THIRD DIVISION

[ G.R. No. 78382, December 14, 1987 ]

BROADWAY MOTORS, INC., PETITIONER, VS. NATIONAL LABOR
RELATIONS COMMISSION AND VICENTE APOLINARIO,
RESPONDENTS.

DECISION

FELICIANO, J.:

By virtue of a written undated "Work Contract",  private respondent Vicente Apolinario,

[1]

sometime in March 1967, began work as an auto painter in the premises of petitioner
Broadway Motors, Inc. located at 1232 United Nations Avenue, Metro Manila.  The
contract was signed by Vicente Apolinario as "Contractor" and Mr. Johnny L. Chieng,
Parts and Service Operations Manager of petitioner Corporation.  Apolinario worked as
an auto painter for a period of eighteen (18) years, until 23 January 1985 when he was
barred from entering the premises of petitioner Corporation, and his relationship with it
effectively terminated, because of his alleged involvement in a fist-fight with the shop
superintendent of Broadway Motors the day before.

On 21 February 1985, Apolinario commenced an action for illegal dismissal with the

National Capital Region Arbitration Branch of the National Labor Relations Commission
(NLRC).  In his Complaint, which was docketed as NLRC Case No. 2-587-
85, Apolinario sought recovery from petitioner Corporation of (1) separation pay in the
amount of P66,676.95, on the basis of an alleged monthly income of P7,408.55, (2) moral
damages of P50,000.00, and (3) attorney's fees of P10,000.00.

In a Decision  dated 7 January 1986, the Labor Arbiter dismissed the complaint upon the
[2]

ground that under the Work Contract and an "Addendum to Work Contract" dated 28
April 1984,  Apolinario, having supplied the workers -- himself included -- who
[3]

performed the auto painting jobs for petitioner Corporation, was a mere contractor and
could not, therefore, be considered as the latter's employee.  From this
decision, Apolinario interposed an appeal to the NLRC.

On 4 February 1987, public respondent NLRC rendered a Decision,

 the dispositive portion of which reads:
[4]
"WHEREFORE, the Decision appealed from is reversed and a new judgment entered
ordering the respondent to pay complainant separation pay in the sum of FORTY FIVE
THOUSAND (P45,000.00) PESOS plus 10% thereof as and for attorney's fees.
SO ORDERED."

In reversing the decision of the Labor Arbiter, public respondent NLRC found that a
valid and binding employer-employee relationship had existed between petitioner
Corporation and Apolinario.  Since Apolinario was dismissed without any investigation
having been previously conducted by petitioner Corporation to ascertain his participation
in the fist-fight within company premises, his dismissal was, accordingly, declared illegal
by public respondent NLRC for non-compliance with the requirements of procedural due
process.

After a careful scrutiny of the records of this case, the Court considers that petitioner
Corporation has not sufficiently shown that respondent NLRC had acted with grave abuse
of discretion, or without or in excess of jurisdiction in rendering its decision dated 4
February 1987.

Four factors are generally considered in determining the existence of an employer-

employee relationship, namely:  (a) the manner of selection and engagement of the
putative employee; (b) the mode of payment of wages; (c) the presence or absence of a
power of dismissal; and (d) the presence or absence of a power to control the putative
employee's conduct.  It is this latter factor, the so-called "control test", which is the most
important criterion in such determination.  The record shows that Apolinario was hired
[5]

directly by petitioner Corporation to work in the latter's auto repair shop as an auto
painter, which fact is evidenced by the undated Work Contract executed
between Apolinario and petitioner Corporation through its authorized
representative.  That petitioner corporation reserved unto itself the power of dismissal is
evident from the fact that petitioner Corporation unilaterally undertook to
terminate Apolinario's relationships with itself.

Upon the other hand, it appears that Apolinario and his men (designated in the Work
Contract as "Contract Workers") were compensated for the jobs they performed in lump
sum payments described as "payment for subcontract painting" or other repair job, from
which amounts an unexplained "three percent (3%) of fifteen percent (15%) withholding
tax" was deducted.  It further appears that Apolinario invoiced, under the designation of
"VM Automotive Repair Service", to petitioner Corporation the salaries of his "Contract
Workers" on which amounts, a three percent (3%) "sales tax" was added.  The "Work
Contract" also provided that Broadway Motors would negotiate only with Apolinario on
any work order, and would refrain from dealing with any member of Apolinario's group
of "Contract Workers." [6]
Turning to the power to control Apolinario's conduct, it appears from the stipulations of
the Work Contract that Apolinario and his "Contract Workers" were required not only to
keep regular working hours, but to render overtime service as well, when such was
necessitated either by the volume or immediacy of the work.  They were not allowed to
[7]

negotiate with customers regarding the performance of any additional work beyond that
which had been authorized by petitioner Corporation.  Any defect in the workmanship of
[8]

their jobs was subject to correction by petitioner Corporation's designated supervisors and
inspectors even as the work was still in progress, and not just after the same had already
been completed.  Furthermore, Apolinario and his men were expressly required to abide
[9]

by petitioner Corporation's regulations and policies, "particularly on the wearing of

uniforms and identification cards", which ID cards had to be worn at all times while
within the work premises.  Apolinario's "casual workers" were additionally required to
deposit their ID cards with petitioner Corporation's security guard at the end of the
working day.  In other words, Apolinario and his "Contract Workers" were under the
[10]

direct control and supervision of the supervisors and managers of petitioner Corporation
from the very moment they entered the work premises at the beginning of the working
day, all throughout the performance of their duties for the day, until shop closing time.

Petitioner Corporation urges that Apolinario was not its own employee but, rather, an
independent contractor who conducted his own separate business under the trade name of
"VM Automotive Repair Service" and had his own "Contract Workers".

The indices of an owner-independent contractor relationship are set out in Section 8 of

Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code.  Section 8
provides:

"Job contracting.  -- There is job contracting permissible under the Code if the following
conditions are met:
(1)   The contractor carries on an independent business and undertakes the contract
work on his own account under his own responsibility according to his own manner and
method, free from the control and direction of his employer or principal in all matters
connected with the performance of the work except as to the results thereof; and
(2)    The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of
his business." (Underscoring supplied.)

"Job contracting" must be distinguished from "labor-only" contracting.  "Labor-only"

contracting is defined in Section 9 of Rule VIII, Book III of the Omnibus Rules
Implementing the Labor Code, in the following terms:

"Sec. 9.  Labor-only contracting.  -- (a) Any person who undertakes to supply workers to
an employer shall be deemed to be engaged in labor-only contracting where such person:
 (1)     Does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises and other materials; and

(2)     The workers recruited and placed by such person are performing

activities which are directly related to the principal business or
operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary of the employer who
shall be responsible to the workers in the same manner and extent as if the latter were
directly employed by him.
x  x  x                        x  x  x               x  x  x."
(Underscoring supplied.)

The legal effect of a finding that a contractor was not a true independent contractor or
"job contractor" but, rather, merely a "labor-only" contractor was explained in Philippine
Bank of Communications v. National Labor Relations Commission, et al.: [11]

"x  x  x 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 employee 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." (Underscoring supplied.)

Thus, a finding that a contractor was a "labor-only" contractor is equivalent to a finding

that an employer-employee relationship existed between the owner and the "labor-only"
contractor including the latter's "Contract Workers", that relationship being attributed by
the law itself.  Petitioner Corporation's defense thus compels us to examine still further
the relationship between itself and private respondent Apolinario in terms of the above
indices of contracting -- "job" or "labor-only".

We note firstly that, under the Work Contract, Apolinario supplied only "labor and
supervision (over his "Contract Workers") in the performance of automotive body
painting work which the company (i.e., Broadway Motors) may from time to time, award
to him under (the) contract".  Apolinario also undertook to "hire and bring in additional
[12]

workers as may be required by the company, to handle additional work load or to

accelerate or facilitate completion of work in process."  Petitioner Corporation supplied
[13]
all the tools, equipment, machinery and materials necessary for Apolinario to carry out
his assigned painting jobs, which painting jobs were executed by Apolinario and his men
within the premises owned and maintained by petitioner Corporation.  The control and
direction exercised by petitioner Corporation over the work done by Apolinario and his
"Contract Workers" was well-nigh complete, as indicated earlier.  There was,
furthermore, no evidence adduced by petitioner Corporation to show that Apolinario had
substantial capital investment in "VM Automotive Repair Service" or that "VM
Automotive Repair Service" carried on, in its own premises, a car repair business
operation separate and distinct from that engaged in by petitioner Corporation, an
operation the tools or equipment of which were owned by Apolinario and the customers
of which were not customers of Broadway Motors.  What the evidence of record reveals
is that the alleged "Contract Work" carried out by Apolinario and his "Contract Workers",
excepting overtime work, was performed during regular working hours six (6) days in a
week, which circumstance must have made it virtually impossible for them to carry on
any additional and independent auto painting business outside the premises of Broadway
Motors.  Finally, Apolinario and his men were engaged in the performance of a line of
work -- automobile painting -- which was directly related to, if not an integral part
altogether of the regular business operations of petitioner Corporation -- i.e., that of an
automotive repair shop.

We conclude that while there is present in the relationship between petitioner Corporation
and private respondent some factors suggestive of an owner-independent contractor
relationship (e.g., the manner of payment of compensation to Apolinario and his
"Contract Workers"), many other factors are present which demonstrate that that
relationship is properly characterized as one of employer-employee.  We conclude,
further, that the same factors indicate the existence of a "labor-only" contracting
arrangement between petitioner Corporation on the one hand as owner, and upon the
other hand, Apolinario as "labor-only" contractor and his "Contract Workers".  Thus, an
employer-employee relationship must be held to have existed between petitioner
Corporation and private respondent, whether considered as a result of the contractual
arrangements between them or as a result of the operation of the Labor Code (at least
from 1974 onwards) and its Implementing Rules.  It follows, finally, that the ruling of
public respondent NLRC that petitioner Corporation and private respondent were
employer and employee, respectively, cannot be regarded as constituting a grave abuse of
discretion or as rendered without or in excess of jurisdiction.

 In respect of public respondent NLRC's finding that Apolinario was dismissed without

any opportunity to present his side on the charge against him of participating in the fist-
fight with petitioner Corporation's shop superintendent, no compelling reason has been
shown by the petitioner Corporation why we should overturn such finding of fact.
WHEREFORE, the Petition for Certiorari is DISMISSED.  The decision of the public
respondent National Labor Relations Commission dated 4 February 1987 is hereby
AFFIRMED.  Costs against the petitioner.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 110358, November 09, 1994 ]
QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO SAAVEDRA
VICENTE SECAPURI, DANIEL AUSTRIA, ET AL., PETITIONERS, VS. THE
NATIONAL LABOR RELATIONS COMMISSION, BACANI SECURITY AND
ALLIED SERVICES CO., INC., AND BACANI SECURITY AND
PROTECTIVE AGENCY AND/OR ALICIA BACANI, RESPONDENTS.

DECISION

MENDOZA, J.:

This is a petition for review of the decision of the First Division  of the National Labor
[1]

Relations Commission, setting aside the decision of the Labor Arbiter which held private
respondents jointly and severally liable to the petitioners for overtime and legal holiday
pay.

The facts of this case are as follows:

Petitioners were former employees of Bacani Security and Protective Agency (BSPA, for
brevity). They were employed as security guards at different times during the period 1969
to December 1989 when BSPA ceased to operate.

BSPA was a single proprietorship owned, managed and operated by the late Felipe
Bacani. It was registered with the Bureau of Trade and Industry as a business name in
1957. Upon its expiration, the registration was renewed on July 1, 1987 for a term of five
(5) years ending 1992.

On December 31, 1989, Felipe Bacani retired the business name and BSPA ceased to
operate effective on that day. At that time, respondent Alicia Bacani, daughter of Felipe
Bacani, was BSPA's Executive Directress.
On January 15, 1990 Felipe Bacani died. An intestate proceeding was instituted for the
settlement of his estate before the Regional Trial Court, National Capital Region, Branch
155, Pasig, Metro Manila.

Earlier, on October 26, 1989, respondent Bacani Security and Allied Services Co., Inc.
(BASEC, for brevity) had been organized and registered as a corporation with the
Securities and Exchange Commission. The following were the incorporators with their
respective shareholdings:

ALICIA BACANI                       -            25,250 shares

LYDIA BACANI                        -            25,250 shares
AMADO P. ELEDA                 -            25,250 shares
VICTORIA B. AURIGUE         -            25,250 shares
FELIPE BACANI                     -            20,000 shares

The primary purpose of the corporation was to "engage in the business of providing
security" to persons and entities. This was the same line of business that BSPA was
engaged in. Most of the petitioners, after losing their jobs in BSPA, were employed in
BASEC.

On July 5, 1990, some of the petitioners filed a complaint with the Department of Labor
and Employment, National Capital Region, for underpayment of wages and nonpayment
of overtime pay, legal holiday pay, separation pay and/or retirement/resignation benefits,
and for the return of their cash bond which they posted with BSPA. Made respondents
were BSPA and BASEC. Petitioners were subsequently joined by the rest of the
petitioners herein who filed supplementary complaints.

On March 1, 1992, the Labor Arbiter rendered a decision upholding the right of the
petitioners. The dispositive portion of his decision reads:

CONFORMABLY WITH THE FOREGOING, the judgment is hereby rendered finding

complainants entitled to their money claims as herein above computed and to be paid by
all the respondents herein in solidum except BSPA which has already been retired from
business.
Respondents are further ordered to pay attorney's fees equivalent to five (5) percent of the
awarded money claims.
All other claims are hereby dismissed for lack of merit.
SO ORDERED.

On appeal the National Labor Relations Commission, reversed. In a decision dated March
30, 1993, the NLRC's First Division declared the Labor Arbiter without jurisdiction and
instead suggested that petitioners file their claims with the Regional Trial Court, Branch
155, Pasig, Metro Manila, where an intestate proceeding for the settlement of Bacani's
estate was pending. Petitioners moved for a reconsideration but their motion was denied
for lack of merit. Hence this petition for review.

No appeal lies to review decisions of the NLRC. Nonetheless the petition in this case was
treated as a special civil action of certiorari to determine whether the NLRC did not
commit a grave abuse of its discretion in reversing the Labor Arbiter's decision.

The issues in this case are two fold: first, whether Bacani Security and Allied Services
Co. Inc. (BASEC) and Alicia Bacani can be held liable for claims of petitioners against
Bacani Security and Protective Agency (BSPA) and, second, if the claims were the
personal liability of the late Felipe Bacani, as owner of BSPA, whether the Labor Arbiter
had jurisdiction to decide the claims.

Petitioners contend that public respondent erred in setting aside the Labor Arbiter's
judgment on the ground that BASEC is the same entity as BSPA the latter being owned
and controlled by one and the same family, namely the Bacani family. For this reason
they urge that the corporate fiction should be disregarded and BASEC should be held
liable for the obligations of the defunct BSPA.

We find the petition to be without merit.

As correctly found by the NLRC, BASEC is an entity separate and distinct from that of
BSPA. BSPA is a single proprietorship owned and operated by Felipe Bacani. Hence its
debts and obligations were the personal obligations of its owner. Petitioners' claim which
are based on these debts and personal obligations, did not survive the death of Felipe
Bacani on January 15, 1990 and should have been filed instead in the intestate
proceedings involving his estate.

Indeed, the rule is settled that unless expressly assumed labor contracts are not
enforceable against the transferee of an enterprise. The reason for this is that labor
contracts are in personam.  Consequently, it has been held that claims for backwages
[2]

earned from the former employer cannot be filed against the new owners of an enterprise.
 Nor is the new operator of a business liable for claims for retirement pay of employees.
[3] [4]

Petitioners claim however, that BSPA was intentionally retired in order to allow
expansion of its business and even perhaps an increase in its capitalization for credit
purpose. According to them, the Bacani family merely continued the operation of BSPA
by creating BASEC in order to avoid the obligations of the former. Petitioners anchor
their claim on the fact that Felipe Bacani, after having ceased to operate BSPA, became
an incorporator of BASEC together with his wife and daughter. Petitioners urge piercing
the veil of corporate entity in order to hold BASEC liable for BSPA's obligations.
The doctrine of piercing the veil of corporate entity is used whenever a court finds that
the corporate fiction is being used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or to confuse legitimate issues, or that a corporation is the mere
alter ego or business conduit of a person or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.  It is apparent, therefore, that the
[5]

doctrine has no application to this case where the purpose is not to hold the individual
stockholders liable for the obligations of the corporation but, on the contrary, to hold the
corporation liable for the obligations of a stockholder or stockholders. Piercing the veil of
corporate entity means looking through the corporate form to the individual stockholders
composing it. Here there is no reason to pierce the veil of corporate entity because there
is no question that petitioners' claims, assuming them to be valid, are the personal liability
of the late Felipe Bacani. It is immaterial that he was also a stockholder of BASEC.

Indeed, the doctrine is stood on its head when what is sought is to make a corporation
liable for the obligations of a stockholder. But there are several reasons why BASEC is
not liable for the personal obligations of Felipe Bacani. For one, BASEC came into
existence before BSPA was retired as a business concern. BASEC was incorporated on
October 26, 1989 and its license to operate was released on May 28, 1990, while BSPA
ceased to operate on December 31, 1989. Before, BSPA was retired, BASEC was already
existing. It is, therefore, not true that BASEC is a mere continuity of BSPA.

Second, Felipe Bacani was only one of the five (5) incorporators of BASEC. He owned
the least number of shares in BASEC, which included among its incorporators persons
who are not members of his family. That his wife Lydia and daughter Alicia were also
incorporators of the same company is not sufficient to warrant the conclusion that they
hold their shares in his behalf.

Third, there is no evidence to show that the assets of BSPA were transferred to BASEC.
If BASEC was a mere continuation of BSPA, all or at least a substantial part of the
latter's assets should have found their way to BASEC.

Neither can respondent Alicia Bacani be held liable for BSPA's obligations. Although she
was Executive Directress of BSPA, she was merely an employee of the BSPA, which was
a single proprietorship.

Now, the claims of petitioners are actually money claims against the estate of Felipe
Bacani. They must be filed against his estate in accordance with sec. 5 of Rule 86 which
provides in part:

SEC. 5. Claims which must be filed under the notice. If not filed, barred; exceptions.
- All claims for money against the decedent, arising from contract, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in the notice; otherwise they are barred
forever, except that they may be set forth as counterclaims in any action that the executor
or administrator may bring against the claimants . . .

The rationale for the rule is that upon the death of the defendant, a testate or intestate
proceeding shall be instituted in the proper court wherein all his creditors must appear
and file their claims which shall be paid proportionately out of the property left by the
deceased. The objective is to avoid duplicity of procedure. Hence the ordinary actions
must be taken out from the ordinary courts . Under art. 110 of the Labor Code, money
[6]

claims of laborers enjoy preference over claims of other creditors in case of bankruptcy
or liquidation of the employer's business.

WHEREFORE, the petition for certiorari is DISMISSED.

SO ORDERED.