[1]

G.R. No. 111501. March 5, 1996. *

PHILIPPINE FUJI XEROX CORPORATION, JENNIFER A. BERNARDO, and ATTY.

VICTORINO LUIS, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION
(First Division), PAMBANSANG KILUSAN NG PAGGAWA, (KILUSAN)-TUCP,
PHILIPPINE XEROX EMPLOYEES UNION-KILUSAN and PEDRO GARADO,
respondents.
Labor Law; Employer-Employee Relationship; Labor-Only Contracting; Security of
Tenure; Employment of workers provided by a “labor-only contractor” to a client under six-month
contracts which are later extended indefinitely through renewals is nothing but a crude attempt to
circumvent the law and undermine the security of tenure of such employees.—Private respondent
was made to understand that he was an employee of Skillpower, Inc., and not of the client to which
he was assigned. Therefore, the termination of the contract or any renewal or extension thereof did
not entitle him to become an employee of the client and the latter was not under any obligation to
appoint him as such, “notwithstanding the total duration of the contract or any extension or renewal
thereof.” This is nothing but a crude attempt to circumvent the law and undermine the security of
tenure of private respondent by employing workers under six-month contracts which are later
extended indefinitely through renewals.

Same; Same; Same; Same; The determination of the existence of an employer-employee

relationship is defined by law according to the facts of each case, regardless of the nature of the
activities involved.—It is wrong to say that if a task is not directly related to the employer’s
business, or it falls under what may be considered “house-keeping activities,” the one performing
the task is a job contractor. The determination of the existence of an employer-employee
relationship is defined by law according to the facts of each case, regardless of the nature of the
activities involved.

Same; Same; Same; Same; Words and Phrases; 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” clearly contemplates tools, equipment, etc., which are directly related to the service a job
contractor is being contracted to render.—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.

Same; Same; Same; Same; 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.—
In Tabas v. California Manufacturing Company, Inc., 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.

Page 1 of 71
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.

     Siguion Reyna, Montecillo & Ongsiako for petitioners.
     Michael P. Moralde for private respondents.

MENDOZA, J.:

This is a petition for certiorari to set aside the decision of the NLRC, finding petitioner
Philippine Fuji Xerox Corporation (Fuji Xerox) guilty of illegally dismissing private
respondent Pedro Garado and ordering him reinstated. The NLRC decision reverses on
appeal a decision of the Labor Arbiter finding private respondent to be an employee of
another firm, the Skillpower, Inc., and not of petitioner Fuji Xerox.
The question raised in this case is whether private respondent is an employee of Fuji
Xerox (as the NLRC found) or of Skillpower, Inc. (as the Labor Arbiter found). For reasons
to be hereafter explained, we hold that private respondent is an employee of Fuji Xerox and
accordingly dismiss the petition for certiorari of Fuji Xerox.

The following are the facts.

On May 6, 1977, 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 branch at Buendia, Makati, Metro Manila, in
February of 1980.
In February of 1983, Garado went on leave and his place was taken over by a substitute.
Upon his return in March, he discovered that there was a spoilage of over 600 copies.
Afraid that he might be blamed for the spoilage, he tried to talk a service technician of Fuji
Xerox into stopping the meter of the machine.
The technician refused Garado’s request, but this incident came to the knowledge of Fuji
Xerox which, on May 31, 1983, reported the matter to Skillpower, Inc. The next day,
Skillpower, Inc. wrote Garado, ordering him to explain. In the meantime, it suspended him
from work. Garado filed a complaint for illegal dismissal.

-LABOR ARBITER-
Wages from Fuji but control remained with Skillpower and it had substantial capital
investment.
The Labor Arbiter found that Garado applied for work to Skillpower, Inc.; that in 1980
he was employed and made to sign a contract; that although he received his salaries
regularly from Fuji Xerox, it was Skillpower, Inc. which exercised control and supervision
over his work; that Skillpower, Inc. had substantial capital and investments in machinery,
equipment, and service vehicles, and assets totalling P5,008,812.43. On the basis of these
findings the Labor Arbiter held in a decision rendered on October 30, 1986 that Garado was
an employee of Skillpower, Inc., and that he had merely been assigned by Skillpower, Inc.
to Fuji Xerox. Hence, the Labor Arbiter dismissed Garado’s complaint.

-NLRC- Garado was illegally dismissed. Contract between Fuji and Skillpower is a
labor-only contract thus Garado became the employee of fuhi. .

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 The copier machines belonged to Fuji. Control and supervision was exercised by
Fuji. Wages were paid by fuji.

On the other hand, the NLRC found Garado to be in fact an employee of petitioner Fuji
Xerox and by it to have been illegally dismissed. The NLRC found that although Garado’s
request was wrongful, dismissal would be a disproportionate penalty. The 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. The NLRC found that Garado worked under the control and supervision of Fuji
Xerox, which paid his salaries, and that Skillpower, Inc. merely acted as paymaster-agent of
Fuji Xerox. The NLRC held that Skillpower, 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, Inc. Accordingly, the NLRC ordered:
WHEREFORE, premises considered, the respondents are hereby ordered to immediately reinstate
complainant Pedro Garado to his former position as key operator with three (3) years back-wages,
without qualification or reduction whatsoever . . . . Except as herein above MODIFIED, the
appealed decision is hereby Affirmed.
ISSUE: W/N GARADO IS AN EMPLOYEE OF FUJI
HELD: AFFIRMATIVE. The contract entered into by Fuji and Skillpower was a “labor-only”
contract.
Argument of Petitioner:
Hence the present petition. Fuji Xerox argues that Skill-power, Inc. is an independent
contractor and that Garado is its employee for the following reasons:

1. (1)Garado was recruited by Skillpower, Inc.;

2. (2)The work done by Garado was not necessary to the conduct of the
business of Fuji Xerox;
3. (3)Garado’s salaries and benefits were paid directly by Skill-power, Inc.;
4. (4)Garado worked under the control of Skillpower, Inc.; and
5. (5)Skillpower, Inc. is a highly-capitalized business venture.

The contentions are without merit.

Fuji Xerox contends that Garado was actually recruited by Skillpower, Inc. as part of its
personnel pool and later merely assigned to it (petitioner). It is undisputed, however, that
since 1980,  when Garado was first assigned to work at Fuji Xerox, he had never been
1

assigned to any other company so much so that by 1984, he was already a member of the
union which petitioned the company for his regularization.  From 1980 to 1984 he worked
2

exclusively for petitioner. Indeed, he was recruited by Skillpower, Inc. solely for
assignment to Fuji Xerox to work in the latter’s Xerox Copier Project. 3

Petitioners claim that Skillpower, Inc. has other clients to whom it provided “temporary”
services. That, however, is irrelevant. What is important is that once employed, Garado was

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never assigned to any other client of Skillpower, Inc. In fact, although under the agreement
Skillpower, Inc. was supposed to provide only “temporary” services, Skillpower, Inc.
actually supplied Fuji Xerox the labor which the latter needed for its Xerox Copier Project
for seven (7) years, from 1977 to 1984.
On January 1, 1983, private respondent signed a contract entitled “Appointment as
Contract Worker,” in which it was stated that private respondent’s status was that of a
contract worker for a definite period from January 1, 1983 to June 30, 1983. As such,
private respondent’s employment was considered temporary, to terminate automatically six
(6) months afterwards, without necessity of any notice and without entitling private
respondent to separation or termination pay. Private respondent was made to understand
that he was an employee of Skillpower, Inc., and not of the client to which he was assigned.
Therefore, the termination of the contract or any renewal or extension thereof did not entitle
him to become an employee of the client and the latter was not under any obligation to
appoint him as such, “notwithstanding the total duration of the contract or any extension or
renewal thereof.”

This is nothing but a crude attempt to circumvent the law and undermine the security of
tenure of private respondent by employing workers under six-month contracts which are
later extended indefinitely through renewals. As this Court held in the Philippine Bank of
Communications v. NLRC: 4

It is not difficult to see that to uphold the contractual arrangement between the bank and CESI
would in effect be to permit employers to avoid the necessity of hiring regular or permanent
employees and to enable them to keep their employees indefinitely on a temporary or casual status,
thus to deny them security of tenure in their jobs. Article 106 of the Labor Code is precisely
designed to prevent such a result.
Second. Petitioner contends that the service provided by Skillpower, Inc., namely, operating
petitioners’ xerox machine, is not directly related nor necessary to the business of selling
and leasing copier machines of petitioner. Petitioners claim that their Xerox Copier Project
is just for public service and is purely incidental to its business. What petitioners earn from
the project is not even sufficient to defray their expenses, let alone bring profits to them. As
such, the project is no different from other services which can legally be contracted out,
such as security and janitorial services. Petitioners contend that the copier service can be
considered as part of their “housekeeping” tasks which can be let to independent
contractors.”5

We disagree. As correctly held by the NLRC, at the very least, the Xerox Copier Project
of petitioners promotes goodwill for the company. It may not generate income for the
company but there are activities which a company may find necessary to engage in because
they ultimately redound to its benefit. Operating the company’s copiers at its branches
advertises the quality of their products and promotes the company’s reputation and public
image. It also advertises the utility and convenience of having a copier machine. It is
noteworthy that while not operated for profit the copying service is not intended either to be
“promotional,” as, indeed, petitioner charged a fee for the copies made.
It is wrong to say that if a task is not directly related to the employer’s business, or it
falls under what may be considered “housekeeping activities,” the one performing the task

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is a job contractor. The determination of the existence of an employer employee relationship
is defined by law according to the facts of each case, regardless of the nature of the
activities involved.

Third. Petitioners contend that it never exercised control over the conduct of private
respondent. Petitioners allege that the salaries paid to Garado, as well as his employment
records, vouchers and loan checks from the SSS were coursed through Skillpower, Inc. In
addition private respondent applied for vacation leaves to Skillpower, Inc.

It is also contended that it was Skillpower, Inc. which twice required private respondent
to explain why he should not be dismissed for the spoilage in Fuji Xerox’s Buendia branch
and suspended him pending the result of the investigation. According to petitioners,
although they conducted an administrative investigation, the purpose was only to determine
the complicity of their own employees in the incident, if any, and any criminal liability of
private respondent.
This claim is belied by two letters written by Atty. Victorino H. Luis, Legal and
Industrial Relations Officer of the company, to the union president, Nick Macaraig. The
first letter, dated July 6, 1983, stated:
This has reference to your various letters dated today on administrative case concerning
Messrs. Crisostomo Cruz, Pedro Garado and Ms. Evelyn Abenes.
In connection with the above and in the case likewise of Mr. Dionisio Guyala, please be
advised that the proceedings against them are being carried out under the terms, and in
accordance with the provisions of our Policy and Procedure on Employment Termination
as well as Policy on Disciplinary Actions dated October 1, 1982, and not under the
Grievance Machinery under our CBA.
Your action apparently is premised on the assumption that we are now in the Grievance
Stage, which is premature. If we have allowed the Union to participate in our Investigation
and Administrative panels, it is only a concession on management’s part in accordance with
No. IV, Section B, Paragraph 3 of the abovecited policy on the investigation, the
Personnel/Administrative Department may consult the Union whenever necessary.

We shall entertain grievances under our CBA Machinery only after decisions have been made on the
foregoing cases and should you find the penalties imposed, if any, as unjust, unduly harsh,
discriminating otherwise fit subject for grievance by the Union itself under the terms of our CBA.
Accordingly, we are proceeding with our investigations on the administrative charges with or
without your presence or that of the respondents if it is the latter’s preference, as in the case of
Crisostomo Cruz, to ignore the same. (Emphasis ours)
The second letter, dated July 13, 1983,  read:
6

You obviously persist in pursuing the misconception that our allowing your presence in the
administrative proceedings against Messrs. Guyala, Cruz, et al. has set the Grievance Machinery
under our CBA into play. We can only reiterate our statement in our letter of July 6 that we were
implementing Policy and Procedures on Termination dated October 1, 1982 and that your presence
in helping bolster the defense for the respondents was only with our forbearance in the spirit of
cooperation in order to better ferret out the truth.
The power or authority to impose discipline and disciplinary measures upon employees is a
basic prerogative of Management, something that cannot be abdicated, much less ceded to a CBA
Grievance Committee which is limited to settling disputes and misunderstanding as to interpretation,
application, or violation of any provisions of the CBA agreement x x x. As likewise pointed out in

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our letter of July 6 recourse to Grievance may possibly be resorted to if in the Union’s opinion a
penalty imposed upon a respondent Union member is discriminating to the member or otherwise
illegal, unduly harsh, and the like. Ultimately, the remedy lies in appeal to the NLRC, as in similar
cases in the past. (Emphasis ours)
These letters reveal the role which Fuji Xerox played in the dismissal of the private
respondent. 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.

Fourth. Petitioner avers that Skillpower, Inc. is a highly-capitalized business venture

registered as an “independent employer” with the Securities and Exchange Commission as
well as the Department of Labor and Employment. Skill-power, Inc. is a member of the
Social Security System. In 1984 it had assets exceeding P5 million pesos and at least 29
typewriters, office equipment and service vehicles. It had employees of its own and a pool
of 25 clerks assigned to clients on a temporary basis.
Petitioners cite the case of Neri v. NLRC,  in which it was held that the Building Care
7

Corporation (BCC) was an independent contractor on the basis of finding that it had
substantial capital, although there was no evidence that it had investments in the form of
tools, equipment, machineries and work premises. But the Court in that case considered not
only the capitalization of the BCC but also the fact that BCC was providing specific special
services (radio/telex operator and janitor) to the employer; that in another case  the Court
8

had already found that the BCC was an independent contractor; that BCC retained control
over the employees and the employer was actually just concerned with the end-result; that
BCC had the power to reassign the employees and their deployment was not subject to the
approval of the employer; and that BCC was paid in lump sum for the services it rendered.
These features of that case make it distinguishable from the present one.
Here, the service being rendered by 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.

The Rules to Implement the Labor Code, Book III, Rule VIII, §8, provide that there is job
contracting when the following conditions are fulfilled:

1. (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. (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.

Otherwise, according to Art. 106 of the Labor Code,

There is “labor-only” contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises,

Page 6 of 71
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 Skill-
power, 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.

Fifth. 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.,  this Court held on facts similar to
9

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
“merchandizing [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.
....
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.

Page 7 of 71
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.
ACCORDINGLY, the petition for certiorari is DISMISSED for lack of merit.
SO ORDERED.
     Regalado  (Chairman), Romero and Puno, JJ., concur.
Petition dismissed.
Notes.—No employer-employee relationship exists between golf clubs and persons
rendering caddying services for the clubs’ members. (Manila Golf & Country Club, Inc. vs.
Intermediate Appellate Court, 237 SCRA 207 [1994])
The nature of the contracts of resident physicians meets traditional tests for determining
employer-employee relationships, but because the focus of residency is training, they are
neither here nor there. (Felix vs. Buenaseda, 240 SCRA 139 [1995])

——o0o——

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[2]

G.R. No. 160506. March 9, 2010.*

JOEB M. ALIVIADO, ARTHUR CORPUZ, ERIC ALIVIADO, MONCHITO
AMPELOQUIO, ABRAHAM BASMAYOR, JONATHAN MATEO, LORENZO PLATON,
JOSE FERNANDO GUTIERREZ, ESTANISLAO BUENAVENTURA, LOPE SALONGA,
FRANZ DAVID, NESTOR IGNACIO, JULIO REY, RUBEN MARQUEZ, JR.,
MAXIMINO PASCUAL, ERNESTO CALANAO, ROLANDO ROMASANTA, RHUEL
AGOO, BONIFACIO ORTEGA, ARSENIO SORIANO, JR., ARNEL ENDAYA,
ROBERTO ENRIQUEZ, NESTOR BAQUILA, EDGARDO QUIAMBAO, SANTOS
BACALSO, SAMSON BASCO, ALADINO GREGORO, JR., EDWIN GARCIA,
ARMANDO VILLAR, EMIL TAWAT, MARIO P. LIONGSON, CRESENTE J. GARCIA,
FERNANDO MACABENTE, MELECIO CASAPAO, REYNALDO JACABAN,
FERDINAND SALVO, ALSTANDO MONTOS, RAINER N. SALVADOR, RAMIL
REYES, PEDRO G. ROY, LEONARDO P. TALLEDO, ENRIQUE F. TALLEDO, WILLIE
ORTIZ, ERNESTO SOYOSA, ROMEO VASQUEZ, JOEL BILLONES, ALLAN
BALTAZAR, NOLI GABUYO, EMMANUEL E. LABAN, RAMIR E. PIAT, RAUL
DULAY, TADEO DURAN, JOSEPH BANICO, ALBERT LEYNES, ANTONIO
DACUNA, RENATO DELA CRUZ, ROMEO VIERNES, JR., ELAIS BASEO,
WILFREDO TORRES, MELCHOR CARDANO, MARIANO NARANIAN, JOHN
SUMERGIDO, ROBERTO ROSALES, GERRY C. GATPO, GERMAN N. GUEVARRA,
GILBERT Y. MIRANDA, RODOLFO C. TOLEDO, ARNOLD D. LASTONA, PHILIP M.
LOZA, MARIO N. CULDAYON, ORLANDO P. JIMENEZ, FRED P. JIMENEZ,
RESTITUTO C. PAMINTUAN, JR., ROLANDO J. DE ANDRES, ARTUZ BUSTENERA,
ROBERTO B. CRUZ, ROSEDY O. YORDAN, DENNIS DACASIN, ALEJANDRINO
ABATON, and ORLANDO S. BALANGUE, petitioners, vs. PROCTER & GAMBLE
PHILS., INC., and PROMM-GEM INC., respondents.
 
Labor Law; Labor-Only Contracting; The Law and its implementing rules allow contracting
arrangements for the performance of specific jobs, works of services; The current labor rules
expressly prohibit labor-only contracting; Where there is labor-only contracting; Elements of
Labor-Only Contracting.—The law and its implementing rules allow contracting arrangements for
the performance of specific jobs, works or services. Indeed, it is management prerogative to farm
out any of its activities, regardless of whether such activity is peripheral or core in nature. 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 employee.
Same; Same; Independent Contractors; Promm-Gem cannot be considered as a labor-only
contractor; It is a legitimate independent contractor.—Under the circumstances, Promm-Gem
cannot be considered as a labor-only contractor. We find that it is a legitimate independent
contractor.

Page 9 of 71
 Same; Same; 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 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.—“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.

Same; Termination of Employment; Misconduct; Grave Misconduct; Definition of

Misconduct; Elements for Misconduct to be a Just Cause for Dismissal.—Misconduct has been
defined as improper or wrong conduct; the transgression of some established and definite rule of
action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not
mere error of judgment. The misconduct to be serious must be of such grave and aggravated
character and not merely trivial and unimportant. To be a just cause for dismissal, such misconduct
(a) must be serious; (b) must relate to the performance of the employee’s duties; and (c) must show
that the employee has become unfit to continue working for the employer.

Same; Same; Same; Same; A misconduct which is not serious or grave, as that existing in the
instant case, cannot be a valid basis for dismissing an employee.—In the instant case, petitioners-
employees of Promm-Gem may have committed an error of judgment in claiming to be employees
of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such,
we find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a
legitimate and independent promotion firm. A misconduct which is not serious or grave, as that
existing in the instant case, cannot be a valid basis for dismissing an employee.

Same; Same; Loss of Trust and Confidence; Loss of trust and confidence, as a ground for
dismissal, must be based on the willful breach of the trust reposed in the employee by his employer.
—Loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the
trust reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is
willful if it is done intentionally, knowingly and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently.
Same; Same; Same; In order to constitute a just cause for dismissal, the act complained of
must be work-related and must show that the employee is unfit to continue to work for the employer.
—Loss of trust and confidence, as a cause for termination of employment, is premised on the fact
that the employee concerned holds a position of responsibility or of trust and confidence. As such,
he must be invested with confidence on delicate matters, such as custody, handling or care and
protection of the property and assets of the employer. And, in order to constitute a just cause for
dismissal, the act complained of must be work-related and must show that the employee is unfit to
continue to work for the employer. In the instant case, the petitioners-employees of Promm-Gem
have not been shown to be occupying positions of responsibility or of trust and confidence. Neither
is there any evidence to show that they are unfit to continue to work as merchandisers for Promm-
Gem.

Same; Same; In termination cases, the burden of proof rests upon the employer to show that
the dismissal is for just and valid cause.—Going back to the matter of dismissal, it must be
emphasized that the onus probandi to prove the lawfulness of the dismissal rests with the employer.
In termination cases, the burden of proof rests upon the employer to show that the dismissal is for

Page 10 of 71
just and valid cause. In the instant case, P&G failed to discharge the burden of proving the legality
and validity of the dismissals of those petitioners who are considered its employees. Hence, the
dismissals necessarily were not justified and are therefore illegal.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

   The facts are stated in the opinion of the Court.

  Nenita C. Mahinay for petitioners.
  Angara, Abello, Concepcion, Regala and Cruz for respondent Procter & Gamble
Philippines, Inc.
DEL CASTILLO, J.:

Labor laws expressly prohibit “labor-only” contracting. To prevent its circumvention,

the Labor Code establishes an employer-employee relationship between the employer and
the employees of the ‘labor-only’ contractor.
 
The instant petition for review assails the March 21, 2003 Decision 1 of the Court of
Appeals (CA) in CA-G.R. SP No. 52082 and its October 20, 2003 Resolution 2 denying the
motions for reconsideration separately filed by petitioners and respondent Procter &
Gamble Phils. Inc. (P&G). The appellate court affirmed the July 27, 1998 Decision of the
National Labor Relations Commission (NLRC), which in turn affirmed the November 29,
1996 Decision3 of the Labor Arbiter. All these decisions found Promm-Gem, Inc. (Promm-
Gem) and Sales and Promotions Services (SAPS) to be legitimate independent contractors
and the employers of the petitioners.

Factual Antecedents
Petitioners worked as merchandisers of P&G from various dates, allegedly starting as
early as 1982 or as late as June 1991, to either May 5, 1992 or March 11, 1993, more
specifically as follows:
Name Date Employed Date Dismissed
1. Joeb M. Aliviado  November,  May 5, 1992
1985
2. Arthur Corpuz 1988 March 11, 1993
3. Eric Aliviado  1985  March 11,
1993
4. Monchito Ampeloquio September, 1988 March 11, 1993
5. Abraham Basmayor 1987 March 11, 1993
[,Jr.]
6. Jonathan Mateo May, 1988 March 11, 1993
7. Lorenzo Platon  1985 March 11, 1993
8. Jose Fernando Gutierrez 1988 May 5, 1992
9. Estanislao Buenaventura June, 1988 March 11, 1993
10. Lope Salonga 1982 March 11, 1993
11. Franz David 1989 March 11,1993 
12. Nestor Ignacio 1982 March 11, 1993
13. Julio Rey 1989 May 5, 1992

Page 11 of 71
 
14. Ruben [Vasquez], Jr.  1985  May 5, 1992
15. Maximino Pascua l990 May 5, 1992
16. Ernesto Calanao[, Jr.] 1987 May 5, 1992
17. Rolando Romasanta 1983 March 11, 1993
18. [Roehl] Agoo 1988 March 11, 1993
19. Bonifacio Ortega 1988 March 11, 1993
20. Arsenio Soriano, Jr. 1985 March 11, 1993
21. Arnel Endaya 1983 March 11, 1993
22. Roberto Enriquez December, 1988 March 11, 1993
23. Nestor [Es]quila 1983 May 5, 1992
24. Ed[g]ardo Quiambao 1989 March 11, 1993
25. Santos Bacalso 1990 March 11, 1993
26. Samson Basco 1984 March 11, 1993
27. Aladino Gregor[e], Jr. 1980 May 5, 1992
28. Edwin Garcia 1987 May 5, 1992
29. Armando Villar 1990 May 5, 1992
30. Emil Tawat 1988 March 11, 1993
31. Mario P. Liongson 1991 May 5, 1992
32. Cresente J. Garcia 1984 March 11, 1993
33. Fernando Macabent[a] 1990 May 5, 1992
34. Melecio Casapao 1987 March 11, 1993
35. Reynaldo Jacaban 1990 May 5, 1992
36. Ferdinand Salvo 1985 May 5, 1992
37. Alstando Montos 1984 March 11, 1993
38. Rainer N. Salvador 1984 May 5, 1992
39. Ramil Reyes 1984 March 11, 1993
40. Pedro G. Roy 1987  
41. Leonardo [F]. Talledo 1985 March 11, 1993
42. Enrique [F]. Talledo 1988 March 11, 1993
43. Willie Ortiz 1987 May 5, 1992
44. Ernesto Soyosa 1988 May 5, 1992
45. Romeo Vasquez 1985 March 11, 1993
46. Joel Billones 1987 March 11, 1993
47. Allan Baltazar 1989 March 11, 1993
48. Noli Gabuyo 1991 March 11, 1993
49. Emmanuel E. Laban 1987 May 5, 1992
50. Ramir[o] E. [Pita] 1990 May 5, 1992
51. Raul Dulay 1988 May 5, 1992
52. Tadeo Duran[o] 1988 May 5, 1992
53. Joseph Banico 1988 March 11, 1993
 
 54. Albert Leynes  1990  May 5, 1992
55. Antonio Dacu[m]a 1990 May 5, 1992

Page 12 of 71
  54. Albert Leynes  1990  May 5, 1992
56. Renato dela Cruz 1982  
57. Romeo Viernes, Jr. 1986  
58. El[ia]s Bas[c]o 1989  
59. Wilfredo Torres 1986 May 5, 1992
60. Melchor Carda[ñ]o 1991 May 5, 1992
61. [Marino] [Maranion] 1989 May 5, 1992
62. John Sumergido 1987 May 5, 1992
63. Roberto Rosales May, 1987 May 5, 1992
65. German N. Guevara May, 1990 March 11,
1993
66. Gilbert Y. Miranda June, 1991 March 11,
1993
67. Rodolfo C. Toledo[, May 14, 1991 March 11,
Jr.] 1993
68. Arnold D. [Laspoña] June 1991 March 11,
1993
69. Philip M. Loza March 5, 1992 March 11,
1993
70. Mario N. C[o]ldayon May 14, 1991 March 11,
1993
71. Orlando P. Jimenez November 6, March 11,
1992 1993
72. Fred P. Jimenez September, 1991 March 11,
1993
73. Restituto C. March 5,1992 March 11,
Pamintuan, Jr. 1993
74. Rolando J. de Andres June, 1991 March 11,
1993
75. Artuz Bustenera[, Jr.] December, 1989 March 11,
1993
76. Roberto B. Cruz May 4, 1990 March 11,
1993
77. Rosedy O. Yordan June, 1991 May 5, 1992
78. Dennis Dacasin May, 1990 May 5, 1992
79. Alejandrino Abaton 1988 May 5, 1992
March 11,
80. Orlando S. Balangue March, 1989 19934

They all individually signed employment contracts with either Promm-Gem or SAPS for
periods of more or less five months at a time. 5 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.6

Page 13 of 71
 SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for
reasons such as habitual absenteeism, dishonesty or changing day-off without prior notice.7

P&G is principally engaged in the manufacture and production of different consumer

and health products, which it sells on a wholesale basis to various supermarkets and
distributors.8 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.9In December 1991, petitioners filed a complaint10 against P&G for regularization,
service incentive leave pay and other benefits with damages. The complaint was later
amended11 to include the matter of their subsequent dismissal.

Ruling of the Labor Arbiter

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and
ruled that there was no employer-employee relationship between petitioners and P&G. He
found that the selection and engagement of the petitioners, the payment of their wages, the
power of dismissal and control with respect to the means and methods by which their work
was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found
that Promm-Gem and SAPS were legitimate independent job contractors. The dispositive
portion of his Decision reads:
 
“WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-
entitled cases against respondent Procter & Gamble (Phils.), Inc. for lack of merit.
SO ORDERED.” 12

Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings. On July 27,
1998, the NLRC rendered a Decision13 disposing as follows:
“WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and
the decision appealed from AFFIRMED.
SO ORDERED.” 14

Petitioners filed a motion for reconsideration but the motion was denied in the
November 19, 1998 Resolution.15

Ruling of the Court of Appeals

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of the Labor Arbiter and
the NLRC. However, said petition was also denied by the CA which disposed as follows:
“WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998
is AFFIRMED with the MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered
to pay service incentive leave pay to petitioners.
SO ORDERED.” 16

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this
petition.
Issues
Petitioners now come before us raising the following issues:
 
I.

Page 14 of 71
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A]
REVERSIBLE ERROR WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE
ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN
EXCESS OF JURISDICTION IN RENDERING THE QUESTIONED JUDGMENT WHEN,
OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND ESTABLISH THAT
RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT
THEY WERE ILLEGALLY DISMISSED BY THE FORMER.
II.
WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A]
REVERSIBLE ERROR WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS
HAD ACTED WITH GRAVE ABUSE OF DISCRETION WHEN THE LATTER DID NOT FIND
THE PRIVATE RESPONDENTS LIABLE TO THE PETITIONERS FOR PAYMENT OF
ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS LITIGATION COSTS AND
ATTORNEY’S FEES. 17

Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2)
whether petitioners were illegally dismissed; and (3) whether petitioners are entitled for
payment of actual, moral and exemplary damages as well as litigation costs and attorney’s
fees.

Petitioners’ Arguments
Petitioners insist that they are employees of P&G. They claim that they were recruited
by the salesmen of P&G and were engaged to undertake merchandising chores for P&G
long before the existence of Promm-Gem and/or SAPS. They further claim that when the
latter had its so-called re-alignment program, petitioners were instructed to fill up
application forms and report to the agencies which P&G created.18
Petitioners further claim that P&G instigated their dismissal from work as can be
gleaned from its letter19 to SAPS dated February 24, 1993, informing the latter that their
Merchandising Services Contract will no longer be renewed. Petitioners further assert that
Promm-Gem and SAPS are labor-only contractors providing services of manpower to their
client. They claim that the contractors have neither substantial capital nor tools and
equipment to undertake independent labor contracting. Petitioners insist that since they had
been engaged to perform activities which are necessary or desirable in the usual business or
trade of P&G, then they are its regular employees.20

Respondents’ Arguments
On the other hand, P&G points out that the instant petition raises only questions of fact
and should thus be thrown out as the Court is not a trier of facts. It argues that findings of
facts of the NLRC, particularly where the NLRC and the Labor Arbiter are in agreement,
are deemed binding and conclusive on the Supreme Court.
P&G further argues that there is no employment relationship between it and petitioners.
It was Promm-Gem or SAPS that (1) selected petitioners and engaged their services; (2)
paid their salaries; (3) wielded the power of dismissal; and (4) had the power of control over
their conduct of work.
 
P&G also contends that the Labor Code neither defines nor limits which services or
activities may be validly outsourced. Thus, an employer can farm out any of its activities to
an independent contractor, regardless of whether such activity is peripheral or core in

Page 15 of 71
nature. It insists that the determination of whether to engage the services of a job contractor
or to engage in direct hiring is within the ambit of management prerogative.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived
the filing of the Comment of Promm-Gem on the petition. 21 Also, although SAPS was
impleaded as a party in the proceedings before the Labor Arbiter and the NLRC, it was no
longer impleaded as a party in the proceedings before the CA. 22 Hence, our pronouncements
with regard to SAPS are only for the purpose of determining the obligations of P&G, if any.

Our Ruling

Held: 1. Affirmative. What existed between promgem and p&g were labor only
contracts. For said reason, the petitioners became the employees of the latter.

The petition has merit.

As a rule, the Court refrains from reviewing factual assessments of lower courts and
agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the
Court is constrained to wade into factual matters when there is insufficient or insubstantial
evidence on record to support those factual findings; or when too much is concluded,
inferred or deduced from the bare or incomplete facts appearing on record.23
 In the present case, we find the need to review the records to ascertain the facts.

Labor-only contracting and job contracting

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.

The pertinent Labor Code provision on the matter states:

“ART. 106. Contractor or subcontractor.—Whenever an employer 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 the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work performed under the contract, in the same
manner and extent that he is liable to employees directly employed by him.

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out
of labor to protect the rights of workers established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and determine who among
the parties involved shall be considered the employer for purposes of this Code, to prevent any
violation or circumvention of any provision of this Code.

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

Page 16 of 71
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.” (Emphasis
and underscoring supplied.)
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended
by Department Order No. 18-02,24 distinguishes between legitimate and labor-only
contracting:
“x x x x
Section 3. Trilateral Relationship in Contracting Arrangements.—In legitimate contracting,
there exists a trilateral relationship under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and a contract of employment between the
contractor or subcontractor and its workers. Hence, there are three parties involved in these
arrangements, the principal which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the capacity to independently undertake the
performance of the job, work or service, and the contractual workers engaged by the contractor or
subcontractor to accomplish the job[,] work or service.
xxxx
Section 5. Prohibition against labor-only contracting.—Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or
service for a principal, and any of the following elements are 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) [T]he contractor does not exercise the right to control over the performance of the work of
the contractual employee.
The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the
Labor Code, as amended.
 
“Substantial capital or investment” refers to capital stocks and subscribed capitalization in the
case of corporations, tools, equipment, implements, machineries and work premises, actually and
directly used by the contractor or subcontractor in the performance or completion of the job, work or
service contracted out.

The “right to control” shall refer to the right reserved to the person for whom the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.
x x x x” (Underscoring supplied.)
Clearly, the law and its implementing rules allow contracting arrangements for the
performance of specific jobs, works or services. Indeed, it is management prerogative to
farm out any of its activities, regardless of whether such activity is peripheral or core in
nature. 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
principal25 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

Page 17 of 71
contractor or subcontractor are performing activities which are directly related to the main business
of the principal; or
ii) The contractor does not exercise the right to control over the performance of the work of
the contractual employee.” (Underscoring supplied)
In the instant case, the financial statements 26 of Promm-Gem show that it has authorized
capital stock of P1 million and a paid-in capital, or capital available for operations, of
P500,000.00 as of 1990.27 It also has long term assets worth P432,895.28 and current assets
of P719,042.32. Promm-Gem has also proven that it maintained its own warehouse and
office space with a floor area of 870 square meters. 28 It also had under its name three
registered vehicles which were used for its promotional/merchandising business. 29 Promm-
Gem also has other clients30 aside from P&G.31 Under the circumstances, we find that
Promm-Gem has substantial investment which relates to the work to be performed. These
factors negate the existence of the element specified in Section 5(i) of DOLE Department
Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the
relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform
their work. Promm-Gem also issued uniforms to them. It is also relevant to mention that
Promm-Gem already considered the complainants working under it as its regular, not
merely contractual or project, employees.32 This circumstance negates the existence of
element (ii) as stated in Section 5 of DOLE 

Department Order No. 18-02, which speaks of contractual employees. This, furthermore,

negates—on the part of Promm-Gem—bad faith and intent to circumvent labor laws which
factors have often been tipping points that lead the Court to strike down the employment
practice or agreement concerned as contrary to public policy, morals, good customs or
public order.33

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor.

We find that it is a legitimate independent contractor.

RE: SAPS
On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in
capital of only P31,250.00. There is no other evidence presented to show how much its
working capital and assets are. Furthermore, there is no showing of substantial investment
in tools, equipment or other assets.

In Vinoya v. National Labor Relations Commission,34 the Court held that “[w]ith the
current economic atmosphere in the country, the paid-in capitalization of PMCI amounting
to P75,000.00 cannot be considered as substantial capital and, as such, PMCI cannot qualify
as an independent contractor.”35 Applying the same rationale to the present case, it is clear
that SAPS—having a paid-in capital of only P31,250—has no substantial capital. SAPS’
lack of substantial capital is underlined by the records36 which show that its payroll for its
merchandisers alone for one month would already total P44,561.00. It had 6-month
contracts with P&G.37 Yet SAPS failed to show that it could complete the 6-month contracts
using its own capital and investment. Its capital is not even sufficient for one month’s
payroll. SAPS failed to show that its paid-in capital of P31,250.00 is sufficient for the

Page 18 of 71
period required for it to generate its needed revenue to sustain its operations independently.
Substantial capital refers to capitalization used in the performance or completion of the job,
work or service contracted out. In the present case, SAPS has failed to show substantial
capital.

Furthermore, the petitioners have been charged with the merchandising and promotion
of the products of P&G, an activity that has already been considered by the Court as
doubtlessly directly related to the manufacturing business,38 which is the principal business
of P&G. 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.”39 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.40

Consequently, the following petitioners, having been recruited and supplied by SAPS 41—
which engaged in labor-only contracting—are considered as the employees of P&G: Arthur
Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo,
Lorenzo Platon, Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Jr.,
Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya,
Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos,
Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones,
Allan Baltazar, Noli Gabuyo, Gerry Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo
C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P.
Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz
Bustenera, Jr., Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat,
Cresente J. Garcia, Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes,
Jr., Elias Basco and Dennis Dacasin.
The following petitioners, having worked under, and been dismissed by Promm-Gem,
are considered the employees of Promm-Gem, not of P&G: Wilfredo Torres, John
Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo, Alejandrino Abaton,
Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez,
Jr., Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita,
Fernando Macabenta, Nestor Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto
Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay, Marino Maranion, Joseph Banico,
Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado.42

Termination of services

We now discuss the issue of whether petitioners were illegally dismissed. In cases of
regular employment, the employer shall not terminate the services of an employee except
for a just43 or authorized44 cause. 

Page 19 of 71
 In the instant case, the termination letters given by Promm-Gem to its employees
uniformly specified the cause of dismissal as grave misconduct and breach of trust, as
follows:
“x x x x
This informs you that effective May 5, 1992, your employment with our company, Promm-Gem,
Inc. has been terminated. We find your expressed admission, that you considered yourself as an
employee of Procter & Gamble Phils., Inc…. and assailing the integrity of the Company as
legitimate and independent promotion firm, is deemed as an act of disloyalty prejudicial to the
interests of our Company: serious misconduct and breach of trust reposed upon you as employee of
our Company which [co]nstitute just cause for the termination of your employment.
x x x x”
45

Misconduct has been defined as improper or wrong conduct; the transgression of some
established and definite rule of action, a forbidden act, a dereliction of duty, unlawful in
character implying wrongful intent and not mere error of judgment. The misconduct to be
serious must be of such grave and aggravated character and not merely trivial and
unimportant.46 To be a just cause for dismissal, such misconduct (a) must be serious; (b)
must relate to the performance of the employee’s duties; and (c) must show that the
employee has become unfit to continue working for the employer.47

In other words, in order to constitute serious misconduct which will warrant the
dismissal of an employee under paragraph (a) of Article 282 of the Labor Code, it is not
sufficient that the act or conduct complained of has violated some established rules or
policies. It is equally important and required that the act or conduct must have been
performed with wrongful intent.48 In the instant case, petitioners-employees of Promm-Gem
may have committed an error of judgment in claiming to be employees of P&G, but it
cannot be said that they were motivated by any wrongful intent in doing so. As such, we
find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a
legitimate and independent promotion firm. A misconduct which is not serious or grave, as
that existing in the instant case, cannot be a valid basis for dismissing an employee.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the
willful breach of the trust reposed in the employee by his employer. Ordinary breach will
not suffice. A breach of trust is willful if it is done intentionally, knowingly and purposely,
without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly,
heedlessly or inadvertently.49

Loss of trust and confidence, as a cause for termination of employment, is premised on

the fact that the employee concerned holds a position of responsibility or of trust and
confidence. As such, he must be invested with confidence on delicate matters, such as
custody, handling or care and protection of the property and assets of the employer. And, in
order to constitute a just cause for dismissal, the act complained of must be work-related
and must show that the employee is unfit to continue to work for the employer. 50 In the
instant case, the petitioners-employees of Promm-Gem have not been shown to be
occupying positions of responsibility or of trust and confidence. Neither is there any
evidence to show that they are unfit to continue to work as merchandisers for Promm-Gem.

Page 20 of 71
 All told, we find no valid cause for the dismissal of petitioners-employees of Promm-
Gem.

While Promm-Gem had complied with the procedural aspect of due process in
terminating the employment of petitioners-employees, i.e., giving two notices and in
between such notices, an opportunity for the employees to answer and rebut the charges
against them, it failed to comply with the substantive aspect of due process as the acts
complained of neither constitute serious misconduct nor breach of trust. Hence, the
dismissal is illegal.

With regard to the petitioners placed with P&G by SAPS, they were given no written
notice of dismissal. The records show that upon receipt by SAPS of P&G’s letter
terminating their “Merchandising Services Contract” effective March 11, 1993, they in turn
verbally informed the concerned petitioners not to report for work anymore. The concerned
petitioners related their dismissal as follows:
“x x x x
5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr.
Saturnino A. Ponce that we should already stop working immediately because that was the order of
Procter and Gamble. According to him he could not do otherwise because Procter and Gamble was
the one paying us. To prove that Procter and Gamble was the one responsible in our dismissal, he
showed to us the letter  dated February 24, 1993, x x x
51

February 24, 1993

Sales and Promotions Services
Armon’s Bldg., 142 Kamias Road, 
Quezon City
Attention: Mr. Saturnino A. Ponce
                President & General Manager
Gentlemen:
Based on our discussions last 5 and 19 February 1993, this formally informs
you that we will not be renewing our Merchandising Services Contract with your
agency.
Please immediately undertake efforts to ensure that your services to the
Company will terminate effective close of business hours of 11 March 1993.
This is without prejudice to whatever obligations you may have to the company
under the abovementioned contract.
Very truly yours,
        (Sgd.)
EMMANUEL M. NON
Sales Merchandising III
6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no
longer allowed to work and we were refused entrance by the security guards posted. According to
the security guards, all merchandisers of Procter and Gamble under S[APS] who filed a case in the
Dept. of Labor are already dismissed as per letter of Procter and Gamble dated February 25, 1993. x
x x”52

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically,
unlike Promm-Gem which dismissed its employees for grave misconduct and breach of
trust due to disloyalty, SAPS dismissed its employees upon the initiation of P&G. It is

Page 21 of 71
evident that SAPS does not carry on its own business because the termination of its contract
with P&G automatically meant for it also the termination of its employees’ services. It is
obvious from its act that SAPS had no other clients and had no intention of seeking other
clients in order to further its merchandising business. From all indications SAPS, existed to
cater solely to the need of P&G for the supply of employees in the latter’s merchandising
concerns only. Under the circumstances prevailing in the instant case, we cannot consider
SAPS as an independent contractor.

Going back to the matter of dismissal, it must be emphasized that the onus probandi to
prove the lawfulness of the dismissal rests with the employer. 53 In termination cases, the
burden of proof rests upon the employer to show that the dismissal is for just and valid
cause.54 In the instant case, P&G failed to discharge the burden of proving the legality and
validity of the dismissals of those petitioners who are considered its employees. Hence, the
dismissals necessarily were not justified and are therefore illegal.

Damages
We now go to the issue of whether petitioners are entitled to damages. Moral and
exemplary damages are recoverable where the dismissal of an employee was attended by
bad faith or fraud or constituted an act oppressive to labor or was done in a manner contrary
to morals, good customs or public policy.55

With regard to the employees of Promm-Gem, there being no evidence of bad faith,
fraud or any oppressive act on the part of the latter, we find no support for the award of
damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner
oppressive to labor. The sudden and peremptory barring of the concerned petitioners from
work, and from admission to the work place, after just a one-day verbal notice, and for no
valid cause bellows oppression and utter disregard of the right to due process of the
concerned petitioners. Hence, an award of moral damages is called for.
Attorney’s fees may likewise be awarded to the concerned petitioners who were illegally
dismissed in bad faith and were compelled to litigate or incur expenses to protect their
rights by reason of the oppressive acts56 of P&G.
Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed
from work shall be entitled to reinstatement without loss of seniority rights and other
privileges, inclusive of allowances, and other benefits or their monetary equivalent from the
time the compensation was withheld up to the time of actual reinstatement. 57 Hence, all the
petitioners, having been illegally dismissed are entitled to reinstatement without loss of
seniority rights and with full back wages and other benefits from the time of their illegal
dismissal up to the time of their actual reinstatement.
WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the
Court of Appeals in CA-G.R. SP No. 52082 and the Resolution dated October 20, 2003 are
REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and Promm-Gem, Inc. are
ORDERED to reinstate their respective employees immediately without loss of seniority
rights and with full backwages and other benefits from the time of their illegal dismissal up
to the time of their actual reinstatement. Procter & Gamble Phils., Inc. is further ORDERED
to pay each of those petitioners considered as its employees, namely Arthur Corpuz, Eric

Page 22 of 71
Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon,
Estanislao Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta,
Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr., Arnel Endaya, Roberto Enriquez,
Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N. Salvador,
Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli
Gabuyo, Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr.,
Arnold D. Laspoña, Philip M. Loza, Mario N. Coldayon, Orlando P. Jimenez, Fred P.
Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr., Roberto
B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia,
Melencio Casapao, Romeo Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco
and Dennis Dacasin, P25,000.00 as moral damages plus ten percent of the total sum as and
for attorney’s fees.
Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days
from receipt of this Decision, of petitioners’ backwages and other benefits; and ten percent
of the total sum as and for attorney’s fees as stated above; and for immediate execution.

Page 23 of 71
 [3]
G.R. No. 186091. December 15, 2010.*
EMMANUEL BABAS, DANILO T. BANAG, ARTURO V. VILLARIN, SR., EDWIN
JAVIER, SANDI BERMEO, REX ALLESA, MAXIMO SORIANO, JR., ARSENIO
ESTORQUE, and FELIXBERTO ANAJAO,
petitioners, vs. LORENZO SHIPPING CORPORATION, respondent.

Actions; Pleadings, Practice and Procedure; Parties; Certification against Forum Shopping;
The petition satisfies the formal requirements only with regard to the petitioner who signed the
petition, but not his co-petitioner who did not sign nor authorize the other petitioner to sign it on his
behalf—the petition can be given due course only as to the parties who signed it, and the other
petitioners who did not sign the verification and certificate against forum shopping cannot be
recognized as petitioners and have no legal standing before the Court.—Before resolving the
petition, we note that only seven (7) of the nine petitioners signed the Verification and Certification.
Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao (Anajao) did not sign the
Verification and Certification, because they could no longer be located by their co-petitioners.
In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor Relations
Commission, 537 SCRA 171 (2007), citing Loquias v. Office of the Ombudsman, 338 SCRA 62
(2000), we stated that the petition satisfies the formal requirements only with regard to the petitioner
who signed the petition, but not his co-petitioner who did not sign nor authorize the other petitioner
to sign it on his behalf. Thus, the petition can be given due course only as to the parties who signed
it. The other petitioners who did not sign the verification and certificate against forum shopping
cannot be recognized as petitioners and have no legal standing before the Court. The petition should
be dismissed outright with respect to the non-conforming petitioners.
Labor Law; Labor-Only Contracting; The parties cannot dictate by the mere expedience of a
unilateral declaration in a contract the character of their business.—In declaring BMSI as an
independent contractor, the CA, in the challenged Decision, heavily relied on the provisions of
the Agreement, wherein BMSI declared that it was an independent contractor, with substantial
capital and investment. De Los Santos v. NLRC, 372 SCRA 723 (2001), 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 by the
mere expedience of a unilateral declaration in a contract the character of their business.

Same; Same; In distinguishing between prohibited labor-only contracting and permissible job
contracting, the totality of the facts and the surrounding circumstances of the case are to be
considered.—Thus, in distinguishing between prohibited labor-only contracting and permissible job
contracting, the totality of the facts and the surrounding circumstances of the case are to be
considered. 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. 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.
Same; Same; Job Contracting; Requisites.—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

Page 24 of 71
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.
Same; Same; Same; Burden of Proof; The law casts the burden on the contractor to prove that
it has substantial capital, investment, tools, etc.—employees need not prove that the contractor does
not have substantial capital, investment, and tools to engage in job-contracting.—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. In Mandaue Galleon Trade, Inc. v. Andales, 548 SCRA 17 (2008), we held: The law
casts the burden on the contractor to prove that it has substantial capital, investment, tools, etc.
Employees, on the other hand, need not prove that the contractor does not have substantial capital,
investment, and tools to engage in job-contracting.
Same; Same; Same; 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.—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, 623 SCRA 114 (2010), 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.
Same; Same; Same; Where an entity is classified as a labor-only contractor, the workers it
supplies to another become regular employees of the latter, and such workers having gained
regular status are entitled to security of tenure.—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. 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. Petitioners lost their employment when LSC terminated
its Agreement with BMSI. However, the termination of LSC’s Agreement with BMSI cannot be
considered a just or an authorized cause for petitioners’ dismissal.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
   The facts are stated in the opinion of the Court.738
  Cristobal P. Fernandez for petitioners.
  Roberto Santos for respondent.
NACHURA, J.:

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

Page 25 of 71
Repair and Management Services Agreement3 (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 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. 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, the
NLRC held:
“We find from the records of this case that respondent BMSI is not engaged in legitimate
job contracting.
First, respondent BMSI has no equipment, no office premises, no capital and no
investments as shown in the Agreement itself which states:
x x x x
VI. RENTAL OF EQUIPMENT
[6.01.] That the CLIENT has several forklifts and
     truck tractor, and has offered to the
    CONTRACTOR the use of the same by way of
    lease, the monthly rental of which shall be
    deducted from the total monthly billings of the

Page 26 of 71
     CONTRACTOR for the services covered by this
    Agreement.
6.02   That the CONTRACTOR has agreed to rent the
    CLIENT’s forklifts and truck tractor.
6.03. The parties herein have agreed to execute a
    Contract of Lease for the forklifts and truck
    tractor that will be rented by the
    CONTRACTOR. (p. 389, Records)

True enough, parties signed a Lease Contract (p. 392, Records) wherein respondent
BMSI leased several excess equipment of LSC to enable it to discharge its obligation under
the Agreement. So without the equipment which respondent BMSI leased from respondent
LSC, the former would not be able to perform its commitments in the Agreement.

In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:

x x x. 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. (underscoring ours)

Second, respondent BMSI has no independent business or activity or job to perform in

respondent LSC free from the control of respondent LSC except as to the results thereof. In
view of the absence of such independent business or activity or job to be performed by
respondent BMSI in respondent LSC [petitioners] performed work that was necessary and
desirable to the main business of respondent LSC. Respondents were not able to refute the
allegations of [petitioners] that they performed the same work that the regular workers of
LSC performed and they stood side by side with regular employees of respondent LSC
performing the same work. Necessarily, the control on the manner and method of doing the
work was exercised by respondent LSC and not by respondent BMSI since the latter had no
business of its own to perform in respondent LSC.

Lastly, respondent BMSI has no other client but respondent LSC. If respondent BMSI
were a going concern, it would have other clients to which to assign [petitioners] after its
Agreement with LSC expired. Since there is only one client, respondent LSC, it is easy to
conclude that respondent BMSI is a mere supplier of labor.
After concluding that respondent BMSI is engaged in prohibited labor-only contracting,
respondent LSC became the employer of [petitioners] pursuant to DO 18-02.

[Petitioners] therefore should be reinstated to their former positions or equivalent

positions in respondent LSC as regular employees with full backwages and other benefits
without loss of seniority rights from October 31, 2003, when they lost their jobs, until actual
reinstatement (Vinoya v. NLRC, 324 SCRA 469). If reinstatement is not feasible,
[petitioners] then should be paid separation pay of one month pay for every year of service
or a fraction of six months to be considered as one year, in addition to full backwages.

Page 27 of 71
 Concerning [petitioners’] prayer to be paid wage differentials and benefits under the
CBA, We have no doubt that [petitioners] would be entitled to them if they are covered by
the said CBA. For this purpose, [petitioners] should first enlist themselves as union
members if they so desire, or pay agency fee. Furthermore, only [petitioners] who signed
the appeal memorandum are covered by this Decision. As regards the other complainants
who did not sign the appeal, the Decision of the Labor Arbiter dismissing this case became
final and executory.”8
The NLRC disposed thus:
“WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision of the Labor Arbiter is
hereby REVERSED, and a NEW ONE rendered finding respondent Best Manpower Services, Inc. is
engaged in prohibited labor-only-contracting and finding respondent Lorenzo Shipping Corp. as the
employer of the following [petitioners]:
1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
7. Arsenio Estorque
8. Maximo N. Soriano, Jr.
9. Sandi G. Bermeo

Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] to their

former positions as regular employees and pay their wage differentials and benefits under the CBA.
If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and Best Manpower
Services are adjudged jointly and solidarily to pay [petitioners] separation pay of one month for
every year of service, a fraction of six months to be considered as one year.
In addition, respondent LSC and BMSI are solidarily liable to pay [petitioners’] full backwages
from October 31, 2003 until actual reinstatement or, if reinstatement is not feasible, until finality of
this Decision.
Respondent LSC and respondent BMSI are likewise adjudged to be solidarily liable for
attorney’s fees equivalent to ten (10%) of the total monetary award.
x x x x
SO ORDERED.” 9

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 facto make 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

Page 28 of 71
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.
The fallo of the CA Decision reads:
“WHEREFORE, premises considered, the instant petition is GRANTED and the assailed
decision and resolution of public respondent NLRC are REVERSED and SET ASIDE.
Consequently, the decision of the Labor Arbiter dated September 29, 2004 is REINSTATED.
SO ORDERED.” 11

Petitioners filed a motion for reconsideration, but the CA denied it on January 21, 2009.12
Hence, this appeal by petitioners, positing that:
THE HONORABLE 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

Before resolving the petition, we note that only seven (7) of the nine petitioners signed
the Verification and Certification.14 Petitioners Maximo Soriano, Jr. (Soriano) and
Felixberto Anajao (Anajao) did not sign the Verification and Certification, because they
could no longer be located by their co-petitioners.15
In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor
Relations Commission,16 citing Loquias v. Office of the Ombudsman,17 we stated that the
petition satisfies the formal requirements only with regard to the petitioner who signed the
petition, but not his co-petitioner who did not sign nor authorize the other petitioner to sign
it on his behalf. Thus, the petition can be given due course only as to the parties who signed
it. The other petitioners who did not sign the verification and certificate against forum
shopping cannot be recognized as petitioners and have no legal standing before the Court.
The petition should be dismissed outright with respect to the non-conforming petitioners.
Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are concerned.
Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an
independent contractor, but a labor-only contractor. LSC, on the other hand, maintains that
BMSI is an independent contractor, with adequate capital and investment. LSC capitalizes
on the ratiocination made by the CA.
In declaring BMSI as an independent contractor, the CA, in the challenged Decision,
heavily relied on the provisions of the Agreement, wherein BMSI declared that it was an
independent contractor, with substantial capital and investment.
De Los Santos v. NLRC18 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 by the mere expedience of a
unilateral declaration in a contract the character of their business.
In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada,
Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,19 this Court explained:
“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. Petitioner SMC and AMPCO
cannot dictate, by a declaration in a contract, the character of AMPCO’s business, that is, whether as
labor-only contractor, or job contractor. AMPCO’s character should be measured in terms of, and
determined by, the criteria set by statute.”
Thus, in distinguishing between prohibited labor-only contracting and permissible job
contracting, the totality of the facts and the surrounding circumstances of the case are to be
considered.

Page 29 of 71
 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.

In Mandaue Galleon Trade, Inc. v. Andales,23 we held:

“The law casts the burden on the contractor to prove that it has substantial capital, investment,
tools, etc. Employees, on the other hand, need not prove that the contractor does not have substantial
capital, investment, and tools to engage in job-contracting.”

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

Page 30 of 71
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.

Petitioners lost their employment when LSC terminated its Agreement with BMSI.

However, the termination of LSC’s Agreement with BMSI cannot be considered a just or an
authorized cause for petitioners’ dismissal. In Almeda v. Asahi Glass Philippines, Inc.,27 this
Court declared:

“The sole reason given for the dismissal of petitioners by SSASI was the termination of its
service contract with respondent. 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.
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. Petitioners
Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo,
Rex Allesa, and Arsenio Estorque 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,

Page 31 of 71
inclusive of allowances, and other benefits or their monetary equivalent, computed from the
time compensation was withheld up to the time of actual reinstatement.
No pronouncement as to costs.
SO ORDERED.
Carpio (Chairperson), Peralta, Del Castillo** and Mendoza, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Notes.—The existence of an employer-employee relationship is a question of law which
may not be made the subject of stipulation. (PCI Automation Center, Inc. vs. National
Labor Relations Commission, 252 SCRA 493 [1996]) 

Page 32 of 71
[4]

G.R. No. 145402. March 14, 2008.*

MERALCO INDUSTRIAL ENGINEERING SERVICES CORPORATION,
petitioner, vs.  NATIONAL LABOR RELATIONS COMMISSION, OFELIA P.
LANDRITO GENERAL SERVICES and/or OFELIA P. LANDRITO, respondents.

Judgments; Law of the Case; Words and Phrases; Law of the case has been defined as the
opinion delivered on a former appeal—it is a term applied to an established rule that when an
appellate court passes on a question and remands the case to the lower court for further
proceedings, the question there settled becomes the law of the case upon subsequent appeal.—Law
of the case has been defined as the opinion delivered on a former appeal. It is a term applied to an
established rule that when an appellate court passes on a question and remands the case to the lower
court for further proceedings, the question there settled becomes the law of the case upon
subsequent appeal. It means that whatever is once irrevocably established as the controlling legal
rule or decision between the same parties in the same case continues to be the law of the
case, whether correct on general principles or not, so long as the facts on which such decision was
predicated continue to be the facts of the case before the court. Indeed, courts must adhere thereto,
whether the legal principles laid down were “correct on general principles or not” or “whether the
question is right or wrong” because public policy, judicial orderliness and economy require such
stability in the final judgments of courts or tribunals of competent jurisdiction.

Labor Law; Labor Standards; Independent Contractors; Indirect Employers; An indirect

employer (as defined by Article 107 of the Labor Code) can only be held solidarily liable with the
independent contractor or subcontractor (as provided under Article 109) in the event that the latter
fails to pay the wages of its employees (as described in Article 106)—it cannot be held liable in the
same way as the employer in every respect but only for purposes of unpaid wages.—The Court of
Appeals indeed erred when it ruled that the petitioner was jointly and solidarily liable with the
private respondents as regards the payment of separation pay. The appellate court used as basis
Article 109 of the Labor Code, as amended, in holding the petitioner solidarily liable with the
private respondents for the payment of separation pay: ART. 109. Solidary Liability.—The
provisions of existing laws to the contrary notwithstanding, every employer or indirect employer
shall be held responsible with his contractor or subcontractor for any violation of any provision of
this Code. For purposes of determining the extent of their civil liability under this Chapter, they
shall be considered as direct employers. [Emphasis supplied]. However, the afore-quoted provision
must be read in conjunction with Articles 106 and 107 of the Labor Code, as amended. Article 107
of the Labor Code, as amended, defines an indirect employer as “any person, partnership,
association or corporation which, not being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.” To ensure that the contractor’s employees are
paid their appropriate wages, Article 106 of the Labor Code, as amended, provides: ART.
106. CONTRACTOR OR SUBCONTRACTOR.—x x x. In the event that the contractor or
subcontractor fails to pay the wages of his employees in accordance with this Code, the employer
shall be jointly and severally liable with his contractor or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him. [Emphasis supplied]. Taken together, an indirect employer (as
defined by Article 107) can only be held solidarily liable with the independent contractor or
subcontractor (as provided under Article 109) in the event that the latter fails to pay the wages of its
employees (as described in Article 106). Hence, while it is true that the petitioner was the indirect
employer of the complainants, it cannot be held liable in the same way as the employer in every
respect. The petitioner may be considered an indirect employer only for purposes of unpaid wages.

Page 33 of 71
 Same; Same; Same; Same; Backwages; The only instance when the principal can also be held
liable with the independent contractor or subcontractor for the backwages 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.—There is no question that
private respondents are operating as an independent contractor and that the complainants were their
employees. There was no employer-employee relationship that existed between the petitioner and
the complainants and, thus, the former could not have dismissed the latter from employment. Only
private respondents, as the complainants’ employer, can terminate their services, and should it be
done illegally, be held liable therefor. The only instance when the principal can also be held liable
with the independent contractor or subcontractor for the backwages 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.

Same; Same; Same; Same; Obligations and Contracts; It is basic that a contract is the law
between the parties and the stipulations therein, provided that they are not contrary to law, morals,
good customs, public order or public policy, shall be binding as between the parties—if the contract
does not provide for a particular liability, the Court cannot just read the same into the contract
without possibly violating the intention of the parties.—Neither can the liability for the separation
pay of the complainants be extended to the petitioner based on contract. Contract Order No. 166-84
executed between the petitioner and the private respondents contains no provision for separation pay
in the event that the petitioner terminates the same. It is basic that a contract is the law between the
parties and the stipulations therein, provided that they are not contrary to law, morals, good customs,
public order or public policy, shall be binding as between the parties. 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.

Same; Same; Same; Same; The joint and several liability of the principal with the contractor
and subcontractor was enacted to ensure compliance with the provisions of the Labor Code,
principally those on statutory minimum wage, facilitating, if not guaranteeing, payment of the
workers’ compensation, thus, giving the workers ample protection as mandated by the 1987
Constitution; While the Supreme Court had previously ruled that the indirect employer can recover
whatever amount it had paid to the employees in accordance with the terms of the service contract
between itself and the contractor, the said ruling cannot be applied in reverse to this case as to
allow the independent contractor, who paid for the judgment awards in full, to recover from the
indirect employer.—In this case, however, private respondents had already posted a surety bond in
an amount sufficient to cover all the judgment awards due the complainants, including those for
underpayment of wages and non-payment of overtime pay. The joint and several liability of the
principal with the contractor and subcontractor were enacted to ensure compliance with the
provisions of the Labor Code, principally those on statutory minimum wage. This liability
facilitates, if not guarantees, payment of the workers’ compensation, thus, giving the workers ample
protection as mandated by the 1987 Constitution. With private respondents’ surety bond, it can
therefore be said that the purpose of the Labor Code provision on the solidary liability of the indirect
employer is already accomplished since the interest of the complainants are already adequately
protected. Consequently, it will be futile to continuously hold the petitioner jointly and solidarily
liable with the private respondents for the judgment awards for underpayment of wages and non-
payment of overtime pay. But while this Court had previously ruled that the indirect employer can
recover whatever amount it had paid to the employees in accordance with the terms of the service
contract between itself and the contractor, the said ruling cannot be applied in reverse to this case as
to allow the private respondents (the independent contractor), who paid for the judgment awards in
full, to recover from the petitioner (the indirect employer).

Page 34 of 71
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

   The facts are stated in the opinion of the Court.

       Jose T. Collado, Jr. for petitioner.
      Lizardo, Carlos & Associates  and Ishiwata, Ishiwata, Fernandez, Barot &
Associates for respondent.
CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure seeking to reverse and set aside (1) the Decision 1 of the
Court of Appeals in CA-G.R. SP No. 50806, dated 24 April 2000, which modified the
Decision2 of the National Labor Relations Commission (NLRC), dated 30 January 1996 in
NLRC NCR CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89), and thereby held
the petitioner solidarily liable with the private respondents for the satisfaction of the
separation pay of the latter’s employees; and (2) the Resolution3 of the appellate court, dated
27 September 2000, in the same case which denied the petitioner’s Motion for
Reconsideration.

Petitioner Meralco Industrial Engineering Services Corporation (MIESCOR) is a

corporation duly organized and existing under the laws of the Republic of the Philippines
and a client of private respondents. Private respondent Ofelia P. Landrito General Services
(OPLGS) is a business firm engaged in providing and rendering general services, such as
janitorial and maintenance work to its clients, while private respondent Ofelia P. Landrito is
the Proprietor and General Manager of OPLGS.

The factual milieu of the present case is as follows:

On 7 November 1984, petitioner and private respondents executed Contract Order No.
166-84,4 whereby the latter would supply the petitioner janitorial services, which include
labor, materials, tools and equipment, as well as supervision of its assigned employees, at
petitioner’s Rockwell Thermal Plant in Makati City. Pursuant thereto, private respondents
assigned their 49 employees as janitors to petitioner
’s Rockwell Thermal Plant with a daily wage of P51.50 per employee.

On 20 September 1989, however, the aforesaid 49 employees (complainants) lodged a

Complaint for illegal deduction, underpayment, non-payment of overtime pay, legal holiday
pay, premium pay for holiday and rest day and night differentials 5 against the private
respondents before the Labor Arbiter. The case was docketed as NLRC NCR Case No. 00-
09-04432-89.

In view of the enactment of Republic Act No. 6727,6 the contract between the petitioner
and the private respondents was amended7 for the 10th time on 3 November 1989 to
increase the minimum daily wage per employee from P63.55 to P89.00 or P2,670.00 per
month. Two months thereafter, or on 2 January 1990,8 petitioner sent a letter to private
respondents informing them that effective at the close of business hours on 31 January
1990, petitioner was terminating Contract Order No. 166-84. Accordingly, at the end of the
business hours on 31 January 1990, the complainants were pulled out from their work at the
petitioner’s Rockwell Thermal Plant. Thus, on 27 February 1990, complainants amended

Page 35 of 71
their Complaint to include the charge of illegal dismissal and to implead the petitioner as a
party respondent therein.

Since the parties failed to settle amicably before the Labor Arbiter, they submitted their
respective position papers and other pleadings together with their documentary evidence.
Thereafter, a Decision was rendered by the Labor Arbiter on 26 March 1991, dismissing the
Complaint against the petitioner for lack of merit, but ordering the private respondents to
pay the complainants the total amount of P487,287.07 representing unpaid wages,
separation pay and overtime pay; as well as attorney’s fees in an amount equivalent to 10%
of the award or P48,728.70. All other claims of the complainants against the private
respondents were dismissed.9

Feeling aggrieved, private respondents appealed the aforesaid Decision to the NLRC.
Private respondents alleged, among other things, that: (1) 48 of the 49 complainants had
executed affidavits of desistance and they had never attended any hearing nor given any
authority to anyone to file a case on their behalf; (2) the Labor Arbiter erred in not
conducting a full-blown hearing on the case; (3) there is only one complainant in that case
who submitted a position paper on his own; (4) the complainants were not constructively
dismissed when they were not given assignments within a period of six months, but had
abandoned their jobs when they failed to report to another place of assignment; and (5) the
petitioner, being the principal, was solidarily liable with the private respondents for
failure to make an adjustment on the wages of the complainants. 10 On 28 May 1993, the
NLRC issued a Resolution11 affirming the Decision of the Labor Arbiter dated 26 March
1991 with the modification that the petitioner was solidarily liable with the private
respondents, ratiocinating thus:
“We, however, disagree with the dismissal of the case against [herein petitioner]. Under
Art. 107  of the Labor Code of the Philippines, [herein petitioner] is considered an indirect
12

employer and can be held solidarily liable with [private respondents] as an independent
contractor. Under Art. 109,  for purposes of determining the extent of its liability, [herein
13

petitioner] is considered a direct employer, hence, it is solidarily liable for complainant’s (sic)
wage differentials and unpaid overtime. We find this situation obtaining in this case in view of
the failure of [private respondents] to pay in full the labor standard benefits of complainants, in
which case liability is limited thereto and does not extend to the establishment of employer-
employee relations.”  [Emphasis supplied].
14

Both private respondents and petitioner separately moved for reconsideration of the
aforesaid Resolution of the NLRC. In their Motion for Reconsideration, private respondents
reiterated that the complainants abandoned their work, so that private respondents should
not be liable for separation pay; and that petitioner, not private respondents, should be liable
for complainants’ other monetary claims, i.e., for wage differentials and unpaid overtime.
The petitioner, in its own Motion for Reconsideration, asked that it be excluded from
liability. It averred that private respondents should be solely responsible for their acts as it
sufficiently paid private respondents all the benefits due the complainants.

On 30 July 1993, the NLRC issued an Order 15 noting that based on the records of the
case, the judgment award in the amount of P487,287.07 was secured by a surety bond
posted by the private respondents;16 hence, there was no longer any impediment to the
satisfaction of the complainants’ claims. Resultantly, the NLRC denied the private

Page 36 of 71
respondents’ Motion for Reconsideration. The NLRC likewise directed the Labor Arbiter to
enforce the monetary award against the private respondents’ surety bond and to determine
who should finally shoulder the liability therefor.17

Alleging grave abuse of discretion of the NLRC in its issuance of the Resolution and
Order dated 28 May 1993 and 30 July 1993, respectively, private respondents filed before
this Court a Petition for Certiorari with prayer for the issuance of a writ of preliminary
injunction. The same was docketed as G.R. No. 111506 entitled Ofelia Landrito General
Services v. National Labor Relations Commission. The said Petition suspended the
proceedings before the Labor Arbiter.

On 23 May 1994, however, this Court issued a Resolution18 dismissing G.R. No. 111506
for failure of private respondents to sufficiently show that the NLRC had committed grave
abuse of discretion in rendering its questioned judgment. This Court’s Resolution in G.R.
No. 111506 became final and executory on 25 July 1994.19
As a consequence thereof, the proceedings before the Labor Arbiter resumed with
respect to the determination of who should finally shoulder the liability for the monetary
awards granted to the complainants, in accordance with the NLRC Order dated 30 July
1993.

On 5 October 1994, the Labor Arbiter issued an Order,20 which reads:

“As can be gleaned from the Resolution dated [28 May 1993], there is that necessity of
clarifying the respective liabilities of [herein petitioner] and [herein private respondents] insofar as
the judgment award in the total sum of P487,287.07 is concerned.
The judgment award in the total sum of P487,287.07 as contained in the Decision dated [26
March 1991] consists of three (3) parts, as follows: First, the judgment award on the
underpayment; Second, the judgment award on separation pay; and Third, the judgment award on
the overtime pay.
The question now is: Which of these awards is [petitioner] solidarily liable with [private
respondents]?

An examination of the record elicits the finding that [petitioner] is solidarily liable with
[private respondents] on the judgment awards on the underpayment and on the non-payment
of the overtime pay. x x x. This joint and several liability of the contractor [private
respondents] and the principal [petitioner] is mandated by the Labor Code to assure
compliance of the provisions therein, including the statutory minimum wage (Art. 99,  Labor Code).
21

The contractor-agency is made liable by virtue of his status as direct employer. The principal, on
the other hand, is made the indirect employer of the contractor-agency’s employees for
purposes of paying the employees their wages should the contractor-agency be unable to pay
them. This joint and several liability facilitates, if not guarantees, payment of the workers
performance of any work, task, job or project, thus giving the workers ample protection as
mandated by the 1987 Constitution.

In sum, the complainants may enforce the judgment award on underpayment and the non-
payment of overtime pay against either [private respondents] and/or [petitioner].

However, in view of the finding in the Decision that [petitioner] had adjusted its contract price
for the janitorial services it contracted with [private respondents] conforming to the provisions of
Republic Act No. 6727, should the complainants enforce the judgment on the underpayment and on

Page 37 of 71
the non-payment of the overtime pay aginst (sic) [petitioner], the latter can seek reimbursement
from the former [meaning (private respondents)], but should the judgment award on the
underpayment and on the non-payment of the overtime pay be enforced against [private
respondents], the latter cannot seek reimbursement against [petitioner].
The judgment award on separation pay is the sole liability of [private respondents].
WHEREFORE, [petitioner] is jointly and severally liable with [private respondents] in the
judgment award on underpayment and on the non-payment of overtime pay. Should the
complainants enforce the above judgment award against [petitioner], the latter can seek
reimbursement against [private respondents], but should the aforementioned judgment award
be enforced against [private respondents], the latter cannot seek reimbursement from the
[petitioner].
The judgment award on the payment of separation pay is the sole liability of [private
respondents].
Let an alias writ of execution be issued. [Emphasis supplied].”
Again, both the private respondents and the petitioner appealed the afore-quoted Order
of the Labor Arbiter to the NLRC. On 25 April 1995, the NLRC issued a
Resolution22 affirming the Order dated 5 October 1994 of the Labor Arbiter and dismissing
both appeals for non-posting of the appeal or surety bond and/or for utter lack of
merit.23 When the private respondents and the petitioner moved for reconsideration,
however, it was granted by the NLRC in its Order 24 dated 27 July 1995. The NLRC thus set
aside its Resolution dated 25 April 1995, and directed the private respondents and the
petitioner to each post an appeal bond in the amount of P487,287.62 to perfect their
respective appeals.25 Both parties complied.26
On 30 January 1996, the NLRC rendered a Decision modifying the Order of the Labor
Arbiter dated 5 October 1994, the dispositive portion of which reads:
‘WHEREFORE, the [21 November 1994] appeal of [herein petitioner] is hereby granted. The [5
October 1994] Order of Labor Arbiter Donato G. Quinto, Jr., is modified to the extent that it still
held [petitioner] as “jointly and severally liable with [herein private respondents] in
the judgment award on underpayment and on the non-payment of overtime pay,” our
directive being that the Arbiter should now satisfy said labor-standards award, as well as that
of the separation pay, exclusively through the surety bond posted by [private
respondents].’  [Emphasis supplied].
27

Dissatisfied, private respondents moved for the reconsideration of the foregoing

Decision, but it was denied by the NLRC in an Order 28 dated 30 October 1996. This NLRC
Order dated 30 October 1996 became final and executory on 29 November 1996.
On 4 December 1996, private respondents filed a Petition for Certiorari29 before this
Court assailing the Decision and the Order of the NLRC dated 30 January 1996 and 30
October 1996, respectively. On 9 December 1998, this Court issued a Resolution 30 referring
the case to the Court of Appeals conformably with its ruling in St. Martin Funeral Home v.
National Labor Relations Commission.31 The case was docketed before the appellate court
as CA-G.R. SP No. 50806.
The Petition made a sole assignment of error, to wit:

“THE HONORABLE COMMISSION GRAVELY ERRED AND GRAVELY ABUSED ITS

DISCRETION IN FINDING THAT THE ULTIMATE LIABILITY SHOULD FALL ON THE
[HEREIN PRIVATE RESPONDENTS] ALONE, WITHOUT REIMBURSEMENT FROM THE
[HEREIN PETITIONER], IN ORDER TO SATISFY THE MONETARY AWARDS OF THE
[THEREIN COMPLAINANTS].” 32

Page 38 of 71
 After due proceedings, the Court of Appeals rendered the assailed Decision on 24 April
2000, modifying the Decision of the NLRC dated 30 January 1996 and holding the
petitioner solidarily liable with the private respondents for the satisfaction of the
laborers’ separation pay. According to the Court of Appeals:
“The [NLRC] adjudged the payment of separation pay to be the sole responsibility of [herein
private respondents] because (1) there is no employer-employee relationship between [herein
petitioner] and the forty-nine (49) [therein complainants]; (2) the payment of separation pay is not a
labor standard benefit. We disagree.
Again, We quote Article 109 of the Labor Code, as amended, viz.:

The provisions of existing laws to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or subcontractor for any violation of any
provision of this Code…”

The abovementioned statute speaks of “any violation of any provision of this Code.” Thus,
the existence or non-existence of employer-employee relationship and whether or not the
violation is one of labor standards is immaterial because said provision of law does not make
any distinction at all and, therefore, this Court should also refrain from making any
distinction. Concomitantly, [herein petitioner] should be jointly and severally liable with
[private respondents] for the payment of wage differentials, overtime pay and separation pay
of the [therein complainants]. The joint and several liability imposed to [petitioner] is, again,
without prejudice to a claim for reimbursement by [petitioner] against [private respondents]
for reasons already discusses (sic).

WHEREFORE, premises studiedly considered, the assailed 30 January 1996 decision of [the
NLRC] is hereby modified insofar as [petitioner] should be held solidarily liable with [the
private respondents] for the satisfaction of the laborers’ separation pay. No pronouncement as
to costs.”  [Emphasis supplied].
33

The petitioner filed a Motion for Reconsideration of the aforesaid Decision but it was
denied by the Court of Appeals in a Resolution dated 27 September 2000.

Petitioner now comes before this Court via a Petition for Review on Certiorari, docketed
as G.R. No. 145402, raising the sole issue of “whether or not the Honorable Court of
Appeals palpably erred when it went beyond the issues of the case as it modified the factual
findings of the Labor Arbiter which attained finality after it was affirmed by Public
Respondent NLRC and by the Supreme Court which can no longer be disturbed as it
became the law of the case.”34

Petitioner argues that in the assailed Decision dated 24 April 2000, the Court of Appeals
found that the sole issue for its resolution was whether the ultimate liability to pay the
monetary awards in favor of the 49 employees falls on the private respondents without
reimbursement from the petitioner. Hence, the appellate court should have limited itself to
determining the right of private respondents to still seek reimbursement from petitioner for
the monetary awards on the unpaid wages and overtime pay of the complainants.

According to petitioner, the NLRC, in its Resolution dated 28 May 1993, already found
that petitioner had fully complied with its salary obligations to the complainants. Petitioner
invokes the same NLRC Resolution to support its claim that it was not liable to share
with the private respondents in the payment of separation pay to complainants. When

Page 39 of 71
private respondents questioned the said NLRC Resolution in a Petition for Certiorari with
this Court, docketed as G.R. No. 111506, this Court found that the NLRC did not commit
grave abuse of discretion in the issuance thereof and accordingly dismissed private
respondents’ Petition. Said NLRC Resolution, therefore, has since become final and
executory and can no longer be disturbed for it now constitutes the law of the case.

Assuming for the sake of argument that the Court of Appeals can still take cognizance of
the issue of petitioner’s liability for complainants’ separation pay, petitioner asserts that the
appellate court seriously erred in concluding that it is jointly and solidarily liable with
private respondents for the payment thereof. The payment of separation pay should be the
sole responsibility of the private respondents because there was no employer-employee
relationship between the petitioner and the complainants, and the payment of separation pay
is not a labor standards benefit.

Law of the case has been defined as the opinion delivered on a former appeal. It is a term
applied to an established rule that when an appellate court passes on a question and remands
the case to the lower court for further proceedings, the question there settled becomes the
law of the case upon subsequent appeal. It means that whatever is once irrevocably
established as the controlling legal rule or decision between the same parties in the same
case continues to be the law of the case, whether correct on general principles or not, so
long as the facts on which such decision was predicated continue to be the facts of the case
before the court.35 Indeed, courts must adhere thereto, whether the legal principles laid down
were “correct on general principles or not” or “whether the question is right or wrong”
because public policy, judicial orderliness and economy require such stability in the final
judgments of courts or tribunals of competent jurisdiction.36

Petitioner’s application of the law of the case principle to the case at bar as regards its
liability for payment of separation pay is misplaced.
The only matters settled in the 23 May 1994 Resolution of this Court in G.R. No.
111506, which can be regarded as the law of the case, were (1) both the petitioner and the
private respondents were jointly and solidarily liable for the judgment awards due the
complainants; and (2) the said judgment awards shall be enforced against the surety bond
posted by the private respondents. However, the issue as regards the liability of the
petitioner for payment of separation pay was yet to be resolved because precisely, the
NLRC, in its Order dated 30 July 1993, still directed the Labor Arbiter to make a
determination on who should finally shoulder the monetary awards granted to the
complainants. And it was only after G.R. No. 111506 was dismissed by this Court that the
Labor Arbiter promulgated his Decision dated 5 October 1994,
wherein he clarified the respective liabilities of the petitioner and the private respondents
for the judgment awards. In his 5 October 1994 Decision, the Labor Arbiter explained that
the solidary liability of the petitioner was limited to the monetary awards for wage
underpayment and non-payment of overtime pay due the complainants, and it did not, in
any way, extend to the payment of separation pay as the same was the sole liability of the
private respondents.

Issue: w/n pet is solidarily liable with respondent for separation pay
Held: negative. Only wages.

Page 40 of 71
 Nonetheless, this Court finds the present Petition meritorious.
The Court of Appeals indeed erred when it ruled that the petitioner was jointly and
solidarily liable with the private respondents as regards the payment of separation pay.

The appellate court used as basis Article 109 of the Labor Code, as amended, in holding
the petitioner solidarily liable with the private respondents for the payment of separation
pay:

“ART. 109. Solidary Liability.—The provisions of existing laws to the contrary

notwithstanding, every employer or indirect employer shall be held responsible with his contractor
or subcontractor for any violation of any provision of this Code. For purposes of determining the
extent of their civil liability under this Chapter, they shall be considered as direct employers.”
[Emphasis supplied].

However, the afore-quoted provision must be read in conjunction with Articles 106 and
107 of the Labor Code, as amended.

Article 107 of the Labor Code, as amended, defines an indirect employer as “any person,
partnership, association or corporation which, not being an employer, contracts with an
independent contractor for the performance of any work, task, job or project.” To ensure
that the contractor’s employees are paid their appropriate wages, Article 106 of the Labor
Code, as amended, provides:

“ART. 106. CONTRACTOR OR SUBCONTRACTOR.—x x x.
In the event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work performed under the contract, in the same
manner and extent that he is liable to employees directly employed by him.” [Emphasis supplied].

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

Hence, while it is true that the petitioner was the indirect employer of the complainants,
it cannot be held liable in the same way as the employer in every respect. The petitioner
may be considered an indirect employer only for purposes of unpaid wages. As this Court
succinctly explained in Philippine Airlines, Inc. v. National Labor Relations Commission:37

“While USSI is an independent contractor under the security service agreement and PAL may be
considered an indirect employer, that status did not make PAL the employer of the security guards
in every respect. As correctly posited by the Office of the Solicitor General, PAL may be considered
an indirect employer only for purposes of unpaid wages since Article 106, which is applicable to the
situation contemplated in Section 107, speaks of wages. The concept of indirect employer only
relates or refers to the liability for unpaid wages. Read together, Articles 106 and 109 simply mean
that the party with whom an independent contractor deals is solidarily liable with the latter for
unpaid wages, and only to that extent and for that purpose that the latter is considered a direct
employer. The term “wage” is defined in Article 97(f) of the Labor Code as “the remuneration of
earnings, however designated, capable of being expressed in terms of money, whether fixed or

Page 41 of 71
ascertained on a time, task, piece, or commission basis, or other method of calculating the unwritten
contract of employment for work done or to be done, or for services rendered or to be rendered and
includes 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.”

Further, there is no question that private respondents are operating as an independent

contractor and that the complainants were their employees. There was no employer-
employee relationship that existed between the petitioner and the complainants and, thus,
the former could not have dismissed the latter from employment. Only private respondents,
as the complainants’ employer, can terminate their services, and should it be done illegally,
be held liable therefor. The only instance when the principal can also be held liable with the
independent contractor or subcontractor for the backwages 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, thus:

“The liability arising from an illegal dismissal is unlike an order to pay the statutory minimum
wage, because the workers’ right to such wage is derived from law. The proposition that payment of
back wages and separation pay should be covered by Article 109, which holds an indirect employer
solidarily responsible with his contractor or subcontractor for “any violation of any provision of this
Code,” would have been tenable if there were proof—there was none in this case—that the
principal/employer had conspired with the contractor in the acts giving rise to the illegal
dismissal.”38

It is the established fact of conspiracy that will tie the principal or indirect employer to
the illegal dismissal of the contractor or subcontractor’s employees. In the present case,
there is no allegation, much less proof presented, that the petitioner conspired with private
respondents in the illegal dismissal of the latter’s employees; hence, it cannot be held liable
for the same.

Neither can the liability for the separation pay of the complainants be extended to the
petitioner based on contract. Contract Order No. 166-84 executed between the petitioner
and the private respondents contains no provision for separation pay in the event that the
petitioner terminates the same. It is basic that a contract is the law between the parties and
the stipulations therein, provided that they are not contrary to law, morals, good customs,
public order or public policy, shall be binding as between the parties. 39 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.
It is also worth noting that although the issue in CA-G.R. SP No. 50806 pertains to
private respondents’ right to reimbursement from petitioner for the “monetary awards” in
favor of the complainants, they limited their arguments to the monetary awards for
underpayment of wages and non-payment of overtime pay, and were conspicuously silent
on the monetary award for separation pay. Thus, private respondents’ sole liability for the
separation pay of their employees should have been deemed settled and already beyond the
power of the Court of Appeals to resolve, since it was an issue never raised before it.40
Although petitioner is not liable for complainants’ separation pay, the Court conforms to
the consistent findings in the proceedings below that the petitioner is solidarily liable with
the private respondents for the judgment awards for underpayment of wages and non-
payment of overtime pay.

Page 42 of 71
 In this case, however, private respondents had already posted a surety bond in an amount
sufficient to cover all the judgment awards due the complainants, including those for
underpayment of wages and non-payment of overtime pay. The joint and several liability of
the principal with the contractor and subcontractor were enacted to ensure compliance with
the provisions of the Labor Code, principally those on statutory minimum wage. This
liability facilitates, if not guarantees, payment of the workers’ compensation, thus, giving
the workers ample protection as mandated by the 1987 Constitution. 41 With private
respondents’ surety bond, it can therefore be said that the purpose of the Labor Code
provision on the solidary liability of the indirect employer is already accomplished since the
interest of the complainants are already adequately protected. Consequently, it will be futile
to continuously hold the petitioner jointly and solidarily liable with the private respondents
for the judgment awards for underpayment of wages and non-payment of overtime pay.
But while this Court had previously ruled that the indirect employer can recover
whatever amount it had paid to the employees in accordance with the terms of the service
contract between itself and the contractor, 42 the said ruling cannot be applied in reverse to
this case as to allow the private respondents (the independent contractor), who paid for the
judgment awards in full, to recover from the petitioner (the indirect employer).
Private respondents have nothing more to recover from petitioner.
Petitioner had already handed over to private respondent the wages and other benefits of
the complainants. Records reveal that it had complied with complainants’ salary increases
in accordance with the minimum wage set by Republic Act No. 6727 by faithfully adjusting
the contract price for the janitorial services it contracted with private respondents. 43 This is a
finding of fact made by the Labor Arbiter, 44 untouched by the NLRC45 and explicitly
affirmed by the Court of Appeals,46 and which should already bind this Court.
This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of this Court
in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited
to reviewing only errors of law, not of fact, unless the factual findings complained of are
completely devoid of support from the evidence on record, or the assailed judgment is based
on a gross misapprehension of facts. Besides, factual findings of quasi-judicial agencies like
the NLRC, when affirmed by the Court of Appeals, are conclusive upon the parties and
binding on this Court.47
Having already received from petitioner the correct amount of wages and benefits, but
having failed to turn them over to the complainants, private respondents should now solely
bear the liability for the underpayment of wages and non-payment of the overtime pay.
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.

Page 43 of 71
 [5]
G.R. No. 128399. January 15, 1998. *

CAGAYAN SUGAR MILLING COMPANY, petitioner, vs. SECRETARY OF LABOR

AND EMPLOYMENT, DIRECTOR RICARDO S. MARTINEZ, SR., and CARSUMCO
EMPLOYEES UNION, respondents.

Labor Law; Minimum Wage; Wage Orders; Due Process; It is a fundamental rule, borne out

of a sense of fairness, that the public is first notified of a law or wage order before it can be held
liable for violation thereof.—In wage-fixing, factors such as fair return of capital invested, the need
to induce industries to invest in the countryside and the capacity of employers to pay are, among
others, taken into consideration. Hence, our legislators provide for the creation of Regional
Tripartite Boards composed of representatives from the government, the workers and the employers
to determine the appropriate wage rates per region to ensure that all sides are heard. For the same
reason, Article 123 of the Labor Code also provides that in the performance of their wage-
determining functions, the Regional Board shall conduct public hearings and consultations, giving
notices to interested parties. Moreover, it mandates that the Wage Order shall take effect only after
publication in a newspaper of general circulation in the region. It is a fundamental rule, borne out of
a sense of fairness, that the public is first notified of a law or wage order before it can be held liable
for violation thereof. In the case at bar, it is indisputable that there was no public consultation or
hearing conducted prior to the passage of RO2-02-A. Neither was it published in a newspaper of
general circulation as attested in the February 3, 1995 minutes of the meeting of the Regional Wage
Board that the non-publication was by consensus of all the board members. Hence, RO2-02-A must
be struck down for violation of Article 123 of the Labor Code.

Same; Same; Same; Statutory Construction; It is not just to expect an employer to interpret a

Wage Order to mean that it grant an across the board increase where such interpretation is not
sustained by its text.—The contention is absurd. Petitioner clearly complied with Wage Order RO2-
02 which provided for an increase in statutory minimum wage rates for employees in Region II. It is
not just to expect petitioner to interpret Wage Order RO2-02 to mean that it grant an across the
board increase as such interpretation is not sustained by its text. Indeed, the Regional Wage Board
had to amend Wage Order RO2-02 to clarify this alleged intent.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.

     Roxas, De los Reyes, Laurel & Rosario for petitioner.

PUNO, J.:

In this petition for certiorari, petitioner CAGAYAN SUGAR MILLING COMPANY

(CARSUMCO) impugns the October 8, 1996 Decision of the Secretary of Labor,
dismissing its appeal and upholding the Order of Regional Director Ricardo S. Martinez, Sr.
finding petitioner guilty of violating Regional Wage Order No. RO2-02.
The facts: On November 16, 1993, Regional Wage Order No. RO2-02  was issued by the
1

Regional Tripartite Wage and Productivity Board, Regional Office No. II of the Department
of Labor and Employment (DOLE). It provided, inter alia, that:
“Section 1. Upon effectivity of this Wage Order, the statutory minimum wage rates applicable to
workers and employees in the private sector in Region II shall be increased as follows:
xxx
1.2 P14.00 per day . . . . Cagayan

Page 44 of 71
 x x x”

On September 12 and 13, 1994, labor inspectors from the DOLE Regional Office examined
the books of petitioner to determine its compliance with the wage order. They found that
petitioner violated the wage order as it did not implement an across the board increase in the
salary of its employees. At the hearing at the DOLE Regional Office for the alleged
violation, petitioner maintained that it complied with Wage Order No. RO2-02 as it paid the
mandated increase in the minimum wage.
In an Order dated December 16, 1994, public respondent Regional Director Ricardo S.
Martinez, Sr. ruled that petitioner violated Wage Order RO2-02 by failing to implement an
across the board increase in the salary of its employees. He ordered petitioner to pay the
deficiency in the salary of its employees in the total amount of P555,133.41.

On January 6, 1995, petitioner appealed to public respondent Labor Secretary Leonardo

A. Quisumbing. On the same date, the Regional Wage Board issued Wage Order No. RO2-
02-A,  amending the earlier wage order, thus:
2

“Section 1. Section 1 of Wage Order No. RO2-02 shall now read as, “Upon effectivity of this Wage
Order, the workers and employees in the private sector in Region 2 shall receive an across the board
wage increase as follows:
xxx
1.2 P14.00 per day . . . . Cagayan
xxx
“Section 2. This amendment is curative in nature and shall retroact to the date of the effectivity
of Wage Order No. RO2-02.” On October 8, 1996, the Secretary of Labor dismissed
petitioner’s appeal and affirmed the Order of Regional Director Martinez, Sr. Petitioner’s
motion for reconsideration was likewise denied. 3

On February 12, 1997, private respondent CARSUMCO EMPLOYEES UNION moved

for execution of the December 16, 1994 Order. Regional Director Martinez, Sr. granted the
motion and issued the writ of execution. On March 4, 1997, petitioner moved for
reconsideration to set aside the writ of execution. On March 5, the DOLE regional sheriff
served on petitioner 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.
Hence, this petition, with a prayer for the issuance of a temporary restraining order
(TRO).

On April 3, 1997, this Court issued a TRO enjoining respondents from enforcing the writ
of execution.  On July 16, upon petitioner’s motion, we amended the TRO by also enjoining
4

respondents from enforcing the Decision of the Secretary of Labor and conducting further
proceedings until further orders from this Court. 5

In the case at bar,

petitioner contends that:

Page 45 of 71
WAGE ORDER RO2-02 IS NULL AND VOID FOR HAVING BEEN ISSUED IN VIOLATION
OF THE PROCEDURE PROVIDED BY LAW AND IN VIOLATION OF PETITIONER’S RIGHT
TO DUE PROCESS OF LAW.

II

WAGE ORDER NO. RO2-02 CLEARLY PROVIDED FOR THE FIXING OF A STATUTORY
MINIMUM WAGE RATE AND NOT AN ACROSS THE BOARD INCREASE IN WAGES.

III

THE DECISION OF THE SECRETARY OF LABOR AND EMPLOYMENT IS NULL AND

VOID FOR LACK OF ANY LEGAL BASIS.

W/N the wage order is null and void

Held: affirmative

The petition has merit.

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.

Petitioner assails the validity of Wage Order RO2-02-A on the ground that it was passed
without the required public consultation and newspaper publication. Thus, petitioner claims
that public respondent Labor Secretary Quisumbing abused his discretion in upholding the
validity of said wage order.

We agree.
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 consultation or hearings and newspaper
publication insofar as Wage Order No. RO2-02-A is concerned. In fact, these allegations
were not denied by public respondents in their Comment. Public respondents’ position is
that there was no need to comply with the legal requirements of consultation and newspaper
publication as Wage Order No. RO2-02-A merely clarified the ambiguous provision of the
original wage order.
Page 46 of 71
 We are not persuaded.

To begin with, there was no ambiguity in the provision of Wage Order RO2-02 as it
provided in clear and categorical terms for an increase in statutory minimum wage of
workers in the region. Hence, the subsequent passage of RO2-02-A providing instead for an
across the board increase in wages did not clarify the earlier Order but amended the same.
In truth, it changed the essence of the original Order. In passing RO2-02-A without going
through the process of public consultation and hearings, the Regional Board deprived
petitioner and other employers of due process as they were not given the opportunity to
ventilate their positions regarding the pro-posed wage increase. In wage-fixing, factors such
as fair return of capital invested, the need to induce industries to invest in the countryside
and the capacity of employers to pay are, among others, taken into consideration.  Hence,
6

our legislators provide for the creation of Regional Tripartite Boards composed of
representatives from the government, the workers and the employers to determine the
appropriate wage rates per region to ensure that all sides are heard. For the same reason,
Article 123 of the Labor Code also provides that in the performance of their wage-
determining functions, the Regional Board shall conduct public hearings and consultations,
giving notices to interested parties. Moreover, it mandates that the Wage Order shall take
effect only after publication in a newspaper of general circulation in the region. It is a
fundamental rule, borne out of a sense of fairness, that the public is first notified of a law or
wage order before it can be held liable for violation thereof. In the case at bar, it is
indisputable that there was no public consultation or hearing conducted prior to the passage
of RO2-02-A. Neither was it published in a newspaper of general circulation as attested in
the February 3, 1995 minutes of the meeting of the Regional Wage Board that the non-
publication was by consensus of all the board members.  Hence, RO2-02-A must be struck
7

down for violation of Article 123 of the Labor Code.

Considering that RO2-02-A is invalid, the next issue to settle is whether petitioner could
be held liable under the original wage order, RO2-02.

Public respondents insist that despite the wording of Wage Order RO2-02 providing for
a statutory increase in minimum wage, the real intention of the Regional Board was to
provide for an across the board increase. Hence, they urge that petitioner is liable for merely
providing an increase in the statutory minimum wage rates of its employees.

The contention is absurd. Petitioner clearly complied with Wage Order RO2-02 which
provided for an increase in statutory minimum wage rates for employees in Region II. It is
not just to expect petitioner to interpret Wage Order RO2-02 to mean that it grant an across
the board increase as such interpretation is not sustained by its text. Indeed, the Regional
Wage Board had to amend Wage Order RO2-02 to clarify this alleged intent.

In sum, we hold that RO2-02-A is invalid for lack of public consultations and hearings
and non-publication in a newspaper of general circulation, in violation of Article 123 of the
Labor Code. We likewise find that public respondent Secretary of Labor committed grave
abuse of discretion in upholding the findings of Regional Director Ricardo S. Martinez, Sr.
that petitioner violated Wage Order RO2-02.

Page 47 of 71
 IN VIEW WHEREOF, the petition is GRANTED. The Decision of the Secretary of
Labor, dated October 8, 1996, is set aside for lack of merit.
SO ORDERED.
     Regalado  (Chairman), Mendoza and Martinez, JJ., concur.
Petition granted; Reviewed decision set aside.
Notes.—Wage Orders Nos. 3, 4, 5 and 6 and their Implementing Rules did not set forth
a clear and specific notion of “wage distortion” but only recognized that the implementation
of the Wage Orders could result in a distortion of the wage structure. (National Federation
of Labor vs. National Labor Relations Commission, 234 SCRA 311 [1994])
It appears that the clear mandate of PDs 1389, 1614, 1713 and 1751 and Wage Orders
Nos. 2, 3, 4, 5 and 6 was merely to increase the prevailing minimum wages of particular
employee groups—there were no across-the-board increases to all employees. (Manila
Mandarin Employees Union vs. National Labor Relations Commission, 264 SCRA
320 [1996])
It is to be borne in mind that wage orders, being statutory and mandatory, cannot be
waived. (Alpha Investigation and Security Agency, Inc. (AISA) vs. National Labor Relations
Commission, 272 SCRA 653 [1997])

——o0o——

Page 48 of 71
[6]

G.R. No. 96169. September 24, 1991. *

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.
Labor Law; Wages; The National Wages and Productivity Commission noted that the
determination of wages has generally involved true methods, the “floor-wage” method and the
“salary-ceiling” method.—In the National Wages and Productivity Commission’s Order of
November 6,1990, the Commission noted that the determination of wages has generally involved
two methods, the “floor-wage” method and the “salary-ceiling” method.

Same; Same; Same; 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.—As the Commission noted, the increasing trend is toward
the second mode, the salary-cap method, which has reduced disputes arising from wage distortions
(brought about, apparently, by the floor-wage method), Of course, disputes are appropriate subjects
of collective bargaining and grievance procedures, but as the Commission observed and as we are
ourselves agreed, bargaining has helped very little in correcting wage distortions. Precisely,
Republic Act No. 6727 was intended to rationalize wages, first, by providing for fulltime boards to
police wages round-the-clock, and second. by giving the boards enough powers to achieve this
objective.

Same; Same; Same; Court not convinced that the Regional Board of the National Capital
Region in decreeing an across-the-board hike performed an unlawful act of legislation.—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-fixing, 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
floorwage method’s failure, the Court believes that the Commission cor-rectly upheld the Regional
Board of the National Capital Region.

Same; Same; Same; The Act as meant to nationalize wages that is, by having permanent

boards to decide wages rather than leaving wage determination to Congress year after year and
law after law.—lt is the Court’s thinking, reached after the Court’s own study of the Act, that the
Act is meant to rationalize wages, that is, by having permanent boards to decide wages rather than
leaving wage"determination to Congress year after year-and law-.after law. The Court is not of
course saying that the Act is an effort of Congress to pass the buck, or worse, to abdicate its duty,
but simply, to leave the question of wages to the expertise of experts.

Same; Same; Definition of.—The Labor Code defines “wage” as follows: “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 includes 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 “Fair and

Page 49 of 71
reasonable value” shall not include any profit to the employer or to any person affiliated with the
employer,,

PETITION for review from the decision of the National Wages and Productivity
Commission,

The facts are stated in the opinion of the Court.

     Sycip, Salazar, Hernandez & Gatmaitan for petitioner;
     Gilbert P. Lorenzo for private respondent.

SARMIENTO, J.;

The petition is given due course and the various pleadings submitted being sufficient to aid
the Court in the proper resolution of the basic issues raised in this case, we decide it without
further ado.

The Employers Confederation of the Philippines (ECOP) is questioning the validity of

Wage Order No. NCR-01-A dated October 23, 1990 of the Regional Tripartite Wages and
Productivity Board, National Capital Region, promulgated pursuant to the authority of
Republic Act No. 6727, “AN ACT TO RATIONALIZE WAGE POLICY
DETERMINATION BY ESTABLISHING THE MECHANISM AND PROPER
STANDARDS THEREFOR, AMENDING FOR THE PURPOSE ARTICLE 99 OF, AND
INCORPORATING ARTICLES 120, 121, 122, 123, 124,126, AND 127 INTO,
PRESIDENTIAL DECREE NO. 442 AS AMENDED, OTHERWISE KNOWN AS THE
LABOR CODE OF THE PHILIPPINES, FIXING NEW WAGE RATES, PROVIDING
WAGE INCENTIVES FOR INDUSTRIAL DISPERSAL TO THE COUNTRYSIDE, AND
FOR OTHER PURPOSES," was approved by the President on June 9,1989, Aside from
providing new wage rates,  the “Wage Rationalization Act” also provides, among other
1

things, for various Regional Tripartite Wages and Productivity Boards in charge of
prescribing minimum wage rates for all workers in the various regions,  and for a National
2

Wages and Productivity Commission to review, among other functions, wage levels
determined by the boards. 3

On October 15, 1990, the Regional Board of the National Capital Region issued Wage
Order No. NCR-01, increasing the minimum wage by P17.00 daily in the National Capital
Region.  The Trade Union Congress of the Philippines (TUCP) moved for reconsideration;
4

so did the Personnel Management Association of the Philippines (PMAP).  ECOP opposed.
5

On October 23, 1990, the Board issued Wage Order No. NCR01-A, amending Wage
Order No. NCR-01, as follows:

Section 1. Upon the effectivity of this Wage Order, all workers and employees in the private
sector in the National Capital Region already receiving wages above the statutory minimum wage
rates up to one hundred and twenty-five pesos (P1 25.00) per day shall also receive an increase of
seventeen pesos (P17.00) per day.

ECOP appealed to the National Wages ‘and Productivity Commission. On November 6,

1990, the Commission promulgated an Order, dismissing. the appeal for lack of merit. On

Page 50 of 71
November 14, 1990, the Commission denied.reconsideration. The Orders of the
Commission (as we’ll as Wage Order No. NCR-01-A) are the subject of this petition, in
which ECOP assails the board’s grant of an “across-the-board” wage increase to workers
already being paid more than existing minimum wage rates (up to P125.00 a day) as an
alleged excess of authority, and” alleges that under the Republic Act No. 6727, the boards
may only prescribe “minimum wages,” not determine “salary ceilings/' ECOP likewise
claims that Republic Act No. 6727 is meant to promote collective bargaining as the primary
mode of settling wages, and in its opinion, the boards can not preempt collective bargaining
agreements by establishing ceilings. ECOP prays for the nullification of Wage Order No.
NCR01-A and for the “reinstatement” of Wage Order No. NCR-01 The Court directed the
Solicitor General to comment on behalf of the Government, and in the Solicitor General’s
opinion, the Board, in prescribing an across-the-board hike did not, in reality, “grant
additional or other benefits to workers and employees, such as the extension of wage
increases to employees and workers already receiving more than minimum wages . . ."  but 6

rather, fixed minimum wages according to the “salary-ceiling method,”

ECOP insists, in its reply, that wage-fixing is a legislative function, and Republic Act
No. 6727 delegated to the regional boards no more “than the power to grant minimum wage
adjustments"  and “in the absence of clear statutory authority," the boards may no more than
7

adjust “floor wages." 9

The Solicitor General, in his rejoinder, argues that Republic Act No. 6727 is intended to
correct “wage distortions” and the salary-ceiling method (of determining wages) is meant,
precisely, to rectify wage distortions.10

The Court is inclined to agree with the Government. In the National Wages and
Productivity Commission’s Order of November 6,1990, the Commission noted that the
determination of wages has generally involved two methods, the “floor-wage” method and
the “salary-ceiling” method. We quote:

Historically, legislation involving the adjustment of the minimum wage made use of two methods.
The first method involves the fixing of determinate amount that would be added to the prevailing
statutory minimum wage. The other involves “the salary-ceiling method” whereby the wage
adjustment is applied to employees receiving a certain denominated salary ceiling. The first method
was adopted in the earlier wage orders, while the latter method was used in R.A. Nos. 6640 and
6727. Prior to this, the salary-ceiling method was also used in no less than eleven issuances
mandating the grant of cost-of-living allowances (P.D. Nos. 525, 1123, 1614, 1634, 1678, 1713 and
Wage Order Nos. 1, 2, 3, 5 and 6). The shift from the first method to the second method was
brought about by labor disputes arising from wage distortions, a consequence of the implementation
of the said wage orders. Apparently, the wage order provisions that wage distortions shall be
resolved through the grievance procedure was perceived by legislators as ineffective in checking
industrial unrest resulting from wage order implementations. With the establishment of the second
method as a practice in minimum wage fixing, wage distortion disputes were minimized. 11

As the Commission noted, the increasing trend is toward the second mode, the salary-cap
method, which has reduced disputes arising from wage distortions (brought about,
apparently, by the floor-wage method). Of course, disputes are appropriate subjects of
collective bargaining and grievance procedures, but as the Commission observed and as we
are ourselves agreed, bargaining has helped very little in correcting wage distortions.
Page 51 of 71
Precisely, 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. We quote:

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:

1. "(a)The demand for living wages;

2. "(b)Wage adjustment vis-a-vis the consumer price index;
3. "(c)The cost of living and changes or increases therein;
4. "(d)The needs of workers and their families;
5. "(e)The need to induce industries to invest in the countryside;
6. "(f)Improvements in standards of living;
7. "(g)The prevailing wage levels;
8. "(h)Fair return of the capital invested and capacity to pay of employers;
9. "(i)Effects of employment generation and family income; and
10. "(j)The equitable distribution of income and wealth along the imperatives of
economic and social development." 12

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
wagefixing, like rate-fixing, constitutes an act Congress;  it is also true, however, that
13

Congress may delegate the power to fix rates  provided that, as in all delegations cases,
14

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.

Apparently, ECOP is of the mistaken impression that Republic Act No. 6727 is meant to
“get the Government out of the industry” and leave labor and management alone in deciding
wages. The Court does not think that the law intended to deregulate the relation between
labor and capital for several reasons: (1) The Constitution calls upon the State to protect the
rights of workers and promote their welfare;  (2) the Constitution also makes it a duty of the
15

State “to intervene when the common goal so demands” in regulating property and property
relations;  (3) the Charter urges Congress to give priority to the enactment of measures,
16

among other things, to diffuse the wealth of the nation and to regulate the use of
property;  (4) the Charter recognizes the “just share of labor in the fruits of production;"  (5)
17 18

Page 52 of 71
under the Labor Code, the State shall regulate the relations between labor and
management;  (6) under Republic Act No. 6727 itself, the State is interested in seeing that
19

workers receive fair and equitable wages;  and (7) the Constitution is primarily a document
20

of social justice, and although it has recognized the importance of the private sector,  it has
21

not embraced fully the concept of laissez faire  or otherwise, relied on pure market forces to
22

govern the economy; We can not give to the Act a meaning or intent that will conflict with
these basic principles.
It is the Court’s thinking, reached after the Court’s own study of the Act, that the Act is
meant to rationalize wages;that is, by having permanent boards to decide wages rather than
leaving wage determination to Congress year after year and law after law. The Court is not
of course saying that’ the Act is an effort of Congress to pass the buck, or worse, to
-abdicate its duty, but simply, to leave the question of wages to the expertise of experts. As
Justice Cruz observed, "[w]ith the proliferation of specialized activities and their attendant
peculiar problems, the national legislature has found it more necessary to entrust to
administrative agencies the power of subordinate legislation” as it is called." 23

The Labor Code defines “wage” as follows:

“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 includes 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. “Fair and reasonable value” shall not include any profit to the employer or to any
person affiliated with the employer.
24

The concept of “minimum wage” is, however, a different thing, and certainly, it means
more than setting a floor wage to upgrade existing wages, as ECOP takes it to mean.
“Minimum wages” underlies the effort of the State, as Republic Act No. 6727 expresses it,
“to promote productivity-improvement and gain-sharing measures to ensure a decent
standard of living for the workers and their families; to guarantee the rights of labor to its
just share in the fruits of production; to enhance employment generation in the countryside
through industry dispersal; and to allow business and industry reasonable returns on
investment, expansion and growth,"  and as the Constitution expresses it, to affirm “labor as
25

a primary social economic force."  As the Court indicated, the statute would have no need
26

for a board if the question were simply “how much”. The State is concerned, in addition,
that wages are not distributed unevenly, and more important, that social justice is subserved.
It is another question, to be sure, had Congress created “roving” boards, and were that
the case, a problem of undue delegation would have ensued; but as we said, we do not see a
Board (National Capital Region) “running riot” here, and Wage Order No. NCR-01-A as an
excess of authority.
It is also another question whether the salary-cap method utilized by the Board may
serve the purposes of Republic Act No. 6727 in future cases and whether that method is
after all, a lasting policy of the Board; however, it is a question on which we may only
speculate at the moment. At the moment, we find it to be reasonable policy (apparently, it
has since been Government policy); and if in the future it would be perceptibly unfair to
management, we will take it up then.
WHEREFORE, premises considered, the petition is DENIED. No pronouncement as to
costs.

Page 53 of 71
IT IS SO ORDERED.
     Melencio-Herrera (Chairman), Padilla and Regalado, JJ., concur.
     Paras, J., No part. Son is member of counsel for petitioner.
Petition denied.

——o0o——

Page 54 of 71
[7]

G.R. No. 94951. April 22, 1991. *

APEX MINING COMPANY, INC., petitioner, vs. NATIONAL LABOR RELATIONS

COMMISSION and SINCLITICA CANDIDO, respondents.

Labor Laws; Domestic Helper, defined.—Under Rule XIII, Section 1(b), Book 3 of the Labor
Code, as amended, the terms “househelper” or “domestic servant” are defined as follows: “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 foregoing
definition clearly contemplates such househelper or domestic servant who is employed in the
employer’s home to minister exclusively to the personal comfort and enjoyment of the employer’s
family. Such definition covers family drivers, domestic servants, laundry women, yayas, gardeners,
houseboys and other similar househelps.

Same; Same; Laundrywoman in staffhouses of a company, not included in the definition of

domestic helpers.—The definition cannot be interpreted to include househelp or laundrywomen
working in staffhouses of a company, like petitioner who attends to the needs of the company’s
guest and other persons availing of said facilities. By the same token, it cannot be considered to
extend to the driver, houseboy, or gardener exclusively working in the company, the staffhouses and
its premises. They may not be considered as within the meaning of a “househelper” or “domestic
servant” as above-defined by law.

Same; Same; Same; Laundrywoman not actually serving the family of the employer but

working in the staffhouses or within the premises of the business of the employer is a regular
employee.—The criteria is the personal comfort and enjoyment of the family of the employer in the
home of said employer. While it may be true that the nature of the work of a househelper, domestic
servant or laundrywoman in a home or in a company staffhouse may be similar in nature, the
difference in their circumstances is that in the former instance they are actually serving the family
while in the latter case, whether it is a corporation or a single proprietorship engaged in business or
industry or any other agricultural or similar pursuit, service is being rendered in the staffhouses or
within the premises of the business of the employer. In such instance, they are employees of the
company or employer in the business concerned entitled to the privileges of a regular employee.
Petitioner contends that it is only when the househelper or domestic servant is assigned to certain
aspects of the business of the employer that such househelper or domestic servant may be
considered as such an employee. The Court finds no merit in making any such distinction. 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 of the employer and not as a mere family
househelper or domestic servant as contemplated in Rule XIII, Section 1(b), Book 3 of the Labor
Code, as amended.

PETITION for certiorari to review the decision of the National Labor Relations
Commission.

The facts are stated in the opinion of the Court.

      Bernabe B. Alabastro for petitioner.

Page 55 of 71
       Angel Fernandez for private respondent.

GANCAYCO, J.:

Is the househelper in the staff houses of an industrial company a domestic helper or a

regular employee of the said firm? This is the novel issue raised in this petition.

Private respondent Sinclitica Candido was employed by petitioner Apex Mining

Company, Inc. on May 18, 1973 to perform laundry services at its staff house located at
Masara, Maco, Davao del Norte. In the beginning, she was paid on a piece rate basis.
However, on January 17, 1982, she was paid on a monthly basis at P250.00 a month which
was ultimately increased to P575.00 a month.

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. She reported the
accident to her immediate supervisor Mila de la Rosa and to the personnel officer, Florendo
D. Asirit. 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 P2,000.00
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.

On March 11, 1988, private respondent filed a request for assistance with the
Department of Labor and Employment. After the parties submitted their position papers as
required by the labor arbiter assigned to the case on August 24, 1988 the latter rendered a
decision, the dispositive part of which reads as follows:

“WHEREFORE, Conformably With The Foregoing, judgment is hereby rendered ordering the
respondent, Apex Mining Company, Inc., Masara, Davao del Norte, to pay the complainant, to wit:

1. Salary Differential — P16,289.20

2. Emergency Living Allowance — 12,430.00
3. 13th Month Pay Differential — 1,322.32.
4. Separation Pay (One-month for every year — 25,119.30
of service [1973-1988])
or in the total of FIFTY FIVE THOUSAND ONE HUNDRED SIXTY ONE PESOS AND 42/100
(P55,161.42).
SO ORDERED.” 1

Not satisfied therewith, petitioner appealed to the public respondent National Labor
Relations Commission (NLRC), where-in in due course a decision was rendered by the
Fifth Division thereof on July 20, 1989 dismissing the appeal for lack of merit and
affirming the appealed decision. A motion for reconsideration thereof was denied in a
resolution of the NLRC dated June 29, 1990.

Hence, the herein petition for review by certiorari, which appopriately should be a

special civil action for certiorari, and which in the interest of justice, is hereby treated as

Page 56 of 71
such.  The main thrust of the petition is that private respondent should be treated as a mere
2

househelper or domestic servant and not as a regular employee of petitioner.

The petition is devoid of merit.

Under Rule XIII, Section 1(b), Book 3 of the Labor Code, as amended, the terms
“househelper” or “domestic servant” are defined as follows:

“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.”3

The foregoing definition clearly contemplates such house-helper or domestic servant who is
employed in the employer’s home to minister exclusively to the personal comfort and
enjoyment of the employer’s family. Such definition covers family drivers, domestic
servants, laundry women, yayas, gardeners, houseboys and other similar househelps.

The definition cannot be interpreted to include househelp or laundrywomen working in

staffhouses of a company, like petitioner who attends to the needs of the company’s guest
and other persons availing of said facilities. By the same token, it cannot be considered to
extend to the driver, houseboy, or gardener exclusively working in the company, the
staffhouses and its premises. They may not be considered as within the meaning of a
“househelper” or “domestic servant” as above-defined by law.

The criteria is the personal comfort and enjoyment of the family of the employer in the
home of said employer. While it may be true that the nature of the work of a househelper,
domestic servant or laundrywoman in a home or in a company staffhouse may be similar in
nature, the difference in their circumstances is that in the former instance they are actually
serving the family while in the latter case, whether it is a corporation or a single
proprietorship engaged in business or industry or any other agricultural or similar pursuit,
service is being rendered in the staffhouses or within the premises of the business of the
employer. In such instance, they are employees of the company or employer in the business
concerned entitled to the privileges of a regular employee.

Petitioner contends that it is only when the househelper or domestic servant is assigned
to certain aspects of the business of the employer that such househelper or domestic servant
may be considered as such as employee. The Court finds no merit in making any such
distinction. 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 of the employer and not as a mere family househelper or domestic servant
as contemplated in Rule XIII, Section 1(b), Book 3 of the Labor Code, as amended.

Petitioner denies having illegally dismissed private respondent and maintains that
respondent abandoned her work. This argument notwithstanding, there is enough evidence

Page 57 of 71
to show that because of an accident which took place while private respondent was
performing her laundry services, she was not able to work and was ultimately separated
from the service. She is, therefore, entitled to appropriate relief as a regular employee of
petitioner. Inasmuch as private respondent appears not to be interested in returning to her
work for valid reasons, the payment of separation pay to her is in order.
WHEREFORE, the petition is DISMISSED and the appealed decision and resolution of
public respondent NLRC are hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
      Narvasa (Chairman), Cruz, Griño-Aquino and Medialdea, JJ., concur.Petition
dismissed. Decision and resolution affirmed.
Note.—Award of separation pay to employee for having been dismissed without the
required advance notice. (National Labor Relations Commission vs. Secretary of Labor, 156
SCRA 789).

——o0o——

Page 58 of 71
[8] 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 & TRUST COMPANY,
respondents.
Labor Law; National Labor Relations Commission; Wages; The issue of whether or not a
wage distortion exists as a consequence of the grant of a wage increase to certain employees is a
question of fact the determination of which is the statutory function of the NLRC.—The issue of
whether or not a wage distortion exists as a consequence of the grant of a wage increase to certain
employees, we agree, is, by and large, a question of fact the determination of which is the statutory
function of the NLRC. Judicial review of labor cases, we may add, does not go beyond the
evaluation of the sufficiency of the evidence upon which the labor officials’ findings rest. As such,
factual findings of the NLRC are generally accorded not only respect but also finality provided that
its decisions are supported by substantial evidence and devoid of any taint of unfairness or
arbitrariness. When, however, the members of the same labor tribunal are not in accord on those
aspects of a case, as in this case, this Court is well cautioned not to be as so conscious in passing
upon the sufficiency of the evidence, let alone the conclusions derived therefrom.

Same; Same; Same; Same; 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.—The definition of “wage distortion,” 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.
As has been aptly observed by Presiding Commissioner Edna Bonto-Perez in her dissenting opinion,
the contraction between personnel groupings comes close to eighty-three (83%), which cannot, by
any stretch of imagination, be considered less than severe.

Same; Same; Same; Same; Same; The Solicitor General has correctly emphasized that the

intention of the parties, whether the benefits under a collective bargaining agreement should be
equated with those granted by law or not unless there are compelling reasons otherwise must
prevail and be given effect.—The “intentional quantitative differences” in wage among employees
of the bank has been set by the CBA to about P900 per month as of 01 January 1989. It is intentional
as it has been arrived at through the collective bargaining process to which the parties are thereby
concluded. The Solicitor General, in recommending the grant of due course to the petition, has
correctly emphasized that the intention of the parties, whether the benefits under a collective
bargaining agreement should be equated with those granted by law or not, unless there are
compelling reasons otherwise, must prevail and be given effect.

PETITION for certiorari to review the decision of the National Labor Relations
Commission.

The facts are stated in the resolution of the Court.

     Gilbert P. Lorenzo for petitioners.
     Marcial G. dela Fuente for private respondents.

Page 59 of 71
RESOLUTION

VITUG, J.:

In this petition for certiorari, the Metropolitan Bank & Trust Company Employees Union-
ALU-TUCP (MBTCEU) and its president, Antonio V. Balinang, raise the issue of whether
or not the implementation by the Metropolitan Bank and Trust Company of Republic Act
No. 6727, mandating an increase in pay of P25 per day for certain employees in the private
sector, created a distortion that would require an adjustment under said law in the wages of
the latter’s other various groups of employees.

On 25 May 1989, the bank entered into a collective bargaining agreement with the
MBTCEU, granting a monthly P900 wage increase effective 01 January 1989, P600 wage
increase effective 01 January 1990, and P200 wage increase effective 01 January 1991. The
MBTCEU had also bargained for the inclusion of probationary employees in the list of
employees who would benefit from the first P900 increase but the bank had adamantly
refused to accede thereto. Consequently, only regular employees as of 01 January 1989
were given the increase to the exclusion of probationary employees.

Barely a month later, or on 01 July 1989, Republic Act 6727, “an act to rationalize wage
policy determination by establishing the mechanism and proper standards therefor, x x x
fixing new wage rates, providing wage incentives for industrial dispersal to the countryside,
and for other purposes,” took effect. Its provisions, pertinent to this case, state.

“SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates of all workers and
employees in the private sector, whether agricultural or non-agricultural, shall be increased by
twenty five pesos (P25) per day, x x x: Provided, That those already receiving above the minimum
wage rates up to one hundred pesos (P100.00) shall also receive an increase of twenty-five pesos
(P25.00) per day, x x x.
x x x      x x x      x x x

(d) If expressly provided for and agreed upon in the collective bargaining agreements, all
increases in the daily basic wage rates granted by the employers three (3) months before the
effectivity of this Act shall be credited as compliance with the increases in the wage rates prescribed
herein, provided that, where such increases are less than the prescribed increases in the wage lates
under this Act, the employer shall pay the difference. Such increase shall not include anniversary
wage increases, merit wage increase and those resulting from the regularization or promotion of
employees.

Where the application of the increases in the wage rates under this Section results in distortions
as defined under existing laws in the wage structure within an establishment and gives rise to a
dispute therein, such dispute shall first be settled voluntarily between the parties and in the event of
a deadlock, the same shall be finally resolved through compulsory arbitration by the regional
branches of the National Labor Relations Commission (NLRC) having jurisdiction over the
workplace.

It shall be mandatory for the NLRC to conduct continuous hearings and decide any dispute
arising under this Section within twenty (20) calendar days from the time said dispute is formally

Page 60 of 71
submitted to it for arbitration. The pendency of a dispute arising from a wage distortion shall not in
any way delay the applicability of the increase in the wage rates prescribed under this Section.”
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 January 1989,
whose pay was over P100 a day, and that, between the two groups, there emerged a
substantially reduced salary gap, the MBTCEU sought from the bank the correction of the
alleged distortion in pay. In order to avert an impending strike, the bank petitioned the
Secretary of Labor to assume jurisdiction over the case or to certify the same to the National
Labor Relations Commission (NLRC) under Article 263 (g) of the Labor Code.  The parties 1

ultimately agreed to refer the issue for compulsory arbitration to the NLRC.

The case was assigned to Labor Arbiter Eduardo J. Carpio. In his decision of 05
February 1991, the labor arbiter disagreed with the bank’s contention that the increase in its
implementation of Republic Act 6727 did not constitute a distortion because “only 143
employees or 6.8% of the bank’s population of a total of 2,108 regular employees”
benefited. He stressed that “it is not necessary that a big number of wage earners within a
company be benefited by the mandatory increase before a wage distortion may be
considered to have taken place,” it being enough, he said, that such increase “result(s) in the
severe contraction of an intentional quantitative difference in wage rates between employee
groups.”

The labor arbiter concluded that since the “intentional quantitative difference” in wage
or salary rates between and among groups of employees is not based purely on skills or
length of service but also on “other logical bases of differentiation, a P900.00 wage gap
intentionally provided in a collective bargaining agreement as a quantitative difference in
wage between those who WERE regular employees as of January 1, 1989 and those who
WERE NOT as of that date, is definitely a logical basis of differentiation (that) deserves
protection from any distorting statutory wage increase.” Otherwise, he added, “a minimum
wage statute that seeks to uplift the economic condition of labor would itself destroy the
mechanism of collective bargaining which, with perceived stability, has been labor’s
constitutional and regular source of wage increase for so long a time now.” Thus, since the
“subjective quantitative difference” between wage rates had been reduced from P900.00 to
barely P150.00, correction of the wage distortion pursuant to Section 4(c) of the Rules
Implementing Republic Act 6727 should be made.

The labor arbiter disposed of the case, thus:

WHEREFORE, premises considered, the respondent is hereby directed to restore to complainants
and their members the Nine Hundred (P900.00) Pesos CBA wage gap they used to enjoy over non-

Page 61 of 71
regular employees as of January 1, 1989 by granting them a Seven Hundred Fifty (P750.00) Pesos
monthly increase effective July 1, 1989.
SO ORDERED.” 2

The bank appealed to the NLRC. On 31 May 1991, the NLRC Second Division, by a vote
of 2 to 1, reversed the decision of the Labor Arbiter. Speaking through Commissioners
Rustico L. Diokno and Domingo H. Zapanta, the NLRC said:
“x x x a wage distortion can arise only in a situation where the salary structure is characterized by
intentional quantitative differences among employee groups determined or fixed on the basis of
skills, length of service, or other logical basis of differentiation and such differences or distinctions
are obliterated or contracted by subsequent wage increases (In Re: Labor Dispute at the Bank of the
Philippine Islands, NCMB-RB-7-11-096-89, Secretary of Labor and Employment, February 18,
1991).

As applied in this case, We noted that in the new wage salary structure, the wage gaps between
Levels 6 and 7 levels 5 and 6, and levels 6 and 7 (sic) were maintained. While there is a noticeable
decrease in the wage gap between Levels 2 and 3, Levels 3 and 4, and Levels 4 and 5, the reduction
in the wage gaps between said levels is not significant as to obliterate or result in severe contraction
of the intentional quantitative differences in salary rates between the employee groups. For this
reason, the basic requirement for a wage distortion to exist does not appear in this case. Moreover,
there is nothing in the law which would justify an across-the-board adjustment of P750.00 as
ordered by the Labor Arbiter.

WHEREFORE, premises considered, the appealed decision is hereby set aside and a new
judgment is hereby entered, dismissing the complaint for lack of merit.
SO ORDERED.” 3

In her dissent, Presiding Commissioner Edna Bonto-Perez opined:

“There may not be an obliteration nor elimination of said quantitative distinction/difference
aforecited but clearly there is a contraction. Would such contraction be severe as to warrant the
necessary correction sanctioned by the law in point, RA 6727? It is my considered view that the
quantitative intended distinction in pay between the two groups of workers in respondent company
was contracted by more than fifty (50%) per cent or in particular by more or less eighty-three (83%)
percent hence, there is no doubt that there is an evident severe contraction resulting in the
complained of wage distortion.

Nonetheless, the award of P750.00 per month to all of herein individual complainants as ordered
by the Labor Arbiter below, to my mind is not the most equitable remedy at bar, for the same would
be an across the board increase which is not the intention of RA 6727. For that matter, herein
complainants cannot by right claim for the whole amount of P750.00 a month or P25.00 per day
granted to the workers covered by the said law in the sense that they are not covered by the said
increase mandated by RA 6727. They are only entitled to the relief granted by said law by way of
correction of the pay scale in case of distortion in wages by reason thereof.

Hence, the formula offered and incorporated in Wage Order No. IV-02 issued on 21 May 1991
by the Regional Tripartite Wages and Productivity Commission for correction of pay scale
structures in cases of wage distortion as in this case at bar which is:

Minimum Wage =% x Prescribed = Distortion

___________        
Actual Salary   Increased   Adjustment

Page 62 of 71
would be the most equitable and fair under the circumstances obtaining in this case.
For this very reason, I register my dissent from the majority opinion and opt for the modification
of the Labor Arbiter’s decision as afore-discussed.” 4

The MBTCEU filed a motion for the reconsideration of the decision of the NLRC; having
been denied, the MBTCEU and its president filed the instant petition for certiorari, charging
the NLRC with grave abuse of discretion by its refusal (a) “to acknowledge the existence of
a wage distortion in the wage or salary rates between and among the employee groups of the
respondent bank as a result of the bank’s partial implementation” of Republic Act 6727 and
(b) to give due course to its claim for an across-the-board P25 increase under Republic Act
No. 6727. 5

We agree with the Solicitor General that the petition is impressed with merit. 6

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 contraction 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 issue of whether or not a wage distortion exists as a consequence of the grant of a wage
increase to certain employees, we agree, is, by and large, a question of fact the
determination of which is the statutory function of the NLRC.  Judicial review of labor
7

cases, we may add, does not go beyond the evaluation of the sufficiency of the evidence
upon which the labor officials’ findings rest.  As such, factual findings of the NLRC are
8

generally accorded not only respect but also finality provided that its decisions are
supported by substantial evidence and devoid of any taint of unfairness or
arbitrariness.  When, however, the members of the same labor tribunal are not in accord on
9

those aspects of a case, as in this case, this Court is well cautioned not to be as so conscious
in passing upon the sufficiency of the evidence, let alone the conclusions derived therefrom.

In this case, the majority of the members of the NLRC, as well as its dissenting member,
agree that there is a wage distortion arising from the bank’s implementation of the P25
wage increase; they do differ, however, on the extent of the distortion that can warrant the
adoption of corrective measures required by the law.

The definition of “wage distortion,”  aforequoted, shows that such distortion can so exist
10

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. As has been aptly observed by Presiding
Commissioner Edna Bonto-Perez in her dissenting opinion, the contraction between
personnel groupings comes close to eightythree (83%), which cannot, by any stretch of
imagination, be considered less than severe.

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 The “intentional quantitative differences” in wage among employees of the bank has
been set by the CBA to about P900 per month as of 01 January 1989. It is intentional as it
has been arrived at through the collective bargaining process to which the parties are
thereby concluded.  The Solicitor General, in recommending the grant of due course to the
11

petition, has correctly emphasized that the intention of the parties, whether the benefits
under a collective bargaining agreement should be equated with those granted by law or not,
unless there are compelling reasons otherwise, must prevail and be given effect. 12

In keeping then with the intendment of the law and the agreement of the parties
themselves, along with the often repeated rule that all doubts in the interpretation and
implementation of labor laws should be resolved in favor of labor,  we must approximate an
13

acceptable quantitative difference between and

among the CBA agreed work levels. We, however, do not subscribe to the labor arbiter’s
exacting prescription in correcting the wage distortion. Like the majority of the members of
the NLRC, we are also of the view that giving the employees an across-the-board increase
of P750 may not be conducive to the policy of encouraging “employers to grant wage and
allowance increases to their employees higher than the minimum rates of increases
prescribed by statute or administrative regulation,” particularly in this case where both
Republic Act 6727 and the CBA allow a credit for voluntary compliance. As the Court,
through Associate Justice Florentino Feliciano, also pointed out in Apex Mining Company,
Inc. v. NLRC: 14

“x x x. (T)o compel employers simply to add on legislated increases in salaries or allowances

without regard to what is already being paid, would be to penalize employers who grant their
workers more than the statutorily prescribed minimum rates of increases. Clearly, this would be
counter-productive so far as securing the interests of labor is concerned. x x x.”
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,  to well be the appropriate
15

measure, to balance the respective contentions of the parties in this instance. We also view
it as being just and equitable.

WHEREFORE, finding merit in the instant petition for certio-rari, the same is
GRANTED DUE COURSE, the questioned NLRC decision is hereby SET ASIDE and the
decision of the labor arbiter is REINSTATED subject to the MODIFICATION that the
wage distortion in question be corrected in accordance with the formula expressed in the
dissenting opinion of Presiding Commissioner Edna Bonto-Perez. This decision is
immediately executory.
SO ORDERED.
     Bidin,  Romero and Melo, JJ., concur.
     Feliciano, J., (Chairman), On Leave.
Petition granted due course.
Note.—Findings of fact of the NLRC are conclusive and will not be disturbed by the
Supreme Court (Union of Filipro Employees vs. National Labor Relations Commission, 192
SCRA 414).

Page 64 of 71
——o0o——

Page 65 of 71
[9]

G.R. No. 179652. March 6, 2012.*

PEOPLE’S BROADCASTING SERVICE (BOMBO RADYO PHILS., INC.),
petitioner, vs.  THE SECRETARY OF THE DEPARTMENT OF LABOR AND
EMPLOYMENT, THE REGIONAL DIRECTOR, DOLE REGION VII, and JANDELEON
JUEZAN, respondents.

Labor Law; Department of Labor and Employment (DOLE); Jurisdiction; Visitorial and
Enforcement Powers; Under Art. 129 of the Labor Code, the power of the Department of Labor and
Employment (DOLE) and its duly authorized hearing officers to hear and decide any matter
involving the recovery of wages and other monetary claims and benefits was qualified by the
proviso that the complaint not include a claim for reinstatement, or that the aggregate money
claims not exceed PhP 5,000; RA 7730 did away with the PhP 5,000 limitation, allowing the
Department of Labor and Employment (DOLE) Secretary to exercise its visitorial and enforcement
power for claims beyond PhP 5,000.—Under Art. 129 of the Labor Code, the power of the DOLE
and its duly authorized hearing officers to hear and decide any matter involving the recovery of
wages and other monetary claims and benefits was qualified by the proviso that the complaint not
include a claim for reinstatement, or that the aggregate money claims not exceed PhP 5,000. RA
7730, or an Act Further Strengthening the Visitorial and Enforcement Powers of the Secretary of
Labor, did away with the PhP 5,000 limitation, allowing the DOLE Secretary to exercise its
visitorial and enforcement power for claims beyond PhP 5,000. The only qualification to this
expanded power of the DOLE was only that there still be an existing employer-employee
relationship.

Same; Same; Same; Same; If there is no employer-employee relationship, whether it has been
terminated or it has not existed from the start, the Department of Labor and Employment (DOLE)
has no jurisdiction; An employer-employee relationship must exist for the exercise of the visitorial
and enforcement power of the Department of Labor and Employment (DOLE).—It is conceded that
if there is no employer-employee relationship, whether it has been terminated or it has not existed
from the start, the DOLE has no jurisdiction. Under Art. 128(b) of the Labor Code, as amended by
RA 7730, the first sentence reads, “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.” It is clear and beyond debate that an employer-
employee relationship must exist for the exercise of the visitorial and enforcement power of the
DOLE.

Same; Employer-Employee Relationship; Elements of Employer-Employee Relationship.—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 employer’s power to control the
employee’s 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.

Page 66 of 71
 Same; Department of Labor and Employment (DOLE); National Labor Relations Commission
(NLRC); Labor Arbiters; Jurisdiction; If a complaint is brought before the Department of Labor
and Employment (DOLE) to give effect to the labor standards provisions of the Labor Code or other
labor legislation, and there is an existing employer-employee relationship, the Department of Labor
and Employment (DOLE) exercises jurisdiction to the exclusion of the National Labor Relations
Commission (NLRC); If there is no employer-employee relationship, the jurisdiction is properly
with the National Labor Relations Commission (NLRC); If a complaint is filed with the Department
of Labor and Employment (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.—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.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

   The facts are stated in the resolution of the Court.
  Mae M. Gellecanao-Laserna for petitioner.
  Public Attorney’s Office for private respondent

RESOLUTION

VELASCO, JR., J.:
In a Petition for Certiorari under Rule 65, petitioner People’s Broadcasting Service, Inc.
(Bombo Radyo Phils., Inc.) questioned the Decision and Resolution of the Court of Appeals
(CA) dated October 26, 2006 and June 26, 2007, respectively, in CA-G.R. CEB-SP No.
00855.

Private respondent Jandeleon Juezan filed a complaint against petitioner with the
Department of Labor and Employment (DOLE) Regional Office No. VII, Cebu City, for
illegal deduction, nonpayment of service incentive leave, 13th month pay, premium pay for
holiday and rest day and illegal diminution of benefits, delayed payment of wages and
noncoverage of SSS, PAG-IBIG and Philhealth.1 

After the conduct of summary investigations, and after the parties submitted their
position papers, the DOLE Regional Director found that private respondent was an
employee of petitioner, and was entitled to his money claims.2 Petitioner sought
reconsideration of the Director’s Order, but failed. The Acting DOLE Secretary dismissed
petitioner’s appeal on the ground that petitioner submitted a Deed of Assignment of Bank
Deposit instead of posting a cash or surety bond. When the matter was brought before the
CA, where petitioner claimed that it had been denied due process, it was held that petitioner
was accorded due process as it had been given the opportunity to be heard, and that the

Page 67 of 71
DOLE Secretary had jurisdiction over the matter, as the jurisdictional limitation imposed by
Article 129 of the Labor Code on the power of the DOLE Secretary under Art. 128(b) of the
Code had been repealed by Republic Act No. (RA) 7730.3

In the Decision of this Court, the CA Decision was reversed and set aside, and the
complaint against petitioner was dismissed. The dispositive portion of the Decision reads as
follows:

“WHEREFORE, the petition is GRANTED. The Decision dated 26 October 2006 and the
Resolution dated 26 June 2007 of the Court of Appeals in CA-G.R. CEB-SP No. 00855
are REVERSED and SET ASIDE. The Order of the then Acting Secretary of the Department of
Labor and Employment dated 27 January 2005 denying petitioner’s appeal, and the Orders of the
Director, DOLE Regional Office No. VII, dated 24 May 2004 and 27 February 2004, respectively,
are ANNULLED. The complaint against petitioner is DISMISSED.” 4

The Court found that there was no employer-employee relationship between petitioner
and private respondent. It was held that while the DOLE may make a determination of the
existence of an employer-employee relationship, this function could not be co-extensive
with the visitorial and enforcement power provided in Art. 128(b) of the Labor Code, as
amended by RA 7730. The National Labor Relations Commission (NLRC) was held to be
the primary agency in determining the existence of an employer-employee relationship.
This was the interpretation of the Court of the clause “in cases where the relationship of
employer-employee still exists” in Art. 128(b).5

From this Decision, the Public Attorney’s Office (PAO) filed a Motion for Clarification
of Decision (with Leave of Court). The PAO sought to clarify as to when the visitorial and
enforcement power of the DOLE be not considered as co-extensive with the power to
determine the existence of an employer-employee relationship. 6 In its Comment,7 the DOLE
sought clarification as well, as to the extent of its visitorial and enforcement power under
the Labor Code, as amended.

The Court treated the Motion for Clarification as a second motion for reconsideration,
granting said motion and reinstating the petition. 8 It is apparent that there is a need to
delineate the jurisdiction of the DOLE Secretary vis-à-vis that of the NLRC.
Under Art. 129 of the Labor Code, the power of the DOLE and its duly authorized
hearing officers to hear and decide any matter involving the recovery of wages and other
monetary claims and benefits was qualified by the proviso that the complaint not include a
claim for reinstatement, or that the aggregate money claims not exceed PhP 5,000. RA
7730, or an Act Further Strengthening the Visitorial and Enforcement Powers of the
Secretary of Labor, did away with the PhP 5,000 limitation, allowing the DOLE Secretary
to exercise its visitorial and enforcement power for claims beyond PhP 5,000. The only
qualification to this expanded power of the DOLE was only that there still be an existing
employer-employee relationship.

It is conceded that if there is no employer-employee relationship, whether it has been

terminated or it has not existed from the start, the DOLE has no jurisdiction. Under Art.
128(b) of the Labor Code, as amended by RA 7730, the first sentence reads,
“Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in

Page 68 of 71
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.” It is clear and beyond debate
that an employer-employee relationship must exist for the exercise of the visitorial and
enforcement power of the DOLE. The question now arises, may the DOLE make a
determination of whether or not an employer-employee relationship exists, and if so, to
what extent?

The first portion of the question must be answered in the affirmative.

The prior decision of this Court in the present case accepts such answer, but places a
limitation upon the power of the DOLE, that is, the determination of the existence of an
employer-employee relationship cannot be co-extensive with the visitorial and enforcement
power of the DOLE. But even in conceding the power of the DOLE to determine the
existence of an employer-employee relationship, the Court held that the determination of
the existence of an employer-employee relationship is still primarily within the power of the
NLRC, that any finding by the DOLE is merely preliminary.

This conclusion must be revisited.

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
employer’s power to control the employee’s conduct.9 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.

The determination of the existence of an employer-employee relationship by the DOLE

must be respected. The expanded visitorial and enforcement power of the DOLE granted by
RA 7730 would be rendered nugatory if the alleged employer could, by the simple
expedient of disputing the employer-employee relationship, force the referral of the matter
to the NLRC. The Court issued the declaration that at least a prima facie showing of the
absence of an employer-employee relationship be made to oust the DOLE of jurisdiction.

Page 69 of 71
But it is precisely the DOLE that will be faced with that evidence, and it is the DOLE that
will weigh it, to see if the same does successfully refute the existence of an employer-
employee relationship.

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, and this We believe
is the more prudent course of action to take.

This is not to say that the determination by the DOLE is beyond question or review.
Suffice it to say, there are judicial remedies such as a petition for certiorari under Rule 65
that may be availed of, should a party wish to dispute the findings of the DOLE.

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.

There is a view that despite Art. 128(b) of the Labor Code, as amended by RA 7730,
there is still a threshold amount set by Arts. 129 and 217 of the Labor Code when money
claims are involved, i.e., that if it is for PhP 5,000 and below, the jurisdiction is with the
regional director of the DOLE, under Art. 129, and if the amount involved exceeds PhP
5,000, the jurisdiction is with the labor arbiter, under Art. 217. The view states that despite
the wording of Art. 128(b), this would only apply in the course of regular inspections
undertaken by the DOLE, as differentiated from cases under Arts. 129 and 217, which
originate from complaints. There are several cases, however, where the Court has ruled that
Art. 128(b) has been amended to expand the powers of the DOLE Secretary and his duly
authorized representatives by RA 7730. In these cases, the Court resolved that the DOLE
had the jurisdiction, despite the amount of the money claims involved. Furthermore, in these
cases, the inspection held by the DOLE regional director was prompted specifically by a
complaint. Therefore, the initiation of a case through a complaint does not divest the DOLE
Secretary or his duly authorized representative of jurisdiction under Art. 128(b).

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

Page 70 of 71
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.10 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.

WHEREFORE, the Decision of this Court in G.R. No. 179652 is hereby AFFIRMED,
with the MODIFICATION that in the exercise of the DOLE’s visitorial and enforcement
power, the Labor Secretary or the latter’s authorized representative shall have the power to
determine the existence of an employer-employee relationship, to the exclusion of the
NLRC.
SO ORDERED.
Corona (C.J.), Carpio, Leonardo-De Castro, Peralta, Bersamin, Abad, Villarama, Jr.,
Perez, Mendoza, Sereno, Reyes  and  Perlas-Bernabe, JJ., concur.
Brion, J., See Concurring Opinion (In the Result).
Del Castillo, J., On Official Leave.

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