Final Part1 2019 Abad Pre Week Notes 100419

2019 LABOR LAW BAR PRE-WEEK HAND-OUTS
FOR 2019 ADAMSON LYCEUM FEU BAR OPERATIONS

THE ABAD NOTES (COMPLETED 04 OCT 2019)
HAND-OUTS FOR
2019 LABOR BAR EXAMS
PRE-WEEK USE
From the notes of Adamson Dean Ada D. Abad
With the Adamson University College of Law and
Lyceum of the Philippines University College of Law
Bar Operations Academic Committee
and doctrinal digests by Dean Antonio H. Abad, Jr.

Far Eastern University Institute of Law
and Adamson University College of Law
For 2019 Bar Examinations: 1st Sunday PM, 03 November 2019
Including 2018 Bar questions, pertinent SC 2015-June 2018

and Bar Chairman SC Justice Estela Perlas-Bernabe cases in Labor Law. 1
A. GENERAL PRINCIPLES AND CONCEPTS

1. CONSTITUTIONAL AND STATUTORY BASIS OF LABOR LAW AND
SOCIAL LEGISLATION
1.1 Promotion of human dignity (Art 2, sec 2)

1.2 Freedom from poverty (Art 2, sec 9)
1.3 Principle of distributive justice (Art. 2, sec 9)
1.4 Freedom of Initiative and Self-reliance (Art. 12, sec. 2)
1.5 Right to due process
1.6 Right to equal protection of the law
1.7 Right to self-organization
1.8 Right against involuntary servitude
1.9 Right against imprisonment for debt
▪ Contrary to the concept of “laissez faire”, which is an economic theory that

government should NOT interfere in business affairs, the peculiarity in Philippine
labor law is that the State is mandated to balance the conflicting yet intimately
intertwined interests2 between management to its profit, as against the employees’
right to self-organization and security of tenure, through the exercise of its police
power, as well as the application of the social justice and protection to labor
clauses in the Constitution.
▪ Hence, under the PRINCIPLE OF INCORPORATION, the minimum labor

standards and benefits in Labor Code are considered inherent in every employer-
employee relationship even absent a written employment contract.
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With special thanks to our Ablelaw lawyers Atty. Enz Palmares, Atty. Lew Daniel Agdeppa, legal
researchers Immanuel Anthony Meru and Dang Calumba (both from Adamson) and Ablelaw OJTs
Cynthia Arnobit (Lyceum) and Leah Angeles (Arellano), for the some of the digests and encoding.
2
Cebu Institute of Technology vs. Ople, 156 SCRA 620 (1987). Ponente: J. Irene Cortes.
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2. DISTINCTION BETWEEN LABOR LAW AND SOCIAL LEGISLATION
LABOR LAW SOCIAL LEGISLATION

Affects directly actual employment, Governs effects of employment, e.g.,
e.g., wages compensation for death
Meets the daily needs of workers Involves long range benefits
Paid by the employer Paid by government agencies
3. WHEN FACED WITH A PROBLEM SOLVING ESSAY-TYPE QUESTION IN

THE BAR EXAMINATIONS, REMEMBER:
• ALL relevant facts already given, but some facts may be immaterial. The intention
of the examiner here is to see if you can determine which facts are relevant or not,
in answering the question.
• Do NOT add to the facts at hand, except if it is an open-ended question.
• Most questions require you to decide on the issue as follows –
➢ Comment on the action of one party
➢ Decide if you were the Labor Arbiter
➢ Comment on the decision of the Labor Arbiter (or Court)
How to answer bar question: “IF YOU WERE THE LABOR ARBITER, HOW
WOULD YOUR DECIDE?”
MEMORIZE ARTICLE 3, LABOR CODE: DECLARATION OF POLICY

(Mnemonic: PEE-SC-SSJ)
ART. 3. Declaration of basic policy. - The State shall afford Protection to labor,
promote full Employment, ensure Equal work opportunities regardless of sex, race or
creed and regulate the relations between workers and employers. The State shall
assure the rights of workers to Self-organization, Collective bargaining, right to
Strike, Security of tenure, and Just and humane conditions of work.
4. Principle of Social and Distributive Justice: Balancing of interests in case

workers’ and management’s rights collide. --
While the Constitution is committed to the policy of social justice and the protection of
the working class, it should not be supposed that every labor dispute will be
automatically decided in favor of labor. Management also has its rights which are
entitled to respect and enforcement in the interest of simple fair play. Thus, where
management prerogative to transfer employees is validly exercised, as in this case,
courts will decline to interfere. (Best Wear Garments vs. De Lemos, G.R. No 191281, 05
December 2012).
The policy of social justice is not intended to countenance wrongdoing simply because
it is committed by the underprivileged. At best it may mitigate the penalty but it certainly
will not condone the offense. Compassion for the poor is an imperative of every
humane society but only when the recipient is not a rascal claiming an undeserved
privilege. Social justice cannot be permitted to be [a] refuge of scoundrels any more
than can equity be an impediment to the punishment of the guilty. Those who invoke
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social justice may do so only if their hands are clean and their motives blameless, and
not simply because they happen to be poor. This great policy of our Constitution is not
meant for the protection of those who have proved they are not worthy of it, like the
workers who have tainted the cause of labor with the blemishes of their own character.
(Tirazona vs. Phil. Eds Techno-Service (PET INC.), G.R. No. 169712, 20 January 2009).
In balancing the interest between labor and capital, the prudent recourse in termination
cases is to safeguard the prized of employees and to require employers to present
the best evidence obtainable, especially so because in most cases, the documents or
proof needed to resolve the validity of the termination, are in the possession of
employers. (American Power Conversion Corp et. al. vs. Jason Yu Lim, G.R. No.
214291. 11 January 2018.)
5. HOW TO BALANCE CONFLICTING INTERESTS IN PROBLEM SOLVING:

REMEMBER THE BASIC PRINCIPLES OF LABOR LAW
MANAGEMENT VS. LABOR
• Capital • Work
• Profit • Equitable share in the profits
• Management prerogatives • Worker’s rights

- hiring, employee classification, - minimum standards
- control of working methods - constitutional rights
- right to make rules and security of tenure, unionize and
regulations to collective bargaining, strike
STATE
Police power/social justice
Interpretation in favor of labor
Paradigm shift towards mutual cooperation - It is high time that employer

and employee cease to view each other as adversaries and instead recognize that
there is a symbiotic relationship, wherein they must rely on each other to ensure the
success of the business. (Toyota Motor Phils. Workers vs. NLRC, 537 SCRA 171)
6. SIX (6) GENERAL RULES TO REMEMBER

FOR THE BALANCING OF INTEREST IN
ANSWERING PROBLEM SOLVING QUESTIONS
6.1. GENERAL RULE #1: The existence of Employer-Employee relationship
is a condition sine qua non for the application of labor laws, and for labor
courts to have jurisdiction.
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6.1.1 Four tests to determine the existence of an employer-employee relationship
(MEMORY AID: SOUTH WEST DISASTER CONTROL)

a. Selection and hiring;
b. payment of Wages;
c. power of Dismissal;
d. Control test.
a) Of these four tests however, the most important test is the element of
control, which has been defined as [MEMORIZE THIS] “one where the
employer has reserved the right to control not only the work to be
achieved, but the manner and method by which such work is to be
achieved.”. (LVN Pictures vs. LVN Musician’s Guild, 1 SCRA 132).
b) J. PERLAS-BERNABE CASE ON CONTROL TEST: FELICILDA V. UY,

G.R. NO. 221241, [14 SEPTEMBER 2016] –
Facts: Uy hired Felicilda as truck driver in his trucking company. Felicilda

was caught “sleeping while on duty” inside the truck while waiting for the
cargo to be loaded. Termination after due process, for which reason
Felicilda filed this case.
Defense of Uy and Trucking company: Felicilda is an independent

contractor, paid on a per-trip percentage basis; he is free to offer services
to other company in between trips; Feliclida not under respondent's control
with respect to the means and methods by which he performed his job as a
truck driver.
SC decision: Felicilda is an employee of Uy/Trucking company. Verily, the

power of the employer to control the work of the employee is considered the
most significant determinant of the existence of an employer-employee
relationship. This is the so-called "control test," and is premised on
whether the person for whom the services are performed reserves the
right to control both the end achieved and the manner and means used
to achieve that end.
It must, however, be stressed that the "control test" merely calls for
the existence of the right to control, and not necessarily the exercise
thereof. To be clear, the test does not require that the employer
actually supervises the performance of duties by the employee.
First. It is undisputed that respondent hired petitioner to work as a truck

driver for his private enterprise, GPT.
Second. Petitioner received compensation from respondent for the

services he rendered. That wages paid was determined on a "per trip" or
commission basis, does not negate employment relationship. That
petitioner was paid on a "per trip" or commission basis is insignificant as
this is merely a method of computing compensation and not a basis for
determining the existence or absence of an employer-employee
relationship.
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Third. Respondent's power to dismiss was inherent in the selection and

engagement of petitioner as truck driver.
Fourth. The presence of the element of control, which is the most important
element to determine the existence or absence of employment relationship,
can be safely deduced from the fact that: (a) respondent owned the trucks
that were assigned to petitioner; (b) the cargoes loaded in the said trucks
were exclusively for respondent's clients; and (c) the schedule and route to
be followed by petitioner were exclusively determined by respondent. The
latter's claim that petitioner was permitted to render service to other
companies was not substantiated and there was no showing that he indeed
worked as truck driver for other companies. (Felicilda v. Uy, G.R. No.
221241, [September 14, 2016]
2017 BAR QUESTION (I)
1.1. What are the accepted tests to determine the existence of an employer-
employee relationship? (5%)
1.2. Applying the tests to determine the existence of an employer- employee

relationship, is a jeepney driver operating under the boundary system an
employee of his jeepney operator or a mere lessee of the jeepney? Explain
your answer. (3%)
ANSWERS:
1.1. Four-Fold Test:
a. The selection and engagement of the employees;
b. The payment of wages;
c. The power of dismissal; and
d. The power to control the employees’ conduct.
1.2. The jeepney driver is an employee of the jeepney operator, where the jeepney
operator controls the conduct of the driver in the performance of the latter’s
work. Where the owner-operator, as holder of the certificate of public
convenience, sees to it that the jeepney driver follows the route prescribed by
the franchising authority and the rules promulgated as regards to its operation,
then this is control indicative of an employer-employee relationship. Moreover,
jeepney drivers perform activities which are usually necessary or desirable in
the usual business or trade of the jeepney operator. (Jardin, et al. V. NLRC,
326 SCRA 299 [2000].)
2018 BAR QUESTION:
Nathaniel has been a salesman assigned by Newmark Enterprises (Newmark) for

nearly two years at the Manila office of Nutrition City, Inc. (Nutrition City). He was
deployed pursuant to a service agreement between Newmark and Nutrition City,
the salient provisions of which were as follows:
a) the Contractor (Newmark) agrees to perform and provide the Client (Nutrition
City), on a non-exclusive basis, such tasks or activities that are considered
contractible under existing laws, as may be needed by the Client from time to
time;
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b) the Contractor shall employ the necessary personnel like helpers, salesmen,
and drivers who are determined by the Contractor to be efficiently trained;
c) the Client may request replacement of the Contractor's personnel if quality of
the desired result is not achieved;
d) the Contractor's personnel will comply with the Client's policies, rules, and
regulations; and
e) the Contractor's two service vehicles and necessary equipment will be utilized
in carrying out the provisions of this Agreement.
When Newmark fired Nathaniel, he filed an illegal dismissal case against the
wealthier company, Nutrition City, Inc., alleging that he was a regular employee of
the same. Is Nathaniel correct? (2.5%)
SUGGESTED ANSWER: I would rule in Nathaniel’s favor. As can be gleaned

from the Agreement, there is lack of control by the Contractor (Newmark) over the
worker Nathaniel. It is apparent that Newmark has to comply with Nutrition City’s
regulations, and that Nutrition City has the right to request the replacement of
Newmark’s personnel. It is likewise apparent that the Agreement did not identify
the work needed to be performed and the final result to be accomplished, pointing
to the conclusion that Newmark did not obligate itself to perform an identifiable job,
work, or service. Thus, Nathaniel was under the control of Nutrition City.
With respect to the service vehicles and equipment, these may not be considered
as substantial capital on the part of Newmark, as the facts do not establish their
sufficiency to carry out the Agreement. The presence of Newmark’s vehicles and
equipment did not necessarily preclude the use of Nutrition City’s own capital and
assets. Similar to the case of Coca-Cola Bottlers Philippines, Inc. vs. Agito G.R.
No. 179546, February 13, 2009,
ALTERNATIVE ANSWER: Nathaniel’s contention is not correct. He is not a

regular employee of Nutrition but rather of Newmark Enterprises. Assuming that
Newmark has a DO 174 certification, this is a valid job contracting arrangement
especially so that the Newmark has sufficient capitalization in the form of tools,
equipment, machineries xxx and that Nutrition has no control over the manner and
means by which Newmark and its employees are to do the work.
2016 BAR QUESTION:
Matibay Shoe and Repair Store, as added service to its customers, devoted a
portion of its store to a shoe shine stand. The shoe shine boys were tested for their
skill before being allowed to work and given ID cards. They were told to be present
from the opening of the store up to closing time and were· required to follow the
company rules on cleanliness and decorum. They bought their own shoe shine
boxes, polish, and rags. The boys were paid by their customers for their services
but the payment is coursed through the store's cashier, who pays them before
closing time. They were not supervised in their work by any managerial employee
of the store but for a valid complaint by a customer or for violation of any company
rule, they can be refused admission to the store. Were the boys employees of the
store? Explain. (5%)
ANSWER: The shoe-shine boys were not employees of Matibay Shoe and Repair
Store, as the latter did not exercise any control over the manner and method by
which they were to do the work. If at all, they were to be considered as
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independent contractors or even partners of the store. (Besa Shoe Repair vs.
Trajano, 146 SCRA 501 [1986]).
2014 BAR QUESTION:
Don Luis, a widower, lived alone in a house with a large garden. One day, he
noticed that the plants in his garden needed trimming. He remembered that
Lando, a 17-year old out-of-school youth, had contacted him in church the other
day looking for work. He contacted Lando who immediately attended to Don
Luis’s garden and finished the job in three days. (4%)
(A) Is there an employer-employee relationship between Don Luis and Lando?

(B) Does Don Luis need to register Lando with the Social Security System
(SSS)?
ANSWERS:
(A) Yes, casual employment.
(B) No, Lando’s employment is purely casual as it is not for the purpose of the
occupation or business of the employer Don Luis. (Sec. 8 [J] [3], RA 1161, as
amended.)
(d) DISTINGUISH BETWEEN “RULES THAT FIX METHODOLOGY” VS.

“RULES THAT ARE MERE GUIDELINES.”
EXAMPLE: INSURANCE AGENTS; TWO CASES:
Insurance agents are not employees of the insurance companies, in the

absence of evidence that rules or regulations were promulgated or issued
which effectively controlled or restricted the agent’s choice of methods — or
the methods themselves — of selling insurance. (Insular Life Assurance Co.,
Ltd., vs. NLRC and Melecio Basiao, G.R. 84484, 15 November 1989, 179 SCRA 459).
But this is not to say that ALL insurance agents are NOT employees of
the insurance company.
As the Supreme Court clarified in the case of Tongko vs. Manufacturers'

Life Insurance Company (Phils.) Inc. (G.R. No. 167622, 29 June 2010,),
the Insular Life ruling above was tempered with the qualification that had there
been evidence that the company promulgated rules or regulations that
effectively controlled or restricted an insurance agent's choice of methods or
the methods themselves in selling insurance, an employer-employee
relationship would have existed. In other words, the Court in Insular in no way
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definitively held that insurance agents are not employees of insurance

companies, but rather made the same on a case-to-case basis.
2016 BAR QUESTION (II)
Gregorio was hired as an insurance underwriter by the Guaranteed Insurance

Corporation (Guaranteed). He does not receive any salary but solely relies on
commissions earned for every insurance policy approved by the company. He
hires and pays his own secretary but is provided free office space in the office
of the company. He is, however, required to meet a monthly quota of twenty
(20) insurance policies, otherwise, he may be terminated. He was made to
agree to a Code of Conduct for underwriters and is supervised by a Unit
Manager.
[a] Is Gregorio an employee of Guaranteed? Explain. (2.5%)
Answer: In this instance, Gregorio appears to be an independent contractor

as there is nothing on record which shows that Guaranteed controls the
manner and method by which he does his work. The monthly quota and the
Code of Conduct for underwriters are mere guidelines given by Guaranteed
(Insular Life case).
[b] Suppose Gregorio is appointed as Unit Manager and assigned to supervise

several underwriters. He holds office in the company premises, receives an
overriding commission on the commissions of his underwriters, as well as a
monthly allowance from the company, and is supervised by a branch
manager. He is governed by the Code of Conduct for Unit Managers. Is he an
employee of Guaranteed? Explain. (2.5%)
Answer: The fact that Gregorio is himself supervised by a branch manager,

and that he is governed by a Code of Conduct for Unit Managers, reveals
Guaranteed Insurance’s control over the method by which he is to do his work.
As such, he is an employee of Guaranteed. (Tongko vs. Manufacturer’s Life).
6.2 GENERAL RULE #2: PRINCIPLE OF INCORPORATION.
Once an employer-employee relationship is deemed to exist, the Labor Code is

deemed automatically incorporated into said relationship. Under the
PRINCIPLE OF INCORPORATION, the minimum labor standards and benefits
in Labor Code are considered inherent in every employer-employee relationship
even absent a written employment contract.
6.3 GENERAL RULE #3: BURDEN OF PROOF IS ALWAYS UPON EMPLOYER

to show validity of its exercise of management prerogatives, especially as
regards termination of employment.
TWO EXCEPTIONS when burden of proof is initially placed upon

EMPLOYEE:
a) Fact of hiring.
In sum, the rule of thumb remains: the onus probandi falls on petitioner
(EMPLOYEE) to establish or substantiate such claim by the requisite
quantum of evidence. “Whoever claims entitlement to the benefits provided
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by law should establish his or her right thereto x x x.” Sadly, Javier failed to
adduce substantial evidence as basis for the grant of relief. In this case, the
LA and the CA both concluded that Javier failed to establish his employment
with Fly Ace. By way of evidence on this point, all that Javier presented were
his self-serving statements purportedly showing his activities as an employee
of Fly Ace. Clearly, Javier failed to pass the substantiality requirement to
support his claim. Hence, the Court sees no reason to depart from the
findings of the CA. (Danilo “Bitoy” Javier vs. CA, G.R. No. 192558, 15
February 2012)
b) Fact of firing/dismissal.
It is axiomatic that, in illegal dismissal cases, the employee must first prove
the fact of dismissal before the burden of evidence is shifted to the employer
to prove that the latter terminated the employment for just or authorized
cause. The fact of dismissal must be established by positive and overt acts
of an employer indicating the intention to dismiss, and the party alleging such
critical fact must support his allegation with substantial evidence, or such
amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.||| (Geminiano, Jr. v. MGE Transportation
Corp., G.R. No. 228345 (Notice), [March 22, 2017])
6.4. GENERAL RULE #4: There must exist SUBSTANTIAL EVIDENCE to

prove valid exercise of management prerogatives, viz., just or authorized
cause of termination.
a) Proof beyond reasonable doubt is not required in administrative cases.
b) Substantial evidence defined:
It is an oft-repeated rule that in labor cases, as in other administrative and

quasi-judicial proceedings, “the quantum of proof necessary is substantial
evidence, or such amount of relevant evidence which a reasonable mind
might accept as adequate to justify a conclusion.” Valencia v. Classique
Vinyl Products Corp., G.R. No. 206390, 30 January 2017
c) Case on substantial evidence: Alilem Credit Coop vs. Bandiola
QUESTION: Are sworn statements of relatives and friends of respondent

attesting to the existence of an extra-marital affair considered sufficient
evidence to prove immorality, as a just cause for termination?
ANSWER: YES. The employer’s evidence consists of sworn statements of

either relatives or friends of Thelma and respondent. They either had direct
personal knowledge of the illicit relationship or revealed circumstances
indicating the existence of such relationship. (Alilem Credit Cooperative vs.
Bandiola, G.R. No. 173489, 25 February 2013)
Note: Failure of employer to submit documents which are presumed to be

in its possession, inspite of an Order to do so, implies that the presentation
of said documents is prejudicial to its case. (De Guzman vs. NLRC, 540 SCRA
210 [Dec. 2007]).
6.5 GENERAL RULE #5: No retroactive effect of labor laws.
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Exception: Retroactive only if the law explicitly so provides.
6.6 GENERAL RULE #6: IN CASES OF DOUBT OR AMBIGUITY, INTERPRET

OR RULE IN FAVOR OF LABOR. -- “Where the contract of employment, being
a contract of adhesion, is ambiguous, any ambiguity therein should be construed
strictly against the party who prepared it.” (Price vs. Innodata Phils., 567 SCRA
122 [2008])
CASES ON INTERPRETATION OF LABOR CONTRACTS:

(ALSO FOR COLLECTIVE BARGAINING AGREEMENTS)
CASE1. BPI vs. BPI Employees Union – Metro Manila, G.R. No. 175678 [22
August 2012]:
Issue: In a CBA which provides for multipurpose loans which may be availed of
by the employees, is the imposition of a “NO NEGATIVE DATA BANK (No NDB)”
policy after CBA is signed and executed, violative of the CBA obligation?
Position of the Union and Voluntary Arbitrator: The imposition of “No NDB”
is a new condition for the implementation and availment of loans and in
contravention of CBA provision.
Position of BPI: “No NDB” policy is not violative of the CBA, but is a valid and
reasonable requirement consistent with sound banking practice. It is meant to
inculcate among both officers and employees the need for responsibility and
discipline, especially in an industry where trust is paramount.
SUPREME COURT DECISION: YES, it is violative of CBA. For the Union.
A CBA refers to the negotiated contract between the Union and the Employer
regarding terms and conditions of work. As in all other contracts,, there must be
clear indications that the parties reached a meeting of the minds, as the CBA is
considered the law between the parties. The CBA in this case contains no
provision on the “No Negative Data Bank” policy as a prerequisite for the
entitlement of the benefits it set forth for the employees. IN fact, a close reading
of the CBA would show that the terms and conditions contained therein relative
to the availment of the loans are plain and clear, thus all they need is thus all
they need is the proper implementation in order to reach their objective.
The CA was therefore correct when it ruled that, although the Bank is authorized
to issue rules and regulations pertinent to the availment and administration of
loans under the CBA, the additional rules and regulations must NOT impose new
conditions which are not contemplated in the CBA and should be within the realm
of reasonableness. The “No NDB policy” is a new condition which is NEVER
contemplated in the CBA and at some points, unreasonable to the employees
because it provides that before an employee or his/her spouse can avail of the
loan benefits under the CBA, the said employee or his/her spouse must not be
listed in the Negative Data Bank, or if previously listed therein, must obtain
clearance of at least one (1) year or six months, s the case may be, prior to a
loan application. If the Bank intended to include the No NDB policy in the
CBA, it should have presented such proposal to the union during
negotiations. To include such policy after the effectivity of the CBA is
deceptive and goes beyond the original agreement between the parties.
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CASE2 ON FUNERAL AND BEREAVEMENT AID FOR DEATH OF LEGAL

DEPENDENTS: (Philippine Journalist Inc. vs. Journal Employees Union,
G.R. No. 192601, 26 June 2013)
ISSUE: In the availment of funeral and bereavement aid under the CBA, may the
Company interpret “legal dependent” in accordance with the SSS definition of
“beneficiary” and hence, refuse payment of the benefit?
Married employee sought payment of funeral/bereavement aid under CBA when

one of his parents died. Company denied the claim, based on its interpretation
that a married employee’s “legal dependent” is limited only to “legitimate spouse
and minor children”; while the legal dependents of a single employee are the
parents and siblings 18 yrs old and below, in accordance with SSS definitions.
CBA provision states:
SECTION 4. Funeral/ Bereavement Aid. The COMPANY agrees to grant a

funeral/bereavement aid in the following instances:
a. Death of a regular employee in line of duty – P50,000
b. Death of a regular employee not in line of duty – P40,000
c. Death of legal dependent of a regular employee – P15,000.
SUPREME COURT DECISION: NO, the Company cannot do so.
Citing statutory definitions, the Supreme Court concluded that the civil status of
the employee as either married or single is not the controlling consideration in
order that a person may qualify as the employee’s legal dependent. What is
rather decidedly controlling is the fact that the spouse, child, or parent is actually
dependent for support upon the employee. The Court defined a dependent as
"one who derives his or her main support from another. Meaning, relying on, or
subject to, someone else for support; not able to exist or sustain oneself, or to
perform anything without the will, power, or aid of someone else."
The coverage of the term legal dependent as used in a stipulation in a collective

bargaining agreement (CBA) granting funeral or bereavement benefit to a regular
employee for the death of a legal dependent, if the CBA is silent about it, is to
be construed as similar to the meaning that contemporaneous social
legislations have set. This is because the terms of such social legislations
are deemed incorporated in or adopted by the CBA.
Considering that existing laws always form part of any contract, and are deemed
incorporated in each and every contract, the definition of legal dependents under
the aforecited social legislations applies herein in the absence of a contrary or
different definition mutually intended and adopted by the parties in the CBA.
Accordingly, the concurrence of a legitimate spouse does not disqualify a child

or a parent of the employee from being a legal dependent, provided substantial
evidence is adduced to prove the actual dependency of the child or parent on
the support of the employee.
CASE3 EN CONTRA: Mitsubishi Motors Phils. Salaried Employees Union

(MMPSEU) vs. Mitsubishi Motors Phils Corp., G.R. No. 175773, 17 June
2013.
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ISSUE: In a CBA which provides for reimbursement of hospitalization benefits to

dependents, is the employer company under obligation to reimburse employee
if the dependent’s hospital expenses had already been covered by another
Health Maintenance Organization (HMO) provider?
Position of Voluntary Arbitrator: CBA has no express provision barring claims

for hospitalization expenses already paid by other insurers. Hence, the covered
employees can recover from both.
Position of Court of Appeals and Company: The CA did not agree with
Voluntary Arbitrator, saying that the conditions set forth in the CBA implied an
intention of the parties to limit MMPC’s liability only to the extent of the expenses
actually incurred by their dependents which excludes the amounts shouldered
by other health insurance companies.
SUPREME COURT DECISION: NO, Mitsubishi Company is under NO

OBLIGATION to reimburse employee for hospital expenses of dependents
which had already been covered by another HMO.
We agree with the CA. The condition that payment should be direct to the
hospital and doctor implies that MMPC is only liable to pay medical expenses
actually shouldered by the employees’ dependents. It follows that MMPC’s
liability is limited, that is, it does not include the amounts paid by other health
insurance providers. This condition is obviously intended to thwart not only
fraudulent claims but also double claims for the same loss of the dependents of
covered employees.
It is well to note at this point that the CBA constitutes a contract between the
parties and as such, it should be strictly construed for the purpose of limiting the
amount of the employer’s liability. The terms of the subject provision are clear
and provide no room for any other interpretation. As there is no ambiguity, the
terms must be taken in their plain, ordinary and popular sense.
Consequently, MMPSEU cannot rely on the rule that a contract of insurance is

to be liberally construed in favor of the insured. Neither can it rely on the theory
that any doubt must be resolved in favor of labor.
CASE 4: National Union Of Workers In Hotel Restaurant And Allied

Industries (NUWHRAIN) - Philippine Plaza Chapter Vs. Philippines Plaza
Inc., G.R. No. 177524, 23 July 2014. – The Union anchors its claim for unpaid
services charges on Sections 68 and 69 of the CBA, in relation with Article 96 of
the Labor Code. Section 68 states that the sale of food, beverage,
transportation, laundry and rooms are subject to service charge at the rate of ten
percent (10%). Excepted from the coverage of the 10% service charge are the
so-called “negotiated contracts” and “special rates.”
Issue: Can the Union validly claim proportionate share of service charges
from “non-sales” (example: free benefits from hotel and credit cards; and
similar arrangements)?
Answer: NO. Hotel does not have any obligation to the Union, inasmuch as
their claims arises from “non-sale” transactions like “Westin Gold Cards
12
Revenue” and “Maxi Media Barter” to be negotiated contracts or contracts under

special rates, and the entries “Business Promotions” and “Gift Certificates” as
contracts that did not involve a sale of food, beverage, etc.
A collective bargaining agreement, as used in Article 252 (now Article 262), the
Labor Code, is a contract executed at the request of either the employer or the
employees’ exclusive bargaining representative with respect to wages, hours of
work and all other terms and conditions of employment, including proposals for
adjusting any grievances or questions under such agreement. Jurisprudence
settles that a CBA is the law between the contracting parties who are obliged
under the law to comply with its provisions. Thus, if the terms of the CBA are
plain, clear and leave no doubt on the intention of the contracting parties,
the literal meaning of its stipulations, as they appear on the face of the
contract, shall prevail. Only when the words used are ambiguous and doubtful
or leading to several interpretations of the parties’ agreement that a resort to
interpretation and construction is called for.
B. EMPLOYER-EMPLOYEE RELATIONSHIP
Vis-à-vis Issues of Jurisdiction
1. TWO ELEMENTS TO DETERMINE JURISDICTION OF LABOR

COURTS:
(a) There exists an employer-employee relationship

(b) There must be a REASONABLE CAUSAL CONNECTION between the
parties’ employer-employee relations, as well as the claim asserted, in order
for labor courts to have jurisdiction.
• In the absence of such nexus, it is the regular courts that have

jurisdiction.
ADA’S NOTES: In short, aside from ER-EE relationship, the claim or relief
prayed for, can be answered by referring to the Labor Code or other labor laws.
In determining the nature of the case, check the principal relief sought by the
complainant. That is the main factor that determines jurisdiction.
GOOD EXAMPLE OF A CASE WHERE THERE IS AN EMPLOYER-

EMPLOYEE RELATIONSHIP BUT THERE IS NO REASONABLE CAUSAL
CONNECTION BETWEEN THE CLAIM AND THE ER-EE RELATIONSHIP:
Indophil Textile Mills Vs. Adviento, G.R. No. 171212, 04 August 2014
Facts: Adviento was hired as Civil Engineer (for maintenance of facilities) of

Indophil, whose primary business is the manufacture of textiles. Adviento
developed a chronic allergy on account of the textile dust. He was eventually
dismissed from employment, for which reason he filed two cases against the
company, viz: (a) NLRC for illegal termination; and (b) Regional Trial Court for
damages arising from gross negligence and failure of company to provide a
safe, workable and healthy environment. Company sought to dismiss the RTC
13
case on account of litis pendencia and lack of jurisdiction, considering that the
claim arises from an employer-employee relationship.
Question: Whether or not RTC has jurisdiction?
Answer: YES. No reasonable causal connection between claim and employer-

employee relationship.
Although Adviento contracted the occupational disease during his employment

with the company, there is no reasonable causal connection between the claim
asserted and the employer-employee relations. As such, the case does not fall
within the jurisdiction of the labor courts; but rather with the regular courts that
have jurisdiction. While the maintenance of a safe and healthy workplace may
be a subject of a labor case, note that the cause of action is one for torts/quasi-
delict and that relief prayed for is the payment for damages arising from alleged
gross negligence on the part of the company to provide a safe, healthy and
workable environment for its employees.
De Roca v. Dabuyan, G.R. No. 215281, 05 March 2018 -- "Contracts take

effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law." The contract of employment
between respondents, on the one hand, and Oceanic and Ewayan on the other,
is effective only between them; it does not extend to petitioner, who is not a
party thereto. His only role is as lessor of the premises which Oceanic leased
to operate as a hotel; he cannot be deemed as respondent's employer — not
even under the pretext that he took over as the "new management" of the hotel
operated by Oceanic. There simply is no truth to such claim. Thus, to allow
respondents to recover their monetary claims from petitioner would necessarily
result in their unjust enrichment.
2. EMPLOYEE BENEFIT: IS IT A LABOR DISPUTE OR A CIVIL

DISPUTE?
TWO ELEMENTS: (Real vs. Sangyu re-stated from a labor viewpoint)

1. Existence of employer-employee relationship
2. Reasonable causal connection between the ER-EE relationship and the
prayer/relief prayed for (which can be answered by reference to the Labor
Code)
SMART Communications vs. Astorga, G.R. 148132, 28 Jan 2008. -- An

employer’s demand for the payment of the market value of the car, or in the
alternative, the surrender of a car, is not a labor dispute but a civil one. Hence,
this demand properly falls within the jurisdiction of the civil courts. No
reasonable causal connection between the claim to the issue of an
employer-employee relationship.
Contra: Car Loan Agreement with Forfeiture clause in case of

resignation. –
Grandteq Industrial Steel Products vs. Edna Margallo, G.R. No. 181393, 28
July 2009. – In a termination case, the claim by employee for reimbursement of
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car loan payments under car loan agreement with employer was dismissed by
Labor Arbiter, finding that the contract stipulation should be strictly followed as
the law between the parties. On appeal, NLRC/CA and Supreme Court all
reversed the Labor Arbiter’s decision, and declared the forfeiture provision of the
car loan agreement as null and void.
3. CORPORATE OFFICER OR ORDINARY EMPLOYEE?
Sub-issue: IS THE TERMINATION OF A HIGHER MANAGEMENT OFFICER

“ASST. VICE-PRESIDENT” “EXECUTIVE VICE-PRESIDENT”, OR SIMPLY
“VICE-PRESIDENT” A LABOR CASE OR A CORPORATE CASE?
If the complainant is named as a corporate officer per Articles and/or by-laws,

then the removal of the person is an intra-corporate controversy and within the
jurisdiction of the ordinary courts. If not, then the person is an ordinary employee
who may only be terminated for just or authorized cause, and after due process
compliance.
Notes:
1. Who are corporate officers?
Corporation Code, Section 25. Corporate officers, quorum. - Immediately

after their election, the directors of a corporation must formally organize by
the election of a president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident and citizen of the
Philippines, and such other officers as may be provided for in the by-laws. Any
two (2) or more positions may be held concurrently by the same person,
except that no one shall act as president and secretary or as president and
treasurer at the same time.
2. How are corporate offices created?
General Rule: Under Corporation Code, the following are mandatory

corporate officers: President, Treasurer and Corporate Secretary
Exceptions to the above general rule are as follows:

➢ When the articles or by-laws provide for officers other than those positions
specifically mentioned in the Corporation, Articles and By-laws.
➢ When the Board of Directors, duly empowered and authorized to create
such additional corporate offices in the articles or by-laws, create said
additional corporate offices by board resolution. Note further that the by-
laws must itself have been amended to include such corporate office.
Thus:
Marc II Marketing, Inc. v. Joson, G.R.. G.R. No. 171993, 12 December

2011 [662 SCRA 35). – The Supreme Court held that an enabling clause in a
corporation/s by-laws empowering its Board of Directors to create additional
officers, even with the subsequently passage of a board resolution of that
effect, cannot make such position a corporate office. The Board of Directors
has no power to create other corporate offices without first amending the
15
corporate by-laws so as to include therein the newly created corporate office.

To allow the creation of a corporate officer position by a simple inclusion in
the corporate by-laws of an enabling clause empowering the board of
directors to do so can result in the circumvention of that constitutionally well-
protected right of every employee to security of tenure.
Matling Industrial and Commercial Corp., et al. vs. Ricardo R.

Coros, G.R. No. 157802, 13 October 2010. -- It is not the nature of the
services performed, but on the manner of creation of the office that
distinguishes corporate officers who may be ousted from office at will
and ordinary corporate employees who may only be terminated for just
cause. Under Section 25 of the Corporation Code, a position must be
expressly mentioned in the By-Laws in order to be considered as a corporate
office. Thus, the creation of an office pursuant to a By-Law provision giving a
president the power to create an office does not qualify as a By-Law position.
In the present case, the position of Vice President for Finance and
Administration which respondent held was merely created by Matling’s
President pursuant to the company’s By-Laws. It is not a corporate office or
By-Law position, and therefore, respondent was not a corporate officer who
could be ousted from office at will.
Raul C. Cosare vs. Broadcom Asia, Inc. and Dante Arevalo, G.R. No.
201298, 05 February 2014. -- Two circumstances which must concur for an
a person to be considered a corporate officer, as against an ordinary
employee or officer, namely; (1) the creation of the position is under the
corporation’s charter or by-laws; and (2) the election of the officer is by the
directors of stockholder. It is only when the officer claiming to have been
illegally dismissed is classified as such corporate officer that the issue
is deemed an intra-corporate dispute which falls within the jurisdiction
of the trial courts.
The mere fact that Cosare was a stockholder of Broadcom at the time of the
case’s filing did not necessarily make the action an intra– corporate
controversy. “[N]ot all conflicts between the stockholders and the corporation
are classified as intra–corporate. There are other facts to consider in
determining whether the dispute involves corporate matters as to consider
them as intra–corporate controversies.”42 Time and again, the Court has ruled
that in determining the existence of an intra–corporate dispute, the status or
relationship of the parties and the nature of the question that is the subject of
the controversy must be taken into account.43 Considering that the pending
dispute particularly relates to Cosare’s rights and obligations as a regular
officer of Broadcom, instead of as a stockholder of the corporation, the
controversy cannot be deemed intra–corporate.
4. RECAPITUATION ON CASES REGARDING JURISDICTION:
In determining the nature of the case, check the principal relief

sought by the complainant. That is the main factor that determines
jurisdiction.
In the Smart case, the case filed was one of replevin, and hence, jurisdiction lies
with the regular courts. In the Margallo case, the principal case was one of illegal
16
termination with claim for reimbursement as well as damages, and hence,

properly falls within the jurisdiction of the Labor Arbiter. Same also with the
Indophil case, which was a case for damages arising from alleged negligence on
the part of the company to provide a safe, healthy and workable environment for
its employees. As such, jurisdiction properly lies with the regular courts.
As regards termination of an employee who is a corporate officer, or vice-versa:

It is only when the dismissed employee is actually classified as a corporate officer,
that the issue may be considered an intra-corporate dispute and hence,
cognizable by the regular courts and NOT the labor courts.
CASE RELIEF JURISDICTION

SMART VS. REPLEVIN; RETURN OF THE CAR OF REGIONAL TRIAL
ASTORGA THE MANAGER COURT
GRANDTEQ VS. ILLEGAL TERMINATION WITH PRAYER LABOR ARBITER
MARGALLO FOR REIMBURSEMENT OF
DOWNPAYMENT FOR CAR
INDOTEXTILE VS. DAMAGES FOR COMPANY’S FAILURE REGIONAL TRIAL
ADVIENTO TO PROVIDE SAFE AND HEALTHY COURT
WORKING ENVIRONMENT
MATLING VS. TERMINATION OF VP FOR FINANCE LABOR ARBITER
COROS AND ADMINISTRATION, WHICH
POSITION IS NOT IN ARTICLES OR BY-
LAWS
COSARE VS TERMINATION OF ASST VICE- LABOR ARBITER
BROADCOM PRESIDENT FOR SALES, WHO WAS
ALSO A STOCKHOLDER. AVP-SALES
NOT A CORP OFFICER
MALAYAN VS REPLEVIN; RETURN OF THE CAR OF REGIONAL TRIAL
ALIBUDBUD THE MANAGER COURT
2016 BAR QUESTION:

TOPIC AS PER BAR SYLLABUS: Jurisdiction - DOLE Secretary
Inggo is a drama talent hired on a per drama "participation basis" by DJN Radio
Company. He worked from 8:00 a.m. until 5:00 p.m., six days a week, on a gross rate
of P80.00 per script, earning an average of P20,000.00 per month. Inggo filed a
complaint before the Department of Labor and Employment (DOLE) against DJN
Radio for illegal deduction, non-payment of service incentive leave, and 13th month
pay, among others. On the basis of the complaint, the DOLE conducted a plant level
inspection.
The DOLE Regional Director issued an order ruling that Inggo is an employee of DJN
Radio, and that Inggo is entitled to his monetary claims in the total amount of
P30,000.00. DJN Radio elevated the case to the Secretary of Labor who affirmed the
order. The case was brought to the Court of Appeals. The radio station contended
that there is no employer-employee relationship because it was the drama directors
and producers who paid, supervised, and disciplined him. Moreover, it argued that
the case falls under the jurisdiction of the NLRC and not the DOLE because Inggo's
claim exceeded P5,000.00.
17
[a] May DOLE make a prima facie determination of the existence of an employer-
employee relationship in the exercise of its visitorial and enforcement powers?
(2.5%)
[b] If the DOLE finds that there is an employee-employer relationship, does the case
fall under the jurisdiction of the Labor Arbiter considering that the claim of inggo
is more than P5,000.00. Explain. (2.5%)
Answer:
(a) YES, 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. 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. (People’s
Broadcasting Service [Bombo Radio Phils. Inc.] vs. The Secretary of Labor, etc.,
G.R. No. 179652, 06 March 2012, J. Velasco En Banc.)
(b) NO. DOLE’s jurisdiction may be exercised even if the claim of Inggo is beyond
P5,000.00, inasmuch as this was made in the exercise of its expanded visitorial
and enforcement power of the DOLE. (Guico vs. Quisumbing, 298 SCRA 666
[1998]).
2014 BAR QUESTION:
Lincoln was in the business of trading broadcast equipment used by television and
radio networks. He employed Lionel as his agent. Subsequently, Lincoln set up Liberty
Communications to formally engage in the same business. He requested Lionel to be
one of the incorporators and assigned to him 100 Liberty shares. Lionel was also given
the title Assistant Vice-President for Sales and Head of Technical Coordination. After
several months, there were allegations that Lionel was engaged in "under the table
dealings" and received "confidential commissions" from Liberty’s clients and suppliers.
He was, therefore, charged with serious misconduct and willful breach of trust, and
was given 48 hours to present his explanation on the charges. Lionel was unable to
comply with the 48 -hour deadline and was subsequently barred from entering
company premises. Lionel then filed a complaint with the Labor Arbiter claiming
constructive dismissal. Among others, the company sought the dismissal of the
complaint alleging that the case involved an intra-corporate controversy which was
within the jurisdiction of the Regional Trial Court (RTC). If you were the Labor Arbiter
assigned to the case, how would you rule on the company’s motion to dismiss? (5%)
ANSWER:
I will deny the Motion to Dismiss. The mere fact that Lionel was an incorporator, a
stockholder and an officer of Liberty Communications at the time the subject
controversy developed, does not make the instant case an intra-corporate dispute.
There are two circumstances which must concur in order for an individual to be
considered a corporate officer, as against an ordinary employee or officer, namely; (1)
the creation of the position is under the corporation’s charter or by-laws; and (2) the
election of the officer is by the directors or stockholders. It is only when the officer
claiming to have been illegally dismissed is classified as such corporate officer that
the issue is deemed an intra-corporate dispute which falls within the jurisdiction of the
trial courts.
18
In the present case, Lionel’s position as Assistant Vice-President for Sales and Head
of Technical Coordination was not created under the corporation’s charter or by-laws.
Neither was Lionel elected by the directors or stockholders. Inasmuch as Lionel is not
a Corporate Officer, the case falls under the jurisdiction of the Labor Arbiter. (Raul C.
Cosare vs. Broadcom Asia, Inc., et al., G.R. No. 201298, February 05, 2014.)
2014 BAR QUESTION:
Luningning Foods engaged the services of Lamitan Manpower, Inc., a bona fide
independent contractor, to provide "tasters" that will check on food quality.
Subsequently, these "tasters" joined the union of rank -and-file employees of
Luningning and demanded that they be made regular employees of the latter as they
are performing functions necessary and desirable to operate the company’s business.
Luningning rejected the demand for regularization. On behalf of the "tasters", the
union then filed a notice of strike with the Department of Labor and Employment
(DOLE). In response, Luningning sought a restraining order from the Regional Trial
Court (RTC) arguing that the DOLE does not have jurisdiction over the case since it
does not have an employer-employee relationship with the employees of an
independent contractor. If you were the RTC judge, would you issue a restraining order
against the union? (4%)
ANSWER: NO. AS RTC Judge, I will not issue a restraining order as jurisdiction in
this case properly vests with the Labor Arbiter.
Article 212 (L) of the Labor Code provides that a labor dispute can nevertheless exist
“regardless of whether the disputants stand in the proximate relationship of employer
and employee” provided the controversy concerns, among others, the term and
conditions of employment or a “change” or “arrangement” thereof. (San Miguel
Corporation Employees Union-PTGWO vs. Bersamira, 186 SCRA 496 [1990].)
In the instant case, a labor dispute as defined by law exists between Luningning Foods
and the Union regarding a change in the status of the “tasters”. Even if it is eventually
proved that in reality, there exists no employer-employee relation between Luningning
Foods and the tasters who are employees of Lamitan Manpower, Inc., the case would
still fall under the jurisdiction of the Labor Arbiter. Consequently, the RTC Judge would
have no jurisdiction to issue a restraining order against the union.
C. MANAGEMENT PREROGATIVES:
1. GENERAL PRINCIPLE: Management is free to regulate, according to its discretion
and judgment, all aspects of employment, including hiring, work assignments,
working methods, time, place and manner of work, processes to be followed,
supervision of workers, working regulations, transfer of employees, work supervision,
lay-off of workers, and discipline, dismissal and recall of workers. (Malcaba v.
|||
ProHealth Pharma Philippines, Inc., G.R. No. 209085 , [June 6, 2018]) citing San MIguel
Brewery Sales Force Union vs. Ople.
19
2. MEMORIZE ELEMENTS: Valid exercise of management prerogatives
The free will of the management to conduct its own affairs to achieve its purpose
cannot be denied, PROVIDED THAT THE SAME IS EXERCISED:
• IN GOOD FAITH (BONA-FIDE IN CHARACTER),

• FOR THE ADVANCEMENT OF THE EMPLOYER’S
INTEREST; AND
• NOT TO CIRCUMVENT THE RIGHTS OF THE EMPLOYEES.
(Capitol Medical Center vs. Meriz; San Miguel Brewery and Union
Carbide cases).
3. 2015-2018 CASES:
3.1 RULES ON TRANSFER: It is the prerogative of management to transfer an

employee where he can be most useful to the company; Insubordination if
not followed.
Jurisprudential guidelines in the transfer of employees: ICT Marketing

Services, Inc., etc. vs. Mariphil L. Sales, G.R. No. 202090, 09 September
2015.
i. Transfer is a movement from one position to another of equivalent rank,

level or salary without break in the service or a lateral movement from one
position to another of equivalent rank or salary;
ii. The employer has the inherent right to transfer or reassign an employee for
legitimate business purposes;
iii. A transfer becomes unlawful where it is motivated by discrimination or bad
faith or is affected as a form of punishment or is a demotion without sufficient
cause;
iv. The employer must be able to show that the transfer is not unreasonable,
inconvenient or prejudicial to the employee.
a) Marsman & Company vs. Rodil Sta. Rita, G.R. No. 194765, 23 April 2018.
-- The Court has upheld the transfer/absorption of employees from one
company to another, as successor-employer, as long as the transferor was
NOT in bad faith, and the employees absorbed by the successor-employer
enjoy the continuity of their employment status, and their rights and privileges
with the former employer.
b) Chateau Royale Sports and Country Club, Inc. vs. Rachelle G. Balba, et
al., G.R. No. 197492, 18 January 2017 - For a valid transfer, it must be
lateral in nature, viz., no demotion in rank, nor diminution in pay or benefit,
and “not unduly inconvenience the employee.” Example of “not undue
inconvenience.”
Facts: When three (3) Account Managers and the Director of Sales and
Marketing in Petitioner’s Manila Office resigned, an order was issued
directing respondent employee Balba et al to transfer from the Nasugbu,
Batangas office to the main office in Manila. Respondents declined on the
20
ground that their families were living in Nasugbu, Batangas. Hence,

respondents filed a complaint for constructive dismissal.
Question: May the employees refuse the transfer on the ground that it unduly
inconveniences them?
Supreme Court: NO. It is management prerogative to determine the place

where the employee is best qualified to serve the interest of the business
given the qualifications, training and performance of the affected
employee. There is NO evidence that the COMPANY was acting in bad faith
or had ill-motive in ordering their transfer. In contrast, the urgency and
genuine business necessity justifying the transfer negated bad faith on the
part of the petitioner. Hence, employees cannot refuse the transfer.
3.2 IMPT PERLAS-BERNABE CASE: Armando Puncia vs. Toyota Shaw, G.R.
No. 214399, 28 June 2016. -- Management prerogative to impose productivity
standards.
Facts: Records reveal that as a Marketing Professional for Toyota, Puncia had
a monthly sales quota of seven (7) vehicles from March 2011 to June 2011. As
he was having trouble complying with said quota, Toyota even extended him a
modicum of leniency by lowering his monthly sales quota to just three (3) vehicles
for the months of July and August 2011; but even then, he still failed to comply.
Issue: Whether or not management may impose productivity standards to

determine efficiency of employee?
Supreme Court: YES!!! Puncia’s repeated failure to perform his duties, i.e.,
reaching his monthly sales quota for such a period of time, falls under the
concept of gross inefficiency. In Aliling vs. Feliciano (686 Phil. 910 [2012], citing
Lim vs. NLRC, 328 Phil. 843 [1996]), the SC held that an employer is entitled to
impose productivity standards for its employees, and the latter’s non-compliance
therewith can lead to his termination from work. In this regard, case law instructs
that “gross inefficiency” is analogous to “gross neglect of duty”, a just cause of
dismissal under Article 297 of the Labor Code, for both involve specific acts of
omission on the part of the employee resulting in damage to the employer or to
his business.
3.3 IMPT PERLAS-BERNABE CASE: Century Properties, Inc. v. Babiano, G.R.

No. 220978, 05 July 2016, 789 PHIL 270-287 – On breach of Confidentiality and
Non-Compete Clauses; whether company may validly deduct the same from
employee’s last pay.
Facts: Babiano was hired by CPI as Director of Sales, and was

eventually appointed as Vice President for Sales effective September 1, 2007.
As CPI's Vice President for Sales, Babiano was remunerated with, inter alia, the
following benefits: (a) monthly salary of P70,000.00; (b) allowance of
P50,000.00; and (c) 0.5% override commission for completed sales. His
employment contract also contained a "Confidentiality of Documents and Non-
Compete Clause" which, among others, barred him from disclosing confidential
information, and from working in any business enterprise that is in direct
competition with CPI "while [he is] employed and for a period of one year from
date of resignation or termination from [CPI]." Should Babiano breach any of the
21
terms thereof, his "forms of compensation, including commissions and incentives

will be forfeited." ||| Babiano tendered his resignation and revealed that he had
been accepted as Vice President of First Global BYD Development Corporation
(Global), a competitor of CPI. Consequently, Babiano was terminated from
employment.
On the other hand, Concepcion resigned as CPI’s Project Director. Upon his
appointment as such director, he had signed a contract with CPI which provided,
among others, that he was to report directly to Babiano, and that no employer-
employee relationship exists between Concepcion and CPI.
Both Babiano and Concepcion filed a complaint for non-payment of commissions

and damages against CPI.
CASE FOR CPI: CPI validly withheld Babiano’s commissions, considering that
they were deemed forfeited for violating the “Confidentiality of Documents and
Non-Compete Clause.” CPI asserted that the NLRC had no jurisdiction to hear
Concepcion’s money claims because there was no employer-employee
relationship between them.
LABOR ARBITER DECISION: LA dismissed the complaint.

NLRC: Reversed Labor Arbiter’s decision and and directed the CPI to pay
Babiano and Concepcion their commissions.
The CA affirmed the NLRC decision with modification increasing the award of
unpaid commissions. Hence, the petition for review on certiorari before the SC.
ISSUES:
a) Whether or not the Confidentiality and Non-Compete Agreement is intended
to cover acts “post-employment” after cessation of ER-EE relationship of
parties? NO. It is intended to cover ALL acts, both during and after
employment.
b) Whether or not CPI may validly forfeit commissions in case of breach of

confidentiality clause? YES.
SUPREME COURT DECISION: For CPI. Article 1370 of the Civil

Code provides that "[i]f the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulations shall control." Thus, in the interpretation of contracts, the Court
must first determine whether a provision or stipulation therein is ambiguous.
Absent any ambiguity, the provision on its face will be read as it is written and
treated as the binding law of the parties to the contract.
In the case at bar, CPI primarily invoked the "Confidentiality of Documents and
Non-Compete Clause" found in Babiano's employment contract to justify the
forfeiture of his commissions, viz.:
“xxx you shall not work for whatsoever capacity, either as an employee,
agent or consultant with any person whose business in direct
competition with the company while you are employed and for a period
of one year from date of resignation or termination from the company.”
xxxxx
22
“Finally, if undersigned breaches any terms of this contract, forms of

compensation including commissions and incentives will be forfeited.”
The foregoing clause is clear and unambiguous. Absent any ambiguity, the
provision on its face will be read as it is written and treated as the binding law of
the parties to the contract. Hence, the CA erred in limiting the “Confidentiality of
Documents and Non-Compete Clause” only to acts done after the cessation of
the employer-employee relationships or to the “post-employment” relations of the
parties.
As clearly stipulated, the clause should apply during the pendency of Babiano’s
employment; and CPI correctly invoked the same before the labor tribunals to
resist the former’s claims for unpaid commissions on account of his breach of
the said clause while the employer-employee relationship between them still
subsisted. Babiano’s breach of this clause justified the forfeiture of his unpaid
commissions.
3.4 POSSIBLE BAR QUESTION ON DRUG USE AND DRUG POLICY (ONLY
BECAUSE OF PRESIDENT DUTERTE’S DRUG WAR). Mirant Philippines vs.
Joselito A. Caro, G.R. No. 181490, 23 April 2014. – Mirant Phils conducted a
drug test where Caro was randomly chosen among its employees who would be
tested for illegal drug use. Caro and the selected employees duly received an
Intracompany Correspondence that the random drug testing was to be
conducted after lunch on the same day. However at 11:30 a.m. of the same day,
Caro received an emergency phone call from his wife’s colleague who informed
him that a bombing incident occurred near his wife’s work station in Tel Aviv,
Israel where his wife was then working as a caregiver. Caro thereafter informed
the company that he will go to the Israeli Embassy first to attend to his wife’s
concerns, and that he will submit to a drug test the following day at his own
expense. On account of his alleged refusal to submit to a random drug test, the
company terminated his services. During admin investigation however, the
Company secured evidence that: (a) there was no such bombing; and (b) Caro
did not go to the Israeli Embassy on the day of the drug test.
Issue: Whether or not the failure to subject himself to a drug test may be
considered as “willful refusal” to comply with the reasonable orders of the
company?
Decision: NO. Caro was illegally dismissed.
While the adoption and enforcement by petitioner corporation of its Anti-Drugs

Policy is recognized as a valid exercise of its management prerogative as an
employer, such exercise is not absolute and unbridled. In the exercise of its
management prerogative, an employer must therefore ensure that the policies,
rules and regulations on work-related activities of the employees must always be
fair and reasonable and the corresponding penalties, when prescribed, must
commensurate to the offense involved and to the degree of the infraction. 47 The
Anti-Drugs Policy of Mirant fell short of these requirements.
(a) The policy was not clear on what constitutes "unjustified refusal" when the
subject drug policy prescribed that an employee’s "unjustified refusal" to
submit to a random drug test shall be punishable by the penalty of
termination for the first offense. To be sure, the term "unjustified refusal"
23
could not possibly cover all forms of "refusal" as the employee’s resistance,
to be punishable by termination, must be "unjustified." To the mind of the
Court, it is on this area where petitioner corporation had fallen short of
making it clear to its employees – as well as to management – as to what
types of acts would fall under the purview of "unjustified refusal."
(b) The penalty of termination is too harsh under the circumstances, considering
that in the ten-year employment of Caro, this is his first offense.
3.5 CONTRACTING OUT OF SERVICES. (See also discussion on Valid job-

contracting vs. Labor-only contracting on SECTION F, PAGE 40 HEREUNDER.)
GENERAL RULE: Management may contact out services in the exercise of its
management prerogatives.
Doctrinal case: Asian Alcohol Corporation vs. NLRC, 305 SCRA 416, at 435-
436 [1999], cf. Serrano vs. NLRC, G.R. No. 117040 [27 Jan 2000]). – The
Supreme Court has held in a number of cases that an employer's good faith in
implementing a redundancy program is NOT necessarily destroyed by the
availment of the services of an independent contractor, to replace the services of
the terminated employees. The reduction of employees in a company made
necessary by the introduction of the services of an independent contractor
is justified when the latter is undertaken in order to effectuate more
economic and efficient methods of production. Burden of proof is thus on the
complaining employees to show proof that the management acted in a malicious
or arbitrary manner in engaging the services of an independent contractor to do
a specific activity. Absent such proof, the Supreme Court has no basis to interfere
with the bona fide decision of management to effect a more economic and efficient
methods of production.
2018 LABOR BAR QUESTION:
Northeast Airlines sent notices of transfer, without diminution in salary or rank, to 50

ground crew personnel who were front-liners at Northeast Airlines counters at the Ninoy
Aquino International Airport (NAIA). The 50 employees were informed that they would be
distributed to various airports in Mindanao to anticipate robust passenger volume growth
in the area. North Union, representing rank-and-file employees, filed unfair labor practice
and illegal dismissal cases before the NLRC, citing, among others, the inconvenience of
the 50 concerned employees and union discrimination, as 8 of the 50 concerned ground
crew personnel were union officers. Also, the Union argued that Northeast Airlines could
easily hire additional employees from Mindanao to boost its ground operations in the
Mindanao airports.
a) Will the transfer of the 50 ground crew personnel amount to illegal dismissal?
(2.5%)
SUGGESTED ANSWER: Yes. The transfer of an employee is an exercise of a
managerial prerogative, which must be exercised without grave abuse of discretion,
bearing in mind the basic elements of justice and fair play. Thus, it cannot be used as
a subterfuge by the employer to rid itself of an undesirable worker. In particular, he
employer must be able to show that the transfer is not undesirable, inconvenient or
prejudicial to the employee; or does it involve a demotion in rank or a diminution of his
salaries, privileges, and other benefits. Should the employer fail to overcome this
24
burden of proof, the employee’s transfer shall be tantamount to constructive dismissal

which exists when an act of clear discrimination, insensibility or disdain by an employer
has become so unbearable to the employee, leaving him with no option but to forego
with his continued employment (Best Wear Garments v. De Lemos, G.R. No. 191281,
December 5, 2012). In the present case, the impending transfer of 50 employees
based in Luzon to Mindanao, allegedly borne out of business necessity, is
unreasonable and inconvenient to the concerned employees and their families.
Also, it was not shown whether Northeast Airlines looked into the option of hiring
workers from Mindanao to run its counters in the Mindanao airports.
ALTERNATIVE ANSWER: (a) No. As a management prerogative, the employer

has the inherent right to transfer or assign employees in the pursuance of its legitimate
business interest subject only to the condition that it is not motivated by discrimination
or bad faith (PT & T v Laplana, 199 SCRA 465 (1991). It is the prerogative of
management to transfer employees where they can be most useful to the company
(Pharmacia and UPDJDHN. Inc. [now Pfizer Philippines, Inc.] v Albayda Jr. GR No.
172724, August 23, 2010). The mere fact that it would be inconvenient does no by
itself make the transfer illegal dismissal (DSS Security v NLRC, 325 SCRA 157 [2001]).
b) Will the unfair labor practice case prosper? (2.5%)

SUGGESTED ANSWER: No. In ascertaining whether Northeast Airlines’ proposed
transfer amounted to an unfair labor practice or interference with, restraint or coercion
of the employees’ exercise of their right to self-organization, the “totality of conduct
doctrine” test would be applied, per Insular Life Assurance Co., Ltd. Employees
Association-NTAU v. Insular Life Assurance Co., Ltd., G.R. No. L-25291, January 30,
1971. A finding of an unfair labor practice should not be based on a single act in
isolation, but should be viewed on the basis of the employer’s acts outside of the bigger
context of the accompanying labor relation situation. In the case at hand, Northeast
Airlines’ act of transferring them 50 employees, while it may amount to constructive
dismissals, cannot translate into an unfair labor practice, absent any other indicia of
anti-union bias on the part of the company.
2017 BAR QUESTION:
One of Pacific Airline's policies was to hire only single applicants as flight attendants, and
considered as automatically resigned the flight attendants at the moment they got married.
Is the policy valid? Explain your answer. (2.5%)
ANSWER: The policy is not valid. It violates the provisions of Article 136 (now Article 134)
of the Labor Code on stipulations against marriage, to wit: “It shall be unlawful for an
employer to require as a condition of employment or continuation of employment that a
woman employee shall not get married, or to stipulate expressly or tacitly that upon getting
married, a woman employee shall be deemed resigned or separated, or to actually
dismiss, discharge, discriminate or otherwise prejudice a woman employee merely by
reason of her marriage.”
2014 BAR QUESTION:
Luisa Court is a popular chain of motels. It employs over 30 chambermaids who, among
others, help clean and maintain the rooms. These chambermaids are part of the union
rank-and-file employees which has an existing collective bargaining agreement (CBA) with
the company. While the CBA was in force, Luisa Court decided to abolish the position of
chambermaids and outsource the cleaning of the rooms to Malinis Janitorial Services, a
25
bona fide independent contractor which has invested in substantial equipment and
sufficient manpower. The chambermaids filed a case of illegal dismissal against Luisa
Court. In response, the company argued that the decision to outsource resulted from the
new management’s directive to streamline operations and save on costs. If you were the
Labor Arbiter assigned to the case, how would you decide? (4%)
ANSWER: The abolition of position of Chambermaids and outsourcing the same to a bona
fide contractor in order to streamline operations and save on costs is a valid exercise of
management prerogative. As such, it does not preclude Luisa Court from availing itself of
the services of agency-hired employees to replace the Chambermaids who were union
members. Absent proof that Luisa Court acted in a malicious or arbitrary manner in
engaging the services of Malinis Janitorial Services, the bona fide decision of the company
to effect more economic and efficient operation of its business, should not be interfered
with by the courts. (Asian Alcohol Corporation v. NLRC, 305 SCRA 416 [1999].)
2012 BAR QUESTION:
Mam-manu Aviation Company (Mam-manu) is a new airline company recruiting flight

attendants for its domestic flights. It requires that the applicant be single, not more than
24 years old, attractive, and familiar with three (3) dialects, viz: llonggo, Cebuano and
Kapampangan. lngga, 23 years old, was accepted as she possesses all the qualifications.
After passing the probationary period, lngga disclosed that she got married when she was
18 years old but the marriage was already in the process of being annulled on the ground
that her husband was afflicted with a sexually transmissible disease at the time of the
celebration of their marriage. As a result of this revelation, lngga was not hired as a regular
flight attendant. Consequently, she filed a complaint against Mam-manu alleging that the
pre-employment qualifications violate relevant provisions of the Labor Code and are
against public policy. Is the contention of lngga tenable? Why? (5%)
ANSWER: Yes, the contention of Ingga is tenable. The policy of Mam-manu Aviation
Company that prospective flight attendants be single, coupled with the rejection of Ingga
upon her disclosure of a prior marriage, is violative of the clear mandate of Article 136 of
the Labor Code with regard to discrimination against married women.
E. KINDS OF EMPLOYMENT
FRAMEWORK:
General rule: Employment is deemed regular
Exception: Probationary Seasonal

Term Casual
Project
Exceptions to exception:
➢ Probationary employees allowed to work after probn. period
➢ Casual workers rendering service for at least one year
➢ Term employee allowed to work after term has expired/ended
➢ Project employee allowed to work after project without any contract; or
project employee allowed to work project after project but no termination
reports.
➢ Regular seasonal workers
26
1. REGULAR EMPLOYEES – those who are hired for activities which are
necessary or desirable in the usual trade or business of the employer.
2015-2018 CASES:
IMPORTANT PERLAS-BERNABE CASE: University of Santo Tomas v.

Samahang Manggagawa ng UST, G.R. No. 184262, [April 24, 2017], 809 PHIL
212-225.
Under the foregoing provision, the law provides for two (2) types
of regular employees, namely: (a) those who are engaged to perform activities
which are usually necessary or desirable in the usual business or trade of the
employer (first category); and (b) those who have rendered at least one year of
service, whether continuous or broken, with respect to the activity in which they
are employed (second category). In Universal Robina Corporation v.
Catapang, citing Abasolo v. NLRC, the Court laid down the test in determining
whether one is a regular employee, to wit:
The primary standard, therefore, of determining regular employment
is the reasonable connection between the particular activity
performed by the employee in relation to the usual trade or business
of the employer. The test is whether the former is usually necessary
or desirable in the usual business or trade of the employer. The
connection can be determined by considering the nature of work
performed and its relation to the scheme of the particular business
or trade in its entirety. Also, if the employee has been performing
the job for at least a year, even if the performance is not
continuous and merely intermittent, the law deems repeated
and continuing need for its performance as sufficient evidence
of the necessity if not indispensability of that activity to the
business. Hence, the employment is considered regular but
only with respect to such activity and while such activity
exists. (Emphasis and underscoring supplied.) HEITAD
In Kimberly Independent Labor Union for Solidarity, Activism, and Nationalism
— Organized Labor Ass'n. in Line Industries and Agriculture (KILUSAN-OLALIA)
v. Drilon (Kimberly), the company was engaged in the manufacture of paper
products, while the questioned employees occupied the positions of mechanics,
electricians, machinists, machine shop helpers, warehouse helpers, painters,
carpenters, pipefitters and masons. In that case, the Court held that since they
have worked for the company for more than one (1) year, they should belong to
the second category of regular employees by operation of law.
In the case at bar, a review of Pontesor, et al.'s respective CEAs reveal that
petitioner repeatedly rehired them for various positions in the nature of
maintenance workers, such as laborer, mason, painter, tinsmith, electrician,
carpenter, and welder, for various periods spanning the years 1990-1999. Akin
to the situation of the employees in Kimberly, Pontesor, et al.'s nature of work
are not necessary and desirable to petitioner's usual business as an educational
institution; hence, removing them from the ambit of the first category
of regular employees under Article 295 of the Labor Code. Nonetheless, it is
clear that their respective cumulative periods of employment as per their
respective CEAs each exceed one (1) year. Thus, Pontesor, et al. fall under the
second category of regular employees under Article 295 of the Labor Code.
Accordingly, they should be deemed as regular employees but only with respect
to the activities for which they were hired and for as long as such activities exist.
27
In this relation, the Court clarifies that Pontesor, et al. were not project
employees of petitioner, who were validly terminated upon the completion of their
respective projects/undertakings.
2. PROBATIONARY EMPLOYEES – those who are hired generally for regular

positions but are placed on a probationary status for a period of 6 months (as a
general rule). May become regular once he has qualified as such in accordance
with reasonable standards made known to him at the time of hiring. They are
considered regular if they are allowed to work beyond the probationary period.
2.1 Burden of proof is upon the employer to show that: (a) employee was
informed of the reasonable standards made known to him at the time of
engagement; and (b) employee failed to qualify in accordance with said
reasonable standards for regularization.
While the probationary employee is required to be appraised of the standards

against which his performance shall be assessed, there is however no need
to inform the probationary employee that he has to follow company rules
and regulations – such requirement strains credulity. (Philippine Daily
Inquirer vs. Magtibay, 528 SCRA 355 [2007]).
2.2 POSSIBLE BAR QUESTION (not yet asked in Bar Exam): May a
probationary employee who failed to qualify, justify poor performance on
account of management’s assignment of a job not within his/her field of
competence? International School of Manila vs. International School Alliance
of Educations (ISAE), G.R. No. 162786, 05 February 2014.
Facts: Spanish teacher resigned. Rehired under 3-year probationary period,

but given Filipino subjects which she accepted. Termination for failure to qualify:
all three years had “poor” evaluation ratings. She now questions validity of
termination because the School knew that having assigned Filipino subjects to
her, the same was not within her field of competency.
Answer: NO. It is the prerogative of the school to set high standards of

efficiency for its teachers since quality education is a mandate of the
Constitution. Santos voluntarily agreed to teach the Filipino classes given to
her when she came back from her leave of absence. Said classes were not
forced upon her by the School. This much she admitted in the hearing of the
case before the Labor Arbiter. When she consented to take on the Filipino
classes, it was Santos’s responsibility to teach them well within the standards
of teaching required by the School, as she had done previously as a teacher
of Spanish. Failing in this, she must answer for the consequences.
2.3 HYBRID CONTRACTS; Probationary employment on fixed-term

contract. -- Expiration of contract NO LONGER valid ground. (Colegio
del Santissimo Rosario vs. Rojo, G.R. No. 170388, 03 September 2013,
reiterating Yolanda Mercado vs. AMA Computer College-Paranaque 618
SCRA 218 [2010].)
Situation: High School teacher on probationary status with fixed term

contracts who was able to complete three consecutive years of service.
28
Teacher no longer rehired on the ground that with the expiration of the
contract to teach, the employment contract would no longer be renewed.
Issue: May the probationary teacher be validly dismissed for expiration

of the contract to teach?
Answer: NO! Termination of a probationary employee must be for his/her

failure to comply with the reasonable standards for regular employment made
known at the time of the engagement, and NOT simply because the
probationary period has expired.
SC rationale: The fixed-term character of employment essentially refers to

the period agreed upon between the employer and the employee;
employment exists only for the duration of the term and ends on its own when
the term expires. In a sense, employment on probationary status also refers
to a period because of the technical meaning "probation" carries in Philippine
labor law – a maximum period of six months, or in the academe, a period of
three years for those engaged in teaching jobs. Their similarity ends there,
however, because of the overriding meaning that being "on probation"
connotes, i.e., a process of testing and observing the character or
abilities of a person who is new to a role or job.
However, for teachers on probationary employment, in which case a fixed

term contract is not specifically used for the fixed term it offers, it is incumbent
upon the school to have not only set reasonable standards to be followed by
said teachers in determining qualification for regular employment, the same
must have also been communicated to the teachers at the start of the
probationary period, or at the very least, at the start of the period when they
were to be applied. These terms, in addition to those expressly provided by
the Labor Code, would serve as the just cause for the termination of the
probationary contract. The specific details of this finding of just cause must
be communicated to the affected teachers as a matter of due
process.42 Corollarily, should the teachers not have been apprised of such
reasonable standards at the time specified above, they shall be deemed
regular employees.
Yolanda Mercado, et al. vs. AMA Computer College Parañaque City, Inc.
618 SCRA 218 [2010].- The Supreme Court stated that nothing is illegitimate
in defining the school-teacher on fixed term basis. HOWEVER, the school
should not forget that its system of fixed-term contract is a system that
operates during the probationary period and for this reason is subject
to the terms of Article 281 of the Labor Code. Unless this reconciliation is
made, the requirements of this Article on probationary status would be fully
negated as the school may freely choose not to renew contracts simply
because their terms have expired.
Given the clear constitutional and statutory intents, the Supreme Court
concluded that in a situation where the probationary status overlaps with a
fixed-term contract not specifically used for the fixed term it offers, Article
281 should assume primacy and the fixed-period character of the
contract must give way.
29
NOTE1: In this instance therefore, the School illegally dismissed the

teachers because it simply refused to renew the employment contract.
Because the teachers were under a probationary period, it was incumbent
upon the School to have evaluated said teachers, and to have informed them
of their failure to qualify as regular employees in accordance with standards
made known to them at the time of hiring.
NOTE2: To highlight what the Supreme Court meant by a fixed-term contract

specifically used for the fixed term it offers, a replacement teacher, for
example, may be contracted for a period of one year to temporarily take the
place of a permanent teacher on a one-year study leave. The expiration of
the replacement teacher’s contracted term, under the circumstances, leads
to no probationary status implications as she was never employed on
probationary basis; her employment is for a specific purpose with particular
focus on the term and with every intent to end her teaching relationship with
the school upon expiration of this term. (Mercado, et al. vs. AMA Computer
College Parañaque City, Inc. 618 SCRA 218 [2010]. Emphasis supplied.)
3. TERM EMPLOYEES – those who are hired for a specific period, the arrival
of the date specified in the contract of which automatically terminates the
employer-employee relationship. (Brent School vs. NLRC, 181 SCRA 702
[1989], reiterated in AMA Computer – Paranaque vs. Austria, 538 SCRA 438
[November 2007]).
3.1 A contract of employment for a definite period terminates by its own terms
at the end of such period
3.2 The decisive determinant in term employment should not be the activities
that the employee is called upon to perform, but the day certain agreed
upon by the parties for the commencement and the termination of
their employment relation.
3.3 Criteria for fixed term employment contracts so that the same will not
circumvent security of tenure:
A. The fixed period of employment was KNOWINGLY AND

VOLUNTARILY AGREED UPON by the parties, without any force,
duress or improper pressure being brought to bear upon the employee
and absent any other circumstances vitiating his consent; AND
B. It satisfactorily appears that the employer and employee DEALT WITH

EACH OTHER ON MORE OR LESS EQUAL TERMS with no moral
dominance whatever being exercised by the former on the
latter.(PNOC vs. NLRC [G.R. No. 97747, 31 March 1993] and Brent
School vs. NRLC, 181 SCRA 702]
2015 BAR QUESTION: (VII) (Example of 5-5-5)
Don Don is hired as a contractual employee of CALLHELP, a call center. His

contract is expressly for a term of 4 months. Don Don is hired for 3 straight
contracts of 4 months each but at 2-week intervals between contracts. After
the third contract ended, Don Don is told that he will no longer be given
another contract because of "poor performance." Don Don files a suit for
30
"regularization" and for illegal dismissal, claiming that he is a regular employee

of CALLHELP and that he was dismissed without cause. You are the Labor
Arbiter. How would you decide the case? (4%)
ANSWER:
I will decide the case in favor of Don Don. While fixed-term employment
contracts are valid, the Supreme Court had strictly ruled against the same
where it appears that the period has been imposed to preclude the acquisition
of tenurial security by the employee. Said term contracts willbe struck down
for being contrary to law, morals, good customs, public order and public policy.
In the present case, Don Don was “hired for 3 straight contracts of 4 months
each but at 2-week intervals between contracts”, short of the normal six-month
probationary period of employment. The circumstances clearly show the ill
intent of CALLHELP to preclude Don Don from acquiring tenurial security. The
obvious circumvention of the law should not be countenanced.
ALTERNATIVE ANSWER:
I will rule for Dondon, applying the Contract of Adhesion rule. Given the nature
of Don Don’s work , which is usually necessary and desirable to the usual
trade of HELPCALL, as well as the short intervals between his fixed-term
contracts, there is no doubt that periods were resorted to for purposes of
circumventing the law on tenure. Therefore, since it was the company that
prepared the three contracts, with Don Don’s participation being limited to
affixing his signature thereto only, the 4-month periods must be taken against
it. Having attained tenure, therefore, Don Don cannot be dismissed for poor
performance because said ground is neither a just nor authorized cause.
2014 BAR QUESTION:
Lucy was one of approximately 500 call center agents at Hambergis, Inc. She
was hired as a contractual employee four years ago. Her contracts would be
for a duration of five (5) months at a time, usually after a one month interval.
Her re-hiring was contingent on her performance for the immediately
preceding contract. Six (6) months after the expiration of her last contract,
Lucy went to Hambergis personnel department to inquire why she was not yet
being recalled to work. She was told that her performance during her last
contract was "below average." Lucy seeks your legal advice about her
chances of getting her job back. What will your advice be? (4%)
ANSWER: I would advise Lucy to file a case for illegal dismissal with a
prayer for reinstatement without loss of seniority rights, payment of
backwages plus interests thereon, damages and attorney’s fees. Lucy is to be
considered a regular employee, and is entitled to security of tenure.
The facts of the case will readily show that Lucy had served Hambergis for an
aggregate period of more than one year. The repetitive hiring of Lucy for the
same position as a call center agent, is indicative of the necessity or
desirability of the activities for which she was hired. Even assuming that she
was hired as a casual, having rendered at least one (1) year of service,
whether such service be continuous or broken, shall be considered a regular
31
employee with respect to the activity for which he is employed, and his
employment shall continue while such activity exists.
Moreover, hiring Lucy as a contractual employee for a duration of five (5)

months at a time, after interval of one (1) month, was designed by Hambergis
to preclude tenurial security. As such it showed be struck down as being
contrary to law, good customs, public order and public policy. (Magsalin, et al.
vs. NOWM, G.R. No. 148492, 09 May 2003.)
4. PROJECT EMPLOYEES – The principal test for determining whether

particular employees are properly characterized as "project employees" as
distinguished from "regular employees" is whether or not the project
employees were assigned to carry out a "specific project or undertaking," the
duration and scope of which were specified at the time the employees were
engaged for that project.
4.1 The length of service or the re-hiring of construction workers on a

project-to-project basis does not confer upon them regular
employment status, since their re-hiring is only a natural
consequence of the fact that experienced construction workers are
preferred. Employees who are hired for carrying out a separate job,
distinct from the other undertakings of the company, the scope and
duration of which has been determined and made known to the
employees at the time of the employment, are properly treated as project
employees and their services may be lawfully terminated upon the
completion of a project. Should the terms of their employment fail to
comply with this standard, they cannot be considered project employees.
(Hanjin Heavy Industries vs. Ibanez et., al., G.R. 170181, 26 June 2008.)
4.2 Indicators of Project Employment is found in Section 2.2(e) and (f)

of DOLE Department Order No. 19, Series of 1993, entitled
Guidelines Governing the Employment of Workers in the
Construction Industry, to wit:
“2.2 Indicators of project employment. - Either one or more of the following
circumstances, among others, may be considered as indicators that an
employee is a project employee.
(a) The duration of the specific/identified undertaking for which

the worker is engaged is reasonably determinable.
(b) Such duration, as well as the specific work/service to be
performed, is defined in an employment agreement and is
made clear to the employee at the time of hiring.
(c) The work/service performed by the employee is in connection
with the particular project/undertaking for which he is
engaged.
(d) The employee, while not employed and awaiting engagement,
is free to offer his services to any other employer.
(e) The termination of his employment in the particular
project/undertaking is reported to the Department of Labor
and Employment (DOLE) Regional Office having jurisdiction
over the workplace within 30 days following the date of his
separation from work, using the prescribed form on
employees' terminations/dismissals/suspensions.
32
(f) An undertaking in the employment contract by the employer

to pay completion bonus to the project employee as practiced
by most construction companies.
4.3 Purely Project employees – are those employed in connection with a

particular construction project.
Effect:
(a) not entitled to separation pay if terminated as a result of the
completion of the project or any phase thereof in which they are hired;
(b) no prior clearance for termination is necessary, but termination must
be reported to DOLE;
(c) however, if the project or phase lasts for more than one (1) year, he
may not be terminated prior to completion of project or phase without
previous written clearance from DOLE.
4.4 Employees from Labor Pool -- those employed by a construction

company without reference to any particular project. May be further
classified into probationary and regular.
Effect:
(a) organize and to collectively bargain, or join rank-and-file union of the
construction company may not be curtailed;
(b) completion of project or phase will not sever employer-employee
relationship, as they are to be considered employees for an indefinite
term.
4.5 Report of termination of project employers compulsory. – Failure to

file termination reports, particularly on the cessation of petitioner’s
employment, was an indication that the petitioner was not a project
employee but a regular employee. Goma vs. Pamplona Plantation, Inc.,
557 SCRA 124 (2007)
2015-2018 CASES ON PROJECT EMPLOYMENT:
IMPORTANT PERLAS-BERNABE CASE: || Dacles v. Millennium Erectors

|
Corp., G.R. No. 209822, 08 July 2015, 763 PHIL 550-561
Respondent Millennium Erectors Corporation (MEC) is a domestic

corporation engaged in the construction business. Petitioner claimed that
he was hired by respondents as a mason in 1998. On June 2010, while he
was working on a project in Malakas Street, Quezon City (QC), he was
advised by respondent's officer, Mr. Bongon, to move to another project in
Robinson's Cubao, QC. However, upon arrival at the site, he was instructed
to return to his former job site and, thereafter, was given a run-around for
the two (2) succeeding days. When he requested to be given a post or
assigned to a new project, he was told by the paymaster not to report for
work anymore, prompting him to file the illegal dismissal complaint, with
claims for service incentive leave (SIL) pay, overtime pay, holiday pay, 13th
month pay, rest day and premium pay, and salary differentials.
33
CASE FOR COMPANY: No illegal dismissal; complainant is a project

employee whose contract expired on June 4, 2010 upon the completion of
his masonry work assignment in the Residential & Commercial Building
Project (RCB-Malakas Project) along East Avenue, QC. Respondents
further denied having employed petitioner since 1998 because it
was only organized and started business operations in February
2000. They averred that petitioner applied and was hired as a mason on
October 8, 2009 and assigned to the Newport Entertainment and
Commercial Center Project in Pasay City (NECC Project), which was
completed on March 3, 2010. Thereafter, petitioner applied anew and was
hired as a mason on April 15, 2010 to work on the RCB-Malakas
Project. Petitioner's termination from both projects was then duly reported
to the Department of Labor and Employment (DOLE) Makati/Pasay Field
Office.
ISSUE: Whether or not complainant is a project or a regular employee?
SUPREME COURT: Dacles is a project employee. NLRC gravely abused
its discretion in ruling that he was a regular employee of MEC because MEC
had established by substantial evidence that petitioner was merely a project
employee. On the other hand, there is no evidence on record to substantiate
petitioner's claim that he was employed as early as 1998.|||
For an employee to be considered project-based, the employer must show
that: (a) the employee was assigned to carry out a specific project or
undertaking; and (b) the duration and scope of which were specified at the
time the employee was engaged for such project. Being assigned to a
project or a phase thereof which begins and ends at determined or
determinable times, the services of project employees may be lawfully
terminated at the completion of such project or phase. Consequently, in
order to safeguard the rights of workers against the arbitrary use of the word
"project" to prevent them from attaining regular status, employers claiming
that their workers are project employees should prove that: (a) the duration
and scope of the employment was specified at the time they were engaged;
and (b) there was indeed a project.
In this case, MEC was able to discharge the burden of proof that Dacles is
a project employee. Records reveal that petitioner was adequately informed
of his employment status (as project employee) at the time of his
engagement for the NECC and RCB-Malakas Projects. This is clearly
substantiated by the latter's employment contracts duly signed by him,
explicitly stating that: (a) he was hired as a project employee; and (b) his
employment was for the indicated starting dates therein "and will end on
completion/phase of work of project." To the Court's mind, said contracts
sufficiently apprised petitioner that his security of tenure with MEC
would only last as long as the specific project or a phase thereof to which
he was assigned was subsisting. Hence, when the project or phase was
completed, he was validly terminated from employment, his engagement
being co-terminus only with such project or phase.
Further, pursuant to Department Order No. 19, or the "Guidelines Governing
the Employment of Workers in the Construction Industry," respondent duly
submitted the required Establishment Employment Reports to the DOLE
Makati/Pasay Field Office regarding the "permanent termination" of
petitioner from both of the projects for which he was engaged (i.e., the
34
NECC and RCB-Malakas Projects). (Dacles v. Millennium Erectors Corp.,

G.R. No. 209822, [July 8, 2015], 763 PHIL 550-561)
||
Bajaro v. Metro Stonerich Corp., G.R. No. 227982, [April 23, 2018])-
In Malicdem, et al. v. Marulas Industrial Corporation, et al., the Court took
judicial notice of the fact that in the construction industry, an employee's work
depends on the availability of projects. The employee's tenure "is not
permanent but coterminous with the work to which he is
assigned." Consequently, it would be extremely burdensome for the
employer, who depends on the availability of projects, to carry
the employee on a permanent status and pay him wages even if there are no
projects for him to work on. An employer cannot be forced to maintain the
employees in the payroll, even after the completion of the project. "To do so
would make the employee a privileged retainer who collects payment from his
employer for work not done. This is extremely unfair to the employers and
amounts to labor coddling at the expense of management."
Accordingly, it is all too apparent that the employee's length of service and
repeated re-hiring constitute an unfair yardstick for
determining regular employment in the construction industry. Thus, Bajaro's
rendition of six years of service, and his repeated re-hiring are not badges
of regularization.
Herma Shipyard, Inc. v. Oliveros, G.R. No. 208936, 17 April 2017. –
Project-based employment contracts are valid where employees knowingly
and voluntarily entered into, without vices of consent, and regardless of
whether the activities for which they were hired are directly related to the main
business of the company.
FACTS: Herma Shipyard is a domestic corporation engaged in the business

of shipbuilding and repair. The respondents were its employees occupying
various positions such as welder, leadman, pipe fitter, laborer, helper, etc.
Respondents filed a complaint for illegal dismissal, regularization, and non-
payment of service incentive leave pay with prayer for the payment of full
backwages and attorney' fees against petitioners. Respondents alleged that
they are Herma Shipyard's regular employees who have been continuously
performing tasks usually necessary and desirable in its business. On
various dates, however, petitioners dismissed them from employment.
Respondents further alleged that as condition to their continuous and
uninterrupted employment, petitioners made them sign employment
contracts for a fixed period ranging from one to four months to make it
appear that they were project-based employees. Per respondents,
petitioners resorted to this scheme to defeat their right to security of tenure,
but in truth there was never a time when they ceased working for Herma
Shipyard due to expiration of project-based employment contracts. In fact,
if they were indeed project employees, petitioners should have reported to
the Department or Labor and Employment (DOLE) the completion of such
protect. But petitioners have never submitted such report to the DOLE.
For their defense, petitioners argued that respondents were its project-
based employees in its shipbuilding projects and that the specific project for
which they were hired had already been completed. In support thereof,
Herma Shipyard presented contracts of employment, some of which are
35
written in the vernacular and denominated asKasunduang Paglilingkod

(Pang-Proyektong Kawani).
ISSUE: Whether or not respondents are regular or project-based employees.
Answer: Project-based.
The principal test in determining whether particular employees were
engaged as project-based employees, as distinguished from regular
employees, is whether they were assigned to carry out a specific project or
undertaking, the duration and scope of which was specified at, and made
known to them, at the time of their engagement. It is crucial that the
employees were informed of their status as project employees at the time of
hiring and that the period of their employment must be knowingly and
voluntarily agreed upon by the parties, without any force, duress, or
improper pressure being brought to bear upon the employees or any other
circumstances vitiating their consent.
In this case, respondents knowingly and voluntarily entered into and signed
the project-based employment contracts. There is no indication that
respondents were coerced into signing their employment contract or that they
affixed their signature thereto against their will. While they claim that they
signed the said contracts in order to secure continuous employment, they
have not, however, presented sufficient evidence to support the same
other than their bare allegations. It is settled that "[c]ontracts for project
employment are valid under the law.
It is settled, however, that project-based employees may or may not be

performing tasks usually necessary or desirable in the usual business or trade
of the employer. The fact that the job is usually necessary or desirable in
the business operation of the employer does not automatically imply
regular employment; neither does it impair the validity of the project
employment contract stipulating a fixed duration of employment.
Ma. Charito C. Gadia, et al. vs. Sykes Asia, Inc. et al., G.R. No. 209499,
28 January 2015. - Requisites for an employee to be considered project-
based BPO employee: (a) the employee was assigned to carry out a specific
project or undertaking; and (b) the duration and scope of which were specified
at the time they were engaged for such project.
In this case, Sykes BPO informed the petitioner of their employment status at
the time of their engagement, as evidenced by their employment contracts
which provided that they were hired in connection with the Alltel Project, and
that their positions were “project-based and as such is co-terminus to the
project.” To the mind of the Court, this caveat sufficiently apprised petitioners
that their security of tenure with Sykes would only last as long as the Alltel
Project was subsisting. In other words, when the Alltel Project was terminated,
petitioners no longer had any project to work on, and hence, Sykes may validly
terminate them from employment.
Sykes duly submitted an Establishment Employment Report and an

Establishment Termination Report to the DOLE Makati Field Office regarding
the cessation of the Alltel Project and the list of employees affected thereby.
Case law deems such submission as an indication that the employment was
indeed project-based.
36
5. SEASONAL EMPLOYEES -- those hired for work or services which is

seasonal in nature, and the employment is for the duration of the season.
IMPORTANT NOTE ON EMERGING TREND OF SUPREME COURT

CASES: REGULAR SEASONAL WORKERS. -- Where the seasonal
employees had been hired repeatedly and continuously to perform the same
tasks or activities for several seasons or even after the cessation of the season,
this length of time may likewise serve as badge of regular employment. In fact,
even though denominated as “seasonal workers,” if these workers are called
to work from time to time and are only temporarily laid off during the offseason,
the law does not consider them separated from the service during the off-
season period. The law simply considers these seasonal workers on
leave until re-employed.
Hacienda San Isidro v. Villaruel, G.R. No. 220087 (Notice), [November 9,

2015] -- Regular seasonal employees are those called to work from time to
time. The nature of their relationship with the employer is such that during the
off season, they are temporarily laid off; but reemployed during the summer
season or when their services may be needed. They are in regular employment
because of the nature of their job, and not because of the length of time they
have worked."
In order to exclude the asserted "seasonal" employee from those classified as

regular employees, the employer must show that: (1) the employee must be
performing work or services that are seasonal in nature; and (2) he had been
employed for the duration of the season.
Hence, when the "seasonal" workers are continuously and repeatedly hired
to perform the same tasks or activities for several seasons or even after
the cessation of the season, this length of time may likewise serve as badge
of regular employment. In fact, even though denominated as "seasonal
workers," if these workers are called to work from time to time and are only
temporarily laid off during the off-season, the law does not consider them
separated from the service during the off-season period. The law simply
considers these seasonal workers on leave until re-employed.|||
Hacienda Cataywa, et al. vs. Rosario Lorezo, G.R. No. 179640, 18 March
2015. -- The existence of an employer-employee relationship may be proved
by any competent and relevant evidence. It may entirely be testimonial.
(Martinez vs. NLRC, et al. 339 Phil. 176 [1997].) If only documentary evidence
is required, no scheming employer would be brought before the bar justice.
(Vinoya vs. NLRC, et al., 381 Phil. 460 [2000].)
Respondent performed hacienda work, such as planting sugarcane point,

fertilizing, weeding, replanting dead sugarcane fields and routine
miscellaneous hacienda work. Thus, he is considered a regular seasonal
worker. Since cultivation of sugarcane is only for six months, he cannot be
considered a regular employee during the months when there is no cultivation.
Gapayao vs. Fulo and SSS, G.R. No. 193493, 13 June 2013 (Sereno, C.J.)
-- Farm workers are considered seasonal employees so long as there is a
reasonable causal connection between nature of employer’s business and that
37
work should have been rendered for more than one continuous or accumulated
year.
Farm workers generally fall under the definition of seasonal employees.

We have consistently held that seasonal employees may be considered as
regular employees. Regular seasonal employees are those called to work
from time to time. The nature of their relationship with the employer is
such that during the off season, they are temporarily laid off; but
reemployed during the summer season or when their services may be
needed. They are in regular employment because of the nature of their job,
and not because of the length of time they have worked.
A reading of the records reveals that the deceased was indeed a farm worker
who was in the regular employ of petitioner. From year to year, starting January
1983 up until his death, the deceased had been working on petitioner’s land by
harvesting abaca and coconut, processing copra, and clearing weeds. His
employment was continuous in the sense that it was done for more than one
harvesting season. Moreover, no amount of reasoning could detract from the
fact that these tasks were necessary or desirable in the usual business of
petitioner.
The other tasks allegedly done by the deceased outside his usual farm work
only bolster the existence of an employer-employee relationship. As found by
the SSC, the deceased was a construction worker in the building and a helper
in the bakery, grocery, hardware, and piggery – all owned by petitioner. This
fact only proves that even during the off season, the deceased was still in the
employ of petitioner.” Hence, he has become a regular employee.
Universal Robina Sugar Milling Corporation and Rene Cabati, G.R. No.
186439. 15 January 2014. J Brion.
Facts: The complainants hired as employees of URSUMCO, on various dates

(between February 1988 and April 1996) and on different capacities,8 i.e.,
drivers, crane operators, bucket hookers, welders,mechanics, laboratory
attendants and aides, steel workers, laborers, carpenters and masons, among
others. At the start of their respective engagements, the complainants signed
contracts of employment for a period of one (1) month or for a given season.
URSUMCO repeatedly hired the complainants to perform the same duties and,
for every engagement, required the latter to sign new employment contracts
for the same duration of one month or a given season.
Complainants filed for regularization plus entitlement to CBA benefits. Labor

Arbiter dismissed the complaints and ruled that they were project or seasonal
employees. On appeal, NLRC reversed the Labor Arbiter and ruled that the
complainants were regular employees entitled to the monetary benefits under
the CBA. On petition for review on certiorari, CA ruled that complainants were
regular – albeit seasonal -- employees, but deleted the monetary CBA benefits
because the CBA benefits are for regular workers only.
Issue: Whether or not complainants are regular workers or seasonal workers?

Are they entitled to CBA benefits accorded the regular employees?
Answer: Complainants are REGULAR SEASONAL WORKER
38
Complainants are NOT entitled to CBA benefits which are for regular workers
only.
The respondents are neither project, seasonal nor fixed-term employees, but
regular seasonal workers of URSUMCO.xxx THEIR SEASONAL WORK,
HOWEVER, DOES NOT DETRACT FROM CONSIDERING THEM IN
REGULAR EMPLOYMENT since in a litany of cases, this Court has
already settled that seasonal workers who are called to work from time
to time and are temporarily laid off during the off-season are not
separated from the service in said period, but are merely considered on
leave until re-employment
Be this as it may, REGULAR SEASONAL EMPLOYEES, LIKE THE

RESPONDENTS IN THIS CASE, SHOULD NOT BE CONFUSED WITH THE
REGULAR EMPLOYEES OF THE SUGAR MILL such as the administrative
or office personnel who perform their tasks for the entire year regardless of the
season. The NLRC, therefore, gravely erred when it declared the
respondents regular employees of URSUMCO without qualification and
that they were entitled to the benefits granted, under the CBA, to
URSUMCO’S regular employees.
6. CASUAL EMPLOYEES – those who are hired to perform work or service

which is merely incidental to the business of the employer. Any casual
employee who has rendered at least one (1) year of service, whether it be
continuous or broken, shall be considered a regular employee with respect to
the activity for which he is employed, and his employment shall continue while
such activity exists.
BAR QUESTIONS ON EMPLOYEE CLASSIFICATION –
2016 BAR QUESTION:
Mario Brothers, plumbing works contractor, entered into an agreement with Axis Business
Corporation (Axis) for the plumbing works of its building under construction. Mario
Brothers engaged the services of Tristan, Arthur, and Jojo as plumber, pipe fitter, and
threader, respectively. These workers have worked for Mario Brothers in numerous
construction projects in the past but because of their long relationship, they were never
asked to sign contracts for each project. No reports to government agencies were made
regarding their work in the company.
During the implementation of the works contract, Axis suffered financial difficulties and
was not able to pay Mario Brothers its past billings. As a result, the three (3) employees
were not paid their salaries for two (2) months and their 13th month pay. Because Axis
cannot pay, Mario Brothers cancelled the contract and laid off Tristan, Arthur, and Jojo.
The 3 employees sued Mario Brothers and Axis for illegal dismissal, unpaid wages, and
benefits.
[a] Mario Brothers claims the 3 workers are project employees. It explains that the
agreement is, if the works contract is cancelled due to the fault of the client, the period
of employment is automatically terminated. Is the contractor correct? Explain. (2.5%)
[b] Can Axis be made solidarily liable with Mario Brothers to pay the unpaid wages and
13th month pay of Tristan, Arthur, and Jojo? Explain. (2.5%)
39
ANSWERS:
(a) Tristan, Arthur and Jojo are regular employees of Mario Brothers, because: (a) it does
not appear that they were informed of the project nature of their engagement, nor were
they ever required to sign contracts on a project basis; and (b) no termination reports
were submitted to the DOLE at the completion of each project to which they were
assigned.
(b) Yes, assuming that Mario Brothers is an independent contractor under the Labor Code,
with the necessary certificate of registration with the DOLE. Otherwise, this is a labor-
only contracting arrangement in which case, Axis will be deemed the DIRECT
employer of Tristan, Arthur and Jojo under the Labor Code.
2014 BAR QUESTION:
Don Luis, a widower, lived alone in a house with a large garden. One day, he noticed that
the plants in his garden needed trimming. He remembered that Lando, a 17-year old out-
of-school youth, had contacted him in church the other day looking for work. He contacted
Lando who immediately attended to Don Luis’s garden and finished the job in three days.
(4%)
(A) Is there an employer-employee relationship between Don Luis and Lando?
(B) Does Don Luis need to register Lando with the Social Security System (SSS)?
ANSWER:
(A) Yes, casual employment.

(B) No, Lando’s employment is purely casual as it is not for the purpose of the occupation
or business of the employer Don Luis. (Sec. 8 [J] [3], RA 1161, as amended.)
2014 BAR QUESTION:
Lucy was one of approximately 500 call center agents at Hambergis, Inc. She was hired
as a contractual employee four years ago. Her contracts would be for a duration of five (5)
months at a time, usually after a one month interval. Her re-hiring was contingent on her
performance for the immediately preceding contract. Six (6) months after the expiration of
her last contract, Lucy went to Hambergis personnel department to inquire why she was
not yet being recalled to work. She was told that her performance during her last contract
was "below average." Lucy seeks your legal advice about her chances of getting her job
back. What will your advice be? (4%)
ANSWER: I will advise Lucy to file a case for illegal dismissal with prayer for reinstatement
and full backwages etc.
The facts of the case will readily show that Lucy had served Hambergis for an aggregate
period of more than one year. Under Article 280 of the Labor Code, any employee who
has rendered at least one (1) year of service, whether such service be continuous or
broken, shall be considered a regular employee with respect to the activity for which he is
employed, and his employment shall continue while such activity exists.
Moreover, hiring Lucy as a contractual employee for a duration of five (5) months at a
time, after interval of one (1) month, was designed by Hambergis to preclude tenurial
security. As such it showed be struck down as being contrary to law, good customs, public
order and public policy. (Magsalin, et al. vs. NOWM, G.R. No. 148492, 09 May 2003.)
40
EMPLOYEE CLASSIFICATION AS TO RANK

7. MANAGERIAL EMPLOYEES – those vested with powers or prerogatives to lay
down and execute management policies and/or to hire, transfer, suspend, lay-off,
recall employees. (Art. 212, par. m, Labor Code)
7.1 CONFIDENTIAL EMPLOYEES: Doctrine of necessary implication and/or

confidential employee rule reiterated.
Confidential employees are those who: (1) assist or act in a confidential

capacity, (2) to persons who formulate, determine, and effectuate management
policies in the field of labor relations. The two criteria are cumulative, and both
must be met if an employee is to be considered a confidential employee —
e.g., the confidential relationship must exist between the employee and his
supervisor, and the supervisor must handle the prescribed responsibilities
relating to labor relations. The exclusion from bargaining units of the
employees who, in the normal course of their duties, become aware of
management policies relating to labor relations is a principal objective sought
to be accomplished by the “confidential employee rule”. Tunay na Pagkakaisa
ng Manggagawa sa Asia Brewery vs. Asia Brewery, G.R. No. 162025, 03
August 2010.; See also: San Miguel Corporation Supervisors and Exempt
Employees Union vs. Laguesma, 277 SCRA 370 [1997].
8. SUPERVISORY EMPLOYEES – those who, in the interest of management,

effectively recommend such managerial actions if the exercise of such authority is
not merely routinary or clerical in nature, but requires use of independent judgment.
(Art. 212, par. N, Labor Code). Note: Supervisory employees form part of the
managerial staff, which are not covered by the rules on hours of work, viz., night shift
differentials, overtime pay, etc. (See Art. 82, Labor Code cf. Art. 212 [m]).
9. RANK-AND-FILE EMPLOYEES - All other employees not falling within the

definition of “managerial” or “supervisory” employees, are considered rank-and-file
employees for purposes of Book V of the Labor Code.
F. INDEPENDENT CONTRACTORSHIP ARRANGEMENTS

VS. LABOR ONLY CONTRACTING
Employees of an independent contractor are not your employees
41
Fuji Television Network, Inc. vs. Arlene S. Espiritu G.R. No. 204944-45, 03
December 2014 citing DOLE D.O. 18-A [2011], sec. 5 (b); Sonza vs. ABS-CBN,
supra, see page __ hereof. -- There are different kinds of independent contractors:
those engaged in legitimate job contracting, and those who have unique skills and
talents that set them apart from ordinary employees. Since no employer-employee
exist between independent contractors and their principals, their contracts are
governed by the Civil Code provisions on contracts and other applicable laws.
ADA’S NOTE: In the above 2014 case of Fuji Television Network vs. Arlene Espiritu,
the Supreme Court made an exhaustive distinction between Independent Contractor
vs. Fixed-term employment and/or regular employment. The main factor that
distinguishes independent contracting from fixed-term or regular employment is that
of CONTROL. Where the alleged “employer” has no actual control over the conduct
of the work of the complainant, then there is no employer-employee relationship.
However, if control over the conduct of work can be established, then this is one of
fixed-term or regular employment depending on the circumstances of the case.
F.1 VALID INDEPENDENT CONTRACTING

OR SUB-CONTRACTING ARRANGEMENTS
Article 106, LB; IRR S8R8B3;
ELEMENTS: (MEMORY AID: I ARM FREE CAPITAL TEMWORK

R&B)
• There is a job-contracting permissible by law where the

contractor/agency carries on an INDEPENDENT business and
undertakes the contract work on his ACCOUNT, under his own
RESPONSIBILITY, using his own MANNER AND METHODS,
FREE from the control of the principal in all matters connected with
the performance of work excepting the results thereof.
• He has his own CAPITAL in the form of TOOLS, EQUIPMENT,

MACHINERY, WORK PREMISES, and that the agreement between
the contractor and principal assures the former’s employees of ALL
RIGHTS AND BENEFITS under the law.
•
F.2 ELEMENTS OF LABOR-ONLY CONTRACTING
PROHIBITED UNDER THE LAW -- Philippine Airlines vs. Ligan,
548 SCRA 181 (2008).
There is labor-only contracting where the contractor or sub-contractor merely

recruits, supplies or places workers to perform a job, work or service for a
principal.
TWO WAYS OF PROVING LABOR-ONLY CONTRACTING:

(Memory Aid: No Cap Direct OR No Control)
For labor-only to exist, Sec. 5 of Department Order No. 18-02 requires any
two of the elements to be present, viz.:
42
• The contractor or sub-contractor DOES NOT HAVE

SUBSTANTIAL CAPITAL or investment to actually perform
the job, work or service under its own account and responsibility;
and the employees recruited, supplied or placed by such
contractors are performing activities which are DIRECTLY
RELATED to the main business of the principal;
OR
• The CONTRACTOR has NO CONTROL over the conduct of the work

to be done by his employees.
To emphasize, a finding that a job contractor is a labor-only contractor is

equivalent to declaring that there is an employer-employee relationship
between the company and the employees of the labor-only
contractor.(Industrial Timer Corp., vs. NLRC, 169 SCRA 341). This is
because the labor-only contractor is considered as a mere agent of the
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. (Alviado et. al. vs. Procter & Gamble, and Promm Gemm, G.R. No.
160506, 09 March 2010).
F.3 EFFECT OF LABOR-ONLY CONTRACTING AND VALID

JOB CONTRACTING AGREEMENTS -- San Miguel Corp. vs.
MAERC Integrated Systems, 405 SCRA 579 [10 July 2003]
• If labor only contracting: ILLEGAL. The employer is deemed the

DIRECT employer and is made liable to the employees of the contractor
for a more comprehensive purpose (wages, monetary claims, and all
43
other benefits in the Labor Code such as SSS/Medicare/Pag-Ibig). The

labor-only contractor is deemed merely an agent.
• If job-contracting: LEGAL. The employer is considered an

INDIRECT EMPLOYER, and is made solidarily liable with the contractor
to the employees of the latter for a more limited purpose, viz.: payment
of unpaid wages and other monetary claims, including 13th month pay,
service incentive leave pay. (New Golden Builders case)
2015 BAR EXAMINATION QUESTION: (VIII)
Star Crafts is a lantern maker based in Pampanga. It supplies Christmas

lanterns to stores in Luzon, Metro Manila, and parts of Visayas, with the
months of August to November being the busiest months. Its factory
employs a workforce of 2,000 workers who make different lanterns daily for
the whole year. Because of increased demand, Star Crafts entered into a
contractual arrangement with People Plus, a service contractor, to supply
the former with I 00 workers for only 4 months, August to November, at a
rate different from what they pay their regular employees. The contract with
People Plus stipulates that all equipment and raw materials will be supplied
by Star Crafts with the express condition that the workers cannot take any
of the designs home and must complete their tasks within the premises of
Star Crafts.
Is there an employer-employee relationship between Star Crafts and the

100 workers from People Plus? Explain. (4%)
Answer:
Yes, there is an employer-employee relationship between Star Crafts and

the 100 workers from People Plus. This is so because People Plus is
engaged in labor-only contracting inasmuch as it appears NOT to have any
capital in the form of tools, equipment machineries and work premises.
Moreover, it does NOT have any control over its own employees, the control
being exercised by Star Crafts. Labor-only contracting is illegal and, in this
case, the principal Star Craft is deemed the direct employer of the 100
workers, while People Plus is deemed merely an agent. (Ada’s note:
Memo aid – No CAP + DIRECT or No CONTROL. In both tests, Star Crafts
fall within the elements of labor-only contracting under Dept Order No 18
and 18-A).
F.4 SALIENT FEATURES OF DEPARTMENT ORDER NO. 18-

02, SERIES 2002.
• MANDATORY REGISTRATION OF INDEPENDENT CONTRACTORS
(D.O. 18, S11) - Establishment of a registration system to govern
contracting arrangements. Registration of the contractors and sub-
contractors shall be necessary for purposes of establishing an effective
labor market information and monitoring. Failure to register shall give
rise to a presumption that contractor is engaged in LABOR ONLY
CONTRACTING
44
• REQUIREMENTS FOR REGISTRATION (per DOLE Application Form)
➢ Name and business address of contractor

➢ Names and addresses of the officers of the contractor
➢ Nature of the contractor’s business, and the industry where the
contractor seeks to operate
➢ Number of regular workers; list of clients, if any; number of personnel
assigned to each client and the services provided to the client
➢ Description of the phases of the contract, and number of employees
covered in each phase, when appropriate
➢ Copy of audited financial statements
(companies/partnership/cooperative or union), or ITR (sole
proprietorship)
➢ Certified copy of the certificate of registration of firm or business name
from the Securities and Exchange Commission, Department of Trade
and Industry, Cooperative Development Authority or from the DOLE
➢ Certified copy of the license or business permit issued by the local
government unit or units where the contractor or subcontractor
operates.
➢ The application shall be verified, and shall contain an undertaking that
the contractor or sub-contractor shall abide by all applicable labor
laws and regulations
• OTHER OBLIGATIONS OF INDEPENDENT CONTRACTOR:
➢ Duty to produce copy of the contract between the principal and the
contractor, if required during regular inspection; also, the contractor
of employment of the contractual employee
➢ Annual reporting of the registered contractors not later than 15th of
January of every year. Report shall include: (a) list of contracts
entered with principal during the subject reporting period; (b) number
of workers covered by each contract with principal; and © sworn
undertaking that the mandatory government-imposed benefits (SSS,
HDMF, Philhealth, ECC and withholding taxes) due the contractual
employees have been made during the subject reporting period.
• EFFECT OF NON-COMPLIANCE – DELISTING OF CONTRACTORS.

(Ada’s opinion: Logically therefore, and in conjunction with Supreme
Court decisions, once the contractor is delisted, there arises a prima
facie (rebuttable) presumption the contractor is a labor-only contractor).
F.6 THE NEGATIVE LIST: WHAT CANNOT BE VALIDLY

SUB-CONTRACTED OUT and WHAT ARE ILLEGAL
ACTIVITIES? (Dept. Order Nos. 174 s. 2017, Section 6; See
also: Dept Order No. 18-A, s 2011; and Dept Order 18-02 s. 2002).
1. When the principal farms out work to a “Cabo”.

Sec 3 (b): Cabo” refers to a person or group of persons or to a labor group which,
in the guise of a labor organization, cooperative or any entity, supplies workers to
an employer, with or without any monetary or other consideration, whether in the
capacity of an agent of the employer or as an ostensible independent contractor.
45
2. Contracting out of job or work through an in-house agency.
3. Contracting out of job or work through an in-house cooperative which

merely supplies workers to the principal.
4. Contracting out of a job or work by reason of a strike or lockout whether

actual or imminent.
5. Contracting out of a job or work being performed by union members and

such will interfere with, restrain or coerce employees in the exercise of
their rights to self-organization as provided in Article 259 of the Labor
Code, as amended.
6. Requiring the contractor’s/subcontractor’s employees to perform functions

which are currently being performed by the regular employees of the
principal.
7. Requiring the contractor’s/subcontractor’s employees to sign, as a

precondition to employment or continued employment, an antedated
resignation letter; a blank payroll; a waiver of labor standards including
minimum wages and social or welfare benefits; or a quitclaim releasing
the principal or contractor from liability as to payment of future claims; or
require the employee to become a member of a cooperative.
8. Repeated hiring by the contractor/subcontractor of employees under an

employment contract of short duration. (Example: 5-5-5)
9. Requiring employees under a contracting/subcontracting arrangement to

sign a contract fixing the period of employment to a term shorter
than the term of the Service Agreement, unless the contract is divisible
into phases for which substantially different skills are required and this is
made known to the employee at the time of engagement. (Example: Chop-
chop)
10. Such other practices, schemes or employment arrangements designed to

circumvent the right of workers to security of tenure.
F.7 SALIENT FEATURES OF DOLE DEPT ORDER NO. 174, S 2017.
1) Minimum capitalization of at least P5 Million fully paid-up capital for

corporations, partnerships and cooperatives; net worth for single
proprietorships
2) Proof of ownership or lease agreement on tools, equipment, machineries,
and work premises
3) Payment of P100,000.00 registration fee
4) Control over the performance of the work of the employee deployed or
assigned to render the contracted work or services
5) Not engaged in labor-only contracting arrangement as provided in Section
6) Not engaged in prohibited activities enumerated in Section 6
7) Observes the rights of the workers as provided in Section 10
8) Observes the required contracts under Section 11
9) Not delisted from the registry of legitimate contractor/ subcontractor
46
NEW PROVISIONS UNDER DEPT ORDER #174 NOT PROVIDED UNDER THE
PREVIOUS DEPARTMENT ORDERS 18-A s 2011 AND 18 s. 2002:
Section 6 – Expansion of illicit forms of arrangements such as:

• the inclusion of contracting out of work to an “in-house cooperative”;
• requiring employees to become members of cooperative;
• other practices, schemes or employment arrangements designed to circumvent
the right of workers to security of tenure.
Section 23 (j) – Inclusion of “Violations of the any provisions of the Labor Code” as
an additional ground for cancellation of registration.
Section 26 – Inclusion in the Effects of Cancellation of Registration the blacklisting

of a contractor whose registration has been cancelled including any of its officers to
operate or apply for new registration as contractor under either the same or
different name.
IMPORTANT FEATURE:
QUESTION: What will happen to the workers employed by the subcontractor after
the expiration of the Service Agreement?
ANSWER: The employee may opt to wait for re-employment (redeployment) within
three (3) months. (This was previously six months floating status.) If contractor
FAILS to redeploy its employee, then SEPARATION PAY should be paid to its
employee. The mere expiration of the Service agreement shall not be deemed as
a termination of employment of the contractor’s/subcontractor’s employees who are
regular employees of the latter. (SECTION 13, D.O. 174, SERIES OF 2017). There is
also a provision on development of Financial Relief Program and Tripartite
Engagement on Co-regulation for workers in transition from one Service to the next.
(SECTION 31, D. O. 174, SERIES OF 2017)
F.8 SYNTHESIS AND CLARIFICATION OF DOCTRINES

ON JOB-CONTRACTING PER 2015-2018 CASES
7.1 Job contracting is a trilateral work arrangement arising out of two
different contracts:
a) Contract between Principal and the Agency: CIVIL CONTRACT

b) Contract between Agency and its employees: LABOR CONTRACT
But note –
• There should be NO CONTROL between Principal and Agency or

Principal and employees of the agency; otherwise, an employer-
employee relationship is established in either case.
7.2 GENERAL RULE: Contracting out is valid as an exercise of

management prerogative for as long as it complies with the limits and
47
standards provided by the Labor Code. [COCA-COLA BOTTLERS VS.

DELA CRUZ ET AL, G.R. No. 184977, 07 December 2009 (BRION, J)], --
Essentially, there must be proof of capitalization, and of control over his

employees on the part of the independent contractor. The law allows
contracting and subcontracting involving services but closely
regulates these activities for the protection of workers. Thus, an
employer can contract out part of its operations, provided it complies with
the limits and standards provided in the Code and in its implementing rules.
xxx In strictly layman’s terms, a manufacturer can sell its products
on its own, or allow contractors, independently operating on their
own, to sell and distribute these products in a manner that does not
violate the regulations. From the terms of the above-quoted D.O. 18-02,
the legitimate job contractor must have the capitalization and equipment to
undertake the sale and distribution of the manufacturer’s products, and
must do it on its own using its own means and selling methods.xxx”
Consolidated Building Maintenance, Inc. v. Asprec, Jr., G.R. No.

217301, 06 June 2018 -- It is clear that job contracting is not absolutely
prohibited. Indeed, an employer is allowed to farm out the performance or
completion of a specific job, work or service, within a definite or specified
period, and regardless of whether the said task is to be performed or
completed within or outside its premises. Job contracting is deemed
legitimate and permissible when the contractor has substantial capital or
investment, and runs a business that is independent and free from control
by the principal. Further, in Norkis Trading Co., Inc. v. Gnilo, it is required
that "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." The
absence of any of these elements results in a finding that the contractor is
engaged in labor-only contracting.|||
Temic Automotive Phils. Vs. Temic Automotive Phils Inc. Employees

Union – FFW, G.R. No. 186965, 23 December 2009. – Company is
engaged in the manufacture of electronic brake systems and comfort body
electronics for automotive vehicles. Union members are regular rank-and-
file employees working in warehouse receiving section, raw materials, and
finished goods section. Management however contracts out forwarding,
packing, loading of raw materials and finished goods to independent
contractors. Issue raised on validity of contracting out of said jobs, to the
detriment of the regular workers. Supreme Court ruled in favor of
management, where it is shown that it is done in good faith, for the
furtherance of the valid interests of the company and not for the
circumvention of the rights of its employees.
7.3 EXCEPTION: The right of management to outsource parts of its

operations is within the purview of management prerogative, but said
right may limited by law, CBA provisions or the general principles of
fair play and justice. Goya Inc. vs. Goya Employees Union – FFW,
G.R. No. 170054 21 January 2013.
48
Question: May the Company however validly engage an independent

contractor for such purpose, despite an explicit provision in the CBA limiting
the company’s free exercise of management prerogative pertaining to the
hiring of contractual employees.
Short Answer: NO, it may not. The CBA is the law between the parties,
and having agreed to the provision, management also agreed to limit its
exercise of its prerogatives to this extent
SC Rationale: The company kept on harping that both the VA and the CA
conceded that its engagement of contractual workers from PESO was a
valid exercise of management prerogative. It is confused. To emphasize,
declaring that a particular act falls within the concept of management
prerogative is significantly different from acknowledging that such act is a
valid exercise thereof. What the VA and the CA correctly ruled was that
the Company’s act of contracting out/outsourcing is within the
purview of management prerogative. Both did not say, however, that
such act is a valid exercise thereof. Obviously, this is due to the
recognition that the CBA provisions agreed upon by the Company
and the Union delimit the free exercise of management prerogative
pertaining to the hiring of contractual employees. Indeed, the VA
opined that “the right of the management to outsource parts of its
operations is not totally eliminated but is merely limited by the CBA,” while
the CA held that “[t]his management prerogative of contracting out
services, however, is not without limitation. x x x [These] categories of
employees particularly with respect to casual employees [serve] as
limitation to [the Company’s] prerogative to outsource parts of its
operations especially when hiring contractual employees.”
7.4 The law and its implementing rules recognize that management may
rightfully exercise its prerogatives in determining what activities may
be contracted out, REGARDLESS OF WHETHER SUCH ACTIVITY IS
PERIPHERAL OR CORE IN NATURE. (Alviado et. al. vs. Procter &
Gamble, and Promm Gemm, G.R. No. 160506, 09 March 2010, Del
Castillo, J).
The company Procter & Gamble was 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. 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.
The Supreme Court ruled that the where the agency (independent
contractor) complied with all the requisites of permissible job contracting
such as substantial capitalization and there being no control, then
complainants were employees of the job contractors and NOT of the
principal Proctor & Gamble.
On the other hand, if the agency failed to comply with the requisites, then
‘labor-only’ contracting is presumed to exist, and the Labor Code itself
establishes an employer-employee relationship between the employer and
the employees of the ‘labor-only’ contractor." The statute establishes this
49
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.
7.5 GENERAL RULE: PRELIMINARY PRESUMPTION IN A TRILATERAL

WORKING ARRANGEMENT IS THAT THERE IS LABOR-ONLY
CONTRACTINGLCONTRACTOR IS LABOR-ONLY CONTRACTING
UNLESS such contractor overcomes the burden of proving that it has
substantial capital, investment, tools and the like.
Petron vs. Armz Caberte, G.R. No. 182255, 15 June 2015. (J. Del
Castillo)
To determine whether a contractor is engaged in labor-only contracting

or permissible job contracting, "the totality of the facts and the
surrounding circumstances of the case are to be considered." Petron
contends that the CA erred in ruling that ABC is a labor-only contractor
since respondents failed to prove that ABC is not an independent
contractor. The contention, however, is incorrect.
The law presumes a contractor to be a labor-only contractor and the

employees are not expected to prove the negative fact that the
contractor is a labor-only contractor. Thus, it is not respondents but
Petron which bears the burden of establishing that ABC is not a labor-only
contractor but a legitimate independent contractor. As held in Alilin v.
Petron Corporation, "where the principal is the one claiming that the
contractor is a legitimate contractor, the burden of proving the supposed
status of the contractor rests on the principal."
NOTE: A cooperative may likewise engage in sub-contracting

arrangements but it must comply with the requirements for an independent
contractor. The fact that it was a duly registered cooperative does not
preclude the possibility that it was engaged in labor-only contracting as
confirmed by the findings of the Regional Director. (Norkis Trading
Corporation vs. Buenavista et al., GR No. 182018, 10 October 2012).
7.6 WHETHER DOLE CERTIFICATION THAT ONE IS A LEGITIMATE JOB-

CONTRACTOR, IS SUFFICIENT TO PROVE STATUS AS JOB
CONTRACTOR.—
General Rule: The DOLE certification simply gives rise to a

DISPUTABLE presumption that the contractor is a legitimate one. It
does NOT prohibit the Supreme Court, in the exercise of its plenary judicial
powers of review, to determine sufficiency of evidence other than the
certification, in ruling that one is, or is not, an independent contractor. Thus:
In the absence of evidence to the contrary presented by the

complainants, then the Supreme Court had ruled that in the case of RAMY
GALLEGO VS. BAYER PHILS. G.R. No. 179807, 31 July 2009, Carpio-
Morales, J that “(T)he DOLE certificate having been issued by a public
officer, it carries with it the presumption that it was issued in the regular
50
performance of official duty. Petitioner’s bare assertions fail to rebut this

presumption. Further, since the DOLE is the agency primarily responsible
for regulating the business of independent job contractors, the Court can
presume, in the absence of evidence to the contrary, that it had
thoroughly evaluated the requirements submitted by PRODUCT IMAGE
before issuing the Certificate of Registration.” In this case, the Supreme
Court found Product Image to be an independent contractor as it had
shown proof of substantial capitalization and control over the employees.
Exception: COCA COLA BOTTLERS VS. RICKY DELA CRUZ, ET AL. (G.R.
No. 184977, 07 December 2009) and COCA COLA BOTTLERS VS. AGITO ET
AL (G.R. 179546, 13 Feb 2009, J. Chico-Nazario),
However, apart and separate from the existence of said DOLE

certification, and especially in instances where there are contradictory
findings between the Court of Appeals and the NLRC/Labor Arbiter, the
Supreme Court may consider other factors in the determination of
whether or not a contractor complies with the requisite elements of a
legitimate sub-contracting as enumerated in the Labor Code and the Dept.
Order No. 18-02. In these cases, the Supreme Court reviewed the records
and found that the so-called independent contractors had no
substantial capitalization and investment, and that the workers supplied
by it were performing activities which were necessary and desirable in the
usual trade or business of the employer.
7.7 SAME WORKER, DIFFERENT CONTRACTORS BUT SAME

PRINCIPAL
Fonterra Brands Phils. Vs. Largado and Estrellado, G.R. No.

205300, 18 March 2015
QUESTION: Whether or not fixed-term employees who were repeatedly

hired by a contractor, but had resigned and transferred to another
51
contractor to work with the same principal, may claim regular employment
status and illegal dismissal?
ANSWER: NO. They cannot claim to be regular employees of the

principal. As correctly held by the Labor Arbiter and the NLRC, the
termination of respondents’ employment with Zytron was brought about by
the cessation of their contracts with the latter. We give credence to the
Labor Arbiter’s conclusion that respondents were the ones who refused to
renew their contracts with Zytron, and the NLRC’s finding that they
themselves acquiesced to their transfer to A.C. Sicat.
By refusing to renew their contracts with Zytron, respondents effectively

resigned from the latter. Resignation is the voluntary act of employees
who are compelled by personal reasons to dissociate themselves from
their employment, done with the intention of relinquishing an office,
accompanied by the act of abandonment.
Here, it is obvious that respondents were no longer interested in

continuing their employment with Zytron. Their voluntary refusal to renew
their contracts was brought about by their desire to continue their
assignment in Fonterra which could not happen in view of the conclusion
of Zytron’s contract with Fonterra. Hence, to be able to continue with their
assignment, they applied for work with A.C. Sicat with the hope that they
will be able to continue rendering services as TMRs at Fonterra since A.C.
Sicat is Fonterra’s new manpower supplier.
7.8 VERY IMPORTANT J. PERLAS-BERNABE CASE:

NESTLE PHILS VS. PUEDAN et. al., G.R. NO. 220617, 30 January
2017 -- Distributorship agreement is a sale of goods, and NOT a
trilateral working arrangement contemplated under Articles 106-109 of
the Labor Code. Nestle cannot be held solidarily liable for the monetary
obligations of ODSI to its employees.
COMPLAINANTS’ POSITION:
ODSI and Nestle Phils hired complainants to sell various Nestle products in the
assigned covered area. After some time, respondents demanded that they be
considered regular employees of NPI, but they were directed to sign contracts of
employment with ODSI instead. When respondents refused to comply with such
directives, Nestle and ODSI terminated them from their position. Hence:
a) ODSI is a labor-only contractor and, thus, they should be deemed regular

employees of NPI; and
(b) there was no just or authorized cause for their dismissal.
52
ODSI Position:
It is a company engaged in the business of buying, selling, distributing, and

marketing of goods and commodities of every kind and it enters into all kinds of
contracts for the acquisition thereof. It entered into a Distributorship Agreement
with Nestle. ODSI admitted that on various dates, it hired respondents as its
employees and assigned them to execute the Distributorship Agreement it
entered with NPI.
Nestle and ODSI’s business relationship turned sour when the former's sales
department badgered the latter regarding the sales targets. Eventually, Nestle
downsized its marketing and promotional support from ODSI which resulted to
ODSI business reverses; ODSI subsequently had to close its Nestlé unit due to
the termination of the Distributorship Agreement, and the failure of rehabilitation.
Under the foregoing circumstances, ODSI argued that respondents were not
dismissed but merely put in floating status.
On the other hand, NPI did not file any position paper or appear in the
scheduled conferences.
LABOR ARBITER DECISION: dismissed complaint for lack of merit because: (a)
complainants failed to prove they were Nestle employees; and (b) they were not
illegally dismissed because ODSI had indeed closed down due to business
losses. However, as to the issue on the failure to give respondents a thirty (30)-
day notice prior to such closure, the LA concluded that all the impleaded
respondents therein (i.e., including NPI) should be held liable for the payment of
nominal damages plus attorney's fees.
NLRC DECISION: Reversed Labor Arbiter and found ODSI to be a labor-

only contractor of Nestle, considering that: (a) ODSI had no substantial
capitalization or investment; (b) respondents performed activities directly related
to NPI's principal business; and (c) the fact that respondents' employment
depended on the continuous supply of NPI products shows that ODSI had not been
carrying an independent business according to its own manner and
method. Consequently, the NLRC deemed Nestle to be respondents' true
employer, and thus ordered it jointly and severally liable with ODSI to pay the
monetary claims of respondents.
COURT OF APPEALS: AFFIRMED NLRC

Based on the provisions of the Distributorship Agreement between them, ODSI is
merely a labor-only contractor of NPI. The following stipulations of the said
Agreement evinces that NPI had control over the business of ODSI, namely,
that: (a) NPI shall offer to ODSI suggestions and recommendations to improve
sales and to further develop the market; (b) NPI prohibits ODSI from exporting its
products (the No-Export provision); (c) NPI provided standard requirements to
ODSI for the warehousing and inventory management of the sold goods;
and (d) prohibition imposed on ODSI to sell any other products that directly
compete with those of NPI.
53
SUPREME COURT:
A closer examination of the Distributorship Agreement reveals that the relationship

of NPI and ODSI is not that of a principal and a contractor (regardless of whether
labor-only or independent), BUT THAT OF A SELLER AND A BUYER/RE-
SELLER.
As stipulated in the Distributorship Agreement, NPI agreed to sell its products to

ODSI at discounted prices, which in turn will be re-sold to identified customers,
ensuring in the process the integrity and quality of the said products based on the
standards agreed upon by the parties. As aptly explained by NESTLE, the goods
it manufactures are distributed to the market through various
distributors, e.g., ODSI, that in turn, re-sell the same to designated outlets through
its own employees such as the respondents. Therefore, the reselling activities
allegedly performed by the respondents properly pertain to ODSI, whose principal
business consists of the "buying, selling, distributing, and marketing goods and
commodities of every kind" and "[entering] into all kinds of contracts for the
acquisition of such goods [and commodities]."
The aforementioned stipulations in the Distributorship Agreement hardly

demonstrate control on the part of NPI over the means and methods by which
ODSI performs its business, nor were they intended to dictate how ODSI shall
conduct its business as a distributor. Otherwise stated, the stipulations in the
Distributorship Agreement do not operate to control or fix the methodology
on how ODSI should do its business as a distributor of NPI products, but
merely provide rules of conduct or guidelines towards the achievement of a
mutually desired result — which in this case is the sale of NPI products to
the end consumer. Verily, it was only reasonable for NPI — it being a local arm
of one of the largest manufacturers of foods and grocery products worldwide — to
require its distributors, such as ODSI, to meet various conditions for the grant and
continuation of a distributorship agreement for as long as these conditions do not
control the means and methods on how ODSI does its distributorship business, as
shown in this case. This is to ensure the integrity and quality of the products which
will ultimately fall into the hands of the end consumer.
Thus, the foregoing circumstances show that ODSI was not a labor-only
contractor of NESTLE; hence, the latter cannot be deemed the true employer of
respondents. As a consequence, NESTLE cannot be held jointly and severally
liable to ODSI's monetary obligations towards respondents.
BAR QUESTIONS IN INDEPENDENT VS. LABOR-ONLY CONTRACTING
2016 BAR QUESTION:
Empire Brands (Empire) contracted the services of Style Corporation (Style) for the
marketing and promotion of its clothing line. Under the contract, Style provided Empire
with Trade Merchandising Representatives (TMRs) whose services began on September
15, 2004 and ended on June 6, 2007, when Empire terminated the promotions contract
with Style.
Empire then entered into an agreement for manpower supply with Wave Human
54
Resources (Wave). Wave owns its condo office, owns equipment for the use by the TMRs,
and has assets amounting to Pl,000,000.00. Wave provided the supervisors who
supervised the TMRs, who, in tum, received orders from the Marketing Director of Empire.
In their agreement, the parties stipulated that Wave shall be liable for the wages and
salaries of its employees or workers, including benefits, and protection due them, as well
as remittance to the proper government entities of all withholding taxes, Social Security
Service, and Philhealth premiums, in accordance with relevant laws.
As the TMRs wanted to continue working at Empire, they submitted job applications as
TMRs with Wave. Consequently, Wave hired them for a term of five (5) months, or from
June 7, 2007 to November 6, 2007, specifically to promote Empire's products.
When the TMRs' 5-month contracts with Wave were about to expire, they sought renewal
thereof, but were refused. Their contracts with Wave were no longer renewed as Empire
hired another agency. This prompted them to file complaints for illegal dismissal,
regularization, non-payment of service incentive leave and 13th month pay against Empire
and Wave.
[a] Are the TMRs employees of Empire? (2.5%)
[b] Were the TMRs illegally dismissed by Wave? (2.5%)
ANSWER:
(a) NO. The TMRs are not employees of Empire but of Wave, which is an independent
contractor having its own business, works for its own account, under its own
responsibility, using its own means and methods. Wave also had control over the
conduct of the TMRs. The fact that the TMRs were previously deployed to Empire by
another agency Style does NOT give them a right to be regularized under Empire, as
TMRs appear to have knowingly and voluntarily resigned from Style, without any vices
of consent on the part of Empire nor Wave. (Fonterra Brands Philippines, Inc. v.
Largado, G.R. No. 205300, [March 18, 2015])
(b) TMRs were not illegally dismissed by Wave in this instant case, where it appears that
they knew that the nature of their employment was for a fixed-term of five (5) months.
The arrival of the day certain in the contract automatically terminates their
employment, without need of notice. (Fonterra Brands Philippines, Inc. v. Largado,
G.R. No. 205300, [March 18, 2015])
2014 BAR QUESTION:

Linis Manpower, Inc. (LMI) had provided janitorial services to the Philippine Overseas
Employment Administration (POEA) since March 2009. Its service contract was renewed
every three months. However, in the bidding held in June 2012, LMI was disqualified and
excluded. In 2013, six janitors of LMI formerly assigned at POEA filed a complaint for
underpayment of wages. Both LMI and POEA were impleaded as respondents. Should
POEA, a government agency subject to budgetary appropriations from Congress, be held
liable solidarily with LMI for the payment of salary differentials due to the complainant?
Cite the legal basis of your answer. (4%)
ANSWER: Yes, POEA may still be held liable. DOLE Order No. 14, Series of 2001,
on Solidary Liability, provides as follows: “Government agencies or instrumentalities
engaging security services from private security agencies shall likewise observe
compliance with all labor laws xxx” Moreover, Article 106 of the Labor Code provides that
in the event the contractor fails to pay the wages of his employees the principal shall be
jointly and severally liable with the contractor.
55
2012 BAR QUESTION:

Distinguish Labor-Only contracting and Job-Only contracting. (5%)
ANSWER:
a) Job-Only contracting is legal; whereas, Labor-Only contracted is prohibited by law.
b) In Job-Only contracting, the principal is only an indirect employer; whereas, in
Labor-Only contracting, the principal becomes the direct employer of the employees
of the labor-only contractor.
c) The liability of the principal in Job-Only contracting vis-à-vis employees of job-
contractor is for a limited purpose only, e.g. wages and violation of labor standard
laws; whereas, the liability of the principal in Labor-Only contracting is for a
comprehensive purpose and, therefore, the principal becomes solidarily with the
labor-only contractor for all the rightful claims of the employees.
d) In Job-Only contracting, no employer-employee relationship exists between the
principal and the employees of the job contractor; whereas, in Labor-Only
contracting, the law creates an employer-employee relationship between the
principal and the employees of the labor-only contractor.
2012 BAR QUESTION:
XYZ Manpower Services (XYZ) was sued by its employees together with its client, ABC
Polyester Manufacturing Company (ABC). ABC is one of the many clients of XYZ. During
the proceedings before the Labor Arbiter, XYZ was able to prove that it had substantial
capital of Three Million Pesos. The Labor Arbiter ruled in favor of the employees because
it deemed XYZ as a labor only contractor. XYZ was not able to prove that it had invested
in tools, equipment, etc.
a. Is the Labor Arbiter's ruling valid? Explain. (5%)

b. Does the performance by a contractual employee, supplied by a legitimate contractor,
of activities directly related to the main business of the principal make him a regular
employee of the principal? Explain. (5%)
ANSWER:
a. No, the Labor Arbiter’s ruling is not valid. Art. 106 of the Labor Code provides that the
contractor has “substantial capital or investment”. The law did not say substantial
capital AND investment. Hence, it is in the alternative; it is sufficient if the contractor
has one or the other, i.e., either the substantial capital or the investment. And under
Department Order No. 18-A, Series of 2011, the amount of P3 million paid-up capital
for the company is substantial capital.
b. Not necessarily. In project employment (governing the construction industry), the
contractual employee is performing activities directly related to the main business of
the principal and yet he does not become a regular employee of the principal so long
as there is compliance with Policy Instructions No. 19 and 20 of the Department of
Labor. In another instance, where the contractual employee is performing activities
directly related to the main business of the principal but he was hired mainly for his
talent or skills. Even if the principal provided the place of work and the necessary
equipment, he would remain a contractual employee since the principal did not
supervise or control his work. (Jose Sonza vs. ABS-CBN Broadcasting Corporation,
G.R. No. 138051, 431 SCRA 583 [2004].)
PART1 OF ABAD PRE-WEEK NOTES 100419

FOR ADAMSON, LYCEUM AND FEU BAR OPERATIONS
56

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2019 LABOR LAW BAR PRE-WEEK HAND-OUTS

FOR 2019 ADAMSON LYCEUM FEU BAR OPERATIONS

and doctrinal digests by Dean Antonio H. Abad, Jr.

For 2019 Bar Examinations: 1st Sunday PM, 03 November 2019

Including 2018 Bar questions, pertinent SC 2015-June 2018

A. GENERAL PRINCIPLES AND CONCEPTS

1.1 Promotion of human dignity (Art 2, sec 2)

▪ Contrary to the concept of “laissez faire”, which is an economic theory that

▪ Hence, under the PRINCIPLE OF INCORPORATION, the minimum labor

2. DISTINCTION BETWEEN LABOR LAW AND SOCIAL LEGISLATION

LABOR LAW SOCIAL LEGISLATION

3. WHEN FACED WITH A PROBLEM SOLVING ESSAY-TYPE QUESTION IN

MEMORIZE ARTICLE 3, LABOR CODE: DECLARATION OF POLICY

4. Principle of Social and Distributive Justice: Balancing of interests in case

5. HOW TO BALANCE CONFLICTING INTERESTS IN PROBLEM SOLVING:

MANAGEMENT VS. LABOR

• Profit • Equitable share in the profits

• Management prerogatives • Worker’s rights

Paradigm shift towards mutual cooperation - It is high time that employer

6. SIX (6) GENERAL RULES TO REMEMBER

6.1.1 Four tests to determine the existence of an employer-employee relationship

(MEMORY AID: SOUTH WEST DISASTER CONTROL)

b) J. PERLAS-BERNABE CASE ON CONTROL TEST: FELICILDA V. UY,

Facts: Uy hired Felicilda as truck driver in his trucking company. Felicilda

Defense of Uy and Trucking company: Felicilda is an independent

SC decision: Felicilda is an employee of Uy/Trucking company. Verily, the

First. It is undisputed that respondent hired petitioner to work as a truck

Second. Petitioner received compensation from respondent for the

Third. Respondent's power to dismiss was inherent in the selection and

2017 BAR QUESTION (I)

1.2. Applying the tests to determine the existence of an employer- employee

2018 BAR QUESTION:

Nathaniel has been a salesman assigned by Newmark Enterprises (Newmark) for

SUGGESTED ANSWER: I would rule in Nathaniel’s favor. As can be gleaned

ALTERNATIVE ANSWER: Nathaniel’s contention is not correct. He is not a

2016 BAR QUESTION:

2014 BAR QUESTION:

(A) Is there an employer-employee relationship between Don Luis and Lando?

(d) DISTINGUISH BETWEEN “RULES THAT FIX METHODOLOGY” VS.

EXAMPLE: INSURANCE AGENTS; TWO CASES:

Insurance agents are not employees of the insurance companies, in the

As the Supreme Court clarified in the case of Tongko vs. Manufacturers'

definitively held that insurance agents are not employees of insurance

2016 BAR QUESTION (II)

Gregorio was hired as an insurance underwriter by the Guaranteed Insurance

[a] Is Gregorio an employee of Guaranteed? Explain. (2.5%)

Answer: In this instance, Gregorio appears to be an independent contractor

[b] Suppose Gregorio is appointed as Unit Manager and assigned to supervise

Answer: The fact that Gregorio is himself supervised by a branch manager,

6.2 GENERAL RULE #2: PRINCIPLE OF INCORPORATION.

Once an employer-employee relationship is deemed to exist, the Labor Code is

6.3 GENERAL RULE #3: BURDEN OF PROOF IS ALWAYS UPON EMPLOYER

TWO EXCEPTIONS when burden of proof is initially placed upon

6.4. GENERAL RULE #4: There must exist SUBSTANTIAL EVIDENCE to

a) Proof beyond reasonable doubt is not required in administrative cases.

b) Substantial evidence defined:

It is an oft-repeated rule that in labor cases, as in other administrative and

c) Case on substantial evidence: Alilem Credit Coop vs. Bandiola

QUESTION: Are sworn statements of relatives and friends of respondent

ANSWER: YES. The employer’s evidence consists of sworn statements of

Note: Failure of employer to submit documents which are presumed to be

6.5 GENERAL RULE #5: No retroactive effect of labor laws.

Exception: Retroactive only if the law explicitly so provides.