skillpower is an “independent
contractor” but the relations of parties must be judged from case to case and the decree of
law, and not by declaration of parties.

Skilipower, Inc. is, therefore, a “labor-only” contractor and Garado is not its employee.
Petition is dismissed

PHILIPPINE FUJI XEROX CORPORATION, JENNIFER A. BERNARDO and ATTY. VICTORINO LUIS
vs. NATIONAL LABOR RELATIONS COMMISSION, PAMBANSAN KILUSAN NG PAGGAWA,
(KILUSAN)-TUCP, PHILIPPINE XEROX EMPLOYEES UNION-KILUSAN AND PEDRO GARADO

G.R. No. 111501  MARCH 5, 1996

FACTS OF THE CASE

Petitioner Fuji Xerox entered into an agreement under which Skillpower, Inc. supplied
workers to operate copier machines of Fuji Xerox as part of their "Xerox Copier Project".
Respondent Garado was assigned as key operator at Fuji Xerox Buendia Branch.
 In 1983, Garado went on leave and was replaced by a substitute. However, upon his return
he found out that there was a spoilage of over 600 copies. He tried to talk to the service technician
to stop the meter of the machine since he was afraid that he would be blamed for the spoilage. The
technician refused and later on Fuji Xerox learned about the incident. Fuji Xerox reported this to
Skillpower, Inc. Skillpower, Inc. asked Garado to explain the incident and was put on suspension.
Garado filed a complaint for illegal dismissal.

The Labor Arbiter ruled that Garado was an employee of Skillpower, Inc. this dismissing the
complaint for illegal dismissal against Fuji Xerox. LA said that Skillpower exercised control and
supervision of Garado's work although the later receives his salary from Fuji Xerox.

On appeal, the NLRC found that Garado was an employee of Fuji Xerox and was illegally
dismissed by the latter. NLRC said that although Garado's request was wrongful it was not the
appropriate penalty. NLRC also said that although Garado was suspended by Skillpower, Inc. the
company acted at the behest of Fuji Xerox. The power of control and supervision was with Fuji
Xerox and also the payment of respondent's salary. Skillpower, Inc. merely acted as a paymaster-
agent of Fuji Xerox and that Skillpower, Inc is a labor-only contractor. Thus, Garado is employed by
Fuji Xerox.

Fuji Xerox contends that Skillpower, Inc. is an independent contractor. Thus, this appeal to
the SC.

ISSUE
1. Whether or not Garado is an employee of Fuji Xerox or of Skillpower, Inc.

RULING
ISSUE#1 Garado is an employee of Fuji Xerox

The Agreement between petitioner Fuji Xerox and Skillpower, Inc. provides that Skillpower, Inc. is
an independent contractor and that the workers hired by it “shall not, in any manner and under any
circumstances, be considered employees of [the] Company, and that the Company has no control or
supervision whatsoever over the conduct of the Contractor or any of its workers in respect to how
they accomplish their work or perform the Contractor’s obligations under this AGREEMENT.”

In Tabas v. California Manufacturing Company, Inc., [9] this Court held on facts similar to those in the
case at bar:

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. 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,” California’s purported “principal operation activity.” The
 petitioners had been charged with “merchandising [sic] promotion or sale of the
products of [California] in the different sales outlets in Metro Manila including task
and occasional [sic] price tagging,” 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 agents, 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.

xxx    xxx      xxx
The fact that the petitioners have allegedly admitted being Livi’s “direct employees”
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 declaration of parties.

Skillpower, Inc. is, therefore, a “labor-only” contractor and Garado is not its employee. No
grave abuse of discretion can thus be imputed to the NLRC for declaring petitioner Fuji Xerox guilty
of illegal dismissal of private respondent.
Aliviado vs. Procter and Gamble
G.R. No. 160506 June 6, 2011

SUBJECTS: Obligations and Contract

FACTS:
Petitioners worked as merchandisers of P&G. They all individually signed employment contracts
with either Promm-Gem or SAPS. They were assigned at different outlets, supermarkets and stores
where they handled all the products of P&G. They received their wages from Promm-Gem or SAPS.
SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as
habitual absenteeism, dishonesty or changing day-off without prior notice. To enhance consumer
awareness and acceptance of the products, P&G entered into contracts with Promm-Gem and SAPS
for the promotion and merchandising of its products. In December 1991, petitioners filed a
complaint against P&G for regularization, service incentive leave pay and other benefits with
damages.

ISSUE: Whether or Not P&G is the employer of petitioners.

HELD:
In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first
determine whether Promm-Gem and SAPS are labor-only contractors or legitimate job
contractors.Clearly, the law and its implementing rules allow contracting arrangements for the
performance of specific jobs, works or services. However, in order for such outsourcing to be valid,
it must be made to an independent contractor because the current labor rules expressly prohibit
labor-only contracting. To emphasize, there is labor-only contracting when the contractor or sub-
contractor merely recruits, supplies or places workers to perform a job, work or service for a
principal and any of the following elements are present:

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

ii) The contractor does not exercise the right to control over the performance of the work of
the contractual
Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find
that it is a legitimate independent contractor.

Considering that SAPS has no substantial capital or investment and the workers it recruited are
performing activities which are directly related to the principal business of P&G, we find that the
former is engaged in “labor-only contracting”.Where labor-only contracting exists, the Labor Code
itself establishes an employer-employee relationship between the employer and the employees of
the labor-only contractor. The statute establishes this relationship for a comprehensive purpose: to
prevent a circumvention of labor laws. The contractor is considered merely an agent of the
principal employer and the latter is responsible to the employees of the labor-only contractor as if
such employees had been directly employed by the principal employer.

Petition Granted

NOTE:
Respondent filed MR, which was denied.
In its resolution, the Court upheld its decision declaring SAPS has no substantial capital, therefore,
labor-only contractor.
 

Babas VS Lorenzo Shipping Corporation

Petitioners: EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN, SR., EDWIN

JAVIER, SANDI BERMEO, REX ALLESA, MAXIMO SORIANO, JR., ARSENIO ESTORQUE, and
FELIXBERTO ANAJAO,

Respondent: LORENZO SHIPPING CORPORATION

G.R. No. 186091 | December 15, 2010 | Nachura

FACTS:

 Lorenzo Shipping Corp. (LSC) is a domestic corporation engaged in the shipping industry; it
owns several equipment necessary for its business.
 LSC entered into a General Equipment Maintenance Repair and Management Services
Agreement (Agreement) with Best Manpower Services, Inc. (BMSI). 
o Under the Agreement, BMSI undertook to provide maintenance and repair services
to LSC’s container vans, heavy equipment, trailer chassis, and generator sets. 
o BMSI further undertook to provide checkers to inspect all containers received for
loading to and/or unloading from its vessels.
 Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and
tractors to BMSI. The period of lease was coterminous with the Agreement. 
 BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility
men, clerks, forklift operators, motor pool and machine shop workers, technicians, etc.
 Six years later, LSC entered into another contract with BMSI, this time, a service contract.
 Petitioners filed with the Labor Arbiter (LA) a complaint for regularization against LSC and
BMSI. 
 LSC terminated the Agreement, effective October 31, 2003.  Consequently, petitioners lost
their employment.
 BMSI: Said it is an independent contractor.  It averred that it was willing to regularize
petitioners; however, some of them lacked the requisite qualifications for the job.  BMSI was
willing to reassign petitioners who were willing to accept reassignment. .
 LSC: Averred that petitioners were employees of BMSI and were assigned to LSC by virtue
of the Agreement.  BMSI is an independent job contractor with substantial capital or
investment in the form of tools, equipment, and machinery necessary in the conduct of its
business.
 Petitioners: Argued that they were engaged in labor-only contracting.
 

ISSUE: W/N LSC and BMSI were engaged in labor-only contracting to defeat their right to security
of tenure? YES.

HELD:WHEREFORE, the petition is GRANTED.  The Decision and the Resolution of the Court of
Appeals in CA-G.R. SP. No. 103804 are REVERSED and SET ASIDE.  Petitioners (7 of the 9) are
declared regular employees of Lorenzo Shipping Corporation.   Further, LSC is ordered to reinstate
the seven petitioners to their former position without loss of seniority rights and other privileges,
and to pay full backwages, inclusive of allowances, and other benefits or their monetary equivalent,
computed from the time compensation was withheld up to the time of actual reinstatement.

RATIO:

 De Los Santos v. NLRC instructed us that the character of the business, i.e., whether as labor-
only contractor or as job contractor, should be measured in terms of, and determined by,
the criteria set by statute. The parties cannot dictate in a contract the character of their
business.  
 In San Miguel Corporation v. Vicente B. Semillano: Despite the fact that the service contracts
contain stipulations which are earmarks of independent contractorship, they do not make it
legally so.  The language of a contract is neither determinative nor conclusive of the
relationship between the parties. 
o Thus, in distinguishing between labor-only contracting and permissible job
contracting, the totality of the facts and the surrounding circumstances of the
case are to be considered. 

DEFINING LABOR-ONLY CONTRACTING and LEGITIMATE JOB CONTRACTING

 Labor-only contracting, a prohibited act, is an arrangement where the contractor or

subcontractor merely recruits, supplies, or places workers to perform a job, work, or
service for a principal. 
 In labor-only contracting, the following elements are present: 
o (a) the contractor or subcontractor does not have substantial capital or investment
to actually perform the job, work, or service under its own account and
responsibility;  and
o (b) the employees recruited, supplied, or placed by such contractor or subcontractor
perform activities which are directly related to the main business of the principal.  
 A person is considered engaged in legitimate job contracting if the ff. conditions concur: 
o (a)The contractor carries on a distinct and independent business and undertakes
the contract work on his account under his own responsibility according to his own
manner and method, free from the control and direction of his employer or principal
in all matters connected with the performance of his work except as to the results
thereof;
o (b) The contractor has substantial capital or investment; and
o (c) The agreement between the principal and the contractor or subcontractor
assures the contractual employees' entitlement to all labor and occupational safety
and health standards, free exercise of the right to self-organization, security of
tenure, and social welfare benefits.
 

BMSI is engaged in labor-only contracting: FOUR REASONS

 First, petitioners worked at LSC’s premises, and nowhere else.

o Other than the provisions of the Agreement, there was no showing that it was BMSI
 which established petitioners’ working procedure and methods, which supervised
petitioners in their work, or which evaluated the same. There was absolute lack of
evidence that BMSI exercised control over them or their work, except for the fact
that petitioners were hired by BMSI. 
 Second, LSC was unable to present proof that BMSI had substantial capital. (Burden of proof
is on the contractor) 
o The record before us is bereft of any proof pertaining to the contractor’s
capitalization, nor to its investment in tools, equipment, or implements actually
used in the performance or completion of the job, work, or service that it was
contracted to render.  What is clear was that the equipment used by BMSI were
owned by, and merely rented from, LSC.  
 Third, petitioners performed activities which were directly related to the main business of
LSC.
o The work of petitioners as checkers, welders, utility men, drivers, and mechanics
could only be characterized as part of, or at least clearly related to, and in the
pursuit of, LSC’s business. Logically, when petitioners were assigned by BMSI to LSC,
BMSI acted merely as a labor-only contractor.
 Lastly, BMSI had no other client except for LSC, and neither BMSI nor LSC refuted this
finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.

CRITIQUING THE CA: 

 The CA erred in considering BMSI’s Certificate of Registration as sufficient proof that it is an

independent contractor. 
o In San Miguel Corporation v. Vicente B. Semillano, we held that the fact of registration
simply prevents the legal presumption of being a mere labor-only contractor from
arising.

TERMINATION OF AGREEMENT IS NOT A JUST CAUSE FOR PETITIONERs’ DISSMISSAL  

 In Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass Philippines, Inc.,this Court declared:
o But since SSASI was a labor-only contractor, and petitioners were to be deemed the
employees of respondent, then the said reason would not constitute a just or
authorized cause for petitioners’ dismissal. It would then appear that petitioners
were summarily dismissed based on the aforecited reason, without compliance with
the procedural due process for notice and hearing.
o Herein petitioners, having been unjustly dismissed from work, are entitled to
reinstatement without loss of seniority rights and other privileges and to full back
wages, inclusive of allowances, and to other benefits or their monetary equivalents
computed from the time compensation was withheld up to the time of actual
reinstatement. 
 

 
Babas VS Lorenzo Shipping Corporation

  

FACTS 

          Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi
Bermeo, Rex Allesa, Maximo Soriano, Jr., Arsenio Estorque, and Felixberto Anajao appeal
by certiorari under Rule 45 of the Rules of Court the October 10, 2008 Decision [1] of the Court of
Appeals (CA) in CA-G.R. SP. No. 103804, and the January 21, 2009 Resolution, [2] denying its
reconsideration.

          Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic corporation

engaged in the shipping industry; it owns several equipment necessary for its business. On
September 29, 1997, LSC entered into a General Equipment Maintenance Repair and Management
Services Agreement[3] (Agreement) with Best Manpower Services, Inc. (BMSI).  Under the Agreement,
BMSI undertook to provide maintenance and repair services to LSC’s container vans, heavy
equipment, trailer chassis, and generator sets.  BMSI further undertook to provide checkers to
inspect all containers received for loading to and/or unloading from its vessels.

          Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and
tractors to BMSI.[4]  The period of lease was coterminous with the Agreement. 

          BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men,
clerks, forklift operators, motor pool and machine shop workers, technicians, trailer drivers, and
mechanics.    Six years later, or on May 1, 2003, LSC entered into another contract with BMSI, this
time, a service contract.[5] 

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for
regularization against LSC and BMSI.  On October 1, 2003, LSC terminated the Agreement, effective
October 31, 2003.  Consequently, petitioners lost their employment.

BMSI asserted that it is an independent contractor.  It averred that it was willing to

regularize petitioners; however, some of them lacked the requisite qualifications for the job.  BMSI
was willing to reassign petitioners who were willing to accept reassignment.  BMSI denied
petitioners’ claim for underpayment of wages and non-payment of 13th month pay and other
benefits.

          LSC, on the other hand, averred that petitioners were employees of BMSI and were assigned to
LSC by virtue of theAgreement.  BMSI is an independent job contractor with substantial capital or
investment in the form of tools, equipment, and machinery necessary in the conduct of its business.
The Agreement between LSC and BMSI constituted legitimate job contracting. Thus, petitioners
were employees of BMSI and not of LSC.

          After due proceedings, the LA rendered a decision [6] dismissing petitioners’ complaint.  The LA

found that petitioners were employees of BMSI.  It was BMSI which hired petitioners, paid their
wages, and exercised control over them. 
          Petitioners appealed to the National Labor Relations Commission (NLRC), arguing that BMSI
was engaged in labor-only contracting.  They insisted that their employer was LSC.

          On January 16, 2008, the NLRC promulgated its decision. [7]  Reversing the LA,

          LSC went to the CA via certiorari.  On October 10, 2008, the CA rendered the now challenged
Decision,[10] reversing the NLRC.  In holding that BMSI was an independent contractor, the CA relied
on the provisions of the Agreement, wherein BMSI warranted that it is an independent contractor,
with adequate capital, expertise, knowledge, equipment, and personnel necessary for the services
rendered to LSC.   According to the CA, the fact that BMSI entered into a contract of lease with LSC
did not ipso factomake BMSI a labor-only contractor; on the contrary, it proved that BMSI had
substantial capital.  The CA was of the view that the law only required substantial
capital or investment. Since BMSI had substantial capital, as shown by its ability to pay rents to LSC,
then it qualified as an independent contractor. It added that even under the control test, BMSI
would be the real employer of petitioners, since it had assumed the entire charge and control of
petitioners’ services.  The CA further held that BMSI’s Certificate of Registration as an independent
contractor was sufficient proof that it was an independent contractor.  Hence, the CA absolved LSC
from liability and instead held BMSI as employer of petitioners.

ISSUE

WHETHER OR NOT COURT OF APPEALS ERRED IN IGNORING THE CLEAR

EVIDENCE OF RECORD THAT RESPONDENT WAS ENGAGED IN LABOR-ONLY
CONTRACTING TO DEFEAT PETITIONERS’ RIGHT TO SECURITY OF TENURE.[13]

  RULING

Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor

merely recruits, supplies, or places workers to perform a job, work, or service for a principal.   In
labor-only contracting, the following elements are present:  (a) the contractor or subcontractor
does not have substantial capital or investment to actually perform the job, work, or service under
its own account and responsibility;  and (b) the employees recruited, supplied, or placed by such
contractor or subcontractor perform activities which are directly related to the main business of
the principal.[20]

On the other hand, permissible job contracting or subcontracting refers to an arrangement

whereby a principal agrees to put out or farm out with the contractor or subcontractor the
performance or completion of a specific job, work, or service within a definite or predetermined
period, regardless of whether such job, work, or service is to be performed or completed within or
outside the premises of the principal. [21]

A person is considered engaged in legitimate job contracting or subcontracting if the

following conditions concur: 

(a) The contractor carries on a distinct and independent business and undertakes the
contract work on his account under his own responsibility according to his own manner and
method, free from the control and direction of his employer or principal in all matters connected
with the performance of his work except as to the results thereof; 

(b) The contractor has substantial capital or investment; and 

(c) The agreement between the principal and the contractor or subcontractor assures the
contractual employees' entitlement to all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure, and social welfare benefits. [22]

Given the above standards, we sustain the petitioners’ contention that BMSI is
engaged in labor-only contracting

First, petitioners worked at LSC’s premises, and nowhere else. Other than the provisions of
the Agreement, there was no showing that it was BMSI which established petitioners’ working
procedure and methods, which supervised petitioners in their work, or which evaluated the same.
There was absolute lack of evidence that BMSI exercised control over them or their work, except for
the fact that petitioners were hired by BMSI.

Second, LSC was unable to present proof that BMSI had substantial capital.  The record
before us is bereft of any proof pertaining to the contractor’s capitalization, nor to its investment in
tools, equipment, or implements actually used in the performance or completion of the job, work, or
service that it was contracted to render.  What is clear was that the equipment used by BMSI were
owned by, and merely rented from, LSC.  

          Third, petitioners performed activities which were directly related to the main business of
LSC. The work of petitioners as checkers, welders, utility men, drivers, and mechanics could only be
characterized as part of, or at least clearly related to, and in the pursuit of, LSC’s business. Logically,
when petitioners were assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor
LSC refuted this finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.

The CA erred in considering BMSI’s Certificate of Registration as sufficient proof that it is an

independent contractor.  In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito
Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio, [24] we held that a
Certificate of Registration issued by the Department of Labor and Employment is not conclusive
evidence of such status. The fact of registration simply prevents the legal presumption of being a
mere labor-only contractor from arising.[25] 

Indubitably, BMSI can only be classified as a labor-only contractor.   The CA, therefore, erred
when it ruled otherwise. Consequently, the workers that BMSI supplied to LSC became regular
employees of the latter.[26]  Having gained regular status, petitioners were entitled to security of
tenure and could only be dismissed for just or authorized causes and after they had been accorded
due process.
 Herein petitioners, having been unjustly dismissed from work, are entitled
to reinstatement without loss of seniority rights and other privileges and to full back
wages, inclusive of allowances, and to other benefits or their monetary equivalents
computed from the time compensation was withheld up to the time of actual
reinstatement.  Their earnings elsewhere during the periods of their illegal
dismissal shall not be deducted therefrom.

Accordingly, we hold that the NLRC committed no grave abuse of discretion in its
decision.  Conversely, the CA committed a reversible error when it set aside the NLRC ruling.

WHEREFORE, the petition is GRANTED.  The Decision and the Resolution of the Court of
Appeals in CA-G.R. SP. No. 103804 are REVERSED and SET ASIDE.  
Meralco v NLRC
G.R. No. 145402 | March 14, 2008
Chico-Nazario

Topic: Work Relationship - Independent Contractor – Trilateral Relationship - Solidary Liability of

Indirect Employer/Direct Employer

Doctrine:
An indirect employer (Article 107) can only be held solidarily liable with the independent
contractor or subcontractor (Article 109) in the event that the latter fails to pay the wages of its
employees (Article 106).

Summary:
OPLGS assigned 49 workers at MIESCOR’s Rockwell Plant to provide janitorial and maintenance
services. The 49 workers filed a compliant for illegal deduction and underpayment against OPLGS
before the Labor Arbiter, who ruled that OPLGS should be liable for the fees, but upon appeal, the
NLRC modified the LA decision and held that MIESCOR should be solidarily liable. CA ruled that
both parties are liable for all 3 parts of the judgment award, but the SC held that it was OPLGS, as
the employer, that was liable for the separation pay. MIESCOR also not held liable for the
underpayment & overtime pay because they already handed it over to OPLGS, but it was OPLGS
who failed to give it to the complainants.

Petitioner: Meralco Industrial Engineering Services Corporation (MIESCOR)

Respondent: National Labor Relations Commission, Ofelia P. Landrito General Services (OPLGS)
And/Or Ofelia P. Landrito

FACTS:
 7 Nov 1984 - MIESCOR and OPLGS executed Contract Order No. 166-84, where OPLGS would
supply MIESCOR w/ janitorial services (labor, materials, tools and equipment, supervision of
assigned employees) at petitioner’s Rockwell Thermal Plant in Makati City.
o OPLGS assigned their 49 employees as janitors to the Rockwell Thermal Plant with a
daily wage of ₱51.50 per employee.
 20 Sept 1989 - The 49 OPLGS employees lodged a Complaint (NLRC NCR Case No. 00-09-04432-
89) for illegal deduction, underpayment, non-payment of overtime pay, legal holiday pay,
premium pay for holiday and rest day and night differentials against the OPLGS before the
Labor Arbiter (LA).
 Due RA 6727’s enactment, the contract between the petitioner and the private respondents was
amended for the 10th time (1989). The employees’ daily minimum wage was raised from
₱63.55 to ₱89.00 or ₱2,670.00 per month.
 2 Jan 1990 - MIESCOR sent a letter to OPLGS that they were terminating the contract on Jan 31,
1990. The 49 complainants were pulled out from their work on the said date.
27 Feb 1990 - complainants amended their Complaint to include the charge of illegal dismissal and
to implead MIESCOR as a party respondent therein.
 26 March 1991 – the LA dismissed the Complaint against the petitioner for lack of merit, but
ordered the private respondents to pay the complainants:
o ₱487,287.07 representing unpaid wages, separation and overtime pay
 o attorney’s fees in an amount equivalent to 10% of the award or ₱48,728.70
o (all other complaints dismissed)
 OPLGS appealed the decision to the NLRC, citing (they gave 5 pero eto lang relevant)
o Complainants not constructively dismissed when they were not given assignments
within six months – they had abandoned their jobs when they failed to report to
another place of assignment;
o MIESCOR (principal) solidarily liable with the private respondents for failure to make
an adjustment on the wages of the complainants.
 28 May 1993 – NLRC affirmed decision of the LA, with the modification that MIESCOR was
solidarily liable.
o Under Art. 107 of the Labor Code, MIESCOR is considered an indirect employer and can
be held solidarily liable with private respondents as an independent contractor.
o Under Art. 109, for purposes of determining the extent of its liability, MIESCOR is
considered a direct employer, hence, it is solidarily liable for complainant’s wage
differentials and unpaid overtime.
 Both parties moved for reconsideration.

 30 July 1993 - the NLRC determined that the ₱487,287.07 was secured by a surety bond posted
by OPLGS; no more impediment to payment of the claims.

o NLRC denied the OPLGS’ Motion for Reconsideration. The NLRC directed the LA to
enforce the monetary award against OPLGS’ surety bond and to determine who should
finally shoulder the liability therefor.

 OPLGS alleged the NLRC of GAD but it was subsequently dismissed by the SC due to their failure
to show specific acts of GAD.
o (bc of this, natigil saglit yung proceedings sa NLRC. Pero nung binasura, tuloy ang
ligaya)
 5 Oct 1994 – LA issued an order

o ₱487,287.07 consists of three (3) parts: the judgment award on the underpayment,
separation pay, and overtime pay.

o MIESCOR is jointly and severally liable with OPLGS in the judgment award on
underpayment and on the non-payment of overtime pay.

 If complainants enforce the judgment award against MIESCOR, MIESCOR can

seek reimbursement against OPLGS, but should the judgment award be enforced
against OPLGS, the latter cannot seek reimbursement from the MIESCOR.

o Separation pay is the sole liability of OPLGS.

 25 Apr 1995 – NLRC affirmed the LA order and dismissed both appeals.
 27 July 1995 – NLRC granted their motions for reconsideration, directing both parties to post an
appeal bond of ₱487,287.62. Both parties complied.

 30 January 1996 - NLRC modified the Oct 5 Order of the LA.

o Labor-standards award & separation pay to be satisfied exclusively through the surety
bond posted by OPLGS.

 OPLGS appealed AGAIN. Denied.

 CA - MIESCOR should be jointly and severally liable with OPLGS for the payment of wage
differentials, overtime pay AND separation pay of the 49 complainants.

ISSUE + HELD:

1. W/N Meralco should be jointly and severally liable with OPLGS re separation pay - NO.

 The CA erroneously used Art 109 of the LC. It should’ve been read in conjunction w/ Articles
106-107.

o Taken together, an indirect employer (Article 107) can only be held solidarily liable
with the independent contractor or subcontractor (Article 109) in the event that the
latter fails to pay the wages of its employees (Article 106).

 While it is true that MIESCOR was the indirect employer of the complainants, it cannot be held
liable in the same way as the employer in every respect. MIESCOR may be considered an
indirect employer only for purposes of unpaid wages.

o  The concept of indirect employer only relates or refers to the liability for unpaid wages.
(PAL v NLRC)

 No employer-employee relationship between MIESCOR and the complainants.

o OPLGS is their employer - the only one who can terminate their employment.

 The only instance when the principal can also be held liable with the independent contractor or
subcontractor for the back wages and separation pay of the latter’s employees is when there is
proof that the principal conspired with the independent contractor or subcontractor in the
illegal dismissal of the employees.

o In the present case – no allegation or proof that the MIESCOR conspired with OPLGS in
the illegal dismissal of the latter’s employees; hence, it cannot be held liable for the
same.
 Liability for the separation pay of the complainants be extended to the petitioner based on
contract.

o The contract has no provision for separation pay if MIESCOR terminates the same.
Hence, if the contract does not provide for such a liability, this Court cannot just read
the same into the contract without possibly violating the intention of the parties.

 SC conforms to the consistent findings that the MIESCOR is solidarily liable with OPLGS for the
judgment awards for underpayment of wages and non-payment of overtime pay.

 OPLGS had already posted a surety bond sufficient to cover all the judgment awards.

o The joint and several liability of the principal with the contractor were enacted to
ensure compliance with the LC’s provisions, principally those on statutory minimum
wage. This guarantees payment of the workers’ compensation.

o It will be futile to continuously hold the petitioner jointly and severally liable with
the private respondents for the judgment awards for underpayment of wages and
non-payment of overtime pay.

 OPLGS have nothing more to recover from MIESCOR.

o MIESCOR had already handed over the wages and other benefits of the
complainants. They also complied with the salary increases in accordance with the
minimum wage set by Republic Act No. 6727.

o It was OPLGS who failed to turn them over to the complainants thus they should now
solely bear the liability for the underpayment of wages and non-payment of the
overtime pay.

RULING: WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The
Decision and Resolution of the Court of Appeals dated 24 April 2000 and 27 September 2000,
respectively, in CA-G.R. SP No. 50806, are hereby REVERSED AND SET ASIDE. The Decision dated
30 January 1996 of the National Labor Relations Commission in NLRC NCR CA No. 001737-91
(NLRC NCR Case No. 00-09-04432-89) is hereby REINSTATED. No costs.
Cagayan Sugar Milling Company (CARSUMCO)

vs.

Secretary of Labor and Employment, Director Ricardo S. Martinez, Sr., and

CARSUMCO Employees Union

G.R. No. 128399

January 15, 1998

PUNO, J.:

Facts:

On November 16, 1993, Regional Wage Order No. RO2-02 was issued by the Regional
Tripartite Wage and Productivity Board (RTWPB) of the Department of Labor and
Employment (DOLE). 

On September 12 and 13, 1994, labor inspectors from the DOLE Regional Office examined
the books of the petitioner CARSUMCO to determine its compliance with the wage order
and found that it did not implement an across the board increase in the salary of its
employees. At the hearing for the alleged violation, CARSUMCO maintained that it paid the
mandated increase in the minimum wage. In an Order dated December 16, 1994, the public
respondent Regional Director Ricardo S. Martinez, Sr. ordered CARSUMCO to pay the
deficiency in the salary of its employees in the total amount of P555,133.41.

On January 6, 1995, CARSUMCO appealed to the public respondent Labor Secretary

Leonardo A. Quisumbing. On October 8, 1996, Quisumbing dismissed the appeal, affirmed
the Order and denied the motion for reconsideration. On February 12, 1997, the private
respondent CARSUMCO Employees Union moved for execution of the December 16, 1994
Order.  Martinez, Sr. granted the motion and issued the writ of execution. On March 4,
1997, CARSUMCO moved for reconsideration to set aside the writ. On March 5, the DOLE
regional sheriff served on CARSUMCO a notice of garnishment of its account with the Far
East Bank and Trust Company. On March 10, the sheriff seized petitioner's dump truck and
scheduled its public sale on March 20, 1997.

The Court issued a temporary restraining order (TRO) enjoining the respondents from
enforcing and conducting further proceedings until further orders.

Issues:

Whether or not the Wage Order is null and void for having been issued in violation
of the procedure provided by law and of the petitioner's right to due process of law
Whether or not the Wage Order clearly provided for the fixing of a statutory minimum
wage rate, not an across the board increase in wages

Ruling:

Wage Order No. RO2-02, passed on November 16, 1993, provided for an increase in the
statutory minimum wage rates for Region II. More than a year later, or on January 6, 1995,
the Regional Board passed Wage Order RO2-02-A amending the earlier wage order and
providing instead for an across the board increase in wages of employees in Region
II, retroactive to the date of effectivity of Wage Order RO2-02.

CARSUMCO assails the validity of Wage Order RO2-02-A on the ground that it was passed
without the required public consultation and newspaper publication. 

Article 123 of the Labor Code provides:

"ART. 123. Wage Order. Whenever conditions in the region so warrant, the Regional Board
shall investigate and study all pertinent facts, and, based on the standards and criteria herein
prescribed, shall proceed to determine whether a Wage Order should be issued.  Any such
Wage Order shall take effect after fifteen (15) days from its complete publication in at least
one (1) newspaper of general circulation in the region. In the performance of its wage-
determining functions, the Regional Board shall conduct public hearings/consultations,
giving notices to employees' and employers' groups and other interested parties. x x x"

The record shows that there was no prior public hearings/consultations and newspaper
publication insofar as Wage Order No. RO2-02-A is concerned. In fact, these allegations
were not denied by the public respondents in their Comment. Their position is that there
was no need to comply with the legal requirements as Wage Order No. RO2-02-A merely
clarified the ambiguous provision of the original wage order.

FACTS: Cagayan Sugar Milling, Co. violated the wage order issued by the RTWPB, having failed to
implement the across the board increase in the salary of its employees. Another wage
order was issued, amending the earlier wage order and providing that the across the board wage
increase shall retroact to the date of the effectivity of the earlier wage order.

ISSUE: WON the amendatory wage order violated CSMC’s right to due process.

HELD: YES. The amendatory wage order was invalid for lack of public consultations and hearings
andnon- publication in a newspaper of general circulation, in violation of the Labor Code. CSMC was
deprived of due process as it was not given the opportunity to ventilate itsposition regardingthe
proposed wage increase.
SALARY-CEILING METHOD

EMPLOYERS CONFEDERATION OF THE PHILIPPINES, petitioner,

vs.

NATIONAL WAGES AND PRODUCTIVITY COMMISSION AND REGIONAL TRIPARTITE WAGES

AND PRODUCTIVITY BOARD-NCR, TRADE UNION CONGRESS OF THE PHILIPPINES,
respondents.

J. SARMIENTO; September 24, 1991

FACTS

 On October 15, 1990, the Regional Board of NCR issued Wage Order No. NCR-01, increasing the
minimum wage by P17 daily.
 The Trade Union Congress of the Philippines (TUCP) and Personnel Management Association of
the Philippines (PMAP) moved for reconsideration. Petitioner Employers Confederation of the
Philippines (ECOP) opposed.
 Board then issued Wage Order No. NCR-01-A, amending the wage order by stating that all
workers and employees in the private sector already receiving wages above the statutory
minimum wage rates up to P125 per day shall also receive the P17 daily increase.
 Petitioner ECOP appealed to respondent National Wages and Productivity Commission (NWPC).
 NWPC: Appeal dismissed for lack of merit.
 Motion for reconsideration denied. Hence, this petition.

ISSUE:
Whether or not respondent NWPC committed grave abuse of discretion. NO.

REASONING:

Petitioner says

 Wage Order No. NCR-01-A is an excess of authority as under RA 6727, the boards may only
prescribe “minimum wages”, not determine “salary ceilings”.
 RA 6727 is meant to promote collective bargaining as the primary mode of settling wages,
so boards cannot preempt CBAs by establishing ceilings
 Boards may only adjust floor wages

Solicitor-General (for NWPC) comments

  The across-the-board hike did not “grant additional or other benefits to workers and
employees, but rather fixed minimum wages according to the salary-ceiling method”
 RA 6727 is to correct “wage distortions” and the salary-ceiling method does just that

Court rules

The Court is inclined to agree with the Government.

The NWPC noted that the determination of wages involved 2 methods: the floor-wage method and
the salary-ceiling method.

Floor-wage method- involves the fixing of a determinate amount that would be added to the
prevailing statutory minimum wage

-adopted in earlier wage orders

Salary-ceiling method- wage adjustment is applied to employees receiving a certain denominated

salary ceiling

-used in RAs 6640 and 6727 as well as 11 COLA issuances

The shift is due to the labor disputes arising from wage distortions.

RA 6727 was intended to rationalize wages.

This is done by:

1. providing full-time boards to police wages round-the-clock

2. giving the boards enough power to achieve this objective
SO, if RA 6727 only intended boards to set floor wages only, the Act would not need a board but
only an accountant to keep track of the latest consumer price index or have Congress do it when the
need arises.

The Board did not perform an unlawful act of legislation.

Congress may delegate he power to fix rates, provided that it leaves sufficient standards. RA 6727
gave statutory standards for fixing the minimum wage.

ART. 124. Standards/Criteria for Minimum Wage Fixing — The regional minimum wages to be
established by the Regional Board shall be as nearly adequate as is economically feasible to
maintain the minimum standards of living necessary for the health, efficiency and general well-
being of the employees within the framework of the national economic and social development
program. In the determination of such regional minimum wages, the Regional Board shall, among
other relevant factors, consider the following:

(a) The demand for living wages;

(b) Wage adjustment vis-a-vis the consumer price index;

(c) The cost of living and changes or increases therein;

(d) The needs of workers and their families;

(e) The need to induce industries to invest in the countryside;

(f) Improvements in standards of living;

(g) The prevailing wage levels;

(h) Fair return of the capital invested and capacity to pay of employers;

(i) Effects of employment generation and family income; and

(j) The equitable distribution of income and wealth along the imperatives of economic and
social development."

The wage order was not acted in excess of board’s authority. The law gave reasonable limitations to
the delegated power of the board.

ECOP is of the mistaken impression that RA 6727 leaves labor and management alone to
decide wages.

The Court does not believe RA 6727 is meant to deregulate the relation between labor and capital
for several reasons:

1. The Constitution calls upon the State to protect labor

2. The Constitution calls upon the State to intervene when the common goal so demands I
regulating property and property relations
3. The Charter urges Congress to diffuse the wealth of the nation and regulate the use of
property
4. The Charter recognizes the just share of labor in the fruits of production
5. Under the LC, the State shall regulate the relations between labor and management
6. Under RA 6727, the State is interested in seeing that workers receive fair and equitable
wages
7. The Constitution is primarily a document of Social Justice and has not fully embraced the
concept of laissez-faire
Court cannot give an Act a meaning that will conflict with these basic principles.

The concept of minimum wage is more than setting of a floor wage to upgrade existing wages as
ECOP believes.

Minimum wages underlies the rationales of RA 6727 and the Constitution.

The salary-cap method serves the purposes of RA 6727. Whether or not it is a permanent policy of
the Board s a question we may only speculate. At the moment, it is a reasonable policy.

Dispositive: Petition denied.

Issue:

The main issue in this case is whether Wage Order No. NCR-01-A providing for new wage rates, as
well as authorizing various Regional Tripartite Wages and Productivity Boards to prescribe
minimum wage rates for all workers in the various regions, and for a National Wages and
Productivity Commission to review, among other functions, wage levels determined by the boards
is valid.

Ruling:

The Supreme Court ruled in favor of the National Wages and Productivity Commission and Regional
Tripartite Wages and Productivity Board-NCR, Trade Union Congress of the Philippines and denied
the petition of ECOP.

The Supreme Court held that Republic Act No. 6727 was intended to rationalize wages, first, by
providing for full-time boards to police wages round-the-clock, and second, by giving the boards
enough powers to achieve this objective. The Court is of the opinion that Congress meant the
boards to be creative in resolving the annual question of wages without labor and management
knocking on the legislature's door at every turn.

The Court's opinion is that if Republic No. 6727 intended the boards alone to set floor wages, the
Act would have no need for a board but an accountant to keep track of the latest consumer price
index, or better, would have Congress done it as the need arises, as the legislature, prior to the Act,
has done so for years. The fact of the matter is that the Act sought a "thinking" group of men and
women bound by statutory standards. The Court is not convinced that the Regional Board of the
National Capital Region, in decreeing an across-the-board hike, performed an unlawful act of
legislation. It is true that wage-firing, like rate-fixing, constitutes an act Congress; it is also true,
however, that Congress may delegate the power to fix rates provided that, as in all delegations
cases, Congress leaves sufficient standards. As this Court has indicated, it is impressed that the
above-quoted standards are sufficient, and in the light of the floor-wage method's failure, the Court
believes that the Commission correctly upheld the Regional Board of the National Capital Region.
19. APEX MINING CO., INC. versus NLRC

FACTS:
 Private respondent Sinclita Candida was employed by petitioner Apex Mining Company, Inc
to perform laundry services at its staff house.
 On December 18, 1987, while she was attending to her assigned task and she was hanging
her laundry, she accidentally slipped and hit her back on a stone. As a result of the accident
she was not able to continue with her work. She was permitted to go on leave for
medication.
 De la Rosa offered her the amount of P 2,000.00 which was eventually increased to
P5,000.00 to persuade her to quit her job, but she refused the offer and preferred to return
to work.
 Petitioner did not allow her to return to work and dismissed her on February 4, 1988.
 Private respondent filed a request for assistance with the Department of Labor and
Employment, which the latter rendered its Decision by ordering the Apex Mining Co. to pay
Candida the total amount of P55,161.42 for salary differential, emergency living allowance,
13th month pay differential and separation pay.
 Petitioner appealed the case before the NLRC, which was subsequently dismissed for lack of
merit.

ISSUE:
 Whether or not the private respondent should be treated as househelper or domestic
servant or a regular employee.

HELD:
 Under Rule XIII, Section l(b), Book 3 of the Labor Code, as amended, the term "househelper"
as used herein is synonymous to the term "domestic servant" and shall refer to any person,
whether male or female, who renders services in and about the employer's home and which
services are usually necessary or desirable for the maintenance and enjoyment thereof, and
ministers exclusively to the personal comfort and enjoyment of the employer's family.
 The definition cannot be interpreted to include househelper or laundrywomen working in
staffhouses of a company, like private respondent who attends to the needs of the
company's guest and other persons availing of said facilities.
 The mere fact that the househelper or domestic servant is working within the premises of
the business of the employer and in relation to or in connection with its business, as in its
staffhouses for its guest or even for its officers and employees, warrants the conclusion that
such househelper or domestic servant is and should be considered as a regular employee.

WHEREFORE, the petition is DISMISSED and the appealed decision and resolution of public
respondent NLRC are hereby AFFIRMED. No pronouncement as to costs
G.R. No. 102636 September 10, 1993

METROPOLITAN BANK & TRUST COMPANY EMPLOYEES UNION-ALU-TUCP and ANTONIO V.

BALINANG, petitioners, 
vs.
NATIONAL LABOR RELATIONS COMMISSION (2nd Division) and METROPOLITAN BANK and
TRUST COMPANY, respondents.

Facts:

On 25 May 1989, the Metropolitan Bank & Trust Company entered into a collective bargaining
agreement with the Metropolitan Bank & Trust Company Employees Union MBTCEU, granting a
monthly P900 wage increase effective 01 January 1989. With the exclusion of the probationary
employees.

Republic Act 6727 was enacted "an act to rationalize wage policy determination be establishing the
mechanism and proper standards thereof, . . . fixing new wage rates, providing wage incentives for
industrial dispersal to the countryside, and for other purposes," took effect which provides for the
agricultural or non-agricultural employees salary, be increased by twenty-five pesos (P25) per
day, . . .: Provided, That those already receiving above the minimum wage rates up to one hundred
pesos(P100.00) shall shall also receive an increase of twenty-five pesos (P25.00) per day, . . .

Pursuant to the above provisions, the bank gave the P25 increase per day, or P750 a month, to its
probationary employees and to those who had been promoted to regular or permanent status
before 01 July 1989 but whose daily rate was P100 and below. The bank refused to give the same
increase to its regular employees who were receiving more than P100 per day and recipients of the
P900 CBA increase.

Contending that the bank's implementation of Republic Act 6727 resulted in the categorization of
the employees into (a) the probationary employees as of 30 June 1989 and regular employees
receiving P100 or less a day who had been promoted to permanent or regular status before 01 July
1989, and (b) the regular employees as of 01 July 1989, whose pay was over P100 a day, and that,
between the two groups, there emerged a substantially reduced salary gap.

The Union sought from the bank the correction of the alleged distortion in pay by granting 750
increase in regular employees with above 100 pay and reciepient of 900 CBA increase. To avoid
strike the bank petitioned the secretary of Labor to assume jurisdiction, then assigned to Labor
Arbiter for arbitration.

The Labor arbiter sided with the Union, that such salary increase resulted in the severe contraction
of an intentional quantitative difference in wage between employee groups. The bank appealed to
the NLRC, and the NLRC reversed the decision of the Labor Arbiter in favour of Metrobank and
Trust Company.

Issue:

Whether there has been a wage distortion, and a need to grant the increase 750 to regular
employees receiving above 100 peso per day.
Ruling:

There has been a wage distortion. However it is not conductive to grant the increase of P750 to
regular employees receiving above 100 peso per day.

The term "wage distortion", under the Rules Implementing Republic Act 6727, is defined, thus:

(p) Wage Distortion means a situation where an increase in prescribed wage rates results in the
elimination or severe contradiction of intentional quantitative differences in wage or salary rates
between and among employee groups in an establishment as to effectively obliterate the
distinctions embodied in such wage structure based on skills, length of service, or other logical
bases of differentiation.

The definition of "wage distortion," 10 aforequoted, shows that such distortion can so exist when, as
a result of an increase in the prescribed wage rate, an "elimination or severe contraction of
intentional quantitative differences in wage or salary rates" would occur "between and among
employee groups in an establishment as to effectively obliterate the distinctions embodied in such
wage structure based on skills, length of service, or other logical bases of differentiation." In
mandating an adjustment, the law did not require that there be an elimination or total abrogation of
quantitative wage or salary differences; a severe contraction thereof is enough.

We find the formula suggested then by Commissioner Bonto-Perez, which has also been the
standard considered by the regional Tripartite Wages and Productivity Commission for the
correction of pay scale structures in cases of wage distortion, 15 to well be the appropriate measure
to balance the respective contentions of the parties in this instance. We also view it as being just
and equitable.

Minimum Wage = % x Prescribed = Distortion

—————— Increased Adjustment

Actual Salary
PEOPLE'S BROADCASTING (BOMBO RADYO PHILS., INC.) vs. THE SECRETARY OF
DOLE, THE REGIONAL DIRECTOR (DOLE REGION VII), and JUEZAN
[G.R. NO. 179652 : May 8, 2009] TINGA, J.

DOCTRINE: DOLE's prerogative hinges on the existence of employer-employee

relationship. If no EER exists, it is under the NLRC’s jurisdiction.

FACTS:
Jandeleon Juezan filed a complaint against People's Broadcasting Service, Inc. (Bombo
Radyo) for illegal deduction, non-payment of service incentive leave, 13th month pay,
premium pay for holiday and rest day and illegal diminution of benefits, delayed payment
of wages and non-coverage of SSS, PAG-IBIG and Philhealth before the DOLE Regional
Office, Cebu City. 

During the preliminary investigation, the management informed that complainant is a

drama talent hired on a per drama " participation basis" hence no employer-employee
relationship existed between them. They do not have control over the talent if they decide
to venture into another contract with other broadcasting industries.

DOLE Regional Director ruled that Juezan is an employee of Bombo Radyo, and that the
former is entitled to his money claims amounting to P203,726.30. On appeal to the DOLE
Secretary, Bombo Radyo denied once more the existence of employer-employee
relationship. Appeal dismissed.

On appeal to the CA, Bombo Radyo maintained that there is no employer-employee

relationship had ever existed because it was the drama directors and producers who paid,
supervised and disciplined Juezan. It also added that the case was beyond the jurisdiction
of the DOLE and should have been considered by the labor arbiter because the claim
exceeded P5,000.00.
CA: dismissed. DOLE Secretary had jurisdiction.

BOMBO RADYO:
1. NLRC, and not the DOLE Secretary, has jurisdiction over Juezan's claim, in view of
Articles 217 and 128 of the Labor Code.
2. NO employer-employee relationship had ever existed

JUEZAN:
1. Under RA 7730, the jurisdiction of the SOLE or his duly authorized representative is
not anymore confined to the restrictions on the amount of the claims stated in Article 129
and 217 of the Labor Code.
2. Employer-employee relationship exists

ISSUES:
1. WON the Secretary of Labor have the power (or jurisdiction) to determine the
existence of an employer-employee relationship (EER)?
2. WON the Secretary of Labor still has the power (or jurisdiction) to hear the case if
NO EER exists?

RULING:
Extent of the visitorial and enforcement power of the DOLE
Article 128 (b) of the Labor Code, as amended by Republic Act 7730:
Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in
cases where the relationship of employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have the power to issue
compliance orders to give effect to the labor standards provisions of this Code and other
labor legislation based on the findings of labor employment and enforcement officers or
industrial safety engineers made in the course of inspection.

The clause "in cases where the relationship of employer-employee still exists" signifies that
the employer-employee relationship must have existed even before the emergence of the
controversy.
Necessarily, the DOLE's power does not apply in two instances, namely:
(a) where the employer-employee relationship has ceased; and
(b) where no such relationship has ever existed.

The first situation is categorically covered by Sec. 3, Rule 11 of the Rules on the Disposition
of Labor Standards Cases issued by the DOLE Secretary.
Accordingly, if on the face of the complaint, it can be ascertained that employer-employee
relationship no longer exists, the case, whether accompanied by an allegation of illegal
dismissal, shall immediately be endorsed by the Regional Director to the appropriate
branch of the National Labor Relations Commission (NLRC).

Clearly the law accords a prerogative to the NLRC over the claim when the EER has
terminated or such relationship has not arisen at all. The reason is obvious. In the second
situation especially, the existence of an EER is a matter which is not easily determinable
from an ordinary inspection, necessarily so, because the elements of such a relationship are
not verifiable from a mere ocular examination. The intricacies and implications of an EER
demand that the level of scrutiny should be far above the cursory and the mechanical.
While documents, particularly documents found in the employer's office are the primary
source materials, what may prove decisive are factors related to the history of the
employer's business operations, its current state as well as accepted contemporary
practices in the industry. More often than not, the question of EER becomes a battle of
evidence, the determination of which should be comprehensive and intensive and therefore
best left to the specialized quasi-judicial body that is the NLRC.

It can be assumed that the DOLE in the exercise of its visitorial and enforcement power
somehow has to make a determination of the existence of an EER. Such prerogatival
determination, however, cannot be coextensive with the visitorial and enforcement power
itself. Indeed, such determination is merely preliminary, incidental and collateral to the
DOLE's primary function of enforcing labor standards provisions. The determination of the
existence of EER is still primarily lodged with the NLRC. Thus, before the DOLE may
exercise its powers under Article 128, two important questions must be resolved:
(1) Does the employer-employee relationship still exist, or alternatively, was there ever an
employer-employee relationship to speak of; and
(2) Are there violations of the Labor Code or any labor law?

The actual existence of an employer-employee relationship affects the complexion of the

putative findings that the Secretary of Labor may determine, since employees are entitled
to a different set of rights under the Labor Code from the employer as opposed to non-
employees. If there is no EER in the first place, the duty of the employer to adhere to those
labor standards with respect to the non-employees is questionable.

A mere assertion of absence of EER does not deprive the DOLE of jurisdiction over the
claim under Article 128 of the Labor Code. At least a prima facie showing of such absence of
relationship, as in this case, is needed to preclude the DOLE from the exercise of its power.
The Secretary of Labor would not have been precluded from exercising the powers under
Article 128 (b) over Bombo Radyo if another person with better-grounded claim of
employment than that which Juezan had. Juezan, especially if he were an employee, could
have very well enjoined other employees to complain with the DOLE, and, at the same time,
Bombo Radyo could ill-afford to disclaim an employment relationship with all of the people
under its aegis.

Without a doubt, Bombo Radyo, since the inception of this case had been consistent in
maintaining that Juezan is not its employee. Certainly, after the investigation and based on
the evidence offered, puts in genuine doubt the existence of employer-employee
relationship. From that point on, the prudent recourse on the part of the DOLE should have
been to refer Bombo Radyo to the NLRC for the proper dispensation of his claims.
Furthermore, the evidence presented by Juezan were self-serving and negates the existence
of an EER. The requirement of “substantial evidence” as the quantum of proof was not met
by Juezan.

Lastly, Bombo Radyo’s appeal should not have been dismissed based on the lack of security
bond. The Deed of Assignment in tandem with the Letter Agreement and Cash Voucher is as
good as cash and were done in good faith. It manifested petitioner's willingness to pay the
judgment amount.

Petition GRANTED. NO Employer-Employee Relations exists.

RESOLUTION
MARCH 6, 2012

SAME FACTS. But this was considered as a second motion for reconsideration before the
SC.
ISSUE:
May the DOLE make a determination of whether or not an employer-employee relationship
exists? YES.

RULING:
No limitation in the law was placed upon the power of the DOLE to determine the existence
of an employer-employee relationship. No procedure was laid down where the DOLE
would only make a preliminary finding, that the power was primarily held by the
NLRC. The law did not say that the DOLE would first seek the NLRC’s determination of the
existence of an employer-employee relationship, or that should the existence of the
employer-employee relationship be disputed, the DOLE would refer the matter to the
NLRC. The DOLE must have the power to determine whether or not an employer-employee
relationship exists, and from there to decide whether or not to issue compliance orders in
accordance with Art. 128(b) of the Labor Code, as amended by RA 7730.
 
The DOLE, in determining the existence of an employer-employee relationship, has a ready
set of guidelines to follow, the same guide the courts themselves use. The elements to
determine the existence of an employment relationship are: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; (4) the
employers power to control the employees conduct. The use of this test is not solely limited
to the NLRC. The DOLE Secretary, or his or her representatives, can utilize the same test,
even in the course of inspection, making use of the same evidence that would have been
presented before the NLRC.
 
If the DOLE makes a finding that there is an existing employer-employee relationship, it
takes cognizance of the matter, to the exclusion of the NLRC. The DOLE would have no
jurisdiction only if the employer-employee relationship has already been terminated, or it
appears, upon review, that no employer-employee relationship existed in the first place.
 
The Court, in limiting the power of the DOLE, gave the rationale that such limitation would
eliminate the prospect of competing conclusions between the DOLE and the NLRC. The
prospect of competing conclusions could just as well have been eliminated by according
respect to the DOLE findings, to the exclusion of the NLRC.
 
It must also be remembered that the power of the DOLE to determine the existence of an
employer-employee relationship need not necessarily result in an affirmative finding. The
DOLE may well make the determination that no employer-employee relationship exists,
thus divesting itself of jurisdiction over the case. It must not be precluded from being able
to reach its own conclusions, not by the parties, and certainly not by this Court.
 
Under Art. 128(b) of the Labor Code, as amended by RA 7730, the DOLE is fully empowered
to make a determination as to the existence of an employer-employee relationship in the
exercise of its visitorial and enforcement power, subject to judicial review, not review by
the NLRC.
  
 To recapitulate, if a complaint is brought before the DOLE to give effect to the labor
standards provisions of the Labor Code or other labor legislation, and there is a finding by
the DOLE that there is an existing employer-employee relationship, the DOLE exercises
jurisdiction to the exclusion of the NLRC. If the DOLE finds that there is no employer-
employee relationship, the jurisdiction is properly with the NLRC. If a complaint is filed
with the DOLE, and it is accompanied by a claim for reinstatement, the jurisdiction is
properly with the Labor Arbiter, under Art. 217(3) of the Labor Code, which provides that
the Labor Arbiter has original and exclusive jurisdiction over those cases involving wages,
rates of pay, hours of work, and other terms and conditions of employment, if accompanied
by a claim for reinstatement. If a complaint is filed with the NLRC, and there is still an
existing employer-employee relationship, the jurisdiction is properly with the DOLE. The
findings of the DOLE, however, may still be questioned through a petition for certiorari
under Rule 65 of the Rules of Court.
 
In the present case, the finding of the DOLE Regional Director that there was an employer-
employee relationship has been subjected to review by this Court, with the finding being
that there was no employer-employee relationship between petitioner and private
respondent, based on the evidence presented. Private respondent presented self-serving
allegations as well as self-defeating evidence. The findings of the Regional Director were
not based on substantial evidence, and private respondent failed to prove the existence of
an employer-employee relationship. The DOLE had no jurisdiction over the case, as there
was no employer-employee relationship present. Thus, the dismissal of the complaint
against petitioner is proper.
 
Above ruling AFFIRMED, with the MODIFICATION that in the exercise of the DOLEs
visitorial and enforcement power, the Labor Secretary or the latters authorized
representative shall have the power to determine the existence of an employer-employee
relationship, to the exclusion of the NLRC.

2. GEORGE A. ARRIOLA vs. PILIPINO STAR NGAYON, INC. and/or MIGUEL G. BELMONTE
G.R. No. 175689. August 13, 2014.*

Money claims, such as backwages, consequent to an illegal dismissal case: covered by

Article 1146 of the Civil Code

DOCTRINES:
 A columnist whose column is removed by the newspaper from publication is not
ipso facto terminated from work by the newspaper company.
 Money claims arising from employer-employee relationship: covered by Article 291
of the Labor Code.
 Article 491 of the Labor Code does not cover “money claims” consequent to an
illegal dismissal such as backwages. It also does not cover claims for damages due to illegal
dismissal. These claims are governed by Article 1146 of the Civil Code of the Philippines
(CCP).
FACTS:
George Arriola was a column writer for the newspaper Pilipino Star Ngayon, Inc. since
1986. His column thereat was “Tinig ng Pamilyang OFWs”.
On November 15, 2002, he filed a case for illegal dismissal against Pilipino Star as he
averred that on November 15, 1999, he was arbitrarily dismissed when his column was
removed from publication by Pilipino Star.
In its defense, Pilipino Star argued that they never removed Arriola; that it was Arriola who
abandoned his work because he went on to write for a rival newpaper, Imbestigador.
The labor arbiter ruled in favor of Pilipino Star. The labor arbiter held that Arriola’s case
was filed out of time as it was filed three years and one day from the date he was allegedly
illegally dismissed. The labor arbiter cited Art. 291 of the Labor Code:
Art. 291. MONEY CLAIMS. All money claims arising from employer-employee relations
accruing during the effectivity of this Code shall be filed within three (3) years from the
time the cause of action accrued; otherwise they shall be forever barred.

ISSUE: Whether or not Arriola’s suit involves a money claim contemplated by Art. 291 of
the Labor Code.

HELD: 
No. Art. 291 of the Labor Code only covers the following claims:
1. overtime pay,
2. holiday pay,
3. service incentive leave pay,
4. bonuses,
5. salary differentials,
6. illegal deductions by an employer, and
7. money claims arising from seafarer contracts.

It does not cover “money claims” consequent to an illegal dismissal such as backwages. It
also does not cover claims for damages due to illegal dismissal. These claims are governed
by Article 1146 of the Civil Code of the Philippines, which provides:

Art. 1146. The following actions must be instituted within four years:
(1) Upon injury to the rights of the plaintiff... xxx
Further, in an illegal dismissal case, the claim for backwages, the money claim, is just but
one of the reliefs that an employee prays before the arbiter.
As such, Arriola’s claim for backwages is still filed within the prescriptive period of four
years.
However, Arriola’s case must still be dismissed because it was established that he in fact
abandoned his work. In the first place, it is a newspaper’s prerogative whether or not to
remove a particular column from publication. The removal of a certain column does
not ipso facto mean the removal of the columnist. That being, Arriola should have reported
to work even if his column was removed.