2022 BAR NOTES ON LABOR LAW

Trust in the LORD with all thine heart; and lean not unto thine own understanding.
In all thy ways acknowledge him, and he shall direct thy paths. – Proverbs 3:5-6

VOLTAIRE T. DUANO

BASIC PRINCIPLES

Protection to labor clause under the 1987 Constitution

This clause on protection to labor can be found in Article XIII, Section 3 of the 1987
Constitution. It guarantees the following:

1. Extent and coverage of protection — Full protection to labor, local and overseas,
organized and unorganized
2. Policy on employment — Promote full employment and equality of employment
opportunities for all.
3. Unionism and Methods of Determination Conditions of Employment, Concerted
Activities — The rights of all workers to self-organization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in accordance with
law.
4. Working conditions — To security of tenure, humane conditions of work, and a living
wage.
5. Codetermination — Participation in policy and decision-making processes affecting
their rights and benefits as may be provided by law.
6. Shared responsibility — Promote the principle of shared responsibility between
workers and employers.
7. Policy on dispute resolution — Preferential use of voluntary modes in settling
disputes, including conciliation, and shall enforce their mutual compliance therewith to foster
industrial peace.
8. Right of labor and of enterprise — Right of labor to its just share in the fruits of
production and the right of enterprises to reasonable returns to investments, and to expansion
and growth.

Construction in favor of labor

In Songco v. National Labor Relations Commission, G.R. No. L-50999 March 23, 1990 the
Supreme Court ruled on the proper construction and interpretation of labor laws and its
implementing rules in case of doubt as follows:

The final consideration is, in carrying out and interpreting the Labor Code's provisions
and its implementing regulations, the workingman's welfare should be the primordial and
paramount consideration. This kind of interpretation gives meaning and substance to the
liberal and compassionate spirit of the law as provided for in Article 4 of the Labor Code
which states that "all doubts in the implementation and interpretation of the provisions of
the Labor Code including its implementing rules and regulations shall be resolved in favor
of labor" (Abella v. NLRC, G.R. No. 71812, July 30,1987,152 SCRA 140; Manila Electric
Company v. NLRC, et al., G.R. No. 78763, July 12,1989), and Article 1702 of the Civil Code
which provides that "in case of doubt, all labor legislation and all labor contracts shall be
construed in favor of the safety and decent living for the laborer.

Article 4 of the Labor Code extended to cover doubts in the evidence - In Peñaflor v. Outdoor
Clothing Manufacturing, G.R. No. 177114, January 21,2010, the Supreme Court explained the
application of Article 4 of the Labor Code regarding doubts on respondent’s evidence on the
voluntariness of petitioner’s resignation. Thus, the High Court said:

Another basic principle is that expressed in Article 4 of the Labor Code – that all doubts in
the interpretation and implementation of the Labor Code should be interpreted in favor of the
workingman. This principle has been extended by jurisprudence to cover doubts in the
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 evidence presented by the employer and the employee. (Fujitsu Computer Products
Corporation of the Philippines v. Court of Appeals, 494 Phil. 697 [2005]) As shown above,
Peñaflor has, at very least, shown serious doubts about the merits of the company’s case,
particularly in the appreciation of the clinching evidence on which the NLRC and CA
decisions were based. In such contest of evidence, the cited Article 4 compels us to rule in
Peñaflor’s favor. Thus, we find that Peñaflor was constructively dismissed given the hostile
and discriminatory working environment he found himself in, particularly evidenced by the
escalating acts of unfairness against him that culminated in the appointment of another HRD
manager without any prior notice to him. Where no less than the company’s chief corporate
officer was against him, Peñaflor had no alternative but to resign from his employment.
(Unicorm Safety Glass, Inc. v. Basarte, 486 Phil. 493 [2004])

MANAGEMENT PREROGATIVES

Management prerogatives and those which affect the rights of the employees

In Philippine Airlines, Inc. v. National Labor Relations Commission, et al, G.R No. 85985,
August 13, 1993, the principal issue is whether management may be compelled to share with the
union or its employees its prerogative of formulating a code of discipline. The provisions in question
are as follows:

Articles IV and I of Chapter II

Section 2. Non-exclusivity. — This Code does not contain the entirety of the rules and
regulations of the company. Every employee is bound to comply with all applicable
rules, regulations, policies, procedures and standards, including standards of quality,
productivity, and behaviour, as issued and promulgated by the company through its
duly authorized officials. Any violations thereof shall be punishable with a penalty to be
determined by the gravity and/or frequency of the offense.

Section 7. Cumulative Record. — An employee’s record of offenses shall be cumulative.

The penalty for an offense shall be determined on the basis of his past record of offenses
of any nature or the absence thereof. The more habitual an offender has been, the greater
shall be the penalty for the latest offense. Thus, an employee may be dismissed if the
number of his past offenses warrants such penalty in the judgment of management even
if each offense considered separately may not warrant dismissal. Habitual offenders or
recidivists have no place in PAL. On the other hand, due regard shall be given to the
length of time between commission of individual offenses to determine whether the
employee’s conduct may indicate occasional lapses (which may nevertheless require
sterner disciplinary action) or a pattern of incorrigibility.

In resolving the issue, the Supreme Court said:

Indeed, it was only on March 2, 1989, with the approval of Republic Act No. 6715,
amending Article 211 of the Labor Code, that the law explicitly considered it a State policy"
(t)o ensure the participation of workers in decision and policy-making processes affecting
their rights, duties and welfare." However, even in the absence of said clear provision of law,
the exercise of management prerogatives was never considered boundless. Thus, in Cruz v.
Medina (177 SCRA 565 [1989]), it was held that management’s prerogatives must be without
abuse of discretion.

In San Miguel Brewery Sales Force Union (PTGWO) v. Ople (170 SCRA 25 [1989], we
upheld the company’s right to implement a new system of distributing its products, but
gave the following caveat:

So long as a company’s management prerogatives are exercised in good faith for

the advancement of the employer’s interest and not for the purpose of defeating or
circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold them. (at p. 28.)

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 All this points to the conclusion that the exercise of managerial prerogatives is
not unlimited. It is circumscribed by limitations found in law, a collective bargaining
agreement, or the general principles of fair play and justice (University of Sto.
Tomas v. NLRC, 190 SCRA 758 [1990]). Moreover, as enunciated in Abbott
Laboratories (Phil.), Inc. v. NLRC (154 SCRA 713 [1987], it must be duly established
that the prerogative being invoked is clearly a managerial one.

A close scrutiny of the objectionable provisions of the Code reveals that they are not
purely business-oriented nor do they concern the management aspect of the business of the
company as in the San Miguel case. The provisions of the Code clearly have repercusions on
the employees’ right to security of tenure. The implementation of the provisions may result
in the deprivation of an employee’s means of livelihood which, as correctly pointed out by
the NLRC, is a property right (Callanta v. Carnation Philippines, Inc., 145 SCRA 268 [1986]).
In view of these aspects of the case which border on infringement of constitutional rights, we
must uphold the constitutional requirements for the protection of labor and the promotion of
social justice, for these factors, according to Justice Isagani Cruz, tilt "the scales of justice
when there is doubt, in favor of the worker." (Employees association of the Philippine
American Life Insurance Company v. NLRC, 199 SCRA 628 [1991] 635)

Verily, a line must be drawn between management prerogatives regarding business

operations per se and those which affect the rights of the employees.

Concept of management prerogatives

The Supreme defined management prerogative in SHS Perforated Materials, Inc. v. Diaz,
G.R. No. 185814, October 13,2010: which refers “to the right of an employer to regulate all aspects of
employment, such as the freedom to prescribe work assignments, working methods, processes to be
followed, regulation regarding transfer of employees, supervision of their work, lay-off and
discipline, and dismissal and recall of work.” (Baybay Water District v. Commission on Audit, G.R.
Nos. 147248-49. January 23, 2002)

Criterion to guide in the exercise of management prerogatives

In Gemina, Jr. v. Bankwise, Inc. (Thrift Bank) G.R. No. 175365, October 23, 2013 it was held:
The employer’s right to conduct the affairs of its business, according to its own discretion and
judgment, is well-recognized. An employer has a free reign and enjoys wide latitude of discretion to
regulate all aspects of employment and the only criterion to guide the exercise of its management
prerogative is that the policies, rules and regulations on work-related activities of the employees
must always be fair and reasonable. (The Coca-Cola Export Corporation v. Gacayan, G.R. No.
149433, December 15, 2010, 638 SCRA 377, 398-399)

xxx

As respondent’s employer, petitioner has the right to regulate, according to its discretion and
best judgment, work assignments, work methods, work supervision, and work regulations,
including the hiring, firing and discipline of its employees. Indeed, petitioner has the management
prerogative to discipline its employees, like herein respondent, and to impose appropriate penalties
on erring workers pursuant to company rules and regulations. (Deles, Jr. v. National Labor
Relations Commission, G.R. No. 121348. March 9, 2000) This Court upholds these management
prerogatives so long as they are exercised in good faith for the advancement of the employer’s
interest and not for the purpose of defeating or circumventing the rights of the employees under
special laws and valid agreements. (Challenge Socks Corporation v. Court of Appeals, G.R. No.
165268, November 8, 2005, 474 SCRA 356, 362-363)

Outsourcing any activities as management prerogative

In BPI- Employees Union-Davao City FUBU (BPIEU-Davao City-FUBU) v. Bank of the

Philippine Islands, 174912, July 24,2013, on the issue of outsourcing as a management prerogative,
the Supreme Court held: In one case, the Court held that it is management prerogative to farm out
any of its activities, regardless of whether such activity is peripheral or core in nature. (Alviado v.
Procter & Gamble Phils., Inc, G.R. No. 160506, March 9, 2010,614 SCRA 563,577) What is of
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primordial importance is that the service agreement does not violate the employee's right to security
of tenure and payment of benefits to which he is entitled under the law. Furthermore, the
outsourcing must not squarely fall under 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 xxx.”

Grant of bonus

From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the
recipient has no right to demand as a matter of right. (Philippine National Construction Corp. v.
National Labor Relations Commission, G.R. No. 117240. October 2, 1997) The grant of a bonus is
basically a management prerogative which cannot be forced upon the employer who may not be
obliged to assume the onerous burden of granting bonuses or other benefits aside from the
employee’s basic salaries or wages. (Trader’s Royal Bank v. National Labor Relations
Commission, G.R. No. 88168, August 30, 1990, 189 SCRA 274, 277)

When bonuses be considered part of the wage, salary or compensation

In Eastern Telecommunications Philippines, Inc. v. Eastern Telecommunications, Employees

Union, G. R. No. 185665, February 8, 2012, the consequential question that needs to be settled,
therefore, is whether the subject bonuses are demandable or not. Stated differently, can these
bonuses be considered part of the wage, salary or compensation making them enforceable
obligations? In resolving the issue, the Supreme Court explained:

From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the
recipient has no right to demand as a matter of right. (Philippine National Construction
Corp. v. National Labor Relations Commission, 345 Phil. 324, 331 [1997]) The grant of a
bonus is basically a management prerogative which cannot be forced upon the employer
who may not be obliged to assume the onerous burden of granting bonuses or other benefits
aside from the employee’s basic salaries or wages. (Trader’s Royal Bank v. National Labor
Relations Commission, G.R. No. 88168, August 30, 1990, 189 SCRA 274, 277)

A bonus, however, becomes a demandable or enforceable obligation when it is made

part of the wage or salary or compensation of the employee. (Philippine National
Construction Corp. v. National Labor Relations Commission, 366 Phil. 678 (1999);
Philippine Duplicators, Inc. v. National Labor Relations Commission, 311 Phil. 407, 419
[1995]) Particularly instructive is the ruling of the Court in Metro Transit Organization, Inc.
v. National Labor Relations Commission, 315 Phil. 860, 871 (1995) where it was written:

Whether or not a bonus forms part of wages depends upon the circumstances
and conditions for its payment. If it is additional compensation which the employer
promised and agreed to give without any conditions imposed for its payment, such
as success of business or greater production or output, then it is part of the wage. But
if it is paid only if profits are realized or if a certain level of productivity is achieved,
it cannot be considered part of the wage. Where it is not payable to all but only to
some employees and only when their labor becomes more efficient or more
productive, it is only an inducement for efficiency, a prize therefore, not a part of the
wage.

Cases involving policy or stipulations against marriage

In the following case the Supreme Court ruled on validity of company policy or stipulations
against marriage:

1. In Star Paper Corporation v. Simbol, G. R. No. 164774, April 12, 2006, the Supreme Court
resolved the validity of the following company policy:

1. New applicants will not be allowed to be hired if in case he/she has [a]
relative, up to [the] 3rd degree of relationship, already employed by the company.

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 2. In case of two of our employees (both singles [sic], one male and another
female) developed a friendly relationship during the course of their employment and
then decided to get married, one of them should resign to preserve the policy stated
above

With more women entering the workforce, employers are also enacting employment
policies specifically prohibiting spouses from working for the same company. We note that
two types of employment policies involve spouses: policies banning only spouses from
working in the same company (no-spouse employment policies), and those banning all
immediate family members, including spouses, from working in the same company (anti-
nepotism employment policies). (Ibid)

xxx

In challenging the anti-nepotism employment policies in the United States, complainants

utilize two theories of employment discrimination: the disparate treatment and
the disparate impact. Under the disparate treatment analysis, the plaintiff must prove that
an employment policy is discriminatory on its face. No-spouse employment policies
requiring an employee of a particular sex to either quit, transfer, or be fired are facially
discriminatory. For example, an employment policy prohibiting the employer from hiring
wives of male employees, but not husbands of female employees, is discriminatory on its
face. (Supra, A. Giattina, Challenging No-Spouse Employment Policies As Marital
Status Discrimination)

On the other hand, to establish disparate impact, the complainants must prove that a
facially neutral policy has a disproportionate effect on a particular class. For example,
although most employment policies do not expressly indicate which spouse will be required
to transfer or leave the company, the policy often disproportionately affects one sex. (Ibid)

The state courts rulings on the issue depend on their interpretation of the scope of
marital status discrimination within the meaning of their respective civil rights acts. Though
they agree that the term marital status encompasses discrimination based on a person's
status as either married, single, divorced, or widowed, they are divided on whether the term
has a broader meaning. Thus, their decisions vary.(Ibid)

The courts narrowly (Whirlpool Corp. v. Michigan Civil Rights Comm'n, 425 Mich. 527,
390 N.W.2d 625 (1986); Maryland Comm'n on Human Relations v. Greenbelt Homes, Inc.,
300 Md. 75, 475 A.2d 1192 (1984); Manhattan Pizza Hut, Inc. v. New York State Human
Rights Appeal Bd., 51 N.Y.2d 506, 434 N.Y.S.2d 961, 415 N.E.2d 950 (1980); Thompson v.
Sanborn's Motor Express Inc., 154 N.J. Super. 555, 382 A.2d 53 [1977]) interpreting marital
status to refer only to a person's status as married, single, divorced, or widowed reason that
if the legislature intended a broader definition it would have either chosen different
language or specified its intent. They hold that the relevant inquiry is if one is married rather
than to whom one is married. They construe marital status discrimination to include only
whether a person is single, married, divorced, or widowed and not the identity, occupation,
and place of employment of one's spouse. These courts have upheld the questioned policies
and ruled that they did not violate the marital status discrimination provision of their
respective state statutes.

The courts that have broadly (Ross v. Stouffer Hotel Co., 72 Haw. 350, 816 P.2d 302
(1991); Thompson v. Board of Trustees, 192 Mont. 266, 627 P.2d 1229 (1981); Kraft, Inc. v.
State, 284 N.W.2d 386 (Minn.1979); Washington Water Power Co. v. Washington State
Human Rights Comm'n, 91 Wash.2d 62, 586 P.2d 1149 [1978)]) construed the term marital
status rule that it encompassed the identity, occupation and employment of one's spouse.
They strike down the no-spouse employment policies based on the broad legislative intent of
the state statute. They reason that the no-spouse employment policy violate the marital
status provision because it arbitrarily discriminates against all spouses of present employees
without regard to the actual effect on the individual's qualifications or work performance.
(See note 55, A. Giattina, supra) These courts also find the no-spouse employment policy
invalid for failure of the employer to present any evidence of business necessity other than
the general perception that spouses in the same workplace might adversely affect the
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business. (See note 56, ibid) They hold that the absence of such a bona fide occupational
qualification (Also referred to as BFOQ) invalidates a rule denying employment to one
spouse due to the current employment of the other spouse in the same office. (See note 67, A.
Giattina, supra ) Thus, they rule that unless the employer can prove that the reasonable
demands of the business require a distinction based on marital status and there is no better
available or acceptable policy which would better accomplish the business purpose, an
employer may not discriminate against an employee based on the identity of the employees
spouse. (See Muller v. BP Exploration (Alaska) Inc., 923 P.2d 783, 73 Fair Empl.Prac.Cas.
(BNA) 579, 69) This is known as the bona fide occupational qualification exception.

We note that since the finding of a bona fide occupational qualification justifies an
employers no-spouse rule, the exception is interpreted strictly and narrowly by these state
courts. There must be a compelling business necessity for which no alternative exists other
than the discriminatory practice. To justify a bona fide occupational qualification, the
employer must prove two factors: (1) that the employment qualification is reasonably related
to the essential operation of the job involved; and, (2) that there is a factual basis for
believing that all or substantially all persons meeting the qualification would be unable to
properly perform the duties of the job. (Richard G. Flood and Kelly A. Cahill, The River
Bend Decision and How It Affects Municipalities Personnel Rule and Regulations, Illinois
Municipal Review, June 1993, p. 7.)

The concept of a bona fide occupational qualification is not foreign in our jurisdiction.
We employ the standard of reasonableness of the company policy which is parallel to the
bona fide occupational qualification requirement. In the recent case of Duncan Association
of Detailman-PTGWO and Pedro Tecson v. Galxo Wllcome Philippines, Inc. G. R. No.
162994, September 17, 2004 we passed on the validity of the policy of a pharmaceutical
company prohibiting its employees from marrying employees of any competitor company.
We held that Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors. We
considered the prohibition against personal or marital relationships with employees of
competitor companies upon Glaxos employees reasonable under the circumstances because
relationships of that nature might compromise the interests of Glaxo. In laying down the
assailed company policy, we recognized that Glaxo only aims to protect its interests against
the possibility that a competitor company will gain access to its secrets and procedures.(Ibid)

The requirement that a company policy must be reasonable under the circumstances to
qualify as a valid exercise of management prerogative was also at issue in the 1997 case
of Philippine Telegraph and Telephone Company v. NLRC, G.R. No. 118978, May 23, 1997. In
said case, the employee was dismissed in violation of petitioners policy of disqualifying
from work any woman worker who contracts marriage. We held that the company policy
violates the right against discrimination afforded all women workers under Article 136 of the
Labor Code, but established a permissible exception, viz.:

[A] requirement that a woman employee must remain unmarried could be justified
as a bona fide occupational qualification, or BFOQ, where the particular
requirements of the job would justify the same, but not on the ground of a general
principle, such as the desirability of spreading work in the workplace. A requirement
of that nature would be valid provided it reflects an inherent quality reasonably
necessary for satisfactory job performance.(Ibid) (Emphases supplied.)

The cases of Duncan and PT&T instruct us that the requirement of reasonableness must
be clearly established to uphold the questioned employment policy. The employer has the
burden to prove the existence of a reasonable business necessity. The burden was
successfully discharged in Duncan but not in PT&T.

We do not find a reasonable business necessity in the case at bar.

xxx

It is significant to note that in the case at bar, respondents were hired after they were
found fit for the job, but were asked to resign when they married a co-employee. Petitioners
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 failed to show how the marriage of Simbol, then a Sheeting Machine Operator, to
Alma Dayrit, then an employee of the Repacking Section, could be detrimental to its
business operations. Neither did petitioners explain how this detriment will happen in the
case of Wilfreda Comia, then a Production Helper in the Selecting Department, who married
Howard Comia, then a helper in the cutter-machine. The policy is premised on the mere fear
that employees married to each other will be less efficient. If we uphold the questioned rule
without valid justification, the employer can create policies based on an unproven
presumption of a perceived danger at the expense of an employees right to security of
tenure.

Petitioners contend that their policy will apply only when one employee marries a co-
employee, but they are free to marry persons other than co-employees. The questioned
policy may not facially violate Article 136 of the Labor Code but it creates a disproportionate
effect and under the disparate impact theory, the only way it could pass judicial scrutiny is a
showing that it is reasonable despite the discriminatory, albeit disproportionate, effect. The
failure of petitioners to prove a legitimate business concern in imposing the questioned
policy cannot prejudice the employees right to be free from arbitrary discrimination based
upon stereotypes of married persons working together in one company. (See A. Giattina,
supra)

2. The Supreme Court in Duncan Association of Detailman-PTGWO v. Glaxo Wellcome

Philippines, Inc., G.R. No. 162994, September 17, 2004 was confronted a novel question, with
constitutional overtones, involving the validity of the policy of a pharmaceutical company
prohibiting its employees from marrying employees of any competitor company. Thus, the High
Court ruled in this wise:

No reversible error can be ascribed to the Court of Appeals when it ruled that Glaxo’s
policy prohibiting an employee from having a relationship with an employee of a competitor
company is a valid exercise of management prerogative.

Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors, especially so
that it and Astra are rival companies in the highly competitive pharmaceutical industry.

The prohibition against personal or marital relationships with employees of competitor

companies upon Glaxo’s employees is reasonable under the circumstances because
relationships of that nature might compromise the interests of the company. In laying down
the assailed company policy, Glaxo only aims to protect its interests against the possibility
that a competitor company will gain access to its secrets and procedures.

xxx

In any event, from the wordings of the contractual provision and the policy in its
employee handbook, it is clear that Glaxo does not impose an absolute prohibition against
relationships between its employees and those of competitor companies. Its employees are
free to cultivate relationships with and marry persons of their own choosing. What the
company merely seeks to avoid is a conflict of interest between the employee and the
company that may arise out of such relationships. As succinctly explained by the appellate
court, thus:

The policy being questioned is not a policy against marriage. An employee of the
company remains free to marry anyone of his or her choosing. The policy is not
aimed at restricting a personal prerogative that belongs only to the individual.
However, an employee’s personal decision does not detract the employer from
exercising management prerogatives to ensure maximum profit and business
success. . . (Decision of the Court of Appeals, Rollo, p. 28)

The Court of Appeals also correctly noted that the assailed company policy which forms
part of respondent’s Employee Code of Conduct and of its contracts with its employees, such
as that signed by Tescon, was made known to him prior to his employment. Tecson,
therefore, was aware of that restriction when he signed his employment contract and when
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 he entered into a relationship with Bettsy. Since Tecson knowingly and voluntarily entered
into a contract of employment with Glaxo, the stipulations therein have the force of law
between them and, thus, should be complied with in good faith." (Article 1159, Civil
Code. See National Sugar Trading and/or the Sugar Regulatory Administration v. Philippine
National Bank, G.R. No. 151218, January 18, 2003, 396 SCRA 528; Pilipinas Hino, Inc. v.
Court of Appeals, G.R. No. 126570, August 18, 2000, 338 SCRA 355) He is therefore estopped
from questioning said policy.

xxx

As noted earlier, the challenged policy has been implemented by Glaxo impartially and
disinterestedly for a long period of time. In the case at bar, the record shows that Glaxo gave
Tecson several chances to eliminate the conflict of interest brought about by his relationship
with Bettsy. When their relationship was still in its initial stage, Tecson’s supervisors at
Glaxo constantly reminded him about its effects on his employment with the company and
on the company’s interests. After Tecson married Bettsy, Glaxo gave him time to resolve the
conflict by either resigning from the company or asking his wife to resign from Astra. Glaxo
even expressed its desire to retain Tecson in its employ because of his satisfactory
performance and suggested that he ask Bettsy to resign from her company instead. Glaxo
likewise acceded to his repeated requests for more time to resolve the conflict of interest.
When the problem could not be resolved after several years of waiting, Glaxo was
constrained to reassign Tecson to a sales area different from that handled by his wife for
Astra. Notably, the Court did not terminate Tecson from employment but only reassigned
him to another area where his home province, Agusan del Sur, was included. In effecting
Tecson’s transfer, Glaxo even considered the welfare of Tecson’s family. Clearly, the
foregoing dispels any suspicion of unfairness and bad faith on the part of Glaxo. (Decision of
the Court of Appeals, Rollo, pp. 24-27)

3. In Philippine Telegraph and Telephone Company v. National Labor Relations

Commission G.R. No. 118978, May 23, 1997, the High Court resolved the issue on petitioner's policy
of not accepting or considering as disqualified from work any woman worker who contracts
marriage as follows:

In the case at bar, petitioner's policy of not accepting or considering as disqualified from
work any woman worker who contracts marriage runs afoul of the test of, and the right
against, discrimination, afforded all women workers by our labor laws and by no less than
the Constitution. Contrary to petitioner's assertion that it dismissed private respondent from
employment on account of her dishonesty, the record discloses clearly that her ties with the
company were dissolved principally because of the company's policy that married women
are not qualified for employment in PT & T, and not merely because of her supposed acts of
dishonesty.

xxx

Verily, private respondent's act of concealing the true nature of her status from PT & T
could not be properly characterized as willful or in bad faith as she was moved to act the
way she did mainly because she wanted to retain a permanent job in a stable company. In
other words, she was practically forced by that very same illegal company policy into
misrepresenting her civil status for fear of being disqualified from work. While loss of
confidence is a just cause for termination of employment, it should not be simulated.
(Mapalo vs. National Labor Relations Commission, et al., G.R. No. 107940, June 17, 1994,
233 SCRA 266; PNOC-Energy Development Corporation vs. National Labor Relations
Commission, et al., G.R. No. 79182, September 11, 1991, 201 SCRA 487) It must rest on an
actual breach of duty committed by the employee and not on the employer's caprices. (San
Antonio vs. National Labor Relations Commission, et al., G.R. No. 100829, November 21,
1995, 250 SCRA 359; Labor vs. National Labor Relations Commission, G.R. No. 110388,
September 14, 1995, 248 SCRA 183) Furthermore, it should never be used as a subterfuge for
causes which are improper, illegal, or unjustified. (Hospicio de San Jose de Basili vs.
National Labor Relations Commission, et al., G.R. No. 75997, August 18, 1988, 164 SCRA
516)

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 4. The government, to repeat, abhors any stipulation or policy in the nature of that
adopted by petitioner PT & T. The Labor Code state, in no uncertain terms, as follows:

Art. 136. Stipulation against marriage. — It shall be unlawful for an employer to

require as a condition of employment or continuation of employment that a woman
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 marriage.

xxx

It would be worthwhile to reflect upon and adopt here the rationalization in Zialcita, et
al. vs. Philippine Air Lines, Case No. RO4-3-3398-76; February 20, 1977 a decision that
emanated from the Office of the President. There, a policy of Philippine Air Lines requiring
that prospective flight attendants must be single and that they will be automatically
separated from the service once they marry was declared void, it being violative of the clear
mandate in Article 136 of the Labor Code with regard to discrimination against married
women. xxx

xxx

The judgment of the Court of Appeals in Gualberto, et al. vs. Marinduque Mining &
Industrial Corporation, CA-G.R. No. 52753-R, June 28, 1978 considered as void a policy of
the same nature. In said case, respondent, in dismissing from the service the complainant,
invoked a policy of the firm to consider female employees in the project it was undertaking
as separated the moment they get married due to lack of facilities for married women.
Respondent further claimed that complainant was employed in the project with an oral
understanding that her services would be terminated when she gets married. Branding the
policy of the employer as an example of "discriminatory chauvinism" tantamount to denying
equal employment opportunities to women simply on account of their sex, the appellate
court struck down said employer policy as unlawful in view of its repugnance to the Civil
Code, Presidential Decree No. 148 and the Constitution.

Under American jurisprudence, job requirements which establish employer preference

or conditions relating to the marital status of an employee are categorized as a "sex-plus"
discrimination where it is imposed on one sex and not on the other. Further, the same should
be evenly applied and must not inflict adverse effects on a racial or sexual group which is
protected by federal job discrimination laws. Employment rules that forbid or restrict the
employment of married women, but do not apply to married men, have been held to violate
Title VII of the United States Civil Rights Act of 1964, the main federal statute prohibiting job
discrimination against employees and applicants on the basis of, among other things, sex.
(45A Am. Jur. 2d, Job Discrimination, Sec. 506, p. 486)

Further, it is not relevant that the rule is not directed against all women but just against
married women. And, where the employer discriminates against married women, but not
against married men, the variable is sex and the discrimination is unlawful. (Ibid., id., id..)
Upon the other hand, a requirement that a woman employee must remain unmarried could
be justified as a "bona fide occupational qualification," or BFOQ, where the particular
requirements of the job would justify the same, but not on the ground of a general principle,
such as the desirability of spreading work in the workplace. A requirement of that nature
would be valid provided it reflects an inherent quality reasonably necessary for satisfactory
job performance. Thus, in one case, a no-marriage rule applicable to both male and female
flight attendants, was regarded as unlawful since the restriction was not related to the job
performance of the flight attendants. (Ibid., id., Sec. 507)

9
 ILLEGAL RECRUITMENT OF OVERSEAS FILIPINO WORKERS

Illegal recruitment constituting economic sabotage

Illegal recruitment by a syndicate and illegal recruitment in a large scale. (second paragraph
Section 6 of RA 8042, Migrant Workers and Overseas Filipinos Act of 1995, as amended by Section 5
of RA 10022, and Section 2, Rule IV, Omnibus Rules and Regulations Implementing the Migrant
Workers and Overseas Filipinos Act of 1995, as amended by Republic Act No. 10022) Illegal
recruitment by a syndicate or in a large scale does not define illegal recruitment. They are qualifying
circumstances to constitute an offense involving economic sabotage.

Illegal recruitment by a syndicate, how committed

Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or
more persons conspiring or confederating with one another. (second paragraph of Section 6 of RA
8042, Migrant Workers and Overseas Filipinos Act of 1995, as amended by Section 6 of RA 10022)

Elements of illegal recruitment by a syndicate

The following elements must occur:

1. The accused have no valid license or authority required by law to enable them to lawfully
engage in the recruitment and placement of workers.
2. The accused engaged in this activity of recruitment and placement by actually recruiting,
deploying and transporting.
3. Illegal recruitment was committed by three persons conspiring and confederating with one
another. (People vs. Hashim, G.R. Nos. 194255, June 13, 2012)
Illegal recruitment in a large scale, how committed

It is deemed committed in large scale if committed against three (3) or more persons
individually or as a group. (second paragraph Section 6 of RA 8042, Migrant Workers and Overseas
Filipinos Act of 1995, as amended by Section 5 of RA 10022)

Elements of illegal recruitment in a large scale

The three elements of the crime of illegal recruitment in large scale, to wit:

a) the offender has no valid license or authority required by law to enable him to lawfully
engage in recruitment and placement of workers;
b) the offender undertakes any of the activities within the meaning of "recruitment and
placement" under Article 13(b) of the Labor Code, or any of the prohibited practices enumerated
under Article 34 of the said Code (now Section 6 of Republic Act No. 8042); and
c) the offender committed the same against three or more persons, individually or as a group.
(People of the Philippines vs. Taguinay, G.R. No. 186132, February 27, 2012)

Distinctions of illegal recruitment under RA 8042, as amended by RA 10022, and the Labor Code

Illegal recruitment under Section RA 8042, Migrant Workers and Overseas Filipinos Act of
1995, as amended by RA 10022, broadened the concept of illegal recruitment (People vs. Gamboa,
G.R. No. 135382, September 29,2000), as it includes the commission of acts (letters a to n in the
second sentence of the first paragraph of Section 6 of RA 8042, as amended) whether committed by
any person, whether a non-licensee, non-holder of authority, licensee or holder of authority, and
provided for stiffer penalties, while illegal recruitment as defined by Article 38 (a) in relation to
Article 13 (b) and 34 of the Labor Code is committed only by a non-licensees or non-holders of
authority.

By its terms, persons who engage in “canvassing, enlisting, contracting, transporting,

utilizing, hiring, or procuring workers” without the appropriate government license or authority
are guilty of illegal recruitment whether or not they commit the wrongful acts enumerated in that
section. On the other hand, recruiters who engage in the canvassing, enlisting, etc. of OFWs,

10
although with the appropriate government license or authority, are guilty of illegal recruitment
only if they commit any of the wrongful acts enumerated in Section 6 of RA 8042 as amended.
(Republic of the Philippines vs. Philippine Association of Service Exporters Inc. (PASEI), G.R. No.
167590, November 12,2013 consolidated with other cases)

EXISTENCE OF EMPLOYER-EMPLOYEE RELATIONSHIP TEST

The traditional four-fold test of employer employee relationship

The four elements of an employment relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to
control the employee’s conduct. (Lakas sa Industriya ng Kapatirang Haligi ng Alyansa-
Pinagbuklod ng Manggagawang Promo ng Burlingame v. Burlingame Corporation, G.R. No. 162833,
June 15, 2007 524 SCRA 690, 695, citing Sy v. Court of Appeals, 398 SCRA 301, 307-308 (2003); Pacific
Consultants International Asia, Inc. v. Schonfeld, G.R. No. 166920, February 19, 2007, 516 SCRA 209,
228)

The most crucial and determinative factor of employment relationship

The significant factor in determining the relationship of the parties is the presence or absence
of supervisory authority to control the method and the details of performance of the service being
rendered, and the degree to which the principal may intervene to exercise such control. (AFP
Mutual Benefit Association, Inc. v. National Labor Relations Commission, 334 Phil. 712, 721-722
[1997]) In other words, the test is whether the employer controls or has reserved the right to control
the employee, not only as to the work done, but also as to the means and methods by which the
same is accomplished. (Lazaro v. Social Security Commission, 479 Phil. 385, 389-390 (2004),
citing Investment Planning Corporation v. Social Security System, 21 SCRA 924, 928-929 [1967])

Existence of employer-employee relationship cannot be expressly repudiated

It is axiomatic that the existence of an employer-employee relationship cannot be negated by

expressly repudiating it in the management contract and providing therein that the “employee” is
an independent contractor when the terms of agreement clearly show otherwise. For, the
employment status of a person is defined and prescribed by law and not by what the parties say it
should be. (Industrial Timber Corporation v. NLRC, G.R. No. 83616, 20 January 1989, 169 SCRA
341)

In Tabas v. California Manufacturing Co., Inc., G.R. No. L-80680 January 26, 1989, in finding
the existence of employer-employee relationship not on the basis of an agreement the Honorable
Supreme Court ruled in this wise: The existence of an employer-employees relation is a question of
law and being such, it cannot be made the subject of agreement. Hence, the fact that the manpower
supply agreement between Livi and California had specifically designated the former as the
petitioners' employer and had absolved the latter from any liability as an employer, will not erase
either party's obligations as an employer, if an employer-employee relation otherwise exists between
the workers and either firm. At any rate, since the agreement was between Livi and California, they
alone are bound by it, and the petitioners cannot be made to suffer from its adverse
consequences.”[Underscore ours supplied]

Kind of relationship under a "boundary system" arrangement

In a number of cases decided by the Supreme Court, (National Labor Union vs. Dinglasan, 98
Phil. 649, 652 (1996); Magboo vs. Bernardo, 7 SCRA 952, 954 (1963); Lantaco, Sr. vs. Llamas, 108
SCRA 502, 514 [1981]) it was ruled that the relationship between jeepney owners/operators on one
hand and jeepney drivers on the other under the boundary system is that of employer-employee and
not of lessor-lessee. It was explained that in the lease of chattels, the lessor loses complete control
over the chattel leased although the lessee cannot be reckless in the use thereof, otherwise he would
be responsible for the damages to the lessor. In the case of jeepney owners/operators and jeepney
drivers, the former exercise supervision and control over the latter. The management of the business
is in the owner's hands. The owner as holder of the certificate of public convenience must see to it
that the driver follows the route prescribed by the franchising authority and the rules promulgated

11
as regards its operation. Now, the fact that the drivers do not receive fixed wages but get only that in
excess of the so-called "boundary" they pay to the owner/operator is not sufficient to withdraw the
relationship between them from that of employer and employee. The above doctrine was applied by
analogy to the relationships between bus owner/operator and bus conductor, (Doce vs. Workmen's
Compensation Commission, 104 Phil. 946, 948 [1958]) auto-calesa owner/operator and driver,
(Citizens' League of Freeworkers vs. Abbas, 18 SCRA 71, 73 [1966]) and recently between taxi
owners/operators and taxi drivers. (Martinez vs. NLRC, 272 SCRA 793, 800 [1997])

Working scholars

There is no employer-employee relationship between students on one hand, and schools,

colleges or universities on the other, where there is written agreement between them under which
the former agree to work for the latter in exchange for the privilege to study free of charge, provided
the students are given real opportunities, including such facilities as may be reasonable and
necessary to finish their chosen courses under such agreement. (Section 14 Rule X Book III,
Omnibus Rules Implementing the Labor Code)

Two-tiered test: Economic dependence test and control test

In Sevilla v. Court of Appeals, G.R. Nos. L-41182-3, April 15, 1988, 160 SCRA 171, 179-180,
citing Visayan Stevedore Transportation Company v. Court of Industrial Relations, 125 Phil. 817,
820 (1967) the Supreme Court observed the need to consider the existing economic conditions
prevailing between the parties, in addition to the standard of right-of-control like the inclusion of the
employee in the payrolls, to give a clearer picture in determining the existence of an employer-
employee relationship based on an analysis of the totality of economic circumstances of the worker.
Thus, the determination of the relationship between employer and employee depends upon the
circumstances of the whole economic activity, such as: (1) the extent to which the services performed
are an integral part of the employer’s business; (2) the extent of the worker’s investment in
equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the
worker’s opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight
required for the success of the claimed independent enterprise; (6) the permanency and duration of
the relationship between the worker and the employer; and (7) the degree of dependency of the
worker upon the employer for his continued employment in that line of business.

The proper standard of economic dependence is whether the worker is dependent on the
alleged employer for his continued employment in that line of business. (Francisco v. NLRC G.R.
No. 170087, August 31,2006 citing the foreign authority of Halferty v. Pulse Drug Company, 821 F.2d
261 [5th Cir. 1987])

According to the Supreme Court in Francisco v. NLRC (Ibid) there are certain cases the
control test is not sufficient to give a complete picture of the relationship between the parties, owing
to the complexity of such a relationship where several positions have been held by the
worker. There are instances when, aside from the employer’s power to control the employee with
respect to the means and methods by which the work is to be accomplished, economic realities of the
employment relations help provide a comprehensive analysis of the true classification of the
individual, whether as employee, independent contractor, corporate officer or some other capacity.
Thus, the better approach would therefore be to adopt a two-tiered test involving: (1) the putative
employer’s power to control the employee with respect to the means and methods by which the
work is to be accomplished; and (2) the underlying economic realities of the activity or relationship.
This two-tiered test would provide us with a framework of analysis, which would take into
consideration the totality of circumstances surrounding the true nature of the relationship between
the parties. This is especially appropriate in this case where there is no written agreement or terms
of reference to base the relationship on; and due to the complexity of the relationship based on the
various positions and responsibilities given to the worker over the period of the latter’s
employment.

Applying the two-tiered test of the economic dependence test and control test in the said case
of Francisco v. NLRC, the Supreme Court held that by applying the control test, there is no doubt
that petitioner is an employee of Kasei Corporation because she was under the direct control and
supervision of Seiji Kamura, the corporation’s Technical Consultant. She reported for work
regularly and served in various capacities as Accountant, Liaison Officer, Technical Consultant,
12
Acting Manager and Corporate Secretary, with substantially the same job functions, that is,
rendering accounting and tax services to the company and performing functions necessary and
desirable for the proper operation of the corporation such as securing business permits and other
licenses over an indefinite period of engagement. Under the broader economic reality test, the
petitioner can likewise be said to be an employee of respondent corporation because she had served
the company for six years before her dismissal, receiving check vouchers indicating her
salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social
Security contributions from August 1, 1999 to December 18, 2000. When petitioner was designated
General Manager, respondent corporation made a report to the SSS signed by Irene
Ballesteros. Petitioner’s membership in the SSS as manifested by a copy of the SSS specimen
signature card which was signed by the President of Kasei Corporation and the inclusion of her
name in the on-line inquiry system of the SSS evinces the existence of an employer-employee
relationship between petitioner and respondent corporation. It is therefore apparent that petitioner
is economically dependent on respondent corporation for her continued employment in the latter’s
line of business.

In Orozco v. Court of Appeals, G.R. No. 155207, August 13, 2008, the Supreme Court held the
absence of employer-employee relationship between petitioner Orozco and Philippine Dialy
Inquirer (PDI) on the basis of economic dependence test. This is by noting that petitioner’s main
occupation is not as a columnist for respondent but as a women’s rights advocate working in
various women’s organizations. Likewise, she herself admits that she also contributes articles to
other publications. Thus, it cannot be said that petitioner was dependent on respondent PDI for her
continued employment in respondent’s line of business.
Employer-employee relationship in job contracting and labor-only contracting

In Vigilla v. Philippine College of Criminology, Inc., G.R. No. 200094, June 10, 2013 citing
Philippine Bank of Communications v. NLRC, 230 Phil. 430 (1986) the Supreme Court explained the
legal effects of a job-only contracting and labor-only contracting, to wit:

Under the general rule set out in the first and second paragraphs of Article 106, an
employer who enters into a contract with a contractor for the performance of work for the
employer, does not thereby create an employer-employees relationship between himself and
the employees of the contractor. Thus, the employees of the contractor remain the
contractor's employees and his alone. Nonetheless when a contractor fails to pay the wages
of his employees in accordance with the Labor Code, the employer who contracted out the
job to the contractor becomes jointly and severally liable with his contractor to the employees
of the latter "to the extent of the work performed under the contract" as such employer were
the employer of the contractor's employees. The law itself, in other words, establishes an
employer-employee relationship between the employer and the job contractor's employees
for a limited purpose, i.e., in order to ensure that the latter get paid the wages due to them.

A similar situation obtains where there is "labor only" contracting. The "labor-only"
contractor-i.e "the person or intermediary" - is considered "merely as an agent of the
employer." The employer is made by the statute responsible to the employees of the "labor
only" contractor as if such employees had been directly employed by the employer. Thus,
where "labor-only" contracting exists in a given case, the statute itself implies or establishes
an employer-employee relationship between the employer (the owner of the project) and the
employees of the "labor only" contractor, this time for a comprehensive purpose: "employer
for purposes of this Code, to prevent any violation or circumvention of any provision of this
Code." The law in effect holds both the employer and the "labor-only" contractor responsible
to the latter's employees for the more effective safeguarding of the employees' rights under
the Labor Code. (Id. at 439-440) [Emphasis supplied].

13
 REQUIREMENTS FOR VALID LABOR-ONLY CONTRACTING

Articles 106-109 of the Labor Code

The arrangements which are excluded from the coverage of D.O. 174, Series of 2017

D.O. 174, Series of 2017 implementing Articles 106 to 109 of the Labor Code applies only to
trilateral relationship which characterizes contracting or subcontracting arrangement. As
clarified by Department Circular No. 01, Series of 2018, the following are excluded:

1. It does not contemplate to cover information technology-enabled services involving an

entire or specific business process such as:

• Business Process Outsourcing;

• Knowledge Process Outsourcing;
• Legal Process Outsourcing;
• IT Infrastructure Outsourcing;
• Application Development;
• Hardware and/or Software Support;
• Medical Transcription;
• Animation Services; and
• Back Office Operations/Support.

2. Contracting or subcontracting arrangements in the Construction Industry under the

licensing coverage of the Philippine Construction Accreditation Board (PCAB), shall be
governed by D.O. No. 19, Series of 1993 (Guidelines Governing the Employment of Workers in
the Construction Industry) and D.O. No. 13, Series of 1998 (Guidelines Governing the
Occupational Safety and Health in the Construction Industry); and DOLE-DPWH-DILG-DTI
and PCAB Memorandum of Agreement-Joint Administrative Order No. 1, Series of 2011 on
coordination and harmonization of policies and programs on occupational safety and health in
the construction industry.

3. Except for the registration requirements as provided for in D.O. No. 174, Series of 2017,
contracting or subcontracting arrangements in the private security industry shall be governed
by D.O. No. 150, Series of 2016. (Revised Guidelines Governing the Employment and Working
Conditions of Security Guards and other Private Security Personnel in the Private Security Industry)

4. D.O. No. 174, Series of 2017 also does not contemplate to cover contractual relationships
such as in contract of sale or purchase, contract of lease, contract of management, operation,
and maintenance and such other contracts governed by the Civil Code of the Philippines and
other special laws.

5. D.O. No 174, Series of 2017 does not also cover the contracting out of job or work to a
professional or individual with unique skills and talents who himself or herself performs the
job or work for the principal.

The burden to prove substantial capital, investment, etc.

The law casts the burden on the contractor to prove that it has substantial capital,
investment, tools, etc. Employees, on the other hand, need not prove that the contractor does
not have substantial capital, investment, and tools to engage in job-contracting. (Babas v.
Lorenzo Shipping Corporation, G.R. No. 186091, December 15, 2010)

Effect of failing to discharge the burden of proof on substantial capital

"Generally, the presumption is that the contractor is a labor-only [contractor] unless such
contractor overcomes the burden of proving that it has the substantial capital, investment,
tools and the like." (Valencia v. Classique Vinyl products Corporation, G.R. No. 206390, January 30,
2017)

14
The elements of labor-only contracting

Labor-only contracting, which is totally prohibited, refers to an arrangement where:

a) i. The contractor or subcontractor does not have substantial capital, or

ii. The contractor or subcontractor does not have investments in the form of tools,
equipment, machineries, supervision, work premises, among others, and
iii. The contractor’s or subcontractor’s employees recruited and placed are performing
activities which are directly related to the main business operation of the principal; or
b) The contractor or subcontractor does not exercise the right to control over the
performance of the work of the employee. (Section 5, D.O. No. 174, Series of 2017)

The other illicit forms of employment arrangements

The following are hereby declared prohibited for being contrary to the law or public policy:

a) When the principal farms out work to a “Cabo.” “Cabo” refers to a person or group of
persons or to a labor group which, under 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. (Section 3[b], D.O. No. 174, Series of 2017)
b) Contracting out of a job or work through an in-house agency.
c) Contracting out of job or work through an in-house cooperative which merely supplies
workers to the principal.
d) Contracting out of job or work by reason of a strike or lockout whether actual or imminent.
e) 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.
f) Requiring the contractor’s/subcontractor’s employees to perform functions which are
currently being performed by the regular employees of the principal.
g) 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 member of a cooperative.
h) Repeated hiring by the contractor/subcontractor of employees under an employment
contract of short duration
i) 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.
j) Such other practices, schemes or employment arrangements designed to circumvent the
right of workers to security of tenure. (Section 6, D.O. No. 174, Series of 2017)

When is the principal deemed to be the direct employer of the contractor’s or

subcontractor’s employees

In the event that there is a finding that the contractor or subcontractor is engaged in labor-
only contracting under Section 5 and other illicit forms of employment arrangements under
Section 6 of these Rules, the principal shall be deemed the direct employer of the contractor’s
or subcontractor’s employees. (Section 7, D.O. No. 174, Series of 2017)

The elements of permissible contracting or subcontracting arrangements (job contracting)

under Article 106 of the Labor Code

Contracting or subcontracting shall only be allowed if all the following circumstances

concur:

a) The contractor or subcontractor is engaged in a distinct and independent business and

undertakes to perform the job or work on its own responsibility, according to its own
manner and method;
15
b) The contractor or subcontractor has substantial capital to carry out the job farmed out by
the principal on his account, manner and method, investment in the form of tools,
equipment, machinery and supervision;

c) In performing the work farmed out, the contractor or subcontractor is free from the control
and/or direction of the principal in all matters connected with the performance of the work
except as to the result thereto; and

d) The Service Agreement ensures compliance with all the rights and benefits for all the
employees of the contractor or subcontractor under the labor laws. (Section 8, D.O. No. 174,
Series of 2017)

The required “substantial capital”?

“Substantial capital” – refers to paid-up capital stock/shares at least Five Million Pesos
(P5,000,000.00) in the case of corporations, partnerships and cooperatives; in the case of single
proprietorship, a net worth of at least Five Million Pesos (P3,000,000.00). (Section 3 (l), D.O. No.
174, Series of 2017)

The rights of contractor’s/subcontractor’s employees as stated by D.O. No. 174-17?

All contractor’s/subcontractor’s employees shall be entitled to security of tenure and all the
rights and privileges as provided for in the Labor Code, as amended, to include the following:

(a) Safe and healthful working conditions;

(b) Labor standards such as but not limited to service incentive leave, rest days, overtime
pay, holiday pay, 13th month pay and separation pay;
(c) Retirement benefits under the SSS, or retirement plans of the contractor/subcontractor;
(d) Social security and welfare benefits; and
(e) Self-organization, collective bargaining and peaceful concerted activities including the
right to strike. (Section 10, D.O. No. 174, Series of 2017)

The mandatory stipulations required by D.O. No. 174-17 in the employment contract
between the contractor/subcontractor and its employees and the service agreement
between the principal and the contractor

Employment contract between the contractor/subcontractor and its employees.

Notwithstanding any oral or written stipulations to the contrary, the contractor/subcontractor
between the contractor and its employees shall be governed by the provisions of Articles 294
and 295 of the Labor Code, as amended, including the provisions on general labor standards.
It shall include the following stipulations:

i The specific description of the job or work to be performed by the employee; and
ii The place of work and terms and conditions of employment, including a statement of
the wage rate applicable to the individual employee.

The contractor/subcontractor shall inform the employee of the foregoing stipulations in

writing on or before the first day of his/her employment.

Service Agreement between the principal and the contractor. The Service Agreement shall
include the following:

i. The specific description of the job or work being subcontracted, including its term or
duration.
ii. The place of work and terms and conditions governing the contracting arrangement,
to include the agreed amount of the contracted job or work as well as the standard
administrative fee of not less than ten percent (10%) of the total contract cost; and
iii. A provision on the issuance of the bond/s defined under Section 3(a) renewable
every year. (Section 11, D.O. No. 174, Series of 2017)

16
 The effects of violation of the provisions on the rights of contractor’s employees and the
required stipulations in the employment contract and service agreement under D.O. No.
174-17

A finding of violation of either, shall render the principal the direct employer of the
employees of the contractor or subcontractor, pursuant to Article 109 of the Labor Code, as
amended. (Section 12, D.O. No. 174, Series of 2017)

Job contracting/subcontracting from “labor-only” contracting, distinguished

The following cases distinguished job-contracting and labor-only contracting:

1. The Supreme Court in Polyfoam-RGC International Corporation vs. Concepcion, G. R.

No. 172349, June 13,2012 citing Sasan, Sr. v. National Labor Relations Commission 4th Division,
G.R. No. 176240, October 17, 2008, 569 SCRA 670 distinguished permissible job contracting or
subcontracting from “labor-only” contracting, to wit:

“Permissible job contracting or subcontracting refers to an arrangement whereby a

principal agrees to put out or farm out to a contractor or subcontractor the performance or
completion of a specific job, work or service within a definite or predetermined period,
regardless of whether such job, work or service is to be performed or completed within or
outside the premises of the principal. A person is considered engaged in legitimate job
contracting or subcontracting if the following conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent business

and undertakes to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the control and
direction of the principal in all matters connected with the performance of the work
except as to the results thereof;
(b) The contractor or subcontractor has substantial capital or investment; and
(c) The agreement between the principal and 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
and welfare benefits.

In contrast, labor-only contracting, a prohibited act, is an arrangement where the

contractor or subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal. In labor-only contracting, the following elements are present:

(a) The contractor or subcontractor does not have substantial capital or investment
to actually perform the job, work or service under its own account and responsibility;
and

(b) The employees recruited, supplied or placed by such contractor or

subcontractor are performing activities which are directly related to the main business of
the principal.” (Sasan, Sr. v. National Labor Relations Commission 4th Division, supra,
at pp. 689-690. [Citations omitted])

The following distinctions was also observed in PCI Automation Center, Inc. v. NLRC, G.R.
No. 115920, January 29, 1996 as follows:

In legitimate job contracting, no employer-employee relationship exists between the

employees of the job contractor and the principal employer. Even then, the principal employer
becomes jointly and severally liable with the job contractor for the payment of the employees’ wages
whenever the contractor fails to pay the same. In such case, the law creates an employer-employee
relationship between the principal employer and the job contractor’s employees for a limited
purpose, that is, to ensure that the employees are paid their wages. Other than the payment of
wages, the principal employer is not responsible for any claim made by the employees. (Philippine
Bank of Communications vs. NLRC, 146 SCRA 347 [1986])

17
 On the other hand, in labor-only contracting, an employer-employee relationship is created by
law between the principal employer and the employees of the labor-only contractor. In this case, the
labor-only contractor is considered merely an agent of the principal employer. The principal
employer is responsible to the employees of the labor-only contractor as if such employees had been
directly employed by the principal employer. The principal employer therefore becomes solidarily
liable with the labor-only contractor for all the rightful claims of the employees. (Philippine Bank of
Communications vs. NLRC, 146 SCRA 347 [1986])

Thus, in legitimate job contracting, the principal employer is considered only an indirect
employer, (Article 107, Labor Code, as amended) while in labor-only contracting, the principal
employer is considered the direct employer of the employees. (last paragraph of Article 106, Labor
Code, as amended)

In short, the legitimate job contractor provides services while the labor-only contractor
provides only manpower. The legitimate job contractor undertakes to perform a specific job for the
principal employer while the labor-only contractor merely provides the personnel to work for the
principal employer.

Solidary liability in labor-only contracting and job-contracting, distinguished

The case of Vigilla v. Philippine College of Criminology, Inc. G. R. No. 200094, June 10, 2013,
also gave the distinctions between solidary liability in legitimate job contracting and in labor-only
contracting. Thus, the Supreme Court said:

Jurisprudence is also replete with pronouncements that a job-only contractor is solidarily

liable with the employer. One of these is the case of Philippine Bank of Communications v.
NLRC, 230 Phil. 430 (1986), where this Court explained the legal effects of a job-only
contracting, to wit:

Under the general rule set out in the first and second paragraphs of Article 106,
an employer who enters into a contract with a contractor for the performance of
work for the employer, does not thereby create an employer-employees relationship
between himself and the employees of the contractor. Thus, the employees of the
contractor remain the contractor's employees and his alone. Nonetheless when a
contractor fails to pay the wages of his employees in accordance with the Labor
Code, the employer who contracted out the job to the contractor becomes jointly and
severally liable with his contractor to the employees of the latter "to the extent of the
work performed under the contract" as such employer were the employer of the
contractor's employees. The law itself, in other words, establishes an employer-
employee relationship between the employer and the job contractor's employees for
a limited purpose, i.e., in order to ensure that the latter get paid the wages due to
them.

A similar situation obtains where there is "labor only" contracting. The "labor-
only" contractor-i.e "the person or intermediary" - is considered "merely as an agent
of the employer." The employer is made by the statute responsible to the employees
of the "labor only" contractor as if such employees had been directly employed by
the employer. Thus, where "labor-only" contracting exists in a given case, the statute
itself implies or establishes an employer-employee relationship between the
employer (the owner of the project) and the employees of the "labor only" contractor,
this time for a comprehensive purpose: "employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code." The law in
effect holds both the employer and the "labor-only" contractor responsible to the
latter's employees for the more effective safeguarding of the employees' rights under
the Labor Code. (Id. at 439-440) [Emphasis supplied].

The case of San Miguel Corporation v. MAERC Integrated Services, Inc., 453 Phil.
543 (2003) also recognized this solidary liability between a labor-only contractor and the
employer. In the said case, this Court gave the distinctions between solidary liability in
legitimate job contracting and in labor-only contracting, to wit:

18
 In legitimate job contracting, the law creates an employer-employee
relationship for a limited purpose, i.e., to ensure that the employees are paid
their wages. The principal employer becomes jointly and severally liable with the
job contractor only for the payment of the employees' wages whenever the
contractor fails to pay the same. Other than that, the principal employer is not
responsible for any claim made by the employees.

On the other hand, in labor-only contracting, the statute creates an employer-

employee 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. The principal employer therefore becomes solidarily liable with the
labor-only contractor for all the rightful claims of the employees. (Id. at 566-567)
[Emphases supplied; Citations omitted]

Purpose of joint and several liability of employer or principal

The case of San Miguel Corporation v. MAERC Integrated Services, Inc., G.R. No. 144672, July
10, 2003, explained the purpose of the enactment of the joint and several liability of the employer or
principal:

This statutory scheme is designed to give the workers ample protection, consonant with
labor and social justice provisions of the 1987 Constitution. (Manila Electric Company v.
Benamira, 501 Phil. 621, 644 (2005); Mariveles Shipyard Corp. v. Court of Appeals, 461 Phil.
249, 267 [2003])

This Court’s pronouncement in Rosewood Processing, Inc. v. NLRC, 352 Phil. 1013
(1998) is noteworthy:

The joint and several liability of the employer or principal was enacted to ensure
compliance with the provisions of the Code, principally those on statutory minimum
wage. The contractor or subcontractor is made liable by virtue of his or her status as
a direct employer, and the principal as the indirect employer of the contractor’s
employees. This liability facilitates, if not guarantees, payment of the workers’
compensation, thus, giving the workers ample protection as mandated by the 1987
Constitution. This is not unduly burdensome to the employer. Should the indirect
employer be constrained to pay the workers, it can recover whatever amount it had
paid in accordance with the terms of the service contract between itself and the
contractor. (Id. at 1033-1034. [Citations omitted])

Article 107 distinguished from Article 106 and interpretation of "not an employer"

In Baguio v. NLRC, G.R. No. 79004-08 October 4, 1991 the Supreme Court laid down the
distinction between Article 106 and 107 of the Labor Code as follows:

The distinction between Articles 106 and 107 was in the fact that Article 106 deals with
"labor-only" contracting. Here, by operation of law, the contractor is merely considered as an
agent of the employer, who is deemed "responsible to the workers to the same extent as if
the latter were directly employed by him." On the other hand, Article 107 deals with "job
contracting." In the latter situation, while the contractor himself is the direct employer of the
employees, the employer is deemed, by operation of law, as an indirect employer.

In other words, the phrase "not an employer" found in Article 107 must be read in
conjunction with Article 106. A contrary interpretation would render the provisions of
Article 107 meaningless considering that everytime an employer engages a contractor, the
latter is always acting in the interest of the former, whether directly or indirectly, in relation
to his employees.

It should be recalled that a finding that a contractor is a "labor-only" contractor is

equivalent to declaring that there is an employer-employee relationship between the owner
19
 of the project and the employees of the "labor-only" contractor (Associated Anglo-American
Tobacco Corp. v. Clave, G.R. No. 50915, 30 August 1990, 189 SCRA 127; Industrial Timber
Corp. v. NLRC, G.R. No. 83616, 20 January 1989, 169 SCRA 341). This is evidently because,
as heretofore stated, the "labor-only" contractor is considered as a mere agent of an
employer. In contrast, in "job contracting," no employer-employee relationship exists
between the owner and the employees of his contractor. The owner of the project is not the
direct employer but merely an indirect employer, by operation of law, of his contractor's
employees.

Remedies of principal on its being made liable to indirect employees

In Government Service Insurance System v. National Labor Relations Commission, G.R. No.
180045, November 17, 2010 it was held:

The principal is made liable to its indirect employees because, after all, it can protect
itself from irresponsible contractors by withholding payment of such sums that are due the
employees and by paying the employees directly, or by requiring a bond from the contractor
or subcontractor for this purpose. (Rosewood Processing, Inc. v. NLRC, 352 Phil. 1013
[1998])

xxx

It should be understood, though, that the solidary liability of petitioner does not
preclude the application of Article 1217 of the Civil Code on the right of reimbursement from
its co-debtor, viz.: ( Manila Electric Company v. Benamira, 501 Phil. 621, 644 [2005])

Art. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may choose
which offer to accept.

He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment
is made before the debt is due, no interest for the intervening period may be
demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse
his share to the debtor paying the obligation, such share shall be borne by all his co-
debtors, in proportion to the debt of each.

REMEDIES (LABOR STANDARDS VIOLATIONS)

Wage distortion

A wage distortion shall mean a situation where an increase in prescribed wage rates results
in the elimination or severe contraction of intentional quantitative differences in wage or salary
rates between and among employee groups in an establishment as to effectively obliterate the
distinctions embodied in such wage structure based on skills, length of service, or other logical
bases of differentiation. (Seventh paragraph, Article 124, as amended by RA 6727, June 9, 1989)
Otherwise stated, wage distortion means the disappearance or virtual disappearance of pay
differentials between lower and higher positions in an enterprise because of compliance with a
wage order. (P.I. Manufacturing, Incorporated v. P.I. Manufacturing Supervisors and Foremen
Association, G.R. No. 167217, February 4, 2008)

Wage distortion is not a ground for strike/lockout

In the particular instance of "distortions of the wage structure within an establishment"

resulting from "the application of any prescribed wage increase by virtue of a law or wage
order," Section 3 of RA 6727 prescribes a specific, detailed, and comprehensive procedure for
the correction thereof, thereby implicitly excluding strikes or lockouts or other concerted
activities as modes of settlement of the issue.

20
 xxx xxx xxx

The legislative intent that solution of the problem of wage distortions shall be sought by
voluntary negotiation or arbitration, and not by strikes, lockouts, or other concerted activities
of the employees or management, is made clear in the rules implementing RA 6727 issued by
the Secretary of Labor and Employment (on July 7, 1989, with effect as of July 1, 1989)
pursuant to the authority granted by Section 13 of the Act. Section 16, Chapter I of these
implementing rules, after reiterating the policy that wage distortions be first settled
voluntarily by the parties and eventually by compulsory arbitration, declares that, "Any issue
involving wage distortion shall not be a ground for a strike/lockout." (Ilaw at Buklod ng Manggagawa
(IBM) v. NLRC, G.R. No. 91980, June 27, 1991)

The procedural remedies to correct a wage distortion

Where wage distortion arises from the implementation of wage increase, it involves
jurisdictional and procedural remedy for its correction. The procedure are as follows:

1. In case there is a CBA/organized establishment

Where the application of any prescribed wage increase by virtue of a law or wage order
issued by any Regional Board results in distortions of the wage structure within an
establishment, the employer and the union shall negotiate to correct the distortions. Any
dispute arising from wage distortions shall be resolved through the grievance procedure
under their collective bargaining agreement and, if it remains unresolved, through voluntary
arbitration. Unless otherwise agreed by the parties in writing, such dispute shall be decided by
the voluntary arbitrators within ten (10) calendar days from the time said dispute was referred
to voluntary arbitration. (Fourth paragraph, Article 124, Labor Code)

2. In case there is no CBA/unorganized establishment

In cases where there are no collective agreements or recognized labor unions, the employers
and workers shall endeavor to correct such distortions. Any dispute arising therefrom shall be
settled through the National Conciliation and Mediation Board and, if it remains unresolved
after ten (10) calendar days of conciliation, shall be referred to the appropriate branch of the
National Labor Relations Commission (NLRC). It shall be mandatory for the NLRC to conduct
continuous hearings and decide the dispute within twenty (20) calendar days from the time said
dispute is submitted for compulsory arbitration. (Fifth paragraph, Article 124, Labor Code)

Visitorial and Enforcement Power

Visitorial power

The visitorial power of the Secretary of Labor and Employment or his duly authorized
representatives, including Labor Regulations Officers or Industrial Safety Engineers, includes
the following:

1. access to employer's records and premises at any time of the day or night whenever
work is being undertaken therein, and right to copy therefrom;
2. to question any employee, and
3. to investigate any fact, condition or matter relevant to the enforcement of any
provision of the Code and of any labor law, wage order or rules and regulations issued
pursuant thereto. (Article 128 (a), Labor Code and Section 1, Rule X, Book III, Rules to
Implement the Labor Code)

Enforcement power

The enforcement power includes the following:

1. To issue compliance order - Notwithstanding the provisions of Articles 129 and 217 of
this Code to the contrary, and in cases where the relationship of employer-employee still
21
exists, the Secretary of Labor and Employment or his duly authorized representatives shall
have the power to issue compliance orders to give effect to the labor standards provisions of
this Code and other labor legislation based on the findings of labor employment and
enforcement officers or industrial safety engineers made in the course of inspection. (Article
128 (b), Labor Code, as amended by Republic Act No. 7730, June 2, 1994, and Section 2 [a],
Rule X, Book III, Rules to Implement the Labor Code)

2. To issue writs of execution - The Secretary or his duly authorized representatives shall
issue writs of execution to the appropriate authority for the enforcement of their orders,
except in cases where the employer contests the findings of the labor employment and
enforcement officer and raises issues supported by documentary proofs which were not
considered in the course of inspection. (Article 128 (b), Labor Code, as amended by Republic
Act No. 7730, June 2, 1994, and Section 2 [b], Rule X, Book III, Rules to Implement the Labor
Code)

According to the implementing rules, in line with the provisions of Article 128 in
relation to Articles 289 and 290 of the Labor Code as amended in cases, however, where the
employer contests the findings of the Labor Standards and Welfare Officers and raises issues
which cannot be resolved without considering evidentiary matters that are not verifiable in
the normal course of inspection, the Regional Director concerned shall indorse the case to the
appropriate arbitration branch of the National Labor Relations Commission for adjudication.
(Section 2 [a], Rule X, Book III, Rules to Implement the Labor Code)

3. Enforcement power on health and safety of workers which includes the following:

1. To issue order of stoppage of work or suspension of operations - The Secretary of

Labor and Employment may likewise order stoppage of work or suspension of
operations of any unit or department of an establishment when non-compliance with
the law or implementing rules and regulations poses grave and imminent danger to the
health and safety of workers in the workplace. (Article 128 [c], Labor Code and Section 3
[a], Rule X, Book III, Rules to Implement the Labor Code)

2. Lifting of order of stoppage of work or suspension of operations - Within twenty-

four hours, a hearing shall be conducted to determine whether an order for the stoppage
of work or suspension of operations shall be lifted or not. In case the violation is
attributable to the fault of the employer, he shall pay the employees concerned their
salaries or wages during the period of such stoppage of work or suspension of
operation. (Article 128 [c], Labor Code and Section 3 [b], Rule X, Book III, Rules to
Implement the Labor Code)

4. To keep and maintain employment records - The Secretary of Labor and Employment
may, by appropriate regulations, require employers to keep and maintain such employment
records as may be necessary in aid of his visitorial and enforcement powers under this Code.

Power of review

The power of review are as follows:

1. The Secretary of Labor and Employment, at his own initiative or upon request of the
employer and/or employee, may review the order of the Regional Director. The order of the
Regional Director shall be immediately final and executory unless stayed by the Secretary of
Labor and Employment upon posting by the employer of a reasonable cash or surety bond
as fixed by the Regional Director. (last paragraph of Article 128 (b), Labor Code, as amended
by Republic Act No. 7730, June 2, 1994,Section 4 [a], Rule X, Book III, Rules to Implement
the Labor Code)

2. In aid of his power of review, the Secretary of Labor and Employment may direct the
Bureau of Working Conditions to evaluate the findings or orders of the Regional Director.
The decision of the Secretary of Labor and Employment shall be final and executory. (Section
4 [b], Rule X, Book III, Rules to Implement the Labor Code)

22
The significance of the phrase “in cases of employer-employee relationship still exists” stated in
Article 128[b] of the Labor Code

The provision is quite explicit that the visitorial and enforcement power of the DOLE
comes into play only “in cases when the relationship of employer-employee still exists.” It also
underscores the avowed objective underlying the grant of power to the DOLE which is “to
give effect to the labor standard provision of this Code and other labor legislation.” Of course,
a person’s entitlement to labor standard benefits under the labor laws presupposes the
existence of employer-employee relationship in the first place.

The clause “in cases where the relationship of employer-employee still exists” signifies that
the employer-employee relationship must have existed even before the emergence of the
controversy. Necessarily, the DOLE’s power does not apply in two instances, namely: (a)
where the employer-employee relationship has ceased; and (b) where no such relationship has
ever existed. (Peoples Broadcasting (Bombo Radyo Phils., Inc.) v. Secretary of the Department of
Labor and Employment, G.R. No. 179652, May 8, 2009, 587 SCRA 724)

The DOLE can make a determination of whether or not an employer-employee relationship exists
in the exercise of its visitorial and enforcement power under Article 128 of the Labor Code

The DOLE can determine the existence of an employer-employee relationship. No

limitation in the law was placed upon the power of the DOLE to determine the existence of an
employer-employee relationship. No procedure was laid down where the DOLE would only
make a preliminary finding, that the power was primarily held by the NLRC. The law did not
say that the DOLE would first seek the NLRC’s determination of the existence of an employer-
employee relationship, or that should the existence of the employer-employee relationship be
disputed, the DOLE would refer the matter to the NLRC. The DOLE must have the power to
determine whether or not an employer-employee relationship exists, and from there to decide
whether or not to issue compliance orders in accordance with Article 128(b) of the Labor Code,
as amended by RA 7730. 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.

Under Article 128(b) of the Labor Code, as amended by RA 7730, the DOLE is fully
empowered to make a determination as to the existence of an employer-employee relationship
in the exercise of its visitorial and enforcement power, subject to judicial review, not review by
the NLRC. (People’s Broadcasting Service [Bombo Radyo Phils., Inc.] v. The Secretary of the
Department of Labor and Employment, the Regional Director, DOLE Region VII, and Jandeleon
Juezan, G.R. No. 179652, March 6, 2012)

“Exception clause,” in the last sentence of Article 128 (b) of the Labor Code

In the case of Meteoro v. Creative Creatures, Inc., G. R. No. 171275, July 13, 2009 it was ruled
that the power of the Regional Director to hear and decide the monetary claims of employees is not
absolute. The last sentence of Article 128 (b) of the Labor Code, otherwise known as the “exception
clause,” provides an instance when the Regional Director or his representatives may be divested of
jurisdiction over a labor standards case. Thus, the High Court explained:

Under prevailing jurisprudence, the so-called “exception clause” has the following
elements, all of which must concur:

“(a) that the employer contests the findings of the labor regulations officer and
raises issues thereon;
(b) that in order to resolve such issues, there is a need to examine evidentiary
matters; and
(c) that such matters are not verifiable in the normal course of inspection.” (Bay
Haven, Inc., et al. v. Abuan, et al., supra; Ex-Bataan Veterans Security Agency, Inc. v.
Laguesma, supra, at p. 663; Batong Buhay Gold Mines, Inc. v. Sec. Dela Serna, 370

23
 Phil. 872, 887; 312 SCRA 22, 33 (1999); SSK Parts Corporation v. Camas, G.R. No.
85934, January 30, 1990, 181 SCRA 675, 678 [1990])

Adjudicatory powers under Article 129 of the Labor Code

Article 129 of the Labor Code provides for the adjudicatory powers of the Regional Director
or any duly authorized Hearing Officer of the Department of Labor and Employment through
summary proceedings and after due notice to hear and decide involving recovery of wages and
other monetary claims arising from employer-employee relationship presented by an employee or
person employed in domestic/household service, or househelper and the aggregate money claim,
including legal interest, of each employee or househelper does not exceed Five Thousand Pesos
(P5,000.00).

Requisites for the exercise of adjudicatory powers under Article 129

In Rajah Humabon Hotel, Inc. v. Trajano, G. R. Nos. 100222-23, September 14, 1993 the
Supreme Court laid down the requisites for the exercise of jurisdiction of the Regional Director or
hearing officers under Article 129 of the Labor Code as follows:

Following the consistent doctrine announced by this Court in South Motorists

Enterprises vs. Tosoc (181 SCRA 386 [1990]), Brokenshire Memorial Hospital Inc. vs.
Minister of Labor and Employment (182 SCRA 5 [1990]), Servando's Inc. vs. Secretary of
Labor and Employment (184 SCRA 664 [1990]); 198 SCRA 156 [1991], Baritua vs. Secretary of
the Department of Labor and Employment (204 SCRA 332 [1991]), and lately in Midland
Insurance Corporation vs. Secretary of Labor and Employment (214 SCRA 578 [1992]), there
is no doubt that the regional directors under Republic Act No. 6715, can try money claims
only if the following requisites concur:

1. The claim is presented by an employee or person employed in domestic or household

service, or househelper under the code;
2. The claimant, no longer being employed, does not seek reinstatement; and
3. The aggregate money claim of the employee or housekeeper does not exceed five
thousand pesos (P5,000.00).

TERMINATION OF EMPLOYMENT

The two aspects of statutory due process under the Labor Code

The two aspects of statutory due process under the Labor Code are the following:

1. Substantive, i.e., the valid and authorized causes of employment termination under the
Labor Code; and
2. Procedural due process procedural, i.e., the manner of dismissal. The requirements for
dismissal are found in the Implementing Rules of P.D. 442, as amended, otherwise known as
the Labor Code of the Philippines in Book VI (Agabon v. NLRC, G.R. No. 158693, November
17,2004)

The statutory procedural due process in termination of employment

The procedural due process in termination of employment on various instances are as

follows:

1. Termination of Employment Based on Just Causes. As defined in Article 297 of the Labor
Code, as amended, the requirement of two written notices served on the employee shall
observe the following:

(a) The first written notice should contain:

1. The specific causes or grounds for termination as provided for under Article 297 of the
Labor Code, as amended, and company policies, if any;

24
 2. Detailed narration of the facts and circumstances that will serve as basis for the charge
against the employee. A general description of the charge will not suffice; and
3. A directive that the employee is given opportunity to submit a written explanation
within a reasonable period.

“Reasonable period” should be construed as a period of at least five (5) calendar days from
receipt of the notice to give the employee an opportunity to study the accusation, consult or be
represented by a lawyer or union officer, gather data and evidence, and decide on the defenses
against the complaint. (Unilever v. Rivera, G.R. No. 201701, June 3, 2013; Section 12, DOLE
Department Order 18-A)

(b) After serving the first notice, the employer should afford the employee ample
opportunity to be heard and to defend himself/herself with the assistance of his/her
representative if he/she so desires, as provided in Article 292 (b) of the Labor Code, as
amended.

“Ample opportunity to be heard” means any meaningful opportunity (verbal or written)

given to the employee to answer the charges against him/her and submit evidence in support
of his/her defense, whether in a hearing, conference or some other fair, just and reasonable
way. A formal hearing or conference becomes mandatory only when requested by the
employee in writing or substantial evidentiary disputes exist or a company rule or practice
requires it, or when similar circumstances justify it. (Perez v. PT&T, G.R. No. 152048, April 7,
2009, Section 12, DOLE Department Order 18-A)

(c) After determining that termination of employment is justified, the employer shall
serve the employee a written notice of termination indicating that: (1) all circumstances
involving the charge against the employee have been considered; and (2) the grounds have
been established to justify the severance of their employment.

The foregoing notices shall be served personally to the employee or to the employee’s last
known address. (Section 5, 5.1, Rule I-A, D.O. No. 147-15, Series of 2015)

2. In termination of employment based on authorized causes

As defined in Articles 298 and 299 of the Labor Code, as amended, the requirements of due
process shall be deemed complied with upon service of a written notice to the employee and
the appropriate Regional Office of the Department of Labor and Employment at least thirty
days (30) before effectivity of the termination, specifying the ground or grounds for
termination. (Section 5.3, Rule I-A, D.O. No. 147-15, Series of 2015) Also in Deoferio v. Intel
Technology Philippines, Inc., G.R. No. 202996, June 18, 2014, the Supreme Court ruled that twin-
notice requirement applies to termination under Article 299 [284].

Guidelines on the conduct of hearing in termination

In Perez v. Philippine Telegraph and Telephone Company, 602 Phil. 522, 538 (2009) the
Supreme Court formulated the following guiding principles in connection with the hearing
requirement in dismissal cases:

(a) "ample opportunity to be heard" means any meaningful opportunity (verbal or

written) given to the employee to answer the charges against him and submit evidence
in support of his defense, whether in a hearing, conference or some other fair, just and
reasonable way.
(b) a formal hearing or conference becomes mandatory only when requested by the
employee in writing or substantial evidentiary disputes exist or a company rule or
practice requires it, or when similar circumstances justify it.
(c) the "ample opportunity to be heard" standard in the Labor Code prevails over the
"hearing or conference" requirement in the implementing rules and regulations
(Id.) (Emphasis and underscoring supplied) (Central Azucarera de Bais v. Heirs of Zuelo
Apostol, G.R. No. 215314, March 14, 2018)

25
The effect of violation of company procedure on termination

Records reveal that while Gonzaga was given an ample opportunity to be heard within the
purview of the foregoing principles, SURNECO, however, failed to show that it followed its
own rules which mandate that the employee who is sought to be terminated be afforded a
formal hearing or conference. Accordingly, since only an informal inquiry was conducted in
investigating Gonzaga’s alleged cash shortages, SURNECO failed to comply with its own
company policy, violating the proper termination procedure altogether. Thus, the Supreme
Court justified the application by analogy the principle of Agabon regarding the award of
nominal damages in the amount of P30,000.00 by stating that: xxx “for the reason that an
employer’s breach of its own company procedure is equally violative of the laborer’s rights,
albeit not statutory in source.” Although the dismissal stands, the Supreme Court deems it
appropriate to award Gonzaga nominal damages in the amount of P30,000.00. (Italics
supplied) (Surigao del Norte Electric Cooperative, Inc. v. Gonzaga, G.R. No. 187722, June 10, 2013)

The effect of failure to comply with the statutory procedural due process by the employer

Where the dismissal is for a just cause, as in the instant case, the lack of statutory due
process should not nullify the dismissal, or render it illegal, or ineffectual. However, the
employer should indemnify the employee for the violation of his statutory rights, as
ruled in Reta v. National Labor Relations Commission, G.R. No. 112100, May 27, 1994, 232
SCRA 613, 618. The indemnity to be imposed should be stiffer to discourage the
abhorrent practice of “dismiss now, pay later,” which we sought to deter in
the Serrano ruling. The sanction should be in the nature of indemnification or penalty and
should depend on the facts of each case, taking into special consideration the gravity of
the due process violation of the employer.

The violation of the petitioners’ right to statutory due process by the private
respondent warrants the payment of indemnity in the form of nominal damages. The
amount of such damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances. (Savellano v. Northwest Airlines, G.R. No. 151783, July
8, 2003) Considering the prevailing circumstances in the case at bar, we deem it proper
to fix it at P30,000.00. We believe this form of damages would serve to deter employers
from future violations of the statutory due process rights of employees. At the very least,
it provides a vindication or recognition of this fundamental right granted to the latter
under the Labor Code and its Implementing Rules.” (Agabon v. NLRC, G.R. No. 158693,
November 17, 2004)

Hearing is not required in the termination of employment due to authorized cause

While an employer is under no obligation to conduct hearings before effecting termination

of employment due to authorized cause, (See Wiltshire File Co., Inc. v. National Labor Relations
Commission, G.R. No. 82249, February 7, 1991, 193 SCRA 665, 676) however, the law requires
that it must notify the DOLE and its employees at least one month before the intended date of
closure. (Industrial Timber Corporation v. Ababon, G.R. No. 164518, January 25, 2006)

The effect of procedural and substantive defects on dismissal

The effect of procedural and substantive defects on dismissal are as follows:

When the defect is procedural, the dismissal remains valid because the basis of the
dismissal is not in any way affected by such defect. The dismissal of an employee who
commits a crime against an employer cannot be invalidated because of lack of notice of
dismissal to the employee. The lack of notice does not in any way erase or mitigate the crime.

On the other hand, a substantive defect invalidates a dismissal because the ground for such
dismissal is negated by such substantive defect, rendering the dismissal without basis. (Ariola
v. Philex Mining Corporation, G.R. No. 147756, August 9, 2006)

26
The reliefs for illegal dismissal

The two reliefs for illegal dismissal are the following:

Backwages and reinstatement are separate and distinct reliefs given to an illegally
dismissed employee in order to alleviate the economic damage brought about by the
employee's dismissal.

In the case of Aliling v. Feliciano, citing Golden Ace Builders v. Talde, the Court explained:

Thus, an illegally dismissed employee is entitled to two reliefs: backwages and

reinstatement. The two reliefs provided are separate and distinct. In instances where
reinstatement is no longer feasible because of strained relations between the employee
and the employer, separation pay is granted. In effect, an illegally dismissed employee
is entitled to either reinstatement, if viable, or separation pay if reinstatement is no
longer viable, and backwages. (Advan Motor, Inc. v. Veneracion, G.R. No. 190944, December
13, 2017 citing Reyes v. RP Guardians Security Agency, Inc., 708 Phil. 598, 604–605 [2013])

Order of reinstatement distinguished from a return to work order

The order of reinstatement is distinguished from a return to work order in this manner:

The award of reinstatement, including backwages, is awarded by a Labor Arbiter to

an illegally dismissed employee pursuant to Article 294 (Article 294 was formerly
Article 279, before it was renumbered by DOLE Department Advisory No. 1, Series of
2015.) of the Labor Code:

On the other hand, a return-to-work order is issued by the Secretary of Labor and
Employment when he or she assumes jurisdiction over a labor dispute in an industry
that is considered indispensable to the national interest. Article 278(g) of the Labor Code
provides that the assumption and certification of the Secretary of Labor and
Employment shall automatically enjoin the intended or impending strike. When a strike
has already taken place at the time the Secretary of Labor and Employment assumes
jurisdiction over the labor dispute, all striking employees shall immediately return to
work. Moreover, the employer shall immediately resume operations, and readmit all
workers under the same terms and conditions prevailing before the strike.

Return-to-work and reinstatement orders are both immediately executory; however,

a return-to-work order is interlocutory in nature, and is merely meant to maintain status
quo while the main issue is being threshed out in the proper forum. In contrast, an order
of reinstatement is a judgment on the merits handed down by the Labor Arbiter
pursuant to the original and exclusive jurisdiction provided for under Article 224(a)
(Art. 224 was formerly Art. 217 xxx) of the Labor Code. Clearly, Garcia is not applicable in
the case at bar, and there is no basis to reinstate the employees who were terminated as
a result of redundancy. (Manggagawa Ng Komunikasyon Sa Pilipinas v. Philippine Long
Distance Telephone Company Incorporated, G.R. No. 190389, April 19, 2017)

Those included in the award of separation pay and backwages

Verily, the Court now ordains the uniform rule that the award of backwages and/or
separation pay due to illegally dismissed employees shall include all salary increases and
benefits granted under the law and other government issuances, Collective Bargaining
Agreements, employment contracts, established company policies and practices, and
analogous sources which the employees would have been entitled to had they not been
illegally dismissed. On the other hand, salary increases and other benefits which are
contingent or dependent on variables such as an employee's merit increase based on
performance or longevity or the company's financial status shall not be included in the
award. (Dumapis v. Lepanto Consolidated Mining Company, G.R. No. 204060, September 15,
2020)

27
The instances where separation pay can be awarded

The payment of separation pay would be due when a dismissal is on account of authorized
causes under Articles 298 [283] and 299 [284] of the Labor Code.

The instances where separation pay is awarded in lieu of reinstatement

In sum, separation pay is only awarded to a dismissed employee in the following

instances:

1) in case of closure of establishment under Article 298 [formerly Article 283] of the
Labor Code;
2) in case of termination due to disease or sickness under Article 299 [formerly Article
284] of the Labor Code;
3) as a measure of social justice in those instances where the employee is validly
dismissed for causes other than serious misconduct or those reflecting on his moral
character;
4) where the dismissed employee's position is no longer available;
5) when the continued relationship between the employer and the employee is no
longer viable due to the strained relations between them; or
6) when the dismissed employee opted not to be reinstated, or the payment of
separation benefits would be for the best interest of the parties involved. In all of these
cases, the grant of separation pay presupposes that the employee to whom it was given
was dismissed from employment, whether legally or illegally.

In fine, as a general rule, separation pay in lieu of reinstatement could not be awarded
to an employee whose employment was not terminated by his employer. (Rodriguez v.
Sintron Systems, Inc. G.R. No. 240254, July 24, 2019 the Supreme Court citing Claudia's Kitchen,
Inc. v. Tanguin, 811 Phil. 784, [2017])

An employee terminated for just causes is not entitled to separation pay

An employee whose employment is terminated by reason of just causes is not entitled to

separation pay except as expressly provided for in the company policy or Collective
Bargaining Agreement (CBA). (Last paragraph, Section 5.5, D.O. No. 147-15)

The rule on the award of separation pay as an act of “social justice” or based on “equity”

The Supreme Court explained that in Toyota Motors Phils Corp. case it modified the PLDT
ruling (which refers to the award of separation pay as a measure of social justice only in those
instances where the employee is validly dismissed for causes other than serious misconduct or
those reflecting on his moral character by stating that in addition to serious misconduct in
dismissals based on other grounds under Article 282 (now 297), separation pay should not be
conceded to the dismissed employee. Thus, the High Court said:

In Toyota Motor Phils. Corp. Workers Association v. National Labor Relations Commission,
562 Phil. 759, 812 (2007), we modified our ruling in PLDT in this wise:

In all of the foregoing situations, the Court declined to grant termination pay because
the causes for dismissal recognized under Art. 282 of the Labor Code were serious or
grave in nature and attended by willful or wrongful intent or they reflected adversely
on the moral character of the employees. We therefore find that in addition to serious
misconduct, in dismissals based on other grounds under Art. 282 like willful
disobedience, gross and habitual neglect of duty, fraud or willful breach of trust, and
commission of a crime against the employer or his family, separation pay should not be
conceded to the dismissed employee.

28
The instance when courts may opt to grant separation pay anchored on social justice using the
guideposts enunciated in the PLDT doctrine

In analogous causes for termination like inefficiency, drug use, and others, the NLRC or
the courts may opt to grant separation pay anchored on social justice in consideration of the
length of service of the employee, the amount involved, whether the act is the first offense, the
performance of the employee and the like, using the guideposts enunciated in PLDT on the
propriety of the award of separation pay. (Herma Shipping and Transport Corporation v. Cordero
O, G.R. No. 244144, January 27, 2020 and Cordero v. Herma Shipping and Transport Corporation,
G.R. No. 244210, January 27, 2020 citing International School Manila v. International School Alliance
of Educators (ISAE), G.R. No. 167286, February 5, 2014 citing Toyota Motor Phils. Corp. Workers
Association v. National Labor Relations Commission, 562 Phil. 759, 812 [2007])

Constructive dismissal

Constructive dismissal occurs when an employer makes an employee's continued

employment impossible, unreasonable or unlikely, or has made an employee's working
conditions or environment harsh, hostile and unfavorable, such that the employee feels
obliged to resign from his or her employment. Common examples are when the employee is
demoted, or when his or her pay or benefits are reduced. However, constructive dismissal is
not limited to these instances. The gauge to determine whether there is constructive dismissal,
is whether a reasonable person would feel constrained to resign from his or her employment
because of the circumstances, conditions, and environment created by the employer for the
employee: (Saudi Arabian Airlines (Saudia) v. Rebesencio, 750 Phil. 791, 839 [2015] [Per J. Leonen,
Second Division])
[C]onstructive dismissal does not always involve forthright dismissal or diminution in
rank, compensation, benefit and privileges. There may be constructive dismissal if an act of
clear discrimination, insensibility, or disdain by an employer becomes so unbearable on the
part of the employee that it could foreclose any choice by him except to forego his continued
employment. (Hyatt Taxi Services Inc. v. Catinoy, 412 Phil. 295, 306 [2001] [Per J. Gonzaga-Reyes,
Third Division])

Simply put, it is a “dismissal in disguise or an act amounting to dismissal but made to

appear as if it were not. (LBC Express-Vis, Inc. v. Palco, G.R. No. 217101, February 12, 2020 citing
Meatworld International Inc. v. Hechanova, G.R. No. 208053, October 18, 2017)

The four categories of employees under Article 295 of the Labor Code

Article 295 of the Labor Code identifies four (4) categories of employees, namely: (1)
regular; (2) project; (3) seasonal; and (4) casual employees. (Paragele v. GMA Network, Inc., G.R.
No. 199554, July 13, 2020)

The classifications of regular employees

Regular employees are further classified into: (1) regular employees by nature of work; and
(2) regular employees by years of service. (E. Ganzon, Inc. v. National Labor Relations
Commission, G.R. No. 123769, December 22, 1999, 321 SCRA 434, 440) The former refers to those
employees who perform a particular activity which is necessary or desirable in the usual
business or trade of the employer, regardless of their length of service; while the latter refers to
those employees who have been performing the job, regardless of the nature thereof, for at
least a year. (Pangilinan v. General Milling Corporation, G.R. No. 149329, July 12, 2004)

The test to determine regular employment

The test for determining regular employment is whether or not there is a reasonable
connection between the employee’s activities and the usual business of the employer. Article
295 provides that the nature of work must be “necessary or desirable in the usual business or
trade of the employer” as the test for determining regular employment. As stated in ABS-CBN
Broadcasting Corporation v. Nazareno:

29
 In determining whether an employment should be considered regular or non-
regular, the applicable test is the reasonable connection between the particular activity
performed by the employee in relation to the usual business or trade of the employer.
The standard, supplied by the law itself, is whether the work undertaken is necessary or
desirable in the usual business or trade of the employer, a fact that can be assessed by
looking into the nature of the services rendered and its relation to the general scheme
under which the business or trade is pursued in the usual course. It is distinguished
from a specific undertaking that is divorced from the normal activities required in
carrying on the particular business or trade. (Paragele v. GMA Network, Inc., G.R. No.
199554, July 13, 2020 citing Fuji Television Network, Inc. v. Espiritu, 749 Phil. 388, 435 [2014]
[Per J. Leonen, Second Division])

Project employment

A project employment, on the other hand, contemplates on arrangement whereby “the

employment has been fixed for a specific project or undertaking whose completion or termination has
been determined at the time of the engagement of the employee[.]” (LABOR CODE, Article 280) Two
requirements, therefore, clearly need to be satisfied to remove the engagement from the
presumption of regularity of employment, namely:

(1) designation of a specific project or undertaking for which the employee is hired;
and
(2) clear determination of the completion or termination of the project at the time of
the employee’s engagement. (See Violeta v. NLRC, 345 Phil. 762, 771 [1997])

The services of the project employees are legally and automatically terminated upon the
end or completion of the project as the employee’s services are coterminous with the project.
(Universal Robina Sugar Milling Corporation v. Acibo, G.R. No. 186439, January 15, 2014)

The rule when a project employee becomes a regular employee

Be that as it may, a project employee may also attain the status of a regular employee if
there is a continuous rehiring of project employees after the stoppage of a project; and the
activities performed are usual [and] customary to the business or trade of the employer. The
Supreme Court ruled that a project employee or a member of a work pool may acquire the
status of a regular employee when the following concur:

1) There is a continuous rehiring of project employees even after cessation of a

project; and
2) The tasks performed by the alleged project employee are vital, necessary and
indispensable to the usual business or trade of the employer.
The circumstances set forth by law and the jurisprudence is present in this case. In fine,
even if private respondents are to be considered project employees, they attained regular
employment status, just the same. (GMA Network, Inc. v. Pabriga, G.R. No. 176419, November 27,
2013)

Project employment distinguished from fixed-term employment

Project employment should not be confused and interchanged with fixed-

term employment:

x x x While the former requires a project as restrictively defined above, the duration
of a fixed-term employment agreed upon by the parties may be any day certain, which
is understood to be “that which must necessarily come although it may not be known
when.” The decisive determinant in fixed-term employment is not the activity that the
employee is called upon to perform but the day certain agreed upon by the parties for
the commencement and termination of the employment relationship. (GMA Network,
Inc. v. Pabriga, et al., supra note 24, at 177–178 [Citations omitted])

The decisive determinant in project employment is the activity that the employee is
called upon to perform and not the day certain agreed upon by the parties for the
30
 commencement and termination of the employment relationship. Indeed, in Filsystems,
Inc. v. Puente, 493 Phil. 923 (2005) We even ruled that an employment contract that does
not mention particular dates that establish the specific duration of the project does not
preclude one’s classification as a project employee. (E. Ganzon, Inc. (EGI) v. Ando, Jr.,
G.R. No. 214183, February 20, 2017)

Seasonal employment

Seasonal employment operates much in the same way as project employment, albeit it
involves work or service that is seasonal in nature or lasting for the duration of the season.
(Ibid) As with project employment, although the seasonal employment arrangement involves
work that is seasonal or periodic in nature, the employment itself is not automatically
considered seasonal so as to prevent the employee from attaining regular status. 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. (Universal Robina Sugar
Milling Corporation v. Acibo, G.R. No. 186439, January 15, 2014 citing Hacienda Bino/Hortencia
Starke, Inc. v. Cuenca., supra, at 209; and Hda. Fatima v. Nat’l Fed. of Sugarcane Workers–Food and
Gen. Trade, supra at 596)

The rule on regular seasonal employees

Paz v. Northern Tobacco Redrying Co., Inc., G.R. No. 199554, February 18, 2015 explained:
Jurisprudence also recognizes the status of regular seasonal employees. (Gapayao v. Fulo, G.R.
No. 193493, June 13, 2013, 698 SCRA 485, 499 [Per CJ. Sereno, First Division], citing AAG Trucking
v. Yuag, G.R. No. 195033, October 12, 2011, 659 SCRA 91, 102 [Per J. Sereno (now C.J.), Second
Division])

On the other hand, the workers of La Union Tobacco Redrying Corporation in Abasolo v.
National Labor Relations Commission, 400 Phil. 86 (2000) [Per J. De Leon, Jr., Second Division] were
considered regular seasonal employees since they performed services necessary and
indispensable to the business for over 20 years, even if their work was only during tobacco
season. (Id. at 103–104) This court applied the test laid down in De Leon v. National Labor
Relations Commission, 257 Phil. 626, 632–633 (1989) [Per C.J. Fernan, Third Division] for
determining regular employment status:

[T]he test of whether or not an employee is a regular employee has been laid down in
De Leon v. NLRC, in which this Court held:

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 the
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.

Thus, the nature of one’s employment does not depend solely on the will or word of
the employer. Nor on the procedure for hiring and the manner of designating the
employee, but on the nature of the activities to be performed by the employee,
considering the employer’s nature of business and the duration and scope of work to be
done.

In the case at bar, while it may appear that the work of petitioners is seasonal,
inasmuch as petitioners have served the company for many years, some for over 20
years, performing services necessary and indispensable to LUTORCO’s business, serve
31
 as badges of regular employment. Moreover, the fact that petitioners do not work
continuously for one whole year but only for the duration of the tobacco season 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 off-season are not separated from service in
said period, but are merely considered on leave until re-employed. (Emphasis supplied,
citations omitted)

Casual employment

An employee is regarded a casual employee if he or she was engaged to perform functions

which are not necessary and desirable to the usual business and trade of the employer.
(Paragele v. GMA Network, Inc., G.R. No. 199554, July 13, 2020 citing GMA Network, Inc. v.
Pabriga, 722 Phil. 161, 170–171 (2013) [Per J. Leonardo-De Castro, First Division])

Fixed period employment

Logically, the decisive determinant in the 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 termination of their employment relationship, a day certain being
understood to be “that which must necessarily come, although it may not be known when.”
(Fuji Television Network, Inc, v. Espiritu, G.R. No. 204944-45, December 3, 2014 citing Brent School,
Inc. v. Zamora, 260 Phil. 747 (1990) [Per J. Narvasa, En Banc])

Can an employee with a fixed-term contract be an independent contractor?

Employees under fixed-term contracts cannot be independent contractors because in fixed-

term contracts, an employer-employee relationship exists. The test in this kind of contract is
not the necessity and desirability of the employee’s activities, “but the day certain agreed
upon by the parties for the commencement and termination of the employment
relationship.” For regular employees, the necessity and desirability of their work in the usual
course of the employer’s business are the determining factors. On the other hand, independent
contractors do not have employer-employee relationships with their principals. (Fuji Television
Network, Inc, v. Espiritu, G.R. No. 204944-45, December 3, 2014)

Can a worker be a regular employee with a fixed-term contract?

Arlene’s contract indicating a fixed term did not automatically mean that she could
never be a regular employee. This is precisely what Article 280 seeks to avoid. The ruling
in Brent remains as the exception rather than the general rule. Further, an employee can be
a regular employee with a fixed-term contract. The law does not preclude the possibility
that a regular employee may opt to have a fixed-term contract for valid reasons. This was
recognized in Brent: For as long as it was the employee who requested, or bargained, that
the contract have a “definite date of termination,” or that the fixed-term contract be freely
entered into by the employer and the employee, then the validity of the fixed-term
contract will be upheld. (Fuji Television Network, Inc, v. Espiritu, G.R. No. 204944-45,
December 3, 2014 citing Brent School, Inc. v. Zamora, 260 Phil. 747, 760–762 (1990) [Per J.
Narvasa, En Banc])

The circumstances that will warrant employment termination under the Labor Code

Under the Labor Code, an employee may be validly terminated on the following grounds:

(1) Just causes under Article 297;

(2) Authorized causes under Article 298;
(3) Termination due to disease under Article 299 [284];
(4) Termination by the employee or resignation under Article 300;
(5) Dismissal from employment due to the enforcement of the union security clause (Article
259[e]) in the CBA. (Alabang Country Club, Inc. v. National Labor Relations Commission, G.R. No.
170287, February 14, 2008)
(6) Defiance of the assumption or certification order under Article 278 (g); and
32
 (7) For participation in illegal strike (under Article 279 par. 3);
(8) Termination due to union security clause

The just causes for termination by the employer

An employer may terminate an employment for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or
duly authorized representative;
(d) Commission of a crime or offense by the employee against the person of his employer
or any immediate member of his family or his duly authorized representatives; and
(e) Other causes analogous to the foregoing. (Article 297, Labor Code)

Dismissal due to just causes distinguished from authorized causes

The two causes for a valid dismissal are differentiated as follows:

A dismissal for just cause under Article 282 implies that the employee concerned has
committed, or is guilty of, some violation against the employer, i.e., the employee has
committed some serious misconduct, is guilty of some fraud against the employer, or, as in
Agabon, he has neglected his duties. Thus, it can be said that the employee himself initiated
the dismissal process.

On another breath, a dismissal for an authorized cause under Article 283 does not
necessarily imply delinquency or culpability on the part of the employee. Instead, the
dismissal process is initiated by the employer’s exercise of his management prerogative, i.e.
when the employer opts to install labor saving devices, when he decides to cease business
operations or when, as in this case, he undertakes to implement a retrenchment program.

Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under
Article 282 but the employer failed to comply with the notice requirement, the sanction to
be imposed upon him should be tempered because the dismissal process was, in effect,
initiated by an act imputable to the employee; and (2) if the dismissal is based on an
authorized cause under Article 283 but the employer failed to comply with the notice
requirement, the sanction should be stiffer because the dismissal process was initiated by
the employer’s exercise of his management prerogative. (Libcap Marketing Corp. v. Baquial,
G.R. No. 192011, June 30, 2014)

The elements of serious misconduct

For misconduct or improper behavior to be a just cause for dismissal, the following
elements must concur:

(a) the misconduct must be serious;

(b) it must relate to the performance of the employee’s duties showing that the employee
has become unfit to continue working for the employer; and
(c) it must have been performed with wrongful intent. (Imasen Manufacturing Corporation
Philippine v. Alcon, G.R. No. 194884, October 22, 2014)

The nature of the employee’s misconduct as a just cause for termination

To constitute a valid cause for the dismissal within the text and meaning of Article 282 of
the Labor Code, the employee’s misconduct must be serious, i.e., of such grave and
aggravated character and not merely trivial or unimportant. (Imasen Manufacturing Corporation
Philippine v. Alcon, G.R. No. 194884, October 22, 2014)

33
The character of the transgression to warrant the dismissal of an employee based on serious
misconduct, lawful disobedience to a lawful order and fraud under the Labor Code

As can be observed from the foregoing pronouncements, the just causes of serious
misconduct, willful disobedience of an employer's lawful order, and fraud all imply the
presence of "willfulness" or "wrongful intent" on the part of the employee. Hence, serious
misconduct and willful disobedience of an employer's lawful order may only be appreciated
when the employee's transgression of a rule, duty or directive has been the product
of "wrongful intent" or of a "wrongful and perverse attitude," (See notes 29 and 31) but not when
the same transgression results from simple negligence or "mere error in judgment." (See note
29) In the same vein, fraud and dishonesty can only be used to justify the dismissal of an
employee when the latter commits a dishonest act that reflects a disposition to deceive,
defraud and betray his employer. (The Hongkong & Shanghai Banking Corp v. NLRC, 328 Phil.
1156, 1165 [1996])

The requirement of willfulness or wrongful intent in the appreciation of the

aforementioned just causes, in turn, underscores the intent of the law to reserve only to the
gravest infractions the ultimate penalty of dismissal. It is essential that the infraction
committed by an employee is serious, not merely trivial, and be reflective of a certain degree
of depravity or ineptitude on the employee's part, in order for the same to be a valid basis for
the termination of his employment. (Bookmedia Press, Inc. v. Sinajon, G.R. No. 213009, July 17,
2019)

The elements of willful disobedience to the lawful orders

Insubordination or willful disobedience requires the concurrence of the following

requisites: (1) the employee’s assailed conduct must have been willful or intentional, the
willfulness being characterized by a “wrongful and perverse attitude”; and (2) the order
violated must have been reasonable, lawful, made known to the employee and must pertain to
the duties which he had been engaged to discharge. (Villanueva v. Ganco Resort and Recreation
Inc., G.R. No. 227175, January 8, 2020)

Refusal to be promoted is not a basis of dismissal from service

For promotion to occur, there must be an advancement from one position to another or an
upward vertical movement of the employee’s rank or position. Any increase in salary should
only be considered incidental but never determinative of whether or not a promotion is
bestowed upon an employee. (ECHO 2000 Commercial Corporation v. Obrero Filipino-Echo 2000
Chapter–CLO, G.R. No. 214092, January 11, 2016 citing Telegraph & Telephone Corporation v. CA,
458 Phil. 905, 919 (2003), citing Homeowners Savings and Loan Association v. NLRC, 330 Phil. 979,
994 [1996]).

An employee is not bound to accept a promotion, which is in the nature of a gift or reward.
Refusal to be promoted is a valid exercise of a right. (see Erasmo v. Home Insurance & Guaranty
Corporation, 436 Phil. 689, 697 [2002]). Such exercise cannot be considered in law as
insubordination, or willful disobedience of a lawful order of the employer, hence, it cannot be
the basis of an employee’s dismissal from service. (Supra)

Concept of abandonment

Abandonment requires the deliberate, unjustified refusal of the employee to resume his
employment, without any intention of returning. (Morales v. Harbour Centre Port Terminal, Inc.,
680 Phil. 112, 125–126 [2012]) While in Diamond Taxi v. Llamas, Jr., G.R. No. 190724, March 12,
2014, it was held: “Abandonment is the deliberate and unjustified refusal of an employee to
resume his employment.” (NEECO II v. NLRC, 499 Phil. 777, 789 [2005]) It is a form of neglect
of duty that constitutes just cause for the employer to dismiss the employee. (See Article 282
[now Article 296] of the Labor Code) In Agabon v. NLRC, G.R. No. 158693, November 17, 2004 it was
held: In Sandoval Shipyard v. Clave, G.R. No. L-49875, November 21, 1979, 94 SCRA 472, 478 we
held that an employee who deliberately absented from work without leave or permission from
his employer, for the purpose of looking for a job elsewhere, is considered to have abandoned
his job. (Reyes v. Global Beer Below Zero, Inc., G.R. No. 222816, October 4, 2017)
34
The elements of abandonment

At any rate, to constitute abandonment there must be a clear and deliberate intent to
discontinue one's employment without any intention of returning. (Tan Brothers Corp. of
Basilan City v. Escudero, 713 Phil. 392, 400 [2013]) To successfully raise abandonment as a
just cause for dismissal, two elements must concur: first, failure to report for work or
absence without valid or justifiable reason, and second, a clear intention to sever the
employer-employee relationship. The second element, being manifested by overt acts, is
the more determinative factor. (Every Nation Language Institute (ENLI) v. Dela Cruz, G.R. No.
225100, February 19, 2020 citing Columbus Philippine Bus Corp. v. National Labor Relations
Commission, 417 Phil. 81, 100 [2001])

The requisites for a valid dismissal on the ground of loss of trust and confidence

A dismissal based on willful breach of trust or loss of trust and confidence under Article
297 of the Labor Code entails the concurrence of two (2) conditions.

First, the employee whose services are to be terminated must occupy a position of trust and
confidence.

There are two (2) types of positions in which trust and confidence are reposed by the
employer, namely managerial employees and fiduciary rank-and-file employees. Managerial
employees are considered to occupy positions of trust and confidence because they are
“entrusted with confidential and delicate matters.” On the other hand, fiduciary rank-and-file
employees refer to those employees, who, “in the normal and routine exercise of their
functions, regularly handle significant amounts of [the employer’s] money or property.”
Examples of fiduciary rank-and-file employees are “cashiers, auditors, property
custodians,” selling tellers, and sales managers. It must be emphasized, however, that the
nature and scope of work and not the job title or designation determine whether or not an
employee holds a position of trust and confidence.

The second condition that must be satisfied is the presence of some basis for the loss of
trust and confidence. This means that “the employer must establish the existence of an act
justifying the loss of trust and confidence.” (Coca-Cola FEMSA Philippines Inc. (formerly Coca-
Cola Bottlers Philippines Inc.), G.R. No. 226089, March 4, 2020)

A conviction or acquittal in a criminal case is not determinative of the existence of just or

authorized cause for termination

The following are the rulings explaining that conviction or acquittal in a criminal case is not
determinative of just or authorized cause for termination:

1. An employee’s guilt or innocence in a criminal case is not determinative of the existence

of a just or authorized cause for his or her dismissal. (Pepsi Cola Bottling Co. of the Phils. v.
Guanzon, 254 Phil. 578, 584 [1989]) It is well-settled that conviction in a criminal case is not
necessary to find just cause for termination of employment, (Reno Foods, Inc. and/or Khu v.
Nagkakaisang Lakas ng Manggagawa (NLM)-Katipunan, 629 Phil. 247, 256 [2010]) as in this case.
Criminal and labor cases involving an employee arising from the same infraction are separate
and distinct proceedings which should not arrest any judgment from one to the other. (St.
Luke’s v. Sanchez, G.R. No. 212054, March 11, 2015)

2. In Concepcion v. Minex Import Corp., G.R. No. 153569, January 24, 2012, the Honorable
Supreme Court said:

In its 1941 ruling in National Labor Union, Inc. v. Standard Vacuum Oil Company, 73
Phil. 279, 282 [1941] the Supreme Court expressly stated thus:

xxx The conviction of an employee in a criminal case is not indispensable to

warrant his dismissal by his employer. If there is sufficient evidence to show
that the employee has been guilty of a breach of trust, or that his employer has
ample reason to distrust him, it cannot justly deny to the employer the
35
 authority to dismiss such employee. All that is incumbent upon the Court of
Industrial Relations (now National Labor Relations Commission) to determine is
whether the proposed dismissal is for just cause xxx. It is not necessary for said
court to find that an employee has been guilty of a crime beyond reasonable
doubt in order to authorize his dismissal. (Emphasis supplied)

Analogous cause as a just cause for termination

One is analogous to another if it is susceptible of comparison with the latter either in

general or in some specific detail; or has a close relationship with the latter. (International
School Manila v. International School Alliance of Educators [ISAE], G.R. No. 167286, February 5,
2014)

The cases of analogous causes

The following are analogous causes:

1. Inefficiency

Inefficiency as just cause for termination was defined as follows: Failure to observe
prescribed standards of work, or to fulfill reasonable work assignments due to inefficiency
may constitute just cause for dismissal. Such inefficiency is understood to mean failure to
attain work goals or work quotas, either by failing to complete the same within the allotted
reasonable period, or by producing unsatisfactory results. (Realda v. New Age Graphics, Inc.,
G.R. No. 192190, April 25, 2012)

2. Gross inefficiency, failure to observe standards of work due to inefficiency

We cannot but agree with PEPSI that “gross inefficiency” falls within the purview of
“other causes analogous to the foregoing,” this constitutes, therefore, just cause to terminate
an employee under Article 282 of the Labor Code. One is analogous to another if it is
susceptible of comparison with the latter either in general or in some specific detail; or has a
close relationship with the latter. “Gross inefficiency” is closely related to “gross neglect,” for
both involve specific acts of omission on the part of the employee resulting in damage to the
employer or to his business. In Buiser v. Leogardo, this Court ruled that failure to observe
prescribed standards to inefficiency may constitute just cause for dismissal. (Emphasis
supplied.) (Lim v. National Labor Relations Commission, G.R. No. 118434, July 26, 1996, 259 SCRA
485, 496–497)

In fine, an employee’s failure to meet sales or work quotas falls under the concept of gross
inefficiency, which in turn is analogous to gross neglect of duty that is a just cause for
dismissal under Article 282 of the Code. However, in order for the quota imposed to be
considered a valid productivity standard and thereby validate a dismissal, management’s
prerogative of fixing the quota must be exercised in good faith for the advancement of its
interest. (Aliling v. Feliciano, G.R. No. 185829, April 25, 2012)

3. Failure to maintain continuing qualifications

In Yrasuegui v. Philippine Airlines, Inc., G.R. No. 168081, October 17, 2008 it was held: The
obesity of petitioner is a ground for dismissal under Article 282(e) of the Labor Code.

A reading of the weight standards of PAL would lead to no other conclusion than
that they constitute a continuing qualification of an employee in order to keep the
job. Tersely put, an employee may be dismissed the moment he is unable to comply
with his ideal weight as prescribed by the weight standards. The dismissal of the
employee would thus fall under Article 282(e) of the Labor Code. As explained by the
CA:

x x x [T]he standards violated in this case were not mere “orders” of the
employer; they were the “prescribed weights” that a cabin crew must maintain in
order to qualify for and keep his or her position in the company. In other words, they
36
 were standards that establish continuing qualifications for an employee’s
position. In this sense, the failure to maintain these standards does not fall under
Article 282(a) whose express terms require the element of willfulness in order to
be a ground for dismissal. The failure to meet the employer’s qualifying
standards is in fact a ground that does not squarely fall under grounds (a) to (d)
and is therefore one that falls under Article 282(e) – the “other causes analogous to
the foregoing.”

The authorized causes for termination

The employer may also terminate the employment of any employee due to:

1. Installation of labor-saving devices,

2. Redundancy
3. Retrenchment to prevent losses
4. The closing or cessation of operation of the establishment or undertaking. (Article 298,
Labor Code)
5. An employee who has been found to be suffering from any disease and whose continued
employment is prohibited by law or is prejudicial to his health as well as to the health of his
co-employees. (Article 299, Labor Code)

The nature of redundancy

[R]edundancy, for purposes of our Labor Code, exists where the services of an
employee are in excess of what is reasonably demanded by the actual requirements of the
enterprise. Succinctly put, a position is redundant where it is superfluous, and superfluity
of a position or positions may be the outcome of a number of factors, such as overhiring of
workers, decreased volume of business, or dropping of a particular product line or service
activity previously manufactured or undertaken by the enterprise. The employer has no
legal obligation to keep in its payroll more employees than are necessary for the operation
of its business. (Acosta v. Matiere Sas and Philippine Gouvary, G.R. No. 232870, June 3, 2019)

Requisites for the validity of the implementation of redundancy program

For the implementation of a redundancy program to be valid, however, the employer must
comply with the following requisites: (1) written notice served on both the employees and the
Department of Labor and Employment (DOLE) at least one month prior to the intended date
of termination of employment; (2) payment of separation pay equivalent to at least one month
pay for every year of service; (3) good faith in abolishing the redundant positions; and (4) fair
and reasonable criteria in ascertaining what positions are to be declared redundant and
accordingly abolished, taking into consideration such factors as (a) preferred status; (b)
efficiency; and (c) seniority, among others. (Philippine National Bank v. Dalmacio, G.R. No.
202308, July 5, 2017)

The evidence to substantiate redundancy

That evidence must be presented to substantiate redundancy such as but not limited to the
new staffing pattern, feasibility studies/proposal, on the viability of the newly created
positions, job description and the approval by the management of the restructuring. (Panlilio v.
National Labor Relations Commission, 346 Phil. 30 [1997])

The factors to establish superfluity of position

Succinctly put, a position is redundant where it is superfluous, and superfluity of a

position or positions may be the outcome of a number of factors, such as overhiring of
workers, decreased volume of business, or dropping of a particular product line or service
activity previously manufactured or undertaken by the enterprise. (Acosta v. Matiere Sas and
Philippine Gouvary, G.R. No. 232870, June 3, 2019)

37
The fair and reasonable criteria in ascertaining redundant positions and selection of employees to
be dismissed

The fair and reasonable criteria may take into account the preferred status, efficiency, and
seniority of employees to be dismissed due to redundancy. (Acosta v. Matiere Sas and Philippine
Gouvary, G.R. No. 232870, June 3, 2019)

Redundancy distinguished from retrenchment

Redundancy exists where the services of an employee are in excess of what is reasonably
demanded by the actual requirements of the enterprise. A position is redundant where it is
superfluous, and superfluity of a position or positions may be the outcome of a number of
factors, such as overhiring of workers, decreased volume of business, or dropping of a
particular product line or service activity previously manufactured or undertaken by the
enterprise.

Retrenchment, on the other hand, is used interchangeably with the term "lay-off." It is ... an
act of the employer of dismissing employees because of losses in the operation of a business,
lack of work, and considerable reduction on the volume of his business[.] (Philippine Airlines,
Inc. v. Dawal, G.R. No. 173921, February 24, 2016)

Retrenchment

Retrenchment is normally resorted to by management during periods of business reverses

and economic difficulties occasioned by such events as recession, industrial depression, or
seasonal fluctuations. It is an act of the employer of reducing the work force because of losses
in the operation of the enterprise, lack of work, or considerable reduction on the volume of
business. Retrenchment is, in many ways, a measure of last resort when other less drastic
means have been tried and found to be inadequate. (Id. at 982–983) (La Consolacion College of
Manila v. Pascua, G.R. No. 214744, March 14, 2018 citing Edge Apparel, Inc. v. National Labor
Relations Commission, 349 Phil. 972, 982 (1998) [Per J. Vitug, First Division])

The requirements for a valid retrenchment

The requirements for a valid retrenchment are as follows:

(1) That retrenchment is reasonably necessary and likely to prevent business losses
which, if already incurred, are not merely de minimis, but substantial, serious, actual and
real, or if only expected, are reasonably imminent as perceived objectively and in good
faith by the employer;
(2) That the employer served written notice both to the employees and to the
Department of Labor and Employment at least one month prior to the intended date of
retrenchment;
(3) That the employer pays the retrenched employees separation pay equivalent to one
(1) month pay or at least one-half (½) month pay for every year of service, whichever is
higher;
(4) That the employer exercises its prerogative to retrench employees in good faith for
the advancement of its interest and not to defeat or circumvent the employees’ right to
security of tenure; and
(5) That the employer used fair and reasonable criteria in ascertaining who would be
dismissed and who would be retained among the employees, such as status, efficiency,
seniority, physical fitness, age, and financial hardship for certain workers. (Pepsi-cola
Products, Philippines, Inc. v. Molon, G.R. No. 175002, February 18, 2013 citing Asian Alcohol
Corporation v. NLRC, 364 Phil. 912, 926–927 [1999])

Effect of failure to comply with the requisite of using fair and reasonable criteria in retrenchment

As early as 1987, this Court in Asia World Publishing House, Inc. v. Ople, 236 Phil. 236 (1987)
[Per J. Guttierez, Jr., Third Division] considered seniority, along with efficiency rating and less-
preferred status, as a crucial facet of a fair and reasonable criterion for effecting retrenchment.
(See also Villena v. National Labor Relations Commission, 271 Phil. 718 (1991) [Per J. Grino-Aquino,
38
 First Division]) Emcor, Inc. v. Sienes, 615 Phil. 33 (2009) [Per J. Peralta, Third Division] was
categorical, a "[r]etrenchment scheme without taking seniority into account rendered the
retrenchment invalid." (La Consolacion College of Manila v. Pascua, G.R. No. 214744, March
14, 2018)

The proof required on condition of business losses?

The condition of business losses is normally shown by audited financial documents like
yearly balance sheets and profit and loss statements as well as annual income tax returns.
(Duay v. Court of Industrial Relations, 122 SCRA 834, 839–840 (1983); Catatista v. NLRC, 247
SCRA 46, 52 (1995); Precision Electronics Corporation v. NLRC, 178 SCRA 667, 669 [1989]). It is
our ruling that financial statements must be prepared and signed by independent auditors.
(Wiltshire File Co., Inc. v. NLRC, 193 SCRA 665, 670 (1991) Banana Growers Collective at Puyod
Farms v. NLRC, 276 SCRA 544, 552-556 (1997); Lopez Sugar Corporation v. Federation of Free
Workers, 189 SCRA 179, 190 (1990); AG & P United Rank and File Association v. NLRC (First
Division), 265 SCRA 159, 164–166 (1996); Caffco International Limited v. Office of the Minister-
Ministry of Labor & Employment, supra) Unless duly audited, they can be assailed as self-serving
documents. (Uichico v. NLRC, G.R. No. 121434, June 2, 1997) But it is not enough that only the
financial statements for the year during which retrenchment was undertaken are presented in
evidence. For it may happen that while the company has indeed been losing, its losses may be
on a downward trend, indicating that business is picking up and retrenchment, being a drastic
move, should no longer be resorted to. (Philippine School of Business Administration (PSBA
Manila v. NLRC, 223 SCRA 305, 308 [1993]). Thus, the failure of the employer to show its
income or loss for the immediately preceding year or to prove that it expected no abatement of
such losses in the coming years, may bespeak the weakness of its cause. (Somerville Stainless
Steel Corporation v. NLRC, G.R. No. 125887, March 11, 1998) It is necessary that the employer
also show that its losses increased through a period of time and that the condition of the
company is not likely to improve in the near future. (Asian Alcohol Corporation v. NLRC, G.R.
No. 131108, March 25, 1999)

The employer is not required to wait for substantial losses to materialize before effecting
retrenchment

It bears to state that the aforequoted Article 283 of the Code uses the phrase “retrenchment
to prevent losses.” The phrase necessarily implies that retrenchment may be effected even in
the event only of imminent, impending, or expected losses. (citation omitted) The employer
need not wait for substantial losses to materialize before exercising ultimate and drastic option
to prevent such losses. In the case at bench, MMPC was already financially hemorrhaging
before finally resorting to retrenchment. (Mendros, Jr. v. Mitsubishi Motors Philis. Corporation,
G.R. No. 169780, February 16, 2009)

Notice of closure under Article 298 of the Labor Code should be served individually

Finally, with regard to the notice requirement, the Labor Arbiter found, and it was upheld
by the NLRC and the Court of Appeals, that the written notice of closure or cessation of
Galaxies business operations was posted on the company bulletin board one month prior to its
effectivity. The mere posting on the company bulletin board does not, however, meet the
requirement under Article 283 of serving a written notice on the workers. The purpose of the
written notice is to inform the employees of the specific date of termination or closure of
business operations, and must be served upon them at least one month before the date of
effectivity to give them sufficient time to make the necessary arrangements. (DAP Corporation
v. Court of Appeals, G.R. No. 165811, December 14, 2005, 477 SCRA 792) In order to meet the
foregoing purpose, service of the written notice must be made individually upon each and
every employee of the company. (Galaxie Steel Workers Union (GSWU-NAFLU-KMU) v. NLRC,
G.R. No. 165757, October 17, 2006)

Closure or cessation of business

Closure of business is the reversal of fortune of the employer whereby there is a complete
cessation of business operations and/or an actual locking-up of the doors of establishment,
usually due to financial losses. Closure of business, as an authorized cause for termination of
39
 employment, aims to prevent further financial drain upon an employer who cannot pay
anymore his employees since business has already stopped. In such a case, the employer is
generally required to give separation benefits to its employees, unless the closure is due to
serious business losses. (Zambrano v. Philippine Carpet Manufacturing Corp., G.R. No. 224099,
June 21, 2017)

The kinds of closure or cessation of operations of establishment or undertaking

Article 283 (now Article 298) of the Labor Code provides: xxx

A reading of the foregoing law shows that a partial or total closure or cessation of
operations of establishment or undertaking may either be due to serious business losses or
financial reverses or otherwise. Under the first kind, the employer must sufficiently and
convincingly prove its allegation of substantial losses, while under the second kind, the
employer can lawfully close shop anytime as long as cessation of or withdrawal from business
operations was bona fide in character and not impelled by a motive to defeat or circumvent the
tenurial rights of employees, and as long as he pays his employees their termination pay in the
amount corresponding to their length of service. Just as no law forces anyone to go into
business, no law can compel anybody to continue the same. It would be stretching the intent
and spirit of the law if a court interferes with management’s prerogative to close or cease its
business operations just because the business is not suffering from any loss or because of the
desire to provide the workers continued employment. (Zambrano v. Philippine Carpet
Manufacturing Corp., G.R. No. 224099, June 21, 2017 citing Industrial Timber Corporation v.
Ababon, 515 Phil. 805 [2006])

The requirements for a valid cessation of business operations

In sum, under Article 283 of the Labor Code, three requirements are necessary for a valid
cessation of business operations: (a) service of a written notice to the employees and to the
DOLE at least one month before the intended date thereof; (b) the cessation of business must
be bona fide in character; and (c) payment to the employees of termination pay amounting to
one month pay or at least one-half month pay for every year of service, whichever is higher.
(Zambrano v. Philippine Carpet Manufacturing Corp., G.R. No. 224099, June 21, 2017)

The payment of separation pay in case of closure due to serious losses is not required

The only time employers are not compelled to pay separation pay is when they closed their
establishments or undertaking due to serious business losses or financial reverses. (G.J.T.
Rebuilders Machine Shop v. Ambos, G.R. No. 174184, January 28, 2015)

The effects of registration of a labor organization, association or group of unions or workers

Any applicant labor organization, association or group of unions or workers shall:

1. acquire legal personality; and

2. shall be entitled to the rights and privileges granted by law to legitimate labor
organizations upon issuance of the certificate of registration. (Article 240, Labor Code)

The commencement of a labor organization’s legal personality or the status of a legitimate labor
organization

Upon issuance of the certificate of registration. (Article 240, Labor Code)

The rule to question the legal personality of a labor organization?\

Such legal personality may be questioned only through an independent petition for
cancellation of union registration in accordance with Rule XIV of these Rules, and not by way
of collateral attack in petition for certification election proceedings under Rule VIII. (Second
paragraph, Section 8, Rule IV, Book V, Rules to Implement the Labor Code)

40
 On ancillary issues, Section 17, Rule VIII, Book V provides that: “All issues pertaining to
the validity of the petitioning union’s certificate of registration or its legal personality as a
labor organization, validity of registration and execution of collective bargaining agreement
shall be heard and resolved by the Regional Director in an independent petition for
cancellation of its registration and not by the Mediator-Arbiter in the petition for certification
election, unless the petitioning union is not listed in the Department’s roster of legitimate
labor organizations, or an existing collective bargaining agreement is not registered with the
Department.

Creation of local chapter

A duly registered federation or national union may directly create a local chapter by
issuing a charter certificate indicating the establishment of the local chapter. (Article 241, Labor
Code)

The effect of chartering and creation of a local chapter

The chapter shall acquire legal personality only for purposes of filing a petition for
certification election from the date it was issued a charter certificate. (Article 241, Labor Code)

RIGHTS OF EMPLOYEES AND OF LABOR ORGANIZATIONS;

MEMBERSHIP IN UNIONS

Those covered by the right to self-organization

Those covered by the right to self-organization and to form, join, or assist labor
organizations of their own choosing for purposes of collective bargaining are the following:

1. All persons employed in commercial, industrial and agricultural enterprises and in

religious, charitable, medical, or educational institutions, whether operating for profit or not;
(Article 253, Labor Code)

2. Ambulant, intermittent and itinerant workers, self-employed people, rural workers and
those without any definite employers may form labor organizations for their mutual aid and
protection. (Article 253, Labor Code)

3. Right of supervisory employees. Supervisory employees has been defined as those who,
in the interest of the employer, effectively recommend such managerial actions if the exercise
of such authority is not merely routinary or clerical in nature but requires the use of
independent judgment. (Article 219[m] [212 (m)], Labor Code) Supervisory employees shall not
be eligible for membership in the collective bargaining unit of the rank-and-file employees but
may join, assist or form separate collective bargaining unit and/or labor organizations of their
own. (Article 255, Labor Code)

4. “Employee.” According to Article 219(f) [212 (f)] of the Labor Code, it shall include any
individual whose work has ceased as a result of or in connection with any current labor
dispute or because of any unfair labor practice if he has not obtained any other substantially
equivalent and regular employment. Further, Article 292(c) [277 (c)] of the Labor Code)
provides that, “Any employee, whether employed for a definite period or not, shall, beginning
on his first day of service, be considered as an employee for purposes of membership in any
labor union;

5. Aliens working the country with valid working permits issued by the Department may
exercise the right to self-organization and join or assist labor unions for purposes of collective
bargaining if they are nationals of a country which grants the same or similar rights to Filipino
workers, as certified by the Department of Foreign Affairs, or which has ratified ILO
Convention No. 87 and ILO Convention No. 98. (Article 284, Labor Code)

6. Right of employees in the public service. Employees of government corporations

established under the Corporation Code shall have the right to organize and to bargain

41
 collectively with their respective employers. All other employees in the civil service shall have
the right to form associations for purposes not contrary to law. (Article 254, Labor Code)

7. Homeworkers. (Section 3, Rule XIV, Book III, Rules to Implement the Labor Code)

8. Contractor’s employees. (Section 10, Department Order No. 174-17, Series of 2017)

9. Employees of a cooperative who are not members thereof are entitled to exercise the
rights of all workers to form, join or assist labor organizations for purposes of collective
bargaining. (Albay Electric Cooperative I v. Trajano, G.R. No. 74560, November 9, 1988)

10. Members of the Iglesia ni Cristo (Reyes v. Trajano, G.R. No. 84433, June 2, 1992)

11. Security guards (Section 6[e], D.O. No. 150-16; RA 6715 and E.O. 111, Manila Electric
Company v. NLRC, G.R. No. 91902, May 20, 1991)

12. Working child (Article 111, Title VI, Chapter 3, Presidential Decree No. 608, as amended by
Presidential Decree No. 1179)

13. Kasambahay (Section 1[j], Rule IV, IRR of RA 10361)

Those excluded from the coverage of employees’ right to self-organization

(1) High-level employees whose functions are normally considered as policy-making or

managerial or whose duties are of a highly confidential nature shall not be eligible to join the
organization of rank-and-file government employees. (Section 3, Executive Order No. 180)
(2) Employees of cooperatives who are members. (Benguet Electric Cooperative, Inc. v. Ferrer-
Calleja, G.R. No. 79025, December 29, 1989)
(3) Managerial employees. (Article 219[m], Labor Code)
(4) Members of the Armed Forces of the Philippines, including police officers, policemen,
firemen and jail guards. (Section 3, EO 180)
(5) Confidential employees. (San Miguel Foods, Incorporated v. San Miguel Corporation
Supervisors and Exempt Union, G.R. No. 146206, August 1, 2011)
(6) Employees of International Organization with immunity.
(7) Non-employees.

Those who may join employees’ organizations in the public sector

Employees in agencies of the national government and their regional offices, attached
agencies and their regional offices, state universities and colleges, government-owned or
controlled corporations with original charters, and local government units, except as may be
hereinafter provided, can form, join or assist employees’ organizations, labor-management
committees, work councils and other forms of employees’ participation schemes of their own
choosing for the purposes above-stated. (Section 2, Rule II, Amended Rules and Regulations
Governing the Exercise of the Right of Government Employees to Organize, dated September 28, 2004)

Eligibility for membership in employees’ organization of government employees

Eligibility for membership in any employees’ organization shall commence on the first day
of the employees’ service. (Section 2, Rule II, Amended Rules and Regulations Governing the
Exercise of the Right of Government Employees to Organize, dated September 28, 2004)

Those who are not eligible to join the employees’ organizations in the public sector

The following shall not be eligible to form, join or assist any employees’ organization for
purposes of collective negotiations:

(a) high level, highly confidential and coterminous employees;

(b) members of the Armed Forces of the Philippines;
(c) members of the Philippine National Police;
(d) firemen;
42
 (e) jail guards; and,
(f) other personnel who, by the nature of their functions, are authorized to carry
firearms, except when there is express written approval from management. (Section 2, Rule II,
Amended Rules and Regulations Governing the Exercise of the Right of Government Employees to
Organize, dated September 28, 2004)

The distinction of the government employees’ right to self-organization from that of the
employees in the private sector

As to the right to self-organization, all government employees can form, join or assist
employees’ organizations of their own choosing for the furtherance and protection of their
interests. (Section 2, EO 180)

In the private sector, the right to self-organization shall include the right to form, join, or
assist labor organizations for the purpose of collective bargaining through representatives of
their own choosing and to engage in lawful concerted activities for the same purpose for their
mutual aid and protection. (Article 257, Labor Code)

As to the right to collective bargaining and negotiations, relations between private

employers and their employees are subject to the minimum requirements of wage laws, labor,
and welfare legislation. Beyond these requirements, private employers and their employees
are at liberty to establish the terms and conditions of their employment relationship. In
contrast with the private sector, the terms and conditions of employment of government
workers are fixed by the legislature; thus, the negotiable matters in the public sector are
limited to terms and conditions of employment that are not fixed by law. (Alliance of Gov't.
Workers (AGW), et al. v. The Honorable Minister of Labor, et al., 209 Phil. 1, 15 (1983) [Per J.
Gutierrez, Jr., En Banc] cited in GSIS Family Bank Employees Union v. Villanueva, G.R. No. 210773,
January 23, 2019)

Rule on managerial employees’ right to join any labor organization

Managerial employees are not eligible to join, assist or form any labor organization. (Article
255, Labor Code)

Rule on the right of supervisory employees to self-organization

Supervisory employees shall not be eligible for membership in the collective bargaining
unit of the rank-and-file employees but may join, assist or form separate collective bargaining
units and/or legitimate labor organizations of their own. (Article 255, Labor Code)

The confidential employees covered by the prohibition on the right to self-organization

Confidential employees are defined as 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 (2) criteria are cumulative, and both must be met if an employee is to
be considered a confidential employee that is, 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 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 v. Asia Brewery, Inc., G.R. No. 162025,
August 3, 2010)

Effect of inclusion as union members of employees outside the bargaining unit

The inclusion as union members of employees outside the bargaining unit shall not be a
ground for the cancellation of the registration of the union. Said employees are automatically
deemed removed from the list of membership of said union. (Article 256, Labor Code)

43
Effect of affiliation of rank-and-file and supervisory unions

The affiliation of the rank-and-file and supervisory unions operating within the same
establishment to the same federation or national union shall not be a ground to cancel the
registration of either union. (Second sentence, Section 6, Rule XIV, Book V, Rules to Implement the
Labor Code. This new section was added by Department Order No. 40-F-03, Series of 2008)

The circumstance when the inclusion in union membership of disqualified employees is a

ground for cancellation of union registration

The Supreme Court has had occasion to rule, in Tagaytay Highlands International Golf Club v.
Tagaytay Highlands Employees Union-PGTWO, 1443 Phil. 841 (2003) that [t]he inclusion in a
union of disqualified employees is not among the grounds for cancellation, unless such
inclusion is due to misrepresentation, false statement or fraud under the circumstances
enumerated in Sections(a) and (c) of Article 239 of the Labor Code.

Clearly then, for the purpose of decertifying a union, it is not enough to establish that the
rank-and-file union includes ineligible employees in its membership. Pursuant to Article
239(a) and (c) of the Labor Code, it must be shown that there was misrepresentation, false
statement or fraud in connection with the adoption or ratification of the constitution and by-
laws or amendments thereto, the minutes of ratification, or in connection with the election of
officers, minutes of the election of officers, the list of voters, or failure to submit these
documents together with the list of the newly elected-appointed officers and their postal
addresses to the BLR. (See Article 239(a) and (c), Labor Code; Air Philippines Corporation v. Bureau
of Labor Relations, G.R. No. 155395, June 22, 2006)

The effect on the union’s legal personality of the inclusion of disqualified employees in union
membership

The Court held that after a labor organization has been registered, it may exercise all the
rights and privileges of a legitimate labor organization. Any mingling between supervisory
and rank-and-file employees in its membership cannot affect its legitimacy for that is not
among the grounds for cancellation of its registration, unless such mingling was brought
about by misrepresentation, false statement or fraud under Article 239 of the Labor Code. In
unequivocal terms, We reiterated that the alleged inclusion of supervisory employees in a
labor organization seeking to represent the bargaining unit of rank-and-file employees does
not divest it of its status as a legitimate labor organization. (Holy Child Catholic School v. Sto.
Tomas, G.R. No. 179146, July 23, 2013 citing Samahang Manggagawa sa Charter Chemical Solidarity
of Unions in the Philippines for Empowerment and Reforms (SMCC-Super) v. Charter Chemical and
Coating Corporation, supra, at 540)

The modes to determine the exclusive bargaining representative/agent

The following are the modes to determine the exclusive bargaining representative/agent:

1. Request for Sole and Exclusive Bargaining Agent (SEBA) Certification. (Rule VII, Book
V, Rules to Implement the Labor Code, as amended by Department Order No. 40-I-15, Series of 2015)
2. Certification Election. (Rule VIII and IX, Book V, Rules to Implement the Labor Code)

3. Consent Election. (Rule VIII and IX, Book V, Rules to Implement the Labor Code)

4. Re-run Election. (Section 18, Rule IX, Book V, Rules to Implement the Labor Code, as
amended by D.O. No. 40-I-15, Series of 2015)

5. Run-off Election. (Rule X, Book V, Rules to Implement the Labor Code)

2. Request for Sole and Exclusive Bargaining Agent (SEBA) Certification. (Rule VII, Book V,
Rules to Implement the Labor Code, as amended by Department Order No. 40-I-15, Series of 2015)

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Request for SEBA Certification

A Request for SEBA certification is filed by any legitimate labor organization in an

unorganized establishment with only one legitimate labor organization. This petitioning labor
organization has the support of least majority of the number of employees in the covered
bargaining unit. (Rule VII, Book V, Rules to Implement the Labor Code)

Certification/Consent Election; Certification Election distinguished from Consent Election

“Certification Election” or “Consent Election” refers to the process of determining through

secret ballot the sole and exclusive representative of the employees in an appropriate
bargaining unit for purposes of collective bargaining or negotiation. A certification election is
ordered by the Department, while a consent election is voluntarily agreed upon by the parties,
with or without the intervention by the Department. (Section 1[i], Rule V, Book V, Rules to
Implement the Labor Code)

Re-run election

“Re-run Election” refers to an election conducted to break a tie between contending unions,
including between “No Union” and one of the unions. It shall likewise refer to an election
conducted after a failure of election has been declared by the Election Officer and/or affirmed
by the Mediator-Arbiter. (Section 1[tt], Rule V, Book V, Rules to Implement the Labor Code)

When to conduct a re-run election

When a certification, consent or run-off election results to a tie between the two (2)
choices, the election officer shall immediately notify the parties of a re-run election. The
election officer shall cause the posting of the notice of re-run within five (5) days from the
certification, consent or run-off election. The re-run election shall be conducted within ten (10)
days after the posting of notice. (Section 18, Rule IX, Book V, Rules to Implement the Labor Code,
added by Section 16 of D.O. No. 40-I-15, Series of 2015)

The vote required to win in a re-run election

The choice receiving the highest votes cast during the re-run election shall be declared the
winner and shall be certified accordingly. (Section 18, Rule IX, Book V, Rules to Implement the
Labor Code, added by Section 16 of D.O. No. 40-I-15, Series of 2015)

Run-off election

“Run-off Election” refers to an election between the labor unions receiving the two (2)
highest number of votes in a certification or consent election with three (3) or more choices,
where such a certified or consent results in none of the three (3) or more choices receiving the
majority of the valid votes cast; provided that the total number of votes for all contending
unions is at least fifty percent (50%) of the number of votes cast. (Section 1[uu], Rule V, Book V,
Rules to Implement the Labor Code)

When run-off election is proper

When an election which provides for three (3) or more choices results in none of the
contending unions receiving a majority of the valid votes cast, and there are no objections or
challenges which if sustained can materially alter the results, the Election Officer shall motu
proprio conduct a run-off election within ten (10) days from the close of the election
proceedings between the labor unions receiving the two highest number of votes; provided,
that the total number of votes for all contending unions is at least fifty (50%) percent of the
number of votes cast.

“No Union” shall not be a choice in the run-off election.

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 Notice of run-off elections shall be posted by the Election Officer at least five (5) days
before the actual date of run-off election. (Section 1, Rule X, Book V, Rules to Implement the Labor
Code)

Probationary employees are entitled to vote in a certification election

In a certification election, all rank-and-file employees in the appropriate bargaining unit,

whether probationary or permanent, are entitled to vote. This principle is clearly stated in
Article 255 of the Labor Code which states that the labor organization designated or selected
by the majority of the employees in an appropriate bargaining unit shall be the exclusive
representative of the employees in such unit for purposes of collective bargaining. Collective
bargaining covers all aspects of the employment relation and the resultant CBA negotiated by
the certified union binds all employees in the bargaining unit. Hence, all rank-and-file
employees, probationary or permanent, have a substantial interest in the selection of the
bargaining representative. The Code makes no distinction as to their employment status as
basis for eligibility in supporting the petition for certification election. The law refers to all the
employees in the bargaining unit. All they need to be eligible to support the petition is to
belong to the bargaining unit. (National Union of Workers in Hotels, Restaurants and Allied
Industries-Manila Pavilion Hotel Chapter v. Secretary of Labor and Employment, G.R. No. 181531,
July 31, 2009)

The instance when an employer may file a petition for certification election

When requested to bargain collectively, an employer may petition the Bureau for an
election. If there is no existing certified collective bargaining agreement in the unit, the Bureau
shall, after hearing, order a certification election. (Article 270, Labor Code)

The bystander rule

In all cases, whether the petition for certification election is filed by an employer or a
legitimate labor organization, the employer shall not be considered a party thereto with a
concomitant right to oppose a petition for certification election. (Article 271, Labor Code)

The limitations of the employer’s participation in the certification election

The employer’s participation in such proceedings shall be limited to:

(1) being notified or informed of petitions of such nature; and

(2) submitting the list of employees during the pre-election conference should the Med-
Arbiter act favorably on the petition. (Article 271, Labor Code)

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